Puxin Turns Around Underperforming Study Abroad Schools
As Puxin's CFO predicted, the company's loss-making study abroad school has reverted course under the company's "acquisition and integration" strategy.
Puxin Ltd. (NYSE: NEW) saw its shares tumble nearly 8% lower by midday on Monday despite seeing its first positive on profitability.
The company said in a statement today that its revenue in the third quarter rose 49% year-over-year to $139.4 million. Although weighed by the offset in its online education services, the 60% growth in student enrollment drove its results in the three months through September, exceeding its own guidance.
Net income, Puxin said, was $4.7 million, or 6 cents per American depositary share, in contrast to a loss of $7.1 million in the same period last year.
Despite the improvement, the stock in the Beijing after-school education consolidator was trading at $10 per share by noon on Monday, down 83 cents from Friday's close.
Puxin, which stands for "new jade" in Chinese, has risen to being one of the top players in China's competitive after-school tutoring market. The company identifies "underperforming" schools, acquires them and implements its management system developed by Puxin's team.
Two of such schools, Global Education and ZMN Education, which Puxin acquired in 2017, provide study abroad programs. In the third quarter the two hit a positive operating margin of 8.5%, according to Puxin's statement.
(Image: Puxin Q3 Presentation)
Peng Wang, Puxin's chief financial officer, told CapitalWatch in a June 2019 interview that it takes between six to nine quarters to turn around a loss-making school. About Global Education, Wang said "it was bleeding at the time of acquisition" and that he expected it to break even by the end of the year.
Wang also described at length the process of integrating a school into its network.
The company appoints a new headmaster and assigns a set of meetings and their content. Then, he said, "We prescribe actionable items for Day One, the first week, the first 30 days, the first 100 days and also for the first half-year and the first year."
Puxin also conducts teacher training, improves the interaction between teachers, students and parents, and continuously monitors the progress of the school's performance, according to Wang.
"Parents, students – they can feel the change of this school, they can tell teachers are more prepared," Wang said.
Yunlong Sha, the chairman and chief executive of Puxin, said the student retention rate reached 70.3% in the third quarter. He added that the company has acquired eight new schools during the third quarter.
Wang told CapitalWatch that Puxin expects to record between 2.4 million to 2.5 million in student enrollments for the full year, "mainly through organic growth and a small portion from newly acquired schools." The company previously reported 1.8 million students for 2018 and 1.3 million for 2017.
Asked about where he sees Puxin in five years, Wang told CapitalWatch, "If you talk with Yunlong, he will give you a much bigger number, but I'm the CFO of the company."
He said, "I believe, by the end of 2024, Puxin will – let's not talk about ranking – will be a company with more than 30 billion [yuan] in revenue and roughly 10% to 12 % profit. Our online business will probably account for 30% to 35% of our total business."