Xueda Education Group's CEO Discusses Q1 2013 Results - Earnings Call Transcript

| About: Xueda Education (XUE)

Xueda Education Group (NYSE:XUE)

Q1 2013 Earnings Call

May 16, 2013 08:00 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

Karen – Piper Jaffray

Jack Young – T. H. Capital LLC

Jim Bao – Yiheng Capital

Operator

Good day everyone and welcome to the First Quarter 2013 Earnings Conference Call for Xueda Education Group. At this time all participants are in listen-only mode. After managements’ 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 s. Sophia Zhou, the company’s IR Manager. Please go ahead.

Sophia Zhou

Hello everyone. Thank you for joining us for Xueda Education Group’s first quarter 2013 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, may I remind you that all statements included in this conference all, other 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.

Forward-looking are not guarantees of future results and are subject to risks and uncertainties and as such results maybe maturely different from the views is processed here today. A number of potential risks, uncertainties are aligned in our public findings with the SEC. Xueda does not undertake any obligation to update any forward-looking statements except as required under applicable law.

To enhance our presentation of the information and data during this conference call, we have provided a set of 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 first quarter and 2013 earnings call.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

I’m very delighted, that we exceeded our previously stated guidance for both the top and bottom line, driven by excellence in year-over-year improvements in our key financial and operational metrics. Our first quarter 2013, net revenue was $84 million exceeded to high end of our previous forecast by 5%. And our non-GAAP EPS of $0.05 exceeded the high end of our previous forecast.

We believe that better than expected results were driven by a combination of our improved market environment and solid execution of our focus on profit strategies.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Before we begin, with the first quarter review. I would like to take this opportunity to express our sincere sympathy to the people of Sichuan and the losses caused by the earthquake in April. Xueda deeply cares and just one day after the earthquake, we quickly mobiled [ph] our (inaudible) branch to extend helping hand with (inaudible) and the technological counter link.

We also announced a cash donation in the amount of RMB1 million. We hope affected students will have most transition back to school.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Now let us take a look at the big picture in the first quarter. From our point of view, the much dominant for the home tutoring advantage has been improving this year. On February 28, the China Association for Non-Government Education issue, a first-ever self-regulatory agreement signed by China’s 17 leading private children service providers. The event was endorsed by the Ministry of Education and as the leader and organizer for the signing event. I’m very honored.

We believe, the signing of the agreement will help these recent concerns of a delight on industry standards for the private children sector and mark a new stage. We are tutoring service providers, now have a comprehensive staff of best practices to better serve this.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Recently, Xueda held a press conference at the Beijing, Confucius Temple and intercollegiate. Announcing Xueda’s teaching philosophy advancement. Which emphasized our aim, to teach students in accordance with their aptitude? And knowing the students and guiding the students accordingly. The goal of whole personalized tutoring service, to be help students straight important layers of individuals development meaning sports, growth and success.

We believe our teaching philosophy nurtures students’ holistic growth. Whereas in purely focusing on high pressure academic performance, and as such our approach closely compliments the Ministry of Education’s guidance and students long-term needs.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Looking at our own operations, we believe we have made good choice. On our last earnings call, we communicated with you that our focus for this year is on profitability through greater and teacher utilization and learning center efficiency. We highlighted two key metrics that we not only will regularly report to investors, but also inter aligns into our KPIs.

Number one, course hours per full-time structure. Number one, course hour per square meter. During the first quarter, we made astounding year-over-year improvements and we have taken additional steps to further establish metrics.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Personally, we further enhanced our wide measures offerings by launching a secondary to primary program based on our teachers priors experience ranging. We have trialed this program in Beijing and Tianjin and have received their positive feedback. We plan to deploy fewer programs into most centers in the upcoming quarters. Secondly, in order to drop high teaching utilization in last popular subjects. We will take it to such teachers, to other learning centers in the same region. This helps to better manage teacher’s capacity with students demand.

I believe these steps provide multiple access choices to our students and at the same time, may incrementally contribute to our top line growth and utilizations.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

As you can see, we delivered reasonable success, on every front in the first quarter. We intent to carry on that momentum going forward, we will drive enrollment growth and providing better customer service management. In order to enhance, the overall present experience. We also developed a mobile (inaudible) and app, which enables parents and students to timely monitor the service and tutoring progress.

We are also investing more into R&D to further enrich our teaching content and to introduce additional personnel to tutoring service modules. We believe, these steps will drive greater word mouth referrals, which is critical to our future success.

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

Overall, I’m confident we are on the right track to turning our goals for 2013. Lastly again, I’d like to thank all our hardworking colleagues at Xueda for their dedication and contributions. I specially want to highlight, our significantly improved budgeting and exclusion capabilities. Which I believe is a direct result of the hands on approach of our management team for its immutable contributions from our regional managers.

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 detailed discussion of our first quarter 2013 financial results and our outlook for the second quarter.

Christine Lu-Wong

Thank you. Thank you Xin and Sophia. And hello to everyone on the call. I’m pleased that Xueda delivered strong financial results in the first quarter of 2013. Comfortably, feeding our previous dated guidance. As we had outlined to you in our last call, we view profitability as our top priority for 2013. And as highlighted by the solid utilization and margin improvements in the first quarter, we are executing according to plan.

Now, let me quickly review our financial results for the first quarter 2013. Please note, that all numbers are discussed today are in U.S. Dollars, unless otherwise noted. First, please turn to slide five. On the top line items. Total net revenue in the first quarter of 2013 increased, by 25% year-over-year to $84 million from $67 million a year ago. Course hours delivered in the quarter increased by 11% year-over-year to approximately 2.8 million hours from 2.5 million hours in the previous year. Average hourly course fee increased by nearly 8% year-over-year to approximately $30 from $28 a year ago.

I’d like to note, that during this first quarter there was revenue contributions from Weland, a company that Xueda had acquired at 60% equity ownership in the second quarter of last year. In order, to provide with an apple-to-apple comparison. I’ll put out Weland revenue contribution for this quarter, which was approximately $3 million.

Excluding the contribution from Weland. Net revenue from our core business was $81 million during the quarter. As you may recall, Weland organizes and coordinates Chinese student’s participation at various Model United Nation Conferences in the U.S. and China. Weland’s business is accurately seasonal and its revenue is predominantly concentrated in the first quarter from each year.

As such, we do not expect material revenue contributions from Weland for the remainder of 2013. And we will not put our Weland’s financial results in the near future’s discussion. Next let’s look at cost of revenue and gross margin details on slide six. Cost of revenue increased by almost 20% year-over-year to $60 million from $50 million a year ago. The higher cost of revenue was mainly due to higher fixed cost, which includes rental cost, depreciation expenses, teaching staff cost and other staff cost.

For comparison purposes, cost of revenue associated with Weland was approximately $2 million in the quarter. Teaching staff cost contributed the most in our cost structure improvement and improved to 51% of total revenue in the first quarter compared to 55% in the prior year. This improvement was driven by our combined efforts in controlling labor cost as well as optimizing underperforming staff based on our comprehensive KPI assessment.

Rental accounted for 12% of total net revenue compared to 13% last year. Accordingly, gross profit in the first quarter increased by 41% year-over-year to $24 million from $17 million a year ago. Blended [ph] gross margin increase to 28.3% from 25% excluding Weland. The gross margin from our core business was 28.5% during the quarter. The improvement in gross margin was mainly driven by greater efficiency of learning centers and teaching staff utilization.

Looking further, into our productivity metrics on slide seven. Course hours delivered per full-time instructor in the first quarter increased by 5% year-over-year to 263 hours from 250 hours a year ago. Course hours delivered per square meter of learning center increased by 3% year-over-year to 9.5 hours from 9.2 hours in the prior year. Consistent with our strategy to slowdown our expansion pace in the short-term. We opened a net of six learning centers with eight new openings and two closings in the first quarter. Continuing this strategy, we currently plan to open only a few new learning centers in the second quarter. Mainly at locations with overflowing demands.

Turning to slide eight. Non-GAAP general and administrative expenses of $12 million in the first quarter slightly increased to 14.7% of total net revenue, compared with 14.3% in the prior year. Non-GAAP selling and marketing expenses of $9 million accounted for 10.3% of total net revenue unchanged from a year ago and in line with our 2013 plan of keeping marketing spending in sync with revenue growth. At the second quarter in the peak season for tutoring. We will invest in marketing initiatives that emphasize word of mouth referrals and as such, we expend selling and marketing expenses as a percentage revenue to be lower than that of the first quarter.

Benefitting from a combination of higher gross margin and extended operating leverage. Non-GAAP operating margin for the first quarter improved to 3.2% compared with 0.4% for the same period last year. Excluding Weland, non-GAAP operating margin for the first quarter was 2.8%. Non-GAAP net income was $3 million compared to $1.5 million a year ago. Non-GAAP diluted EPS was $0.05 which more than doubled from $0.02 for the same period last year.

Moving on to cash and cash flow on slide nine. We continue to have a healthy cash position. As of March 31, 2013 cash and cash equivalents short-term investment totaled $238 million or $3.65 per ADS. Compared with $250 million net of dividend payable or $3.31 per ADS as of December 31st, 2012.

Net operating cash flow for the first quarter totaled $24 million, compared with $16 million for the fourth quarter in 2012. Capital expenditures was $2.4 million, compared to $1.5 million for the fourth quarter in 2012, as we controlled our learning center expansion pace. Overall, I believe the first quarter was a very good start for Xueda. As we march toward our 2013 goals and targets. We maintain confidence in our ability to extend our profit margins through higher teacher and learning center space utilization and higher operating leverage.

With outstanding cash flow, I firmly believe Xueda’s personalized tutoring business model can effectively scale and deliver sustainable profits. In light of the strongly over year improvement, on gross margin and across our key operating metrics. I’m confident; we can accomplish our operating goals and business outlook for 2013. Let me now provide you with our guidance for second quarter of 2013, which is summarized on slide 11.

For the second quarter of 2013, we currently forecast net revenue to be in the range of $110 million to $113 million an increase of 13.6% to 16.7% from the same quarter of the previous year. We estimate that non-GAAP diluted EPS to be in the range of $0.25 to $0.26 representing a year-over-year growth of 19% to 23.8%.

In our estimate, we assume and effective income tax rate of 20% on non-GAAP income before income tax and weighted average diluted ADSs of 66.3 million. For the full year 2013, we maintain net revenue forecast to range from $342 million to $352 million, an increase of 16.6% to 20% from previous year.

Please, note that our guidance is based on the current market conditions and respect the company’s current and preliminary estimates on market and operating conditions and customer demand, which are all subject to change. And this concludes our prepared remarks. Operator, we’ll now open the call for questions. Please picking with the first question.

Question-and-Answer Session

Operator

Thank you (OPERATOR INSTRUCTIONS) Your first question comes from Fei Fang from Goldman Sachs. Please ask your question.

Fei Fang – Goldman Sachs

Hi, thanks for the opportunity. Congratulations on the results. It was encouraging to see the (inaudible) gross margin improvement. So can management talk a little bit about your net quarter expansion plan for the growth of 2013, and specifically how many learning centers do you plan to add, and how would you continue to manage the utilization of the growing network? Thanks.

Christine Lu-Wong

I will take this part. Hi, Fei Fang, how are you?

Fei Fang – Goldman Sachs

Hi Christine.

Christine Lu-Wong

I will take this part first and then Xin Jin, may have some additional comments. I’ll start with the question. So thank you for the call Fei Fang. First of all, yes gross margin has expanded quite well in the first quarter of 2013 and to your questions is, I heard there’s two questions. One is, what’s the expansion plan for gross margin? I assume you’re asking for the rest of the year and how many learning centers, we are adding for the rest of the year. Is that right?

Fei Fang – Goldman Sachs

Correct, yes and specifically, what specifically strategy do you plan to adopt further manage the utilization of the growing network?

Christine Lu-Wong

Okay the strategy to better utilization for the learning center. Okay. Yes so let me take the first question. In terms of learning center, we are on plan in our expansion. In our last call, we had expected to open less than 15 new centers in the first half and for the full year, we are expecting to be opening around 30 to 40 learning centers.

At this point, we have a net opening of six in Q1 and we have opening of eight and we have closing of two. And therefore the second quarter, we are also looking at adding a few just below five, just a handful of new centers to be opened. So we are very confident to be the plan for the learning center for the first half. With that said, for your question around strategy in space utilization.

We are quite confident to have a significant improvement for our utilizations for this year. So looking at our space utilization per square foot each. We had shown that 9.5 hours per square meter was for this first quarter, and then we were anticipating it will be expanding on our utilization. For the full year, we are quite confident that for blended that (inaudible) there will be seasonality for our business.

For blended, we are quite confident for about 40 hours delivered per square meter for the full year, which represent around a high single-digit improvement on year-on-year on the space.

Fei Fang – Goldman Sachs

Great, that’s very helpful. Second question, if I may. It’s on the G&A line, we notice that your G&A expense has percentage of revenues increased year-on-year. So my question is, what drives the spending and how should we think about the trend going forward? Thanks.

Christine Lu-Wong

Okay for G&A we have planned to keep this pretty consistent as a percentage to revenue for the first quarter. Although we see, there is slightly increased about 0.4% for first quarter because there are some expenses that we include in first quarter that was for last year. So very small portion of this number had some bonuses that we had paid out for last year because during the first quarter, we had noticed that the performance was doing really well to incentivize the team around the Chinese New Year’s time.

We had additionally, give out some more bonus to the team that was rewarding the team for last year’s good job. So this one will not be recurring for the rest of quarter. Even though, it’s a little bit higher than our run rate, but to a percentage of revenue it’s still quite consistent. So I guess, your question was asking for the rest of the quarter. How would you anticipate our G&A? Our G&A expenses will be keep in quite consistently in absolute dollar term, to our first quarter in terms of the absolute dollar amount.

Going forward, we will keep in that at a similar level to last year in terms of dollar and then when we grew our revenue, the leverage should come out.

Fei Fang – Goldman Sachs

Very helpful, can I just have a very quick housekeeping question? What’s the total number of teaching staff by 1Q?

Christine Lu-Wong

Teaching staff number by 1Q, let see for average is 9,038 that’s teacher only, but if you include the others like the counselor, the consultant that will be 12,229.

Fei Fang – Goldman Sachs

Thank you very much, Christine.

Christine Lu-Wong

Sure, so that is quite controlled in terms of our headcounts.

Fei Fang – Goldman Sachs

Great.

Christine Lu-Wong

Thank you. It comes down from our slightly down from our Q4 numbers, Q4, 2012.

Operator

Your next question comes from Mark Marostica from Piper Jaffray. Please ask your question.

Mark Marostica – Piper Jaffray

Hi, everyone. This is Karen [ph] calling in on behalf of Mark.

Christine Lu-Wong

Hi, Karen. How are you?

Karen – Piper Jaffray

Hi I’m good. I have a question regarding your overall thoughts on operation leverage. For example, you did a great job on controlling the teaching staff cost in Q1, we’re just trying to better understand, how much more room is there to go from here? In other words, how many course hours per instructor in the quarter, is a practical limit or target? In Q1 you mentioned, it was around 263 hours per full-time teacher.

Christine Lu-Wong

Hi, Karen. This is great question. Thanks for putting that up. Yes we have announced in Q1 per full-time teacher the course hours average is 263 hours, which is much include from our sequential Q4 ‘12 will have 208 hours per full-time teacher, and as you remember from our last call CEO, Mr. Xin Jin has also talked about the Q2, which is the peak season. We don’t need to add teacher, the key point is that we don’t need to add any further full-time teacher headcount because in historical, we can achieve 300 hours per teacher in the peak season in Q2.

And right now, looking in our current Q2. We can well surpass that 300 hours per teacher mark, we can still continually quite comfortably deliver our course hours, without adding headcounts. So looking at Q2, a number around 325 hours per teacher in still quite comfortable at this time line, what I’m looking at because in historical time, at some of the very good teacher, they can stretch to around 350 hours, that is something we have seen in the past.

So to your question Q2, we are quite equipped with our headcount without adding new teacher. We can use our current workforce and then in Q3 and Q4, as we have already passed the peak season, we don’t plan to lay off any people, but if there is unnatural attrition comes through, that would be okay. So we are anticipating teacher number will be decreasing as we go into the second half.

So that net, for the full year as we had announced last year, full year per teacher. Full year has delivered 975 hours for this coming FY 2013 full year wise, we are still quite comfortable to see a high single-digit improvement year-over-year, on the utilization for full-time teacher utilization to deliver the course hour.

Karen – Piper Jaffray

Okay, that’s very helpful and what about your thoughts on pricing going forward?

Christine Lu-Wong

Okay, let me start with that. For pricing, we had seen quite healthy price improvement in Q1, we saw 7.6% improvement in Q1 out of that about 1.4% was contributed by the RMB appreciation but net-net was the local currency improvement 6. Something improvement was still quite healthy and we are anticipating the price adjustment was still working for the rest of the year.

So we cannot divulge a specific number in terms of how high the ASP can rise into, but we’re still seeing some room for going up for the rest of the year.

Operator

(OPERATOR INSTRUCTIONS) Your next question comes from Jack Young [ph] from T. H. Capital LLC. Please ask your question.

Jack Young – T. H. Capital LLC

Hi, this is Jack on behalf of Tian. Hello?

Christine Lu-Wong

Hi, Jack. How are you?

Jack Young – T. H. Capital LLC

I’m good. Thanks. I’ve a question about your actually any enrollment increase actually see a slowing down year-over-year and also the course hours. I want to ask, how much did it impact from the Chinese New Year or can you elaborate little bit about the competitive landscape and associate with the negative report on the 11 [ph] other education institutions, I would appreciate that. Thank you.

Christine Lu-Wong

I think this question, if any supplement information then Xin Jin can jump in, but let me take this question. Hi, Jack. How are you? For the enrollment, yes we do see that’s little bit slowing down on the enrollment, which lead to slower cash collection from Q1’s result. However, what I see is that the slower cash collection or enrollment had two factors? One is that, Q1 is a reflecting our direct results of our focus on probability strategy, which is already reflected our Q2 revenue forecast.

The slowing down, you see that in our Q2 revenue forecast. However, we believe that we are still right on track to our full year guidance, which is reflecting a healthy and sustainable growth and then secondly to the slower enrollment in Q1 it does have some factor from our Chinese New Year factor year-on-year.

This time 2013, the Chinese New Year fall in the middle of February where compared to last year in 2012, Chinese New Year falls on January which has some factor in terms of the momentum for students, who come in and then to renew with the middle of February factor. So we do see a slowing down on February on our new enrollment. However, we do see pick up on new enrollment starting in March.

On March, the new enrollment had increased year-over-year to 35% year-over-year. So with that said, that Q1 has some factor as I mentioned below for the two factors. We believe enrollment should pick up in May and June and help to drive our Q3 and Q4 revenue. So the year-over-year for comparison for this year for Q3 and Q4. I had to remind that also should be an easier comparison for Xueda because the year of 2012, the second half was slowed by the negative media news that which was impacted us – the whole tutoring services.

This is not a Xueda related negative news. It’s a industry wide negative industry news in the second half of 2012. So with what, I just concluded one, new enrollment should picked up in May and June and help driving the Q3 and Q4 revenue. Second with the low comparison of last year, we believe this second half, the revenue growth would be very healthy. So with that, we’re still being the full year guidance is very comfortable to maintain.

Jack Young – T. H. Capital LLC

Okay. Thank you. Can I have another question about your selling and marketing because what you see the T.V. drama of your selling and marketing names of Xueda (inaudible). So where do you want to see the trend if selling and marketing, you’re slowing down enrollment – you may invest more in the sales and marketing. I just want to know the trend on a full year basis. Thank you.

Sophia Zhou

[Foreign Language – Mandarin]

Xin Jin

[Foreign Language – Mandarin]

Sophia Zhou

To Jack’s question about our, the recent soap opera for (inaudible) is about a evolved erosion of (inaudible). I think the best translation for English. This is the second season for the soap opera. The soap opera was mainly was to serve the purpose promoting the concept for personalized occupation. We are using a few scenes and using some real-life example in the soap opera to reinforce the concept and also to demonstrate the concept for what does it mean for a personalized tutor, what is the industry concern with the population, that’s mainly what their brand name promotion purpose was serving for, this will demonstrate our Xueda’s belief and our service concept or service principle is for a longer term, for a longer term holistic nurture for children, so that was our concept for demonstrating using soap opera.

To the question about, how about for your future selling and marketing investing pieces. We have emphasized in the past that Xueda, we won’t cut our selling and marketing expenses because we believe the investment will generate healthy return. So emphasizing this concept, we will have our marketing expenses percentage to be in sync with our new enrollment with our revenue.

So it’s going to be keeping a constant percentage to our new enrollment dollar, which is the conversion to revenue, from new enrollment that will convert into revenue. So going forward, we will also monitor closely on the market changes and then we’ll adjust of selling and marketing expenses accordingly. So in principle, we will maintain a very constant level of selling and marketing expenses.

Jack Young – T. H. Capital LLC

Xin Jin. Thank you, Chris.

Christine Lu-Wong

You’re welcome.

Operator

Your next question comes from Jim Bao from Yiheng Capital. Please ask your question.

Jim Bao – Yiheng Capital

[Foreign Language – Mandarin] Sorry I was wondering, what’s your sales consultant headcounts, your full-time teachers headcount?

Christine Lu-Wong

[Foreign Language – Mandarin]. I will take this question, Jim. The sales consultant for this quarter let’s see, consultant is 1,748 full-time consultant that has increased from our sequentially from last quarter 1,614 full-time consultant.

Jim Bao – Yiheng Capital

1,614 fourth quarter of last year?

Christine Lu-Wong

Yes, sorry. Last year is 1,924 fourth quarter of 2012.

Jim Bao – Yiheng Capital

Okay. Great, so I noticed that your deferred revenue also grew less past in quarter-over-quarter basis. So now we are in fact meeting the total billing actually grew fairly slowly in the first quarter. I would I think, part of it could be, you’re incentivizing your sales consultants to sell smaller deals. So don’t aggressive yourself too many hours up front, right. So how much of the billing is slowdown is attributable to your deliberate incentive?

Christine Lu-Wong

[Foreign Language – Mandarin] Jim from how I see it, the deferred revenue is actually very correlate to the cash collection, as I just mentioned little bit earlier to Jack’s question. I do see that our cash collection in Q1 was slowing down, as I mentioned. It may now directly all correlated to our incentive program. As I see this is more like a strategy changing for Xueda.

First of all, we mentioned about to emphasize this year is for healthy growth. So we longer wanting too quickly to expand the cash collection and then sacrificing on to profitability, so that definitely has a lot to do, with our strategy on the focus on profitability strategy and that was quite natural to see the cash flow collection was slowing down, but in return we generate more profitability that is the first stop and then as I mentioned, just also the timing issue, I won’t reiterate again, but to the timing difference in the Chinese New Year that’s also impacting on the Q1 deferred, so that’s how I see it continually in most of things.

Xin Jin

[Foreign Language – Mandarin]

Christine Lu-Wong

Right, so I also wanted to remind that our May and June new enrollment picked up, so as I said this should not be really direct correlate from incentive plans, and also due to the industry specific phenomenal. The deferred revenue, you will probably see it decreased at the end of the June that was to do with the graduating institute from like the student going in college, when they completed their high school curriculum, when they’re going into college. The deferred revenues that had sit on under their names in June, sometimes all the times they will conclude and conclude the whole program. So we probably can even see that the deferred revenue due to seasonality, it could even drop steeper in the June time, but the new enrollment should pick up the gap.

Jim Bao – Yiheng Capital

Okay and the current consultant headcount in first quarter of 2012, from a year ago period?

Christine Lu-Wong

Jim, what account?

Jim Bao – Yiheng Capital

Sales consultant?

Christine Lu-Wong

Sales consultant, a year ago. A year ago is 1,191.

Jim Bao – Yiheng Capital

On the sales consultant, (inaudible).

Christine Lu-Wong

Xueda 1,191.

Jim Bao – Yiheng Capital

Okay and then my last question is, do you have any guidance for the full year’s margin? The first half margin seems pretty good, though we expect some year-over-year increase in the second half margin.

Christine Lu-Wong

Okay, since we do not provide a full year P&L guidance. It’s a bit tricky to tell the gross margin guidance right here. However, as I mentioned earlier we are very confident in our efficiency initiative. I’m very confident in terms of both the teacher utilization, and also the space utilization will improve blended full year at a high single-digit improvement. So from that angle, I’m a very positive that our gross margin will be improved from last year’s level.

Jim Bao – Yiheng Capital

Sorry, one last one if I can slip in, is there any foreign currency related gain or loss in the G&A line this quarter and the quarter year ago?

Christine Lu-Wong

Okay, yes there is a small, a very small exchange gain for this quarter in the first quarter of 2013. In terms of first quarter of last year, let me think. Yes, last year there is a $0.1 million very, very small expense loss. So this year, also with the $0.23 million, so net-net I can conclude the exchange again in market for year-over-year for Q1. Actually it didn’t met, the limit.

Jim Bao – Yiheng Capital

Thank you. There about.

Christine Lu-Wong

Okay. Thank you. Jim.

Operator

(OPERATOR INSTRUCTIONS) As there are no further questions at this time. I will hand the call back to Ms. Sophia Zhou. Please continue.

Sophia Zhou

(Inaudible) on behalf of the entire management team of Xueda Education Group. We want to thank you for your interest and participation in this call. If you have any more question, please contact me by email which is zhouqi_1@xueda.com. Thank you for joining us today and this concludes our first quarter 2013 earnings call.

Christine Lu-Wong

Thank you everyone. Thank you for joining the call.

Xin Jin

Thank you.

Operator

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

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