Liulishuo ("LAIX" or the "Company") (NYSE: LAIX), an artificial intelligence (AI) company in China that creates and delivers products and services to popularize English learning, announced its unaudited financial results for the first quarter ended March 31, 2021.

Source: LAIX Q1 2021 Financial Report

According to the report,  Approximately 0.3 million paying users purchased the Company's courses and services in Q1 2021, compared with 0.9 million for Q4 2020 and 0.4 million for Q1 2020. Gross billings for Q1 2021 dropped to RMB154.4 million(US$23.6 million), representing a 56.2% year-over-year decrease and a 15.7% quarter-over-quarter decrease. Net revenues for Q1 2021 were RMB198.5 million, a 13.0% year-over-year decrease. The quarter-over-quarter decrease was 15.7%, primarily due to the decreased gross billings caused by the Company's stringent cost control in user acquisition expenditures.

Gross margin for Q1 2021 further expanded to 77.6%, compared with 65.5% for Q1 2020 and 75.4% for Q4 2020. The quarter-over-quarter change was primarily attributed to the decrease in salaries and welfare for full-time employees and savings in IT service fees.

Total Operating expenses for Q1 2021 were RMB145.4 million (US$22.2 million), down 58.0% year-over-year and down 32.5% quarter-over-quarter, driven by stringent cost control in user acquisition expenditures and the improvement in operating efficiency. Sales and marketing expenses were RMB92.9 million(accounting for 63.9% of total operating expense), down 64.9% from Q1 2020 and down 38.2% from Q4 2020. In Q1 2021, sales and marketing expenses as a percentage of net revenues narrowed to 46.8%, compared with 63.9% for Q1 2020 and 115.9% for Q4 2020. 

As for the bottom line, the Company reported a net income of RMB12.2 million (US$1.9 million), compared with a net loss of RMB197.0 million for Q1 2020 and a net loss of RMB34.7 million for Q4 2020. 

Operating cash outflow for Q1 2021 was RMB57.3 million (US$8.7 million), down 74.2% from Q1 2020 and down 31.2% from Q4 2020. 

"We proactively made efforts in enhancing our operating efficiency and optimizing our organizational structure, driving margin expansion and improved profitability." Dr. Yi Wang, Chairman and Chief Executive Officer of LAIX commented, "These numbers reiterate our firm commitment and strong execution capabilities, when it comes in cost controls. Our focus going forward is to balance profitability by improving operating leverage while at the same time executing our strategic initiatives to propel our operational growth."

At the earning call, regarding how the strict regulatory environment on K-12 advertisement and English tutoring for under 6-year-old kids affect LAIX's business, Dr. Yi responded that the impact on advertising is limited because the majority of LAIX's revenue consists of the adult business. For the kid business segment, the Company focuses entirely on the skills, not test prep. 

Dr. Yi also introduced that LAIX is planning to expand into ToB market using proprietary placement test or PT test, which is a fully automated adaptive test system evaluates users' listening, reading, vocabulary, grammar, and speaking skills, enabling our users to have a better assessment of their comprehensive English skills. 

LAIX's PT test has been aligned to both China's Standard English Language Ability or the CSE national standards and the Common European Framework of Reference for Language or the CEFR. As of March 31, 2021, more than 75 million unique learners have taken the test. In the future, it can be applied to enterprise training and SaaS platform.

In addition, the Company is focusing on enterprise learning services in 2021. "By utilizing our industry-leading AI technology, we believe we can help our corporate customers who wish to improve their employees' English skills. We are developing customized solutions and professional talent training systems tailored to specific industries, including different courseware and vocabularies for different working scenarios. We see great potential in this area." 

Moreover, LAIX is developing courses related to the -- as preparation, especially for the overseas market.

As of now, the Company's users cover 175 countries and 384 cities across China. Their "Chinese English phonetic database" has recorded more than 3.9 billion minutes of conversations and 53.2 billion recorded sentences.

For Q2 2021, the Company currently expects net revenues between RMB160.0 million to RMB180.0 million, representing a decrease of 19.4% to 9.3% from RMB198.5 million for Q1 2021.