51Talk Online Education Group

Hello, ladies and gentlemen. Thank you for standing by for 51 Talk Online Education Group's second quarter 2024 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, Mr. David Chung, investor relations for the company. Please go ahead, David.

Hello, everyone. and welcome to the second quarter 2024 earnings conference call of 5.1 Talk. The company's results were issued by Newswire 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 ir.51talk.com. Mr. Jack Huang, our CEO, and Ms. Cindy Tang, our CFO, will begin with some prepared remarks. Following the prepared remarks, there will be a Q&A session. Before we continue, please note that the discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation 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 20F and other public filings as filed with the U.S. Securities and Exchange Commission. Company does not assume any obligation to update any forward-looking statements except as required under the applicable law. Please also note that Earnings press release and this conference call include discussion of unaudited gap financial information, as well as unaudited non-gap financial measures. 5.1 Talks press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I'll now turn the call over to our CEO, Jack Wang. Jack, please go ahead. Thank you.

Hello, everyone. Thank you very much for joining our conference for today. We have achieved strong growth in Q2, exceeding our guidance, and anticipate sustained momentum in the four-year-old future, as reflected in our Q3 guidance. Our strategic investment across a diverse portfolio of markets are yielding positive results, propelling us towards our objective of becoming a globally leading asset company. Through our localization efforts, we have gained a deeper understanding of individual markets, allowing us to meet specific local needs. This approach has improved our product market fit. Additionally, we actively explore new market opportunities that align with our strategic direction and existing product offerings. Our strategy hinges on our global expansion based on local needs and platform strengths enabled by AI. We make targeted investments to enhance team efficiency and the local customer experience, aiming to drive higher retention rates, and more customer referrals. With that, I will now turn the call over to our CFO, Cindy Tang.

Thank you, Jack. Now let me walk you through our second quarter financial details. Second quarter net revenues were $11 million, a 75.1% increase from the same quarter last year, largely driven by the increase of active students with attended lesson consumption. Gross margins for the second quarter were 78.1%. Gross billings grew by 61.3% from the same quarter last year to 15.9 million U.S. dollars. Q2 operating expenses were 11 million U.S. dollars, an increase of 39.7% compared to the same quarter last year. Specifically, this has been driven by Q2 sales and marketing expenses of 7.3 million U.S. dollars. a 43.6% increase from the same quarter last year due to higher sales personnel costs related to increases in the number of sales and marketing personnel. Q2 product development expenses were $0.9 million, a 22.6% increase from the same quarter last year. Finally, Q2 general and administrative expenses were $2.8 million, a 35.8% increase from the same quarter last year. Overall, Q2 operating loss was 2.4 million U.S. dollars, while net loss was 1.3 million U.S. dollars, an 18.1% and a 56.5% increase from the same quarter last year, respectively. Q2 gap and non-gap earnings per ABS were negative 0.22 U.S. dollars, and 0.18 US dollars respectively. The company's total cash, cash equivalent, and time deposits were 21 million US dollars at the end of the second quarter. If, including deposits in third party payment channels, et cetera, the total balance would have been 24.2 million US dollars. Advances from students were 34.5 million US dollars at the end of the second quarter. Looking forward to the third quarter of 2024, we currently expect the net growth ceilings to be between $17 million and $18 million. The above outlook is based on our current market conditions, and we reflect the company's current and preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. This concludes our prepared remarks We will now open the line for questions. Operator, please go ahead.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And once you ask your question, if you have further questions, you may reenter the queue. Today's first question comes from John Banks at B&G Capital Management.

Please go ahead. Hi. Thanks for letting me ask a question. Congratulations on the great quarter. Just a quick question on the new market you guys are going after. I know originally you guys were in China. It was 100% there, and the tutors were mostly Philippines. So then you went to Asia, but now it looks like you're spreading out in Japan and the Middle East. So I guess my question, when you go to these localized markets, Are you using AI? Are you using local teachers? And just try to explain a little on the new market you guys are looking to enter, or are you looking to enter every market going forward? Thank you.

Okay, thank you very much for your question. Okay, obviously you have done a lot of research on our market. Yes, so currently we are, our new market includes Southeast Asia, includes Japan, includes the Middle East market. And right now, our core product, our core product is the Foreign Tutor 101 business model. Mostly, we are using the Filipino However, we are also utilizing the AI technology to enable the Filipino tutors as well. So the Filipino tutors can utilize the AI technology to make the lesson to be more interactive, to be more personalized, and also we are using AI technology to make the to do the preview of the lesson and review of the lesson. And we are utilizing AI technology a lot. So basically, you can understand our business model to be the model we were using in China, which means the Filipino tutors. However, we are utilizing the new AI technology to be part of the solution.

Excellent. Thank you. That was perfect. Thank you. You kind of broke it down. My final question, just because I know it was interesting because you guys basically did the same model in China, then what happened there and you moved it to overseas. So one of the questions I was thinking about is, I think in China you guys got to close to about 300 million 250 to 300 million gross billings I was wondering when you left China like what the size of the market would be do you have a feeling like the markets as big or bigger than China obviously they can get to and the next you know say five to ten years yes definitely actually we are very confident about the market the market size the

outside of China. We believe that, you know, we believe that it's not only China, it's all of the developing countries like, you know, Thailand, like Malaysia, you know, like Vietnam, and also some developed countries like Japan, like Korea. They have the demand. And we believe that, you know, there are less competitors there comparing with heavily competing markets in China. I believe you know that. So we definitely believe that the market size is at least as big as China market outside of China because if you look at the population economy scale, right? And considering the competition situation, we believe that we can even, if we look at five to 10 years looking forward, we believe that we can even, you know, we are optimistic about the market size we can achieve in the next five to 10 years.

Excellent. Thank you for detailed answers on all my questions. Great quarter, and hopefully the momentum keeps coming for the next three to five years. Thank you. Thank you very much.

Thank you. And as a reminder, if you'd like to ask a question, please press star then 1 at this time. 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. Mr. David, please go ahead.

Thank you once again for joining us today. If you have further questions, please contact 5.1 Talks Investor Relations for the contact information provided on our website. Thank you.

Thank you, sir. And this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.