Q3 2022 First High School Education Group Co Ltd Earnings Call

Okay.

Good day, ladies and gentlemen, thank you for standing by and welcome to the first High School Education Group third quarter 2022, Unaudited financial results Conference call.

Currently all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

As a reminder, we are recording today's call. If you do have any objections you may disconnect at this time.

Now I'd like to turn the floor over to Mr. Tommy <unk>, Chief Financial Officer of the company. Mr. Zhu. Please go ahead.

Yes, thank you operator.

Reading your investors and friends.

Welcome to the first high School Education Group first.

Third quarter 2022, earning conference call.

My name is Tommy.

Chief Financial Officer, who will lead today's.

Conference call.

So we released our results earlier today prior to market open.

The press release is available on the company's IR website.

I our thought.

Why I thought T L P.

As well as from Newswire services.

A replay of this call will also be available in a few hours.

On our IR website.

So before we continue please note that.

Today's discussion will contain forward looking statements made under the safe Harbor provision of the U S. Private Securities Litigation Reform Act of 1995.

Forward looking statements involve inherent risks and uncertainties as such the company's actual results may be materially different from the expectations expressed today.

Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC.

The company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Also please note that unless otherwise stated all figures mentioned.

During the conference call or in Chinese.

Indeed.

With that.

Again, thank you all for joining us I will briefly spend the next 20 to 30 minutes.

<unk> second quarter results, our nine months ended.

September 30th 2022.

After todays earning release.

All of our financial data.

B data to September 30th off 2022.

But operating data such as number of enrollments a number of schools will be dated as of October 30th.

For a more precise and present understanding of our business.

The third quarter period.

Starting from July ending in September .

It is commonly known as the quiet period.

Business.

As quiet because there are no school activities conducted.

During the summer months of July and August .

Meaning to third after three months period.

Company will have no revenue retina recognition.

Resulting from declines our revenue only grew modestly.

Compared with September revenue recognition of last year.

But the company did perform.

The preparation work.

For the school openings in September .

Our teacher's recruitment and training is our number one priority.

Secondly, we did many constructions and repairs of ski properties.

And third we also did.

All completed our student recruitment campaigns.

Just to give us a bit of highlight into these preparations.

So for the class of 2022, we recruited approximately 200 new teachers this year.

These teachers are mostly consisting of new graduates or.

Teachers was only 123 years of previous teacher experiences.

Our motto is to have our senior teachers watch over.

And apprentice ship diesel.

Less experienced and young teachers, so they can quickly adapt and grow into our model.

We also did some major upgrades to two of our most well operated campus you calling me.

We renovated the sporting rooms for students to have better logging environment, which will also help in recruitment as well.

Despite the recruitment renovation.

We rank actually able to control our costs very effectively.

We actually have a growth and profitability.

Spine was very little revenue recognized.

After the school year 2022.

Admitted 7963 students into our campus.

As of October 31, we have 27777 students erode.

Across 'twenty through 'twenty, three school programs across different regions in China.

As mentioned during September half year, earning release.

Our newly administered as an included more cell phone as students rather than government funds students.

Reflecting our great education quality and strong brand recognition.

So it means that more of our income will come directly.

From our customers rather than.

Getting the income from the government.

Also out of the.

7963 newly admitted students.

592 students were given various amounts of scholarship.

They're excellent grades coming into our high school.

Which means this is studying new potentials for their excellent graduating grades.

And receiving the top offers from top universities, which.

Which in turn will also help our recruitment and brand recognition in the future.

Yeah.

While we just finished the 2022 school year recruitment.

We've already started planning.

Preliminary work for the 2023 school year recruitment for next year.

Our mission is to balance education quality and operating metrics to deliver the best interest for all stakeholders.

Financially.

As witnessed by the earning release, our profitability increased compared to last year of the same period.

As I've already mentioned.

In the past to earning release the.

The measures.

A building a stricter and more scientific budget system be increasing horizontal comparison amongst school and business units.

See tying compensation to performance is in our staff are yielding positive results now and will continue to do so in the future.

So last year September marked the beginning of our measure.

<unk> drive for efficiency and one year later.

The increased inefficiency.

As evident in our increase in profitability.

This is a rewarding to witness.

Beginning.

After 2022 school year like I mentioned earlier, despite having more students to teach and serve.

We actually reduced.

About 10% of our total overall head count.

So we have more teachers and less and administrative staff.

Asset composition.

This is done by consolidating administrative duties and non teaching staff.

Currently our student to teacher ratio, it's about one to 11.

This is in my experience well below most of our competitors in the high school sector.

This is done to make sure we want to balance financial results, but also excellent teaching quality.

We all know that.

With the <unk>.

Lower teacher to student ratio.

Usually it's actually delivered for a better teaching quality. So we want to effectively controlling costs and also deliver a great teaching and service quality.

The measures we put in place are all scientifically designed to improve efficiency.

By all measures aim to deliver equal or improved results with less resources spent and is never about just cutting cost.

Another good news.

As our loan level or at a controlled level.

As evidenced by the earning release, our combined borrowing long term and short term.

Bank channel saw it easing company, it's about 112, RMB 112 million RMB.

This is reduced from over.

179 million and RMB last year June 30th.

We are actually at a very comfortable level now and wish to keep roughly amount.

Leverage as of today.

To make sure the company can grow you need to have a degree of leverage but also as mentioned many times in the previous.

There is talk of recession, and the company want to be a bit on the safer side to be a bit onto more efficient side, we want to make sure to grow responsibility responsibly.

Not just wildly so.

So I think that Ah.

Reduced leverage is also good news for us.

So like I said in the beginning of my remarks, the third quarter is more of a quiet.

Operations for the last quarter of the year.

Both operationally and financially we were able to witness the positive strategies are measures set in place.

In addition to our high school operation. The company has also proactively developing new businesses.

Locational schools.

And other educational auxiliary products.

We wont this gala will discuss and disclose more details once those business yield actual operation and financial results.

So I will not go too much in detail today.

That concludes.

Highlight remarks section.

Now I will take some time to go through our line by line financial highlights for the third quarter of 2022.

Again, please note that all numbers presented are in RMB.

Unless otherwise stated all percentage changes are on a year over year basis, unless otherwise subside.

Detailed analysis is contained in our earnings release, which is already available on our IR website, our newswire services.

For the third quarter.

The nine months ended September 30.

Our continuing operations.

Total revenue or $274 2 million, an increase of 0.5% from $272 7 million.

For the nine months ended September .

Revenue from customers were $238 3 million a day.

Increase of one 6% from RMB $242 1 million for the nine months ended.

Last September the decrease was primarily driven by <unk>.

Decrease in delayed collection of teaching and auxiliary material fees.

Revenue from government cooperative agreements or.

36 million RMB, an increase of 17, 3%.

From RMB $30 7 million for the nine months ended September last year the.

The increase was primarily driven by the increased number of publicly sponsored students we serve.

Cost of revenue.

Our $149 5 million.

A decrease of 14, 7% from 175.

Upon formula.

For the nine months and the last September the decrease was primarily due to the cost effective cost control.

Measures such as the stricter budget and.

The upper mentioned.

Criterias.

Gross profit was $124 7 million an.

An increase of $28 one from $97 3 million.

For the nine months in the last year.

September 30th.

Gross margin was 45% compared with 35, 7% off the same period last year.

The increase was primarily driven by more effective cost control.

Such risks and create improved SKU operating efficiency tighter utility usage limits stricter budget control and revised compensation structure for teacher and supporting staff.

Net operating expenses were $52 7 million a decrease of seven 6% from 57 million for the nine months ended September 32021.

Selling and marketing expenses.

Or $1 9 million a decrease of 52, 7%.

From $4 million last year.

The decrease.

Just because of the vaccine marginally smaller is only from 4 million to $2 million is not a big number but it was primarily driven by decrease of expenses for brand promotion and marketing.

General and administrative expenses were $51 7 million a decrease of six 6% from $55 4 million deep.

The decrease was primarily due to overall.

Improved cost control.

Yeah.

Government grants or <unk> 9 million RMB.

With a 60%.

From $2 4 million of last year.

Decrease was primarily due to the government's tight fiscal budget, resulting in delayed payment made by the government.

Income from operations was $72 million decrease increase or an increase of $78 six.

From $40 million.

Last year.

Net income from our continuing operation.

Our 61 million an increase of 84%.

From 33, one months of last year.

Net loss from discontinued operation.

Was $10 1 million, an increase of 44% from 7 million last year.

Overall, the net income combined was 51.0 million an increase of 95, 3%.

$26 1 million.

For the nine months ended September 30 years 2021.

Our non-GAAP adjusted net income is the same as our net income.

Our business outlook for the entire fiscal year of 2022.

The company does not change our outlook and expect a total revenue of continuing operations to be between.

440 million to $460 million, representing a 10% to 15% increase on a year over year basis.

The outlook reflects the company's current and preliminary view on the market and operational conditions.

And the outlook ranges for its fiscal year 2022 reflects a number of assumptions that are subject to change based on uncertainties.

Yes, the bulk of his mind financial highlights briefing for the.

Third quarter, both the CEO , Mr. John myself.

Wishes to thank everyone for your time in participating.

Let's now open the call for questions. So operator. Please go ahead and proceed to the Q&A part.

Ladies and gentlemen at this time, if you would like to ask a question. Please press star and then one.

If you are using a speaker phone we do ask you. Please pick up the handset prior expressing the numbers to ensure the best sound quality.

So remove yourself you May press star two.

Once again that is star and then one to join the question queue.

Our first question today comes from Louise Chen from H W. <unk>. Please go ahead with your question.

Now, but I can tell nothing that were so hot off.

Tell you that way.

Uh-huh taught me all I know.

Oh, it sounds on the mahogany.

What do you think legal entity structure.

Yeah.

Hello.

The Gulf with Hal do you guys could just maybe oh.

Oh, well count.

Tom It sounds like maybe Chilean triangular pushout Tricia you mentioned that you work off the playbook, how can I build myself well don't actually work.

I don't think Oh, you're faced with the holiday if that's helpful.

Oh, Youll bear with CFR.

Two thoughts.

Combo that at all.

Michael.

Oh, Okay, you went that route.

Sure sure.

But what I thought.

Oh, okay. Okay. Thank you.

Mr. Shen said, the company's operation metrics.

Comparatively increased compared to last year and that we should have more cash on hand, compared with last year also does the company consider yourselves to increase the share buyback program.

What is the management's thoughts on that first of all Mr. Mr. John The CEO it's.

It's not with me today, he is actually on a business trip.

I will be answering for myself so.

Board meetings of the company did discuss.

All efforts into raising our share price right.

Not only.

That includes more payback, but also maybe.

Even perhaps Mr Jong buying more for himself with it.

Its own money.

And.

So definitely that is in discussion.

But as of today the board only approved for me to release the earnings release today.

And did not approve for me to.

Do any share buybacks or answering that yet, but what I can say is.

To have any share buyback the company to do it dream C window period.

Which is beginning after two days after your earning release and before the quarter end.

So technically legally speaking we can only do it.

I think by Friday, I believe I can check with a lawyer is at least one day I believe two days.

That said.

I think I can answer another question, maybe many investors is thinking about.

Given all the previous efforts right I think our financial metrics are looking brighter than before.

We did some dividend payback we.

We did some.

Share buyback and yet there's very little evidence of.

Of our share reclaiming.

Back to I guess, maybe even levels of half a year ago.

The unfortunate delisting do happen.

We aim to list on the OTC market.

OTC market is actually divided into several tiers.

First being <unk>, the worst being the pinks here.

That you know we could not meet the New York stock exchange listing standard anymore.

The company is at least from my own personal opinion, we do.

Which to continue to be listed on the OTC and again that is awaiting board approval and I do address the board on that already.

Okay. Thank you thank.

Thank you for.

Taking my question.

Thank you.

Once again, if you would like to ask a question. Please press star and one.

And Sir at this time, it's showing no additional questions I'd like to turn the floor back over to you for any closing remarks.

Yeah.

Yeah, I mean I think.

So.

Like I said earlier from the company's operating perspective.

We are very confident on continuing this business doing what we do best.

However from our environment macro environment perspective at least myself I am also affected and concern by our market cap.

But I wanted to always say that.

Myself, Mr. John and the whole board, we want to and we wish to maximize shareholders' interest.

So we'd like to thank everyone again for participating on today's call.

Some investors are already did reach out to me and perhaps we can host the Chinese session.

To answer more questions directly.

The Companys management is willing to do that.

So.

Again, we appreciate everyone's interest in our company <unk>.

Despite any hardship.

We will work hard to continue doing what we do best.

Now hopefully I look forward to reporting to all of you again next quarter on our progress.

Thank you again operator.

And thank you at this time, we have concluded today's conference we thank everyone for joining.

Have a great day, you may now disconnect your lines.