China Online Education Group (COE) Tops Q2 EPS by 14c, Revenues Beat

China Online Education Group (NYSE: COE) reported Q2 EPS of $0.25, $0.14 better than the analyst estimate of $0.11. Revenue for the quarter came in at $69.8 million versus the consensus estimate of $67.36 million.

Second Quarter 2020 Financial and Operating Highlights

• Net revenues were RMB493.5 million (US$69.8 million), a 40.0% increase from RMB352.6 million for the second quarter of 2019.
• Gross margin was 70.9%, compared with 69.5% for the second quarter of 2019.
• GAAP net income was RMB32.8 million, representing GAAP net margin of 6.6%, compared with GAAP net loss RMB33.2 million and GAAP net margin of negative 9.4% for the second quarter of 2019.
• Non-GAAP net income was RMB39.6million, representing non-GAAP net margin of 8.0% compared with non-GAAP net loss RMB27.6 million and non-GAAP net margin of negative 7.8% for the second quarter of 2019.
• Operating cash inflow was RMB172.1 million (US$24.4 million), compared with RMB99.2 million operating cash inflow for the second quarter of 2019.
• Cash, cash equivalents, time deposits and short-term investments balance reached RMB1,426.7 million (US$201.9 million) as of June 30, 2020.
• Gross billings[1] were RMB676.4 million (US$95.7 million), a 35.7% increase from RMB498.5 million for the second quarter of 2019, the highest year-over-year growth rate since the first quarter of 2018.

"We extended our outstanding performance by delivering another quarter of robust across-the-board results in the second quarter," said Mr. Jack Jiajia Huang, Founder, Chairman and Chief Executive Officer of 51Talk. "These results were fueled by the continued optimization of our K-12 one-on-one mass market strategy in non-tier-one cities[3] as well as the overall growing market awareness and acceptance of online education brought about by the effects of the COVID-19 pandemic. Financial highlights of the second quarter include our net revenues increasing 40.0% year-over-year to reach RMB493.5 million, a figure 5.0% above the high end of our guidance. Net revenues from our core K-12 one-on-one mass market offerings increased 61.0% year-over-year to reach RMB417.9 million. Furthermore, our gross billings reached RMB676.4 million, growing 35.7% year-over-year and recording the highest growth rate since the first quarter of 2018. Our K-12 one-on-one mass market gross billings grew 46.4% year-over-year to RMB612.5 million, accounting for 90.6% of our total gross billings.

"Operationally, our teams continued to execute well and capture market opportunities. We grew our number of second quarter active students by 27.8% year-over-year. To augment our K-12 offerings, we recently launched brand new Level-K courses for kindergarten students aged 3 to 5, aiming to broaden our student base and build good study habits from a young age through our platform. We also held tournaments for our flagship China Youth Talk speech contest between April and August. This high-profile event attracted more than 500,000 K-12 aged contestants from across the country and showcased the achievements among some of the most talented youth. In the second quarter we embarked on a brand uplift effort in the Philippines to further burnish our already strong appeal among existing and potential instructors. A highlight of this campaign is the appointment of Ms. Pia Wurtzbach, a former Miss Universe with strong popularity among our target instructor demographic, as our brand ambassador in the Philippines. With her appointment and our continuous promotion efforts, we further strengthened our leadership position in online education and effectively promoted teaching careers at 51Talk for Filipinos with high English proficiency, passion for teaching, and familiarity with the Chinese culture.

"Additionally, I am pleased to announce that on September 2, at the K-12 Online Education Service and Evaluation Standard conference, we presented the first-ever enterprise standards. The standards were also recently published through the Standard Platform of the Standardization Administration of China. During the conference, we signed the K-12 Online Education Industry Self-discipline Convention, together with representatives from six other companies. Through strengthened self-disciplinary actions, these companies strive to lead by example in areas such as curriculum creation, class duration, foreign teacher selection, and tuition prepayment, amongst several others. Furthermore, we, along with other business representatives, experts and scholars kicked off a process to establish an evolving and formal K-12 Online Education Service and Evaluation Standard. This would be an important step forward in the maturity of our industry and the standardization of the service scope and requirements for K-12 online education enterprises."In summary, we are proud of our second quarter achievements both financially and operationally. The firm\'s organizational foundation built over the years, coupled with our sharp strategic focus in the K-12 one-on-one mass market in non-tier-one cities, has helped us emerge today in a stronger, better position. As we move into the second half of 2020, I look forward to continuing to execute on our mission, bringing our strong value proposition to the market and delivering long-term benefit to all our stakeholders," concluded Mr. Huang.

"I'm pleased to report another strong quarter marked by both continued top-line growth and robust profitability driven by our strategy to pursue healthy growth while keeping a close eye on operational efficiencies," said Mr. Min Xu, Chief Financial Officer of 51Talk. "During the second quarter, we achieved Non-GAAP net income of RMB39.6 million, as our net revenues and gross billings continued to expand. Excluding the RMB17.9 million favorable impact of government-related COVID-19 relief benefits received in the second quarter, our non-GAAP net profit margin would have been 4.4%, compared with a non-GAAP net margin of negative 7.8% for the second quarter of 2019. We are pleased to record operating cash inflow, a key metric of our financial health, of RMB172.1 million. Another highlight of the quarter was our successful follow-on public offering, which further strengthened our balance sheet and stimulated investor interest. I am confident that the Company is on the right track for continued growth and profitability."

For earnings history and earnings-related data on China Online Education Group (COE) click here.

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