17 Education & Technology Group Inc.

Good evening and good morning, ladies and gentlemen, and thank you for standing by for 17th EdTech's first quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the management repair remarks, there will be a question and answer session. As an reminder, today's conference call is being recorded. I'll now turn the meeting over to our host for today's call, Ms. Lara Chow, 17th EdTech's Investor Relations Manager.

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, Sishu 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 forward-looking 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 forward-looking statements are based upon management's current expectations and current market and operating conditions. and relates to events that involve known and known 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 US SEC. 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 and applicable law. I will now turn the call over to our Chief Financial Officer to review some of our business development and strategic direction. Xixi, please go ahead.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our first quarter 2026 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 operation basis and in RMB, unless otherwise stated. Let me begin with our first quarter business highlights. We delivered a strong start to 2026, with first quarter revenue increasing more than fourfold year over year and 155% sequentially. The growth was primarily driven by the continued expansion of Yiqi Aixue, our consumer-facing AI application service for personalized learning. At the same time, improving scale and disciplined execution contributed to meaningful progress in profitability. Growth margin increased to 61.9%, while gap net loss narrowed significantly both year over year and quarter over quarter. These results demonstrate the growing contribution of our AI-powered application services and validate the strategic transformation we have been undertaking. Over the past year, we have accelerated our transformation from an education technology company into an AI-powered application service provider focused on personalized learning. Leveraging more than a decade of large-scale educational insights accumulated through daily teaching and learning interactions across diverse educational scenarios, together with deep user engagement and growing AI capabilities. We are building application services that serve students, educators, schools, and education systems alike. Yiqi Aixue has quickly become an important growth driver for the company. The product combines our proprietary smart learning hardware, AI capabilities, and extensive educational insights to deliver localized and personalized learning experiences for students and families. Its early market traction further reinforces our belief that AI-powered personalization can create meaningful value for learners when supported by deep educational expertise and real-world learning data. Our competitive advantage is built on a combination of educational insights, user relationships, and AI capabilities. Over more than a decade, we have accumulated large-scale learning insights generated through daily teaching and learning activities across schools, classrooms, and households. These insights provide a unique foundation for understanding how students learn, where they encounter difficulties, and how personalized interventions can improve learning outcomes. Combined with our AI capabilities, this foundation enables us to continuously improve personalization, recommendation accuracy, and user experience across our application services. We're building an integrated AI-powered education ecosystem that connects education systems, educators, students, and families through a unified AI and data infrastructure. Our government and school-oriented offerings provide access to real teaching and learning scenarios, generating valuable educational insights and enabling the deployment of AI-powered solutions that improve teaching efficiency and educational outcomes. Our school-based AI application services further extend these capabilities through scalable tools and intelligent assistance designed for educators and students. At the consumer level, Yiqi iXue delivers personalized learning experiences directly to students and families. Together, these offerings form a continuous learning flywheel. Educational insights accumulated across teaching and learning scenarios strengthen our AI capabilities, which in turn enhance user experiences and application performance across all segments. We believe this integrated ecosystem positions us well to capture the long-term opportunities created by AI-driven transformation in education. Looking ahead, we remain encouraged by the progress of our AI-powered application services and opportunities ahead. Based on our current business outlook, we expect strong year-over-year revenue growth and continued improvement in operating performance throughout 2026. As we continue to scale our business Quarterly results may vary, and we remain focused on long-term value creation and disciplined execution. We will continue to invest in product innovation while maintaining prudent capital allocation. We believe our educational insights, deep user engagement, and growing AI capabilities will provide a strong foundation for sustainable long-term growth. This concludes our business update. I will now turn the call over to Lara to walk you through our financial performance in detail. Thank you.

Thank you, Sishi. I will now walk you through our financial and operating results for the first quarter of 2026. Please note that all financial figures will be presented in RMB terms unless otherwise stated. We are pleased to report a strong financial result for the first quarter of 2026. Our net revenues for the first quarter of 2026 were 99.5 million RMB, 14.4 million US dollar, representing a year-over-year increase of 359.0% from 21.7 million RMB in the first quarter of 2025. The substantial growth was primarily driven by the continued expansion of Yi Jiai Xue, our consumer-facing, AI-powered membership product, complemented by the steady contributions from a district level and school-based subscription projects. Cost of revenues for the first quarter of 2026 was 37.9 million RMB, 5.5 million US dollar, compared with 13.8 million RMB in the first quarter of 2025, representing a year-over-year increase of 173.7%. The increase was primarily attributable to the scaling of our AI-powered application services in support of ETI's rapid growth and the associated service delivery cost. Gross profit for the first quarter of 2026 was 61.6 million RMB, 8.9 million US dollar, compared with 7.8 million RMB in the first quarter of 2025. representing an year-over-year increase of approximately 686.2%. Gross margin for the first quarter of 2026 was 61.9%, compared with 36.2% in the first quarter of 2025, representing an improvement of 25.7 percentage points. The increase in gross margin was primarily attributable to the growing contribution of the company's AI-powered application services and the continued optimization of the company's revenue mix. Total operating expenses for the first quarter of 2026 were 82.9 billion RMB, 12.0 million US dollar, including share-based compensation expenses of 4.2 million RMB compared with 41.7 million RMB in the first quarter of 2025, representing an year-over-year increase of 98.7%. Sales and marketing expenses for the first quarter of 2026 were 43.2 million RMB, 6.3 million US dollar, compared with 13 million RMB in the first quarter of 2025. an increase of 232.0% year-over-year. The increase was primarily due to the increased sales and marketing efforts to support the rapid user acquisition and the market expansion of ETI Xue. Research and development expenses for the first quarter of 2026 were 16.2 million RMB, 2.3 million US dollar, compared with 12.8 million 6 million RMB in the first quarter of 2025, an increase of 28.5% year-over-year, reflecting our continued investment in AI product capabilities and product innovation to support the expansion of Yiqi Aixue. General and administrative expenses for the first quarter of 2026 were 23.5 million RMB, 3.4 million US dollar, compared with 16.1 million RMB in the first quarter of 2025, an increase of 45.9% year-over-year. The increase in general and administrative expenses was primarily attributable to the higher personnel-related costs associated with the supporting of the company's business growth and strategic initiatives and provision for credit losses for accounts receivables in the ordinary business course. Lost farm operations for the first quarter of 2026 was 21.3 million RMB, 3.1 million US dollar, compared with 33.9 million RMB in the first quarter of 2025. As a percentage of net revenues, lost farm operations improved significantly to negative 21.4%. compared with negative 156.3% in the first quarter of 2025. Net loss for the first quarter of 2026 was 19.4 million RMB, 2.8 million US dollar, compared with 30.9 million RMB in the first quarter of 2025, representing a year-over-year reduction of 37.4%. Net loss as a percentage of net revenues was negative 19.5% in the first quarter of 2026, compared with negative 142.8% in the first quarter of 2025. Adjusted net loss non-GAAP for the first quarter of 2026 was 15.1 million RMB, 2.2 million US dollar, compared with adjusted net loss non-GAAP of 22.4 million RMB in the first quarter of 2025. Adjusted net loss non-GAAP as a percentage of net revenues was negative 15.2% in the first quarter compared with negative 103.4% in the first quarter of 2025. Please refer to the table captioned Reconciliations of our Non-GAAP Measures to the Most Comparable GAAP Measures at the end of this press release. for reconciliation of net loss under the US GAAP to the adjusting net loss non-GAAP. Cash and cash equivalents restricted cash and term deposit was 352.4 million RMB, 51.1 million US dollar as of March 31st, 2026, compared with 407.0 million RMB as of December 31st, 2025. The company maintains a healthy cash position that provides the financial flexibility to support continued investment in product innovation, AI capability development, and strategic growth initiatives. As we look ahead, we remain encouraged by the progress of our AI-powered application services and firmly committed to our strategic transformation. We are excited about the opportunities ahead and will remain focused on disciplined execution, prudent capital allocation, while creating sustainable long-term value for our shareholders. With that, we conclude our prepared remarks. Thank you. Apreta, we are now ready to begin the Q&A session.

Thank you, management. We will now begin the question-and-answer session. To ask a question on the phone, please press star followed by 1 and 1. 1&1 on your telephone and wait for a name to be announced. If you'd like to cancel your request, you can press star 1&1 again. As a reminder, if you'd like to ask questions, please press star 1&1 on your telephone. At this time, there are no questions from the phone line. Allow me to hand the call back to the management. Please continue.

Thank you, operator. In closing, on behalf of 17 edX management team, we'd like to thank you for your participation in today's call. If you require any further information, please feel free to contact us directly. We appreciate your continued interest and support. Thank you for joining us today. This concludes the call.

That does conclude today's conference call. Thank you for your participation.