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 first quarter 2023 unordered financial results earnings conference call. Currently, all participants are in a 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. I will now hand the call over to Mr. Tommy Jo, Chief Financial Officer of the company. Mr. Jo, please proceed.

Thank you, operator, and greetings, investors and friends. Welcome to the first high school education group, first quarter 2023 earnings conference call. This is Tommy speaking, Chief Financial Officer of the company, and I will lead today's conference call. We released our most recent earnings result earlier today prior to market open. The press release is available on the company's IR website at ir.diyi.tlp as well as from Access Wire and OTC services. A replay of this call will 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 the United States Private Securities 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 obligation 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 are in Chinese With that, thank you all again for joining us. I will briefly spend the next 20 minutes updating our fiscal year 2022 results. 2023 results, sorry. For today's earnings release, all of our financial and operating data will be dated to March 31st of 2023. Approximately three weeks ago, during the 2022 fiscal year earnings release. I mentioned that 2022 was a year of both ups and downs for the company. Although we made progress in increasing our academic achievements as well as school expansions, but we also experienced negatives in our operations. We had to discontinue three schools and our recruitments and operations were limited on two other schools. You may reference the 2022 fiscal year earnings release on April 17th, 2023, approximately three weeks ago. With every school year began in September, therefore the first quarter 2023 is a continuation of last year's operation. With the aforementioned negative extended to the first quarter this year, in specific, we experienced declines in both revenues and net income. The company had to deal with many costs associated with discontinuing, as well as we received reduced incomes. from student-related services such as school uniforms, luggages, catering services, and other supplementary services. The company remotely adjusted to the decline in revenue by reducing our cost of revenues and net operating expenses in our business operations. As a result of our measures, we were able to produce comparable gross margins and net margins with the previous year of 2022. Our gross margins for the first quarter of 2023 were 35.3% compared with 36.2% of the last year same quarter, a difference of 0.9%. Our net margins was 22.4% this year compared with 24.6% of the same quarter last year, a difference of 2.2%. So for cost of revenues, we were able to effectively control our staff compensation, tying performance to pay, and structuring an efficient staff to student ratio. For example, due to the decreased recruitment of Gaokao repeater programs, we were able to greatly reduce our staff compensation in that sector of the business as well. So revenue and cost is marginally, proportionally decreased, not impacting margins that much. The company is currently operating at an efficient level. and we endeavor to increase recruitment, student-related service, and additional innovative services in the upcoming quarters. For the second quarter, the company will continue to focus on high-quality development of our schools and aim to deliver excellent academic results to all our students. As China's university entrance exam, the Gaokao, is expected to be held between June 7th and June 10th. The company eagerly awaits the academic results of our students. In parallel, our annual recruitment program has already begun, and every department in the company aims to assist in the recruitment effort in their own ways. We look forward to increasing the total number of students enrolled and under our management, as well as opening up new schools this year. Lastly, I just want to express that everyone in the company is determined and wishes to deliver improved results in the upcoming future. Internally, we already analyzed and held several meetings to learn from the past And now we all must just move on and create new results in the upcoming future. That concludes the brief highlight section. And now I will go through our line-by-line financial highlights for the first quarter of 2023. Again, please note that all numbers presented are in RMB unless otherwise stated. All percentages change are on a year-over-year basis unless otherwise specified details analysis contained in our earning release, which is available on our IR website. Okay, so for the first quarter 2023 financial results on continuing operation, total revenues were 63.5 million, a decrease of 20.0% from 79.4 million in the first quarter of 2022. The decrease was primarily due to a mix of factors, including reduced sales of education materials and incomes from meal catering services, and the discontinuance and limited operation of some schools in our network. Breaking down the total revenue, revenue from customers were $54.2 million, a decrease of 22.7% from $70.1 million in the first quarter of 2022. The decrease was primarily due to a mix of factors, including reduced sales of education materials and income from mail catering services, and the discontinuing and limited operation of some schools in our network. Revenue from the government cooperative agreements were 9.4 million. It stayed relatively stable compared to 9.3 million in the first quarter of 2022. Cost of revenues were 41.1 million, a decrease of 18.9 from 50.7 million in the first quarter of 2022. The decrease was primarily due to reduction in rental expenses for our discontinued schools and decreased staff compensation. Growth profit was $22.4 million, a decrease of 22% from $28.7 million in the first quarter of 2022. Growth margin was 35.3% compared with 36.2%. in the first quarter of 2022. The slight decrease was due to fluctuations in school operating efficiency, such as utility usage and budget controls and number of staff and their compensations. Net operating expense was 5.3 million, a decrease of 22.1% from 6.8 million in the first quarter of 2022. Selling and marketing expense were $0.3 million, a significant increase from $0.1 million in the first quarter of 2022. The increase was primarily due to the increased expenses in brand promotion and marketing activities. General and administrative expenses were $5.8 million, a decrease of 15.7% from 6.9 million in the first quarter of 2022. The decrease was primarily due to the improved cost control we implemented internally. Government grants were 0.9 million, a significant increase from 0.3 million in the first quarter of 2022. The increase was primarily due to the unpredictable timing of payment made by the government. Income from operations were 17.1 million, a decrease of 22% from 22.0 million in the first quarter of 2022. Net income from continuing operation was 17.5 million, a decrease of 15.3% from 20.6 million in the first quarter of 2022. Net loss from discontinued operation or $3.2 million compared with a loss of $1.1 million in the first quarter of 2022. Net income was $14.3 million, a decrease of $27.1 of $19.6 million in the first quarter of 2022. Adjusted income, non-GAAP measure, was $14.3 million, a decrease of 27.1 from 19.6 million in the first quarter of 2022. So the above is my financial highlight briefing, and both CEO Mr. Zhang and myself wish to thank everyone for your time and participating today. And now I will let the operator open for questions. questions operating, please go ahead and proceed to the Q&A.

Thank you, Tommy. Everybody, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone keypad at this time. We ask that while posing your question, you please pick up your handset if you're listening on a speakerphone to provide optimum sound quality. Please pause a moment whilst we poll for any questions. Just a reminder, if anyone does have any questions, please press star 1 on your phone keypad now. OK, Tom, you don't appear to have any questions in the queue. I will now hand back over to you for any closing comments.

OK. Yes, I mean, thank you. If anyone have any further questions, feel free to email us. Our contact information is displayed in the bottom part of every early release or public releases. Thank you again, operator. We thank you all for participating in today's call and for your further support. We appreciate everyone's interest in our company and greatly look forward to reporting to you again next quarter on our progress.

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