LAIX Inc. Announces First Quarter 2019 Unaudited Financial Results

LAIX Inc. (“LAIX” or the “Company”) (NYSE: LAIX), an artificial
intelligence (AI) company in China that creates and delivers products
and services to popularize English learning, today announced its
unaudited financial results for the first quarter ended March 31, 2019.

First Quarter 2019 Financial and Operating Highlights

• Net revenues were RMB253.3 million (US$37.7 million), a 161.7%
  increase from RMB96.8 million for the first quarter of 2018.
• Gross billings¹ were RMB385.5 million (US$57.4 million), a
  174.6% increase from RMB140.4 million for the first quarter of 2018.
• Gross margin was 76.4%, compared with 75.6% for the first quarter of
  2018.
• Approximately 1.1 million paying users purchased the Company’s courses
  and services for the first quarter of 2019, compared with
  approximately 552,000 paying users for the first quarter of 2018.
• Total cumulative registered users were 123.4 million as of March 31,
  2019, compared with 110.3 million total cumulative registered users as
  of December 31, 2018.

¹ “Gross billings” for a certain period refer to the total
amount of cash received from the sale of course packages in that period
net of the total amount of cash refunds paid to users in the same period.

CEO and CFO Comments

“We are pleased to kick off the year with strong growth of both net
revenues and gross billings. Total paying users doubled to approximately
1.1 million for the first quarter of 2019, compared to the year-ago
period. This outstanding performance reflects the growing popularity of
our products and our continued leadership in China’s AI-powered English
learning market,” said Dr. Yi Wang, Chairman and Chief Executive Officer
of LAIX.

“During the first quarter, we made further progress on user
diversification with our new product, ‘Kids Liulishuo,’ which is a
mobile-based phonics online course built for users within the age range
of 3-8 years old, and generated very positive feedback. The considerable
amount of smart user data generated coupled with our advanced AI
algorithms allow us to capture and provide personalized feedback on our
young users’ pronunciation development,” Dr. Wang continued. “Further,
we continued exploring ways to satisfy our users’ diverse learning needs
and expand our paying user group. With the expansion of high-quality
learning content and the help of our learning assistants who can answer
users’ learning-related questions in a real-time and highly interactive
manner, our premium small class course ‘DongNi Select’ is rising in
popularity amongst our users.”

“We are very proud that our proprietary placement test from our flagship
app “English Lilishuo” was officially mapped to China’s Standards of
English Language Ability (the “CSE”), making Liulishuo the first and
only Chinese company linking to the CSE. We believe that our
accomplishments in the first quarter have us well positioned for
continued success throughout the year. By providing industry-leading
courses and services, exceptional user experiences with our advanced
platform and a vibrant learning community, we will continue to be a
leading destination for English learners.” Dr. Wang concluded.

“Our first quarter performance represents a strong start to 2019 with
year-over-year net revenues growth of 161.7%. Our robust topline growth
was primarily driven by healthy user growth through broadened brand
recognition and engaging product experience. Net loss was narrowed to
RMB67.3 million, compared with RMB92.4 million in the year-ago quarter.
We also saw improvement in our operating efficiency in the quarter.
Notably, sales and marketing expenses as a percentage of net revenues
fell to 76.4% in the first quarter of 2019 from 131.2% in the year-ago
quarter,” said Ms. Bin Yu, Chief Financial Officer of LAIX. “Looking
ahead, we will continue to invest in our brand, technology, product and
user growth to further penetrate the massive growth opportunity
presented by the AI-powered language learning market. In addition, we
will maintain discipline in our cost management and continue leveraging
the scalability of our business model.”

First Quarter 2019 Financial Results

Net Revenues

Net revenues for the first quarter of 2019 were RMB253.3 million
(US$37.7 million), a 161.7% increase from RMB96.8 million for the same
quarter last year. The increase was primarily attributable to the growth
of the Company’s business and the platform-wide expansion of the
Company’s paying user base as well as to the increased adoption of the
Company’s proprietary AI teacher among users in China as an effective
learning approach and a better alternative to the traditional ways of
English learning.

Cost of Revenues

Cost of revenues for the first quarter of 2019 was RMB59.7 million
(US$8.9 million), a 152.8% increase from RMB23.6 million for the same
quarter last year. This change was primarily due to increases in (i)
salaries and benefits for certain full-time employees and (ii) IT
service cost, with all such costs resulting from the Company’s general
business growth and user base expansion.

Gross Profit and Gross Margin

Gross profit for the first quarter of 2019 was RMB193.6 million (US$28.8
million), a 164.6% increase from RMB73.2 million for the same quarter
last year as a result of increased economies of scale.

Gross margin for the first quarter of 2019 was 76.4%, compared with
75.6% for the same quarter last year.

Operating Expenses

Total operating expenses for the first quarter of 2019 were RMB263.8
million (US$39.3 million), a 60.5% increase from RMB164.4 million for
the same quarter last year, with expenses increase primarily resulting
from business growth activities, the development and introduction of new
products and the costs associated with the expansion of the Company’s
user base.

Sales and marketing expenses for the first quarter of 2019 were RMB193.6
million (US$28.9 million), a 52.5% increase from RMB126.9 million for
the same quarter last year. The increase was primarily due to increases
in (i) commission to distribution channels (mobile app stores) and
online commerce platform partners, and (ii) salaries and benefits for
sales and marketing personnel, including the Company’s online study
advisors. Importantly, sales and marketing expenses as a percentage of
net revenues declined notably to 76.4% for the first quarter of 2019,
compared with 131.2% for the same quarter last year.

Research and development expenses for the first quarter of 2019 were
RMB50.1 million (US$7.5 million), a 101.5% increase from RMB24.9 million
for the same quarter last year, primarily due to an increase in salaries
and benefits for research and development personnel. Research and
development expenses as a percentage of net revenues declined from the
same quarter last year, representing 19.8% of net revenues for the first
quarter of 2019, compared with 25.7% for the same quarter last year.

General and administrative expenses for the first quarter of 2019 were
RMB20.0 million (US$3.0 million), a 59.4% increase from RMB12.6 million
for the same quarter last year, primarily due to increases in salaries
and benefits for general and administrative personnel and professional
service fees. General and administrative expenses were 7.9% of net
revenues for the first quarter of 2019, compared with 13.0% for the same
quarter last year.

Loss from Operations

Loss from operations for the first quarter of 2019 was RMB70.1 million
(US$10.5 million), compared with RMB91.2 million for the same quarter
last year due to the aforementioned reasons including general business
growth and improved operating efficiency.

Adjusted EBITDA²

Adjusted EBITDA for the first quarter of 2019 was a loss of RMB52.1
million (US$7.8 million), compared with an adjusted EBITDA loss of
RMB76.7 million for the same quarter last year.

² “Adjusted EBITDA” is a non-GAAP measure, which represents
EBITDA before share-based compensation expenses. EBITDA represents net
loss before interest, tax, depreciation and amortization. See “
Reconciliations of GAAP and Non-GAAP Results” at the end of this press
release.

Foreign exchange related gains, net

Foreign exchange gain was RMB0.7 million (US$0.1 million) in the first
quarter of 2019, compared with a foreign exchange gain of RMB4.2 million
for the same quarter last year.

Income tax expenses

Income tax expenses for the first quarter of 2019 were RMB0.03 million
(US$4 thousand), a 99.5% decrease from RMB6.0 million for the same
quarter last year, primarily due to the Company’s estimated taxable loss
position in current year.

Net Loss

Net loss for the first quarter of 2019 was RMB67.3 million (US$10.0
million), compared with RMB92.4 million for the same quarter last year.

Adjusted net loss³ for the first quarter of 2019 was
RMB54.5 million (US$8.1 million), compared with RMB84.1 million for the
same quarter last year.

Basic and diluted net loss per ordinary share attributable to ordinary
shareholders for the first quarter of 2019 was RMB1.40 (US$0.21),
compared with RMB5.12 for the same quarter last year.

³ “Adjusted net loss” is a non-GAAP measure, which excludes
share-based compensation expenses. See “Reconciliation of GAAP and
Non-GAAP Results” at the end of this press release.

Balance Sheet

As of March 31, 2019, the Company’s cash, cash equivalents and
short-term investment totaled RMB800.3 million (US$119.3 million),
compared with RMB747.8 million as of December 31, 2018.

The Company had deferred revenues (current and non-current) of RMB594.0
million (US$88.5 million) as of March 31, 2019, compared with RMB477.6
million as of December 31, 2018.

Outlook

For the second quarter of 2019, the Company currently expects:

• Net revenues to be between RMB280.0 million to RMB300.0 million, which
  would represent an increase of approximately 106.6% to 121.4% from
  RMB135.5 million for the same quarter last year;

This forecast reflects the Company’s current and preliminary view on the
current business situation and market conditions, which is subject to
change.

Conference Call

The Company’s management will host an earnings conference call at 8:00
AM U.S. Eastern Time on May 28, 2019 (8:00 PM Beijing/Hong Kong time on
May 28, 2019).

Dial-in details for the earnings conference call are as follows:

Participants should dial-in at least 10 minutes before the scheduled
start time to be connected to the call.

Additionally, a live and archived webcast of the conference call will be
available on the Company’s investor relations website at http://ir.laix.com/investors.

About LAIX Inc.

LAIX Inc. (“LAIX” or the “Company”) is an artificial intelligence (AI)
company in China that creates and delivers products and services to
popularize English learning. Its proprietary AI teacher utilizes
cutting-edge deep learning and adaptive learning technologies, big data,
well-established education pedagogies and the mobile internet. LAIX
believes its innovative approach fundamentally transforms learning. LAIX
provides its products and services on demand via its mobile apps,
primarily its flagship “English Liulishuo” mobile app launched in 2013.
On the Company’s platform, AI technologies are seamlessly integrated
with diverse learning content incorporating well-established language
learning pedagogies, gamified features and strong social elements to
deliver an engaging, adaptive learning experience. LAIX provides a
variety of courses inspired by a broad range of topics and culture
themes to make English learning more interesting and is committed to
offering a fun, interactive learning environment to motivate and engage
its users.

For more information, please visit: http://ir.laix.com.

Use of Non-GAAP Financial Measures

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

We believe that adjusted EBITDA and adjusted net loss help identify
underlying trends in our business that could otherwise be distorted by
the effect of certain expenses that we include in loss from operations
and net loss. We believe that adjusted EBITDA and adjusted net loss
provide useful information about our results of operations, 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.

Adjusted EBITDA and adjusted net loss should not be considered in
isolation or construed as an alternative to loss from operations, net
loss or any other measure of performance or as an indicator of our
operating performance. Investors are encouraged to review the historical
non-GAAP financial measures to the most directly comparable GAAP
measures. Adjusted EBITDA and adjusted net loss 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.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S.
dollars at a specified rate solely for the convenience of the
reader. Unless otherwise noted, all translations from Renminbi to U.S.
dollars are made at a rate of RMB6.7112 to US$1.00, the rate in effect
as of March 29, 2019 published by the Federal Reserve Board.

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,” “aims,” “future,” “intends,” “plans,” “believes,”
“estimates,” “confident,” “potential,” “continue” or other similar
expressions. Among other things, the Outlook and quotations from
management in this announcement, as well as LAIX’s strategic and
operational plans, contain forward-looking statements. LAIX may also
make written or oral forward-looking statements in its periodic reports
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. Statements that are not historical facts, including but not
limited to statements about LAIX’s beliefs and expectations, are
forward-looking statements. Forward-looking statements involve inherent
risks and uncertainties, and a variety of factors could cause actual
results to differ materially from those contained in any forward-looking
statement. Further information regarding these and other risks is
included in the Company’s filings with the Securities and Exchange
Commission. All information provided in this press release and in the
attachments is as of the date of the press release, and the Company
undertakes no duty to update such information, except as required under
applicable law.

(1) On January 1, 2019, the Company adopted ASC 842, the new lease
standard, using the additional transition method. No cumulative effect
adjustment to the opening balance of retained earnings was required.

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