TCTM Kids IT Education Inc.
Q4 2020 Earnings Call Transcript

Published: 19 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Fourth Quarter and Full-Year of 2020 Tarena International, Incorporated Earnings Conference Call. At this time, all participants are in listen-only mode. After speakers' presentation, there will be a question-and-answer session. I must advise you that this conference is being recorded March 19, 2021. I would now like to hand the conference over to your first speaker today, Ms. Amanda Wang, the Investor Relations Director. Thank you. Please go ahead ma’am.

[Amanda Wang:]

Thank you, operator. Hello, everyone, and welcome to Tarena's earnings conference call for the fourth quarter and full-year of 2020. The company's earnings results were released earlier today and are available on our website, ir.tedu.cn, as well as on Newswire services. Today, you will hear from Mr. Yongji Sun, our CEO; Ms. Nancy Sun, our Senior VP; and Mr. Kelvin Lau, our CFO, who will take you through the company's operational and financial results for the fourth quarter and full-year of 2020 and give revenue guidance for the first quarter of 2021. After their prepared remarks, Mr. Sun, Nancy, and Kelvin will be available to answer your questions.

[Kelvin Lau:]

Hi everybody. I’m Kelvin. First of all I got to apologize first, our CEO, Mr. Sun is out on meeting and he is on the way back to the office now. So, I will present Mr. Sun’s script on his behalf. Okay. Let’s go ahead. Thank you, Amanda, and thank you everybody for joining us today. We are delighted to announce our results for the fourth quarter and full-year of 2020. Our net revenue in the fourth quarter of 2020 was RMB650.3 million, which was higher than the guidance range of RMB540 million to RMB570 million we gave, compared to the net revenue of RMB509.6 million in the fourth quarter of 2019 the net revenue in the fourth quarter of 2020 increased by RMB140.7 million or 27.6%. The net revenue for the year-end December 31, 2020 was RMB1,897.9 million decreased by RMB153.5 million or 7.5% as compared to the net revenue of RMB2,051.4 million for the year ended December 31, 2019. Net revenue from K-12 education business increased by 64.7% from RMB180.9 million in the fourth quarter of 2019 to RMB297.9 million in the same period of 2020. The number of student enrollments for K-12 education increased by 47% from 87,300 in the fourth quarter of 2019 to 128,300 in the same period of 2020. The number of new students we equipped for K-10 education increased by 6.7% from 19,400 in the fourth quarter of 2019 to 20,700 in the same period of 2020. Net revenue from adult professional education business increased by 7.2% from RMB328.7 million in the fourth quarter of 2019 to RMB352.4 million in the same period of 2020. Despite the number of student enrollments for adult professional education business decreased by 21.3% from 44,600 in the fourth quarter of 2019 to 35,100 in the same period of 2020, and a number of new students were equipped for adult professional education business decreased by 20.1% from 20,900 in the fourth quarter of 2019 to 16,700 in the same period of 2020.

[Nancy Sun:]

Thank you Kelvin, and hello ladies and gentlemen. I am going to present to you with information regarding our operation performance in the fourth quarter and the full-year of 2020. In the fourth quarter, some local areas were affected for a short-term by the COVID-19, including Beijing, Shenyang, Dalian, Harbin and some cities of Hubei provinces. Our team however has gathered a wealth of experiences in the delivery and the marketing of products and the operations management allowing us to get through this wave without causing serious impact on our actual operations. I'll start with the adult education business. In 2020, we have been adhering to the business strategy of cost efficient and productivity improvement to achieve healthy operation and steady development in the adult education business. Affected by the pandemic, our revenue in 2020 was RMB1,136.1 million, a decline of 25.6%, compared with RMB1,527.2 million in 2019, and the cost of revenues also dropped by 33.1% from RMB627.8 million in 2019 to RMB420.3 million in 2020. The gross profit decreased by 20.4% from RMB899.4 million in 2019 to RMB715.8 million in 2020. But the good news is that our cost of revenues and operating expenses in the fourth quarter have decreased allowing us to have huge regain and efficiency with us retaining our operating profitability in the fourth quarter, continuing the operating profitability in the third quarter. In the fourth quarter of 2020, despite the number of learning centers for adult education had a net decrease of 26 and , which is were reduced by 32%, as compared to the same period of 2019. Our revenue reached up to RMB352.4 million with an increase of 7.2%, compared with RMB328.7 million achieved in the fourth quarter of 2019.

[Kelvin Lau:]

Thank you, Nancy. Now, I would like to take you through the fourth quarter and full-year of 2020 financial highlights. First of all, I will go through the fourth quarter financial highlights. So, the revenue increased by 27.6% to RMB650.3 million in the fourth quarter of 2020 from RMB509.6 million in the same period of 2019. Net revenue from adult education business increased by 7.2% to RMB352.4 million in the fourth quarter of 2020 from RMB328.7 million in the same period of 2019. The increase was primarily due to less price discussed were offered to students as a result of the implementation of the and discount policies in the fourth quarter of 2020. Net revenues from K-12 education business increased by 64.7% to RMB297.9 million in the fourth quarter of 2020 from RMB180.9 million in the same period of 2019. The increase was primarily due to the increase in student enrollments of K-12 education by 47% from 87,300 in the fourth quarter of 2019 to 128,300 in the same period of 2020, as well as higher cost consumption rates resulting from the increase in numbers of students attending, organize the competition and sitting for certificate examinations. Cost of revenue decreased by 6% to RMB291.5 million in the fourth quarter of 2020 from RMB310.1 million in the same period of 2019. The decrease was primarily due to the decrease in number of adult education learning centers, which resulted in a reduction of both personnel related costs and rental expenses, partially offset by the increase in costs arising from the addition of K-12 education new data centers. Gross profit increased by 79.9% to RMB358.8 million in the fourth quarter of 2020, from RMB199.4 million in the same period of 2019. Gross margin which is equal to gross profit divided by net revenue was 55.2% in the fourth quarter of 2020, compared to 39.1% in the same period of 2019. The increase in gross margin was primarily due to significant increase in net revenue, plus the effective control on costs. Total operating expenses decreased by 16.4% to RMB443.9 million in the fourth quarter of 2019, from RMB531.3 million in the same period of 2019. Total non-GAAP operating expenses, which excluded share based compensation expenses decreased by 16.3% to RMB436.4 million in the fourth quarter of 2020, from RMB521.4 million in the same period of 2019. Total share based compensation expenses are located to the related operating expenses decreased by 23.7% to RMB7.5 million in the fourth quarter of 2020, from RMB9.9 million in the same period of 2019. Selling and marketing expenses decreased by 26.8% to RMB223.3 million in the fourth quarter of 2020, from RMB305.1 million in the period of 2019. The decline was mainly due to decrease in marketing activities and promotional spendings, and decrease in personnel related expenses resulting from lower headcounts in the fourth quarter of 2020. General and administrative expenses decreased by 1.4% to RMB195.3 million in the fourth quarter of 2020, from RMB198.1 million in the same period of 2019. The decline was primarily due to decrease in personnel related expenses resulting from lower headcounts in the fourth quarter of 2020, and there were one-time investigation related professional expenses incurred in the fourth quarter of 2019. Research and development expenses decreased by to RMB25.2 million in the fourth quarter of 2020, from RMB28.1 million in the same period of 2019. The decline was mainly due to a decrease in personnel related expenses resulting from lower headcounts. Operating loss was RMB85.1 million in the fourth quarter of 2020, compared to the operating loss of RMB331.9 million in the same period of 2019. Non-GAAP operating loss, which excluded share based compensation expenses was RMB77.5 million in the fourth quarter of 2020, compared to non-GAAP operating loss of RMB321.7 million in the same period of 2019. The company recorded income tax expenses of RMB7 million in the fourth quarter of 2020, compared to the income tax and benefit of RMB28.7 million in the same period of 2019. As a result of the foregoing, net loss was RMB94.7 million in the fourth quarter of 2020, compared to net loss of RMB303.8 million in the same period of 2019. Non-GAAP net loss, which excluded share-based compensation expenses, was RMB87.1 million in the fourth quarter of 2020, compared to non-GAAP net loss of RMB293.6 million in the same period of 2019. Loss per ADS was RMB1.72 in the fourth quarter of 2020, compared to loss per ADS of RMB5.64 in the fourth quarter of 2019. Non-GAAP loss per ADS, which excluded share-based compensation expenses, was RMB1.58 in the fourth quarter of 2020, compared to non-GAAP loss per ADS of RMB5.45 in the fourth quarter of 2019. Net cash inflow from operating activities in the fourth quarter of 2020 was RMB86.5 million. Capital expenditures in the fourth quarter of 2020 were RMB14.6 million. Now I'm going to take you through the full-year of 2020 financial highlights. Net revenues decreased by 7.5% to RMB1,897.9 million in 2020, from RMB2,051.4 million in 2019. The decrease was primarily due to the reduction of class consumption rates for both adult and K-12 education businesses during the COVID-19 pandemic in the fiscal year of 2020. Cost of revenues decreased by 9.1% to RMB1,066.8 million in 2020, from RMB1,173.8 million in 2019. The decrease was mainly due to the reduction of cooperation with tutoring service providers as most students were transferred to online studying during the COVID-19 pandemic. Furthermore, during the COVID-19 pandemic, the utility and office fees declined as our employees worked from home, and the social security fees were exempted due to the preferential policies enacted by the government. The decrease was also partly attributable to the decrease in number of adult education learning centers, which resulted in decrease in personnel-related costs and rental expenses. Gross profit decreased by 5.3% to RMB831 million in 2020, from RMB877.5 million in 2019. Gross margin, which is equal to gross profit divided by net revenues, was 43.8% in 2020, compared with 42.8% in 2019. The increase in gross margin was mainly attributable to our efficient cost controls implemented in 2020. Total operating expenses decreased by 17.1% to RMB1,637.4 million in 2020, from RMB1,975.7 million in 2019. Total non-GAAP operating expenses, which excluded share-based compensation expenses, decreased by 16.5% to RMB1,601.6 million in 2020, from RMB1,917.5 million in 2019. Total share-based compensation expenses allocated to the related operating expenses decreased by 38.4% to RMB35.8 million in 2020, from RMB58.2 million in 2019. Selling and marketing expenses decreased by 19.1% to RMB906.3 million in 2020, from RMB1,119.7 million in 2019. The decline was mainly due to decrease in marketing activities and promotional spending in the fiscal year of 2020. In addition, personnel-related expenses decreased as a result of lower headcounts, and social security fees were exempted due to the preferential policies enacted by the government during COVID-19 pandemic in the fiscal year of 2020. General and administrative expenses decreased by 12.8% to RMB630.6 million in 2020, from RMB723.3 million in 2019. The decline was mainly due to decrease in personnel-related expenses resulting from lower headcounts, and social security fees were exempted according to the preferential policies enacted by the government during COVID-19 pandemic in the fiscal year of 2020. Furthermore, there were one-time investigation related professional expenses incurred in the fiscal year of 2019. Research and development expenses decreased by 24.3% to RMB100.5 million in 2020, from RMB132.7 million in 2019. The decline was mainly due to decrease in personnel-related expenses resulting from lower headcounts. Operating loss was RMB806.4 million in 2020, compared to operating loss of RMB1,098.2 million in 2019. Non-GAAP operating loss, which excluded share-based compensation expenses, was RMB770.1 million in 2020, compared to non-GAAP operating loss of RMB1,039 million in 2019. The company recorded an income tax benefit of RMB35 million in 2020, compared to income tax benefit of RMB41.6 million in 2019. As a result of the foregoing, net loss was RMB771.2 million in 2020, compared to net loss of RMB1,038.9 million in 2019. Non-GAAP net loss, which excluded share-based compensation expenses was RMB734.9 million in 2020, compared to non-GAAP net loss of RMB979.7 million in 2019. Loss per ADS was RMB14.11 in 2020, compared to loss per ADS of RMB19.41 in 2019. Non-GAAP loss per ADS, which excluded share-based compensation expenses, was RMB13.44 in 2020, compared to non-GAAP loss per ADS of RMB18.30 in 2019. Cash and cash equivalents and time deposits, including current and non-current, and restricted cash, decreased by 41.3%, from RMB621.2 million as of December 31, 2019 to RMB364.8 million as of December 31, 2020. The decrease was mainly due to net cash used in operating activities, which was mainly composed of net loss of RMB771.2 million incurred in the year of 2020, partially offset by the increase in total deferred revenue of RMB412.2 million and depreciation and amortization charges of RMB177.5 million and net cash used in financing activities, which was mainly composed of a repayment of RMB78.5 million bank borrowings in 2020. Capital expenditures in 2020 were RMB71.5 million. In terms of financial guidance, based on our current operations, total revenues for the first quarter of 2021 are expected to be between RMB470 million and RMB500 million, after taking into consideration the seasonal fluctuation factors and the likely continued impact of COVID-19. This guidance is based on the current market conditions and reflects the company's current and preliminary estimates of market and operating conditions, which are subject to change, particularly as to the potential impact of COVID-19 on the economy in China and elsewhere in the world. This concludes my financial highlights section. Operator, we are ready for questions.

[Operator:]

Certainly. Thank you.

[Kelvin Lau:]

Hey operator. Our CEO, Mr. Sun is already back to the office. He wants to speak a little bit, okay.

[Yongji Sun:]

[Operator:]

So please go ahead. We have no questions at this point of time. Please go ahead.

[Yongji Sun:]

So, Hello everyone. My name is Yongji Sun, I'm the CEO of Tarena International, Incorporated. So sorry, first of all, I want to say sorry, because I was caught in a traffic jam. So, I was late for a conference call. But I believe that you guys are very excited after hearing our SVP, Nancy, and Kelvin, our CFO’s his words. So, we do have a very promising Q4 in 2020 and we do have very promising figures in the 2024 year. So, the time is quite precious here. If you guys have any questions. You're welcome to ask your question and we will answer your question.

[Operator:]

Thank you very much. We have a question on the line. So, the first question comes from the line of Management. Please go ahead. Excuse me , your line is open. You can ask your question now. Please go ahead.

[Unidentified Analyst:]

So we’re not in a proper position to comment, I mean the progress or the – expectation of the process, so any progress or any development in terms of the – related to the we will make the announcement and or to inform everybody, not proper place to about the in this conference call.

[Yongji Sun:]

Okay, so previously, the question was about the Q4 financials and the total financials. It seems that Tarena have scored very positive Q4 numbers. However, overall speaking Tarena are still in a loss position. So, I was just wondering whether we can achieve the earning or monthly profitability like our management have said before, and our SVP, Ms. Nancy has said, I've answered the question that we do have a very positive earnings for our adults business in Q4, and our revenues for K-12 business is very exciting. And we will continue our rather conservative strategies going forward because the market is developing very fast. We don't want to lose our market shares. Based on the Q3 numbers, we can see that our adult business figures and our revenues for K-12 business in the Q4 of 2020 is quite promising and excluding the factors such as COVID-19. From July to December in 2020, we do see 96% of revenue growth for our K-12 business, compared with the second half of 2019. So that is a huge opportunity for us. We don't want to miss the opportunity. And we do have very positive cash revenue. So, in the future, we will continue to focus on cash revenue increase and our increase of cost or decrease of COGS per acquisition.

[Unidentified Analyst:]

So, this is the last question for our conference call, and it is a question about K-12 business or children education business, so just asking what is the strategy for K-12 this year? Do we want to expand our learning centers? And if we want to expand our sites, that means we need more money? How to solve that issue?

[Nancy Sun:]

Okay. So, to answer your first question, we were in this market since 2015. And over the past three years from 2017, 2018, and 2019, we've witnessed a very fast development for Tarena International. And although there was a COVID-19 pandemic in 2020, we do have positive financials in 2020. And in 2021, we want to continue our fast development based on a very sound structure, meaning that we will continue to rely on our very stable operating structure. We will continue to enhance and adjust our organization power. We believe that we want to be a powerhouse rather than a big house. And in 2021, we will continue to strengthen our services, our word of mouth referrals, our innovative operating methods, and our value-added structures. So, we don't have any new plans to build new sites in Q1 of 2021.

[Unidentified Analyst:]

[Kelvin Lau:]

No question.

[Operator:]

Thank you. Thank you. As there are no further questions, I would like to hand the call back to our presenters for any closing remarks.

[Amanda Wang:]

Okay, thank you, operator. If there's no further questions at present, we would like to conclude by thanking everyone for joining our conference call. We welcome you to reach out to us directly by email at [e-mail] should you have any questions or request for additional information. We encourage you to visit our IR website at [e-mail]. Thank you.

[Kelvin Lau:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect now. Thank you.