QuantaSing Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
June 1, 2023

There are 5 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 will now 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 Quantum Sing's earnings call for the Q3 of fiscal year 2023. With us today are Mr. Peng Li, our Founder, Chairman and CEO and Mr. Jinxin, our CFO.

Speaker 1

Mr. Li will give a general business overview for the quarter, And then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Tim will be available for the Q and A session. I will translate for Mr.

Speaker 1

Li. If you refer to our 3rd fiscal quarter financial results on our IR website at ir.quantising.com, you can also access a replay of this call on our IR Wind becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our Safe Harbor statements 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 R and D terms, and we will discuss non GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported In our earnings release and filings with the SEC, I will now turn the call over to the CEO and Founder of Quantixin, Mr. Li.

Speaker 2

Okay. Thank you, everyone, for attending this meeting. I'm Peng Li, the Founder and CEO of the company. Our commitment to our mission of improving people's quality of life through interest based learning With strong pipeline visibility, diversified revenue stream and an Expensive addressable market, we were able to maintain our revenue growth and Profitability, PaaS. During the quarter, we recorded 16.8 Percent year over year revenue growth and adjusted net income of RMB21.7 million.

Speaker 2

This marks our 2nd profitable quarter in a row. Our strong pipeline visibility As shown by our registered user growth, as of March 31, 2023, we had around 86,300,000 registered users. This is a 76.5% increase from the previous year. This number of paying learners grew by 45.4 Our focus on agile scalable business models have allowed us to rapidly expand our cost offerings and attract a large and growing user base. Since August 2021, We have ventured into offering learning courses tailored to personal interests, Strategic move that has garnered constant repeat purchase.

Speaker 2

We are Especially delighted by the results of this quarter and our diverse and engaging quarters have Generated an impressive 11% repeat purchase rate. This figure has been steadily growing since the launch of our personal interest brands. We have developed various ways to ensure customer loyalty and encourage repeat purchase. We do this by providing a high quality and engaging experience For our learners, our dual instructor model of live streaming and Community building combines practical exercises, 1 on 1 coaching, pre recorded lectures and supplemental Q and A live courses. These features enhance the joy and effectiveness of learning by Fostering interaction and communication between instructors and learners.

Speaker 2

We follow the principle of service driven experience excellence To ensure that learners receive the best possible value from our courses, Our courses are customized to our learners' specific needs. With a focus On developing their skills and abilities, we also provide our we also provide other courses that offer Professional Value Aided Services. This allow our learners to apply that What they have learned in practical settings. Our user centered courses and the service Provisions are subject to a stringent review process. This process involves careful selection of our tutors and instructors, training and service standards.

Speaker 2

Our repeat purchase rate provides us with excellent visibility into our sales pipeline. As such, we are able to focus the revenue and manage our budget with Our commitment to diversified revenue streams Has been a gradual factor in our growth trajectory By offering a wide range of services to both individuals and enterprises, We have been able to meet the needs of learners from diverse backgrounds and tap into various markets Revenue streams, we remain dedicated to addressing the dynamic demands of the business landscape, And we have been developing our enterprise oriented services accordingly. This is Exemplified by our trainer training cut or TTT cut, This comprehensive course empowers novice Trainers with essential skills across a wide range of modules cover topics It includes cost development, activity design, Presentation skills and mastery of training knowledge. Participants gain hands on experience in creating materials, designing activities, Delivering impactful presentations, building Expertize and enhancing the overall training experience in adding to our TDT cap, Our expanding suite of enterprise oriented services is equipping Businesses with the necessary tools and training to optimize Tailwind Management and Development. By extending our service offerings to enterprises, We position ourselves as a 2 sided service provider.

Speaker 2

Our solution address The needs of both individuals and enterprises, this strategy reaffirms Our commitment to delivering unmatched value and fostering enduring success with the corporate sector. Moreover, our targeted approach to Cost offerings provides exceptional value to our learners while maximizing our Revenues. During the 3rd fiscal quarter, revenue from other personal interest quarters grew to RMB238 million contributing 29 0.5 percent of our total revenues. We continuously introduced high quality, pure And the accessible content that resonates with our users. Our conference help people expand their horizons, enrich their lives and achieve self Fulfillment.

Speaker 2

Through strategic cost developments, we address in demand topics and capitalize on higher profit margins, Expanding our reach and seizing new opportunities for revenue growth, these efforts reflect our unwavering Commitments to empowering learners and help them strive in our changing world. Here's the example of a retired man in Harbin who found a joy in learning Calligraphy through our platform. He finally had the time and the opportunity to pursue his passion. Calligraphy not only brought him happiness and satisfaction, but also improved his hand eye coordination. We are proud that our interest based learning courses give him the opportunity to Reach his goals and better his life.

Speaker 2

Another example is a 54 year old homemaker Our instructors' unique and engaging lecture style, combined with regular reviews, The homemaker impressed her gratitude for the useful costs, Which has improved her self confidence, she also praised the online learning Atmosphere, which helped make the experience positive and impacting. Finally, We have the empowering story of a man who lives a fulfilled life, owning a Taobao Bookstore and Beautystone. Recently, they decided to try making short videos. To learn about video editing, he turned to our Jiang Zeng platform and quickly acquired the skills Needed for his new interest, he then created videos inspired by the characters From the TV series, Game of the Red Chamber, the content is Original and innovative and reflects his personality and interest, which helped him to expand his follower base and he is now able to share his creations with a wider audience. We are proud that our accessible and diversified learning resources At Kuantaseng, we are committed to create a webranch community that Foster's collaboration and interaction Among our learners, our colleagues offer top quality content and encourage engagement and Participation.

Speaker 2

As well as our online offerings, we host a range of offline activities such as Workshop Meetup and the networking events. One such event that we recently hosted was the memory challenge on March 25. The event was following it was followed by thousands of people and around 1,000 registering to take part. From these applications, 30 people were selected to participate in this offline finals. The finalists had the opportunity to engage with the International Master of Memory.

Speaker 2

Our Memory instructors and the memory experts. It was exciting and engaging event that In February 2023, we launched a sales training program for paying users of our advanced short video courses. The program is the industry's first off its current Closed loop learning model based on the knowledge practice application circle. It provides learners with product selection assistance and further In an aging society like China, there is a significant market demand for the Senior Citizen Learning. According to the WHO, the percentage of people in China Age 60 or above is expected to rise from 18.7 percent in 2020 to 28% in 20.40.

Speaker 2

This will create a huge opportunity for us to help seniors Ambras Lifelong Learning. Our Changsha and Jiangjun platforms provide user friendly Interest based learning results that benefit senior learners. Our courses provide opportunities for learners to build A greater sense of belonging and fulfillment. In addition, our Diversified cost content allow users to access learning materials in different fields and This can help people developing self

Speaker 3

sufficiency

Speaker 2

SKUs, which they can apply to other areas of their lives As we continue to serve this growing market, we are confident that we can create value for both our learners and shareholders. This will position us for continued success in this market. To summarize, We have sustained our revenue growth while efficiently controlling costs to boost our path To profitability and improve our cash flow, our Continuous efforts in optimizing our cost structure have begun to bear fruit. This is evident for our 2 consecutive Q2 Quarter of positive adjusted net income with our innovative cost offerings and Focus on user engagement, along with our steadfast dedication to financial Prudence. We are confident in our ability to strive.

Speaker 2

We are excited about the With that, I will turn the call over to Tim to discuss the details of our financials. Thank you all.

Speaker 3

Thank you. Before I go into details of our financial results, please note that all the amounts are in RMB terms, That the reporting period is the Q3 of fiscal year 2023 that ended on March 31, 2023 And that in addition to GAAP measures, we will also be discussing non GAAP measures to provide greater clarity on the trends in our actual operations. For the Q3 of fiscal year 2023, we grew our total revenues by 16.8% year over year 2.6% quarter over quarter to $807,200,000 mainly driven by Growth within our individual online learning services. Among our revenues, revenues from individual online learning services Grew by 21.2 percent year over year to $724,700,000 89.8 percent of total revenues, mainly due to continued demand for other personal interest courses. This increased by 30.8 percent year over year to 803 point $6,000,000 Revenues from Enterprise Services increased by 19.6% year over year to $81,100,000 or 10% of total revenues, primarily driven by continued robust demand from enterprise customers for marketing and talent management services.

Speaker 3

Gross profit was $706,200,000 representing a gross margin of 87.5% compared to 83.5% In the same period last year, total operating expenses increased to RMB729.3 million from $575,100,000 last year. To break this down, sales and marketing expenses was $631,400,000 representing a change of 28.2% year over year As the increased spending on marketing and promotional activities from other personal interest courses, As a percentage of total revenue, non GAAP sales and marketing expenses, which excluded share based compensation, increased Research and development expenses were $49,600,000 representing a change of 4.9% year over year. As a result of our strategy of investing in technology and data analytics, as a percentage of total revenue, Non GAAP R and D expenses, which excluded share based compensation, decreased to 5.1% from 5.8 percent a year ago. General and administrative expenses were 48,300,000 Representing a change of 37.4 percent year over year. As we continue to operate efficiently, As a percentage of total revenue, non GAAP G and A expenses, which excluded share based compensation, decreased to 4% from 4.1 percent a year ago.

Speaker 3

Net loss was 22,700,000 Excluding share based compensation, adjusted net income was $21,700,000 representing an adjusted net margin of 2.7% during the quarter. Basic and diluted net loss per share were both RMB 0.19 adjusted basic and diluted net income per share were RMB0.14 RMB0.13 respectively during the quarter. Turning to our balance sheet. As of March 31, 2023, Our company held $850,400,000 in cash and cash equivalents and short term investments Compared to $399,100,000 as of June 30, 2022. Lastly, I wanted to Provided some color for our outlook.

Speaker 3

For the Q4 of fiscal year 2023 that ends on June 30, 2023, We expect revenues to be between $760,000,000 $790,000,000 representing a year over year increase of between 20.8% 25.6%. These projections take into consideration the current market conditions prevailing in the industry. Looking ahead, we will continue our near term strategy of prudently optimizing our cost structure and expenses and operating more efficiently and effectively. With our healthy balance sheet and diversified revenue channels, We are well positioned to navigate any challenges ahead and capitalize on growth opportunities, while delivering further value to our customers

Operator

Thank you. We will now begin the question and answer session. Our first question today comes from Liping Zhao with CICC. Please go ahead.

Speaker 1

Thanks for taking my questions. I have two questions here. First, how should we expect the 4Q and next year's growth of Qinyou, given the recent relatively Soft Capital Markets. And second, could you please elaborate Shenzhen and Jiang Zeng's growth strategy,

Speaker 3

Thank you, Brandon, for your questions. I think I will answer this question because it is most related to the financial side. So I will answer in English. Okay. So thank you.

Speaker 3

For the first question in terms of the capital market performance, Especially this year, for our financial literacy courses, we offer I think we offer both introductory and premium courses Currently, this allows us to cater to the needs of learners with diverse educational backgrounds and learning objectives. And I think since our beginning of the launch of the courses, our both introductory and Advanced courses. Our such kind of courses target novice learners We wish to acquire basic financial and investment knowledge, but we lack readily available access to easily Understandable resources. Our course content extends beyond equity markets and covers a wide range of subjects, many Covering the basic knowledge and framework of the financial area. So these subjects range, I think such as basic knowledge in bonds, insurance and advanced management products and also At this stage, we don't see a correlation between the active market and our Because most of our growing Learners among the public, they're aiming to better management, personal and family That's by improving their financial literacy.

Speaker 3

But many of them even do not have a stock account To trading the active market. But I think So in sum, I think the conclusion is that there's no directional relationship between our learners' Interest or maybe their purchase behavior under the capital market. But actually, since the Macro environment situation may impact some of someone's Feeling of their desire to purchase some courses and I think Maybe since the macro environment may have some slightly impact on some of our Pleasure, sir, our learners' behavior. So I think in For the current stage, maybe talking about our financial literacy courses, We will integrate all of our courses, including the financial and non financial related courses. So that will also answer your second question because as we We continue to expand our cost offerings and diversify our revenue streams.

Speaker 3

We expect to see some Maybe some shifts in the proportions of our revenue makeup, specifically since our launching of Anticipate that revenue from the non financial literacy personal interest courses will continue To contribute a greater portion of our overall revenue in the future, we have seen strong demand for these courses And we are actively working to scale up our offerings in this area. So as a whole, I think We do see the opportunity to reserve as much as more Pipelines of our cost of SKUs and to promote and launch the new SKUs, when we think it is probable. So I think in the future as a whole, even there's some change in the macro situation, Maybe for Aerie as that, we think as a whole of the revenue growth, We are very confident for the SQ's growth, both for the financial literacy And also the non financial literacy. I think as a whole, we will balance proportion and contribution of each of the Considering the return on the investment of ROI and also the lifetime value of our learners. Yes.

Speaker 3

Hope that answers your question.

Speaker 1

Got it. Very clear. Thanks.

Speaker 3

Thank you.

Operator

Thank you. And our next question today comes from Danny Jim with CLSA. Please go ahead.

Speaker 2

Hi, thank you management for taking my questions. This is Danny Zhang from CLSA. So I have two questions today for the company. The first one is, how your progress on Depending on scaling your personal interest courses segment. And my second question is, What sort of progress are you making so far in the enterprise services?

Speaker 2

Thank you.

Speaker 3

Yes, thank you. So Yes. I will answer the question. Thank you for your question. So as for the answer, I think we aim to increase the repeat rate repeat purchase rate for our Other personal interest courses by providing exceptional service and meeting the evolving needs of our learners.

Speaker 3

Because the formal launch of the repeat purchase promotion or operation of our, for example, the Jiang Zeng brand, it just started from late last year. So building on the principle of self driven, we have implemented several to enhance our repeat purchase rate. I think first, we have been actively customizing Courses based on learners' specific needs and preferences by getting feedbacks through continuous engagement and understanding What our learners want and based on our understanding of the learners' behavior, we aim to deliver content that Resonates with them. This increases the motivation to repurchase. And secondly, we place great emphasis on Serving our learners beyond course delivery.

Speaker 3

We design our courses to provide relevant skills and abilities that learners need, Complemented by supplementary resources and value added services by offering ongoing support And opportunities for further SKU development, we aim to enhance our learning experience and encourage learners So as a successful example of the repeat purchase For our financial literacy courses, we are very confident that by leveraging Such kind of experience and operational efficiency, we can also enhance our repeat purchase operation with The learners for our other interest based courses. Looking ahead, We expect these efforts to yield positive results in terms of the increased repeat purchase rates where we Do not have specific projections. Maybe it is not Probable to forecast a very accurate number to share at this time, we remain optimistic about the potential For growth in this area according to our track record, with our focus on continued On continuous improvement and personalized learning experience, we are well positioned to attract and retain a loyal customer base. So I think this will help foster stronger customer relationship and drive repeat purchase in the future. Thank

Speaker 2

you. Thank you. That's very helpful. Thank you.

Speaker 3

Yes. So

Speaker 1

Our CFO our CEO will take the second question concerning the Enterprise Services. Okay.

Speaker 2

I will speak Chinese and Leo will translate for me.

Speaker 1

We are making great progress in our enterprise services as we focus on meeting the evolving needs of the businesses. We offer many enterprise oriented Services similar to the TTG camp that I have just talked about earlier. One example is our flagship Gold Interviewer Training Camp. This is a comprehensive program designed to equip interviewers with the essential skills needed for making effective hiring decisions. We have very experienced trainers.

Speaker 1

This camp covers strategy, question formulation, candidate evaluation and many other relevant topics. This has been well received by our clients, empowering them to build strong interviewing teams and to make confident hiring choices. Our progress in enterprise services exemplified by the TTT camp and the Gold At the same time, we maintain a strong focus on quality and relevance. We are currently innovating and expanding. We have businesses to customers' growth and customer success.

Speaker 1

We are very excited about opportunities ahead as we drive growth and success for our clients.

Speaker 2

Okay. Thank you for your question.

Operator

Thank you. Our next question today comes from Michelle Fong with Citi. Please go ahead.

Speaker 4

Thank you for taking my questions. I only have 2 small questions. Sorry, that you just mentioned that the macro environment had some impact on the purchasing behavior. Could you please expand a bit more on this? Do we see any changes in downstream demand, different current unfavorable environment unfavorable economy environment?

Speaker 4

And secondly, what's our outlook for next 3 years on revenue margin and earnings? Thank you.

Speaker 3

Yes. Hi, Michelle. Let me clarify your question. Your first question is To ask the macro impact on the purchase behavior of our learners?

Speaker 4

Yes. Do you have do you see any like changes in the downstream demand?

Speaker 3

Okay. So the second one?

Speaker 4

What's our outlook for next 3 years

Speaker 3

Yes. Okay. I understand. Thank you. Thank you for your questions.

Speaker 3

I think for the first one, maybe everyone I think has a very easy way to access The Internet, the news, the media, so I think because most of our learners are mass public So maybe some of them may have their own opinion and channel to access some Macroeconomic and Capital Market and even our company information. So I think some of them may have some their own attitude and their own opinion In terms of their own desire to acquire knowledge and maybe they have some For example, if you are not if you have no knowledge in terms of the capital market, you may have If you have no outside information, you may have the desire to learn something To advance your skills. But I think if someone of if some people have some Negative or maybe a pragmatic attitude, I think this may impact a little above their Purchase behavior. So I think in terms of our actual financial performance, I think there's no Significant impact adverse impact on our financial performance because I think This kind of challenge or the macro environment challenge may also induce The people desire to upgrade and to upgrade their self and to enrich their self, The GTR, I think, will be strengthened.

Speaker 3

So that will also Support our user growth or our popularity of our courses To for our learners to learn to purchase. So I think, overall, overall speaking, I think in the future, especially in aging population era for China, The learning and the improvement of their own skills of the people's personal Enrichment, I think this is maybe a must for everybody to do. So as a learning platform For the life of learning for our learners, I think with our launch of the new courses and the current courses, I think that we build a solid base for our users' purchase and engagement with our platform. So currently, we also anticipate a very optimistic revenue growth In terms of the even the short term fluctuation or short term negative attitude in terms of some after COVID macroeconomic recovery. So I think that may answer your questions.

Speaker 4

Thank you so much.

Speaker 3

Yes.

Operator

Thank you. And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference Back over to management for any closing remarks.

Speaker 1

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

Speaker 3

or submit a

Speaker 1

request through our IR

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Earnings Conference Call
QuantaSing Group Q3 2023
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