Q4 2022 Gaotu Techedu Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to the Gaucho attack.
Fourth quarter and fiscal year 2022 earnings conference call.
All participants will be in listen only mode.
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Thank you Rob.
After todays presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
February 28 2000.
Okay great.
I would now like to hand, the conference over to your first speaker today Ms Sherri.
I our manager of Gal. Thank you. Please go ahead.
Thank you very much operator, good evening, everyone. Thank you very much for joining us on the fourth quarter and fiscal year 'twenty earnings Conference call.
For the fourth quarter and full fiscal year. It was published earlier today and is available on the company's appetite and I thought you would I see them.
On the call with me today from thousands of senior management with MS. Shannon, Sean Douglas Chief Financial Officer, Shawn I will first read the prepared remarks on behalf of Maritime Goblet, Sundae, Chairman and Chief Executive Officer, and Theyre shallow well discuss our financials in more detail.
In the prepared remarks, Shannon will be available for the Q&A session.
Again, I'd like to remind you that this conference call will contain forward looking statements I feel fine on the U S. Private Securities Litigation Reform Act of 1985.
These forward looking statements are based upon management's current beliefs and expectations as far as the current market operating conditions and they 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 that may cause the company's actual results performance or achievements to differ much.
Generally from those containing any forward looking statement.
Further information regarding these and other risks is included in the company's public filings with the U S. S E T.
Company does not undertake any obligation to update any forward looking statement, except as required under applicable law you on today's call management will also discuss certain non-GAAP measures for comparison purposes, only for a definition of non-GAAP financial measure and reconciliations of GAAP to non-GAAP financial results. Please refer to our fourth quarter and fiscal year 'twenty.
Joe I don't agree at least published earlier today as a reminder, this conference is being recorded in addition, a life and a couple of webcast of this conference call will be available on IR website. It is now my pleasure to introduce Shannon, who will provide us quite a general business highlights on behalf of Larry Shannon. Please.
Thank you Sherry Hello, everyone. This is Shannon speaking Larry is in the middle of his life's journey session. Although in right now it is part of what he's a 15 day consecutive of book Reading second although E.
Lotteries viable explorations in the video ecosystem have huge strategic singing it because in the future of business development.
Randy has meant for go to sleep.
Please excuse his absence Tonight and I haven't read my prepared remarks, all his behalf.
Good evening and good morning, everyone.
You booked only adds on God, who was fourth quarter and fiscal year 2022 earnings conference call.
I would like to take at least the opportunity to once again can be my gratitude for your continued interest in and support for gout pool and the education industry.
Before I start I would like to remind everyone that all financial information, but unless you later is based on RMB.
Otherwise noted.
What do you believe are at decent upside our results in the fourth quarter of 2022.
We achieved that is quarter over quarter revenue growth for the sort of cause that to a quarter.
And we also reported another profitable quarter with us that so not all putting cash inflow.
Our net revenues for the quarter increased to two $629 6 million.
Our gossiping secured a significant quarter over quarter increase.
All 64, 3% to approximately 1 billion.
Symbolizing that our business has entered a phase of continued that it'd be back somewhat.
During the quarter, we attend and net income margin of 11, 2% and non-GAAP net income margin up 13, 9%.
Which brought our non-GAAP net income margin for the full fiscal year to five 4%.
Even more noteworthy is that we recorded a net operating cash inflow of $476 7 million during the quarter.
Meaningful lately paid the full year number into positive territory and strengthened our cash position our.
It has seemed to our superior operational efficiency.
We achieved effects have growth on both a quarter and I know base where.
Which is the combination of our liberty and commitment to our long lasting strategy for profitable growth and our relentless effort to optimize students parents M teaching quality.
Were pleased to close the challenging 2022 on such solid footing.
Which has reinforced our confidence as we welcome unknown challenges in the next of the year.
As we enter the spring season on all sides of the house girl with momentum.
Organization had shown exceedingly resilient and cohesive.
Well rite aid to deliver another year of profitability and a substantial net cash inflow from operations in 2023.
Going forward, we will continue to executive our customer centric long term oriented and it's a natural growth strategy to create enduring value for our students employees and shareholders.
Now I would like to provide updates on the progress we made this quarter from the following four aspects.
First each of our core business lines remained on a steady growth trajectory.
The sharp sequential increase in gross billings.
Well, it's mostly driven by non academic children services and other traditional learning services.
Which partially benefited from favorable seasonality.
In terms of revenues, we saw quarter over quarter growth across both educational services for college students and adults and then not academic security services.
That's supposedly the postgraduate entrance exam cracker business raped pull her at a profit for the first time.
Looking ahead, we expect all business segments with the thing they're positive growth momentum in 2023.
Second well continue to focus on reaching our talent pool and the.
Housing our organizational capabilities.
I go to <unk>.
Underlying philosophy is that love compassion goodness allocations are the cornerstones of education.
We always remind ourselves of our all regional aspiration to educate young to uphold the highest level of education to exaggerate the liberal compiling learning results by offering tailored services through outstanding teaching experts.
Dedicated the teachers have always been our core competitive the wrong page.
Internally, we are actively called awaiting more excellent instructors and tutors.
Absolutely. We have also asked our bullish long term partnerships with top universities and colleges to continuously channel with teaching professionals passionate about education to go to.
Julian This quarter. We're successfully hosted 2023 go to Battle management trainee recruitment events are reaching quantified a university to engage more asbury young pilots.
Moving forward, we will continue between what additional efforts into recording top notch talent, who meet our strict hiring standards across the virus fuse.
To build the long value chain of agitation and reinforce our deep rooted its competitiveness.
Third we continue to improve our operational efficiency.
On the services Franck golf's, probably in margin during the quarter registered a both year over year and quarter over quarter increase.
Two higher of course delivery efficiency.
Regarding customer acquisition, we've reduced our sales and marketing expenses margins by nine five percentage points.
As compared to last quarter.
246%.
At the same time, the selling expenses rois saw sequential improvement.
Presenting greater marketing efficiency.
Meanwhile to develop our two channels with higher conversion rates, we are actively implementing them private traffic acquisition through shut later platform offline, China and others to further enhance customer acquisition efficiency.
I spoke last quarter expenses comparable with the prior quarter. They remained largely flat with a moderate decline after adjusting for the exchange loss yonder the negative impact of some one off expenses up in the quarter.
Going forward, we expect our headquarter expenses to remain stable our revenues expand.
And our operating leverage should lead to ease out.
Celebrated the profitability improvement.
Last but not least we continue to explore and experiment with new business you need to ask them the grandeur of our offerings.
In the fourth quarter, we officially started our lives bringing e-commerce journey on DAU in the Chinese word in the uptick talk.
I'll ask Ginny rent go to Jackie debate on the evening of December 24th last year.
And I also love My personal account also aim to share my experience on Korea, and a personal development and offer some life license.
I would continue to undergo a transformation.
I would like to personally explored the bumper lies possibilities of this platform to motor effects. It learning repeated upgrades.
Thanks with that out as a live online large class tutoring services provider.
We have a great talent the reserve whose capabilities resemble that of an idea like green host.
But a lot of reading the superior presentation, Skus and walk the knowledge base of course through years of lab teaching.
I would love stream hosts have a natural advantage in providing high quality and are appealing content.
And then to seamlessly P were to rally party and knowledge to students to sharing.
Some food quality lifestyle with consumers.
With the mission of making less better skeletal Jackie is committed to serving as a break between producers and consumers.
Producing customers too reputable products with proven excellent quality and high repurchase rate.
We believe our endeavors in the live streaming business will create a huge salaries in terms of branding soldier and branding Hudson it.
As of now we're still in the initial stage of at least undertaking and we'll continue to accumulate inside and Knowhow all short radio operations going forward.
I I have always said to our team.
But at times I, usually the toughest time.
And the hardest times often lead to the best of moments in their lives.
It is because I wouldn't want to fast I'd go tool is seemingly devoting their best I've heard.
And yielding ladies playing the same into the eyes in human.
Humility and entrepreneurship that we thought it would stay what that.
We are transforming into a bite her adult who every day.
Okay had into 2020 straight guided by our effective growth strategy. We will continue to develop continue to innovate and continue the pension mute to the development of education in China.
Thank you everyone for listening. This concludes my prepared remarks.
And now I will walk you through our detailed financial and operational performance for the fourth quarter and full fiscal year 2022.
Please note that all financial data that that national laser is based on RMB unless otherwise noted.
During the fourth quarter I wasn't that resonates grew three 9% quarter over quarter to $629 6 million.
And our golf things increased by a considerable six eight full points, 2% quarter over the last quarter to approximately 1 billion.
The notable rise in gross billings was it driven by our enhanced educational product quality.
That'll a growing user base and some business development.
As a leading indicator for revenue.
Gross billings meaningful expansion has boosted our confidence in our top line growth prospects for 2023.
Small or our net income for the quarter was 74 6 million and non-GAAP net income was $87 4 million.
Which led to a net income margin of 11, 2% and a non-GAAP net income margin of 13, 9%.
Yeah, they should to attaining profitability. We also generated a sizable net operating cash inflow of 476 towards that point 7 million and recorded a year or your inquiries in cash reserves during the quarter.
Bolstering the long term development of our company and validating our continuous improvement and the efficiency optimization efforts.
Turning to our full year results net revenues and gross billings for fiscal year 2022, both great approximately two point felt better than me.
Meanwhile, we also achieved profitability on a full year basis.
Our net income for the year was 13.2 million and our non-GAAP net income was 100 and so if I may then.
Yes on that.
Income margin, all the 0.5% and non-GAAP net income margin of five 4%.
You know a patient so Ernie annual profitability, but also generated a nice operating cash inflow of $54 5 million this year.
I know Paul Trussell of top line growth part of the total was positive bottom line and the cash inflow.
There's a clear testament to the resilience in a way to mobility and operational efficiency of our organization.
The sizable cash inflow job continuous growth in our cash reserves.
I'm such as of December 31st 2022 of our cash cash equivalents restricted cash and short term investments increased by $72 7 million compared to that at the end of 2020 watt to approximately $3 7 billion.
Providing solid ground Bravo continued operations and exploration of new initiate Hayes.
They kind of rise our main businesses into two sectors learnings.
Learning services and educational content and the digital lives learning products.
Learning services are comprised of educational services for a college students and adults.
Not that I'm at the children services and other traditional learning services.
As a cushion of accountants and digital life learning products, primarily I support it with smart learning tools that serve as a supplement to our learning services.
I will now elaborate on the progress we have made in each of these business lines during the quarter.
Third learning services accounting for over 90% of net revenues in the quarter.
Breaking it down close to 60% of our revenues came from the academic children of courses and other traditional children courses.
Our non academic student services consist of intelligence.
Creatively presented of courses modules.
That includes school, aged the cheese, Paul lets take progress by improving students and we're all learning capability.
They are comprehensive development.
Parking their interest and passion and motivating them to be continuously closeted.
And of course enrollments for our academic courses in the fourth quarter achieved triple digit quarter over quarter growth.
We constantly upgrade and refine the curriculum design of our not I've got to make the children courses with the intention of being pulling students integrity development.
Which led to a higher retention rate during the quarter.
In December last year, the government has published a clear policy guidelines.
Going forward, we will constantly improve our retention rates and customer satisfaction.
But junior and of course its products that.
That exceed the expectations of students and parents.
Ensuring compliance.
Non academic computing and other traditional courses exhibit a sin and seasonality.
For online businesses, such as ourselves the second and fourth quarter are normally of course retention seasons.
During which gossiping's them most of them contributed by existing students renewing their courses.
Typically account for a higher percentage of annual gross bookings during the first and third quarters.
As our businesses continue to gain traction and our retention rates rebounded golf things from our academic the children services increased at roughly 19% total holter, creating a strong foundation for the future revenue growth.
Beside from the above mentioned.
The other crucial component to learning services is educational services for college students and in adults.
Which nearly doubled in revenue compared to the same period of last year.
Constituting more than 30% of revenues for the quarter.
Our core business bookers public sector includes postgraduate entrance exam prep services.
Financial so that they could track services.
Civil services exam prep services and overseas, but I'd hate to services.
Among these were to close the poll to graduate the entrance exam, a private business recorded quarter over quarter revenue increase of roughly 23% and celebrated its first profitable quarter.
Laughter late the remainder of our lesson chimps sound revenues came from educational content and digital lives learnings for docs.
Which mainly include intelligent learning products for students.
As smart textbooks and the learning apps.
Please tell me a bunch of products are designed as a supplement to our core products to fulfill students virus learning needs.
Next I will present, our financials in detail the numbers.
Our cost of revenues this quarter was $159 3 million.
Our gross profit increased seven 5% quarter over quarter to 470 points to admit them.
Gross profit margin was 74, 7%.
Presenting a 504 basis point increase year over year, and a 255 basis point increase quarter over quarter.
non-GAAP gross profit increased seven 9% quarter over quarter to 473, four nightmare them.
And non-GAAP gross profit margin was 75, 3%.
The increase in gross profit margin was largely due to higher of course delivery efficiency.
Operating expenses decreased.
'twenty, three or four 2% year over year, yeah, full 0.6% quarter over quarter to 400, and it is sort of a 0.6 met them.
Breaking it down selling expenses decreased 22, 3% year over year, and 14% quarter over quarter to 289 8 million of them well.
Calling for 46% of net revenues.
Which was nine five percentage points lower than in the third quarter.
So put a whole quarter decrease in selling expenses can be explained by two factors.
First in terms of customer acquisition, we are constantly seeking out more innovative cost effective channels with better conversion rates to precisely target high intent customers was strong but it needs to pay.
On one hand, we have set up our own mattress to accounts all short radio platform to attract the highest quality users with premium content creation.
Well continuously performing customer made activation and retention of private traffic.
Some of our courses have achieved Briggs, who is our live streaming platform.
For instance, one of our English instructors highest ranked among the top five of the Doe Universal life product channel or Shunyi shortfall in terms of G M wait for multi times.
On the other hand, rehabbing exploring more offline China.
I'll bring him more tailored trail courses to better serve students in local regions and cities and targeting prospective students with high granularity.
At the same time.
Oh, a year providing.
Consistently high standard of services and the superior quality of courses content.
We are gradually as the ablation, our brand and reputation among college students and adults.
We have significantly reduced selling expenses through a greater reliance on word of mouth referrals.
Looking ahead, we will continue to enhance our conversion rate and improve our selling expenses. Our ROI. So we're focusing on college students and our target customer base.
To drive sustainable long term growth.
Second.
From a seasonality standpoint.
Fourth quarter is not the most efficient seasons for new student enrollment for non academic children services and other traditional services.
As such they allocated a lower marketing expenses during the quarter, considering considering the operational efficiency.
Moving on research and development expenses decreased 10, 9% year over year to 111.4 minutes.
Counting for 17, 7% of net revenues.
If we exclude the negative.
The fact of some one off expenses.
R&D expenses remain flat with moderated quarter over quarter decline.
General and administrative expenses decreased 40, and 41% year over year to $82 4 million.
Accounting for trucking, 0.1% of revenues.
It's a crucial slight increase in G&A expenses were to combine the back off I realized exchange losses due to large I expected exchange rate fluctuation and some one off expenses.
Loss from operations for the quarter was 30 important to a minimum.
non-GAAP income from operations was.
It's three points I'll admit them.
non-GAAP operating margin was 0.6%.
Full tilt or other income it's sequential increase to a large extent was due to gains from wealth management instrument.
While all other tax related benefits.
Further due to a greater possibilities for future profitability.
We also recognized an appropriate amount of income tax benefits, resulting from deferred tax assets.
During the quarter net income was some people or six met them.
non-GAAP net income was $87 4 million.
I would not all putting cash inflow was 476 7 million.
Moving on to our full fiscal year results in 2022.
Our loss from operations was 100 and ATM former 1 million now.
non-GAAP income from operations was $4 six minutes.
Net income for the year was 13 point too many of them.
non-GAAP net income was 100 and stood at about four 8 million.
Our net operating cash inflow was.
So people one 7 million.
Turning to our balance sheet as of December 31st.
2022.
We had $819 9 million cash cash equivalents and restricted cash and $2 9 billion and short term investments.
Totaling approximately <unk> 7 billion RMB.
As of December 31st 2000, and then trying to our deferred revenue balance was 900 and the same thing that four 3 million, which primarily consists of tuition received EMA it along.
And a larger proportion of which will be recognized as revenues within one to two quarters.
Oh, they finally, all founder chairman and CEO , Larry trend highest inquiries, he's Joe holding an aggregate of $3 6 million a D. S. In 2022.
Highlights management firm competence in the future development of our company.
Before I provide our business outlook for the next quarter. Please allow me to remind I would want that lease contains forward looking statements.
It involves risk and uncertainty.
Beyond our control and could cause the actual results to differ materially from our predictions.
Based on our current estimates.
Total net revenues for the first quarter of 2023, I expect it to be between 600, and it is $6 million and 706 million.
Presenting a decoy yourself five points, 3% to two 6% all year over year basis.
This concludes my prepared remarks.
Operator, we're now ready for the Chewy section.
Thanks, everyone for listening.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Once again that was star then one to ask a question.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from you on the on.
What type of Securities. Please go ahead.
Okay. Thanks.
First congratulations on just on your financial results on Q4.
Thanks for taking my question I have two countries.
Sure.
First one is Uh huh.
The structure of the other gestures.
Oh, it's not cheap.
Yeah.
Oh.
The question is Oh, Oh Oh.
Hold her own cultural changes in spring.
Well be cautious on the what are the changes come here.
The almost the spring semester catch.
Okay.
I don't answer your question so.
First our Florida production structure, all sort of revenue structure, but we foresee it to maintain sustainable or you know first quarter, you know 20th honestly, which means the learning services will still be the largest revenue contributor that and it will it will contribute over 90% of the rock.
Revenues and the remainder of the 10% we were contributed by the digital products.
And within the 90% of the learning services revenues I'll wait till we see the learning services all from.
Our college students and the adult business to contribute around 30% of the total revenues and the rest will contributed by our our not academic drilling services and other traditional learning services.
For your second question like the quarter over quarter, you know a man on the street.
Spring semester, because our businesses are.
There's a difference Ah that's a different between 2023 in China, if I need to if if we kind of recall that in the first quarter in the 20th wanted to wait.
We announced a.
Public release that are we kind of like.
So used to our children and services, Florida High School section.
And the like.
For the quarter in the 20th honest great. Some of the traditional learning services will be picks up again, so the enrollments it felt that a comparable between these two quarters, but going forward, we will be providing more specific instructions on the you know much if the business device.
A more favorable stage thanks.
Yes.
Okay.
Okay.
This concludes our question and answer session I would like to turn the conference back over to MS. Sherry O'neill for any closing remarks.
Thank you operator, and thank you everyone for joining the call today. If you have any further questions. Please don't hesitate to contact our Investor Relations Department or our management via email and go to Adelphia indirectly Youre welcome to subscribe to our news alerts on the company's IR website, you'll also partly invite destroy Louis lives, but less drilling.
Although you're right now thank you very much again for your time have a great night.
Yeah.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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