New Oriental Education & Technology Group Inc (EDU) 2021 Q3 法說會逐字稿

Good evening, and thank you for standing by for New Oriental's FY 2021 Third Quarter Results Earnings Conference Call.

(Operator Instructions) Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

I'd now like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.

Please go ahead.

Okay.

Thank you.

Hello, everyone, and welcome to New Oriental's Third Fiscal Quarter 2021 Earnings Conference Call.

Our financial results for the period were released earlier today and are available on the company's website as well as on newswire services.

Today, you will hear from Stephen Yang, Executive President and Chief Financial Officer.

After his prepared remarks, Stephen and I will be available to answer your questions.

Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve inherent risks and uncertainties.

As such, our results may be materially different from the views expressed today.

A number of potential risks and uncertainties are outlined in our public filings with the SEC.

New Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

As a reminder, this conference is being recorded.

In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org.

I will now turn the call over to Mr. Yang.

Stephen, please go ahead.

Thank you, Sisi.

Hello, everyone, and thank you for joining us on the call.

With the pandemic largely controlled in China, albeit a small wave of outbreak in the northern part of the country, our business navigated the challenges and saw strong momentum in recovery.

We are pleased to announce a set of financial results in the third quarter of this year that exceeds our expectation.

Total net revenue was $1,190 million, representing a 29% increase year-over-year, which is a very encouraging reflection, affirming the business strategy that we have taken during the difficult period.

Our key growth driver, K-12 all-subjects after-school tutoring business, achieved year-over-year revenue growth of approximately 37%.

Our U-Can middle school, high school all-subjects after-school tutoring business continued its momentum with a growth of approximately 35% while our POP Kids program recorded a growth of approximately 40%.

Our overseas-related business, despite being under continued pressure due to the uncertainty of the pandemic situation and travel restrictions around the globe, showed strong resilience.

Although the overseas test prep recorded revenue decrease of about 12% for the quarter, it is a result that is better than expected while the overseas consulting and study tour business recorded revenues increase of about 11% year-over-year, which is a very positive result.

Our industry-leading OMO system has been our core strategy since the start of the pandemic early last year, and it has once again proved to be instrumental in this quarter.

The possibility of unexpected COVID-19 outbreaks in certain parts of China means strong flexibility in migrating students between online/off-line classes is truly crucial during this challenging period, and our OMO system has been the answer to that.

The small wave of COVID-19 outbreaks in around 20 cities in Northern China once again highlighted the importance of OMO as they enabled us to respond swiftly and migrate the offline class to online, avoiding disruptions to student class and learning progress.

At the same time, in other cities where the pandemic is largely controlled, vast majority of the students migrated from the online class back to off-line learning centers.

Encouraged by its effectiveness, we have been committed to expand the reach of our OMO system and are delighted to say that we have piloted the OMO online courses in vast majority of existing cities and around 25 new surrounding satellite cities in the winter semester, attracting a promising number of new customers.

The OMO system effectively boost the enrollments and revenue with low customer acquisition cost and is becoming the new driver to our business growth, and it has solicited an increased contribution to the company's overall revenue this quarter.

Total student enrollment in academic subjects, tutoring and test prep courses in the third fiscal quarter of 2021 increased by 43% year-over-year to approximately 2,296,800, which is in line with our expectation.

In terms of pricing, per-program blended ASP, which is cash revenue divided by total student enrollment, increased by about 7% year-over-year in dollar terms.

As for hourly blended ASP, which is GAAP revenue divided by total teaching hours, increased by 7% year-over-year and is in line with our normal price increase of about 5% to 8%.

To provide a breakdown of hourly blended ASP, please note that U-Can classes increased by 5%, U-Can VIP increased by 1%, POP Kids increased by 4% and overseas test prep program increased by 12%, all year-over-year in RMB terms.

Now I would like to spend some time to talk about this quarter's performance across our individual business lines in detail.

When pandemic became largely under control in China, recovery momentum continued to pick up in this quarter across our business lines.

Our key revenue driver, K-12 all-subjects after-school tutoring business, achieved year-over-year revenue growth of approximately 37% in dollar terms.

Breaking it down, the U-Can middle school, high school business reported a revenue increase of approximately 35% in dollar terms for the quarter.

Student enrollments grew approximately 56% year-over-year for the quarter.

Our POP Kids program delivered outstanding results, with revenue up by about 40% in dollar terms for the quarter.

Enrollment increased about 61% for the quarter.

Our overseas-related business, including test prep and consulting business, showed encouraging sign of the recovery despite facing the most difficult challenges due to the cancellation of overseas exams and restriction on travel as well as the unpredictability of the pandemic situation in different parts of the world, rising student hesitance to study abroad.

The overseas test prep business recorded a revenue decrease about 12% in dollar terms for the quarter in comparison to a decrease of 29% in the last quarter while the overseas consulting -- overseas study tour business recorded revenue increase of about 11% in dollar terms year-over-year for the quarter, continuing the recovery momentum from last quarter's 6% increase.

And finally, VIP personalized class business recorded cash revenue increase of about 36% year-over-year for the quarter.

We continue to carry out our capacity expansion this quarter as we opened 1 new offline training school in the city of Hengshui.

This increased the total square meters of classroom area by approximately 17% year-over-year, 7% quarter-over-quarter by the end of this quarter.

The increase is in line with our expectation as we gradually ramp up our expansion efforts throughout this academic year to prepare us for recruiting more new students at the start of the following academic year.

The expansion in our offline education network has also made sure that we are fully prepared for when the pandemic is over and our service can resume with strong presence across different Chinese cities.

We rolled out dual-teacher class model for POP Kids program in 58 existing cities, for U-Can program in 27 existing cities.

With satisfactory customer retention and scalability, we will continue to use this model to increase our market penetration in those markets we have tapped into.

As the outbreak of COVID-19 has highlighted the importance and demand of online education, we have allocated more resources to this space and invested $59 million in the quarter to improve and maintain our OMO integrated education ecosystem.

Our success in piloting the OMO system in around 25 new satellite cities through nearby major cities this quarter is yet another testament of how the small-cost but high-return OMO business model can rapidly become one of the most far-reaching education service in China.

We're very optimistic about the growth potential of our OMO system in the next few quarters.

Apart from the OMO infrastructure, we have allocated part of the resources to advanced the training programs for our teachers to enhance their online/offline integration skills in response to the growing demand.

At the same time, we continue to upgrade our technology platforms and will broaden the usage of the online tools and content in our OMO system for all business lines throughout the whole network as well as further develop the best teaching content and courseware to cater to online/offline integrated education methods.

We're glad to see that our industry-leading OMO ecosystem has not only successfully managed to cushion most of the impact of the pandemic, but we also see our customer retention rates remain stable.

Furthermore, it effectively boosted the enrollment, and we believe it will continue to play a huge part of the recovery of business in coming quarters.

To capture the huge market opportunity in online education area, Koolearn invested more resources in executing new initiatives in online K-12 after-school tutoring business since the second half of last fiscal year and added a meaningful amount of customer service representatives and marketing staff.

These moves have consequently raised our spending on marketing front in this fiscal year, and our Dongfang Youbo small-sized class currently enjoys a significant first-mover advantage and stand to benefit from the increasing demand in lower-tier cities.

Koolearn large-sized K-12 courses are able to offer the best-in-class learning experience through the investment in upgrading the apps and online platforms, introducing new education technologies and adding more interactive features to online classes.

Koolearn also continued to establish teaching training centers in other locations to attract more qualified teachers and tutors and provide systematic training programs.

A significant amount of the investment has been allocated to marketing and service enhancements in the past quarters to attract customers during the peak of the pandemic, but the spending started to normalize from this quarter as we are very cautious in identifying high-ROI marketing channels.

We focused on improving our operational efficiency and emphasizing the word-of-mouth promotion for English programs with existing brand name advantages, with -- which will, in return, keep the average user acquisition cost at a relatively low level.

We believe Koolearn will continue to quickly acquire new users while enhancing student retention.

Now I would like to turn the call over to Ms. Sisi Zhao.

Please go ahead, Sisi.

Yes.

Now let me walk you through the key financial details for the third quarter.

Operating cost and expenses for the quarter were USD 1,089 million, representing a 35.1% increase year-over-year.

Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were USD 1,074.6 million, representing a 36.3% increase year-over-year.

Cost of revenue increased by 35.3% year-over-year to USD 539.5 million primarily due to increase in teachers' compensation for more teaching hours and higher rental costs for the increasing number of schools and learning centers in operation.

The increase in teachers' compensation would also put us in a greater position in keeping teaching talent who are the most important assets in the education industry.

Selling and marketing expenses increased by 32% year-over-year to USD 156.1 million, represent -- primarily due to the addition of marketing staff with the aim of executing our OMO strategy to capture the new market opportunity post COVID.

G&A expenses for the quarter increased by 36.1% year-over-year to [USD 393.4 million] (corrected by company after the call).

Non-GAAP G&A expenses, which exclude share-based compensation expenses, were USD 383.3 million, representing a 40.3% increase year-over-year.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 17.8% year-over-year to USD 14.4 million.

Operating income was USD 101.5 million, representing a 13.5% decrease year-over-year.

Non-GAAP operating income for the quarter was USD 115.9 million, representing a 14% decrease year-over-year.

Operating margin for the quarter was 8.5% compared to 12.7% in the same period of the prior fiscal year.

Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 9.7% compared to 14.6% in the same period of the prior fiscal year.

Net income attributable to New Oriental for the quarter was USD 151.3 million, representing a 9.9% increase from the same period of the prior fiscal year.

Basic and diluted earnings per ADS attributable to New Oriental were $0.09 and $0.09, respectively.

Non-GAAP net income attributable to New Oriental for the quarter was USD 163.2 million, representing a 9.9% increase from the same period of the prior fiscal year.

Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were $0.10 and $0.10, respectively.

Net operating cash flow for the third fiscal quarter of 2021 was approximately USD 23.3 million.

Capital expenditure for the quarter were USD 105.8 million, which were primarily attributable to opening of 142 facilities and renovations at existing learning centers.

Turning to the balance sheet.

As of February 28, 2021, New Oriental had cash and cash equivalents of USD 1,569.8 million as compared to USD 915.1 million as of May 31, 2020.

In addition, the company had USD 1,147.8 million in term deposits, USD 3,360.7 million in short-term investments.

New Oriental's deferred revenue balance, which is cash collected from registered students for the courses and recognized proportionally as revenue as the instructions were delivered, at the end of the third fiscal quarter of fiscal year 2021 was USD 1,865.7 million, an increase of 35.7% as compared to USD 1,375 million at the end of the third quarter of fiscal year 2020.

Now I will hand over to Stephen to walk you through our outlook and guidance.

Looking ahead into the next quarter of fiscal year 2021, we're more clear about the recovery trend of the company's near-term financial performance and market opportunity over the long run.

Our strategic focus and investment approach this year is aimed at improving the product quality, increasing teachers' compensation and enhancing our industry-leading system, which fully reflects our ethos of focusing on the essence of education.

In view of the market competition and opportunity to take advantage of the post-COVID market consolidation, we firmly maintain a stable and balanced investment strategy that improve the quality of our education service with aim to achieve a sustainable and long-term growth as opposed to unhealthy short-term growth that often requires excessive investments and higher cost to acquire customers.

As such, we will continue to focus on the following key areas.

First, we will continue to expand our offline business.

We aim to add around 20% capacity, including the new learning centers, and expanding classroom area of some existing learning centers for K-12 business in this fiscal year.

We believe our capacity expansion will prepare us to further take market share from other players post COVID as we believe some small players without strong financial position and online class capability may not be able to sustain their business during the period.

We expect the industry will undergo a wave of market consolidation as the pandemic fades.

The fact that we are a major player with strong financial capacity and fresh offline facilities enable us to further strengthen our market-leading position and penetration.

Second, we will continue to leverage our investments into digital technologies and introduce our OMO system in more offline language training and test offerings, especially for our K-12 tutoring business and overseas test prep key business.

The usage of online tools and content in our OMO system for all business lines throughout the whole network will be enhanced.

To uplift the whole OMO teaching experience, we'll place more efforts in developing the best teaching content and courseware and also developing more advanced training program for our teachers.

With all the above-mentioned infrastructure in place, we will continue to pilot our OMO online initiatives in major cities with high demand and higher operational efficiency and its surrounding satellite cities.

We believe that our OMO initiatives will be one of the -- our growth engines to increase our customer acquisition post COVID as it can quickly replicate in different parts of China, enabling us to capture the market consolidation opportunity.

This revamped new business model will also contribute to our margin recovery when the pandemic is over and further expand our long-term margin target.

Here, I have to highlight that all these OMO products are supported by our offline class.

They supplement each other in a hybrid format.

Third, during the peak of the pandemic, we saw necessary needs to ramp up spending on different areas of the business aimed at migrating the challenges from the pandemic.

Now the business -- now that the business slightly recovered to a normal level, going forward, we will closely monitor the rise of the cost expenditure across the company to improve overall operating efficiency.

Here, I would like to stress that we have great confidence in the fundamentals of our business, which we believe will continue to remain strong.

We have been increasing our investments in different strategies, and we remain optimistic of the brighter prospects of our business.

We believe our investments now will bring us fruitful returns in the long run.

Looking at the near term and our expectations for the next quarter, we expect total revenue to be in the range USD 1,101.9 million to USD 1,141.8 million, representing year-over-year increase in the range of 38% to 43%.

To provide the breakdown of the expected top line growth for key business lines: K-12 business is expected to be -- to grow in the range of 45% to 50%, overseas test prep program is expected to grow [in the range of 25% to 30%] (corrected by company after the call), overseas study -- consulting and study tour business is expected to be flattish and the growth of the koolearn.com pure online education platform is expected to accelerate, all year-over-year in dollar terms.

To conclude, we're now taking all kinds of operational actions to boost enrollments and class utilization for the spring semester and speed up the recovery of the business after the resumption of the schools and learning centers.

We're confident that the demand for after-school tutoring business is gradually picking up and in the process of trending towards normalized level.

I must mention that these expectations reflect our considerations of the latest pandemic and regulatory situation as well as our current and preliminary view, which is subject to change.

At this point, I will take your questions.

Operator, please open the call for this.

Thank you.

(Operator Instructions) Your first question comes from Felix Liu from UBS.

Congratulations on the strong quarter.

My question is on regulation.

I know during the past few months, the regulator has made some relatively strict comments on the after-school tutoring regulation.

So could you share some color about your take on potential regulation direction?

Will there be any tightening in terms of new learning center license, ASP as well as after-school tutoring scheduling?

Felix, it's a good question.

Actually, the government's intention to tighten the after-school tutoring business policy is not a surprise to us as it has been discussed for a long time since 2018.

And we believe the regulator's efforts will foster a positive environment for the whole market to improve the market standards and enhance the average teaching quality of the whole market.

And I think we are aligned with government policy and also fully committed to work together with the government to build a better the education market in China.

I think the reform details are yet to be announced, so now we are unable to provide a full analysis on our business impact.

But at this stage, we do not foresee any material impact on our top line.

And we do expect some admin cost may increase in the short term to meet the new requirement.

As the largest provider, New Oriental, I think we have the strong handle to be compliant with the potential reform, the positive reform.

And at the same time, we expect China's after-school tutoring market to further consolidate, and we have been in preparation for this and we're ready to further take more market share from the other players.

Our next question comes from Mark Li from Citi.

Management, congratulations on the very strong results.

May I ask for the upcoming summer promotions?

What's our plan or any target that we can share, especially, I see, maybe with the rising synergy with our OMO model?

Yes.

We started to do the summer promotion 4 or 5 years ago, and last year, we got over 1 million student enrollments from the summer promotion campaign.

And the retention rate after the summer was somewhere around 60%, was a good number.

And this year, I think we will do the same thing.

And we do expect the summer promotion enrollment will be booming in the coming summer, and we believe the retention rates after summer will be higher than that of last year.

Typically, we got -- these enrollments from the summer promotion, typically, we charge RMB 400, RMB 500 per course.

Actually, it's not a free course, just like some discounted courses.

And I think the summer promotion will bring us, the whole year, the enrollment growth, and it will now hit the margins for the whole year, Mark.

Our next question comes from Candis Chan from Daiwa.

Congratulations on this very strong set of results.

So my question is regarding the OMO.

So can you share with us the revenue contribution of OMO currently?

And also, what would be the percentage of OMO contribution in long run as you expect?

And how will be the long-term margin profile for OMO?

While the OMO model only contributes single digits to the overall revenue this quarter, with the ability to work with and reach both major and satellite cities across China, in some province, I think it will grow rapidly in the coming quarters and become the major driver to the -- to our business growth.

We expect the revenue contribution from the OMO next year will be somewhere around 10%.

And the margin profile of the OMO -- lastly, the OMO model -- the margin of the OMO model should be a little bit higher than the traditional offline classes.

But we just started the OMO model since the last year, so we still need more time to test this business model and the margin profile.

But so far, so good.

I think the progress of the OMO business is better than expected.

And the OMO model will contribute more and more revenue going forward in the next fiscal year and in the next 2 to 3 years.

Our next question comes from Tian Hou from T.H. Capital.

Congratulations on a strong quarter.

So I see the overseas recover pretty nicely.

And also, some data shows that even though this year was pandemic, however, the students who applied to overseas schools, the number of that was really high.

So I wonder what's the outlook for the overseas testing and consulting part of the business.

What's the outlook for that?

What do you see from today's data?

Thanks, Tian.

I think the overseas test prep -- overseas-related business recovery is coming.

And the revenue decline of the overseas test prep this quarter was 12%.

Last quarter, the revenue decline was 29%, and 2 quarters ago, the revenue decline was 50% in dollar terms.

So it showed the encouraging sign of the recovery of the overseas test prep business.

And we gave the guidance for Q4.

The overseas test prep business will be increased by somewhere around 30%, 3-0 percent.

So I think the -- you will see the higher recovery of the overseas test prep business.

And yes, I know we have the low base last year, but anyway, I think the -- we're in the process of the recovery of the overseas test prep business.

And consulting business, this quarter, we got an increase by 11%.

And next year, we guided the revenue growth of the consulting business will be flattish.

Secondly, Q4 will be the high season of the overseas consulting business.

But during a hard time, I think the performance of the overseas test prep and consulting business, I think, is much better than we expected several quarters ago.

And next year, I believe the overseas-related business will grow to some extent for the fiscal year 2022.

Thank you, Tian.

Our next question comes from Sheng Zhong from Morgan Stanley.

So my question is looking at Beijing, I think the learning centers reopening is slightly slow.

So any color on this government approval process, what the key items they are doing the inspection now?

And do you think -- so based on this, what's your -- do you have capacity expansion plan for next year that can be shared with us now?

So far, we opened almost all the learning centers except for Beijing city.

And in Beijing, we have [over 100] learning centers in Beijing, but we opened single-digit learning centers now.

And -- but we expect that the more -- we will open more learning centers -- reopen more learning centers in Beijing.

And this year, we plan to open 20% of the capacity.

First 3 quarters, we opened 17%.

And next year -- so far, we haven't finished our budget for the next year, the expense plan.

So I think the next earnings call in the next quarter I will share with you our expansion plan.

And so far, we want to change our expansion plan for the next year, but we still need more time to finalize our budget for next year.

Yes.

Sheng, in addition to the Beijing situation, I want to remind you all that because we have the OMO system so that we have all the students during the spring course online very smoothly, actually even with the closure of offline learning centers, still all the students can take their classes online, and the retention is very stable.

And also overall, the -- since the pandemic, we're seeing Beijing's situation is harder than other cities and revenue declined.

But the reported Q3 quarter and forecast Q4 quarter, Beijing's revenue trend is better -- getting better and better.

Our next question comes from Alex Xie from Crédit Suisse.

Congratulations on very strong set of results.

So please comment on the margin trend in the next quarter and also for the next fiscal year.

I think we have a low base in the fourth quarter of last fiscal year.

Yes.

I think the revenue growth recovery is similar process.

This is the first.

And on the market front, I think we do have the -- I think we have the business opportunity in the market for us.

And -- but we are doing the -- several investment now, actually since 2 quarters ago.

We make the learning center expansion by 20% this year, and we firmly raised the teacher salary twice this year.

And also, we spend more money on the R&D for the OMO, and also, we hired more people on the marketing team to do the marketing activities.

So -- but I think the -- all the above-mentioned investments will make us be fully prepared for the future.

So I think it will impact the margin for short term, but I still believe the margin decline for the Q4 will be narrowed down compared to this quarter.

And we're confident that we are able to deliver the margin expansion after the pandemic is over, and we don't want to change the mid-, long-term margin guidance.

Our next question comes from D. S. Kim from JPMorgan.

Congrats on the strong [results] across the board.

Maybe before I start my question, can I just follow up on your point that -- when you say margin decline would be narrowed versus this quarter, are you referring to last year or pre-COVID level?

And I have my own question after this.

I mean it's year-over-year comparison.

Year-over-year, okay.

My question is regarding Koolearn.

And there seems to be some reports locally that there are some business adjustment at the entity, according to some media.

And could you help us understand what's the key change and priority here plus potential margin impact?

Say, for instance, Koolearn has been making about USD 40-plus million operating losses every quarter in the past 5, 6 quarters.

But shall we expect the absolute size of the losses from $40 million-plus to narrow into fiscal year 2022?

Or shall we only think about the margin improvement, not the absolute size of losses?

D.S. Kim, I can't say too much about the detailed numbers of the Koolearn, but I can share with you our strategy.

Koolearn has spent more money on the R&D and marketing in the past quarters, but we started to control the marketing activities and money in this quarter.

And going forward, I think we will be very cautious on the marketing spending.

Okay?

And as I said, our strategic focus is to invest more money on -- to improve the teaching quality or training the teachers or hiring the talented people rather than the heavy spending on marketing.

So we thought this is the essence of the education.

And so I do believe the revenue of the Koolearn of next quarter will be accelerated, and the margin drag from the Koolearn to the EDU will be smaller and smaller going forward.

Our next question comes from Lucy Yu from Bank of America Securities.

I have a follow-up question on the margin.

So in the fourth quarter, we have a relatively lower base.

And especially with the K-12 start to grow like 45% to 50%, should we expect some operating leverage on the K-12 side?

At least the K-12 margin should be improving, right?

So what is actually dragging the margin to be lower than the same period of last year?

Yes.

We believe we have the leverage on the K-12 business because the business recovered very, very fast.

And -- but as I said, with this, we're doing the investments for the future like raising the teacher salary and to open more learning centers and also to invest more on the OMO model.

We hired a meaningful number of the marketing staff to do the brand promotion.

And so I think you still need maybe more time to see the margin expansion, maybe one more quarter.

But I do believe the margin profile in Q4 will be better than this quarter.

Thanks, Lucy.

Our next question comes from Jessie Xu from Nomura.

Congratulations for a very strong quarter and also very strong revenue guidance for 4Q.

My question is also regarding offline normalization in Beijing.

I want to understand what is our base scenario here.

And what about the worst-case scenario?

If Beijing learning centers cannot be opened before summer, what will be the impact to our summer promotional campaigns?

So far, we finished the 17% expansion in the first 3 quarters of this fiscal year, so we still need 2% to 3% new capacity in Q4 to get to a point -- to get the number of the 20% capacity expansion.

I think we are prepared for -- the capacity is prepared for the coming summer promotion.

And don't forget we have the OMO model compared to last year.

Our OMO model is much better than that of last year.

And I think we will do some of the summer promotion via the OMO model.

I think the online elements will help us to do the summer promotion rather than the traditional, typical 100% offline format.

Our next question comes from Christine Cho from Goldman Sachs.

Congrats on solid results this quarter, Stephen and Sisi.

It seems like the capacity growth this quarter of 17% looks a bit softer.

And also, it seems like you're targeting around 20% growth, which seems to be kind of the low end of the 20% to 25% midterm target.

Just wondering if this is temporary.

Or are there any lasting considerations such as, for example, like OMO expansion plans or any regulatory concerns that you have here?

Yes.

We aim to add around 20% capacity expansion for the whole year, fiscal year 2021, this year.

And last year, we expanded 26% new learning centers.

Typically, we ramp up the learning center from 0 to [mature] (corrected by company after the call) by 3 to 4 years.

So that means we have enough capacity to ramp up.

And also, since the last year, we moved some classroom area of the overseas test prep to K-12 business because we suffered the negative impact from the overseas test prep business.

And I think it will help us to prepare for the potential growth of the K-12 business.

So we are now approaching the end of the conference call.

I will turn the call back to New Oriental's Executive President and CFO, Mr. Stephen Yang, for his closing remarks.

Again, thank you for joining us today.

If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representative.

Thank you.

All right.

Thank you.

So that does conclude our conference for today.

Thank you for participating.

You may all disconnect.