Q4 2019 Earnings Call
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Hello, Ladies and gentlemen, thank you for standing by for likes Inc. fourth quarter and for your 2019 earnings Conference call. At this time, all participants are in listen only mode.
After managements prepared remarks, there will be a question answer session. Today's conference call is being recorded I will now turn to call over to your host missed you hadn't one investor Relations for your company. Please go ahead you had.
Mitch you anyway, you may know begin your costs.
Country.
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Oh Hello Emily.
Yes, I'll add my Ivan I can't recall her.
Oh, yes, okay, one moment and I'll try to answer here line.
Okay. Yeah, if she joined you can.
[laughter].
Mr. Honeywell you may begin.
Thank you.
Hello, everyone and welcome to the fourth quarter and full year 20, Nike Inc. earnings conference call for likes Inc. also long appealing shull.
The company's results were issued earlier today and you can download the earnings press release sign up for the company's distribution list by visiting our IR website at <unk>, our adult L.A. I <unk> Dot com.
Dr evolve, our CEO and founder both again some prepared remarks.
Following the prepared remarks, Mr., Julien Benneteau, who our CTO and co founder and Dr. equating arching scientists and co founder will also join us acuity session.
Please note that today's discussion will contain forward looking statements.
Relating to future performance at the company are intended to qualify for the safe Harbor from liability as established by the U.S. Private Securities Litigation Reform Act.
Such statements are not guarantees of future performance and are subject to certain risks and uncertainties.
Assumptions and other factors.
Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in todays earnings release and this discussion.
A general discussion of the risk factors that could affect likes dishes and financial results is included in certain filings the company with the Securities and Exchange Commission, including its annual report.
Company does not undertake any obligation to update forward looking information, except as required by law.
During today's call management will also discuss certain non-GAAP financial measures for comparison purposes only.
Your definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results. Please see the earnings release issued earlier today.
I will now turn to call over to our CEO Dr. you wall. Please go ahead.
Thank you for joining our fourth quarter and full year 2019 earnings conference call.
First and foremost.
With the Colby 19 outbreak in China.
Well all they're concerned about this evolving situation and those who are suffering.
As part of overall existing corporate social responsibility mandates we have initiated efforts.
Company to help those who have been impacted.
At the end of January we launched a nationwide initiative to offer complementary courses as a way to support this fights.
And help those in the most impacted regions.
In particular.
For 150000 complementary duties from course packages to our uses equally province.
Our Hearts go out to our users employees and communities affected by this public health crisis, and we hope our offerings, we courage encouragement to our users throughout.
Our effective online learning essentially products.
Internally.
Adjusting our operations with employees.
We're working from home seems as though.
However, we believe there will be very limited impact our operational and financial performance due to our online business model.
The industry level.
We see increasing user traffic and accelerating popularity of all education.
We believe we can't help make a difference you mentioned varied by providing effective efficient and customize on I learnt excuse.
While the trashy has been challenging one as result of the types of sharing policy we travel.
We remain and we'll continue to remain focused on product improvement at the provision of a comprehensive effectively on excuse.
Our leverage our steadfast commitment.
Providing education for all starting from English.
In the face external pressure caused by marketing channel headwinds.
We remain dedicated to advancing our proprietary technologies.
Providing innovative and differentiated products and three superior personalized excuse.
We believe that with the sharp emphasis on these fundamental areas. We are continually setting our selves apart providing or so thats the best opportunity to succeed in them all.
Net revenues for the fourth quarter of 29, Jamie I.
Maybe 231.4 million.
Meeting our previous guidance range.
Gross margin was 66.7% for the fourth quarter.
Quarter.
Leased from 68.1% from same quarter last.
I'd like to that more color to this.
The decline of gross margin.
As we continue to invest in the product mix, including new products targeting the kids English in any market.
We incurred ongoing content environment, and quite you service costs, which had the impact of our gross margin.
However, we believe we will benefit from these investments at the beginning to show returns this year.
Looking into 2020.
Opportunity extending our leadership position in China's adult functioning market.
As an overall market size of online learning continues to grow and the trend of from offline to online learning accelerates.
As part of our efforts.
We will continue to enrich our product mix by offering a greater number of paid courses that meet the needs of a broad demographic reach and address of spectrum of learning interests.
With a robust portfolio of a diverse courses in place we aim to position ourselves as a one stop shop for adults insurance.
Additionally.
The expected growth or paid course offerings with a wider range of prices will drive user conversion and enhance user lifetime value.
While remaining focused on the part improvement we're also working hard to improve operating efficiencies.
Toward this end.
We are developing and deploying enabled operating systems more systematic training programs and upgraded productivity incentives for operational operation operating personnel, including our online study advisors.
We anticipate these initiatives will improve our cost structure as we sort of an increasingly large number of users.
Now looking at I'll use the number.
The total number of unique paying users in the fourth quarter decreased quarter over quarter as a result of per active control and optimized issue I'll use the acquisition spend during the holiday shopping season.
As a blend of any beds.
When traffic costs increased.
However, we saw gross billings per paying users increased sequentially in the fourth quarter, representing a strong specimens.
Let's see to optimize the product mix and increased average selling price.
We have strong pricing power in adopting Tony market with annually.
Nice lower than that maybe 10000.
And we plan to launch new higher priced products to the market.
In the meantime, as I mentioned earlier, we will work to increase our user engagement and user retention by providing customized effective products products and services.
Our efforts to optimize our marketing strategy showed positive signs in the fourth quarter as we begin to restore I'll use the gross for really reading product after the impact of the tied to reach enrollments Sharon policy.
Further we have been proactively adjusting capacity model and growth strategies of the lead.
As a result, the gross billing of nearly reading rebounded significantly in the fourth quarter.
Excluding the more incentive based response in the same here last year gross billings in the fourth quarter actually remain at a very healthy level and we believe this also demonstrate the high quality products.
Gross billings of the company of the fourth quarter increased by 24 cents, while sales and marketing expenses decreased by eight cents, both on a sequential basis.
Demonstrating the trend of the high efficiency, we've seen your sales and marketing spend.
Speaking about our new product initiatives. The K 12 market represents another promising sector for us.
With that effort offerings being one of the top choices for adult learners would have a number of initiatives underway to now penetrate into the fleet how much as well.
We should we be will become an important growth driver for the company 2020.
For example.
After seeing the sales of our keeps phonics course, our first paid off late in the kids market.
Actually in the second half of 29 cheap.
We recently launched kids, who of course of course modeled out to donate English for the kids Im sure many markets and designed to improve the overall lynch skills in a highly interactive and precisely.
This will of course will serve as a cornerstone of our product offerings and the kids Mark as we continue to actively asked this year.
As more of our adult users become parents themselves.
We believe that with our strong brand recognition they will choose a learning products for their children, allowing us to attract new users and cross sell our park in the past.
Over the course of 29 cheap we have invested in our technology.
Built up our brand awareness and successfully establish ourselves in China's intelligent learning market a market that has experienced increasingly intense competition over the past reviews.
Our three proprietary technologies.
Speech recognition engine.
Precise writing, scoring engine and our depth.
I have to learning system, that's all I could our teachers with the most sensitive to use the sharpest parties as adults in terms of grains.
Enabling us to provide uses a personalized learning excuse and real time lunch proficiency assessments.
This is worth noting that we have a massive database into spoken by Chinese.
Covering a broad range of geographic distribution and proficiency levels.
As of December Thirtyth, Let me first told you actually we had recorded approximately 3.2 billion minutes of conversation.
And 43.3 billion sentences.
Furthermore.
Oh, yeah teacher continuously.
Lead sources everything has its itself, but leverage this large and growing amount of data.
Our strong research on different capabilities continue to gain industry recognition <unk>.
It is a great honor that our AI lab was awarded at <unk> as shall Heikki laboratory insulin artificial intelligence you learn anything to top and publish besides January 2020, that's one of the first can no state owned companies receiving such recognition.
This industry ugly.
Turns out to the ability to provide an integrated individualized learning system empowered by all advance MLC, She's writing requisition engines and teachers.
We see opportunities in how technology can transform the way people study and learn language globally.
About 29 gene.
Very pleased to extend our footprint beyond mainland China to include one in Hong Kong as well as other parts of Asia Latin America.
I'm going global expansion continues as a plan as planned and we believe the into she has a myriad of 16 significantly in fits it sufficiencies that can be so by technology.
Before we went through some further details on the financials as we announced earlier, our former CFO Ms. being <unk> has resigned from the company for personal reasons and we are in the process of interviewing for success.
During this period I will oversee our financials and upper reporting matters and ensure smooth transitions or whether you see helpful comes on board.
Now, let me draw your attention to some key highlights for the full year 20 algae.
For some detailed financial results, we encourage you to read our press release issued earlier today.
Net revenues were let me be.
1000 23.2 million.
60.6% increase from running the.
637.2 million for the full year 28.
Gross billing, where it can be 1200 94.3 million.
[laughter], 31.2% increase funding, maybe 986.6 million for the full year topics.
Average selling price.
There are paying customer increased 9.3 person to be.
431.4, well before you have 20 lighting from let me be 394.6 for the full year appointed.
Gross margin was 73.3% compared with 72.6% for the fleet of 20 yards.
Total operating expenses were 1000 336.8 million.
44.4% increase from there maybe 126.0 million for the full your 28.
Net loss wasn't maybe 400 574.8 million compared with the maybe 480 188.1 million for the full you've 20 needs.
Adjusted net loss was maybe 400.
548.1 million compared with the maybe 442.6 million for the full year 26.
Basic and diluted net loss per ordinary share attribute to ordinary shareholders for the full year of 29, she wasn't big enough.
One.
64.
Well compared with I mean be 19 point.
17 for the full year 28.
As of December 31st 29 companies cash cash equivalents were shipped this year and short term investments totaled the maybe 500.
52.6 million compared with the nearly 747.8 million as at December 31st.
Well you know television.
The company has deferred revenue write Anadarko and let me be.
696.1 million as of December 31st about 20 light compared with it and maybe 477.6 million.
December 31st 22.
Turning to our outlook.
For the first quarter of 2020 the company currently expects net revenues to be between there may be 190 million to.
Maybe 210 minutes.
Which would represent a decrease of approximately 25.0% to 70.1% Robert maybe 253.3 million to the same quarter last year.
The forecast reflects the complete current and preliminary view on the current business situation as market conditions, which is subject to change change.
This concludes our prepared remarks.
We would now open the call two questions as a reminder, mr. Jordan, who oversee to you and co founder and ductile squealing, our chief scientist and hold onto our joining us for the GNSS.
Operator, Please go ahead.
Thank you as a reminder to ask a question you will need to press star one on your telephone keypad again to ask a question. Please press star one on your telephone keypad to withdraw your question. Please depressed the pankey.
What did benefit of all participants on today's call. If you wish to ask your question to management in Chinese we seem to do you see repeat your question in English.
Again participants if you'd like to ask a question. Please press star one on your telephone keypad.
We have a first question coming from the line of sang zone with Morgan Stanley. Your line is open.
Hi, Thank you for taking my question Oh My question I just want.
Can you give a separate die off you all crostini into I entered the adopts indicate off business.
Now what do you expect that grouse, Oh two separate today.
Finally, I'd kind of address a you they should that be snapping a lot of flat traffic.
So I can't give more color or are there any specific never oh, what are they could bring to the up to the full year performance. Thank you.
Anyway, so the first one.
Oh, Okay. So I will I will.
This question there's just.
So obviously as you probably know the majority of a gross billing steel Jimmy Franzone, our mature product line you know the about markets.
Which include a includes don't extended or don't to select and a solid Dallas upgraded version.
Which are already started replacing a the produced a version of Dolney since late last year.
Well, we're moving from level, one two level or two and dialogues.
So that's that's a work in progress and newly readings contribution to our topline was higher than 15% in Q1 20 latching onto the member Kindle you know a significantly in Q2 to three following the we Chubb policy change.
Actually so since the beginning of Q4, we have begun to restore the unit growth of.
Yes.
Its contribution of top line has rebounded a quite nicely as a result, so overall a floor 20, Nike, obviously, Oh you know.
The aforementioned product lines target.
Steve This is a key driver is the main country.
On the on the kids side.
That's that's growth with this tells obviously given this relatively smaller size criticized.
Well this is much much faster okay.
No Sonics course, which was launched a being you know that's a year ago has contribute a quite nicely to the topline growth.
You know HM.
It's obviously still less than 10%, but it's the Gulf is quite nice.
We just recently launched a course as I mentioned in.
For the call earlier, it's designed to improve a this is not of course for four kids ages, reaching though.
Okay, and we actually.
Oh have a different user experience plan for us up age groups that range and so that.
Each she is in no small age group can have a better learning service, which we think is pretty leaching mistakes.
So yeah, we expect to see more topline growth contribution from our kids, probably it's you know for sure.
Yeah, and overall, a week or continue to who would continue to evaluate opportunities to extend into different markets are in terms of age group and they told us.
Demographic. So they love is geo locations and their specific interests and skill base right. So we do plan to grow as the top choice for.
60 learners in China, starting from the Dol space, but also gradually moving to acoustics.
Yeah, we have different projects in the pipeline that you updated monkey ones, which is positive.
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With regard to the virus situation.
I don't traffic, we did see Oh, you know traffic.
Oh grow Oh, Oh significantly changing.
Yes, it's a break a that's because we did not oh, you're in the we did not oh.
Oh.
Specifically.
Oh targets.
Ocular demographic group has some of the Ah Ah you don't get wealth is a in the states too. So I think of all the growth met the magnitude of gross.
For our Oh traffic.
It is probably a less significant than that of a though.
Some of the K 12 years, but that being said, we we see we've seen a pretty healthy growth.
Compared to the same period last year. So we are we are definitely capturing those.
Growth and ER and the in the meantime, you know optimizing our our Oh conversion efficiency and operating efficiency.
So that the weekend, Oh, Oh, you know well continue to optimize not only the topline, but also a bottom line sometime.
They've got to answer your question.
Alright. Thank you, we'll be moving on to where it's Christine Cho offer with Goldman Sachs. Your line is now open.
I guess thinking.
I just want to buy situation Oh lets you know how that's actually impacting the overall competitive landscape and also I know, it's a little bit difficult to predict if my math right. So what's the long term implications of this situation more and more people experiencing online does it.
Classroom.
Potentially how about taxes penetration.
Mm Hmm.
Okay, Hey, Chris. Thank you for the question I I think this virus outbreak, obviously is a very concerning packing house prices not actually not not just in China.
Having throughout the world.
As the consequence, a one of the consequences of this you know now can damage.
I think a at least to society in China.
Yes adapted pretty quickly into a more online mode before and other things including.
So we are seeing trends across the board I mean in terms age group.
From kids.
Okay for students to college students to about two to spend a lot more time I'm learning a lot. We should we think is it is a positive signal.
For the societies and piece.
The split you could close education.
Yeah, you know I think that's the right direction in the study movie anyway.
Towards anyway, but with.
With the virus situation, it's definitely extremity locks.
So we believe this is good for the society.
For the overall our industry and there we are we are.
This also confirms our you know longstanding strategy and choice of you know really.
Adding Ali learning and the more specifically I and technology, enabling factor.
So yes, you see a lot of players even the Atlantic is not pushing online ways of delivery investors, but most of these players I believe our skew leveraging internet only as a delivery method of you know really linking their previously offline teachers with the students online but.
As as likes has a lumpy doing a we focus mostly.
Beating yeah in neighborhoods are attractive Sun and experience after again Oh, yes on experience. We believe a this can definitely capture the movement.
From offline to online there that nice receives a now very clear trend that's a both in adults space and also the Kid space.
We believe Oh more Ah Ah accelerated a movement, so pure offline to online all I'm trying to buy those funds or something like mobile.
So we.
We think well very well positioned to to capture this opportunity lastly, I just want to mention you know the though oh the virus situation or do you will definitely you know Oh, Oh go away at some point it all into said no to answer that.
People can.
We returned to a more normal Oh lives.
But the the movements from offline to online learning.
And the would ER. This as a result of the operate more people have tried.
For the first time in the life, a new will allow learning and from all assessments. The assumption was pretty good. So I think that that's definitely a fix.
Ah Ah to the opportunity that though we're facing.
Thank you.
Mhm.
And again for participants who would like to ask a question simply press star followed by the number one on your telephone keypad.
Again that star one until Husky question.
Again that is far one to ask a question.
As there are no further questions now I'd like to turn call over back to the company for closing remarks.
Thank you once again for joining us.
He had a further questions. Please feel free to contact likes Investor Relations sued the contact information provided on our website, where TPG investor relations.
This concludes this conference call you may now disconnect. Thank you everyone.
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