Q2 2020 RYB Education Inc Earnings Call

Hello, Ladies and gentlemen, thank you for standing by for our might be education, Inc. second quarter 2020, <unk> earnings Conference call. At this time all participants are in listen only mode. After managements prepared remarks, there will be a question and answer session.

Today's conference call is being recorded.

Well now turn the call over to your host sorry, not Investor Relations manager for the company. Please go ahead, Sir you know.

Thank you very much Hello, everybody on todays call today on the call Army My screen Oracle boundaries director and Chief Executive Officer, Mr., how good our Chief Financial Officer <unk> earnings Press release issued earlier today <unk> Newswire services and it's also posted on our Investor Relations website.

I, our dot our why B.B.A.B.Y. dot com 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 up the U.S. Private Securities Litigation Reform Act Niger 95.

Looking statements involve inherent risks and uncertainties.

As such the Companys actual results may be materially different from the views expressed today.

Were there any information regarding these other risks and uncertainties just include it in a company annual report on form 20 out for the fiscal year ended December 31st 29 team and other filings filed with U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward looking statements except as required.

Our applicable law.

During this call today management will also discuss certain unaudited non-GAAP financial measure for informational purposes, only the company's second quarter talking 20 earnings press release contains a reconciliation of the unaudited non-GAAP measure up to be unaudited most directly comparable GAAP measures.

Now I'll turn the call to me it's true the her can take us through a review of the second quarter and provide updates on the business.

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Thank you to all of you have joined US today I'll begin by reviewing our business an operating results for the second quarter. I was wondering 20, then our chief Financial Officer, Chris will follow with a more detailed review the financial.

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During the second quarter in a phase all prolong thoughtfully closure due to the impact of called a night in some damage with taken berries actions to mitigate impacts, including majerus being sure that health and safety up the students and families and optimize personnel uncontrolled discretionary spending well over.

We continue to operate than our digital transformation maintain ongoing communication with parents and students and further actions to build out and strengthened our comprehensive early childhood education solutions.

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Okay.

In terms on our digital strategy in the second quarter, we continued to enhance our online service capabilities to ensure that students would have disrupted remote access to high quality at home learning resources into a collection of early childhood education concept.

Following the initial launch in the first what are our paid course platform for Kindergartener during the second quarter. That's even further out of content offerings available on a platform. We simultaneously carried out a pilot promotion up as plot platform for it you wrote student awesome directly operated kindergarten and their parents provided positive feedback with the help.

<unk> platform and most of purpose all these across regions back to normal operation overtime, well push forward the online versus offline pockets the learning I bet kindergarten level.

All the all in its very early stage I believe this platform will help us better upgrade our service quality as part of our utilization effort in kindergarten service.

With a complete I'm polished concrete block or lease obligations in the future well look forward to exploring its potential to be adopted across market.

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We also worked on initiatives, including kindergarten play on North and our service management and early your child care services.

We completed a planning for surface management model with our party kindergarten unplanned ours and our operation.

Once that leverage our integrated all my marriage off my model and expand existing services by this service management model.

Through this service management model, we can deliver high quality content standardized management system and targeted training to a broad range of those will be operator in a systematic manner with mondor modularized offering.

We believe this can also help reinvigorate the industry.

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In addition, we kicked off our early years child care business I'm not sure initial test for children under three year old and for which we have been doing market research development educational content and assembling a team of expertise or leave the or.

So the nearly three year with gradually accumulated experiences on certain no houses curriculum Doc screening Assembly operations and management and building a program what special considerations, the combining care education and medical parent treatment starting in the second quarter of 2020, we have launched them one to continue a number of promotional youve.

For early years child care business, even a positive early reception with a supportive pulp policy environment for all the your child care services, along with our course run not work process. We're confident that see further growth into service unit I need becoming an integral part of a refined and expanded service offerings because Europe.

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First I'm pleased to report that by the end up the second quarter, 75% off the company's directly operated kindergarten in China in Singapore and over 70% of French has plenty of nerve center have resumed operations do you didn't attendance rate has been satisfactory and my expectation.

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This number is locked out of the loyalty also families we serve and trop from Sharon <unk> and be reopening process.

We always put the health and safety ever students at the highest priority well continues very no effort to meticulously follow pandemic prevention guideline and implement I'm not sure and requirements you she would buy related governing departments.

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Now onto the enrollment are directly operated kindergarten for the upcoming some after starting this September.

Since the cold and I can pandemic, we have proactively introduced ways of enrolling students yeah, both online and offline channels you cannot rather than specific official accounts and so it's all these service that we keep you backed up and continuing his commit communication with parents. This includes those whose children have already started attending and those who have enrolled.

Our students the children, but have not yet started in addition to prospective students and parents.

Our communication efforts not only keep corn parents updated regularly off the cannot burden operation, but also have potentially contributed to a boost in ratios referrals.

For facilities that have resumed operations, we host a hybrid online publication and offline site visits for parents for those that have not yet resumed normal kindergarten operation, we adopt a fully online enrollment marketing strategy and with the help of technological tool a range online virtual sites wars.

Online promotion.

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The Roman and Michigan's related efforts are also an integral part of the services we provide.

A friendly and its mission recruitment process at the kindergarten, we still are welcoming atmosphere that is important in early stage. It all engaging potential parents laying the foundation for future visits and better leads and conversion rate was normal operation just resumed and does not yet we opened a fully.

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The enrollment results on most of our directly operated kindergarten, Matt our expectation from parents are internal annual budget made at the beginning of this year and we'll continue to makes most program we intend to carry on with more proactive in bromine activities.

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Moreover, our kindergartens ocwen for uneventful summer vacation for example, we offered preschool bridging courses special graduations activities and summer you me back through the integration of online and offline.

By doing so we hope to increase summer attendance and financial performance for Arpus Woody.

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Moving onto our friend transplant learn center business as mentioned previously at the end up doing we saw approximately 70% all franchise Yelp. These reopened I know we expect to see.

90, hodo reopening, 90% total reopening by the end of August.

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That's not an outbreak I'll cover 90, and up and dynamic cost impact in our franchise network expansion in the first half off this year, we've seen gradual improvements and Frank I franchise network expansion efforts started to resume in a second quarter. We believe were well positioned to win more market interest and expand our franchise.

Networks through leveraging our core strengths in content existing not work and our long standing relationship with our franchisees.

Well continue our communication with current franchisees and provide additional training and supervision support in order to enhance their loyalty and engagement level.

Together were confident that our franchisees will be able to achieve normal operational levels. After their play on learns than ours reopened.

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In addition, we continued to strengthen the online offline model work plan learned center business I've mentioned in previous call our family Education, I Love Pearls and online service platform to provide high quality educational content on product I've already attracted more than 300000 Reggie.

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<unk> helps make structured paran trial interaction at home agitation time easier for parents to manage while also providing our franchisees with added opportunities to engage with parents and students to increase program loyalty.

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Okay.

In the future we look forward to your further building out and promoting our digital strategy exploring new monetization avenues and growth initiatives and continuing to contribute to the greater good of children their families and communities by delivering high quality educational services and offerings.

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With that I'll turn it over to our Chief Financial Officer, Chris to provide highlights of the second quarter financial results.

Thank you great sensory enough I wouldn't I'll go through a second quarter financial result.

Please also refer to our earnings press release.

On our IR website for a complete discussion about the initial performance.

In the second quarter. The Companys revenues came under pressure as the lump prolonged facility closures were observed due to the cobot 19 impact across the regions that we operate.

Our net revenue for the quarter were 12.8 million, which is a 76.2% decrease from the same time last year.

Operating cash outflow for the quarter was 5 million U.S. dollars.

However, we actively executed stringent measures to reduce expenses and expenditures on to control our cash outflow.

We carried out a multiple rounds of both the optimization to improved labor efficiency at headquarter level, especially in our back office departments.

We also implemented strip stricter protocols for professional fee or services expenses travel and other expenses.

Well, we also did for non essential capital expenditures to preserve the companys financial flexibility and liquidity.

As up to you at the end of the second quarter, we had a total of 48.3 million of a U.S. dollar of cash and cash equivalents.

We believe that we are still have sufficient liquidity to navigate through the cobot 19 impacted period.

[noise] or directly operated facilities have started to redeem operation in a second quarter with the upcoming semester starting in September we expect to see significant improvement in the company's operating cash flow.

We're also pleased that the under the second quarter with the exception of facilities in Beijing and Dalia facilities in other regions in the areas. All printed can have also reopened.

Thanks to the comprehensive planning beforehand, and the meticulous Ben preparation, we're happy to report a satisfactory attendance trade all will be called rate of return to office facilities.

<unk> of approximately 80%.

As compared to the pre cobot 19 enrollment levels.

Additionally for the facilities in Beijing related government authorities have also recently announced a clear schedule for reopening in early September.

Our faculty and staff members have made preparation and we're ready to welcome students back to kindergartens once those facilities we open.

In the process of up upgrading our services I know business transformation, we will make use of the advantages of our existing facility network and the enrollment and as well as leverage other resources to achieve better performance and long term growth.

Now I'll move on to the second quarter financial.

As I mentioned net revenue for the second quarter decreased by 76.2% to 12.8 million from 53 point Sixmillion for the same quarter of 2019.

[noise] services revenues for the second quarter were 11.6 million compared with 48.2 million for the same quarter last year.

The decline was mainly attributable to decreased two tuition fees due to the temporary closure of our facilities in China.

Oh, although over 60% of direct operated facilities have gradually resumed operations starting from late May there remain close for the most part of the quarter.

Financial service ER franchise services revenues also decreased due to the slowdown plan learn central franchise network expansion and lower revenue generated from franchisees as the vast majority of them have just resumed operations this quarter.

Products revenues for the second quarter were 1.2 million compared with 5.4 million for the same quarter last year.

The decrease was due to much smaller merchandise sales through the company's franchise network.

They have also just a resumed operations during the late.

The late period of the second quarter.

Cost of revenues for the second quarter was 22.3 million, which is a 46.4 decreased from 41 point sixmillion well the same quarter last year.

Cost of revenues well services for the second quarter was 21.8 million compared with 38.38 million for the same quarter last year.

Again, the decrease was mainly driven by a decrease in direct costs as those facilities remain temporarily closed during most period over the quarter.

There is cost control measures have been taken by the company in response to the pandemic.

Such as reducing labor costs, and discretionary spending, especially for business initiative facing more serious negative impact in the short term.

Cost of products revenues for the second quarter of this Europe was <unk> point Sixmillion U.S. dollars as compared to 2.8 million for the same quarter last year.

This was generally in line with a decrease in product revenues.

Gross profit for the second quarter was 9.5 million compared with gross profit of 11 point Ninemillion same period last year.

Total operating expenses for the second quarter were 5.4 million U.S. dollar compared with six point Sixmillion same quarter last year.

Excluding share based compensation operating expenses were 4.6 million, which is a decrease of 18.6 from 5.6 5.7 million for the same quarter last year.

Selling expenses for this quarter, we're only 100 K.U.S. dollar compared with 700 K millions of 700, K.U.S. dollar as well the same quarter last year.

General and administrative expenses for this quarter were 5.3 million, which is a 10.2% decrease from 5.9 million well the same quarter last year.

Excluding share based compensation general and administrative expenses were 4.5 million for the second quarter, which is a 9% decrease compared with 4.9 million last year.

The decrease in G.N. expenses, excluding share based compensation was primarily driven by the decrease in G.N. expenses in China as a result of our efforts on cost control.

[noise] the share based compensation expenses.

Included in the Gen expenses were zero point Eightmillion for the second quarter.

Operating loss for the second quarter was 14.9 million U.S. dollars compared with a 5.3 million operating profit for the same quarter last year.

But adjusted operating loss was 14.1 million for the second quarter compared with 6.3 million of adjusted operating profit last year.

Net loss attributable to ordinary shareholders of the company for this quarter was 12.8 million compared with an income of 2.9 million last year.

Adjusted net loss attributable to ordinary share holders of our why be which excludes the impact of 800 cave, a U.S. dollar or share based comp compensation.

Was 12 million for this quarter compared with a 3.9 million of income last year.

Basic and diluted net loss per American depositary share attributable to ordinary shareholders well. This quarter were both 46 cents compared with the net income of 11 cents and 10 cents respectively, respectively for the same quarter last year.

[noise], but adjusted diluted net loss per 80 is attributable to ordinary shareholders for the second quarter. We're both 43 cents compared with 14 cents and 13 cents for the same quarter last year.

Our EBITDA for the second quarter was a loss of 10.2 million.

Adjusted EBITDA for this quarter was a loss of 9.4 million U.S. dollars.

Based on our current estimate for the third quarter of this year. The management expects the written that revenue to be in the range of 27 to 28 million U.S. dollars.

This outlook is based on the current market conditions and the management assessment of our business recovery, which is still subject to change given the dynamic impact of the Colgate 19.

Thank you for your attention we will now open the call two questions. Operator. Please go ahead. Thank you.

Thank you we will now be getting the question and answer session to ask a question you May Press Star then one on your Touchtone. So if you are used to me 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 he wants to ask your question can management in Chinese. Please immediately repeat your question in English at this time, we will pause momentarily to assemble the roster.

[laughter].

The first question comes from.

Oh see Shang of Morgan Stanley. Please go ahead.

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So let me start a answering this question. So in recent months, we see most parts of the country have contained outbreak of called an idea and then as a result I by the end up this second quarter most of our directly operated kindergartens and most of our franchise CLC Center.

I'll have successfully resumed operation in the process our students on their parents have entrusted us and shown a tremendous support our faculty and staff members have also made great efforts to make a safe returns with a movie is not only possible, but also smoothed any backup.

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Oh, so to be exact I've seen and all the jualin off 2020, 75% over a directly operated kindergarten and about 70% up the franchise Oh facilities have resumed operation and the rate of return she'll facility is generally in line.

Our expectations and we see that right to 80% by the end of July month.

The numbers reflect the Roman loyalty and also the trials of parent I didn't process.

For our kindergartens in Beijing, the education Buehrle also announce a definitive scheduled for reopening a in early September as we always put the health and safety off our student thus priority you won't continue to sterno efforts to meticulously follow epidemic prevention guidelines and implement measures and requirements.

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Oh, so as I mentioned earlier, the enrollment all of our directly operated kindergartens for the upcoming semester starting in this timber to begin with given the outside of the cold and I can pandemic, where you are actively introduced a ways.

Enrolling students, but be up both online and offline channels.

We keep an effective continues communication through cannot garden specific official accounts and surface apps because of all these but students parents, including those who have already started attendance and also they who have already registered but not yet started attending and also prospective students and parents are up.

Communication efforts not only keep caren parents updated regularly but also might have contributed to a posted ratio of referral. Some of our directly operated facilities hold the hybrid of online consultation and offline site visits for parents.

Where those most of these have resumed operation.

And in other what were the kindergarten operation has not yet resumed we adopt a fully online enrollment strategy.

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Medium Roman emissions related to offer a as an integral part of the service that we provide the online recruitment and it's doing effective service in the early stage towards potential parents lay a good foundation for the future conversion Ah.

Once the facility you start to resume.

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Oh, you enrollment number and most of our directly operated kindergartens has not our expectation was back to two the annual budget made at the beginning of this year.

And as makings most progress.

We intend to carry out west more proactive and strategic enrollment activities to promote admission and to be able to share our accumulated educational resources and experiences in early childhood education with more students and parents.

Some areas are still subject to ongoing impact of Cowen IDN and other factors and so as a result enrollment promotion activities cannot be carried out 100%, but these are yes, we have planned porthcawl responding and Roman strategies and believe that.

Each facility, they're familiar were you enrollment will start to pick up one operation is resumed and overtime well eventually need be expecting a number of your Roman sat at the beginning of the year.

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In addition, Oh, what we also have done to both summer attendance, including the following first through the integration of online and offline resources first of all these over preschool bridging courses especial graduation activities and summer themed event also we had pulse on guard.

Duration for the graduating class and an earlier kindergarten untrue time, where the incoming class this fall.

Other services during summer vacation I'd, just love you to meet the requirements of local parents and their children and also provide guidance on how to students during summer vacation keeping the teachers on families close and ready for facility reopened.

Thank you. The next I'm Sorry reminder, if you have a question. Please press Star then one the next question comes from a check lying venture capital. Please go ahead.

Operator.

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Ah can management comment on the recovery all those franchise business during the cold in my team purebred, so far and how should we think about its outlook just yet.

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As I mentioned on previous conference calls I've got we have selected early years child care as the one up on your initiatives. After a thorough investigation and analysis off the evolving market conditions and demand.

We've also started.

To promote a brand after a period of three years of preparation.

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Last year.

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The General office of the State Council issued the guidance on promoting the development of care services, Oh infants and children under three years old their guidelines and other related regulations aimed to build a safe suitable and service accessible community for infants and children under three years old.

Which is highly in favor of early years child care business development.

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So before our early years education a business.

Launch to the market, we have actually started preparation since a little bit over two years almost three years ago.

We have gradually accumulated experiences uncertain no house a in content curriculum stop screening back on so it's only operations and management and also in building a program with special considerations to combining care education and medical care and treatment.

A woman side from Patricia Shana, Sheila decline you I know it seems that she'd all youre sure well enough for now I mean, I talk with the team would have I have a put I would tell them and that's where you you will find that should hold now how are easily I haven't yet not one when fuel cash out early on jobs.

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Got it at a five that well maybe she now 20, yeah, what I'm trying to 80 Twond. The you know you Gotta he'll Ah don't play a body just should we see the accident year that shoot to don't BARDA.

With supporting policy environment, and combining our strength and not work process Oh, we're confident to see further growth in the service option in a second half of a 2019, we actually set out to directly operated earlier as health care center or what the pilot period in August.

This year, we launched a to marketing and promotion events and signed up close to 50, new contract market reception. At this point is very good in a second half all 2020, we look forward to a greater performance from the early years child care business operation.

Thank you.

Thank you Sir you know so I'll take the second question about the recovery of our franchise business and how we think about its future development Ah. So indeed our franchise.

Center is a franchise partners. We're also heavily impacted by the cobot 19 pandemic since its outbreak in the first quarter and pretty much throughout the entire second quarter. So the I think the priority of our work. During these two quarters are basically to try to maintain the stability of our network.

Oh franchise network and provide as much you know services and support as as we possibly can add to help on the franchisees navigated through this period difficult period of time.

So specifically I think grades have also briefly mentioned on the call, but we have adopted febrile you know measures supported measures.

To help franchisees.

Firstly, we shared a online high quality education content with our franchise partners.

Recently, we also put put more effort on the online content updates Oh I love it.

Application.

As well as a embed various educational programs into the I love apt to improve user experience.

We also believe that the educational content and improving user experience.

I will help our franchisees or you know a cheap unique and effective communication with their members.

So hopefully the trust you know build.

In this process between the franchise centers and their members will contribute two additional course purchases and even referrals of new members in the future.

And secondly, I think we also.

Provided you know effective supervisor supervision services and other you know training services online.

To a franchisee partners across the country and very importantly, because during the cold in 19 period. The local governments have announced a series of Ah Ah prevention policies.

So we worked with our franchise partners to help them. Clarifying question. Then is in this regard and also help them a pain you know take advantage of these professor preferential policies.

Such as rental reductions et cetera.

And also to show our determination to fight against the the the depend dynamic.

Together with the franchise partners. We also decided to wave a total month of a total of three month or annual fee for existing franchise partners.

So that's that's basically the supported measures that we took [noise]. So in terms of the the scale of our system network or the number of a franchise the centers by the end of the second quarter Oh, We had a total of 1162 franchise center.

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And this number is you know we still see a slight increase from the number that we had at the end of last the last quarter.

So basically again our franchise network is still a stable at this point.

And also.

On the in the prepared speech that we mentioned just now or by the end of the second quarter the the rate of the.

Franchise kindergartens that have resumed operations achieved a close to 70% and as of now I think by the end of the third quarter I eat by the end of September this ratio can achieve close to 90%.

So I think with the situation of the Kogan 19 gradually getting getting under control a in China, we expect on marketing and promotion activities will resume gradually as well.

In order to redo more more swiftly ourself team has drafted a serious upsells and promotion plans.

For example, you know and so a few weeks ago, our north China cell team have rolled out a promotion osiris promotional activities to convert or the self.

[noise] so looking into you know the rest of the year and also into 20 Twond 21 mm in generally speaking I think the fluctuating macroeconomic environment and the evolving early childhood education market and the recent koby 19 epidemic.

Mike still continue to cost impacts on our franchise or you know play and learn central business.

Well I think in the long Ron having in mind, the evolving market condition, we still believe that the early education no spending has been an always you know will continue to have a significant part of our family expenditure.

We are facing only short term challenges and we will have you know greater opportunities some front potentials in the long run.

So I think we will you know continue to take advantage of up about existing strength is.

In regions. The cities that are existing operations are already have a good presence.

We also believe that our distinctive products and services will continue to appeal to quality play on learning center operators in the market.

And also our centers also widely distributed in tier two tier three until four cities a that said we will for the you know or enhance our can competing advantages in these regions and continuing to open up a franchise the centers and also expand into new areas that are.

Brent haven't.

Entered as of now also I think we mentioned in the past quarter that we are in the process of preparing a new premium brand for our franchise plc business and we think this effort will hopefully a bear fruit over the next to a few months.

Thank you.

Thank you. This concludes our question and answer session I would like to turn the conference back over to the company for any closing remarks.

Thank you thanks, everyone for joining us today, if youve any further questions. Please do not have today to contact our IR at <unk> Dot Com. We hope you have a good day and up at night.

Thank you.

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