Rise Education Cayman Ltd (REDU) Q2 2020 Earnings Conference Call August 13, 2020 9:00 PM ET Company Participants Karen Gu - IR Lihong Wang - CEO & Chairwoman Jiandong Lu - CFO & Director Conference Call Participants Sheng Zhong - Morgan Stanley Operator Ladies and gentlemen, thank you for standing by, and welcome to RISE Education's Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. And I would now like to hand the conference ...

Rise Education Cayman Ltd (REDU) Q1 2020 Earnings Conference Call May 14, 2020 9:00 PM ET Company Participants Li Mei - Senior IR Director Lihong Wang - CEO & Chairwoman Jiandong Lu - CFO & Director Conference Call Participants Sheng Zhong - Morgan Stanley Alex Xie - Crédit Suisse Operator Ladies and gentlemen, thank you for standing by, and welcome to the RISE Education First Quarter 2020 Earnings Call conference. Please be advised that today's conference is being recorded. I now like to hand the conferenc ...

PART I [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents key financial data and outlines significant risks related to business operations, the VIE structure, and market factors [Selected Financial Data](index=7&type=section&id=A.%20Selected%20Financial%20Data) Highlights consistent revenue and gross profit growth from 2015 to 2019, with significant expansion in total assets Selected Consolidated Statements of Operations Data (2017-2019) | Financial Metric | 2017 (RMB) | 2018 (RMB) | 2019 (RMB) | 2019 (US$) | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | 969,275 | 1,271,888 | 1,529,447 | 219,691 | | **Gross Profit** | 517,055 | 695,358 | 834,754 | 119,905 | | **Operating (Loss)/Income** | (628) | 207,612 | 222,789 | 32,002 | | **Net (Loss)/Income** | (53,600) | 142,436 | 144,560 | 20,765 | | **Net (Loss)/Income Attributable to RISE** | (47,974) | 142,958 | 148,100 | 21,273 | Selected Consolidated Balance Sheet Data (as of Dec 31) | Financial Metric | 2018 (RMB) | 2019 (RMB) | 2019 (US$) | | :--- | :--- | :--- | :--- | | **Total Assets** | 2,280,774 | 2,801,955 | 402,476 | | **Total Liabilities** | 1,839,940 | 2,177,654 | 312,800 | | **Total Equity** | 440,834 | 624,301 | 89,676 | [Risk Factors](index=9&type=section&id=D.%20Risk%20Factors) Identifies significant risks including competition, brand dependency, VIE structure uncertainties, and the adverse impact of COVID-19 - The company's success is critically dependent on its ability to attract new students and retain existing ones, which is influenced by product quality, teaching methodologies, and marketing effectiveness[23](index=23&type=chunk) - The junior English Language Teaching (ELT) market in China is highly fragmented and competitive, and the company faces pressure from competitors who may have greater financial resources[25](index=25&type=chunk) - The company operates through a Variable Interest Entity (VIE) structure which carries **substantial uncertainties** regarding its interpretation and legality under current and future PRC laws, potentially leading to severe penalties[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - The COVID-19 outbreak has **materially and adversely affected the business**, leading to temporary closure of learning centers, and the company expects to report a **net loss for the year ending December 31, 2020**[135](index=135&type=chunk)[139](index=139&type=chunk) - As of December 31, 2019, Bain Capital beneficially owns approximately **59.8% of the company's voting power**, giving it substantial control over corporate actions[161](index=161&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=36&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) Details the company's history, business model, franchise network, critical VIE structure, and property portfolio [History and Development of the Company](index=36&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Outlines the company's growth since 2007, its 2017 IPO, and the expansion of its learning center network - As of December 31, 2019, the company's network consisted of **472 learning centers**, including **89 self-owned** and **383 franchised centers**, across China, Hong Kong, and Singapore[178](index=178&type=chunk) - The company completed its **Initial Public Offering (IPO)** on the NASDAQ Global Market on October 24, 2017, listing its ADSs under the symbol 'REDU'[183](index=183&type=chunk) [Business Overview](index=37&type=section&id=B.%20Business%20Overview) Explains the 'subject-based learning' approach, course offerings, franchise model, and key intellectual property licenses - The company utilizes a **'subject-based learning' philosophy**, teaching English through subjects like language arts, math, and science to create an immersive learning environment[185](index=185&type=chunk) Student Enrollment and In-Class Numbers (Regular Courses at Self-Owned Centers) | Metric | As of/Year Ended Dec 31, 2018 | As of/Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | New Students Enrolled | 25,862 | 29,049 | | Students in Class | 49,365 | 54,383 | Learning Center Network Growth | Center Type | As of Dec 31, 2017 | As of Dec 31, 2018 | As of Dec 31, 2019 | | :--- | :--- | :--- | :--- | | Self-owned | 64 | 76 | 89 | | Franchised | 206 | 304 | 383 | | **Total** | **270** | **380** | **472** | - The company holds an **exclusive, royalty-free, and permanent license** from Houghton Mifflin Harcourt (HMH) to use certain courseware for after-school tutoring in China[211](index=211&type=chunk)[267](index=267&type=chunk) - The PRC government has issued **stringent regulations** for after-school tutoring, setting standards for facilities, teacher qualifications, and fee collection, such as no more than **three months of tuition collected at a time**[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) [Organizational Structure](index=62&type=section&id=C.%20Organizational%20Structure) Details the Variable Interest Entity (VIE) structure used to control its PRC operations due to foreign ownership restrictions - The company uses a VIE structure because PRC law requires foreign investors in the education sector to be **experienced educational institutions**, a criterion its offshore holding entities do not meet[341](index=341&type=chunk) - Control over the VIE is established through key contracts including a **Proxy Agreement**, a **Call Option Agreement**, and an **Equity Pledge Agreement**[344](index=344&type=chunk)[345](index=345&type=chunk)[357](index=357&type=chunk) - In 2017, 2018, and 2019, the consolidated VIE and its subsidiaries contributed **94%**, **92%**, and **94%** of the company's total revenues, respectively, highlighting the structure's critical importance[342](index=342&type=chunk) [Property, Plants and Equipment](index=66&type=section&id=D.%20Property%2C%20Plants%20and%20Equipment) Describes the company's leased properties for its headquarters and self-owned learning centers - As of December 31, 2019, the company leased a total of approximately **106,016 square meters** for its self-owned learning centers[361](index=361&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=66&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Provides management's analysis of financial performance, liquidity, capital resources, and the impact of COVID-19 on future trends [Operating Results](index=66&type=section&id=A.%20Operating%20Results) Analyzes the 20.3% revenue growth in 2019, margin pressures from rising operating expenses, and non-GAAP financial measures Year-over-Year Performance Comparison (2018 vs. 2019) | Metric (in thousands) | 2018 (RMB) | 2019 (RMB) | YoY Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | 1,271,888 | 1,529,447 | +20.3% | | Educational Programs | 1,097,619 | 1,324,654 | +20.7% | | Franchise Revenues | 125,341 | 156,509 | +24.9% | | **Gross Profit** | 695,358 | 834,754 | +20.0% | | **Operating Income** | 207,612 | 222,789 | +7.3% | | **Net Income** | 142,436 | 144,560 | +1.5% | - The increase in 2019 revenue was primarily due to a rise in students at self-owned learning centers and higher course prices, coupled with growth from an expanding franchise network, which grew from **304 to 383 centers**[391](index=391&type=chunk) - **Operating expenses grew faster than revenue in 2019**, driven by higher marketing staff headcount, incentives, new share-based compensation, and professional fees for acquisitions[394](index=394&type=chunk)[395](index=395&type=chunk) Reconciliation of Net Income to Adjusted EBITDA (Non-GAAP) | Metric (in thousands) | 2017 (RMB) | 2018 (RMB) | 2019 (RMB) | | :--- | :--- | :--- | :--- | | **Net (Loss)/Income** | (53,600) | 142,436 | 144,560 | | **EBITDA** | 56,064 | 279,852 | 301,419 | | **Adjusted EBITDA** | 242,510 | 300,204 | 349,308 | [Liquidity and Capital Resources](index=75&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) Details the company's cash position, a significant decrease in operating cash flow, and outstanding debt obligations Summary of Cash Flows (in thousands RMB) | Cash Flow Activity | 2017 | 2018 | 2019 | | :--- | :--- | :--- | :--- | | Net cash from/(used in) operating activities | 350,100 | 380,034 | (39,854) | | Net cash used in investing activities | (53,067) | (100,875) | (114,716) | | Net cash from/(used in) financing activities | 137,402 | (57,306) | (140,732) | - The significant decrease in operating cash flow in 2019 was primarily due to a **RMB 331.7 million decrease in deferred revenue** and customer advances attributed to a change in the tuition fee collection schedule[423](index=423&type=chunk) - The company has a long-term loan facility with scheduled principal repayments of **US$19.25 million**, **US$24.75 million**, and **US$30.25 million** due in September 2020, 2021, and 2022, respectively[432](index=432&type=chunk)[811](index=811&type=chunk) [Trend Information](index=86&type=section&id=D.%20Trend%20Information) Focuses on the material adverse impact of the COVID-19 outbreak and the company's strategic shift towards digitalization - The COVID-19 outbreak caused the **temporary closure of all learning centers** and offices since late January 2020, **materially and adversely affecting** results of operations and liquidity[487](index=487&type=chunk) - In response to the closures, the company accelerated its digitalization strategy by upgrading its **Rise+ platform** to support online small group classes, which began generating revenue in March 2020[487](index=487&type=chunk) - Due to the adverse effects of COVID-19, the company currently expects to report a **net loss for the fiscal year ending December 31, 2020**[490](index=490&type=chunk)[861](index=861&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=87&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) Outlines the company's leadership, compensation structure, employee base, and controlling shareholder ownership [Directors and Senior Management](index=87&type=section&id=A.%20Directors%20and%20Senior%20Management) Lists the company's board of directors and executive officers, highlighting key figures from Bain Capital Key Directors and Executive Officers | Name | Position/Title | | :--- | :--- | | Lihong Wang | Chairwoman, Chief Executive Officer, Director | | Jonathan Jia Zhu | Director, Chairman of the corporate governance and nominating committees | | Yiding Sun | Vice Chairman, Director | | Zhongjue Chen | Director | | Jiandong Lu | Director, Chief Financial Officer, Chief Operating Officer | [Compensation](index=89&type=section&id=B.%20Compensation) Details executive compensation for 2019 and the structure of the company's two share incentive plans - In 2019, the total compensation paid to all directors and executive officers was approximately **RMB 6.4 million (US$0.9 million)**[511](index=511&type=chunk) - The company has two active equity incentive plans: the **2016 ESOP Plan** (7,000,000 shares authorized) and the **2017 ESOP Plan** (5,000,000 shares authorized)[515](index=515&type=chunk)[525](index=525&type=chunk) [Employees](index=95&type=section&id=D.%20Employees) Shows steady growth in the company's workforce, with teachers comprising the largest employee group Employee Count by Function | Function | Dec 31, 2017 | Dec 31, 2018 | Dec 31, 2019 | | :--- | :--- | :--- | :--- | | Teachers | 1,543 | 1,911 | 2,315 | | Sales and marketing | 565 | 668 | 723 | | Administration | 646 | 933 | 976 | | **Total** | **2,754** | **3,512** | **4,014** | [Share Ownership](index=95&type=section&id=E.%20Share%20Ownership) Confirms Bain Capital's controlling stake with 62.8% of the company's total voting power - **Bain Capital Rise Education IV Cayman Limited is the controlling shareholder**, holding 70,800,808 ordinary shares, which represents **62.8% of the total voting power** as of March 31, 2020[549](index=549&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=96&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Details transactions with related parties, including a consulting agreement with a Bain Capital affiliate and entrustment loans - The company engaged in significant related party transactions, including a consulting agreement with a Bain Capital affiliate that terminated upon the IPO after a final payment of **RMB 33.9 million**[553](index=553&type=chunk) - The company granted entrustment loans to an affiliate of its principal shareholder, amounting to **RMB 150.0 million in 2018** and **RMB 100.0 million in 2019**, all of which have been fully repaid[554](index=554&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=97&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) Contains the company's consolidated financial statements and discusses legal proceedings and dividend policy - The company does not currently plan to pay any cash dividends, intending to **retain earnings to fund business operations and growth**[559](index=559&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=99&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) Covers supplementary corporate information, including articles of association, exchange controls, and detailed tax considerations - The company is **not subject to income or capital gains tax** in its jurisdiction of incorporation, the Cayman Islands[566](index=566&type=chunk) - In the PRC, the company's entities are subject to a statutory Enterprise Income Tax (EIT) rate of 25%, though its WFOE qualified for a **preferential rate of 15%** as a "High and New Technology Enterprise" (HNTE) in 2019[481](index=481&type=chunk)[814](index=814&type=chunk) - For U.S. investors, there is a risk that the company could be classified as a **Passive Foreign Investment Company (PFIC)**, which could result in adverse U.S. federal income tax consequences[580](index=580&type=chunk)[583](index=583&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=105&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company's primary market risks are foreign exchange risk, credit risk, and interest rate risk - The company has significant foreign exchange risk related to its U.S. Dollar-denominated debt; a **10% depreciation of the RMB against the USD** would result in a decrease of **US$14.0 million** in the value of its RMB-denominated cash[598](index=598&type=chunk)[602](index=602&type=chunk) - The company is exposed to interest rate risk on its long-term loan, where a hypothetical **1% change in annual interest rates** would impact interest expense by approximately **RMB 5.2 million (US$0.7 million)** per year[604](index=604&type=chunk) [ITEM 15. CONTROLS AND PROCEDURES](index=109&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2019 - Management concluded that as of December 31, 2019, the company's **disclosure controls and procedures were effective**[617](index=617&type=chunk) - Based on the COSO framework, management concluded that the company's **internal control over financial reporting was effective** as of December 31, 2019[622](index=622&type=chunk) [ITEM 16. CORPORATE GOVERNANCE AND OTHER ITEMS](index=110&type=section&id=ITEM%2016.%20CORPORATE%20GOVERNANCE%20AND%20OTHER%20ITEMS) Covers corporate governance matters, including accountant fees and the completion of a share repurchase program Principal Accountant Fees (in thousands USD) | Fee Category | 2018 | 2019 | | :--- | :--- | :--- | | Audit fees | - | 1,106 | | Audit-related fees | - | - | | Tax fees | 4 | 15 | | All other fees | 64 | 265 | - The company completed its share repurchase program in Q3 2019, having repurchased a total of **1,158,741 ADSs** for an aggregate consideration of **US$10.0 million**[630](index=630&type=chunk) PART III [ITEM 18. FINANCIAL STATEMENTS](index=113&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) Presents the audited consolidated financial statements for 2017-2019 prepared in accordance with U.S. GAAP [Notes to the Consolidated Financial Statements](index=128&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, business combinations, and the subsequent material impact of COVID-19 - The company adopted **ASC 606** (Revenue from Contracts with Customers) on January 1, 2018, resulting in a **RMB 44.1 million adjustment** to opening accumulated deficit[441](index=441&type=chunk)[734](index=734&type=chunk) - The company adopted **ASC 842** (Leases) on January 1, 2019, recognizing **Right-of-Use (ROU) assets of RMB 601.6 million** and **total lease liabilities of RMB 610.5 million** upon adoption[476](index=476&type=chunk)[750](index=750&type=chunk) - On July 1, 2019, the Group acquired a **51% equity interest** in 7 learning centers in Shijiazhuang for **RMB 44.1 million**, resulting in the recognition of **RMB 150.7 million in goodwill**[788](index=788&type=chunk)[790](index=790&type=chunk) - Subsequent to December 31, 2019, the **COVID-19 outbreak** led to the temporary closure of all offline learning centers, which is expected to have a **materially adverse impact** on 2020 results and lead to a **net loss** for the year[860](index=860&type=chunk)[861](index=861&type=chunk)

Rise Education Cayman Ltd (REDU) Q4 2019 Earnings Conference Call March 12, 2020 8:00 PM ET Company Participants Mei Li - Senior IR Director Lihong Wang - CEO & Chairwoman Jiandong Lu - CFO, COO & Director Conference Call Participants Sheng Zhong - Morgan Stanley Alex Xie - Crédit Suisse Alex Liu - China Renaissance Securities Operator Ladies and gentlemen, thank you for standing by, and welcome to the RISE Education Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions]. Please ...

Company Overview - Rise Education is a leading national provider of premium, after-school English language training for children aged 3-18[8] - The company strategically focuses on the fastest-growing age group (3-6 year olds)[23] - As of September 30, 2019, Rise had a total of 451 learning centers, including 87 self-owned learning centers and 364 franchised learning centers[58] Market and Business Highlights - China's Junior ELT market is experiencing rapid growth, driven by rising wealth, the two-child policy, and the increasing importance of English[18] - The penetration rate of Junior ELT in China is low at 35.2% compared to Japan (60.5%) and Korea (20.4%)[18] - Rise's teaching philosophy focuses on both English language and subject matter knowledge[23] - The company develops its curricula with technology in mind, utilizing both HMH-based and self-developed courseware[27, 28] - Rise boasts a strong brand with high student retention (70%)[63] and a significant portion of new enrollments through word-of-mouth (~30%)[63] Financial Performance - Rise has experienced rapid top-line growth, with revenues increasing from RMB 406.7 million in 2014 to RMB 1,271.9 million[72] - The company has highly visible future revenues, with deferred revenue and customer advances reaching RMB 831.6 million as of September 30, 2019[73] - A learning center can achieve adjusted EBITDA margin like 45 – 50%[52] Growth Strategies - The company plans to open new self-owned centers in existing and new cities and increase efforts in acquiring franchised centers[80] - Rise aims to increase marketing expenses to further increase penetration rate in the junior ELT market[80]

Rise Education Cayman Ltd (REDU) Q3 2019 Earnings Conference Call November 14, 2019 8:00 PM ET Company Participants Mei Li - Senior IR Director Sun Yiding - CEO & Director Lu Jiandong - CFO, COO & Director Conference Call Participants Alex Xie - Crédit Suisse Felix Liu - UBS Investment Bank Alex Liu - China Renaissance Securities Chongguang Feng - CITIC Securities Operator Ladies and gentlemen, thank you for standing by, and welcome to the RISE Education Third Quarter 2019 Earnings Call. [Operator Instruct ...

RISE Education Cayman Ltd (REDU) Q2 2019 Earnings Conference Call August 15, 2019 9:00 PM ET Company Participants Mei Li - Investor Relations Sun Yiding - CEO Lu Jiandong - COO and CFO Conference Call Participants Alex Xie - Crédit Suisse Felix Liu - UBS Alex Liu - China Renaissance Crystal Li - China Merchant Securities Sheng Zhong - Morgan Stanley Operator Ladies and gentlemen, thank you for standing by, and welcome to the RISE Education Second Quarter 2019 Earnings Call. [Operator Instructions] I must ad ...