Four Seasons Education Reports Second Quarter Fiscal 2019 Unaudited Financial Results

SHANGHAI, Oct. 24, 2018 /PRNewswire/ -- Four Seasons Education (Cayman) Inc. ("Four Seasons Education" or the "Company") (NYSE: FEDU), a leading after-school math education service provider for elementary school students in Shanghai, today announced its unaudited financial results for the second quarter fiscal year 2019, ended August 31, 2018.

Second Quarter Fiscal Year 2019 Financial and Operational Highlights

• Revenue increased by 20.7% to RMB93.4 million (US$13.7 million) from RMB77.4 million in the same period of last year.
• Gross profit decreased by 1.3% to RMB48.8 million (US$7.1 million) from RMB49.4 million in the same period of last year. Gross margin was 52.3%, compared with 63.9% in the same period of last year.
• Operating income decreased by 55.5% to RMB8.5 million (US$1.2 million) from RMB19.0 million in the same period of last year.
• Adjusted operating income⁽¹⁾ (non-GAAP) decreased by 34.5% to RMB16.6 million (US$2.4 million) from RMB25.3 million in the same period of last year. Adjusted operating margin (non-GAAP) was 17.7% compared with 32.6% in the same period of last year.
• Net income decreased by 58.8% to RMB6.4 million (US$0.9 million) from RMB15.5 million in the same period of last year.
• Adjusted net income⁽²⁾ (non-GAAP) decreased by 27.8% to RMB15.7 million (US$2.3 million) from RMB21.8 million in the same period of last year. Adjusted net margin⁽³⁾ (non-GAAP) was 16.8%, compared with 28.2% in the same period of last year.
• Basic and diluted net income per American Depositary Share ("ADS") attributable to ordinary shareholders was RMB0.14 (US$0.02) and RMB0.13 (US$0.02), respectively, compared with RMB0.42 and RMB0.38, respectively, for the same period of last year. Each two ADSs represent one ordinary share.
• Adjusted basic and diluted net income per ADS attributable to ordinary shareholders (non-GAAP) was RMB0.33 (US$0.05) and RMB0.31 (US$0.05), compared with RMB0.64 and RMB0.58, respectively, for the same period of last year.
• Number of learning centers reached 54 as of August 31, 2018, compared to 33 as of August 31, 2017.
• Total student enrollment⁽⁴⁾ reached 20,624, up 63.7% from 12,596 during the same period of last year.

"During the second quarter, we proactively adjusted our business to adapt to the evolving regulatory environment and market demand, and we are pleased to deliver solid operational performance and financial results," said Mr. Peiqing Tian, Chairman and Chief Executive Officer of Four Seasons Education. "We have been consistently extending our course offerings to cover more subjects for students at broader age groups. To further enrich our course offerings during soft seasons, we launched a variety of shorter-duration, interest-oriented classes and special synchronous tutoring programs during the second quarter in an effort to drive enrollment and student engagement. In addition, we continued our prudent expansion by adding five new learning centers in Shanghai and launching our first learning center in Zhuji city of Zhejiang province, bringing the total number of learning centers up to 54. As a result of our diligent efforts, we recorded 63.7% year-over-year enrollment growth during the quarter with higher enrollment diversity in terms of subjects and grades, which is in line with our strategy to enhance our competitiveness in the evolving after-school education market.

"Besides delivering high-quality class content, our strong teaching capabilities and extensive educational experience also allow us to develop effective educational products and organize attractive learning activities. During the second quarter, we continued to improve our self-assessment system with an enhanced test database and successfully concluded our summer math camp in collaboration with East China Normal University. Recently, we were invited to present our math lab program in the 4th China Education Innovation Expo, which is a clear testament to this program and a recognition of our educational quality and innovation capability.

"We believe the market demand for after-school tutoring is still significant. We will continue to address the market need for synchronous tutoring to help students in different age groups review and consolidate knowledge to improve their study performance in various subjects. In addition, we are confident in our ability to maintain compliance with the latest regulatory requirements in terms of operating licenses and educational content as well as the teaching facility environment. As a leading after-school education service provider, we are committed to cooperating with related authorities to generate a more regulated market environment in the long run," Mr. Tian concluded.

Ms. Yi (Joanne) Zuo, Director and Chief Financial Officer of Four Seasons Education, commented, "We were pleased to achieve solid financial results during the second quarter with net revenue increasing 20.7% year over year, exceeding the high end of our guidance range. The encouraging topline performance was achieved as a result of our previous marketing effort as well as our initiatives of proactively providing a variety of shorter-duration classes and special programs. We have also realized further success in diversifying our program offerings for students in different age groups with greater revenue contributions from our Chinese curriculum, middle-school program and kindergarten program. On the expenses front, we have diligently continued to invest in our math lab program and online self-assess product development to further strengthen our service offering and educational quality. At the same time, we have prudently made investments in learning center network expansion and facility upgrades to provide a premium learning environment for our students. All these efforts, in return, will better prepare us in the evolving market and regulatory environment. Looking forward, we are committed to maintaining our educational capability and business flexibility while focusing more on the quality growth of our business with efficient operating and stringent cost control."

Second Quarter Fiscal Year 2019 Financial Results

Revenue increased by 20.7% to RMB93.4 million (US$13.7 million) for the second quarter of fiscal year 2019 from RMB77.4 million in the same period of last year, primarily due to tuition increases in standard programs, increased revenue contribution from the Ivy Program and the small-class for standard programs, development of kindergarten and middle school and non-math programs as well as the expansion of physical learning center network, including the contribution from the newly acquired business that closed transaction in the first quarter of fiscal year 2019.

Cost of revenue increased by 59.6% to RMB44.6 million (US$6.5 million) for the second quarter of fiscal year 2019 from RMB28.0 million in the same period of last year, primarily attributable to costs associated with the increase in faculty staff cost as well as learning centers' rental, utilities and maintenance and depreciation costs.

Gross profit decreased by 1.3% to RMB48.8 million (US$7.1 million) for the second quarter of fiscal year 2019 from RMB49.4 million in the same period of last year. Gross margin was 52.3% for the second quarter of fiscal year 2019, compared with 63.9% in the same period of last year. The decrease in gross margin was primarily due to the expansion of new centers and increase in faculty staff cost as well as the discounts granted to students to promote the Company's middle school and non-math programs.

General and administrative expenses increased by 41.6% to RMB32.0 million (US$4.7 million) for the second quarter of fiscal year 2019 from RMB22.6 million in the same period of last year, primarily attributable to increased staff cost of RMB4.7 million  (US$0.7 million), an RMB2.0 million (US$0.3 million) consulting service fee and increased share-based compensation expenses of RMB1.7 million (US$0.2 million).

Sales and marketing expenses increased by 6.4% to RMB8.3 million (US$1.2 million) for the second quarter of fiscal year 2019 from RMB7.8 million in the same period of last year.

Operating income decreased by 55.5% to RMB8.5 million (US$1.2 million) for the second quarter of fiscal year 2019 from RMB19.0 million in the same period of last year. Adjusted operating income, which excludes share-based compensation expenses, decreased by 34.5% to RMB16.6 million (US$2.4 million) for the second quarter of fiscal year 2019 from RMB25.3 million in the same period of last year.

Interest income increased by 46.1% to RMB1.9 million (US$0.3 million) for the second quarter of fiscal year 2019 from RMB1.3 million in the same period of last year, primarily due to increased cash and cash equivalent, and efficient cash management.

Income tax expenses decreased by 5.0% to RMB6.2 million (US$0.9 million) for the second quarter of fiscal year 2019 from RMB6.5 million in the same period of last year.

Other expenses, net were RMB1.2 million (US$0.2 million) for the second quarter of fiscal year 2019 from RMB0.6 million in the same period of last year, primarily due to an RMB1.2 million (US$0.2 million) fair value change of a 2-year Pimco fund-linked note with 100% minimum redemption level at maturity that the Company intends to hold to maturity. Other expense was partially offset by foreign currency revaluation gain.

Net income was RMB6.4 million (US$0.9 million) during the second quarter of fiscal year 2019, down 58.8% from RMB15.5 million in the same period of last year. Adjusted net income, which excludes share-based compensation expenses and fair value change of the Company's long-term investment, decreased by 27.8% to RMB15.7 million (US$2.3 million) from RMB21.8 million in the same period of last year. Adjusted net margin was 16.8%, compared with 28.2% in the same period of last year.

Basic and diluted net income per ADS attributable to ordinary shareholders for the second quarter of fiscal year 2019 was RMB0.14 (US$0.02) and RMB0.13 (US$0.02), respectively, compared with RMB0.42 and RMB0.38, respectively, for the same period of last year. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the second quarter of fiscal year 2019 was RMB0.33 (US$0.05) and RMB0.31 (US$0.05), compared with RMB0.64 and RMB0.58, respectively, for the same period of last year.

Cash and cash equivalents. As of August 31, 2018, the Company had cash and cash equivalents of RMB560.9 million (US$82.1 million), a decrease of 3.8% compared with RMB583.3 million as of February 28, 2018, primarily due to an RMB100.8 million (US$14.8 million) cash payment for the acquisition of a renowned early childhood education provider in Shanghai. The decrease was partially offset by the operating cash inflow generated in the first six months of fiscal 2019.

Shares Outstanding

As of August 31, 2018, the Company had a total of 24,966,591 ordinary shares outstanding, or 49,933,182 ADSs. Each two ADSs represent one ordinary share.

First Six Months Fiscal Year 2019 Financial Results

Revenue increased by 23.0% to RMB179.8 million (US$26.3 million) for the first six months of fiscal year 2019 from RMB146.1 million in the same period of last year, primarily due to tuition increases in standard programs, increased revenue contribution from the Ivy Program and the small-class for standard programs, development of kindergarten and middle school and non-math programs as well as the expansion of physical learning center network, including the contribution from the newly acquired business that closed transaction in the first quarter of fiscal year 2019.

Cost of revenue increased by 66.2% to RMB82.8 million (US$12.1 million) for the first six months of fiscal year 2019 from RMB49.8 million in the same period of last year, primarily attributable to costs associated with the increase in faculty staff cost as well as learning centers' rental, utilities and maintenance and depreciation costs.

Gross profit increased by 0.7% to RMB97.0 million (US$14.2 million) for the first six months of fiscal year 2019 from RMB96.3 million in the same period of last year. Gross margin was 54.0% for the first six months of fiscal year 2019, compared with 65.9% in the same period of last year. The decrease in gross margin was primarily due to the expansion of new centers and increase in faculty staff cost, as well as the discounts granted to students to promote the Company's middle school and non-math programs.

General and administrative expenses increased by 32.5% to RMB57.0 million (US$8.4 million) for the first six months of fiscal year 2019 from RMB43.1 million in the same period of last year, primarily attributable to increased staff cost of RMB8.0 million (US$1.2 million), increased share-based compensation expenses of RMB3.1 million (US$0.5 million) and an RMB2.0 million (US$0.3 million) consulting service fee.

Sales and marketing expenses increased by 8.7% to RMB16.4 million (US$2.4 million) for the first six months of fiscal year 2019 from RMB15.1 million in the same period of last year.

Operating income decreased by 38.3% to RMB23.6 million (US$3.5 million) for the first six months of fiscal year 2019 from RMB38.2 million in the same period of last year. Adjusted operating income, which excludes share-based compensation expenses, decreased by 23.2% to RMB37.7 million (US$5.5 million) for the first six months of fiscal year 2019 from RMB49.1 million in the same period of last year.

Interest income increased by 130.5% to RMB4.7 million (US$0.7 million) for the first six months of fiscal year 2019 from RMB2.0 million in the same period of last year, primarily due to increased cash and cash equivalent, and efficient cash management.

Income tax expenses increased by 6.7% to RMB14.3 million (US$2.1 million) for the first six months of fiscal year 2019 from RMB13.4 million in the same period of last year.

Other expense, net reached RMB3.4 million (US$0.5 million) for the first six months of fiscal year 2019 from RMB0.7 million in the same period of last year, primarily due to an RMB5.7 million (US$0.8 million) fair value change of a 2-year Pimco fund-linked note with 100% minimum redemption level at maturity that the Company intends to hold to maturity. Other expense was partially offset by foreign currency revaluation gain.

Net income was RMB14.4 million (US$2.1 million) during the first six months of fiscal year 2019, down 49.6% from RMB28.5 million in the same period of last year. Adjusted net income, which excludes share-based compensation expenses and fair value change of the Company's long-term investment, decreased by 13.2% to RMB34.1 million (US$5.0 million) from RMB39.4 million in the same period of last year. Adjusted net margin was 19.0%, compared with 26.9% in the same period of last year.

Basic and diluted net income per ADS attributable to ordinary shareholders for the first six months of fiscal year 2019 was RMB0.30 (US$0.04) and RMB0.28 (US$0.04), respectively, compared with RMB0.76 and RMB0.72, respectively, for the same period of last year. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the first six months of fiscal year 2019 was RMB0.71 (US$0.10) and RMB0.67 (US$0.10), respectively, compared with RMB1.15 and RMB1.09, respectively, for the same period of last year.

Business Outlook

For the third quarter of fiscal year 2019, the Company expects to generate revenue in the range of RMB89.9 million to RMB91.6 million, representing year-over-year growth of approximately 3.0% to 5.0%.

The above guidance reflects the Company's current and preliminary view, which is subject to change.

Conference Call

The Company's management will host an earnings conference call at 8:00 AM U.S. Eastern Time on October 24, 2018 (8:00 PM Beijing/Hong Kong time on October 24, 2018).

Dial-in details for the earnings conference call are as follows:

Participants should dial-in at least 5 minutes before the scheduled start time and ask to be connected to the call for "Four Seasons Education."

Additionally, a live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.sijiedu.com.

A replay of the conference call will be accessible approximately one hours after the conclusion of the live call until October 31, 2018, by dialing the following telephone numbers:

About Four Seasons Education (Cayman) Inc.

Four Seasons Education (Cayman) Inc. is a leading after-school math education service provider for elementary school students in Shanghai. The Company's vision is to unlock students' intellectual potential through high quality and effective math education that can profoundly benefit students' academic, career and life prospects. The Company provides educational programs that are primarily focused on elementary-level math, and have expanded in recent years to also include other subjects, including physics, chemistry, and languages, and other grade levels, including kindergarten-level and middle school-level programs. The Company's proprietary educational content is designed to cultivate students' interests and enhance their cognitive and logic abilities. The Company develops its educational content through a systematic development process and updates it regularly based on student performance and feedback. Such process allows the Company to effectively drive better learning outcomes and serve students of different ages, aptitude levels and learning objectives. The Company's faculty is led by a group of experienced senior educators, including recognized scholars, award-winning teachers, world-class competition champions and top mathematics Olympiad coaches in China. Over the years, the quality of the Company's education services has been demonstrated by its students' outstanding academic performance.

About Non-GAAP Financial Measures

In evaluating the Company's business, the Company considers and use certain non-GAAP measures, including primarily adjusted operating income, adjusted net income, adjusted margin and adjusted basic and diluted net income per ADS attributable to ordinary shareholders, as supplemental measures to review and assess the Company's operating performance. To present each of these non-GAAP measures, the Company excludes (i) share-based compensation expenses, and (ii) fair value change of long-term investment. The presentation of these non-GAAP financial measures 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.

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses and fair value change of long-term investment that may not be indicative of the Company's operating performance from a cash perspective. The Company believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance and liquidity. The Company also believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in the Company's financial and operational decision making. A limitation of using non-GAAP measures is that these non-GAAP measures exclude share-based compensation charges and fair value change of long-term investment that have been and will continue to be for the foreseeable future a significant recurring expense in the Company's business. The Company compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars at a specified rate solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.8300 to US$1.00, the rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on August 31, 2018.

Safe Harbor Statement

This press release contains statements of a forward-looking nature. These statements, including the statements relating to the Company's future financial and operating results, are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "will," "expects," "believes," "anticipates," "intends," "estimates" and similar statements. Among other things, management's quotations and the Business Outlook section contain forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. Potential risks and uncertainties include, but are not limited to, those relating to its ability to attract new students and retain existing students, its ability to deliver a satisfactory learning experience and improving their academic performance, PRC regulations and policies relating to the education industry in China, general economic conditions in China, and the Company's ability to meet the standards necessary to maintain listing of its ADSs on the NYSE or other stock exchange, including its ability to cure any non-compliance with the NYSE's continued listing criteria. All information provided in this press release is as of the date hereof, and the Company undertakes no obligation to update any forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. Further information regarding risks and uncertainties faced by the Company is included in the Company's filings with the U.S. Securities and Exchange Commission, including its registration statement on Form F-1 filed in connection with its initial public offering.

For investor and media inquiries, please contact:

In China:
Four Seasons Education (Cayman) Inc.
Ellen Wang
Tel: +86 (21) 6317-6678
E-mail: IR@fsesa.com

The Piacente Group, Inc.
Xi Zhang
Tel: +86 (10) 5730-6200
E-mail: fourseasons@tpg-ir.com

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

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