PR Newswire | Sep 28, 2021 07:10AM EDT

Results

09/28 06:09 CDT

First High-School Education Group Announces First Half 2021 Unaudited Financial Results--First Half Revenues of RMB231.9 million, up 24.8% year-over-year--Operating 36 School Programs with over 35,000 students as of September 1, 2021 BEIJING, Sept. 28, 2021

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 anindustry report commissioned by First High-School Education Group and preparedby China Insights Industry Consultancy Limited.

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

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 customerswere 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 agreementswere 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 (??????????????) (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 PMSeptember 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 China4001-209107

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 Code2526106

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 GroupLillian LiuTel: +86-13062818313E-mail: liuyi@dygz.com

The Blueshirt GroupMs. Susie WangPhone: +86 138-1081-7475Email: susie@blueshirtgroup.com

In the United States:

The Blueshirt GroupMs. Julia QianPhone: +1 973-619-3227Email: 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 otherwisenoted)

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 17,997 7,450 1,154agreements

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 (379) - - consideration

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, - 1,388 215net of tax

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 shareoutstanding

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 otherwisenoted)

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 30,903 13,447 2,083 doubtful accounts

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 - 3 - issued and outstanding as of December 31, 2020 and June 30, 2021, respectively)

Class B ordinary shares (US$0.00001 par value; nil and 100,000,000 shares authorized, nil and 47,529,220 shares - 3 - issued and outstanding as of December 31, 2020 and June 30, 2021, respectively)

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 138,713 21,484 (95,661)

Non-controlling interests 187 13,527 2,095

Total (deficit)/equity (95,474) 152,240 23,579

Commitments and contingencies - - -

636,072 608,541 94,251 Total liabilities and (deficit)/equity

*Number of ordinary shares reflect on a retrospective basis the effect ofshares issued in connection with the corporaterestructuring 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 netincome:

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 andnonforfeitable options granted to a consultant.

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SOURCE First High-School Education Group Co., Ltd