Huohua Siwei, a K-12 after-school tutoring company in China, filed with the SEC on Monday for its initial public offering. It plans to list on the NASDAQ under the ticker symbol "SPRK".

Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc. and China International Capital Corporation Hong Kong Securities Limited are the representatives of the underwriters.

The online education provider intends to use the net proceeds from this offering for the following purposes:

• approximately 40% to improve pedagogy, courseware and educational content, and further broaden its course offerings;

• approximately 30% to improve the technology infrastructure;

• approximately 15% to expand its marketing and branding efforts; and

• the balance to fund working capital and for other general corporate purposes.

A three-year-old company with rapid growth

Founded in 2018, Huohua Siwei delivers courses primarily through online small classes with four to eight students per class. It currently offers online small-class courses in three main subjects: mathematical thinking, which is its flagship course, Chinese, and English. It also provides AI-enhanced courses as a supplement to online small-class courses.

The company said it has experienced rapid growth within a relatively short period of time. It had 370,530 students as of March 31, 2021, representing a significant increase from 133,902 as of March 31, 2020.

The net revenues increased by 501.0% from RMB195.4 million in 2019 to RMB1,174.4 million (US$179.2 million) in 2020, and increased by 203.3% from RMB149.6 million in the three months ended March 31, 2020 to RMB453.7 million (US$69.2 million) in the three months ended March 31, 2021.

The company said it derives substantially all of its net revenues from providing online small-class courses. In 2019, 2020 and the three months ended March 31, 2020 and 2021, the net revenues generated from online small-class courses accounted for 99.2%, 95.6%, 97.6% and 92.3%, respectively, of its total net revenues, with mathematical thinking courses accounted for a substantial majority of the main business.

However, the company, meanwhile, incurred net losses of RMB771.1 million, RMB951.7 million (US$145.3 million) and RMB373.7 million (US$57.0 million), respectively, in 2019, 2020 and the three months ended March 31, 2021.

As one of the leading edtech companies in China, Huohua Siwei has completed several financing rounds from backers including Tencent, KKR, Lightspeed China Partners, IDG Capital, GGV Capital, Carlyle Group’s fund, and edtech unicorn Yuanfudao.

Regulatory uncertainty

According to a report by International Financing Review in January, Huohua Siwei was mulling a listing in the U.S. to raise about $200 to 300 million. The company didn't comment on it.

Bloomberg said in May that “China is escalating a crackdown on its online education sector, forcing once high-flying startups to mothball plans for multi-billion-dollar initial public offerings this year”. People familiar with the matter told Bloomberg “Tencent-backed VIPKid and Huohua Siwei have put off U.S. listings despite working in concert with banks for months”.

Even though Huohua Siwei succeeded in submitting the file, it is still faced with uncertainties. The company listed regulation relating to private education, after-school tutoring, and online after-school training and educational Apps among others in China. The latest movement by China’s MOE is to set up a new supervising department which is specialized in regulating K-12 after-school tutoring services.

“It is uncertain whether and how the PRC government would promulgate additional laws and regulations regarding the private education industry, particularly the online K-12 AST industry,” said Huohua Siwei.