51Talk(COE) - 2023 Q1 - Quarterly Report

Introduction and Company Updates The company announced Q3, Q4, and full-year 2022 results, detailing strategic shifts and a legal name change Announcement of Results 51Talk Online Education Group announced its unaudited financial results for the third quarter, fourth quarter, and full year ended December 31, 2022 - 51Talk Online Education Group (NYSE: COE) announced unaudited results for Q3 2022, Q4 2022, and Full Year 2022[1] Strategic Business Changes The company completed the divestiture of its China mainland business, now focusing on international online English tutoring, and adjusted its ADS ratio - Completed divestiture of China mainland business on June 30, 2022, now focusing on international online English tutoring[2] - Legal name changed from China Online Education Group to 51Talk Online Education Group on September 30, 2022[2] - ADS ratio changed from 1:15 to 1:60, effective December 15, 2022[2] Financial Highlights This section summarizes the company's key financial performance metrics for the full year, fourth quarter, and third quarter of 2022 Full Year 2022 Financial Highlights For the full year 2022, 51Talk reported net revenues of US$15.0 million with a gross margin of 78.8%, experiencing a net loss of US$42.5 million Full Year 2022 Key Financial Highlights | Metric | Value (US$ millions) | | :-------------------------------- | :------------------- | | Net Revenues | 15.0 | | Gross Margin | 78.8% | | Net Loss | 42.5 | | Non-GAAP Net Loss | 41.8 | | Net Loss from Continuing Operations | 12.8 | | Net Loss from Discontinued Operations | 29.7 | | Operating Cash Outflow | 45.7 | | Operating Cash Inflow (Continuing Ops) | 1.9 | | Gross Billings | 28.7 | | Cash, Cash Equivalents & Time Deposits (as of Dec 31, 2022) | 23.1 | - The company completed the divestiture of its China mainland business on June 30, 2022; 'Continuing operations' refers to the international business, while 'discontinued operations' refers to the disposed China mainland business[2][4] Fourth Quarter 2022 Financial Highlights In Q4 2022, net revenues were US$5.1 million with a gross margin of 79.0%, resulting in a net loss of US$2.0 million and positive operating cash inflow Fourth Quarter 2022 Key Financial Highlights | Metric | Value (US$ millions) | | :----------------------- | :------------------- | | Net Revenues | 5.1 | | Gross Margin | 79.0% | | Net Loss | 2.0 | | Non-GAAP Net Loss | 1.9 | | Operating Cash Inflow | 0.6 | | Gross Billings | 7.5 | Third Quarter 2022 Financial Highlights For Q3 2022, net revenues reached US$4.6 million with a gross margin of 78.6%, reporting a net loss of US$2.8 million and positive operating cash inflow Third Quarter 2022 Key Financial Highlights | Metric | Value (US$ millions) | | :-------------------------------- | :------------------- | | Net Revenues | 4.6 | | Gross Margin | 78.6% | | Net Loss | 2.8 | | Non-GAAP Net Loss | 2.6 | | Cash, Cash Equivalents & Restricted Cash (as of Sep 30, 2022) | 22.2 | | Operating Cash Inflow | 0.6 | | Gross Billings | 8.2 | Management Commentary and Business Outlook This section provides insights from the CEO on 2022 performance and strategic direction, along with key financial data and Q1 2023 outlook CEO's Remarks on 2022 Performance and Strategy CEO Jack Jiajia Huang highlighted 2022 as a "new beginning" for 51Talk, marked by strategic divestiture, international focus, and AI integration - FY2022 marked a "new beginning" with 100% of revenues from international markets after China mainland business divestiture[9] - Intensified localization efforts and deployed marketing/operational personnel in selected international markets from Q3 onwards[10] - Began integrating ChatGPT into products and operations to build around personalized education, believing AI-powered tutors will transform online education[11] - International business achieved positive operating cash flow during Q3 and Q4, demonstrating strong execution of sustainable growth strategy[11] Key Financial and Operating Data Summary A summary table presents key financial and operating data for Q2, Q3, Q4, and the full year 2022, illustrating trends in revenues, margins, billings, and active students Key Financial and Operating Data (US$ millions, except Gross Margin and Active Students) | Metric | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Net Revenues | 3.5 | 4.6 | 5.1 | 15.0 | | Gross Margin | 79.2% | 78.6% | 79.0% | 78.8% | | Gross Billings | 7.8 | 8.2 | 7.5 | 28.7 | | Active students with attended lesson consumption (in thousands) | 14.9 | 19.5 | 22.8 | 26.2 | Outlook for Q1 2023 For Q1 2023, 51Talk anticipates international business net gross billings between $8.0 million and $8.2 million, reflecting significant sequential and year-over-year growth - Expected net gross billings for international business in Q1 2023: $8.0 million to $8.2 million[24] - Projected sequential growth (QoQ) for Q1 2023 gross billings: 6.2% to 8.9%[24] - Projected year-over-year growth (YoY) for Q1 2023 gross billings: 51.2% to 55.0%[24] Detailed Financial Results This section provides a comprehensive breakdown of the company's financial performance for the third quarter, fourth quarter, and full year 2022 Third Quarter 2022 Financial Results In Q3 2022, net revenues were US$4.6 million, with a gross profit of US$3.6 million and a net loss of US$2.8 million Third Quarter 2022 Financial Performance | Metric | Value (US$ thousands) | | :------------------------------------------ | :-------------------- | | Net Revenues | 4,593 | | Cost of Revenues | (984) | | Gross Profit | 3,609 | | Gross Margin | 78.6% | | Total Operating Expenses | (6,187) | | Loss from Operations | (2,578) | | Non-GAAP Loss from Operations | (2,373) | | Net Loss | (2,802) | | Non-GAAP Net Loss | (2,597) | | Basic and Diluted Net Loss per ADS | (0.50) | | Non-GAAP Basic and Diluted Net Loss per ADS | (0.46) | | Active Students | 19,500 | - As of September 30, 2022, total cash, cash equivalents, and restricted cash stood at US$22.2 million, with advances from students at US$13.2 million[17] Fourth Quarter 2022 Financial Results In Q4 2022, net revenues increased to US$5.1 million, generating a gross profit of US$4.0 million and a net loss of US$2.0 million Fourth Quarter 2022 Financial Performance | Metric | Value (US$ thousands) | | :------------------------------------------ | :-------------------- | | Net Revenues | 5,051 | | Cost of Revenues | (1,062) | | Gross Profit | 3,989 | | Gross Margin | 79.0% | | Total Operating Expenses | (6,162) | | Loss from Operations | (2,173) | | Non-GAAP Loss from Operations | (2,064) | | Net Loss | (2,002) | | Non-GAAP Net Loss | (1,893) | | Basic and Diluted Net