QuantaSing Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
December 13, 2023

There are 8 speakers on the call.

Operator

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Quanta Singh's Earnings Conference Call. At this time, all participants are in a listen only mode. We will be hosting a question and answer session after management's prepared remarks. Please note that today's event is being recorded.

Operator

I would now like to turn the conference over to Ms. Lia Guo, Investor Relations Associate Director of the company. Please go ahead, ma'am.

Speaker 1

Thank you. Hello, everyone, and welcome to QuantaSing's earnings call for the Q1 fiscal year 2024. With us today are Mr. Peng Li, our Founder, Chairman and CEO and Mr. Tim Hsieh, our CFO.

Speaker 1

Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and On our IR website at ir.quantaSing.com, you can also access a replay of this call on our IR website When it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our Safe Harbor statement In our earnings press release, which also applies to this call, as we will be making forward looking statements, please note That all numbers stated in the following management's prepared remarks are in RMB terms and we will discuss non GAAP measures today, which are more thoroughly explained To the CEO and Founder of QuantaSing, Mr.

Speaker 1

Li.

Speaker 2

Okay. Hello, everyone. I'm Matt, the Founder of the company, And thank you all for joining us today. We started the new fiscal year with a solid quarter. We are focused on the growth of our core business, Which revolves around adult learning services.

Speaker 2

During this quarter, our revenue increased by 31.8 percent year over year, showing the success of our strategy to diversify our cost offerings. Notably, our personal interest courses has grown strongly with a 36.1% increase in revenue quarter over quarter. These quarters now make up around 47% of our total revenue, a large jump from the 18% They contributed just a year ago. Let me share some updates on what we are doing and have a quick look at Our recent successes and overall performance. As of September 30, 2023, We had around 103,300,000 registered users, representing 8,100,000 as of September 30, 2022.

Speaker 2

Our paying learners rose as well, Increasing by 18.2% compared to the same period last year. Over the past few months, we have successfully grown our user base and our interest to content It's drawing more learners to our courses. We have further enriched our course offerings by providing more tools To help our learners build knowledge and skills, for example, we introduced learning tools With more detailed contents to facilitate the understanding of concepts Such as REIT and ETFs to Qinyu, our financial literacy learning platform. This gives users more knowledge And improved their overall experience when learning about found concepts. With this update, JinYue has achieved a closed loop learning tool system, offering learners a more Practical and comprehensive learning journey.

Speaker 2

We have also been improving our courses' structure. In the past, Some of our courses, each had multiple instructors. Because of these, courses Last year, due to the transition between instructors, we found that our learners Prefer to have a single instructor who can follow their full learning circle. So We have streamlined our process by assigning 1 structure and 1 assistant for our financial literacy courses. These results are good.

Speaker 2

We improved our operational efficiency. We lowered our personnel costs. Fewer people dropped out of courses And completion rates remain steady. Notably, our customer Slide 3 for the courses with refined structures As a crucial part of our growth strategy, we regularly refine our cost offerings to align with We designed a weekly insights section to help our learners stay on top of the trending topics On short video platforms and recent changes in platform rules, this not only enhanced the quality and visibility of their work but also catered to their extracurricular content needs. Let's turn to QuantaSing, our silver learners focused platform.

Speaker 2

We made an important change by moving Using external Cortex, when we first launched and during its Early stages to creating our own content. We have designed a unique 3 d approach That combines costs with AI tools and practical exercises that is tailored to thinner Demographics. We have improved various elements of the courses, including content volume, difficulty level and the tools and the logic used in the cost interface. This shift also give us more control over our content and makes us better at adapting to changes In learning behavior, our goal is to make sure our content is always interesting For Matthew and Yousufu, Chenxi has become an industry leader In offering courses that truly meet the needs of the senior population, we remain committed to delivering High quality, tailored learning experience, and we are excited about the positive direction of our platforms. Meanwhile, we are contributing to organize off line events to enhance our brand awareness.

Speaker 2

For example, On July 18, we hosted an offline anniversary event for Qingyou. We invited various Stakeholders, including industry leaders, business partners, employee key representatives and many more. During the event, we announced our nonprofit Collaborations and unveiled our latest white paper on financial literacy. We encouraged conversations about expanding financial understanding and recognized Outstanding contributions through Avaaf. This event played an important role in enhancing our Corporate culture and further boosted our brand awareness.

Speaker 2

Our offline events Also offer users an integrated onlineoffline learning experience. These events allow users to apply what they learn to realize situations and how we enhanced user engagements within our learner community. During the quarter, We organized the memory and short value competitions, attracting a dynamic group of motivated learners. This competition gave those completing our courses a final challenge Reinforced what they have learned and give them an opportunity for self expression. Our senior learners show resilience, competitiveness and allow for learning, Setting a great example for younger generations.

Speaker 2

We have received lots of positive responses from learners, Which are widely circulated within our learning group's posting learners' motivation. Our offline activities go beyond competitions. For example, we organized various events Founder Chenxi, where senior learners can connect through calligraphy, Piano and standing meditation shared appreciation Of these events among senior learners has built a strong emotional bond with our community. Our learner online and present offline approach has greatly increased learner satisfaction. Internally, to ensure overall learner satisfaction and our operational efficiency, We integrated customer feedbacks into our service evaluation system this quarter.

Speaker 2

This allows us to do a systematic analysis of the feedback, sorting it based on aspects like timelines, Quality and overall sentiment. The findings give us more complete picture of our services and help us to better manage our Service quality. Enterprise service remains a business upsell channel And currently represents 8% of our total revenue. Our main focus is still on 2C online Learning service. Our strategy is centered on our adult learning service With the aim of improving people's lives and well-being, while using our existing results to maximize Shareholder return.

Speaker 2

Turning to our new business initiatives. Liveecommerce Continues to benefit from our existing user reach and has generated a solid GMV, Reaching RMB41.8 million during the Q1 of fiscal year 2024, We are adopting a prudent growth approach, and our current focus remains on sales of Chinese liquor. As part of our commitment to expand globally, we recently acquired Kallis Education. We will share more updates on this when they are available. In summary, our strong first fiscal quarter performance Was driven by our commitment to adult learning services and the significant Growth of personal interest courses.

Speaker 2

Our focus on refining cost structure and offering Has expanded our learner base, hosting offline events has boosted brand awareness And sustained high satisfaction rates, AI driven operation efficiency Improvements through systematic feedback, monitoring has been little. Our ongoing mission is to enhance individuals' quality of life through lifelong learning opportunities. We appreciate our shareholders on waiving trust And support as we strive for continuous progress, we will continue to provide regular updates on our Journey ahead. With that, I will turn the call over to Tim to discuss the details of our financials.

Speaker 3

Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms. That reporting period is the Q1 of fiscal year 2024, which is the fiscal year ending on June 30, 2024, And that in addition to GAAP measures, we'll also be discussing non GAAP measures to provide greater clarity on the trends in our actual operations. For the Q4 of fiscal year 2024, we grew our total revenues by 31.8% year over year And up 4.9 percent quarter over quarter to 869,100,000 Mainly driven by growth from other personal interest courses. Among our revenues, revenues from individual online learning services Grew by 29.2 percent year over year to RMB755 RMB900,000 or 87 percent of total revenues, mainly due to continued demand for other personal interest courses, Consistent with our strategy to diversify cost offerings, our gross billings of individual online learning services Increased by 14.6 percent year over year to RMB762.1 million.

Speaker 3

Revenues from Enterprise Services were RMB68.4 million, a change of 7.1% from a year ago, Representing 7.9 percent of total revenues, primarily due to a decline in revenues from related party transactions. Gross profit was $750,900,000 representing a gross margin of 86.4 percent compared to 88.6% in the same period last year. Total operating expenses It was $706,700,000 compared to $677,800,000 in the same period last year. To break this down, sales and marketing expenses were RMB620.2 million, representing a change of 6.7% year over year as we increased spending on marketing and promotional activities for other personal interest courses. As a percentage of total revenue, non GAAP sales and marketing expenses, which excluded share based compensation, Decreased to 70.8 percent from 86.2 percent a year ago.

Speaker 3

Research and development expenses were US43.8 million dollars representing a decrease of 16.3% year over year, Primarily driven by decrease in share based compensation. As a percentage of total revenue, non GAAP R and D expenses, which exclude Share based compensation decreased to 4.4% from 6.1% a year ago. General and administrative expenses were $42,800,000 representing a decrease of 3.7% year over year, Primarily due to decreases in share based compensation and office expenses, partially offset by an increase in professional services. As a percentage of total revenue, non GAAP G and A expenses, which excluded share based compensation, decreased to 3.4% from 4.1 percent a year ago. Net income was 66,700,000 Excluding share based compensation, adjusted net income was RMB94,000,000 representing an adjusted net margin of 10.8% during the quarter.

Speaker 3

Basic and diluted net income per share RMB0.39 and RMB0.38 respectively during the quarter. Adjusted basic and diluted net income per share were RMB0.56 and RMB0.54 respectively during the quarter. Turning to our balance sheet. As of September 30, 2023, our company held $6,000,000 as of June 30, 2023. Lastly, I want to provide some color on our outlook.

Speaker 3

For the Q2 of fiscal year 2024, which is the fiscal year ending on June 30, 2024, We expect revenues to be between $920,000,000 $950,000,000 Representing a year over year increase of between 17% to 20.8%, these projections Take into consideration the current market conditions prevailing in the industry. Throughout the quarter, We've been leveraging AI to boost our operational efficiency. Our focus on delivering high quality, Personalized online learning services and a diverse range of courses remain unchanged. With a solid performance in the Q4 of fiscal year 2024 and a strong financial position with diversified revenue streams, We are well poised to tackle challenges and capitalize on growth opportunities. We are dedicated to creating value for both our customers and shareholders.

Speaker 3

That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.

Operator

When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. The first question today comes from Hunter Diamond with Diamond Equity Research. Please go ahead.

Speaker 4

Hi, everyone. Congratulations on the results. So So one of my questions, you've discussed AI, where are you seeing the most impact and where are you looking more excited about AI within your business? Is it the ability to Lower costs, increased user engagement, maybe provide more color on where you're most excited about AI's impact for QuantaSing?

Speaker 2

Okay. Thank you for your question. I will answer in Chinese and

Speaker 1

For our business, AI has made a significant impact in a number of areas By enhancing efficiency and improving user engagement, one notable use of AI is quality inspection. AI is used to supervise and monitor communication records, including text and voice interactions in the sales process. This automated quality inspection allows us to effectively to identify and handle any errors on our side, Ultimately reducing customer complaints and elevating the overall quality of user services, this has greatly enhanced our operational efficiency. By using AI for quality inspection, we have significantly reduced the costs, cutting down our labor costs significantly as Well, when compared to the manual inspection processes. Another area where AI proves Highly beneficial is in the creation of user profiles.

Speaker 1

This involves 2 main aspects. 1st, profiles 2nd, AI plays a role in the development of the group profiles by identifying users with similar characteristics. These groups' profiles can be leveraged across various business systems. This personalized approach based on the user profiling

Speaker 4

Great. Thank you for the additional color. My second question was around e commerce. I know you mentioned that as a new potential revenue opportunity. Can you provide an update on that segment or any other revenue growth areas you're seeing or potentially seeing outside the core offerings of your business?

Speaker 3

Yes, thank you. I will take the question. So in terms of the Live E Commerce, Leveraging the company's solid infrastructure in terms of the technology and database Also the system developed by ourselves, we are excited to share that our entry into the Chinese liquor market has been met with positive responses from our user base. We only started our live e commerce business in June this year and we have already achieved a sizable GMV The latest quarter is over around RMB42 1,000,000 during the quarter. So Our business model has proven to be effective.

Speaker 3

The live streaming e commerce platform has provided an engaging avenue To innovation and customer satisfaction, we are actively engaged in developing new products and services to enhance The overall user experience. This includes collaborations with renowned liquor brands, introducing exclusive offerings And integrating cutting edge technologies to make the shopping process more interactive and enjoyable for our users. As we continue to invest this new revenue stream and this business, We remain optimistic about the opportunities it presents. The combination of online learning and live streaming e commerce Has proven to be a synergistic approach, creating a new unique ecosystem for our users, including the learners to expand our business scope and also to make our platform more attractive. Thank you.

Speaker 4

Great. Thank you for the additional information and appreciate taking my questions.

Speaker 3

Yes. Thank you very much.

Operator

The next question comes from Steve Silver with Argus Research. Please go ahead.

Speaker 5

Thanks, operator, and thanks for taking my questions. I was hoping you could provide your current thinking

Speaker 3

around the economic backdrop in China as it relates

Speaker 5

to QuantaSing's prospects to Drop in China as it relates to QuantaSing's prospects to continue to grow the enterprise services vertical. And with that, Just given the growth of the upselling and the new market opportunities combined with the company's strong balance sheet, are there any Are there new paths being explored to expand the user base? Or is the strategy more about executing on the current programs that are currently in place?

Speaker 3

Okay. Thank you. I'll answer your question. In terms of Your first question, the economic conditions in China are dynamic and also though many challenges, but the High quality growth is still on our way and is a good trip. And we are keeping a close eye on the landscape So that we can adapt our strategies accordingly, despite potential challenges, we see Many opportunities for the continued development of the new enterprise service products to upsell within our target markets.

Speaker 3

China's robust and rapidly evolving digital ecosystem, combined with the government's emphasis On technology and innovation creates an environment conducive to the growth of online services. This includes enterprise solutions that cater to the evolving needs of businesses in China. And also I think Because there are so many small and medium sized companies in China and also they are owned by small persons, The small businesses also need the enterprise maybe some courses And maybe some systems and techniques to help them to upgrade and their business operating skills And to enhance their knowledge and to strengthen their own business growth. So both of the technology side and the market Demand side creates a very great market with great potential for our business development. So our commitment to staying at the forefront of the technological advances Position us favorable to leverage the opportunities as I just mentioned also presented by the dynamic Chinese market.

Speaker 3

We're actively investing in research and development and to create innovative enterprise service products and services that address which will address the specific demand of our target markets. Furthermore, our strategic and collaborations with the Chinese business community enhance our understanding of the market needs and preferences. This insight allows us to tailor our enterprise services to align with the evolving requirements of our customers, Enhancing our ability to upsell and provide additional value. And also for your second question, I think in terms of the New markets, opportunities and also the user base. We recognize the dynamic nature of the online learning and live stream e commerce landscape.

Speaker 3

While our current initiatives have laid a solid foundation, We are actively exploring and developing new channels to both upsell to existing users and tap into new markets. And currently, we have a very diversified online channels to acquire the users. And also as we just released, we have a large user base, which position us a good Infrastructure to grow the users' business opportunities with the platform. We take 2 1st, we are committed to executing and Optimizing our current initiatives to ensure they deliver maximum value to our existing user base. These efforts include refining our online learning content, enhancing the live streaming e commerce experience and continuously analyzing user feedback to make data driven improvements.

Speaker 3

At the same time, we are strategically expanding our horizons by identifying new markets and opportunities. The evolving landscape of online education and e commerce live e commerce presents us with numerous avenues for growth. We are exploring partnerships, diversifying our content offerings and leveraging emerging technologies to reach untapped audiences.

Speaker 5

Okay. Thank you for the color. Appreciate it.

Speaker 3

Thank you.

Operator

The next question comes from Pat McCan with Noble Capital Markets. Please go ahead.

Speaker 6

Hi, thanks for taking my questions and congrats on the strong growth in the quarter. My first question has to do with the growth. I guess, I'm wondering if you could give any more color on which Your courses in the other personal interest category were driving the growth.

Speaker 2

Okay.

Speaker 3

Any more?

Speaker 6

Sorry. Yes. And then my second It would be if you could just also comment on the development of your recent acquisition in Hong Kong And if you could just give any commentary on how that acquisition has gone and how that business is growing and Maybe how that leads into how you view further expansion going forward?

Speaker 3

Okay, Great. Okay. For your first question, I think first, we always take holistic approach In terms of the revenue growth, because I think our core capability is to see the market trend and tailor made The interesting contents and easy to understand content to our online learners, Especially for the math public learners to make them enjoyable in the learning process. So in the latest quarter, our because the second is that our strategy is always to diversify our cost offerings In terms of the new content and new trends and also considering the net results, the ROI, the net The bottom line performance in terms of the sizable SKU of the courses. So the third one is that in the latest quarter, I think, for example, our other interest These courses grow significantly.

Speaker 3

The middle of such kind of courses comes to the senior and middle aged People's interest learning. 1 of the key courses For example, the short video production, we started such kind of course under Jiang Zemin brand since August 2021 From narrow to a very sizable amount in terms of the revenue for the latest quarter, that Proved that our strategy is correct and also we have the ability to see the market trend and also to Tailormade content to cater to the customers' demand. And also to mention that we started the repeat purchase under the short video production cost. So the repeat purchase rate is also growing very good. So this is my answer to the first question.

Speaker 3

I think Because our new platform such as Tianqi, catering for the senior people's learning just launched During last year, this platform, the IQ, the content on this platform are still under a very high growth trajectory. So for your second question, in terms of the acquisition of Catalyst Education that is our new initiative in terms of the overseas market. We are adopting a prudent approach as always to our expansion into overseas markets. Our current priority is to consolidate and strengthen our operations at the existing scale. We only need to expand after we prove this overseas business model is good, both in terms The revenue growth and the bottom line.

Speaker 3

For Catalyst Education, our primary focus is on its Successful operations within its local market in Hong Kong. Currently, our strategy is to build a strong foundation and gain a Full understanding of the local market dynamics before we consider scaling up. Our Hong Kong business currently operates on a smaller scale. Our intention is to prove the effectiveness of our business operations On this smaller scale, before considering further expansion beyond China, this careful step by step approach is designed to lay the Groundwork for strategic and sustainable international expansion that will help to drive our long term growth And also the result, healthy bottom line for our whole group, the platform. That is my answer.

Speaker 3

Thank you.

Speaker 6

Thank you very much for the answers. Appreciate it.

Speaker 3

Thank you.

Operator

The next question comes from Howard Halpern with Seguic Brothers. Please go ahead.

Speaker 7

Thank you and Great start to the New Year. A lot of the questions have been asked and answered. But in terms of Of operating expense trends, what are you seeing in terms of being able to Continue to streamline operations and what are the factors that will go into being able to streamline operations as time goes on?

Speaker 3

Okay. Thank you. Yes, any other questions or only this one?

Speaker 7

Only that question.

Speaker 3

Okay. Thank you. So in terms of the operating expenses and the business flow, Because we starting from our launch of the business in July 2019, we adopted online approach and we Highly believe that the technology will change the efficiency. So currently, we are the largest online learning platform in China and also we had achieved a sizable amount in terms of the revenue That caused the operating expenses as a percentage of total revenues are declining as we realize Greater economies of scale. This efficiency improvement is a result of our ongoing efforts to enhance operational processes and leverage technology.

Speaker 3

For instance, our use of AI powered tools has played a significant role In streamlining our business operation and also Reducing costs, we have applied AI and other online technology tools for quality Inspection purposes and as just Matt mentioned and also when we're communicating With our learners, we use a lot of data driven and AI driven technologies to smooth The whole process of the learning cycle and learning interactive with our users. And we also use AI to analyze user profiles, Which has improved our marketing efficiency. So in each step of our business operation, We always try to use the technological tools to streamline the process and also to Make it more efficient. We remain committed to a strategy of continuous operational and technological improvement. This will ensure sustained efficiency gains and also our overall financial health So that you can see our results, all of the expenses as percentage of the total revenue Ratio is declining, so that's making our bottom line healthy.

Speaker 7

Okay. Okay. Thanks and keep up the great work guys.

Speaker 3

Yes. Thank you very much.

Operator

As there are no further questions, like to hand the conference back over to management for closing remarks.

Speaker 1

Thank you again for joining our call today. If you have any further questions, please feel free to Thank you, everyone. Thank you.

Speaker 3

Thank you, everyone. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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