Q3 2021 Bright Scholar Education Holdings Ltd Earnings Call

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Forward looking statements include without limitation, the company's business plans.

Development, which can be identified by terminology such as May will expect anticipate estimate intend plan believe potential continue.

Cool.

I'll likely to or other similar expressions.

Such statements are based upon management's current expectations and current market and operating conditions and relates to defense that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual.

So.

And so our achievements to differ materially from dose in the forward looking statements further information regarding this and other risks.

Certain T cell factory. If it's included in the company's filings with the U S Securities and Exchange Commission. The company does not undertake any obligations to update any forward looking statements as a result of new information future events or otherwise except as required under law. During this call we'll be referring to the.

GAAP and non-GAAP financial measures, we use certain non-GAAP measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures have limitations as analytical tools and then.

Investors should not consider them in isolation or as a substitute for net income attributable to company or other consolidated statements of comprehensive income data prepared in accordance with U S. GAAP.

Okay.

All numbers in our marriage made remarks are in RMB and all comparisons refer to year over year comparisons unless otherwise stated.

That's what those who are new total company. We have included you know ex presentation, a brief corporate introduction infection.

1 from slide 5 to get 11 of which you can download from our IR website.

With that I'll turn the call over to our executive Vice Chairman Jerry He Joey.

Sensor Ruby.

Good morning, and good evening and thank you for joining us.

Our sort of physical quarter 'twenty 'twenty 1 conference call. We appreciate your continued interest in India.

Bright scholar.

On today's call on behalf of the senior management team.

The prepared remarks will cover our quarterly performance.

Visitors are progress and updates Garwood, then provide because of our respective business and the financial performance.

Our Revpar was brief conclusion before opening the call for questions.

I would like to start with a quick note on the map.

And the worst spread of flooding in Zhengzhou and other places in your colon province.

It doesn't the cities with hundreds and thousands of people affected.

Our Hearts go out to those who have been affected by the record breaking rainfall.

And then we express the utmost drive student for the rest of yours, saving and Napoleon people to safety.

That's for a global pandemic.

While our vessel nations rolling out and the cases rate declining in most developed countries.

And in many other places have not been as good.

Turning to our business, let's start with the overall financial performance in Slide 12, starting of second too for the highlights of our third quarter and 9 months as well.

A detailed of breaking down by respective business inside of 14 to 15.

We are pleased that the reported strong third fiscal quarter results, driven primarily by a stronger than expected recovery in our domestic business.

We believe this demonstrates the strength and agility of our value proposition.

Our sustainable growth business model.

And the third quarter.

Folks.

Means of growth and the continued to employ cost discipline across all of our businesses.

In 42, 5% revenue growth and 141% net net income growth compared to the same quarter last year.

On a 9 months basis top line grew 7% to 4% per year over year, and then that are in count was RMB 312 point for men.

Despite the material impact.

Pandemic had on our overseas business.

The strong recovery in earnings also reflects a continuation and acceleration of our key strategic initiative. We have discussed in the past few quarters now would you continue to in this quarter.

Looking more closely at our respective businesses per play.

Please refer to slide 16.

Revenue from domestic K, 12 schools, especially kindergartens have experienced a sharp decline when pandemic situation worthy is worst in China in fiscal 2020.

We are very encouraged that the domestic K 12 business.

According to the strongest recovery in the third fiscal quarter of 2021.

Enrollment of international schools bilingual schools and the kindergartens.

Grew by 11, 6% 8.4% and 39 point full percentage respectively.

In the quarter revenues and average fees per goods, we're also back to pre COVID-19 level.

And their opinions the strong rebound.

It's a remarkable academic results with our students.

Continued to achieve year after year.

Showing in slide 17.

From May 31, 2021.

94 per cent of the students in the 'twenty, 1.2021 graduating classes of our international sporting out in China. However.

<unk> received offers from the global top 50 institutions, Inc.

Including 12 offers for Oxbridge 3 firms the University of Chicago 2 offers for income areas University.

Offers from Vanderbilt University to offer different UC, Berkeley, and several offers for New York University.

Showing in slide 18, our extensive as school network.

Expensive capacity.

As our foundation for Skinny up our business sustainably.

Non term.

Moving on to slide 19.

Complementary business remains a significant growth driver for bright scholar and we have been very pleased with the strong recovery in the progress our teams have made in increasing the company's rich and the brand awareness.

Well, we can reach our service offering and generating diversifying revenue sources.

In the quarter.

Revenue grew by.

$778.5 per cent a year over year to RMB 131, 31 to me.

The growth was primarily driven by day moderated recovery of camps and the domestic net tour business.

And I have a school all round education services.

Compared to last year, which was at relatively low due to COVID-19 impact.

Our system related.

<unk> business continued to be impacted by the ongoing pandemic and travel restrictions.

Our wish a speedy recovery 90, investing we're already in the U K and the U S temporary reopen and the lifting of travel restrictions and the insights we.

We continue to see expanding opportunities spurred by the needs of.

Parents to accelerated growth of reading and the all around education for their children.

This strength support our confidence in a very strong recovery to be continues its low comp inventory business.

Coming quarters in the fiscal years.

Synergy with our Oversea network offers tremendous.

As opportunities.

We expect growth will resume and accelerate what's the best in the nation.

Programs begin to take effect and as a subsequent travel restrictions are lifted.

Turning to our overseas business in slide 20.

As anticipated.

Colorado was slower than domestic business due to a significant the impact of COVID-19.

The China the operating environment has continued to put pressure on the financial position of our overseas business.

While we are managing expenses prudently in response to this anticipated and a significant decline.

We have also taken this opportunity to rebrand and consolidate our overseas business.

That's global school cater to 2.

7500 per full time students and the 14500 sooner for our English language between.

The institutions.

Our students representing over 100 nationalities.

16 locations in the U K U S, Canada and China.

And our portfolio includes independent and international boarding school and Aussie North Sea, Inc.

English language training institutions in a variety of some of our reps we offer students the opportunity to study at different canvas.

For a free learning with different cultures to prepare for today's increasingly global as a society and the economy.

What if any of our business.

To capture market opportunities when operating environments.

Return to normal.

Looking ahead.

We're also very mindful of the contingent risks related to economic political regulatory and in global health issues that affect our business.

However, it was the market multiple engines of growth the company is confident that.

He is well positioned to drive continued recovery as pandemic of receipts.

And the market dynamics are supportive.

We will continue to focus on our strategic initiatives.

Recapped inside of 21, meaning free improving utilization and enhance the efficiency of our domestic K 12 business.

Reviewed our revenue growth for oversea business post COVID-19 and expand the breadth and depth of a complimentary service offerings.

We expect this initiative as well.

We're also booster our.

Brand awareness.

Good day effective global organization.

Expand our implant offerings.

E rich learning experience of our students and to generate new business growth our medium to long term.

Our Saudi the balance sheets.

And our market leading position have enabled us to navigate us through this challenging period.

Well, if there's any of our capacity.

The greatest success in downturn in China and internationally.

We're excited by the magnitude of opportunities in front of us.

And the opinion of our confidence in the company's financial future.

The board of directors have recently declared a cash dividend of 12 cents per <unk> to our shareholders.

We remain committed to.

2 executing our growth strategy.

Evolving our business strengthening our market position and literally in our for our students as we invest to feature to deliver value for all our stakeholders.

With this notes our turn the call to Bob.

Thank you Jerry.

That's come 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.

<unk> also refer to our earnings press release for detailed information.

Of our comparative financial performance on a year over year basis.

Please turn to slide 23, our domestic business continued a strong recovery.

Actions.

Mainly attributed to the strength of domestic K 12 ended the complementary education services business.

Topline for the quarter was up 42, 5 per cent to $1053.8 million for the quarter and up $7.4 per cent to $2914.4 million on a 9 months basis.

Domestic K 12 schools that includes international schools bilingual schools and kindergartens showed a stronger than expected recovery revenue was up 72, 5 per cent per quarter and $28.4 per cent on a 9 months basis.

International schools revenue for the quarter up 23, 6 per cent, primarily due to 11, 6% increase of student enrollment.

On a 9 month basis revenue was up $15.4 per cent due to a 9.6% increase in student enrollment files.

Bilingual schools revenue for the quarter up 43 per cent due to $8.4 per cent inquiries and student enrollment on.

On a 9 months basis revenue was up 23.2% mainly attributed to 8.2% increase in student enrollment.

The gardens as Jerry mentioned earlier kindergarten have.

Experienced a sharp decline in third quarter of physical 2021 pandemic situation was at its worst in China.

Novartis has had the strongest recovery for the quarter with a 29.4 per cent inquiries and student enrollment on a 9 month basis revenue was up.

71.3 per cent on the student enrollment was up 22.3 per cent.

Revenue from overseas schools force down 32.4% per quarter, and a 44 points per cent on a 9 month basis, primarily due to the continued impact of the pandemic.

Revenue from Education Tech knowledge. It was up 47, 1 per cent for the quarter.

Up 47, 9% on a 9 months basis, primarily due to the acquisition of online academic Olympiad training business.

Revenue from complementary education was up $78.5 per cent, primarily due to the moderate recovery of terms and domestic tour business and after school.

Education services.

Compared to last year, which was relatively low due to the COVID-19 impact.

On a 9 months basis revenue increased 19, 7%.

On slide 24 cost of revenue.

Our focus remains on effectively managing the changing business environment. So we're balancing cost control measures with initiatives to drive immersive business growth.

For the third fiscal quarter total cost of revenue was $635.6 million an increase of 42 per cent and accounted for 63 per cent of total revenue.

Per 265 per cent on.

On a 9 months basis total cost of revenue increased by $15.1 per cent to $1889.3 million and accounted for $64.8 per cent of total revenue compared to 60 per cent of 65 per cent.

Teaching staff cost the primary cost contributor accounted for 34 points to a percentage of total revenue in the third of fiscal quarter, which is the same percentage as the same quarter last fiscal year.

On a 9 months basis teaching staff cost was 36, 9% of total revenue up from $32.8 per cent.

Our domestic K 12 schools average student teacher ratio for the first 9 months of physical year 2021 was my point Street compared to 9.0 in the same period last fiscal year.

On slide 25, our.

Gross profit in the margins.

Well always this season is continue to be impacted by ongoing pandemic. We are encouraged by the significant gross margin improvement of our domestic K 12 business in the third fiscal quarter.

Gross profit was up 43, 2 per cent per quarter.

Downfield.

$4.4 per cent on a 9 month basis.

Gross margin was up 2 percentage points to 13.9 7 per cent for the quarter and on a 9 months basis gross margin was down 4.3 per cent.

Percentage point to 35.2 per cent.

The increase in gross profit and growth gross profit margin for the quarter was mainly due to the stronger.

Recovery of domestic business in the physical culture.

Continue on slide 26.

We continue to employ tight cost control across all our business to maximizing cost effectiveness and optimization opportunities.

Adjusted SG&A expenses was $215.5 million up 7.5 per cent for the third fiscal quarter and accounted for 22 per cent of the total revenue compared to 26, 9% in the same quarter last fiscal year.

On the 9 months basis, adjusted SG&A expenses was $645.1 million up 3.9% and accounted for $22.1 per cent of total revenue compared to $22.8 per cent loss physical year.

To elaborate more on the adjusted SG&A expenses, Please turn to slide 27.

Our top priority is to enhance our cost competitiveness and rebuild revenue of our overseas operating accretion through accelerating the integration and advancing operational efficiency.

Adjusted EBITDA recorded significant recovery as shown in slide 28 for the quarter was $319.3 million up $94.1 per cent from 164.

<unk> 5 million.

So just SG&A margin was 33% up from 22.2 per cent.

On a 9 month basis, adjusted EBITDA was $688.2 million up $2.8 per cent from $669.4 million adjusted EBITDA margin was $23.6 per cent compared to $24.7 per cent.

Adjusted net income for the quarter was $117.6 million up $285.5 per cent from $44.3 million.

Net net margin was 16, 2% up from 6 per cent.

On a 9 months basis, adjusted net income was $351.8 million up 1.6 per cent from $326.7 million.

Adjusted net margin was 11.4 per cent compared to 12 per cent.

We have a strong balance sheet that enabled us to navigate through challenging purely as shown in slide 29.

As of May 31st 2021, our cash and cash equivalent and restricted cash totaled $1668.1 million for 206.2 million U S. Dollar.

That's compared to $2098.4 million as of February 'twenty, 8 'twenty 'twenty 1.

We also have a short term investment of $2507.2 million as of May 31st 2021.

Moving to slide 31, the board of Directors has recently approved a cash dividend of 12 cents per avs.

It reflects our strong financial position on our confidence in the company's financial future.

In addition, we continue to execute our search share repurchase program announced in November 2020.

As of July 7.2021, the company has bought back 385964 shares.

For 2 point why mainly U S dollar.

We'll continue to maintain our access.

We'll continue to maintain our excess capital at the level, which allow us to financially to financial flexibility to grow our organic business and pursue acquisition opportunities.

Going to slide 32.

We are on track to achieve our revenue guidance for the physical year ending August 31.2021.

We expect our total revenue in the range of 3.5, my feeling on the Street point 6 billion, representing a growth of 7% to 10 per cent based on existing business and the vs out potential acquisition.

Also reaffirm our guidance on enrollment.

Expect average students enrollment in our domestic and overseas schools to be between approximately 56060, 7000, representing an increase of 8% to 10%.

At the same time, we are revising down the guidance regarding school and kindergarten openings as we re prioritize all strategic initiatives to be more judicious in new expansion and it'd be about developments.

Please refer to the table in slide 34, and 35, 4 they'll come down income statement.

Slide 36 shows shows the reconciliation for SG&A expenses, EBITDA and net income on a GAAP to non-GAAP results.

Slide 37 shows our balance sheet and cash flow statement.

For the 9 months ended may 31st 20th anyone the company's capital expenditure was approximately RMB $110.4 million up 2.9 per cent compared to last fiscal year.

So on slide 38 shows our average student enrollment and average tuition fee across our networks.

This concludes my financial update now our tend to Gerry for his closing remarks.

So hey, Dara.

This past year was a year of enormous change in global as well as China's education sector.

It acts that accelerated the changes and pushed off us.

Serving this industry to be flexible and innovative.

Cash pushed us to evolve faster than we ever thought possible.

And I believe that the changes of this pass here, where it leads to a better and a more equitable future for K 12 education in China.

Last quarter has demonstrated resilience and agility to evolve and progress, which makes us very optimistic about our ability to create sustainable value for our shareholders.

The challenges of this past year required tremendous fortitude and adaptability for all of our staff around the world.

I'm very grateful for their dedication and commitment to all pay that out of the highest standards I made this ongoing changes.

Remain steadfast.

Our strategy to build a strong global company, we're driving scale growth era.

We operate.

This concludes our prepared remarks.

And I would like to open the call for questions operator. Please.

Thank you we will now begin the question and answer session.

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At this time there appear to be no question, we have a question from Lynn along with low CRO analytics. Please go ahead.

Hi, and thank you management I would like to ask about the short term investments. So are these short term investments held onshore offshore and onshore do you foresee any difficulty repatriating that cash flow your bond repayment due to the new regulation.

That's my first question. Thank you.

The short term and you know how this is Dora the short term investment is the onshore but are we have the vehicle and the credibility to our.

The transfer of the.

Onshore funds are offshore a in short we have a we are capable to.

They pay all the bonds when it come to its material. Thank you.

Oh sure. Thank you and my second question can you provide an update on the regulations on China's private education sector at this stage, but what are your expectations of the impact from the lawful promoting private education.

That's all.

Okay.

Hi, This is Jerry I was taking my question.

There are a lot of our new laws on the policy came out of in the last couple of months, if you're talking about specifically about our private schools.

As we understand it today, that's very likely going forward, it's very difficult to obtain new school licenses.

For the existing ones.

While we can see the day are most likely are continuing to operate.

If it isn't it that's and it and of course, there are details about it you know recruiting and AR and AR and the fees and stuff like that but I don't think it's going to materially impact any of our existing schools.

Okay fair enough. Thanks punishment I have no further questions.

Thank you.

Again, if you would like to risk a question. Please press Star then 1.

Okay.

At this time there are no further questions and I would like to turn the call back over to management for any closing remarks.

Okay, great. Thank you very much for joining the conference call. Please feel free to contact us if you have any further questions.

I wish everyone a great day.

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