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Bright Scholar Education Holdings Limited (BEDU 2.63%)
Q4Â 2019 Earnings Call
Nov 8, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning and thank you for standing by for Bright Scholar's Fourth Fiscal Quarter and Fiscal Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Today's conference is being recorded.
I would now like to turn the meeting over to your host for today's conference, Ms. Ruby Yim, Investor Relations Counsel.
Ruby Yim -- Investor Relations Counsel
Thank you, operator. Good morning and good evening. Welcome to Bright Scholar's fourth fiscal quarter ended August 31, 2019 earnings call. Joining me today are Mr. Jerry He, our Executive Vice Chairman; Mr. Derek Feng, our Chief Executive Officer; and Ms. Dora Li, our Chief Financial Officer.
As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay will be available on our website following the call. By now, you should have received a copy of our press release that was distributed on November 7, 2019 after market close Eastern Time. If you haven't, it is available on the IR section of our website.
Before we get started, let me review the forward-looking statements regarding this conference call, that is statements related to future not past, events often address, expected future business and financial performance and financial condition and often contain words such as will, estimate, project, predict, believe, expect, anticipate, intend, potential, plan or goal. Bright Scholar may also make written or oral forward-looking statements in other reports, in presentations, in material delivered to shareholders and in press releases.
In addition, Bright Scholar's representatives may make other forward-looking statements. Forward-looking statements by their nature address matters that are to different degrees uncertain, such as statements about the company's goals and strategies, its future business development, financial condition and results of operations, its ability to retain and grow to its customer base and network of schools, and the growth and trends in the market for its services in China, the demand for and the market acceptance of its brand and services, competition in its industry in China, relevant government policies and regulations relating to the corporate structure, business and industry, fluctuations in general economic and business conditions in China. Further information regarding this and other risks is included in Bright Scholar's filings with the Securities and Exchange Commission. Bright Scholar undertakes no duty to update any forward-looking statement except as required under applicable law.
During this call, we will be referring to GAAP and non-GAAP financial measures. We use certain non-GAAP measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for net income attributable to our company or other consolidated statements of comprehensive income data prepared in accordance with the U.S. GAAP.
Please note, all numbers are in RMB and all comparisons referred to year-over-year comparisons, unless otherwise stated.
With that, I'll turn the call over to our Executive Vice Chairman, Jerry He. Jerry?
Junli He -- Executive Vice Chairman
Thank you. Good morning and good evening to everyone who is joining our call today to review 2019 fourth fiscal quarter and full fiscal year results. You may notice that we have refined the design of our earnings presentation with subsidization across all sections, including the company overview. This is the time to take a look. Again for those who are new to our company, we have included a corporate introduction from Slide 5 to Slide 13 which you can download from our IR website.
I will start today's call with an update on our recent acquisitions, then turn the call to Dori, to provide an annual review of our business and operational performance, and share with you our strategic initiative, integration and the optimization synergy from our fast expanding portfolio of business. I will then pass the call to Dora for a detailed financial review before we take your questions.
Let's turn to Slide 15. Fiscal 2019 marks a transformational year as we heightened M&A activity to scale up our global business, expand our global footprint and to broaden our service offerings. We're successfully expanding our global school networks through organic and acquisitive growth. In particular, the acquisition of Bournemouth Collegiate School, St. Michael's School, Bosworth Independent College and CATS College which firmly established our positions outside of China.
I'm pleased to report that we have completed these transactions by September 2019, and of November 7, 2019 we own seven schools in the UK and one boarding schools in the United States, with a total of more than 2,500 students enrolled. The expansion into UK and the U.S. markets represented nearly a first step in our long-term goal of growing our footprint beyond China and capitalizing on global growth opportunities. As of this release date, we have a global network of 88 schools with a total student capacity of over 67,000 students.
As I mentioned in our fiscal third quarter earnings call, the financial impact of these transactions is significant. As we expand our revenue streams and a structural change in our revenue mix, the impact will be fully reflected in the revenue growth for fiscal 2020, and I will leave it to Dora to provide you with more details later.
As a company with commitment to delivering academic excellence, we take a great pride in our reputation as a trusted provider of premium education services. The strategic investment over the last two fiscal years are pivotal to accelerated pace of building Bright Scholar into a global premier education service company. And our goal is to create the best learning experience for our students and a substantial value for our stakeholders.
With this positive note, I will turn the call over to Derek. Derek, please.
Derek Feng -- Chief Executive Officer
Thank you, Jerry. Good morning and good evening. Bright Scholar delivered the third consecutive year of robust top line growth while ahead of expectations in fiscal 2019.
Let's turn to Slide 19 for our fiscal fourth quarter and the full year results. Factoring in the contributions from CATS, the revenue for the quarter was RMB711.6 million, it represents a year-over-year growth of 82.6%, of which a RMB128 million came from CATS, while the adjusted gross margin was up a 102.3%, we incurred operating and net income loss as a result of seasonality impact from CATS and M&A related costs incurred to drive long-term growth.
For fiscal 2019, the revenue growth exceeded top end of our revised guidance by 4.2 percentage points to 49.1%, with 31.3% from organic growth and a 17.8% from acquisitions. Adjusted gross profit, adjusted operating income, adjusted EBITDA and adjusted net income grew by 57.5%, 22%, 20.2% and 15.2% respectively. As Jerry mentioned, fiscal 2019 marked a transformational year of Bright Scholar.
For the company, fiscal 2019 also represented a significant inflection point in our business scale, growing to RMB2.563 billion of 59.1% increase from RMB1.719 billion in fiscal 2018, a 92.9% increase from RMB1.328 billion in fiscal year 2017, the year of our IPO.
Furthermore, the growth of our overseas schools and the complementary education segments have significantly expanded and diversified our business revenue streams as shown in Slide, 17. The overseas schools and a complementary education segments accounted for 26.2% of the total revenue for fiscal 2019 as compared to 11.4% of the total revenue for fiscal 2018. The revenue contributions from the two segments will be even more for fiscal 2020. I will leave it to Dora to share with you more details in her remarks.
You may also note that we have grouped our portfolio of businesses in three major segments, namely domestic K-12 but it includes international schools, bilingual schools and in kindergartens in China, overseas schools that include all our overseas schools such as Bournemouth. St Michael's, Bosworth and CATS and complementary education that includes language training, overseas study counseling, career counseling, CEMS and others.
Moving onto Slide 18. As you can see from the chart, our business is highly scalable and we have a successful track record of expanding our global school capacities, we have expanded our global network of schools by 27.7% to 83 schools in fiscal 2019, including six schools from overseas. Our capacity maintain a steady growth of 13.3% to a total capacity of 65,000 at 96 seats with 3,357 from overseas school segment. We have strong enrollment growth of 27.4% for fiscal 2019 as our investment in marketing continued to yield returns.
Our unwavering commitment to provide very high quality education services for our students has in turn attributed to our solid organic growth, underpinning strong enrollment and a steady increase in ASP as shown in Slide 19. For fiscal 2019, across international schools, bilingual schools and the kindergartens in our domestic K-12 segment, the average tuition fees per student continue to maintain healthy growth.
Turning to Slide 20, our ability to help students to achieve academic excellence consistently has further solidified our market leadership in the international and bilingual school education space. Our students continue to achieve superb results, with 93% of our 2019 graduating class were admitted to global top 50 institutions and a 97% were admitted to global top 100 institutions. Domestically, we have also achieved brilliant results in China Zhongkao, which 82% of our grade nine graduates from bilingual schools have been amended into local top public high schools in 2019.
With our fast growing portfolio of businesses, I'd like to share with you the near-term strategic initiatives, I believe of paramount importance to effectively managing and continuously growing our global business.
Please turn to Slide 21. The focus on our three major business segments enhancing our capabilities.
Let's move on to Slide 22. We further advanced operating synergies within the group across four key business functions in area of student recruiting, with the least selling programs and joined recruitment events to optimize referral and cross-sell opportunities in the development of programs to optimize synergies between our UK schools and our summer camp and study tours business. In teachers training and recruitment by integrating CATS training model into ours and recruit foreign teachers through Can-Achieve and CATS. And in the area of IT, by sharing part of DBC CRM and operating system with Bright Scholar businesses.
We are seeing tremendous opportunities from our growing portfolio and integration is key to unfold f these opportunities. In particular, our existing overseas schools driving integration of existing overseas businesses is one of our top strategic imperatives.
Please turn to Slide 23 for the broad framework of our initiatives. Our integration plan is proceeding well and we have made a measurable progress in a number of areas. We are developing a culture of collaboration among our portfolio companies, at the same time, as we integrate the overseas schools into the Bright Scholar family of companies. These collaboration will focus on low to mid-term opportunities across seven supporting functions to maximize synergies and optimize operational efficiency.
In concluding my remarks, we are extremely proud of the tremendous progress our Bright Scholar team has made throughout the year. Executing against our ambitious goal of building Bright Scholar into a Global Premium Education service company. Our overarching strategy to expand our business portfolios, enhance academic performance, strengthen operational performance, optimized synergies from acquired businesses broaden our service offerings and diversify our revenue streams we'll continue to deliver.
As the fiscal 2020 gets under way, we are working from a strong position to vigorously pursue our exciting growth opportunities through three major business segments; domestic K-12, overseas schools and Complementary Education. Our teams remain focused on overachieving our targets laid out last year and delivering sustainable value to our shareholders.
So at this point, I like to turn the call over to Dora to discuss our financials. Dora?
Dongmei Li -- Chief Financial Officer
Thank you, Derek. Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year-over-year comparisons unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis.
Please turn to Slide 25. Fiscal 2019 marks a transformational year of Bright Scholar, also represents a significant inflection point in our business scale. Our revenue grew 49.1% year-over-year to RMB2.563 billion, exceeding our top line guidance by 4.2%. For the quarter, revenue was RMB711.6 million, up 82.6%. Revenue from domestic K-12 segment including international schools, bilingual schools and kindergartens maintained strong momentum with revenue up 24.1% to RMB1.89 billion for the year and 24.6% to RMB393.5 million for the quarter.
We have completed CATS transaction in early July and consolidated CATS for July and August, two months. CATS contributed RMB121.8 million revenue for the quarter under the fiscal year. Total revenue from our overseas schools including Bournemouth School for the quarter was RMB148.5 million and RMB181.8 million for the fiscal year. Overseas school revenue accounted for 20.9% and a 7.1% for the quarter and on a yearly basis. We have successfully grown our Complementary Education through organic and acquisition. Revenue from Complementary Education for the quarter was RMB169.6 million, up a 129.3% accounted for 23.8% as compared to 19%.
On a yearly basis, revenue was RMB419.8 million, up 150.4% accounted for 19.1% of total revenue compared to 11.4% last fiscal year. Revenue contribution from acquired business including Can-Achieve, Foundation, Hangzhou Impression and DBC, was approximately RMB285 million or 58% of the segment for the fiscal year.
On Slide 26. We remain focused on strengthening our school operation efficiency and improving our cost efficiency. Cost of revenue for the quarter accounted for 70.2% for total revenue, down from 72.6%. On a yearly basis, the cost of revenue was 61.9% down from 63.4%. Teaching staff cost, the primary cost contributor accounted for 37.8% for the quarter, down from 49.5%. On a fiscal year basis, staff cost was 38.2%, down from 43.8%. Our domestic K-12 average student-teacher ratio for fiscal year 2019 was consistent with last year at 8.8%.
Continue to Slide 27. During the past fiscal year, we have successfully expanded our global school network through organic and acquisitive growth, and also through strategic investment to support our long-term growth and some short-term impact from M&A and M&A related costs. For the fourth fiscal quarter, adjusted SG&A expenses as a percentage of revenue was 35.6%, up 7.9%, of which 4.9% was due to M&A and M&A related expenses. For the fiscal year, adjusted SG&A as a percentage of revenue was 25%, up 5.3% compared to that of last fiscal year, while M&A and M&A related expenses accounted 3.2% for the increase. Adjusted SG&A for existing organic business as a whole was 20.7% compared to 18.6% of last fiscal year.
Move to Slide 28. Slide 28 elaborates adjusted SG&A as a percentage of revenue by expense type. The increase was primarily due to the increase in the compensation and the benefit incurred from additional general and administrative stuff to support business expansion, marketing expense to promote our brand, M&A related costs and other professional service to support the business growth as a listed company as well as the incremental SG&A expenses incurred from acquired business.
On Slide 29. Slide 29 shows our gross profit and the gross profit margin. Our gross profit and gross profit margin grow steadily across segment for the quarter and the fiscal year. Gross profit was RMB212.1 million for the quarter and the RMB977 million for the year, up 98.8% and 55.5% respectively. Gross margin was 29.8%, up from 27.4% for the quarter and 38.1% for the year, up from 36.6%. For domestic K-12 segment including international schools, bilingual schools and the kindergarten, gross profit for the quarter was a RMB122 million, up 38.1% and RMB755 million for the year, up 30.4%. Gross margin for domestic K-12 was 31% up from 28% for the quarter and the gross margin was 39.9% for the year, up from 38%.
For overseas schools, gross profit for the quarter was RMB25.2 million, with a gross margin of 17%. On a yearly basis, gross profit was RMB36.3 million with a gross margin of 19.9%. For complementary education, gross profit for the quarter was RMB64.9 million, up 254.5% and RMB185.7 million for the year, up 278.5%. Gross margin for our complementary education was 38.3%, up from 24.8%. For fiscal year 2019, gross margin for complementary education was 37.8%, up from 25%.
Continue on Slide 30. As mentioned before, CATS was consolidated for July and August and incurred a loss for the last two months. This was due to the seasonality impact as most of overseas growth has minimal term revenue recognized in these two months. Therefore, the total adjusted EBITDA for the quarter was RMB4 million including loss of RMB36.6 million from CATS as compared to RMB34.9 million in the fourth quarter last fiscal year.
Adjusted EBITDA margin was 0.6% compared to 8.9% last quarter. On a yearly basis, adjusted EBITDA was RMB491.6 million as compared to RMB408.8 million last year. Adjusted EBITDA margin was 19.2% compared to 23.8%.
Adjusted net loss for the quarter was RMB32.1 million, also including net loss of RMB39.9 million from CATS compared to RMB23.8 million income last fiscal quarter. Adjusted net margin was negative 4.5% as compared to 6.1%. On a yearly basis, adjusted net income was RMB327.7 million compared to RMB284.6 million. Adjusted net margin was 12.8% as compared to 16.6%.
Moving on to guidance. Our guidance for fiscal 2020, please turn to Slide 32. For fiscal year ending August 31, 2020, we expect our total revenue in the range of RMB4 billion to RMB4.1 billion, representing an year-over-year growth of 56% to 60% based on existing business and without potential acquisitions. We expect our average student enrollment to be between approximately 53,200 and 53,600, representing a year-over-year increase of 14% to 15%. We expect to open seven new kindergartens during fiscal 2020. We are also in preparation to open 11 kindergartens, two bilingual International Schools for 2021. Beyond 2021, we have four schools and 33 kindergartens contracted for operation.
Please refer to table in Slide 34 and Slide 35 for the condensed income statement and Slide 36 show the reconciliation for SG&A, EBITDA and income on a GAAP to non-GAAP results.
A quick note on our cash and the bank balance in Slide 37. As of August 31, 2019, the company's cash and cash equivalent and restricted cash totaled RMB3.265 billion or USD446.4 million as compared to RMB2.057 billion as of May 31, 2019. For the fiscal year ended August 31, 2019, the company's capital expenditure was approximately RMB165 million, up 32% as compared to last fiscal year. The capex spending including capex for new kindergarten openings and improvement and ramp-up capex for our existing schools.
This concludes my financial update. Now, I will turn to Derek for his closing remarks.
Derek Feng -- Chief Executive Officer
Thank you, Dora. This past fiscal year has been a transformational one for us. The expansion of our global network of schools and the beginning of realizing some of the key benefits from the acquisitions made over the last few years have formed a strong foundation for our future success. As we begin the new fiscal year, we see tremendous focus and energy throughout the company as we execute our near and long-term strategy. This passion will be a tailwind as we drive to accelerate global business expansion and delivering strong results in the quarters to come.
This concludes our prepared remarks, and we like to open the call for questions. Operator?
Questions and Answers:
Operator
[Operator Instructions] Our first question today will come from Christine Cho with Goldman Sachs. Please go ahead.
Christine Cho -- Goldman Sachs -- Analyst
Hi. Thank you, Jerry, Derek and Dora for the detailed explanation. I have three quick questions. So one is related to the acquired overseas schools. So it seems like St. Michael's and Bosworth was also consolidated this quarter. Can you just give us the rough impact on sales in OP this quarter for these two schools as well? Secondly, I think the guidance on the top line is very, very clear. But I was wondering what would be -- would you be able to give us the rough guidance as to the impact of -- on bottom line of these acquired overseas schools in 2020? And lastly, I think, in reading page 27 of the presentation, is it fair to understand that the M&A related costs that you kind of broke out, that's more of an one-off related to the M&A this quarter? And then more -- that wouldn't be recurring going forward, but the M&A portion that 1.2% that's there that will actually be continuing to come through over the next few quarters. Is that a right understanding? Thank you.
Dongmei Li -- Chief Financial Officer
Hi Christine. This is Dora. First question, in the past fiscal quarter, we only completed the transaction of CATS, the other two Independent school, as Jerry mentioned during his remarks, we complete those two independent school in early September. So their contribution will be started in the first fiscal quarter of 2020. I think that should answer your first question. And second question, the guidance, the impact of the overseas school.
Junli He -- Executive Vice Chairman
I think the guidance for the bottom line -- we haven't gave out the guidance for the bottom line. So we can't give you the guidance for the revenues on an [Indecipherable].
The third line, I can take the third line as well. The third line is really about the M&A related costs, because we have done numerous amount of work on the M&A. We closed a few. So that's all what happened in Q4. Going forward, that is a deal by deal basis. And so it may or may not happen, but I would not expect to continue like that for every quarter, because we have a little bit more down in the last quarter than I guess in the past.
Christine Cho -- Goldman Sachs -- Analyst
Okay. Thank you.
Operator
[Operator Instructions] Our next question will come from Tommy Wong with China Merchants Securities. Please go ahead. Mr. Wong, your line is open for questions.
Tommy Wong -- China Merchants Securities -- Analyst
Hi, sorry, I was on mute, sorry. Hi management. Thanks for taking my call. Quick question on the enrollment growth you guided. Can you kind of -- could you share with us, which international school, bilingual schools, kindergarten, which part of the enrollment growth will be faster or slower. If I think for '19 actually both segments grows really fast. Is that going to continue in 2020 kind of more we're even double-digit growth. And can you also shed some light on the ASP because on the slide shows actually kindergarten ASP has almost no increase and then but you're paying more [Indecipherable] international schools and the bilingual segment. Thank you.
Derek Feng -- Chief Executive Officer
Yeah, I will -- Tommy, this is Derek, I will take it. First of all, we give you the overall enrollment growth to get altogether as a group and in term of the growth in each one of the sub-segments we would expect to be fairly consistent with the past.
Second with regards to the ASP that we have noted in the kindergarten section because of the acquisition was being consolidated in the last year, it was a lower priced group of kindergartens. So therefore, the blended rate of -- the impact on the ASP growth has been negative 1%, but excluding that lower priced segment that was acquired, our overall as kindergarten's ASP has been consistent with the past ASP growth.
Tommy Wong -- China Merchants Securities -- Analyst
Okay. Thank you.
Operator
[Operator Instructions] At this time, there are no further questions in the question queue and this will conclude our question and answer session. I would now like to turn the call over to Derek Feng for any closing remarks.
Derek Feng -- Chief Executive Officer
Thank you very much for joining the conference call. Please feel free to contact us if you have any further questions. We wish everyone a good day. Thank you very much.
Operator
The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect.
Duration: 38 minutes
Call participants:
Ruby Yim -- Investor Relations Counsel
Junli He -- Executive Vice Chairman
Derek Feng -- Chief Executive Officer
Dongmei Li -- Chief Financial Officer
Christine Cho -- Goldman Sachs -- Analyst
Tommy Wong -- China Merchants Securities -- Analyst
