Tarena International, Inc.

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.

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.

Thank you, Ms.