Earnings call: Antelope Enterprise reports mixed first half 2024 results

Antelope Enterprise Holdings (AEHL) has reported a modest decline in revenue for the first half of 2024 during its earnings conference call. The livestreaming e-commerce segment saw revenues of $43.4 million, a slight decrease from the previous year’s $44.6 million.

This was attributed to the loss of a few major clients and a strategic shift towards securing more mid-tier clients to reduce risks associated with client concentration. Notably, the company announced plans to enter the energy supply sector in Texas, targeting the computing power industry’s growing demands.

Key Takeaways

Antelope Enterprise’s revenue for the first half of 2024 slightly declined to $43.4 million from $44.6 million in the previous year.
The company’s livestreaming e-commerce business engaged with more than 70 clients, an increase from the previous year.
Gross profit decreased to $3.5 million, with a gross profit margin of 8%, down from 15.3%.
Selling and distribution expenses decreased, while administrative expenses increased due to higher stock compensation and professional services costs.
Loss from continuing operations before taxation increased to $6.5 million.
Cash and cash equivalents rose to $2.3 million, with shareholders’ equity at $18 million.
Antelope Enterprise plans to launch an energy supply business in Texas in Q3 2024.

Company Outlook

The company owns a majority stake in Hainan Kylin Cloud Services Technology Company Limited, a livestreaming ecommerce business.
Kylin Cloud’s SaaS platform matches hosts and influencers to consumer brand products, aiming to increase sales.
Livestreaming ecommerce is expected to continue growing in China, boosted by a young demographic and high mobile device usage.
Antelope Enterprise is set to enter the energy field, providing electricity to computing sectors with high energy demands.

Bearish Highlights

Revenue and gross profit have decreased compared to the same period last year.
The company has faced a loss of major clients in its livestreaming business.

Bullish Highlights

Antelope Enterprise has increased its client base in the livestreaming e-commerce business.
The company is diversifying into the energy supply sector with a strategic focus on the computing power industry.

Misses

Despite an increase in client engagements, there was a decrease in revenue and gross profit margins.

Q&A Highlights

The company’s decision to enter the energy supply field is driven by projected increases in electricity demand from large-scale computing facilities.
Antelope Enterprise’s energy supply model is designed to be cost-effective by minimizing transportation costs and strategically positioning close to customers.

Antelope Enterprise Holdings has presented a mixed financial performance for the first half of 2024, with a slight decline in revenue but an increase in the number of clients in the livestreaming e-commerce segment. The company is looking to leverage its position in the market by entering the energy supply field, which could provide a new avenue for growth amid the rising demand for energy from the computing power industry. The move to secure a larger number of mid-tier clients in the livestreaming business is a strategic effort to mitigate risks and promote stability. The company’s financial health has shown improvements in cash reserves and shareholder equity, positioning it to potentially capitalize on the opportunities within the livestreaming and energy sectors.

InvestingPro Insights

Antelope Enterprise Holdings’ (AEHL) recent financial performance and strategic shifts can be further contextualized with insights from InvestingPro. The company’s market capitalization stands at a modest $9.13 million, reflecting its small-cap status and the challenges it faces in the current market environment.

InvestingPro data reveals that AEHL’s revenue for the last twelve months as of Q4 2023 was $71.93 million, with a significant revenue growth of 78.3% over the same period. This growth rate is notably higher than the figures reported for the first half of 2024, suggesting a potential slowdown in recent months that aligns with the company’s reported loss of major clients.

Two relevant InvestingPro Tips highlight AEHL’s current financial situation:

1. The company is “quickly burning through cash,” which corroborates the increased loss from continuing operations mentioned in the earnings report.

2. AEHL “suffers from weak gross profit margins,” which is consistent with the reported decrease in gross profit margin from 15.3% to 8%.

These tips underscore the financial challenges AEHL is facing, despite its strategic moves to diversify its client base and enter new markets like energy supply in Texas.

It’s worth noting that AEHL’s stock “generally trades with high price volatility,” according to another InvestingPro Tip. This volatility is evident in the reported price performance, with a significant 65.22% decline over the past month and a 73.75% drop over the past year.

For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips that could provide deeper insights into AEHL’s financial health and market position.

Full transcript – Antelope Enterprise Holdings Ltd (AEHL) Q2 2024:

Operator: Good morning, and good day. Welcome to the Antelope Enterprise Holdings First Half 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Rudnick of Precept Investor Relations. Please go ahead.

David Rudnick: Thank you, Drew. Good morning ladies and gentlemen and good evening to those of you who are joining us from China. Welcome to Antelope Enterprise Holdings First Half 2024 Earnings Conference Call. With us today are Antelope Enterprise’s Chairman and Chief Executive Officer, Mr. Will Zhang; and his Chief Financial Officer, Mr. Edmund Hen. Before I turn the call over to Mr. Zhang, I would like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties and include, among others those regarding revenue, operating expenses, other income and expense, taxes and future business outlook. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. The company claims the Safe Harbor protections for such forward-looking statements as contemplated under the Private Securities Litigation Reform Act of 1995. Please refer to the documents filed with the Company with the SEC. Specifically, the most recent reports on Forms 20-F and 6-K, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We assume no obligation to update any forward-looking statements or information, which speak as of their respective dates. And now it’s my pleasure to turn the call over to Antelope Enterprise’s Chairman and CEO, Mr. Will Zhang, and Antelope Enterprise’s CFO, Mr. Edmund Hen. Antelope Enterprise’s [Sabrina Hsu] (ph) will be translating for CEO, Will Zhang. Mr. Zhang, you may proceed.

Will Zhang: [Foreign Language] All right. Thank you David. On behalf of the company, I would like to welcome everyone to our first half 2024 earnings conference call. [Foreign Language] Revenue for the livestreaming e-commerce business segment came in at $43.4 million for the six months, modestly lower than the $44.6 million in revenue recorded for the six months of 2023. This slight decline was due to a loss of a few major clients and a change in business strategy to secure a larger number of mid-tier clients to help to mitigate the risk of retaining major clients. We had engagements with more than 70 clients in the first half of 2024, represents an increase of nearly 20 clients compared to the same period in 2023. [Foreign Language] Our majority-owned KylinCloud subsidiary provides turnkey livestreaming marketing and broadcasting services to consumer brand companies by matching consumer brand products with the appropriate the hosts and influencers. We have a tremendous market opportunity ahead of us and believe that we have the resources, infrastructure and team culture to achieve sustained growth in the B2C ecosystem. [Foreign Language] In an important strategic development for the company, we recently announced that we are planning to enter the energy field in the third quarter of 2024 and are going to launch this business in Texas to meet the rapidly growing needs of the computing power industry. [Foreign Language] We believe that our new positioning in the energy supply sector is extremely timely to meet the high expected demand for energy due to the growth of these sectors. [Foreign Language] With that, I would like to turn over the call to the company’s Chief Financial Officer, Mr. Edmund Hen, who will discuss the company’s first half earnings results in more detail. Thank you so much.

Edmund Hen: Thank you, Mr. Zhang. I’ll now move on to a more detailed discussion of our financial results for the six months ending June 30, 2024. Revenue for the six months ended June 30, 2024, was $43.5 million, a decrease of $1.1 million or 2.6% from $44.6 million for the same period of 2023. The decrease in revenue was due to the loss of a few of the livestreaming business major clients in the current period. [This] (ph) propelled a change in business strategy to focus on securing a larger number of mid-tier clients to mitigate the risk associated with an over concentration of major clients. In the first half of 2024, we had business engagements with more than 70 clients which represented an increase of nearly 20 clients compared to the same period of 2023. Gross profit for the six months ended June 30, 2024 was $3.5 million, a decrease of $3.3 million or [46.7%] (ph) as compared to $6.8 million for the same period of 2023. The decrease in gross profit was due to the decrease in revenue and an increase in the cost of goods sold in the current period. For the first half of 2024, gross profit margin was 8% for the livestreaming ecommerce business as compared to a gross profit margin of 15.3% for the first half of 2023. Selling and distribution expenses for the six months ended June 30, 2024 were $3.1 million, a decrease of $4 million or 55.9% as compared to $7.1 million for the same period of 2023. The [increase] (ph) in selling and distribution expenses was due to decreased advertising and promotion expenses of $3.5 million and decreased commission expenses of $0.5 million. Administrative expenses for the six months ended June 30, 2024 were $6.9 million, an increase of $1.3 million or 22.8% as compared to $5.6 million for the same period of 2023. The increase in administrative expenses was due to an increase in stock compensation expense of $0.8 million, the $0.5 million increase in professional service expenses. Loss from continuing operations before taxation for the six months ended June 30, 2024 was $6.5 million, an increase of $1.1 million or 19.3% as compared to a loss from continuing operations before taxation of $5.5 million for the same period of 2023. The increase was due to the decrease in gross profit in the current period as compared to the same period of 2023, as well as an increase in administrative expenses which was partly offset by a decrease in selling and distribution expenses. Loss per basic share and fully diluted share from continuing operations for the six months ended June 30, 2024 were $0.96 as compared to loss per basic and fully diluted share of $3.38 for the same period of 2023. Turning to our balance sheet. As of June 30, 2024, we had $2.3 million in cash and cash equivalents, an increase of $1.8 million or 333.2% compared to $0.6 million as of December 31, 2023. As of June 30, 2024, working capital was $5.8 million and the current ratio was 2.6 times. Shareholders’ equity as of June 30, 2024, was $18 million, as an increase of $3.6 million or 25.2% as compared to $14.4 million as of December 31, 2023. Moving to our business outlook. We own a majority position of a livestreaming ecommerce business, Hainan Kylin Cloud Services Technology Company Limited, and aim to launch an energy supply business in the third quarter of 2024. Kylin Cloud’s SaaS systems platform strategically matches hosts and influencers to consumer brand products which results in increased sales for those companies. In the last few years, livestreaming ecommerce has comprised an ever-increasing percentage of China’s ecommerce sales which we expect to continue in the years ahead, spurred by a consumer ecosystem that includes a young demographic and their high-usage rate of mobile devices. We believe that Kylin Cloud is unique in the livestreaming space, since it utilizes advanced analytics that matches hosts and influencers to consumer brand products which facilitates unique content for higher conversion rates as compared to traditional ecommerce. In the current period, the business strategy of the livestreaming business was modified to focus on securing a larger number of mid-tier clients to mitigate the risk associated with an over-concentration of major clients. Since some of these new clients are still in the beginning stages of collaboration and their business volume has just started to grow, it will take time for the new mid-tier clients to develop and increase their sales volume. In the first half of 2024, the livestreaming business had business engagements with more than 70 clients, which represented an increase of nearly 20 clients compared to the same period in 2023. In an important strategic development for the company, we recently announced plans to enter the energy field through the production of electricity using natural gas generators in Texas. This electricity would then be transmitted directly to rapidly growing computing sectors, who requires high amounts of energy. Compared to conventional methods, this method eliminates intermediary steps like transmission to the power grid and processing by public utilities, which will result in lower energy losses and higher efficiency. Given the strong market demand, the Company believes it has a runway for significant growth in the near future. The business outlook reflects the Company’s current and preliminary views and is based on the information currently available to us which are subject to change, and is subject to risks and uncertainties, as well as risks and uncertainties identified in the Company’s public filings. At this point, we would like to open up the call to any questions pertaining to our first half 2024 financial results. Operator, please?

Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Steve Silver with Argus Research. Please go ahead.

Steve Silver: Thanks operator. And thank you for taking my questions. I was hoping you could provide some color about how the company made the strategic decision to enter the energy supply field.

Unidentified Company Representative: All right. Thank you for the questions. [Foreign Language]

Will Zhang: [Foreign Language] Let me begin by saying that the US Energy Information projects that electricity demand in the United States will increase to record highs in 2024 and 2025, largely driven by demand from large scale computing facilities. [Foreign Language] The IEA, as it is known, also said that global data center electricity demand is on its way to double from 2022 to 2026 with AI playing a major role in that increase. Most of us know that data centers support everything from financial transactions to social media to government operations, it is extremely energy intensive to train AI models. The IEA has predicted that in two years, data centers could consume the same amount of energy as Sweden or Germany. [Foreign Language] Data centers need continuous and stable supply of energy to operate. And that’s where we come in because we have developed such a model. We think that we are entering this market at exactly the right time to provide a cost-effective and stable means of providing electricity to data centers and those companies in need of computing power.

Steve Silver: Okay. That’s helpful. Thank you so much. And one follow-up. You’ve mentioned being cost-effective in your model. Is there any detail you can provide about the business model in terms of how it is supposed to be cost-effective and designed to be a stable source of energy for your customers.

Unidentified Company Representative: All right. Thank you so much. [Foreign Language]

Will Zhang: [Foreign Language] So we’re located close to the natural gas production site, which allows us to minimize transportation costs and avoid the cost of compression, transportation and storage. Also, we strategically positioned close to our customers as well to greatly minimize standing transportation costs there as well. Therefore, we can supply electricity to customers in a very cost effective way. [Foreign Language] We closely monitor the market for natural gas and believe that we have a good model to project the right time to secure natural gas for our business. We currently own four generators that convert natural gas into electricity and plan to launch this business in the fourth quarter of this year.

Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to David Rudnick for any closing remarks.

David Rudnick: Thank you, Drew. On behalf of the entire Antelope Enterprise management team, we’d like to thank all of you for your interest and participation on this call. This concludes Antelope Enterprise’s first half 2024 earnings call. Thank you very much.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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