Four Seasons Education (Cayman) Inc. (FEDU) Q3 2021 Earnings Report, Transcript and Summary

Hello, ladies and gentlemen. Thank you for standing by for the Four Seasons Education's Third Quarter of Fiscal Year 2021 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Ms. Olivia Li, Investor Relations Manager for the company. Please go ahead, Olivia.

Hello, everyone, and welcome to the Third Quarter of Fiscal Year 2021 Earnings Conference Call for 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. On today's call, Ms. Joanne Zuo, our Chief Executive Officer, will start the call by providing an overview of the company performance highlights for the quarter. Ms. Xun Wang, the company's Vice President of Finance, will provide details on the company's financial results and 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 and its annual report on Form 20-F 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 include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Four Seasons Education's press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to our CEO, Ms. Zuo. Please go ahead.

Thank you, Olivia, and hello, everyone. Thank you for joining our call today. In the third quarter of fiscal 2021, we continued to optimize our operations to provide a superior learning experience for our students in their pursuit of academic excellence and personnel development. In the quarter, total student enrollment reached 53,493, with a better-than-expected revenue, which further boosts our confidence in our strategies and assures us that our business is close to returning to its pre-pandemic development trajectory with Mainland China in the midst of a recovery from COVID-19. Given the fully randomized admission policy for private primary and secondary schools adopted by the Shanghai Municipal Education Commission since this year, we are seeing growing opportunities for middle school courses. In order to further tap into the fast-evolving market of high school entrance exam preparation, we continued our efforts to enrich and diversify curricular with new educational programs, expanding a full spectrum of academic subjects. We are excited to witness a 54.5% year-over-year growth in our middle school classes enrollment in the quarter, a new record high for us. Building upon our proven educational expertise and experience, we believe that our comprehensive and high-quality middle school cost offerings, which address students' different learning objectives and abilities, will continue to get the growth momentum and further strengthen our competitive advantage in the K-12 after-school education landscape. During this quarter, our relentless efforts to enhance our unique curriculum offerings paid off well with continued growth in our enrollment retention rate. Currently, we are seeing a year-on-year increase in cash receipts and enrollment for our winter classes. The achievement is a great testament to the effectiveness of our core capabilities in offering high-quality educational products, making innovative and responsive curriculum development as well as maintaining a strong tutoring team. On top of this, we featured a wide array of co-curricular and extracurricular activities to inspire students learning motivations and further drive their engagement. We also remain focused on improving our educational service offerings in our learning centers, while adopting digital technology that helps optimize operating efficiency and harness high quality products and services to drive student enrollment and retention. Our core strengths, coupled with these complementary efforts, will further solidify our position as an outstanding player in the market and aspire recovery from pandemic-related challenges. Going forward, we expect these efforts to help generate an even broader appeal for our offerings among our growing student base. Moreover, our deep expertise in delivering tangible learning outcomes helped our nationwide expansion plans gain traction. Notably, enrollment from our learning centers outside Shanghai rose 45.5% year-over-year in the third quarter. Our strategy to consolidate and upgrade the nationwide applicable educational materials remain well on track as we seek to cement and expand our foothold in the Chinese K-12 after-school tutoring market. In the quarter, we introduced our duty to model in more cities. This model involves deploying our lead teachers and educational resources from Shanghai, where there is an outstanding level of education quality, alongside local students' efficient face-to-face guidance. We believe this will distinguish us from other educational service providers. Looking ahead, we will keep strengthening our brand educational offerings and a teaching approach in K-12 after-school courses to further increase student enrollment and engagement, paving the way towards a future of profitable growth. We believe our ability to provide the state-of-the-art courses and the service offerings has positioned us to capture emerging opportunities in the recurring market and create a sustainable business in the long run. With that, I will now turn the call over to our Vice President of Finance, Ms. Xun Wang, who will discuss our key financial results.

Thank you, Joanne, and hello, everyone. Now let's move on to the financial results. Our revenue was RMB 67.6 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with RMB 103.5 million in the same period of last year, primarily due to the latest regulatory policy and extended impact of COVID-19, partially offset by the proactive curricular update in response to the evolving market needs. Cost of revenue decreased by 15.9% to RMB 42.5 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] from RMB 50.5 million in the same period of last year, primarily attributable to the decreased staff cost and ongoing optimization of the learning center network. Gross profit was RMB 25.2 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with RMB 53.0 million in the same period of last year. General and administrative expenses decreased by 9.0% to RMB 30.4 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] from RMB 33.4 million in the same period of last year, primarily due to the improved human resource management. Sales and marketing expenses decreased by RMB 14.2 million -- 14.2% to RMB 7.5 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] from RMB 8.8 million in the same period of last year. Operating loss was RMB 12.8 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with operating income of RMB 10.9 million in the same period of last year. Adjusted operating loss was RMB 6.8 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with adjusted operating income of RMB 17.0 million in the same period of last year. Income tax benefit was RMB 1.3 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with income tax expense of RMB 6.2 million in the same period of last year. Net loss was RMB 8.8 million during the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with net income of RMB 11.3 million in the same period of last year. Adjusted net loss was RMB 4.5 million for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with adjusted net income of RMB 14.5 million in the same period of last year. Basic and diluted net loss per ADS attributable to ordinary shareholders for the third quarter of fiscal year 2020 (sic) [ 2021 ] were both RMB 0.19 compared with net income of RMB 0.24 and RMB 0.23, respectively, for the same period of last year. Adjusted basic and diluted net loss per ADS attributable to ordinary shareholders were both RMB 0.10 for the third quarter of fiscal year 2020 (sic) [ 2021 ] compared with adjusted net income of RMB 0.31 and RMB 0.30, respectively, for the same period of last year. Cash and cash equivalents as of November 30, 2020, the company has cash and cash equivalents of RMB 439.0 million compared with RMB 404.7 million as of February 29, 2020. To be mindful of the length of our earnings call for the first 9 months of fiscal year 2020 financial results, I will encourage listeners to refer to our earnings press release for further details. Looking forward for the fourth quarter of fiscal 2020 (sic) [ 2021 ], the company expects to generate revenue in the range of RMB 64.0 million to RMB 67.5 million. The above outlook is based on the current market conditions and reflects the company's preliminary estimates of the market and operating conditions and customer demand, which are all subject to change. This concludes my portion of prepared remarks. We will now questions. Operator, please go ahead.

[Operator Instructions] Showing no further questions at this time. Now I'd like to turn the call back over to Olivia Li for any closing remarks.

Thank you once again for joining us today. If you have further questions, please feel free to contact Four Seasons' Investor Relations through the contact information provided on our website or TPG Investor Relations.

This concludes today's conference call. You may now disconnect your lines. Thank you.