YXT.COM GROUP HOLDING LIMITED

Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to YXT.com's earnings conference call. At this time, all participants are in a listen-only mode. Please note that today's event is being recorded. Joining us today are YXT's CEO, director, founder, and chairman, Mr. Xiao-Yen Lu, also called Peter, CFO, Mr. Shin Tao, and Chief Growth Officer, Alan Wang. Peter will begin with a brief greeting, and then Mr. Towle will present the CEO's prepared remarks on his behalf. Following that, Mr. Towle will provide a detailed overview of our financial performance for the year. You can refer to YXT.com's H-1 financial results on IR website at ir.yxt.com. You can also access a replay of this call on the IR website when it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statements in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please note that all numbers stated in the following management's prepared remarks are in RMB terms, and we will be discussing non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and follows with the SEC. I will now turn the call over to the CEO, director, founder, and chairman of yxt.com, Peter.

Hello, everyone. This is Peter Lu, CEO of yxt.com. Thank you for joining us today.

Hello, everyone. This is Chen Shih-Po from yxt.com. Speaking on behalf of our founder and CEO, Peter, Welcome to yxt.com 2025 H1Earnings Conference Call. Thank you all for joining us today. Firstly, let's take a moment to look at what's happening across our industry. The corporate learning industry is going its most significant transformation in decades, driven by the rapid adopting of artificial intelligence AI. adaptive and data-driven learning ecosystems are replacing traditional training methods. AI is not just enhancing existing processes. It's fundamentally changing the way organizations develop talent, keep critical knowledge in-house, and stay ahead in a disrupted world. The shift driven by AI It even goes beyond the training industry. It presents the first-ever opportunity in which workforce enablement has more means than just learning and development. Traditionally, training that focused on teaching know-what was often considered as a cost center with difficulties evaluating ROI. AI-powered development activities can provide know-how in a co-pilot manner and are now recognized as a strategic lever for driving innovation, agility, and growth. Organizations that embrace this transformation are building more resilient workforces capable of adapting to rapidly changing market conditions and technological advancement. Then let me walk you through our financial results. Over the first half of 2025, we have made deliberate decisions to reposition Wexy.com for sustainable and high quality growth. This has involved shifting our focus towards large enterprise clients, prioritizing scalable and higher margin solutions, particularly in AI, and optimizing our cost structure. While these changes have impact specific short-term metrics, they are already driving measurable improvement in profitability and operational efficiency. Let me walk you through the details. Before we go through the financial results, let me note that all amounts are in RMB terms for the first six months ended June 30, 2025, and all comparisons are on a year-over-year basis, unless otherwise noted. Our total revenue declines by 7.8% year-over-year to RMB 152.9 million compared to the same period of last year, but this figure marks essential nuances. The decrease was primarily driven by two factors. The first one is our strategic shift. We intentionally reduced our exposure to small and medium-sized businesses. which had a higher churn and low lifetime value. This resulted in a net reduction of 123 subscription customers, down to 2,358. But the remaining clients are larger enterprises with more stable demand. The shift is also reflected in our net revenue retention rate, which moderated to 100.3% from 102.8% in the same period of last year, still demonstrating strong retention, albeit without a temporary boost from smaller customers. In terms of our business model, we further streamlined our revenue mix with subscription-based corporate learning solutions now accounting for 94.6% of total revenue, RMB 144.7 million. Decline of non-subscription revenue down 39% year-over-year to RMB 70.7 million. In line with our strategic focus focus on reducing lower margin offline services and building recurring scalable revenue streams. Notably, our AI-related product's monthly recurring revenue more than doubled to RMB 0.4%. 0.5 million up to RMB 0.2 million last year, a clear sign that our investments in AI are yielding measurable impact and will play a large role in future growth. Despite the decline in revenue, we achieved a 4 percentage point improvement in growth margin, reaching 65.1%. This expansion was fueled by our enhanced operational efficiency and optimized product mix. Our cost of revenues fell by 17.1%, mainly driven by lower staff expenses, optimized the third-party infrastructure, and reduced reliance on costly offline solutions. Higher margin subscription and AI product Products now represent a growing share of our revenue, driving improved profitability. We achieved meaningful cost reductions across key operating areas. With skills and marketing expenses declined 13.5% year-over-year through declined equine optimization and Process improvements. Similarly, our R&D expenditure decreased 19.2% as we enhanced development productivity and focused resources on higher priority initiatives. The G&A line item increased 20.5% was primarily due to the increase of professional service fees and the share-based companies compensation expense from our January 2025 long-term incentive plan. While the share-based incentive plan creates a short-term cost pressure, we view these equity grants as a critical investment in retaining and motivating our leadership team to execute our multi-year growth strategy. On a gap basis, we reported a net loss of RMB 73.9 million compared to net income of RMB 21.4 million in the same period of last year. However, last year's profit included one of RMB 78.8 million gain from the deconsolidation of CEIDS-PG. Our adjusted net loss improved by 15% year-over-year to RMB 64 million, demonstrating tangible progress in core operations. We ended the period of RMB 235.7 million in cash and short-term investment down from RMB 418.2 million at year-end 2024 This reduction reflects planned investment in AIR&D and working capital needs, but it remains well capitalized with a disciplined approach to debt management. Moving forward, our strategy remains centered on three pillars. First, we will deepen enterprise relationships by delivering more value to our large clients to improve retention and revenue. Second, we continue to scale our AI solutions with early results confirming their potential as a powerful driver of both growth and profitability. Third, we remain committed to cost management and strike the right balance between optimizing our existing fund structure and make targeted investments in direct deliver the highest returns. We are seeing clear progress in executing our strategy and we are confident these efforts will drive sustainable, profitable growth and moving forward. Thank you for joining us today. We are now very happy to answer your questions.