Xueda Education Group (NYSE:XUE)
Q2 2014 Earnings Conference Call
August 25, 2014 8:00 PM ET
Ross Warner - IR Director
Xin Jin - CEO
Christine Lu-Wong – CFO
Fan Liu - Goldman Sachs
Jack Yang - TH Capital
Good day, everyone, and welcome to the Second Quarter Earnings Conference Call for Xueda Education Group.
At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question-and-answer session. This conference is being recorded.
I will now turn the call over to Mr. Ross Warner, the Company's IR director. Thank you. Please go ahead.
Hello, everyone. Welcome to Xueda Education Group's second quarter 2014 earnings call. Our earnings release crossed the wire a few hours ago and is available on newswire services and on our website.
On our website you'll also find a PowerPoint presentation to follow along with today's presentation.
Before starting, I will remind you that all statements included in this conference call, other than statements or characterizations of historical facts, are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 as amended, and as defined in the US Private Securities Litigation Reform Act of 1995.
Forward-looking statements are not guarantees of future results and are subject to risks and uncertainties, and as such our results may materially differ from the views expressed here today.
A number of potential risks and uncertainties are outlined in our public filings with the SEC. Xueda does not undertake any obligation to update any forward-looking statements except as required under applicable law.
In today's call we will discuss various non-GAAP financial measures as defined in the SEC's Regulation G. A reconciliation of the differences between GAAP and the non-GAAP financial matters can be found in our earnings release.
Speaking today will be Mr. Xin Jin, Xueda's co-founder and Chief Executive Officer, and Ms. Christine Lu-Wong, the Company's Chief Financial Officer.
I will now turn the call over to our CEO, Mr. Xin Jin.
Thank you, Ross. Hello, everyone. Thank you for joining today's earnings call.
In Q2 we made significant advances in our key initiatives of growing enrollment, broadening our tutoring mix and further cultivating Xueda into the DNA of our organization.
As investors know, growing our student base is fundamental to our strategy. In Q2, we increased effective student count by 18%. Year-over-year, our new students signups increased 5.3% and our number of students retained increased a remarkable 31%.
What these results mean is that we were able to start Q3 with approximately 9,000 more students than we started Q3 with last year. This is very exciting and provides us with greater momentum launching into the second half of the year.
I would like to personally thank all of our employees who worked extremely hard over the summer season to achieve these results. We are continuing to aggressively drive enrollment growth in the second half of the year.
I am pleased to report that in July we enrolled a record 20,000 new students. That is an all-time high for a single month.
Clearly, our collective efforts to attract and retain students are producing enrollment results. Central to this student growth is our small group tutoring launched in Q4 last year, which pivotally expands our tutoring mix. At Q2’s end, it comprised approximately 15% of our students served and is growing in Q3, the peak demand period for this service.
Small group tutoring strategically broadens our service mix providing two important benefits: a) it attracts new students from a new slice of the market,and b) it provides new retention opportunities for existing one-on-one students who may desire a study format change during downtimes in the year.
Our substantially higher number of students retained for the end of Q2 and carryover effective student enrollment for the start of Q3 illustrates these benefits. We are learning further how to maximize our small group tutoring offering and will continue to seek ways to optimize it as part of our operations.
Implementing eXueda as the core of our service delivery remains ongoing. In Q2, we made a meaningful investment in eXueda by seeding ownership of 24,000 Internet-enabled tablet devices to newly enrolled students and recruits. This was a strategic decision during our peak enrollment quarter to further embed eXueda as our delivery platform.
Here, are a few updates on eXueda’s ongoing implementation as of mid-August.
For instructors, 92% of instructors use eXueda daily to prepare assignments and deliver lessons, and about 55% use eXueda to assign homework.
For students, approximately 43% of our students use eXueda in the learning centers.
For content development, we now have 1.2 million questions, exercises and problem sets and over 26,000 instructional mini videos in our knowledge point system.
For the general public usage, we have grown from 155,000 registered users in the middle of May to now more than 461,000 registered users. We are on a target to reach 1 million registered users by end of the year.
During the quarter, we also completed an exciting study with a control group of students using eXueda exclusively to prepare for their Zhong Kao/Gao Kao exams. This study showed that the students were markedly better prepared as measured in the key areas of ability than students who did not use eXueda as part of their exam preparation. While it was a small study with 100 students, it helps validate eXueda's effectiveness and we have published the report in Chinese.
In addition to the two key initiatives, we saw an opportunity to further expand our learning center network by opening net 32 new learning center locations during the second quarter.
Importantly, the 32 new locations increased our total number of centers to 462, effectively expanding our physical touch points by more than 19% year-over-year, while limiting the net increase in total area by only 4,000 square meters, or less than 2% year-over-year.
We firmly believe the initiatives we are pursuing are correct and structurally moving the Company in the right direction. Their value will be further unlocked as their impact further penetrates our operations.
We confidently believe that once students are in the door and experience our superior quality and see their results, we can keep them longer and sell them more services. However, currently we are seeing a lag period from the time that we sign up students and the ensuing revenue generation.
Let's take a look at slide 5, which shows a 3-phase roadmap for our long-term growth plan.
As you can see, in 2014, we are completing Phase 1, where our main objective is driving effective student count. During this phase we are expanding tutoring offerings, pricing and promoting attractively; growing the learning center network and deeply cultivating eXueda into the routines of students and instructors. The good news is the market is embracing our expanded offerings much faster than we anticipated.
However, an unintended consequence of executing these initiatives is that the average revenue per student unexpectedly decreased.
This lower average revenue per student derives from attractive pricing and promotional efforts to support our new broader tutoring options, namely small group tutoring and eXueda. Whereas one-on-one tutoring is our “Cash Cow”, small group is our “Rising Star” and eXueda is the underpinning to support our broadened, upgraded platform.
We are choosing to invest in them now because we know they will yield high results later.
Consequently, as total revenue is the product of effective student count multiplied by average revenue per student, our Q2 financial results did not mirror our significant operational strides. And the revenue growth for 2014 will likely flatten. I ask that investors be patient in this lag period, or Phase 1, which we aim to complete by end of 2014.
In Phase 2, in 2015, we will build on what we learned and achieved in Phase 1, while normalizing average revenue per student. In this phase we reduce discounts and promotions and adjust pricing for our services.
For example, it's highly likely in this phase, we will increase our small group tutoring rate and offer standardized group sizes.
In this phase, the overarching goal is to normalize average revenue per student. You can see that with our higher effective student count we can already significantly grow total revenue by gradually expanding the average revenue per student.
In Phase 3, we will accelerate our operations and aim to not only grow student enrollment, but also average revenue per student through a combination of better tailor-made offerings, higher student frequency, more optimized pricing and more efficient student acquisition through online to offline, or O2O, marketing. As illustrated, we believe that in Phase 3, our total revenue will also accelerate.
In summary, while inQ2 we made tremendous strides advancing key operational initiatives, we did not see these strides translate as quickly as anticipated into our financial results.
The throughput from these strides to our financial results is just taking longer than we anticipated. As such, we are adjusting downward on our financial guidance for the year.
Christine will give details later in the call.
As CEO and the largest shareholder, I believe, our operational results mark an inflection on our path that fundamentally puts the organization on better footing to seize future opportunities. I am convinced as part of our 3-phase roadmap, our efforts now to significantly grow enrollment, broaden our tutoring mix and make eXueda the bedrock of our delivery platform comprise the best strategy for the long-term, best interest of the Company and shareholders.
I will now turn the call over to Christine.
Thank you, Xin, and welcome to everyone on the call.
I would like to now share the highlights of our second quarter 2014 financial results. All financial figures I will discuss today are in US dollars unless otherwise noted.
First, please turn to slide 8. Total net revenue for second quarter increased 5.4% year-over-year to $120.8 million from $114.6 million.
Included in second quarter total net revenue is $9.9 million from 24,000 Internet-enabled tablet devices provided to students and recruits as part of the implementation of eXueda.
As Xin mentioned, this decision was timed in the quarter with our highest influx of new students in order to maximize eXueda's implementation as part of our core operations platform. Going forward, the Company will continue to provide tablet devices as part of enrollment packages.
With our broadened mix of tutoring options and price points, the previous method of modeling revenue using the number of one-on-one course hours, times, average selling price is no longer adequate. A better model is effective student count, times, average revenue per student. This suitably reflects a menu of tutoring options.
Average revenue per student is calculated by dividing total revenues for the period by the average of the period’s beginning and ending effective student count. Average revenue per student for the second quarter of 2014 was $1,881 compared to $1,973 for the second quarter of 2013. Since this is an important new metric, to ensure understanding on this point I’d like to spend time to make clear the definitions we use and the calculation process.
First of all, effective student count is defined as the number of students on a particular day in the period who have at least RMB200 remaining in their account and have attended at least 1 tutoring session within the last 180 days.
Secondly, attrition is defined as the number of students in the period who fully consumed their account balance and did not re-enroll, students inactive for 180 days plus the number of students who received refunds.
we calculate effective student count at the end of the period using beginning balance, plus new signups within the period, minus student attrition for the period.
So to be very clear, allow me to walk through the effective student count calculation for Q2 as follows -- 73,749, which is the effective student count on the first day of second quarter, plus 27,049 which is the number of new sign-ups in Q2, minus 41,903, which is the attrition number of Q2, that equals 58,895, which is our effective student count on the last day of Q2.
I hope the above was helpful in better understanding our revenue model.
Furthermore, since personalized small group tutoring is attracting an increasing percentage of students and its hourly rate is approximately half the one-on-one hourly rate. This partially explains why the large enrollment increase in Q2 did not translate into higher top line growth.
As our learning centers gain more experience integrating small group tutoring into their scheduling and selling routines, and the average group size expands, we anticipate gaining more leverage and, hence, better top line and gross profit contribution from small group tutoring.
Now please turn to cost of revenues and gross margin details on slide 8.
Cost of revenues for the second quarter increased 13.5% year-over-year to $79.2 million from $69.8 million. The increase was due to our nearly $12 million investment in tablet devices supporting eXueda mentioned earlier. Our gross profit for the second quarter decreased 7.1% year-over-year to $41.7 million from $44.9 million.
Gross margin for the second quarter was 34.5% compared to 39.1% for the year-ago period. The decrease was largely due to the investment in tablets for eXueda. To maximize the promotion of eXueda, we provided the tablet devices at approximately RMB500 below cost. Going forward, the Company will provide devices at or above cost.
Turning to slide 9, non-GAAP general and administrative expenses were $11.7 million for the second quarter compared to $12.7 million for the same period in 2013. As a percentage of total net revenues for the second quarter year-over-year, non-GAAP general and administrative expenses were 9.7%, down from 11% for the same period of 2013.
Investors should note that in the second half of the year, we will invest approximately $1 million to reconfigure some centers to be more conducive to small group tutoring and install wall-mounted screens so instructors can utilize eXueda's coordinated screen function with small group instruction.
G&A will also tick slightly higher in the second half of the year reflecting further investments in our tutoring platform by strengthening of our management bench and investing in our IT infrastructures.
Non-GAAP sales and marketing expenses were $10.1 million for the second quarter compared to $9.5 million for the same period in 2013. The percentage of non-GAAP sales and marketing expenses of total net revenues for the second quarter was 8.4%, slightly up from 8.3% for the second quarter of 2013.
Non-GAAP operating income for the second quarter 2014 was $19.8 million compared to $22.7 million for the year-ago quarter. Non-GAAP diluted EPS for the second quarter 2014 was $0.27 compared to $0.28 for the year-ago quarter.
We continue to have a healthy cash position. As of June 30, 2014, cash, cash equivalents, short-term investments totaled $198.7 million or $3.21 per EPS compared to $246.7 million or $3.71 per EPS as of December 31, 2013.
Next, I'd like to bring investor up-to-date on our learning center growth plan. Please see slide 10.
In Q2, we opened 35 new learning centers and closed 3 to end with net 32 new centers. Even with the net 32 new centers added, our total area at the end of second quarter increased by only 4,000 square meters, year-over-year. This showcases our strategy to open smaller learning centers and supports our effort to provide customers more convenience with more locations in existing markets.
Perhaps most importantly to note with the net 32 centers added in Q2 is the low impact to gross margins, only 50 basis points. We have developed a very efficient system for opening and establishing new centers.
In the first half of 2014, we opened net 54 new learning centers which is only slightly ahead of our target range of 40 to 50 for the year. For the remainder of 2014, we will open centers opportunistically on a case by case basis.
And now our financial guidance on slide 12. As Xin mentioned, while we made excellent progress in Q2 with key operational initiatives, we are seeing an initial lag in monetizing the expanded student base. Accordingly, we are prudently adjusting our top line and EPS guidance downward for this year.
For the third quarter of 2014, we currently forecast net revenue to be at least $73 million, a decrease of approximately 8% from Q3 last year. We estimate that non-GAAP net loss per ADS to be approximately 8 pennies based on assumptions of an effective income tax rate of 27% and basic weighted average ADS of $62.2 million.
For the full-year 2014, we estimate net revenues to be at least $347.5 million, flat from the previous year. For the full year 2014, we estimate non-GAAP diluted EPS to be at least $0.16 compared to $0.32 from the previous year, representing a 50% year-over-year decrease. This estimate assumes an effective tax rate of 27% and weighted average diluted shares of 65.1 million.
Please note that our guidance is based on the current market conditions and reflects the Company's current and preliminary estimates of the market and operating condition and customer demand, which are all subject to change.
This concludes our prepared remarks.
Operator, please open the call up now for questions.
Sure. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)
And the first question comes from the line of Fan Liu of Goldman Sachs. Please ask your question.
Fan Liu - Goldman Sachs
Hello, Xin Jin, Christine, and Ross.
This is Fan from Goldman Sachs speaking on behalf of Fei. Thanks for taking my question. I have several questions, firstly both the top line and bottom line of 2014 are revised down. May I know, except for the eXueda investments, are there any other factors we need to pay attention to? And also may I know why the income tax rate is raised to 27% vs. 20% in the last quarter?
Second, may I know what would be the enrollment trend if we use the previous student served concept?
Last question is maybe could the management add some color on the small group learning offering. How is the revenue contribution in the margin profile for this offering? Are we still on track for 8% to 10% revenue contribution at the end of this year? Thank you very much.
Hi, Fan. Thank you. Thanks for joining the call.
Yes, thank you for your question. I would like to start with some of the questions and see if Xin will have any additional comments to add.
First of all, on the question on top line and bottom line revision, you asked about the -- any impact from the eXueda. So let me start with the top line guideline revision. As I mentioned earlier, at the beginning of the year, we had used a regular one-on-one business model to model our revenue driver, which is taking the course hour by one-on-one times the ASP. That's how we derive our revenue, mainly it’s the ASP and the course hour by the one-on-one.
Now as we get into the year 2014, we switch gears and then I would like to open the small group composition as our new product offering strategically. So this is something we have seen this as a niche market we should go into for the personalized small groups.
Yet, the business model to model the revenue driver will also change accordingly because the course hour by itself is not meaningful anymore to be used as a comparison year-on-year. Because adding small groups, that means your course hour will increase significantly, so it's not a good or a meaningful comparison.
As such, now we use another easier driver as you're purely taking the effective student count times the average spending every student spends with eXueda -- with Xueda. So those are the revenue drivers we have now breaking down into two components.
First of all, with the effective student count, we had been marching against our goal quite successfully by enlarging the student base, which is the backbone to support a wider product line. So we have been achieving quite well on the number of students.
As you can see by end of June we have now retained 30% more of students at the end of June. Why June? Because June is the timing typically for one-on-one students leave the system after they have taken the Zhong Kao and Gao Kao.
So that's an important time, or milestone, for the Company to retain the students to support another cycle of the business. So that was something we have now achieved. Year-on-year growth on the student retained by growing, first of all, the student we new signed up as well as the students staying with the system.
So, however, the second driver I want to mention on the top line driver, is on the average spending per student. This is the factor that now we are seeing becoming smaller because product was really well-received and we are seeing a faster pace than we expected in terms of the number of students who embrace this product.
So in the second quarter we are now seeing 15% of student count as a component of our small group product. So in other words, 15% of our students are taking the small group product.
And the small group product are priced, right now at about 50% of our regular one-on-one pricing. So with that change, with more students than we expected and with the price -- with price being quite lower, that significantly dropped down our average spending per student.
So in the second quarter, the average spending was down about 7.5%. That was offsetting the growth of number of students. So net-net combined, it was having an impact on our Q2 revenue.
So we are seeing that trend will continue on, meaning the well-accepted product of small groups as well as some of our products who are pricing lower than one-on-one are well-received by the students especially in the third quarter where it's the low season for one-on-one and the high season for small groups and other products.
So the Q3 and Q4 will be having heavier trending toward lower average student spending in Q3 and Q4. Although we will continue to grow the student count, but the average spending will be coming much faster than our anticipation. So that's why the Company seeing this is the new product and the phenomenon we are seeing with the pricing and the number of students were taking the products.
At this point, we are seeing that revenue should be adjusted to reflect this new trend. That's the reason on the top line.
So I want to mention that it's not about eXueda all together. It's about the product mix and then also about anticipation of the speed for the enlarged base welcoming the new product. So that's the top line.
In terms of bottom line, I actually wanted to use a fairly straightforward answer in 2 points. One is that with this business model, a fixed cost is a baseline where you are having a fixed cost of a learning center facility, a fixed cost of a full-time teacher that's in the system. And then we continue to build out our learning center numbers, the fixed cost will continue to be growing in the setting.
So with the flat revenue, a flat top line, having a flat top line and then our fixed costs continue growing, that will drop down our gross margins. That's the first reason.
And the second reason is that as I have called out in the script, the Company in the second half will heavily invest in the infrastructure with the IT infrastructure. We will also heavily invest in the R&D in our curriculum, which is the backbone or the content of the whole eXueda or also that our competitive skill set is on the R&D curriculum as well as we will also investing the IT system, who eXueda is running against, as well as we will also invest in the learning center to outfit the current one-on-one setting to embrace the personalized small group setting, where we will add devices, we'll add equipments, where we will configure the learning center.
So the second half is a period for investment, so that was another factor. So all of that two reasons that was why we are also adjusting down our bottom line.
Lastly to the tax rate, we had guided a lower tax rate in the beginning of the year. However, as you can see the formula for our effective tax rate, is you're taking your tax dollar divided by a denominator called profit before tax.
So with the profit before tax decreased because we guide down our bottom line, your denominator is shrinking. So that way we no longer can hold on to the original tax rate because we have a smaller denominator in this formula.
So that was why the 27% tax rate.
However, I want to mention that the 27% tax rate is still back to the same tax rate we had in last year in 2013. So net-net, we just anticipate it to be down, but now it is back to where it were, the 27%.
So, well, that's my answer to the first question. Maybe I'll have Xin Jin to speak about the small group and also the small group trend, our strategy on the small group, also Fan's question on the revenue from small group, and also probably I can talk about the margin for small group.
(Spoken in Chinese)
(Interpreted) Let me start translating on this. Fan, this is Xin. First of all, the personalized small group for Xueda is the new set of line of business. This is adopted according to the market trend or the market demand.
As we can see that in the past the first half of Xueda is a very high demand period because it's before the Zhong Kao and Gao Kao.
However, when it comes to the second half for Xueda, the one-on-one demand is usually not as high as the first half. And many students after they finish the Zhong Kao and Gao Kao, they tend to stop the course taking.
However, their demands are still there, but they're just demanding a lower product with a bigger size class, so that's where we are seeing the niche market here is to go into a small group product line, where this will adjust the Xueda's very typical seasonality in the first quarter and second quarter.
So according to the customer survey and according to the market research, we are seeing that the personalized small group, which meaning is about small group between 3 to 6 people, or no more than 10 students in a class.
This small group will be a supplemental product which will fit well in between small class and one-on-one products, and the demand for this market is quite high. Because, first of all, it's still in a personalized setting where a student can still be tailor-made to their individual needs, and then tailor-made to their teaching plan and then, however, with the small group there are interactions and also the price advantage are there.
So when we are seeing this, we quickly switch and by adding personalized small groups to our strategy, as one of our strategic products, that's the small group trend.
(Spoken in Chinese)
(Interpreted) So I want to also explain that there are -- we had to look at the rollout for our personalized small group into several stages. First stage is the acceptance and adoption stage.
As you know, Xueda has a wide footprint across the country. We have 400 plus, close to 500 learning centers across the country. So for an organization as a whole, and also a system as a whole, to accept this format, this new product format, it needs a process and needs some time to adopt.
So for the first stage, we are not too strict on all the details because our teachers, they have been -- before they only teach one-on-one but now they have to adopt and accept the small group format as -- their delivery format. The whole process they need some time to adapt to this new demand from the student and also adapt to the system.
So in this stage, we are not very strict on many rules. The whole purpose is to get it started quickly and then have our organization and our employees all embracing this new product.
And however, on the second stage, we are already setting the footprint on the second stage is that, we are not only just used the teacher but also we use the system and also using the whole organization to support the small group product.
For example, a teacher now they are all using the tablet devices such as iPad or other brand name tablets to teach, to assign homework to the students. So this will enable Xueda as an organization to centralize, to manage the delivery quality, the curriculum quality. So not only in the content, but also from the format on the quality, Xueda had already set-up a higher standard in the industry. We have improved, using the online system to deliver a high-quality teaching system.
So not only on the small group we are using tablets, but also in one-on-one teaching, we are also using the cloud support, the cloud-based eXueda to have a centralized control on our quality on curriculum and also on teaching quality so that we are requiring to a whole new level. We are upgrading the whole system on our delivery of teaching services.
As a result, we just mentioned about that in the Zhong/Gao Kao results, we are seeing that overall the score improvement from our students from the YiBen, ErBen, which is the first tier university, the second tier university, we are seeing that the score improvement between 10% to 30% on their score results. So that was the results really we can see now.
Thank you. (Operator Instructions)
And the next question comes from the line of Jack Yang of TH Capital. Please ask your question.
Jack Yang - TH Capital
Hi, Xin Jin, Christine and Ross, and good morning. I have a question about the overlapping rate of your small class and one-on-one because we want to see if there are -- since new students coming during this quarter or going forward, so in terms of the enrollment growth, so what strategy are we going to execute through the eXueda to grow our enrollment particularly about the small group? And it will be very appreciated, can you comment on the comparative landscape of this segment in first tier or lower-end tier cities? Thank you.
Oh, hi, yes. Hi, how are you?
Jack Yang - TH Capital
Yes, let me clarify your question. You asked about the overlapping -- is it the overlapping on the enrollment?
Jack Yang - TH Capital
I can translate in Chinese for Xin.
Jack Yang - TH Capital
Okay. (Spoken in Chinese)
(Spoken in Chinese)
Jack Yang - TH Capital
(Spoken in Chinese)
(Spoken in Chinese)
(Interpreted)Let me translate that. So first of all, in terms of your question, Jack, is on the overlapping rate between one-on-one and small groups. Here's what Xin was seeing that how we're seeing that the students strictly -- come strictly to register and enroll in small group, is about 15% of total number of students of our total base. And then to the question of the overlapping rate, which is a student who enroll in one-on-one as well as they enroll the small group is about 20% to 30% on the overlap. We are seeing that the small group, first of all, it will be adjusting and smoothing out Xueda's heavy seasonality. And secondly is that one-on-one demands are hard demands but also is more expensive. So the small group, it will be able to enlarge our student base with the small group. But when the student comes to the time that they need the one-on-one services, Xueda will be also to offer the one-on-one services to them. So that was the overlapping beauty for the personalized small group. To the second point, Xin was saying that personalized small group, we see it as a niche market because currently in the market there's no such a product. We are seeing that either is one-on-one tutoring or small class tutoring, class meaning is 15 to 20 students. However, for the small group which is within 10 students in a group, so far right now we don't see a competition market in this area so we see this is a market with a lot of opportunity. In terms of how Xueda was running it, is that we see running a small class and compared to running to personalized small group total 2 different systems. Because we have run small class in Xueda before. Not only the teacher, the curriculum has different sets of support and tools, but also in terms of backend system, we also have to use a different system to support the class. So with that, we think that running small group and running classes are not complementary. However, running the one-on-one and the personalized small group are very complementary. We are seeing that with the small group, the personalized small group, first of all, it will be able to lower the price barrier for consumer so that we can enlarge the base of the students. But at the same time, we can also provide personalized service to students. So in conclusion, we are seeing this as a niche market. Xueda has the advantage to enter this market where nobody else have this strength. (Spoken in Chinese) lower tier city.
Jack Yang - TH Capital
(Spoken in Chinese)
(Spoken in Chinese)
(Interpreted) Okay. On the first and second tier city, we are seeing the small group continue to be able to grow. However, we see that the growth rate for personalized small group will be faster, much faster in the second and lower tier city, because the price advantage for personalized small group provide cheaper services. So the demand in the lower tier city, the higher demand and growth will be faster. For the first tier and second tier city because the affordability for the customers are higher. So one-on-one services still will be in a bigger proportion in the first and second line city. Oh, I had to make up -- I missed 1 point that Xin mentioned earlier, the goal where Jack asked what's the goal for the personalized small group. Xin's answer is that in the more mature stage, we are targeting to have the split for revenue dollars between small groups and one-on-one will be around 50/50, maybe a little higher toward the one-on-one side. That was with in terms of the revenue dollar, but in terms of student number because it's cheaper in the small group so the student number towards -- the trending on student number to small group will be trending faster than one-on-one, so I just want to make that 1 point.
Jack Yang - TH Capital
Thank you, Xin Jin, Christine and Ross.
Thank you very much.
There are no further questions at this time. I will now like to turn the call back to the speakers for closing remarks. Please continue.
On behalf of Xueda Education Group, thank you for your interest and participation in today's call. If you have further questions, please email us at email@example.com or contact us to any of the channels listed on Investor Relations section of our website, www.xueda.com. This concludes our second quarter 2014 earnings call.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all now disconnect.
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