TAL Education Group
Q1 2017 Earnings Call Transcript

Published: 30 Apr 2017

[Operator:]

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.

[Mei Li:]

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 Management 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.

[Rong 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 $316.3 million. In RMB terms, net revenue grew by 90.7% year-over-year. Two 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, in ways as should growth lead 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 classes in the fourth quarter in most cities than we did in the same period last year, which is definitely better. 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 term, 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 quarters. These promotional activities have encouraged more children to take more classes than ever before, and we believe this will help raise the average number of quarters that the new 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. Enrollment from English and Chinese increased at a faster rate than others since studied as we saw in previous quarters. We also see faster growth of primary school students due to a favorable demographic chart of China’s newborn baby population. After years of decline, we begin 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 143 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’re adding more small class classrooms in 15 of our cities on Monday

[Operator:]

[Operator Instructions] Your first question comes from the line of Zoe Zhao from Credit Suisse. Please ask your question.

[Zoe Zhao:]

Hi management, thank you for taking my question and congratulations on a very strong quarter. I have two 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.

[Rong Luo:]

Thank you, Zoe. The first question on the margin guidance. Same as before, we don’t give any very detailed guidance on margin studies. But in the direction study, we probably can say I’ve been 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. Firstleap, we’re probably going to see more positive outcome from them. And at the same time, we need to also balance the customers through an economic-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 actually at the beginning of the year. So my current view is we probably will be flattish in margin studies. And specifically about gross margin and OP margin, we don’t have that much details to disclose. But again, we’re as calmly and 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 studies. 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 studies. 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 studies, we don’t have any much bigger promotion plans. We’d probably do something similar as already last year, especially, most of promotions will happen in Beijing. Some of you guys have seen our document already. So again, reaching the quality is the most important stuff we need to deliver to the children and we are very serious about that. And if we have anything more to update, I will let you know.

[Operator:]

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

[Terry Chen:]

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 it will constantly progress. 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?

[Rong Luo:]

Okay. In the first place, as in Q4, our margin is a little bit higher, and why is that? That is also because we have one more exception because of the timing of Chinese New Year is much earlier this year. So the one exception, clean into 1 quarter, we only have 13 weeks. So the one exception actually is quite meaningful for both our top line revenue and the margin, and the profit studies. 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 have some more, new teachers. And Q3 and Q4, we meet the capacity we are going to use, so we have a little bit coming back in the margin studies. Looking to full fiscal year 2018, in the first place, we are happy to see the capacity we have in the past few quarters. Now they have contributed more and more. We -- also, our key is of a 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’re still focused a lot on technology. Our mission has just been clarified, is we need and want an 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 studies, but at the same time, we need to invest in more than one. So coming to today, we believe our guidance is kind of -- is too early to give, but the direction study will try to make sure the margin will be flat. But flat doesn’t need 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 studies.

[Terry Chen:]

Okay. Yes. Got it. Just a quick follow up. Can you remind us about your capacity expansion target for FY ‘18?

[Rong Luo:]

Our capacity expansion target, I think that comes in three years, so 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 now driven only by the market demand. It’s not 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 CapEx 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, listen, is try to deliver one healthy, controllable and sustainable growth.

[Operator:]

Thank you. Your next question comes from the line of Alex Liu from Daiwa. Please ask your question.

[Alex Liu:]

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.

[Rong Luo:]

Okay, Alex. And I think this trend should be proved by the statistics in major cities in China in the past few years, new -- mainly new populations. Such a thing 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 churn. But I think as the industry has studied, this is really a very important driver for us. And based on the statistics we have seen, at least, I’m sure 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 a set of studies. 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 -- all we need to do is not only about this trend, but what we need to care is whether we control desire to be fast possessor. 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.

[Operator:]

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

[Fan Liu:]

Hi management, thanks for taking my question. I think Rong Luo has mentioned before 40 tcities 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 [indiscernible] expansion? If yes, what’s your strategy to solve it?

[Rong Luo:]

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’m seeing ways to invest to online technology including the pilots of running [indiscernible] platform and including software and new technology, we have to use in Xueersi, Shenzhen and other places. So -- and the double-teacher model is also very important on various successful pilots we’re going to have to run. 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, at the morning, half of them, they have more than, 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 are penetrating, we are quite, we’re quite successful. In current places we have presence. We collaborate there [indiscernible] 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 market. So that’s our key priority. And how many students we can cover? how many places we can go? I think that’s a natural results before we drive everything right in the beginning. So coming to today, I don’t have any [indiscernible] 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 Beijing technology to leverage the [par], so we’ll face a much longer growth in the long run.

[Operator:]

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

[Tianxiao Hou:]

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 price and policy for the year? And the 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.

[Rong Luo:]

Thank you, Tian. In the first place, our pricing policy, I understand, relating in the past, we did price hike in in our city, average 2 to 3 years. Last year, we did price hike 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 to any capacity performance. And our capacity performance as it 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 worries more 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 facilities to the mainstream facilities. 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 on there.

[Operator:]

Thank you. Our next question comes from the line of Mariana Kou from CLSA. Please ask your question.

[Mariana Kou:]

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 [indiscernible] mentioned but maybe 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 technicality on ASP flow? Should we expect a bit more flow in Q1 and Q2 just because there will be a bit more uplifted from first leap?

[Rong Luo:]

Thank you. I think -- in the first place, because we manage our segment, we only have one single reporting segments, nothing else. 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 the rest of study, we can say, Firstlead, right before our acquisitions, has largely became partition. And in the past year, it is almost breakeven. And looking forward, we are still quite confident. I think maybe in the two to three years time, the range -- the margin hoofing around 10% to 20% for Firstlead. And Shenzhen last year [Indiscernible] it was a bit partition 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. And their average level of the overseas consultancy positive 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 bit 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 much to my total numbers. About ASP, I think on Q1, it will be similar trend to Q4, because we did price up in general starting from summer of 4 . And we will start to see the ASP increase, and this trend may continue for the other one or two 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.

[Operator:]

Thank you. Our next question comes from the line of Alvin Jiang with Deutsche Bank. Please ask your question.

[Alvin Jiang:]

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 [Indiscernible] 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 X [indiscernible] they’re rolling out progress?

[Rong Luo:]

Thank you, Alvin. The dividend policy, I think that it’s a right balance between -- we need to evaluate and consider when we have some future M&A we want to do 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 two factors and decide whether we need pay the dividends. I think in the filter, we will also consider these two factors, and decide to pay dividend or not. But by the end of the day, I cannot give you more update about that. So every year, we will evaluate these two 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 wirestream cash flow and if we don’t have any huge M&A, we want to do in the short-term, so we will consider that. And the second question about the double-teacher model, increase on details about this call or not, [indiscernible] 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 features in this model. And -- but again, this model is still in the early stage. It work, but it still need more time to tweak on the details to make sure every detail is right. So we don’t have any trend to hurry on, to accelerate the coverage of double-teacher classrooms in China. There are still ways we could well pace, control it to be and try something different -- I will tweak our details to make it right. So we give the king and 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 -- I make it 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 their price. So that’s what we can see today. We still manage the double-teacher centers [indiscernible] and so far, we don’t have any intention to hurry up in this area.

[Operator:]

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

[Andrew Orchard:]

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?

[Rong Luo:]

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 [indiscernible] debt, 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 [indiscernible] and run away. So the reason for us to do that is because we, in the short-term, we don’t have any huge M&A. But in the long run, we’re still going to the global market and [indiscernible] the new process, new companies, which could be very complementary into my mainstream [indiscernible] and which could be very valuable in my strategies. So we still [indiscernible] to as own to seek 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 converts [indiscernible] into the time deposits. So that’s also probably the reason why we’re 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.

[Operator:]

Your next question comes from the line of Xiaoyu Yang from CICC. Please go ahead.

[Xiaoyu Yang:]

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 [indiscernible] 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 Shenzhen now? And what’s your outlook in the fiscal year 2018?

[Rong Luo:]

Okay. Yes, yes. I think, firstly, for Firstleap, yes, in Q4, they grow slower than our [indiscernible] it was more cash bidders, because that’s more transactions [indiscernible] in Q4 in small class. And in general, because, Shenzhen, that’s a totally different story. Last year they don’t record that much revenue. Actually they have around [indiscernible]. 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 [indiscernible] 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 life will can still be high growth engines. And [indiscernible] Bigger so urged specialty continually very healthy and reliable. So in general, we probably going to say still, in the long run, in 3 years time, we still be for 30% to 50%. That’s the right range we can be. And the most recent year 2014 probably will, close to the highest. So that’s the [Indiscernible] I think the actions we can make.

[Xiaoyu Yang:]

And I have a follow up question. How should we expect the revenue contribution from Shenzhen in the coming quarters?

[Rong Luo:]

The Shenzhen revenue, actually, they stop to be more meaningful when the students are [Indiscernible] visa or the students are decided to go to study abroad or arrive in the country. So they have very minimal impact for my Q1. They will stop to anytime [Indiscernible] around or maybe in Q2 and Q3.

[Operator:]

Thank you. Our next question comes from the line of Lucy Yu from Bank of America Merrill Lynch. Please ask your question.

[Lucy Yu:]

I have two questions. One is that you mentioned that one more section of the spring semester classes where 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?

[Rong Luo:]

Okay, I think in the first place, one section, which is one weekend classes, considering in the whole quarter, we only have 30 weekends. So that’s some of the [Indiscernible] rations where he 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 a much longer deal. What we care more is actually, the enrollment growth for the whole year, which is more meaningful. Because in the one or two quarters, some had their sense of analogies, some -- for example, in Q4, where one more section [Indiscernible] maybe by in Q2, we had one transactions. So we encourage you guys to see education [Indiscernible] much longer yield. And [Indiscernible] enrollment, we still see very healthy growth across all cities, across all segments. As what I have said in my prepared remarks year in the beginning, which is a little bit long, and thank you so much for your patience. But actually, I 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 we also care more about long term than the sharp improvements.

[Operator:]

Thank you. Our next question comes from the line of Leon Chik from JPMorgan. Please ask your question.

[Leon Chik:]

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?

[Rong Luo:]

Thank you, Leon. You the second [Indiscernible] question. In the first place, the double teacher actually, in Beijing, most of the double teacher classrooms, they have two types. Some of them they are stand-alone learning centers. For example the one in Shenzhen and Guangzhou. But some of them but actually, they are part of the current learning centers, which means for example, there are centers in [indiscernible] so they have offline learning centers classrooms but they also have the double-teacher classrooms. In the long run, with this, 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 the tier 2 cities. So -- which is also very important kind of pilot for us to decide how much this model can go. So we currently cover both Tier 1, Tier 2 and we don’t have any plans to go to 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 bad 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 [indiscernible] study whether they have 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 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. You require a lot of change in learning management system strategy. We are the first company inventing this model in K-12 area. So we have a lot of lesson learned 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 where we have sent new results upon the double-teacher models. Thank you, Leon.

[Leon Chik:]

Well, like I said, practice makes perfect. So, you’re not going to know until you do a lot of these things. So that doesn’t make sense -- much sense to be so slow.

[Operator:]

Thank you. Ladies and gentlemen, with that we now come to conclude our conference for today. Thank you for participating, you may all disconnect.