Q3 2019 Earnings Call

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I'd now like to turn the conference over to Claire. Please go ahead.

Sure.

Thank you all cratered Hello, everyone I think there first <unk> third quarter a couple in that.

Okay cool accompanied by herself for various other after they are available on the Companys IR website at <unk> Dot, yes, so why don't call.

On the call because they are Mister car wash out a company called our chairman and Chief Executive Officer Mr., Paul when the Chief Financial Officer, then I will give a brief overview all the companies just with all Krish I thought I like how about who'll go through the financials and guidance.

I hope all available to answer your questions during that Youre, a best friend got how [noise].

I Wonder why your Doctor all my colleagues have forward looking to say like me under the Safe Harbor provisions of the car That's Securities Litigation Reform Act like Nike Heart [noise].

Such statements are based on management's current expectations and current market not all pricing competition.

Relate to events that involve known or unknown risks uncertainties and other factors Oh my God difficulties.

I might have worked out beyond the company's contrail, which mikasa companies actual results performance car choose not to differ materially comes out in the full wonder plus that [noise].

[laughter] information regarding these or other it uncertainty.

Factor that's been put it in the company's Sally where he you asked a tricky sex when it's going to show the company does not undertake no obligation to alphas any forward looking statements I thought was telecommuting for me no assurance future events or [noise].

Except that's required on the long [noise].

With that I will now turn the call over totaling her shop, especially I would give us the marks in Chinese now, we're trying to play sort them out numbers. Mr. Shop. Please go ahead [noise].

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[noise] Investor call girlfriend Jeans, <unk> question that didn't have a true overall property keyboard to first car net income bridge RFP for Q3, 0.74 to mail compared to dialogue from RMB 51 to one I know there [noise] gross profit margin watch t. quite a 3%.

That's all I've said being great potentially make you have on track for continue profits up dog keeping up the true first NAD revenues grew 48.7% year over year to RMB 996 million, beating previous expectation.

Continue implementing our acquisition and integration cost attitude and successfully acquired a cool.

There's not increasing student enrollment continues to be a key driver for our success.

Third quarter, pushing you're not enrollments increased by 60.2% reshot telephone number else eight <unk> [noise].

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Well take a closer look out out that's not the type of service glass performed exceptionally well net revenue increased by eight [laughter] by 4% or over here.

It's going to be attributed to both our acquisition integration strategy.

Because I thought first the efforts is okay cool, okay, cool I sort of excellent organic growth on our existing portfolio.

I'll go against girls are Corporately her life pharmacy I'm sure operational it's interesting I sort of saying that's that's it from continues to expand into lower kiss people [noise].

Our sample our retention rates averaged 70.3, [laughter], 70% for three consecutive quarters.

Okay, perhaps I know retention rate fell at the 5% session at the top tier education service provider.

In particular, the operating profit off K 12 service line at Cobiz financial impact from on why school I have quarter increased by 667 quite a 1% year over year. So about RMB nights email, we continue to sell out.

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We are also now first tries to other brabafen, it's some copper though for the first time that's caught her since the acquisition global education, and educate younger third quarter of kinda give 17th.

And I'd have sound like you're our position that integration strategy, that's relative to that it's practically nothing other brought this time I love to participate itself after eight falter [noise].

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So [laughter] a rapid revenue growth I'm turned profitable enough third quarter from came actually rather optimistic about future I quit implement our athletes Fisher and temporary shut strategy and continue to feel solid organic growth.

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With that I wouldn't know active trying to call over to call for work over the financial [noise].

Thank you Mr., Sean let me just you know.

Please be reminded that one of my Oh, you won't be RMP, an old pursuant to the increased lumpy on a year over year basis, almost all of my speech.

Please also refer to on the earnings release, what do you want a nation.

I must caution.

I'll be on business.

Sorry, net revenues were 990 96.

I mean, creases 48, what's kind of course, [laughter] quanta to take 18.

This increase was primarily driven by increases student enrollments.

Student enrollments increased to 60.2%.

Comedy somebody to Oh, Hong Kong Wuxi full house.

During the same she are going to Tonight Pinky cheap.

First revenues. This is Paul Martin [laughter], an increase of 32% common seem showed a two to eight cheap.

Did you see an increase each if you stop somebody's fishing.

Cost of revenues, excluding share based compensation expense.

This 493.6 million.

Increase of 32.5% instead of Clark's Creek 18.

Gross profit was 481.5 million increase was 70% superior <unk>.

Ross mocking the 50.3%.

Compared to 44.1% boxing purely due to the 80.

Total operating expenses were 445, ox 59.9, none and increased 29.1 million.

9.1%.

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Some expenses were 304.8 non increased from 5% from second quarter of a tenb 18.

Selling expenses, excluding share based compensation expenses were 299.9.

An increase of 31.8% from instead of course a cheap.

The increase was primarily due to increase marketing expense.

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[noise] General and administration administration expenses word won 55 why not.

And increased 30.5% from the since your last year [noise].

General administrative expenses, excluding share based compensation expenses.

Lots of 50.39.

The increase of 35% in the third opportunity a cheap.

The increase is primarily due to increased to see stock compensation and Danny operating funds.

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[noise] operating income was 41.5 not.

Comparing operating loss off 61.1 challenge, except caught up to 80.

Operating margin was hold on to parse out compared to two in actives minus 1% simply alright.

2018.

Speaker 1: Adjusted operating income was 52.2 million compared to some jobs to operating loss of 1.8 million if that caught up to 18.

Adjusted operating margin was 5.2 parts that I'm kind of NAV to 6.2 parts at the same theoretical fill out the prior year.

Net income attributable to push eliminated Wes.

33.79, compared to not lost would be a chicken pushing a lot much.

60.2 million feeling that caught up to 80.

Basic and diluted net income for 80, yes, I should know pushing a lot much.

Speaker 1: Well see Oclock right.

Compared to basic and diluted net loss of 0.62 doing that's quite appealing to 18.

Adjusted net income net income attributable to personalize it was 43.5 million compared to adjusted net loss, but you're going to pushing that much.

RMB 61.0, I'm, not I'm going to send PRM to 18.

Josh banks net income or 80 has a trigger but 2%.

The other 0.50 compared to adjusted basic net loss of 0.62, you already that's been POS you do you see a cheap.

Adjusted diluted net income.

Or 80 asset attributable to personal how much was zero confident mine.

Compared to adjusted net loss or 0.62, you don't have the same show the teacher 80.

He'd be jobless 70.8 million compared to negative 19.5 minutes in the subset caught the attention eighties.

EBITDA margin was seven.

On 1% I'm, sorry, not 2.9% well the 17.

[noise] adjusted EBITA outlets.

What 6 million compact reflected 20.3 million in effect for up to 18.

Adjusted EBITDA margin was 8.1% compared to negative 3% during the same p. or did the pie here.

No.

Well move onto the balance sheet.

It was off September Thirtyth 30, Transgene 19, we have two little cash cash equivalents.

Robert Micchelli 2 million compared to 778 MELA as of December 31, 2018.

Chris This is primarily due to acquisitions of case Nortel schools.

Finally for guidance.

Oh, well caught off to my team.

We expect net revenue to be trend.

So I'm a hobby Ms 70.69, and so I'm, a hockey 97.2 million, which represents an increase of 45% to 50% year over year.

It's full cost affects the company's card you preliminary views on marketing and operational conditions, which are subject to change.

That concludes <unk> prepared remarks, we're not trying to call was over to the operator and open up for Acumera, operator were ready to take questions.

[noise] they will now begin the question and answer session.

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At this time, we'll pause momentarily to assemble roster.

[laughter]. Our first question comes from Mark Lee with Citi. Please go ahead.

[noise] Hi management congratulations on the results.

What is our pockets for Penny time piece in terms all.

The revenue growth for both calls and the study abroad and also a new modern Carla and what would be our focus for M&A. Thanks.

Thank you Mark <unk> options as to the tendency turnkey we are looking at a high double digit growth Oh in terms of the top scorer topline growth and all of what are the amendment driver well be cheaper.

[laughter] in that as you make a well you me well know the startup off line. The study abroad ER segment is growing.

Slower than the paper towel. So for 10 T 20, we are in general we're lucky at the height.

A couple of digital or are driven by that came through a tall both off from the acquisition and they the organic growth.

Yes, so adds to the so the margin.

As shown in these earnings release the are the overall gross margin for who she has rights into over 60%.

But it's already minor upsides at the reference we are looking at Oh, the opportunity off spa expansion aimed a high tier cities across China. So.

Flora in terms of organic growth, we are looking at a higher.

Gross margin rate.

In order to to balance the on the topline and bottom line, we are going to expand our on learning centers comes out in a higher Chester just.

So.

Oh, great marketing is not the top priority off pushing.

Oh instead, we are looking at a balanced gross well stocked up top line expansion and also that Ah that's the bottom line.

Thank you.

Hi, Thanks, Matt I follow up so for the organic growth expansion or and then they liked a and b a region, particularly with a focus more thanks.

Okay. Thank you.

In terms of organic growth, we are looking at 830 Crescent blocks.

Organic growth rate Alendrin five aside installed world.

As shown by.

The second quarter results off our 2019 again, we are also looking adoption to see.

Oh, a physical expansion in the higher tier cities up for China.

So out the.

Other growth opportunities tend to trend to eat we are expecting a eight growth even driven by mainly driven by the organic growth.

Our company to buy expression fiscal expansion, often learning centers or in the high tier cities.

[noise]. Our next question comes from showed on Zagg with C. I see see please go ahead.

[noise] plenty sound like Oh, gosh additional oh.

Oh, well eat well not one here how do you go Joshi violent I know ship out quite a young leader to ship I'm filling in the short tissue to show in Lima called the are the ones you should tell you what my CIC, Okay, sharpened our TPS and.

And the eight at that point change amniotic tissue inside surgical gene are shaping so let me briefly translate my question. So my first question is regarding the study abrupt business. So watch six trends. That's the profit profitability right. Now are we still targeting at increased separate preferred it took the tee up to a study abroad.

Mens and my second question is regarding the K 12 segment, so what's the general and mergers and acquisition environment up this document and what's the level of valuation right now is for the second thank you.

Okay. Thank you for Oh, well two questions first in eight in terms of for growth for a starting at rock segment.

Our first full I like to highlight that offer study of rock segment is growing at the very tall, Oh aim the industry.

As shown by the resolve insect caught up this year Albert.

Step a second one has grown for nobody catchy as an example has grown over a grown over 30% and in the past eight quarters, a with a great a reduction reduction in the I'll put most of the business. So we are.

We're looking at T E.

Our next so 20% increase in the in the form part of this year, a which skier ranks us and beat the high end up the industry.

As to the onto the landscape that are the M&A, Oh, firstly, driven by the regulatory movement.

Oh, Florida more second quarter is soft Oh, the state of the small and medium size.

Oh from school children companies they are.

The I'm more ready to.

To cooperate with pushing.

And secondly, or the valuation is relatively the concentration or valuation is wrapped into higher because.

It's pushing just grow bigger and bigger and pushing the other chart. The bought my pushing these becoming stronger and stronger we are looking at revenue ratably about bigger and record of more profitable talking the pipeline. So yeah I think consideration we are.

Looking at is a rep to higher compared with those tar case one.

I used a prior to the IPO up but yeah again, we are we're not rushing for those deals. So we are.

Hi, I'm about to get the a reasonable a deal.

Thank you okay. Thank you.

This concludes our question and answer session I would like to turn the conference back over to clear for any closing remarks.

Thank you operator in closing on behalf of the entire national <unk>, we'd like to thank you again for your participation on today's call. If you have any further increasing the future. Please feel free to [laughter]. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.