NaaS Technology Inc (NAAS) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to RISE Education First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Mr. Aaron Li. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to RISE Education's First Quarter 2021 Earnings Conference Call. Today, you will hear from Ms. Lihong Wang, Chairwoman and CEO; and Mr. Warren Wang, CFO. Lihong will go over recent business updates, operations and the company's long-term strategy. Warren will go over the financial results for the quarter. Both will be available to take your questions in the Q&A session that follows.

Before we proceed, I would like to remind you that today's discussion may contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Form 20-F filed with SEC on April 19, 2021. We do not assume any obligation to update forward-looking statements, except as required under the applicable law.

Throughout today's call, Lihong and Warren will be referring to the earnings presentation that has been uploaded to our IR website as a supplement to today's call.

Now I'd like to turn the call over to Lihong. Lihong, please go ahead.

Thank you, Aaron. Hello, everyone. Thank you for joining our earnings call today. We are pleased that 2021 started off on a positive note with the business recovering strongly compared with the prior year. Despite the resurgence of COVID-19 in certain areas of Northern China and recently introduced regulatory restrictions, we still managed to deliver strong year-over-year improvement on both our top line and bottom line in Q1. We are pleased with the overall business performance when measured against the unfavorable macro environment.

Moving ahead, given the critical regulatory changes we are facing right now as an industry, we are working to fully upgrade RISE into a multiform aptitude 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 details of our 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% from the same period of 2020. We also significantly narrowed the adjusted EBITDA loss and adjusted net loss on a yearly basis.

Total number of new students enrolled for Rise regular courses was 5,846 in Q1, compared with 1,507 for Q1 2020. We saw a quarter-over-quarter decrease in the number of new student enrollments. This was mainly due to strong seasonality in the ELT market where student enrollments are usually lower during the Chinese New Year season in Q1 as well as the recently introduced regulatory restrictions in Beijing.

During the quarter, all of our learning centers were in full off-line operation, except for those in Beijing. Due to the resurgence of COVID-19, our learning centers in Beijing and Shijiazhuang were temporarily closed since late January. After pandemic situation eased, all of our learning centers in Shijiazhuang resumed off-line operations by the end of March. Only one of our learning centers in Beijing reopened in March, while the off-line operations of all other learning centers in Beijing remain suspended due to regulatory reasons.

These factors did impact our new student enrollment in Q1 and was the main reason for the sequential decline in the number of students in class for Rise regular courses. We believe this is temporary. We expect our learning centers in Beijing will gradually reopen once we satisfy regulatory requirements. We expect both our enrollments and students in class to be better on track accordingly.

As of March 31, 2021, the cumulative number of enrolled students who paid for regular courses and other courses since January 2019 exceeded 215,000 and 100,000, respectively. Based on these extensive fee-paying student base, we will execute our business upgrade plan to drive our long-term growth.

With respect to capacity expansion, as of the end of March 2021, we have self-operated 95 learning centers nationwide compared with 92 in December 2020. Our franchise partners opened another 10 new centers in Q1, bringing the total number of franchised learning center to [430] (corrected by company after the call) at the end of March compared with [420] (corrected by company after the call) at the end of December 2020.

Now on to Slide 4. Here, I want to highlight the strong growth momentum we have gained in all cities other than in Beijing. All of our self-owned learning centers in all cities other than Beijing resumed full off-line operation by the end of Q1 2021. It is encouraging to see that despite strong seasonality in Q1 of 2021, our learning centers in all cities other than Beijing registered quarter-over-quarter and year-over-year increases in new student enrollments and students in class for Rise regular courses. This demonstrated the trust and strong approval that parents and students have towards the RISE brand, our reputation and our diversified offerings under the OMO model.

Retention rates in all cities other than Beijing saw sequential improvement, including the retention rates of both Shanghai and Shenzhen, which have significantly increased 7 percentage points quarter-over-quarter. Even when our learning centers in Beijing couldn't reopen by the end of March 2021, we still managed to maintain a stable retention rate in Beijing with only 1 percentage point decline on a sequential basis.

New student enrollment in Beijing also significantly increased on a yearly basis. In addition, we saw a very low refund rate in Beijing, only 7.6% in Q1. Thanks to our proven and mature OMO model, we have the resources and the flexibility when necessary to switch between online and off-line courses seamlessly, 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 enrollments and revenues. By the end of March 31, we expanded our off-line franchised learning centers to 430 with a total number of students in class of more than 110,000. 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 franchise base and jointly promote the development of aptitude education in China.

Now on to Slide 6. We continued our efforts to diversify our course offerings to build our aptitude education ecosystem. As we mentioned earlier, our light course about Chinese New Year traditions launched in Q1 attracted about 35,000 enrollments, which proved to be an effective marketing channel. In March, we launched the Chengzhangzhe (Pinyin) App to provide more diversified selections of light courses and online picture books. For our 1-to-4 premium online English small classes, we proactively expanded its customer acquisition channels to increase new enrollments, which saw about 46% sequential growth in Q1.

In summary, we are actively working on transforming RISE into a multiform aptitude training platform.

And now I would like to invite our CFO, Warren, to talk about our first quarter financials. After that, I will give you an update on our business and branding upgrade plans and our business outlook for 2021.

Thank you, Lihong. Let me now go through our financial results for the first quarter of 2021. Before I begin, please note that all numbers stated are in RMB.

Let's take a look at Slide 7. Despite of unfavorable macro environmental conditions, we generated RMB 77.2 million of operational cash inflow during the first quarter compared with cash outflows of RMB 82.4 million and RMB 108.5 million in the first quarter and fourth quarter of 2020, respectively. This was mainly attributed to a couple of key factors: firstly, the strong market demand for our diverse course offerings; and secondly, RISE brand exposure and solid reputation built on extensive experience in the sector and high quality curriculum.

In addition, we continue to optimize costs with overweight off-line 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 increased 140% year-over-year to RMB 261.5 million. Revenues from educational programs increased by 125% to RMB 229.5 million. The year-over-year increase in revenues from educational programs was primarily due to the resumption of online and off-line operations of our self-owned learning centers as a result of the subsiding COVID-19 pandemic and our quick OMO strategy deployment. Although there are still ongoing uncertainties and challenges arising from the impact of COVID-19, we believe that we are well positioned to mitigate risks.

Franchise revenues increased by 420.6% to RMB 31.8 million. The year-over-year increase was primarily due to the growth in recurring franchise revenue as a result of subsiding COVID-19 pandemic. Other revenues decreased by 69.2% year-over-year to RMB 0.3 million.

Cost of revenues increased 13.8% year-over-year to RMB 162.2 million. The increase was primarily due to an increase in rental expenses as a result of the termination of rental concessions during the COVID-19 pandemic and the increase in teachers' compensations as a result of increased teaching hours and the resumption of employer's contribution for social insurance and payroll taxes. Additionally, the increase was also due to an increase in referral fees paid to franchisees for new franchise business. Non-GAAP cost of revenues increased by 14.8% to RMB 158.7 million.

As a result of the foregoing, gross profit was RMB 99.3 million compared with gross loss of RMB 33.6 million for the first quarter of 2020.

Now on to Slide 9. Total operating expenses increased 37.1% year-over-year to RMB 134.1 million. Non-GAAP operating expenses were RMB 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 quarter of 2020. The increase was primarily associated with increased online and off-line marketing channel expenses coupled with incentive-based salary raises from our marketing staff. Non-GAAP selling and marketing expenses increased by 50.7% year-over-year to RMB 63.6 million.

General and administrative expenses increased by 27.8% year-over-year to RMB 69.8 million compared with RMB 54.6 million for the first quarter of 2020. The increase was mainly attributable to increased personnel costs. Non-GAAP general and administrative expenses increased by 24.7% year-over-year to RMB 69.3 million.

Operating loss was RMB 34.8 million compared with operating loss of RMB 131.4 million for the same period of prior year. Non-GAAP operating loss was RMB 30 million as compared with non-GAAP operating loss of RMB 127.1 million for the same period of prior year. Adjusted EBITDA loss was RMB 5.1 million.

Turning to Slide 10. Net loss attributable to RISE 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 per ADS was RMB 0.44. Basic and diluted non-GAAP net loss attributable to RISE per ADS was RMB 0.35.

Net cash inflow from operating activities was RMB 77.2 million compared with net cash outflow from operating activities of RMB 82.4 million for the same period of prior year. The increase was mainly due to the increased tuition fees collected for Rise regular courses as a result of the subsiding COVID-19 pandemic. As of March 31, 2021, we had combined cash and cash equivalents and restricted cash of RMB 692.9 million as compared with RMB 639.2 million as of December 31, 2020.

Current and noncurrent deferred revenue and customer advances was RMB 696.4 million as of March 31, 2021, representing an increase of 15.7% from RMB 601.9 million as of December 31, 2020. The growth was primarily due to the increased tuition fee collection as a result of the subsiding COVID-19 pandemic. Deferred revenue and customer advances mainly consist of upfront tuition payments from students and initial franchise fees from our franchisees.

With that, I would now like to hand the call back to Lihong to give you an update on our business and branding plans and business outlook. Thank you. Lihong?

Yes. Thanks, Warren. Now on Slide 11. As you know, macro environmental factors have a profound influence on the entire after-school tutoring market in China. Over the past 2 months, we've seen Beijing Educational Bureau implemented or tested a series of regulatory requirements related to after-school tutoring sector, including restrictions on subject-based education, fund supervision and advertising related to preschool tutoring. These regulations have broadly affected the entire sector.

The accelerated growth of the after-school tutoring market in China has no doubt brought some chaotic problems. So we believe that it was necessary for the government to define clear regulations to promote the long-term and healthy development of the education industry. And we fully appreciate and support the government's initiatives. We believe that there will be both challenges and opportunities for the after-school tutoring sector to shift its focus onto the original building blocks of a well-rounded education system.

We have entered a new chapter for RISE to fully upgrade into a multiform aptitude training platform. Look 14 years' history, we think RISE platform has 4 strong pillars: first, we are a market-leading education brand; second, we have academic capability, strong course development and training capabilities; third, we have a student base with more than 150,000 students in class; the last but not the least, nationwide network of self-owned and franchised centers, over 500 centers nationwide and an IT and operating system that can support online education as well.

So let me elaborate those 4 strong pillars: the first one, market-leading brand; and the second one, academic capabilities. During the past 14 years, we have mainly specialized in English language training or ELT services. And at the same time, we have also been a dedicated practitioner of aptitude education because we have always advocated for our students to develop well-rounded foundations. Unlike most test-oriented courses, our curriculum are designed to foster leadership and cognitive skills in students while developing their self-confidence and sense of independence. This is fully in line with the education concept advocated by the government and the public in China.

In addition, we have developed and executed our plan since early 2020 to directly tap opportunities in the STEAM markets. Our experience and expertise in aptitude education and our deep dive into these new segments have laid a solid foundation for the development of our complete aptitude education ecosystem.

I also mentioned our nationwide off-line and online network with a strong student base. So our large-scale off-line network now has more than 500 learning centers in total, including self-owned learning centers and franchised learning centers. RISE brand's influence and recognition has helped us to penetrate into more Chinese cities. In combination with our Rise+ online platform, our courses and service offerings under the OMO model were accessible to a very large pool of students nationwide. As of the end of March 2021, there were more than 150,000 students in class from SOLCs and our franchisees.

In addition, we also served more students in our Rise courses. This large-sized private traffic has enabled us to lower customer acquisition cost, or CAC, as compared with the CAC of new student acquisition through other means. To unlock the traffic value of our sizable student base, we can adopt multiple monetization approaches to explore more opportunities in aptitude 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 this front recently, including the continuous improvement of our proprietary online classroom technology, course delivery system, AI classroom supervision system, new teacher training system and our AI teaching and lesson preparing system. In addition, we have built up strong curriculum development capabilities to ensure that our course offerings are up to date, engaging and effective. All these competitive advantages will continue to help us to develop our aptitude education ecosystem and drive long-term growth for our shareholders.

Turning to Slide 12. We see the structure of our multiform aptitude training platform. In addition to our core ELT courses as well as other existing courses such as Edge, a premium English training brand, we have also launched 2 new brands, Hiyeah and WhySTEAM (foreign language). These 2 new brands significantly enhance our aptitude training system to cover ELT, social skills and STEAM ability development programs. RISE ELT, Hiyeah and WhySTEAM courses target students of varying ages, starting from 6 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 slides.

Moving to Slide 13. ELT will remain our core business. Over the years, we have strengthened our leading position with an experienced management team complemented by strong research and curriculum development capabilities and diversified high-quality course offerings. At present, our ELT courses target students above 3 years old. If regulation changes, we can shift ELT to serve students above 6 years old. Currently, off-line schools that have resumed operations in Beijing are delivering courses to students above 6 years old as required by regulatory authorities. To attract the new student enrollments, we will continue to innovate course offerings with enhanced immersive learning experience and personalized teaching approaches based on our OMO model.

Now on to Slide 14. Hiyeah is our newly introduced brand focusing on children's social-emotional development and related family education support. The course targets children between 3 to 8 years old and their parents. Research continues to highlight the benefits of social-emotional learnings and why having a growth mindset is the strongest foundation for children to grow up into healthy and holistic young people. Those are the fundamental theories behind our course design to address the need for children to develop healthy identities, manage emotional intelligence, create and maintain supportive relationships and achieve individual and collective goals. Currently, we are working on introducing Hiyeah courses at our self-owned learning centers, or SOLCs. In addition, we'll launch separate Hiyeah learning centers transformed from certain revamped venue of existing SOLCs.

Now on to Slide 15. WhySTEAM focuses on STEAM-oriented aptitude development of children based on cognitive skills training and development, which includes Math Logic Thinking, Science Literacy and Science Exploration. The courses are designed for children under 8 years old and help them nurture deep understanding of conceptual thinking and innovative problem solving. We believe cognitive thinking skills are a crucial part of children development, and parents are increasingly placing a high value on this. We have received very positive feedback on our STEAM courses, which were introduced into the market last year under the name of RISE Math Logic Thinking. Under this new branding, WhySTEAM, we will continue to improve the learning experience of 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 branding upgrade on May 28, 2021.

For our ELT business, we expect our learning centers to continue their normal operation with solid growth momentum. The learning centers in Beijing that cater to students above 6 years old are expected to gradually resume off-line operation as well.

For Hiyeah, we expect to open the first off-line learning center in June 2021, which will be transformed from a revamped venue of an existing SOLC in Beijing.

For WhySTEAM, we have opened 3 WhySTEAM courses in Beijing in March and are in preparation to offer this class in 3 self-owned learning centers in Shanghai. And the first franchised learning center in Zhengzhou will be opened by the end of Q2 or actually in June. So far, WhySTEAM courses have received very positive feedback from more than 50 franchisees who have shown interest to introduce WhySTEAM into their offerings. As of to date, more than 20 franchisees have signed a letter of intent.

Last but not least, we have signed a memorandum of understanding to acquire a franchise learning center in Chengdu, which has 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 13,000 students in class.

Given all these factors, we reaffirm our guidance for our revenue to be in the range of RMB 1.42 billion to RMB 1.73 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.

(Operator Instructions) Your first question comes from Sheng Zhong of Morgan Stanley.

Thanks for a very comprehensive introduction about your results and your business. So I'm very interested in your new initiatives, including Hiyeah and WhySTEAM. Can you give us more color on the market potential you see in these 2 areas? And what's the current competition landscape? And what's your operation model, like your pricing, your positioning? And maybe also how much revenue contribution you would expect from this new business this year and the next year? This is the first question.

And the second question is regarding our current major business, ELT. You also mentioned there were some regulatory uncertainty here. So could you share us with some more color with your communication with the government, especially in the Beijing reopening process? What do you see the government attitude to the tutoring for the children below 6 years old? Because at the same time, we see some online players, they already removed their online courses for 6 years old below children. So that's my question.

Thank you, Zhong Sheng. So on the first question, maybe I'll start with WhySTEAM because this is a course extended from our Math Logic Thinking. To be frank, this is the second-largest area after English. So the demand from students and parents are pretty high, partially proved by, I would say, online players like Huohua and Wandou (Pinyin). For us, we believe our strength is off-line. So the WhySTEAM is extended from Math Logic to include more Science Literacy and Science Exploration, partially to make it more comprehensive. But to be frank, we don't want it to be subject to the regulation in terms of what they call subject-based course to be categorized as mathematics.

So for us, the positioning is to try to be the off-line #1 player in the market. And the pricing right now to the market is a bit, I would say, pretty competitive. For 3-month courses, we price below RMB 6,000. We do think with off-line more interactive immersive experience, this could be quite attractive.

For Hiyeah, I would say, one is you can call it a new course. The first purpose, in some ways, if the regulation prohibit us to teach English below 6 years old, we want to convert our students into this class to prevent losing our current student base. Then the second, of course, this is focused on social-emotional and also a growth mindset. In these 2 major areas, it is actually quite common into the teaching courses overseas. However, in China, there's, I would say, a lack of very good offerings in this space. However, families -- parents are very focused on preparing their kids to be able to blend into the society, into the schools. So we see a very strong demand.

In terms of competition, there is not much competition offering comprehensive courses. However, the 1 or 2 players offer partially including the social-emotional and growth mindset. Two names I can give you, one called Jinse Yulin (Pinyin). They started as kids who have trouble learning but expanded into the social-emotional space. They're quite small. The second player is called Qukoucai (Pinyin). They're much more focused on oral delivering. However, for us, our oral communication is only part of the courses.

We do see a very strong potential. However, for Hiyeah, this year, majority of the students would come from the ELT age below 6, if regulation really target that space to prohibit learning English as a subject. So there's less focus on generating additional revenue. In the long run, however, we do think this course will have high demand and can be a separate business avenue. However, this year, it's not the focus. So that's the first answer related to your first question.

On the second question, the current ELT business. As I mentioned, in Beijing, there's no official so-called regulation put in place. However, each district and also Beijing Education Bureau, a lot from the so-called oral communication, we see a couple of areas that they are very much focused. The first one is the license, including the centers that you have to have education license. The second is the teachers need to have a license.

Then the third area is really the so-called -- I think I mentioned -- the fund supervision, meaning you have to have deposit to guarantee that you have the capital to run schools. Each district has a very different requirement. So this is the third element.

The fourth element is also not written. So far, they prefer or they, in some way, only let you get students of age above 6 come to the classroom. So you cannot offer off-line classes for children below age 6.

All these are not on paper. However, we have to satisfy their requirement to resume off-line schools. So far, we have 3 off-line schools resumed, teaching children above 6 years old. So if these requirements become official and are implemented across the city, as you mentioned, this will definitely have impact on our business, also competitors as well. Therefore, our strategy is to continue the off-line teaching for age above 6. And then for age below 6, once they have an official requirement, we will convert them into Hiyeah.

In fact, even before that, the first 2 schools under Hiyeah will be launched in mid-June. We use the existing facility. We will convert those students in those 2 schools into Hiyeah first. So test all the marketing materials and teaching methodologies prepared for the launch to cover all Beijing if the requirement becomes real.

In terms of online players, my understanding is so far, there is no clear regulation yet. However, if the regulation becomes official and public, that will apply to all players, including online players. But that's my personal understanding.

Lihong, that is very helpful. And may I follow up, one quick question for Hiyeah and WhySTEAM? Are the course content internally developed?

Yes. WhySTEAM started from Math Logic. We also tried out STEAM courses in 2019. So we combined these 2 together to be the new RISE STEAM courses. And Hiyeah, we have also studied similar courses overseas. And of course, in China, the education guidance also included areas like social-emotional and growth mindset. So we combine those with the leadership courses from the English -- ELT. So this is, I would say, partially to take over some of the content from the ELT courses and then develop more into social-emotional and growth mindset. This will hopefully be thought in English and Chinese. However, we're less focused on English language.

Just one additional point. I think the so-called study -- if you study subjects, for example, mathematics and Chinese under 6, this is strictly prohibited right now. That's why you see some players already take it off the shelf. However, the so-called English language or some online courses made, Qimeng (Pinyin),for example, or The Enlightenment, still not very clear whether this will be categorized as subject-based courses. If it is, I think all of that may be prohibited under age 6.

Your next question comes from Lei Yang of China Galaxy International.

I have 2 questions. So the first one is because your off-line classes not resumed largely currently, so could you elaborate more on your OMO learning system? And what's the part of the OMO learning playing in your new businesses? And the second question is about the sales contribution of each of your brands. Could you elaborate more on this?

Okay. So when we articulated the OMO model last year, my point is that we can offer pure online, pure off-line and online merging with off-line. It really depends on the situation and age group. When off-line can be resumed or can be utilized for age below 6, we encourage all off-line learnings given the better experience and also interaction off-line. For age above 6, when off-line are available, we offer OMO model, meaning during weekdays, one course will be offered online, focusing more on subjects to have better experience in terms of language, in terms of learning grammar and reading comprehension. Then the 2 courses will be offered off-line during weekend. So these are more for students in school.

So this OMO model suits them better to stay at home during weekdays and come to the center during the weekend. And if there is a COVID-19 situation or other situations that prohibit off-line learning, all the students can be moved to online learning. Therefore, in Beijing and Shijiazhuang during the COVID-19 resurgence, all the students continued their learning online. And for Beijing, the centers now still cannot open off-line or our students are learning online.

So this is the OMO model, try to better suit the experience and also the so-called time management for our students. And this is also part of the benefit for our network. As I mentioned, we have both off-line network and online platform. The OMO is the strategy for RISE. Therefore, all the new business will be able to have one more blend into the business.

For example, the new Hiyeah courses, each course targets students. At the same time, we will offer short videos to parents. So the parents understand what the students are learning. At the same time, they can be supportive in this so-called social-emotional, growth mindset development because we do think this is a matter for the whole family and not just the students. So the OMO model will continue. Even for the camp and social studies, we will have an OMO model into the business.

The second question regarding the sales contribution. Right now, as we planned, the WhySTEAM will go through both SOLCs and franchisee model. Therefore, the sales contribution from direct-owned and the franchisees will be according to the plan we had in the beginning of the year. This year, the contribution will be small. This is a year that we want to open more centers. But the revenue recognition may need some time to realize -- the cash revenue could be -- of course, we'll realize earlier.

For Hiyeah, as I mentioned, the first or critical objective for Hiyeah this year is to convert our students below age 6 in the ELT space so that we keep the student base, keep the business in a healthy status. However, if we do see this as very attractive, we can, of course, open separate independent centers, both in SOLCs area and franchisee area. But I don't think this is the key component this year. This could be the revenue potential or growth potential in the future.

Your next question comes from Lauren Zuo of Credit Suisse.

So I have 2 questions. The first one is still about regulation considering there's still some continuing suspension of the off-line learning center. Would you share some color of your expectation for the new student enrollment growth for the upcoming quarters?

And the second one is about user acquisition strategy given the high percentage of your traffic relies on the off-line referral. If there is further restriction on off-line learning center, what would be the marketing spending plan to acquire new users for the rest of the year?

Okay. As I mentioned, Beijing, we actually will see -- resume more schools for off-line learning. The restriction is that you have children aged above 6. With the off-line learning center opened, we definitely see better enrollments in those schools. However, even in the first quarter when all the Beijing centers were closed, Beijing new enrollments still see, I would say, pretty good results. As I mentioned earlier, the enrollments for all other cities see very strong growth quarter-over-quarter, year-over-year.

In the second quarter, I think that trend will continue. And of course, Shijiazhuang resumed the off-line operation in the end of March. So the Q2 will also be stronger. Beijing, I think, may still see soften. However, once we resume more off-line centers, we will see better traction. That's one point.

The second point is that we are shifting to more efforts to acquire students at age 5 years old so that they can come to school when they are getting to the right age group. On that front, I do think we need to look at the whole market. If we are restricted, everyone else would be restricted as well. So the courses that you can offer will be limited. The so-called educational providers will be -- the number of players will be fewer. And with our reputation and ability to navigate these challenges, we actually think in the future, you will see fewer players getting more market share, although it may not happen in the near quarter. But in the long run, the so-called bigger players or stronger players, the players who can comply with the government's regulations will be there.

Of course, the second quarter in terms of seasonality is never a very strong quarter. So I think we will see a normal quarter, maybe a little bit weaker because of the Beijing situation. But overall, outside Beijing are very strong.

The second question regarding acquisition costs. In fact, I mentioned the government regulate the advertising channels and the languages that you can use for advertisement. So this actually affects a lot of the online channels much significantly. For us, we have a very large off-line network. From the acquisition cost, you can see that our acquisition cost actually is controlled very well. We still think the off-line channel has a very strong advantage.

This year, the strategy for RISE is to overweight the off-line channel, and we are doing it according to this strategy. In Beijing, in fact, you can still have a demo with students and their parents. So it is not entirely off the market. That's why in Beijing, we'll still be able to have new student enrollments. Going forward, we will continue this strategy to have a balanced deployment in terms of online and off-line advertising and off-line promotion.

The other point is we are building the best courses to attract private traffic. Going forward, hopefully, the private traffic can help us to generate leads and to convert students into our courses, ELT, Hiyeah and STEAM. For the private traffic, the strategy for us, one, of course, to have light courses, diversified courses. The second approach is to cooperate with other, I would say, companies in different industries. For example, we trialed activities or host events at the Walmart, Sam's Club in Shenzhen. We actually got pretty good and accurate leads. These are the tools that we can expand our lead and private traffic pool and help further conversion into our regular or main courses.

Your next question comes from Yikun Zheng of CITIC.

I have 2 simple questions. First, how does the potential regulation affect our original strategy on expansion and marketing? And what is our long-term strategy now, like in 3 to 5 years?

So the first question is about marketing or about the network?

Both.

Okay. As I mentioned, we deploy the so-called -- or we acquire students utilizing all channels, online and off-line. With our off-line network, we easily can do the off-line promotion around the school. So this will continue to be our major channel. Of course, we use the online channel like the search engine, Dazhong Dianping, the other social media as well. I think it will be a combination. But for RISE, we always want to utilize our off-line network.

In terms of network expansion, so far, in Beijing, the license approval is actually very difficult. However, super majority of our schools already have license. We actually feel this is an advantage. Part of the -- I would say it becomes a scarce asset. Outside Beijing, we continue to see very normal operations. That's why you see that the franchisee partners opened some more schools in the franchisee areas.

And going forward, we'll see how regulation will -- what's the regulation and how we cope with the regulation. But comes to the strategy, I do think once we have that license, naturally, we can expand beyond ELT. So of course, the courses require educational licenses, definitely not only English. How to expand into other courses? We are thinking about that. Some can be self-developed. Some can, in fact, invite other partners so that we can have our schools' utilization increase.

But I would say for the near term, we want to focus on our ELT, Hiyeah and WhySTEAM. This is the core courses we offer. At the same time, we are building that private traffic pool, targeting what we call the RISE camp and also kind of social practice. I do feel these are markets that have very strong demand. And RISE already had experience in the past to manage that. I would -- maybe go beyond RISE.

I view the regulation will definitely change the landscape. So in 3 to 5 years, I personally think you will see more companies with both online and off-line capabilities. So getting the mergers and acquisitions are very likely to happen. And at the same time, multi-subjects or a platform that can offer multi-subjects for the aptitude training will definitely become leaders. That's also why RISE is going along this strategy.

I think single course will be very difficult to survive. So for RISE, we'll be focused on building the online and off-line platform and adding aptitude-related courses to extend our lifetime value. And also, all these courses are in the way definitely compliant with the government requirement. So that's kind of an explanation. Maybe we can articulate better in the coming months. But so far, I think the business upgrade and branding upgrades give you a preview about what we are trying to do.

Ladies and gentlemen, due to time constraint, that will be our final question and the end of our conference call. Thank you for participating. You may all disconnect.

Thank you.