17 Education & Technology Group - Q1 2024

Transcript

Operator (participant)

Good evening, and good morning, ladies and gentlemen, and hank you for standing by for 17EdTech's first quarter 2024 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, Miss Lara Zhao, 17EdTech's Investor Relations Manager. Please proceed, Lara.

Lara Zhao (Head of Investor Relations)

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 Mr. Michael Du, Director and Chief Financial Officer, and myself, Investor Relations Manager. Michael will walk you through our latest business performance and strategies, and I will discuss our financial performance in more details. After the prepared remarks, Michael 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 Securities 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 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 achievement to differ materially. Further information regarding these and other risks, uncertainties, and factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking 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 Director and Chief Financial Officer to review some of our business development and strategic direction. Michael, please go ahead.

Michael Du (Director and CFO)

Thank you, Lara. Hello, everyone. Thank you all for joining us on our first quarter 2024 earnings call. Before we begin, I would like to note that the financial information and GAAP numbers in this release are presented on a continuing operation basis and the RMB, unless otherwise stated. Let me start with our latest business updates. In the first quarter, we continued to strengthen our core SaaS teaching and learning businesses through enhancing high-quality products and services solutions, extending sales and networks and sales services into new opportunity areas. Our primary business achieved robust growth with a notable top-line growth during the quarter. We have also been diversifying the formats of our services to cover a wider customer base and expand the range of services to increase revenue from both new and existing projects.

The wider customer base has also allowed us greater flexibility and resilience during this environment. During this quarter, our teaching and learning SaaS product business on our district-level projects exhibit consistent progress. It continued to generate revenues through successful delivery and new project winning. The total value of the district-level projects we have won so far have already exceeded RMB 40 million. Meanwhile, we have also made significant strides in securing orders from both public and private schools on a school-by-school basis. Such purchases have a much quicker decision process and are much easier and flexible to secure the required funding. This type of projects are also recurrent in nature, in nature, and are likely to expand into other individual schools in surrounding areas. Projects with these groups of clients typically follow subscription models with semiannual or annual renewal.

From such, from some of the early projects that have already experienced renewal process, we have seen revenue retention rates exceeding 100%, with additional classes and students, as well as functions being subscribed at the time of renewal. By now, we have already established strategic partnerships with more than 120 school groups, including several of which are private-operated school groups. As of today, our smart pens have been used on a daily basis at more than 600 schools by nearly 300,000 students and counting.

Such active regular use has led to more than 23 million homework assignments finished on our system, which creates valuable insights in the in-school teaching and learning scenarios and students' academic needs and weaknesses, which will in turn help us further improve our products and services and allow us to offer additional services that specifically catering to such needs. Recognizing one of the top providers of teaching and learning systems, applying to the latest smart pen technologies in China, we are leading the industry with advancements in product innovation, product efficiency, and service quality. The accumulation of rich customer data propels rapid product and service upgrades, thus fostering a strong, positive feedback loop. In terms of product and services offering, we enhanced our personalized products, offering precise students diagnosis based on comprehensive and scientific data collection from all teaching and learning scenarios...

This integration facilitates effective teaching, improves classroom quality, and assists teachers in providing tailored instructions. We have been continuously developing and refining our teaching and learning product services to further enhance teachers' teaching and students' learning efficiency. By leveraging the One Teaching, One Learning platform, features like random student selections, timer, comparative analysis of students' work, and visualization of students' writing and digital technology seamlessly integrating the classroom instructions, have significantly enhanced the teaching and learning experiences for both educators and students. As schools gradually adopt regular use of smart pens into their teaching and learning scenarios, new applications are being explored and attempted by themselves. Such new explorations have further contributed to our features addition and improvement. We are also making continuous investments in our sales network.

We have been building both our own sales team, as well as working with external agents to cover a wider customer base. During this quarter, we further boasted our direct sales capabilities to optimize customer relationship management and talent selection process, which significantly enhance our brand influence through standardized sales practice. Operational efficiency indicators, such as service personnel effectiveness and active user data, are continuously improving as our customer base expands. Looking to the future, we will continue to innovate and improve our products and services to meet the evolving user needs of digital learning experiences, providing high quality educational products and services that enhance effectiveness for a wider audience. Now, I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Lara Zhao (Head of Investor Relations)

Thanks, Michael, and 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 RMB terms. I would like to remind you that these quarterly results we present here should be taken with care, and reference to our potential future performance and subject to potential impacts from seasonality and one-off events as a result of the series of regulations introduced in 2021, and the corresponding adjustment to our business model, organization, and workforce. In the first quarter of 2024, we recorded net revenues of RMB 25.5 million, compared with RMB 9.3 million in the first quarter of 2023, representing a 175% increase on a year-over-year basis.

The net loss for the first quarter of 2024 was RMB 56.1 million, compared with RMB 92.5 million in the first quarter of 2023. The adjusted net loss non-GAAP for the first quarter of 2023 was RMB 42.7 million, compared with the adjusted net loss non-GAAP of RMB 64.0 million in the first quarter of 2023. Gross margin for the first quarter of 2024 was 38.4%, compared with 24.4% in the first quarter of 2023. As of March 31, 2024, we have cash reserves of RMB 447.2 million on our balance sheet, providing sufficient funds for future development. Next, I will go through our first quarter financials in greater detail. Net revenues.

Net revenues for the first quarter of 2024 were RMB 25.5 million, representing a year-over-year decrease of 175% from RMB 9.3 million in the first quarter of 2023. This was mainly due to the increased number of teaching and learning SaaS contracts and the recurring revenue generated from the ongoing project. Cost of revenue for the first quarter of 2024 was RMB 15.7 million, representing a year-over-year increase of 124% from RMB 7 million in the first quarter of 2023, which was largely in line with the increase of net revenue, and mainly attributed to a higher proportion of deliveries in our teaching and learning SaaS projects during the quarter.

Gross profit for the first quarter of 2024 was RMB 9.8 million, compared with RMB 2.3 million in the first quarter of 2023. Gross margin for the first quarter of 2024 was 38.4%, compared with 24.4% in the first quarter of 2023. Total operating expenses for the first quarter of 2024 was RMB 72.7 million, including RMB 13.4 million of share-based compensation expenses, representing a year-over-year decrease of 31.6% from RMB 106.3 million in the first quarter of 2023. Loss from operations for the first quarter of 2024 was RMB 62.9 million, compared with RMB 104 million in the first quarter of 2023.

Loss from operations as a percentage of net revenues for the first quarter of 2024 was -246.7%, compared with -1,121.8% in the first quarter of 2023. Net loss for the first quarter of 2024 was RMB 56.1 million, compared with net loss of RMB 92.5 million in the first quarter of 2023. Net loss as a percentage of net revenues was -219.9% in the first quarter of 2024, compared with -997.9% in the first quarter of 2023.

Adjusted net loss non-GAAP for the first quarter of 2024 was RMB 42.7 million, compared with adjusted net loss non-GAAP of RMB 64 million in the first quarter of 2023. Adjusted net loss non-GAAP as a percentage of net revenues was -167.4% in the first quarter, compared with -690.9% of adjusted net loss as a percentage of net revenues in the first quarter of 2023. 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 a reconciliation of net loss under the U.S. GAAP to adjusted net loss non-GAAP.

Cash and cash equivalents, restricted cash and term deposits were RMB 447.2 million as of March 31, 2024, compared with RMB 476.7 million as of December 31, 2023. As we look to the future, the company is committed to advancing educational digitalization and enhancing learning experiences. With a focus on efficiency, quality and sustained growth, we are dedicated to broadening our offerings and embracing new technologies. Through strategic innovation and streamlined operations, we aim to generate sustainable value for our clients and shareholders. With that, that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

Operator (participant)

Thank you. If you would like to ask question, please press star one one on your telephone and wait for your name to be announced. To cancel your request, please press star one one again. Please stand by while we compile for Q&A roster. As a reminder, if you'd like to ask question, please press star one one. There are no question at this time. Allow me to hand the call back to management for closing.

Lara Zhao (Head of Investor Relations)

Thank you, Operator. In closing, on behalf of 17EdTech'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 the call.

Operator (participant)

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may now disconnect your line.