Q1 2022 17 Education & Technology Group Inc Earnings Call

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Good evening, and good morning, ladies and gentlemen, and thank you for standing by for 17 at <unk> first quarter 2022 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.

To turn the meeting over to your host for today's call Ms. Laura All 17, <unk> Investor Relations manager. Please proceed rollout.

Thank you operator, Hello, everyone and thank you for joining US today, our news release earnings release, what gives the ability to earlier today and is available on our IR website. Joining us today are Mr. Andy Chang, Liu founder Chairman and Chief Executive Officer, and Mr. Microtel do director.

And chip 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.

I'll 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 conference call contains forward looking statements as defined in section 21 E of the Securities Exchange Act of 1934, and the U S. Private Securities Litigation Reform Act of 1995. This 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. These rigs may cause the company's.

Actual results performance or achievements to differ materially.

Information regarding these or other risks uncertainties or factors is included in the company's filings with the U S. 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 at <unk>.

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 Laura and Hello.

Hello, everyone. Thank you for joining us on our first quarter 2022 earnings call.

We are pleased to report solid performance in the first quarter.

Before we dive into the details let me provide some quick highlights.

No.

Revenue was $233 4 million.

11, 1% higher than the top end of the estimates provided in March.

Second our operational efficiency continued to improve at the same time.

In substantially narrowed the gap business, both compared with the same period in 2021, and this allowed us to achieve a positive adjusted net income for the second quarter in a row.

Third our new business strategy has continued to gain momentum we saw new opportunities as the COVID-19, pandemic and favorable government policy helped evolve market needs and drove new demands for our service.

Now let me go into some details.

We delivered solid operational and financial results net revenue reached RMB $233 4 million, which were 11, 1% higher than the high end of our guidance provided last quarter again this was mentioning that.

This was achieved without any <unk> unlikely 12 after school tutoring services revenues.

Our profitability continues to improve as we continue to enhance our cost structures and operational efficiency for the first quarter.

Operating expenses decreased by 82, 1% year over year.

And at the percentage of the revenue as well, although we recorded a net loss of RMB 24, $24 8 million.

Our GAAP basis in the first quarter of 2022, we achieved RMB nine 9 million of adjusted net income compared with an adjusted net loss of RMB $588 8 million in the first quarter of 2021.

For our <unk> and <unk> business will continue to see positive trends and demand for our offerings.

Earlier this year, but the three us at accretion clearly put forward the need of stupid to speed up the implementation of Digitalized in the education industry on March the first National Public service platform for Smart application in primary and secondary schools was officially launched all of these cigna.

Is that the digital transformation China's education has entered a new area, where his focus is centered around teaching and learning scenarios and emphasized services and daily application.

In May the Beijing Municipal Education Commission issued the document called opinions on further purchasing quality external education resources for compulsory education.

Exclusively supporting the.

Procurement of third party services to enrich the education resources for public schools.

Including critical resources management services and family Education and guidance services.

During the during the last few months, China has experienced a number of regional COVID-19 outbreaks during lease up rigs, we have seen additional demands and opportunities for education bureaus, and skus, while the teaching and learning starts offerings, especially unlike homework modules to cope with.

Curious, where physical offline schooling schooling was not possible.

A number of districts and cities in economically developed regions has already in detailed discussions with us on the procurement of our online homework SaaS component.

Specifically, all elementary and secondary schools in Shanghai moved to online learning starting in March.

We have developed a multichannel integrated online education platform, which combined with the aerial classroom live broadcast interactive platform and being how smart smart homework feature based on our existing modules for our district, Shanghai delivering a one stop solution software multiple.

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Recently, the National educational resources and public services system Alliance also officially announced the results of the three classrooms application case collection.

The attempt made by something attack using technology to enhance balanced education was successfully selected as a national education three classrooms innovative application case.

Our pilot products of model School and district continue to progress and the generous data insights that brought recommendation by schools and educational arthritis.

During the quarter, we officially released the data report four pilot schools and districts in two districts in Shanghai in several cities in Jiangsu Province.

They were well recognized by smooth local education authorities.

We believe to be of high value of facilitates personalized teaching and learning process.

Cingal Middle school in Shanghai.

<unk> High school serviced by US has been recommended by local authorities is an excellent. Unlike teaching tasteful innovated automatic homework review functions.

Another key component of our teaching alerting stock offering.

Our proprietary smart pen chip has won the highest honor of the 2022 terminals right total award for its humanized design and excellent quality. The right Top award is one of the world's three major design awards and an international recognition of creativity and design.

The into smart pen realize it's pen and paper injection through dot matrix technology, helping teachers to complete accurate learning data collection and learnings diagnosis to facilitates personalized teaching and learning process for teachers and students. It is a combination.

And offline that's create a closed loop for the high quality homework with personalized commercial as the court.

We are also building a nationwide agent network to help reach wilder areas to distribute our teaching and learning starts offerings.

Official partnership agreements were signed with over 50 distribution agents among them there were Intel bank of China, and the ETP Bank of China, Intel and comeback.

In the meantime, we are continuously improving our self directed learning products based our additional student and paper feedback as well as various regulatory requirements. We have also launched an accompanying hardware and in love enhance the study experience with our self directed learning product and.

The mobile App.

Leveraging our experiences.

Nickel services technical reserves content and data intact over the year.

We are confident and determined to continue creating value with our new business strategies and the education technology sector. We have a clear strategy to continue to invest into our teaching and learning stock business to facilitate education authorities and schools to implement the digital transformation and upgrading of the pub.

Click Chinese education sector, we will continue to develop digital.

Applications and resources to help improve the teaching and learning efficiencies.

For our self directed learning products. We believe it has captured the needs of a wide range of groups of families. In a post double reduction area and has a great proposal we will.

To improve adapt however, enhance.

The effectiveness and user experience of our self directed learning products with more targeted personalization and content enrichment.

We will continue our efforts to build our business into a healthy and sustainability growing business.

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 our call I will now walk you through our financial and operating results.

Please note that all financial data.

Will be presented in RMB terms.

I would like to remind everyone that the quarterly result, we present here should be taken with care and references to our potential future performance are subject to impact from seasonality.

One off event as a result of the series of the regulations, introducing top 21 and corresponding adjustment to our business model optimization and Workforces are modest.

The first quarter of 2022 is the first quarter of operations.

Officially received our online K to talk school tutoring services and degenerative revenue purely from our ongoing businesses.

We are delighted to report a second consecutive profitable quarter on an adjusted basis, delivering our guidance that we'll provide the ability.

Sure.

From a topline perspective, we recorded a net revenues of RMB 233 and <unk>.

$4 million.

11, 1% higher than the top end of our estimate provided earlier.

And it represented almost 20 times growth from them than K 12 After school tutoring revenue.

And the $11 2 million in the first quarter of 2021.

Gross margin was six 7% this quarter improving from 64% in the first quarter on slide 21.

Our operational efficiency continued to improve.

Total operating expenses for the first quarter of 2022 decreased to RMB $117 8 million from RMB $953 2 million in the first quarter on top 21, representing a year over year decrease of 82, 1%.

Net loss decreased significantly to RMB $24 8 million for the first quarter of 2022 from 650.

<unk> $59 7 million the same period of time on tier one.

Net loss as a percentage of revenue was negative 10, 6% in fiscal 'twenty two.

<unk> from negative 139%.

In the first quarter of 2021.

On an adjusted basis.

Our adjusted net income, which excludes share based compensation expenses was positive RMB $9 9 million for the first quarter of 2022.

Paired with an adjusted net loss of RMB 615.

$9 $7 million of St Jude upfront.

Sure.

We continue to see our business progressing towards the right direction with continuous improvements in operational efficiency and profitability.

Our goes through our first quarter financials in greater detail.

Net revenue were RMB $233 4 million.

If looking from a hole this represented a year over year decrease of 58% from RMB 474, and <unk> 2 million in the first quarter was one touch at one.

The decrease was mainly due to the cessation of online K 12 tutoring services.

At the end of 'twenty one to.

To be in compliance with the latest PRC regulations, which prohibits the provision of tutoring services.

Later two subjects.

Top students.

However, when compared with the net revenues excluding dose from online K 12 tutoring services of the same period last year.

Our revenue actually increased significantly from RMB $11 2 million.

Last year to RMB $233 4 million during the same period.

This year.

This represented a growth of nearly 20 times.

The majority of net revenues for the first quarter of 2022 was from the company's personalized self directed learning products and less extent from our teaching and learning services.

The latter has a longer cycle to finish the bidding process and to deliver that.

The revenue can be recognized.

The majority of the clients, where education authorities and public schools.

Cost of revenue for the first quarter of 2022 was RMB $91 8 million.

Presenting a year over year decrease of 31, 1% from RMB 187, 6 million in the first quarter of top 21.

Which was largely in line with the cessation of our online K 12, tutoring services under the new regulatory and business environment.

Gross profit was RMB $141 7 million, representing a year over year decrease.

56.

A 56% from RMB $286 6 million in the first quarter of 2021.

Gross margin for the first quarter of 'twenty two was 67%.

Improving from 60, focusing in the first quarter conference you want.

Moving over to the expenses side.

Total operating expenses were RMB $178 million.

Presenting a year over year decrease of 82, 1% from RMB $963 2 million in first quarter of 2021.

The total operating expenses for the first quarter of 'twenty to include the RMB 34, plus six mental health share based expense compensation expenses.

Sale and marketing expenses for the first quarter 2022 were RMB $22 million, which.

Which included 4 million of share based compensation expenses Hicks.

This represented a year over year decrease of 96, 4% from RMB.

600.

13.

$5 million in the first quarter 'twenty one.

This was mainly due to decrease in promotional cost expenses and advertising expenditure as a result of the changing regulatory environment as well as stock stock optimization since the regulatory change to be in line with the business adjustment.

R&D expenses were RMB, $97 5 million, including $7 2 million of share based compensation expenses.

This represented a year over year decrease of 53, 6%.

From RMB $209 9 million in the first quarter of 2021 the.

The decrease was again, primarily attributable attributable to staff optimization and expenses saving measures in line with this adjustment.

G&A expenses were RMB 15, one plus $3 million. This included RMB 23, 5 million of share based compensation expenses.

It was presented a year over year decrease of 65%.

From RMB $129 7 million in the first quarter of 'twenty. One the decrease was primarily attributed to stock optimization and extensive saving measures in line with the business of adjustment.

Loss from operations was RMB $29 1 million.

Compared with RMB $666 $6 million in first quarter 'twenty one.

Loss from operations as a percentage of net revenues for the first quarter 2022 was negative $12, 5% improving from a negative 145, passing their first quarter Uptown in 'twenty one.

Net loss was RMB $24 8 million compared with a net loss of $659 $7 million the first quarter of 2021.

Net loss was as a percentage of.

Revenue was negative 10, 6% in the first quarter of clients on Youtube compared with negative 139, 1% in the first quarter of 2018.

2020 to 21.

Adjusting net income on a GAAP basis was positive.

RMB $9 9 million.

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And adjusted net loss of RMB $588 8 million in the first quarter of 2021.

Adjusted net income as a percentage of net revenue was positive four 2% in the first quarter of 2022.

Which substantially improved from negative 124, 2% in the first quarter I'll comment on Q1.

With that I will now provide our business outlook.

Based on our current estimates total revenues for the second quarter of 2022.

<unk> to be between RMB 100 million and RMB $120 million.

This estimate of net revenues for the second quarter of 222 is to drive is expected to be derived entirely from our ongoing businesses.

Our business transformation.

And we're not include revenues from the legacy online K 12 tutoring services.

This estimated range represents a significant increase year over year.

Compared with a relatively small base of the net revenue generate from.

And then online K 12 tutoring services for the second quarter up 21.

The above forecast reflects 17, <unk> current and preliminary view and is therefore subject to change. Please refer to the safe Harbor statement below for the factors that could cause actual results to differ materially from those contained.

Any.

Forward looking statements with that that concludes our prepared remarks. Thank you.

Operator.

We are now ready to begin the Q&A session.

<unk>.

We will now begin the question and answer session to ask a question on the phone. Please press star one and with brand name to be announced if you will.

Cancel your request please press the pound Olkowski once again to ask question. Please press star one.

As a reminder, if you'd like to ask question. Please press star.

<unk> one.

Yeah.

Let's say I have no more questions on the line I'll like to hand, the call back to the management for closing.

Yes.

Yes.

Sure.

Thank you that concludes please go ahead.

Thank you operator in closing on behalf of one seven.

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.

<unk> reached out to us directly thank you for joining US today. This concludes the call.

Ladies and gentlemen that concludes the conference for today you may now disconnect your lines.

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