Bright Scholar(BEDU) - 2021 Q2 - Quarterly Report

Financial & Business Performance Highlights Overall Financial Highlights (Q1 FY2021) In Q1 FY2021, Bright Scholar experienced year-over-year declines in key financial metrics, with revenue decreasing by 4.2% to RMB 1,051.5 million and net income falling by 6.6% to RMB 190.9 million, reflecting pandemic impacts Q1 FY2021 Financial Highlights (YoY) | Metric | Q1 FY2021 (RMB Million) | Q1 FY2020 (RMB Million) | YoY % Change | | :--- | :--- | :--- | :--- | | Revenue | 1,051.5 | 1,098.0 | (4.2)% | | Gross Profit | 442.8 | 473.8 | (6.5)% | | Operating Income | 228.4 | 267.2 | (14.5)% | | Net Income | 190.9 | 204.3 | (6.6)% | | Adjusted Net Income | 197.1 | 223.0 | (11.6)% | | Adjusted EBITDA | 320.6 | 352.5 | (9.0)% | | Basic EPS (RMB) | 1.56 | 1.59 | (1.9)% | Business Segment Performance The Domestic K-12 Schools segment drove growth with a 10.9% revenue increase, while Overseas Schools faced significant pandemic impacts, and Education Technology saw 64.0% revenue growth due to acquisition Q1 FY2021 Performance by Business Segment | Segment | Revenue (RMB Million) | % of Total Revenue | YoY Revenue Change | Gross Margin | | :--- | :--- | :--- | :--- | :--- | | Domestic K-12 Schools | 742.4 | 70.6% | +10.9% | 48.8% | | Overseas Schools | 134.2 | 12.8% | N/A | 12.8% | | Education Technology | 36.7 | 3.5% | +64.0% | 54.8% | | Complementary Education | 138.2 | 13.1% | N/A | 31.2% | - The average number of students in Domestic K-12 schools increased by 11.7% year-over-year to 54,318[4] - The Overseas Schools segment reported a negative operating margin of (39.0%), highlighting the severe impact of the COVID-19 pandemic[6] Management Discussion and Strategy Management Commentary and Strategic Pillars Management highlighted strong domestic recovery and growth, outlining a four-pillar strategy for FY2021 focused on organic K-12 growth, cost management, acquisition integration, and EdTech investment - The company's FY2021 strategy focuses on four key pillars: 1) Organic growth in domestic K-12, 2) Cost management, 3) Integration planning for synergies, and 4) Investment in EdTech and strategic acquisitions[8] - Domestic K-12 enrollment demonstrated strong demand, with growth of 9.7% in international schools, 8.0% in bilingual schools, and 17.0% in kindergartens[9] - While overseas study counseling revenue dropped by 49.4%, domestic after-school training and study camps grew by 7.7% and 635.3% respectively, indicating a shift in market opportunities[10] - Management is focused on cost reduction and efficiency improvements in the overseas business to position it for a strong profitability rebound once the operating environment normalizes[10] Detailed Financial Results (Q1 FY2021) Revenue Total revenue for Q1 FY2021 decreased 4.2% YoY to RMB 1,051.5 million, driven by a 48.2% drop in Overseas Schools revenue, partially offset by 10.9% growth in Domestic K-12 and 64.0% in Education Technology Revenue by Segment (Q1 FY2021 vs Q1 FY2020) | Segment | Q1 FY2021 (RMB Million) | Q1 FY2020 (RMB Million) | YoY % Change | | :--- | :--- | :--- | :--- | | Domestic K-12 Schools | 742.4 | 669.7 | 10.9% | | Overseas Schools | 134.2 | 259.2 | (48.2)% | | Education Technology | 36.7 | 22.4 | 64.0% | | Complementary Education | 138.2 | 146.7 | (5.8)% | | Total | 1,051.5 | 1,098.0 | (4.2)% | Cost of Revenue, Gross Profit, and Gross Margin Cost of revenue decreased 2.5% to RMB 608.7 million due to cost control, leading to a 6.5% decline in gross profit to RMB 442.8 million and a 100 basis point contraction in gross margin to 42.1% - The reduction in cost of revenue was primarily due to effective cost control and streamlining initiatives for overseas operations to mitigate the impact of COVID-19[14] Gross Profit by Segment (Q1 FY2021 vs Q1 FY2020) | Segment | Q1 FY2021 Gross Profit (RMB Million) | Q1 FY2021 Gross Margin (%) | Q1 FY2020 Gross Profit (RMB Million) | Q1 FY2020 Gross Margin (%) | | :--- | :--- | :--- | :--- | :--- | | Domestic K-12 Schools | 362.4 | 48.8% | 325.1 | 48.5% | | Overseas Schools | 17.2 | 12.8% | 83.4 | 32.2% | | Education Technology | 20.2 | 54.8% | 14.4 | 64.5% | | Complementary Education | 43.0 | 31.2% | 50.9 | 34.7% | | Total | 442.8 | 42.1% | 473.8 | 43.1% | Selling, General & Administrative (SG&A) Expenses Total SG&A expenses increased 5.7% YoY to RMB 222.0 million, rising to 21.1% of revenue from 19.1%, reflecting decreased operational leverage due to lower overall revenue - Total SG&A expenses for the quarter increased by 5.7% to RMB 222.0 million, while adjusted SG&A expenses rose 10.7% to RMB 221.3 million[19] Operating Income Operating income decreased 14.5% YoY to RMB 228.4 million, with the margin compressing to 21.7%, primarily due to a RMB 52.4 million operating loss in the Overseas Schools segment Operating Income/(Loss) by Segment (Q1 FY2021) | Segment | Operating Income/(Loss) (RMB Million) | Operating Margin (%) | | :--- | :--- | :--- | | Domestic K-12 Schools | 283.6 | 38.2% | | Overseas Schools | (52.4) | (39.0)% | | Education Technology | 9.0 | 24.4% | | Complementary Education | 24.4 | 17.7% | | Unallocated Corporate Expenses | (36.2) | - | | Total | 228.4 | 21.7% | - Adjusted operating income for the quarter was RMB 236.3 million, compared to RMB 288.3 million in the same period last year, with the adjusted operating margin decreasing to 22.5% from 26.3%[21] Net Income and Earnings Per Share (EPS) Net income for the quarter was RMB 190.9 million, a 6.6% decrease YoY, with basic and diluted EPS at RMB 1.56, and adjusted net income falling 11.6% to RMB 197.1 million Net Income and EPS Summary (Q1 FY2021 vs Q1 FY2020) | Metric | Q1 FY2021 | Q1 FY2020 | YoY Change | | :--- | :--- | :--- | :--- | | Net Income (RMB Million) | 190.9 | 204.3 | (6.6)% | | Adjusted Net Income (RMB Million) | 197.1 | 223.0 | (11.6)% | | Basic & Diluted EPS (RMB) | 1.56 | 1.59 | (1.9)% | | Adjusted Basic & Diluted EPS (RMB) | 1.61 | 1.74 | (7.5)% | Cash Flow and Financial Position As of November 30, 2020, the company maintained a strong liquidity position with RMB 1,697.2 million in cash and equivalents, while capital expenditure decreased 25.8% YoY to RMB 45.2 million - As of November 30, 2020, the Company's cash, cash equivalents, and restricted cash totaled RMB 1,697.2 million (US$258.1 million)[27] - Capital expenditure for the first fiscal quarter was approximately RMB 45.2 million, a decrease of 25.8% compared to the same period last year[27] Fiscal Year 2021 Guidance Revised FY2021 Outlook The company revised its FY2021 guidance, projecting total revenue between RMB 3.59 billion and RMB 3.69 billion, representing 7% to 10% YoY growth, with average student enrollment expected to increase 8% to 10% Revised Guidance for Fiscal Year 2021 | Metric | Guidance Range | YoY Growth Projection | | :--- | :--- | :--- | | Revenue | RMB 3.59B - 3.69B | 7% to 10% | | Average Student Enrollment | 56,000 - 57,000 | 8% to 10% | Consolidated Financial Statements Unaudited Condensed Consolidated Balance Sheets As of November 30, 2020, Bright Scholar's total assets were RMB 10.16 billion, total liabilities decreased to RMB 6.90 billion, and total equity increased to RMB 3.26 billion Key Balance Sheet Items (in RMB thousands) | Item | As of Nov 30, 2020 | As of Aug 31, 2020 | | :--- | :--- | :--- | | Total Assets | 10,163,640 | 10,823,309 | | Total Current Assets | 4,124,247 | 4,700,630 | | Total Non-Current Assets | 6,039,393 | 6,122,679 | | Total Liabilities | 6,900,173 | 7,698,928 | | Total Current Liabilities | 3,055,664 | 3,695,043 | | Total Non-Current Liabilities | 3,844,509 | 4,003,885 | | Total Equity | 3,263,467 | 3,124,381 | Unaudited Condensed Consolidated Statements of Operations For Q1 FY2021, the company reported RMB 1,051.5 million in revenue and a gross profit of RMB 442.8 million, resulting in a net income of RMB 190.9 million for the quarter Statement of Operations Summary (in RMB thousands) | Item | Three Months Ended Nov 30, 2020 | Three Months Ended Nov 30, 2019 | | :--- | :--- | :--- | | Revenue | 1,051,546 | 1,097,953 | | Gross profit | 442,809 | 473,751 | | Operating income | 228,429 | 267,240 | | Net income | 190,868 | 204,284 | | Net income attributable to ordinary shareholders | 186,582 | 191,286 | Unaudited Condensed Consolidated Statements of Cash Flows In Q1 FY2021, net cash used in operating activities was RMB 479.4 million, with significant cash used in investing activities at RMB 2.17 billion, leading to a RMB 2.73 billion decrease in cash and restricted cash Cash Flow Summary (in RMB thousands) | Item | Three Months Ended Nov 30, 2020 | Three Months Ended Nov 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | (479,431) | (399,757) | | Net cash used in investing activities | (2,166,134) | (406,412) | | Net cash used in financing activities | (23,905) | (1,183) | | Net change in cash and restricted cash | (2,726,745) | (838,464) | | Cash and restricted cash at end of period | 1,697,192 | 2,426,550 | Reconciliations of GAAP and Non-GAAP Results This section details reconciliations from GAAP to non-GAAP financial measures, showing Adjusted EBITDA for Q1 FY2021 as RMB 320.6 million by adjusting GAAP net income for non-cash and non-operating items Reconciliation of Net Income to Adjusted EBITDA (in RMB thousands) | Item | Three Months Ended Nov 30, 2020 | Three Months Ended Nov 30, 2019 | | :--- | :--- | :--- | | Net income | 190,868 | 204,284 | | Add: Interest expense, net | 36,977 | 29,588 | | Add: Income tax expense | 40,280 | 58,015 | | Add: Depreciation and amortization | 51,870 | 50,580 | | Add: Share-based compensation expense | 641 | 10,032 | | Adjusted EBITDA | 320,636 | 352,499 | Appendix Non-GAAP Financial Measures The company uses non-GAAP financial measures like adjusted EBITDA and net income to supplement GAAP results, providing a clearer assessment of operating performance by excluding non-cash and non-operating items - The company defines and uses non-GAAP measures like adjusted EBITDA, adjusted net income, and adjusted operating income to evaluate operating performance and formulate business plans[33][36] - These non-GAAP measures are intended to help investors assess operating results without the impact of non-cash charges (e.g., depreciation, amortization, share-based compensation) and certain non-operating items[36] About the Company & Safe Harbor Statement Bright Scholar is a global education service company operating 102 schools as of November 30, 2020, with the report including a standard safe harbor statement regarding forward-looking statements - As of November 30, 2020, Bright Scholar operated a total of 102 schools: 94 across twelve provinces in China and 8 overseas[38] - The Safe Harbor Statement warns that forward-looking statements in the announcement are based on current expectations and are subject to known and unknown risks that could cause actual results to differ materially[40]