LAIX Inc. Announces Second Quarter 2021 Unaudited Financial Results

Author: LAIX Inc. / 2023-07-23 23:29 / Source: LAIX Inc.

LAIX Inc. Announces Second Quarter 2021 Unaudited Financial Results

SHANGHAI,Aug. 27,2021 --LAIX Inc. ("LAIX" or the "Company") (NYSE: LAIX),an artificial intelligence (AI) company in China that creates and delivers products and services to popularize English learning,today announced its unaudited financial results for the second quarter ended June 30,2021.

Second Quarter 2021Financial and Operating Highlights

Net income for the second quarter of 2021 was RMB14.0 million (US$2.2 million),compared with a net income of RMB12.2 million for the previous quarter and a net loss of RMB92.5 million for the same quarter last year.

Gross margin for the second quarter of 2021 was 80.4%,compared with 77.6% for the previous quarter and 71.9% for the same quarter last year.

Gross billings[1] for the second quarter of 2021 were RMB138.6 million (US$21.5 million),a 10.2% decrease from RMB154.4 million for the previous quarter and a 54.7% decrease from RMB306.2 million for the same quarter last year.

Sales and marketing expenses for the second quarter of 2021 were RMB88.9 million (US$13.8 million),a 4.3% decrease from RMB92.9 million for the previous quarter and a 55.7% decrease from RMB200.7 million for the same quarter last year.

Operating cash outflow for the second quarter of 2021 was RMB35.1 million (US$5.4 million),compared with RMB57.3 million for the previous quarter and RMB66.4 million for the same quarter last year.

Approximately 0.2 million paying users purchased the Company's courses and services for the second quarter of 2021,compared with approximately 0.3 million paying users for the previous quarter and approximately 0.5 million paying users for the same quarter last year,primarily attributable to the Company's stringent cost control in user acquisition expenditures.

[1]"Gross billings" for a certain period refer to the total amount of cash received from the sale of course packages in that period net of the total amount of cash refunds paid to users in the same period.

Management Comments

Dr. Yi Wang,Chairman and Chief Executive Officer of LAIX,commented,"We are pleased to have achieved another solid set of quarterly results,thanks to our dedication and relentless efforts to enhance our operating leverage and improve profitability. The gross margin and net income for the second quarter 2021 further grew to 80.4% and RMB14.0 million,up from 77.6% and RMB12.2 million,respectively,in the previous quarter."

"During the second quarter,our new growth initiatives,including enterprise learning services and international expansion,continued to make solid progress and are expected to drive meaningful user traffic and new revenue streams. We also remain fully committed to leveraging our proprietary AI technology and expanding product portfolio to provide superior value to all of our users while also exploring more opportunities in the non-language learning sector such as quality education and vocational education.We believe our operational strategy and diversified product portfolio will help us deliver long-term value to all stakeholders," Dr. Wang concluded.

Second Quarter 2021Financial Results

Net Revenues

Net revenues for the second quarter of 2021 were RMB179.5 million (US$27.8 million),a 9.6% decrease from RMB198.5million for the previous quarter and a 33.4% decrease from RMB269.4 million for the same quarter last year. The quarter-over-quarter decrease was primarily attributable to a decrease in gross billings caused by the decrease of paying users.

Cost of Revenues

Cost of revenues for the second quarter of 2021 was RMB35.2 million (US$5.5million),a 20.7%decrease from RMB44.4 million for the previous quarter and a 53.5%decrease from RMB75.6million for the same quarter last year. The quarter-over-quarter decrease was primarily due to the decrease insalaries and welfare for full-time employees,and reduced spending on IT service fee and content-related costs.

Gross Profit and Gross Margin

Gross profit for the second quarter of 2021 was RMB144.3 million (US$22.3 million),a 6.4% decrease from RMB154.1million for the previous quarter and a25.5% decrease from RMB193.8million for the same quarter last year.

Gross margin for the second quarter of 2021was 80.4%,compared with 77.6% for the previous quarter and 71.9% for the same quarter last year.

Operating Expenses

Total operating expenses for the second quarter of 2021 were RMB137.1 million (US$21.2 million),a 5.7% decrease from RMB145.4 million for the previous quarter and a 52.7% decrease from RMB289.7million for the same quarter last year. The decreases were primarily due to the cost control strategy and improvement in operating efficiency.

Research and development expenses for the second quarter of 2021 were RMB26.3 million(US$4.1 million),a 22.0% decrease from RMB33.7 million for the previous quarter and a 45.8% decrease from RMB48.5 million for the same quarter last year. The decreaseswere primarily due tothe savings in salaries and staff benefits attributable to efficiency improvement in personnel management and the decrease in share-based compensation.

General and administrative expenses for the second quarter of 2021 were RMB22.0 million (US$3.4 million),a 17.2% increase from RMB18.7million for the previous quarter and a 45.7% decrease from RMB40.5 million for the same quarter last year. The quarter-over-quarter increase was primarily due toimpairment losses on gift goods and textbooks for kids in light of the potential impact by the recent regulationregarding after-school tutoring for K-12 students.

(Loss)/income from Operations

Income from operations for the second quarter of 2021was RMB12.2 million (US$1.9 million),compared with an income from operations of RMB12.8 million for the previous quarter and a loss from operations of RMB95.9 million for the same quarter last year.

Foreign exchange related gains/(losses),net

Foreign exchangegain was RMB1.3million (US$0.2million) in the second quarter of 2021,compared with a foreign exchange loss of RMB0.9million for the previousquarter and a foreign exchange gain of RMB0.1 million for the same quarter last year.

Net (loss)/income

Adjusted EBITDA[2]for the second quarter of 2021was RMB24.6 million (US$3.8 million),compared with an adjusted EBITDA of RMB25.3million for the previous quarter and an adjusted EBITDA loss of RMB77.8 million for the same quarter last year.

Adjusted net income[3]for the second quarter of 2021 was RMB19.0million (US$2.9million),compared with an adjusted net income of RMB19.0million for the previous quarter and an adjusted net loss of RMB85.3 million for the same quarter last year.

Basic and diluted net income per ordinary share attributable to ordinary shareholders for the second quarter of 2021was RMB0.28(US$0.04),compared with basic and diluted net income per ordinary share attributable to ordinary shareholders of RMB0.24 for the previous quarter and basic and diluted net loss per ordinary share attributable to ordinary shareholders of RMB1.87 for the same quarter last year.

[2] "Adjusted EBITDA" is a non-GAAP measure,which represents EBITDA before share-based compensation expenses. EBITDA represents net (loss)/income before interest,tax,depreciation and amortization. See "Reconciliations of GAAP and Non-GAAP Results" at the end of this press release.

[3] "Adjusted net (loss)/income" is a non-GAAP measure,which excludes share-based compensation expenses. See "Reconciliation of GAAP and Non-GAAP Results" at the end of this press release.

Balance Sheet & Cashflows

As of June 30,2021,the Company's cash,cash equivalents,restricted cash and short-term investments amounted to RMB133.4 million (US$20.7million),compared with RMB172.6 million as of March 31,2021 and RMB229.6million as of December 31,2020.

As of June 30,the Company's deferred revenueandlong-termdeferred revenue amounted toRMB638.1million (US$98.8 million),compared with RMB687.4million as of March 31,2021 and RMB746.2million as of December 31,2020.

Net cash used in operating activities were RMB35.1 million (US$5.4 million) and RMB66.4million for the three months period ended June 30,2021 and 2020,respectively. As of June 30,the Company's total shareholders' deficit was RMB676.3 million (US$104.7 million) and the current liabilities exceeded the current assets by RMB708.2 million (US$109.7 million).

The Company's liquidity to meet its future working capital is based on its ability to enhance user engagement and retention by offering higher quality and diversified courses after the consideration of the uncertainty impacted by the recent regulation changes on education industry,while optimizing traffic acquisition strategy to efficiently control and reduce user related costs. The Company will further preserve liquidity and manage cash flows by reducing various discretionary expenditure including labor costs and other operating expenses. The Company's liquidity is also based on its ability to obtain capital financing from equity or debt investors. Currently,the Company believes that it has sufficient cash to fund operations forat leastthe next 12 months with the implementation of the above mentioned measures.

Recent Developments

Preliminary non-binding going private proposal

On August 4,the board of directors of the Company (the "Board") received a preliminary non-binding proposal letter from Dr. Yi Wang,co-founder,chairman of the Board and chief executive officer of the Company,Mr. Zheren Hu,director and chief technology officer of the Company,Dr. Hui Lin,director and chief scientist of the Company (collectively,the "Founders"),and PCIL IV Limited (together with its affiliated investment entities,"Primavera," and together with the Founders,the "Buyer Group"),to acquire all of the outstanding ordinary shares of the Company (the "Ordinary Shares"),including the Class A ordinary shares represented by the American Depositary Shares of the Company (the "ADSs," each representing one Class A ordinary share) that are not already held by the Buyer Group for a proposed purchase price of US$1.13 per Ordinary Share or ADS in cash (the "Proposed Transaction"). On August 6,the Board formed a special committee (the "Special Committee") consisting of two independent directors,Dr. Li-Lan Cheng,who serves as the chairman of the Special Committee,and Ms. Min (Jenny) Zhang,to evaluate and consider the Proposed Transaction. On August 17,the Special Committee retained Houlihan Lokey (China) Limited as its financial advisor and Kirkland & Ellis as its U.S. legal counsel in connection with its review and evaluation of the Proposed Transactions.

The Board cautions the Company's shareholders and others considering trading the Company's securities that the Special Committee is continuing its evaluation of the Proposed Transaction and other strategic alternatives of the Company and that,at this time,no decisions have been made by the Special Committee with respect to the Company's response to the Proposed Transaction. There can be no assurance that any definitive offer will be received,that any definitive agreement will be executed relating to the Proposed Transaction,or that the Proposed Transaction or any other similar transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to any transaction,except as required under applicable law.

New regulations regarding after-school tutoring and other relevant mattersOn July 24,China's official state media,including Xinhua News Agency and China Central Television,announced the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education (the "Opinion"),issued by the General Office of the CPC Central Committee and the General Office of the State Council. The Opinion contains high-level policy directives about requirements and restrictions related to after-school tutoring services,including,among others,(i) no approval will be granted to new institutions providing after-school tutoring services on academic subjects to students at China's compulsory education stage ("Academic AST Institutions"),existing Academic AST Institutions need to be registered as non-profit institutions,and an approval mechanism will be adopted for online Academic AST Institutions; (ii) Academic AST Institutions are prohibited from raising funds through public market or capitalization; (iii) listed companies are prohibited from raising capital to invest in Academic AST Institutions; (iv) foreign stake in Academic AST Institutions is prohibited,including through contractual arrangement. Academic AST Institutions in violation of the above restrictions need to take rectification measures. The Opinion further provides that Academic AST Institutions are prohibited from providing online tutoring services to pre-school children,or providing tutoring services on academic subjects in compulsory education during public holidays,weekends and school breaks; and Academic AST Institutions must follow the pricing guidance to be established by relevant authorities. Administration on institutions providing after-school tutoring services on academic subjects in high schools (which do not fall within China's compulsory education system) shall take into consideration the Opinion for reference. Besides,on July 29,the General Office of the Ministry of Education issued the Notice on Further Clarifying the Scope of Academic Subjects and Non-academic Subjects with respect to After-School Tutoring Services in the stage of Compulsory Education,which categorizes English tutoring services involving contents of courses contained in national curriculum standards as tutoring services on academic subjects.The Company is an artificial intelligence company in China that creates and delivers products and services to popularize English learning for all-age groups. The majority of the Company's products and services,such as English Liulishuo and Liuli Reading,are designed to target adults,mostly college students and professionals,while only a limited portion of the Company's products and services target kids of three to twelve years old ("K-12 Students"). Furthermore,the products and services the Company delivers to K-12 Students primarily aim to enhancing their reading,hearing and speaking abilities instead of providing English tutoring services on content contained in national curriculum standards. However,as the Opinion is newly issued and only provides high-level policies on Academic AST Institutions,there are substantial uncertainties as to how the Opinion will be interpreted and implemented and to what extent the Opinion would be applicable to us. The Company is closely monitoring the latest regulatory development and carefully assessing its implications on the Company's business,especially the Opinion's impact on the Company's English learning services related to K-12 Students. The Company will continue to make all necessary efforts to comply with all applicable rules and regulations,including those to be adopted following the policy directives of the Opinion and proactively seek guidance from the government authorities in this respect.About LAIX Inc. LAIX Inc. ("LAIX" or the "Company") is an artificial intelligence (AI) company in China that creates and delivers products and services to popularize English learning. Its proprietary AI teacher utilizes cutting-edge deep learning and adaptive learning technologies,big data,well-established education pedagogies and the mobile internet. LAIX believes its innovative approach fundamentally transforms learning. LAIX provides its products and services on demand via its mobile apps,primarily its flagship "English Liulishuo" mobile app launched in 2013. On the Company's platform,AI technologies are seamlessly integrated with diverse learning content incorporating well-established language learning pedagogies,gamified features and strong social elements to deliver an engaging,adaptive learning experience. LAIX provides a variety of courses inspired by a broad range of topics and culture themes to make English learning more interesting and is committed to offering a fun,interactive learning environment to motivate and engage its users.For more information,please visit: http://ir.laix.com.Use of Non-GAAP Financial MeasuresThe Company uses adjusted EBITDA and adjusted net (loss)/income,each a non-GAAP financial measure,in evaluating its operating results and for financial and operational decision-making purposes.The Company believes that adjusted EBITDA and adjusted net (loss)/income help identify underlying trends in its business that could otherwise be distorted by the effect of certain expenses that the Company includes in (loss)/income from operations and net (loss)/income. The Company believes that adjusted EBITDA and adjusted net (loss)/income provide useful information about its results of operations,enhance the overall understanding of its past performance and future prospects and allow for greater visibility with respect to key metrics used by the management of the Company in its financial and operational decision-making.Adjusted EBITDA and adjusted net (loss)/income should not be considered in isolation or construed as an alternative to (loss)/income from operations,net (loss)/income or any other measure of performance or as an indicator of the Company's operating performance. Investors are encouraged to review the historical non-GAAP financial measures to the most directly comparable GAAP measures. Adjusted EBITDA and adjusted net (loss)/income presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently,limiting their usefulness as comparative measures to our data. The Company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.Exchange Rate InformationThis 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 Renminbi to U.S. dollars are made at a rate of RMB6.4566to US$1.00,the rate in effect as of June 30,2021 published by the Federal Reserve Board.Safe Harbor StatementThis announcement contains forward-looking statements. These statements are made under 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," "confident," "potential," "continue" or other similar expressions. Among other things,the quotations from management in this announcement,as well as LAIX's strategic and operational plans,contain forward-looking statements. LAIX may also make written or oral forward-looking statements in its periodic reports 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. Statements that are not historical facts,including but not limited to statements about LAIX's beliefs and expectations,are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties,and a variety of factors could cause actual results to differ materially from those contained in any forward-looking statement,including but not limited to the following: LAIX's goals and strategies; LAIX's future business development,results of operations and financial condition; the expected growth of the education market; LAIX's ability to monetize the user base; fluctuations in general economic and business conditions in China; PRC governmental policies,laws and regulations relating to the Company's industry; the potential impact of the COVID-19 to LAIX's business operations and the economy in China and elsewhere generally; and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Company's filings with the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of the press release,and the Company undertakes no duty to update such information,except as required under applicable law.For investor and media inquiries,please contact: LAIX Inc.

Investor Relations

Email: ir@laix.comThe Piacente Group Investor Relations

Brandi Piacente

Tel: +1-212-481-2050

Email: liulishuo@tpg-ir.comEmilie Wu

Tel: +86-21-6039-8363

Email: liulishuo@tpg-ir.comLAIX INC. UNAUDITED CONSOLIDATED BALANCE SHEETS (Amount in thousands of Renminbi ("RMB") and US dollars ("US$"))

As of

December 31,2020

June 30,2021

RMB

US$

ASSETS

Current assets:

Cash and cash equivalents137,996

118,991

18,429

Restricted cash511

551

Short-term investments91,049

13,907

2,154

Accounts receivable,net5,892

4,916

761

Prepayments and other current assets58,272

40,729

6,308

Total current assets 293,720

179,094

27,737

Non-currentassets:

Property and equipment,net30,074

23,808

3,687

Investment in equity fund5,711

5,654

876

Intangible assets,net14,341

10,751

1,665

Operating lease right-of-use assets,net82,488

55,605

8,612

Other non-current assets5,866

4,779

740

Deferred tax assets13,547

13,547

2,098

Total non-current assets 152,027

114,144

17,678

Total assets 445,747

293,238

45,415

LIABILITIES

Current liabilities:

Accounts payable83,576

65,632

10,165

Deferred revenue689,325

599,262

92,814

Salary and welfare payable132,433

96,253

14,908

Tax payable77,327

78,745

12,196

Operating lease liability,current31,845

25,974

4,023

Accrued liabilities and other current liabilities19,382

21,468

3,324

Total current liabilities 1,033,888

887,334

137,430

Non-current liabilities:

Deferred revenue,non-current56,905

38,862

6,019

Operating lease liability,903

34,744

5,381

Other non-current liabilities10,614

8,551

1,324

Total non-current liabilities 124,422

82,157

12,724

Total liabilities 1,158,310

969,491

150,154

Shareholders' deficit

Class A Ordinary shares212

214

Class B Ordinary shares121

121

Subscriptions Receivable from shareholders(201)

(299)

(46)

Treasury Stock(15,327)

(15,327)

(2,374)

Additional paid-in capital1,198,852

1,211,305

187,607

Accumulated other comprehensive income10,256

8,032

1,244

Accumulated deficit(1,906,476)

(1,880,299)

(291,222)

Total shareholders' deficit(712,563)

(676,253)

(104,739)

Total liabilities and shareholders' deficit445,415

LAIX INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME(Amount in thousands of Renminbi ("RMB") and US dollars ("US$")except for number of shares and per share data)

Three months ended

Six months ended

June 30

March 31

June 30

2020

2021

2020

2021

RMB

RMBUS$

RMB

RMBUS$

Net revenues

269,405

198,544

179,46427,795

497,743

378,00858,546Cost of revenues

(75,646)

(44,418)

(35,205)(5,453)

(154,445)

(79,623)(12,332)Gross profit

193,759

154,126

144,25922,342

343,298

298,38546,214Operating expenses:

Sales and marketing expenses

(200,726)

(92,926)

(88,899)(13,769)

(465,466)

(181,825)(28,161)Research and development expenses

(48,482)

(33,710)

(26,280)(4,070)

(107,701)

(59,990)(9,291)General and administrative expenses

(40,461)

(18,741)

(21,958)(3,401)

(62,600)

(40,699)(6,303)Total operating expenses

(289,669)

(145,377)

(137,137)(21,240)

(635,767)

(282,514)(43,755)

Other operating income

4,097

5,072786

9,1691,420

(Loss)/income from operations

(95,885)

12,846

12,1941,888

(292,426)

25,0403,879Other income/(expenses):

Interest income/(expenses)

366

(1,430)

(1,159)(180)

1,049

(2,589)(401)Foreign exchange related gains/(losses),net

140

(948)

1,317204

(2,179)

36957Change in fair value of short-term investment

806

1,323

335Investment income

493

771119

1,264196Other income,net

2,098

1,169

971150

2,780

2,140331

(Loss)/income before income taxes expenses

(92,475)

12,159

14,0982,182

(289,453)

26,2574,067Income tax expenses

(28)

(80)(12)

(57)

(80)(12)

Net (loss)/income

(92,503)

12,0182,170

(289,510)

26,1774,055

Net (loss)/income attributable to LAIX Inc.'s

ordinary shareholders

(92,055LAIX INC.UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME(Amount in thousands of Renminbi ("RMB") and US dollars ("US$")except for number of shares and per share data)

Three months ended

Six months ended

June 30

March 31

June 30

2020

2021

2020

2021

RMB

RMBUS$

RMB

RMBUS$

Net (loss)/income

(92,055Other comprehensive (loss)/income

—Foreign currency translation adjustment,net of nil tax

(385)

1,049

(3,273)(507)

6,391

(2,224)(344)Comprehensive (loss)/income

(92,888)

13,208

10,7451,663

(283,119)

23,9533,711

Net (loss)/income per Class A and Class B

ordinary shares

—Basic

(1.87)

0.24

0.280.04

(5.87)

0.530.08—Diluted

(1.87)

0.24

0.280.04

(5.87)

0.520.08Weighted average number of Class A and Class B

ordinary shares used in per share calculation

—Basic

49,337,462

49,637,358

50,053,53950,539

49,348,103

49,846,69049,690—Diluted

49,462

50,242,298

50,18350,183

49,103

50,243,48250,482LAIX INC.Reconciliation of GAAP and Non-GAAP Results(Amount in thousands of Renminbi ("RMB") and US dollars("US$")except for percentage data)

Three months ended

Six months ended

June 302020

March 312021

June 302021

June 302020

June 302021

RMB

RMBUS$

RMB

RMBUS$

Net (loss)/income(92,055Add: