51Talk Online Education Group Q3 FY2024 Earnings Call

Hello, ladies and gentlemen, thank you for standing by for 51Talk Online Education Group's Third Quarter 2024 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Today's conference call is being recorded. I would now like to 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 third quarter 2024 earnings conference call of 51Talk. 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 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-looking statements except as required under the applicable law. Please also note that the earnings press release and this conference call include discussion of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. 51Talk's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Jack Huang. Jack, please go ahead.

Thank you, David. Hello, everyone. Thank you very much for joining our conference call today. Our growth momentum has been well sustained into the third quarter, with gross billings once again surpassing our earlier guidance. Looking ahead, we are confident in our ability to maintain our growth momentum going forward, while accounting for some anticipated seasonality. We are committed to our localization strategies around the world, while actively pursuing opportunities to extend service offerings with supplementary products for our existing students. Furthermore, we would highlight that in our commitment to sustainable growth, we have successfully maintained an upward trajectory in our operating cash flow in the past two quarters. This is evidenced by the improvement in our cash balance over the quarter, and we anticipate that this positive trend will continue in the coming periods. The acceleration of AI adoption across our group has become a significant driver this quarter. We have observed improvements in lead conversion rates, tutor management, and student classroom experiences, all powered by AI. Our deep understanding of customer needs, combined with the strategic implementation of AI technologies, aligns with our objective of becoming a globally leading EdTech company. With that, I will now turn the call over to Cindy, our CFO.

Thank you, Jack. Now, let me walk you through our third quarter financial details. Third quarter net revenues were US$14 million, a 79.4% increase from the same quarter last year, largely driven by the increase of active students with attended lesson consumption. Gross margin for the third quarter was 78.7%. Gross billings grew by 80.7% from the same quarter last year to US$19.8 million. Q3 operating expenses were US$11.8 million, an increase of 20.6% compared to the same quarter last year. Specifically, this has been driven by Q3 sales and marketing expenses of US$8.2 million, an 18.3% increase from the same quarter last year, due to higher sales personnel costs related to increases in the number of sales and marketing personnel. Q3 product development expenses were US$0.8 million, a 3.3% decrease from the same quarter last year. Finally, Q3 general and administrative expenses were US$2.8 million, a 38.6% increase from the same quarter last year. Overall, Q3 operating loss was US$0.8 million, while net loss attributable to the company's ordinary shareholders was US$0.6 million, a 79.6% and 83.6% decrease from the same quarter last year, respectively. Q3 GAAP and non-GAAP earnings per ADS were negative US$0.11 and US$0.07, respectively. The company's total cash, cash equivalents and time deposits were US$25.6 million at the end of the third quarter. Advances from students was US$39.7 million at the end of the third quarter. Looking forward to the fourth quarter of 2024, we currently expect net gross billings to be between US$20.5 million and US$21 million. The above outlook is based on our current market conditions and reflects 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. We will now begin the question-and-answer session. The first question will come from John Banks with Garden State Securities. Please go ahead.

Congratulations on a great quarter, especially considering the number of customers you have. I have a couple of quick questions. Jack, regarding cash flow and profitability, I understand you are in a significant growth phase. Can you provide some insights into cash flow and profitability as we head into next year? Also, regarding the new markets you're planning to enter, specifically Spanish and Vietnamese on your website, can you share more details about those markets for next year? Thank you very much, and congratulations.

Thank you for your question. Regarding your first question about cash flow in 2025, our focus is on quality growth, with a strong emphasis on overall growth for the company. We aim to achieve a solid growth rate in 2025. Last quarter, we recorded a positive cash flow of approximately US$2 million, and we are confident that we can maintain positive cash flow for the entire year of 2025. As for your second question about new markets, expanding into more markets is one of our growth strategies. Currently, 51Talk operates in Southeast Asia, including Malaysia and Thailand, and we are planning to enter the Vietnamese market, where we are currently conducting some pilot programs. We also have an Arabic version of our platform, making us available in Arabic-speaking regions. Additionally, we recognize the Spanish-speaking market as a significant opportunity with over 500 million people, and while we don't yet have a dedicated team there, we are considering launching a pilot in that market. What was your third question? I apologize.

No, those were my two questions. Thank you very much. Congratulations. The company looks very promising for next year.

Thank you very much.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. David for any closing remarks. Please go ahead, sir.

Thank you, once again, for joining us today. If you have further questions, please contact 51Talk's Investor Relations through the contact information provided on our website.

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