Tarena International (TEDU) Q3 2018 Earnings Conference Call Transcript

Tarena International (TEDU -3.40%)
Q3 2018 Earnings Conference Call
Nov. 19, 2018 8:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Tarena International, Incorporated third-quarter 2018 earnings conference call. [Operator instructions] Today's conference is being recorded. If you have any objections, you may disconnect at any time. I would now like to turn the call over to your host for today's conference, Ms.

Lei Song, Tarena's reporting director.

Lei Song -- Investor Relations

Thank you, operator. Hello, everyone, and welcome to Tarena's third-quarter 2018 earnings conference call. The company's earnings results were released earlier today and are available on our IR website, ir.tedu.cn, as well as on Newswire services. Today, you will hear opening remarks from Tarena's Founder, Chairman, and CEO Mr.

Shaoyun Han, followed by our Chief Financial Officer Dennis Yang, who will take you through the company's operational and financial results for the third-quarter 2018 and give guidance for the fourth quarter. After their prepared remarks, Mr. Han and Mr. Yang will be available to answer your questions.Before we continue, please note that the discussion today will 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. Tarena does not assume any obligation to update any forward-looking statements except as required under applicable law. Also please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G.

The U.S. GAAP financial measures and information reconciling these non-GAAP financial measures to Tarena's financial results prepared in accordance with U.S. GAAP are included in Tarena's earnings release, which has been posted on the company's IR website at ir.tedu.cn. Finally, as a reminder, this conference is being recorded.

In addition, a webcast of this conference call is available on Tarena's Investor Relations website.I will now turn the call over to Mr. Shaoyun Han, Tarena's founder, chairman, and CEO. Mr. Han will speak in Mandarin and Mr.

Yang will translate.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

Thank you, Lei. Welcome, everyone, to our third-quarter 2018 earnings conference call.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

I'm very pleased to report that our net revenues in the third quarter increased year over year by 23.2% to reach RMB 700 million, meeting our previously issued guidance. During this quarter, for our adult education business, with fall record year-over-year growth in student enrollment, we -- our University partnerships which contributed the recovery of our overall adult education business enrollment. Meanwhile we focused on resources optimization and cost control, which led to improvement in many efficiency indicators. In addition, our kid programming education business has once more achieved rapid growth in both student enrollment and tuition cash receipts.

We enrolled 14,670 students during this quarter and the total K-12 cash receipts of this quarter was approximately RMB 139 million, achieving a year-over-year increase of more than 300%.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

First of all, we are very happy to see the exciting progress in our kid education business. We believe that kid technology education will become more and more well known in China, forming a huge market with significant potential and speed -- high-speed growth. In this quarter, Tarena's kid education business delivered outstanding results in student enrollment, center lay out, cost development, revenue contribution, and profitability growth of other centers. As I mentioned previously, the student enrollment of kid education business continued a rapid growth achieving a 309% year-over-year increase, reaching 14,670.

The company will accelerate the investment in K-12 education business with nearly 25 centers for kid education in this quarter. By the end of the third quarter, kid education business reached 124 centers. On top of that, we also have 220 shared learning centers with adult education business where we provide additional classrooms. Our kid education business expanded to 46 cities by the end of this quarter.

Tarena is continuously investing in course development, aiming to build a complete kid programming core system suitable for kids aged between 4 and 18. The core system will be adjusted and perfected with more and more practical class experiences. With its extensive education experience in IT area and solid talent results, we believe Tarena will be able to develop diverse courses to meet market demand to maintain its advantage with advanced core systems as well as to keep leading position in the kid programming education market.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

According to this quarter's financials, kid education business had made greater contributions to the group. On one hand, cash receipts from enrollment reached RMB 139 million, achieving 312% year-over-year growth and the development of approximately 20% of group's total cash receipts. On the other hand, this quarter net revenue under U.S. GAAP reached at RMB 56.8 million, representing 8% of the group total net revenues.

We believe the contribution from kid education business will continue to grow in the following quarters and we expect it will gradually become one pillar of Tarena's business. In addition, the company's -- the standard kid business operation system has been productive with experiences accumulated through the past few years. Both successful rate of opening new learning centers and operational efficiency of other centers are significantly improved.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

We note that the recent change in government regulation related in the K-12 education industry and believe that this will have positive impact on the quality-oriented courses including children programming education. With the increasing importance of information technology and artificial intelligence skills, programming courses become more and more important in providing quality and capability training to young people. We believe this industry will experience high-speed growth. We expect  that Tarena is able to achieve enrollment of more than 40,000 students and to achieve a cash receipt of more than RMB 400 million for the full-year 2018 in kid education business.

The company will accelerate invest in the K-12 area in the next two to three years in terms of new course research and development, network expansion, as well as talent recruitment. We expect to have a total 150 kid education centers by the end of 2018 and we plan to open another 80 to 100 new centers in 2019. These initiatives require more investment and may affect margin levels in short term as the new centers are still in a ramp-up period before they break even. However, given the broad market prospect and rapid business growth, the K-12 business will provide a strong foundation for the company to grow in the coming years.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

In addition to kid education business, Tarena's adult education business achieved RMB 643 million net revenues in the third quarter, representing a 15% year-over-year growth. Student enrollment growth is a primary factor contributing to revenue growth. Adult education market has gone through fluctuations during the past year, and education industry was adversely impacted by IT industry headwinds. Our traditional retail business growth rates slowed down.

At the same time, we closed or merged 26 adult nonperforming learning centers in the second and third quarters this year. Despite the impact, I am very happy to see that enrollment of adult education business during this quarter was 43,513, achieving a year-over-year growth of 20.1%. Enrollment through retail channel delivered 31,536 with year-over-year growth of 12% while enrollment through university channel reached 11,960 with year-over-year growth of 49%. The main driver of the growth in university channel is through partnership with universities.

As we mentioned in previous calls, with this kind of enrollment model, we are able to record large amount of students through university partnership, which help us to expand student acquiring ability in adult education business to ensure long-term growth to enhance enrollment efficiency and to reduce the student acquisition cost. Yearly courses last two to four years ended this model and the revenue recognition period is also lessened accordingly. Such tuition with signed contract is deferred to later years as education service delivered -- is delivered in later years as well. Most of the students enrolled during this quarter through university channel participate multiple-year program.

The higher-than-expected enrollment will only bring limited amount of revenue this year. Despite the temporary short-term impact to our net revenues with the business model of student enrollment through university partnership, the long-term cooperation with universities will bring us rapid growth in student enrollment in adult education market, which will lay the solid foundation for the company's adult education business in the future.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

In this quarter, we evaluated a growth rate of retail channel enrollment was lower than our expectation at the beginning of the year. And we expect the tuition from the student enrolled under university partnership in the second half of the year will be deferred to later periods to recognize as a revenue. We believe that these two factors will impact this year's revenue. Therefore, the company reevaluated the situation and revised the full-year revenue guidance to a range of RMB 2,249,000,000 to RMB 2,274,000,000.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

In terms of courses contribution an adult business, Python, Big Data, and Linux cloud computing courses have become increasingly popular, contributing a total of 8,230 students in this quarter or 19% of total student enrollment, which further improved from the last quarter. We expect that artificial intelligence-related courses will continue rapid growth in the future. Tarena persists in the development of those IT and non-IT courses. This quarter, we launched two new courses, e-commerce and network engineering technology, to meet the fast-growing market demand of skill improving for professionals in this area.

In addition to the newly launched courses, we have quite a few new courses under development or in the pilot class stage. We will also gradually launch courses -- module courses for part-time students focusing on career enhancement. Diversifying with more courses to target a broader group of students, Tarena's overall course structure will be better prepared to cope with the periodical fluctuation in education business brought by the IT business cycles. In this way, Tarena is able to achieve steady growth in its adult education business with its competitive edge in professional education area.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

During this quarter, in terms of adult education business operations, the company paid more attention to resources distribution, a progress of building new learning centers or adding more classrooms or seats. At the same time, we made efforts to optimize human resources to improve operational efficiency. In this quarter, the company closed or merged a total of 10 adult learning centers and opened Tarena centers in two new cities. By the end of this quarter, there are 191 adult learning centers covering 69 cities with 62,698 seats, which represents 8% year-over-year growth.

By optimizing seat layout, the seat utilization rate improved to 73.9% as compared to the utilization of 73.7% in the same period last year.Meanwhile, the company is adjusting its human resources structure to improve business operational efficiency, while ensuring support of new business growth. This quarter, we further optimized marketing team and sales team and saw improvement of enrollment efficiency. For example, the student acquisition course -- the student acquisition cost per student of adult education business were RMB 5,971. This is the lowest in the past three quarters.

The improvement in seat utilization rate and sales team [Inaudible] productivity mentioned above proved the effectiveness of center resource's optimization strategy. We believe that this strategy will have positive impact to future profit recovery.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

Our non-GAAP operating loss in this quarter was RMB 27 million, lower than the non-GAAP operating profit of RMB 150 million in the same period last year. On one hand, in the past year's rapid expansion of kids education business, over 70 new centers were opened and 21 centers were added through acquisition. Many of these centers are not in a mature stage and currently loss-making, which led to the non-GAAP operating loss of RMB 104,000,000 for kids business during this quarter. We believe that more kids education centers will start to make profit, along with the increases in the centers' active students.

On the other hand, there were non-GAAP operating income of RMB 76 million from adult education business. The reason for the year-over-year decrease of profit was due to the significant portion of revenue were dispersed to later periods caused by increased number of students enrolled through university partnerships as well as additional marketing costs to achieve the higher enrollment. In addition, influenced by market environment, average acquisition cost per student in -- average student acquisition cost in adult education business is higher than in the same period last year. And the positive impact from resources efficiency optimization from adult learning centers and human resources have not been fully realized yet in this quarter.

CFO Dennis will elaborate on this further in his later remarks.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

[Foreign language]

Dennis Yang -- Chief Financial Officer

To sum up, in terms of adult retail channel enrollment, adverse IT market environment resulted in a slower growth rate for our retail channel. For our retail business segment, we'll keep more focus more on improving resources utilization to recover the profitability. For university segment, apart from proactively expand the enrollment in computer science-related universities, we also made exciting progress in enrollment from business management schools. For the full-year 2018, our enrollment in accounting course through university partnership achieved 200% growth, representing 15% of total enrollment from university partnership.

In the long term, we believe that the main drivers for the growth of adult education business will continue to exist. For example, the number of university graduates every year, the lack of skill development courses in current university curriculum and the fact of low job placement rate of university graduates. We are confident in the long-term growth in adult education business. The solid performance, and the new business growth in both adult and the kids education business during this quarter and in the past three quarters ensure the company will meet its business target and lay the strong foundation for its long-term continuous growth.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

 [Foreign language]

Dennis Yang -- Chief Financial Officer

With that, I will now turn the call over to our CFO Dennis Yang to discuss the quarter financial results and our outlook for the fourth quarter.Thank you, Han. Hello, everyone, on the call. First of all, let me discuss a little more about full-year net revenue guidance revision. As Han mentioned, overall IT market brought negative impact to our retail channel business.

Though retail channel enrollment recovered from 4% in the first quarter to 12% in the second quarter, retail channel enrollment growth didn't further improved during this quarter which was still 12% year over year. This comes up with a GAAP from our initial enrollment growth forecast and will have adverse impact for the net revenues for the fourth quarter. In addition, out of 11,960 students we recruited from university channel this quarter, 11,759 students were acquired under university partnership program and they participate in multiple-year courses were part of revenue have to be deferred to future periods. We evaluate the above-mentioned factors impact on the fourth quarter revenue and revised the net revenue guidance to be between RMB 2,249,000,000 and RMB 2,274,000,000 for the full-year 2018.

In the third quarter, we saw robust enrollment growth in both adult and kids businesses and solid improvement in our operational efficiency. Since you already have these numbers in the press release, I'll only review financial results for this quarter briefly by only -- by focusing on some important areas.Let's start with net revenues. For the third quarter, our net revenue increased by 23.2% year over year to RMB 700 million, which consists of RMB 643 million from adult education business and RMB 57 million from kids training programs, representing a year-over-year net revenue growth of 15% and 539% for adult and kids business, respectively. Our adult business net revenue growth is driven by enrollment growth and ASP increase.

In the third quarter, the total course enrollment increased by 7% year over year to 34,870. We observed the adult training student enrollment were 43,513 in the quarter, grew by 20% year over year, which was blended by 12% year-over-year growth from retail channel and 49% year-over-year increase from university channel. Our retail channel student enrollment growth has slowed down in the past year because of low IT market is adversely impacted by macroeconomic headwinds. Meanwhile though it just started a year ago, the student acquisition through university partnership grew fast and contributed 11,759 students for the quarter, taking 27% of our total adult training enrollment.

Besides the enrollment growth, ASP increase is another driver of adult business net revenue growth. In this quarter, average revenue per student -- average revenue per course enrollment was RMB 18,443, which was 7% higher than the same period a year ago. Higher ASP resulted from increase of our standard tuition fees for selected courses and rollouts of advanced course's modules since 2017. Continuing our standard resources optimization strategy from last quarter, the company closed and merged 10 nonperforming learning centers and opened three new centers in the third quarter.

By the end of this quarter, our adult business seat capacity was 62,698, which represented 8% year-over-year increase. Through seat capacity optimization, seat utilization rate improved in the quarter to 73.9% as compared to 73.7% in the same period a year ago, and our adult business gross profit margin was 74%, which was at a similar level during the prior year. Despite recovery of gross margin in adult business, gross margin declined by 580 basis points year over year to 66.4%. Such a decline in gross margin was mainly due to K-12 business margin drag and deferralof revenue for the adult training students taking multiple-year course through university partnership programs.

Tarena has opened 80 K-12 learning centers and acquired20 centers in the past 12 months. And by the end of this quarter, we have 124 K-12 learning centers in total. As most of those learning centers have not yet reached the mature stage, current K-12 business gross margin is significantly lower than our traditional adult training business.And now let's move on to operating expenditures. First, let's talk about student acquisition cost.

As we communicated in the past, it is cost efficient to acquire new students through university partnership program mode. As we recruited a greater proportion of total enrollment through that partnership program continued to optimize student acquisition channel mix and kept improving sales team productivity in this quarter, which saw further improvement in total acquisition cost per student. Total acquisition cost per student is defined as the total selling and marketing expenses of adult business divided by total adult training student enrollment was RMB 5,971 in the third quarter as compared to RMB 4,965 in the same quarter last year and RMB 6,134 in the second quarter of 2018. We noted approximately 20% year-over-year increase of average student acquisition costs.

However, we also observed a 3% quarter-over-quarter improvement in student acquisition efficiency.Now let's continue on G&A expenses. In this quarter, we recorded bad debt allowances for doubtful account receivables of RMB 19 million, which is a RMB 14 million quarter-over-quarter decrease. As we discussed last quarter, we made bad debt allowances mainly to reflect the difficulties in the collection of account receivables from 2017 students. As the company has stabilized the partnership with a group of loan providers, we believe that relatively high risks of account receivables from 2017 students is an isolated case and that won't change the long-term outlook of bad debt provision levels in our adult business.Third, let's discuss about R&D expenses.

Non-GAAP R&D expenses increased by RMB 9 million year-overyear to RMB 35 million in the quarter. Such increase consists of RMB 7 million for adult business and RMB 2 million for kids business. In this quarter, we launched two new courses in adult training segment, which are e-commerce and network engineering technology. Besides we'll also have other courses and development and we believe these investments are crucial to make our courses meet market demand and maintain our competitiveness over other market players.

For K-12 business, we enrolled 14,670 students in the quarter. The total tuition cash receipts were RMB 139 million and net revenue recorded was RMB 57 million. As we mentioned before, operating losses of K-12 business rise from K-12 student acquisition cost occurs ahead of revenue recognition as standard utilization has not yet reached through mature levels. By the end of the third quarter, about two thirds of our K-12 learning centers has been in operation less than 12 months and those learning centers are still loss-making.

Non-GAAP operating losses from kids business was about RMB 104 million for the quarter. Although K-12 sector operating losses recently, we're confident that the K-12 business will grow fast in the future -- couple of years to evolve into one of the important pillars for Tarena's business and become a profitable segment, along with the increasing number of active students. Our non-GAAP operating losses for this quarter was RMB 27 million as compared to an operating profit of RMB 115 million in the same quarter in 2017. Such decline in non-GAAP operating profitability in the quarter was a combination of increase in losses from K-12 business and a decrease in the process from other business due to deferral of revenues from university partnership programs to latter period and higher student acquisition costs.

Looking forward to the fourth quarter of 2018, we expect that the total net revenues are between RMB 625 million and RMB 650 million.So, operator? 

Questions and Answers:

Operator

Thank you, Mr. Yang. [Operator instructions] Your first question comes from the line of Mariana Kou from CLSA. You may ask you questions. 

Mariana Kou -- CLSA -- ANalyst

Hi. Good morning, management. Thank you for taking my question. 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, 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 margin improvement for the kids business? Thank you.

Dennis Yang -- Chief Financial Officer

Mariana, let me address your two questions. Your first question about adult gross profit margin, in this quarter, 20 -- the third quarter of 2018, our seat utilization improved from 73.7%, which is a little -- slightly higher than the utilization a year ago. So this is -- 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, 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 -- last yea, 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 -- 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 very likely to reach the breakeven point, Mariana.

Mariana Kou -- CLSA -- ANalyst

Yes. Sorry just a quick follow-up on the GP margin, I think you mentioned that there will be a small improvement but then, I guess, the Q4 kind of implying growth rate are quite weak. So just wondering that more improvement, will be coming more like next year that we're talking about for the adult business?

Dennis Yang -- Chief Financial Officer

I think adult business next year, I think utilization can further improve because we already mentioned that starting from the third quarter -- actually, from the last -- starting from last quarter, retailing channel business are more focused on operational efficiency improvement. So with this strategy, we hold this kind of improvement strategy, I think the utilization through the quarters will be further improved.

Mariana Kou -- CLSA -- ANalyst

Gotcha. Thank you.

Operator

Your next question comes from the line of Alex Xie from Credit Suisse. Your line is open.

Alex Xie -- Credit Suisse -- Analyst

Thank you, management, for taking my questions. So I have two questions. Firstly, I have to ask about the student acquisition cost from social channel and university channel -- university partnership channel, respectively, and particularly what's the trend for the student acquisition cost from the social channel? And my second question is about the outlook in 2019. What is our expectations for the students' enrollment and revenue growth in adult business and the kids business, respectively?

Dennis Yang -- Chief Financial Officer

Alex, let me first address your first question. If you want separate the acquisition cost per students in retail channel and university channel, I will just say the market condition is still not that ideal. So the student acquisition cost for retail channel, pretty much flattish over the past quarters. So the improvement we saw this quarter for the average in student acquisition in adult business will be coming from low-cost acquisition from university channel.

So university channel actually have pretty low-cost acquisition per student. That's my answer to your first question.

Alex Xie -- Credit Suisse -- Analyst

Yes, yes. Thank you. And then what about the --

Dennis Yang -- Chief Financial Officer

Your second question about the revenue growth outlook and the revenue outlook, in terms of adult business, overall speaking, the enrollment growth will be low teens. I think this is our outlook. So the -- as more students -- again, as more students will -- may come from university partnerships, the revenue growth will be also around low teens -- in the low teens. This is our outlook for adult business.

and for K-12 business, net revenue next year, in 2019, we believe can exceed RMB 500 million, so it is about 200% year-over-year growth next year. In terms of enrollment, we target 100 -- more than 100% year-over-year growth for the double enrollment in 2019. This is our outlook -- current outlook for the enrollment and net revenues next year.

Alex Xie -- Credit Suisse -- Analyst

Thank you. Very clear.

Operator

Your next question comes from the line of Johnny Wong from Jefferies. Your line is open.

Johnny Wong -- Jefferies -- Analyst

Hi, management. Thank you for taking my question. My question relates to the adult business. We see that the trend is slowing.

Aside from adding new courses, what are we planning to do to try to increase the number of enrollment through retail? That's my first question. And second question is in regards to the university mix. We are increasing our enrollment there, but it does seem like there is a larger deferral of students than we expected. If I recall properly, we have been expecting the revenue in that portion to be increasing for the third quarter.

Can we see -- let us know -- can you let us know what we see in that sense? Would there be continue to be more deferrals over the next quarter and probably into next year? Thank you very much.

Dennis Yang -- Chief Financial Officer

OK. Johnny, your first question is about how we can improve our enrolment in retail channel. Apart of new courses we entered investments to be launched, we do [Inaudible], we try to improve conversion. Every month, we got a quite -- a very big number of sales people.

We try to improve conversion which we can have more students. And the second, well, we can try other channels to acquire new students. We try some new -- our traditional channel for retailing, our search engine, recruitment website, and student referral. We also tried social media and feeds in the past one year.

So we tried new channels to acquire new students -- to acquire students through our retail channel.

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

 [Foreign language]

Dennis Yang -- Chief Financial Officer

Yes, Han added that we have also tried to step into a new market that delivered trainings to the students on the job. We provide modular courses to them to take a part on training to have them to have a better career advancement. Johnny, your second question about deferral revenue for student from university partnership, I think next quarter we still have new recruitment of students from university partnerships. But again, let me remind such business model, this is a model for the students who take the two- to three-year program.

So majority of the revenue we recognize in the final year, the second -- late in the second year or the late of second or third academic year. So for -- within three years, 100% of revenue were recognized, so this kind of referral. Let me cite we recruited more than 5,000 students last year. So those -- the revenue from those students were recognized in late of 2019 or already 2020.

So this will be a gap -- I think two-year gap from the start of such a business model to cut -- normalize business or normalize the financial results. So this were a few in a two-year gap or a three-year gap right now. So you will see in this period more deferrals but no -- the more revenue recognized in our financials, so this is my view. So in 2020 latest, you will see that our financials were getting -- gradually getting normalized.

Johnny Wong -- Jefferies -- Analyst

All right. Thank you. Can I just have one follow-up question? What is our current conversion rate of the retail adults?

Dennis Yang -- Chief Financial Officer

Currently, our current retailing conversion rate is about 7% in the first three quarters this year.

Johnny Wong -- Jefferies -- Analyst

OK. Thank you.

Operator

There are no questions at this time. And now I will revert the call to Ms. Lei song, Tarena's reporting director.

Lei Song -- Investor Relations

Thank you, operator. If there are no further questions at present, we would like to conclude by thanking everyone for joining our conference call. We welcome you to reach out to us directly by emailing at ir.tedu.cn. Should you have any questions or requests for additional information, we encourage you to visit our Investor Relations section at ir.tedu.cn.

Thank you.

Operator

[Operator signoff]

Duration: 64 minutes

Call Participants:

Lei Song -- Investor Relations

Shaoyun Han -- Founder, Chairman, and Chief Executive Officer

Dennis Yang -- Chief Financial Officer

Mariana Kou -- CLSA -- ANalyst

Alex Xie -- Credit Suisse -- Analyst

Johnny Wong -- Jefferies -- Analyst

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