Q2 2020 Rise Education Cayman Ltd Earnings Call
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I know well counts for Rice educations second quarter 2020 earnings Conference call. Today, you will hear from mid <unk>, Chairman and CEO and Mr. Jin don't do you see F or.
Well, we go over recent business update operations and the company's long term strategy, which do you will go over the financial results for the quarter, both will be available to take your questions in the kinase session that follows before we proceed I like to remind you that today's discussion may contain certain forward looking statements made under the safe.
Hopper provisions of the U.S. Private Securities Litigation Reform Act 90, 95. These forward looking statements a subject to risks and uncertainties that may cause actual results to differ materially from our current expectations to understand the factors that could cause results to materially differ from those in there.
Forward looking statements. Please refer to our form 20-F as filed with the FCC on April 17, 2020, we do not assume any obligation to update any forward looking statements, except as required under applicable law throughout today's call means well enemies, Lou will be referring to the earnings create.
Plantation, there has to be uploaded to our IR website as a supplement to todays call now I'd like to turn the call over to mislead Wong. Please go ahead.
[laughter] Hello, everyone. Thank you for training our earnings call. The first half of 2020 has been in many ways one off the most challenging periods, we've faced as a business as we emerge from the tough operating environment caused by Toby lighting, we're pleased to report to significantly improve.
The results today, our ability to strictly transition our regular courses to the all my model underpinned our performance, although the majority off the rice self also learning centers or steel cost throughout most of the second quarter, all financial and operational performance has shown very Paul.
Much of size of healthy and encouraging and recovery and progress.
Well I'll begin my remarks from slide three in Q1, we moved aggressively to transition our services online control costs and preserve liquidity during the second quarter, we migrated off our offline courses online so our students could resume learning.
This also allowed us to recognize revenue, we significantly improved our online marketing and conversion capabilities, which resulted in a growing turned off new student enrollment throughout the quarter.
At the same time, we also invested in upgrading our team and digital capabilities to be able to operate both online and offline, which will eventually allow us to transition the business into our long term all like emerge offline or animal model, let's move onto our financial and.
Operational highlights for the quarter on slide four revenue was RMB 165 million in the second quarter up 51% from the preceding quarter uncomfortably talking all cadence of RMB 135 to RMB 145 million Boes.
Adjusted EBITDA loss and the income loss narrowed significantly sequentially.
Momentum in new student enrollment for all the total number of new students mean road for rice regular courses during the quarter to 3749 more than doubled the first quarter number.
As of June we directly operated 88 learning centers nationwide.
Paired with a night in March two two what 2020 with close to one underperforming learning center in Beijing, and we are in the process of optimizing that utilization of our existing learning centers.
Despite adverse times, our franchisee partners had opened 11, new centers by the end of the quarter to bringing the total number of franchise learning center to 397 at the end of June compared with 386 at the end of March.
Now onto slide five as you know in March we'd welcome to be upgraded our school whole communication platform Rice plus into an open an interactive teaching platform develop the online courses and lost launched a small group all like classes.
I may all costs is had been successfully migrated online.
In addition to our regular courses, we launched that non English courses, such as being an important step towards full deployment of our multi disciplinary model. We also are under viewed do teacher flooring class domestic teacher, all my small group classes this small and light.
I would like horse has supplemented our product portfolio increased our existing student ARPU and captured a pool of new potential students.
During the quarter. We have also taken numerous measures to promote new student enrollment, including expanding marketing channel adopting innovative marketing twos and offering flexible payment schedules to our customers.
As we enter our June our learning centers in we'll see resumed offline operations first followed by those in Shanghai Auto and Finjans, which had gradually resumed full operations that mid July.
However.
The resurgence of Cobot 19 cases in Beijing resulted in continuation of only online classes in Beijing and should natural.
Our ability to switch courses between online and offline has resulted in a more flexible teaching learning business model. According to the recent government announcement, we expect to open our learning centers in Beijing, and should jazz wrong at a pace regulated by the local governments.
Turning to slide six the migration of our regular courses Rice star and Rice all to online which started on April 20 was a success as demonstrated by the close to 90% participation rate.
Majority of those who decided not to resume regular course as online either signed up for our dual teacher small group costed or waited for our offline learning centers to reopen.
Unlike closet attendance attendance, great was approximately 93% similar to the rate achieved by our learning centers when students were studying offline.
Hi participation at high attendance rates demonstrated the strength of our friend and high customer loyalty.
From the chart on the right you can see that almost 100 of our educational program revenue in the second quarter was from online teaching.
Moving over to slide seven you can see a veight V shaped enrollments recovery starting in March driven by strong upward Reenrollment momentum. This is the result of a member of our new marketing initiatives adopted during the quarter, which included developing new big impact.
No such as social media and live broadcasting on various internet platforms.
We have provided intensive training to our sales team to enhance their online marketing capabilities.
We have also Ria adjusted the Tunisian payment scheme and have given customers more payment options.
All of these efforts have resulted in strong upwards enrollment momentum and significantly improved conversion rates as compared to the first quarter.
Turning to slide eight.
Our new co branding program was comfortable Panda aims to increased brand awareness retention rates and our pool as well as both new student enrollment. Additionally, we strategically partnered with early education schools like NYSE, Cape Cod, Kimberly and others to acquire.
Our new students at a lower than market unit acquisition cost.
New students enrolled from these new partnerships contributed more than 10% of the total enrollment in the second quarter.
Let's move to slide nine.
Our franchisee network remain intact during the cold feet 19 crisis, and now of our learning centers close.
Oh franchisee partners Gulf through the crisis safely and state in business.
We actually added three new franchise partners and our franchisee learning centers, even increased from 386 by the end of the first quarter two to 397 by June Thirtyth.
Franchise revenues doubled in the quarter compared with the first quarter.
Digital solutions played an important role in supporting franchisee business more than 800 teachers from our franchise to learning centers signed up for training all night teachings online demo all my marketing fire the rice E learning system.
Well more than 40000 students from our franchise did learning centers sign up for Rice online courses via the rice plus learning platform.
Our franchise learning centers started to resume offline operations in Maine.
At the end up the June at the end of July 92% of these centers has resumed offline activities and teaching the learning centers, which we may close in some endemic regions such as target and senior loans continue to use the rice plus online platform to provide services.
To their students.
Going forward, we will continue to empower our franchise learning centers with Digitalized twos, digitalization twos and solutions to help drive their gross following this pandemic, we expect to have an even closer relationship with our franchisee partners.
And viewed a more trusted and reliable network together.
Turning to slide 10 during this quarter, we have run our schools and classes in multiple ways, sometimes entirely online, sometimes online and offline concurrently and sometimes fully offline or operations technology platform and team have been tested heart and.
Proved to be quite capable versatile and resilient with viewed a digital curriculum a teacher forts that can teach both online and offline a technology platform that can support multiple operational scenarios and amenities management team that can handle complex challenges.
These capabilities as a whole are laying a solid foundation for us to fully digital life and transform our core business.
Oh I am all to me is not a simple merge of online or merger of offline with online or ammo is an integral integrated system.
The components of which are illustrated on slide 11.
The four key components, our tech based accountant embedded into court system, well develop that robust infrastructure that supports the operation of multiple instances.
Extensive product portfolio that can support both online and offline student acquisition, an individualized teaching and learning both online and offline.
Oh on all model will be Butte rice core competency data our unique curriculum with proprietary content course system catering to students from age three to 18, our strong Brent influence and our extensive nationwide network.
In the near term, we will optimize our OEM mall with two initiatives to increase classroom capacity and improve utilization.
Our first initiative is to optimize cost scheduling and cause size, which will start in the third quarter. The second initiative is migrating part of our offline teaching content to online with four in teachers. So students can take weekday classes online.
The combination of both initiatives will increase classroom capacity by more than 50%.
This significant productivity improvement will help support meaningful near term growth without opening new offline centers and will increase margin and profitability in the future.
During the second quarter, we continue to invest in upgrading our human capital by proactively targeting talented person now many of our new hires have extensive experience in technology and the internet industry and will be an integral part of accelerating our digital transformation.
In summary, we made significant encouraging progress in the second quarter as our business recovered from a challenging start of the year.
Although there is still uncertainty due to the and predictable nature of the pandemic I believe rice has emerged as a stronger oil mole educational platform provider in the Chinese education market post the Colby 19.
We are determined to accelerate the implementation of our transformational strategy and fully convinced that rice will be able to create a truly unique version of the oil more model to drive sustainable growth and profitability, therefore, increasing shareholder value in the not long run.
I will conclude here and we like to invited invite our CFO jindal to talk about our second quarter financials.
Thank you equal.
We'll go through our financial results for the second quarter Twentytwenty.
Before I begin please note that all numbers stated on our income.
As expressed by our chairwoman equal.
Indeed.
Very excited to see a very strong encouraging recovery of our business in the second quarter.
And it will also very pleased to see that a momentum continue into the second quarter. The second half of 2020.
We are proud of how we responded to the crises by rapidly upgrading our digital capabilities as we executed a smooth transition from offline to online in April and then from online to offline in June.
Such accomplishment has made us more confident than ever in our ability to successfully transformed our business into Oh I am all model.
Turning to slide 12 total revenues for the second quarter 2020 increased by 51.4% quarter over quarter.
And decreased by 55.1% year over year to RMB 165 million.
Revenue from educational programs increased by 48.5% quarter over quarter decreased by 53.7% year over year to RMB 151.5 million.
The quarter over quarter, increasing revenue from educational programs was primarily due to low seven our offline regular course, Steven resuming the studies online starting late April Twentytwenty.
In addition, our online small group.
Coffee continue to contribute to revenue in the quarter.
On a self owned a learning centers located in Shanghai from Joel Shinjin.
He has the open starting in July Twentytwenty at a pace regulated by the government. Therefore near contribution to revenue was rather small it's even this quarter, even the limited a period of offline operation in the speeches dealing the quota.
Live therefore revenue recognized the dealing the quota is predominantly from online delivery of our services.
This year over year decrease the learnings from educational programs was probably due to the temporary closure of our self older learning centers from late January Twentytwenty as a result of the outbreak of colleague 19.
Franchise revenue increased by 111 points, and then to things quarter over quarter and decrease the by 67.5% year over year to RMB 12.9 meeting.
The quarter over quarter, increasing franchise revenues was mainly due to the growth.
Recurring franchise revenues as a result of that Brad you have the opening of franchise learning centers.
The year over year decreasing franchise revenue was primarily due to the decline in recurring same type revenue as a result of the outbreak of public 19th.
Other emanates decreased by 33.8% quarter over quarter and increased by 54.
Percentage year over year to RMB zero six meaning.
Cost of revenues decreased by 0.7 within the quarter over quarter and decreased by 11.7 year over year to RMB 141.6 meeting.
The quarter over quarter decrease was primarily due to our continued efforts to control rental expenses and a personnel costs.
The decrease in personnel costs is to combine the results of lead you to teaching hours.
Personnel optimization, and the social insurance exemption from either by the government.
The year over year decrease was primarily due to the decline in teachers compensation as a result of would reduce the teaching hours and assumes reinsurances exemption as well as rental concessions.
In addition, the year over year decrease was also caused by a decrease in the direct costs associated with our steady towards services in cost of learning materials.
Non-GAAP cost of revenues for the quarter decreased by 0.5% quarter over quarter, and a decrease of by 11.3% year over year to RMB 107.
137.6 million.
Gross profit for the quarter was RMB 23.4 million compared with gross loss of RMB 33.6 meetings for the preceding quarter or gross profit for the quarter decrease the by RMB 183.2 meetings year over year from RMB.
206.6 meeting a year ago.
Slide 13.
Selling and marketing expenses decreased by 1.7% quarter over quarter and decreased by 40% year over year to RMB 42 point, finding the quarter over quarter decrease was primarily associated with our efforts in personnel optimization, which was partially.
Offset by increased expenditure on advertisements.
The year over year decrease was primarily due to better management of our online and offline marketing activities as well as our efforts in personnel optimization.
Non-GAAP setting and the marketing spending for the quarter decreased by 3.7% quarter over quarter.
And decreased by 40.9% year over year to RMB 41.2.
41.2 needed.
General and administrative expenses increased the by the reporting focusing quarter over quarter and decreased by 40.8% year over year to RMB 54.8 million.
The year over year decrease was primarily due to a decrease in share based compensation expenses due to vesting arrangement and our personnel optimization efforts.
Non-GAAP, a general and administrative expenses for the quarter decreased by 3.5% quarter over quarter and decreased by 17.9% year over year to RMB 53.6 meeting.
Operating loss narrowed by RMB 57.5 million to RMB 73.9 million from an operating loss of RMB 131.4 meeting for the preceding quarter.
Compared with operating income of RMB 43.3 meeting a year ago.
Non-GAAP operating loss for the quarter was RMB 67.5 million.
Compared with non-GAAP operating loss of RMB 127.1 million for the preceding quarter and a non-GAAP operating income of RMB 76.8 meeting a year ago.
Adjusted EBITDA loss was RMB 44.5 million compared with adjusted EBITDA loss of 108 meeting for the preceding quarter.
And EBITDA income of RMB 89 meeting a year ago.
Income tax benefit was RMB 11 million.
Compared with.
Income tax benefit of RMB, 17 point 19.7, meaning for the preceding quarter and income tax expenses of the RMB 19.2 meeting a year ago.
Turning to slide 14.
Net loss attributable to right for the quarter was RMB 58 meeting narrowed by RMB 45.8 million compared with the preceding quarter I look compared with net gain attributable to right of RMB 21.2 meeting a year ago no.
GAAP net loss attributable to rights for the quarter was RMB 51.6 million narrowed by RMB 47.8 million compared with the preceding quarter and a compared with non-GAAP net gains attributable to rise of RMB 54.8 meeting a year ago.
Basic and diluted net loss attributable to rise per Mds for the quarter was RMB 1.03.
Basic and diluted and non-GAAP non-GAAP net loss attributable to rise apart as was RMB 0.9 92.
Oh, no cash flow performance net cash outflow from operating activities for the quarter was RMB 111.
118.1 million compared with RMB 82.4 meeting for the preceding quarter and RMB 129.2 meeting a year ago [noise].
Quarter over quarter, increasing cash flow was mainly due to reduced attach collection from regular foresee as a result of the temporary closure of self owned and franchised learning centers for almost the entire quarter.
As of June 13th Twentytwenty, The company had a combined cash and Apache equivalent and a restricted cash of RMB 753.5 meetings compared to weed.
1022, 0.8 meeting as of December 31st 2019.
As of June 13th Twentytwenty total deferred revenue and the customer and incentive was RMB 677.8 needed a decrease of 10.3% from RMB 756 meeting as of December 31st 2019, the decrease was primarily.
The result of the fact that the revenue recognized to follow for our courses and services is larger than the tuition fee collecting from new students and renewed during during the quarter.
Not that into the second half of 2020 on slide 15.
Although the depth and scale of the impact of Colby to 19 is still on no. We believe we're well positioned to navigate the resolutely involving marketing environment and the capital potential market opportunities or learning centers in Shanghai molecule Schengen and he heavily skewed it for offline operations.
In the third quarter, and our learning centers in Beijing and issues at all are expected to we opened in September at a pace regulated by the government.
Our ability to flex it relates reach between the online and offline model and to manage our.
Offline and online operations currently will help us mitigated the risk of any potential resurgence of Cobiz 19 to our business.
Taking all these into account we expect our revenue in the third quarter of 2020 to be in the range of RMB 325 meeting to RMB 330 find meeting.
With that I would now like to hand, the call over to the operator. So we can begin that's really session. Thank you.
[noise], ladies and gentlemen, if you're interested in skin <unk> body worn and that's one of whom we plan to needs to be isn't.
Usually Pennsylvania, let's please press the pound.
Again for question is ongoing.
My first question your job is from the line Shannon Jones from more than in your line is now.
Hi, good money I think you for taking my question and the <unk> congratulations on the well improved financial and the appreciation. So my first question is Oh kind of kinda up a one and sadly on them that does that the a young children initial <unk> is.
Dynamic now I think there are some oh, two since bankrupt and active market while at the same time, we see a lot of competition from the.
Interact <unk> 80 piece for the young children, So would be a management view on this.
And then Nick and and Oh, they sell will impact your offline expansion in the given a in a 90, but extension in the rack they'll be PMT munby offline, but is already a resumed operations and maybe the long term.
<unk> offline and don't franchise development.
These are the first one and they can one its.
Are you have a pretty impressive improvement on the Oh pack Ah. That's my opinion panic. So many now what do you see the $10 customer acquisition costs and now we also we'd be up a applying a patient oh, we restart.
I do expect more self marketing going forward in near quarter end and end up in the third and fourth quarter. Thank you.
Yeah.
Thank you don't show a or will answer the first question and then the second question offer together with dental or you're you're right I do think of their market is quite dynamic now a with some I would say or entities exit the market. We also see.
We agree with remaining players are improving in terms of the methods that are they upgrade oh by the same time, we also feel a attractive markets out there are new entrants.
So for some new entrants.
They rely on the so called <unk>, a court courses or through ATP and Ah I do think a this is a or sort of her replacement of Ah will recall the.
The Disney like or don't don't hockey rights. So yeah, catone type of learning the or the the I would say, it's not a really educational products per se I'm sure they roll our improved continuously.
To achieve some education Ah Ah.
Educational goes so right now what what I can see the they have their customer base are somewhat different from our offline or a customer base, but the evidence is one that read we do see very strong.
Growth in terms of but number of inquiries into our offline learning centers.
In fact of Washington, and I'm sure.
Sure Juggle for example, even at June or the new student enrollments already surpassed what the they had in Tucson since June of 2019 and in in July we actually see Shanghai, adding into that Ms.
To to actually sit possibly you Roman number of these are the 2019. So there is a very strong momentum you most of the cities that we operate our that's number one number two or even for rice, a we have for online offerings.
To do a teacher small group causes and we are developing AI related courses as well, but mostly I, you know or talk to Tropic. A therefore, we're the leader or we can convert them into a more learning related program.
I'm like the do cost.
Our multiple talk this already offline a regular forces are so I think the market definitely is still expanding and growing and there's a different market segmentation our people, sometimes subscribe more than one program or they think.
The offline or de lever different learning experience and an online they have a supplement the offline or so but yes. It is dynamic, but we do see all market growing both offline and online.
[noise] so on the Opex Ah.
On the Opex, a oh as you can see that Ah for the second quarter, we actually control or.
Customer acquisition cost the really well part of the reason is that we.
Happy offline that work so that we can generate referrals and help the customer acquisition.
In fact would be the ER CAC number this quarter compared with the same time off like a lot here it basically it's flat.
For third quarter, and fourth quarter sales marketing costs or expenses will definitely go up because reducing costs, a with a offline offline practice or resumed a nationwide. We have a very strong demand a therefore, we also one or two.
<unk> improve the new student enrollment significantly so on that on a number of it won't be a you know quite.
Significantly improve or increased but at the CAC level, we hope that we can fuel control a at a reasonable level and they're doing happy.
Okay chips to supplement a little bit due to the host remarks on Oh kind as a vision caused a if you look at our financials, our marketing expenses remain on.
Flat compared to the first quarter, while a word new student enrollments actually doubled compared to the first quarter. So that it did attributable to a number of measures taken as them.
Actually in the whole speech a week San Diego.
Our marketing channels, we enter into partnership of Wisdom, Gymboree, and earning a early age is schools, which contributed roughly.
12% to 13% of our new student enrollment team the second quarter until this is what we say, it's a kind of an offline channels.
Channels.
The percentage of students apply to from offline channels actually increased the compare to the same quarter of a lots yet on that helps to reduce our overall acquisition cost.
In total.
And.
So and also going forward week were going to continue to invest in a marketing and for the purpose ourselves up significantly increased our on student enrollment at the same time well go into a floating increased our costs really utilization.
Even has mentioned that it will make a best a use of the technology and also our online platform and to transitioning into Oh, I'm old, which will free up with some physical classroom, a utilization or capacity or sold that we can't comedy some more students and.
Of course at the same time that it will.
Give us a big pressure to acquire more skewed anything from the market and that's why we want to continue a reinvestment in marketing a your question Oh, I'm aware offline network expansion.
You know all while handle we want to leverage our OEM old model on your order to make sure we increased our.
Costumer capacity as well as they utilization at an optimal capital capital expenditure at the same time, we plan to open we mall a new learning centers here in the second half of 2000.
20, which should we think off like a network of learning center is a huge assets to rise, which significantly differentiate us from or the other educational institutions and also I think he'll budgets our students age group primarily.
Good to see some HM.
At the age of a straight to seats and parents to actually prefer offline teaching I'm more onto the online teaching.
So we'll continue our.
Capital expenditures in the offline on that or do it up.
I wish I don't see.
Oh, yes, that's right yeah. Thank you very much and then appeals will add some color on your friend I see Ben even 10 given the.
Current.
Education.
Yeah, as I mentioned, our franchise network or actually remain strong unhealthy a we even ads are three more franchisees.
And also opened 11, new centers a in the second quarter overall, the they also see very strong a recovery once they opened up offline centers on new student enrollments almost double every month system wide and Ah.
The same time as we mentioned, we empower them with more courses online and Ah Ah Ah trainings for their teachers online so would be a pandemic region dot research or they're able to swiftly switch online and continue the online education a greenfield.
Or docs or as I mentioned, we have a new business like or new courses, adding to the system. For example, the on my math Oh theme, a an online our view a teacher a small group classes are those weekend or you know have the franchisees as our sales.
Partner, so that they can actually acquire students and though we are from the headquarter to deliver those courses online. So in some way or they will become our partners both offline and online I think that will help them to mitigate some of.
The market impact you mentioned for example, the you know other AI a new entrance.
The thing time, they can expand their market beyond a physical locations I I I feel that we you know can utilize the franchisee partner to get to the lower tier cities without a you know opening more stores and this.
So called the network Oh fly network on the online that work will make up franchisees are closer to the whole family a and I do think that can be a unique advantage for for right.
To a expand on market get to the you know nor tier cities and also developed or online capabilities altogether.
Understood. Thank you very much.
Thank you once again, ladies and gentlemen, you mean, that's funny oneplus machines.
[noise] because again, if it's not one for questions.
Well no further questions from participants.
Ladies and gentlemen, it's been needs to be conference call. Thank you all for participating you may now disconnect.
Thank you.
In Q.
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