Four Seasons Education (FEDU) Misses Q2 EPS by 1c, Revenues Miss

Four Seasons Education (NYSE: FEDU) reported Q2 EPS of $0.05, $0.01 worse than the analyst estimate of $0.06. Revenue for the quarter came in at $13.7 million versus the consensus estimate of $16.43 million.

• 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 guidancerange. 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."

For earnings history and earnings-related data on Four Seasons Education (FEDU) click here.

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