TAL Education Group (TAL) 2012 Q1 法說會逐字稿

Hello ladies and gentlemen, this is [Keisha], and I'll be your operator for this conference call.

I would like to welcome everyone to TAL Educational fiscal year 2012 first quarter earnings conference call.

At this time all lines are in a listen-only mode.

After the presentation, there will be a question and answer session.

(Operator Instructions).

I would now like to turn the call over to Miss Willow Wu, Investor Relations Assistant of TAL Education Group; Miss Wu, please proceed.

Thank you all for joining us today for TAL Education's fiscal year 2012 first quarter earnings conference call.

Our first quarter earnings release was distributed earlier today and you may find a copy of our earnings IR website, or through the news wires.

During this call you will hear from Mr.

Joseph Kauffman, our Chief Financial Officer.

Following his prepared remarks, Mr.

Joseph Kauffman 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 US Private Securities Litigation Reform Act of 1995.

Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited, to those outlined in our public filings with the SEC.

For more information about these risks and uncertainties please refer to our filings with the SEC.

TAL Education does not undertake any obligation to update any forward looking statements as a result of new information, future events or otherwise, except as required under applicable law.

Also, our earnings release in this call include discussions of certain non-GAAP financial measures.

Please refer to our earnings release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.

I would now like to turn the call over to Mr.

Joseph Kauffman.

Thank you, Willow.

And thank you all for joining us on our first quarter fiscal year 2012 earnings conference call.

We are very pleased to share with you another quarter of strong financial results combined with continued investment in our future growth.

Out total student enrolments grew by 23.3% from the same period last fiscal year.

As expected, our student enrolments rebounded from 18.1% in the previous quarter, and we are expecting further increases in student enrolments in Q2, as the centers we added over the past two quarters ramp up, and our online courses business continues to grow.

During the first quarter we added 67 new learning centers, which brought our total number of learning centers to 199.

As planned, the majority of these new learning centers, some 37 of the 67 net adds, were in Beijing and Shanghai, the two largest K-12 markets in China.

We continue to see a large opportunity to add learning centers in these top two markets, particularly in Shanghai, which, despite its continued learning center expansion, only had 34 learning centers versus 115 in Beijing, as of the end of the quarter.

On the face of it the 67 new learning centers we added in the quarter far exceeds our initial target of 50 new learning centers for the year.

I would like to draw your attention though to the fact that these centers are quite bit smaller than our centers have been historically.

For example, the centers we added in Beijing and Shanghai, on average, were approximately one-third the size of an average center added during the same period of the previous year.

So in incremental added capacity terms we were still ahead of schedule, but not as far ahead as just looking on the surface at the raw learning center number imply.

This smaller center strategy we've been implementing makes a lot of sense for our business.

First, it expands the reach of our services.

By using smaller centers we can penetrate new districts, where previously we would not have been able to do so in an economical fashion, thereby increasing our ability to serve a greater cross section of our target parents and students.

In Beijing alone we entered five new districts in the last two quarters, each of which previously had no Xueersi learning centers.

Second, in taking this more marginal approach to expansion, we can achieve higher center utilization levels more quickly, helping us to expand aggressively while mitigating the impact on margins.

As centers fill we will seek to expand existing facilities or add additional centers nearby.

We are encouraged by the early results of this smaller center strategy and will continue to actively evaluate the pace of our ongoing center rollout as enrolments ramp over the coming quarters.

In addition to the strong execution of our center investment strategy in the quarter, we are also very excited by our city expansion plan.

Our businesses continue to demonstrate strong attraction in cities outside of our core markets of Beijing and Shanghai.

Small class revenues from cities outside of Beijing and Shanghai have already contributed 8.3% of total small class net revenues in the quarter, versus only 2.7% during the same period of the previous year.

On the face of it, this may seem not like a huge jump, but what this means is that our small class business outside of Beijing and Shanghai has actually grown by over 350%, versus the same period of the previous year.

The rapid growth we are achieving in these cities is encouraging and gives us an early indication that the investments we made over the previous fiscal year in content development, school head and teacher training, and optimizing our organization structure to support our continued nationwide expansion, are starting to pay off.

Our Zhi Kang branded one-on-one business also continues to exceed our expectations.

While admittedly the first quarter is the peak season for one-on-one, as many students use one-on-one to cram for key exams, like Zhongkao and Gaokao, which take place in June.

Nevertheless, the strong momentum of our one-on-one business certainly gives us a lot of confidence as we move into the summer and fall semesters, and continue our expansion of one-on-one in cities outside Beijing in the coming quarters.

At the same time as we have been quite focused in the quarter on our center investment, and expansion outside of Beijing and Shanghai market, the third part of our growth strategy, one-on-one, continues to grow rapidly.

A trend we expect to continue over the future quarters.

Before we move to a review of the financial details for the quarter, I'd like to make one final note to illustrate our business progress, which is, our students' recent academic achievements.

One of our students had the top liberal arts score on the Gaokao and another student took home the number 2 sciences score on the Gaokao in Beijing this year.

Zhongkao is divided by district rather than an overall city top score.

The top scores in six districts in Beijing this year were all TAL students.

On the competition front, two of this year's gold medalists in the International Mathematical Olympiad, or IMO, which just took place in July, were Xueersi students.

Back at home here in China the Xueersi team this year again took home the gold medal in the Hualuogeng Beisai, a major mathematics competition for Chinese primary and junior high school students.

Those of you who have been following TAL for a period of time will know that seeing our students be successful is what we are most proud of.

It's what makes Xueersi, Xueersi.

I'll take time now to go through the key financial highlights.

The full financial information you'll find captured in the release, so I'll keep it relatively brief, to leave sufficient time for Q&A.

In the first quarter fiscal year 2012, we again exceeded our previously offered guidance by delivering solid revenue growth from each of our key business formats, small class, one-on-one and online.

Our small class business was the primary contributor to the incremental revenue we drove in the quarter, followed by our Zhi Kang branded one-on-one business.

Our online courses business operating from our www.xueersi.com website is still quite small as a portion to the overall business.

We delivered $33.2 million in revenue in the quarter, representing revenue growth of 62.7%, versus the same period of the previous year.

Driving the quarter's revenue growth was a combination of increases in average selling prices, as well as solid enrolment growth versus the same period of the previous year.

As I mentioned earlier, we grew total student enrolments by over 23% in the quarter, achieving the bump up in total student enrolments growth we expected from the just over 18% enrolment growth we have recorded in the fourth quarter of last year.

On the ASP side, you'll remember that in the first quarter of last fiscal year we still have not taken the hourly rate increase in Beijing.

This hourly rate increase came ahead of the summer term last year, so in Q1 this year, we continue to experience strong ASP growth as we have not yet annualized the hourly rate increase we took in Beijing last year.

Other factors contributing to our ASP increase included the shift from two hours to three hours for many of our courses, and the increase of one-on-one as a percentage of revenues in the quarter.

Our gross profits in the quarter were $15.1 million GAAP and on a non-GAAP basis, excluding the impact of share based compensation, were $15.3 million.

Our gross margins were 45.4% in the quarter and 46.1% on a non-GAAP basis, a nice improvement on the 42.3% gross margin we achieved in the same period of the prior fiscal year.

This gross margin expansion in the quarter was mainly due to the impact of higher average selling prices in the quarter, which drove revenue growth at a much faster rate than our costs, despite our considerable investment in new learning centers in the quarter.

On the sales and marketing side, we ramped up our investment as planned, in order to support the continued rapid growth of our business.

Our selling and marketing expenses represented 13.0% of revenues GAAP and 11.7% of revenues on a non-GAAP basis, versus 8.2% during the same period of the previous year.

A growing portion of our sales and marketing spend is focused on the expansion of our businesses outside Beijing and the continued rollout of our one-on-one business.

General and administrative expenses as a percentage of revenues were 22.4%, but only 16.9% non-GAAP excluding share base compensation expense.

This compared favorably to the 18.3% that G&A expenses represented as a percentage of revenues during the same period of the previous year.

The above factors combine to give us GAAP operating income of $3.4 million, an increase of 6.9% versus the same period of the prior fiscal year, and non-GAAP operating income excluding share based compensation of $5.9 million, an increase of 84.1% versus the same period of the prior fiscal year.

GAAP operating margins in the quarter were 10.4% GAAP and 17.8% non-GAAP, versus 15.8% operating margins in the same quarter of the previous year.

Please note that in Q1 of last fiscal year we did not incur share based compensation expense.

Income tax expense in the quarter was $1.1million as compared to $0.3 million in the first quarter of fiscal year 2011.

The increase in income tax expense in the quarter was mainly a result of the exemption period of one of our entities expiring in calendar year 2010.

From calendar year 2011, this entity has become subject to a still preferential but higher tax rate.

Our net income for the quarter was $4.6 million, growing by 66.9% and non-GAAP net income which excludes share based compensation expense, was $7.1 million increasing by 157.6% compared to the same period of the last fiscal year.

Our GAAP net income margins were 13.8% and non-GAAP net income margins were 21.3% in the quarter versus 13.4% during the same period during the prior fiscal year.

In summary, we are pleased to have achieved strong revenue and net income growth in the first quarter, while at the same time investing in our future business growth.

Looking ahead, our fiscal year 2012 focus will continue to be on investing in our learning center network, future management training, content development and marketing initiatives to support the rollout of our businesses, while at the same time bolstering our key headquarters functions to ensure the ongoing effective management of our expansion.

Moving now specifically to our guidance, based on the Company's current estimates, total revenues for the second quarter of fiscal year 2012 are expected to be between $46.1 million and $47.7 million, representing an increase of 42% to 47% on a year-over-year basis.

Based on better than expected revenues in the first quarter, and the improved outlook for the second quarter, we would also like to take this opportunity to increase our revenue guidance for the full fiscal year.

Our current expectation is that total net revenues for the fiscal year ending February 29, 2012 will be in the estimated range of $154.8 million to $160.4 million, representing an increase of 40% to 45% versus fiscal year 2011.

These estimates reflect our current expectation, which is subject to change.

That concludes our prepared remarks.

Operator, we are now ready to take questions.

(Operator Instructions).

Philip Wan, Morgan Stanley.

Congratulations on a very strong quarter.

Hi, Philip; thanks.

So, first of all, could you please share with us your updated network expansion plan for the remaining of this fiscal year?

And looks like your margin was not affected, despite adding 67 new learning centers; was it partially because of some of the learning centers were added towards the end of this quarter and we won't see the full quarter impact in terms of cost, increased costs in the coming quarter?

Thanks for your questions.

In terms of our target for learning centers for the year; we are increasing our target to approximately 150 learning centers for the year, versus our previous target of 50 learning centers for the year.

But keep in mind, as I mentioned in my prepared remarks, these learning centers are smaller on average than the learning centers we've added in previous years.

In the first quarter the ones in Beijing and Shanghai were only about a third of the size of the learning centers we added in the same period of the previous fiscal year.

So on an incremental added capacity basis, I don't think that the 150 new learning centers that we're adding for the year are that much more in terms of incremental capacity.

I think we're right on track there.

We've just decided to go with smaller centers, because that allows us to get into new districts, where it may not have been economically feasible to do so previously.

And it also helps us to be able to address more parents and students with our service offerings.

We feel like we have the management capability now to be able to actually do that.

So, I think that that should answer your question related to what our target is for the year.

In terms of the impact on margin, we did take up our full year revenue guidance forecast, but I expect operating margin to still be in that 20% to 22% range non-GAAP that I have mentioned on previous calls.

It may just be at the lower end of the range.

We're going to continue to add learning centers, invest in sales and marketing, continue to build out our headquarters capabilities, etc., to drive our future growth.

So in terms of margin this year, I think you should think about it as a re-set year from last year.

In fiscal year '13 and '14, we'll be targeting modest margin expansion.

And over the long term, non-GAAP operating margins should trend toward the high end of that range I've previously given of 20% to 22%.

I hope that gives you some sense of how we're thinking about margins.

Did I answer all your questions Philip?

Right, that's helpful.

And also for a follow-up to your new learning center strategy, could you please share with us how the economics for the smaller sized learning centers, how's that different from the original sized learning centers in terms of the number of teachers you need, rental costs and things like that?

Sure.

It's a little bit early to tell -- to be able to give a full sense of what the economics look like.

But in terms of the initial CapEx and the rental costs, I think for modeling purposes you can think of it as being in line with the reduction in the space.

So, if previously we've modeled say RMB400,000 per center in CapEx for small class center, if these are a third of the size, I think, roughly, you can model in that way.

But again, it's a little bit early to tell and I'll have better data for that later in the year.

All right, a last question from me and then I'll get back to the queue; so in your view, how long does it take to ramp up the utilization rate for the smaller sized learning center as compared to the original one?

Yes, it's hard to say because, again, it's a new strategy.

What I can say is that we're showing nice utilization of the centers we've added over the last couple of quarters.

So the centers we added in fiscal year Q3 of last year -- fiscal quarter Q3 of last year, are already at average of 50% utilization, whereas last quarter I said they were 35% to 40% utilization.

So we're seeing a nice ramp up in utilization levels of our centers, generally.

Historically, on average it had taken us six months to get to kind of a gross margin break-even, that's how we think about it in terms of our centers.

I would expect it to be -- take a shorter period of time for these new learning centers.

But again, as it's a relatively new strategy, I'll have better data for you on that later in the year.

Right, that's great.

Thanks, Joe.

Wallace Cheung, Credit Suisse.

Joseph, congratulations on a very good quarter.

Also, a question regarding the small class strategy; just quickly, regarding small class, is it's a similar business structure as being done by some of your competitors already?

Or it's -- pretty much it is quite like (inaudible) so far.

And secondly is now you have a bigger size of center and smaller size within the same cities, do you have a little bit different city market segmentation right now?

This means do you have a network approach between the bigger sized centers and smaller sized centers, and students can move around the centers in the future?

Thank you and I have further questions.

Thank you.

Thanks, Wallace.

In terms of this smaller classroom strategy, I think that it's something that we're implementing in a big way.

I think that, from my understanding of listening to the earnings calls of competitors is that there's also a shift to smaller centers among some of the competitors.

I think for us, we started at relatively smaller centers and we're actually going with even smaller centers, to help us move into areas that we weren't able to get into before; so even residential areas where -- and districts in Beijing that may be in the suburbs or other areas that we just wouldn't have been able to economically serve before.

So I think that we're approaching it in a different way because these smaller centers really make a lot of sense for our business.

And we do only K-12, so we can really afford to go full out and do lots of small centers, because this is our business.

This is all that we do.

And then in terms of your second question, that's an interesting idea.

It sounds like what you're getting at is kind of a hub and spoke model almost, where you have these larger centers and then you have smaller centers around that.

We haven't thought about it quite in that way yet.

We're really thinking about the smaller learning centers as helping us get into new districts we weren't able to address previously, and then we take a marginal approach to learning center expansion.

So we'll start with a small center, and then we'll either expand that center with more rooms or more floors, or we'll seek to almost have a hub and spoke around that center, where we'll have other small centers around it, if the building doesn't have room to add classrooms or floors in there.

But this idea that you mention is also interesting.

The way hub and spoke works for us is more the way our service centers work.

So you have one service center where students and parents can register and where they can get customer service and advice.

And that service center will then cover a number of learning centers around it.

Thank you very much for a great answer.

I think my follow-up two questions, it seems to be a great strategy, but at same time, it could be [travelling around].

Thus, my first question is, does it mean that the market's getting to be a little more intense competition as the smaller size of the center that are the entry barrier for the competitors even be lower, that will be leading to more people is getting the space; [mom and pop] (inaudible) has self-classes as well.

And at the same time, could I be wrong, is there the situation a bigger center can attract more better tenants and also better students -- more students?

And smaller centers actually may be less easy to attract the tenants and in the end, that will lead into your -- maybe to a deterioration of [important] students in the longer term?

Thank you.

Yes, it's an interesting angle.

We don't see it that way.

We don't see the barriers to entry in this business as being around real estate or how big your center is.

We see the barriers to entry in this business as being brand, content, teachers.

And for us, we believe that our students and their outstanding academic ability also forms a barrier to entry for our business.

So we're quite confident that we can move into smaller centers.

And because our point of differentiation is brand, content, teachers and the quality of our students, it still will not be easy for competitors to follow.

And then in terms of whether larger centers attract better students or better teachers, we haven't seen any evidence to suggest that.

We're actually moving into smaller centers so that we can attract more students and teachers that maybe weren't able to take part in our services, not because they didn't want to, but just because it was inconvenient or, with traffic in Beijing, it took too long to get to a center.

So we're actually trying to attract more parents and students with this model not less.

Thank you very much and congratulations on a great quarter again.

I'll move back to the queue, thank you.

Thanks Wallace.

Mark Marostica, Piper Jaffray.

Joe, you may have commented on this already and I may have missed it, but the percentage of one-on-one revenue, as a percentage of total revenue for the quarter?

No, I actually haven't touched on this yet, Mark.

It was 26% this quarter versus 21% in the same quarter the previous year.

So the first quarter, of course, for our fiscal year is big for one-on-one, because it's right ahead of Zhongkao and Gaokao, and people are prepping for those tests using one-on-one.

It's used as a kind of cram for these tests.

So last year, for the year, we were at 16% as a percentage of revenues for one-on-one.

And that was front loaded in the first quarter where it was 21%.

This year we're at 26% in the first quarter, so it's showing really strong growth for one-on-one.

And, Joe, continuing with that line of thinking, do you have a target range where you think the whole year will end up for one-on-one as a percentage of total revenue?

Yes, on previous calls I've talked about a 20% to 25% range for the year.

It looks like, based on the strong first quarter and the momentum we have in one-on-one, it'll be probably on the high end of that range, closer to 25% for the year.

Okay, great.

And I'm curious; your decision to roll out smaller centers is that in any way related to a greater demand for one-on-one?

Is there a relationship there between the two [trends]?

No, there isn't actually.

We're rolling out smaller centers for both our small class and our one-on-one area.

So it's not related at all.

It's really just our way of serving more parents and students.

And this year, we think we have the management capability to do it.

Of course, running lots of smaller centers requires heightened management capability, in our view, versus running a small number of larger centers.

And we think that it makes sense in terms of getting those utilization levels higher, earlier, which we think will allow us to expand quickly without having to take a huge hit on margins.

Great.

When looking at the four new cities that you moved into in the May quarter, can you give us a sense as to how you see those cities ramp relative to your expectation?

Yes, those cities are doing great.

The enrolments in each city are between 300 and 500 plus, which is right on track with what we expected.

You'll recall that our view, in terms of small class and moving into these new cities is that we should first be targeting the top students, taking a smaller batch of top students and make sure that they perform really well.

So we had targeted in this range, for each of those cities, and we achieved our targets for the summer quarter.

So we're quite pleased with how each of those cities are performing, Hangzhou, Nanjing, Xi'an and Chengdu.

And then with respect to the go forward quarters and the, I think you mentioned 150 learning centers by the end of the year; will you be adding any new cities over and above the 10?

Yes, it's a great question.

Right now, we're actually thinking about adding another six cities in Q4; it's actually our target.

So that would bring us up to 16 cities for the year.

So that's what we're -- we're pretty happy with the way things have ramped in those four cities that we've added now.

And we're looking at at least another six in Q4, which is the quarter that ends, for us, on February 29, 2012.

Then going forward, I think that the normal time when we'll be adding new cities will probably be in that Q4.

It just makes sense to add cities at that time and then they can ramp up for us over the full year.

Joe, I know you've commented on this on other calls; with respect to your pricing strategy, can you review for us any of your thoughts on the changes to your pricing strategy going forward if it's not (inaudible) [there]?

No, there aren't any major changes to this point.

For the small class business, we will typically take a price increase on an hourly rate basis once every two years.

For one-on-one, we can be much more flexible.

That's why for small class this year, we haven't taken an hourly rate increase in Beijing, because we took an increase last year, ahead of Q2 last year.

The other factor that goes into ASPs for small class is, of course, the number of hours per class.

And in Beijing, we've been adding more hours per class over the last couple of quarters, going from two hours to three hours in a number of classes.

And we started doing that in Shanghai this year, in the Q4 period.

So Shanghai has an opportunity to take an ASP increase this year for small class, by virtue of more hours per class, even though we're not taking an hourly rate increase.

For one-on-one it's an interesting business, because you have a lot more flexibility; there's a range of hourly rates depending on the teacher, the environment, the class being offered etc.

So you can actually take ASP increases or your average rate per hour will vary based on that mix.

So we actually -- this quarter we're RMB255 in Beijing for one-on-one versus RMB244 last year, which is a 5% increase.

So we're able to get these kind of changes in ASP just given mix.

And then one-on-one, we believe, is just a much more competitive sector.

We tend to be at a price premium, together with EDU in that market.

And we'll continue to evaluate the competition and we think we can be pretty flexible on price in one-on-one.

Whereas with small class, because it's a word of mouth business, where annual retention rate's really important, we still are of the view, at this point, that every two years makes sense to be taking a price increase for the small class business.

One last question and I'll turn it over.

Your shift from two hours to three hours, you mentioned you'd been at that for a couple of quarters in Beijing and Shanghai.

How far are you through, I suppose, adding or altering the course structure from two to three hours across Beijing?

And what percentage of your courses, I suppose is the way to ask the question, have been altered?

Yes, I don't have a number for you for the percentage of courses, but my view on it is that we're most of the way through that in Beijing, so I wouldn't expect too much upside in that for Beijing.

I think that there is upside in regards to hours per course out of Shanghai.

Great, thanks and nice work on the quarter.

Thanks, Mark.

(Operator Instructions).

Ella Ji.

Congratulations on a very strong quarter.

Regarding your full target of 150 learning centers, could you breakdown the number by Beijing, Shanghai and the other cities?

I don't have a target for you broken down by Beijing, Shanghai and other cities.

But I do expect that it'll be weighted more towards Beijing and Shanghai, as it was in the first half of the year.

So shall we, relatively speaking, use the same mix that we saw in the first quarter for the full year?

At this point, I think that that's an okay assumption to make.

Okay, thanks.

And given how you've expanded a lot of new learning centers, could you comment on, in terms of local management and the local school heads, are you up to speed on that?

Or are you still in the process of recruiting local school heads for all those new learning centers?

Sure.

I think that in terms of school heads, that's, of course, the key bottleneck of this business.

And the reason that we're willing to add another six new cities in Q4 this year to bring us to 16 new cities for the year is because we have a heightened confidence in our ability to cultivate school heads.

So we've really increased the cultivation period, you could say, so if we're going in in Q4 next year, we've already begun selecting these people and begun their training.

So the pipeline is just good and we're starting much earlier in the process.

So we do actually feel pretty confident in terms of school heads.

And going back to your question about Beijing/Shanghai and the assumptions you could make, we have our targets.

It really depends on a lot of things in terms of execution in each of these markets.

So part of the reason we were able to deliver so well in the quarter, was partially because of the smaller center strategy, but just also because our execution was even better than we expected.

So that'll vary by city, so that's why I think that for an assumption you can make that kind of assumption and we'll just have to track that over the course of the year.

Thanks.

And you mentioned that, in terms of pricing strategy, that you would typically do a price increase for small classes every two years.

And now I understand that you just did that for Beijing last year.

So could you comment for all those new cities, all cities outside of Beijing and Shanghai, when shall we expect that you will raise price?

And how much would the price increase, relative speaking, in the range of?

Yes, I think that I don't have a good answer for what the range will be at this point.

I think pricing's an art and you really have to be closer to the time when you're expecting to take the price increase to know how much that would be.

I think that, for modeling purposes, in the past I'd assumed 10%, but I don't have a good view on what that's going to be really until very close to when we take the price increase.

We will typically ask parents and ask students, and get a real sense of what is the price increase that we can really take.

And it may vary based on the course and the grade, etc.

And that brings me to the other point is that over time, our view is that rather than taking a price across the business, and a number of grades and the number of subjects in the whole business, like we did in Beijing historically, we'll be looking to move different levers, whether that's certain grades, certain subjects, certain locations, and be taking price increases at different times of the year.

So we're able to level out our margins over time, rather than having some years when we do take a large price increase where margins are especially high and then other years when they're lower.

So that's something that we're working through now and it'll be part of our budgeting process for the next year, for fiscal year '13, how to think through that.

Directionally, that's the way we want to go with the business.

Okay, thanks for the color.

And lastly could you -- I'm just wondering, what is your total number of teachers as of 1Q?

And how many are part time, how many are full-time teachers?

We're actually not going to be breaking down number of teachers every quarter; we'll do that at the end of the year.

But what I can say is that teachers as a percentage of revenue, which I actually think is a much more meaningful metric, because it really depends on how well you're able to utilize these teachers.

The number of teachers isn't as meaningful, because they're paid by the hour.

Anyway the percentage of revenue was 24% this quarter for teachers versus 25% in the same period of the last year.

So we were able to get leverage there as our ASPs grew faster than our increase in teaching expenses.

In terms of full time versus part time, we're still targeting a roughly 50/50 split between those two, full time and part time.

Okay, thanks for the color and congratulations again.

Thanks Ella

Chao Wang, Bank of America Merrill Lynch.

Firstly, just wondering what percentage of small class revenues is from cities outside Beijing and Shanghai for the full year 2011?

I understand this ratio for first quarter last year was 2.7%, just wondering for the full year.

Thanks.

I don't know that I have that number in front of me, Chao.

I think that it was roughly in the range of 3% to 4%, but I don't have a lot of confidence in that number.

So I think it's better to just look at the quarterly numbers to get a sense on a quarter-to-quarter basis how we're growing.

Okay, sure.

Secondly, just compared with your competitors in some cities that you haven't entered, do you expect any so-called late mover disadvantage or challenge when you enter those cities going forward?

Thanks.

Yes, I think that's a great question.

I think for small class, we're a really differentiated player, so we've really demonstrated in new markets that we go into that have established players, like Guangzhou and Shenzhen, we're still able to grow very quickly, because we started off by targeting the absolute top students and established that word of mouth, which over time all the students that aspire to be top students also come to us.

So, we feel pretty confident that there's not a late mover disadvantage, as it were, for the small class business given the differentiation that we have on brand, teachers, content and the students we're able to attract.

I think for one-on-one, it is a lower barriers to entry business, and it is more of a real estate and advertising driven business.

That said, I think it's still a huge market and it's pretty under-penetrated.

So I think that we're actually not seeing huge disadvantages in our one-on-one business yet as well, but I think that if I had to compare the two businesses there's probably a bit more of a disadvantage in the one-on-one business.

Okay, thanks very much.

With no further questions in the queue I would now like to turn the call back over to Joseph Kauffman, CFO, for closing remarks.

You may proceed.

Thank you all for joining us for today's call.

Please feel free to reach out to Willow or myself should you have further questions.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect and have a great day.