First High-School Education Group Co., Ltd. American Depositary Shares

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the first High School Education Group fiscal year 2021 earnings conference call. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Mr. Tommy Joe, Chief Financial Officer of the company. Mr. Joe, please proceed.

Thank you, Operator, and greetings, investors and friends. Welcome to the First High School Education Group Fiscal Year 2021 Earning Conference Call. With us today, we have Mr. Zhang Shaowei, Company Chief Executive Officer, and myself, Tommy, Chief Financial Officer. We released our results earlier today. The press release is available on the company's IR website at https.forward slash ir.diyi.top, as well as Newswire Services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual result may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligations to update any forward-looking statements except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call today are in Chinese Renminbi. Let me now turn the call over to our CEO, Mr. Zhang Shaowei, for greeting remarks, which I will then translate to English and then followed by my highlights for fiscal year 2021. Mr. Zhang. Hello, everyone.

Thank you for attending the 2021 performance conference of the First High School Education Group. In 2021, in an uncertain market and monitoring environment, The Translate follows. Greetings, everyone. Thank you all for joining us.

for the 2021 Earnings Release Conference Call. In 2021, under high market uncertainty and changing regulatory environment, FIRST High School Education Group achieved stable and high quality development. I will now introduce our CFO, Mr. Tommy Zhou, who will provide details on our business and financial performances in English. So 2021, was certainly an uncommon year. The good news is that we, FHS, are probably one of the least adversely affected education company on the market. As suggested by our name, we mainly operate high schools and is not greatly affected by the compulsory requirements of recent regulations. Compared with 2020, the company's revenue from continuing operation increased 13.7% to 400 million RMB. The number of schools we currently service include 14 high schools, six goal call repeater schools, and two public schools with management services. So the total number is 22, 22 schools we're servicing right now. The number of students enrolled include 18,686 for our high schools and Galco repeater schools, and 2,561 for our public school management services, for a total of 21,247 students of continuing operation. Lastly, we have approximately 54,000 boarding beds in service and in reserve, able to provide healthy and stable room for growth the next three to five years. In addition to the financial results, we are extremely proud of the education service, the quality of the education service we provide. For 2021 graduation year, we were grouped top class in similar schools with students who scored above 700 or 600 in the Gaokao exam. And we were also grouped top class in the schools with students of most increased scores from entering our school to graduating our school. So the great education quality proven our teaching ability and our goal of providing the best education services to anyone and everyone who enrolls in our school programs. The company's fiscal year 2021 profit margin decreased comparatively with 2020. It was mainly due to non-recurring expenses that was caused by our initial public offering, which was done in 2021 March. The cost related with new school openings also decreased our margins. We want to express our thoughts that school management must be balanced and long-term focused. We strongly believe this long-term focused business will yield higher profitability in 2022 from a chain of new schools and overall improvement of our efficiency. In order to express our determination, currently we have 20 senior management level staff of the company, including the CEO and myself. We all agreed to voluntarily reduce our salary by over 20% starting April. And our reduced salary will not resume until 2022 school enrollment task is completed in October. The company and all the management team is very confident on our goal and wish to express our determination to complete this year's performance goals. Specifically in 2022, a little bit about forward looking, the company has three specific goals. All of our 29 school programs currently in operation must yield improved financial results compared with last year. This will be done by some of our new schools' increased recruitment and operation. Secondly, the company plans to open certain new schools, both high schools and vocational school programs, which will increase our bed capacity and reserve and also increase our overall enrollment number. Third, the company's services will fully cover the entire educational spectrum, comprising of education auxiliary materials, education human resources, education logistic and boarding services, and education technology. The newly established services will complement our existing school programs and yield greater profitability for our overall company. So the company has been performing for the four So the company had been performing the four newly established services for many years already. It's not a complete new service that we added to our group. But in 2022, these services will expand outward and generate new income and revenue for us in the years to come. Lastly, I want to disclose that in compliance with the requirements of the implementation rules for the law of promoting private education of the PRC, The company had divested its operation in primary and middle school programs after September 1st, 2021, and classified them as discontinued operation. So during fiscal year of 2021, revenue for the discontinued operation was 104.2 million RMB, which is roughly 16.4 million US dollars. And the net loss from this discontinued operation was about 7.5 million RMB, which was about 1.2 million US dollars, which had only minor effect on the company's profitability overall. So now with the brief business operation remarks completed, I will go through our financial highlights for fiscal year 2021. Please again note that all numbers presented below are in RMB unless otherwise stated all percentage changes on our year-over-year basis unless otherwise specified. Detail analysis is contained in our earning press release, which is already available on our IR website. So for total revenues, the total revenues was RMB 400.2 million, equivalent of 62.8 million U.S. dollars, an increase of 13.7%. from RMB of 351.9 million in 2020. The increase was primarily driven by greater student enrollment due to the opening of new schools and the increased number of students enrolled in our existing schools, along with the higher tuition, income, and boarding fees. Within the total revenue, revenue from customers was RMB 349.3 million RMB. equivalent of 54.8 million U.S. dollars, an increase of 12.4% from 310.6 million in 2020 of last year. The increase was primarily driven by greater student enrollment due to the opening of new schools and the increased number of students enrolled in our existing schools, along with higher tuition income and boarding fees. Revenue from government cooperative agreements was RMB 50.9 million, U.S. dollar of $8 million, an increase of 23.4% from RMB of 41.3 million in 2020, primarily due to the increased number of publicly sponsored student serves. Cost of revenues was 273.7 million RMB, an increase of 38.7 from 197.4 million in 2020. The increase was primarily due to the increased staffing cost from opening of our new schools and enlarged curriculum, which includes coverage in arts and sports. Gross profit was $126.5 million, a decrease of 18.1% from a RMB of $154.5 million in 2020. Gross margin was 31.6 compared with the 43.9 in 2020. The decreased gross margin was primarily due to the higher cost of revenues resulted from, one, increased staffing costs due to the increased number of employees and increased compensation level to attract more talent, and two, increased school operating expenses, especially for new schools with relatively lower cost efficiency than our existing mature schools. Net operating expenses. Net operating expenses was RMB 66.0 million. an increase of 20.1% from RMB 54.9 million in 2020. So selling and marketing expenses was RMB 7.1 million, an increase of 8.6 from RMB 6.5 million in 2020. The increase was primarily due to the increased expenses in brand promotion and marketing activities in relation to the opening of new schools and an assertive school opening plan made in 2021. General and administrative expenses was RMB 61.8 million, an increase of 17.4 from RMB 52.7 million in 2020. The increase was primarily due to the certain non-recurring expenses in relation to the company's initial public offering in March of 2021. Government grants was RMB 2.9 million, a decrease of 31.1% for RMB 4.2 million in 2020, primarily due to certain delayed in payments from government in 2021. Income from operation was RMB 60.5 million, a decrease of 39.2 from RMB 99.6 million in 2020. And our income from continuing operation was RMB 50.7 million, a decrease of 37.9 from 81.7 million in 2020. Loss from discontinued operation. Loss from discontinued operation was RMB 10.9 million compared with an income of RMB 0.1 million in 2020. Our net income for the year 2021 was RMB 39.9 million, a decrease of 51% from RMB 81.9 million in 2020. Adjusted net income on a non-GAAP measure was 39.9 million, a decrease of 51.3 million for RMB 81.9 in 2020. So our business outlook for the year, full fiscal year of 2022, the company expects a total revenue of continuing operation to be between RMB 480 million to RMB 520 million. representing an increase of 15% to 24% on a year over year basis. This outlook reflects the company's current and preliminary view on the market and operational conditions. The outlook ranges for the fiscal year 2022 reflects a number of assumptions that are subject to change based on uncertainties. So the above is my financial highlight briefing. And both Mr. Zhang and myself wish to thank everyone for participating, and we want to leave more time for call and questions. The operator, please go ahead and proceed with the Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star then one. This concludes our question and answer session. I would like to turn the call back over to Mr. Joe for any closing remarks.

Thank you, operator. I think some of our listeners may be a bit shy to give a public question and answer session, but that's okay. Most of them know me personally and can reach me anytime after the conference call. So again, both Mr. Zhang and I want to thank everyone for participating on today's call and for everyone's further support. We appreciate everyone's interest in our company and greatly look forward to reporting to you again next quarter. And I'll turn over to Mr. Zhang for any closing remarks if he has, and I'll translate.

Mr. Johnson, again, thank everyone for their time today. 2021 was certainly an unusual year.

and we will have to make sure and be certain that in 2022 we'll have a very good report for Error 1 to be satisfied with. Okay, thank you again, Operator.

Thank you all again. This concludes the call. You may now disconnect.