New Oriental Education & Technology Group, Inc.

Good evening, and thank you for standing by for New Oriental's FY 2021 third quarter results earnings conference call. At this time, all participants are in a listen-only mode. After 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. And I'd like to turn the meeting over to your host for today's conference, Ms. Cici Zhao. Thank you. Please go ahead.

Okay. Thank you. Hello, everyone, and welcome to New Oriental's third 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 assurances. As such, our results may be materially different from the views expressed today. A number of potential risks and assiduities are outlined in the public's findings with the SEC. New Oriental 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 will now turn the call over to Mr. Yang. Stephen, please go ahead.

Thank you, Sissi. Hello, everyone, and thank you for joining us on the call. With the pandemic largely controlled in China, albeit a small way for outbreak in the northern part of the country, our business navigated the challenges and saw strong momentum in recovery. We're pleased to announce a set of financial results in the third quarter of this year that exceeds our expectation. Total net revenue was $1,190 million, representing a 29% increase year-over-year, which is a very encouraging reflection affirming the business strategy that we have taken during the difficult period. Our key growth driver, K-12 all-subjects after-school children's business, achieved year-over-year revenue growth of approximately 37%. Our UCAM middle school, high school, all subjects after school children's business continued its momentum with a growth of approximately 35%, while our pop kids program recorded a growth of approximately 40%. Our overseas related business, despite being under continued pressure due to the uncertainty of the pandemic situation and travel restrictions around the globe, showed strong resilience. Although the overseas test prep recorded a revenue decrease of about 12% for the quarter, it is a result that is better than we expected. While the overseas consulting and study tour business recorded a revenue increase of about 11% year-over-year, which is a very positive result. Our industry-leading OMO system has been our core strategy since the start of the pandemic. early last year, and it has once again proved to be instrumental in this quarter. The probability of the exact COVID-19 outbreaks in certain part of China means flexibility in migrating students between online and offline classes is absolutely crucial during the challenging period. And our OMO system has been the answer to that. The small wave of COVID-19 outbreaks in around 20 cities in northern China once again highlighted the importance of OMO as they enable us to respond swiftly and migrate the offline class to online, avoiding disruptions of the student class and learning progress. At the same time, in other cities where the pandemic is largely controlled, vast majority of the students migrated from the online classes back to offline learning centers. 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 course in the vast majority of existing cities and around 25 new surrounding satellite cities in the winter semester, attracting a promising number of new customers. The OMO system effectively boosts the enrollment and revenue with low customer acquisition costs, and it's becoming the new driver to our business growth. And it has solicited an increased contribution to the company's overall revenue this quarter. Total student enrollment in dynamic subjects, tutoring, and test prep courses in the third physical quarter of 2021 increased by 43% year-over-year, for approximately $2,296,800, which is in line with our expectation. In terms of pricing, per program blended ASP, which is cash revenue divided by total student enrollment, increased by about 7% year-over-year in dollar terms. As for hourly blended ASP, which is gap revenue divided by total teaching hours, increased by 7% year-over-year. and is in line with our normal price increase of about 5% to 8%. To provide a breakdown of already blended ASP, please note that UCAN classes increased by 5%, UCAN VIP increased by 1%, pop case increased by 4%, and oversea test prep program increased by 12% all year-over-year in RMB terms. Now, I would like to spend some time to talk about this quarter's performance across our individual business lines in detail. 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 children's business, achieved year-on-year revenue growth of approximately 37% in dollar terms. Breaking it down, the UCAM Middle School high school business reported a revenue increase of approximately 35% in dollar terms for the quarter. Student enrollment grew approximately 56% year-over-year for the quarter. Our pop kids program delivered outstanding results with the revenue up by about 40% in dollar terms for the quarter. Enrollment increased about 61% for the quarter. Our overseas related business including test prep and consulting business, show the encouraging sign of the recovery despite facing the most difficult challenges due to the cancellation of the overseas exams and the restrictions on travel, as well as the unpredictability of the pandemic situation in different parts of the world, rising student hesitancy to study abroad. The overseas test prep business recorded the revenue decrease about 12% in dollar terms for the quarter. in comparison to a decrease of 29% in the last quarter, while the overseas consulting and overseas study tour business recorded revenue increase about 11% in dollar terms year-over-year for the quarter, continuing its recovery momentum from last quarter's 6% increase. And finally, VIP, personalized class business, recorded cash revenue increase about 36% year-over-year for the quarter. We continue to carry out our capacity expansion this quarter as we open one new offline training school in the city of Hengshui. This increases the total square meters of classroom area by approximately 17% year-over-year, 7% quarter-over-quarter by the end of this quarter. The increase is in line with our expectation. As we gradually ramp up our expansion efforts throughout this academic year to prepare us for recruiting more new students 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 this model to increase our market penetration in both markets we have tapped into. An outbreak of COVID-19 has highlighted the importance and demands of online education. We have allocated more resources to this space. and invested $59 million in the quarter to improve and maintain our OMO integrated education ecosystem. Our success in piloting the OMO system in around 25 new satellite cities through nearby major cities this quarter is yet another testament of how this low-cost but high-return OMO business model can rapidly become one of the most far-reaching education services in China. We're very optimistic about the growth potential for our OMO system in the next few quarters. Apart from the OMO infrastructure, we have allocated part of the resources to advance the training programs for our teachers to enhance their online-offline integrated teaching skills in response to the 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. We're glad to see that our industry-leading OMO ecosystem has not only successfully managed to cushion most of the impacts by the pandemic, but we also see our customer retention rates remain stable. Furthermore, it effectively boosts the enrollment, and we believe it will continue to play a huge part of the recovery of business in coming quarters. To capture the huge market opportunity online education area, Cooler invested more resources in executing new initiatives in online K-12 after-school children's business since the second half of last fiscal year. and added a meaningful amount of customer service representatives and marketing staff. These moves have consequently raised our spending on marketing funds in this fiscal year. And our Dongfang Youbo small-sized class currently enjoys a significant first-mover advantage and stands to benefit from the increasing demand in low-tier cities. Cooler large-sized K-12 courses are able to offer the best in-class learning experience through the investment in upgrading the app and online platforms, introduce the new education technologies, and adding more interactive features to online classes. Cooler also continued to establish teaching training centers in other locations to attract more qualified teachers and tutors, and provide systematic training programs. A significant amount of the investment has been allocated to marketing and service enhancement in the past quarters to attract customers during the peak of the pandemic. But the spending started to normalize from this quarter, as we are very cautious in identifying high ROI marketing channels. We focused on improving operational efficiency and emphasizing the word-of-mouth promotion for English programs with existing brand name advantages. which will in return keep the average user acquisition cost at a relatively low level. We believe CoolLearn will continue to quickly acquire new users while enhancing students' retention. Now, I would like to turn the call over to Ms. Cici Zhao. Please go ahead, Cici.