YXT.Com Group Holding Ltd (YXT) 2025 Q2 法說會逐字稿

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 R&B 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.

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

Hello, everyone. This is Shen (inaudible) of 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, just take a moment to look at what's happening across our industry. The corporate learning industry (technical difficulty) 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 this disrupted world.

The shift driven by AI even goes beyond the training industry. It presents the first ever opportunity in which workforce and enablement has more meaning -- has more means than just the learning and development. Traditionally, training that 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 the co-pilot 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 the 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. Well, these changes have impact specific short-term metrics.

They are already driving [memorable] improvement in profitability and operational efficiency. Let me walk you through the details. Before we go through the financial results, let me know that all amounts are in RMB terms for the first six 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 RMB152.9 million compared to the same period of last year, but this figure marks essential nuances. The decrease was primarily driven by two factors. The first one is our strategic shift. We intentionally reduce our exposure to small- and medium-sized businesses with which had a higher churn and low lifetime value.

This resulted in a net reduction of 123 subscription customs, 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 streamline our revenue mix with subscription-based corporate learning solutions, now accounting for 94.6% of total revenue. RMB144.7 million decline of non-subscription revenue from 39% year-over-year to RMB7.7 million.

In line with our strategic focus on reducing low margin of online services and building recurring scalable revenue streams, notably, our AI-related product monthly recurring revenue more than doubled to RMB0.5 million up to RMB0.2 million last year, a clear sign that our investments in AI are yielding [memorable] impact and will play a large role in future growth. Despite the decline in revenue, we achieved a 4 percentage point improvement and growth 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 the third-party infrastructure, and then 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 [act on] optimization and process improvements. Similarly, our R&D expenditure decreased 19.2% as we enhance development productivity and the focus the 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 ex expense expense from our January 2025 long-term incentive plan. Well, the share-based incentive plan creates a short-term cost pressure. We view this equity grant as a critical investment in retaining and then motivating our leadership team to execute our multi-year growth strategy.

On a GAAP basis, we reported a net loss of RMB73.9 million compared to net income of RMB21.4 million in the same period of last year. However, last year's profit included one of RMB78.8 million gain from the deconsolidation of CEIBS PG.

Our adjusted net loss improved by 15% year-over-year of -- to RMB64 million, demonstrating tangible progress in core operations. We ended the period of RMB235.7 million in cash and the short-term investment down from RMB418.2 million at year ended 2024. This reduction reflects planned investment in AI R&D and working capital needs, but to remain well capitalized with a disciplined approach to debt management.

Moving forward, our strategy remains centered on three pillars. First, we will deepen enterprise relationships by delivering more value to our large plans to improve retention and the revenue. Secondly, 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 then strike the right balance between optimizing our existing expense structure and make targeted investments in direct, delivers the higher (inaudible) returns.

We are seeing clear progress in executing our strategy, and we are confident these efforts will find sustainable, profitable growth, and moving forward.

Thank you for joining us today. We are now very happy to answer your questions.

(Operator Instructions)

[William Lu], Individual Investor.

Hello, everyone. 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.

Thank you. The improvement of 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 high -- higher margin subscription and AI products, we have improved profitability and well maintaining product quality. We believe the structural shift on our revenue mix provides a sustainable margin profile going forward.

In addition to shift tours, 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's the trend driving margin expansion, such as the growing share of AI and the subscription-based products will continue into the second half of this year.

Duncan Yee, Five Arrows.

Hello, thank you, CEO, and also thank you, CFO. I have a question. I think, I have actually two questions. The first one is about the -- your strategic shift towards the larger enterprise as you mentioned, which is the reason for your revenue to decline year-on-year. I understand that it is like the new strategy for the company to shift toward a larger enterprise. Could you please elaborate for us how this transition is going to impact the company in the long run, especially to the revenue growth and the customer retention in the near future?

Thank you, Duncan. Let me, take on that question first. This is [Allan Wang]. I'm the Chief Growth Officer of YXT.com. So you -- let me just make sure I'm understanding your questions right. So you're asking about our shift from small- to medium-sized enterprises to large enterprises, and you want to understand how that could impact our company's performance in both short term and long term, right?

So as you probably understand, the Chinese market is a little bit different from the US market. In that, in the US market, you have a very robust small- to medium-sized enterprises. Whereas in China, the market is majorly driven by large to mega enterprises.

These companies are more resilient in their own business. They are more profitable, and they are more willing to spend on learning and development initiatives. So in the past few years, we've made our strategic decisions to move away from small- to medium-sized enterprises and onto the large and even mega enterprises. We've seen that these larger mega enterprises will show a stronger retention behavior, stronger retention performance with us, a stronger, higher potential for resale and upselling opportunities for us.

So as we move away from small- to medium-sized enterprises to large companies, we believe the company's performance metrics will continue to improve both our gross margin rate both on our retention rate as well as on our customer, holistic lifetime value. So that's the rationale behind it and we've seen the performance change in the key metrics. And we'll continue to do that. We'll continue to emphasize on large to mega enterprise.

With that being said, we are -- we will not deliberatively let go of the small enterprise. That smaller companies, if they are willing to stay with us, we will continue to keep them with us. But we will stay away from investing heavily relocating, allocating heavy resources onto them because our judgment is that they are not the ideal type for us.

So by driving -- by focusing on the large enterprises, by innovating products to respond to their needs, we believe we have a more healthy, more robust business model.

Duncan, does that answer your question?

Yes, I think, that is very, very comprehensive. Thank you. And I actually have a follow-up question for both Allan and Mr. Cao. I noticed that your AI-related products, for the monthly recurring revenue, actually it growth by more than 200% than last year. I think, that is very impressive. Could you provide more insight into the specific AI solution driving this growth, and also how does the company plan to scale up this further offering going forward in the future? And also, do you have any expectation for the growth rate for the next quarter or for the full year?

Thank you, Duncan. That is one of the highlights from our operation in the past few months. Yes, compared to some of our companies, we are more successful or even the most successful in commercializing AI products. Some of the key products we offer to our clients as of now include using AI to generate courses.

So traditionally, we hire instructors, professors, teachers to draft out these teaching content, these learning programs. Now, we are leveraging our know-how in course design with the help of large language models to generate high-quality courses at a much lower cost.

We provide such capabilities to our clients using a product called AI-course maker. So we essentially transferring the capability of course making to our car. This is one of the leading, lead-selling AI products. We also provide AI products focusing on generating standardized test is difficult for most of the companies.

So how to devise a set of questions, quizzes to test the participants on their mastery of the knowledge is something our clients will need. So AI test making is another product we offer to our clients. Besides course making test, test making, we also provide AI simulations, role plays whereas AI will generate a scenario where the participants would come in and practice their communication skills, their problem-solving skills with AI.

We also provide AI capability-assessment tools called behavior event interview. We also provide AI candidate screening, AI interview tools. Essentially, these tools we leverage the reasoning power of large language models, and we do post training on these large language models based on years of experience and years of usage data we have in these scenarios. These are the products we use.

We see a fast-growing penetration and coverage of AI products through our accounts as indicated by the the numbers that Duncan, you just mentioned, and we anticipate that to continue to grow even faster. We have rolled out a series of marketing campaigns to drive AI products through our [course].

Also, the Chinese market, objectively speaking, is more willing to spend on AI as figured by DeepSeek earlier this year. So the companies are more willing to adopt to AI solutions and we have a whole suite of products ready, and we have the marketing campaign set in place. We have the commercial policies, discount policies, volume rebate policies set in place, and we're confident to drive the growth in AI-product penetration and coverage.

Thank you. I would now like to turn the call back over to Mr. Cao for closing remarks.

Thank you again for joining our call today. If you have any further questions, please feel free to contact us to submit a request through our IR website. Have a good day. Thank you. Thank you very much.

This concludes today's conference. Thank you for your participation. You may now disconnect.