17 Education & Technology(YQ) - 2023 Q1 - Quarterly Report

Highlights and Management Commentary This section summarizes the company's financial performance for Q4 and FY 2022, including management's commentary on operational challenges and strategic achievements Fourth Quarter 2022 Highlights 17 Education & Technology Group Inc. reported a significant year-over-year decline in net revenues and an increased net loss for Q4 2022, alongside a decrease in gross margin. Adjusted net loss also widened compared to Q4 2021 Fourth Quarter 2022 Highlights Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | Q4 2022 (USD) | | :-------------------------------- | :------------ | :------------ | :--------- | :------------ | | Net Revenues | 39.6 million | 542.5 million | -92.7% | 5.7 million | | Gross Margin | 52.1% | 64.8% | -12.7 pp | - | | Net Loss | (103.1 million) | (25.6 million) | +302.7% | (15.0 million) | | Adjusted Net Loss (non-GAAP) | (70.1 million) | 17.0 million (income) | N/A | (10.2 million) | Fiscal Year 2022 Highlights For the full fiscal year 2022, the company experienced a substantial decrease in net revenues but achieved a significant reduction in both net loss and adjusted net loss compared to 2021, while gross margin slightly improved Fiscal Year 2022 Highlights Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | FY 2022 (USD) | | :-------------------------------- | :------------ | :------------ | :--------- | :------------ | | Net Revenues | 531.1 million | 2,184.5 million | -75.7% | 77.0 million | | Gross Margin | 61.2% | 59.8% | +1.4 pp | - | | Net Loss | (177.9 million) | (1,441.9 million) | -87.7% | (25.8 million) | | Adjusted Net Loss (non-GAAP) | (48.3 million) | (1,246.7 million) | -96.1% | (7.0 million) | Management Commentary Management attributed Q4 2022 revenue delays to the COVID-19 outbreak impacting project bidding and delivery. Despite challenges, the company adapted product offerings and achieved significant progress in business transformation, highlighted by a new RMB 116 million educational digital transformation project in Shanghai Minhang District - The COVID outbreak in China in Q4 2022 caused significant delays in project bidding and delivery processes, affecting revenue and financial results[4] - The Company was awarded a new educational digital transformation project in Shanghai Minhang District with a contract value of RMB 116 million, illustrating industry recognition for its teaching and learning SaaS offering[4] - Continuous cost and expense reduction measures allowed the company to significantly reduce its net loss in 2022, despite the termination of legacy K-12 after-school online tutoring operations[5] Company Overview This section describes 17 Education & Technology Group Inc.'s core business, focusing on its education technology solutions and product offerings in China Business Description 17 Education & Technology Group Inc. is a leading education technology company in China, focusing on smart in-school classroom solutions, data-driven teaching, learning, and assessment products. It provides teaching and learning SaaS offerings for digital transformation in schools and personalized self-directed learning products for families - The Company offers smart in-school classroom solutions that deliver data-driven teaching, learning, and assessment products to teachers, students, and parents[31] - It provides teaching and learning SaaS offerings to facilitate digital transformation and upgrade at Chinese schools, focusing on improving efficiency and effectiveness of core teaching and learning scenarios[31] - The Company also provides a personalized self-directed learning product to Chinese families, utilizing technology and data insights to offer targeted learning and exercise content[31] Fourth Quarter 2022 Unaudited Financial Results This section details the company's unaudited financial performance for the fourth quarter of 2022, covering key revenue, expense, and loss metrics Net Revenues Net revenues for Q4 2022 decreased significantly year-over-year due to the cessation of online K-12 tutoring services. However, excluding K-12, net revenues from new businesses increased substantially. Quarter-on-quarter, revenues decreased due to COVID-19 related project delivery delays Net Revenues Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :----------- | :------------ | :------------ | :--------- | | Net Revenues | 39.6 million | 542.5 million | -92.7% | - Excluding net revenue from online K-12 tutoring services, net revenues increased significantly from RMB16.6 million to RMB39.6 million, representing a year-over-year increase of 137.7%[6] - Net revenue decreased by 68.2% on a quarter-on-quarter basis due to delays in project delivery and revenue recognition resulting from the COVID-19 pandemic[6] Cost of Revenues Cost of revenues for Q4 2022 decreased significantly year-over-year, largely mirroring the decline in net revenues due to the discontinuation of online K-12 tutoring services Cost of Revenues Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :------------- | :------------ | :------------ | :--------- | | Cost of Revenues | 18.9 million | 191.2 million | -90.1% | - The decrease was largely in line with the decrease in net revenues due to the cessation of the Company's online K-12 tutoring services[7] Gross Profit and Gross Margin Gross profit for Q4 2022 saw a substantial year-over-year decrease, and gross margin also declined by 12.7 percentage points compared to the same period in 2021 Gross Profit and Gross Margin Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :----------- | :------------ | :------------ | :--------- | | Gross Profit | 20.6 million | 351.4 million | -94.1% | | Gross Margin | 52.1% | 64.8% | -12.7 pp | Total Operating Expenses Total operating expenses for Q4 2022 decreased by 62.9% year-over-year, primarily driven by reductions across sales and marketing, R&D, and G&A expenses due to business adjustments and staff optimization Total Operating Expenses Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :------------------- | :------------ | :------------ | :--------- | | Total Operating Expenses | 141.0 million | 380.3 million | -62.9% | Sales and Marketing Expenses Sales and marketing expenses decreased by 83.1% year-over-year in Q4 2022, mainly due to reduced promotional course expenses, advertising, and staff optimization following regulatory changes Sales and Marketing Expenses Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :----------------------- | :------------ | :------------ | :--------- | | Sales and marketing expenses | 17.6 million | 104.1 million | -83.1% | - The decrease was mainly due to decreases in promotional course expenses and advertising expenditures as a result of changes in the regulatory environment, as well as staff optimization[11] Research and Development Expenses Research and development expenses decreased by 67.5% year-over-year in Q4 2022, primarily attributable to staff optimization in line with business adjustments Research and Development Expenses Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :--------------------------- | :------------ | :------------ | :--------- | | Research and development expenses | 51.8 million | 159.5 million | -67.5% | - The decrease was primarily attributable to staff optimization in line with business adjustment[11] General and Administrative Expenses General and administrative expenses decreased by 13.8% year-over-year in Q4 2022, mainly due to staff optimization General and Administrative Expenses Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :------------------------------- | :------------ | :------------ | :--------- | | General and administrative expenses | 71.6 million | 83.1 million | -13.8% | - The decrease was primarily due to staff optimization in line with business adjustment[12] Impairment for Property and Equipment and Right-of-Use Assets No impairment charges for property and equipment and right-of-use assets were recorded in Q4 2022, a 100% reduction from the previous year Impairment for Property and Equipment and Right-of-Use Assets Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :------------------------------------------------- | :------------ | :------------ | :--------- | | Impairment for property and equipment and right-of-use assets | — | 33.6 million | -100.0% | Loss from Operations Loss from operations for Q4 2022 increased significantly year-over-year, with the loss as a percentage of net revenues widening to negative 304.2% Loss from Operations Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :----------------- | :------------ | :------------ | :--------- | | Loss from Operations | (120.3 million) | (28.9 million) | +316.3% | - Loss from operations as a percentage of net revenues for Q4 2022 was negative 304.2%, compared with negative 5.3% in Q4 2021[13] Net Loss Net loss for Q4 2022 increased to RMB103.1 million from RMB25.6 million in Q4 2021, with net loss as a percentage of net revenues significantly widening Net Loss Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :------- | :------------ | :------------ | :--------- | | Net Loss | (103.1 million) | (25.6 million) | +302.7% | - Net loss as a percentage of net revenues was negative 260.7% in Q4 2022, compared with negative 4.7% in Q4 2021[14] Adjusted Net Income (Loss) (non-GAAP) The company reported an adjusted net loss of RMB70.1 million in Q4 2022, a significant shift from an adjusted net income of RMB17.0 million in Q4 2021 Adjusted Net Income (Loss) (non-GAAP) Summary | Metric | Q4 2022 (RMB) | Q4 2021 (RMB) | YoY Change | | :--------------------------- | :------------ | :------------ | :--------- | | Adjusted Net Income (Loss) | (70.1 million) | 17.0 million (income) | N/A | Fiscal Year 2022 Unaudited Financial Results This section presents the company's unaudited financial results for the full fiscal year 2022, including comprehensive revenue, expense, and profitability analysis Net Revenues Net revenues for FY 2022 decreased by 75.7% year-over-year, primarily due to the cessation of online K-12 tutoring services. However, excluding K-12, net revenues from new businesses increased 8.5-fold, reflecting successful business transformation Net Revenues Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :----------- | :------------ | :------------ | :--------- | | Net Revenues | 531.1 million | 2,184.5 million | -75.7% | - Excluding net revenue from online K-12 tutoring services, net revenues increased significantly from RMB55.9 million to RMB531.1 million, representing an 8.5-fold year-over-year increase, mainly attributable to steady business transformation progress[16] Cost of Revenues Cost of revenues for FY 2022 decreased by 76.5% year-over-year, largely in line with the overall decrease in net revenues Cost of Revenues Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :------------- | :------------ | :------------ | :--------- | | Cost of Revenues | 206.2 million | 878.2 million | -76.5% | Gross Profit and Gross Margin Gross profit for FY 2022 decreased by 75.1% year-over-year, while gross margin slightly improved to 61.2% from 59.8% in 2021 Gross Profit and Gross Margin Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :----------- | :------------ | :------------ | :--------- | | Gross Profit | 324.9 million | 1,306.3 million | -75.1% | | Gross Margin | 61.2% | 59.8% | +1.4 pp | Total Operating Expenses Total operating expenses for FY 2022 decreased substantially by 80.7% year-over-year, driven by significant reductions across all expense categories due to business adjustments and staff optimization Total Operating Expenses Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :------------------- | :------------ | :------------ | :--------- | | Total Operating Expenses | 536.0 million | 2,779.8 million | -80.7% | Sales and Marketing Expenses Sales and marketing expenses for FY 2022 decreased drastically by 94.4% year-over-year, primarily due to reduced promotional and advertising expenditures and staff optimization following regulatory changes Sales and Marketing Expenses Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :----------------------- | :------------ | :------------ | :--------- | | Sales and marketing expenses | 79.1 million | 1,412.9 million | -94.4% | - This was mainly due to the decreases in promotional course expenses and advertising expenditures as a result of the changes in regulatory environment, as well as staff optimization in line with business adjustment[21] Research and Development Expenses Research and development expenses for FY 2022 decreased by 70.5% year-over-year, primarily due to staff optimization in line with business adjustments Research and Development Expenses Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :--------------------------- | :------------ | :------------ | :--------- | | Research and development expenses | 235.8 million | 800.2 million | -70.5% | - The decrease was primarily attributable to staff optimization in line with business adjustment[22] General and Administrative Expenses General and administrative expenses for FY 2022 decreased by 50.4% year-over-year, mainly due to staff optimization General and Administrative Expenses Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :------------------------------- | :------------ | :------------ | :--------- | | General and administrative expenses | 221.0 million | 445.4 million | -50.4% | - The decrease was primarily due to staff optimization in line with business adjustment[22] Impairment for Property and Equipment and Right-of-Use Assets No impairment charges for property and equipment and right-of-use assets were recorded in FY 2022, a complete elimination from the RMB121.3 million recorded in 2021 Impairment for Property and Equipment and Right-of-Use Assets Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :------------------------------------------------- | :------------ | :------------ | :--------- | | Impairment for property and equipment and right-of-use assets | — | 121.3 million | -100.0% | Loss from Operations Loss from operations for FY 2022 decreased significantly by 85.7% year-over-year, with the loss as a percentage of net revenues improving from negative 67.5% to negative 39.8% Loss from Operations Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :----------------- | :------------ | :------------ | :--------- | | Loss from Operations | (211.1 million) | (1,473.5 million) | -85.7% | - Loss from operations as a percentage of net revenues in 2022 was negative 39.8%, improving from negative 67.5% in 2021[23] Net Loss Net loss for FY 2022 decreased by 87.7% year-over-year to RMB177.9 million, with net loss as a percentage of net revenues narrowing to negative 33.5% from negative 66.0% Net Loss Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :------- | :------------ | :------------ | :--------- | | Net Loss | (177.9 million) | (1,441.9 million) | -87.7% | - Net loss as a percentage of net revenues was negative 33.5% in 2022, compared with negative 66.0% in 2021[24] Adjusted Net Loss (non-GAAP) Adjusted net loss for FY 2022 decreased dramatically by 96.1% year-over-year to RMB48.3 million, indicating improved operational efficiency after excluding share-based compensation Adjusted Net Loss (non-GAAP) Summary | Metric | FY 2022 (RMB) | FY 2021 (RMB) | YoY Change | | :------------------- | :------------ | :------------ | :--------- | | Adjusted Net Loss | (48.3 million) | (1,246.7 million) | -96.1% | Cash and Cash Equivalents, Restricted Cash and Short-term Investment Total cash and cash equivalents, restricted cash, and short-term investments decreased to RMB737.7 million as of December 31, 2022, from RMB1,180.9 million at the end of 2021 Cash and Cash Equivalents, Restricted Cash and Short-term Investment Summary | Metric | As of Dec 31, 2022 (RMB) | As of Dec 31, 2121 (RMB) | Change | | :-------------------------------------------------- | :----------------------- | :----------------------- | :----- | | Cash and cash equivalents, restricted cash and short-term investment | 737.7 million | 1,180.9 million | -37.5% | Financial Statements and Reconciliations This section provides the company's unaudited condensed consolidated financial statements and reconciliations of non-GAAP measures for Q4 and FY 2022 Unaudited Condensed Consolidated Balance Sheets The consolidated balance sheets show a decrease in total assets from RMB1,580.4 million in 2021 to RMB980.5 million in 2022, driven by reductions in current assets. Total liabilities also decreased significantly, while total shareholders' equity saw a slight decline Unaudited Condensed Consolidated Balance Sheets Summary | Metric | As of Dec 31, 2022 (RMB in thousands) | As of Dec 31, 2021 (RMB in thousands) | | :--------------------------------- | :----------------------- | :----------------------- | | Total Assets | 980,524 | 1,580,421 | | Total Liabilities | 221,661 | 783,385 | | Total Shareholders' Equity | 758,863 | 797,036 | Unaudited Condensed Consolidated Statements of Operations (Q4 2022) The Q4 2022 statement of operations details a net loss of RMB103.1 million on net revenues of RMB39.6 million, with significant operating expenses including share-based compensation Unaudited Condensed Consolidated Statements of Operations (Q4 2022) Summary | Metric | Q4 2022 (RMB in thousands) | Q4 2021 (RMB in thousands) | | :-------------------------------- | :------------ | :------------ | | Net Revenues | 39,556 | 542,548 | | Gross Profit | 20,618 | 351,366 | | Loss from Operations | (120,343) | (28,898) | | Net Loss | (103,138) | (25,555) | | Share-based compensation expenses | 33,005 | 42,564 | Unaudited Condensed Consolidated Statements of Operations (FY 2022) The FY 2022 statement of operations shows a net loss of RMB177.9 million on net revenues of RMB531.1 million, reflecting substantial reductions in operating expenses and share-based compensation compared to the prior year Unaudited Condensed Consolidated Statements of Operations (FY 2022) Summary | Metric | FY 2022 (RMB in thousands) | FY 2021 (RMB in thousands) | | :-------------------------------- | :------------ | :------------ | | Net Revenues | 531,064 | 2,184,520 | | Gross Profit | 324,856 | 1,306,284 | | Loss from Operations | (211,148) | (1,473,486) | | Net Loss | (177,872) | (1,441,913) | | Share-based compensation expenses | 129,558 | 195,214 | Reconciliations of Non-GAAP Measures (Q4 2022) The reconciliation for Q4 2022 shows the adjustment from GAAP net loss to non-GAAP adjusted net loss by adding back share-based compensation expenses, resulting in an adjusted net loss of RMB70.1 million Reconciliations of Non-GAAP Measures (Q4 2022) Summary | Metric | Q4 2022 (RMB in thousands) | Q4 2021 (RMB in thousands) | | :------------------------- | :------------ | :------------ | | Net Loss | (103,138) | (25,555) | | Share-based compensation | 33,005 | 42,564 | | Adjusted net income (loss) | (70,133) | 17,009 | Reconciliations of Non-GAAP Measures (FY 2022) The reconciliation for FY 2022 demonstrates the adjustment from GAAP net loss to non-GAAP adjusted net loss by adding back share-based compensation expenses, resulting in an adjusted net loss of RMB48.3 million Reconciliations of Non-GAAP Measures (FY 2022) Summary | Metric | FY 2022 (RMB in thousands) | FY 2021 (RMB in thousands) | | :------------------------- | :------------ | :------------ | | Net Loss | (177,872) | (1,441,913) | | Share-based compensation | 129,558 | 195,214 | | Adjusted net loss | (48,314) | (1,246,699) | Additional Information This section provides supplementary information, including explanations of non-GAAP measures, conference call details, exchange rates, and a safe harbor statement Non-GAAP Financial Measures Explanation 17EdTech uses adjusted net income (loss), which excludes share-based compensation expenses, as a non-GAAP financial measure to assess comparative operating performance and future prospects. Management believes it provides useful information for understanding ongoing business performance, though it has limitations and is not a substitute for GAAP results - Adjusted net income (loss) is a non-GAAP financial measure used by management to understand comparative operating performance and future prospects, excluding share-based compensation expenses[27] - Management believes this non-GAAP measure reflects ongoing business and operating performance, allowing meaningful period-to-period comparisons and providing useful information to investors[28] - The non-GAAP financial measure has limitations, as it does not include all items of income and expense, is not prepared in accordance with GAAP, and may not be comparable to measures used by other companies[29] Conference Call Information The company scheduled a conference call on March 27, 2023, to discuss its Q4 2022 financial results. Participants were required to preregister to receive dial-in and PIN numbers, with a live and archived webcast also available - A conference call was scheduled for Monday, March 27, 2023, at 9:00 p.m. U.S. Eastern Time to discuss the financial results for the fourth quarter of 2022[26] - Participants needed to preregister via a provided link to receive dial-in numbers and a PIN[26] - A live and archived webcast of the conference call was available at https://ir.**17**zuoye.com/[26](index=26&type=chunk) Exchange Rate Information The financial reports translate RMB amounts into USD for convenience using an exchange rate of US$1.00=RMB6.8972, based on the U.S. Federal Reserve Board's noon buying rate on December 31, 2022 - Translations of RMB into USD are solely for the convenience of readers and were calculated at the rate of US$1.00=RMB6.8972, representing the noon buying rate on December 31, 2022[30] Safe Harbor Statement This announcement includes forward-looking statements under the 'safe harbor' provisions, which involve inherent risks and uncertainties that could cause actual results to differ materially from expectations. The company does not undertake to update these statements except as required by law - The announcement contains forward-looking statements made under the 'safe harbor' provisions of the United States Private Securities Litigation Reform Act of 1995[32] - Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any such statement[32] - 17EdTech does not undertake any obligation to update any forward-looking statement, except as required under applicable law[32] Investor and Media Inquiries Contact information for investor and media inquiries is provided, directing interested parties to Ms. Lara Zhao, Investor Relations Manager, via email - For investor and media inquiries, contact Ms. Lara Zhao, Investor Relations Manager, at ir@17zuoye.com[33]