Mei Li - Investor Relations Manager Joseph Kauffman - Chief Financial Officer.

Fei Fang - Goldman Sachs Philip Wan - Morgan Stanley Jack Yang - T.H. Capital Ella Ji - Oppenheimer Clara Fan - Jefferies Leon Chik - JPMorgan.

Ladies and gentlemen, thank you for standing. Welcome to the First Quarter 2015 TAL Education Group Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, there will be a question-and-answer session. I must advise you that this conference is being recorded today, Monday, 21 of July 2014.

I would now like to hand the conference over to the Investor Relations Manager, Ms. Mei Li. Thank you. Please go ahead..

Thank you for joining us today for TAL Education Group's First Fiscal Quarter 2014 Earnings Conference Call. The first fiscal quarter earnings release was distributed earlier today and you may find a copy on the company IR website or through the Newswire. During this call, you will hear from Chief Financial Officer, Mr. Joseph Kauffman.

Following his prepared remarks, Mr. Kauffman will be available to answer your questions. Before we continue, please note that the discussions today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in the public filings with SEC.

For more information about these risks and uncertainties, please refer to our filings with the SEC. Also our earnings release in this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.

Now, I would like to turn the call over to Mr. Joseph Kauffman..

Thank you, Mei, and thank you all for joining us on our earnings conference call for the first fiscal quarter of 2015. We are pleased to report once more an outstanding quarter with revenues slightly above our guidance and very strong bottom-line results.

Today, I will discuss the highlights for the quarter and provide an update on our online education initiatives and key themes for fiscal 2015. Finally, I will go over the financials with you. Net revenue for the fiscal first quarter increased 45.0% year-over-year to $89.0 million. Revenue growth was driven by a 44.9% increase in enrollments.

Our core small-class offering was again the main driver of our growth. Small-class contributed 73% to the first quarter revenues, up from 68% in the same quarter last year, one-on-one represented 23% of revenues compared to 29% in the same quarter last year and online contributed 4% this quarter versus 3% in the same year ago period.

In terms of revenue contribution for small-class, cities other than Beijing and Shanghai again achieved a combined over 100% revenue growth in the quarter. Cities other than Beijing and Shanghai accounted for 44% small-class revenues in the first quarter compared to 34% during the same period last year and 40% last quarter.

Beijing and Shanghai small-class grew top-line combined 30% in the quarter and together contributed 56% of the small-class revenues. Shanghai continued to show strong growth once again this quarter. In Beijing, primary school, high school and Chinese composition outperformed our expectations in terms of enrollment growth.

A highlight for our junior high business in Beijing was the performance of our students on the Zhongkao or high school entrance exam. In 2014, eight of our students in Beijing achieved the top score on the Zhongkao, in their city districts and one of our students had the top score in all of Beijing.

On the other hand, the enrollments for English classes were down year-over-year in Beijing, due primarily to the change in policy on the waiting of English in Zhongkao and Gaokao exams. We see no impact from the change of policy on our English enrollments in markets outside of Beijing.

In fact, total English enrollments from cities other than Beijing in the spring term have increased 47%, with Guangzhou and Wuhan standing out as performers in terms of growth rate.

We are excited about the growth of our English business as a whole and the new English curriculum we have underway that I mentioned last quarter which will make our offerings more attractive given the new policy.

Turning now to our one-on-one business, the first quarter is traditionally strong quarter for one-to-one and this first quarter was again seasonally strong. That is why a 23% the revenue contribution from one-to-one was well above the 17% to 18% range for full fiscal year 2015 that I had roughly estimated last quarter.

However, it is still well below the 29% revenue contribution of one-on-one in the same period last year. We continue to manage the growth of this business line as reflected in year-over-year moderation and relative contribution to overall revenues.

Our online business was again profitable in the first quarter, even though monetization of this business has not been our priority we are pleased to see the financials improving along with some acceleration in revenue for more rapid enrollment growth.

Online was our fastest growing business in terms of enrollments in the quarter and online enrollments were 17% of total enrollments this quarter's versus 15% in the same year ago period. We also further diversified our revenues geographically and expanded our geographic footprint as planned.

We are pleased to report that as the previous quarter each of the 15 cities in which we have operations delivered at least double digits revenue growth in the quarter and 10 cities had triple digits revenue growth.

In addition to our entry into the new city of Jinan, where we opened a learning center in February, we entered new cities in the first quarter Qingdao and Shijiazhuang. We also added Changsha in June. This now brings the total number of cities to 19 in our national K-12 learning center network.

In recent weeks, we have begun regular class operations for the summer term in Jinan, Qingdao, Shijiazhuang and Tsingtao. During the first quarter, we continued to invest in center capacity ahead of the summer term.

Our learning center network expanded to a total of 285 centers, a net increase of 11 centers quarter-over-quarter with a net 10 small-class centers added as well as one additional one-on-one center. We added 199 net new small-class classrooms which included the classrooms in the newly added small-class centers.

Of the 285 centers 194 were small-class learning centers, including four learning centers for our Mobby branded preschool and young learners age three to eight business and 91 were for one-on-one. In addition to outstanding top-line results were income from operations growth of 105% and net income growth of 65.7% year-on-year.

Gross margin expansion was the major driver of our improved profitability in the quarter. Gross margin increased by 520 basis points to 53.2% from 48% in the year ago period.

The gross margin improvement came primarily from center utilization and our continued shift towards the higher margins small-class business away from one-to-one and was also impacted by and extra Saturday of classes in May, which was included in the first quarter this year.

June started on Saturday last year, so this Saturday classes was a second quarter event last year. In the first quarter, we also continued to expand classroom capacity mostly by adding classrooms to existing centers rather than adding incremental new centers. While we did not add as much SG&A, headcount is expected in the quarter.

This is mostly timing issue as we continue to execute on our plans to invest in our future growth over the coming quarters. Let me now update you on areas of progress in online strategy as we transform ourselves into a leading technology focused education services provider.

Our parent community mobile app, Jia Zhang Bang or Helping Parent Community, which we launched last year, has been gaining traction. This is meaningful, because it shows that we are successfully transitioning our strong organically built social community originally on eduu.com to the new mobile era.

We've seen better than expected growth in daily active users and new users per day on our Jia Zhang Bang mobile app. We believe that the future for our social community will be driven by mobile, and as such, will change the name of our EDUU platform also to Jia Zhang Bang on August 1st and with it the social community website will move to jzb.com.

In this way, we will unify the brand for our social community under Jia Zhang Bang, and it will be on both, PC and mobile. As I mentioned earlier, we experienced robust enrollments and revenue growth in online courses business at xueersi.com in the quarter.

Also, in our Kaoyan business, we see good early momentum in our initiative to move more administrative services like class registration, refunds and switching of classes to online and mobile at kaoyan.com and the Kaoyan app. Online administration is convenient for parents and students who now do not need to come to our registration centers.

We expect over time that it will also become a more cost efficient process for us. In the quarter, we also moved further ahead in the upgrading of our ICS, or Intelligent Classroom System to a 3.0 version. You will remember for course that ICS is our interactive whiteboard enhanced classroom system.

We've operated ICS over the years since its launch in November 2010, but this is the first time with 3.0 that we are introducing live interaction using tablets into the classroom experience. We've begun to roll out initially in mainly junior high school classes in Beijing during the summer months.

During the first quarter, we purchased approximately 3,000 tablets which through our internally developed system allows students to directly interact on the table with the teachers on the tablet with the teachers' whiteboard. Before our initial rollout is well received, we will expand our other age groups and possibly other cities as well.

The accounting for the tablets will be to depreciate in a straight line method over three years. Meanwhile, in addition to online initiatives, we continue to invest in new growth opportunities in other subjects in addition to math and science.

As I explained last quarter, we work with Cambridge University Press for content targeting young learners called Hello English. The timing of this cooperation is good, because we see a particular opportunity to offer English training to younger age groups.

We are dedicating a lot of resources to conversational English for young learners as parents want to continue to expose their children English from a young age that have less opportunity to do so now in the public schools.

The same goes for Chinese composition, which will become a more important part of Zhongkao and Gaokao exams as a result of the recent policy changes.

We see a new opportunity expanding our curriculum to include Chinese composition training, especially in the younger age groups, including Kaoyan and Mobby, where we have seen strong enrollment growth for Chinese composition in the last quarter.

We continue to motivate our people and invest in hiring new talent, particularly for content development in our emerging business units. In addition, we maintain our commitment to investing in IT systems to improve our back-office capabilities.

Through Oracle Hyperion software project for financial planning and analysis has kicked off in May and we have engaged Cap Gemini to do implementation for Hyperion as well as the new purchasing system, both of which we expect to be in place before the end of this year.

In conclusion, the first quarter was marked by solid operational and financial progress and execution on plan of our key priorities for this year. As we pursue new product to expansion and technology-based innovation, we continue to strike a balance between current and future growth.

Before I moved to the financials, let me say a few words on our convertible senior notes which were issued in May.

The net proceeds of approximately US$203 million together with the remaining approximately US$26 million we had offshore give us US$229 million in offshore cash reserves, a large portion of which is expected to be used for strategic initiatives.

We continue to look for new strategic investments and acquisitions in the mobile Internet arena in order together with our internally-driven initiatives explained earlier to support our company mission to help students achieve better outcomes through our more efficient learning process. Let me now go over the financials in detail with you.

We delivered U.S. $89.0 million in revenue in the quarter, representing revenue growth of 45% versus the same period in the previous year. Driving the quarter's revenue growth was an increase in total student enrollments. Total student enrollments increased to approximately 279,200 from approximately 192,650 in the same period one year ago.

The increase in total student enrollments was driven primarily by increases of enrollments in the small-class offerings. On the ASP side, the year-on-year ASP was flat for the first fiscal quarter from the same period of the previous year. While first quarter's ASP for the total business was flat in U.S.

dollar terms, importantly the ASP growth of our core small-class offering continue to be very strong and over 8% in the quarter, even as a greater contribution in small-class revenues now comes from cities outside of Beijing and Shanghai, where ASPs are lower than in these two metro markets.

This flat blended ASP reflects a very positive shift in our business. As we continue to manage the growth of a one-on-one business, the online courses business and small-class businesses are taking share while one-on-one contribution to our total revenues moderates over time.

The ASP for the total business was also affected by the relatively large revenue contribution from outer cities, where ASP are lower and the strength of the U.S. dollar versus the Renminbi.

As planned, we have taken price increases for summer classes in Beijing, Shanghai, Shenzhen, Suzhou, Zhengzhou and Chongqing and have already taken price increases in Wuhan and Taiyuan in either the winter spring terms, which will, of course, can place over the summer and fall terms.

The ASP of our small-class business continues to grow as parents are willing to pay a premium for the high-quality offerings we provide. However given that, we expect online to remain our fastest growing business and the one-on-one revenue contribution to further decrease in coming quarters.

Blended ASP for the total business may in fact trend down in future quarters. Again, we see this trend as favorable from a product mix perspective. Cost of revenues increased by 3.6% to US$41.7 million from US$31.9 million in the same year ago period.

The increase in cost of revenues is mainly due to an increase in teacher compensation rental cost and other stuff costs associated primarily to an expansion of learning capacity as well as increases in wages and teacher fees versus the year ago period.

Non-GAAP cost of revenues, which exclude share-based compensation expenses increased by 30.6% to US$41.7 million from US$31.9 million in the first quarter of fiscal year 2014. GAAP and non-GAAP gross profit for the first quarter were above US$47.3 million as compared to the US$29.5 million for the same year ago period.

GAAP and non-GAAP gross margin for the first quarter were both, 53.2% as compared to both 48.0% for the same period of last year. Selling and marketing expenses increased by 46% to US$11.4 million from US$7.8 million in the first quarter of fiscal year 2014.

Non-GAAP, selling and marketing expenses which excluded share-based compensation expenses increased by 45.8% to US$10.9 million from US$7.5 million in the same period of last year.

The increase in selling and marketing expenses in the first quarter of fiscal year 2015 was primarily result of an increase in compensation of sales and marketing staff to support a greater number programs and service offers versus the year ago period.

General and administrative expenses increased by 49.2% to US$22.4 million from US$15.0 million in first quarter fiscal year 2014. The increase in general and administrative expenses was mainly due to an increase in compensation to general and administrative personnel to support a greater number programs and service offerings.

Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increase by 40.1% to US$18.9 million from US$13.5 million in first quarter fiscal year 2014.

The above factors combined to give us operating income of US$13.7 million, representing year-over-year increase of 105%, non-GAAP operating income increased by 106.9% year-over-year to US$17.7 million. Operating margin in the first quarter was 15.4% as compared to 10.9% in the same period of the previous year.

Non-GAAP operating margin was 19.9% as compared to 13.9% in the same period a year ago. Income tax expense was US$2.4 million as compared to US$1.2 million in the first quarter of fiscal year 2014. The increase of effective tax rate was mainly because the income tax preferential period of one of TAL's entities expired at the end of calendar year 2013.

Our net for the quarter was US$13.4 million and increased by 65.7% year-over-year. Non-GAAP net income for the first quarter was $17.4, up by 74.8% year-over-year. This gives us the net profit margin of 15% as compared to 13.1% in the same period last year. Non-GAAP net margin was 19.5% versus 16.2% in the same period of last year.

Basic and diluted net income per ADS were both, US$0.17 for the quarter. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses were both US$0.22.

From the balance sheet as of May 31, 2014, the company had US$578.2 million of cash and cash equivalents and US$0.3 million of term deposits as compared to US$269.9 million in cash and cash equivalents and nil of deposits as of February 28, 2014.

The company received net proceeds of US$202.5 million from the convertible senior notes issued in May 2014. Capital expenditures for the first quarter of fiscal year 2015 were US$4.4 million, representing an increase of your US$2.4 million from US$2.0 million in the first quarter of fiscal year 2014.

The increase was mainly due to leasehold improvements and the purchase of servers, computers, software systems and other hardware for the company's teaching facilities. As of May 31, 2014, the company's deferred revenue balance was US$235.8 million as compared to US$154.2 million as of May 31, 2013, representing year-over-year increase of 52.9%.

Based on the company's current estimate, total net revenues for the second quarter of fiscal year 2015 are expected to be between US$120.5 million and US$123.2 million, representing an increase of 31% to 34% on a year-over-year basis assuming no material change in exchange rates.

Our guidance for the second quarter is based on the usual every other year seasonality in Q2, associated with the timing of Chinese New Year among other factors that incorporates the expected impact of the weaker Renminbi compared to the year ago period.

As I have indicated on previous earnings call, the timing of Chinese New Year determines when spring term classes begin each year. When reconciling to fiscal quarters this effect cause is revenue tailwind in the second and fourth quarter of one year and some revenue headwind in the same periods of the following year.

This year we have had the expected impact in Q2 due to the seasonality. Another factor was the exclusion of the Saturday classes that this year took place in May, and therefore has already been recognized in the first quarter.

I would like to point out that even after taking into account these study terms to fiscal quarter adjustments, we still expect approximately 40% top-line growth in Renminbi terms for our small-class business in Q2.

The segment where we are expecting lower top-line growth estimated to be in the low double digits in Renminbi terms is in the one-on-one business. This has some near-term impact to the top-line, but overall is a very favorable mixed shift for our business.

If we achieve the guidance of 31% to 34% revenue growth in Q2, then we will have achieved 36.6% to 38.4% year-over-year top-line growth for the first half of the year. We have strong business momentum and maintain a positive outlook for the year. These estimates reflect the company's current expectation which is subject to change.

That concludes my prepared remarks. Operator, I am now ready to take questions..

Thank you very much. (Operator Instructions). Your first question comes from the line of Fei Fang from Goldman Sachs. Please ask the question..

Hi. Joe and Mei. Congratulations on the quarter. Very strong results. Can you discuss expansion plan for the rest of the year, especially in the context of the convertible bond proceeds you have raised.

How many new learning centers would you plan to view in the rest of the year and also what's the plan to go into further new cities and of course also how would you plan to expand your online revenues. Then I have a quick follow-up. Thank you..

Sure. Thanks for your question, Fei. The first thing I would point is that the convertible bond proceeds won't be used for domestic expansion, so the reason for the convertible bond is because we didn't have sufficient cash offshore, so those proceeds will remain offshore and our expansion onshore will be driven by the free cash flow of our business.

In terms of how we are thinking about the rest of the year from a cities' perspective, we have reached the plan that we said we would.

We are at the high end of the two to four new cities per calendar year, having added those four cities this calendar year between February and June, so we shouldn't expect us to be adding more cities, but you should expect us to continue to be adding learning centers in classrooms through existing learning centers.

If you look at where we added the learning centers this year, you will find that that our fiscal year 2012 cohort was the focus of our center addition efforts with Hangzhou and Chengdu each adding a net two centers and Nanjing adding a net one center, because Xi`an actually added two new learning centers in Q4, one small-class and one one-on-one.

We didn't make net additions again in Q1 to Xi`an. On a per city basis, we added the most learning centers in Shanghai with a net three adds, so this will help support the rapid growth of our business there. Then we added a net small-class learning center in Qingdao and a net one-on-one learning center in Wuhan.

In addition, of course, adding learning centers to Shijiazhuang and Qingdao, which we added in the quarter.

Again, the 2013 cohort Zhengzhou, Chongqing and Shenyang, each added a center in Q4 last year, so we didn't feel like we need to do that again in Q1, but I think we can see the pattern that we are going to continue to be putting in the learning centers and added capacity, where we are getting that really robust growth in Shanghai and all of those cities outside of Beijing and Shanghai that experienced over 100% growth for the small-class business this quarter..

Great. Thanks for that. That's very helpful.

With regard to your online revenues, do you have a plan for, in the rest of the year, how fast you will have to run online contribution?.

Yes. I mean, online is definitely a focus. We saw really great performance out of our online business at xueersi.com in the quarter and we expect that to continue.

It is our fastest growing enrollments business unit of all of our business units and you saw that the revenue contribution went from 3% to 4%, so I think we talked about this in previous quarters, but I would like to see online just to be at least 4% of overall revenues this year from 3% last year..

That's very helpful.

Last question from me, a quick housekeeping one, your guidance for the next quarter what's the FX assumption that you are working with?.

Right. We used 0.612 for Q2 versus 0.1603 for Q1..

Got it. That's very helpful. Thank you..

Thank you. Your next question comes from the line of Philip Wan from Morgan Stanley. Please ask the question..

Hi, Joe and Mei. Thanks for taking my question and congrats on a very strong quarter. My question is about your investment or M&A, so given the company has successfully raised $200 million U.S.

dollars from the CP, and now you have also completed a few acquisitions in the past couple of months, I wonder if you could share with us your views on investment on M&A going forward. Thank you..

Yes. Thanks a lot, Philip.

Just to be clear, firstly I would like to emphasize we will continue to be an organically-driven company for the foreseeable future, but we are making strategic investments now because we believe that this is precisely the right time when our organic growth is strong that we should be making strategic investments, not waiting until organic growth has slowed down, so we expect the vast majority of our investment activity to be in the online and technology area as I mentioned before and our center-based businesses will continue to be driven by organic growth.

We are essentially looking for three things from strategic investments or acquisitions. We are seeking highly complementary assets that will get us, one, new users, two, extend lifetime of our existing users and, three, a greater number of valuable interactions with our users.

Of course, time is of the essence, so we will of course buy in time through making strategic investments in acquisitions. If you think about our past investments and acquisitions we have made in the context of that, you will see that for example with kaoyan.com, we are fundamentally extending lifetime value of our customer beyond high school.

For Babytree, we are bringing in new users, even younger that feed into our Mobby and Kaoyan young learners business, so that's how we are thinking about our investment strategy, Philip..

All right. Thanks, Joe. My follow-up question is about your ASP. I may have missed it earlier. Could you comment on by only looking at the small-class business, what would be the ASP growth for this quarter and what will be the trend that we should expect coming quarters. Thank you..

Yes. This quarter was over 8%, it was 8.4% in U.S. dollar terms in this quarter. We have taken the price increases actually ahead of the summer term, so that's affecting Q2, so with those price increases we went from 70 to 75 in Beijing, from 60 to 70 in Shanghai, 60 to 70 in Shenzhen, 40 to 50 in Suzhou, 40 to 45 in Zhengzhou and Chongqing.

These are all hourly rates in Renminbi terms.

I mentioned on the call that we also took a price increase in Wuhan in the Chinese New Year period from 33 to 40, which will of course extend through Q2 and Tianjin from 40 to 50 in the spring which will of course extend through Q2, so I think that we are going to continue to see very good pricing power and the ability continue to grow ASPs of our core small-class segment..

Great. That's helpful. Thank you..

Thank you, Philip..

Thank you. Your next question comes from the line of Jack Yang from T.H. Capital. Please ask the question..

Hi, Joe and Mei.

I have a question about your new education and the mobile product and Jia Zhang Bang, and we know that you have the advantage platform in PC - and your mobile users also surpassed the PC users, so I wonder how is your Internet strategy new market of occupying in terms of mobile product?.

Sure. Well, we fundamentally believe that we need to lead with mobile. Mobile is where the future is, especially for social products like Jia Zhang Bang, what was previously EDUU, on the PC format.

If you think about what we are trying to achieve, we are trying to create lots of interactions among parents who care so much about their kids, so it makes a lot more sense for them to be able to hear their mobile vibrator or ring every time they hear from other parents they want to hear from rather than having to go back to their computer at certain times of the day and see what has happened on the discussion boards since the last time they left their computer.

Mobile is fundamental to creating what we want to achieve in terms of a highly interactive platform of these parents or the real key decision-makers for the K-12 segment..

Okay. I have a follow-up question about the online enrollment. We know that in online enrollment increased extremely rapidly in the past quarters, so I wonder could there be a possible - it is possible cannibalization going forward for examining the existing cities or do we noticed that some students choose online instead of the offline course..

Sure. That's a great question, Jack. What we see is no cannibalization, so what we see is that when students have a choice between online and offline that will go to a small-class setting.

In cities where we do have both, online and offline, because of the pricing of the online product, people will view it as a supplementary offering, so it's an opportunity for kids if they miss something when they were first listening to it in a small-class segment to go back and hear it again, because you get access to online over an extended period of time or there may be some subject areas, where they don't need the full 15 times and three hours per time 45 hours of instruction for a typical small-class over the spring term.

They could probably buy a skew online that will give them 4 hours, 5 hours, 10 hours in exactly the area where they need the attention. That's what we are achieving online. We don't see cannibalization at this point in time..

Thank you. That's fair and helpful..

Thank you, Jack..

Thank you. Your next question comes from the line of Ella Ji from Oppenheimer. Please ask the question..

Thank you. First, a quick follow-up relating to your M&A strategy, for future M&As is it also going to be minority shareholders most likely.

Also, for your existing investments, do you see any chance that you may increase from minority shareholder to maybe a majority shareholder?.

Yes. In both cases, so up till now we have also had acquisition. Kaoyan.com was an acquisition, Babytree was a minority stake investment, so we have done a mix of both, control and minority stake investments and we intend to continue to do so in the future.

In terms of going from a minority stake to a took controlled investment, yes, that's also something that we would consider.

We like the idea of minority investments, because it allows us to typically sit on the board of the company and get a good understanding as the company to be able to select those companies that we see as the highest potential and move towards the path to control those companies. I think that both of those things you said are accurate..

Okay. Great. Then my next question is relating to the one-on-one market, so one-on-one mix continue to decline and I see that you have a fewer centers comparing to when one year ago.

My question is that do you think the amount for one-on-one Q3, on the market is declining or not growing as fast as for other segments or is it that your company's a particular intention to lower the mix, because that's not most ideally class for margin performance..

Sure. Yes. I mean, I think that you are seeing probably a combination of both. I mean, the market related slowdown. You know, there are comps that you can look at and get a sense for that.

My sense of not yet listed players is that, they also are not growing as fast as they have in the past, but that doesn't mean that our approach is entirely consistent with the market.

As you remember, we position one-on-one as a complement to our small-class business, so we are trying to make it for those top students that need one-on-one at cram at certain times of the year.

We want to be able to address their needs, so we can take the full share of pocketbook of these consumers and also it addresses those students and maybe borderline top students, so they test it into our small-class, but they are kind of borderline, they feel like they need more help, they can go in to one-on-one.

We are addressing a different segment of the one-on-one. Overall industry, our approach is different as well, so I think it's probably a combination of the two factors that you talked about, Ella..

Okay.

Going forward should we expect that their mix of one-on-one continue to decline for you?.

Yes. I actually talked about this last call as well. I mean, I think the long-term destination of one-on-one should be 10% to 15% if you look at us in the three to five years time, so yes I would expect that and I think it's a very favorable mix shift for our business..

Okay. Then last question is, you mentioned an impact of the regulatory change in Beijing that the enrollment of English class. I think you said it was down this quarter.

Could you quantify that for us in what range do you think the enrollment is down year-over-year?.

Yes. Sure. I mean, it was down a few thousand enrollments just to give you kind of a ballpark number. I don't want to disclose specific subject by city enrollments data, so that kind of gives us you sense.

I think that we are addressing it very swiftly and in the right way, with our curriculum development, so Hello English in addition to the book curriculum text-based stuff we are also doing a lot with digital, mobile, so that's going to be an exciting new shift for our business.

It will probably take a couple quarters before it actually funnels into the business, but will be good.

Then this coming summer term, what we have done is we have really promoted trial for our English, so we have a really cool offering which is six sessions and three hours per session for a total of RMB 89, so we have a really strong belief that given the high quality of our product, if you come into a low-jell-o classroom, you will know the difference and stay with us, so we are doing a lot of activities also to drive trial for our English business.

Again, as I mentioned in my prepared remarks, English is growing 47% outside of Beijing, so it's a very strong category for us where we continue to expect high growth from a total China perspective and will continue to put resources against it..

Got it. That's very helpful. Thank you..

Thank you, Ella..

Thank you. Your next question comes from the line of Clara Fan from Jefferies. Please ask the question..

Hi. Hello. Thank you for taking my question. I have got two questions. Firstly, would you mind sharing with us some financial and operating stats of xueersi.com? You mentioned that is profitable this year.

Just wondering about the margins compared to your other segments and what are we expecting for the full-year fiscal '15? Are we expecting xueersi.com to be profitable? Secondly, a little more about the ASP trend. Would it be possible going forward given the online is contributing more to the business than one-on-one is coming down.

For fiscal year '15, would it be possible that ASP would probably be down or maybe only around one percentage points to three percentage points? Thank you..

Sure. Thanks, Clara. Yes. In terms of online, at scale, I think, online has the potential to have profitability somewhere between the one-on-one business and the small-class business. It was roughly a breakeven business for us last year.

It's new to profitability, but I don't think that at this stage in the game, profitability is what we should be looking for in the online business.

It should be more about user acquisition and retention and that's what excites me about the online business that the user enrollment numbers are up and it's the fastest growing enrollment business for us that retention has improved and one we still have a lot of room to get on both of those metrics, so that's going to continue to be the focus over the coming months.

In terms of ASP, I mean, I mentioned in my prepared remarks that based on current trends and how we are seeing this nice strength in our online business, you could potentially see ASP trend slightly down.

My view is that, what's the most important thing you should be looking at is the pricing power of our core small-class business that's where we differentiate. The other stuff that you are seeing is mix shift, which I think is actually very favorable mix shift, moving away from one-on-one, moving more towards small-class and online.

That's what we want to be doing. That's where the future is..

I have got a quick follow-up, so last quarter we mentioned that probably looking at around 35% top-line growth for the full year fiscal year '15. Are we still seeing the same growth, but probably a slightly different mix with the high enrollment growth, but lower ASP growth? Thank you..

Yes. That was the budget number. There has been no change to our budget. That remains intact. Yes. It will be more enrollments-driven..

Thank you..

Thank you very much. The next question comes from the line of Leon Chik from JPMorgan. Please ask the question..

Yes. Hi. Congratulations on your strong margins. Okay, the question is like this. Like, for your cities where you have one center right now, like the other - now before you add another one or you can go from like one to four, because it look like [past] add like one a year. That's the question..

Yes. Certainly, it's not about filling them up. It's about making sure that we are getting the tipping point business dynamics that we are looking for, so we could easily set up four, five centers right away and fill them up right off the bat, but that is not what the game is about for us.

I would expect that you are going to similar type expansion as we have seen in the several years where you start with one, you go to two to three to four, but it's not quite as slow as you may be thinking with one learning center per year. I mean, if you look at Chongqing, it has four learning centers. We entered that market in 2012 for example.

The approach, it's very important for us to continue with approach that we have had up from now. Not because the demand is out there, but this is how we get the high quality demand that we are looking for..

To follow-on on that, obviously you have some cities with like 10 centers and you got some cities with the population with one center. Looking at your center development in the past, it does look like you do kind of like one a year. Then once you hit the third and fourth year, you do like three.

I mean, is there any reason why none of these cities - in time all be like 10 centers?.

Yes. Of our existing cities that we looking at, yes, I mean, these are all cities that we see - potential K-12 market. I think that they all have the potential.

That's why we have chosen them and that's why we add two to four new cities each year rather than some bigger number, because we are going after the highest potential market since we fared in terms of K-12..

Thank you..

Thank you, Leon..

Thank you. (Operator Instructions) There are no further questions. I would now like to hand the floor back to Mr. Kauffman for closing remarks..

Thank you, all, for taking the time to be with us today. We look forward to meeting you in Beijing, taking around to our centers here and helping to learn more about our business. If you have any further questions, feel free to reach out to myself, or Mei or any of our other IR associates. Thanks so much and have a great day..

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect. Have a nice day..