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 third quarter 2023 unaudited financial results earnings conference call. Currently, all participants are in the listen-only mode and later we will conduct a question and answer session. 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 turn the call over to Mr. Tommy Zhou Chief Financial Officer of the company. Mr. Zhou, please proceed.

Thank you, operator, and greetings, investors and friends. Welcome to the first High School Education Group third quarter 2023 earnings conference call. This is Tommy speaking, the Chief Financial Officer of the company, and I will lead today's conference call. We released our most recent earning results earlier today prior to market open. The press release is available on the company's IR website at ir.diyi.top as well as from Access Wire and OTC services. A replay of this call will also be available the next day on via the replay number provided in the early release. 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 Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties As such, the company's actual results 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 statement 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 15 to 20 minutes updating our third quarter 2023 unaudited financial results for the nine months ended September 30th, 2023. For today's early release, all of our financial data will be dated to September 30th of 2023 and our operating data, including the total number of students enrolled and the total number of school programs will be dated October 31st, 2023. In comparison to the corresponding period last year, the company witnessed a decrease in both revenue and net income. The factors contributing to this decline remains consistent with those previously disclosed. The persisting challenges tied to discontinued schools and reduced student related services such as catering services and auxiliary materials continue to exert a negative impact on our financial performance. In addition, In communication with our auditor, we incurred a non-cash charge of asset impairment loss of 50.2 million RMB or 6.9 million US dollars. We have recognized a write-off for certain accounts receivable pertaining to overdue payments from local governments and collaborators, which are deemed unlikely to be collected. This non-cash charge has been accounted for, and as such, it will not impact our cash flow or day-to-day operation. It is merely an accounting adjustment. The third quarter period from July ending in September is commonly known as the quiet period in our business. It's quiet because there are no school activities, conducted during the summer months of July and August, meaning two third up to three months period, the company will have no revenue recognition. During the quiet period, the company did extensive preparation work for school opening and experienced steady operation for the first month of our newly school year. We welcomed three new schools for which we started to provide management services. Currently, there are a total of 25 school programs under our management. For the enrollment information, I have disclosed more detailed numbers during my last disclosure. For the 17 school programs that we operate independently, we hired 220 new teachers for this new semester. Our recruitment efforts targeted both senior educators and promising juniors.

Apologies there, Mr. Zhou's line has disconnected. He will be calling back very shortly. As mentioned, Mr. Zhou's line has just disconnected, but he's dialing back very, very shortly. Apologies for the delay.

Please stay with us.

Mr. Zhou will be joining us in a couple of seconds. Apologies for the delay.

I think we have Mr. Zhou back.

Hi.

Yes. Hi. Hi, Jenny. Thank you so much. I have no idea why I got disconnected. Okay.

No problem. Carry on.

Carry on. Okay. So as I was saying, our recruitment effort targeted both seasoned educators and promising junior teachers nationwide. Following our model, senior teachers are overseeing and mentoring these less experienced and younger colleagues. This approach is designed to facilitate a swift adaption and growth process, aligning them with our established teaching model. During the summer, we also did thorough inspections and repairs of our school facility to ensure our students a safe and enjoyable study environment. For the eight school programs that we provide management services, We provide consulting services for improved teaching quality, enrollment, and campus management. So the company will stay focused on this path of providing premium education services for our students and looks forward to the profound development of all our school programs. And that briefly concludes the highlight section of this quiet period. And now I will go through our line-by-line financial highlights for the third quarter of 2023. Please, again, know that all numbers presented are in RMB unless otherwise stated. All percentage changes are on a year-over-year basis unless otherwise specified. Detailed analysis is contained in our earning press release, which is available on our IR website already. So the financial results for the nine months into September 30th, 2023, for continuing operation only, total revenues were 194 million, a decrease of 29.2% from 274 million for the nine months ended September 30th, 2022. The decrease was primarily due to a mixed factors, including reduced sales of education materials and income from meal catering services and the discontinued and limited operation of some schools in our network. Revenues from customers were $167 million, a decrease of 32% from $246 million for the nine months into September 30th. The decrease was primarily due to mixed factors, including reduced sales of education materials and income from meal catering services and the discontinued and limited operation of some schools in our network. Revenues from government cooperative agreements were $26.6 million, a decrease of 5.4% from $28 million for the nine months into September 30, 2022. The decrease was primarily due to the tightening of various local governments' budgets. Cost of revenues were $142 million, a decrease of 4.8% from $149 million plus $5 million for the nine months into September 30, 2022. The decrease was primarily due to a reduction in rental expenses for schools of discontinued operation and decreased staff compensation. School's profit was $51.7 million, a decrease of 58.6% from $124 million for the first nine months into September 30, 2022. Our gross margin was 26.6% compared to 45.5% for the nine months into September 30th, 2022. The decrease was primarily due to the decrease in total revenue as sales of education materials and income from catering services reduced substantially, as well as the loss of revenue due to discontinued and limited operations in schools. Total operating incomes, sorry, total operating expenses were $36.4 million a decrease of 32% from $53.6 million for the nine months in the September 30th, which is a good effect. Selling and marketing expense was $2.2 million, an increase of 18.6% from $1.9 million for the same period last year. The increase was primarily due to the increased expense in brand promotion and marketing activities for our three newly managed school programs. General and administrative expense was $34 million, a decrease of 33.9% from $51.7 million for the nine months into September 30, 2022. The decrease is primarily due to our improved expense control. Income from operations was $15.2 million, a decrease of 78.6% from $71 million for the nine months into September 30, 2022. Such decrease was primarily incurred by the non-cash charge of asset impairment loss previously mentioned. Net loss from continuing operation was $41.0 million compared with a net income of $61 million for the nine months in this September 30, 2022. Net loss from discontinued operation were $9.2 million compared with a net loss of $10.1 million for the nine months in this September 30, 2022. Net loss overall was $50.2 million compared with the net income of $51.0 million for the nine months into September 30th. Adjusted income. Adjusted net income of non-GAAP measure was $1.9 million RMB, a decrease of 96.2% from $51 million for the nine months into September 30th, 2022. And the above is my financial highlight briefing. Both CEO Mr. Jiang and myself wish to thank everyone for your time in participating today. And now let's open the call for questions. Operator, please go ahead and proceed to Q&A.

Thank you very much. We are now going to open the lines for questions. If you have any questions on the phone lines, please press star 1 on your phone keypad now. A confirmation tone will indicate your line is in the queue. You may press star 2 if you'd like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. If you would like to ask a question via our webcast, please click the ask question box on the left side of your screen, type in your question and hit submit. Please wait a moment whilst we poll for any questions. Just as a reminder for the phone lines, it's star one on your phone keypad to ask a question and the ask question box on the webcast.

Okay, I'm not seeing any questions come in just yet, Tommy.

You can hang on a second. Okay, no problem.

No, we don't have any questions.

Okay, so I guess there won't be any questions, right? No?

No, no, I can't see any coming, not just yet.

Okay, well, I guess I'll just deliver my ending speech. Thank you. If anyone has further questions, feel free to email us. Our contact information is displayed in the bottom part of every earning release. Thank you so much again, operator, for reconnecting me to the call. We thank you all for participating in today's call and for your further support. We appreciate everyone's interest in the company and greatly look forward to reporting to you again next quarter on our progress.

Thank you very much, Tommy, and thank you all again. This does conclude the call. You may now disconnect your line.