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Xueda Education Group (NYSE:XUE)

Q4 2012 Earnings Call

February 27, 2013 7:00 pm ET

Executives

Sophia Zhou – IR Manager

Xin Jin – Co-Founder and CEO

Christine Lu-Wong – CFO

Analysts

Fei Fang – Goldman Sachs

Mark Marostica – Piper Jaffray

Chao Wang – Merrill Lynch

Jim Bao – Yiheng Capital

Operator

Good day everyone and welcome to the fourth quarter and full year 2012 earnings conference call for Xueda Education Group. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question and answer session. This conference is being recorded. At this time, I would like to turn the call over to Ms. Sophia Zhou, the company’s IR Manager. Please go ahead.

Sophia Zhou

Hello everyone. Thank you for joining us for Xueda Education Group’s fourth quarter and full year 2012 earnings call. With us today are Mr. Xin Jin, the company’s Co-Founder and Chief Executive Officer and Ms. Christine Lu-Wong, our Chief Financial Officer.

Before we get started, I am going to review the Safe Harbor statements regarding today’s conference call. All statements included in this conference all, other than statements or

characterizations of historical facts, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on our current expectations, market and operating conditions, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change.

Further information regarding this and other risks and uncertainties or factors is included in our filings with the US Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

To enhance our presentation of the information and data during the conference call, we have provided a PowerPoint slide for your reference. This presentation is posted on the main page of the Investor Relations Section of our website. At this point, I would like to introduce Mr. Xin Jin, Co-Founder and Chief Executive Officer of Xueda Education Group. Mr. Xin Jin will speak in Mandarin and I will translate.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Thank you Sophia. Good morning and good evening everyone. Welcome to Xueda Education Group’s fourth quarter and full year 2012 earnings call.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

For the fourth quarter of 2012, I am glad to see that our net revenue exceeded the high end of the guidance, continuing our trend of solid revenue growth in each and every quarter of 2012. As you may recall, at the beginning of 2012, our goal for the year was to reaccelerate our revenue growth and to continue expanding our learning center network and in which our full year 2012 revenue growth was 32% year-over-year and the total net increase of 88 learning centers, I believe, we successfully achieved our primary goal for 2012.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

With that said, I would like to once again thank all of our hard working colleagues at Xueda for their dedication and contribution. Our instructors, education consultants, study counselors and everyone else on the team, made it possible to achieve our goal.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Although we achieved our primary goal for the year, I have to summarize 2012 as a relatively challenging year for the whole private tutoring industry. The industry faced a headwind from both a softer China economy and the negative reporting by the news media.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

During the second half of 2012, there were several medium concerns that questioned the validity of certain false advertisements and exaggerated claims of high student achievements. As a result, we also experienced slower than expected growth in our enrollments.

In spite of short-term impact, we view the medium exposure on those unhealthy activities will lead the whole education sector to a healthier and a more sustainable growth and that will also help the high quality private tutoring education companies like Xueda as we improve our teaching quality and image.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Since 2011, we also noted several other education service providers decelerated their expansion pace and some peers aggressively entered into this sector. However, based on recent public statements and other infrastructure impacts, we believe, many of them have now achieved what they affected.

Even though the amount of all the sectors continues to be strong, success requires a combination of industry experience, much knowledge, established operating standards, a nationwide recognized brand, a team, and nationwide IT system.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

In the past twelve years, Xueda has been a pioneer and the leader in the personalized one-on-one tutoring sector. And even though, Xueda had experienced some growing pain. We opened 176 new learning centers and entered twenty new cities during a roughly 18 months period from the end of 2010 to the mid of 2012.

Although we believe that our broad nationwide learning center network will continue to serve as a foundation and a competitive advantage for our future success. Our newly opened learning centers typically require at least one to one and a half years and become accretive to our overall profits.

As such, given that in 2012, nearly all of our new learning centers were opened and around 2000 additional full-time teaching staff were recruited in the first half of the year. Our gross margins for the second half of the 2012 were temporarily pressured by the additional rental expenses and fixed salary in addition to certain other factors.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

The good news is, now that Xueda has a balanced and a comprehensive network of 383 learning centers spreading across 73 cities throughout China. We plan to slowdown our expansion pace in the short-term. Furthermore, the combination of our industry-leading brand expertise and the broad reach provides us with the platform to enhance cost following the developments.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

As such, our number one goal for 2013 is to expand our gross margins and also health net profits. Christine will discuss in detail later on this call.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Accordingly, we view improving utilization and productivity of each and every existing learning center as our top priority for 2013, and we also aim to continue improving our teaching and service quality to improve customer satisfaction.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

In summary, we have set the right strategy and priorities in 2013 and based on our strong competitive position, we are confident that we can achieve our goals and objectives.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

At this point, let me turn the call over to Ms. Christine Lu-Wong, our Chief Financial Officer for a detailed discussion of our fourth quarter and full year 2012 financial results and our outlook for 2013.

Christine Lu-Wong

Thank you, thank you Xin and Sophia, and hello to everyone on the call. First of all, I am excited to join the Xueda family. We knew the company and the industry. But first steps where to meet and learn from as many of my new colleagues as possible. And I am pleased that the more I learn about the company, the more I am convinced that Xueda is well positioned for sustainable success.

Despite on this profession that the personalized tutoring services model is not scalable and cannot be consistently profitable, on the contrary, I strongly believe that Xueda’s performance in the coming years will prove that its business model is profitable.

As Xin mentioned earlier, it was Xueda’s strategy in the past couple of years to aggressively expand our learning center network and because the company under estimated the impact of the initial higher fixed cost. Our overall gross margins and profitability decreased more than anticipated.

However looking forward to 2013 and beyond, we now have the foundation in place that will enable us to fully leverage our leading brand to grow not only our revenue, but also our profitability.

I can’t wait to share with you the details of our 2013 outlook, but first let me quickly review our financial results for the fourth quarter and full year 2012. Please know that that all numbers I will discuss today are in US dollars unless otherwise noted.

First, let’s turn to slide six on the top line highlights. Total net revenue in the fourth quarter of 2012 increased by 24.9% year-over-year to $59.6 million from $47.8 million. Roughly, 72% of the growth in net revenue was contributed by higher course hour delivered and the remainder by higher ASP.

Course hour delivered in the fourth quarter increased by 16.5% year-over-year to approximately 2.1 million hours, from 1.8 million a year ago. Average hour course fee in the fourth quarter increased by 5.5% year-over-year to $28.6 from $27.1. All in all, despite the impact of negative news and media, our top line metrics was solid on a year-over-year basis.

Next, let’s look at cost of revenue and gross margin detailed on slide seven. Cost of revenue in the fourth quarter of 2012 increased by 24.3% year-over-year to $50.7 million from $40.8 million. As discussed, the higher cost of revenue was mainly attributable to the higher fixed cost of rental cost, depreciation expenses, teaching staff cost and other staff cost, compared to the same period of last year.

Accordingly, gross profit in the fourth quarter of 2012 increased by 28.2% year-over-year to $8.9 million from $6.9 million. However, gross margin in the fourth quarter of 2012 increased to 14.9% from 14.5% in the fourth quarter of 2011 as we benefited from greater operating efficiency.

Looking deeper into our productivity metrics on slide eight. Course hours delivered per full-time teacher in the fourth quarter increased by 2% year-over-year to 208 hours from 204 hours a year ago. Course hour delivered per square meter of learning centers were 7.4 hours for both the fourth quarter of 2012 and 2011.

In the fourth quarter of 2012, we opened a net of four learning centers with eight new openings and four closings.

Turning to slide nine. General and administrative expenses of $13 million in the fourth quarter of 2012 improved to 21.7% of total net revenue, compared with 23.4% a year ago.

Due to effective cost controls, selling and marketing expenses of $6.8 million in the fourth quarter of 2012 improved to 11.3% of total net revenue, compared with 15.3% a year ago benefiting from the use of more effective marketing channels.

Non-GAAP net loss for the fourth quarter of 2012 was $7.3 million, compared to non-GAAP net loss of $9.3 million for the fourth quarter of 2011. Non-GAAP diluted net loss per ADS for the fourth quarter of 2012 was $0.11, compared to $0.14 for the fourth quarter of 2011.

Now, let me walk you through a quick review of full year 2012 financial results, summarized on slide ten. Total net revenue increased by 32.2% year-over-year to $293.2 million from $221.7 million in 2011. Roughly, 64% of the increase in net revenue was contributed by higher course hours delivered and 36% by higher ASPs.

Cost of revenue increased by 40.6% year-over-year to $219.7 million from $156.2 million in 2011. Gross profit increased by 12.2% year-over-year to $73.5 million from $65.5 million in the previous year. Gross margin decreased to 25.1% from 29.5% a year ago.

During the year, we hired more than 2000 additional teaching staff and added 88 new learning centers and as a result, the increased fixed salary and rental cost related to expansion has a combined negative impact of approximately 274 basis points to our gross margin for full year of 2012.

Total operating expenses increased to $77.8 million from $62.4 million in 2011. General and administrative expenses of $46.4 million in 2012 improved to 15.8% of total net revenue, compared with the 16.4% a year ago, mainly due to effective cost controls. Selling and marketing expenses of $31.3 million in 2012 improved to 10.7% of total net revenue compared with 11.7% a year ago.

Non-GAAP net income was $5.1 million, compared to $8.9 million in 2011. Non-GAAP diluted net income per ADS was $0.08, compared to $0.13 in 2011.

Moving to balance sheet, as of December 31, 2012, cash, cash equivalents, short-term investments, net of dividend payable in an amount of $22.7 million totaled $216.6 million or $3.32 per ADS compared with $225.7 million or $3.38 per ADS a year ago.

Continuing to benefit from strong cash collection, which grew 39.5% year-over-year to $366.7 million in 2012, deferred revenue increased to $133.8 million as of December 31 2012, compared to $101.4 million as of the end of prior year.

That wraps up my financial review. Let’s move on. When we evaluated our financial performance in 2012, we realized that we had initially focused our efforts and incentives primarily on cash collection and revenue growth in the first half of 2012 and only began to shift our priority toward profitability in the second half of 2012.

For 2013, as Xin just mentioned, we have incorporated profitability metrics into our KPIs and view profitability as our top priority. Furthermore, we are targeting to achieve a top line growth of approximately 16.6% to 20% for 2013, as you all can see on slide 12; our revenue is driven by two key metrics which are the course hour delivered and ASP.

In our 2013 forecast, we are modeling only 13.6% to 17% year-on-year growth in course hour delivered and a 3% increase in ASP which bode with the leads are reasonable and achievable.

On slide 13, we detail our gross margin drivers which include improving future utilization and learning center space utilization and a slow pace of – and a slower pace of new learning center openings. From the utilization perspective, we will focus on the course hour delivered per full-time teacher, as well as course hour delivered per square meter of learning center.

As to expansions, we targeted to open about 30 to 40 new learning centers in 2013 with most new learning centers to be opened in the first to fourth quarter ahead of our peak season in the second and third quarters. The slower learning centers expansion pace should reduce fixed rental and depreciation costs.

Our analysis shows that learning centers opened less than one year typically operated at a loss, while the gross margin for learning centers opened longer than two years are quite healthy.

Lastly, we will also continue our effort to further improve our operating leverage as shown on slide 14.

In conclusion, we are comfortable with our assumptions and forecast and we are confident that our 2013 financial results will prove that Xueda and its personalized tutoring services model can effectively scale and achieve sustainable profits.

Let me now provide you with our guidance for 2013 which is summarized on slide 16. For the first quarter of 2013, we currently estimate net revenue to be in the range of $79 million to $80 million, an increase of 17.6% to 19% from the same quarter of the previous year.

We estimate that non-GAAP diluted net income per ADS to be in the range of $0.03 to $0.04 equating to a year-over-year growth of 50% to 100%. In our estimate, we assume an effective tax rate of 25% and weighted average ADS of $65.8 million.

For the full year 2013, we estimate net revenue range from $342 million to $352 million, an increase of 16.6% to 20% from the previous year. Please note that our guidance is based on the current market conditions and refer to the company’s current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

And this concludes our prepared remarks. Operator, we will now open the call up for questions. Please begin with the first question.

Question-and-Answer Session

Operator

The first question today comes from the line of Fei Fang calling from Goldman Sachs. Please ask your question.

Fei Fang – Goldman Sachs

Hi, Christine. Xin Jin and Sophia, thanks for taking my question. It was really encouraging to see in your presentation that management outlined a number of approaches to improve operating efficiency in 2013. So my first question is what would be your specific targets for utilization improvement either for the year or for the first quarter of 2013? Any operational or financial metrics would be very helpful. Thank you.

[Foreign Language – Mandarin]

Christine Lu-Wong

Hi Fei, good morning. Thanks for joining the call. It was great to hear from you. Certainly, Xueda actually would like to show our commitment and our confidence in terms of returning to profitability in 2013. We wanted to also make it visible to all investors and monitoring our progress.

So in terms of the efficiency or utilization improvement, that is the key to improve our gross margin, with that everything will follow through. So in terms of utilization, we have break down into two key metrics, one is how we utilize the number of teachers, which is people and that second is how we utilize our space which is the learning center.

So from the metrics you will see that we are actually not doing very well in 2012 mainly due to the opening of the new learning center, 88 new learning centers and also we added about 2000 teachers in the first half of 2012. That’s the direct result on the impact of second half 2012.

Now moving forward with 2013, we are very confident in terms of improvement in both metrics, because for two reasons, one is that, we have slowed down our learning center opening with very precise planning. We have very key financial models to approve before we open a new center. So at this time as I mentioned earlier we only anticipate to open about half of what we had opened in 2012.

With that, the space already will get stabilized in terms of the space and then with the course hour continue to grow as you will see that we put a very conservative number on the course hour to improve. But no matter what the numerator to improve at teens and yet we stabilize our space, that will definitely will improve our – from the math, mathematically, that will already have our space utilization improve. Same with the number of teachers.

We will continue to improve our course hour delivered and then with the number of teacher, we will make sure that the utilization is getting improved. From what we had seen right now in 2012, our full-time teacher utilization still have moved, but a lot of room to improve. In terms of – this is very qualitative description, but in terms of the quantitative improvement at this point, it’s too early to say, but definitely that is the trend as you can calculate from the formula, that’s the component that we are showing. So, Xin Jin.

[Foreign Language – Mandarin]

Christine Lu-Wong

Okay, okay. Xin Jin has supplemented with his view, he said in the recent few months, we have been doing a lot of internal analyzing, internal discussion on our strategy, mainly as he has mentioned we will focus on two key utilization metrics, one is the full-time teacher utilization, one is on the space utilization.

Once we have defined these two key metrics to be our focus, these two metrics have become our – part of our strategy and our KPI for Xueda. From now on, we will improve our operation on these two key metrics from now on. Even though last year, we did not do a lot of improvement in the space utilization area in particular, but we are confident that in 2013 we will have set our new step to improve from here.

Fei Fang – Goldman Sachs

Great. Thanks a lot, Christine Xin Jin. Very quick follow-up question if I may, just regarding the revenue guidance for 1Q, is slowing a little bit from the 4Q level probably for great reasons, because the management is shifting the focus towards utilization. I’m just wondering is there any part of the slowdown that reflects a slower or lower demand in the key markets – in the key tutoring markets in China?

[Foreign Language – Mandarin]

Christine Lu-Wong

Fei, I heard you say Q4 compared to Q1, right, but actually I thought Q4 number was a sequential decline not compared to Q1. So please confirm.

Fei Fang – Goldman Sachs

Right, what I’m saying is, 1Q revenue guidance was about 18% year-on-year growth versus in the 4Q of 2012, management delivered 25% year-on-year growth – revenue growth. So this clearly shows slowdown probably part of it is due to the shift in focus with utilization which can be earnings accretive, but I am just wondering if that’s a reflection of the current market condition as well?

[Foreign Language – Mandarin]

Christine Lu-Wong

Okay, Mr. Xin just explained about the growth rate has slowed down comparing Q4 at about 25% year-on-year growth rate, now in Q1, we are talking about a range of high teens. So the question is that, the answer to the question is that, we see a few factors to the going down on the growth rate. First of all is that the negative media reporting in second half of 2012, it has some impact and that brings the impact to the Q1.

And second factor is that, the spring festival we just had passed that just happens fall into the middle of the quarter, so that is also a negative impact in terms of the course hour delivered with that timing factor. However, Mr. Xin said the zhongkao and gaokao, the entering the exam is coming along very soon. We are anticipating that our growth on revenue, it will come back very soon. Thank you, Fei, thanks lot.

Operator

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

Mark Marostica – Piper Jaffray

Thank you and just to make the point that we do appreciate you’re providing the additional color on the utilization metrics and the focus on profitability here. One question I had just taking a step back, and looking at the bigger picture here is, what do you think or have you given any thoughts on what the practical capacity is in terms of course hour delivered per full-time instructor and course hours delivered per square meter of learning centers? Just trying to get a sense of, help us frame what the opportunity is in terms of the degree of improvement that could be gleaned on utilization?

[Foreign Language – Mandarin]

Christine Lu-Wong

Right, let me also add few points into the utilization room to improve. Mr. Xin has mentioned about the teacher. In terms of the space, that’s actually, I saw a lot more room as well, mainly is that we saw a decline in the space utilization in the full year 2012 from 2011 and I am looking at this way, with we added a lot of square footage in the 2012 which is 88 learning centers.

We actually had not added proportionately on the cost hours delivered. So that means, I am not here to talk about specific – how much room, but in terms of the ideal capacity of where we are going to go in at least we have 50% as well.

Mark Marostica – Piper Jaffray

Okay, and then just a follow-up, based on your budget, I was wondering if you could share with us, how many teachers you are planning on hiring this year, full-time teachers?

[Foreign Language – Mandarin]

Christine Lu-Wong

At this point, we are seeing that, we are at the right level already, because we have mentioned we have room to improve for the teacher utilization. However, as we go to the peak season in second quarter, we might have some need to hire some teachers. However, we actually could also have alternative as to use part-time teachers as the filler to complement our current teacher force currently we have.

Operator

And the next question comes from the line of Chao Wang calling from Merrill Lynch. Please ask your question.

Chao Wang – Merrill Lynch

Hi, thank you. I just have a quick follow-up on utilization. So, in terms of the course hours delivered per square meter, your utilization seems to be stable compared to fourth quarter last year. I am just wondering what’s the utilization level of the centers opened in the past one year compared to the old centers that have operated for more than one year. Thank you.

[Foreign Language – Mandarin]

Christine Lu-Wong

Let me take this question. For the utilization rate, for learning centers opened less than a year or over a year, that’s the question from Chao, hello Chao. From what we had said in the historical trend, for learning centers opened less than one year is actually almost all are negative.

The range could be 20% to negative 50% gross margin, it depends on how experience – the management team on the newness learning center. However, once we get more mature in the learning center age, then the range I can see is it between one to three years the learning center, the range from low teens to high 20s and then for learning centers that open more than three years, they had the gross margin over 30%.

So with that said, if I am coming back to the history of Xueda for opening learning centers, in the past two years 2012, 2011, we opened about 88 learning centers each year and then going back one more year of 2010 we opened about 77 new learning centers. So at this speed that means in the past three years we opened about 240 roughly that many learning centers and those are all under three years old.

But now as we go into 2013, the 77 learning centers we opened in 2010, they already become the three years age in 2013 as I mentioned they had over 30% gross margin. And then when we look those 88 learning centers that we opened in 2011, when they come to the year of 2013 that their second year, and they actually has a quite healthy learning center as I mentioned close to the high 20s.

Then, so from what you see, only those batches, 77 plus 88 that’s roughly 160 learning centers which is about half of what we have. We now have 283, right. So those are all become within the result, that’s how I see it. I think this is a very interesting model you can see that from the gross margin level, that’s why we are here very confident to see between now and then as we go into another three years, all these 200 plus learning centers are all becoming mature.

At the same time, the very important factor that we have to make sure is that, we control the first year learning center to open, because that’s a pretty negative, a very decretive effect to our profitability. However, we are only aiming about 30 to 40 for the full year.

For the first quarter, we are only looking below 20, but then after the first quarter, we will definitely slowdown the whole learning center opening because if you don’t open in the first quarter you are not here to start to gain the traction for the second quarter and third quarter increase at the end.

And then we hold on for two quarters and then in fourth quarter, we are starting to look at how we mix for this year. If we are doing great, we will to continue to open in fourth year – for the coming year. So that was the strategy Xueda have thinking through and think it will work to improve the 2013 profitability for gross margin to become a healthy level.

Operator

And the next question comes from the line of (Chan Hao) coming from CH Capital. Please ask your question.

Unidentified Analyst

Christine Lu-Wong

Yes, good morning Xin and Christine. My question is also – the first question is regarding, how many full-time teachers do you have? And I didn’t see that in the press release you did mention the – utilizing full-time teachers and so what is the ratio between full-time teacher and maybe temporary hirings?

[Foreign Language – Mandarin]

Unidentified Analyst

Wow, that’s a lot. Okay, so for those full-time teachers, what’s the current utilization rate?

[Foreign Language – Mandarin]

Christine Lu-Wong

Xin explained that for the utilization rate – to the question of what’s the utilization right now, we are at 208 course hour delivered per teacher in average. And when we were in the peak season, we have experienced about per teacher delivered average about 300 course hours. So from what we see here, we still have lots of room to improve.

Operator

And the next question comes from the line of Jim Bao calling from Yiheng Capital

Jim Bao – Yiheng Capital

Hey, Xin Jin, Christine, my question is, in your guidance for the first quarter and full year 2013, how many learning center openings are you assuming for the first quarter and I guess for the full year you already said about half, but how many of them are going to be in the first quarter and second quarter?

Christine Lu-Wong

All right. Hi Jim.

Jim Bao – Yiheng Capital

Yes.

Christine Lu-Wong

Great to hear from you. For the learning center to be opened, we mentioned about the full year, which is about 30 to 40. For the first quarter, the new learning centers to be opened at this time, we are already very visible, it will be well below 20 and then for the second quarter and third quarter we are aiming just very, very small amount. So that mainly it’s the first and the fourth quarter around below 20 each for the quarter and then very, very minimal in the second and third.

Jim Bao – Yiheng Capital

Thank you.

[Foreign Language – Mandarin]

Christine Lu-Wong

Mr. Xin was saying that, as I said earlier, for the first quarter it will be well below 20 and then for the second quarter, it might be just because our approval process has been very tight in the first quarter now. We have gone through a very strict ROA and ROI approval and then now we just approved a few more. But all in all, it’s well below 20, but then for the last few that we just approved that could get into the early part of second quarter to open. However, as I said earlier it will be very minimal.

Jim Bao – Yiheng Capital

My second question would be, in your G&A this quarter was a little bit surprising on the high side. Do they have any foreign exchange related items?

Christine Lu-Wong

All right, on the G&A, this quarter it is high it’s mainly not because other factors, it’s mainly because the revenue is low. Actually, for the G&A we have been able to apply constant in actual dollar for the over quarter. So comparing to Q2 we are actually down in SG&A in total than in Q4, it was flat from Q3.

That was the SG&A, but with G&A alone, it was a little bit higher than last quarter, a little bit higher, one is on the – it’s a lot more on the year end finalizing our financial book. So we are making sure all the expenses that need to be – go into the book that get booked in Q4 including our yearend bonus.

We are looking at what we need to pay out we make sure that our pro are enough and also there is a very similar factor is that, for our – the overall industry-wide SEC enquiry, that also Xueda has come to almost the end of the enquiry. We are almost done. But that also has a little bit of professional fee.

That is an industry-wide enquiry, not a Xueda-specific enquiry. So that has a little bit of G&A expenses as well. But all these are normal operational expenses. So, but the most factors that we see the percentage goes up is mainly on the revenue was not as high as before.

Thank you, Jim. Thank you everyone.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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