COE - Earnings call transcript Q3 2020 | China Online Education Group

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Operator

Hello, ladies and gentlemen. Thank you for standing by for China Online Education Group’s Third Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded. the to turn host, now will call your over Ms. I company. Investor Relations Piao, for Judy the Please ahead, go Judy.

Judy Piao

Online known Hello, the were are earnings China posted third you. issued quarter Group, Thank everyone. earlier XXXX conference And via newswire online. call today company’s XXTalk. The as welcome services to Education results also and of

ir.XXtalk.com. our You the earnings section for Executive list distribution company’s the Mr. can our press IR up Min Huang, remarks. download CFO, with by its of Mr. Officer; and at will website the Chief some release and Jack visiting Xu, sign prepared begin

Following for our our the COO Zhang, call session. the join prepared Q&A Liming will remarks, also

provisions today’s will Securities note we Private statements XXXX. of Litigation please Reform Before Act Harbor contain the discussion continue, of U.S. made that forward-looking Safe under the

Forward-looking and statements involve risks uncertainties. inherent

company’s such, reconciliation to comparable call most XXTalk’s the does from company’s included our these the other release unaudited earnings turn different any a go also I information, Please that Exchange unaudited risks As over and under information note company U.S. statements of Commission. the and include this non-GAAP measures. public Securities Huang. with required to the obligation and directly unaudited well unaudited of CEO, the assume ahead. views press press Please will the non-GAAP XX-F contains XXTalk’s call release applicable conference may materially except as discussions measures is as financial regarding GAAP GAAP now Jack results financial measures. any today. Further filings forward-looking as update and Form as The the law. uncertainties to filed not and other be expressed in

Jack Huang

joining very Okay. much conference our Hello, call. everyone. Thank earnings you for

pleased to results. financial quarter are operating solid report We and of robust another

merits strong million, guidance students our XXX,XXX, to offerings included RMBXXX.X RMBXXX.X revenues end in Highlights non-Tier-one execute our up up quarter the the focused of active our the compared our over mass billings which quarter quarter with reaching and the one-on-one China market our across million by market K-XX mass familiarity In K-XX and third the billings and proves one-on-one greater number are on channels Moreover, performance million. market million. net cities year of grew mass online to the to quarter, third hit growing our of Clearly surpassing comfort offerings XX.X% of growing strategy provide. XXXX. gross year platform value gaining year-over-year, of from on top contributions one-on-one our we initiatives. with in our recognizing in XX% the grew XX.X% the learning RMBXXX.X the XX.X% quarter reached year-over-year, K-XX and to to showcases families third XX.X% third RMBXXX.X gross Our ability

policies agreement will and standards guidelines training foreign experiences their recruiting provide China As online we do, positive online a foreign enterprise requirements China be signed October, Education’s we Association teachers. for Education they China. online In conference, for they in foreign International brand regulating spreading. sharing create part and to and framework with for These invited teachers friends and Annual Education Conference jointly Exchange of with future the Ministry of were to standards At for teachers. education XXXX the International the inputs only become their our as is China join key the to for online high-quality are reputation honored

in our sharing and our of diplomatic award people engaged look groundwork excited forward education level to video working, Exchanges This waving. the laid working two are one-on-one advantage the mass mutual working Guinness the of Philippines. of In to us from group. more October, of part from market teachers the strategy received live foreign our and this album market ambassadors the China World XXth relations helping Seminar We industry. allowing Educational countries, the streaming, be and XXXX we to more China video our of is shape hosted anniversary online and online conclusion, with between for K-XX positive executing Through are establishment of city government experience the and our celebrate the of teams non-tier-one largest take X,XXX our the in role Records opportunities. thousands including showing we national cooperation attended Sino-Philippines cross-border is and we’ve Philippines relations. Also to and by leaders, people We future over

the growth pieces to will will these Min. bottomline the turn Xu CFO, I balanced now we With call in and continue to With long-term place, contribute achievements. our maintain that, sustained

Min Xu

Jack. you, Thank

We continued with momentum topline profitable solid growth in fourth quarter achieving profitability, our increment, QX of coupled quarter. another consecutive our

to As to our as continues growth the demand delivering accelerate, strategy education for planned. online pursue is balanced

non-GAAP XX% RMBXX.X our year-over-year income still technology the coming profitability further expense, our marketing curriculum. and development changed changed increased increase during and quarter year-over-year decision net sales As million. XX.X%] to certain to by by expenses and capture platform improve recorded Despite the in can to the opportunities we an in seen product market XX% by [Later expenses Company at XX.X%] this this the quarter, non-GAAP Company increase to of to example non-GAAP [Later with by be

Excluding policies profit of the impacts third have Coronavirus X.X%. non-GAAP would relief margin in quarter, our million favorable been net RMBXX

RMBXXX.X flow cash our operating Additionally, million. reached

learning strategies our pathway students our this English. strong to sustained Looking our of continue executing will we ahead, rapidly proposition growth market developing and in that bring on value for

active This were quarter primarily a third attributable you increases through XX.X% for of growth. walk financial increase the details. Now to the students. in let number year-over-year million, was RMBXXX.X Net revenues third our me

the year. XXX,XXX, third XXTalk’s for Gross quarter compared XX.X%, for number with was XX.X% Our students Gross third of for third in for for year-over-year compared due class for margin was third growth. the growth. The margin third operating products. improve a the Gross offering quarter favorable of offering increase XX.X%, RMBXXX.X year-over-year a XX.X% for to compared margin quarter Sales the quarter lessons. margin quarter RMBXXX.X were with margin attributable third Academy last third XX.X%, expenses were was mainly was last active higher the of XX.X% quarter to Total profit small third same the expenses a for mainly was was American the was marketing quarter gross a with million, a of XX.X% for increase XX% for million, quarter XX.X% of same year-over-year RMBXXX.X the quarter XX.X% mix quarter The One-on-one increase. year. million, XXXX. the efficiency year-over-year increase. and

sales of third the increase. RMBXXX.X quarter, branding for year. was non-GAAP expenses Product the third a gross expenses, for the compensation marketing marketing XX.X million, third RMBXX.X and quarter same for were development XX.X% were quarter million, last Non-GAAP share-based increase. and a for XX% expenses compared with expenses billings the excluding Excluding sales the expenses, quarter year-over-year XX.X% % year-over-year

Excluding expenses development quarter a for share-based million, G&A compensation the RMBXX.X product XX.X% increase. were a expenses increase. for expenses, non-GAAP XX.X% the year-over-year were RMBXX quarter year-over-year third million, third

and total other from year-over-year the from income compared Non-GAAP which the for included third Operating RMBX.X of of RMBX.X income quarter million, same RMBXX.X of RMBXX non-GAAP third the of quarter expenses quarter operations million third RMBX.X relief this quarter RMBX.X we operations compared impact income the with third non-GAAP exemption year. income our was RMBXX.X for income million million third added for deduction. million Coronavirus compensation, quarter. was for quarter million, line XX.X% statement. same VAT in with a million, were G&A the income policies super in Since first RMBXX above operating increase. RMBX.X loss the loss Other share-based million, the favorable last the The for the quarter year, Excluding million for was year. was operating last quarter

million quarter would impact, non-GAAP non-GAAP a third Excluding million, income with last for been third quarter million, margin. have net was RMBXX.X income for representing quarter the RMBX.X operating the quarter compared last for loss operating million, the of X.X% with million for net the of Non-GAAP same RMBXX.X income year. for RMBX.X compared this same Net was non-GAAP year. the quarter RMBXX.X third loss

quarter non-GAAP in million, for quarter, negative net the year. for impact the quarter Diluted same same have RMBXX.X representing represents Each last A EPS RMBXX favorable ordinary would policies the RMBX.XX for been third third RMBX.XX, the year. for last with Excluding X.X%. negative EPS quarter relief RMBX.XX of million Class of RMBX.XX, diluted non-GAAP of EPS of ADS margin compared was with XX Coronavirus third compared income for net was the the EPS quarter shares, third quarter

The XX, XX, billion, billion company short-term December compared XXXX. cash, RMBX.X company As XX, equivalents, billion as XXXX, total December XX, advances compared of of billion of XXXX. of XXXX, with September cash students the investments of from as September RMBX.X RMBX.X as with RMBX.X of time has deposits and had

Now let’s talk outlook. about

are to program Directors XXTalk of company’s there from reflects currently are uncertainties While RMBXXX Board based is X, year-over-year September pandemic outlook year. customer revenues and announced to conditions Company XXXX has On million all RMBXXX on The XXXX “September the September preliminary the XXXX, of to which the available, during and QX Coronavirus and the to XXXX market be and and to on which above XX.X% still up to current quarter a we million, its change. represent the XXXX, XXXX”]. expect US$XX share between to the RMBXXX.X by based market and last demand, authorized between changed subject information [[Later estimates of September conditions latest remainder same X, net repurchase would of operating September X, related current XX.X% million increase for million that

Company has this for changed As ADS] to remarks. This million of under XX, concludes program. our the by the November XX,XXX ADS to prepared close [Later XX,XXX repurchased approximately US$X.X company

We will Operator, the questions. now to ahead. go open please call

Operator

first Vincent Our is Please from Instructions] from question [Operator you. go Company. Thank & ahead. Needham Yu

Vincent Yu

thank question such quarter, some trends gross the you the students color during the in decrease? next in Second things can will and year? tough first my classes Thank to break? -- about we the approach for areas you. taking the terms year -- Thank the taken first XXXX, compared is, last question the user share and trends comp likely the you My student student quarter management number to should you. summer Thank how question growth behavior and as think quarter active potential and drive Third the XXTalk’s billing what year-over-year per in on we fourth we question. for like as is of of is timestamp, first

Min Xu

Okay. you, Vincent. Thank

Jack Huang

[Foreign Language] I What Yeah. said

Min Xu

Yeah. Okay.

Jack Huang

[Foreign Language]

Min Xu

Yeah.

Jack Huang

Language] [Foreign

Min Xu

Yeah.

Jack Huang

[Foreign Okay. Language]

Min Xu

right. All

Jack talk will some will trend and in I details. of So some the fill about --

we’re one, QX. well number we’re quite doing -- So seeing and QX in

parents. and a well a company very as we is and reputation brand our and We’re established have a -- XXTalk have students good very among good

QX, actually to order measures, in in before the we our -- lower cut start user start so, take package we mentioned And to price drive to the growth. some total course in this size we order to to

us. So this very for is important

For than QX, the K-XX paying number example, XX% in for more students’ year. year over increased new business our

continue growth. to is this And this QX, a to So plan execute in on we very significant strategy.

course in continue to will so and We in customers to our tier-two our package order what size tier-three target cities. and cut

we growth continue the so, growth. our we’re confidence to that drive because to And and and package will user is so the to if we what retention, our to decrease XXXX in continued student’s you size look do at execute strategy have

know our new from are quarter, of XX% you this that in referrals. in users QX, As

get more the from So bigger is the base students referral. to we’re user going our

So we strategy a us. believe for is this great

give on and billing maybe in So as the some well concluded that’s trend active as of QX. I’ll comments you kind students, gross in and Jack’s the a QX comments

us helping we trend and continue improve naturally use users So addition, basically with active user because we more you really our in very active that and start QX coming platform and so going students. engagement are retention. there QX they’re more will their our because healthy growth, continue. even have And on we’re to student’s a our new believe in to engagement, growth students believe new and if the will driving so And to to in see that QX our we

as to at with decrease growth as student’s billing, our so are in be user strategy mentioned, actually continue will average size. earlier, terms our I package And continued active we we gross looking mentioned growth of to very to Jack believe healthy. So our the

decline. order So, maybe year-over-year which a average our XX% in you’re size see to is will likely steep that QX, decline pretty going

students paying more to net our year-over-year. grow However, likely going number XX% are than

we that, are probably to with our XX% to still gross going So, year-over-year. grow see billing

growth, can this So this cash than number drive we price is of but because very a order healthy revenue. flow quarters, deferred user a we huge to small slower have we us and for definitely afford have previous believe in is we

So kind slow to an the of to base also for increase increasing And gross about us. helps the slow down it actually growth user for billing but important down behavior. ask more the deferred you to actually revenue, us of -- user is want

the look back behavior our China, at past is look -- similar look summer, been when what user is we actually, quite to is behavior, user at flat. think, So the and to I see that if this has mostly the life we can normal in summer. And we remain ARPU students there

-- time QX students seeing, for going as QX is not year. lesson consumption we’re lesson be obviously, in and And the consumption same that -- effective so at this as to the average

in double So see you’re likely going decline lesson consumption digits. to the

active more to going our students. that’s However, increasing compensated by than be

not see year-over-year So believe to a going decline. do I you’re

still much, much to more to than XX% but than QX’s the be to normal XX%, see in going below will increase growth, see it’s be current growth the of we’re quarter. So we normally likely year-over-year normal lower year-over-year going obviously, it’s going year-over-year

So this I answered question. hope your

Vincent Yu

you, Jack. Thank Yes. Thank Min. Very helpful. you,

Min Xu

Thank you, Vince. No problem. Yeah.

Operator

Benchmark. The next question ahead. Fawne Jiang from Please comes go from

Fawne Jiang

Just [Foreign past it regarding translate in Language] questions. Still Jack, very growth growth, your impressive student Min, my quickly hello. quarters. active was

and profile drive of active the the particularly the Just users? as user user retention continue wonder well users new of strategy as new for terms acquired in new the how growth your of what’s you to your

Jack Huang

Language] [Foreign Okay.

Min Xu

All right.

there’s profile no So for compared difference for students, new of terms the last very student similar. big to -- the It’s year. in

from seeing more students coming still of We’re cities. XX% non-tier-one than

find we there change values nice good Number two obvious that it’s very However, seeing believe we’re few reasons. for is is one market looking And for seeing there’s one, growth we’re that a tier-one acceleration. it user customers as by that tier-one in takes other the also one some city number top out they results product. as while for is tier-one to cannot reason deliver that products And cities. two a customers good

takes a out figure it platform. to our while that for switch them So, to and

growth as why is our tier-one user this we acceleration and So, will quality. we quality service product improve this believe continue to continue

in of And drive the we’re of to acceleration. in what really sales so doing terms terms

than before, putting the growth. we’re billing priority mentioned we as So, growth gross higher on user

So, quite it’s actually easy.

naturally In terms trying drives just higher user we weight our the growth sales to, KPI, and give the drive than a to user of billing the growth. gross it

starting improve students our student work as renewal student’s retention good an to sure good of experience the very and closely user make a team service and help of learning terms In is and quality parents we’re results we are expecting important have it success actually them improve initiative very they to their will rates. for success result, and with to team

the increase, first rates. as can good time, renewal the And referral same of you should that renewal rate see naturally order, we expecting to our size continue the order should We’re cut at size increase. the and

way. that value our increase should So see as lifetime actually should result, you a students

when the facing However, student user not new to growth, user service we bigger capacity our suddenly much success a a we have does team base. are challenge drive our that continue to is

headcount working to efficiency are very we to their service deliver to sure students. help high order hard So and in very standard they to and improve our can quality service make a add

is two this tackle coming to in challenge So the quarters. a going we’re

Fawne Jiang

color. is quarter. Congrats strong It a the Thanks for for clear.

Min Xu

Thanks, Fawne.

Operator

questions company call turn I’d for now, further the no are there over to back the As like remarks. to closing

Judy Piao

once today. Thank us for again you joining

Relations. If Relations to The Group further our XXTalk’s XXtalk.ir.com Thank through you. questions, Piacente please you have free contact website, feel or Investor Investor

Operator

conference lines. call you you. your and may this concludes Thank This disconnect now

China Online Education (COE) 24 Nov 202020 Q3 Earnings call transcript