Q2 2021 Bright Scholar Education Holdings Ltd Earnings Call
Good morning, and thank you for standing by for Bright Scholar's FY 2021 second fiscal quarter 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 is being recorded I would now like to turn the meeting over to your host for today's conference Ms. Ruby at Investor Relations Counsel.
Thank you operator the mall.
And good evening welcome to bright scholar second if so what's the end of February 'twenty eight 2021 earnings call. Joining me today are Mr. Jerry He our executive Vice Chairman, Mr and the trends and it's one that can be our co CEO.
Oh, I missed Dora Li our Chief Financial Officer, that's the.
A reminder, today's conference call is being broadcast live why book costs. In addition of we play with the available on our website. Following the call by now you should have received a copy of our press release, that's what the stupid debt.
The pro the 'twenty five 2021 off the market close just in time, if you have.
No. It is available on the IL section of our website.
Before we get stopped yet let me remind you that states called make hold true for what the true statement within the meaning of section 21 E of the Securities Exchange Act of 19th of default as momentum and that's defined in the U S. Private Securities Litigation Reform Act of 1995.
These forward looking statements, including without limitation, the company's business plans and developments, which kind of be identified spikes of my terminology such as May will expect anticipate aim estimate intend plan believe potential continue haynesville.
Likely true or other similar expressions such statements are based upon management's current expectation I current of all catch in operating income to the church and relate to events that involve known or unknown risks uncertainties and the other factors all of which are difficult to predict of many of which are beyond the company.
Each control, what's the cost of company's actual results.
Four months of achievements to differ materially from those from the forward looking statements.
The information regarding this.
And lots of which uncertainties such as from Fuji in the Companys filings with the U S Securities and Exchange Commission. The company does not undertake any obligation to update any forward looking statement because of reach out of new information to change the done sort of optimize except as required under the law.
During the call will be referring to GAAP and non-GAAP financial measures, we use certain non-GAAP measures of supplemental measures to review and assess our operating performance. These non-GAAP financial measures have limitations as analytical tools and the investors should not consider of them in isolation or as the.
Substitute well not the income attributable to company all of the consolidated statement of comprehensive income of data prepared in accordance with U S. GAAP.
Please note.
All of the numbers you know management remarks are in RMB and all comparisons we saw year over year comparisons unless otherwise stated.
And what does the new child company. We have included in the earnings presentation, a brief corporate introduction instead.
Section one from slide five to the latter of which you can download from our IR webpage.
That's I'll turn the call over top of Executive Vice Chairman Jerry true Jerry.
Thanks, Jeremy good morning, and good evening.
Thank you for joining us our second fiscal quarter 2021 conference call.
We appreciate it you continue the interest in following by scholar.
On today's call.
On behalf of the senior management team the prepared remarks will cover our second the fiscal quarter performance and the key trends in our business.
So all of them provided details of our respective of business and the financial performance.
I will have a brief conclusion before we open the call for questions.
Now let me begin by saying that we are pleased that our performance in the first of the half of fiscal year 'twenty 'twenty. One continued to demonstrate our strength resilience and the capacity to evolve adapt and the progress of me to the threats from ongoing pandemic and the emerging variants.
Through the years, we have built out of network strategy operating and the culture around the stay and focus of our students' needs.
And does the principal has got it is true the ears of stellar growth in the Marcellus and.
The Testament of our strength and resilience in times of pandemic of crisis.
Yeah.
We have all of the building blocks in place.
Can be of global Premier Education service provider I Havent taken does the challenging time to build what we believe is the more effective organization for the future.
So optimization to maximize the return for existing assets integrated to capture synergies.
From a global net of work and he hasnt been of the competitive global cost structure, while continuing our investment in the instructed the areas.
These actions, which we believe are going to lead our outstanding performance post the COVID-19.
And the are critical to our long term success.
That's the turn to our earnings and the Starwood slides 13 of section two so the highlights of our second of physical quota in the first of half with detailed the breakdown by respective business of inside of 14, the 15th in the quarter ongoing COVID-19.
And then make a continued to have adverse impact of our overseas business.
The revenues for the quarter was 809 weighted.
By seven point of 80% of that with gross profit and operating income down by 4615 per cent of the 152 per person the respectively.
Yeah.
But the message the related business or the core.
The strong recovery, while the pandemic adversely impacted our overseas schools.
That's the look at it more closely all of our respective businesses.
Yeah.
Please refer to slide 16 shows the performance of our domestic K 12 of business.
Our telephony Paypal the business continues to show for a recovery.
Jack the rate across all segments in the second of physical quarter revenue I'll tell the person in the quarter and the 11th place the right person in the first first of all hops.
The strong recovery it was attributed to the substance of of inquiries the E enrollment.
Which exceeded our internal expectation.
International schools bilingual schools and the kindergartens grew by seven 6% eight of 1.1.
The one per cent and then 19 point of 7% respectively for the fiscal quarter.
Our consistent and the industry, leading academic performance reflects the strength of our bright the key catalysts driving our enrollment of the growth you can see is like 16 17.
As of April six.
'twenty 'twenty 194 per cent of student in the in 2021 graduating class of of our international schools in China have received offers from the global top of the 50 institutions, including toll offers from the Oxbridge three from the University of Chicago, two from Cornell University to firm value of your universe.
The two for UC, Berkeley, and the sale of from New York University.
Furthermore, our deep collaboration with the country got in other parts of North continue to drive the expansion of our domestic of school and out of work and the capacity.
And that's after the release date, we have entered into agreements, which kind of regarding the other part of the nurse to operate a total of 10 schools in the 65 kindergartens, we said total capacity of approximately 40000 students.
On slide 19, our complementary education services business recharged.
Profitable growth driven by the Skinny incident.
Improvement of the income from the domestic market and now the training camps started tours and the others.
In the quarter revenue grew by $14 four per cent.
Our modern and have also started to recover it with gross margin increasing from $5 80 per cent to 22 per cent.
And the operating margin improvement of from minus 19.8 per cent to Shreveport five per cent.
At the same time, we are continuing to experience the impacts of the pandemic.
Oh, I see related to come of inventory of business and are adjusting and adapting accordingly.
Why is the operation.
The environment remains challenging.
We are happy to see.
Possibly the department and the trend continued through the second quarter, and then most likely to accelerate through the second half of the year.
Including the favorable government policies in education for all around the 11th for students.
The bond into these opportunities we plan to expand our offerings through investments in global of laid dead where.
Broadening the scope of our current business to offer more extra curricular activities and the accelerated collaboration with our global network.
The synergy with our hours the network offers tremendous opportunities oversee company camp and started two of business.
The strategies and the plants the capture these opportunities already in place.
We expect growth will resume and the accelerate once the vaccination programs begin to take effect and the subsequent sequence travel restrictions are lifted.
Moving out to our hours he kato of business performance of inside of 'twenty.
That's the anticipated.
We experienced significantly lower revenue and the substantial year over year decline this quarter due to the the pandemic in the.
These into fewer students the on campus our schools and the language of the business that were impacted by Lockdowns for local students.
Travel restrictions if of overseas students as well consolation of started tools than cat events.
In this quarter, we continued to focus on continuing the trends of the transition of overseas schools into the group through centralizing the support of functions streamlining our operations through consolidation of the resources.
He has seen academic performance and the improving cost structure to partially offset of the bottom line impact of the pandemic related disruptions.
D C initiatives through the provide operating leverage going forward as we review of our over the revenue.
And then enable us to emerge stronger and more efficient.
Leveraging all of the competitive advantage of Oh.
Our global network of schools.
At the same time, we are encouraged by the positive upward trends in our students' academic performance and the hour.
Other operational progress.
Most of the real estate, our 2021 graduating class have received the water of 45 offers the from poverty universities with forefront of Oxbridge.
540 offers for Russell Group. In addition, 179 student you know our Boston School.
All of our sub 50, the into top of 100 U S colleges.
New student intake for September of 2021 turn is expected to increase by 44 per cent.
What is the vaccine program progress of in the U K and of the U S schools I use of reopened or you expect to be opening soon we expect our overseas schools to return.
Profitability and the capture more market shares when life returns to normal.
Finally.
The performance of our education technology of the business, well polices of which the progress across a multiple of France as shown in slide 21 revenue continues to grow of about $35 six percentage in the quarter and the 48 point of two per cent under six months basis true.
<unk> Global Academy, which offers online international classes and the English tutoring has been well received in China.
Once the pandemic the receipts, we plan to integrate react global Academy into our global network of schools. In addition, we see enormous opportunity to the four hour.
Our offerings in domestic market.
Our strategy does help local governments the promote education apathy.
Apogee and to improve the teaching efficiency out of school of spy, Sherry and offering high quality education of resources, including the online video classes.
And the teaching materials through collaboration with the top schools each of the city of course, China.
Looking ahead to the second half of fiscal 2020, one we are increasingly optimistic.
Now the confidence of our business or have a strong longer term recovery.
Our major opportunities in the power of this over the next of fears lie in the fall of any area first continue to organically grow our domestic K 12 business by improving utilization and the efficiency.
Second the rebuild of our fair value revenue and the return to.
Profitability for overseas business post the Covid.
Third expand the breadth and the depth of our complementary service offering force.
<unk> accelerated the growth and the application of our.
AD Tech business.
We will continue our focus of steady revenue and the operating profit of growth in K 12 business, while building growth momentum in complementary education in the AD Tech.
Which of these priorities and the kind of payment of the pandemic. The insights we expect our revenue and the profitability growth in the next the fears were return to pre COVID-19 level.
Our sorry, the balance sheet and the market the positioning have enable us to navigate through this challenging period.
At the same time recently of our capabilities for greater success in the long term.
With this note I would turn the call over to the Dora.
Yeah.
Thank you Jerry.
Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year over year comparisons unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on.
The year over year basis.
Please turn to slide 24 per.
The planned result for the quarter was down seven eight per cent to 890 line for the quarter and the down five eight per cent to $1816 6 million on the six month basis, primarily due to the impact of COVID-19, all of our own.
This is the schools and overseas related complementary business.
Domestic K 12 schools, not including international schools bilingual schools and the kindergarten show strong recovery revenue was up 12 per cent for the quarter of 11, 3% on the six month basis.
The international schools revenue for the quarter up 10, 6%, primarily due to seven 6% increase of students enrollment.
From a six month basis revenue was up 10, 9% due to eight 6% increase in student enjoyment.
Bilingual schools revenue for the quarter up 17, 2% due to $8 one per cent increase in student enrollment.
On a six months basis revenue up 15%, mainly attributable to 8% increase in student enrollment.
Kindergartens revenue for the quarter was up six 7% due to 19, 7% increase in students number.
From a six month basis revenue was up six 8% due to 18 point, what you pinpoint five per cent of inquiries in the student's number.
Revenue from overseas schools was down.
49, three per cent for the quarter and the $48 eight per cent on a six months basis, primarily due to the impact of pandemic.
Revenue from education Tech knowledge of what's up.
The 0.6 per cent for the quarter and 48, 2% on the six months basis, primarily due to the acquisition of online ophthalmic Olympian turning business.
Revenue from complementary education was up 14.4 per cent and the $2 six per cent on six months six months of basis.
Primarily due to increase of storm recovery in language training domestic of camp and other training business.
On slide 25 cost of revenue.
Our top priority is to continuously enhance our cost competitiveness for the <unk>.
Second fiscal quarter total cost of revenue was 645 million increase of 13% and accounted for 17 nine seven per cent of total revenue compared to 65 per cent.
Last year.
On the six month basis total cost of revenue increased only 4.9 per cent to 1200.
The $53 6 million and accounted for $67 four per cent of revenue compared to 16, 5% last year.
Teaching staff cost the primary cost contributor of accounted for 45 eight per cent of total revenue up from $35 six for the quarter of.
On the six month basis teaching staff cost was $38 three per cent of total revenue up from 32.2 per cent.
Our domestic K 12 school average student teacher ratio for the first half of the physical year 2021 what my 0.2 compared to eight nine in the same period last fiscal year.
Yes.
On slide 26, our gross profit and margins.
Gross profit was down $46 five per cent of fourth quarter and the 22.2 per ton on a six month basis.
Gross margin was.
The 14, 7% percentage points to 20.3 per cent.
For the quarter and on the six month basis gross margin was down 6.9 percentage points to $32 six per cent.
The decrease in gross profit and growth margin was mainly due to first revenue decrease in overseas segment as the result of COVID-19 pandemic impact.
Second.
Loss from New open the school and the kindergartens, which are still in their ramp up stage.
Continuing on slide 27.
Adjusted SG&A expenses was $210 3 million down five points of per cent for the second quarter and accounted for $25 eight per cent of total revenue compared to 2025 points of superfan and the same.
Quarter last fiscal year.
The six month basis, adjusted SG&A expenses was 431 6 million only up 2.3 per cent and accounted for $23. One per cent of total revenue compared to $21 four per cent lots of the physical year.
The overall expenses reduction in adjusted SG&A was primarily due to the effective cost structure improvement and almost the segment to partially offset the bottom line impact.
To elaborate more on the adjusted.
SG&A expenses, please refer to our slide 28.
Continuing on slide 29.
The EBIT for the quarter was $48 3 million compared to $152 5 million adjusted EBIT margin was 6% compared to $17 four per cent.
The six month basis, adjusted EBIDTA was 300 of 69 million compared to 500 on the 5 million.
Adjusted EBIT margin was $19 eight per cent compared to 25, 6%.
Adjusted net loss.
What's the 36 million as compared to adjusted net income of.
<unk> 59 for insulin.
Adjusted net margin was negative $4 four per cent compared to $6 eight per cent.
Oh.
Adjusted net income was $161 2 million compared to $282 4 million.
Adjusted net margin was eight 7% compared to 14.3 per cent.
On slide 30 shows all the cash and bank of Palace.
As of February of 'twenty, eight 2021 of our cash cash equivalent and the rest.
Strict of cash totaled $2098 4 million or <unk>.
One in 'twenty for the point to me in the U S dollar as compared to 1697 point of million as of November 30 of 'twenty 'twenty. We also have short term investment of.
2180 $2 million, that's all February 'twenty eight 2021.
Moving to slide 32 of our.
Third share repurchase program amounted announced in November of 'twenty 'twenty. The company has bought back 236973 shares for a $1 5 million U S. Dollar that's all a part of 19 2021.
I'll continue to slide 33.
We are re affirming our revised guidance for the full physical year ending August 31st 'twenty 'twenty. One we expect our total revenue in the range of 3.59 billing and the 3.6 might be line.
Presenting.
Growth of seven per cent to 10 per cent based on existing business and without potential acquisitions.
We also expected average student enrolment in our domestic and overseas schools to be between approximately 56050 7000 representing of the inquiries.
Eight per cent to 10 per cent.
We also expect to open 19 kindergarten from physical 2021 and beyond the physical 'twenty 'twenty. One we have 10 schools on the 65 kindergartens contracted for operation.
Please refer to the table in slide 35, and the 36 for the condensed income statement Slide 37 shows the reconciliation of SG&A EBIDTA in the net income on a GAAP to non-GAAP basis.
On slide 38 of shows our balance sheet and the cash flow statement for the six months ended February of 'twenty eight 2021 of the company's capital expenditure was approximately.
91, 9 million RMB up 12, five per cent compared to lots of physical yet.
And on Slide 39 shows our average student enrollment and the average of tuition fee across our network.
This concludes my financial update now I will turn back to Jerry for his closing remarks Jerry.
Yeah.
Sunken Dora.
I'm very proud of our teams around the world aimed at addressing the challenges amid the ongoing pandemic and the emergence of the values.
We worked tirelessly to protect the health and the safety of our students and staff and the each other by setting and the maintaining strict safety protocols across all of campers and the kept our students on their academic tracks.
We aim to intend to pay careful attention to integration planning and the implementation of you wanted to unlock new revenue and the cost of synergies.
And the accelerating your share of the growth initiatives.
At the same time, we remain focused on maintaining of our organic I E.
The enrollment momentum and the delivery of our strategic priorities and the various initiatives to enhance our offerings rebuilt in the etc revenue growth and expand the hour.
Operating margins for long term value creation.
This concludes our prepared remarks.
And then we'd like to open the call for questions operator. Please.
We will now begin the question of that sort of social cost of good question in the press Star then one of your touched them from.
Youre using a speakerphone, please pick up the handset before pressing the keys.
Withdraw your question. Please press Star then the true.
At this time of a pause momentarily to assemble our roster.
Yeah.
Our first question today will come from.
The new rule with Goldman Sachs. Please go ahead.
Oh, Thank you management I've got two quick questions first of all of it as regard to the overseas designated one of them could you. Please elaborate more on the program of insurance of the cost control of the overseas schools and also what's the hog the all of actually know of gross profit margin of quarter.
The second question is about all of the M&A I think you had mentioned previously that the cough and my operating and the opportunities also can you share some updates on the MAA and what's your precision plans moving forward. Thank you.
Yeah.
How long it took the questions. This is Jerry.
In terms of cost control for overseas business, you can see a one hour one of our slides if you look out of the slide.
Because.
Right.
On the seller.
Oh is it.
The kind of the oversea.
The SG&A expenses.
Was it came down significantly.
Year over year.
Think of what.
So some of them.
Yes.
Yeah sure I can give some detailed numbers on the cost reduction for the overseas.
And in overall, all overseas segment for the first half.
Yeah.
Combined cost of goods sold and the sales and marketing there is all about.
About 124 million RMB cost reduction versus last year. So that's the that's the result, all of our you know operating streamline all of our functional team, including sales team of centralized our awesome enemy of function in the overseas the segment so that.
The number we have presented in our first half in the overseas cost reduction.
Yeah.
Okay.
At the start there was a slide talking about it sort of suddenly broken down by segments and I think it was 23 yourself anyway.
So the oldest of businesses.
It's the business the should be about the SG&A was down.
We we pin down more than the half more than 50 per cent.
I'm talking about a day of my M&A opportunities of where they're steer.
So the.
Because of the of pinned down because there are many of the essence of the price came down significantly but the we are still on the states that are looking into it but I have not of pull the trigger yet because oh, there are travel restrictions and the many of these are still in place that of we cannot effectively doing our due diligence and the.
First there are looking into some of the deals deals presented to us because there is a there are not anything we can present that as part of that.
Thank you.
Okay.
Okay.
Again, if you'd like to ask the question of the Star then one.
Yeah.
There being no further questions. This will conclude the question and answer session.
I would like to turn the conference back over the Cherokee for any closing remarks.
Yeah.
Thank you very much for joining this conference call. Please feel free to contact us each of the having any further questions.
We wish everybody a great day.
Okay.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Yeah.
Yeah.