The huge increase in GSX’s revenues was mainly driven by the growth in paid course enrollments for K-12 courses.

Cost of revenues rose 245.5% to RMB283.3 million from RMB82.0 million in Q1 2019. The increase was mainly due to the increase in compensation for instructors and tutors, learning materials, as well as the extra costs paid for supporting our services offered for free during the COVID-19 outbreak.

GSX’s gross profit increased by 442.1% to RMB1,014.3 million from RMB187.1 million in the first quarter of 2019. Gross profit margin increased to 78.2% from 69.5% in the same period of 2019, primarily as a result of economies of scale.

Non-GAAP gross profit increased 448.4% to RMB1,028.2 million from RMB187.5 million in the same period of 2019. Non-GAAP gross profit margin increased to 79.2% from 69.7% in the same period of 2019.

Operating expenses were RMB922.4 million, increasing from RMB144.4 million in the first quarter of 2019.

Selling expenses increased to RMB757.2 million from RMB99.5 million in the first quarter of 2019. The increase was primarily a result of higher marketing expenses to expand the user base and enhance our brands, an increase in compensation to sales and marketing staff, as well as free course promotional expenses to acquire traffic during the COVID-19 outbreak.

Research and development expenses increased by 227.0% to RMB99.4 million, from RMB30.4 million in the first quarter of 2019. The increase was primarily due to an increase in the number of course professionals and technology development personnel, as well as an increase in compensation for such staff.

General and administrative expenses increased to RMB65.8 million from RMB14.4 million in the first quarter of 2019. The increase in general and administrative expenses was mainly due to an increase in the number of general and administrative personnel and an increase in compensation paid to general and administrative staff.

Income from operations was RMB91.9 million, compared with RMB42.7 million in the first quarter of 2019. Non-GAAP income from operations increased to RMB134.7 million, from RMB46.5 million in the first quarter of 2019.

Aggregation of interest income and realized gains from investments this quarter, representing the income received from cash, cash equivalents, short-term and long-term investments, increased 1,045.5% to RMB12.6 million, from RMB1.1 million in the first quarter of 2019. This resulted from an increase of cash, cash equivalents, short-term and long-term investments.

Other income increased to RMB61.9 million, from RMB533 thousand in the first quarter of 2019. The increase was primarily due to the value-added tax exemption offered by the government, partially offset by the related cost, during the COVID-19 outbreak, which amounted to RMB53.2 million, as well as government subsidies of RMB8.2 million received in the first quarter of 2020.

Net income increased to RMB148.0 million, from RMB33.9 million in the first quarter of 2019.

Non-GAAP net income increased to RMB190.7 million, from RMB37.7 million in the first quarter of 2019.

Net operating cash inflow for the first quarter of 2020 was RMB117.7 million, an 82.2% increase from RMB64.6 million in the first quarter of 2019.

Basic and diluted net income per ADS were RMB0.62 and RMB0.59, respectively, in the first quarter of 2020.

Non-GAAP basic and diluted net income per ADS, were RMB0.80 and RMB0.76, respectively, in the first quarter of 2020.

As of March 31, 2020, GSX had 159,165,833 ordinary shares outstanding.

As of March 31, 2020, GSX had RMB565.2 million of cash and cash equivalents, RMB1,003.1 million of short-term investments and RMB1,169.0 million of long-term investments, compared with RMB74.0 million of cash and cash equivalents, RMB1,473.5 million of short-term investments and RMB1,188.3 million of long-term investments as of December 31, 2019.

The increasing of cash and cash equivalents is mainly due to the maturity of short-term wealth management investments in the first quarter of 2020.

As of March 31, 2020, ITS deferred revenue balance was RMB1,338.8 million, largely flat from RMB1,337.6 million as of December 31, 2019. Deferred revenue primarily consisted of tuition collected in advance.

GSX’s board of directors authorized a share repurchase program under which it may repurchase up to US$150 million of its shares, effective until May 6, 2022.

Kaplan Fox & Kilsheimer LLP is investigating claims on behalf of investors of GSX. A complaint has been filed against GSX on behalf of investors that purchased GSX securities.

On June 6, 2019, GSX conducted its initial public offering (“IPO”) by issuing 19.8 million ADSs at $10.50 per share.

According to the complaint, on February 25, 2020, Grizzly Research LLC (“Grizzly”) published a report highlighting multiple alleged issues with GSX’s business and financial operations (the “Grizzly Report”).

Specifically, the Grizzly Report alleged, among other issues, that GSX “has been drastically overstating its profitability in its US public filings, especially for 2018″; Grizzly “found multiple strong indications of past and current order ‘brushing,'” which are “essentially fake student enrollments to boost student count”; “many of GSX’s reported students do not actually exist”; and “[w]hile [GSX] touts its high-quality teacher recruitment mechanism, [Grizzly] found a sign-up website that was not functional, multiple allegations of GSX hiring teachers right out of college with no prior experience, and fabricated teachers profiles.”

Following the publication of the Grizzly Report, the price of GSX’s ADSs fell $1.33 per share, or 2.93%, to close at $44.09 per ADS on February 25, 2020.

Then, according to the complaint, on April 14, 2020, Citron Research published a report highlighting additional alleged issues with GSX’s business and financial operations (the “Citron Report”), including, among other issues, that GSX’s “2019 revenue was overstated by 70%,” that “sales revenues are largely exaggerated,” and that GSX’s “filings are riddled with suspicious transactions.”

Following the publication of the Citron Report, the price of GSX’s ADSs fell $0.20 per share, or 0.64%, to close at $31.20 per share on April 14, 2020, 31.3% lower that the closing price prior to the issuance of the Grizzly Report and the Citron Report.