TAL Education Group (TAL) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to TAL Education Group Fourth Fiscal Quarter and Fiscal Year 2017 Earnings Conference Call.

(Operator Instructions)

I must advise you that this conference is being recorded today, Thursday, 27th of April, 2017.

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

Thank you, ma'am.

Please go ahead.

Thank you all for joining us today for TAL Education Group's fourth fiscal quarter and fiscal year 2017 earnings conference call.

The fourth 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 U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to those 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.

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

Thank you, Mei.

Good evening and good morning to you all, and thank you for joining us on this earnings call.

I'm pleased to report a strong set of fourth quarter and fiscal year 2017 results.

We continue to enjoy robust top line growth, driven by the high demand in all cities and supported by further capacity expansion.

Top line growth in the quarter was 80.7% through USD 316.3 million.

In RMB terms, net revenue grew by 90.7% year-over-year.

2 key factors I would like to make about our top line performance and draw your attention.

First, revenue growth was supported by the growth of our small class business across all cities, with an extra growth lift from a classroom capacity that we have added in the previous quarters.

And because of the earlier timing of the Spring Festival holiday, we scheduled one more section of spring courses in the fourth quarter in most cities than we did in the same period last year, which is a seasonality factor.

And second, the contribution from the newly acquired business, Firstleap, in particular, which didn't contribute much last year but grew healthily and contributed more revenue than expected in the fourth quarter.

For the full year, net revenue was up by 80 -- was around 68.3% in U.S. dollars and up by 78% in renminbi.

Non-GAAP operating profit increased by 113% year-on-year, also above our key expectations.

Earlier in the year, we started to accumulate classroom capacity for the summer time, so the non-GAAP operating margin declined in the first quarter and the second quarter, but gradually recovered in the third quarter and fourth quarter.

As a result, for the full fiscal year 2017, non-GAAP operating margin was 16.4%, down by 150 basis points from prior year, declined slightly than our early expectation.

Today, I would first like to briefly review our operational progress in the first quarter and give you some insight in our plans for fiscal 2018.

Following that, I will provide further analysis of financial results for the quarter and give you a quick recap of full year highlights.

I will finish my prepared remarks with the business outlook.

Small class, accounting for 83.6% of total net revenue compared to 84% in the same year-ago period; Peiyou small class representing 75.9% of total revenue, lower than 80% in the same year-ago period, mainly due to the consolidation of the newly acquired business.

Let me remind you that the small class is including the Xueersi Peiyou small class, Firstleap, Mobby and some other educational programs and services.

In the fourth quarter, revenue contribution from Firstleap was 5%.

Net revenue for small class was up by 90% in renminbi terms and 80% in dollar terms, while enrollment increased by 65%.

Xueersi Peiyou small class revenue generated from cities other than the top 5, Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, grew by 100% year-on-year in dollar perspective and 111% in renminbi.

The other than top 5 cities accounted for 39% offshore for the Peiyou small class business and increased from 33% in the same quarter last year.

We have achieved triple-digit year-over-year revenue growth in 16 out of 24 cities that we have entered by the fourth quarter of fiscal Year 2016, including Shenzhen, Xi'an, Chengdu, Wuhan, Hangzhou, Chongqing, Taiyuan, Jinan, Shijiazhuang, Changsha, Qingdao, Luoyang, Ningbo, Hefei, Wuxi and Fuzhou.

The enrollment growth in Beijing was over 40% year-over-year, driven by our packaged sales of winter courses.

These promotional activities have encouraged more students to take more subjects than ever before, and we believe this will help raise the average number of courses that Beijing students plan to take, further supporting our belief that the growth in Beijing will remain robust in the coming quarters.

Our ongoing efforts to roll out a wider variety of tutoring courses in more cities made solid progress in the quarter.

Right now we provide English classes in 10 cities and Chinese in 5 cities.

Enrollments from English and Chinese increased at a faster rate than others science subjects as we saw in previous quarters.

We also see faster growth of primary school students due to a favorable demographic trend of China's newborn baby population, after years of decline, began to grow again from the year 2008 onwards.

We have successfully capitalized on the momentum, and we are working to expand the number of courses and grades we offer in a larger number of places going forward.

Turning to our capacity expansion.

In the fourth quarter, we added a net 24 Peiyou small class learning centers or 1,145 classrooms.

We have opened 1 Firstleap small class learning centers in Beijing.

This gives us a full year expansion of 79% by the end of February 2017 versus fiscal year 2016.

This quarter, we added most small class classrooms in 15 of our cities, among them are Beijing, Chengdu, Nanjing, Shenzhen, Guangzhou, Chongqing, Xi'an, Taiyuan, Hangzhou, Jinan, Hefei, Suzhou, Zhengzhou, Shanghai and Lanzhou.

As planned, we'll also enter 3 new cities: Xiamen, Lanzhou and Dalian.

By the end of February 2017, we have 507 learning centers, of which, 339 were Peiyou small class, 8 were Mobby small class, 53 were Firstleap small class, and 107 were one-on-one.

Our geography footprint currently covers 30 cities across China.

Looking to Q1, we're planning to add 25 to 35 Peiyou small class learning centers.

We have a solid fourth quarter for our one-on-one business.

Zhikang one-on-one achieved double-digit year-over-year enrollment growth, driven by the strong local demand.

On a net basis, we added 8 new one-on-one learning centers in cities, including Shanghai, Guangzhou, Shenzhen, Wuhan, Chengdu and Hangzhou.

One-on-one accounted for 11% of total revenue compared to 12% in the same year-ago period.

We are pleased with the ongoing progress of live broadcasting on xueersi.com.

The results today give us great confidence in the online live tutoring model will succeed in more cities when we roll it out further.

Nevertheless, we moved ahead at a reasonable pace because we really want to take our time to make these new services just right in every detail, to ensure we are building a strong foundation to support future growth.

For example, we want the right balance between the size of classes that our teachers and assistants can take care and the best possible student experience.

In the fourth quarter, revenue for xueersi.com grew by 131% year-over-year in dollar terms or 144% year-over-year in renminbi terms.

Online cost is contributing 5.2% of total revenue this quarter compared to 4.1% in the year-ago period.

Online enrollment is accounting for 16% of total enrollment compared to 14% in the fourth quarter of last fiscal year.

Other revenue are mostly from the online advertising business, representing 0.6% of total revenue in Q4 2017.

Turning briefly to full fiscal year 2017, which was another year of progress for TAL, we delivered solid financial and operational results, driven by robust enrollment growth, mostly through the continued expansion of our small class classrooms as well as additional contribution from the newly acquired business.

In renminbi terms, revenue increased by 78% year-over-year, and in dollar terms, the top line growth was 68.3%, reaching $1.04 billion.

Non-GAAP operating margin was at 16.4% compared to 17.9% in fiscal year 2016.

Looking ahead into fiscal year 2018.

First of all, small class remains as the core of our business model.

We expect it to continue deliver demand-driven growth from the healthy-paced expansion of the number of the classrooms by approximately 30% to 50%, and most likely, we will reach the high end of -- in this range.

We'll selectively enter new cities, with the optimal localized mix of online and offline educational services.

Moreover, we expect the newly acquired business to continue to improve operational efficiency and profitability.

And at the same time, further integrate into the TAL ecosystem at the right pace.

Lastly, we have recently reinforced that the TAL's vision is advancing education through science and technology.

For fiscal year 2018, we are planning to strategically stay on the course of growth based on expansion and technology based on -- and technology-based innovation, with the right balance between present and future growth.

Our longstanding track record gives us confidence that our ongoing efforts to converge technology, communication and educational resources are making us a leading technology-based education service provider in China.

Let me now go through some key financial points for the fourth quarter and fiscal year 2017.

After that, I will give our business outlook for the first quarter of fiscal year 2018.

In the fourth fiscal quarter, small class ASP in renminbi terms increased by 14.8% year-over-year, mainly driven by the regular price increase and fast growth of the newly acquired business, in particular, Firstleap.

Zhikang one-on-one ASP in renminbi terms increased by 2%.

Online cost ASP increased by 23% in renminbi terms in the fourth quarter, mainly because of the increased sales of the online live class, which generates higher ASP than prerecorded classes.

Both GAAP and non-GAAP cost of revenue increased by 78.1% to USD 158.1 million from USD 88.8 million in the same year-ago quarter.

The increase in cost of revenues was mainly due to: first, an increase in teacher compensation and rental costs; and second, new business acquisitions of Firstleap and Shunshun.

In the fourth quarter, gross profit was USD 158.2 million as compared to USD 86.3 million for the same year-ago period.

Gross margin for the fourth quarter was 50% as compared to 49.3% for the same year-ago period.

Operating income increased by 160.9% to USD 43.4 million.

Non-GAAP operating income increased by 113.2% year-over-year to USD 53.8 million.

We saw an improving margin trend in Q3 and Q4 as we had expected.

Impairment loss on long-term investments was USD 2.1 million, mainly due to the other-than-temporary declines in the value of the long-term investments in several investees.

Basic and diluted net income per ADS was USD 0.39 and USD 0.36.

And for the quarter, non-GAAP basic and diluted net income per ADS, which exclude the share-based compensation expenses, were USD 0.52 and USD 0.47 respectively.

From the balance sheet, as of February 28, 2017, we have USD 470.2 million of cash and cash equivalents and USD 229.5 million of short-term investments compared to USD 434 million of cash and cash equivalents and USD 17.3 million of term deposits and USD 27.5 million of short-term investments as of February 29, 2016.

Capital -- CapEx for the fourth quarter was USD 22.4 million, representing an increase of USD 10.8 million from USD 11.6 million in the same year-ago period.

The increase was mainly due to leasehold improvements and the purchase of servers, computers, software systems and other hardware for the company's teaching facility and mobile network research and development.

As of February 28, 2017, the company's deferred revenue balance was USD 518.9 million as compared to USD 289.3 million as of February 29, 2016, representing an increase of 79.4%.

Deferred revenue, primarily consisting of the tuition revenue collected in advance for the spring semesters of Xueersi Peiyou small classes as well as the tuition revenue and service revenue collected from the newly acquired business, Shunshun and Firstleap in particular.

We are also very pleased that our Board of Directors have approved a special cash dividend of USD 0.25 per common share or USD 0.50 per ADS, representing an aggregate dividend payment of approximately USD 41.2 million.

This marks our second dividend payout since we've become a listed company.

This declaration of the dividend reflects our confidence in TAL's future cash flows and our commitment to use surplus cash not only for the further growth but also for delivery of shareholder return.

The cash dividend will be paid on or about May 25, 2017, to shareholders of record as of the close of business on May 11, 2017.

Taking into consideration the recent significant change in renminbi exchange rate against U.S. dollars, based on our current estimates, total net revenue for the first quarter of fiscal year 2018, I expect it to be between USD 302.4 million and USD 306.3 million, representing an increase of 55% to 57% on a year-over-year basis.

If not including the impact from the recent depreciation of renminbi against U.S. dollar, the projected revenue growth rate is expected to be in the range of 65% to 67% for the first quarter of fiscal year 2018.

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

That concludes my prepared remarks.

And operator, we are right now -- we are now ready to take questions.

(Operator Instructions) Your first question comes from the line of Zoe Zhao from Credit Suisse.

I have 2 questions.

First one is on your margin guidance.

If you could give us some colors on both GPM and OPM, that would be great.

And the second question is regarding your summer promotion strategy.

If you could talk a bit about like the scope of the summer promotion and what's the pricing you are going to set, that would be very helpful.

Thank you, Zoe.

The first question on the margin guidance.

Same as before, we don't give any very detailed guidance on margin perspective.

But in the direction perspective, we probably can say I think looking forward to our fiscal year 2018, where that, most likely, our margin will be flattish considering we have some recovery from the newly acquired business, especially the Shunshun and Firstleap.

We probably can see more positive outcome from them.

And at the same time, we need to also balance, because we are still a technology-driven company.

So we need to invest for some of the new business, maybe for -- through a 5 year's time.

So today, we're still in the beginning of the year.

So my current view is we probably will be flattish in margin perspective.

And specifically about gross margin and OP margin, we don't have that much details to disclose.

But again, we, as a company, are very cautious and very serious about our margin, so we will balance our investments and our -- the kinds of the leverages we can get in margin perspective.

So we will deliver a sustainable and reliable growth in the future.

And your second question about the summer promotion.

Same as before, we don't have any national-wide promotion plan, and we don't see any intention we want to increase a lot in promotion perspective.

Promotion is one of the tools we could use, but actually, we still strongly believe that teaching quality is the final say in front of the customers.

Compared to promotions, we would like to invest more to -- on our teacher, on our teaching system, on our learning management system to make sure that the whole experience that we deliver to our students are the best in the market.

So in direction perspective, we don't have any much bigger promotion plans.

We'd probably do something similar as what we did last year, especially, most of promotions will happen in Beijing.

Some of you guys have seen on our speiyou.com already.

So again, we treat the quality as the most important stuff we need to deliver to the students and we are very serious about that.

And if we have anything more to update, I will let you know.

Our next question comes from the line of Terry Chen from HSBC.

I also have a question on margin.

So I guess the -- one of the positive products in this quarter's results is that your non-GAAP operating margin expanded by 2.6% year-over-year.

You just mentioned that you're guiding for flattish margin, maybe for comfortable pace purpose.

So I just want to know what's the reason behind the margin expansion in this quarter, and why do you think it won't extend into FY '18?

Okay.

In the first place, I think in Q4, our margin is a little bit higher, and why is that?

That is also because we have one more section because of the timing of Chinese New Year is much earlier this year.

So the one more section, considering 1 quarter, we only have 13 weeks.

So the one section actually is quite meaningful for both our top line revenue and the margin -- and the profit perspective.

And if we go back to see our full fiscal year 2017, we have the margin decline in Q1 and Q2 because we tried to expand more capacity at that time and we hired some more -- new teachers.

And Q3 and Q4, when this capacity are put into use, so we have a little bit coming back in the margin perspective.

Looking into full fiscal year 2018, in the first place, we are happy to see the capacity we have invested in the past few quarters, now they have contributed more and more.

We -- also, will keep a very healthy pace to try to expand more this year.

What we want is healthy, controllable and sustainable growth.

Healthy, controllable and sustainable growth.

And on the other side is we still focus a lot on technology.

Our mission has just been clarified, is we need to advancing education through science and technology.

With this special mission, we definitely need to invest in our data and technology platform to try to give some new experience to the students.

Some of the new pilots we're running in our one-on-one centers and in our small class centers, where we're trying to present a new technology to make sure the experience and the quality we deliver to the students are much better than before.

So this is a right balance between -- we have some buffers, we have some leverages we can use in margin perspective, but at the same time, we need to invest on the long run.

So coming to today, we believe our guidance is kind of -- is too early to give, but in the direction perspective, we will try to make sure the margin will be flat.

But flat doesn't mean every quarter to be flat.

Maybe in some quarters, it's a little bit down, in some quarters, it's a little bit higher, same as what we see in last year.

So that probably that's the key driver for our margin perspective.

Okay.

Yes.

Got it.

Just a quick follow-up.

Can you remind us about your capacity expansion target for FY '18?

Our capacity expansion target, I think that coming 3 years, we'll still be around 30% to 50%, and 2018, because last year, we just added more than 70%.

So this year should be close to the high end.

And again, I think the capacity added is not driven only by the market demand, it's more driven by our quality controls.

We don't have any intention to say I just want to grow my revenues so I just add whatever we want to do.

We still set a series of KPI and metrics to control the pace of capacity expansions.

So we will even be more cautious and serious about them this year because we need to make sure our -- the capacity expansion pace is aligned with our new teacher recruitment and our new developing technology.

So the teaching quality is the highest, our first priority in our company.

So we will be paced, and our goal is the same, is try to deliver very healthy, controllable and sustainable growth.

Your next question comes from the line of Alex Liu from Daiwa.

I'm just wondering, I think the management just mentioned the positive tailwinds from the favorable demographic trend in large cities in China.

I'm just wondering how long does the management think this demographic trend will last, especially in cities like Beijing, where we already found a very sizable market share.

Okay, Alex.

And I think this trend should be proved by the statistics in major cities in China in the past few years, new - babies -- new populations.

Especially in Beijing, we have seen this trend as going up since the year 2008.

And even coming into the most recent year, the year 2015, the number is even higher.

So because we are K-12 providers, when one student is coming into my system, it takes them a very long time to stay with us.

So it's difficult for me to say how many years we can enjoy this kind of a favorable trend.

But I think in the industry perspective, this is really a very important driver for us.

And based on the statistics we have seen, at least, until we see the new baby rate start to decline in that year, so we, probably, we still have a long time.

We could be favorable by the new baby trends.

And last year, we even see, with the end of the one-child policy, more and more families in the mid-cities, they start to have a second child.

And this is also a very important driver in the sector perspective.

This trend is not only beneficial to us, it's beneficial to the sector, and it is also beneficial to the whole industry.

So we, as a company, we -- what we need to do is not only about this trend, but what we need to care is whether we could control our desire to grow faster.

We need to be very careful about the pace of our new revenue growth in the coming years.

And we still need to improve quality as a first priority, and we still need to manage a healthy growth, which is more sustainable and which is also more beneficial to our shareholders in the long run.

Our next question comes from the line of Fan Liu from Goldman Sachs.

I think Rong Luo has mentioned before 40 cities might be the cap for the offline network.

Do you still hold this opinion now?

Another related question is, do you see any challenges to your management wise during the network expansion?

If yes, what's your strategy to solve it?

Yes, Liu Fan.

I think previously, we believe if we only use the offline model, maybe we only penetrate around top 40 -- maybe a little bit more in the whole of China market.

But in the past few years, I think we start to invest to online technology including the pilots of running Haibian platform and including software and new technology that we have used in Xueersi online school and some other places.

So -- and the double-teacher model is also very important and very successful pilots that we're running.

Even coming to today, we can't say the online model, the double-teacher model is fully successful, but we still believe they have great potential.

So with all of these advantages coming from technology and the Internet, so we -- probably may have more opportunities to leverage this new technology and Internet and try to penetrate more.

But again, today we are still -- we are in the beginning of this new wave of development.

And currently, we only cover 30 cities.

And in these 30 cities, a lot of them, they have the - I think more than half of them, they have less than 10 learning centers.

So what we need to care today is not to count how many cities we can penetrate.

What we need to care is what we can do more to make sure in current cities we have penetrated, we are quite -- we're still quite successful.

In current places we have presence.

We could leverage our advancing technology to try to cover more students and give much better level of quality to the students.

So need to care at current market first.

Make sure what we deliver is the best in the market.

So that's our key priority.

And how many cities we can cover?

And how many places we can go?

I think that's a natural results if we drive everything right in the beginning.

So coming to today, I don't have any expectations to say, hey "How many places we can cover?" But we believe if we continue to put our students in the first priority, continue to improve our teaching quality, continue to invest in data and technology to leverage the power, so we'll face a much longer growth in the long run.

Our next question comes from the line of Tian Hou from T.H. Capital.

Two questions.

One is regarding your pricing policy.

We did see some price increase for some courses?

And even in some cities?

So I wonder, what's going to be the pricing policy for the year?

And what could be the impact to the utilization rate in those cities.

That's the first question.

Second, Shanghai initiated a policy, which gave the students some in-school, like, training by the school themselves.

And I wonder what could be the potential impact to you guys?

And what do you see this policy to impact nationwide?

Will this policy go on to the other cities in the future?

What's your view on that?

That's my two questions.

Thank you, Tian.

In the first place, our pricing policy, as same as what we did in the past, we will take price up in one city every 2 to 3 years.

Last year, we took price up in around 8 cities.

And this year, probably the other 6 to 7 cities.

And we don't see any direct connection between the price increase and capacity fulfillment rate.

And our capacity fulfilment rate actually is driven by how many new classrooms we can provide to the market.

And so far, based on what we see, actually the rate is quite stable.

And your second question about the Shanghai policy.

I think, again, we as a K-12 tutoring company, we are very small percentage of this market share and in the whole week, we -- the students, they only spend few hours in my classrooms.

So we are supplementary services to the mainstream services.

So we call as tutoring not education.

So in this perspective, what we can see is we don't see any direct impact from them, and we're also watching closely about the other policies -- or maybe new policies possible to happen in other cities.

And again, we are only a tutoring company.

We are supplementary to the school.

So, so far, we don't see that much impact from there.

Our next question comes from the line of Mariana Kou from CLSA.

Again, congrats on the good set of results.

My -- I have two questions.

My first question is on the margins for your other business segments, for example like Firstleap and Shunshun, if you could share a bit of color on how should we think about the margin across the segments?

It would be very helpful.

And my second question is on ASP growth?

Should we expect a bit more growth in Q1 and Q2 just because there will be a bit more uplifted from Firstleap?

Thank you.

I think -- in the first place, because we mange our segment, we only have one single reporting segment in my P&L.

So in general, we don't disclose that much details about the margins by different segments, because we don't manage in that way.

But in direction perspective, we can say, Firstleap, right before our acquisitions, was loss-making position.

And in the past year, it is almost breakeven.

And looking forward, we are still quite confident.

I think maybe in the 2 to 3 years time, the range -- the margin could be around 10% to 20% for Firstleap.

And Shunshun last year was big loss making position because of the unique -- their overseas consultancy revenue -- recognition policy.

And coming to this year, we can see some positive surprise from there.

But again, because they are still very new and very young company, they need some more time to recover in the profitability perspective.

But we have confidence, give them more time.

They will capture the average level of the overseas consultancy profitability levels in this industry.

In xueersipeiyou.com -- sorry, the Peiyou small class, the margin is quite stable and xueersi.com, which is also quite similar is quite stable.

And with more and more live classes, their margin will be a little bit better.

But considering they are only around 5% of the business.

So that's still not that material to my total numbers.

About ASP, I think Q1 will be similar trend to Q4, because we take price up in general starting from summer or fall.

And we will start to see the ASP increase, and this trend may continue for the other 1 or 2 quarters.

But again, in the long run, we don't think the price increase is the key driver for the revenue growth.

And we are a company very cautious and serious about taking price up.

We prefer most of my revenue is driven by enrollments not by price.

So we will be very cautious about that in price perspective.

Our next question comes from the line of Alvin Jiang from Deutsche Bank.

I have two quick questions.

First one is on the dividend policy.

And do you think going forward you will be paying at regular dividends?

And the second question is double-teacher function model.

Could you give us a brief introduction of how the progress of Dongxuetang?

We noticed that you're still rolling out the double-teacher system in 9 to 10 cities at a full price.

Will you consider to roll out to more cities?

And then, giving out some discount in terms of this price to students as they're rolling out progress?

Thank you, Alvin.

The dividend policy, I think that it's a right balance between -- we need to evaluate and consider whether we have some huge M&A that we want to do.

Any M%A could invest over there.

And to -- and we need to consider what's the right level of return for investments for shareholders.

So we balance these 2 factors and decide whether we need to pay the dividends.

I think in the future, we will also consider these 2 factors, and decide to pay dividend or not.

But by the end of the today, I cannot give you more update about that.

So every year, we will evaluate these 2 factors and draft for the right balance and make decision.

So we will let the class know when we want to do it again.

But generally speaking, when we have more cash coming in and we have very strong cash flow and if we don't have any huge M&A that we want to do in the short-term, so we will consider that.

And the second question about the double-teacher model, discount or not, something like that.

I think again, the double-teacher model is good.

we are the first company in K-12 area to provide this model and we're inventing a lot of new things in this model.

And -- but again, this model is still in the early stage.

It works, but it still need more time to tweak on the details to make sure every detail is right.

So we don't have any plan to hurry up, to accelerate the coverage double-teacher classrooms in China.

We still wish we could well pace, control a little bit and try something different -- I will tweak every details to make it right.

So we give the time to this model, more patience about that.

Now specially about price, based on what we see today, we don't give any discount on this.

And again, I don't think discount is -- maybe price promotion or maybe something like that, the most important factors when we talk about the effectiveness of the double-teacher models.

What we need to care more actually is the learning experience, learning management system, and how we can react and how these teachers, assistants, students can interact in the classroom, before the classroom, after the classrooms.

So what we care more is the quality not the price.

So that's what we can see today.

We still manage the double-teacher centers in well-paced reason, and so far, we don't have any intention to hurry up in this area.

Our next question comes from the line of Andrew Orchard from Nomura.

Couple of questions on the balance sheet.

First on the long-term debt.

Can you give us a sense of why you decided to raise some long-term debt, the $225 million?

And also potentially related to that, can you give us an understanding of what you're doing to your short-term investments, which went up quite meaningfully in the year?

Yes, I think the debt you talk about actually is, I think, in the year -- the fiscal 2017, we have closed $400 million term loan from our banks.

And the $225 million of long-term debt is term loan.

So we need to take it off right before the deadline.

And the other one is the revolving loans, so we don't need to take it off right away.

So the reason for us to do that is because we -- in the short-term, we don't have any huge M&A to make.

But in the long run, we're still going to the global market and some of the new projects, new companies, which could be very complementary into my mainstream services and which could be very valuable in my strategies.

So we still keep eyes on to see that.

And we don't want to raise the money right before we want to do a deal.

Because that is not right and that will cost some unnecessary fluctuations in the market.

So when the conditions -- the pricing conditions are quite good, so we'll do it and will convert some of them into the term deposits.

So that's also part of the reason why our short term investment will be a little bit higher.

So especially in cash perspective, we don't have anything aggressive.

We don't have anything dramatic change compared to what we did in the past.

Everything is right on track.

Your next question comes from the line of Cheryl Yang from CICC.

My question is regarding your revenue growth.

Could you please help us to break down the revenue growth in the last quarter?

Because I found out the Firstleap accounted around 6% revenue in the third quarter, but only 5% this quarter.

Does this mean that Firstleap is growing slower than the small class business?

And what's the growth -- the revenue growth trend of Shunshun now?

And what's your outlook in the fiscal year 2018?

Okay.

Yes, yes.

I think, firstly, for Firstleap, yes, in Q4, they grow slower than our Peiyou small class business.

Because that's one more section in Q4 in Xueersi small class.

And in general, because -- Shunshun, that's a totally different story.

Last year they don't recognize that much revenue.

Actually they have around 12 months late.

And looking into to 2018, so probably the numbers will be a little bit different, will be much bigger than last year.

And our -- the other mainstream business, we're looking to our one-on-one business -- actually the revenue growth for the next fiscal year is also similar to what we have seen this year.

And the live will continue be high growth engines.

And Xueersi Peiyou small class will also continue to be very healthy and reliable.

So in general, we probably can say still, in the long run, in 3 years time, we still believe 30% to 50%, that's the right range we can be.

And the most recent year 2014 probably will -- close to the high end.

So that's the direction that I think we can make.

And I have a follow-up question.

How should we expect the revenue contribution from Shunshun in the coming quarters?

The Shunshun revenue, actually, they start to be more meaningful when the students got the visa or the students decided to go to study abroad or arrive in the country.

So they have very minimal impact for my Q1.

They will start to impact my revenue maybe in Q2 and Q3.

Our next question comes from the line of Lucy Yu from Bank of America Merrill Lynch.

I have two questions.

One is that you mentioned that one more section of the spring semester classes fall in the first quarter of last year.

So what's the impact -- actual impact of revenue and operating profit?

And second one is that, I noticed that enrollment growth in fourth quarter of last year actually moderated a little bit from the third quarter.

What's the reason behind that?

Okay, I think in the first place, one section, which is one weekend classes, considering in the whole quarter, we only have 13 weekends.

So that's some of directions for you can calculate how much impact it will be.

And on -- secondly, about -- your question about why enrollment is lower than the previous quarters.

Frankly speaking, when we're going to the enrollment growth and revenue growth, we will see from a much longer view.

What we care more is actually, the enrollment growth for the whole year, which is more meaningful.

Because in the 1 or 2 quarters, some had their seasonality, some -- for example, in Q4, we have one more section.

Maybe -- but in Q2, maybe we have one less sections.

So we encourage you guys to see education company in a much longer view.

And specify enrollment, we still see a very healthy growth across all cities, across all segments.

As what I have said in my prepared remarks in the beginning, which is a little bit long, and thank you so much for your patience.

But actually, the script have given very clear information about how enrollment grows across all cities.

So we believe that we are still managing a healthy growth and we're trying to deliver a much reliable and sustainable growth in the long run.

And also we care more about long-term than the short-term performance.

Our next question comes from the line of Leon Chik from JPMorgan.

Just a few quick questions on double-teachers.

Question one, are these stand-alone learning centers?

Number two, are they in big cities or small cities?

Number three, are they included in the 507 learning centers?

And finally, I believe that only, like the best teachers are teaching in the double-teacher, so why you guys worried about the quality of the education?

Thank you, Leon.

You the second one ask four question.

In the first place, the double teacher actually, in Beijing, most of the double-teacher classrooms, they have 2 types.

Some of them, they are stand-alone learning centers.

For example the one in Shunyi and Tongzhou.

But some of them, actually, they are part of the current learning centers, which means for example, there are centers in Dazhongsi and Gongzhufen.

So they have the offline learning centers classrooms but they also have the double-teacher classrooms.

In the long run, we believe, there will be a mixed model for that.

And the second things, double-teacher model for the big cities or small cities, based on what we have today, we pilot this model in the big cities for example and Beijing and Nanjing.

And in the future, we try to pilot this model in maybe tier 2 cities.

So -- which is also very important kind of pilot for us to decide how much this model can go.

So we probably cover both tier 1 and tier 2. And we don't have any plans to go to very details in tier 4 and tier 5 cities.

And your question about whether the double-teacher centers are counting in the 507 centers?

Yes.

The fourth question about the best teachers teaching in the double-teacher model, why we care about their teaching quality?

That's a good question.

Actually, when we talk about the teaching qualities, not only the 1 hour that teacher is talking in the classroom.

The teaching quality actually is decided by a lot of factors.

Especially whether the students they did the pre study, whether they have good interactions between their master teachers, teacher assistants and the students.

So they need to have more interactions in the classrooms.

And it's also decided by whether we can have good way to encourage them to do more homeworks or maybe to finish that -- some sections right after their classrooms.

So before class, in the class and after class, we need to have established a very important learning management systems to manage the whole process.

The double-teacher model is not a simple transformation from moving the teachers from physically in a position to a screen.

It requires a lot of change in the learning management system perspective.

We are the first company inventing this model in K-12 area.

So we have a lot of lessons from there.

So we'll continue to make it right and we are now very patient about this model.

So we will let you guys know more progress when we have some new results about the double-teacher models.

Thank you, Leon.

Well like I said, practice makes perfect.

So you're not going to know until you know how to do these things.

So that doesn't make sense -- much sense to be so slow.

Thank you.

Ladies and gentlemen, with that we now come to conclude our conference for today.

Thank you for participating, you may all disconnect.