Good morning, and thank you for standing by for Bright Scholar's Second Fiscal Quarter 2018 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. .

Thank you, operator. Good morning, and good evening. Welcome to Bright Scholar's 2018 Second Fiscal Quarter Ended February 28, 2018, Earnings Call. With me today on the call is Mr. Junli He, our Chief Executive Officer; and Ms. Dongmei Li, our Chief Financial Officer. .

As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay of the call 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 April 24, 2018, after market closes Eastern Time.

If you haven't, it is available on the IR Section of our website. .

Before we get started, let me review the forward-looking statements regarding this conference call, that are statements related to future, not past, events, estimate just, expected future business and financial performance and financial condition.

And those can contain words such as will, estimate, project, predict, believe, expect, anticipate, intend, potential, plan or goal. .

Bright Scholar may also make midterm or annual forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases. In addition, Bright Scholar's representatives may make annual forward-looking statements.

Forward-looking statements by the nature are just matters that are to different degrees uncertain such as statements about the company's growth and strategies, its future business development, financial condition and decisive operations with ability to retain and grow its customer base and network of schools.

It grows us and [ chose in ] the market for services in China. The demand for and the market acceptance of this brand executive. Competition in this industry in China, relative government policies and regulations related to infrastructure, business and industry, fluctuations in general economic and business conditions in China.

Further information regarding this and other words is included in Bright Scholar's filings with the Securities and Exchange Commission. .

Bright Scholar undertakes no duty to update any forward-looking statements, except as required under applicable 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 substitute for net income attributable to company or other consolidated statement of comprehensive income data prepared in accordance with U.S. GAAP.

Please note that all numbers are in RMB and all comparisons referred to year-over-year comparison, unless otherwise stated. .

With that, I'll turn the call over to our CEO, Junli. .

Thanks, Ruby, and thanks to everyone who is joining our call today to review our 2018 second fiscal quarter results.

For those who are new to our company, we have included in our earnings presentation a brief corporate introduction from Slide 3 to 8, which you can download from our IR website, and then all numbers are in RMB and all comparisons referred to year-over-year, unless otherwise stated. .

I will start today's call with the highlights of our performance in second fiscal 2018 and share some of our key initiatives and developments. Then turn over the call to Dongmei for -- to provide a more detailed review before we take your questions. .

So now turning to the highlights of our performance in Slide 10. There is a rapid expansion with over 53% of our schools still at ramp-up stage, coupled with [ the narrowing ] impact of the 2 operating months in the second fiscal quarter, revenue for the first half of 2018 was up 22% with gross profit was up 33.8%.

Operating income up 14% and non-GAAP net income up about 30.6%.

I'm pleased with our results, particularly, given the high level of investment that we have been undertaking since the IPO and enhancing education quality, building our premium brand and improving operational efficiency as well as domestic acquisitions and global partnerships to expand network, broaden service portfolio to scale up our business.

Dongmei will share slides on our expense items in her section later, and you will note that some of the major expenses in total were either one-off or mainly in investment in our business. .

Let's look at the detailed breakdown for the respective segments, on Slide 11. The top line growth of our respective business segment continued to expand for the first half of fiscal 2018. As International Schools, Bilingual Schools, Kindergartens and Complementary Education Services grew over 15%, 30%, 20% and 26% (sic) [ 5.6% ], respectively.

Slide 12 shows more details of network expansion and enrollment increase. We have added 11 new schools Kindergarten to our network since first half of fiscal 2018. With a total of the 62 schools of Kindergartens, the capacity increased 22% to 58,671.

The average student enrollment for the first half of fiscal 2018 has increased by 17.2% with blended utilization at 60.4%. As of February 28, 2018, there were 35,412 students enrolled in our schools.

The increase has exceeded our initial -- internal expectations and demonstrated a result of ongoing investment in initiatives that are continuously enhancing our brand. .

Turning to Slide 13. While we start to optimize our pricing across our business segments. It is equally important it's now in project that we continue to maintain a competitive pricing across our network schools, especially being at ramp-up stage to drive organic growth of our business. .

Before I turn it over to Dongmei to discuss the financial results of the quarter in more details, I would like to provide an update on the outstanding performance of our 2018 graduating class as well as our recent and spectacular investment and initiatives that will further established Bright Scholar as the leader in the global premium school segment.

First and the foremost, it's a very exciting time of the year for Bright Scholar as we're celebrating outstanding achievements of our students. .

On Slide 14, as of April 15, 2018, 90% of our 2018 graduating class participating in AP, A-level and DP programs have received over 700 offers from global top-50 institutions with 3 from Oxford and Cambridge and 22 from the U.S. top-30 institutions, including University of Chicago, Cornell, UC Berkeley, UCLA, Vanderbilt, Rice and NYU.

We are delivering our commitment to support the aspiration of our students in achieving outstanding outcomes and ultimately admission to top institutions of their choice that best match their outstanding profile. In second fiscal quarter, we have made significant headway through 2 important strategic initiatives as shown on Slide 15.

First, we are pleased to announce that we have signed an SPA to acquire 75% equity interest as Foundation Global Education, to expand portfolio of the complementary services. FGE is thriving private global education consulting company with headquarters in Hong Kong and offices in Beijing, Shanghai and Shenzhen, covering a broad national clients.

The company has a strong team of associates who implement a proven and unique approach that helps students from the age of 3 to 18 to identify, apply to and gain admission into overseas boarding schools and the universities that are best possible match for them.

In 2018 application season, the Foundation Student received 170 offers from 115 overseas high schools, including many of the U.S. top-25 boarding schools. And secondly, through Can-Achieve, Bright Scholar has entered into strategic partnership with Shorelight Education to broaden access to top U.S.

universities for students from our International Schools. Shorelight is a renowned education service provider based in Boston with partner universities including top 100 in the U.S. that covers over 1,000 programs.

Our students only required taking an online test, i-Tep instead of TOEFL or IELTS to gain admission to Shorelight's partner universities and the online test can be taken any time at Bright Scholar International Schools. .

Just a few more details on this. The partnership also includes scholarship schemes for students and may effectively translating into 22, a 100% of a fee reduction for the first year of the university. Can-Achieve has secured 5 years of exclusivity as they serve recruitment agent in China.

We are very excited about the opportunities this partnership that can bring to our students, especially for those in second and third-tier cities. And the synergy values increased as part of our complementary service offerings. .

Furthermore, we have enhanced our enrollment marketing capabilities by acquiring 51.7% equity interests of Guangzhou Zangxing Network Technology Corporation Limited to support our expanding network.

Zangxing is a Guangzhou-based education technology company and through its online platform and APP, Shangxue Bang, it provides consulting services on schools' selection that matches between the age 3 to 18 schools in China. It also has an online enrollment and marketing platform. As of date of this release, it has over 1.2 million registered users. .

As our premium side on Slide 16, we have also made a significant progress across Mexico and France. First, our partnership with Fettes College to build and operate an international school schools in China has been progressing well with the location confirmed and construction is scheduled to commence around June 2018.

The tentative plan is to soft open the school as early as fiscal 2020 with an initial capacity of accommodating over 1,800 students from age 3 to 18. .

Second, we know the difference that great teachers make the child achievement at school and with our expanding network it's forever imperative to support our teachers' professional development. So that there we may have a leading edge of the profession and in turn provide a premium education services to support our students.

Bright Scholar has taken professional development fees as its staff extremely seriously. In addition to their training program operated by [indiscernible] for headmasters and management trainings, seminars organized by top domestic institutions for our key staff and the teachers.

We have signed a further training initiatives for over 800 of our teaching staff to attend the training seminars in summer of 2018. .

The training will be run by leading academic experts with focus on curriculum for Bilingual and International Schools. Our investment in our schools, our brands, our student, our people and our service offerings and the capacity is huge.

So additional capacity from successful follow-on offering earlier this year enables us to continue these investments, which are critical building blocks for accelerating business growth in fiscal 2018, and for establishing Bright Scholar as the leader in global premium school market.

While continuing to invest in our future, we remain focused on core financial disciplines and supporting the success of our students and driving long-term shareholder value. .

So at this point, I'd like to return the call over to Dongmei to discuss our financials.

Dongmei?.

Thank you, Junli. Please be reminded that all members are in RMB and all comparisons referred to year-over-year comparisons unless otherwise stated. Please also refer to our earnings release for detailed information of our comparative financial performance on year-over-year basis. .

Please turn to Slide 18. Our revenues for the quarter was RMB 323.1 million, up 20.6%. On a 6-month basis, revenue was RMB 788.3 million, up 22%. Revenue from International Schools for the quarter was RMB 118.7 million, up 15.9% as compared to RMB 102.4 million in the same period last fiscal year.

On a 6-month basis, revenue was RMB 293.3 million, up 16.3% as compared to RMB 252.2 million in the same period of last fiscal year. Revenues from Bilingual School for the quarter was RMB 108.6 million, up 30.8% as compared to RMB 83 million in the same period last fiscal year.

For 6 months, revenue was RMB 264.1 million, up 29.8% as compared to RMB 203.4 million in the same period of last fiscal year. Revenue from Kindergarten for the quarter was RMB 73 million, up 19.7% as compared to RMB 61 million in the same quarter of last fiscal year.

For the 6 months, revenue was RMB 179.2 million, up 19.9% as compared to RMB 149.5 million for the same period of last fiscal year. Revenue from Complementary Education Services for the quarter was RMB 22.8 million, up 5.6% as compared to RMB 21.6 million in the same quarter last fiscal year.

For 6 months, revenue was RMB 51.7 million, up 25.8% as compared to RMB 41.1 million in the same period of last fiscal year. .

On Slide 19. Cost of revenue for the quarter accounted for 77.6% of total revenue, which is the same as last added quarter as of fiscal 2017. For 6-month basis, cost of revenue accounted for 63.3% of total revenue as compared to 66.6% in the same period last fiscal quarter.

Teaching staff cost, the primary cost contributor, was 56.8% of total revenue for the quarter as compared to 58.8% in the same period last year. On a 6-month basis, staff cost was at 45.6% of total revenues as compared to 48.3% in the same period of last year.

Average students-teacher ratio was 9.7 for February 28, 2018, as compared to 9.4 at a same period of last year. .

On Slide 20, gross profit for the quarter was RMB 72.2 million, up 20.3%. Gross margin was flat at 22.4%. For the 6 months, gross profit was RMB 289 million, up 33.8%. Gross margin was 36.7%, up 3.3% as compared to 33.4% in the same period of last fiscal year.

For International Schools, gross profit up 58.7% to RMB 27.3 million for the quarter, with gross margin improved from 16.8% to 23%. On 6-month basis, gross profit up 49.9% to RMB 112.9 million, with margin improved from 29.9% to 38.5%.

For Bilingual Schools, gross profit up 6.2% to RMB 20.6 million for the quarter, with gross margin decreased from 23.4% to 19%. On a 6-month basis, gross profit up 28.7% to RMB 87.9 million, with margins at 33.3% as compared to 33.6% in the same period of last year.

We opened 5 new Bilingual Schools in fiscal 2018, and the gross margin impact from those 5 new schools for first half 2018 was somewhere around 1.5%. .

For Kindergartens, gross profit up 21.7% to RMB 19.6 million for the quarter, with gross margin improved from 26.4% to 26.8%. For the 6 months, gross profit up 22.9% to RMB 72.4 million, with margin improved from 39.4% to 40.4%. .

During first half of 2018 -- fiscal 2018, we added 5 new Kindergartens and the gross margin impact from those 5 new Kindergartens for first 2018 was somewhere around 1%. .

For Complementary Education Services, gross profit down 35.6% to RMB 4.7 million for the quarter, with gross margin fall from 33.8% to 20.6%. On a 6-month basis, gross profit up 17% to RMB 15.8 million with margin fall from 32.8% to 30.6%.

This was primarily due to gross profit increased from élan English trainings lecture, but being partially offset by the decline from camps and other income..

On slide 21, adjusted SG&A expenses for the quarter accounted for 25% of total revenue as compared to 21.8% in the same quarter of last fiscal year.

The increase in SG&A expenses was primarily due to increase in the compensation and benefit paid to additional general and administrative staff members as well as merger and acquisition-related expenses to support business expansion. For second quarter of fiscal 2018, if we back out.

RMB 6 million one-off expenses M&A related expenses, SG&A as percentage of revenue would have been 23%. On a 6-month basis, adjusted SG&A expenses accounted for 20.5% of total revenue as compared to 16.7% in the same period last fiscal year.

In addition to staff cost increase as a result of building team to support business growth, during first half of 2018 we also incurred one-off M&A-related expenses of RMB 9.6 million. If we back out these one-off expenses for the first half, SG&A expenses as percentage of revenue would have been 19%.

Continuing on Slide 22, adjusted EBITDA for the quarter was RMB 24.9 million, down 3.7%. Adjusted EBITDA margin was 7.7% as compared to 9.6% in the same period of last fiscal year. For the 6 months, adjusted EBITDA was RMB 186.3 million, up 23.1%. Adjusted EBIT margin was 23.6% as compared to 23.4% in the same period of last fiscal year.

Adjusted net loss for the quarter was RMB 4.2 million, compared to adjusted net income of RMB 4.1 million. Adjusted net margin was negative 1.3% as compared to 1.5% in the same quarter last fiscal year. For the 6 months, adjusted net income was RMB 114.9 million, up 30.6%.

Adjusted net margins was 14.6% as compared to 13.6% in the same period of last fiscal year. We incurred about RMB 11.3 million foreign exchange loss on the books during the fiscal second quarter. The accounting loss was due to moving U.S. dollar-denominated currency from offshore company to PRC subsidiary.

If this accounting loss was excluded from the adjusted net loss, we would have a net income of RMB 7.5 million or 3.2% increase for second quarter, and RMB 127 million or 80 -- almost 87% increase for the first half of 2018. .

Please refer to the table in Slide 23 for the condensed income statement, and Slide 24 for the reconciliation for SG&A, EBITDA and net income on a GAAP to non-GAAP basis. A quick note on our cash and bank balance in Slide 25.

As of February 28, 2018, the company's cash and cash equivalent and restricted cash totaled RMB 1,906.8 million as compared to RMB 1,618.5 million as of November 30, 2017. .

In Slide 27, for the fiscal year 2018 ending August 31, 2018, we expect our total revenue to be between RMB 1,630 million and RMB 1,660 million, representing a year-over-year organic growth between 23% and 25%.

We expect average student enrollment to be between approximately 34,300 and 35,000, representing a year-over-year increase between 15% to 18%. The company also expects 12 new schools opening for fiscal year 2018.

This guidance is based on the current market condition and reflects the company's current and preliminary estimate of market and operating conditions and the customer demand, which are all subject to change. This concludes my financial update. .

Now I will turn back to Jerry for his closing remarks. .

Thank you, Dora. We are committed to offering every student exceptional learning opportunities, which inspire their ambitions and support them to achieve success in all aspects of their education.

While our students' outstanding exam achievements serve as the strongest testimony, our recent acquisition of FGE and the continued expansion of our service portfolio and the training of our own training staff and teaching staff is a reflection of this commitment.

We are continuously consolidating leadership in the premium school market and we have identified a higher number of opportunities for strategic investment, new schools' acquisition and global partnerships to drive sustainable and profitable business growth.

We are proud of the progress we have achieved so far and look forward to continuing our ambitious approach to support the success of our students in the coming years.

Going forward, we will continue to make a progress towards expanding our school networks, broadening our service offerings for K12 and steering our strategic and operational priorities, which we expect will translate into accelerated top line and bottom line growth over the long term. .

That's all we have in the form of prepared remarks, and we will now turn it over to Q&A.

Operator, please?.

[Operator Instructions] The first question comes from Mr. Nicky Ge, China Renaissance. .

Could the management help me break down the G&A for the second quarter this year? I think the [ following ] [indiscernible] and M&A-related costs is largely impact the bottom line for this quarter. I think breaking out these impacts, whether it will be have normalized [indiscernible] for this quarter. My second question is regarding enrollment.

Actually, with the, as the enrollment for this quarter already exceed our full year guidance for the average enrollment.

Could management help me understand the reason behind that? And whether management could give us guidance on the second half of this year for the enrollment?.

Nicky, this is Dora. I will take your questions on the SG&A first. As I just mentioned before, we do have heavily invested in our talent and staff. So we do incurred staff cost increase for the quarter and overall as well for the first half, due to the administrative personnel increase since IPO.

For the second quarter, we incurred about -- also incurred about RMB 6 million one-off M&A-related expenses. And for the first half, we incurred about RMB 9.6 million M&A-related expenses. As I mentioned, if we back out the ESOP and over the one-off expenses, related expenses. SG&A as a percentage of revenue for the second quarter will be 23%.

And for the first half, if we back out ESOP and the one-off expenses, SG&A as a percentage of revenue would be around 19%, which is pretty much in line with our expectations. Your second question regarding the enrollment, I will turn back to Jerry. .

I will take the second question. As of the end of second quarter, our enrollment reached 35,412. So we -- the guidance we gave was 34 -- the average students, was 34,300 to 35,000. So it's likely, given we are already about 35,000 now, with the remaining half of the fiscal year, we will expect there will be more students enrolled in the next 6 months.

So by the end of this month, we would have more than what we have today. So in terms of average for the full year, it's possible that we will reach -- we will exceed the guidance we gave. But we don't know that for sure, because the guidance we gave was the average for the full year.

So we have to wait until the end of the quarter to see what the average would be. But given where we are today, we are reasonably confident about that. .

The next question comes from Sheng Zhong from Morgan Stanley. .

So the first question is, can you give us some guidance about next quarter's revenue? And maybe also the margin, because next quarter should be a big quarter for company? And also, do we have a net -- yes, that is maybe later, but do we have a tuition fee increase planned for the September quarter -- September semester? And my second question is about company's M&A.

Last quarter, we see company had acquired 5 kindergartens. And this quarter, we have several new acquisitions.

And so can you help me to -- can you give more color on this -- the company we acquired? What the financials look like? And what the M&A valuation looks like? And also, I think, company still has -- previously, company also said that we -- company was look for some M&A target for the boarding school and maybe some overseas target.

Can you give some update on this as well? And lastly, also about the M&A, for the Foundation Global Education, what's the difference with our Can-Achieve?.

So should you take the guidance [indiscernible]?.

Okay, Zhong Sheng, this is Dora. I think your first question regarding the margin guidance, normally, we didn't give the margin guidance, but I can give you some historical numbers. For the first half, the margin for international school in 2017 is somewhere around like the 30%, and second half, normally, is slightly higher.

It's same for bilingual school and kindergarten sectors. If you look at our fiscal numbers, that's basically the trend.

I think your second question is regarding the -- can you repeat your second question?.

It's about tuition fees. .

Tuition fees? Yes, for the first half, you already see, because we have now like over 52% of schools doing ramp-up. So right now, for the ramp-up schools, we focus on to speed up enrollment and we think that AFT is not the priority. So you can see for our international schools, right now, AFT is, for the first half, is pretty much flat.

And for bilingual schools, because we have a few mature schools increased fees, so you can see for the first half, our AFT for bilingual schools with somewhere around like a 10% increase. The same situation for kindergarten. We have over 50% of our kindergartens also are in the ramp-up stage.

So they [indiscernible] slower pace, but if you look at our student enrollment, we have mentioned before, we already reached -- almost reached our high end of our forecast expectation. So that's what we are -- we will maintain this relatively competitive pricing and let our existing segments to continue ramp up.

On M&A-related questions, I will turn that back to our CEO, Jerry. .

We acquired a few companies in this quarter, mostly in the complementary services area. Foundation Global Education is actually a company that provides consulting services to students and parents to help them get into boarding schools and universities overseas.

I mentioned it in my script, that they help students get into the top boarding schools overseas. So it's a B2C service to students and parents. You asked about Can-Achieve. Can-Achieve is actually in a different business, in that they act -- Can-Achieve acts as a recruiting agency for universities overseas.

So their clients are actually, they are the universities, not the students. It's a B2B business. So they reserve a quota, have a quota to consulting companies to recruit students. So they will face with the -- Can-Achieve is somewhere between the university and the consulting company.

So that's their -- they're in different position in terms of vertical chain of the industry. That's the difference between those two. And of course, Can-Achieve focuses on the university enrollment, Foundation is focused on the top boarding schools. So that's the difference between those.

And also, as you mentioned, that we actually incurred a significant amount of M&A-related transaction costs. Some of that came from -- that we announced. I mentioned in the script that we had a few deals, one of them is actually, as you mentioned, is overseas, is a larger deal. And with that, we did not -- we did not complete that deal.

So we incurred a lot of cost for that, but we continue to look at other target in overseas. And we expect that -- the pipeline is strong, but of course, we would not make any announcement until we know it is definitive. .

And also, can you also give some color on the acquired company's financials?.

The financials, FGE. .

As for Foundation, based on their historical number, their fiscal 2018, the top line number around HKD 25 million. And for the Shangxue Bang, I think it's kind of a... .

Startup company. .

It's a startup company, and their top line is relatively smaller, around like RMB 2.6 million on the top line. .

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jerry He for any closing remarks. .

Thank you very much for joining the conference call. Please feel free to contact us if you have any further questions. We wish everyone a good day. .

Ladies and gentlemen, the conference has now been concluded. And you may now disconnect your telephones. Thank you for calling, and have a pleasant day..