Hongen Ann Announces Unaudited Financial Results for Second Quarter 2024[1]

BEIJING, Sept. 27, 2024 /PRNewswire/ -- Hong En (NYSE: IH) ("Hong En" or the "Company"), a leading technology and educational products company in China, today announced its unaudited financial results for the second quarter ended June 30, 2024.

• Operating income was RMB215.1 million (US$29.6 million), compared to RMB241.0 million in the same period last year.
• Gross profit was RMB151.7 million (US$20.9 million), compared to RMB170.8 million in the same period last year.
• Operating profit was RMB18.8 million (US$2.6 million), compared to RMB40.9 million in the same period last year.
• Net profit was RMB24.7 million (US$3.4 million), compared to RMB42.1 million in the same period last year.
• The average number of monthly active users (MAU)[2] in the quarter reached 24.57 million, up 20.8% year-over-year.

[1] The Chinese version is for reference only, please refer to the English version.

[2] "Average Monthly Active Users" means the monthly average of the sum of the average monthly active users (MAU) of each of the Company's Apps in a given period, calculated based on the number of unique mobile devices used to access the App at least once in a given month, without excluding duplicates of access to different Apps by the same mobile device.

Dr. Peng Dai, Director and Chief Executive Officer of Hongen, said, "In the second quarter, we made steady progress in advancing our strategic priorities and made multi-point efforts to build momentum for sustainable business growth.

Domestically, we have launched a new Hongen literacy pinyin learning machine, further expanding our smart hardware product lineup. It's designed to help children master pinyin with quality content, interactive, hands-on experiences, and fun exercises. It contains catchy pinyin mantras to help enhance memory and enhance learning fun with audio-visual challenges. Hongen literacy pinyin learning machine takes pinyin as the starting point to introduce children's rhymes and Chinese culture enlightenment knowledge. Its unique rank system will also be divided into different levels according to the actual level of children, which not only stimulates children's learning motivation, but also makes it easy for parents to keep track of their children's learning progress at any time.

Overseas, our business development continued to maintain good momentum, introducing more themes that are popular with children around the world, and further enriching our product content library. Aha Makeover adds two new themes, "Mermaid Song" and "Forest Wonderland", combining imaginative elements such as a strange mermaid and a mysterious forest with a variety of interactive features. In Gogo Mini World, the new theme "Fashion Salon" creates an exciting and dynamic platform for children to express their creativity through beauty and fashion styling activities, and for them to share photos of their unique fashion designs. Another new theme, "Dream Castle", brings magic wands and fireworks to play. Combining fantasy, creativity and interactive fun, these new themes are particularly engaging for children, sparking their passion for exploration and unleashing their imaginations.

During the quarter, our animation studio, Kunpeng, also made significant progress in the international market with the Guardians of the Space series. Following its success on major Chinese television networks and streaming platforms, the Guardians of the Space animated series has successfully entered several international markets including the United States, United Kingdom, Australia and Singapore. The overseas release of the "Guardians of the Universe" film has also further enhanced the international influence of this series of products. The film premiered in China in 2023 and successfully landed in theaters in many European countries this year. The overseas development of the "Space Guardians" series products not only enhances Kunpeng's international popularity and brand influence, but also provides strong support for our overall international development strategy and strengthens our position in major global markets.

In the second quarter, we made progress across all markets and lines of business, demonstrating our strong execution and commitment to long-termism. Looking ahead, we will continue to strengthen our core competitiveness and continue to drive market expansion and business growth with our rich product portfolio. Dr. Dai concluded.

Ms. Wang Weiwei, Director and Chief Financial Officer of Hong En, added, "In the second quarter of 2024, we achieved profitability for the tenth consecutive quarter. At the end of the quarter, our total cash, cash equivalents and term deposits amounted to RMB1.13 billion. With a healthy financial position, we are able to accelerate the pace of innovation in leading content and technology, ensuring that we remain at the forefront of technology developments and emerging trends to meet the evolving needs and preferences of our users. For example, this quarter we developed an experimental product specifically for Apple's Vision Pro, which is the first in the industry to explore use cases that are compatible with this revolutionary headset. With Vision Pro's immersive spatial environments, precise eye tracking, and gesture capture capabilities, we provide a more interactive and fun product experience for kids. On the operational side, we have stepped up our efforts to develop and launch new products, and adjusted the pace of our sales and marketing efforts accordingly. Among them, we have strengthened our cooperation with leading manufacturers such as learning consoles, smart speakers, tablets and even smart cars, and pre-installed our apps into their products. As smart products become more integrated into everyday life, we expect these collaborations to broaden our market reach and make our products more accessible to families." Looking ahead to the second half of the year, we will continue to make strategic investments in product innovation and global brand recognition to build the engine of sustainable growth for our business. "

Operating income

Operating income was RMB215.1 million (US$29.6 million), down 10.7% from RMB241.0 million in the same period last year, mainly due to more cautious consumer spending.

The average number of monthly active users (MAU) reached 24.57 million in the quarter, an increase of 20.8% from 20.33 million in the same period last year, mainly due to the effective execution of our user acquisition strategy.

Cost of Doing Business

Operating costs were RMB63.4 million (US$8.7 million), down 9.7% from RMB70.2 million in the same period last year, mainly due to lower channel costs.

Gross profit and gross margin

Gross profit was RMB151.7 million (US$20.9 million), compared to RMB170.8 million in the same period last year. Gross margin was 70.5%, compared to 70.9% in the year-ago quarter.

Operating expenses

Operating expenses were RMB132.9 million (US$18.3 million), compared to RMB130.0 million in the same period last year.

R&D expenses were RMB57.2 million (US$7.9 million), a decrease of 9.8% from RMB63.4 million in the same period last year, mainly due to lower salary-related expenses.

Sales and marketing expenses were RMB51.3 million (US$7.1 million), an increase of 26.4% from RMB40.6 million in the same period last year, mainly due to increased strategic placements, strengthened brand enhancement and overseas expansion.

Administrative expenses decreased by 6.0% from RMB26.0 million in the same period last year to RMB24.4 million (US$3.4 million), mainly due to the decrease in equity incentive expenses and other administrative expenses.

Operating profit

Operating profit was RMB18.8 million (US$2.6 million), compared to RMB40.9 million in the same period last year.

Net profit

Net profit was RMB24.7 million (US$3.4 million), compared to RMB42.1 million in the same period last year.

Basic and diluted net income per United States Depositary Share was RMB0.47 (US$0.06) and RMB0.45 (US$0.06), respectively, compared to RMB0.80 and RMB0.77, respectively, per United States Depositary Share in the same period last year. Each United States Depositary Share represents 5 Class A ordinary shares of the Company.

Deferred income and advance receivables

The balance of deferred revenue and advance receipts was RMB289.9 million (US$39.9 million) as of June 30, 2024, compared to the balance of deferred revenue and advance receipts of RMB318.6 million as of December 31, 2023.

Cash, cash equivalents and time deposits

The balance of cash, cash equivalents and term deposits was RMB1,129.4 million (US$155.4 million) as of June 30, 2024, compared to RMB1,213.8 million as of cash as of December 31, 2023. The decrease in the balance was mainly due to the payment of year-end bonuses to employees in the first quarter.

The U.S. dollar figures presented in this press release are for the convenience of readers only, with the exception of those transaction amounts that are actually settled in U.S. dollars. The exchange rate used in this press release against the U.S. dollar is based on the exchange rate set forth in the United States Federal Reserve H.10 data release on June 28, 2024: 7.2672 RMB to 1.00 U.S. dollars. The percentages in this press release are calculated on a RMB basis.

Hongen uses non-United States GAAP financial measures, such as adjusted operating profit, adjusted net profit and adjusted diluted net income per United States depositary shares, as auxiliary indicators to evaluate its operating performance and formulate its business plan. Non-GAAP financial measures are presented United States are not intended to be viewed in isolation by investors or as a substitute for evaluating financial information prepared and presented in accordance with United States GAAP. Hongen defines adjusted operating profit, adjusted net profit and adjusted net diluted income per United States depositary share as operating profit excluding equity incentive expenses, net profit and diluted net income per United States depositary share, respectively. Adjusted operating profit, adjusted net profit and adjusted diluted net income per United States depositary share help Hongen's management evaluate its operating performance without considering the impact of equity incentive expense as a non-cash expense. Hung believes that these non-United States GAAP financial measures provide useful information for investors to choose to understand and evaluate the company's current operating results and future prospects in the same way as management.

Non-United States GAAP financial measures are not defined under United States GAAP and are not presented in accordance with United States GAAP. United States Non-GAAP financial measures have their limitations as an analytical tool, including the fact that they may not reflect all expense accounts that affect the company's operations. Equity incentive expenses have been and will continue to be incurred in the course of the Company's operations, which are not reflected in the non-United States GAAP financial measures. In addition, the non-United States GAAP financial measures used by Hongen may differ from the non-United States GAAP financial measures used by other enterprises, including peer companies, and therefore may be limited in comparability. Non-United States GAAP financial measures are presented not intended to be viewed in isolation by investors or as a substitute for evaluating financial information prepared and presented in accordance with United States GAAP.

This announcement contains forward-looking statements. These statements are defined under the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "expects," "future," "intends," "plans," "believes," "estimates" and other similar expressions. All statements that are not historical facts, including statements regarding Hongn's beliefs and expectations, are forward-looking statements. In addition, the description of management statements in this announcement contains forward-looking statements, and Hongn may also make forward-looking statements, whether oral or written, in its periodic reports to the United States Securities and Exchange Commission, in its annual reports to stockholders, in press releases and in other oral and written statements made by its officers, directors or employees to third parties. Forward-looking statements involve inherent risks and uncertainties. Several important factors could cause actual results to differ materially from those contained in any forward-looking statements, including, but not limited to, the following: Hongen's growth strategy; future business development, financial condition and results of operations; Hongen's ability to continue to attract and retain users, convert non-paying users into paying users, and increase paying user spend; the trend and size of the market in which Hongen products operate; Hongen's expectations of market demand and market acceptance of its products and services; Hong's expectations for the relationship with his business partners; general economic and business conditions; regulatory environment; and assumptions on or in connection with any of the foregoing. Further information on these and other risks is contained in Hongn's filings with the United States Securities and Exchange Commission. All information provided in this press release has been obtained from the date of this release. Except as required by applicable law, Hongen undertakes no obligation to update any forward-looking statements.

About Hongen

Hongen is a leading technology and educational product company in China. The company is committed to making parenting easier for parents and happier for children. Benefiting from more than 20 years of parent-child industry experience, excellent original content, advanced scientific and technological innovation and profound accumulation of cutting-edge R&D strength, Hongen provides parents with efficient parent-child companionship resources and stimulates children's natural curiosity and desire to explore through unique and interesting interactive product experiences. Hongen's innovative research and development of high-quality, multi-faceted products, including independent interactive apps, interactive content and smart devices, covers a variety of thematic content, cultivating children's language ability, logic, reading ability and creativity, as well as natural interest in traditional Chinese culture. With the unique and advanced technical strength accumulated in 3D engine, AI/AR interaction and big data analysis of children's behavior and psychology, Hongen will continue to provide parents in China and around the world with efficient, easy and high-quality parenting experience with high-quality technology and educational products, and start a beautiful growth journey that is both fruitful and full of fun for children.

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Horn
Unaudited Consolidated Balance Sheet
( Amounts other than the number of ordinary shares, the number of United States depositary shares, the net income per ordinary share and the net income per United States depositary share are shown in thousands )
December 31, 2023	June 30, 2024	June 30, 2024
Renminbi	Renminbi	Dollar
asset
liquid asset
Cash and cash equivalents	1,213,767	914,474	125,836
time deposit	-	214,944	29,577
Net accounts receivable	60,832	52,440	7,216
Net inventory	16,518	19,070	2,624
Related parties receivable	1,810	1,773	244
Prepaid accounts and other assets	89,511	93,971	12,931
Total current assets	1,382,438	1,296,672	178,428
Non-current assets
Net fixed assets	6,169	4,643	639
Net intangible assets	23,245	20,430	2,811
Operating lease right-of-use assets	3,648	2,811	387
Long-term equity investment	26,333	26,333	3,624
Other non-current assets	8,662	7,981	1,098
Total non-current assets	68,057	62,198	8,559
Total assets	1,450,495	1,358,870	186,987
liability
Current liabilities
Accounts payable	22,139	19,925	2,742
Deferred income and advance receivables	318,587	289,927	39,895
Payable to related parties	4,428	15,164	2,087
Provision for expenses and other current liabilities	143,677	91,244	12,556
Dividends payable	-	30,653	4,218
Short-term operating lease liabilities	1,927	1,788	246
Total current liabilities	490,758	448,701	61,744
Non-current liabilities
Long-term operating lease liabilities	1,933	1,083	149
Total non-current liabilities	1,933	1,083	149
Total liabilities	492,691	449,784	61,893
Owner's Equity
Common shares (par value US$0.0001; 700,000,000 total authorized Class A ordinary shares at December 31, 2023 and June 30, 2024; 125,122,382 Class A common shares outstanding and 119,704,787 Class A common shares outstanding at December 31, 2023; 125,122,382 Class A common shares outstanding and Class A common stock outstanding at June 30, 2024 117,852,782 at 31 December 2023 and 30 June 2024, 200,000 total authorized Class B ordinary shares and 144,000,000 issued and outstanding Class B common shares, 100,000,000 shares authorized (not yet specified) and 0 issued (not yet specified) shares at 31 December 2023 and 30 June 2024)	185	185	25
Capital reserve	1,088,628	995,474	136,982
Treasury shares	(16,665)	(21,788)	(2,998)
Surplus reserve	8,164	8,164	1,123
Other comprehensive income	17,955	20,549	2,828
Uncovered losses	(140,463)	(93,498)	(12,866)
Total owner's equity	957,804	909,086	125,094
Total liabilities and owners' equity	1,450,495	1,358,870	186,987

Horn
Unaudited Consolidated Income Statement
( Amounts other than the number of ordinary shares, United States Depositary Shares, net income per ordinary share and net income per United States Depositary Share are shown in thousands )
trimester	Six months
up to 6 month 30 End of day	up to 3 month 31 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day
2023 year	2024 year	2024 year	2024 year	2023 year	2024 year	2024 year
Renminbi	Renminbi	Renminbi	Dollar	Renminbi	Renminbi	Dollar
Operating income	240,993	235,003	215,107	29,600	506,196	450,110	61,938
Cost of Doing Business	(70,160)	(66,892)	(63,372)	(8,720)	(149,796)	(130,264)	(17,925)
gross profit	170,833	168,111	151,735	20,880	356,400	319,846	44,013
Operating expenses
R&D expenses	(63,412)	(67,923)	(57,219)	(7,874)	(125,085)	(125,142)	(17,220)
Sales and marketing expenses	(40,564)	(54,995)	(51,263)	(7,054)	(80,999)	(106,258)	(14,622)
Management fees	(25,982)	(27,724)	(24,426)	(3,361)	(52,717)	(52,150)	(7,176)
Total operating expenses	(129,958)	(150,642)	(132,908)	(18,289)	(258,801)	(283,550)	(39,018)
Operating profit	40,875	17,469	18,827	2,591	97,599	36,296	4,995
Other net income	8,132	9,010	9,410	1,295	14,214	18,420	2,535
Profit before taxes	49,007	26,479	28,237	3,886	111,813	54,716	7,530
Income tax expense	(6,933)	(4,177)	(3,574)	(492)	(16,093)	(7,751)	(1,067)
Net profit	42,074	22,302	24,663	3,394	95,720	46,965	6,463
Earnings per United States Depositary Shares:
-essential	0.80	0.42	0.47	0.06	1.81	0.89	0.12
- Dilution	0.77	0.41	0.45	0.06	1.75	0.86	0.12
Weighted average number of United States depositary shares:
-essential	52,804,594	52,729,148	52,496,541	52,496,541	52,878,535	52,612,845	52,612,845
- Dilution	54,725,528	54,691,599	54,295,419	54,295,419	54,744,139	54,493,509	54,493,509
The equity incentive expenses included in the following expenses are:
Cost of Doing Business	70	40	26	4	168	66	9
R&D expenses	1,142	457	348	48	1,780	805	111
Sales and marketing expenses	59	46	45	6	438	91	13
Management fees	1,160	301	392	54	2,452	693	95

Horn
Unaudited Consolidated Consolidated Statement of Profit and Loss
(Amounts other than the number of ordinary shares, United States Depositary Shares, net income per ordinary share and net income per United States Depositary Share are shown in thousands)
trimester	Six months
up to 6 month 30 End of day	up to 3 month 31 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day	up to 6 month 30 End of day
2023 year	2024 year	2024 year	2024 year	2023 year	2024 year	2024 year
Renminbi	Renminbi	Renminbi	Dollar	Renminbi	Renminbi	Dollar
Operating profit	40,875	17,469	18,827	2,591	97,599	36,296	4,995
Equity Incentive Expense	2,431	844	811	112	4,838	1,655	228
Adjusted operating profit	43,306	18,313	19,638	2,703	102,437	37,951	5,223
Net profit	42,074	22,302	24,663	3,394	95,720	46,965	6,463
Equity Incentive Expense	2,431	844	811	112	4,838	1,655	228
Adjusted net profit	44,505	23,146	25,474	3,506	100,558	48,620	6,691
Diluted earnings per share of United States depositary shares	0.77	0.41	0.45	0.06	1.75	0.86	0.12
Non-United States GAAP adjustments	0.04	0.01	0.02	0.00	0.09	0.03	0.00
Adjusted diluted earnings per United States depositary shares	0.81	0.42	0.47	0.06	1.84	0.89	0.12
Weighted average diluted number of United States depositary shares	54,725,528	54,691,599	54,295,419	54,295,419	54,744,139	54,493,509	54,493,509
Adjusted weighted average diluted number of United States depositary shares	54,725,528	54,691,599	54,295,419	54,295,419	54,744,139	54,493,509	54,493,509