iFlytek, a leading company in the AI field, released its three-quarter return sheet on October 19. 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 fell 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% respectively in the third quarter and the first three quarters. In the first three quarters, the company's profit excluding non-recurring gains and losses was -324 million yuan.
CICC's research report pointed out that iFlytek's results announced this time are basically in line with its and market expectations. G-side revenue is deferred, resulting in short-term revenue pressure. According to the public performance meeting, the deferral of government business receipts and the structural adjustment of the education business have caused short-term suppression of revenue. Regarding the profit performance of iFlytek during this reporting period, the Northeast Securities Research Report believes that the main reason is that the company AllinAI and iFlytek's firm investment in large models and other aspects have put short-term pressure on the profit side.
In the financial report released this time, iFlytek also mentioned that as of July 3, the company’s share repurchase period passed on July 3, 2022 has expired. However, while the company was making large-scale buybacks, Liu Qingfeng, the founder and chairman of iFlytek, reduced his stake in the company in the third quarter. If calculated based on iFlytek's closing price of 63.98 yuan per share on August 14, Liu Qingfeng is expected to cash out more than 2.5 billion yuan from this reduction.
For this holding reduction operation, iFlytek explained in the company's announcement that Liu Qingfeng had previously raised 2.35 billion yuan in borrowings through pledge financing and other methods. Since the debt has expired, Liu Qingfeng needs to reduce his shareholdings to repay the principal of the above loans.
It is worth mentioning that a few days before the release of the third quarterly report, iFlytek also caused heated discussions among netizens due to the topic "iFlytek employees were fined for grabbing free chicken meals from fellow employees one hour in advance." The relevant topic has been read more than 80 million times. It is reported that during the event hosted by Laoxiangji on October 8, which hosted customers across the country for free lunch, iFlytek employees were punished by the company for queuing up one hour in advance. Among them, regular employees will have face-to-face interviews and written warnings, and their quarterly performance appraisal results must not be higher than C.
iFlytek's net profit plummeted by more than 70% in the first three quarters
From the answer sheet handed over by iFlytek this time, we can see that in the third quarter of this year, iFlytek achieved a total revenue of 4.772 billion yuan, a growth of 2.89% compared with the same period last year. If the timeline is extended to the first three quarters of this year, iFlytek recorded revenue of 12.614 billion yuan, a slight decrease of 0.37% compared to the 12.661 billion yuan in the same period last year.
Although iFlytek stated in its financial report that the company maintained a healthy operating development trend in the third quarter, gross profit increased by 3.62% year-on-year to 1.937 billion yuan. At the same time, the company still maintained positive operating cash flow, with net operating cash flow in the third quarter of 357 million yuan.
However, the company's profitability during the reporting period was not optimistic. The financial report shows that in the third quarter, iFlytek’s net profit attributable to shareholders of listed companies was 25.79 million yuan, a decrease of 81.86% compared with the same period last year. Even if the statistical period is enlarged to the first three quarters, iFlytek's net profit attributable to shareholders of listed companies from the beginning of the year to the end of this reporting period has also declined significantly. The net profit attributable to shareholders of listed companies of 99.36 million yuan decreased by 76.36% year-on-year.
As for the company's net profit attributable to its parent company in the third quarter, which decreased by 116 million yuan compared with the same period last year, and the net profit attributable to its parent company after deducting non-profit items decreased by 168 million yuan compared with the same period last year, iFlytek explained in the financial report that the main reason is that the company actively seizes new historical opportunities in general artificial intelligence and firmly invests in general artificial intelligence cognitive large-scale models.
Further dismantling revealed that iFlytek’s operating costs dropped to 7.53 billion yuan in the first three quarters of this year from 7.573 billion yuan in the same period last year. However, iFlytek's many expenses in the first three quarters have increased year-on-year. For example, sales expenses have increased from 2.13 billion yuan to 2.289 billion yuan, a year-on-year increase of 7.48%, and administrative expenses have increased from 749 million yuan to 820 million yuan, a year-on-year increase of 9.4%.
Compared with the first two, iFlytek spent more on research and development, and this expense 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, a year-on-year increase of 7.19%.
iFlytek believes that although the aforementioned investment has affected the company's profit performance for the current period to a certain extent, the company's new capabilities in independent control of core technologies and the latest progress in moving towards a cognitive large-scale 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 enables the company to strengthen its leading edge in the digital and intelligent transformation process of artificial intelligence empowering education, medical and other livelihood undertakings, and empowering thousands of industries; on the other hand, it also brings new opportunities for the company to create an AI assistant for everyone in the artificial intelligence era and develop a broader C-end consumer product market.
According to iFlytek, the company will release the iFlytek Spark Cognitive Large Model V3.0 as scheduled on October 24. For this product, iFlytek has even made bold claims to "achieve comprehensive benchmarking with ChatGPT." At the same time, iFlytek will upgrade its large model coding capabilities and release large medical models and the iFlytek Xiaoyi App. In addition, iFlytek will also launch new AI question-answering (learning machine applications) and AI psychological counseling, and will jointly release large models of relevant industries with 12 industry leaders to provide productivity tools.
Jiang Tao, the company's senior vice president, also said at the performance briefing that as the Spark model will continue to benchmark GPT4 with trillion-level parameters next year, it is expected that the computing power investment related to the Spark model will further increase next year. He said that with the increase in investment, the self-hematopoietic ability of the Spark model is gradually taking shape, so he is confident that it can cope with the increased investment cost.
It is worth noting that iFlytek will include a government subsidy 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 released this time that the company's financial expenses in the first three quarters increased by 125.19% compared with the same period last year, mainly due to the increase in interest expenses in the current period and the decrease in unrealized financing income from the confirmed installment collection business.
The company achieved investment income of 113 million yuan in the first three quarters, an increase of 3642.51% over the same period last year, mainly due to the increase in investment income from the sale of Sanrenhang and Cambrian shares in the current period; asset disposal income increased 5914.26% over 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 made large-scale buybacks, the founder significantly reduced his holdings and cashed out more than 2.5 billion.
In the third quarterly report released this time, iFlytek not only announced the latest quarter's financial results to the outside world, but also mentioned an issue, namely the company's buyback plan.
It is reported that in order to actively reward investors, reflect the company's confidence in the long-term intrinsic value, enhance investor confidence, and at the same time, in order to further activate the company's innovation momentum, establish and improve a long-term incentive mechanism, and promote the company's long-term sustainable development, iFlytek reviewed and approved the "Proposal on the Repurchase of the Company's A Shares through Centralized Bidding Transactions" at the 25th meeting of the fifth board of directors held on July 3 last year.
The board of directors agrees that the company will use no more than RMB 1 billion (inclusive) and no less than RMB 500 million (inclusive), and the repurchase price will not exceed RMB 58.60 per share (inclusive), to repurchase the company's A shares through centralized bidding transactions for subsequent equity incentives or employee stock ownership plans. Linked to the company's long-term incentive measures, it can not only enhance investor confidence and reward shareholders, but also further effectively combine the company's interests and the core team's interests, continue to improve the long-term incentive and restraint mechanism of mutual benefit and win-win, and enhance the company's overall value.
As of July 3, 2023, the company's share repurchase period has expired. The company has repurchased a total of 18.556 million shares of the company through centralized bidding transactions through a special securities account for share repurchases, accounting for 0.8% of the company's total share capital. The highest transaction price was 44.60 yuan/share, the lowest transaction price was 32.17 yuan/share, and the total funds used were 759 million yuan.
However, contrary to the company's repurchase, iFlytek's chairman Liu Qingfeng chose to reduce his holdings in the third quarter. In August this year, iFlytek issued an announcement stating that the company received notification from Chairman Liu Qingfeng on August 14 that Liu Qingfeng sold part of the company's shares through the Shenzhen Stock Exchange's block trading system that day.
Before this share change, Liu Qingfeng held 168 million shares of iFlytek, equivalent to a 7.27% shareholding ratio. After this change in shares, Liu Qingfeng’s shareholding dropped to 128 million shares, a decrease of 39.9561 million shares compared with the previous period. At the same time, Liu Qingfeng’s shareholding ratio also dropped to 5.54%. As far as the company is concerned, Liu Qingfeng's shareholding ratio has decreased by 1.73 percentage points, but this part of the shares is equivalent to 23% of the shares held by Liu Qingfeng before the reduction. If calculated based on the closing price of 63.98 yuan/share on August 14, Liu Qingfeng is expected to cash out more than 2.5 billion yuan from this reduction.
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 the University of Science and Technology of China, founded iFlytek with a group of young people full of fighting spirit.
Prior to this, the speech synthesis system that Liu Qingfeng was responsible for won the championship in a national Chinese speech technology challenge and was the first in the international industry to achieve the 3.0 standard, which is only one step away from civilian use. Due to his excellent strength, many prestigious schools have offered Liu Qingfeng an olive branch.
However, faced with very tempting invitations to receive full scholarships from many prestigious overseas universities, Liu Qingfeng finally chose to refuse. In Liu Qingfeng’s words, “This is likely to be the eve of an 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 time. "More importantly, the Chinese voice market was basically dominated by foreign companies at that time. I have always wanted to change this."
According to iFlytek, since the company's listing, Liu Qingfeng has increased his stake in the company four times in order to stabilize the company's equity structure, introduce strategic investors and maintain the company's market value. Before this reduction, Liu Qingfeng had only reduced his holdings once. At that time, it was because Liu Qingfeng had to repay the principal of the loan he invested with China Mobile when he invested in it. In iFlytek's view, Liu Qingfeng's aforementioned behavior fully demonstrated his firm confidence in the company's long-term development.
iFlytek also explained in the announcement the operation of the "top leader" to reduce the company's shares. Going back to July 2021, in order to consolidate the company's control, meet the working capital needs brought about by the company's rapid business development, and enhance the company's ability to resist risks, Liu Qingfeng borrowed 2.35 billion yuan through pledge financing and other methods to subscribe for the company's non-public issuance of shares. The debt has now expired. To this end, Liu Qingfeng needs to reduce his shareholdings to repay the principal of the above-mentioned loans.
It is understood that due to the signing of the "Concerted Action Agreement", Liu Qingfeng and the University of Science and Technology of China Asset Management Co., Ltd. are the actual controllers of the company. However, as Liu Qingfeng is the actual controller of the company, the aforementioned change in shareholding will not lead to a change in control of iFlytek, nor will it have a significant impact on the company's governance structure and ongoing operations.
In order to minimize the adverse impact of the transaction on the market and industrial development, Liu Qingfeng also deliberately chose to reduce his stock holdings to repay debt after the release of the company's semi-annual report and before the launch of a major version upgrade of the Spark Cognitive Large Model. At the same time, in order to avoid impact on the secondary market, it adopts bulk transactions and pays corresponding discount prices.
iFlytek employees of iFlytek were fined for grabbing free chicken an hour early
It is worth mentioning that just a few days before the company released its third quarterly report, iFlytek had just caused many netizens to watch due to an employee-related incident.
Radar Finance learned that not long ago, Laoxiangji, a fast food brand from Anhui, spent 50 million to launch free banquets across the country, attracting many diners to participate, including many iFlytek employees. However, some iFlytek employees were notified by the company for leaving their jobs early to grab free meals from fellow employees.
According to a statement leaked on the Internet, during the free lunch event held by Laoxiang Chicken on October 8, employees started queuing up at the entrance of the Laoxiang Chicken restaurant in iFlytek A4 Food Street at around 10:30. At about 11 o'clock that day, the number of people in line reached more than a hundred people, and the number of people in line continued to increase since then.
iFlytek stated that employees' behavior of leaving their jobs and waiting in line more than an hour before lunch time was a clear violation of company regulations. iFlytek's "Attendance and Leave Management Measures" and "Employee Handbook" have clearly stipulated that in both fixed shifts and flexible shifts implemented by the company, lunch and rest times are 12:00-13:00, and other times during the attendance shift are working hours. Eating and other non-work-related activities are not allowed during working hours.
In daily actual operation, the company considers reasons such as diversion of meals and the need for some employees to eat in advance due to work arrangements, and does not impose strict requirements on the behavior of eating about half an hour in advance. However, this behavior of queuing up to wait for meals more than an hour in advance is a subjective and negative act of sabotage.
According to the company's relevant systems, this behavior is considered general negligence. iFlytek's "Employee Handbook" Chapter 7 Rewards and Punishment Regulations Article 6 "Doing things unrelated to work during working hours (including but not limited to chatting, reading books unrelated to work, dozing off, playing mobile phone or computer games, browsing non-work related web pages, downloading/watching movies, etc.) has not caused any impact or loss." and Article 8 "Anyone who leaves the workplace for more than 60 minutes without permission for leave during working hours." are both general negligence behaviors. A written warning must be given. If a person is warned once in a quarter, the performance appraisal result for the current period shall not be higher than C.
In response to this incident, iFlytek will handle it in accordance with regulations after confirming the information of the relevant personnel. The specific treatment plan is as follows: regular employees will have face-to-face interviews and be given written warnings, and the quarterly performance appraisal results shall not be higher than C; outsourced employees will communicate with the corresponding outsourcing company, and depending on the severity, they will be given warnings or personnel replacements. People who queue up after 11:30 will not be processed for the time being.
According to the 2022 annual report previously released by iFlytek, as of the end of last year, the total number of employees on iFlytek was 15,046, an increase of 739 from 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 number of other personnel is 1528.
Regarding this incident, some netizens believed that employees who left their jobs early were at fault, so iFlytek's punishment was based on the rules. However, some netizens believed that the company was making a fuss out of a molehill. After all, the activity of "Fellow Chicken" was only for one day. If you leave early, your performance appraisal will be reduced, and outsourced employees will be fired at the same time. iFlytek's punishment of employees is a bit too severe.
iFlytek believes that today, when artificial intelligence has once again ushered in a development climax, iFlytek is moving forward at full speed, with both opportunities and challenges coexisting. On this high-speed train that travels day and night, the company can see that some partners are working hard for their goals and ideals, so the company is eager to work together with everyone to move forward, so iFlytek will resolutely say NO to all kinds of violations and violations of the company's values! iFlytek’s 421-carat values need to be practiced and protected by everyone!
As of the close of trading on October 20, iFlytek's stock price closed at 51.08 yuan per share, down 5.06% from the previous trading day, and the latest market value was 118.285 billion yuan.