Good evening and good morning ladies and gentlemen, and thank you for standing by for 17EdTech's First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I will now turn the meeting over to your host for today's call Mr. Raymond Huang, 17EdTech's Investor Relations Director. Please proceed, Raymond.

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. On the call with me today are Mr. Andy Chang Liu, Founder, Chairman and Chief Executive Officer, and Mr. Michael Chao Du, Director and Chief Financial Officer. Andy will walk you through our latest business performance and strategies, followed by Michael, who will discuss our financial performance and guidance. They will be available to answer your questions during the Q&A session after their prepared remarks.

Thank you, Raymond. How are you everyone? Thank you for joining us for our first quarter earning calls. We had another quarter of robust top line growth. Net revenues increased by 107% year-over-year to RMB474.2 million, which exceeded the high end of our guidance by RMB274.2 million. For the past quarter, our MAUs of in-school applications for students demonstrated strong resilience among the latest changes in regulatory environment. Average MAUs of in-school applications for students for the first quarter only decreased by 5.5% year-over-year to 18.9 million. MAUs of in-school applications for students in March decreased by 21.3% year-over-year to 18.6 million. If you compare student MAUs, in March 2021, which was the first month of the 2021 spring semester, was student MAUs in semester 2020, which was the first month of the 2024 semester. It only decreased by 8%. The decline in March was partially a result of high level of student MAUs in March 2020 as a result of COVID-19 pandemic. More students were encouraged to use more tools like ours to continue their study at home. There were concerns in the market about the regulatory environment since the start of the year. We're closely monitoring the policy changes very carefully. From in-school perspective, we saw policies regulating digital homework moderating over the last few months from the initial notice on strengthening cellphone management in primary and secondary schools, published on January 18th that strictly limits cellphone use and prohibits assigning homework on cellphone to a more gentle five-year working plan published on April 28 not to rely on digital products to assign homework.

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'm going to talk about will be presented in RMB terms. I'm here to report strong results for the first quarter of 2021. We have achieved strong top line growth. Net revenues increased by 107% year-over-year to RMB474 million in the first quarter of 2021, exceeding the high end of our guidance by around RMB4.2 million. Net revenues from online K-12 tutoring services increased by 118% to RMB463 million in the first quarter of '21. Before I review our first quarter financials in details, I would like to remind everyone about our seasonality in our quarterly financial performance that we have shared in early quarters. The first and third quarters tend to incur higher amount of sales and marketing expenses as these two quarters include summer and winter holidays, where large scale of promotional costs take place and thus associated with promotional - associate promotional cost expenses are accounted. The corresponding major increase in revenue, however, will only be primarily reflected in the second and fourth quarter. Thus we typically record relatively lower quarter-to-quarter revenue growth rates with higher selling and marketing expenses in the first and third quarter, leading to larger losses in such quarters. And in the second and fourth quarter, the quarter-over-quarter revenue growth is much higher while incurring lower sales and marketing expenses, leading to lower loss ratios in such quarters. Thus, internally, we typically compare consecutive first and third quarter together, while second and fourth quarter versus each other to see the trends given the seasonality. During this past winter vacation, we have successfully managed our promotional cost strategy and efficiency. We saw our operations achieving high growth…

Your first question comes from the line of Sheng Zhong from Morgan Stanley. Please ask your question.

Thank you for taking the question. So the - we understand that your after-school to transfer students, meaning from your in-school service, MAU conversion, and also your offline operation, I mean, on the student acquisition perspective. While we see some regulatory - regulation that is tightening the advertisement customer acquisition for online companies and also we see many online companies - online education companies are doing the offline customer acquisition exploration. So I want to - can you please share your insight or share some color of your current customer acquisition efficiency from the MAU conversion, from the offline? And do you see any TAC change recently? And you also mentioned that MAU was largely flat because of high base last year. So what's your outlook for the MAU in next one to two years? Thank you.

Sure. I'll try to answer your question by question. So first, in terms of your overall question about latest efficiency, both be - as a result of the regulatory environment change or other institutions attempting to do offline explorations, I think overall, we usually have larger conversion cycles in winter and summer, but much smaller cycles during the spring and for semesters. So during the spring conversion cycles so far, we don't see any major change in terms of efficiencies or, as you said, how we are able to get trial courses sign-ups from MAUs. We don't see major change in those trends as well as in CAC when you are talking about immediate impact from the regulatory change or others are participating in offline exploration. But the one thing we are happy to see is actually the latest trend is basically proving the benefits of integral model where we believe more and more people will actually be leveraging. We'll be trying to recognize and to improve the teaching as well as conversion efficiencies through our offline presence.

In addition, first, the integrated model that you have to have the good product, just with the good product to serve the teachers and students and parents. That means you have the opportunity to serve the parents. And with serving the parents, you can get the user for paid for enrollment. So I don't think it's easy for the competitor to build up the content, data, and product because it's - to have almost 10 years do that. So that means for our CAC for this semester and will not change and maybe even lower than before just because our efficiency has become higher and higher. And third, just because the Chinese government wants to improve the in-school teaching, in-school learning, and with that, they can persuade all the parents to reduce their burden for after school tutoring. That means we will more and more rely on our in-school product to improve the teaching efficiency. They will more and more use our homework assessment to make the tasks to finish for in-school. So that means I still think we have a great opportunity to improve the MAUs in the future.

Your next question comes from the line of Timothy Zhao from Goldman Sachs. Please ask your question.

Thanks for the presentation and taking my questions. I have two questions here. One is you shared a lot of good reason about utilization of the in-school education scenario. Could you provide some - provide us with some color on your potential monetization model in the in-school business? And could you give us some update on the progress of your content localization? And secondly, regarding the regulatory requirements from the Beijing government on creation collection and security. Could you share us what is the latest requirements that you have so far? And how will this requirement impact your operating cash flow, if any? Thank you.

Yes. Timothy, I just want to clarify your first question. You were asking about any monetization plan for in-school operation?

Right.

Yes. Okay. Yes. I think our strategy in terms of Chinese fees for in-school operations still remain the same that we will largely remain free within schools. I think that would be for our basic functions.

We've seen that for the basic function within schools we have been free, but we've also seen multiple districts like the Shijingshan district in Beijing and Minhang district in Shanghai. They were paying for premium services and integrated projects for us at a price around RMB10 million per year for each district. And we do see some of the districts that would become the models for other subsequent cities as we roll out. And the demand for educational services within the schools will continue to rise. I hope this answers your first question. The second question, yes, you are right. We have seen the notice from the Beijing government in terms of tuition collection as well as deposit derivative funds at a custodian bank. We are closely monitoring this and we are also monitoring what's being likely to happen in Shanghai because we are registered in Shanghai and all the actual cash flow impact and all other impacts will be directly dependent on what the actual policy is in Shanghai. So far, we can only share that we will be preparing for any potential policies coming out in Shanghai, but at this stage, it will be difficult for us to speculate on what the actual policy will be in Shanghai.

There are no further questions at this time. I would like to hand the conference back to these presenters. Please continue.

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, feel free to reach out to us directly. Thank you for joining us today. This concludes the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.