Q3 2020 Earnings Call

Ladies and gentlemen, thank you for standing by and what can do the Q3 full year 2020 GE L. Education Group earnings Conference call. At this time, all participants are listen only mode. After the speakers presentation. There will be a question answer session to ask the question. During the session you will need to press star one on each other for.

Please be advised that today's conference is being recorded I would now like to have the confidence or what's your speaker today.

So young IR director of T. L. Thank you. Please go ahead Mike.

Thanks, operator, thank you all for joining us today for Yeah aggregation group third quarter 2020 earnings Conference call earnings release must distribute hit earlier today and you may find a copy of the company IR website.

What do you plan on doing.

During this call you will hear from Easter going door, Chief Financial Officer, No less confident of finance and the myself I opted out following the prepared remarks.

Let me I'll be available to answer your question people. They continue please note that discussion today painful we're looking statements.

Under the Safe Harbor provision I'll be a U.S. private Securities Litigation Reform Act of 90 magnified.

He's balan are subject to risks and uncertainties that may cause actual results to differ materially somehow recovery of patients.

We feel good unless I didn't you include but not limited to those offline in the public filings with the asking.

More information about these risks and uncertainties. Please refer to our filings with the FTC also.

Release in this call include discussions.

non-GAAP financial matters. Please refer to our earnings release, which contains a reconciliation of the non-GAAP matters to the most directly comparable GAAP measures I would like now to turn the call over to Mr. The law. Please.

Thanks, Michael gradually and good morning to draw. Thank you for joining us today always earnings call.

Our so called the revenue performance was based on solid growth momentum of both of oral small cost, finishing the cities, we're going to cover and a continuous getting off of online courses.

Revenue growth in this quarter was 47.2% year over year U.S. dollar terms to U.S. dollar 862.4 million.

And 15.7% AARP intense.

Total normal price long term causes student enrollments increased by.

66% year, or you're mostly driven by online enrollments costs registrars Peiyou small class.

Income from operations grew by 9.9% to U.S. dollar $78 million.

That's a quarterly non-GAAP income from operations increased by 16.4% for US dollar 100 or 8.2 million.

This quarter's results reset of progressing our efforts to fewer Harrison's Santa book business model based on our product development technology customer satisfaction operational efficiencies.

I will now call over to lean, that's where our vice President Finance sure. We'll give you update our operated operational progress in this quarter.

No I call your out you're up to where revealed a third quarter financials. After that I will update you on our kids strategy execution and discuss our biggest outlook the industries.

Thanks, Joe.

The topic.

Well Matt.

Education services, our tutoring business.

Let me review the business by different UN mute screens.

Let me start with small class and other business, which consists of the peiyou small class towards lead Mobby and some other education programs and the Phillies it.

These accounted for 76% of total net revenue compared to 79%, even though called her last year.

The revenue will go through it was 41% U.S. dollar.

And the 44%.

Uh huh.

Just a tail small class, which remain our stable core business.

Represented 61% of total net revenue compared to 65% in the same Yoko period.

Lower revenue contribution from Ceocs appeal was mostly due to the faster through ups. You asked this outcome on coffee, which accounted for 18% of total revenue in the quarter compared to 15% in the same period last year.

Net revenue from to ask the tail small class was up about 36% equalize dollar terms and 40% R&D too.

Well now more price long term calls from Goldman increased 61% year over year.

Let's go sideways with less the solid go up both to acetate, you offline and online class.

Hey, you offline small class revenue increased about that day rate of 27% He U.S. dollar tour and 30%.

Uh huh.

Well I'll, let namal cries long term college enrollments increased by 32% year over year.

With pay you alone. We also Allen causes with localized content as a bundled where steel complimentary surveys to pay your outlet you over 13 major cities of our network.

We have any reason call. It hurts added more regular on the show to him causes subjects and other promotion causes.

These are increasingly synchronized with outline causes and support the learning percent learning experience for our students.

He was third quarter fiscal year 2020 pay you all that accounted for approximately 11% of totals yards to pay with small class revenue and 18% of totals yards the tail nominal price with long term smoking asking yeoman's.

By comparison, enlisting Yoko period revenue on a normal price that long term enrollments prompt pay you on where 5% and 7% respectively of total yards Peiyou small class business.

We continue to recall that it grows because the part of the cities that we currently cover.

The Peiyou small class revenue from the top five cities, we chat 18, Shanghai, Guangzhou Shenzhen and then.

Grew by 32% year over year, you guys dollar terms as accounted for 57% of just the Peiyou small class business.

Revenue generated from cities other than the top file grew by 42% U.S. dollar tour.

The other stated accounted for the other 43% of this yards detailed small class business.

Let me ask Brad is based on solid market demand accounts outdated incremental run pop up in Goldman from our earlier classroom expansion.

Faster growth I'll tell you online courses as well as our ongoing efforts to improve operational efficiency.

We continue to extend how offering with a wider array of offline and online called the increased fuel or an extra curricular subjects.

As always we invite you to the wild card that's an accountant that's changed how students learn and improved student outcomes.

Our Chinese and English courses I not widely used.

At the end of November 29 team, we have offered she wants to pay your Chinese classes in 25 cities and English classes in 29 cities.

During the quarter, we have emerged the firstly on the multi centered in order to achieve more operational efficiencies and enjoy buys her product and motion and efficiencies.

Firstly, Bobby and other education programs.

All grew at a steady pace both in revenue and needleman in this third fiscal quarter.

We expect that lease that worth the size causes will gradually contribute more to our overall business.

Next I'd like to briefly discuss our true Col. One on what business.

This business sector had a good third quarter as achieved year over year revenue growth of 48% U.S. dollar terms on the 52% RMB true.

Just how accounted for approximately 6% of total revenue in this third quarter of both fiscal year 2019 2020 .

Let me update you on our capacity expansion.

Always weight was still where his outlet capacity growth that is healthy and sustainable.

As we mentioned with our last quarter's earnings call. We are planning to gradually an amount is today accelerate the outlet learning center expansion rate.

Alongside any expansion effort, we invest in your technology and online business to improve overall operational efficiency and abide by the vendors and regulations.

We added a net 36 learning centers.

We opened a nice of 34, Neil tables small class learning centers.

Seven one on ones then hers.

Fields with emerging outsourced the leap and the multi and other standard operational related reasons, we closed nice upside for sleep and <unk> centers.

During the call her we added 670, Peiyou small class classrooms.

During the call her we see now and her and you will see taste on China, taking a be tough time for consolidation following our entry into 13, you'll see it is year to date.

This quarter, we opened our fourth you as the pay you International Learning Center in Silicon Valley area in United States.

Yes, Oh by the end of November waste has 794 learning centers in 17 cities.

616, NIE, China stated as one do you asked the pay learning center in one U.S. safety.

Oh wage Fone hundred 75, where peiyou small class and international agitation centers.

98, or newly merged Moby enforce the small class.

121, or two kilowatt on what.

As for Q4 pure now we had rented approximately 76 tail small class learning centers.

And we expect to add a few more and close down some learning centers based on standard operations.

These estimates reflect our current expectation, which is subject to change.

Moving now to our online business.

Third quarter revenue from just the dotcom grew by 82% Eagles dollar terms year over year as 86% R&D terms.

Well normal caused long term causes enrollment grew by 107% year over year to about 890000.

I don't know contributed 18% of total revenues and the 38% of the total normal price, but long term egovernment. These called her compared to 15% of total revenue and 31% of total nominal price long term causes and Goldman.

The same year ago period, respectively.

The Rockies built on business was supported by seasonality driven sales and marketing efforts retention of the previous quarter's as far as the secular demand for allied location.

With that everyone know telecom over to echo yet for the uptick third fiscal quarter financial results I coffee. Thanks, Linda Let me now go through some key financial points for the third quarter of fiscal year 2020, the breakdown of ASP for the various business is as follows.

Normal price long term source to pay your small class ASP decreased by 7% RMB and 9% U.S. dollar terms year over year pay you offline normal price long term courses.

He was almost flattish year over year normal price long term to come online courses ASP increased by 8% RMB and increased by 6% U.S. dollar terms year over year normal price long term online course, ASP decreased by 9% RMB and the 11th.

Thank you asked dollar terms year over year, possibly due to the mix change of our diversified unless of course offerings.

Gross profit increased by 49.9% to $477.2 million from $318.4 million in the same year ago period gross margin for the third quarter improved to 55.3% as compared to.

54.3% for the same period of last year, selling and marketing expenses increased by 87.9% to $190.9 million from 101.6 million U.S. dollar in the third quarter of fiscal year.

2019, non-GAAP , selling and marketing services, which excluding share based compensation expenses increased by 89.2% Q1 hundred $86.4 million from $98.5 million in the same year ago period the.

Selling and marketing spending in the third quarter of fiscal year 2020 was primarily a result of more marketing promotion activities to expand our customer base on the brand enhancements as well as a rise in the composition to sales and marketing stuff to support a greater number of course.

And the service offering compared to the same period in the prior year.

Operating income increased by 9.9% year over year to $78 million from $71 million in the same year ago period, non-GAAP operating income increased by 16.4% Q1 hundred $80.2 million from 92.

$2.9 million in the same period in the prior year.

Expenses was 3.7 million, yes, all those for the full quarter of fiscal year 2020, compared to other income of $98.7 million in the third quarter fiscal year 2019 out of income in the third quarter of fiscal year 2019.

Well, it's substantially all from the fair value change well for long term you last month, the fair value changes over the long term you last month was transferred from accumulated other comprehensive income to other income ASCII last month was reclassified from available for sale last month.

To equity security is rapidly determine determinable file value upon listing on the Hong Kong content in November 2018.

Impairment loss, a long time, he last month was $46.4 million for the third quarter of fiscal year 2020, compared to $41.1 million for the third quarter fiscal year 2019 impairment loss on long time. He last month was made.

Early due to other than temporary a temporary decline in the value of long term investments in summary U.S.P.

Income tax expenses was 16.6 million just falling in the third quarter fiscal year 2020 compared to $10.4 million.

Income tax expenses in the same year ago period.

Net income attributable to T. L was $28.2 million in the third quarter of fiscal year 2020, compared to net income attributable to T L O laundry and $23.8 million.

In the third quarter of fiscal year 2019.

non-GAAP net income attributable to tier now, which excluded share based compensation expenses was $58.3 million compared to $145.8 million in that same period in the prior year.

Basic and diluted net income for 80, yes, we're both 0.05, yes, all or in the third quarter fiscal year 2020, non-GAAP basic and diluted net income per area, which excluding share based compensation expenses World Zero point, a warm and the zero point.

We will now you have fallen respectively.

From the balance sheet as off no one for 42019.

The company had 2720 $9.8 million of cash cash equivalents I'm sure how come you last month.

Compared to 1000 $515.6 million of cash cash equivalents I'm shocked me last month as of February 28, 2019.

No Wonder 32019, our deferred revenue balance was 1240 $1.2 million compared to 800 under $66.3 million as of November 13, 2018, representing.

We'll be huge increase.

43.3%.

Deferred revenue primarily consisted of the Chilean cockpit. The one of students would pay you small classes as well as deferred revenue related to other business now I will hand, the call back to Minto law to briefly update you on average strategy execution on a pro why the business outlook.

Of the next quarter, we'll be theoretical them up they all other basins around instruction, we're continuing with the rather our diversified prospectus, a new programs and projects to offer more suitable or other correctional services to our customers.

Briefly discuss each major things sector, our recourse pay it was more cost base remains has are stable as I mentioned last quarter, we decided earlier in this fiscal year to gradually or some other only to be the offline learning center expansion rate I would never have 17 cities of which fortune newly entered this years currently consists.

Consisted of.

Where over for 2000.

Crossroads, well answer most cities in the coming years Meanwell Payonline is growing rapidly. This year is a charge of capital for students. Both so of course supplement and synchronized causes contents to people offline.

Emerging Waldo way, our cross leverage and pay offline pure online in both directions.

The gross on Amazon, which brings our operational efficiency. Our press has made positive contributions and we'll continue to so true Harris balance our gross and I were perfectly elsewhere.

You know come into quarter should we expect gross Momenta appeals more cross continuous refer to the rather are often network are suitable speed and scale. The business. We believe we can afford to leverage our offline on at lunch is a result, especially suraj.

All the technologists.

This will enable us to bill adaptation say this is model, which is the munchery them and sustainable for the long term.

Well I will not be it is a high gross early stage beings in competitive and quickly you won't be market for every stage of Lumpiness. We will continue to promote the brand awareness offshore cellcom.

Its entire where do our best continuously improve our own undercurrent cities is operational efficiencies.

We managed service by leveraging our accumulating that's you know hall ongoing hurt other diversifications and technology innovation.

Never seems where pioneer vis vis based models, we have been cost them or baldo grid, social value and the market opportunity online application area.

Which we will continue to explore and develop no a brief update on some other kitchens solutions and open caf openings, but end of Q3 2020, mainly in the lower tier cities or geographic coverage, we have cooperative with a growing number of public schools with our small our location solutions. We're also work.

With a fuel cells are off small and medium size education institutions across China.

Different service level, you are open platform business with this new products and programs, we can contribute to the elevation of overshadow kitchen sector indication, what inclusive and more widely available in lower Q arris.

As we move ahead, we remain cautious that allocation process lives is required quality and care to lead to a lasting customer satisfaction with any new causes Proto interactive to enter Harris soft students learning program overcomes revenue growth and profitability can only be.

Sustainable if the process of learning to adapt to each student personal needs and resolve improve over.

Okay.

I do not Brasil gross for growth for group for girls sick.

Oh I.

I would like to emphasize wall Watson more ongoing basis, where we invest to.

Innovative kirkland or products, there wasn't interactive technology.

Operational efficiencies, Tony if I'm going to open to all the base all recur estimate total net revenue for the fourth quarter fiscal year can you 20.

Was expected to be between restore the 915 up 1 million and U.S. dollar 980.9 million.

Representing an increase of 32% to say, 5% or year over year basis, if not picking to consolidate consideration of the impact potential changing the exchange rates beat your IP in the U.S. dollar that pro chart to revenue growth rate is expected to begin a range of 35% to 8% for the fourth quarter of fiscal year 220 that.

Concludes my prepared remarks, operator were now ready to take questions.

That's really ladies and gentlemen, we will now begin the question answer session that if you wish to ask your question. Please press star one of your telephone and lead free name to be announced if you wish to cancel their request, please just pounds or how should be.

We have the first question blind.

Just some girls from C. I see see please go ahead.

Hey.

Thanks for the opportunity congrats on we have very strong third quarter.

Nobody fuel.

Expansion.

And your capacity on your pace.

Yeah.

No steel steel.

These strong results so how should we see the Tibetans expansion pace and your pay you Rob.

A few quarters. Thanks.

Thank you.

For the payoffs what cost business.

We talk about their last quarter actually.

I think two quarters ago Raptor evaluation on broker and being small, though emulation offering you very much of our total regulations, we decided to et cetera early Toby awful appeals more costs.

We try to.

And some more cities this year, we have and who are offsetting cities, including.

Finally U.S.

We probably we will try to enter more cities nephews and last year, you'll probably recall the way hardware only.

It will only add to your own slipping percentage of total classroom capacities last year and by the end of this quarter, we have already adding around 17%, one seven and considering fighting it out today.

Quarter, four wells are already and here.

Open 70, 676 payoffs more companies centers already and weight with respect to adding more in the coming one month. So the overall, let peiyou small class expansion rate it will be in a range of 20% to 30%.

One thing I should need to remove all of your guys is here when we report will open the northern incentive.

The existing cities, which means we have signed a contract for rental by in January page two quarters to finish the renovations are smaller license and then we'll go put them into use which typically with pace around two to three quarters. So older linear sense, we added last quarter in this quarter.

Probably will come into our contribution what revenue will be easier summer and fall.

And looking into next year, I think we've probably a ways all of these lending sensor, adding this year can take you into fourq fuel to 20 pathway incentive Q3 36.

Path.

A new learning centers, and while Q4 76, even more.

So we are confident about our payroll offline a rough.

Growth in the coming you.

And.

Again, one thing I would you say is actually let Neil model with Atlas, we call him old model, which is a little bit different for all attention appealed often models. We use a lot of owning technologies to create our ultimate classrooms would have lost no hall for Mr. US online school and office basic specialty solidly acknowledges.

Comp will contribute to our offline business.

A lot of new cities will enter actually with dual teacher model Swiss leverage that live broadcasting technology to enable our massive futures. That's the best massive teachers in Beijing, or Shanghai confusion more students all over China.

Also having nevala teachers can teach BRL classrooms, witnessing fuji remotely.

And people like is also while all while ago Paradise would have ever have body on have today I think our net loss in Q on Q2.

They grow more than 150% plus minus in Q3, they grew more than 20% in Q4, and they are coming one year away I'm confident they can continue in triple digit growth, which will be aware important complimentary services should appeal Auckland, Denise way and Thats already teach you move to move.

That brings models or animal model.

And so all we are we believe.

This year, we're probably we're adding the classroom sitting around 2% to 6% and all this new customer, we're adding will contribute to our revenue growth next summer all four so we're quite confident Alibaba IPO some across topline revenue growth in coming years.

Thank you very helpful.

Thank you.

Thank you. The next question comes from the line of Mark Lee from Citi. Please call.

Hi, much much congratulations.

May I ask the I think our upward.

Pretty much in this quarter, a patent that guidance on account for the five point could you rank. The fact that it's a Bachelor that you always by patients and how I suspect.

Changing for next quarter's a color. Thank you.

Thank you Mark I think for kosher for Q3 or in the first phase with.

With your battery charging the Payor smoke cost anything we'll expect these superga see that will increase our gross margin by one point and so which can also contribute a little bit passing them in the proverb status on the other sites with Spain or some of the online marketing.

In the Q3, you're probably consider compared with last years third quarters actuaries more than last few bother alkire results also well on track with fuel that is.

No the promotion results well on track, so well, which can also give us some kinda buffer in a profit in perspective, so were paying.

Happy to see that kills through the in the margin strategies, but a little bit better than what we talk about that before.

Looking to cure for I think.

There was two point, we need to be work carefully number one.

As you'll Bergen see that we have already and to open 70, 676% more pass or lending centers already and we still will talk more in the coming up so this number.

Almost equal to the first three quarters numbers, that's a lot of new learning centers happening across China, So which will when we decided to adding more ladies and seeing a short term they would have some pressuring the Muslim studies.

Now lets size I think the payroll.

I'm sorry.

Yes online school in Q4 were with that wants to go we need to evaluate their market dynamics and especially what's happening most.

Recently to decide whether waiting to be more promotion.

Causes you all have strategy.

So I can give you a grounds and now about what we're trying our best to balance older investment we made in this area.

And.

On the other size I I I also like to spend some time to talk about Q4 performance because the market is changing and a new situations is happening every day compelled to.

Yesterday, our counterpart owning caution today were more information to share.

Number one is I need to remind all of your guys actually how we don't want to see the by we have are already know is in areas. There were some buyers are this is happening over there.

And we have fully follow like almost requirements and kind of policies to made necessary cenci and often incentives.

And lease would have were considering our guidance.

French speaking because we have no idea what will happen next months above this kind of wireless obvious kind of disease. So what we can do is try our best to maybe relative to conservative projections are for revenue and way way way to Q as post the us what kind of impact.

On to our business.

Coming from this kind of challenge.

And so when we're looking to kill for what was what we want to stay is all the numbers. We shared is based on Willis situations.

The information so we got today, which is such to change we will kill guys post that you would have some material impact will happen. Thank you.

Thank you Mr. law you pick up.

Thank you.

Next question comes from the line is DS Kim from JP Morgan. Please go ahead.

Hi, good everything every good evening, everyone. Thanks for taking my questions just to follow up on that point.

Can we discuss a little more detail on our guidance for Q E. You know like versus this quarter. It wasn't meaningful there will be a meaningful decelerate already baked pain, how much of that is coming from higher comps from last year and how much of the one class impact is baked in there and.

Meals to talk a little bit about Oh, hey yield or it's just that source the dotcom and other segment growth they tend for fourth quarter guidance and I have another follow up after that.

Thank you I think.

The guidance today, we have consider the or the impact of Mohan you our guidance based on what we see today.

And ER way I think you encounter in Q4, I've I recommend you guys to combine them together because in Q3 with one cost as you as they should flow through Q4, two three so if we're looking to our companies over a gross but the best way to look to do is combined closer in Cuba together too.

Look Heather revenue growth, sometimes look quantitatively will be kind of misleading.

And secondly, specifying a ball there hasn't been kind of buyers and the this.

I think the first place.

As a China system, we also why.

Kind of half paid to see these happen.

I myself watching the college routing when the Sox was happening into your 2003. So we have all experis at that time and way Trusler government is much better must stronger than before so we fully believe waste the government's through all of older measures in place this will be control and.

Ways to pull 100% off older policies are older requirements coming from government to make necessary changes in our school.

And in the second place I think.

Right. After this happen we have quickly Mason changes, we have tried to recommend more students moving from offline to online offerings are essential sense to operating investment in October our ratings in the past few years warehouse successfully build.

Our strong capabilities the only upside here, what I would have both payroll acting anti trust on my school team. So we have only like capability almost every city.

So a wave will enable how everywhere have already recommend steel is moving from offline to online and considering our people like offer it has quite a good reputations in arrears things, where it is widely accepted by the students and parents. So were seeing the transitions quite quite do Ang Oh.

I mean, all the outer cities.

South day, maybe they will also receive similar no notification from the government to stall to close there they're learning centers temporarily which is subject to the government's sway us one players in the tutoring Maki would definitely want to present will follow government policies to do so.

And if that happens. We're also worked well benchmark the casing hunt to suggest most offer students moving from offline to online I think compelled to revenue compelled to new enrollments were caremore is actually the students and the parents Harris and their safety that's number one priority.

And our team is also flipped 40 preparing for this so way hot or the older Night 76 cities. We entered today all of them we have basic.

Capability to build the online learning models. So the whole marketing is also working very hard to may not necessarily preparations for that.

You know today, we don't see any more material that news coming off a bar, we need to be food flipper, there for that if our way we happen to thing information trying to us your guys. So if we have to the more high enough. The latest news I'll, maybe notifications from government, we will never cazenove right away.

And offerings, both pillar life and trust on high school use obviously, we're ready to how to students even in a large a lot you live in the larger skip Spanish Irish Russell in school in the Summertime and would have support millions of students at his entire our people are today, we'll have more than 20.

240000 students and we would consider more in long run so.

And even for students maybe they are now our ceilings NOL by in the future. If they have some means we're also we'll try to help them throughout all my offerings, we are ready for this.

And the current guidance can only reflect our understanding or an hour informations wage rates. It from Hum I didn't know today, which is very minimal to overall revenue.

Oh wait half away don't have more information to share because these changes every day our Q okay.

Updated if we have some new information is coming off and follow especially follow payable pay you offline and online revenue growth next quarter and what we can say, it's actually pay will continue to grow White house, Lee and ER offline, we have seen some more kind of a positive.

Enrollments coming from our promotions about running today, so we'll keep or worry close watch on the final numbers of our Q4 enrollments for both on our offline and we will try to continue to manage a house it grows and bid and tried to be more sustainable.

Thank you.

Thank you very much further color if I may a follow up one more can we talk a little bit about a winter promotion or for online in the past couple of months I.E., how competitive bid was any initial conversion figures or more importantly were there any meaningful observations or lessons that we learn.

From promotion side, that's all for me. Thank you very much anyway.

Yes, I think for the whole year generally summer promotion Islam, most kind of competitive time and go into the fall and winter actually the low level of competition is actually lasting.

And then summer and we're running over some promotions for online, especially in their actual central for so we are seeing is actually we have to make some progress in the commercial expenses in the rettinger upside if.

And.

Wait I think for online product called the promotions piled up there.

The lower lower a business. So we'll have we'll have a worry today I'll Isis system to evaluate every tenant.

If they are really pen considering the new new customer acquisition cost conversion rate retention on there and a lifetime value all piece matches can feeding however, our our threshold will continue to do the investment on a on the on the marketing strategies by for while they fail the overall.

Oh I doesn't work, we're stopping investment so well manage all offerings to our carefully.

Thanks, very much much thank you.

Thank you. Your next question comes from the line of sharing zone from Morgan Stanley . Please go ahead.

Oh, Thank you for taking my question.

He's still you should I loved us well, so I look for P.. Okay. Can you piece also share the measurement thinking about vicious dot com in coming years in time, so be sure dot com positioning.

Company. So overall a structure in August so compared with the key compared to the home to see things shake and how to improve the overall process and the last thing he said what the common.

Well I'll look for lunch and stuff come for next year. Thank you.

Yes, I think.

No payoffs more cost business slowing more model and Oh sure stock on the online beams equally important our in our company.

Equally important.

And shrunk a trust online school I think.

This year into three we grew revenue by our 86%, while we've grown enrollments by around 100, or 7% and a vicious the warehouse worry heresy growth, especially you enrollment status.

In a way.

Looking to the next year, because let's face it bigger and bigger so Wade believe we can see what can continue to see the where her worry too and wire fasting. How is it grows from wireless space, but we don't expect to see the revenue gross triple digit every quarter, because let's face a little bit different.

And we maintain the we're looking into the online business actually way care, a lot about their quality and their students and parents that sectional Bobby's, which Ken.

Represented by the retention rate so.

Past few quarters me, we're making a lot of efforts and we also happy to see will improve our conversion rates and will improve our rate risk retention rates by high single digit.

So wishes all of that's showing the orthopedists, becoming more more how does it look into next year would be flat on lives steel will grow much processing offline and a lower enrollment growth may grow faster thing revenue gross so that's still a wire house of gross well into the only other case.

In cyber week, or we can see the top one guy can be around them between 20% Dr. shared by your profit perspective, maybe even more so we will maintain our leaders lipper leader position in the only other kitchen area and made necessary investments both English technology perspective, I mean that you just.

System to studies and the only marketing spend.

I think one thing if one online poured out into the different shape from the Alice Wong from the other company, it's done teaching quality and their operating efficiencies education no matter. The opening on at the end. They I've tried to keep your students and how to students achieve.

Well go all comps so when you to care more about allocation quality hallway can leverage our pathway know how to made a student study.

Hi, My vision to embed ambassador so that's something we can quite differentiated from the other while the new customer acquisitions or some kind of the marketing channels promotions. That's not the most important features which about differ from the alone would care moisturizing caught in a student.

Oh, Thank you much methanol Ah you comment that retention rates, how commission rate improved by high single digit decent comparing with a win.

That completes this summer.

Okay. So we can say that they sell for the master cell compression renewal retention rate compound Lisa summer.

Most fall and winter.

Okay. Thank you very much.

Yeah.

Thank you.

Next question comes from the line.

Alex <unk> from Credit Suisse. Please go ahead please.

Oh, hi minimum. Thank you for taking my question. So we have made announcement about the board member countries Award.

Communications.

Benjamin.

How should we think about new rose.

Mr Town.

Thank you.

Yes.

Uh huh.

I think.

Well, we talk about one comment the long term goes potential or onetime you talk about that business Leppings models investment, we make only Alice I would need to talk about actually the corporate governance structure.

Only I think see six years go away I just joined the company actually I'd. That's how we are worse more company or a nice thousand employees around 2 billion I I'm be revenue. This small company and come into today, we are much bigger than before and we have more than 47 selling price now so.

One thing the upper management will have a rich our agreement as we move to so that would need to establish a worry balance and Harris corporate governance structures to drive like companies looking at gross.

So coming from these assumptions way Mason necessary changes.

Mr Burdensome ER, our co founder and my precedent offer to go today will enter the bore often or the the ball from a company and as the chairman of the ball.

And Mr. by this a venture in our company, who led our people being seen that pass 14 years and me away.

Well Quickdraw and most recent years. He also do a larger jobs into building the.

The middle or platform thing for our company and also have represent our company, where we are in front of government meters analog applications.

I'm, so considering a missed that buys boasts a thing where insight and all side. So this kind of promotions will enable mystified quantico more in the bottom level, our Cuba, Latin a board of directors to gifts more a wise and lead the stretch direction.

It's off the company and support the management's do a much better joined the future.

I'll now the size Palm Mrs. Jones, our CEO and a former chairman they'll continue to be obviously youre in a <unk> in a company as she still hair around 40% off a company Sherri. This is still have more than 50% on holding power.

No change or about the separation outflows roll off chairman and CEO , which can lead can give more kind of balance balance empower our company to which is also a huge progress in a corporate governance spat it's Tom.

See often come they will folks so ask fusions strategies people in conversations and corporate cautiously and all of that and she will what was the ball and she's also the party Ruckus QQ way. She will what was labore too when we made final decisions.

Let me sum be kind of books or plans to make our decisions heresy and more balance than before.

In a way Oh, I'm kind of lending.

Lending community.

Lending King our company Oh Arbor senior members will only have one target is try to made a company back ambassador to deliver our mission. So this kind of new unnecessary challenge will highly promote our company's covering corporate governance, and which feels that.

No worries heresy fundamentals fiberlan can gross way from both from a managed them spat if anybody want to study is a highly weird Abbas change and we'll keep older cars posted you asked me many have new and all of and Oh, Yeah sent us before.

All of these changes happening in the ball will give clearly signals to the tools to look to all employees industry wage ill like to be.

Made more progress in corporate governance, and because we want to drive is the long term Harris and sustainable gross.

Thank you.

Thank you very clear.

Thank you. The next question comes into line of Alex <unk> from China Renaissance. Please go ahead.

Well, Thanks launch management.

Two questions.

His questions on the offline.

He'll growth deceleration, we don't is I think one and.

For opening Daniel.

That's a mobile acceleration versus previous quarter.

I think capacity was.

Aggressively.

Uh huh kept by the long term level in the previous quarters. So just wondering what are the major drivers for this notable alpine Roman celebration.

Second question and.

We notice I think for top five cities the revenue growth was more or less in line with another city. This quarters. So just wondering.

Was the sort of the growth strategy, you've seen the more tier cities in the coming fiscal year. Thanks.

Oh, yes, I can answer from the second question for us and when weight in the past few years wave device.

The weather or making more prophy offload duties from all those so we'll wait until a new cities starting from three years ago actually to elaborate stores remodeled two so which get hurt us to get rid of the button that off the teachers and can give more interactive experiences leveraging the online technology, we have today tourist students.

Actually all of this has received quite positive feedback from the students.

They're becoming our law firm most important way when we go go into the local cities I think this year were entered offsetting cities I lost you answered all 15 cities and next year will enter definitely more cities thing this year and based kind of acceleration is because we're leveraging the power off duty from audience and the parking.

College.

And online or offline gross or accelerations in Georgia and kill for I think a one size as a way, adding more classroom starting from Q2, but more importantly is actually we improve a little being our key accretion no capex.

Including the refinery retention rate and I know it seems fulfillment and all of that we'll try to manage and improve our operational efficiencies. A you know appears more cost everyday. So this has resolving a word who oh pop positive numbers interesting post cool closer in second half.

And baldor capacity gross lemieux regular numbers last year, where the or else looking so 13%, one three and and this year Q3, we added net for the six.

Let them census, and overall, we have added 17% oneseven awful of total classrooms.

I'm, considering less up 76, new learning centers, we have already rented in Q4, so wafer see the whole year without adding capacity by around 20% to 30%.

Which will cost will contribute to our and that's your girls from summer.

So with Iverson, our Peiyou small class a revenue growth next year will be strongly Oh pardon me by this kind of I started to see more classrooms nephew.

Yeah, So thats, our catchphrases stuff.

Thanks, Alex.

Thank you.

Thank you next question.

Some line Lucy you from Bank of America. Please go ahead.

Oh, Thank you Josh My two questions Firstly on the guidance next quarter of 75% to 8% grossing R&D time, so could you elaborate.

I don't like how much is Oh online show stuff comparable embedded in this kind of a assumption and how much is the peiyou small class.

And my second question is on the margin side I noticed that in this quarter. The GP module only expanded by one percentage point versus like more than 2% in the first half and almost expressing their interest on my team. So is it caused our acceleration of expansion a soda we see that a margin.

Fashion. So if that's the case a if we continue to accelerate in the following quarter Oh, we go into the see margin contraction or maybe flattish margin in the fourth quarter. Thank you.

Thank you Lucy.

I think in Q4 guidance.

Okay, Yes, because I didn't know today, we're ready for a lot of information suppose offline on like especially some so.

Thanks permission from Hum so.

Current guidance why can phase, where you have rugelach hour or the best emission would have especially for online offline why can face in general we don't disclose the online offline separately because of competitive reasons why why can face online still growing much faster than my capacity offline and.

The online what basis based on a number off of winter class Ashley's you run hardware so.

Uh huh.

I think way above where we took for Q4 guidance, we need to be much more cautious about over happening you know how many months. So oh, we will have more parade preparations to offer an appeal life classes and it shows why cost to us because if necessary so based guidance.

That's the best best numbers, we have state.

The margin perspective, yes, you're right Pilar reason is where you start into acceleration, the adding more classrooms, which really Jewish up 10 process. You know gross margin Spanish looking into Q4, because we're adding a lot of new learning centers telephone number was not something yes. So the.

Pressuring the goes products that is well a little bit better a bigger than before but all these will contribute to revenue growth other to the free quotas. So our belief that the net necessary cost we need to pick.

Thank you lose it.

Thank you don't watch will fall off quickly.

On the virus. So nowadays we got to you on like for like.

T. Although a in total 70 city.

Those studies it is students can actually transform seamless to the appeal online because on offline offering the same thing.

How about 40 other 40 cities that do not have pay you only what do we do with that.

I think that's a very good question.

For actually I think for most of our cities. We answer we have for the Iraqi capability to provide on that offer us.

Oh of course, a winning some time to preparations because.

We have to that because from you know the new cities, where enter all up they are two different models for the dual teacher model cities. They need to go down the only thing on I couldn't read over there. So at least we have for their.

Basically we kept bidding is ready so we need to mason necessary change and arrangements and investments in I mean, I just described here to make this offer.

Available all over China by which is something we can do.

You take some time artists on your last month, but that's something we can do.

In a way also have shops online school, which is already available for all the city's angle older or geographies. So way how will we will consider if something getting worse, which we don't see today, but it sounds in getting worse, we will have both paralyzed in a picture as honest offerings.

Ready for students no no no matter, what they are occurring since students or maybe down newbuildings coming from data schools were always always ready for that.

Thank you so much happier Nicholas.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may all disconnect. Thank you. Thank you.

Ladies and gentlemen, thank you for standing by and what can the Q3 full year 2020 Gee, How education Group earnings Conference call.

This time all participants are in listen only mode. After the speakers presentation. There will be a question on professional to ask a question during the session you'll need to press star one on each other for me. Please be advised that today's conference is being recorded I would now like to have the conference I would you speaker today.

Equally young I'll direct you off yeah. Thank you. Please go ahead.

Thanks, operator, thank you all for joining us today for TL Education group.

Difficult quarter 2020 earnings conference call the earnings release, what distribute hit earlier today and you may find a copy on the comedy IR website, most of what do you plan.

During this call your well here. So let me start going door, Chief financial officer, not cool like I couldn't go finance and the myself I opted out following the prepared remarks, we started to walk on the me who will be available to answer your question.

We continue please note that discussion today will contain forward looking statement.

Made under this new copper publishes I'll be a U.S. private Securities Litigation Reform Act of Nike magnified.

[laughter] Balan are subject to risks and uncertainties that may cause actual results could differ materially from her comment because patients portraying children and that's I think you include but not limited to those I'll highlight in the public filings with the asking.

More information about these risks and uncertainties. Please refer to our filings with the FTC also.

Really the lid coal equal discussions or.

non-GAAP financial matters.

Refer to our earnings release, which can pays a reconciliation of non got matters to the most directly comparable GAAP matter I would like now to turn the call work for me the law. Please.

Thanks, Michael.

Do you want me and good morning to draw thinking about joining us today on this earnings call.

Our so called the revenue performance was based on solid growth momentum both of oral small Caspian seamless cities were going to recover and a continued its getting all my questions.

Revenue growth in this quarter was 47.2% year, where you're going to US dollar terms to U.S. dollar 862.4 million.

15.7%.

In terms.

Total normal price long term causes student enrollments increased by.

66%, there or you're mostly driven by online enrollments rose sharply peiyou small class.

Income from operations grew by 9.9% to address the oldest $78 million.

In this quarter non-GAAP income from operations increased by 16.4% for US dollar 108.2 million.

This quarter's results were a set of progressing our efforts to be or Harris incentive book business model based on product development technology customer satisfaction and operational efficiencies.

I will now call overcoming daqo, our vice President Finance sure, we'll give you update our operator operational progress in this quarter.

Thats the Echo your our IR director will reveal to so quarter financials. After that I will update you on our key strategy execution and discuss our good outlook benefits.

Thanks Joel.

Hello.

Based on solid momentum.

Education services on our Q2 NBC.

Let me review the business by different you have new screens.

Let me back when small class and other business, which consists of the peiyou small class towards can be maulvi and some other education programs and fill these days.

Lease accounting for 76% of total net revenue compared to 79% even third quarter last year.

The revenue will go through it.

The 1% U.S. dollar tour and the 44% detour.

You asked the tail small class, which reman our stable core business.

Represented 61% of total net revenue.

Had to 65% in the CEO go period.

Lower revenue contribution from Ceocs appeal was mostly due to the faster growth of you asked about.

Coffee, which accounted for 18% of total revenue in the quarter compared to 15% in the same period last year.

Net revenue from the tail small class was up about 36% England's dollar terms and 40%.

Well now more price long term calls from Goldman.

Please.

1% year over year.

Let's go to raise last consolidated gold of both.

Hey, you offline and online class.

Thank you all planned small class revenue increased about steady rate of 27% U.S. dollar tour and 30%.

While all flat normal cries long term coffee needleman increased by 32% year over year.

With pay you alone we also Allen Carlson with localized content.

A bundled where steel company monitoring service to pay you all flat.

30 major cities of our network.

We have any reason coworkers added more regular on the show to him causes subjects and other promotion causes.

These are increasingly synchronized with altland causes.

On the part the learning process and learning experience for our students.

In this third quarter fiscal year 2020 pay you allow accounted for approximately 11% of totals yards pay with small class revenue and 18% of totals you asked the tail nominal price with long term small class from Goldman.

Viacom comparison, enlisting Yoko period revenue on a normal price that long term Goldman from.

Four or 5% and 7% respectively of total.

Well costs between.

We continue to recall that they build across the board of the say Paisley cone hitting however.

You asked the payer small class revenue from the top five cities, which have been seen Shanghai dilution and then.

Grew by 32% year over year, you guys dollar terms as accounted for 57% of just appeals markets business.

Revenue generated from cities other than the top file grew by 42% U.S. dollar tour.

The other stated accounted for the other 43% of this yards appeals markets business.

All right.

Based on solid Mcafee month, because our cities.

Incrementals on top of Goldman from our earlier classroom expansion faster growth.

Online courses as well as our ongoing efforts to improve operational efficiency.

We continue to extend offering with a wider array of offline as Alan called the increase EULAR, an extra curricular subject.

As always we invest in.

Well towards an accountant that change how students learn as improved student outcomes.

Our Chinese and English causes.

Widening yours.

By the end of November 2019, we have offered you asked the Payor Chinese classes in 25 cities and English classes in 29 cities.

During the quarter, we have award the firstly on the multi centered in order to achieve more operational efficiencies.

Enjoyed by her product and motion and efficiencies.

Firstly, Bobby as other education programs.

Also at those diabetes, both revenue and needleman in this third fiscal quarter.

We expect that lease that worthy side causes will gradually contribute more to our overall business.

Next I'd like to briefly discuss our two kilowatt on what business.

Business sector had a good third quarter.

Achieved year over year revenue growth.

48% U.S. dollar terms and 62%.

Yes.

Just how our accounted for approximately 6% of total revenue in this third quarter of both fiscal year 2019 2020 .

Let me update you on our capacity expansion as always we put well his outlet capacity growth that is healthy and the sustainable.

As we mentioned with our last quarter's earnings call. We are planning to gradually Maltese today accelerate the outlet learning center expansion rate.

Allows side any expansion effort, we invest in your technology and all that business to improve overall operational efficiency as abide by the standard regulations.

We added a net 36 learning centers.

We opened a net of 34, Neil Peiyou small class learning centers and seven one on one centers.

Fields with emerging Appfirst leap and them all these and other standard operational related reasons, we closed nice upside for sleep and the multi centers.

During the quarter, we added 670, Peiyou small class classroom.

During the quarter, we see that now and her adding you'll see taste on China, taking a be tough time for consolidation following our entry into 13, you'll see this year to date.

In this quarter, we opened our fourth.

Okay, you International Learning Center in Silicon Valley area.

The state.

Oh by the end of November waste had 794 learning centers in 17 cities.

616, NIE, China and one two as detailed learning center in one safety.

Our wage 575, where tail small class and international education centers.

Now ill or new they mortgage Moby and Firstleap small class.

121, or two kilowatt hour.

As for Q4 pure now we have rented approximately 76 peiyou small class learning centers.

And we expect to add a few more and close down some learning centers based on standard operations.

These estimates reflect our current expectations, which is subject to change.

Moving now to our outlet business.

Third quarter revenue from throughout the Dotcom grew by 82% Eagles dollar terms year over year as 86% R&D terms.

While normal cause long term causes enrollments grew by 107% year over year to about 890000.

And on contributed 18% of total revenues and 38% of the total nominal price long term elements this quarter compared to 15% of total revenue and 31% of total nominal price long term causes Goldman.

The same year ago period, respectively.

The rapid growth.

Business was supported by seasonality driven sales and marketing efforts.

Tension of the previous quarter's as well as the secular demand for allied locations.

With that everyone I'll turn the call over to echo yet for the uptick third fiscal quarter financial results I copies.

Linda Let me now go through some key financial points for the third quarter of fiscal year 2020, the breakdown of ASP for the various business is as follows normal price lung cancer to pay your small class ASP decreased by 7% RMB and 9% U.S. dollar terms.

Year over year pay you offline normal price long term courses, yes. He was almost flattish year over year normalized long term to come online courses ASP increased by 8% E RMB and increased by 6% U.S. dollar terms year over year novel product long term.

My core ASP decreased by 9% RMB and the 11% U.S. dollar terms year over year, possibly due to the mix tend to have our diversified online course offerings.

Gross profit increased by 49.9% Q4 hundred $77.2 million.

From $318.4 million in the same your GAAP.

Gross margin for the third quarter improved to 55.3% as compared to 54.3% for the same period of last year said in the marketing expenses increased by 87.9% to $190.9 million from 100.

And one point merely U.S. dollar in the third quarter of fiscal year two.

2019, non-GAAP , selling and marketing bonuses, which excluding share based compensation expenses increased by 89.2% Q1 hundred $86.4 million from 98.5 million York dollars in the same year ago period they increase.

Selling and marketing expenses in the quarter of fiscal year 2020 was primarily a result of more marketing promotion activities to expand our customer base on the brand enhancements as well as a rise in the competition to sales and marketing.

To support greater number of programs and the service offering compared to the same period in the prior year.

Operating income increased by 9.9% year over year to $78 million from 71.

Followed in the same year ago period, non-GAAP operating income increased by 16.4% Q1 hundred and $8.2 million.

$92.9 million in the same Pos in the prior year.

This was $3.7 million for the full quarter of fiscal year 2020, compared to other income of $98.7 million in the third quarter of fiscal year 2019.

Calm in the third quarter of fiscal year, 2019, or substantially all from the fair value change well for long term you last month, the fair value changes of the long term you last month was transferred from accumulated other comprehensive income to other income actually last month was recall.

Slide from available for sale last month to equity security is rapidly becoming determinable file value upon meeting on the Hong Kong Challenge in November 2018.

Impairment loss, a long time he last month was.

$46.4 million for the third quarter of fiscal year 2020, compared to $41.1 million for the third quarter fiscal year 2019 impairment loss on long term investment was mainly due to other than temporary a temporary decline in the value.

Of long term investments in some way you Makepeace income tax expenses was $16.6 million in the third quarter fiscal year 2020 compared to $10.4 million.

Income tax expenses in the same year ago period.

Net income attributable to teach out was $28.2 million in the third quarter of fiscal year 2020, compared to net income attributable to kill $123.8 million.

In the third quarter of fiscal year 2019.

non-GAAP net income attributable to T, Hal which excluded share based compensation expenses was $58.3 million compared to 145.8 million problems in the same period in the prior year.

Basic and diluted net income per ATM, we're both 0.05 U.S. dollar in the third quarter fiscal year 2020, non-GAAP basic and diluted net income per area, which exclude share based compensation expenses World Zero point of one and the zero point.

We will now you have fallen respectively.

From the balance sheet as of November 32019.

The company had 2700.

$29.8 million of cash cash equivalents shortcoming investments compared to 1000 $515.6 million of cash cash equivalents I'm shocked me last month as of February 28, 2019.

No Wonder 32019, our deferred revenue balance was 1240 $1.2 million compared to.

800 under $66.3 million as of November 32018, representing year over year increase.

43.3%.

Deferred revenue primarily consisted of the tradition cockpit. The one of you have to pay you a small classes as well as deferred revenue related to other business now I will hand, the call back to Mr. look to briefly update you on Harvard strategy execution on a pro why the business outlook.

The next quarter.

Thanks.

I'm about to all of are being sent the restructuring we're continuing with the rather our diversified prospectus, a new programs and projects to offer more suitable and older artificial services to our customers I will briefly discuss each major things sector. Our core payers more cost base remains heres a stable as I mentioned last quarter would decide.

Earlier in this fiscal year to gradually or some other only to be the offline learning center expansion rate I would never have 17 cities of which fortune newly entered this years. Currently consists consisted of.

Where over for 2000.

Crossroads, well answer more cities in the coming years.

Meanwhile, Payonline is growing rapidly. This year is a charge of caf one for students both cost supplement and synchronized causes contest to people offline.

This emerging model, we are cross leverage and pay offline pure online in both directions.

The gross on Amazon, which brings our operation I. Appreciate your press has made positive contributions and we'll continue to so true Harris <unk> Harris, our gross and our perfectly elsewhere.

You know coming two quarters, we expanded gross Momenta appeals more cross continuous refer to the rather are often network are suitable speed and scale business with it if we can afford to leverage our offline owner wants to use a result, especially suraj.

Other technologies.

This will enable us to bill location services model, which is the month driven and sustainable for a long term.

Meanwhile, our or basis, our high gross early stage beings in competitive and quickly you won't be market for every stage outlet business continue to promote a brand awareness of trust dotcom Allison tie with do our best continues to improve our own advocacy services operational efficiencies.

We managed service by leveraging our accumulated that's you know hall ongoing heard other diversifications and technology innovation.

Never seems way pioneer vis vis based models, we have been cost and Apollo group, social value and the muck opportunity online education area.

Which we will continue to explore entered rather now a brief update on smart location solutions and open caf openings, but end of Q3 2020, mainly in the lower tier cities or geographic areas. We have cooperated with a growing number of public schools with our small application solutions. We're also warm.

A few saga of small immediate size education institutions across China Schroeder different service level. You are open platform business with this new products and programs. We can contribute to the elevation of overshadow kitchens sector dedication inclusive and more widely available in lower tier Iris.

As we move ahead, we remain cautious that allocation products and services required quality and care to lead to let lasting customer satisfaction with any new cautious proto interrupted to enter Harris soft students learning programs overcome the revenue growth and profitability can only be up.

Dependable if the process of learning to adapt to each student personal needs and results improve our.

Okay well.

We do not plus your gross for Q4 group for growth sick.

I would like to emphasize wall Watson more ongoing basis, where we invest too.

The curriculum, our products student interactive technology operational efficiencies.

Only pharmerica, our because all the base all recur estimate total net revenue for the fourth quarter fiscal year can you turn to was expected to be between restore a 959.1 million and U.S. dollar 980.8 million.

Represents an increase of started to pretend to say, 5% or year over year basis, if not looking to consolidate consideration often impact potential changing the exchange rates between R&D and of course dollar the projected revenue growth rate is expected to begin a range of 35 to six 8% for the fourth quarter of fiscal year 220.

That concludes my prepared remarks, operator, we're now ready to take questions.

That's lease ladies and gentlemen, we will now begin the question answer session. Matt If you wish to ask your question. Please press star one I'm just telephone and late fee name to be announced if you wish to cancel their request, please just pounds or how should be.

We have the first question for blind you some girls from CIBC. Please go ahead. Please.

Hey.

Thanks for the opportunity congrats only a very strong third quarter.

Fuel Capellas expansion has accelerated meaningfully and your capacity.

Excluding the effect from.

Do you still.

Pretty strong results.

Should we see the best expansion space and your pay you Rob.

Okay.

Few quarters. Thanks.

Thank you are therefore, the payoffs more cost business, where top quality last quarter actually.

I think two quarters ago Rapture evaluation on broker business model and emulation offering you very much of our total regulations, we decided to et cetera early topia awful appeals more costs.

We try to.

And to more cities. This year, we have and who are offsetting cities, including one in the U.S. and we've probably we will try to enter more cities nephews.

And last year, you'll probably recall the way hardware only.

Only add to your own slipping percentage of total classroom capacities last year and by the end of this quarter, we have already adding around 17%, one seven and considering fighting that up today.

Before where are our already enter.

Open 70.

Kevin fixed pay or small cap and incentives already and we would expect to adding more coming one month. So the overall loan payoffs more caf expansion rate will be in a range of 20% to 30%.

By walking I should need to remove all of your guys is here when we report will open the northern incentive.

In the existing cities, which means we have signed a contract will rental by in January page two quarters to finish the renovations are smaller license and then we'll put them into yields which typically with pace around two to three quarters. So older. Let me sense, we're adding last quarter in this quarter.

Probably we will come to our contribution what revenue BCS summer and fall.

And looking into next year, I think weve properly.

With all of these lending sensor, adding this year to picture and go for offshore to can be paddling census, Q3's 36.

Path.

No lending centers, and while Q4 76, even more.

So we are confident about our payor offline.

Topline growth in coming years.

And.

Again, one thing I want to say is actually let Neil model outages, we call him all model, which is a little bit different from the tension appealed offline models. We used a lot of online technologies to equip our ultimate classrooms would have lost no Hall from Trust online school and office, especially solidly acknowledges.

Comp will contribute to our off Lumpiness.

Lot of new cities and to actually do future models, we leverage that live broadcasting technology to enable our massive teachers and that that's the best massive futures in Beijing or Shanghai completion more students all over China. They were also having enable the teacher can teach the al classrooms within SXCP remote.

And people like is also while all while ago products would have perhaps by the end up today I think our net loss in Q1 Q2, they grow more than 150% plus minus in Q3, they grew more than 20% in Q4, having a coming one year we.

Confident they can continue in triple digit growth, which will be aware important complimentary should appeal offline Denise way and Thats also rate teaching to mobile it brings model or animal model.

And so are we believe.

This year, we're probably we're adding the classroom sitting around 2% to 6%.

All this new customer, we're adding will contribute to our revenue growth next summer all four so we're quite confident of our peers more cost topline revenue growth coming year.

Thank you very helpful.

Thank you.

Thank you and the next question comes from the line of Mark Lee from Citi. Please go.

Hi management.

Relations.

May I ask I think our.

non-GAAP operating margin this quarter.

The guidance on Macdonald for the five point.

Could you rank. The fact that is that like that you always by patients and the how does that change.

Changing for next quarter's a color. Thank you.

Thank you Mark I think for Q4 Q3.

In the first place with.

With the a battery charging the payoffs more cost anything we'll expect superga see that will increase our gross margin by one point and so which can also contribute a little bit matching them proverb status on the other sites within some of the online marketing.

Actual Sri Republican see that compared to last year, some quarters actuaries modern last few bother Alcala results also well on track with fuel that is.

No. The promotion results were on track, so well, which can also give us some kind of buffer in the property studies, so where pipe.

Happy to see that kills through that in a matter of spadix, but a little bit better than what we talk about it before.

Looking to cure for I think.

There was two point when you to be workout, but number one.

As you'll Bergen see that we have already and.

Opened 70 676, it was more pass.

Let me census, already and we still will talk more in the coming tomorrow. So this number.

Almost equally through the first three quarters numbers, that's a lot of new learning centers happening across China, So, which will when we decided to adding more linens and seeing a shortened they will have some pressuring the margin studies.

On the other size I think.

Hello.

Sorry.

Trust online school.

So for.

With that one months to goal, we need to evaluate their market dynamics and especially what's happening most.

Recently to decide whether we're going to be more promotion.

Causes websites, so I can't give your grounds and NOL bar, where we're trying our best to balance older investment we've made in this area.

On the outsized I I I also like to spend some kinda talk about Q4 performance because the markets changing and a new storage is happening every day compelled to.

Yesterday, our counterparts owning caution because they were more information to share.

Number one is I need to remind all up your guys actually how we don't want to see Abawi house are already knows in areas. There are risks on wireless art. This is happening over there.

And we have.

Fully following the government requirements and kind of policies to made necessary cenci and often incentives.

And this would have were considering our guidance.

French speaking the costs, we have no idea what will happen next months about this kind of wireless obvious kind of disease. So what we can do is try our best to maybe relative to conservative projections are for revenue and way way, we will cure guys post the us what kind of impact.

On to our business.

Coming from this kind of challenge.

And so when we're looking to cure for what was what we want to stay is all the numbers with share is based on less situations.

The information as we got today, which is such to change we will cure guys post that you would have some material impact will happen. Thank you.

Thank you Mr. law you pick up.

Thank you.

Next question comes from the line is DS Kim from JP Morgan. Please go ahead.

Hi, good everything every good evening, everyone. Thanks for taking my questions just to follow one data point.

Can we discuss a little more detail on our guidance for Q E. You know like versus this quarter. There was a meaningful there will be a meaningful deceleration already 18, how much of that is coming from higher comps from last year and how much of the one class impact is baked in there and.

Meals to talk a little bit about.

Hey yield or it's just that source the dotcom and other segment growth baked in for fourth quarter guidance and I have another follow up after this.

Thank you I think.

The guidance today, we have consider the.

The impact of our.

Our guidance based on what we see today.

And.

The way I think encountering tool for us I recommend you guys to combine them together because in Q3 with one cost measures. They ship broker co for two three so if we're looking to our come is over a gross but the best way to look to do is combined closer in Q4 together to look Heather revenue grew.

Sometimes look quarter displays will be kind of misleading.

And secondly.

Specifying a ball or.

Kind of buyers ended this.

I think the first place.

US China's since then we also why.

Kind of how paid to see this happen I.

I myself watching the call. It should we think when the Sox was happening into your 2003. So we have all experience at that time and way Trust look element is much better must stronger than before so we fully believe waste the government's through all of older measures in place this will be control and.

So Paul 100% off older policies are older requirements coming from government to made necessary changes in our school.

And in the second place I think.

Right. After this happen we have quickly Mason.

And this way have tried to recommend more students moving from offline to online offerings are essential sense to operating investment and Oliver I ratings in the past few years, we have successfully building our strong capabilities. The overlaps that it would probably have both payor lighting.

And as Ross on high school team. So we have all that capability almost every city.

So a wave will in one area, where have already recommend steel is moving from offline to online and considering our people like offer it has vertical reputations in arrears things, where it is widely accepted by the students and parents. So were seeing the transitions quite quite do ang.

All the outer cities.

South day, maybe they will also receive similar no notification from government to stall to close there.

Lower learning centers temporarily which is subject to the government's way as one players in the two end market would definitely wants to send will follow government policy to do so.

And if that happens we're also will benchmark casing hand tools such as most offer students moving from offline to online I think compelled to revenue compelled to new enrollments were caremore, it's actually the students and parents Harris and there are 50, that's number one priority as a.

Our team is also pretty fully prepared for this so no way have all at the older Night 70.

Cities to enter today all of them we have basic.

Capability to Bill Miller online lending models. So the whole packaging is also working very hard to make a net net preparations for that.

By now today, we don't see any more material bad news coming off.

But we need to defer flipper there for that if our way we have listing information channel as you guys.

If we have to the more kind of flat Lake is neos or maybe notifications for government, we will leverage fastenal right away.

And on the offerings, both paralyzed interest on high school is also ready to how to students even large loss even larger scopes that if I were focused on that score in the summertime would have support millions of students at his entire our people are today, we'll have more than 22 hands.

40000 students and we can support more in long run so right even for children's maybe they are now assumes no opine a future if they have some meetings. We're also we'll try to help them throughout all my offerings, we are ready for this.

And the current guidance can only reflect our understanding and our informations way receipts from.

Today, which is why were minimal to overall revenue.

We have away don't have more information to share because these changes every day, our Q or guys updated if we have some new information is coming off.

Follow especially for the Payor pay you offline and online revenue growth next quarter and what we can say, it's actually pay will continue to grow our housley and offline we have seen some more kind of positive.

Enrollments coming from our promotions that were running today, so we'll keep.

Very close watch on the final numbers of our Q4 enrollments for both on our offline and we will try to continue to manage how's it grows and bid and tried to be more sustainable.

Thank you.

Thank you very much further color if I may a follow up one more can we talk a little bit about a winter promotion.

For online in the past couple of months I.E., how competitive bid was any initial convergent figures were more importantly were there any meaningful observations or lessons that we learn from promotions. That's all for me. Thank you very much anymore.

Yes, I think for the whole year generally summer promotion is the most kind of competitive time and go into a fall and winter actually the low level competition is actually lasting.

And then summer.

And we're running over some promotions for online, especially in the central for so we are seeing is actually way has to make some progressing the conversion repair in the residential upside if.

And.

Way I think for online products.

Promotions part after the.

Our business. So we'll have we'll have a very clearly our system to evaluate their return.

Yeah. If they are written considering the new new customer acquisition cost conversion rate retention.

And the lifetime value office matches caffeine.

Our our threshold will continue to dual investment on the on the on the marketing strategies buys while our best fail. The overall, our doesn't work where we're stopping investment. So we'll manage all obviously we're carefully.

Thank you very much.

Sure.

Thank you.

Next question comes from the line of showing zone from Morgan Stanley . Please go ahead.

Oh, Thank you for taking my question.

He is still you showed a lot.

Well, so I'll look for pay you can you pay so some share the measurement thinking about vicious dot com in coming years.

In terms of the ship Dot com positioning.

Company. So overall structure and also a compound we stopped key competitors, so how to be things shake and how to improve the overall process and the last thing east So what's the current.

Well outlook for Chegg Dot com for next year. Thank you.

Yes, I think.

No Peiyou small class business slowing more model and the stock on the online bins equally important our our company.

Equally important.

And Charlotte.

Trust online school I think.

This year into three we grew revenue by our 86% well wait growling enrollments by EUR, 100, or 7% and a vicious the warehouse Juarez heresy growth, especially you enrollments value.

And way looking to the next year, because let's face it bigger bigger so we believe.

We can see what can continue to see the where her huarache grew and wire fasting. How is it grows from wireless space by we don't expect to see the revenue gross triple digit every quarter, because let's face a little bit different.

And way maintain the we're looking into the online business actually we care a lot about their quality and their students in apparel satisfaction, absorbing which came and represented by the retention rate. So.

Past few quarters mate will make a lot of efforts and we also happy to see will improve our commercial rates and we improved our risk retention rates by high single digit.

So which is all of that's showing the orthopedists, becoming more more healthy looking into next year. We believe the online steel will grow much processing offline and lower enrollment growth may grow faster than revenue gross so thats still our house of gross well anything dramatic.

Patients. So we probably see the top one guy can be around between 40% Dr. shared by your profit perspective, maybe even more so we will maintain our leaders lipper leader position in the online application area and made necessary investments both English technology perspective.

Let me just system studies.

The only marketing spend.

I think one thing if one online pardon me to be different shape from the Alice Wong from the other company, it's that teaching quality and operating efficiencies allocation no matter offering on at the end they try to teachers, who is and how to students achieve.

Well go all cuts so when you to care more about allocation quality hallway can leverage our pathway know how to make the students studying.

Hi, My vision to embed in battery, so thats something we can quite differentiated from the other while the new customer acquisitions or some kind of the marketing channels promotions. That's not the most important features which were happy for from the alone would care more stringent caught in a student.

Oh, thank you much methanol.

And that retention rates, how commission rate improved by high single digit deeper subprime weve when.

That compare with summer.

Okay. So we can say that data for the master cell conversion rate, our retention rate compelling Lisa somewhere.

Most fall and winter.

Okay. Thank you very much.

Yeah.

Thank you next question comes from the line.

Alex Xu from Credit Suisse. Please go ahead.

Oh, Hi, management's thank you for taking my question. So we have seen the announcement about the board member changes what.

Invocations keys arrangement.

How should we think about new rose.

Mr. Tom.

Thank you.

Yes.

I think.

Well, we talk about one comment the long term growth potential or onetime we talk about that business that brings models investment we make.

On the other side when you talk about actually the corporate governance structure.

Only.

I think.

Six years goal were just joined the company actually at that how we are worse more company or a nice thousand employees around 2 billion I couldn't be revenue as small company and come into today, we are much bigger than before and we have more than 47 selling price mall. So one thing I romance among would have a rich our.

The agreement as we need to so that we need to establish a laurie.

Yes, and Harris corporate governance structures to drive like companies locum gross.

So coming from these assumptions way Mason necessary changes.

Mr Biodiesel, our co founder and president of local today will enter the more often.

The ball for the company and as the chairman of the ball.

And mr. by this.

Venturing our company, who led our payer beans in the past 14 years and May very well.

While quickdraw.

In the most recent years he also to a larger charge into building the.

The middle.

Floating for our company and also have represent our company. While we are in front of government meters analog applications.

I'm so considering a missed the buys boasts thing we are on insight and all side. So this kind of promotions will enable Mr. By the contract will more in the bottom level, how she will level off there appears to give a wise and lead the stretch direction.

It's off the company and so Paulo management's do a much better joint venture.

On the other side is palm Mrs. John our CEO and a former chairman continue to be obviously youre in a in a company as she still hair around 50% off a company Sherri. This is still have more than 50% on 14 par.

No change.

The separation outflows roll off chairman and CEO , which can lead can give more kind of balance balance empower our company too.

Which is also a huge progress in the copper in government Spanish Paul as CEO of come they will focus so ask fusions strategies people organizations and copper cautiously and all of that and she will what was the ball and she's also the party ruckus huge away. She will what was labore too.

When we made final decisions were made some be kind of books or plans to make our decisions heresy and balance than before.

In a way.

No I'm kind of lending.

Lending community here.

Lending King our company.

All of our senior members will only have one target is try to made a company baton battery to deliver our mission. So this kind of new necessary change will highly promote our company's covering corporate governance, and which feels that low worry heresy fundamentals forward.

Gross way from both from a management perspective, and what the retrospective a highly aware about change and we'll keep older guys posted you ask me many have new.

Oh off.

And yeah set us before all of these changes happening in the ball will give clearly signals to the tools to look to all employees industry wage ill like to be.

Made more progress in corporate governance, and because we want to drive long term Harris and sustainable gross.

Thank you.

Thank you very clear.

Thank you. The next question comes from the line of Alex <unk> from China run their sons. Please go ahead.

Well thanks launch.

Management.

Opportunity two questions first question is on the offline.

He'll grown since elevation, we don't is I think enrollment.

Ontario.

That's a mobile acceleration.

His previous quarter, despite I think.

Lastly was.

Absolutely.

And kept that alone in level in the previous quarters. So just wondering what are the major drivers for this notable offline.

Woman celebration.

Second question is.

We notice I think for top five cities the revenue growth was more or less in line with.

City this quarters, so just wondering.

Was the sort of growth strategy, you've seen in the more tier cities in the coming fiscal year. Thanks.

Oh, yes, I can answer from a second question for us and when weight in the past few years wave device.

The weather are making more prophy offload duties from all those so we'll wait until a new cities starting from three years ago actually will leverage to digital model too, so which they hurt us to get rid of the bottom now of the teachers and can give more interactive experiences leveraging the online technology, we have today to the students.

Actually all of this has received positive feedback from a students and that becoming our while most important way when we go go into a local cities I think this year were entered offsetting cities I last yearend hurdle 15 cities and next year were entered definitely more cities thing this year and this kind of.

Acceleration is because we're leveraging the power of two different models and the public knowledge.

And online or offline.

Gross or accelerations in Georgia, and kill for I think on one side as a way, adding more classroom starting from Q2, but more importantly is actually we improve a little beating our key accretion no kick.

Including the refinery retention rate.

Yes, we'll figure it all of that we'll try to manage and improve our operational efficiencies.

It appears more conscious everyday so this has resolving a wider who oh pop pauses numbers interesting post closer in second half.

And baldor capacity grows lemieux regular numbers last year were added also so 13% one three and and this year Q3, we added net 36.

Let incentives and overall, we have added 17% one seven awful lot total classrooms.

I'm considering lets up 76, new learning centers, we have already renting in Q4, so we foresee the whole year without adding capacity down 20% to 30%.

Which will cost will contribute to our and that's your gross from summer.

So with Iverson, our Peiyou small class a revenue growth next year, we will be strongly.

Pardon me by which kind of started pushing more classrooms nephew.

Yeah, So thats, our catchphrases stuff.

Thanks, Alex.

Thank you.

Thank you next question comes on line.

See you from Bank of America. Please crop.

Thank you Josh.

My two questions firstly on the guidance next quarter.

Of 35 to sort of 8% grossing R&D term so could you elaborate a little bit on like how much is the.

The lion share stuff comp growth embedded in this kind of assumption and how much is the peiyou small class.

My second question is on the margin side.

I noticed that in this quarter the GP module only expanded by one percentage point versus like more than 2% in the first half and almost six something there.

2019.

Is it caused our acceleration of expansion.

So that we see that margin expansion.

That's the case.

We continue to accelerate in the following quarter.

Are we going to see margin contraction or may be flattish margin in the fourth quarter. Thank you.

Thank you Lucy I think in Q4 guidance.

Q4 guidance, because I didn't know today, we will receive a lotta information suppose offline on like especially on some some.

Information from Hum so.

Current guidance why can phase, where you have rugelach are the best emission would have especially for online offline I can say is in general we don't disclose the online offline separately because of competitive reasons why can face online still growing much faster than most processing offline ang.

The online were paid based on a nonprofit winter class Ashley's you run hardware so.

Uh huh.

I think way above where we took for Q4 guidance, we need to be more more cautious about over happening you know coming months. So oh, we will have more parade preparations to offer lapel life classes and it shows why cost to our students if necessary so based guidance.

Tesla Best Best numbers, we have today.

The margin perspective, yes, you're right. How the reason is we're starting to acceleration the adding more classrooms, which will lead to a shot and process.

Gross margin status looking into Q4, because we're adding a lot of new learning centers Pelephone number was not something yes. So the pressure in of course products that if we look a little bit that's bigger than before but all these will contribute to revenue growth other two to three quarters. So our belief that the.

Net necessary cost we need to pick.

Thank you lose it.

Thank you don't watch will fall off quickly.

On the.

Virus, so nowadays recall, hey, you online for like the Ti, although a in total 70 cities.

In those studies it is students can actually.

Transform seamless to the appeal online because on offline offering the same thing.

How about 40 other 40 cities that do not have pay you only what do we do with that.

I think you asked a very good question.

For actually I think for most of our cities. We enter we have for the Iraqi capability to provide owner operators.

Of course, a winning some time to preparations because where half of that because when you know the new cities where answer all up they are to teach our models for the dual teacher model cities. They need to go it alone hang on I kind of lead over there. So at least we have their.

Basically we have been is ready so we need to mace unnecessary change arrangements and investments in I. I think in prescribed to maybe offer.

Available all all over China by which is something we can do.

It takes some time artists and investment, but that's something we can do.

In a way also have shops online school, which is already available for all the city's angler older geographies. So way how will we will consider if something getting worse with which we don't see today, but if something getting worse, we will have both paralyzed in a picture as honest offerings.

Ready for students no no no matter what they are recurring theme students or maybe down new skills and coming from Dallas goes away always always ready for that.

Thank you so much that all of think elusive.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may all disconnect. Thank you.