1H 2021 Letter to Shareholders
September 1, 2021
To all of Luokung's shareholders,
It has been a monumental year for our Company. From an operational perspective we continued to build on our proprietary technologies and expertise in HD Maps and related intelligent spatial-temporal big data. We have achieved several milestones over the last few years, the most recent being the completion of the eMapgo Technologies (Beijing) Co., Ltd. acquisition earlier this year. At our core, we are a technology-driven company that focuses on services and applications of spatial-temporal AI big data. We have established a leading position in HD Maps, Internet of Things ("IoT"), intelligent big data, autonomous driving, smart transportation, vehicle-road collaboration (V2X), carbon neutrality and remote sensing data services. This is what drives our 700+ employees every day, improving our value proposition for our global customer base while creating value for our partners and the world.
My hope with this letter is to provide a picture of Luokung's business and vision, while initiating a more open line of communication with investors going forward.
Spatial-temporal data combines the dimensions of time and space, and more than 80% of data in the world is related to geographic location. With the rapid development of Internet of Things, smart robots, smart wearable devices and various sensors, almost all newly added massive data are spatial-temporal data, and more than 95% of all data in the future will be spatial-temporal data as it is multi-sourced, massive, heterogeneous, and updated in real time. Luokung discovers and creates greater value in spatial-temporal data, and through intelligent services, we believe that we continue to enhance value for our customers and society. Our mission is to build intelligent communities with our spatial-temporal AI capabilities.
Built upon 3D HD Maps, a spatial-temporal digital AI base supports multi-sourced heterogeneous data interaction, integrates big data AI computing, Geo AI, blockchain and other technologies to realize spatial-temporal intelligence, serving smart applications in different industries with an eventual goal of establishing a digital twin system. A digital twin is a virtual representation that serves as the real-time digital counterpart of a physical object or process. This is the core and critical underlying architecture of Luokung. Based on this underlying architecture and the thematic elements of various industry applications, the Company forms its exclusive intelligent application platforms and products in different industries.
The core strategy behind Luokung's products, technologies and services is centered around three pillars: smart transportation, carbon-neutral and natural resource management services and Internet LBS and intelligent industrialized applications—"Luokung's Three Pillars." Luokung's various product and service applications originate from Luokung's three-pillar business model, focusing on an AI spatial-temporal digital base. We continue to improve the capabilities of the digital base to better support industry smart applications. At the same time, ever-expanding and continuous intelligent industry applications are actively feeding a more powerful digital base. This flywheel effect helps us to continuously optimize, deepen and expand our services to customers, increasing our value proposition.
Our Business Strategy
The first pillar of smart transportation: Luokung believes that road-to-vehicle coordination is the keystone for smart travel and autonomous driving in the future. Therefore, smart cars require smart roads. Luokung is actively deploying smart solutions for both vehicles and roads.
For vehicles, Luokung is supporting eMapgo's position as a leading HD Map provider with continued investment in its technical R&D in the fields of autonomous driving data services, simulation services, and full-cognition AI services with a goal of continuing to optimize, deepen and expand services for automakers and top-tier autonomous driving firms. We have led the development of the industry standard for "Autonomous Driving HD Map Collection Element Model and Interaction Format", and eMapgo will continue to play an active leading role in setting industry standards in the near future. This is not only a testament of the industry's trust and recognition of eMapgo's capabilities in autonomous driving HD map related data services but also proof of our intellectual contributions and experience in the field of data services as it relates to autopilot HD maps.
For roads, Luokung is actively promoting smart road services based on its spatial-temporal digital base, including but not limited to HD Map-based smart road AI digital base, 24/7 road hazard awareness, severe weather perception and other road information data perception service systems and smart management platforms. With these efforts, Luokung aims to assist expressway operators in managing their digitized assets more securely and efficiently and to achieve vehicle-to-road data communication where vehicles can digitally receive roadside information that affects safety, convenience and comfort in real time. We are providing similar smart digital services for China's new generation smart transportation demonstration project-Changjiu Expressway, a project that showcases our respected position in the field of smart highways.
Luokung Datong's severe weather perception service system is a perfect example of our smart road products. It provides meter-level accurate, real-time road visibility reports through its own intellectual property-video stream intelligent analysis technology during low-visibility weather, helping expressway operation managers to close and open the road in a timely manner and ensure the safe passage of the expressway. We deployed a one-year pilot project for 400 kilometers of expressways in Jiangsu Province. During the period, the 400 kilometers of expressways remained open for an additional 180 hours throughout the year, compared to during manual visibility observation periods. The additional 300,000 vehicles that utilized the expressway this year has directly increased the income of expressway operators. At the same time, high passability enables various types of vehicles to save travel time, improve their efficiencies and create more commercial value and social benefits. This is just one of many examples of Luokung's intelligent road system products, one that exemplifies Luokung's mission and vision: to create value through technology and create value for customers.
So far in 2021, we have increased investment in intelligent big data computing for Internet of Vehicles, providing safe, convenient, comfortable, and economical services on different roads for assisted driving and L4 autonomous driving in different driving modes. With established advantages in autonomous driving, we anticipate a gradual entry into the field of autonomous driving decision-making services through Internet of Vehicles, big data, AI and machine learning, broadening and deepening our product and service applications.
So far in 2020, the number of newly registered cars in China was 24.24 million, and the number of vehicles in possession was 281 million. At the end of 2020, the total mileage of highways in China was about 160,000 kilometers.
The second pillar of Luokung's business strategy is carbon neutrality remote sensing data services. Although Luokung's AI spatial-temporal big data services do not directly solve the issue of carbon emissions, we believe that our data service helps policymakers, industry regulators and market service participants monitor real situation and data changes, in their efforts to reduce carbon emissions and to serve as an important digital base for carbon emission trading. We believe that Luokung has established China's most powerful remote sensing data engine that integrates high-resolution remote sensing, HD maps and various IoT sensor data, enabling us to launch the most efficient remote sensing data processing service. This offering addresses a broader market focus on industrial applications in carbon emission, carbon neutrality, geographical resources, forestry resources, water resources, crops and others, a marketplace we define as a carbon neutrality natural resource asset service business. In the future, we believe remote sensing data services in related fields will be accompanied by the implementation of a global carbon neutral strategy, which would present a significant market opportunity for our Company.
The third pillar of our business strategy is Internet LBS and related smart industry services. This is Luokung's AI spatial-temporal big data services based on our digital base in Internet applications and modern logistics, supply chain, urban transportation, emergency rescue, smart industrial parks, smart cities and other applications. Luokung's spatial-temporal digital base incorporates Luokung Super-Engine's multiple vector data-related patented technologies, diversified heterogeneous data fusion, massive data processing, different data software interface services and others, with extremely high levels of data processing efficiency, compatibility and application capabilities.
For LBS smart industry applications, Luokung's digital base integrates our Internet LBS business with IoT data and business operation data to provide personalized industry smart application services for various industry needs.
The Company has launched a series of LBS B2B services and products for different industry applications in order to integrate the operating assets of different industries and real-time business operation data and behaviors on personalized two-dimensional and three-dimensional standard maps and HD maps. Real-time dynamic presentation and big data algorithms help customers manage related businesses and implement services to more easily and conveniently achieve business goals. We have launched a series of products and services in the fields of Internet location marketing, travel services, urban logistics and distribution, smart city, urban transportation, smart industrial parks and emergency rescue. As Luokung's business focus is not B2C services, our brand awareness and impact on the public market could greatly affect the LBS services business. As a result, Luokung has taken the approach of personalizing services at the initial phase of company expansion. This has enabled the Company to establish a service platform for sub-industries. We plan to continue to pursue our B2B strategy and form a powerful and open multi-industry-level LBS service platform through continuous industry customization, with the hope of becoming the largest and best LBS in China.
Smart industry application services involve a wide range of market segments, some of which Luokung has not yet entered. We are, however, actively building and developing an ecological partnership network, relying on our partners' deep understanding of the segmented industries and growing markets to carve a smooth entry into the different application fields of industries. At the same time, spatial data services have high barriers to entry in terms of technology, market access, data accumulation and others. We are committed to supporting our partners and combining our strengths to create value for both parties.
Smart transportation, carbon neutrality natural resource asset management, Internet LBS and smart industry applications are the three pillars of Luokung's business model, focusing on the core spatial-temporal AI big data. Luokung believes that as a company it is leading these trends.
Data Security and Regulatory Compliance
Data has been a crucial but sensitive topic for Luokung. As a data service provider, Luokung has made it a priority to operate its business while maintaining compliance with all applicable laws and regulations. We are also using technological innovation to ensure security and compliance of data services while protecting the data rights of our clients. This is the source of confidence and the reason behind our clients' long-term trust in Luokung.
Luokung's B2B business model includes PaaS (Platform as a Service), DaaS (Data as a Service), and SaaS (Software as a Service) services. For the commercial spatial-temporal big data services we provide, customers are offered hybrid cloud solutions that support the private deployment of all customer service data in an intranet environment to maximize data security. In the first quarter of 2021, Luokung invested in the research and development of blockchain technology and expects to launch a new solution for geographic information data security (data security in spatial temporal data collection, storage, calculation, application and others). We plan to launch a new data service based on blockchain technology by the end of 2021 to provide Luokung and our partners with higher levels of information security protection and more efficient data security services.
Resolution of the DoD Designation Matter
On January 15, 2021, our Company was surprised to be included on a letter that prohibited U.S. domiciled shareholders from purchasing our common stock beginning on a certain date, as the Company was designated as a Communist Chinese Military Company ("CCMC") on Executive Order 13959, which included a list of CCMCs released by the U.S. Department of Defense ("DoD"). We are not a state-owned enterprise. While we are based in and conduct the entirety of our business within China, Luokung is not affiliated with the Chinese military.
After months of uncertainty, we received a favorable conclusion on this matter in June 2021. The DoD removed the Company's designation as a CCMC, and Luokung and its shareholders are no longer subject to any restrictions pursuant to Executive Order 13959, as amended. The DoD considers this matter closed.
Today, we are very pleased to put these concerns behind us, allowing us to fully focus on our business. Throughout this period, we remained committed to executing on the Company's business strategy and completed the acquisition and integration of eMapgo. Under the leadership of our management team, we persisted and continued working to fulfill Luokung's mission and vision, and to create value for our shareholders.
On behalf of the Company, I would like to extend our heartfelt gratitude to every loyal shareholder that stood by us, reached out with suggestions and well wishes and defended us on social media. We would also like to extend our thanks to all our legal, market and communications advisors for their efforts during this period. The successful resolution of this matter would not have been possible without everyone involved.
Outlook for 2021 and Next Steps
Our goal for the remainder of the year is to lay the foundation for our longer-term goals in the years ahead.
2021 has been an important and monumental year for Luokung. We are in a strong capital position to expand our current business operations, having raised US$120 million in financing and gaining recognition and support from institutional investors in early 2021. We completed the acquisition eMapgo, integrating their operations and personnel with that of Luokung. We enhanced our technology and built out our R&D team to further support the development of our self-driving perception algorithm, AI image calculation, blockchain technology, Internet of Vehicles big data AI algorithm and application services and LBS platform services. All of these developments have bolstered Luokung's three-pillar business model with the launch of related multi-line products, which were well received by our clients as demonstrated by our new contract wins. Luokung remains confident in its ability to gain market share through additional contract wins in the remainder of 2021.
As a foreign private issuer, Luokung is required to furnish or file with the U.S. Securities and Exchange Commission ("SEC") two public reports, one for its year-end and another for the half-year period. Our fiscal year ends on December 31, 2021, and we will provide comprehensive data in our Annual Report on Form 20-F. We expect to furnish the semi-annual report for 2021 to the SEC in the next two months. Going forward, we expect to issue more regular updates on financial metrics including sales and margin progression to provide greater visibility into our business.
We are pleased to have achieved significant growth so far in 2021, reflected by the preliminary financial results we released last week. Based on our preliminary data, Luokung realized record total revenue of approximately $37.8 million in the first half of 2021, an increase of 417.8% year over year from $7.3 million in the first half of 2020, and an increase of 345% from $11 million in the second half of 2020. For greater detail, investors should refer to the soon-to-be-released semi-annual financial report. We believe that the significant top line growth is attributable to the large and fast-growing spatial-temporal data service industry in China and is also a testament to Luokung's growth strategy.
We will continue to evaluate potential high-value M&A opportunities that could strengthen our competitive position in the three pillars of our business, particularly in the areas around autonomous vehicles and the progression of this market.
As management, we believe that it is our responsibility to provide transparent and open communication to shareholders, and to operate our business in an honest and proactive manner. Our goal is to release regular updates on our activities, commensurate with what is expected of a public company, and to listen to feedback our shareholders provide.
On behalf of our board of directors and management team, I would like to thank you for your continued trust and interest in Luokung. We thank you for your ongoing support, which has enabled us to expand our business model. We are aligned in our desire to see Luokung succeed in its global growth initiatives, and Luokung will continue to work enthusiastically for the realization of our vision.
Mr. Xuesong Song,
Chairman and CEO