China Online Education Group (NYSE:COE) Q1 2019 Earnings Conference Call Transcript

Jun 14, 2019 • 08:00 am ET

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China Online Education Group (NYSE:COE) Q1 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

We will now begin the question-and-answer session. (Operator Instructions) The first question comes from (inaudible) of Oppenheimer. Please go ahead.

Analyst
Unidentified Participant

Hi management. Good evening. Thanks for taking my question. I have two questions here. One, is we gained pretty cool operating leverage in 1Q, and then could you kind of explain what was the reason behind that operating leverage gain? And then should we expect the operating expenses, as a percentage of total revenue continue to go down throughout 2019? And then my question number two is, for your 2Q guidance, actually implies a sequential deceleration of the gross billings, the management -- with more color on that? Thank you very much.

Executive
Min Xu

Thank you for the question. So number one, we did see good leverage -- good operating leverage, because we are working very hard. As we indicated in the last few earnings calls, we're working very hard to improve our sales efficiencies. And in fact that we did achieve that through a lot of optimization. And so we believe the key is that we really start to see efficiency improvement in our sales marketing. And our Q1 non-GAAP sales and marketing expenses was 39% of our gross billing for our one-on-one business, much better than 48% in Q1 2018. And we believe we are going to see the benefit of our previous optimization and efficiency improvement measures. And we will continue to improve that.

And for the second question, you mentioned that our Q2 guidance indicated a deceleration our gross billing. So I would say, in a sense, yes. From the number, we do see it is slowing down compared to Q1. However, remember Q1 we are comparing to a relatively weak 2018 Q1 quarter. And so it is hard to kind of continue that kind of growth. So we do see our -- because we're seeing continued growth improvement throughout 2018. So starting Q2, we are comparing to a much better performance in terms of our gross billing. So we do expect our healthy growth to continue and drive our our non-tier-one city expansion. And we do expect that as we continue to deepen our penetration in non-tier-one cities, we will see continued growth, while improving our bottom line.

Analyst
Unidentified Participant

Got it guys. That was very helpful. Thank you.

Executive
Min Xu

Thank you.

Operator
Operator

The next question comes from Zhonghai Yu of CICC. Please go ahead.

Analyst
Zhonghai Yu

(Foreign Language) So my first question is the same question. How do you see the trend of your user acquisition cost? Is it going up or down? Like can you give us, like free range of like it rose by about 5% over the same time YoY like this. And my second question is about the competitive landscape. Well given that we have very unique positioning, than we had had in tier-three to tier-four cities. Who do we see as our main competitors? And how is going between we and other players? Thanks.

Executive
Min Xu

Thank you Zhonghai. So I'll answer to the first question and Jack will answer