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First High-School Education Group Announces First Half 2024 Unaudited Financial Results

BEIJING, CHINA / ACCESSWIRE / September 18, 2024 / First High-School Education Group Co., Ltd. ("First High-School Education Group" or the "Company") (OTCQB:FHSEY), an education service provider primarily focusing on high schools in Western China, today announced its unaudited financial results for the first half of 2024 ended June 30, 2024.

First Half 2024 Financial and Operational Highlights - Continuing Operations

  • Total revenues were RMB151.1 million (US$20.8 million), a decrease of 6.7% from RMB161.9 million in the first half of 2023.

  • Gross profit was RMB52.3 million (US$7.2 million), a decrease of 17.3% from RMB63.2 million in the first half of 2023.

  • Income from operations was RMB3.0 million (US$0.4 million), a decrease of 92.4% from RMB39.6 million in the first half of 2023.

  • Net income was RMB11.2 million (US$1.5 million), a decrease of 69.5% from RMB36.7 million in the first half of 2023.

  • Adjusted net income[1] (Non-GAAP) was RMB10.1 million (US$1.4 million), a decrease of 72.5% from RMB36.7 million in the first half of 2023.

  • The total number of students enrolled at our school programs and public schools that we provide management services as of September 1, 2024 was 35,151, an increase of 5.6% from 33,275 as of September 1, 2023.

  • The total number of school programs at our school programs and public schools that we provide management services as of September 1, 2024 was 23, a decrease of 8.0% from 25 as of September 1, 2023.

CFO Comments

Mr. Tommy Zhou, Chief Financial Officer of First High-School Education Group, commented:

Compared to the corresponding period of the previous year, we observed a decrease in both revenues and net income. These declines were primarily attributable to the ongoing impact of adverse macroeconomic factors. Specifically, we did not have any revenue generated from government cooperative agreements, and we incurred increased costs to actively cope with heightened competition. To address these challenges, the entire team concentrated on expanding our direct customer base and enhancing the quality of our educational offerings.

As of September 1, 2024, we have successfully concluded the student admissions process for the 2024 fall semester. At that time, the combined enrollment in our school programs and the public schools we manage totaled 35,151 students, distributed across 23 school programs. We anticipate providing these students and schools with our proven operational expertise and generating value for all stakeholders.

First Half 2024 Financial Results - Continuing Operations

Total Revenues

Total revenueswere RMB151.1 million (US$20.8 million), a decrease of 6.7% from RMB161.9 million in the first half of 2023. The decrease was primarily because we had no revenues generated from government cooperative agreements.

Revenues from customers were RMB151.1 million (US$20.8 million), an increase of 8.2% from RMB139.6 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 nil compared to RMB22.3 million in the first half of 2023. The decrease was primarily due to the tightened fiscal budget of the relevant government entities and our on-going renegotiation of cooperative agreements.

Cost of revenues

Cost of revenues were RMB98.9 million (US$13.6 million), which remained relatively stable compared to RMB98.7 million in the first half of 2023.

Gross profit

Gross profitwas RMB52.3 million (US$7.2 million), a decrease of 17.3% from RMB63.2 million in the first half of 2023.

Gross marginwas 34.6%, compared with 39.0% in the first half of 2023. The decrease was primarily due to fluctuations in (1) the number of staff and their compensations; (2) school operating efficiency, such as utility usage limits, and budget control; and (3) revenues generated from government cooperative agreements.

Total operating expenses

Total operating expenses were RMB49.2 million (US$6.8 million), which increased significantly from RMB23.6 million in the first half of 2023.

  • Selling and marketing expenses were RMB1.6 million (US$0.2 million), an increase of 71.6% from RMB0.9 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 (US$6.6 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

Income from operationswas RMB3.0 million (US$0.4 million), a decrease of 92.4% from RMB39.6 million in the first half of 2023.

Net Income from continuing operations

Net income from continuing operations was RMB4.2 million (US$0.6 million), a decrease of 88.9% from RMB37.6 million in the first half of 2023.

Net Income from discontinued operations

Net income from discontinued operations was RMB7.0 million (US$1.0 million), compared with net loss of RMB0.9 million in the first half of 2023.

Net income

Net income was RMB11.2 million (US$1.5 million), a decrease of 69.4% from RMB36.7 million in the first half of 2023.

Adjusted net income [2] (Non-GAAP)

Adjusted net income (Non-GAAP) was RMB10.1 million (US$1.4 million), a decrease of 72.5% from RMB36.7 million in the first half of 2023.

Impact of Implementation Rules for Private Education Laws

On May 14, 2021,the State Council of the People's Republic of China promulgated the amended Implementation Regulations of the Law on the Promotion of Private Education of the People's Republic of China (中华人民共和国民办教育促进法实施条例) (the "Implementation Rules"), which became effective on September 1, 2021. The Implementation Rules prohibit social organizations and individuals from controlling private schools that provide compulsory education through, among other methods, mergers, acquisitions and contractual arrangements. Additionally, the Implementation Rules prohibit any private schools providing compulsory education from conducting transactions with its related parties. As a result, the Implementation Rules affected the Company's control over the affiliated entities providing compulsory education as well as the sponsor entities (collectively referred to as the "Affected Entities").

In compliance with the Implementation Rules and other applicable PRC regulations and based on the relevant accounting standard in accordance with U.S. GAAP, the Company has determined to cease to recognize revenues for all activities related to schools providing compulsory education and the sponsor entities after September 1, 2021 within China that are affected by the Implementation Rules, and classified such Affected Entities as discontinued operations. The discontinued operations of the Affected Entities had certain impact on the Company's financial conditions for the first half of 2024 ended June 30, 2024. Net income from discontinued operations was RMB7.0 million (US$1.0 million) for the first half of 2024 ended June 30, 2024.

There still exist uncertainties with respect to the interpretation and enforcement of the Implementation Rules. The Company will closely monitor the developments related to the Implementation Rules, and continue to assess the possible impacts on the Company and make any applicable actions to keep in compliance with the Implementation Rules and other applicable PRC regulations.

Conference Call

First High-School Education Group's management will hold an earnings conference call on Wednesday, September 18, 2024, at 8:00 AM U.S. Eastern Time (8:00 PM September 18, 2024, Beijing/Hong Kong Time). Please dial in 15 minutes before the conference is scheduled to begin using below numbers.

International

+1-973-528-0011

United States

+1-888-506-0062

Hong Kong

+852 3018 4049

Mainland China

+86 400 120 3199

Passcode

792778

About First High-School Education Group

First High-School Education Group is an education service provider primarily focusing on high schools in Western China. 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 reversal of impairment loss in relation to accounts receivable. 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 RMB7.2672 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 28, 2024. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on June 28, 2024, or at any other rate.

Statement Regarding Preliminary Unaudited Financial Information

The unaudited financial information set out in this earnings release is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the Company's year-end audit, which could result in significant differences from this preliminary unaudited financial information.

We have made rounding adjustments to reach some of the figures included in this earning release. Consequently, numerical figures shown as totals in some tables may not be arithmetic aggregations of the figures that precede them.

Forward-Looking Statements

Statements in this press release about future expectations, plans and prospects, as well as any other statements regarding matters that are not historical facts, may constitute "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 statements include, but are not limited to, statements relating to the expected trading commencement and closing dates. The words "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the uncertainties related to market conditions and the completion of the public offering on the anticipated terms or at all, and other factors discussed in the "Risk Factors" section of the preliminary prospectus filed with the SEC. Any forward-looking statements contained in this press release speak only as of the date hereof, and the Company specifically disclaims any obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

For investor and media inquiries, please contact:

First High-School Education Group
Tommy Zhou
Chief Financial Officer
E-mail: tommyzhou@dygz.com

Customer Service

E-mail: FHS_info@dygz.com
Phone: 010-62555966 (9:30-12:00, 13:30-16:00 CST)

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 otherwise noted)

Six months ended June 30,

2023

2024

2024

RMB

RMB

US$

Revenues

Revenue from customers

139,593

151,109

20,793

Revenue from governments cooperative agreements

22,283

-

-

Total revenues

161,877

151,109

20,793

Cost of revenues

-98,680

-98,852

-13,602

Gross profit

63,197

52,257

7,191

Operating expenses and income

Selling and marketing expenses

-913

-1,567

-216

General and administrative expenses

-22,652

-47,682

-6,561

Total operating expenses

-23,565

-49,249

-6,777

Income from operations

39,632

3,008

414

Other income (expenses)

Interest income

452

156

22

Interest expense

-2,503

-1,300

-179

Government grants

23

2,264

312

Others, net

897

69

10

Net loss on disposal of fixed asset

-

-1

-

Reversal of impairment loss

-

1,106

152

Income from continuing operations before income tax

38,501

5,303

730

Income tax expenses

-889

-1,115

-153

Income (loss) from continuing operations

37,612

4,188

576

Income (loss) from discontinued operations

-947

7,021

966

Net income (loss)

36,664

11,210

1,542

Foreign currency translation adjustment

3,356

2,909

400

Comprehensive income (loss) - continuing operations

48,229

7,097

977

Comprehensive income (loss) - discontinued operations

-8,209

7,022

966

Comprehensive income (loss)

40,020

14,119

1,943

Attributable to

Shareholder of the Company

37,985

7,163

986

Non-controlling interests

2,035

6,956

957

Earnings per share:

Basic earnings per share from continuing operation

0.52

0.05

0.01

Basic earnings per share from discontinued operation

-0.1

0.08

0.01

Diluted Earnings per share:

Diluted earnings per share from continuing operation

0.49

0.5

0.01

Diluted earnings per share from discontinued operation

-0.09

0.08

0.01

Weighted average number of ordinary share outstanding

Basic

86,838,700

86,838,700

86,838,700

Diluted

92,388,700

92,388,700

92,388,700

First High-School Education Group Co., Ltd.
Unaudited Condensed Consolidated Balance Sheets
(All amounts in thousands, except share data and per share data, or otherwise noted)

As of June 30,

As of December 31,
2023

2024

2024

RMB

RMB

US$

Current assets

Cash

189,243

58,206

8,009

Accounts receivable, net of expected credit loss

82,202

79,162

10,893

Amounts due from related parties -non-trade

215,908

219,528

30,208

Prepaid expenses and other current assets

241,402

223,332

30,732

Assets related to discontinued operation

42,746

33,395

4,595

Total current assets

771,502

613,622

84,437

Non-current Assets

Property and equipment, net

119,808

112,720

15,511

Intangible assets, net

7,247

7,103

977

Goodwill

30,347

30,348

4,176

Deferred tax assets

20,294

20,294

2,793

Other non-current assets

33,350

34,905

4,803

Assets related to discontinued operation

9,075

8,031

1,105

Total non-current assets

220,122

213,401

29,365

Total assets

991,624

827,024

113,802

As of June 30,

As of December 31,
2023

2024

2024

RMB

RMB

US$

Current liabilities

Contract liabilities

140,501

42,585

5,860

Bank loan

87,970

31,636

4,353

Borrowings under financing arrangements

-

-

-

Accounts payable

21,508

12,920

1,778

Accrued expenses and other payables

263,078

262,685

36,147

Income tax payables

29,678

30,247

4,162

Amounts due to related parties

165,173

169,646

23,344

Dividend payables

2,132

2,132

293

Liability related to discontinued operation

119,930

102,514

14,106

Total current liabilities

829,970

654,364

90,044

Deferred revenue

-

(275

)

(38

)

Deferred tax liabilities

6,207

6,207

854

Total non-current liabilities

6,207

5,932

816

Total liabilities

836,177

660,297

90,860

Equity/(Deficit)

Ordinary shares (US$0.00001 par value; 5,000,000,000 shares authorized; and 86,838,700 shares issued and outstanding as of December 31, 2023, and 86,838,700 shares issued and outstanding as of June 30, 2024, respectively)

6

6

1

Additional paid-in capital

356,622

357,155

49,146

Statutory reserves

51,425

50,891

7,003

Accumulated other comprehensive income

2,836

2,909

400

Accumulated deficit

(257,421

)

(253,167

)

(34,837

)

Non-controlling interests

1,977

8,933

1,229

Total equity

155,445

166,727

22,942

Total liabilities and equity

991,624

827,024

113,802

First High-School Education Group Co., Ltd.
Reconciliation of GAAP to non-GAAP Measure
(All amounts in thousands)

Six months ended June 30,

2023

2024

2024

RMB

RMB

US$

Reconciliation of net income to adjusted net income:

Net income

36,664

11,210

1,542

Subtract:

Reversal of impairment loss

-

(1,106

)

(152

)

Adjusted net income

36,664

10,104

1,390


[1] Adjusted net income is a non-GAAP measure. See "Non-GAAP measure" in this press release. 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.

[2] Adjusted net income is a non-GAAP measure. See "Non-GAAP measure" in this press release. 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.

SOURCE: First High-School Education Group Co., Ltd.



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