RYB Education, Inc.
Q2 2019 Earnings Call Transcript

Published: 21 Aug 2019

[Operator:]

Hello, ladies and gentlemen. Thank you for standing by for the RYB Education Incorporated’s Second Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. Today’s conference call is being recorded.I will now turn the call over to your host, Ms. Serena Xue, Investor Relations Manager for the company. Please go ahead, Serena.

[Serena Xue:]

Thank you, Nancy. I’ll quickly cover the Safe Harbor. Please note the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s actual results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company’s annual report on Form 20-F for the fiscal year ended December 31, 2018 and other filings as filed with the US Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.During today’s call, management will also discuss certain unaudited non-GAAP financial measures for informational purposes only. The company’s press release for second quarter 2019 earnings contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.As a reminder, this conference call is being recorded. A webcast replay of this conference call will be available on the company’s IR website at ir.rybbaby.com. On today’s call is Ms. Yanlai Shi, our Co-Founder, Director and CEO and Mr. Hao Gu, CFO of the company.I will now turn the call over to Ms. Shi. Please go ahead.

[Yanlai Shi:]

[Foreign Language] We delivered another solid performance during the second quarter of 2019, which was driven by the strength of our core offerings

[Hao Gu:]

Thank you, Ms. Shi and Serena. Next, I'll spend some time to go through our financial performance during the second quarter. Please refer to our press release for more complete discussions about our financial performances during this quarter. Please also note that our reporting currency is US dollars, and all percentage changes will be on a year-over-year basis, unless we otherwise state.So in the second quarter of 2019, our net revenues reached 53.6 million, despite currency headwinds. In RMB terms, our net revenues grew over 20% still. The solid revenue growth was attributable to a few things, including enrollment increase at our directly operated facilities and product revenues increase from our newly added courses. Our adjusted operating income was 6.3 million in this quarter, improving from the adjusted operating income generated in the second quarter last year. And this excludes certain estimate change, which resulted in a high comparison base in the same quarter last year.Our improving top line and bottom line results were driven by focused execution of our growth strategy, prudent cost management and continuous investment in offering more quality products and services solutions. At the end of the second quarter this year, we had a total of 1141 franchise play-and-learn centers in operation. We will continue to help our franchisees improve their operational performance through in house training and other forms of operational support.Now turning to our directly operated kindergarten business, we ended the second quarter with a total of 30,478 students enrolled at our directly operated facilities and this compares with the 23,526 students at the end of the quarter last year -- at the end of the second quarter last year. This growth was contributed by both our domestic and newly added Singapore operations. We believe healthy student growth is sustainable because of our continued commitment to the delivery of high quality early childhood education.In April 2019, we have successfully closed the acquisition of our Singapore business and by doing so, we have expanded our directly operated facility networks considerably, as well as our brand universe. As our CEO mentioned just now, we're very excited to be able to explore more synergistic opportunities with our Singapore operations.Now, moving on to the second quarter financials. Again, net revenues for the second quarter this year were 53.6 million, compared with 47.5 million for the same quarter last year.Service revenues for the second quarter this year were 48.2 million, compared with 43.6 million for the same quarter of 2018. The increase was primarily contributed by enrollment increase at directly operated facilities and newly acquired facilities in Singapore, and it was also partially offset by the decrease in our franchise services revenue. Franchise fee revenue in the second quarter last year was relatively higher due to the recording of an accounting estimate change.Product revenues for the second quarter this year were $5.4 million, compared with $3.9 million for the same quarter last year. This is primarily due to an increase in the delivery of products of certain new courses rolled out by us during the first quarter this year and an increase in the amount of merchandise sold through the company's franchise network.On the cost side, cost of revenues for the second quarter this year was 41.6 million, which represents a 31.7% increase from 31.6 million during the same quarter last year. Cost of revenues for services for the second quarter this year was 38.8 million, compared with 29.4 million for the same quarter last year. And the increase was primarily due to an increase in our staff compensation at our directly operated facilities as well as higher operating cost. Cost of product revenues for the second quarter was 2.8 million, compared with 2.2 million for the same quarter last year and the increase was pretty much in line with the increase in our product revenues.Now, let me turn on to the margins. Gross profit margin for the second quarter this year decreased by 24.9% to 11.9 million and this is in comparison with 15.9 million for the second quarter last year. And the decrease was primarily due to the increase in staff compensation and operating costs at our directly operated facilities and the decrease in our franchise services revenue as we just mentioned.Gross profit margin for the second quarter of 2019 was 22.3% compared with 33.5% in the second quarter 2018. The decrease in gross margin was primarily due to the staff compensation operating costs and the decrease in franchise service revenue as we just discussed about. Total operating expenses for this quarter was 6.6 million, compared with 8.4 million for the second quarter in 2018. If we exclude share-based compensation expenses, the operating expenses were 5.7 million, which is a 9.1% decrease from the 6.2 million over the same quarter last year.Selling expenses for the second quarter of 2019 were 0.7 million, comparing with 0.4 million for the same quarter last year. General and administrative expenses or G&A expenses for this quarter was 5.9 million, which is a 26.2% decrease from the 8 million last year. If we also exclude the share-based compensation, G&A expenses were 5 million this quarter, representing a 15.2% decrease from the 5.8 million over the same quarter last year. The decrease in G&A expenses, excluding SBC was also primarily due to less expenses incurred in our professional services fee and stringent cost control. The share based compensation expenses included in our G&A expenses were $900,000 for the quarter.Now, operating income, on the operating income level, the operating income for the second quarter this year was 5.3 million, compared with 7.5 million for the same quarter last year. On an adjusted basis, operating income was again 6.3 million this quarter, compared with 9.7 million last year.Moving on to net income attributable to ordinary shareholders of RYB, this quarter, the number was 2.9 million, compared with 4.7 million the same quarter last year. On an adjusted basis, net income attributable to ordinary shareholders, which basically includes the impact of 1 million share based compensation, excluding that, the number was 3.9 million, compared with 6.9 million same quarter last year.Basic and diluted net income per American depository share or ADS attributable to ordinary shareholders of the company for this quarter was $0.11 and $0.10 respectively, comparing with $0.16 and $0.15 respectively for the second quarter of 2018. Again, on an adjusted basis, basic and diluted net income per ADS attributable to ordinary shareholders were $0.14 and $0.13 respectively for the quarter, compared with $0.24 and $0.22 respectively, for the same quarter last year.Our EBITDA for the second quarter this year was 8.2 million, compared with 10.1 million same quarter last year. Adjusted EBITDA for the second quarter was 9.2 million versus 12.3 million over the same period last year.Cash flow wise, cash used in operating activities was 2.9 million during the second quarter, in comparison with 10.6 million cash used in operating activities during the second quarter last year. As of end of June 2019, the company had a total cash and cash equivalents in the amount of 80.7 million, a decrease of 104.1 million as of end of 2018 and the decrease in cash and cash equivalents balances was mainly due to the payment for our acquisitions, as well as other investment activities and we also -- the share repurchases executed in the quarter also contributed to the decrease in our cash balances.To summarize, I think we believe that we still adopt a balanced approach of growth and profitability and as well as the execution of focus and diversification. And we also maintain -- we also aspire to maintain high standards for curriculum and operations at our facilities. And this will hopefully help us achieve healthy growth and optimize for our long term shareholder value.With the above, I would like now to turn on to our business outlook. For the third quarter of 2019, the company's management currently expects net revenues to be between $45.5 million and $47 million, representing a year-over-year increase of approximately 29% to 33%. For the full year of 2019, the company's management maintains our previously stated guidance and expect net revenues to be 195.9 million and 203.5 million, and this represents a year-over-year increase of approximately 25% to 30%.Please kindly note that the above outlook is based on our current market conditions and it also reflects the company's management's current and preliminary estimates of market and operating conditions, customer demand as well as foreign exchange environment, all of which are subject to change. The above outlook also includes revenue consideration of our completed acquisition of a leading Singapore based private school education group, as we initially announced on February 5, 2019.Thank you all for your attention for the above. I'd like now to turn the call over to Serena for closing remarks. Thank you.

[Serena Xue:]

Thank you. Thank you all once again for joining us today. If you have any further questions, please do not hesitate to contact us at [e-mail]. Thank you very much for your time and we hope you have a wonderful day.

[Operator:]

This concludes our conference call. You may now disconnect your lines. Thank you.