New Oriental Education & Technology Group, Inc.

Good evening, and thank you for standing by for New Oriental's FY 2021 Second Quarter Results Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. Cici Zhao. Thank you. Please go ahead.

Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter 2021 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as on Newswire services. Today you will hear from Stephen Yang, Executive President and Chief Financial Officer. After his prepared remarks, Stephen and I will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public findings with the SEC. New Rental does not undertake any obligation to update any forward-looking statements except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org. I'll now turn the call over to Mr. Stephen. Stephen, please, go ahead.

Thank you, Cici. Hello, everyone, and thank you for joining us on the call. Although the impacts of the pandemic continues to raise hurdles for business across the globe. We are pleased to announce a set of financial results in the second quarter of this year that are in line with our expectation. While reflecting strong signs of recovery in some of our business lines, a certain status began to pass to normalization. Total net revenue was $887.7 million. representing a 13.1% increase year-over-year, which is an encouraging result despite these challenges. Our key revenue growth driver, K-12 after-school children's business, achieved year-over-year revenue growth of approximately 26%. Our U.K. middle school, high school, all subjects after-school children's business continues its momentum with a growth of approximately 27%. while our top kids program recorded a growth of approximately 24%. Our industry-leading OMO system has been vital in the previous quarters to ensure our classes run smoothly, and it has once again proved to be instrumental in this quarter. As is provided, our operation with strong flexibility to help the vast majority of our students migrate from OMO online class back to offline learning centers, which have gradually resumed service amid easing of the pandemic restriction measures. Encouraged by its effectiveness, we have been committed to expand the reach of our OMO system and are delighted to say that we have piloted the OMO. online courses in vast majority of existing cities and around 20 new surrounding satellite cities in the autumn semester, attracting a promising number of new customers and students while the OMO system contributes a single digit to the overall revenue in this quarter. With its ability to virtually reach both major and satellite cities across China, we have no doubt that it will grow rapidly in the coming quarters and become a major driver to our business growth in the future. Cost control has become a key feature in our operation as we aim to cushion the impacts from the pandemic. We focus on the cost-effective strategies that would deliver strong return and outcome and avoid spending on strategies or promotions that would have little business impact. While online education is a growing trend in China, pure online platforms tend to require substantial standing on marketing promotion. Hence, with the OMO system, we have been able to achieve constantly high number of enrollments with cost-effective promotions because of our strong on-the-ground presence and online channels supplement each other, which enables us to more effectively recruit new customers and deliver better service to our students. Total student enrollment in dynamic subject tutoring and test craft courses in the second fiscal quarter of 2021 increased by 10.4% year-over-year, approximately 4,183,100, which is in line with our expectation. In terms of pricing, Per program-blended ASP, wages cash revenue divided by total student enrollment increased by about 13% year-over-year in dollar terms. As for hourly-blended ASP, wages cash revenue divided by total teaching hours was flat year-over-year. To provide a breakdown of the hourly-blended ASP, please note that UCAN classes increased by 8%. UCAN VIP increased by 5%. POP case increased by 0.3%, and the Overseas Test Grab Program increased by 13% all year-over-year in Army terms. Comparing with our normal price increase of 5% to 8%, this quarter's hourly blended ASP flat was mainly because of the bigger decline of Overseas Test Grab Program, which hourly blended ASP was much higher than the other programs. Now, I'd like to spend some time to talk about the quarter performance across our individual business lines in detail. As the pandemic became largely under control in China, recovery momentum continued to pick up in this quarter across our business lines. Our key revenue driver, K-12 all-subjects after-school tutoring business, achieved the year-over-year revenue growth of approximately 26% in dollar terms. Breaking it down, The UCAM Middle High School All Subjects Afterschool Children's Business recorded a revenue growth increase of approximately 27% for the quarter, so enrollment grew approximately 15% year-over-year for the quarter. Pop Kids program delivered outstanding results, with the revenue up by about 24% in dollar terms for the quarter. Enrollment increased by 14% for the quarter. Our overseas-related business, including test prep and consulting business, showed encouraging signs of recovery despite facing the most difficult challenge due to the cancellation of the overseas test exams and restrictions on travel, as well as the unpredictability of the pandemic situation in different parts of the world, raising the students' hesitance to study abroad. The overseas test-trap distance reported a revenue decrease of about 29% in dollar terms for the quarter. in comparison to a decrease of 51% in the last quarter, while the Overseas Consulting and Overseas Study Tour business recorded a revenue increase of about 6% in dollar terms year-over-year for the quarter, recovering from last quarter's 31% decrease. And finally, VIP personalized class businesses recorded the cash revenue increased by about 20% year-over-year in dollar terms for the quarter. We carried out capacity expansion in cities where we see potential for rapid growth and strong profitability in this quarter. We opened five new offline training schools in the city of Langfang, Kunshan, Dongyang, Danyang, and Jiujiang. Altogether, this increased the total square meters of classroom area by approximately 21% year-over-year, 4% quarter-over-quarter by the end of this quarter. This increase is in line with our expectation as we gradually ramp up our expansion efforts throughout the academic year to prepare us for recruiting more new student enrollment at the start of the following academic year. The expansion in our offline education network has also made sure that we are fully prepared for when the pandemic is over and our service can resume with strong presence across different Chinese cities. We rolled out the due teacher class model for Pop Kids program in 58 existing cities, for UCAM program in 27 existing cities. With satisfactory customer retention and scalability, we will continue to use the model to increase our market penetration in those markets we have tapped into. An outbreak of COVID has highlighted the importance and demand of the online education. We have placed more resources in this area and invested $54 million in this quarter to improve and maintain our OMO integrated education ecosystem. Our success in piloting the OMO system in around 20 new settler cities through the nearby major cities this quarter is yet another testament of how these low-cost but highly return OMO business model can rapidly become one of the most far-reaching education service in China. Leveraging the presence of the offline school and learning centers and brand visibility in major cities, we're able to reach nearby satellite cities and continue to bring in high number of the enrollments without the need to spend a huge sum of money on promotion marketing. More importantly, This is a model that we can easily and cost-effectively replicate in different parts of China. Hence, we are very optimistic about the growth potential of our OMO system in the next few quarters. Apart from the OMO infrastructure, we have allocated part of the resources in advance to the teacher's training program for our teachers to enhance their online-offline integrated teaching skills in response to growing demand. At the same time, we continue to upgrade our technology platforms and will broaden the usage of the online tools and content in our OMO system for all business lines throughout the whole network, as well as further develop the best teaching content and courseware to cater to online-offline integrated education methods. It's important to highlight that one of the key aspects that's made our OMO system stand out from the industry is the localization of our teaching content. OMO teaching materials for each city are developed by the local schools rather than mass produced centrally, which means our content is tailored with local nuance and reference to help students understand the materials better and encourage them to be more engaged in classes. On the promotional front, the nature of OMO system enable us to implement cross-selling strategy whereby we promote the courses through the both online and offline channels, reaching the broad range of the customer from different locations. We're glad to see that our industry-leading OMO ecosystem has not only successfully managed to cushion most of the impact, on our service penetration caused by the pandemic, but we also see our customer retention rates remain stable, which further demonstrates our customers' satisfaction and effectiveness of our online core through our OMO system. We believe these OMO initiatives will effectively boost the enrollment and speed up the recovery of business in the coming quarters. To capture the huge opportunity in the online education space, we continue to invest in more resources in executing initiatives in online K-12 after-school children's business in fiscal year 2021. During the COVID, Cool Learn did a large-scale market promotion by offering three large online live broadcasting classes to the public and attracted several more several times more traffic than normal time. To capture this new market opportunity, Cooler also added a meaningful number of customer service representatives and marketing staff to support the new initiatives in Q12 children. These moves have consequently raised our spending on the marketing front, but we believe these are necessary and understandable measures as we find ourselves in an unusual situation. Our Dongfang Youbo DFUB small-size classes currently enjoy a significant first-mover advantage and stand to benefit from the increase in demand in low-tier cities. Cooler large-size K-12 courses are able to offer the best in-class learning experience through the investments in upgrading the app. and online platforms, introducing new education technologies and adding more new attractive features online classes. Kuler also continued to establish teaching training centers in other geographic locations to attract more qualified teachers and tutors and provide systematic training programs. At the same time, we will be very cautious in identifying high ROI marketing channels and evaluate their unit economics in real time, which will in return keep the average user acquisition cost at a relatively low level. We believe as a result of the improvements to operational teams as well as positive word of mouth promotion and brand loyalty, CoolLearn will continue to quickly acquire new users while enhancing the student retention rate. I will turn the call over to Cici to walk you through the other key financial details for the second quarter.