Q2 2020 Earnings Call

Thank you Ruby. Thank you. Everyone who is joining our call today to review 2020 second fiscal quarter results before my remarks wage Wars on the pandemic. The outbreak of covid-19 is affecting millions of lives around the world and the causing unprecedented disruption to education across all ages Our Hearts and Thoughts go out to the people who have been affected by this. I'm president of the event and a way appreciate the health care workers Local communities and governments around the world who are on the front line working to contain this Coronavirus.

Let's begin again for those who are new to Bright scholar. We have included in our earnings presentation a brief introduction from Slide Five to slide thirteen, which you can download from our our website all numbers are in Renminbi and all comparisons refer to year-over-year off last otherwise stated

I will begin first before passing the call to Dora to provide a detailed financial review and an update on our guided our guidance. We will keep the remarks brief to allow more time for Q&A.

Please turn to slide 13 4/15 for the highlight of our second fiscal quarter and the first-half performance with detailed second thoughts on slide sixteen and a slide 17 following a strong start, you know, our first fiscal quarter, we have delivered even better performance package the second fiscal quarter which demonstrate the strength of our operation compared to the second quarter of last fiscal year off the revenue grow a 72.4% gross profit net income and adjusted ebitda increased by 104% to 683% and a 209% and 4% respectively.

driven by

The operating initiatives started last physical year the revenue gross profit net income and adjusted ebitda for the first half of this fiscal year increased by 70.5% 74.6 percent 49.7% and 89.3% respectively.

In particular the domestic K12 segments delivered a remarkable margin improvements doing first half of the fiscal year the adjusted gross margin wage adjusted ebitda margin increased by 4.2 and a seven point two percentage points respectively in addition our adjusted unallocated corporate expenses, which were mainly from our headquarters in the second quarter and the first half of this fiscal year decreased by 9.4% and a 16.2%, respectively despite all the increasing business scale and complexity.

Turning to slide 18 at a 19 romant continues is solid traction driven by organic growth the average student enrollment of first half of fiscal 2020 increased by 23.4% to $51,087 and nine students with Blended utilization improved to 77.2% from 71% The academic accomplishments of our students are the shining stars of rice color as shown in a slide twenty as of April 2nd twenty twenty 92.1% of the students in 2020 graduating class of our international schools should have received over nine hundred seventy offers from the global top 50 institutions, including three offers from Oxford three offers from Cambridge for birth

Pers from University of Chicago a 9 offers from UC Berkeley.

We enter the second half fiscal year of 2020 with focus on implementing a number of exciting strategic initiatives to drive organic growth and a job interviews with acquired businesses. Please turn to slide 21 for the highlights status College Guangzhou, an ultra Elite international school is on schedule to open this coming fall our online merge offline o m o initiatives was accelerated as shortly after the outbreak of covid-19 dollars the shared services Center aimed to provide a central Operational Support function in the UK is on scheduled to be in operations by this summer we suspected these initiatives were dead now asked to increase the value from acquired businesses.

our deep

Collaboration with Country Garden have always been crucial to the expansion of our school network as of the release date. We have entered into agreements with Country Gardens to operate a total of 53 kindergartens and a seven schools with a total capacity of approximately thirty thousand students.

There is little doubt that we are all printing environment with an unprecedented level of uncertainty while the full impact of This Global pandemic remains uncertain. I am confident that our operational strength tells the balance sheet and a world-class teams will lead bright scholar to deal with a current challenges bath and emerged stronger. We have taken measures mentioned in our earnings release and listed in slide twenty-two and have vigorous action plans in place a to minimize risk of infection in premises as our schools gradually reopen in China minimize disruption to our Global operations and pursue Innovative opportunities in challenging environment.

We are dealing with this period of uncertainty starting from a position of strength and I'm confident that we have the right strategy write a service offerings and financial resources to navigate through this environment and emerge from the situation pulled poised for more success in the future with this note. I will turn the call over to Dora. Thank you Derek that stems back to our financials. Please be reminded that all members are dead R&B and all comparisons refer to year-over-year comparisons unless otherwise stated, please also refer to our earnings press release for detailed information of comparative financial performance on the year-over-year basis.

PLS attend to slide twenty-four. We have delivered another strong quarter with top-line growth of 72.4% to 877 million for the quarter, up 70.5% to one thousand nine hundred and seventy-five million for the first half of the year.

So must be twelve schools, including international schools bilingual schools and the kindergarten all performed solid 20-plus percent top-line growth for the quarter and on the six-month basis our International School Revenue increased twenty 22.1% for the quarter and this was primarily due to 19.3% increase in a student enrollment on a six-month basis revenue for international school was up 24% due to an 18.9% increase in student enrollment month.

our Bilingual School

Revenue for the quarter up 20.9% and primarily due to 12.1% increase in student enrollment and for the 6-month appalling go school Revenue up 19.5% and the mainly attributed to 12.2% increase in students enrollments.

For our kindergarteners revenue for the quarter was up 21.3% do to increase in student enrollment of 22% And on the six months. It's for how many for kindergarten up 20.8% and this was primarily attributed to 22.5% increase in student enrollment on the same basis. The plant is s t for kindergarten Blended was down 1.4% on a six-month basis of basically due to the impact from kindergarten if we exclude she told on kindergarten the average tuition fee for our other kindergarten would have increased 4.4% off on a six-month basis.

Overseas schools is an important part of a global strategy due to the inclusion of Michael School Bus for school and cats. The second quarter of new from overseas school was 297.2 Million accounted for 33.9% of total revenue on a six-month basis. Revenue was 556.4 Million accounted for 28.2% of total revenue.

What was what was this contributed about 46.6% Revenue growth and the 48.4% gross profit growth in the first half of physical 20 20 average number of students was $3,300 for the quarter and the $50,260 on a six-month basis took the inclusion of Michael Bosworth and has in the first half.

All complimentary education business Revenue was up 6.4% for the quarter and the 34.6% for the 6 months basis.

Please tend to like twenty-five cost of revenue for the quarter was 65% of total revenue compared to 70.5% in the same quarter last year on the 6-month spaces cost of Revenue was 60.5% and compared to 61.4% in the same period of last physical teach and stuff cost the primary cost contributor accounted for 35.6% of total revenue down from 47.64. The porter on a six-month basis teaching staff cost was 32.2% down from 40.3%

so

Our domestic p12 schools the average student teacher ratio for the first half of physical twenty-twenty was 8.9 compared to 9 in the same. Same physical year.

It's like 26 our gross profit and margin despise the covid-19 impact on our complimentary segment in February strong problems with improved operating efficiency Drive office profit growth and margin expansion goes profit was up 104% for the quarter and the Seven seventy 4.6% full the first half gross margin was up 5.5% in point to 35% for the quarter and on a six-month basis gross was up a point nine percentage point to 49.5%

Continuing on flight 27 illustrate more on our operational display and improving operational leverage for second physical culture adjusted sg&a as percentage of total revenue was down to 25.3% from 26.8% in the same quarter last fiscal year on a six-month basis adjusted sg&a, X percentage of total revenue was down to 21.4% compared to 21.7% in the same period last fiscal year.

Adjust the s g n a f n d ROM for our domestically 12 for the quarter was 7.5% down from 13% or 13.5% off and on the 6-month spaces adjust s g n a x percentage of revenue for domestically 12 with 7.1% down from 12% off.

Percentage of Revenue adjusted unallocated corporate expenses. Mainly our headquarter expenses for the quarter was 4.1% off down from 7.9% on the six-month basis. It was 3.3% down from 6%

Adjusted allocated corporate expenses for the quarter was 36.2 million compared to forty Million last year on a 650s. It was fifty fifty eight point six million down from seventy million.

And I was like twenty eight is delivered more on the just the sg&a expenses.

Please send to flight 29 adjust the eBay sales for the quarter was up 209.4% to 152.5 million months. If it margin was 717.4% up from 9.7% for the 6 months basis adjusted ebitda up 85.3% to 505 million. Just give it a margin was 25.6% up from 23%

Net income for the quarter up 92.7% to 61.7 million, but just the net margin was 7% up from 6.3% wage for the first half adjusted net income was up 43.9% to 287.1 million and our adjusting that margin was 14.5 as compared to 17.2%

Due to the uncertainty surrounding the impact of covid-19. We are revising our guidance for fiscal year 2020 and sliced cheese one for the physical year ending August 31st, 2020. We expect our total revenue in the range of 3.37 billion and 3.47 billion representing a growth of 51% to 35% based on the existing business and without potential acquisition. We also expect average student enrollment to be between approximately 51850 2808 representing an increase of 11% to 13% Meanwhile a steroid mentioned in our earnings release. We are taking a graphic Cost Containment a club

As possible to minimize the impact from lower Revenue growth and expect to achieve our Target in margin for the group of this fiscal year.

We are also in preparation to open 15 kindergarten and three international bilingual schools for physical 20-21 Beyond physical 21 we have for schools and the 43 kindergarten contracted with operation. Please refer to the table inside 33 and 36 for the income statement and sliced through his V shows the regulation for sg&a eBay and the net income on a gaap to non-gaap results.

A quick note or cash and a bank balance in slice 36 as of February 29th, 2920 the company's cash and cash equivalent and restrict cash totaled 2433 point four million or 348% $1 as compared to two thousand four hundred twenty six hundred six million as of November 30th 2019 for the 6-month Sunday the February Twenty Ninth twenty twenty. The companies have to explain life was approximately 81.7 million up 84.3% compared to the same period of last fiscal year including New Jersey Gardens opening and Improvement and ramp-up Cat X for existing schools.

this concludes

My financial update now. I will tend to direct for his the closing remarks. Thank you Dora. We look forward to building on the momentum experienced during the first half of physical twenty-twenty. Once the global environment begins to normalize. We believe that the market opportunities our business fundamentals and other the same factors of drove I have that has been trading our growth trajectory this year to date and in recent years will help bright scholar to resume accelerated growth for the long term.

This concludes our prepared remarks and would like to open the call for questions operator.

We will now begin the question-and-answer session to ask a question. You may press star that one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Christine show with Goldman Sachs, please. Go ahead.

Congratulations that they were indoor for such a great set of results. I just have a quick question regarding your revised guidance. Can you just walk us through some key assumptions? Am in in in considering these revisions particularly with respect to the kindergarten business as well as overseas and complementary Education Services divisions place, but also if there any kind of update on potential refund obligations either in China or in the overseas markets that yep. Thank you.

Hi Christina, this is Dora. Thank you for your question. Okay, regarding the revised guidance. We have put all the you know concerted consideration. We can have our best choice for instance for our domestic business because of you know, all the kindergartens are not you know backed campers as as we speak and say you know, so we conservatively considered, you know, there will be two and half months, you know, kindergarten closing. So we did in the in the two and half months off, you know, Revenue, uh tuition fee Revenue meals revenue for kindergarten and also for our domestic, uh, he want to be 12-month.

Although all the classes are you know majority started online.

Closet extended closet started at the beginning of March but students still, you know, uh didn't come back to campus. So we conservatively, you know accounted about a month-and-a-half boarding boarding and the new fee into our conversation in the current forecast and also took our overseas. It's the same situation, you know, because of the school closed in overseas students, you know, either, you know, go back to their home country or you know, leave off campus. So we consider some you know, uh Revenue shortage in the boarding at the new and also the impact for our complimentary family is offering this for the after-school class after school training business because all the offline, uh, classes cannot be resumed until birth

For the you know regular schools are reopened. So that's part of the impact for complementary and also for our study to run and can't business but you know for the summer which is usually the Pixies and for the study to uncap business, so because of the current situation, so we consider there might be some impact for study and the study tour and campus for the summer and for overseas. There's also some short-term summer training program and due to the covid-19 impact that part of business probably will have you no shortage. That's pretty much our exact position based on the correct covid-19 situation.

Also for the refund as you know, for automatic schools, we pretty much collected the tuition fees for the spring term. We will as I mentioned before we already, you know, in terms of Revenue we can serve the, you know lower down or Revenue recognition for the refund will follow whatever the local Authority the instruction cuz right now we haven't heard any, you know formal instruction from the local education authorities.

Okay. Thank you.

Yeah Christian, this is Derek. Let me just comment on that number one for the tuitions our general policy. Is that a we're not refund any of them particularly folks because the school actually opening the beginning of March even though over distance. So we don't think there's much a problem from that. There are moderate risk obviously from the kindergarten perspective. It's as you know, generally the cash are the revenues are calculated on the monthly basis. But as Dora mentioned the right now, we're all everybody is waiting for the clear guidelines from the government and because of some of the classes may go into the weekends as well as part of the summer so that would suck. So call back some of the missing time. So therefore from a refund perspective. We're not worrying too much.

That's very clear. Thank you, Derek.

Our next question will come from LLC Shang with Morgan Stanley. Please go ahead and remember if you'd like to ask a question and to start that one.

Hello management. Thank you. I have a question on the margin. How should we look at the margin Trend in the second half because on the one hand they you have on operating Improvement and more leverage on the operation, but on the other hand the revenue will be lower. So, how should we look at home? You can't. Thank you.

Number one, we generally don't give the guide guide a guidance on the margin, but I could answering the following way. So internally, we are taking initiative to reduce the cost of structure a lot more aggressive than what we think those reduction of the revenue would be because we want to make sure we are down considerably prepare our cost structure not only for the short term but a using also using the opportunity to right size of operation going forward so dead relative to the portion of the reduce the revenue the the cost savings we're actually could be higher than that percentage. So without giving you any guidance guidance on the margins that I think you know, you guys are the models are actually very detailed actually openly wage.

Conservative, so I would say internally we are targeting to achieve and overachieve our orange early targeted dead-ended margin. So that's how far that I could go and if you look at our ability to take a cost out the Marge is probably one of the last things that you would worry about.

Okay. Thank you.

Again, if you'd like to ask the question that has started on one star that won ask a question.

At this time I'm showing no questions in our queue. So this will conclude our question-and-answer session. I would like to turn the conference back over to Derek van for any closing remarks.

Well, thank you very much for joining the conference call. Please feel free to contact us if you have any further questions and I will conclude the remarks with session with one wish is a dead body. Stay healthy. Thank you very much.

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