QuantaSing Group Q4 2023 Earnings Call Transcript

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September 15, 2023

There are 9 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'll 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 Quanta Singh's Earnings Call for the Q4 and fiscal year 2023. With us today are Mr. Peng Li, our Founder, Chairman and CEO and Mr. Tim Hsieh, our CFO.

Speaker 1

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

Speaker 1

Li. 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

Speaker 2

As the challenges presented by the current state of China's economy, we found ourselves well placed to benefit from new opportunities In the adult learning market, while the Q4 of our fiscal year is usually a period of moderation, We recorded an impressive 31.7 percent year over year growth in revenue reaching 10.9% compared to 0.7% during the same period last fiscal year. Our success has fueled by our robust pipeline visibility, diverse revenue streams and effective strategy approach. I would now like to reflect on our recent success and broader performance and share some operational updates. As of June 30, 2023, we had around 94 point 3 million registered users representing a significant increase of 50.6 percent compared to the previous year. The number of paying learners rose as well, Increasing by 29.9% compared to the previous year.

Speaker 2

Our focus on flexible and scalable business models has allowed us to quickly add more content. This in turn attracts more users and fosters constant growth. We offer a diverse Array of copies, each thoughtfully tailored to our distinct customer groups. For instance, for our financial literacy content, we offer Accessible courses that guide beginners through topics such as asset management and achieving stable returns. Our learners can further explore financialized targets like financial analysis and the family asset allocation.

Speaker 2

We diligently Update and enhance our process to align with strength in industry policies. This ensures our learners Our access to the most up to date marketing insights, our focus on improvement has led to better customer experience. Thanks to our operational enhancement. Our user survey shows that our financial literacy cost Completion rate now stands at an impressive 97%. We are constantly updating our intelligence and learning tools to act as learning companion for our users.

Speaker 2

During the Q4, we once again co authorized The financial literacy white book with industry experts and authoritative Organizations in China. This was our 3rd straight year doing so. The white book faces This research shows as a brightening light for the institution seeking to expand Our participation reflects our solid standing in the We are of Financial Literacy. We take immense pride in our contribution and are eager to help enhance financial literacy levels within society. Beyond our financial literacy efforts, we have also taken steps to boost user engagement and enhance our online cost Repurchase rate.

Speaker 2

During the Q4, we organized a series of offline competition. While such events was a calligraphy competition targeted at Participants applied what they learned from our courses, Showing showcasing their learning outcomes, while enjoying face to face interactions with fellow learners. The participants created around 400 calligraphy works during the competition. To determine a winner, we engaged our broader community in the voting process. This type of offline event motivates learners to stick with their studies.

Speaker 2

It also encourages To invite brands to join our conference, we believe that this offline competition Out foster a tight knit sense of community among our learners. We see them as both As a part of our growth strategy, we are eager to grow our bring our customers new opportunities for learning. One core part of this strategy is the creation of new personal interest courses. These courses are carefully designed to meet a diverse range of interests and tap into unrealize the market potential. They help to enhance our appeal and boost engagement levels.

Speaker 2

Furthermore, the repeat purchase rate for other personal interest copies Has risen to 18%. By refining our cost offering, We enable learners to complete an in-depth learning circle on our platform. For instance, Yes, our short video production cost, we guide learners through the entire creation process. This encompasses subject selection, clip editing, content creation And even using short videos to promote products on the live streaming platform, In a similar way, we have fine tuned the content of our memory courses to be More practical, instead of the theoretical, this empowers Learners to apply their knowledge in real life situation, ultimately, this leads to a more fulfilling learning experience. Meanwhile, our addressable market remains expensive.

Speaker 2

As outlined in the Sprott and Sullivan's industry report on the adult learning market in China released September 6, 2023, the Frost and Sullivan report affirmed the significant Market demand for senior citizen education. According to the report, the size of the senior adult learning market As measured by revenue, it is expected to reach RMB120.9 billion by 2027. This estimate assumes CAGR of 34% from 2022 to 2027. We are well positioned To cater to this demographic, many of our thoughtfully designed courses As always, we remain committed to creating inclusive and sizable Learning Opportunities for People of All Ages. Our courses aimed at senior citizens Especially crafted to bring them valuable knowledge and skills.

Speaker 2

This helps Provide a sense of enrichment and bolster feeling of continued growth We are actively building new companies that cater to the interest of older learners. For example, we have developed a course on standing meditation, Our program emphasizes holistic approach Hosting meridian flow, vital energy and the overall fiscal Resilience. This call has proven to be a megahist. It had accrued Over 1,400,000 registered users as of August 31, 2023. And its monthly gross billings reached around RMB 17 Meeting.

Speaker 2

As a company that provides itself on innovation, we are dedicated to enhancing our core business with We are exploring new opportunities for growth. We are excited to announce With a strategic focus on the Chinese liquor market, our decision to venture into Life E Commerce is rooted in a multi faceted vision. This new business requires Minimal capital investment with little operation risk, while Also acting as a result to further bolster our core business, We chose Chinese liquor as our entry point to the life e commerce business. Chinese liquor holds Important place in Chinese prodigy, especially when it comes to social interaction, Our target demographic is made up of individuals that are middle aged and older. This demographic demonstrates robust demand for Chinese leakers.

Speaker 2

In the post COVID era, online shopping has been become increasingly common And that trend extends to the purchase of a Chinese speaker. As a forefront of online shopping today is Live streaming e commerce. On one of the live streaming platforms we operate on, there are over 300,000,000 users With interest in Chinese liquor, as indicated by our research report, This platform fosters an experience backing to 1 testing Allowing users to share their insights about Chinese leakers through live streaming. Recognizing this market opportunity, we're able to provide our users with an all in one Our learning business model is also very mature. This is shown by our effective Extensions of our Changsha and Jiang Zhen brands, which follows by the success of our older Qinyu brand.

Speaker 2

We invested in traffic at the front end, which is then converted into our Private Social Media Group. Through years of operation, we have built up Substantial user insights. This allows us to effectively locate and acquire customers. We also have a well development well developed array This allows us to lock in traffic, locate loyal customers and convert registered users to paying learners. By leveraging our experience in the adult learning business, We are now acquiring customers for our live e commerce business in the same way.

Speaker 2

This With the replicable approach, it was our control over our costs and ROI. Even during the early stages of new business since launching the new business in June 2023, We have been very pleased with this operation result. We have generated RMB $13,300,000 in GMV during August. While we expect a slight Adjustment in our gross margin. We are confident that this new initial will have a While we maintained our revenue growth, we continue to improve our operational efficiency and And our positive cash flow.

Speaker 2

Tim will explain our financial results in more detail later. We are leveraging AI to help improve our operating efficiency. For example, We are using AI powered intelligent voice messages to remind learners to join our content. AI generated content or AIGC have also empowered us to provide a better, more efficient experience Learners' questions are categories And draft answers are generated automatically. Tutors simply need to double check the answers From sending them out, this has largely reduced the tutor workload during classes and improve learners' experience without sacrificing factual accuracy.

Speaker 2

Regarding content development, we are implementing 4 in 1 Interface that combines transcript, video presentation, live chat and cost requirement. At the same time, we also embraced the template This Has greatly enhanced our content development efficiency. To conclude, despite the Present state of the macro. We continue to rebuy our operations to meet Persistent demands from individuals seeking an improved quality of life and overall well-being. At the same time, We are strengthening our position as a reliable partner in corporate learning and development.

Speaker 2

Our ability to innovate and explore new ideas has generated outstanding outcome For our business, despite a seasonal loss, we generated a robust year over year top line growth. And our operational focus remains solid. With strong pipeline visibility, We made the decision to strategically expand into live e commerce. This will allow us to leverage our existing strengths as we enhance profitability. As we navigate the ever changing dynamics of the market, we are confident in our ability to generate Sustainedable, long term growth and success.

Speaker 2

We are grateful for the continued trust and the partnership of our shareholders. 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 details of our financial results, Please note that all amounts are in RMB terms. That's the reporting period in the Q4 of fiscal year 2023 ended on June 30, 2023. And that in addition to GAAP measures, we'll also be discussing non GAAP to provide greater clarity on the trends in our actual operations. For the Q4 of fiscal year 2023, We grew our total revenues by 31.7 percent year over year and 2.6% quarter over quarter to $828,300,000 mainly driven by the growth from other personal interest courses.

Speaker 3

Among our revenues, revenues from individual online learning services grew by 25.2% year over year To $721,100,000 or 87.1 percent of total revenues, Mainly due to continued demand for other personal interest courses, consistent with our strategy to diversify course offerings, Our gross billings of individual online learning services increased by 23% year over year to $748,800,000 Revenues from Enterprise Services increased by 100 and 2% year over year to $103,800,000 or 12.5 percent of total revenues, Gross profit was $712,200,000 representing a gross margin of 86% Compared to 82.9% in the same period last year, total operating expenses decreased to 600 And $64,700,000 from $726,700,000 last year. To break this down, sales and marketing expenses were 573,000,000 Representing a change of 7.8% year over year as we adjusted our staffing budget and increased As a percentage of total revenue, non GAAP sales and marketing expenses, which exclude share based compensation, decreased to 67.8 percent from 75.1 percent a year ago. Research and development expenses We're $53,600,000 representing a decrease of 59.6% year over year, Primarily driven by a decrease in share based compensation. As a percentage of total revenue, Non GAAP R and D expenses, which excluded share based compensation, decreased to 5 0.5% from 6% a year ago.

Speaker 3

General and administrative expenses were $38,000,000 representing a decrease of 39.3 percent year over year, primarily due to decreases in share based compensation. As a percentage of total revenue, non GAAP G and A expenses, which excluded share based compensation, Decreased to 3.2% from 4.6% a year ago. Net income was $52,700,000 Excluding share based compensation, adjusted net income was 90 $400,000 representing an adjusted net margin of 10.9% during the quarter. Basic and diluted net income per share were RMB0.31 and RMB0.30, respectively, during the quarter. Adjusted basic and diluted net income per share were RMB0.54 RMB54 and RMB0.52, respectively, during the quarter.

Speaker 3

Turning to our balance sheet. As of June 30, 2023, our company held $930,600,000 in cash and cash equivalents Short term investments compared to $399,100,000 as of June 30, 2022. Lastly, I want to provide some color on our log pass loop. For the Q4 of fiscal year 2024, which ends on June 30, 2020 4, we expect revenues to be between $718,000,000 and $810,000,000 representing a year over year increase of between 18.3% 22.8%. These projections take into consideration the current market conditions prevailing in the industry.

Speaker 3

We remain committed to providing high quality personalized online learning services and offering a Diverse range of courses. At the same time, we're exploring new business opportunities to improve our profitability. These initiatives helped drive our strong performance in the Q4 of fiscal year 2023. Moving forward, We will be utilizing AI to optimize our cost structure and expenses, enabling us to operate more efficiently And effectively, with our strong financial position and diversified revenue streams, we are well equipped To overcome any challenges that may arise and capitalize on growth opportunities, while continuing to generate That concludes my prepared remarks. Operator, Let's open up the call for questions.

Speaker 3

Thank you.

Operator

Yes. Thank you. At this time, we will pause momentarily to assemble the roster. And today's first question comes from Tyni Wang with CICC.

Speaker 4

Hey, good evening, management. I have two questions here. So firstly, given the recent relatively soft capital market, How should we expect the next year growth of Tinuum in terms of the number of users and as well as the ASP? And secondly, could you please elaborate our growth strategy on the brand new live streaming business? Thank you.

Speaker 3

Thank you. In terms of the financial literacy courses And its market trend and also the our performance, I think you asked a good question. First, I think for this in terms of segmentation, our I don't first, let me clarify. I think for the our financial literacy courses, We treat it as a part of our one of the categories of our total revenues. So for this kind of revenue, our management reviews our Consolidated results have been making decisions about resource allocation and we are assessing the group's performance.

Speaker 3

As such, the group has only 1 reportable segment. And also in terms of future outlook for our financial literacy courses, It is possible that we will see a year over year decrease in the absolute dollar amount this January. This has been in line with our strategy of developing a broad range of courses, which appeal to learners with diverse Interest and background. In addition, we have taken proactive steps to identify users with Low return over investment, which is our eye to ensure sustainable growth for our company as a whole. Means we can utilize our resources more efficiently and ensure that our cost offerings get the And for macro environment, now on the macro, you mentioned that the macro environment may affect the company's revenue first.

Speaker 3

I think let me clarify that. Our core customer base is made up of the mass public consumers. Demand for our financial literacy courses does not rely on professional investors. As such, the performance of our Financial literacy courses is not tied to the performance of the capital market directly. 2nd, I think it's important to note that the content of our financial literacy program covers a wide range of topics Not limited to the stock market, even if the market kind of perform or maybe have some fluctuation, The idea of investing temporarily loses a few customers will be able to leverage our courses Gain knowledge in other areas of financial literacy.

Speaker 3

To this point, we have not observed a direct correlation between The stock market and the growth of the registered users for our financial literacy courses, I think the key is still our business methodology to treat our revenue as a whole And to see the market opportunity and to do our business based on the ROI and also the revenue Meanwhile, our I think our average revenue and value added services. This success reflects our company's core ability to attract new users Thank you. Hope that answers your question.

Speaker 4

Yes, that's very clear. Thank you.

Operator

Dave, thank you. And the next question comes from Yes, thank you. Next question comes from Steve Silver with Alrigus Research.

Speaker 5

Hi, and thank you for taking my question. In the commentary, you mentioned the minimal capital required to launch some of the new growth opportunities like e commerce. I'm curious as to with that and the continued build out of the technology platform, I'm wondering if there are any other Areas of higher capital that are expected over the next few years or whether we should expect the company to be able to balance these investments with its growth

Speaker 2

Thanks for the question.

Speaker 3

In terms of the

Speaker 2

And also

Speaker 3

Maybe the cash need of the business, I think first, all of the new initiatives are based on our current key capability, Including our accumulated operating expenses in the Online operating cost, live streaming sales process and also the technology base We have built for our current platform And also, we can use and leverage the current experiences and system to do the live streaming because We currently sell the online courses and serve the customers through the whole online process very smoothly and gaining a very effective Results and based on this infrastructure, we can leverage all of the resources to do our Live e commerce business. So which has also proved that for the because you see the August number It proved a preliminary success. In terms of the future development, I think when they do the e commerce, they may purchase For the Chinese liquor, the stock turnover is very fast and also We collected cash because our customers, the individuals, we collect cash very quickly. And also, I think, Overall speaking, the cash flow the operating cash flow It's not a big problem. And also, we also anticipate maybe a very similar cash Pattern, cash generating pattern as that of our current business.

Speaker 3

In terms of the technology investment, I think based on our live streaming system, which we have developed by ourselves several years ago and improved Continuously in this year, it provided us a very solid base To the live e commerce business and maybe some slight improvement in terms of the specific business needs and systems To implement, we do not need huge investor, capital investment to the technology. So in sum, I think first we can leverage our current experiences, Systems and also the technology. And second, I see the Live streaming, e commerce business, its business model is very similar to that Currently doing all the online courses selling business. We sell the courses Also we saw the good Chinese leaper through live streaming business model, which is very similar. And also The last point is that all of the both the online courses and online learning business Through live streaming and also the online e commerce live streaming business has still generate Maybe very similar financial results in the business model.

Speaker 3

I think this is my answer. I think that You have done the business.

Speaker 5

Okay. Thank you very much. It's very helpful and thanks for taking the question.

Operator

Thank you.

Speaker 2

Yes, thanks.

Operator

Thank you. And the next question comes from Howard Halpern with Taglich Brothers.

Speaker 3

Congratulations on the quarter, guys.

Speaker 6

If you could dive maybe a little bit more into the new e commerce platform, Could you describe, I guess, maybe the mechanics of it? Are you just connecting merchants with your

Speaker 3

Yes. Thanks for your question. Also in relation to our new initiatives for the last evening, Our basically our current business model is to acquire our learners Through live streaming, free courses and then some of the learners they convert to our paid learners. And basically, The business model for the live streaming e commerce is very similar to that. We launched our live streaming room online To advertise and to attract the traffic to our live streaming room and may Style the Chinese liquor to the audience.

Speaker 3

And We have several business models. 1 is we purchased the Chinese liquor from the supplier and then we will Leverage our live streaming capability and our user base to sell such kind of Product, the Chinese secret to the customers. The customer some of the customers is our current user and maybe some Customers who have learned our courses and who have learned our free courses and a majority of that may be From the new traffic, the new audience and also the new demographic From each source of the especially the short video social platform such as Douyin and Kuaishou. And also we have some other business model, maybe we will act As because of our capability for the live streaming, we will act as an agent to have some brands to sell their Product initially, maybe I think in the long run, we can because of our The capability to sell, especially sell the Chinese leaker through live streaming is very important. I think our capability can leverage all of our resources

Speaker 6

Okay. That was very helpful. One final question I have is, what do you Envision, the opportunity is to go international beyond China and how would that process

Speaker 3

Yes. Thank you. That's a good question. We have placed our strategy to seek opportunities both domestically and overseas. And we've been keeping a close eye on the growth of the international learning market for Kontakt.

Speaker 3

A report by Global Market Insights estimated the global e learning market to be valued at Very large scale. So the Asia especially the Asia Pacific market alone would With the increasing penetration of the Internet and the mobile learning, More people than ever are turning to e learning platform to learn new skills, foster personal growth and improve their quality of life. So as a part of our strategy planning, we have been continuously assessing our capabilities for international expansion. As you know, our business is focused on the domestic market currently and we built up a solid foundation based on 3 Key factors. I think the first is our solid technology support our operations.

Speaker 3

Over the past few years, our online learning platform has evolved and it's now highly stable and scalable. As such, we are well equipped to adapt to differences in demand that we could Experience in different regions. Secondly, we have built up a strong business network and the number of comprehensive partnerships over the past few years. This give us access to valuable market resources and insights, which help keep us at the forefront of the industry. And third, we have a healthy balance sheet, Strong cash reserves and we have been generating operating cash flow generating positive operating cash flow.

Speaker 3

These factors provide us with a strong foundation to begin exploring opportunities in the international market. But meanwhile, we have proven in the past that we are willing to we are willing and able to Effectively adjust our operating strategies and our product and services offerings. Our approach is open minded And we are always seeking out our users feedback to better address their needs. This adaptability has been key to our success, whether we are talking about the current brands, Kingyou, Chen Zhen, As we set our sights on going global, we will continue to keep an open mind and benefit from external feedback. By doing so, we can understand what potential users want and tailor our cost offering to effectively meet their needs.

Speaker 3

And lastly, I want to point out that we will stick to our business philosophy and the operation methodology to try to be open minded and to try each kind of Opportunity on effective and efficiency, maybe starting from very small scale. After we True that this model is successful, we will enlarge and expand this business overseas very quickly, maybe in the future. Yes. Thank you.

Speaker 6

Okay. Thanks and keep up the great work guys.

Speaker 3

Yes. Thank you.

Operator

Thank you. And the next question comes from Hunter Diamond with Diamond Equity Research.

Speaker 7

Firstly, congratulations on the results. So could you provide further insights into the adult financial learning segment? We've observed noteworthy recovery in this area since the start of the fiscal year. So if you could give more details on the performance projections

Speaker 3

Yes, thank you. I think, as I just mentioned, financial literacy courses is just one category of the courses, one SKU In our total interest based courses package, we will treat all of our Thank you for the interest in Quanta Singh as a whole to grow the revenue, which We have based on our methodology that and also our key capabilities that We are a very capable company, which can develop which can speed the market trend, This can be proved by our historical track record. For example, we have launched Jiang Zhen and Tianxia Step by step using the same methodology to see the market trend and customer needs to Promote short lived production courses and etcetera. So as a whole, I think even though some fluctuation The revenue for our financial literacy courses currently, we're still very Optimistic in terms of the interest based cost revenue growth in the future because we have the Key capability to see the market trend, the business opportunity. And we have a dedicated content Creation team to create the content to launch the courses, which all generate Very positive net result in the history.

Speaker 3

So I think in the future, even though the financial literacy costs may Decrease maybe in short term, I think as a whole of the revenue, all of the categories of our interested courses will grow.

Speaker 7

Yes. Great. Thank you for the additional color. And then just one more question and I'll open the line to other analysts. Investments on your balance sheet, how do you see acquisitions fitting into your investment orientation?

Speaker 3

Yes. May I repeat your question? You mean the potential acquisition of new businesses? Correct. Yes.

Speaker 3

I think even though we have generated Positive operating cash flow and also in the latest in the 4th quarter, we generated a huge amount Of net profit, both adjusted and non adjusted net profit, I think even though we have a very solid Financial position and enough financial resources, we still speak to our business Discipline and business methodology to start from a small and small scale to prove it To prove the business model and only after that, we will grow the business maybe even though Maybe by ourselves or by acquisition of companies or some assets, they're open to Eric. Each opportunity is an opportunity, only if that we prove it is a successful business model.

Speaker 7

Great. That makes perfect sense. So again, thank you for taking my questions.

Speaker 3

Thank you.

Operator

Thank you. And the next question comes from Pat McCahon with Noble Capital Markets.

Speaker 8

Hey, congrats on the continued growth. I have two questions. The first one has to do with the online learning side of the business. When it comes to the other personal learning courses, do you have any in the pipeline, are you looking to the course offerings here in the short term in fiscal 2024?

Speaker 3

Yes, actually, I think we have a methodology To do the research market research and to collect customer feedback In terms of our content development and also the cost development, basically, we have approved To run several courses to test the market and also To seek feedback from our customers, but only when they prove that the customer Like I said, and also the net result of the ROI is okay. We view So I think actually We have a pipeline and we have a solid pool to prepare for the Future growth and future revenue growth. And I think this is our Capability and also digit has been proved in the past 4 years. We can we have we are able to launch new courses, which catered to the customers' needs and also can develop our own This is position and also our own strength in the market. So in sum, I think We have we definitely have the pool for our pipeline and also

Speaker 8

Okay. Thank you. And then on the e commerce side of the business, Is Chinese liqueur, that's currently obviously the target market. Are you looking to is that something that you want to Kind of stay laser focused on that product offering for the time being or is that sort of a launch pad to get into

Speaker 3

Yes. I think for our business methodology, I think the focus is very important. So even though we have a very solid infrastructure In terms of the live streaming technology and business model, we should focus on On one thing, especially at the initial stage of the e commerce development. So currently, I think this strategy proves to be successful because we can focus this product and focus on the whole Streamline of the business operation and the business flow, leveraging our current resources. Only then the But actually, we are trying some small scale of other kinds of SKUs through the live streaming.

Speaker 3

At the current stage, focus is on the liquor, which has proved successful initially at this stage. I think maybe in the future, we have the capability and we have the platform to enlarge our past And also the product mix, but currently, I think in the short term, we will focus on this

Speaker 8

Great. Thank you and congrats again on the quarter.

Speaker 3

Thank you.

Operator

Thank you. And as there are no further questions, I would like to turn 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 contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a good day.

Operator

Thank you. The conference has now concluded.

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