RYB Education, Inc.
Q3 2020 Earnings Call Transcript

Published: 8 Dec 2020

[Operator:]

Hello, ladies and gentlemen, thank you for standing by for the RYB Education, Inc.'s Third Quarter 2020 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 call is being recorded. I would now like to turn the conference over to your host, Serena, Investor Relations Manager for the Company. Please go ahead, Serena.

[Serena Xue:]

Thank you, Anida, and hello to everybody on today's call. With me today are Ms. Yanlai Shi, our Co-Founder, Director and Chief Executive Officer; and Mr. Hao Gu, our Chief Financial Officer. Our earnings press release was issued earlier today through newswire services and is also posted on our Investor Relations website, ir.rybbaby.com. On our website, you will also find a webcast replay of today's call.

[Yanlai Shi:]

Thank you to all of you who have joined us today. I'll begin by reviewing our business and operating results for the third quarter of 2020. Then our Chief Financial Officer, Chris, will take over and follow with a more detailed review of the financial. Following the effective control of COVID-19, our directly operated kindergartens in China have started Phase 3 openings in the second quarter. At the end of the third quarter of 2020, we reopened 96 directly operated kindergartens, which were temporarily closed previously due to the COVID-19 pandemic, and saw a close to 90% back-to-school rate to our kindergartens. In Singapore, all of our directly operated facilities have resumed operation. For our directly operated kindergartens that have resumed normal operations at the end of the previous quarter, our facilities continue to operate with COVID-19 protocols in place to protect the health and safety of students, families, as well as staff members. For the facilities that have only recently reopened, we've kept open and timely communication with parents and vigilantly carried out COVID-19 protocols with a focus on enhanced cleaning and strict hygienic practices. We closely follow guidelines issued by local education bureaus and cooperate with joint inspections by related government agencies to ensure a safe and efficient return to kindergartens.

[Hao Gu:]

Thank you, Grace and Serena. I will now go through our third quarter financial results. Please also refer to our earnings press release posted on our Investor Relations website for a complete discussion of our financial performance for the past quarter. We are very pleased with our business recovery in the quarter as the company as of the beginning of September resumed operations at most of our directly operated and franchise facilities. In the third quarter, thanks to our success in reopening facilities and efforts we made to restore our core business operations. Our top line recovered by more than 150% from the previous quarter. In addition, our SG&A expenses decreased by 26.8% compared with the same quarter last year, as we continue to adopt the stringent cost control measures. Cash balance also improved by US$11.4 million from the end of the second quarter, which gave us additional financial flexibility and a solid foundation for operations. Going forward, we will stay focused and continue to optimize the standardized operation of our kindergartens and play-and-learn centers, provide more systematic and standardized support to local operations and improve operational performance and efficiency of our facilities.

[Operator:]

[Elsie Sheng:]

Thank you, management. My first question is about new student recruitment of your self-operated kindergartners. You mentioned that over 90% of your original students have returned to kindergartens. I'm wondering, do you have any detail to share about the efficiency of your new student recruitment? Is there still any impact from the COVID? And what is the result of, as you mentioned, the online-offline-merged recruits, student recruitment metrics? And my second question is about - do you have any outlook for the coming year in terms of the growth and also margin and your strategy? Thank you.

[Yanlai Shi:]

So enrollment or rather reenrollment is on a rolling basis, as our directly operated kindergartens reopened after the prior period of temporary facility closure. Before the reopening of kindergartens in Beijing in early September, individual facilities and kindergarten management team together made a lot of efforts in preparing for reopening and kept an open communication with parents. So some of the efforts include, for example, during the temporary closure period, an ongoing focus was always on maintaining a good level off enrollment. And after facilities have resumed operation, new students continue to be admitted on a rolling basis, and site renovation of some directly operated kindergartens have enabled a larger overall capacity for more classes. So for the directly operated facilities in Beijing, for example, we help online parent tutor catch-up sessions and virtual one-on-one parent teaching. Started from June 1, we made a countdown in five steps to the reopening and shared with children and parents video recordings and snippets of quasi pre-pandemic kindergarten life to bring back good memories and get them ready for their return to the facilities. For the kindergartens located outside of Beijing, they started a Phase 3 opening gradually from the end of the second quarter or around May or June-ish. And by September, they were quite ready to welcome the full September batch of students returned to school. Before the September semester, some online courses charging a small fee were made available in some areas, along with courses related to enrollment preparation, which received good feedback and contributed to a good enrollment in September. So under normal circumstances, there are mainly two peaks of admission or enrollment, one in March and another in September each year. This year, due to the challenges brought by the pandemic, we, in response, temporarily closed all facilities. And as a result, the March batch of students were not enrolled. Most of those students chose to enroll in September when facilities reopened, which contributed to the number of students enrolled this September.

[Hao Gu:]

Yes. And also on top of that, Elsie, I can also add a few student enrollment data sets. The total number of students enrolled as of end of September at our directly operated facilities were 27,912 students. And this is actually almost 11% increase from the end of September enrolled students last year. And also, if we also exclude the facilities that opened – that are newly opened over the past four quarters and we do apple-to-apple comparison, the total number of students at the end of September this year was 24,700. And this also, we had a meaningful 12% increase from the – sorry, apologies. So the end of September students this year was 27,711 students. And this basically represents a 12% increase from the 24,700 students by the end of September last year. So as Grace mentioned, in March this year, our facilities were essentially - suspended or closed because of the pandemic. So for that new semester, the new students that we would have enrolled, we were able to still enroll them in the new September semester this year. So this actually also contributed to the total number of students that I just mentioned. And also at the end of November this year, the total number of students who had registered with a fee, but not yet started attendance at our directly operated facilities was 1,625 students. And this number actually reflects the result of our early enrollment efforts and contributes to the increased enrollment in the future.

[Yanlai Shi:]

So for the second question in 2021, we’ll continue to focus on the company's core business operations and the following aspects of our kindergarten and play-and-learn center business. So for the directly operated kindergartens, we stay committed to providing high-quality education and service to students and families. And at the same time maintain a good enrollment at our inclusive kindergartens. Secondly, we'll continue to work on the revamping of some premium offering in our national kindergartens. At the moment, there are still some for-profit premium and international kindergartens in operations that are still in a run-up period and can enroll more students. And in addition, we look forward to introducing the kindergarten courses with online features enabled and developed by our in-house R&D teams to other kindergarten operators. In terms of our play-and-learn center business, we’ll continue to provide improved supervisory and training services to the franchisees and strengthen our bond with them by providing support in marketing, sales, administration and home education. On the other hand, we believe an upgraded system and product offerings will help us reach out to more planners and our operators in the early education market. With a solid system and good support, there will be plenty of opportunities for us to extend and serve third-party operators. The company remains its operational focus on its core business and kindergartens and play-and-learn centers and we’ll continue its efforts in an integrated online-merge-offline business model. We'll also prudently control our costs and spending to support current operations and deliver better results.

[Hao Gu:]

And, Elsie, on your questions about the margins outlook for our business next year, I think, as Grace mentioned, we will continue to focus on core business of kindergartens and the play-and-learn centers. For kindergartens, we – with conversion of some of our facilities to inclusive facilities, we do see a reduction in our tuition fee. But I think to a large extent, this will be balanced out or mitigated by a significant increase in the class size and number of students enrolled after the facility conversion. And I think for next year, another focus for our directly operated kindergarten is also for us to continue to ramp up the utilization rate of students enrolled at some of our for-profit and high-end international branded facilities. And I think with this ramp up, we hope to maintain or increase slightly increase the profit margins for our directly operated kindergarten business. And I think for play-and-learn centers in terms of franchise model and the sales of merchandise, the margins are quite stable, and we anticipate the margins will remain largely unchanged. So the main challenge or task for us next year is really to increase the sales by continue to sign up new contracts and expanding our franchise network. And I think if you look at the overall margins or margin targets for us next year, we also hope that by adopting stringent cost control measures at our headquarters level, as well as you know B2B we try to be more prudent in making strategic investments. Because some of the early stage investment that we made earlier also incurred losses for us. So, being more prudent on making additional strategic investments will also hopefully help us improve the overall margin for our growth next year.

[Operator:]

The next question comes from . Please go ahead.

[Unidentified Analyst:]

Could you please introduce any impacts on foreign teacher supply due to the pandemic? Thank you.

[Yanlai Shi:]

So, due to the restrictions in and the frequent adjustments to the, immigration and border control policies as a result of COVID-19 global pandemic. The company has experienced some impact on maintaining foreign teachers in certain kindergartens in China and during the period of temporary facility closure previously some facilities arranged online sessions to conduct virtual learning which helped to maintain enrollment. So we're adjusting our recruitment practices accordingly by leveraging internal flexibility for example, for facilities that are recently converted to inclusive kindergartens, we're able to transfer out foreign teachers there to support high end and for profit facilities. In addition, online teaching interactions and also shortened foreign teacher sessions during the day are some of the other measures addressing the issue. Our talent management team continues to work on the recruitment through various channels. Although the labor costs of foreign teachers may rise as a result under these current circumstances, it is of great help to the enrollment as some of the premium and international kindergartens.

[Operator:]

The next question comes from . Please go ahead.

[Unidentified Analyst:]

It's impressive to see the business back on track. But I also noticed in September, there was a drop of the proposed preschool education law posted online to solicit public opinion. Can management comments on the likely impact on your business? Thank you.

[Yanlai Shi:]

With the help of internal and external legal teams, we were briefed on the possible impact of the proposed laws and regulations in the draft. Carefully studied it’s generally in line with what the company has previously expected. Currently, the company's service offerings and business operations are diversified in kindergartens, play-and-learn centers, franchise business, other service offerings and our operations in Singapore. The proposed preschool education law may only affect our operation in directly operated kindergarten in China. For the directly operated kindergarten business, the company will make appropriate adjustments in - accordance with regulations in the future to ensure the legal compliance of operations. At the moment, there is no clear timetable for the official promulgation of the preschool education law as being marked. We’ll promptly communicate with the investor community once the company has further information. Thank you.

[Operator:]

This concludes our question-and-answer session. I would now like to turn the conference back over to the company for any closing remark.

[Serena Xue:]

Thank you, Anida. And thanks, everybody for joining us on the call today. If you have any further questions, please do not hesitate to contact us at [e-mail] hope you have a great day.

[Operator:]

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