17 Education & Technology Group Inc. (YQ) Earnings Call Transcript & Summary

Good evening, and good morning, ladies and gentlemen, and thank you for standing by for the 17EdTech's Fourth Quarter 2024 and Full Year Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I will 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 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 detail. 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 achievements 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.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our fourth quarter 2024 and full year earnings call. Before we begin, I would like to note that the financial information and non-GAAP numbers in this release are presented on continuing operation basis and are in RMB, unless otherwise stated. Let me start with our latest business updates. We achieved strong results with year-over-year top line growth of 11% to RMB 189.2 million for the full year, driven by strategic market expansion and new contract acquisitions. Net revenues for the fourth quarter were RMB 36.6 million, reflecting a 23% decrease from the same quarter previous year, primarily due to the reduction in net revenues from district-level flagship projects as we prioritized our resources on school-based projects under subscription model, which typically will generate revenues over a longer period. Meanwhile, our SaaS subscription business model maintained an upward trend as evidenced by 3-digit growth compared to the same quarter last year, bolstered by strong retention rates and multiyear subscription renewals. Through rigorous cost optimization and leveraging economy of scales, operating expenses decreased by 34% from the same quarter last year, resulting in a 35% reduction in net loss on a GAAP basis. As we enhance our products and services through AI for improved automation and user experiences, we've received positive feedback and market recognition. Looking ahead, with a strong pipeline of AI-enhanced products and a customer-centric road map, we are well positioned to deliver sustainable growth and industry-leading innovations in the future. Now please allow me go into more details. Our regional flagship project delivery and new contract acquisitions, during this quarter, our teaching and learning SaaS business for district-level projects continued to make steady progress through successful delivery and new contract acquisitions. Major projects have successfully delivered and contributed significantly to the overall revenue. We have continued to win teaching and learning SaaS projects this quarter, further demonstrating the strong customer stickiness of our offering. Such projects will expand our services to cover more schools with increased number of students in both the existing districts and new ones. It further demonstrates our capacity to enhance regional education quality and efficiencies through scalable, high-quality solutions and plays an exemplary role for other potential clients to adopt our products. Our accelerated growth in school-based subscription model. In the meanwhile, our school-based subscription model have witnessed record growth with triple-digit growth in terms of number of students newly subscribed year-over-year. We have also identified an extensive opportunity pipeline that are expected to continue to expand our school coverage. As the subscription model scales, it increasingly contributes to our overall revenue, reflecting strategic importance and integral role to our overall strategy. This upward trajectory not only contributes significantly to our revenue but also enhance customer engagement and loyalty. For our customers whose contracts are subject to renewal, more than 90% have decided to continue to subscribe and some even decided to subscribe with further expanding coverage. Such highly recurring subscription, together with opportunity to upsell additional value-added services, have paved a visible pathway for sustainable and healthy growth. Synergies across business lines. The synergies across regional flagship projects and school-based subscription model initiatives have driven our production innovations into a virtuous cycle of our business growth. Flagship district teaching and learning SaaS projects are not only influential among authorities considering projects of similar nature, but also help us build a strong use case for our school-based subscription model among our potential client base. They further generate insights that allow us to continuously enhance our school-based SaaS offering products while customer feedbacks drive iterative product upgrades and breakthrough innovations. This integrated approach has bolstered operational agility, positioning us to seize emerging opportunities and deliver scalable solutions. For our product and service offerings, we are committed to enhance our products and service offerings to improve customer satisfaction. Our focus on innovation and capabilities to deliver premium learning products has driven to refine our teaching and learning SaaS solutions, ensuring efficiency and high quality development. During this quarter, we have further advanced our offering through the following strategic improvements. Unified data ecosystems, we have advanced cross-domain data integration by leveraging granular insights into -- across educational ecosystem, including classroom interactions, assignments and assessments and evaluations. Through standardized data collection, we have built a cohesive multi-scenario data framework that maximize analytical utility. Scaled product portfolio. Building on this foundation, our digital-driven product portfolio now connects teaching application with resources centers that streamline lesson planning and capture comprehensive instructional data through the following segments: smart school-based workbook for capturing detailed lesson data, adaptive [ prepared ] systems supporting flexible daily practice with digital a tracking capacities, precision assessment platforms tailored for high-stakes testing and benchmarking, personalized learning solutions for smart learning kids, individual practice books and comprehensive evaluation dashboards for competency-based teaching and analytical provided for educators and managers across all scenarios. Enhanced data value. Automated accumulation and intelligent distribution of teaching resources data now addresses diverse learning needs while maintaining long-term data integrity. Longitudinal analysis ensure academic quality monitoring while process-oriented data exploration builds holistic student profiles and enables effective competency-based evaluation. By aligning data infrastructure with scalable solutions, we are now empowering educators to make evidence-based decisions while preparing students for future-ready learning experiences. In this quarter, we have initiated a targeted internal pilot of our AI-powered learning diagnostic agent, leveraging state-of-the-art large language models to analyze student performance data and help teachers increase efficiency in class preparation and homework correction. It generates personalized explanations for common mistakes and recommended tailored teaching strategies. Initial data shows the tool's potential to streamline instruction workflow and improve learning outcomes by enabling teachers to efficiently interpret and utilize data, thereby enhancing teaching effectiveness and improve the quality of education. The integration of AI marks a significant step forward in optimizing teaching practice and learning outcomes with our offering. In terms of distribution channels, we have always intensified our focus on strategic market penetration through channel diversification and customer-centric innovations. By aligning product development with emerging education trends and optimizing distribution network, we have improved our customer acquisition efficiency. Moreover, our multichannel marketing initiatives and strategic partnership have further solidified our presence in high-growth markets, positioning us for sustainable -- sustained development. Now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

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 the quarterly results we present here should be taken with care and reference to our potential future performance are subject to potential impacts from seasonality and one-off events as a result of the series of regulations introduced in 2021 and corresponding adjustment to our business model, organization and workforce. In the fiscal year of 2024, we recorded net revenues of RMB 189.2 million compared with RMB 171.0 million in 2023, representing a 10.7% increase on a year-over-year basis. Net revenue for the fourth quarter of 2024 was RMB 36.6 million compared with RMB 47.3 million in the fourth quarter of 2024 (sic) [ 2023 ]. Net loss on a GAAP basis for the fourth quarter of 2024 was RMB 63.7 million compared with RMB 98.4 million in the fourth quarter of 2023, representing a decrease of 35.2% year-on-year. The adjusted net loss non-GAAP for the fourth quarter of 2024 was RMB 40.1 million compared with adjusted net loss non-GAAP of RMB 81.8 million in the fourth quarter of 2023, a decrease of 31.0% year-on-year. Gross margin for the fourth quarter of 2024 was 33.6% compared with 43.4% in the fourth quarter of 2023. The relatively lower gross margin this quarter is mainly attributable to the delivery of a RMB 9 million legacy moral education project, which did not include the typical components of our teaching and learning SaaS offering and thus had a lower margin, dragging down the overall margin. This project was as a result of historical attempt and no longer a core offering for us. As of December 31, 2024, we have cash reserves of RMB 359.3 million on our balance sheet. Next, I will go through our fourth quarter financials in greater detail. Net revenues. Net revenues for the fourth quarter of 2024 was RMB 36.6 million representing a year-over-year decrease of 22.7% from $47.3 million in the fourth quarter of 2023. This was mainly due to the reduction in net revenues from district-level project as we prioritized our resources on school-based project under subscription model; and two, a higher proportion of contract and SaaS subscription model we signed in the fourth quarter of 2024, which requires a longer period of revenue recognition. Cost of revenue for the fourth quarter of 2024 was RMB 24.3 million, representing a year-over-year decrease of 9.2% from RMB 26.8 million in the fourth quarter of 2023, which was mainly due to the fewer district-level project deliveries for our teaching and learning SaaS offerings as a result of the growing proportion of recurring revenue and subscription model that requires fewer hardware and software deliveries. Gross profit for the fourth quarter of 2024 was RMB 12.3 million compared with RMB 20.6 million in the fourth quarter of 2023. Gross margin for the fourth quarter of 2024 was 33.6% compared with 43.6% (sic) [ 43.4% ] in the fourth quarter of 2023. Operating -- total operating expenses. Total operating expenses for the fourth quarter of 2024 were RMB 81.4 million, including RMB 15.5 million of share-based compensation expenses, representing a year-over-year decrease of 33.8% from RMB 122.8 million in the fourth quarter of 2023. Loss from operations. Loss from operations for the fourth quarter of 2024 was RMB 69.1 million compared with RMB 102.3 million in the fourth quarter of 2023. Loss from operations as a percentage of net revenues for the third quarter of -- for the fourth quarter of 2024 was negative 188.8% compared with negative 216.0% in the fourth quarter of 2023. Net loss for the fourth quarter of 2024 was RMB 63.7 million compared with net loss of RMB 98.4 million in the fourth quarter of 2023. Net loss as a percentage of net revenues was negative 174.2% in the fourth quarter of 2024 compared with negative 207.9% in the fourth quarter of 2023. Adjusted net loss non-GAAP for the fourth quarter of 2024 was RMB 40.1 million compared with adjusted net loss non-GAAP of RMB 81.8 million in the fourth quarter of 2023. Adjusted net loss non-GAAP as a percentage of net revenues was negative 109.5% in the fourth quarter of 2024 compared with negative 172.8% of adjusted net loss non-GAAP as a percentage of net revenues in the fourth 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 U.S. GAAP to the adjusted net loss non-GAAP. Cash and cash equivalents, restricted cash and term deposits were RMB 359.3 million equals USD 49.2 million as of December 31, 2024, compared with RMB 476.7 million as of December 31, 2023. Business -- as we look to the future, we remain steadfast in our commitment to advancing educational digitalization and innovating learning experiences. We will strengthen our core business operations while exploring new opportunities through dual focus on innovation and sustained growth. By prioritizing AI-driven solutions, we aim to redefine personalized education and empower learners, teachers and educators with valuable insights. With that, that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Thank you.

[Operator Instructions] Dear speakers, there are no questions at this time. I would now like to hand the conference over to the management team for any closing remarks.

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.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.