Good morning, and thank you for standing by for Bright Scholar’s 2019 First Fiscal Quarter Ended November 30, 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. [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 Counsel..

Thank you, operator. Good morning and good evening. Welcome to Bright Scholar’s 2019 first fiscal quarter ended November 30, 2018 earnings call. Joining me today are Mr. Jerry He, our Chief Executive officer; Mr. Derek Feng, who will succeed Jerry as CEO following this call officially on Monday and Ms Dora Li, our CFO.

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 the January 17, 2019 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.

Such as 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 goal.

Bright Scholar may also make written or oral 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 oral forward-looking statements.

Forward-looking statements by their nature address matters that are to different degrees uncertain, such as statements about the company’s goals and strategies, its future business development, financial condition, and results of operations.

This ability to retain and grow its customer base and network of schools, and growth of, and trends in the markets where it serves in China, the demand for and market acceptance of its brand and services, competition in its industry in China, relevant government policies and regulations relating 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’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’ll be referring to GAAP and non-GAAP financial measures.

We use 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 the net income attributable to the company or other consolidated statements of comprehensive income data prepared in accordance with U.S. GAAP.

Please note all numbers are in RMB and all comparisons refer to year-over-year comparisons, unless otherwise stated. With that, I’ll turn the call over to our CEO, Jerry He.

Jerry?.

Thanks Ruby. First and foremost, on behalf of Bright Scholar we wish everyone every happiness, good health and of course prosperity in 2019. And thanks to everyone who is joining our call today to review 2019 first quarter results. Before we start reporting our performance, I'd like to welcome Derek onboard.

He will succeed me as the CEO effectively on next Monday. As you may noted from our press release yesterday, Derek has extensive experience in the education sector. I can think of no one better to lead the Bright Scholar and look forward to welcome Mr.

Derek, through the transition process and a continue advancing our next phase of organic and acquisitive growth. And now I'll like to pass the call to Derek to say hello and then make a few remarks.

Derek?.

Thanks Jerry. Good day everyone and Happy New Year. It's privilege to have the confidence of the board and be selected as Bright Scholar's next CEO. Bright Scholar has a strong portfolio of businesses and distinguishes itself in a market by delivering increasing and lasting value to students and stakeholders.

Jerry has been instrumental in driving the exponential growth of the company and his team has accomplished memorable achievements in the past few years. As you know, private education is rapidly growing and is evolving impacted by recent regulations. Every time there are changes, there are opportunities.

Bright Scholar is well positioned to continue the growth with its standard strategy, strong businesses and ample capital. I'm honored to assume this position and a confident to continue unlock the vast potential from a portfolio of businesses.

I look forward to contributing my experience to lead the company's next phase of growth and to continue delivering superior value to our shareholders.

Let me take this opportunity to congratulate Jerry on his promotion to Executive Vice Chairman and look forward to working closely with him, and the talented team to maximize long-term value and together to take Bright Scholar to greater level of success.

And I look forward to speaking and meeting all of you as we continue to provide updates and discuss our opportunities ahead. Without further delay, I turn the call back to Jerry.

Jerry?.

Brent, thank you for kind words. Again welcome onboard. Now let's get it started. For those who are new to our company, we have including our earnings presentation, a brief corporate introduction from slide three to nine which you can download from our IR website.

Again all numbers are in RMB and our comparisons refer to year-over-year unless otherwise stated. I will start today's call with the performance highlights, then share some of our key strategic initiatives and developments before turning over the call to Dora for financial review. After remarks, you-- we will take your questions.

Please turn to Slide 11, Bright Scholar continues to successfully succeed to execute against our strategies. In the first year fiscal quarter, we delivered revenue of RMB649.9 million which represented 39.7% year-over-year growth, adjusted gross profit, up 37.6%, adjusted operating income, up 39%.

Adjusted EBITDA up 34.7% and adjusted net income up 39.9% for the quarter. Our high growth is driven by increased traction in our core business and an increase in revenue contribution for our new business segments. Let's look at the detail the breakdown of respective segments on slide 12.

Our focuses on ramping of our schools are providing return from our acquired business and the delivering premium education service to our students is continuing to drive our strong performance. The top-line growth after our respective business segment continues to expand for the quarter.

As International Schools, Bilingual Schools and Kindergartens grew over 25.2%, 24.7%, 29.7% respectively. Our Complementary business grew by 244.7% as a result of the strong performance and the contribution from Can-Achieve.

Slide 13 shows more details of our school expansion and enrollment increase as a market demand for quality education continued to be very strong. As of November 30, 2018, we have an average student enrollment of 41,423, an increase of 22.1% as compared to the first fiscal quarter 2018.

Total school capacity was 58,619 with blended utilization at 70.9%. We also have 4,693 teachers and instructors across our all business lines. Turning to Slide 14, we continue to maintain a competitive pricing across our network in the all business segment to optimize the realization and to drive organic growth of our business. Moving on to Slide 15.

Our performance is a reflection of our commitment to quality education and to delivering the best the academic results for our students.

As of the release date which is still early in admission season, approximately 60% of the students in the 2019 graduating class of our international school have received 356 offers from global top 50 institutions including one from the University of Chicago and four from Oxbridge.

We expect that many more students will receive offers for these elite institutions as the admission cycle continues.

Our business operational front, please refer to slide 16, we continue to progress important strategic initiatives to expedite pace of growth and I would like to provide a few updates before hand over to call to Dora for detail of our financial results. To pursue organic growth is one of the key initiatives to build our business scale.

As of January 17, 2019 with the opening of three kindergartens in Guangdong, Shandong and Hunan, we have total of 68 schools including 6 international schools, 15 bilingual schools and 47 kindergartens, covering nine provinces in China. It provides a total capacity of over 58,619 seats.

The guidance to open five new kindergartens is still well on track. On strategic investments which underpin our plan to accelerate business growth.

I'm pleased to report that as of the release date, we have completed three strategic acquisitions and each of them represents a major milestone as we expand our global footprint and the further broaden our complementary service offerings. First, our very first overseas school, Bournmouth Collegiate School in the UK.

Second is the renowned Zhejiang based art training institution, Hangzhou Impression and finally to oversee career counseling company Chengdu Yinzhe which owes famous brand DreambigCareer.

We continue to foster new collaborations and in entered into strategic cooperation with Changchun Normal University, a second a collaboration following in Beijing Normal University. Bright Scholar plans to provide approximately 200 internship positions and recruit about 300 teachers in the next few years.

The deeper collaboration with Country Garden is crucial to fast expanding our networks in asset- light way. As of December 31st, 2018, we have signed contracts to operate a total of 13 kindergartens and two bilingual schools with the total capacity of approximately 6,900 students.

Our share repurchase work as shown in slide 17, we have been very active since the inception of the program in April, 2018. As of January 17, 2019, the company have repurchased about a 4.4 million of its American Depositary Shares for an aggregate purchase price of approximately US $52.7 million.

In concluding my remarks, Bright Scholar has delivered another strong quarter with robust growth from our core business and the increasing contribution from acquired assets in complementary business. Our positions remain a strategic imperative as we accelerate investments to establish our global footprint and expand our domestic business.

With organic growth momentum driven by strong traction across respective segments, we continue to make tremendous progress towards our business and the financial goals that delivers sustainable long -term value to our shareholders. So at this point, I would like to turn the call over Dora to discuss our financials.

Dora?.

Thank you, Jerry and the many congratulations to your promotion, and also welcome to Derek onboard. I look forward to working with excellent team as we progress to our next phase of growth. Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year-over-year comparison unless otherwise stated.

Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis. Please turn to Slide 19. Our revenue for the quarter was RMB649.9 million, up 39.7%. Revenue from International Schools for the quarter was RMB218.6 million, up 25.2% as compared to RMB174.6 million.

Revenue from Bilingual Schools for the quarter was RMB194 million, up 24.7% compared to RMB155.5 million. Revenue from our kindergarten for the quarter was RMB137.7 million, up 29.7% compared to RMB106.2 million. Revenue from our complementary education services for the quarter was RMB99.6 million, up 244.7% compared to RMB28.9 million.

And achieve contributed RMB62.4 million to our revenue for the quarter. On Slide 20. Cost of revenue for the quarter accounted for 54.4% of total revenue as compared to 53.4% in the same period last fiscal year. Teaching staff cost, the primary cost contributor was 34.4% of total revenue as compared to 37.9% the same quarter last fiscal year.

Average student teacher ratio was 9.0 for November 30, 2018 as compared to 8.7 of the same period last fiscal year. Slide 21. Gross profit for the quarter was RMB296.6 million, up 36.8% and gross margin was 45.6% compared to 46.6% in the same period last fiscal year.

For International Schools, gross profit up 25.3% to RMB107.3 million with gross margin improved from 49% to 49.1%. For our Bilingual Schools, gross profit up 29.7% to RMB87.4 million for the quarter with gross margin improved from 43.3% to 45%.

Our Kindergarten, gross profit was up 32.3% to RMB69.7 million for the quarter with gross margin improved from 49.6% to 50.6%. Complementary Education Services, gross profit up 190.5% to RMB32.2 million. Gross margin was 32.3% compared to 38.4% of the same quarter last fiscal year.

The decrease in margin for the complementary education service sector which is mainly due to incremental staff cost for opening two new centers and also the increase in rental cost as to compliance with the recent regulation. Slide 22. Adjusted SG&A expenses for the quarter accounted for 17.7% up from 17.3%.

The increase in selling, general and administrative expenses was primarily due to the increase in the compensation and benefits incurred from additional general and administrative staff members, employee stock ownership plan related expenses to retain talents also the increase in marketing expenses for brand promotion and cost associated with the acquisition and other professional services cost to support the business growth as a listed company.

Meanwhile the incremental SG&A expenses incurred from --also incurred from the acquired businesses. Continuing to slide 23, the adjusted EBITDA for the quarter was RMB217.4 million, up 34.7% from RMB161.4 million in the same fiscal quarter last year. Adjusted EBITDA margin was 33.5% compared to 34.7% last fiscal quarter.

Adjusted net income for the quarter was RMB167.5 million, up 39.9%. Adjusted net margin was 25.8% as compared to 25.7% in the same fiscal quarter last year. Please refer to table in slide 24 for the condensed income statement and also slide 25 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 26. As of November 30, 2018, the company's cash and cash equivalent and restricted cash totaled RMB2, 428.3 million or US $349.1 million as compared to RMB3, 164.1 million as of August 31st, 2018. We are reaffirming our guidance for fiscal year 2019 with a recap on slide 28.

For the fiscal year 2019 ending August 31st, 2019, we expect our guidance for total revenue to be between RMB2, 300 million and RMB2, 350 million representing a year-over-year between 34% and 37%. We also expect our average student enrollment to be approximately between 41,600 and 42,000 representing a year-over-year increase between 13% and 15%.

We also expect five new kindergartens opening for fiscal year 2019. This concludes my financial update. Now I would like to turn the call back to Jerry for closing remarks..

Thank you, Dora. Our continued performance is the result of our deeper invests in expanding networks, broadening education programs and services that empower our students to achieve academic excellence. Looking ahead, we expect to expedite our growth by executing along our two strategy pillars.

First, to pursue our organic growth initiative in optimizing operation efficiency. Improving utilization, broadening service offerings and capitalizing synergistic opportunities from our acquired businesses. Second, to pursue a strategic and domestic and oversea investments and acquisitions for acceleration of our business scale.

Bright Scholar has the right strategies, service portfolio and the people in place to spur the next phase of our growth. And we are fully committed to delivering sustainable, long- term value for our students, employees, shareholders and our stakeholders.

Last but not least, I would like to take this opportunity to thank all of you for continuing interest and a support for Bright Scholar.

Fiscal 2019 is off to an outstanding start and we look forward to building on this momentum as I pass the torch to Derek to focus on driving the organic growth, while I focus accelerating the pace of pursuing investment opportunities in schools and the complementary business both domestically and abroad.

That's all we have in the form of prepared remarks. And we're now turning over to Q&A. Operator, please..

[Operator Instructions] The first question comes from Christine Cho of Goldman. Please go ahead..

Hi. Thanks Jerry and Dora and welcome Feng. So I have two quick questions. So one is related to within the cost of revenue. We can -- we see that you've broken out a new item called commission fee.

Can you just elaborate on what that item is and what I think the outlooks for that item going forward? And then second question relates to the complementary education services because it's actually growing in terms of importance. And I think Jerry mentioned it's a part of your long-term growth strategy.

Can you just elaborate on the direction and also in terms of a margin outlook and in that complementary education services?.

Hi, Christine. This is Dora and let me answer your questions. First regarding the commission fees in our cost structure. Remember, we consolidate Can-Achieve into our complementary education services. The commission fees is part of Can-Achieve cost element. That's the commission they provided to their secondary agents.

Second question regarding the margin profile or expectation for the whole complementary education services. As we mentioned Can-Achieve I think we mentioned last quarter already due to the nature of the business Can-Achieve's gross margin is compared to our core business K12 business is relatively in a lower range.

So that's why it's also you can see on the gross margin, blended gross margin this report you can see we have a relatively slow increase in terms of gross margin for the whole group.

And also as Jerry just mentioned that we just complete three acquisitions which including the Hangzhou art training institution, Hangzhou Impression and also the career counseling services which they will be consolidated starting from our second quarter and their margin profile is at the bottom line is pretty much a little bit lower and in line in the 20s, yes..

The next question comes from Sheng Zhong of Morgan Stanley. Please go ahead..

Hi, congratulations to Jerry and Derek, and also congratulations to the good results. I have two questions. One is about the student enrollment; actually you deliver very good growth of the student enrollment this quarter especially on the International School.

So what did you do to have the strong in international school and do you think your full year's enrollment guidance is too conservative at today's point of view? And secondly is also about the international school. At the same time we --you increase the utilization rate but it's the gross margins, it's relatively flat with last year.

So any reason for this and what do you see the margins trends? Thank you..

Okay, thank you for asking the questions. I would take the first one and let Dora to take the second one. The first one is about the enrollment. So actually two things that we have done. I guess in the last couple of years and first one because our students are getting better academic results.

They have been to better schools so our brand named has been better than in the past. So we have more students coming through our international school to apply. And second, of course, we have been ramping up our branding and the marketing efforts.

We have put a more investment of people on the ground to run more marketing campaigns to bring more students into our schools. So it's two add together so we have more enrollments than what ever have done in the past.

We would expect those trend will continue as we --our school are getting better results and so we our brand is getting more better known in the market as well..

Hi, Sheng Zhong. This is Dora. I'll take your second question regarding blending margin, margins for our international school. You may notice that the blended ASP for international school is flat for this quarter.

I think the major reason we have explained before because except the Guangdong international school, the other five schools are still ramp up.

So we normally or will not-- we didn't raise their --our tuition fees for these five schools and also for Guangdong school due to the local authority reason our application for raising the school fees was kind of hold for this school year. So basically for Guangdong school we didn't either raise the school fee this school year.

And actually for the rest of the international school, their individual gross margin has been improved because of Guangdong kindergarten, the fee didn't increase and also the one school in Guangdong we recruit more school, most students from the primary school which the fees for the primary school stage are relatively lower.

So that impact the margins for the Guangdong school and on the blended basis you can see the gross margin improve are relatively slow. But with improve in the utilization from the other five new schools we will see a better improvement in the future..

The next question comes from Jian Song of Industrial Securities. Please go ahead..

Good evening management, congratulations for good season. I have two questions. The first is about the three new kindergartens in financial season. Could you tell me if this new kindergartens have been affected by the policy such as the condition for running the schools or the Huiyan policy? Then the second one is the complementary service.

I realized that Elan's schools margins decline was part of the reason for a rental expenditures increasing. Can you explain the reason for that increase? Thank you..

Okay. I will take both questions. First one about the kindergarten. The opinion from State Council was put out on November 15, 2018. So that was a fact thing about the source of the funding and also merging the acquisition, but does not affect to organic growth, opening new kindergarten. So those three kindergartens are not affected by that at all.

And also it depends on -- in general it depends on where the kindergartens are. If the property is owned by the government and/ or jointly owned by the residence of a community typically the government would have put a price cap on those and put it in the low cost kindergartens zone.

But if you actually own the land and own the building that's called a private owned kindergarten should not be affected by that. So most of our kindergartens are in that category. So those three kindergartens are not affected. That's about kindergarten.

Also by the learning centers because I see you're probably aware of there are quite a few a round of new policies and regulations against around or about depend on which way you look at about the learning centers nationwide. So they require to lower than, I guess it's can only being in first three floors of any building.

So also there are fire codes that they have put into place. So some of our learning centers where we had to relocate to a new location that meet those requirements. Therefore whenever you move you have not adjusted renting but also moving expenses and potentially loss of students as well.

That's why our margin for Elan learning centers has gone down quite a bit because all the rules about learning centers..

The next question comes from Tianli Wen of Blue Lotus. Please go ahead..

Hi, congratulations on the solid quarter. I have few questions here.

Could management help us to break down the cost of revenue this quarter? So could the management give out more color on what contains in the cost of revenue and how about the growth rate of each other? And the second question is what the average salary level of your teachers is and what's the average or annual increase in their salary? Thank you..

Let me just repeat your question is the breakdown of revenue by segments?.

No, breakdown of cost of revenues..

Cost of revenue..

Yes..

Yes. I think we do have that in our earnings release. Let me just repeat that for you. International school first quarter --.

I'm sorry. I can --I just want to know like the cost of the salary, the salary fee of the teachers..

The average salary of teachers', are you asking?.

Yes..

While the total -- the total cost of --teaching staff cost I think we reported a total teaching staff costs for the first quarter is around RMB223 million for the first fiscal quarter and we also reported the teaching and instructor number for the first quarter.

So for on average basis we can do an easy calculation is somewhere around like RMB48, 000 for the first quarter then you divide it by three is probably around like RMB16, 000 per month that's on average basis. The average salary increase is somewhere around --beats the inflation, somewhere around like 6%-7%..

The next question comes from Alex Huang of First Beijing Company. Please go ahead..

Hi, Jerry and Dora. Thank you for your presentation and congratulations on your promotion. I have two questions. The first one is about our pipeline. Could you tell us how many schools are in our pipeline and in which categories are they? And my second question is about the policy.

Could you share us more light and your thought of the policy? Do you think it would have any difference compared to the Shenghua? Thank you..

Okay. The first one is about pipeline, of course, I cannot disclose the exact numbers but I can tell you what are we are looking at. We are looking at the K12 schools double domestic and overseas and I'm probably more emphasized on overseas at this point of time.

And also we are looking at the complementary services more on the --other than kind of test drive or related to academic work at a school. So that's what we're looking at. It's very strong pipeline but again I can't talk about numbers. And in terms of policy, Shenghua, the second version actually did not come out as they expected.

They were --earlier they were saying the final version would it be -- will come out about end of 2018 but actually by the end of 2018, I mean they came out with another draft for public opinion. And that of course of what we are --we are one for the institution that provided our comments and opinion and send it back to the Department of Justice.

So we don't know when it was going to come out but compared to this version to the version we had, I would say qualitatively it's-- I think it's slightly better but not by much.

So we wouldn't know for sure what the final version would be, but at least it tells me that they were --they are very cautious about this again because they come back again and again. Because theoretically after the first draft is to consider up to the upper management for a sign-off already.

So they came back twice that means at least indicated that they were very cautious about the impact of the law. But like I said, what the final version going to be, we wouldn't know yet..

Okay, thanks. And I see there are 15 kindergartens in your pipeline.

So I want to know that do you think our organic -- our Greenfield of kindergarten is totally not as affected by the new policy on kindergarten?.

So according to the current version of the opinion and the laws, they are not affected because it's just not a related to any merging acquisition; it's not related to property owned by the government. So it's a privately owned land and building.

According to many of the local government that we consulted with, we can-- it's a free market everything we can register as a for-profit then they're not even going to regulate on the price either. So that's what they told us for now at least.

So we think we will continue to develop a new size that in that case we are not try to getting into too much of the space where either the government owned or the committee owned kindergartens. End of Q&A.

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

All right. 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..

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