Q1 2021 TAL Education Group Earnings Call
[music].
I think Bob I'd welcome to first quarter F., why 2021, C.L. Education Group earnings Conference call. At this time all participants are in the listen only mode. After managements prepared remarks, there will be it wouldn't be session.
Today's conference call is being recorded I would know like trying to go over to your first speaker today Ms. Equion IR director of T. L. Thank you. Please go ahead.
Thanks, operator, thank you all children have today for T. L Education group first a physical quarter 2021 earnings conference call. The earnings release was distributed earlier today and you may find a copy on comedy IR website, all through the news.
During this call you will hear from a chief financial Officer, Mr. rule, not cool Vice President Finance and myself I R. T. L. Following the prepared remarks, Mr. Bill I believe it will be available to us through Patrick.
We continue please note that the these countries today will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act 1995 forward looking statements are subject to risks and uncertainties that may cause actual results could differ materially.
I'm on the current expectations.
Potential risks and uncertainties include but not limited to those alkali into public filings with the FCC for more information about these risks and uncertainties. Please refer to other filings with the FCC also other earnings release <unk> coal equals discussions of the certain non-GAAP.
Financial matters. Please refer to our earnings release, which can pay see a reconciliation of non-GAAP matters to the most directly comparable GAAP matters I well I would like now to turn the call over to Mr. Luiz Felipe.
Think vertical.
Good morning, and good morning through the whole thing.
Thanks for joining us today over earning call.
Could go to situations one quarter ago.
I've been encouraged by the purpose that Nick Altmann pure and trying to her crushers remains to kill it could be larger under control.
Well still saddened by the streams that and then it goes pool popping and personalized ongoing challenges from into other countries.
That's helpful. During the first fiscal quarter, we're continue to operate within the possibility into Roosters the authorization you walk.
Well its operational adjustments in February.
We manage to mitigate the next Oh Abra offline business for the first quarter by the girls, new student enrollments and online courses and related revenues.
Net revenue gross <unk> first quarter, what sort of 5.2% year over year U.S. dollar terms to U.S. dollar might come true and 10.7 million.
Do you want horn, 41.5% RMB terms.
Total normal price loan composite student enrollments.
Chris by 72.1% year over year, mostly driven by the online enrollments Escrows Trust Peiyou small class.
Net income for all creatures, what's your us dollars 35.5 million or your own you're a decrease of 26.8% for U.S. dollar 48.5 minute.
Non-GAAP operating income off your Dollarssix point 8 million decreased by 7.8 per se for your stalled at 74.6 million units a year ago period.
I will now turn the call what to Linda I will watch personal finance.
Sure I'll give you an update on our operational progress in the first quarter not Echo yen IR director will reveal first quarter financials. After that I will update you on our bidding strategy and discuss our busy all for next quarter linked up is.
Thanks Joel.
I will review various.
Of our children.
For the first counter.
Let me start who is small class and other business, which consists of she wants appeal small class firstly, mobby and some other education programs and services.
These accounted for 68% of total net revenue.
<unk> to 77% uniform called her last fiscal year.
Revenue goes trees was 21% U.S. dollar columns and 27% yeah I'm beat him.
You asked the tail small class, which remains our stable core business.
Represented 60% of total revenue you look what's called her compared to 67% in the CEO compute.
The lower revenue contribution from New York City deal with most today due to the faster growth of Youre still come online courses.
Which accounted for 25% of total revenue in the called her compared to 15% in the same here last year.
Net revenue promise you asked appeal small class was up by 22% U.S. dollar to him and 28%.
I'm detour.
Well, our normal price long term college enrollments increased by 43% year over year.
In the fourth quarter, almost all appeal business continued to BBD word buy online platform deal to impact of the koby to 19 outbreak.
In Q1, Namal prized lung homes yachts appeals small class as Pete decreased by 13% RMB, two and 17% Eagle has dollar terms year over year.
The decline was mainly due to the mix change of more lower tier cities coverage as well as the coupons outward to online small class customers.
Hi tend to move from offline to online during the week 19 outbreak period.
Our first quarter performance reflected stable growth of small class business, because all cities in our geographic network.
You asked the Peiyou small class revenue on the top five cities, which have Beijing, Shanghai, Guangjo, Schengen and 19 increased by 18% year over year, you guys dollar terms and accounted for 56% ups you are still small class business.
Revenue generated from cities other than the top five grew by 27% U.S. dollar to him.
The other cities accounted for 44% of those U.S. appeal small class business.
Next I'd like to discuss our chicken Y O y business.
This business sector achieved year over year revenue growth of 5% U.S. dollar terms and the 10% Yeah I'm determined.
Just one on one accounted for approximately 6% of total revenue in the fourth quarter fiscal year Twentytwenty, one compared to 8% in the same year ago appeared.
In this quarter nominal price long term jacome went online courses as he was almost flattish in RMB terms.
<unk> decreased by 3% U.S. dollar terms year over year.
Now let me update you on our current capacity expansion strategy.
We've replaced slowed down our off lung capacity growth plan in order to better deal with the recovery to 19 near term impact.
During the past month, except in a few cities. This situation in China has been continuously improving.
Alongside these programs, we how cautiously food our offline capacity expansion plan to cover the Cts and adders wage we're already our fiscal year 20 Watt annual pipeline.
Before the coordinating outbreak last year.
In the realized updates here and foreseeable future, we will continue to pursue healthy and sustainable learning Center network expansion by following government guidelines and the market demand.
In Q1, we added a night 65 learning centers.
We opened 78, new Peiyou small class learning centers and filed why on one centers closed the 13 to use small class learning centers for first the multi centered and one one on one center.
During this quarter, we added 685, peiyou small class classrooms.
We entered 20, new cities, which accounted for one you'll pay you small class learning center each.
The new cities, a young tangible honey to go somehow Jens young to high Downland Shanteau, Johnny on each home Neil the OEM Woo Hoo, Joel three fold whole team policy and about being.
Yes, Oh by the end of May Twentytwenty wait had 936 learning centers in United States is.
Wage.
Hi, China cities and once you are says Hey, you're learning center in the United States.
Obama totaled 936 learning centers.
713, where people small class and international education centers.
91, or newly merged Firstleap Animali small class.
132 words, Chicago, one on one.
As for Q2 fiscal year, 2021, and who now with a gradual work resumption in different cities and ongoing digital workplace practice.
So as the continued observation of coordinating impact.
We had conditionally rented 10, Peiyou small class learning centers, and we expect to add a few more and the 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.
First the counter revenue, France, you asked outcome grew by 123% U.S. dollar terms year over year and 133% in RMB terms.
Why our normal price long term college enrollments grew by 143% year over year to approximately 1.28 meeting.
Uh-huh contributed 25% of total revenue and 43% of the total now more price long term enrollments this quarter compared to 15% of total revenue and 31% of total normalized long term cost if you dominance in the same year ago here.
Third respectively.
The accelerated growth in online business was supported by the current circumstances that drive the secular demand for online education, as well as sales and marketing efforts and retention of the previous quarters.
In addition in Q1 normal price long term all oncology as Pete decreased by 9% in RMB terms and 13% U.S. dollar terms year over year, mainly due to the mix change of our diversified oncomed offerings.
With that I will now turn the call over to Ico, yet for the update I'm first fiscal quarter financial results I copies.
Thanks, Linda let me now go through some key financial points for the first quarter of fiscal year 2021.
Well margin increased by 27.6% to $481.1 million from $370 million in the same year goal period gross margin for the first quarter decreased to 52.8% as compared.
To 56% for the same period of last year, selling and marketing expenses increased by 41% to 219.1 million U.S. suffers from a 400 and the 55.4 million.
S. dollar in the first quarter of physical year, 2020, non-GAAP selling and marketing expenses.
Which exclude share based compensation expenses increased by 39.6% to $211.2 million.
From a $151.4 million in the same year ago period. The here I hear you create itself selling on the marketing expenses in the first quarter of physical year 2021 was primarily a result from more marketing promotion activities to strengthen Africa.
Customer base on the brand as well as higher compensation to sales and marketing stuff to support more programs and the service service offerings.
Other income was $42.1 million for the first quarter of fiscal year 2000.
21 compared to other expenses also.
$31.3 million in the same your goal period impairment loss on long term you last month was 2.3 million U.S. dollar for the first quarter of physical year 2021, compared to 50.6 million U.S. dollar for the first quarter office.
Co year 2020 impairment loss on long term investments was mainly due to declines in the value of long term investments you summary last piece.
Income tax expenses was 22 million U.S. all is in the first quarter of fiscal year 2021, compared to $2.8 million of income tax benefit in the first quarter fiscal year 2020.
Net income attributable to till now was 81.7 million just dollars in the third quarter fiscal year 2021, compared to net loss attributes T. A hell of $16.2 million in the first quarter, our fiscal year 2020.
Non-GAAP net income attributable to TD, eight now which exclude share based compensation expenses was 100, and a $14.9 million compared to non-GAAP net income attributable to T. L O 9.9 million.
In the same period of the prior year.
From a balance sheet as off May 31st 2000.
Turning the company had.
2320, $3.8 million of cash and the cash equivalents.
590.6 million Gestalt of short term me last month compared to 1800 under 70 $376.9 million of cash on the cash equivalent.
On the 345.4 million of short term you last month as of February.
29.
2020, as often may 31st 2020, the Companys deferred revenue balance was 1400, and the $95.4 million compared to $968.4 million as of May studies.
2019, representing a year over year increase of 54.4% deferred revenue primarily consisted of the Tunisian eclectic you know the bars of Stewart Peiyou small classes and online courses through three Dublin.
Sure, so dot com as well as deferred revenue related to other business.
A final point concern if the share purchase repurchase program that the board of Directors had also right Oh April 28 2020.
Hi May 31st 2020 company you had repurchased.
Well hundred and 85080, yes, so a total of about $10 million comedy management also bought back 36080, yes in that period, no I will hand, the call back to Mr. door to briefly update you on average credit.
He execution and provides a business also look for the next quarter lumpy.
Correct.
Firstly I'd also say that most graves for the recent government, let progressing Stockmans Bro Koby Muslim trying to.
Access to a concerted effort of our teachers technology stuff, all employees and the trust and cooperation from our customers and partners without being able to offer our tutoring services online and Delever. Some free online courses endocrinologist cruises in support of flow over other kitchen.
Continuing.
Second city I would like to emphasize that to achieve long term success of our business requires a strong foundation and this is more important than just pure near term size awful lot business. We will end to offer the best possible quality of course in services really understood.
Or just the needs of our students and satisfy the parents in different situations at different times.
Based on these principles or market share again, and profitability optimizations optical hand in hand, with a serious ambition for long term called your success.
Last but not please give us legislation China continues to improve.
Bye Bye all government policies and regulations regarding the protection of the national public or house, we're always trader the Harris and the safety of our students and employers us our first priority.
Operator, our opinions based on that priority.
Oh, you all a swap leading players with a long track record in other kitchen margins for this will remain pretty confident in our future development and education market opportunity in China.
So let me turn finally to our business outlook based on our current customers total net revenue for a second quarter fiscal year 2021 is expected to be trim U.S. dollar 1070, 7.6 million and you too.
Your stellar 1100, or 5 million, representing an increase of 18% to 21% or year over year business, if not taking into consideration of lilian potential change in mix injuries, but your I'm being in the U.S. dollar the projected revenue of grocery is expected to begin.
Range of 20% to 23% for a second quarter of fiscal year 2021.
That concludes my prepared remarks, operator, we're not ready to take questions.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request.
Please press the pound or hashi.
Once again, if you wish to ask a question you May press star and the number one on your telephone keypad.
Your first question comes from the line of Natalie Wu.
From C. I see see please ask your question.
Hi, good evening loads on Linda and echoed thanks for taking my question I just wondering for your next quarter guidance, 20% to 26, 23% deal yet in on becomes how does that imply the close of offline pay you and Oh my shares.
Welcome, respectively, and how should we think about the margin going forward.
In the long run how should we think about the online business margin profile as well as a competitive landscape. Just curious if any change of your thoughts on longer term prospect for online business given the dynamics in latest the several months. Thank you.
Thanks, Jonathan.
I think you look first place we need to curriculum and numbers.
So while we grew our revenue in 41.5 person I'm, good terms and kill to our guidance for stringent just for person shooter. When you to pay something to considerations I should cost plus gathering it's usually a recent revenue actually the shoe from Q2 to one so Q1 number looks better than.
The real numbers work through to lose a little these smaller if way.
I can walk off the best which Leucovorin numbers is combine the Q on Q2, together I think which is also quite similar for our out of other corporate Pos in this industry. So if we're combining together over first half revenue growth will exceed around 50% residual Pos.
And secondly, I think if we go no go deeper two different segments or we need to walk through some numbers one the one in the first place for the Peiyou small class business here, we need to be word careful peiyou small class meetings I would traditionally offline beans models.
Last quarter because of Colby margin operate so.
Most of all of this offline.
Let me actually disbelievers through our online platform.
So for this kind of Peiyou small class beans, I think we have experienced and we.
Continue to each barriers listing challenge and say pressures facing us other companies in this industry.
We need to wait for our whats going off the call Colby not margin operate well, we're happy to see coming into this quarter.
Where's the government efforts. So we can pull your well under control and we have seen most all the most most of our new cities actually they have a stop opry gradually but compelled showed a normal time, we'd happy in the previous in use where we don't have any kind of buyers so before.
Actually the recovery steel slower and where you, let's say industry and we are listings and situation. So we are happy to see.
Gradually come back to normal obvious kind of recovery need to be worried cautious because anytime when you do pool their safety Harris, often the teachers and students first priority. We're also a bye bye all government policies.
Regulations to reopen however, our schools gradually.
And in general if based on what against it today.
Yes.
And then it will not be getting worse in China, you into second half thing Weve, probably we can say booking based on information we have today the second half growth will be better than the first half full appears more cost business.
And secondly, they refer you to talk about some things up all the Payor life fitness pure life is.
He said our online offerings.
Flood control appears Mcus vis business. This year is continued to grow hardware last year. If you guys can still remember that there were lot for more than I think a triple digit gross and this year into while they're also overwatch principles and based on number workings today through to maintain a similar trends.
And in a slower pace the shops online school wishes also our primary focus our revenue for this quarter and continue to grow 100, Fortys, a 143% enrollments in Hawaii and 143 person revenues in Q1.
And based on what the numbers we have today, we also pretty much on track to achieve our strong.
Triple digit growth during the second quarter plus or minus.
More range.
So in general I think our gross for Ostras pale small class I can assure us payroll life and the trust on school is pretty much on show.
She is willing to say.
Last quarter.
And.
We go down to.
The bottom line I think.
Hi, guys before solicited difficult to keep clearly guidance up our water bottle that will be filed we have some covers the Russians can joint ventures.
Especially we weighed in cardio guys to put it into the headwinds, possibly RPM is inappropriate status number one the pales more cost is saying that's why they just now.
We're happy to see everything is under control.
More than 90% officers fit is actually they stop to resume leppings gradually now, let's say us royalty before Bob better than what happened last quarter. So we look at sometime in the whole recovery with his sometime if we don't see any kind of arms Patty kind of the virus operate again.
Thing, we will Providence fee.
The station work getting better in second half by specifying for material to the challenge and the pressure is still there.
Specialty broken see that we also read we also entered on Nuke savings continued fitness in Q1 Ang.
This kind of their profit process for Q4 Q Joe to.
Well as for sure Trust Peiyou small class bins will still get there.
And secondly, the up all the wall one I think.
Even today, our Q1 would have to the normal.
Price loan and enrollments between Q1, but when I squeeze around 1.1, 0.2, and Mellon and which means 143% year over year gross New York status by using the 1.2 million divided by the beat markup potential off.
Total numbers for the cater numbers in China actually Thats still a very immaterial numbers. So we still believe there is a huge potential or maybe Mike.
Fair enough.
Opportunities ahead of us so for online to steal market share again, so way too to achieve more market shares my space, we need to invest.
I live in the following our risk, but not limited to fully address number one we need to continuing to invest in technology.
From speaking I think two years ago, when we just opened our payroll.
Sure shots on high school life fitness.
We don't imagine Sunday, we will support Megan's are still status in time to in a live linear powerful but today.
What happened every day and the enrollment gross officious owners, who is still our Harris and were high. So this kind of challenges on the.
Technical capital will be even bigger than before so we need to maintain our reinvestment even increase I think it'd be more our reinvestment economics perspective to make sure. Our technical capital came can be worried highly competitive as mark.
Second city, we need to also are you mentioned that teachers and teacher assistance.
Cost under today's model, we still need teacher assistance to support let's students to have for that better.
Let me experiences solar online lending, sometimes it's not simply moving.
So often to on the actually that's it.
Bring new lending models. So besides the lottery cool master the teachers, we need to have we're also need to be or where strong teacher assistants and to support it. So here even during the Colby marching purists with continued progress to hire more acute assistance.
19 today the numbers much harder given now and we get ready for the charges coming this summer.
And so pace, we also need to reinvest the necessary sales and marketing dollars to make sure we king.
Achieve.
No.
Students no students in the coming summer and.
I think about for running this strategy I think the past two years. So we'll have a lot less and less will always balance on our wall.
Onelr possible students Wei Qing patch versus the efficiency we have.
All other over deficiency advocacy of this kind of investments so were half sister, rather to evaluate our by different channels and we need to change our adjusts due to the different tenants performance real time, so we've kind of the necessary sales and marketing.
Sometimes it's also important.
To help us to make more people know us and try to attract more people to try our production and we will.
Use our high quality products to improve a commercially and finally make sure the lifetime value work so.
All we need to constraining ratio on a space in technology space in the teacher perspective, and unit sales and marketing studies. This kind of an investment. We're also give us some kind of precious especially in Q2.
And.
Again, I think we're running this business for a long time and today there are situations to much more difficult sorry, Matt much more different than what we are maybe five years ago five years ago wafers doing a lot of things in online space. In addition model space, maybe there is no not.
Men for full ours, they would try to them for us but today the competition is always there.
Our where we can see solid for the private companies catalog of money and so we are still.
Me too.
Must maintain our competitiveness to make sure we're well ahead of the whole industry.
Again.
One way peak, let top five.
Online players in this area, we calculate their numbers together actually steel, which kind of low online students delighted by the total numbers indicates our population that's still a small percentage I think we still have a lot of market potential as we can go today's too early to talk about head to head competitions.
Well, we need to do more is actually we're doing to ourselves to make sure our improved operating efficiencies to too.
Maintaining a healthy level of all eyes investments a balance of course drivers posting online duties from all of those payroll life interest on our schools to deliver aware pace gross and to deliver our heresy.
Pinnacle grossing among one.
Thank you and Natalie.
Got it very clear thank you.
Your next question comes from the line of Mark Lee of Citi. Please ask your question.
Hi, large congratulations on the results.
I was up more on the online because I remember last year, you mentioned you mostly focus.
The product online or in the strategy.
It seems like.
For the shares the online growth has been strong got I won't be spotted a recent quarters. So looking forward on last summer promotion or do you think or what we make right.
Summer promotion and looking ahead for the second part of it and maybe for the upcoming quarter a walk through you focus on the strategy for this year compared to last year I just wonder here. Thank you.
Thank you Mark.
Thank you for recap some numbers.
Last year, our shores online school revenue grows.
Paul.
60% to 87% close to around 90% bacterial last year and this year kilowatt hour grew by 163% and Q2, we pretty much on track to around or triple digit growth plasma disease Marin.
So I thing.
Part of a reason is because of their.
The markets change.
Last few months is most of trying to students are forced to stay at home and paid on that offers so wage.
Our salaries low online popularity is truly students and teachers, so wait wait us one off leading players at the kitchen player. We also got some benefit from there. So you feel guys can do interest on our online payers in this market actually that is.
Quite common not only for us, but also for the whole industry.
So our vis vis I think the marquee environment, so barring pottery than we need to be very honest about it.
Secondly, I think.
Right. After we're running the business for four years specially for all after a few years I think we have tried in improve our competitiveness of the protests.
When you know sometimes loan application it's now.
Kind of the magic actually they require a lot of the into operations efforts. So thats now simply say, we're just moving students for offline and online which is moving them from classroom to a screen. The everything okay. That's not a case actually we need to redesign a lot of process, we need to raise.
Three rig rate structure the way, how we touch let's do this holiday for suite of students to less than our powerful hallway widened to try our Pilar class and how we can make sure let interactions dispatcher Ben offline to make sure I still feel actually they are.
Let me Lori interesting classroom, even thats Unfortunately online.
Also need to restructure the way all weekend, how how weekend.
During our teacher assistance haulage assistance in through our students and parents to make sure. They can effectively Harris students to get in touch with the on an offers and go along with them much longer.
Oh, yes, a lot of this is Robert so are we continually invest the other energy.
Investments.
The technology strategy, which has to make sure our systems and our process can be improved your ticket.
To to deal with this kind of fast growing enrollments.
And.
I think that's something I think where are we have we were doing that in the past maybe sort of five years and we'll continue to do that.
For the foreseeable future because the only way investment technology, only William Rast tough will only William matching approached us that's the only way we can serve more students and that's also the only way we can slip muscles in affordable way, which isn't just maybe more important you'll bring consider our ASP of offering.
Plenty offerings is also decreasing because that's not that it's not because the way we break records. The price that's because we're trying to offer more on products and more.
Affordable price products to the students.
So the continuing investment in technology and the all a platform in the production is something we continue to to do that I can say repping vital role, but that's something we need to do.
We're also I think.
In today's online or on our indication the teacher assistance lottery very critical and we need to happy enough teachers and teacher assistance to support students. So which is also a lot efforts now French speaking waiting.
If you will need to hire solvents, our students us the teacher assistance, that's not easy so we need to make sure our horses. So work effectively so in king hard enough students and train as students to make sure. They can deliver a high quality service to a stupid to through a parents and students to make sure that led to.
Recordings can be secure action.
Continue to improving our operating efficiency and make sure we came to optimize the different.
Michelle operating process is a.
Mark to chop, we continue to.
Yes, I agree quarters, and every year, so and looking into summer, where we can say is actually world I discussed today is the Q1 results most of the numbers actually is the sprinter numbers. So the Q2 numbers for summer numbers will be the space next quarter by generative see that we're pretty much on track.
Our gross target as Robert there and for the summer I think.
I don't have anything special we need to draw attention back we'll continually we need to make sure will pool.
Product quality Ostler first priority, we need to make sure our on an operating scale fear so that means and the people will feel satisfied our product offerings. They feel they pay them money and the money it's.
This is worth the effort.
So oh offices that detail works, we don't have any metrics I would that would open shop costs.
Two to two Chris assess there's not that much kind of secret we're going into serious hence down do everything I would be chose us better as Paul our school as possible and continue to improve on the other side. So we need to key eyes open way, we see a lot of who can't capacity with industry and we love.
Loss from Ben not only in the marketing branding product design and allow spaces. So we're happy to see we're lucky with industry, we have more quarter past who also.
The vote their outages and times in this industry I think they have a lot upgrade.
No creatures new.
Creative features which we can learn from that so.
Thats something we continue to will do in the.
Future years. So all you off we don't have any metrics, what we need to do is ER.
Start talking that much.
Has down to our job.
Harder and harder than before thank you Mark.
Next question please.
Your next question comes from the line of D.S.M. JP Morgan. Please ask your question.
Hi, everyone. Good evening, Thanks for taking my questions and congrats on the could result.
First I have two questions. If I may 1st on margin. They check why gross margin. This quarter went down 300. That's despite these are contributing from various online E.
As you know, it's a big positive surprise, so just trying to understand why GP margin was lower persistent mix and wondering whether it's just because of that seek chop in small class margin segment or something else said I have one small follow lift through this thank you.
Thank you for question I think for the gross margin.
For Q wise, a little bit decline is because well may moving there still is the payor small casco this role.
Offline to online, which is quite successful most our students actually move there and one thing we need to draw opinions actually in a second quarter when it when we try to retain the students from springs into some of them actually that with injuries quite good even look at the higher than last years. So this effort is work, but when we moving.
Students for all centered on like actually we will provide some kind of price coupons to then so which will dip a little bit in revenues, so which will make their gross margins to offer appears more kind of a little bit lower than before.
I think thats the most important.
Reasons that would have sort of gross margins why they are obviously different.
And can occur if I were second concerns about OPU margin.
No I think you already quite easily explained on that thank you and if I may follow up on other point. This is more a medium term, but how are we going to balance pay you will find MTO life given now the lines between the slow a little bit blurt since coal that's how we.
In the future thinking of batching online ties to data will find essentially be slate, replacing.
Hey appeal flight with the life, where are we going to keep tools segment completely separate complementary to each other and try to serve different group of students and vessel and thank you again.
For taking my question.
Yes.
Speaking I think the best answer to this question should be gold outlet pellets, because actually are different drivers across models Ashley less fun.
Fundamental drivers to vis two then hatcheries that means from these market limits for parents and it's for students.
And I think the past several months this outlook Koby 19 outbreak I think it's a special time, that's the first time for all of US. So its large special and maybe it's very unique. So we can just use the three months all four months experiments to decide what will fully meet.
In the coming.
Five years, so we carefully evaluate and also what's happening.
Pass through a four months, especially resting seeing some more students they chose on all fronts.
We need to make sure as a is that a temporary phenomenon that has suffered for other phenomena today's too early to made a judgment call and Bob.
Second did I think.
Today, saying us what we're running a company before it's very good well, let's just peiyou small class and it shows the online business actually they're running a separately.
Cost of the Peiyou small class business. They are cover city by city, you Perkins Central wildly covered the other 20 new cities. So the total number is around my Systemax euro, including one in the U.S. So the payroll life is highly connected to the appeal of small class beans.
Peter Laivins complimentary service to then so they will focus on how to provide better cities ciulla, all flash students, especially they will provide more localized content to then and that's our purposeful appeal life offerings. So this is part of appeals from cash well first I want to schools things.
Is it beginning its abreast strategy, we want to use to offers to cover the majority of the whole markets. So they will pay attention to the general confidence in the general features and the general.
Subjects.
So we prefer they can cover more students, especially hotter surplus brokered Cds students a you know run so based on what we have today switch to encourage it appears more class English us online school children.
In their own directions, and to try to penetrate and try to.
To to try different.
Paris, because apparently then it's a different no 100% pursuit of the Paris, the lack of like offerings, but also is now 100% students all the all the parents they like only offerings. So we need to measure we can have diversified.
Offerings to wake and support the from meets all blisters and again today no matter. This offline online. Our overall number are still is actually suarez smaller market shares maybe low single digit. So it's too early to say we need to combine them together all we need to do such as we what we need to do is.
His focus on our strategy and continue.
Our current executions, working harder and harder to make sure that can deliver quality grossing event.
Thank you.
Thank you Thats very clear.
Your next question comes from the line of.
Shang John <unk> of Morgan Stanley. Please ask your question.
Hi.
The enemy. Thank you for taking a question.
Any sense on your online business. So can you keep them clean number how much will.
Students now, it's I don't know, which is seeking well online.
Tony and I think previously you mentioned that the you want.
To sum up a tie or different business models launches cities.
To see Chad.
That models.
Oh I can you shed some color on some of the dilution with them and the company thinking about the future strategy North Jersey. Thank you.
Thank you don't yet.
I think it's always a very important questions holic and penetrate a local cities.
And in last years.
If you guys can still remember I said last year for us on I squeeze Romans, who have around tinted myself students coming from one of those cities.
And Bob is here and let Larry.
Situation has a little bit change, especially right. After the operate of local benign king and we're running sung a free cash.
Promotions and a class it's too late to the students all over China.
Oh, we're also optimize our products to try to attract more students for larger cities. So what we can see is actually then for the new students and especially for the promotion students.
More and more often are coming from larger cities I think even today I don't have a perfect answer to say, hey, Tesla past strategy to penetrate adult care cities. We don't have we don't have a shock hadn't yet but were happy to see that is ways. Our continued new wolf more of our products.
In our were seeing weighing more students actually they're coming from that Lochard tier.
It is in the coming in the past two months is and this trend will continue in the coming off a few quarters, but again I want to say is actually let's students who live in a local cities.
Compared to the students who live in that be cities. They Allison.
Happened to send the month after that thing.
Then needs and they have let's say ambition try to be more competitive there once again better and they want to have that her life. So what we need to do is where we're going to let alone pure cities, we need to fight or white important ways to how to make our offerings more affordable, but the kitchen quality should always be the said.
So we need trade if you didn't call, let the product quality as high priority. When we go when we go in there we need to make sure. We teach redhead. So we will continue our current offer NOL hang we will evaluate that they'd has a especially low cured.
So it is still in state has to.
Continuing waffle approached us to true true to feeder needs. So all I can say is well go to where good to see way more students off.
All that on a tough or actually the accounting for a little curious geographies and this trend will continue in the coming two quarters.
In conclusion.
Thank you.
Your next question comes from the line of Felix do all CBS. Please ask your question.
Oh, Thank you for taking my question and congratulations on this phone launch my question is on the Iraqi inside I see a deferred revenue declined 1.5 billion, while the guidance for the next quarter is I think a little bit below that.
Could you help us understand the difference here.
I think all the government doesn't really allow.
We make prepayment for too long.
Yes. Thank you for your question.
Deferred revenue girls is impacted by our faster growth of on Pcs.
So as the consolidation of newly acquired on that well why English tutoring services provider.
The consolidation back from a deficit this year.
Hobbies answer your question. Thank you.
Okay. Thank you very much on just a follow up on that how whether that's fine wine for recognizing that this increase is part of that some of our labor and what it is difficult period.
It will play back nicely.
Sure.
I think based acquisitions happen I'm going to kill while.
This fiscal years, but I need to give more color about that actually because they have.
Higher numbers seem to.
The for relative satisfied going should no revenue because that's depending on their consumption swung along so actually led revenue was two of working out the narrowing of side. There is you material.
Thank you very much.
Your next question comes from the line of Alex shape from Credit Suisse. Please ask your question.
Hi, Hi management. Thank you for taking my question. So I actually would like to talk about your spoke about the online more plus model I think in the last quarter you provided the online plus a small class model to millions of students and adopt a good.
Retention rates I think just mentioned so in the future are you going to keep.
From a whole life market offering.
In your previously a large cloud dominated pay your life and disability.
The mines or Oh do you have planned to do online small class hop cities, let's say to attract the from the city as a way to penetrate into the low low tier cities.
For the to see the potential in that.
Thank you.
Index.
I think last quarter removal of students with de lever the peiyou small class or online platform.
Actually.
But it would have to do that because after koby United team.
So where good to see the retention rates is pretty much okay, and but we also see some challenges from that model. So I think today is too early to say Oh, rather we will.
To sum.
So you can kind of the strategic changes the union appears more Caspian speed, because that's only through Oklahoma.
With a lot of cities come back to normal. We're also seeing a lot of students and parents. They are coming back to our offline schools now so I think what whatever decision, we will may need to depending on the parent set especially in reais.
Rather they will continue with offers in the longer term.
Today with the some preliminary positive size our results Valentines only two to three months, it's too early to judge always true or too early to draw. The conclusion. So we'll continue to run our been seamless way, adding a way were also a regional are often been is in the cities is come back to normal.
So way will leave more time and live from what time to the parents and students and with based on the feedback from the market were based on the Philadelphia customers committed decisions. Our strategy is always a war based on whether it's kind of new dynamic in the market. Thank you.
Got it.
Your next question comes from the line of Lucy of Bank of America. Please ask your question.
Oh I get also Oh I got two questions first of all the expansion strategy I think that you enter more news cities this quarter or possibly decreased from delayed from a previous quarters.
Going forward, what's your strategy all of my expansion.
We would that be largely concentrated in new cities or like what we have done or monistat will be existing cities.
Because as you mentioned penetrating to new cities will dilute or at least pressure on margins in the near term. So whether we will continue to do that or skill back no cities little bit and focus more on margin.
That's question number one number.
Number two is on the revenue for cost of around 20%.
You mentioned that does show us the dot com is likely to grow as triple digits in the following quarter as well as the pay you a life will also grow at triple digits.
It looks like the rest of the business will be under huge pressure.
We will achieve a will arrive at 22% otherwise there will be much higher than that so could you. Please help us to understand better off your revenue for cost. Thank you.
Okay I think.
For the geography expansion actually were pretty much on chose our plans last year and with plan has been stop at least will be by last several months is slow cobiz nitin outbreak today, we gradually resumed back to our pace, but again well.
People are cautious about that we need to Spain.
More time to losing Htwo happen. After these kinds of pandemic in China in the coming from others.
In Q1 with enter tend to new cities.
We have acting around 65, new learning centers.
Q2 by the enough today would have run here around the 10, new learning centers. So I think this is highly depending on whats happening after the buyers in the coming through month is based on what we see today. If I racing steel were under can show with public and see will be more positive about that.
And.
Well.
Your question about.
The new cities all recurrences from speaking I think we're maintaining our similar pace to enter new cities last year, if I remember kressley, we have entered on fifteens cities.
And the year people last year is around 13 to 14 plus minus so this year in July and attend so that's pretty much on track would continue to enter the sizable number off and a new cities I review and we also continue to optimize our clearances deficiencies and based on there.
Different cpis, especially that's it for fifth fulfillment rates and allocate guys to decided to add new learning centers I think we're running out where Chile, our new network expansion strategy is pretty much thing I swore within the past, but considering will have coin making over here. So you know most.
Face importers will appeal more cautious than before adding by loan Rod will still on track to enter no more new business as well they can seem to pass or the revenue forecasts I think I I have talked about in the beginning but I can break up a little baby in the first phase I don't address your guys only looking to one.
Single quarter numbers, because actually the cassava scheduling issues with some benefiting kilowatts main actual numbers better than before and we have some kind of lost in Q2 safe way, a combined accrual and put it together for the whole first half our grocery is more than 40% Pos.
So I am, especially and yes, you're right. So we have oh parachute grossing apparel life hospitals in the shops online school web some challenges a using OSM precious awfully assures us more peiyou small class base. That's because you feel go back to our Q1.
Typically is March April and May have a Q2 is typically June July and August.
Well the students they and the Paris, they decided to rush that my Q2.
Losses in the summer thing classes actually at a time should be at all April and May. So if you can still recap the stories in April and May I think at this time, a lot of parents and maybe even a whole society I steel and there will be worried about the virus and a lot of people has pay I'll, maybe they don't made a decision yet so.
So I think you choose a challenge cultures and groceries also we are under pressure I still have made quite could it now and if I was thinking getting better and better probably second half overpasses thing first half for often upside.
Thank you.
Thank you at auction.
Ladies and gentlemen that does conclude our conference for today. Thank you for participating you may now all disconnect.
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