TCTM Kids IT Education Inc.
Q2 2017 Earnings Call Transcript

Published: 22 Aug 2017

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to Tarena International, Inc Second Quarter of Fiscal Year 2017 Earnings Conference Call. At this time, all participants are in listen only mode. After management’s prepared remarks, there will be a question-answer-session. 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, Ms. Helen Song, Tarena's Investor Relations Director.

[Helen Song:]

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 Web site, 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 the 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 Web site 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 Web site. 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.

[Shaoyun Han:]

Thank you Helen, and welcome everyone on our second quarter 2017 earnings conference call. I am very pleased to report that our net revenues in the second quarter increased by 24.8% to reach RMB456 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 treating programs. There are a number of new initiatives such as standard network expansion and new course of research and development, which significantly increased our geographic coverage, total number of learning centers seat capacity. We believe this lays a stronger foundation on our full year target and growth outlook in the long run. 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 establish University of Applied Sciences in China, and have education quality by introducing social educational resources. Our policy with universities and colleges started to change this year. Our previous mode of cooperation with universities and colleges is to cap student enrolment by organizing recruitment events on campus and get us out directly to each of the target students. From this year, 1.5 million 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 joint major programs for on-campus learning site. When the students finish the courses in their current curriculum system or campus with Tarena’s instructors, the length of the courses also change from four month in the past to three years to four 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 colleges now. After Jiangsu and Shandong, nearly 10 provinces, such as Hubei, Hunan, Gansu, successfully released policies regarding universities’, enterprises’, cooperation as well as on campus learning sites. 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 low cost and sustainable recruitment channel in the long run, as partnership with universities can last many years once we initiate cooperation program. Moreover, this also leads to more students enrolled at the beginning of each academic year. Since their courses will be finished in three to four years period, there will be longer revenue recognition period for students recruited through such channel that revenue will be negatively effective in the short-term. However, from a long-term perspective, establishing such new universities and enterprise partnerships to gain massive student enrollment is expected to have tremendous significant value for the long-term development of Tarena. In the second quarter 2017, total course enrollment increased by 18% year-over-year to reach 27,991; this 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 previously summer vacation to the beginning of next academic year, which is this September and August -- September and October. This also brought certain negative impact on the total number of student enrollment this quarter. This quarter, we continued to execute on the teaching at appropriate level strategy to further upgrade the portfolio and implemented differentiated advanced 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 only explore professional education market opportunities. As we communicated previously, job market from mobile application development, such as iOS and Android, is almost separated and graduates from such related courses face difficulties in finding jobs. Therefore, Tarena strategically reduces the student enrollment in such courses, which is also one of factors that contribute to our total student enrollment this quarter. We believe that IT industry is in a transitional period and going forward artificial intelligence, Big Data and cloud application were building new growth momentum in employee markets. Tarena has been proactively invested into research and development in such fields, which also help us to keep competitive advantage in professional education courses. Besides professional education process, I’m also pleased with all the K-12 education, which is another important business line of Tarena achieved better than expected growth rate this quarter. By the end of second quarter, K-12 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 open 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 supported for our K-12 business to continue its fast expansion. K-12 business is in the fast run period and we’re going to take more investment strategy to grow such a new business, building out more K-12 learning centers, expanding our geographic footprint and making more investments in new cost divestment. We’re confident that total enrollment for our K-12 program in 2017 is expected to reach -- to be between 8,000 to 10,000. 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 very positive view on IT professional education market in Tier 3 cities. We’re considering building up more seat capacity in Tier 3 and Tier 4 cities, going forward. In terms of the professional education business, we opened 30 new centers this quarter, merged one learning center and closed one. As a result, our total number of learning centers reached 121 covering 53 cities at the end of this quarter. More specifically, we opened one learning center in each of the following 13 cities, which are Baotou, [indiscernible], Jinhua, Hangzhou, Ningbo, Xi'an, Shijiazhuang, Changzhou, Chengdu, Nanjing, [indiscernible], Wuhan and Shenyang, among which Baotou and Jinhua are the two cities we are newly entered. Now, the key indicator that shows our education quality and outcome, job placement record is an operating metric that we always focus on. The six months post graduation job placement rate in quarter remained at the high level as we see it in the previous quarter, which was above 95%. This outstanding result will further support our leading brand and also competitive position in the industry. 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 view in this fast growing period and have lower margin than our professional education business in short-term. Moreover, as we open learning centers and continue to enter new cities, our operational efficiency in these newly open centers and the standard 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 enter in fact overall operating margin. Our CFO, Dennis, will elaborate on this further in his later remarks. To sum up, through the second quarter of 2017, Tarena achieved stable growth in professional education business. With more than specific design and curricular system stringent control over teaching quality, new business exploration and university cooperation, Tarena will keep its leading advantage in professional education industry. Our 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 five to six new courses in the process of research and development, and expected to be officially launched in market and would start to recruit students by the end of this year. Considering the fact that more than 7,000 students were recruited through our new partnership with universities and colleges and their revenue could not be recognized in this year, we evaluated the overall effect of full year financials and decided to revise down our full year revenue guidance by RMB17 million. We believe by expanding teaching resources and operational capabilities, adjusting to new process mode and making positive progress in K-12 business, Tarena has been working hard laying a solid foundation to achieve our operational and financial target for the full year 2017. With that, I will now turn the call over to our CFO, Dennis Yang to discuss second quarter financial results and outlook for the third quarter.

[Dennis Yang:]

Thank you, Han Shaoyun and hello everyone on 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 of 2017, our net revenue increased by 24.8% year-over-year to RMB456 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. Total quarterly enrollment which is 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 October instead of enrolled in classes on summer vacation as usual. Beside enrollments, ASP increase is another driver for the revenue growth. Average revenue per quarter enrollment in this quarter as defined by net revenue divided by quarter enrollment was RMB16,136, which increased by 4.7% as compared to RMB15,411 in the same quarter last year. But the increase of average revenue per quarter enrollments was mainly attributable to the increase of our standard tuition by approximately RMB1,000 for selected courses in February 2017. This utilization rates is one of key metric of operational efficiency of teaching resources. Seat utilization rate for this quarter was 73.6%, which remained at similar levels to the utilization rate 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 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 for student enrollments for the quarter was RMB1,994 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 lease conversion. Looking forward, we plan to balance between the number of sales leads obtained through advertising and acquisition cost for students, and the target to remain advertising cost for students enrollments at the similar level to 2016. Second, we recorded bad debt allowances for our doubtful account receivables from 2014. As communicated before, most of our bad debt expenses mostly resulted from the legacy issue of installment payment plans extended by Tarena to our students. Other having partner with third party financial providers and taking strengthened internal control over credit trending and cash collections, we well-manage this issue and debt expenses decreased by 39% from RMB11 million in the same period last year to RMB6.8 million in this quarter. We believe that debt expense for 2017 will further decrease as compared with the amount in 2016, reflecting the reduced proportion of students taking our credits and improved internal control over account receivables. Our non-GAAP operating profit for this quarter was RMB55.2 million as compared with operating profit RMB54.5 million for the same quarter last year. Non-GAAP operating margin was 12.1% for this year, 2.8 percentage points lower than that of the same quarter last year. Our non-GAAP net profit was RMB57.1 million for the second quarter of 2017 compared to a non-GAAP net profit of RMB51.3 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 are 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 spending occurred in this quarter. Three, cost associated with newly built learning centers occur to have of the enrollment and the revenue ramp up. We believe that our efforts in building out new cooperation mode with universities and colleges, expanding business skill for professional education business and delivering excellent education results for 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’re 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 effort in rolling out our K-12 business has 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 university and college to run joint major programs and onsite learning centers -- learning sites for students on campus, especially for those at the first and second year in college. Unlike Tarena’s traditional courses that deliver in four months period, the joint major programs have delivered over three or four 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 are completed in multiple-year period total tuition can now be fully recognized in 2017. And therefore, by estimating the impact of this tuition for those students in joint major programs, revise down the full year guidance by RMB70 million. So looking forward to the third quarter 2017, total net revenues are expected to be between RMB555 million and RMB572 million, representing the increase of 15.4% to 18.9% on a year-over-year basis. The full fiscal year 2017 revenue will be between RMB1.92 billion and RMB2 billion, representing an increase of 21.5% to 26.6% on a year-over-year basis. So Jeffrey?

[Operator:]

Would you like to take questions at this time?

[Dennis Yang:]

Yes, sure.

[Operator:]

Okay, thank you Mr. Yang. Ladies and gentlemen, we will now begin the question-and-answer session [Operator Instructions]. And our first question comes from Frank Lu with Goldman Sachs -- that should be Susie Liu with Daiwa.

[Susie Liu:]

[Technical difficulty]

[Helen Song:]

Susie, could you just repeat your question in Mandarin? The line is not clear.

[Susie Liu:]

[Foreign Language]

[Helen Song:]

Since your line has some problem, noisy, it’s very noisy. So I am not able to get the [indiscernible] could you repeat your question again?

[Susie Liu:]

Can you hear clear?

[Helen Song:]

Yes, it’s clear now.

[Susie Liu:]

So first question is, could management give us some update on student enrollment 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, which has RMB500 reduction for the tuition period in three 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?

[Dennis Yang:]

So let me translate. The question is, what is management view on the trend of the student enrollment from June through August. So Mr. Han gave some updates on the June enrollment, July enrollment those two months enrollment price quite stable that unlike the student enrollment from university channel will get enrolled in July as 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 process of joint major program 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 enrolment.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

Overall, the second question is talk about the marketing policy of the Company. Recently, the new marketing initiatives by the Company that if the student can pay the tuition within three days that and the students can get a discount of RMB500. So this is -- Shaoyun explains that this marketing activity is quite normal, it’s not exceptional. We do advertising work promotion from time-to-time, but all of those promotions definitely have a time limit that we try to feed in to begin more student enrollment filling our teaching resources in the certain period of time. This is why we want to do specific marketing activities but in period of time.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

The marketing activity or promotions were definitely working good to improve our sales conversion, because there’s incentives for the students to more likely to join our classes.

[Operator:]

Would you like to take next question at this time?

[Helen Song:]

Sure, please go ahead.

[Operator:]

Sure. Our next question comes from Fan Lu with Goldman Sachs.

[Fan Liu:]

May I know in your guidance for your third quarter, what percentage of student enrollment will be recruited through the new program cooperation universities? If we include this impact what would be the revenue for the quarter and full year look like? And in addition, apologize if I missed. Could you please kindly share with us your student enrollment breakdown by as of IT and non-IT structures? Thank you.

[Dennis Yang:]

By the way can you please explain your question in Mandarin, please?

[Fan Liu:]

[Foreign Language]

[Dennis Yang:]

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 education business. Around 42% of enrollment for non-IT courses and the rest of 58% of the total student enrollment for professional education enrollment and IT related courses. Your first question about if taken out the new business mode with universities, what’s in the real growth of our business? I want to, from my perspective, I would say that new model, the new mode with universities, is the certain replacement with the old mode because just imagine, last year or three 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, it’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 new student at their first year, the freshman year, to join our courses. So this is our strategy. So with this, it’s very hard to tell you that what the demand for the revenue recognized in third quarter as a new mode versus an old mode. But again, I will say the new mode definitely the revenue will be recognized in the longer term, so very long-term, two year, three 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.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

This then shares the more basic background of the new partnership mode with universities. So the joint program, the joint major program given three Tarena the challenge to approach to on the students as their freshmen year, that is when the students graduated from high school and then joined the university and the colleges then the challenge and the whole cost will be to fully categorize that Tarena sponsored -- Tarena partnered educational partner with Tarena that cost with -- this kind of category. So we’re looking to partnership with universities, there’s pros and cons. The pros is once Tarena build out the cooperation with the universities from the first year and the later many years every year those process of students will become to Tarena students. But the cons is the joint major program would be delivered the services over three year four year period that definitely give some pressure on the revenue recognition. The revenue can only be recognized in three year, four years period that in the short-term there’s -- not adversely impact on the top line.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

In our services students from university channel are approached to those students in the third year, and the final year in their college top college; so this kind of to see business and right now we partnered with the universities and the colleges to recruit high school graduates who joined the classes with the higher education or with the partner education provider of Tarena. So this is some essence of new mode.

[Fan Liu:]

[Foreign Language]

[Dennis Yang:]

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

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

So the third quarter enrollment from retail channel of 15% to 20% year-over-year growth and the first quarter that’s where the low base last year, the retail channel can reach to -- the first quarter 20% to 25% year-over-year growth for retail channel.

[Operator:]

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

[Zoe Zhao:]

So firstly, I would like ask about the key education program. I was wondering what is the current GPM level of our kid’s education program, and how much of the deferred revenue increase is related to the kid’s program, and how much is related to the adult program for the deferred revenue? And for the future, how is the competitive landscape for the kid’s programming, given there are more players have entered these segments, and do management see higher acquisition cost in kid’s education programs?

[Dennis Yang:]

Let me take your first question about the GPM, our current GPM of K-12 business. Just as mentioned in my speech that K-12 business right now have not reached the ideal level, so the GPM or the gross profit margin right now is a single digit -- high single-digit to around 10% currently. But what the reason, the very fast enrollment growth we’re already seeing that the pick-up of those -- of this GP margin in this segment.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

We have seen 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 this is 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 two years ago, and we launched our first K-12 courses by the end of 2015. So with two year operation, our enrollment this year can grow to 8,000 to 10,000. And secondly, we can leverage our long-term information related field medication experience to develop the K-12 IT related course content. And we believe with sophisticated mind in the IT related education, we can design, develop the best-in-class course content for K-12. And the third, we already have our very extensive geographic footprint in China where, 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.

[Zoe Zhao:]

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

[Dennis Yang:]

Well, the K-12 deferred revenue around 10 million to 50 million.

[Operator:]

And our next question comes from Johnny Wong with Jefferies.

[Johnny Wong:]

Hello management, thank you for taking my question. I have two 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. But I was wondering how we should think about this going forward past and 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? Thank you.

[Dennis Yang:]

Johnny, let me help your question, the first question about acquisition cost. In the first half of 2017, our acquisition cost decreased as compared -- in the second quarter, our average unit cost decreased as compared with the first quarter after the vital change policy last June. So basically our view is to maintain the average unit cost at relatively reasonable level, which is 2,000 or slightly higher 2,000. We try to balance number of new enrollment can getting cost and to end the average acquisition cost for student enrollment. So we are not plan -- we will plan not to have the acquisition cost for professional education business to level -- 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 per student 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, this is too 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 maybe a continuers effort for Tarena, because we try to maintain the competitive advantage on the course contents in the market. So this is true that we try to maintain the R&D at such a level may be similar to our first half in the long run. But we’re not plan to increase further the level of R&D in future quarters or future years.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

So our R&D cost for the first half of 2017 is for not only our existing courses, but new quarters. We have almost 10 new quarters 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.

[Operator:]

And our next question comes from Ivy Luo with Macquarie.

[Ivy Luo:]

Thank you management for taking my questions, I have two questions here; one is regarding margins. So we mentioned that margin declined because of the expansion and as far as R&D. So, on the expansion part just wondering 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 Tier3 cities. And my second question is on the utilization. So we do see that utilization will actually be improved year-over-year despite our seat expansion. So I want to know what’s the utilization of our matured and existing learning centers. That’s my two questions.

[Dennis Yang:]

For the margin level of newly opened centers, normally within a year, those learning centers can reach breakeven level. And within around one to two years, those learning centers, most of those learning centers, can reach to the corporate average, the level of corporate average. So can you have a briefer second question, I guess?

[Ivy Luo:]

[Foreign Language]

[Dennis Yang:]

Basically, we believe second quarter utilization rates were 73.6%, which is slightly, very slightly, higher than that of last year. We believe this is comparable level because we take an average amount of three months utilization rate for the quarter. So there’s maybe some fluctuations amount of those three quarter numbers. So the slight change -- the slightly gap won't 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 them mature centers with may be more than three years, four years operation history; and also, in 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%.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

We can also -- to improve our utilization rate after launching advanced module, those advanced modules will deliver the services on the evenings, the weekday evenings or weekends. This also can further utilize our future resources at our learning centers.

[Operator:]

And our next question comes from Eric Qiu with CCBI.

[Lin Qiu:]

[Foreign Language]

[Helen Song:]

Could you just repeat your question in English?

[Lin Qiu:]

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 new partnership with university mode. But is that also because the demand to certain IT courses are much less than or softer than what we expect before? What are those costs that are less and how 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 one number, if the enrollment should triple in 2017, to 18,000 versus 6,000, or is that for full year '17, 8,000 to 10,000? Which number is correct? And is that K-12 also has the seasonality that second quarter, or second half enrollments 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. Thank you.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

Let me answer to your first question. The main reason for the slight -- we have seen enrollments in the second quarter and also for the first half 2017 as the change of the new 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, had passed and also iOS and Android, I already mentioned the job position in the market is saturated. And we find out that it's very difficult for graduates in those sales 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 two courses. This is our strategy, because we try to maintain the job placement rate in the end after the graduation, our student 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 and Tier 3 cities. We opened many new learning centers, we put more efforts into ramp up those new business and we do not put enough resources to remain the adequate growth for the existing old centers. So starting from May, we made a decision and rebalance resources allocation. And we believe from August through December, the most in second half of 2017 after this rebalance resources allocation can definitely drive the growth in student enrollment coming from our existing learning centers, and 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 classification. 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 as more than triple the size we achieved last years.

[Lin Qiu:]

And I just have one follow-up question, maybe one is regarding to the new mode. For the last several years, our main student enrollment growth from the regional channels, we see that goes quite fast; but versus the university channels, the growth was much less. So what's the purpose of this plan to make major shift offs in modes to rely more on 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 four years. So what's the major benefit from doing that? Thank you. [Foreign Language]

[Dennis Yang:]

This is where we would think about the adaption to the new changes in the market. Recently, the government policy released to encourage the university and enterprises to get partnership and let university to leverage the social responses to enhance to improve the education quality at college. So this is in our -- something we proactively push in this university to change everything, this kind of change in the market and we try to adapt to those changes.

[Shaoyun Han:]

[Foreign Language]

[Dennis Yang:]

We actually took 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 student to join courses. This is a fundamental change when in the past Tarena, most of our business in this two seat two 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 partnership mode that means for many that the university and Tarena will partner to recruit the high school graduates to take classes that was the education resources from Tarena. So this new mode and definitely can drive our acquisition cost for students to get lower in the long run. And the second, not like to customer business, to the new mode is the kind of a 2B2 business to university business. We collect account receivables collect cash from university rather than from individual students. That definitely can be much better managed those account receivables, and we believe that that expenses were the doubtful account receivables amount will be going down.

[Operator:]

Thank you. Now I will…

[Dennis Yang:]

Just want to confirm any more questions on the line?

[Operator:]

Not at this time. Now I will revert the call to Ms. Helen Song, Tarena’s Investor Relations Director.

[Helen Song:]

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 emailing ir.tedu.cn. Should you have any questions or request for additional information, I encourage you to visit our Investor Relation site at ir.tedu.cn. This concludes Tarena’s earning conference call.

[Operator:]

Thank you. That does conclude today’s conference call. We do thank you for your participation today.