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Bright Scholar Education Holdings Limited (NYSE:BEDU)
Q4 2020 Earnings Call
Nov 12, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for standing by for Bright Scholar's Fourth Fiscal Quarter and Fiscal Year 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the meeting over to your host, Ms. Ruby Yim, Investor Relations Counsel.

Ruby Yim -- Investor Relations Counsel

Thank you, operator. Good morning and good evening. Welcome to Bright Scholar's fourth fiscal quarter ended August 31, 2020 earnings call. Joining me today are Mr. Jerry He, our Executive Vice Chairman; Mr. Andy Chen, our Co-Chief Executive Officer; and Ms. Dora Li, our Chief Financial Officer.

As a reminder, today's conference call is being broadcast live via webcast. In addition, a replay will be available on our website following the call. By now you should have received a copy of our press release, that was distributed on November 11, 2020 after market close, Eastern Time. If you have not, it is available on the IR section of our website.

Before we get started, let me remind you that today's call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, the Company's business plans and development, which can be identified by terminologies such as may, will, expect, anticipate, aim, estimate, intend, plan, believe, potential, continue, is/are likely to or other similar expressions. Such statements are based upon management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict, and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding this and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

During this call, we will be referring to GAAP and non-GAAP financial measures. We use certain non-GAAP measures as supplemental measures to review and assess our operating performance. These non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for net income attributable to Company or other consolidated statements of comprehensive income data prepared in accordance with U.S. GAAP.

Please note all numbers are in RMB and all comparisons refer to year-over-year comparisons, unless otherwise stated.

With that, I'll turn the call over to our Executive Vice Chairman, Jerry He. Jerry?

Junli He -- Executive Vice Chairman

Thanks, Ruby. Thank you all for joining us today for our fourth fiscal quarter and full-year 2020 conference call. We appreciate your interest in our Company and we look forward to sharing our results with you on this call.

I would like to start the call today by thanking our leadership team, academic and operational teams globally for their extraordinary efforts during fiscal 2020. These past nine months have been challenging for all of us. We have been confronted with cascading national and global crisis, including an unprecedented pandemic and a historic significant global recession.

We pivoted quickly to accommodate the operating changes that were necessary in order for us to continue operations safely and effectively in a very volatile market. At the same time, we kept our focus on strategical priorities to strengthen our Company and build a global network of schools that embrace latest technologies.

The operational and the financial results we announced this morning, as well as our full-year results reflect the agility of our team, the strength, our culture and the resilience of our diverse business.

On our call today, I will go through the prepared remarks on behalf of our senior management team and provide an update on our initiatives to address the evolving industry dynamics and conclude with our outlook of fiscal 2021. Dora will then provide a more detail on business and the financial performance, and our guidance for fiscal 2021. I will wrap up, and then we will take your questions.

Let's begin our earnings report. For those who are new to our Company, we have included in our earnings presentation a brief corporate introduction from Slide 5 to 11, which you can download from our IR website. Again, all numbers are in RMB and all comparisons refer to year-over-year, unless otherwise stated.

Please turn to Slide 13 for the highlights of our fourth quarter and the full fiscal year performance with detailed breakdown by respective business in Slides 14 to 15. In fiscal 2020, our overall business performed very well and ahead of our plan in the first half of the fiscal year. However, the overall impact from COVID-19 in China, and in particularly abroad, caused a substantial decline in our fourth quarter performance.

The revenue for the fourth quarter was RMB652.1 million, dropped by 8.4% year-over-year, with gross profit was down 29.5% and a operating loss of RMB171.9 million. This was mainly due to significant impact of the pandemic around all of our business, particularly our overseas schools and overseas counselling business as a result of nationwide lockdown, and the closure of schools campus.

Although, situation in China was greatly improved with Government's success in containing the pandemic and eventually reopening of schools, there was still loss of income from meals and boardings for our Domestic K-12 business that attributed to substantial decrease of operating income. But amid the significant challenges and disruption, Bright Scholar still delivered a solid full fiscal year with revenue growth of 31.3% and an adjusted EBITDA growth of 36.5% for fiscal year 2020.

The financial performance once again demonstrates the resilience of our multi-facet growth strategy and the strength of our portfolio of business.

Let me walk you through the performance of our respective businesses. Our Domestic K-12 business, China's encouraging sign of steady economic recovery from the pandemic and its continuous effort to minimize risk of resurgences, provides strong impetus to our business recovery. Over 54,000 students have been enrolled for the September 2020 school term in our Domestic K-12 schools, as of the reporting date.

The average number of students increased by 6.6% for the fourth fiscal quarter and 9.9% for the fiscal year compared to the same period in the prior fiscal year, as shown in Slide 16. All of our K-12 campuses in China have reopened with safeguards in all of our facilities to protect our students and staff, including increased frequency of cleaning and disinfecting facilities, social distancing practices and other measures to minimize potential risk of resurgence.

Turning to Slide 17, our compromising focus on helping our students to achieve outstanding academic performance has continued to stress our market leadership in premier education. Our students achieved remarkable results with 94% of our 2020 graduating class, were admitted to global Top 50 institutions, and 98% were admitted to global Top 100 institutions, with six from Oxbridge and four from the University of Chicago and 12 from UC Berkeley.

We also are pleased to report that Fettes Guangzhou School and the kindergarten opened as scheduled in September, and we will continue to optimize school expansion diligently and efficiently.

On our overseas school business, as I mentioned at the start of the call, the operation was mostly negatively affected amid ongoing pandemic and lockdown in the U.K. As shown in Slide 18, the near-term actions and the initiatives to mitigate the financial impact that we have been estimated [Phonetic] to contain COVID-19 puts our overseas business segment on stronger footing to ride through the significant and unprecedented challenges inheriting in the global health crisis and the new major economic slowdown.

Our global education network is of a strategic importance in enriching student lives and learning experience, enhancing extended performance through global recruitment and training, joint R&D collaboration between our overseas and domestic schools, as well as across different business units within Bright Scholar.

Talking about the future growth of Bright Scholar, both our Complementary and EdTech businesses will be driving our next phase of growth over the long term.

Please turn to Slide 19 for our Complementary Education Services business. Despite the impact of COVID-19, revenue for fiscal 2020 grew by 9.1% as we seized the opportunities in the summer by announcing new products and services to strengthen our market position. The acquisition of Leti Camp will further expand our capability to include hands-on inquiry-based learning that offers enormous potential and synergy, which will expedite the expansion of our outdoor camp business in the post COVID-19 period.

There are enormous market opportunities in expanding our portfolio for Complementary Education Services, including after-school tutoring for K-12, study tours and camp activities. We plan to further leverage the collaboration with Country Garden to explore more opportunities in broadening our outdoor camp business within China, as well as acquisitions to expand our service offerings.

Moving onto Slide 20 for our EdTech business. The COVID-19 crisis has been a major catalyst driving policymakers, service providers and more parents and families to explore online learning options. The increasing awareness and acceptance of online resources merging offline activities for optimal educational results bodes well for us to drive academic excellence as we continued to expand investments in this space.

Our new education technology business comprises online career counselling, online Academic Olympiad training and online international school, the 3i Global Academy. The launch of the online international schools with online-merge-offline model in June represents a major milestone in utilizing technology to provide access to high quality education for students around the globe. 3i Global Academy has enrolled more than 170 paying students as of November 7. We recognize that the uncertainties our road ahead entails.

Please turn to Slide 21, where we detail the major challenges as well as opportunities to our business for fiscal 2021. Our Domestic K-12 segment faced challenges to expand our network with increasingly tightened regulations on kindergartens, bilingual and international schools. Our Overseas school operation including K-12 schools, language centers and the camp business were continued to suffer disruptions from nationwide lockdown and resurgence of pandemic crisis. Our Overseas Counselling business, English language centers and overseas camp business will be affected by the adverse operating environment in the U.K. and the U.S.

Notwithstanding the challenges mentioned throughout the call, we are excited by the combination of growth drivers coming into alignment of our fiscal 2021. These growth drivers include steady economic recovery from the pandemic in China, the improved service mix of our portfolio and the new exciting opportunities in complementary business and education technologies.

Our outlook is indicative of the momentum we are carrying into the year, underpinned by the relevance of our growth strategy, the strength of our business, resilience of our team, our operational rigor and the discipline, our ability to evolve rapidly to meet the fast changing needs of our students. We are confident that our strategic initiative will enable us to emerge from the crisis as a stronger Company that will be well positioned for long-term growth and success.

Furthermore, to underscore the confidence in the Company's prospects, the Board has approved a new share repurchase plan of up to $50 million on November 11, 2020.

With this note, I'll turn the call to Dora.

Dongmei Li -- Chief Financial Officer

Thank you, Jerry. Let's turn back to our financials. Please be reminded that all numbers are in RMB and all comparisons refer to year-over-year comparisons, unless otherwise stated. Please also refer to our earnings press release for detailed information of our comparative financial performance on a year-over-year basis.

Please turn to Slide 23. Top line results for fiscal year 2020 remains solid with revenue up 31.3% to RMB3,366.5 million for the fiscal year. For the quarter, revenue was down 8.4% to RMB652.1 million. Domestic K-12 schools, including international schools, bilingual schools and kindergarten, revenue was up 5.8% for the quarter and 4.1% on a whole year basis.

For international school, revenue for the quarter, up 15% primarily due to 11% increase of students enrollment. On a yearly basis, revenue was up 17.2% due to 13.2% increase in students enrollment. Bilingual schools, revenue for the quarter up 14% due to 10% increase in students enrollment. On a yearly basis, revenue up 11.1% mainly attributed to 11 point increase in students enrollment.

Kindergartens, revenue for the quarter and fiscal year was down 17.3% and 24.6% respectively, primarily due to decrease in tuition fees, meals and boarding fees as a result of mandatory school closure.

Revenue from overseas schools, an important part of our global strategy was RMB69.1 million for the quarter, down 53.4% primarily due to closure of language learning centers under COVID-19. On a yearly basis, revenue was RMB835.9 million, grew 359.9% year-over-year and accounted for 24.8% of total Group revenue. The year-over-year growth in revenue was primarily due to inclusion of the acquired overseas schools during the comparable period.

Revenue from education technology segment was up 14% for the quarter and up 47.7% on a yearly basis, primarily due to inclusion of acquired online Academic Olympiad training business in the fourth quarter. Revenue from complementary education was down 4.7% for the quarter due to pandemic impact on overseas study counselling business and study tour and camp business. On a yearly basis, revenue was up 9.1%.

On Slide 24, cost of revenue for the quarter was 77.1% of total revenues compared to 70.2% in the same quarter of last fiscal year. On a yearly basis, cost of revenue was 63.7% of total revenue compared to 61.9% last fiscal year. Teaching staff cost, the primary cost contributor, accounted for 43.8% of total revenue, up from 37.8% for the quarter. On a yearly basis, teaching staff cost was 34.9%, down from 38.2%. Our Domestic K-12 Schools average student-teacher ratio for the fiscal year was 8.9 compared to 8.8.

On Slide 25, our gross profit and margins. Gross profit was down 29.5% for the quarter and up 25% on a full-year basis. Gross margin was down 6.9 percentage points to 22.9% for the quarter. And on yearly basis, gross margin was down 1.8 percentage points to 33.3%.

Continuing on Slide 26, for the fourth fiscal quarter, adjusted SG&A as a percentage of total revenue was 40.1%, up from 35.6% in the same quarter last fiscal year. On a yearly basis, adjusted SG&A as a percentage of total revenue was 26.2% compared to 25% last fiscal year. The increase in SG&A expense for the fiscal year was primarily due to the inclusion of acquired business.

Adjusted SG&A as a percentage of revenue for our Domestic K-12 schools for the quarter was 13.5%, up from 12.6%. On a yearly basis, adjusted SG&A as a percentage of revenue for the domestic K-12 schools was 8.8%, down from 11.2% of last year.

As a percentage of Group revenue, adjusted unallocated corporate expenses, mainly headquarter expenses for the quarter was 8.1% down from 10.1%. On a yearly basis, it was 4.5% down from 7%. Adjusted unallocated corporate expenses for the quarter was RMB52.3 million compared to RMB71.1 million last year. For the whole year, it was RMB151.2 million compared to RMB178.1 million. To elaborate more for the adjusted SG&A expenses, please look into the detail on Slide 27.

Continuing to Slide 28, adjusted EBITDA for the quarter was RMB1.4 million compared to RMB4 million. Adjusted EBITDA margin was 0.2% compared to 0.6%. On a whole year basis, adjusted EBITDA, up 36.5% to RMB670.8 million. Adjusted EBIT margin was 19.9%, up from 19.2%.

Adjusted net loss for the quarter was up 72.9% to RMB59 million. Adjusted net margin was negative 9.1%, compared to negative 4.8%. For the whole year, adjusted net income was RMB267.7 million compared to RMB322.6 million. Adjusted net margin was 8% compared to 12.6%.

On Slide 29, our cash and bank balance. As of August 31, 2020, our cash and cash equivalent and restricted cash totaled RMB4,423.9 million or $646 million compared to RMB2,092 million in May 31, 2020. We also have a short-term investment of RMB13.7 million as of August 31, 2020.

Moving to Slide 31. The Board has approved a new share repurchase program of up to $50 million within the next 12 months recently. This is the third share repurchase program of the Company.

Continuing to Slide 32. For the fiscal year ending August 31, 2021, we expect our total revenue in the range of RMB3.77 billion and RMB3.87 billion, representing a growth of 12% to 15% based on the existing business and without potential acquisitions. We also expect average student enrollment in our domestic and overseas schools to be between approximately 56,000 and 57,000 representing an increase of 8% to 10%. We also expect to open 19 kindergartens for fiscal 2021. Beyond fiscal 2021, we have seven schools and 39 kindergartens contracted for operation.

Please refer to the table in Slide 34 and 35 for the condensed income statement. Slide 36 shows reconciliations for SG&A, EBITDA and net income on a GAAP to non-GAAP results.

Slide 37 shows our balance sheet and cash flow statement. For fiscal year ended August 31, 2020, the Company's capital expenditure was approximately RMB149.8 million, down 3.5% compared to last fiscal year.

And on Slide 38, shows our average student enrollment and average tuition fee across our network.

This concludes my financial update. Now, I will turn the call back to Jerry for his closing remarks.

Junli He -- Executive Vice Chairman

Thank you, Dora. We have a strong balance sheet to pursue organic and acquisitive growth opportunities. A terrific portfolio of assets that drives long-term growth. We are very confident that the strategic initiatives will enable us to emerge from the crisis as a stronger Company that is well positioned for long-term growth and success.

I would particularly like to thank all our staff for their strength and the commitment during this really difficult year. And I would also like to express our gratitude to our students, parents, business partners and investors for their ongoing trust they're putting in Bright Scholar.

This concludes our prepared remarks. And we would like to open the call to the questions. Operator, please.

Questions and Answers:

Operator

[Operator Instructions] The first question comes from Elsie Smith [Phonetic] of Morgan Stanley. Please go ahead.

Elsie Sheng -- Morgan Stanley -- Analyst

Hello, Management. I have two questions. The first one is about your F '21 guidance. I wondered, can you break down this F '21 revenue guidance into what is the assumptions behind this guidance like how much recovery from the COVID you assumed? And what is current recovery status of the overseas schools and kindergartens? And the second question is on the regulation. The market today is circulating MOE letter. Wonder can management share what is your view on this MOE letter? Thank you.

Dongmei Li -- Chief Financial Officer

Hi, this is Dora. I'll answer your first question regarding the guidance. As we mentioned in the call, we still -- because of the lockdown and the resurgence of the COVID of the pandemic, which heavily -- still heavily impacted in our overseas business. So the current projection reflected the impact to our overseas business. I don't know, if everything back to normal, we probably we will have more than -- Obviously, the impact on our overseas business is close to RMB300 million as our best estimate during the time.

Junli He -- Executive Vice Chairman

This is Jerry. I'd just kind of add-on to that. We kind of still assume the U.K. lockdown continue, U.S. lockdown continue. Because we already have our September numbers enrollment, which is significantly down from last year, especially for the new students. They continue -- still most of them actually continue either online or some of them are on campus. But new students, some of them defer to the January semester. We model it as the -- because of the new cases in the U.K. is going to, I think three times, four times -- in the peak of May and April. So we kind of assume that will go -- even though, they have defer, but I don't -- we assume, they're probably not going to come when January comes. That's very much a pessimistic view on the projection.

Of course, the recent development, the vaccine from Pfizer and other companies, we have not factored that in, because well, it may be too soon to be very optimistic about that. But again, this is for fiscal 2021. But if vaccine become available to, let's say, most of the people who want to travel, then hopefully back in -- the students will be back in September of 2021, but that would be the next -- sorry, September of fiscal -- September 2021 would be fiscal '22. But for fiscal '21, we still assume they're not going to come back.

And the domestic ones, some things -- because everything is back, mostly back to normal and all the students are back, schools are open in China. So we kind of assume that as back to pre-COVID-19. As we talked about earlier that we actually have seen student enrollment gone up year-over-year of -- for the fiscal -- first month of the fiscal is over 9.9% uplift. So that's the assumption for domestic. Domestic is back to normal. Most of the impact overseas. But we do expect the complementary and education technology will continue to grow.

And the second question is about the regulation, something that's just come up this morning, which is very different from what came out I think about a month ago. But today, if you read into that, it's really about a kind of explanation or comment from the Ministry of Education. I don't know honestly, how much debt we need to carry versus the law, which we started drafting back in summer of the 2018, but still [Indecipherable] finalized yet. So, but it sounds like the tone was tough last month, and now it's softer this month. But we still remain conservative in our expansion plan until we get a more clear picture on that.

Elsie Sheng -- Morgan Stanley -- Analyst

Okay, thank you very much.

Junli He -- Executive Vice Chairman

Thank you.

Operator

Next question comes from Timothy Zhao of Goldman Sachs. Please go ahead.

Timothy Zhao -- Goldman Sachs -- Analyst

Hi, Jerry. Hi, Dora. Thank you for the presentation. Two questions from my side. I think first of all, you mentioned in the presentation that EdTech and the Complementary Education will be a key driver going forward. Just wondering how we should think about the synergies between the two new business, the EdTech and Complementary Education? And your own domestic and overseas schools, if there are any potential synergies or cross-sell opportunities there?

The second one is about the guidance. I think you explained clear that you're a little bit conservative in the overseas. And just to be clear within your guidance, how much of the growth is organic versus acquisition going forward? And also, as you mentioned that you already have like 54,000 students in the domestic schools at the moment. Can you share some color on the new student enrollment into the international schools in China? How do you see the international study demand given the COVID situation right now? Thank you.

Junli He -- Executive Vice Chairman

Sure. First question is about the synergy between tech -- EdTech and education services, because we have taken a very conservative view on the school regulations. So as you know, if you look at the history of our company, the school operation have produced very steady growth cash flow. So we believe that will continue to grow. But we are more conservative about opening new schools. So if you can imagine that our education Domestic K-12 would be more focused on the quality of education, also the operating efficiency.

But EdTech, so we all see that is a growth area and also education -- the complementary education services is also a growth area that are less regulated, particularly after the kind of tightening of complementary education in end of 2018, beginning of 2019. Now, obviously the opportunity is actually opening more up. So we can certainly leverage the expertise and the contents from our K-12 schools. For example, the tutoring, we already have the tutor and we already have the teachers, the average data to our, for example, 3i Global Academy, which is online school, of course, we are actually exactly doing that. We can use our school teachers, leverage the expertise and the staff and the manpower from our schools to be teachers on our online schools. So there is certainly synergy between that. And also we can leverage the teachers, and the curriculum and the contents we have at our overseas school as well. But that's going to drive -- I think -- so if you look at more -- into more the domestic as it is going to be the cash cow, we see improving efficiency in margin. But the expansion is more on the tech and education services.

And then in terms of the guidance that we gave, again has been our -- we have been very conservative from very start of being a public company. So, the guidance that we gave did not include any -- did not factor in any potential additional acquisitions, that's all organic. And also for the third question about the -- sorry international schools, with the kind of U.S.-China trade and also pandemic, we have seen some parents are hesitating whether or not they want to send the students to school overseas, for example, to our U.K. school or U.S. school. Even if they want to, they can't do that this year, because many of them can't even get Visa or a clearance to go to overseas. So some of them are going -- kind of watching and see, and also everybody is watching the U.S. election, hopefully, it's going to clear out who is going to be the President next -- for the next four years. So people are hesitant.

So we have seen some shift between -- from U.S. to U.K. and Hong Kong. And after the pandemic, and of course, U.K. -- and then, we can't really go anywhere. So there are more students staying in China, so going to international school in China. So that's kind of the trend that we're seeing. But we believe, at least that's our thinking going forward, once the countries opening up and restrictions are lifted, I think the trend will go back to what it was.

Timothy Zhao -- Goldman Sachs -- Analyst

Okay, thank you.

Operator

[Operator Instructions] The next question comes from Leonard Law of Lucror Analytics. Please go ahead.

Leonard Law -- Lucror Analytics -- Analyst

Hi, management. I'm a bond analyst. And I have three questions. The first question is, I see that you have RMB1 billion of restricted cash. Can I understand what is the nature of the restricted cash? Second question is to get an understanding of management's thinking behind the RMB900 million short-term loans because the company already has a lot of cash on the balance sheet. And third, will you be able to disclose the acquisition amount for Linstitute and Leti Camp because I think I didn't see the numbers in the press release? That's all. Thank you.

Dongmei Li -- Chief Financial Officer

The restricted cash on our balance sheet is a sort of like a bank saving because we use our overseas bank -- overseas cash we -- during the time we're not having too much acquisition activities. So we save the overseas cash with the local bank, and then long-term RMB within China to do some financial principal guarantee financial investments to earn higher returns. So that's the restricted cash -- cash savings deposit with local bank. So, the second question is...

Leonard Law -- Lucror Analytics -- Analyst

Short-term loan, that's the domestic loan...

Dongmei Li -- Chief Financial Officer

Yeah, domestic loan. The short-term...

Leonard Law -- Lucror Analytics -- Analyst

Yes, we -- go ahead.

Dongmei Li -- Chief Financial Officer

Yes, short-term loan. Yes, that's right. The short-term loan is the same -- pretty much the same nature as we mentioned on the restricted cash.

Junli He -- Executive Vice Chairman

So basically we borrowed lower interest loan, but made investment in short-term investments that have higher return. So we make -- basically make a spread on the yield. Just like we have -- just like the first question you asked, we have overseas U.S. dollars that are earning not much, so we use the U.S. dollar to guarantee loan from domestic bank, and invest in bank to earn higher yield. The same thing with the short-term loan basically, same idea. Third question...

Leonard Law -- Lucror Analytics -- Analyst

About the acquisition amount.

Junli He -- Executive Vice Chairman

Well, for commercial reasons we have not disclosed the dollar amount for the acquisition. So we're not going to disclose on the call.

Dongmei Li -- Chief Financial Officer

Yes. It was due to some arrangement between the target and the company, so we cannot disclose that publicly right now.

Leonard Law -- Lucror Analytics -- Analyst

Okay. Sure, sure. I understand. That's all. Thank you.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jerry He for any closing remarks.

Junli He -- Executive Vice Chairman

Thank you very much for joining the conference call. Please feel free to contact us if any further questions. We wish everybody a great day.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Ruby Yim -- Investor Relations Counsel

Junli He -- Executive Vice Chairman

Dongmei Li -- Chief Financial Officer

Elsie Sheng -- Morgan Stanley -- Analyst

Timothy Zhao -- Goldman Sachs -- Analyst

Leonard Law -- Lucror Analytics -- Analyst

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