Puxin Limited
Q1 2021 Earnings Call Transcript

Published: 24 May 2021

[Operator:]

Hello and welcome to Puxin’s First Quarter 2021 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Nadia Wang, Investor Relations Director, Puxin Limited. Please go ahead.

[Xiaoxi Wang:]

Thank you, Andrew. Hello, everyone. Thanks for joining Puxin’s first quarter 2021 earnings conference call. By way of introduction, this is Xiaoxi Wang, Investor Relations Director at Puxin Limited. We appreciate your time and ongoing interest in Puxin. The company’s results were released earlier today and are available on the company’s IR website at ir.pxjy.com. On the call today, we have Mr. Yunlong Sha, the company’s Founder, Chairman and Chief Executive Officer and Mr. Peng Wang, the company’s Chief Financial Officer. Yunlong will give a brief introduction of the company’s business operations and highlights, followed by Peng, who will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

[Yunlong Sha:]

Ladies and gentlemen, good evening and good morning to you all. Thank you for joining Puxin Limited first quarter earnings conference call. During winter break in the first quarter of 2021, we have to once again close some of our learning centers and move the courses online in line with the local epidemic prevention measures in certain cities. To ensure the safety and health of every student and staff members, we have strengthened epidemic prevention test measures in other learning centers. Our top line had temporarily experienced some headwinds. Although net revenues have been slightly declined year-over-year, our K-12 business still grows at a steady rate and achieved an increase of 5.2% year-over-year. Puxin has implemented a blended learning model, providing students with both online and offline learning formats. Puxin has been investing in upgrading its database and systematic platform, which seamlessly integrates offline and online K-12 tutoring services to ensure most deliver of courses. In the first quarter of 2021, the company developed the business intelligence analysis platform, which integrates smart data statistics, data analysis and data prediction. The various statistical analysis reports provide the basis for more efficient decision-making. At the same time, we have developed our proprietary ERP system based on our specific needs, which can better support our operations, improve our overall operational efficiency and enhance the accuracy and depth of data analysis.

[Peng Wang:]

Thank you, Mr. Sha. Hello, ladies and gentlemen. Please be reminded that all amounts quoted here will be RMB and all percentage increases will be on a year-over-year basis unless otherwise stated. Please also refer to our earnings release for detailed information of comparative financial performance on a year-over-year basis. Now, starting with the financial results for the first quarter of 2021, net revenues were RMB686.8 million, a decrease of 8.6% year-over-year. This decrease was primarily due to a decrease in student enrollments from 580,661, excluding Puxin Online School in the first quarter of 2020 to 539,355 in the same period of 2021. Net revenues of K-12 tutoring services were RMB550.6 million, an increase of 5.2% from RMB523.3 million excluding Puxin Online School in the first quarter of 2020. This increase was primarily driven by our improved teaching service quality and enriching content of products. Cost of revenues decreased by 3.8% to RMB385.0 million primarily due to decreases in teaching staff’s compensation and the lease cost for classrooms. Cost of revenues, excluding share-based compensation expenses, decreased by 3.8% to RMB384.5 million. Gross profit was RMB301.8 million, a decrease of 14% year-over-year. Gross margin was 43.9% compared to 46.7% for the same period in 2020. Total operating expenses decreased by 15% year-over-year to RMB295.2 million.

[Operator:]

The first question comes from Yu Lin Yong with Haitong International. Please go ahead.

[Yu Lin Yong:]

Hello. Thanks management for taking my question. This is Yu Lin on behalf of Natalie Wu. My first question is regarding the regulation. And you know there are lots of rumors. So I would like to if you could share with us your thoughts on the current regulatory environment, especially, do you have any bear case or base case and a bird case scenario under the current regulatory environment? And how would this impact your business going forward, especially in terms of the advertising and the learning center expansion as well as the cash flow management? Thanks, management.

[Peng Wang:]

Okay. Yu Lin, thank you for questions. So the current in regulatory environments, yes, there are a lot of rumor sayings around recently. But if we look seriously at the recent released regulations and policies and interpretations by different tiers of governments, we can say there have been a little incremental or marginal change between the current the policies or regulations and those released during 2018, well, till the first quarter. In fact, we look at the current regulations or policies as an extension and execution of those prescribed in the third and fourth quarter of 2018. For example, if we look at the deferred revenue, the perpetuation policy. We can say, in the year 2018, the educational authorities already stated that those after-school tutoring companies were supposed to deposit a certain portion of those cash or revenues into designated accounts. The current or the recently released policies just give details about how to deposit those two actions where to deposit and how you can draw your money out of those designated bank accounts. Yes, there are – there have been more details, there have been more prescriptions. But we see those regulations as an execution of those policies in the 2018 through 2019.

[Yu Lin Yong:]

Thanks.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Nadia Wang for any closing remarks.

[Xiaoxi Wang:]

Thank you, Andrew. In closing, on behalf of the entire management team of Puxin, we would like to thank you again for your participation in today’s call. If you have any further enquiries in the future, please feel free to contact us at [e-mail] or [e-mail]. Thank you.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.