05/03/2021 - GSX Techedu Inc.: GSX Techedu Inc. Fourth Quarter and Fiscal Year 2020 Financial  Results

GSX Announces Fourth Quarter and Fiscal Year 2020 Unaudited Financial Results

Beijing, March 5, 2021 - GSX Techedu Inc. (NYSE: GSX) ("GSX" or the "Company"), a leading online K-12 large-class after-school tutoring service provider in China, today announced its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2020.

Fourth Quarter 2020 Highlights1

•  Net revenues was RMB2,211.0 million, a 136.5% year-over-year increase.

  -

  Net revenues of online K-12 courses increased 155.6% year-over-year to RMB1,975.2 million.

•  Gross billings2 was RMB3,146.5 million, a 99.3% year-over-year increase.

  - Gross billings of online K-12 courses increased 109.8% year-over-year to RMB2,923.0 million.

•  Paid course enrollments3 increased 107.6% year-over-year to 2,275 thousand.

  - Paid course enrollments of online K-12 increased 112.8% year-over-year to 2,139 thousand.

•  Net loss was RMB627.0 million, compared with net income of RMB174.5 million in the same period of 2019.

•  Non-GAAP net loss was RMB554.4 million, compared with non-GAAP net income of RMB197.8 million in the same period of 2019.

•  Deferred revenue was RMB2,733.7 million, compared with RMB1,337.6 million as of December 31, 2019.

•  Net operating cash inflow was RMB636.4 million, compared with net operating cash inflow of RMB738.8 million in the same period of 2019.

Fourth Quarter 2020 Key Financial and Operating Data

(In thousands of RMB, except for paid course enrollments and percentages)

Three Months Ended December 31,

2019

2020

Pct. ChangeNet revenues

K-12 courses

Foreign language, professional, interest and other services

935,027 772,856 162,171

2,211,041 136.5%

1,975,162 155.6%

235,879 45.4%

Gross billings

K-12 courses

Foreign language, professional, interest and other services

1,578,642 1,393,255 185,387

3,146,502 99.3%

2,922,984 109.8%

223,518 20.6%

Paid course enrollments (In thousands)

K-12 courses

1,096 1,005

2,275 107.6%

2,139 112.8%

Foreign language, professional, interest and other services

Net income (loss) Non-GAAP net income (loss) Net operating cash inflow

91 174,463 197,778 738,758

136 49.5%

(627,033) (554,354)

636,367

NM NM NM

• 1 For a reconciliation of non-GAAP numbers, please see the table captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" at the end of this press release. Non-GAAP income (loss) from operations, non-GAAP net income (loss) exclude share-based compensation expenses.

• 2 Gross billings is a non-GAAP financial measure, which is defined as the total amount of cash received for the sale of course offerings in such period, net of the total amount of refunds in such period. See "About Non-GAAP Financial Measures" and "Reconciliations of non-GAAP measures to the most comparable GAAP measures" elsewhere in this press release.

• 3 Paid course enrollments for a certain period refer to the cumulative number of paid courses enrolled in and paid for by our students, including multiple paid courses enrolled in and paid for by the same student. Paid courses refer to our courses that are charged not less than RMB99.0 per course in fees.

Fiscal Year Ended December 31, 2020 Highlights

•  Net revenues was RMB7,124.7 million, a 236.9% year-over-year increase.

  - Net revenues of online K-12 increased 265.5% year-over-year to RMB6,237.4 million.

•  Gross billings was RMB9,008.1million, a 168.2% year-over-year increase.

  - Gross billings of online K-12 increased 177.8% year-over-year to RMB8,003.1 million.

•  Paid course enrollments increased 168.4% year-over-year to 5,871 thousand.

  - Paid course enrollments of online K-12 increased 177.3% year-over-year to 5,429 thousand.

•  Net loss was RMB1,392.9 million, compared with net income of RMB226.6 million in 2019.

•  Non-GAAP net loss was RMB1,154.5 million, compared with non-GAAP net income of RMB286.9 million in 2019.

Fiscal Year 2020 Key Financial and Operating Data

(In thousands of RMB, except for paid course enrollments and percentages)

Fiscal Year Ended December 31,

2019

2020

Pct. ChangeNet revenues

K-12 courses

Foreign language, professional, interest and other services

2,114,855 1,706,538 408,317

7,124,744 236.9%

6,237,399 265.5%

887,345 117.3%

Gross billings

K-12 courses

Foreign language, professional, interest and other services

3,358,152 2,881,388 476,764

9,008,090 168.2%

8,003,115 177.8%

1,004,975 110.8%

Paid course enrollments (In thousands)

K-12 courses

2,187 1,958

5,871 168.4%

5,429 177.3%

Foreign language, professional, interest and other services

Net income (loss)

Non-GAAP net income (loss)

229 226,630 286,867

442 93.0%

(1,392,930) (1,154,484)NM NM

Larry Xiangdong Chen, GSX's founder, Chairman and CEO, commented, "Our quarterly net revenues hit an all-time high of RMB2.2 billion. Full-year net revenues in 2020 jumped 236.9% year-over-year to reach RMB7.1 billion. We attribute such outstanding growth and upsized scale to our highly efficient operations, as demonstrated by our net operating cash inflow of RMB636.4 million in the fourth quarter. Moreover, full-year net operating cash flow continues to be positive. Despite the intense competition over the past year, we remained dedicated to maintaining our focused strategy, refining our online live large class business model and constantly improving our educational quality and services. In the meantime, we intend to continue investing extensively in technology research and development, building distinguished organizational capabilities, sticking to a sustainable and long-term philosophy, and executing an effective growth strategy on a lifetime value basis. We believe these commitments have enabled us to achieve excellent operational efficiency in 2020, and will empower us to create more value for our students, parents, teachers, investors and society."

Shannon Shen, CFO of GSX, added, "In 2020, we achieved satisfying breakthroughs in terms of both overall development and industry position. With a relatively low spending level, we have achieved great improvements in terms of scale and operational efficiency. Our revenue of core K-12 online large class business recorded RMB6.2 billion in 2020, representing a year-over-year increase of 265.5%. This revenue grew to be more than 3.5 times of the prior year'sfigure for the past three consecutive years. Online education has entered an era that requires meticulous and refined operations. We will continue to invest in our educational products, teaching quality improvement and tutoring services to achieve sustainable and healthy long-term development. Meanwhile, we completed a private placement of USD870 million on December 9, 2020, which gives us ample cash resources to support our efficient operations and demonstrates investors' long-term confidence in us. "

Financial Results for the Fourth Quarter of 2020

Net Revenues

Net revenues reached RMB2,211.0 million, a 136.5% increase from RMB935.0 million in the fourth quarter of 2019. The increase was mainly driven by the growth in paid course enrollments for K-12 courses. The number of online K-12 paid course enrollments increased 112.8% year-over-year to 2,139 thousand, which was contributed by both first-time paid course enrollments and retention of existing students. The increase in first-time paid course enrollments was primarily driven by our effective investment in sales and marketing efforts, and the increase in retention was primarily driven by high teaching quality and optimized services that we provided.

Cost of Revenues

Cost of revenues rose 214.5% to RMB616.4 million from RMB196.0 million in the fourth quarter of 2019, mainly due to the increase in compensation for instructors and tutors, as well as increase in learning material cost and rental expenses.

Gross Profit and Gross Margin

Gross profit increased 115.8% to RMB1,594.7 million from RMB739.0 million in the fourth quarter of 2019. Gross profit margin decreased to 72.1% from 79.0% in the same period of 2019. The decrease was primarily due to the increase in compensation for instructors and tutors, simultaneously resulting from the increased numbers and more competitive salaries provided, to attract excellent talents to improve teaching quality and students' learning experience, which would lay a solid foundation for the company's long-term development.

Non-GAAP gross profit increased 116.5% to RMB1,613.6 million from RMB745.3 million in the same period of 2019. Non-GAAP gross profit margin decreased to 73.0% from 79.7% in the same period of 2019.

Operating Expenses

Operating expenses were RMB2,290.8 million, increasing from RMB571.4 million in the fourth quarter of 2019.

Selling expenses increased to RMB1,798.4 million from RMB442.0 million in the fourth quarter of 2019. The increase was primarily a result of higher marketing expenses to expand user base and enhance our brands, and an increase in compensation to sales and marketing staff.

Research and development expenses increased 229.0% to RMB274.7 million, from RMB83.5 million in the fourth quarter of 2019. The increase was primarily due to an increase in the number of education content development professionals and technology development personnel, as well as an increase in compensation for such staff.

General and administrative expenses increased to RMB217.7 million from RMB46.0 million in the fourth quarter of 2019. The increase in general and administrative expenses was mainly due to an increase in the number of general and administrative personnel, an increase in compensation paid to general and administrative staff, and an increase in fees related to independent internal review.

Income (Loss) from Operations

Loss from operations was RMB696.1 million, compared with the income from operations of RMB167.6 million in the fourth quarter of 2019. The decrease was primarily due to higher spending in sales and marketing activities to extend volume growth and strengthen brand perception.

Non-GAAP4 loss from operations was RMB623.4 million, compared with non-GAAP income from operations of RMB190.9 million in the fourth quarter of 2019.

Interest Income and Realized Gains from Investment

Aggregation of interest income and realized gains from investments, representing income received from cash, cash equivalents, short-term and long-term wealth management investments, increased 86.0% to RMB18.6 million, from RMB10.0 million in the fourth quarter of 2019. This increase was primarily due to increase of cash, cash equivalents and short-term wealth management investments, as well as the realization of gains generated from short-term and long-term wealth management investments during this quarter.

Other Income

Other income increased to RMB54.1 million, from RMB4.2 million in the fourth quarter of 2019. The increase was primarily due to the value-added tax exemption offered by the government, partially offset by the related cost, during the COVID-19 outbreak, which amounted to RMB62.8 million, net of other expenses of RMB8.7 million.

Net Income (Loss)

Net loss was RMB627.0 million, compared with net income of RMB174.5 million in the fourth quarter of 2019.

Non-GAAP net loss was RMB554.4 million, compared with non-GAAP net income of RMB197.8 million in the fourth quarter of 2019.

Cash Flow

Net operating cash inflow for the fourth quarter of 2020 was RMB636.4 million. Cash used in capital expenditures was RMB162.6 million, primarily due to an installment payment of RMB85.8 million for the Zhengzhou properties purchases. Additionally, an installment payment for the acquisition of Tianjin Puxin Online School Education Technology Co., Ltd amounting to RMB35.5 million was also made in the fourth quarter of 2020.

4 For a reconciliation of non-GAAP numbers, please see the table captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" at the end of this press release. Non-GAAP income (loss) from operations, exclude share-based compensation expenses.

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