Tarena International, Inc. (NASDAQ:TEDU) Q3 2018 Earnings Conference Call - Final Transcript

Nov 19, 2018 • 08:00 pm ET

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Tarena International, Inc. (NASDAQ:TEDU) Q3 2018 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

(Operator Instructions) Mariana Kou, CLSA.

Analyst
Mariana Kou

I have two questions. The first one is about the gross profit margin for the adult business. I think Steven -- sorry, Dennis just now is mentioning that the gross profit margin for the adult business were similar to last year but at the same time, I think our utilization actually increased. So just wondering -- I know that, I guess, the ASP was probably dragged down a little bit by the USD channel. So just wondering how should we think about the GP margin for the adult business going forward?

And then my second question is just also on the margin for the kids business. I know we are definitely in investment phase for now. So how -- I guess, at what point should we expect to see a bit of a margin improvement for the kids business? Thank you.

Executive
Dennis Yang

Mariana, let me address your two questions. Your first question is about adult gross profit margin. In this quarter, 20 -- the third quarter of 2018, our seat utilization improved to 73.7%, which is a little -- slightly higher than the utilization a year ago. So this is -- we've still got the unfavorable factor. And meanwhile, we also have another unfavorable factor, which is deferral of the revenue for the students recruited from university partnership because those students take a multiple-year program, which is -- if you compare the number of those students who take a multiple-year program, last year weren't that many.

So the deferral of revenue will be an unfavorable factor. So we have two moving parts related to this gross profit margin. So in the end, the -- this quarter gross profit margin will be flat year-over-year. For the outlook for the future gross profit margin, I will say that in the future a couple of quarters, we try to maintain a similar level of -- in the last year, the same period last year, but it will likely have a slight expansion in terms of gross margin.

Your second question is about the K-12 margin. Actually, currently the K-12 is loss-making. As mentioned, the cause -- the root cause is because we have the majority of learning centers in K-12 business that operated less than 12 months. More new K-12 learning centers that will be greater losses will be shown up in the financials.

This is my view. So, it may take one or two years because we're still in a stage to drive the fast expansion in this vertical, so we -- as we mentioned -- we just mentioned in 2019, we're about to open 80 to 100 new K-12 learning centers. So 2019 is still for K-12 business a loss-making year and I think that the amount of -- to the losses from K-12 will be comparable in that, in 2018. So if we look at future years in 2020 or 2021, that the losses from K-12 business were getting smaller and this is still very likely to