Q3 2020 Rise Education Cayman Ltd Earnings Call

[music].

Ladies and gentlemen, thank you for such advice.

And welcome to <unk> Education third quarter 2020 earnings Conference call.

At this time all participants are present in listen only mode. There will be a presentation followed by a question and answer session at which time if you wish to ask a question you really depressing star and one on your telephone.

<unk>.

Advised that todays conference is being recorded I'd now like to have the conference over to your first speaker today Ms. Karen. Thank you. Please go ahead.

[noise]. Thank you operator, Hello, everyone and compromise education.

2020 earnings conference call today.

You will hear from its Meanwhile, chairwoman and CEO, Adam It's just don't do CFO baseball at goal, where recent business update.

Patients in the company's long term strategy visibility will go over the financial results for the quarter, both will be available to take your questions either QNX session that follows.

Before.

Before we proceed I would like to remind you that today's discussion may contain certain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 90, 95, Big School Kids see men and subject to risks and uncertainties that may cause actual results to differ from an.

He really from our current expectations.

[laughter] corn.

Awesome and he really.

Differ from those in the forward looking statements. Please refer to our form 20-F.

The FCC April 17, 2020, we do not assume any up.

Occasion to update any forward looking statements.

As required under applicable law.

Throughout today's call me, well and that means we will be referring to the earnings presentation does be uploaded to our IR website and this appointment to today's call now I'd like to turn the call over to me.

Beef alone. Please go ahead.

Thank you Karen Hello, everyone. Thank you for joining our earnings call today, despite the talking burn bunch caused by the Cobi Nike and that mix in the first nine months of 2020, we have faced dollar challenges head on with stride and we're very pleased with the.

Companies accelerated to recover in the third quarter overall at some stage our operations have generally return back to pre pandemic norm, including all right. So on learning centers re opening by the end of September we.

We have received very positive feedback.

Some parents, who are keen for their children to region returned to regular costumes I'm still not offline classes were allowed to resume in cities nationwide.

Oh financial and operational performance has been encouraging results with quarterly revenue nearly doubling from the prior quarter.

Disciplined cost management, and a world class marketing strategy put expenses well under control and help the company profitable in the third quarter fueled by strong growth momentum.

I will begin my remarks from like three.

On Cobi Nike in <unk> and.

No industry RV Twentytwenty, we put the intermodal cars, which allowed us to navigate the business to unprecedented risks and uncertainties.

To turn tough times into an opportunity for change the pandemic joba to lump all we're all like it but then you teach in a short period of time.

Laying a solid foundation to transition our core business into the online emerge offline Oh I'm old model.

Let's move onto our financial and operational highlights for the third quarter of light for.

Revenue was RMB 320 meeting in the third quarter up 94% from the point.

Prior quarter, adjusted EBITDA and net income attributable to right both returned to positive territory.

Achieving RMB 58 meeting and RMB 28 million respectively.

Well done on their own new students you vote for riders regular courses reached 8300.

Andrew 28 in the third quarter more than doubled the second quarter's number.

I'm, sorry, I thought the until September we directly operated my deep learning centers nationwide compared with 88 in June 22 on heat despite adverse times all franchisee partners opened another new.

Knife centers in the third quarter, bringing the total number of franchise. The learning centers to 406 at the end of September compared with 397 at the end of June 20 Funky.

[noise] here I want to point out that.

The number of students in cost.

Slightly decreased in the third quarter due to a number of factors.

First there were two to three months is doing the pandemic when the number of music students in road declined sharply.

And when our online and offline courses resumed the natural lots of students, including those who chose not to renew.

And those who claimed degree funds rose substantially over a very short period of time, resulting in the outflow of students outpacing the inflow secondly, Oh I learning has certain fundamental disadvantages compared to offline classroom teaching issues, especially tool for young younger age students.

Who are used to classroom teaching and physical interaction with teachers and their peers, which also resulted in the loss of some existing students.

Given that the basing answer doctoral only resumed offline courses from September we may continue to see a decline in renewal rate well into the fourth quarter.

Certainly the number of our current teaching and non teaching stuff were not sufficient to keep up that demand as we focus more resources on accelerating the enrollment of new students and commencing new classes over the months it.

We believe that there was a strong momentum of new students you wrote.

As well as improvements in the renewal rate and less refunds. Our total number of students in cost it will be relatively stable and returned to upward trends next year. However, the corrugated financial and operational metrics in the fourth quarter may still be adversely impacted.

Now on slide five.

Hi authorized self owned learning centers resumed offline operations by the end of September as local governments ease restrictions based.

Facing the top revenue contributor for the company and should grow were the last two remaining cities to obtain approval to reopen in mid September.

While these disruptions continue to impact our third quarter financial results, we still managed to double our revenue compared with the previous year's quarter revenue generated from educational programs returned to approximately 90% of the level. We delivered in the same period of.

Last year.

By integrating learning via the OEM all model the vast majority of our students enjoy the flexibility of migrating from online classes back to offline learning centers in relatively short period of time.

In the third quarter.

Our students have all.

Ally offline and mobile courses at different locations. This proved that we have the capability to manage complex situation and support learning under different scenarios.

Now onto slide six as you know the pace of our new student enrollments.

For our regular courses picked up the strong momentum during the second quarter and the third quarter. This strong enrollment momentum continues as we reopened off our self learning learning center.

New student enrollment increased by 122.1% quarter over quarter.

Showing a strong demand for our educational service post pandemic and at the beginning of the new academic term in September 2020. This.

This strong momentum steadily continued into the fourth quarter as we're proceeding as we recorded a much stronger October in terms of new student in road.

Compared with last year.

Effective measures we have taken.

Previously such as diversifying our marketing channels and adopting innovative marketing tools. Once again proved the effective to maximize returns and control customer acquisition costs.

We manage.

To further reduce the customer acquisition cost down 18% compared with the previous quarter through the successful implementation of our multichannel acquisition strategy, our conversion rate increased by more than 310.

EPS compared with the previous.

Quarter sale.

Sales leads from offline channels as a percentage of total leads increased while customer acquisition cost of offline channels were significantly lower compared with the previous quarter as well as the same period of last year.

Additionally, we managed to.

Keep online customer acquisition costs, well under control despite intensified competition among online marketing campaign in the summer.

As show on slide seven the franchisee business has also recovered well franchise.

Franchise learning centers increased to two to four.

Hundred six by the end of the third quarter revenue recognized also nearly doubled the revenue of the previous quarter.

Our franchise network saw faster growing enrollments and high cost participation once off like closets resumed.

Franchisees are an important growth engine.

And for Reits and will continue to help them enhance their operations and upgrade their capabilities to deliver on all courses.

The cross disciplinary products will also be rolled out in our franchisee network going forward.

Now, let's turn to slide eight.

Despite the negative impact in our operations since the beginning of the year, we have regained profitability in the third quarter gross margin has been restored to pre pandemic level and operating margin and net profit margin were both back to that back in positive territory.

There were three main factors that contributed to the solid returns.

The first is our all our most strategy, which we have already discussed.

The second was the intensive uptake of our digital capability and the third factor was the quick adoption of stress.

Of strategic measures to improve cost efficiency optimize resources in various ways and streamline operations.

Moving onto slide nine in the third quarter the team kicked off the strong momentum in accelerating our digital transformation and adoption.

Of our online initiatives across the business.

A strategic partnership with Tal granted us enhanced online access as we outperformed peers embarrass rankings for customer preference and transaction volumes, both online and offline.

We will also widely.

Accredited and acknowledged by authoritative bodies four hour in knowledge based efforts. When we won the 2020 Ram Chiron award for until prices of the year in digital transformation awarded by the prestigious Harvard business review.

Turning to slide 10.

As the industry continues to evolve we are well positioned to capture any up tick and taped demand and opportunities right. This core competency lay in our strong branding unique curriculum and 13 years of experience and result delivered in the education space.

They form the foundation of our oil model at the same time, we started to roll out new subjects like masks logic thinking and do teacher online English small classes. These.

These unlike classes were target existing students and you enroll new students through virus marketing.

Yes.

Looking ahead, we expect the adverse impact of Koby Nitin, our business to linger for a longer time and we still see challenges ahead. However, we remain very optimistic about the direction of our company as we have seen a strong recovery and are excited about.

Long term growth opportunities.

As a unique oil more educational provider our brand proven curriculum and widely acknowledged the teaching experience together with our diversified marketing channels extensive nationwide network and robust online infrastructure have.

Ill equipped at us to fully capture both online and offline demands in the educational space contributing to a viable business model that will deliver profitable and sustainable growth going forward.

I will conclude here and would like to invite our CFO jindal to talk about our third quarter.

Internationally. Thank you.

Thank you the home.

We now go through our financial results for the third quarter Twentytwenty before I begin. Please note that all numbers stated RMB.

As expressed by our CE only homes.

There have been very encouraged by the strong performance and recovery of the business in the third quarter.

All of our learning centers had we opened by the end of September.

Our team tackled daily challenges and responded to the condemning lease a clear strategy and executed the seamless transition.

And to give us the flexibility of shifting between offline and online courses as circumstances required.

Turning to slide 11.

Total revenues for the third quarter was RMB 320 meeting increased 94%.

Going over quarter, and a decrease of 22.2% year over year.

Revenues from educational program was RMB 293.6 million, an increase of 93.9% over quarter and decrease of 12.3% year over year.

The quarter over quarter increase in revenues from educational programs was primarily due to the resumption of the Companys offline operations.

The offer of accelerated lessons to more than 35000 students for them to catch up on academic curriculum during the summer holiday.

Our self only learning centers located in Shanghai, well, Joel Shenzhen and she will open by June Twentytwenty, followed by facing an issue at all by the end of September Twentytwenty.

The year over year decrease in revenue from educational programs was probably due to continue or suspects.

Offline operations of 18, and should add one learning centers for more than two thirds of the quarter.

As a result of the second wave of the Colgate rankings and damage outbreak in Beijing in July.

Frank has revenue increased by 95.9% year over year.

A quarter over quarter and decreased by 44.3% year over year to RMB 25.3 million.

The quarter over quarter increase in franchisee revenues was mainly due to the growth in recurring franchisee revenue as a result of the gradual reopening of franchise learnings.

Enters.

The only decrease in franchise revenue was primarily due to the decline in recurring franchise revenue as a result of the outbreak of Mccormick 19th.

Our revenues increased by 19.3% quarter over quarter and decreased by 96.4 years.

The year to RMB 1.1 minute.

Cost of revenues increased by 15.1% quarter over quarter to RMB 162.9 million and decreased by 17% year over year.

The quarter over quarter.

The increase was primarily due to personnel costs associated with the increase in the total number of teaching hours and our offline learning centers gradually resumed operations nationwide and an increase in textbooks and teaching material supply as well as the end of a rental cost concessions.

You only get a decrease primarily due to a decline in direct costs associated with the company's study towards services and cost of learning materials and the decline in teachers compensation as a result of the reduced the teacher and headcount and teaching hours.

Non-GAAP cost of revenues for the for the quarter.

The increased by 15.5% quarter over quarter and decreased by 17.4% year over year to RMB 158.9 million.

Gross profit for the quarter was RMB 157.1 million an increase of 500.

Total, 71.4% compared with gross profit of RMB $23.4 million for the preceding quarter.

Our gross profit for the quarter decreased by RMB 57.8 million year over year from RMB 214.9 million.

Turning to slide 12, setting.

Selling and marketing expenses increased by 78.7% quarter over quarter and decreased by 8.8% year over year to RMB 75.9 million.

The quarter over quarter increase was primarily on.

Because of all to increasing the marketing expenses and advertisement associated with increased the student enrollment.

The year over year decrease was primarily due to personnel optimization efforts and disciplined investments in online and offline marketing activities.

Non-GAAP selling and marketing.

Hi, this is for the quarter increased by 81.2% quarter over quarter and decreased by 8.8% year over year to RMB 74.7 meeting.

General and administrative expenses increased by 12.7% quarter over quarter and decreased.

By 6.1% year over year to RMB 61.8, leading the.

The quarter over quarter increase was primarily attributable to the increased recruiting fees and office expenses and the end of the rental concessions.

The year over year decrease was primarily due.

Our continuous efforts in personnel optimization and essentially administrative expenses.

Non-GAAP DNA expenses for the quarter increased by 10.5%.

Over quarter and decreased by 4.2% year over year to RMB 59 point.

You need it.

Operating income for the quarter was RMB 95.4 million compared with an operating loss of RMB 73.9 million for the preceding quarter and the operating income RMB 65.8 million for the same period of the prior.

Good luck.

Non-GAAP operating income for the quarter was RMB $27.1 million compared with non-GAAP operating loss of RMB $67.5 million for the preceding quarter and a non-GAAP operating income.

The $74.9 million for the same period.

Of the prior year.

Adjusted EBITDA income was RMB 57.8 million compared with adjusted EBITDA loss of RMB 44.5 million for the preceding quarter and adjusted EBITDA of RMB 88.9 million for the third quarter of.

2019.

Please turn to slide 13.

Net income attributable to ride the for the quarter was RMB 28 million compared with net loss of RMB 58 minutes.

In the preceding quarter and net income of RMB 39.4.

Median for the third quarter of 2019.

Non-GAAP net income attributable to rise for the third quarter was RMB 35.7 million compared with non-GAAP net loss attributable to rise of RMB 61.6 million for the preceding quarter and.

Non-GAAP net loss net income attributable to rise of RMB $48.5 million for the third quarter of 2019.

Basic and diluted net income attributable to rise per 80, EPS for the quarter was RMB pulling 15, and R&D point fully.

Nine respectably basic and diluted non-GAAP net net income attributable to rise per 80, EPS was RMB point 63 for the quarter of 2019.

With respect to our cash flow performance net cash inflow from operating activities for the quarter was.

Maybe a 103.2 million compared with net cash outflow of RMB $118.1 million for the preceding quarter and net cash inflow of RMB 10 million for the same period of the prior year the quarter over quarter increase in cash flow was.

I'm really due to the resumption of ultimately student enrollment the year over year increase was mainly due to the impact of the change in the fuel efficiency collections schedule in 2019.

As of September 30, 2020, the company had cash and cash.

Cleveland and restricted cash of RMB 774.6 million compared with RMB 1 billion 22.8 million as of December 31st 2019.

As of September 32020.

Total deferred revenue and customer advances were RMB 712.7 million a decrease of 5.7% from RMB 766 million as of December 31st 2019.

The decrease was primarily the result of revenue.

Anticoagulation recognized for our courses and services being larger than the tuition fees collected from new students and a renewed students during the quarter.

Deferred revenues and the customer advances were made up of upfront tuition payments from students and the initial franchise fee.

News from rising franchisees.

Now, let's look at our business outlook on page.

Slide 14.

We expect the impact of COVID-19 to remain or longer period. However, we are confident in our ability to navigate through these challenging times.

Thanks to our highly experienced management team a factory like dynamic teaching stop and a fully dedicated to support team. We have embraced the harvest of times in the last nine months and have demonstrated our resilience and ability to mitigate risk and any potential we service.

[laughter] of COVID-19 during the winter season.

As a result of a growing demand for services will have accelerated the pace of hiring and training our teachers with more qualified teachers in place we are aiming to accelerate the pace of a nonoperating classes for new students who enrolled in.

Just wanted to shorten their waking time in addition by implementing our oil animal strategy, well able to optimize the cost scheduling and as a result costume capacity will be increased significantly. So that we can offer more classes each learning center to accommodate them all students.

Meanwhile, we are hard at work, providing our teachers with quality training team promo teachers retention rate and to further upgrade the teaching quality. All these measures our aim to improve parents credit infection rate and ultimately to further improve our student renewal rates.

And retention rate.

With all factors mentioned about let me give you the financial guidance for quarter. Four we expect total revenue in the last quarter of 2020 to be in the range of RMB 355 million to RMB 365 million.

Forecast reflects right.

Current and preliminary view, which is subject to substantial uncertainty with that I would now like to hand, the call over to the operator. So we can begin materially session. Thank you very much.

Thank you so much ladies and gentlemen, we will now begin the question.

Mr session. As a reminder, if you wish to ask a question you will need to press Star then one on your telephone and wait for you to be unknowns. If you wish to cancel your request. Please press <unk> again, we start in one we published ask your question.

[music].

Okay and our first question comes from the line Ocean <unk> from Morgan Stanley Your line.

So.

Hey, good money, so I have two questions.

Let me tell you right now.

No business, it's continuous recovery. So can you teach you asked so whats your initial outlook.

For next year.

And and also can you give us some oh well 10 for the next year.

And then second question is some of the students acquisition channel or the and you feel you roam and send people from different channels like including the.

Well into her no word of mouth, Oh from online and offline. Thank you.

Hi, Joe. Thank you for the question so the first one.

Next year's outlook and potential or the growth rate Oh, we are actually very.

Optimistic about next year as we mentioned in the presentation.

Oh, the operations are actually back to norm with added the capability. So you know from Martin acquisition channel to Oh like core deliberate.

It would be.

The enrollment also is very strong.

We already added teaching and Oh, the person to a culture that the month. So next year I might buy we were still undergoing or a budget discussion.

However, I think the gross rate will will be a very high hopefully weekend or the educational programs.

Ken almost match the.

The number of 2019. So so the you can you can you matching the.

Shells, which will be in the 30, 40% if not higher so.

So that's a that's the first question. The second question is just in terms of.

[laughter] acquisition channel or do the acquisition channel.

I can give a high level description I was just kind of.

<unk>.

Gore about EPS impact, though we increase the a word of mouth there.

Well I do think there's the the strong momentum reflects.

Two things one is the demand to coming back to offline.

Classroom is very strong.

Second is our offline network. It is a very valuable to capture or did that the demand very effectively and now in the second quarter and third quarter we.

Started the what we call.

Corporations with other institute exotic specially early Education Institute like our gymboree like a otherwise the kit I recently you own notice that a another is did you call that you've shown a went went down.

But we actually have a you know acquired their student pretty precisely in Beijing, and Shanghai and some other cities.

In second quarter, all or the.

The other and but.

But for these type of type of Corporation give us a a.

Very strong inflow of students and be the acquisition cost. The for this channel is very easy to control because we can set up a terms to acquired its students.

Below a certain threshold.

So.

But I think just don't have the split between the online and offline a acquisition perspective ive been doing you can elaborate further okay.

Okay, Alright, Oh, Hi show.

As a matter of fact went out and started to open our offline learning.

Inventories, we do see the very quick a pickup of the students who enrolled offline as a percentage of the total students he relative for the whole loans and the percentage from the offline channel actually grow.

I'm very you know definitely almost by one person every single month.

Instead of starting from June on up to actually October numbers. So as of now to give you a average number the offline acquisition steel accountable actually more than 65% as compared to the same on you know period over the prior quarter. This is one.

But I can share with you the other metrics that we look at our very strong momentum in Rome and is actually on conversion rate.

<unk> increased a very steadily things in June.

Almost 1% the increase in conversion rate from June on fuel October.

So that's a very significant number.

Maybe increasing the conversion rate it will help us to reduce the acquisition cost for each student and the other thing we actually find it on our offline acquisition cost is significantly lower compared to the same period of last year.

Tell ethylene.

You had mentioned that you know optical they didn't 19 in Assam on me.

Or medium sized the offline operations actually have Kashi shoes, and went into bankruptcy and the computation actually seems to be getting a release for quite a while to briefly compared to.

Last year or so that's a very promising phenomena we have witnessed.

So and at the same time, we have also see that decrease the decrease in our acquisition costs and from the online channels a week.

Demonstrating our ability to actually learn how to do that marketing online and also reflects the Isle were very.

And well managed and investment in acquiring students online. Unlike other institutions that we shattered employing on their.

Following the jump in order to you know apply students to offer the classes over the top is a free of charge at whole you know moneyball lessors as a trial Anda, which doesn't generate and you know we definitely contribute profit until the company on just.

Stifel acquiring the volume or the sale of the acquiring volume.

Okay. So just to add that Ah Ah, even though our acquisition costs on like reduced a little bit.

He's a be a quarter or two but if you compare with last year are definitely on the.

Oh My acquisition costs increased the pretty significantly I think you you're definitely observed that some other education companies as well however, as Jim you mentioned, we utilize our offline channels really effectively and that is a very low cost channel so blended cost of.

The acquisition for us.

Recently, a very well under control.

Thanks very much.

Thank you so much once again, ladies and gentlemen, it is star and one if you wish to ask a question.

And our next question comes from the line of Howard Young from Credit Suisse. Howard Your line is open.

Thank you for taking my questions and congratulations on a solid called her out there.

So I go to question and I think that first question in terms of.

And Robin.

I would like to get a little bit detailed on.

Corridors enrollment, especially Oh, we mentioned the pagers you got them only we resumed operations in September so that means that the stupidity, but actually contributed nearly.

Really no contribution in the third quarter's and that that means that the new argue that enrollment obviously these are actually seeing.

Strong momentum to compared to last years and the other thing harmed in terms of Oh, the fourth quarter. After the re opening all does Shanghai Oh Oh.

Beijing I was struggling to how are we going to see that in the current period, though.

Enrollment in these two cities and I think secondly, also a follow up on the.

ER acquisition costs that we mentioned does actually either offline or acquisition part caused lower year on year and the share of offline.

And it's actually increasing this year.

The blended it's under control, so currie have oney or quantifying numbers all the.

Blended in the third quarter because.

I remember last quarter, you mentioned that when they did see was actually flat year on year.

Thanks, Okay.

Yeah I mean.

Oh, it's nice to meet you on life and so.

So Oh answer the first question first and then the second one Oh I can Oh, Oh briefly and then Jim can give you a breakdown for enrollment in fact that even during COVID-19 pandemic.

Make a one off like ventures that were closed we actually engage actively online to to do a online student acquisition to set up a online demo show the student acquisition never really stopped but you can imagine the instructing effectiveness of those online.

A student acquisition is no.

Therefore, and Youre right when she does on Beijing, Oh blood centers are closed.

The ability to enroll new students is not as strong as we like however for the third quarter, you can see that up.

The student enrollment in other cities so.

Hi, Cindy and and and you know those.

Those are actually very strong compare with last year. It's all in the in the positive territory changes for example, we actually see a more than 30.

40% of the growth year over year and Uh huh.

For Beijing, and should that don't even with a a majority of the quarter.

Oh the centres close we still are able to acquire new student, but but a a slightly lower than last year of <unk> <unk>.

Because Beijing is the biggest contributor so when Beijing.

Still not fully recovered.

Our third quarter enrollment.

You know altogether or is it still down from last year. However in October Oh, the learning centers are opened.

We actually see a very strong momentum a nationwide. So every every study from Beijing to show hype on Joshing judge that draw.

Oh, the enrollment in 2020 October.

Every gate or the Sox, we see more than 40% also.

Our enrollment growth year over year, you know that October is now the hi, Stephen September was so we actually have very are very encouraged to see this number and we believe the fourth quarter overall, well have a much stronger enrollment vis-a-vis last year. This.

It's also a measure that we taken to catch up on.

Oh student enrollment to you really increase our market share when other suppliers are actually under wonder So I didn't mention the strong demand fewer providers to compete.

And so that's the overall enrollment.

The Oh student acquisition cost.

[noise].

Ah I think Oh.

I I don't know whether we.

Discourse in such a detailed but for the.

Oh flight a cost.

We actually see a major decline Oh.

Quarter over quarter, it's about like a 20, 30% decline for the all flash I think this really contribute to higher conversion rate.

And then when you can get.

Good luck.

More information.

Too hard.

Okay.

No. Okay, I remember last quarter, we actually on share Lisa our giving investors and also analysts that are on.

Estimate the number for the acquisition cost for that quarter is actually.

Around 5000 per student.

For this quarter is actually a lower which is actually we can truly naturally below 4000, and a 500 a blended.

I'd reach acquisition costs as he will mention I can't give you a little bit more color.

[laughter] awfully acquisition costs.

Last year, the same period, all my acquisition costs at all actually above 1000 again, but this year, it's at least a 25% to 30% lower than 1000 last year, so that we.

It helps you know our offline AD word actually full marketing and are you really new student very effective channel and a lower cost and I'm very.

Very productive.

And I I wonder to ER and.

And to that point the effect of this this has been.

On when we actually sort of bus sales people on the ground and now we try to increase the up a sales person per school onto to capture the strong demand. So hopefully as I mentioned the fourth quarter, you will see a higher gross a year.

The year and Ah so the for the six months.

Together Q3, Q2's tool for we definitely will have a stronger year in 2020.

Thank you that's great color.

Thank you.

All that much.

Once again, it's it's starting one if you wish to ask a question and your next question comes from the line of home count from today.

Well your line is now isn't.

Oh hi.

This is Tony first congratulations for your good performance in the <unk>.

Okay and I have two questions. The first is though you haven't tend to opens a new learning center next year or next quarter or what the expected number off the.

Cells.

Cellphones and earnings into her and the French fries.

<unk> respectively.

And the second question is I would like to learn more about the OEM Oh modestly into like how would you need to improve the utility right.

Okay, <unk> or a school opening I, just don't do mind, I'll give a guidance as to who need.

And then I'll talk around that level.

Okay in the third quarter, we opened it to O'neil learning centers.

And I you know fourth quarter, we plan to open a tool as you know in damage to actually basically stockpiles of from.

You know.

And.

Expanding our expansion plan for 2020 I initially early in the year, we plan to open a total of 18 and so the backlog of the 11, it will actually be rescheduled to the next year.

So for the 2020 year plan.

Okay packing opening new learning centers, it's going to be in a high double digits and definitely above 15. So what do you. It really depends on the location. If we can't find a good location would definitely.

Well open.

And so the pay they actually are somewhat dictated by you know whether we can find the optimal decision to open our learning centers, but the planning is definitely.

High double digits.

Right just to supplement that we see very strong growth.

In in cities like Shanghai, and Guangdong show, how much they remind me the time off Beijing in 2015 16.

As I mentioned earlier for example, third quarter he Roman engine did.

<unk> increased nearly 40% year over year, where we.

Actually did not open new schools. So for US we definitely didn't go we want to capture the drone market demand in those cities. Therefore, our next year will catch up on a school openings Oh, we do feel Oh, we are ones one thing we need to do.

It is to trained enough qualified teachers and a sales person and manager or through that weekend really manage those <unk> well on the franchisee side or are you in our long term plan.

Plan is to.

Open you know 30 to 50 schools every year for the next couple of years, mainly focus on tier one to tier three cities, which has.

Oh, good affordability and a capable franchisees.

So that that's number one.

On the whole model.

I think in last quarter's earnings release, I mentioned briefly Oh, I'm always there actually a couple of components. The first component is to.

Reduce the cost time from 15 minutes to 40 minutes.

This adjustment has already started in.

The the first off of September so the new students coming to Q1 to Q3 already adopted this new schedule.

This although of course will actually help would be a cost utilization from 100 to a 138.

Right, so that 38% of increase of a costume utilization the second component of the OEM role is to a move.

The week they cross is a ball.

To to online and so this one will make.

Make the students more convenient when they have a a schools during the weekdays and a these are of course will also increase the costume by by 4% or the reason this percentage is small because the majority of our students are actually LOE.

As one so as to is only a small.

Portion of the students that the third component for that or more is to for the online classes. We used to bleed into three groups. So every group is one versus a six and now.

Are we actually upgrade our technology targeted to lead that crosses into too. So every class will be one to April one to 10 online. So this a little low I actually it can increase the online class a time for the students and then reduce.

The teachers burden to teach that three times. So all these the measures together all should be able to Ah Ah Ah.

The increase the costume utilization by nearly 60% of course is that need to be gradually implemented.

We just started.

As I mentioned, the new students move from 15 minutes to 40 minutes and then from.

December.

We'll try to adopt that two existing students and then online with the technology ready will enlarge the online.

Online class.

A number of.

Students I think the last step is to reduce the total cost hours, that's a longer term Ah that's next year.

Hope it's clear thank you. Thank you.

I think by moving that to.

Oh I'm over.

We'll also be able to.

Open the classes more faster because online we actually have a flooring teacher.

Those those are parttime teachers and for the full time teachers, we already have they can have more capacity to teach new classes.

Therefore help.

To.

Right I recognize revenue.

After so we wanted to speed speed up.

You know from enrollment to opening new classes.

Yeah.

Thank.

So much and you next question comes from the line of shot show one from we're tight security.

Your line is now open.

Thank you. Good morning management. My question is also about the old model Oh. Please describe.

In more details about Oh I'm old model for example from the student point of view.

From the students I or student side or are there ah different products 'cause Ernie about online or offline.

For the students.

The choose like Ah Ah Ah.

I I I like to know what what's the product look like.

And maybe a in one part of it.

One product so there are some.

Oh my parts and.

Of like parts or just a different products.

And also from the.

Please side are the runny teams for online and offline separates it or are there just one one team.

And also for the teachers and other teachers.

For online and offline courses.

Separates it.

So I'd like to know about the details and also another question is that or what is the company's future plans for the Oh animal model, what but will it be like a in the future.

So so that's my question.

Yes.

Yeah, I I think everyone I'll talk about away more however, I think it can be all different depends on how you organize it and what's the purpose is to offer online merged with offline.

Teaching and learning experience.

For right I.

I would say first the we have this oh animal model adopted for our regular courses.

And second we do offer a pure online classes. These two lines are different by comfortable animal model for the regular courses Oh.

Our approach is online and offline our integrated businesses, one course, or we are teaching [laughter]. They just are we split it online and offline four different a component for example, rice Oh curriculum, it's highly interactive it is to organize the with that.

Project.

Based on learnings, therefore, oh flying its a small group classes, a with a a lot of activities that you need to conduct a offline.

We do feel a this interactive the teaching and learning experience I really or differentiate.

Hey did and the focus on not only knowledge transfer or teaching lecturing, but help our students to know how.

How do we or communicate how to cooperate in the team and how to perform Ah Ah.

Certain leadership.

Functions within the group.

Therefore, when we think about oil animal model, we wanted to use the online portion only four.

ER knowledge transfer or a.

The ER the focus the test for example, a.

Or do some language that is in the language learning you have a a grandma that you can actually easily move online too to learn and in some reading comprehension and also speaking like the language you need to puckish therefore for.

For the online component or we go for the higher grade we offer flooring teachers.

So our students can have the exposure to learn how to speak in authentic language.

Ah you Berman and how to package those growth.

I'm a I'm lunch there learn as spending for example, so this is very tax driven can can be a good pretty effectively online but for the oh not nice organized activities, we prefer to do it offline. Even so we are trying to.

Create.

Interactive technologies online, so that eat or the petrochemical somehow a sheet a certain region or cost classes again, we can actually improve the online learning experience going forward.

Then what we had done today.

So this isn't the only mobile.

Auto is one course, Jason integrated it just to offer different a component adjusted to the advantage of a online or offline.

Then as you mentioned the teacher are already a talk about that a little bit when I answered the question from.

Only each for the Chinese teachers are right now, we actually they're all our employees for life and.

They is the <unk>, that's that's they come dr., mostly offline, but they have the capability to do online classes as well and that we added to flooring.

Teachers, mostly part-time teachers.

For the Oh My God.

Okay pieces, so that actually is that the way I already mentioned that we also offer a pure online classes.

Ah today as of today, Matt logic thinking and a dual teacher.

Unlike Ah Ah English small class classes are purely online.

And going.

Going forward, we'll continue that Ah Ah Ashford to offer unlike classes.

Just for the convenience offer students a who wants to have multiple subjects.

Ah So that's that's one way to enlarge the student base or also the other way to extend our lifetime value for existing students increased ARPU as well.

That's a separate jobs.

Thank.

Okay, that's very clear.

Thank you so much.

And your next question comes from the line of choice.

From 86 research your line so.

Thank you for taking my question couldn't mentioned I'm shim.

More information about the two dynamics of child Englishman Oh, you just mentioned that one of your competitor went bankruptcy recently, so how do you balance age in market consolidation opportunity going forward, what's the management tend to cope with the change and.

And also how will you captured opportunities.

Thank you.

Yeah. Thank you that's a very good question I would say.

After the pandemic either the market definitely become more than I make oh on one hand, we see we see people very <unk>.

Accurately offer online classes, including a <unk> or a treatment classes a lot like a like a buy model for example, oh. The other hand, we see difficulties are running offline centered as you see it for example, these new English exit it market.

But some of our competitors, though went under Ah. So I do think the market to continue to evolve. However, it proved a a couple of things. One is the underlying demand is still very strong both online and offline and English that made a major.

Our subject that old people wanted to get into so you do see.

Well the other people like bundles today for example acquired Oh, I'm only our door, which is the English subject because English are.

Subject had much bigger addressable market.

Other Ah Ah subjects that that's the first thing Birch, the second thing I do feel or the you know if you one or two of growth you need to and even improve a user experience.

To really all.

Offer curriculum that can yield results.

So going forward to.

Oh, the company is not only need to spend money to acquire or you that students. It also needs to focus very much on the the so called them the whole our journey.

All the learning otherwise the higher up very high acquisition cost.

Without a high retention rate and renewal rate I think that that business model will not be able to sustain as a third thing is that you mentioned or consolidation or certain.

Our other changes I do feel a number one people are very.

Natural or in terms of the subject.

We expect the extension.

Or cross disciplinary offering.

As I mentioned this is the ER a natural way to.

To dilute the customer acquisition cost and extend a or improve Ah Ah Ah time value or student a time value.

The other thing of course could be.

[noise] consolidation among educational institutes.

I think on that front.

Got it.

Started however, it's not easy to do with you know the organizational issues and culture social issues, even the curriculum, maybe a different kind of Ah Ah learning per person.

For example, you could test prep class the huge a so called the skill base it will be very difficult to come by therefore, I think the combination or consolidation well happen. However, you need to be each skill for making that happen they make that work and.

And for Rice.

I think again as I mentioned, the first natural way is to extend into a cross cross discipline rich taking advantage of the existing student base for their cross selling the second is the.

I do feel we already viewed as strong offline network.

We also have the online infrastructure, we should utilized both networks to expand beyond the current Oh of course and the curriculum. Then the next thing is to to make a certain investment or acquisition.

And to expand our capabilities. However, I think the targets. We we we've seen quite a number of targets, but I would I would be cautious too.

Make that move.

I I hope you know its a.

Accretive rather than just bringing the students, but also dig a hole for yourself. So I I like my answer short shorts shorten the answer is yes, well consolidate and it's a skill for it require a lot of skills and care for execution.

I think right.

Right.

I wouldn't be able to do that when we are we are ready.

Okay. Thank you.

Thank you so much and your last question comes from the line of Howard County from Chemistries Howard Your line is now open.

Hi, I got another question. So could you follow up on so for you just mentioned some small players like yours or has access to the market. So just want to other sound little bit the current outgrows enrollment or what the how much do you think it's driven by the some smaller.

Players exit the market and how much is driven by our like more efficient marketing approach.

<unk>.

Howard I. It's a good question I would say both a one is proactively we are actually setting up a I can mention be corporation.

Jason with Ah Ah Ah ER ER with companies like it Ah Gymboree and why see kids. We also reach out to ink a Disney English and you were shown to offer the same kind of a program that weekend.

Ah has their students transfer.

Her to us and absorb a a portion of the prepaid tuition or this will be our acquisition costs. However, this also help the other education companies to recognize revenue reduced.

Is there a contingent liability which is prepaid in Tunisia. So this is a win win.

Approach for us.

We continue our acquisition cost we have a precise timing students and the other from Ken actually reduced their liability or recognizing revenue.

The other thing of course as you mentioned, we increased the word of mouth channel.

And.

For example.

Stemming lightfoot for for the for the equates so all these actually help us to.

After a larger market share.

Therefore, I guess you mentioned one is we do have a lower cost.

Ah the portion off a lower cost channels increased the second is the conversion rate actually improved so both contributed to the better.

From a customer acquisition costs I also think there still cause the.

To be channel is something that we are going to be too.

Really the expense going forward and to manage that to be channel, we actually have our team.

Very experienced the team coming from.

Other industries, I think education industry or in some way that you know never really paid enough attention to this though to be channel. One event I can elaborate a little bit during the last week of October we target Oh.

Hospital.

On off we had a promotion using.

The so called Prime.

Okay traffic.

In the very few days' time, we have.

More than a thousand 500.

The hospital staff parents coming.

Coming into our.

Community.

And Ah you know, we actually come can convert that Ah I send a oh you know try like you just myself actually got like a 200 lean into the into this community. So I think we can.

Do this much much more.

Smart in the future to have a better approach are doing an acquisition and control the cost.

Thank you that's pretty helpful.

Thank you so much.

And that does conclude your conference for today. Thank you all for participating you may now disconnect.

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Ladies.

Gentlemen, thank you for spending by and welcome to device Education, a third quarter 2020 earnings conference call. At this time all participants are in the listen only mode. There will be a presentation followed by a question and answer session.

<unk> if you wish to ask a question you will need to press star.

And one on your telephone please.

Please be advised that todays conference is being recorded I'd now like they had the conference over to your first speaker today Ms. Karen. Thank you. Please go ahead.

Thank you operator, Hello, everyone and were comfortable rights education.

2020 earnings Conference call today, you will hear from me.

Tell women as CEO I mean, do you know what do you see Oh baseball went over recent business update operations and the company's long term strategy.

Well go over the financial results for the quarter.

They were able to take some questions.

The current <unk> session that follows.

Before we proceed I would like to remind you that today's discussion may contain certain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 90, 95 Big School Kids steam is subject to risks and uncertainties.

Of course actual results to differ materially from our current expectations to understand the factors that could cause results to materially.

Differ from those in the forward looking statements. Please refer to our form 20-F filed with the SEC April 17 2000.

And.

We do not assume any obligation to update any forward looking statements.

As required under applicable law.

Today's call May as well and that means we will be referring to the earnings presentation that I've noted.

I honestly and this equipment for today's call.

Now I'd like to turn the call over to Ms. Li from loans. Please go ahead.

Thank you Karen Hello, everyone. Thank you for joining our earnings call today.

The talking burn much called by the Cobi nitrogen pandemic in the first nine months of 2020, we have changed our challenges head on.

Which strikes and we're very pleased with the company's accelerated to recover in the third quarter overall, our stage our operations have generally return back to pre pandemic norm, including all right. So on learning centers re opening by the end of September.

We have received very positive feedback from parents, who are keen for their children to region returned to regular costumes as soon as offline classes or allowed to resume in cities nationwide.

Our financial and operational performance has seen encouraging results with your quarterly revenue yes.

Late doubling from the prior quarter.

Disciplined cost management, and a well planned marketing strategy put expenses well under control and help the company turning profitable in the third quarter fueled by strong growth momentum.

I will begin my remarks from flight.

Three when koby liking hit us and our industry already Twentytwenty, we put in tremendous efforts, which allowed us to navigate the business to unprecedented risks and uncertainties.

To turn top ties into an opportunity for change the kind that makes its robust to lump of our online.

Capability in a short period of time laying a solid foundation to transition our core business into the online Mers offline all model.

Let's move on to our financial and operational highlights for the third quarter on slide four revenue was RMB $320 million in.

The third quarter up 94% from the prior quarter adjusted EBITDA and net income attributable to Reits, both returned to positive territory.

Achieving RMB 58 meeting and RMB 28 million respectively.

Total number of new students in road for riders right.

Regular courses reached 8328 in the third quarter more than doubled the second quarter's number.

So as of the end of September we directly operated Mighty learning centers nationwide compared with 88 in June 2020, despite adverse times.

Our franchisee partners opened another new nice centers in the third quarter, bringing the total number of franchise. The learning centers to 406 at the end of September compared with 397 at the end of June 2020.

Here I wanted to point out.

The number of students in class slightly decreased in the third quarter due to a number of factors.

First there were two to three months as during the pandemic with a number of new student enrollment declined sharply.

And when our online and offline course resumed the natural loss of students.

And including those who chose not to renew and those who claimed refunds rose substantially over a very short period of time, resulting in the outflow of students outpacing the inflow secondly, online learning has certain fundamental disadvantages compared to offline classroom teaching physics.

Especially tool for young younger age students, who are used to caution on teaching and physical interaction with teachers and their peers.

Which also resulted in the loss of some existing students.

Given that Beijing and should that grow only resumed offline courses from September we may continue to see a decline.

In renewal rate well into the fourth quarter.

Certainly the number of our current teaching and non teaching stocks were not sufficient to keep up that demand as we focus more resources on accelerating the enrollment of new students and commencing new classes over the months just.

We believe that.

Got the with a strong momentum of new students you road as well as improvement in the renewal rate and less refunds. Our total number of students in cost it will be relatively stable and returned to upward trends next year. However, the correlated financial and operational metrics in the fourth quarter may still be.

Adversely impacted.

Now on slide five authorized self owned learning centers resumed offline operations by the end of September as local governments ease restrictions phasing.

Taking the top revenue contributor for the company and Chicago, where the last two remaining cities to obtain.

Approval to reopen in mid September.

While these disruptions continue to impact our third quarter financial results, we still manage to double our revenue compared with the previous quarter revenue generated from a location of programs returned to approximately 90%.

The sense of the level, we delivered in the same period of last year.

By integrating learning via the OEM own model the vast majority of our students enjoy the flexibility of migrating from online classes back to offline learning centers in relatively short period of time.

In the third quarter.

Our students have online offline and online courses at different locations. This proved that we have the capability to manage complex situation and support learning under different scenarios.

Now onto slide six as.

You know the pace of our new student enrollments for our regular courses pickup and strong momentum during the second quarter and the third quarter. This strong enrollment momentum continues as we reopened off our self learning learning center.

New student enrollment increased by one how.

Hundred 22.1% quarter over quarter.

Showing the strong demand for our educational services post pandemic and that at the beginning of the new academic term in September 2020. This.

This strong momentum steadily continued into the fourth quarter as we are perceived as we recorded.

It is a much stronger October in terms of new students enrolled compared with last year.

Effective measures we have taken.

Previously such as diversifying our marketing channels and are adopting innovative marketing tools. Once again proved the effective to maximize returns.

Turns and control customer acquisition costs.

We managed to further reduce our customer acquisition costs down 18% compared with the previous quarter through the successful implementation of our multichannel acquisition strategy, our conversion rate increased by more than three.

810.

Bips compared with the previous quarter.

Sales leads from offline channels as a percentage of total leads increased well customer acquisition costs of offline channels were significantly lower compared with the previous quarter as well as the sale.

Last year.

Additionally, we managed to keep our online customer acquisition costs well under control despite intensified competition among online marketing campaign in the summer.

As show on slide seven the franchisee business has also recovered.

Paul.

Franchise learning centers increased to two to 406 by the end of the third quarter revenue recognized also nearly doubled up the revenue of the previous quarter.

Our franchise network saw faster growing enrollments and high cost participation once off like closets resumed.

Franchisees are an important growth engine for rides and will continue to help them enhance their accretion and upgrade their capabilities to deliver on all courses.

The cross disciplinary products will also be rolled out in our franchisee network going forward.

Now, let's turn to slide eight.

Despite the negative impact in our operations since the beginning of the year, we have regained profitability in the third quarter.

Gross margin has been restored to pre pandemic level and operating margin and net profit margins were both back to.

Effecting positive territory.

There were three main factors that contributed to the solid returns. The first is our almost strategy, which we have already discussed.

The second was the intensive uptake of our digital capability and the.

Third factor was the quick adoption of stress of strategic measures to improve cost efficiency optimize resources in various ways and streamline operations.

Moving onto slide nine in the third quarter the team kicked off with strong momentum in excess.

Celebrating our digital transformation and adoption of our online initiatives across the business as.

A strategic partnership with T mobile granted us enhanced online access as we outperformed peers embarrass rankings for customer preference and transaction volumes both online and.

Slide.

We will also widely accredited and acknowledged by authoritative bodies for our innovative efforts. When we won the 2020 Ram Chary runs award for until prices of the year in digital transformation awarded by the prestigious Hopper business.

This review.

Turning to slide 10, as the industry continues to evolve we are well positioned to capture any up tick and taped demand and opportunities right. This core competency lay in our strong branding unique curriculum and 13 years of experience.

Orange and result delivered in the education space. They form the foundation of our oil model at the same time, we started to roll out new subjects like masks logic thinking and do teacher online English small classes.

These unlike classes were target existing students and.

Any enroll new students through virus marketing channels.

Looking ahead, we expect the adverse impact of coping nitin, our business to linger for a longer time and we still see challenges ahead. However, we remain very optimistic about the direction of our company.

We have seen a strong recovery and are excited about the long term growth opportunities.

As a unique or more educational provider our brand proven curriculum and widely acknowledged that teaching experience together with our diversified marketing channels extensive nationwide.

At work and robust online infrastructure have equipped at us to fully capture both online and offline demands in the educational space contributing to a viable business model that will deliver profitable and sustainable growth going forward.

I will conclude here and we'd like to.

Bide, our CFO jindal to talk about our third quarter financials. Thank you.

Thank you the home and we now go through our financial results for the third quarter Twentytwenty before I begin. Please note that all numbers stated RMB.

As expressed by our CE only homes have been very encouraged by the strong performance and recovery of the business in the third quarter.

All of our learning centers had we opened by the end of September.

Our team tackled daily challenges and responded to the pandemic recently.

Theres strategy and executing the seamless transition that it gave us the flexibility of shifting between offline and online courses as circumstances required.

Turning to slide 11.

Total revenues for the third quarter was RMB 320 meeting the increase.

94% quarter over quarter, and a decrease of 22.2% year over year.

Revenues from educational program was RMB $293.6 million, an increase of 93.9% quarter over quarter and decreased.

The 12.3% year over year.

The quarter over quarter increase in revenues from educational programs was probably due to the resumption of the companys offline operations.

And the offer of accelerated lessons to more than 35000 students for them to catch.

Our academic curriculum during the summer holiday.

Our self online learning centers located in Shanghai, well, Joel Chintan Joshi well attended by June 2020, followed by they deem an issue at all by the end of September 2020.

The only gave decreasing revenue from that.

Cash in Autoweb was primarily due to continue or suspension level offline operations of the Beijing and should add one learning centers for more than two thirds of the quarter as a result of the second wave of the COVID-19 pandemic outbreak in Beijing in June.

Frank has revenue in.

Please divide 95.9% year over year.

Quarter over quarter and decreased by 44.3% year over year to RMB 25.3 million.

The quarter over quarter increase in franchising revenues was mainly due to the growth in recurring franchise.

<unk> revenue as a result of the gradual reopening on franchise learning centers.

The year over year decrease in franchise revenue was primarily due to the decline in recruiting franchise revenue as a result of the outbreak of Mccormick 19th.

Our revenues increased by 19.3%.

<unk> over quarter and decreased by 96.4 year over year to RMB 1.1 million.

Cost of revenues increased by 15.1% quarter over quarter to RMB 162.9 million.

And decreased by 17.

Isn't that year over year.

The quarter over quarter increase was primarily due to personnel costs associated with the increase in the total number of teaching hours as our offline learning center is gradually resumed operations nationwide and an increase in textbooks and teaching material supply.

As well as the end of rental cost the potential.

The year over year decrease primarily due to a decline in direct costs associated with the company's study towards services and cost of learning materials and the decline in teachers compensation as a result of the reduce the teacher headcount and teaching hours.

No.

Non-GAAP cost of revenues for the for the quarter increased by 15.5% quarter over quarter and decreased by 17.4% year over year to RMB 158.9 million.

Gross profit for the quarter was RMB 100 <unk>.

The 7.1, meaning the increase of 571.4% compared with gross profit of RMB $23.4 million for the preceding quarter.

Our gross profit for the quarter decreased by RMB $57.8 million year over year.

From RMB 214.9 million.

Turning to slide 12.

Selling and marketing expenses increased by 78.7% quarter over quarter and decreased by 8.8% year over year to RMB seven.

5.9 million.

The quarter over quarter increase was primarily attributable to the increase in marketing expenses and advertisement associated with increased the student enrollment.

The year over year decrease was primarily due to personnel optimization efforts and disciplined investment.

In online and offline marketing activities.

Non-GAAP selling and marketing expenses for the quarter increased by 81.2% quarter over quarter and decreased by 8.8% year over year to RMB 74.7 million.

General and administrative expenses.

Some of this increased by 12.7% quarter over quarter and decreased by 6.1% year over year to RMB 61.8 meeting.

Quarter over quarter increase was primarily attributable to the increased recruiting fees and office expenses and.

End of <unk> until concession.

The year over year decrease was primarily due to our continuous efforts in personnel optimization and a controlling and administrative expenses.

Non-GAAP DNA expenses for the quarter increased by 10.5%.

Over quota.

And decreased by 4.2% year over year to RMB 59.2 million.

Operating income for the quarter was RMB 95.4 million compared with an operating loss of RMB 73.9 million for the preceding quarter and the office.

And due to income RMB 65.8 million for the same period of the prior year.

Non-GAAP operating income for the quarter was RMB $27.1 million compared with non-GAAP operating loss of RMB $67.5 million for the preceding quarter and a non-GAAP opera.

Operating income of RMB $74.9 million for the same period of the prior year.

Adjusted EBITDA income was RMB 57.8 million compared with adjusted EBITDA loss of RMB 44.5 million for the preceding quarter and adjusted.

EBITDA of RMB $88.9 million for the full quarter of 2019.

Please turn to slide.

Teens net.

Net income attributable to rise for the quarter was RMB 28 million compared with net loss of RMB 58 meeting.

In the preceding quarter and net income of RMB $39.4 million for the third quarter of 2019.

Non-GAAP net income attributable to rise for the third quarter was RMB $35.7 million compared with non-GAAP net loss attributable to.

The rise of RMB $61.6 million for the preceding quarter and a non-GAAP net loss net income attributable to rise of RMB $48.5 million for the full third quarter of 2019.

Basic and diluted net income attributed to derive per EPS for.

The quarter was RMB point, 50, and RMB point 49, respectively basic and diluted non-GAAP net net income attributable to rise per ATM was RMB point 63 for the quarter of 2019.

With respect to our cash.

Cash flow performance net cash inflow from operating activities for the quarter was RMB $103.2 million compared with net cash outflow of RMB $118.1 million for the preceding quarter and net cash inflow of RMB 10 million for the same period.

<unk> of the prior year the quarter over quarter increase in cash flow was primarily due to the resumption of ultimately student enrollment the year over year increase was mainly due to the impact of the change in the situation see collections schedule in 2019.

As of September 32020, the company had cash and cash equivalents and the restricted cash of RMB 774.6 million compared with RMB 1 billion $22.8 million as of December 31st 2000.

2019.

As of September 30, 2020, total deferred revenue and customer balances were RMB 712.7 million a decrease of 5.7% from RMB 766 million as of December 30 Onest.

2019.

The decrease was primarily the result of revenue reclamation recognized for our courses and services being larger than the tuition fees collected from new students and a renewed students during the quarter the.

Deferred revenues and the customer advances were made up.

Of upfront tuition payments from students and the initial franchise fees from rising franchisees.

Now, let's look at our business outlook on page.

Slide 14.

We expect the impact of COVID-19 to remain or longer period.

However, we are confident in our ability to navigate through the challenging times. Thanks to our highly experienced management team effective and dynamic teaching stuff and a fully dedicated to support team. We have embraced the harvest of times in the last nine months.

And I have demonstrated.

Our resilience and ability to mitigate risks and any potential resurgence of COVID-19 during the winter season.

As a result of a growing demand for our services will have accelerated the pace of hiring and training our teachers with more qualified teachers in place we are aiming.

Accelerate the pace of the nonoperating classes for new students enrolled in order to shorten their waiting time.

In addition by implementing our auto and home strategy, well able to optimize the cost scheduling and as a result cultural capacity will be increased significantly so that we can.

To offer more classes, each learning center to accommodate a more students.

Meanwhile, we are hard at work, providing our teachers with quality training to improve our teachers retention rate and to further upgrade the teaching quality. All these measures are aiming to improve parents setting.

Option rate and ultimately to further improve our student renewal rates and retention rates.

All factors mentioned above let me give you the financial guidance for quarter. Four we expect total revenue in the last quarter of 2020 to be in the range of RMB 355.

Billion to RMB 365 million the forecast reflects the rise current and preliminary view, which is subject to substantial uncertainty with that I would now like to hand, the call over to the operator. So we can begin materially session. Thank you very much.

Thank you so much ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question you will need the presses star and one on your telephone and really proven to be a nodes. If you wish to cancel your request. Please press <unk> again its star then one.

That's the question.

And our first question comes from the line Ocean <unk> from Morgan Stanley. Your line is now open.

Okay.

Hey, good money, so I have two questions.

The first one is does not businesses continues.

The Kyrie so can you see trends so whats your initial outlook for next year.

And and also can you give us some oh well 10 for the next year.

And the second question is the students so acquisition channel or the nuclear enrollment.

So where do you go from different channels like including the your internal word of mouth, Oh from online and offline. Thank you.

Hi, Hi, Joel Thank you for the question.

So the first one the.

Next year's Oh no okay.

And potential or the growth rate Oh, we are actually very.

Optimistic about next year, a US me mentioned the in the presentation.

All the operations are actually back to norm with added capabilities Oh, you know from Martin acquisition.

Channel to Oh like core deliberately.

With the.

The enrollment, although it's very strong we already added a teaching and Oh, there was a person to the culture that the month so next year.

My my where we're still undergoing our budget discussions however, I think the gross rate well well be very high hopefully weekend or the educational programs.

And almost match the.

The number of.

2019, so so the you can you can you matching the growth rate will be in the 30, 40% if not higher so.

So that's a that's the first question the second question in terms of.

Oh acquisition channel or do the acquisition channel.

I can.

To give a high level descriptions I've been known can talk.

Talk more about it in fact, though we increased the the word of mouth.

Yep.

Well I do think there's the the strong momentum good luck Oh.

Two things one is that a demand to coming back to offline classroom is very strong.

Second is our offline network. It is very valuable to capture a the better demand very effectively <unk> in <unk>.

Second quarter and third quarter, we started or what we call the corporations with other Institute Big Big specially early Education Institute like our Gymboree like a Oh I see kids I recently, you own notice that a another instead.

Did you call that you've shown a when I went down.

We actually have a you know acquired their student pretty precisely in Beijing, and Shanghai and some other cities in second quarter all for.

The other.

But for this type of cooperation give us a a very strong inflow oh students and be the acquisition cost that for this channel, it's very easy to control because we can set up a terms to acquired its student.

A certain threshold.

Yeah. So I I think you know half the fleet between the online and offline.

Condition.

Perceptive and digital you can elaborate further.

Okay Alright.

Hi shell.

As a matter of fact to went out and started to reopen our offline learning centers. We do see the very quick a pickup the students who enroll with offline as a percentage of the total students enrolled for the whole mom and the percentage from the offline channel actually grow.

Very little steadily almost by one person every single mouse as a starting from June on up to actually October numbers.

So as of now I could give you a average number the offline acquisition steel accountable actually more than 65% as compared to the same.

On you know period over the prior quarter.

This is one number I can't share with you. The other metrics that we look at our very strong momentum in Rome and is actually on conversion rate increased a very steadily Ah things. The June Oh, one, but then the increase in conversion rate from June.

Until October so that's a very significant number I'm like increasing the conversion rate it will help us to reduce the acquisition cost for each student and the other thing we actually find it.

Our offline acquisition cost is significantly lower compared to the.

I think the same period of last year, which.

Which tell as we had mentioned that you know obstacle in the 19, and some meanie or medium size. The offline operations actually have Kashi shoes, and the went into bankruptcy and the computation actually safety.

To be seeking a release for quite a while to briefly compared to last year or so that's a very promising phenomena, we have all witnessed.

So and at the same time, we have also see the decrease the decrease in our.

Acquisition cost from the online channels, which demonstrates our ability to actually learn how to do the marketing online and also reflects the Isle were very well managed on investment he oh, partly students online.

Unlike other institutions that we shattered employing on their phones and jump in order to you know apply students to offer the causes of the topic a free of charge at whole you know moneyball lessons, if a trial and which doesn't generate.

You know we Stephanie.

Contribute probably added to the company just a whole acquiring the volume or the favorable to acquiring volume.

Okay. So just to add that Ah Ah, even though our acquisition costs on like a reduced a little bit he's a be a quarter two.

If you compare with last year.

Definitely the online acquisition costs increased pretty significantly I think view you definitely can observe that from other education companies as well.

However, as Jim mentioned, we utilize our offline channels really effect.

The leach and that is a very low cost channel. So blended cost of acquisition for us are definitely a very well under control.

Thanks, very much that's <unk>.

Thank you so much once again, ladies and gentlemen, it is star.

Okay, and one if you wish to ask questions.

And our next question comes from the line of Howard Young from Credit Suisse. Howard Your line is open.

Thank you for taking my questions and congratulations on a solid called her up there.

So.

Our go to question and I think that first question in terms of enrollment.

I would like to get a little bit detailed on a.

A third quarter enrollment, especially Oh, we mentioned the pagers you guys I'm only Erie resume operations in ER and they'll put pepper sorry.

That means that the stupidity that actually contributed nearly.

Nearly no contribution or.

In the third quarter and that that means that the new enrollments.

Enrollment obviously these are actually seeing a strong momentum to compared to last years and at the same times are in terms of.

The fourth quarter after the <unk> opening all does Shanghai Beijing.

Beijing I was struggling to how are we going to see that in the common theme, though.

Enrollment.

And I think secondly, also a follow up on the.

ER acquisition costs that we mentioned I've actually either offline.

Our progress report caused lower year on year and this year of all offline Oh, it's actually increasing this year and the blended is under control. So Currie have oney like quantifying numbers all the branded series in the third quarter because.

I remember last quarter, you mentioned that Randy.

It was actually flat year on year.

Thanks, Okay.

Yeah.

And is that I don't have worked a a nice to meet you on launch so I I will answer. The first question first and then the second one Oh I didn't know I can ask briefly and then Jim can give you a brief.

Where are you in Rome, and Josh if I could even during COVID-19 pandemic I wouldn't offline centers were closed we actually engage actively online to to do a online student acquisition to set up online demo a show the student acquisition never really stopped.

But you can imagine the effecting effectiveness off those only a student acquisition is no. Therefore youre right. When she does on Beijing, Oh blood centers are closed or the ability to enroll new students yeah, it's not a strong as we'd like.

Like however for the third quarter, you can see that the student enrollment in other cities, Oh, Hi, Ginger and and and you know those are actually very strong compare with last year. It's all in there in the <unk>.

Probably to a territory Schengen for example, we actually see a more than 30, 40% of the growth year over year and Ah.

For raising guidance, you don't even with a a majority of the quarter.

The centers closed we still are able to apart.

Our new student, but such a a slightly lower than last year as well because Beijing is the biggest contributor so when Beijing are still not fully recovered our third quarter enrollment or you know altogether.

Is still down from last year.

However in October Oh, the learning centers are opened we actually see a very strong momentum nationwide. So every every city from Beijing to show hype on dose and then she that draw Oh, the enrollment in 2020 October.

Every gauge or the Sox, we see more than 40% off our enrollment growth year over year. You know that October is not a high season September was so we actually are very are very encouraged to see this number and we believe the fourth quarter overall.

Well have a much stronger enrollment vis-a-vis last year. This is also a measure that we taken to catch up Oh, Oh, Oh student enrollment to you really increased our market share when other suppliers are actually under water. So I didn't mention that.

Strong demand oh fewer providers to compete and so that's the overall enrollment the Oh student acquisition cost.

Ah I think Oh, I don't know whether we disk.

Growth in such a detailed but for the Oh flight a cost.

We actually see a major decline.

Quarter over quarter, it's about like a 20, 30% decline for the all flash I think this really contribute to higher caliber.

Version rate.

And then when you can give.

Give us more information as to how award.

Okay.

Yeah, Okay, I remember last quarter, we actually on share Lisa our among investors and also analysts at the.

Estimate the number for the acquisition cost for that quarter is actually around the 5000 per student.

And also this quarter is actually a little work when she's actually we can truly to actually below 4000, and a 500 blended either I've read.

Each acquisition costs as Gill mentioned I can't give you a little bit more color [noise].

Definitely acquisition cost.

Last year, let's same period, all my acquisition cost Oh actually above 1000 again.

But this year, it's at least a 20.

5% to 30% lower than 1000 last year, so that which tells you know our offline AD work actually full marketing and are you really new students are very effective channel and a lower cost and.

Very productive.

Then I wanted to add.

Add to that point the effect of this this has been down when we actually sort of but those people on the ground and now Weve tried to increase the up a sales person per school onto to capture the strong demand.

So hopefully.

As I mentioned, the fourth quarter, you will see.

Higher gross a year over year and so the for the six months.

At together Q3, Q to Q4, we definitely will have a stronger year.

2020.

Thank you that particular.

Thank you so much.

Once again, it's it's starting one if you wish to ask a question and your next question comes from the line of from.

From today.

On your lunch.

Oh hi.

Based on your first congratulations for your good performance in the third quarter and I have two questions. The first is though you haven't turned to opens a new learning center next year, our next quarter, what's the expected number off the.

So Jeff.

Yes.

There's an earnings into her and different targets.

<unk>, respectively, and the second question is I would like to learn more about the OEM, Oh modestly and like how would you do to improve the utility.

Okay, <unk> or a school.

Good morning, I, just don't do mind, I'll give you a guidance to.

To Oneq, and then I'll hop around that level correct.

Okay in the third quarter, we opened it to O'neil learning centers.

During the fourth quarter, we plan to open a tool as you know Dan.

Yes, actually basically stop aka from.

You know.

Expanding our expansion plan for 2020 I initially early in the year, we plan to open a total of 18 and so the backlog of the 11 it will actually.

The rescheduled to.

The next year.

So till the 2020 year plan for Capex and opening new learning centers, it's going to be in a high double digits and definitely above 15, so what to do so it really depends on the location, we can't find a location.

Well definitely Oh.

Oh, well open a so the pace is actually somewhat that dictate either by you know whether we can find the optimal decision to open our learning centers, but the plan is that definitely.

Hi double digits.

Right.

Just to talk to him and all that so we see very strong growth in in cities like syndrome, Guangdong Shanghai.

We remind me of the time off Beijing in 2015, 16, or as I mentioned earlier for example, third quarter enrollment in Shenzhen.

The increase of nearly 40% year over year, well, we actually did not open new schools. So for US, we definitely think or we want to capture the drone market demand in those cities. Therefore on a next year will catch up on a school openings.

We do feel we are well one thing we need to do is to 20 enough qualified teachers and salesperson and manager. So that we can really manage those who well on the franchisee side Ah Ah Ah.

In or.

Our long term plan.

Plan is to open or you know are 30 to 50 schools every year for the next couple of years.

Mainly focus on tier one to tier three city, which has oh.

Oh, good affordability and a capable.

Not franchisees so.

So that that's number one on the OEM whole model and I think the last quarter's earnings release, I mentioned briefly four or more was there actually a couple of components. The first component is to.

Reduce the cost time from 15 minutes.

40 minutes. This adjustment has already started in the <unk>. The first off of September so the new students coming to K ones, who could agree already adopted a this new schedule. This alone of course will actually help would be.

<unk> cost utilization from 100, 238, so that 38% of increase a book or a costume utilization. The second component of the OEM role is to a move or the weak they cross is.

A ball.

<unk>.

Tool to online and so this one will make the students more convenient when they have a a schools during the weekdays.

And these are of course will also increase the cost to buy by 4% or the reason this presented.

Vintage is small because the majority of our students are actually below as one so as to is only a small portion.

Portion of the students that the third component for the OEM or is to.

For the online classes, we used to bleed into three groups. So.

Every group is one versus a six and now we actually upgrade our technology targeted to lead the crosses into too. So every class will be one to eight or one to 10 online. So this alone well I actually it can.

Increased the.

Page online class a time for the students and then reduce the teachers burden to teach that three times. So all these measures together all should be able to.

Got to increase the classroom utilization by nearly 60% of course this.

Need to be gradually implemented.

We just started I mentioned, the new students move from 15 minutes to 40 minutes and then from.

December.

We'll try to adopt that two existing students and then online with the technology ready equal.

Enlarge the Oh, my class, a and a number of student Ah I think that the now staffing to reduce the total cost hours, that's a longer term.

Thats next year.

Hope it's clear thank you. Thank you.

I think by moving that up to.

Oh emo will also be able to.

Open the causes more faster because online we actually have a flooring teacher.

Those those are parttime teachers and for the full time teachers, we already have they can have more content.

The d. to teach new classes, therefore, how fine too.

I recognize revenue on a faster so we wanted to speed speed up.

You know from new enrollment to opening new classes.

Mm Hmm.

Okay.

Thank you so much and your next question comes from the line.

Sure one from what type Securities. Your line is open.

Thank you good morning management.

My question is also about.

And model Oh, please describe.

And more details about the IMO matter for example from the student point of view US what felt from the students I and student side or are there ah different products to Sarnia about.

Online or offline.

For students to choose like I.

I I I would like to know, what's the product looks like and maybe a one sided.

One product so there are some.

Oh my parts and.

Okay.

Our hearts or just a different products and also from the.

<unk> side are the running team for online and offline separates it or a day there just one one team.

And also for the teachers.

Right on other teachers.

For online and offline courses separates it so.

So I'd like to know about the details and also another question is that what is the company's future plans for the allowable model what will it be like a in the future.

So so that's my best show [laughter], Yeah, Yeah, I I think everyone now I'll talk about away more however, I think it can be Oh, dear friend depends on how you organize it and what's the purpose is to offer online merged with offline Ah Ah Ah teaching and learning experience.

For right I would say first the we had this oh I'm all model adopted for our regular course, it and second we do offer a pure online classes.

These two lines are different by come to our model.

For the regular courses.

Our approach is online and offline integrated this is the one course, we are teaching at HSN, we split it online and offline four different a component for example, rice our curriculum it's highly interact.

Active it is the organized tour with a project based.

Based on learnings therefore offline its a small group classes, a with a lot of activities that you need to conduct a offline.

We do feel this interactive the teachers and learning experience.

I really are differentiated and focused on not only knowledge transfer or teaching lecturing, but help our students to know.

How to communicate how to collaborate in achieve.

Team and how to perform because a certain leadership functions within the group. Therefore, when we think about or animal model. We wanted to use the online portion only for or knowledge transfer or the ER before.

Focus a test for example, or do some language in the language learning you have a.

A grandma that you can actually easily move online too to learn and in some reading comprehension and also speaking like that.

Language, you need to puckish, therefore for the online component we go for the higher grade we offer a flooring teachers.

So our students can have the exposure to learn how to speak in authentic language.

You bet.

Maryland, and how to truck is those grammar and lunch, they're lower spending for example, so this is very tax driven can can be pretty effective online, but for the although not knight organized activities, we prefer to do it offline.

Even so.

So we are trying to.

Create a interactive technologies online so that we are the pic I make some hall, a huge a certain region or cost classes again, we can actually improve the online learning experience going forward.

And what we have today.

Page. So this isn't the only Movado is right of course is integrated it just to offer a different a component adjusted to the advantage of our online or offline.

Then as you mentioned the teacher already talk about that a little.

With the the when the answer the questions from Mahoney each for the Chinese teachers like now we actually they're all our employees for life and.

They is the that's that's they come dr., mostly offline, but they have the capability to do online.

Classes as well and then we added a flooring teachers, mostly pipeline teachers.

For the Oh My God.

Pieces. So that's the that's the way I already mentioned, we also offer a pure online clock. This today as of today, Matt logic.

Quick thinking and dual teacher, a unlike English small class classes are purely online.

And going forward, we'll continue that effort to offer online classes or just for the convenience offer student.

And who wants to have multiple subjects.

So that's one way to enlarge the student base or also the other way to extend our lifetime value for existing students increased ARPU as well.

That's a separate jobs.

Thank you that's very clear.

Thank you so much.

And your next question comes from the line of.

Joining me from 86 research your line.

Thank you for taking.

My question.

Could management share more information about the two dynamics a child Englishman Oh, you just mentioned that one of your competitor went bankruptcy recently, so how do you evaluate the market consolidation opportunity going forward, what's the management.