Four Seasons Education (Cayman), Inc. Q3 FY2020 earnings call

• The company achieved steady performance with revenue growth, driven by core business expansion and the continuous increase in learning centers.
• In the third fiscal quarter, two new learning centers were opened in Jiangsu Province, bringing the total number of learning centers to 55. The focus is on economically dynamic markets, and the network is being optimized.
• Online classes have developed rapidly as an efficient supplement to offline courses. Interest-oriented courses, especially the math lab project, have been well-received. The math lab project has a comprehensive curriculum and evaluation system, and collaborations with regular K-12 schools have been inked, along with positive feedback at the China Education Innovation Expo.

For the third quarter of Fiscal Year 2020, Four Seasons Education achieved revenue of RMB103.5 million, representing a year-over-year growth of 13.5%. Adjusted net profit was RMB14.5 million. Cost of revenue increased by 17.2% to RMB50.5 million from RMB43.1 million in the same period last year. Gross profit increased by 10.2% to RMB53 million from RMB48.1 million. General and administrative expenses increased by 4.1% to RMB33.4 million, while sales and marketing expenses increased by 5% to RMB8.8 million. Operating income increased by 41.5% to RMB10.9 million. Adjusted operating income (excluding share-based compensation expenses) increased by 1.5% to RMB17 million. Net income surged by 321.6% to RMB11.3 million, and adjusted net income grew by 6% to RMB14.5 million. Cash and cash equivalents as of November 30, 2019, were RMB564.6 million, a 28.4% increase from February 28, 2019.

• For the fourth quarter of Fiscal Year 2020, the company expects revenue to be in the range of RMB80.9 million to RMB84.1 million, representing a year-over-year growth of approximately 25% to 30%.

• Forward-looking statements involve inherent risks and uncertainties, and the company's results may differ materially from the views expressed today. Further information regarding risks and uncertainties is included in the company's prospectus filed with the U.S. Securities and Exchange Commission.

Q: Firstly, on geographic expansion, could management share any metrics on the newly entered cities including Chongqing, Shenzhen and Jiangsu, like how many enrollments come from these three cities? Is the ramp up pace there better or worse than our expectations and also the reasons behind the results? And secondly, what is the expansion plan in the coming quarters both in Shanghai and also the newly entered cities? What kind of measures will we take to promote our brand there? How will the development there impact our financials? And thirdly, a more general question on our growth strategies besides geo expansion. Can management share with us your plans on expanding course offerings in areas like more subjects or wider age groups or other models such as online education? Which one do you think will offer the most opportunities for Four Seasons Education? And how do we plan to grab the opportunities there?

A: Xun Wang responded that detailed enrollment of those learning centers isn't disclosed, but centers in Chongqing and Jiangsu are mature and in line with expectations, while Shenzhen center is in the early stage. For expansion, not many new centers will be opened in Shanghai in the coming quarters, with focus on Shenzhen. Regarding course offerings, diversification to different age groups and subjects is ongoing, and online is a key area with efforts to reach more students using strong content and faculty.

Q: Regarding the Shanghai latest regulation. Is there any tightening or change in the regulation law today? And my second question will be MOE recently released a new policy for the university enrollment program yesterday that is going to replace the previous university independent enrollment program. And how do you see this as a new opportunity and what might be some changes in the course offerings going forward?

A: Joanne Zuo stated there's no recent tightening in Shanghai regulation, and the new MOE policy is a positive drive to the after school tutoring market.

Q: First, I want to congrats management for such a solid operational performance. My first question is what’s the structure among the 48% student enrollment increase, like how much was from primary school, middle school and high school? How much was from math, English and other subjects? And my second question is, could you share more details about our math lab project, like what’s the target students? And also could you talk more about our online strategy?

A: Xun Wang mentioned the enrollment increase is mainly due to learning center ramp-up and earlier recruitment schedule. Joanne Zuo talked about the math lab project selling to standard K-12 schools with an evolving business model, and the online strategy focuses on using digital means to reach more students with strong content and faculty.