Q3 2020 Earnings Call
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I would like to trend to be overt your host for today's conference Sisi Zhao.
Thank you. Please go ahead.
Thank you Hello, everyone and work on the new Oriental third quarter 2020, <unk> earnings Conference call our financial results for the period, where we are there today and are available on the company's website as well as on newswire services.
Today, you will hear prom season, young Chief Financial Officer. After his prepared remarks event will be available to answer your question before we continue. Please note that the discussion today will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 90 95.
So looking statements involve inherent risks and uncertainties and such results maybe materially different from the views expressed today a number of potential risks and uncertainties are outlined in our public filings with the S. In key new Oriental does not undertake any obligation to update any forward looking statements except.
As required under applicable law as a reminder, this conference is being recorded in addition, a webcast of today's conference call will be available on your rentals Investor Relations website at Investor adopt new Oriental don't work.
Ill now turn the call over to Mr.
Stephen Please go ahead.
Thank you <unk>.
Hello, everyone and some keyboards.
On the call.
For the two calls can call.
Right.
Mmm convey our wood.
Condolences to the people.
Sadly hubs of ways into their loved ones doing this global health clauses.
Good luck.
Right.
Sincere gratitude button it was a warm.
Their dedication and commitment <unk> typical one.
Thank you.
Let us hopefully old cars and the healthy together.
<unk>.
So all good.
Hi, good colder than by Q.
Our goal has recently transferred more than one doesn't do that.
All line called HM you all this whole clubs they called <unk>.
Well also Uh huh.
Sushil with golf businesses.
They're making condominium in RMB because.
They called it.
Who biden, who smokes life of loan pools.
Through the true up nearly 20 fold them.
Good stuff.
Nobody would probably would have meaningful we had called it a decrease in all this was it depends on a good over 10 million people, who do them levels her future and entrepreneurs.
Back to all business.
We're very pleased.
Reported settled the encouraging but this will result in Florida physical quarter open here.
Remember him a topline growth.
Computer the prepared remark Vincent.
And continued operating margins fashion boot barn, <unk> co.. Besides you combine that coping nexia.
Overall to the food across the globe glow.
Total lovely blow.
$920.2 million presenting a bulls <unk>.
Q4 Mcpherson.
$2 home.
Sure, It's you whose southern person compute RMB.
And that's reviews from prison programs and so that's going to feel good quarter <unk> 800.
40 Bucks.
$47 million, we presented.
You include 3%.
The year.
Gross was mainly driven by control of this group of inclusive.
So cheap your your government will approximately you probably won't recur in dollar terms work.
Then you can do that and the RMB.
We continue to be guiding.
Our optimized market strategy in this quarter.
Oh, South and Central City, where we've been potential Robbins world and strong profitability.
This quarter, we added a medical.
Well I didn't turn learning centers.
<unk> okay.
Opens in two new training school.
John got golf and then Jim.
Oh together. This includes the total square meter coffee I live.
But approximately 30% year over year.
We live in person quarter over quarter, and 21% come around when but handled in the fiscal year coupon My pm.
Total student woman, we've done that subjects took around her courses in the fourth fiscal quarter put on 20 includes the by <unk>.
<unk>, 3% year over year <unk>.
Approximately.
1 million condoms that solvent.
The lower than normal.
Number two in woman, primarily due to a bigger portion, but you'd woman sort of interest meth ER folding into the second fiscal quarter, because those 30 or timing of trying to do you know this year compared with velocity or.
Well the higher than normal cancellation for winter closets.
Oh, great cold calling on June.
Also called challenges on acquiring new customers and the second Oh.
Over the quarter, while being woman's food crops to poor and some are classes have also been delayed.
At the same time.
Continues while efforts.
And then 10 or online offline or more than the lots across bloom supercom.
Especially during the optical coating not yet.
The offline clubs Hubzu trends, because it's mostly to all and club since the beginning of February.
And were very encouraged to hop.
Hi, good box from our customer.
We also continue to me, who Pieczynski Luqman Evone, if kids need to 12 children or pure online because and platform Koolearn Dot com.
Loveridge, all events to teaching resources, Lord Pearson invoke food remote area.
Following lots of quarters strong bottom line performance.
Once again achieved you'll be your operating margin venture into quarter.
During the quarter, we recorded non-GAAP operating income of $134.8 million compared to wandering there for $2.8 million in computer at <unk> lots a year.
Non-GAAP operating margins rose by 30 basis points year over year, two fortune quotes that person.
Non-GAAP net margin rose by 240 bed pool in the year over year to 16.1%.
The continued operating margin finisher, it's mainly driven by the leverage in clubs and rental and related operating expenses, Japan, we've consistently improved for your luggage facilities before the upgrade public school they like to.
Nice margin expansion is also due to the key.
Exemption a pool by the government will depend dynamics and I'm, not mouse and cooler subsidiary and the Peco and the non controlling interest for shareholder.
We're confident but we will able to deliver a computer modeling finish up after the paradigm is and it's over an agenda with the pinball loan to value for customers and shareholders.
Her problem blended ASP, which cost revenue divided by total student enrollments increased by about 2.7% you'll be or in dollar terms.
I will already blended ASP, which Scott Levine divided by total teaching hours increased by approximately a 3% you'll be hearing on the terms.
Who provide.
So the already blends.
No, but you can school Hudson program increased by 4% pumpkin input pricing for exam and oversea test prep for one quick increased by 7% or year over year RMB terms.
Comparing with our normal pricing critical.
5% to 8%.
<unk> already blended ASP includes the wants to do 3% lower than normal level, mainly because of the bids come they provided to the customer who supported the migration from offline clubs to online as well because slowed down of the VIP personalized club business.
Other thing time choose to show gratitude for the medical stuff, we traveled to happen to Oprah help offered and special complimentary clubs to their children.
If you ever to believe contributed a glide because of the there.
No, let's move onto the third quarter performance on 12 hour.
<unk> right.
I've mentioned earlier, Oh acute robin as Robert K 12 subjects. After school tutoring business achieved you'll be your revenue growth of 24% in dollar terms word, but the problem person on the term breaking dawn you coming to school high school and feel good because I'm business recorded rugby Chris Ocull.
Up to 23% symbolic home ward for me personally onto from for the quarter.
Pretty warm and grew approximately 23% you'll be or for the quarter a pop kids program delivered outstanding results.
With the revenue up by about 26% dollar term for Liveperson RV from for the quarter.
<unk> decreased by 23 person for the quarter the decline due to the bigger portion of the woman.
Winterson after falling to the second fiscal quarter, we called the liberty or timing of the.
How do you see or this year compared with Lumpier.
Oversea test prep business reported revenue feed Chris.
For 10% in dollar terms or 12% yan-bin from for the quarter.
Consulting business, we recorded revenue flows like about 27% in dollar terms worth 30 for them young becomes year over year for the quarter.
Finally, VIP personalized products business recorded revenue growth of about 10%. Yeah. We are in dollars room worth for 10% the army from you'll hear from a quarter.
Matt.
Oh provided some update for west were making without optimized market strategy.
Beginning with our offline business this quarter I've mentioned earlier, the Abbott and that'll love a wonderful and tone learning centers. This imputing open the too you treated schools well together. This includes the total square meters of gluckman everywhere, but probably maybe 30 per.
And be able to year numbers and put on the quarter and 21% compelling I'm sure wed be at the end of the fiscal year 2019.
Big Bashing offline education that work has also made sure that were fully prepared.
For wouldn't have dynamics over.
So they can do it would be up your strong presence across the different trying to exceed it.
The Computercraft model have to introduce the income popular program.
In 48 this would be.
You can program.
Hey, good subsidies and people both pop kids and you can evolve goods into 17 cities.
The mystery of supported increased market penetration in both markets ramp happy into.
We also sold due to customer retention and scalability up in your model.
Within corporate results, we will continue the drop due to the rest of yet.
I was good digital technologies from where you busting before the million dollar in this quarter, when pokmon chance or a formal.
Pitching ecosystem and the outweigh the colder than my team has highlighted the importance of the two metals online education.
Less than postal supported some migration, although online classes to smoke guard online.
Uh huh.
All three of the offline club to small sized online elaborate best in class feeling that dynamic.
Apart from the or animal culture, we have I look at the part of the resources for teachers screening.
Creates worried about Oh, well equipped to quit will be managing a online classes.
A result, the optimal ecosystem.
And then just to Houston.
Christians in most of these impacts our service.
And operation called combined pandemic.
Most of the lepton for record attendance yet makes senses.
For the more also made disabled for was in the pure online poor dotcom business line and all that is something that they all I piece and products, which is a good to go.
Really markets now.
More resources for our MSP into the executed really missteps in online Kickball. After school tutoring business is a clear because I'm trying to.
The investment even calls a content development pietrus recruiting training, so marketing R&D and other simply say coughing census to drop the goals from could you.
Pure online programs.
What did per one your April to reach out more to do them Cmos Your city as we collected and scalable Ana.
We believe this will help coolant outcome.
And your market share and they all I had because of faith and Grubhub bundle.
In addition, during cold in my team abandon cooler and do the large scale market promotion by all three three large sized online live broadcasting closet come probably an attractive several times more traffic some normal time.
Capture the new market opportunities cooler also added a meaningful amount of the customer the preventative and marketing staff to support the units that we could talk to address.
This may have a comfortable comfortably rate or spending on the market brand, but it would be UCO necessary.
And and the Benbow member of they found ourselves, yeah, and Google how dynamic situation.
Now, let me will cuckoos other chief financial details for the third quarter.
Operating costs and expenses for the quarter.
Good and 6.0 million dollar, representing a 15.0% who puts year over year.
Non-GAAP operating costs and expenses for the quarter, which excludes share based compensation expenses were $788.4 million the prevention of 15.4 person with year over year.
Cost of revenue increased by 18.1 person year over year to create Hollywood and $98.6 million promoted your premium could see people's compensation, and 42 hours and the higher rental income will be an increased number of schools and learning things I see operation.
Then it might consensus increased by 35.2% you'll be here to $118.2 million promoted through through a funny thing to do Quinn.
Of the promotion intensity and a number of good customer.
Service Representatives in mercantile, hoping you missed it into our tutoring I'm cooling dotcom.
General administrative expenses for the quarter increased by 4.8% year over year to $289.1 million.
Non-GAAP DNA expenses, which exclude share based compensation expenses were $273.3 million, we presented of 5.9% increase year over year.
Oh, no share based compensation incentive, which well okay. Two relates operating costs and expenses decreased by 2.4% to $17.5 million in the third fiscal quarter two unplanned.
Operating income.
Was 170, Piney point 3 million dollar in preventing a 22.4% inputs year over year.
Non-GAAP income from operations for the quarter was $134.8 million, you're presenting at 18.5% increase year over year.
Operating margin for the quarter was 12.7% compared to 12.0% simply auto prior fiscal year.
Non-GAAP operating margin, which excludes share based compensation expenses for the quarter were 14.6%.
Compared to 14.3 personally than simply we're at a prior fiscal year.
Not to income.
Attributable to the rental for the quarter.
I was wondering perch, one that 37 point from a million dollars when presenting a 41.4% nucor's from this MPR prior fiscal year.
Basic and diluted earnings per ATM attributable to new Oriental, what's your old 0.8, $7 and fuel 0.8 $6 respectively.
Non-GAAP net income attributable to the OEM called for the quarter was $148.5 million, representing a 36.4% increase from the computer at prior fiscal year non-GAAP basic and diluted earnings per yet to go live in your rental.
Sure.
0.9, $4 and fueled 0.9 $3 a bit.
Not margin for the quarter would for Pune cool, 9% compared with 12.2% in same Florida.
Our fiscal year.
Got it sounded margin for the quarter were 16.1% compared with 13.7% in computer a prior fiscal year.
Not operating cash flow for the third quarter of told them 22 of trucks nearly 30.
$9.7 million covenant tens and her for the quarter, we're wondering them $3.2 million, which were primarily attributable to open 27 facilities.
Citigroup and renovations Sustenna learning centers.
Turning to balance sheets.
Supper right.
Nice to on.
Your rental had cash and cash equivalents.
One follow them and continued seven.
The $1 million.
Compared to a 1001 of them at $14.2 million.
On May 30 for the color my team well efficient the company the company had the $269 million in term deposit.
And the two elements, a 241, creating $2 million in short term nothings.
They are imposed deferred revenue balance, which have cash collected the from the the registered students reports.
Let's turn to proportionately as the revenue has been instruction called delivered at the end of the so called nuclear pull them 21 problem that $375.0 million I encourage off while containing 44% as compared to one program and $191.8 million or the end.
Fourth quarter fiscal year put on my team.
Looking ahead to the fourth quarter of this fiscal year. Besides the can continue talent. This from the Colby 19, Pandemics worst feel optimistic towards the company's business and we'll continue to focus on the following Pos.
First.
We will continue to expand our offline business with feel aimed to add a lump Tony.
25% about these include the new learning centers and extending club members of the from existing learning things as well because our business including cities.
Boutique or capacity expansion will support a hold more given no facilities in the coming summer which will.
Larry will likely be shortened by one will be due to the delayed start up in the second semester of public schools in China to committee on the dynamics.
More importantly, it will prepare us.
To put them make a comparable to take market share from other players I'm through koby my team.
<unk> ratably as some small players.
Without strong tenants provision and online copies of the lithium and not be able to superior [laughter] Pam their business doing the correct I mean, we'll be forced to see its object operations.
Exactly industry.
And the goal a waste of market consolidation pumping pandemic state.
The fact that were a major player with strong tenant build capacity and a fresh offline facility a lot to further strengthen our market leading position and penetration.
Russia will continue through all of our duty from auto seems to number of local city in certain province for the whole year.
Second we will continue to leverage our investments into critical technologies and we introduced.
Our OEM old system to more offline number training and test offerings, especially borrow to call business and oversea test prep business.
We will grow them to usage of the online tools and content.
Almost become full business line throughout the whole my work will continue as we must be developing the path to teach you confidence in courseware scheduled to online offline.
And methods.
At the same time will provide more advanced training programs to our futures and enhance their online offline declare the seating skills.
We will continue to make less than we will believe could total spending absolute dollar terms through preclinical on 20 will request compared to June.
And there will be.
For this fiscal year.
Well the more we will continue to not England and execute the definitive including product the accounting development.
Interest recruiting training R&D as well since its marketing a pure online can talk about the switch from a business our coolant dog they'll come problem.
I've mentioned earlier during the cold in my team has done a cooler encounters of several times more topics than normal time solving free online levels have been causes from public during the winter and spring season.
Who learned also added a meaningful amount of customer service because under good some truett Hurst this near term investments, we enhanced our competitive advantage captured the new online education market the accident.
Third our top priority will remain focused on controlling costs and the risk reducing the extended interest across the company to minimize the benefit the impact from pulling my team and that makes our bottom line.
Although we expect the margins declined year over year in the fourth quarter of the curriculum 20 would believe we consume a 10 non-GAAP operating margin for the full year old physical your company I'd assume similar level.
Hi, Lumpier.
And achieve extension of non-GAAP net margin for the full year of them unfunny compared to year over year decline like the two fiscal year.
Finally.
The recent RMB depreciation against the US dollars my call impact on learning in dollar terms for the fourth quarter.
Fiscal year colon thing.
Finally, I would like to emphasize we have great confidence in the fundamentals of our doesn't although we are facing but not to the impact from the timing of the near term we remain optimistic.
Of the driver from past about business over the long run.
Certain vas with living rental leading brands computer education products and system and busted future resources will keep taking market share with very few beating provision in China huge after school tutoring markets and deliver long term value for shareholders and customers.
Looking at the near term.
And our expectation for next quarter late but the total revenue for given rental some on them and $74 million.
To 800.
800, and say $42 million, we presented here year over year decline, the rentals or 8% to 4% if not taking into consideration.
That's the potential trending exceeded rates began MBM U.S. dollar to protect decline.
The expects to be in the rental 4% to zero percent for the fourth quarter.
Quarter of nuclear from 20.
To provide a brick song.
I'll be set top line growth for Q. This line.
12, most of that.
After school tutoring business, it's too.
The effective to grow a lump 10% to 11%.
War, 18% to 19%.
Goulding VIP, one one business.
Overseas how far through.
To decline around 45% and overseas study consulting business had been script expected to grow 12%, 13% old you'll be or R&D terms.
We expect has been significant decline of to overcome outlet business and its low dollar overseas study consulting business. It's due to the outbreak of the Koby My team have done that around the globe starting from March would be cancellation of the overseas them.
The bench they'll be overseas schools and restriction on travel.
We expect the maxcv impact over the oversee related business will affect that they compare education, we booked in China, not only rentals and we'll look to over the coming one between quarters.
That's up in contrast, trying to effective control of the pedantic situation.
Sheds, a more positive light on our business domestically as well.
We're optimistic.
We're optimistic over the trend of the kickball incremental.
I'm trying to from the public knew that 30.
Provincial level governments that are 88% over total half the down the public school a resumption clients.
We're confident that demand for the office because when.
Business will pick off after that is something of the schools and the short term impact from the at this school alternatives and goes into summer holidays will be manageable.
The estimate in cities like New Perpetuates expect revenue for the fourth quarter typically a treadmill.
7.27.
Historically since that used to calculate ratably over the fourth quarter of the physical your color on my team or 6.76.
Hi, Mcmansion sub 10 patients they like to be on post occurring at predicting a real interest subjects, who can essentially and depends on the pellets.
At this point I will take some questions operator, please open the call Bobby.
Thank you.
The question and answer session up this conference call. This part in a moment.
In order to be fair, it's all Qataris, who wish to ask questions. We will take one question a time from each quarter.
More than one question. Please request to join into question Q again. After your first question has been interest.
If you wish to ask a question. Please press star one on your child phone and weight training to be announced if you wish to cancel your request.
These friends to Petzner hash keys.
Your first question comes from the lineup Mark lead from Citigroup. Please ask your question.
Oh, hi piece on that.
Exactly.
Yeah Mark. Please go ahead.
Hi, I'm thankful.
From an issue I wonder.
For our.
Overseas test prep.
Export pressure isn't it.
Share with us.
What's your estimate for a short term, although one top impact for the Q4 and I see for Copel, such as they do a normal free time, it'll have a stay at home.
So what do you say that you were locked up for the overseas that has.
Okay got it thank you.
Oh, I think smart yeah, yeah, the overseas how from a business recorded revenue decline of about 15% in dollar terms side. This quarter I could you talk us NCR near term, you'll hear a decline in incomplete and ER and the Q4.
You know I think the you know the <unk> dynamics.
You know glass.
Yeah.
A lot of control the western countries now so it will impact our over who has got business. We don't feel poor so a week the guy that topline growth of the overseas Hassan.
Has there been quit the by about 4% to 45% you'll hear in Q4, but if you believe.
The Q4 will be able to work the time and saw and upon the odd depends on Lake Phase I think the ARPU seekers and will be better in the physical your 21 and so this is my eclectic implementations go to oversee have got when the oldest can probably give yeah. We're doing good due to very good.
The good bogo.
And also given Oh, we have to back to impact from the Q4, but it was still a guy the odd the public girls the oversea consulting business grow by 12%.
In Q4, and yeah. That's it I think visit these diseases, so if they needed to understand.
The kids you know.
We have seen the cancellation of the overseas a sense like cofo outs and GRT instances over the oldest in schools.
And ER and the is fixing the problem.
So yeah, we hope to be a pandemic composite can cancun impacted very quickly. So we can.
Make recovery of our overseas malignant disease.
Yeah.
Thank you Steven AMAG quickly follow up do you have any rough estimate.
And Joe overseas test, perhaps to then like a short term or what percentage that longer term student.
Oh I think for the full just worked on I've been like yeah.
In the Q4, I wouldn't rule, 35% to 40% Ah Ah moment.
That is a book to our oldest that's not long probably through the hard work will lead to.
Make a prediction, but I'll I think.
Once the timing disappear I think most of the time students will still choose to study abroad.
Okay, because that makes a lot.
Thank you Susan.
Okay. Thanks Mark.
Your next question comes from the line of Charles when he from HSBC. Please ask your question.
[noise] Hi started spending along here. Thank you for taking my question and actually she Stephen T. He me well here.
Yes, mostly okay yeah. Thanks.
Thank you okay. So I actually they just want to fall off here I'd mention affairs appointed upon the consolidation angle. So how should we see upon in terms of choline taste like ER to crisis that we're seeing I are there any actually like kosher off some of this month smaller ones.
And our they mostly to online ones on the offline ones and so fonts to think about like longer time, how we should see our market share gains from here and then my second question he and his own. So that's I think you talk about that in terms of our.
Ah online growth is of course doing fairly well get into kind of situation and it should also that if we're thinking about our used to acquisition because trip in the past our we quit mentor de online students and I was hoping the line on some of our local resources would that make on strategy.
He also a modified a pitch so that that you can accommodate because the situation might still put long for some time and having that catch do you think we have seen to Charles already a with second quarter growing high single digit growth do you think it's just that Charles.
We should expect thank you.
Okay. Yeah, let me answer your first question about the RV market consolidation opportunities you know as the disease.
Doug runway I think there will be a potential opportunity for the off the market consolidation.
Got it affords, especially for big players you know we have seen a lot of small players you know they save a similar impacts.
That may come to some of them to shutdown, but it doesn't so on going on the rental as I as well as one of the leading player from Merck has so we are well prepared to take them more much you share after the odd people dynamics over yeah. That's why we are we.
Feel opened that new learning centers in nuclear clinic visit city.
And the old going alone.
The.
Clearly you know we successfully moved the whole.
All the de offline students to online you know I am things are laid a fabulous so I think with mobile labs to tapia. So that's my data is a great opportunity for the because he declared like video and.
And because the best YOD P. RBC pure online cooler, yeah, we depend a little more money.
In Q3, and ER and yeah, I think they wait before going to kind of quarter to acquire new food enrollment because you know the predominantly.
At Omnicom I think is a good good opportunity will be the big online player. So.
Yeah, I think a little anyway, we don't we got a lot of the woman who they are Pandemics and I think you know the money with bad working at the end Benbow I mean, even though we spent a lot. The two agree with you got that margin expansion for the or over all of the company. So yeah.
Okay, So I've been going forward.
Yeah, the situation will be benefit.
Big player like Okay. Thank you, Okay, and just a quick follow up here as Stephen if I make a intentional T.I. somewhat promotion can teach upcoming it himself. He asked is a new students acquisition. How have you seen some a portion contained plans like 50 and will be.
And then do you think into May Cortech, a single digit growth should peak to trough, we seem to work looking shipping Oprah.
Yeah, I think two yeah. This is quite close to your philosophy or review them.
A very successful summer promotion on where I remember we got.
820, solvents summer promotions to enrollment and saw the RV retention rates was 59% philosophy here in the aluminum and this year I think called we will use the three fully strategies number one we care more about things like centrally.
And number two we will use the more and more a lot more model. This summer.
Promotion campaign, because you know the become could be a score to we of course of the summer vacation period. So when we will use one or two weeks. So we will provide more more more classic for the summer promotion conveying and number three the locked by as we will leave the price again as they do their losses.
Yeah.
I think there was a good good enough to more valuable customer order for the more laws. So I think he is so few of the way to pick more market share from the market, especially from the smoke layer by the summer promotion, so what would it yet and there will be good yields for out. This you know we started.
Well have already started from a promoter.
Enrollment window, we're going to be a great upward rate.
Good for and Douglas eggs are.
Due to them and then so far to numbers are good.
Who.
Okay. Okay. Thank you. Thank you.
Okay.
Thank you.
We've begun.
Your next question comes from the line of chosen from T.H. capital. Please ask your question.
Ah, Yes, just can.
So the question it shouldn't be guiding that expansion plan. So you know I can get invasion, it's pretty tough Steven donation steel very cautious on any offline campaign.
And you can't I'm not sure pace has not yet [laughter] looking yet so how do you carry out the expansion pack. So that you said and as the first question. So same question. It's really just show what I do see a lot to show you know on my anticipation guys. It puts a lot to money.
You know in executing system. So what is our team [laughter] Pat in that shop thinking either.
Okay.
After the expense implying hill, we added a lateral.
112 learning centers in this quarter, a you know.
No go up and what do you think of was going up in the quarter Uh Huh.
In the goods decrements in December last year, and turnover and the total cost malware.
Chris the by 21% of this Ah for they look between quarters are comparing they'd be the end of last fiscal year time. So I think it's in line with our extensive Glenn orbit baby because the pension will support the core labs to to take more students.
From a something markets, especially from the phone players and in the summer you know in the summer I think which will likely to shorten the by one or two weeks sold Guardian for more learning from funds, we have to become providing more seats to the kicks in the coming summer and the time after work.
And the war I was one more thing as you know.
I think you know we feel confident about our business going forward. So you know we want machines, our extensive plan going forward.
I've been good Pedometer will will pass away.
Maybe next quarter. So let's see here will feel odd extends the are the tragedy by 20% to 25%. So when we changed our guidance update.
It's Glenn but I'd like to here.
And the are you thinking concerns about the online spending yeah, we would it be doing a larger scale the promotion for the winter and that the.
Being of course, it's for the life like classical because while business.
Our cooler dot com, because I really I mean.
Once the deal on them have done they haven't seen China, we sold great opportunity.
So and.
We were confident that we can provide the basket go live.
In the competition. So I don't think of the spin spending the money just a defensive way from hot I believe on the contrary I think it's a good optune well off take more market share from the player.
So that's it thank you.
Thank you. Thank you okay.
[laughter].
[noise] once again, we will take one question at a time from each caller if he have more than one question. Please request to join the question Q again. After your first question has been interest.
Your next question comes from the line nephews young down from <unk>. Please ask your question.
Oh, Hey on a same sort of change here since Oh. My question is focused on reactivity longer terms. So obviously because they they all take our units oil stated we trade. They are online staples model I'm wondering if youre thinking about keeping this model and on.
No I didn't see a future, although we'll talk about capacity, especially we actually may not need them much significant their own.
Yes, it before topic and whenever they call experienced healthy we have the production or should we think that you know me those may appear probably okay. You are opex patients based on thanks.
Yeah, you comfortable locked on cobble restrictions or.
Reluctance to people who month you know, we we successfully moved to hold the offline to online in order to well too old to them and on the oral good feedback from customers are very positive there have been deposit.
And though however, I think go going forward offline cost will continue to be our primary business model.
From a loss of two three months. This situation all of those special give the kids warmed up pilots the the town.
But from home and that the parents can fit with our kids is steady basically either so the haggling over we are I think a multiplicity against will too is we do offline little will lay the survey in a big city and them. So they developed told us that 95% doing kind of.
Please refer to going back the learning center core after school tutoring.
When they are vital to raise and stabilize and but I think than for the pure online players like the cooler hold another key player, but it's a great opportunity as well because the markets. So huge for both the online and offline clear.
So I think the going forward the big player they'll pick want more small multi share from a small player Myfico T. point.
And so we are we going forward, we will use between where.
The development Ramsey online and the collateral.
It's valor study going forward.
I couldn't help but yeah, they feel they hope.
One quick follow up what really we had hoped anything going on or they could it was came offline kitchen activity.
Oh I'm sorry.
I can hear their career you don't count so if he how could I didn't think ongoing and on our own could we assume off then pitch activities.
60, Kindle here you don't go clearly.
No you don't hear your line is not very clear to me and I know.
We don't.
But she left you brought up the line for Okay, and so back to two and ask I didn't take next month.
Okay.
I'm sorry Bill.
Your next question comes from the line up to the C.C. you from Bank of America. Please ask your question.
Hi, Steve answered. Thanks for taking my question My question on the fourth quarter revenue guidance for CAE top you measure it will grow at like a 10% to 11%. So that's a moderation from that point is corner.
We know you all are backend assumption regarding this moderation well, that's due to pricing or a slower enrollment.
That enrollment related.
Why is that isn't just across the new enrollments have stopped being done very well after Chinese new year are there other region that weight them. Thank you.
Okay. Yeah. They are to bill will be a little bit hard we take all businesses and the gross will be around 10% to 11% and this is the overall kilowatt business grows and we feel pick off the one one.
That's the Eflowfive club or it could well business floated club business role will be adults will be ATM Tonight. My people some young becomes a year over year, So Bob Kaminski, what no one.
Business.
The one or one but it will be a dumb pipe with 5% in Q4 you know.
I think on just some students go lives to pick the relatively expensive class one on one pop online for using the labor and secondly, you know I think the returns or what not problem hearing in the school in this quarter. So you're essentially it's still got in higher compared to last quarter.
And the ball popularly.
Is lower than in the March and April the blower done on Santa Barbara, but the problem. We are facing is or the the acquiring often used to enrollment you know the China has been locked down for where typically month. So it's really hard for us to acquire usage.
Enrollment will be odds will be a second half about the Q4 and even for the summer.
So it's a hard times, but the good news for US is we're happy to see the schools in China. It what it means the public schools in China are going to open radio is in this month. We're you've already made I think we are optimistic toward our Kid walk us before the summer closets and Ah Yes, that's the.
Mike Pelican, Colin mentioned for the Q4 kick off people.
Okay, we didnt.
Went public school resumed offline activities some of agents that ever get to life today to make up the missing cockpit, so with that past our costs casual. So in this in your tend to 11% growth assumption already or not.
Well, we've we Oh, we feel well prepared for the rescheduling, albeit a public school or the.
The southern schedule. So we can move some cloud from Saturday Sunday, we can use some good we are working day, even in time, who provided.
But we do a problem we can use good yes or no.
Motto.
To provide the closets.
So I think baked into your 10% to 11% assumption already right.
Yeah, Yeah, Yeah, we would would feel some b, we feel good sometime but but I think it's not.
A big problem for us.
Okay. Thank you so much yeah, okay. Thank you Lucy.
Your next question comes from the line as Christine Cho from Goldman Sachs. Please [laughter] question.
Screens and kids, Stephen and Sisi, Alex just a quick question thirdly is there any impact from the one month delay into account column for your business in the magnitude or any color would be great in Q.
Oh yeah.
I'll call will be led by one month, but I don't think it's will impact our does that.
On the contrary I think they have the delay of the Gaulke how will help.
Or one hour business, a little bit because what we have no one more months before the call, but there's no becton nitpick or that could be impacts to our own business.
Okay.
Okay. Thank you.
Thank you.
Your next question comes from the lineup Onyx here from China Renaissance. Please ask your question.
Thanks, Stephen and Sisi actually have a two quick questions both online I think the.
First we noticed a no control laws or increase or loss this quarter. So.
We see though was mainly related to learn so so I was wondering.
How should we think about the margin implication.
In the next fiscal year from the online.
Wrapping side.
The first question second question.
So given you know we have both quite aggressive growth targets for alliance online and offline.
How should we then or how should we think about a management kit.
How does the management of management benefit balanced.
The the conflict of interest between online and offline growth second well done.
Yes, I think the yeah, we did so depending on the large scale Majid prevention in Q3, and the March yeah, that's into a floor. So we tend to be more money and the yeah, you'll you'll still be the or the.
Hi, good number I my into Q3 Q2.
Numbers, so cool boards will be a little bit.
Bigger, but I can't give it to go your 20 odd in your numbers will be lower than does here. So there will be less and I think it's mainly due to the point dynamics.
The the opportunity of Colby I'll add a industry.
Tons and so yeah, we'd be in a log on the.
Probably three quarters of the Super large classes. So that's why we're doing and within its worst and ER and ER our messenger.
Yeah, that's at the right or having to your second presence about the cannibalization with a balance between the the offline online I think depend by basin due to the review unclear whether online offline will be minimal will be minimal because you know similar.
HM.
I see the other half lots more clear sight in March they disappeared from the market diversity lot of room for Big player and I think the students will you can divide it by a into two cool equal to put all of them put it to different studies you outlined local to fit in there too.
The truth is really to be do take the offline causes to the markets huge full bold bites cooler.
So the competition, Tony will be done minimal and so our first golf for both sides TV and color.
Taking more market share a success. They can go forward in the market.
Alex.
Okay just to clarify so so you were saying or the next quarter online last Tobey. This is a smaller compared to their competitors don't let filter which will yeah.
The next quarter approved for the lab loss on fee Qunar won't be bigger.
I'd like to both here will be smaller yeah, typically or otherwise we'll be smoke.
Okay very clear thank you.
Thank you Alex.
Your next question comes from the line net flicks can you from you'd be asked please ask your question.
Hello, Steatosis. Thank you very much for taking my question and my question is mostly on the summer. So firstly, we we were probably seeing a one to two weeks of shorter summer bank. So could you let us know how that will impact our schedule in terms of the K 12 segment and also.
For the overseas test prep I know semi is typically at the peak season and in that segment. So.
What is how expectation in overseas test prep in summer or exams being volatile back in the summer or could it be a further delays and thank you.
It's really hard to to make a focus on deleveraging petaflops because you know almost all these schools C and ER and interface and ER and you pay our steel quote.
So and if we do hope the idea that dynamics the older as early as scanner.
And so yes, we know the Q1 will be peak season for the overseas test prep. That's you know I can we will.
Prepared a wall internally, but it's really hard for us to make a prediction for the that's 50 impacts.
From the pardon me.
Okay, all if you'd have to appeal to can.
Summer, Okay, and yeah, B I pick all businesses summer, Yeah, I think they'd be similar vacation will be shortened by one or two weeks.
In the kind of summer and this will go a similar things we can do actually we have done we have we have a there would have done and a number one I think we will do one or more model for our motto.
You know we can fit we could you know nothing if we opened the learning centers in the summer, but we can provide more and more online courses combined with the offline clubs and it can save some crossing.
From a risk and so this this is of Brooklyn, and then secondly, you know we can make some do coffee with scheduling for war makes the club life Elizabeth Baker.
Compared and loved the year to acquire the more and more.
New student enrollments in the summer.
So and I think it's okay for the kind of summer and are optimistic for the business of the consumer.
Yes, I see I see thank you, thank getting them, they're much fresh and sharing the color and cloud, we're making good uptake good progress in the summer for ASP given much.
Okay. Thank you.
Let's.
[laughter].
Your next question comes from the Lena Zhang John from Morgan Stanley. Please ask your question.
Thank you start taking my question.
Sometimes imagine outlook in the fourth quarter.
It looks like Oh, we have found a lot of pressure in the fourth quarter on imagine given that hopefully a flat.
So I won't say if you can provide some color on the put down off of shell kinda content pressure or a client surety apps.
Yeah, I think they opened more than anything changed and overseas test prep is ourselves for some pressure so can you.
Give more color on the pick back up and down a what they shouldn't expect for 40 hours for the cool Oh there.
Yeah, I think you know given we got into the public wells. The R&D turns in Q4 will be flattish army terms. So he but anyway you know we are we.
We have two phase the are the high rental because you know look have an extension.
In the last three quarters and also you know typically we have the spending money on expenses.
And DNA will be equal as they mature poor so it will drive the margins in the Q4, but I think that's just the onetime that and so we know what are you don't even both one for nowadays on top quality.
For for our job is to focus on controlling carpenter and reducing the expenses across the company go to minimize the Mexican impact somebody who can dynamic and.
Yeah, and though we are covenant that we'll be able to deliver to continue margin expansion after that that dynamic that's over so.
In physical you're probably want will fuel, but the margin Sasha.
And as well, we don't want to change on the long term margin guidance up to 17%. This is the among got Hopi murder in the long term.
Thank you a commercial.
Thank you.
Okay. Thanks.
Your next question comes from the line as John Choi from Taiwan. Please ask your question.
Hi says hi, I'm Stephen Thanks for taking my question on a cautious and more about the you know after different dynamic of what have you guys really learned there said on 95% machine is wonderful GAAP offline. After the pandemic juice that you'll be able to scan all again for spending for students and in terms of based on the.
Experience or user feedback what are the areas that you know you have to further spend.
Such my question. Thank you.
The besides the number one from me.
At the parent brand name in China.
Yeah. This is no ample and tell you know we don't feel.
In four years go we spend a lot money and time on the on becomes a development on the product itself. So it makes us a you know the oldest to them from offline to online one day just after the.
During the Chinese theater holiday Lindsay wouldn't be Pandemics.
Okay, so going forward losses will be.
We've done the entry higher cash and to make to make us to provide better and better quality products and also to helped our teachers food improve their teaching quality and so.
And softens, a pandemic anyway, it's a stopping that there's a great opportunity for four four from your rental because you know we can take more market share from the small players going forward.
And yeah and the in the next the true I believe in fiscal year 21, and maybe a year. After we will use new on more or more model.
So, let's assume going forward, but next year, if youre, a child or take three year, a course of your rental so maybe 80% of his clubs will be happen offline, 20% what happens I like that I think but the kids love it.
And I love it.
So the kids, which is a quick follow up on the if you do more oil know how would that impact to our margins on without the more of their long one. Thank you.
Oh I am I think about dropped only the whole I'm more model in margins should be higher than the a pure offline difference because you know we can save some customer rental and Utah, we can a weekend.
The yeah. This is because you know our you know as the fab.
Penford and 25% succession plan, but then after the panic I think the 20, 25% would bring us more and more schooling and walnut and so we can provide.
Offline.
All right, let me close to them. So yeah, we can say from customer rentals and I think be it will help our two twice the new student retention write offs and because you know I think the on the model is better than the traditional offline course, so the people love it.
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So there Chris.
Okay.
Can't once again, we will take one question at a time from each caller. If you have more than one question. Please request to join the queue again. After your first question has seen a fast.
Your next question comes from the line of Aloxi from Credit Suisse. Please ask your question.
Hi, This is a lot in Q4.
Thank you incidents of reporting across Europe.
So my first my first question is how can you elaborate more about our VIP business. How much is a VIP contribution we knew can pop kids.
And secondly, a which is shown a bit more palatable for your margin guidance. So here you mentioned the F. why 20 margins should be flat through if I'd like to know if I'm correct. So what's the implication for fourth quarter margin. Thank you.
Yeah.
This is the you know there's a few of the Oh I don't want doesn't fit within the pop kids sold within the you kinda listening to the senior loan business is 25% to 30% of political revenue if you can.
And murder, Yeah, Yeah, I think our margin into four will be dropped off the comfortable pardon me.
Of the data, it's one time and.
Yeah, I think the work the case.
All three of the whole year merger onto non-GAAP operating margin.
Flattish year over year, but you know.
We've got we've got to be the VHP exemption. You know this is a benefit from the government policies. So we reported the albeit with some saying in the other income and also with record a bit I might be a non controlling interest.
Yeah in the I agree I.
Below the operating model. So I think we'd be net non-GAAP net margin of the whole year will be our extended that in physical work on it but anyway.
Yes, onetime impact from how that mix with the margin impact the bullet physical your body line I believe the merger will be extended again, so it will go back to normal than that.
Thanks, Alex.
Thank you.
Thank you.
We now approaching the end of the conference call I'll now turn the call over two new Oriental CFO, Stephen Yang for his closing remarks.
Again, thank you for joining us today, if you have to any further questions. Please don't hesitate to compare to me any of our investor relationship.
The projections hips. Thank you.
[noise], ladies and gentlemen. This concludes today's conference call. Thank you for participating you may all disconnect.
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