Visionsys AI Inc annual report, Q4 FY2021

Business Context and Reporting Period

The submitted filing is Tarena International, Inc.’s Form 20-F annual report for the fiscal year ended December 31, 2021—not a quarterly filing and not a filing for “Visionsys AI Inc.” Tarena is a Cayman Islands holding company providing adult professional education and childhood and adolescent quality education services primarily in China. Its consolidated financial statements include wholly owned subsidiaries and a PRC variable interest entity under contractual arrangements. ADSs trade on Nasdaq under “TEDU,” with each ADS representing five Class A ordinary shares.

Key Financial Metrics

RMB in millions, except percentages	2020	2021	Change
Net revenue	1,897.9	2,386.5	+25.7%
Gross profit	831.0	1,185.1	+42.6%
Gross margin	43.8%	49.7%	+5.9 pts
Operating loss	(806.4)	(369.1)	Improved
Net loss	(771.2)	(475.8)	Improved by 38.3%
Net loss attributable to ordinary shareholders	(766.6)	(474.5)	Improved
Operating cash flow	(108.8)	8.6	Turned positive
Capital expenditures	71.5	67.7	Down

2021 net revenue was RMB2.39 billion, including RMB1.15 billion from adult professional education and RMB1.24 billion from childhood and adolescent quality education.
Adult enrollments declined from approximately 83,400 to 72,100, while childhood and adolescent enrollments increased from approximately 141,600 to 178,400.
Operating expenses decreased 5.1% to RMB1.55 billion. Selling and marketing expenses declined 3.1% and general and administrative expenses declined 9.6%; research and development expenses increased 5.6%.
Income tax expense was RMB114.1 million in 2021, compared with a RMB35.0 million benefit in 2020, primarily because of increased valuation allowances on deferred tax assets.
Cash, time deposits and restricted cash totaled RMB430.4 million at December 31, 2021, including RMB423.8 million of cash and cash equivalents. Cash and cash equivalents alone were RMB423.8 million.
Total liabilities were RMB3.23 billion versus total assets of RMB1.64 billion, resulting in total equity deficit of RMB1.59 billion.
Deferred revenue was RMB2.02 billion, primarily representing tuition collected before services were delivered.
Short-term bank loans were RMB30.0 million at year-end, bearing interest at 5.3% and secured by an office building with a carrying value of approximately RMB95.3 million.
Operating lease commitments totaled RMB551.4 million, including RMB256.7 million due in 2022.

Material Changes Versus the Prior Comparable Period

Revenue growth was driven primarily by the 62.3% increase in childhood and adolescent quality education revenue, supported by enrollment growth and expansion to 238 learning centers.
Adult professional education revenue increased only 1.2% despite a 13.5% enrollment decline, mainly because of higher tuition unit prices and certificate revenue.
Gross margin expanded because revenue growth exceeded cost growth and management implemented cost controls. Cost of revenues increased 12.6%, primarily from higher personnel costs and the expiration of COVID-related social-security relief.
Operating losses narrowed materially as selling and marketing, general and administrative, and other operating costs declined relative to revenue.
Operating cash flow improved from an outflow of RMB108.8 million to an inflow of RMB8.6 million, but the improvement was supported by non-cash adjustments, including RMB250.0 million of right-of-use asset amortization, RMB101.2 million of deferred tax expense, and RMB26.7 million of increased deferred revenue.
Property and equipment declined from RMB464.5 million to RMB299.4 million, partly reflecting the sale of a Beijing office building. The company received approximately RMB92.0 million and recognized a loss on disposal of approximately RMB22.3 million.
The company’s total equity deficit increased from RMB1.14 billion to RMB1.59 billion, primarily due to the 2021 net loss.

Guidance, Outlook, Risks and Unusual Items

Management did not provide quantitative revenue or earnings guidance. It expects continued investment in course offerings, technology, marketing and childhood and adolescent education, while pursuing cost controls.
The financial statements identify substantial doubt about the company’s ability to continue as a going concern because of recurring losses, net current liabilities of approximately RMB2.32 billion and insufficient cash to meet obligations as they become due over the following twelve months. Management nevertheless prepared the financial statements on a going-concern basis, citing gross margins, deferred revenue, cost controls, available credit lines of RMB200 million and RMB3 million, debt financing and potential property sales.
COVID-19 continued to cause temporary learning-center closures and operational restrictions in 2021 and early 2022. Future outbreaks could reduce classroom capacity, enrollment and revenue.
PRC education regulation materially affects the childhood and adolescent business. The company disclosed licensing and registration gaps involving learning centers, including centers without “professional education services” or education-consultation authorization, and uncertainty over school permits and classification of IT training.
The company operates websites and online services through a consolidated VIE that holds an ICP license. Investors do not own equity in the VIE, and the enforceability of the contractual arrangements remains subject to PRC legal and regulatory uncertainty.
Data-security, cybersecurity, personal-information, foreign-investment and overseas-listing rules in China are evolving and could restrict operations or require additional approvals and filings.
The company disclosed a putative securities class action alleging misleading statements in SEC filings relating to business and operating results from August 2016 through November 2019. The company moved to dismiss; the case remained pending as of the filing date.
The company completed a prior audit committee investigation and restatement process. Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2021, although material weaknesses had existed as of December 31, 2019.
A proposed privatization merger was terminated in November 2021. The buyer group paid a settlement fee of US$3.53 million, recognized as one-off income contributing to lower general and administrative expenses.
Nasdaq had notified the company of a minimum market value of publicly held shares deficiency. The company regained compliance with the minimum bid-price requirement after changing its ADS ratio but had not regained compliance with the minimum market value requirement as of the annual report date.
On December 31, 2021, the board authorized a share repurchase program of up to US$2.5 million. Approximately 345,101 ADSs were repurchased from December 31, 2021 through March 31, 2022 at a weighted average price of US$2.14 per ADS.
No cash dividends were declared for 2019, 2020 or 2021, and the company stated it had no present plan to pay dividends in the foreseeable future.

Most Important Facts to Verify

Confirm the issuer and filing identity: the source document is for Tarena International, Inc. and ticker TEDU, not Visionsys AI Inc.
Reconcile the going-concern disclosure with management’s assertion that liquidity is sufficient for the next twelve months, including available credit lines, debt maturities, property-sale plans and projected operating cash flow.
Assess whether childhood and adolescent enrollment growth can offset declining adult enrollments and whether the childhood and adolescent segment can achieve profitability.
Review the RMB2.02 billion deferred-revenue balance, refund liabilities and the timing of revenue recognition and future service obligations.
Evaluate PRC licensing, school-permit, VIE, ICP-license, cybersecurity and foreign-investment compliance risks.
Monitor the securities class action, potential litigation costs and any consequences from the prior investigation and restatement.
Verify Nasdaq continued-listing compliance, including the minimum market value of publicly held shares.
Review the concentration of revenue: robotics programming, childhood computer programming, Java and digital arts represented approximately 70.1% of 2021 revenue.
Review accounts receivable collection risk: net receivables were approximately RMB48.5 million and the allowance for credit losses was approximately RMB15.0 million at year-end.