TAL Education Group (TAL) 2015 Q1 法說會逐字稿

Thank you for joining us today for TAL Education Group's first fiscal quarter 2015 earnings conference call. The first fiscal quarter earnings release was distributed earlier today and you may find a copy on the Company IR website or through the Newswires. During this call you will hear from Chief Financial Officer, Mr. Joseph Kauffman. Following his prepared remarks, Mr. Kauffman will be available to answer your questions.

Before we continue, please note that the discussions 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 public filings with the SEC. For more information about these risks and uncertainties please refer to our filings with the SEC.

Also, our earnings release in this call includes 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. Now I would like to turn the call over to Mr. Joseph Kauffman.

Thank you, Mei, and thank you all for joining us on our earnings conference call for the first fiscal quarter of 2015.

We are pleased to report once more an outstanding quarter with revenues slightly above our guidance and very strong bottom-line results. Today I will discuss the highlights for the quarter and provide an update on our online education initiatives and key themes for fiscal 2015. Finally, I will go over the financials with you.

Net revenue for the fiscal first quarter increased 45.0% year-over-year to $89.0 million. Revenue growth was driven by a 44.9% increase in enrollments.

Our core small class offering was again the main driver of our growth. Small class contributed 73% of first-quarter revenues, up from 68% in the same quarter last year; one-on-one represented 23% of revenues compared to 29% in the same quarter last year; and online contributed 4% this quarter versus 3% in the same year-ago period. In terms of revenue contribution for small class, cities other than Beijing and Shanghai again achieved a combined over 100% revenue growth in the quarter. Cities other than Beijing and Shanghai accounted for 44% of small class revenues in the first quarter, compared to 34% during the same period last year and 40% last quarter.

Beijing and Shanghai small class grew top line a combined 30% in the quarter and together contributed 56% of small class revenues. Shanghai continued to show strong growth once again this quarter. In Beijing, primary school, high school and Chinese composition outperformed our expectations in terms of enrollment growth. A highlight for our junior high business in Beijing was the performance of our students on the Zhongkao or high school entrance exam. In 2014, eight of our students in Beijing achieved the top score on the Zhongkao in their city districts and one of our students had the top score in all of Beijing.

On the other hand, enrollments for our English classes were down year over year in Beijing due primarily to the change in policy on the weighting of English in Zhongkao and Gaokao exams. We see no impact from this change of policy on our English enrollments in markets outside of Beijing. In fact, total English enrollments from cities other than Beijing in this spring term have increased 47% with Guangzhou and Wuhan standing out as top performers in terms of growth rate. We are excited about the growth of our English business as a whole and the new English curriculum we have underway that I mentioned last quarter, which will make our offerings more attractive given the new policy.

Turning now to our one-on-one business. The first quarter is traditionally a strong quarter for one-on-one and this first quarter was again seasonally strong; that is why at 23% the revenue contribution from one-on-one was well above the 17% to 18% range for full fiscal year 2015 that I roughly estimated last quarter. However, it is still well below the 29% revenue contribution of one-on-one in the same period last year. We continue to manage the growth of this business line, as reflected in the year-over-year moderation in relative contribution to overall revenues.

Our online business was again profitable in the first quarter. Even though monetization of this business has not been our priority, we are pleased to see the financials improving along with some acceleration in revenue from more rapid enrollment growth. Online was our fastest growing business in terms of enrollments in the quarter. And online enrollments were 17% of total enrollments this quarter versus 15% in the same year ago period.

We also further diversified our revenues geographically and expanded our geographic footprint as planned. We are pleased to report that, as in the previous quarter, each of the 15 cities in which we have operations delivered at least double-digit revenue growth in the quarter and 10 cities had triple-digit revenue growth.

In addition to our entry into the new city of Jinan where we opened a learning center in February, we entered two new cities in the first quarter, Qingdao and Shijiazhuang. We also added Changsha in June. This now brings the total number of cities to 19 in our national K-12 learning center network. In recent weeks, we have begun regular class operations for the summer term in Jinan, Qingdao, Shijiazhuang and Changsha.

During the first quarter we continued to invest in center capacity ahead of the summer term. Our learning center network expanded to a total of 285 centers, a net increase of 11 centers quarter over quarter with a net 10 small class centers added as well as a net one additional one-on-one center. We added 199 net new small class classrooms which included the classrooms in the newly added small class centers. Of the 285 centers, 194 were small class learning centers, including four learning centers for our Mobby branded preschool and young learners ages 3 to 8 business, and 91 were for one-on-one.

In addition to outstanding top-line results, we had income from operations growth of 105% and net income growth of 65.7% year on year. Gross margin expansion was the major driver of our improved profitability in the quarter. Gross margin increased by 520 basis points to 53.2% from 48% in the year ago period. The gross margin improvement came primarily from center utilization and our continued shift towards the higher-margin small class business away from one-on-one, and was also impacted by an extra Saturday of classes in May which was included in the first quarter this year. June started on Saturday last year so this Saturday of classes was a second quarter event last year. In the first quarter, we also continued to expand classroom capacity mostly by adding classrooms to existing centers rather than adding incremental new centers. While we did not add as much SG&A headcount as expected in the quarter, this is mostly a timing issue as we continue to execute on our plans to invest in our future growth over the coming quarters.

Let me now update you on areas of progress in our online strategy as we transform ourselves into a leading technology focused education services provider.

Our parent community mobile app, "Jia Zhang Bang" or "Helping Parent Community," which we launched last year, has been gaining traction. This is meaningful because it shows that we are successfully transitioning our strong organically built social community originally on Eduu.com to the new mobile era. We have seen better than expected growth in daily active users and new users per day on our Jia Zhang Bang mobile app. We believe that the future for our social community will be driven by mobile and as such will change the name of our Eduu platform also to Jia Zhang Bang on August 1 and with it the social community website will move to JZB.com. In this way we will unify the brand for our social community under Jia Zhang Bang and it will be on both PC and mobile.

As I mentioned earlier, we experienced robust enrollments and revenue growth in our online courses business at xueersi.com in the quarter. Also in our Peiyou business we see good early momentum in our initiative to move more administrative services like class registration, refunds and switching of classes to online and mobile at speiyou.com and the Speiyou app. Online administration is convenient for parents and students who now do not need to come to our registration centers. We expect over time that it will also become a more cost efficient process for us.

In the quarter we also moved further ahead in the upgrading of our ICS, or intelligent classroom system, to a 3.0 version. You will remember of course that ICS is our interactive whiteboard enhanced classroom system. We have upgraded ICS over the years since its launch in November 2010, but this is the first time with 3.0 that we are introducing live interaction using tablets into the classroom experience. We have begun to roll out initially in mainly junior high school classes in Beijing during the summer months. During the first quarter we purchased approximately 3,000 tablets which, through our internally developed system, allow students to directly interact on the tablet with the teacher's whiteboard. If our initial rollout is well received, we will expand to other age groups and possibly other cities as well. The accounting for the tablets will be to depreciate in a straight line method over three years.

Meanwhile, in addition to our online initiatives we continue to invest in new growth opportunities in other subjects in addition to math and science. As I explained last quarter, we work with Cambridge University Press for content targeting young learners, called Hello English. The timing of this cooperation is good because we see a particular opportunity to offer English training to younger age groups. We are dedicating a lot of resources to conversational English for young learners as parents want to continue to expose their children to English from a young age and have less opportunity to do so now in the public schools.

The same goes for Chinese composition which will become a more important part of Gaokao and Zhongkao exams as a result of the recent policy changes. We see a new opportunity in expanding our curriculum to include Chinese composition training, especially in the younger age groups, including Peiyou and Mobby where we have seen strong enrollment growth for Chinese composition in the last quarter.

We continue to motivate our people and invest in hiring new talent, particularly for content development in our emerging business units.

In addition, we maintain our commitment to investing in IT systems to improve our back-office capabilities. The Oracle Hyperion software project for financial planning and analysis has kicked off in May and we have engaged Cap Gemini to do implementation for Hyperion as well as a new purchasing system, both of which we expect to be in place before the end of this year.

In conclusion, the first quarter was marked by solid operational and financial progress and execution on plan of our key priorities for this year. As we pursue new growth through expansion and technology-based innovation we continue to strike a balance between current and future growth.

Before I move to the financials, let me say a few words on our convertible senior notes which were issued in May. The net proceeds of approximately $203 million together with the remaining approximately $26 million we had offshore, gives us $229 million in offshore cash reserves, a large portion of which is expected to be used for strategic initiatives. We continue to look for new strategic investments and acquisitions in the mobile Internet arena in order, together with our internally driven initiatives explained earlier, to support our Company mission -- to help students achieve better outcomes through a more efficient learning process.

Let me now go over the financials in detail with you.

We delivered $89.0 million in revenue in the quarter representing revenue growth of 45% versus the same period in the previous year. Driving the quarter's revenue growth was an increase in total student enrollments.

Total student enrollments increased to approximately 279,200 from approximately 192,650 in the same period one year ago. The increase in total student enrollments was driven primarily by increases of enrollments in the small class offerings.

On the ASP side, the year-on-year ASP was flat for the first fiscal quarter from the same period of the previous year. While first quarter's ASP for the total business is flat in US dollar terms, importantly, the ASP growth of our core small class offering continued to be very strong at over 8% in the quarter, even as a greater contribution of small class revenues now comes from cities outside of Beijing and Shanghai, where ASP's are lower than in these two metro markets. This flat blended ASP reflects a very positive shift in our business: as we continue to manage the growth of our one-on-one business, the online courses business and small class businesses are taking share while one-on-one contribution to our total revenues moderates over time. The ASP for the total business was also affected by the relatively large revenue contribution from outer cities where ASPs are lower, and the strength of the US dollar versus the renminbi.

As planned, we have taken price increases for our summer classes in Beijing, Shanghai, Shenzhen, Suzhou, Zhengzhou and Chongqing, and have already taken price increases in Wuhan and Taiyuan in either the winter or spring terms, which will of course stay in place over the summer and fall terms. The ASP of our small class business continues to grow as parents are willing to pay a premium for the high-quality offerings we provide. However, given that we expect online to remain our fastest growing business, and the one-on-one revenue contribution to further decrease in coming quarters, blended ASP for the total business may in fact trend down in future quarters. Again, we see this trend as favorable from a product mix perspective.

Cost of revenues increased by 30.6% to $41.7 million from $31.9 million in the same year ago period. The increase in cost of revenues was mainly due to an increase in teacher compensation, rental costs and other staff costs associated primarily with an expansion of learning center capacity as well as increases in wages and teacher fees versus the year ago period. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 30.6% to $41.7 million from $31.9 million in the first quarter of fiscal year 2014.

GAAP and non-GAAP gross profit for the first quarter were both $47.3 million as compared to both being $29.5 million for the same year ago period. GAAP and non-GAAP gross margin for the first quarter were both 53.2%, as compared to both 48.0% for the same period of last year.

Selling and marketing expenses increased by 46% to $11.4 million from $7.8 million in the first quarter of fiscal year 2014. Non-GAAP selling and marketing expenses which excluded share-based compensation expenses increased by 45.8% to $10.9 million from $7.5 million in the same period of last year. The increase of selling and marketing expenses in the first quarter of fiscal year 2015 was primarily a result of an increase in compensation to sales and marketing staff to support a greater number of programs and service offerings versus the year ago period.

General and administrative expenses increased by 49.2% to $22.4 million from $15.0 million in the first quarter of fiscal year 2014. The increase in general and administrative expenses was mainly due to an increase in compensation to our general and administrative personnel to support a greater number of programs and service offerings. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 40.1% to $18.9 million from $13.5 million in the first quarter of fiscal year 2014.

The above factors combined to give us operating income of $13.7 million representing a year-over-year increase of 105%. Non-GAAP operating income increased by 106.9% year-over-year to $17.7 million.

Operating margin in the first quarter was 15.4% as compared to 10.9% in the same period of the previous year. Non-GAAP operating margin was 19.9% as compared to 13.9% in the same period a year ago.

Income tax expense was $2.4 million as compared to $1.2 million in the first quarter of fiscal year 2014. The increase of effective tax rate was mainly because the income tax preferential period of one of TAL's entities expired at the end of calendar year 2013.

Our net income for the quarter was $13.4 million and increased by 65.7% year-over-year. Non-GAAP net income for the first quarter was $70.4 million up by 74.8% year-over-year. This gives us a net profit margin of 15% as compared to 13.1% in the same period of last year. Non-GAAP net profit margin was 19.5% versus 16.2% in the same period of last year.

Basic and diluted net income per ADS were both $0.17 for the quarter. Non-GAAP basic and diluted net income per ADS which excluded share-based compensation expenses were both $0.22.

From the balance sheet, as of May 31, 2014 the Company had $578.2 million of cash and cash equivalents and $0.3 million of term deposits, as compared to $269.9 million of cash and cash equivalents and nil of term deposits as of February 28, 2014. The Company received net proceeds of $202.5 million from the convertible senior notes issued in May, 2014.

Capital expenditures for the first quarter of fiscal year 2015 were $4.4 million representing an increase of $2.4 million from $2.0 million in the first quarter of fiscal year 2014. The increase was mainly due to leasehold improvements and the purchase of servers, computers, software systems and other hardware for the Company's teaching facilities.

As of May 31, 2014, the Company's deferred revenue balance was $235.8 million as compared to $154.2 million as of May 31, 2013, representing a year-over-year increase of 52.9%.

Based on the Company's current estimate, total net revenues for the second quarter of fiscal year 2015 are expected to be between $120.5 million and $123.2 million representing an increase of 31% to 34% on a year-over-year basis assuming no material changes in exchange rates.

Our guidance for the second quarter is based on the usual every other year seasonality in Q2 associated with the timing of Chinese New Year among other factors and incorporates the expected impact of the weaker renminbi compared to the year ago period. As I've indicated on previous earnings calls, the timing of Chinese New Year determines when spring term classes begin each year. When reconciling to fiscal quarters, this effect causes revenue tailwind in the second and fourth quarter of one year and some revenue headwind in the same periods of the following year. This year we have had the expected impact in Q2 due to this seasonality. Another factor was the exclusion of a Saturday of classes that this year took place in May and therefore have already been recognized in the first quarter. I would like to point out that even after taking into account these study term to fiscal quarter adjustments, we still expect approximately 40% top-line growth in renminbi terms for our small class business in Q2. The segment where we are expecting lower top-line growth, estimated to be in the low-double-digits in renminbi terms, is in the one-on-one business. This has some near term impact to the top-line. But overall is a very favorable mix shift for our business.

If we achieve the guidance of 31% to 34% revenue growth in Q2, then we will have achieved 36.6% to 38.4% year over year top-line growth for the first half of the year. We have strong business momentum and maintain our positive outlook for the year. These estimates reflect the Company's current expectation which is subject to change.

That concludes my prepared remarks. Operator, I am now ready to take questions.

Hi, Joe and Mei, congratulations on the quarter. Very strong results. Can you discuss the expansion plan for the rest of the year,especially in the context of the convertible bond proceeds that you have raised? How many new learning centers would you plan to build in the rest of the year? And also what is the plan to go into further new cities and of course also how would you plan to expand your online revenues? And I have a quick follow-up. Thank you.

Sure. Thanks for your question, Fei. The first thing I'd point out is that the convertible bond proceeds won't be used for our domestic expansion. So the reason for the convertible bond is because we didn't have sufficient cash offshore. So those proceeds will remain offshore. And our expansion on shore will be driven by the free cash flow of our business.

In terms of how we are thinking about the rest of the year, from a cities perspective, we have reached the plan that we said we would. We are at the high end of the two to four new cities per calendar year, having added those four cities this calendar year between February and June. So you should not expect us to be adding more cities. But you should expect us to continue to be adding learning centers and classrooms to existing learning centers.

So if you look at where we added the learning centers this year you will find that our fiscal year 2012 cohort was the focus of our center addition efforts. With Hangzhou and Chengdu each adding a net two centers and Nanjing adding a net one center. Because Xi'an actually added two new learning centers in Q4, one small class and one one-on-one we didn't make net additions again in Q1 to Xi'an.

On a per city basis, we added the most learning centers in Shanghai with a net three adds. So this will help support the rapid growth of our business there. And then we added a net small class learning center in Guangzhou and a net one-on-one learning center in Wuhan in addition of course to adding learning centers to Shijiazhuang and Qingdao which we added in the quarter.

Again, the 2013 cohort, Zhengzhou, Chongqing and Shenyang each added a center in Q4 of last year, so we didn't feel like we needed to do that again in Q1. But I think you can see the pattern that we are going to continue to be putting in the learning centers and added capacity where we are getting that really robust growth in Shanghai and all of those cities outside of Beijing and Shanghai that experience 100% growth for the small class business this quarter.

Great, thanks Joe. That is very helpful. And just with regard to your online revenues, do you have a plan for in the rest of the year how fast you will like to ramp up the online contribution?

Yes, I mean online is definitely a focus. We saw really great performance out of our online business at xueersi.com in the quarter and we expect that continue as our fastest-growing enrollments business unit of all of our business units. And you saw that the revenue contribution went from 3% to 4%. So I think we talked about this in previous quarters, but I would like to see online get to be at least 4% of overall revenues this year from 3% last year.

That is very helpful. Last question from me, a quick housekeeping one. Your guidance for the next quarter, what is the FX assumption that you're working with?

Right, so we used 0.1612 for Q2 versus 0.1603 for Q1.

Got it. That is very helpful. Thank you.

Hi Joe and Mei, thanks for taking my questions. Congrats on a very strong quarter. My question is about your investment or M&A. So given the Company has successfully raised $200 million from the CB and you have also completed a few acquisitions in the past couple of months, I wonder if you could share with us your views on investment or M&A going forward. Thank you.

Yes, thanks a lot, Philip. Well, just to be clear, the first thing I would like to emphasize, we will continue to be an organically driven company for the foreseeable future. But we are making strategic investments now because we believe that this is precisely the right time when our organic growth is strong that we should be making strategic investments. Not waiting until organic growth has slowed down.

So we expect the vast majority of our investment activity to be in the online and technology area, as I mentioned before. And our center-based businesses will continue to be driven by organic growth.

We are essentially looking for three things from strategic investments or acquisitions. We are seeking highly complementary assets that will get us, one, new users; two, extended lifetime of our existing users; or three, a greater number of valuable interactions with our users. And of course, time is of the essence, so we are of course buying time through making strategic acquisitions -- strategic investments and acquisitions. So if you think about our strategic investments and acquisitions we have made in the context of that rubric, you will see that for example with kaoyan.com, we are fundamentally extending the lifetime value of our customer beyond high school.

For Babytree, we are bringing in new users even younger that can feed into our Mobby and Peiyou young learners business. So that is how we are thinking about our investment strategy, Philip.

All right, thanks Joe. My follow-up question is about your ASP. I may have missed it earlier. Could you comment on by looking -- only looking at the small class business what would be the ASP growth for this quarter and what would be the trend that we should expect in coming quarters? Thank you.

Yes. So this quarter was over 8%. It was 8.4% in US dollar terms in this quarter. And we have taken the price increases actually ahead of the summer term, so that is affecting Q2. So with those price increases, we went from CNY70 to CNY75 in Beijing, from CNY60 to CNY70 in Shanghai, CNY60 to CNY70 in Shenzhen, CNY40 to CNY50 in Suzhou, CNY40 to CNY45 in Zhengzhou and Chongqing. These are all hourly rates in renminbi terms.

I mentioned on the call that we also took a price increase in Wuhan in the Chinese New Year period from CNY33 to CNY40, which will of course extend through Q2; and Taiyuan from CNY40 to CNY50 in the spring, which will of course extend through Q2.

So I think that we are going to continue to see very good pricing power and the ability to continue to grow ASPs of our core small class segment.

All right, that is helpful. Thank you.

Thank you, Philip.

Hi, Joe and Mei. I have a question about your new education the mobile product,Jia Zhang Bang. And we know that you have an advantage in the presence of your platform on PC, and your mobile users also surpassed the PC users. So I wonder how can you use -- how is your Internet strategy of new market occupying in terms of mobile product?

Sure. Well, we fundamentally believe that we need to lead with mobile. Mobile is where the future is, especially for social products like Jia Zhang Bang and what was previously Eduu on the PC format. If you think about what we are trying to achieve, we are trying to create lots of interactions among parents who care so much about their kids.

So it makes a lot more sense for them to be able to hear their mobile vibrate or ring every time they hear from other parents they want to hear from, rather than having to go back to their computer at certain times of the day and see what has happened on the discussion board since the last time they left their computer.

It just -- mobile is fundamental to creating what we want to achieve in terms of a highly interactive platform of these parents, who are the real key decision-makers for the K-12 segment.

Okay, I have a follow-up question about the online enrollment. We know that online enrollments increased extremely rapidly in the past quarters. So I wonder could there be a possible -- because a lot of people will ask, is a possible cannibalization going forward for existing cities, or do we notice that some students are choose online instead of the off-line courses?

Sure, that is a great question, Jack. What we see is no cannibalization. So what we see is that when students have a choice between online and off-line, they will go to a small class setting. And in cities where we do have both online and off-line, because of the pricing of the online product, people will view it as a supplementary offering.

So it is an opportunity for kids if they miss something when they were first listening to it in a small class segment to go back and hear it again, because you get access to online over an extended period of time. Or there may be some subject areas where they don't need the full 15 times, times 3 hours per time, 45 hours of instruction, for a typical small class over the spring term.

They could probably buy a SKU online that would give them 4 or 5, 10 hours in exactly the area where they need the attention. So that is what we are achieving online. We don't see cannibalization at this point in time.

Thank you, that is very helpful.

Thank you, Jack.

Thank you. First up, quick follow-up relating to your M&A strategy. For future M&As, is it also going to be minority shareholders most likely? And also for your existing investments, do you see any chance that you may increase from a minority shareholder to maybe a majority shareholder?

Yes, in both cases. So up till now, we have also had acquisitions. Kaoyan.com was an acquisition. Babytree was a minority stake investment. So we have done a mix of both control and minority stake investments, and we intend to continue to do so in the future.

In terms of going from a minority stake to a control investment, yes, that is also something that we would consider. We like the idea of minority investments because it allows us to typically sit on the board of the company and get a good understanding of the company and be able to select those companies that we see as the highest potential, and move towards a path to control of those companies. So I think that both of those things that you said are accurate.

Okay, great. And then my next question is relating to the one-on-one market. So one-on-one mix continued to decline, and I see that you have fewer centers comparing to one year ago. So my question is that do you think the demand for one-on-one tutoring on the market is declining or not growing as fast as for other segments? Or is it that your company's particular intention to lower the mix because that is not a most ideally class for margin performance?

Sure. Yes, I mean, I think that you are seeing probably a combination of both. The market related slow down, there are comps that you can look at and get a sense for that. And my sense of the not yet listed players is that they also are not growing as fast as they have in the past. But that doesn't mean that our approach is entirely consistent with the market.

As you'll remember, we position one-on-one as a complement to our small class business. So we are trying to make it for those top students that need one-on-one at cram at certain times of the year. We want to be able to address their needs so we can take the full share of pocketbook of these top consumers.

And also it addresses those students that may be borderline top students. So they tested into our small class but they are kind of borderline. They feel like they need more help; they can go into one-on-one. So we are addressing a different segment of the one-on-one overall industry. Our approach is different as well. So I think it is probably a combination of the two factors that you talked about, Ella.

Okay. So going forward, should we expect that the mix of one-on-one continue to decline for you?

Yes, I actually talked about this last call as well. I mean, I think the long-term destination of one-on-one should be 10% to 15% if you look at us in 3 to 5 years' time. So yes, I would expect that and I think it is a very favorable mix shift for our business.

Okay. And then last question is you mentioned an impact of the regulatory change in Beijing that's enrollment for English class. I think you said it was down this quarter. Could you quantify that for us? You know, in what range do you think the enrollment is down year-over-year?

Yes, sure. I mean it was down a few thousand enrollments, just to give you kind of a ballpark number. I do not want to disclose specific subject by city enrollments data, but that kind of gives you a sense. But I think that we are addressing it very swiftly and in the right way with our curriculum development.

So Hello English in addition to the book curriculum text-based stuff, we are also doing a lot with digital, mobile. So that is going to be an exciting new shift for our business. It'll probably take a couple of quarters before it actually funnels into the business, but it will be good.

And then this coming summer term what we have done is we have really promoted trial for our English. So we have a really cool offering which is 6 sessions times 3 hours per session for a total of 89 Renminbi. So we have a really strong belief that given the high quality of our product, if you come into our Lejiale classrooms, you will know the difference and stay with us. So we are doing a lot of activities also to drive trial for our English business.

And then again, as I mentioned in my prepared remarks, English is growing 47% outside of Beijing. So it is a very strong category for us where we continue to expect high growth from a total China perspective, and we will continue to put resources against it.

Got it, that is very helpful. Thank you.

Thank you, Ella.

Hi, hello, thank you for taking my questions. I have got two questions. Firstly, would you mind sharing with us some financial and operating status of xueersi.com? You mentioned that it is profitable this year; just wondering about the margins compared to your other segments, and what are we expecting for full-year fiscal 2015? Are we expecting xueersi.com to be profitable?

And secondly, I want to learn a little bit more about the ASP trend. Would it be possible going forward -- given that online is contributing more to the business and one-on-one is coming down -- for fiscal year 2015, would it be possible that ASP would probably be down or maybe only around 1 to 3 percentage points? Thank you.

Sure. Thanks, Clara. So yes, in terms of online, at scale I think online has the potential to have profitability somewhere between the one-on-one business and the small class business. You know, it was roughly a breakeven business for us last year. It has moved to profitability.

But I don't think that at this stage in the game, profitability is what we should be looking for in the online business. It should be more about user acquisition and retention, and that is what excites me about the online business, that the user enrollment numbers are up. It is the fastest growing enrollment business for us; that retention has improved. We still have a lot of room to go in both of those metrics. So that is going to continue to be the focus over the coming months.

In terms of ASP, yes, I mentioned in my prepared remarks that based on current trend and how we are seeing this nice strength in our online business, you could potentially see ASP trend slightly down. My view is that what is the most important thing that you should be looking at is the pricing power of our core small class business. That is where we differentiate.

The other stuff that you are seeing is mix shift, which I think is actually very favorable mix shift. Moving away from one-on-one, moving more towards small class and online, that is what we want to be doing. That is where the future is.

I've got a quick follow-up question. So last quarter we mentioned that we're probably looking at around 35% top-line growth for the full-year fiscal-year 2015. Are we still seeing the same growth but probably at a slightly different mix with the high enrollment growth, but a lower ASP growth? Thank you.

Yes. That was a budget number. There has been no change to our budget. That remains intact. Yes, it will be more enrollments driven.

Thank you.

Hi, congratulations on your strong margins. Okay, the question is like this. Like for your cities where you have one center right now, like do you have to fill them up before you add another one? Or can you go from like one to four? Because it looks like from your past history, you add like one a year. Yes, that is the question.

Yes, sure, Leon. It is not about filling them up. It is about making sure that we are getting the tipping point business dynamics that we are looking for. So we could easily set up four or five centers right away and fill them up right off the bat. But that is not what the game is about for us. It is about creating a sense of shortage that drives demand.

And I would expect that you are going to see a similar type expansion as we have seen in the last several years where you start with one, you go to two to three to four. But it is not quite as slow as you may be thinking with one learning center per year.

I mean if you look at Zhengzhou, it has four learning centers. We entered that market in 2012, for example. But the approach, it is very important for us to continue this approach that we've had up till now. Not because the demand is not there, but this is how we get the high-quality demand that we are looking for.

To follow on that. I mean, obviously, you have some cities with like 10 centers, and you have got some cities with the same population with one center. Looking at your center development in the past, it does look like you do kind of like one a year. And then once you hit the third and fourth year, you do like three. So I mean is there any reason why none of these cities cannot in time all be like 10 centers?

Yes, of our existing cities that we are looking at, yes. I mean these are all cities that we see as the highest potential K-12 markets. I think that they all have that potential. That is why we have chosen them and that is why we add two to four new cities each year rather than some bigger number, because we are going after the highest potential markets as we see it in terms of K-12.

Thank you.

Thank you, Leon.

(Operator Instructions).

Thank you all for taking the time to be with us today. We look forward to meeting you in Beijing, taking you around to our centers here and helping you to learn more about our business. If you have any further questions, feel free to reach out to myself or Mei or any of our other IR associates. Thanks so much and have a great day.