Q1 2020 Earnings Call
Only mode.
After managements prepared remarks, there'll be a question and answer session.
Today's conference call is being recorded I would now like to turn call over to your host Serena Investor Relations manager for the company. Please go ahead sorry.
Thank you Anita and Hello to everybody on today's call with me today Army, Yeah, I sure our co founder director and Chief Executive Officer, Mr., how good our Chief Financial Officer <unk> earnings Press release, what do you watch issue with post market close on Thursday, and it's also posted on our investor.
Our relations with like IR Dot our white <unk> call on our website, you'll also find a webcast replay of today's call.
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 of 1995.
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. It's included in the Companys annual report on form 20 up for the fiscal year ended December 31st 29, <unk> and other filings as filed with the U.S. Securities and Exchange Commission.
The company does not assume any obligation 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 measure for informational purposes, only the company's first quarter 2020, <unk> earnings press release contains a reconciliation of the unaudited non-GAAP financial matters to the I'm not as in most directly comparable GAAP measures.
Now I'll turn the call over to me, it's true the her to take us through a review of the first quarter and provide an update on the business.
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Thanks to all of you who have joined US today I'll review, our business and operating results for the first quarter of 2020, our CFO. Chris will then follow with a more detailed review the financials.
The colder Nike an outbreak has brought upon unprecedented circumstances, so all walks of life and lines of business.
In response to the challenges presented by the coordination pandemic during the first quarter with swiftly adjusted our operations to meet the evolving demands of the challenging environment.
During the quarter, we focused our efforts on several key priorities, including pro actively monitoring the health status of our students families and stop number to keep track of their wellbeing and safety during a challenging time.
Accelerating our digital strategy to whole families maintained the educational continuity for their children during temporary facility closure.
Aggressively managing costs to maintain sufficient cash balance on liquidity and positioning ourselves ready for a timely and they reopening all facilities.
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One highlight during the cold and I can Albrecht period with the progress we made in advancing our digital strategy.
During this period of temporary facility closure, we initiated online portal, providing familyfun students with rich educational content.
These portals include it self developed platforms I'm trying all I can tell us resources utilize from third party platform.
During this time are teaching training operations marketing and I TTX devoted themselves to producing and promoting online content.
The broad spectrum of high quality content and applicable tools were made available online received possible be positive feedback from parents and were warmly embraced by our students.
Additionally, we started building an online platform with actual option to promote and distribute paid content.
These actions reflect our ability to respond quickly and our ability to act and actually here.
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Our directly operated facilities temporarily suspended operations due to the cold and I see an outbreak after the national holiday for Chinese new year in January in accordance with government requirements to contain the outbreak the temporary closure for all of our facilities in China cost a substantial year over year decline in revenues for the.
First quarter up this year.
The cold and I see an outbreak in China has gradually come under control following the guidance on timetable and now by government unrelated local authorities a number of our directly operated facilities had we opened in China as of May 28.
Additionally, the majority of our directly operated facilities are getting ready to resumed normal operations hopefully by the end of June in accordance with a timeline upon issuance, but local government authorities.
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During the period of temporary facility closure, we acted quickly and effectively to establish and maintain open communication with the families. We served through various ways.
We distribute at high quality educational content via online portal again positive feedback from parents.
By the end up the first quarter May 20, we attracted more than 350000 registered user you were several service accounts and apps, including I love growth mobile App and accumulated more than 660000 view in the early childhood education section on third party video streaming platform.
[laughter] March 31st 2020, the number of students enrolled at our directly operated facilities was 31251, an increase of 27.2% year over year from 24572 students enrolled at the end up the first quarter last year. This girl Prime.
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Our primary focus and attention happy and continue to be on the health and safety up the children and families. We serve.
To make sure a smooth reopening we have upgraded our safety and health operations manual with special corporate Nitin protocol.
With safe reopening of virtually all of our facilities will continuously monitor ongoing guidelines and follow the directions from government authorities medical experts to operate our facilities in accordance with strict health and safety measures.
As I mentioned earlier as of May 28, a number of harvest Lilly's easy in China have resumed daily operations. Following the timeline issued by government authorities.
Our facilities in Singapore have also temporarily suspended operation in April and May per requirement by Singapore government concerning the cold and nights in pandemic.
The company received eight really for a subsidy from the government off Singapore. During this month and currently expect to reopen facilities in Singapore starting in early June.
We should also note that parents have a strong husbands of just under two them back to our facilities as we have learned from parents, both domestically and abroad. During the outbreak they're struggling to balance work and taking care of their children at home, we look forward to resuming normal operations and won't coming back our students.
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In terms of our strategic positioning we remain committed to our brand portfolio approach speaking to the diverse needs of students and families well actively supporting new regulatory policies for the healthy development of early childhood education.
We will continue grow and focus on the development of the premium international branded facilities in China by leveraging our domestic operational and educational know how along with the strong brand equities bilingual education and stop training of our Singapore operations.
We'll also continue to integrate business operations across multiple geographies to create additional synergies and better serve our students and their families.
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Moving onto our franchise, playing learn center business.
I'd and off the first quarter of 2020, we had more than 1100 play on learning centers in our network similar to our directly operative Kindergarteners our franchise playing burn centers also temporarily suspended their operations in response to the coven 19 outbreak.
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As part of our support to help franchisees, whether the challenge it brought upon by the colder Nitin pandemic and help them enhanced communication with the families. The cert, we provided a 1990 day free access to the educational content on our self developed mobile application I Love broke our I look for us.
Offer structured educational content easily accessible to students and families and has attracted over 330000 registered users to date. We have further develop I love growth online courses and hold weekly why bina unpopular topics that sort of not only to enhance the user experience, but also to pave the way for paid you.
Your conversion at a later date.
In addition, we offer various taylormade online training to our franchisees across the country an offer assistance to them applying for support measure.
Introduced by local government such as rental reduction.
What's more to show our strong support for current franchisees, we have announced to waive total three months worth of annual fees to help them stabilize operations during the recovery phase of the outbreak.
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In terms of the reopening schedule off the franchise plan learning centers, while there are still some uncertainties. We believe that we're well positioned to help them resumed normal operations confidently and swiftly taking into account all our brand not work and close relationships with our franchisees.
Based on our current estimation, we expect that over 60% of the French has played listeners will have resumed operations by the end of the second quarter up this year.
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As discussed in our previous earnings call.
Starting from the second half of 2019, we have proactively slowed down the pace of adding new plc franchisees, focusing instead on upgrading our products services and content offerings for our existing franchise partners. In addition to preparing to launch a separate new premium brand for plc business. These initiatives remain.
On track for our play on their center business. We continue to believe that spending on early childhood educational services and resources has been and we'll continue to be a significant priority for parents and families budget.
We believe that we're facing only short term challenges posted by the pandemic and our positioning ourselves to capture evolving business opportunities going forward.
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In the face off the challenges posted by the pandemic. This year the management decisively adopted strict cost control measures to reduce costs and improve operational efficiency aiming to maintain a healthy financial position or liquidity that can support the company's stable operation and sustainable development at the same.
Time, considering the practical impact of Carbonite in pandemic for a period of time in the near future will maintain focused on strengthening and growing our core business that said, we'll dial down investments in new initiatives to avoid unnecessary risks and uncertainties overtime, we're confident that the company will run.
Turns a steady growth and on track of creating long term value.
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At last I want to point out that during the cold and 19 outbreak and this unprecedented circumstances. Our teams showed strong resilience and capabilities to respond quickly to the evolving conditions.
Despite a challenging start 2020, we remain confident in our business model and the strong underlying demand for high quality early childhood education services.
We remain committed to providing quality early educational services to children and their families.
The same time, we look forward to better addressing evolving needs of modern parents and students under the bumping environment and providing online merged offline early childhood education services that blend facility based learning and learning at home.
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With that I'll turn it over to our CFO, Chris to provide highlights of the first quarter financial results. Thank you.
Thank you Grace answering up now please allow me to go through our first quarter 22020 financial results.
Please refer to our earnings press release posted on our IR website earlier today for a complete discussion of our financial performance.
In the first quarter, our financial performance is an operations were heavily disrupted by the cobot 19 outbreak.
As all of our facilities in China with temporarily closed starting from late January this year.
Our net revenues for the quarter were 17.3 million us dollars, which is a 49.5% decrease from the same time last year.
And our operating cash outflow for the quarter was 14 million us dollars.
Mainly due to the temporary facility closures during the outbreak.
In response, we focused our efforts on cost control and capital expenditure reduction and took steps to strengthen our liquidity position and to further optimize cost.
The structures within the company.
I would like to take this opportunity to share a set of actions that we've taken so far related to the cost control and our liquidity position.
This year, we're continuing to carry out stringent cost control measures that we started in the second half of last year.
These measures include headcount reduction strict control of operational and discretionary expenses, such as professional fees and travel expenses as well as the for discretionary capital expenditure.
In addition, we have reassessed our resource allocation and sharpened our focus on core business as great just mentioned.
We have also decided to cut spending on certain new initiated in light of their limited brand awareness and other uncertainties in current being covered the market environment.
Moreover, we apply for kindergarten related subsidies and other support measure provided by the government during the quarter at 19 to strengthen our financial position and the liquidity.
As of March 31st 2020, we had a total of 53.9 million of cash cash equivalents.
And currently we are also in the process of obtaining a credit facility from a commercial bank.
We believe our balance sheet as.
The end of the first quarter remains healthy.
Looking ahead to the rest of the year with stringent cost control measures in place and prudent investment strategies, we believe that the current business disruption, resulting from the pandemic will gradually subside.
Despite the conditions created by the Cobot 19 outbreak, we remain confident in our business model and the strength of our balance sheet and liquidity.
We will continue to improve our educational services and products, particularly through leveraging our digital technology to capture evolving market opportunity.
We believe our data fast commitment to high quality education will help navigate short term challenges yield.
Healthy long term growth and create long term shareholder value.
Now I'll move on to the first quarter financial discussion.
Net revenues for the first quarter of this year, a decreased by 49.5% to 17.3% from 34.3 million for the same quarter last year.
Service revenues for the first quarter decreased by 30, 47.3% to 16.8 million from 31.8 million for the same quarter of 2019.
The decrease was due to the decrease tuition fees as the company began the temporary closure of our facilities in China from late January as a result, as a result of the corporate 19 outbreak.
Rancho services revenue also decreased due to the slowdown a play and learn central franchise expansion and lower revenue generated from franchisees during the impact of the cobot 19 period.
The decrease was partially offset by services revenues contributed by facilities in Singapore that remained operational during the first quarter. This year.
Product revenue for the first quarter decreased by 78.2% to 500000 US dollars from 2.4 million for the same quarter last year. The decrease was due to a significant drop in the amount of merchandise. So outgrew the company's franchise network as all of the franchisees facilities were.
Also temporarily quote during most of the first quarter.
Cost of revenue for the first quarter was 28 point Ninemillion, which is a 10.8% decreased from 32.4 million for the same quarter of 2019.
Cost of revenues for services for the first quarter 2020 was 28.7 million compared with 31.2 million for the same quarter last year.
The decrease was mainly due to all about due to the fact of all of our facilities remained temporarily closed during most time of the first quarter as well as certain mitigating step taken by the company commitment to minimize facility level six being fixed operating costs.
Such as reducing labor costs.
The decrease was partially offset by operational costs incurred kindergarten through them care center level in Singapore that we acquired during the second quarter of 2019.
Cost of products revenue for the first quarter of this year was 300000 U.S. dollar.
Compared with 1.2 million for the same quarter last year.
The decrease was generally in line with a decrease in product revenues.
So as a result of the foregoing gross loss for the first quarter 2000, Plenti was 11.6 million us dollars compared with gross profit of 1.28 million for the same quarter of 2019.
Total operating expenses for the first quarter was 14.4 million us dollars compared with $5.9 million for the first quarter of last year.
Excluding share based compensation expenses operating expenses were 13.7 million us dollars, which is an increase of 198% from 4.6 million for the first quarter of 2019.
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200000 us dollars compared with 600000 U.S. dollar for the same quarter of last year.
General and administrative expenses Gionee for the first quarter 2020 were 5.8 million US dollars, which is a 9.2 increased from 5.3 million for the same quarter of last year.
Excluding share based compensation Gn expenses were 5 million compared with 4 million for the same quarter last year.
The share based compensation expenses included NGL in April this quarter was 800000 us dollars.
The increase in DNA expenses, excluding share based compensation was primarily due to the gn expenses incurred from our Singapore business unit, which was not consolidated in the first quarter of last year.
The total DNA expense.
Increase was partially offset by a decrease in June expenses in China as a result of the stringent cost control measures taken in response to the cobot 19 outbreak.
As part of our operating expenses, we recorded impairment loss on goodwill in the amount of 8.5 million during the first quarter of this year.
Due to the impact of the Cobiz 19 on our business operation. The company concluded that an impairment indicator existed at the end of the first quarter and the value of the certain reporting units, primarily those with our new initiative, we're less than there are carrying value as a result of these impairment assessment.
The company decided that the there was an impairment loss on goodwill in the amount of 8.5 million for this quarter.
Operating loss for the first quarter plenty plenty was 26.1 million compared with 4 million U.S. dollar for the first same quarter last year.
Adjusted operating loss was 25 point Threemillion for this quarter compared with 2.7 million for the same quarter last year.
Net loss attributable to ordinary shareholders of all way before this quarter was 26.6 million.
Adjusted net loss attributable to ordinary shareholders about why be which excludes the impact of 8000 share based compensation expense for the first quarter was 25.8 million us dollars.
Basic and diluted net loss per American depository shares Ats attributable to ordinary shareholder value by be for the first quarter 2020 were both 96 cents.
Hdds represents one cloud a ordinary share.
But adjusted basic and diluted net loss per AIDEA attributable to ordinary shareholders of our before the first quarter 2020 were both 93 cents.
No for the outlook as China effectively contains the rapid spread of the cobot 90, and the new infection cases continued to decline economic activities are gradually picking up throughout the country.
It's early May local authorities have announced the back to school schedules, providing visibility to the recovery of our business operation.
A number of our facilities have we opened as of today.
And we expect the majority of our existing kindergarten, we'll be able to resume their operation by the end of the second quarter.
Based on the information available as of today as of today.
For the second quarter of 2020, we now expect our net revenues to be in the range of 11, and 11.8 million us dollars.
The above outlook is based on the current market conditions and reflect the company management review, which is still subject to change given the dynamic nature of the cold in 19 situation and uncertainties surrounding the reopening schedule of our facilities as a result.
Thank you for your attention. This concludes our prepared remarks, and we will now open the call to question.
Operator. Please go ahead. Thank you.
Thank you.
We will now begin the question and answer session to ask a question. You May proceed Star then one on your Touchtone phone fewer using speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
For the benefit of all participants on today's call. If you wish to ask your question to management in Chinese. Please and then immediately repeat your question in English.
The first question today comes from Patrick living within track capital. Please go ahead.
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I'm going to say the cooler 19 outbreak and circumstances that have come along have raised the awareness of the power of online education as well as students and parents willingness to try home base. The learning. This has subsequently spark the demand online education and accelerated the adoption we have taken in innovative steps.
To adapt accordingly.
With the abundance of educational offerings and know how accumulated throughout the years of our practice, we quickly develop and start to offer a spectrum of educational resources to students and families their online platform for portal [noise].
These confidence and activities are easily accessible through both our self developed mobile application me apps and also on third party platform.
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For our directly operated kindergarten starting from the quarter, we actually have launched a series of age appropriate online educational content comprising of 10 learning module, including English our music and literacy. This approach has proven to be very popular among children and parents and reach.
More than 80000 users in China.
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Me abovementioned online educational content not only helps us stay connected with our students and their parents, but also enhance the willingness to attend at our kindergartens for those who already paid but not yet started attending.
Also the online content helped to enhance brand awareness among parents and facilitate turn referral through word of mouth, ultimately our ability to maintain and attract new student enrollment gap improved.
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For play learning centers are self developed mobile application I love growth from the education.
Offers online quality content easily accessible to students and families. We regularly update the online content library in the I love growth App and hold weekly readiness as I mentioned earlier.
Recently, we also launched two deemed webinars, where we invited in how an external healthcare professional to share their use by.
We believe our efforts the enriched content and improve user experience also pave the way for the next stage of paying user convention.
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I love growth App will not only promote the parent child interaction and family education, but also provide our franchisees a lot of opportunities to communicate with their members. The registered user of I love growth have been how big City 330000, and we believe that with a meeting.
For amount of user traffic, we're confident in a future abilities to accelerate monetization.
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As far as technology, it's all just concerned our strategy is to leverage both internal and external teams and in particular through external partnerships to build the needed infrastructure support the execution of our digital strategy and ultimately achieve the goal of an online offline model.
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We're excited I'm pleased to see that our efforts to provide online content has received positive feedback from our students and their parent.
While our commitment to focus on child development and education innovation remains unchanged, we will work harder to leverage digital and information technology to integrate more high quality content.
It's imperative for us to capture this window opportunity to digitalize, our business such that we can have survival in mato achieve better economics and its distributor business.
Thank you so we not maybe I'll take the second question on the schedule for our new facility.
Set up or acquisition.
Before I comment on our plan for this year.
Let me maybe share our facility growth last year.
We had a total of seven premium international branded kindergartens Nuvi set up in China last year.
And six of them, we were opened up for business in the second half.
In Singapore, we completed a total of three facilities over the past two quarters.
These acquired or newly set up the facilities will be one of our key operational priorities.
Over the next few quarters.
I think once they reach mature stage with significant student enrollment pickup we anticipate actually remarkable revenue contribution from these facilities on top of our existing ones.
[noise], therefore, I think new facilities will continue to be a meaningful source of our growth.
For our baby and we actually want to maintain this part of growth.
Pace the manner.
But unfortunately, the outbreak of the corporate 19 this year.
To a certain extent has interrupted our plan for new facility this year.
But I think the the flip side of the situation is actually quite a number of interesting acquisition opportunities popped up because of the endemic.
Which I think would have been otherwise unavailable to us.
On the other and as I mentioned, we've been focusing on financial flexibility and cost control measures in todays difficult environment.
So as a result.
We may not aggressively pursue significant acquisitions or even we will likely cut back on some of the discretionary capital expenditure furniture.
In general for the remainder of the year.
Therefore, I think we will adopt is set of more prudent assessment criteria when we come up with the new facility opportunities.
A couple of a key factor.
In our assessment would include.
Such as license nature, we will have to make sure that the facilities carry a commercial license.
Price for sure as well the infrastructural quality of the properties, where the facility is located.
Of course curriculum, which is always a core part over kindergarten operation.
And I think most importantly, the team itself.
So you know considering and combining these various factors, it's probably not practical to set a specific goal here.
Well this year in terms of how many new facilities, we'll we'll be able to set up or acquired this year.
But I think instead, it will likely be dynamic process.
And for sure we will hope to keep everybody updated as we decided to go for these new ones.
And also looking into the mid to long term perspective, we will continue to source actionable opportunities both in China and in overseas markets.
For China, I think it will likely be top tier cities and coastal provinces and region, where the demand for premium kindergarten services remains strong for overseas market as we acquired our Singapore business, which is.
Under healthy copper operation, we will treat Singapore as our regional hub and help our Singapore business grow locally and extend into.
Southeast Asian countries.
Thank you.
There appears to be no further question I'd like to turn the call back over to serino for any closing remarks.
Thank you Anita.
Thanks, everyone for joining us today, if you have any further questions. Please don't hesitate to contact us at IR, Our Abbey why dotcom, we hope you have a great day.
Thank you.
This concludes this conference call you may now disconnect your lines. Thank you.
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