17 Education & Technology Group Inc.

Good morning, ladies and gentlemen, and thank you for standing by for 17 Actex Fourth Quarter 2025 and Full Year Earnings Conference Call. At this time, all participants are in the listen-only mode. After 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 Zhao, 17 Actex 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, 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 detail. After the prepared remarks, you should well 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 four looking statements are based upon management's current expectations and current market and operating conditions and relates to events that involve known or unknown risks and certainties or 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 or other factors other risks and certainties or factors is included in the company's filings with the U.S. 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 and under applicable law. I will now turn the call over to our Chief Financial Officer to review some of our business developments and strategic directions.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our fourth quarter and full year 2025 earnings conference call. Before we begin, I would like to note that the financial information and the non-GAAP numbers in this release are presented on a continuing operational basis and in RMB, unless otherwise stated. Let me begin with our latest business updates. In the fourth quarter of 2025, we continued to deliver steady progress in our core business, with top-line growth on a year-over-year and quarter-on-quarter basis. Our school-based subscription model business continued to expand, contributing a growing share in total revenue, emerging as a key contributor during the quarter. Meanwhile, we successfully launched our new consumer-based product, Yiqi Aishi, which is closely aligned with the National AI Path Education Initiative, Leveraging the brand recognition and user trust cultivated over the past decade, our new AI membership process has achieved strong pre-sale orders and received highly positive market feedback since its launch, demonstrating its robust growth process in the quarter's ahead. Notably, the robust pre-sale demand for our new product generated a significant increase in free cash flow. As of quarter end, we maintained a healthy cash balance of RMB 407 million, reflecting the promising trajectory of our new AI-powered offerings and the positive expectations for future cash flow. Now, let me go into more details. In the fourth quarter of 2025, we recorded net revenues of RMB 38.9 million, an increase of 94.6% quarter-on-quarter basis, and a 6.4% growth on a year-over-year basis. Driven by the growing contribution of recurring revenue under subscription model, as well as our consistent commitment to cost control, growth was restored to a normalized level of 46.1% in Q4, a 12.5 percentage point increase on a year-over-year basis. Benefiting from sustained efficiency improvements, our net loss narrowed by 16.8% year-over-year. We also generated positive net operating cash inflow in the quarter, driven by the strong momentum of our new C&E business and continuous improvements in operational efficiency. During the quarter, our school-based subscription model business maintained positive progress, contributing a growing share of total revenue. The increase in net revenues from this segment reflects its recurring nature as it continues to scale effectively. The steady progress of our school-based subscription business has not only strengthened our financial health, including growth margins and other key metrics, but also helped us reach a broader base of potential users and enhance brand influence, laying a solid foundation for the launch of our CN business. 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, during the quarter, we successfully rolled out an AI-personalized learning membership project, TGIC, targeting CM users. Leveraging the user trust built over years, strong brand endorsement from our district-level and school-based projects as well as mature smart hardware capabilities and a solid AI foundation. This new AI membership project has garnered a strong market enthusiasm and a robust pre-order volume. In the design of this product, we are committed to enabling users to achieve a more personalized, effective, and enjoyable learning experience in less time. It deeply integrates our hardware and software capabilities, together with the extensive content resources we have built over the past decade. Our smart pen captures full-process writing data while respecting traditional pen and paper habits. It efficiently digitalizes handwritten notes and exercises responses, visualizing users' thinking process rather than simply uploading final answers. By visualizing these thinking patterns, we are able to deliver personalized learning diagnostics generate AI-powered customized practice notes, and intelligently recommend similar learning exercises, enabling highly efficient and focused learning practice. Users own notes taken with this with support for custom tags, technicalization, and quick search. As a result, users can quickly identify their learning areas for improvement, without spending extra time manually organizing paper notes, compiling practice notes, or searching for relevant problems. In addition, our AI planner provides study supervision based on personalized diagnostics and offers tailored learning plans aligned with the local learning schedules and individual progress. This allows users to focus on their growth areas and improve efficiently. These personalized practice and planning capabilities are backed by our 10 years of deep insights into local learning profiles, supported by massive data from large-scale regular full scenario usage across our platform. The product also features interactive tools, including AI Q&A and AI translation, etc., along with a suite of value-added learning resources. Notably, we have introduced Tobii Smart Rabbit, an intelligent learning companion that provides emotional support through natural voice interaction. It reminds users to study, offers encouragement, and makes the learning experience warmer and more engaging, helping users stay consistent with their personalized learning journeys. Looking ahead, we will continue to explore innovation practices in AI health education and steadily reiterate and upgrade our products. Our business segments serving GM, BN, and CN users will grow in synergy as we further strengthen our brand influence and enhance user value. The above concludes the business update. Now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Thanks, Sishi, and thank 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. We are pleased to announce Ohio State financial results for the fourth quarter of 2025, with top-line growth of 94.6% on a quarter-on-quarter basis. Growth margin for the fourth quarter of 2025 was 46.1%, representing a 12.5 percentage point increase on a year-on-year basis, compared to the same period last year. Meanwhile, our continued focus on operational efficiency resulted in narrowing losses in the fourth quarter and the fiscal year of 2025. Despite an increase in sales and marketing expenses in support of the launch of our new AI-powered consumer business, we achieved a reduction in total operating expenses for the fourth quarter and full year of 2025 by 10.9% and 24.3% respectively, resulting in narrowing losses by 10%. 16.8% and 20.0% respectively on a gap basis. Next, I will walk you through our fourth quarter financials in greater detail. Net revenues. In the fourth quarter of 2025, we recorded net revenues of RMB 38.9 million. Compared with 36.6 million RMB in the fourth quarter of 2024, representing a 6.4% increase on year-on-year basis, which was primarily due to the increase in net revenues from the school-based subscription model business, which is demonstrating its recurring nature as it continues to scale. Cost of revenues for the fourth quarter of 2025 was RMB 21.0 million, $3.0 million representing a year-over-year decrease of 13.6% from RMB 24.3 million in the first quarter of 2024, which was mainly due to the fewer district-level project deliveries for our teaching and learning staff offerings. As a result of a new as a result of growing proportion of recurring revenue and a subscription model that requires fewer hardware and software deliveries. Gross profit for the fourth quarter of 2025 was RMB 17.9 million, 2.6 million US dollar, compared with RMB 12.3 million in the fourth quarter of 2024. Gross margin for the fourth quarter of 2025 was 46.1% compared with 33.6% in the fourth quarter of 2024, representing a 12.5 percentage point increase on year-on-year basis. The increase was largely attributable to higher contribution from the school-based subscription business with higher margins, as well as enhanced operating leverage as our subscription model business grows. Total operating expenses for the fourth quarter of 2025 were RMB 72.5 million, which is 10.4 million U.S. dollars, increased RMB 8.9 million of share-based compensation expenses, representing a year-over-year decrease of 10.9 percent from RMB 81.4 million in the fourth quarter of 2024. Sales and marketing expenses for the fourth quarter of 2025 was 40.2 million RMB, including 1.7 million RMB of share-based compensation expenses, representing a year-over-year decrease of 99.0 from 20.2 million in the fourth quarter of 2024. This was primarily attributed to the increased market sales workforce and related expenses in support of the launch of our new AI-powered consumer business. Research and development expenses for the fourth quarter of 2025 were RMB 16.3 million, 2.3 million U.S. dollar, including 2.9 million RMB of share-based compensation expenses. representing a year-over-year decrease of 3.8% from 17.0 million RMB in the fourth quarter of 2024. The decrease was primarily due to the decrease in the share-based compensation compared with the same period last year. Generating an administrative expenses for the fourth quarter of 2025 were RMB 16.0 million, $2.3 million in creating, including 4.3 million RMB of share-based compensation expenses, representing a year-over-year decrease of 63.8% from 44.2 million RMB in the fourth quarter of 2024. This was primarily due to the decrease in share-based compensation and the effect of one of the expenses in impairment loss provision in the fourth quarter of 2024. Loss from operations for the first quarter of 2025 was RMB 54.86 million, 7.8 million U.S. dollar, compared with 69.1 million RMB in the fourth quarter of 2024. Loss from operations as a percentage of net revenues for the fourth quarter of 2025 was negative 142.2%. of 140.2% compared with negative 188.8% in the fourth quarter of 2024. Net loss for the fourth quarter of 2025 was RMB 63 million compared with net loss of 63.7 million in the fourth quarter of 2024. Net loss as a percentage of net revenues was negative 136.1% in the fourth quarter of 2025 compared with negative 174.2% in the fourth quarter of 2024. Adjusted net loss non-GAAP for the fourth quarter of 2025 was RMB 44.1 million, which is $6.3 million compared with adjusted net loss non-GAAP of 40.1 million RMB in the fourth quarter of 2024. Adjusted net loss non-GAAP as a percentage of net revenues was negative 100% in the fourth quarter of 2025, compared with negative 109.5% of adjusted net loss as a percentage of net revenues in the fourth quarter of 2024. Please refer to the table caption, the reconciliations of non-GAAP measures the most comparable gap measures at the end of this press release for reconciliation of net loss under U.S. GAAP to the adjusting net loss non-GAAP. Cash and cash equivalents, restricted cash and term deposits, were RMB $407.0 million, which is $58.2 million as of December 31, 2025. compared with RMB 359.3 million as of December 31st, 2024. Going forward, we will continue to strengthen our core strengths with the advancements of AI capabilities serving as a key driver of our sustainable growth. At the same time, we will further enhance cross-business synergies and reinforce our business resilience to support long-term development These integrated efforts enable us to combine our respective strengths and deliver consumer-centric offerings that truly resonate, creating a sustainable growth pathway that generates lasting value for both learners and shareholders. With that, we conclude our prepared remarks. Thank you. Okay, we are now ready to begin the Q&A session.

Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. There may be a short pause as attendees register their questions. Once again, that's star 11 for question. As a reminder, to ask a question, please press star 1 1 on your telephone keypad. I am showing no questions, and I'll turn the conference back to Ms. Lara Zhao for closing comments.

Thank you, operator. On behalf of 17iTech'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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.