Bright Scholar Education - Earnings Call - Q1 2025

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by for Bright Scholar's First Quarter of Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host from Piacente Financial Communications, Andrea Guo, IR counsel for the company. Please go ahead, Andrea.

Andrea Guo (Head of IR)

Thank you very much. Hello, everyone, and welcome to Bright Scholar's Earnings Conference Call for the First Quarter of Fiscal 2025. The company's financial and operational results were released earlier today and are available online by visiting the IR section of our website at ir.brightscholar.com. Please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995, forward-looking statements involving inherent risks and uncertainties. As such, the company's results may materially differ from today's views. Further information regarding these and other risks and uncertainties is included in the company's prospectus and other public filings as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Additionally, Bright Scholar's earnings press release and this conference call include discussions of unaudited GAAP and non-GAAP financial measures.

Bright Scholar's earnings press release contains a reconciliation of the unaudited non-GAAP measures. Please also note that all numbers are in GBP. Participants on today's call will include our Chief Executive Officer, Mr. Robert Niu, who will provide a company overview and update on our strategic initiatives with highlights from the quarter. Our Chief Financial Officer, Ms. Cindy Zhang, will then provide details on the company's financial results for the period. We'll then open the call for questions. I will now turn the call over to Bright Scholar's Chief Executive Officer, Mr. Robert Niu. Please go ahead, sir.

Robert Niu (CEO)

Hello, everyone, and thank you for joining us on today's call. We are pleased to announce that Bright Scholar achieved solid quarterly results amid an evolving external environment in the first fiscal quarter. As we mentioned last quarter, we are consistently advancing our dual-engine growth strategy by propelling our overseas school business expansion and executing our global recruitment initiative for prospective international students. This quarter, we successfully expanded our product and service offering on our existing China platform and made this available in more international markets, including Vietnam, Canada, the United States, Pakistan, and Taiwan. We have also developed local teams, local customers, and local agents in these regions to provide consulting services for students to study abroad. Furthermore, we made great progress in optimizing our operating efficiency and drove significant decreases in our SG&A expenses year-over-year.

Leveraging our established global network of schools and ecosystems, we believe we can accelerate our revenue growth and create sustainable value for both customers and shareholders over the long term. Before I move on, please note that starting this quarter, we have reorganized our business structure and segment reporting to reflect our strategic focus. Cindy will give you a full breakdown before her financial overview, but I want to point out that our previous overseas school business segment is now known simply as our school's business. Now, I'd like to discuss that segment's performance for the quarter, as well as our enhanced operational efficiency in more detail. The school's business remained our primary revenue source this quarter, accounting for around 57% of our total revenue.

While the U.K. new VAT policy has impacted student enrollment to some degree, we have adjusted our strategic approach to respond to the changing market conditions. This includes leveraging the capabilities of our recruitment team, enhancing collaboration with various recruitment channels, and ensuring management's active involvement in driving enrollment initiatives. We are confident that our intensified recruitment efforts and augmented student support services will fortify our competitive position in the market going forward. Overall, we are pleased with advancements we have made in our school's business during the first fiscal quarter. We are deeply committed to enhancing our students' educational success by providing high-quality teaching resources and promoting a collaborative learning atmosphere. As a result, our students have consistently excelled in various aspects of student life, especially in academics. During the quarter, 97 of our CAS Global Schools students received offers from prestigious Russell Group universities.

Furthermore, 64 of our CGS students received offers from world's top 100 universities, as ranked by QS World University Rankings, one of the higher education's leading ranking systems. Moving to operations, to achieve our goal of leaner and more efficient operations, we optimized our internal operational management and streamlined logistics processes during the first fiscal quarter. For example, through a recent pilot outsourcing canteen and cleaning services, we optimized the school's cost structure by cutting administrative expenses. This improved operational efficiency and quality, freeing up our resources to advance educational excellence. We also boosted service efficiency and customer satisfaction by leveraging our logistics vendors' expertise and technical solutions. We will implement regular evaluations and feedback mechanisms to drive ongoing improvements, fostering a virtuous cycle that offers faculty and students a more pleasant and convenient learning environment.

These initiatives will also elevate the school's overall management, ultimately optimizing both educational outcomes and logistics. As we move forward, our focus will shift towards integrating advanced technologies that streamline processes and drive innovation, ensuring sustained growth and resilience in an increasingly competitive landscape. In summary, our first fiscal quarter performance reflects our business's continued resilience and steady improvement in the face of a dynamic market. Our priority remains on advancing our dual-engine growth strategy, expanding our school's business, and boosting global recruitment to serve more students planning to study abroad. Our next goal for global recruitment initiatives is to tap into Nepal, Malaysia, and Thailand while continuing to explore North American markets. Meanwhile, we will persist in streamlining our global operations and enhancing efficiencies as we work towards our long-term vision and adapt to the evolving environment.

Looking ahead, we are confident we can seize the market's extensive growth opportunities to strengthen our market share and our position as a leading global education service provider. With that, I will turn the call over to our CFO, Ms. Cindy Zhang, who will discuss our key financial results. Please go ahead, Cindy.

Cindy Zhang (CFO)

Thank you, Robert. Now, I'd like to discuss our financial results for the first quarter of fiscal 2025. First, let me review the changes to our segment reporting. As Robert mentioned, starting this quarter, we have reorganized our business structure to better reflect our strategic focus. Accordingly, we are now reporting the following segments: schools, overseas studying consulting, and others. Schools business refers to our previously overseas school segment. The overseas studying consulting business is the overseas studying consulting portion of our previous complementary education services segment. Finally, our other segment includes our previous domestic kindergartens and K-12 operation services and complementary education services, excluding overseas studying consulting. In addition, this quarter, we changed our presentation currency from RMB to GBP to better align with our business activities. Please note all amounts are in GBP unless otherwise stated.

We are pleased to kick off fiscal 2025 with solid first quarter results. Our SG&A expenses decreased significantly by 33% year-over-year, driven by our ongoing efforts to optimize cost structure and streamline operations. Furthermore, benefiting from our reorganized business structure, the overseas studying consulting business achieved year-over-year increase across multiple metrics, including revenue. In addition, we have initiated a share repurchase plan, underscoring our commitment to enhance shareholder value. Looking at our financial results for the first fiscal quarter in more detail, our revenue from continuing operations was GBP 44.7 million compared to GBP 55.5 million for the same quarter last fiscal year. By segment, our overseas studying consulting revenue increased by 5.8% to GBP 9.6 million. Schools and others' revenue were GBP 25.7 million and GBP 9.4 million, respectively. Gross profit from continuing operations was GBP 13 million compared to GBP 17.9 million for the same quarter last fiscal year.

Gross margin from continuing operations was 29.2% compared to 33.5% for the same quarter last fiscal year. Adjusted gross profit from continuing operations was GBP 13.2 million compared to GBP 18 million for the same quarter last fiscal year. SG&A expenses from continuing operations decreased by 33% year-over-year to GBP 8.4 million. The decrease was mainly due to the improvement in operational efficiency in our schools business. Adjusted EBITDA was GBP 6.4 million compared to GBP 7.6 million for the same quarter last fiscal year. Now, turning to profitability, we recorded a net income of GBP 4 million from continuing operations compared to GBP 5 million for the same quarter last fiscal year. Adjusted net income was GBP 4.4 million compared to GBP 5.1 million for the same quarter last fiscal year.

Moving to our balance sheet, as of November 13, 2024, we had cash and cash equivalents and restricted cash of GBP 47.5 million compared to GBP 54.3 million as of August 31st, 2024. Before I conduct my remarks, I would like to briefly update you that our board of directors approved a share repurchase plan under which the company may repurchase up to $1.2 million of the company's ADS over the next 12 months, a testament to our confidence in the company's growth strategy, business operations, and outlook. We believe that the present external environment, coupled with our strong financial foundation, presents a compelling opportunity to deliver shareholder value. Looking ahead, we will continue to optimize our operations and strive to enhance profitability while expanding our high-growth, high-return business.

By maintaining our healthy balance sheet and constantly executing our dual-engine growth strategy, we are well-positioned to capitalize on the market's tremendous growing potential, delivering exceptional education to our students and creating sustainable shareholder value. Okay, this concludes all our prepared remarks today. We will now open the call to questions. Operator, please go ahead.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. Once again, if you would like to ask a question, please press star then one to join the question queue. The first question comes from Hieu Nguyen with XSTAR Fund Management. Please go ahead.

Hieu Nguyen (Analyst)

Hi, thank you for taking my question. Can you share the average enrollment for the overseas schools in 2025 or the last quarter?

Robert Niu (CEO)

Hi, this is Robert speaking. Thank you for your question. For the enrollment number, are you referring our current existing students for this quarter, or is it for September intake or for January intake?

Hieu Nguyen (Analyst)

Right, like the upcoming school year, yes.

Robert Niu (CEO)

Okay. I have the new student intake for September and January. I'm not sure if Cindy has the total enrollment at the moment. So for September 2024, we have got 1,103 new students for September. And for January 2025, we have 213 new students. So that will give our total enrollment. I don't have the exact number, but it's going to be very close to 3,000 in total.

Hieu Nguyen (Analyst)

Got it. Thank you.

Operator (participant)

Once again, if you would like to ask a question, please press star then one to enter the question queue. The next question comes from Tan Nguyen with Max Capital. Please go ahead. Tan, your line is now open. You may ask your question.

Tan Nguyen (Founder and Portfolio Manager)

Hi, sorry, I was on mute. Yeah, so management, could you help me understand the movement in cash in the last quarter? Because I saw that the net cash used in operating activities was GBP 7.2 million, and then net cash generated from investing was GBP 4.5 million. So can you help me understand what went in there? And then the second question is regarding the decision to buy back share. My observation is liquidity in the stock is already quite low. So how do you think about between paying dividends and buying back share? Thank you.

Cindy Zhang (CFO)

Okay. Thanks for your question. For the first question, it's Cindy Zhang. I would like to ask you a question to answer the question. Your question is about the cash and cash equivalent movement between the last quarter and this quarter, right? The decrease of the.

Tan Nguyen (Founder and Portfolio Manager)

Yes, specifically in the cash used in operating activities and cash generated from investing activities.

Cindy Zhang (CFO)

Okay. So in general, I can present these questions into three aspects. First is from cash generated in our operation activities. It is, sorry, it is we caught around GBP 5.7 million for our operating activities. And for the investing activities, we generate GBP 3.6 million. And for the financing activities, we spent GBP 4.4 million. And the exchange gain or loss, it was a cash deduct for GBP 0.3 million. And that results in our cash decrease. And for our operating activities, it is mainly attributable to that we received the tuitions and accommodation fee in advance before the terms began. So we received the cash in advance in August. And then we spend the money back for all the cost and expenses, especially for our commissions for the new recruitment. That mainly results in a decrease in our operation activities.

For the second question, it's about the cash repurchase and dividends. I would like to invite Robert to answer the question. Thank you.

Robert Niu (CEO)

Yeah, thank you for the question. So share buybacks and dividends has always been a question presented to the board to make a decision over the past few board meetings. So the decision was made for share buybacks was based on, number one, we think we have enough cash reserve to support our operational requirements and also the CapEx related in the schools. And number two is looking at our financial performance. Last year, I think it has been the first year that we have just break-even on the net profit level. So we haven't really accumulated a sizable distributable profit for last year and up until this financial year. So once we reach what we think is a normalized profit level, we'll be considering dividend over share buybacks. In terms of the liquidity, yes, we have observed the liquidity is very low in the market at the moment.

However, we think it is probably because, number one, the market price is very far from the intrinsic value of the company. So there's very little interest in the shareholders, in our shareholders' groups to trade. And number two is the market cap at the moment is too small for any meaningful trading. So through the share buyback decision, I think we will try to provide the market with confidence that we think that the management has confidence in the future operations, in the public growth in the coming quarters and years. So that it will encourage more investors to come into the market. And once I think the share value moves towards the intrinsic value of the company, the liquidity will improve. And I think that's a positive outcome for all current shareholders and also for any shareholders that take these opportunities to buy stocks.

I think this is a reason for people to start trading and buying and selling the stocks, and that will increase their liquidity for the market.

Tan Nguyen (Founder and Portfolio Manager)

Robert, could I follow up with regard to your first answer?

Robert Niu (CEO)

Yes, please.

Tan Nguyen (Founder and Portfolio Manager)

So you said that the company, because it was not profitable before, so there's not enough cash, sorry, there was not enough distributable asset. Do you mean distributable retained earnings?

Robert Niu (CEO)

I mean.

Tan Nguyen (Founder and Portfolio Manager)

In equity? Yeah.

Robert Niu (CEO)

I think the company has carried retained earnings in the balance sheets. But that earnings, I think, was accumulated over a long time. So what I meant was over the last few years during the pandemic, I think the company has been in a loss-making situation. And only last financial year, the company has turned around into the profitability. So we start to accumulate distributable earnings again. What I meant was we will be more comfortable if the returning earnings grow after this turnaround exercise has finished. And then we'll be looking at to distribute the earnings in a more stable and consistent manner without having to distribute the earnings or profits from the years way back.

Tan Nguyen (Founder and Portfolio Manager)

All right. So right now, the accumulated retained earnings is positive, but you would prefer to pay from current year earnings. So you want to wait for current year earnings to be more sustainable before you want to pay out dividend or do other kind of shareholder return activity.

Robert Niu (CEO)

Yes, that's right. We want to be if we promote the dividends policy, we want it to be sustainable and consistent.

Tan Nguyen (Founder and Portfolio Manager)

Right, right. Yeah, and you might have one last question. Oh, I can get back in the line. Is there another investor asking?

Robert Niu (CEO)

May I ask, do we have any other question in the queue? Okay. I think you can go ahead, please.

Tan Nguyen (Founder and Portfolio Manager)

Yeah. So I noticed that sort of you have been trying to reposition the company. I see that there have been changes in the way that you categorize the different segments. There have been changes in reporting currencies. So maybe if you could give us a vision or give me the vision of how you want to position the company five years from now, what will Bright Scholar how do you want Bright Scholar to be known to other stakeholders five, 10 years from now? What kind of company? What are your focus? Which market or student group you're targeting? That sort of thing.

Robert Niu (CEO)

Yeah. Yeah, that's a very good question, and internally, we have been thinking about this really hard and very, very serious, and I think we continue in our previous earnings call, we have emphasized the new strategy that we call it a dual engine strategy going forward, so one of the growth engines will be our schools business. By that, I mean international school business in the international markets. At the moment, we have the biggest school market for us is in the U.K. And that's exactly why we changed our reporting currency to the British pound, because that's the main revenue source. We will use the U.K. as a foundation, just like a lot of other K-12 education group, and explore expanding opportunities beyond just U.K., so we are interested in markets like the U.S., where we already have one school.

And we are also interested in developing markets like Middle East, South America, Asia. We are actively looking at opportunities to grow our presence in this area. So I would say in three to five years' time, school business will still be the main business for Bright Scholar, and we will be a much more international or global education group. So I think we'll have more schools around the world in three to five years' time. And as for the other engine, the growth engine is international student recruitment. So in our recruitment business, historically, Bright Scholar has a big platform in China that recruits students from China to send them overseas. And over the years, I think we have accumulated intensive human capital and know-how for the market.

I think we can duplicate that services to other parts of the world, especially the developing countries like Southeast Asia, like India, Pakistan, and South America, and these are the growing markets for international students. I think our know-how can definitely help students in these markets to study overseas in countries like the U.K., U.S., Canada, Australia, etc., so in five years' time, I think we'll have a much broader network of international student recruitment platform, so overall, Bright Scholar will try to become a major K-12 education service provider for international education. That means we will be providing educational services, not only owning the schools, but also drive the international student recruitment. I think at the moment, we are the biggest international group in terms of student recruitment in the U.K.

And we are in a very good position, and we have a very good foundation to grow that into a global market. So that is the strategy we are currently pursuing. Hope that answers your question.

Tan Nguyen (Founder and Portfolio Manager)

Thank you so much, Robert. Yes, yes, it does. Thank you so much. I appreciate it.

Robert Niu (CEO)

Thank you.

Operator (participant)

Once again, if you would like to ask a question, please press star then one. To enter the question queue. This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.

Andrea Guo (Head of IR)

Thank you once again for joining us today. If you have further questions, please feel free to contact Bright Scholar's investor relations through the contact information provided on our website.

Operator (participant)

This concludes the conference call. You may now disconnect your line. Thank you.