17 Schooling & Expertise Group Inc. (YQ) Q2 2022 Earnings Name Transcript

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17 Schooling & Expertise Group Inc. (YQ -3.37{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1})
Q2 2022 Earnings Name
Sep 13, 2022, 9:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

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 will 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. Good day, 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 methods, adopted by Michael, who will talk about our monetary efficiency and steerage. They are going to be obtainable 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 incorporates forward-looking statements as outlined in Part 21E of the Securities Trade 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 identified or unknown dangers, uncertainties and different components, all of that are tough to foretell and plenty of of that are past the corporate’s management. These dangers could trigger the corporate’s precise outcomes, efficiency or achievements to vary materially.

Additional info relating to 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 info, additional occasions or in any other case, besides as required below relevant legislation. I’ll now flip the decision over to our chairman and chief government officer to evaluate a few of our enterprise improvement and strategic course.

Andy, please go forward.

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

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

We’re glad to report a strong 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{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} larger than the highest finish of our estimates supplied earlier in June. This was achieved via larger income contribution from our educating 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 attain internet profitability on a non-GAAP foundation for the final three consecutive quarters. Thirdly, our new educating and studying SaaS choices have gained additional momentum and gained robust recognition and demand from the federal government and related authorities, contributing an growing 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 educating and studying SaaS enterprise.

Throughout the interval, our educating and studying SaaS choices have witnessed main milestones. We efficiently delivered a districtwide precision educating and adaptive studying system undertaking based mostly on clever homework in Shanghai Minhang district within the second quarter of 2022. The system has been repeatedly used all through the educating course of and it is nicely acknowledged by lecturers, college students and training authorities. It is a clear instance satisfying the usual for energetic use set by training authorities.

There have been a complete of 156 colleges in Minhang district utilizing our precision educating and adaptive studying system. Throughout the waves of COVID outbreaks within the second quarter of 2022, our precision educating and adaptive studying system have performed a major function in serving to Minhang authorities for a high-quality on-line educating atmosphere for certified content material supply, accumulate research info and supply interactive communication between colleges 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 nicely acknowledged by its varied customers.

It’s a clear illustration of a 17EdTech’s pioneering functionality within the digital transformation of China’s training business. We proceed to see larger market potential and alternatives as we make additional progress in our educating 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 educating and studying course of has been the backdrop offering a centered demand for our OneSmart educating and studying SaaS choices. It is usually to be famous that all through all the loop of training progress, homework is essentially the most very best state of affairs for regular information assortment.

The flexibility to gather homework information successfully and effectively is a key to materialize data-driven differentiated and particular person life educating. Solely with the assist of the large information and clever expertise, the requirement of bettering homework effectivity could be actually achieved. The precision educating and adaptive studying system undertaking based mostly on clever homework in Minhang is a flagship case we’ve got 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 develop into a transparent flagship instance of how such a system allows individualized homework and exact educating whereas assembly normalized utility required by the related operators, whereas lowering the burden of scholars and colleges and bettering studying and educating efficiencies required by double discount coverage.

As we expanded our gross sales channels right into a broader vary, we’ve got signed partnership agreements with over 50 native distribution brokers to enlarge our distribution community. We’re assured that the growing market wants will lead us to a deeper market penetration. In the intervening time, the corporate can be actively exploring an actual response of recurring SaaS billing mannequin for our educating and studying SaaS choices with our present and potential prospects. This consists of one-stop general answer combining software program, {hardware} and repair, though at present not prevalent billing fashions, the recurring SaaS billing mannequin is predicted to achieve reputation amongst native authorities and colleges 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 Schooling.

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 have now already seen a current product anticipated to be operated below this mannequin and obtained constructive suggestions from the native training bureau on such recurring SaaS billing mannequin. When it comes to off-campus companies, we’ll proceed to discover and enhance our self-directed studying product based mostly on pupil and mum or dad suggestions to satisfy the varied and multinational studying calls for of scholars and supply with focused custom-made studying content material according to 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 became tasks with fame earned and income acknowledged. As we deploy our SaaS enterprise alternatives and broaden our gross sales community nationwide, we grew much more decided in our new methods and noticed an growing quantity of enterprise alternatives arising. Wanting forward, we count on our educating 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 business, lowering the burdens of scholars and colleges, bettering 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 notice that each one monetary information I will discuss can be introduced in RMB phrases. I wish to remind you that the quarterly outcomes we current right here ought 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 educating and studying SaaS companies seeing extra supply throughout the second quarter of 2022. Because of our improved operational effectivity, we’re delighted to document 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{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} 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 tip of 2021 to be in compliance with the newest PRC regulation. Nonetheless, when put next 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 occasions. The corporate’s educating and studying SaaS choices are contributing an growing proportion of the corporate’s internet revenues for the second quarter of 2022 when put next 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{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} from RMB 248 million within the second quarter of 2021, which was largely according to the lower in internet income as a result of cessation of our on-line Okay-12 tutoring providers below the brand new regulatory and enterprise atmosphere. Gross revenue was RMB 69.7 million, representing a year-over-year lower of 83.5{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} from RMB 422.9 million within the second quarter of 2021. Gross margin for the second quarter of 2022 was 52.2{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} in contrast with 63{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} within the second quarter of 2021. On the expense facet, whole working bills for the second quarter of 2022 have been RMB 103.8 million, representing a year-over-year lower of 85.2{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} from RMB 702.6 million within the second quarter of 2021.

The entire working bills for the second quarter of 2022 included RMB 30.1 million of share-based compensation bills. Gross sales and advertising and marketing 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{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} 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{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} from RMB 229.5 million within the second quarter of 2021. The lower was primarily attributed to inventory optimization and bills saved according to 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{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} from RMB 109.5 million within the second quarter of 2021. This lower was primarily attributable to employees optimization and expense saving measures according to 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 proportion of income for the second quarter of 2022 was adverse 25.5{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1}, which was considerably narrowed from adverse 41.7{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} 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 proportion of internet revenues was adverse 19.8{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} within the second quarter of 2022 in contrast with adverse 39.8{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} within the second quarter of 2021.

Our adjusted internet earnings 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 earnings as a proportion of internet income was constructive 2.7{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} within the second quarter of 2022, considerably improved from the adverse 32.5{22377624ce51d186a25e6affb44d268990bf1c3186702884c333505e71f176b1} within the second quarter of 2021. With that, I’ll now present our enterprise outlook. Primarily based 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 totally 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 improve yr over yr 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 educating and studying SaaS merchandise contain training bureaus and colleges and it usually must undergo a protracted cycle bidding course of. It’s thus inevitably topic to a possible delay in undertaking bidding course of, our undertaking delivering course of because of components comparable to COVID outbreaks and others.

This implies our income recognition progress would possibly fluctuate from quarter to quarter because of components that we’ve got restricted management over, particularly in early quarters of our income ramp-up interval. The forecast displays 17EdTech’s present and preliminary evaluate and is, subsequently, topic to vary. Please consult with the secure harbor assertion contained in our earnings launch for the components that would 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 have now 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 yr. And so we need to know what is the means of the share buyback plan up to now.

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 means of regularly shopping for again the shares at a velocity that we take into account appropriately up to now. Our plan is to proceed such buyback — share buyback applications. In later periodic stories, we’ll present detailed numbers in regards to the variety of shares and quantity we’ve got used.

Unknown speaker

Thanks very a lot. And in addition, 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 aren’t any additional questions from the cellphone line. Could 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 group, we would wish to thanks on your participation on at the moment’s name. In case you require any additional info, please be at liberty to succeed in out to us instantly. Thanks for becoming a member of us at the moment.

This concludes the decision.

Operator

[Operator signoff]

Period: 0 minutes

Name contributors:

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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