Q2 2020 Earnings Call
Good day, and good evening and welcome to the one Smart International Education Group limited announces on audited financial results.
Second fiscal quarter ended February 29, 2020 conference call all participants will be in listen only mode. So you need assistance. Please taking like comfort specialist by pressing Star then zero on your telephone keypad.
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I would now like to turn the conference over to Rebecca.
That's true relations director. Please go ahead.
Thank you operator, good morning, good evening, everyone and thank you for doing the work weren't international education limit that.
Second fiscal quarter plenty plenty earnings conference call. The Companys earnings results as well that supplementary slide presentation. It released earlier today and available on the Companys website at <unk> Dot work smart about Luxor, when dot com joining me today.
Well I missed the Steve Jones, Chairman and CEO, Mr. Grad school or vehicle in Seattle, and Intellipath, how does how those operations.
We might do though this call may contain forward looking statements. They under the safe Harbor provisions of the private Securities Litigation Reform Act. This like 90 quite so things are based on managements current expectations and come to market and operating condition. It relates to either that involve known and all this is gonna be another that's oh.
Great are difficult to predict and many of which are beyond the company's control, which may cause the companys actual results performance or achievements to differ materially from those in the forward looking statement.
The information regarding these another good uncertainties in South Korea is included in the company's filings with the U.S.
Securities and Exchange Commission the company does not undertake any obligation to update any forward looking statements as a result to commute information futures I wonder why except as required the wall with that I will now turn call over to Steve. Please go ahead.
[noise] thinking it back I think you are interesting today.
The convention.
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[laughter], beating a dead because either once a month mother.
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Yep.
I'm glad that it won't be Tonight to feature age.
All right.
I think there will be over 160000, either no.
That's all pepper there to sounds good prudent.
A massive increase well just a few felt that make up 2000 Nike.
Let's speak and the warning.
The companys John ability to strategically.
Managing an uptick a premium online business and that demonstrate it.
You tell me nation to appeal once my whole lot into the largest premium not education company in China.
Why we expect all financial performance to be temporarily impacted for a couple of quarters.
And that endemic we believe eat away at bounced back very quickly assistance, we hope that if you've not bought Premier education services will.
Oh you forward.
We we have benefited not one smell line to penetrate the let me too high K 12 education market in China impose gave the PD lumpy the PD.
It's healthy.
It's that you're much larger addressable market.
We see no that's close potentially [laughter], we'll take advantage of absolutely yes.
That's the industry consolidation up the damage.
I will now to look cool or what do we have the white label update when the company performance.
Please go ahead.
Thanks, Steve.
Thank you all for joining us.
Now, let me stop I give you an update on the impact our business unprecedented cobot, Nike pandemic and share with you all the strong execution and the positive result, so far.
As you are aware, that's part of those comments measure against them.
Oh public schools were closed since January 2020 in China.
At that time, we opened schedule was unclear.
Neither school and entrance exam scared schedule were confirmed.
Well hard money center, how do temporarily closed.
Therefore, all falling classes and customer acquisition.
Were conducted through our own I platform, which we have never experienced people.
To make it worse.
Given the situation all falling Paul you had to work from home Tee up late April which added extra challenge.
However, the company has reacted properly and actually to manage the situation. For example, we migrated to the majority of our students to along I platform. We can just a couple of weeks since outbreak.
Thanks to all the years investment and development online.
Well my platform has been serving over 160000 student enrollments as of February 2020.
Already employees has quickly adapt it to the new environment and the made tremendous efforts executing our plan.
As a result.
Second fiscal quarter 2020 from December to February we managed to retain almost the same level of revenue compared with the same period last year.
In addition, we booked.
RMB 785 million cast house in Q2, which represents a 20% increase funding computer last year.
The launch a portion of which was generated in our all my platform.
Meanwhile, we also maintained high customer satisfaction rate all my thoughts on almost 90%, resulting in mobile phone rates and the high renewal rates.
This all it demonstrates our ability to strategically manage and operate at premium on my business.
We would also like to share with you our assessment of the situation, which we see the impacts of the corner wireless that's a one off.
Has that's with patent.
We also recognize the duration of impact Mayberry between core VIP business.
Outreach and education businesses.
Well I'll, let premium paid well one the lumpiness I, Oh, we actually business.
There's a swift performance drop you may environment, when public schools I'll close and there is massive supply.
Our low priced all night classes.
It is definitely temporary challenging wants to deliver that's distinguished value. Our opinion education. So business went to school improvement demand, it's not an urgent went off the student stay at home.
That's the leading premium K 12 education company in China, We may experience that you will not impact in a bit more script fashion than other big class education sector.
We expect the demand TARP isn't how long will bounce back shortly.
Specter's Court dates and exam schedules are now and announced and confirmed.
Month over month enrollments trend also reflects the impact that you can see.
On the chart here.
So that you want your bones, mostly impact in February and March when the virus he's trying to the hardest and the rapidly picked up since April and May not situation, we've got under control.
As far as far young children Education business are you all are happy mass and fast track businesses.
May have a slightly longer period impact that's kinda gardens, and some primary schools, where we opened a few months after our the public schools. According to come in policy.
We notice that there has been news that's kindergarten will soon socket, we opened already Jen hsun up our major cities we operate.
Regardless, our management team up young children education businesses have successfully revamped products as well as well my acquisition practices to handle the challenge.
Well past the most difficult time as most of the provinces have enough back to school Thats why our business operations are gradually getting back to normal that's on may 15th 2020.
Thank you for all VIP Centrus after we opened and the government Commission.
We expect that number to increase over the next few months is.
Were confident that both of our online platform and offline operations would drive robust growth and profit going forward.
Now, let me turn the call what to Helen who will provide you more details on the calibration update one small night.
The key strategic focus.
Hello.
Okay. Thank you Greg.
We aim to deal with my all my husband, beating Hi, Dan.
[laughter] well meantime.
Never see how animal model, even five customers, who want to go online marketing.
Yes.
Yeah I.
You bet simply that you pick up an acquisition.
That's not online provide comprehensive product mix, including big.
And one on one quick.
Each allows us to call feel along the same age due to an extent.
Oh, I'm old Triple teacher model.
Sure so they keep but I thought I suppose.
Which I'm sure high quality teaching I call. This week.
And high quality.
It can be seen onto the hot with my.
Knowledge, including all the leap.
It's good for cloud computing.
Versus 6.00, what 12 years experience I'm you know in Bakken.
They are income provides I saw that.
Got it.
As we have mentioned earlier was not online.
Well I'm woman.
Sure.
Oh.
Okay. That's not a line said, that's an incremental growth driver [laughter].
Okay.
They need high cost efficiency Department.
I couldn't be.
Well, if you focus on offline and then just your top.
Yep.
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Harboring tested and here recently.
[laughter] ringlets, either because after they go to gain market share.
The clock this will be delivered online.
Bob and supplemented by colleagues.
We actually see that you have for cheap most people close.
Getting London over 13000, it's up and it may which is what kind.
With that.
So it's good to matures within 37 gets you.
Oh, yes.
Oh for acquisition that you could be I call Center.
Oh the activity.
Oh, good gets a lot of all my topic to multiple ways, including pension accounting personal each uh huh any program ATP, except that the form and manage our own party.
Through a series of abuse efficient popped out.
We are able to come back to our RV chassis and deliver teaching I said it was all night.
We would like to point out that they should call. It four men and sell animal model and finally choppy.
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[noise] they seem to do do I would make it online teaching platform TPS.
Oh features that one [laughter] peaches, he does localize the curriculum development I'm all its mark I like that.
But there's not teaching.
Oh, well advised to provide customized teaching them, but know that meets their needs.
Well at the assessment.
I will call study keep [laughter] feedback through the smart TV.
Well my online ATP, because I do they see the keep whole med school, which is.
Maybe mark that's such a smart Democrat cool and good and performance.
Oh, a lifestyle hopping costume adopting step into Mexico, and he said I think teaching solution that's relevant.
I will continue to see mezzanine piece of technology has made a solid foundation.
All back then technology into.
Big data and.
So by definition as opposed to me.
Including [laughter] [noise].
And with that assessment themselves.
Well I said, there's a platform, including 50, the concluding the profile.
[noise] with that I would like to end the call over to it that.
Thank you so it's all financial results during the second fiscal year optical sensing the pickup. Please go ahead.
[noise]. Thank you Howard let me first because I see financial highlights then discuss the peak woman in out.
The government lots, we walk you through the key financial during the second fiscal quarter counterparty, Let me start with small metric we retain the vast majority of revenue year over year I converting student Oh, Oh, Martin trying to near stabilization at all absolutely function, we have been serving over 160000 students all right.
Oh, great, hoping 19 based on the <unk> latest information, we expect to generate not revenue RMB.
Oh, sorry, 3200 to 3000.
Oh 600 million for the full fiscal year tiny company. However, it is almost represent worked marks coverage, which is subject to the change because of the koby 19th impact, it's still going on and could be over schedule majority. So the learning centers, it's not yes. It.
And the degree of full year contribution by old rapidly growing online called <unk>.
We place more data to us that not let me go to the business.
Exactly my agreed it majority Olivier piece and students to the online platform. During the first half of February tiny tiny revenues generated indie online platform. During the in Q2 reached a level at the same period last year, we upgraded our premium called it [laughter] My assessment and academic Wendy.
My homework system like well covered it well casting classroom.
Not rather be international education program grew by 71% year over year with regards to unhappy matter fast <unk> English Oh, we men young children Education program, we successfully migrated over 80% of all quite students to be all lifecycle.
Oh I started this has been well we see why customers.
Customer satisfaction rate of over 90%.
Oh interesting.
[noise] adopting hybrid is much better learning experience, we launched into rocket one small pockets, which wouldn't.
Meanwhile, we started to provide with an aging from six to talk with basketball stuff that subject to hope was the most position from kindergarten through primary school.
Typically kind of Oh I'd be like is that it just didn't oh gosh, I'm not where we observed a goal. This revenue growth is today such as true, though 90, it's got a.
Average monthly student student enrollment so fast for English increased by 34.8% actually convenient distance month in Openshift young with a delta region that students not all I, we successfully acquired over.
13000 pure online.
We made plenty plenty in addition to be 150000 Goldman.
Mike Reed, it's the only platform as of February Honey Plenti exactly integrate it does technology that we acquired from I'd like to me any acknowledge and development on big data analytics and artificial intelligence helped create synergies with what's not only because I interrupted smart money that's burden coupon experience.
To provide you update on rents Oh.
Oh, that's what I hear vintage, which would have been providing in last few earnings call Superwoman has been solid and has a consistent trend as before even the results are generated.
My read it seems students.
Well, yeah I'd be sensors engine, there has been operating over two years or center level operating margin turned 24% Hi, Ed.
37% I'm sitting here would be I feel or an intensive helping city location.
It has achieved a sensor level.
Operating margin of 19%.
I have been operating for over two years and 17% on the secure please know that they love it didnt generate over 90% of old.
Now, let me walk you through the other key financial they Itos wouldn't second fiscal quarter plenty plenty not revenues what.
RMB 885.8 me with a decrease of 6% from RMB 940 to 45 minutes. During the same period last year. The decrease was mainly attributable to the temporarily shut off language instances. The koby 19 related government, finding offset by incremental dog online.
Cost of revenues increased by 11.
11.2% it'll begin to RMB 529.4 me with.
We increased teacher compensation to attract high quality teachers to supported developing a fourth my whole life.
I didn't rental called to comply with new regulatory climate, selling and marketing expenses increased by 2.8% year over year to RMB 196.7, new were known got selling and marketing expenses, which you exclude share based compensation exactly where RMB 196.6 million any piece it too.
47, RMB 191.4 million during the same period last year decrease was it makes result increased spending only channels and degree Burns racial cheaper by basically marketing expense control during koby 19 period and works have to stay within marketing activities to support a field that goes one online genuine Adam.
Minutes creative expenses increased by 16% year over year.
Maybe 214.5 million.
[noise] long, that's one of the administrative expenses, which excludes share based compensation were RMB 177.9, or any fees of 2.9 different from RMB 172.82 things give us it increases primarily due to increased R&D expenses for what.
Not all I met with no expenses control policies being healthy financial condition doing koby Nike, Let me now move on to Cook or some other key financial points would affect the fiscal quarter plenty plenty.
Capital expenditures for the second fiscal quarter Sunday, Monday, well, RMB 67.9, which decreased 23 million RMB 90.9 really in the second fiscal quarter plenty Nike equipped with mainly because we couldn't we manage all kind of school are temporarily suspended at least voting Cooper.
Two koby Nike or the February 20 nights any funding the company had cash and cash equivalents of RMB 1107 point Kimberly. Unfortunately, RMB 381 quick one there was much the payments.
Some about represents actually different mingle theater to cost is about because they're nice proportionately this pretty fresh as I can remember what RMB 2380, 5.6, new <unk> and the second fiscal quarter kind of funding an increase of 21.1 person.
1969 0.5 Mary.
Second fiscal quarter Plenti Nike.
Conclude our prepared remarks, I would now turn the call. The operator open book Urinate, operator, we're ready to take questions.
[noise] will now begin the question and answer session to ask a question you need crush Star then one on your telephone keypad.
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Tumblr roster.
[noise].
The first question comes from thing John <unk> Morgan Stanley. Please go ahead.
Hi, Hi management. Thank you for taking my question I have two questions. One the first one used up all your guidance.
Hi, I'm not I mean, no revenue well not a piece about me well in the second half a penny understanding that a lot, though a reason a lot of impact found Oh, Colin I came back when you eat up at all so we understand that the up I'll call kind its own call.
You made by one month or so the fact that they show it's hot so wondering if you can give more color about the okay. Then.
Oh, maybe that supported and fourth quarter and Dal all can also keep us some updates on that then you send terribly assumption toll west.
And secondly, I will mention that be Oh for the Oh, My business <unk> and Oh, Yeah Center can't help to improve that student.
In addition efficiency can't be more Oh, they are oh, they sustainment. Thank you.
Thank you its Johnson the me a this is Greg let me take your first question regarding the guidance and then I'll ask our operation had had and to provide you the second.
Questions answer so the first question regarding guidance.
Let me first of all let me point out it is quite difficult to provide a exactly guidance as we are experiencing an unprecedented events.
The nature of the virus impact has gone up and down see in China as you noticed and more importantly, you won't be harder to judge the reaction Oh parents and students.
How would they how quickly they would do turns out money centers how would they behave.
On my platform.
So we provided guys its guidance based on the company information we have.
Yes, we noticed that situation east gradually improving so you. That's the financial result makeup better if the.
We keep receiving positive information.
Let me provide specifics on few factors, we consider Oh the challenge Sage.
As you probably noticed.
Q3 is my ice March to me, which.
Is the China, that's been hit its hard to just so.
Everything shutdown and including our money centered on public schools.
And the demand.
For exams.
Seeing pushback by parents and students things stay home.
And there are plenty on.
No no priced.
Oh my cost is a Winnipeg, which takes a lot of students Tom.
With that it would that we see some impact to our business because our business requires.
Experience, especially experience of our team in services.
[music].
To justify our surfaces. So for Q3, you may see an always point in our performance.
But the good news is we are already pasta Q3, and in Q4, we see some positives, which I'll follow means.
One as you know the government has amongst the back to school schedules by most provinces.
And now they don't come called call dates are fixed into lot, which by the way. It's one months pushback from the original June so which means more production period, plus which is positive.
And secondly, we have already 54, we actually centric reopened undergone commission.
Oh, sorry, John John So since one you know probably beaches.
And we noticed that nice news show high come in May allow reopened of kindergarten and large qualified to tutoring institution to open you already June as well as you know to show high takes about half of our business. This is a very very important and positive.
So as a result with the in Q4.
We'll have a very causing a rebound or our performance is you look at Q over Q from Q3, I think we're going to have a at least 30% to 40% gross from Q3, so to summarize.
Because the nature of our business is how good it to the school improvements and the payment services sector. So you, we may see and larger and more swifty impact.
Our business than other formats into education industry.
Now, let me turn to help them for a second question.
Please go ahead.
[noise] okay.
Thank you don't show for the second question regarding the Yadkins Huh.
The reason we feel yeah can.
In different cities I spoke to read it number one.
Belief that I spoke to make sure that with all I will be successful we need to penetrate deep play even when city. It's what you one called it really really wants abuse and strong you wouldn't city all that probably.
Having a physical damage, but there definitely help us to get the trust from the customers and do the Grand well there. So that's the type itself.
It's definitely a beauty they I think with their equipped with Wells Fargo.
<unk> advisors, which will help us effectively covered the student and then you have I region and this way.
Even more on how to think it's actually even more.
<unk> costs acquisition will be even cheaper than the online channel for example, food all my marketing channels, the called topic with itself when students would be 3000 really be higher while at the local yeah. I think that provides us close acquisition costs something around 2016 solvents and.
And how.
Oh, the dollar pocket dice. It achieved that is that they are based local so they know the local curriculums. They know the local situation well I thought there are beauty advisors and they are reaching out to that.
Community nearby reaching out to the Patrick you buy they also 40 different family there and do a lot of community fishing. So through these different ways Daddy applying it will be able to covered it is in that region and acquire those customers is relatively low.
I hope that answers your question.
Hi, yes, thank you very much.
The next question comes from the looks Blue Yes. Please go ahead.
Hello, Good evening management. Thank you very much for taking my question.
I have two questions.
One is our margin.
I think it definitely this year well have some headwinds because at the end it's inevitable.
Nature of the called nine Ken a though could you sort of walk us through a what are the margin trajectory that we could be expecting Q3 Q4.
20 watt I understand that utilization around pop.
It was eight focus before it the pen dynamic so how how is that how's the pop progress was the utilization pop.
Currently and perhaps or what is our expectation.
Expectation going forward and my second question is on our strategy.
Number one I definitely pick up the shift to online.
And there could you sort of break out stuff, Oh, I get a comics and out fine fine is seeing my concern is that to the trying to play the prevailing all my model a husband being very profitable. So just want to bucket, how why smart think of the unit economics.
Oh, so the strategy part I think previously you mentioned that youre launching more premium courses and perhaps the diversifying away from one or three classes. So any updates on that initiative. Thank you very much.
Oh, Thanks, Phoenix as Greg again, let me take your first question regarding the financial margin then to know let the Stephen and had an answer your second question regarding strategy. So 40 margin as we discussed.
The possibilities cause our original expectation is the margin expansion will be quite notable in second half of this year, how you Q3 in Q4.
The reason behind is that we have about 250 learning center opened in F. 18, that's why 19, which are ramping up pretty on track, we have been consistently providing that data.
The last few earnings call, even if you look at this Q2 numbers, but.
Provided already or are those ramp obscure largely on track. So we're pretty confident that that margin will have expensing units to now given to pandemic situation. We think it's got to be pushed back.
I was wrong two to three quarters. The why we're saying that let me give you a breakdown on the topline.
The fundamentals of our business, especially that the Matt it's unchanged, we see we are seeing.
Quicker return off our demand up our business starting this month as school students not back to school and.
And entrance exam it back on the horizon. So that's why such a no we're seeing that trend we're showing you.
Are you enrollments trend as well.
And second needs nature of our one on one business.
Is that we have clear advantage.
Customer learning experience and the right now anyway, that's been as we have been disclosing a we believe this the basques format for students, we improved and that's good for majority of students.
So we're pretty confident that.
The man and performance, especially topline gross well bounced back as quickly as we already seen that inmates data.
Oh the cost side.
As we mentioned.
One of the positive things, we have done a very well and we executed very well used to cost control during the pandemic period.
We now have pretty lean cost structure, you bundle out revenues.
Is lower than the last year, our margin and us largely Stuart healthy level.
View at this is.
This is happening just happened in the most serious.
Financial and economic conditions, if we go back to normal conditions, we expect the margin expansion, where we try and so to conclude.
And could touch a question I think once all revenue.
Gross return to normal level, you will see a very quick.
Thank you extension, we think that's going happy that's why 21.
What do you see into second half was a first problem by 21, let's see what could we see but we think we're pretty confident that could happen up by 21.
Now, let me turn to Steven Helen for your second question regarding that strategy. One is on the you eat all my model and second one on D.
Set us on premium products.
Okay. Thank you Greg.
So regarding the strategy I'm actually we have launched with my own liking or the cities that we happy, but we could have different strategies for the different city.
10 cities that we have being careful around eight to 10 or 12 years, all with my Elias incremental product.
So this is a product that can meet unmet needs in the market that we haven't either before however for the other city 40 other studies city that we're happy with what all light you thought he finishes.
So this is almost ready for the top 10 cities, we definitely will do focus very much on the premium offline.
With my online it just doesn't come into product.
That we want to gain more market share in the tier two tier three cities.
So with Molly benches strategy regarding the he offers more online we have different product lines.
I couldn't be possible topic.
So it is very carefully our unit economics calculation on all the product.
And taking one on one product I think then.
Regarding the block Mark and we are able to maintain a golf market is fairly close to the P. man up one day.
Given the two reasons number one that we are saving on the event.
And number two we are able to manage the teachers.
He to utilization that does end up one day.
Oh, so that gives us all those at twice the S. P. I wonder if it's.
Oh. It then to offline did not ask premium itself on one but given that saving on man.
Hi utilization the teachers, we are able to meeting the only thing a lot more.
And then we spend more on marketing and selling for sure given that we want to gain more market share in the tier two and three city. So that margin outstanding in marketing will be lower then opinion.
However, we do you see some on the G and H because on the opinion business. We have Oh, we have 30 cents a therapist as well a lot of chip I Didnt. She didn't stop on the block where its online we save quite them on the Gen eight or the economics the unit economics doesn't look as good.
I also want business, but if you get that's a pretty close to you you model. So that's why we're pretty confident about this model and we want to take this at the key strategy in tier two in Q.
Okay.
I hope does that answer your question.
Thank you any update on the premium strategy and when all three.
Oh I was added to be pretty damn Jody will usually these although that we are facing a very tough time, no, albeit Nike. It's helpful everywhere, but we believe that with the news back to normal and also then.
Secondly, we are talking to each time, you blow eat and the need for premium so they've been feeling sorry for them. If he was here we feel very confident there than maki screen pretty good on that side. So that's why we do you want to focus on the female business in the top 10 city.
Regarding what else. We are we we actually having launching has launched a new pull that if you're lucky that'd be I'd keep busy tailored to a more I'm, putting in Sakhalin Oh with that caught up we see a pretty good feedback.
So that we will focus very much on the VIP business. It's a it's a normal when no one that he set up the traditional when the only want to what went to sweep.
Oh, no [laughter] definitely be the VIP and when I want.
Okay. Thank you very much.
Once again, if you have a question. Please press Star then one on the Touchtone phone.
This concludes our question and answer session I would like to turn the conference back over to Ms., Rebecca Shen for any closing remarks.
[noise] tend to occur in closing on behalf of being kind of management. He like to thank you again for your participation. This call. If you have any sort of inquiries in the future. Please feel free to contest.
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[music].