17 Education & Technology Group Inc. Q1 FY2025 Earnings Call

Good evening, and good morning, ladies and gentlemen, and thank you for standing by for 17EdTech's First Quarter 2025 Earnings Call. 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, 17EdTech'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 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 achievements to differ materially. Further information regarding these and other risks, uncertainties or 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 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 first quarter 2025 earnings conference call. Before we begin, I would like to note that the financial information on the non-GAAP numbers in this release are presented on a continuing operations basis and in RMB, unless otherwise stated. Let me begin with our latest business updates. We are pleased to report a strong performance in the first quarter of 2025. This quarter has marked significant progress and innovation particularly with the successful trial and implementation of our AI-powered product upgrades facilitating teaching and learning efficiency by delivering intelligent adaptive solutions that enhance daily instructional decision making, providing more personalized learning experiences for students. During the quarter, we have seen a strong growth in both new contract acquisitions and the expansion of our existing customer base. Our SaaS subscription business has risen as more schools and educational organizations recognize the value of our AI-powered solutions, showcased in strong retention rates and the increased adoption of our value-added offerings. In the first quarter of 2025, we recorded net revenues of RMB 21.7 million, representing a 15% decrease from the previous quarter last year, which was primarily due to the reduction in net revenues from district-level projects as we prioritized our resources on school-based projects on a subscription model which generally have longer revenue recognition periods. As we improved operational efficiency, operating expenses reduced by 42.6% compared to the same quarter last year, resulting in a 44.8% reduction in net loss on a GAAP basis. Looking ahead, we will remain vigilant in monitoring our financial performance and making strategic decisions to ensure long-term success and sustainability of our business. And now let me go into more details. During the quarter, our district-level teaching and learning business remained steady, continuously contributing an important portion in revenue recognition. Recently, we successfully supported Shanghai Minhang District to launch a specialized generative intelligent agent cluster and demonstrated it at Shanghai Education Expo. The intelligent agent integrates universal large language models, leveraging a vast real-time teaching and learning database in Minhang District, and integrating with the localized technology system, aiming to provide precise, contextualized support for nurses and educators so that we can transform education services from knowledge transmission through competency development. And following the successful launch of the new AI-powered solutions in Shanghai Minhang, we are confident that this offering will expand to other regions and serve as a model for potential partners pursuing transformative learning technologies. This initiative demonstrates our expertise in educational innovation by delivering adaptable high-value AI-powered solutions that enhance daily instructional decision-making, improve teaching and learning efficiency and promote high-quality regional education development. And our school-based subscription business has sustained steady growth, driven by a year-over-year increase in newly subscribed students. This momentum underscores its strategic importance as a critical contributor and integral component of our overall revenue, which will continue to prioritize resource allocation. And during the quarter, we have seen heightened demand and enthusiasm for our offerings in our partner schools, reflected in a higher retention rate and increased adoption of our expandable value-added services. Over 90% of renewal customers opted to continue their subscriptions, with many expanding new service coverage. This strong retention and outstanding potential not only reinforce customer engagement and loyalty, but also safeguard the business for long-term sustainable growth. And as our product and service offerings have been continuously upgraded with innovation, driving customer satisfaction and business growth by integrating AI into core teaching and learning scenarios, including lesson planning, in-class interaction, assignment design, automated grading, data-driven analysis and personalized learning recommendations. We aim to streamline teachers' workflows, empowering them with evidence-based decisions and individualized learning paths for each student. Specifically, our intelligent voice and classroom monitoring functions are expected to boost classroom efficiency. As smart companions for teachers, they help teachers understand students' thinking processes and learning states while providing teaching research support. Teachers can interact with the smart assistants in real time, analyzing multidimensional data such as students' response time, thinking patterns as well as learning trajectories, identifying group and individual differences with multi-tiered learning analytics so that evidence-based teaching decisions can be made. Our intelligence solutions can customize classroom exercises and after-school assignments for students based on personalized learning conditions, automatically grade them and generate dynamic error correction notebooks and provide customized problem-solving ideas and follow-up teaching suggestions. These advancements reduced teachers' workloads while enhancing students' learning efficiency and achievements. To date, we have conducted trials in over 50 schools, providing administrators with data-driven management tools covering the entire teaching scenario as well as demonstrating scalable ramifications of this model. And in terms of distribution channels, our market channel marketing efforts and strategic partnerships have further solidified our presence in high-growth markets. We have consistently prioritized strategic market penetration by diversifying our distribution methods and fostering collaboration. By aligning product development with emerging educational trends and enhancing our distribution networks, we have improved product delivery and customer engagement, leveraging data analytics for targeted marketing and deeper customer insights. And now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Thank you, Sishi, and thank you all for joining the call. I will now discuss our financial and operational results. Please note that all financial figures will be presented in RMB. It's important to approach the quarterly results we share with caution, as our potential future performance may be influenced by seasonal factors and unique events related to the regulations introduced in 2021, along with adjustments to our business model, organization, and workforce. In the first quarter of 2025, we reported net revenues of RMB 21.7 million, down from RMB 25.5 million in the first quarter of 2024, marking a 15% year-over-year decline. This decrease was mainly due to reduced revenues from district-level projects, as we focus our resources on school-based projects with a subscription model that typically has longer revenue recognition periods. The gross margin for the first quarter of 2025 was 36.2%, compared to 38.4% in the first quarter of 2024. For the first quarter of 2025, our net loss on a GAAP basis was RMB 30.9 million, a significant improvement from RMB 56.1 million in the first quarter of 2024, resulting in a 44.8% year-over-year decrease. The adjusted net loss (non-GAAP) for the first quarter of 2025 was RMB 22.4 million, compared to an adjusted net loss (non-GAAP) of RMB 42.7 million in the first quarter of 2024, representing a 47.5% year-over-year reduction. As of March 31, 2025, our cash reserves stood at RMB 333.3 million, down from RMB 359.3 million as of December 31, 2024. Next, let’s delve into our first quarter financials in more detail. Net revenues for the first quarter of 2025 were RMB 21.7 million, a 15.0% decrease from RMB 25.5 million in the first quarter of 2024, largely due to reduced revenues from district-level projects as we concentrate our efforts on school-based initiatives and increasing contracts under the SaaS subscription model which requires a longer revenue recognition timeline. For the first quarter of 2025, the cost of revenues was RMB 13.8 million, an 11.9% decline from RMB 15.7 million in the same quarter of 2024, corresponding with the drop in net revenues. Gross profit for the first quarter of 2025 was RMB 7.8 million, compared with RMB 9.8 million in the first quarter of 2024, resulting in a gross margin of 36.2%, down from 38.4% a year earlier. Total operating expenses for the first quarter of 2025 were RMB 41.7 million, including RMB 8.5 million in share-based compensation expenses, a decrease of 42.6% from RMB 72.7 million in the first quarter of 2024. The loss from operations for the first quarter of 2025 was RMB 33.9 million, compared to RMB 62.9 million in the first quarter of 2024, with the loss from operations as a percentage of net revenues being negative 156.3%, improved from negative 246.7% in the previous year. The net loss for the first quarter of 2025 was RMB 30.9 million compared to RMB 56.1 million in the first quarter of 2024, resulting in a net loss percentage of negative 142.8%, down from negative 219.9% in the same period last year. The adjusted net loss (non-GAAP) for the first quarter of 2025 was RMB 22.4 million, bettering the adjusted net loss (non-GAAP) of RMB 42.7 million in the first quarter of 2024, with the adjusted net loss percentage at negative 103.4%, improved from negative 167.4% in the previous year. For reconciliation of net loss under U.S. GAAP to adjusted net loss (non-GAAP), please refer to the relevant table at the end of this press release. Cash and cash equivalents, together with restricted cash and term deposits, totaled RMB 333.3 million, equivalent to USD 45.9 million as of March 31, 2025, compared to RMB 359.3 million as of December 31, 2024. Now, I would like to provide a brief update regarding our Board. We are pleased to welcome Mr. Gui Jia as an independent Director and as a member of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee of the Board. Mr. Jia brings extensive experience in fintech and education, and we believe his insights will enhance 17EdTech’s strategic direction, governance, and operations. We also wish to express our sincere gratitude to Mr. Jiawei Gan for his exceptional service and contributions as he retires. Additionally, Mr. Michael Chou Du has resigned as Director and Chief Financial Officer, and we announce the appointment of Ms. Sishi Zhou as our Acting Chief Financial Officer. Ms. Zhou joined the company in December 2020 and has been the Financial Director since June 2022, overseeing our financial operations, including reporting, business analysis, and strategy. She possesses extensive financial expertise, having held advisory roles at several multinational companies and previously served as a senior auditor at PwC Zhong Tian CPAs LLP. Ms. Zhou earned dual bachelor’s degrees in accounting and law from Tsinghua University in 2011 and completed her MBA at Peking University's Guanghua School of Management in 2023. We extend a warm welcome to Mr. Jia and Ms. Zhou as part of our leadership team. Their combined expertise will play a crucial role as we move toward our next growth phase. Our heartfelt thanks also go to Mr. Michael Chou Du and Mr. Jiawei Gan for their invaluable contributions during their time with the company. Looking ahead, 17EdTech will focus on AI-driven educational innovation, actively integrating AI with education to align with the national strategy for educational digital transformation and advancement. We remain committed to enriching learning experiences while aiming to make learning enjoyable. With a focus on delivering effective and high-quality educational products and solutions, we strive to maintain growth momentum, improve operational efficiency, and facilitate long-term, stable, and sustainable development. That concludes our prepared remarks. Thank you. We are now ready to begin the Q&A session.

I'm showing no questions. I'll now turn the conference back to Ms. Lara Zhao for closing comments.

Thank you, operator. In closing, on behalf of 17EdTech's 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 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.