17 Education & Technology Group Inc.

Good evening and good morning, ladies and gentlemen, and thank you for standing by for the 17 at Tech's fourth quarter 2024 and four-year 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 will now turn the meeting over to your host for today's call, Ms. Lara Zhao, 17 at Tech's 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 detail. 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 forelooking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Security Litigation Reform Act of 1995. These forelooking statements are based upon management's current expectations and current market and operating conditions. and relates to events that involve known and 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 these and other risks, uncertainties, and factors is included in the company's filings with the USSEC. 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 Director and Chief Financial Officer to review some of our business developments and strategic direction. Michael, please go ahead.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our fourth call to 2024 and full year earnings call. Before we begin, I would like to note that the financial information and NGAP numbers in this release are presented on a continuing operation basis and are in IMB, unless otherwise stated. Let me start with our latest business updates. We achieved strong results with year-over-year top-line growth of 11% to RMB 189%. million for the full year, driven by strategic market expansion and new contract acquisitions. Net revenues for the fourth quarter will only be 36.6 million, reflecting a 23 percent decrease from the same quarter previous year, primarily due to the reduction in net revenues from district-level flagship projects as we prioritize our resources on school-based projects and the subscription model. which typically will generate revenues over a longer period. Meanwhile, our small subscription business model maintained an upward trend as evidenced by three-digit growth compared to the same quarter last year, bolstered by strong retention rates and multi-year subscription renewals. Through rigorous cost optimization and leveraging economy on scales, operating expenses decreased by 34% from the same quarter last year resulting in a 35% reduction in net loss on a gap basis. As we enhance our products and services through AI for improved automation and user experiences, we've received positive feedback and market recognition. Looking ahead, with a strong pipeline of AI-enhanced products and a customer-centric roadmap, we are well-positioned to deliver sustainable, growth, and industry-leading innovations in the future. Now, please allow me to go into more details. Our original flagship project delivery and new contract acquisitions. During this quarter, our teaching and learning source business for district-level projects continued to make steady progress through successful delivery and new contract acquisitions. Major projects have successfully delivered and contributed significantly to the overall revenue. We have continued to win teaching and learning SaaS projects this quarter, further demonstrating the strong customer stickiness of our offering. Such projects will expand our services to cover more schools with increased number of students in both existing districts and new ones. It further demonstrates our capacity to enhance regional education quality and efficiency through scalable, high-quality solutions and plays an exemplary role for other potential clients to adopt our products. Our accelerated growth in school-based subscription model. In the meanwhile, our school-based subscription model have witnessed rapid growth, with triple-digit growth in terms of the number of students newly subscribed year over year. We have also identified an extensive opportunity pipeline that are expected to continue to expand our school coverage. As the succession model scales, it increasingly contributes to our overall revenue, reflecting its strategic importance and integral role to our overall strategy. This upward trajectory not only contributes significance to our revenue, but also enhances customer engagement and loyalty. For our customers whose contracts are subject to renewal, more than 90% have decided to continue to subscribe and some even decide to subscribe with further expanding coverage. Such highly recurring subscription, together with opportunity to up-sell additional value added services, have paved a visible pathway for sustainable and healthy growth. Synergies across business lines. The synergies across regional flexure projects and the school-based subscription model initiatives have driven our product innovations into a virtual cycle of our business growth. Flagship district teaching and learning science projects are not only influential among authorities considering projects of similar nature, but also help us build up strong use case for our school-based subscription model among our potential client base. They further generate insights that allow us to continuously enhance our school-based science offering products, while custom feedbacks drive iterated product upgrades and breakthrough innovations. This integrated approach has boasted operational agility, positioning us to seize emerging opportunities and deliver scalable solutions. For our product and service offerings, we are committed to enhance our products and service offerings to improve customer satisfaction. Our focus on innovation and capabilities to deliver premium learning products has driven us to refine our teaching and learning solutions ensuring efficiency and high-quality development. During this quarter, we have further advanced our offerings through the following strategic improvements. Unified data ecosystems. We have advanced cross-domain data integration by leveraging granular insights across educational ecosystems, including classroom interactions, assignments, and assessments and evaluations. Through standardized data collection, we have built a cohesive multi-scenario data framework that maximizes analytical agility. Scale product portfolio. Building on this foundation, our data-driven product portfolio now connects teaching applications with resources centers that streamline lesson planning and capture comprehensive instructional data through the following segments. Smart school-based workbook for capturing detailed lesson data. Adaptive pre-care PAN system supporting flexible daily practice with digital tracking capabilities. Precision assessment platforms tailored for high-stakes testing and benchmarking. Personalized learning solutions for smart learning kids' individual practice books. and a comprehensive evaluation dashboards for competency-based teaching and analytical provided for educators and managers across all scenarios. Enhance the data value. Automated accumulation and intelligent distribution of teaching resources data now addresses diverse learning needs while maintaining long-term data integrity. Long-term analysis ensure academic quality monitoring while process-oriented data exploration builds holistic student profiles and enables effective competency-based evaluation. By aligning data infrastructure with scalable solutions, we are now empowering educators to make evidence-based decisions while preparing students for future ready learning experiences. In this quarter, we have initiated our targeted internal pilot of our AI-powered learning diagnostic agent, leveraging state-of-the-art large language models to analyze student performance data and help teachers improve efficiency in class preparation and homework correction. It generates personalized explanations for common mistakes and recommended tailored teaching strategies. Initial data shows the tool's potential to streamline instructional workflow and improve learning outcomes by enabling teachers to efficiently interpret and utilize data, thereby enhancing teaching effectiveness and improve the quality of education. The integration of AI marks a significant step forward in optimizing teaching practice and learning outcomes with our offerings. In terms of distribution channels, we have always intensified our focus on strategic market penetration through channel diversification and the customer-centric innovations. By aligning product development with emerging education trends and optimizing distribution network, we have improved our customer acquisition efficiency. Moreover, our multi-channel marketing initiatives and strategic partnership have further solidified our presence in high-growth markets, positioning us for sustained development. Now, I will turn the call over to Laura to walk you through our latest financial performance. Thank you.

Thanks, Michael, 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&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 adjustment to our business model, organization, and workforce. In the fiscal year of 2024, we recorded net revenues of 189.2 million RMB compared with 171.0 million RMB in 2023, representing a 10.7% of the increase on a year-over-year basis. Net revenue for the fourth quarter of 2024 was RMB 36.6 million, compared with 47.3 million in the fourth quarter of 2024. Net loss on a gap basis for the fourth quarter of 2024 was RMB 63.7 million, compared with 98.4 million RMB in the fourth quarter of 2023. representing a decrease of 35.2 year-on-year. The adjusted net loss non-gap for the fourth quarter of 2024 was 40.1 million, compared with adjusted net loss non-gap of 81.8 million RMB in the fourth quarter of 2023, a decrease of 51.0 year-on-year. Gross margin for the fourth quarter of 2024 was 33.6%, compared with 43.4% in the first quarter of 2023. The relatively lower gross margin this quarter is mainly attributable to the delivery of an RMB 9 million legacy moral education project, which did not include the typical components of our teaching and learning staff offering, and thus had a lower margin dragging down the overall margins. This project was as a result of historical attempt and no longer a core offering for us. As of December 31st, 2024, we have cash reserves of 359.3 million RMB on our balance sheet. Next, I will go through our first quarter financials in greater detail. Next, revenues. Net revenues for the fourth quarter of 2024 was RMB 36.6 million, representing a year-over-year decrease of 22.7% from 47.3 million in the fourth quarter of 2023. This was mainly due to the reduction in net revenues from district-level projects as we prioritized our resources on school-based projects and their subscription model. and two, a higher proportion of contract and subscription model we signed in the fourth quarter of 2024, which requires longer period of revenue recognition. Cost of revenue for the fourth quarter of 2024 was 24.3 million RMB, representing a year-over-year decrease of 9.2% from 26.8 million in the fourth quarter of 2023. which was mainly due to the fewer district-level project deliveries for our teaching and learning self-offerings as a result of the growing proportion of recurring revenue and a subscription model that requires fewer hardware and software deliveries. Gross profit for the first quarter of 2024 was $1. 12.3 million RMB, compared with 20.6 million in the fourth quarter of 2023. Gross margin for the fourth quarter of 2024 was 33.6%, compared with 43.6% in the fourth quarter of 2023. Total operating expenses for the fourth quarter of 2024 were 81.4 million RMB, including 15.5 million of share-based compensation expenses, representing a year-over-year decrease of 33.8% from 122.8 million in the fourth quarter of 2023. Net loss from operations. Loss from operations for the fourth quarter of 2024 was 69.1 million RMBs. compared with 102.3 million in the fourth quarter of 2023. Loss from operations as a percentage of net revenues for the fourth quarter of 2024 was negative 188.8%, compared with negative 216.0% in the fourth quarter of 2023. Net loss for the first quarter of 2024 was $63.7 million, compared with net loss of $98.4 million in the first quarter of 2023. Net loss as a percentage of net revenues was negative 174.2% in the first quarter of 2024, compared with negative 207.9% in the first quarter of 2023. Adjusted net loss non-gap for the fourth quarter of 2024 was 40.1 million RMB, compared with adjusted net loss non-gap of 81.8 million RMB in the fourth quarter of 2023. Adjusted net loss non-gap as a percentage of net revenues was negative 109.5% in the fourth quarter of 2024, compared compared with negative 172.8% of adjusted net loss, non-GAAP, as a percentage of net revenues in the fourth quarter of 2023. Please refer to the table captioned Reconciliations of Non-GAAP Measures to the Most Comparable GAAP Measures at the end of this press release for reconciliation of net loss and the U.S. GAAP to the adjusted net loss, non-GAAP. Cash and cash equivalents, restricted cash, and term deposits were 359.3 million RMB, equals 49.2 million U.S. dollars as of December 31, 2024, compared with 476.7 million as of December 31, 2023. As we look to the future, we remain steadfast in our commitment to advancing educational digitalization and enriching learning experiences. We will strengthen our core business operations while exploring new opportunities through dual focus on innovation and sustained growth. By prioritizing AI-driven solutions, we aim to redefine personalized education systems and empower learners, teachers, and educators with valuable insights. With that, that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Thank you.

Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star 1-1 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 1-1 again. Once again, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. Please stand by, we'll compile the Q&A roster. This will take a few moments. Dear participants, as a reminder, if you wish to ask a question, please press star 11. Dear speakers, there are no questions at this time. I would now like to hand the conference over to the management team for any closing remarks.

Thank you, operator. In closing, on behalf of 17 EdTech's 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.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.