EX-99.1 2 tm2325589d2_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

Gravitas Education Holdings, Inc. Reports First Half 2023 Financial Results

 

BEIJING, September 8, 2023 -- Gravitas Education Holdings, Inc. (“GEHI” or the “Company”) (NYSE: GEHI), a leading early childhood education service provider in China and Singapore, today announced its unaudited financial results for the first half of 2023.

 

The Company’s Acquisition of eLMTree and Divestiture of its PRC Business

 

The Company announced on April 18, 2023, that it has entered into an agreement and plan of merger (the “Merger Agreement”), dated April 18, 2023, with Bright Sunlight Limited, a Cayman Islands exempted company and a direct, wholly owned subsidiary of the Company (the “Merger Sub”), Best Assistant Education Online Limited, a Cayman Islands exempted company (“Best Assistant”) and a controlled subsidiary of NetDragon Websoft Holdings Limited (HKEX: 0777, “NetDragon”), a Cayman Islands exempted company, and solely for purposes of certain named sections thereof, NetDragon. It is contemplated that Best Assistant will transfer the education business of NetDragon outside of the PRC to Elmtree Inc., a Cayman Islands exempted company limited by shares (“eLMTree”) and currently a wholly owned subsidiary of Best Assistant. Pursuant to the Merger Agreement, Merger Sub will merge with and into eLMTree with eLMTree continuing as the surviving company and becoming a wholly owned subsidiary of the Company (the “Merger”).

 

Concurrent with the execution of the Merger Agreement, the Company has entered into a share purchase agreement (the “Divestiture Agreement”) with Rainbow Companion, Inc. (the “Divestiture Purchaser”), a purchaser consortium formed by Joy Year Limited, Bloom Star Limited, Ascendent Rainbow (Cayman) Limited (and its affiliates), Trump Creation Limited and China Growth Capital Limited. Pursuant to the Divestiture Agreement, immediately prior to the Closing, the Company will transfer all its education business in China to the Divestiture Purchaser (the “Divestiture”). Upon completion of the Divestiture, the Company will cease to operate any education business in China.

 

As the Company will divest its China business, the Company’s China operations and its associated assets and liabilities have been reclassified as discontinued operations in the financial results. After the Divestiture, the Company’s Singapore operations and its associated assets and liabilities will continue to remain with the Company. As the Merger has not closed, the financial information of eLMTree is not included in the Company’s financial results for the first six months of 2023. For the unaudited pro forma condensed combined financial information which presents the combined financial information of the Company following the Divestiture and eLMTree after giving effect to the Merger, please refer to the proxy statement for extraordinary general meeting of the Company that was included in our current report on Form 6-K filed with the Securities and Exchange Commission on July 31, 2023.

 

First Six Months of 2023 Financial Results

 

·Net revenues from continuing operations were US$18.0 million, compared with US$15.3 million for the first six months of 2022.

 

·Gross profit from continuing operations was US$2.7 million, compared with US$1.0 million for the first six months of 2022.

 

 

 

 

·Net loss from continuing operations attributable to ordinary shareholders of GEHI for the first six months of 2023 was US$2.2 million, compared with US$1.1 million for the same period of 2022. Adjusted net loss from continuing operations attributable to ordinary shareholders1 of GEHI for the first six months of 2023 was US$2.1 million, compared with US$1.0 million for the same period of 2022.

 

Net loss attributable to ordinary shareholders of GEHI for the first six months of 2023 was US$4.5 million, compared with US$26.8 million of net income attributable to ordinary shareholders of GEHI for the same period of 2022. Adjusted net loss attributable to ordinary shareholders1 of GEHI for the first six months of 2023 was US$4.1 million, compared with US$27.3 million of adjusted net income attributable to ordinary shareholders1 of GEHI for the same period of 2022.

 

First Six Months of 2023 Financial Results

 

Net Revenues from Continuing Operations

 

Net revenues from continuing operations for the first six months of 2023 were US$18.0 million, an increase of 17.9% from US$15.3 million for the same period of 2022.

 

Revenues from kindergarten services from continuing operations for the first six months of 2023 were US$9.5 million, an increase of 18.5% from US$8.0 million for the same period last year. The increase in our revenues generated from kindergarten services was primarily due to a 3.3% increase in the average number of students from 1,412 to 1,459, and a 14.7% increase in the average tuition and fees from US$933 to US$1,070 during the comparison periods.

 

Revenues from student care center services from continuing operations for the first six months of 2023 were US$7.8 million, an increase of 17.1% from US$6.7 million for the same period last year. The increase in our revenues generated from student care center services was primarily due to a 18.5% increase in the average number of students from 5,757 to 6,820.

 

Revenues from franchise services from continuing operations for the first six months of 2023 were US$0.7 million, an increase of 18.1% from US$0.6 million for the same period last year. The increase in our revenues generated from franchise services was primarily due to an increase in the number of franchise facilities.

 

 

1 Adjusted net income (loss) (from continuing operations) attributable to ordinary shareholders is a non-GAAP financial measure, which is defined as net income (loss) (from continuing operations) attributable to ordinary shareholders excluding share-based compensation expenses and changes in redeemable non-controlling interests. See “Use of Non-GAAP Financial Measures” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

 

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Cost of Revenues of Continuing Operations

 

Cost of revenues of continuing operations for the first six months of 2023 was US$15.3 million, compared with US$14.2 million for the first six months of 2022. The increase was primarily due to an increase in staff compensation at the Company’s directly operated kindergartens and higher operating cost.

 

Gross Profit from Continuing Operations

 

Gross profit from continuing operations for the first six months of 2023 was US$2.7 million, compared with US$1.0 million for the same period last year.

 

Operating Expenses of Continuing Operations

 

Total operating expenses of continuing operations for the first six months of 2023 were US$6.0 million, compared with US$3.3 million for the same period last year. Excluding share-based compensation expenses, operating expenses of continuing operations were US$5.8 million for the first six months of 2023, compared with US$3.1 million for the same period last year.

 

Selling expenses of continuing operations were US$0.3 million for the first six months of 2023, compared with US$0.2 million for the same period last year.

 

General and administrative expenses of continuing operations for the first six months of 2023 were US$5.7 million, compared with US$3.0 million for the same period last year. Excluding share-based compensation expenses, general and administrative expenses of continuing operations were US$5.5 million for the first six months of 2023, an increase of 90.9% from US$2.9 million for the same period of 2022. The increase in general and administrative expenses excluding share-based compensation expenses was primarily due to the increase in transaction cost related to the Merger.

 

Operating Loss from Continuing Operations

 

Operating loss from continuing operations for the first six months of 2023 was US$3.3 million, compared with US$2.2 million for the same period last year. Adjusted operating loss2 from continuing operations for the first six months of 2023 was US$3.1 million, compared with US$2.1 million for the same period last year.

 

Net Loss from Continuing Operations

 

Net loss from continuing operations attributable to ordinary shareholders of GEHI for the first six months of 2023 was US$2.2 million, compared with US$1.1 million for the same period of 2022. Adjusted net loss from continuing operations attributable to ordinary shareholders of GEHI for the first six months of 2023 was US$2.1 million, compared with US$1.0 million for the same period of 2022.

 

 

 2 Adjusted operating income (loss) is a non-GAAP financial measure, which is defined as operating income (loss) excluding share-based compensation expenses. See “Use of Non-GAAP Financial Measures” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

 

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Basic and diluted net loss from continuing operations per American Depositary Share (“ADS”) attributable to ordinary shareholders of GEHI for the first six months of 2023 were both US$1.59, compared with both of US$0.79 for the same period of 2022. Each ADS represents twenty Class A ordinary shares.

 

Adjusted basic and diluted net loss from continuing operations per ADS attributable to ordinary shareholders3 of GEHI for the first six months of 2023 were both US$1.49 compared with both of US$0.69 for the same period of 2022.

 

EBITDA4 from continuing operations for the first six months of 2023 was negative US$1.6 million, compared with negative US$0.1 million for the same period of 2022. Adjusted EBITDA5 from continuing operations for the first six months of 2023 was negative US$1.4 million, compared with US$3.1 thousand for the same period of 2022.

 

Net Income/loss from Discontinued Operations

 

Loss from discontinued operations after taxes for the first six months of 2023 was US$2.4 million, compared with US$4.1 million for the same period last year. Gain on disposal of discontinued operations after taxes for the first six months of 2023 was nil, compared with US$30.5 million for the same period of 2022. This was primarily because the company divested its directly operated kindergarten business and recognized $30.5 million disposal gain in the first half of 2022, while the Divestiture announced on April 18, 2023 has not complete in the first half of 2023 and the company has not recognized any gains from the Divestiture.

 

Net Income/loss

 

Net loss attributable to ordinary shareholders of GEHI for the first six months of 2023 was US$4.5 million, compared with US$26.8 million of net income attributable to ordinary shareholders of GEHI for the same period of 2022. This was primarily due to the decrease of US$30.5 million disposal gain the Company recognized from discontinued operation in the first half of 2022.

 

Adjusted net loss attributable to ordinary shareholders of GEHI for the first six months of 2023 was US$4.1 million, compared with US$27.3 million of adjusted net income attributable to ordinary shareholders of GEHI for the same period of 2022.

 

Basic and diluted net loss per ADS attributable to ordinary shareholders of GEHI for the first six months of 2023 were both US$3.15, compared with both US$19.11 of basic and diluted net income per ADS attributable to ordinary shareholders of GEHI for the same period of 2022. Each ADS represents twenty Class A ordinary shares.

 

 

3 Adjusted basic and diluted net income (loss) (from continuing operations) per ADS attributable to ordinary shareholders is a non- GAAP financial measure, which is defined as basic and diluted net income (loss) (from continuing operations) per ADS attributable to ordinary shareholders excluding share-based compensation expenses and changes in redeemable non-controlling interest. See “Use of Non-GAAP Financial Measures” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

4 EBITDA is defined as net income (loss) excluding depreciation, amortization and income tax expenses. See “Use of Non-GAAP Financial Measures” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

5 Adjusted EBITDA is a non-GAAP financial measure, which is defined as net income (loss) excluding depreciation, amortization, income tax expenses, and share-based compensation expenses. See “Use of Non-GAAP Financial Measures” and “Reconciliations of GAAP and non-GAAP results” elsewhere in this earnings release.

 

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Adjusted basic and diluted net loss per ADS attributable to ordinary shareholders3 of GEHI for the first six months of 2023 were both US$2.93, compared with both US$19.42 of adjusted basic and diluted net income per ADS attributable to ordinary shareholders3 of GEHI for the same period of 2022.

 

EBITDA for the first six months of 2023 was negative US$3.3 million, compared with US$36.3 million for the same period of 2022. Adjusted EBITDA for the first six months of 2023 was negative US3.0million, compared with US$36.8 million for the same period of 2022.

 

About Gravitas Education Holdings, Inc.

 

Founded on the core values of “Care” and “Responsibility,” “Inspire” and “Innovate,” Gravitas Education Holdings, Inc. (formerly known as RYB Education, Inc.) is a leading early childhood education service provider in China. Since opening its first play-and-learn center in 1998, the Company has grown and flourished with the mission to provide high-quality, individualized and age-appropriate care and education to nurture and inspire each child for his or her betterment in life. During its two decades of operating history, the Company has built itself into a well-recognized education brand and helped bring about many new educational practices in China’s early childhood education industry. GEHI’s comprehensive early childhood education solutions meet the needs of children from infancy to 6 years old through structured courses at kindergartens and play-and-learn centers, as well as at-home educational products and services.

 

Use of Non-GAAP Financial Measures

 

We use EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, each a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes.

 

EBITDA is defined as net income excluding depreciation, amortization and income tax expenses; adjusted EBITDA is defined as net income excluding depreciation, amortization, income tax expenses, and share-based compensation expenses; adjusted operating income is defined as operating income excluding share-based compensation expenses; adjusted net income attributable to ordinary shareholders is defined as net income attributable to ordinary shareholders excluding share-based compensation expenses and changes in redeemable non-controlling interest; and adjusted basic and diluted net income per ADS attributable to ordinary shareholders are defined as basic and diluted net income per ADS attributable to ordinary shareholders excluding share-based compensation expenses and changes in redeemable non-controlling interest.

 

We believe that EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, help identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that we include in income from operations and net income. We believe that EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

 

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EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, should not be considered in isolation or construed as an alternative to net income or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review the historical adjusted financial measures to the most directly comparable GAAP measures. EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, 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. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

 

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,” “confident” and similar statements. 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 Company’s brand recognition and market reputation; student enrollment in the Company’s teaching facilities; the Company’s growth strategies; its future business development, results of operations and financial condition; trends and competition in China’s early childhood education market; changes in its revenues and certain cost or expense items; the expected growth of the Chinese early childhood education market; Chinese governmental policies relating to the Company’s industry and general economic conditions in China. Further information regarding these and other risks is included in the Company’s filings with the SEC. 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 obligation to update any forward-looking statement, except as required under applicable law.

 

For investor and media inquiries, please contact:

 

In China:
Gravitas Education Holdings, Inc.
Investor Relations
Tel: 86-10-8767-5752
E-mail: ir@geh.com.cn

 

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)

 

   As of 
  

June 30,
2023

   December 31,
2022		 
Current assets:          
Cash and cash equivalents   19,753    20,510 
Accounts receivable, net   1,097    658 
Inventories   103    96 
Prepaid expenses and other current assets   661    691 
Amount due from related parties   526    504 
Current assets for discontinued operations   12,260    18,786 
Total current assets   34,400    41,245 
           
Non-current assets:          
Property, plant and equipment, net   4,979    4,780 
Intangible assets, net   5,614    5,647 
Deferred tax assets   33    34 
Other non-current assets   1,545    1,354 
Prepayments to related parties   1,076    1,009 
Operating lease right-of-use assets   4,589    5,559 
Non-current assets for discontinued operations   17,839    21,045 
Total assets   70,075    80,673 
           
Liabilities          
Current liabilities:          
Prepayments from customers, current portion   32    53 
Accrued expenses and other current liabilities – third parties   5,068    3,670 
Accrued expenses and other current liabilities – related parties   344    232 
Income tax payable   835    949 
Operating lease liabilities, current portion   2,807    2,928 
Deferred revenue, current portion   400    892 
Current liabilities for discontinued operations   19,540    23,509 
Total current liabilities   29,026    32,233 
           
Non-current liabilities:          
Other non-current liabilities   3,509    3,604 
Deferred income tax liabilities   950    959 
Operating lease liabilities, non-current portion   1,943    2,468 
Non-current liabilities for discontinued operations   13,314    16,510 
Total liabilities   48,742    55,774 
           
Mezzanine equity          
Redeemable non-controlling interests   281    111 
           
Equity          
Ordinary shares   29    29 
Treasury stock   (6,897)   (7,445)
Additional paid-in capital   134,828    135,060 
Statutory reserve   5,293    5,293 
Accumulated other comprehensive loss   (1,005)   (1,625)
Accumulated deficit   (111,512)   (107,059)
Total Gravitas Education Holdings, Inc. shareholders’ equity   20,736    24,253 
Non-controlling interest   316    535 
Total equity   21,052    24,788 
Total liabilities, mezzanine equity and total equity   70,075    80,673 

 

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of U.S. dollars, except share, ADS, per share and per ADS data)

 

   Six months Ended
June 30,		 
   2023   2022 
Net revenues:          
Services          
Services-third parties   17,891    15,188 
Services-related parties   36    54 
Total services revenues   17,927    15,242 
Products          
Products-third parties   91    42 
Total products revenues   91    42 
Total net revenues   18,018    15,284 
Cost of revenues:          
Services   15,270    14,198 
Products   57    37 
Total cost of revenues   15,327    14,235 
Gross profit   2,691    1,049 
           
Operating expenses          
Selling expenses   285    227 
General and administrative expenses   5,687    3,046 
Total operating expenses   5,972    3,273 
           
Operating loss from continuing operations   (3,281)   (2,224)
Government subsidy income   1,199    1,095 
Loss before income taxes from continuing operations   (2,082)   (1,129)
Less: Income tax benefits   -    (3)
           
Net loss from continuing operations   (2,082)   (1,126)
           
Discontinued operations          
Loss from discontinued operations, net of income taxes   (2,401)   (4,146)
Gain on disposal, net of income taxes   -    30,537 
Net (loss) income from discontinued operations, net of income taxes   (2,401)   26,391 
           
Net (loss) income   (4,483)   25,265 
Net income (loss) attributable to non-controlling interest from continuing operations   167    (18)
Net loss attributable to non-controlling interest from discontinued operations   (197)   (1,550)
Net (loss) income attributable to ordinary shareholders of Gravitas Education Holdings, Inc.   (4,453)   26,833 
           
Net (loss) income per share attributable to ordinary shareholders of Gravitas Education Holdings, Inc. – Basic and diluted          
Net loss from continuing operations   (0.08)   (0.04)
Net (loss) income from discontinued operations   (0.08)   1.00 
Net (loss) income   (0.16)   0.96 
Net (loss) income per ADS attributable to ordinary shareholders of Gravitas Education Holdings, Inc. – Basic and diluted (Note 1)          
Net loss from continuing operations   (1.59)   (0.79)
Net (loss) income from discontinued operations   (1.56)   19.90 
Net (loss) income   (3.15)   19.11 
           
Weighted average shares used in calculating net (loss) income per ordinary share          
Basic and diluted   28,234,094    28,078,124 

 

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars, except share, ADS, per share and per ADS data)

 

    Six months Ended
June 30,		  
    2023     2022  
Net (loss) income     (4,483 )     25,265  
Other comprehensive income (loss), net of tax of nil:                
Change in cumulative foreign currency translation adjustments     (251 )     (2,411 )
Total comprehensive (loss) income     (4,734 )     22,854  
Less: Comprehensive loss attributable to non-controlling interest     (49 )     (1,928 )
Comprehensive (loss) income attributable to Gravitas Education Holdings, Inc.     (4,685 )     24,782  

 

Note 1：Each ADS represents twenty Class A ordinary shares.

 

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RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(in thousands of U.S. dollars, except share, ADS, per share and per ADS data)

 

    Six Months Ended
June 30,		  
    2023     2022  
Operating loss from continuing operations     (3,281 )     (2,224 )
Share-based compensation expenses on continuing operations     142       142  
Adjusted operating loss from continuing operations     (3,139 )     (2,082 )
                 
Net loss from continuing operations attributable to ordinary shareholders of Gravitas Education Holdings, Inc.     (2,249 )     (1,108 )
Net (loss) income from discontinued operations attributable to ordinary shareholders of Gravitas Education Holdings, Inc.     (2,204 )     27,941  
Net (loss) income attributable to ordinary shareholders of Gravitas Education Holdings, Inc.     (4,453 )     26,833  
Share-based compensation expenses on continuing operations     142       142  
Share-based compensation expenses on discontinued operations     175       293  
Adjusted net loss from continuing operations attributable to ordinary shareholders of Gravitas Education Holdings, Inc.     (2,107 )     (966 )
Adjusted net (loss) income from discontinued operations attributable to ordinary shareholders of Gravitas Education Holdings, Inc.     (2,029 )     28,234  
Adjusted net (loss) income attributable to ordinary shareholders of Gravitas Education Holdings, Inc.     (4,136 )     27,268  
                 
Net loss from continuing operations     (2,082 )     (1,126 )
Net (loss) income from discontinued operations     (2,401 )     26,391  
Net (loss) income     (4,483 )     25,265  
Add: Income tax benefits on continuing operations     -       (3 )
Income tax expenses on discontinued operations     292       6,667  
Depreciation of property, plant and equipment, and amortization of intangible assets of continuing operations     494       1,018  
Depreciation of property, plant and equipment, and amortization of intangible assets of discontinued operations     415       3,393  
EBITDA from continuing operations     (1,588 )     (111 )
EBITDA from discontinued operations     (1,694 )     36,451  
EBITDA     (3,282 )     36,340  
Share-based compensation expenses on continuing operations     142       142  
Share-based compensation expenses on discontinued operations     175       293  
Adjusted EBITDA from continuing operations     (1,446 )     31  
Adjusted EBITDA from discontinued operations     (1,519 )     36,744  
Adjusted EBITDA     (2,965 )     36,775  
                 
Net (loss) income per ADS attributable to ordinary shareholders of Gravitas Education Holdings, Inc.- Basic and diluted (Note1)                
Net loss from continuing operations     (1.59 )     (0.79 )
Net (loss) income from discontinued operations     (1.56 )     19.90  
Net (loss) income     (3.15 )     19.11  
                 
Adjusted net (loss) income per ADS attributable to ordinary shareholders of Gravitas Education Holdings, Inc.- Basic and diluted (Note1)                
Net loss from continuing operations     (1.49 )     (0.69 )
Net (loss) income from discontinued operations     (1.44 )     20.11  
Net (loss) income     (2.93 )     19.42  
                 
Weighted average shares used in calculating basic and diluted net (loss) income per ADS (Note1)     28,234,094       28,078,124  
Weighted average shares used in calculating basic and diluted adjusted net (loss) income per ADS (Note1)     28,234,094       28,078,124  
                 
Adjusted (loss) net income per share attributable to ordinary shareholders of Gravitas Education Holdings, Inc.- Basic and diluted (Note1)                
Net loss from continuing operations     (0.07 )     (0.03 )
Net (loss) income from discontinued operations     (0.08 )     1.00  
Net (loss) income     (0.15 )     0.97  

 

Note 1：Each ADS represents twenty Class A ordinary shares.

 

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