17 Education & Technology Group (YQ) intends to raise $100 million in an IPO of its ADSs representing underlying Class A shares, according to an F-1 registration statement.
Beijing, China-based 17 Education was founded to develop an innovative hybrid offline-online model for K-12 students in China.
Management is headed by founder, Chairman and CEO Mr. Andy Chang Liu, who was previously principal of Shenyang New Oriental School, along with many years of education experience in offline schools.
The firm provides offline learning materials for free to more than 70,000 schools in China and those offline material service to onboard students into its online tutoring products, which now account for more than 90% of its revenues.
17 Education has received at least $1.37 billion from investors including Shunwei Capital, Fluency Holding, H Capital, CL Lion Investment, Esta Investments, Walden Investments Group and Long Great Holdings.
The firm provides education materials free to offline schools throughout China.
The company then leverages these offline relationships to generate interest in its after-school online tutoring services.
Sales and Marketing expenses as a percentage of total revenue have been uneven but trending upward as revenues have increased.
The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose to 0.7x in the most recent reporting period.
According to a 2019 market research report by ResearchAndMarkets, the market for Chinese education at all levels is forecast to reach $573 billion by 2023.
This represents an impressive forecast CAGR of 11.3% from 2018 to 2023.
The main drivers for this expected growth are an increasing urban population, growing discretionary income, increased government spending on education and growing broadband adoption.
Also, increased demand for online education along with the emergence of a two teacher model in lower-tier cities will also provide for increased educational success.
The market for ancillary K-12 education services in China remains fragmented and the company faces competition from both public and private education providers.
17 Education’s recent financial results can be summarized as follows:
- Sharply growing topline revenue
- Increased gross profit but uneven gross margin
- Growing operating losses but decreased negative operating margin
- Increased cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
Source: Company registration statement
As of September 30, 2020, 17 Education had $119.9 million in cash and $156.4 million in total liabilities.
Free cash flow during the twelve months ended September 30, 2020, was negative ($84 million).
17 Education intends to raise $100 million in gross proceeds from an IPO of its ADSs representing underlying Class A shares, although the final figure may differ.
Class A shareholders will be entitled to one vote per share while the Class B shareholder, founder Andy Chang Liu, will be entitled to 30 votes per share.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows: