Q2 2021 TAL Education Group Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the second quarter fiscal year 2021, T.L. Education Group earnings Conference call.
At this time pull participants in the listen only mode. After the speakers presentation. There will be a question and answer session. Dawson question. During the session you would need to press star one on your telephone please be advised that todays conference is being recorded.
Now I'd like to hand, the call over to your first speaker today Ms. equity in IR director of THL. Thank you. Please go ahead.
Thanks, operator, thank you all for Tony have today, RTL Education group second quarter 2021, earning conference call. The earnings release was distributed earlier today.
Despite a copy on the company I all that site.
Oh well.
During this call you will hear from Chief Financial Officer, Mr. rule, not cool wet profit doesn't help by men and myself.
Okay well.
Following the prepared remarks.
We've done a lot I mean, well 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 1995.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.
Potential risks and uncertainties include but are not limited to those outlined in the public filings with the FTC.
For more information on these risks and uncertainties. Please.
I refer to our filings with the FCC Oh.
Robin Williams really using this coal equals discussions of certain non-GAAP financial measures. Please refer to our earnings release, which can.
Which contains the recompletion of the non-GAAP measures to the most to do actually do you estimate comparable GAAP measures.
I'd like now to turn the call over to Mr. the more routine.
To Echo go.
Good evening and good morning to do all thank you for joining us today always earning call.
We continue to see a possible recoveries in China's topic, how situation I'm confident in its second fiscal quarter.
You Gotta kitchen set to schools were able to really open a stylist school year on September 1st following the gradual resumption of the offline teaching and talk through during the summer months.
Okay ill during the second fiscal quarter, we continued to execute our online and offline strategy, which remains on track more and more of our all plans on incentives Korea open and currently all of our lives sensing trying to our best in business at certain level.
Lets second fiscal quarter financial results reflect the extending in parallel for the earlier Cobiz nights and operate.
Revenue growth from the second quarter was 20.8% year over year in the U.S. dollar terms to U.S. dollar 1000, and 103.3 million and.
And 21.6%.
RMB terms pull.
Total normal price long term policies student enrollments increase.
Increased by 65% year over year, mostly driven by online enrollments I swear a strong peiyou small class.
Loss from operations was US dollar 49.1 million compared to income from operations. After U.S. dollars 60.8 million in the second quarter last fiscal year.
Non-GAAP loss from operations was US dollar 11.8 million compared to a non-GAAP income from operations. After U.S. dollar Eightys not point.
7 million in the same period of the prior years.
We're not going to call over to Linda our Vice President of Finance. She will keep you out they all operational progress during the second fiscal quarter net Echo Yeah, I'll IR director will reveal that second quarter financials. After that I will update you on our plans outlook and Oh are being strategy and discuss our bis all look like.
That is.
Thanks Joel.
We are reviewing various revenue stream of.
Our two twins.
For the second quarter.
Let me start with small class and other business.
Rich countries, Oh, yes, Tayo small class Firstleap mobby and some other education programs and services.
<unk> accounted for 67% of total net revenue compared to 75% in the second quarter last fiscal year.
The revenue goes to it was 8% nimble U.S. dollar and I eat Cook.
You have to pay a small class, which is a man hours stable core business Duffy.
Represented 57% of total net revenue in the second quarter compared to 65% you the same year ago here.
The lower revenue contributions from New York to yield was most today feel to the fast cocoa ups U.S. dotcom online courses.
Which accounted for 26% of total revenue in the quarter compared to 17% you. This thing he did last year.
That's revenue growth just appeal small class was up by 7% in both dollar I'm Peter.
Well, our nominal price long term called yeoman's increased by 31% year over year.
In the second quarter nominal price Lumpsum yachts appeal small class he increased by 19% U.S. dollar to an 18% I'm weaker year over year.
The decline was mainly due to the mix change pay your online and offline peacemaker propulsion.
So as regular promotions.
Our second quarter performance.
So it appears assays.
They'd rather pay locker has shrunk holder to 19 on the computer sales pace was lowered PRC our geographic network.
You have to pay a small class revenue from the top five cities wait shopping shop Hot well Joshing, Phil and Nancy.
Increased by 3% year over year U.S. dollar to accounted for 52% of the US appeal small class isn't it.
That was generated from cities other than the top five grew by 11% you guys dollar to the.
The other thing is accounting for 48% of those yards the Peiyou small class business.
Now at last Oh, what's your comment on what you see.
This business sector achieved year over year revenue growth of 6% in both dollar too and I'm sure.
Just kind of want all while accounting for approximately 7% uphold revenue in the second quarter of fiscal year, Twentytwenty, one compared to 8% even seen he'll go here.
In this quarter normalized long term just kinda y O Y caused as he increased by 4% in both Andy on the U.S. dollar to all that.
Yeah.
Now let me update you on our current capacity expansion strategy.
Following our entre into clanking, you'll say, hey look fourth quarter, we added one more CP Danielle, let's say some called her.
Yes, good day, well were on track with the plan offered on capacity expansion.
[noise] along with our longstanding approach, where we will continue to pursue all healthy and sustainable underneath and her nice work expansion, that's photos and government guidelines and the market demand.
Entailed a cool on that basis, the number of learning centers was unchanged from Q1 as 936 in total.
We opened its container who knew Peiyou small class learning centers.
Close to 19, Peiyou small class learning centers.
We also closed a nice three Chicago Wow, what learning centers.
During the quarter, we added 25 pay your small class classrooms.
Yeah, Oh, I think end of August Twentytwenty, we had 936 learning centers.
Nike one cities.
Oh, the wage Nike status in China as one.
You asked the pay you know any send her either United States.
Obama totaled 936 learning centers.
716, or Peiyou small class and international education centers.
Nike, one where the mortgage first would be on them. All these small class.
At 129, or just kind of one on one.
As for Q3 of fiscal year contained Honeywell and he'll now we have conditionally Grantree's 14, Peiyou small class learning centers.
As always we had to add a few more and the close down some learning centers based on standard operations.
We will continue to closely monitor the divestments with regards to Kuwait lightning.
These estimates reflect our current expectation, which is subject to change.
Turning now to our online business.
Second quarter revenue from Georgia Dot Com grew by 87% U.S. dollar true year over year, and 88% R&D, who it was.
Well not quite long term car enrollments grew by 116% year over year to over a coupon nine kneeling.
Oh alone contributed 76% of Copel run meals and 52% of total normal price long to Goldman this quarter compared to 17% of total revenue and 40% of nominal price long term called eat omens.
Let's say a year ago period is practically.
The girls <unk> I'm not dismayed was supported by the structure goes trends, yeah online education, as well as sales and marketing efforts and the retention of the previous cultures.
In addition, he feel to normal price lung to allow cars as Pete decreased 1% in both U.S. dollar and he terms year over year.
With that I will now turn the call over to I call you for the update on second fiscal quarter financial results I call Steve. Thanks.
Thanks, Linda let me now go through some key financial points for the second quarter of fiscal year 2021.
Well, it's called the <unk>.
By 14.3% to $581.2 million from 508.7 million U.S. dollars, let's say meal go period, well not just for the second quarter decreased to 52.7% as compared to 55.7.
1% for the same period of last year.
Selling and marketing expenses increased by 44.3% to 379.8 million U.S. dollars.
From 263.3 million in the second quarter of fiscal year 2029 got certainly on marketing expenses, which excluded share based compensation expenses increased by 43% to 300 under 70.3 million U.S. all that.
From $258.9 million in the same year ago period.
The year on year increase of selling and marketing expenses in the second quarter of fiscal year 2021 was primarily a result of more marketing promotion activities to drive to our customer base on the brand as well as higher compensation to sales and marketing stuff to support small programs.
Under service offerings.
[noise] Com was 45.3 million U.S. dollars.
Second quarter of fiscal year, 2021 was primarily due to the value added tax under social security expenses exemption Oh.
Oh for the by the government to during the call we Nike outbreak.
Next month, it was 55.6 million U.S. dollar [laughter] corridor, all fiscal year 2020, mainly related to lost from the fire radio trench <unk>.
I'm, a equities, killing T waste revenue lead determinable file value.
Impairment loss on long term investments was $4.6 million for the second quarter of fiscal year 2021 compared to $54.2 million.
Second quarter fiscal year 2020 impairment loss on long term investments was mainly due to a decline in the value of long term investments in several you must keep.
Income tax expenses was $2.4 million.
All those in the second quarter fiscal year 2021, compared to 8.1 million of income tax balances [laughter].
In quarter of fiscal year 2020.
Net income attributable to tell was $15 million in the second quarter of fiscal year 2021, compared to net loss attributable to T. held Oh 23.5 million in the second quarter fiscal year 2020.
Non-GAAP net income attributable to P.L., which excluded the share based compensation expenses was 52.3, meaning let's call it compared to non-GAAP net income attributable to TNL, Oh 5.3 million.
Yeah, I saw that in the second quarter of physical year 2020, some of the balance sheet.
Oh, just 31st 2020, the company had 2200 and the 6.1 million units all of <unk>.
Cash and cash equivalents and the $580.8 million of short term you last month compared to 1870 $3.9 million of cash and cash equivalents under 345.4 million.
Collins of short term investment as of February 229, 2020.
Oh August 31st 2020, the current deferred revenue balance was 1170 $2.5 million compared to $497.6 million adult August 31st 2019.
Representing a year over year increase of 135.6%, which was really contributed by the Tunisian Clapton you know the one off part of the Postmaster helps us appeal small class and online courses through a W. W.
<unk> com double double dose you're still com now I will hand, the call back to Mr. door to briefly update news however strategy execution on the pro why that business also took up the next quarter.
Hey, Michael.
Our biggest has restored Sheila I'm, just I'm presuming density pressures on Cobi not operating in the first half of this fiscal year.
And de lever or some people said revenue grossly under terms.
It demonstrates <unk> ability to provide cornea education services to our customers, even just on spending six times.
This underscores the resilience of our long term vision and strategy are a comprehensive and competitive product portfolio.
Our capacities capabilities in our technology and operations today.
Today, I will always say encouraging progress in trends recently, all their activities largely as your own worse off large our offer I'm being already.
The process of of gradual recovery, we will continue to pursue our often develop structure to further expand overcapacity appears well.
We will cover more lower tier cities and further intensify our current existing cities based on demand and Meanwhile, we will keep following old relevant government policies and regulations regarding national public harsh I remain well prepared to deal with any popular how's constraints you seem to come up here.
It's obvious.
Oh for online under the current competition landscape.
Women no fundamental change through it kills Colorado, Georgia, and the loan structures.
Well Q working all the larger our only market share by continuing investment in technology to teach our supply chain and marketing and consistent how we're all feeling overall online. So this is what is so poor customer expenses.
I firmly believe that the other kitchencare I've, along with the facts as defined by the quality of our product service and technology.
Let me jump on only two hours, although based on the current estimates total net revenue for the third quarter fiscal year 2002, one is expected to be between U.S. dollar 1060, 1.1 million and U.S. dollar once all day, and 94.3 million, representing our increased R&D, hey to 62%.
On a year over year basis.
These estimates reflect come as Curtis patients, which is subject to change that.
That concludes my prepared remarks, operator were now ready to take questions. Please. Thank you.
Ladies and gentlemen, we will now begin the question and also session. If you wish to ask a question. Please press star one on your telephone and wait for a name to be announced if you will.
If you wish to cancel requests you can press the pound.
Yes.
This month I requested to restrict one question each time.
Your first question comes from July off next year <unk> Credit Suisse. Please go ahead.
Hi management. Thank you for taking my questions. So I'd like to ask about your thoughts on the growth expectations and strategies do offline.
Mm Hmm offline, we have seen gotten lot colder you didn't really spend much so what youre planning for capacity expansion in the future and the online I see a competitive low interest I think walt and due to more than anything else. The private payors what will be your strategy going forward. Thank you.
Thank you Alex.
I think is a very good question Robbie.
Right before we talk about some numbers so the numbers this quarter and that's quite true, but would like to take this opportunity to walk through our route based logic and strategies, that's a whole to keep aside informations why what we are doing and why weapon.
If you guys can remember a thing.
Six years ago, you earlier, we our traditional offline tutoring companies will hire high quality teachers were doing a lot of talk let me sensors would be or would you ever classrooms wait wait wait wait fees student skiing, and we do a lot of stuff like that so under the operational models I think.
The past year for example between two selling forward into 2018, well enter the cities from 16 to 42. So that is kind of the traditional models were running today, which is also quite common to see an offline to their end markets.
Oh, Oh coming to your 2018, I think around two years ago. We drove you guys can still remember.
Oh wait I, just love first of all Youve. This industry, we invented the rather the online a new online education models. So we introduce the only like platform into other Paradise. So wait wait wait feel a dual teacher online maltose.
You can get status.
That's the first time for this industry, which is separate lending and a practice, which is separately the renewal of the massive futures assistant teachers, the muscle tissues can teach a lot of students at the same time, while the ascend teachers, taking care off happened and online environment. So it's kind of low.
Still t. shirt online class models has grow working for us.
I think three years ago, we only have penciled salience enrollments by coming to today last quarter, we'll have to probably not meeting room and I think the revenue contribution office model two years ago, It's only at all 8% and four years ago is below 3% today is now 26% if I consider the appeal online is.
As part of the online I think these two numbers together last quarter, we'll have already reached almost 40% of revenue.
What's the euro coming from the only model now are all 70% 70 years old are coming from the only model now. So this model has allowed us all entities and we have seen it provides us a lot of a lot of capabilities consolidates market.
If we say new truck you know traditional outlet models would have along.
A lot of competitors, all maybe quanta Pos in different cities, we're running the company for 17 years, but today, we're still below 5% of their market share by coming to the only model. We have the chance to see some situations may seeming to try to circle Maki. So maybe you know future the top players.
<unk> will be consolidated into maybe top three I'll fall so its kind of you.
This kind of consolidate ops opportunity, that's just never seen before in this industry. So definitely doing vis sector with that fit into your will keep growing investment in technology in future supply chain and marketing to make sure that we can maintain our leading positions over.
Here.
But on the other.
On the other side. This model is not for profit model to resolve older Province, I location in the end, it's not a simple getting off marketing. Thanks again.
He said the key to pay education is we need to focus to provide providing high quality service torturous. When you compare to students in the first the first priority. When these are not only picking here off late efficiency out for the marketing, but also keeping careful of effectiveness all plus guidance. So.
So if we're going into this model we can see currently the only.
My mother today.
No one massive teacher, they teach us a lot of school, despite a little bit difficult for the students to ask questions because while Russia. So many asking questions, making is all kind of this call. So which means maybe this model is more a kind of a useful.
To trading lets students need middle level, or maybe relatively easier comp guidance, it's a little difficult to talk about either a warrant difficult questions on the bus models and.
Well one thing we also see that as if today I think not only US also some quanta pass you know you guys probably have see they have a really really raised the funds from the market I think.
More or less this mother's day wait we have being a struggling in their new customer acquisition costs, which is why we are kind of challenger to all of us.
Wait us a pair who invented this model and are strongly believe as online compelled to a traditional offline steel use of lottery revenue will report us and we believe that can help us to gain more market share my entire they're willing to expanding their Pos so will we.
We need to be a jacket honest models. They have some profit in comps well need to truly leverage our branding our oh contents. We have developed a some other once you. So we have to try to reduce the operating cost for the only model Safeway Benchmarked Casey in several markets I think maybe.
And only the top guys King have most of the revenues are most of the profits. So wait that's entirely we'll continue our reinvestment over here to make sure. We are the leading players even coming through years.
And I think because of their pandemic in the past eight months I think by chance.
They introduced a new opportunity to us switch French speaking is a little bit Oh, our imagination before it's actually we quickly figured all right. After so many students they have to use the online model for few months is and when the all planned and incentives are open actually with.
New opportunities, maybe we can use the word of online much offline.
Sometimes these OEM or some has maybe a little bit.
Misleading because different companies may use different definition on this so I would have to use one in some of Shanghai off of a trust been seeing Shanghai to show guys.
You should all have today.
I think we have in the summer season, we have where on 120 20 soldered offline enrollments.
Which means we have 120 Soc enrollments lets students kind to our fiscal classrooms, and assuming that costs are.
Hi, Allison high in summer, we're halfway there on a 200 solden payor online enrollments, if I picking all the promotion enrollment flow number can be still be around 150 cells enrollment.
This number is higher dealer appeal offline enrollments.
And besides the pure offering enrollments in a pure online enrollments, which do have around 300000 shares.
Trust online school truck launch out trusts online school enrollments in Shanghai So.
So which means.
The way we go back to see our number in summer in Shanghai City of course summer actually slipped peak for the year. If we wait looking to numbers are in the.
In the fall winter the number to be lower dealer been out in the summer, but I used the summer numbers Cotwo numbers example, how should we think all in Shanghai, we have maybe around 600 solid enrollment in one city.
MTO guys I pull my coming in for a long time, you probably can see I think four or five years ago. We were guys asked me Hey, Lloyd choice by patients on one single city, how many enrollments you have over there for example, Beijing at that time my answer is.
I was why reluctant to say, maybe I can reach the number of 150, southern Europe and for what city, but today in Shanghai, we consider all vis vis almost together we have around 600 600 enrollments there.
NVS phenomenon also happen in Beijing in question, Joel and salary and style and a few other cities because.
Because we do not all bids offers to older cities all of greater oldest arduous way way way way too, particularly the terawatt hours during the Oh, we have a lot of white space you Allison is no hobbies, showing us actually that's the kind of the new opportunity and that show outlet eruption home home, we can you walk.
We'll also selling essentially in the future so when we pay so.
While these dive on to shine numbers were pregnancy that wireless the parents choose the pay on an office on top of pure offline number one I think more frequency for example, they come to our offline learning centers once a way by the same time for for example, mess pilots in hand, they the way show.
We will take the other online sections, maybe the shopping Clos Allison helpful for the whole week so.
Second maybe is more sockets for example, they come to my learning centers to two two study mess, but maybe they study my physics and chemistry, I mean, they'll appeal on platform, which is like case already happening in Beijing, Shanghai and.
And number three and maybe more students wastewater off we are also seeing maybe in shanghai's numbers in summer specifically around 10% to 20% off.
Ill, let her payonline students actually their new students new students, but they are quite close to our lending centers in Shanghai, So which means they know our they come to our incentive maybe for the past or maybe for the events or maybe for the activities, but most of them along activities finish online.
So he's kind of models showing out to actually that's a quarterly view for us to develop more and invest more on a localized online on online class models were called but they want to sell.
What does it look like me.
Number one no.
Local confidence.
Yeah.
I think in China.
People provinces staff deferral warships, so when the top applications content. They have maybe kind of three kind of dimensions number one is the different portions number two is progress different progress number three is that different difficulty levels. So you try to look more than sleepy worsens in call. It.
We would probably we happen to be over 200 worsens optimum call. It we have maybe solid himself salience of different versions. If we consider the tax in a primary school so but if we only have one question Paul sometimes we cannot rates of older province solar local content local pretty good luck.
Local progress and the local the Coty levels I will be more careful for the students and full of parents to know what is exactly happening in a city and to back into that number.
Number two local teachers. So when you guys always our PEO payroll online classes, we used the local teachers to teach students for example, a large teacher in Beijing. The teachers the teachers students in Beijing online. So they can still so they know more about this.
City, they know more about what's happening with this trade. So they can provide more tailor made and more kind of the use of information to then I sure once more water small stories at the right before the national holiday are a bit over Beijing School were horse more event as well as the pale online Stuart.
This to control our office to visit our payer online teachers do note that the children's Warren insight into C., all obvious so when winning why the parents or maybe the students. Even they finished a study on land body control are awful and tend to sports and events for the seminars activities I think mid kind of online.
Offline clinics.
Blending kind of experiences is much better than the Alabama mysteries local classmates.
Thing Wayne you asked about in waste your classmates you know some of the people in the class. The Devil may lists the interactions between students do that much more efficient than the allo.
Number four is local services. So we have a lot of schools, who have a lot of counties and districts. So only way you can provide some specificity formations are maybe less mature.
Materials on MC activities, especially for them and they can feel the local needs, which is more powerful thing. The one question to all products.
So we believe all fees came powerhouse too are you walk our payroll kind of less smoke house models to next stage. So as a summary, I think fallen short online school online par we were key operating investment in technology future supply chain marketing and some other.
The necessary investments to make sure we can continue being a leading position in this market because of this market has shown very clearly the opportunity of consolidating their their markets into several players were tapping you need to be wallet. Then of course, we'll cut we will balance that consideration off.
Batman Allied may show with onto seems to still be secondly, we will accelerate our learning center.
Expansions our of sharp sharp Peiyou small class, we'll also try to enter more cities in the coming two quarters. So I think one number can show US. Your guys is just now you ask why wait on adding any new learning centers in the second quarter, because second quarter Tesla Panda.
Pete pandemic Appirio. So we know we can't do anything but coming into Q3 today, we have already revenue 14, annulling incentives and we also have over 50 in the pipeline and also on the reporting periods of vis.
Newlink incentives because we certainly sometimes due to renovations as for license, but we definitely will have more on our pipeline to do that and how to think how we're also trying to draw the appeal online offerings to more cities more upgrades and Saatchi switch our waste stuff staffing piece of news.
It is our strategy to go so if we consider all of the information together is I think.
Looking to quarter over quarter performance I think Q2 is probably pop anticipated Q2 is the lowest gross quarter Q3 based on information, where we sit today Kosovo will be better than Q2, and Q4 were better than Q3 of course all of these are estimates are based on what assumptions.
I don't foresee any sick of this came public to public health crisis coming back again. So we are confident we can continue our growth strategy.
US why talk about just now thank you Alex.
Thank you for the questions next questions will come from the line.
Scheme of JP Morgan. Please go ahead.
Hello, Sir good evening and thanks, so much for the insight you just shares sure. It is really really helpful. I actually have a one question Oh actually two questions first as a housekeeping America check or less T. segment performances and the currency assumptions you have baked in the November quarter guidance at night.
Real question more important question is edges.
As you said in the prepared remarks like some acquisition cost seems to be surging a lot from the summer and some say is as high as 4000 Renminbi Tokyo, one paying you Joe Lumping students and I was wondering if you could share.
Share with us what you see on the unit economics, and LTV of Ace do that stay at this level versus pre call victory, yet I E. How long in your opinion does it take to a breakeven on the cash tuition level after spending current level of customer acquisition and how many years where some.
Masters that you think you can we cannot be pain studies done on average against this backdrop of here competition. Thank you so much.
[noise] finger. This this alone concern right.
That's come down a little bit.
In the first place we'd have to say because the.
Online provider opportunities can consolidate to the top guys and and the top players have chance to have much bigger market share compared to the offline models. So definitely I realize competing in this space.
Okay, and I think we will talk about a new customer acquisition costs, we need to split into it into two parts number one esler learned there the new customers. We acquire from an open market for example of which our moments on maybe coachella platforms. So for base kind of their new students.
Deference ULA causes hiring higher because everyone's computer there and.
Yeah on the site is we still have the other part of the call, bringing channels, which means we'll let people know we are like shards. This pattern has been the top top tier interim analysis. So they will come to us all day with all our apps automatically so we have some traffic coming from Brent in channels and we're also trying to.
Two more to encourage weaker local currency orders to refresh our warehouse to their friends are Oh, let's do this so we're also seeing more over here. So in general yes were seeing lower as a new customer acquisition costs from the open market channels is increasing so we are being way more our percentage off.
There are still some coming from burning channels on me because and referrals is also increasing now now size you know, sometimes it's not earth simple work to say new customer acquisition defying the size. There you will see comps flow follow on allocation models, because right after skills and kind of profit is to have a lot of stuff.
Speaking with him do it number one how to you.
Increased low retention sorry, how to increase the conversion how we can cover more students to to throwing that maybe 14, I am because to our normal price class a hall and second one how they can do more to improve our retention rates work.
In fees actually were making only to be progressing the risk rating perspective and.
And number three is also sees waste opportunity for us to cross sell up sell a solid pressed to then number four it's harder to make sure they can stay longer and longer without the numbers also.
Increasing reveal.
And I think.
The loan and today I think a way we adapted to the we'll keep our investment level over here.
Paying way our market leading position now we'll maintain our bis positions futures that are going to do.
And Oh off base, but on the other size Luffler payer on life will be a different story of Proneura Trust. One school, we don't pay that much Mike and thoughts on the pure online. So they will a highly connected to a pure awful and beans, and we don't see any huge costs off new capex acquisitions from there.
So our modeling for on a pure online much better the dollar in the last quarters rate grow our shops online school enrollments backed by 116% pilots in how we grow our pure online enrollments more than 130%. So away foresee this trend will continue in the coming two quarters.
So we need to balance a different drivers in our hands and now we're still very confident with our investments in the online space and with our new strategy evolving how to use more of payable online castle appeal of the offerings to students were confident to deliver warehouse you Gerstein Fisher.
Think of this.
Thank you for the questions, we'll take the next question's from.
Sharing Jones from Morgan Stanley. Please go ahead.
Hi, Thank you for taking my question.
Uh huh.
Oh yeah.
Oh.
Tax down from.
Mm Hmm.
And so now already we are at the time.
So on.
Oh.
The competition going forward.
And you said.
Thank you.
Hi.
Station.
Mark.
What kind of Oh.
So whats candles.
Thank you.
Yeah.
I think sometimes will be.
Maybe under estimate like capacity up on education.
Some people may simplify.
The competition to new customer new customer acquisition costs, but actually the owner of the kitchen is a complicated process not only you acquire customers youre customers bought heidrick and make sure you come in and all of that.
So looking to RIS coming quarters closer in Q4.
I think we are fully prepared for any kind of their investments if the other payers. They want to do so we are fully prepared for that way are definitely we'll keep our investment relvar here, but if.
But if if you're only top our marketing ourselves. So I think thats only one powerful abilities I think besides the marketing besides the money we spent on marketing channels. When these notes actually the way are also to allot halting increase our local sorry, our internal technology, our internal teacher supply chain.
And some other operational efficiencies solo competitions are not only happening in the front end happening flow all lifecycles I locations now kind.
Kind of a battlefield, which Ken Ken.
Can be concluded very fast that takes a long time so for us its way, we will now be disturbed by anyone's guess I guess, how much money they get we need to be be ourselves.
Due to our own strategy, which we too are on pace, we continue to hire more teachers as worrying trend and we continue our growth strategy to cover more and more students I think your first quarter. We grew 143% enrollments of online school and the second quarter, we grow 116% and wafers.
See you within continued high growth in the coming closer into fall and at the same time pill Nice also our triple digit growth in Q1 Q2, and we also foresee we can grow our healthily in both the shots on Ensco an appeal on that so I think there are kind of.
Kind of like competition cannot be concluded. So when you talk through fully prepared for that but on the other side is again online is one powerful again is now.
All past applicants so besides online when Eagle Ford focus how we can use our advantages in the Peiyou small class how we can combine our offer learning centers and other people like offerings to make sure. We think we can peel a more lunches, especially in the top 50 cities dicey.
Kind of most of the revenue and the most of the profit coming from so that's our focus right now I don't have more information to share with you guys, but like I say swear preprint fully prepared for that.
Thank you for the questions.
Our next question comes from the line of.
Felix New off yes. Please go ahead.
Good evening management. Thank you for taking my question and my question is on the sort of the relationship by synergy between you and a church dot com I.
I see that pay online is making very good progress with the strong growth that a very small amount of the south American in Cod is there any possibility that we leverage the fact that the online to tee shirts, and dotcom or any thoughts on sort of the adopting the fact the practice.
And also is there any room to dumb white synergy between guard the offline network and make sure. It's the dot com operations. Thank you.
Yes, that's a good question.
I think I didn't know today, because the only market story big I Rewind fast grows. So we have a lot of potential we can grow more market shares. So we'd prefer is lustrous online school will kind of ask you a breast strategy try to cover more geography try to.
Cover more cities and compete in the whole country level, while the pay online will highly connect you to payroll and incentive away with peripheral appeal pure online can be that strategy going deeper going more localized in parallel or more in the video services to the students in that local cities. So.
So so far there shows online school, we are willing to pay the marketing dollars to promote and gain more market share as possible and we are willing to bear some handoffs the operating loss from their Buffalo for pilots in time for pure online will develop over the top.
Our new structure is a sort of a new solutions.
And how are we seeing the local community to make sure. We can capture that deeper keep up opportunities and which is also a were not only maintain heico's over there, but we're also maintaining the wider group.
Profitability levels throughout the year, so pace or why.
Okay. So why I can see today, they will share in the branding perspective in economic ships Patty content perspective, and they may also share sometime suncors offer the operational leverage between the learning centers in the online schools because they are using a scenario for example of bringing channels listed.
This concludes just want to squeeze because learnings for us.
Oh, we still prefer us their shops online pure online can be roughly a little be independently to penetrate deeper market is the market is worthy of our potential now so way, which waking laboratories to offers to get more market share.
Thank you.
Thank you Frank actions.
Next question comes from the line of mostly of Citi. Please go ahead.
Hi, Josh management, Thank you for.
Hi, I want access for our offline operation, we have seen quite a bit of a promotion.
Yeah Yeah.
May I know how is the promotion you run the math heading into next quarter and what is our offline growth a target for the next few quarters, how much recovery will see fault block or any kind of appreciate thank you.
I think for all flying low coupons, you mentioned just now actually part of that is because in the first two quarters because of removal awful offers to the online due to the pandemic. So it gives us an awful. According to the students that can use the equivalent in Q2.
Maybe part of Q3, so thats that is now the normal promotions occupancy you have seen in the past and I.
I think looking to Allah coming through 14, and even next year I think promotional occupancies now our most important when pulp to do this I think we still need to do more works is how we can provide the online I imagine offline models to the students for example, if you are.
Yes.
Wait wait senior lending centers, we have in one city Hall, we can fight on ways to do marketing our pantry lets students maybe three to five kilometres around the learning centers or maybe 50 minutes within minutes by choice or like.
By car.
So how many used to be three incentive hardworking attached to the owner appeal on that office to that today, you know French speaking, we're only running mis modeling the city level with weight waste still do not go into the detail management side. If we can if our operations can be more details and be more kind of efficient than today.
We can definitely see much much more much more opportunities I think when he too you have or maybe.
Reinventing how these models through product through research and development by not only through so-called so called promotions occupants.
We wish a current offers came provida students learn new experiences and we can collect oh wait we can use that they'd have to provide more tailor made our individualized solutions to them. So they are a key to play in the future.
Thank you and good luck.
Thank you for the question.
Next questions comes from July of this.
See you.
Of America Securities. Please go ahead.
Hi, Thank you for taking my question.
So my question is also related to what Mark has just up and so Oh I'm aware that no offline marketing appeal. She shops. So this summer we have offered some discounts in in addition to the coupon. So I'm wondering how much of that is Coty has impacted your GP margin or like okay.
Margin.
No appeal offline, so I am trying to understand.
They all pay you offline business margin is flattish to Connie or student pooling. Thank you.
I think especially in Q2 definitely that pay you a awful binions the profit in the lower margin is decreasing of course, because the pandemic. So they said no normal quarters to compare sometimes but kind of considering pro for where things come back to normal Republicans thing that a bit.
It will recover from the second quarter second quarter slow numbers. So thats why I said just now maybe if were looking to all operations second half will be better than Q2.
Thank you I'm not sure.
Oh from me I'll, just follow up on third quarter without or would you mind break that down by business in terms of gross almac. Thank you.
US sorry, we don't disclose that became formations due to a competitor or reserves by let the Russia is actually our shores online school gross will be similar to what we can see in Q2, plus minus that it will be so we also see a rich.
Our revenue growth from the you know the appeals more class B.
Peiyou small class business, so thats like a rough ideas.
Okay shall we say okay.
Thanks, Josh.
Thank you for the question we have another question from July of Alex Liu of China Renaissance. Please go ahead.
Thanks, launching for taking my questions.
Two questions. The first question is just.
Could you share with us how strategy on the so called.
So call very popular AI online class I understand some of your competitors.
In Burma or are quite aggressive on this model every new tower.
How's that has a dedicated product for decades.
Was wondering what's the plan there and specifically do you think this model will eventually rich similar revenue upside to our current Oh My model.
The first question.
Okay, Oh, thats, where ever present I think.
I think maybe last year you my all in cost I recommend one book Chugai Slipper was call only intelligence suite and by Jeff Hawkins progress I think thats a very good to hear you guys can pay attention to that.
I think sometimes has a I've heard us is a very good work by some have two strong work for us. So we are still way way off.
From a high or kind of.
They can they can so we're still far from AI.
I think.
Maybe in the future if our online based model is getting bigger and bigger or maybe more and more people are coming in and our OEM or models is better appeal on lines also fast increasing so we can penetrate a lot of students and waking club more of that they have not only their they'd has this slide.
Mylan use incentives, but also some they'd have been starting in the schools or maybe even at home. So we have more than it has maybe possible. We will would have chance to to the rather a new type of maybe in passenger so that learning models.
I think that will happen definitely that will have to tap into the bar today's with whom we can figure out what's the right right pathway to a rate to reach the level. So what we can do is where the U.S.
Right.
Both seem to pay us more cash interest on in school, we try to re imagining our AI left and we're talking about more a research like libre in some sense and Saturday hours to measure we can figure out one way to do that.
And I think this kind of hurt US is still has a long way to be Machu, Oh, well I can say just note only common the proto off my old company I have no comments on how the production costs. Another I want to do that so I refuse were continue to our investment in this area.
Because you know our investment and we strongly believe in the future as the new type of Curtis will come up.
The only program is when so we wish Oh, all our efforts we are making in the online part can contribute to the next level production approach.
Thank you management with that ladies and gentlemen that does conclude our conference for today.
I beg your pardon.
Do you have any follow up questions Alex.
Hey, Alex.
I remember your second question.
Yes.
Just just quickly on the gross margin decline just wondering how much is due to the teacher compensation costs increase.
And what how should we think about this trend going forward.
Yeah, I think let me answer, but basically I think the gross margin to have two factors number one as we continue to grow a way you can usually rather more money centers. So thats why I said, just now I think.
Traffic were adding around 20, new cities and killed two is one new cities and it's in how we're adding more than its interesting you know currency. This now and cotulla numbers were small box in kind of Q3, we have for didn't underwrite where they are today. We have 14 by we have over 15 pipelines. So so with all.
All of this stuff into will impact a little bit in my course, Madison, but on the other side. Because Q2 is also a timing for us to increase our team our teacher commendations. So I think we continue our stretches syngas before because we are the kitchen company, you're going to talk about.
I'll have seems like an ownership I, we still need to pull our teacher for our people.
The first priority so we need to take good care of them. So.
So this kind of test the normal practice every year and.
We don't have specificity Lee how much coming from the New center kind of development, how much coming from the recommendations, but most of the investments on a new capacity and investments on our teachers.
Importantly for the long term goals. Thank you.
Thank you.
With that ladies and gentlemen, we have now come to the end of the conference call. Thank you for your participation you may now disconnect your line.
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