Meten EdtechX Announces Financial Results for the Third Quarter and the Nine Months ended September 30, 2020
Meten EdtechX Education Group Ltd. reported Q3 2020 revenue of RMB 297.7 million, down 29.6% YoY but up 57.3% QoQ, reflecting improved trading conditions. For 9M 2020, revenue declined by 38.9% YoY to RMB 668.6 million. Net loss narrowed to RMB 39.7 million from RMB 93.4 million in Q2 2020. Cost reductions led to a 13.4% decrease in revenue costs. Online ELT revenue rose by 7% YoY and junior ELT surged 69% from Q2. The company aims for 2021 gross billings of RMB 1.5-1.6 billion, targeting profitable growth as market conditions stabilize.
- Q3 2020 revenue increased by 57.3% QoQ to RMB 297.7 million.
- Online ELT revenue grew 7% YoY to RMB 79.6 million in Q3 2020.
- Junior ELT revenue rose 69% QoQ to RMB 124.1 million.
- Reduction in operating expenses by 39% YoY for 9M 2020.
- Q3 2020 revenue decreased 29.6% YoY.
- Net loss for 9M 2020 increased 294.3% YoY to RMB 234.8 million.
- Overall student enrollment down 46% YoY in Q3 2020.
Strong focus on strategic investment in growth segments, including online and Junior ELT, drives steady recovery in normalizing trading conditions
SHENZHEN, China, Dec. 04, 2020 (GLOBE NEWSWIRE) -- Meten EdtechX Education Group Ltd. (NASDAQ: METX) (“Meten EdtechX” or the “Company”), a leading English language training (“ELT”) service provider in China, today announces its unaudited financial results for the third quarter and the nine months ended September 30, 2020.
| Q3 2020 | 9M 2020 | |||||||||
| RMB (m) | YoY (%) | QoQ1 (%) | RMB (m) | YoY (%) | ||||||
| Gross billings | 228.8 | ( | 514.2 | ( | ||||||
| Revenue | 297.7 | (29.6%) | 57.3% | 668.6 | (38.9%) | |||||
| EBITDA2 | (12.1) | ( | (176.3) | ( | ||||||
| Adjusted EBITDA2 | (9.1) | ( | (168.7) | ( | ||||||
| Net (Loss)/Income | (39.7) | (194.7%) | 52.8% | (234.8) | (294.3%) | |||||
| Adjusted Net (Loss)/Income2 | (36.7) | (184.6%) | (227.3) | (498.4%) | ||||||
Highlights
- Q3 2020 revenue decreased
29.6% year-on-year to RMB 297.7 million (US$ 43.8 million ), but increased by57.3% versus Q2 2020, as trading conditions in the third quarter of 2020 continued to improve in line with a normalized operating environment. 9M 2020 revenue decreased38.9% year-on-year to RMB 668.6 million (US$ 98.5 million ), largely due to the impact of the COVID-19 pandemic during the first half of 2020. - Supported by investments in the online ELT segments and new product development, revenue generation was mainly driven by strong growth in online ELT and junior ELT segments
- Online revenues increased7% year-on-year in Q3 2020 to RMB 79.6 million (US$ 11.7 million ) (Q3 2019: RMB 74.3 million) or25% year-on-year for 9M 2020 to RMB 238.0 million (US$ 34.3 million ) (9M 2019: RMB 189.7 million)
- Q3 2020 junior ELT revenues increased69% compared to Q2 2020 to RMB 124.1 million (US$ 18.3 million ) (Q3 2019: RMB 73.3 million) or1% year-on-year for 9M 2020 to RMB 265.6 million (US$ 39.1 million ) (9M 2019: RMB 263.6 million)
- As of September 30, 2020, Meten EdtechX had 123 learning centers in operation; at the date of this announcement, all learning centers are now fully operational
- A continued strong focus on cost efficiency led to a
13.4% reduction in the cost of revenues year-on-year, and a39% decline in operating expenses year-on-year for 9M 2020; as a result of this, the Company was able to partially mitigate the negative effect of the COVID-19 pandemic on its profitability - Q3 2020 adjusted EBITDA declined to a loss of RMB 9.1 million (US
$ 1.3 million ) and decreased by72.2% compared to Q2 2020; 9M 2020 adjusted EBITDA recorded a loss of RMB 168.7 million (US$ 24.8 million ) - Q3 2020 net loss narrowed significantly against the previous quarter to RMB 39.7 million (US
$ 5.8 million ), compared with a profit of RMB 42.0 million in Q3 2019 and a net loss of RMB 93.4 million in Q2 2020; 9M 2020 net loss increased294.3% year-on-year to RMB 234.8 million (US$ 34.6 million ) - For Q3 2020, net operating cash outflow was RMB 69.7 million (US
$ 10.3 million ), compared to an inflow of RMB 56.5 million in Q3 2019 and an outflow of RMB 69.9 million in Q2 2020
Alan Peng, Chief Executive Officer of Meten EdtechX commented:
“The third quarter of 2020 provided further signs of post-pandemic recovery in our markets and the normalization of trading conditions allowed us to, once again, fully leverage our omnichannel ELT business model and active new product development.
The strong growth in our revenues compared to the second quarter of 2020 reflects continued positive momentum in our online ELT business, as well as an accelerated recovery in our junior ELT segment. The fact that our network of learning centers is now fully operational, along with decisive action taken to streamline our operations during 2020, we believe we are well-positioned to deliver profitable growth going forward.
Despite the challenges and losses incurred in 2020, we continue to strongly believe that China remains fundamentally a high growth market for the ELT sector. In addition to leveraging our strong competitive position and strategic footprint across the highly-attractive tier 2, 3 and 4 cities to deliver organic growth, we look forward to playing an active role in further consolidation in the ELT, K12 and future skills training industries in China and Asia more generally.”
Operational developments
| Q3 2020 | 9M 2020 | |||
| Student enrollments | 18,305 | ( | 44,535 | ( |
| Course withdrawal rate(1) (%) | 1.4 ppts | 0.6 ppts | ||
(1) Refers to the amount of refunds issued in a specific period of time as a percentage of the sum of the amount of gross billings and the amount of refunds for such period.
| June 30, 2020 | September 30, 2020 | |||
| Number of self-operated learning centers | 112 | ( | 110 | (1.8%)* |
| Number of franchised learning centers | 16 | ( | 13 | (18.8%)* |
(* Change compared to previous quarter)
Student enrollment supported by growth in online and junior ELT segments
Overall student enrollment during the third quarter of 2020 benefited from the positive trends in online and junior ELT segments, as the Company leveraged cross-selling opportunities provided by the re-opening of its learning centers.
As of September 30, 2020, the number of registered users for online courses increased by
Gross billings declined by
Gross billings for junior ELT for Q3 2020 increased by
For the first nine months of 2020, gross billings decreased by
Offline network fully operational
During the third quarter of 2020, the Company continued to gradually re-open its learning centers in accordance with the applicable regulatory guidance in the PRC. As of the date of this announcement, all of Meten EdtechX’s 123 learning centers (including 110 self-operated learning centers) are fully operational. The operation of the learning centers remains subject to continuous social distancing measures and cleaning protocols to ensure enhanced hygiene levels.
Continued product innovation
Meten EdtechX continued to invest in product development during the third quarter of 2020, leveraging the recently launched several new products across both its offline and online platforms. These include three new language (Japanese, Spanish and Korean; Spanish and Korean will officially launch in December 2020) products, K12 junior products and the “BiGao” exam preparatory product for middle schoolers.
Efficiency enhanced through streamlining of operations
During the COVID-19 pandemic, the Company has made considerable efforts to reduce its operating costs, aiming to achieve approximately RMB 180 million (US
Financial results
Revenues
In Q3 2020, revenues amounted to RMB 297.7 million (US
Cost of revenues
The Company’s cost of revenues consists primarily of staff costs, property expenses, depreciation and amortization, and other costs which primarily include consulting fees, foreign teacher-related administrative expenses, and teaching materials costs.
In Q3 2020, cost of revenues decreased by
Gross profit
In Q3 2020, gross profit decreased by
Gross profit margin decreased by 11 percentage points in Q3 2020 to
Operating expenses
Selling and marketing expenses in Q3 2020 amounted to RMB 85.4 million (US
Research and development expenses in Q3 2020 decreased by
General and administrative expenses in Q3 2020 increased to RMB 94.0 million (US
Loss from operations
In Q3 2020, loss from operations was RMB 59.8 million (US
For the first nine months of 2020, loss from operations was RMB 254.7 million (US
Net income / loss
In Q3 2020, net loss was RMB 39.7 million (US
For the first nine months of 2020, net loss was RMB 234.8 million (US
Cash flow
Net operating cash outflow for Q3 2020 was RMB 69.7 million (US
Capital expenditure for Q3 2020 was RMB 3.6 million (US
Capital expenditure for the first nine months of 2020 was RMB 12.3 million (US
Cash and cash equivalents
As of September 30, 2020, Meten EdtechX had RMB 129.2 million (US
Outlook
Assuming no resurgence of the COVID-19 pandemic in China, and taking into account recent positive developments relating to the COVID-19 vaccines and the continuous recovery of China’s economy, Meten EdtechX expects its trading and profitability to gradually return to pre-pandemic levels over the course of 2021. While this remains partially dependent on the pace at which the adult ELT market recovers, the Company’s gross billing target for FY 2021 is expected to be within the range of RMB 1.5-1.6 billion (representing a return to pre-pandemic level), approximately 40
The Company is currently aiming for EBITDA of RMB 200 million and net profit of RMB 120 million for the FY 2021, respectively.
Meten EdtechX continues to see a compelling case for consolidation in the ELT, K12 and future skills training in China and Asia more generally, and will continue to selectively consider merger and joint venture opportunities.
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” or “US$”) at specified rates solely for the convenience of the readers. Unless otherwise noted, all translations from RMB to USD for the third quarter and the first nine months of 2020 are made at the rate of RMB 6.7896 to US
About Non-GAAP Financial Measures
Meten EdtechX’s consolidated financial results presented are in accordance with GAAP. However, to provide meaningful supplemental information regarding its performance, Meten EdtechX adopts the following measures which are defined as non-GAAP financial measures by the SEC:
- EBITDA: calculated by subtracting net interest income/loss and adding back income tax expense and non-cash expense of depreciation and amortization to a firm's net income/(loss).
- Adjusted EBITDA: calculated by removing certain one-off, irregular and/or non-recurring items from EBITDA such as offering expenses and share-based compensation expenses.
- Adjusted net (loss)/income: calculated by adding back certain one-off, irregular and/or non-recurring items to net income/loss such as offering expenses and 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.
Results Presentation
The Company’s management team will host a conference call at 07:00 EST / 12:00 GMT / 20:00 CST on Monday, December 07, 2020, to discuss the financial results.
Dial-in details for the conference call are as follows:
| Mainland China: | 400 810 8228 |
| Hong Kong: | +852 3005 1355 |
| USA: | +1 646 254 3594 |
| UK: | +44 20 7660 0166 |
| Other countries: | +86 10 5808 4166 |
| Participant PIN: | 324469 |
Participants should dial-in at least 5 minutes before the scheduled start time.
For investor and media enquiries, please contact:
Citigate Dewe Rogerson
meten@citigatedewerogerson.com
+44 (0)20 7025 6400
About Meten EdtechX
Meten EdtechX is a leading ELT service provider in China, delivering English language and future skills training for Chinese students and professionals. Through a sophisticated digital platform and nationwide network of learning centers, the Company provides its services under three industry-leading brands: Meten (adult and junior ELT services), ABC (primarily junior ELT services) and Likeshuo (online ELT). It offers superior teaching quality and student satisfaction, which are underpinned by cutting edge technology deployed across its business, including AI-driven centralized teaching and management systems that record and analyze learning processes in real time.
The Company is committed to improving the overall English language competence and competitiveness of the Chinese population to keep abreast of the rapid development of globalization. Its experienced management is focused on further developing its digital platform and expanding its network of learning centers to deliver a continually evolving service offerings to a growing number of students across China.
Safe Harbor Statement
This 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,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the outlook for the fourth quarter of fiscal year 2020 and full fiscal year 2020 and 2021, quotations from management in this announcement, as well as the Company’s strategic and operational plans (in particular, the impact of the COVID-19 outbreak on our businesses, the solutions we adopted to mitigate the effects of the outbreak, the impact on our financial performance, the anticipated benefits of strategic growth initiatives and the balancing growth and profitability), the benefits of the Company’s 2019 investments and recent acquisitions, as well as our four key growth strategies, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its reports filed or furnished to the U.S. Securities and Exchange Commission, in its annual reports 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 the Company’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: the impact of the COVID-19 outbreak, our ability to attract students without a significant decrease in course fees; our ability to continue to hire, train and retain qualified teachers; our ability to maintain and enhance our “Meten” brand; our ability to effectively and efficiently manage the expansion of our school network and successfully execute our growth strategy; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; competition in the English language training sector in China; changes in our revenues and certain cost or expense items as a percentage of our revenues; the expected growth of the Chinese English language training and private education market; Chinese governmental policies relating to private educational services and providers of such services; health epidemics and other outbreaks in China; and general economic conditions in China. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of this press release, and the Company undertakes no duty to update such information, except as required under applicable law.
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth in this press release is preliminary and subject to adjustments. Adjustments to the financial statements may be identified when audit work is performed for the year-end audit, which could result in significant differences from this preliminary unaudited financial information.
Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures, which are different from financial measures calculated in accordance with U.S. GAAP. Such non-GAAP financial measures should be considered in addition to and not as a substitute for or superior to the financial measures calculated in accordance with U.S. GAAP. In addition, the definition of adjusted EBITDA and adjusted net income/loss in this press release may be different from the definition of such terms used by other companies, and therefore, comparability may be limited.
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (In thousands of RMB and USD, except for per share data) | |||
| As of December 31, | As of September 30, | ||
| 2019 | 2020 | ||
| RMB'000 | RMB'000 | US$'000 | |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 140,132 | 129,161 | 19,023 |
| Short-term investments | - | 80,851 | 11,908 |
| Contract assets | 7,824 | 6,135 | 904 |
| Accounts receivable | 28,903 | 40,822 | 6,012 |
| Other contract costs | 54,088 | 45,003 | 6,628 |
| Prepayments and other current assets | 64,790 | 53,419 | 7,868 |
| Amounts due from related parties | 9,662 | 1,860 | 274 |
| Prepaid income tax | 12,265 | 16,430 | 2,420 |
| Total current assets | 317,664 | 373,681 | 55,037 |
| Non-current assets | |||
| Restricted cash | 11,599 | 10,835 | 1,596 |
| Other contract costs | 10,114 | 9,555 | 1,407 |
| Equity method investments | 26,084 | 29,526 | 4,349 |
| Property and equipment, net | 220,118 | 152,756 | 22,499 |
| intangible assets | 24,968 | 20,745 | 3,055 |
| Deferred tax assets | 4,200 | 4,564 | 672 |
| Goodwill | 302,158 | 274,567 | 40,439 |
| Right-of-use assets | 484,225 | 356,860 | 52,560 |
| Other non-current assets | 62,435 | 46,212 | 6,806 |
| Total non-current assets | 1,145,901 | 905,620 | 133,383 |
| Total assets | 1,463,565 | 1,279,301 | 188,420 |
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (In thousands of RMB and USD, except for per share data) | ||||||
| As of December 31, | As of 30 September, | |||||
| 2019 | 2020 | |||||
| RMB'000 | RMB'000 | US$'000 | ||||
| LIABILITIES, MEZZANINE EQUITY AND OWNERS’ DEFICIT | ||||||
| Current liabilities | ||||||
| Accounts payable | 15,714 | 20,064 | 2,955 | |||
| Bank loans | 92,000 | 129,500 | 19,073 | |||
| Deferred revenue | 408,287 | 338,819 | 49,903 | |||
| Salary and welfare payable | 74,139 | 69,742 | 10,272 | |||
| Financial liabilities from contracts with customers | 490,095 | 380,808 | 56,087 | |||
| Accrued expenses and other payables | 48,457 | 73,592 | 10,839 | |||
| Income taxes payable | 495 | 13947 | 2,054 | |||
| Current lease liabilities | 142,155 | 135,360 | 19,936 | |||
| Amounts due to related parties | 851 | 53,358 | 7,859 | |||
| Total current liabilities | 1,272,193 | 1,215,190 | 178,978 | |||
| Non-current liabilities | ||||||
| Deferred revenue-Non current | 60,528 | 46,480 | 6,846 | |||
| Deferred tax liabilities | 14,085 | 7,817 | 1,151 | |||
| Non current tax payable | 26,085 | 28,441 | 4,189 | |||
| Lease liabilities | 333,613 | 251,248 | 37,005 | |||
| Total non-current liabilities | 434,311 | 333,986 | 49,191 | |||
| Total liabilities | 1,706,504 | 1,549,176 | 228,169 | |||
| Mezzanine equity | ||||||
| Redeemable Owners’ Investment | - | - | - | |||
| Owners’ deficit | ||||||
| Owners’ Investment | 219 | 37 | 5 | |||
| Subscriptions Receivable from founding shareholders | (2 | ) | (1 | ) | (0 | ) |
| Additional paid-in capital | 264,175 | 472,214 | 69,550 | |||
| Statutory reserve | - | - | - | |||
| Accumulated other comprehensive income | - | - | - | |||
| Accumulated deficit | (525,262 | ) | (768,791 | ) | (113,231 | ) |
| Total deficit attributable to owners of Company | (260,870 | ) | (296,541 | ) | (43,676 | ) |
| Non-controlling interests | 17,931 | 26,666 | 3,927 | |||
| Total deficit | (242,939 | ) | (269,875 | ) | (39,749 | ) |
| Commitments and contingencies | - | - | - | |||
| Total liabilities, mezzanine equity and owners' deficit | 1,463,565 | 1,279,301 | 188,420 | |||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of RMB and USD, except for per share data) | |||||||||||||
| 2019 | 2020 | ||||||||||||
| Q3 2019 | 9M 2019 | Q3 2020 | 9M 2020 | ||||||||||
| RMB'000 | RMB'000 | RMB'000 | US$'000 | RMB'000 | US$'000 | ||||||||
| Revenues | 422,924 | 1,094,967 | 297,735 | 43,852 | 668,644 | 98,481 | |||||||
| Cost of revenues | (198,494 | ) | (558,775 | ) | (171,835 | ) | (25,309 | ) | (452,610 | ) | (66,662 | ) | |
| Gross profit | 224,430 | 536,192 | 125,900 | 18,543 | 216,034 | 31,819 | |||||||
| Operating expenses: | |||||||||||||
| Selling and marketing expenses | (98,974 | ) | (323,254 | ) | (85,365 | ) | (12,573 | ) | (224,831 | ) | (33,114 | ) | |
| General and administrative expenses | (73,323 | ) | (256,382 | ) | (93,998 | ) | (13,844 | ) | (224,413 | ) | (33,052 | ) | |
| Research and development expenses | (7,874 | ) | (25,365 | ) | (6,305 | ) | (929 | ) | (21,487 | ) | (3,165 | ) | |
| (Loss)/income from operations | 44,259 | (68,809 | ) | (59,768 | ) | (8,803 | ) | (254,697 | ) | (37,512 | ) | ||
| Other income (expenses): | |||||||||||||
| Interest income | 266 | 677 | 74 | 11 | 356 | 52 | |||||||
| Interest expenses |
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FAQ
What were Meten EdtechX's Q3 2020 financial results?
In Q3 2020, Meten EdtechX reported revenue of RMB 297.7 million, a 29.6% decrease YoY but a 57.3% increase QoQ.
How did the COVID-19 pandemic impact Meten EdtechX's revenue?
The company experienced a 38.9% decline in revenue for the first nine months of 2020 primarily due to the COVID-19 pandemic.
What is Meten EdtechX's outlook for 2021?
Meten EdtechX expects gross billings for FY 2021 to be between RMB 1.5-1.6 billion as trading conditions normalize.
What is the net loss reported by Meten EdtechX for 9M 2020?
The net loss for the first nine months of 2020 increased to RMB 234.8 million, a 294.3% rise YoY.
Which segments drove revenue growth for Meten EdtechX?
Revenue growth was mainly driven by the online ELT and junior ELT segments during Q3 2020.
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