Ladies and gentlemen, thank you for standing by, and welcome to the RISE Education Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Mei Li. Thank you. Please go ahead.

Thank you, Operator. Hello, everyone, and welcome to RISE Education's Fourth Quarter and Full Year 2019 Earnings Conference Call. Today, you will hear from Ms. Lihong Wang, Chairman and CEO, who will discuss our operations, measures taken to minimize the impact caused by the outbreak of COVID-19 and the company's long-term strategy; and Ms. Jiandong Lu, COO and CFO, will go over the financial results for the quarter and the full year. Both will be available to take your questions in the Q&A section that follows. Before we proceed, I would like to remind you that today's discussion may contain certain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. To understand the factors that could cause results to materially differ from those in the forward-looking statements, please refer to Form 20-F filed with the SEC on April 19, 2019. We do not assume any obligation to update any forward-looking statements, except as required under applicable law. Now I'd like to turn the call over to Lihong, who will give a quick introduction.

Good morning, and good evening to everyone, and thank you for joining us today. My name is Lihong Wang, and I'm very excited to join RISE, which has built a solid reputation as a leader in the large and fast-growing after-school English tutoring market. Throughout 2019, we continued to expand our school network and student base across China and generated solid growth in terms of revenue and EBITDA. The start of 2020 start with the outbreak of COVID-19, which disrupted everyone and everything in China first and has now spread globally. However, the demand for after-school English tutoring services in China remains very strong, even more so throughout the break. I firmly believe that as a market leader and with the right strategy and strong execution capabilities, RISE will be able to achieve long-term growth and success. I appreciate you all taking the time to join our earnings call today. I would now like to invite Ms. Lu, our COO and CFO, to walk everyone through our Q4 2019 performance. I will then go through my presentation where I will brief you on the actions we have taken in response to the challenges created by the COVID-19 outbreak, key milestones with the launch of online small group classes and my thoughts on our long-term strategy. Jiandong, please.

Thank you, Lihong Hi, everyone. Thank you for joining our earnings call. I will now go through our financial highlights for the fourth quarter of 2019. Before I begin, please note that all numbers stated are in RMB. Total revenues during the quarter increased by 17.5% year-over-year to CNY416.2 million, driven primarily by a 17.2% year-over-year increase in revenues from our educational programs to CNY379.9 million. The increase in revenues from our educational programs was primarily attributable to an increase in the number of students in class for our regular courses operated by self-owned learning centers and an increase in prices for our regular courses at the beginning of 2019. In Beijing and Wuxi on April 1 -- in Shanghai, Wuxi, Guangzhou and Shenzhen, the number of self-owned learning centers increased to 89 at the end of 2019 from 76 a year ago. We also added 213 classrooms as of December 31, 2019 when compared with the end of 2018. Franchise revenues increased by 17.2% year-over-year to CNY33.2 million during the quarter, primarily due to an increase in recurring revenue associated with an increase in the number of franchised learning centers from 304 as of December 31, 2018, to 330 -- 383 as of December 31, 2019. Cost of revenues for the quarter increased by 22.1% year-over-year to CNY183.6 million. Non-GAAP cost of revenues for the quarter increased by 22.8% year-over-year to CNY179.9 million. The increase was primarily due to personnel costs associated with an increase in teacher headcount, total teaching hours and the teachers' compensation at our self-owned learning centers and the increase in rental costs associated with the expansion of our operations. Gross profit increased by 14.1% year-over-year to CNY232.6 million. Gross margin was 55.9% compared with 57.6% in the same period of the prior year. Selling and…

Thanks, Jiandong. Throughout my remarks today, I'll be referring to the presentation that has been uploaded to our IR website as a supplement to today's call. I'd like to begin by outlining the 3 topics we will be focusing on today on Slide 2. First, a review of our 2019 performance and plans to drive better student enrollment and retention. Second, the impact from the COVID-19 outbreak and the measures we have taken to minimize the disruption cost to our business. And third, the launch of online small group classes, a milestone as we build out an Online-Merge-Offline model, or OMO model, which forms an integral part of our long-term digitization strategy. Turning to Slides 3 and 4, you can see that 2019 was a solid year in terms of our financial performance. Full year revenue and adjusted EBITDA grew by 20.3% and 16.4% year-over-year, respectively. As Jiandong mentioned, new students enrolled for regular courses increased by 12.3% during the year, while total students in class for regular courses increased by 10.2% year-over-year at the end of 2019. Throughout 2019, we saw refund rates trend higher, and rollover rates came in lower-than-expected, which were primarily the result of the 3-month tuition collection schedule implemented in certain cities. This impacted the total students in class for regular courses, which came in below our targets for the year despite a strong pipeline of newly enrolled students. On top of that, a lack of effective digital infrastructure hindered management decision-making and operating efficiency, including marketing channel selection, ROI measurement and customer acquisition cost control. To resolve these issues, I launched Project Pioneer the day I came on board as CEO. Turning to Slide 5. You can see that Project Pioneer was designed to achieve a number of specific objectives. First, deploying systematic approaches…

[Operator Instructions]. Your first question today comes from the line of Sheng Zhong from Morgan Stanley.

I have two questions. The first one is, can you give some more color on the first quarter revenue guidance, what the impact from the coronavirus and the work on moving them to online? And second -- and what do you expect the coronavirus impact in next few quarters and the full year? And second question is you -- can you give more details about your strategy of the digitalization? Like what kind of format you will provide in the long-term for the students? And how do you see the competition going forward after coronavirus, especially now a lot of players joined the AI interactive courses for the young children program, did you see -- what's your view on that?

Thank you for your question. Can you hear me?

Yes, very clearly.

Okay. All right. Good. At the end of my remarks, I have already given the guidance for our first quarter. As I mentioned, that the COVID-19 outbreak, so basically, in order to respond to the government's regulations, we closed our learning centers for most of the first quarter, starting from right after the Chinese New Year until now. And that there is no clear timetable when the learning centers can be reopened and we can resume to our normal businesses. Although we have made great efforts moving our off-line students online, and we have already, as you'll hear from Lihong's presentation that we started to charge the students at the beginning of March for them to register for online small group classes. So having given you the background as that, our revenue guidance for the first quarter can be in the range of CNY95 million to CNY100 million.

Sheng, this is Lihong. Just to supplement what Jiandong has been saying. I think the way you can think of is, for January, because Chinese New Year is early this year, so we basically have 2/3 of the month, which can generate revenue. And then February, all the major efforts we've made is really reach out the parents and students, help them to study learning online. So the trial classes are free during the first 2, 3 weeks. Basically, February, the regular courses are closed. Only the other courses, like Can-Talk and Rise Up, Edge continue to generate revenue. For March, we launched the paid online small group classes. So the revenue recognition will mainly from these online small group classes. However, this classes, they are -- they have shorter duration and also priced differently. Therefore, the March revenue would be almost like 1/3 of the normal months. So that's the first quarter revenue guidance are based on. In terms of next few quarters, I think the 1 major uncertainty still is when we can open off-line learning centers. There is no clear guidance from the government yet. However, to counter these challenges, we already prepared to move all off-line classes, regular classes to be online. So the preparation is ongoing. We expect to move everything online towards the third week of April, which, at that time, we will finish all the current online small group classes offered. So the next few quarters, the uncertainty is still there, but our plan is to move everything online as much as we can. And once the off-line center opens, we'll try to catch up on the classes that we can offer. So it's very difficult to give a full year guidance, but that's the plan to counter the challenges we have now. If that answers your first question, let me very briefly talk about the second question regarding the strategy. We are developing the digitization strategy all across our operations. So the so-called online small class, small group classes is just one of the elements. The thinking is not yet complete. However, what I would say is from marketing, student acquisition, to learning experience, to after-class tutoring, we'll try to build the online/off-line platform so students can learn in the off-line centers as scheduled. And after they return to home, they will also have online courses or online content that they can continue to learn at home. At the same time, we are upgrading our core curriculum. As you mentioned, in certain age groups, we will also offer a combination of online/off-line classes. Certain group with AI teachers and afterwards, we will also have an online live teacher even one-on-one to be a supplement to the off-line courses. So the combined online/off-line courses will start to launch the -- towards the end of this year to some of the classes -- some of the ages and levels, and then hopefully, roll out throughout the whole year next year.

And if I may, I want to ask, what's the current transition rate of your off-line student to the online? And how do you see the new enrollment? Is it changed? And also, a follow-up for my second question is, what do you see the competition landscape from the AI interactive courses?

Okay. So the first question is how much students moved online? Yes. Sheng, if you see -- I think it's on the slide -- let me see, I would say for the first 3 weeks of free trial, most of our students are moved online. The participation rate is from close to 90% at the small age group. And for the higher age group, it's 100%. For the paid class, as I showed on the slide, right now, we have close to 30,000 students paid for the small online group classes. This is mainly now enrolled in our directly owned centers or the cities, so the participation rate is above 50%. And this is still ongoing, selling in other cities like Shanghai, Guangzhou, Shenzhen, because they started the online small group classes later than Beijing. So that's the participation rate. In this 30,000 students, we also have brand-new students coming in all over the country. In terms of competition, we actually take a look of the competitors. We do think the online/off-line -- the combined offering is a trend, and some other players are also offering this type of classes. However, I would say there is no fixed program, meaning which way is better. I do think the age group and also educational purpose are different from different players. Therefore, the combined courses, the weight of online versus off-line and also involving AI teachers or live teachers are all different. We think this is the trend. However, there is no so-called direct comparison. Therefore, we will move online and off-line -- make a combination suitable to our case and also educational philosophy that RISE has. I'll also say, at a very young age, for example, 3 to 4 years old, we still believe off-line is the best way, and online should not be the majority of the learning experience for age 3 to 4.

Your next question comes from the line of Alex Xie from Crédit Suisse.

My first question is based on, I think, I've seen 30,000 students enrolled in the paid classes online, and about 40 -- 54,000 students in the regular classes of fourth quarter. So that doesn't mean like 60% of students were successfully shifted to online? Or is that a correct understanding? And secondly, I would like to ask about the new students enrollments in the fourth quarter. It seems that the new student in the fourth quarter, I think it's still relatively weak compared to the same period of last year. I think that -- would you please elaborate more on this one. I think we have already been making some changes in the sales team and then the teachers in the second half.

Okay. Alex, I will answer the first question and Jiandong will answer the second question. For the online small group classes, I wanted to a little bit more. This is actually additional class we offered. It is not part of the regular courses. So the 30,000 students actually paid extra money to take all these classes. So this is a step 1 to move students online. The second step to move, we hope everyone, to be online is to recognize revenues through the regular courses. So those online classes will be, I would say, consist -- is basically moving the off-line content online and teach the off-line classes online. So this is the second step. Therefore, the 30,000 paid, Alex, as you mentioned, 55%, these people paid extra to take that classes. And later on, we do hope moving everyone online to take the so-called -- the online version of off-line classes. Jiandong, can you answer the second.

Okay. Hi, Alex. Let me answer your second question on the new students enrolled in the fourth quarter. It looks to -- it looks a little bit weak as compared to the quarter of the prior year. So roughly, it's a 5.1% drop. Actually, 2 reasons for that. The first is, if you look at the calendar, in the third quarter, and that there is -- particularly in September, normally, enrollment happened during the weekend. And in September, there are -- there are actually 5 weekends in September. And so they somewhat advanced the enrollment in the third quarter than what should have happened in the fourth quarter. So if you look at the numbers in the third quarter, the enrolled -- students enrolled in the third quarter, year-over-year basis, the increase is actually 15 -- close to 15% increase. And then back to the drop in the fourth quarter. I should say that the conversion rate in the fourth quarter dropped -- are slightly lower as compared to the third quarter. That's one of the key reasons that actually drive total enrollments, new student enrolled in the fourth quarter are lower. So that basically explains the weaker enrollment in the fourth quarter of 2019. As Lihong explained, so as soon as she joined the company and she launched the Pioneer Project, which will address the conversion issues. And we already set the target for the year 2020, and we believe we'll be able to achieve that.

[Operator Instructions]. Your next question comes from the line of Alex Liu from China Renaissance.

Just very quickly, could the management share some observations on how are our off-line competitors are doing during this tough period? And how is our company's strategy on industry consolidations going forward?

So just wanted to make sure I got your question right. So you're asking how our online competitors doing during the outbreak? Is that the question?

Sorry, it's off-line competitors are doing.

Off-line competitor. Okay. I would say that the bigger companies all made efforts to move classes online. As we can see, some of them are using more aggressively, moving online than others. Basically, I do think the first week after Chinese New Year, people are trying to figure out the technological issues. So most of the competitors offer free content kind of outreach to parents. And then some launched the online classes earlier than us. Some later. Some did not even have the capability to offer online classes. The second difference is, some people use the third-party platform, use the content sourced by the third party. It is really kind of an emergency measure. They -- the courses may not be consistent with the core curriculum, and the platform also is the outsource. For us, we do think the courses, also the platform technology are -- technological capability are strategically important to us. So we think, even we take 1 week longer than all sorts of content and rely on third-party platform, we feel we built the content very solidly and also upgrade our technology capabilities for the long run as well. The last thing, the difference could be some people move the so-called off-line regular classes online directly. In the -- therefore, they're -- in some ways, start to recognize revenue from the regular courses. And for us, we took a different approach because we do think this is the first time that our students are online, and they need to get used to the online learning experience. Therefore, we created a specific online program, which is lighter, more suitable for the first 2, 3 weeks and then also sell that in March. And later on, we feel both the students and also our teachers would be used to the online teaching and learning experience. Therefore, we can move our off-line classes online. Off-line classes are, I would say, content-heavy, have more -- need more interactions. So the step is, first, lighter online classes, and then move off-line classes online. Different companies use different approaches. But I think, really, you need to think about the suitability, the experience online and also your key purpose. Our key purpose, first, is to retain students. No refunds during the COVID-19 outbreak. Second is to provide a good learning online experience. The third is really move off-line classes online so they can continue the learning as they scheduled.

[Operator Instructions]. There are no further questions at this time. Ladies and gentlemen, this will conclude today's conference call. Thank you for participating. You may now disconnect.

Thank you very much.