Q4 2021 17 Education & Technology Group Inc Earnings Call
Okay.
Good evening, and good morning, ladies and gentlemen, and thank you for standing by for 17, Ed Teck's fourth quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
After the managements prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded.
I will now turn the meeting over to your host for today's call Mr. Michael do.
<unk> of 17, Ed Tech. Please proceed Michael.
Thank you operator, Hello, everyone and thank you for joining US today, our earnings release was distributed earlier today and.
Payable on our IR website.
The call with me today is Andy Chang, Liu founder Chairman and Chief Executive Officer.
And Michael do direct and Chief Financial Officer of the company.
Andy will walk you through our latest business performance and strategies followed by me.
Discuss our financial performance.
We will be available to answer your questions during the Q&A session. After the prepared remarks.
Before we begin I would like.
To remind you that this is the conference call contains forward looking statements as defined in section 21 E of the Securities Change Act.
Of $19 34 in the U S Private Securities Litigation Reform Act of $19 95.
These forward looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks.
Certainties 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 Securities SEC.
The company does not undertake any obligation to update any forward looking statement as a result of new information events or otherwise, except as required under applicable law.
It is now my pleasure to introduce our chairman and Chief Executive Officer Andy.
Please go ahead.
Thank you Mike Hello, everyone. Thank you for joining us for our earnings call today.
Before we begin I would like to mention that the financial information and non-GAAP numbers. These are presented on a continuing operation basis.
All numbers are based on the renminbi unless otherwise stated.
We finished the fourth quarter of 2021 with strong business performance. Let me provide some quick highlights before we get into the details.
First.
We continue to drive revenue growth despite the regulatory changes.
We managed to significantly narrow our net loss on a GAAP basis and achieved profitability on an adjusted basis after excluding share based compensation.
We rapidly form new business strategies, and adjusted our organization Accordingly.
Our new businesses are gaining momentum we are particularly pleased to see strong record Nathan recognized recent from the government on our <unk> offerings and advances from our customers.
Fourth.
So the fact that we turn profitable on an adjusted business allow us to maintain a healthy cash balance for our business transition and growth.
Now let me go into more details with you.
We finished the fourth quarter and the full year of 2021 with strong business and financial results. Despite the adverse impact of <unk>.
<unk>.
We achieved.
17, 5% year over year revenue growth in the fourth quarter of 2021 and.
Six to eight 8% revenue growth for the <unk> 2021 compared with 2020.
What's more important is that we significantly improved our profitability narrowing of net loss to RMB $25 6 million in the fourth quarter of 2021 from RMB $365 1 million in the fourth quarter of 2020.
And recording adjusted net income non-GAAP .
Of RMB $17 million, excluding share based compensation.
In the fourth quarter of 2021 from an adjusted net loss non-GAAP RMB $134 6 million in the fourth quarter of 2020. This positive adjusted net income was probably a result determined and the rapid commission of the new business strategy the corresponding executions Q3.
And restructure of our organization.
Well as an improvement in our operational efficiency and reduction of the promotional activities associated with the legacy. Unlike K 12 tutoring services.
Again. This is the first time, our company turn profitable on a non-GAAP basis since the public listing and is a key milestone as we strive to turn our company into a sustainably profitable company as soon as possible.
On top of encouraging financial results. We also see continued progress with new business strategies.
The company has to offer online K 12 tutoring services by the end of 2021 to comply with the double reduction policy and.
Applicable rules regulations and metrics at the same time with how quickly formed new business strategies in response to the new regulatory environment, leveraging our extensive knowledge and expertise accumulated through serving China.
Education operated schools teachers and students over the past decade, we have adapted our business and organization to focus on two key business areas first.
In school business, we launched our new teaching and learning offerings as an update to our previous in school products and some of the.
The new offerings aimed at facilitating that digital transformation and upgrade of Chinese skus with a focus on improving the efficiency and effectiveness of core teaching and learning scenarios, such as homework assignment and in school teaching.
Second well after school business, we have started to explore personalize the self directed learning products as a substitute for a regional after school tutoring services.
<unk> utilized our technology and data insights to provide personalized and targeted learning.
<unk> exercises content that is aimed at improving our students' learning efficiency.
Please be reminded this is not a tutoring service.
The total reduction policy together with the latest philosophy and got lines from China's Ministry of Education has marked a new era for China's education, if amortization profile.
China's education info monetization process started around 10 years ago and created a market with annual budgets of RMB 340 billion in 2020.
According to estimate based on statistics from the National Bureau of statistics of China.
This is a huge market. Moreover.
Its focus has shifted from education infrastructure during the early years to do applications and resources to improve teaching and learning effectiveness and efficiency.
Especially after double reduction policy was announced which refers to our live 18, the burden of homework, while not sacrificing the teaching and learning results.
Our TT alerting stock offering cover various teaching learning scenarios with a key focus on homework.
It's a comprehensive data treatment system, not only enabling more customized and targeted homework diagnosis and assignment that helped improve teaching and learning effectiveness and efficiency.
But also offering data driven management tools based on a comparison between classes and schools.
Period.
This is very powerful for school principals to manage the <unk> progress at school and education officials to check on the <unk> management on the district level.
This has opened up enormous business opportunity for us with the technology data insights content and Brent Howard we have gained through the past eight years.
Investing in homework.
Well.
We have been chosen by several regional educational authorities to become the partner of choice for homework focused teaching and learning management systems.
This one difference with time in the past 10 years, we have provided basic service free of charge.
Now, our new teaching and learning to us offering paid products that integrate both software and hardware.
In one package and feature data driven recommendations and other value added functions that cater to the needs of schools and educational authorities.
Purchases are mostly made by the district agitation operate on behalf of a group of schools.
We have continued to see supportive policies and the headlines coming out of the Ministry of education.
Responses from this reattribution bureaus and continue its progress.
Risk projects and pilot programs.
Recent speech by tenants.
Education, Mr. <unk> has.
Integrated.
Emphasis of digital education strategy with that need pool application folks and the service prioritize print.
Principal.
Our English SKU offering clearly see this principle, where our comprehensive service package software.
Tupperware content and data solutions together help schools achieve better teaching and learning results to meet the application and service keywords.
Eight satisfied the needs of food.
Regulators school principals and teachers and Athene time to ensure regulate us up to implementations to meet the data needs of all key stakeholders.
To date, we have successfully entered into in depth cooperations with several regional application or shortages across multiple district in China, including Shanghai on District, Beijing, Ctrip District, which among the 10-K studied vetted by the Ministry of Education General office for the implementations.
Their pain.
Next of different skills, or ADP implemented using all the teaching and learning products across more than.
<unk> continuous progress was seen over the past few months in these cities and this week.
Which we are operating stability, particularly in the fourth quarter of 2021, our company, while the Buda Fuller intelligence homework and accurate TT project, Shanghai, Wuhan Education Bureau worth RMB.
<unk> seven mode. This product is expected to be fully delivered in 2022.
There are also in depth dialogues with several other cities and districts across China about of in school teaching and learning offerings.
Another recent example was the first classroom launched by Shanghai May be strict Education Bureau. This is a serious of course its offering.
<unk>.
Immersive teaching.
Experienced covering various topics around history, the latest social news social role models and moral standards based on our technology solution and content inputs from peoples application press and China Central television both of which our.
Strategic partners.
This pioneer risk course formats, combining the latest technology in the cockpit, whereas reported by CCTV, China, one kind of theory and People's State aid and the other major media and have gained interest and inquiries from various districts agitation bureaus and schools Patel.
Potential grew out of similar core ophthalmic.
Same time, we are also exploring a personalized and adaptive.
Directed learning product for Chinese families. This product is in response to the Chinese comments promotion of applying technology to one hesitation digital night vision and deep learning efficiency.
Leveraging our high quality educational content understanding.
Homework, an example school and district level data that.
Students learning progress and the common problem accumulated over the.
Lots of decade, with our mode of teachers and students use it.
It is designed with our core <unk> to be compliant with the new regulatory environment.
Nutshell. It is a tough directed learning telco back product.
Couple of months, the inks grew studies primary and Middle School students.
We are continuously adapting our products based on the biggest regulatory requirements policy guidance and the customer feedback.
As a result of the previously mentioned new business initiatives and development the balance of our deferred revenue and customer advances.
As of December .
30, 31, 2021 reached RMB $243 6 million. This balance was entirely composed of ongoing business popped up a business transformation and was expected to be recognized in the next few quarters as we deliver our products and services.
Lastly, I would like to reemphasize, our competence and determination in turning our business into a profitable growing one.
Key philosophy, guiding our decisions and business operations going forward.
For the first quarter of 2022, although we cannot be certain we will record GAAP net income.
Company is expected to achieve positive adjusted net income excluding share based compensation.
Now I will turn the call over to Michael Obviously, Apple 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 talked about will be presented in RMB terms.
However, I would like to note that the publication and enforcement of the opinion and applicable rules significantly impacted our businesses.
We have adopted a significant change in our business model is shared by Andy earlier, and the unlike Heiko <unk> Ox school tutoring services that generate the vast majority of our revenue.
<unk> by the end of 2021.
Therefore, I would like to remind everyone that our quarterly results were presented here should be taken with care. If you use that as reference for potential future performance.
And they are subject to significant impact from one off events as a result of the series of regulation introducing Tom.
2021, and a corresponding adjustments journal business model, how organization and I'll work for us.
Achieving a positive adjusted net income on a GAAP basis in the fourth quarter of 2021 was a key milestone for the company.
It was a result of a clearly defined new business strategy for future growth and a suite of adjustment bio organization to accommodate these strategies and to improve operational efficiency.
We are happy to see the quick business results from the implementation of our new business strategy.
The balance of deferred revenue and customer advances of bridge.
The $243 9 million by December 31, 2021, which is entirely from the ongoing businesses. After the company's business transformation and does not include any deferred revenues from the legacy online K 12 tutoring services.
We will also resume providing business outlook starting this quarter.
Which I will share in a while.
Adding to our financial results of the fourth quarter of 221, and our full year 2021 in greater detail.
Put a result of the fourth quarter of 2021, we achieved continuous growth despite the regulatory impact net.
Net revenues increased by 11, 5% yield per year to RMB $542 5 million in the fourth quarter of 2021 and increased by 68, 8% year over year to RMB.
2000, and $184 $5 million in 'twenty one.
Net revenues from online K 12, tutoring services increased by 12, 5% year over year to RMB $525 9 million in the fourth quarter of 2021 and increased by 74, 7% year over year to RMB $2128 6 million in 2020.
<unk> one.
In addition to continued revenue growth operational efficiency continued to improve in the fourth quarter and the whole year of <unk> 21.
Our net loss decreased significantly to RMB $25 6 million.
<unk> 4 million for the fourth quarter of 2021.
RMB $365 1 million in the same periods.
Tom 'twenty despite revenue growth.
Net loss for the full year 2021 was RMB.
<unk> thousand $441 9 million compared with RMB $1339 9 billion in <unk> 'twenty.
non-GAAP adjusted net income, which excludes share based compensation expenses.
Was positive RMB 17.0 million to fourth quarter of $2 21, compared with an adjusted net loss of.
RMB $134 6 million in the fourth quarter of 2020.
non-GAAP adjusted net loss in Cal 'twenty, one was RMB $1246 7 million compared with RMB 983.
9 million tonne in 'twenty.
non-GAAP adjusted net income as a percentage of net revenue was positive three 1% in the fourth quarter of 2021, compared with a negative $27 7 million in the fourth quarter of 2020.
It was negative 5% to $57 one for the full year.
Tom 'twenty, improving from negative $6, 776% in town and country.
Next I will go through our fourth quarter financials in greater detail.
Net revenues were RMB, $542 5 million, which represented a year over year increase of 11, 5% from RMB $486 8 million in the fourth quarter of 2020.
The increase was primarily driven by an increasing net revenues from online K 12 tutoring services.
Net revenues from online K 12, tutoring services were RMB, $525 9 million or <unk> $82 5 billion.
12, 5% year over year from RMB $467 5 million in the fourth quarter of 2020.
Cost of revenues was RMB $191 2 million and represented an increase of 10, 1% year over year from RMB 170 Street.
$173 6 million in the fourth quarter of 2020.
The increase was primarily due to the increase in compensation costs for instructors and tutors, which was largely in line with the growth of our net revenues from online K 12 tutoring services as we provided services to more students.
Gross profit was RMB $351 4 million.
Representing an year over year increase of 12, 2% from RMB 313.
2 million in the fourth quarter October 20 <unk>.
Kris was primarily driven by the increase in net revenues.
Gross margin for the fourth quarter of 2021 was $6, 648% compared with 64, 3% in the fourth quarter of 2020.
Moving over to the expense side.
Total operating expenses were RMB 386, $3 million, including RMB $42 6 million of share based compensation expenses.
For preventing and year over year, a decrease of 43, 8% from RMB $676 4 million in the fourth quarter October 20.
Sales and marketing expenses.
On the $104 1 million, including $77 1 million of share based compensation expenses.
Presenting a year over year decrease of 57, 9% from RMB $247 1 million in the fourth quarter of 2020.
The decrease was primarily due to the reduction of promotional activities and to align with the changing regulatory environment.
R&D expenses.
$159 5 billion, including RMB $24 8 million of share based compensation expenses, representing a year over year decrease of 17, four zero 17 zero from RMB $192 1 million in the fourth quarter of 2020.
Increase was primarily due to the reduction of R&D personnel in response to business trends and organizational optimization.
G&A expenses were RMB, $83 1 million, including $10 7 million of share based compensation expenses, representing a year over year decrease.
65%.
RMB $277 2 million in the fourth quarter of 2020.
Kris was primarily due to a decreasing share based compensation expenses.
Where for the fourth quarter of <unk>.
There was a large amount of share based compensation expenses recognized in relation to the company's IPO.
Impairment.
Property and equipment rights to use of assets and rental deposit.
Fourth quarter of 2021 were RMB $333 6 million competitor was new in the fourth quarter of 2020.
This impairment losses were recognized as a result of the impairment assessment the company conducted its long term assets.
Quarter of 2021, given the changing regulatory environment, and the company business model and financial performance.
Loss from operations was.
$28 9 million compared with RMB, 306, and $63 2 million in the fourth quarter up from 20 <unk>.
Losses from operations as a percentage of net revenues was negative $5 three significantly narrowed from negative 74, 6% in the first quarter of 2020.
Net loss was RMB $25 6 million narrowing from RMB $365 1 million in the fourth quarter of 2020.
Net loss as a percentage of net revenues was negative four 7% in the fourth quarter of 2021 competitor was negative 75% in the fourth quarter on 2020.
non-GAAP adjusted net income was RMB 17, one zero million.
Positive compared with non-GAAP adjusted net loss of RMB $134 6 million in the fourth quarter of 2020 non-GAAP adjusted net income as a percentage of net revenue was positive three 1% for the fourth quarter October 21.
Improving from negative 27, 7% in the fourth quarter of 'twenty.
As of December 31, 2021, cash and cash equivalents were RMB $1180 9 million compared with RMB.
2000, 835 million as of December 31st 2020.
We believe we have sufficient capital to support the transformation of our business and to grow our new businesses.
And finally deferred revenue.
And customer advances was RMB 243.
<unk> 9 million as of December 31, 2000.
'twenty one.
Presenting a decrease of 59, 2% from RMB $598 3 million as of December 31st 2020. The decrease was primarily attributed to etch. Good go to the reduction of the deferred revenue in relation to online K 12 tutoring services to new <unk>.
Zero as a result of the cessation of online K 12 tutoring services.
Sure.
The remaining deferred revenue and customer advances balance as of December 31, 2021 were related to our new businesses and did not include any deferred revenue in relation to the legacy online K 12 tutoring services.
With that I will now provide our business outlook.
Based on our current estimate.
Total net revenue for the first quarter of 2022 are expected to be between RMB $200 million and RMB $210 million.
This estimate of net revenues for the first quarter 'twenty two is derived entirely from the ongoing businesses. After the company's business transformation and does not include revenues from the legacy online K 12 tutoring services.
This estimate range represents a significant increase year over year, when compared with a relatively small base of the net revenue generated from.
Online K 12 tutoring services of RMB.
$16 6 million for the first quarter of 2021.
In terms of business outlook for the first quarter of 2022 from a profitability perspective.
Though we cannot be certain we will record gap.
GAAP net income the company is expected to achieve positive adjusted net income on a GAAP basis, excluding share based compensation expenses.
With that.
That concludes our prepared remarks, thank you.
Operator, we are now ready to begin the Q&A session. Thanks.
Thank you ladies and gentlemen, if you have a question. Please press Star then one on your telephone.
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Sure.
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Okay.
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Good evening, and good morning, ladies and gentlemen, and thank you for standing by for 17, Ed Teck's fourth quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
Okay.
After the managements prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded.
I will now turn the meeting over to your host for today's call. Mr. Michael do CFO of 17 Hadzic. Please proceed Michael.
Thank you operator, Hello, everyone and thank you for joining US today, our earnings release was distributed earlier today and are available on our IR website.
On the call with me today is Andy Chang, Liu founder Chairman and Chief Executive Officer.
And then Michael do Druck, and <unk>, Chief Financial Officer of the company.
Andy will walk you through our latest business performance and strategies followed by me.
<unk> discuss our financial performance.
We will be available to answer your questions during the Q&A session. After the prepared remarks.
Before we begin I'd like to remind you that this is the conference call contains forward looking statements as defined in section 21 E of the Securities Chen of.
Of 1934 in 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 events that involve known or unknown risks.
Uncertainties and other factors.
All of which are difficult to predict and many of which are beyond the company's control.
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 Securities SEC.
The company does not undertake any obligation to update any forward looking statement as a result of new information events or otherwise except as required under law.
Applicable law.
It is now my pleasure to introduce our chairman and Chief Executive Officer Andy.
Please go ahead.
Thank you Mike Hello, everyone. Thank you for joining us for our earnings call today.
We begin I would like to mention that the financial information and non-GAAP numbers.
<unk> are presented.
Continuing operations basis.
And all numbers are based on the renminbi.
Otherwise stated.
We finished the fourth quarter of 2021 with strong business performance. Let me provide some quick highlights before we get into the details.
First.
We continue to drive revenue growth despite the regulatory changes.
We managed to significantly narrow our net loss on a GAAP basis and achieved profitability on an adjusted basis after excluding share based compensation.
Third we rapidly for new business strategies, and adjusted our organization Accordingly.
Our new businesses are gaining momentum we are particularly pleased to see strong reclinate didn't recognize decent from the government on our <unk> SKU offerings and the bump this from our customers.
Fourth.
But the fact that we turn profitable on an adjusted business allowed us to maintain a healthy cash balance for our business transition and growth.
Now let me go into more details with you.
We finished the fourth quarter and the full year of 2021 with strong business and financial results. Despite the adverse impact of regulatory changes, we achieved and 17, 5% year over year revenue growth in the fourth quarter of 2021 and <unk>.
Six to eight 8% revenue growth for the 'twenty to 'twenty, one compared with 2020, what's more important is that we significantly improved our profitability narrowing of net loss to RMB $25 6 million in the fourth quarter of 2021 from RMB $365 1 million.
In the fourth quarter of 2020.
And recording adjusted net income of.
RMB $17 million.
Excluding share based compensation.
In the fourth quarter of 2021 from an adjusted net loss.
non-GAAP RMB $134 6 million in the fourth quarter of 2020. This positive adjusted net income was probably a result determined and the rapid commission of the new business strategy, the corresponding executions to streamline and restructure of our organization.
Well as an improvement in our operational efficiency and reduction of the promotional activities associated with the legacy. Unlike K 12 tutoring services.
Again. This is the first time, our company turn profitable on a non-GAAP basis since the public listing and is a key milestone as we strive to turn our company into a sustainable profitable company as soon as possible.
On top of the encouraging financial results. We also see continued progress with new business resumes.
The company has to offer online K 12 tutoring services by the end of 2021 to comply with the double reduction policy and applicable rules.
Collections and metrics at the same time with how quickly swarm news business strategies in response to the new regulatory environment, leveraging our extensive knowledge and expertise accumulated through serving China.
Education operated schools teachers and students over the past decade, we have adapted our business and organization to focus on two key business areas first for our in school business, we launched our new teaching and learning offering as an update to our previous in scoop products and services.
The new offerings aimed at facilitating that digital transformation and upgrade of Chinese goes with a focus on improving the efficiency and effectiveness of core teaching and learning scenarios, such as homework assignment and in school teaching.
Second well after school business, we have started to explore crystallize the self directed learning products as a substitute for a regional office school tutoring services.
You did utilize our technology and data insights to provide personalized and targeted learning well exercising content that is aimed at improving our students' learning efficiency.
Please be reminded this is not a Q3.
The double reduction policy together with the latest philosophy and got lines from China's Ministry of Education had Mark a new era for China's education info monetization program.
China's education info monetization process started around 10 years ago and created a market with annual budget of RMB 340 billion in 2020.
According to estimate based on statistics from the National Bureau of statistics of China.
This is a huge market. Moreover, its focus has shifted from education infrastructure. During the early years to digital applications and resources to improve teaching and learning effectiveness and efficiency.
Especially after double reduction policy was announced which refers to our live 18, the burden of homework, while not sacrificing the teaching and learning results.
Our TT alerting stock offering color, where risks teaching and learning scenarios with a key focus on homework.
It's a comprehensive data treatment system, not only enabling more customized and targeted homework gotten notice and assignment that help improve teaching and learning effectiveness and efficiency.
But also operating data driven management tools based on a comparison between classes in schools for decades per period.
Yeah.
This is very powerful for school principals to manage the <unk> progress at school and education officials to check on the teaching management on the district level.
This has opened up enormous business opportunity for us with the technology data insights content and Brent Howard we have gained through the past eight years.
Investing in homework.
Well.
We hope you've chosen by several regional educational authorities to become the partner of choice for homework, Lucas teaching and learning management systems.
This one difference this time in the past 10 years, we have provided basic services free of charge.
Now, our new teaching and learning.
Altering our paid products that integrate both software and hardware one package and feature data driven recommendations and other value added functions that cater to the needs of schools and educational authorities purchases are mostly made by the district agitation off Greg.
Half of our group of schools.
We have continued to see supportive policies and the headlines coming out of the Ministry of education positive responses from history.
Bureaus and continue its progress.
Our risk projects and pilot programs.
A recent speech by tenant Minister of education, Mr. <unk>.
Has it deteriorated.
Emphasis of digital education strategy with that need pool application folks and if there is prioritized.
Our English school offering clearly see this principle, where our comprehensive service pack, how can we or tupperware content and data solutions together help schools achieve better teaching and learning results to meet the application and service keywords.
Eight satisfied the needs of both regulators school principals and teachers at Athene time to ensure regulate us after implementations to meet the data needs of all key stakeholders.
Date, we have successfully entered into in depth cooperations with several regional application or shortages across multiple district in China, including Shanghai, Hong District, Beijing, Ctrip District, which among the 10-K studied selected by the Ministry of Education General office for the implementation of the.
Painting projects of different skills, or ADP implemented using all the teaching and learning products across more than three.
<unk> continuous progress was seen over the past few months in these cities and this week.
Which we are operating.
Particularly.
In the fourth quarter of 2021, our company one of the Buda, Florida intelligence homework and accurate TT project of Shanghai, Wuhan Education Bureau worth RMB.
$27 million. This project is expected to be fully delivered in 2022.
There are also in depth dialogues with several other cities and districts across China about in school teaching and learning offerings. Another.
Another recent example was the first classroom launched by Shanghai <unk>.
Education Bureau, this is a series of courses offering.
<unk>.
Immersive teaching.
Experienced covering various topics around history, the latest social news social role models and moral standards based on our technology solutions and content inputs from peoples application, Pratt and China Central television both of which our <unk>.
Strategic partners.
This pioneer risk course format combining that.
<unk> technology in the cockpit, whereas reported by CCTV, China, One, China theory, and People's Daily and.
The other major media and have gained interest and inquiries from various districts agitation bureaus and schools all of the potential grew out of similar core Thats ophthalmic.
At the same time, we are.
We're also exploring a personalized and adaptive.
Directed learning product for Chinese families. This product.
Spock do the Chinese comments promotion of applying technology to one patient digital night vision and improve their energy efficiency.
Leveraging our high quality educational content understanding.
Homework, and example school and district level data set.
Learning progress and the common problem accumulated over the park.
The decade, with our modes of teachers and students use it.
This designed with our core <unk> to be compliant with the new regulatory environment.
Nutshell It is a self directed learning product.
The months the inks grew studies primary and Middle school students.
We are continuously.
That being our product based on the biggest regulatory.
Requirements policy guidance and the customer feedback.
As a result of the previously mentioned new business initiatives and development and the balance of our deferred revenue and customer advances of December .
30, 31, 2021 reached RMB $243 6 million. This balance was entirely composed of ongoing business popped up a business transformation and was expected to be recognized in the next few quarters as we deliver our products and services.
Lastly, I would like to reemphasize, our confidence and determination in turning up business.
<unk> won this will key philosophy guiding our decisions and business operations going forward.
Similarly for the first quarter of 2022, although we cannot be certain we will record GAAP net income the company is expected to achieve positive adjusted net income excluding share based compensation.
Now I will turn the call over to Michael Obviously, Apple 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 talked about will be presented in RMB terms. However.
However, I would like to note that the publication and enforcement of the opinion and applicable rules significantly impacted our businesses.
We have adopted a significant change in our business model is shared by Andy earlier and the unlike Heiko 12 obstacle to train services that generated the vast majority of our revenue previously received by the end of 'twenty one.
Therefore, I would like to remind everyone that our quarterly results were presented here should be taken with care. If you use that as reference for potential future performance.
And they are subject to significant impact from one off events.
As a result of the series a regulation introducing two.
2021, and a corresponding adjustments journal business motto, how organization and I'll work for us.
Achieving a positive adjusted net income on a GAAP basis in the fourth quarter of 2021 was a key milestone for the company.
It was a result of a clearly defined new business strategy for future growth and a suite of adjustment.
<unk> to accommodate these strategies and to improve operational efficiency.
We are happy to see the quick business results from the implementation of our new business strategies.
The balance of deferred revenue and customer advances of bridge.
On the $243 9 million by December 31, 221, which is entirely from the ongoing businesses. After the company's business transformation and does not include any deferred revenues from the legacy online K 12 tutoring services.
We will also resume providing business outlook starting this quarter.
Which are way our share in Oh, Wow, let's dive into our financial results of the fourth quarter of 221, and our full year 2020, while in greater detail.
Put a result of the fourth quarter of 2021, we achieved continuous growth despite the regulatory impact net.
Net revenues increased by 11, 5% yield per year to RMB $542 5 million in the fourth quarter of 2021 and increased by 68, 8% year over year to RMB.
2000, and $184 5 million in total 21.
Net revenues from online K 12, tutoring services increased by 12, 5% year over year to RMB $525 9 million in the fourth quarter of 2021 and increased by 74, 7% year over year to RMB $2128 6 million in 2000.
<unk> one.
In addition to continued revenue growth operational efficiency continued to improve in the fourth quarter and the whole year of <unk> 21.
Our net loss decreased significantly to RMB $25 6 million.
<unk> 4 million for the fourth quarter of 2021.
From RMB $365 1 million in the same periods.
'twenty despite revenue growth.
Net loss for the full year 2021 was RMB.
<unk> thousand $441 9 million compared with RMB $1339 9 million top 20.
non-GAAP adjusted net income, which excludes share based compensation expenses.
Was positive RMB 17.0 million to fourth quarter oxo on 'twenty, one compared with an adjusted net loss of RMB $134 6 million in the fourth quarter October 20.
And then GAAP adjusted net loss in Cal 'twenty, one was RMB $1246 7 million compared with RMB 983.
<unk> 9 million ton 'twenty.
non-GAAP adjusted net income as a percentage of net revenue was positive three 1% in the fourth quarter up from 21, compared with a negative $27 7 million of fourth quarter of 2020.
It was negative 5% to $57 one for the full year.
Tom 'twenty, improving from negative $6, 776% intolerance.
Next I will go through our fourth quarter financials in greater detail.
Net revenues were RMB, $542 5 million, which represented a year over year increase of 11, 5% from RMB $486 8 million in the fourth quarter up 220.
The increase was primarily driven by an increasing net revenues from online K 12 tutoring services.
Net revenues from online K 12, tutoring services were RMB $525 $9 million, while usos $82 5 billion.
Up 12, 5% year over year from RMB $467 5 million in the fourth quarter of 2020.
Cost of revenues was RMB $191 2 million and represented an increase of 10, 1% year over year from RMB 170 Street $173 6 million in the fourth quarter of 2020.
The increase was primarily due to the increase in compensation costs for instructors and tutors, which were largely in line with the growth of our net revenues from online K 12 tutoring services as we provided services to more students.
Gross profit was RMB $351 4 million, representing a year over year increase of 12, 2% from RMB 313.
One 2 million in the fourth quarter of 'twenty. The increase was primarily driven by the increase in net revenues.
Gross margin for the fourth quarter of 2021 was $6 64, 8% compared with 64, 3% in the fourth quarter of 2020.
Moving over to the expense side.
Total operating expenses were RMB 386, $3 million, including RMB $42 6 million of share based compensation expenses.
Representing an year over year, a decrease of 43, 8% from RMB $676 4 million in the fourth quarter October 20.
Sales and marketing expenses.
On the $104 1 million, including $77 1 million of share based compensation expenses.
Presenting a year over year decrease of 57, 9% from RMB $247 1 million in the fourth quarter of 2020.
The decrease was primarily due to the reduction of promotional activities and align with the changing regulatory environment.
R&D expenses.
$159 5 billion, including RMB $24 8 million of share based compensation expenses, representing a year over year decrease of 17, four zero 17 zero from RMB $192 1 million in the fourth quarter of 2020.
Increase was primarily due to the reduction of R&D personnel in response to business change and organizational optimization.
G&A expenses were RMB, $83 1 million, including $10 7 million of share based compensation expenses, representing a year over year decrease.
65%.
RMB $277 2 million in the fourth quarter of 2020.
Kris was primarily due to a decreasing share based compensation expenses.
The work for the fourth quarter of <unk>.
There was a larger amount of share based compensation expenses recognized in relation to the company's IPO.
Impairment.
Property and equipment rights to use of assets and <unk> deposit.
Fourth quarter of 2021 were RMB $333 6 million competitor was new in the fourth quarter of 2000.
This impairment losses were recognized as a result of the impairment assessment the company conducted its long term assets.
Called out from 'twenty, one given the changing regulatory environment and the company business model and financial performance.
Loss from operations was.
$28 9 million compared with RMB, 306, and $63 $2 million in the fourth quarter up from 20 <unk>.
Losses from operations as a percentage of net revenues was negative $5 three significantly narrowed from negative 74, 6% in the first quarter of 2020.
Net loss was RMB $25 6 million narrowing from RMB $365 1 million in the fourth quarter of 2020 net.
Net loss as a percentage of net revenues was negative four 7% in the fourth quarter of 2021 competitor was negative 75% in the fourth quarter of <unk>.
non-GAAP adjusted net income was RMB 17, one zero million.
Positive compared with non-GAAP adjusted net loss of RMB $134 6 million in the fourth quarter of 'twenty non-GAAP adjusted net income as a percentage of net revenue was positive three 1% for the fourth quarter October 21.
Improving from negative 27, 7% in the fourth quarter of 220.
As of December 31st, Tom 21, cash and cash equivalent.
<unk> $1180 9 million compared with RMB.
2830 $5 million as of December 31st Tom 'twenty.
We believe we have sufficient capital to support the transformation of our business and to grow our new businesses.
And finally deferred revenue.
And customer advances was RMB 240 St.
<unk> 9 million as of December 31st 2000.
'twenty one.
Presenting a decrease of 59, 2% from RMB $598 3 million as of December 31st 2020. The decrease was primarily attributed to etch. Good go to the reduction of the deferred revenue in relation to online K 12 tutoring services to new <unk>.
Zero as a result of the cessation of all online K 12 tutoring services.
The remaining deferred revenue and customer advances balance as of December 31, 2021 were related to our new businesses and did not include any deferred revenue in relation to the legacy online K 12 tutoring services.
With that I will now provide our business outlook.
On our current estimate.
Total net revenue.
The first quarter of 2022 are expected to be between RMB $200 million and RMB $210 million.
This estimate the net revenues for the first quarter of 2022 is derived entirely from the ongoing businesses. After the company's business transformation and does not include revenues from the legacy online K 12 tutoring services.
He is asking me a range represents a significant increase year over year, when compared with a relatively small base of the net revenue generated from none online K 12 tutoring services of RMB.
$16 6 million for the first quarter of 2021.
In terms of business outlook for the first quarter of 2022 from a profitability perspective.
Although we cannot be certain we will record.
GAAP net income the company is expected to achieve positive adjusted net income on a GAAP basis, excluding share based compensation expenses.
With that.
That concludes our prepared remarks, thank you.
Operator, we are now ready to begin the Q&A session. Thanks.
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