This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk21: Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2022 Tarina International, Inc. Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. I must advise you this conference call is being recorded today, November 30th, 2022. I will turn the conference over to your first speaker today, Sylvia Yang, Investor Relationship Manager. Thank you. Please go ahead.
spk08: Thank you, Operator. Hello, everyone, and welcome to Tarina's Earnings Conference Call for the third quarter of 2022. The company's earnings results were released earlier today and available on our IR website, ir.edu.cn, as well as our newswire services. Today, you will hear from Ms. Nancy Ying Sun, our CEO, and Ms. Ping Wei, our CFO, who will take you through the company's operational and financial results for the third quarter of 2022 and give revenue guidance for the fourth quarter of 2022. After their prepared remarks, Nancy and Ms. Wei will be available to answer your questions. Before we continue, please note that the discussion today will contain such a forward-looking statement made under the State Harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Terena does not assume any obligation to update any forward-looking statements, except as required after applicable law. Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G, U.S. GAAP financial measures, and information concerning the non-GAAP financial measures to Terena's financial results prepared in accordance with U.S. GAAP. are included in Tarina's earnings release, which has been posted on the conference IR website at ir.edu.cn. Finally, as a reminder, this conference call is being recorded. In addition, a webcast of this conference call is available on Tarina's IR investor relations website. I will now turn the call over to Ms. Nancy Ying Sun, the CEO of Tarina. Thank you, Yang Chuang. Thank you for coming to our call today. Thank you, Sylvia, and thanks everyone for joining us today. In the third quarter of 2022, our business continued to grow steadily. Compared to the same period last year, we achieved a 4.6% increase in revenue. Our business continued to grow steadily for the first three quarters of 2022. Our net profit reached 3.3%. compared to the same period last year, the overall profit margin is 55.1%, which is 4.2% higher than last year. Among them, adult businesses remain stable with a profit margin of 68.3%, while youth digital education businesses continue to show stable growth under the health management of adult businesses, with a profit margin of 45.0%. In the third quarter of 2022, our overall business continued a steady growth, with net revenue increasing by 4.6% year-over-year. Our business also remained profitable for the third consecutive quarter, achieving an operating margin of 3.3%. around from our operating loss in the same period of last year. Our gross profit margin on the group level reached 55.1% at 4.2 percentage points year-over-year. Specifically, our IT professional education business remained stable with a gross profit margin of 68.3%. In addition, Our IT-focused supplementary scheme education business continues to grow at a steady pace and healthy operations. Registry growth profit margin of 45%. As of the end of the reporting period, we realized a total net profit of RMB $103 million in the first three quarters of this year, compared with the net loss in the same period of last year. Solo方面, In the third quarter of this year, our total income reached US$6.43 billion. In the previous quarter, we gave a high-end income guidance. In 2021, we raised US$6.15 billion, which increased by 4.6%. In the field of youth digital education, in the third quarter, we achieved a steady growth of 9.9% compared to last year. And the economic environment has affected the poor's professional education business. The net income has dropped by 1.7%. Our total net revenues amounted to RMB $643 million in the third quarter, coming as the head end of the revenue guidance we provided last quarter. This represents a year-over-year increase of 4.6% from RMB $650 million in the third quarter of 2021. Segment-wise, we produced steady revenue growth of 9.9% year-over-year in IT-focused supplementary STEAM education in the third quarter. While our IT professional education revenue declined 1.7% due to market economic headwinds. with respect to cost control we continue to optimize our model to enhance operational efficiency and effectively control expenses in the third quarter we further lowered our cost with a year-to-year reduction of 4.3%. Against this backdrop, we achieved a gross profit of around $354 million in the third quarter and an increase of 13.1% year-over-year. Due to the strict cost and expense control measures that were implemented this year, we realized a net profit again in the third quarter amounting to around $27.95 million. from a net loss in the same period of last year. 接下来,我和大家介绍一下 我们的青少年素质教育业务的情况。 Next, let me walk you through our IT-focused supplementary student education business. In the third quarter of 2022, net revenue from IT-focused supplementary stream education was RMB $366 million, up 99% from RMB $333 million in the third quarter of 2021. accounting for 57% of our total revenue. Enrollment increased by 25.6% from 146,900 in the third quarter of 2021 to 184,500 in the third quarter of 2022, benefiting from our high quality courses and delivery, as well as our growing brand influence. Meanwhile, with steady revenue growth and effective cost control at our centers, Our gross profit rose by 27.4% year-over-year in the third quarter, and our gross profit margin climbed by 6.2% to 55%. In terms of revenue, compared to last year, our revenue rose by 37.6% compared to last year. In the third quarter of 2021, 63.7% increased by 8.9%, which is 72.6% in the third quarter of 2022. In this quarter, 4.18 million students increased by 3.8 million people in the third quarter of 2021, which is 10.0%. This fully reflects the excellent course and exchange quality of our青少年数字教育业务. As a customer acquisition front, the number of students increased by 37.6% year-over-year. Meanwhile, students acquired by Word of Moth referrals and renewal students accounted for 72.6% of our repaying students in the third quarter, up 8.9 percentage points from 63.7% in the third quarter of 2021. Our total number of repaying students in the third quarter of 2022 was 41,802. an increase of 10% from 38,000 in the third quarter of 2021. We believe this growth fully demonstrates that our excellent quality and delivery quality and our students' learning results in IT-focused supplementary STEM education have translated into word-of-mouth referrals and an increase in renewal students. Notably, the percentage of renewal students who have enrolled for over a year continue to exceed 78% in the third quarter. Regarding the operation of our centers, we continue to optimize operating costs. and expand single center capacity by improving operational efficiency. In the third quarter, the total number of centers providing IT-focused supplementary STEM education services declined from 238 at the end of the third quarter of 2021 to 222 at the end of the third quarter of 2022, a nice reduction of 16 centers. At the same time, the number of students enrolled percentage increased from 621 in the third quarter of last year to 820 in the same period of this year. In the third quarter, average revenue percentage grew by 15.8% from about RMB 1.41 million in 2021 to RMB 1.63 million this year. Next, moving to our IT professional education business. 接下来和大家介绍一下成员IT职业教育业务的情况。 Next, moving to our IT professional education business. In the third quarter due to regional COVID-19 flare-ups, and market economic offerings were sold to facilitate stable operations by focusing on the quality of our cross-content delivery systems, reducing costs, and improving operational effectiveness and efficiency. This initiative was intended to ensure high-quality cost delivery at a time when business expansion was difficult, while also lowering costs and enhancing efficiencies to ensure profitability. Although some of our offline centers had to temporarily suspend operations at one point, we were able to achieve high-quality cross-delivery without interruption, thanks to our stable and mature online cross-delivery system developed through long-time efforts. We also endeavored to meet students' various needs in job hunting and career advertisements. Supported by this initiative, Our students' employment rate with six months of graduation was at about 92% in the third quarter of 2022. The third quarter's adult professional education business has reached 1.9 billion yuan, which is 3.1% higher than the 1.84 billion yuan in the third quarter of 2021. The business profit has increased to 68.3%. In the third quarter, our net revenue from IT professional education fell slightly from RMB 283 million in the third quarter of 2021 to RMB 278 million this year. Despite the revenue decline and the macroeconomic uncertainty on the back of our strategy to reduce costs and enhance efficiency, the gross profit of IT professional education business rose by 3.1% from RMB 184 million in the third quarter of 2021 to RMB 190 million in the third quarter of 2022, with a gross profit margin of 68.3%. In addition, as we continue to streamline our costs and operating expenses, the total costs and operating expenses of IT professional education business decrease by 14% year-over-year. 2022年以来,公司坚持发展服务用户全生命周期的产品策略。 Thank you. In the process of accelerating the development of the digital industry, the importance of large-scale data, artificial intelligence, cloud computing, etc. will also bring an increase in market demand. This quarter, the company will continue to enhance the course upgrade in these technology fields, and further create course products that meet the market needs. We believe that these investments will bring healthy growth power to the company after the epidemic. According to the Lifelong Learning Product Strategy that was implemented in 2022, we have created a more diversified multi-dimensional product portfolio, aimed at student career enhancements, in addition to our core products of Java-wide sources, to update our product system and encourage repeat purchases. We believe market demand for professionals who are proficient in technologies is most in demand nowadays, such as big data, artificial intelligence, and cloud computing will continue to grow as China's digital industry continues to expand. We believe this investment will bring healthy growth momentum to the company after the pandemic's death sign. That concludes my review of the company's operations for the third quarter of 2022. Next, I will turn the call over to Ping to work through our financials for the third quarter of 2022. Thank you, Nancy. And hello, everyone. Now, let me walk you through some of the financial highlights of the third quarter. Please also refer to the press release for more information. For the third quarter of 2022, the company recorded operating income of 21 million RMB, or 3 million U.S. dollars, compared to operating loss of 88.5 million RMB in the same period of 2021. Non-GAAP operating income which excluded share-based compensation expenses, was 30.2 million RMB for 4.2 million US dollars in the third quarter of 2022, compared to non-GAAP operating loss of 84.4 million RMB in the same period of 2021. The improvement in our operating profit was driven by our healthy revenue growth as well as our well-executed cost and expenses controls during the quarter. Our total net revenues reached 643.3 million or 90.4 million U.S. dollars in the third quarter of 2022, up 4.6% from 615.2 million RMB in the same period of 2021, whereas Thanks to our effective cost control measures, our cost of revenues decreased by 4.3% to 289.1 million RMBs, or $40.6 million in the third quarter of 2022, from 302 million RMBs in the same period of 2021. Meanwhile, total operating expenses decreased by 17%, to 333.2 million RMB or 46.8 million U.S. dollars in the third quarter of 2022 from 401.7 million RMB in the same period of 2021 as we achieved expense reductions across our entire organization. The main contributors to the cost and expense reductions include, firstly, closing low-performing centers, and optimizing personnel operations to improve efficiency. As a result, as Nancy mentioned earlier, our learning centers for both IT-focused supplementary team education and IT professional education businesses decreased to 222 and 98 centers respectively, and our total headcount decreased by 16.8% year-over-year. Secondly, reducing sales and marketing personnel as well as marketing spending and remaining focused on operational excellency, which is through endeavoring to upload our quality of course content, delivery, and services, we continue to generate more word-of-mouth referrals and renewal enrollment. and maximize lifetime value of our students. And finally, overall prudent management of RMD and general management spending also helped lower overall spending and improved operational margin. As a result of the foregoing, net income was 27.9 million RMD or 3.9 million US dollars in the third quarter of 2022. compared to net loss of 94.7 million RMBs in the same period of 2021. Non-GAAP net income, which excluded share-based compensation expenses, was 37.2 million RMBs or $5.2 million in the third quarter of 2022, compared to non-GAAP net loss of 90.5 million RMBs in the same period of 2021. For the nine months of 2022, net income has reached 102.9 million RMB or 14.5 million U.S. dollars compared to a net loss of 293.2 million RMB for the same period of 2021. Non-GAAP net income was 114.7 million RMB or 16.1 million US dollars for the nine months of 2022, compared to a non-GAAP net loss of 278 million RMB in the same period of 2021. Now, on the ETS side, basic income per ADS was RMB 2.55, or 36 cents US in the third quarter of 2022, compared to loss per ADS of RMB 8.21 in the third quarter of 2021. Diluted income per ADS was RMB 2.43 or 34 cents US in the third quarter of 2022, compared to loss per ADS of RMB 8.21 in the third quarter of 2021. For the nine months of 2022, Basic income per ADS was 9.28 RMB for the three quarters of 2022, compared to loss per ADS of 26.01 RMB for the same period of 2021. Diluted income per ADS was RMB 8.85 for the nine months of 2022, compared to loss per ADS of 26.01 RMB for the same period of 2021. As of September 30th, 2022, the total balance of cash, cash equivalents and time deposits was 342.1 million or 48.1 million US dollars, decreasing by 88.3 million RMB from the end of 2021. The decrease was mainly due to net cash outflow from operating activities in the first nine months of 2022 of 48 million RMB, or 6.7 million U.S. dollars, as cash collected from IT professional education decreased compared to the same period of last year, and was lower than gap revenue recognized during the period. This resulted in a decrease in deferred revenue balance, which contributed to the negative changes in working capital. Net cash outflow from investing activities for the nine months of 2022 was 14.1 million RMB or $2 million, as we repaid 15.5 million RMB or $2.2 million of short-term bank loans. Capital expenditures in the first nine months of 2022 was 33.1 million RMB or 4.7 million US dollars, mainly from purchasing IT equipment used in classrooms and payment to renovate teaching centers. Share repurchase also contributed to the cash outflow in the past three quarters. Going forward, as the COVID-19 pandemic continues to affect the mobility of our students and the normal operations of our offline centers, cash received from enrollment is expected to decrease in the fourth quarter compared to the same period of last year. Despite the uncertainties, we will strive to maintain a positive operating cash flow in the fourth quarter as well as a healthy cash and equivalence balance toward the end with continued operational efficiency improvement and strict spending controls. That concludes my financial highlight section. And Nancy will share with you the business outlook and revenue guidance for the fourth quarter.
spk07: Thank you, Ms.
spk08: Wei, for your summary of our financial performance for the third quarter of 2022. Now turning to the company's outlook for the fourth quarter. There are 41 cities that have adopted control measures related to the epidemic. This means that nearly 80% of our children's centers and nearly 76% of adult centers are unable to operate normally. This will affect our recruitment and revenue in the fourth quarter. Of course, we will continue to provide online courses and services. Our investment in the OMO course system will be exchanged seamlessly during the pandemic. In terms of financial management, according to the current estimate of the company, the total net income of the fourth quarter of 2022 is estimated to be between 506 billion and 59 billion yuan, while the net income of the fourth quarter of 2024 dropped by 10% to 15%. Given the complex pandemic situation, some cities have taken measures to reduce social and business activities to contain the supply of virus. We expect these measures to limit students' mobility and our offline centers' operations. thereby impacting our enrollment and revenue in the sports culture. Specifically, currently out of 54 cities where I will operate, 41 of them have various COVID-related control measures, which have affected to normal operations of 80% of our STEAM education centers and 76% of our IT professional training centers. However, thanks to OMO-based system, we have developed over the years. We will continue to provide online courses and services to minimize the impact on our students' class attendance and participation. With respect to financial guidance, according to the company's current estimates, Our total net revenues for the fourth quarter of 2022 are expected to be between RMB 560 million and RMB 590 million, which represents a decrease of 10% to 50% from the fourth quarter of 2021. The company's guidance reflects our preliminary estimates of the current market environment and the company's operating conditions, which may change. At the same time, while we are also optimizing the delivery quality of credit, we will continue to expand the good taste effect, consolidate and strengthen our core competitiveness, and create a brand that is trusted by students and is worth choosing, which will lead to a more stable recruitment source. At the same time, we will continue to improve the efficiency of operations, and control expenditures. The positive financial flow is still our goal. 在疫情反复的影响下,保持公司的健康发展。 In spite of short-term uncertainty, we remain confident about tremendous potential of the IT education services market. We will continue to optimize our OMO-based student acquisition and product delivery system and ensure the quality of our course delivery and services, regardless of the operational status of offline centers. Moreover, while enhancing the delivery quality of our courses, we will continue to reinforce our core competencies to build a trusted brand for students and expand word-of-mouth referrals to foster stable sources of enrollment. In addition, we will continue to improve operational efficiencies, adopt high spending controls with the goal of achieving positive operating cash flow in the fourth quarter and maintain the company's healthy development amid COVID-19 flare-ups. 以上是我们对未来的展望以及收入的指引。 Above is our outlook for the future and our revenue guidance. I would like to take this opportunity to thank you again for your attention and support. We are now ready for questions.
spk21: Thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing . To withdraw your question, please press star, then 2. At this time, we will pause momentarily to . Again, please press star then one if you would like to ask a question. And the first question comes from Giovanni Giulio, a private investor.
spk11: Yes, hello, good morning. Thank you for taking my question. I was wondering when is the company going to be free cash flow positive and what's preventing uh the company from achieving this target and as a second question i i see your enrollment going up and up at very high growth rate but this is not translating into high revenue growth so what what in fact thank you
spk08: Those are good questions. Thanks for asking them. First of all, on the free cash flow side, you might notice that we actually had the positive cash flow operating cash flow in Q2. In Q3, we had the negative cash flow primarily due to the decrease in adult cash production as compared to the revenue recognized. That's the reason. However, on a basis, if not because of COVID-19, we actually expected overall free cash to be positive for 2022. But because of the pandemic-related controls that we saw recently, and they're getting worse actually by day. We don't expect free cash flow positive overall for the year, but we actually expect at least a near positive free cash for Q4. So having said that, for 2023, if the COVID-related restrictions get relaxed, we are actually confident that we should be free cash positive next year. Because if you look at our financials, we actually are profitable for most of this year. So that's the first part. And second part, why enrollment is going up and revenue is not going up as much. Two reasons. One is for our children sort of... like IT, STEAM education, we actually have accumulated very strong brand influence, and parents usually are fairly eager to renew, especially when there are opportunities for them to take advantage of promotions we have from time to time. As a result, you know, we keep on accumulating different revenues from the children's center side. At the same time, again, COVID-related restrictions affected the normal operations of our offline centers. And for some of the children's courses, especially for children at the age of six or younger, it's very hard to move courses online. So Those affect our overall revenue recognition and as a result, like revenue growth is not at the same pace as enrollment. Now, again, going forward, once the COVID-related restrictions got lifted, we fully expect the revenue recognition or consumption of courses versus enrollment, you know, starting like more go in the same pace. Hope those answered your questions.
spk22: Thank you. And again, please press star and then 1 if you would like to ask a question. All right, we don't have any other questions as of the moment. Presenters, please continue.
spk07: Okay, do you mind asking questions again?
spk21: Okay, yes. And again, please press star and then one if you'd like to ask a question. And we do have a question from Judev from Free.
spk13: First of all, congratulations to the company for implementing this continuous management in the third quarter. Well, first, congratulations on achieving sustained profitability in the third quarter. I noticed the company has launched a new share repurchase program. Facing the uncertainties from the current
spk03: economic environment and the pandemic. What is the company's outlook for next year and expectations for market conditions? Thank you.
spk08: This is why our income in the fourth quarter will be affected. But we will try our best to reduce the impact of our income to the lowest level. The advanced market environment will bring higher requirements for all company's economic operations. We are no exception. I think we will continue to operate on the core competitiveness basis. We will continue to adopt a stable and conservative operation strategy to ensure the financial health and stable cash flow of the company. We will also reduce the impact of the pandemic on course delivery on course products accumulated over the years. In addition, as you have mentioned, we have also announced the start of a new round of repurchasing projects today. Because we are still focusing on cash in the company's future,
spk03: Thank you for your question. The economic environment and the pandemic did bring some uncertainties. Nearly 80% of our STEAM education centers and 70% of our adult education centers have been affected to varying degrees, and many centers have to suspend offline operations.
spk08: which is expected to impact our Q4 revenue.
spk03: However, the top market environment has reached the bar for our refined operations. On top of building on our core competitiveness, we'll continue with our steady and conservative operational strategy to ensure financial health and stable cash flow. We'll also leverage our experience accumulated over the years to minimize the pandemic's impact on our core delivery In addition, as you mentioned, today the company announced a new share repurchase program, so we remain confident about our future. Thank you for your question. I hope I answered your question.
spk13: I have another question.
spk03: facing the challenging market environment, what are the company's operational priorities for your two business, children and adult education businesses?
spk08: Thank you for your question. Facing the pressures and challenges from the market environment, we have different operational priorities for our two businesses.
spk17: First, in terms of the scheme
spk03: education will continue to optimize and operate our OMO-based customer acquisition process and product delivery system and refine our operations to consistently improve the health of our business.
spk08: So with this goal in mind, as a brand trusted by students and parents, it is important for us to continue to improve our reputation and availability. At the same time, we will also try to maintain
spk03: To that end, as a trusted brand among students and parents, continuing to increase word-of-mouth referrals and student renewals is our priority. At the same time, we'll also try to minimize the impact of the pandemic by building on our OMO format. 接下来我们看一下成人业务。
spk08: Regarding our adult business, we'll closely monitor the job market environment, and with the current upgrade of the industrial internet, we'll capture
spk03: the changes and opportunities in talent demands to upgrade our courses and other products. We'll also optimize our product mix and business structure.
spk08: In addition, in the area of policy encouragement and professional education, we will also actively promote the integration and collaboration of production and education. In addition, for professional education, which is encouraged by the government, we'll actively promote industry education integration and school enterprise cooperation.
spk03: Lastly, with the current top market environment faced by all the players in the industry, it is those with good operational capabilities and core competencies that will stand out from the competition after the pandemic.
spk08: And we are fully confident about our competitiveness. I hope I've answered your question.
spk13: I have one last question.
spk03: The digital transformation of the economy is imperative, and a huge demand for digital talent has driven the expansion of the IT education and training market.
spk08: Facing the increasing competition in the adult IT training industry, what is Tarina's competitive barrier? 基于你们这个问题,我想大致从这样三个方面来解读。 I would like to answer your question with three points. The first advantage of is our focus on the IT industry and our two decades of experience in IT training, which has provided us with the most in-depth understanding of the IT training industry. 公司的管理层都来自于IT行业,本身就对IT行业有非常好的认知。 As our management comes from the IT industry, they have extensive industry insights. And our 20 years of experience in IT training has allowed us to pick up on the changes in information technology and understand what it means for talent supply and demand in the market.
spk03: On that basis, we have built our independent course development capabilities, including the abilities to iterate and upgrade our course content, delivery system, and teaching platform, which constitute our core competitiveness. In other words, we have a solid first mover advantage.
spk08: Secondly, we have operational experience spanning economic cycles and technology development cycles. Over the past 20 years, we experienced several economic cycles and large-scale technology iterations. We have been able to quickly respond and adjust in time to follow the trends of our times.
spk03: including adjusting our operational strategies and our courses.
spk08: 这使得我们在一定程度上引领着整个行业朝前走。 And this has enabled us to lead the development of the industry. 第三点,我们多年来积累打磨了一套完善的OMO的体系。
spk03: In addition, through years of persistent efforts, we have created a complete OMO system, which allows the seamless integration of our online and offline operations, from customer acquisition and delivery to student services and tracking learning results.
spk08: Our OMO system has allowed students to get good services whenever they need and wherever they are, ensuring a good learning experience and learning effectiveness. That's my answer to your question about Serena's competitive barrier from three perspectives. Thank you. Thank you.
spk21: And we don't have any other questions as of the moment. Presenters, please continue.
spk08: Thank you, operator. If there are no further questions at present, we would like to conclude by thanking everyone for joining our conference call. We welcome you to reach out to us directly by emailing at ir.pedu.cn. Should you have any questions or requests for additional information, we encourage you to visit our investor relations site
spk07: Thank you.
spk22: Thank you.
spk21: Ladies and gentlemen, that does conclude our call for today. Thank you for participating.
spk22: You may all disconnect. Thank you. you you you Bye.
spk21: Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2022 Tarina International, Inc. Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. I must advise you this conference call is being recorded today, November 30th, 2022. I will turn the conference over to your first speaker today, Sylvia Yang, Investor Relationship Manager. Thank you. Please go ahead.
spk08: Thank you, Operator. Hello, everyone, and welcome to Tarina's Earnings Conference Call for the third quarter of 2022. The company's earnings results were released earlier today and are available on our IR website, ir.edu.cn, as well as our newswire services. Today, you will hear from Ms. Nancy Ying Sun, our CEO, and Ms. Ping Wei, our CFO, who will take you through the company's operational and financial results for the third quarter of 2022 and give revenue guidance for the fourth quarter of 2022. After their prepared remarks, Nancy and Ms. Wei will be available to answer your questions. Before we continue, please note that the discussion today will contain such a forward-looking statement made under the State Harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Terena does not assume any obligation to update any forward-looking statements, except as required after applicable law. Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G, U.S. GAAP financial measures, and information concerning these non-GAAP financial measures to Terena's financial results prepared in accordance with U.S. GAAP. are included in Tarina's earnings release, which has been posted on the company's IR website at ir.edu.cn. Finally, as a reminder, this conference call is being recorded. In addition, a webcast of this conference call is available on Tarina's IR investor relations website. I will now turn the call over to Ms. Nancy Ying Sun, the CEO of Tarina. Thank you, Yang Chuang. Thank you, Sylvia, and thank everyone for joining us today. In the third quarter of 2022, our business continued to grow in a positive way. Compared to the same period last year, we achieved a 4.6% growth in revenue. Our business continued to grow in three quarters. Our net profit reached 3.3%, compared to the same period last year, the overall profit margin is 55.1%, which is 4.2% higher than last year. Among them, adult businesses remain stable, with a profit margin of 68.3%, while youth digital education businesses continue to show a steady growth in the health management of businesses in the growing period, with a profit margin of 45.0%. In the third quarter of 2022, our overall business continued a steady growth, with net revenue increasing by 4.6% year-over-year. Our business also remained profitable for the third consecutive quarter, achieving an operating margin of 3.3%. around from our operating loss in the same period of last year. Our gross profit margin on the group level reached 55.1% at 4.2 percentage points year-over-year. Specifically, our IT professional education business remained stable, with a gross profit margin of 68.3%. In addition, Our IT-focused supplementary scheme education business continues to grow at a steady pace and healthy operations. Registry growth profit margin of 45%. As of the end of the reporting period, we realized a total net profit of RMB $103 million in the first three quarters of this year, compared with the net loss in the same period of last year. Solo方面, In the third quarter of this year, our total income reached 6.43 billion yuan. In the previous quarter, we gave a high-end income guidance. The 6.15 billion yuan that was allocated in 2021 also increased by 4.6%. In the field of youth digital education, we achieved a steady growth of 9.9% compared to last year in the third quarter. And the economic environment of the poor's professional education industry has been affected by the economic environment. The net income has dropped by 1.7%. Our total net revenues amounted to RMB $643 million in the third quarter, coming as the head end of the revenue guidance we provided last quarter. This represents a year-over-year increase of 4.6% from RMB $650 million in the third quarter of 2021. Segment-wise, we produced steady revenue growth of 9.9% year-over-year in IT-focused supplementary STEAM education in the third quarter. Well, our IT professional education revenue declined 1.7% due to market economic headwinds. We continued to optimize our model to enhance operational efficiency and effectively control expenses. In the third quarter, we further lowered our costs with a year-over-year reduction of 4.3%. Against this backdrop, we achieved a gross profit of around $354 million in the third quarter and an increase of 13.1% year-over-year. Due to the strict cost and expense control measures that were implemented this year, we realized a net profit again in the third quarter amounting to around $27.95 million. from a net loss in the same period of last year. 接下来,我和大家介绍一下 我们的青少年素质教育业务的情况。 Next, let me walk you through our IT-focused supplementary student education business. Thank you very much. In the third quarter of 2022, net revenue from IT-focused supplementary steam education was RMB 366 million, up 99% from RMB 333 million in the third quarter of 2021. accounting for 57% of our total revenue. Enrollment increased by 25.6% from 146,900 in the third quarter of 2021 to 184,500 in the third quarter of 2022, benefiting from our high-quality courses and delivery, as well as our growing brand influence. Meanwhile, with steady revenue growth and effective cost control at our centers, Our gross profit rose by 27.4% year-over-year in the third quarter, and our gross profit margin climbed by 6.2% to 55%. In terms of revenue, compared to last year, our revenue rose by 37.6% compared to last year. In the third quarter of 2021, 63.7% increased by 8.9%, which is 72.6% in the third quarter of 2022. In this quarter, 4.18 million students increased by 10.0% in the third quarter of 2021. This fully reflects the excellent course and exchange quality of our youth digital education industry. As a customer acquisition front, the number of students increased by 37.6% year-over-year. Meanwhile, students acquired by Word of Moth referrals and renewal students accounted for 72.6% of our free-paying students in the third quarter, up 8.9 percentage points from 63.7% in the third quarter of 2021. Our total number of free-paying students in the third quarter of 2022 was 41,850. an increase of 10% from 38,000 in the third quarter of 2021. We believe this growth fully demonstrates that our excellent quality and delivery quality and our students' learning results in IT-focused supplementary STEM education have translated into word-of-mouth referrals and an increase in renewal students. Notably, the percentage of renewal students who have enrolled for over a year continue to exceed 78% in the third quarter. In the third quarter of 2022, we will continue to increase the efficiency of SMEs, improve the cost of SMEs, and expand the capacity of SMEs. In the third quarter of 2022, the number of SMEs will be reduced from 238 in the third quarter of 2022 to 222 in the third quarter of 2022. At the same time, Regarding the operation of our centers, we continue to optimize operating costs. and expand single center capacity by improving operational efficiency. In the third quarter, the total number of centers providing IT-focused supplementary STEM education services declined from 238 at the end of the third quarter of 2021 to 222 at the end of the third quarter of 2022, a nice reduction of 16 centers. At the same time, the number of students enrolled percentage increased from 621 in the third quarter of last year to 820 in the same period of this year. In the third quarter, average revenue percentage grew by 15.8% from about RMB 1.41 million in 2021 to RMB 1.63 million this year. Next, moving to our IT professional education business. 接下来和大家介绍一下成员IT职业教育业务的情况。 Next, moving to our IT professional education business. In the third quarter, due to regional COVID-19 flare-ups, and market economic headwinds, we sought to facilitate stable operations by focusing on the quality of our cross-content delivery systems, reducing costs, and improving operational effectiveness and efficiency. This initiative was intended to ensure high-quality cost delivery at a time when business expansion was difficult, while also lowering costs and enhancing efficiencies to ensure profitability. Although some of our offline centers had to temporarily suspend operations at one point, we were able to achieve high-quality cross-delivery without interruption, thanks to our stable and mature online cross-delivery system developed through long-time efforts. We also endeavored to meet students' various needs in accounting and career advertisements. Supported by these initiatives, Our students' employment rate with six months of graduation was at about 92% in the third quarter of 2022. The third quarter's adult professional education business has a profit of 1.9 billion yuan. Compared with the third quarter's 1.84 billion yuan in 2020, which rose by 3.1%, the business profit has increased to 68.3%. In the third quarter, our net revenue from IT professional education fell slightly from RMB 283 million in the third quarter of 2021 to RMB 278 million this year. Despite the revenue decline and the macroeconomic uncertainty on the back of our strategy to reduce costs and enhance efficiency, the gross profit of IT professional education business rose by 3.1% from RMB 184 million in the third quarter of 2021 to RMB 190 million in the third quarter of 2022, with a gross profit margin of 68.3%. In addition, as we continue to streamline our costs and operating expenses, the total costs and operating expenses of IT professional education business decrease by 14% year-over-year. 2022年以来,公司坚持发展服务用户全生命周期的产品策略。 Thank you. In the process of accelerating the development of the digital industry, the importance of large-scale data, artificial intelligence, cloud computing, etc. will also bring an increase in market demand. This quarter, the company will continue to increase the number of courses in these technology fields, and further create courses that meet the needs of the market. We believe that these investments will bring health and mobility to the company after the epidemic. According to the Lifelong Learning Product Strategy that was implemented in 2022, we have created a more diversified multi-dimensional product portfolio, aimed at student career enhancements, in addition to our core products of Java-wide classes to update our product system and encourage repeat purchases. We believe market demand for professionals who are proficient in technologies is most in demand nowadays, such as big data, artificial intelligence, and cloud computing will continue to grow as China's digital industry continues to expand. We believe this investment will bring healthy growth momentum to the company after the pandemic's death sign. 是我对公司2022年第三季度运营情况的分享。 That concludes my review of the company's operations for the third quarter of 2022. 下面有请我们的CFO魏晴女士为大家带来2022年第三季度财务情况的介绍。 Next, I will turn the call over to Ping to work through our financials for the third quarter of 2022. Thank you, Nancy. And hello, everyone. Now, let me walk you through some of the financial highlights of the third quarter. Please also refer to the press release for more information. For the third quarter of 2022, the company recorded operating income of 21 million RMB, or 3 million U.S. dollars, and operating loss of 88.5 million RMB in the same period of 2021. Non-GAAP operating income which excluded share-based compensation expenses, was 30.2 million RMB for $4.2 million in the third quarter of 2022, compared to non-GAAP operating loss of 84.4 million RMB in the same period of 2021. The improvement in our operating profit was driven by our healthy revenue growth as well as our well-executed cost and expenses control during the quarter. Our total net revenues reached 643.3 million or 90.4 million U.S. dollars in the third quarter of 2022, up 4.6 percent from 615.2 million RMB in the same period of 2021, whereas Thanks to our effective cost control measures, our cost of revenues decreased by 4.3% to 289.1 million RMBs, or $40.6 million in the third quarter of 2022, from 302 million RMBs in the same period of 2021. Meanwhile, total operating expenses decreased by 17%, to 333.2 million RMB or 46.8 million U.S. dollars in the third quarter of 2022 from 401.7 million RMB in the same period of 2021 as we achieved expense reductions across our entire organization. The main contributors to the cost and expense reduction include, firstly, closing low-performing centers, and optimizing personnel operations to improve efficiency. As a result, as Nancy mentioned earlier, our learning centers for both IT-focused supplementary team education and IT professional education businesses decreased to 222 and 98 centers respectively, and our total headcount decreased by 16.8% year-over-year. Secondly, reducing sales and marketing personnel as well as marketing spending and remaining focused on operational excellency, which is through endeavoring to upload our quality of course content, delivery, and services, we continue to generate more word-of-mouth referrals and renewal enrollment. and maximize lifetime value of our students. And finally, overall prudent management of RMD and general management spending also helped lower overall spending and improved operational margin. As a result of the four goals, net income was 27.9 million RMD or 3.9 million US dollars in the third quarter of 2022. compared to net loss of 94.7 million RMBs in the same period of 2021. Non-GAAP net income, which excluded share-based compensation expenses, was 37.2 million RMBs, or $5.2 million in the third quarter of 2022, compared to non-GAAP net loss of 90.5 million RMBs
spk05: in the same period of 2021.
spk08: For the nine months of 2022, net income has reached 102.9 million RMB or 14.5 million US dollars compared to a net loss of 293.2 million RMB for the same period of 2021. Non-GAAP net income was 114.7 million RMB or 16.1 million U.S. dollars for the nine months of 2022, compared to a net loss of 278 million RMB in the same period of 2021. Now, on the ETS side, basic income per ADS was RMB 2.55 or 36 cents U.S. in the third quarter of 2022, compared to loss per ADS of RMB 8.21 in the third quarter of 2021. Diluted income per ADS was RMB 2.43 or 34 cents US in the third quarter of 2022, compared to loss per ADS of RMB 8.21 in the third quarter of 2021. For the nine months of 2022, Basic income per ADS was 9.28 RMB for the three quarters of 2022, compared to loss per ADS of 26.01 RMB for the same period of 2021. Diluted income per ADS was RMB 8.85 for the nine months of 2022, compared to loss per ADS of 26.01 RMB for the same period of 2021. As of September 30th, 2022, the total balance of cash, cash equivalents and time deposits was 342.1 million or 48.1 million US dollars, decreasing by 88.3 million RMB from the end of 2021. The decrease was mainly due to net cash outflow from operating activities in the first nine months of 2022 of 48 million RMB, or 6.7 million U.S. dollars, as cash collected from IT professional education decreased compared to the same period of last year, and was lower than gap revenue recognized during the period. This resulted in a decrease in deferred revenue balance, which contributed to the negative changes in working capital. Net cash outflow from investing activities for the nine months of 2022 was 14.1 million RMB or $2 million, as we repaid 15.5 million RMB or $2.2 million of short-term bank loans. Capital expenditures in the first nine months of 2022 was 33.1 million RMB, or 4.7 million US dollars, managed from purchasing IT equipment used in classrooms and payment to renovate teaching centers. Share repurchase also contributed to the cash outflow in the past three quarters. Going forward, as the COVID-19 pandemic continues to affect the mobility of our students and the normal operations of our offline centers, cash received from enrollment is expected to decrease in the fourth quarter compared to the same period of last year. Despite the uncertainties, we will strive to maintain a positive operating cash flow in the fourth quarter as well as a healthy cash and equivalence balance toward the end with continued operational efficiency improvement and strict spending control. That concludes my financial highlight section. And Nancy will share with you the business outlook and revenue guidance for the fourth quarter.
spk07: Thank you, Ms.
spk08: Wei, for your summary of our financial performance for the third quarter of 2022. Now turning to the company's outlook for the fourth quarter. There are 41 cities that have adopted control measures related to the epidemic. This has led to nearly 80% of our children's centers and nearly 76% of adult centers not being able to operate normally. This will affect our recruitment and revenue in the fourth quarter. Of course, we will continue to provide online courses and services. Our investment in the OMO course system is in line with the company's transition during the epidemic. In terms of financial management, according to the current estimate of the company, the net income of the fourth quarter of 2022 is estimated to be between 5.06 billion and 5.9 billion yuan. In terms of the net income of the fourth quarter of 2024, the net income dropped by 10% to 15%. Given the complex pandemic situation, some cities have taken measures to reduce social and business activities to contain the supply of virus. We expect these measures to limit students' mobility and our offline centers' operations. thereby impacting our enrollment and revenue in the sports culture. Specifically, currently out of 54 cities where I will operate, 41 of them have various COVID-related control measures, which have affected to normal operations of 80% of our STEM education centers and 76% of our IT professional training centers. However, thanks to OMO-based systems, we have developed over the years. We will continue to provide online courses and services to minimize the impact on our students' class attendance and participation. With respect to financial guidance, according to the company's current estimates, our total net revenues for the fourth quarter of 2022 are expected to be between RMB 560 million and RMB 590 million, representing a decrease of 10% to 50% from the fourth quarter of 2021. The company's guidance reflects our preliminary estimates of the current market environment and the company's operating conditions, which may change. Despite uncertainty in the short term, we are full of confidence in the huge potential of the IT education service market. We will continue to optimize the exchange system of O&O online and offline, and the exchange system of courses and products, so that no matter whether the offline center can operate, we can provide students with good courses and services. At the same time, while we are also optimizing the delivery quality of credit, we will continue to expand the good taste effect, consolidate and strengthen our core competitiveness, and create a brand that is trustworthy and worth choosing, so as to bring a more stable recruitment source. At the same time, we will continue to improve the efficiency of the operation, and control the output. The positive financial flow is still our goal. In spite of short-term uncertainty, we remain confident about tremendous potential of the IT education services market. We will continue to optimize our OMO-based student acquisition and product delivery system and ensure the quality of our course delivery and services, regardless of the operational status of offline centers. Moreover, while enhancing the delivery quality of our courses, we will continue to reinforce our core competencies to build a trusted brand for students and expand word-of-mouth referrals to foster stable sources of enrollment. In addition, we will continue to improve operational efficiency, adopt high spending controls with the goal of achieving positive operating cash flow in the fourth quarter and maintain the company's healthy development amid COVID-19 flare-ups. 以上是我们对未来的展望以及收入的指引。 Above is our outlook for the future and our revenue guidance. 借此机会再次感谢大家一直以来的关注和支持,下面我们准备好接受提问。 I would like to take this opportunity to thank you again for your attention and support. We are now ready for questions.
spk21: Thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing . To withdraw your question, please press star, then 2. At this time, we will pause momentarily to . Again, please press star then one if you would like to ask a question. And the first question comes from Giovanni Giulio, a private investor.
spk11: Yes, hello, good morning. Thank you for taking my question. I was wondering when is the company going to be free cash flow positive and what's preventing uh the company from achieving this target and as a second question i i see your enrollment going up and up at very high growth rate but this is not translating into high revenue growth so what what in fact thank you
spk08: Those are good questions. Thanks for asking them. First of all, on the free cash flow side, you might notice that we actually had the positive cash flow operating cash flow in Q2. In Q3, we had the negative cash flow primarily due to the decrease in adults' cash collection as compared to the revenue recognized. The That's the reason. However, on a basis, if not because of COVID-19, we actually expected overall free cash to be positive for 2022. But because of the pandemic-related controls that we saw, recently, and they're getting worse actually by day, we don't expect free cash flow positive overall for the year, but we actually expect at least a near positive free cash for Q4. So having said that, for 2023, if the COVID-related restrictions get relaxed, we are actually confident that we should be free cash positive next year. Because if you look at our financials, we actually are profitable for most of this year. So that's the first part. And second part, why enrollment is going up and revenue is not going up as much. Two reasons. One is for our children sort of... like IT, STEAM education, we actually have accumulated very strong brand influence, and parents usually are fairly eager to renew, especially when there are opportunities for them to take advantage of promotions we have from time to time. As a result, You know, we keep on accumulating different revenues from the children's side. At the same time, again, COVID-related restrictions affected the normal operations of our offline centers. And for some of the children's courses, especially for children at the age of six or younger, it's very hard to move courses online. Those affect our overall revenue recognition and as a result, like revenue growth is not at the same pace as enrollment. Now, again, going forward, once the COVID-related restrictions got lifted, we fully expect the revenue recognition or consumption of portions versus enrollment, you know, start to like more go in the same pace. Hope those answered your questions.
spk22: Thank you. And again, please press star and then 1 if you would like to ask a question. All right. We don't have any other questions as of the moment. Presenters, please continue.
spk07: Okay, do you mind asking questions again?
spk21: Okay, yes. And again, please press star and then one if you'd like to ask a question. And we do have a question from Judev from Free.
spk13: First of all, congratulations to the company for implementing this continuous supply in the third quarter. Well, first, congratulations on achieving sustained profitability in the third quarter. I noticed the company has launched a new share repurchase program. Facing the uncertainties from the current
spk03: economic environment and the pandemic. What is the company's outlook for next year and expectations for market conditions? Thank you.
spk08: I think we will continue to operate on the core competitiveness basis. We will continue to adopt a stable and conservative operation strategy to ensure the financial health and stable cash flow of the company. We will also reduce the impact of the pandemic on course delivery on course products accumulated over the years. In addition, as you have mentioned, we also announced the start of a new round of repurchase projects today. Because we are still focused on cash in the company's future,
spk03: Thank you for your question. The economic environment and the pandemic did bring some uncertainty. Nearly 80% of our STEAM education centers and 70% of our adult education centers have been affected to varying degrees, and many centers had to suspend offline operations. which is expected to impact our Q4 revenue. However, the top market environment has reached the bar for our refined operations. On top of building on our core competitiveness, we'll continue with our steady and conservative operational strategy to ensure financial health and stable cash flows. We'll also leverage our experience accumulated over the years to minimize the pandemic's impact on our core deliveries In addition, as you mentioned, today the company announced a new share repurchase program, so we remain confident about our future. Thank you for your question. I hope I answered your question.
spk13: I have another question.
spk03: Facing the challenging market environment, what are the company's operational priorities for your two business, children and adult education businesses?
spk07: Thank you for your question.
spk08: In the face of the pressure and challenge brought by the market environment, our two businesses have their own key points of operation. First, let's look at the children's business. We will continue to optimize and upgrade Thank you for your question. Facing the pressures and challenges from the market environment, we have different operational priorities for our two businesses.
spk07: First, in terms of the scheme
spk03: will continue to optimize and upgrade our OMO-based customer acquisition process and product delivery system and refine our operations to consistently improve the health of our business.
spk08: As a student and parent-friendly brand, we continue to improve our reputation and availability. At the same time, we will also try to maintain
spk03: To that end, as a trusted brand among students and parents, continuing to increase word-of-mouth referrals and student renewals is our priority. At the same time, we'll also try to minimize the impact of the pandemic by building on our OMO format. 接下来我们看一下成员业务。
spk08: Regarding our adult business, we'll closely monitor the job market environment, and with the current upgrade of the industrial internet, we'll capture
spk03: the changes and opportunities in talent demands to upgrade our courses and other products.
spk08: We'll also optimize our product mix and business structure. In addition, in the area of policy encouragement and professional education, we will also actively promote the integration and collaboration of production and education. In addition, for professional education, which is encouraged by the government, we'll actively promote industry education integration and school enterprise cooperation.
spk03: Lastly, with the current tough market environment faced by all the players in the industry, it is those with good operational capabilities and core competencies that will stand out from the competition after the pandemic.
spk08: And we are fully confident about our competitiveness. I hope I've answered your question.
spk13: I have one last question.
spk03: the digital transformation of the economy is imperative, and a huge demand for digital talent has driven the expansion of the IT education and training market.
spk08: Facing the increasing competition in the adult IT training industry, what is Tarina's competitive barrier? 基于你们这个问题,我想大致从这样三个方面来解读。 Well I would like to answer your question with three points. The first advantage of is our focus on the IT industry and our two decades of experience in IT training, which has provided us with the most in-depth understanding of the IT training industry. 公司的管理层都来自于IT行业,本身就对IT行业有非常好的认知。 As our management comes from the IT industry, they have extensive industry insights.
spk03: And our 20 years of experience in IT training has allowed us to pick up on the changes in information technology and understand what it means for talent supply and demand in the market.
spk08: On that basis, we have built our independent course development capabilities, including the abilities to iterate and upgrade our course content, delivery system, and teaching platform, which constitute our core competitiveness. In other words, we have a solid first mover advantage. Secondly, we have operational experience spanning economic cycles and technology development cycles. Over the past 20 years, we experienced several economic cycles and large-scale technology iterations. We have been able to quickly respond and adjust in time to follow the trends of our time.
spk03: including adjusting our operational strategies and our courses.
spk08: 这使得我们在一定程度上引领着整个行业朝前走。 And this has enabled us to lead the development of the industry. 第三点,我们多年来积累打磨了一套完善的OMO的体系。
spk03: In addition, through years of persistent efforts, we have created a complete OMO system, which allows the seamless integration of our online and offline operations, from customer acquisition and course delivery to student services and tracking learning results.
spk08: Our OMO system has allowed students to get good services whenever they need and wherever they are, ensuring a good learning experience and learning effectiveness. That's my answer to your question about Serena's competitive barrier from three perspectives. Thank you. Thank you.
spk21: And we don't have any other questions as of the moment. Presenters, please continue.
spk08: Thank you, operator. If there are no further questions at present, we would like to conclude by thanking everyone for joining our conference call. We welcome you to reach out to us directly by emailing at ir.pedu.cn. Should you have any questions or requests for additional information, we encourage you to visit our investor relations site
spk07: Thank you.
spk21: Thank you. Ladies and gentlemen, that does conclude our call for today. Thank you for participating.
spk22: You may all disconnect.
Disclaimer