51Talk Online Education Group (COE) Earnings Call Transcript & Summary

Hello, and welcome to the Deutsche Bank Depositary Receipts Virtual Investor Conference, dbVIC. I'm Zaf Aziz from the Deutsche Bank team. I'm pleased to announce our next presentation will be from 51Talk Online Education Group. [Operator Instructions] All today's presentations will be recorded and can be accessed via the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome 51Talk Online Education Group that trades on the NYSE under the symbol COE.

Good morning. My name is David Chung, and I'm the Vice President of Investor Relations at 51Talk. Thank you for joining us today. So in the next 5 to 10 minutes, I'll be walking you through how 51Talk as an NYSE American-listed company, our ticker code is COE, is combining localization, technology and people in building an online education business globally. After that, we can open the floor for questions. So let's start with the big picture. 51Talk is an AI-driven EdTech platform serving young learners around the world. We're not just offering English lessons. We're providing an integrated adaptive learning experience that combines proprietary curriculum, high-quality tutors and advanced technology. Our goal is to make high-impact education accessible and relevant in every market we enter. What makes our platform different is our integrated approach. We've built our solution on 4 pillars: a proprietary curriculum with over 500 hours of refined content, a rigorous AI-enhanced tutor recruitment process, $100 million already invested in our proprietary technology platform and a 360-degree parent and student support model. In the next couple of slides, you'll see how each pillar reinforces the others to deliver the results for students. First, our curriculum is fully animated, interactive and aligned with CEFR global standards. Second, our tutors are selected through a stringent process, with only the best making it through. Every tutor then benefits from AI tools and ongoing training, ensuring quality and consistency at scale. Third, our proprietary technology platform is robust and scalable. We have low-latency videos, gamified classrooms and features like virtual makeup for tutors. Then finally, our 360-degree support ensures every student has a personalized learning path and ongoing guidance from a dedicated learning partner, maximizing both engagement and satisfaction. Local presence means local adaptation. In every market, our curriculum is customized to fit local school requirements and cultural expectations. Local teams provide direct support and guidance, and the marketing is tailored to reach parents and students where they are. This proven approach has helped us build trust and drive engagements in diverse regions from East Asia to the Middle East and beyond. AI powers every part of our operations. Our tech stack includes LLMs, proprietary infrastructure and advanced automation, supporting everything from telemarketing to personalized student support. We've developed tools for tutor screening, lesson personalization and adaptive feedback, all designed to improve efficiency and outcomes. Let's look at some highlights with our AI applications. In tutor recruitment, AI evaluates pronunciation and accent. For every new hire, AI assists in screening, interviewing and training, reducing cost and speeding up onboarding while maintaining high standards. AI also enables truly personalized learning for our students. Every student receives an individualized model and learning path with real-time feedback through features like AI coaches, lesson memos and situational practices. This personalization drives better engagement, faster progress and high satisfaction. Our sales process is also optimized by AI, which has already improved our conversion rates and reduced idle times during the sales process. AI supports tutors during lessons, helping them deliver high-quality instruction. We also recently saw our first paying student complete an AI-powered trial class without human -- actual human interactions. Turning to our numbers. Following our China business divestment, we're now fully focused on international markets. We are audited in the U.S. and headquartered in Singapore. Revenues are growing, margins consistently exceed 70%, and our cash position is strong. We're expanding with discipline, focusing on profitable and sustainable growth, not just headline numbers. To close, 51Talk is uniquely positioned at the intersection of global reach, local expertise and cutting-edge applications of AI. We are committed to unlocking long-term value in the EdTech sector, one student, one market at a time. So thank you for your time, and we'll now open up the floor for questions.

Okay. We see a few questions already. We'll start off with this one. So this one is one that we get asked quite often. So we will begin with this one, which is basically our growth potential and profitability in the next couple of years, 2025, '26. So in each quarter, when we release our quarterly results, we do give a guidance for the next quarter. So right now, for the first quarter of 2025, our gross billings expectation is between USD 21.5 million to USD 22 million. We set for continued growth year after year, focusing on our core K-12 one-on-one lessons, English learning for our K-12 students and through basically continuing to increase student numbers for that core product. We are continuing to push hard to become market leaders in the key markets that we operate in. And throughout the next couple of years, we see growth to continue by our continued localization efforts, as mentioned in the presentation earlier. And we just -- and with our efforts to continue to tailor our offerings to local needs. In terms of profit, our goal has always been sustainable growth. We -- for each quarter, we target positive or at least breakeven operating cash flow. So definitely, the target is to have positive cash flow for the full year of 2025. Okay. Just moving on to the next question. We'll take this one. This one is -- it's an interesting one. So can we become a really big company in the long term? We think in theory, definitely, yes, because the EdTech, the education market, it's -- as a sector, it's very large, and it continues to grow. And right now, we're just really addressing one niche area in this particular segment, which is K-12 English learning. But in practice, we believe we've been in the business for a long time, and we believe it takes strategy and execution. So from our experience, it's really down to 3 key areas. The first one is education is a local business. So every market has different school systems. Students behave differently. They have different learning habits. And parents have different expectations, different habits as well. So our strength is actually our centralized operations infrastructure, which can be replicated across different markets. And when we enter a new market, we send our experienced team there, build out the local teams, hire locals. So we are getting a blend of a scalable product platform. But at the same time, we are localizing that product to feed the needs of the local students and parents. And we do the same for marketing as well. So the marketing is localized. And with that blend, we haven't seen anyone in the market that can really do that better than us. Secondly, in terms of the technology is definitely very important. So in particular, with AI, AI would define the quality of EdTech products in the coming years. There's no doubt about that. So for us, our R&D hub is in Beijing. And China has always been and is a global leader in EdTech. We have a strong brand name in China because of our history. So to us, we have access to some of the best talent out there in EdTech, in technology. And that just makes us being able to develop a leading product for students globally. And then thirdly, we think, of course, AI will continue, will -- is already and will continue to do a lot of the job, but we believe that AI will not complete the full job. Maybe it can do maybe about 80% of the job. But for the remaining 20%, which is the critical 20%, humans are still needed for that part, in particular, for our business, which is teaching preschool, primary school-age students. And we have the most experience in training and operating a large teacher force at scale. And we haven't seen anyone doing this better than us as well. So in short, we believe we have everything it takes to succeed, and it will depend on us if we're able to execute this strategy well. Okay. So the third one is kind of a follow-up to the second question, and it's something that we get asked quite often as well, so we'll address it here. So how will AI affect our business? So online education is clearly one of the industries that will be most affected by AI. AI will change everything that we do. But exactly when and how, it's still anybody's guess right now. And we are working hard. There's a lot of very good, smart people working hard around the world to address this problem. And some of them, they work for us. So in order to make sure we don't fall behind, we are already using AI to improve everything that we do with the existing product. So we have AI tutors. We have AI sales agents. We create AI study reports, and we use AI to customize courses. So if you imagine what's possible, we are probably doing a lot of it right now already. And as a second stream, we make soft launches on products that don't require human at all. So this helps us to continue to learn how students interact with AI, how the product can be improved and maybe, in the longer term, even replace some of the existing features or products that we have right now. So ultimately, who will decide, it's really the students. And for us, it's the 5- to 6-year-old child, keeping them engaged and motivated for 30 minutes. That's our -- that's always been our job and what the parents expect from us. So it's not just about knowledge transfer. It's about keeping the child engaged and being able to be confident enough to speak and open their mouth and interact in a new foreign language. And that's something that we have a track record of doing really well, and we believe that AI will just continue to make us do this better and better over time. Okay, just scrolling through the questions. So there's one follow-up question about R&D, AI technology spending. So we'll address this as well. So the question is our R&D expense is probably lower than some of the listed EdTech peers. So how do we still come up with a competitive product with -- when we're spending less compared to our peers? So remembering, we've been a large company before 2021, before the double reduction policy in China. And so we have spent a lot of money, as mentioned in the presentation, more than USD 100 million already in product -- in our product development. Our R&D hub is in Beijing. And so the cost of that compared to other parts of the world, it's competitive. And -- but that's not to say that the results, the products that they develop are on par, the quality of the products are on par and are probably even better than some of the best products around the world globally. And we are always an early adopter of the technologies. So while we don't -- obviously, we don't engage in the fundamentals, LLM developments. But we do use and combine third-party LLMs and the AI technologies that's available and customize that technology, combining them to make -- to -- with our understanding of our student needs, combining these to make sure that technology, the application of that technology addresses the real needs of our students. So we think this allows us to continue to keep our technology spending at a relatively low level. But at the same time, we have new technologies that's available, that can be -- that improves our students' user experiences overall. So I hope that answers the question. Okay, here is another interesting one. So we'll talk about this one as well. So why should someone buy -- invest in a tiny nano stock with no liquidity? It's the question. And you're right, you probably shouldn't. But -- so we should all be cautious when looking at small cap companies and without that liquidity. And if you're a mutual fund, you're probably not allowed to invest in us. So we've spoken to sort of large institutional investors that have different mandates that's maybe we're not included in that investment list. But if you do invest in us, there are probably 2 key reasons. The first one is we have a very good product. We have a good track record. And most of our students are happy with the product and so are the parents. The second point is that we have -- as mentioned, we have a very good track record. We have a history, and we will not stop. We will continue to cover more countries. We'll cover more subjects. We'll continue to make ourselves better one step at a time. And if you look at our business model, we don't grow by raising money. We grow by using the sales proceeds from our students that uses and pay for the products. We grow by that sales revenue. And we believe that's probably the best guarantee that you can have. That's our -- that we have a product that's relevant, that's needed, that's well liked by our students in this fast-changing environment. Okay. I think almost time. So I'll just do one more question here. So this question is about our China business. So do we still have a China business? If not, are there any possibilities of reentering? So this is one that we get asked quite a lot as well. So just to clarify, so you probably have seen some of the Chinese EdTech companies sort of picking up again. And probably compared to when the first -- when the double reduction policy was first announced compared to now a few weeks later, probably some of that policy has become sort of less strict or slightly changed. But for us, the core business remains that we use foreign teachers to teach our students. And so with that, we don't expect the policy to sort of change right now to allow for that. In terms of -- so in terms for us, China, it's more about us using the talent there, our R&D capability that we've mentioned before, being able to use that talent and capability to really build out a product -- and with our history and experience to really build out a product that we believe can teach students, that students will like around the world. And right now, we're doing a lot of localization. So really using -- so really just combining all that, Chinese R&D hub, building the product, teaching students in a localized way. And we believe not -- we believe we're very unique in that sense. So we don't see a lot of competitors being able to combine that and make it work. The education business market, as we see, even without China is still large. And so right now, we see we're continuing to create more shareholder value just by building our overseas business and building higher entry barriers in the markets that we're doing well already. And we believe we're creating more shareholder value from doing that instead of the sort of intense competition in China compared to before. But of course, the environment can change, and in the future, it may make sense for us to serve Chinese students again with some of the technology products that we continue to develop. But right now, that's not going to be -- that's not our focus right now. So I think that's time. Thank you. So if you have further questions, which I still see a few more questions here. If anyone's got further questions, please feel free to continue to send over, and we'll address those questions off-line. Thank you very much.