RISE Education Cayman Ltd

Q1 2021 Earnings Conference Call

5/21/2021

spk03: Ladies and gentlemen, thank you for standing by and welcome to the RISE Education first quarter 2021 earnings conference call. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, press star 1 on your telephone. 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 Lee. Thank you. Please go ahead.
spk00: Thank you, operator. Hello everyone and welcome to Rice Education's fourth quarter 2021 earnings conference call. Today you will hear from Ms. Li Hong Wang, Chairwoman and CEO, and Mr. Warren Wang, CFO. Li Hong will go over recent business updates, operations, and the company's long-term strategy. Warren will go over the financial results of the quarter. Both will be available to take your questions in the Q&A session as 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 provision of the U.S. Private Security Education Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to our Form 20 Act. filed with SEC on April 19, 2021. We do not assume any obligation to update forward-looking statements, except as required under the applicable law. Throughout today's call, Lee Hung 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 Lee Hung. Lee Hung, please go ahead.
spk01: Thank you, Aaron. Hello, everyone. Thank you for joining our earnings call today. We are pleased that 2021 started off on a positive note with the business recovering strongly compared with the prior year. Despite the resurgence of COVID-19 in certain areas of northern China and recently introduced the regulatory restrictions, we still managed to deliver strong year-over-year improvement on both our top line and bottom line in Q1. We are pleased with the overall business performance were measured against the unfavorable macro environment. Moving ahead, given the critical regulatory changes we are facing right now as an industry, we are working to fully upgrade Rice into a multi-form aptitude training provider in order to proactively navigate the challenging environment of the domestic education market and drive sustainable long-term development of our business. Now I would like to give you some details of our quarterly results first. Please turn to slide three for our financial and operational highlights for Q1 2021. Revenue were RMB 262 million in Q1, up 140% from the same period of 2020. We also significantly narrowed the adjusted EBITDA loss and adjusted net loss on a yearly basis. Total number of new students enrolled for RISE regular courses was 5,846 in Q1, compared with 1,507 for Q1 2020. We saw a quarter-over-quarter decrease in the number of new students enrollment. This was mainly due to strong seasonality in the ELT market, where students enrollments are usually lower during the Chinese New Year season in Q1, as well as the reason they introduced the regulatory restrictions in Beijing, During the quarter, all of our learning centers were in full offline operation except for those in Beijing. Due to the resurgence of COVID-19, our learning centers in Beijing and Shijiazhuang were temporarily closed since late January. As the in panic situation eased, all of our learning centers in Shijiazhuang resumed offline operations by the end of March. Only one of our learning centers in Beijing reopened in March. while the offline operations of all other learning centers in Beijing remain suspended due to regulatory reasons. These factors did impact our new students' enrollment in Q1 and was the main reason for the sequential decline in the number of students in class who write regular courses. We believe this is temporary. We expect our learning centers in Beijing will gradually reopen once we satisfy regulatory requirements. We expect both our enrollments and students in class to be back on track accordingly. As of March 31st, 2021, the cumulative number of enrolled students who paid for regular courses and other courses since January 2019 exceeded 215,000 and 100,000 respectively. Based on these extensive fee-paying student base, we will execute our business upgrade plan to drive our long-term growth. With respect to capacity expansion, as of the end of March 2021, we have self-operated 95 learning centers nationwide, compared with 92 in December 2020. Our franchise partners opened another 10 new centers in Q1, bringing the total number of franchise learning centers to 230 at the end of March compared with 220 at the end of December 2020. Now onto slide four. Here I want to highlight the strong growth momentum we have gained in all cities other than Beijing. All of our self-owned learning centers in all cities other than Beijing resumed full offline operation by the end of Q1 2021. It is encouraging to see that despite strong seasonality in Q1 of 2021, Our learning centers in all cities other than Beijing register quarter-over-quarter and year-over-year increases in new students' enrollments and students in class for Rice regular courses. This demonstrated the trust and strong approval that parents and students have towards the Rice brand, our reputation, and our diversified offerings under the OMO model. Retention rates in all cities other than Beijing saw sequential improvement, including the retention rate of both Shanghai and Shenzhen, which has significantly increased seven percentage points quarter over quarter. Even when our learning centers in Beijing couldn't reopen by the end of March 2021, we still managed to maintain a stable retention rate in Beijing, with only one percentage point decline on a sequential basis. New student enrollment in Beijing also significantly increased on a yearly basis. In addition, we saw a very low refund rate in Beijing, only 7.6% in Q1. Thanks to our proven and mature OMO model, we have the resources and the flexibility when necessary to switch between online and offline courses seamlessly, which is highly appreciated by the students and parents. Moving to slide five, our franchise business also saw strong year-over-year growth in both new enrollments and revenues. By the end of March 31st, we expanded our offline franchise learning centers to 430 with a total number of students in class of more than 110,000. As franchisees are an important part of our ecosystem, we will further deepen our cooperation with the existing franchisees and explore more opportunities to expand the franchisee base and jointly promote the development of aptitude education in China. Now onto slide six. We continued our efforts to diversify our course offerings to build our aptitude education ecosystem. As we mentioned earlier, our last course about Chinese New Year traditions launched in Q1 attracted about 35,000 enrollments, which proved to be an effective marketing channel. In March, we launched the App to provide a more diversified selection of life courses and online picture books. For our one to four premium online English small classes, we proactively expanded its customer acquisition channels to increase new enrollments. which saw about 46% sequential growth in Q1. In summary, we are actively working on transforming RISE into a multiform aptitude training platform. And now I would like to invite our CFO, Warren, to talk about our first quarter financials. After that, I will give you an update on our business and branding upgrade plans and our business outlook for 2021. Thank you, Li Hong.
spk02: Let me now go through our financial results for the first quarter of 2021. Before I begin, please note that all numbers stated are in RMB. Let's take a look at slide seven. Despite our unfavorable macro environmental conditions, we generated RMB 77.2 million of operational cash inflow during the first quarter, compared with cash outflows of RMB 82.4 million, and RMB 108.5 million in the first quarter and fourth quarter of 2020, respectively. This was mainly attributed to a couple of key factors. Firstly, the strong market demand for our diverse cost offerings, and secondly, rice bran exposure and solid reputation built on extensive experience in the sector and high-quality career. In addition, we continue to optimize costs with overweight offline marketing channels and improve performance on new student acquisition and retention. This healthy cash flow has laid a solid foundation for further business expansion and to navigate any possible changes that may emerge in the macro environment. Turning to slide eight, total revenues increased 140% year over year to RMB 261.5 million. Revenues from educational programs increased by 125% to RMB 229.5 million. The year over year increase in revenues from educational programs was primarily due to the reception of online and offline operations of our self-owned learning centers as a result of the succeeding COVID-19 pandemic and our quick OIMO study deployment. Although there are still ongoing uncertainties and challenges arising from the impact of COVID-19, we believe that we are well positioned to mitigate risks. Franchise revenues increased by 420.6% to RMB 31.8 million. The year-over-year increase was primarily due to the growth in recurring franchise revenue as a result of subsiding COVID-19 pandemic. Other revenues decreased by 69.2% year-over-year to RMB 0.3 million. Cost of revenues increased 13.8% year-over-year to RMB 162.2 million. The increase was primarily due to an increase in rental expenses as a result of the termination of rental concessions during the COVID-19 pandemic. And the increase in teachers' compensations as a result of increased teaching hours and the resumption of employers' contribution for social insurance and payroll taxes. Additionally, the increase was also due to an increase in referral fees paid to franchisees for new franchise business. Land gap cost of revenues increased by 14.8% to RMB 158.7 million. As a result of the foregoing, gross profit was RMB 99.3 million compared with gross loss of RMB 33.6 million for the first quarter of 2020. Now onto slide nine. Total operating expenses increased 37.1% year over year to RMB 134.1 million. Land gap operating expenses were RMB 132.9 million. Selling and marketing expenses increased by 48.9% year-over-year to RMB 64.3 million, compared with RMB 43.2 million for the first quarter of 2020. The increase was primarily associated with increased online and offline marketing channel expenses, coupled with incentive-based salary raises from our marketing staff. Non-GAAP selling and marketing expenses increased by 50.7% year-over-year to RMB 33.6 million. General and administrative expenses increased by 27.8% year-over-year to RMB 69% million. Compared with RMB 54.6 million for the first quarter of 2020, The increase was mainly attributable to increased personal costs. Non-GAAP general and administrative expenses increased by 24.7% year-over-year to RMB 69.3 million. Operating loss was RMB 34.8 million compared with operating loss of RMB 131.4 million for the same period of prior year. Non-GAAP operating loss was RMB 30 million as compared with non-GAAP operating loss of RMB 127.1 million for the same period of prior year. Adjusted EBITDA loss was RMB 5.1 million. Turning to slide 10. Net loss attributable to RIS was RMB 24.6 million. Non-GAAP net loss attributable to RIS was RMB 19.9 million. Basic and diluted net loss attributable to rise per ADS was RMB 0.44. Basic and diluted net gap net loss attributable to rise per ADS was RMB 0.35. Net cash inflow for operating activities was RMB 77.2 million. compared with net cash outflow from operating activities of RMB 82.4 million for the same period of per year. The increase was mainly due to the increased tuition fees collected for West regular courses as a result of the succeeding COVID-19 pandemic. As of March 31, 2021, we had combined cash and cash equivalent and cash of RMB 692.9 million, as compared with RMB 639.2 million as of December 31, 2020. Current and non-current deferred revenue and customer advances was RMB 696.4 million as of March 31, 2021, representing an increase of 15.7% from RMB 601.9 million as of December 31st, 2020. The growth was primarily due to the increased tuition fee collection as a result of the succeeding COVID-19 pandemic. Deferred revenue and customer advances mainly conceived of upfront tuition payments from students and initial franchise fees from our franchisees. With that, I would now like to handle the call back to Lee Hong give you an update on business and planning plans and business outlook. Thank you.
spk01: Thanks, Warren. Now on slide 11, as you know, microenvironmental factors have a profound influence on the entire after-school tutoring market in China. Over the past two months, we've seen Beijing Educational Bureau implemented or tested a series of regulatory requirements related to after-school tutoring sector, including restrictions on subject-based education, fund supervision, and advertising related to preschool tutoring. These regulations have broadly affected the entire sector. The accelerated growth of the after-school tutoring market in China has no doubt brought some chaotic problems, so we believe that it was necessary for the government to define clear regulations to promote the long-term and healthy development of the education industry. And we fully appreciate and support the government's initiative. We believe that there will be both challenges and opportunities for the after-school tutoring sector to shift its focus onto the original building blocks of a well-rounded education system. We have entered a new chapter for RISE to fully upgrade into a multi-form aptitude training platform. Look 14 years history, we think RISE platform has two strong, sorry, has four strong pillars. First, we are a market leading education brand. Second, we have academic capability, strong course development and training capabilities. Third, we have a student base with more than 150,000 students in class. The last, not the least, nationwide network of self-owned and franchise centers, over 500 centers nationwide, and an IT and operating system that can support online education as well. So let me elaborate those four strong pillars The first one, market leading brand, and the second one, academic capabilities. During the past 14 years, we have mainly specialized in English language training, or ELT services. And at the same time, we have also been dedicated practitioners of aptitude education, because we have always advocated for our students to develop well-rounded foundations. Unlike most test-oriented courses, our curriculum are designed to foster leadership and cognitive skills in students while developing their self-confidence and sense of independence. This is fully in line with the education concept advocated by the government and the public in China. In addition, we have developed and executed our plans since early 2020 to directly tap opportunities in the STEAM market. Our experience and expertise in aptitude education and our deep dive into these new segments have laid a solid foundation for the development of our complete aptitude education ecosystem. I also mentioned our nationwide offline and online network with a strong student base. So our large-scale offline network now has more than 500 learning centers in total, including self-owned learning centers and franchised learning centers. Rice's brand influence and recognition has helped us to penetrate into more Chinese cities. In combination with our Rice Plus online platform, our courses and service offerings under the OMO model were accessible to a very large pool of students nationwide. As of the end of March 2021, there were more than 150,000 students in class from SOCS and our franchisees. In addition, we also served more students in our RISE courses. This large size of private traffic enabled us to lower customer acquisition costs, or CAC, as compared with the CAC of new students' acquisition through other means. To unlock the traffic value of our sizable student base, we can adapt multiple monetization approaches to explore more opportunities in aptitude training to cater to different learning stages. In addition, we continue to enhance our digital capabilities with further investment to improve our overall operational efficiency and have made solid progress on this front recently, including the continuous improvement of our proprietary online classroom technology, course delivery system, AI classroom supervision system, due teacher training system, and our AI teaching and lesson prepare system. In addition, we have built up strong curriculum development capabilities to ensure that our course offerings are up-to-date, engaging, and effective. All these competitive advantages will continue to help us to develop our aptitude education ecosystem and drive long-term growth for our shareholders. Turning to slide 12, we see the structure of our multi-form aptitude training platform. In addition to our core ELT courses, as well as other existing courses, such as Edge, a premium English training brand. We have also launched two new brands, Haiye and Ysteam. These two new brands significantly enhance our aptitude training system to cover ELT, social skills, and STEAM ability development programs. Rice ELT, Haiye, and YSEAM courses target students of varying ages, starting from six years old and above three to eight years old and their parents respectively. I'll give you more details about these three businesses in the following slides. Moving to slide 13, ELT will remain our core business. Over the years, we have strengthened our leading position with an experienced management team complemented by strong research and curriculum development capabilities and diversified high-quality course offerings. At present, our ELT courses target students above three years old. If regulation changes, we can shift ELT to serve students above six years old. Currently, offline schools that have resumed operations in Beijing are delivering courses to students above six years old as required by regulatory authorities. To attract the new students' enrollment, we'll continue to innovate course offerings with enhanced immersion learning experience and personalized teaching approaches based on our OMO model. Now onto slide 14. Haiye is our newly introduced brand focusing on children's emotional development and related family education support. The course targets children between three to eight years old and their parents. Research continues to highlight the benefits of social-emotional learning and why having a growth mindset is the strongest foundation for children to grow up into healthy and holistic young people. Those are the fundamental theories behind our course design to address the need for children to develop healthy identities manage emotional intelligence, create and maintain supportive relationships, and achieve individual and collective goals. Currently, we are working on introducing Haiei courses at our self-owned learning center, OSOCS. In addition, we'll launch separate Haiei learning centers transformed from certain revamped venue of existing SOCS. Now onto slide 15. Why STEAM focuses on STEAM-oriented aptitude development of children based on cognitive skills training and development, which includes math, logic thinking, science literacy, and science exploration. The courses are designed for children under eight years old and help them nurture deep understanding of conceptual thinking and innovative problem solving. We believe cognitive thinking skills are a crucial part of children's development, and parents are increasingly placing a high value on this. We have received very positive feedback on our STEAM courses, which were introduced into the market last year under the name of Rice Mathological Thinking. Under this new branding, Why STEAM?, we will continue to improve the learning experience of our students and accelerate our business expansion in this segment. Moving to slide 16, our business outlook for 2021. We are proactively upgrading our business to navigate macro environmental challenges and explore untapped opportunities ahead. We will hold a press conference in Beijing to officially announce our business and branding upgrade on May 28th, 2021. For our ELT business, we expect our learning centers to continue their normal operation with solid growth momentum. The learning centers in Beijing that cater to students above six years old are expected to gradually resume offline operation as well. For Haiye, we expect to open the first offline learning center in June 2021, which will be transformed from a revamped venue of an existing SOC in Beijing. For YSTEAM, we have opened three YSTEAM courses in Beijing in March and are in preparation to offer this class in three self-owned learning centers in Shanghai. And the first franchise learning center in Zhengzhou will be open by the end of Q2 or actually in June. So far, YSTEAM courses have received very positive feedback from more than 50 franchisees who have shown interest to introduce WiseTheme into their offerings. As of date, more than 20 franchisees have signed a letter of intent. Last but not least, we have signed a memorandum of understanding to acquire a franchise learning center in Chengdu, which has a proven track record of solid performance. This franchisee is our largest franchisee in terms of revenue contribution and has more than 30 learning centers in Chengdu with about 13,000 students in class. Given all these factors, we reaffirm our guidance for our revenue to be in the range of RMB 1.42 billion to RMB 1.73 billion for the full year 2021. With that, I would now like to hand the call over to the operator so we can begin the Q&A session. Thank you.
spk03: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, press star 1 on your telephone. To cancel your request, press the pound or hash key. Your first question comes from Sheng Zhong of Morgan Stanley. Please ask your question.
spk06: Hey, good morning. Thank you for taking my question. And thanks for a very comprehensive introduction about your result and new business. So I'm very interested in your new initiatives, including Hyatt and Ysteam. Can you give us more color on the market potential you see in these two areas and what the current competition landscape and what's your operation model, like your pricing, your positioning, and maybe also how much revenue contribution you would expect from this new business this year and the next year. This is the first question. And the second question is regarding to our current major business, ELT. You also mentioned there were some regulatory uncertainty here. So could you share us with some more color with your communication with the government, especially in the Beijing reopening process? What do you see the government attitude to the tutoring for the children below six years old? Because at the same time, we see some online players, they already removed their online courses for six years old. below children. So that's my question. Thank you very much.
spk01: Thank you, Zhongsheng. So on the first question, maybe I start with why STEAM? Because this is a course extended from our math logic thinking. To be frank, this is the second largest area after English, so the demand from students and parents are pretty high, partially proved by, I would say, online players like Huohua and Wando. For us, we believe our strength is offline, so the WISE theme is extended from MathLogix to include more science literacy and science exploration Partially to make it more comprehensive, but to be frank, we don't want this to be subject to the regulations in terms of what they call subject-based course to be categorized as mathematics. For us, the positioning is to try to be the offline number one player in the market, and right now to the market is, I would say, pretty competitive. For three-month courses, we price below 6,000 RMB. We do think with offline, more interactive immersion experience, this could be quite attractive. For high-year, I would say, one is you can call it a new course. The first purpose is to, in some ways, if the regulation prohibits us to teach English below six years old, we wanted to convert our students into this class to prevent losing our current student base. Then the second, of course, this is a course focused on social-emotional and also growth mindset. In these two major areas, it is actually quite common into the teaching courses overseas. However, in China, there's, I would say, a lack of very good offerings in this space. However, families' parents are very focused on preparing their kids to be able to blend into the society, into the schools. So we see a very strong demand. In terms of competition, there's not much competition offering comprehensive courses. However, there are one or two players offer partially, including this social-emotional and growth mindset, Two names I can give you, one called Jin Se Yu Lin. They started as kids who have trouble learning, but expanded into the social-emotional space. They're quite small. There's a second player called Qu Kou Tai. They're much more focused on oral delivering. However, for us, oral communication is only part of the courses. We do see a very strong potential. However, for high year, this year, majority of the students would come from the ELT age below six if regulation really target that space to prohibit learning English as a subject. So there's less focus on generating additional revenue, In the long run, however, we do think this course will have high demand, can be a separate business avenue. However, this year is not the focus. So that's the first answer related to the answer related to your first question. On the second question, the current EOT business, as I mentioned, in Beijing, it is not officially, there is no official so-called regulation put in place. However, each district and also Beijing Education Bureau, a lot from the so-called the oral communication, we see a couple of areas that they are very much focused. The first one is the license, license including the centers. that you have to have an education license. The second is that teachers need to have a license. Then the third area is really the so-called... I think I mentioned the... What's the right word? The fund supervision, meaning you have to have a deposit to guarantee... that you have the capital to run schools. Each district has a very different requirement. This is the third element. The fourth element is also not written. So far they prefer or they in some way only let you get students age above six come to the classroom. So you cannot offer offline classes for children below age six. All these are not on paper. However, we have to satisfy their requirement to resume offline schools. So far, we have three offline schools resumed. teaching children aged above six years old. So, if this requirement becomes official and implemented across the city, as you mentioned, this will definitely have impact on our business, also, you know, competitors as well. Therefore, our strategy is to continue the offline teaching for age above six, and then for age below six, once they have an official requirement, we will convert them into high-year. In fact, even before that, the first two schools under high-year will be launched in mid-June, and we use the existing facility, we will convert those students in those two schools into high-year first, so test all the marketing materials and teaching methodologies, prepare for the launch to cover all Beijing if the requirement becomes real. In terms of online players, my understanding is so far there is no clear regulation yet. However, if the regulation becomes official and public, that will apply to all players, including online players. But that's my personal understanding.
spk06: Thank you very much, Lihong. That is very helpful. And may I follow up one quick question? For Haiye and YSTEAM, are the course content internally developed?
spk01: Yes. YSTEAM started from MathLogix. We also tried out STEAM courses in 2019. So we combined these two together to be the new YSTEAM courses. In high year, we also studied similar courses overseas. And of course, in China, the education guidance also included areas like social, emotional, and growth mindset. So we combined those with the leadership courses from the English ELT. So this is, I would say, partially take over some of the content from the ELT courses and then develop more into social-emotional and growth mindset. This will hopefully be taught in English and Chinese, however, with less focus on English language.
spk06: Thank you. Thank you very much.
spk01: Just one additional point. I think the so-called study, if you study subjects, for example, English and, sorry, mathematics and Chinese, under six, this is strictly prohibited right now. That's why you see some players already take off the shelf. However, the so-called English language or some online courses named Qi Meng, for example, or the Enlightenment, still not very clear whether this will be categorized as subject-based courses. If it is, I think all of that may be prohibited under H6. Got it.
spk06: Thank you.
spk03: Your next question comes from Lei Yang of China Galaxy International. Please ask your question.
spk07: Okay. Thank you, management, for the opportunity to ask questions. I have two questions. So the first one is because your offline cast is not available, resume largely currently so could you elaborate more on your OMO learning system and what's the part of the OMO learning playing in your new businesses and also about the second question is about the sales contribution of each of your brands Could you elaborate more on this? Thank you.
spk01: Okay. So when we articulate the OMO model last year, my point is that we can offer pure online, pure offline, and online merging with offline really depends on the situation and age group. offline can be resumed or can be utilized. For age below six, we encourage all offline learning, given the better experience and also interaction offline. For age above six, when offline are available, we offer OMO model, meaning during weekdays, One course will be offered online, focusing more on subjects to have better experience in terms of language, in terms of learning grammar and reading comprehension. Then the two courses will be offered offline during the weekend, so these are more students in school. So this OMO model suits them better to stay at home during weekdays and come to the center during the weekend. And if there is a COVID-19 situation or other situation that's prohibited offline learning, all the students can be moved to online learning. Therefore, in Beijing and Shijiazhuang, during the COVID-19 resurgence, all the students continued their learning online. And for Beijing, the centers now still cannot open offline. All our students are learning online. So this is the OMO model. Try to better suit the experience and also the the so-called time management for our students. And this is also part of the benefit for our network, as I mentioned. We have both offline network and online platform. The OMO is the strategy for RISE. Therefore, all the new business will be able to have OMO blend into the business. For example, the new high year courses, each course targets students. At the same time, we will offer short videos to parents so the parents understand what the students are learning. At the same time, they can be supportive in this so-called social-emotional growth mindset development because we do think this is a matter for the whole family and not just the students. So the OMO model will continue. Even for the camp and social studies, we will have an OMO model into the business. The second question regarding the sales contribution, right now as we planned, The WISE theme will go through both SOX and franchisee model. Therefore, the sales contribution from direct owned and the franchisees will be according to the plan we had in the beginning of the year. This year, the contribution will be small. This is the year that we wanted to open more centers, but the revenue recognition may need some time to realize the cash revenue could be, of course, will realize earlier. For high-year, as I mentioned, the first or critical objective for high year this year is to convert our students below age six in the ELT space so that we keep the student base, keep the business in a healthy status. However, if we do see this as very attractive, we can of course open separate independent centers both in SOCS area and franchisee areas. But I don't think this is the key component this year. This could be the revenue potential or growth potential in the future.
spk07: Thank you. Thank you very much.
spk03: Your next question comes from Lauren Joy. of Credit Suisse. Please ask your question.
spk08: Thanks, management, for taking my questions. So I have two questions. The first one is still about regulation. Considering there's still some of the offline learning center, would you share some color of your expectation for the new student enrollment growth for the upcoming quarters? And the second one is about user acquisition strategy. given high percentage of your traffic relies on the offline referral. If there is further restriction on offline learning center, what would be the marketing spending plan to acquire new users for the rest of the year? Thank you.
spk01: Okay. As I mentioned, Beijing, we actually will see resume more schools for offline learning. the restriction is that you have children aged above six. With the offline learning center opened, we definitely see better enrollment in those schools. However, even in the first quarter when all the Beijing centers were closed, Beijing newly enrollments still see, I would say, pretty good results. As I mentioned earlier, the enrollment for all other cities see very strong growth quarter over quarter, year over year. In the second quarter, I think that trend will continue. Of course, Shijiazhuang resumed the offline operation in the end of March, so the Q2 will also be stronger. The Beijing, I think, you know, may still see soften. However, once we resume more offline centers, we will see better traction. That's one point. The second point that we are shifting to more efforts to acquire students at age five years old. so that they can come to school when they are getting to the right age group. On that front, I do think we need to look at the whole market. If we are restricted, everyone else would be restricted as well. So the courses that you can offer will be limited. The so-called educational providers will be, you know, number of players will be fewer, and with our reputation and ability to navigate these challenges, we actually think in the future you will see fewer players getting more market share, although it may not happen in the near quarter, but in the long run, the so-called bigger players or stronger players the players who can comply with the government's regulations will be there. Of course, the second quarter, in terms of seasonality, is never a very strong quarter. So I think we will see a normal quarter, maybe a little bit weaker because of the Beijing situation. But overall, outside Beijing are very strong. The second question regarding acquisition costs, In fact, I mentioned governments regulate advertising channels and the languages that you can use for advertisement. So this actually affects a lot of the online channels much significantly. For us, we have a very large offline network. From the acquisition cost, you can see that our acquisition cost actually is controlled very well. We still think the offline channel has a very strong advantage. This year, the strategy for rice is to overweight the offline channel. We are doing it according to this strategy. In Beijing, In fact, you can still have a demo with a student and their parent. So it is not entirely off the market. That's why in Beijing we still be able to have new student enrollment. Going forward, we will continue this strategy to have a balanced deployment in terms of online and offline advertising and offline promotion. The other point is we are building the last courses to attract private traffic. Going forward, hopefully this private traffic can help us to generate leads and to convert students into our courses, ELT, High Year, and STEAM. For the private traffic, The strategy for us, one, of course, to have like courses, diversified courses. The second approach is to cooperate with other, I would say, companies in different industries. For example, we trialed activities or host events at the Walmart Sam's Club in Shenzhen we actually got pretty good and accurate leads. These are the tools that we can expand our lead and private traffic pool and help further conversion into our regular or main courses.
spk08: Thank you.
spk03: Your next question comes from Yikun Zheng of Citix. Please ask a question.
spk04: Hello, management. Thank you for taking my question. And I have two simple questions.
spk05: First, how does the potential regulation affect our original strategy on expansion and marketing? And what is our long-term strategy now, like in three to five years? Thank you.
spk01: So the first question is about marketing or about the network?
spk04: Both.
spk01: Okay. As I mentioned, we deploy the so-called the or we acquire students utilizing all channels online and offline. With our offline network, we easily can do the offline promotion around the school. This will continue to be our major channel. Of course, we use the online channel like the search engine, the Dazhong Dianping. the other social media as well. I think it will be a combination. But for Rice, we always wanted to utilize our offline network. In terms of network expansion, so far in Beijing, the license approval is actually very difficult. However, super majority of our schools already have license. We actually feel there's disadvantage. Part of the, I would say it becomes a scarce asset. Outside Beijing, we continue to see very normal operations. That's why you see that the franchisee partners opened some more schools in the franchisee areas. And going forward, we'll see how regulation will well, what's the regulation and how do we cope with the regulation? But come to the strategy, I do think once we have that license, naturally we can expand beyond ELT. So of course, the courses require educational licenses, definitely not only English, you know, how to expand into other courses. We are thinking about that. Some can be self-developed. Some can, in fact, invite other partners so that we can have our schools utilization increase. But I would say for the near term, we wanted to focus on our ELT high year and wide theme. This is the core courses we offer. At the same time, we are building that private traffic pool, target what we call the rice camp and also social kind of a Yes, social practice. I do feel these are markets that have very strong demands. Rice already had experience in the past to manage that. I would maybe go beyond rice. I feel the regulation will definitely change the landscape. So in three to five years, I personally think you will see more companies with both online and offline capabilities to getting their mergers acquisition very likely to happen. And at the same time, multi-subjects or a platform that can offer multi-subjects for the aptitude training will definitely become leaders. That's also why RISE is going along this strategy. I think single course will be very difficult to survive. So for RISE, we'll be focused on building the online and offline platform and adding aptitudes related courses to extend our lifetime value and also all these courses are in a way, you know, definitely comply with the government requirement. So that's kind of an explanation. Maybe we can articulate better in the coming months. But so far, I think the business upgrade and branding upgrade give you a preview about what we are trying to do.
spk03: Thank you. Ladies and gentlemen, due to time constraint, that will be our final question and the end of our conference call. Thank you for participating. You may all disconnect.
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