Mynd.Ai, Inc. annual report, Q4 FY2020

Business context and reporting period

The supplied filing is RYB Education, Inc.’s Form 20-F for the fiscal year ended December 31, 2020, not a Mynd.Ai, Inc. filing or a quarterly report. It covers early-childhood education services and products in China and Singapore. The company reports under U.S. GAAP. Its ADSs trade on the NYSE as RYB.

Financial performance and liquidity

Amounts below are U.S. dollars; financial statement figures are rounded to millions unless stated otherwise.

Revenue fell 39.8%. Tuition fees decreased to $92.1 million from $147.4 million; franchise fees to $9.1 million from $12.3 million; educational merchandise sales to $6.6 million from $16.1 million. Service costs exceeded service revenue in 2020. Total operating expenses were $36.2 million, including $8.5 million of goodwill impairment and $2.1 million of long-lived asset impairment. Government subsidy income was $4.6 million, versus $0.5 million.

At year-end, total current assets were $70.1 million and current liabilities $128.4 million; total assets were $302.5 million and total liabilities $224.8 million. Cash, cash equivalents and restricted cash totaled $54.6 million. Operating lease liabilities were $93.2 million on the balance sheet; undiscounted contractual lease obligations were $123.4 million. Reported current long-term debt was $7,000 (in thousands), with no material conventional borrowing balance otherwise identified in the supplied statements. Cash and cash equivalents declined from $68.7 million; operating, investing and financing cash flows were respectively negative $6.5 million, negative $2.6 million and positive $0.6 million. The filing says 89.4% of cash and restricted cash was held in China, and 42.6% was held by consolidated affiliated entities and denominated in RMB.

Material changes versus the prior comparable period

• COVID-19-related closures and disruption drove the sharp revenue decline. Most facilities in China were closed for much of the first nine months; phased reopening began in May, and by year-end all directly operated facilities and more than 80% of franchise play-and-learn centers had resumed operations.
• Gross margin moved from positive 14.7% to negative 6.5%, and operating results swung from near break-even to a $43.4 million loss.
• Cash from operations swung from positive $13.0 million to negative $6.5 million. Investing outflows fell substantially as acquisitions and capital expenditures slowed; 2020 capital expenditures were $4.8 million versus $14.1 million in 2019.
• PRC kindergarten revenue was $68.3 million versus $131.4 million, while Singapore kindergarten, student care and other revenue rose to $26.0 million from $19.1 million.
• Impairments and credit-related charges increased: the company recorded $8.5 million of goodwill impairment, $2.1 million of long-lived asset impairment and a $2.4 million long-term investment impairment loss. Allowances for doubtful accounts and loan receivables also increased.

Outlook, commentary, risks and unusual items

• Management expected COVID-19’s effects to likely adversely affect 2021 results, while noting that the outbreak’s future severity, duration and operational impact were uncertain. No specific revenue or earnings guidance is provided in the supplied filing text.
• Management cited cost controls, reduced labor and operating costs, postponed discretionary capital spending, online education and parent communication measures, and potential bank facilities as responses to the disruption.
• Regulation is a major risk: changes or uncertainty around preschool education, for-profit and not-for-profit school status, community kindergartens, foreign investment restrictions and acquisition limits could constrain operations, pricing, expansion or the VIE structure. Certain kindergartens had elected not-for-profit status.
• The company consolidates most China operations through contractual arrangements with variable interest entities, rather than direct ownership. It warns that authorities could challenge these arrangements; VIEs represented 84% of consolidated liabilities at year-end 2020.
• Licensing and registration remain contingencies. Certain directly operated kindergartens lacked private-school permits or registration certificates while applications were in process; they generated $6.1 million of 2020 revenue.
• Other exposures include student safety and reputation, franchisee performance, enrollment and pricing, leases, currency controls and exchange rates, and limits on moving cash from China. The company does not maintain business interruption or product liability insurance.
• Two shareholder class actions related to the 2017 IPO were voluntarily dismissed or discontinued in 2020. The company changed its auditor from Deloitte to KPMG in November 2020; it reported no disagreements with Deloitte. KPMG’s 2020 audit opinion was unqualified. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not express an opinion on internal controls.

Most important facts for investors to verify

• Confirm the issuer identity: the supplied document is RYB Education, Inc.’s 2020 Form 20-F, despite the request metadata naming Mynd.Ai, Inc.
• Review whether enrollment, reopening and tuition collections recovered after year-end, and whether the expected 2021 COVID-19 impact materialized.
• Assess the sustainability of cash and liquidity given negative operating cash flow, current liabilities exceeding current assets, lease commitments and cash held in China or VIE entities.
• Track progress on school permits, school classification and regulatory developments affecting the VIE arrangements and the company’s ability to expand or remit funds.
• Examine impairment assumptions, receivable and loan-loss allowances, and the recoverability of investments and acquisition-related assets.