TCTM Kids IT Education Inc (TCTM) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Tarena International, Inc.

Second Quarter of Fiscal Year 2017 Earnings Conference Call.

(Operator Instructions) Today's conference is being recorded.

If you have any objections, you may disconnect at any time.

I would now like to turn the call over to your host for today's conference, Miss Helen Song, Tarena's Investor Relations Director.

Thank you, operator.

Hello, everyone, and welcome to Tarena's Second Quarter 2017 Earnings Conference Call.

The company's earnings results were released earlier today and are available on our IR website, ir.tedu.cn, as well as our newswire services.

Today, you will hear opening remarks from Tarena's founder, Chairman and CEO, Mr. Shaoyun Han; followed by our Chief Financial Officer, Dennis Yang, who will take you through the company's operational and financial results for the second quarter 2017 and give guidance for the third quarter and full year of 2017.

After their prepared remarks, Mr. Han and Mr. Yang will be available to answer your questions.

Before we continue, please note that discussion today will contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

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

Tarena does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G. The U.S. GAAP financial measures and information reconciling these non-GAAP financial measures to Tarena's financial results prepared in accordance with U.S. GAAP are included in Tarena's earnings release, which has been posted on the company's IR website at ir.tedu.cn.

Finally, as a reminder, this conference is being recorded.

In addition, a webcast of this conference call is available on Tarena's Investor Relations website.

I will now turn the call over to Mr. Shaoyun Han, Tarena's founder, Chairman and CEO.

Mr. Han will speak in Mandarin, and Mr. Yang will translate.

(foreign language)

Thank you, Helen, and welcome, everyone, on our second quarter 2017 earnings conference call.

(foreign language)

I'm very pleased to report that our net revenues in the second quarter increased by 24.8% to reach RMB 456 million, almost reaching the high end of our previously issued guidance.

This quarter, we're committed to positively invest in both professional education business and K-12 training programs through a number of new initiatives, such as standard network expansion and new courses.

Research and development will significantly increase our geographic coverage, total number of learning centers as well as seat capacity.

We believe this lays a solid foundation for our full year target and growth outlook in the long run.

(foreign language)

Here, I would like to share with you our new business trends in university recruitment channel, along with the implementation of policies to encourage universities and colleges to strengthen university enterprise cooperation established universities of applied sciences in China and enhance the education quality by introducing social educational resources.

Our partnership with universities and colleges started to change this year.

Our previous mode of cooperation with universities and colleges is to get student enrollment by organizing recruitment events on campus and get us out directly to each of the target students.

From this year, nearly half of our students from university channel are enrolled through the new mode, in which Tarena recruits a batch of new students from cooperation programs such as strong major programs or own campus learning sites.

When the students finish the courses in their current curriculum system on campus with Tarena's instructors, the length of the courses also changed from 4 months in the past to 3 to 4 years now.

Our target student change from those in the third year and final year in the past to sophomores and even freshmen students in universities and college now.

After Jiangsu and Shandong, nearly 10 provinces such as Hubei, Hunan, Gansu, successfully released policies regarding universities', enterprises', cooperation as well as owned campus learning centers.

(foreign language)

This new business mode allows Tarena to promote from individual student recruitment to bulk student recruitment in university channel.

This helps Tarena to build up a low cost and sustainable recruitment channel in the long run as partnership with universities can last many years once we initiate a cooperation program.

Moreover, this also lead to more students enrolled at the beginning of each academic year.

Since their courses will be finished in 3 to 4 years period, there will be longer revenue recognition period for students recruited through such channel, such revenue will be negatively effective in the short term.

However, from a long-term perspective, establishing such new universities and enterprise partnerships to gain mass students' enrollment is expected to have tremendous significant value for the long-term development of Tarena.

(foreign language)

In the second quarter of 2017, total course enrollment increased by 18% year-over-year to reach 27,991.

This is primary factor contributing to our net revenue growth in this quarter.

Our student enrollment number is more of lead operational indicator and defined as number of new students recruited and registered in the quarter.

Total student enrollment this quarter reached 30,548, representing 14% year-over-year growth.

Because of the new trend in university channel, enrollment season for partner students from university channel is expected to adjust from previous summer vacation to the beginning of next academic year, which is this September and August -- sorry, September and October.

This also brought certain negative impact on the total number of student enrollments this quarter.

(foreign language)

This quarter, we continued to execute on the "teaching at appropriate level" strategy to further upgrade (inaudible) portfolio and implemented differentiated balanced courses teaching model to better cater for market change which help accomplish the expected growth target in student enrollment.

In the meantime, we stay focused on collaborating with universities and enterprises to strongly explore professional education market opportunities.

As we communicated previously, job market for mobile application development, such as iOS and Android, is almost saturated and graduates from such related courses have difficulties in finding jobs.

Therefore, Tarena strategically reduces the student enrollment in such courses, which is also one of factor that contribute to our total student enrollment this quarter.

We believe that the IT industry is in transitional period.

And going forward, artificial intelligence, big data and cloud application were building new growth momentum in employee market.

Tarena has been practically invested into research and development in such fields, which also help us to keep competitive advantage in professional education courses.

(foreign language)

Besides professional education business, I'm also pleased to report that K-12 education, which is another important business line of Tarena, achieved better-than-expected growth rate this quarter.

At the end of the second quarter, kid education programs have rolled out in 18 cities and enrolled 1,725 students in this quarter, which represented 147% year-over-year growth.

While moderately opened separate K-12 flagship centers, our K-12 education programs also leverage on the sales and marketing and teaching facilities with professional education business.

The significant enrollment growth number has magnificent huge potential in K-12 market.

With extensive experience and good track record in IT professional education industry, Tarena is able to deliver the best-in-class K-12 curriculum content.

Our existing nationwide network is fully supportive for our K-12 business to continue its vast expansion.

K-12 business is in the fast ramp-up period and we're going to take more aggressive strategy to grow such a new business, building up more K-12 learning centers, expanding our geographic footprint and making more investments in new course development.

We are confident that total enrollment for K-12 program in 2017 is expected to reach -- to be between 8,000 to 10,000.

(foreign language)

This quarter, we remained at quick pace in opening new learning centers.

Based on initiatives to expand standard network and optimize lease area in existing learning centers, the total seat capacity jumped to 57,043 by the end of this quarter, up 20% from the same period last year.

We take a very positive view on the IT professional education market in Tier 3 cities, while considering open -- building up more seat capacity in Tier 3 and Tier 4 cities going forward.

(foreign language)

In terms of professional education business, we opened 13 new centers this quarter, merged 1 learning center and closed 1. As a result, our total number of learning centers reached 171, covering 53 cities by the end of this quarter.

More specifically, we opened 1 learning centers -- 1 learning center in each of the following 13 cities, which are Baotou, (inaudible), Jinhua, Hangzhou, Ningbo, Xi'an, [Xiaodong], (inaudible), Chengdu, Nanjing, (inaudible), Wuhan and Shenyang, among which Baotou and Jinhua are the 2 cities who are newly entered.

(foreign language)

A key indicator that shows our education quality and outcome, job placement record is an operating metric that we always focus on.

The 6-month post-graduation job placement rate in the quarter remained at the high level as we did in the previous quarter, which was above 95%.

This outstanding result will further support our leading brand and overall competitive position in the industry.

(foreign language)

Our non-GAAP operating margin in the second quarter was 12.1%, slightly lower than the same period last year.

This can be mainly attributable to K-12 business which is still in the fast-growing period and have lower margin than our professional education business in short term.

Moreover, as we opened learning centers and continue to enter new cities, operational efficiency in these newly opened centers and the centers associated with new cities are still in a ramp-up period and have not yet reached to the similar level to the mature existing centers, which will, in turn, affect overall operating margin.

Our CFO, Dennis, will elaborate on this further in his later remarks.

(foreign language)

To sum up, during the second quarter of 2017, Tarena achieved stable growth in professional education business.

With [more than specific] design in curriculum system, good [general] control over teaching quality, new business exploration and university cooperation, Tarena will keep its leading advantage in professional education industry.

And the efforts in K-12 business have started to bear fruit with robust business momentum in the second quarter.

Going forward, Tarena will make more initiatives to expand K-12 business with 5 to 6 new courses in the process of research and development and expected to be officially launched in the market, and we'll start to recruit students by the end of this year.

(foreign language)

Considering the fact that more than 7,000 students were recruited through our new partnership with universities and colleges and the revenue could not be recognized in this year, we evaluated the overall effect of full year financials and decide to revise down our full year revenue guidance by RMB 17 million.

We believe by expanding teaching resources and operational facilities, adjusting to new business mode and making positive progress in K-12 business, Tarena has been [working ahead] for laying a solid foundation to achieve our operational and financial target for the full year 2017.

(foreign language)

With that, I will now turn the call over to our CFO, Dennis Yang, to discuss our second quarter financial results and outlook for the third quarter.

Thank you, Han Shaoyun, and hello, everyone on the call.

Since you already have all detailed numbers in the press release, I will review financial results for the quarter briefly and only focus on a couple of more important areas.

So now let's start with net revenues first.

For the second quarter 2017, our net revenue increased by 24.8% year-over-year to RMB 456 million, which is close to high end of our revenue guidance.

One major driver for net revenue growth is enrollment growth.

Total student enrollment increased by 14.2% year-over-year to 30,548.

For the quarterly enrollment, which is the primary factor for the revenue growth, increased by 18% year-over-year to 27,991.

Student enrollment growth for this quarter was relatively low as compared with the growth rate in previous quarters.

This was mainly attributable to enrollment season change and the new cooperation mode with universities and colleges.

Approximately, 5,000 to 7,000 students recruited from university channel were enrolled in joint major programs this September and August -- October instead of enrolled in classes on summer vacation, as usual.

Besides enrollment, ASP increase is another driver for the revenue growth.

Average revenue per course enrollment in this quarter, as defined by net revenue divided by course enrollment, was RMB 16,136, which increased by 4.7% as compared to RMB 15,411 in the same quarter last year.

Such an increase of average revenue per course enrollment was mainly attributable to the increase of our standard tuition by approximately RMB 1,000 for selected courses in February 2017.

Seat utilization rate is one of key metrics measuring our operational efficiency of teaching resources.

Seat utilization rate for this quarter was 73.6%, which remained at a similar level to the utilization rate in the same period last year.

In the second quarter, gross margin decreased by 1.7 percentage points to 68.5% as compared with the same quarter a year ago.

Such a decrease in gross margin was mainly attributable to currently lower gross margin recorded in K-12 business segment as it is still in the ramp-up period and utilization of K-12 teaching resources has not yet reached to its ideal level.

Now let's move on to operating expenditures.

We have been focusing on operational efficiency improvement and implementation of adequate internal controls over account receivables since 2015.

I would like to address the following key points.

First, student acquisition cost is one of our largest operating expenditures.

Average advertising spending per student enrollment for the quarter was RMB 1,994, which was 3.1% lower than the amount last quarter.

This decrease was mainly due to the optimization of channel mix and the improvement of our sales lead conversion.

Looking forward, we plan to balance between the number of sales leads obtained through advertising and acquisition cost per student, and the target remain advertising cost per student enrollment at a similar level to 2016.

Second, we recorded bad debt allowances for our doubtful account receivables from 2014.

As communicated before, most -- our bad expenses mostly resulted from the latency issue of installment payment plans extended by Tarena to our students.

After having partnered with third-party financial providers and taking strengthened internal control over credit lending and cash collections, we well-managed this issue.

And bad expenses decreased by 39% from RMB 11 million in the same period last year to RMB 6.8 million in this quarter.

We believe that bad expenses for 2017 will further decrease as compared with the amount in 2016, reflecting the reduced proportion of students taking our credit and improved internal control over account receivables.

Our non-GAAP operating profit for this quarter was RMB 55.2 million as compared with an operating profit of RMB 54.5 million for the same quarter last year.

Non-GAAP operating margin was 12.1% for this quarter, 2.8 percentage points lower than that of the same quarter last year.

Our non-GAAP net profit was RMB 57.1 million for the second quarter of 2017 compared to a non-GAAP net profit of RMB 51.3 million for the same quarter last year.

Non-GAAP net margin was 12.5% for this quarter, 1.5 percentage points lower than the level a year ago.

Such a decrease in quarterly operating margin and net margin was attributable to the following couple of reasons: first, K-12 recorded operating losses in the short term because K-12 revenue recognized in the longer period while operating expenses, especially marketing expenses, recorded when they occurred; two, as there are many new courses in the pipeline for development, we plan to launch new courses in the second half of 2017, more research and development spendings occurred in this quarter; three, costs associated with newly built learning centers occurred ahead of the enrollment and the revenue ramp-up.

We believe that our efforts in building new cooperation mode with universities and colleges, expanding business skill for professional education business and delivering excellent education results to our students will drive Tarena's future growth outlook.

In addition, we also believe that K-12 business is our new business segment with tremendous potential for the future growth leveraging our core experience in IT-related education.

We are going to take this strategy that grow K-12 business faster, we plan to open more K-12 learning centers to launch new courses by the end of 2017.

The total K-12 student enrollment for 2017 is expected to reach more than 8,000, which triple the size of K-12 enrollment last year.

We're confident that our efforts in rolling out K-12 business have started to bear fruit with robust business momentum in the rest of 2017 and also in the future years.

Finally, let's talk about the revision of revenue guidance.

As discussed by Han Shaoyun, company has started new cooperation mode with universities and college to run joint major programs and on-site learning centers -- learning sites for students on campus, especially for those at the first and the second year in college.

Unlike Tarena's traditional courses that deliver in 4-month period, the joint major programs are delivered over 3- or 4-year period, which results in the revenue will recognize over the longer period.

In 2017, more than 7,000 students acquired through university channel will be registered in joint major programs.

As such, programs completed in the multiple-year period, total tuition cannot be fully recognized in 2017 and, therefore, by estimating the impact of a third tuition for those students in joint major programs, we've revised down the full year guidance by RMB 17 million.

So looking forward, to the third quarter 2017, total net revenue are expected to be between RMB 555 million and RMB 572 million, representing the increase of 15.4% to 18.9% on a year-over-year basis; the full fiscal year 2017 revenue to be between RMB 1.92 billion and RMB 2 billion, representing an increase of 21.5% to 26.6% on a year-over-year basis.

So Jeffrey?

Would you like to take questions at this time?

Yes, sure.

(Operator Instructions) And our first question comes from Fan Liu with Goldman Sachs -- that should be Susie Liu with Daiwa.

We have 2 questions here.

First is management give us an update on the student enrollment of June, July and August, and how is the trend versus the (inaudible)?

My second question is the result is that there is a function (inaudible) the reduction which we (inaudible).

So I just want to see how can we (inaudible) and how long is the (inaudible)?

Could you just repeat your questions in Mandarin?

Sorry, the line is not clear.

(foreign language)

Since your line has some problem, noisy -- it's very noisy, so I don't know if you could just repeat your question again?

Yes, sure.

I'm sorry.

Is this clear?

Yes, it's clear now.

Yes.

It's better.

Yes, okay.

Okay, I'm sorry.

Okay, so first question is can management give us some updates on student enrollments for June, July and August?

And how is the trend versus April and May?

And the second question is I noticed there were some promotions recently, the RMB 500 reduction for the tuition paid within 3 days.

So just wondering how should we see this impact to ASP in the second half of this year, and how long this promotion will last?

(foreign language)

So let me translate.

The question is what is management's view on the trends of the student enrollment from June through August.

So Mr. Han gives some updates on the June enrollment and July enrollment.

Those 2 month enrollment are quite stable that unlike the student enrollment from university channel enrolled in July as many past years -- many years ago -- in the past years.

So with the new partnership model with universities and colleges, more students from university channel will get enrolled in the classes of joint major programs and get enrolled in September and October.

So this has adversely impact on the July student enrollment.

This is our update on the June and July student enrollment.

(foreign language)

(foreign language)

The second question is talk about the marketing policy of the company.

Recently, the new marketing initiative by the company, that is the student can pay the tuition within 3 days, that students can get this discount of RMB 500.

So this is -- Shaoyun explains that this marketing activity is quite normal.

It's not exceptional.

We do advertising or promotion from time to time, though all of those promotions definitely have a time limit that we try to fill in to get more student enrollment and fill in our teaching resources in a certain period of time.

This is why we want to do specific marketing activities for the certain period of time.

(foreign language)

The marketing activity or promotions definitely will do good to improve our sales conversion, because this kind of incentives for the students too are more likely to join our classes.

Our next question comes from Fan Liu with Goldman Sachs.

May I know in your guidance for the third quarter what percentage of student enrollments will be recruited through the new program cooperation with universities?

If we include this impact, what would be the revenue growth for third quarter and the full year look like?

And in addition, apologies if I missed, could you please kindly share with us your student normal breakdown by adult IT and non-IT subjects?

Fan, can you please explain your question in Mandarin, please?

(foreign language)

Let me take your second question first.

So your question about the proportion of IT and non-IT enrollment in the second quarter for professional educational business.

Around 42% -- 42% of enrollment for non-IT courses and the rest of 58% of the total student enrollment for professional education enrollment for IT-related courses.

Your first question about if taken out, the new business mode with universities, what's the real growth of our business.

I want to -- from my perspective, I would say that the new model, the new mode with universities is kind of the certain kind of replacement with the old mode.

Because just imagine last year or 2 years ago, we already approached to those students in their second year, third year at college.

So with those group of students to reach to their final year, that's not a challenge for Tarena to train them again, right.

So what our initiatives and strategies for the cooperation with universities, we try to partner with the students to get a new student as their first year, the freshman year, to be -- to join our courses.

So this is our strategy.

So with this, it's very hard to tell you that what is demand for the new -- the revenue recognized in the third quarter as a new mode and versus in the old mode.

But again, I would say the new mode, definitely, the revenue will be recognized in the longer term.

So very long term, 2-year, 3-years period.

So there's very little amount would be recognized for the students coming from the new mode will be recognized third quarter of 2017.

(foreign language)

This then shares the more basic background of the new partnership mode with universities.

So the joint program, the joint major program given Tarena the chance to approach to the student at their freshman year.

That means when the students graduated from high school and they joined the university and colleges, then the challenge for the whole class will be to - will be categorized as now the Tarena sponsored, the Tarena partner, educational partner with Tarena that comes with this kind of category.

So working in the partnership with universities, there's pros and cons.

The pros is once Tarena build up the cooperation with the universities from the first year; and on the later many years, every year, those classes of students will become the Tarena students.

But the courses, the joint major program would be deliver the services over a 3-year, 4-year period.

That definitely give some pressure on the revenue recognition.

The revenue can only be recognized in the 3-year or 4-year period.

That, in the short term, there's not adversely impact on the top line.

(foreign language)

In the -- our services -- in the student from university channel, our approach to the students in the third year and the final year in their college -- at college.

So this kind of a 2C business and right now, we partner with the university and the colleges to recruit high school graduates to join the classes with an education -- with a partner education provider of Tarena.

So this is the essence of the new mode.

(foreign language)

The third quarter...

(foreign language)

The retail channel for the whole year 2017 definitely can reach above 20% year-over-year enrollment growth.

(foreign language)

So the third quarter enrollment from retailing channel of 15% to 20% year-over-year growth, and the fourth quarter, thanks for the low days last year, the retail channel...

(foreign language)

Can reach to 20 -- the fourth quarter of 20% to 25% year-over-year growth for retailing channel.

And our next question comes from Zoe Zhao with Credit Suisse.

So firstly, I would like to ask about the kids' education program.

I was wondering what is the current GPM level of our kids' education program.

And how much of the deferred revenue increase is related to the kids program and how much is related to the adult program for the deferred revenue?

And for the future, what -- how is the competitive landscape for the kids programming given there are more players have entered this segment?

And do management see higher student acquisition cost in kids' education programs.

Let me take your first question about the GPM.

The current GPM of K-12 business, I just mentioned in my speech, that K-12 right now, K-12 business right now has not reached the VIP level.

So the GPM or the gross profit margin, right now, the single-digit -- high single-digit to around 10%, around 10% currently.

But with the recent -- the very fast enrollment growth, we're already seeing that a pickup of those -- of this GP margin in this segment.

(foreign language)

We already -- we have -- we're seeing many more competitors coming in this K-12 technology market.

We believe this is a good thing for the growth of this market.

We all know there's an incremental market in K-12 business.

So the market just started.

So more players in this market can educate the market to let more kids and parents to get interest in this related field.

Tarena has a competitive advantage doing this kind of K-12 technology business.

Firstly, we have first-mover advantage.

We started K-12 R&D 2 years ago, and we launched our first K-12 courses in -- by the end of 2015.

So with 2-year operation, our enrollment this year can grow to 8,000 to 10,000.

And secondly, we can leverage our long-term information related sales education experience to develop the K-12 IT-related course content.

And we believe with sophisticated mind in the IT-related education, we can design and develop the best-in-class course content for K-12.

And the third, we already have our very extensive geographic footprint in China.

We cover 53 cities, so we can definitely leverage those facilities to roll out our K-12 business and grow such segment of business much faster than our competitors.

Okay.

And how much of the deferred revenues is from the adult program and how much is from the K-12?

Well, the K-12 deferred revenue, around RMB 10 million to RMB 15 million.

And our next question comes from Johnny Wong with Jefferies.

I have 2 questions.

One is that Han Shaoyun, you just mentioned that we should be expecting our student acquisition cost to eventually go down.

However, I note that we are still guiding for 2017 full year student acquisition cost to be around the same as 2016.

I was wondering how we should think about this going forward past 2017.

That's one question.

Second question is in regards to the R&D cost.

It's relatively higher this quarter because we are developing new courses.

Should we expect them to normalize back maybe in 2018?

Johnny, let me answer your question, the first question about acquisition costs.

In the first half of 2017, our acquisition cost decreased as compared -- in the second quarter, our average acquisition cost decreased as compared with the first quarter after the vital change in policy last June.

So basically, our view is maintain the acquisition cost and on relatively reasonable level which is the 2,000 or slightly higher than 2,000.

We try to balance the number of new enrollment in getting cost and to end the average acquisition cost per student enrollment.

So we are not plan -- we will not plan to have the acquisition cost for professional education business to a too low level in the short term.

In the long run, after optimization of channel mix, that may give Tarena the chance to drive acquisition cost for students lower, but it's not the case for 2017.

So this is why I want to communicate to -- we want to maintain the relatively stable level of acquisition cost in 2017 as compared to 2016.

Your second question about R&D.

It is true that R&D cost, we spend more R&D cost in the first half of 2017.

This is that we have multiple new courses in the top line.

So development of new courses may be a continuous effort for Tarena because we've tried to maintain the competitive advantage on the course counters in the market.

So this is true that we try to maintain the R&D at a certain level, maybe similar to our first half in the long run, but we are not plan to increase further the level of R&D in the future quarters or future years.

(foreign language)

So our R&D cost for the first half in 2017 is for not only our existing courses but new courses.

We have almost 10 new courses in the top line for both K-12 segment as well as professional education business.

This including development cost, and we also enrolled the instructors for the new courses already.

And our next question comes from Ivy Luo with Macquarie.

So I have 2 questions here.

One is regarding the market.

So we mentioned that margin decline because of the expansion and as well as R&D.

So on the expansion side, just want to understand what's the profitability level of our newly opened learning center, and how long, in general, would it take to reach maturity, especially for those in the Tier 3 cities.

And my second question is on the utilization.

So we do see the utilization rate actually improved year-over-year despite our seat expansion.

So I want to know what's the utilization of our matured and existing learning centers.

Yes, that's my 2 questions.

Well, for the margin level of newly opened centers, normally, within a year, those learning center can reach to the break-even level.

And within around 1 to 2 years, those learning centers -- most of those learning centers can reach to the corporate average -- the level of corporate average.

So can we have, operator, the second question again, sorry?

(foreign language)

Basically, we believe second quarter utilization rate were 73.6%, which is slightly, very slightly higher than that of last year.

We believe this is a comparable level because we take an average among the 3 month-end utilization rates for the quarter.

So this may be some fluctuation on amount of those 3 quarter numbers.

So the slight change -- the slightly gap won't meet any -- -- mean any.

So this comparable level.

So this is our view that the whole utilization for this quarter is still good.

As matured centers and newly opened centers, more than half of our learning centers are, we call it, mature centers, with maybe more than 3 years, 4 years operation history, and also in a fast-growing market.

So this too, we'll be giving handouts and find out the mature centers.

Those mature centers can reach to the utilization level for the whole year more than -- higher than 80%.

(foreign language)

Okay, we can -- also, to improve our utilization rate after launching advanced module, those advanced module we deliver the services on the evenings, the weekday evenings or weekends, this also can further utilize our teaching resources at our learning centers.

And our next question, from Eric Qiu with CCBI.

(foreign language)

Okay.

Let me translate.

(foreign language)

Hi, Eric.

Could you just repeat your question in English?

Yes, yes, of course.

One question is about our original IT cost revenue projections.

Previously, we forecast the quarter-over-quarter improvement of the revenue and enrollment.

But now, it seems a bit softer than we expected before for -- certainly in 4Q.

I know partially because we use a new partnership with university mode.

But is that also because the demand to certain IT courses are much less than or are softer than what we expect before?

What are those costs that are less than adult education before?

And also, I noticed we have several new courses in the pipeline.

But is that enough to compensate for the decreased demand for a major course like Java or Android, for instance?

The second is regarding to the number of enrollment for key programs.

I didn't hear clearly because I heard 1 number if the enrollment should triple in 2017 to 18,000 versus 6,000?

Or is that for full year '17, it's 8,000 to 10,000?

Which number is correct?

And is that K-12 also have seasonality that second quarter or second half enrollment are significantly higher than the first half?

Because I noticed, for first half 2016, it's only 900 enrollment and for this year, the first half is about less than 3,000 enrollment for first half.

(foreign language)

Okay, let me translate the answer to your first question.

The main reasons for the slight -- the weak student enrollments in the second quarter and also for the first half of 2017 is the change of the enrollment with partnership model with universities and colleges.

This is the main reason for enrollment changes in 2017.

And the second obvious, the boom period of online-offline business, O2O business, has passed.

And also, iOS and Android, as already mentioned, the job position in the market is saturated, and we find out it's very difficult for the graduates in those fields, not only for Tarena, very difficult to find job opportunities in the market.

So in 2017, we proactively not continue -- did not continue to enroll new students to take those 2 courses.

This is our strategy because we try to maintain the job placement rate in the end after the graduation, our students graduated from training; this is the second reason.

And the third reason as well from internally, in 2017, late 2016 and first half of 2017, we opened many learning centers, both for K-12 business and professional business in Tier 2 cities, in Tier 3 cities.

We open many new learning centers.

We put more efforts in to ramp up those new business.

And we did not put enough resources to remain the adequate growth for the existing old centers.

So starting from May, we made a decision and rebalanced the resources allocation.

And we believe from August through December, the most in the second half of 2017, after this kind of a rebalance resources allocation can definitely drive the growth in student enrollment coming from our existing learning centers not only for the new learning centers.

So this is our answers to your first question.

And your second question is only for management's clarification.

So the full year expectation of K-12 enrollment is from 8,000 to 10,000 as compared with 2,354, this enrollment, we achieved in 2016.

Our target is more than triple the size we achieved last year.

Okay, I just have one follow-up question.

Maybe one it's regarding to the new mode.

For the last several years, our main student enrollment growth are from the regional channels.

We see that growth quite fast.

So -- but versus the university channels, the growth was much less.

So what's the purpose of this plan to make a major shift of the mode to rely more on the university channels?

Because it sounded to me although you increased the number of enrollments in the university channels, but the revenue recognition will be much slower because it will spread out to 4 years.

So what's the major benefit from doing that?

(foreign language)

(foreign language)

This is what we think about the adoption to the new changes in the market.

Recently, the government policy released to encourage the university and enterprises to get partnership and let universities to leverage the social resources to enhance, to improve the education quality at college.

So this is not our -- something we tried -- we proactively push university to change anything.

This is kind of change in the market, and we try to adapt to those changes.

(foreign language)

We actually do take a very positive view for this new mode because, obviously, once we sign up the partnership with the university, that for many years, that Tarena can have new students to join classes.

This is kind of a fundamental change, when in the past, Tarena, most of our business in this 2 seat 2 customer business.

So every month, we need to acquire new student, to touch new students to try to convert them to be our students.

Out of that, with new the partnership mode, that means for many years, that the university and Tarena will partner to recruit the high school graduates to take classes that with the education resources from Tarena.

So this new mode definitely can drive our acquisition cost per students to get lower in the long run.

And the second, not like 2 customer business, the new mode is kind of a 2B2 business, 2 university business, we collect account receivables, collect cash from universities rather than from individual students.

That definitely can be much better managed those account receivables.

And we believe that that expenses or the doubtful account receivable amount will be going down.

Now I will revert -- I'm sorry, go ahead.

Sorry.

I just want to confirm any more questions on the line?

Not at this time.

Now, I will revert the call to Miss Helen Song, Tarena's Investor Relations Director.

Thank you, operator.

If there are no further questions at present, we would like to conclude by thanking everyone for joining us on the call.

We welcome you to reach out to us directly by e-mailing ir.tedu.cn should you have any questions or requests.

For additional information, we encourage you to visit our Investor Relations site at ir.tedu.cn.

This concludes Tarena's earnings conference call.

Thank you.

That does conclude today's conference call.

We do thank you for your participation today.