RYB Education, Inc. Reports Fourth Quarter and Full Year 2017 Financial Results

BEIJING, March 15, 2018 /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 fourth quarter and full year ended December 31, 2017.

Fourth Quarter 2017 Operational and Financial Summary

  • Number of students enrolled at RYB directly operated kindergartens was 21,684 as of December 31, 2017, compared with 17,900 as of December 31, 2016. 
  • Number of franchise play-and-learn centers and kindergartens in operation were 946 and 210 as of December 31, 2017, respectively.
  • Net revenues were $39.1 million, compared with $32.4 million for the fourth quarter of 2016.
  • Gross profit was $7.5 million, compared with $2.4 million for the fourth quarter of 2016.
  • Net income attributable to ordinary shareholders of RYB for the fourth quarter of 2017 was $0.2 million, compared with $0.1 million for the fourth quarter of 2016. Adjusted net income attributable to ordinary shareholders[1] of RYB for the fourth quarter of 2017 was $1.9 million, compared with $0.1 million for the fourth quarter of 2016.
  • Cash used in operating activities was $15.0 million during the fourth quarter of 2017, compared with $4.8 million of cash generated from operating activities during the fourth quarter of 2016.

[1] Adjusted net income attributable to ordinary shareholders is a non-GAAP financial measure, which is defined as net income 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.

Full Year 2017 Financial Summary

  • Net revenues were $140.8 million, compared with $108.5 million for 2016.
  • Gross profit was $29.5 million, compared with $16.9 million for 2016.
  • Net income attributable to ordinary shareholders of RYB for 2017 was $7.1 million, compared with $6.5 million for 2016. Adjusted net income attributable to ordinary shareholders of RYB for 2017 was $11.1 million, compared with $6.5 million for 2016.

Fourth Quarter 2017 Financial Results

Net Revenues

Net revenues for the fourth quarter of 2017 increased to $39.1 million, from $32.4 million for the same quarter of 2016.

Service revenues for the fourth quarter of 2017 increased to $34.8 million, from $29.0 million for the same quarter of 2016. The increase was primarily due to an increase in the number of students enrolled at our directly owned kindergartens and increases in training and other service revenues.

Product revenues for the fourth quarter of 2017 increased to $4.3 million, compared with $3.4 million for the same quarter of 2016. The increase was primarily due to an increase in the amount of merchandise sold through the Company's franchise network.

Cost of Revenues

Cost of revenues for the fourth quarter of 2017 was $31.6 million, compared with $30.0 million for the same quarter of 2016. Cost of services revenues for the fourth quarter of 2017 was $29.3 million, compared with $28.2 million for the same quarter of 2016. The increase was primarily due to an increase in staff compensation at the Company's directly operated kindergartens and play-and-learn centers and, to a lesser extent, an increase in compensation to our franchise-service-and-supervision team. Cost of products revenues for the fourth quarter of 2017 was $2.3 million, compared with $1.8 million for the same quarter of 2016, as the Company sold more products in the three months ended December 31, 2017.

Gross Profit and Gross Margin

Gross profit for the fourth quarter of 2017 was $7.5 million, compared with $2.4 million for the same quarter of 2016.

Operating Expenses

Total operating expenses for the fourth quarter of 2017 were $7.6 million, compared with $2.5 million for the same quarter of 2016. Excluding share-based compensation expenses, operating expenses were $6.0 million.

Selling expenses for the fourth quarter of 2017 were $0.5 million, compared with $0.6 million for the same quarter of 2016.

General and administrative ("G&A") expenses for the fourth quarter of 2017 were $7.1 million, compared with $1.9 million for the same quarter of 2016. Excluding share-based compensation expenses, G&A expenses were $5.5 million for the fourth quarter of 2017. The increase in G&A expense excluding share-based compensation expenses was primarily due to higher cash compensation cost and additional expenses incurred in professional service fees. The share-based-compensation included in G&A expense was $1.6 million for the quarter.

Operating Income/Loss

Operating loss for the fourth quarter of 2017 was $0.2 million, compared with $0.1 million for the same quarter last year. Adjusted operating income[2] was $1.5 million for the fourth quarter of 2017, compared with a loss of $0.1 million for the same quarter of 2016.

Net Income

Net income attributable to ordinary shareholders of RYB for the fourth quarter of 2017 was $0.2 million, compared with $0.1 million for the same quarter of 2016. Adjusted net income attributable to ordinary shareholders of RYB, which excludes the impact of $1.7 million of share-based compensation expense for the fourth quarter of 2017, was $1.9 million, compared to $0.1 million for the same quarter of 2016.

Basic and diluted net income per American depositary share ("ADS") attributable to ordinary shareholders of RYB for the fourth quarter of 2017 were $0.01 and $0.01, respectively, compared with basic and diluted net income per ADS attributable to ordinary shareholders of RYB of $0.00 and $0.00, respectively for the same quarter of 2016. Each ADS represents one Class A ordinary share.

Adjusted basic and diluted net income per ADS attributable to ordinary shareholders[3] of RYB for the fourth quarter of 2017 were $0.06 and $0.06, respectively, compared with adjusted basic and diluted net income per ADS attributable to ordinary shareholders of RYB of $0.00 and $0.00, respectively for the same quarter last year.

EBITDA[4] for the fourth quarter of 2017 was $2.3 million, compared with $1.2 million for the same period last year. Adjusted EBITDA[5] for the fourth quarter of 2017 was $3.9 million, compared with $1.2 million for the same quarter of 2016.

[2] Adjusted operating income 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" elsewhere in this earnings release.

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

Balance Sheet

As of December 31, 2017, the Company had total cash, cash equivalents and term deposits of $158.7 million, compared with $46.7 million as of December 31, 2016.

Operating Cash Flow

Cash used in operating activities was $15.0 million during the fourth quarter of 2017, compared with $4.8 million of cash generated from operating activities during the fourth quarter of 2016. The cash outflow in the quarter was primarily driven by the pay-out of IPO related disbursements and one-off refunds to contracted and potential franchisees.

Full Year 2017 Financial Results

Net Revenues

Net revenues for 2017 was $140.8 million, compared with $108.5 million for 2016.

Service revenues for 2017 was $122.9 million, compared with $95.9 million for 2016.

Product revenues for 2017 was $17.9 million, compared with $12.6 million for 2016. The increase was primarily due to an increase in the amount of merchandise sold through the Company's franchise network.

Cost of Revenues

Cost of revenues for 2017 was $111.3 million, compared with $91.6 million for 2016. Cost of services revenues for 2017 was $101.5 million, compared with $85.4 million for 2016. The increase was primarily due to an increase in staff compensation at the Company's directly operated kindergartens and play-and-learn centers and, to a lesser extent, an increase in compensation to the franchise service and supervision team. Cost of products revenues for 2017 was $9.8 million, compared with $6.3 million for 2016, as the Company sold more products in 2017.

Gross Profit

Gross profit for 2017 was $29.5 million, compared with $16.9 million for 2016.

Operating Expenses

Total operating expenses for 2017 were $20.2 million, compared with $9.3 million for 2016. Excluding share-based compensation expenses, operating expenses were $16.3 million for 2017.

Selling expenses for 2017 were $1.8 million, compared with $1.9 million for 2016.

G&A expenses for 2017 were $18.4 million, compared with $7.4 million for 2016. Excluding share-based compensation expenses, G&A expenses were $14.6 million for 2017. The increase was primarily due to higher expenses incurred in staff compensation and professional service fees.

Operating Income

Operating income for 2017 was $9.3 million, compared with $7.6 million for 2016.

Adjusted operating income for 2017 was $13.3 million, compared with $7.6 million for 2016.

Net Income

Net income attributable to ordinary shareholders of RYB for 2017 was $7.1 million, compared with $6.5 million for 2016.

Adjusted net income attributable to ordinary shareholders of RYB, which excludes the impact of share-based compensation expense, for 2017 was $11.1 million, compared with $6.5 million for 2016.

Basic and diluted net income per American depositary share ("ADS") attributable to ordinary shareholders of RYB for 2017 were $0.29 and $0.27, respectively, compared with basic and diluted net income per ADS attributable to ordinary shareholders of RYB of $0.28 and $0.26, respectively for 2016. Each ADS represents one Class A ordinary share.

Adjusted basic and diluted net income per ADS attributable to ordinary shareholders of RYB for 2017 was $0.45 and $0.42, respectively, compared with adjusted basic and diluted net income per ADS attributable to ordinary shareholders of RYB of $0.28 and $0.26, respectively for 2016.

EBITDA for 2017 was $16.5 million, compared with $12.9 million for 2016. Adjusted EBITDA for 2017 was $20.4 million, compared with $12.9 million for 2016.

Other Operations Update

In late 2017, a female teacher at RYB-operated Xintiandi kindergarten in Beijing was criminally charged with "maltreatment of children under care" in connection with a class she taught (the "Xintiandi incident"). The case remains under investigation. The police have published a report rejecting as rumors certain allegations against RYB that had circulated on internet. Nonetheless, in the wake of the Xintiandi incident, the Company has redoubled its efforts to raise quality standards on the security and safety of its facilities and the management of its faculty and staff. The Company has taken steps to implement more stringent teacher recruitment requirements, by, among other things, improving teacher training, raising teacher compensation, and more closely monitoring and providing support to its staff. In addition, the Company has taken measures to improve its security monitoring and management system. The Company has invited parents to participate in open classes and other efforts aiming to make its facilities more safe and transparent. While the aforementioned actions are expected to increase the Company's operating costs in the near term, they are also expected to help set a strong foundation for a stable high-quality teaching team; create a warm, secure and harmonious environment for its students and their parents and enable the Company to continue delivering high-quality education. These efforts are also expected to help build long-term growth prospects and sustain healthy financial performance.

About RYB Education, Inc.

Founded on the core values of ''Care'' and ''Responsibility,'' 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 individualized age-appropriate education to stimulate and nurture children so they can realize their full potential. During its nearly 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, interest expenses, and income tax expenses; adjusted EBITDA is defined as net income excluding depreciation, amortization, interest expenses, 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 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.

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 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.  
Alan Wang
Tel: +1-212-481-2050
E-mail: ryb@tpg-ir.com

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)



As of


December 31,
2017

December 31,
2016

Current assets:



Cash and cash equivalents

158,691

46,256

Term deposits

-

432

Accounts receivable, net

901

1,022

Inventories

3,549

3,043

Prepaid expenses and other current assets

9,541

9,414

Amounts due from related parties

126

3,816

Total current assets

172,808

63,983




Non-current assets:



Restricted cash

543

372

Property, plant and equipment, net

40,163

29,411

Goodwill

428

401

Long-term investments

256

378

Deferred tax assets

12,430

6,951

Other non-current assets

3,110

2,914

Total assets

229,738

104,410




Liabilities and shareholders' equity



Current liabilities:



Prepayments from customers, current portion(including
prepayments from customers of the consolidated VIE
without recourse to the Group of $ 11,963 and $16,570 as
of  December 31, 2017 and 2016, respectively)

11,968

16,576

Accrued expenses and other current liabilities(including
accrued expenses and other current liabilities of the
consolidated VIE without recourse to the Group of $ 49,742
and $36,063 as of  December 31, 2017 and 2016,
respectively)

51,854

36,436

Income taxes payable(including income taxes payable of
the consolidated VIE without recourse to the Group of
$ 8,505 and $ 5,498 as of December 31, 2017 and 2016,
respectively) 

10,534

5,869

Deferred revenue, current portion(including deferred
revenue of the consolidated VIE without recourse to the
Group of  $22,327 and $20,446 as of December 31, 2017
and 2016, respectively)

22,666

21,406

Total current liabilities

97,022

80,287









 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(in thousands of U.S. dollars)


As of


December 31,
2017

December 31,
2016

Non-current liabilities:



Prepayments from customers, non-current portion
(including prepayments from customers of the consolidated
VIE without recourse to the Group of $ 8,542 and $5,908 as
of December 31, 2017 and 2016, respectively)

8,542

5,908

Deferred revenue, non-current portion (including deferred
revenue of the consolidated VIE without recourse to the
Group of $8,505 and $6,742 as of December 31, 2017 and
2016, respectively)

10,396

8,242

Other non-current liabilities (including other non-current
liabilities of the consolidated VIE without recourse to the
Group of $ 8,483 and $6,012 as of December 31, 2017 and
2016, respectively) 

8,484

6,012

Total liabilities

124,444

100,449




Equity



Ordinary shares

29

23

Additional paid-in capital

129,134

36,420

Statutory reserve

2,678

2,156

Accumulated other comprehensive income

783

381

Accumulated deficit

(28,879)

(35,472)

Total RYB Education, Inc. shareholders' equity

103,745

3,508

Non-controlling interest

1,549

453

Total equity

105,294

3,961

Total liabilities and total equity

229,738

104,410

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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





Three Months Ended
December 31,

Year Ended

December 31,

2017

2016

2017

2016

Net revenues:





   Services

34,755

28,998

122,869

95,936

   Products

4,306

3,434

17,934

12,577

Total net revenues

39,061

32,432

140,803

108,513

Cost of revenues:





   Services

29,292

28,194

101,522

85,356

   Products

2,292

1,845

9,755

6,260

Total cost of revenues

31,584

30,039

111,277

91,616

Gross profit

7,477

2,393

29,526

16,897






Operating expenses





  Selling Expenses

536

643

1,774

1,922

  General and administrative

7,106

1,895

18,418

7,424

Total operating expenses

7,642

2,538

20,192

9,346






Operating (loss) income

(165)

(145)

9,334

7,551

Interest income

435

42

563

107

Government subsidy income

443

210

863

573

Loss on disposal of subsidiaries

-

-

(168)

-






Income before income taxes

713

107

10,592

8,231

Less: Income tax expense

486

26

3,812

2,155






Income before loss in equity method
investments

227

81

6,780

6,076

Loss from equity method investment

(117)

(189)

(239)

(189)






Net income (loss)

110

(108)

6,541

5,887

Less: Net loss attributable to noncontrolling
interest

(89)

(201)

(574)

(618)






Net income attributable to ordinary
shareholders of RYB

199

93

7,115

6,505











Net income per share attributable to ordinary
shareholders of RYB Education, Inc.





  Basic

0.01

0.00

0.29

0.28

  Diluted

0.01

0.00

0.27

0.26

Net income per ADS attributable to ordinary
shareholders of RYB Education, Inc. (Note 1)





  Basic

0.01

0.00

0.29

0.28

  Diluted

0.01

0.00

0.27

0.26

 

Weighted average shares used in calculating
net income per ordinary share





  Basic

29,213,801

23,163,801

24,735,445

23,163,801

  Diluted

31,678,204

24,864,290

26,566,657

24,682,525


     Note 1: Each ADS represents one Class A ordinary share.

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars)





Three Months Ended
December 31,

Year Ended

December 31,


2017

2016

2017

2016

Net income

110

(108)

6,541

5,887

Other comprehensive income (loss), net of tax of
nil:





Change in cumulative foreign currency translation
adjustments

115

(94)

410

(99)

Total comprehensive income

225

(202)

6,951

5,788

Less: Comprehensive loss attributable to non-
controlling interest

(120)

(224)

(566)

(630)

Comprehensive income attributable to RYB
Education, Inc.

345

22

7,517

6,418

 

RECONCILIATION OF GAAP and non-GAAP results

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



Three Months Ended 
December 31,

Year Ended

December 31,


2017

2016

2017

2016






Operating income

(165)

(145)

9,334

7,551

Share-based compensation expenses

1,654

-

3,990

-

Adjusted operating income

1,489

(145)

13,324

7,551






Net income attributable to RYB

199

93

7,115

6,505

Share-based compensation expenses

1,654

-

3,990

-

Adjusted net income attributable to RYB

1,853

93

11,105

6,505






Net income

110

(108)

6,541

5,887

Add: Income tax expense

486

26

3,812

2,155

         Depreciation of property, plant and equipment

1,668

1,329

6,099

4,831

EBITDA

2,264

1,247

16,452

12,873

Share-based compensation expenses

1,654

-

3,990

-

Adjusted EBITDA

3,918

1,247

20,442

12,873






Net income per ADS attributable to RYB- Basic
(Note1)

0.01

0.00

0.29

0.28

Net income per ADS attributable to RYB- Diluted
(Note1)

0.01

0.00

0.27

0.26






Adjusted net income per ADS attributable to RYB-
Basic (Note1)

0.06

0.00

0.45

0.28

Adjusted Net income per ADS attributable to RYB-
Diluted (Note1)

0.06

0.00

0.42

0.26






Weighted average shares used in calculating
basic net income per ADS (Note1)

29,213,801

23,163,801

24,735,445

23,163,801

Weighted average shares used in calculating
diluted net income per ADS (Note1)

31,678,204

24,864,290

26,566,657

24,682,525






Adjusted net income per share- Basic

0.06

0.00

0.45

0.28

Adjusted net income per share- Diluted

0.06

0.00

0.42

0.26


     Note 1: Each ADS represents one Class A ordinary share.

 

SOURCE RYB Education, Inc.


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