Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to QuantaSing's Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be hosting a question-and-answer session after management's prepared remarks. Please note that today's event is being recorded. I will now turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Please go ahead, ma'am.
Thank you. Hello everyone, and welcome to QuantaSing's earnings call for the second quarter of fiscal year 2024. With us today are Mr. Peng Li, our founder, chairman, and CEO, and Mr. Tim Xie, our CFO. Mr. Li will provide a business overview for the quarter, then Tim will discuss the financials in more details. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session. I will translate for Mr. Li. You can refer to our quarterly financial results on our IR website at ir.quantasing.com. You can also access a replay of this call on our 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 statement 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 discuss 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 and founder of QuantaSing, Mr. Li.
Okay. Hello everyone, and thank you all for joining us today. Last quarter, we saw a solid 24.7% increase in revenue, proving that our strategy to expand our course offerings is paying off. Following the past success of our Financial Literacy Courses, we have been actively adding new courses to diversify our revenue streams. We are also seizing the opportunity presented by growing demand for courses made for senior learners. We adjusted our revenue presentation under other personal interest courses this quarter. We further broke down other personal interest courses into Skills Upgrading Courses and Recreation and Leisure Courses. We think the new revenue breakdown better reflects our business strategies and can provide useful and updated information to investors. Under the new breakdown, Skills Upgrading Courses mainly include courses for training productive skills, such as short video production courses and memory training courses.
Recreation and leisure courses mainly include more personal enrichment courses, such as personal well-being courses, electronic keyboard courses, and standing meditation courses. Now, let's pivot to discuss some new developments and initiatives with our organization. Recent government data has highlighted the strong growth of China's elderly population. China had over 297 million people aged 60 and above in 2023, which was 21.1% of the total population. As such, China has officially become a super-aged society by World Bank standards. The silver economy is currently valued at around RMB 7 trillion, $982 billion, and is focused to surge to RMB 30 trillion, $4.2 trillion by 2035. This would make up roughly 10% of the country's total GDP, according to China National Radio. The evolving needs and desires of middle-aged and elderly people in China represent a significant opportunity for us.
This is growing demand for personalized services in the silver economy sector. In a positive move, the government recently introduced measures to strengthen the silver economy. This initiative urged enterprises to enhance their offerings for the elderly population. For example, to enhance digital services, thousands of websites and apps are being revamped, and standards are being established for senior-friendly mobile devices. This development is also beneficial for us, as it will enhance the learning experience for our users from a hardware perspective. We are proud to have anticipated this shift in demand. We have been preparing for these opportunities for years. Our team has built a solid foundation and a mature business model, and we are well positioned to meet this growing demand. As living standards improve, middle-aged and elderly people seek more than just health or longevity. They want experience that will provide cultural and intellectual enrichment.
Our diverse range of online courses includes many which are tailored to the interests of this demographic. Our platform is dedicated to lifelong learning, and we have always emphasized user engagement and satisfaction. This means we are all equipped to fulfill user desire for intellectual stimulation and personal growth. Now, let's move on to our ongoing efforts to enhance user engagement and satisfaction. We've been diligently engaging our learners in a variety of offline and online initiatives, leveraging the power of AI to elevate users' learning experiences. Additionally, we utilize our scalable self-operated system to boost learners' repurchase rates. We have hosted a series of community events surrounding our recreation and leisure courses. These events include standing meditation sessions and appreciation sessions for pursuits like electronic keyboard and calligraphy. We provide ample opportunities for interaction, communication, and personal enrichment for our middle-aged and elderly users.
For example, our recent initiative involved offering complimentary trial courses to residents of a community in Beijing. Our offline and online initiatives have resulted in constantly high levels of user engagement. Attendees of our sharing sessions speak highly of the valuable knowledge they gain from instructors and peers during events. We have received lots of positive feedback from participants for both our online courses and offline activities, especially from elderly learners. They express deep appreciation for activities like calligraphy and standing meditation, and recognize them as valuable opportunities for personal growth and learning. This feedback highlights their strong desire for spiritual and cultural enrichment, which emphasizes the importance they place on these experiences. Among the variety of measures we have used to apply AI in our business, we have successfully enhanced live streaming quality using AI, improving both visual clarity and stream stability.
Additionally, we have leveraged AI in our online tutoring system by intelligently identifying and anticipating learners' behavior. As a result, learners have been able to significantly reduce their waiting time during Q&A sessions with our tutors. Our commitment to learner satisfaction is closely followed by a more efficient approach to retaining our learners. Recently, we upgraded our integrated business management process and conducted pilot testing before rolling it out to more SKUs. Our tutors can now easily manage tasks like one-click class reminders and optimizing private domain traffic. By doing so, we not only increase our course completion rates but also enhance overall repurchase. For example, the repurchase rate of our standing meditation course has improved from 26.2% in last fiscal year to an impressive 34.7% in this quarter. We aim to streamline the operation system across all SKUs and to maximize user retention on our platform.
Next, let's turn to our efforts to increase operational efficiency while growing our top line. We remain focused on streamlining process and optimizing resource allocation. By carefully investing in sales, marketing, and leveraging technology, we aim to enhance our market presence. Our test and scale approach ensures efficient results utilization, minimizes financial risk, and allows us to seize market opportunities. At present, we are focused on streamlining processes and resource allocation to boost cost efficiency. We aim to ensure that the quality of our services also remain top-notch. We have managed to limit our relative growth in headcount. This demonstrates our ongoing commitment to prudent resource management. Moreover, we are assembling a new team in Hefei. We efficiently capitalized on the cost advantages of operating in that region, but not limited to labor cost and administrative expenses. We also made improvements to our operational system.
Specifically, we developed our own instant messaging system, which has been officially deployed this quarter. The strategic move not only significantly reduced our operational expenses but also enhanced real-time interactivity among learners. We achieve highly efficient sales and marketing by leveraging technology. We are carefully allocating resources to enhance our market presence. For example, we leverage tech including big data and our advanced operational systems to create diversified and effective marketing channels. During this quarter, we upgraded our technologies so we were able to reach paying users more efficiently. Meanwhile, we are employing a test and scale methodology. For this methodology, we invest modestly in new initiatives such as new course offerings, marketing campaigns, and live e-commerce product offerings. Then we assess the ROI. We only take steps to process and expand the initiative if the ROI exceeds our expectations.
This data-driven decision-making process maximizes our resource allocation and minimizes the financial risk for new initiatives. Also, by collecting feedback from the market and our customers, we gain a better understanding of their needs. This broadens our reach and enhances our ability to address shifting demand. The flexibility of our business model allows us to scale up our operations without sacrificing cash flow. Ultimately, this enables us to seize market opportunities as they arise. In addition to our ongoing efforts to drive revenue growth and maintain cost efficiency, we are actively purchasing and pursuing new initiatives that offer significant potential for expanding and diversifying our business. Live e-commerce and overseas markets are important to broaden our revenue streams. Thus, we have launched a number of strategic initiatives in these areas. Live e-commerce provides an interactive platform to enhance sales and driven customer engagement.
Recognizing this, we are currently leveraging live e-commerce to strengthen our online presence and increase our market share. We are also developing private label products that prioritize innovation and customer satisfaction. The recent launch of our private label Chinese Baijiu brand, Yunting, is one example. Meanwhile, our focus on overseas expansion aims to access new markets and demographics, thereby diversifying our revenue streams and broadening our market reach. We are carefully planning our expansion strategy for sustainable growth. Kelly's Education serves as a key trial venture preceding broader international expansion efforts. We are closely monitoring its process to refine our strategies and inform further expansion plans, ensuring a prudent and well-informed approach to scaling our international operations. In conclusion, the second quarter of our fiscal year, 2024, demonstrated strong revenue growth.
Reflecting the success of our strategic initiatives, we have taken steps to diversify our course offerings and to cater to burgeoning demand for middle-aged and senior learners. We are also actively pursuing new opportunities in live e-commerce and international markets while still maintaining a lean and efficient operational model. With a focus on innovation and prudent resource management, we are well-positioned to sustain our growth trajectory and deliver lasting value to our shareholders. With that, I will turn the call over to Tim to discuss the details of our financials. Thank you.
Thank you. Before I go into the details of our financial results, please know that all amounts are in RMB terms, that the reporting period is the second quarter of fiscal year 2024, ending on June 30, 2024, and that in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations. For the second quarter of fiscal year 2024, we grew our total revenues by 24.7% year-over-year and 12.8% quarter-over-quarter to CNY 980.5 million, mainly driven by growth from Skills Upgrading Courses. Among our revenues, revenues from individual online learning services grew by 24.1% year-over-year to CNY 873.6 million or 89.1% of total revenues, mainly due to continued demand for Skills Upgrading Courses. Our gross billings of individual online learning services increased by 15.4% year-over-year to CNY 944.6 million.
Revenues from enterprise services were CNY 57.6 million, a 30% year-over-year change, and representing 5.9% of total revenues, primarily due to a decline in revenues from related party transactions. Gross profit was CNY 835.5 million, representing a gross margin of 85.2% compared to 87.4% in the same period last year. Total operating expenses were CNY 733.2 million compared to CNY 731.7 million in the same period last year. To break this down, sales and marketing expenses were CNY 657.1 million, representing a 5.5% year-over-year change. The change is mainly due to our increased spending on outsourcing labor and marketing efforts. The increase is partially offset by a decrease in our staff costs, which also included a decrease in share-based compensation. As a percentage of total revenue, non-GAAP sales and marketing expenses, which excluded share-based compensation, decreased to 68.6% from 77.3% a year ago.
Research and development expenses were RMB 41 million, representing a decrease of 36.2% year-over-year, primarily driven by a decrease in share-based compensation. As a percentage of total revenue, non-GAAP R&D expenses, which exclude share-based compensation, decreased to 4% from 5.6% a year ago. General and administrative expenses were RMB 35.1 million, representing a decrease of 21.3% year-over-year, primarily due to decreases in share-based compensation and office expenses, partially offset by an increase in professional service fees. As a percentage of total revenue, non-GAAP G&A expenses, which excluded share-based compensation, decreased to 2.8% from 3.1% a year ago. Net income was RMB 107.6 million, excluding share-based compensation. Adjusted net income was RMB 103.9 million, representing an adjusted net margin of 10.6% during the quarter. Basic and diluted net income per share were RMB 0.65 and RMB 0.64, respectively, during the quarter.
Adjusted basic and diluted net income per share were CNY 0.63 and CNY 0.62, respectively, during the quarter. Turning to our balance sheet, as of December 31st, 2023, our company held CNY 1,050.8 million in cash and cash equivalents and short-term investments, compared to CNY 930.6 million as of June 30, 2023. Lastly, I want to provide some color on our outlook. For the third quarter of fiscal year 2024, which ends on June 30, 2024, we expect revenues to be between CNY 900 million and CNY 930 million, representing a year-over-year increase of between 11.5% and 15.2%. These projections take into consideration the current market conditions prevailing in the industry. In summary, our steadfast commitment to delivering exceptional online learning experiences and a broad spectrum of courses, coupled with our focus on cost efficiencies and cash flow optimization, delivered solid results this quarter.
Our expansion efforts are executed with a keen eye on maintaining profitability as we continue to create long-term value for our shareholders. Looking ahead, our strategic direction will remain aligned with our dedication to sustainable growth. That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. When asking a question in Chinese, please translate your question in English for the convenience of everyone on the call. For the benefit of all participants, please ask one question at a time. Our first question comes from the line of Howard Halpern of Taglich Brothers. Please go ahead.
Congratulations, guys. Great, great quarter. In terms of your live e-commerce offering, you talked about, I guess you announced in January the first private label brand. So how is this offering being received, and are we going to see additional private label offerings launched throughout the year to continue the growth in that segment?
Thank you, Howard. I have also this question. Regarding our recent introduction of Yunting, our first private label Chinese Baijiu brand within our live e-commerce offering, we are pleased with the initial reception it has received. Yunting represents a significant milestone for QuantaSing as it marks our entry into the private label business through the live streaming, leveraging our expertise in live streaming e-commerce. The response from our customers has been positive, with many expressing appreciation for the rich taste and quality of Yunting Baijiu. The limited edition gift box, especially designed for the Chinese Lunar New Year with dragon-themed packaging, has resonated well with consumers, symbolizing good luck and future success. And also, I think we still need time to test the market and to try this kind of private label live e-commerce business.
And then this becomes more evidence that the private label business is the positive review, continue our test and scale approach and business strategy to enlarge this kind of business. As for the future plans, while we don't have specific announcements to make at this time, we are actively exploring opportunities to expand our private label offerings through the year. We recognize the importance of providing unique and high-quality products and services to our customers. And the launching of Yunting reinforces our confidence in pursuing additional private label initiatives. I think based on our large customer base and also our business strategy to launch the businesses catering to the needs of our this suitable to the customer's demographic and profile, I think in the future, we will do more efforts for this kind of private label e-commerce business.
We will notice and we will publish any significant news in the future, if any. Thank you.
Okay. Thank you.
The next question comes from Hunter Diamond of Diamond Equity. Please go ahead.
Firstly, congratulations on the results. It was noted that QuantaSing's live e-commerce segment has been demonstrating promising growth. Could you elaborate on some of the key performance metrics that underscore this growth? And then additionally, what strategic initiatives are being implemented to capitalize on this momentum?
Yeah. I think I will ask my CEO to answer this question. Matt will answer in Chinese. Leo will help translate.
Okay. Thank you for your question. I'll speak Chinese. [Foreign language]
Our live e-commerce business has shown promising growth with key performance metrics such as the average order value, repeat purchase rate, and paid users and GMV. It strategically aligns product offerings with course content, enhancing relevance and value for our users.
[Foreign language]
For example, for the health management courses, we introduce complementary products like Moxa Sticks. For the short video editing courses, we pair the course content with software services. This approach ensures synergy between the education and also consumer goods, optimizing the customer experience and engagement.
[Foreign language]
In addition, we leverage our robust customer base, our operational capabilities, and the tech structure so that we can expand offerings beyond the course-related products, such as Baijiu. This means that we are seizing the opportunities to diversify and extend our product range in line with the evolving market demands. This approach is quite flexible and underscores our commitment to delivering comprehensive solutions and capitalizing on growth opportunities in a live e-commerce landscape.
Okay. That's all.
The next question comes from Steve Silver of Argus Research. Please go ahead. Steve, your line is open on our end. Are you muted on your end?
Oh, I'm so sorry about that. Thanks. And thanks for taking the questions. And congratulations on a strong quarter as well. You guys spoke quite a bit in the prepared remarks on your efforts to grow the company efficiently and sustainably over the long term, using AI for many of these initiatives. Just hoping you could provide any additional color on the company's current thinking about scaling the size of the workforce over time as these e-commerce enterprise services and geographic expansion, like Kelly's Education, continue to ramp up. Thanks.
Okay. Thank you. I will answer this question. I think as we grow across a number of areas, especially for our main business, the online learning business, we focus on efficiency and lowering costs by using technology, including AI, to streamline operations, especially in the area which is suitable to use such kind of technologies to streamline the efficiency of the operation process. Instead of hiring more people, we are now improving and trying many possibilities to improve our processes and reducing headcounts through automation and AI-driven solutions, especially in the process-driven area. As e-commerce and enterprise services grow, we also use AI to work smarter and faster. This includes automating everyday tasks, improving decision-making processes, and enhancing resource allocation to reduce costs while keeping operational effectiveness during the whole process of our daily operation to deliver the services to our online learners.
Likewise, with the acquisition of Kelly's Education and our entry into the global online education market, I think we will be trying to test and use AI technology and other technologies, the big data technology, and so on, to scale operations efficiently and lower overhead costs. We automate admin tasks, personalized learning experiences, and optimize cost delivery to achieve a greater cost efficiency while expanding our reach and impact. But I think overall, our strategy for managing our workforce involves using technology, including AI and other technologies, to reduce costs and improve efficiency across all business segments. By using the power of technology, we achieve our growth objectives while reducing the need for more manpower and resources.
I think in the end, all of the technologies and solutions we adopted, the aim is to cater to our customers' needs and their desire and to improve and upgrade our service level to our customers. In the end, whether we use technology, including AI, or not, depends on the service quality we provide to our customers and also depends on the business nature. If it can upgrade our service level, it can improve the operation efficiency. We will use that, and we will invest that. That is our methodology. Thank you.
That's helpful. Thank you so much.
Thank you.
The next question comes from Pat McCann of Noble Capital Markets. Please go ahead.
Hey. Thanks for taking my question. My question is that given the acquisition of Kelly's Education, can you comment on the market opportunity for youth online learning in Asia, given that you traditionally target a market that's more adult learning-focused?
Okay. Thank you. Yeah. Indeed, in mainland China, we currently are the adult online learning service provider. We are the largest. And also using our technology edge and also our experiences, we cooperate, and we will help Kelly's Education to enlarge their service offering to the children's online learning in Asia. Maybe currently, the major market is Hong Kong. And also, we are researching and trying other markets. And also, our acquisition of Kelly's Education is an important step for us to enter into the rapidly growing market for children's online learning in Asia. In Asia, many parents are very keen about their children's education and their massive need for this kind of services. And we are also expanding beyond our former focus on adult education.
This growth of the children's online learning market is driven by increasing digital adoption, parents' focus on education, and the post-COVID rise of online learning. As parents seek convenient and effective educational solutions for their children, I think we are ready to use our expertise to become a leading provider of personalized online learning experiences, meeting the changing needs of families across this region. But in terms of the method we use to develop and to deliver our services to each of the local markets in Asia, maybe worldwide, we will always stick to the methodology that we will cater to the local market. We will research the local market. We will make our services suitable to the local market.
By creating fresh, new curriculums and with our commitment to excel, I think we plan to take advantage of this huge market opportunity and drive growth in children's online education in Asia, maybe worldwide. I think this is a good start. We will stick to our test and scale methodology for this kind of market. Thank you.
Thank you.
The next question comes from BJ Cook of Singular Research. Please go ahead.
Hi, guys. Thanks for taking my call. Can you just talk about your strategy for attracting repeat customers and turning them into paid customers?
Yeah. Okay. I think for attracting repeat customers or turning them into paid customers, our strategy for attracting them and converting them revolves around continuously enhancing our online learning platform's quality, ensuring it's user-friendly, interactive, and filled with valuable content. For example, because we are now catering and delivering services to more and more elderly people, we tailor-made our app. We tailor-made our products to make it suitable to their personal habits, suitable for their physical use. And also, for regular updates driven by our user feedback and educational trends, we maintain our competitive edge. I think in addition to this, we host a diverse range of engaging events, both online and offline, including webinars, workshops, seminars, and networking sessions tailored to our customers' interests and learning needs. I think these events not only enrich the overall learning experience but also foster a sense of community among our learners.
I think in summary, by integrating these efforts, we cultivate a loyal customer base, driving sustainable growth for our online learning service platform. Also, I think maybe more importantly, during the past years of operation experiences, we accumulated a seamless technological operation process using the technical skills. Also, our experience can streamline the cost delivery. For example, for our initial launched financial literacy courses, we have delivered a very strong repeat purchase rate. By leveraging such kind of experiences, we scale our personal skills upgrading courses and later recreation courses. For such kind of courses, we can duplicate and leverage our experiences accumulated for the financial literacy courses to launch the repeat purchase programs, to attract repeat customers to our advanced courses so that demonstrating a very healthy ratio for our operation metrics. That is our methodology. Thank you.
Thank you.
This concludes our question and answer session. I would like to hand the conference back to management for closing remarks.
Thank you again for joining our call today. If you have further questions, feel free to contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a good day.
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.