Earnings Call Transcript - NAAS Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by. And welcome to RISE Education Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today Mr. Aaron Li. Thank you. Please go ahead.

Aaron Li, Speaker

Thank you, operator. Hello, everyone, and welcome to RISE Education's fourth quarter and full year 2020 earnings conference call. Today, you will hear from Ms. Lihong Wang, Chairwoman and CEO; and Mr. Warren Wang, CFO. Lihong will go over recent business updates, operations, and the company's long-term strategy. Warren will go over the financial results for the quarter. Both will be available to take your questions in the Q&A session that follows. Before we proceed, I would like to remind you that today's discussion may contain certain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Form 20-F filed with SEC on April 17, 2020. We do not assume any obligations to update any forward-looking statements except as required under applicable law. Throughout today's call, Lihong and Warren will be referring to the earnings presentation that has been uploaded to our IR website as a supplement to today's call. Now, I'd like to turn the call over to Lihong. Lihong, please go ahead.

Lihong Wang, Chairwoman and CEO

Thanks, Aaron. Hello, everyone. Thank you for joining our earnings call today. We are very pleased to see solid improvement continue this quarter in our financial and operational performance. Revenue for Q4 2020 was at the high end of our guidance. Both adjusted EBITDA and net income before goodwill write-down increased substantially. 2020 was an unprecedented year of challenges amidst the COVID-19 pandemic, which affected the China's education industry and our company. We took immediate action at the onset of the pandemic to stabilize the business with the quick deployment of our Online-Merge-Offline or OMO strategy and gradually recover the business with various initiatives to develop a unique and strong multi-disciplinary capability-based educational platform. As the pandemic containment gradually returns life to normalcy in China, almost all of our offline learning centers resumed normal operations in the fourth quarter. Following the reopening of our self-owned learning centers in Beijing by the end of September 2020, our business essentially recovered during the fourth quarter with significant improvement on both the operational and financial side. During this quarter, new student enrollments increased on a yearly basis for both RISE regular courses and other courses. Total revenue reached the high end of our guidance. And adjusted EBITDA was close to the level compared with the fourth quarter of 2019. This encouraging result not only demonstrated the effectiveness of our strategy to navigate this new economic environment and contain the impact of COVID-19 on our business, but has also positioned us well to see new growth opportunities in the future. I will begin my remarks from slide three. Throughout 2020, we moved forward step-by-step and mitigated the impact of COVID-19 and steadily steered the recovery of our business. We are pleased to see that we're on track to transform our business into the OMO model, which focuses on our offline learning centers, where we will continue to enhance our in-house digital infrastructure and cater to online demands. Our integrated offline and online operations are strategically put in place to leverage our large offline student base and satisfy parents and students' needs. At the same time, OMO has tactical benefits to deal with the potential re-emergence of COVID-19 restrictions. Let's move on to our financial and operational highlights for the fourth quarter on slide four. Revenues were RMB364 million in the fourth quarter, up 14% from the prior quarter. Adjusted EBITDA, excluding share-based compensation expenses and the impairment loss on long-term investments from EBITDA, was RMB85 million, up 47% quarter-over-quarter and close to the level compared with the fourth quarter of 2019. The total number of new students for RISE's regular courses reached 8,023 in the fourth quarter, an increase of 29% year-over-year. As of December 31st, 2020, the cumulative number of enrolled students who paid for regular courses and other courses since January 2000-2019 exceeded 187,000 and 50,000 respectively. Our extensive fee-paying base underpins our significant scalability and monetization potential under the OMO model. With a comprehensive digital operation system and a large customer database, we can conduct cost-efficient marketing to either expand cross-selling opportunities or reactivate past customers effectively. For our capacity expansion, as of the end of December 2020, we operated 92 self-owned learning centers, compared with 90 in September 2020; our franchise partners opened an additional 14 new centers in the fourth quarter, bringing the total number of franchise learning centers to 420 at the end of December, compared with 206 at the end of September 2020. Now, I would like to give you more detail on the 5% quarter-over-quarter decline in the number of students in class in the fourth quarter of 2020. Firstly, from what we have observed during the COVID-19 pandemic, offline education remains the top priority for many parents, which is also our core business under the OMO model. Due to the cumulative impact of the closure of our self-owned learning centers during the first three quarters of 2020, our new student enrollment number was lower than the normal levels. Secondly, online experience was not as good as offline learning. Our retention rate saw a decline compared with 2019, as some parents chose not to retain courses for their children during the pandemic. Thirdly, with offline classes resumed, a large number of students completed their courses and graduated from RISE, therefore, total outflow of students is larger than inflow. New students enrolled need to wait for classes to start. These factors impacted the total number of students in class at the end of Q4 2020. However, this should be a short-term phenomenon as new student enrollments continued to gain strong traction with healthy growth over the last two quarters and onward. Plus, the retention rate is trending up in the fourth quarter, we believe the number of students in offline classrooms will recover soon in the first half of 2021. As illustrated on slide 8, the Franchise Business delivered a healthy and solid growth momentum in the fourth quarter. After our learning centers gradually reopened in the third quarter, we resumed our expansion plans and increased our franchised learning centers to 420 by the end of December 2020, reflecting strong endorsement from existing and new franchise partners. During the fourth quarter, franchise revenues increased 14% year-over-year and 49% quarter-over-quarter, benefiting from strong new enrollments in the third quarter of 2020. The number of new student enrollments from franchised learning centers reached 22,255, an increase of 26.9% year-over-year, bringing the total number of students in class from franchisees to over 100,000. Our franchisees are an important growth engine for RISE. We will continue to scale the franchise business in 2021 and beyond. Turning to Slide 9, we continue to enhance our digitalization capabilities to fit into our OMO strategy. During the fourth quarter, we further improved our technology systems to support operations and execute digital initiatives to improve the quality of our courses. We upgraded our proprietary online classroom technology and course delivery system and enhanced our ability to seamlessly switch between online, offline, and OMO models whenever the circumstances demand. In order to optimize user experience, we offered interactive H5 courseware and rolled out an AI classroom supervision system for facilitating teaching quality control. In addition, we improved our business intelligence system, which conducts real-time operational data monitoring and supports data-led business decision-making. At the course offerings side, our OMO courseware upgrade this round includes better content supplemented with modern artistic animation. In order to improve our teaching quality, we launched a new teacher training system with an online e-learning platform, and onsite teacher development trainers to train and certify qualified teachers more efficiently and effectively. We also launched an AI teaching and lesson preparation system to help teachers improve efficiency and teaching quality, as well as an online public education forum and individualized reports to help parents track classes and learning progress of their children. Now on to Slide 10. For our 2021 strategy and beyond, we will focus on four initiatives. Firstly, we will further expand our offline learning centers nationwide, targeting to open around 100 new centers each year, including self-owned and franchised learning centers. With a customer-centric strategy, we will continue to upgrade OMO courses and strengthen our operating capabilities. Secondly, we will aggressively extend mathematics and logic thinking offline classes throughout our existing network, and adding new partners nationwide. Our goal is to become the number one education provider in the offline market for this category. Certainly, we're proactively pursuing franchise acquisitions and other M&A opportunities. Last but not least, we will further expand our fee-paying students base or registered user base, and attract more students into our private domain traffic management system, where we can continue to benefit from cross-selling and increase each student's lifetime value and ARPU. For example, early February this year, we launched a light course about Chinese New Year tradition with interesting content and attracted about 35,000 enrollments into our private domain site with 25,000 registered users. In summary, 2020 has been the most challenging year for us. However, it also gave us the chance to stand out among our competitors and show our strong capabilities to overcome all difficulties and transform our business into the OMO model. Looking ahead, although there are still ongoing uncertainties and challenges around COVID-19, in light of our successful experience in coping with the pandemic, coupled with our proven OMO strategy and strong monetization capability, we remain very confident about the direction of the business to deliver sustainable growth and profitability and increase shareholder value in the long run. I will conclude here and would like to invite our CFO, Warren, to talk about our fourth quarter financials. Thank you.

Warren Wang, CFO

Thank you, Lihong. Let me now go through our financial results for the fourth quarter of 2020. Before I begin, please note that all numbers stated are in RMB. As expressed by Lihong, while we're pleased to report that our business gradually recovered in the fourth quarter, as almost all our offline learning centers resumed normal operation in the fourth quarter, our top line and profitability continue to improve, thanks to our store execution capabilities under the OMO model. While offline learning centers remain at the core of the OMO strategy, we have continued to invest in our digital transformation and improve our online curriculum or light courses to switch seamlessly between online and offline whenever the demand arises. Turning to slide 11, total revenues for the fourth quarter of 2020 increased by 13.9% quarter-over-quarter and decreased by 12.4% year-over-year to RMB 364.5 million. Revenues from educational programs increased by 11% quarter-over-quarter and decreased by 14.7% year-over-year to RMB 325.8 million. The quarter-over-quarter increase in revenues from educational programs was primarily attributed to offline operations resuming in Beijing and Shijiazhuang by the end of September 2020, following the reopening of other self-owned learning centers in Shanghai, Guangzhou, Shenzhen, and Wuxi since June 2020, as the COVID-19 situation was alleviating. The year-over-year decrease in revenues from educational programs was primarily due to the decline in students in class, as a result of the business impact from COVID-19. Franchise revenues increased by 49.3% quarter-over-quarter and 13.8% year-over-year to RMB 37.8 million. The quarter-over-quarter increase in franchise revenues was mainly due to growth in recurring franchise revenues as a result of the gradual reopening of franchised learning centers. The year-over-year increase in franchise revenues was primarily due to a growth in initial franchise fees associated with an increase in the total number of franchised learning centers from 383 as of December 31, 2019 to 420 as of December 31, 2020. Other revenues decreased by 19.7% quarter-over-quarter and decreased by 17.7% year-over-year to RMB0.9 million. Cost of revenues for the fourth quarter of 2020 decreased by 4.3% to RMB155.9 million from RMB162.9 million for the preceding quarter and decreased by 15.1% from RMB183.9 million for the same period of the prior year. The quarter-over-quarter decrease was primarily due to a decrease in rental costs and the lower cost of learning materials. The year-over-year decrease was primarily due to the decline in teachers' compensations as a result of the reduced teaching hours and social insurance exemption, as well as rental concessions. Non-GAAP cost of revenues for the fourth quarter of 2020 decreased by 4.3% quarter-over-quarter and by 15.4% year-over-year to RMB152.1 million. Gross profit for the quarter was RMB208.6 million, an increase of 32.8% quarter-over-quarter and decreased by 10.3% year-over-year. Slide 12 shows that selling and marketing expenses decreased by 5% quarter-over-quarter and by 17.8% year-over-year to RMB72.1 million for the fourth quarter of 2020. The quarter-over-quarter and year-over-year decrease was primarily associated with the company's disciplined investments in online and offline marketing activities. Non-GAAP selling and marketing expenses for the fourth quarter of 2020 decreased by 5.3% quarter-over-quarter and by 18.2% year-over-year to RMB17.8 million. General and administrative expenses increased by 44.2% quarter-over-quarter and by 5.6% year-over-year to RMB89 million for the fourth quarter of 2020. The quarter-over-quarter increase was primarily due to the increased share-based compensation expenses as a result of the modification and new grant of share-based awards in August and September 2020. The year-over-year increase was primarily due to the increase in personnel costs related to our online courses business. Non-GAAP general and administrative expenses for the fourth quarter of 2020 increased by 30.3% quarter-over-quarter and increased by 4.1% year-over-year to RMB77.2 million. Operating income for the fourth quarter of 2020 was RMB47.5 million, an increase of RMB28 million from RMB19.4 million for the preceding quarter, compared with operating income of RMB60.7 million for the same period of the prior year. Non-GAAP operating income for the fourth quarter of 2020 was RMB64.4 million, compared with RMB27.1 million for the preceding quarter and RMB75.6 million for the same period of the prior year. Adjusted EBITDA income was RMB85.3 million, compared with RMB57.8 million for the preceding quarter and RMB91 million for the same period of the prior year. Turning to slide 13, net income attributable to RISE for the fourth quarter of 2020 was RMB1.4 million, compared with RMB28 million for the preceding quarter and RMB51.1 million for the same period of the prior year. There was a RMB37 million impairment loss on long-term investment; this one-time operational loss was mainly due to a decline in the fair value of our long-term investment in an investee, focusing on education for young children, whose business and financial performance was severely impacted by COVID-19. Non-GAAP net income attributable to RISE for the fourth quarter of 2020 was RMB55.4 million, compared with RMB35.7 million for the preceding quarter and RMB66.1 million for the same period of the prior year. Basic and diluted net income attributable to RISE per ADS was RMB0.03 and RMB0.02 for the fourth quarter of 2020. Basic and diluted non-GAAP net income attributable to RISE per ADS was RMB0.98 and RMB0.97, respectively for the fourth quarter of 2020. Net cash outflow from operating activities for the fourth quarter of 2020 was RMB108.5 million, compared with net cash inflow from operating activities of RMB103.2 million and RMB74.4 million for the preceding quarter and the same period of the prior year, respectively. The quarter-over-quarter decrease in cash generated from operating activities was mainly due to an increase in accumulated refunds of tuition fees paid out and a decrease in cash collections from renewed enrollments during the fourth quarter, and the year-over-year decrease in net cash flow from operating activities was primarily attributable to reduced cash collection on tuition fees as a result of the temporary closure of certain learning centers during the COVID-19 pandemic. As of December 31, 2020, the company had combined cash and cash equivalents and restricted cash of RMB639.2 million, compared with RMB1,022.8 million as of December 31, 2019. As of December 31, 2020, current and non-current deferred revenue and customer advance was RMB601.9 million, representing a decrease of 20.4% from RMB756 million as of December 31, 2019. The decrease was primarily due to the fact that revenue recognized for our services was larger than the cash tuition collected from those services. Deferred revenue and customer advances mainly consist of upfront tuition payments from students and initial franchise fees from the company's franchisees. Now let's look at the business outlook on slide 14. Following a relatively stable environment in the fourth quarter of 2020, local resurgence of COVID-19 had an impact on our operations and the performance in the fourth quarter of 2021. Although the full economic impact of COVID-19 is yet to be realized, current epidemic containment matters have been largely effective. We believe we are well positioned to navigate the rapidly evolving market environment and capture potential opportunities in the education industry. Our learning centers in Shanghai, Guangzhou, Shenzhen, and Wuxi have remained in full offline operation. Our learning centers in Beijing and Shijiazhuang are expected to reopen later this month at a pace regulated by the government. Our flexibility to switch seamlessly between online and offline models and our ability to manage both online and offline operations concurrently have helped us mitigate risks and potential resurgence of COVID-19 impacting our business. Looking ahead, combined with our profitable and continuously expanding offline operation across China and the increase in comprehensive online offerings and digital capacities of our resources, we're very optimistic about the business outlook and will accelerate our growth in the next few years to solidify our leading market position by increasing our market share in the domestic education space and delivering strong financial results for more long-term value. In 2021, we will continue to execute our expansion plan and take the OMO model to new heights and roll out profitable multi-disciplinary products system-wide. Regular courses fees are expected to slightly increase in 2021. Taking into account, we expect our revenue in the full year of 2021 to be in the range of RMB1,420 million to RMB1,730 million. With that, I would now like to hand the call over to the operator, so we can begin the Q&A session. Thank you.

Operator, Operator

Thank you so much. Ladies and gentlemen, we will now begin the question-and-answer session.

Lauren Xu, Analyst

Thank you for taking my question. I’m Lauren from Credit Suisse. I have two questions on behalf of Alex. The first one is about the student acquisition costs. Considering the competition's data much more intensified, would we expect to see higher student acquisition costs this year? And the second question is about online retention rates. Can management share more color on the current retention rate? And how should we think about the trend this year after launching those digital upgrades? Thank you so much.

Lihong Wang, Chairwoman and CEO

I can start and then Warren can provide additional insights. For customer acquisition costs, as you mentioned, Lauren, we are facing competition in our online channels. Our strategy is to continue focusing on our offline channels, and the proportion of leads generated through these offline channels is steadily increasing. Currently, about 70% of our leads are coming from our offline learning center promotions and related activities. We plan to maintain this focus on offline efforts throughout the year. The fourth-quarter results are quite promising, but for the full year 2021, we expect acquisition costs to be slightly higher than those in the fourth quarter. However, we do not plan to utilize the more expensive channels, so we hope to keep acquisition costs around the levels seen in the third and fourth quarters of 2020. Regarding retention rates, 2020 was a unique year. Many students we acquired in 2019 did not have offline learning experiences due to the pandemic and transitioned to online courses immediately after we launched them, which affected their satisfaction. As a result, retention rates declined in the third quarter. However, for the fourth quarter and the first two months of this year, we are observing a rebound in retention rates back to normal levels. Specifically, for Beijing, the renewal rate for the three installments is nearly 90%, returning to pre-pandemic levels, and graduation retention rates are also improving, now in the high 60s. This indicates a positive recovery in retention rates.

Warren Wang, CFO

A little more input for the first question. In addition to what Lihong mentioned, the offline customer acquisition mindset is a core competence of RISE. As Lihong mentioned, we offer more online multiple classes to the customers, so we can use these orders we acquired more effectively. So that's why these costs decreased in this quarter. Thank you.

Sheng Zhong, Analyst

Hi. Thank you for taking my question. Sorry that I lost my connection for a while. So if my question is already answered, you may skip it. I have a few questions here. The first one is about the regulation risk impact. Can you share some of your thinking about this regulation this time this year? Well, how could that impact the new learning center opening because you have 100 learning center opening plan, teacher and tuition fee collection, and also maybe the capital supervision impact? And I think you mentioned that you expect your Beijing learning centers to reopen later this month. So do you already get the government communication with the government yet on this?

Lihong Wang, Chairwoman and CEO

Thank you, Sheng. Let me answer the first question first. In terms of regulation, we all know that during this month, particularly and started from Beijing, there are more regulations targeted at the training or so-called foreign language centers. As you mentioned, there are a number of areas that government wants to tighten the regulations and put more supervision. The first is the so-called license to operate extracurricular. For this one, it really reinforced the regulation published in 2018. So we checked our licensing status and feel the majority of our schools have already obtained licenses and approval. Only a small number of schools are in the process of getting licensed. Maybe two to three in Beijing there are hard obstacles. For example, the property cannot satisfy the requirement. So, I would say we don't have much issue around that area. The second area, the government wants to put more maybe restrictive measures is prepaid tuition. However, how to really regulate this is uncertain. For RISE, we already have experience in Shanghai, for example, that we need to put in a custodian account for each school we opened. This is not an issue for RISE particularly with the abundant cash that we have on hand. The second possibility on this front is to work with a bank or insurance firm to make sure that if something happens with the providers, then the parents can get the money refunded. We are still waiting for the detailed implementations, but personally, I feel this is not easy to implement, so Warren will look for partners and see what is the better way to cope with the regulation. The third point you mentioned is government encouraging education accountants. I think for RISE, we target a very young age starting at three. And the majority of our students are aged 3 to 6 and the teaching content for RISE focuses on how to communicate, how to think logically and how to become the leaders for the future. I think this teaching or educational philosophy is consistent with what the government wants to promote. We're confident that plus the mathematics and logic thinking courses, we really focus on how to train the kids to be creative thinkers to be logical thinkers rather than focusing on test preparation. So hopefully, on the regulation side, we will not be the ones really targeted by the government. In terms of learning centers in Beijing, we already received requirements from a local district educational bureau to submit documentations and we have data on that. Some of the requirements are associated with putting money in the custodian account and also ask for a certain percentage of destination. We are all in the process to satisfy those requirements. However, I don't know when we will be allowed to open. Across the nation, we don't see stricter restrictions. As you can see, our new centers continue to open outside Beijing both direct owned and franchisee centers. So we have full confidence that this should not be a problem for center expansion. The second question was about mathematics and logical thinking. We began developing STEAM courses in mid-2019, and this has been an ongoing process. During the pandemic, we chose to simplify these courses to emphasize mathematical logic. We have offered these courses to students since June 2020, testing them out in our learning centers to attract students, including those from online channels. We have gained teaching experience and have made several updates to these classes. Our focus on offline learning is driven by RISE’s strong offline network, our operational and teaching experience with offline centers, and our understanding that parents have generally accepted this sector. However, there is currently no clear leader in the offline market. According to our surveys, similar to the situation with English courses, most parents are open to considering offline options in this category. As I mentioned, we have a plan to expand our network in two ways. First, we will open dedicated classrooms in our existing self-owned centers. This year, we have already started three in Beijing, and we aim to open dedicated classrooms in 30 to 40 self-owned learning centers this year. On the franchisee network side, we will begin with our current franchisees. In fact, the first franchise schools are expected to open hopefully in April in Guangzhou. Our target for this year is to sign on 100 franchise partners. However, since this is an offline venture, it will take time for them to open stores. By the end of the year, we hope to have around 20 to 30 dedicated mathematics and logic franchise learning centers. In terms of revenue, it is still early, so I apologize for not being able to provide a number yet. Nonetheless, we are very confident that we can quickly roll out the mathematics and logic thinking courses to achieve significant scale by the end of the year. I apologize, Sheng, I forgot the third question.

Warren Wang, CFO

Yes, we have a strong pipeline for the acquisition of our franchisees. We have basically divided them into three categories, first, second, and third, and we are currently in discussions with a few of them. We are in the middle of negotiating all the terms. However, we are not allowed to disclose anything right now. Hopefully, we can announce some good news and file all these files soon.

Blake Lee, Analyst

Okay. Thanks for taking my question. Firstly, I want to congratulate the RISE team on doing a great job with the number of new students enrolled in Q4. My question is about the 2021 business outlook, based on what our guiding assumptions are for 2021. Is there any projection for the near term? Thank you.

Warren Wang, CFO

Lihong, I'll take this. The guidance for the full year 2021 basically shows a wide range, due to the uncertainties of COVID-19 and the progress of our online and offline operations in this industry. As I mentioned in the script of ER, we are quite optimistic about the COVID-19 situation this year. You can see that we have strong results in this quarter. We have demonstrated that we have recovered from these impacts and we are quite optimistic about this coming year. Again, let me reiterate the guidance for 2021. We expect our revenue for the full year to be in the range of RMB 1,420 million to RMB 1,730 million. For this quarter 2021, as you'll probably know, there has been a slight COVID-19 impact in Beijing and Shijiazhuang around the Chinese New Year, so the revenue forecast is around RMB 300 million because of COVID-19. The performance for this quarter will not represent the actual operating outcome, and we have strong confidence that we can meet the whole year guidance.

Lihong Wang, Chairwoman and CEO

Yeah, I'll just add some color for this year. As I mentioned, we currently have very strong operational capability delivering the OMO model, which means that in normal situations, our higher grade classes will have online delivery during weekdays and all the weekend classes will be delivered offline. However, if there's a COVID-19 situation, we can switch the classes online. We can do that within a couple of hours. So, in the case of Shijiazhuang and Beijing, basically, the next day, every class was put online. However, the online classes deliver shorter time, therefore the revenue recognition will be somewhat compromised or discounted. That's why for the first quarter, we still don't know when Beijing will open, which will impact revenue recognition. However, with the capability to switch online to offline, also the ability to offer additional courses online, including the English small classes, plus our expansion plans, both on the network and across categories, we feel 2021 will be a very exciting year. So, near-term, there may be some fluctuations, but we are very confident that we will deliver strong results for the entire year.

Joy Wei, Analyst

Hi management. Thanks for taking my questions. I have one more question. It's on the competitive landscape. So, how do management view the current competition environment? We noticed that certain AI classes are gaining popularity, such as Zebra and AI cost, etc. How do management view the challenge these kinds of new players have brought? Thank you.

Lihong Wang, Chairwoman and CEO

Thank you. It's a very good question. On the competitive landscape, we definitely feel that 2020 and onward will be interesting. First thing first, we still see very strong demand for offline learning at the same time combined with the desire to have online exposure as well. So, on the offline side, we actually see fewer competitors. Some are unable to survive during the pandemic, and the ones that survived, especially like RISE offering the OMO model, become stronger. That's also why you see a very strong enrollment in the fourth quarter. Normally, the fourth quarter is not a peak season, but the fourth quarter enrollment for us almost caught up with the third quarter of 2020. So, on the offline side, we feel very confident, and we are a top choice for parents and students. For online, there are more formats and players coming into the arena. I think Zebra, as you mentioned, uses AI to offer 15 minutes of class coaching and can provide it at a very low price. The observation I have is that it definitely attracts a lot of young-aged kids, and it's a complement to offline study. And in fact, during surveys, we can see that 30% of our students have some form of online courses, either Zebra or a VIPKid. However, online students typically also have at least one offline course to complement that because the effectiveness of the courses delivered online is limited. So going forward, we think these two formats will coexist. Even for RISE, as I mentioned during the presentation, we see demand, therefore we launched the 1-to-4 premium English small classes online, using foreign teachers. This is also a supplement to what we offer offline, and through OMO. So for higher grades, from S2 and above, the online foreign teacher is part of the normal courses. For K3 and S1, we sell our 1-to-4 premium online English small classes as additional courses to supplement them. This year, this is part of the strategy as well. We believe that currently, our targeted student base is not impacted by the AI courses, but we acknowledge that the efficacy is entirely different.

Operator, Operator

Thank you so much. And there were no further questions at this time. That does conclude our conference for today. Thank you all for participating. You may now disconnect.