17 Education & Technology Group Inc.

And good morning, ladies and gentlemen, and thank you for standing by for 17XX First Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. After the mention'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. Laura Zhao, 17XX Investor Relations Manager. Please proceed, Laura.

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 Ms. Sushi Zhou, the Acting Chief Financial Officer, and myself, Investor Relations Manager. Sushi will walk you through our latest business performance and strategies, and I will discuss our financial performance in more detail. After the prepared remarks, you 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 U.S. Private Securities Litigation Reform Act of 1995. These four looking 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 and certainties or factors is included in the company's filing with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information due to events or otherwise except as required under applicable law. I will now turn the call over to our Acting Chief Financial Officer to review some of our business developments and strategic direction. Fisher, please go ahead.

Thank you, Laura. Hello, everyone. Thank you all for joining us on our first quarter 2025 earnings conference call. Before we begin, I would like to note that the financial information on the non-GAAP numbers in this release are presented on a continuing operation basis and in RMD. unless otherwise stated. And let me begin with our latest student updates. We are pleased to report a strong performance in the first quarter of 2025. This quarter has marked significant progress and innovation, particularly with the successful trial and implementation of our AI-powered product upgrades. facilitating teaching and learning efficiency by delivering intelligent, adaptive solutions that enhance daily instructional decision-making, providing more personalized learning experiences for students. During the quarter, we have seen a strong growth in both new contract acquisitions and the expansion of our existing customer base. Our staff subscription business has risen as more schools and educational organizations recognize the value of our AI-powered solutions, showcase a strong retention rate, and increase adoption of our value-added offerings. In the first quarter of 2025, we recorded net revenues of RMB 21.7 million, representing a 15% decrease from the previous quarter last year, which was primarily due to the reduction in net revenues from district-level projects. as we prioritize our resources on school-based projects on a subscription model, which generally have longer revenue recognition periods. As we improve operational efficiency, operating expenses reduced by 42.6% compared to the same quarter last year, resulting in a 44.8% reduction in net loss on a gap basis. Looking ahead, we will remain vigilant in monitoring our financial performance and making strategic decisions to ensure a long-term success and sustainability of our business. And now let me go into more details. During the quarter, our district-level teaching and learning staff business remained steady, continuously contributing an important portion in revenue recognition. Recently, we successfully supported Shanghai Minhang District to launch a specialized generative intelligent agent cluster and demonstrated it at the Shanghai Education Expo. The intelligent agent integrates universal large language models, leverage vast real-time teaching and learning database in Minhang District, and integrating with the localized technology system, aiming to provide precise, contextualized support for learners and educators, so that we can transform education services from knowledge transmitters to competency development. And following the successful launch of the new AI-powered solution in Shanghai Minhang, we are confident that this offering will expand to other regions and serve as a model for potential partners pursuing transformative learning technologies. This initiative demonstrates our expertise in educational innovation by delivering adaptable, high-value AI-powered solutions that enhance daily instructional decision-making, improve teaching and learning efficiency, and promote high-quality regional education development. And our school-based subscription business has sustained a steady growth driven by a year-over-year increase in newly subscribed students This momentum underscores its strategic importance as a critical contributor and integral component of our overall revenue, which will continue to prioritize resource allocation. And during the quarter, we have seen heightened demand and enthusiasm for our offerings in our partner schools, reflecting in a higher retention rate and increased adoption of our expandable value-added services. Over 90% of renewal customers opted to continue their subscriptions, with many expanding their service coverage. This strong retention and upselling potential not only reinforce customer engagement and loyalty, but also safeguards the business for long-term sustainable growth. And as for our product and service offerings, have been continuously upgraded with innovation, driving customer satisfaction and business growth. By integrating AI into core teaching and learning scenarios, including lesson planning, in-class interaction, assignment design, automated grading, we have given analysis and personalized learning recommendations. We aim to streamline teachers' workflows, empowering them with evidence-based decisions, and individualize the learning path for each student. Specifically, our intelligent voice and classroom monitoring functions are expected to boost classroom efficiency. A smart companion for teachers, it helps teachers understand students' thinking process and learning states while providing teaching research support. Teachers can interact with their small assistants in real time, analyzing multidimensional data that has students' response time, thinking patterns, as well as learning trajectories, identifying group and individual differences with market-type learning analytics so that evidence-based teaching decisions can be made. Our intelligent solutions can customize classroom exercises and after-school assignments for students based on personalized learning conditions, automatically grade them, and generate some dynamic error correction notebooks, and provide customized problem-solving ideas and follow-up teaching suggestions. These advancements reduce teachers' workloads while enhancing students' learning efficiency and achievement. Today, we have conducted trials in over 52 schools, providing teaching administrators with data-driven management tools covering the entire teaching scenario, as well as demonstrating scalable verification potentials of this model. And in terms of distribution channels, our market channel marketing efforts and strategic partnerships have further solidified our presence in high-growth markets. We have consistently prioritized strategic market penetration by diversifying our distribution methods and fostering collaboration. By aligning product development with emerging educational trends and enhancing our distribution network, we have improved product delivery and customer engagement, leveraged data analytics for targeted marketing and deeper customer insights. And now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Thanks. 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 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 first quarter of 2025, we recorded net revenues of RMB 21.7 million, compared with RMB 25.5 million in the first quarter of 2024, representing a 15% decrease on year-on-year basis. which was primarily due to the reduction in net revenues from district-level projects as we prioritized our resources on school-based projects and their subscription model, which generally have longer revenue recognition period. Gross margin for the first quarter of 2025 was 36.2% compared with 38.4% in the first quarter of 2024. Net loss on gap basis for the first quarter of 2025 was 30.9 million RMB, compared with 56.1 million RMB in the first quarter of 2024, representing a decrease of 44.8% year-on-year. The adjusted net loss non-gap for the first quarter of 2025 was 22.4 million RMB, compared with adjusting net loss net gap of 42.7 million RMB in the first quarter of 2024, a decrease of 47.5% year-on-year. As of March 31st, 2025, we have cash reserves of 333.3 million RMB on our balance sheet, compared with 359.3 million RMB as of December 31, 2024. Next, I will go through our first quarter financials in greater detail. Next, revenues. Next, revenues for the first quarter of 2025 were RMB 21.7 million, representing a year-over-year decrease of 16.0% from 25.5 million RMB in the first quarter of 2024. This was mainly due to the reduction in net revenues from the district-level projects, as we prioritized our resources on school-based projects and an increasing number of contracts and the self-subscription model, which requires longer periods of revenue recognition. Cost of revenues for the first quarter of 2025 was 13.8 million RMB. representing a year-over-year decrease of 11.9% from 15.7 million RMB in the first quarter of 2024, which was largely in line with the decrease of net revenues during that quarter. Gross profit for the first quarter of 2025 was 7.8 million RMB, compared with 9.8 million in the first quarter of 2024. Growth margin for the first quarter of 2025 was 36.2%, compared with 38.4% in the first quarter of 2024. Total operating expenses for the first quarter of 2025 was 41.7 million RMB, including 8.5 million RMB of share-based compensation expenses, representing a year-over-year decrease of 42.6%, from 72.7 million RMB in the first quarter of 2024. Lost from operations for the first quarter of 2025 was 33.9 million RMB, compared with 62.9 million RMB in the first quarter of 2024. Lost from operations as a percentage of net revenues for the first quarter of 2025 was negative 156.3%, compared with negative 246.7% in the first quarter of 2024. Net loss for the first quarter of 2025 was 30.9 million RMB, compared with the net loss of 36.1 million in the first quarter of 2024. Net loss as a percentage of net revenues was negative 142.8%, in the first quarter of 2025, compared with negative 219.9% in the first quarter of 2024. Adjusted net loss, net gap. Adjusted net loss, net gap for the first quarter of 2025 was 22.4 million RMB, compared with adjusted net loss, net gap of 42.7 million RMB in the first quarter of 2024. Adjusted net loss non-GAAP as a percentage of net revenues was negative 103.4% in the first quarter of 2025, compared with negative 167.4% of adjusted net loss non-GAAP as a percentage of net revenues in the first quarter of 2024. 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 the reconciliation of net loss under U.S. GAAP to adducted net loss, non-GAAP. Cash and cash equivalents, restricted cash, and term deposits. Cash and cash equivalents, restricted cash, and term deposits were 333.3 million RMB, equals U.S. 45.3 $9 million as of March 31, 2025, compared with 359.3 million RMB as of December 31, 2024. Next, I'd like to share a brief update from our board. We warmly welcome Mr. Guixiang as an independent director and a member of Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee of the Board. Mr. Jiang has extensive experiences in FinTech and education sectors, and we are confident that his insights will further strengthen 17iTech's strategic direction, governance, and operations. We also extend our sincere gratitude to Mr. Jiang, for his outstanding service and invaluable contributions as he retired. Additionally, Mr. Michael Chow Du has resigned as director and chief financial officer, and the company announced appointing Ms. Sishu Zhou as our acting chief financial officer. Ms. Zhou joined the company in December 2020. 2020 and has served as financial director since June 2022, overseeing the company's overall financial operations, including financial reporting, business analysis, and strategy team. Ms. Zhou brings extensive financial expertise and has held advisory roles at several multinational companies, as well as senior auditor at PWC, Zhong Tian CPA's LLP. She received a dual bachelor's degree in accounting and law from Tsinghua University in 2011 and her MBA from Peking University's Guanghua School of Management in 2023. We welcome Mr. Jia and Ms. Zhou to the leadership team. They're at the joint Expertise will be instrumental as we drive forward to our next growth phase. We also sincerely thank Mr. Michael Chowdhury and Mr. Jiawei Gan for their invaluable contributions during their tenure with the company. Moving forward, 17th EdTech will take AI-driven educational innovation as its core focus. deeply integrating AI-plus education to actively align with the national strategy for the educational digital transformation and upgrading. The company remains unswerving in its commitment to enriching learning experiences while upholding the mission of making learning a wonderful experience. Centered on delivering efficient, high-quality educational products and solutions, We aim to maintain growth momentum, enhance operational efficiency, and steadily drive long-term, stable, and sustainable development. With that, that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Thank you. To ask a question, please press star 11 on your telephone and write your name to be announced. To resolve your questions, please press star 11 again.

There may be a short pause while we compile the Q&A roster. Once again, to ask a question, please press star 11 on your telephone keypad. As a reminder, to ask a question, please press star 11 on your telephone keypad. I'm showing no questions. I'll now turn the conference back to Ms. Lara Chell for closing comments. Thank you, operator.

In closing, on behalf of 17 Air Tax 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 for your participation in today's conference. This does conclude the program. You may now disconnect your lines.