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spk02: Good evening and good morning, ladies and gentlemen, and thank you for standing by for 17 EdTech's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Lara Chow, 17 EdTech's Investor Relations Manager. Please proceed, Lara.
spk00: Thank you, Operator. Hello, everyone, and thank you for joining us today. Our earnings release was distributed earlier today and is available on our IR website. Joining us today are Mr. Andy Chang Liu, founder, chairman, and chief executive officer, and Mr. Michael Chow Du, director and chief financial officer. Andy will walk you through our latest business performance and strategies. followed by Michael, who will discuss our financial performance and guidance. They will be available to answer your questions during the Q&A section. After the prepared remarks, before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results, performance, or achievements to differ materially. Further information regarding this or other risks, uncertainties, or factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forelooking statements as a result of new information, future events, or otherwise except as required under applicable law. I will now turn the call over to our Chairman, Chief Executive Officer, to review some of our business development and strategic direction. Andy, please go ahead.
spk01: Thank you, Lara. Hello, everyone. Thank you for joining us on our first quarter 2022 earnings call. We are pleased to report solid performance in the first quarter. But before we dive into the details, let me provide some quick highlights. First, net revenue was $233.4 million, 11.1% higher than the top end of the estimates provided in March. Second, our operational efficiency continued to improve at the same time, resulting in a substantially narrowed of GAF basis net loss compared with the same period in 2021. And this allowed us to achieve a positive adjusted net income for the second quarter in a row. Third, our new business strategies continue to gain momentum. We saw new opportunities as the COVID-19 pandemic and favorable government policy helped evolve market needs and drove new demands for our service. Now, let me go into some details. We delivered solid operational and financial results. Net revenue reached RMB 233.4 million, which was 11.1% higher than the high end of the guidance provided last quarter. Again, it's worth mentioning that This was achieved without any legacy online K-12 after-school tutoring services revenues. Our profitability continues to improve as we continue to enhance our cost structures and operational efficiency. For the first quarter, operating expenses decreased by 82.1% year over year. And as a percentage of the revenue as well, although we recorded a net loss of RMB 24.8 million on a gap basis in the first quarter of 2022, we achieved RMB 9.9 million of adjusted net income compared with an adjusted net loss of RMB 588.8 million in the first quarter of 2021. For our teaching and learning service business, we continue to see positive trends and demands for our offerings. Earlier this year, the Ministry of Education clearly put forward the need to speed up the implementation of digitalizing the education industry. On March 1, a national public service platform for smart education in primary and secondary schools was officially launched. All of these signal that the digital transformation of Chinese education has entered a new area where its focus is centered around teaching and learning scenarios. and emphasize services and daily application. In May, the Beijing Municipal Education Commission issued the document called Opinions on Further Purchasing Quality External Education Resources for Compulsory Education, explicitly supporting the procurement of third-party services to enrich the education resources for public schools, including curriculum resources, management services, and family education and guidance services. During the last few months, China has experienced a number of regional COVID outbreaks. During these outbreaks, we have seen additional demands and opportunities for education bureaus and schools for our teaching and learning service offerings, especially online homework modules to cope with periods where physical offline schooling was not possible. A number of districts and cities in economically developed regions have already in detail discussions with us on the procurement of our online homework SAS component. Specifically, all elementary and secondary schools in Shanghai moved to online learning starting in March. We have developed a multi-channel integrated online education platform, which combined with the aerial classroom live broadcast interactive platform, and Minghang Smart Homework feature based on our existing modules for Minghang District, Shanghai, delivering a one-stop solution that solves multiple problems. Recently, the National Educational Resources and Public Services System Alliance also officially announced the results of the three classrooms application case collection. Among them, the attempt made by 17EdTech using technology to enhance balanced education was successfully selected as a National Education 3 classrooms innovative application case. Our pilot project of model school and district continued to progress in the general data insights that brought recognition by schools and educational authorities. During the quarter, we officially released the data reports for pilot schools and districts in two districts in Shanghai and several cities in Jiangsu province. They were well recognized by schools, local education authorities, and were believed to be of high value of facilitated personalized teaching and learning process. Xinzhuang Middle School in Minghang District, Shanghai, a school serviced by us, has been recommended by local authorities as an excellent online teaching case for its innovative automatic homework review functions. Another key component of our teaching and learning SaaS offering, our proprietary smart pen, YunQue, has won the highest honor of the 2022 German WriteDot Award for its humanized design and excellent quality. The WriteDot Award is one of the world's three major design awards and an international recognition of creativity and design. The Yunche Smart Pen realizes pen and paper interaction through dot metric technology, helping teachers to complete accurate learning data collection and learning diagnosis to facilitate personalized teaching and learning process for teachers and students. It is a combination of online and offline that creates a closed loop for the high-quality homework with personalized homework as the core. We're also building a nationwide agent network to help reach wilder areas to distribute our Teaching and Learning Starts offerings. Official partnership agreements were assigned with over 50 distribution agents, among them They were Intel, Bank of China and CETC, Bank of China Intel, and Kanban. In the meantime, we are continuously improving our self-directed learning products based on additional student and paper feedback as well as latest regulatory requirements. We have also launched an accompanying hardware and enhanced the study experience with our self-directed learning product and the mobile app. leveraging our experiences, technical services, technical reserves, content, and data insights over the year. We are confident and determined to continue to create value with our new business strategies in the education technology sector. We have a clear strategy to continue to invest into our teaching and learning SaaS business to facilitate education authorities and schools to implement the digital transformation and upgrading of the public Chinese education sector. We will continue to develop digital applications and resources to help improve teaching and learning efficiencies. For our self-directed learning products, We believe it has captured the needs of a wide range of groups of families in the post-double reduction area and has a great potential. We will continue to improve and adapt our enhanced effectiveness and user experience of our self-directed learning products with more targeted personalization and content enrichment. We will continue our efforts to build our business into a healthy and sustainably growing business. Now I will turn the call over to Michael, our CFO, to walk you through our latest financial performance. Thank you.
spk03: Thanks, Andy, and thank you, everyone, for joining the call. I will now walk you through our financial and operating results. Please note that all financial data I talk about will be presented in R&B terms. I would like to remind everyone that the quarterly results we present here should be taken with care and references to our potential future performance are subject to impacts from seasonality, one-off events as a result of the series of regulations introduced in 2021, and corresponding adjustment to our business model, organization, and workforces, among others. The first quarter of 2022 is the first quarter of operations after we officially ceased our online K-12 school tutoring services and the general revenue purely from our ongoing businesses. We are delighted to report the second consecutive profitable quarter on an adjusted basis, delivering our guidance that we provided earlier. From a top-line perspective, we reported a net revenues of RMB $233.4 million, 11.1% higher than the top-end of our estimate provided earlier, and it represented almost 20 times gross from the K-12 arc to school tutoring revenue of R&B 11.2 million in the first quarter of 2021. Gross margin was 6.7% this quarter, improving from 60.4% in the first quarter of 2021. Our operational efficiency continued to improve. Total operating expenses for the first quarter of 2022 decreased to R&B 117.8 million from R&B 953.2 million in the first quarter of 2021, representing an year-over-year decrease of 82.1%. Net loss decreased significantly to R&B 24.8 million for the first quarter of 2022 from 659.7 million in the same period of 2021. Net loss is a percentage of revenue was negative 10.6% in the first quarter of 2022, narrowing from negative 139% in the first quarter of 2021. On an adjusted basis, our adjusted net income, which includes share-based compensation expenses, was positive on the $9.9 million for the first quarter of 2022, compared with an adjusted net loss of RMB $659.7 million in the same period of 2021. We continue to see our business progressing towards the right direction with continuous improvements in operational efficiency and profitability. Next, I will go through our first quarter financials in greater detail. Net revenue will RMB $233.4 million. If looking from a whole, This represented a year-over-year decrease of 50.8% from RMB 474.2 million in the first quarter of 2021. The decrease was mainly due to the cessation of our online K-12 tutoring services by the end of 2021 to be in compliance with the latest PRC regulations, which prohibits the provision of tutoring services related to academic subjects for K-12 students. However, when compared with the net revenues, excluding those from online K-12 tutoring services of the same period last year, our revenue actually increased significantly from RMB 11.2 million last year to RMB 233.4 million during the same period this year. This represented a growth of nearly 20 times The majority of net revenues for the first quarter of 2022 was from the company's personalized self-directed learning products and to a less extent from our teaching and learning services. The latter has a longer cycle to finish the bidding process and to deliver so that the revenue can be recognized as the majority of the clients were educational authorities in public schools. Cost of revenue for the first quarter of 2022 was RMB 91.8 million, representing a year-over-year decrease of 51.1% from RMB 187.6 million in the first quarter of 2021, which was largely in line with the cessation of our online K-12 tutoring services under the new regulatory and business environment. Cross-profit was RMB 141.7 million, representing a year-over-year decrease of 50.6% from RMB 286.6 million in the first quarter of 2021. Cross-margin for the first quarter of 2022 was 60.7%, improving from 60.4% in the first quarter of 2021. Moving over to the expenses side, Total operating expenses were RMB 170.8 million, representing a year-over-year decrease of 82.1% from RMB 953.2 million in the first quarter of 2021. The total operating expenses for the first quarter of 2022 include the RMB 34.6 million of share-based compensation expenses. Sale and marketing expenses for the first quarter of 2022 were RMB $22 million, which included $4 million of share-based compensation expenses. This represented a year-over-year decrease of 96.4% from RMB $613.5 million in the first quarter of 2021. This was mainly due to decreasing promotional cost expenses and advertising expenditure as a result of the change in regulatory environment. as well as stop optimization since the regulatory change to be aligned with the business adjustment. R&D expenses were RMB 97.5 million, including 7.2 million of share-based compensation expenses. This represented a year-over-year decrease of 53.6 percent from RMB 209.9 million in the first quarter of 2021. The decrease was, again, primarily attributable to staff optimization and expensive saving measures in line with the business adjustment. G&A expenses were RMB 51.3 million. This included RMB 23.5 million of share-based compensation expenses. It represented a year-over-year decrease of 60.5 percent from R&B 129.7 million in the first quarter of 2021. The decrease was primarily attributed to stock optimization and expensive saving measures in line with the business adjustment. Loss from operations was R&B 29.1 million compared with R&B 666.6 million in the first quarter of 2021. Loss from operations is a percentage of net revenues for the first quarter of 2022 was negative 12.5 percent, improving from a negative 140.5 percent in the first quarter of 2021. Net loss was under 24.8 million compared with a net loss of 659.7 million in the first quarter of 2021. Net loss as a percentage of revenue was negative 10.6 percent in the first quarter of 2022, compared with negative 139.1% in the first quarter of 2021. Adjusting net income on a gap basis was positive, RMB 9.9 million, compared with an adjusted net loss of RMB 588.8 million in the first quarter of 2021. Adjusting net income as a percentage of net revenue was positive 4.2%, in the first quarter of 2022, which substantially improved from negative 124.2% in the first quarter of 2021. With that, I will now provide our business outlook. Based on our current estimates, total revenues for the second quarter of 2022 are expected to be between RMB 100 million and RMB 120 million. This estimated net revenues for the second quarter of 2022 is expected to be derived entirely from our ongoing businesses after our business transformation and will not include revenues from the legacy online K-12 tutoring services. This estimated range represents a significant increase year-over-year as compared with the relatively small base of the net revenue generated from and online K-12 tutoring services for the second quarter of 2021. The above forecast reflects 17 attacks' current and preliminary view and is therefore subject to change. Please refer to the Safe Harbor Statement below for the factors that could cause actual results to differ materially from those contained in any forward-looking statement. That concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.
spk02: Thanks. Certainly. We will now begin the question and answer session. To ask a question on the phone, please press star 1 and wait for a name to be announced. If you would like to cancel a request, please press the pound or hash key. Once again, to ask a question, please press star 1. As a reminder, if you'd like to ask questions, please press star 1. As there are no more questions on the line, I would like to hand the call back to the management for closing. Thank you. That concludes. Please go ahead.
spk00: Thank you, operator. In closing, on behalf of 1-7 EdTech management team, we'd like to thank you for your participation on today's call. If you require any further information, please feel free to reach out to us directly. Thank you for joining us today. This concludes the call.
spk02: Ladies and gentlemen, that concludes the conference for today. You may now disconnect your line.
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