GSX Techedu : Second Quarter 2020 Financial Results

GSX Announces Second Quarter 2020 Unaudited Financial Results

• The Company maintains over 350% YoY net revenues growth, along with 8th consecutive quarter of continued profitability

Beijing, September 2, 2020 /PR Newswire/ - GSX Techedu Inc. (NYSE: GSX) ("GSX" or the "Company"), a leading online K-12large-classafter-school tutoring service provider in China, today announced its unaudited financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights1

• Net revenues was RMB1,650.3 million, a 366.6% year-over-year increase.
• • Net revenues of online K-12 courses increased 412.4% year-over-year to RMB1,385.0 million.
• Gross billings2 was RMB2,401.0 million, a 300.6% year-over-year increase.
• • Gross billings of online K-12 courses increased 335.5% year-over-year to RMB2,196.1 million.
• Paid course enrollments3 increased 331.7% year-over-year to 1,567 thousand.
• • Paid course enrollments of online K-12 increased 366.0% year-over-year to 1,496 thousand.
• Net income increased 13.4% year-over-year to RMB18.6 million.
• Non-GAAPnet income increased 133.0% year-over-year to RMB72.7 million.
• Net operating cash inflow increased 172.4% year-over-year to RMB528.0 million.

Second Quarter 2020 Key Financial and Operating Data

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

	Three Months Ended June 30,
	2019		2020			Pct. Change
Net revenues4	353,679	1,650,314		366.6%
K-12 courses	270,267	1,384,968		412.4%
Foreign language, professional and interest	76,985	260,371		238.2%
Gross billings5	599,373	2,400,996		300.6%
K-12 courses	504,281	2,196,077		335.5%
Foreign language, professional and interest	85,286	202,392		137.3%
Paid course enrollments (In thousands)	363	1,567		331.7%
K-12 courses	321	1,496		366.0%
Foreign language, professional and interest	42	71		69.0%
Net income	16,374	18,627		13.4%
Non-GAAP net income	31,235	72,712		133.0%
Net operating cash inflow	193,840	527,999		172.4%

1

2

3

4

5

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

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

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

The breakdown does not include amount generated from other services because it is negligible. The breakdown does not include amount generated from other services because it is negligible.

1

Six Months Ended June 30, 2020 Highlights

• Net revenues was RMB2,947.9 million, a 373.3% year-over-year increase.
• • Net revenues of online K-12 increased 427.8% year-over-year to RMB2,505.1 million.
• Gross billings was RMB3,775.4 million, a 319.7% year-over-year increase.
• • Gross billings of online K-12 increased 342.2% year-over-year to RMB3,286.7 million.
• Paid course enrollments increased 323.3% year-over-year to 2,341 thousand.
• • Paid course enrollments of online K-12 increased 350.2% year-over-year to 2,143 thousand.
• Net income increased 231.2% year-over-year to RMB166.6 million.
• Non-GAAPnet income increased 282.4% year-over-year to RMB263.5 million.
• Net operating cash inflow increased 149.9% year-over-year to RMB645.7 million.

First Six Months of 2020 Key Financial and Operating Data

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

	Six Months Ended June 30,
	2019		2020			Pct. Change
Net revenues	622,834	2,947,894		373.3%
K-12 courses	474,577	2,505,057		427.8%
Foreign language, professional and interest	137,625	434,557		215.8%
Gross billings	899,468	3,775,395		319.7%
K-12 courses	743,347	3,286,669		342.2%
Foreign language, professional and interest	139,782	481,705		244.6%
Paid course enrollments (In thousands)	553	2,341		323.3%
K-12 courses	476	2,143		350.2%
Foreign language, professional and interest	77	198		157.1%
Net income	50,265	166,615		231.2%
Non-GAAP net income	68,948	263,453		282.4%
Net operating cash inflow	258,449	645,730		149.9%

Larry Xiangdong Chen, GSX's founder, Chairman and CEO, commented, "Against the backdrop of a successful containment of COVID-19in China, GSX has delivered another robust quarter with net revenues hitting a record, benefiting from a focused strategy and distinguished organizational capability. Our net revenues and gross billings both maintained over 4 times year-over-yeargrowth for another quarter. Our K-12courses' net revenues, in particular, has been growing fivefold year-over-year,further solidifying our position among the top-tierplayers. We are thrilled to see the growth of paid course enrollment has accelerated to 332% year-over-year,from 259% in the prior year. Coupled with the high-speedgrowth, we remained profitable for the eighth consecutive quarter and non-GAAPprofitable for the ninth consecutive quarter. Moreover, we generated net operating cash inflow of RMB527,999 thousand, a 172.4% increase year-over-year,thanks to the exceptional student retention in the Spring. We plan to execute a profitable growth strategy for the whole year, and we will make efforts to prioritize investments in high ROI traffic acquisition channels, focus on an online live large-classeducation business model, and continually enhance our organizational capabilities. As a leading player in the online education industry, we will remain humble and down-to-earth,to redefine the online live large-classto a format that delivers the quality of a large class, the learning experience of a small class, and the feelings and effects of a one-on-oneclass."

2

Shannon Shen, CFO of GSX, added, "Our graduates achieved outstanding results in the recently administered Chinese high school and college entrance exams, a testament to GSX's superior education quality. This summer vacation provided an unprecedented opportunity for online education companies. On the one hand, the pandemic deepened parents' adoption and understanding of the value of online education. On the other hand, industry leaders are increasingly reaping the benefits from market status and business scale. Resource allocation and customer acquisition strategy for this summer will not only impact the second half of 2020, but also place a solid foundation to mid-to-long term business development. The first-mover advantage is critical for success, and we strategically front-loaded investments in recruitment and training of instructors and tutors, technical support and traffic acquisition for the third quarter. Meanwhile, we executed the share repurchase program upon approval of the Board. This program reflects management's focus on generating long-term value for shareholders, and marks the confidence we have in the Company's long-term growth potential."

Financial Results for the Second Quarter of 2020

Net Revenues

Net revenues reached RMB1,650.3 million, a 366.6% increase from RMB353.7 million in the second quarter of 2019. The increase was mainly driven by the growth in paid course enrollments for K-12 courses. The number of online K-12 paid course enrollments increased 366.0% year-over-year to 1,496 thousand, which was contributed by both first-time paid course enrollments and retention of existing students. The increase in first time paid course enrollments was primarily driven by our effective investment in sales and marketing efforts and the increase in retention was primarily driven by high teaching quality and optimized services that we provided.

Cost of Revenues

Cost of revenues rose 256.4% to RMB360.7 million from RMB101.2 million in the second quarter of 2019, mainly due to the increase in compensation for instructors and tutors, learning materials, rental expenses, as well as server and bandwidth costs.

Gross Profit

Gross profit increased 410.8% to RMB1,289.7 million from RMB252.5 million in the second quarter of 2019. Gross profit margin increased to 78.1% from 71.4% in the same period of 2019, primarily as a result of economies of scale.

Non-GAAP gross profit increased 408.1% to RMB1,305.4 million from RMB256.9 million in the same period of 2019. Non-GAAP gross profit margin increased to 79.1% from 72.6% in the same period of 2019.

Operating Expenses

Operating expenses were RMB1,450.4 million, increasing from RMB236.3 million in the second quarter of 2019.

Selling expenses increased to RMB1,204.8 million from RMB169.0 million in the second quarter of 2019. The increase was primarily a result of higher marketing expenses to expand the user base and enhance our brands, as well as an increase in compensation to sales and marketing staff.

3

Research and development expenses increased 240.4% to RMB139.9 million, from RMB41.1 million in the second quarter of 2019. The increase was primarily due to an increase in the number of course professionals and technology development personnel, as well as an increase in compensation for such staff.

General and administrative expenses increased to RMB105.7 million from RMB26.1 million in the second quarter of 2019. The increase in general and administrative expenses was mainly due to an increase in the number of general and administrative personnel, an increase in compensation paid to general and administrative staff, and an increase in fees for investigation purpose.

Income (Loss) from Operations

Loss from operations was RMB160.8 million, compared with income from operations of RMB16.2 million in the second quarter of 2019. The decrease was primarily due to higher investment in sales and marketing activities to extend volume growth and strengthen brand perception.

Non-GAAP loss from operations was RMB106.7 million, compared with income from operations of RMB31.1 million in the second quarter of 2019.

Interest Income and Realized Gains from Investment

Aggregation of interest income and realized gains from investments this quarter, representing the income received from cash, cash equivalents, short-term and long-term wealth management investments, increased 505.0% to RMB24.2 million, from RMB4.0 million in the second quarter of 2019. This increase was primarily due to an increase of cash, cash equivalents and short-term wealth management investments, as well as the realization of gains generated from short-term and long-term wealth management investment during this quarter.

Other Income

Other income increased to RMB87.7 million, from RMB91.0 thousand in the second quarter of 2019. The increase was primarily due to the value-added tax exemption offered by the government, partially offset by the related cost, during the COVID-19 outbreak, which amounted to RMB88.8 million, net of other expenses amounted to RMB1.1 million.

Net Income

Net income increased to RMB18.6 million, from RMB16.4 million in the second quarter of 2019.

Non-GAAP net income increased to RMB72.7 million, from RMB31.2 million in the second quarter of 2019.

Cash Flow

Net operating cash inflow for the second quarter of 2020 was RMB528.0 million, a 172.4% increase from RMB193.8 million in the second quarter of 2019. Further, an installment of RMB22.3 million of the Zhengzhou properties purchases, along with payments for other capital expenditures amounted to RMB76.0 million, were made during the period.

4