Filing identity and reporting period
Important mismatch: The supplied filing is RISE Education Cayman Ltd.’s annual report on Form 20-F for the fiscal year ended December 31, 2020, signed April 19, 2021. It is not a Naas Technology Inc. filing or a 2019 Q4 report. The filing presents audited U.S. GAAP results for 2018–2020. Financial amounts below are in RMB unless otherwise stated.
RISE provides after-school English-language education in China through self-owned and franchised learning centers, online offerings, and related services. Its ADSs trade on Nasdaq as REDU; each ADS represents two ordinary shares.
Financial results and position
| Metric | 2020 | 2019 | Change or context |
|---|---|---|---|
| Revenue | RMB958.5 million | RMB1,529.4 million | Down 37.3% |
| Gross profit / margin | RMB355.5 million / 37.1% | RMB834.8 million / 54.6% | Gross profit down 57.4%; margin down 17.5 percentage points |
| Operating income (loss) | RMB(138.4) million | RMB222.8 million | Turned to operating loss |
| Net income (loss) | RMB(141.4) million | RMB144.6 million | Turned to net loss; attributable to RISE: RMB(132.4) million |
| EBITDA / adjusted EBITDA | RMB(64.4) million / RMB(9.4) million | RMB301.4 million / RMB349.3 million | Non-GAAP measures; see filing definitions and reconciliations |
| Operating cash flow | RMB(205.7) million | RMB(39.9) million | Cash use increased |
| Cash and cash equivalents | RMB554.6 million | RMB999.0 million | Restricted cash was RMB84.6 million at 2020 year-end |
| Total debt | About RMB418.1 million | About RMB504.2 million | 2020 balance comprises current and non-current loan portions |
Cash, cash equivalents and restricted cash together were RMB639.2 million at year-end, down from RMB1,022.8 million. Current assets were RMB744.6 million versus current liabilities of RMB1,168.4 million, resulting in net current liabilities of RMB423.8 million. Deferred revenue and customer advances totaled RMB601.9 million. Total assets were RMB2,426.4 million and total liabilities RMB1,924.9 million.
Operating cash outflow reflected, among other items, a RMB156.7 million decline in deferred revenue and customer advances. Investing cash outflow was RMB111.8 million, including RMB48.0 million of loans to franchisees. Financing cash outflow was RMB60.7 million, mainly loan repayments. The company reported RMB724.6 million of future minimum operating lease payments and RMB649.6 million of operating lease liabilities at year-end.
Material changes and business developments
- COVID-19 closures from January through much of September 2020 disrupted in-person teaching, enrollment, retention and tuition collection. Nearly all centers had resumed normal operations by the fourth quarter, but Beijing centers faced renewed closures in early 2021.
- Regular-course students in class at self-owned centers fell 12.2%, from 54,383 at year-end 2019 to 47,724 at year-end 2020. New enrollments fell 26%, from 29,049 to 21,607.
- Educational-program revenue fell 34.5% to RMB872.9 million; franchise revenue fell 47.5% to RMB82.1 million despite the franchise network growing from 383 to 420 centers. Other revenue fell 91.4% to RMB3.5 million.
- Cost of revenue decreased only 13.2% to RMB602.9 million, so gross margin contracted sharply. Selling and marketing expense fell, but rose as a share of revenue to 24.4%; general and administrative expense also declined but rose to 27.2% of revenue.
- The company expanded its online platform and OMO model, launched small-group online classes, and began offering STEAM courses. It reported 218,526 registered Rise+ users at year-end and 695 new STEAM enrollments during 2020.
Outlook, risks and unusual items
Management did not provide quantified financial guidance. It described continued OMO development and a multi-disciplinary education platform as strategic priorities, while stating that future results remain uncertain. Management said available financial resources were expected to cover ordinary working-capital and capital needs, and that the going-concern basis was supported by cash, cost measures and subsequent refinancing. This assessment should be considered alongside the 2020 net loss, operating cash outflow and net current liabilities.
On March 18, 2021, the company entered into an aggregate US$80 million CTBC facility, comprising a US$65 million five-year term loan and a US$15 million revolving facility. It drew the term loan the following day and used it to repay the prior facility. The new borrowing is a subsequent event, not year-end cash.
- Regulatory and liquidity exposure: Beijing education authorities required prepaid tuition to be held in custody accounts and restricted access to it. As of the report date, most Beijing centers had not received approval to resume offline operations. The company also disclosed licensing, filing or fire-safety deficiencies at centers; centers with identified deficiencies accounted for 10% of 2020 revenue.
- China operating structure: The VIE and its subsidiaries and schools generated 96% of 2020 revenue. The company relies on contractual arrangements rather than direct ownership, whose enforceability and regulatory treatment are uncertain.
- Other unusual items: A RMB37.0 million impairment charge was recorded on a long-term investment. The income tax line was a RMB15.7 million benefit, compared with a RMB70.7 million expense in 2019. Goodwill was RMB659.3 million; management reported no goodwill impairment in 2020.
- Audit and listing risks: The auditor noted that it was not able to obtain full PCAOB inspection in China, and the report contains no auditor attestation on internal controls. Management concluded internal control over financial reporting was effective. The filing discusses potential U.S. listing consequences if audit-inspection requirements are not met.
- Other risks: Risks include further education regulation, possible limits on tutoring younger children, competition, franchisee financial distress, foreign-exchange restrictions, lease and licensing issues, and dependence on prepaid tuition. The company reported no material legal proceeding known to management.
Most important facts for investors to verify
- Confirm the issuer and period: this is RISE Education’s FY2020 20-F, not a Naas Technology or 2019 Q4 filing.
- Review the audited statements and cash-flow detail, especially the sharp revenue decline, cash burn, working-capital deficit and deferred-revenue movements.
- Verify the status and terms of the March 2021 CTBC refinancing, remaining debt, covenant compliance and access to the revolving facility.
- Track Beijing center reopening approvals, tuition-custody requirements, and remediation of licensing, filing and fire-safety deficiencies.
- Assess VIE contractual enforceability and the extent to which cash and earnings held in China can be transferred to the Cayman parent.
- Check whether student enrollment, retention, franchise collections and OMO revenue recover, and whether the RMB37.0 million investment impairment signals further losses.