Ladies and gentlemen, thank you for standing by. And welcome to the 17h Education & Technology Group Incorporated Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. I might advise you that this conference is being recorded today, Tuesday, 9 March, 2021. I would now like to hand the conference over to the first speaker today, Mr. Raymond Huang, Investor Relations Director of the Company. Please go ahead.

Thank you, operator. Hello, everyone. And thank you for joining us today. 17's tax earnings release was earlier today and it's available on the company's IR Web site. On the call with me today are Mr. Andy Chang Liu, Founder, Chairman and the Chief Executive Officer of 17EdTech and Mr. Michael Chao Du, Director and the Chief Financial Officer of 17EdTech. Andy will walk you through our latest business performance and strategies, followed by Michael who will discuss our financial performance and the guidance. They will be available to answer your questions during the Q&A session after their prepared remarks.

Thank you, Raymond. Hello, everyone. Thank you all for joining us for our earning call. This is our first call as a public company since we successfully listed on NASDAQ in early December 2020. We are grateful for the support from the investor community. And we believe our IPO helped further strengthen our brand image among parents, students and public school teachers, as well as help us attract more great talent to join our team. Please allow me to start with some very quick background for those who might be new to our story. We have successfully developed our differentiated in-school plus after-school integrated model that coherently brings together our smart in-school classroom solutions and online after school tutoring operations. Our smart in-school classroom solution operation started in 2011 and provides school teachers with industry leading tools and content libraries in a wide range of in-school teaching and learning scenarios including class preparation, class delivery, homework assignment, and grading and academic assessments. To allow a smoother and more efficient data driven teaching, learning and tracking experience for teachers and students at over 70,000 K-12 schools across China. We are now the largest in-school classroom solution provider in China in terms of MAU. Under our in-school plus after-school integrated model, we also offer online K-12 large class after-school tutoring services, that complement students in-school learning leveraging our insights into students localized education needs and personal learning profile gained from our in-school operation powered by our integrated model and technology. Our online K-12 large class after school tutoring courses sent out in terms of unique approach to personalization based on what data driven outstanding of individual students in-school performance as well as our district level localized insights.

Thanks, Andy, 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. I'm pleased to report our strong results for the fourth quarter and for the full year of 2020. We achieved strong top-line growth, net revenues increased by 153% year-over-year to RMB 487 million in the fourth quarter of 2020 and increased by 218.6% to RMB 1294.4 million in 2020. The net revenues from online K-12 tutoring services increased by 164% to RMB 468 million in the fourth quarter of 2020 and increased by 239% to RMB 1219 million in 2020. Gross billings of online K-12 tutoring services, which is in GAAP measure increased by 166% year-over-year to RMB 579 million in the fourth quarter of 2020 and increased by 203% year-over-year to RMB 1655 million for the full year. Pay course enrollments increased by 165% year-over-year to 849,000 in the fourth quarter of 2020 and increased by 178% year-over-year to 2.02 million. In addition to robust revenue growth, our operational efficiency continued to improve in the fourth quarter and the year of 2020. Our gross margin was 64.3 in the fourth quarter of 2020 improving from 62.9% in the fourth quarter of 2019. It was also 61.7% for the full year 2020 compared with 57.3% in 2019. Our adjusted net loss also in GAAP measure which excludes share-based compensation expenses was RMB 134.6 million loss in the fourth quarter of 2020, decrease from RMB 163 million in the fourth quarter of 2019.

Our first telephone question comes from Sheng Zhong from Morgan Stanley.

My first question is on your next quarter revenue guidance. How much impact do you see from the late Chinese New Year? And can you also provide the revenue guidance for the full year next year? And second question is about the regulation. We see government disallow electronic homework and especially for primary school students. The government now requires the homework to be done in school. Do you think this will impact your in-school business, the MAU growth? And do you have plan to do more external student acquisition if there is impact from the regulation?

I'll answer the first question. And then, I will pass to Andy for the second question. So question on net quarters revenue guidance how much it was affected by late Chinese New Year. It is actually indeed affected by that. We actually have already completed our winter conversion cycle and we do see strong growth during that period. However, as the Chinese New year is actually relatively late. So actually, for the spring revenues, actually it has one whole week less of revenue that is being recognized in the first quarter. On our initial estimation, it probably we actually decreased the overall revenue by around 10%. Assuming all cycles were similar as previous year. In terms of annual revenue guidance, we actually do not provide revenue guidance for the full year. With that I will pass to Andy for the second question.

I will speak Chinese and Michael will translate in English. Even considering the regulation environment we have seen, we are still very confident in our overall annual growth in terms of revenues, especially we are confident that we are able to achieve that without relying on external staff acquisitions. Then, I will further elaborate on the reasons behind that. So first, in terms of the -- our in-school ecosystem, essentially it's not only a homework, it actually includes, class preparation, class delivery, homework assignments, as well as term assessments, which is comprehensive multiple scenarios interacting with the teachers, students and parents. Secondly, even in terms of homework, it can be completed by students in multiple types of devices, including PCs, pads, including mobile phones in home. Also in terms of completing homeworks at homes on different multiple devices, it was actually activities controlled by the parents and students themselves. So we don't see much impact on that. And also lastly, I think starting from last year's, we actually have been exploring probing domains where we are able to backup and duplicate the reach to parents and to various students our various social networks which further allow us to be less impacted in terms of the app itself. So therefore, those in terms of the near-term and the longer term of our integrate model, we are fairly confident because we believe if you look at things, three or five years or even longer cycle or longer horizons, the informatization and modernization of China's education system is irreversible. This is actually the only way to achieve or to improve education equality in China. So we are very confident as long as we can provide high values to the teachers, students and parents in class preparations, deliveries, homework, assessments, various learning and teaching scenarios. We are confident this is a model that has long prosperities. If some of you may be interested, you're encouraged to actually see the 14th five year plans, its interpretation and discussion about informatization of China's education over the next few years. We see very strong needs and the willingness to prepare this from China's government.

May I follow up with your MAU outlook for next year?

So Sheng Zhong, we don't actually provide say outlook for a particular one year so but I think despite the policy environment, we are still confident that the MAU of apps is likely to double over the next two to three years horizon.

Yes, just to supplement remarks in the edit. So probably it might be -- to be more accurate, it will be unique IDs, both in terms of apps as well as potentially a PC .

The next telephone question in queue is from Lucy Yu from BoFA Securities.

So I have two questions here. One is also on the policy side, but more on the after-school tutoring. So we have seen government's requiring all instructors to have the teacher qualification. So may I know that how many of your current instructors who are teaching right now, is without the qualification at the moment. So if they don’t have the qualification, does it mean that they cannot teach the classes for the upcoming semester? And also how should we think about the competition in after-school part going forward? So that's question number one. Number two is, could you elaborate a bit more about our winter promotion strategies? So I have seen that the conversion rates from in-school to after-school went up quite nicely in the fourth quarter of last year. With MAU being largely flattish q-on-q but the paid enrollment actually surged a lot. So how should we think about the conversion rates from in-school to after-school in 2021? Thank you.

Thanks Lucy. Let me quickly translate the questions to Andy. Thanks Lucy. So basically, in terms of instructor qualifications, as I recall, we have more than around two-thirds of our instructors actually are properly qualified or have already and only around 10% of them have passed all the tests but not yet got their qualifications yet. We don't see this have a major impact now us, as the vast majority of the revenues generated from instructors are with those with qualifications. And we actually among the leading players with the higher percentage of teachers or instructors having such qualification. On your second question in terms of after-school tutoring, competition and how we see our fourth quarter paid course enrollments. I think the first quarter paid course enrollments was a combination of our improvements in terms of the students we can convert from our in-school traffic as well as, existing students renew their course and signing up of their courses. That's why you can see the numbers are keep increasing in the fourth quarter. In terms of our winter strategy, or actually our expectations of winter 2020. As you know, the winter conversion season actually has already completed. We have some preliminary statistics from that and we see them are very promising and we're happy to see the trend. In summary, we see first in terms of the number of full price students that get converted from our winter actually has increased significantly, which is actually more than double the same number of the last winter. Secondly, in terms of unique customer acquisition expenses, it's also remain highly stable, I think they only increased by around 10% compared to the last conversion cycle which is significantly slower than industry increase. We believe this is a significant benefit and edge of our integrated models. That's why as you mentioned earlier the paid course enrollment that took place in the fourth quarter and also what we have seen in the winter cycle we actually see us approaching what we believe is major milestones for our business where the number of concurrent students getting very close to 1 million enrollments after the winter cycle. So for 2021, I think as Andy had mentioned earlier, we are very confident to continuously grow in the sectors despite the competition and we are confident delivery and very strong overall year.

So the numbers we have seen in first quarter and also the initial statistic we seen on the winter where, very stable CAC around only -- increasing around 10%. And also the number of students getting converted was actually doubling what we see in the last winter 2019 as well also the -- our overall app score tutoring business is approaching, very close to 1 million concurrent full price student enrollments. This is actually all behind as a result, the long-term advantage of our -- inherent advantage of our integral models. So over the last few years, our accumulations of presence in-school scenarios of more than 70,000 school as actually is a long-term strength and a benefit that we actually gradually play out in the next few quarters and the years. We are confident that we actually will be growing on a very healthy, unique customer acquisition expenses and in a relatively solid growth rates without relying on external traffics.

Our next telephone question is from a Sheng Zhong from Morgan Stanley.

Actually, I asked my questions already. But if I may, I want to ask one more question. Since you mentioned that your retention you are seeing very strong improvement. So do you -- can you add some color on this perspective? What the retention rate for the students who you have in their academic performance record and comparing with the normal ones? Thank you. ]A - Andy Chang Liu: So, as we have shared earlier and also some of the investor has been communicating with us, we do experience customer acquisition expenses that is significantly lower than industry average and also at a similar retention rates among the leading players. Therefore, we have -- we enjoyed significantly better unit economics with much higher LTV versus CAC structures. We also want to share that we do see stronger potentials of our renewal rates to improve further. As we shared earlier that we have you to -- the ensure system were utilized the in-school students learning and localized learning data and the information together with our after-school tutoring services. We believe vast majority of our potential students or current students actually want to improve their grades in their in-school learning scenarios. That's why our in-school learning scenarios where we accumulate a lot of data in terms, the academic assessment, homework data, what the student mistakes and what's the local exam focus is? Such insights allows us to be much more efficient in terms of helping the students to improve their learning results, and to be more targeted. So I know people might be more -- this might be more obvious to the people where the integrated model allows you to enjoy a significant lower customer acquisition expenses, but actually now in mind, what's even more valuable and especially more valuable in the longer term, is that the localized content and data that it provides that allow us to actually providing a stronger and more efficient and effective after-school tutoring learning products to the students.

Our next telephone question is from Christine Xu from Goldman Sachs.

Thank you so much for the comprehensive update, Andy and Michael. I think we start to notice a lot more of your competitors actually starting to talk about localization as well as potentially exploring some offline customer acquisition channels. Can you highlight some any product or R&D some developments on that side over the last few months that you can highlight there? Thank you.

So the question was about more and more players are talking about localizations as well as trying to acquire students or from offline channels, and what was our investments, especially in R&D product in this aspects. So I think these actually has, as well, a trend where we have pioneered, if people -- if we're going to remember that even during last year investor meetings, road shows, we have already mentioned that we have already become the leading -- among the leading players who has the most number of localized textbook versions in terms of school tutoring courses, as well as multiple levels of difficulties for our large classes. And this is what we have always been focused about to so that we can provide more targeted services. However, what we believe having multiple localized course versions and multiple difficulties, actually only the first steps, it has some value to the parents, but may not be as great because from parent's perspective, they don't really know about -- they don't really look -- see the localized versions, what they really need is to have courses and services that's more targeted to helping them in solving the problems that they have seen from in-school and to help them for their kid to be better prepared to face the exams within the schools. And this to our perspective two level of data are of the highest value. The first is on school level, what's the district level, what's its exam focuses, teaching focuses and what's most likely to be tested. And secondly, on individual level. So what the person's own learning problem is, what's his strengths and weaknesses, how you can be more targeted to providing your tutoring services. And this too, is actually what we have particularly strong with our integrated…

Next telephone question is from Manik Mahajan from Freemont Capital.

Thanks a lot for the detailed insights on the results. I just have one question and that's around ASP trend. So how should we think about the average selling price for the after-school tutoring courses going forward and encourage you can share on, how it has been trending as per your expectations.

Let me share my view, our result first. In terms of ASP, I believe it is very likely that the -- on a average basis it is likely to grow around 15% annual growth over the next few years. The reasons behind that is that, if you look at average price of the online large classes, it is around RMB 3000 for the whole year. This is a price even highly acceptable and comfortable for students in Tier-3 and Tier-4 cities. This would account for around up to 10% of the annual income even in Tier-3 and Tier-4 cities. We have also conducted several surveys we believe this is fairly comfortable levels where they can accept. Second and in terms of the emphasis and the focus on education as a whole and driven by the continuous product improvements of the industry. Indeed, the online large classes actually is bringing much better and attractive instructors into lower tier cities. So that what we believe, it will actually drive continuous demand from the even lower tier cities. Also as for online large class is alternative to other formats, it's also have significant price advantage compared to multiple other forms. So even with 15% annual price increase over, say next two to three -- its price will still remain competitive.

There are no more further questions at this time. I'd like to hand the call back to the speakers for closing remarks. Please continue.

Thank you, operator. In closing on behalf of 17EdTech management team, we like to thank you for your participation on today's call. If you require any further information, feel free to reach out to us directly. Thank you for joining us today. This concludes the call.