17 Education & Technology Group Inc.

Good evening and good morning, ladies and gentlemen, and thank you for standing by for 17 Ed Techs Third Quarter 2024 earnings conference call. At this time, all participants are in a 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'll now turn the meeting over to your host for today's call, Ms. Lara Chow, 17th Ed Techs Investor Relations Manager. Please proceed, Lara.

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. Michael Du, Director and Chief Financial Officer, and myself, Investor Relations Manager. Michael will walk you through our latest business performance and strategies, and I will discuss our financial performance in more details. After the prepared remarks, Michael will be available to answer your questions during the Q&A session. Before we begin, I'd like to remind you that this conference call contains four looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the US Private Securities Investigation Reform Act of 1995. These four looking statements are based upon management's current expectations and current market and operating conditions, and they relate to events that involve known and unknown risks and certainties 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 these and other risks and certainties or factors is included in the company's filings with the USFDC. The company does not undertake any obligation to update any four looking statements as a result of new information, future events, or otherwise accept as required under applicable law. I will now turn the call over to our Director and Chief Financial Officer to review some of our business development and strategic direction. Michael, please go ahead.

Thank you, Lara. Hello, everyone. Thank you all for joining us on third call to 2024 earnings call. Before we begin, I would like to note that the financial information and then gap numbers in this release are presented on a continuing operation basis and in R&B, unless otherwise stated. Let me start with our business updates. In the third quarter of 2024, we have continued our business progress and have seen consistent growth in schools subscribing to our teaching and learning sounds offerings and the subscription models. This is strong testimony in the value of the offering and creates a clear growth path into the future. We continue to evolve our teaching and learning sound solutions to expand customer base, to improve efficiencies through digital means, ensuring high quality development and fostering growth in the school-based procurement. During this quarter, our core teaching and learning soft businesses made substantial progress and it contributes significant use to the overall revenue. Compared with the same quarter last year, regional flagship projects and ongoing soft initiatives have consistently generated revenue with key projects achieving revenue recognition milestones. Our revenue of this quarter has grown by 32% to 59.6 million and our loss, both in terms of gap and non-gap basis, have also substantially narrowed. With our adjusted net loss on non-gap basis of only R&B 5.7 million, demonstrating our continuous efficiency improvement, scale expansion and cost control. During this quarter, our teaching and learning soft business for district level projects exhibit steady progress, continuing to generate revenues through successful delivery as well as a new contract acquisition. Notably, the project in Beijing Xicheng district we have secured last quarter has successfully completed delivery and achieved revenue recognition. Additionally, another key project in our Shanghai Ming Hong project has also successfully wrapped up its second phase, showcasing impressive user engagement rep metrics. As we have enhanced operational efficiency and further reduced operational expenses, our loss on gap basis continued to narrow, marking a consistent trend of narrowing losses on the past three consecutive quarters. In this third quarter, we achieved significant growth progress in school-based subscription projects with a remarkable revenue growth rate that outpaced the overall revenue growth. Also, we have seen a very strong renewal trend in this segment. Among the individual schools whose initial contracts matured on or before September the 30th this year, 89% of them have chose to renew their contracts and they further chose to expand their service scope and student coverage by a further 37%. This is a strong case showing that our subscription model is maturing as evidenced by their increasing renew base as well as the improvement customer retention rate, highlighting no-worship advancement that drives our revenue growth. This has also enhanced our ability to reach more schools and students, creating a virtuous cycle that enables continuous improvements in our products, solutions, and sales network. As we optimize our business structure, synergies across all business lines have led to a more efficient operation with enhanced complementary strength and increased flexibility. In terms of distribution channels, the company is actively working on developing a diverse range of multi-dimensional sales channels to enhance the flexibility and client risk from various funding sources. The company seeks to cater to different clients' needs and preferences, ultimately improving accessibility to its products, services, and then driving growth of our businesses. From our product services offerings, we are committed to refining and upgrading our comprehensive solutions to improve customer satisfaction. We integrate the personalized learning data across all learning scenarios. Our extensive learning resources support personalized products that significantly help our partner schools with academic results, providing valuable reference for potential users. Our platform currently has 450,000 active students engaging in daily coursework with a total of 45 million completed homework assignments, reflecting an increase of 36% and 30% respectively compared to the previous quarter. A semester comparison reviewed at the students and teachers using our solutions outperformed the peers or the class groups that did not. The data also shows that every active teacher use our solutions for five classes or homework assignments every week. This is highly active among industry. In this quarter, we further refined and upgraded the examination grading products, resulting in an improved grade efficiency and expanded dimension of student performance analysis. In the teacher research aspect, we have stressed our support for performance analysis that address common mistakes. The continuous optimization of personalized learning products and error correction functionalities ensures broader coverage to accommodate diverse learning scenarios, effectively securing personalized learning outcomes. Leveraging by consolidated classroom resources, instructional materials are organized, wider distribution, improving supplementary teaching to meet both common and individual students. Consequently, it helps students to tackle problems in self-directed learning process while fostering synergies between supplementary teaching and independent learning. The company is always dedicated on delivering premium learning products and services, continuously evolving our teaching and learning soft solution, expanding customer base to enhance efficiency, ensuring high quality development and fostering individual growths. Now I will turn the call over to Lara to walk you through our financial performance. Thanks.

Thanks, Nigel. Thank you, everyone, for joining the call. I will walk you through our financial and operating results. Please note that all financial data I talk about will be presented in R&D terms. I would like to remind you that the quarterly results we present here should be taken with care and reference to our potential future performance are subject to potential impacts from seasonality and one-off events as a result of the series of regulations introduced in 2021 and corresponding adjustments to our business model, organization and workforce. In the third quarter of 2024, we recorded net revenues of R&D 59.6 million compared with 45.1 million R&D in the third quarter of 2023, representing in .2% of increase on a -over-year basis. Net loss on gap basis for the third quarter of 2024 was 17.4 million R&D compared with 72.9 million in the third quarter of 2023, representing a decrease of .1% -on-year, marking a consistent trend of narrowing losses over the past three consecutive quarters. The adjusted net loss non-gap for the third quarter of 2024 was 5.7 million R&D compared with adjusted net loss non-gap of 63.7 million R&D in the third quarter of 2023, a decrease of .5% -on-year. Gross margin for the third quarter of 2024 was .9% compared with .1% in the third quarter of 2023. As of September 30th, 2024, we have cash reserves of 339.7 million R&D on our balance sheet. Next, I will go through our third quarter financials in greater detail. Net revenues for the third quarter of 2024 was 59.6 million R&D, representing a -over-year increase of .2% from 45.1 million R&D in the third quarter of 2023. This was mainly due to the increase in number of teaching and learning contracts and recurring revenue generated from ongoing projects. Cost of revenues for the third quarter of 2024 was 23.3 million R&D, representing a -over-year increase of .5% from 20.7 million R&D in the third quarter of 2023, which was mainly due to the increase in project deliveries for our teaching and learning SaaS offerings during the quarter. Gross profit for the third quarter of 2024 was 36.3 million R&D, compared with 24.4 million in the third quarter of 2023. Gross margin for the third quarter of 2024 was 60.9%, compared with .1% in the third quarter of 2023. Total operating expenses for the third quarter of 2024 was 58.0 million R&D, including 11.7 million R&D of the share-based compensation expenses, representing a -over-year decrease of .7% from 103.1 million R&D in the third quarter of 2023. Loss from operations for the third quarter of 2024 was 21.6 million R&D, compared with 78.7 million in the third quarter of 2023. Loss from operations as the percentage of net revenues for the third quarter of 2024 was negative 36.3%, compared with negative .4% in the third quarter of 2023. Net loss for the third quarter of 2024 was 17.4 million R&D, compared with net loss of 72.9 million in the third quarter of 2023. Net loss as the percentage of net revenues was negative .2% in the third quarter of 2023, compared with negative .6% in the third quarter of 2023. Adjusted net loss non-GAAP for the third quarter of 2023 was 5.7 million R&D, compared with adjusted net loss non-GAAP of 53.7 million in the third quarter of 2023. Adjusted net loss non-GAAP as the percentage of net revenues was negative .5% in the third quarter of 2024, compared with negative .1% of adjusted non-GAAP as the percentage of net revenues in the third quarter of 2023. Please refer to the table captioned, Reconciliation of Non-GAAP Measures to the Most Comparable GAAP Measures at the end of this press release for reconciliation of net loss under US GAAP to adjusting net loss non-GAAP. Cash and cash equivalence and term deposits. Cash and cash equivalence and term deposits were 339.7 million R&D as of September 30th, 2024, compared with 476.7 million as of December 31st, 2014. This is the current rate of the year 2023. Moving forward, we will enhance our core business and explore new growth opportunities by prioritizing operational efficiency, sustainability and innovation. Our aim is to deliver competitive, high quality education solutions that meet customer needs and contribute to regional educational development. By embracing digital learning methods, we seek to enhance efficiency, ensure quality and foster individual growth while delivering long lasting value for our customers and shareholders. With that, that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Thank you. We will now begin the question and answer session. If you'd like to ask question, please press star 11 on your telephone and wait for your name to be announced. If you'd like to cancel your request, please press star 11 again. Once again, to ask question, please press star 11. Please stand by while we compile the Q&A roster. As a reminder, if you'd like to ask question, please press star 11. As a reminder, if you'd like to ask question, please press star 11. We appear to have no question at this time allowing me to hand the call back to the management. Please continue.

Thank you, operator. In closing, on behalf of 17 AirTags 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.

Thank you. That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.