YXT.COM Group Holding Limited (YXT) Earnings Call Transcript & Summary

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to YXT.COM's earnings conference call. [Operator Instructions] Please note that today's event is being recorded. Joining us today are YXT's CEO, Director, Founder and Chairman, Mr. Xiaoyan Lu, also called Peter; CFO, Mr. Shen Cao; and Chief Growth Officer, [ Allan Wang ]. Peter will begin with a brief greeting, and then Mr. Cao will present the CEO's prepared remarks on his behalf. Following that, Mr. Cao will provide a detailed overview of our financial performance for the year. You can refer to YXT.COM's H1 financial results on IR website at ir.yxt.com. You can also access a replay of this call on the IR website when it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statements in our earnings press release, which also applies to this call as we will be making forward-looking statements. Please note that all numbers stated in the following management's prepared remarks are in RMB terms, and we will be discussing non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC. I will now turn the call over to the CEO, Director, Founder and Chairman of YXT.COM, Peter.

Hello, everyone. This is Peter Lu, CEO of YXT.COM. Thank you for joining us today.

Hello, everyone. This is Shen Cao from YXT.COM. Speaking on behalf of our Founder and CEO, Peter. Welcome to YXT.COM 2025 H1 Earnings Conference Call. Thank you all for joining us today. Firstly, let's take a moment to look at what's happening across our industry. The corporate learning industry is doing its most significant transformation in decades, driven by the rapid adopting of artificial intelligence, AI. Intelligent, adaptive and data-driven learning ecosystems are replacing traditional training methods. AI is not just enhancing existing processes. It's fundamentally changing the way organizations develop talent, keep critical knowledge in-house and stay ahead in a disrupted world. The shift driven by AI even goes beyond the training industry. It presents the first-ever opportunity in which workforce enablement has more meaning -- has more means than just learning and development. Traditionally, training that's focused on teaching know what was often considered as a cost center with difficulties evaluating ROI. AI-powered development activities can provide know-how in a copilot manner and are now recognized as a strategic lever for driving innovation, agility, and growth. Organizations that embrace this transformation are building more resilient workforces capable of adapting to rapidly changing market conditions and technological advancement. Then let me walk you through our financial results. Over the first half of 2025, we have made deliberate decisions to reposition YXT.COM for sustainable and high-quality growth. This has involved shifting our focus towards large enterprise clients prioritizing scalable and higher-margin solutions, particularly in AI and optimizing our cost structure. While these changes have impact specific short-term metrics, they are already driving measurable improvement in profitability and operational efficiency. Let me walk you through the details. Before we go through the financial results, let me note that all amounts are in RMB terms for the first 6 months ended June 30, 2025, and all comparisons are on a year-over-year basis, unless otherwise noted. Our total revenue declined by 7.8% year-over-year to RMB 152.9 million compared to the same period of last year, but this figure must essential nuances. The decrease was primarily driven by 2 factors. The first one is our strategic shift. We intentionally reduced our exposure to small- and medium-sized businesses, which had a higher churn and low lifetime value. This resulted in a net reduction of 123 subscription customers down to 2,358, but the remaining clients are larger enterprises with more stable demand. The shift is also reflected in our net revenue retention rate, which moderated to 100.3% from 102.8% in the same period of last year, still demonstrating strong retention, albeit without a temporary boost from smaller customers. In terms of our business model, we further streamlined our revenue mix with subscription-based corporate learning solutions now accounting for 94.6% of total revenue, RMB 144.7 million, a decline of non-subscription revenue down 39% year-over-year to RMB 7.7 million. In line with our strategic focus, focus on reducing lower-margin offline services and building recurring scalable revenue streams, notably, our AI-related product. Monthly recurring revenue more than doubled to RMB 0.5 million up to RMB 0.2 million last year, a clear sign that our investments in AI are yielding measurable impact and will play a large role in future growth. Despite the decline in revenue, we achieved a 4-percentage point improvement in gross margin, reaching 65.1%, this expansion was fueled by our enhanced operational efficiency and optimized product mix. Our cost of revenues fell by 17.1%, mainly driven by lower staff expenses, optimized third-party infrastructure and reduced reliance on costly offline solutions. Higher-margin subscription and AI products now represents a growing share of our revenue, driving improved profitability. We achieved meaningful cost reductions across key operating areas with skills and marketing expenses declined 13.5% year-over-year through declined headcount optimization and process improvements. Similarly, our R&D expenditure decreased 19.2% as we enhanced development productivity and focused resources on higher priority initiatives. The G&A line item increased 20.5% was primarily due to the increase of professional service fees and the share-based compensation expense from our January 2025 long-term incentive plan. While the share-based incentive plan creates a short-term cost pressure, we view these equity grants as a critical investment in retaining and motivating our leadership team to execute our multiyear growth strategy. On a GAAP basis, we reported a net loss of RMB 73.9 million compared to net income of RMB 21.4 million in the same period of last year. However, last year's profit included a one-off RMB 78.8 million gain from the deconsolidation of CEIBS PG. Our adjusted net loss improved by 15% year-over-year to RMB 64 million, demonstrating tangible progress in core operations. We ended the period of RMB 235.7 million in cash and short-term investments, down from RMB 418.2 million at year-end 2024. This reduction reflects planned investment in AI R&D and working capital needs but remain well capitalized with a disciplined approach to debt management. Moving forward, our strategy remains centered on 3 pillars. First, we will deepen enterprise relationships by delivering more value to our large clients to improve retention and revenue. Second, we continue to scale our AI solutions with early results confirming their potential as a powerful driver of both growth and profitability. Third, we remain committed to cost management and strike the right balance between optimizing our existing expense structure and make targeted investments in direct delivers the higher returns. We are seeing clear progress in executing our strategy, and we are confident these efforts will drive sustainable, profitable growth and moving forward. Thank you for joining us today. We are now very happy to answer your questions.

[Operator Instructions] Our first question comes from William Lu, an individual investor.

This is William. And I'm an individual investor. I want to ask a question for our CFO, Mr. Cao. You mentioned that in this presentation that the gross margin of our company has increased by 4 percentage points to 65% in the first half. So I really want to know what specific improvements in operation or product innovation has contributed to your expansion. Is this still continue in the second half of the year?

Thank you. The improvement in gross margin is a direct outcome of our efforts to boost operational efficiencies, including optimizing our product mix and reducing reliance on costly offline solutions. By focusing on higher-margin subscription and AI products, we have improved profitability while maintaining product quality. We believe the structural shift on our revenue mix provides a sustainable margin profile going forward. In addition to shift towards higher-margin solutions, we had made significant cost reductions in our cost of revenues, including optimizing third-party infrastructure and reducing staff expenses. These actions have allowed us to expand our margins despite the revenue decline. We anticipate that the trend driving margin expansion, such as the growing share of AI and subscription-based products will continue into the second half of this year.

Our next question comes from the line of [ Duncan Yi ] of Five Arrows.