Q1 2020 Earnings Call
[music].
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue just standby. Thank you for your patience.
[music].
Hello, Ladies and gentlemen, thank you for standing by and welcome to the likes Inc.'s first quarter 2020, <unk> earnings Conference call. At this time, all participants are listen only mode.
After managements prepared remarks, there will be a question and answer session. Today's conference call is being recorded well now turn the call over to your host Ms. to Hong Kong Investor Relations for the company. Please go ahead John.
Hello, everyone and welcome to the first quarter 2020, <unk> earnings conference call for Nike Inc., Oh, So no absolutely sure.
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> art Dot El <unk> Dot com.
Dr. He Wong, our CEO and founder and Mr. being Swain, our CFO will began but some prepared remarks.
Following the prepared remarks, Mr., Jordan, who are stickier, one co founder and Dr. waning, our chief scientist and co founder will also join US I think you any session.
Please note that today's discussion will contain forward looking statements.
Relating to future performance, if the company I know you 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 RP younger companies 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 like this its financial results. It's included in certain filings the company with the Securities and Exchange Commission, including its annual report.
The company does not undertake any obligation to update the 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.
For a 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 the call over to our CEO Dr. you won't please go ahead.
Thank you for joining our first quarter 2020 earnings conference call.
Oh continuous focus on delivering the best user experience and personalized learning products.
Drove solid first quarter performance.
The first quarter saw net revenues.
The 228 million.
Beating the high end of our previous guidance range by 9%.
And reflecting both the popularity of our products.
Should use leadership in China, Holland makes money markets.
As of March 31st 2020, the total cumulated registered user reached.
And just 79.7 million.
The increase.
18.1 million compared with previous quarter and.
The total number of unique paying users in the first quarter also increased sequentially reached approximately 1 billion.
For the first quarter. We're also pleased to see gross billing further rebounding.
Truck to restore user group to the levels before the impact of Titan to reach a moment's children policy.
On a sequential basis gross billing for the fourth quarter increased by 3%, while sales and marketing expenses decreased by 1%.
Demonstrating the continued trend of higher efficiency, we've seen in our sales and marketing spend.
We will continue to further optimize our marketing strategy with a focus on attracting the most value out of them or total use acquisition spend.
In late April.
We were delighted to launch exciting upgrade to our newly slab.
Which included a brand new interface.
Rich user experience and a comprehensive industry my course offerings.
We also rebranded and be name I would Darwin pot to donate a plus.
Hey, plus represents a dance and better upgrades to I'm older versions as we aim to provide the dance and learning experience and outcomes to our users.
As we mentioned in our last quarters.
Quarterly earnings call. The cold at 19 outbreak has brought so to impact our operational and financial performance to a relatively limited makes it.
So I went online business model.
We study Fastly appeared to preventative measures.
To ensure the safety and health and allowing employees and expect the remote work schedule. We implemented will result needs. Some degree of overall productivity loss.
In addition, we're expecting to see increased use acquisition costs driven by increased competition for online traffic. This summer.
However, we have been preparing for this trend and we'll take appropriate actions to mitigate these potential handbags.
We believe all and business model will resolute with resolute efforts of our outstanding team will enable us to navigate through diesel surgeons.
The industrial level.
We are delighted to see the accelerated to the penetration of online learning and increasing traffic to online learning platforms such as ours.
I believe these unprecedented times will prove to be an inflection point for online learning companies.
Powered by our proprietary technologies as well as our effective efficient and customized online learning product products and services.
But if we can't help make a difference in transforming lunch money for everyone.
You see promising growth opportunities you'd be able to enhance our leadership position in China. So don't think schenone markets.
The overall market size of online learning continues to grow and to the trend from offline to online learning accelerates.
Our goal for 2020 is to further gain market share and it did have a healthy growth flow adult business.
In addition to that market share and grow.
Priority for us in the adult business. It is enriching our product offerings and introduce you agree number paid courses to cover a much broader demographic range and more diverse learning needs.
We have been whatever business Rama ability to identify and anticipate the needs of a growing user base throughout the remainder of this year, we will continue to optimize.
That's right diversifying our strong growing product portfolio.
We're also exploring additional expansion opportunities in the kids markets to further extend.
Brad and the generate new revenue streams, while continue to monetize a lot about product to deliver user conversion and he has using lifetime value.
As far as our efforts to penetrate the kids market, we launch home or first phonics courses for children in early 2009, cheap which garnered considerable popularity among hundreds of thousands of trends kids age. Its initial phase and continue to generate more meaningful revenue contributing in the first.
Sure.
Tailored to the specifically learning needs of Trudy at different stages, we launched our Jumpstart course, well kids age age six to nine in early March well Young kids age of three to six.
Oh to alternative begin of course designed for the pre a primary school demographic has to be recent HTC April.
Okay. Its courses have been receiving very positive feedback, giving us from confidence in activity. They actively investing in this area.
Leveraging our park expertise and proprietary technologies are of course this allow for customization by providing the appropriate content based on a kids English proficiency.
Overcoming the efficiencies of the traditional one size fits all approach.
In addition to our.
Cutting edge technologies that can provide real time feedback on the census was on the phoneme levels. Our kids courses on very interactive with cartoon characters and various games to teach kids and the joyful matter and keep them entertained engaged.
Differentiated from other kids products in the markets I'm, a personalized interactive learning experience and product mix may cause the trusted source and learning partner for our kids uses.
Further compared with offline and other online teacher lot English classes. Our kids horses are most more cost effective providing an immersive English learning setting and minimal cost or effort from parents.
Looking ahead, we plan to gradually built up our product mix towards higher end.
Hi, pricing or price ranges and cover a phone or range of offerings. They can do it used to a one stop shop for young centers and the phone if our commitment to providing education for all starting from English.
In terms of content development, we have formed and all star team of developers, including the former director of E. L. T Publishing, Oxford University Press, who has worked.
Closely to ensure the quality summer program.
As far as our competitive advantage.
Our proprietary.
Speech recognition engine precise writing scoring engine in depth adaptive learning system to enable us to provide uses a personalized learning experience and real time language Christians assessment and feedback.
It is worth noting that we'd have a massive database English spoken by Chinese covering a broad range of geographic distribution proficiency levels.
As of March 31st 2020, we had recorded approximately 3.5 billion minutes of conversation and 47.3 billion incentive.
Equipped with these engines and a large amount of you data our teacher continuously reinforces enhances itself to provide a better known experience for our users with improved learning outcome.
That's more though uses become parent.
We believe they will choose us for the kids to learn English based on the trust in a brand under the positive personalized learning services do you have benefited from.
With the A. I plus education capabilities that we'd have to establish over the past years I believe our U.S English learning products for both adults and kids will benefit from great synergy and worked well in their respective areas.
Lastly, improving I were upgrade efficiencies.
Is another important focus area benefited by the are enabling operating systems.
<unk> training programs and upgraded Productivities and tips for operating personnel that we do about the deployed.
We look forward to further improve once in a cost structure.
As we continue to offer our growing user base than ever expanding and the superior suite of products and services. We're also making very effort every effort to keep improving on the bottom line.
Before we discuss.
Tell the financial performance I would like to provide an update on the New addition to our senior management team.
Mr being some joined US in early May as our new CFO.
He is now leading our finance team and has overall responsibility for financial and accounting matters.
I'm very confident that his extensive financial and capital market experience [noise].
Coupled with a strong accounting background will be a tremendous asset to us as we continue executing our growth strategy.
This concludes my prepared remarks, I will now turn the call over a 12, our CFO mr. being son, who will discuss our key financial results.
Thank you eat and Hello, everybody. This is the being I'm very excited this has joined the only saw a management team and I look forward into working closely with you all going forward.
Let's look at all what key financial metrics for the first a quota of Tucson independently.
Hello, see caught a little quota they use a gross to the by our engagement products and the diverse offerings as well as increased the demand for online learning during the kabi. The 19 carried all contributed to the two I was solid first quarter performance.
Net revenue was indeed 200 to tend to AIDS put into slim milling Oh, yes, the so the 2.2 milling.
An unpleasant <unk> decreased frontline V 253 point to screaming for the same quarter last year.
The decrease was primarily attributable to a decrease in the number of the users as a result to of the types into sharing policy Oh, we chips moments.
That's stuff for revenue was RMB seven sorry was the cost of revenue was RMB 78, well into its milling Oh U.S. the 11.21 milling.
So the 2% increase from I'm de 59.27 milling for the same quarter last year.
This change was primarily due to the increasing first salaries and benefits for certain full time employees and the second I T service cost was all such close resulting from the company's Gennum business gross in the use of these expansion.
This process it was I'm the 149 quantifying milling Oh, yes, the 21 point to Wuermeling.
22.8% a decrease from RMB 193.26 milling for the same weather last year.
Gross margin was 65.26% compared with 76.4% for the same quarter last to you.
Total operating expense will I'm. These 346.21 milling Oh, you as Steve 48.29 milling.
So the 1.2% to increase frontline V 263, blunt the ace milling for the same quarter last year.
With the expense increased primarily resulting from then this gross activities the development and the introduction of new products and the costs associated with the expansion of the company's user base.
Sales and marketing expenses to all on the 200. This 64.27 milling Oh, yes. These cities seven upon full milling.
I said he was 6.27% to increase from RMB 193.26 milling for the same quarter last year.
The increase was primarily due to the increasing channel and the marketing expenses.
Sales and marketing expenses as a percentage of <unk> net revenue increased the to 115.29% for the first the quota of two sudden into frenzy, compared with 76, 1% to 4% for the same quarter last year.
R&D expenses tool on the 59.2 milling Oh, yes, the age Boeing fold milling and 18 point to sleep present, the increase frontline de 50.21 mailing for the same quarter last year.
R&D expenses as a percentage of and that's a revenue increase the from the same quarter last year.
Present intend to fly point to 9% also NAV to revenue for the first a quota.
I'm there that was 19.8% for the same quarter last year.
Dan They expenses on the 22.1 mailing Oh Usdthree point to one milling attempting to 4% to increase from R&D printing billings for the same quarter last year, primarily due to increases in salary and the benefits for gen. They personnel.
Generally expenses or 9.27% off and that's a revenue for the first according to compare that was seven point to 9% for the same quarter last year.
Loss from operations on the 196 point to find milling Oh, yes deep into 7.8 smelling.
Compare that we signed the 70 point to one billings for the same quarter last year due to the reasons, including the impact the of the ties into sharing policy and we chats moments gennum business grows and the use of these expansion.
Adjusted EBITDA was a loss of RMB 182 point to fly milling.
Oh, yes, the 25.8 milling compared with the just the into the laws offline. The 62 point to one milling for the same quarter last year.
Net loss was RMB 197, milling, Oh, yes, Steve 27 point to AIDS milling.
Compare that weighs on the 67 point to screaming for the same quarter last year.
I was just did a net loss was RMB 189.2 milling Oh, yes. The 26.27 milling compare that was RMB 50 fold quantifying middling for the same quarter last year.
Basic and diluted net loss per ordinary share attributable to ordinary shareholders was behind these 3.99 again, all 56, yes since compare that weighs RMB one point to fall again for the same quarter last year.
In terms of our balance sheet.
So for much so they first the to southern the printing the company's cash cash equivalent to restricted access and the short term investments totaled R&D 400, the 59.2 fold milling Oh, yes. These 64.29 milling compare that leaves behind the flight sounder the 52 point.
Six milling that's off the December so do first it to southern the 19.
The company had the deferred revenue offline. The 800, the 20.27 milling Oh, yes, the 115 point to nine milling. That's all for much. So do first the to southern the 20 compared to what you saw in the 696 milling. That's all for December so the first two.
Other than 19.
Let's turn into a ultrabook.
For the first the sorry for the second the quota of Tucson into 20.
The company currently expects.
That's a revenues to be between all M. B 200, affording mailing to RMB 260 milling.
Which would represent a decrease of approximately 17.2% to fight going to 9% from RMB 276.2 fold milling for the same quarter last year.
This focus to refresh the company's current and preliminary view under current a business a situation and the much of the conditions, which is subject to change.
This concludes our prepared remarks, we will now open the close to two then they session as a reminder, and always CTO and the co founder and the Doctor things like our Chief scientist then the co founder well most joining us for the two then they session.
Operator please.
Thank you if you would like to ask a question that that's time. Please press Star then the number one on your telephone keypad for the benefit of all participants on today's call. If you I wish to ask your question to management in Chinese. Please immediately repeat your question in English.
Again that is star one to ask a question. Your first question comes from L.C. Shang from Morgan Stanley. Your line is open.
Oh management. Thank you for taking my question. My first question about I see that that paying you actually Colleen.
Okay. So 10 minutes Nike White house, Austin paying on paying you Oh, maybe I pod, that's seven eight about them on keeping I imagine that Nike season has improved so oh, what are the more you teach and not intended.
Now.
You got Nike <unk> active on the next quarter. Thank you.
Okay. Oh. This is he Oh I'll take a question for sent a this can come in.
ER so for the increase of paying customers I think Oh, you know or a hobby as a result was you know the traffic increase.
Due to the virus situation and we were able to capture Ah Ah you know.
The turn.
So sort of censorship or free increased the users into paying customers.
And also we are trying different.
Optimization mechanism to improve the conversion efficiency.
From free to paid a so that as well as a renewal of existing customers are these contributes to Ah Ah Ah.
The increase of Ah Ah Ah paying customers.
Number.
Your second question is about a marketing spending right making channels.
Yes, yes right.
Hello.
Okay.
Yeah, thoughtful or you know we are where we have been actively.
Expanding our war.
Got ways to reach new users you know Oh, but Oh I think a lot of them are still under a child's experiment a though the primary means are still.
Oh.
You know app stores that that market and as well as are the primary.
Traffic sources, such as Ah Ah Ah Ah 10 cents.
Sweeter products and by that should be for product.
We Uh huh.
Then we are testing with how the channels, but right now they are not a major source of electronic.
Oh, Okay. Thank you.
Your next question comes from Timothy South from Goldman Sachs.
Your line is open.
Hi management system to be up on Goldman's. Thanks for taking my question on my question is on the keys product that you have other stuff a lot as caught or could you provide some color on the upper breakdown between gets put on that out production trends, though.
Paying users across beating all around here, what is corridor and how do compared to unit economics in time self pay S.P.O. use action cost opportunity. Thank you.
[noise] had come to Oh, the kids Procter has.
As a thing healthy growth Oh this quarter, a continuing a a port Chan from last year, a wind currently not providing a breakdown of between the kids and adults product or are you not because it's still relatively small compared to the adult one.
Ah Ah you know because coal course.
Oh, we recently launched in May March and April for the different age groups.
And the kids markets.
Our selling at a much higher price so to speak into it because I forgot parking deck setting and over 2000.
ER and previously the phonics.
Of course with centering around you know around 700.
So that obviously wants to bring a healthy increase in the ASP for the kids a business.
That's what we are seeing right now.
Right, not yet or other than that we're not a yet breaking out the two businesses.
Got it thank you.
<unk>.
As there are no further questions now I'd like to turn the call back over to the company for closing remarks.
Thank you once again for joining us if you have further question. Please feel free to contact likes Investor relations through the contact information provided on our website, where TPG investor relations.
This concludes this conference call you May now disconnect. Your line. Thank you.
[music].