Here Group Limited

Good morning and good evening, ladies and gentlemen. Thank you for standing by and welcome to Qantas Sings earnings conference call. At this time, all participants are in 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. I will now turn the conference over to Ms. Leah Guo, investor relations associate director of the company. Please go ahead, ma'am.

Thank you. Hello, everyone, and welcome to Qantas Inc's earnings call for the second quarter of fiscal year 2023. With us today are Mr. Peng Li, our founder, chairman, and CEO, and Mr. Tim Xie, our CFO. Mr. Li will give a general business overview for the quarter. then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Lee and Tim will be available for the Q&A session. I'll translate for Mr. Lee. If you refer to our second fiscal quarter financial results on our IR website at ir.theanswertriple.com, you can also access a replay of this call on our IR website when this 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 be noted that all numbers stated in the following management prepared remarks are in R&D terms, and we'll discuss non-guest measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and followings with the SEC. I will now turn the call to the CEO and founder of Quarantine, Mr. Li.

Hello, everyone. I'm Matt. Thank you all for joining us on our first earnings call as a public company. It's been an exciting journey so far. Our desire to provide users with lifelong personal learning opportunities remains as strong as ever. We are grateful to our employees. They are highly committed to our mission of improving people's quality of life. We are also grateful to our enterprise customers and learners for putting their faith in us. They have chosen us to help them to meet the needs of the modern workplace and their personal goals. Thanks to all of them. We had a successful IPO and continue to deliver strong financial results. During the second fiscal quarter ended December 31, 2022, we grew our revenues on a pro forma basis. We also generated positive adjusted profit margins, showing our resilience in a challenging economic environment. During the quarter, our pro forma revenues excluded revenues from the disposed group increased by 19.3% quarter-over-quarter, and by 1.9% year-over-year, to only 786.4 million. Our gross bidding flow for individual online learning services was only 818.8 million. 3.1% quarter-over-quarter increase. We recorded RMB 21.8 million in non-GAAP-adjusted net income, a 2.8% adjusted net income margin for the quarter. Our strong growth and profitability are due to three factors. First, a systematic approach to creating an innovative learning journey for our users. Second, an intelligent content development system for our instructors and tutors. Third, an agile and scalable business model. Let's discuss the latest updates on Edge, starting with our systematic approach. It covers every step of the learner's journey with us. We use technology-driven tools for user engagement, interactive learning, in-class participation, and post-course assessment. For new learners, the learning journey usually begins by attending our introductory courses. For such courses, we have pioneered the dual instructor mode with a point a lead instructor who lectures online via live stream to a large class. The large class is then divided into smaller groups, which are supported by our off-class tutors. Tutors interact with our learners and answer questions. Under this dual instructor mode, we can easily connect over 100,000 learners at the same time. This has enhanced our user thickness and user engagement. It has also boosted demand for our premium coffees. Our registered users doubled from a year ago to 77.8 million as of December 31, 2022, paying learners grew by 33.3% year-over-year. to about 0.4 million for the quarter. Second, we developed an intelligence content development system for our instructors and tutors. This system helps us to hone their teaching skills. Using big data analysis, our instructors can observe user engagement in real time during lectures. We continue to invest in our technology and business intelligence. We have applied big data analysis to all key aspects of our business operations. These aspects include content development, live streaming, pre-recording, study cookies, customer engagement, sales conversion, and operation management. We are able to produce content with quality, depth, and freshness to attract the users, improve our commercial risk, and optimize our management processes. In addition, by leveraging our advanced technology infrastructure and business intelligence, we are able to develop new cost offerings within an average of three to four months. This allows us to launch our service offerings in a cost-effective manner. Each of our of-class tutors is able to serve more than 200 learners at the same time without impacting the learning experience. Third, our business model is agile and scalable. It fuels the engine of our business growth and revenue diversification. For new online courses, our online learning platform provides the backbone for our rapid expansion. Based on CNU's infrastructure, which underlies our success in financial literacy courses, we quickly introduced a new platform, including Jiangzhi and Qianqi. These platforms have supported our efforts to offer new personal interest courses in fields that are gaining popularity. Some examples are short video production, personal well-being, and electronic keyboard. Since the launch in August 2021, these courses helped us to accumulate about 17 2.2 million registered users as of December 31, 2022. Our revenues from this crisis grew six-fold year-over-year, reaching around $205.1 million in the second fiscal quarter. We are not resting on our laurels. Our team remains vigilant of economic hydrants and macro uncertainties. We are aware of longer sales cycles from enterprise customers, weak customer spending, and changing user behaviors to maintain our operational resilience and stability through all economic cycles. proactively adjusted our operational tactics in several ways. First, we have diversified our customer base to include both individuals and enterprises. We started to provide financial literacy learning services in July 2019. and quickly become the latest online financial learning service provider for adults in China. According to the report by Thorstein Affiliates, we held a market share of 36.9% in terms of revenue in 2021. In August 2021, we expanded our offerings into a carefully selected range of personal interest copies beyond financial literacy. By doing so, we leveraged the general public's growing interest in diverse areas of studying for personal development and lifelong learning. We launched our marketing services and enterprise talent management services to enterprise customers This allows us to provide the enterprise customers with online talent assessment, training, and learning services. These services have enabled us to broaden our service offerings into enterprise customers. We have evolved into a two-sided service provider for both individuals and enterprises. Our new platform, Johnson & Change, continues to serve as our main growth engine, and our pipeline for enterprise services is strong. We are encouraged by the continued strength of our businesses, which are spotted by a growing shift from offline to online skills development. Second, we have remained prudent In our operating expenses, while upholding our commitment to product development, we applied closer scrutiny of our eyes on ourselves and the marketing and the J&A expenses. We also channeled more resources towards offering additional services to our existing customers at the same time. We maintained a careful approach to our investment in R&D. We are confident that by taking proactive steps to control expenses in the near term, we are boosting the durability and agility of our business operations in the long term. We have allocated more resources to explore cross-selling opportunities. We are constantly exploring new ways to cross-sell add-on services to enhance our customers' lifelong value. We have introduced our marketing services to enterprise customers on GNU, and we intend to replicate our proven business model on and other platforms. We will leverage our proprietary technology and supporting systems to launch such services to enterprises. In June 2022, we launched our enterprise talent management services, which integrated talent assessment, training, and management functions for enterprise customers. We are working with the top tier media group in China in the pilot program to further our sub-service initiatives. Looking ahead, we believe these strategies give us well sufficient to balance revenue growth and margin expansion. in a certain environment. Although we foresee 2023 as a challenging, challenging year, particularly in the first half, we are also uncovering many market trends favorable to our company. This includes the continued shift from offline to online to growing digital transformation, greater work-from-home flexibility, renewed business investment, and continued skill development for workforce. In addition, China's general public has more diverse personal development and lifelong learning needs, with more supportive government policies for vocational development This should continue to boost the growth trajectory of China's adult learning markets. As the industry leader in adult personal interest learning, we should be able to seize those emerging business opportunities and capitalize on their market potential. As we look to the remainder of the fiscal year 2023, we see the tolerance of upskilling and reskilling continue to sustain our revenue growth momentum. Our 18.8% year-over-year increase in pipeline should also provide a comfortable cushion for our revenue growth for the remainder of the fiscal year. This is evidenced by our RMB 457.5 million in contract liabilities at the end of the second fiscal quarter. In summary, we believe that we have developed the resilience and agility needed to strive regardless of market conditions. Our success will come from our emphasis on quality and our passion for improving our users' lives. The systems we have built are robust and flexible, and we are always focused on making improvements to our platform. Above all, we have a visionary citizen management team with a track record of entrepreneurial entrepreneurial success through various economic circles. The opportunity available to us is massive, well beyond 2023. We remain committed to our development as a territory, the exploration of new expansion avenues, and the creation of long-term value for our shareholders. With that, I will turn the call over to Tim. to discuss the details of our financials. Thank you all. Thank you, Dr. Aragoli. Before I go into the details of our financial results, please note that all amounts are in RMB, RMB terms. Next, the reporting period is the second quarter of fiscal 2023 that ended on December 31st, 2022. On that, in addition to gap merits, we will also be discussing non-gap merits to provide greater clarity on the change in our actual operations. For the second quarter of fiscal 2023, excluding the impact from revenues from the disposed group, we grew our total revenues by 1.9% year-over-year and 19.3% quarter-over-quarter to $786.4 million. mainly driven by growth within our individual online learning services. Among our revenues, revenues from individual online learning services grew by 4.7% year-over-year, to 704 million, or 89.5% of total revenues, mainly due to continued demand for other personal interest courses. Consistent with our strategy, to diversify course offerings. Our gross billing of individual online learning services increased by 23.1% from the first quarter of fiscal 2023 to $818.8 million. Revenues from enterprise services increased by 68.2% year-over-year to 82.3 million, or 10.5% of total revenues. primarily driven by enterprise customers, strong demand for marketing services, and talent management services. Gross profit was $687.2 million, representing a stable gross margin of 87.4% compared to 87.5% in the same period last year. The operating expenses increased to $700 and $31.7 million from $650.3 million last year. To break this down, sales and marketing expenses increased by 11.2% year-over-year to $622.9 million as we increase the spending on marketing and promotion activities for other personal interest courses. As a percent of total revenue, Non-GAAP sales and marketing expenses, which included share-based compensation, increased to 77.3% from 68.5% a year ago. Research and development expenses increased by 24.6% year-over-year to 64.3 million. As a result of our strategy of investing in technology and data analytics, As a percent of total revenue, non-GAAP R&D expenses, which excluded share-based compensation, increased to 5.6% from 5.2% a year ago. General and administrative expenses increased by 15.5% year-over-year to $44.5 million as they continued to operate efficiently. As a percentage of total revenue, Non-gas G&E expenses, which excluded share-based competition, decreased to 3.1% from 3.7% a year ago. Net loss was 41.4 million, excluding share-based competition. Adjusted net income was 21.8 million, representing an adjusted net margin of 2.8% during the quarter. and value-added net loss per share, with both RMBs 0.89. Adjusted basic and value-added net income per share with both RMBs 0.07 during the quarter. Turning to our balance sheet, as of December 31st, 2022, our company has 525.7 million in cash and cash equivalents and short-term investments. compared to $399.1 million as of June 30, 2022. We completed our initial public offering in January 2023, with a partial green shoot being exercised in February 2023, the proceeds of which will be recorded on our balance sheet for the next quarter. Lastly, I want to provide some color for our office for the third quarter of fiscal year 2023. That ends on March 31, 2023. We expect revenues to be between $750 million and $708 million, representing a year-over-year increase of between 8.6% and 13.9%, upticking into consideration the challenging market conditions across the industry. Our bottom line during the third fiscal quarter will also be impacted by the listing fees associated with our IPO. While we see some indications that the macro environment may improve in the quarter to come, the present situation remains uncertain and volatile. In the near term, we are adopting a prudent approach to our cost structure and expenses to maximize our operational agility and adaptability. to a macro volatility. In the long run, we strongly believe that our robust cash position, optimized cost structure, and diversified revenue streams have positioned us well to overcome challenges and seize growth opportunities. We remain confident in our ability to balance growth and profitability and deliver sustainable value to our shareholders. That concludes my prepared remarks. Margarita, let's open up the call for questions. Thank you very much.