BEIJING, Aug. 21, 2019 /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 second quarter of 2019.

Second Quarter 2019 Operational and Financial Summary

• Number of students enrolled at directly operated facilities was 30,478 as of June 30, 2019, compared with 23,526 as of June 30, 2018.
• Net revenues were $53.6 million, compared with $47.5 million for the second quarter of 2018.
• Gross profit was $11.9 million, compared with $15.9 million for the second quarter of 2018. 
• Net income attributable to ordinary shareholders of RYB for the second quarter of 2019 was $2.9 million, compared with $4.7 million for the second quarter of 2018. Adjusted net income attributable to ordinary shareholders^[1] of RYB for the second quarter of 2019 was $3.9 million, compared with $6.9 million for the second quarter of 2018.
• Cash used in operating activities was $2.9 million in the second quarter of 2019, compared with $10.6 million cash used in operating activities for the second quarter of 2018.

First Six Months of 2019 Financial Highlights

• Net revenues were $87.8 million, compared with $76.2 million for the first six months of 2018.
• Gross profit was $13.8 million, compared with $16.5 million for the first six months of 2018.
• Net income attributable to ordinary shareholders of RYB was $0.6 million, compared with $2.0 million for the same period of 2018. Adjusted net income attributable to ordinary shareholders of RYB was $2.7 million, compared with $6.0 million for the same period of 2018.
• Cash generated from operating activities was $10.3 million, versus $5.3 million of cash used in operating activities for the same period of 2018.

"We delivered another solid performance during the second quarter of 2019, which was driven by the strength of our core offerings: play-and-learn centers and kindergarten services. Additionally, during the second quarter, net enrollment increased at our directly operated facilities as we benefitted from healthy domestic growth and contributions from our overseas operations. The strong market appeal of our expanded educational platform continues to be fueled by our steadfast commitment to offering differentiated educational products and services to the students and families we serve," said Ms. Yanlai Shi, Co-founder, Director and Chief Executive Officer of RYB.

"With the expanded brand portfolio for our kindergarten business following our Singapore acquisition, we now adopt a 'multi-layered brand portfolio' strategy to cater to a broader student base, and improve children and parents satisfaction level. Our teams on both sides will explore opportunities for resources sharing, and introduce integrated early education services to our students at home and abroad. We expect potential benefits to unfold through our combined efforts. In this process, we remain committed to improving the quality of our educational offerings, and ultimately contributing to the greater good of our children, families and communities," concluded Ms. Shi.

Mr. Hao Gu, Chief Financial Officer of RYB, said, "In second quarter 2019, our net revenues reached $53.6 million. The solid revenue growth was attributable to enrollment increases at our directly operated facilities, and product revenues increases from our newly added courses, among others. These were partially offset by a decline in our franchise fee revenue. Due to the change of accounting estimate, franchise fee revenue in the second quarter of 2018 was relatively high."

"With focused execution of our growth strategy and prudent cost management, the Company's adjusted operating income was $6.3 million in this quarter, improving from the adjusted operating income generated in the second quarter last year (excluding certain estimate change which resulted in a high comparison base in the second quarter 2018). General and administrative ("G&A") expenses declined in absolute terms from a year ago, primarily due to reduced expenses in administrative functions such as professional services and corporate spending. Looking ahead, we will continually strive for stable growth and creating shareholder value," concluded Mr. Gu.

Second Quarter 2019 Financial Results

Net Revenues

Net revenues for the second quarter of 2019 were $53.6 million, compared with $47.5 million for the same quarter of 2018.

Service revenues for the second quarter of 2019 were $48.2 million, compared with $43.6 million for the same quarter of 2018. The increase was primarily contributed by enrollment increase at directly operated facilities and newly acquired facilities in Singapore, and was partially offset by the decrease in the franchise services revenue. Franchise fee revenue in the second quarter of 2018 was relatively higher due to the recording of an accounting estimate change.

Product revenues for the second quarter of 2019 were $5.4 million, compared with $3.9 million for the same quarter of 2018, primarily due to an increase in delivery of products of certain courses rolled out by the Company during the first quarter of 2019 and an increase in the amount of merchandise sold through the Company's franchise network.

Cost of Revenues

Cost of revenues for the second quarter of 2019 was $41.6 million, a 31.7% increase from $31.6 million for the same quarter of 2018. Cost of revenues for services for the second quarter of 2019 was $38.8 million, compared with $29.4 million for the same quarter of 2018. The increase was primarily due to an increase in staff compensation at the Company's directly operated facilities and higher operating cost. Cost of product revenues for the second quarter of 2019 was $2.8 million, compared with $2.2 million for the same quarter of 2018. The increase was in line with the increase in product revenues.

Gross Profit and Gross Margin

Gross profit for the second quarter of 2019 decreased by 24.9% to $11.9 million, compared with $15.9 million for the same quarter of 2018. The decrease was primarily due to the increase in staff compensation and operating costs at the directly operated facilities and decrease in franchise services revenue.

Gross margin for the second quarter of 2019 was 22.3%, compared with 33.5% for the same quarter of 2018. The decrease in gross margin was primarily due to the increase in staff compensation and operating costs at the directly operated facilities and decrease in franchise services revenue.

Operating Expenses

Total operating expenses for the second quarter of 2019 were $6.6 million, compared with $8.4 million for the same quarter of 2018. Excluding share-based compensation expenses, operating expenses were $5.7 million, a decrease of 9.1% from $6.2 million for the second quarter of 2018.

Selling expenses for the second quarter of 2019 were $0.7 million, compared with $0.4 million for the same quarter of 2018.

G&A expenses for the second quarter of 2019 were $5.9 million, a 26.2% decrease from $8.0 million for the same quarter of 2018. Excluding share-based compensation expenses, G&A expenses were $5.0 million for the second quarter of 2019, a 15.2% decrease from $5.8 million for the same quarter of 2018. The decrease in G&A expenses excluding share-based compensation expenses was primarily due to less expenses incurred in professional service fees and stringent cost control. The share-based compensation expenses included in G&A expenses were $0.9 million for the quarter.

Operating Income

Operating income for the second quarter of 2019 was $5.3 million, compared with $7.5 million for the same quarter of 2018. Adjusted operating income^[2] was $6.3 million for the second quarter of 2019, compared with $9.7 million for the same quarter of 2018.

Net Income

Net income attributable to ordinary shareholders of RYB for the second quarter of 2019 was $2.9 million, compared with $4.7 million for the second quarter of 2018. Adjusted net income attributable to ordinary shareholders of RYB, which excludes the impact of $1.0 million of share-based compensation expense was $3.9 million, compared with $6.9 million for the second quarter of 2018.

Basic and diluted net income per American depositary share ("ADS") attributable to ordinary shareholders of RYB for the second quarter of 2019 were $0.11 and $0.10, respectively, compared with basic and diluted net income per ADS of $0.16 and $0.15, respectively for the second quarter of 2018. 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 second quarter of 2019 were $0.14 and $0.13, respectively, compared with adjusted basic and diluted net income per ADS of $0.24 and $0.22, respectively for the second quarter of 2018.

EBITDA^[4] for the second quarter of 2019 was $8.2 million, compared with $10.1 million for the second period of 2018. Adjusted EBITDA^[5] for the second quarter of 2019 was $9.2 million, compared with $12.3 million for the second quarter of 2018.

Operating Cash Flow      

Cash used in operating activities was $2.9 million during the second quarter of 2019, compared with $10.6 million cash used in operating activities during the second quarter of 2018.

Balance Sheet

As of June 30, 2019, the Company had total cash and cash equivalents of $80.7 million, a decrease from $104.1 million as of December 31, 2018. The decrease in cash and cash equivalents balances was mainly due to payment for acquisition and other investments activities as well as share repurchase executed in the quarter.

First Six Months of 2019 Financial Results

Net Revenues

Net revenues for the first six months of 2019 were $87.8 million, compared with $76.2 million for the same period of 2018.

Services revenues for the first six months of 2019 were $80.0 million, compared with $69.6 million for the same period last year. The increase was mainly contributed by student enrollment improvement and newly-added directly operated facilities. The increase was partially offset by the decrease in the franchise services revenue. Franchise fee revenue in the second quarter of 2018 was relatively higher due to the recording of an accounting estimate change. This impact was partially offset by the moderate expansion of network during the first six months of 2019.

Product revenues for the first six months of 2019 were $7.8 million, compared with $6.6 million for the same period in 2019. The increase was primarily due to an increase in delivery of products of certain courses rolled out by the Company during the first quarter of 2019 and an increase in the amount of merchandise sold through the Company's franchise network.

Cost of Revenues

Cost of revenues for the first six months of 2019 was $74.0 million, compared with $59.7 million for the first six months of 2018. Cost of services revenues for the first six months of 2019 was $70.0 million, compared with $56.1 million for the same period in 2018. The increase was primarily due to an increase in staff compensation at the Company's directly operated facilities and higher operating cost. Cost of product revenues for the first six months of 2019 was $4.0 million, compared with $3.6 million for the same period last year. The increase was in line with the increase in product revenues.

Gross Profit and Gross Margin

Gross profit for the first six months of 2019 was $13.8 million, compared with $16.5 million for the same period last year.

Gross margin for the first six months of 2019 was 15.7%, compared with 21.7% for the same period last year.

Operating Expenses

Total operating expenses for the first six months of 2019 were $12.5 million, compared with $14.2 million for the same period last year. Excluding share-based compensation expenses, operating expenses were $10.3 million for the first six months of 2019.

Selling expenses were $1.3 million for the first six months of 2019, compared with $0.7 million for the same period last year.

G&A expenses for the first six months of 2019 were $11.2 million, compared with $13.5 million for the same period last year. Excluding share-based compensation expenses, G&A expenses were $9.0 million for the first six months of 2019, a 6.5% decrease from $9.6 million for the same quarter of 2018. The decrease in G&A expenses excluding share-based compensation expenses was primarily due to less expenses incurred in professional service fees and stringent cost control.

Operating Income

Operating income for the first six months of 2019 was $1.3 million, compared with $2.4 million for the same period last year. Adjusted operating income for the first six months of 2019 was $3.5 million, compared with $6.3 million for the same period last year.

Net Income

Net income attributable to ordinary shareholders of RYB for the first six months of 2019 was $0.6 million, compared with $2.0 million for the same period of 2018. Adjusted net income attributable to ordinary shareholders of RYB, which excludes the impact of share-based compensation expense and changes in redeemable non-controlling interests, for the first six months of 2019 was $2.7 million, compared with $6.0 million for the same period of 2018.

Basic and diluted net income per ADS attributable to ordinary shareholders of RYB for the first six months of 2019 were $0.02 and $0.02, respectively, compared with basic and diluted net income per ADS attributable to ordinary shareholders of RYB of $0.07 and $0.06, respectively for the same period of 2018. Each ADS represents one Class A ordinary share.

Adjusted basic and diluted net income per ADS attributable to ordinary shareholders of RYB for the first six months of 2019 were $0.10 and $0.09, respectively, compared with adjusted basic and diluted net income per ADS attributable to ordinary shareholders of RYB of $0.20 and $0.19, respectively for the same period of 2018.

EBITDA for the first six months of 2019 was $7.5 million, compared with $7.3 million for the same period of 2018. Adjusted EBITDA for the first six months of 2019 was $9.8 million, compared with $11.2 million for the same period of 2018.

Outlook

For the third quarter of 2019, the Company's management currently expects:

• Net revenues to be between $45.5 million and $47.0 million, representing a year-over-year increase of approximately 29% to 33%.

For the full year of 2019, the Company's management currently expects:

• Net revenues to be between $195.5 million and $203.5 million, representing a year-over-year increase of approximately 25% to 30%.

The above outlook is based on the current market conditions and reflects the Company management's current and preliminary estimates of market and operating conditions, customer demand and foreign exchange environment, which are all subject to change. The above outlook includes revenue consideration of the Company's completed acquisition of a leading Singapore-based private childhood education group, as initially announced on February 5, 2019.

Conference Call

Management will hold a conference call at 8:30 a.m. Eastern Time on Wednesday, August 21, 2019 (8:30 p.m. Beijing Time on August 21, 2019). Listeners may access the call by dialing:

Participants should dial-in at least 10-15 minutes before the scheduled start time and ask to be connected to the RYB Education, Inc. conference call.

A telephone replay will be available approximately one hour after the call until August 28, 2019 by dialing:

Additionally, a live and archived webcast of the conference call will be available at https://ir.rybbaby.com.

About RYB Education, Inc.

Founded on the core values of "Care" and "Responsibility," "Inspire" and "Innovate," 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 high-quality, individualized and age-appropriate care and education to nurture and inspire each child for his or her betterment in life. During its 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.

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 changes in redeemable non-controlling interest; 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 and changes in redeemable non-controlling interest.

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 childhood 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) 6508-0677
E-mail: ryb@tpg-ir.com

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