So that’s kind of the demand side factor we are considering. In the last few quarters, we have been seeing development of the product itself and development on product market fit. Now, moving on to the operating side on the supply side, when we speak to a balanced approach, what we mean is that we’re not only focused on building out capacity for future business development, but we also want to make sure that as we expand our learning centers, we can still provide a sustainable level of quality of service and a sustainable level of operational efficiency, as we manage our own learning center network. So these are the few factors we tend to consider when it comes on to making decisions on learning center expansion. I hope that answers your question Caini.
Caini Wang: That’s it for today. Thank you very much.
Operator: Thank you. Our next question coming from the line of Lucy Yu with Bank of America. Your line is now open.
Lucy Yu: Hi, Alex, hi, Jackson. This is Lucy from Bank of America. I have a question on margins. So I noticed that our GP margin and OP margin has been quite volatile. You already explained that this quarter the GP margin contraction is largely due to the business mix change. But how should we think about the GP margin in the future? And if we’re looking at SIM business on a like-for-like basis, how is the margin trends at the moment? Thank you.
Jackson Ding: Lucy, thank you for the question. This is Jackson. And I will take this one. When we talk about gross margin trend, I think, it would be mostly helpful if we dial back a couple of quarters and look at the trend over time, right? So just to set the stage, I think, if we look at last fiscal year, right, for most quarters our gross margin bounced between 50% to 60% range, right? And in fiscal Q1 so a quarter ago our gross margin was 49.3%, and in this quarter our gross margin was 58.9%, which was down year-over-year, but up quite a bit quarter-over-quarter, right? And when I look at gross margin of the overall company two things — I would say have the most – two factors I would say have the most influence on gross margin eventually.
One is the overall business mix of various business lines. And two is the kind of, the intrinsic gross margin right, if you will of the underlying businesses. So maybe let me explain to you first what happened in Q1 and that will probably help us understand what happened in Q2. So in Q1 what we saw was a gross margin dip to just below 50%. And that was primarily a result of shift in underlying business mix, right with some of our lower-margin business constituting a larger portion of our total revenue. Now from Q1 to Q2 the mix stayed relatively stable. So it was a factor of the underlying business picking up on the gross margin. I will caution you though Q2 is given the summer vacation and seasonal influences Q2 tends to be a quarter where our offline learning centers are at a fairly high utilization at has resulting in a relatively high gross margin if you look across the quarters.
So in the next quarter I do expect a decrease in gross margin in general. I hope that answers your question, Lucy?
Lucy Yu: Thank you, Jackson. Just two follow-ups. When you mentioned decrease I assume you mean Q-on-Q decrease, but if we’re looking on a Y-o-Y basis how should we think about the margin in the third quarter?
Jackson Ding: Yes. I’ll just leave it as we do see a quarter-over-quarter decrease. Honestly, when we manage the business I’d say less focus on Y-o-Y gross margin change because the underlying business shape is just less comparable Y-o-Y at this point.
Lucy Yu: Understood. Thank you so much.
Operator: Thank you. And I will now turn the call back over to management for any closing remarks.
Jackson Ding: All right. Thanks, operator. And again thanks everybody for joining today and thanks for your questions. And we look forward to speaking with everybody next quarter. Have a good day. Bye-bye.
Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.
