QuantaSing Group Ltd (NASDAQ:QSG) Q2 2024 Earnings Call Transcript
QuantaSing Group Ltd (NASDAQ:QSG) Q2 2024 Earnings Call Transcript March 8, 2024
QuantaSing Group Ltd isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and good evening, ladies and gentlemen. Thank you for standing by. And welcome to QuantaSing's Earnings Conference Call. At this time, all participants are in a listen only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note that today's event is being recorded. I will now turn the conference over to Ms. Leah Guo, Investor Relations, Associate Director of the Company. Please go ahead, ma'am.
Leah Guo: Thank you. Hello, everyone. And welcome to QuantaSing’s Earnings Call for the Second Quarter of Fiscal Year 2024. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter. Then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Tim will be available for the QA session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR Web site at ir.quantasing.com. You can also access a replay of this call on our IR Web site when it becomes available a few hours after its conclusion. Before we'll continue, I would like to refer you to our Safe Harbor statements in our earnings press release, which also applies to this call as we will be making forward looking statements.
Please note that all members stated in the following management’s prepared remarks are in RMB terms, and we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC. I will now turn the call over to the CEO and Founder of QuantaSing. Mr. Li.
Peng Li: Hello, everyone. And thank you all for joining us today. Last quarter, we saw solid 24.7% increase in revenue, proving that our strategy to expand our cost offerings is paying off. Following the past success of our financial literacy courses, we have been actively adding new courses to diversify our revenue streams. We are also [Indiscernible] [seeding] the opportunity presented by growing demand for courses made for senior learners. We have adjusted our revenue presentations under other personal interest courses this quarter. We further broke down our other personal interest courses into skills upgrading courses and recreation and leisure courses. We think the new revenue breakdown better reflects our business strategies and can provide useful and updated information to investors.
Under the new breakdown, skills upgrading courses mainly include courses for training productive skills, such as short video production and memory training courses. Recreation and learning courses mainly include more personal enrichment courses, such as personal wellbeing courses, electronic keyboard courses, understanding meditation courses. Now let's pivot to discuss some new developments and initiatives with our organization. Recent government data has highlighted the strong growth of China's elderly population. China had over 297 million people aged 60 and above in 2023, which was 21.1% of the total population. As such, China has officially become a super aged society by World Bank standards. The silver economy is currently valued at around RMB7 trillion, [Indiscernible] [$82 billion] and is focused to search to RMB30 trillion, $4.2 trillion by 2035.
This would made up roughly 10% of the country's total GDP according to China National rating. The evolving needs and the desires of middle aged and elderly people in China represent significant opportunity for us. This is growing demand for personalized services in the silver economy sector. In a positive move, the government recently introduced merits to strengthen the silver economy. This initiative urged in enterprises to enhance their offerings for the elderly population. For example, to enhance digital services thousands of Web sites and the apps are being revamped and the standards are being established for senior friendly mobile devices. This development is also beneficial for us as it will enhance the learning experience for our users from a hardware perspective.
We are prone to how anticipated this shift in demand. We have been preparing for this opportunities for years. Our team have built a solid foundation and measured business model and we are well positioned to meet this growing demand. As living standards improve, middle aged and elderly people seek more than just the health or longevity. They want experience that will provide cultural and intellectual enrichment. Our diverse range of online courses includes many which are tailor made to the interest of this demographic. Our platform is dedicated to lifelong learning and we have always emphasized user engagement and satisfaction. This means we are all equipped to fulfill user desire for intellectual simulation and personal growth. Now let's move on to our ongoing efforts to enhance user engagement and satisfaction.
We'll be diligently engaging our learners in a variety of offline and online initiatives, leveraging the power of AI to elevate users’ learning experiences. Additionally, we utilize our scalable self operated system to boost learners’ repurchase risk. We have hosted a series of community events surrounding our recreation and [learning] courses. This event include standing meditation sessions and appreciation sessions for pursuits like, electronic keyboard and calligraphy. We provide ample opportunities for interaction, communication and personal enrichment for our middle aged and elderly users. For example, our recent initiative involved offering complimentary trial courses to residents of community in Beijing. Our offline and online initiatives have resulted in constantly high levels of user engagement.
Attendees of our sharing sessions speak highly of the valuable knowledge they gained from instructors and peers during events. We have received lots of positive feedback from participants for both our online courses and offline activities, especially from elderly learners. They expressed deep appreciation for activities like calligraphy and the standing meditation, and recognize them as valuable opportunities for personal growth and learning. This feedback highlights their strong desire for spiritual and cultural enrichment, which emphasize the importance they place on these experiences. Among the variety of merits we have used to apply AI in our business, we have successfully enhanced live streaming quality using AI, improving both visual clarity and stream stability.
Additionally, we have leveraged the AI in our online tutoring system by intelligently identifying and anticipating learners’ behavior. As a result, learners have been able to significantly reduce their waiting times during Q&A sessions with our tutors. Our commitment to learner satisfaction is closely followed by a more efficient approach to retaining our learners. Recently, we upgraded our integrated business management process and conducted pillars testing before rolling it out to more SQs. Our tutor can now easily manage tasks like one click class, reminders and optimizing private domain traffic. By doing so, we have not only increased our cost complete risk but also enhanced overall repurchase. For example, the repurchase rate of our standing meditation cost has improved from 26.2% in last fiscal year to an impressive 34.7% in this quarter.
We aim to streamline the observation system across all SQs and to maximize user retention on our platform. Next, let's turn to our efforts to increase operational efficiency while growing our top line. We remain focused on streamlining process and optimizing resource allocation by carefully investing in sales, marketing and leveraging technology. We aim to enhance our market presence. Our test and scale approach ensures efficient results utilization, minimizes financial risk and allow us to seize market opportunities. At present, we are focused on streamlining processes and the results allocation to boost cost efficiency. We aim to ensure that the quality of our services also remain topnotch. We have managed to limit our relative growth in headcount.
This demonstrates our ongoing commitment to prudent results management. Moreover, we are assembling a new team in [Hefei]. We efficiently capitalized on the cost advantages of operating in that region, including but not limited to, labor cost and administrative expenses. We also made improvements to our operational system. Specifically, we developed our own instant messaging system, which has been officially deployed this quarter. The strategy will not only significantly reduce our operational expenses but also enhance real time interactively among learners. We achieve highly efficient sales under marketing by leveraging technology. We are carefully allocating resources to enhance our market business. For example, we leveraged tax including big data and our advanced operational systems to create diversified and effective marketing channels.
During this quarter, we upgraded our technologies so we were able to reach paying users more effectively. Meanwhile, we are employing a test and scale methodology. For this methodology, we invest [modestly] in new initiatives, such as new cost offerings, marketing campaigns and the live e-commerce product offerings [Indiscernible] [then we] access the ROI. We only take steps to process and the expense initiative if the ROI miss are actually exceeded our expectations. This data driven decision making process maximizes our resource allocation and minimizes the financial risk for new initiatives. Also by collecting feedback from the market and our customers, we gain a better understanding of their needs. This broadens our reach and enhances our ability to address shifting demand.
The flexibility of our business model allow us to scale up our operations without sacrificing cash flow. Ultimately, this enables us to seize market opportunities as they arise. In addition to our ongoing efforts to drive revenue growth and maintain cost efficiency, we are actively pursuing new initiatives that offer significant potential for expanding and diversifying our business. Live e-commerce and overseas markets are important to broaden our revenue streams. Thus, we have launched a new number of strategic initiatives in these areas. Live e-commerce provides an interactive platform to enhance sales and driven customer engagement. Recognizing this, we are currently leveraging live e-commerce to strengthen our online presence and increase our market share.
We're also developing private label products that priortize innovation and customer satisfaction. The recent launch of our private label Chinese Baijiu brand YUNTING is one example. Meanwhile, our focus on overseas expansion aims to access new markets and demographics, thereby, diversifying our revenue streams and broadening our market reach. We are carefully planning our expansion strategy for sustainable growth. Chinese education serves us a key trial venture proceeding broader international expansion efforts. We are closely monitoring its process to refine our strategies and inform further expansion plans, ensuring prudent and a well informed approach to scaling our international operations. In conclusion, the second quarter of our fiscal year 2024 demonstrated strong revenue growth, reflecting the success of our strategic initiatives.
We have taken steps to diversify our cost offerings and to cater to burgeoning demand for middle aged and the senior learners. We’re also actively pursuing new opportunities in live e-commerce and international markets, while still maintaining a lean and efficient operational model. With the focus on innovation and prudent results management, we are well positioned to sustain our growth trajectory and deliver lasting value to our shareholders. With that, I will turn the call over to Tim to discuss the details of our financials. Thank you.
Tim Xie: Thank you. Before I go into details of our financial results, please know that all amounts are in RMB terms, that’s the reporting period is the second quarter of fiscal year 2024, ending on June 30, 2024, and that in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. For second quarter of fiscal year 2024, we grew our total revenues by 24.7% year-over-year and 12.8% quarter-over-quarter to RMB980.5 million, mainly driven by growth from skills upgrading courses. Among our revenues, revenues from individual online learning services grew by 24.1% year-over-year to RMB873.6 million or 89.1% of total revenues, mainly due to continued demand for skills upgrading courses.
Our gross billings of individual online learning services increased by 15.4% year-over-year to RMB944.6 million. Revenues from enterprise services were RMB57.6 million, a change of 30% from a year ago and representing 5.9% of total revenues, primarily due to a decline in revenues from related partly transactions. Gross profit was RMB835.5 million, representing a gross margin of 85.2% compared to 87.4% in the same period last year. Total operating expenses were RMB733.2 million compared to RMB731.7 million in the same period last year. To break this down, sales and marketing expenses was RMB657.1 million, representing a change of 5.5% year-over-year. The change is mainly due to our increased to spending on outsourcing labor and marketing efforts.
The increase is partially offset by a decrease in our staff costs, which also included a decrease in share based compensation. As a percentage of total revenue, non-GAAP sales and marketing expenses, which excluded share based compensation, decreased to 68.6% from 77.3% a year ago. Research and development expenses were RMB41 million, representing a decrease of 36.2% year-over-year, primarily driven by a decrease in share based compensation. As a percentage of total revenue, non-GAAP R&D expenses, which exclude share based compensation, decreased to 4% from 5.6% a year ago. General and administrative expenses were RMB35.1 million, representing a decrease of [21.3%] year-over-year, primarily due to decreases in share based composition and office expenses, partially offset by increase in professional service fees.
As a percentage of total revenue, non-GAAP G&A expenses, which excluded share based compensation decreased to 2.8% from 3.1% a year ago. Net income was RMB107.6 million, excluding share based compensation. Adjusted net income was RMB103.9 million, representing adjusted net margin of 10.6% during the quarter. Basic and diluted net income per share were RMB0.65 and RMB0.64 respectively during the quarter. Adjusted basic and diluted net income per share were RMB0.63 and RMB0.62 respectively during the quarter. Turning to our balance sheet. As of December 31, 2023, our company held RMB1,050.8 million in cash and cash equivalents and short term investments compared to RMB930.6 million as of June 30, 2023. Lastly, I want to provide some color on our outlook.
For the third quarter of fiscal year 2024, which ends on June 30, 2024. We expect revenues to be between RMB900 million and RMB930 million, representing a year-over-year increase of between 11.5% and 15.2%. These projections take into consideration the current market conditions prevailing in the industry. In summary, our steadfast commitment to delivering exceptional online learning experiences and a broad spectrum of courses, coupled with our focus on cost efficiencies and cash flow optimization delivered solid results to this quarter. Our expansion efforts are executed with a keen eye on maintaining profitability as we continue to create long term value for our shareholders. Looking ahead, our strategic direction will remain aligned with our dedication to sustainable growth.
That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.
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