Q1 2021 Rise Education Cayman Ltd Earnings Call
We caught it I would now like to hand the conference. What's your first speaker today, Mr. Aaron Li. Thank you. Please go ahead.
Thank you operator.
Hello, everyone and welcome to rise decisions force cover funding for the what earnings conference call. Today, If you look beautiful new people on wall chairwoman and CEO and Mr. Warren Wong for people when we walk over recent business update operation on the company's long term strategy, wherein we will go over the financial results for the quarter.
Both will be available to take your questions in the Q&A session for photos.
Before we proceed I would like to remind you that today's discussion may contain certain forward looking statements made under the safe Harbor fruition of the U S. Private Securities Litigation Reform Act of net index by.
These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from current expectations.
Understand the factors that could cause results to materially differ from the port for looking statements. Please refer to our form 20-F filed with the SEC on April 19th for 'twenty 'twenty, 1 sorry for not assume any obligation to update forward looking statements.
As required under the applicable law.
Throughout today's call lethal and Aurora will be referring to the earnings presentation.
Loaded to our IR website as a supplement to today's call.
Now I'd like to turn the call over to legal Dupont. Please go ahead. Thank you and Hello, everyone and thank you for joining our earnings call. Today. We're pleased that 2021 started off on a positive note with the business recovering strongly compared with the prior year. Despite a resurgence of COVID-19 in certain areas.
Northern China and recently introduced the regulatory restrictions, we still managed to deliver strong year over year improvement on both our topline and bottom line in Q1, we.
We are pleased with the overall business performance when measured against the favorable macro environment moving ahead, given the critical regulate regulatory changes we are facing right now as an industry. We are working to fully upgraded rise into multi for them attitude training provider.
In order to proactively navigate the challenging environment of the domestic education market and drive sustainable long term development of our business.
Now I would like to give you some detail itself on quarterly results first.
Please turn to slide 3 for our financial and operational highlights for Q1.2021 revenue were RMB 262 million in Q1 up 140 per cent from the same period of 2020, we also significantly narrowed the adjusted EBITDA loss and adjusted adjusted net loss on a year.
Day basis total number of new students enrolled for rise regular courses with 5846 in Q1.
Compared with 1507 for Q1.2020, we saw a quarter over quarter decrease in the number of new students enrollment. This was mainly due to strong seasonality in the ELT market, where students enrollments are usually lower during the Chinese new year season in Q1 as well.
As our recently introduced the regulatory restrictions in Beijing during.
During the quarter off of learning centers, we're in for offline operation except for those in Beijing due to the resurgence of COVID-19, our learning centers in Beijing Shijiazhuang were temporarily closed I think Nathan to January.
Ah and panic situation.
Uhm eased off on learning centers in Chicago on resumed offline operations by the end of March only 1 of our learning centers in Beijing reopened in March while the offline operations of all other learning centers in Beijing remains suspended due to regulatory reasons. These factors Pete <unk>.
<unk>, our new student enrollment in Q1 and was the main reason for the sequential decline in the number of students in class for regular courses. We believe this is temporary.
We expect our learning centers in Beijing, well gradually reopen once we satisfy regulatory requirement. We expect that both of them are in enrollments on students in class to be back on track Accordingly.
March 31, 2021, net cumulative number of enrolled students who paid for our regular courses and other courses in January 2019 exists exceeded 215 solvent and 100000, respectively based on the extensive Pete fee paying students day, we will.
Execute our business upgrade plans to drive our long term growth with respect to capacity expansion.
For the end of March 2021, we have self operated 95 learning centers nationwide compared with 92 in December 2020 on franchise partners opened another 10, new centers in Q1, bringing the total number of franchise for the learning center to 200.
30 at the end of March compared with 220 at the end of December 2020.
Now onto slide for here I want to highlight the strong growth momentum we have gained in all cities other than thinking on self owned learning centers in all cities other than Beijing resumed for offline operation by the end of Q1.2021. It is encouraging to see that despite strong seasonal.
In Q1 on 2021, our learning centers in cities other than Beijing, and I guess the quarter over quarter and year over year increases in new students enrollments and students in class for rise regular courses. This demonstrated that to the trust and strong approval that parents and students to have 2 words.
The rise brand our reputation and our diversified offerings under the O M on model.
Retention rates in all cities other than Beijing.
Sequential improvement, including the retention rates of both Shanghai, and Shenzhen, which has have significantly increased 7 percentage points quarter over quarter, even when our learning centers in Beijing couldn't be opened by the end of March 2021, we still manage to maintain the stable retention for.
In Beijing with only 1 per cent.
<unk> percentage point decline on a sequential basis basis, you still didn't enroll enrolment in Beijing.
<unk> also significantly increased on a yearly basis. In addition for saw a very low refund grades in Beijing, only 7.6% in Q1, thanks to our proven and mature O M. On model, we have the resources and the flexibility when necessary to switch between online and offline force it seems.
They play which is highly appreciated by the students and parents.
Moving to slide 5 our franchise business also saw strong year over year growth in both new enrollment and revenues by the end of March 31, we expanded our offline franchised learning centers to 2 to 430 with a total number of students in class of more than 110.
Southern as franchisees are important part of our ecosystem, we will further deepen our cooperation with the existing franchisees and explore more opportunities to expand the franchisee base and jointly promote the development of our attitudes education in China.
Now onto slide 6 we continued our efforts to diversify our course offerings to build our attitude education ecosystem as we mentioned earlier, our life course about Chinese new year traditions launched in Q1 attracted about 335000 enrollment.
Which proved to be an effective marketing channel.
In March we launched a debt a chunk out to a a P. P to provide a more diversified selections offline courses online picture books.
For our 1.2 for Permian online English small classes, we proactively expanded its customer acquisition channel to increase new new enrollments, which is all about 46% sequential growth in Q1. In summary, we are actively working on price for me rice into a multi for attitudes training.
On the platform and now I would like to invite our CFO Warren who will talk about our for the first quarter on financials. After that I will give you an update on our business and blending upgrade plans and our business outlook for 2020.
So on jewelry and home I mean, I'll go through our financial results for the first quarter of 2008, when they walk before I begin. Please note that all numbers stated.
RMB.
Let's take a low as lifestyle.
Is that on unfavorable macro environment conditions, we generated RMB 77, 2 million of operational cash flow during the first quarter.
Comparable free cash outflows of RMB 82 pounds for meeting and RMB 108, plus $5 million in of in the first quarter for.
It's called a of 210 day, respectively. This.
It was mainly attributed to a couple of key factors.
Firstly, the strong market demand for our time on its course offerings and secondly rise Brian its folder a solid reputation to do it on expenses.
Experience in the sector and the high quality credit.
In addition, we can we continue to optimize cost which are like offline marketing channels and improved performance on new student acquisition and retention.
This healthy cash flow has laid a solid foundation for further business expansion.
And to navigate any possible.
Changes that may emerge in the macro environment.
Turning to slide 8 total revenues increase.
140 per cent per year to RMB 261.5 million.
Revenues from educational programs increased by 125 per cent to RMB $229.5 for me.
The year over year increase in revenues from educational programs was primarily due to the redemption of all of that and offline operations of all our self owned learning centers.
All of those so getting COVID-19 bad stomach and on a quick or most study Nevada Department.
Although there are still ongoing uncertainties and challenges arising from the impact of COVID-19, we believe that we're well positioned to mitigate risks.
Franchise revenues increased by 426% to RMB 31.8 million.
The year over year increase was primarily due to the growth in recurring franchise revenue as a result of subsidy in call. It 19 pet on it.
Other revenues decreased.
She lives on 2% year over year to RMB.
Do you have a pause for a minute.
Cost of revenues increased suddenly upon 8 per cent year over year to RMB 162.2 meeting.
The increase was primarily due to an increase in rental expenses.
All of the termination of rental concessions during the COVID-19 on pet on it.
The increase in teachers compensation as a result of increased teaching hours on an assumption of employers.
Employers contribution for social insurance and payroll taxes.
Additionally, the increase was also due to an increase in net.
Total fees paid for franchisees for new franchise business net.
GAAP cost of revenues increased by 14, 8% to RMB 158 per southern mandate.
As a result of the foregoing gross profit was RMB 99, plus 3 million.
<unk> gross loss of RMB, such as free plus 6 million for the first quarter of on the Atlantic.
Now onto slide 9.
Total operating expenses increased.
Such a 7.1% year over year to RMB 100, and starting fall on $1 million.
Non-GAAP operating expenses.
On the 132.9 million.
Selling and marketing expenses increased by 48, 9% year over year to RMB.
$64.3 million compared with RMB $43.2 million for the first caller on the 20th hunting.
The increase was primarily associated with increased online and offline marketing channel expenses.
Couple of ways and suddenly a best seller arisen from our marketing stuff now.
Non-GAAP selling and marketing expenses increased by 57 per cent year over year to RMB. So there's really about a $6 million.
General and administrative expenses increased by 27, 8% year over year to RMB 6.9% mainly.
Yeah.
Comparable RMB $54.6 million for the first quarter of 10 day punting. The increase was mainly attributable to increased personnel costs.
Non-GAAP general and administrative expenses increased by 24, 7% year over year to RMB 6 of $9.3 million.
Operating loss was RMB 3 so southern for 8 million compared with operating loss of RMB 100, and sort of $1.4 million for the same period of priority here non.
Non-GAAP operating loss was on me started on Mad at Us.
Comparable non-GAAP operating loss of RMB 110 of Southern Power's 1 million for the same period I'll put on.
Yeah.
Adjusted EBITDA loss was RMB.
$5.1 million.
Turning to slide 10.
Net loss attributable to us was RMB $24.6 million.
Non-GAAP net loss attributable to rise was RMB $19.9 million.
Basic and diluted net loss attributable to rise.
For a D. S was RMB <unk> 40 for.
Basic and diluted non-GAAP net loss attributable to rise per.
As for us on the third.
They were part of a certain spot.
Net cash inflow for operating activities was RMB $77.2 million compared with net cash outflow from operating activities of RMB 82 parts for me.
For say pure that's for all year.
The increase was mainly due to the increased tuition fees collected for west regular classes.
As a result of the succeeding COVID-19 pandemic.
As of March 31, 'twenty 'twenty 1.
On a combined cash on cash equivalent share.
Casuals on.
B.
692 part of line maybe.
As comparable was RMB 600 in certain lines on 2 million.
But for such a long tenured hunting.
Karla on.
Non current deferred revenue and customer was for us was.
Was RMB.
696, 4 million as of March southern for 'twenty, and 'twenty, 'twenty or 'twenty, 1 what's going on there.
An increase of 15.
<unk> <unk> 7 per cent from RMB 601009 minute.
So for December so there for us 20 countries.
The gross wells per minute due to an increased tuition fee collection as a result on for succeeding calling that pandemic.
Deferred revenue and customer losses that I can see the upfront tuition payments from students and initial franchise fees from our franchisees.
With that I will now like to hand, the call back to the home to give you a update our business and filing patents and finished Oliver. Thank you.
They won't.
We're in now.
Now on slide 11.
As you know a macro environmental factors have a profound influence on the entire after school tutoring market in China for the past 2 months as we seen facing each day.
For a recently minted or testing a series of regulatory requirements related to after school tutoring sector, including restrictions on subject based education fund, our supervision and advertising related related to pre school tutoring. These regulations have broadly.
The entire sector.
The accelerated growth of the aftermarket after school tutoring market in China has no doubt brought some chaotic problems. So we believe that it was necessary for the government for defined clear regulations to promote the long term and healthy development of the education industry.
We fully appreciate and support the government's initiative, we believe that there will be both challenges and opportunities for the after school tutoring sector to shift its focus on through the original building blocks of a well rounded education system.
We have entered a new chapter for rise to fully upgrade into a multi for them attitude.
<unk> platform.
Look for 10 years history, we think right platform has 2 strong sorry, it has for strong pillars for.
First we are a market leading education brand.
We have academic capability strong force development and training capabilities third we have a student day with that more than 150000 students in class.
Then the last not the least net nature.
A nationwide network of self owned and franchised centers over 500 contracts nationwide and I T and operating system that can support on like.
Education as well.
So let me elaborate those sports strong pillars.
The first 1 first 1 market leading brand and the second 1 academic capabilities.
During the past 14 years, we have mainly specializing in English language training or E. L. T services.
And at the same time, we have also been a dedicated practitioners of attitude.
Asian, because we have always advocate for our students to develop a well rounded foundations.
Unlike most tech oriented courses are a curriculum are designed to foster leadership and cognitive skills in student while developing their self confidence and sense of independence.
This is fully in line with the education concept.
Vacated by the government and the public in China.
In addition, we have developed and executed our plan since early 2022 deliver to directly attack opportunities in the steam.
Market, our experience and expertise in attitude education, and our deep dive into these new segments have laid a solid foundation for the development of her compete attitude education ecosystem.
I also mentioned our nationwide.
<unk> offline and online network with a strong student base.
Our large scale offline network now has more than 500 learning centers in total, including self owned learning centers and franchised learning centers right brand influence and recognition has helped us to penetrate into more Chinese cities income.
Combination with all the rise plus online platform.
Horses and service offerings under the old model, where our acceptable to a very large for students nationwide.
I thought the end of March 2021, there were more than 150000 students in costs from Socs and our franchisees. In addition, we also served for more students in our rise courses the.
This large sized private traffic.
Enabled us to lower customer acquisition costs or see a sea of compared with the C. A C of new students.
Acquisition through other means to unlock that topic value on.
Our sizable student base, we can adapt multiple monetization approaches to explore more opportunities in attitude training to cater to different learning stages.
In addition, we continue to enhance our digital capabilities with further investments to improve our overall operational efficiency and have made solid progress on these fronts recently, including including the continued improvement of our proprietary online classroom technology of course delivery system.
AI costume supervision system dual teacher training system, and our AI teaching and and lessen prepare system. In addition, we have built up a strong curriculum development capabilities to ensure that our course offerings are up to date engaging and effective.
These competitive advantages will continue to help us to develop our attitude education ecosystem and drive long term growth for our shareholders.
Turning to slide 12.
We see the structure of our multiform attitude between platform. In addition to our core E. L T courses as well.
Other at our other existing courses such as ACH, a premium English training brand. We have also launched 2 new brands.
Hi, yet and why it's been doing.
Sure Hi, I can go on homes yet.
For a gun King cause you got these 2 new brands significantly enhance our aperture for training system to cover E. L T social skills and the ability to develop a Mac programs.
Right.
Hi, Yeah, and white themed Cortez target students of varying ages.
From 60 years old and above 3 to 8 years old and their parents, respectively. I'll give you more details about these 3 businesses in the following slide moving to slide 13 E. L. T will remain our core business over a year.
We have strengthened our leading position with an experienced management team.
Complemented by strong research and curriculum development capabilities, and just diversified high quality course offerings at present, our E. O T force at target students about 3 years old is regulation changes, we can shift to E. L. T to serve students about 6 years old currently on.
Flight schools that have resumed operations in Beijing on delivering courses to students about 6 years old as required by regulatory authorities to attract new students enrollment will continue to innovate course offerings with enhanced immersed in immersive learning experience and personal lives.
Teaching approaches based on our O M on model.
Now onto slide 14 high year is our newly introduced the brand focusing on children.
Emotional development and related family education support.
And of course pockets studer in children between 3 to 8 years old and their parents research continues to highlight the benefits of social immersive emotional learnings and why having a growth mindset is their strongest foundation for children to grow up into healthy and holistic young people those.
On the fundamentals theories behind are of course designed to address the need for children to develop a healthy identities managed emotional intelligence create and maintain supportive relationship and it's a cheap indeed and collective growth apparent.
Apparently we are working on introduce high yet courses at our self owned learning Center.
In addition, we'll launch separate height E learning centers transformed from certain revenge ratbag venue of existing talk now onto slide 15 wife's been focus on steam oriented attitude development of children based on cognitive skills training and.
Element, which include math logic thinking science literacy and science exploration there.
The courses are designed for children under 8 years old and help them.
Nurture deep deep understanding of conceptual thinking and innovative.
Innovative problem solving.
We believe our cognitive thinking skus are a crucial part of children Debottleneck and parents are increasingly placing a high value on this we have received very positive feedback on all of our theme Cortez, which were introduced into the market last year under the name of a right.
Metalogic thinking under this new branding whitebeam, we will continue to improve the learning experience for our students and accelerate our business expansion in this segment.
Moving to slide 16, our business outlook for 2021, we are proactively upgrading our business to navigate macro environmental challenges and explore untapped opportunities ahead, we will hold a press conference in Beijing to officially announce our business and blending upgrade.
On May 28.2021.
For our <unk> business, we expect our learning centers to continue their normal operation with solid growth momentum.
The learning centers in Beijing that cater to students about 6 years old and I expect it to gradually resume offline accretion as well.
For high Yeah, we expect to open the first offline learning center in June 2021, which will be transformed from a revamped it venue of an existing stock in Beijing.
For 1 thing we have opened 3 why seen courses in Beijing in March and in preparation to offer this class in 3 self owned learning centers in Shanghai.
And the first franchise the learning center in Zhengzhou, well be opened by the end of our Q.
Q2 or Hum.
Actually in in June.
So far we've seen of course it has received very positive feedback for more than 50 franchisees.
Who have shown interest to introduce <unk> into their offerings as update more than 20 franchisees have signed a letter of intent.
Last but not least we have signed a memorandum of understanding to acquire a franchised learning centers in Chengdu, which can have a proven track record of solid performance. This franchisee is our largest franchisee in terms of revenue contribution and has more than 30 learning centers in Chengdu.
With about 13000 students in class.
Given all these factors, we reaffirmed our guidance for our revenue to be in the range of RMB 1 for 2.
Moving to our RMB 173 billion for the full year 2021.
With that I would now like to hand, the call over to the operator. So we can begin the Q&A session. Thank you.
Thank you ladies and gentlemen, we will now begin the question and answer session to ask a question press star 1 on your telephone.
Cancel the request Preston Palm Husky.
Your first question comes from Sheng Zhong.
Morgan Stanley. Please ask your question.
Hey, good money on thank you for taking my question on and think well maybe not compressing comprehensive interconnection.
And then on business, so I'm very interesting non you initiated including high yet and my team.
Can you give us more color on our marquee on.
On the marquee on potential you see in these in these 2 areas.
And then with the current competition landscape and what's your accretion model like going.
Pricing on them.
He should mean and maybe also how much revenue contribution you would expect from these new businesses here in the next year.
This is the first question and on second question is regarding to on the kind of major business E. M. T are you on.
As I mentioned there are some I bet you literally uncertainty here so could you share some more color.
More color we'd be on communication Lisa.
Especially in the bedroom reopening process.
Do you see the government attitude to be to tweak for cogent below 6 years old because at the same time, we see some on 19, you're seeing already removed a day.
Unlike clumsy school 60 S O b.
No children. So that's my question. Thank you very much.
Uh huh, thank you toshi.
So on the first question on maybe I start with the wife team. Because this is of course extended from our math logic thinking and to be Frank a.
This is our second largest area after English.
So the demand from students and parents are pretty high partially proves there by I would say unlike players like a Hawaiian 1 dog for US we believe our strength is offline. So the wife theme is extended for a mass logic to include.
On a more science literacy in science.
Flores and partially to make it more a comprehensive but just to be Frank we don't want to be subject to a net regulations are in terms of what they call subject based on our course.
On to be categorized as a mathematics, so for us for the positioning is to try to be the offline number 1 player in the market are on the pricing are right now to the market is a bit.
I'd say its pretty.
Competitive.
Hum for a 3 months courses, we price below 6000, RMB, we do think with offline more interactive and immersive experience.
It could be quite attractive.
For high Yeah. This I would say 1 is you can quite a new course, the first the purpose is to a in some ways. If the regulation prohibit us to teach English below 60 years old we wanted to convert out.
Students into this class a to prevent a losing our current student base than in the second of course. This is of course, a focus on social emotional and and also a growth mindset are in these 2 major areas. It is actually.
Quite common.
The teaching courses overseas.
However in China, there are I would say a lack of a very good offerings in this space. However, our families.
Parents are very focused on are preparing their kids are you know to be able to blend into the society into the schools. So we see a very strong demand are in terms of our competition. There's not much competition are offered.
Comprehensive courses, however, there 1 or 2 players are all for partially.
Including this social and emotional on a growth mindset on 2 names that I can't give you 1 called the Haynesville you lose a day started as a kid who have trouble learning, but expand it into other social and emotional on its face they're quite small the second player.
For the 2 cotai, they're much more focused on oral delivery. However for US. We you know are or communication is only part of the courses.
We do see a very strong potential however for high yet this year a majority of the students would it come from the yellow T. H below 6 if regulation really a target that the AR space.
For Hibbett learning English for subject. So there are less focused on generating additional revenue in the long run. However, we do think this of course will have high demand a can be a separate business Avenue.
However, this year is not the focus on.
So that that's the first answer related to the answer related to your first question on the second question. The current E O T a business as I mentioned.
In Beijing the.
It is not officially.
There's no official a so called a regulation Ah Ah Ah, but put in place. However, each district and also Beijing Education Bureau from on a.
On a lot from the so called the oral communication, we see a couple for areas that they they are very much focused for.
First 1 is the license.
Licensing, including the the centers for that you would have to have for education license for the second is the teacher and we do have a license then the third area is really the the so called the.
On.
I I think I mentioned the.
And what's the right for that work.
That's fun supervision, meaning you have to have on deposit are to guarantee that.
You have to.
No our capital to run schools, each district that has a very different requirement.
So they they this is the third element the the fourth element is also not on a written so far they prefer or they they.
In some way only and let you.
Get students and age above 6.
On come to the classroom. So you cannot offer offline classes for our children are below age 6 or these are not on paper. However, we have to satisfy the their a requirement to resume our offline our schools. So far we have.
Free offline schools resumed.
On a teaching our children, aged AR about 6 years old.
So yes, if this.
Requirement for them to become official and entertainment across the city.
I feel very certain that this will definitely have an impact on all of this is also our you know our competitors as well and therefore, our strategy is to continue the Oh fly and teaching for H above 6 and then for H below a 6.
Once they have for official.
Requirement, we will convert them into into higher yeah. In fact, even before that the first 2 schools.
On the high year it won't be launched in mid June and for the that we use the existing facility and we will convert those are students in those 2 schools are into high net first so a test on all of the all the marketing.
Material sent on teaching methodologies prepare for the launch to cover obedient each day requirement becomes a real in terms of online players are my understanding is so far there's no clear a regulation yet however, if the regular.
And become a official on public that will apply to all players including on my players.
But that's my my my my personal understanding.
Thank you very much income that is very helpful. Math on that 1 quick question.
For higher end Weinstein other courses at of course content internally developed.
Develop.
Yes, whitebeam started from a net logics. We also tried out our steam courses in 2019. So we got to combine these 2 together hum too.
To be the new rise theme Cortez and high Yeah. We are also studied a shipment of Cortez are overseas and and of course in China. The.
Education guidance also included areas like social and emotional and a growth mindset. So we combine those oh with their leadership our courses from the English Oh, Gee Ah Ah Ah Ah. So this is a I would say.
Partially.
On.
It take over some of the content from the E. L. T courses and then develop on more into social and emotional on growth mindset.
This will hopefully be teach them and be taught in English and Chinese however, we let's focus on on English language.
Thank you. Thank you very much.
Just 1.
For additional point I think of the so called the the study if you study subjects for Dunhill in English and in China sorry.
Medics and Chinese undertakes.
This is strictly prohibited right now that's why you see a some players already pickoff a off the shelf. However, the the so called the English language or on the some on online courses.
<unk> named a shimon for he's done for or the indictment still not very clear whether they won't be categorized that subject based on a course of course. It. If it is I think all of that may be prohibited on.
Under U S H 6.
Yeah.
Got it thank you.
Yeah.
Your next question comes from Lisa Yang of China Galaxy International Please ask your question.
Okay, and I think you might need to make a for that opportunity to ask questions.
I have 2 questions. So the first 1 is because you are on flying taxis not.
I thank him.
Largely currently so could you elaborate more on your O M O a low.
Your name at this time and on the part a.
On the O N O learning are playing in your new businesses and also about a the second question is about the sales contribution.
Each of our brands.
Can you elaborate more on this alright. Thank you.
Okay. So when when we I.
Articulate the O M on model a lot year on my point is that we can offer pure online pure offline.
And online merging with offline really depends on outlet situation on age group when offline.
Ah Ah can be resumed or what kind of it kind of can be utilized for H. The low 6 we encourage our offline learning given the better experience and also our interactions are offline for.
For H B, a ball fixed when offline are available we offer on all our model, meaning during weekdays 1 of course will be offered on like focusing more on subjects.
To have better our experience in terms of language in terms of Ah Ah you know learning Grandma on reading comprehension, then the 2 courses will be offered offline during the weekend. So the day the these on more.
Students in school. So did this oh I'm on model a better.
To some better to you know stay at home during the weekdays and come to the center during the a weekend.
And when Easter is a COVID-19 situations or other situations that's prohibited offline learning Oh, the students can be removed can be as it.
Moving to online learning are therefore in Beijing, and Shanghai ground during the COVID-19 resurgence Oh the students are.
On a continue on their learning online and for facing the the the centers now still cannot open offline or students on learning a lot. So this is the Oh I'm on model try to better suit the AR experience and also the.
The so called the time management for our students and and this is also part of the benefit for our our network as I mentioned, the we have thought both on offline network and on my a platform.
Platform on.
On the the O M O E strategy for right. Therefore on all the new business will be able to have Oh, I know a blend into the business. For example, the new high yes courses each course on target.
On a students at the same time, we will offer a video on short videos to parents. So the parents understand what that students are learning at the same time. They can be supported in this so called social emotional go for my son development.
Because we do think that this is a matter for the whole family and not just the students for all of them on model will continue even for the Hum and social studies, we will have Oh I'm on model into the business. The second question regarding the sales contribute.
And right now on US we plan are the whitebeam Ah well go through both our Socs and our franchisees are model. Therefore, the net sales contribution from the Americas owned and the franchisees will be according to the plan we had.
Are you in the beginning of the year.
This year the contribution will be small a this is a year that we wanted to open more centers.
But the revenue recognition may need some time to realize the cash revenue could be but of course, we'll realize earlier for higher as I mentioned to the first or pretty cool.
On objective for highway this year is to convert our our students.
Below age 6 in the LTE space, so that we'd keep the student base to keep the business in a healthy status on a however, if we do see these as very attractive we can of course opens separate independent centers both in Sop.
Area and franchisee areas.
But I don't think this is the key.
On a component this year.
Could be the revenue potential growth potential in the future.
Thank you. Thank you very much.
Yeah.
Your next question comes from low risk.
Credit Suisse. Please ask a question.
Thanks management for taking my questions. So I have 2 questions on the first 1 is about regulation that considering their skill set.
Net sanction of the offline or you can send her would you share some color on your expectation for new student enrollment growth for the upcoming quarters.
The second 1 is about user acquisition strategy.
Given the high percentage of your traffic relies on the offline with zero. If there is further restriction restriction on offline learning center, what would be the marketing spending plan to acquire new users for the rest of the year. Thank you.
Okay.
I as I mentioned, our Beijing are we actually will resume more on schools for offline learning.
On the the restriction is that you have children Ah Ah Ah H above 6.
With the offline learning center opens up we definitely see a better enrollment in those schools are however, even.
In the first quarter when all the operating centers were closed are facing a new enrollments, you'll see up but I would say pretty good results I as I mentioned in the earlier.
The inverse of your enrollment.
For all other cities, yeah, very strong growth quarter over quarter year over year.
In the second quarter, I think that that trend will continue and of course that she's out there on a resumed the offline operation at the end of March. So the Q2 will also be stronger.
Beijing are I think that you know may may still see it's often a high bar of what we would do more offline centers are we will see better traction on that.
That's 1 point the second point that we are shifting to a more efforts to acquire students at 8.5 years old so that they can come to school when they are off.
Getting to the right age group Oh that Frank I do think we need to look at on the whole market.
If we are in restricted everyone else would be restricted as well. So the courses that you can offer won't be ltd.
For the use of the so called education education, though providers will be you know.
You know a number of the players there will be a fewer and end with our rep.
Our reputation and ability to navigate.
Navigate these challenges we actually think in the future you will see fewer players players getting more market share. Although it may not happen in the near a quarter, but in the long run a dot net.
The the so called the bigger player so stronger players the players who can comply with the government's regulations will be there of course of the second quarter in terms of our seasonality is never a very strong quarter. So I think we will see.
A normal quarter, maybe a little bit weaker because of the basic situation, but overall are also facing a very strong that the second question regarding our acquisition cost.
And in fact, I mentioned government and regulator advertising channels and and.
The language is that you can use for advertisement. So this actually affect a lot of the online channel much significance day for US we have a very large offline on that work on.
From the acquisition cost for you can see that our acquisition cost actually Ah Ah is controlled Ah.
Well.
We still are.
I think the offline channel had a very strong advantage.
This year that strategy for rise is to overweight the.
Offline channel Oh, we are you know are doing it.
According to this strategy.
Beijing.
In fact that you can still have a bit more with our students and their parents are so it is not a entirety are off the market. That's why they deem would still be able to have new student enrollment going for the we will continue the.
I think the strategy to have a balance the deployment in terms of online and offline advertising and offline on promotion. The the other point is that we are building.
The net cortez to attract private traffic are going forward on hopefully the private traffic.
Can help us to generate leads.
And to convert students into our courses Oh, Gee hire and that's been for the private topic Ah that strategy for us.
1 of course to have liked courses diversified corporate the second approach is to cooperate with the other.
I would say.
On companies and different industries for example, we trialed.
Activities or hold you back at the a warm up.
On a Sams club in Shenzhen, we actually got pretty good and accurate leaves a these are either too. So that we can expand our lead a hybrid chocolate pool Ah and help further conversion into our regular or Maine.
Cortes.
Thank you.
Yeah.
Yeah.
Your next question comes from you could junk.
Please ask your question.
Hello management. Thank you for taking my question and I have 2 simple questions.
First how does the potential reparation affect our original strategy on expansion and marketing.
On what is our long term strategy now like in 3 to 5 years. Thank you.
And so the first question is about marketing or about the network.
Both.
Okay I submit mentioned, we deploy the so called the or we acquire students book.
And I think Oh channel online and offline are with our offline network. We easily can do the offline promotions are around the school. So that this is a oh. This will continue to be on our major channel Oh of course, we use a.
Oh, and I kind of like on the search engine the.
In fact on the game King.
The other social media as well I think it will be a combination of but for right.
But we always wanted to utilize all of our offline network in terms of network expansion and so far on you know in Beijing. The the license approval is actually very difficult. However, supermajority all of our schools are already half life.
We actually feel there's just no advantage.
Hum.
Part of the the the I would say it would become a scarce asset.
At.
Outside Beijing, we continue to see very normal operations and that's why you see that the franchisee partners opened for more on our schools are in the franchisee areas and going for job well, we will see a you know how regulation whoa Whoa Whoa whoa.
Well, what you know.
Oh.
What's the regulation and how do we cope with the regulation on.
What comes to the then the strategies I do think once we have got the license naturally we can expand beyond E. L. T and so it's all of course not a the cortez require education or license is definitely not only English.
Did you know how do we expand into other courses we are thinking about that on some can be self developed. Some 10 are in fact that he might operating you know on other partners. So that we can have on our schools a utilization increase but.
I would say for the near term we wanted to focus on our Yoki are higher and my team are they this is the core of course is we offer at the same time. We are building that are private traffic pool price target, what we called the Ah Ah Ah Ah Ah.
Right, Ken and also a social Ah.
So we should get on kind of a.
No social practice Ah I I do feel that these are our market that have very strong demand.
And rice already had the experience in the past to manage that.
My my my.
I would.
Maybe go beyond rise I feel.
The regulation will definitely change the landscape. So in 3 to 5 years and I personally think you will see more companies with both online and offline capabilities to getting there.
On mergers acquisitions.
<unk>.
Very likely to happen.
And at same time, mookie subjects or a platform that can offer.
On multi subjects for the average student training would definitely be becomes either and that's also why rightsize going along this strategy I think single of course, it's a single course, Ah Ah Ah well very lumpy very difficult to survive.
So for rise well, we'll be focused on building the the the online and offline platform and adding Ah Ah attitudes are related to corpus to.
Extending our life time value and also.
Oh these are Cortes our.
Uh huh.
In a way you know definitely on complying with the government requirement.
So to that that that's kind of a explanation maybe we can articulate better you know in the in the coming months, but so far I think the the.
On the business upgrades on our blending upgrades I'll give you a.
Preview about what we're trying to do.
Yes.
Thank you.
[noise] [noise], ladies and gentlemen, due to time constraints.
Our final question at the end of our conference call. Thank you for participating you may all just.
Correct.
Thank you.
[music].