New Oriental Education & Technology Group - Earnings Call - Q2 2016
January 19, 2016
Transcript
Speaker 0
Ladies and gentlemen, good evening and thank you for standing by for New Oriental Second Fiscal Quarter twenty sixteen Earnings Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time.
I'd now like to turn the call over to your host for today's conference, Ms. Siti Zhao, New Oriental's Investor Relations Director. Ms. Zhao, please proceed.
Speaker 1
Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter twenty sixteen 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 Chenggangzhou, New Oriental's President and Stephen Yang, Chief Financial Officer. After their prepared remarks, Chenggang and Stephen will be available to answer your questions.
Before we continue, please note that the discussion today will contain forward looking 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 Mr.
Joe. Josh, please.
Speaker 2
Okay. Thank you, Sisi. So hello, everyone. Thank you for joining us. And this is my first time to be here speaking to investors and analysts as President of NIO rental, a new role I began earlier generally.
So I'm so happy to be here and would like to thank Michael, Luis and Stephen for all their support. As Mike has said on the last conference call, my job will be to guide corporate strategy and oversee business development, which I'm quite excited about. So New Oriental entered a new chapter with the optimize the market strategy and in particular the O2O integrated education ecosystem. So it is an exciting time to be here in this position.
Speaker 3
So
Speaker 2
now let's now look at the details our quarterly performance. Revenues was up by 17.7% year over year to US278.1 million dollars So if not including the impact of the recent depreciation of renminbi against the U. S. Dollars, the revenue growth rate would have been 22.1%. So this strong top line performance was mainly driven by a significant growth in the total enrollment, which went up by 35.3% to approximately 841,000 for the quarter.
So you may have noticed that our enrollment increased more than it normally has in the second quarter in previous years. This is because we moved the registration of the winter classes earlier to the month of November starting this fiscal year And we will continue to do so going forward. So this decision is in response to the increasing demand from our students who wish to secure a class booking as early as they can. So after contributing another contributing factor to the enrollment growth is the continuous rollout of our new POP Kids program and the U Can VPS, which has been generating quite positive feedback from both students and teachers. The new POP Kids program reached 44 cities and the You Can visible progress system reached all the existing cities.
So our revenue driver, the K-twelve all subjects after school tutoring business achieved revenue growth of more than 33% and enrollment increased of 59%. It's important to note, it has been a year since we rolled out the newly revamped POP Kids program, which definitely helped to further differentiate New Oriental from the rest of the market. So for the quarter, POP Kids continued to deliver strong results from revenue up 30% and we expect this trend to continue for second half of the year. So in terms of pricing, per program branded ASP decreased by 7% year over year And then apple to apple basis, which is GAAP revenue divided by the total teaching hours, hourly blended ASP increased about 2%. A breakdown of the hourly blended ASP, you can increase at about 1%, overseas test program is flat, POP Kids increased about 60% year over year.
So this needs probably a bit more explanation. So first of all, the early registration winter classes causes reduction per program blended ASP because of the winter classes are shorter than the autumn class in terms of the total classes hours. Secondly, during the second quarter, we made an adjustment to the semester arrangement for the POP Kids program, which used to have two or three semesters a year and now we have four to make it more flexible for the students to plan for their learning process. Therefore, we can see now we're seeing a reduction in the quarterly per program blended ASP. However, if you look at it on a yearly basis, the impact is minimal as the total class hours would still be same or quite similar.
Thirdly, we are seeing the slowdown of VIP classes, which have a higher ASP. Finally, we want to point out that RMB devaluation has negatively impacted our ASP growth rates, which would have been 4% higher. So now let me walk you through our performance across individual business lines. Our K-twelve all subjects after school tutoring business experienced gross revenue growth of more than 33% year over year for the second quarter and enrollment growth of about 59%. Breaking to that, U Can middle and high school all subjects after school tutoring business achieved a growth revenue increase of 35% year over year, student enrollments grew 56% year over year.
So POP Kids program continued its growth momentum with the gross revenue up to 30 and enrollment to significant to 62% year over year. As the management said repeatedly, we're quite confident that POP Kids will play an increasingly important role in realizing further growth for K-twelve and this is proving to be true quarter over quarter. So our business overseas test prep and consulting business achieved revenue growth of 4% year over year and I believe the growth will be bigger when it comes to the Vision Overseas quarter that is the last quarter. Finally, revenue for VIP personalized classes business increased 9% year over year. So now let me provide some updates on the ongoing execution for the Optimize the Market strategy.
As we emphasized before, we are focused on maintaining a healthy balance between the top line and the bottom line growth while investing heavily in the build out of our O2O integrated education system. So starting with the core of our business, we opened a new school in Weifang, an emerging and popular city that lies in Eastern China. We also closed a net of two learning centers while we expanded some existing ones, so adding a total of approximately 14,000 square meters of classroom area. So in the approaching winter and the spring quarters, we will continue to improve the utilization at our existing schools and the learning centers and will add some capacity in the cities that demonstrates the high growth potential. So for online, we spent about US30 million dollars in further improving our auto system in the second quarter and this is in line with our RMB50 million investment plan for the fiscal year.
Clearly, our efforts are paying off as the new O2O system for K-twelve is enhancing customer retention rate and bringing in new customers as well, which therefore contributed to our revenue growth for the second quarter. This O2O system has become the defining factor for the new Oriental and we truly believe it will continue to enhance profitability for the next few years. So before I go into the details about our online business, just a quick recap of all the three levels of our online platform. The first level, also the core of our online system is an two way interactive education system across all of our business lines. The second level is our pure online learning center, a learning platform supplementary online education products under the New Oriental brand.
The third level of our ecosystem is for the New Oriental to take minority shareholdings in online education companies that complement our own online education offerings that is investment. Let's start out to a two way interactive education system, which we rolled out and upgraded in the 2015 across all major product lines in order to extend new oriental traditional offline classroom teaching offerings to online education services. So solid progress was made in all fronts. You can visible progress teaching system has been used in all the 52 existing cities and a positive market feedback keeps coming in. So POP Kids English program or the Shuangyou in Chinese saw another quarter revenue increase of 30% and the enrollment up to 62 year over year by the end of the second quarter, 44 cities in China are using POP Kids Shangyue.
The O2O for the domestic test prep program was being used in five cities by quarter end. So good news on the 20 for the overseas test prep program. It has been officially launched in the second quarter and now it's being used in two cities. We will continue with this rollout for the rest of the year. For the second level of our online education ecosystem, we have seen healthy growth in our pure online learning platform and other supplementary online education products.
During the second quarter, koolearn.com generated a net revenue of US13.3 million dollars up to 19.4% year over year. The number of paid users increased over 215% year over year. The number of accumulated registered users has reached more than 11,900,000. Ku.cn, our own live broadcast open platform for both New Oriental and third party teachers achieved roughly 1,200,000 registrations.
Speaker 0
Doughnut, a series of game based like mobile learning APPs for children recorded over 33,200,000 downloads. So I guess it was successfully launched in New Oriental today as a pilot program.
Speaker 3
Yes. The
Speaker 2
English program, language vocabulary training app for mobile phones and tablets app recorded about 3,500,000 users by quarter end. And also we are thinking of the best ways to make the best use of these resources in these pools in the days to come. So turning to the third level of our online education ecosystem, we invest to select online education companies with a minority stake. So in September 2015, we invested leleketang.com, which is complementary to our K-twelve business. Leleketang is online platform that provides personalized education for K-twelve students to offers teaching, learning products by level, by subject through animation videos, the interactive practice tools and question bank.
So currently it has 15,000,000 cumulative unique visitors and 2,000,000 daily active users. So together with our previous investments in kouyu100.com, aol7.com, json.com, Gauteng Finance and Robotron. We are now on the right track of building out our auto ecosystem and we have created more opportunities to partner with our new online education companies to enhance our product offerings and the strength of our leading position in China's private education market. So another note to add here is the kouyu100.com, which we invested in December 2014 and was listed in China's new third board in December 2015, which is an over the counter market for growth enterprises. So that's basically what I've got to say.
Now I will turn the call over to Stephen to discuss the key financials and outlook. Stephen?
Speaker 3
Thank you, Joe. Now let me walk you through the key financial details for the second quarter. Operating costs and expenses for the quarter were $288,500,000 a 16.2% increase year over year. Non GAAP operating costs and expenses for the quarter, which exclude share based compensation expenses, $283,500,000 a 16.2% increase year over year. Cost of revenues increased by 17.3% year over year to 134,200,000 primarily due to increase in teachers' compensation for more teaching hours.
Selling and marketing expenses slightly increased by 0.3% year over year to $44,100,000 General and administrative expenses for the quarter increased by 22.7 year over year to $110,100,000 Non GAAP general and administrative expenses, which exclude share based compensation expenses, were $105,100,000 a 23% increase year over year, primarily due to increase in R and D expenses and human resources expenses related to the development of our O2O integration. Total share based compensation expenses, which were allocated to related operating costs and expenses, increased by 16.5% to $5,000,000 in the second quarter. Loss from operations for the quarter was $10,400,000 compared to a loss of $11,900,000 in the same period of prior fiscal year. Non GAAP loss from operations for the quarter was $5,400,000 compared to non GAAP loss from operations of $7,600,000 in the same period of prior fiscal year. Operating margin for the quarter was compared to negative 5% in the same period of prior fiscal year.
Non GAAP operating margin, which excludes share based compensation expenses for the quarter was negative 1.9% compared to negative 3.2% in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $5,900,000 representing a 70.3% increase from the same period of prior fiscal year. Capital expenditures for the quarter were $11,600,000 which were primarily attributable to the opening of 20 new learning centers and renovations of its existing learning centers. Turning to the balance sheet. Deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions delivered, at the end of the second quarter was $586,500,000 an increase of 33.1% as compared to $440,700,000 at the end of the 2015.
Before we move into the Q and A session, let me go through our expectations for the third fiscal quarter. We expect total net revenues to be in the range of $328,000,000 to 3 and $39,500,000 representing year over year growth in the range of 14% to 18%. If not including the impact from the recent RMB depreciation, the projected revenue growth rate is expected to be in the range of 20% to 24%. This forecast reflects New Oriental's current and preliminary view, which is subject to change. At this point, Joe and I will take your questions.
Operator, please begin.
Speaker 0
Thank you. The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. The first question comes from the line of Julia Pan from Macquarie. Please ask your question.
Speaker 4
Hi, Steven. Hi, Xingang. Congratulations on the strong result in this quarter. I have two questions. Could you please give some color on the margin outlook in fiscal year twenty sixteen?
Is this going to still be flat or a little bit increase? And also, why is the tax rate is more at 6% in this quarter? And also, could you please tell us what's the market share of EDU have in after school tutoring market now? And what's your outlook for the consolidation of education industry in the future? Thank you very much.
Speaker 3
Okay. Thank you. I think your first question is about the margins of fiscal year 2016. I just want to guide the operating margin for the whole fiscal year of 2016 about the I think the margin will be flat in the whole year. For the offline schools, we're happy to see the margin improvement because of the leverage.
You can see in the numbers, the revenue was up by 70% without any new learning centers. But, we are still in the investment phase. Based on the budget, we will spend $50,000,000 within this year, so that's why I got the margin will be flat. Your second question is about the tax rate. Yes, you know the Q2 is the lower season for the profits.
And I think the for the first and second quarter cumulative ly is about 11.8%. For the whole year, it should be 12% to 13%. And for your third question is about market share. Yeah, we are the number one player in the home market for K-twelve after school tutoring business, but I think the market share made by occupied by New Oriental is only like 1% to 2%. It's a huge market, it's very fragmented.
So, about the potential consolidation, yes, we are taking more market share. As you saw the very strong student enrollment growth. And I think in the future we'll take more and
Speaker 2
more market share. And also in the existing cities, New Oriental Holding, we're still having quite a lot like room for improvement in some of the existing cities. So as the time passes, our performance probably will be better and the results could be better. So including not including the cities probably we're expanding to in the days to come.
Speaker 4
Thank you. Thank you, management. That's very helpful.
Speaker 2
Okay, thank you.
Speaker 0
The next question comes from the line of Cynthia Meng from Jefferies. Please ask your question, ma'am.
Speaker 5
Hi, management. This is Annie Du, and I'm asking on behalf of Cynthia Meng. I have two questions about EBU's results. The first one is, given the lower blended ASP in 2Q 'sixteen, is the higher gross margin a result of higher utilization rate? And what is the utilization rate in the second quarter of twenty sixteen?
And also, the second my second question is, could you give us some color about the ASP trend of U Can, POP Kids, overseas test preparation and domestic test preparation as well as comprehensive English business, respectively, in fiscal year twenty sixteen compared to last year? Thank you.
Speaker 3
Okay. Yeah, the utilization rate of New Oriental is up in second quarter, because our student enrollments grew by 35% year over year without adding new learning centers. And the utilization rates is 20% in Q2. Last the Q3 last year was 18%, so that means 200 bps up. And for the ASP, I think I would rather spend more time to explain the ASP.
The enrollment for Q2 is 35% and the cash revenue is 28%. So, if you do the math, it's 7% the ASP is done. That is per program. There were four reasons. The first one the first reason is the early registration for the K-twelve business.
We moved the enrollment window for K-twelve from December to November. As you know, the winter class is shorter than the autumn class. So, this is one reason the impact of the ASP. The second reason is that we changed the class lines for POP Kids program in some cities. That means that now we have more shorter POP Kids classes.
The third one is the VIP revenue contribution is decreasing. The VIP revenue contributed 30% of total revenue. In the Q2, it was only 9% growth. So, it's dragged ASP. And the number four reason is the exchange rate.
We have the negative 4% due to the RMB depreciation. So, will give you the hourly rate. It's not a price program, it's the hourly rate. In U. S.
Dollar term, it's increased by 2% in second quarter. If you're calculating in RMB terms, it's 6% for ASP. So, in the longer term, I think we will increase the price by 5% to 10% year over year for the price. That's my answer.
Speaker 6
Thank you.
Speaker 7
Okay.
Speaker 0
The next question comes from the line of Ann Xie from Bren Capital. Please ask your question.
Speaker 8
Hi. I just have some follow-up questions on the margins in the ASP. Could you just provide maybe some more details on the cost efficiencies? And then the flat margin for the full fiscal year, Just wondering given lower O to O spending for next year, should we also expect more rapid recovery to normalize margin levels? And then second on the blended ASPs, could you also discuss the company's pricing strategy for promotions particularly in K-twelve?
Thank you.
Speaker 3
Okay. For the margins, yes, we're seeing the margin improvements in this fiscal year. And yes, we will spend $50,000,000 on investments for O2O and Pure Online. And so that's why I guided the margin will be flat within this fiscal year. And next year, I think we will cut some investment money we have compared to this year.
So, I don't because we didn't we don't have the budget till now, but I think the number of the investments, the money we spent in next year should be lower than this year. So the margin will be higher next year. Yeah, that means we are
Speaker 2
like as we promised before, are going to invest more money, the $50,000,000 like in the investment and to like improve our infrastructure, the online, offline data system. When the structure is ready, so we'll save the money and probably for the sustainable development, so the performance figures or and numbers will be much better.
Speaker 3
So in the longer term, what I mean is in the next three to four years, our operating margin target will be 1718%. What's your second question, Ann?
Speaker 8
And the second question was related to promotions and pricing for the K-twelve segments.
Speaker 3
Yes, some promotions for K-twelve business in some big cities like in Beijing, Wuhan, but I think it's very minimal, because we give some very lower price classes in our grade one and grade seven, so it's the entrance class, so it's a small part of the business. And for all the other grades except for grade one and grade seven, the prices are as normal.
Speaker 2
So all these classes I believe are basically to attract like more customers like for the promotion and marketing only.
Speaker 1
Actually we did more promotions by pricing in Q1, which is the entrance points for the whole year registration. But in the rest of the year, we won't do a lot of pricing promotion. And also for the whole year, our pricing strategy for Q12 is to take up the hourly rates by probably controlled within 5%. So this is our current pricing strategy. Going forward, we have more pricing power to take up the price.
Speaker 4
The
Speaker 0
next question comes from the line of FanDiu from Goldman Sachs. Please ask your question.
Speaker 4
Hi, Zhou Zhong, Stephen and Sisi. Thanks for taking my question and congratulations on the strong results. So I have two questions. Number one is that about learning center expansion. So year to date, it's actually we haven't really added much learning centers.
So what's your guidance for the rest of the year and maybe and also for the coming fiscal year twenty seventeen? And also second question about your auto investment. So you have mentioned that you are still on track for the whole year, dollars 50,000,000 investment. May I know how much have you spent in the first half for online O2O? These are my questions.
Thank you.
Speaker 3
Okay. In terms of the expansion plan, our learning center decreased by one in Q2, but we add net 14,000 square meters in capacity for the current learning centers. We closed some small learning centers due to the leasing contract expired and then opened the big learning centers nearby. And for the rest of the year, what I mean is in the Q3 and Q4, we plan to open the learning centers below 10. That means the net increase.
And for the next year, I think we will increase the 30 learning centers. So, compared to the seven twenty we have, that's 4% or 5%. And for the O2O and pure online investments, in the first quarter we spent $10,000,000 and in the second quarter we spent $13,000,000 so $23,000,000 will be spent in total for the first half of the year.
Speaker 4
Great. Thanks, Stephen.
Speaker 0
Okay. Thanks, Fang. Next question comes from the line of Yun Jin Kyo from Mizuho Securities. Please ask your question.
Speaker 9
Hey, good evening, guys. Real quickly on the enrollment. You said that enrollment grew this quarter largely due to the fact that there was a bit of a pull forward demand due to earlier enrollments. And that's largely due to the fact that the students demanded that. I guess why this quarter?
I guess what is this a recent and like a new phenomenon that we haven't seen in the past? And so when we see kind of a pull forward demand on enrollment, what should the enrollment look like this quarter? And then, the subsequent quarters going forward, can you just kind of give an outlook on just kind of how we should be modeling for that? Great. Thanks, guys.
Speaker 3
Okay. I think it's not the first time. If you recall the numbers six months ago, we had very strong student enrollment growth in Q4. In Q4? In Q4 'fifteen.
And I think the new O2O product is very popular in the market. So, the students wish to enroll the class as early as they can to secure the class seat. And so, that means we have the early enrollment. So, if build up your model at normal level, I think the student enrollment should be the 30% to 35% increase year over year.
Speaker 9
Got it. And that's 30% to 35 Yes,
Speaker 3
for the K-twelve.
Speaker 9
Got it. And is there and you mentioned O2O was kind of this driver for that. Is there a particular seasonality that we should look at in terms of fourth quarter and this quarter or is it going to be just 30% to 35% for the next few quarters going forward?
Speaker 3
No, I think what I mean is if you build up your model in the Q2 and Q4 going forward, you should build up the higher student enrollment growth. So, for the total what it means for the next year, the whole year, you should build up the model for the K-twelve business, the student enrollment growth should be like the 20% to 25%. And for all the business it's 15% to 20% still enrollment growth.
Speaker 1
Yeah, so the timing difference is only for current fiscal year.
Speaker 0
Yes.
Speaker 1
It's not for next year. Yeah.
Speaker 9
Got it. That's clear. Okay, thanks guys.
Speaker 3
Okay. Thank you.
Speaker 0
The next question comes from the line of Tian Hou from TH Capital. Please ask your question.
Speaker 6
Hi, Cici, Stephen and Joe. The question is related to your investment. You previously announced joint venture with Tencent to develop mobile Internet education. I wonder what's the progress on that front? Also, you also mentioned kouyuanjie.com and has already been traded on the OTCB over the counter market in China.
So I wonder such kind of arrangement, one of your assets is invested in the local market, how the shareholder of EDU benefit from such arrangement? That's my question.
Speaker 3
Okay. We made a lot investment during the past two to three years. And the target company we seek for, if we can find the synergies between New Oriental and the target companies, we will do the investment. For example, for the coe100.com, their customers are like the grades six to grades eight, the students for the K-twelve for the students. And the students of their study are English online.
And so, we can make a lot of the cross selling from their customers to their customers for our K-twelve class provided by New Oriental. So, the synergies should be the key factor of our
Speaker 2
investment logic. So basically that means the companies should be like compatible to each other with each other and we can make the best uses of the resources of each other's pool and so that we can support other, right?
Speaker 6
So, what about the joint venture with Tencent, what's the progress on that one?
Speaker 3
We set up the joint venture last year and we launched the product. But to be frankly, think the both on the users and the revenue should be need more improvement. So, just wait more time.
Speaker 2
Should be moving on smoothly. Yeah, just stay waiting for the final results.
Speaker 6
Thank you.
Speaker 3
Okay. The
Speaker 0
next question comes from the line of Alvin Jiang from Deutsche Bank. Please ask your your question.
Speaker 10
Good evening, Joe, Steven and Sisi. Congratulations on the strong results. I have two questions. The first question is on the performance of U. K.
And POP Kids. I noticed that in the past quarter, U Can actually outperform POP Kids. Can you share any color on this? Maybe this is coming from some VPS deployment or any other new improvements of U Can? And my second question is on the price cannibalization, because I noticed that Koolearn actually has a very robust growth in terms of traffic, but actually revenue growth decelerated.
So, I'm not sure if you introduce some new subjects, maybe dilute the price or any other insights from you will be very helpful. Thank you.
Speaker 3
Yes. I think we're the boost enrollment growth of both U Can and POP Kids. But, think U Can is better than the POP Kids, because U Can is more the courses of U Can are more mission critical with a higher price for the students. But going forward, both the UCAN and POP Kids will be as strong as this quarter, maybe a little bit better. And for the cannibalization for the online, you mean the cooler, yes, this quarter the cooler revenue was up by only 19%.
I think that's due to the two reasons. The first one is the 2B business decreased in Q2 for Koolearn, but it's shrinked in last several quarters. Now, comes for the 15 to 20% of the total revenue. But, on the other hand, the 2C business increased by 45%. And the second reason for the peak season for the Chinese GRE should be the third quarter.
So, in the coming quarter, what I mean is in Q3, you will see the very strong GAAP revenue growth for Koolearn dot com.
Speaker 0
The next question comes from the line of Mariana Ko from CLSA. Please ask question.
Speaker 7
Yes. Sorry, I was on mute. Congratulations again, management. Thank you for taking my questions. I just have two questions.
I think one is actually back to the market share question one of the analysts asked. I think the market share overall for the country is definitely very low at like one to 2%. There's a lot of room to grow. But I was just wondering if you have any data on maybe the top tier cities, say, for example, Beijing, Shanghai. What sort of market share are we thinking in terms of any ballpark numbers would be helpful?
And the second question is a little bit more on, I guess, just a more than a question really. If you could share a bit more color on the investment portfolio or like any sort of data that you could help us think about the interest income? I know the market is definitely quite volatile at the moment and the interest income actually is quite a significant portion of your bottom line. So, if you could give some color that would be helpful. Thank you.
Speaker 3
Okay. In terms of the market share, yes, we also have only 1% to 2% of the K-twelve market. In some big cities like in Beijing and Shanghai, I think the numbers will be higher than 1% to 2%. But I'm not sure I can have the idea about the detailed numbers.
Speaker 1
And by the way this is the market share for K-twelve. This is very huge and fragmented market and in overseas test drive we're dominating.
Speaker 2
Yes.
Speaker 3
Your second question is about the interest income. All the interest income we made have come from the bank deposits or the treasury products we bought in bank. But the bank will 100% fully what it means is the principal and interest income is 100% protected by the banks. And but the average interest rate of this year should be lower than last year. Because of the government's policy?
Yeah. It's not only because of the policy, but because of the market needs. But anyway, you will see the interest income increased a little bit.
Speaker 5
Thank you.
Speaker 3
Okay. Thanks.
Speaker 0
The next question comes from the line of Zhao Zhao from Credit Suisse. Congratulations
Speaker 11
on the strong quarter. Two questions from me. One follow-up from the previous question on the promotions. You mentioned that you've done like promotions on Grade one and Grade seven products in Beijing and Shanghai. I just wonder like which courses are you promoting on?
In addition, do book this promotion spending on sales and marketing expenses or on a net of revenue basis? And the second question is, can you share a little bit about your K-twelve enrollment growth regional exposure? Which provinces do you see the most rapid growth among all? Yes. Thank you.
Okay.
Speaker 3
For the promotion, we provided some promotions for the grade one, grade seven for some like the math and physics and chemistry for the courses. And
Speaker 2
as this is said, we made once a year typically in the summer to get more new students. Yeah, we're doing this like to demonstrate the to show the like the quality teaching and all those as our like a top the first class like a performance like in the classroom, so that we can have like enroll like more students in the coming
Speaker 3
season. Okay. And your second question about the K-twelve driver. One is the the non English courses grow faster than the English courses. For the U Can, I think the English courses account for only one third of the total revenue?
So the non English account for two thirds and the non English grow faster than the English courses. And for the POP Kids, English courses account for 80% of the total revenue and math and Chinese account for 20%. Same the non English courses grow faster than the English courses.
Speaker 2
Yes, because the market and potential is much bigger than the English one, right.
Speaker 11
Sorry, just on the regional exposure perspective, like which provinces do you see strongest growth among the all? And also on the first question, I guess, second part I wonder is that do you book the promotion spending in the marketing spending or on a more like a net of revenue basis as in the counter revenue that kind of measure? Thank you.
Speaker 3
Okay. Yes, we just accounted for account the net of the revenue, not recorded the expense in selling and marketing. And in terms of the different cities, are seeing the very strong growth in Beijing, Wuhan, Nanjing and like Xiamen, Hefei. So, I think it depends on the different managements. But, just want to focus on the Beijing numbers.
The K-twelve business in Beijing grew very fast during the last three, four years and the trend will be continued.
Speaker 11
Thank you management.
Speaker 2
Okay. Yes, so this is basically because of the resources of the different cities they have and also because of the differences of management, the quality.
Speaker 0
The next question comes from the line of Andrew Archer from Nomura. Please ask your question.
Speaker 12
Hi, evening everyone. I have a question on the VIP. You noted that one of the reasons why your hourly ASP is down is because VIP's lower contribution as a percent of the total. So I wanted to get some idea of why that was the case. Is it because VIP is slowing?
Or is it because you're seeing your other products doing very well? Thanks.
Speaker 3
Yeah, as you see, you know, are being management made the new policy of the VIP. We don't like the VIP business. It has the lower margin. And I think the management think the small and big class are the suitable class style for the students. So we just want to cap the VIP business 30% of the total revenue.
Speaker 2
Yeah, I've got to say that actually we like the VIP business, but it's quite tricky. So in order to like keep the balance of the healthiness of the whole like a development. So we've got to keep the percentage. That's why I mean,
Speaker 12
Are you actively doing that because I think there's a trend that are that there's more demand for more personalized attention, right? So you're saying we're not just not going to offer it even though there's demand?
Speaker 3
Yes, the market demand is still there. We will still provide the class, but we encourage these local school has to open more small and big classes rather than VIP. Okay, thanks. Okay.
Speaker 0
We are now approaching the end of the conference call.