Ladies and gentlemen, thank you for standing by. And welcome to RISE Education Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today Mr. Aaron Li. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to RISE Education's fourth quarter and full year 2020 earnings conference call. Today, you will hear from Ms. Lihong Wang, Chairwoman and CEO; and Mr. Warren, CFO. Lihong will go over recent business updates, operations, and the company's long-term strategy. Warren will go over the financial results for the quarter. Both will be available to take your questions in the Q&A session 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. The 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 our Form 20-F filed with SEC on April 17, 2020. We do not assume any obligations to update any forward-looking statements except as required under applicable law. Throughout today's call Lihong and Warren will be referring to the earnings presentation that has been uploaded to our IR website as a supplement to today's call. Now, I'd like to turn the call over to Lihong. Lihong, please go ahead.

Thanks, Aaron. Hello, everyone. Thank you for joining our earnings call today. We are very pleased to see solid improvement continued this quarter on our financial and operational performance. Revenue for Q4 2020 was at the high end of our guidance. Both adjusted EBITDA and net income before goodwill write-down increased substantially. 2020 was an unprecedented year of challenges amidst COVID-19 pandemic, which affected the China's education industry and our company. We took immediate action in the onset of the academic to stabilize the business with the quick deployment of our Online-Merge-Offline or OMO strategy, and gradually recover the business with various initiatives to develop a unique and strong multi-disciplinary capability-based educational platform. As the pandemic containment gradually return life to normalcy in China, almost all of our offline learning centers resumed normal operation in the fourth quarter. Following the reopening of our self-owned learning centers in Beijing by the end of September 2020, our business essentially recovered during the fourth quarter with significant improvement on both operational and financial side. During this quarter, new student enrollments increased on a yearly basis for both RISE regular courses and other courses. Total revenue reached the high-end of our guidance. And adjusted EBITDA was close to the level compared with the fourth quarter of 2019. This encouraging result, not only demonstrated the effectiveness of our strategy to navigate this new economic environment and contain the impact of COVID-19 on our business, but has also positioned us well to see its new growth opportunities in the future. I will begin my remarks from slide three. Throughout 2020, we move forward step-by-step and mitigate the impact of COVID-19 and steadily steer the recovery of our business. We are pleased to see that we're on-track to transform our business into the OMO model, which focuses…

Thank you, Lihong. Let me now go through our financial results for the fourth quarter of 2020. Before I begin, please note that all numbers stated are in RMB. As expressed by Lihong, while we're pleased to report that our business gradually recovered in the fourth quarter, as almost all our offline learning centers resumed normal operation in the fourth quarter. Our top line and profitability continue to improve, thanks to our store execution capacities under the OMO model. While offline learning centers remain at the core of the OMO strategy, we have continued to invest in our digital transformation and improve our online curriculum or light courses can switch between online and offline seamlessly, whenever the demand comes for it. Turning to slide 11. Total revenues for the fourth quarter of 2020 increased by 13.9% quarter-over-quarter and decreased by 12.4% year-over-year to RMB 364.5 million. Revenues from educational programs increase by 11% quarter-over-quarter and decrease by 14.7% year-over-year to RMB 325.8 million. The quarter-over-quarter increase in revenues from educational programs was primarily attribute to the offline operation, resuming in Beijing and Shijiazhuang by the end of September, 2020, following the reopening of other self-owned learning centers in Shanghai, Guangzhou, Shenzhen, and Wuxi since June 2020, as the COVID-19 situation was alleviating. The year-over-year decrease in revenues from educational programs was primarily due to the decline of students in class, as a result of the business impact from COVID-19. Franchise revenues increased by 49.3% quarter-over-quarter and 13.8% year-over-year to RMB 37.8 million. The quarter-over-quarter increase in franchise revenues was mainly due to growth in recurring franchise revenues as a result of the gradual reopening of franchised learning centers. The year-over-year increase in franchise revenues was primarily due to a growth in initial franchise fees associated with an increase in the…

Thank you so much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Sheng Zhong from Morgan Stanley. Sheng, your line is now open. Hi, Sheng, your line is now open. You may know ask your question. Hi Sheng, your line is now open. Maybe you are on mute, please unmute your line. Thank you. He got disconnected. [Operator Instructions] And your next question comes from the line of Lauren Xu from Credit Suisse. Lauren, your line is now open.

Thank you for taking my question. I’m Lauren from Credit Suisse. I have two questions on behalf of Alex. The first one is about the student acquisition costs. Considering the competition's data much more intensified, would we expect to see higher student acquisition costs this year? And the second question is about online retention rates, can management share more color on the current retention rate? And how should we think about the trend this year after launching those digital upgrades? Thank you so much.

Okay. I can start and then Warren can add more insights. For customer acquisition costs, as you mentioned, Lauren, we see here is competition from our online channels. So, the strategy for us is to continue to use our offline channels and the wage for the leads to be generated through offline channels continue to increase. The overall percentage is already close to 70%. So, 70% of the leads coming from our offline learning center promotions and offline activities. We think we'll continue to focus on offline this year. And of course, the fourth quarter number is very encouraging, but I think the full year 2021; the acquisition cost will be slightly higher than the fourth quarter. But I don't think we'll use the expensive channels to -- will hopefully contain that acquisition cost level around the fourth -- the third and fourth quarter of 2020. In terms of retention rates, as I mentioned, 2020 is unprecedented year. Most of our students acquired in 2019, who did not experience offline learning because of the pandemic went on online right away after we launched our online courses. So, the whole experiences are not that satisfactory. The retention rate came down in the third quarter. However, as I mentioned, for the fourth quarter and continued in the first two months of this year, we see the retention rate going up to the normal level. So for the Beijing, the three instalments, the renewal rate is already close to 90% back to the level prior pandemic and then the graduation retention rates also coming back to high 60%. So we see a very encouraging recovery from retention rate.

A little more input for the first question. In addition to Lihong mentioned, the offline customer acquisition mindset is values of core competence of RISE, as Lihong mentioned. And also, we offer more online multiple classes to the customers, so we can use this order lease we acquired more effectively. So that's why these cost decreased in this quarter. Thank you.

Thank you so much. [Operator Instructions] And your next question comes from the line of Sheng Zhong from Morgan Stanley. Sheng, your line is now open.

Hi. Thank you for taking my question. Sorry that I lost my connection for awhile. So if my question is already answered you may skip it. I have a few questions here. The first one is about the regulation risk impact. Can you share some of your thinking about this regulation this time in this year? Well, how and how could that impact the new learning center – new learning center opening because you have 100 learning center opening plan and teacher and tuition fee collection and also maybe the capital supervision impact? And I think you mentioned that you expect your Beijing learning centers to reopen later this month. So that – do you already get the government communicate with government yet on this. This is a first question. And second one is, you’re now expanded your subject to mathematics and logic thinking. So could you share some more color on how you – how – what the strategy on this or the operations thinking on this like how this cost develop is internally. And how will acquire students and what the price for the subject? And you are targeting number one for – in the offline. So, can ask the near-term target maybe what the current revenue contribution from the subject retention in this year? And last one is, what's your franchise acquisition plan this year? Thank you. A – Lihong Wang: Thank you, Sheng. Let me answer the first question first. In terms of regulation, we all know that during this month, particularly and started from Beijing that more regulation target, I would say the training or the -- what we call the [Foreign Language] Sheng as you mentioned there are a number of areas that government wanted to tighten the regulations and put more supervisions. The…

Yes. It's about your acquisition plan of your franchise. A – Lihong Wang: Yes, yes, yes. On this front I will start and let Warren to add more color. This is always our strategy since we get listed in 2017. However, the first acquisition of Shijiazhuang really took some time to complete and integrate. The good news is that, right now, Shijiazhuang is fully integrated into our direct owned business and performed quite resilient during the pandemic. The acquisition gave us a very good experience, so this year we will continue the acquisition whenever the right opportunity comes up. Warren, you can go ahead and talk more about how we think about the pipeline

Yes. We have a, let's say, a strong pipeline for the acquisition of our franchisees. We basically divided them into three categories, first second and third, and we are now, let's say, we're talking to a few of them. And we are in the middle of negotiating all the terms. But, however, we are not -- let's say, not allowed to disclose anything right now. And, hopefully, we can announce some good news and file all these files recently. Thank you.

Okay. Thank you very much. That's very helpful.

Thank you so much.

And your next question comes from the line of Blake Lee from Aviation Investment. Blake, your line is now open.

Okay. Thanks for taking my question. Firstly, I want to congratulate RISE team that you have done great job on the number of new students enrolled in Q4. And my question is about the 2021 business outlook, and what our assumption is 2021 guidance based on? And is there any projection for near-term? Thank you.

Lihong, I'll take this. The guidance for the full year 2021 basically shows a resume wide range, due to the uncertainties of COVID-19 and the progress of our online, offline operations in this industry. As I mentioned in the script of ER that basically we were quite optimistic about the COVID-19 situations in this year. And also, we have – you can see that we have a strong results in this quarter. We've demonstrated that we recover from all these impacts and we are quite optimistic about this coming year. That’s the – again, let me readout the guidance for the 2021. We expect our revenue in the full year to be in the range of RMB 1,420 million to RMB 1,730 million. And for this quarter 2021 the Q1, as you'll probably know like, there's a slight COVID-19 impact in Beijing and the Shijiazhuang around the Chinese New Year, and so the revenue is around let's say, RMB 300 million because of the COVID-19. And – but the performance for this quarter will not represent the actual operating outcome and that's we have strong confidence than for the whole year guidance, we can make it. Thank you.

Yeah, I'll just add some color for this year. As I mentioned, we right now have very strong operational capability delivering OMO model, which means that in normal situations, our higher grade classes will have online during weekday. And then all the weekend classes are delivered offline. However, if there's any COVID-19 situation comes up, we will switch the classes online. We can do that within a couple of hours. So in the case of Shijiazhuang and Beijing, basically the next day, every classes was put online. However, the online, as you know that has shorter time, therefore the revenue recognition will be some compromise or discount. That's why for the first quarter, we still don't know when Beijing will open, therefore will impact revenue recognition. However, with the capability to switch online, offline, also the ability to offer additional courses online, including the English small classes, plus the expansion plans, both on the network and the category, we feel 2021 will be a very exciting year. So, near-term maybe some fluctuation, but for the whole year, we have a very high confidence that we'll be able to deliver very strong results.

Okay. Thank you very much.

Thank you so much. And our next question comes from the line of Joy Wei from 86Research. Your line is now open.

Hi management. Thanks for taking my questions. I have one more question. It's on the competitive landscape. So, how do management view the current competition environment. So, we noticed that certain AI classes are gaining popularity recently such as Zebra, AI cost, et cetera. So, how do management view the challenge this kind of new form player has brought? Thank you.

Thank you. It's a very good question. On the competitive landscape, we definitely feel 2020 also onwards going forward will be very interesting. First thing first, we still see very strong demand for offline learning at the same time, combined with desire to have online exposure as well. So, on the offline side, in fact, we actually see fewer competitors. Some really cannot just survive during the pandemic and the people survived, especially like RISE offering OMO model becomes stronger. That's also why you see a very strong enrollment in fourth quarter. Normally, fourth quarter is not a peak season. However, the fourth quarter enrollment for us almost caught up with the third quarter of 2020. So, on the offline side, we feel very confident. We definitely are the top choices for parents and students. For online, there are more formats and players coming into the arena. I think Zebra as you mentioned, use AI to offer 15 minutes of classes -- class coaching and then they can offer at a very cheap price. The observation I have is that definitely attract a lot of young-aged kids and it's a very complementary courses to offline study. And in fact, during the survey, we can see that 30% of our students would have some form of online courses, either Zebra or a VIPKid. However, at the same time, the online students normally would also have one offline courses to complement that because the courses delivered online has a limited effect. So, going forward, we think these two formats will coexist. And even for RISE, as I mentioned during the presentation, we definitely see the demand, therefore we launched the 1:00 to 4:00 premium English small classes online, using foreign teachers. This is also a supplement to what we offer offline and through OMO. So on the higher grade, from S2 above the online foreign teacher is part of the normal courses. And for K3 and S1, we actually are selling our 1:00 to 4:00 premium online English small classes as additional courses to supplement them. And this year, this is part of the strategy as well. So, we think, right now, the student base, we target, we don't see impacted by the AI courses, of course, the efficacy are entirely different.

Okay. That's very helpful. Thank you.

Thank you so much. And there were no further question at this time. And that does conclude our conference for today. Thank you all for participating. You may now disconnect.