LAIX Inc.
Q3 2020 Earnings Call Transcript

Published: 27 Nov 2020

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for LAIX Incorporated Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Mr. Harry He, Investor Relations Director of the company. Please go ahead, Harry.

[Harry He:]

Thank you. Hello, everyone, and welcome to the third quarter 2020 earnings conference call for LAIX, also known as Liulishuo. The company's results were issued earlier today and you can download earnings press release and signup for the company's distribution list by visiting our IR website at ir.laix.com.

[Yi Wang:]

Thanks, Harry. Hello, everyone, and thank you for joining our third quarter 2020 earnings conference call. During the third quarter, total net revenue were RMB239.4 million, which, as anticipated, met our previously announced guidance. Gross profit margin further grew to 72.9% from 71.9% in the previous quarter. With the adjustments we made since the previous quarter, we have seen a constant flow of positive effects on our newly streamlined operations. That could be seen in our net loss, which was further narrowed to RMB70.6 million, a 23.6% improvement quarter-over-quarter. During the quarter, we continued to maintain prudent cost control on advertising expenditures and our user acquisition costs. Our overall user growth was impacted by this approach and gross billing declined – declined 16.1% sequentially. However, gross billings of our Kids business managed to improve by 56.5% compared with the previous quarter. With that quick financial overview, I would now like to provide an update on our product mix and the strategic growth plan, and then Bing, our CFO, will discuss our operations and financial further in a few minutes.

[Bing Sun:]

Thank you, Yi, and hello, everybody. This is Sun Bing. Let us now look at our key financial metrics in the third quarter of 2020. Net revenue were RMB239.4 million, a 11.1% decrease from RMB269.4 million for the previous quarter and an 8.26% decrease from RMB262.1 million for the same quarter last year. The quarter-over-quarter decrease was primarily attributable to a decrease in gross billings caused by the company's stringent cost control in user acquisition expenditures. Cost of revenue was RMB65 million, a 14.1% decrease from RMB75.6 million for the previous quarter and a 9.6% decrease from RMB71.8 million for the same quarter last year. The quarter-over-quarter change was primarily attributable to due to efficiency optimization in personnel management and cost control in IT related services. Gross profit was RMB174.5 million, a 10% decrease from RMB193.8 million for the previous quarter and an 8.3% decrease from RMB190.3 million for the same quarter last year. Gross margin for the third quarter of 2020 was 72.9%, compared with 71.9% for the previous quarter and 72.6% for the same quarter last year. Total operating expenses were RMB252.1 million, a 13% decrease from RMB289.7 million for the previous quarter and a 37.7% decrease from RMB404.8 million for the same quarter last year. This change was primarily due to stringent cost control in user acquisition expenditures and optimization of our organizational structure. Sales and marketing expenses were RMB185.5 million, a 7.6% decrease from RMB200.7 million for the previous quarter and a 35.9% decrease from RMB289.2 million for the same quarter last year. The changes were primarily due to the company's stringent cost control in user acquisition expenditures. R&D expenses were RMB45.8 million, a 5.5% decrease from RMB48.5 million for the previous quarter and a 20.6% decrease from RMB57.7 million for the same quarter last year. The changes were primarily due to efficiency optimization in personnel management.

[Operator:]

Certainly. . Your first question comes from the line of Elsie Sheng from Morgan Stanley. Your line is open.

[Elsie Sheng:]

Thank you, management. My question is about your Kids product. So can you give us more color on your strategy and positioning in the kids market, especially under the increasingly comparative land space? Thank you.

[Yi Wang:]

Thank you for the question. Right now, kids product, specially, is a very key growth driver for the company. In the third quarter, it contributed to more than 15% of our total gross billings. Our kid product portfolio covers the basic phonics course and also the main course, a core course that covers the beginner level in the kindergarten all the way to age nine right now. And we have plan to move it to cover to sixth grade, which is age 12. So basically, we have two components of the core course. The first component covers the demographic age group of three to six, and then jump-start a course for kids aged six to nine and continuing to age 12 in the next year. Well, in terms of technology, we adapted into our kids product our proprietary adaptive learning technologies as our speech recognition. So it provides real-time feedback and overcoming the inefficiency of traditional teaching as a one-size-fits-all approach. And what another key differentiator for us compared to other products on market is that we are probably the only company offering a key differentiated learning experience in age group three to six and six to nine with the lower age group having a more game-like experience while the higher age group have more of a teacher-led learning experience. We believe our continued investments into our product and user experience as well as curriculum design will pay off as we see very, very encouraging long-term retention numbers in our user group. Thank you.

[Operator:]

. There are no further questions at this time. I will turn the call back to Harry for closing remarks.

[Harry He:]

Thank you once again for joining us. If you have further questions, please feel free to contact Investor Relations through the contact information provided on our website. Thank you, operator.

[Operator:]

That concludes today's conference call. You may now disconnect.