The annual operating profit rate and overall profit margin will not be much different

The Good Future (NYSE:XRS) released its third-quarter financial results for fiscal year 2014 as at November 30, 2013, with net revenues reaching $73.5 million, up 50.4% from a year earlier of 48.9 million dollars. Non-US accounting standards, net profit of 14.6 million U.S. dollars, compared with the same period last year 7.9 million U.S. dollars year-on-year growth of 85.6%. The U.S. General accounting standards, net profit of 12.5 million U.S. dollars, compared with the same period last year 5.6 million U.S. dollars year-on-year growth of 123.4%.

After the release of the earnings, Joseph Kaufman, the CFO, attended the conference call, read the earnings and answered the analyst's questions.

The following analysis is the main part of the question and answer session:

Philip Wan, analyst at Morgan Stanley: first question, what will be the profitability of the company in the remaining quarter of the fiscal year? In addition, the company's performance this quarter exceeded expectations, what is the reason?

Kaufman: We do not provide specific profitability forecasts, the company's outstanding performance is mainly due to business expansion, implementation capacity and effective control of costs.

Good future in Beijing and Shanghai have very strong growth, established the position of the company in the market, but there is still a lot of room for growth in the future, Shanghai's recovery growth exceeded expectations, and because the company's previous expectations of Beijing business is not high, so it is very surprising to achieve such a performance.

Philip Wan, analyst at Morgan Stanley: The second question about the forecast for the quarter of this fiscal year, the company mentioned the impact of the Spring Festival on the performance of the company, this part of the overall revenue impact on how much?

Kaufman: This part of the impact is about 23 million yuan, excluding this part, the fourth quarter of revenue will probably increase by 35%-40%. Back to your previous question, the company's cost control in business development is more effective, increasing the size of classrooms through existing centers, and thereby improving classroom usage and curriculum completion rates, which are beneficial to improving profitability.

In addition, the company's investment in the first quarter of the fiscal year, For example, the aforementioned teaching system has been upgraded to 3.0 and education center investments, mainly occurred in the second half of last year, then the impact on the 2014 is small; IT system transformation, office automation investment and so on, in the future will have, but did not affect the fiscal year profit margins.

Goldman Sachs analyst Fangfei (Fei Fang): First question, can you introduce the company's Teaching Center network expansion plan, the current classroom utilization? With the current teaching center scale and utilization rate, the company's revenue still has how much room for growth?

Kaufman: Last quarter I talked about the company going to add 200 classrooms in the second half of the fiscal year, the net increase in classrooms in the three quarter of this fiscal year is 50, so to increase the number of 150 in the fourth quarter, depending on the negotiation and timing with the owner, the company will not compromise in the negotiations to achieve a net gain of 150 classrooms Of course, the actual increase in the fourth quarter will not exceed the number of more than 150, estimated to be more than 15%-20%, classroom growth is for the expansion of the company, so even if the last quarter did not complete the center of the contract, the next fiscal year will be completed in the first quarter.

On the question of classroom utilization, the company does not disclose quarterly classroom utilization figures, taking into account the different ways in which the utilization is calculated; But from this quarter's trend of utilization change, the future in the 15 cities with teaching centers, there are 13 cities in which there is a great increase in the utilization rate of small class classrooms, Therefore, gradually increasing the size of teaching to the company's healthy development benefits.

The company's classroom utilization figures for fiscal year 2015 will not grow much larger than the 2014 fiscal year. Because a lot of good future teaching centers have achieved good classroom utilization, especially in small classes, but there are one or two cities in the classroom utilization rate and the increase in space; In general, a more reasonable forecast now is , the company's classroom utilization will increase by 3% to 5% in the next fiscal year.

Goldman Sachs analyst Fangfei (Fei Fang): There is also a problem, the company's competitor New Oriental yesterday also reported a good last quarter results, good future how to see the company in Beijing competition situation, especially in the secondary school (K-12) extra-curricular remedial service part?

Kaufman: The first thing to be clear is that the K-12 education market is very large, and third party data show that the largest five extracurricular tutoring services companies in the Chinese market share a small proportion of the market, and the growth of companies does not need to encroach on the market share of other companies.

A good future focused on cultivating students with outstanding achievements, the new Oriental student group is obviously different, and in this market, the demand for different remedial services is very large; the company's revenue grew by more than 50% this quarter, and Beijing is an important market, but good future growth is not dependent on the growth of Beijing's business That the company has achieved good results in the Beijing market this quarter, and the Beijing market's revenue estimates will continue to grow at double-digit rates as a result of previous increases.

According to our observation, New Oriental High School part of the business in the Beijing market performance is good, and a good future is concerned about students from elementary school to junior high school, extra-curricular learning, so even in the developed regions such as Beijing, the high school part of the business than primary and secondary school extra-curricular learning business, are relatively small The company's recent quarters have had a good effect on the continuous improvement of some services in the high school, for example, in terms of customer retention rates, whether it is a semester to the next semester, or a school year to the next school year.

Jefferies analyst Clara Fan (Clara Fan): The company added 52 classrooms in the third quarter of this fiscal year and is expected to add 150 more classrooms in the four quarter, so why does the company have such good performance in three quarters without adding so many classrooms? In addition, can you tell me about the percentage of the company from small classes, one-on-one courses and online courses?

Kaufman: One thing to figure out, the increase in the company's three-quarter report showed only that the company had signed a lease agreement with homeowners, but that would not increase enrollment for three quarters, and that the increase in enrollment in the next three quarters benefited from the increase in classrooms in the first half of the fiscal year, which had a delayed effect on time.

Revenue split, revenue from online courses accounted for 3% of total revenue, small class revenue accounted for 81%, one-on-one courses accounted for 16%.

Jefferies analyst Clara Fan (Clara Fan): I noticed that the profit margin growth of the company mainly benefited from the growth of gross profit margin, could you tell me something about this?

Kaufman: Good future the costs associated with teaching centers are mainly reflected in the cost of sales (COGS), the improvement in classroom utilization and the increase of order completion rate, plus the expansion of the teaching center, which will increase the company's gross profit margin.

Scaron, Swiss credit analyst, Jialong Shi: In the three quarter of the company's spending, the proportion of the pay, can you tell me how long the company to raise the salary, the rate of teacher pay?

Kaufman: The company does not disclose the number of teachers ' pay, but the industry's average pay rise is about 10% to 12%; the future gives the staff a yearly salary increase, and the teacher is given a salary increase for four semesters each year.

Tian Hao Capital analyst (Tian Hou): Does the company plan to stop adding teaching centers in this fiscal year, but just increase the number of classrooms? In addition, what is the company's investment plan for next year, which will have a center in a city where there are no teaching centers?

Kaufman: Companies are still optimistic about adding centers and classrooms, and are now more likely to save costs by increasing the number of classrooms rather than opening new centers in teaching centers where classroom utilization is already high, but if homeowners are not rational enough to rent classrooms, Companies can only choose to open a new center to meet the needs of the recruitment of the city, the company did not have the teaching center of cities, more important is to expand the influence of the company, so need to open more centers.

The company has done well this year in balancing the opening of new centers and increasing the number of existing central classrooms, and we think the performance will be better next year.

Days Hao Capital analyst Tian Hou: for the company's existing teaching center, how many classrooms can be added?

Kaufman: Depending on the circumstances, the company will consider adding as many classrooms as possible if there are conditions for renting.

Days Hao Capital analyst Tian Hou: How many of the company's revenue forecasts for the four quarter have admissions contributions? How much is the per-user average income (ARPU) contributing?

Kaufman: mainly from admissions contributions.

"The number of teaching centers next year will not grow more than this year," said Oppenheimer's new york-based analyst, Ella Ji.

Kaufman: The company wants to maintain sound development and a certain rate of growth in teaching, the first half of the next fiscal year will be faster than the second half, but overall, the growth is relatively moderate.

Ella Ji, an analyst at Oppenheimer in New York: The second question about online courses, will the company open a live teaching programme in the near future? In addition, the current online courses are as a complementary means to serve offline teaching, whether the company believes that online courses in the future can be independent of offline courses, as the company's new business?

Kaufman: Companies use online courses to attract new users who have not been in a good future, and online courses are a good choice for cities where companies are not currently in the center, and the company started investing in online courses in 2010 to become an independent business for the future.

The future has begun to try to provide a live course to supplement the recording course, which may not be launched immediately, but it will certainly help in increasing the interactivity of the course; The company is also considering developing mobile applications to increase the interaction between students, parents and teachers.

Ella Ji, an analyst at Oppenheimer in New York, said the company had acquired a postgraduate net and whether there were any acquisitions in the next fiscal year.

Kaufman: The company has been looking for an object to buy, it may not necessarily be an acquisition, a postgraduate network enriches the company's product line, helping high school students to college, one of the goals of mergers and acquisitions is to be able to provide services that have never been provided before; the vision of a good future is to use science and technology Service education, so that students learn more efficiently, The company's investment will also be consistent with this vision.

Oppenheimer's new york-based analyst, Ella Ji: How will the company amortize the cost of developing an intelligent teaching system ICS 3.0? Given the outstanding performance of the first two quarters, will the company's year-end bonuses be significantly improved?

Kaufman: The company's investment in the development of an intelligent education system needs to be amortized only to equipment, because all content is developed by the company, and the input of personnel has been reflected in the reports of the past few years, and the input of computers and servers will be amortized within three years.

The performance of the company will have an impact on year-end bonuses, which would be reflected in the four quarterly report on general and administrative costs;