Good morning, and thank you for standing by for Bright Scholar's 2020 Fourth Fiscal Quarter and Fiscal Year 2020 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 Counsel..

Thank you, operator. Good morning, and good evening. Welcome to Bright Scholar's fourth fiscal quarter ended August 31, 2020, earnings call. Joining me today are Mr. Jerry He, our Executive Vice Chairman; Mr. Zi Chen, our Co-Chief Executive Officer; and Ms.

Dora Li, our Chief Financial Officer As a reminder, today's conference call is being broadcasted 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 November 11, 2020, after market close Eastern Time.

If you have not, it is available on the IR section of our website. Before we get started, let me remind you that today's call may contain forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, without limitation, the company's business plans and development, which can be identified by terminology such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, is so, likely to or other similar expressions.

Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

During this call, we'll be referring to GAAP and non-GAAP financial measures. We use certain non-GAAP measures as supplemental measures to reveal and assess our operating performance.

This non-GAAP financial measures have limitations as an analytical tool and the must have should not consider them in isolation or as a substitute for net income attribute to company or other consolidate the statement of comprehensive income data prepared in accordance with U.S. GAAP.

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

Jerry?.

Thanks, Ruby. Thank you all for joining us today for our fourth fiscal quarter and the four year, 2020 conference call. We appreciate your interest in our company, and we look forward to sharing our results with you on this call.

I would like to start call today by thanking our leadership team, academic and operational teams globally for their extraordinary efforts during fiscal 2020. These past nine months have been challenging for all of us.

We have been confronted with cascading national and a global crisis, including an unprecedented pandemic and the historic significance of global recession. We've pivoted quickly to accommodate the operating changes that were necessary in order for us to continue operations safely and effectively in a You very volatile market.

At the same time, we kept our folks on strategical priorities to stringent our company and built a global network of schools that embraced latest technologies.

The operational and the financial results we announced this morning, as well as our full year results, reflect the agility of our team, the strength, our culture, and the resilience of our diverse business.

Our call today, I will go through the prepared remarks on behalf of our senior management team and then update on our initiatives to address evolving industry dynamics and conclude with our outlook of fiscal address evolving industry dynamics and conclude with our outlook for fiscal 2021.

Dora will then provide more detail our business and the financial performance and our guidance for fiscal 2021. I will wrap up and then we will take your questions. Let’s begin with our earnings report.

For those who are new to our company, we have included our earnings presentation of brief corporately introduction from Slide 5 to Slide 11, which you can download from our IR website. Again, all numbers are in RMB and all comparison we refer to year-over-year unless otherwise stated.

Please turn to Slide 13 for the highlights of our fourth quarter and the full fiscal year performance with detailed breakdown by respective business in Slide 14 to Slide 15. In fiscal 2020 our overall business performed very well and ahead of applying the first half of the fiscal year.

However, the overall impact from COVID-19 China and in particularly abroad caused a substantial decline in our fourth quarter performance. Their revenue for the fourth quarter was RMB652.1 million dropped by 80.4% year-over-year, with gross profit was down 29.5% and operating loss of RMB171.9 million.

This was mainly due to significant impact of the pandemic on all of our business, particularly our overseas schools, and overseas counselling business as a result of nationwide lockdown and the closure of schools’ campus.

Although the situation in China greatly improved with government’s success in containing the pandemic, and eventually reopening of schools, there was still loss of income for meals and the boardings for our Domestic K-12 business that attributed to substantial decrease for operating income.

Amidst the significant challenges and disruptions Bright Scholar still delivered solid full fiscal year with revenue growth of 31.3% and adjusted EBITDA growth of 36.5% for fiscal year 2020. The financial performance once again demonstrated resilience of our multi-facet growth strategy and strength of our portfolio of business.

Let me walk you through the performance of our respective businesses. Our Domestic K-12 business, China’s encouraging sign of steady economic recovery from the epidemic, and its continuous effort to minimize risk of resurgence, provide strong impetus to our businesses recovering.

Our 54,000 students have enrolled for the September 2020 school term in our Domestic K-12 schools as of the reporting date. The average number of students increased by 6.6% for the fourth fiscal quarter, and the 9.9% for the fiscal year compared to the same period in the prior fiscal year, as shown in Slide 16.

All of our K-12 campus in China have reopened with safeguards in all our facilities to protect our student interest, including increased frequency of cleaning and disinfecting facilities, social distancing practices, and other measures to minimize potential risk of insurgence.

Turning to Slide 17, our compromising focus on helping our students to achieve outstanding academic performance has continued to strength our market leadership in premier education. Our students achieved remarkable results with 94% of our 2020 graduating class were admitted to global top 50 institutions.

And 98% were admitted to global top 100 institutions with six from Oxbridge, and four from the University of Chicago and five from UC Berkeley. We also are pleased to report that Fettes Guangzhou School and kindergarten opened as scheduled in September and we will continue to optimize school expansion diligently and efficiently.

Our overseas school business, as mentioned at the start of the call, saw operation was mostly negatively affected amid the ongoing pandemic and lockdown in the UK.

As shown in Slide 18, the near term actions and initiatives to mitigate the financial impact that we have been estimated to contain COVID-19 push our overseas business segment on stronger footing to ride us through the significant unprecedented challenges inheriting in the global health crisis and the new major economic slowdown.

Our global education network is of strategic importance in enriching student lives and learning experience, enhancing academic performance through global recruitment and training, joint R&D collaboration between our oversea and domestic schools, as well as across different business units within Bright Scholar.

Talking about the future growth of Bright Scholar, both our complimentary and EdTech business will be driving our next phase of growth over the long-term. Please turn to Slide 19 for our complimentary education services business.

Despite the impact from COVID-19, revenue for fiscal year 2020 grew by 9.1%, as we seized the opportunity in the summer by launching new products and services to strengthen our market position.

The acquisition of Leti Camp will further expand our capability to include hands-on inquiry-based learning, that offers enormous potential and synergy which will expedite the expansion of our outdoor camp business in the post COVID-19 period.

There are enormous market opportunities in expanding our portfolio of complementary education service, including after school tutoring for K-12, study tours and camp activities.

We plan to further leverage the collaboration with Country Garden to explore more opportunities in broadening our outdoor camp business within China, as well as acquisitions to expand our service offerings. Moving on to Slide 24, our Ed Tech business.

The COVID-19 crisis has been a major catalyst driving policymakers, service providers and more parents and families to explore online learning options.

The increasing awareness and acceptance of online resources, merging offline activities for optimal educational results, bodes well for us to drive academic excellence as we continued to expand investments in this space.

Our new education technology business comprises online career counselling, online Academic Olympiad training and online international school – the '3i Global Academy'.

The launch of the online international schools with online-merge-offline model in June represents a major milestone in utilizing technology to provide access to high quality education for students around the globe. 3i Global Academy has enrolled more than 170 paying students as of November the 7th.

We recognize that uncertainties our road ahead entails. Please turn to Slide 21, where we detailed the major challenges as well as opportunities to our business for fiscal 2021. Our Domestic K-12 segment were faced challenges to expand our network with increasingly tightened regulations on kindergarten, bilingual and international schools.

Our overseas school operations, including K-12 schools, language centers, and the camp business were continuing to suffer. Disruptions from nationwide lockdown and resurgence of pandemic crisis.

Our overseas counselling business, English language centers, and the overseas camp business were affected by the adverse operating environment in the UK and the U.S. Notwithstanding the challenges mentioned throughout the call, we are excited by the combination of growth drivers coming into alignment of our fiscal 2021.

These growth drivers include the steady economic recovery from the pandemic in China, the improved service mix of our portfolio, and the new exciting opportunities in complementary business and education technologies.

Our outlook is indicative of the momentum we are carrying into the year, underpinned by the resilience of our growth strategy, the strength of our business, resilience of our team, our operational rigor and the discipline. Our ability to evolve rapidly to meet the fast changing needs of our students.

We are confident that our strategic initiative will enable us to emerge from the crisis as a stronger company that is well positioned for long-term growth and success. Furthermore, to underscore the confidence in the company's prospects, the Board has approved a new share repurchase plan of up to US$50 million on November 11, 2020.

With this note, I will turn the call to Dora..

Thank you, Jerry. Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year-over-year comparisons unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis. Please turn to Slide 23.

Top-line results for fiscal year 2020 remain solid with the revenue up 31.3% to RMB3,366.5 million for the fiscal year. For the quarter, revenue was down 8.4% to RMB652.1 million. Domestic K-12 schools including international schools, bilingual schools and kindergartens, revenue was up 5.8% for the quarter and a 4.1 on a whole year basis.

For international school, revenue for the quarter up 15% primarily due to 11% increase of students’ enrollment. On a yearly basis, revenue was up 17.2% due to 13.2% increase in students’ enrollment. Bilingual schools. Revenue for the quarter up 14% due to 10% increase in students’ enrollment.

On a yearly basis, revenue up 11.1% mainly attributed to 11 point increase in students enrollment. Kindergartens. Revenue for the quarter and fiscal year was down 17.3% and the 24.6% respectively primarily due to decrease in tuition fees, meals, and boarding fees as a result of mandatory school closure.

Revenue from overseas schools, the important part of a global strategy was RMB69.1 million for the quarter, down 53.4% primarily due to closure of language learning centers and the COVID-19. On a yearly basis, revenue was RMB835.9 million, grew 359.9% year-over-year and accounted for 24.8% of total group revenue.

The year-over-year growth in revenue was primarily due to inclusion of the acquired overseas schools during the comparable period. Revenue from education technology segment was up 14% for the quarter and up 47.7% on a yearly basis, primarily due to inclusion of acquired online Academic Olympiad training business in the fourth quarter.

Revenue from complimentary education was down 4.7% for the quarter due to pandemic impact on overseas study counselling business and the study tour camp business. On a yearly basis, revenue was up 9.1%. On Slide 24, cost of revenue for the quarter was 77.1% of total revenues, compared to 70.2% in the same quarter of last fiscal year.

On a yearly basis, cost of revenue was 63.7% of total revenue, compared to 61.9 last fiscal year. Teaching staff cost, the primary cost contributor, accounted for 43.8% of total revenue, up from 37.8% for the quarter. On a yearly basis, teaching staff cost was 34.9%, down from 38.2%.

Our domestic K-12 schools average student teacher ratio for the fiscal year was 8.9 compared to 8.8. On Slide 25, our gross profit and margins. Gross profit was down 29.5% for the quarter and up 25% on a whole year basis. Gross margin was down 6.9 percentage points to 22.9% for quarter.

And on a yearly basis, gross margin was down 1.8 percentage points to 33.3%. Continuing on slide 26. For the fourth fiscal quarter, adjusted SG&A as a percentage of total revenue was 14.1% up from 35.6% in the same quarter last fiscal year. On a yearly basis, adjusted SG&A as a percentage of total revenue was 26.2%, compared to 25% last fiscal year.

The increase in SG&A expenses for the fiscal year was primarily due to inclusion of the acquired business. Adjusted SG&A as a percentage of revenue for our Domestic K-12 Schools for the quarter was 13.5% up from 12.6%. On a yearly basis, adjusted SG&A as a percentage of revenue for Domestic K-12 Schools was 8.8%, down from 11.2% of last year.

As a percentage of group revenue, adjusted unallocated corporate expenses, mainly headquarter expenses, for the quarter was 8.1%, down from 10.1%. On the yearly basis, it was 4.5% down from 7%. Adjusted unallocated corporate expenses for the quarter was RMB52.3 million, compared to RMB71.1 million last year.

For the whole year, it was RMB151.2 million, compared to RMB178.1 million. To elaborate more for the adjusted SG&A expenses, please look into the detail on Slide 27. Continuing to Slide 28, adjusted EBITDA for the quarter was RMB1.4 million compared to RMB4 million. Adjusted EBITDA margin was 0.2% compared to 0.6%.

On the whole year basis, adjusted EBITDA up 36.5% to RMB670.8 million. Adjusted EBITDA margin was 19.9 up from 19.2. Adjusted net loss for the quarter was up 72.9% to RMB59 million. Adjusted net margin was negative 9.1% compared to negative 4.8%. For the whole year, adjusted net income was RMB267.7 million, compared to RMB322.6 million.

Adjusted net margin was 8% compared to 12.6%. On slide 29, our cash and bank balance. As of August 31, 2020, our cash and cash equivalent and the restricted cash totaled RMB4,423.9 million or US$646 million compared to RMB2,092 million in May 31, 2020. We also have a short-term investment of RMB13.7 as of August 31, 2020.

Moving to Slide 31, the Board has approved the new share repurchase program of up to US$15 million within the next 12 months. This is the third share repurchase program of the company. Continuing to Slide 32.

For the fiscal year ending August 31 2021, we expect our total revenue in the range of RMB3.77 billion and RMB3.87 billion, representing a growth of 12% to 15% based on the existing business and without potential acquisitions.

We also expect average student enrollment in our domestic and overseas school to be between approximately 56,000 and 57,000 representing an increase of 8% to 10%. We hopefully accept to open 19th kindergartens for fiscal 2021. Beyond fiscal 2021, we have seven schools and 39 kindergartens contracted for operation.

Please refer to the table in Slide 34 and 35 for the condensed income statement. Slide 36 shows the reconciliation for SG&A, EBITDA and net income on a GAAP to non-GAAP results. Slide 37 shows our balance sheet and cash flow statement.

For fiscal year ended August 31, 2020, the company's capital expenditure was approximately RMB149.8 million, down 3.5% compared to last fiscal year. And on Slide 38, shows our average student enrollment and average tuition fee across our network. This concludes my financial updates. Now I will turn the call back to Jerry for his closing remarks..

Thank you, Dora. We have a strong balance sheet to pursue organic and acquisitive growth opportunities, a terrific portfolio of assets that drives long-term growth. We are very confident that the strategic initiatives will enable us to emerge from the crisis as a stronger company that is well positioned for long-term growth and success.

I would particularly like to thank all our staff for their strength and commitment during this really difficult year. And I would also like to express our gratitude to our students, parents, business partners, and investors for their ongoing trust they put in Bright Scholar. This concludes our prepared remarks.

And we would like to open the call to the questions. Operator, please..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Elsie Smith [ph] of Morgan Stanley. Please go ahead..

Hello, management. I have two questions. The first one is about your F 2021 guidance.

I wondered can you break down this F 2021 revenue guidance into what is the assumptions behind this guidance like how much recovery from the COVID did you assumed? And what is current recovery status of the overseas schools and the kindergartens? And the second question is on the regulation.

The market today is circulating MOE letter, and I wonder, can management share what is your view on this MOE letter. Thank you. .

Hi, this is Dora. I'll answer your first question regarding the guidance. As we mentioned in the call, we still – because of the lockdown and the resurgence of the COVID – of the pandemic which heavily – due heavily impacted in our overseas business. So the current projections reflected the impact to our overseas business.

On the note, if everything is back to normal, we probably will have more than – I will see the impact on our overseas business is close to RMB300 million as our best estimate during that time..

This is Jerry. I just kind of add on to that. We've had kind of still assume the UK lockdown continue, U.S. lockdown continue. Because we already have our September numbers enrollment, which is a significant down for last year, especially for the new students. They continue [indiscernible] continue either online or some of them are on campus.

But new students, some of them differ to the January's semester. We modelled it because of the new cases in the UK is going to, I think, three or four times was in the peak of May and April, so we kind of assumed that will go over even though they differ but I don't – we assume they are probably not going come when January comes.

That's very much a pessimistic view of the projection. Of course, the recent development, that’s seen from Pfizer and the other companies, we have not factored that in because while it may be too soon to be very optimistic about that. But again this is for fiscal 2021.

But if vaccine becomes available to let's say most of these people who want to travel, then hopefully back in – I assume will be back in September of 2021. But that would be the next – sorry till September, fiscal of – September of 2021 would be in fiscal 2022. But for fiscal 2021 we still assume they're not going to come back.

And on domestic one, some things on that because everything is back mostly back to normal, and no other students are back, all schools are open in China.

So we kind of assume that that is back to pre-COVID-19, as we talked about earlier that we actually have seen student enrollment up year-over-year for the fiscal 2000 – first two months of the fiscal is over 9.9%, I believe. So that's the assumption for domestic. Domestic is back to normal. Mostly impact overseas.

But we do expect that complimentary and education technology will continue to grow. And the second question is about regulation. Something that just came up this morning, and which is very different from what came out, I think, about a month ago.

But today, if you are really into that is really about kind of explanation or comments from the Ministry of Education. I don't know, honestly how much debt we need carry versus the law, which we started drafting back in the summer of 2018, but still finalizing it. But it sounds like the tone was tougher last month and now is softer this month.

But we still remain conservative in our expansion plan until we get a more, clear picture on that..

Okay, thank you very much..

Thank you..

Next question comes from Timothy Zhao of Goldman Sachs. Please go ahead..

Hi, Jerry. Hi, Dora. Thank you for the presentation. Two questions from my side. I think first of all, you mentioned in the presentation, that EdTech in the complementary education will be a key driver going forward.

Just wondering how we should think about the synergies between the two new businesses, the EdTech and complementary education and your own domestic and overseas schools? Is there any potential synergies or cross sell opportunities there? A second one is about guidance, I think, you explained clearly that you are a little bit conservative in the overseas.

And just to be clear, within your guidance, how much of the growth is organic versus acquisition going forward? And also, as you mentioned that you already have a couple pupil, 1,000 students in the domestic schools at the moment.

Can you share some color on the new student enrollment into the international schools in China, like how do you see the international study demand, given the current situation right now? Thank you..

Sure. First question is about the synergy between EdTech educated services, because we are taking a very conservative view on the school regulations. So as you know, if you look at the history of our company, the school operation has produced very steady growth, cash flow.

So we believe that continue to grow, but we are more concerned about opening new schools. So if you can imagine that our education, Domestic K-12 will be more focused on the quality of education also the operating efficiency.

But EdTech, as we all see, that is a growth area north of education – complimentary education services, is also a gross area that are less regulated, particularly after the kind of tightening of complimentary education in end of 2018, beginning of 2019. Now, we see the opportunities actually opening more up.

So we can certainly leverage the expertise in the contents from our K-12 schools, for example, the tutoring, we already have the curriculum, we already have the teachers leveraging data to our, for example, 3i Global Academy, which is an online school. Of course, we are actually exactly doing that.

We can use our school teachers, leveraging the expertise, and staff and manpower for our schools to be teachers versus our online schools. So there are certainly differences between that. And more so we can leverage the teachers and the curriculum and the contents, we have our overseas school as well.

But that's going to drive, I think, – so if you look at the more of the domestics that are going to be the cash cow, we see improving efficiencies in margin but the expansion is more on the tech and education services.

And then in terms of the guidance that we gave, again, has been our – would have been very conservative too, from the very start of being a public company. So the guidance that we gave did not include any – or did not factor in any potential additional acquisitions. That's all organic.

And also for the third question about the international schools, with the kind of U.S.-China trade, and also pandemic, we have seen some parents are hesitating whether or not they want to send the student to school overseas, for example, to our UK school, our U.S. school.

Even if they want to, they can’t do that this year, because many of them can't even get a visa or clearance to go to overseas. So some of them are going – and kind of watching and see and also everybody is watching the U.S. election, hopefully it’s going to be clear who is going to be the President next month and for the next four years.

So people are hesitant. So we have things on shift between – from U.S., to UK and Hong Kong. And after the pandemic and of course UK and then you can’t really go anywhere so there are more students staying in China, so going to international school in China. So that’s kind of trend we're seeing.

But we believe at least that our thinking is going forward once the COVID is opening up and restriction are lifted, I think, the trend will go back to what it was..

Okay, thank you..

[Operator Instructions] The next question comes from Leonard Law of Lucror Analytics. Please go ahead..

Hi, management. I am a bond analyst. And I have three questions. The first question is I see that you have RMB1 billion of restricted cash.

Can I understand what is the nature of the restricted cash? The second question is to get an understanding of management's thinking behind the 900 million short-term loans, because the company already has a lot of cash on the balance sheet.

Will you be able to disclose the acquisition amount for the Linstitute and Littleton, because I think, I didn't see the numbers in the press release. That's all thank you..

The restricted cash our balance sheet is a sort of like bank savings because we use our overseas bank – overseas cash during the time you will not have too much acquisition activities, so we save the overseas cash with the local bank and then long-term RMB within China to do some financial – principal guarantee the financial investment to earn higher returns.

So that's the restricted cash, cash savings deposit with the local bank. So the second question is….

Short-term loan, that's the domestic loan that….

Yes, domestic loan. The short-term….

[Indiscernible].

Yes, short-term loans yes, that's right. Yes, the short-term loan is pretty much the same nature, as we mentioned, on the restricted cash..

So basically, we borrowed the lower interest loan, but made investment in – short-term investment at a higher return. We basically make a spread on the yield, just like we have – just like the first question you asked we have overseas U.S. dollars that are earning not much. So we use the U.S.

dollar to guarantee loan from domestic bank and then invest the bank to earn higher yield. The same thing with a short-term loan basically, same idea. Third question….

Acquisition amount..

Well for commercial reasons that we have not disclosed the dollar amount for the acquisition. So we're not going to disclose on the call..

Due to some arrangement between the target and the company, so we cannot disclose that publicly on that..

Okay, sure, sure. I understand. That's all thank you..

[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 everybody a great day..

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