Puxin Limited Announces Third Quarter 2020 Unaudited Financial Results

BEIJING, Nov. 19, 2020 /PRNewswire/ -- 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, 2020.

Highlights for the Third Quarter Ended September 30, 2020

• Net revenues were RMB833.2 million (US$122.7 million), a decrease of 16.3% from RMB996.0 million in the third quarter of 2019.
• Net income was RMB42.4 million (US$6.3 million), an increase of 25.7% from RMB33.7 million in the third quarter of 2019.
• EBITDA[1] was RMB77.5 million (US$11.4 million), an increase of 9.4% from RMB70.8 million in the third quarter of 2019.
• Net income attributable to Puxin Limited was RMB43.5 million (US$6.4 million), an increase of 28.9% from RMB33.7 million in the same period of 2019.
• Adjusted net income attributable to Puxin Limited[2] was RMB8.6 million (US$1.3 million), a decrease of 80.3% from RMB43.5 million in the third quarter of 2019.
• Student enrollments increased by 28.7% to 1,122,167 from 871,896 for the third quarter of 2019.

Highlights for the Nine Months Ended September 30, 2020

• Net revenues were RMB2,185.6 million (US$321.9 million), a decrease of 2.6% from RMB2,244.6 million for the nine months ended September 30, 2019.
• Net income was RMB33.7 million (US$5.0 million), compared to net loss of RMB409.6 million for the nine months ended September 30, 2019.
• EBITDA was RMB145.4 million (US$21.4 million), compared to RMB(280.9) million for the nine months ended September 30, 2019.
• Net income attributable to Puxin Limited was RMB36.6 million (US$5.4 million), compared to net loss attributable to Puxin Limited of RMB409.7 million for the nine months ended September 30, 2019.
• Adjusted net income attributable to Puxin Limited was RMB79.2 million (US$11.7 million), compared to net loss attributable to Puxin Limited of RMB91.0 million for the nine months ended September 30, 2019.
• Student enrollments increased by 45.9% to 2,917,116 from 1,999,075 for the nine months ended September 30, 2019.

Mr. Yunlong Sha, Chairman and Chief Executive Officer of Puxin, commented, "Although the COVID-19 impact continued in some cities during July and August, we still managed to achieve solid growth in the third quarter. Notably, we have established the international education business unit, strategically consolidating our language exam preparation services and study-abroad consulting services. Our competitive edge around ZMN Education and Global Education remains strong while a streamlined operation not only reduced cost, but also elevated efficiency. The new business unit has successfully bolstered our service quality and our ability to capture additional market share through integrating our different brands internally. At the meantime, our K-12 business remains the business focus of the group, and we have improved our profitability significantly despite of the COVID-19 impact. We will continue to invest in improving teaching quality and learning experience to maintain our firm position as industry leader in the K-12 after-school tutoring space."

Mr. Peng Wang, Chief Financial Officer of Puxin, commented, "Although the summer break was much shorter this year due to the COVID-19 pandemic, we were able to achieve net income and EBITDA year-over-year growth of 25.7% and 9.4%, respectively. This is a direct beneficiary of our improved operations and implementation of the Online-Merge-Offline strategy. For the three quarters of this year, our net income was RMB33.7 million, and our EBITDA was RMB145.4 million. Furthermore, based on the semi-annual report published by MSCI on November 10, 2020, we have been included in the MSCI Global Small Cap Index – MSCI China Index for the first time. This is a recognition of our operational excellence and our value proposition, which will fuel our continued growth in the capital markets and deliver long-term, sustained value to our shareholders and investors."

Financial and Operational Results for the Third Quarter Ended September 30, 2020

Net Revenues

Net revenues decreased by 16.3% to RMB833.2 million (US$122.7 million) from RMB996.0 million in the third quarter of 2019. This decrease was primarily due to the adverse impact of the COVID-19 pandemic on the demand for study-abroad tutoring services.

Net revenues of K-12 tutoring services increased by 1.0% to RMB609.3 million (US$89.7 million) from RMB603.2 million in the third quarter of 2019. In the third quarter of 2020, the student enrollments of K-12 tutoring services, including group class, personalized tutoring and full-time tutoring services, reached 827,685.

Net revenues of Puxin Online School increased to RMB32.5 million (US$4.8 million) from RMB7.2 million in the same period of 2019. Student enrollments of Puxin Online School were 283,598 in the third quarter of 2020.

Net revenues of study-abroad tutoring services decreased by 50.4% to RMB191.4 million (US$28.2 million) from RMB385.6 million in the third quarter of 2019. This was primarily due to a continued impact from the global spread of the COVID-19 pandemic in major countries of the world. However, net revenues of study-abroad tutoring service had an increase of 21.6% compared to the second quarter of 2020.

Cost of Revenues

Cost of revenues decreased by 14.6% to RMB422.6 million (US$62.2 million) from RMB494.6 million in the third quarter of 2019, primarily due to a decrease in staff cost which reflected the decreased demand for study-abroad services attributable to the COVID-19 pandemic. Cost of revenues, excluding share-based compensation expenses, decreased by 14.5% to RMB422.1 million (US$62.2 million) from RMB493.6 million in the third quarter of 2019.

Gross Profit and Gross Margin

Gross profit was RMB410.6 million (US$60.5 million), a decrease of 18.1% from RMB501.5 million in the third quarter of 2019. Gross margin was 49.3%, compared to 50.3% for the same period in 2019.

Operating Expenses

Total operating expenses decreased by 7.7% to RMB424.6 million (US62.5 million) from RMB459.9 million in the third quarter of 2019.

Selling expenses increased by 4.0% to RMB317.0 million (US$46.7 million) from RMB304.8 million in the third quarter of 2019. Selling expenses, excluding share-based compensation expenses, increased by 4.7% to RMB313.9 million (US$46.2 million) from RMB299.9 million in the third quarter of 2019, primarily due to our increased marketing and promotion activities during the third quarter of 2020 to further increase student enrollments.

General and administrative expenses decreased by 30.7% to RMB107.6 million (US$15.8 million) from RMB155.1 million during the same period of 2019. General and administrative expenses, excluding share-based compensation expenses, decreased by 30.3% to RMB104.7 million (US$15.4 million) from RMB150.3 million in the third quarter of 2019. The decreases were primarily due to our cost control measures to improve operation efficiency.

Total share-based compensation expenses allocated to related cost of revenues and operating expenses decreased by 39.5% to RMB6.5 million (US$1.0 million) from RMB10.7 million in the third quarter of 2019. The decrease was primarily due to a decrease in the number of options vested in the third quarter of 2020 compared to the same period of 2019.

Operating Income (Loss) and Operating Margin

Operating loss was RMB13.9 million (US$2.1 million), compared to operating income of RMB41.5 million in the third quarter of 2019. Operating margin was (1.7)% in the third quarter of 2020, compared to 4.2% for the same period in 2019.

Operating income of K-12 tutoring services decreased by 6.5% to RMB54.0 million (US$8.0 million) from RMB57.8 million in the same period of 2019. Operating margin of K-12 tutoring services was 8.9%, slightly dropped from 9.6% in the same period of 2019.

Adjusted operating loss[3] was RMB7.5 million (US$1.1 million), compared to adjusted operating income of RMB52.2 million in the third quarter of 2019.

Adjusted operating margin[4] was (0.9)%, compared to 5.2% in the same period of the prior year.

Net Income

Net income was RMB42.4 million (US$6.3 million), an increase of 25.7% from RMB33.7 million in the third quarter of 2019.

Net income of K-12 tutoring services increased by 93.4% to RMB99.5 million (US$14.7 million) from RMB51.5 million in the third quarter of 2019.

Net income attributable to Puxin Limited was RMB43.5 million (US$6.4 million), an increase of 28.9% from RMB33.7 million in the same period of 2019. Basic and diluted net income per ADS attributable to Puxin Limited were RMB0.50 (US$0.08) and RMB0.48 (US$0.08), compared to basic and diluted net income per ADS attributable to Puxin Limited of RMB0.38 and RMB0.38 during the same period of 2019.

Adjusted net income attributable to Puxin Limited was RMB8.6 million (US$1.3 million), a decrease of 80.3% from RMB43.5 million in the third quarter of 2019. Adjusted basic and diluted net income per ADS attributable to Puxin Limited[5] were RMB0.1 (US$0.01) and RMB0.1 (US$0.01), compared to adjusted basic and diluted net income per ADS attributable to Puxin Limited of RMB0.50 and RMB0.49 during the same period of 2019.

EBITDA

EBITDA was RMB77.5 million (US$11.4 million), an increase of 9.4% from RMB70.8 million in the third quarter of 2019.

EBITDA margin[6] was 9.3% in the third quarter of 2020, compared to 7.1% in the same period in 2019.

Adjusted EBITDA[7] was RMB42.5 million (US$6.3 million), a decrease of 47.2% from RMB80.6 million in the third quarter of 2019.

Adjusted EBITDA margin[8] was 5.1%, compared to 8.1% in the same period in 2019.

Financial and Operational Results for the Nine Months Ended September 30, 2020 

Net Revenues

Net revenues were RMB2,185.6 million (US$321.9 million), a decrease of 2.6% from RMB2,244.6 million for the nine months ended September 30, 2019. This decrease was primarily due to the adverse impact of the COVID-19 pandemic on the demand for study-abroad tutoring services.

Net revenues of K-12 tutoring services increased by 15.0% to RMB1,552.3 million (US$228.6 million) from RMB1,349.9 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the student enrollments of K-12 tutoring services, including group class, personalized tutoring and full-time tutoring services, reached 1,992,759.

Net revenues of Puxin Online School significantly increased by 558.3% to RMB79.5 million (US$11.7 million) from RMB12.1 million for the nine months ended September 30, 2019. Student enrollments of Puxin Online School were 890,664 for the nine months ended September 30, 2020.

Net revenues of study-abroad tutoring services decreased by 37.3% to RMB553.8 million (US$81.6 million) from RMB882.6 million for the nine months ended September 30, 2019. This was primarily due to a continued impact from the global spread of the COVID-19 pandemic in major countries of the world.

Cost of Revenues

Cost of revenues decreased by 0.8% to RMB1,154.2 million (US$170.0 million) from RMB1,163.0 million for the nine months ended September 30, 2019, primarily due to a decrease in staff cost which reflected the decreased demand for study-abroad services attributable to the COVID-19 pandemic. Cost of revenues, excluding share-based compensation expenses, decreased by 0.6% to RMB1,152.4 million (US$169.7 million) from RMB1,159.5 million for the nine months ended September 30, 2019.

Gross Profit and Gross Margin

Gross profit was RMB1,031.4 million (US$151.9 million), a decrease of 4.6% from RMB1,081.6 million for the nine months ended September 30, 2020. Gross margin was 47.2%, compared to 48.2% for the nine months ended September 30, 2019.

Operating Expenses

Total operating expenses decreased by 20.7% to RMB1,067.5 million (US$157.2 million) from RMB1,345.3 million for the nine months ended September 30, 2019.

Selling expenses decreased by 1.5% to RMB757.7 million (US$111.6 million) from RMB769.2 million for the nine months ended September 30, 2019. Selling expenses, excluding share-based compensation expenses, decreased by 0.6% to RMB747.4 million (US$110.1 million) from RMB751.8 million for the nine months ended September 30, 2019, primarily due to a decrease in sales staff's performance-based compensation attributable to decreased demand for our study-abroad services caused by the COVID-19 pandemic, which was partially offset by increased marketing expenses attributable to marketing and promotion activities for our online business.

General and administrative expenses decreased by 46.2% to RMB309.8 million (US$45.6 million) from RMB576.2 million during the same period of 2019. General and administrative expenses, excluding share-based compensation expenses, decreased by 20.2% to RMB300.2 million (US$44.2 million) from RMB376.2 million for the nine months ended September 30, 2019. The decreases were primarily due to our cost control measures to improve operation efficiency.

Total share-based compensation expenses allocated to related cost of revenues and operating expenses decreased by 90.2% to RMB21.6 million (US$3.2 million) from RMB220.8 million for the nine months ended September 30, 2019. The decrease was primarily due to a decrease in the number of options vested in the first nine months of 2020 compared to the same period of 2019.

Operating Loss and Operating Margin

Operating loss decreased by 86.3% to RMB36.1 million (US$5.3 million) from an operating loss of RMB263.7 million for the nine months ended September 30, 2019. Operating margin was (1.7)% compared to (11.7)% for the same period in 2019.

Operating income of K-12 tutoring services was RMB140.0 million (US$20.6 million) compared to an operating loss of RMB22.7 million in the same period of 2019. Operating margin of K-12 tutoring services improved to 9.0% from (1.7)% in the same period of 2019. 

Adjusted operating loss decreased by 66.3% to RMB14.4 million (US$2.1 million) from an adjusted operating loss of RMB42.9 million for the nine months ended September 30, 2019.

Adjusted operating margin was (0.7)%, compared to (1.9)% in the same period of the prior year.

Net Income (Loss)

Net income was RMB33.7 million (US$5.0 million), compared to a net loss of RMB409.6 million for the nine months ended September 30, 2019.

Net income of K-12 tutoring services was RMB219.0 million (US$32.3 million), compared to net loss of RMB116.0 million for the nine months ended September 30, 2019.

Net income attributable to Puxin Limited was RMB36.6 million (US$5.4 million), compared to a net loss attributable to Puxin Limited of RMB409.7 million for the nine months ended September 30, 2019. Basic and diluted net income per ADS attributable to Puxin Limited were RMB0.42 (US$0.06) and RMB0.42 (US$0.06), compared to basic and diluted net loss per ADS attributable to Puxin Limited of RMB4.82 and RMB4.82 during the same period of 2019.

Adjusted net income attributable to Puxin Limited was RMB79.2 million (US$11.7 million), compared to an adjusted net loss attributable to Puxin Limited of RMB91.0 million for the nine months ended September 30, 2019. Adjusted basic and diluted net income per ADS attributable to Puxin Limited were RMB0.91 (US$0.13) and RMB0.89 (US$0.13), compared to adjusted basic and diluted net loss per ADS attributable to Puxin Limited of RMB1.07 and RMB1.07 during the same period of 2019.

EBITDA

EBITDA was RMB145.4 million (US$21.4 million), compared to RMB(280.9) million for the nine months ended September 30, 2019.

EBITDA margin was 6.7% for the nine months ended September 30, 2020, compared to (12.5)% in the same period in 2019

Adjusted EBITDA was RMB188.0 million (US$27.7 million), an increase of 396.7% from RMB37.8 million for the nine months ended September 30, 2019.

Adjusted EBITDA margin was 8.6%, compared to 1.7% in the same period in 2019.

Cash and Current Bank Balances

As of September 30, 2020, the Company had an aggregate amount of cash and cash equivalents and the current portion of restricted cash of RMB560.1 million (US$82.5 million), compared to RMB606.3 million as of December 31, 2019. The current portion of restricted cash consisted primarily of deposits with Chinese commercial banks as collateral for our bank borrowings within one-year term.

Business Outlook

For the fourth quarter ended December 31, 2020, based on the information available as of the date of this press release, the Company expects net revenues to be between RMB730.4 million and RMB773.4 million, which represents a decrease of 15% to 10% 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 19, 2020, at 7:00 AM U.S. Eastern Time (or 8:00 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
Mainland 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 November 26, 2020 by dialing the following numbers:

International:        +1-412-317-0088
US:                       +1-877-344-7529
Passcode:            10149922

A live webcast and archive of the conference call will be available on the Investor Relations section of Puxin's website at https://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" or "US$") at specified rates solely for the convenience of the readers. Unless otherwise noted, all translations from RMB to USD are made at the rate of RMB 6.7896 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on September 30, 2020. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2020 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 income (loss), adjusted operating margin, adjusted net income (loss) attributable to Puxin Limited, EBITDA, adjusted EBITDA, EBITDA margin, adjusted EBITDA margin, adjusted basic and diluted net income (loss) per ADS attributable to Puxin Limited, as supplemental measures to review and assess the Company's operating performance. Adjusted operating income (loss) is defined as operating income (loss) excluding share-based compensation expenses; adjusted operating margin is defined as adjusted operating income (loss) divided by net revenues; adjusted net income (loss) attributable to Puxin Limited is defined as net income (loss) attributable to Puxin Limited excluding share-based compensation expenses and gain (loss) on changes in fair value of derivative liabilities; EBITDA is defined as net income (loss) excluding depreciation, amortization, interest expense, interest income and income tax expenses (benefits); adjusted EBITDA is defined as net income (loss) excluding depreciation, amortization, interest expense, interest income, income tax expenses (benefits), share-based compensation expenses and gain (loss) on changes in fair value of derivative liabilities; EBITDA margin is defined as EBITDA divided by net revenues; adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenues; adjusted basic and diluted net income (loss) per ADS attributable to Puxin Limited are defined as basic and diluted net income (loss) per ADS attributable to Puxin Limited excluding share-based compensation expenses and gain (loss) on changes in fair value of derivative liabilities.

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," "may," "would," "expect," "anticipate," "future," "intend," "aim," "plan," "believe," "estimate," "predict," "project," "continue," "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 (NYSE: NEW, "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 https://www.pxjy.com/.

Contacts

Puxin Limited
Phone: +86-10-6269-8930
E-mail: ir@pxjy.com

ICA (Institutional Capital Advisory)
Mr. Kevin Yang
Phone: +86-21-8028-6033
E-mail: puxin@icaasia.com