Gaotu Techedu Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the GSX-Pekadu Inc. Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded on March 3rd of 2021. I would now like to turn the conference over to your first speaker today, Ms. Sandy Chin, IR Senior Manager of GSX. Thank you. Please go ahead.

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

Thank you, Sandy. Good evening and good morning to you all. Thank you for joining us today on our fourth quarter and four-year 2020 earnings call. As you know, Net operating cash flow is an essential indicator to measure the operating efficiency of an online education company. In the fourth quarter, we achieved net operating cash inflow of RMB 636 million, and for the full year 2020, our net operating cash flow remained positive at RMB 603 million. In December 2020, we successfully completed a private placement raising U.S. dollar $870 million as of December 31st. Our cash and cash equivalent short-term investments and long-term investments totaled RMB $8.22 billion, a significant increase from RMB $2.74 billion at the end of 2019. In the fourth quarter, our selling expenses totaled RMB 1,798 million, a 307% year-over-year increase, deducting 472 million in employee compensation and miscellaneous expenses and $59 million in branding activities takes us to traffic acquisition expenses of $1,267 million. Since our gross billions for the fourth quarter were RMB $3.15 billion, the corresponding ROI kept us in a superior position in the industry. Our selling expenses in the fourth quarter decreased by RMB 257 million, or 12.5% from the third quarter. We moderately controlled our traffic acquisition expenses because we firmly believe that good education takes time and should be full of care and love. premium, respectable, and sustainable education is never about short-sighted rates to expand, but should embrace great teachers, high-quality courses, caring services, effective learning results, and excellent reputation. I have always been reminding my team that when we saw the gigantic capital injections into our industry, the massive marketing campaigns that followed. and the irrational rates by some players to scale their businesses at any cost. We should always keep calm and stay true to our original mission, which is to focus on making education better through technology, focus on recruiting and training the best instructors, focus on providing the best and most caring education, focus on offering the most satisfying services to each student and each parent, and focus on pursuing the right goals regardless of our shape, with a long-term and sustainable view. In 2021, we will continue to expand our recruiting and training of STAR instructors, expand our efforts on content, product and technology development, maintain an effective growth strategy on a lifetime value basis, optimize our operational efficiency and effectiveness, and further improve our organizational capabilities and efficiency. We are confident that we will continue to excel in terms of operating efficiency in 2021. Now, I will pass the call over to our CFO, Shannon, to walk you through our financial and operational details.

Thank you, Larry, and thank you everyone for joining the call. Now, I will walk you through our operating and financial results and conclude with how we build up the coming quarter. Please note, our financial data is in RMB terms. In 2020, We comprehensively upgraded our products in terms of our instructor and tutor teams, content development and technology, as we remained firmly committed to improving the learning experience and effectiveness of our students. Firstly, over the past year, more than 100 top-notch instructors joined us, many of whom have considerable years of experience. For the junior and senior high school segments, we have established a strong mode and decent reputation by building up a team of industry-leading instructors. Meanwhile, in 2020, we further invested in cultivating our own instructors, candidates who are young and have high potential. Many of them graduated from renowned universities including Beijing University, Tsinghua University, Harvard University, Columbia University, and Oxford University, etc. We have also established a roadmap to train new instructors. Many of our new instructors who graduated in July 2020, after over a half year of training, have grown into instructors favored by students and parents a lot. some of whom have attracted over 10,000 regularly priced courses enrollment. Secondly, we constantly invest to develop and upgrade our educational content and products. Compared with the end of 2019, our course content development team expanded over four times, bringing rich and localized content specialty We have achieved progress in standardizing our curriculum in 2020 and have established curricula of different difficulty levels across our primary school and high school courses. In 2021, we will continue to work on refining our curricula. We developed our course content and our lecture training jointly to streamline our course delivery process This practice ensures the scientific nature of our course syllables, the specialization of our instructors, and the standardization of our quality control. Lastly, technology plays a vital role in improving our in-class experience. Our X-Stream streaming media system and our AirSound echo detection system leverage artificial intelligence to automatically adjust system settings to adapt to different network environments and hardware situations, achieving an optimal effect for the in-class multiplayer voicing interaction scenarios. Moreover, we have developed a virtual 3D science laboratory site, which stimulates the environment for physics and chemistry experiments for junior and senior high school students and teachers. The constant upgrades of our educational products have effectively translated into our improved retention rate and provided a solid driver for our long-term healthy and sustainable development. Despite a challenging environment, we closed our fiscal year 2020 with exceptional business and financial performance. During the fourth quarter, as we set all-time records for revenues, gross billings, and paid enrollments. We are pleased to see that the pandemic situation improving, and we are filled with the way our teams continue to focus and execute throughout this period of elevated uncertainty. Moving on, I will briefly recap the financials for the fiscal year 2020. Our net revenues continued to grow, reaching $7.1 billion representing a 237% increase from $2.1 billion in 2019. This revenue grew to be more than 3.5 times of the prior year's figure for the past three consecutive years. Just Billings, the leading indicator for net revenues was $9 billion, increasing by 168% year over year. from 3.4 billion last year. Paid enrollment increased to 5,871,000 for fiscal year 2020, or 2.68 times that of the fiscal year 2019. For 2020, we achieved net operating cash inflow of 603 million, compared to 1,285 million in 2019. Removing the effect caused by the extra cash we paid over $105 million for the independent investigation, our net operating cash inflow would be higher. That demonstrates our exceptional operating efficiency aimed in the intense competition. Furthermore, in the second quarter 2020, we had repurchased approximately 1.1 million ADS for approximately $283 million. Despite such cash outlay, we have ample cash reserves as our cash, short-term investments, and long-term investments reaching approximately $8.2 billion as of December 31, 2020. Next, let me go through the key financials for the fourth quarter of 2020 in detail. Revenue increased 137% year-over-year to $2.2 billion, driven by continuously expanding student numbers thanks to our enhanced teaching quality and brand recognition. Our gross billings increased by 99% year-over-year to $3.1 billion, mainly due to increasing paid enrollment from the summer and high-level retention in the fall. Paid enrollments, which refer to enrollments priced at or above 99 yuan, increased to a record high of 2.28 million per quarter, and two times that of the same period in 2019. Let's break down our revenue streams by business line. Net revenue from our K-12 courses increased by 156% year-over-year to $1.98 billion and accounted for 89% of net revenues and will continue to be our main source of revenue going forward. Gross billings contributed by K-12 courses rose by 110% year-over-year to $2.92 billion. Paid course enrollments for K-12 grew by 113% year-over-year to $2.14 million. Average enrollment per class was 2,600 in the fourth quarter in 2020, compared to 2,800 in the third quarter. Quarter-over-quarter, the number slipped slightly because we offered shorter-term courses with smaller class sizes to cater to various students' needs. Average enrollment per class this quarter increased significantly from around 1,700 in the same quarter of 2019. Net revenues from our foreign language, professional, interest courses, and other services grew to $236 million. and accounted for 11% of net revenues. Gross billings contributed by foreign language, professional, interest courses, and other services reached $224 million. Paid course enrollments for foreign language, professional, and interest courses hit $136,000. Leveraging our know-how with online large class education, we will further expand into this large industry segment. Moving over to selected financial metrics summary. Our cost of revenues increased by 215% year over year to $660 million. The year over year growth was mainly due to increase in compensation for instructors and tutors. learning materials, rental expenses, as well as solar and bed rest costs. GAAP gross profit margin decreased to 72%, down from 79% in the same period of 2019. Non-GAAP gross profit margin, which excludes share-based compensation, decreased to 73%, down from 80% in the same period of 2019. The decrease was primarily due to an increase in the number of instructors and tutors to enhance our service level and the personalized experience that our students receive, as well as an increase in compensation for such staff. Setting expenses increased to about $1.798 billion. up from $442 million in the first quarter of 2019. Within that, expenses for traffic acquisition were approximately $1,000 and $1.267 billion. Expenses for branding activities were approximately $59 million. And the remaining expenses covered labor, service, bandwidth, etc. The selling expenses dropped by 13% from the third quarter, which is our first sequential decline in sales expenses. First of all, that attributes to the integration of our K-12 operations into the GoTo brand, which continues to bring synergies and extra efficiency. Going forward, we will focus our K-12 branding practices around the Gauto brand, which will save unnecessary cost in branding activities. Secondly, we have been exploring and expanding new and low-cost customer acquisition channels, including offline channels, short videos, live streaming, etc. By balancing our investment across different channels, we managed to control our customer acquisition costs in an acceptable range and achieved an effective growth on a lifetime value basis. We have always focused on our effective growth strategy and we will never pursue meaningless scale expansion at the expense of losses. We have made a number of technology innovations around customer acquisition, including progresses on the intelligent traffic acquisition, sales leads grouping, traffic control, and student satisfaction. We have taken the lead to closely cooperate with major media providers of traffic channels on the premise of ensuring data security, leveraging the strong algorithm capabilities of both parties to effectively control our customer acquisition cost and recruit better quality sales leads. In the meantime, We have embedded Demounted Task Learning, Transfer Learning, Reinforcement Learning technologies into our internal service flow to effectively improve the traffic quality and efficiency in matching tutors and students. Regularly, we have created a set of refined customer acquisition, sales lead, quality control, and digital outputting strategy on our marketing flow. Research and development expenses increased by 200 and 29% year-over-year to $275 million. The increase was primarily due to an increase in the number of courses professionals and technology development personnel as well as an increase in compensation for such staff. G&A expenses increased by 373% to $218 million, mainly due to an increase in G&A headcount and related compensation, as well as an increase in fees for investigation purposes. Non-GAAP net loss was $564 million. compared the net income of $198 million in the fourth quarter of 2019. GAAP net loss margin was minus 28%. As of December 31, 2020, we had $355 million of cash and cash equivalents, $7.3 billion of short-term investments, and $531 million of long-term investments combining to be $8.2 billion. That compares with a total of $2.7 billion of cash and cash equivalents, short-term investments, and long-term investments as of December 31, 2019. As of December 31, 2020, our deferred revenue balance was $2.73 billion. Deferred revenue primarily consists of the tuition collected in advance. Net operating cash flow for the fourth quarter of 2020 was $636 million. This demonstrates our strong organizational capability in balancing investment and return. With that, I will now provide our business outlook. Before I start, I would like to highlight three factors influencing how we view the coming quarter's performance. Firstly, the Spring Festival of 2021 started more than two weeks later than in 2020, causing fewer weekends to deliver courses this quarter, and so is the corresponding revenue. Therefore, for an apple-to-apple comparison, we should add at least a 22% growth rate to the guidance we are providing. Secondly, this year's winter break is short. Parents and students do not have enough time to take both short-term promotional courses and winter semester regular courses. Instead, we focus our offering on the sole spring semester sessions and expect the second quarter's growth to be higher. Thirdly, we had a higher base of the gross billings and revenues in the first quarter of 2020 affected by a sudden outbreak of COVID-19. As such, based on our current estimate, net revenue for the first quarter of 2021 are expected to be between $1.816 billion and $1.856 billion, representing an increase of 40% to 43% on a year-over-year basis. That concludes my prepared remarks. Operator, we are now ready to take questions. Thanks.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your hands up before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Mark Lee with Citi. Please go ahead.

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

Thank you, Mark. Firstly, we have significantly reduced the flow rate of the fourth quarter of 2020 and the first quarter of 2021. This will affect the increase in the first quarter. We all know Ah, ah, ah, ah, ah, ah, ah, ah. Thank you, Mark.

We moderately reviewed the traffic acquisition expenses for information flow channels in the fourth quarter of 2020 and the first quarter of 2021. So that might affect the growth speed of first quarter. As you know that, this traffic acquisition through the information flow channels If we solely rely on that to bring the scale extension of revenue, it's easy to just purely pursue the scale. However, if we are pursuing effective growth, that means real organizational capability.

Thirdly, if we actively explore, including the current new customer channels, it will have a positive impact on the growth of the second and third seasons.

Secondly, the spring semester for the first quarter of 2021 opens around two weeks later than the same period of 2020. That also negatively affected the first quarter's revenue restoration, as Shannon mentioned. Thirdly, we are actively exploring innovative acquisition channels, including offline options, and we believe that will bring positive impact to our Q2 and Q3 growth.

Fourth, we continue to raise the conversation for our tutors.

We believe this will benefit the retention of our tutors and also our students.

Fifth, for our adult business segment, we have almost established a team.

So we believe this segment will see a relatively high growth in the second half of 2021.

There is no doubt that in terms of pure information flow, the cost of goods and services in 2020 is indeed on the rise. The rise is still very big at the end of the year compared to the beginning of the year. So it may not be possible to increase the amount of information flow in a purely industrialized way.

For just the information flow traffic acquisition channel, in 2020, we do have seen the customer acquisition costs have been going up. If we compare the end of the year versus the beginning of the year, this rate of increase is big. So in some perspective, if we just purely rely on the money spending in traffic acquisition channels of information flow channel to bring up the scale, is not working.

可能有的公司会通过巨额的亏损来换取高的增长。 我们的策略是希望做到一个相对的健康的一个有效增长。 Maybe some players are sacrificing their net profit margin to have a relatively high growth, but our strategy is to pursue a relatively healthy, effective growth.

In summary, we are pretty confident about our growth rate of full year 2021. So we hope for 2021, the full year growth rate is going to be in the range of Hello, Mark.

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

Thank you, Larry and Shannon. Very helpful.

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

Hi. Thank you, Larry and Shannon. I just wanted to get some update on the regulatory landscape. So it seems like the traffic competition is stepping down, but also hearing some news about, for example, Beijing tightening some requirements on the teacher requirement, et cetera. How do you see this evolving, and how is this accepted in your guidance? Thank you.

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

Our next question comes from DS Kim with JP Morgan. Please go ahead.

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

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

Okay. Okay. So comparing with the 45% guidance, I mean the actual number, which should be similar to guidance. Okay. And then can I check? Thank you. May I check roughly how much growth building and enrollment growth would you expect for the first quarter? I think this may reflect underlying demand better than the revenue guidance. I think it would be very helpful.

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

Thank you. Thank you. Final question is then can I ask, If you have seen any meaningful slowdown in the last month of the quarter, like say in the past two, three weeks, or compared to the first half of first quarter, the reason why I'm asking this is comparing it, some of our peers like TAEL, their CSRS.com guidance, doesn't seem like slowing down as much as what we saw. I was just wondering whether this is because of the difference between the fiscal year end, i.e., TAL cuts off their guidance for the February. We include March. So just wanted to, you know, double-check whether this has any impact on our guidance. Thank you. That'll be all from me.

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

Thank you. I agree. And that's very, very helpful. Thank you. But may I follow up on your point? Are you seeing a little faster drop-off or the slowdown in the latter half of the quarter versus first half? Or you don't see much difference in terms of the growth building, enrollment growth, and et cetera?

Yeah, that's actually a really good question. And I think that refers to a bigger picture of the whole industry. From our observation, we do see the overlap ratio between, let's say the parents sign up for multiple online learning platforms, the ratio keeps rising. So that makes the parents need longer time to make the decision. But I think at least at this time, it's a really good thing. After rapid growth for all the top players in the industry, It really comes to the area that we need to be really focused on our learning project, and we need to really care about the students where they learn whether the courses we provided really help them, and they can stay with us for a longer time. And as the fears at the competition, I think the highest requirement was made to the management team. that to handle such a large organization at the same time, we need to keep taking initiatives to upgrade our products. In the long run, I think it's a good thing, and only the good companies and companies with higher operating efficiency can survive.

Thank you. Very helpful.

Thank you.

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

Hi, management. Thank you for taking my questions. So I would like to ask my questions in Chinese first and then I'll translate by myself. Thank you, Mr. Guan. First of all, I would like to ask a question about how we set the goal of growth in 2021. Mr. Guan, how do you think to balance our ROI and business efficiency, as well as the growth in scale and position in the industry. Are you worried that under such a target, it is possible that the size of the personnel will be larger than that of some peers? The second question is that I would like to ask the teaching team. First of all, what is the scale of the teaching team now? What kind of scale do we expect it to reach in 2021? And then we also see that the teaching team has a new upgrade in the fourth quarter. We will call them the second main award. We also hope that they will reach a higher level. I would like to ask if there are any specific measures to help them become the second main award. And then what methods can be used to measure their level to become higher and then have a leading advantage in the industry. So my first question will be about how do you set your revenue growth target? How do you balance the ROI and efficiency versus the growth rate and market share? And do you worry that the gap between your number of enrollments would widen a little bit versus peers? A second question is about your TA team. You can show us about the size of your TA team and your hiring plan in 2021. And also, I'm glad to see the upgrades of your TA to the secondary instructor program. So, would you please share a bit more about how do you help them upgrade in terms of quality, and how do you measure whether that succeeds? Thank you very much.

Right. The first indicator is that we hope to see an effective growth. In other words, we hope to see a positive growth based on LTV. This is our starting point. So, under this premise, if we find that we cannot achieve such a goal in a period of time, then we will reduce the supply and will lead them to So we are also calculating the actual efficiency and scale of ROI. We are very satisfied with our current performance. In 2020, our operating revenue was more than 7.1 billion yuan, and our loss was less than 1.4 billion yuan. Compared to those companies that are not listed in the industry, it is possible that they will spend 2 yuan to return the investment to a large extent, and they will receive 1 yuan in return. From this point of view, in 2020, we think we did a good job in balancing the efficiency scale of ROI. We believe that in 2021, we will continue to follow our own internal work in this regard. We all know that any company So when we decide how big the growth rate target should be, there is a power rate indicator should always be effective growth.

a.k.a. the profitable growth based on lifetime value. And on this premise, if after quite a period, after calculation, if we cannot reach this goal, we might not really reduce the spending on these channels to lead to a more sound scientific growth. We are also calculating between ROI, efficiency, and the scale, the balance between them. And right now, we are pretty satisfied with our status. If you look at 2020, the revenue is over $7.1 billion, but our net loss is less than $1.4 billion. So if we compare our performance with some other private players, according to some investors' feedback, it seems Some other players are spending $2 to get $1 revenue back. In 2020, in terms of balancing between the ROI and the scale, we are doing a really great job. And in 2021, we are confident to do also a great job. I always believe when we are doing a business, the core is not about competition. It's more about service. to serve each of your customers, your students, your parents, to their satisfaction, meanwhile, help your employees to grow.

In 2021, we will have more than 10,000 mentors on our team. There are two main goals for the second award. The first goal is to redefine the recruitment model. The second goal is to increase the investment in training.

So, as of the scale of 2021 for our tutors, as of now, we plan to further recruit over 10,000 tutors. And the core, how we are valuing our tutors, or we call them second instructors, there are two cores. Firstly, how we can redefine the recruiting model of the talent. Secondly, we will expand the training for our secondary instructors.

Thank you.

Thank you very much.

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

Hi, good evening. Thank you very much for taking my question. You mentioned about the FY21 growth will be healthier. So may I just dig a little bit into the details? I noticed that the GP margin in the fourth quarter declined queue-on-queue, and you mentioned that teacher salary compensation increase was the reason. I think definitely that is the right thing to do. But how should we think about the GP margin trend going forward in the next few quarters? And you mentioned about the increase in teaching assistant headcount. I noticed that it should be relatively less than your revenue growth. So does that mean we could potentially see higher teaching assistant utilization and better GP margins? And also on the sales and marketing side, definitely happy to hear that you're spending less on social media. So how should we think about the sales and marketing spending trends going forward in the next fiscal year, in FY 2021? Thank you.

Thanks, Felix. In this quarter, three main factors collectively led to our lower level of God's profit margin. First, for the autumn semester courses, we offered our students a second round of short-term courses, we call it , that started in November. And that course has a lower ASP and a shorter term, and also has a smaller class size, which led to a lower level of God's Profit margin. And the second reason is that as we communicated before, we positioned our tutors actually as secondary instructors for their extraordinary services to our students. So to better improve our students' and employees' satisfaction and to further retain and develop our teaching talents, we do believe that a good teacher needs time to grow, so we need to be really patient. And we continue to increase our compensation to our tutors in the fourth quarter. So we believe our commitment to our secondary instructors will translate into stronger organizational capability and future business growth. And like you just mentioned, we definitely think this is the right thing to do. And the last reason was we have taken initiatives to further decrease our students' tutor ratio with the aim to provide more personalized services to better serve our students. For instance, in the primary school sector, we started to provide one versus six pre-course small class tutoring section that the tutor can actually see the faces of all the children and they can have a lot of interactions before the formal session starts and we receive positive feedbacks from primary school students and parents. And also for middle school and high school, they provide one versus certain Q&A section after the class is over. And that's how we can group people in different locations that provide more localized and stratification level, different stratification level of Q&A sessions to our students. All these need more time and more commitment from our tutors, and that's why we lowered the students and tutor ratio. So moving forward to 2021, we think our gross profit margin should be saleable at around 70% from a whole year perspective after all the adjustment has been made. And still compared to offline business model, this gross margin will still be higher if we just exclude the rental cost and give us the room to be profitable. And also the idea structure for our P&L should be like we have a lower level of GP margin and at the same time, we have a lower level of sales and marketing because really for an education company, people should be the most valuable assets. And regarding sales and marketing expenses, so for us, because we foresee like in 2021, The difficult level might be elevated to acquire traffic in some public or open social media platforms. And that's why we started to explore new innovative ways to acquire new customers. And that will significantly lower our customer acquisition cost structurally. But at this point, it's just too early. And like I just said, things just change quickly in the industry. We may have a better position on talking about the whole year's sales and marketing budget. Maybe when we plan, we have a more clarified plan for our summer campaign, and probably we can talk about that topic by that time. Thanks, Felix.

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

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

Okay. Thank you, Operator, and thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact the company or contact us via email, ir.skinfisher.com, directly. Please feel free to subscribe to our newsletter on the company IR website. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.