Q3 2020 RYB Education Inc Earnings Call

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Hello, Ladies and gentlemen, thank you for standing by for the ROI D Education, Inc.'s third quarter 2020 earnings conference call. At this time, all participants are not listen only mode. After managements prepared remarks, there will be a question and answer session.

Today's conference call is being recorded I would now like to turn the conference over to your host Serene <unk> Investor Relations manager for the company. Please go ahead, sorry now.

Thank you Anita and Hello to everybody on today's call with me today are these young like share our co founder director and Chief Executive Officer, and Mr. Hao, who our chief Financial Officer.

Our earnings press release was issued earlier today through Newswire services and is also posted on our Investor Relations website, IR Dot our why B.B.A.B.Y. dot com on.

On on Wipes website, you will also find a webcast replay of todays call.

Please note that the discussion today will contain forward looking statements made under the safe Harbor provision on the U.S. Private Securities Litigation Reform Act of 1995.

Forward 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 is included in the Companys annual report on form 20-F for the fiscal year ended December 31st 29, 10, and other filings 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 measures for informational purposes only.

Company third quarter 2020 earnings press release contains a reconciliation on the unaudited non-GAAP measures to the unknown as in most directly comparable GAAP measures.

Now I will return the call to Ms. true for her to take us through a review on the third quarter on provide updates on the business.

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Thank you to all of you who have joined US today I'll begin by reviewing our business on operating results for the third quarter up 2020, then our Chief Financial Officer, Chris will take over and follow with a more detailed review on the financials.

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Our directly operated kindergartens in China have started phase three openings in the second quarter.

I'd be and other third quarter of 2020, we opened 96 directly operated kindergartens, which were temporarily closed pretty previously due to the COVID-19 pandemic and saw a close to 90 per cent back to school rights to our kindergarten.

On a single for all of our directly on for to the facilities have resumed operations.

For directly operative kindergartens that have resumed normal operations at the end of the previous quarter Arthur.

Our facilities continue to operate with called a night in protocols in place to protect the health and safety of students families as well I'll stop numbers.

For the facilities that have only recently reopened we've kept open and timely communication with parents and Vigilantly carried out cold at night in protocols with a focus on enhanced cleaning and strict hygienic practices.

We closely follow guidelines issued by local education bureaus, and cooperate with joint infections by related government agencies to ensure a safe and efficient returned to kindergarten.

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As mentioned in the earnings call last quarter. The company is taking an online plus offline approach as we focus on the re enrollment and ramp up of already reopened for smoking for.

For example, we have online promotional activities with weekly on site tours on individual container gardens as conditions permit in some for sleep that was converted to operate as inclusive kindergarten. We can increase the cost line. After the conversion to allow more children in a community to your ROE enhance it.

Increase our total enrollment as well.

Leveraging the proactive prepare preparation for reopening on our continued effort and re enrollment by the end of the third quarter. This year. There were a total of 33760 students enrolled in our directly operated facilities in China, and Singapore and increase of around 9% for.

31023 students at the end of the prior quarter.

In addition, we conducted a for some of these specific parent satisfaction survey in September based on collected feedback the center office of kindergarten management team provided individualized and targeted feedback to each for smoky in order to assist their continued pursuit of improving service quality.

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Many franchise play on learning centers, we opened in the third quarter across the country. After the previous period of temporary facility closure, thanks to de facto control of coal the 19th.

By the end of September approximately 90% on the franchise PLP have resumed operation.

Our franchise team continues to provide supervisory and operational support to our franchisees on regular teacher training, both online and in person have resumed.

Our R&D team also has been working very hard to upgrade existing and develop new play on nurse on our curriculum offerings and expense available products for sale, including teaching AIDS and classroom toys Peggy.

Take it to the online course for example, our curriculum development team has completed 60 for a course hours of video recording us off and September and we expect to complete the remaining course hours in December once completed two though will not only be an interesting video based courses per home parenting, but also for.

Suitable for classroom interaction in our franchise play on learns on her.

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Lastly in this third quarter, we continued to work our way towards our integrated online offline business model are.

Our team continued their work in the development testing and promotion of operations management system for different types of early education facilities.

After directly operated kindergarten resumed normal operations the facility specific official accounts and service platform for each kindergarten continue to serve as an important link between home and kindergarten on with quick response and regular communication parents feel more assured having their children back to kindergarten.

We believe that this systems and tools are important in helping kindergartens and other early education facilities alike to improve operating efficiency and optimize the experience of children and their parents.

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In the first nine months off 2020, the cold and I can pandemic cost substantial disruption to the company's operations due to the challenges presented by cold on ITM. The Companys facilities were temporarily closed for most of the first half of this year.

In response to the pandemic, we have taken prompt and proactive measures to ensure business sustainability on financial flexibility flexibility.

Thanks to the effective control of the virus and other celebrated its not big recovery by the end of September most directly operatives facilities had we opened successfully with more students erode than the previous quarter the.

The company will continue to ramp its facilities in operation carry out in school health protocols and stringent cost control measures to strengthen our balance sheet and liquidity position.

We stay committed to improving our integrated zero to six year old early childhood education products and services I look forward to delivering better in the coming quarters.

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With that I'll turn it over to our CFO, Chris to provide highlights on third quarter financial results.

Hi, Thank you Grayson serene, though I will now go through our third quarter financial results. Please also refer to our earnings press release posted on our Investor Relations website for a complete discussion of our financial performance for the past quarter.

We're very pleased with our business recovery in the quarter as the company I was on the beginning of September resumed operations at most of our directly operated and franchise for facilities.

In the third quarter, thanks to our success in reopening facilities and efforts, we made to restore our core business operations.

Our top line recovered by more than 150 per cent from the previous quarter.

In addition, our SGN expenses decreased by 26.8 per cent compared with the same quarter last year as we continue to adopt a stringent cost control measures.

Cash balance also improved by 11.4 million U.S. dollars from the end of the second quarter, which gave us additional for financial flexibility and a solid foundation for operations.

Going forward, we will stay focused and continue to optimize the standard rise the operation of our kindergarten I'm playing learning centers.

Provide more systematic and standard rise the support to local operations.

On improve operational performance on efficiency of our facilities.

Now moving on to for the quarter financials.

Net revenue for the third quarter of two is on 20 were 32.6 million U.S. dollars compared with 43.7 million U.S. dollars for the same quarter of 2019.

Services revenues for the third quarter. This year were 29.8 million U.S. dollars compared with 39.5 million for the same quarter of 2019.

The decrease was primarily caused by decreased the tuition fee due to the Cobi 19 impact.

Well over 60% of our directly operated facilities in China have gradually resumed operations. Since late May we had another older 30%, which we opened in September.

The decrease in service revenues was partially offset by increased tuition fee revenue of the Singapore operation.

Attributed by an increase in student enrollment and a few and a few newly operated for city of newly opened facilities in Singapore.

Franchise service revenue also decreased due to the slowdown play on learning Center network expansion and lower revenues generated from existing franchisees as their recovery from operation suspension was gradual in the third quarter. After reopenings in late May this year.

Product revenue for the third quarter of 2000, Plenti for 2.8 million U.S. dollars compared with 4.2 million U.S. dollars for the same quarter last year.

The decrease was primarily due to a decrease in them the India balance of merchandise sold through the company's franchise network.

As their recovery from operation suspension was also gradual in the third quarter.

Cost of revenue for the third quarter. This year was 33.5 million us dollars.

Which is a 24.8 per cent decrease from 40.6 million us dollars for the same quarter in 2019.

Cost of revenues for services for the third quarter of two is on plenty was 29.2 million U.S. dollars.

Compared with 38.5 USDOT million U.S. dollars for the same quarter last year.

The decrease was primarily due to the decrease in our staff compensation direct cost rental cost at the company's directly operated facilities and stock compensation of the company's franchise business units.

Cost of product revenues for the third quarter for this year was 1.4 million U.S. dollars right.

Representing a 33.3 per cent decrease compared with.

2.1 million us dollars for the same quarter of 2019.

Gross profit for the third quarter. This year with 2 million for us dollars compared with 3.1 million U.S. dollars for the same quarter into is on 19th.

Total operating expenses for the third quarter. This year were five on 5 million U.S. dollars compared with 7.6 million for the same quarter last year.

Excluding share based compensation expenses operating expenses were 4.9 million, which is a decrease of 27 point 27th on 3% from six on a million for the same same quarter last year.

Selling expenses for the third quarter. This year were 500, K.U.S. dollars compared with 800 K.U.S. dollars for the same quarter in 2019.

General and administrative expenses for the third quarter. This year were 5 million us dollars compared with $6.7 million for the same quarter into is on 19.

Excluding share based compensation Gn expenses were for 4.4 million for the third quarter, representing a 25.5 per cent decrease from the 5.9 million for the same quarter last year.

The decrease in Gn expenses, excluding share based compensation was also primarily due to the strict cost control measures that we carried out in the company headquarters in.

In particular in stock compensation professional fees travel and other operational expenses.

For share based compensation expenses extend credit NRG on expenses were zero point Sixmillion U.S. dollars for the quarter.

Operating loss for the third quarter of this year was 3.5 million us dollars.

Compared with 4.4 million U.S. dollars of operational losses for the same quarter last year.

Adjusted operating loss was $2.9 million for the third quarter compared with a loss of 3.7 million for the same quarter last year.

Net loss attributable to ordinary shareholders for the third quarter. This year was 7.1 million U.S. dollars.

Compared with three with a 3.3 million for the same quarter in 2019.

Adjusted net loss attributable to shareholders, which excluded the impact of the 0.6 6 million U.S. dollars a share based compensation expense for the third quarter. This year was 6.5 million compare.

Compared to a 2.5 million for the same quarter last year.

Basic and diluted net loss per share American depositary share attributable to shareholders for this quarter.

And we're both plenty for 26 cents.

Compared with 12 cents in both terms for last year.

As adjusted basic and diluted net loss per AIDEA attributable to ordinary share holders of our the for the third quarter of this year were both 23 cents compared with nine cents in both terms respectively for the same quarter last year.

EBITDA for the third quarter of this year was a positive 0.5 million us dollars compare.

Compared with a loss of 1.3 million U.S. dollars for the same period last year.

Adjusted EBITDA for the third quarter. This year was a positive 1.1 million us dollars.

Paired with a loss of 0.5 million us dollars for the same quarter last year.

Now in terms of business outlook.

As most of our facilities have been reopened as of the date of this press release weaker.

We currently expect our business to continue to recover from the pandemic during the fourth quarter.

For the fourth quarter of two is on Plenti. The company's management currently expects net revenues to be in the range of 42 million to 43 million us dollars.

The above outlook is based on the current market conditions on reflects the company's management's current and preliminary estimates of marketing market and operating conditions as well as customer do demand all of which are still subject to change.

And that concludes our prepared to present patience, we will now open the call to questions. Anita. Please go ahead. Thank you.

Thank you we will.

We'll now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone for using the speaker phone. 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 Benjamin in Chinese Police immediately repeat your question in English.

At this time, we will pass momentarily to assemble our roster.

The first question today comes from L.C., Zhang with Morgan Stanley. Please go ahead.

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Second question is about on to happen on the outlook for the coming here in terms of growth isn't always on margin.

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So enrollment or rather reimbursement is on a rolling basis as our direct wheel operating kindergartens reopened after in the prior period on a temporary facility closure before the reopening of kindergartens in Beijing in early September.

Individual facilities on kindergarten management team together and made a lot of effort in preparing for reopening uncapped an open communication with parents.

So some of the average include for example, during the temporary closure period on ongoing focus was always on maintaining a good level off in Roman on after for several years have resumed operation new students continue to be admitted on a rolling basis and on site renovation of some directly operated kindergartens have enabled.

On a larger overall capacity for more classes.

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So for other directly operated facilities in Beijing. For example, we held on line parent teacher catch up sessions on virtual one on one parent teacher started from June 1st we made accounts Dahlia five steps to the reopening and share with children and parents video recordings and snippets of quality.

Pre spend on it can have on a life to bring back a good memories and get them ready for their return to other facilities.

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For the kindergartens located outside of Beijing on they started on phase three opening gradually from the end of the second quarter around may or June ish and by September there were quite ready to welcome. The for September batch of students returns for school before the September semester, some online courses charge.

Moving on small for you were made available in some areas along with courses related to your Roman preparation, which received good feedback and contributed to a boot enrollment in September.

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So under normal circumstances, there are mainly two peak so on mission or a Roman one in March and another in September each year. This year are due to the challenges brought by the pandemic. We in response temporarily closed all facilities and as a result, the March batch of students were not.

He wrote most of those students chose to enroll in September when for some piece, we opened which contributed to the number of students enrolled this September.

Yes, and also on top of that L.C. I can also add a few a student enrollment data says.

The total number of students who enrolled as of the end of September at our directly operated facilities were 27912 students.

And this is actually up almost 11% increase from the end of September enrolled students.

Last year and also if we have if we also exclude the facilities that opened.

They're on newly opened over the past for quarter than we do with Apple to Apple comparison.

The total number of students at the end of September. This year was 24700 and this also you know we had a meaningfully meaningful 12% increase.

From the Oh, sorry, apologies so the end of September of students.

This year was 27711 students and this basically represents a 12% increase.

From the 24700 students or by the end of September last year.

So as Greg mentioned.

In in March this year, our facilities were essentially on a suspended all closed because of the pandemic so for that new semester.

Then the on the the new students that we would have enrolled we were able to view and roll them into new subs September semester. This year.

So this actually also contributed to the total number of students that I just mentioned.

And also at the end of November this year. The total number of students who had registered with a fee but.

But not yet started attendance at on directly operated facilities a was a 1625 students and this number actually reflects the result of our early enrollment efforts and contributes to the increased enrollment in the future.

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So for the second question in 2021, well continue to focus on the company's core business operations on the following aspect of our kindergarten unplanned losses on our business.

So for the directly operated kindergarten, we stay committed to providing high quality education on service to students and families on the at the same time maintain a good enrollment at our inclusive kindergarten secondly, well continue to work on the re ramping on some premium offering in our national accounts regarding other moment there on.

Our steel sales for profit premium on international kindergartens, an operation that are still in our run off period and can enroll more students.

And in addition, we look forward to introducing the kindergarten courses with online features enabled and developed by our in house R&D teams to other kindergarten operators.

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Excellent that's on the overall.

Hi in terms of our planned learning center business well continue to provide improved supervisory on training services to their franchisees and strengthen our bond with them by providing support in marketing sales administration and home education on the other hand, we believe an upgraded system on product offerings will help.

US reach out to more planners and our operators in the early education market with a solid system on good support there will be plenty of opportunities for us to extend and serve third party operators.

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The company remain his operational focus on its core business and kindergartens unplanned learn centers and will continue its efforts in an integrated online merge off line business model will also prudently control our costs and spending to support current operations and deliver better results.

And now for you on your questions about the margins outlook for for our business next year Oh.

I think as Chris mentioned, we will continue to focus on core business of kindergartens and the police on learning centers for.

For kindergartens, we with conversion of some of our facilities to inclusive facilities, we do see a reduction in our tuition fee, but I think to a large extend this will be balanced out or mitigated.

By a significant increase in the class size and number of students enrolled.

After the facility conversion and.

And I think for next year the for another focus for our directly operated kindergarten is also for us to continue.

Continue to ramp up the the utilization rate of students enrolled at some of our for profit and high Internet or high end international branded facilities and I think with this ramp up we hope to you know a maintained or increased slightly increase the profit margin.

Oh for the directly off for the kindergarten business and I think for for play on learning centers.

In terms of franchise model on the sales of merchandise margins are.

Oh quite stable and we anticipate the margins will remain largely unchanged for the main challenge or or task for US next year is really to increase the sales by continue to sign up new contracts and expanding our franchise network and.

And I think you can look at the overall margins on margin target for US next year are.

We also hope that by adopting stringent cost control measures add to at our headquarters level as well as you know b to B, we try to be more prudent in making strategic investments because some of the you know on some of the early stage investment that we made earlier also incurred losses a for us.

So you know being more prudent on making additional strategic investments will also hopefully help us improve the overall margin for growth next year.

Okay. Thank you very much now detail.

The next question comes from Sam Han with Sage capital. Please go ahead.

Thank you for management Jupiter to ensure sales and the impacts on sovereignty interest supply due to the pandemic.

Thank you.

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So due to the restrictions in and no frequent adjustments to the immigration and border control policies as a result of cold and I can global pandemic. The company has experienced some impact on maintaining for and teachers in certain kindergartens in China and during a period of temporary facility closure a previous.

Free some facilities arranged online sessions to conduct virtual learning, which helped and continue enrollment.

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So were addressing our recruiting practices accordingly by leveraging internal flexibility for example for facilities that are recently converted to inclusive kindergartens, we're able to trends for out for and teachers there to support high end and for profit facilities. In addition online teaching in or.

Our actions and also shortened for in future sessions. During the day are some of the other measures addressing that issue.

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Thank you for Ti and so that's all from clean yet all the data bundles going on.

Our talent management team continues to work on the route recruitment through various channels, although the labor cost for end users may arise as a result under the current circumstances. It is of great help to the u. enrollment at some of the premium and international kindergartens.

Thank you so much.

The next question comes from Frederic leaning on listen crack capital. Please go ahead.

Thank you management.

Oh, it's impressive to see the business back on track.

I also noted in September there.

There was just on the proposed preschool education mall posted on line two so based on public opinion.

Oh can management comment on the likely impact on your business.

Thank you.

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With the help of internal and external legal team. We we were reduced on the possible impact of the proposed laws and regulations in the draft carefully studied it it's generally in line with with what the company has previously expected.

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Currently the company service offerings on business operations are diversified in kindergarten plan learned center, it's a franchise business other service offerings and our operations in Singapore.

Proposed preschool education law, my only affect our operation in directly operated kindergarten in China.

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For the directly operated kindergarten business the company will make appropriate adjustments in accordance with regulations on a future to ensure the legal compliance of operations.

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Other movement there is no clear timetable for the official promulgation of the preschool education losses being off will promptly communicate with day investor community. Once the company has further information. Thank you.

Thank you.

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

I think you Anita and thanks, everybody for joining us on the call today. If you have any further questions. Please do not hesitate to contact us at IR at our Y B, a b Y dotcom, we hope you have a great day.

This conference has now concluded. Thank you for attending today's presentation, you may now that.