17 Education & Technology(YQ) - 2023 Q2 - Quarterly Report

17 Education & Technology Group Inc. First Quarter 2023 Financial Results Financial Highlights The company experienced a 96.0% year-over-year decline in net revenues to RMB 9.3 million, a gross margin drop to 24.4%, and a significant increase in net loss to RMB 92.5 million Q1 2023 Key Financial Metrics | Metric | Q1 2023 | Q1 2022 | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Net Revenues | RMB 9.3 million | RMB 233.4 million | -96.0% | | Gross Margin | 24.4% | 60.7% | -36.3 ppt | | Net Loss | RMB 92.5 million | RMB 24.8 million | Increased by 273% | | Adjusted Net Loss (non-GAAP) | RMB 64.0 million | RMB 9.9 million (Income) | N/A | Management Commentary Management attributed Q1 2023's poor performance to COVID-related project delays but anticipates future revenue recognition from recent major in-school SaaS project wins - The CEO stated that the COVID outbreak in Q4 2022 caused delays in bidding and delivery processes, adversely affecting financial performance[3] - The company has recently won multiple landmark projects, including a RMB 116 million project in Shanghai's Minhang District and a RMB 20 million project in Beijing's Xicheng District[3] - The CFO noted that revenues from these new major projects are expected to be delivered and recognized in financial statements over the upcoming quarters[3] Detailed Financial Performance Analysis Project delays severely impacted financial performance, leading to a 96.0% revenue drop and a significant increase in operating and net losses, despite a 37.8% reduction in total operating expenses Revenues and Gross Profit Net revenues plummeted 96.0% to RMB 9.3 million due to project delays, causing gross profit to decrease 98.4% to RMB 2.3 million and gross margin to contract to 24.4% Q1 2023 vs Q1 2022 Revenue and Gross Profit (RMB) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Net Revenues | 9.3 million | 233.4 million | -96.0% | | Cost of Revenues | 7.0 million | 91.8 million | -92.4% | | Gross Profit | 2.3 million | 141.7 million | -98.4% | | Gross Margin | 24.4% | 60.7% | -36.3 ppt | Operating Expenses Total operating expenses decreased 37.8% to RMB 106.3 million, primarily due to significant reductions in R&D (-54.6%) and G&A (-21.7%) expenses from workforce optimization Q1 2023 Operating Expenses Breakdown (RMB) | Expense Category | Q1 2023 (RMB) | Q1 2022 (RMB) | Year-over-Year Change | | :--- | :--- | :--- | :--- | | Sales and marketing | 21.8 million | 22.0 million | -0.8% | | Research and development | 44.3 million | 97.5 million | -54.6% | | General and administrative | 40.2 million | 51.3 million | -21.7% | | Total Operating Expenses | 106.3 million | 170.8 million | -37.8% | - The decrease in R&D and G&A expenses was primarily attributed to workforce optimization and continuous expense management[10][11] Profitability Loss from operations widened to RMB 104.0 million, with net loss increasing to RMB 92.5 million, and adjusted net loss (non-GAAP) reversing to RMB 64.0 million Q1 2023 vs Q1 2022 Profitability (RMB) | Metric | Q1 2023 (RMB) | Q1 2022 (RMB) | | :--- | :--- | :--- | | Loss from Operations | (104.0 million) | (29.1 million) | | Net Loss | (92.5 million) | (24.8 million) | | Adjusted Net (Loss)/Income | (64.0 million) | 9.9 million | Financial Position As of March 31, 2023, the company held RMB 639.5 million in cash and equivalents, with total assets at RMB 896.5 million and total liabilities at RMB 204.3 million Key Balance Sheet Items (RMB) | Item | March 31, 2023 (RMB) | December 31, 2022 (RMB) | | :--- | :--- | :--- | | Cash, Restricted Cash, & Short-term Investments | 639.5 million | 737.7 million | | Total Assets | 896.5 million | 980.5 million | | Total Liabilities | 204.3 million | 221.7 million | | Total Shareholders' Equity | 692.2 million | 758.9 million | Unaudited Condensed Consolidated Financial Statements This section presents the detailed unaudited financial statements for Q1 2023, including Consolidated Balance Sheets, Statements of Operations, and GAAP to non-GAAP reconciliations Consolidated Balance Sheets As of March 31, 2023, the balance sheet shows total assets of RMB 896.5 million, total liabilities of RMB 204.3 million, and total shareholders' equity of RMB 692.2 million Balance Sheet Summary as of March 31, 2023 (RMB thousands) | Category | Amount (RMB thousands) | | :--- | :--- | | Total Current Assets | 833,878 | | Total Non-current Assets | 62,630 | | TOTAL ASSETS | 896,508 | | Total Current Liabilities | 197,104 | | Total Non-current Liabilities | 7,232 | | TOTAL LIABILITIES | 204,336 | | TOTAL SHAREHOLDERS' EQUITY | 692,172 | Consolidated Statements of Operations The Q1 2023 statement of operations details the RMB 92.5 million net loss, with net loss per ADS at (RMB 1.90), reflecting revenues of RMB 9.3 million and operating expenses Q1 2023 Income Statement Summary (RMB thousands) | Line Item | Q1 2023 (RMB thousands) | | :--- | :--- | | Net revenues | 9,273 | | Gross profit | 2,263 | | Total operating expenses | (106,283) | | Loss from operations | (104,020) | | Net loss | (92,537) | | Net loss per ADS (Basic and diluted) | (1.90) | - Total share-based compensation expenses included in operating expenses for Q1 2023 amounted to RMB 28.5 million[31] Reconciliation of Non-GAAP Measures This section reconciles the GAAP net loss of RMB 92.5 million to the non-GAAP adjusted net loss of RMB 64.0 million for Q1 2023 by excluding share-based compensation Q1 2023 GAAP to Non-GAAP Reconciliation (RMB thousands) | Description | Amount (RMB thousands) | | :--- | :--- | | Net Loss (GAAP) | (92,537) | | Add: Share-based compensation | 28,495 | | Adjusted net loss (Non-GAAP) | (64,042) | Supplementary Information This section provides logistical details, including earnings call information, non-GAAP measure definitions, the currency exchange rate, and the safe harbor statement for forward-looking statements - The company defines Adjusted net income (loss) as net income (loss) excluding share-based compensation expenses[17] - The exchange rate used for convenience translation to USD for the March 31, 2023 period was US$1.00 = RMB 6.8676[20] - The company will hold a conference call on June 14, 2023, at 9:00 p.m. U.S. Eastern Time to discuss the results[16]