Ladies and gentleman, good evening and thank you for standing by for New Oriental's Fourth Quarter and Fiscal Year 2013 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 disconnect at this time. I would now like to turn the call over to your host for today’s conference, Ms. Sisi Zhao, New Oriental’s Investor Relations Director. Ms. Zhao, please proceed.

Hello everyone, and welcome to New Oriental’s fourth fiscal quarter and fiscal year 2013 earnings conference call. Our financial results for the 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 1995. 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 statements, except as required under applicable law. 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 Hsieh. Louis, please.

Thank you, Sisi. Hello everyone and thank you for joining us today. I am pleased to say that we are closing out this year with historic set of results. For most of fiscal 2013, we have been very focused on shifting towards a strategy of harvesting the market, which we’ve said will drive growth and improved profitability. The excellent top and bottom line results that we have reported today are testifying the success we delivered on these goals. Looking in the fourth quarter, our performance was very strong across the board. The real standout as the major improvement of our bottom line. Thanks to our associates on and strict (inaudible) plan in improvement and utilization, we achieved a dramatic improvement in operating margin, which expanded our 440 basis point to 10.2%, an operating income which grew by 122.5% to $24.4 million a net income which rose by a very impressive 73.4% (ph) to $28.2 million. If you recall, we also recorded strong margins in the third fiscal quarter and these consistent improvement are direct result of a success with the Harvest the Market' strategy. Since we commenced the strategic transition on November 2012, we have been living in the slowdown outpace of expansion and focus on ramping up utilization and efficiency across our existing network. We have shut over 50 underperforming schools and learning centers over the past eight months, slowly allowing management to focus on improving utilization and profitability of our more productive locations. Looking ahead, we will continue to strictly control new learning center openings in the first half of fiscal 2013. We currently don’t expect to open any new learning centers in this fiscal quarter. However, we’ll probably look to open 20 to 50 centers beginning in the second half or the second fiscal quarter starting in…

Thank you, Mr. Hsieh. By the way, Mr. Hsieh at the feedback of some of our participants, I will like to actually ask if possible for you to position yourself nearer to the phone, so that they can hear you more clearly Mr. Hsieh?

Is it better?

Yes this is much better now, Mr. Hsieh. Thank you. So, ladies and gentlemen, we will now begin the question and answer session and in order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. (Operator instructions). Our first question comes from the line of Mr. Philip Wan of Morgan Stanley. Please ask your question.

My question is about your enrollment growth trend. Could you please comment on the enrollment goal for June and July so far for our both overseas and K-12 business? And also given the increase in competition you have mentioned, I wonder what would be your pricing strategy going forward.

We won’t disclose the exact enrolments, but I can tell you that we don’t break it down separately, but in May, the enrolments were flat year over year at the end of fourth fiscal quarter and for the first few weeks of June enrolments were flat with revenues up in the low teens in revenue growth. The last three weeks however both enrolments and revenues have turned around and so definitely would be picking up quite well. And I think we attribute that partly to the late timing of Chinese New Year vis-a-vis last year. I think because Chinese New Year was two weeks later this year and the students in Q4 got other primary scores late June or early July that somehow was pushed back a little bit. So now, I think the last several weeks, we have seen a much better trend and so that’s the part of the reason also for our lower than normal guidance. Second part your question Philip, on pricing. On pricing trend, I think we continue to increase prices a little bit 10%, 12% and 13% year over year but a bigger part of the revenue is coming from mix shift changes because they address both in the earning release and in the script which is that our big class format which are popularly mostly in the summers and winter for overseas test for (inaudible) English are shrinking as a percentage of our total enrollment contributing overall, as the market is moving towards smaller classes and one on one VIP formats. So that also will slow down our enrollment growth. As I said, it just means that we will get higher revenue per student for the students of China.

Just a quick follow up. Would you also try to manage the revenue contribution and enrolment growth from the VIP or smaller class?

Yes, we have done that. VIP account for our 29% revenue in Q4. Many of the learning centers we closed this year were VIP. So you have to understand that the slower than normal revenue growth is self-inflicted but if we want to grow revenue, it's easy, we just open learning centers and take a lot of VIP students. But it’s a low margin revenue until the learning centers fill up and that takes a lot of time. So we purposely try to balance margin improvement with revenue growth and so we close many VIPs. Like I said we could easily pick up the revenue quickly, just open up more VIP centers or open up more learning centers. But that’s not our goal. Our goal is to improve the operating efficiency and the quality of our instruction and going forward we will balance revenue growth with profit growth so that in the future hopefully we won’t go to the massive cycles and we'll get to it a more balances sustained top and bottom line growth rate.

Thank you. And the next question comes from the line of Mark Marostica of Piper Jaffray. Please ask your question.

I was wondering if you could give us an update on the utilization performance in Q4 and your thoughts going forward on utilization in the coming quarter here.

That's a great question. I think we started the new utilization system was started actually last year around this time. So we don't have year over real comparisons in Q4, but I can tell you Q4 the utilization was better than Q3 and so Q3 was probably between 15% and 18% total and Q4 is probably around 18% to 19% and Q1 should be even better than that, obviously, since it's the biggest quarter. The new system is quite accurate. I think it counts every seat in every learning center. So it's every NPC, if we're lucky we'll get the 25% utilization rate. If we do that our operating margin will be much-much higher than it is today, it'll be (inaudible).

And as a follow up to that your operating margin guidance today assumes what level of utilization on average?

I mean it assumes about 6% to 8% enrollment increase for the fiscal year 2014. So if we only add 20 to 50 learning centers that should push the utilization rate right to around 20% for the whole fiscal year. So it’s not aggressive. I think our cost cuts, as of the end of June; we're actually down to 30,200 employees. So we're cutting another 500, so our cost rate is quite low and revenues are still trending up. So it's a good formula for margin improvement. That's why we're quite confident that if these trends continue that our GAAP operating margin will improve by 200 and 300 basis points and non-GAAP as well. So non-GAAP will jump from 15.6% to 18% or 19% and our GAAP will go from 12.8% to 15% or 16%. So you can do the math, you can see that, that means that net income growth will be much, much higher than revenue growth.

The next question comes from the line of Ella Ji of Oppenheimer. Please ask your question.

Just want to clarify, did I just hear you that you said 6% to 8% enrollment growth expectation for FY14.

Yes, that's for the whole fiscal year. It will be higher in Q3 and Q4, I think than in Q1 and Q2 because like I said Q1 you're looking against last year, last year we closed 73 learning centers and last year we opened 89 in Q1. So that huge delta will dampen Q1 enrollment. But we'll start opening learning centers in the second half of October and into November, to prepare for the big winter and spring seasons. Or if you think about our enrollment in K-12 is growing 15% a year even though we haven't added learning centers, so imagine what can happen when we start adding learning centers in the second quarter of this year. Enrollment should be much higher. So even though we expect 6% to 8% enrollment growth it will be more second half loaded than first half. So don't expect too much in the first half, as far as enrolments.

I want to ask you about this VIP/small class demand which seems to be very strong in the market but you just mentioned that VIP obviously is of low margin. So once you get your thoughts with regards to your long term expectation for VIP and the small cost as a percentage of revenue?

Well I think VIP in small class already are close to more than two thirds of our revenue. So it is where the market is going so we can either fight it or we can join it and we decided to join it. So small class enrollment is a chunk of 1.5 million almost 1.4 million enrollments. It's a huge number. And VIP enrollments even though it's only about 96,000 for last year they account for 28% to 29% of revenue. So that is where the market is going, we have to adapt to it. So as we told you before is that we have premium price in both small class and in VIP. Now our definition of small class differs from other companies like (inaudible). Our small class is actually 40 people and under, not 20. So it’s a larger format, and the way we deal with it is, we charge a much higher price for better quality teaching and better quality content. So as I said is vis-a-vis our biggest competitor in one on one, we're premium priced by about 50% to 60% from what I can gather from the latest results. So we will get a higher margin that way. Also half of our VIP enrollments are closer to one to five. This also have higher margin than the other one. And on the small class side the goal for us is to get more students in the seats, so to get it closer to 40 than to 20. If we do that than the margin will still be quite high, given our premium pricing.

So going forward the two, format of classes do you think their percentage of revenue will continue trending up or…?

I think they will continue trending up because the large class is attributable to adult English and oversea test prep is of both kind of slowish percentage revenue because K-12 will be the fastest grower. And on the K-12 actually it’s the middle and high school. It’s that UCAN program that’s the fastest grower and that’s where the students studying for the high school entrance exam zhongkao and the gaokao for college entrance exam. So those formats, the preferred formats from parent in the market is small class 40 students and under or VIP 121 or up to one to five. So those will continue to grow and I think as large class will continue to shrink as to up to 60% enrollment is down to 40 and declining and it’s a much smaller percentage of revenue.

The next question comes from the line of Zhuang Chao of Macquarie. Please ask your question.

Hi thank you very much for taking my question. I have a question on operating margin as well. I was wondering other than the 6 to 8% enrollment growth assumption what are the other assumptions that we should be thinking about behind the 18% to 19% operating margin guidance for this year. And additionally, as Louis mentioned earlier that weak margin expansion drivers in multi-year for the new suite that ramp up the utilization rate. In two three years' time what do you think the operating margin can be and what are some of the drivers behind that? Thanks.

Those are excellent questions, Zhuang. I think for us the assumption is to go into the 200 to 300 basis point improvement are not aggressive, assuming revenue growth of about 20%. They are assuming that we don’t open more than 20 to 40 learning centers in fiscal year 2014 and we are assuming that we continue to have usual price increases and 6% to 8% enrollment increases. So they are not aggressive by any means. As far as long-term trend in margins, if we can get 80% and 90% this year I am fairly confident that we’ll reach 20% non-GAAP the following year. At which we’ve got 17%, 18% GAAP operating margins two years from now. So I think that long-term we should assuming utilization rate can keep going up you’ll see that 25% utilization rates our operating margins will both be in the 20s it would be a very good result if we could do it.

And the next question comes from the line of Fei Fang of Goldman Sachs. Please ask your question.

My question is again on margin the younger improvement of the operating margin was apparently very impressive but if we dig into the numbers it seems that he bulk of the margin improvement actually came from the sales and marketing savings meaning the margin improved largely because there was significant leverage with advertising spending. And so my question is how do you plan to assess then margin improvement into the next year? Are we going to see more cut on advertising spend or would you expect other cost lines any cause of run rates from G&A (inaudible) leverage in the next few quarters? Thanks.

Well I think the bulk of the savings actually came from the G&A line so I think it’s both in terms of marketing and G&A. The bulk is a direct result of the headcount reduction, right. I think the prep promotion expenses were down in the fourth quarter but they are only 7% total expenses of total revenue each year anyway, they are 6% to 7% they are not a large number. So I don’t think we need to do much as far as we won’t be cutting some of the marketing much anymore, we won’t be cutting G&A much. But I think if we can still keep current levels like I said we’ve already cut 500 more people in June alone. So the cost base of G&A and some of the marketing going down. At the same kind revenues are still projected to go up 16%-20% this quarter. So it’s just similar to say to your Goldman model, right as long as you go up much if you cut cost. So I think as we will continue to keep doing prudently the reductions where we can save money but we won’t compromise on our core value which is having the best quality teaching the best content in the industry. So we’ll continue doing that, I think if we can get revenue growth of 20% our cost base will as it currently stands will result in operating margin expansion well in excess of 200 and 300 basis points actually.

I see, thanks Louis if I may have a follow up question on that. So noticed that the number of learning centers of over 2013 actually grew by 10% versus the total enrollment grew by approximate 6%. So how should we think about the discrepancy between the 10% and 6%?

Well I thought I explained that, right well the number of learning centers were opened in Q1 so that’s before we shifted to this strategy. And I think we lost 120,000 enrollments just in the shift from big class to small class and that’s pretty much the bulk of it. So I think if you do that it’s pretty consistent. The square footage that was added was much less than 10% of learning center capacity. And you can look at it now we are still trending up 16% to 21% in revenues. We’ve actually closed six learning centers this quarter so we’re actually doing it with fewer learning centers than the last year. In the last year still we are up 89 learning centers. So if we can still get higher utilization rates, the margin should be applicable.

Thank you. And the next question comes from the line of Clara Fan of Jefferies. Please ask your question.

I got a question, you mentioned about intensifying local competition particularly in large cities such as Beijing and Shanghai, just wondering if you can give a small color on it, mainly (inaudible) business or you're other businesses? Thank you.

Yes, I think typical, in our business our strongest competitors are local competitors. Primarily in kids English and middle school test prep but also in overseas test prep and this is something we mentioned a couple of quarters ago, and we have told the investors who have asked about this as well, is that a lot of the public schools in China, in the high school level have been teaching kids SAT and basically carousing their public school students to take their classes and move New Oriental, SAT and TOEFL classes, that's hurdle oversea test prep business over the last few years. But like as I said earlier they are beginning to back lash against those public schools, because the students are not scoring as high as they should because of the poor preparation study and so a lot of the parents are complaining, and so we have heard many stories about how the rate of acceptance in to some U.S. colleges is exceptionally low this year for the schools who have forcing their students to take their SAT class. So one of our solutions to this is many of those public schools have now come to New Oriental and asked to cooperate with us. So they will basically provide the students in the classroom and we will provide the teacher in a 50/50 arrangement. So we're considering that now to (inaudible) the local competition from the public schools. So, I think other than that our competition in K-12 sector is usually one strong local player. And so like I said, we've said in previous years, we expect to be number one and number two in all our key markets in every city we play in within five to six years of entering that city, and that's still our target and largely successful in that endeavor.

So we see that in terms of overseas test part, we don't see that competition actually persist in the long term.

Well I don't think it's sustainable what the public schools are doing, because their quality is inferior. And the Chinese consumers won't put up with this for long. So I believe it's not sustainable and many of those parents are actually secretly sending their kids in New Oriental any way. So I think it's not, the public competition is not sustainable in the long term. The second source of competition in overseas also and some of it is responsible for our weakness in Shanghai. Our own overseas test prep head in Shanghai defected and started his own school picking many of our star teachers. That's part of the reason why Shanghai has had difficulty over the last couple of years; we're talking about a year and a half, two years ago. So that's also hurt us. So competition from defecting teachers is also competition from local public schools, thus hurting the overseas sector. And despite all that it still grows 28% revenue. You can see that even in the face of intense competition our brand name and our results speaks for itself.

And I just want to clarify on your center openings plan. So we are not going to open any centers in the first half of this fiscal year or are we going to start opening in second half this year? And I am wondering whether they will be closing by anymore unprofitable centers and profitable centers will reopen. Thank you.

Yes the second one is easier. We will continue to close down underperforming learning centers. The other thing we will do is we will open up a couple of learning centers in fast growing cities, maybe before October, if it justifies it based on the profit level of the city and the utilization rates. So I think we will open a few, but the bulk of the 20 to 40 will come in late October, early November. And the reason for that is last year we opened 89 learning centers in August, be in the August quarter. And those learning centers got mostly empty in Q2 which was the slowest seasonal quarter than the fall. And so it doesn't make any sense to, bear that cost across a slower quarter. So we want to begin to ramp up in Q2 in the fall in order to prep for the busy winter and spring quarters. So our plan will be to backend load the learning centers towards the end of this calendar year. But we may open a couple in fast growing cities before then.

And what type of centers will be easy majority?

Most of them will be K-12 centers multiple use, so they will be small class one-on-one and maybe a couple of large classrooms. So there will be typically 1,000 to 1,500 square meters covering three floors of the building. So that's the typical center.

Thank you. The next question comes from the line of Vivian Hao of Deutsche Bank. Please ask your question.

I have two questions. So out of the total 6 to 7% of enrollments (inaudible) submitted for FY14, can you give us a directional guidance of how much will be for the overseas test prep, second and first year as relative to Q12? And also the second question is, given (inaudible) non-performing learning centers are closing or have already been closed or the VIP centers, do you see that 40% of the large classes, I mean including enrollment in large classes to start to stabilize or it will continue to make a percentage of our large class enrollment will continue to be lower?

Yes, I think the second question, yes the large classes will continue to be lower because the K-12 is outgrowing the declining adult English business and the overseas test prep business as far as enrollment goes. So, I think to answer your first question, we expect K-12 enrollments to increase probably around 15% or so, in the next fiscal year, which means the adult’s enrollment will continue to decline probably in the mid-teens and overseas test prep should grow somewhere between probably low single-digits on the growth side. So the growth will come almost all from K-12 as far as enrollments goes. But overseas study consulting and overseas test prep will still grow probably 20% to 25% in revenues whereas K-12 should grow over 30%. And that’s why we are assuming we continue to execute and the market holds up our revenue for the full year should be around 20% or higher.

And the next question comes from the line of Tian Hou of T.H. Capital. Please ask your question.

The question regarding the guidance, so the guidance is 16% to 21% year-on-year growth. So the delta is kind of, like a five percentage points. And I just, I wonder under what kind of circumstances the company expects growth could be 16% and under what kind of circumstances it could be 21%?

Okay. Thank you, Tian. Our normal guidance range is 5%. So, I think we’re probably currently at about 18%. So, if we have a good next few weeks because remember the summer has two halves, the July month and the August month. So the July month, the enrollments were lackluster but the August month the starting the enrollments are much better. So, it depends on the next two or three weeks whether we track 20% or we stay at 17% to 18%.

Okay.

So, we give a 5% range. So it’s pretty normal.

I see. Okay. So, one follow-up question is really on the trends of English education so as Chinese kids they started to learn English when there were really young. And so I could imagine more and more students will meet overseas testing or English training less as they become adult. So, do you see trends that education go to a younger age kid like shifting from the much older age to much younger age?

You’re actually correct, and that part of our business has been declining, it’s been declining for years for exactly the reason you just mentioned it. So that’s why we went into the kids business 10 years ago because the choice for us either we eat our own young or let somebody else do it. So we didn’t want our market to be cannibalized by someone else, so we are the market leader in kids English. So we’re going to just either we shift to the revenue from the adult level down to the kids level. And actually we’re getting more revenue from kids levels because they study English for many, many years.

Okay. So, compared with the margin of education like full adult and the kids, so are they at a similar level of margin or do you expect higher margin from adults?

Yes, we do get higher margin from adults and that’s why we keep the business, right. And it’s also because of the mature business, so we’re not expanding at all. So the adult business will have, typically will have operating margins between 20% - 25% whereas the kids are in the past were around 10% to 15% and are improving now as we slowdown our learning center growth. So, the adult margin will be higher because the kids, the maximum class five is usually typically 25 and most classes have between 30 and 50 students. And also the price point is much lower; it’s about priced at US$150 per class. So it is lower margin. But if we get the utilization rates up it’s still at a very healthy margin of over 15% and that’s one of our goals. Because the UCAN margins are actually very high and that’s the fastest growing business. The middle and high school business where kids typically have to take six subjects for the gaokao or the zhongkao, the margins are actually quite high; they are 20% - 25% and growing. So eventually I think our cash cow will become the middle and high school business the UCAN business and the kids will continue to be a feeder into that business. It’s still profitable, we’ll do it. But the real profit driver will be UCAN and even surpass (inaudible) are profitable overseas test prep in the next two to three years.

Thank you. And the next question comes from the line of Trace Urdan of Wells Fargo Securities. Please ask your question.

Thanks. My question was regarding, that you referenced slowing economic growth in your guidance and I was wondering if that was just sort of a prudent statement or whether you’re actually seeing evidence of that in terms of consumer behavior? And if you are, what form that’s taking in terms of weaker economy. Is this in terms of volumes or people inclined to spend less in certain areas, can you elaborate?

I think in the audience it’s something you kind of throw in because it’s one that’s contained. I don’t know. I mean we definitely have seen a slowdown enrollments in May, and also for the first few weeks of June. So that, that’s just a fact. We don’t know all the underlying reasons, so we kind of cover our basis, right. I think let`s say the last two or three weeks things have picked up again. So, it's hard to tell. I think in general from all the anecdotal evidence is that parents are being more discriminating in their purchases. And so you get the number that we’re a very high end purchaser, we’re the more expensive typically or one of the most expensive in every market we’re in. And so some parents will maybe trade down to a small class instead of a one on one or they make sure that it’s a big class out of a smaller class. But I think the student will soon get the education, they will get the test prep. It just may not be in as expensive a format. And some people may turn away from your rental viewer to expensive and take a lower priced alternative, right. And so I think it’s just to be prudent we put that in. But for those who think that our business is slowing I mean if we really wanted to pick up that revenue we just lower our price but there are many ways for us to accelerate revenue and one is to open learning center, one is to lower our price and capture the middle of the market which we are not willing to do yet. Because as I said we want to balance high profit margin model, we want to have the highest profit margin in the industry and have the premium bread. So we resisted our temptation.

Thank you. And the next question comes from the line of Charles Cartledge of Sloane Robinson. Please ask your question.

I’m curious to ask, so thank you first of all for turning capital to shareholders best by way of the dividend and share buyback. By my estimate you put about $640 million of net cash but there is massive customer deposits if you like. What’s your intention going forward and cognizant to the fact it's hard to move money out of China now. So I guess if you tell us how much money is offshore? Is that how you’re paying this $54 million and will…?

Well we don’t have any money offshore, very little just enough for expenses. So, the money we're giving to dividend is surplus funds that was moved from the VIE in to the (inaudible) and is moving that offshore. So, we will take that fund.

Okay. And how easy is that process as what implications might that have for a current dividend of some kind as opposed to two special as Steve announced.

Well, I think as we would unlikely announce a recurring dividend but we most likely we’ll assess every year after our Q4 earnings how much cash flow we have for the year and how much we will need for the following year to and how much we’ll need if it’s a security blanket, and then we will distribute percentage of what’s left. So, I think as I told you and other investors in past, we would like to pick every fiscal year see how much we make and see how much we can prudently distribute to shareholders whether in the form of a dividend or share buyback. The share buyback would be opportunistically whenever the share price falls we’ll be able to consider that. We talk about this with every Board member and every quarter.

Okay. So, just thinking through, if you have a security blanket and I would love to hear, how much you feel you need, I think previously is in the order of 300 or 400. And given your growth rates and the cash generous just to make sure the business, would it not be possible therefore for the dividends with the base of say I mean dividend and share buyback together $104 million this financial year. That should grow faster than revenues because if you can think about it as an element of operating leverage there with the security blanket.

This year we generate 134 million in net income, we paid out 104 million, that’s roughly (inaudible), that's a high tier ratio. So, in terms of the board's thinking about the business and the competitive threats and other items. And so, I think we will obviously evaluate this as a year.

So, it doesn’t address. That’s how I take your point, totally doesn’t address the stock of excess cash on your balance sheet.

So I don't know what's going to happen in the future, I know I need $350 million that's for fixed cost base if I want to get into it and we need to pay keep our doors open full year. The rest is probably about 200 million, 300 million in excess cash is correct. But having a little bit of excess cash is not a bad thing.

Sure. And does it restrict in any way that local requirement because I remember.

It is, small part of it is restrictive as sort of the reinvestment requirement for educating companies and some of it is locked up because there is done in tax free manner. So over the 600 million probably, 250 million is somewhat restricted by that.

Okay.

But that money can be used as part of the study - as well, don't forget.

And the last question comes from the line of Mr. Jianning Lu Flowering Tree. Please ask your question.

In the call you mentioned that 125% of utilization rates. So I just want to know like what long-term utilization rate is after new--profitable learning centers? And then even at 25% how--or can management further includes the utilization rate? That's question number two is I guess the enrollment of 2.5 million is regarding the cost of enrollment right. You're talking about the number of students and cost enrollment per student in China you are saying that's each student now one more what's the trend? Thank you.

I think the trend is that student in China for multiple classes especially between age of six to 18. So the kids in the middle and high school students stay for many years in center for more and more classes as they get older, so that was the whole basis of this one stop shop, so that's definitely the trend. The 2.5 million enrollment, 1.5 million is K-12 . And so that is still enrollments are two multiple years, multiple recurring, enrollment . As far as utilization rate your first question, we didn't track it this way before, the reason is calendar classes are one if the class gets opened in the year. So that's why much higher--we see very detailed, much more accurate way. So I don't know the utilization in past years because we didn't count it this way. But the new way is absolutely accurate, to count every hour seat in that learning center. And if we can get the 25% utilization our operating margin will be north of 25%. So there is a huge room to improve. But like I said, it's hard for us to execute that perfectly. I think Beijing has the highest utilization rate. If I had to guess, I don't know. Because we don't have a full year yet, but it is probably close to 25% and not counting corporate overhead 41% operating margin . So there's huge improvement, potential but it's hard to execute on that potential.

But now I mean can I do not understand from business perspective, why is it good to improve the utilization rates more than 25%?

Because you can take a look at some of our one-on-one centers, right? It's not cost effective to open a center unless you have 30 to 50 seats like in the first floor for VIP center. But right now you probably have 10 students in one time and we want more seats because it in peak season, like in Q4 you may have 15 students or 20 students in those seats and you have plan for growth because you are starting at least for five years, right five years to 10 years. So you got a plan that it's going to fill up over three or four years. And so that kind of analysis that it's hard to fill up because this is --. I think the number is that we open 500 learning centers not this year but in the previous three years. It takes two or three years for them to mature, and you can get to 20% enrollment . So you got most of our networks still not mature yet. So those two factors of most of learning centers were open after 2009 and they are not fully utilized yet. Second thing is that you have to build bigger than you want because if five years, seven years leases, we don't you can get the option to expand. It's not, most members don't want to do that. So we kind of take the space upfront expecting to grow in the next three to five years. And so it takes that time to fill up. And also, like I said for kids class we have many 325 seats but the average is only 13 to 14. And so if we for the peak classes there is certain times it's been flat, if you don't let them in the class right you are cutting up on your revenue so it's still cost effective for us to have to have 25 seats almost half or empty most of the time.

Thank you. We’re now approaching the end of the conference call. I’ll now turn the call over to New Oriental’s President and CFO, Louis Hsieh for his closing remarks. Mr. Hsieh?