Q4 2022 17 Education & Technology Group Inc Earnings Call

Speaker 1: Good evening and good morning ladies and gentlemen and thank you for standing by for 17 EdTech's fourth year 2022 earnings conference call. At this time all participants are in a listen-only mode. For management's prepared remarks there will be a question and answer session.

Speaker 1: As a reminder, today's conference is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Laura Zau, 2017 EdTech Investor Relations Manager. Please proceed, Laura. The event was Brass-type regional resource policy, organised by Unite.

Speaker 2: 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.

Speaker 2: 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.

Speaker 2: Before we begin, I'd like to remind you that this conference call contains four looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Mitigation Reform Act of 1995. These four looking statements are based upon management's current expectations.

Speaker 2: may cause the company's actual results, performance, or achievements to differ materially. Further information regarding these and other factors and certainties or factors is included in the company's filings with the US SEC. The company does not undertake any obligation to update any forelooking statements as a result of new information.

Speaker 2: future events or otherwise accepted as required under applicable law. I will now turn the call over to our chairman and chief executive officer to receive some of our business development and strategic direction. Andy, please go ahead.

Speaker 3: Thank you, Leira. Hello everyone. Thank you all for joining us on our fourth quarter 2022 earnings call. Before we begin, I would like to mention that the financial information and non-GAAP numbers released are presented.

Speaker 3: on the tutoring operation basis, and all numbers are based on the RMB unless otherwise stated.

Speaker 3: Before we go into the details, let me provide you with the quality business updates and financial performance across our business lines. The COVID-19 outbreak in China in the fourth quarter of 2022 caused significant delays in the bidding and delivery of processes of our projects, which in turn delayed the bidding and delivery of quite a number of projects.

Speaker 3: that were previously expected to happen in the fourth quarter of 2022.

Speaker 3: The significance affected our revenue and financial results in the quarter. We responded quickly by accelerating the ramp up of alternative distribution channels and creating more flexible payment structures to remain agile under these situations.

Speaker 3: The delay in the process of key projects resulted in decreases in our revenue, but we did not lose them by any means. These projects are still under our purview, and we will work consistently to advance them as COVID-19 distributions phase out. Example is the RMB 100 and...

Speaker 3: 16 million products we were awarded on March.

Speaker 3: 23rd 2023

Speaker 3: This was a project previously with an earlier expected bidding and delivery scheduled. I will elaborate further on this project slightly later.

Speaker 3: In 2022, we recorded net revenues of RMB 531.1 million, excluding net revenue from online K-12 tutoring services. Net revenues increased by...

Speaker 3: 8.5 times year over year, the increase were mainly attributable to the steady process of our business transformation. This was achieved after we seized our online K-12 tutoring services at the end of 2021, which accounted for approximately 95% of our revenue before.

Speaker 3: Net revenues for the fourth quarter of 2022 were RMB$39.6 million, representing a year-over-year increase of 138%, one with the exclude impact of legacy online K-12 children services.

Speaker 3: Looking back at year 2022, we've significantly reduced our loss while navigating a new path for our new business initiative.

Speaker 3: Our adjusted net loss in 2022 was reduced to RMB 48 million from the RMB 1.25 billion in 2021, a decrease of 96%. Now I will go into more details of our business.

Speaker 3: Let's start with our in-school teaching and learning starts business. We are glad to see key milestone processes in our in-school business since the last quarter. On March 23, 2023, the company was officially awarded a new Smart Pen based education digital transformation product in Shanghai MingHao District with a contract value of RMB $1,000.

Speaker 3: This is the product to move MingHao District's education digital transformation further after the precision teaching and adaptive learning system project which was delivered in the second quarter of 2022. It demonstrates our comprehensiveness and the market's recognition of our comprehensive education services. For more information and to support LingQ Rockwater Navigate lng Real

Speaker 3: It aims to provide our solutions and services to all public schools within our district.

Speaker 3: And next, it will expand to cover all schools of Mingkang district.

Speaker 3: The project utilizes our accumulated data insights, recommendation, algorithm, and AI technology to provide high quality education digital transformation solutions in homework, daily teaching, and classroom interaction. It creates a closed loop from class preparation, teaching exercises, correction, evaluation, research.

Speaker 3: exemplary and leading role in the digital transformation of regional education in other provinces and cities in the future. This project clearly illustrates the industry's recognition for our teaching and learning starts offering in terms of its outstanding ability of facilitating daily teachers and students use on a mass scale.

Speaker 3: which are rooted from our data insights and AI technology, deep understanding of classroom and homework, scenario and deep integration of technology into teaching and learning from online to offline.

Speaker 3: From a product and service offering perspective, the company continues to optimize and iterate our product offering and services to meet the needs of our clients to further enhance user experience. As the government, enterprises and schools collaborate to promote the development of digital education, we have produced a

Speaker 3: reproducible and replicable overall teaching and learning solutions after year of practice.

Speaker 3: Our flagship case, Minghan Homework, has achieved full coverage of public schools in Minghan District as of now. More than 150 schools use our precision teaching and adaptive learning assistance.

Speaker 3: Our flagship case, Minghan Homework, has achieved full coverage of public schools in Minghan District as of now. More than 150 schools use our precision teaching and adaptive learning system.

Speaker 3: 12,120 thousand students using the tool to do homework.

Speaker 3: The accumulated number of students using the tool for homework has exceeded.

Speaker 3: 16 million as of now. The frequency of use and the monthly retention rate of teachers in the pilot schools continue to increase and the normalized application of SmartPAN practice is advancing steadily.

Speaker 3: During the period, the World Digital Education Conference was held in Beijing with the theme of digital transformation and the future of education, focusing on the opportunities and the challenges brought by digital transformation in education. 17 Attack is one of the only two corporate presenters were invited to attend the conference.

Speaker 3: I was honored to deliver a speech and share our experiences and practice of our projects in digital transformation of education. With hundreds of regional education bureaus being invited to listen to and received the enthusiastic response and rewarding change with industry peers.

Speaker 3: and educational authorities. Our teaching and learning solution has also been obligated in Beijing, Xicheng, Shanghai, Changming, and Songdian districts for math skill and normal application as part of the digital transformation initiative, which received broad recognition from local educational authorities.

Speaker 3: The COVID-19 outbreak in China in the fourth quarter of 2022 has affected the bidding and delivery of quite a number of government procurement projects, including a number of our key projects. This has directly impacted our product delivery and revenue recognition, and thus the financial performance of the company in the fourth quarter of 2022.

Speaker 3: We believe this will be absorbed gradually over the next few quarters. An example was that our recently awarded project was previously expected to be awarded and partially delivered in the fourth quarter.

Speaker 3: In the aspect of our self-directed learning products, we continue to develop educational products and services that meet regular requirements including self-directed learning products, learning devices and other digital products and learning contents for students. We continue to optimize and iterate our product offerings according to changes in market and customer needs.

Speaker 3: Meanwhile, we carry out in-depth cooperation and educational institutions with a strong student-based and traditional context to provide smart teaching products and services for primary and secondary school students. Now I will turn the call over to Michael, our CFO , to walk you through our latest financial performance. Thank you.

Speaker 3: 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. I would like to remind you that the quarterly results we present here should be taken with care in reference to our potential future performance as subject to potential impacts from seasonality in the one-off event.

Speaker 3: as a result of the series of regulations introduced in 2021 and corresponding adjustment of this model, organization and workforce.

Speaker 3: The delay in the bidding and delivery process of several of our projects has significantly affected revenue recognized in the fourth quarter and that's our overall financial performance.

Speaker 3: However, such fluctuations in revenues are inevitable during the early stage of business development, especially given the external environment.

Speaker 3: Nevertheless, we are pleased to report that our continuous cost and expenses reduction measures have allowed us to significantly reduce our net loss in 2012 and 2002.

Speaker 3: despite the termination of our legacy K-12 afterschool online tutoring operation, which accounted approximately 95% of our revenue to post.

Speaker 3: With China's economy recovering from the COVID-19 pandemic, we're confident that the latest awarded project is not an important milestone in the company's continuous transformation.

Speaker 3: into the new business strategy.

Speaker 3: Next, please allow me to go through our four quarter financials in greater detail.

Speaker 3: our net revenues.

Speaker 3: The revenues for the fourth quarter of 2022 were RMB 39.6 million, representing a year-over-year decrease of 92.7% from the RMB 542.5 million in the fourth quarter of 2021.

Speaker 3: This was mainly due to the cessation of online K-12 tutoring services by the end of 2021 due to regulation reasons.

Speaker 3: if compared excluding the net revenues from online K-12 system services.

Speaker 3: Our net revenues increased significantly from RMB 16.6 million to RMB 39.6 million during the same period, representing a year-over-year increase of 137.7%.

Speaker 3: The net revenue decreased.

Speaker 3: by 68.2% on a quarter to quarter basis.

Speaker 3: due to delays in project delivery and revenue recognition as a result from the COVID-19 pandemic outbreak during the COVID-19 period.

Speaker 3: and revenue recognition as a result from the COVID-19 pandemic outbreak during your policy period.

Speaker 3: Cost of revenue for the fourth quarter.

Speaker 3: of 2022 with RMB 18.9 milliliters, representing a year-over-year decrease of 90.1% from RMB 191.2 milliliters in the fourth quarter of 2021.

Speaker 3: which was largely in line with decreasing net revenue due to the cessation of the company's online K-12 tutoring services under the new regulatory and business environment.

Speaker 3: Cross-profit for the fourth quarter of 2022 was RMB 20.6 million, representing a year-over-year decrease of 94.1% from RMB 351.4% a million in the fourth quarter of 2021. Cross-margin on the fourth quarter of 2022 was 52.1%.

Speaker 3: representing a year-over-year decrease of 12.7%.

Speaker 3: or compare with 60.48% in the first quarter of 2020 watts. This represents primarily the major change of our major business.

Speaker 3: Total operating expenses for the fourth quarter of 2022 was RMB 141 million, representing a year-over-year decrease of 62.9% from RMB 380.3 million in the fourth quarter of 2021. Loss from operations for the fourth quarter of 2022 was RMB 120.3 million compared with RMB 28.9 million.

Speaker 3: in the fourth quarter of 2021. Lost from operation is the percentage of net revenues for the fourth quarter with an active 300.4% or 2% compared with negative 5.3% in the fourth quarter of 2021.

Speaker 3: Now lost for the fourth quarter of 2021.

Speaker 4: 2

Speaker 3: was RMB 103.1 million compared with net loss of RMB 25.6 million in the fourth quarter of 2021. Net loss is a percentage of revenues with negative 260.7% in the fourth quarter of 2022.

Speaker 3: compared with the negative 4.7% in the fourth quarter of 2021. Adjusted net loss on the gap basis for the fourth quarter of 2022 was on the 70.1 million compared with adjusted net income on the 70 million in the fourth quarter of 2021.

Speaker 3: The relative increase in losses was primarily related to the projects that we previously expected to be delivered in the fourth quarter of 2022 that got delayed due to the external COVID-19 outbreaks in China in the fourth quarter. Please refer to the table caption reconciliation of the GAAP measures .

Speaker 3: We are committed to seeking progress with abilities to achieve high quality growth. We continue to explore multiple business opportunities to improve the value we provide to our customers while keeping our momentum going.

Speaker 3: Additionally, we will further optimize our operational efficiencies to strengthen our competitiveness and drive sustainable long-term growth for our businesses. Looking ahead, we are cautiously optimistic and confident about the future of 17Etec. We are committed to creating better value for our shareholders in the years ahead and beyond.

Speaker 3: With that, that concludes our prepared remarks. Thank you. Operators, we are now ready to begin the Q&A session. Thank you.

Speaker 1: Thank you. If you have a question at this time, please press star 11 on your touch tone telephone.

Speaker 1: Again, that is star 11 if you have a question.

Speaker 1: Again, that is star 11 if you have a question.

Speaker 1: And one moment for our first question.

Speaker 1: Our first question is from James. Your time is open. Please go ahead.

Speaker 5: Hi, good morning. I would like to know what is the status of the share buyback program that you announced last year, given where net cash is trading pressure right now.

Speaker 3: Hi James, thanks for your questions. Yes, the company's share buy buy program has always, has continued to be operating since the announcement. We have clear instructions in terms of the

Speaker 3: the way we want to buy back in terms of amount and the price. The details of the share buyback purchase program will be fully disclosed in the annual reports which we expect to be coming out over the next month or so.

Speaker 1: Thank you. Thank you. And again, if you have a question at this time, please press star 1-1.

Speaker 1: I'm showing no further questions at this time. I'd like to turn the conference back over to Laura Zau for any further remarks. I'd like to turn the floor to you for any further remarks.

Speaker 2: Thank you, operator. In closing, on behalf of the 17 attacks 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.

Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker 1: That concludes today's conference call. Thank you for participating. You may now disconnect.

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