COE - Earnings call transcript Q4 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 Fourth Quarter and Full Year 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. to call like host, to now Ms. will turn over the your I Relations the Piao, for Judy Investor Company. ahead, go Please Judy.

Judy Piao

call Education Thank you. Company's earlier full conference today and the results fourth China Hello, everyone, our posted and year welcome were issued and XXXX newswire XXTalk. are also known Group, to by quarter of The Online services earnings online.

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

Following the will our Officer, call prepared Operating for Mr. remarks, Q&A session. our Chief join the Zhang, also Liming

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

inherent uncertainties. Forward-looking statements and involve risks

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

Jack Huang

online of reach year-over-year you for our the continued RMBXXX.X into strategic English beginning Fourth quarter grew quarter, XXXX joining The XX.X% mass to Hello, revenues the net execution offerings. everyone. reflecting our in solid K-XX market momentum fourth call. from growth conference Thank million.

historically recorded RMBXXX.X flow also operating high cash of million. We

boosted compared new addition, our period with effective the of XX.X% In and curriculum number active year-over-year, service while XXX,XXX, paying grew improving students up reached the same over by XXXX. in our XX% students quality,

Although of revenues grew XXXX presented net this year in foundational allowed RMBXXX.X strong operating benefit but to to XX.X% not from million in with only groundwork to to for future compared our Full us challenges, unforeseen this pre-established of our manage an advantage billion. position further rose period, as took XXXX, environment the XXXX new of opportunities. array manage high cash financial fact, we RMBX.X RMBXXX.X XX.X% reach growth. a flow million, historical strengthening shifting

We year-over-year. also students, remarkable paying XX% in increased growth which new witnessed

interactive and also leading the are innovative recent acquisition and We ages both potential with and for to addressable platform highly GKid's technologies, our AI both many industry-leading excited technologies. eight. and product children broadens We foresee customers. product which products will our English between and offers animation products GKid's extends improvements, courses industry-leading online through and our curriculum of and our acquisition better collaboration for books integration market portfolio. three of picture offerings product new and serve AI opportunities our product very the intended about between portfolio This AI-driven GKid those and

continue attract and As through offerings product experiences we we market advance head further promotions expansion. will focusing enhanced share into users, growth enriched optimizing curriculum to and XXXX, brand mix. learning retain our we on better user are and an To upgraded

integrating engaging knowledge features students we help our AI-powered also learn the to textbooks. more We of courses overall more are to robotic children, launching are core tutors enhancing aim make with and learning into efficiency. points innovative interactive To young our interesting

students investing our expanding holistic in expanding and a teacher through provide our in services experience learning to to are order operations. our curriculum portfolio we R&D, Additionally, upgrading

Finally, we brand phase our as those. we marketing the next branding and heighten of further to to target awareness enter increase efforts

have successfully our inception December offerings million English testament a more trajectory. increase also XX to a free in pleased that We provided one-on-one XXX and XXXX, are our over cumulative trials, to rapid XXXX since our strong accelerating November between took online million lessons, to than XXXX and including growth

As the XXTalk solid our now will we balanced call are Min. growth to grow, over will continues With strategy to to yield I turn continue stakeholders. for our that, Xu confident value

Min Xu

in financial recorded XXXX profitable RMBXXX.X turbulent non-GAAP and first evidenced of and Thank you, company million revenue compared history. net loss solid platform development will in income our XXXX, look with for technology dynamics, we drive Jack. growth XXXX of investment user and a as brand a to our net We channeled In sustained by results, We of concluded the a the operating year growth our non-GAAP curriculum, achieve leading capitalize XXXX. and our million be market to RMBXX.X toward position. market

XX.X% for XX.X% and QX decline year. class quarter And for were financial year. the year. million, fourth gross RMBXXX XX.X% to the fourth RMBXX fourth billings. small Net RMBXXX last total for students. last last XXX,XXX, increase results. Gross fourth were compared RMBXXX operating XX% same Now a in million, for quarter small margin the active last QX margin XXX,XXX quarter a the from XXXX, One-on-one for from quarter of XXXX. with increase expenses of XX% for attributable the The were the same XX.X%, for through QX were XX.X% fourth year-over-year. gross same was primarily the from million, up operating -- let quarter fourth with RMBXXX increase was quarter number million, XX.X%, increase up net marketing I'm from Total in increase class the Net a the The million, a you revenues last quarter active revenues for was quarter quarter were the walk XX% year. revenues me an expenses sorry, margin from quarter from one-on-one XX.X% for quarter million year, for RMBXXX Sales last compared gross for XX% number students our year. same offering offerings XX% of from the was

compensation expenses, share-based and XX.X% quarter XX.X% development XX.X% mostly a billing a sales for the RMBXXX of Product gross the expenses, a marketing quarter gross Non-GAAP expenses, decrease compared and and expenses RMBXX.X year in XX% for of QX was quarter as the ago. to increase order million, increase the of fourth excluding marketing Excluding were year-over-year. sales billing for a million, expenses sales marketing The percentage size. gross branding were billings. with of fourth were expenses due non-GAAP

year. an fourth G&A year. RMBXX.X fourth same a development from million, RMBXX.X expenses for last quarter million, were XX% XX% the increase Excluding share-based compensation, quarter product non-GAAP expenses the from were for increase last quarter

with quarter non-GAAP which VAT was share-based Operating same compared RMBX.X Income the fourth valuation RMBX.X for Excluding RMBX.XX last last quarter partially the quarter super last million. same end At quarter the of million included net fourth compared driven growth Company fourth quarter XXXX Non-GAAP income of RMBX.XX million, for income XX% This of loss compared asset were EPS year. the quarter year. operating increase with Net for million RMBX.XX, quarter same quarter the RMBX.X net quarter RMBX.XX for year. year-over-year G&A end for for RMBXX year-over-year million, fourth same million order Other of with a the operating compared RMBX.X ordinary million ago. increase. year. quarter total RMBX.XX by million was expenses, Class than year-over-year including same is diluted quarter a balance income year. had Gross the income last EPS for billion, Non-GAAP fourth were quarter million, RMBX.X for from compared the last XXXX, RMBXX was XX% for compared offset at year. income with was the of RMBX.XX non-GAAP RMBX.XX, the Each A million with was compared a quarter ADS the million, million, the by number, from year the non-GAAP RMBX.X million, last billion operating same -- RMBX.X RMBX.X XX the last the close quarter advances year compensation the compared year. benefit income RMBX.X decline. fourth with EPS for of for cash Non-GAAP with last RMBX.XX of was exemption million compared last fourth quarter Non-GAAP a expenses RMBX.X with was quarter size the EPS for with was EPS RMBX.XX the for students million, RMBXX.X profit billings billion RMBX.XX, deferred Diluted EPS RMBXX.X represents quarter XX% for of quarter shares. for to for of was for year. fourth the was Basic income of deduction. of for more XXXX, for RMBXXX year. and fourth tax fourth fourth was billion RMBX.X quarter order the last tax XX% releasing RMBXX.X allowance with of compared the was for net

the Our GAAP in history. and non-GAAP our first of year company turned the time positive XXXX for for bottom line

to more For results, full for year XXXX our further of press earnings please refer our financial release details.

is from an remarks. year. estimates to to could increase change. currently RMBXXX outlook RMBXXX approximately the quarter and which be current expect and million to the current we prepared conditions and QX XX.X% subject customer forward are first revenues RMBXXX Company's conditions on demand, preliminary million which last all for to of above concludes market our XXXX, to The net of Looking based between XX.X% of represent million, This and market reflects operating

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

Operator

comes [Operator with now Yu first Company. Instructions] question-and-answer from The the will begin question We Vincent Needham & session.

Vincent Yu

profitable on quarter. another Congrats

being unicorn the have education particular we in I one three One in is questions. a space, first that the capital start-ups. by of these are invested large -- So amount seeing online

companies entries? areas natural expect see are what enter, the how in to to different think about English initiatives the should COE? one. Second to question a real-time net are our in areas the market made learning. such we core think is tutoring seeing And about may third of strategy to some should we COE new XXXX, our question new is any tied investment these online be -- area what's year? in growth And pre-K for And to in launched about, pose that COE versus these as address to business? XXXX by for by So addition be we to margin What we second last in

Jack Huang

Yes.

appreciate I question. the So

first in huge a the are putting space lot a for online of we question, this up education do intense you're players see and why space, this so very the is competition And seeing in the loss.

you actually if are preparation look very actually the online the one K-XX sector the we intense. these large -- the sectors However, sector, kind -- are K-XX as AI-based we're of extremely early which And growth. the online online to which the few education test in at And space is a class lot education of actually K -- really competition the see in sector, English one we education education is two well are a a company of companies which as is profitable pre company. -- earlier sector, different focus, of strong

There's more the new our already small growth obviously fastest-growing if sector. in obviously, one the mature than paying sectors. -- our of seeing look is XX%. user we're our in And we're number sector market, already in And and leader. than of So user XXXX, this players QX more a of is is you the user -- very -- market growth user company growth at new other

that do going very to confident we're well in we're So XXXX.

Jack Huang

Okay.

basically, momentum growth core user we in -- so focusing is strategy to continue our be XXXX, we the in XXXX. And our on our in for to So business continue question, of English we second want education. be leader XXXX. target -- our going K-XX in absolute focus to the to sector And of

so And to will we that there are achieve goal. and put our investment two areas

and target make to to user drive growth in services. our is user products So better number we're with experience sure both one

so And we invest are our sufficient to have we So in to in R&D years. do in going early that not order R&D. investment was more in that, to say

through in into more And we're our dollars. put drive referral, user and not products growth to will user us our development putting allow curriculum. blindly marketing just So going but this of to more fix and this the

industry-leading their our before students and one we recently expecting learning is new as X-minute AI holistic provide their our example, of AI a GKid's and is together So with We AI very up product, the users we our We're complementary with one-on-one acquired the come technology our which line a this really experience. one-on-one products will help so product, foreign technology, to better to experience XX-minute believe can students. product integrate for pre-session session. to enjoy which teacher a a

brand area branding have And investment So actually in as we make consumer to business area. we product the -- must. as a good invest sure to growth area in and And will putting going in very more is to the a the branding And and invest branding we we elevate is very by second the to a in brand user is in our our you experience service our product, having this target believe and continue are user continue plan when different a channels. core satisfying summary, well awareness important to

Jack Huang

lot is to big of a sector current our and see have do we question, third still a room market grow. for So

still And current priority so will in core top market. our be our

and provide services better our However than we and that products -- peers. confident can quite also, we're

Now continue for however, opportunity expand our market. always to look we to target

Just of GKid is for recent kind of market. example, our an product just effort acquisition expand that an to

our they exploring reach And explore we major target to based customers reach And more also to XXX huge for we base, will And can and We to ways continue this strategy And And students. is we merge as -- follow more we throughout will a also And expand -- we always GKid our for we million XXX,XXX store market. off-line little develop to as elaborate Zhang, AI more will this stores way initiative the just and product our X from efficient are whatever we that on continue on to to our demand, Liming a will last pre-K students maybe using cities. our experienced look will than our product, to effort demand. country. will new And started lower-tier active need, pretty for a year, kind student of students. very off-line -- our we've strategy. -- someday in their COO, OMO online with a later. provide up experience set is we already students' than channel expand started

to So I'll more hand offer strategy. the Liming on you some call to lights OMO

Liming Zhang

Sure.

roughly since last experience stores year, off-line provinces. already So our to we've XXX XX store in expanded more than

find to the in this our to is So way customers better experiment reach an a potential lower-tier cities.

can lower-tier we to cities. ourselves ways the our with brand the customer four is the is a is awareness, in second, closer are there to So our store. One acquisition make it customers physical closer target market. And

brand is can increase also and to to even closer with to, sales service of also people effort And phone is with our face on maybe TAM. customers WeChat significantly is to closer the You closer go or to place more provide your the and lessons we your and on questions. customers. in ask do the paid service our target kind a child the lessons to our face awareness local of customer the sales effort And and to or then instead

this is and to effort of us explore very off-line master kind acquisition expand a for our to So the channels exposures. customer meaningful

we off-line market will so look more store in our continue And forward to experience the having reach XXTalk of more mass put effort impact more to and customers. to help and

Operator

from comes The of Jiang next Benchmark. question Fawne

Fawne Jiang

year. quarter and of a solid very finish the on strong Congrats

dig We're your more a COVID. roughly and up on follow to want after behavior against user curve. Just little year bit one

students, the accelerate. also adoption among Just noticed students curve that current your active continue wonder, with online your I to

higher-tier in And we lower-tier students up to the we going driver Or allocate cities? future behind Are forward? you're what's are resources from your of your moving particular, cities? what's source into how planning for looking But wonder the Just the more growth? it.

Jack Huang

Okay.

let's after So about behavior the talk first change customer pandemic.

many because large a So the dollars of put People see, actually marketing adoption the online. what for And lot of COVID-XX online we online one go two They increased test peers. as really is to you significantly investment in expected, heavy awareness education. One the prep, of impact. is education other have reasons. raise the class to of

online people and the way, way, people just learn and expert are so many shopping, education and probably -- in very from because friends about parents a is turning And -- to way are do lot try by shoppers take online through are many a to education. lessons. of just lot a a know by they education from new are actually hearing a becoming them online curiosity, familiar Many now it of very are the preferred fancy parents education company. -- mature this every comparison of become good to So thing the of

a is to you means provide have lot advertising your this that customer And to good great and is only thing, becoming satisfaction. product be great customer the times loyalty you which is generate a to And may the market customers' mature, of enough. to So the demand long-term guarantee have and more and services. not meet that's way

a why of we're are turn, user lot going we -- in growth. in and, to services lot satisfaction put money and a customer drive that's to development drive product and of putting So

Jack Huang

let's talk the now growth. So about user

drivers. So half we accelerating believe there are the And three Number in growth is major are we satisfaction. second user customers' and seeing growth very one user XXXX. strong

mostly then the industry is the our is referral. lesson, reason key taking And better that leading better roughly very and satisfaction. results XX the one through leading are user progress, to consumption drive making of the students month, our is highest growth per XX So because students' we to customer in to lesson which actively

the believe year. one is our of throughout gaining is And brand. key. we brand And is second the it So the momentum

seeing stopped competition year, which is advertising, past in And focusing them our excessive a to is becoming very the strategy. aggressive the one which on many is is want or one by barrier very package after peers our we leading brand North those that, matter accelerating, And that, And our size, lowered in of many is the the and customers few find size, out lower-tier the year, from one are to market average -- the to product. in package size. know, strong average we've doesn't As third actively our teachers. many we our past past is means average And years, now it we you guys brand strategy like biggest sector. American Tier we're for thing in out seeing lowering cities, of the operation in the brand the actually exciting I probably lowered operating the markets buy what the We're awareness package the X point we only accelerate lowered And not growth. growth strong city actually the is. had of

As great and to price, you're see have long a great product, you service long-term strong reasonable growth. going very

Okay.

yes, if answered So sure I'm all not so questions. your we

Fawne Jiang

helpful. very that's Yes,

Min Xu

Excellent.

Operator

there As the now, no to questions further the closing over remarks. like Company Instructions] to back are [Operator I'd for call turn

Judy Piao

joining Thank today. you once again for us

If XXTalk's the concludes our Relations Group's you questions, Investor Investor Piacente contact have provided call. This contact the to on through conference please Relations. or The website free information further feel

You may now you. disconnect your line. Thank

Operator

Again, this call. this concludes conference

disconnect may your You now you. Thank line.

China Online Education (COE) 5 Mar 212020 Q4 Earnings call transcript