Q3 2021 TAL Education Group Earnings Call
Ladies and gentlemen, thank you for Sandy.
And.
Third quarter fiscal year, 'twenty 'twenty, one P a L.
Earnings Conference call.
All participants are in a listen.
And.
Net.
There will be a question and answer session Today's conference call is being recorded.
I'd now like to turn the call over to your first speaker today, Ms Echo Yan IR director of T. A L.
Please go ahead.
And so operator, thank you all for joining us today for <unk>.
Education Group third fiscal quarter 2021 earnings call for.
And call. The earnings release was distributed earlier today and you may find a copy on the company's IR website also with a new flow. During this call and you will hear from them. It has a long ball chief financial officer, and basketball like Crappy debt finance and myself and I are off yeah.
For the prepared remarks, Mr. Miller and the call will be available to answer your question.
The other continue please note that discussions today will contain forward looking statements made under the safe Harbor provisions of the a U S. Private litigation Reform Act of 19 manifest for.
These statements are subject to risks and uncertainties that may cause actual results to differ materially from other current expectations potential risks and uncertainties eat food, but a milk and limited to those outside.
And in public filings with the SEC for more information about these risks and uncertainties. Please refer a travel fighting a really at all.
And also other already is really a in this call includes discussions of certain non-GAAP financial measures. Please refer a traveler and he's really which contains a company a shelf be a non-GAAP metrics to the most directly comparable GAAP measures.
And I'd like now to turn the call a word to Mr loan book.
Okay.
Thank you and cool.
And good morning to you all and thank you all for joining us today for movies.
And call.
Just a quarter China's puppies had situations and economy continues to recover we are pleased to see that our tutoring business for us.
A capacity expansion progress you all cities have to lever one true up performance.
And this fiscal quarter, with Florida, and acuity of our offline and online strategy, which remain on track a really.
NUCYNTA net were expansions for Europe.
After a brief slipped a second quarter.
A quick overview of Apple a key metrics is as follows.
Net revenue growth and a third quarter was 35 per cent year over year enjoys a dollar terms true U S. Dollar one per 1 billion and.
And a per se.
And b types.
Total normal priced long term causes a student enrollments increased by 46, 5% year over year, mostly driven by online and that's where a straw.
Throughout the payoffs and more class and enrollment.
Net loss for operations and what's your installed a $127 4 million compared to income from operations off a goes the other 16 9 million and a third quarter last fiscal year non.
Non-GAAP operating loss was <unk> dollars 73, a claim of $4 million compared to a non-GAAP operating income.
U S. Dollar 99, 6 million same year ago period.
I'll now turn the call virtually and that's a west President and finance share. It gives you a update on our operational progress and you missed a quarter and that's the Echo Yan IR director will reveal that's a quarter financials. After that I'll update you all were being a strategy and discuss our outlook cleaned up is.
That's true.
Maybe it was a very true on your screen.
A true to win business with a third a counter.
Let me start with small class and other business, which cause it's a she wants to pay a small class for sleep, Bobby and some other education programs and a silly things.
This accounted for a 66% of total net revenue compared to 75 per cent, he was third quarter or not for fiscal year.
The revenue go suite with a 20% in us dollar terms and 13% in RMB terms.
And I have to pay a small class, which remains ours. So they bought a car business.
Dented 57 per cent of total net revenue in the third quarter compared to 63 per cent in the same a year ago period.
The lower revenue contribution from the U S. T. A L was mostly due to the faster growth of <unk> Dot com online courses, which accounted for 28 per cent of total revenue in the quarter compared to 19% in the same period last year.
Net revenue from yards for T. O. A small class was up by a 21 per cent U S dollar terms and a 15% in RMB terms.
Well all of a normal priced long term costs and goldmans increased by 18% year over year.
Our key operational matrix after your bachelors vacation, a great fulfillment suite and a drop off a great agreement once more a very stable.
In the third quarter normal priced long term and she also pay a small class a S. P was flattish and U S. Dollar terms and decreased by five per cent in RMB terms year over here the.
And the decline, whereas Monday due to the mix change a pay your online and offline business and.
And the more lower tier cities coverage.
Our third quarter performance in the various tiers of cities, reflecting the ongoing normalization trend after the early a COVID-19 disruption.
You have to pay a small class revenue from the top side of a cities, which are Beijing, Shanghai, Guangzhou, Shenzhen and Nanjing.
Increased by 19% year over year and U S. Dollar terms and accounted for 56 per cent of Jonas appeal small class business.
Revenue generated from cities other than the top five grew by a 24 per cent.
And all are to them.
The other cities accounted for 44 per cent of she wants to pay you a small class business.
Next I'd like to discuss our true kind of Y O Y and business. This business sector achieved year over year revenue growth of 14% and U S. Dollar terms and 8% you know a need here.
Chicago, a lot accounted for approximately five per cent of total revenue in the third culture, a fiscal year 'twenty 'twenty, one compared to six per cent you, let's say a year ago period.
In a third quarter normal priced long term true call Y O Y and causes a S. P increased by 13% and U S dollar terms and 7% in RMB terms year over a year.
The increase was mainly due to regular and increase of tuition fees and silversea tastes and this fiscal year.
Now, let me update you our true.
Capacity expansion strategy.
Hello, and a temporary slowdown in our expansion drive during the second quarter due to COVID-19.
We resumed the pace of geographic coverage expansion is planned for this fiscal year.
After our entry into 'twenty, one and you'll see it is in the first half of the fiscal year.
And we added 11, youll see trees in a third culture and surpassed the 100 cities a mark to reach a total of 102 a status.
These 11, new cities, a see a young U D, who Joe Gunn and don't feel it's young Chenzhou don't yield the agile hertzel bingo and a mommy.
Similarly, we accelerated a widening of our learning Center network and this is a culture based on for a healthy and sustainable a coach and five photos and government guidelines and market demand.
In Q3, we added 54 and you'll definitely.
Centers net basis to a total of 919 learning centers.
We opened 15 night and we'll pay you a small class learning centers and closed six pay you a small class learning centers.
We closed for movie and force leaf centers and.
And we opened six one and one centers and closed one Y O Y and center.
During the quarter, we added 637 pay you a small class classrooms.
And Oh by the end of November 'twenty, 'twenty, we had 900 and a 19 learning centers and why.
100, and some cities.
Of which 401 cities in China, and once U S. P. A learning center in the United States.
Among the total 919 learning centers.
100, and a 69 or pay you a small class and international education centers a.
And he said a word the merged for sleep and the Maldives small class and 134 or do you kind of a one on one.
As for Q for all fiscal year 'twenty 'twenty, one until now we have conditionally rented and 31 pay you a small class learning centers.
As always we expect to add a few more at a close down some learning centers based on standard operations.
We will continue to closely monitor the developments with regards to COVID-19.
These estimates reflect our current expectation, which is subject to change.
Turning now to our online business.
Third quarter revenue from Georgia, Dot Com grew by a 102% and lifestyle or two and for year over a year.
A year.
And a 92% in RMB terms well.
Well a nominal price long term courses enrollments grew by 19, 2% year over a year to over one 7 million.
And contributed 28 per cent of total revenue and 50% of total normal priced long term and he opened this quarter.
Compared to 19% a total revenue and 38 per cent of total normal priced long term class enrollments in the same year ago period, respectively.
The growth in online business was supported by increasing demand of online education, as well as sales and marketing efforts and the retentions of the previous quarters.
In addition in Q3 normal priced long term online course E. S. P. A with almost flattish and U S. Dollar terms and decreased by 6% in RMB terms year over a year.
And then they do to the mix change of our diversified online course offerings.
With that and we will now turn the call over to Echo Yan for the update on third fiscal quarter financial results Echo. Please. Thanks, Linda let me now a closer to some key financial points for the third quarter of fiscal year 2021 gross profit increased by two.
99, 2% to 600 and a.
But.
The $3 $6 million for 407.
Seven point to a minute that's all in the same year a gawky area.
Gross margin for the third quarter decreased to 53, 9% as compared to $56 four per cap for the same period of last year.
Selling and marketing expenses increased by 123 per cent to $427 million from.
From a 190 point, Matt a mini dress dollars in the third quarter, a physical year, 2020, non-GAAP, selling and marketing expenses, which excluded share based compensation expenses increased by 118% to 400 and a six point for many dressed all.
Yes.
From a 186 point for many U S dollars and the same year, a golf P. M at the year over year increase upset and marketing expenses in the third quarter of fiscal year 2021 was primarily a result of more marketing and promotion activity.
Stress and other customer base, and the brand as well and higher compensation to sales and marketing staff to support a more programs and the service offering.
Other income was $45.5 million for the third quarter of physical year 2021, compared to other expense of 3.7 million just all in the third quarter of fiscal year 2020, other income in the third quarter all fiscal year.
2021 was primarily due to the a value added pets and a social security expense exemption offered a by the government during the COVID-19 outbreak.
Empowerment law, a long time your last month was $11 5 million less dollars for the third quarter of fiscal year 2021, compared to 46 point for a minute just all this for the third quarter of fiscal year 2020 impairment loss on a long term investments was met a.
Due to declines in and be a value of a long term investments in selling and that piece.
Income tax benefit was $13 nine many just dollars and the third quarter of fiscal year 2021, compared to $16 six minutes and that's all it all.
Income tax expenses in the same period of last a year.
No actually a beautiful two P. A L was for this $3 6 million in the third quarter.
Fiscal year 2021, compared to net income attributable to T. L. A.
And $19 6 million U S dollars and a third quarter all fiscal year 2022.
GAAP net income attributable to T. A L, which excluded share based compensation expenses was 10 point for a minute and that's all ex compared to non-GAAP net income attributable to a P. L of 49 7 million U S dollars in a third quarter often.
Full year 2020.
From the balance sheet and that's all from November 32020.
The company had 4200, and a 33.2 minute of cash and a cash equivalents and.
800, and a 64.8 million U S dollars.
Short term investments compared to $1873 $9 million of cash and cash equivalents and 345 point for many and that's all that's off a short term investment as a February 29 2020.
Yeah.
The company's deferred revenue balance was $1957 1 million compared to 1250 $1.2 million as all from November 32019, representing a year over year.
A new credits, a 57, 7%, which was mainly a country butane, but until you can come back to you know a once off see a force match her winter semester and a part of Springs Master I'll stress and pay you a small classes and.
And I'm like horses for Ww talks to a spell com.
Now I will hand, the call back to Mr. A walk to briefly update for you a harvest strategy execution and a provider business all of the book.
The next quarter from please.
Exactly.
Despite the unprecedented challenges and this year, our business manager and deliver a certain percentage revenue growth year to date.
From a long term growth Felicia.
And the rest of a strategy for a long term remains unchanged.
Regardless of the COVID-19 challenges and a growth from a competitive pressures and to.
Remains a top brand and courtyard and services shrub a long term sustainable growth strategy and innovative technology based application, a comprehensive and cutting edge product portfolios and with a strong and proven operational foundation.
As China continues to recover from a pandemic and we'd have to resume and expansions.
Sensor networks and jeopardy for courage and Q3.
He spent most of our learning center a coverage.
And to into more lower tier.
Curious if it's we have seen the other offline presence and localized content together have clear a once you have more precisely meeting our customers' demand and different locations and they support us and building both offline and online brand and reputation all cities that we have covered.
So we have continuously develop and draw a more pay your education products to further build out a real comprehensive and all.
A model like this we can better serve our customers by offering them more flexibility and efficiency.
As always we will conduct a beans and language old relevant government policies and regulations, including those that Rick and National public health are offline and online operations remains and Ravi to deal with any topic topic Harris computer and says maybe.
He and his title off rapidly.
Technology developments and COVID-19 pandemic impact on either a patient.
So it's a flip of a price and that has been.
And pervasive effect.
China's online market opportunities, a sharp as yet and the competition.
Landscape and just in terms, if there are simple and look shortcuts and building a sustainable business and I would like to reiterate that we have we will.
Cause a century pursue our long term strategy, regardless of what kind of from a shot and challenges we are facing today and.
They're a key investment and technology teachers and marketing.
And I made a press to build a or online services with top quality content and customer experiences.
We're firmly believes that education player education education, our long term accomplishment is the funding only by the quality of our products services and technology instead of purely marketing.
Let me turn finally, a choppiness outlook.
Based on a recurring estimates total net revenue from a for the fourth quarter of fiscal year 2021 is expected to be between U S. Dollar one point and one 7 billion and.
It's not a one time 2 billion.
Representing an increase a 7% to a 14% over a year or year over year basis that concludes my prepared remarks, a preacher, we're not revenue with good questions.
Ladies and gentlemen, we will now begin the question and answer session.
If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your class.
Expressed a pound our husky.
Once again to ask a question you May press star and the number one on your telephone keypad.
Your first question comes from the line of Mark Li from Citi. Please ask your question.
Hi management, thanks for that presentation.
And also for your next quarter's guidance, how much have you bake in the latest impact from the unfortunate.
A two three.
A lockdown and Beijing area and a how how are we are handling a decided a beijing based it's a policy. Thank you.
Thank you for Marc.
I think it's very important to recap.
And the guidance and Q3 results again, because sometimes you just for only two into one quarters, sometimes its misleading.
For Q3, we have some numbers need to draw your attention because I'm sure. When we talk volume a screen and sometimes it's too long and you guys don't catch them.
Q3, a repay all small class beans growth 21 per cent compared to previous quarters is recovering and each year once and we need to mention is actually a payroll life growth the pure like for revenue growth and the U S. Dollar terms. This quarter is 148 per cent one for eight per cent.
And a.
Second I think a restaurants online school growth and Q3 is one hunter or two per cent and U S. Dollar terms and he has been around 28 per cent a total revenue from a fuller for the whole company and more importantly, I think starting from maybe last quarter.
Coleman throw and show US a online school has already surpassed 50% off for a total enrollments in a company.
And in a support and we need to recap a number is actually if we consider payroll life together with <unk> online school is online which means the online total revenue the growth in a quarter is 114, 2% Walmart for a one two per cent and there they have been around 41%.
After a complicated rockville and 64% after a total enrollment.
So with office numbers and Q3 will go into next year, a next quarter Q4, I think crude and guidance, we have something to a level of cash no number one.
We all know it's very unfortunate to see where we would have seen some cases in Beijing and maybe in some other cities.
And the pace and he is a big city with more than 20 million populations today, we'll have to see what all of the patents of their confirmed cases are out there and.
And we 100% of it's been a government and followed a government requirements to takes a reactions to make sure. We're always pugh. The students parents and first priority, but let's use has change if I can still remember last year I think steel is the earning call and maybe almost a simple opinion last year January.
Actually we are worried that shock to us at that time, we don't know, what's the right way to do so a move from offline to online cash.
And of course last year coming into this year with a one year experience dealing with this kind of new challenges and we're also very happy to see that government has effected control a lot of city.
Situations and in most cases in China, So a way a more way up and prepared than last year and our visibility to provide more offerings and maybe kind of more flexibilities to the students and the parents is also improving I think part of the numbers.
As a payroll life, a gross numbers and initial so I'll ask a gross numbers and two or three or maybe in the past a rolling trough a monstrous can demonstrate actually a based company has a magnitude how to use for the online technology to deal with all of these contingencies. So we're more than confident than last year. Just day, we can deal with a b all these challenges.
Where we are.
Especially in Beijing, we have followed a government requirements and move of our offline classes online. During this transition. We are also happy to see both of the parents and students acceptance rates are so much better than last year and a lot last year, we pull a students and your first priority and we are.
Separate of price a little bit in the price and some other stuff. This year, we'll have to see that since he is getting better and all.
And Oh mine continue to be a vertical way too as a complementary service to our students and we believe we don't see a major or maybe materials and impact coming from these kind of moving from offline to online this month's in Beijing.
And my Q4 guidance I think I product and talk about more about it I think some key directions, a almost similar to avoid a seat and closer it and number one less payroll revenue is still recovering and we can see that a payroll revenue growth even way, taking all the low base last year.
And the payoffs a revenue growth and cool for steel a fab.
Faster than Q3 is continue to recovery and.
And secondly that seemed a shirt online SKU growth the revenue growth in Q4 is also pretty much on track, but I for one thing to draw attention. If you guys can still remember last year the.
Spring Festival for China.
Sorry.
Generally can be a force while this year the timing of Spring Festival is February 11th.
Which means last year, if we consider a Q4 numbers actually they have for a long weekend off a springtime, we look for it and a lot here. So for this year and cost of late timing. After a spring festival, which means we'll go and what we can from a spring tense into Q4, which means we will lever it up.
10% of revenue.
Lending.
Les and careful that's kind of a timing differences due to a ton of spring festival, which happens, especially when the spring festival. This year, it's much later than last year.
With a long 10% gatherings means maybe if we can translate that back to restaurants online school revenue growth will be around a 10.
20 points to 30 points in the grocery <unk> patents, if we translate them into a company overall level of revenue growth will be around eight to 10 per se. So eight to 10 points. So if we wanted to have a apple to apple comparisons off and numbers and need to be pulling back to two two and a situations.
Yes.
And so I think a true.
And we're also increased a fully prepare maybe starts and what happened basically and we're also happen to be in cialis cities.
We will continue to leverage in the past one year or a half a lot of a lot of experiences and know how and how to use the overnight and technologies to have a students and their parents for.
And then to get quality services, not only offline, but also and so we'll continue to do so.
And the whole team and the whole book, both both a assurance payoffs and a sharper on a scooping day.
Also a fully prepare for that we have for one year a warehouse one your experiences in the past talked for months. So we're getting ready for that and again, we're fully believe waste our elements Boris Joe executions, we will control a as kind of situations a lot right.
And one example property and basically.
You can see that for a lot of taxi drivers and they have already got a vaccine.
We believe this year.
Essentially the patch a day last year and last year, maybe it will be better than this year and we still will continue to and our growth strategy and made.
Necessary changes.
And where needed and.
General and we're still quite confident a ball there Robert.
The growth and the Q4 and that kind of a one year.
Thank you Max.
Sure. Thank you for all onshore.
Your next question comes from from.
Line.
Okay.
To your question.
Thank you and thank you for taking my questions are.
And I'd like to a two.
Two questions about for you.
A quickly for the payroll offline business and you can.
A share with us.
That's a reason for the for this.
Uh huh.
That's a bit lower growth compared with offline tiers.
And when should we expect to exit a region.
For you or more.
Correct.
And then kind of net incentives.
What will be or.
Capex for the capacity expansion.
Per year.
And secondly for pay you a lot and congratulations on a very strong result, it's quite impressive and sold a 100 per.
88% growth and.
And how should we think about that.
Okay and multi strategy.
And the next year and a.
A lot about the growth targets.
And next year. Thank you.
Thank you Alex.
And the first place I've seen where we.
And running our business in this market.
Only one we need to compare as a resource.
From a company and we will choose different strategies, while a different companies have different maybe belief a way as a company who for.
For more applications from a sensor technology with fully believe law and I think a knowledge and hurt us.
And to reinforce a competitive capability to a surplus students and may I.
And it's more scalable.
So if a.
We'll go back to talk about a pay you a rev.
<unk> growth.
A.
I'm, saying is why is it just now number one the all flattish to recover it and so we will carefully.
Expand our Newton and incentives most of and steel mill.
And in a.
Clearly the existing book.
Big cities and stopped and we have a code will go to ethane and usage and Youll see that and the last two quarters, we have and are off so if you want new cities, but.
Alison and I think most of the new classrooms, we're actually stealing the current status. So we need to balance all of that and on the other size I think is why I talked about a last quarter.
And the past few months is it's very important timing for a company because wei.
A figure out actually online merged offline models some classes offline some classes online.
Already be volume Butler.
Parents and students so we need to leverage off these efforts. So we're continuing to roll out a payer life to a small geography, savage and what grades and with a.
And also try to you want for appeal lives model, maybe from a big class, maybe two small class and even even more debt.
And debt. So we believe risk kind of online merge offline strategy were hired us to cover the city is much deeper than what we can do before it will be much maybe we can penetrate.
Marcus and then if I only use the traditional offline models. So that was actually lost a few we believe in and all the numbers in.
Top top tier cities, where we have a.
A stronger a pure like offense there.
True.
And by the numbers.
So I think the OMB.
Going forward, even in this quarter receipts some kind of.
Cases, and basing or maybe in Shanghai.
But we still believe if we pull all those things and the longer term, maybe one year or a two year. Three is can we still believe that <unk> will be a writes a fedex strategy on one side, we need to mail, a smaller incentives closer to the parents and a cooler tula.
Living communities and in.
A second place will continue to show a more pure offerings to serve more students per.
Right and more and DVD.
And kind of services like debt. So all of this combined together with our local content and local teachers and local students and local services, we can leverage their times and per.
And in cash.
<unk> efficiencies much better.
So what happened this quarter it will not change our long term growth group.
Our strategies and what we need to do today is actually May Shaw Joker and base transition time will take care of flow students and their parents a word carefully we need to collect more data from the parents and the pace.
And our students and their behaviors and figure out the best way to them. So.
And.
If we're moving to next year I assume we don't change our outlook and a long run we still believe.
The whole company in a long run throughout the industry as time to still maintain and a revenue growth a rough so take a 50 per se.
And the stretch it out a cents.
And the Russia and is also very clear a wall and introduce May show a executions is right on track. Thank you.
Ex.
Yes.
Got it and they're helpful. Thank you.
Your next question comes from the line of Sheng Zhong from Morgan Stanley. Please ask your question.
Hi, Hi, Thank you for taking my question. My question is about a bond the online online education.
Some acquisition costs and now we see from a market that the cash is going up so quickly so long doing what it is.
Just a dotcom economic model now.
During a different customer acquisition channel and that what the company no.
Pat.
Sales and marketing plan for next year. Thank you very much.
And Joe Johnson.
I think where most people talk about online education. There first thing for some questions kind of Iraq is customer acquisition.
Acquisition costs and.
Sometimes a is kind of thinking where oversimplify the capacity off on a education models I think in our perspective.
Number one on that education is a stool education they.
They have a lot of old ones you see online for example, they can carry the cost stream and sample a time on location, but they're still education.
So I personally I agree with south the opinions from the.
Coast recently publish.
And the newest channels a.
Education, and actually we need to.
And we need to follow a their own groups. When you true pool like quality services, how to teach their students better health and make sure they're all count as a better as a first priority.
And now running a business like such as E Commerce E.
E Commerce, they can promote their business, where a quickly by vacations.
And our pilot customers is only there for a step after a long process right. After that we'll have a lot of things and we need to do and India and whether you can teachers and students where whether you can make maximum and theyre all come from the limited time debt to.
Third a differences so to make sure. We can do that I think we will continue with a divestment I think and maybe areas number one is the content developments.
And I'm, a pure life is providing a localized content and but on the other side for the <unk> online school is also trying to provide more tailor made a.
Content and services to a student's with trying to understand and understand the students more and we're mapping the right level of difficulty that progress.
And the reversion outlook after a part us tourists do this which require more investment round with you and if for example, if you're in Khartoum perspective previously all of contents will be.
A to be a products by and the future will be really hurt us. So all of this necessary investment and content as well.
Our first priority second tier and the technology needs to be more and more important I think because today, we are serving more and more students and our platform. We are selling millions after a normal priced long term enrollments together with the other and maybe millions of there maybe a promotion and enrollment students here we're all for.
And affordable price about which means the more skilled and it's coming but we need to make sure no matter how much they pay with day.
Deserve a water quality technology solutions. So we need to continue invest over here to make sure. We have for a much stable platform. We can do more mid interruptions and.
For a casting quality and all of that will be continued to be improve and all of that tech technology investment is already a very important number a series we need to continue and you Betsy and teachers and teacher assistance I think all education. They have a lot of advantages by steel is one way of applications and right.
Before we have their AI paradox, maybe throughout five years total later today's products steel is a people intensive products for a people intensive protos and <unk>.
It's a very important so we need to make sure we do a black training tool and teachers and teacher assistance, we'll keep them group.
Compensation to make sure a.
And also encouraging.
Encouraging of teacher and teacher assistance to surface stood a square.
I think all a necessary investments and that.
From a teacher assistance our unnecessary.
One last point and the marketing is also very deposit and fee.
From speaking we are also like a company sometimes people ask me the message the message us and behave compared with the other corner past a waste your strength and voiced a witness in general I think our company will be stronger in the teaching with teachers and students we use for the right content and to surplus students were made.
Sure.
And you have more pan out.
A more all cash come for us.
And marketing side and.
Actually compared to other companies who are waiting to.
From a lot of money actually a we are way below so we're catching a little b class, but still our philosophy.
We strongly believe the investment in content and technology and teachers.
Matches, and a long run and a necessary investment and marketing maybe what is important but we need to make sure we need to balance all the great tennis, and the investments and risk status, which and now century fire and the lifetime value us only for marketing so we need to have for recoup balance.
And be more heresy and control those investments the level of investment to make measured.
And I work I think losses in general, yes, and increasing but when he's a separate into two parts.
The only other kitchen company to always a quiet customers for to kind of channels number one.
Now, bringing channels for example, a wechat maybe volume.
And for other platforms and these platforms losses increase and definitely they will have some maybe fluctuations from time to time in different quarters by a general that's increasing so and introduced actually.
Sure our investments and debt channels.
And a balanced view both heresy.
And considering both healthy and market share.
And the other side is a break and channels and we prefer to invest and what money on our brand and channels would prefer to invest more money into a recurring <unk>.
Children and parents and encourage them to refer the other.
And the parents and for our careful.
And if you ask me and we'll have maybe $100, where you wanted to pull them and as well more than where it can to pull a monies and other teachers and.
Parents and students more than purely marketing.
So I think we're always managing our companies.
A more balanced view and where niche you pool, Matthew Harrison cruising for all from a purely numbers and less.
The coming maybe one or two quarters, sometimes it's also high for a lot of changes because for example, the cases and Beijing.
They are going back to their offline, maybe getting a good online so revenue ideas. So we need to it with a comment and we need to be more flexible and we can and managing a different kind of surprises on the situation of challenges and trough apps by the and no matter, where we are both all fabrications.
All applications, we're always true the magic housing growth and our students and the parents and first priority.
Debt of purely a marketing.
Yes.
Thank you.
Thank you.
Yes.
Your next question comes from Felix Liu of UBS. Please ask your question.
Hello, Good evening management and thank you for them.
And my question and I'm sorry.
A lot.
A common.
And and you mentioned that you are investing in tungsten mountain and.
And especially on the strength online school.
And why tailor made content.
And I like it.
And it is moving.
Bad debt.
And I'd like a content.
A pay you.
On a big thing.
Any opportunity to play a more synergy between the two business lines may be in terms of the content and.
And even in terms of pipe and acquisition and like.
Second question is that a I recall you had previously mentioned and you still want to keep a level.
And then and protect all day menu.
I want a position that's right online school all day.
Thank you sounded more balanced on a comment on sales and marketing.
A double check whether you know they sell and tend to index and not to keep all right.
And number one position.
Yes.
Yes.
Think of a Fedex.
And I think both the other payoffs from a class beans, and addressable and scoping and still.
Both up and running.
Running under a brand new offshore it's true.
So we have for a lot of synergies.
Between these two.
Our business teams.
For one is the content I think.
Of course, we are not perfect and we have a long way to go to be perfect.
We have starting I think from a starting point, we have tried to leverage a contents not only for lumpiness, but also can be beneficial to our businesses. So we don't want to be over there maybe the content look anything again on a do a lot of rapidly cable or a worse, so where leverage and a constantly around.
And we have been payola and.
And maybe some and.
And we tried to share the investments are out there. So this kind of synergy and concepts that especially in a localized content perspective, that's a real per hour for us on a single business in the future.
And because sometimes doing localized content is very debt pay some time, you'll need to know maybe more than 100 cities and what's happening around where they are and why they are a special requirements.
And that is a ways.
And maybe the features index city and all of that so that takes some time to build a network. So we have for that pay us more cash never go over there and we can largely as a beneficial.
Second I think.
Lets students.
The student data is also a.
Why are important areas, we have synergies because today, we have seen more and more clearly actually lets students can move from a.
Online and offline. So we have seen maybe for example, and Shanghai as a students they started and assure so on a SKU and the beginning and then they move toward assures a law.
Youll ex the localized online class a platform and solve it day.
Also move toward assurance offline and.
We're also seeing less the other day, Russia is happening in our task for US I think no matter for us offline pure life ourselves a honest accurate debt different products to a student's lets students can choose based on their own conditions. Some students may prefer the quantity of sales to us and the prep for that maybe the convenience.
So I think with all these kind of the reach product offerings with a surplus students and the parents much better and we also have a lot of synergies and a technology perspective, especially when I see you guys can still remember hall payroll I've come up and I.
We're seeing a low.
The appeal of small class and a path.
This is a purely offline business, but today around 22% of their revenue coming from a payroll ethanol and thats be cost a pure license leveraging a lot of technologies for oil and a show so on a SKU and therefore, some even more.
Synergies and the futures and for.
For the online I think.
I think online is a very important.
Market opportunity because on a offer us opportunity to leverage the high quality low quality services to waste a force.
For price to serve more students youll perfect and see that if we come back online and offline together the asp's decreasing.
Quarter over quarter, because of a with more and more contribution coming from unlike todays around 41 per se so a bit.
And.
And so.
They offer us a new way to be more scalable in a newly emerging markets. So what we need to do as we wish we can large of a wanted us to be leaders in their market.
But to be leaders and their market doesn't mean surreal maybe burn all the monies to be number one.
And always need to deliver a manage a heresy growth. So we still stick to our plan to become a very important maybe a leading platforms on a platform to surplus students, but we care more about quality offload.
For our services and we care more.
And whether the parents and students are satisfied with the other part us So we and we also believe on education.
<unk> education.
If we can continue to deliver our high course, there's two day, let parents group buy and so a same as what we see.
And the retention rate our path for our retention of online is also maybe one of highest in this industry. So wishes flooring and polymer matrix to say, whether youre a services really media and it's so looking for will continue to be leading in this space, but we will invest more in a row.
<unk> contents and a teachers and we wish we can leverage our advantages boasting the pay a small class and other.
A risk to make sure we can be more successful in a futures.
Thank you for ex.
Okay.
And thank you and thank you very much.
Okay.
Your next question comes from the line of D. Ex kin of Jpmorgan. Please ask your question.
Hain room, Hey, everyone. Thanks for taking my question, a perhaps to continue on a similar vein our big picture strategy for online.
RV and becoming more aggressive trying to diversify our traffic sources, given a rising channel costs from both a waiting and going in and all that I noticed that a we are pushing to play a pay at more aggressively and recent knee and wondering how we think about growing our own for Terry.
Traffic here or as you just mentioned and viewed.
They're focused more on synergy between <unk> and channel and online.
Rather than developing our own homegrown net.
Thank you.
Good question.
As a number one.
We are investing some money to do let's see a pipe Hyatt wafers.
<unk> for a parent's king.
A came a help their students.
And I've said a difficult in a homework.
And that is a NATO.
Nate Nate's showed a parent's needs a family.
Now, our so called traffic pool.
For the K trough online business. So that's a separate definition and those companies.
Companies May say this kind of the two is can be a traffic pool for a K 12 students.
And my school par.
I think based on what they see with industry and maybe it is not a case the most of the original and pension and philosophy, we want to leverage this kind of <unk> to make their word of parents.
It's easier and so when they have scientifically it became.
A two two made a lot easier.
That'd be.
Part of the needs.
A.
SME education side. So we have millions of students in a platform we need to make them, we need to have them a.
Reduced debt burdens in this area. So that's our attention to do that and we don't believe that said Larry.
And of that becoming a so-called trophee pud and convert students from there to a shortfall in high school and Thats not a case for us today and.
Yes, you are right I think let Brent and channel or maybe less students and parents, who buy our branding a maybe a whole style pass on to day, that's a very important source for us to acquire new customers because the brand and channel.
And for Education companies look brand, new obviously is true.
Level of the minutes a number one is branding awareness how many people know you are seeing awareness, sometimes can be can be delivered through maybe advertisements.
The second level of the branding.
And how could a Brent this reputation and I'll throw a brett and I assume for education, and the only way to get a reputation as May show a group delivered a cool quality services and yours.
The teachers and students weird and.
Of which pay for some time.
So we want to make sure our brand and channels bigger than before and I've seen the first two initiatives now to marketing.
We need to do is invest in content teachers and technology.
Measure a students. They are all first day light platforms, and if youll have to and our platforms and.
Progress and how platforms, so when only which they are being poor and making progress. That's the only way a branding a accounts. So here, where we can invest more energies and pass for our here, where you're a surface students a much better and then a brand and we will become much better and more and more people will come to your platform directly for you.
Cost a few off the grid, so that is less circle with stronger pace.
And consumers and it's very insightful and a thank you again.
Thank you.
Your next question comes from the line of Alex Liu.
China Renaissance. Please ask your question.
Okay.
Yes, thanks for taking my questions.
And in terms of 11, new cities this quarter and most most of these Cds are actually tier two or tier three.
So how would a.
The business from a strategy to different and D C.
It is from our existing fleet in terms of speed of the ramp.
Scaled down a flanker.
For the as far as the mix of the payoff for.
And business eventually thank you.
Thank you Alex.
I think.
When we go into low tier cities I think general will still maintain a practice and a path over maybe 17 years with first until a new cities, maybe only a single credit single subject and with teachers students and where and we try to a gang and their reputation.
And the local cities and right. After that we will try to promote our appeal life offerings on top of that so.
Because.
And maybe less and less in the past few quarters.
And merge both online and offline in a PC to elaborate in Shanghai, we have a larger group.
And of experiences. So we're more confident that and maybe when we can make our reputation as a branding establishing a larger cities, but you may be faster for us to promote and may be a.
Like for like offerings, but today oldest 31, new cities wear and tear with Tony to hurry to promote.
Life offerings, and we still stick to our whole approach step by step Bill showed up a patients there.
I think the longer time, you invest in a city and better for patients who have appeal. The maybe pick a potential you'll look at coming from debt pace. So a weight on harrington to enhancing we still.
And <unk> call and patients and the <unk> and <unk>.
For us says chiller purely for offerings. Some submissions easier. So we'll also based on a student's needs to me net.
And necessary changes, where we offer them a different types of products throughout the day.
Alex.
And thank you sorry, just a very quick follow up because I think I think a few years ago a levered.
Previously targeting and about I think seven or 70% to 80 cities, where we think and makes sense probably for offline operations, but right now and we're already at a 100 cities.
So just wondering you know how many cities.
As a company would eventually.
And true with offline presence.
Yes. Thank you I think that's a vertical question and just seven years total wire for us because a CFO as companies that had told a story a thing we can only and turn it off slightly from 35 cities at that time that considering the traditional offline.
Operating models it was a more wear and tear I think was a sacrifice and the properties and modules and then I think that things have changed especially in a technology has a new wolf, Florida quickly so a waste.
And.
A lot of empowerment offload technologies to a gradually developed a duty share models and now weighted rather the nuc and perhaps the only and more models for a leverage both on and off net wantages, So which means the company the lipid molecule will be more flexible and scalable and so we also are and with more confidence to penetrate.
For cities today, we have around 100, or 200 cities and 101 in China and Gala one.
The only one in the U S and.
And maybe looking for we still have possibilities and maybe.
And then maybe the other 100, new cities and a longer term, but that will not happen and while two years debt that they were happening a little bit.
Okay. Thanks.
Thank you.
Thank you Alex.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect your lines.
And.
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