Bright Scholar Education Holdings Limited (BEDU) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning, and thank you for standing by for Bright Scholar's FY 2021 Fourth Fiscal Quarter Earnings and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's 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 Yim, Investor Relations Counsel. Please go ahead.
Ruby Yim: Thank you, operator. Good morning and good evening. Welcome to Bright Scholar's fourth fiscal quarter ended August 31, 2021 earnings call. Joining me today are Mr. Jerry He, our Executive Vice Chairman; Mr. Andy Chen and Wanmei Li, our Co-Chief Executive Officer; and Ms. Dora Li, our Chief Financial Officer. Now before we start the call, first of all, we apologize for the slight inconvenience we are causing due to the slight technical issue, which we are currently trying to resolve. So you might not be able to download both the press release and the presentation at this moment, but it will be very soon. Thank you. Now let's start. As today's conference call is being broadcast live via webcast. In addition, a replay will be available on our website following the call. By now, you should have received a copy of our press release that was distributed on December 21, 2021, after market close as instant time. If you have not, it is available on our website after the call or sure the technical issue results. Before we get started, let me remind you that today's call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, the Company's business plans development, which can be identified. Our terminologies such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, is all likely to or other similar expressions. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statements as a result of new information consignor otherwise, except as required under law. During this call, we will be referring to 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 choose and investors should not consider them in isolation or from net income attributable to company or other consolidated statements of comprehensive income data prepared in accordance with U.S. GAAP. Note, all numbers in our management remarks are in RMB and all comparisons refer to year-over-year comparisons unless otherwise stated. And for all those on new to our company, we have included in our earnings presentation a brief proper introduction in Section 1 from Slide 5 to 9. Okay. With that, I'll turn the call over to our Executive Vice Chairman, Jerry He. Jerry?
Jerry He: Thanks, Ruby. Good morning and good evening. Thank you for joining us on our fourth quarter and the full fiscal year 2021 conference call. We appreciate your continued interest in following Bright Scholar. On today's call and on behalf of the senior management team, the prepared remarks will cover our quarterly and full fiscal year performance. This is the progress and updates. Dora will then provide details on our respective business and financial performance. I will wrap up with a brief conclusion before opening the call for questions. Now let's begin. As you may have seen from our earnings release, we cap off a challenging fiscal year 2021 with a solid fiscal fourth quarter, which is particularly notable in the face of the significant financial impact from the discontinued operations, affected entities in our domestic K-12 business as well as the continued uncertainty and antes in the regulatory and the business operating environment. Please turn to Slide 11 for highlights of our fourth fiscal quarter and the full fiscal year performance. For continuing operations in the quarter, we recorded a 23.3% growth in revenue and 105.6% in gross profit as compared to the same period of fiscal year. On a full fiscal year basis, our revenue was RMB1.4 billion, down by 5.1% as compared to fiscal year 2020. This performance is a direct testimony testament to the strength of our multi-facet growth strategy and the agility of our diversified business. Moving on to the performance of our respective business. On domestic K-12's business, our continuing operation COGS domestic and full profit kindergartens and the K-12 operation services. For our operation services for K-12 schools, we plan to expand into management services and to offer a range of high-quality professional supporter solutions, enabling schools to achieve and operate with excellence and efficiency. Our team of experts assisted school leaders and business measures with specialist advice, reassurance and hands-on operating support. China's COVID-19 complement strategy provides a stable operating environment for continuous recovery, providing high-quality education service is a key component of our vision. Our performance demonstrates our unwavering commitment in delivering quality education as shown in Slide 12. As of August 31, 2021, approximately 93.5% of our 2021 graduate class were admitted to global top 50 institutions and 97.7% were as admitted to global top 100 institutions. For our 2022 graduating class, we made a historical breakthrough and obtained on offer from Princeton University as of the date of this earnings release. We have also been leveraging our collaboration with CATS Global Schools to enrich our offering and, at the same time, to expand into management service offering services such as school operation, property management and maintenance administrative management during the recruitment and the school branding. We believe the expansion into management services will provide significant long-lasting organizational benefit for future partnering schools and creating additional value for advancing actually education in China. Our domestic K and K-12 operations business is well positioned with an evolving regulatory environment in China designed to address quality, equity and around development in China's education system. Continue on to Slide 13 for complementary education services. Bright Scholar is in full alignment with the blueprint of the government policy that focuses all around development for seeds. Our strategic road map is based on our convictions at both schools and noncore contacts are critical to student learning and achievement. Over the years, we have been expanding our complementary learning programs, including study tours and camps and stress our offering by incorporating the overseas study company international contact training and career counseling. We continue to see tremendous market opportunities coming our way, as demand for nonschool supplementary services has been growing at a phenomenal pace. In the fiscal fourth quarter, revenue for complementary education services grew by 16.5% year-over-year to RMB182.6 million. The pace of the growth has been affected by the ongoing travel restrictions from recent outbreaks of the pandemic in China and across the globe. However, in light of the speedy response from the government in offering boosters, we are optimistic that the epidemic will soon be contained again. In the meantime, we continue to execute on our strategy to expand our brand awareness, broaden our service offerings, diversified revenue sources and be ready to increase the market opportunities where operating environment returns to normal. Turning to Slide 14 for our overseas school business, Recovery in the overseas markets continue to be slow but steady despite the travel restrictions that have been on and off amid the fast emergence of new variants. However, our strategic initiatives to streamline the business, review revenue growth and optimize cost synergy yielded early results. In the quarter, revenue recorded an encouraging year-over increase of 9.2%. Overseas business, which recently grouped and branded under CATS Global Schools, CGS, is of strategic importance to us. And is one of the key building blocks to advance our ambition as a global premier education service company. Our long-term vision is to build a business that scales with a market-leading global family of schools, recognized for education excellence. I'm very pleased to report that we have completed the corporate branding campaign with great success and has progressed to the next phase that focuses on integration as well as establishment of high-performing operating models for our group of schools. We expect these initiatives will form the foundation upon which we have to build our business for a post-pandemic future and to be future-ready company. To conclude, we are very pleased about the operational improvement that we have demonstrated in fiscal year 2021 and the progress made on enhancing capabilities that provide a path towards our long-term goals. Heading into fiscal 2022, we are optimistic that our business will have a strong long-term recovery. Our business fundamentals are strong, and we remain well positioned to navigate the current operating environment. The overarching strategy of Bright Scholar, as in Slide 15, is to continue to expand our business portfolios, strengthen operational performance across our global businesses, optimize synergies across the network, broaden our service offerings in complementary education services, expand into management service for domestic K-12 schools and diversify our revenue stream to bring the most value to our students, partners and stakeholders. With this, I will take the call over to Dora.
Dora Li: 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 a year-over-year basis. Please turn to Slide 17. We ended the fourth fiscal quarter and the fiscal year with steady recovery across all our business segments despite of the resurgence of pandemic, mainly attributed by the strength of our diversified portfolio of business. For continuing operations, our top line was up 23.3% to RMB320 million for the quarter and down 5.1% to RMB1,401.8 million on a yearly basis. Revenue from overseas schools was up 9.2% for the quarter and down 39.9% on a yearly basis. Revenue from complementary education was up 16.5% for the quarter and up 15.8% on a yearly basis. Revenue from domestic, kindergarten and the K-12 operation services was up 83.2% for the quarter and up 173.4% on a yearly basis. On Slide 18, cost of revenue from continuing operations. Our focus remains on effectively managing the evolving regulatory and dynamic business environment through maintaining cost discipline to enhance profitability. For the quarter, the total cost of revenue was RMB271.7 million, an increase of 15.1%, as accounted for 84.9% of total revenue compared to 19.9%. On a yearly basis, total cost of revenues increased by 11.4% to RMB1180.3 million and accounted for 84.2% of total revenue compared to 71.8%. Staff cost, the primary cost contributor, accounted for 20.8% of total revenue in the quarter, down from 31.2%. On a yearly basis, staff cost was 24.6% of total revenue, up from 22.1%. On Slide 19, our gross profit and margins from continuing operations, both margin profile from continuing operations remains strong in the fourth quarter despite significant impact from discontinued operations of domestic K-12 business. For the quarter, gross profit was up 105.6% and gross margin was up 6% to 15.1%. On a yearly basis, gross profit was down 46.9% and the gross margin was down 12.4% to 15.8%. Continuing to adjust SG&A expenses, adjusted SG&A expenses from continuing operations, on Slide 20, we optimized operational efficiency across our business, continuing to enhance our competitive cost base. Adjusted SG&A expenses from continuing operations was RMB158.7 million, down 0.4% for the quarter and accounted for 49.6% of total revenue compared to 61.4% in the same quarter last fiscal year. On a yearly basis, adjusted SG&A expenses was RMB534 million, down 6.8% and accounted for 38.1% of total revenue compared to 38.8% last fiscal year. As shown in Slide 21, the impact from discontinued operations is significant. For the quarter, adjusted EBITDA loss was RMB29.8 million, up 50.1% from loss of RMB59.7 million. Adjusted EBITDA margin was negative 9.3% compared to negative 23%. On a yearly basis, adjusted EBITDA loss was RMB30.3 million, down 176.2% from adjusted EBITDA of RMB39.7 million. Adjusted EBITDA margin was negative 2.2% compared to 2.7%. As disclosed in our earnings release, net loss for the quarter was RMB478.2 million and consists of RMB279.3 million loss from continuing operations and RMB198.9 million loss from discontinued operations. In addition, one-off losses amounting to RMB261.3 million were recognized and included in the loss from discontinued operations. Except for one-off losses, discontinued operations generated RMB62.4 million profit for the quarter. Adjusted net loss for the quarter was RMB175.5 million as compared to adjusted net loss of RMB131.4 million for the same period of last fiscal year. Net loss for fiscal year was RMB165.8 million and consists of RMB535.1 million loss from continuing operations and RMB369.3 million profit from discontinued operations. In addition, one-off losses amounting to RMB261.3 million were recorded and included in income from discontinued operations for the whole fiscal year, except the one-off losses, the discontinued operations generated RMB630.6 million profit for the fiscal year. Adjusted net loss for the fiscal year was RMB420.2 million as compared to adjusted net loss of RMB283.6 million for last fiscal year. In the substantial loss from discounting operations, our top priority remains focused on driving adjusted EBITDA growth. We have a solid balance sheet that enabled us to navigate through the challenging period as shown in Slide 22. As of August 31, 2021, our cash and cash equivalent and restricted cash totaled RMB1,515.2 million or $234.5 million as compared to RMB2,011.9 million as of August 31, 2020. The Company also had amounts due from affected entities of RMB2,028.9 million as of August 31, 2021, and most of which are settled as of this earnings release date. Moving on to Slide 24. Our third share repurchase program ended in November 2021, the Company has bought back 0.7 million shares for $3.1 million. We will continue to maintain our excess capital at the level which can allow us the financial flexibility to grow our organic business and pursue acquisition opportunities in the future. Please refer to the table in Slide 26 for the condensed income statement. Slide 27 shows the reconciliation for SG&A expenses, EBITDA and net income on a GAAP and non-GAAP results. Slide 28 shows our balance sheet and cash flow statement. For the fiscal year ended August 31, 2021, the Company's capital expenditure was approximately RMB158.7 million, up 6% compared to last fiscal year. Finally, on guidance for fiscal year 2022. For reasons stated in our earnings release, the Company has decided not to provide a financial guidance for fiscal year 2022 until the Company has a better and more definitive understanding of the outcomes of impact the business disposal plan will have on the Company's financial performance. This concludes my financial update. Now, I will turn the call to Jerry for his closing remarks. Jerry?
Jerry He: Thanks, Dora. In closing, our financial results reflect the exceptional execution by the in-charge BEDU team as we continue to navigate the evolving regulatory environment in dynamic education industry. We feel good about the underlying momentum and the trajectory of our diversified and complementary portfolio of business as we started the fiscal year 2022. We'll continue to enhance the efficiency of our operations, accelerate our growth strategy and advance our commitment to providing premier education services for our students and partners. I'm very optimistic about the future and excited about the opportunities ahead to drive further business and earnings expansion for shareholders, value creation over the long term. This concludes our prepared remarks, and we would like to open the call for questions. Operator, please?
Operator: And we'll go ahead and take our first question from Anna Zhang from T. Rowe Price. Please go ahead.
Anna Zhang: I have a follow-up on the comments you just gave on the amount due from effected entities. Because I noticed that the short-term investment after restatement is zero. So I'm just wondering because previously my understanding was that, the restricted cash was pledged offshore and you get a loan from onshore with the proceeds put in the short-term investment. So I'm just wondering, is it actually on the affected entities and there's amount due from affected entities to the auxi entity. So it's shown as due from affected entities?
Dora Li: This is Dora. Yes, the amount due from affected entities was part of the -- we continued to do some short-term investments after August 31 because of the continuity of the investment, the investment was invested through the sponsored company, but a sponsor company based on the requirements from the relative law and accounting requirement, the sponsor company was also put into the discontinued operation. So as of August 31, by then, the investments are still under the sponsors company. So on August 31, it shows amount due from the discontinued operation to the listing company. But right now, it has been all settled.
Anna Zhang: Okay. So by settled, you mean it's now cash with the listed company?
Dora Li: Yes.
Operator: And it appears we have no further questions at this time.
Jerry He: Okay. Should we conclude the call? Okay. Thank you very much for joining the conference call. Please feel free to contact if you have any further questions. We wish everybody a great day. Thank you.
Operator: And with that, that does conclude today's call. Thank you for your participation. You may now disconnect. Thank you.
