Q4 2021 Gaotu Techedu Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Dow to Teck do incorporated fourth quarter and fiscal year 2021 earnings conference call all participants will be in the listen only mode.
Should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please note. This event is being recorded on Tuesday March eight 2022.
I would now like to hand, the conference over to your first speaker today.
Ms Jerry Lou.
I, our manager of gout too thank.
Thank you. Please go ahead.
Thank you very much operator, good evening, everyone and thank you for joining us.
Fourth quarter and full year 2021 earnings conference call.
Scheduled fourth quarter I don't know if that is what.
Distributed earlier and is available on the company's IR website.
Okay.
On the call with me today.
And Mr. Larry Chad was founder Chairman and Chief Executive Officer, and Michelle Michelle Goldberg Chief Financial Officer.
This gave a general overview and then I know, we're just at the financial.
Well I end up with early March.
Shannon will be available to answer your question.
I will translate for Larry.
He brought with it then allowed to remind you that this conference call will contain forward looking statements.
In the U S Private Securities Litigation Reform Act of 90 95.
It's for looking statements are based upon management's current expectations and current market and operating foundation and relate to events that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond the companys control and may cause the company's actual results performance and.
We plan to differ materially.
Information regarding these and other risks uncertainties or factors is included in the company's filings with the SEC.
The company does not undertake any obligation to update any forward looking statement, except as required under applicable law.
A reminder, this conference is being recorded in addition, a life an archived webcast of this conference call will be available on IR website.
My pleasure to introduce Larry Larry. Please go ahead.
Thank you Sheri good evening and good morning to you all for.
Joining us on our fourth quarter and you're trying to tell you why earnings conference call before I start I would like to remind everyone that all financial information.
<unk> is based in RMB unless otherwise noted.
The fourth quarter of 2020, what our revenue or one part of the 3 billion, representing a fortune point Street point quarter over quarter.
Increased way.
From a revenue for the full year 'twenty to 'twenty, one to say this part of the state.
Our gross Paydowns. This quarter also showed that field to handle it and 33, 7% quarter over quarter increase to 1 billion.
Do you have in this quarter net revenues and gross Paydowns from our comprehensive tutoring services, which consists of our fitness harder than can trial excitement to swap tags to their in service dates were 149 1 million and 230.
4.8 million respectively.
Represent decent increase in size compared with previous quarters and demonstrates that we are on the garage track of gradually shaped in our I would say today. It is other than timing to some tanks.
Jewelry and services.
It's especially worth noting that after we integrate struck.
Our business again, so the culture.
Fourth quarter, we achieved considerable probably the patency and both GAAP and non-GAAP terms as well as positive net operating cash flow.
Our net profit was 285.9 median and our non-GAAP net profit of one 324.4 median wage gave us drag for the highest non-GAAP net profit margin of 25, 5%.
Our net operating cash flow cash inflow was 245.
Pardon eight media.
I'll note that these are indicators that the business restructuring and organizational attachment we perform at the end of last quarter delivered speaking maybe tender results confirming that we told is that right.
D direction, which grew up with exact avian are strong periods of time in the meantime, we maintained a strong cash position as of December .
31st 2021, our cash and cash equivalents restricted cash and short term well Magid mentioned investment totaled.
<unk> 3.7 bidding.
Going forward, we will continue to focus on online vocational education professional education and digital product. We will continue to focus on high operational efficiency as we have always emphasized way away will contain all the folks on the effective growth.
Of our P&L and we will continue to focus on that.
Personnel the veteran rent of our T.
Next I will elaborate on these afford points and briefly cover our progress in the powder.
First is the fourth quarter.
Further expanded our vocational and professional education costs. It caught all brands to better meet the broad range of demand of our <unk> P M and a potential students.
In November last year, we repositioned ourselves as a lender centrica lifelong learning and a service at four weeks.
He is our Neal cabarets vaden stayed in it.
We now offer a relatively comprehensive range of vocational and professional education categories.
<unk> not only of shorter aimed for recruitment and qualification examinations and preparation for a college lab academic enzyme.
But also vocational skills training.
But basically the improvement professional content in copper rates cranium in August covering multiple types of training courses.
Her to a variety of needs.
Nerves are various age groups.
The kitchen, our tachograph and alive and work experience.
In addition to benefiting society by developing more in talent, our core operating hours.
We'll have a lender enrich their lives.
Our multi category paper for both reinforce the branding that we build at the end of the K 12 space in vocational and professional education sector and the wheel towards the cross, adding outstanding and the retention rates.
Oh, no that was the demand affordable kitchen, no and professional IP in China is enormous and is growing rapidly and we are confident that by leveraging the size and the restart phase.
Our observations of product.
On the development and its shoulders have accumulated in the online K 12 business, we just havent given us a strong competitive advantage, we will achieve a spigot they've kind of grows again.
Vocational education sector.
Second we have always emphasized the importance of a high operational efficiency.
Finally, all of our company, we haven't been determined to build a highly efficient urbanized and unify the cheap.
Our greatest asset is our achieved but which is also the core engine of our business growth.
After our restructuring in the fourth quarter, our gross margin was 16, 9.7% higher than the previous two quarters.
Our operating margin also reached a graph with a high level, both our Saudi is a testament to the high operational efficiency of our team.
Third we will continue to focus on the effective growth of our business. We do not pursue me it's been less size expansion drag.
Rather we put a priority.
Maintaining fail safe stable and sustainable growth before we introduce the aneel cost operating and we carefully analyze AC unit economics, and the profit model before launching a new product, we put ourselves into the shoes of the lender.
To ensure that we can provide in the past the quantities of the best service in the past the user experience to our customers.
Finally, we continue to be as fast.
Our employees by providing ways ongoing training.
We regularly range core competency trainings, including leadership operations and organizational skills for our business leaders as a part of our efforts to develop world One day the patents for our business.
Same time when continues to offer highly competitive.
Session by industry standards and to continue to maintain high standards of Florida recruitment training ranking and the performance evaluation of our children and employees.
Looking back or looking back 221, or and the Niobrara a vendor for a year as we went through a lot of skills for two days.
And organization no adjustment in the wake of a radically altered at array part of the change in the yen. The industry. However, we see a strong pair at a time when we completed our restructuring and ended the year with a strong cooperate profit locate a highly into 'twenty or 'twenty. Two we will continue to comply with.
The government policies continue to cherish that go to spray coating, our hard into eight and trying our best and to continue to leverage the debut of our experience.
Education industry and as the hard work of our excellent team to bring superior vocational and professional education courses, Joe Perry update until products and a better experience to more customers to fulfill our corporate mission of <unk>.
Kim running better.
Now I will pass the call over to our CFO Shannon to walk you through our financial and operational detail.
Thank you Larry and thank you all with Johnny on the call today I will now walk you through our operating and financial performance for the first quarter and for the full year of 2021 please.
Please note that although nicer beta in national later.
In RMB terms.
Otherwise noted.
We closed fiscal year, 'twenty or anyone with a strong fourth quarter.
Considerable GAAP and non-GAAP net profit and positive net operating cash flow.
Following the restructuring which was completed in the third quarter, our new businesses achieved that had and how to get out.
So it's got to billings.
Revenues generated from our comprehensive training and services showed codell well call her inquisitive.
Which reflects our promote and besides it restructuring.
Organizations solid patent pool and deep industry experience.
In the future, whether they'll continue to explore new business and remain dedicated to refining our products and services.
The goal of offering superior quality courses and services that exceed our students in fac patients.
By the end of 'twenty or 'twenty, one when you terminated all after school children services to students from kindergarten through nicely.
We would like to send all of our teachers and other nations path toward Hot works that they'd be able to cheat course, their delivery and their cooperation with their transition.
I would like to keep our Bachelor issue to them and we hope that Liberty would cherish the public welfare nature of education.
And continue to be well to themselves to providing excellent of courses and services in the nonprofit institution.
Our current strategic focus is on non degree based or cause you know and professional education.
According to official data released by the Chinese Ministry of Education, as well as an independent third party their market size for non degree based on location agitation in China in terms of revenue there'll be 257 billion in 'twenty two.
I find it rather fixed at low rates.
300, and what is 4.5 billion.
Presenting a CAGR of eight 3% from 22 to Chinese undertakes.
Combined with the demand for some degree based location agitation for college students such as preparation for graduate school entrance examinations Young College English pack, Yeah, 19, great based on location of agitation market has substantial heat and opportunity.
What are the competitive job market. It means that there is a huge demand for transferable job skills.
And I would one why their college students new graduates those rd in the workforce or simple it did and trying to improve their skus.
It's looking for reliable and high quality courses to satisfy a virus learning needs.
We will patiently start at user day mined designed products that will satisfy the learning needs of most users.
And Alberto can scottsville counted to Kuwait and Internet my take off learning tools promoting the delta brand in the vocational and professional education sector through word of mouth referrals.
Now I will share with you our all screen data in more detail.
We terminated after school children or services or things in compulsory education in the first quarter of 'twenty, one and in senior High school in the first quarter of 'twenty kind of true up.
Put the focus on sharing more information about our comprehensive children services.
Which is our business other than K 12 after school tutoring services.
And we've done some of our financials. All is part of our corporate business to better provide color on the performance of our new strategic focus.
Please note that the retroactive adjustments to historical data have also been made to provide a consistent basis of comparison for the financial results.
In the first quarter, our net revenues increased 14 points represent quite a low quarter two one points of a burden.
Not revenue contributed by our comprehensive children services increased by one 4% quarter over quarter to $149 1 million.
Godfrey.
The leading indicators for future financial performance in quake, two hundreds and three 7% quarter over quarter, two 1 billion.
Concentrating contributed by our comprehensive children services increased by 72, 8% plus I would call. Her T 200, instead of $4 8 million.
They have shown quarter over quarter inquiries were two consecutive quarters since the second quarter of 'twenty with a lot up to the fourth quarter.
This shows that we are gradually shifting our strategic focus to business other than could come out of school children or related services.
Moving over to our selected financial metrics summary.
Our cost of revenues.
Place to buy for the five 9% quarter on quarter, and seven 4% year over year to 300, and it is 627 minutes.
The decrease was mainly due to a decrease in compensation for instructors and sugars as a result of the restructuring in the last quarter.
As well as the closer in learning material cost and rental expenses.
Our gross profit increased 100 and.
22, a 0.1% auto all corner to $187 six minutes.
Rich you asked our gross profit margin of 69, 7%.
non-GAAP gross profit, which excludes share based compensation.
Increased 100, and some 49% quarter over quarter, she 900, and a two eight point.
Point, 2 million, which skew us in non-GAAP gross profit margin of 71, 3%.
The increase was primarily due to decrease the cost of revenue explained earlier.
Operating expenses should be close to by 57, 5% quarter over quarter, and 72.5% year over year to 629 points to remember them.
To break down the operating expenses.
Selling expenses decreased by 54, 9% quarter over quarter, and 79, 2% year over year to 373 million in the fourth quarter.
This was primarily due to a decrease in marketing expenses as a result of the impact of government policies as previously disclosed.
Yeah, that's great I did close in the compensation for sales and marketing staff as a result of the restructuring completed in the last quarter.
The selling expenses margin equates to two a record low 29 points to represent the sharp decrease compared to previous quarter.
At the same time, we are also exploring new customer acquisition strategy, including utilizing livestream ecommerce and short radio platform.
Yeah.
Our multichannel customer acquisition model.
Reduce the rates of Overdependence on one single means.
On the other hand, we will constantly improve our user conversion courses.
Additionally, we will continue to expand our course offerings to establish our branding in the vocational education sector and gradually become relying more on customer acquisition through word of mouth referrals.
And at least the way lower our customer acquisition cost and the selling expenses margin to pursue sustainable growth.
Great search and development expenses decreased by 62, 8% quarter over quarter, Yeah, So say four 5% year over year to 125 million.
The decrease was primarily due to a decrease in the compensation for research and development staff as a result of the restructuring completed in the last quarter.
General and administrative expenses decreased by 41, 8% quarter over quarter and that's why we're.
Well not for some year over year to $95 9 million.
Decrease was primarily due to a decrease in compensation for Jennie staff as a result of the restructuring completed in the last quarter.
With that our income from operations for the first quarter of 'twenty, one was 258 points to a minimum.
It was loss from operations of $696 1 million in the fourth quarter of 2020.
Our operating margin this quarter reached a record high 23%.
The sharp increase in O P margin was primarily due to a decrease in compensation for staff as a result of the restructuring in the third quarter of 2021 .
As well as decrease in other operating related expenses.
Yeah.
Our net profit was $285 9 million compared with a net loss of 627 million in the fourth quarter of 'twenty 'twenty.
non-GAAP net profit was 324 4 million compared with a non-GAAP net loss of 550 414 million in the fourth quarter of 2020.
It is worth mentioning that our net profit margin and non-GAAP net profit margin both reached a record high level of 22.4% and 25, 5% respectively.
Additionally, our net operating cash inflow was 245 8 million.
Turning to our balance sheet reads out as.
As of December 1st 'twenty, 'twenty, one we had $897 1 million cash cash equivalents and restricted cash and approximately $2 8 billion short term investments.
Which add up to be approximately 3.7 billion.
Deficient to support our current operating scale and our exploration into new business.
As for our full year results net revenue for 2021 decreased seven 9% year over year to $6 6 billion.
The decrease was mainly due to the session of canine academic subjects tutoring services as a result of the impact of government policies.
Net revenues from our comprehensive children services, where $551 1 million.
Gosh things decreased 42, 4% year over year to five 2 billion.
Gossiping's from our comprehensive children and services was 669 7 million.
Not a loss of 21, 213 1 billion compared with net loss of $1 4 billion in 2020.
non-GAAP net loss of 21 was $2 8 billion compared with non-GAAP net loss of one 2 billion in 2020.
Considering the uncertainty in that government brings to our financial condition. We will now provide the next quarter its football pro forma guidance for now.
This concludes my prepared remarks, operator, we're now ready for questions. Thank you everyone.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad if.
If you were using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Mark Li with Citi. Please go ahead.
Hey, Hi, Larry.
Management, Thank you very much for that presentation.
May I ask firstly, we understand are we terminated the high school tutoring.
<unk> by the end of February how much impact do we expect from besides elimination and also could you ship more on the key metrics for the vocational and professional education.
Such as our margin et cetera. Thank you.
Thanks, Mark so for the.
The high school.
Termination we have made.
I made an announcement in February 16th.
Because we are a company registered in Beijing. So that made follow local government infection that are the high school a policy should exactly the same Ah was the double detection policy.
And the exact impact will be disclosed in our July results, but in terms of all the restructuring we have completed a business and organizational restructuring in the first quarter and have settled the majority of the payments and expenses the falling termination, Florida High school.
Business is more natural and I fully prepared we do not expect to incur additional meaningful payment going forward and currently we have a strong cash balance sufficient T. A support our current business skill sets.
So then.
And and our current cash balance also a support of our acceleration into the new businesses and asked for a more detailed about the O. P margin 40 vocational education. So there are many categories in the vocational education sector and different category.
It's a different characteristics and the motto smokehouse deliveries are quite different as well.
All our result in inconsistency in the level of profit imagine so other public imagine. It's also affected by the percentage that each category takes up in terms of total revenue, so which means it is now no very stable. So as we're still in the early stage and are exploring.
And in vaccines phase of our new businesses, we are not able to provide a precise expectation on the profit margin for our electrical businesses, but there's one thing for sure that.
We will insist on our operating strategy wishes are all ways to run our business you know you packed away so living now a sacrifice.
The profit better to just where the scale expansion, although they were doing providing guidance as soon as our business has entered a scalable stage hope that addressed your questions.
Thank you.
The next question comes from D S. Kim with J P. Morgan.
Please go ahead.
Hi, Good evening, Hey, Mr Tonight, Shannon, Thanks for taking my question and by the way Congrats on the backward hypothesis in the margins this quarter.
I have a question on the path for that similar to what Mark just may jump out if we can.
Not about the one off restructuring costs, but in terms of the vickery apex run rate operating expense run rate from second quarter. This year, how shall we think about it you know for the rest of the year I E shall weeks that opex run rate to be similar to the four two that we reported.
Or maybe down by half or even 80% and it's our proportionate with the revenue side, what shall we expect when the operating expense.
So that's the first question.
Question, you probably need.
<unk> is related to our non pizza business I'm not asking for the guidance per se, but say for 2022 or 'twenty 'twenty three next year, how much of the revenue can.
Can we expect roughly you know very ballpark part figure like hundred person from current rate or 20%.
Eddie you know.
So both sides would be appreciated and if possible how would that revenue are being made up of a different segment I E vocational and professional education versus digital product, but just any new businesses like E Commerce and whatnot.
Yeah.
Ah. Thanks Ah. Thanks for your question. So I'll address your first question about the Oh packs. So because all we're driving E online education business. So the doctor for US it's very straightforward.
Consists off the coast of Brazil off those marketing expenses, our G&A expenses and R&D expenses. So in the past it was always the sales and marketing expenses contributed the most indeed, oh pack and phasing the first combination in the past where kind of like the same without it.
Patient company, sometimes are the sales and marketing expenses can contribute like 80% or even 90% or revenue, but like the going forward.
Especially they are facing the adult market professional vocational education, we are exploring a more China was to acquire customers. So and also going forward. We will pursue the if I take you've had have grow so our idea lately we hope.
That like the excessive snow or it will go back to you like the year of 2019 offer us so to leverage the economies of scale, but still with our R&D and G&A expenses too to be on and they are like 20% of total revenue.
Rich will provide us with.
Enough room to acquire new customer as well as for any new product I. Just mentioned everything is still you know battery on a stage and we still see that like you know our Paypal business, we have accumulated extensive experience in a cost delivering Andrew.
Refining our Ah Ah Park a paradox.
Demand process. We also have developed a refining our R&D.
R&D platform. So like all the legacy we got from the past Oh, It will take us to the future and also.
Oh, so for our business, we still face a certain level of uncertainty and they do see like in a sapsucker blend like some of the leading players that were have been performing very well. So that all shows the market that has a huge potential but for us, especially that experiencing like all the policy changes in the first half.
I think in the past it's become more clear philosophy that we will focus on ourselves and focus on the development of our management team and our employees and to provide the best product to our customers at the same time keep improving our operating efficiency I hope in the near future.
We can or we can get a healthy and that's been the gross AR. That's all as a profitable growth and you also mentioned like any color on the future goes so we will put priority on maintaining the effective growth Oh, well, achieving a positive net profit because of our current operating.
Scale and market size. They think it is a possible slots to achieve like high double digits or even triple digit revenue growth regarding our new strategic focus are the key is to constantly refine our products to better satisfy users' needs and also we will provide our revenue guidance.
As long as the policy and the academia laminate is stable that's like we always do in the past. Thanks.
Thank you so much Shannon that's really really helpful. If I may follow up on that Bob.
Part of my question was more about life after the accident they'll keep hutto, including high school, how about R&D and G&A fixed cost would look like for instance, fourth quarter Two's World.
Yeah, a little over 200 million Brendan B in fourth quarter, our non tier 212 revenue was 100 and.
So just wanted to balance that you know after the accident of K 12 shall we have a meaningful step down you know fixed cost further or we would rather focus on Asia, and Asia product treatment growth opportunity rather than focusing too much on b B Navy fixed cost and that's.
Oh My question and thank you again for your answer.
Yeah. So yeah. The question makes a lot of sense, so light for us been running our business. We are always trying to find a balance so where they get legacies and experiences in the past and that all helped us to a girl in the past and also like all the patents we had an outage.
Somebody has to build up also assist us to to his success in the future. So when we consider that further investment in R&D and the G&A.
The G&A our scale, we also need to consider like like the the the top line scale like we can acquire from the market.
And also like we always mentioned like.
Probably out of first the stage, although we're still maintain a certain level of investment in R&D to support to keep on refining our teach them product then going forward as our revenue grow rapidly. They believe the percentage of R&D and G&A expenses.
Lora, which are we call it oh the economies of scale that also provide us with the profitability.
But I'll pass it on.
Yeah, Yeah, yeah, how how how fast they can get there, but still we need to maintain a level of investment, especially in the R&D expenses.
Thank you very much.
This concludes our question and answer session I would like to turn the conference back over to Sherri Lu for any closing remarks.
Thank you very much operator, and thank you everyone for joining the call today. If you have any further questions. Please don't hesitate to contact the company will contact us via email at that thought to Gussy instead I can.
We just got to talk to our newest alert or quarterly investor newsletter on the companies I Havent site.
Very much again for your time have a great night.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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