Q3 2020 LAIX Inc Earnings Call

For its call at this time, all participants are in a listen.

Oh, good after managements prepared remarks, there will be a question and answer session.

Today's conference call is being recorded I would now turn the call over to your host Mr. heard her Investor Relations director of the company. Please go ahead Harry.

Thank you.

And went on to the third quarter, but say 20 earnings Conference call Well Act also known as neutral the company's wears on what are you sure earlier today and you can download the earnings press release, and it's not for the company's distribution Nishu I visit <unk> IR website <unk> Black book.

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I feel on the founder and the mist abuse, one Oh CFO walk the game, we stopped prepared remarks following their prepared remarks.

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Oh, CTO and a co founded on booked are waiting on a chip scientist and it goes on and we're also doing on what up your <unk> session, but.

Please note that today's discussion will contain forward looking statements relating to future for myself the company and are intended to qualify for the safe Harbor liability is.

It's about.

The U.S.

Private Security Litigation Reform Act such statements are not guarantees on the future performance and are subject to certain risks and uncertainties assumptions and other factors. Some of these risks are beyond the company's control on the could cause actual results to differ but you already from sales mentioned in todays earnings release and to discuss cash.

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Well generally discussion for the risks factors that could affect that business and the financial result in CODI. The instead on fighting software company with the Securities and Exchange Commission income it would be its annual report on the company does not undertake any obligation to update the forward looking information except as required idle.

During todays call management will also discuss certain non-GAAP financial measures for comparison purposes only flow.

Definition of non-GAAP financial measures and the reconciliation from GAAP to non-GAAP financial results. Please see holdings for these issue on audio today.

I will now.

On the call about do Oh, CEO to talk to you on a per <unk>. Please go ahead.

That's Harry Hello, everyone and thank you for joining our third quarter 2020 earnings conference call.

During the third quarter total net revenue were RMB 239.4 million, which is and which as anticipated met our previously announced guidance.

Gross profit margin for the group to 72.9% from 71.9% in previous quarter with.

With the adjustments we made since the previous quarter, we have seen a constant flow positive effects on our newly streamlined operations that couldn't be seen in our net loss, which was for the narrow to RMB 70.6 million, a 23.6% improvement quarter over quarter.

During the quarter, we continue to maintain prudent cost control on advertising.

On the chairs and our user acquisition costs. Our overall use of world was impacted by this approach and gross billings declined too.

Declined 16.1% sequentially, however, gross billings of our kids business improved.

Improved by 56.5 per cent compared with the previous quarter.

With that quick financial overview, I would now like to provide an update on our product mix as to ditch growth and the debt being our CFO will discuss our operations the financials for that in a few minutes.

Let's start with our adult business with only a series of course. This other core about adult product offerings. We are looking to take a for the stuff for the and offer a comprehensive an all encompassing a patent portfolio. We believe that English learning could not be limited to a simple improving general range capabilities.

But the rather meet specific learning objectives under various scenarios. Our daily lives for example for users who want to improved for the English communication skills for business environment. They kind of cheap debt goes to other businesses courses now, let's turn to our kids business.

As we continued as mentioned on last quarters on earnings.

On his call we have been actively developing relevant kits courses this year there for.

It's not surprising that in the third quarter, we saw an assist.

Significantly increasing contribution from our kids business to our overall revenue growth.

We are differentiated from other kids products in the market. That's we have created an immersive learning experience for kids in different age groups by implementing our proprietary technologies.

Current horse plant for kids main courses covers level one for level seven how could he uses from kindergarten to sixth grade in primary school.

In addition to the main course plan, we have added highly price S.K. used to serve the needs of users with different learning objectives on purchasing power.

Moreover, we have enriched our product mix by introducing more short duration courses such as in science and art and to attract new users with diverse learning needs. We intend to utilize these shorts and your duration courses.

Convert users to higher price products and improve overall conversion efficiency.

So far we have completed the course content for them in for the for five levels and will launch level six and seven courses Inc.

2021.

In terms of long term revenue enhancement other company level, we have adopted a more.

For focused marketing strategy for different use in the for the increased cross selling opportunities between on adult and kids business.

More but based on what sales capability, we established a track to attribute a distribution mechanism and is treated more traffic for the teams with stronger.

Sales capabilities weighted.

When it comes to streamlining our operations in the third quarter, we continued to put forth sales.

Strong efforts rally housing operating efficiency, making solid progress on both on our organizational restructuring and cost control initiatives and ultimately improving the bottom line.

With respect to marketing activities, we plan to reduce our advertising costs.

Fighting over use acquisition channels, enhancing our competitors in converting existing use and on top priority.

We intend to reduce dependency on the acquisition of new users through third party channels.

Finally technology investments then at the core of our growth strategy, allowing us to remain at the forefront of things running technology.

Our products are highly differentiated and more dynamic than what exists in the market on what we used to offer which what is designed to satisfy U.S based inks for any needs primarily helping using proved up for us Asia and learn new vocabulary.

With our new AI teacher addicts.

Which is a great leap for forward in AI powered electronic technology uses cash speak on top.

With Alex at anytime anywhere at an affordable price.

Selecting from a wide range of conversation topics. For example, we can handle on grocery shopping users and have a very interactive.

<unk> conversation with Alex just as they would with the human teacher.

Then he received differentiated and.

And the personalized responses from.

The conversation from Alex.

Alex will then lead to.

Continue this conversation with use as if a new.

New a real person to share what.

At the same time, providing explanations pronunciation grammar crashes and recommendations what makes x. So highly used for an impactful is that users are more.

For two really apply themselves into the learnings since they do not need to worry about making mistakes in front of him a.

New person.

What's more interesting is addicts with actually pause and wait for the students who come up with the on language and you encouraging responses and encouragements, just like a new a real person a teacher would.

And then Alex.

I did it is a crucial point that when it comes to inks for any especially among children. This kind of capability is really important that the other useful.

And the reason likes cash.

On the value for this type of new technologies, because we have one of the largest databases are being spoken by Chinese which has been customized for deep learning processing low with a proprietary algorithms on profound understanding English teaching concepts on theory.

This year marks likes eighth anniversary as a pioneer and leader in the eye of Howard learnings space and with the mission of empowering every one to achieved out for potential.

We continue to dive deeper into that technology on the English language education, dedicating ourselves to advancing proprietary <unk> technology, So I mean.

Aiming to provide the best on lighting, sending products on making learning more personalized effective.

Since our inception, we have been constantly exploring new user needs on improving the user learning experience for me on technology based content oriented use experiencing centered company called true system low.

Looking ahead, we will continue executing on our growth initiatives Sweeney on west showing value proposition to the market and maximizing long term value to all of our shareholders.

This concludes my prepared remarks, I will now turn the call over to our CFO Mr. being son, who will discuss our key financial results.

Thank you he and the true everybody this is for that being.

Let us now look at other key financial metrics in this quarter the up to something in the 20.

That's the revenue will be 200 this for the nine point to for milling the 11.1% a decrease from RMB 269.4 milling for the previous quarter.

And an 8.26% a decrease of frontline be 262.2 on billing for the same quarter last year the.

The quarter over quarter decrease was primarily attributable to a decrease in gross feelings cost embody the complaints as stringent cost control end user acquisition expenditures.

Hi stuff for revenue was RMB 65, milling, a 14.1% a decrease from RMB 75.6 million for the previous quarter and.

And on 9.26% a decrease from RMB 71.8, the mailing for the same quarter last year.

The quarter over quarter change was the primary a true due to efficiency optimization in personnel management and the cost control I T related to services.

Gross profit was on view 100. This M full quantifying milling attempt percent a decrease from RMB 193.8 million for the previous quarter.

And at this point to 3% a decrease from RMB 190 point, just re mailing for the same quarter last year.

Gross margin for the third quarter and up to seven into 20 was 72.29 per cent compared with 71.9% for the previous quarter and the 72.6% for the same quarter last year.

Total operating expenses on the 252.1 milling circuit.

16% a decrease from RMB 289.27 milling for the previous quarter.

And the acidity, 7.27% a decrease from RMB 400, the full on to 8 million for the same quarter last year.

The change was primarily due to stringent across the country in user acquisition expenditures and the optimization of our organizational structure.

Sales and marketing expenses for will be 185% fondling.

On a 7.26% a decrease from RMB 200, the point to seven milling for the previous quarter.

35.9% a decrease from RMB 289.2 milling for the same quarter last year.

The change was primarily due to the company's a stringent cost control in user acquisition expenditures.

R&D expenses, so on the 45% to eight milling of 5.5 per cent a decrease from RMB 48 point to find willing for the previous quarter and 20.26% a decrease from 57.27 milling for the same quarter last year.

The changes were primarily due to the efficiency optimization in personnel management.

SGN they expenses so on the 20.8 milling.

48.27%, a decrease from RMB, 40% flying billing for the previous quarter, primarily due to a while offering them into losses on lease hold improvement the in the previous quarter.

Dan the expenses decreased by 64.1% from the 57% to nine milling for the same quarter last year, primarily due to the efficiency optimization in personnel management.

Loss from operations will be 77 point sixmillion compared to his on him being 95.29 million for the previous quarter and the RMB 214 point to find billing for the same quarter last year.

Adjusted EBITDA was a loss of RMB 55.26 milling compare that with the adjusted EBITDA loss offline be 77.8 million for the previous quarter.

And the 200 the industry plan to six meeting for the same quarter last year.

Net loss was on these 70.26 milling compared to his on being 92% of funding for the previous quarter.

On the RMB 214.2 on meeting for the same quarter last for you.

Adjusted net loss was on the 61.2 for milling compared to is on the 5.3 million for the previous quarter and the RMB 200, and the 9.27 million for the same quarter last year.

Basic and diluted net loss for ordinary share contributable to ordinary shareholders was on view on again for these three cents compared with RMB, one again 87 cents for the previous quarter and the on the for unions 33 cents for the same quarter last year.

In terms of our balance sheet.

As of September Thirtyth Tucson into 20.

The company's cash cash equivalents restricted cash in the short term investments totaled.

These 300 to 27.2 milling.

Compared to resign these 390.3 million as of June Thirtyth through Sunday on the Trinity.

And the RMB 550 to fund to six meaning SL for December so the first two sending the 19.

Net cash used in operating activities will on these 53 point to one billing.

And the RMB 119.25 milling for the three months period ended the September 30, Twos on then 20 and the service on the 19, respectively.

Our liquidity to meet our future working capital is based on our ability to attract new users enhanced user engagements and the retention by offering higher quality on the diversify the courses while closely contouring the content the cost and the optimizing traffic acquisition strategy.

The effective rate controller and the reduced these usually lead to the costs. We will continue to further to preserve liquidity and the managed cash through by reducing discretionary expenditures, including promotion expenses and SG expenses.

Our liquidity is also based on our ability to obtain kept to financing from equity or debt to invest as.

We believe that we have sufficient cash to fund operations for at least for the next 12 months.

The company had to defer the revenue for RMB 800 to 23 point to for milling as of September 32, some of the 20 compared with RMB 828 point to income milling as held for June 30, twos on on the 20 and the RMB 696 mailing as of December.

So the first two some into 19.

Now, let's turn to look at a low feature on throughput.

For the force caught up to us on the differentiated the company currently expects.

Net revenue to be between RMB 200 to 10 million to RMB 230, milling, which would represent a decrease of approximately 9.2% to 0.26% from on the 231 point to for mailing for the same quarter last year.

This forecast a refresh for the Companys current and the preliminary view on the current have been is the situation on the market conditions, which is subject to change.

This concludes our prepared remarks, we will now open the close two questions certainly mind Mr.

Mr. Hooters, and then our CTO and the co founder and the Doctor Leanly, our chief scientist and the co founder joining us for the kinase session.

Operator, Please go ahead.

Certainly at this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad once again in order to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment chicken public you and Eros true.

Your first question comes from the line of else you shouldn't from Morgan Stanley. Your line is open.

Thank you management on my question about sorry, Keith.

So can you give us more color on your strategy and positioning in the Keith.

My cash.

Especially on the increasingly competitive huh.

Net space. Thank you.

Thank you for the question.

Right now.

'cause product. The kit is definitely is a very key growth driver for the company.

In the third quarter.

Contributed to more than 15% of our total gross billing.

Our.

CIT product portfolio covers.

The basic Phonics course and also.

A main course of course that covers the beginning on level.

In the <unk> and the kindergarten other way too.

Page nine right now.

We have planned to.

Moving on to cover.

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Sixth grade, which is as 12 so.

Basically we have two components.

Components of the call course.

The first component covers.

The demographic age group of three to six and that.

And.

Jumpstart a course for kids age six and I continuing to edge to 12 in the next year.

Well in terms of technology adopted.

And to our kids product, our proprietary adaptive learning technologies as speech recognition. So it provides real time feedback and other.

Overcoming the inefficiency of traditional teaching.

As a one size fits on approach and the what what.

Another key.

Differentiator for us compared to other debt.

Products on the market is that we are probably the only company offering key differentiated learning experience in that age group three to six on six to nine.

With lower.

H. group.

Having a more a game like experience, while the higher age group have more of a.

On a teacher that learning experience.

We believe.

Our continued.

Thats meant into product a user experience as well as curriculum design will pay off as we see very very encouraging long term retention numbers.

In our user group Inc.

Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad once.

Once again that is star then the number one on your telephone keypad.

There are no further questions at this time I turn the call back to Harry for closing remarks.

Thank you once again for joining on you for you have a further questions. Please feel free to contact Investor relations for the contact information provided on our website.

Thank you operator.

That concludes today's conference call you may now disconnect.

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