17 Education & Technology Group Inc.

Good evening and good morning, ladies and gentlemen, and thank you for standing by for 17 ACTEC's third quarter 2025 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'll now turn the meeting over to your host for today's call, Ms. Lara Chow. 17th 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 Ms. Sishi Zhou, the Acting Chief Financial Officer, and myself, Investor Relations Manager. Sishi will walk you through our latest business performance and strategies, and I will discuss our financial performance in more details. After the prepared remarks, Sishi 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 U.S. Private Securities Litigation Reform Act of 1995. These forelooking statements are based upon management's current expectations and current market and operating conditions, and it 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 or factors is included in the company's filings with the US SEC. The company does not undertake any obligation to update any forwarding 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 Acting Chief Financial Officer to review some of our business development and strategic direction. Sishi, please go ahead.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our third quarter 2025 earnings conference call. Before we begin, I would like to note that the financial information and non-GAAP numbers in this release are presented on a continuing operational basis and in IMB, unless otherwise stated. Let me begin with our latest business updates. We maintained steady progress in our core business in the third quarter of 2025, marked by strong user engagement and healthy customer retention. We constantly invested in product innovation and service enhancements to effectively address evolving customer needs and deliver high-quality customer experience. We are deeply committed to align with national strategies of AI plus education initiative. which advocates integrating innovative intelligent learning companions into the entire education process, as well as adopting intelligent scenario-based interactive learning models. Following the successful launch of Yiqi Tongxue Intelligent Agent, we have successfully rolled out our new C&D product, Yiqi Aixue. This AI membership offering embodies our core philosophy of precision and personalized learning, seamlessly integrating smart hardware, advanced AI capabilities, extensive content resources and data insights accumulated in the past decade. The new product has received highly positive market response, indicating solid growth prospects for the future. Meanwhile, we have constantly focused on the efficiency of operation and resource investment, as well as the health of cash flow in the process of continuous innovation. Despite the company's increased investment in R&D to support the launch of new AI products, we still achieved a decrease in operating expenses and narrowed losses in the first nine months, reducing operating expenses by 29.8% and narrowing net loss by 21.5%, respectively. As of the end of this quarter, we still hold cash reserves of 341.9 million RMB. And the favorable market response to new products will further boast positive expectations for future cash flow. Looking ahead, we will continue to expand our teaching and learning product portfolio while balancing financial sustainability and innovation investment. The successful launch of our new C&AI project marks a new milestone in the company's AI transformation. We will further strengthen our product capabilities, improve customers' learning efficiency and experience, and drive the company's sustained and healthy growth. We firmly believe that this strategy will create long-term value for both our customers and shareholders. Now let me go into more details. During the quarter, our school-based subscription business maintained steady progress, achieving a double-digit year-over-year increase. with upselling opportunities for additional value-added services. In the meantime, the excellent customer retention rate mirrors positive user word of mouth, laying a foundation for sound customer relations and strengthening brand influence. The Chinese government has been actively advancing the integration of artificial intelligence across various sectors, including education industry. Notably, in April of this year, a joint policy issued by nine ministries and commissions, including the Ministry of Education, further underscored AI's strategic role in optimizing teaching and learning processes and fostering innovative education models. This policy orientation is highly aligned with the company's long-term vision and reinforces our confidence in deepening our investment in AI transformation. In response to the national initiative of embedding AI throughout the entire educational process and guided by our mission to make learning a wonderful experience, we are committed to enhancing AI capabilities across our full product portfolio. Following the August launch of Each Classmate, a generative AI agent embedded in our teaching and learning staff offerings at the 2025 Global Smart Education Conference, and the subsequent empowerment of our public welfare initiative, 100 districts, 1,000 schools, 10,000 teachers, to drive the rollout of educational digital transformation across multiple regions. We have newly launched Yiqi Aixue, an AI-powered precision learning product targeting C and users. LISI and AI membership product deeply integrates our massive high quality content resources accumulated over the past decade, as well as mature hardware systems and the proprietary AI capabilities. It is dedicated to delivering precise academic performance analysis and personalized learning recommendations to users. Through a hardware-software integrated solution, The product combines content resources, diverse AI interaction functions with smart devices such as the Smart Pen and the Tobii Smart Rabbit, creating a personalized, scenario-based, and immersive learning experience for users. Within the solutions offered by Yiqi Aixue, the Smart Pen collects writing data with high precision and in real time, efficiently digitizing paper notes, and visualizing the learning process. All writing traces, including every pause and correction, are analyzed via AI technology to accurately assess students' knowledge mastery and generate personalized academic performance reports. Additionally, leveraging the SmartPen's real-time learning content synchronization capability, the system automatically creates customized AI notes and mistake notebooks. and combines the company's high-quality content resources to deliver tailored learning plan recommendations to users. The product also incorporates Tobii Smart Rabbit as an intelligent learning companion, which provides emotional support to users, including timely study reminders, positive encouragement, and interactive Q&A through natural voices interaction. making precision learning solutions more actionable and accessible. The product preserves traditional pen and paper writing practices while capturing multi-scenario, multi-dimensional data. Paired with AI capabilities, it delivers precise, personalized academic diagnostics and customized learning recommendations. It also incorporates an intelligent learning companion to drive independent learning motivation. Beyond boosting learning outcomes, this precision learning model improves learning efficiency and eases academic burdens, representing a pragmatic, human-centric breakthrough in AI education integration that differentiates our offering in edtech space. Since the rollout of this product, it has received encouraging market feedback and a robust user demand, which not only demonstrates market recognition of its value, but also lays a solid foundation for the company's future growth. The above concludes the business updates. Now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Thank you, Sushi, and thank you, everyone, for joining the call. I will now walk you through our financial operating results. Please note that all financial data I talk about will be presented in R&D terms. In the third quarter, we continue to prioritize sustainable growth by investing in core product innovation and enhancing cost-discipline approach for improved operational efficiency. The impact is evident in our year-to-date figures. Total operational efficiency decreased by 29.8%, leading to a 21.5% reduction in net loss on a gap basis compared to the same period last year. Next, I will go through our financial data in greater detail. Net revenues. In the third quarter of 2025, we recorded net revenues of 20 million RMB, compared with 59.6 million RMB in the third quarter of 2024, representing a 66.4% decrease on a year-over-year basis, which was primarily due to the reduction in net revenues from district-level projects as we prioritize our resources on school-based projects under subscription model, which requires long period of revenue recognition. Cost of revenue for the third quarter of 2025 was $9.8 million, equals $1.4 million, representing an year-over-year decrease of 58.1% from $23.3 million in the third quarter of 2024. which was largely in line with the decrease of net revenues during the quarter. Gross profit for the third quarter of 2025 was 10.2 million RMB, compared with 36.3 million RMB in the third quarter of 2024. Gross margin for the third quarter of 2025 was 51.2%, compared with 60.9% in the third quarter of 2024. Total operating expenses for the third quarter of 2025 was 66.9 million RMB equals 6.0 million U.S. dollars, including 6.3 million RMB of share-based compensation expenses, representing a year-over-year decrease of 1.9% from 68.0 million in the third quarter of 2024. Sales and marketing expenses for the third quarter of 2025 was 15.9 million RMB, including 1.6 million RMB of share-based compensation expenses, representing an year-over-year decrease of 21.6% from 20.2 million RMB in the third quarter of 2024. This was primarily attributed to the improved efficiency in marketing and sales driven by enhanced customer retention compared with the same period last year. Research and development expenses for the third quarter of 2025 was 15.2 million RMB, including 2.1 million RMB of share-based compensation expenses, representing a year-over-year increase of 19.2% from 12.8 million RMB in the third quarter of 2024. The increase was primarily due to our increased HICOM in the research and development to support the rollout of our new product, offset by the decrease of share-based compensation. General and administrative expenses for the third quarter of 2025 were 25.8 million RMB, including 2.8 million RMB of share-based compensation. compared with 25.0 million RMB in the third quarter of 2024. Lost farm operations for the third quarter of 2025 was 46.6 million RMB, compared with 21.6 million RMB in the third quarter of 2024. Lost farm operations as a percentage of net revenues for the third quarter of 2025 was negative 233.1%, compared with negative 36.3% in the third quarter of 2024. Net loss for the third quarter of 2025 was 44.5 million RMB compared with net loss of 17.4 million RMB in the third quarter of 2024. Net loss as a percentage of net revenues was negative 222.5% in the third quarter of 2024 compared with negative 28.2%, 29.2% in the third quarter of 2024. Adjusted net loss non-GAAP for the third quarter of 2025 was 38.2 million RMB compared with adjusted net loss non-GAAP of 5.7 million RMB in the third quarter of 2024. Adjusted net loss as a percentage of net revenues was negative 191.0% in the third quarter of 2024, compared with negative 9.5% of adjusted net loss non-GAAP as a percentage of net revenues in the third 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 reconciliation of net loss under U.S. GAAP to the adjusted net loss non-GAAP. Cash and cash equivalents with restricted cash and term deposits were 341.9 million RMB, which equals 48.0 million U.S. dollar as of September 30th, 2025, compared with 341.9 million RMB 59.3 million RMB as of December 31, 2024. Looking to the future, in alignment with the trends of integrating AI into education, we will continue to upgrade our AI capabilities to deliver more efficient user-centric educational solutions. Through a more integrated business strategy, we aim to foster synergies across our business lines Creating a virtuous cycle that deepens customer engagement, strengthens the strategic value of our subscription model, and expands our market presence. These efforts represent vital pathways for long-term value creation and sustainable growth, delivering meaningful value for both our users and shareholders. With that, we conclude our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Thanks.

To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. There may be a short pause as attendees register their questions. Reminder, to ask a question, please press star 11 on your telephone keypad. I'm showing no questions, and I'll turn the conference back to Ms. Lara Chow for closing comments.

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