17 Training & Know-how Group Inc. (YQ) Q2 2022 Earnings Name Transcript

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17 Training & Know-how Group Inc. (YQ -3.37{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679})
Q2 2022 Earnings Name
Sep 13, 2022, 9:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Good night, and good morning, women and gents, and thanks for standing by for 17EdTech’s first quarter 2022 earnings convention name. [Operator instructions] As a reminder, at the moment’s convention name is being recorded. I am going to now flip the assembly over to your host for at the moment’s name, Ms. Lara Zhao, 17EdTech’s investor relations supervisor.

Please proceed, Lara.

Lara Zhao — Investor Relations Supervisor

Thanks, operator. Hiya, everybody, and thanks for becoming a member of us at the moment. Our earnings launch was distributed earlier at the moment and is obtainable on our IR web site. Becoming a member of us at the moment are Mr.

Andy Liu, founder, chairman and chief government officer; and Mr. Michael Du, director and chief monetary officer. Andy will stroll you thru our newest enterprise efficiency and techniques, adopted by Michael, who will focus on our monetary efficiency and steerage. They are going to be accessible to reply your questions throughout the Q&A session after the ready remarks.

Earlier than we start, I might wish to remind you that this convention name accommodates forward-looking statements as outlined in Part 21E of the Securities Change Act of 1934 and the U.S. Non-public Securities Litigation Reform Act of 1995. These forward-looking statements are based mostly upon administration’s present expectations and present market and working situations and relate to occasions that contain recognized or unknown dangers, uncertainties and different components, all of that are troublesome to foretell and plenty of of that are past the corporate’s management. These dangers might trigger the corporate’s precise outcomes, efficiency or achievements to vary materially.

Additional data concerning these and different dangers, uncertainties or components is included within the firm’s filings with the U.S. SEC. The corporate doesn’t undertake any obligation to replace any forward-looking statements because of new data, additional occasions or in any other case, besides as required beneath relevant regulation. I’ll now flip the decision over to our chairman and chief government officer to overview a few of our enterprise improvement and strategic route.

Andy, please go forward.

Andy Chang Liu — Founder, Chairman, and Chief Govt Officer

Thanks, Lara. Hiya, everybody. Thanks all for becoming a member of us on our second quarter 2022 earnings name. Earlier than we start, I want to point out that the monetary data and non-GAAP numbers on this launch are offered on a seamless operation foundation, and all numbers are based mostly on the RMB, except in any other case said.

We’re glad to report a stable efficiency within the second quarter. Earlier than we go into the main points, let me replace you with some fast highlights. Firstly, we recorded RMB 133.5 million of internet revenues within the second quarter of 2022, 11.2{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} greater than the highest finish of our estimates offered earlier in June. This was achieved by greater income contribution from our instructing and studying SaaS enterprise.

Secondly, our operational effectivity continues to enhance, and we recorded a considerably narrowed GAAP foundation internet loss in contrast with the identical interval in 2021, permitting us to realize internet profitability on a non-GAAP foundation for the final three consecutive quarters. Thirdly, our new instructing and studying SaaS choices have gained additional momentum and received sturdy recognition and demand from the federal government and related authorities, contributing an rising proportion of the corporate’s internet revenues on this quarter. Now let me go into some extra particulars. Let’s begin with our in-school instructing and studying SaaS enterprise.

In the course of the interval, our instructing and studying SaaS choices have witnessed main milestones. We efficiently delivered a districtwide precision instructing and adaptive studying system mission based mostly on clever homework in Shanghai Minhang district within the second quarter of 2022. The system has been recurrently used all through the instructing course of and it is properly acknowledged by academics, college students and training authorities. This can be a clear instance satisfying the usual for lively use set by training authorities.

There have been a complete of 156 faculties in Minhang district utilizing our precision instructing and adaptive studying system. In the course of the waves of COVID outbreaks within the second quarter of 2022, our precision instructing and adaptive studying system have performed a major position in serving to Minhang authorities for a high-quality on-line instructing atmosphere for certified content material supply, accumulate examine data and supply interactive communication between faculties and authorities. Within the 4 months after the implementation, round 120,000 college students used our system and accomplished a complete of 11 million copies of homework assignments cumulatively. The worth of our system is properly acknowledged by its varied customers.

It’s a clear illustration of a 17EdTech’s pioneering functionality within the digital transformation of China’s training trade. We proceed to see larger market potential and alternatives as we make additional progress in our instructing and studying SaaS enterprise. Chinese language authorities’s steady endeavor within the digital transformation of Chinese language training system to implement enhanced ranges of personalization throughout the instructing and studying course of has been the backdrop offering a centered demand for our OneSmart instructing and studying SaaS choices. Additionally it is to be famous that all through the complete loop of training progress, homework is essentially the most excellent state of affairs for regular knowledge assortment.

The flexibility to gather homework knowledge successfully and effectively is a key to materialize data-driven differentiated and particular person life instructing. Solely with the help of the large knowledge and clever expertise, the requirement of enhancing homework effectivity might be really achieved. The precision instructing and adaptive studying system mission based mostly on clever homework in Minhang is a flagship case now we have efficiently delivered, not solely in Minhang district and nationwide good training demonstration district designed by MOE, which has substantial illustrate worth and affect over cities and districts throughout China. Our answer has change into a transparent flagship instance of how such a system permits individualized homework and exact instructing whereas assembly normalized software required by the related operators, whereas decreasing the burden of scholars and faculties and enhancing studying and instructing efficiencies required by double discount coverage.

As we expanded our gross sales channels right into a broader vary, now we have signed partnership agreements with over 50 native distribution brokers to enlarge our distribution community. We’re assured that the rising market wants will lead us to a deeper market penetration. In the mean time, the corporate can be actively exploring an actual response of recurring SaaS billing mannequin for our instructing and studying SaaS choices with our present and potential clients. This consists of one-stop total answer combining software program, {hardware} and repair, though at present not prevalent billing fashions, the recurring SaaS billing mannequin is anticipated to achieve reputation amongst native authorities and faculties versus the standard considered one of procurement mannequin due to the upfront price of discount and the promotion of normalized application-based procurement by the Ministry of Training.

Greater proportion of income from recurring SaaS billing mannequin additionally means a more healthy monetary profile given the regular and predictable ongoing income stream. We’ve got already seen a current product anticipated to be operated beneath this mannequin and obtained constructive suggestions from the native training bureau on such recurring SaaS billing mannequin. By way of off-campus companies, we’ll proceed to discover and enhance our self-directed studying product based mostly on pupil and mother or father suggestions to satisfy the varied and multinational studying calls for of scholars and supply with focused custom-made studying content material consistent with the federal government’s regulation. Q2 marks a couple of key milestones in our new enterprise mannequin after the double discount coverage.

We’re glad to see these constructive momentums are being become initiatives with fame earned and income acknowledged. As we deploy our SaaS enterprise alternatives and increase our gross sales community nationwide, we grew much more decided in our new methods and noticed an rising quantity of enterprise alternatives arising. Wanting forward, we count on our instructing and studying SaaS enterprise to proceed a major proportion to the general revenues within the coming quarters. We’re assured that the synergistic linkage between in-school and off-campus enterprise will allow us to construct a high-quality training platform, pushed by science and expertise with ingenuity serving to the digital transformation and upgrading of Chinese language training trade, decreasing the burdens of scholars and faculties, enhancing training effectivity and making contributions to the promotion of Chinese language training reform.

Now I’ll flip the decision over to Michael, our CFO, to stroll you thru our newest monetary efficiency. Thanks.

Michael Chao Du — Director and Chief Monetary Officer

Thanks, Andy, and thanks, everybody, for becoming a member of the decision. I’ll now stroll you thru our monetary and working outcomes. Please word that each one monetary knowledge I am going to speak about shall be offered in RMB phrases. I want to remind you that the quarterly outcomes we current right here needs to be taken with care, and reference to our potential future efficiency are topic to potential impacts from seasonality and one-off occasions because of the sequence of laws launched in 2021 and a corresponding adjustment to our enterprise mannequin, group and workforce.

The second quarter of 2022 is the third quarter of operation after we formally seized our on-line Okay-12 after-school tutoring providers and generated income purely from our persevering with companies. Our new enterprise technique has proven constructive momentum within the second quarter with in-school instructing and studying SaaS companies seeing further supply throughout the second quarter of 2022. Because of our improved operational effectivity, we’re delighted to report internet profitability on an adjusted foundation for the final three consecutive quarters. Subsequent, I’ll undergo our second quarter financials in larger element.

Our internet income have been RMB 133.5 million, representing a year-over-year lower of 80.1{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 617.9 million within the second quarter of 2021. The lower was primarily as a result of cessation of our on-line Okay-12 tutoring providers by the top of 2021 to be in compliance with the newest PRC regulation. Nonetheless, in comparison with the web income, excluding these from on-line Okay-12 tutoring providers, our internet income elevated considerably from RMB 8.9 million to RMB 133.5 million throughout the identical interval, representing a development of over 14 instances. The corporate’s instructing and studying SaaS choices are contributing an rising proportion of the corporate’s internet revenues for the second quarter of 2022 in comparison with the earlier quarters.

Value of income for the second quarter of 2022 was RMB 63.8 million, representing a year-over-year lower of 74.3{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 248 million within the second quarter of 2021, which was largely consistent with the lower in internet income as a result of cessation of our on-line Okay-12 tutoring providers beneath the brand new regulatory and enterprise atmosphere. Gross revenue was RMB 69.7 million, representing a year-over-year lower of 83.5{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 422.9 million within the second quarter of 2021. Gross margin for the second quarter of 2022 was 52.2{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} in contrast with 63{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} within the second quarter of 2021. On the expense aspect, whole working bills for the second quarter of 2022 have been RMB 103.8 million, representing a year-over-year lower of 85.2{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 702.6 million within the second quarter of 2021.

The full working bills for the second quarter of 2022 included RMB 30.1 million of share-based compensation bills. Gross sales and advertising bills for the second quarter of 2022 have been RMB 11.7 million, which included RMB 3.4 million of share-based compensation bills, representing a year-over-year lower of 96.2{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 306.7 million within the second quarter of 2021. This was primarily as a result of lower in promotional price bills and promoting expenditures because of the change within the regulatory atmosphere, in addition to employees optimization for the reason that regulatory change. R&D bills for the second quarter of 2022 have been RMB 35.7 million, which incorporates RMB 7.2 million of share-based compensation bills.

This represented a year-over-year lower of 84.4{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 229.5 million within the second quarter of 2021. The lower was primarily attributed to inventory optimization and bills saved consistent with the enterprise adjustment. G&A bills for the second quarter of 2022 was RMB 56.4 million, together with RMB 19.5 million of share-based compensation bills, representing a year-over-year lower of 48.5{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} from RMB 109.5 million within the second quarter of 2021. This lower was primarily attributable to employees optimization and expense saving measures consistent with our enterprise adjustment.

Loss from operations was RMB 34.1 million, in contrast with RMB 279.8 million within the second quarter of 2021. Loss from operations as a share of income for the second quarter of 2022 was destructive 25.5{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679}, which was considerably narrowed from destructive 41.7{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} within the second quarter of 2021. Internet loss for the second quarter of 2022 was RMB 26.4 million, in contrast with a internet lack of RMB 266.7 million within the second quarter of 2021. Internet loss as a share of internet revenues was destructive 19.8{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} within the second quarter of 2022 in contrast with destructive 39.8{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} within the second quarter of 2021.

Our adjusted internet revenue on a GAAP foundation for the second quarter of 2022 was constructive RMB 3.6 million, in contrast with an adjusted internet lack of RMB 218.2 million within the second quarter of 2021. Adjusted internet revenue as a share of internet income was constructive 2.7{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} within the second quarter of 2022, considerably improved from the destructive 32.5{c127157336ec838945c6ce4624047756c94c121afa63bab0c7fded5faf8ea679} within the second quarter of 2021. With that, I’ll now present our enterprise outlook. Based mostly on our present estimates, whole internet revenues for the third quarter of 2022 are anticipated to be between RMB 120 million and RMB 114 million.

This estimated internet revenues for the third quarter of 2022 is derived fully from ongoing enterprise of the corporate’s enterprise transformation and doesn’t embody revenues from legacy on-line Okay-12 tutoring providers. This estimated vary represents a major enhance 12 months over 12 months as in contrast with the comparatively small base of the web revenues generated from on-line Okay-12 tutoring providers for the third quarter of 2021. I’d additionally like to notice that our instructing and studying SaaS merchandise contain training bureaus and faculties and it usually must undergo an extended cycle bidding course of. It’s thus inevitably topic to a possible delay in mission bidding course of, our mission delivering course of as a result of components similar to COVID outbreaks and others.

This implies our income recognition progress may fluctuate from quarter to quarter as a result of components that now we have restricted management over, particularly in early quarters of our income ramp-up interval. The forecast displays 17EdTech’s present and preliminary overview and is, due to this fact, topic to alter. Please consult with the secure harbor assertion contained in our earnings launch for the components that might trigger precise outcomes to vary materially from these contained in any forward-looking statements. With that, that concludes our ready remarks.

Thanks. Operator, we’re prepared to start the Q&A session.

Questions & Solutions:

Operator

Thanks, administration. [Operator instructions] We’ve got a query from the road of [Inaudible] from [Inaudible] Capital. Please proceed.

Unknown speaker

Yeah. My query is that the administration has introduced the share buyback plan final 12 months. And so we wish to know what is the strategy of the share buyback plan thus far.

Michael Chao Du — Director and Chief Monetary Officer

Let me take this query. Thanks for the query. Sure. We introduced a share buyback program final November.

We are literally within the strategy of regularly shopping for again the shares at a velocity that we take into account appropriately thus far. Our plan is to proceed such buyback — share buyback packages. In later periodic stories, we’ll present detailed numbers in regards to the variety of shares and quantity now we have used.

Unknown speaker

Thanks very a lot. And likewise, congratulations to the achievement that you simply guys have achieved. Implausible.

Michael Chao Du — Director and Chief Monetary Officer

Thanks.

Operator

Thanks for the questions. [Operator instructions] And there are not any additional questions from the telephone line. Might I hand the decision again to the administration? Please proceed.

Lara Zhao — Investor Relations Supervisor

Thanks, operator. In closing, on behalf of 17EdTech’s administration staff, we would wish to thanks in your participation on at the moment’s name. If you happen to require any additional data, please be happy to achieve out to us straight. Thanks for becoming a member of us at the moment.

This concludes the decision.

Operator

[Operator signoff]

Length: 0 minutes

Name individuals:

Lara Zhao — Investor Relations Supervisor

Andy Chang Liu — Founder, Chairman, and Chief Govt Officer

Michael Chao Du — Director and Chief Monetary Officer

Unknown speaker

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