Earnings Call Transcript - GOTU Q4 2020

Sandy Qin, IR Senior Manager

Thank you, Sarah. Hello, everyone, and thank you for joining us today. GSX earnings release was distributed earlier and is available on the company’s IR website. On the call with me today are Mr. Larry Chen, GSX Founder, Chairman and Chief Executive Officer; and Ms. Shannon Shen, Chief Financial Officer. Larry will give a general overview and then Shannon will discuss the financials. Following the prepared remarks, Larry and Shannon will be available to answer your questions. Before we begin, I would like to remind you that this conference call contains forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management’s current expectations, and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company’s control, and may cause the company’s actual results, performance or achievements to differ materially. Further information regarding these and other risks, uncertainties or factors is included in the company’s filings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required in the applicable law. As a reminder this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on GSX Investor Relations website at gsx.investorroom.com. You are also welcomed to subscribe to our quarterly investor newsletters through the same website. It is now my pleasure to introduce Larry. Larry, please go ahead.

Larry Xiangdong Chen, Founder, Chairman and CEO

Thank you, Sandy. Good evening and good morning to you all. Thank you for joining us today on our fourth quarter and full year 2020 earnings call. As you know, net operating cash flow is an essential indicator to measure the operational efficiency of an online education company. In the fourth quarter, we achieved net operating cash inflow of RMB636 million. And for the full year 2020, our net operating cash flow remained positive at RMB603 million. In December 2020, we successfully completed a private placement raising US$870 million. As of December 31, our cash and cash equivalents, short-term investments and long-term investments totaled RMB8.22 billion, a significant increase from RMB2.74 billion as of the end of 2019. In the fourth quarter, our selling expenses totaled RMB1,798 million, a 307% year-over-year increase, deducting RMB472 million in employee compensation and miscellaneous expenses, and RMB59 million in brand new activities takes us to traffic acquisition expenses of RMB1,267 million. Since our gross billings for the fourth quarter were RMB3.15 billion, the corresponding ROI kept us in a superior position in the industry. Further, our selling expenses in the fourth quarter decreased by RMB257 million or 12.5% from the third quarter. We moderately controlled our traffic acquisition expenses because we firmly believe that good education takes time and it should be full of care and love. Premium, respectable, and sustainable education is never about a shortsighted race to expand but should increase great teachers, high-quality courses, caring services, effective learning results, and excellent reputation. I have always been reminding my team that when we saw the gigantic capital injections into our industry, the massive marketing campaigns that followed and the irrational race by some players to scale their businesses at any cost, we should always keep calm and stay true to our original mission, which is to focus on making education better through technology, focus on recruiting and training the best instructors, focus on providing the best and the most caring education, focus on offering the most satisfying services to each student and each parent, and focus on pursuing the right growth regardless of hardship with a long-term and sustainable view. In 2021, we will continue to expand our recruiting and training of star instructors, expand our efforts on content, product and technology development, maintain an effective growth strategy on a lifetime value basis. Optimize our operational efficiency and effectiveness, and to further improve our organizational capabilities and efficiency. We are confident that we will continue to excel in terms of operating efficiency in 2021. Now, I will pass the call over to our CFO, Shannon, to walk you through our financial and operational details.

Shannon Shen, Chief Financial Officer

Thanks, Larry. And thank you everyone for joining the call. Now, I will walk you through our operating and financial results, and conclude with how we build out the coming quarter. Please note our financial data is in RMB terms. In 2020, we comprehensively upgraded our products in terms of our instructor and tutor teams, content development and technology, as we remained firmly committed to improving the learning experience and effectiveness of our students. Firstly, over the past year, more than 100 top-notch instructors joined us, many of whom have considerable years of experience. For the junior and senior high school segments, we have established a strong model and decent reputation by building up a team of industry-leading instructors. Meanwhile, in 2020, we further invested in cultivating our own instructors, candidates who are young and have high potential. Many of them graduated from renowned universities, including Beijing University, Tsinghua University, Harvard University, Columbia University, and Oxford University, etc. We have also established a roadmap to train new instructors. Many of our new instructors who graduated in July 2020, after over a half year of training have grown into instructors favored by students and parents a lot, some of whom have attracted over 10,000 regularly priced course enrollments. Secondly, we constantly invest to develop and upgrade our educational content and products. Compared with the end of 2019, our course content development team expanded over 4 times, bringing reach and localized content specialty. We have achieved progress in standardizing our curriculum in 2020 and have established curriculum of different difficulty levels across our primary school and high school courses. In 2021, we will continue to work on refining our curriculum. We developed our course content and our lecture training jointly to streamline our course delivery process. This practice ensures the scientific nature of our course syllabus, the specialization of our instructors, and the standardization of our quality control. Lastly, technology plays a vital role in improving our in-class experience. Our streaming media system and our sound echo detection system leverage artificial intelligence to automatically adjust system settings to adapt to different network environments and hardware situations, achieving an optimal effect for the in-class interactive scenarios. Moreover, we have developed a virtual 3D science laboratory site, which simulates the environment for physics and chemistry experiments for junior and senior high school students and teachers. The constant upgrade of our educational products has effectively translated into our improved retention rates and provided a solid driver for our long-term healthy and sustainable development. Despite a challenging environment, we closed our fiscal year 2020 with exceptional business and financial performance. During the fourth quarter, we set an all-time record for revenues, gross billings, and paid enrollments. We are pleased to see that the pandemic situation is improving and we are thrilled with the way our teams continue to focus and execute throughout this period of elevated uncertainty. Moving on, I will briefly recap the financials for the fiscal year 2020. Our net revenues continued to grow reaching RMB7.1 billion, representing a 237% increase from RMB2.1 billion in 2019. With revenue growing to be more than 3.5 times of the prior year’s figure for the past three consecutive years. Gross billings, the leading indicator for net revenues was RMB9 billion, increasing by 168% year-over-year from RMB3.4 billion last year. Paid enrollments increased to 5,871 thousand for fiscal year 2020 or 2.68 times that of the fiscal year 2019. For 2020, we achieved net operating cash inflow of RMB603 million compared to RMB1,285 million in 2019. Removing the effects caused by the extra cash we paid over RMB105 million for the independent investigation, our net operating cash inflow would have been higher. That demonstrates our exceptional operating efficiency amid intense competition. Furthermore, in the second quarter of 2020, we repurchased approximately RMB1.1 million ADS, or approximately RMB283 million. Despite such cash outlay, we have ample cash reserves as our cash, short-term investments, and long-term investments reached approximately RMB8.2 billion as of December 31, 2020. Next, let me go through the key financials for the fourth quarter of 2020 in detail. Revenue increased 137% year-over-year to RMB2.2 billion driven by continuously expanding student numbers, thanks to our enhanced teaching quality and brand recognition. Our gross billings increased by 99% year-over-year to RMB3.1 billion, mainly due to an increase in paid enrollments from the summer and a high level of retention in the fall. Paid enrollments which refer to enrollment priced at or above RMB99 increased to a record high of RMB2.28 million for the quarter and 2 times that of the same period in 2019. Let’s break down our revenue streams by business line. Net revenue from our K-12 courses increased by 156% year-over-year to RMB1.98 billion and accounted for 89% of net revenues and will continue to be our main source of revenue going forward. Gross billings contributed by K-12 courses rose by 110% year-over-year to RMB2.92 billion. Paid course enrollments for K-12 grew by 113% year-over-year to RMB2.14 billion. Average enrollments per class was RMB2,600 in the fourth quarter of 2020 compared to RMB2,800 in the third quarter. Quarter-over-quarter, the numbers slipped slightly because we offered shorter-term courses with smaller sizes to cater to various students' needs. Average enrollments per class this quarter increased significantly from around RMB1,700 in the same quarter of 2019. Net revenues from our foreign language, professional, interest courses, and other services grew to RMB236 million and accounted for 11% of net revenues. Gross billings contributed by foreign language, professional, interest courses, and other services raised RMB224 million. Paid course enrollments for foreign language, professional, and interest courses reached 136,000. Leveraging our know-how with online live large class education, we will further expand into this large industry segment. Moving over to selected financial metrics summary. Our cost of revenues increased by 250% year-over-year to RMB660 million. The year-over-year growth was mainly due to an increase in compensation for instructors and tutors, learning materials, rental expenses, and server and bandwidth cost. GAAP gross profit margin decreased to 72% down from 79% in the same period of 2019. Non-GAAP gross profit margin, which excludes share-based compensation, decreased to 73% down from 80% in the same period of 2019. The decrease was primarily due to an increase in the number of instructors and tutors to enhance our service level and the personalized experience that our students received, as well as an increase in compensation for such staff. Selling expenses increased to about RMB1.798 billion, up from RMB442 million in the fourth quarter of 2019. Within that, expenses for traffic acquisition were approximately RMB1.267 billion. Expenses for branding activities were approximately RMB59 million, and the remaining expenses cover labor, servers, bandwidth, etc. The selling expenses dropped by 13% from the third quarter, which is our first sequential decline in sales expenses. First of all, that attributes to the integration of our K-12 operations into the Gaotu brand, which continues to bring synergies and extra efficiency. Going forward, we will focus our K-12 branding practices around the Gaotu brand, which will save unnecessary costs in branding activities. Secondly, we have been exploring and expanding new and low-cost customer acquisition channels, including offline channels, short videos, live streaming, etc. By balancing our investment across different channels, we managed to control our customer acquisition costs in an acceptable range and achieved an effective growth on a lifetime value basis. We have always focused on our effective growth strategy, and we will never pursue meaningless scale expansion at the expense of losses. We have made a number of technology innovations around customer acquisition, including progress on intelligent traffic acquisition, sales lead grouping, traffic control, and student satisfaction. We have taken the lead to closely cooperate with major media providers of traffic channels on the premise of ensuring data security, leveraging the strong algorithm capabilities of both parties to effectively control our customer acquisition cost and recruit better quality sales leads. In the meantime, we have embedded multitask learning, transfer learning, and reinforcement learning technologies into our internal service flow to effectively improve the traffic quality and efficiency in matching tutors and students. Gradually, we have created a set of refined customer acquisition, sales lead quality control, and the digital operating strategy on our marketing flow. Research and development expenses increased by 229% year-over-year to RMB275 million. The increase was primarily due to an increase in the number of course professionals and technology development personnel, as well as an increase in compensation for such staff. General and administrative expenses increased by 373% to RMB218 million, mainly due to an increase in G&A headcount and related compensation, as well as an increase in fees for investigative purposes. Non-GAAP net loss was RMB564 million compared to net income of RMB198 million in the fourth quarter of 2019. GAAP net loss margin was minus 28%. As of December 31, 2020, we had RMB355 million of cash and cash equivalents, RMB7.3 billion of short-term investments, and RMB531 million of long-term investments, combining to be RMB8.2 billion. That compares with a total of RMB2.7 billion of cash and cash equivalents, short-term investments, and long-term investments as of December 31, 2019. As of December 31, 2020, our deferred revenue balance was RMB2.73 billion. Deferred revenue primarily consists of the tuition collected in advance. Net operating cash flow for the fourth quarter of 2020 was RMB636 million. This demonstrates our strong organizational capability in balancing investments and returns. With that, I will now provide our business outlook. Before I start, I would like to highlight three factors influencing how we view the coming quarter’s performance. Firstly, the Spring Festival of 2021 started more than two weeks later than in 2020. Housing fewer weekends to deliver courses this quarter, and so is the corresponding revenue. Therefore, for an apple-to-apple comparison, we should add at least a 22% growth rate to the guidance we are providing. Secondly, this year’s winter break is short. Parents and students do not have enough time to take both short-term promotional courses and winter semester regular courses. Instead, we focused our offering on the sole spring semester sessions and expect the second quarter’s growth to be higher. Thirdly, we had a higher base of the gross billings and revenues in the first quarter of 2020 affected by the sudden outbreak of COVID-19. As such, based on our current estimate, net revenue for the first quarter of 2021 is expected to be between RMB1.816 billion and RMB1.856 billion, representing an increase of 40% to 43% on a year-over-year basis. That concludes my prepared remarks. Operator, we are now ready to take questions. Thanks.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from Mark Li with Citi. Please go ahead.

Mark Li, Analyst

Hi, management. Thank you very much for the presentation. I want to ask for the year of 2021, do we have any full-year guidance in terms of revenue, gross margin and loss margin and any more color? Thank you.

Larry Xiangdong Chen, Founder, Chairman and CEO

Thank you, Mark. We have conducted a moderate review of the traffic acquisition costs for information flow channels in the fourth quarter of 2020 and the first quarter of 2021. This may impact the growth rate for the first quarter. As you know, while we can acquire traffic through these channels, relying solely on them for revenue growth is not sustainable. Effective growth requires genuine organizational capabilities. Additionally, the spring semester for the first quarter of 2021 starts about two weeks later than it did in 2020, which negatively impacts revenue recognition for the first quarter, as Shannon noted. We are also actively investigating innovative acquisition channels, including offline strategies, which we believe will positively influence our growth in Q2 and Q3. Furthermore, we are continuing to raise tutor compensation, which we believe will enhance retention for both our tutors and students. In the adult business segment, we are nearly done establishing our team, and we expect this segment to see significant growth in the second half of 2021. It's important to note that during 2020, we observed an increase in customer acquisition costs that remained consistent when comparing the end of the year to the beginning. From this perspective, relying solely on spending in information flow channels to scale does not seem effective. Some competitors may be sacrificing their profit margins for higher growth, but our focus is on achieving sustainable effective growth. Overall, we are quite confident about our growth rate for the entire year of 2021, and we anticipate the full-year growth rate to fall between 70% and 80%.

Shannon Shen, Chief Financial Officer

Hello, Mark, and adding to Larry’s point, I also want to provide more color on our revenue guidance. As I mentioned in my prepared remarks, there are three factors that need to be considered when looking at our first quarter revenue guidance. The first is the class scheduling. Back to the first quarter in 2020, the spring semester courses actually started on February 2, for middle school and high school students. And for primary school students, the spring semester started during the last week in February. But this year in 2021, the Chinese New Year was relatively late. And the school actually started in the first week in March. So basically, we lost two whole weeks of revenue in the first quarter in 2021. And considering the high school and middle school revenue still contributes a considerable amount to our revenue, the impact on our Q1 revenue recognition should be higher than other companies, where primary school may take a leading position in the revenue recognition. So that’s one thing I want to add to our revenue guidance. So considering the seasonal factor, if we make an apple-to-apple comparison, the actual net revenue growth guidance for the first quarter should be higher than at least 62% to 65% from our perspective. The second is this quarter – in the first quarter, we changed the way we recruit our students because this winter vacation was too short to take both the short-term promotional classes and the long-term and formal winter semester courses for students and parents. Actually, the winter vacation started at the end of the second week in January and based on our class scheduling, there were only two weeks left for us to recruit winter semester regular class students. So, that’s how we changed our strategy. We basically replaced the winter semester regular classes with short-term promotional classes. Then we directly recruited students and had them sign up for our spring semester. That basically means the gross billing we collect in the first quarter, the majority of them will add to our second quarter’s revenue. And that’s why we expect our second revenue growth rate to be higher than the first quarter. This is all due to seasonality. And the third reason is that because last year the outbreak of the COVID-19 epidemic, we have a larger base for both the first quarter and second quarter. So these three factors should be taken into consideration when looking at our guidance. As Larry just mentioned, the full year guidance for 2021, especially for top-line, we expect a 30% to 80% revenue increase, then how do we come up with that number? That’s because like even though that I mentioned we reduced some of the investments in the traffic acquisition or media social platforms, we did explore or deployed new innovative ways to acquire more low-cost traffic, for instance, like offline traffic or live streaming or short radio. That will give us the potential or the sales leads that can support our future growth this year with lower customer acquisition costs. And also, as our absolute net revenue continues to increase compared to before, our net revenues growth rate will also show seasonality. The industry is changing very quickly, and in many cases, the change happens within a month or even 1 or 2 weeks. So, while we need to adapt quickly to these changes, we will also be more cautious by providing more short-term expectations which are more foreseeable. Hope that addresses your questions. Thanks, Mark.

Mark Li, Analyst

Thank you, Larry and Shannon. Very helpful.

Operator, Operator

Our next question comes from Christine Cho with Goldman Sachs. Please go ahead.

Christine Cho, Analyst

Hi. Hi, thank you, Larry and Shannon. I just wanted to get an update on the regulatory landscape. So it seems like the traffic competition is stepping down. But also, hearing some news about, for example, Beijing tightening some requirements on the teachers’ requirement, etc. How do you see this evolving? And how is this reflected in your guidance? Thank you.

Shannon Shen, Chief Financial Officer

Thanks, Christine. Happy to address that. So in the past quarter, our sales and marketing expenses declined over around 13% quarter-over-quarter, we took this as a positive signal. In 2021, we expect to spend less of our customer acquisition budget on traffic acquisition from those social media platforms and extend our investment on some new and more innovative channels, such as live streaming platforms, and short radio channels, and even offline channels. When we are reviewing what we have been doing in the past year in 2020, we spent or all the leading companies in this industry spent quite a lot of money on social media platforms. And we acquire traffic, but our observation was that the overlap ratio of parents signing up for multiple educational platforms is increasing. We foresee like the conversion may face some difficulties in the near future. That’s why in the second half of 2020, we started to explore new channels, and for the traffic acquisition from all those social media platforms, it’s still like the whole industry highly relies on the algorithm provided by the agencies or the social media platform. The high cost in reliance can now translate into core capabilities or competitive advantages. That’s why we want to explore new channels. We did make some breakthroughs like, for instance, our private traffic pool metrics on some leading short video platforms have been at a top level in the industry, and that has always been our core competitiveness. The sales order we achieved per live streaming session is also leading in the industry. We’re more prepared on both operational and technology sides. When we observe the online business, no matter it’s e-commerce or other businesses, we see the trend that at some level – at some point, the traffic will turn from public traffic into a private traffic metric, and this is really what we are good about. It actually brings us back to our comfort zone. As you mentioned, since January, the government has taken a closer look at the marketing campaigns of the online education industry. We highly welcome and proactively embrace this change, and we firmly support the government’s current and the following regulatory measures. We believe the policy will benefit the whole industry in the long run. For instance, firstly, the potential customer acquisition cost is likely to decline. This is consistent with our observation in January and February. The unit sales lead price that we acquired from social media platforms has been much lower compared to November and December in 2020. We are the last company to join the campaign to sponsor TV programs or do like bus station advertisements. From the bottom of our heart, we genuinely want to have effective growth other than just bringing money. If something just came out, we will be delighted, and I think it’s good for our company, because we are an operations-oriented company and we are not a traffic-oriented company. Secondly, the measurement will increase the trust of the students and their parents toward online education campaigns. We really want the engagement between the parents and us, and the students and us peaceful without creating anxiety. Education itself should not only help students to improve their academic performance but more importantly, should fulfill their academic capabilities and develop good learning habits. If we really have the capital, we want to invest in upgrading our products rather than sending them sales and marketing. So, regarding this initiative, we see it as a positive factor. Thanks, I hope that addressed your questions.

Operator, Operator

Thank you. Our next question comes from DS Kim with JPMorgan. Please go ahead.

DS Kim, Analyst

Hi, Mr. Chen, Shannon, and Sandy. Good evening and thanks for taking my questions. I actually have a few follow-ups from the previous comments you’ve made. And firstly on guidance first quarter, when you say 2Q revenue growth to be higher than the first quarter, are we comparing 2Q with like-for-like 65% growth or reported guidance of 45%? And I have a couple of follow-ups.

Shannon Shen, Chief Financial Officer

Sure. When I was talking about the revenue growth rate in the second quarter should be accelerated compared with the first quarter revenue growth rate.

DS Kim, Analyst

Okay. Okay. So comparing with the 45% guidance, I mean, the actual number which should be similar to guidance, okay. And then, can I check…

Shannon Shen, Chief Financial Officer

Right. Right.

DS Kim, Analyst

Thank you. May I check roughly how much gross billing and enrollment growth would you expect for the first quarter? I think this may reflect underlying demand better than the revenue guidance. I think this is very helpful.

Shannon Shen, Chief Financial Officer

Thanks. Because we still have around one-third of the quarter left, and like I just mentioned, the environment and things just change quickly. And so, it’s best we provide our top-line guidance as we always do. And for other operating metrics, we will be more cautious with that guidance. Maybe we can provide more details after the quarter-end. Thanks.

DS Kim, Analyst

Thank you. Yeah. Thank you. Final question is then, can I ask if you have seen any meaningful slowdown in the last month of the quarter like, say, in the past 2 or 3 weeks compared to the first half or first quarter? The reason why I’m asking this is comparing with some of our peers like TAL, their guidance doesn’t seem like slowing down as much as what we guide. So, I was just wondering whether this is a different – this is because of the difference between the fiscal year end i.e., TAL cuts their guidance for February, we include March. So, just wanted to double-check whether the guidance is effective.

Shannon Shen, Chief Financial Officer

Thanks a lot. So compared to TAL, I’m really not in a position to compare, because I personally am not very sure about like the guidance behind their business. Even though we are all in the large class business, the class scheduling can be different, and the revenue attributed to different segments can be different. That’s why it’s really hard to say without knowing all the details behind the guidance. But for us, I mean, just compared to our business, can we have a higher revenue growth rate? I think the answer is yes, but the price will be – may be exchanged for a larger scale of loss. Our operating philosophy is always to insist on effective growth and we need to make sure the unit economics or the business model works at least on the LTV side. So, we really pay close attention to our data, especially our customer acquisition costs. We need to make sure we are providing the best products to our students at the same time while ensuring our business actually works. That may have different reasons behind the top-line growth. When you compare top-line growth, I also suggest you take the bottom line into consideration. See like the operating efficiency or maybe the operating margin level to see how much was invested and how much was gained. I think that’s a more comprehensive picture.

DS Kim, Analyst

Thank you. Very helpful.

Shannon Shen, Chief Financial Officer

Thanks.

Operator, Operator

Our next question comes from Alex Xie with Credit Suisse. Please go ahead.

Alex Xie, Analyst

Hi management. Thank you for taking my questions. So I would like to ask my questions in Chinese first and then translate by myself. So, the first question will be about how do you set your revenue growth target, how do you balance the ROI and efficiency versus the growth rate and market share? And do you worry that the gap between your number of enrollments would widen a bit versus peers? Second question is about your TA team. Would you please share with us about the size of your TA team and how will you plan in 2021? And also, I’m glad to see the upgrades of your TA to secondary instructor program. So, you can just share a bit more about how you help them upgrade in terms of quality and how do you measure whether that succeeds? Thank you very much.

Larry Xiangdong Chen, Founder, Chairman and CEO

When determining our growth rate target, we focus on a dollar rate indicator that reflects effective and profitable growth based on lifetime value. After extensive calculations, if we are unable to meet our target, we may not reduce spending on these channels, as it could hinder our scientific growth approach. We are also analyzing the balance between ROI efficiency and scalability. Currently, we are satisfied with our performance. In 2020, our revenue exceeded RMB7.1 billion, while our net loss remained below RMB1.4 billion. Compared to others in the industry, some investors believe this matters, as they might be spending $2 to generate only $1 in revenue. In 2020, we balanced ROI and scale effectively, and we are confident about continuing this in 2021. I firmly believe that in business, the focus should be on serving our customers, students, and parents to ensure their satisfaction while also supporting our employees’ growth. For 2021, we plan to recruit over 10,000 tutors. Our approach to valuing our tutors, whom we refer to as secondary instructors, focuses on two areas: redefining our recruitment model and expanding training for them. Thank you.

Alex Xie, Analyst

Thank you very much.

Operator, Operator

Our next question comes from Felix Liu with UBS. Please go ahead.

Felix Liu, Analyst

Hi. Good evening. Thank you very much for taking my question. You mentioned about the FY 2021 growth will be healthier. So may I just dig a little bit into the details, I know the standard GP margin in the fourth quarter declined Q-on-Q, and you mentioned that teacher salary compensation increase was the reason. I think definitely that is the right thing to do, but how should we think about the GP margin trends going forward in the next few quarters? You mentioned about the increase in teaching assistants’ headcount, and noting that it should be relatively less than your revenue growth. So does that mean we could potentially see higher teaching assistant utilization and better GP margin? And also, on the sales and marketing side, definitely, happy to hear that you’re spending less on social media. So how should we think about the sales and marketing spending trends going forward in the next fiscal year, in FY 2021? Thank you.

Shannon Shen, Chief Financial Officer

Thanks, Felix. In this quarter, three main factors collectively led to our lower gross profit margins. First, for the autumn semester courses, we offered our students a second round of short-term courses we call it that started in November. Those courses had a lower average selling price (ASP) and a shorter term, and also a smaller class size, which led to a lower level of gross profit margin. The second reason is that, as we communicated before, we position our tutors actually as secondary instructors for their extraordinary services to our students. To better improve our students' and employees’ satisfaction and to further retain and develop our teaching talents, we believe that a good teacher needs time to grow, so we need to be patient. We continued to increase our compensation to our tutors in the fourth quarter. We believe our commitment to our secondary instructors will translate into stronger organizational capability and future business growth. Like you just mentioned, we definitely think this is the right thing to do. The last reason was we have taken initiatives to further decrease our student-to-tutor ratio, with the aim to provide more personalized services to better serve our students. For instance, in a primary school center, we started to provide 1 versus 6, three-course, small-class tutoring sessions, allowing the tutor to see the faces of other children, so they can have a lot of interactions before the formal session starts. We received positive feedback from primary school students and parents. For middle school and high school, we provide one-on-one student Q&A sessions after the class. That’s how we group people in different locations and provide more localized certification levels of Q&A sessions to our students. All these require more time and commitment from our tutors, and that’s why we lowered the students-to-tutor ratio. Moving forward to 2021, we think our gross profit margin should stabilize around 70% from a full-year perspective, after all adjustments have been made. Still, compared to offline business models, this gross margin will still be higher, if we just exclude the rental cost, giving us room to be profitable. The ideal structure for our P&L should be that we have a lower level of gross profit margin, and at the same time, we have a lower level of sales and marketing expenses because for an education company, people should be the most valuable assets. Regarding our sales and marketing expenses, we foresee that in 2021, the difficulty level might elevate in acquiring traffic on some public or open social media platforms. That’s why we started exploring new innovative ways to acquire new customers. But as this one is just too early, like I just said, as things change quickly in the industry, we may have a better position to talk about the whole year’s sales and marketing budget, maybe when we have a more clarified plan for our summer campaign, and probably we can discuss that topic by that time. Thanks, Felix.

Felix Liu, Analyst

Okay, got it, very helpful. Thank you very much.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Sandy Qin for any closing remarks.

Sandy Qin, IR Senior Manager

Okay, thank you, operator. And thank you, everyone, for joining the call today. If you have any further questions, please don’t hesitate to contact the company or contact us via e-mail, ir@genshuixue.com directly. And feel free to subscribe to our news alert on the company IR website. Thank you very much.

Operator, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.