Good morning and thank you for standing by for Bright Scholar’s Third Fiscal Quarter 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. 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 Counsel..

Thank you, operator. Good morning and good evening. Welcome to Bright Scholar 2018 third fiscal quarter ended May 31, 2018 earnings call. With me today on the call is Mr. Jerry He, our Chief Executive Officer and Ms. Dora 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 July 21, 2018 after market close 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 is statements related to future, not past, events often address expected future business and financial performance and financial condition and often contain words such as will, estimate, project, predict, believe, expect, anticipate, intend, potential, plan or go.

Bright Scholar may also make written or oral forward-looking statements in other reports, in presentations and materials delivered to shareholders and in press releases. In addition, Bright Scholar’s representatives may make oral forward-looking statements.

Forward-looking statements by their nature address matters that are to different degrees uncertainties, such as statements about the company’s goals and strategies; it’s future business developments, financial condition, results of operations, its ability to retain and grow its customer base and network of schools; and growth of and trends in the markets for its services in China; the demand for and market acceptance of its brand or services; competition in this industry in China; relevant government policies and regulations related to the corporate structure, business and industry fluctuations in general economic and business conditions in China.

Certain information regarding this and other risks is included in Bright Scholar filings with the Securities and Exchange Commission. Bright Scholar undertakes no duty to update any forward-looking statement 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 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 that all numbers are in RMB and all comparisons refer to year-over-year comparison unless otherwise stated. With that, I will turn the call over to our CEO, Jerry He.

Jerry?.

Thanks, Ruby and thanks to everyone who is joining us today to review our 2018 third 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 refer to year-over-year, unless otherwise stated.

I will start today’s call with an update on our recent acquisitions before highlight our performance for the third fiscal quarter 2018 and then share some of our key initiatives and developments. Then I will turn over the call to Dora to provide a more detailed review before we take your questions.

So, now turning to Slide 10, we continue to strengthen our market leader position through the execution of our growth strategies and established with about recent completion of four acquisitions. We acquired 5 kindergartens from Xinqiao, where we are expanding nationwide network, providing quality early year education to our youngest students.

In addition, we have completed the transaction of three strategic acquisitions to expand our service offers in the complementary education services segment.

Bright Scholar now own a 70% equity interest in Can-achieve, a China based education consulting business, which represents our 600 prestigious overseas universities in U.S., Canada and the UK, a 75% equity interest in Foundation Global Education, a Hong Kong-based education consulting company for overseas boarding schools and universities, as well as 51.67% equity interest in Zangxing, an education technology company based in Guangzhou, China.

The transactions related to the foundation and the Shangxue were completely undue versus 2018. We are delighted to work on these companies to our extending Bright Scholar family and we are now working hard to integrate this business to capitalize the synergies with our existing schools.

Let’s now move on to the highlights of our business and operation portfolios in Slide 11. Factoring the revenue contribution from the acquisition of Xinqiao and Can-achieve, the revenue for the third fiscal quarter was RMB540.9 million, representing a year-over-year increase of 33%.

And for the 9 months period, revenue was RMB1,329 million, representing a 26% year-over-year increase. In light of these acquisitions, we have updated the financial guidance for the full fiscal year 2018 to include 1 year for existing business and investment using new guidance representing a year-over-year growth of 26% to 28%.

Let’s move to our detailed breakdown for the respective segments in Slide 12.

The top line growth for our respective business segment continue to expand for the quarter with international schools, bilingual schools, kindergartens and complementary education services grew by 13.7%, 35% and 172% respectively and on 9 months basis, they grew over 15%, 29%, 26% and 83% respectively.

Slide 13 shows more details of our network expansion in the revenue increase. We have added a total of 15 new schools, including 5 kindergartens for Xinqiao to our nationwide network for the first 9 months of fiscal 2018. With a total of 67 schools, the capacity increased about 25% to 60,551.

The average student enrollment for the first 9 months of fiscal 2018 has increased by 19.1% to 35,275 with splendid utilization that was 61.8%.

Turning to Slide 14 while we continue to prioritize ramp up of existing school with competitive pricing, I am pleased to report that although our AST has modestly increase of 9.1% of our bilingual and 2.4% for our kindergartens, while AST of international school maintain a similar level.

Before I turn over to Dora to discuss the financial results of the quarter in more details, I would like to provide an update on our Xinqiao exam performance and share with you a few exciting developments on the business front. First, on extraordinary performance, please refer to Slide 15 to 16.

Our focus on delivering premium education in school to achieve academic excellence and at a rate at which they are related to top universities and in schools continue to grow beyond our expectation.

In addition to the outstanding achievement of graduating class for our international schools with 90% of our students having received all parts from global top 50 institutions as shown in Slide 15, we recently received our students 2018 Zhongkao, which is China’s high school entrance exam results and 80.3% of the Grade 9 graduates from our bilingual schools have been accepted into top public schools in the respective region as shown on Slide 16.

Academic excellence represented every essence of our brand and our unwavering commitment to delivering premier education services to support the aspiration of our student and staff.

As stated on Slide 16, we recently announced that Bright Scholar has signed agreement to acquire a 70% equity interest in a renowned Zhejiang-based art training institute for a total consideration of RMB70 million.

The institution specialized in preparing students for college entrance exams relating to media and communication as well as music and performance studies. Found in 2009, the institution has two main campuses, which cover 600 students delivering a revenue of RMB23.7 million and EBITDA of RMB9 million in 2017.

We believe this is strategic investment to further expand our services offerings and have more students in our desired other colleges. Our expanding network is crucial to accelerating our growth. We had addition of 5 new kindergartens from Xinqiao. We now have a total of 67 schools.

Our goal is to expand the expansion and our long-term collaboration with kindergarten provides a strong platform for growing our network. I am pleased to report that as of July 17, 2018 we have signed contracts to operate 12 kindergartens within Country Garden properties with a total capacity of 3,420 students.

This impactful relationship provides us with strong pipeline for expanding our nationwide network and allows a high visibility of revenue as we continue to build scale. As for partnership with Fettes College, we have secured a site in Guangzhou for international school with capacity of accommodating 2,500 students for an age 3 to 18.

Back in May, we announced the partnership with Beijing Normal University.

[indiscernible], the Chairlady of Bright Scholar, has made a personal donation of RMB80 million to Beijing Normal University education fund for doing the establishment of Huiyan International Education College, which aims to provide international education training for new and existing teachers.

Through the partnership, Bright Scholar and Beijing Normal University will jointly own the intellectual property of research in international education which Bright Scholar will provide internship opportunities for college students across its nationwide school networks and we have the priority to recruit top talents.

Furthermore, underscoring the confidence in the company’s prospects, the board has approved a share buyback program of up to $100 million on April 26, 2018. As of July 23, 2018, the company has repurchased 195,276 shares with an average price of $15.9 per share.

We are proud of progress we have achieved and the consecutive quarterly growth results continue to demonstrate our commitment to accelerating sustainable revenue growth. With this recent acquisitions and the deepening of partnership with kindergarten, we are ensuring our expanding network and for the further facilities create value for our students.

The company remains committed to creating sustainable value to shareholders through operational performance. Our quantitative strategic acquisitions continue the execution of our growth strategy and diligent share repurchases. So at this point, I would like to turn the call over to Dora to discuss our financials.

Dora?.

Thank you, Jerry. 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 release for detailed information of our comparative financial performance on a year-over-year basis. Please turn to Slide 18.

Our revenue for the quarter was RMB540.9 million, up 33%. On a 9 month basis, revenue was RMB1,329.2 million, up 26.2%. Revenue from international schools for the quarter was RMB178.9 million, up 15.4% as compared to RMB157.8 million. On a 9 month basis, revenue for international schools was RMB472.2 million, up 16.1% as compared to RMB410.1 million.

Revenue from bilingual schools for the quarter was RMB161.7 million, up 27.4% as compared to RMB126.9 million. For the 9 months, revenue was RMB425.8 million, up 28.9% as compared to RMB330.3 million. Revenue from kindergartens for the quarter was RMB129.9 million, up 35.2% as compared to RMB96.1 million.

For the 9 months, revenue was RMB309.1 million, up 25.9% as compared to RMB245.6 million. Xinqiao kindergartens contributed RMB12.7 million to revenue for the period. Revenue from complementary education services for the quarter was RMB70.4 million, up 171.8% as compared to RMB25.9 million.

On a 9 months basis, revenue was RMB122.1 million, up 82.5% as compared to RMB66.9 million. The revenue of élan English learning centers has increased by 2.5% to RMB24.7 million for the quarter and increased 22.4% to RMB67.7 million for the 9 months period. Can-achieve contributed RMB46.3 million to revenue for the period.

On Slide 19, cost of revenues for the quarter accounted for 57% of total revenue as compared to 54.8% in the same period last year. On a 9 months basis, cost of revenue accounted for 60.8% of total revenue as compared to 62%. Teaching staff cost, the primary cost contributor, was 37.1% of total revenue for the quarter as compared to 37.7%.

On a 9 months basis, staff cost was at 42.2% as compared to 44.2%. Average students teacher ratio was 9.9 for May 31, 2018 as compared to 9.6 at the same period of last fiscal year. On Slide 20, gross profit for the quarter was RMB232.6 million, up 26.6%, gross margin down from 45.2% to 43%.

The consolidated margin decrease was primarily due to the impact of new bilingual schools and dilution from élan English learning centers, camps and other businesses. On a 9 months basis, gross profit was RMB521.6 million, up 30.5%. Gross margin was 39.2%, up from 38%.

The international schools gross profit up 19.7% to RMB80.2 million for the quarter, with gross margins improved from 42.5% to 44.8%. For the 9 months period, gross profit up 35.8% to RMB193.2 million, with gross margin improved from 34.7% to 40.9%.

For bilingual schools, gross profit up 22.5% to RMB68.6 million for the quarter, with gross margin decreased from 44.1% to 42.4%. For the 9 months, gross profit up 25.9% to RMB156.5 million, with gross margins at 36.8%, slightly down from 37.6%.

The decrease in gross margin was primarily due to the impact from 5 new opened bilingual schools in fiscal 2018 and the gross margin dilution impact was somewhere around 1%. For kindergartens, gross profit up 38.2% to RMB68.7 million for the quarter, with gross margin improved from 51.7% to 52.9%.

On a 9 months basis, gross profit up 30% to RMB141 million, with gross margin improved from 44.2% to 45.6%. For the 9 months of fiscal 2018, we added 10 new kindergartens and the gross margin dilution from the new kindergartens for the 9 months 2018 was somewhere around 0.5%.

For complementary education services, gross profit up 36 points to RMB15.1 million for the quarter, with gross margin down from 42.9% to 21.4%. On the 9 months basis, gross profit up 25.6% to RMB30.9 million, with margins down from 36.8% to 25.3%.

The reason for the gross margin decrease were mainly due to dilutions from élan’s headcount increase, lower margin from camp business and other business, also the impact from Can-achieve. Slide 21, adjusted SG&A expenses for the quarter accounted for 12.9% of total revenue, down from 16%.

On the 9 months basis, adjusted SG&A expenses accounted for 17.4%, up from 16.4%.

The increase in selling, general and administrative expenses was primarily due to the increase in the compensation and the benefit paid to additional general and administrative staff members and employee stock ownership plan related expenses to retain talents, as well as increase in marketing expenses for brand promotion, merger and acquisition and other professional services related expense to support the growing business as a listed company.

Continuing on Slide 22, adjusted EBITDA for the quarter was RMB187.6 million, up 29.2%, adjusted EBITDA margin was 34.7%, down from 35.7%. On the 9 months basis, adjusted EBITDA was RMB373.9 million, up 26.1%. Adjusted EBITDA margin was 28.1% as compared to 28.2%.

Adjusted net income for the quarter was RMB142.1 million, up 32.2%, adjusted net margin was 26.3% as compared to 26.4%. On the 9 months basis, adjusted net income was RMB257 million, up 31.5%. Adjusted net margin was 19.3%, up from 18.6%.

We incurred about RMB4.1 million foreign exchange gain and RMB7.1 million foreign exchange loss on the book during third quarter and the first 9 months of 2018 respectively. The accounting gain and loss was due to moving U.S. dollar denominated currency from offshore company to PRC subsidiary.

If these accounting gain and loss was excluded from the adjusted net income, we would have a net income of RMB138 million or 28.3% increase for the third fiscal quarter and RMB264.2 million or 35.1% increase for the first 9 months of fiscal 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 the net income on a GAAP to non-GAAP basis. A quick note on our cash and bank balance in Slide 25.

As of May 31, 2018, the company’s cash and cash equivalent and restricted cash totaled RMB2,702.2 million or USD421.6 million as compared to RMB1,906.8 million as of February 28, 2018.

In Slide 27, in conjunction with the completion of the fourth strategic acquisitions, the company updates its financial guidance for fiscal 2018 to include revenue from existing business under the fourth strategic investment.

The company expects its revenue to be between approximately RMB1,674 million to RMB1,700 million representing year-over-year growth between 26% and 28%. The primarily guidance for an organic revenue of RMB1,630 million to RMB1,660 million, representing a year-over-year growth between 23% to 25%.

The company also raises its guidance on average students enrollment to be between approximately 35,000 and 36,000, representing an year-over-year increase between 18% and 21%. The preliminary guided average student enrollment to be between 34,300 to 35,000, representing year-over-year increase between 15% to 18%.

The company revises its guidance on new school opening and expects 10 new schools openings for fiscal year 2018. The previous guidance was 12 new schools for fiscal 2018.

The guidance is based on the current market conditions and reflects the company’s current and preliminary estimate of market and operating conditions and customer demand, which are all subject to change. This concludes my financial update. Now, I will turn to Jerry for his closing remarks..

Thank you, Dong. Looking ahead, we are focusing on our key growth initiatives, including accelerated velocity of scaling our business both organically and through strategic acquisitions.

Thanks to our overall growth and the positive effort, we are ideally positioned to capitalize on a robust pipeline of opportunities in front of us and we remain focused on achieve our goals as [indiscernible] provider of premium education services. That’s all we have in the formal prepared remarks. And now, we will turn it over to Q&A.

Operator, please..

Thank you. [Operator Instructions] Our first question today will come from Terry Weng of Blue Lotus. Please go ahead..

Hi, management. Thanks for taking my questions. I have one question here. Could you share any update with the utilization load of international school and bilingual school and what is our plan to improve the utilization rate in the future? Thank you..

Hi, this is Dora. I am happy to take your questions. Regarding the utilization, the current utilization for our international school, bilingual schools, we are happy to report our international school utilization has been increased from 42.6% of last year to 48.9% as of the 9 months.

And for our bilingual schools, last year we have 11 bilingual schools. The utilization rate is close to 76% and this year we add 5 new more bilingual schools and we increased our capacity. So right now the blended utilization for bilingual schools is 61.6%, but however our student enrollment also increased for our bilingual schools as well.

And in terms of how to increase the involvement utilization, yes, that’s what we are doing through promotion our brandings to continue to increase ramp up our existing ramp up school..

Thank you..

Our next question will come from Nicky Ge of China Renaissance. Please go ahead..

Hi, Dora. Hi, Terry. Thank you for taking my questions and congratulations on very good quarter. I have two questions here.

First question is that our gross margin for complementary services this quarter and what should we see for the next quarter on December? And then my second question is the timeline for the 12 kindergartens from Country Garden, when do we expect them to kick in? Thank you..

Maybe I will take your first question regarding the gross margin for the complementary segment. For the quarter, we have impression from the margin dilutions from élan and also camp business and also Can-achieve, but as you know, we will have a peak season for our camp business. From next quarter, we will see more profits coming from camp business.

And regarding the timeline for the 12 new contracts kindergartens, you want to take that or?.

Sure. For the 12 new kindergartens that we signed contract with Country Garden, we are still working on the schedule, because we secured the sites, but it won’t open. It depends on kind of the occupational rate of respective communities.

So we are still working on that, but I would say probably at least it will be three of them will be open in the next year..

Alright. Thank you. Thank you, Jerry and Dora..

[Operator Instructions] Our next question will come from Sheng Zhong of Morgan Stanley. Please go ahead..

Hi, Jerry and Dora. I have two questions.

One is as now it’s already almost August, so do you have any visibility into the involvement of new school year from September 4 or better if you can give some color by school type? And second question is we have a lot of activities, acquisitions in the complementary services, so what’s management’s outlook of view of the complementary service as a percentage – the complimentary service contribution to company’s total revenue next year or in the 2 or 3 years’ timeframe? Thank you..

I will take those questions. First one is about the enrollment, so we spoke about in the past quarters, we have significantly increased the budget of spending and also effort in enrollment – increase the enrollment of our schools.

We do expect that on a year-over-year same school basis for ramp up schools that we do expect a good increase for what we have done in the past. But as you know, for majority of schools where the capacity is fixed, of course, there is not too much growth from there given that in the past few years, we have opened a number of new schools.

Especially this fiscal year, we opened the 5 bilingual schools and now have 5 kindergarten opened. As mentioned by Dora, we originally regarded for 7 kindergarten, now 2 of them will be divided to the next year, but those schools will be – should be in the share of next year as well.

So, we do expect a increase and the numbers are quite – compared to just two other members, I would say are better, but of course, we wouldn’t know the numbers for sure until people actually pay their tuition when they come to schools. And the second question about the percentage of complementary education services as a percentage of our business.

With that acquisition, we can fairly – we needed to figure out our dividends gross track record, but as we say, acquisition is probably hard to predict. Even though we do have in mind a lot of kind of target around the buy, it’s hard to predict the percentages of complementary education services..

Thank you, Jerry.

So do we offer the complementary service if we don’t exclude the acquisitions for now, so for the current one, what do you think?.

Well, specifically the target around is about 9.2% and it depends on the gross rate and also the pace of how we open new schools.

I think the percentage will change, but I think in the long run, in the last couple of years as we are looking at more acquisition targets, that percentage may change, because we might be – if we buy a large number of K-12 schools, if at the time being, the percentage of complementary action might drop, because of adding more on the other side..

I see. Thank you..

[Operator Instructions] Having no further questions, this will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Mr. 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. Thank you..

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