Q3 2020 GSX Techedu Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the GSX Tech and you Inc. third quarter 2020, <unk> earnings Conference call.

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Please note. This event is being recorded on November 20 of 2020 I.

I would now like to hand, the conference over to your first speaker today, let's see on each and I are senior manager of yes. Thanks.

Thank you. Please go ahead.

Thank you operator, Hello, everyone and thank you for the long enough today, he asked and earnings and.

He was distributed earlier today and is available on the Companys I all the outside of the.

With me today on these the lobby and GE and exiled.

On the chairman and Chief Executive Officer and.

The Shannon Shannon Chief Financial Officer.

And we'll give the general overview, and then channel with the supposed the financial flow.

During the prepared remarks lobby and the Shannon.

Okay, and so what question.

Before we begin the like 20, my view that the scope of call contain forward looking statement and ask you find any yet well they securities Litigation Reform Act of Mighty Mighty Cocky.

Well were looking statements are based upon the managements current expectations and current market and operating conditions and.

And the like the one that involve known or unknown with on sort of the is and I don't exactly.

All of which are difficult to predict and many of the lake hoping you all of the confidence and tool and and they called the copy of actual results performance or achievements to differ materially.

Further information regarding these the a lot of good on Thursday, the work out through the included in the Companys filings with the out [laughter]. The comedies does not undertake any obligation to update any forward looking statement, except as required under applicable law of.

Oh The reminder, the call from the record it.

The addition of live and archived on that topic. The conference call will be available on T.S. and Investor Relations website at <unk> and <unk> Dot investor will focus on.

You are also welcome [laughter] rights to all the all the way you locked and you better through the same website.

And it's now my pleasure of including sorry, Laurie. Please go ahead.

Thank you Sandy even in the morning, and we all thank you for drawing on extra day on these early on the call we have a true but another dropbox pulled her with net revenue in the future of all time high on the one part of the non piece and the media, which is 3.5 times and habits of.

The macleod or not the [laughter].

I'm also pleased to report that our skilled and structure has grown and healthier ways of net revenue of the from our primary school of became the Rockies to treat the with her the of the outside of your resolve the speed of our continuous flow of.

Her body and the high quality of service days, so still depends on the parents.

Our interest is Penn Treaty, and with frontline employees, and our and we bring on efforts to improve and the operational efficiencies and the organizational capabilities.

And the for your from increasingly fierce competition and the I regard and consumer acquisition costs.

We remain committed the true pursuing and in fact paper try rig every basin through high I try and sticky.

They can true rescind the sales on the back of you'll spend deal and the true executing on the affected growth strategy based on customer lifetime value the.

The summer we have achieved the the highest alberici approach and say it again the sector and the we believe we will continue to be the so oh, well ERP say at the and Twentytwenty and I've been time, we continue to your bad debt acre considering our true true that crop of design and current kind of get better some of it on.

Now the innovation.

The the overall compensation for our children and the.

Track the more toward a pair of card.

Well if the dog.

The put pressure on our growth property and the net income over the short term we view all of the.

The it's Monday, and and I'm proud of the met the many are non computer.

Right and Peter is on labor and save and kind of the in their day of industry and then the the and companies that have too many age and the survey you did not mirror of Im calling each day.

I got from and organizational capability of the will be the key driver for clear to the cheap long term is on site and to be the alternate winner and.

In terms of the business model, we told folks.

Folks on the online live and archive format in the past and the wheel container the books on AIDS in the field trials.

We recently and degree trade our country on fitness and all the called the Cook on brand.

All of the code on 40, combined and the Scream Alliance already and structures on the children of the team of survey of the standard products on the pick on an oddity on.

The goal is to de lever the quality of life you aren't crowd the.

Good and you its appearance on the small class Underfeeding and and I personally would resolve the one on one two or three and we'd be able to do the integration further demonstrates our dedication to our focused the strategy opens on Neal travel tour of operation, though if we didn't the I've been on the pay their positions.

Okay, but for the non market opportunity at the high do you already on crime and age of Oh fast consolidation and for the online education and the trigger.

So part of the integration has exceeded our expectations and the cloud the completion right and the conversion rates are showing significant improvement.

Our country share Brenda we will focus on providing post secondary education and training copied surprised to see UTI graduates. The go at the makes the exam and the battery of professional and quite a big fish and exactly.

Some of you must heard me wonder what are the way it seems about right indirects and coffee.

From a water we've witnessed the adoption of artificial intelligence and online education and view on it and they bought the word of the stage.

The application of a on.

And the pre school market and of the Seanergy and a prepaid grede 18 of by arbitrary and the pre Craig on the crew trailed the market our steel in need of further observation on the discussion.

Of course wait and see the that's the meant the of the technology the weekend stalled, but some of that and the basic and the the students through the payments on a on high than the Bay area of the requirements on the crop and personalize the the matter will be bad or match, the five and already.

Yes, and you may see we have being constantly making efforts to increase already and Batman you research and the technology ways of the third quarter of the R&D is the Ben say, it's totally on the RMB 200 the medium.

However, no matter how hard on the already on the <unk> the better frankly speaking I believe and the Oh. The me the K. So January and they are in the truck stop the clients on the truly bringing the meaningful revenue resolved with the students and to always try to win over their hearts and price on the brand warm and two hours.

That's true economic the their interest and younger and then to have the drama called to be the grid or any other hobbies and the shape of their personality of the through our since they are and that the June grades of conservative.

Regardless of out of the intense competition and today, we still see perhaps the potential in the online education and the three and our 40 pretty pair of the took explore all probably the two of the based on of the start of the Palm Beach and did the we have viewed over the past two years. We are looking for what it is what kind of read from more value for our shareholders.

On the sharing of the future of online education, and whether you now I will pass the call all of her to our C of O Shannon the walk you through on our financial and operational details.

Thanks, Larry and thank you everyone for joining the call now I will walk you through our operating and the financial results and of course, a lot of guidance for the next quarter.

Please be reminded that all the financial data by the and motion they'll be and R&D termed a.

The life otherwise noted.

So the so called or all the 2020, we continued to the the worst all these results.

Net revenues increased the by 253% year over year to 1907th and Midland.

For the first the time of a revenue range just the shy of 2 billion you won't older which neared how much we generated from the entire year last year.

Lisa helps us Duncan I love the top players in the on line Lifelock class the industry.

Let's just a word the eighth consecutive quarter weighted yeah, Oh, yeah, and that bomb and your growth of more than 200 and the 2%.

Net revenue was from our online K 12 business school by 200, and if they say per cent, yeah, well here.

<unk> is the 11th consecutive quarter that we held the about 250%.

Maybe a quarter of 2000 and 100 million growth of bidding.

The by 100, and so the 7% year on year.

The girls and gossiping, what's the mainly due to our solid recruitment of new student Besides the top competition.

Because of the pandemic, both college and high School and Trust exams were delayed and the timing of the summer holidays and different probably say the on the city's virage.

As a result, the summer vacations and 2021 of the shoulder the dying in prior years.

Which also affected us I read the using one term off of a curriculum.

Even though the situation of was quite challenging we were able to attract a satisfactory number of new paid of course you on that.

At present, we have stayed on rock and the operation centers and 15 cities outside Beijing.

We increased our recruitment and training of high quality tutors to meet Egovernment the mine during the summer vacation.

We are committed to count the labor pool lighting brighter and more cost the lives learning experience for parents and students.

Yeah on the so called her baby. According to the pay of course and you go month on 1200, and the 60000, which was up by 100, and instead of 4% and yeah all year.

The number of stood and Geadelmann yeah, both drag on the price of course, the space and the promotion of course. It continues to set new records, which has that two of huge and quaking our brand awareness.

The increase in the first time users one of the Premier League volume by I went back to the investment sales on the marketing efforts.

No, let's break down our operations and financial assets by business line.

Net revenues from our K 12 business courses increased by 200, and and they say per cent, yeah, well year to 1800, and let them and.

And accounted for 89% of net revenue.

We expect the propulsion of paid how revenue will continue to each of them as our main source of revenue.

Going forward, Okay trial related to some of it will be sold they provided by go to of course how brand.

We've seen the paid total business I work from my school Sakhalin continues to grow out of high speed, which made it the largest the contributor in terms of net revenue.

Leased achievement lot of days, our strategy of prioritizing the primary school market and the demonstrates the you factor and the consistent execution of our corporate strategy.

Gross billings contributed by K 12 of course, the yellow rose by 141% year over year to 1800 made them.

Pay and of course, and you go month for our K 12 of courses increased the by 100 and what I'm on for Dan Yeah, one year to 1100, and say T cells and.

The average selling price per K 12 pay of course needleman was around 1600 kind of.

Part ways around 1500 in the last quarter and around 1600 interest and pulled her last year.

The call the old called her inquiries and the I reading.

Setting price per key tall paid course, and Goldman what's mainly due to seasonal factors.

The yeah, Oh, yeah, U.S.P. the main variable, which is what we promised at the beginning of the year because we wanted to calculate a wide of for access to high quality education and resources across the country.

We have always tried to hire the best instructors and the back to her in the industry. So that I listed and they see the highest the quota he instruction.

Oh, the wage and yeoman's per class Yos true.

2800, compared with 2000 in the second quarter of 2020, and the 1400 interest in pure rate on the 2019th.

The thing and I think on a year over year and of course, the old hold her and pulmonary demonstrates the rapid inquiries of I would need on the inside you in the summer vacation.

Through all of this summer I was good and structure of high school and stance sustainable.

Well the student of non Kuwait graduate grade significantly and quite well and they sold its foundation the full out of the future retention.

Net revenue was from I will follow me and long wage professional and the interest the courses offered and the hour interest yet, Brian well up by 125% year over year to 200, many of them and.

On the call it four time per sound of and that Robin news.

South beneath the contributed the by foreign language professional on the interest of courses were up by 100, and instead of 5%, yeah, well yet choose 300 amid the.

Pet CT and Goldman for our flooring along wage professional on the interest of course, it increases the by 79% year over year to 1000 and tens of thousands.

Gross profit and margin inquiries the by around 200, and the crude basis point year over year to 74%.

Non-GAAP gross profit and margin, which excludes share based compensation inquiries the by around 200, and the 60 basis point year over year to 75%.

Selling expenses increased the to 2000 and the 100 met and ended the quarter of 22 on day one.

The thing that expenses for traffic acquisition was approximately 1.5 billion.

Expenses for branding activities were approximately six to 8 million.

On the remaining expenses Cobre labor server and that is that crop.

There was a certain type of mismatch between our golf billings on the traffic acquisition expense due to our from loaded the traffic acquisition.

And just sort of quarter, they strategically from loaded in Boston and I'll, probably about 200 million traffic acquisition.

For the promotion of course, its requirement for the fourth quarter, which generated and no cost bidding and keep the so called her.

This funding of side body of the wrong up 200 laid out that the front loaded in the second quarter, it's nice and the hour per well, earning call resolve it and bad change and the actual traffic acquisition costs all of this quarter.

Excluding the cost of ground promotions on return on investment for pure of first time use the acquisition was around one point Blake.

From a virus channel feedback Oh ROI was still ahead of the industry.

We have greatly improved our students GAAP true Alessandro destinations.

Firstly, it you know month from lower tier cities inquiries, the 257% this quarter.

On the wing, our penetration into lower tier cities from improved.

The other two really successfully the children of our costs and acquisition strategy in those regions.

Oh, the tier cities proposed a lot I explored it market and all the higher go self pay the Eagle month, you lowered your Ti pool our potential.

Second the lake backing the spring semester of propulsion off the boats and you go men's world from short term all graduate great courses sort of.

Oh, the summer leasing and ethically increased the size of the non graduate students aka the tenable students. This structure will benefit our theater of Retentions and quickly help pro pile on whats the up sequential Oh all girls.

Going forward, we will take a little on page of our strength and operational efficiency and the continued tween bassi and traffic acquisition.

Research and development expenses increased the by 286% year over year to 200 the them.

This rise was primarily due to like inquiries in the number off the comp and professionals and the technology, the Basel personnel as well as the inquiries in conversations force that stuff.

I will cost and you last month on research and development is important for our ability to Florida drive operational efficiency in the future.

General and administrative expenses increased the true to hang on let them from 24 million and the so called her up 2019.

The increase in general and administrative expenses was mainly due to the inquiries in the number of general and administrative personnel.

And the increase in compensation paid to general and other ministers.

The trade and stuff and the increasing fees for the ongoing investigation.

Interest income and realized the gains from your last month and is called her from cash cash equivalents short term and long term investments and increased by 254% to age and met him from fellow milling and the so called on 2019 net.

The inquiries well the primarily due to a unique ways of cash cash equivalents and short term golf management you last month.

Well on the realization of looking down the road ahead of the from short term and long term wealth management and last month during the quarter.

As of September at a certain price 2020, we have the cash and the cash equivalents short term investments and long term investments on the 2100 moving on aggregate.

On paired with a total of 2000 700 million of cash on cash equivalents short from your last month and long term. The last month adds up December so the first the 2019.

Net operating cash outflow for the so called are up 2020 was 608, the many of them.

The outflow was primarily due to higher marketing expenses paid to improve our market share and brand awareness and.

The increase in conversation for fast growing and stuff and the inquiries surf and.

The expenses to support our rapid growth of students and daily operation I could say the taste.

Well the more they stop the of 24 made on the was paid for our jungle, probably pushes and of all they also had not and 9 million capital expenditures during the period.

With that I will now provide our business outlook.

Our net revenues from for the fourth quarter are projected to be between 2076 met them and.

2160, and many of them, representing and increased by 100, and the 22% to 100 and the 26% on a year on year basis.

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

Operator, [laughter] right now okay, two quick questions. Thanks.

And.

Thank you we will now begin the question and answer session to of.

Yes. Good question you May Press Star then one on your Touchtone phone. If you are using the speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

At this time, we will talk momentarily to assemble thereafter.

The first question today comes from Gregory Zhao of Barclays. Please go ahead.

Oh, Hi channel are shooting the sharper on Sundays. Thanks for taking my question is.

So my question is you're bound to the market and the competitive landscape quite sure. We know teach from private private companies or the reached the lot of money. The posh the six months and a lot of the rest of your top instead of the marketing and the you'd acquisition.

Sure just the wanting to understand all right, yes, that's the plan and the strategy in.

In response to the competition and the how long do you think these kind of can be kisha, we lost and also how shall we think about the market competition of the impact Youre astute on your own bench in September quarter, and we saw the sequential trend over the year will Miss and it's a bit different from the past the years. Thank you.

I sit here.

Huh.

Sorry, the your and therefore, the already got the French only the up into the can do much of what we should all told the doctor forgotten true.

Our on their kinda and airports you or did you go to already be our share doctors are five and I want to be on why you don't you're sure actually got out and if I can tell and so not the and I don't know and block and what it on.

Thank you Wes and when people talk about online education always say the or the top four of the company and and we have seen daddy in across the several miles a day.

The big changes and the market conditions and there are some kind of tell me threes and we're one of the from.

Now women are and what do the shutdown of food you know that Jimmy and or do you think you do a woman actually the very tangible and could that be the would that kind of problem. There sort of war I you know share a couple of the government. So the idea of you know I wouldn't do that artificial Josh.

And I'm going to beat on once again, our total she mentioned.

I got you can do the you got your pet I get these like you do a sheet of for you or try and do it Oh Gee and so you know one of DAC and you actually on the simple I wanted the I'm I wanted the ideas I sure don't feel on the Polish on on Russia can be on she and her she adds and got the be El Dorado. That's true and then shelf you are kind of research on that.

And then and what the if I'm on the food your channel a nice of you all the and sit back and get the food Yada I think the other piece and you do the I guess I'm pretty on I Kinda, we talk on the that's for sure.

A portion of the what's on all of the children and I Wonder if they go on in the June quarter on the owner and share during the shutdown on our strategic all day.

On so it's a little kind of market data and the third quarter on just the cat online like large Clos on.

And in terms of revenue, we actually one of the top I'm on the help number of <unk>, how core players and.

And we know that some of it is all of the critical moment on new enrollment recruitment of.

Across the whole year. So we think the tipping point and I went back and then you.

During the summer all the sales and marketing spending includes much more compared to the same period last year, but we have two of cash pay attention to the market changes on the move some third party data we have heard that there are some players there are some ourselves and marketing study.

The 4.5 ceiling on B.

And in terms of ROI is the only probable we are still the highest.

Okay, and you're more channel or shut down that you of notion volume yeah, good dogs and into the channel.

On the job do the RDR Union, and ER and building and I'm sure somebody the Dol Judaism.

Once you're on to the Kingdom.

You never see the audience Arnie and the shuffle on Julie <unk> dollar you've got to go and get by a woman day woman. The you got kind of yeah sure don't share Archie you all yeah.

And the cool to Joey and what it does show and.

And you all your woman the naval docs or the all dogs are true the guys shot and what are your Oh went against you on what's true.

Absolutely and one of them told me Yeah I sure do you take all of them and no one else. The argue we average from not just whats the big and we don't wait aftershocks of the rather than from March as you on.

According to the current market conditions and the the phone the use of <unk>, where we live and he has plenty of money. One is a competition and do have gone up here on.

On <unk>, we believe that the [laughter] competition, my leaks and starting point [laughter] body of 2022.

So I was kind of and have as always focusing on all the tough flow focusing on the efficiency on the focusing on the continuous improvement of intrinsic nationally.

We believe that of course, we.

And Tom the talk me was the highest operating decisions and the.

Hi, the though well all of the Florida fever and [laughter].

Oh.

Thanks, Greg and and adding to Larry's point in the short term and all the fierce competition seems to bring pressure to accompany the hall I worry for a look at the long term the units your position of they'll become more clear after the combination and the company was the low operational efficiency of wheel of because I read their cash Bernie.

The and the only the companies with the higher all of the efficiency will become the final on or so we think of the rules has and I what changed when when the book had each of the the sector and you know a T.M.T. business. So we've got a lot of questions. The about like how to evaluate each company has the.

Hi, it's the operating efficiency so from our perspective, they think they're on a couple of expects the wake and testify. So first off on actual resolved is always the most of the spread from away I too look had a company's LP efficiency of these 20 of 17, we have found a basically the list the money.

And again no satellite five girls speed of cost the sector and also although we have a single call her off of that law, but if we look kind of call. It the whole year, we still have the confidence we still have the confidence that we have a very competitive operating margin and if we're not of the.

The only problem will be well the very few companies that they still have a well still probably highly probable to highly positive operating cash flow. If the look how do you know the whole year perspective and.

And the second of age would testify and Companys organizational people by the taste I see the the team and the organization. So from our organization point of view, we have always been feeling on the solidifying and exceptional on the payable of senior management team.

On the middle level management team Liz.

This team is the diversified yellow and the changing the embracing team on the has a very high in a sense off and on the day of our corporate culture. We all know what U.S. Act has been through a lot of things this year and on the pad that like and also all the work attack of the dialogue share Saturday and that will be.

On the dock place, but no our call management team has left the company voluntarily except for the house, the reason or or turned back from families and now Tonight and non bunch of our a bunch of other companies in the in the industry. So one of the company girls really fast the available and.

And Oh, the group of people really like the company and leading to contribute their allergy and their time to the.

The two the she true the whole quite a total control of the whole quit for the company, we will be the most of the valuable assets for us and.

And so we have a we have of course is a lot of the time dot all the the IDE all the occupation and the has already like long so the Chen and they need to do all that or we need to be glued on each of the value, which and a couple of times the.

The more of the more the lives of our skills on the more thinking of it kind of the realized the importance of the sports option for instance, some companies may be particularly good AD serving and students you know a long term and normal price of course, it but I'll leave the lake and Nielsen and Neil student recruitment.

Well other companies may have of on page on the traffic acquisition or of traffic tool, but that's typical ties to serve their students a in a long time of course it.

So for us the way the menfolk, we remain focused on improving our on organizational capabilities and we strive for a 3% what happened to the bilateral each link of the loan volume trends show that our life. She toothpaste the of commentator and and what the knee when they are doing the radical thing the reason.

The all feature on favorable to us so we don't how to extensively fixed on the actually gets occasions and the in terms of a lot of companies both from public sector and private sector.

Oh do some sizing activities. So from [laughter], let's look ahead of our cash balance from of historical part of the deal. So here about cash balance. It is the current lingers on a combination of I'll pass it on cash equivalents short from your last month on long told me last month a year.

On this call so our cash balance by the end of 2018.

Oh it was the only around 200 and the statistics many of the M and by that time, they do part of the news that other private companies has right tens of millions on the U.S. the dollars, Oh, and even five hundreds and hundreds mailing and U.S. The dollar that's basically if they take 10 times 20 times higher than that.

But when times, Tom two of the and the Sunday Night, and we have the real our cash balance to 2.7 billion on RMBS and always bad full year operating cash flow of contributed 1.7 billion and the it's 29 in Q4 so.

The single called her contributed around the 700 and <unk> operating cash flow. So from this point of view I will cash accumulation the has been abandoned and.

And the second is the look at the operating cash flow from at least here for the first nine months.

Oh, we are you know position and also a cash operating cash on net outflow for around the RMB suite of so hastily mainly on yeah, yeah. The turns.

And that includes our payment to our independent reveal if we they move of the payment to the lawyers and the accountants and from these pool. Because this is not able to expenses, we still have and positive operating cash flow of for the first nine month Oh the satisfactorily.

And Tas confrontation and the but Q4 calming, where you're embracing of the biggest the retention see the and the into a whole year and the base factories. The billions level all cash all from retention activity and list. The retention. This you go much contributed by retention basically has no.

Oh, you bought them on your sales and marketing I could David Hayes. So feel at this point they hold positive view on our operating cash position of cost the whole year.

And our cash balance the stool reduce and I'll just be as compared to the but any of the year. That's mainly because of let me throw really fast way petty sell payments to our total probably day purchase and also we are opening about 15, Oh operating center and the other cities then.

I need some day sometime and all decorations on the grounds holds and the first place and also the exact cute on our share repurchase plan in the second quarter sales, but in terms of our operating cash flow was still hold strong confidence that that reflects our organizational capability and I like the adjusted.

Cash and they believe all you investors or the my pets. They always like the company has the highest ALP and eat agency. So so lot of Drysdale question. Thanks Bye.

Okay. Thank you very much.

The next question comes from Mark Lee of Citi. Please go ahead.

Oh, Hi management and thank you Paul could you my question.

The also fall due from photos on gross margin I think we have five of through the full points out the cards, which seems to be a quarter on quarter.

So seems to be up the salt tough compared to Q2 and the lots of your true Oh, I think it's P. Oh and the scale also on doing well. So I mean I know what is the reason for the gross margin and also what we think of all the trend going forward. Thank you.

Okay. Thanks, Mark So, yes, I work off market and let's call it or if I look at the GAAP Niagara and on a year over year basis, the as good and.

The increasing trend about and lastly, slightly the quest the I'll call the or call her trends so that the the reason a piece of basically because of the seasonality. So when they become oh like when I worked in a base become a very large so the seasonality of they'll show as a <unk>.

Distinction so you've seen the so called or a way provided a large number of promotional costs is a ways limit had the contribution to revenue. However in the so called her it's still the incurred day to day costs that type of infrastructure that works the fixed labor costs.

And also like to provide a better learning experience and the service to our students, especially the sort of promotional classes. The one way we could have chewed her up from the for about a month to provide a training two of them and have the plot for for full of follow on all the true.

Turning to the students so that all callers our salary paid tutors increased the olive base and also in the summer because I just mentioned the like like the cost of the Oh I'm trying to think exam for both a colleague and the high school was the lead the light.

And that caused some concentration on all well they send a learning what children to students and so that you can see the money on what your list cost of a proposed and off the Robin yoga and Quesalupa of the as well. So that's the reason why they see our golf knock on has the total all of called her decline but.

I do see the golf knocking on Bell got rid of power on the Q on Q4. The calls in Q4, that's the flow season that they pull out of course, the to our students and also and.

Like the the learning will tell the distribution and they'll be mall, you and thanks.

Okay. Thank you.

The next question comes from the Mackie's from Oh, Hi, Tom International. Please go ahead [noise].

[noise] Oh, thank you for taking my question.

I notice on there.

A corner on quantifying the patron from <unk>.

And Roman.

You're not going on and that we have to increase and shiny and.

On marketing afterward, [laughter] genius and one that is the house the word <unk> Rachel or is it because these student and.

The student base, the west ranked <unk> in this quarter.

Oh, Thanks, Maggie share.

Well. This is also due to the seasonality so and you go home and on golf bidding for K 12 business actually shows the thing of the seasonality typically most of the retentions happening in the second quarter and the full of called her well most of the new student recruitment of high paying in the first the and getting the so called her.

So doing the so called her when majority of the pet Ito month, I first time users.

Oh wait at least on the site setting and marketing expenses to attract them so less compared to the second on called her when most of the pad and you don't that's come from the attention and do not of course, the too much or too many extra dollars I sat on the so called her typical day shows they put the humans, but rising and selling and marketing.

Senses on same try on the from the second quarter goes with the force called her so when they come back of the most the pet elements will come from all the attention and easily compared of puzzle of called her auctions is and the only Luke had the first time user adult putting it on my skill.

If we compare our Q2 two interest rate actually.

So called the old called her growth Oh go straight and was again the range of between 55% and 260%. So that's actually and I pull to Apple comparison, and they do recall that this try and actually happened the in our house and Q1 and 21 day, if they can all read.

I called that in the lack of calls already and 29 <unk> <unk> of 1.1 male and off the old and that's a good portion that actually came from the retention when the time comes to the first the poultry and Twentytwenty Lacey Oh like the equation in the of pay course needle and that's also because of the seasonality.

And I shouldn't so going forward mindful of see that in the fourth quarter. The pay of course, the old man will will increase the drugs Ah I think the they become the that's probably a year and of course, the pool and heard and twenties on day, one that will show up on decreased as well that's all the calls if they think the.

About if we have the really large all student base I'd say a lot of men and ultimately on the then students. They do on retention of activities and the same time in the single called her they will contribute to a world the hundred men and getting on mens and then they only do Neil requirements that needs a lot I first to convenience.

Sales and one by one so that's usually and going forward the let's see a pull the old called her becuase on the pet you go man and gossiping and perspective for the first quarter and the so called her and the pets eat all the number and the golf plantings will be higher in the second quarter and the fourth quarter like all of the college.

GAAP seasonality thanks.

Thank you.

[laughter].

The next question comes from Felix flu of you'd be and please go ahead.

Hi, Good evening management. Thank you very much for taking my question I I hear I very much agree and what you mentioned during the or anywhere and beat the you will focus on the hope he'd be based approach toward the selling and marketing. So could you sort of the briefly elaborate on that and and.

Why is the declining so I read or are you and working on the strategy to potentially improving the ROI of compare with the the the previous periods of thank you.

The Mako and full primary school, it's still the largest of leaving to travel sector. So this is the market and we need to put.

Well the lot of energy and the bass the strategy is always to serve parents and students with their best of satisfaction. So so and that that's how they can have the on stay on the platform, Oh, Oh, oh lived the longer or or or even on a lot.

Longer so they can improve the lifetime value of family of students and the only on this way they may achieve the strategic advancement over the long term a specific lately have you had the hour a price without going on from a feel a us back from the floor the teaching quality they continue to to.

The focus on record he asked about the I were on teaching talent. So in the past of called her on and listen to like we have the real up quite of few top tier teachers, who loved by parents and hold and strong credibility has joined us as new tractors and but the Lehigh.

I've also comprehensively upgraded our primary school critical the saprolite of both learning couple of other the oriented and the result, driven close and system to students and parents and.

The second the from the surface and wave paid great attention to the Twod herve recruiting to serve the price war sector and they provide a of training and Saddam bag education psychology, tween, but yeah able then to buy her survive on students and to know the young generation of parents love of well.

And third of from our Internet of product they continuously upgrade our live streaming and technology to make sure. It's the most learning experience and.

And also we have the top notch visual design team to improve the teacher matures in all of their to me on the intact Shakespeare and so based on all that improvements the way my away ceasing and I think I improvement on our primary schools, the retention rate or even though you end up in the just the <unk>.

<unk> cash and carry and the in the fall, but I do see like a.

On the retention rate of from our primary school sector and inquiries, but those are all our year over year basis on the call. The old total bases and and is leading all sectors. So so like maybe you you'll you'll you'll net oh no that in the past like the retention rate the from our primary school.

Dr was the Olivia lowered and high school and Middle School, the and then right now it's already become the top on the out of a company so that I'll share with our strategy all of our primary school Sac.

When primary schools that hate to become a major revenue contributor of that I do see ROI on its a little bit lower than on the path of quota share, but I I. Just the mentioned so are the primary school students has the potential of lot race. The LTV. So what they need to do a taste of my mouth.

Thank you. Thank you very much.

The next question comes from T.S. Kim of JP Morgan. Please go ahead.

[laughter].

Hi, good evening, I need to try and Haitian and thanks, a lot of for taking my question I have two first of all the just a follow up on the yard just Ah audio question and your point the I confirm and check if we can still generate adjusted unit economics from the new deal on your suit on will be excluding the became the.

And existing skews on E.

And if so what's the lifetime of the length of the student on a video soon and data from junk. That's my first question and if possible who follow up you know how the Doug unit economics change it.

You know the student Oh are you during summer and goes got the deal all of your no Cuba and changes in the custom average of course, that's the first question.

My second question and you find me is regarding the high level and tried to get perhaps for the Mr. true.

Would you consider developing ways to grow and the culture organic traffic and the medium per se through a walk out the home work, hoping that like some of our peers in the Doctor group work from kind of platform as it did in the I'm just trying to prepare for a you know on likely bear.

The case scenario, where third party channel becomes weighted tweaks banks of 3 billion gates. So well have the backup plan of where again would you consider that all of the meeting and by the way I also look to sell beautiful quality yard and so when like business recently and if possible could you elaborate a bit as to why.

The question, though that's it from me and thank you very much.

That makes the came on so your first question is about I think the that's a really good question because lot of.

The something that is my laid this GAAP the units actor so that letter and the new students can generate a positive you eat because Ah you make at the of the the news from a lot of companies bad of thing maybe the newest it is the retention rate is slightly lower than the fishing students. So that's why when they think about.

And how to the 10 and you'll see it as you on the platform for a longer time. So that's a one thing way day, Larry on the broadly in the summer so in the summer of the they witnessed the of quite a few accompanies Lee.

They just the gave up the the commerce and that's true because as I just mentioned it earlier. This summer vacation is a lot of sort of compared to prior years and actually the pace up the the summer quake hold on it a little bit less of the cost of different provinces on some of the matters at the.

From the hot and so.

So then they don't see a lot of Oh, I like quite a feel lot of players. They just gave out the summer with the Master then directly out of and per students for the fall semester, but from our theorists on the part of a view of the long sort of sit and stay with us on the higher the retentions eight days. So so when they think about the the.

The the question we are taking the class we apply and the class we'll more so so that's why wait you and say the on recruiting students of fall the summer and have the Tuesday laid the ask to complete at both the sandbox and master and the full semester, because I sort of look had the whole quake.

And that's more of just systematic all of the students that goes through the summer quake and they can get about and resolve in the full you've done the nation and.

And all they do is the this working out of where they are the they do the false and lots of retention that the students. They do have a higher level all the day that his statement that so that's why we do see like our strategy and the summer actually works.

So they are second question the age or.

About the girl organic traffic like the homework and so.

So [laughter] questions or whatever you got your bonds on Friday of this what on T.V. The trouble hearing the from got the don't go on the aren't the yellow school or do you go and not sure a quote from that Youre sure on converted and we on the horse. You are are you done till you got from John could come back on the ARPU.

And I do wish or a mall and and you do not sure yeah, you'd gotten so the a share some doctors on could on job growth.

Hi, the are you on shown and meters on one, though I just want to kind of all the.

On the <unk>.

And how much of the fact that she legally also one of the open the door Giacco. The opening of the game and showed us the whole I'll tell you don't share out. She was the case right sure all of you will try and Todd on.

The earn out the it sounds if you don't go on and you also on that you were sure are true to read our true if you do not the French redeemed or some of the US where you could go on for not doing that the way that you're trying to kind of stupid and not just the mi and Oh, so you're by the family also on I can do my made on a number of and go on not you would feel the a GAAP comes on top of the which on the whole or not.

So I want to add a the out of our <unk>. When we talk about the LTV do on screen and Gord and elements first point out the back when the phone calls.

On which means the.

The hope the we send to win one topic to a regular price the course enrollment of the.

The second factor is gross profit margin and the there's nothing really closely to of companies and average selling prices and the operating efficiencies and well and that is what many companies. They care about one factor that if they do not also pay attention to the classes.

Sales and operating patients and no tecogen Oh, he will be for the third.

The factors and the patients and we tied to the Red is so important it's the size life or death, and and we play on real calculate the I'd be quite easily.

And it was only if we include all the three elements that will come on human lab, and we de Sac, we will bring the higher LTV and bring the players the long term competitive on because.

Brian Yeah, organic the private which on average <unk> the guy who are at least the Dutch and one of the trends you are.

Non right here on.

Non-GAAP or you think about your search I don't confuse Oh the show to school. She grew year on you got from flow.

That could be on that your door Ah ha you all of them and.

From shoot me on the phone true Archie of cool cool or the shoulder to the gold, which on <unk>, the two which is.

Yeah. The ones you of she figures harder towards the put you are doing that discovery and hockey them towards the dog and which on it on a.

So year I'll, let me know guy on the other one top almir, that's what is the the haswell oxygen.

After the organic traffic I think and money, where you're doing similar on a quotation and for what the product will look like if the pass on and weak day in a specific day, what Matt said the company you win.

And the back half of them at the customer traffic and the this methodology has to match the.

On the stages of their development has to match. The specific features of the organization and all of them we have to match the operating efficiency.

We are doing well and on and the all the serving.

Yeah.

Thank you somewhere the insights and not all the answers.

Thanks.

So and you have the next question.

Oh, sorry, I'm sorry go ahead.

And your second question was about the the hotel.

Potential acquisition, you just mentioned like you saw the news that we kind of like the takeover two of either Oh like schools.

That's the question.

But the bread on parts you could use article that said GSX. That's all part of yard we like our about who feed on the other listed company a couple of weeks symbol of maybe that's the most of this information, but just wanted to clarify if that was the case and if we did and you mentioned the pushing the new.

Do you ever ticker.

The very I guess, good Mike Dahl Andre per Diem, Honourable woman and ER side of you more share of free time, you did it on a woman and you'll watch the on a go total I'm not sure doomed or you go to avoid the Oh Hi, how are you a day here of course, you dog and.

And you don't go to my and and out the door man or what you would give the probably the legal and golf.

Yes.

Okay and has similar dozens more though operation of.

Compare that.

And the we have communication.

And all of my resolve do depend on southern communications.

If we have any maybe any decision we will have probably the now are not the pushing group of drugs the I presume on shelf.

But the online school.

Thank you Sir.

Thank you Sir.

Oh thanks.

The cost like like the floor up pushing on the line like Oh like some of the whole team back and the found on the maximum team. They have a very deep experience and other paper and industry and they also have some you know they total days to like acquire and you'll see does that something we always the handle like live on learn from.

But like I said and also the old and to all all possible put call provisions on communications to all kinds of pockets that as of now they don't really highly of clear plan about oh about like the the the potential of things that you'll just and I share then the EAC something up and substantially happen.

And make an announcement thanks.

[laughter].

The next question comes from T. on how of T.H. capital. Please go ahead.

Yeah, Hi, Larry I said, the and shouldn't be a total question is pretty basic and why is share of for the Youre adamantly need the school in high school, what is the dome and compensation as well as the revenue composition.

And that's number one number two what dish ever just size of the class a you know you choose like that's the true question. Thank you.

And.

Oh, Thanks [laughter]. Thanks.

So well first question because I just mentioned the primary school and stuff I guess the revenue contributed this quarter and because the asking and primary school is all of the lower than a junior high and high school like basically means the heat all nice contributor and even more compared to Oh High school and the Middle High School and you say kind of.

Question about the average size of class so in the quarter, our average size of the <unk>.

And you got per class the has range up to.

2800.

How about the gradual question. Thanks.

Yes, and the thank you.

The next question comes from all of shy of Credit Suisse. Please go ahead.

Hi, Thank you and maybe the boat taking my questions.

So a lot of who turned on content on the hill.

Oh, that's gotten some of the old goods religiously and then on the wouldn't <unk> I believe the number of sounds funny things on each.

So she leaves it sounds like you've got there is in the lead she's going to get the values of good touch on the number and 50, that's whole usual the aluminum and lead on the globally and even to juggle safe on the unless you do attention to is probably in the next year.

Most of that's helped on the you can you just the interest so a quick start moving much when it's on $2. So just talk on data shows the Joel on.

And it was on the POS and was again.

During the winter not sure Glenn.

Quite simple comes on I realize I mean could and should be a lot of tissue, but the Fortunately <unk> goal maybe on the true looming of Cohu has opened up on hold on.

It's the chips Nutri force.

The guy controlled release of the summed up on.

So on.

And I suppose question is about the organization competitors.

So I yeah. Most of the <unk> always mentioned that this will be your lean and vantage and main challenges ahead.

The love is on a deep and.

Aspects of the organization could have been the is and what the change of post your organization structure grapes and of the second question about your view on the future changes appeal pull the consensus on.

On the whole with the surface to each comes customers. The commodity is the bugs that become more and parents and we're the of call about portfolio B of the.

Oh and become more diversified and you.

Ah Ah should your legs on it looks at all and Who's your share you got the concise, yet and Oh, drawing from the 23, if you got a once you're on to lead on that and you're looking for the.

So yeah on what Oh, sorry, the woman the.

And you got Fuji and I got to create a true Uh huh.

And since you saw on <unk>, a total of one and the I may go from would you wish on Friday I can only go and called on that and he gets it and get rid of all of you all the major gentium way to it in the media are sure on actually go with simple Asha Young Street and one of the goal from for the run down and on the.

Oh, Thank you Alex So I know that Oh, yes, we are of pure online player and we are and.

And you kind of online education comfort and.

Every day done lots and lots of all the operations, our fundamental and you can read and now and.

The new every day the of the all income and and some better and then the online [laughter] Oh.

The one when I changed and those kinds of dozens of the sweet and sour and of course on at of I'm. A book of all of our countries. Yes, I can hear the of Chembio. The Sunday, Yeah, Yeah, Jimmy watch rash of cool Oswal year on what's the onto the league of sure gold the ultra on to what coupon on the.

Friends and the only do though she was on the who what our country shared and the shoot you action on what Ive countries, you're in and of course it.

So on G. I saw in the first three years that we started the company we have a struggle news on dark and that's the moment and as a result, the people of the south of he has and we have like of the sense of classes have high Sandler.

Well, we have to sell when it goes on and then.

We knew all the sell all of these through and possibly down and tolerable, Oh, hi, there and on to fill finish your the of what I Miss the coverage you dropped the leader, which on a kind of sorts of that we are sort of can you share the Obama and could be Oh gosh, we as you know lead it could be on lead part of them lead on Kobe, you wouldn't range from down on the.

On June are you of on the meet all of which all sorts of the each year are treated on the your bond that a woman does it turned on and on the old days actually on day, one and Oh from core Dalton on what you did it on like she had three of the Hoggart, Oxford you bought it I'm sorry about what it looks like your tone hard and Oh, jeez, RV and one of them.

Okay and then.

On the screen people all of this day on the South of Yeah, Doug the look various outside of absolutely and I.

I think it's amazing that all the people. We are curious yeah, yeah, yeah, all true <unk> and we always talk the solution to the battle and.

We actually have that at all of these values and to our day life and though on B. He got out and how we recruit talent, having income people and how we keep talking pole.

Knocking the and the jewelry, if and when and Bob can you share. The picture here, we will go to work on the picture you Yeah. When those will go on October.

And what Tony got him the go to cut off on Nowadays gender and you go to work on Thirtys or what the whole not always on women does and just like in terms of the me too and I.

And I hope to use word and tight time hit entirely due to the on time on.

Sure the kind of on the tremendous you show on which aren't yet on Namal on type or on your branch again all of your kind of now you got the Yaki you were kind of the lead OCC and got going showed on a bigger picture of the current high I'll go to put all non I handed I imagine.

Since the September of this year from Fisher and gotten caught home you to hit of runs happened the weighted into new bulk who put on and.

On the [laughter], you called who Cook on ground, we have a lot of the down for the of human resources.

We have upgraded our talent and technology and products.

Exactly and our and <unk> and also in our management team I believe yeah, a lean and more time, we will see GAAP, who could home was more competitive and more effective and efficient stuff.

And the amount of two a share a woman's day shut all day with Joey their cycle on what you on switching but you should Jones arches you'd want.

Oh I see the honestly I don't see door the to hold on to the with the energy and dock on to you I don't know sure on women dominant many of your your audio to the umami Chemie and actors and you will show dog off of the whole sure I wish I want to share a woman on do you wait a jolly dot our challenge and our government modem.

In addition, we mentioned and to patients the core of knowledge about not only about teaching, but also about cultivating and training. So we are always looking for work and most of the spot responsible of the high quality tutors and now.

Now we have recruited near to 15000 students and this is a guaranteed and secure our future education quality.

So the only got doesn't enjoy the so called out was the puts and when you answered states, yet on which I'm sorry, it's yeah Yaki and your other sure ours will go to somebody's on engagement and 200, and gaucher, though well don't actually mean, Russia, the fearsome and you'll come to the she'll French young kids on Josh I'm, not only on Entresto and that's what you're trying to I'm not going to you on.

Dr. You on and what you're and you're not you dot com and Yashi restaurant and food because a lot of yeah sure on beaches on Wanda, Yes, the woman bounce out there and you are not.

And when we National online education, and net a keyboard the key word and online and what the online education wants to solve is how can we improve the engagement between us and it's good and improve the interaction frequency and increase the income that's the between student.

And as.

We want to help our students to like of the believes the execution and the have more of multi efficiency of one can change the wanting to there's actually closely matches. Our buildings that we want to brings the of course is that half the quality of large cash.

And then the learning experience and the small classes and the feelings and education. The result of one on 123 and seven isn't on so we're just going on and your share of why and really attacking the finance you true, but usually on shooter module on code as usual I'll never say never me a day trashing the kinds of which on the interim ouch on attention on national ones.

George and they're trying to kind of sort of the whole osher cheap here you on and donkeys don't know me, you'll just people are you on and die on.

On the oxygen.

Lastly of out of future product mix. The court is all and we want and need the motto of customers and.

And the we all kind of point you follow up and program courses.

Whenever we do some innovative exploration, we tried to match it with our current capabilities and our organizational capabilities and thank you.

Got it and it was helpful. Thank you very much.

This concludes our question and answer session and would like to turn the conference back over to Sandy Chen for any closing remarks.

Okay. Thank you operator, and thanks to everyone on the only on a call today and you have any thought on because we don't have the news the problems that that's one of the company exactly when.

Please feel free to the what two hour news on alert on the company IR of outside and he asked that well invest the room dot com and he will be much.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.