Gaotu Techedu Inc. (GOTU) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the GSX Techedu Fourth Quarter and Fiscal Year 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded on Tuesday, the 18th of February of 2020. I would like to hand the conference over to your first speaker today, Ms. Sandy Qin, IR Senior Manager of GSX. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. GSX earnings release was distributed earlier today 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 during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate 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 SEC. The company does not undertake any obligation to update any forward-looking statement except as required under applicable law. It is now my pleasure to introduce Larry. Larry, please go ahead.

Thank you, Sandy. Good evening and good morning to you all. Thank you all for joining us for our fourth quarter and fiscal year 2019 earnings call. As I mentioned during our last earnings call, operating cash flow is essential indicator to measure the standard [ph] performance of online education companies. Actually, it’s also a key metric to measure the performance throughout the entire year. In the fourth quarter, our net operating cash flow reached RMB739 million which is almost five times compared to the same period of last year. For the full year 2019, our net operating cash flow has reached RMB1.29 billion over five times compared to last year. As of December 31, 2019 we have combined cash balance of RMB2.74 billion including cash, short term investment and the long term wealth management products. In December, we repurchased around 627,000 ADI’s equivalent to RMB87 million U.S. Excluding the impact of stock repurchases, our cash balance were RMB2.83 billion that made --that marked a significantly increase from RMB236 million at the beginning of 2019. With -- our business is continuing could generate ample cash. Our net operating cash flow continues to be positive. As such, despite the event many meds for the final stretch say that we do another photo offering while market sentiment is bullish. We have no plans to do so. We firmly believe that by nature, education companies through the not burden of cash to grow to scale but should spare no effort in serving every student and the parent to their satisfaction. Investors often ask us, what on earth are GSX competitive advantages? My answer is always focus. As you all know, what makes GSX stand out? It is our focus on online live large classes. In the past year, I consistently underlined the importance of focus to all our employees. Thanks to this focussed strategy, we always think a bigger and think deeper on every step we take, where others think of Version 1, we have already reached a Version 1.1. We have reached Version 1.1; we have already sought out Version 1.1.1. As I have always emphasized at each loop of the value chain, we outperformed the industry average by 3% exponential impact would be astonished. Many investors also asked for my opinion on business model that incorporate large classes, small classes and one online classes? I believe this strategy is like for risk, [Indiscernible] chasing three rapids [ph] a year [Indiscernible] simultaneously which ones can catch up. Throughout the chain [ph], I'd say, is the history. We have gone through a period where we were chasing too many rapids, where we have experienced a painful downturn. In this sense, we were the earliest among all the leading online education companies to focus on the one team, focused on one core business, the online live large-classes. Once more we began implementing this focused strategy while we were still very small in size. [Indiscernible] organizational capability you are seeing now is impressive. That's because we began building out the underlying structure and the system very long ago. Just like my favorite example, if a girl begins a stretching her legs at the age of two, she will be very flexible by the time she turns 18. But if the girl has never stretched her leg before, it will be very painful to suddenly begin doing so at 18. People keep asking, I was chick as I say them both. What happens when a peer is quickly [Indiscernible]. Let me tell you, the big question is, all the major players within the online education industry in China are already large in size, like some have 18-year old growth. And you ask them to suddenly stretch their legs without years of practise, it’s painful, it will take a time. If you say look, GSX does a pretty good job today. I’d like to reiterate that GSX doesn't have secret thought. We are simply focused on the one team. Just focus on the one team directly, earnestly and satisfactory and that makes us amazingly collaborative organization today. Now I will hand the call over to Shannon, our CFO to walk you guys through the details of our financial and operating result.

Thanks, Larry, and thank you, everyone, for joining the call. First and foremost, I'd like to share some updates on the evolving situation with the Coronavirus outbreak in China, and how we have been adapting our business to this new environment. Our hearts are with those who suffered. We appreciate that the work many companies are doing so keep the country running. With that in mind, as a significant player in the online education industry, we've really rolled out the initiative to support students during the time. Our K-12 brands, Genshuixue and the Gaotu Ketang have donated RMB20 million worth of regular priced courses, with fully devoted tutors providing not just study services, but also emotional support. Our Weishi team has opened its live broadcasting system to offline education institutions, and public schools for free, assisting them, moving courses from offline to online. Over 80,000 new accounts were opened during the outbreak. Our Chengxi team is providing free training to help offline institutions transit to online courses, serving over 6000 offline institutions. We also have launched free courses staffed with our best instructors, on national wide platforms like Xuexiqiangguo, Xinhua News, Xinhua Net, Yangshipin, People.cn, and media apps including [Indiscernible] to ensure a seamless delivery of high quality education. Right after the Coronavirus broke out; we reacted instantly with an action plan, and our team working for days and nights to successfully secure the seamless delivery of our education services. The whole company was well organised. We also operated an R&D centre in Wuhan together with a small tutor group whose health and safety are what we care about the most now. Some of these tutors volunteered to serve the donated courses for Wuhan. What they and their students experience through all this difficult times would bring their hearts together. And to all of our employees in Wuhan, Hubei, we will do everything we can to support you. Please hold up and stay safe. We'll look forward to seeing you when spring comes. Now, I will walk you through our operating and financial results, and conclude with how we view it at the coming quarters. Please note all financial data I talk about will be presented in RMB terms. First, I will briefly recap the financials for the fiscal year 2019. They reported net revenue of RMB2.11 billion representing a 432% increase from RMB397 million in 2018. Gross billings, the leading indicator for revenue was RMB3.36 billion increasing by 413% year-over-year from RMB665 million last year. Non-GAAP income increased to RMB287 million in the year of 2019, up 1021% [ph] RMB26 million in 2018. That takes our non-GAAP net income margin to a level of 14%, that older than 6% last year. We always believe that if a company cannot make profit, our unit economics, then it's even more difficult to achieve profitability when the scale is larger without sacrificing the growing speed. Our style is always that first [Indiscernible] we view that the optimize unit model and then we scale up. We have reported consecutively five quarters of top line growth of more than 400% year-over-year. Five quarters of K-12 gross billing growth of more than 400% year-over-year and seven quarters of non-GAAP profitability by the end of 2019, which is all attributed to our augmented organizational capabilities is that perfect execution of corporate strategy, and improving operational efficiency. Next, then we go through the key financial points for the fourth quarter up 2019 in details. Revenue far beat the top end of our guidance, increasing 413% year-over-year to RMB935 million, thanks a solid accumulation in both education experience and technology resource in the past years. Our gross billings increased by 396% year-over-year to RMB1.58 billion mainly due to increasing student enrollment from the summer, and high level retention in the fall. This leaves a solid foundation for our 2020 performance. Total enrolments which refers to enrolments to courses priced at or above RMB 9.9 hit a record high of RMB1.12 million which was 3.9 times that of the same period of 2018. Paid enrolments, which refers to enrolments priced at or above RMB99, increased to RMB1.1 million or 4.4 times that of the same period of 2018. In addition, we also provide promotional classes priced at RMB9 all for free which contributed a large amount of the enrolment. Let's break down our revenue streams by business lines. Net revenue from our K-12 courses increased by 468% year-over-year to RMB773 million and accounted for 83% of net revenues. The proportion of K-12 net revenue has increased for 6 consecutive quarters and will continue to be our main source of revenue going forward. Among K-12, I want to highlight our primary school business, whose revenue grew by 894% year-over-year in the fourth quarter. The revenue generated by a primary school sector is not only increasing in absolute amounts, but also accelerating in growth rate. We were able to achieve this because we've prioritized our primary school business as a strategic focus, and invested considerable time and resources in upgrading the core content and learning experience. We have seen stronger trust and brand recognition from students and parents. Gross billings contributed by K-12 courses rose by 442% year-over-year to RMB1.39 billion. Paid course enrolments for K-12 increased by 410% year-over-year to RMB1 million, growing at a higher speed compared to other business lines. Average enrolments per class further increased from 1,400 in the third quarter in 2019 to around 1,700 in the fourth quarter. Net revenue from our foreign language, professional and interest was up by 310% year-over-year to RMB150 million and accounted for 16% of net revenues. This significant year-over-year increase was primarily because we constantly optimized our course catalog and promoted highly qualified teachers. Gross billings contributed by foreign language, professional and interest courses were up by 223% year-over-year to RMB174 million. Paid course enrolments for our foreign language, professional and interest courses increased by 191% year-over-year to 91,000. Leveraging our know-how with online live large-class education, we will further expand into this large industry segment. Our cost of revenues increased by 239% year-over-year to RMB196 million. The year-over-year growth rate was less than that of revenue, primarily attributed to the economics of scale of large class business model. Non-GAAP gross profit margin, which excludes share-based compensation, increased to 80%, up from 68% in the same period of 2018. Selling expenses increased to RMB422 million up from RMB58 million in the first quarter of 2018. The increase was primarily a result of more marketing expenses to attract new students, expand market share and enhance brand awareness. We did see the seasonality of marketing spending leading the percentage of selling expenses to total net revenue to significantly slip down to 47% from 59% in the previous quarter. We do not recommend comparing the year-over-year growth rate of sales and marketing expenses in an isolated way and should be linked to the growth of gross billings. For this quarter, our ROI reached its growth billings divided by sales and marketing expense was at high at nearly 2.6 which provide a larger leverage to expand our business. Research and development expenses increased by 215% year-over-year to RMB84 million. We constantly work on ways to apply the latest technology to improve the learning experience. We will consistently invest in research and development, hire the most talented professionals and have the operational efficiencies leveraging technology. G&A expenses increased by 191% to RMB46 million mainly due to increase in G&A headcount, and increase in related compensation. Non-GAAP income from operations, which excludes share based compensation increased by 572% year-over-year RMB191 million from RMB28 million in the same period of 2018. Interest income and realized gains from the investments were RMB10 million in the fourth quarter of 2019, up by 488% year-over-year presenting the interest we received from matured short term investments to deploy our capital in a efficient way, we continued investing in wealth management products, with low risks and high liquidity. According to the Accounting Standards Codification Rule 320, 90% of short term investment we held should be measured sub sequentially as fair value through other comprehensive income and balance sheets other than income interest income in P&L until they are realized. Once the investment is mature, the amount previously recorded in accumulated other comprehensive income in the shareholders deficit equity section on balance sheets should be transferred to P&L and recognized as realized gains from investments. In Q4, 2019, except for the RMB1.9 million interest income and 8 million realized gains from investments; we still hold accrued interest related to short term investment in accumulated other comprehensive income, indicating an annual return of approximately 4% from all our short term investments combined. The level was in line with the market average and shows our strong capability of a treasury management. In terms of the long term investments with Citibank, it is offshore and 100% principle protected is held to maturity. Following the accounting standards, we will report the fair value change based on independent third party report on a monthly basis. The return related to the Citibank note has no impact on profitability until it reaches maturity. And offshore wealth management products return is usually lower than onshore ones. According to Citibank the notes price shown has a much lower return rate at the beginning of the holding period, and will gradually increase when near to the maturity. Details will be displayed on our 20-F Annual Filings. Non-GAAP net income increased by 617% year-over-year to RMB198 million in the fourth quarter from RMB28 million one year ago. As of December 31 2019, we had RMB74 million of cash and cash equivalents, RMB1.47 billion of short term investment and RMB1.19 billion of long-term wealth management investments. As of December 31, 2019, our deferred revenue balance was RMB1.34 billion. Deferred revenue primarily consists of the tuition collected in advance. Net operating cash flow for the fourth quarter of 2019 was RMB739 million up 395% year-over-year from the net operating cash flow of RMB149 million for the same quarter of 2018. This demonstrates our strong organizational capability in balancing investments and returns. With that, I will now provide our business outlook. Based on our current estimates, net revenues for the first quarter of 2020 are expected to be between RMB1086 million and RMB1106 million representing a increase of 304% to 311% on a year-over-year basis. These estimates reflect the company's current expectations, which are subject to change. That concludes my prepared remarks. Operator, we are not ready to take questions. Thanks.

Yes, thank you.[Operator Instructions] And the first question comes from Mark Li with Citi.

Hi, Larry, Shannon and Sandy congratulations on the very strong results. I have two questions. One is, you mentioned some of our measures for the unfortunate Coronavirus incidents. May I know a bit more say -- any color on line traffic, recently we see. And how is our system, and R&D to take the peak traffic from their users? And how about our strategy for the future retention rate etcetera? And also, I want to know you mentioned our focus on cash flow not cash burning. So how is our strategy for the upcoming the spring semester online competition? Any color on this? Thank you.

Thank you, Mark. This outbreak will significantly affect the Chinese economy. We are very concerned and are closely monitoring the evolving situation. There is a theme that's important events will change people's behaviour, and that the behaviour change will further reshape people’s habit. Now we are seeing a lot of teaching and renewed activities happening online. This will incredibly cause the people habits to taking online courses. There were around 200 million primary and secondary school student in China. Let's assume with the cost to transit one student from offline to online running is around [Indiscernible]. We multiply that and get the total cost of RMB200 billion. At the same time, there were nearly 20 million teachers from primary and secondary schools as well as after-school tutoring institutions. Let’s assumes the cost to train and transit one tutor online is RMB200 [ph] we multiply that and get RMB40 billion. In short, the situation today, we save nearly RMB240 billion in promotional expenses for the sector and significantly as a standard rate is a popularity of online courses. Right after the Coronavirus broke out, we instantly took actions and thanks to our strong organizational capabilities, we have launched the three live classes on – platform and we have attracted nearly 15 million enrollments. However, in our view the number of users doesn’t equal to the number of customers. It can be fast to attract the users, but it takes much longer time to accumulate loyal customers. The typical conversion process were three live classes is, a user enrols in three live classes, then he decides whether or in order to enrol in the low priced promotional courses. Since this process has one more step then converting from RMB9 live courses directly, we seeing as a conversion rates is definitely much, much lower. And also, many, we ask on what about the competitive landscape. We always believe in our focused strategy. Our focus is always on the one team, always on the customers. Instead of competitors, we all firmly believe that as long as we serve our students and the parents to their satisfaction as within the organization, we collaborate effectively and efficiently. Tomorrow will always better than today.

And also adding to Larry's point, the registrations with us with us are vitally spread on multiple channels such as [Indiscernible] and desktop, tablet, WeChat and iOS. And actually iOS terminals accounted for the list of all those channels. Only about a middle single-digit or near or low single-digit. Especially for our paid course enrollments, we calculated the data based on our data on February the 10th. So, parents are less willing to pay for courses to iOS largely because the in-app purchase policy that the parents need to pay additional charges around 30%, so the parent don't want to take the burden. And also like Larry, always say, like we believe that users do not equal to customers. Customer has a higher loyalty and users may leave us quickly. So very likely, we are in the education industry and retention is the only thing that matters. Thanks Mark.

Thank you, Larry and Shen. And congratulations again.

Thank you.

Thanks.

Thank you. And the next question comes from Christine Cho with Goldman Sachs.

Hello. Yes, congratulations, Larry, Shen and Sandy for excellent good quarter. I have two quick questions. One, you mentioned that you kind of see more competitive backdrop. Can you just elaborate a little bit more on your customer acquisition strategy going forward? And secondly, I think we saw a pretty good progress on the non-K12 side as well. And I know, Shen, you shared some details during the remarks. Can you just share with us some comments on how we should look at the going forward outlook for this business as well? Thank you.

Thanks, Christine. Yes, as we mentioned during our last call, for the first three quarters of 2019, basically the weighted average customer acquisition cost for paid course enrollments was around RMB545. And we also mentioned that, Q4 was usually the largest retention season and we expect the number to be further decline in Q4. So, for Q4 alone our CAC for each paid enrollments was around RMB400 and it drives down the weighted average customer acquisition cost for the entire year to be around RMB470, which shows higher retention can lead to a lower customer acquisition cost. And we don't really differ from our peers in customer acquisition channels. We all rely on sales and marketing also primary [ph] platform that may distribution all those traffics. In 2019, we acquired students from four types of courses. We have three courses; promotional courses priced at around RMB9 and we also provided entry-level courses priced at RMB49 and regular twice above RMB99 which we usually refer to Guangzhou. In the past year, we have been disclosing the paid enrollments for courses priced at RMB49 and above RMB99, but now we've disclosed enrollments for RMB9 and for free. We do list because the market is still in a very early stage, which makes it difficult to get which professional courses are the most effective one. We don't want the information we deliver to be inconsistent. So, if counting all the enrollments together our sales and marketing efficiency is actually really high. And please keep in mind that our sales and marketing spending is driving a topline increase of over 400% especially for K-12 business. Our gross billing was increased over 400% from five consecutive quarters, I mean, in terms of the gross billings. So our company is actually very unique. If you look at -- its most likely the company grow as fast as us they will be in a deficit position. We can profitable only because we are very lucky that we are in education industry. So, as long as we can serve our customers, our students and parents to their satisfaction, they will stay with that for a quiet a long time. And it’s a perfect recurring business model. So that's why, like going forward, we will still maintain our commitments to enhance our course quality and students services. And as for the investment plans, we will make strategies based on our service capability. We'll won't be too conservative to lose market opportunity or too aggressive to burn money. And your second question is about our non-K-12 business. So yes, we do expect our non-K-12 business to continue to grow in the future. The reason is that, our K-12 and non-K-12 business, they all share the same strong central system, which provide solid support on multiple dimensions for instance, instructors recruitment training, tutor recruitment training, research and technology support, live broadcasting technology and they shared the same data for our sales and marketing et cetera. So, we are confident, because as you can see the non-K-12 also grows really fast, which including language training required for college students for adult to improve their language capabilities, as well as some courses we provide to parents that they can get along their children very well. So, in the long run we always want to be their lifelong learning partners. Thanks Christine.

Thank you. And the next question comes from Gregory Zhao with Barclays.

Hello, Larry, Shen and Sandy. Congratulations over strong quarter. Thanks for taking my question and best wishes during the special period. I have two questions. The first one, with a very healthy margin expansion in both gross margin and operating margin. Can you help us understand the reasons behind? And how shall we think about the leverage from teachers compensation and sales and marketing expense fee? So based on this, how shall we think about the Q1 and 2020 profit outlook? Whether any changes in the current competitive environment? The second question is about your lock up so considering the upcoming to lock up expiration to management team or the pre IPO investors think about setting the shares. And has company have any plan to restructure the shareholder structure? Thank you.

Thanks, Greg. So your first question about the margin guidance. So, yes, we can see like our GP margin increased like on quarter-over-quarter basis, that's all contributes to, like because we're in a large class business model that our -- like the -- the fixed compensation of our instructors and tutors can be fully diluted when the class just grow bigger. And we do see like our gross margin is increasing in the five [ph] consecutive quarters in the past year. So going forward like we always provide the most competitive compensation to our instructors and our tutors that they can be really happy when they work with us. And if they're happy the students will be satisfied. So that's our philosophy. Always provide the most competitive compensation across the whole space. And in terms of the OP margins, so there's an apparent seasonality if you look at our margins. Let's recap the trend in 2019. So for full year last year our non-GAAP OP margin respectively 17.3%, 8.8%, 1.3% and 24.4%. So the margin in Q2 and Q3 will be lower due to massive -- due the investment in the summer promotions. So the margin of Q4 will be the highest amount year as we saw our Q4 results. So in 2020, we won't be giving guidance on margins. Instead we prefer to give an absolute value range for the profit forecast, just like what we did in 2019. When we projected the full year revenue of RMB1.8 billion, in fact, at the IPO the actual results surpassed the guidance by 17% and reached RMB2.11 billion actually. And the same with gross billings, for which we projected range between RMB2.5 billion and RMB6 billion. But actually we reached RMB3.3 billion, exceeding the guidance by around RMB700 million. So as for margin, what we have now may not be as high as what we estimated back then. But the market position we have gained and the growth capability we have obtained are all the way passed our early expectations. Not to mentioned that our ROI is much higher than the industry average. So we believe in an absolute value guidance will be more objective at the moment when the market is quickly expanding, and which will also provide us with a large leverage that we can gain more market shares. And your second question. So, yes, so our business is still growing in exponential speed, evidenced by our Q4 results. So our GAAP and non-GAAP net income all increased over ten times compared to the same period of last year. So we are one of the very few companies in the secondary market that we can grow all the way both on gross billings, our net revenues, our profitability as well as the improvement in margins. So -- and also look at the guidance we provided, topline guidance we'' provide for next quarter. We will still be growing at full time or increasing 300% at least. We have been in a close discussion with all of our shareholders, and they have continued to express their long-term confidence in our company's future. And also we believe that our shareholder based and trading liquidity following our last follow-on offering was largely expanded. So in the past quarter, they've received the multi-times of investor request, like, they want to do more serious homework with that. And the investors across all continents like Europe, Canada, and our neighbors, Japan, Korea, they are reached to us, because I think investors know that China's education market has a huge opportunity here and they are all looking for the best performer. So, we believe that like in the shareholder space we have now can further support the liquidity. And also, we are quite different from other technology companies. We just raised one round of capital before our IPO. And our private equity and venture capital investors are only on the round 10% of our total shares. So -- and like, Larry owns around 46% of the shares and he has -- at the moment he has no intension to sell. So, really we don't see the liquidity is the issue at all. Thanks.

Thank you.

Thank you. And then next question comes from Felix Liu with UBS.

Hello. Good evening, Larry, Shen and Sandy. And first of all, congratulations on the strong results. So some questions on the margin side. One, I think the GP margin certainly is very impressive. And you mentioned that, its mainly come from better economies of scale. So could you maybe breakdown into what part of the operating leverage are we having? Is it on the instructors compensation? Or is it on other cost items? And secondly, on the sales and marketing side, just a follow-up question on the -- from the previous attendees. I think, winter quarter to my understanding is probably a relatively low season in terms of selling and marketing compared with Q3. But we still see a increase in absolute amount. So could you sort of elaborate and see if any changes in selling and marketing spending? And how we should think about it in the next year? Thank you.

Right. So, for the GP margin side, so majority of the cost of goods belong to compensations we provide to our current tutors, and they do see the proportion of the instructors keep declining in the past four quarters. And actually the compensation we paid to tutors is in the increasing trend. So that's why we really see that the leverage we have and thanks to the business model. And like going forward in the future -- because we always want to provide the best service to our students, which means, like tutors also takes the important role that because they are doing the daily communications. They are doing emotional support and they are the person who talks to the students on daily basis. So we really like -- we take tutors. We wanted them to be respectful. So, right now, like the tutors compensation is slightly higher than the compensation to pay to instructors right now. Then going forward with you, we want to pay incremental compensation to them as well. And also, the second question is about the market spending. So, as I just mentioned, like to support a topline growth like in 400%, we really see like the market spending right now is at -- it's not expense. It is an investment actually. Because like the way -- like the financial model is always -- we always record 30% [ph] unit alone, because that's the time we've actually spend the money we acquired traffic. Then -- but, like the revenue is actually recognized in the following three months or four months. So that's why there is mismatch. When we are supporting a 400% increase that the investment right now is very essential. And the other way to look at the spending strategy on sales and marketing is always to look at ROI. As we mentioned during our last call, so the way we see whether it's worth spending, its whether we can find the best unit economics, whether we can still be profitable -- I mean, on the cash side on the first order. So if we are confident now to do so, we will keep investing in sales and marketing. But at the same time we also need to consider to our supply capabilities. Because like, our philosophy is always effective growth that we don't burn money. We always take the traffic. We can't directly have a confidence that we can serve them to their best satisfaction. So that's our strategy.

Thank you. Very clear. And also on the supply side, I just want to follow-up. I'm not sure if we have the latest tutor and instructor headcount that's available to share?

Yes. We believe that number will also be disclosed in our 20-F filing later on.

Okay, sure. Thank you. Thank you very much.

Thank you.

Thank you. And the next question comes from Mengqi Zheng [ph] with Haitong International.

Hello. [Indiscernible] from Haitong International. My first question will be the contribution of high school segment by enrollment and revenue in the fourth quarter? And if there is any different in gross profit and OP margin between high school segment and other segments? The reason I ask this question is because there is likely to be a delay on our [Indiscernible] high school entrance examination -- university entrance examination this year. So, there might be a shorter-term -- shorter semester for the Gaotu So are you doing anything to capture the demand? And my second question will be for your first quarter guidance, that's very encouraging. And how much of the guidance comes from the join registration for both the winter season and spring season? Thank you.

Thanks Maggie. For your first question, as I just mentioned on my prepared remarks, our primary school revenue increased significantly. The increase in rate was 893% and our total revenue increasing grade was 413%. So that basically can give you a picture like our primary sector revenue is chasing high school really hard. So, and we always see like primary school is the key sector that the primary school segment has a larger student base, low penetration rate, longer lifetime, and broader market potentials. And their parents are in a younger generation and are more open to online education. So that's why we do see like premise who has a higher strategic significant for our branding. We always prioritize our primary school as a strategic focus. And in Q4, like -- we do see the revenue from primary school is increasing a lot. And actually our concurrent students who are actually taking less in the number from primary school has already pass the high school. So we do see that provides a huge potential for our future business to grow. And for your second question about our Q1 guidance. So, we feel like really sorry for what's happening right now and like the virus breakout really has a huge impact on the after-school tutoring business. So, right now, we don't really have the conclusion why, when -- why does the Gaotu will be delayed. But we are closely following like all the guidance provided by the MOE and other local education related governments. And actually like our Q1 guidance is made on our best estimates as of now that they have take a comprehensive consideration of the potential delays in the primary and secondary school opening. And we always like -- we are fully respect and support the government's move to protect students. And they will take all the actions we can to make sure our courses arrangement are in compliance with regulations and be supportive. Because a lot of parents that despise now in starting with their students. So they are calling our tutors to on call and help them to solve their problem they are facing right now. So in terms of the joint registration for our Q1 guidance. Actually we are following the guidelines provided by our MOE closely. So actually, because for online education companies, we can either cho0se like, the rest -- the course is not longer than three [ph] months or not longer then 60 [ph] classes. So currently we do have a few classes that is less than 60 classes that students can take but longer than three months. So we don't have a clear number on the top off my head that I can provide you the details about what's the proportion of the joint registration. But basically when the student sign up for the sequential semester we encourage them to either they choose just sign up before the winter or they choose joint lesson, that's all their accounts. And we're much happy to take their chooses. Thanks.

Thank you.

Thank you. And the next question comes from Alex Xie with Credit Suisse.

Hi, management. Thank you for taking my questions. And congratulations on very strong results. My first question is about our retention of teachers. I think, one of the key advantages of our business model is to have the best-in-class instructors and tutors. And as I do have some confidence in our strategy to keep our top teachers. I want to ask, what will be the component of the compensation in terms of share based compensation or long-term incentives to keep them. And secondly, I think in this industry the loss of tutors particularly for the newly class who just received trainings has become an issue. What is our expected retention rates for our tutors? And how is our tutors compensation higher, say, how much is compensation higher than peers? Thank you.

Thanks Alex. In terms of the retention of our instructors, we do had really high retention rate in terms of our instructors. So, for -- so instructors who is taking a class larger than 1000 enrollments since 2017 now list of kind of instructors has left us. So you can say that voluntarily. So we can say that our instructor retention rate was 100% by that mean. The key is like, first, we always provide the most competitive compensation to them. And the good time, we see its like you know instructors usually they are very conservative group. So at the beginning of their career with us, they are less willing to take share incentives, but right now, like a lot of instructors they just came to us and voluntarily started to see whether they can have a longer term of -- they can be part of the share incentive plan and have a long term incentive. So that's a really good stand. And secondly, as we always mentioned, doing online business, so tutor, instructors, they are very good. But they are also just part of the team. So they are good enough, but their team needs to be equally good to support the teacher, because their compensation is also highly rely on like the sales force, can you recruit how many students to them. And like the tutors can provide the best quality of service to their students so they can have a higher retention rate. So the whole team just work together to a better performance. And the structure of our instructors compensation is fixed part of the compensation plus performance based compensation usually linked to number of enrollments in their class, as well as the share-based compensation. So these are the three important to their compensation package. And also like the training and recruiting to new tutors. So as a technology company, we did had a really solid foundation. As we mentioned during our IPO, we actually -- we collect for live broadcasting team, the second month after our incorporation. Right now, we've provided online training to our tutors through our [Indiscernible] as well as our live broadcasting system. So -- and also we have closely -- we have close conversations with all of our staff during the coronavirus outbreak. And actually, there's one thing maybe beneficial to online education industry especially for top players as us is like there were around 8.7 million new graduates list here, but a lot of industries are much affected by the thing we are experiencing now. So, we are actually has more opportunities to choose, those are really good. Has really good professional background candidates with us. So that's why we see one of the biggest benefit we have right now. Thanks.

Thank you.

Thank you. And this concludes our question and answer session. I would like to turn the conference back to Nan Shen for any closing comments.

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 us or the company directly. Feel free to subscribe to our newsletter on the company IR website at gsx.investorroom.com. Thank you very much.

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