Hongen's Q1 revenue in fiscal year 2024 is 235 million yuan, and artificial intelligence-related modules have been added to thinking products

On December 28, it was reported that Hong En (NYSE: IH), a technology and educational product company, announced its unaudited financial results for the first quarter ended March 31, 2024. In the first quarter of fiscal 2024, Hongen's revenue was RMB235 million (US$32.5 million), down 11.4% from RMB265.2 million in the same period last year. Net profit was RMB22.3 million (US$3.1 million), compared to RMB53.6 million in the same period last year.

"We have made a good start to 2024, and the team has made precise and efficient progress in accordance with the product roadmap, ensuring that we continue to maintain our leading position in terms of user stickiness. In the first quarter, we continued to leverage these two strengths to optimize our product portfolio, especially by investing more in artificial intelligence technology and integrating it more deeply into our products to provide users with a more dynamic and personalized experience. ”

Weiwei Wang, Director and Chief Financial Officer of Hongen, said, "In the first quarter, our continued focus on product excellence continued to drive our business forward. Thanks to a high level of user satisfaction and loyalty, our average monthly active users reached an all-time high of 26.38 million, up 25.1% year-over-year. At the same time, we achieved profitability for the ninth consecutive quarter. With stable profitability and healthy cash reserves, we have increased investment in a number of strategic focus areas: deepening R&D in the field of artificial intelligence to enhance product value and user experience; Expand the age coverage of the product line and expand the market space; Strengthen international marketing efforts and increase global brand awareness. While increasing these investments will temporarily impact our short-term earnings, we believe they are critical to strengthening our industry leadership, achieving long-term sustainable growth, and creating long-term value for our shareholders. "

It is understood that Hongen has recently launched a new product "Hongen Intelligent Programming". This is a year-round course that supports children through a three-level tutoring system: a chatbot that can ask questions instantly, real-time code debugging powered by Hongen's own large model, and targeted guidance from experienced teachers.

"Hongen Thinking" has added an artificial intelligence empowerment module "Challenge". The new module focuses on the improvement of computing power, using artificial intelligence algorithms to dynamically adjust the difficulty of the questions according to the user's level to ensure that the difficulty of the questions is moderate for child users. This both promotes effective practice and prevents children from being overly frustrated, thus keeping them engaged and enthusiastic.

In addition, Hongen also launched the "bekids Library", an adaptation of "Hongen Graded Reading". "Hong En Graded Reading" is a joint collaboration between Hong En and Oxford University Press. Available in Macau and Taiwan, the bekids Library contains more than 1,000 selected and graded books from Oxford University Press, catering to users of all levels of English proficiency and interests.

Unaudited financial results for the first quarter of 2024

Operating income

Operating income was RMB235.0 million (US$32.5 million), down 11.4% from RMB265.2 million in the same period last year, mainly reflecting the normalization of business compared to the exceptional performance in the same period last year. In the same period last year, due to the impact of the epidemic, indoor activities increased, driving a short-term sharp increase in product demand.

The average number of monthly active users (MAU) reached an all-time high of 26.38 million in the quarter, up 25.1% from 21.09 million in the same period last year.

Cost of Doing Business

Operating costs were RMB66.9 million (US$9.3 million), down 16.0% from RMB79.6 million in the same period last year, mainly due to lower channel costs.

Gross profit and gross margin

Gross profit was RMB168.1 million (US$23.3 million), compared to RMB185.6 million in the same period last year. Gross margin was 71.5%, compared to 70.0% in the year-ago quarter.

Operating expenses

Operating expenses were RMB150.6 million (US$20.9 million), an increase of 16.9% from RMB128.8 million in the same period last year.

R&D expenses were RMB67.9 million (US$9.4 million), an increase of 10.1% from RMB61.7 million in the same period last year, mainly due to higher salary-related expenses.

Sales and marketing expenses were RMB55.0 million (US$7.6 million), an increase of 36.0% from RMB40.4 million in the same period last year, mainly due to increased strategic placements, strengthened brand enhancement and overseas expansion.

Administrative expenses were RMB27.7 million (US$3.8 million), compared to RMB26.7 million in the same period last year.

Operating profit

Operating profit was RMB17.5 million (US$2.4 million), compared to RMB56.7 million in the same period last year.

Net profit

Net profit was RMB22.3 million (US$3.1 million), compared to RMB53.6 million in the same period last year.

Basic and diluted net income per ADS was RMB0.42 (US$0.06) and RMB0.41 (US$0.06), respectively, compared to RMB1.01 and RMB0.98, respectively, for the same period last year. Each ADS represents 5 Class A ordinary shares of the Company.

Deferred income and advance receivables

The balance of deferred revenue and advance receipts was RMB313.8 million (US$43.5 million) as of March 31, 2024, compared to the balance of deferred revenue and advance receipts of RMB318.6 million as of December 31, 2023.

Cash, cash equivalents and time deposits

The balance of cash, cash equivalents and term deposits was RMB1,131.3 million (US$156.7 million) as of March 31, 2024, compared to RMB1,213.8 million as of December 31, 2023. The decrease in the balance was primarily due to the payment of year-end bonuses to employees in the first quarter.

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