First High-School Education Group (Ticker: FHS), a leading educational service provider, reported its financial results for the first half of 2024, revealing a decline in revenue and net income compared to the previous year. The decrease is attributed to the absence of revenue from government cooperative agreements and increased general and administrative expenses due to higher staffing and professional services costs. Despite these challenges, the company saw an 8.2% increase in revenue from customers, driven by higher student enrollment.
Key Takeaways
- Total revenues for H1 2024 were RMB 151 million, a 6.7% decrease year-over-year.
- Revenue from customers increased by 8.2% due to increased student enrollment.
- No revenue was collected from government cooperative agreements in H1 2024.
- Gross profit decreased by 17.3% to RMB 52.3 million, with a gross margin of 34.6%.
- Operating expenses increased significantly, with general and administrative expenses rising due to more staff and professional services.
- Net income from continuing operations plummeted by 88.9% to RMB 4.2 million.
- Adjusted net income decreased by 72% to RMB 10.1 million.
Company Outlook
- First High-School Education Group is actively renegotiating government cooperative contracts to reduce or eliminate the number of publicly sponsored students, aiming to mitigate the impact of lost government revenue on their financial performance.
- The company completed its 2024 fall semester student recruitment, increasing its total student enrollment to 35,151 across 23 school programs.
- Investments in human resources and IT departments are being made to improve management functions and incorporate digitalization in the education process.
Bearish Highlights
- The company did not receive any revenue from government cooperative agreements, which historically accounted for about 10% of total revenue.
- General and administrative expenses increased due to additional staffing and professional services, which negatively impacted the company's profitability.
Bullish Highlights
- The company's strong brand and recruitment efforts led to an 8.2% increase in revenue from customers.
- The total number of students enrolled and school programs managed by the company grew, indicating a potential for future revenue growth.
Misses
- The company missed the revenue that was expected from government cooperative agreements due to local government budget constraints.
- Net income and adjusted net income saw significant declines due to the absence of government revenue and increased operating expenses.
Q&A Highlights
- No questions were asked during the Q&A session, indicating either a lack of concerns from the participants or satisfaction with the information provided by the company's CFO.
First High-School Education Group's financial results for the first half of 2024 reflect the challenges it faces in a tight fiscal environment, with the absence of government revenue and increased costs impacting its bottom line. However, the company's increased customer-based revenue and student enrollment demonstrate resilience and growth potential. The company's ongoing efforts to renegotiate government contracts and invest in key operational areas suggest a proactive approach to navigating the current economic landscape and improving future performance.
Full transcript - None (FHSEY) Q1 2024:
Operator: Good day, ladies and gentlemen. Thank you for standing by and welcome to the First High-School Education Group First Half 2024 Unaudited Financial Results Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and 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. Now I will turn the call over to Mr. Tommy Zhou, Chief Financial Officer of the Company. Mr. Zhou, please proceed.
Tommy Zhou: Thank you, operator, and greetings, investors and friends. Welcome to the First-High School Education Group First Half 2024 Earnings Conference Call. My name is Tommy, Chief Financial Officer of the Company and I will lead today's conference call. We released our most recent earnings 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 Accesswire and OTC Services. The highlights I am about to deliver is based on that release. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities 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 statements, except as required under applicable law. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese Renminbi. With that, thank you all again for joining us. I will briefly spend the next 15 to 20 minutes updating our first half 2024 unaudited financial results for the six months ended June 30th, 2024. For today's earnings release, all of our financial data will be dated June 30th, 2024 and all of our operating data, including the total number of students enrolled and total number of school programs will be dated September 1st, 2024. Comparing the first half of 2024 to the first half of 2023, the company experienced a decline in revenue and net income. There are two main reasons behind the decline. First, no revenue generated from government cooperative contracts and second, increased general and administrative expenses due to increased staffing and professional services used. Our revenue is historically broken down to about 90% collection directly from customers and 10% collection from government cooperative agreements. To be more specific, each year, the company recruits two types of new students, local students who enroll and pay tuition directly to us and publicly sponsored students who enroll via government channels and do not pay tuition directly, but rather the government pays tuition on their behalf. So for the first half of 2024, we were not able to collect any revenue from the government cooperative agreement. The difficulty in collecting from the government had been evident since 2023 as local government's budget has been tight. Many have difficulties meeting their own operational needs such as compensation and utilities and therefore have put payment to us as a much lower priority. We did not experience any improvements in 2024 and we're not able to collect any revenues at all from the government in the first half of 2024. Our solution to this issue is try to renegotiate with the local governments in reducing or dismissing the number of publicly sponsored students we must service each year. If the company is not receiving any revenue on these publicly sponsored students, at least we can also reduce the cost. These renegotiations on cooperative contracts are ongoing and have not reached any conclusion at the moment. As of September 1st, 2024, the company completed our 2024 fall semester student recruitment program. Currently, the total number of students enrolled at our school program and public schools that we provide management service for was 35,151 students and the total number of school programs under our management was 23. The increased number of students compared to last year reflected our strong brand and hard working assets to engage in growth. As a result of the increased recruitment, our revenue from customers increased by 8.2%. And to better service our increased student body, more diverse geographical locations of schools and more challenging macro environment mentioned earlier, the company is investing and improving many management related functions. In the first half of 2024, first, the company invested heavily in its human resource department, increased personnel for hiring, performance evaluation and supervision roles. Also, a new HR system is being developed and deployed that can let all employees view their teaching hours, rankings, reviews and all other HR related tasks much easier. The company's core competitiveness is its teachers and their ability to educate, so we believe in investing in human resource is necessary and much awaited. Furthermore, the company is also upgrading capabilities of our IT department to incorporate digitalization into our entire education process. The company is actively refining our business to ensure schools under management deliver high quality education services with solid academic performances. We will concurrently explore new opportunities and innovate to stay competitive in the industry. That brief highlight concludes the highlights section and now I will go through our line by line financial highlights for the first half 2024. Again, please note that all numbers presented are in RMB unless otherwise stated. All percentages change are on a year-over-year basis unless otherwise specified. Detailed analysis is contained in our earnings press release, which is already available on our IR website and also on Newswire and OTC services. For the financial results for the first half of 2024 for continuing operations, total revenues were $151 million, a decrease of 6.7% from $161.9 million in the first half of 2023. The decrease was primarily because we had no revenue generated from government cooperative agreement. Revenues from customers were $151.1 million, an increase of 8.2% from $139.6 million in the first half of 2023. The increase was primarily driven by increased student enrollment in our existing schools. Revenues from government cooperative agreements were zero compared to $22.3 million in the first half of 2023. The decrease was primarily due to the tightened fiscal budget of the relevant government entities and our ongoing renegotiation of cooperative agreements. Cost of revenues were $98.9 million, which remained stable compared to $98.7 million in the first half of 2023. Gross profit was $52.3 million, a decrease of 17.3% from $63.2 million in the first half of 2023, which delivered gross margin of 34.6% compared with 39% in the first half of 2023 and the decrease was primarily due to fluctuations in first, the number of staff and their compensation. Two, the fluctuations in school operating efficiency, such as utility usage, budget control and third, we had no revenue generated from government cooperative agreements. Total operating expenses were $49.2 million, which increased significantly from $23.6 million in the first half of 2023. Selling and marketing expenses were $1.6 million, an increase of 71.6% from $0.9 million in the first half of 2023. The increase was primarily due to the increased expenses in brand promotion and marketing activities in relation to the increased student enrollment. General and administrative expenses were RMB47.7 million, which increased significantly from RMB22.7 million in the first half of 2023. The increase was primarily due to increased staffing and professional services used in management duties in connection with school management, teaching, supervision, human resources and information technology. Income from operations were RMB3 million, a decrease of 92.4% from RMB39.6 million in the first half of 2023. Such decrease was primarily due to the decrease in gross profit and increase in total operating expenses. Net income from continuing operations were RMB4.2 million, a decrease of 88.9% from RMB37.6 million in the first half of 2023. Net income from discontinued operations were $7 million compared with a net loss of $0.9 million in the first half of 2023. Net income was RMB11.2 million, a decrease of 69.4% from RMB36.7 million in the first half of last year 2023. Lastly, adjusted net income was $10.1 million, a decrease of 72% from $36.7 million in the first half of 2023. Above is my financial highlight briefing. Both Mr. Zhang, the CEO, 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 the Q&A.
Operator: Thank you, sir. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Okay, sir. We currently have no questions in the queue at this time. So I will turn it back to you for any closing comments you may have.
Tommy Zhou: Thank you. Yes. Okay. So thank you everyone. If anyone has any further questions, feel free to e-mail us. Our contact information is displayed in the bottom part of every earnings release. Thank you again, operator, and we thank you all for participating on today's call and for your further support. We appreciate everyone's interest in our company and greatly look forward to reporting to you again next quarter or next year on our progress.
Operator: Thank you, sir, and thank you all again. This concludes today's call and you may now disconnect.
End of Q&A:
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