First High-School Education Group Announces First Half 2021 Unaudited Financial Results

Rhea-AI Summary

First High-School Education Group (NYSE: FHS) reported its unaudited financial results for the six months ending June 30, 2021. Total revenues reached RMB231.9 million (US$35.9 million), up 24.8% from the previous year. However, the company experienced a net loss of RMB3.8 million (US$0.6 million), contrasting with a net income of RMB31.9 million in 2020, primarily due to non-recurring expenses. Adjusted net income fell 64.9% to RMB11.2 million (US$1.7 million). The company is operating 36 school programs, serving over 35,000 students, and plans to expand further amidst regulatory changes.

Positive

• Revenues increased by 24.8% to RMB231.9 million (US$35.9 million).
• Student enrollment improved, with 36 school programs now operational, serving over 35,000 students.
• Entered a strategic partnership for education growth funding.

Negative

• Net loss of RMB3.8 million (US$0.6 million) compared to net income of RMB31.9 million in the previous year.
• Gross profit decreased by 3.6% year-over-year, resulting in a gross margin drop from 34.8% to 26.9%.
• Operating expenses surged by 103.7%, primarily due to increased staff costs and marketing expenditures.

BEIJING, Sept. 28, 2021 /PRNewswire/ -- First High-School Education Group Co., Ltd. ("First High-School Education Group" or the "Company") (NYSE: FHS), the largest operator of private high schools in Western China and the third largest operator in China^[1], today announced its unaudited financial results for the six months ended June 30, 2021.

First Half 2021 Financial Highlights

• Total revenues were RMB231.9 million (US$35.9 million), an increase of 24.8% from RMB185.8 million in the first half of 2020.
• Gross profit was RMB62.3 million (US$9.6 million), a decrease of 3.6% from RMB64.6 million in the first half of 2020.
• Net loss was RMB3.8 million (US$0.6 million), compared to a net income of RMB31.9 million in the first half of 2020. Such loss was primarily incurred by certain non-recurring expenses, details of which are explained thereunder.
• Adjusted net income^[2] (Non-GAAP) was RMB11.2 million (US$1.7 million), a decrease of 64.9% from RMB31.9 million in the first half of 2020.

Operational Highlights

• As of September 1, 2021, the Company is operating 36 school programs with a total of over 35,000 students.
• In late September 2021, the Company entered into an agreement to operate a high school in Sichuan province.
• In May 2021, the Company acquired the majority stake of a company providing live AI online teaching services in Beijing.
• In mid-September 2021, the Company announced a strategic partnership aiming to jointly raise an education growth fund focusing on the Company's school expansion.

[1] In terms of student enrollment as of September 1, 2021, according to an industry report commissioned by First High-School Education Group and prepared by China Insights Industry Consultancy Limited.

[2] Adjusted net income is a non-GAAP measure. See "Non-GAAP measure" in this press release. A reconciliation of the Company's most directly comparable GAAP measure to historical non-GAAP financial measure has been provided in the tables captioned "Reconciliation of GAAP to Non-GAAP Measure" included at the end of this press release, and investors are encouraged to review the reconciliation.

CEO & CFO Comments

Mr. Shaowei Zhang, Chairman and Chief Executive Officer of First High-School Education Group commented: "In the first half of 2021, our improved number of student enrollments translated into healthy topline growth, with 24.8% year-over-year growth to RMB231.9 million for total revenue.  Facing tough regulatory environment, we remain committed to driving rapid growth with further operation expansion while improving utilization rate for our existing schools. During this period, we had 8 new school programs opened in multiple provinces, including 3 new high school programs, 3 new Gaokao repeaters school programs, 1 new public-school management services program, and 1 middle school program. As of September 1, 2021, we are running 36 school programs with a total of over 35,000 students across Yunnan province, Guizhou province, Shanxi province, Shaanxi province, Inner Mongolia Autonomous Region, Sichuan province and Chongqing, with a utilization rate of 62.3%, compared to 55.3% as of December 31, 2020. Therein, (1) we are operating 17 high school programs with a total of over 18,500 students and school utilization rate of approximately 53.4%,and 7 Gaokao repeaters school programs with a total of over 1,600 students and school utilization rate of approximately 62.0%; (2) we are cooperating with local governments in Yunnan province and Inner Mongolia Autonomous Region to provide management services for 4 public schools with a total of over 5,500 students; and (3) we are operating 8 middle school programs with a total of over 9,700 students and school utilization rate of approximately 82.7%. Complying with relevant regulatory guidelines, we look forward to further solidify our leading position in China's private high school and Gaokao repeater school programs sectors. We also aim to expand into new geographical markets with strong demands."

Mr. Zhang continued: "In addition to the 36 fully operated school programs, we have also entered into agreements to secure more school openings next year. One particular case worth highlighting is that in late September, we entered into an agreement to lease newly constructed school premises and facilities to sponsor a high school with capacity for over 2,800 student beds in Sichuan province. The leased school premise was previously designed for K-9 education, and was recently leased to us primarily due to the owner's operational difficulties amid the changing regulatory environment and our strong brand name in operating high schools. This agreement marks our high school business entrance into Sichuan province, where we aim to explore and satisfy the large market demand with similar arrangements."

Mr. Zhang continued: "We also achieved meaningful progress in enhancing our education resources and services. On June 1, 2021, we announced our majority stake acquisition in Beijing Long-Spring Future Plus Education Technology Co., Ltd., or Beijing Long-Spring Future Plus, previously known as Beijing Tomorrow Future Plus Education Technology Co., Ltd., a technology-driven education company providing premium full-time live AI online teaching services. This combination will further improve the overall quality of our education system, especially for China's central and western regions where there are strong demands for high quality high school and Gaokao repeater school programs. This system will allow us to further empower our existing business in operating private high schools, school programs for Gaokao repeaters, and management services for public schools."

"We are highly confident in the market opportunities for China's private high school and Gaokao repeaters school programs. Therefore, in mid-September we announced a strategic partnership with Sichuan Fuhang Capital Equity Investment Fund Management Co., Ltd., aiming to jointly setup an education growth fund dedicated to supporting the rapid expansion of our school network. We believe the above milestones will further strengthen our leading position and competitiveness in China's private high school and Gaokao repeaters school program sectors." Mr. Zhang concluded.

First Half 2021 Financial Results

Total Revenues

Total revenues were RMB231.9 million (US$35.9 million), an increase of 24.8% from RMB185.8 million in the first half of 2020. The increase was primarily driven by (1) greater student enrollment due to the opening of new schools and the increased number of students enrolled in our existing schools; (2) increased average tuition fee per student in most of our existing schools; (3) higher boarding fees due to the increased number of students enrolled.

Revenues from customers were RMB224.4 million (US$34.8 million), an increase of 33.7% from RMB167.8 million in the first half of 2020. The increase was primarily driven by (1) higher student enrollment due to the opening of new schools and the increased number of students enrolled in our existing schools; (2) increased average tuition fee per student in most of our existing schools; (3) higher boarding fees due to the increased number of students enrolled.

Revenues from government cooperative agreements were RMB7.5 million (US$1.2 million), a decrease of 58.6% from RMB18.0 million in the first half of 2020, primarily caused by the delayed payments from government for the relevant cooperative arrangements.

Cost of revenues 

Cost of revenues were RMB169.6 million (US$26.3 million), an increase of 39.9% from RMB121.2 million in the first half of 2020. The increase was primarily due to the increased staff cost from opening of new schools, and other expenses in connection with our strategic expansion.

Gross profit

Gross profit was RMB62.3 million (US$9.6 million), a decrease of 3.6% from RMB64.6 million in the first half of 2020.

Gross margin was 26.9%, compared with 34.8% in the first half of 2020. The decreased gross margin was primarily due to the higher cost of revenues resulted from (1) increased staff costs due to increased number of employees and increased compensation level to attract more talents; (2) increased school operating expenses, especially for new schools with relatively lower cost efficiency than our existing schools.

Net operating expenses

Net operating expenses were RMB58.2 million (US$9.0 million), an increase of 103.7% from RMB28.6 million in the first half of 2020.

• Selling and marketing expenses were RMB2.6 million (US$0.4 million), an increase of 97.6 % from RMB1.3 million in the first half of 2020. The increase was primarily due to the increased expenses in brand promotion and marketing activities in relation to the assertive school opening plan made at the beginning of this year.
• General and administrative expenses were RMB60.4 million (US$9.4 million), an increase of 109.2% from RMB28.9 million in the first half of 2020. The increase was mainly due to (1) one-off option granted to a strategic investor and consultant; (2) certain non-recurring expenses in relation to the Company's initial public offering in March 2021.
• Government grants were RMB4.8 million (US$0.7 million), an increase of 196.4% from RMB1.6 million in the first half of 2020, primarily due to (1) the earlier distribution process made by the government this year, as government grants in previous years were usually distributed in the second half of the year; (2) the increase in government subsidies in line with the increase in student enrollments and new schools opened.

Income from operations

Income from operations was RMB4.1 million (US$0.6 million), a decrease of 88.7% year-over-year from RMB36.0 million in the first half of 2020.

Interest expense

Interest expense was RMB9.2 million (US$1.4 million), an increase of 1528.6% from RMB0.6 million in the first half of 2020. The significant increase was incurred by the borrowing under financing arrangements which was used for corporate restructuring activities prior to the Company's initial public offering. 

Net loss

Net loss was RMB3.8 million (US$0.6 million), compared to a net income of RMB31.9 million in the first half of 2020.

Adjusted net income^[2] (Non-GAAP)

Adjusted net income (Non-GAAP) was RMB11.2 million (US$1.7 million), a decrease of 64.9% from RMB31.9 million in the first half of 2020.

Update on PRC Regulatory Policy

In May 2021, the State Council of the People's Republic of China promulgated the Implementation Rules for the Law for Promoting Private Education of the PRC (中华人民共和国民办教育民促法) (the "2021 Implementation Rules") which became effective on 1 September 2021. The 2021 Implementation Rules have set series of restrictions and guidelines on operation, taxation, shareholding structure, connected transactions and merge and acquisition of compulsory education.

According to our legal interpretation, the 2021 Implementation Rules mostly affected our middle school operations. However, there still exist uncertainties with respect to the interpretation and enforcement of the 2021 Implementation Rules. The Company will closely monitor the developments related to the 2021 Implementation Rules, and continue to assess the possible impacts on the Company and make any restructures or other applicable actions to mitigate or respond to 2021 Implementation Rules.

Conference Call

First High-School Education Group's management will hold an earnings conference call on Tuesday, September 28, 2021, at 8:00 AM U.S. Eastern Time (8:00 PM September 28, 2021, Beijing/Hong Kong Time). Please dial in 15 minutes before the conference is scheduled to begin using below numbers.

International	1-646-828-8199
United States	1-800-581-5838
Hong Kong	800-961-113
Mainland China	4001-209107
Passcode	737894

A telephone replay of the conference call may be accessed by phone at the following numbers until October 5, 2021.

International	1-719-457-0820
United States	1-888-203-1112
Replay Access Code	2526106

A live and archived webcast of the conference call will be available on the company's investors relations website at https://ir.diyi.top/ .

About First High-School Education Group

First High-School Education Group is the largest operator of private high schools in Western China and the third largest operator in China¹ . The Company aspires to become a leader and innovator of private high school education in China, with the focuses on a comprehensive education management integrating education information consulting, education research project development, education talent management, education technology management, education service management, and general vocational integration development services. For more information, please visit https://ir.diyi.top/. 

Non-GAAP Measure

The Company has provided in this press release financial information that has not been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The Company considers and uses one non-GAAP measure, adjusted net income, as a supplemental measure to review and assess its operating performance. Adjusted net income enables the Company's management to assess the Company's operating results without considering the impact of non-cash charges, including share-based compensation expenses. The Company also believes that the use of the non-GAAP measure facilitates investors' assessment of its operating performance.

The presentation of the non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with U.S. GAAP. Adjusted net income is a non-GAAP measure. A reconciliation of the Company's most directly comparable GAAP measure to historical non-GAAP financial measure has been provided in the tables captioned "Reconciliation of GAAP to Non-GAAP Measure" included at the end of this press release, and investors are encouraged to review the reconciliation.

Exchange Rate

The Company's business is primarily conducted in China and all of the revenues are denominated in Renminbi ("RMB"). This announcement contains translations of certain RMB amounts into U.S. dollars ("USD" or "US$") at specified rates solely for the convenience of the readers. Unless otherwise noted, all translations from RMB to USD are made at the rate of RMB6.4566 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2021. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on June 30, 2021, or at any other rate.

Forward-Looking Statements

This announcement contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, the Company's business plans and development, which can be identified by terminology such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

For Investor and Media Inquiries Please Contact:

In China:

First High-School Education Group
Lillian Liu
Tel: +86-13062818313
E-mail: liuyi@dygz.com

The Blueshirt Group
Ms. Susie Wang
Phone: +86 138-1081-7475
Email: susie@blueshirtgroup.com

In the United States:

The Blueshirt Group
Ms. Julia Qian
Phone: +1 973-619-3227
Email: Julia@blueshirtgroup.com

 

 

First High-School Education Group Co., Ltd.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(All amounts in thousands, except share data and per share data, or otherwise noted)
			Six months ended June 30,
			2020		2021		2021
			RMB		RMB		US$
Revenues
Revenue from customers			167,825		224,402		34,755
Revenue from government cooperative agreements			17,997		7,450		1,154
Total revenues			185,822		231,852		35,909
Cost of revenues			(121,233)		(169,567)		(26,263)
Gross profit			64,589		62,285		9,646
Operating expenses and income
	Selling and marketing expenses		(1,316)		(2,600)		(403)
	General and administrative expenses		(28,867)		(60,397)		(9,354)
	Government grants		1,619		4,798		743
Income from operations			36,025		4,086		632
Other income (expenses):
	Interest income		436		197		31
	Interest expense		(566)		(9,218)		(1,428)
	Change in fair value of contingent consideration		(379)		-		-
	Foreign currency exchange (loss)/gain, net		(155)		467		72
	Others, net		835		1,141		177
Income/(loss) before income taxes			36,196		(3,327)		(516)
Income tax expenses			(4,319)		(455)		(70)
Net income/(loss)			31,877		(3,782)		(586)
Attributable to
Shareholders of the Company			31,877		(3,786)		(587)
Non-controlling interests			-		4		1
Foreign currency translation adjustments, net of tax			-		1,388		215
Comprehensive income/(loss)			31,877		(2,394)		(371)
Attributable to
Shareholders of the Company			31,877		(2,398)		(372)
Non-controlling interests			-		4		1
Earnings/(loss) per ordinary share
Basic and diluted			0.45		(0.05)		(0.01)
Weighted average number of ordinary share outstanding
Basic and diluted			70,488,700		73,234,944		73,234,944

 

 

First High-School Education Group Co., Ltd.
Unaudited Condensed Consolidated Balance Sheets
(All amounts in thousands, except share data and per share data, or otherwise noted)
			As of December 31,		As of June 30,
			2020		2021		2021
	Assets		RMB		RMB		US$
Current assets
	Cash		148,756		130,947		20,281
	Restricted cash		59,600		-		-
	Accounts receivable, net of allowance for       doubtful accounts		30,903		13,447		2,083
	Amounts due from related parties		80,464		1,732		268
	Prepaid expenses and other current assets		53,450		62,042		9,609
	Total current assets		373,173		208,168		32,241
Property and equipment, net			142,407		140,064		21,693
Intangible assets, net			48,976		48,701		7,543
Goodwill			40,218		164,873		25,536
Deferred tax assets			12,274		20,089		3,111
Amounts due from related parties			500		-		-
Other non-current assets			18,524		26,646		4,127
	Total assets		636,072		608,541		94,251

 

			As of December 31,		As of June 30,
			2020		2021		2021
	Liabilities and Equity/(Deficit)		RMB		RMB		US$
Current liabilities
	Contract liabilities		203,482		62,686		9,709
	Deferred revenue from governments		13,770		14,220		2,202
	Borrowings under financing arrangements		64,140		56,131		8,694
	Bank loans		46,638		93,616		14,499
	Accounts payable		8,063		16,063		2,488
	Accrued expenses and other payables		91,253		115,381		17,871
	Income tax payables		15,377		11,609		1,798
	Amounts due to related parties		218,996		14,916		2,310
	Total current liabilities		661,719		384,622		59,571
Contract liabilities			7,274		4,569		708
Deferred revenue from governments			12,370		12,870		1,993
Borrowings under financing arrangements			28,643		28,922		4,479
Other payables			9,607		14,287		2,213
Deferred tax liabilities			11,933		11,031		1,708
	Total liabilities		731,546		456,301		70,672

 

Equity/(Deficit)
	Ordinary shares (US$0.00001 par value;        5,000,000,000 shares authorized; and        70,488,700 shares issued and        outstanding as of December 31, 2020)        *		-		-		-
	Class A ordinary shares (US$0.00001 par        value; nil and 4,900,000,000 shares        authorized, nil and 39,309,480 shares        issued and outstanding as of December        31, 2020 and June 30, 2021,         respectively)		-		3		-
	Class B ordinary shares (US$0.00001 par        value; nil and 100,000,000 shares        authorized, nil and 47,529,220 shares        issued and outstanding as of December        31, 2020 and June 30, 2021,        respectively)		-		3		-
	Additional paid-in capital		64,128		761,344		117,917
	Statutory reserves		41,591		41,591		6,442
	Accumulated deficit		(201,524)		(665,760)		(103,112)
	Accumulated other comprehensive income		144		1,532		237
	Total (deficit)/equity attributable to the        shareholders of the Company		(95,661)		138,713		21,484
	Non-controlling interests		187		13,527		2,095
	Total (deficit)/equity		(95,474)		152,240		23,579
Commitments and contingencies			-		-		-
	Total liabilities and (deficit)/equity		636,072		608,541		94,251
*Number of ordinary shares reflect on a retrospective basis the effect of shares issued in connection with the corporate restructuring in January 2021.

 

 

First High-School Education Group Co., Ltd.
Reconciliation of GAAP to non-GAAP Measure
(All amounts in thousands)
			Six months ended June 30,
			2020		2021		2021
			RMB		RMB		US$
Reconciliation of net income/(loss) to adjusted net income:
Net income/(loss)			31,877		(3,782)		(586)
Add:
Share-based compensation expenses*			-		14,957		2,317
Tax effect			-		-		-
Adjusted net income			31,877		11,175		1,731
*The shares-based compensation expense represented one-off fully vested and nonforfeitable options granted to a consultant.

 

 

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