New Oriental Education & Technology Group Inc (EDU) 2016 Q2 法說會逐字稿

Ladies and gentlemen, good evening and thank you for standing by for New Oriental's second fiscal quarter 2016 earnings conference call.

(Operator Instructions).

Today's conference call is being recorded.

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

I would now like to turn the call over to your host for today's conference, Ms. Sisi Zhao, New Oriental's Investor Relations Director.

Ms. Zhao, please proceed.

Thank you.

Hello, everyone, and welcome to New Oriental's second fiscal quarter 2016 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 Chenggang Zhou, New Oriental's President, and Stephen Yang, Chief Financial Officer.

After their prepared remarks, Chenggang and Stephen 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. Zhou.

Mr. Zhou, please.

Okay.

Thank you, Sisi.

So hello, everyone.

Thank you for joining us.

This is my first time to be here, speaking to investors and analysts as President of New Oriental, a new role I began earlier in January.

I'm so happy to be here and would like to thank Michael, Louis and Stephen for all their support.

As Michael said on the last conference call, my job will be to guide corporate strategy and oversee business development, which I'm quite excited about.

New Oriental has entered a new chapter with the "Optimize the Market" strategy and in particular, the O2O integrated education ecosystem.

So it is an exciting time to be here in this position.

So now let's now look at the details of our quarterly performance.

Revenue was up by 17.7% year-over-year to $278.1m.

So if not including the impact of the recent depreciation of renminbi against the U.S. dollar, the revenue growth rate would have been 22.1%.

This strong topline performance was mainly driven by a significant growth in the total enrolment, which went up by 35.3% to approximately 841,000 for the quarter.

So you may have noticed that our enrolment increased more than it normally has in the second quarter in previous years.

This is because we moved the registration of the winter classes earlier to the month of November, starting this fiscal year, and we will continue to do so going forward.

So this decision is in response to the increasing demand from our students, who wish to secure class booking as early as they can.

Another contributing factor to the enrolment growth is the continuous rollout of our new POP Kids program and U-Can VPS, which has been generating quite positive feedback from both students and teachers.

The new POP Kids program reached 44 cities and U-Can Visible Progress System reached all the existing cities.

So our revenue driver, the K-12 all-subjects after-school tutoring business, achieved revenue growth of more than 33% and enrolment increase of 59%.

It's important to note it has been a year since we rolled out the newly revamped POP Kids program, which definitely helped further differentiate New Oriental from the rest of the market.

For the quarter, POP Kids continued to deliver strong results from revenue up 30%, and we expect this trend to continue for the second half of the year.

In terms of pricing, per program blended ASP decreased by 7% year-over-year.

On an apple-to-apple basis, which is GAAP revenue divided by the total teaching hours, hourly blended ASP increased about 2%.

A breakdown of the hourly blended ASP -- U-Can increased about 1%, overseas test program is flat, POP Kids increased about 6% year-over-year.

So this needs probably a bit more explanation.

So first of all, the early registration in winter classes caused a reduction per program blended ASP, because the winter classes are shorter than the autumn classes in terms of total class hours.

Secondly, during the second quarter, we made an adjustment to the semester arrangement for the POP Kids program, which used to have two or three semesters a year and now we have four to make it more flexible for the students to plan for their learning progress.

Therefore, we are seeing a reduction in the quarterly per program blended ASP.

However, if you look at it on a yearly basis, the impact is minimal as the total class hours will still be the same or quite similar.

Thirdly, we are seeing the slowdown of VIP classes, which have a higher ASP.

Finally, we want to point out that RMB devaluation has negatively impacted our ASP growth rates, which would have been 4% higher.

So now let me walk you through our performance across individual business lines.

Our K-12 all-subjects after-school tutoring business experienced gross revenue growth of more than 33% year-over-year for the second quarter and enrolment growth of about 59%.

Breaking it down, U-Can middle and high school all-subjects after-school tutoring business achieved a gross revenue increase of 35% year-over-year, student enrolment growth of 56% year-over-year.

So POP Kids program continued its growth momentum, with gross revenue up 30% and enrolment significantly up 62% year-over-year.

As the management said repeatedly, we are quite confident that POP Kids will play an increasingly important role in realizing further growth for K-12, and this is proving to be true quarter over quarter.

So our overseas test prep and consulting business achieved revenue growth of 4% year-over-year.

And I believe the growth will be bigger when it comes to the Vision Overseas quarter; that is the last quarter.

[The fourth fiscal quarter is the peak season for the Vision Overseas business.] (corrected by company after the call)

Finally, revenue for VIP personalized classes business increased 9% year-over-year.

So now let me provide some updates on the ongoing execution for the "Optimize the Market" strategy.

As we emphasized before, we're focused on maintaining a healthy balance between the topline and the bottom line growth while investing heavily in the build-out of our O2O integrated education system.

So, starting with the core of our business, we opened a new school in Weifang, an emerging and populous city that lies in eastern China.

We also closed a net of two learning centers, while we expanded some existing ones, adding a total of approximately 14,000 square meters of classroom area.

So in the approaching winter and spring quarters, we will continue to improve the utilization at our existing schools and learning centers and we'll add some capacity in the cities that demonstrate the highest growth potential.

So for online, we spent about $13m in further improving our O2O system in the second quarter and this is in line with our $50m investment plan for the fiscal year.

Clearly, our efforts are paying off as the new O2O system for K-12 is enhancing customer retention rate and bringing in new customers as well, which therefore contributed to a revenue growth for the second quarter.

This O2O system has become the defining factor for New Oriental and we truly believe it will continue to enhance our profitability for the next few years.

So, before I go into the details about our online business, just a quick recap of all the three levels of our online platform.

The first level, also the core of our online system, is an "O2O Two-way Interactive Education System" across all of our business lines.

The second level is our pure online learning center and learning platform and supplementary online educational products under the New Oriental brand.

The third level of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complement our own online education offerings; that is investment.

Let's start "O2O two-way interactive education system", which we rolled out and upgraded in the first quarter of fiscal 2015 across all major product lines, in order to extend New Oriental's traditional offline classroom-teaching offerings to online education services.

Solid progress was made in all fronts.

U-Can Visible Progress Teaching System has been used in all of the 52 existing cities and positive market feedback keeps coming in.

So POP Kids English program, or the "Shuang You" in Chinese, saw another quarterly revenue increase of 30% and enrolment up 62% year-over-year.

By the end of the second quarter, 44 cities in China are using POP Kids, "Shuang You".

The O2O for the Domestic Test Prep program was being used in 5 cities by quarter end.

Good news on the O2O for Overseas Test Prep program -- it has been officially launched in the second quarter and now it's being used in two cities.

We will continue with this rollout for the rest of the year.

For the second level of our online education ecosystem, we have seen healthy growth in our pure online learning platform and other supplementary online education products.

In the second quarter, Koolearn.com generated net revenue of $13.3m, up to 19.4% year-over-year.

The number of paid users increased over 215% year-over-year.

The number of cumulative registered users has reached more than 11.9m.

Koo.cn, our own live broadcast open platform for both New Oriental and third party teachers, achieved roughly 1.2m registrations.

"Donut", a series of game-based mobile learning apps for children, recorded over [33.3m] (corrected by company after the call) downloads, so I guess it was successfully launched in New Oriental today as a pilot program.

"Le Ci", an English program, language vocabulary training app for mobile phones and tablet app, recorded about 3.5m users by quarter end.

And also we're thinking of the best ways to make the best use of these resources in these pools in the days to come.

So, turning to the third level of our online education ecosystem, we invested in select online education companies with a minority stake.

So in September 2015, we invested in Leleketang.com, which is complementary to our K-12 business.

Leleketang is an online platform that provides personalized education for K-12 students.

It offers teaching, learning products by level, by subject, through animation videos, the interactive practice tools and question bank.

So currently, it has 15m accumulative unique visitors and 2m daily active users.

So, together with our previous investments in Kouyu100.com, Alo7.com, Juesheng.com, Gaodun Finance and Robotron, we are now on the right track of building out our O2O ecosystem and we have created more opportunities to partner with our new online education companies to enhance our product offerings and strengthen our leading position in China's private education market.

Another name to add here is the Kouyu100.com, which we invested in December 2014 and was listed in China's new third board in December 2015, which is an over-the-counter market for growth enterprises.

So that's basically what I've got to say.

Now I will turn the call over to Stephen to discuss the key financials and overall outlook.

Stephen --

Thank you, Zhou.

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

Operating costs and expenses for the quarter were $288.5m, a 16.2% increase year-over-year.

Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were $283.5m, a 16.2% increase year-over-year.

Cost of revenues increased by 17.3% year-over-year to $134.2m, primarily due to increases in teachers' compensation for more teaching hours.

Selling and marketing expenses slightly increased by 0.3% year-over-year to $44.1m.

General and administrative expenses for the quarter increased by 22.7% year-over-year to $110.1m.

Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were $105.1m, a 23% increase year-over-year, primarily due to increases in R&D expenses and human resources expenses related to the development of our O2O integration.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 16.5% to $5.0m in the second quarter.

Loss from operations for the quarter was $10.4m, compared to a loss of $11.9m in the same period of prior fiscal year.

Non-GAAP loss from operations for the quarter was $5.4m, compared to non-GAAP loss from operations of $7.6m in the same period of prior fiscal year.

Operating margin for the quarter was negative 3.7%, compared to negative 5.0% in the same period of prior fiscal year.

Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was negative 1.9%, compared to negative 3.2% in the same period of the prior fiscal year.

Net income attributable to New Oriental for the quarter was $5.9m, representing a 70.3% increase from the same period of prior fiscal year.

Capital expenditures for the quarter were $11.6m, which were primarily attributable to the opening of 20 new learning centers and renovations at existing learning centers.

Turning to the balance sheet, deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions are delivered, at the end of the second quarter was $586.5m, an increase of 33.1% as compared to $440.7m at the end of the second quarter of fiscal year 2015.

Before we move into the Q&A session, let me go through our expectations for the third fiscal quarter.

We expect total net revenues to be in the range of $328m to $339.5m, representing year-over-year growth in the range of 14% to 18%.

If not including the impact from the recent RMB depreciation, the projected revenue growth rate is expected to be in the range of 20% to 24%.

This forecast reflects New Oriental's current and preliminary view, which is subject to change.

At this point, Zhou and I will take your questions.

Operator, please begin.

(Operator Instructions).

Julia Pan, Macquarie.

Hi, Stephen.

Hi, Chenggang.

Congratulations on a strong result in this quarter.

I have two questions.

Could you please give some color on the margin outlook in fiscal year 2016?

Is this going to still be flat or a little bit increased?

And also, why is the tax rate as low as 6% in this quarter?

And also, could you please tell us what's the market share EDU has in after-school tutoring market now and what's your outlook for the consolidation of education industry in the future?

Thank you very much.

Okay.

Thank you.

I think your first question is about the margins of fiscal year 2016.

I just want to guide the operating margin for the whole fiscal year of 2016 about the -- I think the margin will be flat in the whole year.

For the offline schools, we're happy to see the margin improvement because of the leverage.

You can see in the Q2 numbers the revenue was up by 17% without any new learning centers.

But we are still in the investment phase.

Based on the budget, we will spend $50m within this year, so that's why I guided the margin will be flat.

Your second question is about the tax rate.

Yes, Q2 is the lower season for the profits, and I think the ETR for the first and second quarter cumulatively is about 11.8%.

For the whole year, it should be 12% to 13%.

And for your third question about market share, yes we are the number one player in the whole market for K-12 after-school tutoring business, but I think the market share occupied by New Oriental is only like 1% to 2%.

It's a huge market.

It's very fragmented.

So about the potential consolidation, yes, we are taking more market share, as you saw the very strong student enrolment growth, and I think in the future we will take more and more market share.

And also, in the existing cities New Oriental are holding, we are still having quite a lot of room for improvement in some of the existing cities.

So as time passes, our performance probably will be better and the results could be better, so including -- not including those cities probably we're expanding to in the days to come.

Thank you, management.

That's very helpful.

Thank you.

Cynthia Meng, Jefferies.

Hi, management.

This is Annie Xu.

I'm asking on behalf of Cynthia Meng.

I have two questions about EDU's results.

The first one is, given the lower blended ASP in 2Q 2016, is the higher gross margin a result of higher utilization rates?

And what is the utilization rate in the second quarter of 2016?

And also, my second question is could you give us some color about the ASP trend of U-Can, POP Kids overseas test preparation and the domestic test preparation as well as comprehensive English business, respectively, in fiscal year 2016 compared to last year?

Thank you.

Okay.

Yes, the utilization rate of New Oriental is up in the second quarter, because our student enrolment grew by 35% year-over-year without new learning centers.

And the utilization rate is 20% in Q2.

The Q2 last year was 18%, so that means 200 bps up.

And for the ASP, I think I would rather spend more time to explain the ASP.

The enrolment for Q2 is 35% and the cash revenue is 28%.

So if you do the math, it's 7%, the ASP is down.

That is per program.

There were four reasons.

The first reason is the early registration for the K-12 business.

We moved the enrollment window for K-12 from December to November and, as you know, the winter class is shorter than the autumn class.

So this is one reason that impacts on ASP.

The second reason is that we changed the class length for POP Kids program in some cities.

That means that now we have more shorter POP Kids classes.

The third one, the VIP revenue contribution is decreasing.

The VIP revenue contributes 30% of total revenue, and in the Q2 it was only 9% growth, so it's dragged ASP.

And the number four reason is the exchange rate.

We have the negative 4% due to the RMB depreciation.

So I will give you the hourly rate.

It's not a price per program.

It's the hourly rate.

In U.S. dollar terms, it increased by 2% in the second quarter.

If you calculate in RMB terms, it's 6% for ASP.

So in the longer term, I think we will increase the price by 5% to 10% year-over-year for the price.

That's my answer.

Thank you.

Okay.

Anne Shih, Brean Capital.

Hi.

I just have some follow-up questions on the margins and the ASP.

Could you just provide maybe some more details on the cost efficiencies?

And then the flat margin for the full fiscal year, I'm just wondering, given lower O2O spending for next year, should we also expect more rapid recovery to normalized margin levels?

And then second, on the blended ASPs, could you also discuss the Company's pricing strategy for promotions, particularly in K-12?

Thank you.

Okay.

For the margins, yes, we are seeing the margin improvement in this fiscal year.

And yes, we will spend $50m on investments for O2O and pure online, and so that's why I guide the margin will be flat within this fiscal year.

And next year, I think we will cut some investment money we have compared to this year.

We don't have the budget till now, but I think the number of the investment, the money we spend in next year should be lower than this year, so the margin will be higher next year.

Yes.

That means as we promised before, we are going to invest more money, the $50m in the investment, to improve our infrastructure, the online, offline system.

When the structure is ready, we'll save the money, and probably for the sustainable development.

So the performance or the figures, the numbers, will be much better.

So in the longer term, what I mean is in the next three to four years, our margin -- our operating margin target will be 17%, 18%.

What's your second question, Anne?

And the second question was related to promotions and pricing for the K-12 segment.

Oh, yes, we did some promotions for K-12 business in some big cities, like in Beijing, Wuhan, but I think it's very minimal.

Because we give some very low-priced classes in our grade one and grade seven, so it's the entrance class, so it's a small part of the business.

And for all the other grades except for grade one and grade seven, the prices are as normal.

All these classes, I believe, are basically to attract more customers, for the promotion and marketing only.

And, Anne, actually we did more promotions by pricing in Q1, which is the entrance point for the whole year registration, but in the rest of the year we won't do a lot of pricing promotion.

And also, for the whole year our pricing strategy for K-12 is to take up the hourly rate by, probably controlled within 5%, so this is our current pricing strategy.

Going forward, we have more pricing power to take up the price.

Yes.

Thank you.

Fan Liu, Goldman Sachs.

Hi, Chenggang, Stephen and Sisi.

Thanks for taking my question and congratulations on the strong result.

So I have two questions.

Number one is that about learning center expansion.

So year to date, actually we haven't really added much learning centers.

What's your guidance for the rest of the year and maybe also for the coming fiscal year 2017?

And also, second question about your O2O investment.

So you have mentioned that you are still on track for the whole year, a $50m investment.

May I know how much have you spent in the first half for online O2O?

These are my questions.

Thank you.

Okay.

In terms of the expansion plan, our learning centers decreased by one in Q2, but we added a net of 14,000 square meters in capacity for the current learning centers.

We closed some small learning centers due to the leasing contract expired, and then opened big learning centers nearby.

And for the rest of the year, what I mean is in the Q3 and Q4, we plan to open the learning centers below 10.

What I mean is the net increase.

And for the next year, I think we will increase 30 learning centers.

So compared to the 720 we have, it's 4% or 5%.

And for the O2O and pure online investment, in the first quarter we spent $10m and in the second quarter we spent $13m, so $23m we spent in total for the first half of the year.

Great.

Thanks, Stephen.

Okay.

Thanks, Fan.

Yoon Jinkyu, Mizuho Securities.

Hey, good evening, guys.

Real quickly, on the enrolment, you said that enrolment grew this quarter, largely due to the fact that there was a bit of a pull-forward demand due to earlier enrolments, and that's largely due to the fact that the students demanded that.

I guess, why this quarter?

Is this a recent new phenomenon that we haven't seen in the past?

And so when we see kind of a pull-forward demand on enrolment, what should the enrolment look like this quarter, and then the subsequent quarters going forward?

Can you just kind of give an outlook on just how we should be modeling for that?

Great.

Thanks, guys.

Okay.

I think it's not the first time.

If you recall the numbers six months ago, we had very strong student enrolment growth in Q4 2015.

And I think the new O2O product is very popular in the market, so the students wish to enroll the class as early as they can to secure the class seats, and so that means we have the early enrolment.

So if you build up your model at normal level, I think the student enrolments should be the 30% to 35% increase year-over-year.

Got it, and that's 30% to 35%?

Yes, for the K-12.

Got it.

And is there -- and you mentioned O2O is kind of the driver for that.

Is there a particular seasonality that we should look at in terms of fourth quarter and this quarter, or is it going to be just 30% to 35% for the next few quarters going forward?

No, I think -- what I mean is if you build up your model in the Q2 and Q4, going forward, you should build up the higher student enrolment growth.

So what I mean is for the next year, the whole year, you should build up the model for the K-12 business.

The student enrolment growth should be like 20% to 25%.

And for all the business, it's 15% to 20% student enrolment growth.

Got it.

That's clear.

Yes.

So the timing difference is only for current fiscal year.

It's not for next year.

Got it.

That's clear.

Okay.

Thanks, guys.

Okay.

Thank you.

Tian Hou, TH Capital.

Hi, Sisi, Stephen and Zhou.

The question is related to your investment.

You previously announced a joint venture with Tencent to develop mobile Internet education.

I wonder what's the progress on that front.

Also, you also mentioned the Kouyu100.com, and

has already been traded on the OTC, the over-the-counter market in China.

So I wonder, such kind of arrangement, one of your assets is invested in the local market, how the shareholders of EDU benefit from such arrangement.

That's my question.

Okay.

Yes, we made a lot of investments during past two to three years, and the target company we seek for is the -- if we can find the synergies between New Oriental and the target companies, we will do the investments.

For example, for the Kouyu100.com, their customers are like the grade six to grade eight, the students for the K-12 -- for the students study our English online.

And so we can make a lot of the cross-selling from their customers -- to their customers for our K-12 classes provided by New Oriental, so these synergies should be the key factor of our investment logic.

Basically, that means that the companies should be compatible with each other, and we can make the best uses of the resources of each other's pool, so that we can support each other, right?

So what about the joint venture with Tencent?

What's the progress on that one?

We set up the joint venture last year and we launched the product.

To be frank, I think both the registered users and the revenue need more improvement, so just wait more time.

Should be moving on smoothly.

Yes.

We are still waiting for the final results.

Okay.

Thank you.

Okay.

Alvin Jiang, Deutsche Bank.

Hi.

Good evening, Zhou, Stephen and Sisi.

Congratulations on the strong results.

I have two questions.

The first question is on the performance of U-Can and POP Kids.

I noticed that in the past quarter U-Can actually outperform POP Kids.

Can you share any color on this?

Maybe this is coming from some (inaudible) deployment or any other new improvements of U-Can.

And my second question is on the price cannibalization, because I noticed that Koolearn actually has a very robust growth in terms of rapid traffic, but actually revenue growth decelerated.

So I'm not sure if you introduced some new subjects, maybe dilutes the price, or any other insight from you would be very helpful.

Thank you.

Yes.

I think we're seeing the boost in enrolment growth, both U-Can and POP Kids.

But I think U-Can is better than the POP Kids, because the courses of U-Can are more mission critical, with a high price for these students.

But going forward, both U-Can and POP Kids will be as strong as this quarter, maybe a little bit better.

And for the cannibalization for the online, you mean the Koolearn, this quarter the Koolearn revenue was up by only 19%.

I think this is due to two reasons.

The first one is the 2B business decreased in Q2 for Koolearn, but it shrank in last several quarters.

Now, it accounts for 15% to 20% of the total revenue.

But on the other hand, the 2C business increased by 45%.

And the second reason is the peak season for the Chinese GRE should be the third quarter.

So in the coming quarter, what I mean is in Q3, you will see the very strong GAAP revenue growth for Koolearn.com.

Mariana Kou, CLSA.

Yes.

Sorry.

I was on mute.

Congratulations again, management.

Thank you for taking my questions.

I just have two questions.

I think one is actually back to the market share question one of the analysts asked.

I think the market share overall for the country is definitely very low, at 1% to 2%.

There's a lot of room to grow.

But I was just wondering if you have any data on maybe the top-tier cities, like for example Beijing, Shanghai, what sort of market share are we kind of thinking in terms of -- or any ballpark numbers would be helpful.

And the second question is a little bit more on -- I guess just more of a question, really.

If you could share a bit more color on the investment portfolio or any sort of data that you can help us think about the interest income.

I know the market is definitely quite volatile at the moment and the interest income actually is quite a significant portion of your (inaudible).

So if you could give some color, that would be very helpful.

Thank you.

Okay.

In terms of the market share, yes, we also have only 1% to 2% of the K-12 market.

In some big cities, like in Beijing and Shanghai, I think the number should be higher than 1% to 2%, but I'm not sure I have the idea about the detailed numbers.

And by the way, this is the market share for K-12.

This is a very huge and fragmented market.

And in overseas test prep, we are dominating.

Yes, yes.

And your second question is about the interest income.

All the interest income we made comes from the -- like the bank deposits or the treasury products we bought in banks, but the principal and interest income is 100% protected by the banks.

But the average interest rate of this year should be lower than last year.

Because of the government's policy.

Yes.

It's not only because of the policy, but because of market needs.

But anyway, you will see the interest income increased a little bit.

Thank you.

Okay.

Thanks.

Yes.

Zoe Zhao, Credit Suisse.

Hi, management.

Congratulations on a strong quarter.

Two questions from me, one follow-up from the previous question on the promotions.

You mentioned that you've done promotions on grade one and grade seven products in Beijing and Shanghai.

I just wonder which courses are you promoting on.

In addition, do you book this promotion spending on sales and marketing expenses or on a net of revenue basis?

And the second question is can you share a little bit about your K-12 enrolment growth regional exposure?

Which provinces do you see the most rapid growth among all?

Yes.

Thank you.

Okay.

For the promotion, yes, we provide some promotions for the grade one and grade seven, like maths and physics and chemistry, for the courses.

And yes, this is as we make once a year, typically in the summer, to get more new students.

Yes.

We are doing this to demonstrate the quality teaching and our top, first-class performance in the classroom, so that we can enroll more students in the coming season.

And your second question, about the K-12 driver, what I mean is, yes, the non-English courses grew faster than the English courses.

For the U-Can, I think the English courses account for only one-third of the total revenue, so the non-English accounts for two-thirds.

And the non-English grew faster than the English courses.

And for the POP Kids, English courses account for 80% of the total revenue, and math and Chinese account for 20%.

Same, the non-English courses grew faster than the English courses.

Yes, because the market potential is much bigger than the English one, right?

Yes.

Right, sorry.

Just on the regional exposure perspective, which provinces do you see strongest growth among the all?

And also, on the first question, I guess a second part I wonder is that do you book the promotion spending in the marketing spending or on more like a net of revenue basis, as in counter revenue, that kind of measure?

Thank you.

Okay, yes.

We just account the net of the revenue, not reported the expenses in selling and marketing.

And in terms of the different cities, we are seeing very strong growth in Beijing, Wuhan, Nanjing and Xiamen, Hefei, so I think it depends on the different managements.

But I just want to focus on the Beijing numbers.

The K-12 business in Beijing grew very fast during the last three and four years, and the trend will be continued.

Thank you, management.

Okay.

Yes, so this is basically because of the resources of the different cities they have, and also because of the differences of the management, the quality.

Okay.

Andrew Orchard, Nomura.

Hi.

Evening, everyone.

I have a question on the VIP.

You noted that one of the reasons why your hourly ASP is down is because of VIP's lower contribution as a percent of the total, so I wanted to get some idea of why that was the case.

Is it because VIP is slowing, or is it because you're seeing your other products doing very well?

Thanks.

Yes.

As you know, the management made the new policy of the VIP.

We do like the VIP business but it has the lower margin.

And the management thinks the small and big classes are the suitable class style for the students.

So we just want to cap the VIP business, 30% of the total revenue.

I've got to say that actually we like the VIP business, but it's quite tricky.

So in order to keep the balance of the healthiness of the whole development, we've got to keep the percentage.

So that's why, basically.

Are you -- sorry.

Are you actively doing that, because I think there's a trend that you are -- that there's more demand for more personalized attention, right?

So you are saying we're just not going to offer it, even though there is demand?

Yes, the market demand is still there.

We will still provide the classes, but we encourage the local school heads to open more small and big classes, other than VIP.

Okay.

Thanks.

Okay.

We are now approaching the end of the conference call.

I will now turn the call over to New Oriental's CFO, Stephen Yang, for his closing remarks.

Okay.

Thank you, everyone.

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 representatives or Sisi.

Thank you.

Goodbye.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.