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spk02: Ladies and gentlemen, thank you for standing by and welcome to the first quarter of 2023 Tarina International Inc. Earnings Conference Call. All participants are on a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I must advise you that this conference is being recorded today, June 13, 2023. I would now like to hand the conference over to your first speaker today, Ms. Sylvia Yang, the investor relationship manager. Thank you. Please go ahead.
spk15: Thank you, operator. Hello, everyone, and welcome to Tarina's earnings conference call for the first quarter of 2023. 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 first quarter of 2023 and give references to the second quarter of 2023. 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 certain forward-looking statements. made under the state public 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. Serena does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G. The U.S. GAAP financial measures and information reconciling these non-GAAP financial measures to Tarina'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 Investor Relations website. I will now turn the call over to Ms. Nancy Yingsun, the CEO of Tarina.
spk14: Thank you, and thanks, everyone, for joining us today.
spk15: In the first quarter of 2023, the external environment was more uncertain. We took a careful financial and operation strategy in time, which made our financial performance overall healthy, especially because the cash flow decreased significantly compared to the flow level at the same time last year. In the first quarter, while the overall business environment was challenging, we achieved a relatively healthy financial performance. In particular, our net operating cash outflow narrowed year over year, as we continue to execute our prudent financial and operational strategy. While we temporarily closed our learning centers early this quarter, leading to a year-over-year reduction in cash receipts, we strictly controlled our cash expenditures through cost reductions and efficiency enhancements to minimize the impact. Additionally, aided by the general Islamic recovery following the Chinese New Year, enrollments started to recover, leading to relatively strong performance in the second half of the quarter. In particular, monthly enrollments in our IT-focused supplementary STEAM education services surpassed that of our pre-pandemic levels, resulting in a rebound in operating cash inflow. Our total net revenues amounted to 385 million RMB, a year-over-year decline of 38.2% from 624 million RMB in the same period of 2022. The decrease was primarily due to learning center closures for the whole month of January amid external challenges. These dynamics affected both our IT-focused supplementary STEAM education business and our IT professional education business. Among them, revenue from STEAM education services fell by 29.1% year-over-year, while revenue from our IT professional education dropped by 50.2%. Although we have experienced many challenges, we have been able to achieve long-term financial and operational strategies, and we have also taken continuous measures to increase our capital, effectively promoting the return of the operating cash flow in February and March of the first quarter. In the first quarter, the operating cash flow came out of the same level of 6% to 17730,000 yuan, Despite multiple challenges, our long-term prudent financial and operational strategy, combined with our consistent cost reductions and efficiency enhancements, helped our operating cash flow return to positive territory during subsequent months for the first quarter. In the quarter, our net operating cash outflow narrowed by 6% year-over-year to 17.73 million RMB. in the first quarter of 2023 our cost declined by 30.4% year over year, partially mitigating the effect of decreased revenue on our overall growth margin, which fell by 5.4 percentage points year over year. Additionally, operating expenses decreased by 21.3% year over year, which was primarily attributable to our effective control of marketing expenses, which declined by 34.4%. Next, let me walk you through our IT-focused supplementary STEAM education business. 2023年第一季度,青少年IT素质教育业务的净收入为2.508亿元,同比2022年第一季度的3.539亿元,下降了29.1%。 In the first quarter of 2023, net revenue from our STEAM education programs was 250.8 million RMB. down 29.1% from 353.9 million RMB in the first quarter of last year. This represented 65.12% for total net revenues during the first quarter of 2023, an increase from the first quarter of last year. Meanwhile, we implemented effective cost controls at our learning centers, and as a result, our costs and expenses fell by 28.6% year-over-year in the first quarter. In terms of customers, we are proud of our high-quality courses and handouts, and the gradual warm-up of the economy in the following months, and the gradual improvement of the drug demand. In the first quarter of 2013, our drug users reached 17.48 million, which is a rise from last year. On the customer acquisition front, enrollments increased during the quarter. This was due in part to our high-quality courses and their delivery, as well as the gradual economic recovery. In the first quarter of 2023, enrollments reached 174,800, a slight increase compared with last year. Notably, the number of renewal students and students enrolled through word-of-mouth referrals as a percentage of new fee-paying students rose year-over-year to 81.6% in the first quarter of 2023. 在中心的运营上, Regarding the operation of our center, the total number of our learning centers providing STEAM education services declined from 232 at the end of the first quarter of 2022 to 216 at the end of the first quarter of 2023. At the same time, the number of students enrolled per center increased from 737 in the first quarter of last year to 807 in the same period this year. 接下来和大家介绍一下 成人IQ职业教育业务的情况。 Next, moving to our IT professional education business. In the first quarter, we suspended the opposition of some of our learning centers, leading to a year-over-year drop of 50.2% in net revenue for our IT professional education business. Nevertheless, as we strictly followed our operational strategy of cost reductions and efficiency improvements, the total costs of our IT professional education business declined by 42.9% year-over-year, while the gross margin decreased to 63.7%. 随着外部环境逐渐向好,带动经济逐步回暖,二月以来,学员暴露地球基本稳定。 Our enrollment has stabilized since February, as gradual improvements in the external environment drove a broad economic recovery. 此外, to focus on the core core business of the company, which is the adult IT professional education and the youth IT quality education. The board of directors has decided in April 2023 to break away from the business of school cooperation, and to introduce a new business shareholder with limited investment and control shares. The project will be independent in April. The company signed an investment agreement with the control shareholder. The business of school mainly refers to Thank you. Thank you. Thank you. In addition, in order to focus on our core competence, namely providing IT professional and IT-focused supplementary STEAM education with a 2C model, the Board of Directors approved an investment agreement in April whereby the company would carve out the college collaboration-related business and retain only a minority interest. At the same time, a third-party strategic investor would provide future funding for the further advancement of this business, which will operate independently. The college collaboration-related business includes several cooperation models, one of which is joint major programs. Under this model, colleges recruit students and provide general courses, while we provide students with IT major-related courses, hands-on training, internships, and job recommendations. We also help colleges build artificial intelligence and provide training services for colleges to use their labs effectively. Peripheral business relating to college collaboration are also carved out as part of the deal. This particular business contributed about 4% of the company's total net revenues in 2022. The transaction is expected to close soon. 以上是我对于公司2023年第一季度运营情况的分享。 下面有请CFO魏萍女士为大家带来2023年第一季度财务情况的介绍。 Next, I'll turn the call over to Ping to... Our CFO is walking you through our financials for the first quarter of 2023. Thank you, Nancy. Hello, everyone. Now, let me walk you through some of the financial highlights of the first quarter. Please also refer to the press release for more information. For the first quarter of 2023, the company narrowed its net operating cash outflows to RMB 17.7 million or 2.6 million US dollars compared to a net operating cash outflow of 18.9 million RMB in the same period of 2022. While we experienced a tough and challenging transition period since the second half of fourth quarter, our businesses have gradually recovered since February of 2022. Temporary closures of our learning centers as well as a slow social mobility way on our customer acquisition and course delivery, leading to a year-over-year reduction in cash receipts. As such, revenue also declined. In the first quarter of 2023, our total net revenue was 385.1 million RMB, or $56.1 million, and a 38.2% decrease from the same quarter of last year. The decrease in revenues was primarily due to a reduction in student enrollment, particularly for IT professional education. Additionally, the company suspended courses and services for almost the entire month of January, resulting in a dent in revenues. Net revenues from our IT-focused supplementary STEAM education business was $750.8 million, representing about 65.1% of total net revenues. Our cost of revenues decreased by 30.4%, 284.1 million RMB, or $26.8 million in the first quarter of 2023, from 264.6 million RMB in the same period of 2022. The decrease was mainly attributable to a reduction in headcount and the resulting decrease in personnel and related welfare costs. Rental costs also decreased as the number of teachers centers decreased compared to the same period of 2022. Although revenues decline in the quarter is greater than the reduction in the cost of revenues, which brought a decrease of our gross profit to RMB 201.0 million or 29.3 million US dollars, followed by a narrow gross margin to 52.2%, Effective operational measures partially offset the impact. Total operating expenses decreased by 21.3% to 259.8 million RMB or 37.8 million US dollars in the first quarter of 2023 from 330.3 million RMB in the same period of 2022. Expense reductions across our organization mainly including the optimizing personnel efficiency and reducing customer acquisition costs. Total non-GAAP operating expenses, which exclude the share-based compensation expenses, decreased by 21.3% to 258.7 million RMB, or $37.7 million in the first quarter of 2023, from 328.9 million RMB in the same period of 2022. Selling and marketing expenses decreased by 34.4% to 113.2 million RMB, or $16.5 in the first quarter of 2023, from 172.4 million RMB in the same period of 2022. The decrease was mainly due to decrease in personnel-related costs resulting from a decrease in the number of shelf staff in the first quarter of 2023, compared to the same period of 2022. In addition, the reducing advertisement clicks resulted in a decrease in advertising expenses. General and administrative expenses decreased by 7.1% to 131.5 million RMB, or 19.2 million US dollars. in the first quarter of 2023 from 141.6 million RMB in the same period of 2022. The decrease mainly resulted from the reduction of GNA-related headcount and lower office attendance as we temporarily suspended operations early in the quarter. The decrease was partially offset by the provision of allowance on accounts receivable pertaining to certain college-related businesses which we disposed of subsequently. Research and development expenses decreased by 7.4% to 15.1 million RMB or 2.2 million US dollars in the first quarter of 2023 from 16.3 million RMB in the same period of 2022. The decrease was primarily due to a lower number of staff and excessive cost control in the first quarter of 2023. And the result of the foregoing operating loss was 58 million RMB or 8.6 million US dollars in the first quarter of 2023, compared to operating income of 28.6 million RMB in the same period of 2022. Non-GAAP operating loss, which excluded share based compensation expenses, was 57.7 million RMB or 8.4 million US dollars in the first quarter of 2023. compared to non-GAAP operating income of 30 million RMB in the same period of 2022. Net loss was RMB 49.9 million, or 7.3 million US in the first quarter of 2023, compared to net income of 27.1 million RMB in the same period of 2022. Non-GAAP net loss, which excluded share-based compensation expenses, was RMB 48.8 million or 7.1 million U.S. dollars in the first quarter of 2023 compared to non-GAAP net income of 28.5 million RMB in the same period of 2022. Now, on the EPS side, basic and diluted loss per ADS was 4.67 RMB or 68 cents U.S., while non-GAAP basic and diluted loss per ADS which excluded share-based compensation expenses, was 4.57 RMB or 67 cents US in the first quarter of 2023. As mentioned earlier, our net operating cash outflow was 17.7 million RMB for the quarter, 6% lower than that of the same period last year. Capital expenditures in the first quarter of 2023 were 5.8 million RMB, In this quarter, we received 19 million RMB of down payment for the disposition of two buildings we own. We anticipate the full payment will be settled by end of the second quarter of this year. As of March 31, 2023, the total balance of cash, cash equivalents, and restricted cash was 371 million RMB, or 54 million U.S. dollars. based by 3 million RMB from December 31 of 2022. This concludes my financial highlights section. And Nancy will share with you the business outlook and revenue guidance for the second quarter of 2023.
spk14: Nancy.
spk15: Thank you, Ping, for your support of our financial performance for the first quarter of 2023. Now turning to the company's outlook for the second quarter of 2020. Due to the dynamics in our external environment around the end of 2022 and the beginning of 2023, and the temporary closure of our learning centers, the impact on cash receipts during the period will continue to marginally affect our revenue for a few more quarters. Additionally, the carve-out of our college collaboration-related business will result in a year-over-year decrease of ongoing revenue run rate by around 4%. During this period, we remain focused on our continuous course upgrades and operational and management excellence. We believe this will go a long way toward enhancing our future development and profitability. In addition, with renewed market enthusiasm for our STEAM education services since the beginning of the second quarter, we expect a year-over-year increase in cash receipts and gap revenues. 相应的,在排物指引方面。 According to the company's current estimate, the net income in the second quarter of 2023 is expected to be between 5.20 billion and 5.50 billion yuan. The net income in the second quarter of 2022 is estimated to be between 15% and 20%. Based on the current market situation, the company has given a number of guidance. It reflects the initial estimate of the current market and the company's business situation. These situations may change. Accordingly, with respect to financial guidance, we estimate that our total net revenues for the second quarter of 2023 will be in the range of 520 million RMB and 550 million RMB, representing a decrease of 15% to 20% from the second quarter of 2022. The company's guidance reflects our preliminary estimate of the current market environment and the company's operating conditions. which may change. 展望未来 随着商业环境趋于稳定 数字化转型以及人工智能的快速发展 将带动信息化人才市场需求的持续增长 而科技强国的大环境之下 青少年的IT素质教育需求也持续向好 我们将继续充实利用自身的优势 致力于创造更高的股东价值 the same market demand for IT talent as the general job market gradually recovers. Additionally, as China aspires to develop the country's technical capabilities, we believe that IT-focused STEAM education for children will continue to be in strong demand. We are confident that we are well-positioned to capitalize on the large IT education market in China and that we'll continue to deliver enhanced shareholder value. The state and above is my outlook for the future and our revenue guidance. I would like to take this opportunity to thank you all again for your attention. We're now ready for questions. Thank you.
spk02: If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Yuan Zhang with China Renaissance. Please go ahead.
spk21: I will translate myself. Thanks for taking my question. I have a question regarding STEAM education. How does management see this year's trend, and can management provide more color on the growth strategy? Thanks.
spk15: Thank you for your question. Despite external headwinds early in the year that impacted our business, our STEAM education segment has gradually returned to normal and resumed growth. Especially, due to various kinds of challenging activities, the demand for increasing business reading has been continuously increasing. With the encouragement of policies, the market has been continuously increasing in terms of the education of the city, plus the positive effect of economic recovery and other trends, we have brought a very active market environment. The demand for reading has been increasing, and the market size is also expanding. In particular, we have seen rising market demand for value-added services, such as competitions and challenges. And favorable policies have increased the market's interest in programming education. Coupled with the economic recovery, active market demand drove enrollment increase, leading to market expansion. 虽然也有 More participants have entered the market on the same track as us. But we believe that this will further expand the overall market size of IT quality education for young people. The market penetration rate will continue to increase. And the common good and the common good depend on the advantages of our long-term product delivery. It will also be reflected in the process of user repetitive comparison. For more players that enter the market in recent years, we believe it will facilitate growth in the scale and penetration of the STEAM education market for Tongcheng Tongmei. Due to our advantages in our product delivery, we believe we will stand out in the competition. As to our growth strategy, firstly, on the front end, we are trying new customer acquisition channels, and we believe these new channels will bring us new students. Secondly, we've always had high renewal rates, in the industry, and we have continued to maintain our leadership in acquiring students through renewals. Third, we are hosting a larger variety of challenges, competitions, and camps, which will increase the repeat purchase rates among our students. And this, again, will lead to growth in new students. And now with the With the flourishing of chat GPT-related technology, we'll also gradually add more generative AI technology content to our courses to bring our students different experience. And we believe such product upgrades will help us gain more trust from our students.
spk14: So we believe a richer product portfolio will help us
spk15: gain more user trust and thus acquire more users. These are the most important advantages of our STEAM education services.
spk06: And again, I want to thank you for your support. Thank you.
spk02: Your next question comes from Edward Riley with EF Hutton. Please go ahead.
spk08: Hi guys, just some housekeeping. What is the enrollment and total number of centers within the professional education segment during the quarter? 我想請問一下一季度成人業務中心大概有多少個?
spk16: There are in total about 83 adult centers at the end of Q1 2023.
spk13: And after the quarter end, with the carve out of our college related business, the number will come down to around 57.
spk15: So that will be most likely the number for end of Q2.
spk14: Thanks, Eddie.
spk10: Okay, great.
spk08: And then where do you see the capacity for STEAM education with regard to enrollment per center? And just directionally, do you see the total number of centers within that segment expanding decreasing throughout the year.
spk15: That's a good question. I will ask Ms. Sun to answer the question. We'll translate first. This is a very good question. Thank you for your question. First, thank you for your question. It's a very good question. It's true that our enrollment percentage has been increasing along with our profitability, which shows that we have a solid business foundation. 我们会根据我们在不同城市和地区运营质量的情况适度地考虑新中心的扩展。 We will consider expanding our... we will consider establishing new centers in different cities or regions based on the operational quality of those centers. 我想这也是我们少儿业务同城同美持续的扩大市场占有率的考虑之一。 We believe this will be important to expand our market share in the STEAM education market.
spk05: Thank you again for your question.
spk10: Okay, and then last one for me. Just on pricing, what's pricing action look like for the rest of the year for both segments?
spk15: The pricing strategy of our course has not changed at all. It is just to encourage users to have longer choices and users to have more products to choose from, so that our prices remain at a relatively good level. In addition, we will consider the relevant needs and requirements of the country's double-point policy in the field of flight science. Well, actually we've seen an increase in our price per hour as well as the transaction value per course. So basically we haven't changed our pricing, but because our students are choosing to take our courses for longer hours or they are choosing more courses, from us, we have maintained our pricing including the transaction value of our courses on a pretty good level. And we will also the government's regulatory policies on double reduction and also on non-academic subjects in our pricing. 以上是我对这个问题的回答,谢谢。
spk06: I hope I've answered your question. Thank you. Thank you.
spk02: Your next question comes from William Grogowski with Green Ridge Global. Please go ahead.
spk07: Hi. For the Q2 expense of 15% to 20% down, you said 4% was from the college car vote. Can you break out what's expected from the STEAM and the professional for that remainder?
spk15: The Q2 side actually will be comparable to last year. So on the Q2 revenue side, it will be actually either slightly increasing from year-ago period, both on cash and on gas side. So basically, the decrease of 15% to 20% reflects the less cash collected during the December, January, like the peak of COVID period, the lingering impact. That is the main reason. Second reason is actually there's still a bit of headwind in China's general economic condition as well as the employment market. As such, our adult side is the main reason for the decrease in numbers. So basically 4% from carve-out, probably 5% to 10%.
spk23: 5% to, yeah, about 5% to 10%, 5%, I would say, more likely from the lingering impact of last quarter. And then the remaining is adults and the economic highway related.
spk07: Okay. And last question is, given the current environment and your cost efficiency initiatives, do you guys expect to turn profitable this year?
spk15: We were profitable last year, and we will still be profitable this year. Sorry, I should have kept you at this time. So we will still be profitable this year. For Q1, as you see, even though our loss was about $49 million, operating cash side, it's a much smaller number. For Q2, we expect a smaller number. probably operating sort of a small sort of operating cash outflow number. But on the GAAP side, we are already looking at a round-breaking even at the net margin level for Q2. And the second half of this year, it will all be profitable, you know, based on the current outlook without giving guidance, okay?
spk01: All right, great. Thank you.
spk06: Thank you, Bill.
spk02: Your next question comes from Giovanni Deguglio, who is a private investor. Please go ahead.
spk09: Good morning, everyone. Just two quick questions. First one is on the buyback. Please correct me if I'm wrong, but did you repurchase about 2 million shares in the first quarter? And if you could give an update.
spk10: on what's the remaining amount by that authorization?
spk15: Thanks for the question. First of all, the two million you referred to probably was the prior share repurchase program. We used up that two million. The Board of Directors actually authorized another US$3 million of buyback. The company is actively executing owner programs. We basically gave net discretion to the broker we mandated on the buyback program to do the repurchase. So we basically, in general, do not provide quarterly update on the exact amount of cash used in the quarter, but we still have a decent room to continue the buyback program.
spk10: Thank you. Thank you very much.
spk09: And second question on the college division carve-out. Are you going to receive... cash uh consideration uh our how are you structuring this transaction and what are you going to do with the proceeds from this transaction and also the the proceeds from the from the building that you're selling it's about 15 million right that's right
spk15: So basically, the college-related business is a non-cash transaction. It's actually because the particular part of the adult business is actually losing money for the past few years. And considering that our core strength is in the QC market, both for adults and for children, and to focus the company's strategic attention as well as financial resources. We decided to introduce a financial and strategic investor. That's why we carved it out. Our non-cash consideration retains minority interest, having the controlling investor to be the continuous financial sponsor for this particular business. So hopefully the minority interest in the capital business will actually sort of increase in value over time with sort of a deep pocket and a strategic investor supporting the sort of the funding needs as well as the strategic direction. For the company part, we will sort of continue basically increase bottom line but not increasing cash in the uh with the transaction so additionally the question on the use of the proceeds from the building which is an additional 50 million of cash basically we will let it sit on balance sheets uh basically uh sort of uh to enhance our cash position um and we don't intend to use it for other purposes, so it will be for operational purpose, working capital purpose.
spk10: Perfect. Thank you very much. That was our poll.
spk02: Thank you. Thank you. We don't have any other questions at the moment. Presenters, please continue. Thank you, operator.
spk15: 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.edu.cn. Should you have any questions or requests for additional information, we encourage you to visit our investor relations site at ir.edu.cn.
spk06: Thank you.
spk02: Ladies and gentlemen, that does conclude our call for today. Thank you for participating. You may now disconnect. Thank you. Thank you. you Thank you. Ladies and gentlemen, thank you for standing by and welcome to the first quarter of 2023 Tarina International Inc. Earnings Conference Call. All participants are on a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I must advise you that this conference is being recorded today, June 13, 2023. I would now like to hand the conference over to your first speaker today, Ms. Sylvia Yang, the Investor Relationship Manager. Thank you. Please go ahead.
spk15: Thank you, operator. Hello, everyone, and welcome to Tarina's earnings conference call for the first quarter of 2023. 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 Yingsun, our CEO, and Ms. Ping Wei, our CFO, who will take you through the company's operational and financial results for the first quarter of 2023 and give references to the second quarter of 2023. 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 certain forward-looking statements. made under the state public 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. Serena does not assume any obligation to update any forward-looking statements, except as required under applicable law. Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G. The U.S. GAAP financial measures and information reconciling these non-GAAP financial measures to Tarina'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 Investor Relations website. I will now turn the call over to Ms. Nancy Yingsun, the CEO of Tarina.
spk14: Thank you, and thanks, everyone, for joining us today.
spk15: In the first quarter of 2023, the external environment was more uncertain. We took a timely and cautious financial and operation strategy, which made our financial performance overall healthy, especially because the cash flow was reduced by the flow level of the same period last year. In the first quarter, while the overall business environment was challenging, we achieved a relatively healthy financial performance. In particular, our net operating cash outflow narrowed year over year, as we continue to execute our prudent financial and operational strategy. While we temporarily closed our learning centers early this quarter, leading to a year-over-year reduction in cash receipts, we strictly controlled our cash expenditures through cost reductions and efficiency enhancements to minimize the impact. 其招生规模已经超过了疫情前的水平。第一季度后半段,公司的整体现金收款水平全面恢复。 Additionally, aided by the general economic recovery following the Chinese New Year, enrollments started to recover, leading to relatively strong performance in the second half of the quarter. In particular, monthly enrollments in our IT-focused supplementary STEAM education services surpassed that of our pre-pandemic levels, resulting in a rebound in operating cash inflow. Our total net revenues amounted to 385 million RMB, a year-over-year decline of 38.2% from 624 million RMB in the same period of 2022. The decrease was primarily due to learning center closures for the whole month of January amid external challenges. These dynamics affected both our IT-focused supplementary STEAM education business and our IT professional education business. Among them, revenue from STEAM education services fell by 29.1% year-over-year, while revenue from our IT professional education dropped by 50.2%. Although we have gone through many challenges, we have become a long-term financial and operational strategy. At the same time, we take continuous measures to reduce the cost and effectively promote the return of the operating cash flow in February and March of the first quarter. In the first quarter, the operating cash flow came out of the same rate of 6% to 17730,000 yuan. Despite multiple challenges, our long-term prudent financial and operational strategy, combined with our consistent cost reductions and efficiency enhancements, helped our operating cash flow return to positive territory during subsequent months for the first quarter. In a quarter, our net operating cash outflow narrowed by 6% year-over-year to 17.73 million RMB. in the first quarter of 2023 our cost declined by 30.4% year-over-year, partially mitigating the effect of decreased revenue on our overall growth margin, which fell by 5.4 percentage points year-over-year. Additionally, operating expenses decreased by 21.3% year-over-year, which was primarily attributable to our effective control of marketing expenses, which declined by 34.4%. Next, let me walk you through our IT-focused supplementary STEAM education business. 2023年第一季度,青少年IT素质教育业务的净收入为2.508亿元, 同比2022年第一季度的3.539亿元下降了29.1%。 In the first quarter of 2023, net revenue from our STEAM education programs was 250.8 million RMB. down 29.1% from 353.9 million RMB in the first quarter of last year. This represented 65.12% for total net revenues during the first quarter of 2023, an increase from the first quarter of last year. Meanwhile, we implemented effective cost controls at our learning centers. And as a result, our costs and expenses fell by 28.6% year over year in the first quarter. In terms of customers, we are proud of our high-quality courses and handouts, as well as the gradual warm-up of the economy in the following months, and the gradual improvement of the drug demand. In the first quarter of 2023, our drug users reached 17.48 million, which is a surge from the same period last year. On the customer acquisition front, enrollments increased during the quarter. This was due in part to our high-quality courses and their delivery, as well as the gradual economic recovery. In the first quarter of 2023, enrollments reached 174,800, a slight increase compared with last year. Notably, the number of renewal students and students enrolled through word-of-mouth referrals as a percentage of new fee-paying students rose year-over-year to 81.6% in the first quarter of 2023. 在中心的运营上, Regarding the operation of our center, the total number of our learning centers providing STEAM education services declined from 232 at the end of the first quarter of 2022 to 216 at the end of the first quarter of 2023. At the same time, the number of students enrolled per center increased from 737 in the first quarter of last year to 807 in the same period this year. 接下来和大家介绍一下成人IT职业教育业务 的情况。 Next, moving to our IT professional education business.
spk14: Next, moving to our IT professional education business.
spk15: In the first quarter, we suspended the opposition of some of our learning centers, leading to a year-over-year drop of 50.2% in net revenue for our IT professional education business. Nevertheless, as we strictly followed our operational strategy of cost reductions and efficiency improvements, the total costs of our IT professional education business declined by 42.9% year-over-year, while the gross margin decreased to 63.7%. 随着外部环境逐渐向好, 带动经济逐步回暖, 2月以来, 学员暴露地球基本稳定。 Our enrollment has stabilized since February, as gradual improvements in the external environment drove a broad economic recovery. 是吧。 In order to focus on the core core business of the company, i.e. the adult IT professional education and the youth IT quality education, the board of directors decided in April 2023 to break up the business cooperation with the school, and to introduce a new business shareholder with limited investment and control shares. The project will be independent in April. The company signed an investment agreement with the control shareholder. The school business mainly refers to Thank you very much. In addition, in order to focus on our core competence, namely providing IT professional and IT-focused supplementary STEAM education with a 2C model, the Board of Directors approved an investment agreement in April whereby the company would carve out the college collaboration-related business and retain only a minority interest. At the same time, a third-party strategic investor would provide future funding for the further advancement of this business, which will operate independently. The college collaboration-related business includes several cooperation models, one of which is joint major programs. Under this model, colleges recruit students and provide general courses, while we provide students with IT major-related courses, hands-on training, internships, and job recommendations. We also help colleges build artificial intelligence and provide training services for colleges to use their labs effectively. Peripheral business relating to college collaboration are also carved out as part of the deal. This particular business contributed about 4% of the company's total net revenues in 2022. The transaction is expected to close soon. 以上是我对于公司2023年第一季度运营情况的分享。 下面有请CFO魏萍女士为大家带来2023年第一季度财务情况的介绍。 Next, I'll turn the call over to Pim to... Our CFO will walk you through our financials for the first quarter of 2023. Thank you, Nancy. Hello, everyone. Now, let me walk you through some of the financial highlights of the first quarter. Please also watch release for more information. For the first quarter of 2023, the company narrowed its net operating cash outflows to RMB 17.7 million or 2.6 million US dollars compared to a net operating cash outflow of 18.9 million RMB in the same period of 2022. While we experienced a tough and challenging transition period since the second half of fourth quarter, our businesses have gradually recovered since February of 2022. Temporary closures of our learning centers as well as a slow social mobility way on our customer acquisition and course delivery, leading to a year-over-year reduction in cash receipts. As such, revenue also declined. In the first quarter of 2023, our total net revenues was 385.1 million RMB, or $56.1 million, and 38.2% decrease from the same quarter of last year. The decrease in revenues was primarily due to a reduction in student enrollment, particularly for IT professional education. Additionally, the company suspended courses and services for almost the entire month of January, resulting in a dent in revenues. Net revenues from our IT-focused supplementary STEAM education business was $350.8 million, representing about 65.1% of total net revenues. Our cost of revenues decreased by 30.4%, 284.1 million RMB, or $26.8 million in the first quarter of 2023, from 264.6 million RMB in the same period of 2022. The decrease was mainly attributable to a reduction in headcount and the resulting decrease in personnel and related welfare costs. Rental costs also decreased as the number of centers decreased compared to the same period of 2022. Although revenues decline in the quarter is greater than the reduction in the cost of revenues, which brought a decrease of a gross profit to R&D 201.0 million or 29.3 million US dollars, followed by a narrow gross margin to 52.2%, Effective operational measures partially offset the impact. Total operating expenses decreased by 21.3% to 259.8 million RMB or 37.8 million US dollars in the first quarter of 2023 from 330.3 million RMB in the same period of 2022. Expense reductions across our organization mainly including the optimizing personnel efficiency and reducing customer acquisition costs. Total non-GAAP operating expenses, which excluded share-based compensation expenses, decreased by 21.3% to 258.7 million RMB, or $37.7 million in the first quarter of 2023, from 328.9 million RMB in the same period of 2022. Selling and marketing expenses decreased by 34.4% to 113.2 million RMB, or $16.5 in the first quarter of 2023, from 172.4 million RMB in the same period of 2022. The decrease was mainly due to decrease in personnel-related costs resulting from a decrease in the number of shelf staff in the first quarter of 2023 compared to the same period of 2022. In addition, the reducing advertisement clicks resulted in a decrease in advertising expenses. General and administrative expenses decreased by 7.1% to 131.5 million RMB, or 19.2 million U.S. dollars. in the first quarter of 2023 from 141.6 million RMB in the same period of 2022. The decrease mainly resulted from the reduction of GNA-related headcount and lower office attendance as we temporarily suspended operations early in the quarter. The decrease was partially offset by the provision of allowance on accounts receivable pertaining to certain college-related businesses which we disposed of subsequently. Research and development expenses decreased by 7.4% to 15.1 million RMB or 2.2 million US dollars in the first quarter of 2023 from 16.3 million RMB in the same period of 2022. The decrease was primarily due to a lower number of staff and effective cost control in the first quarter of 2023. As a result of the foregoing, operating loss was 58 million RMB or 8.6 million US dollars in the first quarter of 2023, compared to operating income of 28.6 million RMB in the same period of 2022. Non-GAAP operating loss, which excluded share-based compensation expenses, was 57.7 million RMB or 8.4 million US dollars in the first quarter of 2023. compared to non-GAAP property income of 30 million RMB in the same period of 2022. Net loss was RMB 49.9 million, or 7.3 million US, in the first quarter of 2023, compared to net income of 27.1 million RMB in the same period of 2022. Non-GAAP net loss, which excluded share-based compensation expenses, was RMB 48.8 million or 7.1 million U.S. dollars in the first quarter of 2023 compared to non-GAAP net income of 28.5 million RMB in the same period of 2022. Now, on the EPS side, basic and diluted loss per ADS was 4.67 RMB or 68 cents U.S., while non-GAAP basic and diluted loss per ADS which excluded share-based compensation expenses, was 4.57 RMB or 67 cents US in the first quarter of 2023. As mentioned earlier, our net operating cash outflow was 17.7 million RMB for the quarter, 6% lower than that of the same period last year. Capital expenditures in the first quarter of 2023 were 5.8 million RMB, In this quarter, we received 19 million RMB of down payment for the disposition of two buildings we own. We anticipate the full payment will be settled by end of the second quarter of this year. As of March 31, 2020, the total balance of cash, cash equivalents, and restricted cash was 371 million RMB, or 54 million U.S. dollars. by 3 million RMB from December 31 of 2022. This concludes my financial highlights section. And Nancy will share with you the business outlook and revenue guidance for the second quarter of 2023.
spk14: Nancy.
spk15: Thank you, Ping, for your support of our financial performance for the first quarter of 2023. Now turning to the company's outlook for the second quarter of 2020. Due to the dynamics in our external environment around the end of 2022 and the beginning of 2023, and the temporary closure of our learning centers, the impact on cash receipts during the period will continue to marginally affect our revenue for a few more quarters. Additionally, the carve-out of our college collaboration-related business will result in a year-over-year decrease of ongoing revenue run rate by around 4%. During this period, we remain focused on our continuous course upgrades and operational and management excellence. We believe this will go a long way toward enhancing our future development and profitability. In addition, with renewed market enthusiasm for our steam education services since the beginning of the second quarter, we expect a year-over-year increase in cash receipts and gap revenues. 相应的,在排物指引方面。 According to the company's current estimate, the net income of the second quarter of 2023 is expected to be between 5.20 billion and 5.50 billion yuan. The net income of the second quarter of 2022 is 15% to 20%. The company gave a number of guidance based on the current market situation, reflecting the initial estimate of the current market and the company's business situation. These situations may change. Accordingly, with respect to financial guidance, we estimate that our total net revenues for the second quarter of 2023 will be in the range of 520 million RMB and 550 million RMB, representing a decrease of 15% to 20% from the second quarter of 2022. The company's guidance reflects our preliminary estimate of the current market environment and the company's operating conditions. which may change. To pick the same market demand for IT talent, as the general child market gradually recovers. Additionally, as China aspires to develop the country's technical capabilities, we believe that IT-focused STEAM education for children will continue to be in strong demand. We are confident that we are well-positioned to capitalize on the large IT education market in China and that we'll continue to deliver enhanced shareholder value. The state and above is my outlook for the future and our revenue guidance. I would like to take this opportunity to thank you all again for your attention. We're now ready for questions. Thank you.
spk02: If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Yuan Zhang with China Renaissance. Please go ahead.
spk21: I will translate myself. Thanks for taking my question. I have a question regarding STEAM education. How does management see this year's trend, and can management provide more color on the growth strategy? Thanks.
spk15: Thank you for your question. Despite external headwinds early in the year that impacted our business, our STEAM education segment has gradually returned to normal and resumed growth. In particular, the demand for reading is constantly rising due to various types of challenge activities. With the encouragement of policies, the market is continuously increasing in terms of urban education. In addition to the positive effect of economic warm-up and other trends, we have a very active market environment. The demand for reading is increasing, and the market size is also expanding. In particular, we have seen rising market demand for value-added services such as competitions and challenges. And favorable policies have increased the market's interest in programming education. Coupled with the economic recovery, active market demand drove enrollment increase, leading to market expansion. 虽然也有 More and more participants have entered the market on the same track. But we believe that this will further expand the overall market size of IT quality education for young people. The market penetration rate will continue to increase. And the common good and the common good depend on the advantages of our long-term product delivery. It will also stand out in the process of repeatedly comparing users. More players have entered the market in recent years. We believe it will facilitate growth in the scale and penetration of the STEAM education market for Tongcheng Tongmei. Due to our advantages in our product delivery, we believe we will stand out in the competition. As to our growth strategy, firstly, on the front end, we are trying new customer acquisition channels, and we believe these new channels will bring us new students. Secondly, we've always had high renewal rates, in the industry and we have continued to maintain our leadership in acquiring students through renewals. Third, we are hosting a larger variety of challenges, competitions and camps which will increase the repeat purchase rates among our students and this again will lead to growth in new students. And now with the With the flourishing of chat GPT-related technology, we'll also gradually add more generative AI technology content to our courses to bring our students different experience. And we believe such product upgrades will help us gain more trust from our students.
spk14: So we believe a richer product portfolio will help us gain
spk15: more user trust and thus acquire more users. These are the most important advantages of our STEAM education services.
spk06: And again, I want to thank you for your support. Thank you.
spk02: Your next question comes from Edward Riley with EF Hutton. Please go ahead.
spk08: Hi guys, just some housekeeping. What is the enrollment and total number of centers within the professional education segment during the quarter?
spk15: They are in total about 83 adult centers at the end of Q1 2023. And after the quarter end, with the carve out of our college related business, the number will come down to around 57. So that will be most likely the number for end of Q2.
spk14: Thanks, Eddie.
spk10: Okay, great.
spk08: And then where do you see the capacity for STEAM education with regard to enrollment per center? And just directionally, do you see the total number of centers within that segment expanding or decreasing throughout the year?
spk15: That's a good question. I will ask Ms. Sun to answer the question. We'll translate first. This is a very good question. Thank you for your question. Indeed, in the previous period of continuous operation, Well, first, thank you for your question. It's a very good question. It's true that our enrollment percentage has been increasing along with our profitability, which shows that we have a solid business foundation. 我们会根据我们在不同城市和地区运营质量的情况 适度地考虑新中心的扩展。 We will consider establishing new centers in different cities or regions based on the operational quality of those centers. 我想这也是我们少儿业务同城同美持续的扩大市场占有率的考虑之一。 We believe this will be important to expand our market share in the STEAM education market. 好,再次感谢您的提问,以上是我的回答。 Thank you again for your questions.
spk10: Okay, and then last one for me, just on pricing, what's pricing action look like for the rest of the year for both segments?
spk14: So.
spk15: The pricing strategy of our course has not changed at all. It just encourages users to have longer choices and users to have more choices of products, so that our prices remain at a relatively good level. In addition, we will consider the relevant needs and requirements in the double-point policy of the National Science and Technology Department. Well, actually we've seen an increase in our price per hour as well as the transaction value per course. So basically we haven't changed our pricing, but because our students are choosing to take our courses for longer hours or they are choosing more courses, from us, we have maintained our pricing on including the deduction value of our courses on a pretty good level. And we will also the government's regulatory policies on double reduction and also on non-academic subjects in our pricing. Thank you.
spk06: I hope I've answered your question. Thank you. Thank you.
spk02: Your next question comes from William Grogowski with Green Ridge Global. Please go ahead.
spk07: Hi. For the Q2 expense of 15% to 20% down, you said 4% was from the college carve out. Can you break out what's expected from the STEAM and the professional for that remainder?
spk15: The Q2 side actually will be comparable to last year. So on the Q2 revenue side, it will be actually either slightly increasing from year-ago period, both on cash and on gas side. So basically, the decrease of 15% to 20% reflects the less cash collected during the December, January, like the peak of COVID period, the lingering impact. That is the main reason. Second reason is actually there's still a bit of headwind in China's general economic condition as well as the employment market. As such, our adult side is the main reason for the decrease in numbers. So basically 4% from carve-out, probably 5% to 3%.
spk23: Five to yeah about five to 10% five percent I will say more likely from the lingering impact of last quarter, and then the remaining as adults and economic how we relate it.
spk07: Okay, and last question is, given the current environment and your cost efficiency initiatives do you guys expect to turn profitable this year.
spk15: We were profitable last year, and we will still be profitable this year. So we will still be profitable this year. For Q1, as you see, even though our loss was about $49 million, our operating cash side is a much smaller number. For Q2, we expect a smaller number. probably operating sort of a small sort of operating cash outflow number. But on the GAAP side, we are already looking at a round-breaking even at the net margin level for Q2. And the second half of this year, it will all be profitable, you know, based on the current outlook without giving guidance, okay?
spk01: All right, great. Thank you.
spk06: Thank you, Bill.
spk02: Your next question comes from Giovanni Deguglio, who is a private investor. Please go ahead.
spk09: Good morning, everyone. Just two quick questions. First one is on the buyback. Please correct me if I'm wrong, but did you repurchase about 2 million shares in the first quarter? And if you could give an update.
spk10: on what's the remaining amount by that authorization?
spk15: Thanks for the question. First of all, the two million you referred to probably was the prior share repurchase program. We used up that two million. The board of directors actually authorized another $3 million U.S. dollar of buyback. The company is actively executing owner programs. We basically gave a discretion to the broker we mandated on the buyback program to do the repurchase. So we basically, in general, do not provide quarterly update on the exact amount of cash used in the quarter, but we still have a decent room to continue the buyback program.
spk10: Thank you. Thank you very much.
spk09: And second question on the college division carve-out. Are you going to receive... cash consideration? How are you structuring this transaction? And what are you going to do with the proceeds from this transaction and also the proceeds from the building that you're selling? It's about $15 million, right?
spk15: That's right. There's a question about the split. If there's a split, can there be a limit? And how are you going to use the split? So basically, the college-related business is a non-cash transaction. It's actually because the particular part of the adult business is actually losing money for the past few years. And considering that our core strength is in the QC market, both for adults and for children, and to focus the company's strategic attention as well as financial resources, we decided to introduce a financial and strategic investor. That's why we carved it out. Our non-cash consideration retains minority interest, having the controlling investor to be the continuous financial sponsor for this particular business. So hopefully the minority interest in the capital business will actually sort of increase in value over time with sort of a deep pocket and a strategic investor supporting the sort of the funding needs as well as the strategic direction. For the company part, we will sort of continue basically increase bottom line, but not increasing cash in the, uh, with the transaction. So additionally, the question on the use of the proceeds from the beauty, which is an additional 50 million of cash, basically we will let it sit on balance sheets, uh, basically, uh, sort of, uh, to enhance our cash position. Um, and we don't, intend to use it for other purposes, so it will be for operational purpose, working capital purpose.
spk10: Perfect. Thank you very much. That was helpful.
spk02: Thank you. Thank you. We don't have any other questions at the moment. Presenters, please continue. Thank you, operator.
spk15: 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.edu.cn. Should you have any questions or requests for additional information, we encourage you to visit our investor relations site at ir.edu.cn.
spk06: Thank you.
spk02: Ladies and gentlemen that does conclude our call for today. Thank you for participating you may now disconnect.
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