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.
spk10: Hello, ladies and gentlemen. Thank you for standing by for China Online Education Group's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Ni Yan, investor relations for the company. Please go ahead, Ni.
spk11: Hello, everyone, and welcome to the first quarter 2022 earnings conference call of China Online Education Group, also known as FiveOnTalk. The company's results were issued via NewsWare services earlier today and are posted online. You can download the earnings press release and sign up for the company's distribution list by visiting the IR section of our website at ir5ontalk.com. Mr. Jack Kwan, our chief executive officer, and Mr. Min Xu, our chief financial officer, will begin with some prepared remarks. Following the prepared remarks, there will be a Q&A session.
spk03: I have the ability to help people escape reality, at least for the next week or so. I make my whole home your home. I know there's no such thing as too many s'mores. I have a responsibility to make every stay amazing. I am a Verbo host.
spk05: TeamShares is a creative, unique, open, sharp, supportive, thought-provoking company that really pushes the boundaries beyond the norms of how businesses should be traditionally ran.
spk08: My very first impressions of TeamShares was too good to be true. TeamShares is reimagining small business ownership in America.
spk01: We buy small businesses from retiring owners, and we help convert them to be employee-owned.
spk16: This not only can lead to more profitable companies, but ultimately to more profitable communities and more wealth creation across the country.
spk00: Our long-term mission is to create $10 billion of new wealth for employee owners in America.
spk08: We're looking for talented presidents to help really bring employee ownership to life at our companies.
spk14: So what Drew made at TeamShares was the whole idea of empowering people with their financial future.
spk13: You can collaborate, you can share ideas, and you can maximize the potential across the board.
spk15: TeamShares has businesses in a wide range of different industries, everything from HVAC to architectural design firms. This is an incredible opportunity for the right candidate. We do not need leaders to come in with industry-specific experience. We just need people who have a growth mindset and are ready to learn. We are looking for individuals from a diverse set of backgrounds to bring their experience and help us grow these businesses.
spk07: I think too often we think we have to wait until we're old and gray before we can exercise our experience in ways that really matter to ourselves, our families, and communities. So having that opportunity to learn early in life exponentially grows my capability to have an impact later in life.
spk16: We're looking for talented, empathetic leaders who really know what it's going to take for a company to move from being a good company to an outstanding company.
spk05: TeamShares is a company that includes you in every facet, and that's something that, quite notably, you're just not going to find anywhere else. TeamShares is opportunity, and it's amazing.
spk07: Is this going to be me saying opportunity, opportunity, opportunity over and over and over again?
spk11: Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Limitation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company's Form 20-F and other public filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward booking statements, except as required under the applicable law. Please also note that 5N Talk's earnings press release and its conference call include discussion of an audited GAAP financial information as well as unaudited non-GAAP financial matters. Five on top stress reliefs contain a reconciliation of the unaudited non-GAAP barriers to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Jack Huang. Please go ahead.
spk12: Jack Huang, CEO, Jack Huang Financial Services Okay, thank you. Hello, everyone. Thank you for joining our conference call today. in order to comply with the government policies in china and a better focus on our overseas business we worked very hard to restructure our business in the past few quarters and on march the 24th we proposed to spin off our mainland china business i'm very glad to report that for today we reached a definitive agreement to spin off our mainland China business and expect to close the transaction on June the 30th. Upon the closing of the spin-off transaction, 100% of the company's revenues will be derived from overseas markets, and the company expects to shift from a negative net assets position to a positive net assets position. As of March 31st, our shareholders deficit was about $137 million. If we had completed the spin-off transaction on our reference date of April 30th, our overseas business equity would have been a positive $12.8 million. This would have been a $150 million improvement in terms of equity. Going forward, The listed company will 100% focus on our overseas business. With the rapid growth of our overseas business, we beat our Q1 growth spilling guidance. Our Q1 net growth spillings have reached $5.3 million, representing a 79.9% sequential growth. In the first quarter, the number of our paying students reached 6,500 and the number of our active students with attended lesson consumption reached 9,300 with students from more than 50 countries and regions outside of mainland China.
spk02: Say goodbye to multiple daily insulin injections with the new Omnipod 5, the only tubeless automated insulin delivery system that integrates with Dexcom G6, automatically adjusting your insulin to help protect against highs and lows day or night. Don't wait to simplify life with diabetes. Get started today with no contract and no commitment. Go to Omnipod.com for risk information and instructions for use. Consult your healthcare provider before starting on Omnipod.
spk06: Simplify diabetes. Simplify life. Omnipod.
spk04: With Fundrise, you can invest here from there or there from here. Our platform gives you access to premium real estate that was previously only available to institutions. So you can take your portfolio from here to there. You'll get updates on this and that from wherever you are. Join the community of over 150,000 investors that have gone from there to here with Fundrise.
spk12: In addition, our overseas business achieved its first positive monthly operating cash flow in this March, within only eight months since we launched our overseas business. Revenues from overseas business in the first quarter was $1.9 million, with a gross margin of 78%. The rapid growth proved that the strong demand and the business model in overseas markets are very much similar to that in mainland China. And we are confident that overseas business will achieve sustainable growth similar to what we had accomplished in mainland China. With that, I will turn the call over to Ximing, our CFO.
spk09: Thank you, Jack. Hello, everyone. Our overseas business growth momentum continued into Q1 2022, as Q1 growth billing reached $5.3 million, exceeding the top end of our guidance of $4.6 million. We will continue on our pathway of sustained balanced growth and execute our strategies that bring to overseas students strong value proposition for learning English. Now let me walk you through our first quarter 2022 financial details. Net revenues for Q1 were $9.5 million, representing a decline of 89.7% from the same quarter last year. Net revenues for the company's overseas business and the mainland China business were $1.9 million and $7.6 million, respectively. Gross margin for the first quarter was negative 14 percent. Gross margin for the company's overseas business and the mainland China business were 77.9 percent and negative 36.7 percent, respectively. We did not recognize $48 million non-compliant lesson consumptions as revenues. for China mainland business, but we still recorded the corresponding cost of revenue of $9.1 million. Q1 operating expenses were $20.6 million, a 59% sequential decrease from $50.2 million for last quarter. Q1 sales and marketing expense were $7.1 million, down 81% sequentially. Sales and marketing expenses for overseas business and mainland China business were $2.0 million and $5.1 million, respectively. 2.1 product development expenses were $2.0 million, down 16% sequentially. Product development expenses for overseas business and mainland China business were $1.1 million and $0.9 million, respectively. Q1 G&A expenses were $11.5 million, among which $2.9 million were VAT-related to noncompliant lesson consumptions. $2.8 million were accrued VAT and related penalty, and $0.8 million were severance costs. Excluding these one-time items from mainland China business, Q1 G&A expenses would have been $5.0 million, down 27% sequentially. G&A expenses for overseas business were $1.9 million. Q1 operating loss was $21.7 million, where overseas operating loss was $3.5 million, and mainland China operating loss was $18.2 million. Q1 net loss was $21.2 million. Net loss for overseas business and mainland China business were $3.4 million and $17.7 million, respectively. Q1 GAAP and the non-GAAP EPS were negative 95 cents and negative 94 cents, respectively. The company's total cash, cash equivalent, time deposits, short-term investments, and restricted cash were $126 million at the end of first quarter, and among which $7.7 million were restricted cash, which was advances from students on the government supervision. Advances from students were $206 million $16.6 million at the end of the first quarter, among which $6.1 million were for overseas business and $210.5 million were for mainland China business. The gap between advances from students and cash balances has decreased from $119 million in Q4 to $90 million in Q1. Looking forward to the second quarter of 2022, we currently expect net gross billing of overseas business to be between $7.2 million and $7.5 million, representing sequential growth between 36.1% to 41.8%. We estimate the cost related to the spinoff transaction to be less than $1 million. And excluding the costs related to the transaction, we expect Q2 operating cash flow to be slightly positive. The above outlook is based on current market conditions and reflects the company's current and preliminary estimate of market and operating conditions and the customer demand, which are all subject to change. This concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
spk10: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch turn phone. If you are using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And for the benefit of all participants on today's call, please limit yourself to two questions. If you have additional questions, you may reenter the queue. Please ask your question in Chinese first, then follow up with an English translation. We will pause momentarily to assemble our roster. And once again, ladies and gentlemen, it is star than one if you have a question. As we are reaching the end of our conference call, I'd like to turn the call back over to the company for closing remarks. Ms. Nguyen, please go ahead.
spk11: Thank you once again for joining us today. If you have further questions, please feel free to contact Five on Talk's investor relations through the contact information provided on our website.
spk10: Thank you. This concludes this conference call. You may not disconnect your lines.
Disclaimer