Hello, ladies and gentlemen thank you for standing by for the Four Seasons Education's Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would now like to turn the call over to your host, Ms. Olivia Li, Investors Relations Manager for the Company. Please go ahead, Ms. Li..

Hello, everyone, and welcome to the fourth quarter and fiscal year 2019 earnings conference call of Four Seasons Education. The Company's results were issued via Newswire services earlier today and are posted online.

You can download the earnings press release and sign up for the Company's e-mail distribution list by visiting the IR section of our website at ir.sijiedu.com. Mr.

Peiqing Tian, our Chairman and the Chief Executive Officer, will start the call by providing an overview of the Company and the performance highlights of the quarter with English interpretation. Mr.

Yi Zuo, our Director and the Chief Financial Officer, will then provide details on the Company's financial results and the business outlook before opening the call for your questions. Before we continue, please note that today's discussion will contain Forward-Looking Statements made under the Safe Harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such the Company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the Company’s prospectus as filed with the U.S.

Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under applicable law.

Please also note that Four Seasons Education’s earnings press release and this conference call includes discussions of unaudited GAAP financial information, as well as unaudited non-GAAP financial measures.

Four Seasons Education’s press release contains reconciliations of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Mr. Tian. Please go ahead..

[Foreign Language] Thank you, Olivia and hello everyone. Thank you for joining us for our fourth quarter fiscal year 2019 earnings conference call. [Foreign Language] The fiscal fourth quarter is a traditionally low season for our business. Nevertheless, we continued our strategy of extending diversified course offering to the entire K-12 age groups.

During the fourth quarter, we maintained our ongoing diversification efforts and recorded and increased a proportion of revenue contribution from non-math courses and middle school programs. It demonstrates that our growing strengths in teaching capability for key subjects is at math has also gained greater reputation among students and parents.

Additionally, with our learning centers ramped up, the revenue mix derived from outside of Shanghai is also increasing.

[Foreign Language] Inspired by the enormous positive reception of our courseware from students and parents like, we diligently selected certain of a proprietary courses and educational content to establish our online presence, students are now able to participate in Four Seasons’ selected online courses including certain Ivy program as well as other interest based classes.

We will remain focused on developing high quality courses and attractive educational content, while cost effectively upgrading our online courses. [Foreign Language] In the meanwhile, we continue to the optimizing process of our learning center network in the fourth quarter.

For more efficient resource allocation and a strategic business planning, we combine certain learning centers with small growth raw areas into large centers and new places with upgraded facilities.

In addition, based on comprehensive business considerations in selected learning centers, we also strategically provided more non-math courses and other various classes for children's all around the development.

[Foreign Language] Trying to other initiatives and activities, as we have mentioned in prior calls, based on our strong foundation of teaching experience in math and other science subjects.

We are pioneers in providing a variety of interest oriented courses including Sudoku, Rubik’s Cube and a Bridge games as means of nurturing logical development and strategic reasoning. Our interest oriented courses offerings differentiate us by delivering fun and educational learning experience to our students.

In the fourth quarter, our teams also outperformed in various students Sudoku or Bridge match. For example our team won the top award in the first the year of Bridge open in Shanghai. [Foreign Language] We also made considerable progress regarding our featured math lab program.

For the course content segments, we finished the demand course development work in the quarter and attached an evaluation system front. We have been contently upgrading the self-test system with an enriched question library and well-tagged categorization.

As the evaluation system becomes increasingly comprehensive with an extensive data set, it will also be able to intelligently generate bespoke sets of test questions that help students to improve academic performance, according to the individual's scholastic aptitude.

[Foreign Language] Overall, we concluded the fiscal year 2019 with many achievements, despite changes in regulatory requirements in already fast evolving industry environment and relatively weak performance of new learning centers during the ramp up period.

We have also been proactively adapting our business operations with these change, and to better serve our students with premium education content and enjoyable learning experience. We believe we are in the right trajectory to grow our business as we constantly providing math and many more subjects to classes to students in different age groups.

With that, I will now turn the call over to our CFO Yi Zuo, who will discuss our key financial results..

Thank you, Mr. Tian, and hello everyone. We continued to make positive strides in the fourth quarter, which traditionally is the weakest period of the fiscal year due to the Chinese New Year Holiday and winter break.

Despite after softer top line performance for the quarter due to seasonality, we are pleased with the continuous diversification of revenue contribution from our different subjects and age groups, especially from non-math courses and the middle school program compared with year-ago period.

Looking back to the entire fiscal year 2019, we achieved year-over-year revenue growth of 11.7% and RMB35.6 million in adjusted net income and within tightening regulatory environment.

More importantly, we have been steadily carrying out our own business transformation from a leading after school math education service provider for elementary school students to our comprehensive educational provider with strong capacity and specialty in math teaching. While our offering has broadened, our mission remains the same.

We are dedicated to nurturing students interest in learning with enriched education offerings while seeking quality of work and enhanced efficiency. Now, I would like to walk you through more details on our fourth quarter and fiscal year 2019 financial results.

Revenue decreased by 3.7% to RMB64.7 million for the fourth quarter of fiscal year 2019 from RMB67.2 million in the same period of last year, primarily due to the decreased revenue contribution from competition related programs as a result of changing regulatory requirement.

Cost of revenue increased by 55.9% to RMB46.0 million for the fourth quarter of fiscal year 2019, from RMB29.5 million in the same period of last year, primarily attributable to costs associated with increase in faculty staff costs and learning centers rental utility and maintenance and depreciation costs.

As a result of increased number of learning centers. Gross profit decreased by 50.3% to RMB18.7 million for the fourth quarter of fiscal year 2019 from RMB37.7 million in the same period of last year. Gross margin was 28.9 for the fourth quarter of fiscal year 2019, compared with a 56.1 in the same period of last year.

The decrease in gross margin was primarily due to the expansion of new centers which yield a relatively lower gross margin during the ramp up period and the increase in faculty staff costs.

General and administrative expenses increased by 63.0% to RMB39.8 million for the fourth quarter of fiscal year 2019 from RMB24.4 million in the same period of last year.

Primarily attributable to increased the staff costs of RMB4.8 million and RMB1.8 million increase in depreciation and amortization costs, and increase the share based compensation expenses of RMB2.9 million.

Sales and marketing expenses decreased by 21.1% to RMB9.1 million for the fourth quarter of fiscal year 2019 from RMB11.5 million in the same period of last year. Operating loss was RMB38.1 million for the fourth quarter of fiscal year 2019, compared with operating income of RMB1.8 million in the same period of last year.

Adjusted operating loss, which excludes share based compensation expenses was RMB21.0 million for the first quarter of fiscal year 2019 compared with adjusted operating income of RMB8.1 million in the same period of last year.

Interest income decreased by 58.1% to RMB 0.9 million for the first quarter of fiscal year 2019 from RMB2.1 million in the same period of last year, primarily due to the withdrawal of short-term deposit.

Other income net was RMB2.7 million for the fourth quarter of fiscal year 2019 compared with other expenses of RMB0.6 million in the same period of last year, primarily due to fair value change of a two-year Pimco fund-linked note and a one-year certificate on a mutual fund, both with 100% minimum redemption level at maturity that the Company intends to hold to maturity.

Income tax benefit was RMB8.1 million for the fourth quarter of fiscal year 2019 compared with income tax expense of RMB0.7 million in the same period last year.

Income tax benefit for the quarter was primarily due to RMB4.7 million reversal of accrued income tax as the Company's Wholly Owned Foreign Enterprise is able to enjoy a preferential tax treatment since it was recognized as a software enterprise by relevant PRC Government Agencies.

Another RMB3.6 million of the income tax benefits was derived from positive change from previous uncertain tax position. Net loss was RMB18.5 million during the fourth quarter of fiscal year 2019, compared with net income of RMB2.7 million in the same period of last year.

Adjusted net loss, which excludes share-based compensation expenses and fair value change of investments measured at fair value, was RMB12.2 million, compared with adjusted net income of RMB9 million in the same period of last year.

Basic and diluted net loss per ADS attributable to ordinary shareholders for the fourth quarter of fiscal year 2019 was both RMB0.36, compared with basic and diluted net income per ADS attributable to ordinary shareholders of RMB0.09 and RMB0.08, respectively, for the same period of last year.

Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders for the fourth quarter of fiscal year 219 was both RMB0.23, compared with a non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders of RMB0.22 and RMB0.20 respectively for the same period of last year.

Cash and cash equivalents as of February 28, 2019, the company had cash and cash equivalents of RMB471.2 million a decrease of 19.2% compared with RMB583.3 million as of February 28, 2018 primarily due to an RMB144.1 million in cash payments for the acquisition and the increasing in short-term investments of RMB33.7 million.

The decrease was partially offset by the operating cash inflow generated in the fiscal 2019. To be mindful of the length of our earnings call for the fiscal 2019 financial results, I will encourage listeners to refer to our earnings press release for further details.

Looking forward, for the first quarter of fiscal 2020, we currently expected to generate revenue in the range of RMB83.8 million to RMB86.4 million. The above outlook is based on the current market conditions and reflects the Company's preliminary estimates of market under operating condition and customer demand, which are all subject to change.

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

Thank you. We will now begin the question-and-answer session. [Operator instructions] The first question today comes from Melissa Chen, with China Renaissance. Please go ahead..

[Foreign Language] So my first question is on our expansion plan. So, for the following quarters, are you going to focus on the utilization improvement for the existing learning centers, or are you going to like open more new learning centers in Shanghai and non-Shanghai cities.

And my second question is on the regulation side, do we expect more regulatory uncertainties for the online education? Thank you..

Thanks, Melissa. Let me answer your question. On the expansion - in Shanghai, our focus will definitely be to - we will focus on ramping up the current Learning Centers. As you know, some of the Learning Centers are relatively new, and are relatively bigger than our previous Learning Centers.

So we will focus to improve the utilization rate of those new learning centers. So this is our focus for the - I would say for the upcoming two to three quarters. Honestly, I don't expect to open up any new Learning Center in the next couple of quarters in Shanghai.

For Learning Center outside Shanghai will be the same, we just opened up some Learning Centers in [indiscernible]. We will focus on those new areas which we believe have very big market potentials. Second and the question of online.

Because, we haven't really interested heavily online and we use - we work with other party to offer our selected courses online. We don't expect there will be material change on the online regulatory requirement.

And honestly, we don't believe, that change will have material impact on our business, because online portion in our overall businesses is extremely small..

Got you. Thank you so much..

[Operator Instructions] As there appears to be no server questions, I would like to turn the call back over to the Company for closing remarks..

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

This conference has now concluded. You may now disconnect your line..