Edited Transcript of FEDU.N earnings conference call or presentation 20-Aug-20 12:00pm GMT

Christel Deskins

Q1 2021 Four Seasons Education (Cayman) Inc Earnings Call Aug 21, 2020 (Thomson StreetEvents) — Edited Transcript of Four Seasons Education (Cayman) Inc earnings conference call or presentation Thursday, August 20, 2020 at 12:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Olivia Li Four Seasons Education (Cayman) […]

Q1 2021 Four Seasons Education (Cayman) Inc Earnings Call

Aug 21, 2020 (Thomson StreetEvents) — Edited Transcript of Four Seasons Education (Cayman) Inc earnings conference call or presentation Thursday, August 20, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Olivia Li

Four Seasons Education (Cayman) Inc. – IR Manager

* Zuo Yi

Four Seasons Education (Cayman) Inc. – CEO & Director

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Conference Call Participants

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* Joy Wei

86Research Limited – Analyst

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Presentation

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Operator [1]

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Hello, ladies and gentlemen, thank you for standing by for the Four Seasons Education’s First Quarter of Fiscal Year 2021 Earnings Conference Call. (Operator Instructions) Today’s conference call is being recorded.

I will now turn the call over to your host, Ms. Olivia Li, Investor Relations Manager for the company. Please go ahead, Olivia.

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Olivia Li, Four Seasons Education (Cayman) Inc. – IR Manager [2]

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Hello, everyone, and welcome to the first quarter of Fiscal Year 2021 Earnings Conference Call of Four Seasons Education. The company’s results were issued via Newswire services earlier today and are posted online. You can download the earnings press release and sign up for the company’s e-mail distribution list by visiting the IR section of our website at ir.sijiedu.com.

Ms. Joanne Zuo, our Chief Executive Officer, will start the call by providing an overview of the company performance highlights for the quarter and details on the company’s financial results and business outlook before opening the call for your question.

Before we continue, please note that today’s discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today. Further information regarding this and other risks and uncertainties is included in the company’s filings with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements except as required under applicable law.

Please note that Four Seasons Education earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Four Seasons Education’s press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most direct comparable GAAP measures.

I will now turn the call over to our CEO, Ms. Zuo. Please go ahead.

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Zuo Yi, Four Seasons Education (Cayman) Inc. – CEO & Director [3]

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Thank you, Olivia, and hello, everyone. In the first quarter of fiscal 2021, we have been diligently cultivating our online education offerings to address students’ learning needs, especially when off-line courses were restricted due to COVID-19. In addition, we continued to optimize our off-line resources for a more strengthened and cohesive online/off-line approach to prepare ourselves for market recovery.

Due to the prolonged pandemic containment measures and restrictions on off-line courses, most of our classes were delivered online during the quarter. Since the swift transition to online right after COVID-19 outbreak in early 2020, our live streamed and pre-recorded classes have received very positive feedback from our students. Aside from academic subject tutoring courses, we have also transitioned our featured interest-based courses online to bring students more content that benefits their intellectual development and nurtures their interest to learn.

To further strengthen our online capabilities with solid technical support, we made a strategic investment in Fuxi Network, an online education and training service provider, so as to sustain the long-term growth and development of our online education.

Total student enrollment for the quarter decreased by 35% year-over-year resulting from the impact by the COVID-19 and the related regulatory uncertainties. Additionally, regular schools mandatorily delivered classes online during the quarter. For the sake of vision health, after a long time of using digital devices, students tend to have less preference in participating additional after-school online courses. Enrollment for summer break learning were also impacted due to time line uncertainties for reopening off-line learning centers.

Despite these unfavorable factors, it is encouraging for us to achieve 85% quarter-over-quarter enrollment growth. Even factoring seasonality, this growth still demonstrates demand recovery from our students and their deep trust in our quality courses. With the gradual resumption to normal daily life, currently, over 90% of our existing learning centers have reopened for off-line classes delivery, after receiving approval from government authorities who have reviewed and evaluated the compliance status of our facilities.

Moreover, we’re privileged to be selected again as an organizer of Trusted Summer Childcare, a project launched by Shanghai Children Foundation and Shanghai Women’s Federation, that aims to provide a pleasant environment and fulfilling some experience for the kids. Being the organizer of this special program demonstrates our best-of-class education, well-equipped facilities and the high operating standards of our learning centers that have now been well recognized by government authorities.

Generally speaking, we have expedited the digital transformation of operations and the development of online education during the COVID-19 pandemic. At the same time, parents and students have been increasingly aware of the importance of off-line courses that provide direct, in-person teaching and generally bring more effective learning results. We will continue to make efforts in building our learning center network and enrich our off-line courses, which consistently providing a considerable amount of online courses. We believe that this strategic OMO model will provide more flexibility to our students and allow us to quickly transition our course delivery online in case of an inactive pandemic development.

More importantly, we believe our stellar reputation of high-quality teaching, coupled with superior class experience, will allow us to continue attracting students through word-of-mouth referrals. We remain committed to serving students of all age with a broad array of courses and academic subject tutoring, interest nurturing and intellectual development, both at our learning centers and on the online platform.

Now let’s move on to the financial results. Amid the challenging market environment with many uncertainties, our top line performance for the first quarter of fiscal 2021 was in line with our expectations. Impacted by the COVID-19 pandemic and ensuing lower enrollment in the fourth quarter of fiscal 2020, revenue decreased by 33.7% year-over-year to RMB 56.8 million. The softer top line performance created pressure on our margins and profit levels in the first quarter. However, enrollment gradually recovered sequentially in the first quarter, driving our deferred revenue up by 46% compared with the level as of February 29, 2020. In addition, we have been optimizing our learning centers for more efficient off-line resource allocation, coupled with other disciplined cost controls so as to further reduce cost and efficiently manage our campus network. Our cash position also remains solid, demonstrate our health operations and enabling us to make prudent investments that are constructive for our future growth.

Now I’d like to walk you through further details of our first quarter of fiscal year 2021 financial results. Revenue decreased by 31.5% to RMB 58.7 million for the first quarter of fiscal year 2021 from RMB 85.6 million in the same period of last year primarily due to the impact of the outbreak of COVID-19. Cost of revenue decreased by 21.6% to RMB 36.3 million for the first of fiscal year 2021 from RMB 46.3 million in the same period of last year. Gross profit decreased by 43.1% to RMB 22.4 million for the first quarter of fiscal year 2021 from RMB 39.4 million in the same period of last year.

General and administrative expenses decreased by 16.6% to RMB 28.0 million from first quarter of fiscal year 2021 from RMB 33.5 million in the same period of last year. Sales and marketing expenses decreased by 11.5% to RMB 7 million for the first quarter of fiscal year 2021 from RMB 7.9 million in the same period of last year primarily attributable to the decrease of advertising due to the impact of COVID-19.

Operating losses was RMB 12.5 million for the first quarter of fiscal year 2021 compared with RMB 2.1 million in the same period of last year. Adjusted operating loss was RMB 4.8 million for the first quarter of fiscal year 2020 compared with adjusted operating income of RMB 7.8 million in the same period of last year.

Other expenses, net, was RMB 2.8 million for the first quarter of fiscal year 2021 compared with other income of RMB 2.4 million in the same period of last year primarily due to investment fair value change. Income tax benefit was RMB 0.4 million for the first quarter of fiscal year 2021 compared with an income tax expense of RMB 4.5 million in the same period of last year.

Net loss was RMB 11.5 million during the first quarter of fiscal year 2021 compared with net income of RMB 4.2 million in the same period of last year. Adjusted net loss was RMB 0.6 million compared with adjusted net income of RMB 11.2 million in the same period of last year. Basic and diluted net loss for — per ADS attributable to ordinary shareholders for the first quarter of fiscal year 2021 were both RMB 0.23 compared with both RMB 0.80 — with both RMB 0.08 for the same period of last year. Adjusted basic and diluted net income per ADS attributable to ordinary shareholders were both RMB 0.01 and for the first quarter of fiscal year 2021 compared with both RMB 0.22 for the same period of last year.

Cash and cash equivalents as of May 31, 2020. The company had cash and cash equivalents of RMB 430.3 million compared with RMB 404.3 million, up RMB 404.7 million as of February 29, 2020.

Looking forward, for the second quarter of fiscal 2021, the company expects to generate revenue in the range of RMB 79.9 million to RMB 86.3 million. The above outlook is based on the current market condition and reflects the company’s preliminary estimates of market and operating conditions and customer demand, which are all subject to change. Particularly in consideration of uncertainties related to COVID-19 outbreak, among others.

This concludes my portion of prepared remarks. We will now open the call to questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) For the benefit of all participants on today’s call, if you wish to ask your question to management in Chinese, please immediately repeat your question in english. (Operator Instructions)

The first question comes from Joy Wei with 86Research.

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Joy Wei, 86Research Limited – Analyst [2]

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My question is regarding your guidance. Your guidance indicate a decline year-on-year. Could management help us understand the reasons behind? How much of the decline is due to the shortened summer vacation? And I have a follow-up.

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Zuo Yi, Four Seasons Education (Cayman) Inc. – CEO & Director [3]

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As we’ve mentioned, that because the uncertainty of the summer break time schedule, the parent’s determination to enroll their kids to the summer program has been impacted. That’s one of the reasons.

And also in some schools that are — the second reason, actually, a lot of those online players that issued — how would I put it? Some sort of price war, right? That you can get maybe 4 — like 40 classes just for RMB 1, and we are not doing that.

So it’s — the decline is the result of several factors. But in our view, we believe it’s short-term because from the summer and our fall enrollment, we’ve seen that the trend is back. And over the summer, the parents are also somewhat concerned with the COVID-19 outbreak, the control measurement in the off-line facilities. That’s why we are putting more efforts and resources in our online classes. For the fall semester, we actually opened up both our online/off-line classes and try to make the OMO model more smooth.

Yes. So that’s the reason why — to your question, why we see a decline in the summer guidance.

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Joy Wei, 86Research Limited – Analyst [4]

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Got it. So we are offering OMO models for the full — fall semester. So do you have any expectation for the revenue outlook of full year fiscal ’21, considering that you are enrolling out this new model and it might help you better retain and attract new students?

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Zuo Yi, Four Seasons Education (Cayman) Inc. – CEO & Director [5]

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I’m not giving our full year guidance on this call, but you can reach out to our IR and we can talk separately. But the — as I said, that China, the education administration also issued a new policy [how to enter]. So we doing — so we make adjustments in all aspects to more — let us — to make us more competitive in the market and more adaptable to the market.

We’ve also are going to issue a new program, which is more tailored to classroom textbook. So we are doing all kinds of things. And in general, we are confident that the full year outlook is in range with our internal guidance. And our middle school program, middle school business is coming up pretty nicely. And we are making more investments in [event], which we also believe will be a strong growth driver for the next quarters to come.

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Operator [6]

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(Operator Instructions) As there are no further questions now, I’d like to turn the call back over to the company for any closing remarks.

Olivia, do you have any closing remarks?

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Olivia Li, Four Seasons Education (Cayman) Inc. – IR Manager [7]

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Thank you, once again, for joining us today. If you have further questions, please feel free to contact Four Seasons Investor Relations through the contact information provided on our website, or the Piacente Group Investor Relations.

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Operator [8]

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This concludes this conference call. You may now disconnect your line. Thank you.

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