Bright Scholar Education Holdings Ltd

NYSE:BEDU

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Good morning and thank you for standing by for Bright Scholar's First Fiscal Quarter of Fiscal 2024 Earnings Conference Call.[Operator Instructions].

Today's conference is being recorded. I would now like to turn the meeting over to your host for today's conference, Ms. Ruby Yim, Investor Relations Council. Please go ahead.

[Ruby Yim, executive]

Thank you, operator. Good morning, and good evening, everyone. I would like to welcome you to Bright Scholar's First Fiscal Quarter 2024 ended November 30, 2023 earnings call. With me today on the call are Mr. Robert Niu, our Chief Executive Officer; and Ms. Cindy Zhang, our Chief Financial Officer. The agenda today is Robert will start the call with an update on progress of our strategic initiatives to be followed by our business performance in first fiscal quarter and strategic priorities in fiscal year 2024. Before Cindy to walk you through our key financial performance, we will then open the call for questions. As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay will be available on our website following the call. By now, you should have received a copy of our press release that was distributed on February 5th, 2024 after market closes Eastern Time. If they have not, it is available on the IR section of our website. Before we get started, let me remind you that today's call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include without limitation, the company's business plans and development, which can be identified by terminology such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, is, or are likely to or other similar expressions. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligations to update any forward-looking statements as a result of new information, future events or otherwise, except required under law. During this call, we will be referring to GAAP and non-GAAP financial measures. We use certain non-GAAP measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures have limitations as analytical tools and investors should not consider them in isolation or as a substitute for net income attributable to company or other consolidated statements of comprehensive income data prepared in accordance with U.S. GAAP. Please note all numbers in our management remarks are in RMB and all comparisons refer to year-over-year comparisons unless otherwise stated. You can download a copy of our earnings presentation on our IR web page.

With that note, I will turn the call over to our CEO. Robert, please go ahead.

[Ruolei Niu, executive]

Thank you, Ruby. And I want to welcome you and thank you for joining our conference call. Today, I'm delighted to have the chance to speak with you in the setting. In our call, I will begin with an overview of the strategic initiatives we've implemented as an ongoing effort to turn the business around. I like the progress and accomplishments we've made over the past year, sharing my protections on the company before briefly touched on our fiscal 1Q performance. Finally, I want to outline what we can expect from our management and global teams regarding our strategic priorities for the rest of the year and beyond. Our aspiration has always been to continuously build a global premier service company that offers world-class education. Slide 6 displays our portfolio of companies. In less than 12 months since joining the company in my previous role as CFO, I have had the opportunity to travel to and spend time with management teams in the U.K. and China offices. This experience has allowed me to gain a holistic understanding of our businesses, which have been profoundly impacted by the pandemic. Immediately, I recognize the immense opportunity, which have been for the business recovery and convince that we can unlock significant better outcomes if we fine tune the way we operate. Following a thorough review with identified gaps for improvements and opportunities for the business recovery. Following a thorough review, we've identified gaps for improvement and opportunities to capitalize on, prioritize our strategy imperatives and initiate efforts to reengineer our cost base. Again, the goal of our post-COVID turnaround strategy is to reset our business around economists that is designed to deliver sustainable high return growth in revenue, EBITDA and cash flow, advancing operational efficiency and converting competitive cost structure are essential pillars for executing our strategic growth plan in the years ahead. Let me share with you the progress in Slide 7, the areas and actions that have already been set in motion, and we are committed to sustaining these efforts throughout the ongoing year. Number one, our first step involves restructuring and streamlining our operations at our China headquarters. Through these efforts, we have successfully made our operations leaner and more efficient. This included the removal of middle layers to facilitate direct and the effective communication between senior management and business leader. The outcome has been remarkably encouraged. Concurrently, our headquarter costs have decreased substantially by half. For our overseas operations headquarters in the U.K. under the brand of CATS Global Schools, we have commenced various initiatives. Firstly, we have reinforced internal controls, establishing it as a key performance indicator for our management team and business leaders. As a result, we have successfully addressed and resolved the 2 material weaknesses identified in our financial year 2022. Secondly, we initiated to conduct a comprehensive assessment of our organizational, operational and cost structure became potential avenues for improvement. Thirdly, we continue to leverage organic growth opportunity through increase in utilization as readily achievable gains. Number three, simultaneously, we took initial steps to improve our financial agility by strengthening our balance sheet. We paid off all the outstanding bank loans by July 2023. We have also initiated plans to decrease our liabilities and strengthen our balance sheet. Supplementing our continuous effort to boost return through cost reduction measures and operational efficiency enhancements. The focus on executing our turnaround strategy in fiscal 2023 enabled us to conclude the fiscal year strongly. This revenue greatly exceeded the top end guidance and bottom line improved with operation -- with operating loss and income loss significantly reduced. This in turn leaves us to our first fiscal quarter 2024 performance in Slide #8. We achieved our fiscal year 2024 with a solid start as we continue to make great strides in revitalizing our business and revamping our global operations.

In the first fiscal quarter, we achieved a 7.6% increase in revenue coupled with sustainable improvement of 13.1% in gross profit, 14.8% in operating income and 40.9% in net income compared to the same quarter in the previous fiscal year. The recovery of overseas school segment remained the strongest marked by a 28.4% increase in top line revenue during the first fiscal quarter. This segment continues to offer significant opportunities for scaling growth and the bottom line enhancement through increased operating leverage. Meanwhile, the Complementary Education Services segment sustained steady revenue growth predominantly driven by the recovery of Overseas Study Counselling Business, which achieved a 12.8% revenue increase in the first fiscal quarter. Conversely, the Domestic Kindergartens and K-12 Operations Services segment continued its contraction, recording a 26.4% decrease in revenue, aligning with our internal expectations. As we progress into the remainder of fiscal 2024, the advancement and initiatives achieved between fiscal 2023 and the first fiscal quarter of 2024 have established a strong foundation for executing our multiyear strategic plan. With the goal of saving a portfolio of business geared towards sustainable revenue growth, enhanced EBITDA and solid cash flow through heightened operational efficiency. The following slides offer an overview of our goals and priorities for our respective business segments. Slide #9 shows you the business and operational structure of our overseas school segment with headquarters in the U.K. Our primary focus in financial year 2024 is to maximize both internal and external value creation by optimizing restructuring and operating leverage with ultimate objective of building scale and high return business in the longer term strategic change we plan to implement in fiscal 2024 are expected to result in significant bottom line improvement in the years to come. As for the Complementary Education Services and Domestic Kindergarten and K-12 Operations Services segment, as shown in Slide 10. Our focus in financial year 2024 will be firmly on portfolio and cost optimization for further improve returns through divestments of non-core education business. In brief, we intensify the restructuring of our portfolio and global operations to restore profitability and strengthening the balance sheet. Beyond recovery, we will also pursue growth opportunity with our Go Global strategy recapped in Slide 11 for the reference.

To conclude, our focus remains on nurturing high-growth, high-return business while bolstering our financial standing through margin expansion, strengthening our balance sheet and enhancing cash flow. Our overarching goal is to establish a position of strength, providing ample room to pursue scalable business expansion with sustainable ability well into fiscal year 2025 and beyond. We firmly believe that this marks a pivotal step in driving forward-looking value creation for our stakeholders in the long term.

I'm fully aware that we are asking a great deal from our employees to work through the necessary change. And I deeply appreciate [indiscernible] support and ongoing commitment to deliver on our company's purpose. I extend my heartfelt strategy to our talented global teams for their passion and steadfast dedication, which continues to drive our solid business and financial performance. With this note, I'll turn the call over to Cindy.

[Zhang Hui, executive]

Thank you, Robert. Thank you, Ruby. Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year-over-year comparisons, unless otherwise stated. Please also refer to our earnings press release for detailed information for our comparative financial performance on a year-over-year basis. Please turn to Slide 13. We ended the fiscal -- the first fiscal quarter with revenue up 7.6% to RMB 572.7 million. Overseas schools remain to be the best performing segment with revenue up 28.4% to RMB 252.9 million. This is due to the recovery of overseas schools operating from the pandemic. For our Complementary Education Services segment, the growth has been steady. Revenue was up 12.8% to RMB 210 million, which was primarily due to gradual recovery of our overseas study counselling business.

However, our Domestic Kindergarten and K-12 Operation Service has continued to experience a downward trend with revenue down 26.4% to RMB 109.9 million. This is in line with our internal projections, and we anticipate this change to persist throughout the fiscal year. On Slide 14, cost of revenue for the fiscal quarter improved to 64.5% of total revenue compared to 66.2% of total revenue for the same fiscal quarter last year. The improvement was attributed of ongoing initiatives to enhance our cost structure. This enhancement of our cost structure along with the solid recovery momentum in our business, especially within the overseas schools segment lead to an upturn in gross profit and an improvement in gross margin. Our gross profit for the fiscal quarter was up 13.1% to RMB 203.4 million, and the gross margin improved to 35.5% from 33.8% as shown in Slide 15. Please move in to the Slide 16 to have a look at the improvement in our SG&A expenses. Our ongoing efforts to optimize costs and operations at our headquarters are once again proving rewarding resulting in decrease in SG&A as a percentage of total revenue to 24.1% from 26.3%. Slide 17 shows our adjusted EBITDA was up 0.8% to RMB 90.8 million. Adjusted net income was up 37.3% to RMB 61.9 million, and net income was up 40.9% to RMB 59.2 million. This improvement in our bottom line is of the improvement in our bottom line is our top priority. As we move forward, our focus remains on prudent cost management and strategic portfolio restructuring to optimize returns and strengthen our balance sheet and cash flow, which are essential for our future expansion in the years to come. Lastly, please refer to Slide 19 for our management team. Slide 20 for the condensed income statement. Slide 21 for the consolidation for net income and EBITDA only GAAP to non-GAAP results and Slide 22 for our condensed balance sheet and cash flow statement. This concludes my financial updates and our prepared remarks. And I would like to open the call for questions. Operator. Thank you.

[Operator]

[Operator Instructions] With there being no questions, this concludes our question-and-answer session. Now I will turn to Robert for his closing remarks.

[Ruolei Niu, executive]

Okay. Thank you, operator. I'm excited about our opportunities and our future. I look forward to leading Bright Scholar to new heights and sharing our progress with all of you along our journey. Thank you very much for joining this conference call. Please feel free to contact us if you have any further questions. We wish everyone a good day. Thank you.

[Operator]

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