TAL Education Group (TAL) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the TAL Education Group third fiscal quarter 2016 earnings conference call.

(Operator Instructions).

I must advise you that this conference is being recorded today, Wednesday, January 27, 2016.

I would now like to hand the conference over to your first speaker today, Miss Mei Li.

Thank you.

Please go ahead, ma'am.

Thank you all for joining us today for TAL Education Group's third fiscal quarter 2016 earnings conference call.

The third 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. Rong Luo.

Following his prepared remarks, Mr. Luo 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 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 structurally comparable GAAP measures.

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

Thank you, Mei, and thank you all for joining us on our earning conference call for the third fiscal quarter of 2016.

We have a very strong third quarter on the top line, and our bottom line also perform as we expected.

In RMB terms, the net revenue grew by 49% year on year, and in dollar perspective the growth was 43% to $142.2 million, both exceeding our expectation.

Revenue growth was primarily driven by an outstanding 57% big growth in our key enrolments.

The growth was, again, broadly spread across cities, and a particular highlight for us was the turnaround of the solid growth in Beijing.

We continue to invest our future growth.

Year to date our learning center capacity has expanded by 40% over the year-ago period.

Today, I will briefly review our operational progress in the third quarter.

After that, I will provide some further analysis of the Q3 financials and our business outlook.

Small class accounting for 85% of revenue, compared to 82% in the same year-ago period.

Net revenue for small class was up by 54% in RMB terms, and 48% in dollar perspective.

The enrolment increased by 56%.

In RMB terms, in nine of the outer cities we achieve triple-digit revenue growth.

These cities are; Nanjing, Wuhan, Suzhou, Chongqing, Shenyang, Jinan, Shijiazhuang, Qingdao and Changsha.

Peiyou small class revenue contribution of the cities outside the top five was 34%, an increase from 26% in the same year-ago period, showing the higher growth dynamics in outer cities.

The revenue growth of cities outside the top five cities was 98% in RMB terms in the quarter.

Meanwhile, cities outside Beijing and Shanghai contributed 59% of small class revenue, compared to 51% same quarter last year.

Let me update you on Beijing's small class performance.

We are very pleased that we have managed to regenerate the vigorous growth in Beijing enrolment in all subjects following our target summer promotions.

We are excited that our limited offers are a very effective way to win market share, as the market leader with a strong brand in Beijing.

In effect, our limited price offers therefore accelerated the process of consolidation in the market.

Meanwhile, our English and Chinese classes also progress quite well, and currently the enrolments are trending as expected.

We believe we can sustain the robust enrolment-driven growth in Beijing in the coming quarters.

Turning briefly to our one-on-one business.

One-on-one contributed 11% of our revenue in Q3, compared to 14% in the same year-ago period.

We exchanged 10 one-on-one learning centers in Guangzhou to Changing Education, following the agreement signed in June 2015.

You may recall that last quarter I said that this transaction will not have material impact on our P&L, as one-on-one was a relatively low margin business, and our revenue from these 10 centers was 11% of one-on-one business in Q2.

The disposal of our one-on-one component in Guangzhou is a special case.

Except Guangzhou one-on-one business, we plan to retain our one-on-one business in other cities and continue to expand our presence where needed.

Let me now turn to our online courses segment, which remains one of our fastest growing sectors, with 54% year-over-year revenue growth.

Online courses on xueersi.com contributed 4% of total revenue this quarter, similar with the year-ago period.

Online enrolments also increased to an all-time high of 21% of the total enrolment this quarter versus 19% in the same year-ago period.

We continue to expand classroom capacity to support the strong demand for our tutoring services.

We opened 16 new small class learning centers in Guangzhou, Hangzhou and other cities, and two one-on-one learning centers during the third quarter.

In December, we also opened another seven new small class learning centers in Guangzhou and other cities.

We will add more learning centers in the remainder of the fiscal year.

We also closed three small class learning centers and four one-on-one learning centers, besides the 10 in Guangzhou, in line with our long-term objective to build a network of larger sized centers with good efficiency and utilization.

Meanwhile, in the third quarter we entered five new cities with one center each.

By the end of the third quarter, our learning center network covered 301 learning centers, of which 227 are small class and 74 are one-on-one.

Importantly, in the quarter we have entered five new cities.

According to our schedule, we are going to enter a lot more cities in the fourth fiscal quarter.

With years of successful experience in city expansion as our track record, we will maintain a stable expansion pace, going forward.

Let me now update you on the notable progress in the investment area, particularly on the ongoing acquisition of Firstleap Education, which offers all subject tutoring services in English in China to children between two to 15 years old.

The integration is proceeding smoothly.

We are very pleased with the whole Firstleap team that has joined us, particularly in Beijing and Nanjing we see strong and immediate synergies.

Given these positive results, we believe that we can finalize the full acquisition ahead of schedule.

We will start to consolidate the financial statement of Firsleap Education beginning in the month February.

Since this is the month in which we have the nationwide spring festival holidays, the P&L impact from the consolidation of the Firstleap will be very minimal.

Firstleap was almost break even in the most recent quarter.

We expect this business to become profitable within two to three years, with a profit margin of between 10% to 20%.

To summarize, we're continually enjoying solid top-line growth as demand for our tutoring services is robust and widely spread across cities.

We are pleased to see the turn-around of enrolment-driven growth in Beijing and we believe that our gains in market share in Beijing are contributing to the market consolidation.

The 40% year-to-date increase in learning center capacity is demand driven and forms a firm base for our continued long-term growth.

Meanwhile, we are very pleased with the smooth ongoing integration of Firstleap, which neatly complements our business model of tutoring services for the core K-12 students.

The rapid consolidation of Firstleap underscores that we follow the right strategy on making fewer but larger investments.

They are well-timed, well-aligned and well-focused on education services in educational segment.

Last week, we announced a minority investment in Knewton, a global leader in adaptive learning.

In addition, we have signed a letter of intent to incorporate Knewton's adaptive platform in TAL's online learning environment.

Knewton provides students with tailored recommendations for exactly what to study, teacher with analytics to better support every student, and publishers with content insights to develop more effective products.

Knewton powers adaptive content to make specific real-time recommendations for each student based on how the student learns, what she has already mastered, goals she has set with the teachers, and what works the best for similar students.

Knewton has provided more than 15 billion learning recommendations to more than 10 million students.

Its platform currently powers the adaptive learning products for many of the world's largest education companies.

We are very pleased to invest and work with Knewton because the ongoing advances in education technology have created new possibilities to individualize and dynamically adjust the online learning experience.

TAL's cooperation with Knewton is based on a shared commitment to the future of education through integration of technology, Internet and education on a global scale.

Now, let me go over some financial points I would like to highlight.

In the third quarter, the net revenue was up by 43%, even with the negative impact of the further depreciation of RMB against dollar.

In RMB terms, the growth was 49% year on year.

Fiscal year to date, the revenue was up by 43% in US dollar and 45% in RMB terms.

The ASP for our small class was almost flat in RMB terms during the third quarter, mainly because we have more revenue contribution from the outer cities where pricing is lower than the same price in Beijing and Shanghai.

We expect to take price increase for small class in some major cities next year, including Beijing and Guangzhou and some other places.

Our pricing capacity remains strong, due to our market share gains across a wide geographic network.

GAAP and non-GAAP cost of revenue increased by 50% to $73.4 million from $49 million in the same year-ago period.

As I mentioned in the last call, we increased small classroom capacity significantly in the third quarter.

We added 467 new classrooms, compared to 64 in the third quarter last year.

Typically, it takes around two quarters for the new classroom capacity to ramp up.

We believe the capacity expansion is critical to our long-term top-line growth.

Gross profit for the third quarter was $68.7 million, compared to $50.4 million for the same year-ago period.

Gross margin for the third quarter was 48.4%, as compared to 50.7% for the same period of last year.

Selling and marketing expenses increased by 27.1% to $17.2 million, from $13.6 million in the third quarter of last year.

Non-GAAP selling and marketing expenses, which excluded share-based compensation, increased by 27.3% to $16.6 million from $13.1 million in the same period of last year.

G&A increased by 48.5% to $42.6 million from $28.7 million in the third quarter of FY15.

Non-GAAP G&A expenses, which excluded share-based compensation, increased by 51.1% to $36.7 million from $24.3 million in the same year-ago period.

In the third quarter, we spent $7 million on O2O initiatives.

Fiscal year to date, we have spent $16 million of annual budget of $22 million.

The above factors combine to give us operating income of $9.6 million, representing a year-over-year increase of 16.8%.

Non-GAAP operating income increased by 22.8% year over year to $16.1 million.

Income tax expenses was $2.6 million in the third quarter of FY16, compared to $400,000 in the third quarter of FY15.

Our net income for the quarter was $9.6 million, as compared to $11 million in the same period of the previous year.

Non-GAAP net income for the third quarter was $16.1 million, as compared to $15.9 million in the third quarter of last year.

Basic and diluted net income per ADS were both $0.12 for the quarter.

Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation, was $0.20 and $0.19.

From the balance sheet as of November 30, 2015, the Company had $563.2 million of cash and cash equivalents.

And we also have $27 million of term deposits, as compared to $470.2 million of cash and $21.2 million of term deposits as of February 28, 2015.

CapEx for the third quarter of FY16 were $6.4 million, representing a decrease for $1.1 million from $7.5 million in the third quarter of last year.

As of November 30, 2015, the Company's deferred revenue balance was $351.7 million, as compared to $247 million as of November 30, 2014, representing a year-over-year increase of 42.4%.

Taking into consideration the recent significant change in RMB exchange rate against US dollar, we expect total net revenue for the fourth quarter of FY16 to be between $166.3 million and $168.8 million, representing an increase of 35% to 37% year over year, assuming no material change in exchange rate.

If not including the impact from the most recent depreciation of the RMB against the US dollar, the projected revenue growth rate is expected to be in the range of 40% to 42% for the fourth quarter of FY16.

If we achieve the RMB revenue growth of 40% to 42% in the fourth quarter, then we will have achieved 41% to 43% year-over-year top-line growth for FY16, which is higher than our previous guidance of 40% to 42%.

This estimation reflects the Company's current expectations which is subject to change.

That concludes my prepared remarks.

Operator, we are now ready to take questions.

(Operator Instructions).

Alvin Jiang, Deutsche Bank.

Congratulations on the strong results.

I have two questions.

The first one is on your enrolment guidance; I think it is quite strong.

Can you share us some more color on that; maybe there are some non-operating income sectors, or maybe -- yes, add more color?

Thank you, Alvin.

For the enrolments, this quarter is quite strong, but actually, as I mentioned in our previous earnings call, the September third actually has been made as a holiday by the State Council this year, so we have one-week delay in several cities including Beijing.

So these enrolments, we have factored in all of these reasons and the one-week delay of the Beijing and other places will go to our Q4 numbers.

Okay, thank you.

The second question is on the margin.

I think you were reaching out to some new cities, actually five new cities in the quarter.

I'm not sure if this will make some negative impact on the margins in the coming quarters.

And could you please remind us like how many quarters you can reach break even or you can reach the normalized margin level for those new learning centers?

Thank you.

Yes, that's a very good question.

In general, for our old learning centers, we need two quarters to ramp up, to be at same level of fulfillment rate and same level of the retention rate as our current learning centers.

So we have added 467 classrooms this quarter and we have entered five new cities this quarter.

Yes, definitely, they have a little bit impact to my margin this quarter, but in the long run we believe that is a very critical and very important step for us to do that.

With more and more capacities, we can set up this quarter which will be very beneficial to make next year top-line revenue growth.

Okay, thank you.

Got it, thank you.

Leon Chik, JPMorgan.

You guys keep knocking this thing out of the park, congrats.

Just a question on your EBIT margin.

I know you don't give guidance, but you guys are still about 4% below the peak levels in FY14, and next year, your sales probably will be triple that level.

So we're just trying to see what the impact of EBIT will be.

Firstly, your online spending, is that going to continue to go up, which is part of your G&A?

And secondly, we see marketing expense as a percentage of sales has come down quite a lot in the third quarter; that's good, that's positive.

Is that going to continue?

Okay, thanks.

Thank you, Leon.

Q3 is the lowest margin quarter, mainly due to we have the lower revenue and we have faster network development.

And Q4 is definitely better than Q3.

Specifically on your question about our online investment, I think we are pretty much on track.

Considering we only have 4% to 5% of my total revenue is online revenue, so we will maintain the same level of investment in O2O space in the coming years.

The similar level means maybe the percentage of the net revenue will be quite stable.

So in general, I think the Q4 margin, this will be a good number and better than Q3, but we don't give any specific guidance on detailed numbers.

And looking forward to next year, since we are still doing the budgeting, so I cannot share too much numbers with you, we will have much more visibility with the next quarter.

But directionally speaking, we foresee the margin will be stable in the coming years.

What about marketing, why did it improve so much?

The marketing actually is some consultants and some salespeople in the learning centers.

Because we invest in the online technology, and we have deployed the Peiyou app to do a lot of things like that, so which means we use the same number of staff but we can support more and more parents and students.

So in this case, you will see the selling and marketing expenses growth will be lower than my top-line revenue growth, and I am confident this trend will be a good signal for us to improve margin in the future.

Yes, that's awesome.

Thanks.

Anne Shih, Brean Capital.

My questions are related to ASP, which was down further this quarter.

First, could you talk about the different factors driving this?

I understand the RMB depreciation is impacting this, but also, any color on discounting, the geographic mix, or the class-type mix?

Second, you mentioned earlier plans to increase ASPs for small classes next year.

Can you share just the outlook for pricing or pricing strategy for next quarter and next year?

Thanks.

Thank you, Anne.

We've mentioned in the call the ASP of small class in RMB terms actually is flat this quarter.

Part of reason is because we have much bigger revenue contribution from the outer cities.

The outer cities, besides the top five, their top-line growth rate is 98% in RMB terms, which means besides the top five we have today, the rest, all of the cases, are close to 100%, which is -- that is a very healthy growth for us.

But we should also consider the price in outer cities, the absolute dollar, compared to the price in Beijing, actually is lower.

So when we have much more revenue contribution coming from outer cities, in the mix perspective that will drop down a little bit in my ASP perspective.

In the coming year, we plan to take price increase in major cities, including Beijing, Guangzhou and some other places, so we are quite confident in the long run that ASP for small class in RMB terms will be low single-digit growth rate.

Thank you.

Cynthia Meng, Jefferies.

We have seen the blended ASP has been decreasing on a year-over-year basis for the first nine months, three quarters of FY16, and the enrolment growth continues to be very strong.

Can you talk about TAL Education's strategy?

Is it to focus more enrolment growth and capacity expansion, rather than ASP growth?

And can you provide some color on the ASP growth for the next few quarters?

And then I have --

Thank you, Cynthia.

Yes, I think our pricing strategy is quite stable.

We will take the price up for every city maybe every two years.

So this year, we have tried to increase the capacity a little bit faster than what we did last year.

That is because we have seen a lot of strong demand coming from the city.

I'm more than happy to see my business is driven by enrolments, but this doesn't mean I will reduce my price or I will do more promotions.

In the long run, I think looking forward to the future quarters, our pricing strategy will be the same and we'll take price up in major cities and we still foresee, for the small class in RMB terms, the ASP are low single-digit growth.

For the one-on-one, because now we're promoting a small group class, which is one teacher versus six students, their price is much lower than a normal one-on-one but their margin is much better than the normal one-on-one.

So with the bigger mix in the small group classes, the ASP of one-on-one will be less than before.

For the online, the ASP is quite stable; sometimes they have some fluctuations.

That's because the product mix issue.

So in general, we still feel quite confident on our pricing power and we will maintain our strategies to take price up regularly.

Thank you.

My follow-up question is, we notice from recent news, Mr. Zhang Bangxin announced management's expectation of the next decade and said that TAL Education's revenue will reach RMB100 billion in 10 years.

That implies a 10-year CAGR of about 16% to 17%.

Given that TAL Education has already experienced top-line annual growth of 30% to 40% for the past several years, so from management's point of view, how many years will such high-speed growth of revenue continue?

And what do you expect for top-line growth in the short term and midterm?

Yes in the first place, I think every company they should have their own targets.

They should have their own vision and mission and try to deliver what will be maybe after 10 years.

So we are very happy to see the strong ambition and aggressive plans to reach target to make our Company bigger and bigger.

I think RMB100 billion that is a number to let us know what is the direction we are going to.

So specifically about the top-line revenue growth in this year and next year, I think this year our guidance is quite strong with 41% to 43%.

Next year, we will probably maintain a similar level of the growth.

But because next year I will consolidate the Firstleap Education into my P&L, so the top-line revenue growth may be even a little bit higher.

But all of this is still the very preliminary view as of today.

We're still finalizing my budget yet, so I can share more details maybe next quarter's earning call.

Thank you.

Andrew Orchard, Nomura.

I have a couple of questions I would like to ask you.

Number one would be on the small group class, which was touched upon briefly in an earlier question.

Can you give us some color on what the growth is like of this small group class?

And also what the relative margins are of this format versus one-to-one?

And the other question is on your Beijing market share.

You mentioned earlier that you've seen some consolidation in the market.

Do you have any sort of data points that you can share with us to give us a bit more insight into this market, please?

Thanks.

Okay, so for small group class, we have some big numbers we can share with you.

The price of the small group class compared to the normal one-on-one is 35% to 40%.

And the margin of the small group class is 10 to 15 points better than normal one-on-one.

Today, we have promoted the small group classes in most of our big cities we have today.

And we foresee the mix of small group classes will increase in the coming quarters.

And about the second question, Beijing market share, frankly speaking I have no number in my hand because that market is very fragmented.

But I think we can benchmark the very solid result in Q3, both for TAL Education and for my counterparts.

We have seen a very strong growth from both them and me, so we are very happy to see the market leaders, the big companies, who have the very good branding in this market will benefit from a consolidation of this market.

But this consolidation process will be a long time.

We're happy to see we can leverage our technology, our branding and a lot of staff to try to accelerate the process.

So we are very confident this will be very beneficial for my company?s long-term development and long-term growth in the coming years.

Thank you.

Tian Hou, T.H. Capital.

Congratulations on a good quarter.

I have several questions.

One is regarding the consolidation of the acquired companies and so when we are doing models in the next quarter, how much top line we should consolidate them?

That is question one.

And also, related to the O2O, you did mention about O2O investment in the previous answering the questions.

So I wondered if you could give us some colors on TAL's O2O initiative and the progress and what you expect to accomplish by the end of the next fiscal year.

That's on O2O.

And I also have a third question which is, the Company mentioned a couple of times you are not going to do privatization; however, you do have a lot of investments.

Those investees may go listed in the local market.

And I wonder how TAL, as a US-listed Company, benefits from such kind of listing in domestic.

That's my three questions.

Thank you.

Thank you, Tian.

The first question, Firstleap Education, we will start to consolidate from February 1. So in top-line perspective because February is spring festival, so there only have to be one or two classes in the month, so the top line from them is very, very minimal.

And the second thing about our O2O initiatives, I think we have a lot of things we have done in the past.

For example, we have launched our Peiyou app, which can enable the parents and students to do a lot of things without going to our learning centers.

For example, they can go to any of our classes, they can transfer, they can pay and we also developed the functions to connect to our ICS3.0, which means we can collect information from a class and send some homework or send some questions to our students through the app.

So all of this is a very good experience.

And we are also pilot some of the new O2O models in some areas.

So I think we have made good progress but, again, I think that's still in the very early stage of how education leverages the technology to improve the efficiency and maybe to create some new business models.

So we will keep eyes open.

We will maintain a similar level of investment over there.

Specifically about your question about the local stock market, again, we have no plan for privatization, no.

But we're also very glad to see some of our portfolio companies they are doing quite well and I know some of them, they're about to be listed in China in the coming quarters.

As a Company, we're happy to see this.

It's a very good trend because the education companies in China, they may have maybe higher P/E multiples in China than in the US.

And the market also comes in a little bit, so we are very happy to see the portfolio companies can be listed.

And we can also benefit from our investment over there.

And when we have some deals we can realize the benefits, we will let you guys know.

But in general, that is good news for us.

Okay.

Thank you, Rong.

Mariana Kou, CLSA.

Congratulations on a very good set of results.

I have a few questions.

My first question is on the split between small classes, one-on-one and online.

If you could just comment on whether you are quite happy with the current mix or you're just going to let it literally progress where you might have one-on-one still on a down trend or you try to keep the current ratio?

And my second question is on O2O investment; in the previous earnings call, you were talking about roughly $20 million investment on O2O projects.

Is that still the target that you are maintaining for this year?

And how much have you really spent in the first nine months?

And I guess a follow-up would be, how much would you be targeting, in absolute dollar number terms, for next year?

And I guess my last question is a bit related to the question just now, just to play devil's advocate on the portfolio of companies.

I think that a lot of your investments are actually doing quite well.

But just in the case of perhaps one or two not trending as well, should we be worried that you might have to put down some write offs or just some provisions on those type of portfolio investments?

Thank you.

Okay.

The first question; the small class, the revenue contribution and mix is around 85% and one-on-one is around 11% and the online is around 4%.

Because we have managed the one-on-one business in the past as well as we did in the past two years, so I think the revenue mix coming from one-on-ones will continue to be lower than before, and we have more and more strong growth coming from small class and online.

That's also because the margin of one-on-one is also not that good and we definitely would like to control the development of that business.

Online is also growing so fast; they have been our fastest growth segment for many quarters.

And we are also happy to see this business is profitable and margins even higher than in one-on-one, so we will also continually invest there and to make sure our online can grow maybe even faster.

About your second question, for the O2O spending, our guidance before is we will spend around $22 million this year, and in the first nine months, we have spent $16 million already, which is pretty much on track.

So I think the full year, we will be around $22 million; that is the right number we can hit.

And looking forward to next year, we will maintain a similar level of investment in O2O; I mean maybe the percentage of net revenue will be quite stable.

And your question about our portfolio companies; actually, as a Company, we always used the very conservative way to evaluate our investments in all of these companies, so we are very conservative.

If anything which is not doing well, we will let them out.

So, so far, based on the valuation we have done together with AA and Deloitte, we feel good about the progress of this portfolio companies; in some companies they have got a second round even third round of investment financing already].

So we will continue to monitor all of these deals very closely and we will let you guys know if something is not doing well, but today, I still quite feel very confident they are still trending well.

Thank you, Mariana.

Thank you, Rong.

Zoe Zhao, Credit Suisse.

Congratulations on a strong quarter.

Two questions from me.

One is, could you share with us a little bit on your expansion plan in the next two years in terms of new cities entrants as well as the course offerings, particularly high school course offerings in some of the new cities that you are entering.

And the second question is, could you share with us your thinking behind your equity investments, especially the overseas ones, such as Knewton, like what are your targets and how do you locate your targets?

Thank you.

Thank you, Zoe.

I think in total, Q3, we added 467 new small class classrooms.

Year to date, we have added 1,191 small class classrooms.

I think this is a very important step because we have added around 40% of the capacity than we did last year, but we still have more to come in Q4.

And we will be very confident to say, with a little bit for us the expansion than before which is very beneficial to my next year top-line revenue growth.

And looking forward to the coming several years, I think we will maintain a similar level of the capacity increase, around 35% to 40%.

And for the new cities we enter, last year we entered four, this year we entered six.

Next year, we're probably around four.

So all of this is still in discussion time; I will share more with you in next quarter.

About high school, that's a very good point, especially in Beijing, Shanghai and Guangzhou and some major cities.

In Beijing, we have around maybe 25% of my revenue coming from high school, while this mix in Shanghai, Guangzhou, Shenzhen and other places is quite small.

That is because we are kind of the highly retention model.

We start from sixth grade primary school, and then we need to wait for the students to grow older and older, and when they go to the high school, we will do more high school.

So now, we are seeing the high school mix will become much bigger in the coming years.

And about the second question, my investment philosophy.

I think again, our structure plan is to get the long-term leverage in the future education business models and become a leading technology-focused education service provider.

So we believe we have made some very strong strategy investments in the past and will bring the long-term value to our shareholders.

Our recent investments have been well coordinated, in line with our long-term strategic plan; all of them in common focus on education, especially in K-12 segment.

So coming to this fiscal year, as I mentioned before, we have a deeper understanding and the market is more mature for own education.

We are focused on our K-12 segment, which is our key business, and we intend to do fewer but larger deals.

So you can see the number of deals have reduced a lot, but the average size of the deals has increased.

We also will make some strategy investments globally because we need to incorporate the best technologies in the world and bring them back to China, try to improve the efficiencies in China.

So in the future, we will continue to monitor and keeps eyes open for any new opportunities.

But again, we will also be very cautious and be very conservative when we decided to do anything different.

So this year, I think in general, we will focus on the strategy synergy as the first priority in the investment.

This will be continual in the coming years.

Thank you.

There are no further questions at this time.

Please continue, sir.

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

Thank you for participating, you may all disconnect.