Q3 2019 Earnings Call
It did turn the conference over to your host Ms. Arena of Investor Relations manager for the company. Please go ahead serino.
Thank you Chuck and Hello to everybody on todays call with me today here our missed your last year, our co founder Dr. and CEO and Mr., how cool our CFO .
Chuck just mentioned today's call is being recorded and a webcast replay will be available on the company's IR website at <unk> IR dot our why B.B.A.B.Y. Dot com. Please note that the discussion today will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act now.
And your 95.
Forward looking statements involve inherent risks and uncertainties as such the Companys actual results may be materially different from the views expressed today further information regarding these and other risks and uncertainties is included in the Companys annual report on form 20-F for the fiscal year end.
At December 31st 20, ATM and other filings as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update to update any forward looking statements, except as required under applicable law.
During this call today management will also discuss certain unaudited non-GAAP financial measures for informational purposes, only the Companys third quarter or 29 <unk> earnings press release contains a reconciliation of the unaudited non-GAAP measures to the I noticed that most directly comparable GAAP measures.
Sure.
Now I'll turn the call over 10 minutes true for her to take us through the review and update on the business.
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Okay. Good team class questioning dot com Cook young.
Thanks to all of you have joined US today as always on todays call I'll review, our business and operating results, but this past quarter and Chris well then follow with a more detailed review of the numbers.
During the third quarter of 29 again, we continued to reach the content our existing educational offering capped on innovating and diversifying our product and services and making improvements to existing models all in an effort to improve our operational efficiencies and Hooper patch.
The weight opportunities presented in this ever evolving education market.
That said, we remain fully committed to our strategic focus on balance growth onto our mission of providing high quality individualized and age appropriate care and education to nurture and inspire our students, but there are betterment and life.
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In the third quarter of 29, P. and we continue to focus on attracting and retaining best talents and consistent investment in proprietary course research and development.
We're also encouraged by innovations and enhancements made across aspect of our existing educational products services and other offerings.
In particular, we have didn't program in enhancements of our internal operations management system, and adding digital component to the educational products and services that we offer resulting from our team continued efforts.
These actions are geared towards optimizing internal operational efficiency, facilitating easier and better communication with families and constantly improving be end user and business partner experience.
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For example, our cross functional team explore new wave of facilitating parent teacher communication or rather the joint education kindergarten and families.
Our team set off a mobile based facilities specific service accounts, one by one which has already been passed it in around 100 facilities in our network and we expect to roll it out to essentially all our first is supposed to ladies and achieve improved operations and he efficiencies. These measures are all.
So dedicated to sensing serving and satisfying the needs of parents are huge kindergarten as we received good feedback from parents will make improvements to our system stability and keep our services more user oriented and more sensitive to user habits overtime.
This newly introduced interaction on operations management system also help us track data and performance more closely improve the quality of services provided at our directly operated facilities and customized informational updates for individual parents.
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In the third quarter of 29 PM stable enrollment of our directly operated facilities was contributed by an increase in number of students enrolled at our mature and ramping facilities, both at home and abroad at the end of September .
We have.
30184 students at our directly operated facilities.
31.2% year over year growth from 23000 than 10 students last year, we expect the trends will continue as we open up more new directly operated facilities and that existing facilities rich improved utilization domestically and abroad. We're also pleased with early results I'll introduce.
Using or integrating the multi intelligence inquiry based learning experiences and future critical from Singapore to local facilities within our network in China. As these are also important baby steps for us to expand Brent universe, and an important moved to serve the broader customer base now we have.
Well continue to explore more ways of leveraging our brand portfolio advantage through dedicated and concerted effort with Singapore operations in curriculum design staff training resource sharing and I'd system integration.
In addition, well root for single Port T M to explore and develop their own nish gross locally and in other regions via organic expansion and or by actually <unk> acquisition of Merit.
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Moving onto our franchise planned learn centered business.
He and off the third quarter, we had over 1100 plan learn some tourists in operation as we slowed down the pace of expanding our franchise not weren't purposely and emphasize existing center operational improvement given that we're preparing for a new curriculum and sets of products during the quarter.
Well our vision for the long term growth and value has never been clearer factors beyond our operational control has impacted results of this past quarter for example, and overall degrees in discretionary spending.
In addition to solidifying our existing content offerings, the play and learn sensor business PM and R&D P. M are also in a process of getting our new line or play Americans are ready.
Well the efforts in court upgrades and franchisee optimization looking ahead, we expect sequential improvement in a performance and expansion of our playing learn center business in 2020.
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We stay focused on solidifying and expanding and making constant improvements to the educational offerings and services at our directory all parted kindergarten and franchise playing learned sensors. Additionally, we take our time and necessary SAP and make continued efforts to course development curriculum related.
Training facility operations management manual and so on through improved new business initiatives I eat you social quality oriented education and third party kindergarten services, we look forward to introducing the up off to the market once I've completed and half our internal assessment.
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To conclude.
To conclude we believe that early childhood education market in China is still in its nothing stages of development and there's a long runway.
With plenty of opportunities ahead, we believe that quality education will stand out and it's people told so our long term growth and to continuously creating value for the families and that society.
We remain committed as ever so our founding Michigan and our values. We also made I remitting efforts to delivering quality content and curriculum and improving our R&D capabilities well stay focused on our balance the broke and leverage our multi layered brand portfolio advantage to bring about many more new addresses.
No practices to early childhood education industry are ever improving comprehensive education solutions will meet the shifting need.
Oh children up different ages and their families. There were structured courses at both our kindergartens unplanned nerve center as well as at home educational products and services with that I'll turn it over to our CFO creep.
To provide highlights of our 29 in third quarter financial performance.
Okay.
Thank you Grayson answer you know next I'll go through a our so called our financial results.
Please also refer to our earnings press release that we posted on the website already for a completion complete discussion of our financial performance for the past quarter. I'm. Please also note that our reporting currency is in us dollars and are all percentage changes.
On a year over year basis, unless we otherwise stated stated.
Okay. So for the third quarter, a this year, which is the typical low season for our business. Our net revenue reached a 43.7 million a growing 24% year over year. This is thanks to this solid performance at our directly operated facilities.
We recorded a healthy enrollment increase of 31.2% compared to the third quarter last year.
As well as higher tuition fees. A this is also due to a favorable shift in our student mix.
So during the quarter, we opened up a total of five new kindergartens for business.
And all of them, our premium and international branded kindergarten doesn't carry different brand names from RBC.
There are located in top tier cities in China.
We believe the newly added facilities.
We'll add to an increasingly diverse brand portfolio for the company.
And we'll also hopeful that they will contribute to this solid performance of our directly operated kindergarten business segment going forward.
However on the other hand.
You noticed our net revenue for the quarter were slightly below our guidance range, mainly due to the weaker results at our play and learning centers.
This part of the business was affected by macro headwinds and weaker market demand as mentioned by Grace earlier.
In response, we have upgraded and Diversifies, our course offerings for our franchisees in an effort to help them stimulate sales.
[noise] turning into margins, our gross margin, an operating margin reached 7.1% and a negative 10.2% during the quarter.
Both improved from 3.5% and inactive 14.9% respectively from the same period a year ago.
Going forward, we will continue to seek a balance of growth and profitability.
In particular, we show stayed very disciplined cost management.
We will be more selective in making strategic investments that will lead the way for our long term growth envision.
Now moving onto our third quarter financial.
Net revenue for the third quarter of 2019 increased by 24% to 43.8 43.7 million up from 35.3 million over last year.
Service revenues for the third quarter of 2019 increased by 26.8% to 35 points 39.5 million from 31.2 million for the same quarter of 2018.
The increase was primarily contributed by increased tuition fees or into a student mix shift, which is favorable to us and an increase in the number of students enrolled at our directly operated facilities.
The increase in student enrollment was driven by higher utilization ratio at our newer facilities.
Contribution from directly operated facilities in Singapore.
Product revenues for the third quarter 2019 increased by 2.8% to 4.2 million from 4.1 million over the same period of last year.
Increase was primarily due to an increase in the average selling price of our products related to the courses that we sold to our franchise centers.
On the cost side or cost of revenue for the third quarter of 2019 was a total of 40.6 million representing a 19.3 increased from 34 million for the same quarter in 2018.
Cost of revenues for services for the third quarter 2019 word was 38.5 million compared with 31.9 million for the same quarter of 2018.
The increase was primarily due to an increase in our staff compensation at our directly operated facilities as well as direct operating costs as the company's facility network expanded.
Cost of products revenues for the third quarter was 2.1 million.
Which remained flat compared to 2.2 million for the same quarter last year.
Gross profit for the <unk> third quarter increased by 155.6% to 3.1 million.
This is in comparison with 1.2 million for the same quarter last year.
Gross margin for the third quarter, 2019 was 7.1% compared with 3.5% for the same quarter last year.
The increase in our gross margin was primarily due to higher utilization rate as I mentioned that are directly operated facilities.
As well as increased average tuition fees from a favorable student mix shift and increased average selling price overall cost related products offered by the company.
[noise] total operating expenses for the third quarter 2019 were 7.6 million compared with 6.5 million for the same quarter last year.
If we exclude share based compensation expenses operating expenses was 6.8 million increase which represented an increase of 37.7% Thirtys sorry, 30% to 37.3% from 4.9 million for the third quarter last year.
And then selling expenses for the third quarter. This year was zero point, Eightmillion, which remains largely unchanged from last year.
General and administrative expenses for the third quarter 2019 amounted to 6.7 million compared with 5.6 million for the same quarter last year.
Excluding share based compensation expenses Gn expenses were five point ninemillion for the so quarter. This year, representing a 45% increased from 4.1 million for the same quarter last year.
The increase in the general and administrative expenses, excluding the SBC was primarily due to higher payroll expenses and additional expenses related to our Singapore business, which were acquired during the previous quarter by us.
The share based compensation expenses included in the Gionee expenses were zero point eightmillion for the quarter.
Operating loss for the third quarter. This year was 4.4 million compared with 5.3 million of operating loss for the same quarter last year.
On an adjusted basis operating loss was 3.7 million for the.
Third quarter this year compared with 3.7 million of operating loss for the same quarter last year.
And then net loss attributable to ordinary shareholders of all right before this quarter was 3.3 million.
Paired with 4.3 million for the same quarter of 2018.
Adjusted net loss attributable to ordinary shareholders of all right B, which excludes the impact of zero point Eightmillion of share based compensation for the third quarter 2019 was 2.5 million. This is in comparison with one point ninemillion for the same quarter last year.
[noise] basic and diluted net losses per adss attributable to ordinary shares of the company for the third quarter 2019 were 12 cents.
And 12 cents both.
Compared with both 15 cents, respectively, respectively for the same quarter last year.
Adjusted basic and diluted net losses per adss attributable to ordinary shareholders of the company for the third quarter, where both nine cents compared with both six cents respectively for the same quarter last year.
EBITDA for the third quarter 2019 was a loss of 1.3 million compared with a loss of 2 million for the same quarter last year.
Adjusted EBITDA for the third quarter of this year was a loss of 0.5 million compared with a loss of zero point Fourmillion for the same quarter last year.
This is basically.
An overview of our financial results for the past quarter.
Next I'll turn to our business outlook.
For the fourth quarter of 2019, the company's management expects net revenue to be between 49, and 51 million representing a year over year increase of approximately 9% to 13%.
The above outlook is based on our current market conditions and reflect the company managements current and preliminary estimates of market, an operating condition customer demand as well as foreign exchange environment. All of these factors are subject to change.
Thank you for your attention that concludes my section on the financial results.
Next we'll open up the call for questions.
Chuck. Please go ahead. Thank you. Thank you we will now begin the question and answer session to actually question. You May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys. If a anytime your question has been addressed and you will like to withdraw. Your question. Please press Star then too for the benefit of all participants.
On today's call if you wish to actually question to management in Chinese. Please immediately repeat your question in English at this time, we'll pause momentarily to assemble our roster.
And our first question will come from Ella's sharing of Morgan Stanley . Please go ahead.
Thank you manage money Thats, taking my questions I have two questions on the hopper.
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Sure. Thank you out before the for the two questions.
Regarding your first question, we did revised down our revenue guidance for the fourth quarter.
And as I mentioned, the latest guidance range is between 49 million us dollars and 51 million U.S. dollars.
The decision to be advised on the numbers, mainly it takes into consideration to impact from our perspective.
One is the first one is our play and learn central business.
Is to deliver lower than budgeted revenue, which I'll discuss why shortly.
And the second reason is because of the slower new business initiative, which so far has not meaningfully contributed to our revenue for this quarter and next one.
Oh, well firstly.
Regarding the ER the slower plc business.
Firstly I would like to had mentioned that we intentionally but slightly slowed down the expansion of our franchise are playing learn center network.
[noise]. This is because we would like to find two and improve our existing brand image and operations of the franchise business.
And also to provide better services to our franchise partners.
Also we are in the process of preparing and hope hope hope to launch a separate new premium brand for our plc business.
To a lesser extend we do feel the impact from the broader macro headwinds and the fact that some parents are actually cutting back.
On Descript discretionary spending on early childhood education for their kids.
As a result, we're now providing a very relatively conservative guidance for the next quarter.
Also added four new initiatives as I mentioned, we do not expect a significant revenue contribution from these new initiatives in the fourth quarter.
This is because we're still in the in the process of.
Evaluating.
The products and the content by the industry experts are along with our business team.
So for 2020, we currently do not have any guidance, yet, but for the fourth quarter, we're actually providing the market with a relatively conservative range for revenue.
Hopefully this this answers your first question.
Regarding your second question, if I remember correctly, you're asking about.
Our kinda garden expansion plan for the fourth quarter and next year.
So first of all you a if you recall.
We had a total of seven brand new premium and international branded kindergartens.
That were newly up a set up during the first three quarters and five of them are actually just opened up for business during the past quarter.
So this number the total number of these new kindergartens are pretty much in line with our internal internal budget number.
So in terms of opening up new kindergartens or acquiring existing ones.
We're able to source and identify actionable opportunities in the market through various channels, either you know through our internal teams or through external advisors, but of of priority for us. We we look for kindergarten targets.
That our first of all they have to be fault profit nature.
They are premium and international branded and also we would only consider it kinda gardens located at the commercial properties.
So as I mentioned, we had a total of seven new Kinda gardens.
There are still in the early ramping up stage of all of them are brand new kindergartens.
These will be you know one of our key operational priorities over the next few quarters.
I think once they reach sort of a mature or mature stage a with significant student enrollment number then we would expect them to you know remarkably the contribute revenue far kindergarten business.
So then back to your question looking into the fourth quarter and 2020.
You know for our expansion, we would only focusing.
On a opening up and acquiring premium and international branded kindergartens.
At this stage, we actually already have a.
A couple of actionable targets that we are assessing or internally or negotiating with the sellers.
We do have a couple of key factors to consider in our criteria and they include price of the of the kindergartens the quality and location of the physical facility curriculum their content quality and most importantly, we do care a lot about.
The team.
Whether the team is capable of running the facility efficiently.
So for 2020, the number of newly opened.
Or acquired the facilities under a budget.
We would expect them to be not lower than the number we had in 2019 or so in essence, we expect to open or acquire more facilities.
Over the next year.
And lastly, I would also like to mention about our Singapore business.
As everybody knows we acquired a network of Singapore kindergarten.
About a year ago, so in Singapore as well as are the overseas markets.
We're also very keen to acquire a high quality kindergarten.
We currently also have a few targets that we are assessing already and similar to our plan for China. We will also continue to expand our network in overseas markets by either you know opening up new facilities or through at bolt on acquisitions.
So this is pretty much our plan for you know on the new facility set upfront for the coming quarter and next year.
I don't know if this does onto your question healthy.
Oh, yes, it's very clear thank you and wants.
Thank you.
Our next question will come from Alex Zhuhai of Credit Suisse. Please go ahead.
[noise], how you mentioned thanks for taking my questions.
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Remarks and.
A news release, you mentioned given to us upgrades and diversified across all things Thats really asking for your franchise business.
So I would you please share more details about upgrades of fitness strategy and.
Diversifying.
Of course offerings. Thank you.
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So having in mind off these evolving market condition will further solidify our advantages position in regions in cities, where our existing operations already have a good profit.
We also firmly believe that are distinct product and services and also other educational offering will continue to appeal to quality play I'm nervous owner operators in the market.
And will help us stay on track of our long term growth trajectory.
Our friend has planned Larson our business are widely distributed in tier two tier three and tier four cities.
That said, we show further our competitive advantage in those regions opening up more new franchise on Earth and also are gradually expand to new areas and city is where our brand currently you Havent entered.
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Before the franchise plan learning centers in operation well also gradually launch planned addressed men's and system upgrade so after help franchisees better at present their services to the local market and the same time to provide more marketing and operations support.
And so as to help them generate more revenue.
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In addition, where are you in preparation for a separately developed new line or rather new brand I'll play on learning center using different thought about feature courses and in Richman and training program.
Under that differently position play and learn centerline will offer a brand new set of curriculum and operations with management system and also a corresponding support.
[noise]. Thank you for the question Alex.
As there are no further questions now I'd like to turn the call back over to the company for closing remarks. Please go ahead.
Thank you Chuck Thanks, everyone for joining us today, if you have any further questions. Please do not hesitate to contact our IR at our IB BHP wide Dot Com. We hope you have a great day on view on the route. Thank you.
This concludes the conference call you May now disconnect. Your line. Thank you.
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