TAL Education Group (TAL) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the TAL Education Group's Second Fiscal Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I must advice you that this conference is being recorded today, Thursday, 22nd of October, 2015. I'll now like to hand the conference over to your first speaker today, Ms. Mei Li, IR Manager. Thank you. Please go ahead.

Thank you all for joining us today for TAL Education Group's second fiscal quarter 2016 earnings conference call. The second fiscal quarter earnings release was distributed earlier today. And you may find a copy on the company's IR or through the newswires. During this call, you will hear from Chief Financial Officer, Mr. Rong Luo. Following his prepared remarks, Mr. Luo will be available to answer your questions. Before we continue, please note that the discussions 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 are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties, include but are not limited to those outlined in public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release in this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains the reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would now like to turn the call over to Mr. Rong Luo.

Thank you, Mei. And thank you all for joining us on our earnings conference call for the second fiscal quarter of 2016. So we have communicated last quarter, we are expecting this to be a strong quarter. The second quarter revenues do exceeded our guidance due to very strong growth of our small class business, particularly in other cities. Our sales were better than expected in the one-on-one business. Net revenue increased 41.6% year-over-year to US$173.3. In RMB terms the gross was up by 43% due the depreciation of the RMB versus the US dollars. Revenue growth was primarily driven by an outstanding 55% increase in enrollments. Our performance of the top line resulted in a very solid quarter for operating income as well - with a year-on-year increase of 28.5%, even as we continue to expand classroom capacity and invest in auto initiatives. Today, I will briefly review our operational highlights in the second quarter and then discuss our most recent progress and strategy acquisitions and investments. After that, I will provide some further analysis of the Q2 financials and our business outlook. Overall, the second quarter was continuation of the positive growth trend we saw in the first quarter, a major contributor to growth in the second quarter was our small class business. In the second quarter, small class accounting for 83%, 8-3, of total revenue compared to 82% in a same year ago period. Net revenue for small class was up by 44% and enrollments increased by 52%. Other cities, especially the new cities that we enter in the past two years, continue on [indiscernible] and even a little better than expected. In Q2, as many as 9 cities grew by over 100% year-on-year. This made our revenue base from small class more widely spread geographically. Another way to show this is by looking into the 14 cities ranking below the top five cities, which are Tianjin, Xi'an, Wuhan, Chengdu, Hangzhou, Zhengzhou, Suzhou, Chongqing, Shenyang, Shijiazhuang and the four new cities we added in the quarter last year. These 19 cities are – sorry these 14 cities 1-4, together contributed 32% of the Peiyou small-class revenue in Q2, in the same period last year the cities below top five contributed 24%. Let me update you on Beijing's small-class performance. Our consolidated efforts to reach general growth in Beijing are beginning to pay off. The 1RMB [ph] summer class offer for the first year junior high students [indiscernible] of last years summer vacations. We have a high rate of over 80%, 8-0, registered enrollments actually going to class. This promotion was quite successful and resulted in a very solid retention rate of over 50%, 5-0, in the first year class for summer to fall. We are confident that this will continue to lead to growth in coming quarters. Another positive indicator is that [indiscernible] overall enrollment increase in Beijing is around 10% year-over-year as of today. By comparison, overall Beijing enrollments was slightly down in the same period last year. In addition, our English and Chinese class promotions also progressed quite well. Beijing Chinese enrollments more than doubled the summer time [ph] and we saw around 70%, 7-0, of enrollment growth year-over-year in the [indiscernible] as to now, Beijing English enrollments were also up by around 20% in summer time and are growing at a similar pace year-over-year in the fall time as to now. Overall, Q2 revenue in Beijing was flat year-over-year, while enrollment gross was over 15%. As you may recall, revenue growth in Beijing was mostly priced driven in the past quarters. Enrollment growth was up by high single digit, if we exclude impact [ph] for the first year to a high summer promotions. We are very clearly moving into the right direction of enrollment driven gross for Beijing and we are confident about their growth in the coming quarters. Turning briefly to our one-on-one business. one-on-one performed better than expected, contributing to 13% to the overall revenue in Q2, compared to 15% in the same year ago period. This remains a business that’s hard to give guidance for, there is [indiscernible] parents paying once for a certain amount of the tutoring sections, while we can now can show, where its still – its actually coming for sessions. In select regions we have started to offer small class, small group class as a supplement to one-on-one tutoring. Meanwhile, we continue to expand learning center capacity to support the robust demand for our services. During the quarter, we added 207 new class rooms. By the end of August, we had closed our learning centers, as these were small scale counting around 7 classrooms center versus the average of 18 class rooms per center. By end of Q2, our learning center network covers 300 centers, operates 214 as more class learning centers, including 4 learning centers [indiscernible] and 86 are worldwide learning centers. Fiscal year today, the total learning capacity expansion is 25%, which is basically in line with the 26% capacity gross were recorded in the first half last fiscal year. Most class rooms were added in the cities, including Tianjin, Shenzhen, Xi`an, Guangzhou, Wuhan, Beijing, Zhengzhou, Suzhou and Hangzhou. Our expansion plan was delayed a little bit in second quarter, so we are going to make up for this in the third quarter. In addition, in proportion to the local demand we will add more class rooms in cities with very high additional rates, including Shanghai, Guangzhou, Nanjing, Hangzhou, Tianjin and Chengdu. The four new cities we entered last year are also doing quite well now, revenues in the second quarter was several times those in the same quarter last year. All of four cities, including Jinan, Qingdao, Shijiazhuang, Changsha achieved operating profit in the second quarter ahead of our expectations. As a result, we are going to add more capacities over there earlier to meet increasing demand. Due to these factors in the third fiscal quarter we are preparing for adding 20 to 30, 2-0, to 3-0, new learning centers and for the full fiscal year 2016 we probably will add more class rooms 25% to 30% that we mentioned last quarter. And we maintain our plan to enter LAs four new cities by the end of this fiscal year. As expected, in the second quarter our online courses business segment remains one of our fastest growing segments with 69% year-over-year revenue growth. Online courses xueersi.com contributed 4% of total revenue this quarter compared to 3% in the same year ago period. We expect revenue contribution from online courses continue to increase going forward. Online enrollments also increased 74% 7-4, year-over-year to 15% of the total enrollments this quarter worth of 13% in a same year ago period. Online ASP declined by 3% year-over-year mainly because of more low price courses so in the quarter. Let me now take you through our most recent acquisitions and investment deals. We are very pleased to have made some important strategy advances with our recent investment in change in education, the acquisition of Firstleap Education and our latest investment in Phoenix E-Learning Corporation. Before I update you on each one, let me highlight what we consider for the commencing of this deals. First, each of this has been well coordinated in terms of paying, preparation and timing. Second, each has a very strong fee, raising our structure plan to gain long-term leverage in the future education business models and become a leading technology focus education service provider. And as the third common thing, this business all have core focus on education, and the K-12 segment and are very complementary in such a way that we can continue to lead with our organic growth strategy. Let me first discuss the change in education, in Chinese, Jinjin Jaja. Our Shanghai and Guangzhou base company operating a auto platform and mobile app that helps to connect tutors in K-12 students. In June, with two minority stay in this company investing both cash in excess rate reductions [ph] The access investment was by of integrating our one-on-one business in Guangzhou with change in educations operations. The main point I want to share with you today are as follows. This stat has not materially affect our P&L, as our revenue for long while in Guangzhou was around 10%, 9% in Q1 and 11% Q2 of the overall one-on-one revenue and is relatively low margin business. While this is a minority investment and therefore there is no consolidation in our P&L. We change our Guangzhou one-on-day business for equity in the investment and as such recorded a tough gain of US$50 million this quarter based on US GAAP. More recently in September we have entered into definitive agreement to acquire Firstleap Education. I would like to update you on the business and financial aspects of this deal. Firstly, provides all started [ph] tutoring services in English in China to children age from 2 to 15 years old, we are very pleased with this acquisition, which will strengthen our English training capability. Firstleap practical index training in Osages [ph] complements our [indiscernible] tutoring in Lewaijiao brands. The separate brands will also work together with Shunshun Liuxue, the online C2C overseas studies consulting platform in which we have invested last quarter. We expect to see all of these separate brands to grow into integrated businesses under the TAL umbrella. Firstleap now operates 66, double six, learning centers in 25 cities of this 36 centers are self operated and 30 are franchise. The numbers of students in August 2015 was around 20,000. During the period for September 1, 2014 to August 31, 2015 all the tier revenue per book was around US$30 million 3-0. Firstleap is loss making at a moment with cross selling on our platform [indiscernible] the new customer acquisition cost for Firstleap We expect this business to become profitable within two to three years, with profit margin of between 10% to 20%. Now turning to our most recent investment in Phoenix E-Learning Corporation. We invest US$30 million Phoenix E-Learning, which operates cxxk.com [indiscernible] in Chinese, the largest online education platform serving the public school system in China, upon compassion of the investment which is subject to filing with the relevant government authorities, TAL will hold 32% equity interest in Phoenix E-Learning Corporation. Cxxk.com [indiscernible] is highly recognized by the schools, teachers, parents and student in China, it’s used in over 30,000, three zero, 30,000 public schools and has over 50 million users, the vast majority of home teachers. With this investment we have opened a very important gateway to enter the market of digitalizing public schools which is wide space field for our content and tutoring services [indiscernible] To summarize, as we are now at a mid point of fiscal 2016 we are well on track pursuing this year’s straight forward growth strategy mostly driven by enrollments. Through our offline learning center network and deeper online engagement, the highest growth for our Cosmo class continues to come from [indiscernible] other than Beijing giving us a very solid growth revenue base for future growth. Meanwhile our efforts to bring back enrollments driven by our gross in Beijing are also paying off. We are pleased we have made a very strong strategic investments in [indiscernible] that will bring long-term value to shareholders. Our recent investments have been well coordinate, aligned with our long-term strategy plan and all have in common focus on education and K-12 segment and complement to our organic growth. Now let me go over some financial points, I would like to highlight for the second quarter. The decrease of ASP was mainly attributable to a mix of factors affecting the [indiscernible] including the small class summer promotion in Beijing, the 1RMB promotions in Beijing. More offerings are small group class as a supplement to the one-on-one and more enrollment contribution from the online classes. These factors were only partially offset by the increase in the hourly rate of the small class course offerings. Small class ASP declined by 5.3% year-on-year, mainly because our summer promotion in Beijing for the one-on-one and the cost offering, we increased hourly rate of small class in five cities and ASP will be back on track in future quarters. One-on-one ASP declined by 17.4% because we offer more small group class in selective regions in the quarter. This new tie of the small group class received a positive feed back and contributing more than 25% of low one-on-one enrollments in the second quarter. ASP of small group class was significantly lower than the regular one-on-one. Online ASP was down 3.1% year-on-year in Q2 because of more low price classes still in the quarter. Our expenses were US$4.1 million for the second quarter of fiscal year 2016 compared to other income of US$1.4 million in the second quarter of fiscal year 2015. Our expense in this quarter was mainly driven by exchange losses. As a company [indiscernible] of cash balance in RMB and reports in US dollars, it benefit from exchange gains in times [indiscernible] exchange of RMB and incurs exchange losses in times of relative exchange of the US dollars. Basic and diluted net income per ADS were US$0.79 and US$0.72 respectively for this quarter. Non-GAAP basic and diluted net income per ADS, which excludes share-based compensation expenses were US$0.87 and US$0.78, respectively. Finally, before I give our guidance for the third quarter, I would like to clarify some key points. First, September 3 has been made a holiday by the state council this year in memory of the 70th anniversary of the victory of the World War II, even though we are [indiscernible] by one way of our small class cost could be delayed to the first quarter in all cities, we managed to hold classes in more than cities on September 3 and the revenue in the third quarter is better than vacations Second, the acquisition of Firstleap is to be done in two stages. And according to the relevant US GAAP guidance the economy will consolidate Firstleap into its financial statements upon pending the effective [indiscernible] of Firstleap. As a result, our third quarter guidance does not again does not reflect the revenue estimate of Firstleap Education. We estimate total net revenue for the third quarter of fiscal year 2016 to grow 40% to 43% year-over-year in RMB terms. Taking into consideration of the recent significant change in RMB exchange rate against the US dollar, we expects total net revenues for the third quarter of fiscal year 2016 to be between US$135.1 million and US$138.1 million, representing an increase of 36% to 39% on a year-over-year basis, assuming no material change in exchange rates. If we achieve the guidance of 36% to 39% revenue growth in Q2, then we will have achieved 41% to 42% year-over-year top line growth for the first nine months of the year. Given the strong results in the first half of fiscal year 2016 and [indiscernible] we are more optimistic for the full year of the 2016 than earlier in the year. We now estimate total net revenue for fiscal year 2016 to grow 40% to 42% in RMB terms, as compared to the 35% year-on-year revenue growth recorded last year. This estimation reflects comments current expectations which is starting to change. That concludes my prepared remarks. Operator, we are now ready to take questions.

Thank you. [Operator Instructions] Your first question comes from the line of Fan Liu from Goldman Sachs. Please ask your question.

Hi, Rong and Mei. Thank you for taking my questions and congratulations on another solid result. So I just have one quick question. So the gross margin is a bit – actually it’s a bit weaker than expectation as the cost of revenue increased 3% [ph] Have we came across a higher like expected tutor compensation increased during the quarter or something else is the driver behind and also could you also please guide what's the way to look at the operating margin for the whole year of fiscal year '15? Thank you.

Thank you, Fan. Specific in Q2 the gross margins are little bit down that’s because our summer promotions in Beijing we have several times bigger in amount of student in of the students in Beijing so they only pay 1RMB, when we need to pay out a same cost included future commendations over there. So that’s kind of one off events. And going into the coming quarters as I mentioned in the call, Q3 will have plan to open the [indiscernible] 20 to 30 learning center in Q3 and that probably will be one of the largest quarter in the past two years. So which will also impact a little bit in my gross margins. But the good thing is if we open a learning centers in Q3 all of them come into effect, maybe in the spring [ph] next year and will contribute to my next year growth rate. The reason would be that because actually we are seeing a very strong demand from local cities especially like in Shanghai, Guangzhou, Nanjing and so many places over there and something I want to highlight is look for new cities were added last year actually growing much better and faster and wise there. So all of this investments to continue to - and more capacity in Q3 probably into the margin situation for Q3 were quite similar Q2. And looking around to the full year, I think [indiscernible] the first half of fiscal year 2016 non-cash operating margin in 22.9% as compared to 24.8% in the same period last year. So I think that is quite in line with our assumptions. And as I say last quarter I am quite confident will those to maintain very sustainable top line revenue growth that’s why we guide a full year RMB gross around 40% to 42%. And we are still and we also quite confident margin will be moderating down and manageable range and gross rate on a year-over-year gross rate of absolute profit numbers will be very healthy as were already in the past. So that’s our situation for the information.

Thank you, Fan.

Thank you for the question. Now the next question comes from the line of Leon Chik from JPMorgan. Please go ahead.

Yes, hi. Congrats. And I was just wondering, do you have any plans for how many learning centers do you add after third quarter is it just like a one big lump of learning centers or are you're going to start a strategy of adding learning centers every quarter? Thanks.

As I mentioned in the prepared remarks, this quarter we will add more than 20 to 30 learning centers, part of them is because we delayed a little bit in Q2 because of the license issues and part of that is because we have seen a very strong demand and a very high classroom [ph] So we decided to add more capacity to fill the needs and part of it is also because we have seen a very strong demand in the new added cities last year and again, we still maintain our plan to enter at least four new cities this year and most of them will happen in Q4. So in Q4 we will continue to add more learning centers while the numbers will be lower than Q3.

Okay. Thank you.

Thank you, Leon.

Thank you for the question. Next question comes from the line of Cynthia Meng from Jefferies. Please ask your question.

Thank you, Rong and Mei. I have one question. Given TAL Education is likely to investment in the Phoenix E-Learning and the acquisition of first leap, what updates can you share to what is the how allocation revenue growth for FY '16 and FY '17?

Yes.

Because of that any updates on your overall guidance, I mean, your 40% to 42% doesn’t include this right?

Let me clarify, we start from the minority investment deals Phoenix E-Learning Corporation which – 32% of the common share. So Phoenix E-Learning Corporation because we are only 32% so we don’t need consolidate top line numbers. And especially for this company they are slightly profitability last year based on PRC gap they have several million RMB profits. So we will pay 32% of the several million RMB profits into our P&L maybe in way close to the deals in the coming quarters. So the number is immaterial. And the second thing is about the Firstleap, actually there is two step approach, we will now consolidate the Firstleap top line revenue until we get effective control of that company. So based on US GAAP we probably we need to finish some stage of the closings and meet the requirement and meet a condition of the consolidation of the P&L. I personally I think this will happen in the coming maybe six to 12 months but today when we talk about the guidance both for Q3 and full year, it does not reflect anything from the Firstleap Education. For this company I have mentioned just now last year the rolling 12 months based on the PRC GAAP, that alternative [ph] revenue for Firstleap is around US$30 million and they are still growing we believe they will contribute to our maybe our gross on top of the guidance maybe next year.

Okay. Thank you very much.

Thank you, Cynthia.

Thank you for the question. Next question comes from the line of Eileen Deng from Deutsche Bank. Please ask your question.

Thank you, Rong. Thank you, management for taking my question. I just have one more point to the acquisition recently. You just mentioned the revenue impact of maybe happening in six and 12 moths away, but could you give us some color on the bottom line impact around this acquisition? Thank you.

Specifically for Firstleap they are slightly loss making position and because their top line revenue is around US$30 million so we will in the first stage we will consolidate certain percentage of their slightly loss into our P&L because the number is really small, so its very immaterial to my P&L actually.

Thank you. And could you also comment on the investments there for the full year, on your online initiative?

I think for investment starting from this quarter, the first earning cost we have talked about our investment in that space. Last year, last fiscal year actually is the first year we see a lot of spikes in the online education so we invest in several deals and most of which vary more size, coming to this fiscal year we have more outstanding and the market is mortgage mature about online education so we start to focus. We focus on our K-12 segment which is our key business and we want to we attend to two more big deals. So you can see the number of deals has increased have reduced a lot but as the size of the deals has increased. So by the end of today we can say is we have made some strategy move in this area and in the future we will continue to monitor and to keep very close connection to meet market receivable [indiscernible] the only thing I can share is in the coming maybe two quarters I don’t have any big deals in my pipeline but we will still keep eyes open for any opportunities in this market.

Thank you.

Thank you for the questions. Next question comes from the line of Tian Hou from T.H. Capital. Please ask your question.

Hey, Rong, Mei. Congratulations on a good quarter and a strong guidance. I have some questions related to your income statement. Under the below the line of interest from operations, there are several lines, one is impairment loss and long-term investments $7.5 million and then gains from long-term investment and gains from disposal of component as well as gains from dispose of investment. And I saw that as a one time item. So would you please give us some explanation on those four items?

Thank you, Tian. It’s very important to bring these numbers. Let me share some math. In the first place we have positive 50 million which is the capital gain, we integrate our Guangzhou one-on-one business [indiscernible] That deal is quite good and all the investors also invest [indiscernible] including IDG [indiscernible] so this is based on US GAAP we have to do that. And in net perspective we need to pay certain percentage of that deal amount as tax as company tax and at the same time we have do some impairment by $7.5 million which is around 4 or 5 deals that’s because in the year fiscal 2015 we invest in a lot of deals and more than [indiscernible] in that year, some of them are now related to K-12 segment an some of them are not doing well because we invest in entry stage. As I have mentioned maybe two quarters ago, where we start to look into all of this deals the underperforming deals and the deals maybe for example they don’t have cash or they are not running quite well we will discuss with our auditors and then determine to do certain percentage of the impairments to reflect the situations based to 7.5 million and we also have maybe 2.7 million the government tax refund so that happens from time to time we can now [indiscernible] governments. So that’s 2.7 million tax refund. We also have a 3.7 million that is loss coming from exchange rates which is also uncontrollable so if we consider all of this together the single math will be you can just deduct around 23 million from my 660 million net income this quarter and that will be more reasonable numbers.

Okay. Got it. And then a question is related to the margins, as you're going to increase the open [ph] in the learning center and so how much growth margin will be deduct in the next quarter? And which quarter the gross margin could go back to normal?

Next quarter we will open around 20 to 30 learning centers, so I think the gross margin trend will be quite similar as always in Q2 and in general if I open one new learning centers it takes me around 2 quarters to back to normal margins. So all of this new add e-learning centers will contribute to margin expansion, maybe next year, from the first quarter next year.

Okay. So one more question is for the similar class, like a same class, what's the price difference between the different locations like in Bejing, Shanghai or other cities like [indiscernible] is there is price difference?

Yes. Bejings most expensive 75 [indiscernible] Shanghai is 70, Shenzhen 70, Guangzhou 60, the cheapest is in Shenyang, sorry, sorry Jinan is 48.

Okay. I got it. That’s all my questions. Thank you. Congratulations again.

Thank you, Tian.

Thank you for the question. Next question comes from the line of Anne Shih from Brean Capital. Please ask your question.

Good evening, Rong and Mei. Thanks for taking my questions. Could you just elaborate on your pricing strategies going forward, especially for small class and one on one classes, will any of the promotions be extended or expanded beyond Beijing? Thanks.

Thank you, Anne. Our pricing strategy for our small class is has no change, in most cities our two years were [indiscernible] last year we increased the price in eight cities and this year we increased the price in five cities. The reason the overall ASP their gross rates a little bit lower that’s because we have more and more contributions from other cities, even they are growing very fast, and even [indiscernible] but because the absolute price point is still lower than Beijing, so that’s kind of the mix issues. We don’t have any plans to change our pricing strategy, we will continue to do that. And for especially for one on one we also do change our price in one on one the only difference is because we start to offer the small group class which is only teacher versus six students. So the price of the small group class is significantly lower than the regular one on one but still higher than the small class. So compared to the regular one on one their price is lower that’s why you can say the you can see the planned ASP of the one on one actually is declining a little bit. Upon promotions I am sensing some time to act, in the first place in general summer is the best season to do promotions. The students just graduate from this grade and prepare for the going to the next level and in the second session I've seen the promotions will usually will happen in the places where its maybe high market dynamics, lately in Beijing. So we also will monitor [indiscernible] this market. So far we didn’t see we don’t have a clear plan to say I want to do more promotions out of cities but again [indiscernible] open and we will maintain our pricing strategy while we are also open to see what's happening in this market.

Just a quick question to follow up, for the small group one on one where it’s the six students one teacher, it presumable with the margins for this type of course be higher than the typical one on one?

Yes. the price of small group is lower but the margin of that is better than the regular one on one.

Thank you.

Thank you, Anne.

Our next question comes from the line of Andrew Orchard from Nomura. Please go ahead.

Hi. Good evening, everyone. I just have a follow up question on the one to one business as well, can you give us some color on what you think the enrollment time could be, are you still going to keep this new small group class format and also can you give us some color on what the price differential between this format is and your regular one to one please? Thanks.

Okay. I think for the enrollments stat, the small group class actually contribute a lot in the one on one enrollments. They are more than 25% in Q2 and in the future in a way because in Q2 the only big [indiscernible] in selective cities not older cities in the coming quarters I think we are about to do more in more places. And upon the price, I think the small group price is lower than the regular one on one but still higher than the small class. So we manage them in a right price point to not affecting my small class business but also can attract more students to from one on one to small group because their profit is much high, a little bit better than the regular one on one.

Okay. Got it. Thanks.

Thank you for the questions. Next question comes from the line of Dick Wei from Credit Suisse. Please go ahead.

Hi, Rong and Mei. Thank you for taking my question. This is Dan Zhao, calling on behalf of Dick Wei. I have a follow up question on your investments strategy, and what areas do you focus on and as we see you have been making good efforts in English subject. So what's your strategy in English subject going forward? Thank you.

Okay. From an investment perspective, our strategy is in a sense why I told you guys in the past several quarters, we only focus K trust. We focus on the deals with very high strategy synergy with my core business and I would prefer to do some big deals and some even some acquisitions to strengthen our advantages in the K-12 segment. And particularly for English, I have seen firstly it’s a very good start because their product is much better than the test product in the past. and they will focus on the student ageing from two to fifteen and we also have our [indiscernible] English which is test English focus on students in the primary school and middle school and starting from last quarter we also developed the online English tutoring we call [indiscernible] which is quite similar to BBC, which will provide online English to the students. So we have all of this products ready over here in the future we tried to integrate then and to develop our English brand under the TAL umbrellas. Today, is too early to judge how successful you will be in the future, I will [indiscernible] you guys update upon the progress. management team perspective will so exciting and we are quite confident of all of this will work in future.

Okay, great. Thank you.

Thank you, Dan.

Thank you. The next question comes from the line of Leon Chik from JPMorgan. Please go ahead.

Thank you, you had me again. Could you talk a little bit your O2O spending and strategy in particular we continue to get enrollment growth next year, of whatever percent I mean, do you expect O2O spending to also continue to go up along with sales for FY '17? Thanks.

Thank you, Lan for reminding about my O2O investment. This year we give guidance to our guys this way we'll invest around 20 to 22 million on O2O projects. In Q1 we spent around 4 million in Q2 we spend around 5 million, all of this pretty much on track. Looking forward to the coming years, I will like to be a little be conservative considering the opportunities over there we think it may be better if we maintain the similar percentage of revenue the investment in the O2O space and we are seeing a lot of key progress even from the online school [indiscernible] online life platform. So we still believe all of this will contribute significant portion of that business in two or five year’s time. So we wish we can maintain our investment over there.

Thanks.

Thank you, Leon.

Thank you for the questions. Ladies and gentlemen, we have no further questions at this time. Once again, thank you management and I would like to thank all the participants for dialing in. That concludes the conference for today. Thank you. You may now disconnect the lines