QuantaSing Group Q2 2024 Earnings Call Transcript

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Provided by Quartr
March 7, 2024

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. Please note that today's event is being recorded. I will now turn the conference over to Ms.

Operator

Lia Gual, Investor Relations Associate Director of the company. Please go ahead, ma'am.

Speaker 1

Thank you. Hello, everyone, and welcome to QuantaXin's earnings call for the Q2 of fiscal year 2024. With us today are Mr. Peng Li, our Founder, Chairman and CEO and Mr. Jing Hsieh, our CFO.

Speaker 1

Mr. Li will provide a business overview for the quarter, then Chen 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. You can refer to our quarterly financial results on our IR website at ir.quanxin.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 will 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 and reconciled to the most comparable measures reported in our earnings release and filings with the SEC.

Speaker 1

I will now turn the call over to the CEO and Founder of Quantum Sing, Mr. Li.

Speaker 2

Okay. Hello, everyone, and thank you all for joining us today. Last quarter, we saw a solid twenty 4.7% increase in revenue, proving that our strategy to expand our course offerings is paying off. Following the past success of our financial literacy courses, we have been actively adding new courses to diversify our revenue stream. We are also seeding the opportunity presented by growing demand for courses made for senior learners.

Speaker 2

We adjusted our revenue presentation under other personal interest courses this quarter. We further broke down other personal interest courses into skills, upgrading courses and recreation and leisure courses. We think the new revenue breakdown better reflects our business strategies and can provide useful and updated information to investors. Under the new breakdown, skills upgrading courses mainly include courses for training productive skills, such as short video production and memory training courses. Recreation and leisure courses mainly include more personal enrichment courses, such as personal well-being courses, electronic keyboard courses, understanding meditation courses.

Speaker 2

Now let's pivot to discuss some new developments and initiatives with our organization. Recent government data has highlighted the strong growth of China's elderly population. China had over 297,000,000 people aged 60 and above in 2023, which was 21.1% of the total population. As such, China has officially become a super aged society by World Bank standards. The silver economy is currently valued at around RMB 7,000,000,000,000,000,000 dollars US92 billion dollars and is focused to search to RMB30 1,000,000,000,000,000,000,000,000 by 2,035.

Speaker 2

This would make up roughly 10% of the country's total GDP, according to China National Rating. The evolving needs and the desires of middle aged and elderly people in China represent a significant opportunity for us. Us. This is growing demand for personalized services in the civil economy sector. In a positive move, the government recently introduced the mirrors to strengthen the civil economy.

Speaker 2

This initiative urge enterprises to enhance their offerings for the elderly population. For For example, to enhance digital services, thousands of websites and apps are being revamped and standards are being established for senior friendly mobile devices. This development is also beneficial for us as it will enhance the learning experience for our users from a hardware perspective. We are proud to have anticipated this shift in demand. We have been preparing for these opportunities for years.

Speaker 2

Our team have built a solid foundation and a mature business model, and we are well positioned to meet this growing demand. As living standards improve, middle aged and elderly people take more than just health or longevity. They want experience that will provide cultural and intellectual enrichment. Our diverse range of online courses includes many which are tailored to the interests of this demographic fix. Our platform is dedicated to lifelong learning, and we have always emphasized user engagement and satisfaction.

Speaker 2

This means we are all equipped to fulfill user desire for intellectual stimulation and personal growth. Now let's move on to our ongoing efforts to enhance user engagement and satisfaction. We'll be diligently engaging our learners in a variety of offline and online initiatives, leveraging the power of AI to elevate users' learning experiences. Additionally, we utilize our scalable self operated system to boost learners' repurchase risk. We have hosted a series of community events surrounding our recreation and leisure courses.

Speaker 2

These events include standing meditation sessions and appreciation sessions for pursuits like electronic keyboard and calligraphy. We provide ample opportunities for interaction, communication and personal enrichment for our middle aged and elderly users. For example, our recent initiative involved offering complimentary trial courses to residents of community in Beijing. Our offline and online initiatives have resulted in constantly high levels of user engagement. Attendees of our sharing sessions speak highly of the valuable knowledge they gain from instructors and peers during events.

Speaker 2

We have received lots of positive feedback from participants for both our online courses and offline activities, especially from elderly learners. They express deep appreciation for activities like calligraphy and standing meditation and recognize them as valuable opportunities for personal growth and learning. This feedback highlights their strong desire for spiritual and cultural enrichment, which emphasize the importance they place on these experiences. Among the variety of merits we have used to apply AI in our business, We have successfully enhanced live streaming quality using AI, improving both visual clarity and stream stability. Additionally, we have leveraged AI in our online tutoring system by intelligently identifying and anticipating learners' behavior.

Speaker 2

As a result, learners have been able to significantly reduce their waiting time during Q and A sessions with our tutors. Our commitment to learner satisfaction is closely followed by a more efficient approach to retaining our learners. Recently, we upgraded our integrated business management process and conducted a pillar testing before rolling it out to more SKUs. Our tutors can now easily manage tasks like one click class reminders and optimizing private domain traffic. By doing so, we are not only increase our cost completion rates, but also enhance overall repurchase.

Speaker 2

For example, the repurchase rate of our standing meditation costs has improved from 26.2% in last fiscal year to an impressive 34.7% in this quarter. We aim to streamline the operation system across all SKUs and to maximize user retention on our platform. Next, let's turn to our efforts to increase operational efficiency while growing our top line. We remain focused on streamlining process and optimizing resource allocation. By carefully investing in sales, marketing and leveraging technology, we aim to enhance our market presence.

Speaker 2

Our test and scale approach ensures efficient results utilization, minimizes financial risk and allow us to seize market opportunities. At present, we are focused on streamlining processes and the results allocation to boost cost efficiency. We aim to ensure that the quality of our services also remain top notch. We have managed to limit our relative growth in headcount. This demonstrates our ongoing commitment to prudent results management.

Speaker 2

Moreover, we are assembling a new team in Hefei. We efficiently capitalized on the cost advantages of operating in that region, including but not limited to labor cost and administrative expenses. We also made improvements to our operational system, facility. We developed our own instant messaging system, which has been officially deployed this quarter. The strategic move not only significantly reduce our operational expenses, but also enhance real time interactively among learners.

Speaker 2

We achieved highly efficient sales and marketing by leveraging technology. We are carefully allocating resources to enhance our market presence, for example. We leverage tech, including big data and our advanced operational systems to create diversified and effective marketing channels. During this quarter, we upgraded our technologies so we were able to reach paying users more efficiently. Meanwhile, we are employing a test at scale methodology.

Speaker 2

For this methodology, we invested more distantly in new initiatives such as new cost offerings, marketing campaigns and the less e commerce product offerings. Then we accessed ROI. We only take steps to process and expand the initiative if the ROI exceeds our expectations. This data driven decision making process maximizes our resource allocation and minimizes the financial risk for new initiatives. Also, by collecting feedback from the market and our customers, we gain a better understanding of their needs.

Speaker 2

This broadens our reach and enhances our ability to address shifting demand. The flexibility of our business model allow us to scale up our operations without sacrificing cash flow. Ultimately, this enables us to seize market opportunities as they arise. In addition to our ongoing efforts to drive revenue growth and maintain cost efficiency, we are actively purchasing pursuing new initiatives that offer significant potential for expanding and diversifying our business. Live ecommerce and overseas markets are important to broaden our revenue streams.

Speaker 2

Thus, we have launched a new number of strategic initiatives in these areas. Lessecommerce provides an interactive platform to enhance sales and driven customer engagement. Recognizing this, we are currently leveraging liveecommerce to strengthen our online presence and increase our market share. We are also developing private labor products that prioritize innovation and customer satisfaction. The recent launch of our private label, Chinese Baiji, brand, Yunqing, is one example.

Speaker 2

Meanwhile, our focus on overseas expansion aims to access new markets and demographics, thereby diversifying our revenue streams and broadening our market reach. We are carefully planning our expansion strategy for sustainable growth. TELUS Education serves as a key trial venture, preceding broader international expansion efforts. We are closely monitoring its process to refine our strategies and inform further expansion plans, ensuring a prudent and well informed approach to scaling our international operations. In conclusion, the Q2 of our fiscal year 2020 2024 demonstrated strong revenue growth, reflecting the success of our strategic initiatives, we have taken steps to diversify our course offerings and to cater to burgeoning demand for middle aged and senior learners.

Speaker 2

We are also actively pursuing new opportunities in live e commerce and international markets, while still maintaining a lean and efficient operational model. With a focus on innovation and prudent resource management, we are well positioned to sustain our growth trajectory and deliver lasting value to our shareholders. With that, I will turn the call over to Tim to discuss the details of our financials. Thank you.

Speaker 3

Thank you. Before I go into the details of our financial results, please note that all amounts are in RMB terms that the reporting period is the Q2 of fiscal year 2024 ending on June 30, 2024, 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 Q2 of fiscal year 2024, we grew our total revenues by 24.7% year over year and 12.8% quarter over quarter to CNY 980.5 million, mainly driven by growth from skills upgrading courses. Among our revenues, revenues from individual online learning services grew by 24.1% year over year to RMB806.6 million or 89.1 percent of total revenues, mainly due to continued demand for skills upgrading courses. Our gross billings of individual online learning services increased by 15.4 percent year over year to RMB944.6 million.

Speaker 3

Revenues from Enterprise Services were $57,600,000 a change of 30% from a year ago and representing 5.9 percent of total revenues, primarily due to a decline in revenues from related party transactions. Gross profit was US835.5 million dollars representing a gross margin of 85.2 percent, compared to 87.4 percent in the same period last year. Total operating expenses were and $33,200,000 compared to $731,700,000 in the same period last year. To break this down, sales and marketing expenses were $657,100,000 representing a change of 5.5 percent year over year. The change is mainly due to our increased spending on outsourcing labor and marketing efforts.

Speaker 3

The increase is partially offset by a decrease in our staff costs, which also included a decrease in share based compensation. As a percentage of total revenue, non GAAP sales and marketing expenses, which excluded share based compensation, decreased to 68.6% from 77.3 percent a year ago. Research and development expenses were US41 $1,000,000 representing a decrease of 36.2 percent 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 exclude share based compensation, decreased 4% from 5.6 percent a year ago. General and administrative expenses were US35.1 million dollars representing a decrease of US21.3 million dollars a percent year over year, primarily due to decreases in share based compensation and office expenses, partially offset by an increase in professional service fees.

Speaker 3

As a percentage of total revenue, non GAAP G and A expenses, which excluded share based compensation, decreased to 2.8% from 3.1 percent a year ago. Net income was RMB107,600,000 excluding share based compensation. Adjusted net income was $103,900,000 representing an adjusted net margin of 10.6 percent during the quarter. Basic and diluted net income per share were RMB0.65 and RMB0.64, respectively, during the quarter. Adjusted basic and diluted net income per share were RMB0.63 and RMB0.62, respectively, during the quarter.

Speaker 3

Turning to our balance sheet. As of December 31, 2023, our company held RMB1050.8 million in cash and cash equivalents and short term investments, compared to $930,600,000 as of June 30, 2023. Lastly, I want to provide some color on our outlook. For the Q3 of fiscal year 2024, which ends on June 30, 2024, we expect revenues to be between $900,000,000 $930,000,000 representing a year over year increase of between 11.5% 15.2%. These projections take into consideration the current market conditions prevailing in the industry.

Speaker 3

In summary, our steadfast commitment to delivering exceptional online learning experiences and a broad spectrum of courses, coupled with our focus on cost efficiencies and cash flow optimization, delivered solid results this quarter. Our expansion efforts executed with a keen eye on maintaining profitability as we continue to create long term value for our shareholders. Looking ahead, our strategic direction will remain aligned with our dedication to sustainable growth. That concludes my prepared remarks. Operator, let's open up the call for questions.

Speaker 3

Thank you.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Howard Halpern of Taglich Brothers. Please go ahead.

Speaker 4

Congratulations guys. Great quarter. In terms of your live e commerce offering, you talked about, I guess, you announced in January the 1st private label brand. So how can how is this offering being received? And are we going to see additional private label offerings launched throughout the year to continue the growth in that segment?

Speaker 3

Thank you, Howard. I will answer this question. Regarding our recent introduction of Yuanqing, our first label 1st private label Chinese Baidu brand within our live e commerce offering. We are pleased with the initial reception it has received. Yunqing represents a significant milestone for Quantasim as it marks our entry into the private label business through expertise in live streaming e commerce.

Speaker 3

The response from our customers has been positive with many experiencing appreciations for the rich taste and the quality of Yunqing Baijiu. The limited edition gift box, especially designed for the Chinese Lunar New Year with dragon themed packaging, has resonated well with consumers, symbolizing good luck and future success. And also, I think we still need time to tap the market and to try this kind of private label live e commerce business. And then this becomes more evidence that private label business is positive. We will continue our test and scale approach and business strategy to enlarge this kind of business.

Speaker 3

As for the future plans, while we don't have specific announcements to make at this time, We are actively exploring opportunities to expand our private label offerings through the year. We recognize the importance of providing unique and high quality products and services to our customers And the launching of Yunqing reinforces our confidence in pursuing additional private label initiatives. I think based on our customer, the large customer base and also our business strategy to launch the businesses catering to the needs of our this suitable to the customers' demographic and profile. I think in the future, we will do more efforts for this kind of private label e commerce business and we will notice and we will publish any significant news in the future, if any. Thank you.

Speaker 4

Okay. Thank you.

Operator

The next question comes from Hunter Diamond of Diamond Equity. Please go ahead.

Speaker 5

Firstly, congratulations on the results. So it was noted that QuantumSync Live e Commerce segment has been demonstrating promising growth. Could you elaborate on some of the key performance metrics that underscore this growth? And then additionally, what strategic initiatives are being implemented to capitalize on this momentum?

Speaker 3

Yes. I think I will ask my CEO to answer this question. And Matt will answer in Chinese. Leo will have translate.

Speaker 2

Okay. Thank you for your question. I'll speak to Chinese.

Speaker 6

Our live e commerce business has shown promising growth with key performance metrics such as the average order value, repeat purchase rates, unpaid users and GMV. It strategically aligns product offerings with cost content, enhancing relevance and value for our users. For example, we entered for the health management courses, we introduced complementary products like moxa sticks. And as for the short video editing courses, we paired the course content with software services. This approach ensures synergy between education and also consumer goods, optimizing the customer experience and engagement.

Speaker 6

In addition, we leverage our robust customer base, our operational capabilities and the tech structure, so that we can expand offerings beyond the course related products such as Baiju. This means that we are seizing opportunities to diversify and extend our product range in line with the evolving market demand. This approach is quite flexible and underscores our commitment to delivering the comprehensive solution and capitalizing on growth opportunities in the live e commerce landscape.

Speaker 2

Okay. That's all.

Operator

The next question comes from Steve Silver of Argus Research. Please go ahead. Steve, your line is open on our end. Are you muted on your end?

Speaker 7

I'm so sorry about that. Thanks and thanks for taking the questions and congratulations on a strong quarter as well. You guys spoke quite a bit in the prepared remarks on your efforts to grow the company efficiently and sustainably over the long term using AI for many of these initiatives. I was just hoping you could provide any additional color on the company's current thinking about scaling the size of the workforce over time as these e commerce enterprise services and geographic expansion like Kelly's education continue to ramp up? Thanks.

Speaker 3

Okay. Thank you. I will answer this question. I think BHP grow across a number of areas, especially for our main business, the online learning business, we focus on efficiency and lowering cost by using technology, including AI, to streamline operations, especially in the area that which can which is useful to use such kind of technologies to streamline the efficiency of the operation process. Instead of hiring more people, they are now improving and trying to many possibilities to improve our processes and reducing headcounts through automation and AI driven solutions, especially in the process driven area.

Speaker 3

As e commerce and enterprise services grow, we also use AI to work smarter and faster. This includes automating everyday tasks, improving decision making processes and enhancing resource allocation to reduce costs while keeping operational effectiveness during the whole process of our daily operation to deliver the services to our online learners. Likewise, with the acquisition of Catalyst Education and our entry into the global online education market, I think we are trying to test and use AI technology and other technologies, the big data technology and so on, to scale operations efficiently and lower overhead costs. We automate admin tasks, personalized learning experiences and optimize cost delivery to achieve a greater cost efficiency while expanding our reach and impact. But I think overall, our strategy for managing our workforce involves using technology, including AI and other technologies to reduce costs and improve efficiency across all business segments.

Speaker 3

By using the power of technology, we will achieve our growth objectives while reducing the need for more manpower and resources. But I think in the end, all of the technologies and solutions we adopted, the aim is to cater to our customers' needs and their desire and to improve and upgrade our service level to our customers. So in the end, whether we use technology, including AI or not, depends on the servicing and to the service quality we provide to our customers and also depends on the business nature. If it can upgrade our service level, it can improve the operation efficiency, we will use that and we will invest that. So that is our methodology.

Speaker 3

Thank you.

Speaker 7

That's helpful. Thank you so much.

Speaker 3

Thank you.

Operator

The next question comes from Pat McCahon of NOBLE Capital Markets. Please go ahead.

Speaker 5

Hey, thanks for taking my question. My question is that given the acquisition of Kelly's Education, can you comment on the market opportunity for youth online learning in Asia, given that you traditionally target a market that's more adult learning focus?

Speaker 3

Okay. Thank you. Yes, indeed in Mainland China, we currently is a 1,000,000 online learning service provider. We are the largest. And also using our technology edge and also our experiences, we cooperate and we will help Catalyst Education to enlarge their service offering to the children's online learning in Asia.

Speaker 3

Maybe currently the major market is Hong Kong and also we are researching and trying other markets. And also, our acquisition of Catalyst Education is an important step for us to enter into the rapidly growing market for children's online learning in Asia. In Asia, many parents are very keen about their children's education and the massive need for this kind of services. And we are also expanding beyond our former focus on adult education. This growth of the children's online education, online learning market is driven by increasing digital adoption, parents' focus on education and the post COVID rise of online learning.

Speaker 3

As parents seek convenient and effective educational solutions for their children, I think we are ready to use our expertise to become a leading provider of personalized online learning experiences, meeting the changing needs of families across this region. But in terms of the method we use to develop and to deliver our services to each of the local market in Asia, maybe worldwide, we will always dig to the methodology that we will cater to the local market. We will research the local market. We will make our services suitable to the local market. By creating fresh new curriculums and with our commitment to excel, I think we plan to take advantage of this huge market opportunity and drive growth in children's online education in Asia and in the worldwide.

Speaker 3

I think this is a good start and we will stick to our test and scale methodology for this kind of market. Thank you. Thank you.

Operator

The next question comes from B. J. Cook of Singular Research. Please go ahead.

Speaker 5

Hi, guys. Thanks for taking my call. Can you just talk about your strategy for attracting repeat customers and turning them into paid customers?

Speaker 3

Okay. I think for attracting repeat customers or turning them into paid customers, our strategy for attracting them and converting them resolve around continuously enhancing our online learning platform's quality, ensuring it's user friendly, interactive and filled with valuable content. For example, because we are now catering to and delivering services to more and more elderly people, we cater and we tailor made our APP, we tailor made our products to suit to make it suitable to their personal habits to suitable for their physical use. And also for regular updates driven by our user feedback and educational trends, maintain our competitive edge. I think in addition to this, we host a diverse range of engaging events both online and offline, including webinars, workshops, seminars and networking sessions tailored to our customers' interests and learning needs.

Speaker 3

I think these events not only enrich the overall learning experience, but also foster a sense of community among our learners. I think in summary, by integrating these efforts, we cultivate a loyal customer base, driving sustainable growth for our online learning service company, our platform. And also I think maybe more importantly, during the past years of operation experiences, we accumulated a seamless technological operation process using the technical the technology skills and also our experience can streamline the operation of the cost during the cost delivery. For example, for our initial launch financial literacy courses, we have delivered a very strong VP pursuit and by leveraging such kind of experiences, we scale our up skills personal skills upgrading courses and the labor and recreation courses. For such kind of courses, we can duplicate and leverage our experiences accumulated for the financial literacy courses to launch the repurchase programs, to launch the to attract repeat customers to our advanced courses So that demonstrating a very healthy ratio for our operation metrics.

Speaker 3

So that is our methodology. Thank you.

Speaker 5

Thank you.

Operator

This concludes our question and answer session. I would like to hand the conference back to management for closing remarks.

Speaker 1

Thank you again for joining our call today. If you have further questions, 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

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

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Earnings Conference Call
QuantaSing Group Q2 2024
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