New Oriental Education & Technology Group Inc. (EDU) Q4 2011 Earnings Report, Transcript and Summary

Good evening, and thank you for standing by for the New Oriental’s Fourth Quarter and Fiscal Year 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may now disconnect at this time. I would now like to turn the meeting over to your host for today’s call, Ms. Sisi Zhao. Please proceed.

Hello everyone, and welcome to New Oriental’s fourth fiscal quarter and fiscal year 2011 earnings conference call. Our financial results for this period were released earlier today and are available on the company’s website as well as on Newswire Services. Today, you will hear from Louis Hsieh, New Oriental’s President and Chief Financial Officer. After his prepared remarks, Louis will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1994. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statement, except as required under applicable laws. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental’s Investor Relations website at investor.neworiental.org. I will now turn the call over to New Oriental’s President and CFO, Louis. Louis, please.

Thank you, Sisi. Hello everyone, and thanks for joining us. Today I want to discuss some of the business highlights from the last quarter and give a quick overview of some of the key financial indicators for both the fourth quarter and the full fiscal year. I’ll keep today’s discussion of the financials brief at least to leave more time for questions. Fiscal year 2011 has been another solid year for New Oriental on all fronts. And I am very pleased to note that we are closing out this year with a stellar set of financial results. Finally, some real operating leverage improvement. In the fourth quarter, our revenues grew by 58.7% while profits grew by 147.8% year-over-year. GAAP operating margin improved about 340 basis points to 7.6% for the quarter and would be up more than another 100 basis points if you exclude the disposal loss from the divestments of Mingshitang School and Tomorrow New Oriental – sorry Tomorrow Oriental. These impressive metrics are particularly pleasing because they really underscore the success of our strategy throughout the second half of fiscal year 2011 to harvest the benefits of our earlier expansion efforts and improve on bottom line performance through expense controls. As you know in fiscal year 2009, 2010 and the first half of fiscal year 2011, we placed a stronger participant network expansion to roll out our new U-Can all-subjects training program for middle and high school students and our VIP services with one to maximum five students per class across China. As a result, in the past three years, we have grown schools and learning centers from 207 as of May 31, 2008 to 487 at the end of May 2011. However as I noted on last quarter’s call, in the second half of fiscal 2011 we…

(Operator Instructions) Our first question comes from the line of Mark Marostica with Piper Jaffray. Please proceed. Mark Marostica – Piper Jaffray: Yes, thank you and great job on the quarter.

Thank you, Mark. Mark Marostica – Piper Jaffray: I would like to ask a question about your guidance as it pertains to margins, with the outstanding margin leverage that we saw in the fourth quarter, I’m curious how we should think about margins in the first quarter and fiscal ‘012, how much of that just carries forward given you’re carrying a lower – well on a year-over-year basis the less number of new staff?

Yes, and that’s a good question. I think we finished 2011 with 60.1% gross margin and 17% GAAP fully loaded operating margins and 20% net margins. So I would expect 2012 to be slightly better than that, like there is I think we expect operating margin to be in the 18% to 19% range. If we missed that operating margin number and there is no catastrophe, it will probably be, because we exceeded revenues by substantial amount because the fastest growing business is in POP Kids and VIP are slightly lower margin. So either way, it will end up being a good result if we miss margins, it’ll probably be for good reasons, our fastest growing businesses are lower margin, but that will mean we’ll beat on the EPS line. So I would expect expanding margins especially in Q1, and Q1 last year was a disaster. So I do expect much better margin in Q1 than last year. Remember Mark, Q1 last year we had World Expo, also we had a one less week because the Chinese New Year was late last year, students got an extra week during winter holiday. They took that week away during the summer. So we had really revenue growth of 29% I think, I would expect much better than that this year. Mark Marostica – Piper Jaffray: Great. And just a follow-up, on the selling and marketing line you saw a significant leverage and I think you alluded to perhaps a new approach to marketing now that you already have some of this schools and learning centers in so many locations, having said that I am curious how you think about going to market in fiscal ‘012 and beyond? Is it a structural change to first year or can you talk more specifically about your approach, I know I think you talked in the past that roughly 40% or a good portion of your registrations in the largest cities do come through online. Is there a lot of room left there to squeak more leverage on the very good [ph] market line or can you give you some more color on that, it would be helpful? Thanks.

Yes, I think absolutely I think we spent the last three years heavily marketing our U-Can program, Kids and VIP. So I think most people in China really know who we are, and we’re in most of these no matter. So we will continue to market in newer cities that we open in. But in general as we’ll probably focus marketing more online, more towards sort of one-on-one which is the fastest growing program. And also more probably nationwide campaigns, I think at the same time the overall marketing budget, as you saw market actually fell as a percentage of revenue this year from last year, it was at 15.1% to 14.8% total. Remember less than half of that is actual brand promotion expenses, the rest is actually headcount. And so I think as going into 2012, we’ll see brand promotion expense growing at a much lower rate than revenue as you had seen in the last two or three quarters. So overall we’ll ship more online sales and marketing, also more through nationwide campaign and more towards general New Oriental campaign for specific programs since everybody knows now that we’re the leader in K-12, we’re leader in VIP and we’re leader in overseas test prep. So just the more general campaigns. As far as registrations online, we expect in the next few years that more than half of our registrations in Beijing, Shanghai and larger cities will be done online which will help us to reduce staff registrations [ph] now hope in the leverage line. Mark Marostica – Piper Jaffray: Great, thank you. I’ll turn it over.

Thanks Mark.

Our next question comes from the line of Ella Ji with Oppenheimer. Please proceed. Ella Ji – Oppenheimer & Co: Thanks. Louis, congratulations on a strong quarter.

Thank you. Ella Ji – Oppenheimer & Co: Just a follow-up on the prior question, now since the initial growth investments in your U-Can and POP Kids in last two years, now its behind you. So could you talk about will there will be any other major investments in FY12 going forward that we should expect?

Yes, for FY12 there will be no new major initiatives and that’s why I think is that – that’s why you can tell by the tone of our earnings release, that we’re very confident 2012, barring some kind of catastrophe it should be very strong year for us. And so you can see that we guided a 30% to 35%, we normally guide much lower than that at 25% to 30%. As you can see that we’re very confident and that doesn’t take into account any benefit from currency. So we should actually do even better than that. So there will be no new initiatives Ella, we’re just going to focus on K-12, overseas, Vision Consulting and VIP. And at the same time, we will be trying to extend our best quality content by making it better. So we’re going to invest in content development. We’re going to make our – we’re going to improve our teacher training program to reduce teacher churn and also to make sure our teachers are by far the best in the industry. So our focus is on making the programs better to contact and teachers and that’s how we voiced over in it [ph]. Ella Ji – Oppenheimer & Co: Great, good to know. And switching gears, I want to talk about the decision on Mingshitang. Could you provide a little bit more color, what are the problems, is it may be acquisition integration or company specific operations or is it relating to the Gaokao re-take prep industry overall?

I think it’s all of those, Ella. I think Mingshitang loses about $400,000 or $500,000 for us each year. So it gets actually may be a little bit more than that. So it gets rid of a loss making operation for us. And also actually between the two, it was over $1.3 million, between Mingshitang and Tomorrow New Oriental – Tomorrow Oriental. So it removes two unprofitable businesses from us. The Mingshitang got caught because it added a building the year we acquired it and then the re-takers market took it down – nose dive in Beijing because Beijing had a very high pass rate for 2009 and 2010. And so Mingshitang has not been profitable for us since the acquisition in 2008. So we decided to Q4 is a good time in clean house [ph], so we disposed them a couple of less profitable entities. So part of it’s a re-taker market, part of it’s the asset itself and the re-taker market is not a fast growing business right now in China. Ella Ji – Oppenheimer & Co: And then how about Tongwen, you said it’s not impacted but could you just comment on that?

The Tongwen is still profitable. It’s still growing up in Northeastern China. So if its growing, it’s profitable, we leave it. Ella Ji – Oppenheimer & Co: Okay, good to know. Thanks.

Thank you.

Our next question comes from the line of Philip Wan with Morgan Stanley. Please proceed. Philip Wan – Morgan Stanley: Hi Louis, thanks for taking my question and congrats on a very strong quarter.

Thank you Philip. Philip Wan – Morgan Stanley: Sure. I have a follow-up question on the margins outlook.

Sure. Philip Wan – Morgan Stanley: As your VIP is emerging as a key growth driver for the company and could you update us that how does the margin profile for VIP class compared to a non-VIP class in a relatively mature market and also how should we look at this trend going forward given this strong pricing power?

Yes, VIP is a huge market and it’s the fastest growing market in the education sector in China in my view. We’ve gotten much better margins at a VIP in the last – every year we run this thing, so I think gross margins went from 41% to 54% year-over-year this year approximately. So it’s improving because we have significant pricing power. So the average ASP has gone from about $1,300 to $1,900 in one year. So I think we will continue to get margin improvement from this business but it will still can’t compared to one teacher 150 students or 300 students in overseas test prep. So it’s still going to have lower overall margins. The lower margin also comes from POP Kids, you didn’t ask about that and that also is in the mid-50s as far as gross margins. But if you look at the VIP business still below the gross margin and there is really not much expense expect for the customer service rep and some marketing expense. So I think in long-term it has the prospect to be a very high margin business with at least 20% to 25% operating margins. The shorter term is not there yet. Philip Wan – Morgan Stanley: Okay, understood. And my second question is given the recent softness for the adult and also domestic test preparation.

Yes. Philip Wan – Morgan Stanley: How are we going to look at this two business going forward and any initiatives that New Oriental is going to move on these two business or just let it to be a stable or…

I think these two businesses are very profitable for us. They’re large class businesses, they are highly profitable. They don’t require much cost. So we’ll keep them. The general market is flowing to these businesses, we’re doing such a good job in training K-12 students in English, they don’t need to learn it as adults anymore. And there is another effect, CET4 is getting cannibalized by TOEFL, which is actually good for us because we’re the dominant provider of TOEFL test prep. And the reason is that the Chinese market – job market is quite competitive. And so the CET4 exam which is the English exam we got it from Chinese colleges is not seen as sufficient any more. The student can’t distinguish himself by having a CET4 score. So many students are actually the TOEFL instead. It’s a much harder exam. And so we make about a $130 on a CET 4 test prep, we make about $700 on a TOEFL test prep. So we mind this trend. That’s why you’ve seen a boom in TOEFL enrollments for the last years. So we’re just cannibalizing ourselves, which is fine. Philip Wan – Morgan Stanley: Thank you. And then my last question is we have seen a declining trend in terms of the test takers for the Gaokao in China.

Yes. Philip Wan – Morgan Stanley: And how are you going to see this affect the education system?

So we have such a small share of the market right now anywhere, it’s a $24 billion after-school training market, we only have $193 million of it. So I think – we will continue to take a lot of market share. We’re in the first hour or the first innings of this game. So we will continue to take market share. I don’t think the fact is fewer takers will hurt us in the short term, it may hurt us in a long-term. Philip Wan – Morgan Stanley: All right, that’s helpful. Thanks Louis.

Thank you, Philip.

Our next question comes from the line of Chao Wang with Bank of America. Please proceed. Chao Wang – Bank of America Merrill Lynch: Hi, thanks for taking my questions. Firstly, I’m just wondering how much of VIP business is related to U-Can? And then how much is related to overseas business? Thanks.

The majority of VIP is U-Can. So it’s well over 50%. VIP is now about 22%, 23% of our total revenue going in 2012. So it’s gone from almost nothing to almost a quarter of our revenue. So that’s how fast it’s growing. And the dominant subject matter is U-Can followed second by overseas test prep. So you’re correct as far as the two categories. Chao Wang – Bank of America Merrill Lynch: Thanks. My second question is that fourth quarter revenue exceeded high-end of your guidance by around 15%, so I think you provided guidance in April, so is that mainly from strong performance in May and if so it seems momentum is slowing down in next quarter? Thanks.

I don’t think momentum is slowing down. 81% deferred revenue growth is quite high. And I can tell you that June cash revenues are very high. So it’s not going slowing down. And I thought I’ll make that very clear in the earnings release. As far as why we beat the quarter is because the Gaokao is given in June, so actually lot of one-on-one for the VIP students who came in Q3. So they enrolled in Q3 actually finished up all their courses before the Gaokao because they enrolled in one-on-one process for the Gaokao exam. So we saw a huge revenue spike in May as the VIP classes were finished in time for the Gaokao which is the first week in June. So that’s why we saw a large – we beat the quarters in the (inaudible). Chao Wang – Bank of America Merrill Lynch: I see, that’s very helpful. Thanks.

Thank you.

And our next question comes from the line of Chenyi Lu with Cowen and Company. Please proceed. Chenyi Lu – Cowen and Company: Great, thank you. My first question is regarding the middle and high school, I know that you talked about POP Kids had lower gross margin. Can you give us a view as to middle and high school including the all-subjects and also the English program in terms of gross margin? Thank you.

Yes, I think gross margin is – this area will be the second highest gross margin over time, second to overseas test prep. The average ASP in middle and high school is over $350. So it has characteristics of large class like overseas test prep and high prices. So I would expect gross margin in the middle high school business to be well north of 65% to 67% in the next couple of years. So this has the potentially to be the second highest gross margin and operating margin business in New Oriental behind overseas test prep. And that’s why we’re focusing on it. Chenyi Lu – Cowen and Company: Yes, and so what is the gross margin right now for the middle and the high school right now?

It’s about 52% right now. And it’ll move up as we get better utilization in the learning centers and as we continue to raise prices. So I believe this number will go over 55% to 57%. So the two that are really dragging that gross margin down is really Kids English and POP Kids is about 53 %, 55% and VIP which is 53% to 55%. And those will also improve over time. Chenyi Lu – Cowen and Company: Okay, and also the middle and high school also…

It’s already over 60%. It’s in the low 60s already. Above our average gross margin of 60%. Chenyi Lu – Cowen and Company: Okay, great. Thank you. My next question, can you talk about your current school and learning center utilization rate? Thank you.

Well it’s hard to – we actually don’t have a perfect measure, that’s why we don’t disclose it. So I can anecdotally I can tell you that Q1 is the closest we get to full. So if you think theoretically 75% as full capacity because a school learning center has to stay open 24 hours, or there is some days when people are in school. Theoretically 75% is full, during the summer, we will probably hit 65% to 70% of full capacity. So that package will look of what happens when those learning centers are almost full. During Q2, during the seasonally slow period we only hit about 35%. So that’s why the margins and the profits is much lower in Q2. Q3 and Q4, we typically will be between 55% and 60%. And so the number has gone up at least 3% to 4% in the last year, especially in the last two quarters and that’s why you’ve seen the 350 basis point improvement in operating margin. Chenyi Lu – Cowen and Company: And can we also argue that if you have more U-Can and POP Kids that the utilization rate during off season will be also improved going forward as well?

That’s correct. The ironic thing is that U-Can, the summer is not the stellar period, Q3 and Q4 are. So it’s unusual, so Q1, the summer, the biggest business for us is test prep is overseas test prep. And so Q1 and Q3 is dominated by test prep. Q4 and Q3 are dominated by U-Can. And so it does moves out our learning centers and that’s why you’ve seen over the last two or three years as you open up the U-Can business our utilization – now we have three very profitable quarters than just one. And even Q2 is now profitable. So you’ve seen that is has improved our overall utilization across the whole network across the whole year. Chenyi Lu – Cowen and Company: Okay, and one last question is regarding your sales and marketing. So that I think in the next year, can we also say that we’re going improve it – as a percentage of revenue going to improve year-over-year as well for fiscal year 2012?

Yes, I would expect it to go down, its 14.8% of revenue this year, that includes headcount because actual promotion costs are only 7% of revenue. So as you can see that, it’s coming down already. But we had a business model change. So Q1 of this year is the first time you’ll get a real look at an apples-to-apples comparison with the new business model of having a 1,000 or so customer service reps. The Q1 will be the first year – first time to see a real look at apples-to-apples comparison at sales and marketing. Chenyi Lu – Cowen and Company: Okay, great. Thank you.

Thank you.

And our next question comes from the line of Amy Junker with Robert W. Baird. Please proceed. Amy Junker – Robert W. Baird: Hi, thanks Louis. Can you just touch on enrollment expectations for the full-year, kind of your preliminary thoughts is 15% reasonable or may be what you’re seeing so far?

Well yes, that’s a good question, Amy. 15% this year, we finished the year with 2.09 million students, up 15.6%. Don’t forget we only had 9% enrollment growth in Q1. If you take out Q1 and that was Shanghai World Expo impacted quarter, we’ll never get that back, the enrollment will be 19%. The enrollment was 19% last year, the enrollment was 19% a year before. So our historical four year CAGR is 19% – five year CAGR is 19%. So I would expect 2012, because it offers much bigger base to probably be in the range of 15% to 16%. You won’t see much of a slowdown from this year of 15.6%. So we expect to add about 300,000 students over from 2.09 million, we should reach about 2.4 million for the whole year. Amy Junker – Robert W. Baird: Great, it’s helpful. And also just on ASP growth, I know you touched on this a bit in the call, but again expectations going forward given all the moving parts between adults, middle and high schools and kids, where do you think you should expect to see that given price increases and everything else?

Well you know that our guidance is 30% to 35% revenue growth, so you have still 15% to 16% enrollment growth. You should expect probably 15% to 17% price increases and you’ll get 33% to 34% revenue growth from that. Amy Junker – Robert W. Baird: And I know this comes up all the time but I am going to ask it again, just in terms of the sustainability of price increases, clearly seeing strong growth in your VIP, are you – but are you seeing any increased elasticity for demand for your traditional classroom offerings?

We still have significant pricing power. We have restrained ourselves from using it. So we – it’s still pretty in elastic as far as, I mean people will come to us because of our brand names. And the only reason they won’t pick us is if they can’t afford it probably they’ll go somewhere else. So what we see it as increasing as the wealth effect in China increases, like in overseas test prep is almost inelastic. Right, I mean that we’ve been raising prices over 15% to 20% for five years with no effect – with virtually no effect in enrollments. And I think most of our other programs, the Kids can find in lower cost alternatively by going to our bigger classes. So we offer it for big classes that are affordable, smaller classes for the more wealthy and one-on-one for the very wealthy. And so I keep pricing [ph] for across the spectrum. It is short answer to your question, Amy. Amy Junker – Robert W. Baird: Great, thank you. And then last question I’ll turn it over with respect to teacher economics, can you just talk about how many courses per quarter or per year, how you think about average teacher will teach and do you see an opportunity for improvement there, where do you think that can realistically head over time?

Well I think the easiest one to measure is the ones we kind of the track the most are one-on-one teachers because they are part-time and there are so many of them. And as I think as our one-on-one teachers are teaching it between four and five students a quarter. And I believe that’s sort of classes twice a week, so I believe we can reach seven or eight. So there is significant improvement there in number of teacher utilization. So I think both teacher utilization, classroom utilization and customer service reps will still have a significant slack [ph] that we can use of. Amy Junker – Robert W. Baird: Thanks Louis, I appreciate it.

Thank you, Amy.

Our next question comes from the line of Brandon Dobell with William Blair. Please proceed. Brandon Dobell – William Blair: Hi Louis.

Hi Brandon. Brandon Dobell – William Blair: Couple of things on the number of centers, may be if you could give us an idea of where you finished out the year in terms of the different types of centers, some expectations for next year in terms of are you going to be adding just POP Kids or may be one-on-one, and then as you look out over may be a couple of year period, how should the network of centers look in terms of if I call collocating different services you offer, because you would anticipate each center having every type of service or it’s still going to keep Kids separate, those type of things?

I think it is moving towards the second, which is keeping it a more separate. And so if you look at the migration of a typical city as Beijing, Shanghai right now, we’re adding small centers because we would have large centers where we need them. And so we’re only building small centers to pick up one or two high schools or one or two elementary schools. So they tend to be smaller sort of single group schools. If you talk about the second tier cities, we’re opening large learning centers, 2,000 square-meter learning centers, they are much huge [ph], Kids, U-Can and colleges, so it all depends on the local geography. If there is a college – couple of high schools and couple of middle schools we’ll open a large mixed school. If there is only two elementary schools then we’ll open just a Kids school. So it all depends on what in the locality as far as the makeup of the school system there. So it’s hard to say, but I can tell you on an overall basis, we’re opening up on average smaller schools and centers especially in large cities, where we already have a big presence and we’re opening up a larger standards in second tier cities where we don’t have a big presence. And also the fastest growing centers are Kids, U-Can and VIP centers. And some of them are mixed used for all three. So one for may be Kids, one for U-Can, one for VIP. Brandon Dobell – William Blair: Okay. And should we consider right around 50, 60 centers this coming year or do you think it’s been more like 70, 80 centers?

80 to 100 is what we forecast. Brandon Dobell – William Blair: Okay.

But probably 30 or 40 of them will be small centers, so the net equivalent is about 70 or 80 larger traditional centers. Brandon Dobell – William Blair: Good.

So the actual number will probably closer to 80 to 100, but the size on [ph] average will be smaller, so equivalent to square footage out of about 80 learning centers. Brandon Dobell – William Blair: Okay. And in the VIP segment, could you give us some color on the price point comparing let’s say a class with five students in it to one that’s ten or 20 students and then may be if you can also compare those to what the competition might offer especially in Beijing and Shanghai?

Sure, in Beijing and Shanghai our five person class costs $1,000 for 50 hours with $20 an hour. An one-on-one class charge is $2,000, a little bit over $2,000 but $43 per hour, our competition charge is about $20 to $23 per hours, about half of what we charge. Brandon Dobell – William Blair: Okay.

Okay. Brandon Dobell – William Blair: Great, thanks a lot.

Thank you, Brandon.

Our next question comes from the line of Fei Fang [ph] with Goldman Sachs. Please proceed. Fei Fang – Goldman Sachs: Hi Louis, this is Fei Fang from Goldman Sachs. I have two questions on Catherine Leung’s behalf, number one, is what’s your advertising budget plan for the summer especially with the competition from local players?

Let me look at – I don’t have the exact budget for this summer, but for the whole year I would expect advertising to grow about 25% whereas revenue will grow about 35% or more. Fei Fang – Goldman Sachs: Okay.

Okay. I think we spend about $80 million – $82 million or something this year. So you would expect it to go to about $100 million for the whole year, I don’t know the exact rate down the summer versus the other three quarters, I apologize. Fei Fang – Goldman Sachs: Okay, great. Second question is regarding your expansion plan over this summer. To what extent has your 4Q results reflected the infrastructure build out needed for the summer?

Well we added 29 centers during the Q4. So last year, our mistake was adding 76 centers in Q4 and Q1. That was the World Expo plus the one shorter week which pretty much killed our summer. So I think this year we hopefully we’re smarter [ph] we have to learn from our mistakes, we added only 29 centers in Q4. We’ll probably add a handful of centers in Q1 but nothing like 33 like we did last year. And so I think that’s why I expect a very strong Q1. Fei Fang – Goldman Sachs: Okay.

Well our management team is being here long time. So when we make mistakes we try to learn from it the next year. Fei Fang – Goldman Sachs: Okay, great, very helpful. Thank you.

(Operator Instructions) Our next question comes from the line of (inaudible) with Asset [ph]. Please proceed.

Good evening, congratulations on a very good quarter. I just had one follow-up question regarding deferred revenue, if deferred revenue continued to grow very strongly during the quarter, it’s even setting a new high in to most percentage of current revenues. Can you first talk about how much – what does deferred revenue come from, whether it’s different from it’s the previous quarter? And then second is how much of your deferred revenue is going to be recognized in this quarter? Thanks.

Yes, the $194 million, the biggest bulk of that is this boom in VIP. So these are people paying $2,000 for a class a quarter in advance, right. So that’s why it’s slowing up so much, and so its 81% increase year-over-year, the record high for us. Of the $194 million, I would expect about 55% to 58% of it to be recognized during this summer quarter. So the $194 million I would expect somewhere between $110 million and $115 million to actually come into this quarter. So we’ll wait [ph] to start this quarter over with over 40% of revenue in the bag.

(Operator Instructions) Our next question comes from the line of Jessica Zhang [ph] with Flowering Tree Investments [ph]. Please proceed. Jessica Zhang – Flowering Tree Investments: Hi Louis. I got one question regarding our ASP trend during our fourth quarter.

Yes. Jessica Zhang – Flowering Tree Investments: Our top line grew 58.7% and our enrollment, if I am not mistaken its 11.9%. So I guess our ASP grew about 40%.

No that’s (inaudible)… Jessica Zhang – Flowering Tree Investments: I think you mentioned a little bit…

Yes, that’s not correct. I want to correct that because. Jessica Zhang – Flowering Tree Investments: Okay.

The enrollment part-time based on when a student enrolls, so we didn’t have that many students enroll in Q4 because they already enrolled in Q3. The revenue is different, the revenue is recognized as classes are delivered. So you get a disconnect. So the actual price increases for the Q4 was actually about 23%. Jessica Zhang – Flowering Tree Investments: Okay.

So the actually – the students who enroll this Q4 actually paid on average 23% more than they did last year, but most of that is because – and probably 8% of that is because of the shift towards smaller classes. So apples-to-apples prices probably would have gone 15%. Jessica Zhang – Flowering Tree Investments: Understand, and Louis what is the percentage of the total revenue coming from VIP for the first quarter, fourth quarter of last year?

The fourth quarter, well for the – it’s increasing. So it’s up to about 23%. I would expect VIP to become about 24%, 25% of our business in fiscal year 2012 which is big chunk, right. It’s a $120 million, now we do $750 million odd next year a quarter of that means that it’s going to be $180 million to $200 million – almost $200 million. Jessica Zhang – Flowering Tree Investments: Right.

So that becomes a very big business. Jessica Zhang – Flowering Tree Investments: I forgot, sorry, I was wondering for the full quarter, do you have the number in terms of percentage of VIP contribution to the revenue for fourth quarter?

VIP, I can look it up, if you want it. VIP contribution – VIP revenue in the fourth quarter was about $35 million. So of the $137 million, it accounted for one – if you do the math 35 divided by 137. Jessica Zhang – Flowering Tree Investments: All Right, okay.

But that was usually high. That accounted for 25% of the revenue only because that’s the quarter that everyone used up their – because of the Gaokao in June, so that was the cramp period [ph]. So that were usually were usually high. Jessica Zhang – Flowering Tree Investments: Right, but you’re saying next year we’re looking around 25% so it’s a similar...

Every quarter, so I mean this is a business that’s rocketing, right. We went from $10 million to $47 million to $100 million in few years. That’s how fast this business is growing. Jessica Zhang – Flowering Tree Investments: Right, great. Thank you, Louis.

Thank you.

(Operator Instructions) We have no further questions at this time, I would now like to turn the call back over to New Oriental for any closing remarks.

Okay. Again thank you for joining us today. If you have any further questions, please don’t hesitate to contact me or any of our investor relations representations. Have a good day. Thanks.