Earnings Call Transcript - TAL Q4 2021

Operator, Operator

Good day and thank you for standing by. Welcome to TAL Education Group Fourth Fiscal Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Ms. Echo Yan, IR Director of TAL Education Group. Thank you. Please go ahead ma'am.

Echo Yan, IR Director

Thanks operator. Thank you all for joining us today for TAL Education Group's fourth fiscal quarter and fiscal year 2021 earnings conference call. The earnings release was distributed earlier today and you may find a copy on the company IR website or through the newswires. During this call, you will hear from Mr. Rong Luo, Chief Financial Officer; Linda Huo, Vice President of Finance; and myself, IR of TAL. Following the prepared remarks, Mr. Luo and Ms. Huo will be available to answer your questions. Before we continue, please note that the discussions today will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in public filings with the SEC. For more information about these risks and uncertainties please refer to our filings with the SEC. Also, our earnings release in this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would like now to turn the call over to Mr. Rong Luo. Rong please.

Rong Luo, CFO

Thank you, Echo. Good evening and good morning to you all. Thank you for joining us today on this earnings call. In the recent couple of months, China's public health situation and economy showed further progress. Internationally, the concerted efforts and vaccination programs are hopeful signs that the worst of the pandemic could be behind all of us. Meanwhile, at TAL, our tutoring business, both online and offline, as well as our capacity expansion in all cities developed as planned for the fourth quarter of fiscal year 2021. Let me give you a quick overview of the key metrics. Net revenue growth in the fourth quarter was up by 58.9% year-over-year in U.S. dollar terms to $1,362.7 million, and 47.7% in RMB terms. Total normal priced long-term course student enrollments increased by 44% year-over-year, mostly driven by online as well as Xueersi Peiyou small class enrollments. GAAP loss from operations was $297.2 million compared to $41.3 million in the fourth quarter last fiscal year. Non-GAAP operating loss was $216.9 million compared to $8.4 million in the same year-ago period. In the full year of fiscal 2021, net revenue growth was 37.3% in U.S. dollar terms, which is 34.1% in RMB terms. I will now turn the call over to Linda Huo, our Vice President of Finance. She will give you an update on our operational progress in the fourth quarter. And then Echo Yan, our IR Director will review the fourth quarter and the fiscal year financials. After that, I will update you on our business strategy and discuss our business outlook. Linda please.

Linda Huo, Vice President of Finance

Thank you. I will review the various revenue streams of our tutoring business for the fourth quarter of fiscal year 2021. Let me start with small class and other business, which consist of Xueersi Peiyou small class, Firstleap, Mobby, and some other education programs and services. These accounted for 61% of total net revenue compared to 68% in the same year-ago period. The revenue growth rate was 43% in U.S. dollar terms and 33% in RMB terms. Xueersi Peiyou small class, which remains our stable core business, represented 53% of total net revenue in the fourth quarter compared to 59% in the same year-ago period. The lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which accounted for 32% of total revenue in the quarter compared to 24% in the same period last year. Fourth quarter net revenue from Xueersi Peiyou small class was up by 43% in U.S. dollar terms and 33% in RMB terms, while our normal priced long-term course enrollments increased by 21% year-over-year. All-in-all, the improving overall situation in China supported the continued recovery of our Peiyou business in the course of fiscal year 2021. Our key operational metrics of Peiyou such as retention rate, fulfillment rate, and drop-out rate remained very stable throughout the year even in the unprecedented circumstances. In the fourth quarter, normal priced long-term Xueersi Peiyou small class Average Selling Price (ASP) increased by 22% in U.S. dollar terms and increased by 13% in RMB terms year-over-year. The increase was mainly due to the pricing gap refund we offered in February 2020, where we had to migrate Peiyou offline small class students to online small class. Xueersi Peiyou small class performed well in various tiers of cities. Revenue from the top five cities, which are Beijing, Shanghai, Guangzhou, Shenzhen, and Nanjing increased by 44% year-over-year in U.S. dollar terms and accounted for 55% of Xueersi Peiyou small class business. Revenue generated from cities other than the top five grew by 41% in U.S. dollar terms. The other cities accounted for 45% of the Xueersi Peiyou small class business. Next, I'd like to discuss our Zhikang one-on-one business. In the fourth quarter, this business sector achieved year-over-year revenue growth of 28% in U.S. dollar terms and 19% in RMB terms. Zhikang one-on-one accounted for approximately 6% of total revenue in the fourth quarter of fiscal year 2021 compared to 8% in the same year-ago period. In the fourth quarter, normal priced long-term Zhikang one-on-one courses ASP increased by 17% in U.S. dollar terms and 8% in RMB terms year-over-year. The increase was mainly due to some flash discounts we offered in February last year when we had to move Zhikang offline students to online after the COVID-19 outbreak, as well as the regular increase of tuition fees in several cities during the period. Now let me update you on our current capacity expansion strategy. We continued the expansion drive in the fourth quarter as planned for this fiscal year. We added eight new cities in the fourth quarter, bringing the total to 110 cities, of which 40 were newly added during fiscal year 2021. These eight new cities are Ma’anshan, Cangzhou, Weihai, Liaocheng, Rizhao, Yibin, Nanchong, and Zhaoqing. Similarly, we expanded our learning center network in the fourth quarter based on our healthy and sustainable approach and by following government guidelines and market demand. In Q4, we added 108 new learning centers on a net basis to a total of 1,098 learning centers. We opened 119 new Peiyou small class learning centers and closed nine, adding a net of 110 Peiyou small class learning centers. We closed five Mobby and Firstleap centers and we opened four one-on-one centers and closed one one-on-one center, adding a net of three one-on-one centers. During the quarter, we added 677 Peiyou small class classrooms. In all, by the end of February 2021, we had 1,098 learning centers in 110 cities, of which 109 cities were in China and one Xueersi Peiyou learning center was in the United States. Among these learning centers, 879 were Peiyou small class and international education centers, 82 were the merged Firstleap and Mobby small class, and 137 were Zhikang one-on-one. Looking into Q1 of fiscal year 2022, we have conditionally rented some Peiyou small class learning centers and expect to add a few more and close down some learning centers based on standard operations. We will closely follow up with government guidelines, as always, and stay alert for COVID-19 developments. Turning now to our online business. Fourth fiscal quarter revenue from xueersi.com grew by 115% in U.S. dollar terms year-over-year and 100% in RMB terms, while normal priced long-term course enrollment grew by 71% year-over-year to over 3.5 million. In the fourth quarter, xueersi.com contributed 32% of total revenue and 63% of the total normal priced long-term enrollments, compared to 24% of total revenue and 44% of total normal priced long-term course enrollments in the same year-ago period respectively. The growth in online business was supported by increasing demand for online education, as well as sales and marketing efforts and retentions of the previous quarters. In addition, in Q4, normal priced long-term online course ASP increased by 9% in U.S. dollar terms and increased by 1% in RMB terms year-over-year. With that, I will now turn the call over to Echo Yan for the financial update. Echo, please.

Echo Yan, IR Director

Thanks, Linda. Let me now go through some key financial points for the fourth quarter and then briefly review the fiscal year 2021 financials. Gross profit increased by 72.9% to US$ 781.2 million from US$ 451.8 million in the same year-ago period. Gross margin for the fourth quarter increased to 57.3% as compared to 52.7% for the same period of last year. Selling and marketing expenses increased by 171.6% to US$ 660.5 million from US$ 243.2 million in the fourth quarter of fiscal year 2020. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 168.4% to US$ 635.5 million from US$ 236.8 million in the same year-ago period. The year-on-year increase of selling and marketing expenses in the fourth quarter of fiscal year 2021 was primarily a result of more marketing promotion activities to strengthen our customer base and brand, as well as higher compensation to sales and marketing staff to support more programs and service offerings. Other income was US$7.9 million for the fourth quarter of fiscal year 2021 compared to other expense of US$4.7 million in the fourth quarter of fiscal year 2020. Other income in the fourth quarter of fiscal year 2021 was primarily due to the value-added tax and social security expense exemption offered by the government during the COVID-19 impacted period and partially offset by impairment loss of non-current assets. Income tax benefit was US$80.5 million in the fourth quarter of fiscal year 2021 compared to US$63.6 million of income tax expense in the fourth quarter of fiscal year 2020. Net loss attributable to TAL was US$169 million in the fourth quarter of fiscal year 2021 compared to net loss attributable to TAL of US$90.1 million in the fourth quarter of fiscal year 2020. Non-GAAP net loss attributable to TAL, which excluded share-based compensation expenses, was US$88.7 million compared to non-GAAP net loss attributable to TAL of US$57.2 million in the same year-ago period. From the balance sheet as of February 28, 2021, the company had US$3,243 million of cash and cash equivalents and US$2,694.5 million of short-term investment compared to US$1,873.9 million of cash and cash equivalents and US$345.4 million of short-term investments as of February 29, 2020. As of February 28, 2021, the Company's deferred revenue balance was US$1,417.5 million compared to US$781 million as of February 29, 2020, representing a year-over-year increase of 81.5%, which was mainly contributed by the tuition collected in advance of part of the spring semester of Xueersi Peiyou small classes and online courses through www.xueersi.com, as well as deferred revenue related to other businesses. Turning now to the full fiscal year 2021. Let me briefly review some key financials as follows. Fiscal year revenue grew by 37.3% to US$4,495.8 million. Gross profit grew by 35.6% to US$2,447.2 million from US$1,804.7 million in the fiscal year 2020. Gross margin for the fiscal year 2021 decreased by 70 basis points to 54.4% as compared to 55.1% for the same period of last year. Loss from operations was US$438.2 million in the fiscal year 2021, compared to income from operations of US$137.4 million in the prior year. Non-GAAP loss from operations, which excluded the share-based compensation expenses, was US$233.3 million for the fiscal year 2021 compared to non-GAAP income from operations of US$255.4 million in the fiscal year 2020. Net loss attributable to TAL was US$116 million in the fiscal year 2021, compared to net loss attributable to TAL of US$110.2 million in the fiscal year 2020. Non-GAAP net income attributable to TAL, which excluded the share-based compensation expenses, was US$98 million, compared to non-GAAP net income attributable to TAL of US$7.7 million in the fiscal year 2020. Now, I will hand the call back to Mr. Luo to briefly update you on our strategy execution and provide the business outlook for the next quarter. Rong please.

Rong Luo, CFO

Thank you Echo. Fiscal year 2021 was indeed an unprecedented year due to the outbreak of COVID-19. During the year, we timely responded to any government instructions related to public health and did whatever necessary to protect the safety of our students and employees and contribute to our country's great efforts to fight against this pandemic. Despite all the challenges we have faced, we realized 37.3% revenue growth for the fiscal year 2021, which was in line with our long-term growth rate expectations. We stayed on course with our development strategy as an education service provider regardless of the pandemic and the intense competition. Looking ahead, we will continuously follow up with the government guidelines for the industry and conduct our class teachings in line with national public health regulations as well as keep investing in the quality of our products, services, teachers' training, and technologies, supported by sustainable marketing efforts. Thus, our ever more diversified tutoring offerings will be able to better meet customers' changing demand and ability to pay. Let me turn finally to our business outlook. Based on our current estimates, total net revenue for the first quarter of fiscal year 2022 is expected to be between US$1,302.2 million and US$1,320.5 million, representing an increase of 43% to 45% on a year-over-year basis. That concludes my prepared remarks. Operator, we are now ready to take questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Your first question comes from Lucy Yu from Bank of America Securities. Please ask your question.

Lucy Yu, Analyst

Thank you very much for taking my question. So my question is about localization, which has been a hot topic lately. And we also noticed that one of our competitors today also reviewed their plan in localization of their courses, products, etc. So given that our Peiyou online size is getting meaningful and already like over 10% of our revenue, how should we think about our competitive edge in localization and the future competition dynamics in this localized online course industry going forward? So that's question number one. And then number two, related to that is that, could you please share with us the progressing status of synergies or cooperation among our different business lines, especially between xueersi.com and Peiyou online? So, do we have any targets to say how much traffic we can divert or share between these two platforms? Thank you.

Rong Luo, CFO

Thank you so much, Lucy. I think the first question about localization - no matter if it's localized online class or localized offline class, reminds me that last year in the second quarter, we talked about that that's why we developed our Peiyou localized online class Peiyou. So because when we reach through all the learning processes for Chinese students, we need to consider a lot of different factors. The more tailor-made or maybe more localized sometimes leads to better results. For example, in China, we have over 30 provinces, and different provinces have their different versions of the local college exams. If we go down to the college exams, the versions will be even more. So, if we want the students to spend less time but get a much better result, we need to make sure we teach content that meets their needs, which means we need to provide them with localized content. This content includes different versions, different levels of difficulty, and different sequences. You probably know that in primary school and middle school, China has multiple versions of textbooks. Even if it's the same version of textbooks, we have different provinces and cities. Even within one city, different districts may have different sequences. Some schools use their textbooks to learn certain knowledge first, followed by others, while this sequence in other schools may be different. Even in the same school, with the same textbooks and sequence, their level of difficulty will also be different. So, we are facing a very dynamic market, and we need to be very careful. When we teach one student, we try to teach the best content to fit their needs instead of only one version for all. So from this perspective, we know the localized content will be very helpful, whether it's an online or offline class. In the second place, we also figured out that local teachers, even in the online part, typically can teach local students better. For example, teachers in Beijing or Shanghai teach in these cities. They know a lot about what's happening in these cities. They know what the level of difficulty of the exams in different cities is. So, if we ask local teachers to teach local students, the outcomes will be better than only one teacher teaching students all over the country. Also, we need to be very careful because education is very different from e-commerce. They require a significant level of services. So, whatever services we provide should also be tailor-made and very localized. For example, a student in Beijing cares about what's happening in Beijing. What's happening in other cities may be less relevant to their attention. So going more localized and providing more individualized solutions to the students will be beneficial. In the long run, when the technology capabilities improve, there may be a chance to have a self-adaptive learning platform where everyone can be taught individually and differently. But today, we see that compared to a purely online model with one version for all, localized offerings will be more powerful than the previous versions. We are happy to see more and more companies caring about students' needs and working on providing localized offers. We believe that's the right direction to go. We need to understand the student better and teach them the most appropriate content. The ideal case will be they spend less of their time but learn more. But on the other hand, while going localized and trying to meet students' needs sounds easy to say, it's hard to execute. We, as a company, have been in this industry for over 10 years. We are building a lot of learning centers and have different teams working in different cities. The local team helps us gather information from the local geography and conduct localized R&D, which is fundamental for providing localized offers. Furthermore, which is quite different from the purely online part. It takes more time, patience, and a significant investment in new teams, new channels, and new ways to attract students, etc. So, if we say the purely online part is like Air Force, then going more localized means we’ll need to do more ground work. So everyone needs to be prepared for that. Especially in China, we have a huge geography, and we need to care for the students equally in every city. In summary, we are happy to see more companies going more localized and striving to teach students in a more efficient way. That’s the right thing to do. However, we need to be patient and invest enough time and energy in technology, content, teacher training, etc., to make it work. That's our view on how to be localized. Regarding the synergy between Xueersi's online school and Peiyou small class business, you're asking how much traffic they can share? I think it's not an attractive business case. When we consider the synergy between Xueersi online school and Xueersi Peiyou small class, in the first place, they are sharing the same brand. They're under the same brand. In the second place, they share the content and the technology strategy. We try to think that when we build the Peiyou small class business, we analyze every thought process of the learning, both online and offline. We try to standardize operations, and for the standard operations which have a lot of similarities among online and offline, we try to integrate them as one. But at the end of the day, I think these two things have some synergies. They share some infrastructures in the backend of their brand strategies. But in the frontend, from an operational perspective, they still tend to be more independent because today they target different markets. The Xueersi Peiyou small class business covers 110 cities. On the other hand, Xueersi online school targets the whole country and even goes down to the very low-tier cities. They have different targets, so frontend operations are quite independent. However, for backend functions, we try to do more integrations and drive more synergies. These synergies are not in the traffic but more in infrastructure perspective. Thank you, Lucy.

Lucy Yu, Analyst

Thanks a lot.

Operator, Operator

Thank you. Our next question comes from Sheng Zhong from Morgan Stanley. Please ask your question.

Sheng Zhong, Analyst

Hi, thanks for taking my questions. I also want to follow up on the Peiyou online. So, as I look at your Peiyou offline capacity, it's very clear to me that your cost per learning center is much less than before, especially this quarter. So, will this be a new normal for your new capacity in the future? I think part of the reason should be your offline and online strategies. Will that mean - what is the company's outlook for the Peiyou online contribution to Peiyou total next year and maybe in the longer term? Any color will be appreciated. Thank you.

Rong Luo, CFO

Thank you, Zhong Sheng. I think the Peiyou live and Peiyou today is under one team, and we try to integrate them together even in lower-tier cities. I suggest you look at the Peiyou revenue as a whole, both online and offline. I think that is a more proper way to look into our business. I’ll share one example. For example, in Beijing and Shanghai, we have a very high percentage of offline students using the Peiyou live offering now. Sometimes, it's difficult to separate what's Peiyou live or what's Peiyou online or what's Peiyou offline. So the better way to look at that is we're combining the two together, and we're looking at Peiyou total growth. On the other side, I think when we look into the Peiyou live, part of the reason they are so successful is because they use a very localized way to do that, which is quite different from Xueersi online school. We're also piloting some new formats of classes in the Peiyou online channels, not only big classes but also small classes in the top cities. Even today, I think the Peiyou online/Peiyou live has not covered all cities. They only cover top-tier cities in Peiyou small class business. We are confident they have a chance to continue to develop and try to expand and cover more cities in the future. As we look at all of this, I think managing the business needs to change according to customer behavior. Two years ago, online and offline even in Peiyou space were relatively more independent. However, now we see that Peiyou students and parents are buying both online and offline offerings. Our direction is clear. We don’t have a specific target for how much Peiyou online we need to deliver or how much Peiyou offline we need to deliver. The only target we have is to find the best way to meet parents' and students' needs. We need to provide them with more visibility and options to maximize their return on investment in time and energy. Overall, we wish to combine these efforts as Peiyou can leverage both online and offline growth drivers to drive healthy growth in the coming few years. Thank you, Zhong Sheng.

Operator, Operator

Our next question comes from Felix Liu from UBS. Please ask your question.

Felix Liu, Analyst

Hi. Good evening, management. Congratulations on a very strong quarter, and thank you for taking my question. My question is on the growth of this quarter and the next quarter and maybe on the next fiscal year as well. I understand that previously the guidance for Q4 was a little bit weak on the online side, because of scheduling. But then online, I think it was – xueersi.com ended up performing very well. May I know what’s driving the strong performance? Secondly, on the guidance, could you possibly break that down into business lines? And what do you expect the growth to be like by business line? Given the strong momentum, is there any update to our FY 2022 growth outlook? Thank you very much.

Rong Luo, CFO

Thank you for the question. I think when looking at the Q4 numbers, sometimes people will say the numbers are very good. But I need to draw attention to a deep dive into the details of the numbers. In Q4, if you remember, our Peiyou enrollment growth is around 20%-plus, while the revenue growth is higher. That's because last year same quarter Q4, we faced the outbreak quarter of COVID-19. So at that time, we moved all our offline business to online rapidly. But frankly speaking, the move was rushed because we never knew what the pandemic had in store. To compensate parents, we changed the pricing from offline to online pricing, which is significantly less than the online price. This drove a higher pace in last year’s Q4. So I suggest you look at the Peiyou enrollment growth of around 20%-plus. That’s the right number to look at. Compared to previous quarters last year, which went through a tough time in COVID-19, the Peiyou small class is recovering step by step. We also see the recovery is on track for Q1 of fiscal year 2022. Regarding the online part, I mentioned our online part performed a bit better than expected. Part of the reason is because the online offers fit student needs. We also spent a fair amount on marketing dollars to drive growth. Looking towards Q1, we can expect the online school's enrollment growth to be similar to this year’s Q4. We are on track from both online and offline perspectives. However, when looking at education companies' growth, the best approach is a rolling 12-month view. This can eliminate impacts from scheduling or quarter-over-quarter adjustments, which makes it easier to interpret our total business. All these numbers are based on present conditions. I need to highlight that some new policies are ongoing and may affect us. So, as a company, we will follow government guidelines. Should the policy be clear, we will comply and make necessary adjustments. So all the numbers you see today are based on the current situation, and may change if the policy updates. Thank you.

Felix Liu, Analyst

Okay. Thank you very much.

Operator, Operator

Thank you. Our next question comes from Ds Kim from JPMorgan. Please ask your question.

Ds Kim, Analyst

Hi. Good evening everyone and congrats on such a massive revenue beat. My first question is actually related to your last one just now, a little bit indirectly. I know it's impossible to predict at this point. But in an unlikely scenario of government limiting advertisements significantly, what do you think will be the sustainable growth rate for xueersi.com, and for the online tutoring industry as a whole in a less-advertisement or no-advertisement environment? How do you think we can achieve such run rates? Could you possibly break out new student enrollments or new student contributions? Currently, distinguishing performance adds versus organic versus referrals, so that we can have a sense that no advertisement would still be giving us an amount of growth? Then, I have one follow-up. Thank you very much.

Rong Luo, CFO

Thank you. I think, right now, before we see clearly what the policy is, it's too early to talk about the potential impacts of that policy. When looking at our online part, specifically, you talked about advertisements and promotions in online marketing. Frankly speaking, we are not just a company focused on promotions. We prefer teaching students well, making people satisfied, and driving growth through high-quality services. That’s how we typically drive growth. If the policy impacts advertisements or online marketing, we will operate accordingly with other players in this industry. But today, we still need to wait for the final policies and requirements before making a judgment. On the other hand, I must highlight that in the past few quarters, the Xueersi online school has shown more students coming from branding channels. We share the Xueersi brand with Peiyou small class, creating better customer awareness across the top 100 cities. This enables us to attract students directly through our platform and Peiyou live classes. We need to focus significantly on serving current students. When a student is engaged with our platform, we must ensure they receive high-quality services so that their retention rates remain healthy. We also encourage students to refer their parents and friends to study with us. Ultimately, we must ensure our classes remain competitive by teaching students well, maintaining high retention rates, and keeping low dropout rates. Our operations must be efficient compared to everyone else. In conclusion, regarding advertisement policies or not, let’s stay tuned. We will likely provide more insights once we have clearer policies. The industry has faced policy changes and challenges previously, and we have always complied with the guidelines. We focus on students and parents receiving high-quality services. That is our fundamental principle, and it never changes. Thank you.

Ds Kim, Analyst

Thank you. That's really helpful and I absolutely agree with you sir. One follow-up question if I may is about our expansion. If you look at the past two years, I couldn’t help but notice that we are entering new cities at a pace we have never done before. Like nearly 60 cities, we only had one center there. May I ask what’s driving this strategy? Are we trying to set up home bases for Peiyou live in the nearby cities, or are we seeing offline market share opportunities in those specific cities and want to build brand equity there as soon as possible? That's it from me. Thank you so much.

Rong Luo, CFO

Thank you. I think no matter whether you're in Beijing, Shanghai, or in Suzhou or Yibin, students have equal demands or opportunities to study better and grow in their nearby cities. The demand is always there. The only difference is previously if you only relied on offline growth drivers, running classrooms, hiring teachers and performing offline training activities were labor-intensive, which is difficult to scale. However, with the online component, you can offload some elements or some percentage of the workloads online, making it easier to scale flexibly while providing high-quality and affordable services to students - not just in top-tier cities but also in others. Today, we cover around 110 cities, so we’ll tend to enter more new cities in the future. We wish to provide equal access to high-quality teaching services from our platform, which will help and support many students achieving their goals in the future. Thanks to technology, we have the possibility to reach more areas and teach more students. But this is not the end. During the move to merge online and offline, we still face many areas for improvement and challenges to tackle. We will continue making efforts in these areas over the next several years, possibly many years to come, to make this all happen. Thank you.

Operator, Operator

Thank you. Our final question today comes from Alex Xie from Credit Suisse. Please ask your question.

Alex Xie, Analyst

Hi. Thank you, management, for taking my questions, and congratulations on the good performance in this quarter. Firstly, I'd like to ask about your ASP in online. I think this is the first time for the online business to achieve significant ASP growth in two years. Could you explain further? I believe you previously mentioned that ASP should go lower to attract students in low-tier cities. Secondly, could you update us on the status in Beijing? How many of your learning centers have obtained the approvals to reopen? What are your expectations for the rest of them? Thank you.

Rong Luo, CFO

Thank you. First, let me clarify regarding online ASP. The online ASP grew by 9%, which is impacted by exchange rates. In RMB terms, the normal priced ASP for the Xueersi online school showed only around a 1% increase. It is very stable. We do not see major changes in ASP for Q4. Regarding the status in Beijing, even today, only a single-digit percentage of our learning centers have received approval to reopen. The remainder is still undergoing the government process to obtain approvals, which will take time, and I cannot estimate how soon that will be complete. Our view is clear; we will comply with government guidelines and follow their requirements regarding offline learning centers. Meanwhile, we can leverage our online platform to teach students in Beijing. So far, the growth remains stable, and we also see retention rates and dropout rates are generally on track. We do not foresee significant variations. Looking forward, once the new policies roll out, we will comply with these and make necessary adjustments. Based on what we see today, we are mostly on track. Thank you.

Alex Xie, Analyst

Thank you. Got it.

Operator, Operator

Thank you. So with that, we conclude our conference for today. Thank you for participating. You may all disconnect.