GeoVax Labs Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 30, 2023

There are 5 speakers on the call.

Operator

Ladies and

Speaker 1

gentlemen, thank you for standing by, and welcome to the Gaututhech EDU Second Quarter 2023 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be a question and answer session. Please note that today's event is being recorded. I would now like to turn the conference over to your first speaker today, Ms.

Speaker 1

Katherine Chen, Head of Investor Relations. Please go ahead, Katherine.

Speaker 2

Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's Q2 2023 earnings Conference Call. My name is Catherine, and I'll help host the earnings call today. Gautou's earnings release for the quarter was distributed earlier and is Joining the call with me tonight from Gautu Senior Management is Mr.

Speaker 2

Larry Chen, Gautu's Founder, Chairman and Chief Executive Officer And Ms. Shannon Shen, Gaoutu's Chief Financial Officer. Larry will first provide the business highlights for the quarter and then afterwards, Shannon will discuss our financial performance in more detail. Following their prepared remarks, we'll open the floor to questions from analysts. Before we begin, I'd like to remind you that this conference call will contain forward looking statements made under the Safe Harbor provision of the U.

Speaker 2

S. Private Securities Litigation Reform Act of 1995. These forward looking statements are based upon management's current beliefs and expectations as well as the current market and operating conditions, and they involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control and may cause the company's actual results, Performance or achievements to differ materially from those contained in any forward looking statements. Further information regarding this and other risks is included in the company's public filings with the U. S.

Speaker 2

SEC. The company does not undertake any obligation to update any forward looking statements, except as required under applicable law. During today's call, management will also discuss certain non GAAP measures for comparison purposes only. For a definition of non GAAP financial measures and reconciliation of GAAP to non GAAP financial results, Please refer to our Q2 earnings release published earlier today. As a reminder, this conference is being recorded.

Speaker 2

In addition, a live and archived webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce our Founder, Larry. Larry, please.

Speaker 3

Thank you, Katherine. Good evening and good morning, everyone. Thank you for joining us on Gaoyu's 2nd quarter I would like to take this opportunity to express my gratitude to all of you For your interest in and support for Gaotu and the education industry. Before I start, I would like to remind everyone that all financial figures We continued to execute our effective growth strategy. We grew gross billings substantially on both and Annual and sequential basis, we are also recording our 3rd consecutive quarter of profitability and generating a Sizable positive net operating cash flow.

Speaker 3

Our net revenues grew 30.7% Year over year to $703,100,000 and our gross billings reached 800 And $82,300,000 up by 63.7 percent quarter over quarter And a 44.2 percent year over year. Thanks to ongoing improvements in our organizational and operational efficiency, We delivered a triple digit year over year increase in both income from operations and net income. Our non GAAP net income margin for the quarter reached 9% and we generated a positive net operating $188,500,000 Backed by ample cash reserves, we've been steadily racking up Our investments in talent, continuously refining our executional content and services and persistently improving teaching quality These efforts have strengthened our competitive edge in terms of content driven customer acquisition and teaching quality, Creating a flywheel effect. As the flywheel started to turn, our customer acquisition Experienced ongoing improvements in efficiency and operating leverage began to grow resulting in Increasing clarity for our growth trajectory. Our focus remains on 2 major business lines, learning services and educational content and digitalized learning products.

Speaker 3

Learning services continues to serve as the core pillar of our business and the Predominant revenue contributor. It mainly includes non academic tutoring services and other traditional learning services, Educational services for college students and adults and overseas study related services. I will now discuss business highlights of the quarter from 3 aspects. 1st, propelled by the dual engines Of the product prowess and organizational capability, we remain laser focused on While all of our core business segments continued a ILC's developmental trajectory, our cost delivery, quality and operational efficiency also improved during the quarter With a strong focus on building organizational capacity, we not only cultivated a large pool of highly talented instructors and tutors internally, but also forge the long term partnership with prominent universities to continuously source Passionate teaching professionals by fostering an innovative and cohesive work over time, we aim to internally draw our business breakthroughs. Meanwhile, our relentlessly pursuit of excellence in educational products, teaching quality and learning services As best represented by the compelling results our students are able to achieve, I will now share some of the progress and accomplishments we have achieved in this aspect during the Q2.

Speaker 3

To start, our non academic tutoring services booked roughly 75% year over year increase in revenue and generated a positive net operating cash flow during the quarter. We continuously optimized the product value and the service quality and diversified delivery format To cater to customer needs, as a result, the business delivered a double digit increase in gross billings on both annual and a sequential basis in the Operationally, we are glad to see increased user satisfaction in the way. In particular, in non academic tutoring services core Our retention rate improved remarkably compared to the same period of last year. Educational services for college students and adults, another key component of our learning services also delivered a solid Within the segment, the postgraduate entrance exam prep business saw a nearly 40% year over year increase in net revenue. According to our survey results, the success rate was more than twice that of the national average for the national graduated Consulting business such as the IELTS Prep business achieved nearly triple digit revenue growth quarter over quarter.

Speaker 3

Finally, our well established traditional learning services business also delivered a robust performance. According to our preliminary data, More than 210 go to students were admitted to the top 2 universities in 2023. Going forward, we expect all of our main business lines to sustain healthy growth momentum while maintaining a I understand the business traction and delivering improved learning outcomes. 2nd, we're Constantly pushing the boundaries through business innovation, expanding into a diverse range of new channels to acquire Customers and improved conversion efficiency. Since the beginning of this year, we have been actively exploring Competitive advantage in channels by delivering premium content, posting user engagement and reducing acquisition costs.

Speaker 3

We are happy to share with you that the contribution ratio from our self operated traffic channels Increased significantly within certain business segments this quarter. Meanwhile, certain K business lines also The number of monthly transactional users of the IELTS business acquired through live streaming platform surged by more than 300% compared to 6 months prior. The improved efficiency of customer acquisition further contributed to our And thirdly, domestic demand for studying abroad as pandemics impact the gradually received and the countries around the world is Entry restrictions. It's worth mentioning that in terms of the specific efficiency indicators. Our selling expenses ROI for this quarter saw a nearly 20% improvement compared to the same period last year.

Speaker 3

Looking ahead, we will continue to build upon our experience and know how to further optimize our diverse channel layout. Moreover, we will continue to leverage our NIM operations management model to elevate overall operational efficiency. 3rd, by cultivating talents and investing in emerging technologies, we are able to amplify the impact Our exceptional instructors and tutors have, and this in turn unlocks greater front end productivity And it strengthens our organizational capabilities, recent developments in artificial intelligence undeniably Present significant opportunities and raise expectations for the education industry. We have applied artificial intelligence technologies into numerous user case scenarios for our products Customer service and design ultimately enhancing the overall learning experience for our students. In closing, I would like to emphasize that making learning better will always be God's unwavering mission and we are willing to embrace all opportunities and Our dedication to addressing customer needs, price advertising, teaching quality and enhancing Our learning outcomes will remain unchanged.

Speaker 3

Our continued investment in technological innovation And organizational capability will remain unchanged. Our commitment to our original aspiration to educate will remain unchanged. Guided by our effective growth strategy, we are confident in our ability to create long term value For our shareholders, consumers and society at large, while contributing to the educational development of China, Thank you very much. This is the end of my prepared remarks. Now I will pass the call over to our CFO, Shannon, to walk you through our financial operational details of the quarter.

Operator

Thank you, Larry, and thank you, everyone, for joining our call today. I will now walk you through our operating and financial performance for the Q2 of 2023. Please note that all financial figures discussed today are quoted in R and D terms unless otherwise stated. During the Q2 of 2023, our business continued to grow In a healthy manner, achieving profitability while maintaining robust top line growth momentum, our net revenues increased by 30.7% year over year to more than $703,100,000 Our gross billings, A leading indicator of net revenue increased considerably by 44.2% year over year Ganned 63.7 percent quarter over quarter to 882,300,000 laying a solid foundation for future revenue growth. Additionally, as net revenues continued to scale, The impact of operating leverage became more evident.

Operator

During the quarter, operating expenses as a percentage of revenue decreased by roughly 14 percentage points year over year and 9 percentage points compared to the full year figure for 2022. Furthermore, key profit metrics improved significantly compared to the same period last year due to greater operating leverage together with our ongoing efforts to streamline operations and boost efficiency. Our net income experienced triple digit year over year growth, Net income margin improved by approximately 17 percentage points to 8% on an annual basis. Non GAAP net income increased to $63,200,000 with a non GAAP net income margin of 9%, marking our 3rd consecutive quarter of positive outcomes. Apart from sustaining profitable growth, It is worth mentioning that during this quarter, we also generated a sizable positive net working cash flow of $288,500,000 Our solid financial performance Dans as the ultimate testament to our resilient business model, strong organizational cohesion and continuous endeavors in customer acquisition and operational efficiency.

Operator

In terms of gross billings, which is a leading indicator of revenue, We attained a 44.2% year over year increase in this measure. To align with the school schedule, We designate the 2nd and the 4th quarters as our main customer retention season, during which gross billings are no further higher compared to the first On the operational front, we have firmly adhered to the principle of growth and the efficiency go in hand. During the quarter, we achieved healthy year over year revenue growth while enhancing customer acquisition efficiency. Our selling expenses in the quarter increased by only 20.5% compared to the same period last year, but driving impressive 44.2 percent year over year increase in gross billings, implying Roughly 20% growth in our selling expenses ROI. In particular, our new user acquisition efficiency improved by more than 30% year over year.

Operator

This was mainly attained through our continued effort to for more innovative channels to target and acquire high intense students at lower with higher returns. Since the Q1, we have enhanced our autonomy over customer acquisition by These channels have effectively lowered our customer acquisition costs and enabled us to boost user engagement across our platform through creating premium content. As of the end of the second quarter, some of our key business lines has made promising progress our live streaming and short video platform. And we will fully leverage the accumulated insights and know how in the other business in order to add value to the company as a whole. Take our overseas test drive as an example.

Operator

In June, the number of monthly enrollments acquired through live streaming platforms surged by more than 300% compared to 6 months ago. Additionally, we have already seen the contribution ratio from our self operated traffic channels surge significantly within certain business segments in the Q2. Lastly, we also adopted a targeted approach to acquire customers and serve students through localized and personalized operations. Going forward, we will continue to improve customer acquisition efficiency to drive effective growth and create a long term value for our stakeholders. Now, I will walk you through the process we have made during the quarter.

Operator

Learning services contributed over 75% of net revenue. Reaching it down, more than 70% of total revenues came from non academic tutoring services and other traditional learning services, making it a key contributor to our For the education industry, non academic tutoring services represents an emerging vertical with forming market demand and high growth potential. And we expect this segment to be one of our core growth drivers During the quarter, in addition to turning of profit, this segment achieved a roughly 75% year over year growth in net revenue. Our near term focus for this business line will still be enhanced and upgrade our curriculum design Yand's product development to deliver offerings that exceed customer expectations, Yand's to explore sound customer acquisition channels that drive continued growth. Leading on our competitive strength in traditional learning services, We will further refine our products and services and diversify our delivery format to cater to customer needs, through which we aim to improve enrollment and retention to promote the sustainable growth of our non academic tutoring business.

Operator

The other crucial component of our learning services is educational services for college students and adults, which accounted for more than 20% of the quarter's total revenue. We optimized our product categories and overall metrics to better align with market demand and improved customer acquisition efficiency and profitability by It's worth mentioning that In the Q2, our overseas tax credit business achieved positive monthly net operating cash flow and operating profit as a result of improved customer acquisition efficiency. Now, I will present our financials in detailed numbers. Our cost of revenues this quarter was RMB184.4 million. Gross profit increased 37.3 percent year over year to RMB518.7 million and gross profit margin was 73.8%.

Operator

Total operating expenses during the quarter increased 8.5% year over year and 5.1% quarter to RMB475.4 million. Operating expenses as a percentage of revenues increased roughly 14 percentage points year over year, falling from 80 31.5% in the same period of last year to 67.6%. This was approximately 9 percentage points lower than in the full year 2022, signaling operating leverage that resulted in an increase in operating profit margin. Breaking it down, selling expenses increased 20.5% year over year and 17% quarter over quarter to RMB324.1 million. Selling expenses margin increased roughly 7 percentage points to 46.1 percent quarter over quarter, reflecting our increased marketing investments to address the robust demand during the summer season.

Operator

Moving on, research and development expenses decreased 5.3% year over year and increased 1.4% quarter over quarter to $98,400,000 accounting for 14% of net revenues, which was 0.3 percentage points higher than that of last quarter. General and administrative expenses decreased 19.1% year over year and 32.4% quarter over quarter to $52,900,000 accounting for 7.5 percent of net revenues, which was 3 point 5 percentage points lower than that of last quarter. This was primarily attributable to a substantial sequential reduction In share based compensation expenses, income from operations increased 171.6% year over year to $43,300,000 and operating margin was 6.2%. Non GAAP income from operations was $50,300,000 and non GAAP operating margin was 7.2%. Net income increased 212.8 percent year over year to 56 $200,000 and net income margin was 8%.

Operator

Non GAAP net income was 63,200,000 Yand's non GAAP net income margin was 0.0 percent. Our net operating cash inflow increased 207.6 percent year over year to 288,500,000. Turning to our balance sheet. As of June 30, 2023, we held 768 $200,000 in cash, cash equivalents and restricted cash, along with RMB 2,900,000,000 In short term investments, RMB114,500,000 in long term investments. This total reached approximately RMB3,700,000,000 marking RMB388,900,000 higher than same period of last year, ensuring ample cash resources for continued business development.

Operator

As of 2030, 2023, our deferred revenue balance was 922,600,000 which primarily consists of tuition received in advance. Based on our current Estimates. Total net revenues for the Q3 of 2023 are expected to be between 700 And $28,000,000 $748,000,000 representing an increase of 20.1% to 23.4 percent on a year over year basis. This concludes my prepared remarks. Operator, we are now ready for the Q and A session.

Operator

Thank you everyone for listening. Thanks.

Speaker 1

Thank you. We will now begin the question and answer The first question today comes from Yi Wen Zhang with China Renaissance. Please go ahead.

Speaker 4

Hey, good evening management. Thanks for taking my question. So my question is actually on our Q3 revenue guidance. If you look on a Q on Q basis, it's roughly grew by mid single digit. Such growth rate, if compared with normal 2019, Since a bit softer, so it would be great if you can walk us through more details on what is driving that?

Speaker 4

Thank you.

Operator

Yes. Thanks, Yvonne, for joining us. And I do believe this question is fairly representative. We have provided revenue guidance for the upcoming Q3 ranging between 28,000,000 to 748,000,000 in RMB terms, indicating a year over year growth of 20.1% 23.4%. The guidance we provided has factored in two reasons.

Operator

Firstly, there is a strategic shift in focus within the learning services for college students and adults. The strategy has evolved from scale expansion to a sequential emphasis on profitability. So under this strategic direction, we have gradually adjusted and phased out Some unprofitable operation units in this segment. So it is anticipated that The revenue from this segment will remain relatively flat in Q3 as compared to the same period of last year. And in last year in Q3, learning services for college students and adults actually contributed to over 30% of our overall revenue, which has somewhat influenced our revenue growth rate for the Q3 of 2023.

Operator

However, if we exclusively examine the income growth of the K-twelve related business for the next And secondly, during the summer, we introduced some lower priced courses to boost enrollments, especially in some entrance level of K-twelve students, which has also modestly influenced the revenue during the quarter. But these enrollments will contribute more revenue in the Q4 this year. So and as for the whole year, yes, I think I

Speaker 1

The next question comes from Crystal Lee with CMS. Please go ahead.

Speaker 2

Thanks, management, and congratulations on the strong results. Could you give us some color on your new enrollment growth during the summer season? And what's your marketing strategy going forward? Thank you.

Operator

Thanks, Crystal, for your question. Yes, so for the enrollment growth, so we Based on the situation during the summer vacation, we have indeed observed some different patterns compared to prior years. So on one hand, there has been a concentrated search in students' learning needs and the overall timing in this summer has leaned towards And on the other hand, this summer, parents has allocated a substantial amount of time for their children to travel and to go out. So this factor also led to a more concentrated study period. And based on these factors like We will be able to manage our organization to feed the parents' demand and the student time schedule and be Able to provide enough capacity to provide the learning services they need.

Operator

But if we look at Like the summer vacation operations, as a management team, we could always have done better. And this year, We may do some reflections. We always feel like there are a few aspects that we can improve in the future. For instance, We were a bit conservative in the early stage of the teacher recruitment. Facing the boosting demand in summer, early recruitment can reserve sufficient time Our teachers bring up and therefore guarantee the service capacity and quality.

Operator

So maybe in the future, we intend to take a more proactive approach to the scalable recruitment and the training of our teachers. And but if we look at in the bright side, we still see There is a huge potential in the education space and for us to grow. So in summary, the performance during the summer vacation is basically aligned with our And we will be able to see the enrollment starting to grow in a more stable rate And it's the performance is basically raising our expectation, but like going forward, we will refine our operations and And in terms of the marketing strategy, as we mentioned in our prepared remarks, we will be able to More innovative channels like live streaming channels in the short video platforms and also China was more proprietary content and more like on the ground side that we can host some events back in the school And to talk to the students in a more face to face basis. And this way, we can have a more clear picture of our students And therefore, we'll be able to acquire new leads and students in a lower cost. So that's why we can recognize that in this quarter and compared to the same period of last year, we can see our sales and marketing ROI Has improved almost 20%, and we will keep exploring channels like this and keep to lower the customer acquisition cost And to build up the competitive advantage in all the channels we build up.

Operator

And hope that address your questions, Crystal.

Speaker 2

Thank you. That's very helpful.

Operator

Thanks.

Speaker 1

This concludes our question and answer session. I would like to turn the conference back over to Katherine Chen for any closing remarks.

Speaker 2

Thank you, operator, And thank you everyone for joining the call today. If you have any further questions, please don't hesitate to contact our Investor Relations department or our management via email at irgautou.cn directly. You are also welcome to subscribe to our news alerts on the company's IR website. Thank you very much again for your time. Have a great night.

Operator

Thank you.

Speaker 1

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
GeoVax Labs Q2 2023
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