Good morning and good evening, everyone. Welcome to RISE Education’s third-quarter 2018 earnings conference call. [Operator instructions] This call is also being broadcast live on the company’s IR website. Joining us today are Mr. Yiding Sun, CEO; Ms. Jiandong Lu, COO; Ms. Chelsea Wang, CFO of RISE Education; and Jack Wang, senior associate of ICR. Following management’s prepared remarks, we will conduct the question-and-answer session. Before we begin, I’ll refer you to the safe harbor statement in the company’s earnings release which also applies to the conference call today as management will make forward-looking statements. I am now turning the call over to Mr. Yiding Sun, CEO of RISE Education. Please go ahead, sir.

[Foreign Language]

Thank you, Sir. Hello, everyone. This is Jack Wang, and I will translate for Mr. Sun. Before I start reviewing our third-quarter results, please allow me to introduce our chief operating officer, Ms. Jiandong Lu. Ms. Lu served as our independent director from our successful listing on the NASDAQ Global Market in October 2017 and will be appointed as our chief operating officer on September 28, 2018. Prior to joining us, Ms. Lu was an investment banker with JPMorgan where she held several senior executive positions and gained tremendous management experience overseeing the daily operations of the business. I am confident that her capital market expertise, her management experience and her leadership will be a great asset for our future expansion. Now I will turn the call over to Ms. Lu to speak on behalf of Mr. Sun. Please go ahead, ma’am.

Thank you, Jack. This is Ms. Jiandong Lu. I apologize if I’m losing my voice. Now speaking on behalf of our CEO, Mr. Yiding Sun. During the third quarter of 2018, we continued our strong growth trajectory. Our total revenues grow by 33.6% year-over-year to RMB 347.4 million. Our educational programs remain our primary growth driver, and revenue generated from educational programs grew by 32.8% year-over-year to RMB 270.3 million. During the third quarter, we opened 38 new learning centers, including four self-owned learning centers and 34 franchised centers, bringing the total number of our learning centers to 345 in our total network, including 72 self-owned learning centers, two of which are from Edge, and 273 franchised centers. As a result, we have added a total of 42 classroom in our self-owned learning centers. Our student retention rate remains high at 71% during the third quarter. As we continued to execute our growth strategy, we have encountered some challenges in the marketplace, including tightening regulations in the education sector, increasing competition, more stringent fire safety code on commercial buildings and soften consumer spending in the PRC. Such challenges slowed down the growth rate of our student enrollment compared to the same period of previous years, while the total student enrollment at our self-owned learning centers and online courses increased by 26% year-over-year to 14,702, including the enrollments for short-term courses. Despite the temporary challenges, we are confident that RISE Education is well positioned to continue to lead the Chinese junior ELT market and enjoy healthy growth in the foreseeable future. First, in the first half of this year, the Chinese government issued a series of new regulations to reduce students’ after-school workloads. Such regulations targeted school-aged children and test preparation children services. Since about 75% of our students are preschool…

Thank you, Jiandong, and hello, everyone. Before I begin, please note that all numbers stated are in RMB terms. In the third quarter of 2018, our total revenues increased by 33.6% year over year to RMB 347.4 million from RMB 260 million in the same period last year. The increase was driven by a 32.8% year over year increase in revenues from our educational programs, which increased to RMB 270.3 million in the third quarter of 2018. Such growth was primarily attributable to our industry retention rate which increased to 71% this quarter from 70% in the same period last year. The first expansion of our self-owned learning center network also contributed to our strong financial performance this quarter. Franchised revenues increased by 15% year over year to RMB 35.6 million in the third quarter of 2018 despite the impact on revenues due to the adoption of ASC 606. The increase is primarily attributable to the steady growth of recurring franchisees and increased number of franchised learning centers, which totaled 273 as of the end of September 2018 compared to 201 by the end of September 2017. Other revenues increased to RMB 41.5 million in the third quarter of 2018, up 63% year over year from RMB 25.5 million in the same period last year, primarily due to the revenue contributions from The Edge and our study tour program. Gross profit for the third quarter of 2018 increased by 37.8% year over year to RMB 183.5 million. Gross margin increased to 52.8% during the third quarter of 2018 compared with 51.2% in the same period last year. Selling and marketing expenses for the third quarter of 2018 was RMB 77.5 million or 22.3% of total revenue compared with RMB 45 million or 17.3% of our total revenue in the same…

Thank you, Chelsea. [Operator instructions] Your first question comes from Melissa Chen from China Renaissance. Please ask a question.

[Foreign Language] I will translate for myself. So thanks, management, for taking my question. So I’m calling on behalf of Nicky Ge our analyst. She has two questions actually. So first of all, about the regulation. So I’m just wondering whether the regulation on the government has changed so far, specifically on the most recent regulatory change from the general state council. And the second question is about the sales and marketing. So as mentioned before, the total guidance for sales and marketing expense is going to be stable compared to last year. So I’m wondering, will there be any change about the guidance and what’s our guidance for the next year? Thanks.

[Foreign Language]

Let me answer Mr. Sun’s answer to your question. Your first question is regard to the policies issued by the government recently on the kindergartens. I would say the policy is not related to our business. Although we focus on the age group between three to six demographics, we provide only after-school English training. So although we see some fluctuation in the market, I will say it has nothing to do with our business.

Okay, let me answer your second question. So regarding the sales and the marketing expense, as a percentage of revenue, it will be increased by 2% compared with year 2017. As we explained in second-quarter earnings release call, we decided to invest the marketing spending to drive more student enrollment. So it is a long-term strategy. We believe we will reach our return of earnings that return on investment in the future. Thank you.

Thank you.

Your next question comes from Alex Xie from Credit Suisse. Please ask a question.

[Foreign Language] So I’ll translate the questions for myself. Firstly, I would like to ask management about our short-term courses. What are the enrollment numbers for short-term courses online and offline? And secondly, I’d like to ask about our margin guidance. Is the margin guidance more due to regulation pressure or competition pressure? What lines are mostly affected? And my third question is about the regulation for the three months prepayments. I have seen many news about regulation checks on the rural and local government, and how RISE is going to respond to such new regulation? Thank you.

[Foreign Language]

Thank you very much for your question. Let me first answer your first question with regard to our short-term courses. I would say that we have made pretty good progress on this program. It is the first time for RISE to launch summer short-term courses, and we have recruited a total of approximately 4,000 students, some of them are from RISE programs and some of them are from outside of RISE. And we try to convert some of the outside students to enroll into RISE educational programs. I would say that this is the first time our effort has been pretty much paid off reasonably well. It’s going to help us to recruit – continue to recruit students from the market.

[Foreign Language]

Okay. With regards to your question the impact of the new policy on RISE operations, I would analyze it from the following aspects. It’s true that since the announcement the stage counsel number eight circular which regulates the overall education industry, RISE, itself, started – worked very hard to comply with whatever is required by the new policies. As a matter of fact, the new policy targets to further regulate the market and to improve the overall education service. I will just say that it is in line with the RISE education objective and education philosophy. With regard to the three months charge, I think that in our franchised learning centers like in Suzhou and Zhejiang, the implementation, first, is really from the government is very serious. We can also see Beijing government also starting to investigate the learning centers, I mean, the overall market, and this is start to put it on top agenda, government agenda. In response to the policy of charging customers no more than three months, on one hand, we improved our IT systems to make it compliant with government policies. In terms of the business operation, since our curriculum is one year life span, so we sign the contract with our customers, sign a one year contract with our customers. The payment is just divided in three installments to make sure each installment covers no more than three months. The second policy is about the fire safety code. As I stated in my speech, it is becoming increasingly rigid, which has somewhat delayed our efforts in opening new learning centers. Therefore, we’re very mindful of the more rigid fire safety code and with regard to the land loss, we have make sure that the landlords are in for compliance so that it wont affect so much our speed of opening new stores. And to be very honest, it’s true, it has, as I’ve stated, our speed of opening new learning centers is slightly behind our schedule. The third policy with regards to the teacher certificate, I would say since the IPO of RISE, we have made increased efforts to comply with regulations – various amounts of regulation. We put compliance at top of our agenda. In general, I won’t say the policy impact on RISE’s business is significant.

[Foreign Language]

So last, I want to emphasize, all these policies has impacted obviously in the short term, but in the long run, I don’t think it’s going to be a lasting or material. I don’t think it’s going to be material or lasting impact on our operations.

[Foreign Language] So a quick follow up – thank you, management, for answering the above questions. A quick follow-up about teaching licenses. In my understanding, RISE is not – it is not mandatory for RISE teachers to have teaching licenses because RISE is not test-oriented teaching provider. Has RISE already received some instructions from the governments to obtain teaching licenses? And how much of RISE teachers have obtained such licenses? Thank you.

[Foreign Language]

Thank you, Alex. You’re right, we’re not a test-oriented, subject-based education institution. So far, we haven’t got any notice from the government requiring our students to have the certificates in order to start their education in classrooms. However, we have set a very high bar for ourselves in order to comply with government policies and also improve the quality of teaching. We have restructured our teachers compensation. Part of that is to reward the teachers who get teacher certificate. So it’s a measure of encouragement of our teachers to take courses, to take the tests and to get the certificate.

[Foreign Language] Thank you, Jiandong. Very clear.

Your next question comes from Felix Liu from UBS. Please ask a question.

[Foreign Language] Let me translate myself. So the quarter’s GPM is a bright spot. The rental percentage as a percentage of sales is declining year on year. But given the higher standards on fire safety, is this low level of rental expenses sustainable in the mid to long term? Second question, can management provide some breakdown on the Can-Talk enrollment and the enrollment from RISE Starts? And my third question is that, we know the company ran a lot of promotion in the summer, and the summer, we recorded 4,000 short-term enrollment. So if we exclude that, long-term enrollment is largely flat year on year. So how does management think of this going forward? Thank you.

[Foreign Language]

Thank you for your question. Let me answer your first and the third question and leave the second one to Chelsea. In expanding our business, we actually pretty strict control on the rental expenses, as you can see reflected in our gross margin. As you mentioned that fire safety code implementation has becoming increasingly rigid, stringent. It’s not going to affect our rentals, but more of the approval process since most of our learning centers are located in shopping malls which basically are in compliance with the fire safety code meet the governmental requirement. However, in opening new learning centers, the approval process has already been extended. Part of the reason is the regulator for fire safety has been transferred from the armed police to emergency management department. So in process of the transition, many application has been slowed down. So that’s a fact. The speed of getting the approvals, as a result, it affects the opening of the speed of opening up our new learning centers.

[Foreign Language]

On your third question, we had good reservation, and we started our summer courses this summer on a pilot basis, which turned out to be a good success. We managed to convert some outside students to enroll into RISE Education program. So we’ll continue our tryout for our programs to be launched in summer and also winter vacation as a new channel of recruiting students. We do feel the increasing competition in our market, and I would say the market is more crowded than before. However, RISE does not rely on a single marketing channel to enroll students, and we also changed our marketing strategy and also promotion strategy and to develop the new channels to record more students in the future.

Yes, so for online business, actually, the RISE online business includes RISE Start and the Can-Talk. Can-Talk is a new product launched in the middle of last year. So by the end of September this year, around maybe 13% of our new enrollments come from online business. It was just – we’re seeing far below the 10% last year.

Thank. you. And any color on the online enrollment contribution from the RISE Start online business?

So you mean RISE Start? So for Rise Start is our core business. Yes, for the new enrollment, we maintain about maybe 60%, 50% to 61%.

Okay. Thank you. Thank you very much. [Foreign language] Thank you.

Your next question comes from Sheng Zhong from Morgan Stanley. Please ask a question.

[Foreign Language] So I’ll translate myself. Considering all of these pressure from the competition and the regulation, so what the management’s outlook for the growth plan in next year? Thank you.

[Foreign Language]

Thank you very much, Sheng. So let me answer your question in the following two aspects. Currently, our regulatory environment where government policies cause uncertainties in the market as a whole, so we have somewhat modified our growth strategy for next year. We’re going to adopt a prudent growth strategy. However, we believe the uncertainties caused by government policies and also the increasing competition from – increasing competition will be short term. Generally, the market demand is – remains strong and resilient, and we believe the market will be covered. In terms of the prudent growth – to be more specific on our prudent growth strategy, we’re going to slow down the pace of opening up our self-owned learning centers. However, this can be compensated – made up for by our efforts in acquiring a franchised learning centers. Acquisition of Shijiazhuang is a good example. Shijiazhuang franchisees has a good reputation, has good market share in Shijiazhuang. It’s an attractive market. It is also located close to Beijing and easy to manage by our head office. So acquisition of franchised partner will be one of our key growth strategies next year. In expanding our operations in a prudent manner next year, we also will focus on services. Our objective is to focus our brand building word-of-mouth by the parents to further increase our enrollments. So we actually – the focus of our next year will be our services. The service will target to our customers. And as I have mentioned that we are building the parent communications will improve through our platform, we increased our communications with the parent so as to improve the customer satisfaction. We also tried to reinforce training management of our teachers so that they can have a better working the teacher satisfaction and to lower the turnover rate. Meanwhile, we’re going to improve our ITC spend as well, we’re going to improve our operating systems, COS, as well as accounting systems and to further improve our management efficiency.

[Foreign Language] Thank you, Jiandong.

Thank you for the question. Ladies and Gentlemen, we have reached the end of our conference call. Thank you for participating. You may all disconnect.