Bright Scholar Education - Q3 2024

Transcript

Operator (participant)

Hello, ladies and gentlemen. Thank you for standing by for Bright Scholar's third quarter of fiscal 2024 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 for Piacente Financial Communications, Andrea Guo, IR Counsel for the company. Please go ahead, Andrea.

Andrea Guo (Company Representative)

Thank you very much. Hello, everyone, and welcome to Bright Scholar's Earnings Conference Call for the third quarter of the 2024 fiscal year. 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 higher risks and uncertainties. As such, the company's results may materially differ from today's views. Further information regarding this 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 RMB. 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 will 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.

Ruolei 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 the uncertain and evolving external environment in the third fiscal quarter. Our strategic execution was unwavering, propelling our dedicated initiatives that fueled our global business. We also made headway in optimizing our organizational structure, which improved our operating efficiency and drove another quarter of positive adjusted net income. Our total revenues grew 6% quarter-over-quarter, led by ongoing growth in our dominant overseas schools business. This growth is testament to our business resilience and vitally, our vitality. In addition, our further enhanced utilization of our facilities and teaching resources, with utilization rate of our overseas schools increasing to 62% for the quarter.

Leveraging our established global network of schools and ecosystems, we believe we can accelerate our overseas revenue growth and create a sustainable value for both customers and shareholders over the long term. Now, I'd like to share some details from the quarter on each of our business segments. First, overseas schools sustain a solid growth momentum and remain our strongest segment. Revenue was up 19.4% year-over-year in the third fiscal quarter, extending the double-digit year-over-year growth streak this segment has achieved for the past 5 consecutive quarters. This business is our growth engine and primary revenue source, accounting for nearly 48% of our total revenue for the period. Furthermore, our overseas school student enrollment grew by 8% year-over-year this quarter. Year to date, over 900 students have accepted offers from our September intake.

Our students have demonstrated exceptional performance across different facets of school life, particularly showcasing impressive academic achievements. This year, 3 in every 5 of our CATS Global Schools students have received an offer from the prestigious Russell Group University, globally recognized for its commitment to world-class research and academic excellence. The Russell Group comprise 24 member universities, including Oxford and Cambridge. Furthermore, 24 of our CATS Global Schools students received offers from renowned G5 universities of Oxford, Cambridge, Imperial College London, the London School of Economics, and University College London. We remain steadfast in our commitment to facilitating our students' education, educational excellency, and creating opportunities for their academic success, as well as well-rounded development. Overall, we are pleased with advancements we made with our overseas schools business in the third fiscal quarter.

Our dedication to delivering a top-tier education to our students and equipping them for success in the global market, is driving this business growth and supporting accelerated year-over-year enrollment. Moving on to our complementary education services. Revenue from this segment decreased 18% year-over-year in the fiscal third quarter, as we strategically reduced lower return and underutilized programs, in alignment with our internal expectations. We also divested our non-core career counseling business and international contest training business in June and May. Our divestment strategy is geared towards focusing our resources on our high-growth core overseas school business and streamlining our management efficiency. By reallocating resources, we aim to drive innovation and enhance service delivery in our overseas school business. As we move forward, we will continue to cultivate the international school market, aligning our efforts with our long-term vision and adapting to the dynamic environment.

With our goal of leaner and more efficient operations, in the third fiscal quarter, we continued to optimize our organizational structure and enhance corporate governance. We conduct a wide array of health checks to identify issues in our overseas schools business, and again, a deeper understanding of these overseas operations. We dispatched a management team from our headquarters to directly oversee the overseas business, school business, establishing clear management responsibilities and reporting mechanisms. In addition, we also implemented advanced IT systems to enhance collaboration between our different departments and internal control teams. The gradual integration of our headquarters and overseas management teams, not only help us reduce management costs, but more importantly, allows the group's strategy to be executed more efficiently at the local level. Under this model, the organization's productivity has increased significantly.

Our senior team can respond to market dynamics with more agility, paving the way for sustainable growth and innovation. In summary, the third fiscal quarter has demonstrated that our business remains resilient and is steadily improving in the face of a dynamic market. We are operating with increasing efficiency and will continue to refine our operations to align with our goals. Our priority remains on expanding our steady overseas school business while seeking opportunities to divest non-core assets related to complementary education services and the domestic kindergarten and K-12 operations. Moving forward, we will continue to advance our high-growth, high-return business, gearing up to seize extensive growth opportunities that will strengthen our market share and save it 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 would like to discuss our financial results for the third quarter of fiscal 2024. Please note, all amounts are in RMB, unless otherwise stated. We are pleased to report healthy financial results in the third fiscal quarter. Our total revenues grew by 6.2% quarter-over-quarter, driven by gains in our overseas groups business. Ongoing optimization in our cost structure and improved operating efficiency drove our gross margin up by 317 basis points year-over-year, and 560 basis points quarter-over-quarter. We achieved profitability for the third consecutive quarter on a non-GAAP basis. Looking at our financial results for the third fiscal quarter in more detail. We achieved total revenue of RMB 554 million in the third fiscal quarter.

By segment, the largest proportion of our business, overseas schools, recorded revenue of RMB 264.9 million, contributing 47.8% of total revenue, and growing by 19.4, 19.4% year-over-year, and 6.7% quarter-over-quarter. Complementary education services and domestic kindergartens and K-12 operation services revenues were RMB 169.5 million and RMB 119.6 million respectively. Those decreased year-over-year as we continue to advance our portfolio and optimize costs through the divestment of these non-core education businesses. Cost of revenues was RMB 351.2 million, or 63.4% of total revenue in the third fiscal quarter.

This compares with 67.1% for the same quarter last fiscal year, making the third consecutive quarter of improved year-over-year cost as a percentage of total revenue. This improvement was mainly attributable to our cost saving measures and efficiency enhancements at our headquarters. Our gross profit increased by 5% year-over-year and 25.4% quarter-over-quarter for RMB 202.7 million. The increase was mainly attributable to revenue growth in our overseas groups, with the segment gross profit increasing 40.1% year-over-year. Gross margin increased to 36.6% from 32.9% for the same quarter last fiscal year, and 31% for the previous quarter, a testament to our robust cost management system and enhanced utilization of facilities and teaching resources.

Notably, our overseas business growth margin reached 33%, the highest level we've seen in the past three years. Adjusted gross profit was RMB 205.9 million, representing a 4.7% increase year-over-year and a 24.9% increase quarter-over-quarter. SG&A expenses were RMB 147 million, compared with RMB 142 million for the same quarter last fiscal year. The slight increase was mainly attributable to a rise in overseas personnel related expenses. Adjusted EBITDA was RMB 76.6 million, compared with RMB 96 million for the same quarter last fiscal year in the previous quarter. Now, turning to profitability. Due to a RMB 133 million impairment loss on Goodwill, we recorded a net loss of RMB 90.3 million in the third fiscal quarter.

Excluding this one-time impact, net income was RMB 42.7 million, compared with a net loss of RMB 37.7 million for the same quarter last fiscal year. Adjusted Net Income was RMB 48.5 million, compared with an adjusted net loss of RMB 34.9 million for the same quarter last fiscal year. As for our balance sheet, our cash position rebounded this quarter. As of May 31, 2024, we had cash and cash equivalents and restricted cash of RMB 537.2 million, compared with RMB 496.9 million as of February 29, 2024. Moving forward, we will continue to prudently manage our costs and strategically reshape our portfolio to maximize returns while strengthening our financial position through margin improvement, for fortifying our balance sheet and increasing cash flow.

Our strong cash position will continue to support us in mitigating the market dynamics. We are confident in maintaining a healthy balance sheet while achieving organic growth, growth, and creating sustainable value for our customers and shareholders in the long term. 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 touchtone 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. Again, if you have a question, please press star one. Since there are no questions in the queue, I would like to turn the call back over to Andrea Guo for closing remarks.

Cindy Zhang (CFO)

Thank you once again for joining us today. If you have any further questions, please feel free to contact Brett Garner's Investor Relations through the contact information provided on our website.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.