Ambow Education Holding Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a quarterly Q4 filing. Financial statements are prepared under U.S. GAAP; amounts below are RMB unless otherwise noted.
Business context
Ambow provides K-12 schooling, tutoring, career-enhancement and corporate training services, plus intellectualized operational services. Its two reportable segments are K-12 Schools and College Preparation & Career Enhancement (CP&CE) Programs. Operations are primarily in China and include Bay State College and NewSchool in the United States. The company reports much of its China education business through contractual arrangements with variable interest entities (VIEs).
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | RMB 532.0 million (US$81.5 million) | RMB 583.9 million |
| Gross profit / margin | RMB 144.5 million / 27.2% | RMB 195.0 million / 33.4% |
| Operating loss | RMB 124.6 million | RMB 97.7 million |
| Net loss | RMB 64.0 million (US$9.8 million) | RMB 100.4 million |
| Net loss attributable to Ambow | RMB 62.7 million | RMB 99.9 million |
| Basic and diluted loss per share | RMB 1.41 | RMB 2.30 |
| Cash from operating activities | RMB 4.8 million | Cash used: RMB 10.2 million |
| Cash used in investing activities | RMB 98.5 million | RMB 33.2 million |
| Cash from / (used in) financing activities | RMB 55.2 million | RMB 40.6 million used |
Revenue fell 8.9%. K-12 generated RMB 291.5 million (54.8% of revenue), with a 35.3% gross margin; CP&CE generated RMB 240.4 million (45.2%), with a 17.3% margin. The CP&CE margin declined from 29.0% in 2019, while the K-12 margin declined from 37.2%.
At year-end, current assets were RMB 424.1 million and current liabilities RMB 643.6 million, a working-capital deficit of RMB 219.5 million. Total assets were RMB 1,049.7 million, total liabilities RMB 908.6 million and net assets RMB 141.2 million. Cash and cash equivalents were RMB 118.8 million, alongside RMB 117.9 million of available-for-sale short-term investments and RMB 45.0 million of held-to-maturity short-term investments. The filing reports RMB 19.6 million of borrowings: RMB 10.0 million short-term bank debt and RMB 9.6 million long-term SBA debt. Operating lease liabilities totaled RMB 274.0 million; undiscounted operating lease obligations were RMB 333.9 million.
Material changes and unusual items
- COVID-19 closures and reduced services lowered boarding and ancillary services at K-12 schools and activity at tutoring centers, training offices and college campuses. Chinese K-12 schools gradually resumed from May 2020; tutoring centers and training offices returned to full operation from August. U.S. college courses moved online or to hybrid delivery.
- Operating loss widened despite the narrower net loss. Other income rose to RMB 61.6 million, principally including a RMB 40.3 million bargain-purchase gain on the March 2020 acquisition of NewSchool. The acquisition consideration was RMB 7.5 million, payable by December 31, 2021.
- Ambow recorded RMB 36.7 million of impairment expense, including RMB 35.3 million of goodwill impairment. The goodwill impairment primarily related to CP&CE business units, including discontinued Jinghan tutoring-center operations.
- The company issued 1,507,538 ADSs in a registered direct offering in October 2020, raising net proceeds of approximately RMB 35.5 million. It also received RMB 10.0 million in Huaxia Bank borrowing and a US$1.5 million PPP loan for Bay State College.
Outlook, risks and contingencies
Management expects available cash, short-term investments and operating cash flows to cover anticipated needs for at least 12 months after issuance of the financial statements, and prepared the statements on a going-concern basis. It also says additional capital will be needed for its longer-term plan and gives no assurance it can raise funds if required. Management says future profitability is uncertain. No numerical revenue or earnings guidance is provided.
- COVID-19 and demand: Future operating results and collections remain exposed to pandemic disruption, student enrollment, fee levels and competition.
- China regulation and VIEs: Foreign-investment restrictions, evolving education rules and reliance on contractual VIE arrangements could affect control, licenses, operations and access to earnings. The company also described transition requirements for compulsory-education schools to nonprofit status; local implementation details remained pending.
- U.S. colleges: Bay State College was applying for a new Department of Education participation agreement after its prior certification period ended in 2020. NewSchool’s participation agreement was renewed month-to-month while the Department reviewed its change of ownership. FY2020 90/10 and financial-responsibility audits were still in process; management estimated compliance.
- Assets and collection: The filing identifies unresolved or uncertain recoveries, including RMB 49.8 million due from Xihua Group under an indemnity, RMB 35.0 million associated with Zhenjiang school operating rights under negotiation, and loans/deposits connected with a proposed Hebi School investment. Some company-owned buildings lack ownership certificates; no impairment was recorded on lease right-of-use assets in 2020.
- Other risks: Regulatory and tax uncertainty, limited dividend repatriation, currency controls, property defects, and potential future impairment are material considerations. The company reported no significant indemnification claims probable or reasonably possible and no material off-balance-sheet arrangements.
The auditor issued an unmodified opinion on the financial statements and identified goodwill/intangible-asset impairment and going-concern assessment as critical audit matters. Management concluded internal control over financial reporting was effective as of December 31, 2020; the auditor did not attest to that assessment.
Most important facts for investors to verify
- Whether liquidity and working-capital needs remain manageable, including the availability and recoverability of short-term investments and the large current-liability deficit.
- Whether revenue, enrollment, collections and segment margins recover after COVID-related disruption, especially the weak CP&CE margin.
- Whether the NewSchool acquisition, bargain-purchase accounting and related subsidy receivables prove sustainable and collectible.
- Progress on Bay State College and NewSchool Title IV certifications, 90/10 results and financial-responsibility calculations.
- Resolution of the Hebi, Xihua, Zhenjiang and Jinghan balances, and the status of property-title defects and school nonprofit-transition rules.
- Continued enforceability of the VIE arrangements and the company’s ability to move cash from China to the holding company.