Nord Anglia Education's (NORD) CEO Andrew Fitzmaurice on Q3 2014 Results - Earnings Call Transcript

Jul.16.14 | About: Nord Anglia (NORD)

Nord Anglia Education, Inc. (NYSE:NORD)

Q3 2014 Results Earnings Conference Call

July 16, 2014, 08:00 AM ET

Executives

Vanessa Cardonnel - Corporate Finance and IR Director

Andrew Fitzmaurice - CEO

Graeme Halder - CFO

Analysts

Anjaneya Singh - Credit Suisse

Paul Ginocchio - Deutsche Bank

Gary Bisbee - RBC Capital Markets

Jeffrey Silber - BMO Capital Markets

Timothy Connor - William Blair & Company

Leon Chik - JPMorgan

Fei Fang - Goldman Sachs

Operator

Greetings and welcome to Nord Anglia Education’s Third Quarter Fiscal 2014 Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Vanessa Cardonnel, Corporate Finance and IR Director. Thank you. Ms. Cardonnel, you may now begin.

Vanessa Cardonnel

Thank you, operator and thank you to all participants joining our Q3 FY’14 earnings call. We posted our earnings release as well a supplemental presentation deck and 6-K filing to the Investor Relations portion of our website at ir.nordangliaeducation.com.

I am joined on the call by our Chief Executive Officer, Andrew Fitzmaurice; and our Chief Financial Officer, Graeme Halder.

Before we begin I would like to remind you that some of the comments made on today's call, including but not limited to our financial guidance, may constitute forward-looking statements within the meaning of applicable U.S. securities laws. Forward-looking statements relate to events involving certain risks and uncertainties, and actual results may differ materially from the views expressed. Information contained in this conference call is subject to and qualified in its entirety by information contained in our public filings with the SEC, including our S1 filed on March 27, 2014.

In addition all forward-looking statements are made as of today and Nord Anglia Education does not undertake any responsibility to update any forward-looking statements based on new circumstances or revised expectations. You are cautioned not to place undue reliance on any forward-looking statements.

I would now like to turn the call over to Andrew Fitzmaurice.

Andrew Fitzmaurice

Thank you, Vanessa. I'd like to welcome everyone to Nord Anglia Education's earnings call for the third quarter of the 2014 financial year. During today's call I will detail some recent developments at Nord Anglia Education and provide the highlights from our third quarter results. I will then turn the call over to our CFO, Graeme Halder, who will take you through the financial results in more detail. I will then come back to provide the outlook for the remainder of FY’14 and discuss the continued successful delivery of our growth strategy. Finally we'll open the call to take your questions.

Starting on slide three of our presentation, I would like to take a few moments to provide an overview of Nord Anglia Education and the scale of our operations as we continue to grow. Following the acquisition of Northbridge International School, Cambodia, we now have 29 premium K-12 schools in 13 countries. We have over 18,500 full time equivalent students and deploy approximately 4,000 teachers and teaching support staff.

We operate in the highly fragmented $58 billion English language premium schools market. 89% of this market is made up of single site operators, so even though Nord Anglia Education is a small but fast growing percentage of the whole we believe we are comfortably the largest operator and have significant headroom for continued growth.

Turning to slide four, we strongly believe that our commitment to the highest levels of educational quality is the foundation of our success and is proven by our academic outcomes. We have recently received our students' International Baccalaureate Diploma results for 2014. The maximum number of points for the diploma is 45 and our average score has risen again this year to 33.7 points from 33 points in 2013. This outcome is significantly ahead of the global average score for the IB which is 29.8 points.

We're also delighted that over 14% of our students achieved 40 points or more for the IB this year. This is more than twice the world average and is the type of score needed to gain admission to the world's very elite universities such as Oxford, Cambridge and Harvard. We're also delighted that three of our students achieved the maximum score of 45 points. This is six times the global average for students who achieved that score.

Thanks to these excellent results we anticipate a further improvement in the percentage of students gaining places at the world's top 30 universities in 2014. As a reminder last year approximately 20% of our graduates gained admission to the world's top 30 universities.

We are very pleased with the continued progress of Nord Anglia Education since our IPO which was at the end of March 2014 and slide five sets out a number of recent developments. We are now expanding capacity at a number of existing schools, most notably, our La Côte School which moves to a new 840 seat campus in Aubonne in September 2014.

We continue to develop attractive greenfield opportunities and in June we celebrated the groundbreaking ceremony for the construction of a second campus for the British School of Chicago in the South Loop of the city. The new campus is scheduled to open in September 2015 with a capacity of 1,100 seats and will complement our Chicago school’s highly successful campus in Lincoln Park.

Last week I was delighted to announce the addition of Northbridge International School Cambodia to the Nord Anglia Education family of schools. We completed this acquisition on July the 10, 2014. Northbridge was founded in 1996 and is one of the leading International schools in Cambodia. The school teaches the International Baccalaureate curriculum to students between the ages of three and 18. It currently has 650 seats of capacity and is set in a 20 acre campus with world class facilities. At the end of the 2014 academic year the school had approximately 500 full time equivalent students. The average revenue per student for 2014 was approximately $15,400 and the school has announced a fee increase of 5% from next year.

I would also like to update you on two key management appointments; David Graves, the Ex-Senior Vice President of Strategic Initiatives at Laureate Education has joined us as the Regional Managing Director for North America. And Alison Copus, most recently Ex-Vice President of Marketing at TripAdvisor and previously Marketing Director at Virgin Atlantic has joined us as Chief Admissions and Marketing Officer.

At the same time I would like to thank Professor Deborah Eyre for her substantial contribution during her four years as our Education Director. Deborah will retire at the end of December 2014 and during that time we will appoint a successor.

I would now like to turn to our quarter three highlights on slide six. Our revenue increased by 54.9% from $89.4 million in quarter three last year to $138.5 million in quarter three this year. Adjusted EBITDA increased 60.6% from $28 million to $45 million and adjusted net income increased from $2.9 million to $14.7 million. It should be noted that the adjusted net income figure in this quarter only benefits in part from the refinancing we completed at the time of our IPO and therefore includes a higher interest charge then we would expect to see going forward.

In terms of our key operating data, our average FTEs were up 80% to 17,653. We increased capacity by 77.9% to 22,237 seats. Our average revenue per FTE decreased 8.2% to $7,800. This was due however to the mix effect of the schools we acquired in the 2013 financial year which have lower revenue per FTE than our previous average for other schools. It is worth nothing that even with the reduced average revenue per FTE we continued to deliver a strong adjusted EBITDA margin of 32.7%.

I will now hand over to Graeme to take you through the financial performance for Q3, 2014 in more detail.

Graeme Halder

Thank you, Andrew. Looking at the Group performance for Q3, 2014 compared to Q3, 2013 summarized on slide eight. Total revenue increased $49.1 million or 54.9% from $89.4 million to $138.5 million. On a constant currency basis revenue grew by 53.2%. Our revenue growth was driven by an increase in Premium Schools revenue of 61.1% from $83 million in Q3 ’13 to $133.7 million in the most recent quarter, partially offset by decrease in other revenue of 25% from $6.4 million to $4.8 million. The increase in our Premium Schools revenue was due to steady enrollment growth and tuition fee increases at our existing schools as well as the 11 WCL Schools we acquired in May 2013 and the acquisition of our schools in Guangzhou and Bangkok at the end of fiscal 2013.

Gross profit increased 59.9% from $48.4 million to $77.4 million and the gross profit margin improved from 54.1% to 55.9%. Adjusted EBITDA increased by 60.6% from $28 million to $45 million and on a constant currency basis adjusted EBITDA grew by 60.7%. Please note that adjusted EBITDA excludes the results from our loss-making start-up schools. This represented just 0.2 million from our school in New York in Q3 ’14 and 0.3 million from The British International School of Abu Dhabi in Q3 ’13. The appendix to our presentation and our 6-K filing with the SEC include a reconciliation of adjusted EBITDA and adjusted net income to profit for the period.

Our adjusted EBITDA margin for Q3 ’14 excluding loss-making start-up schools from both revenue and EBITDA was 32.7% compared to 32.8% for Q3 ’13. On a pro forma basis assuming we acquired WCL group from the 1st of September 2012 our EBITDA margin expanded 50 basis points from 32.2% to 32.7% demonstrating our ability to drive operating leverage. In future we intend to include our loss-making start-up schools within the calculation of adjusted EBITDA and adjusted net income increased from $2.9 million to $14.7 million and adjusted EPS from $0.03 to $0.15.

If we had completed the IPO and refinancing at the beginning of the quarter rather than mid-quarter, our interest expense would be been approximately $5.8 million less and our adjusted EPS for Q3 FY'14 would have been $0.21.

Slide nine sets out a bridge for Premium Schools revenue from Q3, FY'13 actual to pro forma and then to Q3 FY'14 actual. Pro forma for WCL, total revenue increased $19.8 million or 17.4% from $113.9 million to $133.7 million. Of the $19.8 million increase $10.5 million was from our schools in Bangkok, Guangzhou, and Singapore.

Slide 10 gives a snapshot of our four regions. As you can see the organization has performed well with some variance in growth rates across the regions which I will now discuss in more detail.

Looking at the third quarter performance in China on slide 11, revenue was up 17% due to enrollment price and tuition fee increases at our schools in Beijing and Shanghai and the acquisition of our school in Guangzhou in July 2013. Total enrollments in China grew by 17.9% compared to Q3 fiscal ’13 with average revenue per FTE down 1% to 9,900 due to the impact of the weaker R&D in the quarter and the mix effect of the Guangzhou school acquisition.

Utilization dropped by 7% percentage points to 17% due to capacity expansions during the summer of 2013. And despite some macroeconomic softening China remains an important and highly attractive market for us. We continue to have strong pricing power but more moderate demand growth in China. Due to the strong growth we have experienced in our other regions, China’s contribution to our overall Premium Schools EBITDA has decreased from 68% in Q3 FY'13 to 50% in the most recent quarter.

Moving on to the third quarter performance in Europe on slide 12, revenue was up by 24% due to enrollment growth and tuition fee increases as well as the acquisition of our school in Madrid, Spain. Total enrollment grew by 19.9% compared to Q3 ’13 and average revenue per FTE increased to $8,800 from $8,500. Utilization was unchanged at 85% and we expect continued moderate enrollment growth and tuition fee increases in Europe inline with the general macroeconomic environment.

Looking at the third quarter performance in the Middle East and Southeast Asia on slide 13, we experience strong growth in Q3 ’14 compared to Q3’13 as a result of organic growth in our schools in Abu Dhabi and Pattaya as well as our acquisition of four schools in Qatar at the end of May 2013; Saint Andrews International School Bangkok in August 2013 and Dover Court School, Singapore in April 2014.

Average FTE’s increased from 992 to 5,495, revenue increased from $5.5 million to $25.1 million while average revenue per FTE was $4,600 down from $5,500 last year due to the mix impact of the acquisitions on growth in lower fee locations. The Middle East and Southeast Asia is a very strong region for us. Despite the high growth and lower price points across this region we achieved solid adjusted EBITDA margin of 29.9% in Q3 ’14 and expect further strong growth in margin appreciation in this region.

Looking at the Q3 fiscal 2014 performance in North America on slide 14, we entered this market with the acquisition of six schools in May 2013 and the region contributed $19.7 million of revenue in Q3’14. On a pro forma basis revenue at our North American schools increased 4.8% but average revenue per FTE decreased from $7,600 to $7,400. I note, in the prior year quarter we enjoyed a one-off benefit which suppressed the revenue increase and impacted the average revenue per FTE in Q3 '14.

Utilization increased three percentage points to 81% with 2,669 average FTEs in Q3 '14. And we continue to be very positive about the North American market for premium schools and we expect to see continued growth across the region.

Slide 15 shows our summary cash flow for the nine months to the 31st of May. We ended the period with a cash balance of $138.2 million. We are now in Q4, our strongest cash generation quarter, as we continue to collect tuition fees for the 2014-‘15 academic year. In line with recent years we expect to receive more than 50% of FY’15 revenue by the end of FY’14.

Our net debt position at the end of May was $405.9 million, which translates into net leverage of 3.2 times LTM Q3 adjusted EBITDA, down from 3.6 times LTM Q2 pro forma, pro forma for our IPO and refinancing. You can see that our business naturally de-levers quickly. However, as we have previously advised, we would be comfortable operating at higher rates of leverage in the short term if larger opportunities to deploy capital into a high return acquisition strategy arise.

I will now hand back to Andrew for our outlook and some closing remarks.

Andrew Fitzmaurice

Thank you, Graeme.

Turning to slide 17, we would like to reiterate our targets for FY’14. We expect overall revenue in the range of $468 million to $472 million and adjusted EBITDA in the range of $125 million to $127 million. We will provide revenue, adjusted EBITDA, net income and EPS guidance for 2015 following the release of our full year 2014 results.

I would now like to provide an update on our growth strategy as we look towards the 2015 financial year. So turning to slide 18, our planned organic capacity expansion over the summer of 2014 includes building a new campus at Aubonne for our La Côte School and incremental capacity expansions at our schools in Warsaw, Budapest, Bangkok, Doha, Al Khor and Guangzhou. All told this will add over 1,000 seats of capacity.

Final construction is progressing well at our two Greenfield schools in Hong Kong and Dubai that are opening in September 2014. Together these schools will add a total of 2,300 seats of capacity and both are continuing to experience strong demand for places. Taking into account same school expansion and our new school openings we expect total capacity for September 2014 will be approximately 27,000 seats up from 21,700 seats in September last year.

We have a disciplined approach to capital allocation and this growth has been achieved in keeping with our asset light model. Looking to the future we expect to develop more greenfield opportunities both through our own activities and from incoming requests from developers looking to partner Nord Anglia Education.

We are very pleased to have completed two acquisitions in Southeast Asia in the last few months, which are both excellent additions to the Nord Anglia Education family of schools. We see acquisitions as an important source of growth and are constantly improving our pipeline of opportunities to ensure a flow of new schools into our market leading network. As we have communicated previously we intend to deploy excess free cash flow and additional debt capacity into acquisitions on an ongoing basis. Due to the highly fragmented market and the nature of the individual schools, we cannot be specific about timing or scale but note that acquisitions may occur at different times during the year.

During the next few months we will continue to focus on recruiting students with a view to securing the best possible enrollment throughout all of our schools to September. In summary, we have delivered another strong quarter, remain on track to achieve our full year guidance and are well positioned to continue to execute on our growth strategy into 2015.

Operator, we would now like to open up the call for Q&A

Question-and-Answer Session

Operator

Thank you. We will now be conducting the question-and-answer session. In the interest of time please limit yourself to one question and one follow-up. (Operator Instructions). Our first question is from the line of Anjaneya Singh of Credit Suisse. Please proceed with your question.

Anjaneya Singh - Credit Suisse

Hi, thanks for taking my questions. I was hoping that you can give us some additional metrics and info around the Northbridge School. How does the tuition there compare versus average for the region is -- for the region, is the utilization there typical for the region? Also was the acquisition price paid in line with your historical average?

Andrew Fitzmaurice

Okay, so I think the first one Anj was the capacity and utilization rates for school. I think the school has got the ability to grow. We have got 500 students in that school, 650 seats of capacity. And as you know I said on the call it’s really is a fantastic site and it’s a very large site. It’s in the middle of a high-end residential property development so very much in keeping with other schools that we operate. It has got opportunity for further capacity expansion as we build this capacity in the school.

It’s a market which is pretty well utilized, up in the high 80s in general. So again we believe that it’s a market that doesn’t necessarily respond quickly to growth in demand. We see good demand potential both from expats, thanks to foreign direct investment and we are also able to freely educate locals there, so that growing wealth amongst locals means that there is a greater demand for high end private education. And so we see it as a very typical, Nord Anglia Education acquisition, similar kind of multiples, high-end school, top tier, fees of round about an average of $15,500 as I said, which is around at or near the top of the market and something with great potential.

Anjaneya Singh - Credit Suisse

Okay, great. That’s super helpful. Just one follow-up, can you give us a little bit more on the terms of the deal. Did you have to purchase the building? Are you leasing this facility? Do you anticipate any CapEx in terms of refurbishing the school or the site?

Andrew Fitzmaurice

Sure, so as I said it’s an absolutely typical Nord Anglia Education deal. We’ve got a lease, a long lease on the property from the landlord. The landlord owns the surrounding real estate. So the landlord’s very much invested in our continued success. The facility themselves are of a very high caliber. They do not need any refurbishment and the landlord will pay for the additional capacity expansion on the site as we go forward. So it’s very much asset light typical kind of model that you’d expect to see from us.

Anjaneya Singh - Credit Suisse

Okay, great. Thank you.

Operator

Our next question is from the line of Paul Ginocchio with Deutsche Bank. Please proceed with your question.

Paul Ginocchio - Deutsche Bank

Hi, there. Hey Andrew, I wonder if you can just give us little color on the fall 2014 enrollment build. Where are you relative to, in the same place last year when it comes to commitments and utilization? Thanks.

Andrew Fitzmaurice

Okay. Hi, Paul. So overall we are very much in line with our expectations. Clearly we have got 29 schools now and are opening two new schools in September. So with 31 schools there, some doing a bit better, some doing not quite as well as we had hoped but overall very much in line with expectations and we certainly haven’t got any large message in terms of individual schools. So we are very happy with the estate. So overall we are very happy and believe that we’re going to deliver the kind of people growth that we’d expect to see.

Paul Ginocchio - Deutsche Bank

And just my one follow-up, how much visibility now relative to what you have at the start of the school year, and when is the deadline for the fall enrollment? Thanks.

Andrew Fitzmaurice

Yeah, so we clearly got a pretty good indication now of who is coming back and applications from starters. So we got a good indication which [vies] [ph] with confidence that the fall enrollment will be in line. But given the expat nature of our business we got about 70% of the students are from expat families. It does take most of September to settle down. So it’s only really at the end of September that we have got absolute clarity and if someone starts at the end of the September they still pay a full year fee.

Paul Ginocchio - Deutsche Bank

Great, so you probably have, is it 80% or 90% of students that you are going to have for the year already or more than that?

Andrew Fitzmaurice

Yeah, we would be at a high percentage in terms of we know who’s coming back. We rigorously analyzed that return of surveys so very few people who are uncertain and the people who we have down is uncertain now, genuinely aren’t sure about whether they are still going to be in the market this time in September rather. So got great visibility on the returnees and then we have got a lot of applications and a lot of visibility that we have on applications but we still got some room for to take further students. You do still get during the course of the summer and in September further demand but we are certainly in the kind of area that you talked about in visibility.

Paul Ginocchio - Deutsche Bank

Great, thank you very much.

Operator

Our next question comes from the line of Gary Bisbee with RBC Capital Markets. Please proceed with your question.

Gary Bisbee - RBC Capital Markets

Hi, guys, good morning or I guess good afternoon for you. Hey can you give us a little more color on the China segment? The revenue growth slowed quite a bit relative to last quarter and I think you said the currency hurt the revenue per student average but is this a trend line to use outside of what Hong Kong will add or is there any region to think that would bounce back from that growth rate? Thanks.

Graeme Halder

Yeah, I think the -- it did get hurt by RMB. China revenues got hurt by the RMB. Although having said that the RMB’s come back since quarter three period. But when we think about China we think China’s a very good market for us. We have seen times of quicker growth in China pre-Lehman and then when Lehman came along growth certainly slowed. We then saw a pick-up again over the course of last 12-18 months or so. Again we have seen slower growth pretty much in line with the trends in FDI and with the Chinese economy. But we still have strong pricing power in China. It’s a 100% expat market. So we are still expecting to see moderate enrollment growth and we are hoping that our return to stronger enrollment growth as the Chinese economy recovers.

So we still feel good about China, still seeing some organic growth, not strong as we perhaps have seen at times in the past, still strong pricing power and we are very confident about our Chinese business.

Gary Bisbee - RBC Capital Markets

Okay, and then the follow-up you made a comment about timing and size of the M&A is hard to predict but one of the things you talked about a lot in the IPO was your focus on British curriculum. I guess as we think longer term would you consider backing of off that stance and teaching other curriculum if there were properties on the market that had American or other type of education or does that really remain very core to how you think about growing the business, the focus on only teaching the British curriculum? Thanks.

Andrew Fitzmaurice

Yeah, I think that’s our schools are predominantly British curriculum. We have some different curriculum in Switzerland, including the French Baccalaureate and the Swiss Maturity. I certainly think that English language curriculum would be easier for us then second language curriculum such as your South American language but I would say that schools which have got you for example, a lot of American schools now are using parts of or significant parts of the International Baccalaureate Curriculum and certainly those schools we would feel very comfortable about. Australian and Canadian schools are very similar to the English National Curriculum. So certainly we are open minded, provided the right opportunities are there on English speaking curriculum.

Gary Bisbee - RBC Capital Markets

Okay, thank you.

Operator

Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

Jeffrey Silber - BMO Capital Markets

Thank you so much. With the latest acquisition in Cambodia it looks like most of your recent expansion, which from an acquisition perspective has been in the Middle East and Southeast Asia area. Should that be the region that we expect you to focus on and are there any markets there that you are not in but you think you might be entering?

Andrew Fitzmaurice

I think we're a little cautious Jeff on providing too specific feedback on those kind of questions, now that we are a public company and given that the nature of the information that we provide is pretty much available to everyone. But we certainly continue to see a lot of opportunity in Southeast Asia and the Middle East, but that's not to say that we're not seeing opportunities in other parts of the world and we certainly feel pretty good about the pipeline at the moment, of acquisitions, as we've said, because of the nature of the sellers, it's often families or individuals.

You can't always be certain about timing. But certainly since the IPO we've seen a further strengthening if anything of our pipeline. I think being public has helped in terms of our visibility and we've had more incoming. So we're seeing a lot of opportunity on the acquisition front at the moment.

Jeffrey Silber - BMO Capital Markets

Okay, fair enough. My follow-up question in the months since you've gone public, we've probably seen a little bit more turmoil internationally whether it's in the Middle East or Russia, Ukraine et cetera. Are you seeing more cautious approach from companies in terms of sending expats overseas going forward?

Andrew Fitzmaurice

I don't see a political or any reaction to political volatility in any of our markets. It does tend to really be economically driven. I think unless we are operating in some really difficult places, way beyond anything that we're seeing at the moment in any of our markets then it would perhaps start to affect things but we haven't seen anything that's caused us to worry on that score at the moment anyway.

Jeffrey Silber - BMO Capital Markets

Okay. That's very clear. Thanks so much.

Operator

The next question is from the line of Tim Connor with William Blair. Please proceed with your question.

Timothy Connor - William Blair & Company

Thank you. I want to discuss the new hires. First the Chief Admissions and Marketing Advisor, is that a new position? And what types of improvements or efficiencies can you drive in admissions and marketing that aren’t already being done?

Andrew Fitzmaurice

Yes. So we brought in someone to do that, Chief Admissions and Marketing job on a permanent basis because we see a lot of benefit to scale that we have as an organization now and the brand that we have and as well as that, there is an awful lot of opportunity to develop our Internet and social media strategies to really get to people and whether that's organizations or individuals before they come into a market. And so you can see from Allison's background, TripAdvisor and Virgin, that using the Internet and social media to drive demand and also maximizing the benefit of a very powerful brand are things which he has done an awful lot of and we believe that there is significant upside in both of those areas for us and that's why we've brought Allison in.

Timothy Connor - William Blair & Company

Okay. And then a follow-up the North American, new North American Director, how are you thinking about the U.S. market in terms of longer term growth and what is the opportunity there?

Andrew Fitzmaurice

Yeah, so I think there are several things that we really like about the U.S. market. As you know we believe that it’s a market defined by its constraint in terms of supply in particular. Most of the markets that we operate in the U.S., very reluctant the Tier-1 schools are very reluctant to create any capacity particularly in the face of demand. So creates its own opportunity and then as we said before we see a number of other cities with opportunities in the U.S. So given the strength of the opportunity there we wanted a strong local manager and I think we had been very lucky in finding David, someone who has a wealth of experience in the education sector during his time with Laureate but is also someone is a very commercial guy, a great operator and is very adaptive to the business development, corporate development side of things.

So we would we would expect him to work well not only in terms of running and developing the schools that we have but in terms of working with Philippe, our Corporate Development Director on new opportunities in the U.S. market.

Timothy Connor - William Blair & Company

Okay, thanks. And then final very quick modeling question the SG&A line what are the expectations for that in terms of fourth quarter and that line has moved around a bit?

Graeme Halder

Yeah, Tim it’s Graeme. I mean the line doesn’t move around because it’s some sort of exceptional, the biggest of which is the FX difference which is the mostly unrealized gain on FX on our inter company. So I think if you adjust out for those things you will see that the underlying SG&A is fairly constant given where within our projections we said before we are not expanding a significant change in to Q4 from Q3. Once you adjust out for the one-offs of share based payments or FX differences.

Timothy Connor - William Blair & Company

Thank you very much.

Operator

Next question is from the line of Leon Chik of JPMorgan. Please proceed with your question.

Leon Chik - JPMorgan

Yes, hi. It’s Leon. I was just wondering for new acquisition I mean how important is it to buy the schools before the school year starts. I mean how disruptive it is say if you buy something in November or January? Yeah, that’s the question.

Andrew Fitzmaurice

Yeah, I think we’ve got pretty good at doing that Leon now we bought La Côte in April, bought the WCL schools in May. We’ve made acquisitions at different times in the year before. So we are open to continuing to make acquisitions anytime during the course of the year.

Leon Chik - JPMorgan

And I’ve a follow-up is, compared to before the IPO, can you give us some difference in metrics in Philippe’s team in terms of number of people or how many schools they visit or do a serious study every month now versus pre-IPO?

Andrew Fitzmaurice

Again I’ll be a little vary of giving away too many trade secrets of how we actually do it and what we actually do. But we have certainly added capacity to our corporate development team since the IPO and we have already got some great people in that team. We’ve been able to supplement that and as we have said in the script to the call we are looking at greenfield opportunities both outbound and inbound on that and we have seen further strengthening of the pipeline for acquisition since the IPO. So we are making sure that we are resourced to take advantage of those two things.

Leon Chik - JPMorgan

Thank you.

Operator

Thank you. (Operator Instructions). The next question comes from line of Fei Fang of Goldman Sachs. Please proceed with your question.

Fei Fang - Goldman Sachs

Hi, thanks for taking my question. For your operation in China the utilization declined year-on-year due to expansion but EBITDA margin appears flat year-on-year. So my question is what factors offset the utilization that kind of kept the margins strong. And also if I may have a follow-up for the new school in Hong Kong and Dubai how many enrollments would you start with, so if you can share some color on the beginning operating metrics for example will be the tuition’s fee utilization metric et cetera, that will be great. Thank you.

Andrew Fitzmaurice

Thanks, in terms of the first quarter Fei I mean we added some capacity over the summer and there is small increase in rental cost for doing that. I mean that’s fairly small in the scheme of things and so we put our fees up in excess of our cost inflation and therefore the margin would have increased on like-for-like schools. The Guangzhou margin is slightly lower than the average and therefore overall it’s stood still rather than increasing but all the fundamental drivers that we talked about during the process there in terms of you know fee increase and excess, bit more capacity but the margin staying the same.

In terms of the second part of the question can you…

Graeme Halder

I’ll take that, I’ll take that up. So we are still pleased with the way that the Hong Kong and you know Dubai schools are going very much as we had hoped and the price point of both of those schools is around US$20,000.

Fei Fang - Goldman Sachs

Great, thanks Andrew and Graeme.

Operator

Thank you. At this time I will now turn the floor back to management for closing comments.

Andrew Fitzmaurice

Okay, thank you very much. So we’re very pleased to deliver our second quarter as a public company which reiterating our estimates for the year and as we said on the call before we continue to have a lot of confidence looking forward and we are very much looking forward to continuing to deliver again the successful story that we have at Nord Anglia Education, particularly proud of the academic results we were able to report this year. And at the end of the day it is the academic performance and the quality of our schools which underpins everything that we are delivering here.

So I think that’s a very significant mark then to see continued improvement against the growth average in terms of the outcomes our students are getting. And with that I would close the call. Thank you.

Operator

This concludes today’s teleconference. You may disconnect your line at this time. Thank you for your participation.

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