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      For the three months
                 Operating Data                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


                                                              (215,415)                                       (239,894)                                        (282,846)                                         (41,659)                                              (590,071)                        (751,127)                          (110,629)

             Sales and marketing expenses


                                                               (38,396)                                        (38,616)                                        (43,769)                                         (6,446)                                              (120,459)                        (118,252)                           (17,417)

             Product development expenses




            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                                                                                    (5,788)                                          32,766                                           31,585                                 4,653                                          (105,229)                           115,143                           16,958

         Company's ordinary shareholders







        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                 (5,788)                                      32,766                                     31,585                                                           4,653                   (105,229)                       115,143                       16,958


     Company's ordinary shareholders



     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                            (2,316)                                      39,635                                     38,457                                                           5,665                    (92,236)                       135,085                       19,895


     attributable to the Company's ordinary shareholders






     Weighted average number of ordinary shares             308,834,290                                  317,793,905                                323,676,655                                                     323,676,655                 307,455,221                    318,242,591                  318,242,591


     used in computing basic (loss)/earnings per share





     Weighted average number of ordinary shares             308,834,290                                  340,457,526                                344,208,745                                                     344,208,745                 307,455,221                    340,543,022                  340,543,022


     used in computing diluted (loss)/earnings per share







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


     ordinary shareholders


                                                                                (0.01)                                     0.12                                                               0.12                                 0.02                        (0.30)                         0.42                         0.06


         basic



         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


                                                                                (0.11)                                     1.87                                                               1.78                                 0.26                        (4.50)                         6.37                         0.94


         basic



         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.

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