17 Education & Technology (NASDAQ:YQ) reported second-quarter financial results on Tuesday. The transcript from the company’s second-quarter earnings call has been provided below.
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The full earnings call is available at https://register-conf.media-server.com/register/BI6a9b3074492c49129db706c4d4bc5622
Summary
17 Education & Technology reported a significant year-over-year revenue increase of 254.6% for Q2 2026, reaching RMB 90.1 million, with first-half revenues up 302.6% compared to the previous year.
The company achieved its first quarterly GAAP and non-GAAP profitability, with a GAAP net income of RMB 1.1 million and adjusted net income of RMB 4.7 million, driven by AI-powered application services and an optimized revenue mix.
Gross margin improved to 69.2%, up 11.7 percentage points year-over-year, while operating expenses increased at a slower rate than revenues, indicating growing operating leverage.
Strategically, the company is focusing on expanding its AI application services across education scenarios, exemplified by the collaboration with Shanghai Minhang District and the introduction of personalized AI agents for teachers.
The company maintains a strong cash position of RMB 456.9 million and announced a share repurchase program of up to $10 million, reflecting confidence in its long-term strategy.
Future growth will focus on expanding AI applications in education, leveraging insights to create value across different user bases, and continuing to invest in product innovation and AI capabilities.
Full Transcript
A
Good evening and good morning ladies and gentlemen and thank you for standing by for 17 edtech second quarter 2026 earnings conference call. At this time, all participants are in listen only mode. After the management’s prepared remarks, there will be question and answer session. 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 Chao. Thank you, Investor Relations Manager.
Please proceed. Lara
B
thank you. Alfrita 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. Cixi Zhou, Chief Financial Officer and myself, Investor Relations Manager. Cixi 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. CIXI will be available to answer your questions during the Q and 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 Security 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 known 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 US 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.
So please go ahead.
C
Thank you Lara hello everyone. Thank you all for joining us on our second quarter 2026 earning 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 IMB 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 Shanghai Minhang District, building our long standing partnership and existing digital teaching infrastructure. The latest phase of our collaboration has evolved from SAS based services toward agentic services, providing more personalized AI capabilities to teachers and embedding AI more deeply in into daily teaching workflows. An important aspect of this evolution is that the procurement model is also evolving. The Minghang 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 toward 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. These expand our AI application capabilities across three core education 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 three layer AI8 agentic system also aligns with the logic of our GBCN 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 Minghang District, our digital teaching systems have already been deployed across more than 3,000 classes with teacher and students coverage of 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 and in adopting more integrated OAI services which provides additional opportunities to expand beyond our existing regional deployments. Our CN business led by Yiqi Anxie continues to serve as important commercialization engine delivering personalized AI learning services directly to students and families. Together, these three areas reinforces 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 3rd, our Board of Directors has authorized a share repurchase program of up to US$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 the 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 end, we will continue to develop benchmark projects that demonstrate the value of AI in large scale education environments. In the end, we will continue to productivize and replicate proven capabilities across school based scenarios. In the 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 improve AI capabilities create greater value for users.
We believe our accumulated education insights, AI capabilities and a 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.
B
Thank you Su. 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 as 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 90.1 million RMB 13.3 million US dollars representing a year over year increase of 254.6% from 25.4 million RMB in the second quarter of 2025 and bringing the first half of 2026 net revenues to RMB 189.5 million RMB compared with 47.1 million in the first half of 2025.
The substantial growth was primarily driven by the continued expansion of Itishi, our consumer facing AI powered membership product, complemented by the ongoing contributions from district level and school based subscription projects. Cost of Revenues Cost of revenues for the second quarter of 2026 was 27.8 million RMB representing a year over year increase of 157.2% from 10.8 million RMB in the second quarter of 2025, which was mainly due to the continued growth of EGI share and the relative service delivery costs. Gross Profit for the second quarter of 2026 were 62.3 million RMB compared with 14.6 million RMB 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 202026 were 63.0 million RMB, including share based compensation expenses of 3.6 million RMB representing an year over year increase of 46.2% from 43.1 million RMB 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 26.9 million RMB including share based compensation expenses of 1.1 million RMB, representing a year over year increase of 92.2 million from 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 extension of ETI. Share research and development expenses for the second quarter of 2026 were 20.0 million RMB, including share based compensation expenses of 0.9 million representing a year over year increase of 66.8% from 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 16.0 million including share based compensation expenses of 1.5 million RMB, representing a year over year decrease of 6.1% from 17.1 million in the second quarter of 2025. The decrease was primarily attributable to a lower share based compensation expenses and and disciplined cost management.
Loss from operations for the second quarter of 2026 were 0.6 million RMB compared with 28.5 million RMB in the second quarter of 2025, approaching operating breakeven. As a percentage of net revenues loss from operations improved from to negative 0.7% compared with negative 112.0% in the second quarter of 2025. Net income for the second quarter of 2026 were 1.1 million RMB compared with net loss of 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 3.6 million was 4.7 million RMB compared with adjusted net Roth non GAAP of 18.9 million RMB in the second quarter of 2025. Adjusted net income non GAAP as a percentage of net revenues was 5.0 in the second quarter of 2026 compared with -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 US GAAP to the adjusted net income or loss non GAAP cash and cash equivalents. Restricted cash and term deposits were RMD 456.9 million as of June 30, 2026, compared with 407.0 million as of December 31, 2025. 25.
The substantial increase in cash was driven by both our return to profitability and improved the 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 and A session.
A
Thank you. To ask a question now, please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. There may be a short pause as we compile the Q and A roster again. That’s star 11 for questions. One moment. Now this question comes from the line of William Gregozewski from Green Ridge Global. Please ask your question. William, your line is open.
D
Hi. 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?
C
Okay, William, thanks for the question. We are very encouraged by the progress of our consumer business since the introduction of Iti Xue in late 25. 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 earnings call.
And so we are not only seeing strong top line growth but also increasingly encouraging economics as the business scales. And looking forward, we remain optimistic about a 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 and what gives us confidence is that the foundation for growth is becoming broader. In addition to each I should expect 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.
D
Great. And then can you just talk generally about the shape of the BN and GN pipeline?
C
Okay, sure. We continue to see opportunities across both district and school based scenarios. But I think the more important development, it’s not only the simple the size of the pipeline, it is how the nature of customer demand is evolving. A good example is Minghang 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. And equally important, we are beginning to see these capabilities replicated beyond the district level projects.
Some of our core school based customers are also showing interests of upgrading from existing offerings to agentic services. This gives us early evidence that capabilities validated in a large scale regional environment can be productivized and extended into broader school based scenarios. So strategically we think that G and B end somewhat differently from traditional project businesses, which is like that. GN allows us to validate and establish benchmark AI applications at scale. BM allows us to replicate those capabilities across schools and embed them into daily teaching workflows. And together GNB provide important distribution, trust and user touch points that can support the continued growth of our CN business.
And we will continue to remain selective on new GN and BN opportunities, focusing on projects that are strategically aligned, replicable and commercially sound. Yeah, thank you.
D
Great. Thank you.
A
Thank you once again. If you wish to ask a question now, please press Star 11 on your telephone keypad. Star1 One for question. Thank you. I’m showing no further questions. I’ll now turn the conference back to Ms. Lara Zhao for closing comments.
B
Thank you, operator. In closing, on behalf of 17edtech’s management team, we’d 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.
A
Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect your lines.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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