Puxin Limited
Q4 2020 Earnings Call Transcript

Published: 16 Mar 2021

[Operator:]

Good day, and welcome to the Puxin Limited Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. All participants will be in a listen-only mode. . After today’s presentation, there will be an opportunity to ask questions. . Please note, this event is being recorded. I would now like to turn the conference over to , IR Director. Please go ahead.

[Unidentified Company Representative:]

Thank you, Anita. Hello, everyone. Thanks for joining Puxin's fourth quarter and fiscal year 2020 earnings conference call. By way of introduction, this is , Investor Relations Director at Puxin Limited. We appreciate your time and ongoing interest in Puxin.

[Yunlong Sha:]

[Jessie Jin:]

Ladies and gentlemen, good evening, and good morning to you all. Thank you for joining Puxin Limited fourth quarter and fiscal year 2020 earnings conference call. In the fourth quarter of 2020, COVID-19 outbreak rebounded in some cities, but was eventually effectively controlled by the government. In line with local epidemic prevention measures, we had to once again temporarily close some of our learning centers and move the courses online. To ensure the safety and health of every student and staff member, we have strengthened epidemic prevention health measures in our learning centers. Looking back on 2020, while Puxin's total revenues were impacted by the pandemic, our core K-12 tutoring services, excluding Puxin Online School, still achieved a steady growth, with a year-over-year increase of 8.9% in revenues. During 2020, Puxin had strategically focused on K-12 offline tutoring services by increasing investment in R&D for products designed for elementary school and junior high school students. For instance, we formed a dedicated animation product team, tasked with the mission to enrich the teaching materials for our elementary school students and to increase customer retention rate through enhancing students' interest in learning. Meanwhile, Puxin continued to further develop the online-merge-offline, OMO model. The OMO model has allowed us to seamlessly integrate offline and online K-12 tutoring services to provide top-notch services that improved the quality of teaching and customers’ satisfaction rate.

[Peng Wang:]

Thank you, Mr. Sha. Hello, ladies and gentlemen. Please be reminded that all amounts quoted here will be in 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 our comparative financial performance on a year-over-year basis. Let's start with the financial results for the fourth quarter of 2020. Net revenues were RMB718.3 million, a decrease of 16.4% year-over-year. This decrease was primarily due to a decrease in student enrollments from 872,950 in the fourth quarter of 2019 to 763,626 in the same period 2020. Net revenues of K-12 tutoring services, excluding Puxin Online School, were RMB546.7 million, a decrease of 5.3% from RMB577.5 million in the fourth quarter of 2019. This decrease was primarily driven by a decrease in student enrollments, which is caused by the rebounded COVID-19 outbreak in some cities. Cost of revenues decreased by 13.3% to RMB404.4 million, primarily due to a decrease in staff cost which reflects the decreased demand for study abroad services attributable to the COVID-19 pandemic. Cost of revenues, excluding share-based compensation expenses, decreased by 13.3% to RMB 403.9 million. Gross profit was RMB313.9 million, a decrease of 20.1% year-over-year. Gross margin was 43.7% compared to 45.7% for the same period in 2019.

[Operator:]

The first question today comes from Mark Li with Citi.

[Mark Li:]

. Let me translate my questions. So I have 2 questions. The first one is, could you share a bit more color on your 2021 outlook? And also, do you see any updates on the latest Beijing offline after school tutoring policy and the impact to you and how is your strategy?

[Peng Wang:]

Yes. Thank you, Mark, for your 2 questions. For the first question, typically, we do not give the yearly guidance for the top-line, either for the bottom-line, but I -- yes, I will give some color on the -- on the top-line of K-12 and the other business units within the Group, for the K-12 business, it will be the core -- again, will be the core business of Puxin in 2021. As you may have well known, we did only 1 acquisition in the year 2020. So looking at the 2021, the K-12 business, we expect the primary driver of the top-line of our K-12 business will be the organic growth of our current K-12 section. So we are looking at a combination of increased operating efficiency of the current centers and some physical expansion. Within the cities, we have well established our business. So yes, we are looking at a solid organic growth. We are not going to give the guidance of the yearly growth rate, but we are looking at the solid organic growth for the K-12 business.

[Mark Li:]

So may I have a quick follow-up? So for the offline tutoring in Beijing, so have we got any timeframe or color when to resume the offline tutoring?

[Peng Wang:]

Well, as far as I know, Puxin will well be ready to reopen our learning centers quite recently. And well, yes, of course, we will -- yes, we will try our best to be in full compliance with the newly released regulations. Yes. But I believe our learning centers in Beijing will be reopened very soon.

[Operator:]

The next question comes from Natalie Wu with Haitong International.

[Unidentified Analyst:]

Thanks. This is on behalf of Natalie. So I got one question regarding your sales and marketing strategy. Could you share with us more color about your sales and marketing strategy this year? And which channels are you going to more focus on spending? And could you also share with us some metrics about your ROI, that would be very helpful. So let me translate my questions. .

[Peng Wang:]

Thank you for your question. For the marketing and the sales channels and expenses, I have 2 points to share with you here. Firstly, as the core business of Puxin, the K-12 section, it will be our core for the coming years. And we will phase our business offline. So we will invest heavily on the internal research and development, as Mr. Sha mentioned just now. So we will not rely heavily on those marketing and sales. Instead, we will focus on the quality of programs and products. As to the per student cost, acquisition cost, we believe the branding and quality of Puxin increases year-over-year. The marketing and sales expenses per student will be steadily decreasing. And for the channels -- well, for the cost -- the trend of student acquisition -- the cost of student acquisition trend, we do not see an increase in the marketing and the sales expenses due to the competition. Instead, we believe that the market is still highly fragmented. And they -- over 90% of the market shares are still in the smaller and mid-sized players. So to some extent, we can say, your marketing and sales expenses rely more heavily on the quality of your teaching and the services -- and tutoring-ready services instead of the market competition. So thank you.

[Unidentified Analyst:]

I just have a follow-up question regarding your G&A expenses. I noticed your G&A increased about quarter-over-quarter. Could you help us understand why it surged on a quarter-over-quarter basis?

[Peng Wang:]

Okay. That's primarily due to the increases in the quarterly share-based compensation and the bonuses and the sales related expenditures. So yes, that's the primary reason.

[Operator:]

Next question comes from with .

[Unidentified Analyst:]

[Jessie Jin:]

Sure. So Mr. Yi, then has 2 questions. The first one is, how is the profitability for the K-12 business in the fourth quarter? And the second question is, due to the COVID-19 situation, the study abroad business has got greatly impacted by the COVID-19, the current business development of this sector and did it reach the breakeven point by this year?

[Peng Wang:]

Well, for your second question as to the impact of COVID-19 on the study abroad business section. Firstly, as the vaccine process is still underway, so we are still experiencing a yearly decrease in the first quarter of 2019 -- 2021 compared to 2020 around 30% in the sector. But we are quite confident as -- we are confident that the vaccines rollout in those developed countries, of course, including China, those travel ban and other restrictions will be removed by the end of the second quarter or in the early time of the third quarter. So we are looking at a solid rebounding of the study abroad business by the end of the second quarter or in the early third quarter. So that's our expectation for our state of our business in the coming 2 quarters. And for your first question as to the K-12 profitability in Q4, the K-12 business in the Q4 was in loss. And again, primarily due to the lasting effect of the COVID-19, as we have several cities who are -- who were negatively impacted by the rebounded COVID-19 in the third quarter of 2020. So for the fourth quarter of 2020, the K-12 OP margin was 8.4% negative but for the whole year the K-12 OP margin was 4.5%. And we expect that trend to go on in this year.

[Operator:]

. There appears to be no further questions. I would like to turn the conference back over to for any closing remarks.

[Unidentified Company Representative:]

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

[Operator:]

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.