17 Education & Technology Group Inc - ADR Aktie

Good evening and good morning, ladies and gentlemen, and thank you for standing by for 17 EdTech's second quarter 2026 Earnings Conference Call.

[Operator Instructions]

As a reminder, today's conference call is being recorded.

I will now turn the meeting over to your host for today's call, Ms. Lara Zhao, 17 EdTech's Investor Relations Manager. Please proceed, Lara.

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 Ms. Sishi Zhou, Chief Financial Officer, and myself, Investor Relations Manager. Sishi will walk you through our latest business performance and strategic directions, and I will then discuss our financial performance in more detail. After the prepared remarks, Sishi will be available to answer your questions during the Q&A session. Before we begin, I would like to remind you that this conference call contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known and unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results, performance, or achievements to differ materially. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise, except as required under applicable law.

I will now turn the call over to our Chief Financial Officer to review some of our business development and strategic direction. Sishi, please go ahead.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our second quarter 2026 earnings conference call. Before we begin, I would like to note that the financial information and the non-GAAP numbers in this release are presented on a continuing operations basis and in RMB, unless otherwise stated. Let me begin with our second quarter business highlights. We are pleased to report another quarter of strong progress. Net revenues increased 254.6% year-over-year to RMB 90.1 million, bringing first half 2026 net revenues to RMB 189.5 million, up 302.6% from the same period last year. Gross margin expanded to 69.2%, representing a year-over-year improvement of 11.7 percentage points, which is driven by the growing contribution of our AI-powered application services and ongoing optimization of our revenue mix.

During the quarter, we achieved our first quarterly GAAP and non-GAAP profitability with GAAP net income of RMB 1.1 million and adjusted net income of RMB 4.7 million. We believe these results provide further validation of our strategic transformation into an AI-powered application service provider and demonstrate the improving economics and scalability of our evolving business model. Importantly, this progress was achieved while we continued to invest in AI capabilities, product innovation, and the expansion of our application ecosystem. Beyond our financial performance, we also made important progress in advancing our AI application service strategy. Over the past several years, we have built extensive experience serving education scenarios across districts, schools, teachers, and students. With the advancement of AI technologies, we are evolving from traditional digital solutions towards more deeply integrated agentic services. A key milestone during the quarter was the further expansion of our collaboration with the Shanghai Minhang District.

Building on our long-standing partnership and existing digital teaching infrastructure, the latest phase of our collaboration has evolved from SaaS-based services towards agentic services, providing more personalized AI capabilities to teachers and embedding AI more deeply into daily teaching workflows. An important aspect of this evolution is that the procurement model is also evolving. The Minhang project adopts a service-oriented approach, combining initial system development with ongoing service components linked to actual AI usage. We believe this model provides a potential framework for scaling AI applications in education beyond the traditional one-time software deployments. Meanwhile, this represents an important validation of our strategy, moving AI from a supporting tool towards an intelligent service layer that can actively assist education professionals in real-world scenarios. Another important milestone during the quarter was the introduction of our personalized AI agent for individual teachers.

This teacher-facing AI agent is designed to support key teaching workflows, including assessment, content generation, and learning analytics. Specifically, it helps teachers automate tasks such as essay grading and class analysis, generate personalized assessments, and translate learning data into differentiated teaching recommendations. Our vision is not to replace teachers, but to empower educators by combining AI capabilities with teachers' own experience and the classroom context. We are also expanding access to teacher-facing AI applications to broaden adoption and gather real-world feedback as we continue to validate product-market fit. Together with our student-facing personalized learning services and regional AI applications, this expands our AI application capabilities across 3 core scenarios: educational administration, teaching, and personalized learning, marking the establishment of an agentic ecosystem spanning the full workflow of teaching, learning, administration, assessment, and research.

Strategically, this 3-layer AI agentic system also aligns with the logic of our G-B-C, and synergistic growth flywheel. To further elaborate the integrated ecosystem, our GN business allows us to validate AI applications at regional scale and establish benchmark use cases in complex education environments. For example, in Minhang District, our digital teaching systems have already been deployed across more than 3,000 classes, with teacher and student coverage of 97.8%. Based on this foundation, we are continuing to upgrade regional AI capabilities from traditional digital tools toward more proactive agentic services. Our B-end business enables us to replicate these capabilities across schools and embed AI into daily teaching workflows, creating scalable pathways for broader adoption. We are also seeing increasing interest from school-based customers in adopting more integrated AI services, which provides additional opportunities to expand beyond our existing regional deployments.

Our C-end business, led by Yiqi Aixue, continues to serve as an important commercialization engine, delivering personalized AI learning services directly to students and families. Together, these 3 areas reinforce one another. G validates, B replicates, and C monetizes and scales. The trust, distribution, capabilities, and education insights accumulated across these scenarios continuously strengthen our ability to develop and commercialize AI application services. Turning to our financial position, the improving business performance has also strengthened our financial flexibility. As of the quarter end, we maintained a strong cash position of RMB 456.9 million, providing sufficient resources to support continued investment in AI capabilities, product innovation, and long-term growth opportunities.

On September 3, our board of directors has authorized a share repurchase program of up to USD 10 million worth of its ordinary shares, including in the form of American depository shares, during a 12-month period starting from September 3, 2026, funded from our existing cash balance. The program reflects our confidence in our long-term strategy and our commitment to disciplined capital allocation and long-term shareholder value creation. Looking ahead, we believe the next stage of growth will come from expanding AI application services across more education scenarios. In G and B-end, we will continue to develop benchmark projects that demonstrate the value of AI in large-scale education environments. In B-end, we will continue to productize and replicate proven capabilities across school-based scenarios. In C-end, we will continue to enhance personalized AI learning services while exploring additional individual user applications.

Through this integrated approach, we aim to create a reinforcing cycle where real education scenarios improve our AI capabilities, and improved AI capabilities create greater value for users. We believe our accumulated education insights, AI capabilities, and growing application ecosystem provide a strong foundation for continued innovation and long-term value creation. This concludes our business update.

I will now turn the call over to Lara to walk you through our financial performance in detail. Thank you.

Thank you, Sishi. I will now walk you through our financial and operating results for the second quarter of 2026. Please note that all financial figures are presented in RMB terms unless otherwise stated. We are pleased to report strong financial results for the second quarter of 2026, highlighted by the company's first quarterly net profit on GAAP and non-GAAP basis since its strategic transformation. Let me take you through the details. Net revenues. Net revenues for the second quarter of 2026 were RMB 90.1 million, USD 13.3 million, representing a year-over-year increase of 254.6% from RMB 25.4 million in the second quarter of 2025. And bringing the first half of 2026 net revenues to RMB 189.5 million, compared with RMB 47.1 million in the first half of 2025.

The substantial growth was primarily driven by the continued expansion of Yiqi Aixue, our consumer-facing AI-powered membership product, complemented by the ongoing contributions from district-level and school-based subscription projects. Cost of revenues for the second quarter of 2026 were RMB 27.8 million, representing a year-over-year increase of 157.2% from RMB 10.8 million in the second quarter of 2025, which was mainly due to the continued growth of Yiqi Aixue and the related service delivery costs. Gross profit for the second quarter of 2026 were RMB 62.3 million, compared with RMB 14.6 million in the second quarter of 2025. Gross margin for the second quarter of 2026 was 69.2%, compared with 57.5% in the second quarter of 2025, representing an improvement of 11.7 percentage points and up from 61.9% in the first quarter of 2026.

The increase in gross margin was primarily attributable to the growing contribution of the company's consumer-facing AI-powered application services and the continued optimization of the company's revenue mix. Total operating expenses for the second quarter of 2026 were RMB 63.0 million, including share-based compensation expenses of RMB 3.6 million, representing a year-over-year increase of 46.2% from RMB 43.1 million in the second quarter of 2025. Significantly slower than the revenue growth, reflecting the growing operating leverage of our business model. Sales and marketing expenses for the second quarter of 2026 were RMB 26.9 million, including share-based compensation expenses of RMB 1.1 million, representing a year-over-year increase of 92.2% from RMB 14.0 million in the second quarter of 2025. The increase was primarily attributable to the increased sales and marketing investment activities in support of the continued expansion of Yiqi Aixue.

Research and development expenses for the second quarter of 2026 were RMB 20.0 million, including share-based compensation expenses of RMB 0.9 million, representing a year-over-year increase of 66.8% from RMB 12 million in the second quarter of 2025. The increase in research and development expenses was primarily attributable to the higher personnel-related costs associated with research and development activities to support a broader range of AI application scenarios. General and administrative expenses for the second quarter of 2026 were RMB 16.0 million, including share-based compensation expenses of RMB 1.5 million, representing a year-over-year decrease of 6.1% from RMB 17.1 million in the second quarter of 2025. The decrease was primarily attributable to a lower share-based compensation expenses and disciplined cost management. Loss from operations for the second quarter of 2026 were RMB 0.6 million, compared with RMB 28.5 million in the second quarter of 2025, approaching operating break-even.

As a percentage of net revenues, loss from operations improved to negative 0.7%, compared with negative 112.0% in the second quarter of 2025. Net income for the second quarter of 2026 were RMB 1.1 million, compared with net loss of RMB 26.0 million in the second quarter of 2025, marking the company's first quarterly GAAP net profit since its strategic transformation. Net income as a percentage of net revenues was 1.2% in the second quarter of 2026, compared with negative 102.1% in the second quarter of 2025. Adjusted net income for the second quarter of 2026, which included share-based compensation expenses of RMB 3.6 million, was RMB 4.7 million, compared with adjusted net loss non-GAAP of RMB 18.9 million in the second quarter of 2025. Adjusted net income non-GAAP as a percentage of net revenues was 5%.

2% in the second quarter of 2026, compared with negative 74.3% in the second quarter of 2025. Please refer to the table captioned Reconciliations of non-GAAP Measures to the most comparable GAAP measures at the end of this press release for the reconciliation of net income or loss under U.S. GAAP to the adjusted net income or loss, non-GAAP. Cash and cash equivalents, restricted cash and term deposits were RMB 456.9 million as of June 30, 2026, compared with RMB 407.0 million as of December 31, 2025. The substantial increase in cash was driven by both our return to profitability and improved cash generation from operations. We maintain a robust cash position that provides financial flexibility to support continued investment in product innovation, improved AI capabilities, and other strategic growth opportunities ahead.

Going forward, we remain steadfast in our role as an AI application service provider, driving AI to fully empower large-scale, personalized education for all. With that, we conclude our prepared remarks. Thank you.

Operator, we are now ready to begin the Q&A session.

[Operator Instructions] Now, this question comes from the line of William Gregozeski from Greenridge Global.

Fantastic quarter. We're closing in on a year since you guys announced the C-end product. How has that performed relative to your initial expectations, and what kind of growth do you see going forward for that?

Okay, William, thanks for the question. We are very encouraged by the progress of our consumer business since the introduction of Yiqi Aixue in late 2025, actually. The business has developed into an important growth engine for the company faster than we initially anticipated. More importantly, we believe the progress to date has validated our core thesis that combining our educational insights, personalized learning capabilities, and AI into an integrated consumer-facing service that can create meaningful value for students and families. The financial results provide tangible evidence for that progress, as noted in the earning call. We are not only seeing strong top-line growth, but also increasingly encouraging economics as the business scales. Looking forward, we remain optimistic about the long-term opportunity, but I would not extrapolate any single quarter into a specific growth trajectory. There may be seasonality and quarterly fluctuations as we continue to scale.

What gives us confidence is that the foundation for growth is becoming broader. In addition to Yiqi Aixue itself, our district and school-based presence continues to strengthen our data, distribution, and trust advantages. We are also extending our consumer-facing AI applications from students and families to individual teachers through our new teacher agent, as noted. So over time, we see an opportunity to serve a broader base of individual users with personalized AI application services while leveraging the ecosystem we have built across different education scenarios. Thank you.

Great. Can you just talk generally about the shape of the B-end and G-end pipeline?

Okay, sure. We continue to see opportunities across both district and school-based scenarios. But I think the more important development is not only the simple, the size of the pipeline, it is how the nature of customer demand is evolving. A good example is Minhang District. In the latest phase of our collaboration, engagement has evolved from the purchase of SaaS-based services toward agentic services, providing personalized AI agents to teachers across the district. We view this as an important validation of our strategy, actually. It demonstrates that customers are beginning to move beyond purchasing digital tools toward adopting AI services that are more deeply embedded into everyday education workflows. Equally important, we are beginning to see these capabilities replicated beyond district-level projects. Some of our core school-based customers are also showing interest of upgrading from existing offerings to agentic services.

This gives us early evidence that capabilities validated in a larger scale regional environment can be productized and extended into broader school-based scenarios. So strategically, we think that G and B-end somewhat differently from traditional project businesses, which is that GN allows us to validate and establish benchmark AI applications at scale. BN allows us to replicate those capabilities across schools and embed them into daily teaching workflows. And together, G and B provide important distribution, trust, and user touchpoints that can support the continued growth of our C-end business. We will continue to remain selective on new GN and BN opportunities, focusing on projects that are strategically aligned, replicable, and commercially sound. Thank you.

[Operator Instructions] I am showing no further questions. I will now turn the conference back to Ms. Lara Zhao for closing comments.

Thank you, operator. In closing, on behalf of 17 EdTech's management team, we would like to thank you for your participation in today's call. If you require any further information, please feel free to contact us directly. We appreciate your continued interest and support. Thank you for joining us today. This concludes the call.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.

Good evening, and good morning, ladies and gentlemen, and thank you for standing by for 17EdTech's Fourth Quarter 2025 and Full Year Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'll now turn the meeting over to your host for today's call, Ms. Lara Zhao, 17EdTech's Investor Relations Manager. Please proceed, Lara.

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 Ms. Sishi Zhou, Chief Financial Officer; and myself, Investor Relations Manager. Sishi will walk you through our latest business performance and strategies and I will discuss our financial performance in more detail. After the prepared remarks, Sishi will be available to answer your questions during the Q&A session.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties or other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results, performance or achievements to differ materially.

Further information regarding these or other factors -- other risks, uncertainties or factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

I will now turn the call over to our Chief Financial Officer, to review some of our business development and strategic direction. Sishi?

Thank you, Lara. Hello, everyone. Thank you all for joining us on our fourth quarter and full year 2025 earnings conference call. Before we begin, I would like to note that the financial information and the non-GAAP numbers in this release are presented on a continuing operational basis and in RMB, unless otherwise stated.

Let me begin with our latest business update. In the fourth quarter of 2025, we continued to deliver steady progress in our core business with top line growth on a year-over-year and quarter-on-quarter basis. Our school-based subscription model business continued to expand, contributing a growing share in total revenue, emerging as a key contributor during the quarter. Meanwhile, we successfully launched our new consumer-facing product, [ ETIC, ] which is closely aligned with the National AI plus education initiative. Leveraging the brand recognition and user trust cultivated over the past decade. Our new AI membership products have achieved strong presale orders and received highly positive market feedback since its launch, demonstrating its robust growth prospects in the quarters ahead. Notably, the robust preseale demand for our new products generated a significant increase in free cash flow. At of quarter end, we maintained a healthy cash balance of RMB 407 million, reflecting the promising trajectory of our new AI-powered offering and the positive expectations for future cash flow.

Now let me go into more details. In the fourth quarter of 2025, we recorded net revenues of RMB 38.9 million an increase of 94.6% on a quarter-on-quarter basis and a 6.4% growth on a year-over-year basis, driven by the growing contribution of recurring revenue under subscription model as well as our consistent commitment to cost control. Gross was restored to a normalized level of 46.1% in Q4, a 12.5 percentage point increase on a year-over-year basis, benefiting from sustained efficiency improvements, our net loss narrowed by 16.8% year-over-year. We also generated positive net operating cash inflow in the quarter driven by the strong momentum of our new [ CN ] business and continuous improvement in operational efficiency.

During the quarter, our school-based subscription model business maintained positive progress, contributing a growing share of total revenue. The increase in net revenues from this segment reflects its recurring nature as it continues to scale effectively. The steady progress of our school-based subscription business has not only strengthened our financial health, including gross margin and other key metrics, but also helped us reach a broader base of potential users and enhanced brand influence, laying a solid foundation for the launch of our [ CN ] business.

In response to the national initiative of embedding AI throughout the entire educational process and guided by our mission to make learning a wonderful experience, during the quarter, we successfully rolled out AI personalized learning membership product, [ ETIC ] targeting [ CN ] users. Levering to the user trust built over years, strong brand endorsement from our district level and school-based projects as well as mature smart hardware capabilities and solid AI foundation with new AI membership product has garnered a strong market enthusiasm and a robust preorder volume. In the design of this product, we are committed to enabling users to achieve a more personalized, effective and enjoyable learning experience in less time. It deeply integrates our hardware and software capabilities together with the exclusive content resources we have built over the past decade. Our Smart Pen captures full process writing data while respecting traditional play and paper habits. It efficiently digitalized handwritten notes and exercise responses, visualizing users thinking process rather than simply uploading final answers. By visualizing these thinking patterns, we are able to deliver personalized learning diagnostics, generate AI-powered customized practice nodes and intelligently recommend similar learning exercises, enabling highly efficient and focused learning practice. Users' own notes taken with this [indiscernible] with support for custom tag, categorization and quick search. As a result, users can quickly identify their learning areas for improvement without spending extra time manually organizing paper notes comparing practice notes or searching for relevant problems.

In addition, our AI panel provides study supervision based on personalized diagnostics and over tailored learning plans aligned with the local learning schedules and individual progress. This allows users to focus on their growth areas and improve efficiently. These personalized practice and planning capabilities are backed by our 10 years of deep insight into local learning profiles supported by massive data from large-scale regular full scenario usage across our platform. The product also features interactive tools, including AI Q&A and AI transmission, et cetera, along with a suite of value-added learning resources. Notably, we have introduced Toby Smart Rabbit, an intelligent learning companion that provides emotional support through natural voice interaction. It reminds users to study, offers encouragement and makes the learning experience warmer and more engaging, helping users stay consistent with the personalized learning journeys.

Looking ahead, we will continue to explore innovation practices in AI plus education and steadily reiterate and upgrade our products. Our business segments, serving [ GN, BN and CN ] users will grow in synergy as we further strengthen our brand influence and enhance user value. The above concludes the business update.

Now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Thanks, Sishi, 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 talk about will be presented in RMB terms. We are pleased to announce healthy financial results for the first -- for the fourth quarter of 2025 with top line growth of 94.6% on a quarter-on-quarter basis. Gross margin for the fourth quarter of 2025 was 46.1%, representing a 12.5 percentage point increase on a year-on-year basis compared to the same period last year. Meanwhile, our continued focus on operational efficiency resulted in narrowing losses in the fourth quarter and the fiscal year of 2025. Despite an increase in sales and marketing expenses in support of the launch of our new AI-powered consumer business, we achieved a reduction in total operating expenses for the fourth quarter and full year of 2025 by 10.9% and 24.3%, respectively, resulting in narrowing losses by 16.8% and 20.0%, respectively, on a GAAP basis.

Next, I will walk you through our fourth quarter financials in greater detail. Net revenues in the fourth quarter of 2025, we recorded net revenues of RMB 38.9 million compared with RMB 36.6 million in the fourth quarter of 2024, representing a 6.4% increase on a year-on-year basis which was primarily due to the increase in net revenues from the school-based subscription model business, which is demonstrating its recurring nature as it continues to scale.

Cost of revenues for the fourth quarter of 2025 was RMB 21.0 million, USD 3.0 million, representing a year-over-year decrease of 13.6% and from RMB 24.3 million in the fourth quarter of 2024, which was mainly due to the fewer district level project deliveries for our teaching and learning SaaS offerings as a result of a new -- as a result of growing proportion of recurring revenue and the subscription model that requires fewer hardware and software deliveries.

Gross profit for the fourth quarter of 2025 was RMB 17.9 million, USD 2.6 million compared with RMB 12.3 million in the fourth quarter of 2024. Gross margin for the fourth quarter of 2025 was 46.1% compared with 33.6% in the fourth quarter of 2024, representing a 12.5 percentage point increase on a year-on-year basis. The increase was largely attributable to higher contribution from the school-based subscription business with higher margins as well as enhanced operating leverage as our subscription model business growth.

Total operating expenses for the fourth quarter of 2025 were RMB 72.5 million which is USD 10.4 million increased RMB 8.9 million of share-based compensation expenses representing a year-over-year decrease of 10.9% from RMB 81.4 million in the fourth quarter of 2024. Sales and marketing expenses for the fourth quarter of 2025 was RMB 40.2 million, including RMB 1.7 million of share-based compensation expenses, representing a year-over-year decrease of [ 99.0 ] from RMB 20.2 million in the fourth quarter of 2024. This was primarily attributed to the increased market workforce and related expenses in support of the launch of our new AI powered consumer business. Research and development expenses for the fourth quarter of 2025 were RMB 16.3 million, USD 2.3 million, including RMB 2.9 million of share-based compensation expenses representing a year-over-year decrease of 3.8% from RMB 17.0 million in the fourth quarter of 2024. The decrease was primarily due to the decrease in the share-based compensation compared with the same period last year. Generating and administrative expenses for the fourth quarter '25 were RMB 16.0 million, USD 2.3 million, including RMB 4.3 million of share-based compensation expenses, representing a year-over-year decrease of 63.8% from RMB 44.2 million in the fourth quarter of 2024. This was primarily due to the decrease in share-based compensation and the effect of one-off expenses in impairment loss provision in the fourth quarter of 2024.

Loss from operations for the fourth quarter of 2025 was RMB 54.86 million, USD 7.8 million compared with RMB 69.1 million in the fourth quarter of 2024. Loss from operations as a percentage of net revenues for the fourth quarter of 2025 was negative 142 -- 140.2% compared with negative 188.8% in the fourth quarter of 2024. Net loss for the fourth quarter of 2025 was RMB 53 million compared with net loss of RMB 63.7 million in the fourth quarter of 2024. Net loss as a percentage of net revenues was negative 160 -- 136.1% in the fourth quarter of 2025 compared with negative 174.2% in the fourth quarter of 2024. Adjusted net loss non-GAAP for the fourth quarter of 2025 was RMB 44.1 million, which is USD 6.3 million compared with adjusted net loss non-GAAP of RMB 40.1 million in the fourth quarter of 2024. Adjusted net loss, non-GAAP, as a percentage of net revenues was negative [indiscernible] in the fourth quarter of 2025 compared with negative 109.5% of adjusted net loss as a percentage of net revenues in the fourth quarter of 2024.

Please refer to the table captioned reconciliations of non-GAAP measures to the most comparable GAAP measures at the end of this press release, for reconciliation of net loss under U.S. GAAP to the adjusted net loss non-GAAP.

Cash and cash equivalents, restricted cash and term deposits were RMB 407.0 million which is USD 58.2 million as of December 31, 2025, compared with RMB 359.3 million as of December 31, 2024. Going forward, we will continue to strengthen our core strength with the advancement of AI capabilities serving as a key driver of our sustainable growth. At the same time, we will further enhance cross-business synergies and reinforce our business resilience to support long-term development. These integrated efforts enable us to combine our respective strengths and deliver consumer-centric offerings that truly resonate, creating a sustainable growth pathway that generates lasting value for both learners and shareholders. With that, we conclude our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

[Operator Instructions] I'm showing no questions. I'll now turn the conference back to Ms. Lara Zhao for closing comments.

Thank you, operator. In closing, on behalf of 17EdTech's 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...

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.

Good evening, and good morning, ladies and gentlemen, and thank you for standing by for 17EdTech's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'll now turn the meeting over to your host for today's call, Ms. Lara Zhao, 17EdTech's Investor Relations Manager. Please proceed, Lara.

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 Ms. Sishi Zhou, the acting Chief Financial Officer; and myself, Investor Relations Manager. Sishi will walk you through our latest business performance and strategies, and I will discuss our financial performance in more detail. After the prepared remarks, Sishi will be available to answer your questions during the Q&A session.

Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in Section 21E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known and unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results, performance or achievements to differ materially. Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

I will now turn the call over to our acting Chief Financial Officer, to review some of our business development and strategic direction. Sishi, please go ahead.

Thank you, Lara. Hello, everyone. Thank you all for joining us on our third quarter 2025 earnings conference call. Before we begin, I would like to note that the financial information and non-GAAP numbers in this release are presented on a continuing operational basis and in RMB, unless otherwise stated.

Let me begin with our latest business updates. We maintained steady progress in our core business in the third quarter of 2025, marked by strong user engagement and healthy customer retention. We constantly invested in product innovation and service enhancements to effectively address evolving customer needs and deliver high-quality customer experience. We are deeply committed to align with national strategies of AI+ education initiative, which advocates integrating innovative intelligent learning companions into the entire education process, as well as adopting intelligent scenario-based interactive learning models.

Following the successful launch of Yiqi Tongxue Intelligent Agent, we have successfully rolled out our new C-end product, Yiqi Aixue. This AI membership offering embodies our core philosophy of precision and personalized learning, seamlessly integrating smart hardware, advanced AI capabilities, extensive content resources and data insights accumulated in the past decade. The new product has received highly positive market response, indicating solid growth prospects for the future.

Meanwhile, we have constantly focused on the efficiency of operation and resource investment as well as the health of cash flow in the process of continuous innovation. Despite the company's increased investment in R&D to support the launch of new AI products, we still achieved a decrease in operating expenses and narrowed losses in the first 9 months, reducing operating expenses by 29.8% and narrowing net loss by 21.5%, respectively. As of the end of this quarter, we still hold cash reserves of RMB 341.9 million. And the favorable market response to new products will further bolster positive expectations for future cash flow.

Looking ahead, we will continue to expand our teaching and learning SaaS product portfolio while balancing financial sustainability and innovation investment. The successful launch of our new C-end AI product marks a new milestone in the company's AI transformation. We will further strengthen our product capabilities, improve customers' learning efficiency and experience and drive the company's sustained and healthy growth. We firmly believe that this strategy will create long-term value for both our customers and shareholders.

Now let me go into more details. During the quarter, our school-based subscription business maintained a steady progress, achieving a double-digit year-over-year increase with upselling opportunities for additional value-added services. In the meantime, the excellent customer retention rate mirrors positive user word of mouth, laying a foundation for sound customer relations and strengthening brand influence.

The Chinese government has been actively advancing the integration of artificial intelligence across various sectors, including education industry. Notably, in April of this year, a joint policy issued by 9 ministries and commissions, including the Ministry of Education, further underscored AI's strategic role in optimizing teaching and learning processes, and fostering innovative education models. This policy orientation is highly aligned with the company's long-term vision and reinforces our confidence in deepening our investment in AI transformation. In response to the national initiative of embedding AI throughout the entire educational process and guided by our mission to make learning a wonderful experience, we are committed to enhancing AI capabilities across our full product portfolio.

Following the August launch of Yiqi Classmate, a generative AI agent embedded in our teaching and learning SaaS offerings at the 2025 Global Smart Education Conference and the subsequent empowerment of our public welfare initiative, 100 districts, 1,000 schools, 10,000 teachers to drive the rollout of educational digital transformation across multiple regions.

We have newly launched Yiqi Aixue, an AI-powered precision learning product targeting C-end users. This C-end AI membership product deeply integrates our massive high-quality content resources accumulated over the past decade as well as mature hardware systems and the proprietary AI capabilities. It is dedicated to delivering precise academic performance analysis and personalized learning recommendations to users.

Through a hardware-software integrated solution, the product combines content resources, diverse AI interaction functions with smart devices such as the Smart Pen and the [ Tobi Smart Rabbit ], creating a personalized scenario-based and immersive learning experience for users.

Within the solutions offered by Yiqi Aixue, the Smart Pen collects writing data with high precision and in real time, efficiently digitizing paper notes and visualizing the learning process. All writing traces, including every post and correction are analyzed via AI technology to accurately assess students' knowledge mastery and generate personalized academic performance reports. Additionally, leveraging the Smart Pen's real-time learning content synchronization capability, the system automatically creates customized AI notes and mistake notebooks, and combines the company's high-quality content resources to deliver tailored learning plan recommendations to users. The product also incorporates Tobi Smart Rabbit as an intelligent learning companion, which provides emotional support to users, including timely study reminders, positive encouragement and interactive Q&A through natural voice interaction, making precision learning solutions more actionable and accessible.

The product preserves traditional pen and paper writing practices while capturing multi-scenario, multidimensional data. Paired with AI capabilities, it delivers precise personalized academic diagnostics and customized learning recommendations. It also incorporates an intelligent learning companion to drive independent learning motivation. Beyond boosting learning outcomes, this precision learning model improves learning efficiency and eases academic burdens, representing a pragmatic human-centric breakthrough in AI education integration that differentiates our offering in the EdTech space. Since the rollout of this product, it has received encouraging market feedback and robust user demand, which not only demonstrates market recognition of its value, but also lays a solid foundation for the company's future growth.

The above concludes the business update. Now I will turn the call over to Lara to walk you through our latest financial performance. Thank you.

Thanks, Sishi 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 talk about will be presented in RMB terms.

In the first quarter, we continue to prioritize sustainable growth by investing in core product innovation and enhancing cost discipline approach for improved operational efficiency. The impact is evident in our year-to-date figures. Total operational efficiency decreased by 29.8%, leading to a 21.5% reduction in net loss on a GAAP basis compared to the same period last year.

Next, I will go through our financial data in greater detail. Net revenues. In the third quarter of 2025, we recorded net revenues of RMB 20 million compared with RMB 59.6 million in the third quarter of 2024, representing a 66.4% decrease on a year-over-year basis, which was primarily due to the reduction in net revenues from district-level projects as we prioritize our resources on school-based projects under subscription model, which requires a long period of revenue recognition. Cost of revenue for the third quarter of 2025 was RMB 9.8 million equals USD 1.4 million, representing a year-over-year decrease of 58.1% from RMB 23.3 million in the third quarter of 2024, which was largely in line with the decrease of net revenues during the quarter.

Gross profit for the third quarter of 2025 was RMB 10.2 million compared with RMB 36.3 million in the third quarter of 2024. Gross margin for the third quarter of 2025 was 51.2% compared with 60.9% in the third quarter of 2024.

Total operating expenses for the third quarter of 2025 was RMB 56.9 million equals USD 6.0 million, including RMB 6.3 million of share-based compensation expenses, representing a year-over-year decrease of 1.9% from RMB 58.0 million in the third quarter of 2024.

Sales and marketing expenses for the third quarter of 2025 was RMB 15.9 million, including RMB 1.6 million of share-based compensation expenses, representing a year-over-year decrease of 21.6% from RMB 20.2 million in the third quarter of 2024. This was primarily attributed to the improved efficiency in marketing and sales driven by enhanced customer retention compared with the same period last year.

Research and development expenses for the third quarter of 2025 was RMB 15.2 million, including RMB 2.1 million of share-based compensation expenses, representing a year-over-year increase of 19.2% from RMB 12.8 million in the third quarter of 2024. The increase was primarily due to our increased headcount in the research and development to support the rollout of our new product, offset by the decrease of share-based compensation.

General and administrative expenses for the third quarter of 2025 were RMB 25.8 million, including RMB 2.8 million of share-based compensation. compared with RMB 25.0 million in the third quarter of 2024.

Loss from operations for the third quarter of 2025 was RMB 46.6 million compared with RMB 21.6 million in the third quarter of 2024. Loss from operations as a percentage of net revenues for the third quarter of 2025 was negative 233.1%, compared with negative 36.3% in the third quarter of 2024.

Net loss for the third quarter of 2025 was RMB 44.5 million compared with net loss of RMB 17.4 million in the third quarter of 2024. Net loss as a percentage of net revenues was negative 222.5% in the third quarter of 2024 (sic) [ 2025 ] compared with negative 28.2% -- 29.2% in the third quarter of 2024.

Adjusted net loss non-GAAP for the third quarter of 2025 was RMB 38.2 million compared with adjusted net loss non-GAAP of RMB 5.7 million in the third quarter of 2024. Adjusted net loss as a percentage of net revenues was negative 191.0% in the third quarter of 2024 (sic) [ 2025 ] compared with negative 9.5% of adjusted net loss non-GAAP as a percentage of net revenues in the third quarter of 2024. Please refer to the table captioned reconciliations of non-GAAP measures to the most comparable GAAP measures at the end of this press release for a reconciliation of net loss under U.S. GAAP to the adjusted net loss non-GAAP.

Cash and cash equivalents, restricted cash and term deposits were RMB 341.9 million, which equals USD 48.0 million as of September 30, 2025, compared with RMB 359.3 million as of December 31, 2024. Looking to the future, in alignment with the trends of integration -- integrating AI into education, we will continue to upgrade our AI capabilities to deliver more efficient user-centric educational solutions. Through a more integrated business strategy, we aim to foster synergies across our business lines, creating a virtuous cycle that deepens customer engagement, strengthens the strategic value of our subscription model and expands our market presence. These efforts represent vital pathways for long-term value creation and sustainable growth, delivering meaningful value for both our users and shareholders.

With that, we conclude our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session. Thanks.

[Operator Instructions] I'm showing no questions. I'll now turn the conference back to Ms. Lara Zhao for closing comments.

Thank you, operator. In closing, on behalf of 17EdTech's 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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.