17 Education & Technology Group Inc (YQ) 2022 Q3 法說會逐字稿

Good evening and good morning, ladies and gentlemen, and thank you for standing by for 17EdTech's Third Quarter 2022 Earnings Conference Call. (Operator Instructions) 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 Mr. Andy Liu, Founder, Chairman and Chief Executive Officer; and Mr. Michael Du, Director and Chief Financial Officer. Andy will walk you through our latest business performance and strategies, followed by Michael who will discuss our financial performance and guidance. They will be available to answer your questions during the Q&A session after their prepared remarks.

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 relate to the 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 or other factors, 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 Chairman and Chief Executive Officer to review some of our business development and strategic direction. Andy, please go ahead.

Thank you, Lara. Hello, everyone. Thank you for joining us on our third quarter 2022 earnings call. Before we begin, I would like to mention that the financial information and non-GAAP numbers in this release are presented on a continuing operation basis, and all numbers are based on the RMB unless otherwise stated.

We managed to deliver resilient performance in the third quarter. Before we go into the details, let me update you with some quick highlights. Firstly, we recorded RMB 124.6 million of net revenues in the third quarter of 2022, contributed by our new business despite the uncertainty and economic impact associated with recent COVID-19 outbreaks. This represents an increase of 549% compared with the revenue of RMB 19.2 million, excluding the legacy of online K-12 tutoring services in the third quarter of 2021. Secondly, we are able to continue narrowing net loss on a GAAP basis through efficient cost and expenses management, allowing us to achieve net profitability on a non-GAAP basis for the fourth consecutive quarter. Thirdly, we continue to develop and upgrade our teaching and learning SaaS offerings together with our clients and to explore personalized self-directed learning products and better satisfy customer needs.

Now let me go into some details. Let's start with our in-school teaching and learning SaaS-based business. The third quarter of 2022 saw a few milestone progresses in our in-school business in Shanghai Minhang District. Our services now achieves full coverage from primary to high schools. There are 128 schools with 156 campuses that are now using our precision teaching and adaptive learning system to assess the day-to-day teaching. The accumulated number of students using the tool for homework also exceeded [49] as of now. We introduced intelligent [doc metric plan] in September and launch a trial with 20 schools to advance digital transformation of teaching and learning intelligent [doc metric in 10] facilities, curriculum development and tailors to different demands of schools.

We've been awarded the intelligence in-class and homework SaaS service contract at Shanghai [Changning] District during the reporting period. Our precision teaching and adaptive learning system were used to promote digitalization of teaching and learning with virtualized data to facilitate school management and student development. This is a milestone project illustrating growing demand and market acceptance for SaaS services and recurring SaaS billing model.

Strategic cooperation and pilot school programs in relation to digitalized homework and teaching platform are also being launched across different districts in Shanghai and other cities such as [Songjiang] District. Likewise, we were also awarded 2 contracts by Beijing Xicheng District to help build online integrated student evaluation platform and an integrated student learning performance evaluation platform. These 2 systems make full use of live streaming tools of existing digital school platform to create a closed loop from [question bank], design assignment, [collection, traction], analysis, feedback, research, management during the whole teaching and learning process. It allows conducting key scenarios through online study.

We have also attended a number of education exhibition and forums, receiving positive feedback on our product and services from teachers and education experts. In the third quarter, we have also entered into a strategic partnership with a local partner to joining construct a digitalized education platform for our city with more than [2,000] schools and 1.5 million primary and secondary schools.

From a product and service offerings perspective, we are integrating an increasing level of artificial intelligence and IoT technologies application to [fully enhance] user experience and achieve a closed loop teaching and learning management for schools without disrupting traditional teaching and learning habits. In the aspect of self-directed learning products, we continued our efforts in exploring developing self-learning products that caters to various kinds of demands of our customers based on educational content and data-driven insights we have accumulated during the last decade serving students in school.

We continue to see positive feedback from students on our products being helpful to supplement their in-school studies, satisfying students' diversified learning demands and provide them with targeted customized learning content in line with the government's regulation in assist to form an integral self-directed learning experience and to improve their learning efficiency in a personalized way. We continue to see revenue contributions from such products, and we see great potential in this segment evolving with the regulatory environment and the students' needs and form into a major new compliant market in the education sector.

We would like to note to our shareholders that the impact of the recent outbreaks COVID-19 across different regions in China. It has caused these delays and uncertainties in various buildings and contracting process associated with government procurement. The overall economic environment has also led to uncertainty and concerns around household income and municipal budgets. We are closely observing the trend, adopting prudent strategies to minimize impacts from such uncertainties and concerns, allowing us to be flexible under certain environment.

Now I will turn the call over to Michael, our CFO, to walk you through our latest financial performance. Thank you.

Thanks, Andy, 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 again 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 regulation introduced in 2021 and the corresponding adjustment to our business model, organization and workforce.

The third quarter of 2022 is the fourth quarter of operation after we officially ceased our online K-12 tutoring businesses and generated revenue purely from our continuing businesses. Our new business strategy has shown continued momentum in the third quarter amidst the complex external challenges and uncertainties posed by the COVID-19 pandemic and posted rapid revenue growth when compared with the same period last year. We have achieved profitability on an adjusted basis for the fourth consecutive quarter, which serves as a testament to our resilient operational efficiency and opportunities from our new businesses.

Next, I will go through our third quarter financials in greater detail. Net revenues were RMB 124.6 million, representing a year-over-year decrease of 74.9% from RMB 496.8 million in the third quarter of 2021. The decrease was mainly due to the cessation of our online K-12 tutoring services by the end of 2021 to be in compliance with the latest PRC regulation, which prohibits the provision of tutoring services relating to academic subjects to K-12 students. However, when compared with the net revenues excluding those from online K-12 tutoring services, our net revenues increased significantly from RMB 19.2 million to RMB 124 million during the same period.

Cost of revenues for the third quarter of 2022 was RMB 31.7 million, representing a year-over-year decrease of 87.4% from RMB 251.4 million in the third quarter of 2021, which was, again, largely in line with the decrease in net revenues due to the cessation of online K-12 tutoring services under the new regulatory and business environment. Gross profit was RMB 92.9 million, representing a year-over-year decrease of 62.2% from RMB 245.4 million in the third quarter of 2021. Gross margin for the third quarter of 2022 was 74.5% compared with 49.4% in the third quarter of 2021. The increase was mainly attributable to the company's more stringent and efficient cost management.

Moving over to the expense side. Total operating expenses for the third quarter of 2022 were RMB 120.5 million, including RMB 31.8 million of share-based compensation expenses, representing a year-over-year decrease of 83.8% from RMB 743.7 million in the third quarter of 2021. Sales and marketing expenses for the third quarter of 2022 were RMB 27.9 million, including RMB 4.7 million of share-based compensation expenses, representing a year-over-year decrease of 92.8% from RMB 388.6 million in the third quarter of 2021. This was mainly due to the decrease in promotional course expenses and advertising expenditure as a result of the change in regulatory environment as well as staff optimization in line with the business adjustment.

R&D expenses for the third quarter of 2022 were RMB 50.9 million, including RMB 6.9 million of share-based compensation expenses, representing a year-over-year decrease of 74.7% from RMB 201.2 million in the third quarter of 2021. The decrease was primarily attributable to staff optimization in line with the business adjustment. G&A expenses for the third quarter of 2022 were RMB 41.7 million, including RMB 20.2 million of share-based compensation expenses, representing a year-over-year decrease of 66.1% from RMB 123.1 million in the third quarter of 2021. The decrease was primarily due to staff optimization in line with the business adjustment.

Loss from operations was RMB 27.6 million compared with RMB 498.3 million in the third quarter of 2021. Loss from operations as a percentage of net revenues for the third quarter of 2022 was negative 22.2%, improving from negative 100.3% in the third quarter of 2021. Net loss for the third quarter of 2022 was RMB 23.5 million compared with net loss of RMB 489.9 million in the third quarter of 2021. Net loss as a percentage of net revenues was negative 18.9% in the third quarter of 2022 compared with negative 98.6% in the third quarter of 2021.

Adjusted net income on a non-GAAP basis for the third quarter of 2022 was positive RMB 8.3 million compared with adjusted net loss of RMB 456.6 million in the third quarter of 2021. Adjusted net income on a GAAP basis as a percentage of net revenue was 6.7% in the third quarter of 2022, improving from the negative 91.9% in the third quarter of 2021.

Now turning on to our business outlook. The COVID-19 outbreaks across China have led to uncertainties and potential delays in the government procurement process and unpredictable timetables in relation to project delivery which thus impacted our revenue recognition. It also brought uncertainties to consumer sentiment and local government budgeting. This situation had significantly affected the company's ability to provide accurate business forecast, especially when our new businesses are still in the early stage of development. The company has hence decided not to provide revenue guidance going forward.

With that, that concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Thank you.

(Operator Instructions) I'm showing no questions. So I'll now turn the conference back to the management team for 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.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.