UClub International Ltd. (NASDAQ: UK) (“UClub” or the “Company”), a leading agile office space manager and provider in China, today announced its unaudited financial results for the third quarter ended September 30, 2021.

Third Quarter 2021 Financial Highlights

Net revenues were RMB253.5 million, representing an increase of 26.8% from the third quarter of 2020.

Net loss was RMB181.5 million, compared with RMB169.3 million in the third quarter of 2020.

Adjusted net loss [1], which excluded share-based compensation expense, impairment loss on long-lived assets, change in fair value of warrant liability, impairment loss on long-term investments and loss on disposal of subsidiaries, was RMB60.4 million, narrowing by 49.5% year over year from RMB119.8 million in the third quarter of 2020.

EBITDA loss [2] was RMB161.2 million, compared with RMB158.2 million in the third quarter of 2020.

Adjusted EBITDA loss [3] was RMB40.4 million, compared with RMB76.1 million in the third quarter of 2020.

Third Quarter 2021 Operating Highlights

As of September 30, 2021, UClub had committed to 274 office spaces in 62 cities, including 106 office spaces in tier-1 cities, 66 office spaces in new tier-1 cities and 97 office spaces in cities tier-2 and below, and was providing approximately 758,000 square meters of managed area to 1,170,400 members. Among those, 215 office spaces, or 78.5% of total committed spaces, were in operation.

As of September 30, 2021, UClub’s total number of spaces contracted under the Company’s asset-light model increased by 56% to 165 spaces located across 54 cities from 106 spaces located across 42 cities as of September 30, 2020. The Company’s total managed area under contract[4] for the asset-light model increased by 84% to 502,000 square meters from 273,000 square meters as of September 30, 2020.

[1]For a reconciliation of net loss to adjusted net loss, see the “Non-GAAP Financial Measures” section and the table captioned “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.[2] For a reconciliation of net loss to EBITDA, see the “Non-GAAP Financial Measures” section and the table titled “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.[3] For a reconciliation of net loss to adjusted EBITDA, see the “Non-GAAP Financial Measures” section and the table titled “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.[4] Spaces and managed area under contract include those in operation, under construction, and in preparation for construction.

Dr. Daqing Mao, Founder and Chairman of UClub, commented, “In sync with China’s urbanization trend of focusing more on quality development rather than outward expansion, we continued to penetrate domestic and international markets with our intelligent agile office service ecosystem. During the third quarter, we increased our asset-light model’s contribution to our business in terms of both total number of spaces contracted and total managed area under contract. By the end of 2021, we expect to have grown the proportion of projects managed under the asset-light model to about 75% from roughly 50% in 2020. Evidence of the progressive development of our asset-light model was shown through several new partnerships during the quarter, as we entered into an agreement in the domestic market to help Besunyen improve its operating efficiency and accelerate its corporate transformation by providing customized office spaces and comprehensive facility services. In addition, we formed a partnership with Australia-based Hexa Group to jointly develop the ‘Hexa Space-UClub’ co-working project in Melbourne, adding another international market to our geographic footprint in addition to Hong Kong and Singapore. Leveraging our expertise in agile workspace management and operations, we plan to capitalize on the emerging market demand for green, smart, and efficient urban development and augment our growth momentum going forward.”

Ms. Xin Guan, Chief Executive Officer of UClub, commented, “As we continued to shift our project mix towards the asset-light business model, we not only expanded our geographic coverage by entering into 2 new cities and adding 11 new office spaces, but also broadened our comprehensive facility service offerings. During the quarter, we acquired an equity interest of 60% in ‘Xiao Sushi’, to officially enter the consumer services sector by integrating its 300,000 self-owned platform members into our operations of nearly 300 chain office spaces and 1.16 million offline members. Utilizing our combined resources, we plan to form a closed-loop ecosystem offering a variety of new products, including working meals, conference event meals, afternoon tea sets, and affordably-priced beverages, as well as for a wide range of sales scenarios, including those for office buildings, office parks, and commercial buildings. Going forward, we will continue to explore new business opportunities that have synergies with our core business to sustain our growth trajectory.”

Mr. Siyuan Wang, Chief Financial Officer of UClub, added, “In the third quarter, we grew our net revenues by 26.8% to RMB253.5 million while narrowing our adjusted net loss by 49.5% to RMB60.4 million year over year. Despite the revenue recognition impact from our business mix shift, we improved the occupancy rates of our self-operated co-working spaces, increased our advertising and marketing service revenues, and expanded our interior design and construction services as well as our SaaS services. Meanwhile, we continued to simplify our corporate structure, streamline our business processes, optimize our operating efficiency, and reduce our costs and expenses. With a leaner, fitter, and more agile business operation, we are well positioned to seize emerging market opportunities and grow in a healthy manner for the long run.”

Third Quarter 2021 Financial Results

Total net revenues increased by 26.8% to RMB253.5 million in the third quarter of 2021 from RMB199.9 million in the third quarter of 2020. Revenues from the asset-light model increased by 275.9% to RMB21.8 million in the third quarter of 2021 from RMB5.8 million in the third quarter of 2020.

Workspace membership services revenues decreased by 8.5% to RMB98.0 million in the third quarter of 2021 from RMB107.2 million in the third quarter of 2020. This decrease was mainly due to the closure of unprofitable spaces in operation and contraction of the Company’s self-operated coworking space services resulting from the Company’s transformation to an asset-light model.

Marketing and branding services revenues increased by 23.8% to RMB100.1 million in the third quarter of 2021 from RMB80.9 million in the third quarter of 2020, mainly due to increased demand for advertising and marketing services from certain customers.

Other services revenues increased by 366.0% to RMB55.3 million in the third quarter of 2021 from RMB11.9 million in the third quarter of 2020, primarily due to increased net revenues from the Company’s interior design and construction services and its SaaS services.

Total costs of revenues increased by 15.8% to RMB273.1 million in the third quarter of 2021 from RMB235.8 million in the third quarter of 2020. Costs of revenues from the Company’s asset-light model increased by 427.0% to RMB19.5 million in the third quarter of 2021 from RMB3.7 million in the third quarter of 2020, which was primarily in line with the increase in revenues from the Company’s asset-light model.

Costs of workspace membership decreased by 11.4% to RMB129.0 million in the third quarter of 2021 from RMB145.6 million in the third quarter of 2020, mainly due to decreased operational costs related to leases and staff, partly offset by an increase in share-based compensation expense, amounting to RMB9.0 million.

Costs of marketing and branding services increased by 33.2% to RMB95.2 million in the third quarter of 2021 from RMB71.5 million in the third quarter of 2020, mainly due to increased advertising spending, which was in line with the increase in advertising revenue.

Costs of other services increased by 161.6% to RMB49.0 million in the third quarter of 2021 from RMB18.7 million in the third quarter of 2020, which was in line with the increase in other services revenues.

General and administrative expenses increased by 71.0% to RMB79.7 million in the third quarter of 2021 from RMB46.6 million in the third quarter of 2020, mainly due to an increase in share-based compensation expense of RMB41.2 million and professional service fees.

Sales and marketing expenses increased by 196.4% to RMB17.7 million in the third quarter of 2021 from RMB6.0 million in the third quarter of 2020, mainly due to the increase in share-based compensation expense.

EBITDA loss [5] was RMB161.2 million in the third quarter of 2021, compared with RMB158.2 million in the third quarter of 2020. Adjusted EBITDA loss [6] narrowed by 47.0% to RMB40.4 million in the third quarter of 2021 from RMB76.1 million in the third quarter of 2020.

[5]For a reconciliation of net loss to EBITDA, see the “Non-GAAP Financial Measures” section and the table titled “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.[6]For a reconciliation of net loss to adjusted EBITDA, see the “Non-GAAP Financial Measures” section and the table titled “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.

Impairment loss on long-lived assets was RMB74.1 million in the third quarter of 2021, compared with nil in the third quarter of 2020, primarily due to the impairment of three substantial prepaid rent from previous periods accrued in the third quarter of 2021 as a result that the carrying value is not expected to be recoverable based on current market conditions.

Other income, net was RMB0.2 million in the third quarter of 2021, compared to other expense, net of RMB32.5 million in the third quarter of 2020, primarily due to a disposal loss of long-term assets of unprofitable spaces was recorded during the third quarter of 2020.

Net loss was RMB181.5 million in the third quarter of 2021, compared with RMB169.3 million in the third quarter of 2020.

Adjusted net loss [7] was RMB60.4 million in the third quarter of 2021, compared with RMB119.8 million in the third quarter of 2020.

[7]For a reconciliation of net loss to adjusted net loss, see the “Non-GAAP Financial Measures” section and the table captioned “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.

Basic and diluted net loss per share were both RMB2.01 in the third quarter of 2021, compared with RMB2.50 in the third quarter of 2020.

Basic and diluted adjusted net loss per share [8] were both RMB0.58 in the third quarter of 2021, compared with RMB1.71 in the third quarter of 2020.

[8]For a reconciliation of net loss to adjusted net income, see the “Non-GAAP Financial Measures” section and the table captioned “UClub International Ltd. Reconciliation of GAAP and Non-GAAP Results” below.

Cash, cash equivalents and restricted cash were RMB288.7 million as of September 30, 2021, compared with RMB400.8 million as of December 31, 2020.

Business Outlook

For the fourth quarter of 2021, the Company expects net revenues to be in the range of RMB250 million to RMB280 million. The forecasts reflect the Company’s current and preliminary views on the market and its operating conditions, which are subject to change.

Recent Developments

On July 1, 2021, Besunyen Holdings Company Limited, an investment company engaged in the manufacture and sale of therapeutic tea products, agreed to occupy 3,047.6 square meters at the Company’s landmark asset-light project in the Beijing Asia Finance Center for a total of 327 workstations from July 1, 2021, to December 31, 2023. In addition, the Company will also furnish its one-stop customized U Design services to Besunyen.

In September 2021, the Company’s wholly owned subsidiary, Beijing Zerone Management & Consulting Company Ltd. (“Beijing Zerone”), an office space management services provider in China, acquired a 60% equity interest in Beijing Kuanneng Technology Co., Ltd., which owns and operates the Japanese culinary restaurant brand “Xiao Sushi.” In October, Beijing Zerone acquired a 60% equity interest in Beijing Jiajia Renhe Intelligent Technology Co., Ltd, a human resources solution platform.

On October 1, 2021, the Company started a five-year cooperation with Hexa Group, an Australian property developer, to jointly develop the “Hexa Space-UClub” co-working project located in Melbourne, Australia.

About UClub International Ltd.

UClub is China’s leading agile office space manager and provider. Founded in 2015, UClub has created a large-scale intelligent agile office ecosystem covering economically vibrant regions throughout China to empower its members with flexible and cost-efficient office space solutions. UClub’s various offline agile office space services include self-operated models, such as U Space, U Studio, and U Design, as well as asset-light models, such as U Brand and U Partner. By utilizing its expertise in the real estate and retail industries, UClub operates its agile office spaces with high efficiency and engages in the urban transformation of older and under-utilized buildings to redefine commercial real estate in China.