IFLYTEK's "Pain": Net profit plummets, deducting non loss founders to cash out 2.5 billion yuan

Produced by Radar Finance | Edited by Meng Shuai | Deep Sea

As a leading AI track enterprise, iFlytek released its third quarter report on October 19th. The financial report shows that in the third quarter of this year, iFlytek's revenue increased by 2.89% year-on-year, but the company's revenue in the first three quarters decreased slightly by 0.37%. In terms of profits, iFlytek's net profits attributable to shareholders of listed companies decreased by 81.86% and 76.36% in the third and first three quarters, respectively. In the first three quarters, the company's profit after deducting non recurring gains and losses was -324 million yuan.

The research report of CICC pointed out that the performance released by iFlytek this time is basically in line with its and market expectations. The deferred revenue at the G-end has led to short-term revenue pressure. According to the public performance disclosure, the deferred revenue of government business and the structural adjustment of education business have caused short-term suppression of income. For the profit performance of iFLYTEK during this reporting period, Northeast Securities Research Report believes that the main reason is the firm investment in big models by the company AllinAI, which has put short-term pressure on the profit end.

In the financial report released this time, iFlytek also mentioned that as of July 3, 2022, the share repurchase period passed by the company on July 3, 2022 has expired. However, while the company made a major buyback, Liu Qingfeng, the founder and chairman of iFlytek, reduced his stake in the company in the third quarter. If calculated at the closing price of 63.98 yuan per share of iFlytek on August 14th, Liu Qingfeng's reduction in holdings is expected to cash out over 2.5 billion yuan.

For this reduction operation, iFlytek explained in a company announcement that Liu Qingfeng had previously raised 2.35 billion yuan through loans such as pledge financing. Considering that the debt had already matured, Liu Qingfeng needed to reduce his holdings to repay the principal of the aforementioned loans.

It is worth mentioning that a few days before the release of the third quarter report, iFLYTEK also sparked a heated discussion among netizens about the topic of "iFLYTEK employees being punished for grabbing free meals from fellow villagers an hour earlier". Currently, the reading volume of related topics has exceeded 80 million. It is reported that on October 8th, during a banquet organized by Laoxiangji to entertain customers nationwide for free lunch, an employee of iFLYTEK was punished by the company for queuing up one hour earlier. Among them, the chief employee will have a face-to-face conversation, receive a written warning, and the quarterly performance evaluation result must not exceed C.

IFLYTEK's net profit plummeted by over 70% in the first three quarters

From the answer sheet submitted by iFLYTEK this time, it can be seen that in the third quarter of this year, iFLYTEK achieved a total revenue of 4.772 billion yuan, an increase of 2.89% compared to the same period last year. If the timeline is extended to the first three quarters of this year, iFlytek recorded a revenue of 12.614 billion yuan, but the revenue scale showed a slight decrease of 0.37% compared to 12.661 billion yuan in the same period last year.

Although iFlytek stated in its financial report that the company maintained a healthy business development trend in the third quarter, with a year-on-year increase of 3.62% in gross profit to 1.937 billion yuan. At the same time, the company still maintained a positive operating cash flow, with a net operating cash flow of 357 million yuan in the third quarter.

However, the profit situation of the company during the reporting period is not optimistic. According to the financial report, in the third quarter, iFlytek's net profit attributable to shareholders of the listed company was 25.79 million yuan, a decrease of 81.86% compared to the same period last year. Even if the statistical cycle is expanded to the first three quarters of this year, iFlytek's net profit attributable to shareholders of the listed company has significantly decreased from the beginning of the year to the end of this report period, with a year-on-year decrease of 76.36% in net profit attributable to shareholders of the listed company of 99.36 million yuan.

Regarding the situation where the company's net profit attributable to the parent company in the third quarter decreased by 116 million yuan compared to the same period last year, and the net profit attributable to the parent company after deducting non income decreased by 168 million yuan compared to the same period last year, iFLYTEK explained in its financial report that the main reason is that the company actively seized the historical new opportunity of General Artificial Intelligence and firmly invested in the use of AI cognitive big models.

Further disassembly revealed that in the first three quarters of this year, iFlytek's operating costs decreased from 7.573 billion yuan in the same period last year to 7.53 billion yuan. However, many expenses of iFlytek in the first three quarters of the year have increased year-on-year, such as sales expenses increasing from 2.13 billion yuan to 2.289 billion yuan, a year-on-year increase of 7.48%, and management expenses increasing from 749 million yuan to 820 million yuan, a year-on-year increase of 9.4%.

Compared with the first two, iFlytek has spent more on research and development, and this cost has increased from 2.331 billion yuan in the first three quarters of last year to 2.498 billion yuan in the first three quarters of this year, an increase of 7.19% year-on-year.

IFLYTEK believes that although the aforementioned investments have to some extent affected the company's current profit performance, the company's new capabilities in core technology autonomy and controllability, as well as the latest progress in moving towards a cognitive model of general artificial intelligence, have laid a solid foundation and a rare first mover advantage for the company's long-term sustainable development in the digital economy era.

Specifically, on the one hand, this has strengthened the company's leading advantages in empowering people's livelihoods such as education and healthcare through artificial intelligence, as well as in the digital and intelligent transformation process of empowering thousands of industries; On the other hand, it also brings new opportunities for the company to create everyone's AI assistant and explore a broader C-end consumer product market in the era of artificial intelligence.

According to iFlytek, the company will release the iFlytek Spark Cognitive Model V3.0 on October 24th as scheduled. For this product, iFLYTEK has made a bold statement of "achieving comprehensive benchmarking of ChatGPT". At the same time, Xunfei will upgrade its large model code capabilities and release the medical large model and Xunfei Xiaoyi App. In addition, iFlytek will also launch a new AI Q&A assistant (learning machine application) and AI psychological counseling, and jointly release relevant industry models with 12 industry leaders to provide productivity tools.

Senior Vice President Jiang Tao of the company also stated at the performance briefing that as the Spark Model continues to benchmark GPT4 with trillion level parameters next year, it is expected that the investment in computing power related to the Spark Model will further increase next year. He said that as investment increases, the self hematopoietic ability of the Spark Model is gradually forming, so he is confident that he can cope with the increased investment costs.

It is worth noting that iFlytek included government subsidies of 302 million yuan in the first three quarters of 2023. Among them, the government subsidy included in the third quarter was 81.19 million yuan.

In addition, iFlytek also disclosed in its financial report that the company's financial expenses for the first three quarters increased by 125.19% compared to the same period last year, mainly due to an increase in interest expenses in the current period and a decrease in unrealized financing income from confirmed installment payments.

The company achieved an investment income of 113 million yuan in the first three quarters, an increase of 3642.51% compared to the same period last year, mainly due to the increase in investment income obtained from the sale of Sanrenxing and Cambrian shares in this period; The income from asset disposal increased by 5914.26% compared to the same period last year, mainly due to the increase in income generated from the sale of fixed assets in the current period.

At the same time as the company's large-scale repurchase, the founder significantly reduced their holdings and cashed out over 2.5 billion yuan

In the third quarter report released this time, iFlytek not only disclosed its latest financial results to the outside world, but also mentioned one matter, namely the company's repurchase plan.

It is reported that in order to actively repay investors, reflect the company's confidence in long-term intrinsic value, enhance investor confidence, and further activate the company's innovation momentum, establish and improve long-term incentive mechanisms, and promote the company's long-term sustainable development, iFlytek deliberated and passed the "Proposal on Repurchasing Company A-share Shares through Centralized Bidding Trading" at the 25th meeting of the 5th Board of Directors held on July 3, last year.

The board of directors agrees that the company will use a repurchase price of no more than RMB 1 billion (inclusive) and no less than RMB 500 million (inclusive), with a repurchase price of no more than 58.60 yuan per share (inclusive), to repurchase the company's A-share shares through centralized bidding transactions for subsequent equity incentives or employee shareholding plans, and to link with the company's long-term incentive measures, thereby enhancing investor confidence and returning shareholders, It can further effectively combine the interests of the company and the core team, continuously improve the long-term incentive and constraint mechanism for mutual benefit and win-win, and enhance the overall value of the company.

As of July 3, 2023, the company's share repurchase period has expired. The company has accumulated a total of 18.556 million shares of the company through centralized bidding trading through a dedicated securities account for share repurchase, accounting for 0.8% of the company's total share capital. The highest transaction price is 44.60 yuan per share, the lowest transaction price is 32.17 yuan per share, and the total amount of funds used is 759 million yuan.

However, contrary to the company's repurchase, Liu Qingfeng, the chairman of iFlytek, chose to reduce his holdings in the third quarter. In August of this year, iFlytek announced that the company received a notice from Chairman Liu Qingfeng on August 14th, stating that Liu Qingfeng had sold some of the company's shares through the bulk trading system of the Shenzhen Stock Exchange.

Before this share change, Liu Qingfeng held 168 million shares in iFlytek, equivalent to a shareholding ratio of 7.27%. After this share change, Liu Qingfeng's shareholding decreased to 128 million shares, a decrease of 39.9561 million shares compared to before. At the same time, Liu Qingfeng's shareholding ratio also decreased to 5.54%. For the company, Liu Qingfeng's shareholding ratio has decreased by 1.73 percentage points, but this portion of the shares is equivalent to 23% of Liu Qingfeng's holdings before the reduction. If calculated at the closing price of 63.98 yuan per share on August 14th, Liu Qingfeng's reduction in holdings is expected to cash out over 2.5 billion yuan.

Radar Finance learned that Liu Qingfeng is not only the chairman of iFlytek, but also the founder of iFlytek. In 1999, Liu Qingfeng, who was still studying at China University of Science and Technology, led a group of young people full of fighting spirit to establish iFlytek.

Prior to this, Liu Qingfeng's speech synthesis system won the championship in a national Chinese speech technology challenge and was the first in the international industry to meet the 3.0 standard, just one step away from civilian use. Due to their excellent strength, many prestigious schools have thrown olive branches at Liu Qingfeng.

However, faced with the tempting invitation of multiple overseas prestigious schools to receive full scholarship funding, Liu Qingfeng ultimately chose to refuse. In Liu Qingfeng's words, "This is likely the eve of the industrial explosion. Liu Qingfeng believes that if he chooses to go abroad at this time, it will be difficult for him to form such a good technical team in a short period of time. More importantly, at that time, the Chinese voice market was mostly dominated by foreign companies, and I have always wanted to change that

In this context, iFlytek was officially born. Despite the arduous journey of entrepreneurship, after years of development, iFlytek was finally listed on the Shenzhen Stock Exchange in May 2008, making it the only listed company in the Chinese voice industry at that time. Meanwhile, due to Liu Qingfeng's entrepreneurial experience, iFlytek can also be considered as the first listed company for domestic college students to start a business.

According to iFLYTEK, since the company went public, Liu Qingfeng has increased his shareholding in the company four times in order to stabilize its equity structure, introduce strategic investors, and maintain its market value. Prior to this reduction, Liu Qingfeng had only made one reduction, which was due to Liu Qingfeng repaying the principal of the loan he had invested with China Mobile when he invested. In the view of iFlytek, Liu Qingfeng's aforementioned behavior fully demonstrates his firm confidence in the long-term development of the company.

And regarding the operation of the "top leader" reducing their shareholding in the company, iFlytek also explained in the announcement. The time was set back to July 2021. In order to consolidate the company's control, meet the working capital needs brought about by the rapid development of the company's business, and enhance the company's risk resistance ability, Liu Qingfeng borrowed 2.35 billion yuan through pledge financing and other means to subscribe to the company's non-public shares. Currently, the debt has matured. Therefore, Liu Qingfeng needs to reduce his shareholding to repay the principal of the aforementioned loan.

It is understood that due to the signing of the "Consensus Action Agreement", Liu Qingfeng and Zhongke University Asset Management Co., Ltd. are the actual controllers of the company. However, as the actual controller of the company, Liu Qingfeng's aforementioned shareholding changes will not result in a change in the control of iFlytek and will not have a significant impact on the company's governance structure and continuing operations.

In order to minimize the adverse impact of trading on the market and industrial development, Liu Qingfeng also chose to reduce his holdings of stocks and repay debts at a time point after the release of the company's semi annual report and before the major version upgrade conference of the Spark Cognitive Model. At the same time, in order to avoid impact on the secondary market, it adopts bulk trading and pays corresponding discount costs.

IFLYTEK employee meal fined for grabbing free local chicken one hour in advance

It is worth mentioning that just a few days before the company released its third quarter report, iFlytek had just attracted many netizens to watch due to an incident related to employees.

Radar Finance learned that recently, the fast food brand Laoxiang Jihao, which emerged from Anhui, threw 50 million yuan to hold free banquets nationwide, attracting many diners to participate, including several employees of iFLYTEK. However, due to the behavior of leaving work early to grab free meals for local chickens, some employees of iFlytek were notified by the company.

According to a statement posted online, during the free lunch event held by Laoxiang Chicken on October 8th, there was a situation where employees began queuing at around 10:30 pm at the entrance of Laoxiang Chicken Restaurant on iFlytek A4 Food Street. At around 11:00 on the same day, the number of people queuing had reached over a hundred, and the number of people queuing continued to increase thereafter.

IFLYTEK stated that the behavior of employees leaving their posts and queuing up more than an hour before lunch time has clearly violated company regulations. The "Attendance and Vacation Management Measures" and "Employee Handbook" of iFlytek have clearly stipulated that in the two types of fixed and flexible shifts implemented by the company, lunch and rest hours are from 12:00 to 13:00, and other hours during the attendance shift are working hours. Meals and other activities unrelated to work are not allowed during working hours.

In daily practical operations, the company considers dining diversion and some employees need to dine in advance due to work arrangements. There are no strict requirements for dining around half an hour in advance. However, this move of queuing for dining more than an hour in advance is a subjective act of laziness.

According to the relevant regulations of the company, this behavior belongs to general negligence. Article 6 of the Rewards and Punishments Regulations in Chapter 7 of iFlytek's Employee Handbook states that "doing things unrelated to work during working hours (including but not limited to chatting, reading books unrelated to work, dozing off, playing mobile phones or computer games, browsing web pages unrelated to work, downloading/watching movies, etc.) has not caused any impact or loss." and Article 8 states that "those who leave their work position for more than 60 minutes without leave approval during working hours All belong to general negligence behavior. A written warning must be given, and if warned once in the current quarter, the performance evaluation result for the current period shall not exceed C.

In response to this incident, iFLYTEK handled it in accordance with regulations after confirming the information of relevant personnel. The specific handling plan is: the chief employees will have face-to-face conversations, give written warnings, and the quarterly performance evaluation results shall not exceed C; Outsourcing employees will communicate with the corresponding outsourcing company and receive warnings or personnel replacement depending on the severity. Those who participate in the queue after 11:30 will not be processed temporarily.

According to the 2022 annual report previously released by iFlytek, as of the end of last year, the total number of employees employed by iFlytek was 15046, an increase of 739 compared to the same period last year. Among them, the number of sales personnel is 3416, the number of technical personnel is 9281, the number of financial personnel is 248, the number of administrative personnel is 332, the number of management personnel is 241, and the scale of other personnel is 1528.

For this incident, some netizens believe that the employee's early departure was already a mistake, so iFlytek's punishment is also handled according to the rules; But some netizens also believe that the company is making a big deal out of a molehill. After all, the activity of the local chicken is only on this day, and due to leaving early once, the performance evaluation is reduced. At the same time, outsourcing employees are dismissed, and iFlytek's punishment for employees is somewhat excessive.

IFLYTEK, on the other hand, believes that as artificial intelligence once again reaches its peak of development, iFLYTEK is advancing at full speed, with opportunities and challenges coexisting. On this high-speed train that travels day and night, the company can see some partners walking through the stars and moon, striving to achieve their goals and ideals. Therefore, the company is eager to work together with everyone to move forward. Therefore, iFlytek will resolutely say NO to all kinds of violations and violations of the company's values! The 421 carat values of iFlytek require everyone to jointly practice and protect them!

As of the close on October 20th, iFlytek's stock price closed at 51.08 yuan per share, a decrease of 5.06% from the previous trading day, and its latest market value was 118.285 billion yuan.