Chronicle Journal: Finance

China Online Education Group Announces Third Quarter 2020 Results

BEIJING, Nov. 23, 2020 /PRNewswire/ -- China Online Education Group ("51Talk" or the "Company") (NYSE: COE), a leading online education platform in China, with core expertise in English education, announced its unaudited financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 Financial and Operating Highlights

  • Net revenues were RMB538.5 million (US$79.3 million), a 31.8% increase from RMB408.7 million for the third quarter of 2019.
  • Gross margin was 72.8%, compared with 71.6% for the third quarter of 2019.
  • GAAP net income was RMB31.6 million, representing GAAP net margin of 5.9%, compared with GAAP net loss RMB5.8 million and GAAP net margin of negative 1.4% for the third quarter of 2019.
  • Non-GAAP net income[1], which is a non-GAAP measure that excludes share-based compensation, was RMB38.5million, representing non-GAAP net margin of 7.1% compared with non-GAAP net loss RMB2.3 million and non-GAAP net margin of negative 0.6% for the third quarter of 2019.
  • Operating cash inflow was RMB186.1 million (US$27.4 million), compared with RMB123.2 million operating cash inflow for the third quarter of 2019.
  • Cash, cash equivalents, time deposits and short-term investments balance reached RMB1,592.5 million (US$234.5 million) as of September 30, 2020.
  • Gross billings[2] were RMB728.4 million (US$107.3 million), a 33.1% increase from RMB547.3 million for the third quarter of 2019.

Key Financial and Operating Data

For the three months ended




Sep. 30,


Sep. 30,


Y-o-Y


2019


2020


Change







Net Revenues (in RMB millions)

408.7


538.5


31.8%

K-12 one-on-one mass market offering

323.1


471.8


46.0%

K-12 small class offering

25.8


25.4


(1.3%)

One-on-One others

59.8


41.3


(30.9%)







Gross billings (in RMB millions)

547.3


728.4


33.1%

K-12 one-on-one mass market offering

504.6


692.2


37.2%

        K-12 small class offering

8.7


10.6


21.8%

One-on-One others

34.0


25.6


(24.7%)







Active students[3] (in thousands)

258.2


338.0


30.9%







 

[1] For more information on non-GAAP financial measures, please see the section of "Use of Non-GAAP Financial Measures" and the table captioned "Reconciliation of Non-GAAP Measures to the Most Comparable GAAP Measures" set forth in this press release.

[2] Gross billings for a specific period, which is one of the Company's key operating data, is defined as the total amount of cash received for the sale of course packages and services in such period, net of the total amount of refunds in such period.

"We are pleased to deliver another robust quarter of solid financial and operating results. Our third quarter performance proves the merits of our strategy focused on the K-12 one-on-one mass market offering in non-tier-one cities[4] and showcases our ability to execute our initiatives," said Mr. Jack Jiajia Huang, Founder, Chairman and Chief Executive Officer of 51Talk. "Highlights of the quarter included net revenues reaching RMB538.5 million, up 31.8% year-over-year, surpassing the top end of our guidance, with contribution from our K-12 one-on-one mass market offering growing by 46.0% year-over-year to hit RMB471.8 million. Moreover, the number of active students on our platform in the third quarter grew to 338,000, up 30.9% compared to the third quarter in 2019.    

"Clearly families across China are gaining greater familiarity and comfort with online learning channels and recognizing the strong value we provide. As they do, they are sharing their positive experiences with their friends and our high-quality brand reputation is spreading.

"In October, we were honored to be invited as the only online education enterprise to join the 2020 China Annual Conference for International Education and provide key inputs for future guidelines and requirements for online foreign teachers in China. At the conference, we signed a framework agreement with the China Education Association for International Exchange to jointly create recruiting and training standards for online foreign teachers. These standards will become part of China Ministry of Education's policies regulating online foreign teachers. We are excited to be part of this national level working group. We look forward to sharing our experience working with thousands of online foreign teachers, and helping shape the future of our industry."   

Mr. Huang further added, "Also in October, we hosted our 2020 Sino-Philippines Educational Exchanges Seminar attended by education and government leaders, including the ambassadors from China and the Philippines. Through live streaming, we engaged over 5,000 people from China and the Philippines to celebrate 45th anniversary of the establishment of diplomatic relations between the two countries, showing mutual cooperation and our positive role in cross-border relations. This video received the Guinness World Records award for 'the largest online video album of people waving.'

"In conclusion, our K-12 one-on-one mass market non-tier-one city strategy is working, our teams are executing and the ground work we've laid is allowing us to take advantage of more and more market opportunities. With these pieces in place, we will continue to drive sustained long-term growth and maintain balanced bottom line profitability." concluded Mr. Huang.  

"As COVID-19 was under control in China and people's lives were getting back to normal, we continued our growth momentum in the third quarter, achieving strong topline increment coupled with another quarter of profitability, our fourth consecutive profitable quarter. As the demand for online education continues to accelerate, our strategy to pursue balanced growth is delivering as planned," said Mr. Min Xu, Chief Financial Officer of 51Talk. "During the quarter, we increased non-GAAP sales and marketing expenses by 30.6% year-over-year to capture more market opportunities and increased non-GAAP product development expenses by 12.8% year-over-year to further improve our technology platform and curriculum. Despite the increase in expenses, we still recorded quarterly profitability, with non-GAAP net income coming in at RMB38.5 million. Excluding the RMB15.0 million favorable impact of coronavirus relief policies in the third quarter, our non-GAAP net profit margin would have been 4.4%. Additionally, our operating cash inflow reached another historical high of RMB186.1 million. Looking ahead, we will continue on our pathway of sustained growth in this rapidly developing market and executing our strategies to bring strong value proposition to our students."

[3] An "active student" for a specified period refers to a student who booked at least one paid lesson, excluding those students who only attended paid live broadcasting lessons or trial lessons.

[4] Tier-one cities include Beijing, Shanghai, Shenzhen, Guangzhou and Tianjin

Third Quarter 2020 Financial Results                                       

Net Revenues

Net revenues for the third quarter of 2020 were RMB538.5 million (US$79.3 million), a 31.8% increase from RMB408.7 million for the same quarter last year. The increase was primarily attributed to the increases in the number of active students. The number of active students in the third quarter of 2020 was 338,000, a 30.9% increase from 258,200 for the same quarter last year. The average revenue per active student in the third quarter of 2020 increased by 0.7% year-over-year.

Net revenues from one-on-one offerings for the third quarter of 2020 were RMB513.0 million (US$75.6 million), a 34.0% increase from RMB382.9 million for the same quarter last year. Net revenues from small class offerings for the third quarter of 2020 were RMB25.4 million (US$3.7 million), a 1.3% decrease from RMB25.8 million for the same quarter last year.

Cost of Revenues

Cost of revenues for the third quarter of 2020 was RMB146.7 million (US$21.6 million), a 26.5% increase from RMB116.0 million for the same quarter last year. The increase was primarily driven by an increase in total service fees paid to teachers, mainly due to an increased number of paid lessons.

As part of Chinese government's effort to ease the burden of businesses affected by the coronavirus (COVID-19) outbreak, the Ministry of Human Resources and Social Security, the Ministry of Finance and the State Taxation Administration temporarily reduced and exempted employer obligation on social security contributions from February 2020. The impact of coronavirus policies on cost of revenues was RMB0.3 million in the third quarter. Excluding the impact, total cost of revenues for the third quarter would have been RMB147.0 million (US$21.7 million), representing a 26.7% year-over-year increase.

Cost of revenues of one-on-one offerings for the third quarter of 2020 was RMB137.4 million (US$20.2 million), a 31.3% increase from RMB104.6 million for the same quarter last year. Cost of revenues of small class offering for the third quarter of 2020 was RMB9.3 million (US$1.4 million), an 18.4% decrease from RMB11.3 million for the same quarter last year.

Gross Profit and Gross Margin

Gross profit for the third quarter of 2020 was RMB391.8 million (US$57.7 million), a 33.9% increase from RMB292.7 million for the same quarter last year. Gross margin for the third quarter of 2020 was 72.8%, compared with 71.6% for the same quarter last year.

Excluding the positive impact of the coronavirus related exemption of employer obligation on social security contributions, gross profit and gross margin for the third quarter would have been RMB391.5 million (US$57.7 million) and 72.7% respectively.

Gross margin for one-on-one offerings in the third quarter of 2020 was 73.2%, compared with 72.7% for the same quarter last year. The increase was mainly attributable to improve the efficiency of American Academy lessons. 51Talk's small class offering gross margin for the third quarter of 2020 was 63.6%, compared with 56.0% for the third quarter of 2019. The increase was mainly due to a favorable mix of higher margin products.

Operating Expenses

Total operating expenses for the third quarter of 2020 were RMB379.6 million (US$55.9 million), a 26.8% increase from RMB299.4 million for the same quarter last year. The increase was the result of an increase in sales and marketing expenses, general and administrative expenses, and product development expenses.

Sales and marketing expenses for the third quarter of 2020 were RMB282.8 million (US$41.7 million), a 31.3% increase from RMB215.4 million for the same quarter last year. The increase was mainly due to higher marketing and branding expenses and higher sales personnel costs related to increases in the number of sales and marketing personnel. Excluding share-based compensation expenses, non-GAAP sales and marketing expenses for the third quarter of 2020 were RMB280.6 million (US$41.3 million), a 30.6% increase from RMB214.8 million for the same quarter last year. Non-GAAP sales and marketing expenses, excluding branding expenses, were 31.8% of the gross billings for the third quarter of 2020, compared with 32.6 % for the same quarter last year. The impact of coronavirus policy related exemption of employer obligation on social security contributions on sales and marketing expense was RMB5.5 million in the third quarter. Excluding the impact, sales and marketing expenses for the third quarter would have been RMB288.3 million (US$42.5 million), representing a 33.8% year-over-year increase.

Product development expenses for the third quarter of 2020 were RMB43.8 million (US$6.4 million), a 14.0% increase from RMB38.4 million for the same quarter last year. The increase was primarily due to higher product development personnel costs related to increases in both the number of personnel and average salary. Excluding share-based compensation expenses, non-GAAP product development expenses for the third quarter of 2020 were RMB42.1 million (US$6.2 million), an 12.8% increase from RMB37.3 million for the same quarter last year. The impact of COVID-19 policy related exemption of employer obligation on social security contributions on product development expenses was RMB0.7 million in the third quarter. Excluding the impact, product development expenses for the third quarter would have been RMB44.5 million (US$6.6 million), representing a 15.9% year-over-year increase.

General and administrative expenses for the third quarter of 2020 were RMB53.0 million (US$7.8 million), a 16.2% increase from RMB45.6 million for the same quarter last year. The increase was primarily due to higher general and administrative personnel costs related to increases in the number of personnel. Excluding share-based compensation expenses, non-GAAP general and administrative expenses for the third quarter of 2020 were RMB50.0 million (US$7.4 million), a 14.2% increase from RMB43.8 million for the same quarter last year. The impact of coronavirus policy related exemption of employer obligation on social security contributions on general and administrative expenses was RMB0.9 million in the third quarter. Excluding the impact, general and administrative expenses for the third quarter would have been RMB53.9 million (US$7.9 million), representing a 18.2% year-over-year increase.

Other income

As part of Chinese government's effort to ease the burden of businesses affected by the coronavirus (COVID-19) outbreak, the State Taxation Administration exempted a wide range of consumer services from value added tax (VAT) from January 2020. The income obtained by taxpayers from providing essential services shall be exempt from VAT. The favorable impact of coronavirus relief policies was RMB7.6 million in the third quarter.

On September 30, 2019, Ministry of Finance and the State Taxation Administration announced that from October 1, 2019 to December 31, 2021, the taxpayers engaging in the provision of essential services are allowed to deduct an extra 15% of the deductible input tax for the current period from the payable tax. The impact of the policy of additional value-added tax credit for the income generated by the life services provided by enterprises was RMB1.7 million in the third quarter.

Income/(loss) from Operations

Operating income for the third quarter of 2020 was RMB21.4 million (US$3.2 million), compared with loss from operations of RMB6.7 million for the same quarter last year. Operating income margin for the third quarter was 4.0%, compared with operating margin of negative 1.6% for the same quarter last year.

Non-GAAP operating income for the third quarter of 2020 was RMB28.3 million (US$4.2 million), compared with non-GAAP loss from operations of RMB3.3 million for the same quarter last year. Non-GAAP operating income margin for the third quarter was 5.3%, compared with non-GAAP operating margin of negative 0.8% for the same quarter last year.

The total favorable impact of coronavirus relief policies was RMB15.0 million in the third quarter, including impact of coronavirus policy related exemption of employer obligation on social security contributions on income from operations of RMB7.4 million, in addition to coronavirus policy related VAT exemption of RMB7.6 million. Excluding the favorable impact, operating income and non-GAAP operating income for the third quarter would have been RMB6.4 million (US$0.9 million) and RMB13.3 million (US$2.0 million) respectively, representing 1.2% GAAP operating margin and 2.5% non-GAAP operating margin.

Net income/(loss)

Net income for the third quarter of 2020 was RMB31.6 million (US$4.7 million), compared with net loss of RMB5.8 million for the same quarter last year.  Net margin for the third quarter was 5.9%, compared with net margin of negative 1.4% for the same quarter last year.

Non-GAAP net income for the third quarter of 2020 was RMB38.5 million (US$5.7 million), compared with non-GAAP loss of RMB2.3 million for the same quarter last year. Non-GAAP net margin for the third quarter was 7.1%, compared with non-GAAP net margin of negative 0.6% for the same quarter last year.

The favorable impact of coronavirus relief policies was RMB15.0 million in the third quarter. Excluding the favorable impact, net income and non-GAAP net income for the third quarter would have been RMB16.6 million (US$2.4 million) and RMB23.5 million (US$3.5 million), representing net margin of 3.1% and 4.4% respectively.

Basic net income per American depositary share ("ADS") attributable to ordinary shareholders for the third quarter of 2020 was RMB1.46 (US$0.22), compared with basic net loss per ADS of RMB0.28 for the same quarter last year. Diluted net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB1.38 (US$0.20), compared with diluted net loss per ADS of RMB0.28 for the same quarter last year. Each ADS represents 15 Class A ordinary shares.

Non-GAAP basic net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB1.78 (US$0.26), compared with non-GAAP basic net loss per ADS attributable to ordinary shareholders of RMB0.11 for the same quarter last year. Non-GAAP diluted net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB1.68 (US$0.25), compared with non-GAAP diluted net loss per ADS attributable to ordinary shareholders of RMB0.11 for the same quarter last year.

The favorable impact of coronavirus relief policies was RMB15.0 million in the third quarter. Excluding the favorable impact, basic net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB0.77 (US$0.11) and non-GAAP basic net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB1.09 (US$0.16).

Excluding the favorable impact, diluted net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB0.72 (US$0.11) and non-GAAP diluted net income per ADS attributable to ordinary shareholders for the third quarter of 2020 was RMB1.02 (US$0.15).

Balance Sheet

As of September 30, 2020, the Company had total cash, cash equivalents, time deposits and short-term investments of RMB1,592.5 million (US$234.5 million), compared with RMB1,053.4 million as of December 31, 2019. As a part of cash, cash equivalents, time deposits and short-term investments, the Company had non-current time deposits of RMB554.7 million (US$81.7 million), compared with RMB113.4 million as of December 31, 2019.

The Company had advances from students[5] (current and non-current) of RMB2,568.6 million (US$378.3 million) as of September 30, 2020, compared with RMB2,186.6 million as of December 31, 2019.

Outlook

We cannot predict whether the incremental revenue boost from students spending more time at home amidst the COVID-19 outbreak will continue during the remainder of 2020.  However, based on latest information available at the time of this release, for the fourth quarter of 2020, the Company currently expects net revenues to be between RMB525 million to RMB530 million, which would represent an increase of approximately 32.2% to 33.4% from RMB397.2 million for the same quarter last year;

The above outlook is based on the current market conditions and reflects the Company's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Share Repurchase Program

On September 8, 2020, 51Talk announced that its board of directors had authorized a share repurchase program of up to US$20.0 million between September 8, 2020 and September 7, 2021. As of November 19, 2020, the Company had repurchased 69,852 ADSs for approximately US$1.7 million under this program.

Conference Call

The Company's management will host an earnings conference call at 8:00 AM U.S. Eastern Time on November 23, 2020 (9:00 PM Beijing/Hong Kong time on November 23, 2020).

Dial-in details for the earnings conference call are as follows:

United States (toll free):

1-866-264-5888

International:

1-412-317-5226

Mainland China:

400-120-1203

Hong Kong (toll free):

800-905-945

Hong Kong:

852-3018-4992

Participants should dial-in at least 15 minutes before the scheduled start time and ask to be connected to the call for "China Online Education Group."

Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.51talk.com.

A replay of the conference call will be accessible until November 30, 2020, by dialing the following telephone numbers:

United States (toll free):

1-877-344-7529

International:

1-412-317-0088

Replay Access Code:

10150031

 

[5] "Advances from students", which is defined as the amount of obligation to transfer good or service to students or business partners for which consideration has been received from students in advance. The deposits from students are also presented in the total amount of "advances from students".

About China Online Education Group

China Online Education Group (NYSE: COE) is a leading online education platform in China, with core expertise in English education. The Company's mission is to make quality education accessible and affordable. The Company's online and mobile education platforms enable students across China to take live interactive English lessons with overseas foreign teachers, on demand. The Company connects its students with a large pool of highly qualified foreign teachers that it assembled using a shared economy approach, and employs student and teacher feedback and data analytics to deliver a personalized learning experience to its students.

Use of Non-GAAP Financial Measures

In evaluating its business, 51Talk considers and uses the following measures defined as non-GAAP financial measures by the SEC as supplemental metrics to review and assess its operating performance: non-GAAP sales and marketing expenses, non-GAAP product development expenses, non-GAAP general and administrative expenses, non-GAAP operating expenses, non-GAAP operating income/(loss), non-GAAP net income/(loss), non-GAAP net income/(loss) attributable to ordinary shareholders, and non-GAAP net income/(loss) attributable to ordinary shareholders per share and per ADS. To present each of these non-GAAP measures, the Company excludes share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this press release.

51Talk believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding share-based compensation expenses that may not be indicative of its operating performance from a cash perspective. 51Talk believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to 51Talk's historical performance. 51Talk computes its non-GAAP financial measures using the same consistent method from quarter to quarter and from period to period. 51Talk believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision-making. A limitation of using non-GAAP measures is that these non-GAAP measures exclude share-based compensation expenses that have been and will continue to be for the foreseeable future a significant recurring expense in the 51Talk's business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying table at the end of this press release provides more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.7896 to US$1.00, the rate in effect as of September 30, 2020 as certified for customs purposes by the Federal Reserve Bank of New York.

Safe Harbor Statement

This press release contains statements that may constitute "forward-looking" statements pursuant to the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will", "expects", "anticipates", "aims", "future", "intends", "plans", "believes", "estimates", "likely to" and similar statements. Among other things, 51Talk's business outlook and quotations from management in this announcement, as well as 51Talk's strategic and operational plans, contain forward-looking statements. 51Talk may also make written or oral forward-looking statements in its periodic reports to the Securities and Exchange Commission ("SEC"), in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about 51Talk's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: 51Talk's goals and strategies; 51Talk's expectations regarding demand for and market acceptance of its brand and platform; 51Talk's ability to retain and increase its student enrollment; 51Talk's ability to offer new courses; 51Talk's ability to engage, train and retain new teachers; 51Talk's future business development, results of operations and financial condition; 51Talk's ability to maintain and improve infrastructure necessary to operate its education platform; competition in the online education industry in China; the expected growth of, and trends in, the markets for 51Talk's course offerings in China; relevant government policies and regulations relating to 51Talk's corporate structure, business and industry; general economic and business condition in China, the Philippines and elsewhere and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in 51Talk's filings with the SEC. All information provided in this press release is as of the date of this press release, and 51Talk does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

CHINA ONLINE EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)













 As of





Dec. 31,


Sep. 30,


Sep. 30,





2019


2020


2020





RMB


RMB


US$

ASSETS








Current assets









Cash and cash equivalents


342,951


327,429


48,225



Time deposits


144,093


268,442


39,537



Short-term investments


452,936


441,884


65,082



Inventory


308


1,615


238



Prepaid expenses and other current assets


250,215


292,066


43,017


Total current assets


1,190,503


1,331,436


196,099











Non-current assets









Property and equipment, net


20,336


21,361


3,146



Intangible assets, net


9,918


8,101


1,193



Goodwill


4,223


4,223


622



Right-of-use assets


56,638


67,969


10,011



Time deposits


113,415


554,715


81,701



Other non-current assets


6,784


18,809


2,770


Total non-current assets


211,314


675,178


99,443











Total assets


1,401,817


2,006,614


295,542










LIABILITIES








AND STOCKHOLDERS' DEFICIT




Current liabilities









Short-term loan


16,578


-


-



Advances from students


2,181,808


2,565,883


377,914



Accrued expenses and other current liabilities


166,955


212,910


31,358



Lease liability


31,550


38,172


5,622



Taxes payable


21,661


25,335


3,731


Total current liabilities


2,418,552


2,842,300


418,625











Non-current liabilities









Advances from students


4,783


2,691


396



Lease liability


23,545


29,187


4,299



Other non-current liabilities


1,595


1,821


268


Total non-current liabilities


29,923


33,699


4,963











Total liabilities


2,448,475


2,875,999


423,588










Total shareholders' deficit


(1,046,658)


(869,385)


(128,046)










Total liabilities and shareholders' deficit


1,401,817


2,006,614


295,542


 

 CHINA ONLINE EDUCATION GROUP 


 UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS 

 (In thousands except for number of shares and per share data) 



























 For the three months ended 




 For the nine months ended 






 Sep. 30, 


 Jun. 30, 


 Sep. 30, 


 Sep. 30, 




 Sep. 30, 


 Sep. 30, 


 Sep. 30, 






2019


2020


2020


2020




2019


2020


2020






 RMB 


 RMB 


 RMB 


 US$ 




 RMB 


 RMB 


 US$ 























 Net revenues[6] 


408,662


493,471


538,466


79,307




1,081,339


1,519,021


223,728



 Cost of revenues  


(115,988)


(143,560)


(146,692)


(21,605)




(329,275)


(434,283)


(63,963)



 Gross profit 


292,674


349,911


391,774


57,702




752,064


1,084,738


159,765























 Operating expenses  



















     Sales and marketing expenses 


(215,415)


(239,894)


(282,846)


(41,659)




(590,071)


(751,127)


(110,629)



     Product development expenses 


(38,396)


(38,616)


(43,769)


(6,446)




(120,459)


(118,252)


(17,417)



    General and administrative expenses 

(45,598)


(53,902)


(53,007)


(7,807)




(147,146)


(157,598)


(23,212)



 Total operating expenses 


(299,409)


(332,412)


(379,622)


(55,912)




(857,676)


(1,026,977)


(151,258)



 Other income 


-


9,628


9,259


1,364




-


35,648


5,250



 (Loss)/income from operations 


(6,735)


27,127


21,411


3,154




(105,612)


93,409


13,757



 Interest income 


5,070


8,735


10,485


1,544




11,677


26,797


3,947



 Interest expense and other expenses, net 

(2,692)


(1,337)


1,287


190




(7,533)


(259)


(38)



 (Loss)/income before income tax expenses 

(4,357)


34,525


33,183


4,888




(101,468)


119,947


17,666



 Income tax expenses 


(1,431)


(1,759)


(1,598)


(235)




(3,761)


(4,804)


(708)



 Net (loss)/income, all attributable to the

 Company's ordinary shareholders 


(5,788)


32,766


31,585


4,653




(105,229)


115,143


16,958

























Weighted average number of ordinary shares used in computing basic (loss)/earnings per share 


308,834,290


317,793,905


323,676,655


323,676,655




307,455,221


318,242,591


318,242,591





Weighted average number of ordinary shares used in computing diluted (loss)/earnings per share 


308,834,290


340,457,526


344,208,745


344,208,745




307,455,221


340,543,022


340,543,022






















[6] By performing our last year-end financial closing procedures, we discovered an oversight in our process for evaluating the status of lessons that caused us to overstate net revenues during 2018 and in interim periods of 2019. The amounts were reflecting RMB2.9 million (including RMB 2.5 million out-of-period adjustment attributed to the year of 2018) , RMB0.8 million and RMB0.5 million decreases to net revenues for the three months ended March 31, 2019, June 30, 2019 and September 30, 2019, respectively.  Based on our quantitative and qualitative analysis, we do not consider the out of period impact to be material to our financial position or results of operations for any prior periods or for the quarter or year ended December 31, 2019.

 

 

 CHINA ONLINE EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/ INCOME

(In thousands except for number of shares and per share data)






For the three months ended 


For the nine months ended





Sep. 30,


Jun. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,





2019


2020


2020


2020


2019


2020


2020





RMB


RMB


RMB


US$


RMB


RMB


US$



















Net  (loss)/earnings per share attributable to ordinary shareholders








Basic


(0.02)


0.10


0.10


0.01


(0.34)


0.36


0.05



diluted


(0.02)


0.10


0.09


0.01


(0.34)


0.34


0.05


Net (loss)/earnings per ADS attributable to ordinary shareholders 









basic 


(0.28)


1.55


1.46


0.22


(5.13)


5.43


0.80



diluted


(0.28)


1.44


1.38


0.20


(5.13)


5.07


0.75


Comprehensive (loss)/income:














Net (loss)/income 


(5,788)


32,766


31,585


4,653


(105,229)


115,143


16,958


Other comprehensive (loss)/income














Foreign currency translation adjustments


8,439


917


(12,229)


(1,801)


9,404


(6,768)


(997)


Total comprehensive (loss)/income


2,651


33,683


19,356


2,852


(95,825)


108,375


15,961



















Share-based compensation expenses are included in the operating expenses as follows:



















Sales and marketing expenses


(609)


(2,447)


(2,211)


(326)


(2,012)


(6,960)


(1,025)


Product development expenses


(1,063)


(1,637)


(1,660)


(244)


(3,254)


(3,196)


(471)


General and administrative expenses


(1,800)


(2,785)


(3,001)


(442)


(7,727)


(9,786)


(1,441)


 



CHINA ONLINE EDUCATION GROUP



Reconciliation of Non-GAAP Measures to the Most Comparable GAAP Measures



(In thousands except for number of shares and per share data)

















 

For the three months ended

 


 

For the nine months ended

 




Sep. 30,


Jun. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,




2019


2020


2020


2020


2019


2020


2020




RMB


RMB


RMB


US$


RMB


RMB


US$

















Sales and marketing expenses


(215,415)


(239,894)


(282,846)


(41,659)


(590,071)


(751,127)


(110,629)

Less: Share-based compensation expenses


(609)


(2,447)


(2,211)


(326)


(2,012)


(6,960)


(1,025)

Non-GAAP sales and marketing expenses


(214,806)


(237,447)


(280,635)


(41,333)


(588,059)


(744,167)


(109,604)

















Product development expenses


(38,396)


(38,616)


(43,769)


(6,446)


(120,459)


(118,252)


(17,417)

Less: Share-based compensation expenses


(1,063)


(1,637)


(1,660)


(244)


(3,254)


(3,196)


(471)

Non-GAAP product development expenses


(37,333)


(36,979)


(42,109)


(6,202)


(117,205)


(115,056)


(16,946)

















General and administrative expenses


(45,598)


(53,902)


(53,007)


(7,807)


(147,146)


(157,598)


(23,212)

Less: Share-based compensation expenses


(1,800)


(2,785)


(3,001)


(442)


(7,727)


(9,786)


(1,441)

Non-GAAP general and administrative expenses


(43,798)


(51,117)


(50,006)


(7,365)


(139,419)


(147,812)


(21,771)

















Operating expenses


(299,409)


(332,412)


(379,622)


(55,912)


(857,676)


(1,026,977)


(151,258)

Less: Share-based compensation expenses


(3,472)


(6,869)


(6,872)


(1,012)


(12,993)


(19,942)


(2,937)

Non-GAAP operating expenses


(295,937)


(325,543)


(372,750)


(54,900)


(844,683)


(1,007,035)


(148,321)

















(Loss)/income from operations


(6,735)


27,127


21,411


3,154


(105,612)


93,409


13,757

Less: Share-based compensation expenses


(3,472)


(6,869)


(6,872)


(1,012)


(12,993)


(19,942)


(2,937)

Non-GAAP (loss)/income from operations


(3,263)


33,996


28,283


4,166


(92,619)


113,351


16,694























 

 

CHINA ONLINE EDUCATION GROUP

Reconciliation of Non-GAAP Measures to the Most Comparable GAAP Measures

 (In thousands except for number of shares and per share data)






For the three months ended


For the nine months ended




Sep. 30,


Jun. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,




2019


2020


2020


2020


2019


2020


2020




RMB


RMB


RMB


US$


RMB


RMB


US$

















Income tax expenses


(1,431)


(1,759)


(1,598)


(235)


(3,761)


(4,804)


(708)

Less: Tax impact of Share-based

compensation expenses


-


-


-


-


-


-


-

Non-GAAP income tax expenses


(1,431)


(1,759)


(1,598)


(235)


(3,761)


(4,804)


(708)

















Net (loss)/income, all attributable to the

Company's ordinary shareholders


(5,788)


32,766


31,585


4,653


(105,229)


115,143


16,958

Less: Share-based compensation expenses


(3,472)


(6,869)


(6,872)


(1,012)


(12,993)


(19,942)


(2,937)

Non-GAAP net (loss)/income, all

attributable to the Company's ordinary shareholders


(2,316)


39,635


38,457


5,665


(92,236)


135,085


19,895

















Weighted average number of ordinary shares

used in computing basic (loss)/earnings per share


308,834,290


317,793,905


323,676,655


323,676,655


307,455,221


318,242,591


318,242,591

















Weighted average number of ordinary shares

used in computing diluted (loss)/earnings per share


308,834,290


340,457,526


344,208,745


344,208,745


307,455,221


340,543,022


340,543,022






























Non-GAAP net (loss)/earnings per share attributable to

ordinary shareholders













    basic

(0.01)


0.12


0.12


0.02


(0.30)


0.42


0.06

    diluted

(0.01)


0.12


0.11


0.02


(0.30)


0.40


0.06
















Non-GAAP net (loss)/earnings per ADS attributable to

ordinary shareholders













    basic

(0.11)


1.87


1.78


0.26


(4.50)


6.37


0.94

    diluted

(0.11)


1.75


1.68


0.25


(4.50)


5.95


0.88


















 

 CHINA ONLINE EDUCATION GROUP 

 UNAUDITED ADDITIONAL INFORMATION 

  (In thousands except percentages) 




















 For the three months ended 



 For the nine months ended 




 Sep. 30, 


 Jun. 30, 


 Sep. 30, 


 Sep. 30, 



 Sep. 30, 


 Sep. 30, 


 Sep. 30, 




2019


2020


2020


2020



2019


2020


2020




  RMB 


 RMB 


 RMB 


 US$ 



 RMB 


 RMB 


 US$ 




















Net revenues

















   One-on-one offerings

382,896


464,926


513,039


75,562



994,943


1,442,389


212,441



   Small class offerings

25,766


28,545


25,427


3,745



86,396


76,632


11,287



Total net revenues

408,662


493,471


538,466


79,307



1,081,339


1,519,021


223,728




















Cost of revenues

















   One-on-one offerings

(104,639)


(131,818)


(137,436)


(20,242)



(287,907)


(402,861)


(59,335)



   Small class offerings

(11,349)


(11,742)


(9,256)


(1,363)



(41,368)


(31,422)


(4,628)



Total cost of revenues

(115,988)


(143,560)


(146,692)


(21,605)



(329,275)


(434,283)


(63,963)




















Gross profit

















   One-on-one offerings

278,257


333,108


375,603


55,320



707,036


1,039,528


153,106



   Small class offerings

14,417


16,803


16,171


2,382



45,028


45,210


6,659



Total gross profit

292,674


349,911


391,774


57,702



752,064


1,084,738


159,765




















Gross margin

















   One-on-one offerings

72.7%


71.6%


73.2%


73.2%



71.1%


72.1%


72.1%



   Small class offerings

56.0%


58.9%


63.6%


63.6%



52.1%


59.0%


59.0%



Total gross margin

71.6%


70.9%


72.8%


72.8%



69.5%


71.4%


71.4%



















 

  CHINA ONLINE EDUCATION GROUP


UNAUDITED ADDITIONAL INFORMATION


(In thousands except for number of shares and per share data)



















For the three months ended


For the nine months ended






Sep. 30,


Jun. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,


Sep. 30,






2019


2020


2020


2020


2019


2020


2020






RMB


RMB


RMB


US$


RMB


RMB


US$





















Sales and marketing expenses

















     One-on-one offerings


(203,848)


(225,226)


(272,441)


(40,127)


(548,508)


(713,177)


(105,040)



     Small class offerings


(11,567)


(14,668)


(10,405)


(1,532)


(41,563)


(37,950)


(5,589)



Total sales and marketing expenses[7]


(215,415)


(239,894)


(282,846)


(41,659)


(590,071)


(751,127)


(110,629)




















Product development expenses

















     One-on-one offerings


(34,028)


(35,102)


(41,582)


(6,124)


(105,431)


(108,666)


(16,005)



     Small class offerings


(4,368)


(3,514)


(2,187)


(322)


(15,028)


(9,586)


(1,412)



Total product development expenses[8]


(38,396)


(38,616)


(43,769)


(6,446)


(120,459)


(118,252)


(17,417)




















General and administrative expenses

















     One-on-one offerings


(42,251)


(50,509)


(50,587)


(7,451)


(133,030)


(148,393)


(21,856)



     Small class offerings


(3,347)


(3,393)


(2,420)


(356)


(14,116)


(9,205)


(1,356)



Total general and administrative expenses[9]


(45,598)


(53,902)


(53,007)


(7,807)


(147,146)


(157,598)


(23,212)




















Operating expenses

















     One-on-one offerings


(280,127)


(310,837)


(364,610)


(53,702)


(786,969)


(970,236)


(142,901)



     Small class offerings


(19,282)


(21,575)


(15,012)


(2,210)


(70,707)


(56,741)


(8,357)



Total operating expenses


(299,409)


(332,412)


(379,622)


(55,912)


(857,676)


(1,026,977)


(151,258)




















Other income

















     One-on-one offerings


-


7,884


7,794


1,148


-


31,214


4,597



     Small class offerings


-


1,744


1,465


216


-


4,434


653



Total other income


-


9,628


9,259


1,364


-


35,648


5,250




















(Loss)/income from operations

















     One-on-one offerings


(1,870)


30,155


18,787


2,766


(79,933)


100,506


14,802



     Small class offerings


(4,865)


(3,028)


2,624


388


(25,679)


(7,097)


(1,045)



Total (loss)/income from operations


(6,735)


27,127


21,411


3,154


(105,612)


93,409


13,757









































[7]Share-based compensation expenses included in the sales and marketing expenses for one-on-one offerings and small class offerings were RMB2,086 and RMB125 respectively for the third quarter of 2020, and RMB561 and RMB48 respectively for the third quarter of 2019.

[8]Share-based compensation expenses, included in the product development expenses for one-on-one offerings and small class offerings were RMB1,135 and RMB525 respectively for the third quarter of 2020, and RMB806 and RMB257 respectively for the third quarter of 2019.

[9]Share-based compensation expenses, included in the general and administrative expenses for one-on-one offerings and small class offerings were RMB2,960 and RMB41 respectively for the third quarter of 2020, and RMB1,784 and RMB16 respectively for the third quarter of 2019.

Cision View original content:http://www.prnewswire.com/news-releases/china-online-education-group-announces-third-quarter-2020-results-301178817.html

SOURCE China Online Education Group

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