Puxin Limited Announces Third Quarter 2018 Unaudited Financial Results

BEIJING,Nov.26,2018 -- Puxin Limited (NYSE: NEW) ("Puxin" or the "Company"),a successful consolidator of the after-school education industry in China,today announced its unaudited financial results for the third quarter ended September 30,2018.

Third Quarter 2018 Financial and Operational Highlights

Net revenues were RMB669.7 million (US$97.5 million),representing an increase of 60.1% from the third quarter of 2017.

Operating loss was RMB61.1 million,a decrease of 25.0% from RMB81.4 million in the same period of the prior year.

Adjusted operating loss[1] was RMB41.8 million,a decrease of 38.6% from RMB68.1 million in the same period of the prior year.

Net loss attributable to Puxin Limited was RMB50.2 million (US$7.3 million),a decrease of 53.0% from RMB107.0 million in the third quarter of 2017.

Adjusted net loss attributable to Puxin Limited[2] decreased by 28.1% to RMB51.0 million from RMB70.9 million in the same period of the prior year.

Cash and cash equivalents were RMB684.2 million (US$99.6 million),compared with RMB164.7 million as of December 31,2017.

Student enrollments increased by 48.8% to 544,253 from 365,810 in the third quarter of 2017.

"We delivered solid top line growth and narrowed our net loss during the quarter," commented,Yunlong Sha,Chairman and Chief Executive Officer of Puxin. "Net revenues grew in line with our expectations,increasing over 60% year-over-year as our net loss narrowed on both a sequential and year-over-year basis. Top line growth was driven by an organic increase in student enrolments and in part by revenue from Global Education which reached a historical high during the quarter,its third consecutive quarter of positive revenue growth following its acquisition in August last year. We also continued to invest in expanding our online service offerings and product mix to diversify revenue streams and create new growth drivers."

"We slowed the pace of acquisitions during the quarter in response to recently announced government policies. We support the government's new policies and believe that enhanced regulation will create a stronger and more sustainable market environment over the long term. We are confident in our strategies and believe we will be well positioned to benefit from a well-regulated market by leveraging our extensive experience in completing acquisitions and rapidly improving operations and management of acquired schools. Our ability to generate solid organic growth while integrating and restructuring a number of acquired schools demonstrates the effectiveness of Puxin Business System[3],which we use to analyse a school's growth potential and formulate plans to improve their performance."

[1]Adjusted operating loss is a non-GAAP financial measure,which is defined as operating loss excluding share-based compensation expenses. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" elsewhere in this earnings release.

[2] Adjusted net loss attributable to Puxin Limited is a non-GAAP financial measure,which is defined as net loss attributable to Puxin Limited excluding share-based compensation expenses and loss/gain on changes in fair value of convertible notes,derivative liabilities and warrants. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" elsewhere in this earnings release.

[3] Puxin Business System ("PBS") is designed in-house by our core management team reflecting over 15 years of accumulated management experience in China's education industry. PBS incorporates the best practices of operating after-school learning centers in a standard,common collection of business processes and process improvement methodologies. It covers over 3,000 management processes and we use PBS tools to analyze schools' growth potential and formulate improvement plans.

Financial Results for the Third Quarter of 2018

Net Revenues

Net revenues increased by 60.1% to RMB669.7 million (US$97.5 million) from RMB418.4 million in the third quarter of 2017. This increase was primarily driven by increases in student enrollments. Student enrollments increased by 48.8% from 365,810 in the third quarter of 2017 to 544,253 in the same period of 2018.

On January 1,2018,the Company adopted the modified retrospective method of FASB Accounting Standards Codification (ASC) Topic 606 ("Topic 606"),which relates to revenue from contracts with customers. Results for reporting periods beginning after January 1,2018 are presented under Topic 606,while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

Cost of Revenues

Cost of revenues increased by 44.7% to RMB374.6 million (US$54.5 million) from RMB258.8 million for the same period in 2017,primarily due to an increase in rental costs and teacher compensation. Non-GAAP cost of revenues,which excludes share-based compensation expenses,increased by 44.1% to RMB372.5 million from RMB258.4 million in the third quarter of fiscal year 2017.

Gross Profit and Gross Margin

Gross profit was RMB295.1 million (US$43.0 million),an increase of 84.9% from RMB159.6 million during the same period in 2017. Gross margin was 44.1%,compared with 38.1% for the same period in 2017.

Operating Expenses

Total operating expenses increased by 47.8% to RMB356.1 million (US$51.9 million) from RMB240.9 million in the third quarter of 2017.

Selling expenses increased by 68.7% to RMB237.3 million (US$34.6 million) from RMB140.7 million in the third quarter of 2017. Non-GAAP selling and marketing expenses,increased by 62.8% to RMB227.6 million from RMB139.8 million in the third quarter of fiscal year 2017. The increase was primarily due to increases in brand promotion expenses and selling and marketing staff compensation.

General and administrative expenses increased by 18.5% to RMB118.8 million (US$17.3 million) from RMB100.3 million during the same period of 2017. Non-GAAP general and administrative expenses,increased by 26.2% to RMB111.3 million from RMB88.3 million in the third quarter of fiscal year 2017.

Total share-based compensation expenses allocated to related operating costs and expenses increased by 44.9% to RMB19.3 million (US$2.8 million) from RMB13.3 million in the same period of 2017. The increase was mainly due to new grants of options to employees in 2018.

Operating Loss and Operating Margin

Operating loss decreased by 25.0% to RMB61.1 million (US$8.9 million) from RMB81.4 million in the third quarter of 2017.

Operating margin was (9.1)% in the third quarter of 2018,compared with (19.5)% for the same period in 2017.

Non-GAAP operating margin,was (6.2)%,compared with (16.3)% in the same period of the prior year.

Net Loss

Net loss attributable to Puxin Limited decreased by 53.0% to RMB50.2 million (US$7.3 million),compared toRMB107.0 million during the third quarter of 2017.Basic and diluted net loss per ADS attributable to Puxin Limited were RMB0.62 (US$0.08),compared with basic and diluted net loss per ADS attributable to Puxin Limited of RMB2.14 during the same period last year.

Non-GAAP net loss attributable to Puxin Limited was RMB51.0 million (US$7.4 million) compared with RMB70.9 million during the same period of last year. Non-GAAP basic and diluted net loss per ADS attributable to Puxin Limited were RMB0.62 (US$0.08),compared with RMB1.42 during the same period of last year.

Cash and cash equivalents

As of September 30,the Company had total cash and cash equivalents of RMB684.2 million (US$99.6 million),2017.

Business Outlook

For the fourth quarter of 2018,based on the information available as of the date of this press release,the Company expects net revenues to be between RMB513.0 million and RMB535.0 million,which represents an increase of 20% to 25% year-over-year. These forecasts reflect the Company's current and preliminary views on the market and operational conditions,which are subject to change.

Conference Call Information

Puxin's management team will hold a conference call on November 26,2018 at 8:00 AM U.S. Eastern Time (or 9:00 PM on the same day,Beijing/Hong Kong Time) following the quarterly results announcement. Participants may access the call by dialing the following numbers:

International:

+1-412-902-4272

China:

4001-201203

US:

+1-888-346-8982

Hong Kong:

+852-301-84992

Passcode:

Puxin

Please dial in 10 minutes before the call is scheduled to begin. When prompted,ask to be connected to the Puxin Limited Call. Participants will be required to state their name and company upon entering the call.

A replay of the conference call will be accessible two hours after the conclusion of the conference call through December 3,2018 by dialing the following numbers:

International:

+1-412-317-0088

US:

+1-877-344-7529

Passcode:

10126429

A live webcast and archive of the conference call will be available on the Investor Relations section of Puxin's website at http://ir.pxjy.com/.

Exchange Rate

The Company's business is primarily conducted in China and all of the revenues are denominated in Renminbi ("RMB"). This announcement contains translations of certain RMB amounts into U.S. dollars ("USD") at specified rates solely for the convenience of the reader. Unless otherwise noted,all translations from RMB to USD are made at the rate of RMB6.8680 to US$1.00,the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on September 28,2018. No representation is made that the RMB amounts could have been,or could be,converted,realized or settled into US$ at that rate on September 28,or at any other rate.

Use of Non-GAAP Financial Measures

To supplement the Company's financial results presented in accordance with U.S. GAAP,the Company also uses non-GAAP financial measures,including adjusted operating loss,adjusted net loss attributable to Puxin Limited,basic and adjusted diluted net loss per ADS attributable to Puxin Limited,as supplemental measures to review and assess the Company's operating performance. Adjusted operating loss is defined as operating loss excluding share-based compensation expenses; adjusted net loss attributable to Puxin Limited is defined as net loss attributable to Puxin Limited excluding share-based compensation expenses,loss/gain on changes in fair value of convertible notes,derivative liabilities and warrants and loss on extinguishment of convertible notes; and adjusted basic and diluted net loss per ADS attributable to Puxin Limited are defined as basic and diluted net loss per ADS attributable to Puxin Limited excluding share-based compensation expenses,derivative liabilities and warrants and loss on extinguishment of convertible notes.

The Company believes that these non-GAAP financial measures provide useful information about the Company's operating results,enhance the overall understanding of the Company's past performance and future prospects and allow for greater visibility with respect to key metrics used by the Company's management in its financial and operational decision-making.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These non-GAAP financial measures have limitations as analytical tools,and when assessing the Company's operating performance,investors should not consider them in isolation. In addition,calculations of this non-GAAP financial information may be different from calculations used by other companies,and therefore comparability may be limited.

The Company mitigates these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures,all of which should be considered when evaluating our performance.

For more information on this non-GAAP financial measure,please see the table captioned "Reconciliations of GAAP and non-GAAP results" set forth at the end of this press release.

Safe Harbor Statement

This press release contains forward-looking statements made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934,as amended,and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will","expects","anticipates","future","intends","plans","believes","estimates","confident" and similar statements. The Company may also make written or oral forward-looking statements in its reports filed with or furnished to the U.S. Securities and Exchange Commission,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. Any statements that are not historical facts,including statements about the Company's beliefs and expectations,are forward-looking statements that involve factors,risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include,but not limited to the following: its goals and strategies,its ability to achieve and maintain profitability,its ability to attract and retain students to enroll in its courses,its ability to effectively manage its business expansion and successfully integrate businesses it acquired,its ability to identify or pursue targets for acquisitions,its ability to compete effectively against its competitors,its ability to improve the content of its existing courses or to develop new courses,and relevant government policies and regulations relating to the Company's corporate structure,business and industry. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission. All information provided in this press release is current as of the date of the press release,and the Company does not undertake any obligation to update such information,except as required under applicable law.

About Puxin Limited

Puxin Limited ("Puxin" or the "Company") is a successful consolidator of the after-school education industry in China. Puxin has a strong acquisition and integration expertise to effectively improve education quality and operational performance of acquired schools. Puxin offers a full spectrum of K-12 and study-abroad tutoring programs designed to help students achieve academic excellence,as well as prepare for admission tests and applications for top schools,universities and graduate programs in China and other countries. The Company has developed a business model effectively combining strategic acquisitions and organic growth achieved through successful post-acquisition integration,which has differentiated the Company from other after-school education service providers in China. For more information,please visit http://www.pxjy.com/.

Contacts

Puxin Limited

Phone: +86-10-6269-8930

E-mail: ir@pxjy.com

Christensen

In China

Mr. Christian Arnell

Phone: +86-10-5900-1548

E-mail: carnell@christensenir.com

In US

Ms. Linda Bergkamp

Phone: +1-480-614-3004

Email: lbergkamp@christensenir.com

PUXIN LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of RMB and USD,except for share,per share and per ADS data)

As of December 31,

As of September 30,

2017

2018

2018

RMB

RMB

USD

ASSETS

Current assets

Cash and cash equivalents

164,684

684,184

99,619

Inventories

10,408

7,775

1,132

Prepaid expenses and other current assets

132,473

144,633

21,059

Amounts due from related parties

113

-

-

Total current assets

307,678

836,592

121,810

Non-current assets

Restricted cash

24,478

49,619

7,225

Property,plant and equipment,net

221,212

248,406

36,169

Intangible assets

243,927

220,795

32,148

Goodwill

1,152,913

1,171,431

170,565

Deferred tax assets

3,012

7,213

1,050

Rental deposit

55,173

60,615

8,826

TOTAL ASSETS

2,008,393

2,594,671

377,793

LIABILITIES

Current liabilities

Accrued expenses and other current liabilities(including accrued expenses

and other current liabilities of the consolidated VIE without recourse to

the Group of RMB345,100 and RMB396,015as of December 31,2017

and September 30,respectively)

350,446

448,696

65,332

Income tax payable of the consolidated VIE without recourse

to the Group

10,022

12,828

1,868

Deferred revenue,current portion (including deferred revenue,current

portion of the consolidated VIE without recourse to the Group of

RMB906,480 and RMB771,537 as of December 31,2017 and

September 30,respectively)

906,480

783,980

114,150

Amounts due to related parties (including amounts due to related parties

of the consolidated VIE without recourse to the Group of RMB3,836 and

RMB31,699 as of December 31,2017 and September 30,respectively)

3,836

35,133

5,115

Bank borrowing of the consolidated VIE without recourse to the Group

-

37,773

5,500

Promissory notes,current portion of the consolidated VIE without

recourse to the Group

-

193,400

28,160

Total current liabilities

1,270,784

1,511,810

220,125

Non-current liabilities

Deferred revenue,non-current portion of the consolidated VIE without

recourse to the Group

128,890

94,104

13,702

Deferred tax liabilities of the consolidated VIE without recourse

to the Group

77,580

71,591

10,424

Franchise deposits of the consolidated VIE without recourse

to the Group

3,856

1,591

232

Convertible notes (including convertible notes of the consolidated VIE

without recourse to the Group of RMB150,200 and RMB nil as of

December 31,respectively)

499,192

-

-

Promissory note,non-current portion (including promissory note,

non-current portion of the consolidated VIE without recourse to the

Group of RMB nil and RMB nil as of December 31,respectively)

162,658

171,700

25,000

Derivative liabilities (including derivative liabilities of the consolidated

VIE without recourse to the Group of RMB nil and RMB nil as of

December 31,respectively)

18,218

25,412

3,700

Warrant (including warrant of the consolidated

VIE without recourse to the Group of RMB nil and RMB nil as of

December 31,respectively)

-

3,100

451

TOTAL LIABILITIES

2,161,178

1,879,308

273,634

Commitments and Contingencies

MEZZANINE EQUITY

Convertible redeemable preferred shares

120,000

-

-

SHAREHOLDERS' DEFICIT

Ordinary shares (par value of USD0.00005 per share;

100,000,000 and 1,000 shares authorized,

100,000 and 188,627,228 shares issued and

100,000 and 163,323,504 shares outstanding

as of December 31,respectively)

34

62

9

Additional paid-in capital

391,099

1,914,136

278,704

Accumulated other comprehensive income

15,718

26,125

3,804

Accumulated deficit

(679,613)

(1,224,968)

(178,359)

Total Puxin Limited shareholders' deficit

(272,762)

715,355

104,158

Non-controlling interest

(23)

8

1

TOTAL SHAREHOLDERS' DEFICIT

(272,785)

715,363

104,159

TOTAL LIABILITIES,MEZZANINE EQUITY AND TOTAL

SHAREHOLDERS' DEFICIT

2,793

PUXIN LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of RMB and USD,per share and per ADS data)

For the three months ended September 30,

2017

2018

2018

RMB

RMB

USD

Net revenues

418,360

669,664

97,505

Cost of revenues (including share-based compensation expenses of

RMB406 and RMB2,153 for the three months ended September 30,2017 and

2018,respectively)

258,806

374,614

54,545

Gross profit

159,554

295,050

42,960

Operating expenses:

Selling expenses(including share-based compensation expenses of

RMB881 and RMB9,646 for the three months ended September 30,2017

and 2018,respectively)

140,677

237,291

34,550

General and administrative expenses (including share-based

compensation expenses of RMB12,021 and RMB7,486 for the

three months ended September 30,2017 and 2018,respectively)

100,270

118,834

17,302

Total operating expenses

240,947

356,125

51,852

Operating loss

(81,393)

(61,075)

(8,892)

Interest expense

2,150

9,827

1,431

Interest income

53

1,418

206

Loss (Gain)on changes in fair value of convertible notes,derivative

liabilities and warrants

22,795

(20,022)

(2,915)

Losson disposal of subsidiary

-

11

2

Loss before income taxes

(106,285)

(49,473)

(7,204)

Income tax expenses

656

746

109

Net loss

(106,941)

(50,219)

(7,313)

Less: Net loss attributable to non-controlling interest

28

18

3

Net loss attributable to Puxin Limited

(106,969)

(50,237)

(7,316)

Net loss per share attributable to Puxin Limited

Basic and diluted

(1.07)

(0.31)

(0.04)

Net loss per ADS attributable to Puxin Limited

Basic and diluted

(2.14)

(0.62)

(0.08)

Weighted average shares used in calculating basic and diluted net loss

per share

99,849,546

163,504

163,504

Note: Each ADS represents two ordinary shares.

PUXIN LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of RMB and USD)

For the three months ended September 30,

2017

2018

2018

RMB

RMB

USD

Net loss

(106,313)

Other comprehensive loss,net of tax:

Change in cumulative foreign currency translation adjustments

-

(4,308)

(627)

Total comprehensive loss

(106,941)

(54,527)

(7,940)

Less: comprehensive income attributable to non-controlling interest

28

18

3

Total comprehensive loss attributable to Puxin Limited

(106,969)

(54,545)

(7,943)

PUXIN LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of RMB and USD,per share and per ADS data)

For the nine months ended September 30,

2017

2018

2018

RMB

RMB

USD

Net revenues

854,610

1,696,676

247,040

Cost of revenues (including share-based compensation expenses of

RMB747 and RMB5,405 for the ninemonths ended September 30,respectively)

520,416

936,654

136,379

Gross profit

334,194

760,022

110,661

Operating expenses:

Selling expenses(including share-based compensation expenses of

RMB2,177 and RMB20,293 for the ninemonths ended September 30,respectively)

268,283

611,963

89,103

General and administrative expenses (including share-based

compensation expenses of RMB31,779 and RMB304,057 for the

nine months ended September 30,respectively)

220,216

620,954

90,411

Total operating expenses

488,499

1,232,917

179,514

Operating loss

(154,305)

(472,895)

(68,853)

Interest expense

2,150

27,473

4,000

Interest income

509

1,702

247

Loss on changes in fair value of convertible notes,795

96,128

13,997

Loss on extinguishment of convertible notes

-

900

131

Gain on disposal of subsidiary

-

82

12

Loss before income taxes

(178,741)

(595,612)

(86,722)

Income tax expenses (benefits)

1,103

(1,953)

(284)

Net loss

(179,844)

(593,659)

(86,438)

Less: Net loss attributable to non-controlling interest

43

12

2

Net loss attributable to Puxin Limited

(179,887)

(593,671)

(86,440)

Net loss per share attributable to Puxin Limited

Basic and diluted

(1.81)

(4.32)

(0.63)

Net loss per ADS attributable to Puxin Limited

Basic and diluted

(3.62)

(8.64)

(1.26)

Weighted average shares used in calculating basic and diluted net loss

per share

99,648,940

137,560,036

137,036

Note: Each ADS represents two ordinary shares.

PUXIN LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of RMB and USD)

For the nine months ended September 30,

2017

2018

2018

RMB

RMB

USD

Net loss

(179,438)

Other comprehensive income,net of tax:

Change in cumulative foreign currency translation adjustments

-

10,407

1,515

Total comprehensive loss

(179,844)

(583,252)

(84,923)

Less: comprehensive incomeattributable to non-controlling interest

43

12

2

Total comprehensive loss attributable to Puxin Limited

(179,887)

(583,264)

(84,925)

PUXIN LIMITED

RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(In thousands of RMB and USD,

2017

2018

2018

RMB

RMB

USD

Operating loss

(81,892)

Add: Share-based compensation expenses

13,308

19,285

2,808

Adjusted operating loss

(68,085)

(41,790)

(6,084)

Net loss attributable to Puxin Limited

(106,316)

Add: Share-based compensation expense

13,808

Add: Loss on changes in fair value of convertible notes,915)

Adjusted net loss attributable to Puxin Limited

(70,866)

(50,974)

(7,423)

Net loss per ADS attributable to Puxin Limited

- Basic and diluted

(2.14)

(0.62)

(0.08)

Adjusted net loss per ADS attributable to Puxin Limited

- Basic and diluted

(1.42)

(0.62)

(0.08)

Weighted average shares used in calculating basic and diluted

net loss per share

99,504

Note: Each ADS represents two ordinary shares.

PUXIN LIMITED

RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

(In thousands of RMB and USD,

2017

2018

2018

RMB

RMB

USD

Operating loss

(154,853)

Add: Share-based compensation expenses

34,703

329,755

48,013

Adjusted operating loss

(119,602)

(143,140)

(20,840)

Net loss attributable to Puxin Limited

(179,440)

Add: Share-based compensation expense

34,013

Add: Loss on changes in fair value of convertible notes,997

Add: Loss on extinguishment of convertible notes

-

900

131

Adjusted net loss attributable to Puxin Limited

(122,389)

(166,888)

(24,299)

Net loss per ADS attributable to Puxin Limited

- Basic and diluted

(3.62)

(8.64)

(1.26)

Adjusted net loss per ADS attributable to Puxin Limited

- Basic and diluted

(2.46)

(2.43)

(0.35)

Weighted average shares used in calculating basic and diluted

net loss per share

99,036

Note: Each ADS represents two ordinary shares.

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