RYB Education, Inc. Reports Third Quarter 2019 Financial Results

BEIJING, Nov. 20, 2019 /PRNewswire/ -- RYB Education, Inc. ("RYB" or the "Company") (NYSE: RYB), a leading early childhood education service provider in China, today announced its unaudited financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Operational and Financial Summary

  • Number of students enrolled at directly operated facilities was 30,184 as of September 30, 2019, compared with 23,010 as of September 30, 2018. 
  • Net revenues increased by 24.0% to $43.7 million, compared with $35.3 million for the third quarter of 2018.
  • Gross profit was $3.1 million, compared with $1.2 million for the third quarter of 2018.
  • Net loss attributable to ordinary shareholders of RYB for the third quarter of 2019 was $3.3 million, compared with $4.3 million for the third quarter of 2018. Adjusted net loss attributable to ordinary shareholders[1] of RYB for the third quarter of 2019 was $2.5 million, compared with $1.9 million for the third quarter of 2018.
  • Cash generated from operating activities was $12.0 million in the third quarter of 2019, compared to $14.7 million for the third quarter of 2018.

First Nine Months of 2019 Financial Highlights

  • Net revenues were $131.5 million, compared with $111.5 million for the first nine months of 2018.
  • Gross profit was $16.9 million, compared with $17.7 million for the first nine months of 2018.
  • Net loss attributable to ordinary shareholders of RYB for the first nine months of 2019 was $2.7 million, compared with $2.3 million for the same period last year. Adjusted net income attributable to ordinary shareholders of RYB for the first nine months of 2019 was $0.2 million, compared with $4.1 million for the first nine months of 2018.
  • Cash generated from operating activities was $22.3 million for the nine months of 2019, compared with $9.4 million for the first nine months of 2018. 

"In the third quarter of 2019, amidst the evolving macroeconomic conditions, we are cognizant of changes in the early childhood education market in China. Nevertheless, we continued to pursue our strategic focus of balanced growth during this quarter by making improvements to our existing operations as well as developing additional original curriculum, products and services. We believe firmly in our continuous emphasis on providing quality education to families in China and abroad, and the social benefits and long-term value it brings. For this quarter, we are also encouraged by innovations and enhancements made across aspects of our existing platform, particularly the progress our team has made in enhancing our internal operations management system and in adding digital components to our educational products and services. Following the Singapore acquisition, we furthered our "multi-layered brand portfolio" strategy to cater to a broader student and family base, and are excited to see positive results of early integration as we have introduced curriculum and brands to directly operated facilities in China from our operations in Singapore, which now serves as an additional base for developing quality content and educational practices. We look forward to more near and long-term benefits to our students and families from the collective efforts of both teams on curriculum, products, and services," said Ms. Yanlai Shi, Co-founder, Director and Chief Executive Officer of RYB.

"As we continue to solidify our existing services and offerings, our content development team continued to make positive contributions to our various initiatives in new courses and improved operations system. We received positive feedback from the initial trial phases and expect good reception from parents and business partners once those are launched to the market upon completion. Although discretionary education spending has been affected by softer macro-economic conditions, as a comprehensive educational service provider, we are fully braced for the shifting market conditions as we leverage technologies and adapt proactively and remain committed to delivering differentiated and age-appropriate educational solutions to nurture and inspire each child and to serve families," concluded Ms. Shi.

Mr. Hao Gu, Chief Financial Officer of RYB, said, "In third quarter which is a typical low season for our business, our net revenues reached $43.7 million, growing 24.0% year-over-year thanks to the solid performance at our directly operated facilities, as we recorded a healthy enrollment increase of 31.2% compared with the third quarter last year. Despite the robust performance of our kindergartens, our net revenues were slightly below our guidance range, due to softer than expected result from our play-and-learn center franchise operations. In response, we are in the process of upgrading and diversifying our course offerings available to the market and help our franchisees to improve operations and stimulate sales.

"As we execute our growth strategies consistently, our gross margin and operating margin reached 7.1% and negative 10.2% during the quarter, improved from 3.5% and negative 14.9% respectively from the same period a year ago. Looking ahead, we will continue to strike a balance between stable growth and improved profitability, by practicing disciplined cost management while still making sound investments that will lead the way to our long-term vision," concluded Mr. Gu.

Third Quarter 2019 Financial Results

Net Revenues

Net revenues for the third quarter of 2019 increased by 24.0% to $43.7 million from $35.3 million for the same quarter of 2018.

Service revenues for the third quarter of 2019 increased by 26.8% to $39.5 million from $31.2 million for the same quarter of 2018. The increase was primarily contributed by increased tuition fees owing to a student-mix shift and an increase in the number of students enrolled at directly operated facilities. The increase in student enrollment was mainly driven by the higher utilization rates at ramping facilities and contribution from directly operated facilities in Singapore, which were acquired during last quarter.

Product revenues for the third quarter of 2019 increased by 2.8% to $4.2 million from $4.1 million for the same quarter of 2018. The increase was primarily due to an increase in the average selling price of products related to courses offered by the Company.

Cost of Revenues

Cost of revenues for the third quarter of 2019 was $40.6 million, representing a 19.3% increase from $34.0 million for the same quarter in 2018. Cost of revenues for services for the third quarter of 2019 was $38.5 million, compared with $31.9 million for the same quarter of 2018. The increase was primarily due to an increase in staff compensation at the Company's directly operated facilities and direct operating cost as the Company's facilities network expanded. Cost of products revenues for the third quarter of 2019 was $2.1 million, which remained flat compared with $2.2 million for the same quarter of 2018.

Gross Profit and Gross Margin

Gross profit for the third quarter of 2019 increased by 155.6% to $3.1 million, compared with $1.2 million for the same quarter of 2018.  

Gross margin for the third quarter of 2019 was 7.1%, compared with 3.5% for the same quarter last year. The increase in gross margin was primarily due to higher utilization rate at directly operated facilities, increased average tuition fees from a student-mix shift and increased average selling price of courses-related products offered by the Company.

Operating Expenses

Total operating expenses for the third quarter of 2019 were $7.6 million, compared with $6.5 million for the same quarter of 2018. Excluding share-based compensation expenses, operating expenses were $6.8 million, an increase of 37.3% from $4.9 million for the third quarter of 2018.

Selling expenses for the third quarter of 2019 were $0.8 million, compared with $0.8 million for the same quarter of 2018.

General and administrative ("G&A") expenses for the third quarter of 2019 were $6.7 million, compared with $5.6 million for the same quarter of 2018. Excluding share-based compensation expenses, G&A expenses were $5.9 million for the third quarter of 2019, representing a 45.0% increase from $4.1 million for the same quarter of 2018. The increase in G&A expenses excluding share-based compensation expenses was primarily due to higher payroll expenses and additional expenses related to our Singapore business, which were acquired during the previous quarter by the Company. The share-based compensation expenses included in G&A expenses were $0.8 million for the quarter.

Operating loss

Operating loss for the third quarter of 2019 was $4.4 million, compared with $5.3 million of operating loss for the same quarter last year. Adjusted operating loss[2] was $3.7 million for the third quarter of 2019, compared with $3.7 million of operating loss for the same quarter of 2018.

Net loss

Net loss attributable to ordinary shareholders of RYB for the third quarter of 2019 was $3.3 million, compared with $4.3 million for the same quarter of 2018. Adjusted net loss attributable to ordinary shareholders of RYB, which excludes the impact of $0.8 million of share-based compensation expense for the third quarter of 2019, was $2.5 million, compared with $1.9 million for the same quarter of 2018.

Basic and diluted net losses per American depositary share ("ADS") attributable to ordinary shareholders of RYB for the third quarter of 2019 were $0.12 and $0.12, compared with $0.15 and $0.15, respectively, for the same quarter of 2018. Each ADS represents one Class A ordinary share.

Adjusted basic and diluted net losses per ADS attributable to ordinary shareholders[3] of RYB for the third quarter of 2019 were $0.09 and $0.09, compared with $0.06 and $0.06, respectively, for the same quarter of 2018.

EBITDA[4] for the third quarter of 2019 was a loss of $1.3 million, compared with a loss of $2.0 million for the same period of 2018. Adjusted EBITDA[5] for the third quarter of 2019 was a loss of $0.5 million, compared with a loss of $0.4 million for the same quarter of 2018.

Balance Sheet

As of September 30, 2019, the Company had total cash and cash equivalents of $80.1 million, compared with $104.1 million as of December 31, 2018. The decrease in cash balance was mainly due to payment for acquisition and other investments activities as well as share repurchase executed in the first half of 2019.

[1]

Adjusted net income (loss) attributable to ordinary shareholders is a non-GAAP financial measure, which is defined as net income (loss) attributable to ordinary shareholders excluding share-based compensation expenses and changes of redeemable non-controlling interests. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" included elsewhere in this earnings release.

[2]

Adjusted operating loss is a non-GAAP financial measure, which is defined as operating income excluding share-based compensation expenses. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" elsewhere in this earnings release.

[3] 

Adjusted basic and diluted net income per ADS attributable to ordinary shareholders is a non-GAAP financial measure, which is defined as basic and diluted net income per ADS attributable to ordinary shareholders excluding share-based compensation expenses. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" elsewhere in this earnings release.

[4]

 EBITDA is defined as net income excluding depreciation, amortization and income tax expenses. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" included elsewhere in this earnings release.

[5]

Adjusted EBITDA is a non-GAAP financial measure, which is defined as net income excluding depreciation, amortization, income tax expenses, and share-based compensation expenses. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" included elsewhere in this earnings release.

Operating Cash Flow

Cash generated from operating activities were $12.0 million during the third quarter of 2019, compared with $14.7 million from operating activities during the third quarter of 2018.

First Nine Months of 2019 Financial Results

Net Revenues

Net revenues for the first nine months of 2019 were $131.5 million, compared with $111.5 million for the first nine months of 2018.

Services revenues for the first nine months of 2019 were $119.5 million, compared with $100.8 million for the same period last year. The increase was primarily contributed by increased tuition fees owing to a student-mix shift, enrollment increase at directly operated ramping facilities and contribution from acquired facilities in Singapore. The increase in tuition fees revenue was partially offset by the decrease in the franchise services revenue, as the franchise services revenue in the second quarter of 2018 was relatively higher due to the recording of an accounting estimate change.

Products revenues for the first nine months of 2019 were $12.0 million, compared with $10.7 million for the same period in 2018. The increase was primarily contributed from an increase in the amount of merchandise sold through the Company's franchise network as well as an increase in the average selling price of products related to courses offered by the Company.

Cost of Revenues

Cost of revenues for the first nine months of 2019 was $114.7 million, compared with $93.8 million for the first nine months of 2018. Cost of services revenues for the first nine months of 2019 was $108.6 million, compared with $88.0 million for the same period in 2018. The increase was primarily due to an increase in staff compensation at the Company's directly operated facilities and higher direct operating cost, as the Company continued to moderately expand its facility network. Cost of products revenues for the first nine months of 2019 was $6.1 million, compared with $5.8 million for the same period last year. The increase was in line with the increase in product revenue.

Gross Profit and Gross Margin

Gross profit for the first nine months of 2019 was $16.9 million, compared with $17.7 million for the first nine months of 2018.

Gross margin for the first nine months of 2019 was 12.8%, compared with 15.9% for the same period last year.

Operating Expenses

Total operating expenses for the first nine months of 2019 were $20.0 million, compared with $20.6 million for the same period last year. Excluding share-based compensation expenses, operating expenses were $17.1 million for the first nine months of 2019.

Selling expenses were $2.1 million for the first nine months of 2019, compared with $1.5 million for the same period last year.

G&A expenses for the first nine months of 2019 were $17.9 million, compared with $19.1 million for the same period last year. Excluding share-based compensation expenses, G&A expenses were $14.9 million for the first nine months of 2019, an 8.9% increase from $13.7 million for the same period of 2018.

Operating Income/loss

Operating loss for the first nine months of 2019 was $3.2 million, compared with $2.9 million for the same period last year. Adjusted operating loss for the first nine months of 2019 was $0.1 million, compared with adjusted operating income of $2.6 million for the same period last year.

Net Income/loss

Net loss attributable to ordinary shareholders of RYB for the first nine months of 2019 was $2.7 million, compared with $2.3 million for the same period last year. Adjusted net income attributable to ordinary shareholders of RYB, which excludes the impact of share-based compensation expenses, for the first nine months of 2019 was $0.2 million, compared with $4.1 million for the same period last year.

Basic and diluted net losses per ADS attributable to ordinary shareholders of RYB for the first nine months of 2019 were $0.09 and $0.09, compared with $0.08 and $0.08, respectively, for the same period last year. Each ADS represents one Class A ordinary share.

Adjusted basic and diluted net income per ADS attributable to ordinary shareholders of RYB for the first nine months of 2019 were $0.01 and $0.01, respectively, compared with $0.14 and $0.13, respectively, for the same period last year.

EBITDA for the first nine months of 2019 was $6.2 million, compared with $5.3 million for the same period last year. Adjusted EBITDA for the first nine months of 2019 was $9.3 million, compared with $10.8 million for the same period last year.

Outlook

For the fourth quarter of 2019, the Company's management currently expects:

-  Net revenues to be between $49.0 million and $51.0 million, representing a year-over-year increase of approximately 9% to 13%.

The above outlook is based on the current market conditions and reflects the Company management's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

Conference Call 

Management will hold a conference call at 8:00 a.m. Eastern Time on Wednesday, November 20, 2019 (9:00 p.m. Beijing Time on November 20, 2019) to discuss financial results and answer questions from investor and analysts. Listeners may access the call by dialing:

United States (toll free):

1-888-317-6003

International:  

1-412-317-6061

Mainland China (toll free):      

400-120-6115

Hong Kong (toll free):    

800-963-976

Participant Elite Entry Number:  

3800477

Participants should dial-in at least 10-15 minutes before the scheduled start time and ask to be connected to the RYB Education, Inc. conference call. 

A telephone replay will be available approximately one hour after the call until November 27, 2019 by dialing:

United States (toll free):      

1-877-344-7529

International:    

1-412-317-0088

Replay Access Code:    

10136902

Additionally, a live and archived webcast of the conference call will be available at http://ir.rybbaby.com.

About RYB Education, Inc.

Founded on the core values of ''Care'' and ''Responsibility,'' "Inspire" and "Innovate," RYB Education, Inc. is a leading early childhood education service provider in China. Since opening its first play-and-learn center in 1998, the Company has grown and flourished with the mission to provide high-quality, individualized and age-appropriate care and education to nurture and inspire each child for his or her betterment in life. During its two decades of operating history, the Company has built "RYB" into a well-recognized education brand and helped bring about many new educational practices in China's early childhood education industry. RYB's comprehensive early childhood education solutions meet the needs of children from infancy to 6 years old through structured courses at kindergartens and play-and-learn centers, as well as at-home educational products and services.

For more information, please visit http://ir.rybbaby.com

Use of Non-GAAP Financial Measures

We use EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, each a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes.

EBITDA is defined as net income excluding depreciation, amortization, and income tax expenses; adjusted EBITDA is defined as net income excluding depreciation, amortization, income tax expenses, and share-based compensation expenses; adjusted operating income is defined as operating income excluding share-based compensation expenses; adjusted net income attributable to ordinary shareholders is defined as  net income attributable to ordinary shareholders excluding share-based compensation expenses and changes of redeemable non-controlling interests; and adjusted basic and diluted net income per ADS attributable to ordinary shareholders are defined as basic and diluted net income per ADS attributable to ordinary shareholders excluding share-based compensation expenses and changes of redeemable non-controlling interests.

We believe that EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, help identify underlying trends in our business that could otherwise be distorted by the effect of certain expenses that we include in income from operations and net income. We believe that EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, provide useful information about our operating results, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, should not be considered in isolation or construed as an alternative to net income or any other measure of performance or as an indicator of our operating performance. Investors are encouraged to review the historical adjusted financial measures to the most directly comparable GAAP measures. EBITDA, adjusted EBITDA, adjusted operating income, adjusted net income, and adjusted basic and diluted net income per ADS, presented here may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's brand recognition and market reputation; student enrollment in the Company's teaching facilities; the Company's growth strategies; its future business development, results of operations and financial condition; trends and competition in China's early childhood education market; changes in its revenues and certain cost or expense items; the expected growth of the Chinese early childhood education market; Chinese governmental policies relating to the Company's industry and general economic conditions in China. Further information regarding these and other risks is included in the Company's filings with the SEC. All information provided in this press release and in the attachments is as of the date of this press release, and the Company undertakes no obligation to update any forward-looking statement, except as required under applicable law.

For investor and media inquiries, please contact:

In China:
RYB Education, Inc.
Investor Relations
Tel: 86-10-8767-5752 
E-mail:  ir@rybbaby.com

The Piacente Group, Inc.
Ross Warner
Tel: +86 (10) 5730-6200
E-mail: ryb@tpg-ir.com  

In the United States:
The Piacente Group, Inc.  
Brandi Piacente
Tel: +1-212-481-2050
E-mail: ryb@tpg-ir.com

 

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)





As of


September

30, 2019

December

31, 2018

Current assets:



Cash and cash equivalents

80,072

104,084

Accounts receivable, net

2,778

876

Inventories

7,389

4,811

Prepaid expenses and other current assets

15,232

11,243

Loan receivables-current

1,119

582

Total current assets

106,590

121,596




Non-current assets:



Restricted cash

734

746

Property, plant and equipment, net

47,723

45,896

Acquired intangible assets

17,892

4,491

Goodwill

50,931

25,096

Long-term investments

4,832

4,805

Deferred tax assets

18,742

16,195

Other non-current assets

13,982

24,048

Operating lease right-of-use assets

Loan receivables – non-current

84,770

-

-

582

Total assets

346,196

243,455




Liabilities



Current liabilities:



Prepayments from customers, current portion (including
prepayments from customers of the consolidated VIEs without
recourse to the Group of $5,499 and $6,647 as of September 30,
2019 and December 31, 2018, respectively)

6,639

6,647

Accrued expenses and other current liabilities (including accrued
expenses and other current liabilities of the consolidated VIEs
without recourse to the Group of $49,598 and $54,443 as of S
eptember 30, 2019 and December 31, 2018, respectively)

56,914

60,429

Income taxes payable (including income taxes payable of the
consolidated VIEs without recourse to the Group of $12,668 and
$11,298 as of September 30, 2019 and December 31, 2018,
respectively) 

12,823

11,685

Deferred revenue, current portion (including deferred revenue of t
he consolidated VIEs without recourse to the Group of $43,536
and $29,578 as of September 30, 2019 and December 31, 2018,
respectively)

44,156

29,578

Operating lease liabilities, current portion (including operating
lease liabilities of the consolidated VIEs without recourse to the
Group of $13,144 and nil as of September 30, 2019 and
December 31, 2018, respectively)

16,417

-

Long-term debt, current portion (including long-term debt of the
consolidated VIEs without recourse to the Group of nil and nil as
of September 30, 2019 and December 31, 2018, respectively)

78

-

 

Total current liabilities

137,027

108,339







Non-current liabilities:



Prepayments from customers, non-current portion (including
prepayments from customers of the consolidated VIEs without
recourse to the Group of $1,999 and $3,582 as of September 30,
2019 and December 31, 2018, respectively)

1,999

3,582

Deferred revenue, non-current portion (including deferred
revenue of the consolidated VIEs without recourse to the Group
of $6,825 and $5,567 as of September 30, 2019 and December 31,
2018, respectively)

8,118

6,915

Other non-current liabilities (including other non-current
liabilities of the consolidated VIEs without recourse to the Group
of $8,727 and $8,541 as of September 30, 2019 and December 31,
2018, respectively) 

10,465

8,541

Deferred income tax liabilities (including deferred income tax
liabilities of the consolidated VIEs without recourse to the Group
of $1,333 and $1,110 as of September 30, 2019 and December 31,
2018, respectively) 

3,460

1,110

Operating lease liabilities, non-current portion (including
operating lease liabilities of the consolidated VIEs without
recourse to the Group of $70,489 and nil as of September 30,
2019 and December 31, 2018, respectively) 

72,553

-

Long-term debt, non-current portion (including long term debt of
the consolidated VIEs without recourse to the Group of nil
and nil as of September 30, 2019 and December 31, 2018, respectively) 

26

-

Total liabilities

233,648

128,487




Mezzanine equity

Redeemable non-controlling interests

8,419

1,628




Equity



Ordinary shares

29

29

Treasury stock

(12,000)

-

Additional paid-in capital

138,932

135,881

Statutory reserve

3,362

3,362

Accumulated other comprehensive income

(1,968)

(122)

Accumulated deficit

(33,086)

(30,421)

Total RYB Education, Inc. shareholders' equity

95,269

108,729

Non-controlling interest

8,860

4,611

Total equity

104,129

113,340

Total liabilities, mezzanine equity and total equity

346,196

243,455





 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands of U.S. dollars, except share, ADS, per share and per ADS data)



Three Months Ended September 30,

Nine Months Ended September 30,

2019

2018

2019

2018

Net revenues:





   Services

39,513

31,151

119,542

100,753

   Products

4,220

4,106

12,006

10,741

Total net revenues

43,733

35,257

131,548

111,494

Cost of revenues:





   Services

38,539

31,870

108,575

87,976

   Products

2,073

2,166

6,082

5,784

Total cost of revenues

40,612

34,036

114,657

93,760

Gross profit

3,121

1,221

16,891

17,734






Operating expenses





  Selling Expenses

845

844

2,128

1,537

  General and administrative

6,719

5,628

17,920

19,090

Total operating expenses

7,564

6,472

20,048

20,627






Operating loss

(4,443)

(5,251)

(3,157)

(2,893)

Interest income

71

465

631

1,503

Government subsidy income

170

94

390

384

Gain on disposal of subsidiaries

-

-

697

1

Impairment loss on intangible assets and goodwill

-

-

(416)

-






Loss before income taxes

(4,202)

(4,692)

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