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On the evening of September 10, Beijing time, 51Talk (NYSE: COE) released its financial results for the second quarter of 2018. The results showed 51Talk's net revenue in the second quarter was 281.7 million yuan, up 46.9% from a year earlier; its operating loss was Rmb076.5 million yuan ($11.6 million), compared with 137.8 million yuan in the same period last year. According to non-GAAP, the operating loss was RMB 0.699 billion yuan ($106 million) and 131.7 million yuan ($131.7 million) in the same period last year.
In the second quarter, 51Talk's cash income was $420 million, up 18.3% from $355.1 million in the same period last year. Gross margin is 65.7%. K-12 accounted for 83.5% of cash income, and 71.9% in the second quarter of 2017. 51Talk focuses on 1 pairs of 1 business cash income of 278 million, an increase of 50.6% over the same period. The proportion of non tier cities continued to increase.
"Following the results achieved in the first quarter, net revenue and cash income in the second quarter exceeded the high end of the expected guidance. We continued to raise gross margins and reduce operating costs, and operating losses decreased by 61 million 300 thousand yuan over the same period last year. Huang Jiajia, founder and CEO of the company, said.
"The strategy focuses on 1 pairs of 1 businesses, and the cash income of the business grew by 50.6% over the same period last year. In the second quarter, we continued to expand our 1-to-1 mass market business, accounting for 66.2% of total cash revenue, 63.2% in the previous quarter and 52.0% in the same period last year. Under the influence of the subsidence strategy of non-first-tier cities, non-first-tier students'cash income accounted for 65.4% of the total cash income of one to one young Filipino students. Our Havo small class business grew rapidly, and the excellent class model brought in $43.5 million in cash, an increase of 17.6% over the previous year. Adult business continues to show steady development trend.
"We are confident in the growth potential of our core business, Philadelphia Youth 1 to 1, because focusing on this market will enable us to allocate resources more efficiently and rationally and increase profit margins. The first half of the operation and financial results laid a solid foundation for the company's sustained growth in the future. Youth 1 to 1 has a huge market, especially in non-first-tier cities. Faced with the growth of demand, we will work harder to create more value for students, partners and investors. Huang Jiajia concluded.
Lai Youming, the company's chief financial officer, added, "In the second quarter of 2018, our revenue and operating results increased year on year. In the first half of the year, the income increased by 55% compared with the same period last year, and the net loss was reduced by 93 million yuan compared with the same period last year. These improvements are mainly due to the optimization of sales and market efficiency. Havo small class business has grown into an important business line, we will provide a pair of 1 and small class financial information, respectively, in order to more clearly show the operation of these two important business lines.
Financial results for the second quarter of 2018
Net revenue was 281.7 million yuan ($42.6 million), up 46.9% from the same period last year to 191.8 billion yuan. The increase was mainly due to an increase in the number of active students, followed by an increase in average net income per active student. The number of active students in this quarter was 195 thousand and 500, up 28.4% from 152 thousand and 300 in the same period last year.
One-to-one net revenue was RMB 254.2 million yuan ($38.4 million), up 32.6% from the same period last year to 191.8 million yuan. The net revenue of Harvard classes was RMB 0.27 billion yuan ($4.2 million), and there was no net revenue data for the same period last year.
Revenue costs were 96.5 million yuan ($14.6 million) compared with 71.2 million yuan in the same period last year, a 35.7% increase over the same period last year. The increase is mainly due to the increase in the total cost of teachers caused by the increase in the number of paid courses taught by teachers.
One-to-one revenue costs 79.8 million yuan ($12.1 million), up 12.3% from the same period last year. The revenue cost of Havo classes was 16.7 million yuan ($2.5 million), and there was no revenue cost data for the same period last year.
Gross profit margin and gross margin
Gross profit was 185.2 billion yuan ($28 million), up 53.6 percent from the same period last year to 120.6 billion yuan.
Gross profit margin was 65.7%, compared to 62.9% last year.
The 1-to-1 gross margin was 68.6 per cent, up from 62.9 per cent in the same period last year, due to a decline in the proportion of American primary schools with low gross margins. Haw's small class gross profit margin is 39.4%, no revenue cost data in the same period last year.
Total operating costs were 261.7 million yuan ($39.6 million), up 1.3% from the same period last year to 258.4 million yuan, partly due to the increase in sales costs and partly offset the decrease in R&D and management costs.
Sales costs were 163.3 million yuan ($24.7 million), up 6.3% from the same period last year to 153.6 million yuan. The increase was mainly due to the increase in brand promotion costs, which were partially offset by a reduction of $17.6 million in sales-related costs under the new accounting standards introduced by the company on January 1, 2008. The non-GAAP sales fee excluding equity incentives was 161.9 billion yuan ($24.5 million), up 6.0% from the same period last year to 152.8 billion yuan.
R&D costs were 44.6 million yuan ($6.7 million), down 12.0% from 50.7 million yuan in the same period last year. The reduction was mainly due to the decrease in RD staff. The reduction of the cost of equity incentive offset some of the effects. Non-GAAP research and development costs, excluding equity incentives, were 42.8 million yuan ($6.5 million), down 17.5 percent from the same period last year, to 51.9 million yuan.
The management fee was 53.9 million yuan ($8.1 million), down 0.4% from 54.1 million yuan in the same period last year. The non-GAAP management fee excluding equity incentives was RMB 50.4 million yuan ($7.6 million), up 5.8% from the same period last year to 47.6 million yuan.
The operating loss was RMB 76 million 500 thousand yuan (US $11 million 600 thousand), a loss of 137 million 800 thousand yuan in the same period last year.
Non-GAAP suffered a loss of 699.9 million yuan ($106.6 million) in operation, compared with 131.7 million yuan in the same period last year.
The net loss was 73 million 700 thousand yuan (US $11 million 100 thousand), a loss of 139 million 300 thousand yuan in the same period last year.
Non-GAAP suffered a net loss of 67.1 billion yuan ($10.1 million), compared with 133.2 billion yuan in the same period last year.
The basic and diluted losses of each ADS (American Depositary Share) belonging to common shareholders were RMB 3.60 yuan ($0.60), compared with 6.90 yuan in the same period last year. Each ADS represents 15 shares of class a common stock.
The basic and diluted ADS losses per share of non-GAAP, which belongs to ordinary shareholders, are RMB 3.30 yuan ($0.45), compared with RMB 6.60 yuan in the same period last year.
As of June 30, 2018, the company held cash and cash equivalents, time deposits and short-term investments totalling 601.5 million yuan ($9,090), and 623.4 million yuan as of December 31, 2017.
As at 30 June 2018, the company's deferred revenue (including both current and non-current components) totaled 1,390.6 billion yuan ($212.2 million), and 1,201.8 billion yuan as at 31 December 2017.
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