6-K
51Talk Online Education Group (COE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of November 2020
Commission File Number: 001-37790
CHINA ONLINE EDUCATION GROUP
6th Floor Deshi Building North
Shangdi Street, Haidian District
Beijing 100085
The People’s Republic of China
Tel: +86 10-5692 8909
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CHINA ONLINE EDUCATION GROUP | ||
|---|---|---|
| By | : | /s/ Min Xu |
| Name | : | Min Xu |
| Title | : | Chief Financial Officer |
Date: November 24, 2020
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EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release |
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Exhibit 99.1
China Online Education Group Announces Third Quarter 2020 Results
Third quarter n et revenues incr eased by 31.8 % year-over-year
Third quarter GAAP/non-GAAP net margin were 5.9 %/ 7.1 % respectively
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 income1, 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 billings2 were RMB728.4 million (US$107.3 million), a 33.1% increase from RMB547.3 million for the third quarter of 2019.
| **** | For the three months ended | **** | **** | |
|---|---|---|---|---|
| **** | Sep. 30, | Sep. 30, | Y-o-Y | **** |
| Key Financial and Operating Data | 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 | % |
1For 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.
2Gross 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.
3An “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.
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“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 cities4 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.”
4Tier-one cities include Beijing, Shanghai, Shenzhen, Guangzhou and Tianjin
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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.
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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.
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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.
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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.
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The Company had advances from students5 (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:
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”.
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| United States (toll free): | 1-877-344-7529 |
|---|---|
| International: | 1-412-317-0088 |
| Replay Access Code: | 10150031 |
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.
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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.
For investor and media inquiries, please contact:
China Online Education Group
Investor Relations
+86 (10) 8342-6262
ir@51talk.com
The Piacente Group, Inc.
Brandi Piacente
+86 (10) 6508-0677
+1 (212) 481-2050
51talk@tpg-ir.com
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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 |
All values are in US Dollars.
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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 revenues6 | 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 |
All values are in US Dollars.
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.
11
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 |
All values are in US Dollars.
12
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 |
All values are in US Dollars.
13
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 |
All values are in US Dollars.
14
CHINA ONLINE EDUCATION GROUP
UNAUDITED ADDITIONAL INFORMATION
(In thousands except for 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 |
All values are in US Dollars.
15
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 expenses7 | (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 expenses8 | (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 expenses9 | (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 |
All values are in US Dollars.
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.
16