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spk09: Good evening, and thank you for standing by for New Oriental's fiscal year 2023 second quarter results earnings conference call. At this time, all participants are in 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. I would now like to turn the meeting over to your host for today's conference, Ms. Cici Zhao.
spk04: Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter 2023 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 NewsWare services. Today, Stephen Yang, Executive President and Chief Financial Officer and I will share Nurento's latest earnings results and business updates in detail with you. After that, 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 view expressed today. A number of potential risks and uncertainties are outlined in our public filings 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'll now first turn the call over to Mr. Yang. Stephen, please go ahead.
spk20: Thank you, Cici. Hello, everyone, and thank you for joining us on the call. This second quarter is a successful phase of manifestation as we have turned over a new leaf in our business and embarked on an innovative journey for rich business opportunities since the beginning of fiscal year 2023. Before going into details of our financial performance for this quarter, I would like to take this opportunity to extend our gratitude to those who have been believing and supporting NewRental along the way. I'm delighted to share with you that after a year of restructuring process, NewRental has successfully generated fruitful yields from our new business ventures combined with our existing business and innovative business opportunity. Despite the seasonality of some major businesses, which has historically resulted in a slower period for every second quarter, it's immensely encouraging to see that we have achieved a meaningful profitability and better than expected margins in the second quarter. We have achieved a non-GAAP operating margin of 2.6% for this quarter, as compared to negative 112.0% in the same period of prior fiscal year, which was characterized by the several significant one-off expenses incurred from class cancellations, school closures, and employee layoffs. Our key remaining business have continued to demonstrate remarkable resilience. In particular, Overseas Task Force Business and Overseas Study Consulting Business have recorded remarkable year-over-year revenue increase as global COVID restriction eases and Overseas Study market is recovering. Our solid profitability, strong performing remaining business lines and emerging new business initiatives in this quarter have again strengthened our confidence in pursuing innovative endeavors and profitable growth through the rest of the year. Now, I would like to spend some time to talk about the quarter's performance across our remaining business lines and new initiatives to you in detail. Our key remaining business have achieved a promising trend while our new initiatives have shown a positive momentum. Breaking it down, the overseas test product business recorded a revenue increase of 17% in dollar terms, or 30% in RMB terms year over year for the second quarter. The overseas study consulting business recorded a revenue increase of about 14% in dollar terms, or 27% in RMB terms year over year for the second quarter. The adults and university students' business recorded a revenue decrease of 9% in dollar terms or 2% increase in RMB terms year over year for the second quarter. As for our new business initiatives, as mentioned in the past quarter, we have launched several new initiatives. which mostly revolves around facilitating students or around development. I'm glad to share with you that these new initiatives have further exceeded our expectations by sustaining a positive momentum and generating meaningful profits to the company. Firstly, the non-academic tutoring business, which we have rolled out in over 60 cities, focus on cultivating students' innovative ability and comprehensive quality, we are happy to see increased market penetration in those markets we have tapped into, especially higher tier cities, with a total of 477,000 enrollments recorded in this quarter. The top 10 cities in China have contributed about 60% of the revenue of this business. The intelligence learning system and device distance is a service designed to provide a tailored digital learning experience for students. It will utilize our past teaching experience, data, and technology to provide a personalized target learning and exercise content. Our continuous investment in technology has built a competitive edge, which drives our navigation amidst the challenges from the last year. Together with our teachers monitoring and accessing the learning curve for students at the backend system, this new innovative education service not only greatly improves students' learning efficiency, but also cultivates students' proactive learning habits. We have tested adoption in over 60 cities with 108,000 active paid users in this quarter and are delighted to see improved customer retention and scalability of this new business. The revenue contribution from top 10 cities in China is around 60%. Last but not least, our smart education business, which comprises smart teaching, smart hardware, science, technology, innovation, education, and other services, serves local governments, education authorities, schools, and kindergartens. Our educational material idealized a smart study solution, a self-learning system, which leverages advanced technology, enables students to have complete control over the pace and the flexibility of learning at an age where remote learning becomes increasingly mainstream. We also offer exam prep courses designed for students with junior college diplomas to obtain bachelor's degrees. The above mentioned business have been gaining wide traction and contribute the overall growth of the company and have attained instrumental profits since the last quarter. Coming to our OMO system, we continuously invest in developing and revamping our OMO teaching platform and have leveraged our educational infrastructure and technology strengths over the remaining business and new initiatives to provide more advanced and diversified education service to our customers for all ages. Our OMO system has been a core support to our business, especially with some of the strict social control measures were implemented in the past month. We have invested a total of $21 million in the quarter on our OMO teaching platform, which provide us the flexibility to continue to offering high quality service to students during the pandemic. Now I would like to give you all an update on CoolLearn's latest performance. In the first half of this fiscal year, CoolLearn has achieved instrumental breakthroughs in both business operations and financial performance. This significant progress was made as a result of CoolLearn's strategic transformation from focusing on online education to live streaming e-commerce. In 2021, Cooler expanded its live streaming e-commerce business and established Dongfang Zhenxuan, which has since become a well-known platform for promoting healthy, top quality, and cost-effective products to the public. The platform has formed a part of the tight supply chain management and after sales service system, which is strictly abided by a set of relevant laws and regulations. Leveraging our deep understanding of customer needs, Dongfang Zhenxuan continues to expand its product selection and SKUs through proactive cooperation with third parties, coupled with the development of our Dongfang Zhenxuan private label products. The platform's business development has gratefully benefited from the maturity of China's social infrastructure and the contributions and support from the community. To summarize the CoolLearn's fruit-bearing growth and profitability with our financial performance, for the first six months of this fiscal year, CoolLearn recorded revenue of approximately 2,080.1 million RMB. which represents a 590.2% increase from revenues from continuing operations of 301.4 million in the same period of last prior fiscal year. Cooler recorded 585.3 million RMB of net profit, a 638.5% increase from net loss from the continuing operation of 108.7 million in the same period of prior fiscal year. In the first six months of fiscal year, the gross profit of Cooler reached around 982.5 million RMB, accounting for 47.2% in terms of the GP margin. As we continuously map the platform's strategic transformation, The fast-growing Dongfang Zhenxuan is also committed to give back to customers and the community. Since its launch, Dongfang Zhenxuan has stood firm to not charge commissions from customers or any pit fees. It has always taken close reference to industry standards, focusing on establishing the mutually beneficial long-term collaboration with the various parties, so as to maximize benefits to customers. Dongfang Zhenxuan also ensures attained cost-effective performance as one of its development principles. On one hand, Dongfang Zhenxuan focuses on enhancing product capability while continuing to establish its cultural content. On the other hand, Dongfang Zhenxuan has also organized diverse outdoor live streaming activities to promote special agricultural products and contribute to the cultural tourism. Through its unyielding aspiration to create value in related industries, which has also attracted and retained a large pool of talents, cooperators, as well as followers and members, Dongfang Zhenxuan has successfully received in return millions of revenues and a loyal customer base during the reporting period. With regard to the company's latest financial position, I'm confident to share with you that the company is in a healthy financial status with cash and cash equivalent term deposits and short-term investments totaling approximately $4.2 billion. On July 26th, On July 26, 2022, the company's board of directors authorized the share repurchase of up to $400 million of the company ADS or common shares during the period from July 28, 2022 through May 31, 2023. As of January 16, 2023, the company repurchased an aggregate of approximately 3.1 million ADS for approximately $79 million from the open market and the share repurchase program. Now, I will turn the call over to Cici to share with you about the key financials. Cici, please go ahead.
spk04: CICI LIU- Now, I'd like to walk you through the other key financial details for this quarter. Operating cost and expenses for the quarter were $640.7 million, representing a 55.1% decrease year over year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were $621.9 million, representing a 55.4% decrease year-over-year. The decrease was primarily due to the reduction of facilities and number of staff as a result of the downsizing in the fiscal year 2022. Cost of revenue decreased by 31.6% year-over-year to $336.2 million, Setting and marketing expenses decreased by 15% year-over-year to $95.5 million. G&A expenses for the quarter decreased by 74.6% year-over-year to $209 million. Non-GAAP G&A expenses, which exclude share-based compensation expenses, were $190.9 million, representing a 75.7% decrease year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 39.5% to $18.8 million in the second fiscal quarter of 2023. Operating loss was $2.5 million compared to a loss of $768.1 million in the same period of prior fiscal year. Non-GAAP income from operations for the quarter was $16.3 million compared to a loss of $737.1 million in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $0.7 million compared to the loss of $936.5 million in the same period of last fiscal year. Basic and diluted net income per ADS attributable to New Oriental were $0 respectively. Non-GAAP net income attributable to New Oriental for the quarter was $17.8 million compared to the loss of $901.6 million in the same period of last year. Non-GAAP basic and diluted net loss per ADS attributable attributable to New Oriental was 11 cents and 10 cents respectively. Net cash flow generated from operation for the second fiscal quarter of 2023 was approximately $173.7 million, and capital expenditure for the quarter were $11.4 million. Turning to the balance sheet, as of November 30, 2022, New Oriental has cash and cash equivalents of $1,029.9 million. In addition, the company has $1,033.2 million in term deposits and $2,145.7 million in short-term investments. New Oriental's deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions were delivered, at the end of the second quarter of fiscal year 2023 was $1,139.1 million, an increase of 6.9% as compared to $1,065.8 million at the end of the second quarter of fiscal year 2022. Now, I'll hand over to Stephen again to go through our outlook and guidance with you. Thank you, Cece.
spk20: Looking ahead into the rest of fiscal year 2023, with the restructuring process largely completed and our new business in their early stage, we expect our school network and geographic coverage to stabilize. The company remains tireless in seeking new opportunities with greater flexibility and strong cash flows. We're confident in the sustainable profitability of all our remaining key businesses, as well as the growth and the prospect of our new initiatives. For our new business, as we observed in the first half of this fiscal year, the encouraging performance that these businesses have achieved proves that we are heading towards the right direction. And we firmly believe that business will be able to maintain an upward growth trajectory and generate meaningful profit to the company in fiscal year 2023. As for involving pandemic development in China since late November in 2022, many cities are experiencing certain level of disruption on business operations. Although we're expecting a negative impact, our financials in the coming one or two quarters, we remain confident and optimistic that overall impact will be temporary and manageable. Hence, we expect total net revenue in the third quarter of the fiscal year 2023 to be in the range of $702.8 million to $719.8 million. representing year-over-year increase in the range of 14% to 17%. The projected increase of revenue in our functional currency, RMB, is expected to be in the range of 24% to 27%. As the profitability we recorded in this physical quarter has reaffirmed our success and dedication in turning a new page and generating profits for the rest of the year. Bottom line-wise, we're confident in achieving greater operating profits in the full year of fiscal year 2023. To conclude, we're now taking multi-pronged operational actions to promote our key remaining businesses while we cautiously invest in new initiatives which will remain new growth engines that accelerate our recovery and pursue the profitable growth. At the same time, we'll continue to seek guidance from and cooperate with government authorities in various provinces in China, in alignment with the efforts to comply with the relevant policies and regulations, as well as to further adjust our business operations as required. I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and the preliminary view, which is subject to change. This is the end of our fiscal year 2023 Q2 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these.
spk09: The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. Our first question comes from the line of Felix Liu from UBS. Please go ahead. Your line is open.
spk07: Hi, good evening, management. Congratulations on the strong top line as well as the guidance. My question is on the COVID impact. I know the COVID has come pretty viciously in December, but now we're past the peak. So I'm just wondering how has COVID impacted our February quarter. If there is any quantifiable metrics, that would be very helpful. And my second question is on growth expectation of our various businesses from here. If you were to rank the fastest to more stable business, how would you rank your various business segments? Thank you very much.
spk20: Thank you, Felix. As for the evolving pandemic development in China since the last December, I know the peak path already. In many cities, I think some of our business are negatively impacted. As our current estimation, I think the negative impact is small. And so we remain confident and optimistic that the overall impact from the pandemic will be temporary and manageable. And yeah, you'll look at our guidance for Q3. It's very strong. And the different business lines, the revenue outlook for Q3, right? Can we repeat the second question? Yeah.
spk07: Uh, yes. So maybe for Q3 and for the whole year, uh, which are the business lines that you think will grow the fastest and which are the ones that are more stable?
spk20: Oh, I think, you know, uh, I think, uh, the, you know, w we have two kinds of the business, you know, the number one is the, the, uh, the traditional, uh, the business, uh, the remaining business. the overseas related business, including the overseas test lab and the consulting business, which contributes the 24, 25% of the total revenue. What I'm saying is for the whole year, 24 to 25% of the total revenue. we got suffered the negative impact from the last year. But this year, you know, I think we're seeing the revenue growth is booming since two quarters ago. And the new business within the schools, you know, we started the new business last year, the year before last year, right, the November 2021. Yeah, the last fiscal year. And the growth is, we just started the business one year ago. The growth is extremely high. So this is the number one, the revenue growth within all business lines. And also, we do have the Dongfang Zhenxuan. And yeah, Dongfang Zhenxuan, they reported, the management of Dongfang Zhenxuan reported their first half year reports today, and you saw the growth, you saw the numbers, and so we're excited for the exciting performance for Dongfang Zhenxia. And so, yeah, the new businesses within the EDU side, the K-12 schools and Dongfang Zhenxia are the two top performers within the business lines.
spk19: Felix.
spk07: Got it. Thank you, and congratulations on the results again. Thank you again.
spk09: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Kaney Wang from CICC. Please go ahead. Your line is open.
spk13: So congrats on the profitable status for this quarter. And my question is, since COVID-19 restrictions have been lifted in China, Do we expect a higher growth rate of our new business line in the next quarter and also in the next fiscal year? And are there any new opportunities for our new initiative business? Thanks.
spk20: Yeah, for the new business, yeah, as we saw in this quarter and last quarter, you know, the encouraging performance proves that we're heading towards the right direction. And, you know, we firmly believe the new business will be able to maintain upward growth you know, in the Q3 and Q4 and the next fiscal year. What I mean is the fiscal year 2024. And, you know, we started a new business in last year, but, you know, I think we ramped up the new business very quickly. And the good news for us is, you know, the margin for the new business in this quarter is already over 10%. So, you know, think about that. We started this business last year, and it's just to spend like the two to three quarters to get a break-even point, and then we make profitable. So it sounds very good. And I think we are on the good track. I think the management of new rental will pay more efforts, will create more business opportunities to develop the new business as we did in Dongfang Zhenxuan and the new business in this year. We will do more to do more creative in the future.
spk04: Actually, the new pandemic situation with the graduate opening up after these recent developments of the new situation, I think probably we can see more opportunities in some certain kind of new initiatives such as the study tour and research camping business that we mentioned one to two quarters ago that as one of the new initiatives But as the pandemic situation happened in last one to two quarters, we did not have a very good chance to roll out that business domestically. But with the new situation, we have confidence that there's more opportunity for this business to perform better.
spk13: Okay, thanks. That's very helpful.
spk09: Thank you. Once again, if you would like to ask a question, you will need to press star followed by one and one on your telephone and wait for your name to be announced. Please stand by. And once again, that's star one and one on your telephone to ask a question. Please wait for your name to be announced. Please stand by. Our next question comes from the line of Lucy Yu from Bank of BofA. Please go ahead. Your line is open.
spk11: Thank you. Thank you, Stephen, for taking my question. Congratulations on a profitable quarter. Could you please give us some color on the revenue breakdown this quarter as well as the margin profile for different business lines? I know, Stephen, you already mentioned the new business is 10% OP margin. How about the rest? Thank you.
spk04: Yeah, for the reported quarter, the overseas-related business, including the overseas TASPRAP and consulting, contributed roughly about 21% of total revenue. And the domestic TASPRAP, the adult university students' business, contributed roughly about 6%. And the school business, including our remaining high school business, and also the new initiatives for younger students, together are contributing roughly over 40% of total revenue. And the rest are Cool Learn and some other businesses. So that's the rough contribution.
spk20: Yeah, Lucy, I just want to share with you the margins by different business lines. You know, the overseas-related business, overseas test labs combined with the consulting business, the margin for the whole year, fiscal year 2023, will be around 10% to 15% margin. What I'm saying, the margin is before the corporate overhead. And the adults and the university study business I think the margin profile, I think the business will be breakeven in this year. The school business, including the remaining business and the new initiatives, as Lisa said, contribute 45% of total revenue. The margin should be somewhere around 20% to 25% or even a little bit higher. The others, this is the big others, including the cooler and the others. I think if you follow the numbers, the coolers, the first half of the year report, I think you will see more the color on the margin profile of the cooler and the others.
spk19: Lucy.
spk10: Thank you, Stephen. Thank you, Susie.
spk11: One follow-up. Could you also talk about the YOY growth for different business lines in this quarter?
spk20: Thank you. I think the revenue contribution is... Yeah, we talked about it in the prepared remarks.
spk04: So for this quarter, like U.S. dollar term, overseas tax prep business increased by roughly 17%. Actually, for RMB term, you should add another 10%, 15% more. The university students' business is stable, and US dollar term is negative 8%, but RMB term is positive. The school business actually increased because of the new initiatives. and also Cool Learn and other business increase a lot.
spk10: Thank you so much.
spk09: Thank you. We'll now take our next question. Please stand by. Our next question comes from the line of Candice Chan from Daiwa. Please go ahead. Your line is open.
spk08: Thank you. Congratulations. results and also the strong guidance for next quarter. So my first question is related to the third quarter revenue guidance and also the profitability that we are aiming for. So firstly, can you give us a rough breakdown of revenue for the third quarter and also in terms of the operating margin, how should we look at it for the third quarter given given the strong revenue. Thank you.
spk20: Okay. In the Q3 forecast, you know, I think the number one, the overseas related business, test trap and consulting business will contribute 24, 25% of total revenue in Q3. And the second, the adults and the university students business contribute 2% of total revenue because of the COVID. And the school business, including the traditional business, remaining business and the new initiatives will contribute 43, 44% of total revenue. And the other 30% comes from the cooler and the other business like the books or the other, the 2B business. And the margin profile. You know, I think the margins, you know, we, I think, let us start the margin analysis from this quarter. In Q2, you saw our GP margin and OP margin increased a lot compared to last year. And I think this is mainly driven by volume reasons. The number one is in the last year Q2, even for the last whole year, the first three quarters, we had the considerable one-off cost related to the class cancellation, the learning center closures, and the staff layoffs. In this quarter and even in this whole year, we have no one-off cost. Number two, I think the downsizing learning center numbers, you know, led to the lower fixed cost. So it drives the margin up per learning center. Number three is, you know, the new businesses, the margin is over 10% this year. You know, I think it's good news for us. And also the recovery of the remaining business, for example, like the overseas related business, generated a higher margin than that of last year. And the last reason, the number four is the Dongfang Zhenxuan, the cooler, the last stream e-commerce business enjoys higher margin. So it makes the margin, it drives the margin up for the whole group. And going forward, I think all of the business lines will contribute even higher profit and drive the whole margin up year over year. So we are quite optimistic of the margin profile of the whole year, fiscal year 2023.
spk08: Great. Thank you, Sujin. So my second question is related to the regulations recently in late December that we saw that there is new document about the non-academic tutoring. activities. So do we see any impact on our business overall, like in terms of pricing and also the expansion? Thank you.
spk20: Actually, since the government has issued the policy last year, I think we have been actively exploring the new business direction and follow all the central and local government authorities' rules. And so, yeah, you mentioned the new rules in last October, in October last year. I think there will be no material impact that could impact our business.
spk12: Got it. Thank you very much.
spk09: Thank you. Thank you. We'll move on to our next question. Please stand by. We have a follow-up question from the line of Felix Liu from UBS. Please go ahead. Your line is open.
spk07: Hi, Stephen. My follow-up question is on your learning center network. I noticed you opened two centers in this quarter. So I think that's a good step forward, although a small step. Could you share some color on your expansion outlook from here, maybe this year and next year? Thank you. Okay.
spk20: I think in the rest of this fiscal year, I think we have no big plan to set up new learning centers. I think the learning center number will be stabilized because we invest a lot on OMO system in past so many years. And we moved a lot of class from the offline to online. So it saved the classroom, the areas. And also, we changed some of the traditional business classroom areas to the new businesses. So this is the internal change. And the next year, we do hope we open more learning centers. But so far, I think it's too early to say how many learning centers we set up for the new year because we have not finished the new year budget. I think I want to share with you the new learning center expansion plan next quarter, next quarter earnings call.
spk06: Okay, great. Thank you. Thanks.
spk09: Thank you. Once again, that's star 11 to ask a question. Please stand by. Our next question comes from the line of Lian Duan from HTSC. Please go ahead. Your line is open.
spk21: Good evening, Steve and Sisi. My question is about the ratio of teachers to students. Could you share some color on the teacher to student ratio on each learning service segment? Thank you. And do you have more questions? plan to recruit more teachers in the next two years. Thanks.
spk20: I can share with you the teachers number. By the end of this quarter, we have 26,000 teachers in total. And because we started a new business just since the last year, so I think it's too early to calculate the teachers to student ratio. I think maybe next quarter, in the new year, we'll disclose the ratio. And yeah, I think we're hiring new teachers, because we started with new businesses. And for some non-academic courses or the other new businesses, we do need to hire more teachers. But the key is we don't hire two more teachers. So we care more about the utilization and the efficiency of the whole company. So I think we will believe we will keep the higher utilization and the higher the operation efficiency for the whole company in the future. Thank you.
spk02: Okay. Thank you.
spk09: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of DS Kim from JP Morgan. Please go ahead. Your line is open.
spk17: Hi, Stephen. Hi, sister. Happy New Year and congrats on a strong result. I actually just have one quick follow-up question on all your comments. regarding margins, can I ask how much of a corporate overhead had closed, shall we expect, at this stage? I.e., I remember corporate overhead used to be, like, high single-digit-ish of revenue pre-double reduction policy, like, two years back. But given much smaller or reasonably smaller revenue base now, I'm wondering how much of overhead we should model and expect for this year, either as percentage of revenue or dollar term would be appreciated.
spk20: Yeah, but I think since the last year, we would cut off some fixed costs and expenses in the headquarters. So I think the headquarters expenses as the percentage of the total revenue
spk17: uh will be stabilized and uh you know roughly it's a six percent seven percent of total revenue this is the the total expense from the higher corners thank you that's a very impressive and a great uh margin guidance if i may follow up again uh on on earlier comment uh on the expansion plan i don't want to ask too much about the number of learning centers but may i uh check for uh non-subject tutoring classes like where do we see incremental demand opportunity say uh top tier cities top 10 cities versus the rest of the uh nation like where do you see stronger demand and where do you think uh we would open more store more centers uh in terms of the geographical uh exposure and that's that's all from me thank you again for taking my question
spk20: I think the new business development in the top tier cities is a little bit better than the low tier cities. This is what we have seen in the past quarters. I do believe even in some low tier cities, I think they will catch up because they started the business a little bit slower than the top tier cities.
spk19: And so in almost everywhere, you know, we're seeing the business opportunities for the non-dynamic courses, you know, almost everywhere.
spk20: And, yeah, that's all. Yeah, capacity. Capacity, yeah, as I said, now we don't have the capacity extension plan. And we just want to keep the same learning center numbers till the next quarter or even till the end of this fiscal year. And next year, maybe we'll expand some new learning centers. But so far, we haven't finished the next year budget. I will show you the numbers next quarter. Thank you.
spk02: Thank you, sir.
spk09: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Kaney Wang from CICC. Please go ahead. Your line is open.
spk13: Hi, Stephen. I have a follow-up question. I noticed that there is a significant increase in non-academic tutoring enrollment in Q2. Would you like to specify the driver behind and do we have any target for the enrollment during the whole year? Thanks.
spk20: I think the market is always there. And, you know, we do have the famous brands and we do have the good teachers. And, yeah, we started the business just a year ago that you saw the numbers. And the exciting news for us is that the profitable of the new business is exciting. It's much better than we expected. And for the new business, I don't believe in the rest of this fiscal year, the new business, the revenue growth will be accelerated again. And even for the next new year, fiscal year 2024, I do believe the revenue growth of the new business will be high.
spk19: We're optimistic about the non-academic courses business.
spk04: By the way, the non-academic tutoring business, according to our experience in the last several quarters, I think its seasonality is not that apparent as some other test prep business. So every quarter probably the enrollments will be relatively stable if you do the queue on queue comparison. And also as new business development in all the local cities probably you can see strong momentum as we have seen that Q2's growth or the enrollment trends are also similar or even better than Q1. Yeah.
spk13: Yeah, I see. That's very clear. Thank you. Okay.
spk09: Thank you. We'll now go to our next question. Please stand by. We have a follow-up question from the line of Lian Duan from HTSC. Please go ahead with your question.
spk21: Just one more follow-up question. Do we have any color on the retention rate for each segment?
spk20: Retention rates, you know, it's related to the, you know, traditional, the K-12 business. But, you know, we closed down the K-9 business last year. But for new business, like the nine dynamic courses, we just trace the retention rate. The good news for us is we are seeing the retention rate is getting higher and higher. For example, as for the non-academic courses, the retention rate now is between 65% to 70%. You know, we just started a new business, and, you know, the retention rate now is better than we expected. And we believe the retention rate will get higher going forward. And Overseas Task Force and the adult, the university student business.
spk03: That's part one-off.
spk20: Yeah, that's one, roughly it's one-off.
spk22: Understood. Thanks. Thank you. Thank you. It's very clear.
spk09: Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Orientals Executive President and CFO Stephen Yang for his closing remarks.
spk20: Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you.
spk05: Bye. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Thank you. Thank you.
spk09: Good evening and thank you for standing by for New Oriental's fiscal year 2023 second quarter results earnings conference call. At this time all participants are in 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. I would now like to turn the meeting over to your host for today's conference, Ms. Cici Zhao.
spk04: Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter 2023 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 NewsWare services. Today, Stephen Yang, Executive President and Chief Financial Officer and I will share New Arento's latest earnings results and business updates in detail with you. After that, 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 view expressed today. A number of potential risks and uncertainties are outlined in our public filings 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'll now first turn the call over to Mr. Yang. Stephen, please go ahead.
spk20: Thank you, Cici. Hello, everyone, and thank you for joining us on the call. This second quarter is a successful phase of manifestation as we have turned over a new leaf in our business and embarked on an innovative journey for rich business opportunities since the beginning of fiscal year 2023. Before going into details of our financial performance for this quarter, I would like to take this opportunity to extend our gratitude to those who have been believing and supporting NewRental along the way. I'm delighted to share with you that after a year of restructuring process, NewRental has successfully generated fruitful yields from our new business ventures combined with our existing business and innovative business opportunity. Despite the seasonality of some major businesses, which has historically resulted in a slower period for every second quarter, it's immensely encouraging to see that we have achieved a meaningful profitability and better than expected margins in the second quarter. We have achieved a non-GAAP operating margin of 2.6% for this quarter, as compared to negative 112.0% in the same period of prior fiscal year, which was characterized by the several significant one-off expenses incurred from class cancellations, school closures, and employee layoffs. Our key remaining business have continued to demonstrate remarkable resilience. In particular, oversea test drive business and oversea study consulting business have recorded remarkable year-over-year revenue increase as global COVID restriction eases and oversea study market is recovering. Our solid profitability, strong performing remaining business lines and emerging new business initiatives in this quarter have again strengthened our confidence in pursuing innovative endeavors and profitable growth through the rest of the year. Now, I would like to spend some time to talk about the quarter's performance across our remaining business lines and new initiatives to you in detail. Our key remaining business have achieved a promising trend while our new initiatives have shown a positive momentum. Breaking it down, the overseas test prep business recorded a revenue increase of 17% in dollar terms, or 30% in RMB terms year over year for the second quarter. The overseas study consulting business recorded a revenue increase of about 14% in dollar terms, or 27% in RMB terms year over year for the second quarter. The adults and university students' distance recorded a revenue decrease of 9% in dollar terms or 2% increase in RMB terms year over year for the second quarter. As for our new business initiatives, as mentioned in the past quarter, we have launched several new initiatives. which mostly revolves around facilitating students or around development. I'm glad to share with you that these new initiatives have further exceeded our expectations by sustaining a positive momentum and generating meaningful profits to the company. Firstly, the non-academic tutoring business, which we have rolled out in over 60 cities, focus on cultivating students' innovative ability and comprehensive quality, we are happy to see increased market penetration in those markets we have tapped into, especially higher tier cities, with a total of 477,000 enrollments recorded in this quarter. The top 10 cities in China have contributed about 60% of the revenue of this business. The intelligent learning system and device distance is a service designed to provide a tailored digital learning experience for students. It will utilize our past teaching experience, data, and technology to provide a personalized target learning and exercise content. Our continuous investment in technology has built a competitive edge which drives our navigation amidst the challenges from the last year. Together with our teachers monitoring and accessing the learning curve for students at the backend system, this new innovative education service not only greatly improves students' learning efficiency, but also cultivates students' proactive learning habits. We have tested adoption in over 60 cities, with 108,000 active paid users in this quarter, and are delighted to see improved customer retention and scalability of this new business. The revenue contribution from top 10 cities in China is around 60%. Last but not least, our smart education business, which comprises smart teaching, smart hardware, science, technology, innovation, education, and other services, serves local governments, education authorities, schools, and kindergartens. Our educational material idealized a smart study solution, a self-learning system, which leverages advanced technology, enables students to have complete control over the pace and the flexibility of learning at an age where remote learning becomes increasingly mainstream. We also offer exam prep courses designed for students with junior college diplomas to obtain bachelor's degrees. The above mentioned business have been gaining wide traction and contribute the overall growth of the company and have attained instrumental profits since the last quarter. Coming to our OMO system, we continuously invest in developing and revamping our OMO teaching platform and have leveraged our educational infrastructure and technology strengths over the remaining business and new initiatives to provide more advanced and diversified education service to our customers for all ages. Our OMO system has been a core support to our business, especially with some of the strict social control measures were implemented in the past month. We have invested a total of $21 million in the quarter on our OMO teaching platform, which provide us the flexibility to continue to offering high quality service to students during the pandemic. Now I would like to give you all an update on CoolLearn's latest performance. In the first half of this fiscal year, CoolLearn has achieved instrumental breakthroughs in both business operations and financial performance. This significant progress was made as a result of CoolLearn's strategic transformation from focusing on online education to live streaming e-commerce. In 2021, Cooler expanded its live streaming e-commerce business and established Dongfang Zhenxuan, which has since become a well-known platform for promoting healthy, top quality, and cost-effective products to the public. The platform has formed a part of the tight supply chain management and after sales service system, which is strictly abided by a set of relevant laws and regulations. Leveraging our deep understanding of customer needs, Dongfang Zhenxuan continues to expand its product selection and SKUs through proactive cooperation with third parties, coupled with the development of our Dongfang Zhenxuan private label products. The platform's business development has gratefully benefited from the maturity of China's social infrastructure and the contributions and support from the community. To summarize the CoolLearn's fruit-bearing growth and profitability with our financial performance, for the first six months of this fiscal year, CoolLearn recorded revenue of approximately 2,080.1 million RMB. which represents a 590.2% increase from revenues from continuing operations of 301.4 million in the same period of last prior fiscal year. Cooler recorded 585.3 million RMB of net profit, a 638.5% increase from net loss from the continuing operation of 108.7 million in the same period of prior fiscal year. In the first six months of fiscal year, the gross profit of Cooler reached around 982.5 million RMB, accounting for 47.2% in terms of the GP margin. As we continuously map the platform's strategic transformation, The fast-growing Dongfang Zhenxuan is also committed to give back to customers and the community. Since its launch, Dongfang Zhenxuan has stood firm to not charge commissions from customers or any pit fees. It has always taken close reference to industry standards, focusing on establishing the mutually beneficial long-term collaboration with the various parties, so as to maximize benefits to customers. Dongfang Zhenxuan also ensures attained cost-effective performance as one of its development principles. On one hand, Dongfang Zhenxuan focuses on enhancing product capability while continuing to establish its cultural content. On the other hand, Dongfang Zhenxuan has also organized diverse outdoor live streaming activities to promote special agricultural products and contribute to the cultural tourism. Through its unyielding aspiration to create value in related industries, which have also attracted and retained a large pool of talents, cooperators, as well as followers and members, Dongfang Zhenxuan has successfully received in return millions of revenues and a loyal customer base during the reporting period. With regard to the company's latest financial position, I'm confident to share with you that the company is in a healthy financial status with cash and cash equivalent term deposits and short-term investments totaling approximately $4.2 billion. On July 26th, On July 26, 2022, the company's board of directors authorized the share repurchase of up to $400 million of the company ADS or common shares during the period from July 28, 2022 through May 31, 2023. As of January 16, 2023, the company repurchased an aggregate of approximately 3.1 million ADS for approximately $79 million from the open market and on the share repurchase program. Now, I will turn the call over to Cici to share with you about the key financials. Cici, please go ahead.
spk04: CICI LIU- Now, I'd like to walk you through the other key financial details for this quarter. Operating cost expenses for the quarter were $640.7 million, representing a 55.1% decrease year over year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were $621.9 million, representing a 55.4% decrease year-over-year. The decrease was primarily due to the reduction of facilities and number of staff as a result of the downsizing in the fiscal year 2022. Cost of revenue decreased by 31.6% year-over-year to $336.2 million, Setting and marketing expenses decreased by 15% year-over-year to $95.5 million. G&A expenses for the quarter decreased by 74.6% year-over-year to $209 million. Non-GAAP G&A expenses, which exclude share-based compensation expenses, were $190.9 million, representing a 75.7% decrease year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 39.5% to $18.8 million in the second fiscal quarter of 2023. Operating loss was $2.5 million compared to a loss of $768.1 million in the same period of prior fiscal year. Non-GAAP income from operations for the quarter was $16.3 million compared to a loss of $737.1 million in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $0.7 million compared to the loss of $936.5 million in the same period of last fiscal year. Basic and diluted net income per ADS attributable to New Oriental were $0 respectively. Non-GAAP net income attributable to New Oriental for the quarter was $17.8 million compared to the loss of $901.6 million in the same period of last year. Non-GAAP basic and diluted net loss per ADS attributable to New Oriental was 11 cents and 10 cents respectively. Net cash flow generated from operation for the second fiscal quarter of 2023 was approximately $173.7 million, and capital expenditure for the quarter were $11.4 million. Turning to the balance sheet, as of November 30, 2022, New Oriental has cash and cash equivalents of $1,029.9 million. In addition, the company has $1,033.2 million in term deposits and $2,145.7 million in short-term investments. New Oriental's deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions were delivered, at the end of the second quarter of fiscal year 2023 was $1,139.1 million, an increase of 6.9% as compared to $1,065.8 million at the end of the second quarter of fiscal year 2022. Now, I'll hand over to Stephen again to go through our outlook and guidance with you. Thank you, Cece.
spk20: Looking ahead into the rest of fiscal year 2023, with the restructuring process largely completed and our new business in their early stage, we expect our school network and geographic coverage to stabilize. The company remains tireless in seeking new opportunities with greater flexibility and strong cash flows. We're confident in the sustainable profitability of all our remaining key businesses, as well as the growth and the prospect of our new initiatives. For our new business, as we observed in the first half of this fiscal year, the encouraging performance that these businesses have achieved proves that we are heading towards the right direction. And we firmly believe that business will be able to maintain an upward growth trajectory and generate meaningful profit to the company in fiscal year 2023. As for involving pandemic development in China since late November in 2022, many cities are experiencing certain level of disruption on business operations. Although we're expecting a negative impact, our financials in the coming one or two quarters, we remain confident and optimistic that overall impact will be temporary and manageable. Hence, we expect total net revenue in the third quarter of the fiscal year 2023 to be in the range of $702.8 million to $719.8 million. representing year-over-year increase in the range of 14% to 17%. The projected increase of revenue in our functional currency, RMB, is expected to be in the range of 24% to 27%. As the profitability we recorded in this physical quarter has reaffirmed our success and dedication in turning a new page and generating profits for the rest of the year. Bottom line-wise, we're confident in achieving greater operating profits in the full year of fiscal year 2023. To conclude, we're now taking multi-pronged operational actions to promote our key remaining businesses while we cautiously invest in new initiatives which will remain new growth engines that accelerate our recovery and pursue the profitable growth. At the same time, we'll continue to seek guidance from and cooperate with government authorities in various province in China in alignment with the efforts to comply with the relevant policies and regulations, as well as to further adjust our business operation as required. I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and the preliminary view, which is subject to change. This is the end of our fiscal year 2023 Q2 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these.
spk09: The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. Our first question comes from the line of Felix Liu from UBS. Please go ahead. Your line is open.
spk07: Hi, good evening, management. Congratulations on the strong top line as well as the guidance. My question is on the COVID impact. I know the COVID has come pretty viciously in December, but now we're past the peak. So I'm just wondering how has COVID impacted our February quarter. If there is any quantifiable metrics, that would be very helpful. And my second question is growth expectation of our various big businesses from here. If you were to rank the fastest to more stable business, how would you rank your various business segments? Thank you very much.
spk20: Thank you, Felix. As for the evolving pandemic development in China since the last December, I know the peak passed already. In many cities, I think some of our business are actively impacted. As our current estimation, I think the negative impact is small. And so we remain confident and optimistic that the overall impact from the pandemic will be temporary and manageable. And yeah, you'll look at our guidance for Q3. It's very strong. And the different business lines, the revenue outlook for Q3, right? Can we repeat the second question? Yeah.
spk07: Uh, yes. So maybe for Q3 and for the whole year, uh, which are the business lines that you think will grow the fastest and which are the ones that are more stable?
spk20: Oh, I think, you know, uh, I think, uh, the, you know, w we have two kinds of the business, you know, the number one is the, the, uh, the traditional, uh, the business, uh, the remaining business. the overseas related business, including the overseas test lab and the consulting business, which contributes the 24, 25% of the total revenue. What I'm saying is for the whole year, 24 to 25% of the total revenue. we got suffered the negative impact from the the last year but this year you know I think the we were seeing the revenue growth is booming things are two quarters ago and and the new business within the the schools you know we started the we started the new business the last year but the year before last year right the the November 2020 Yes, the last fiscal year. We just started the business one year ago. The growth is extremely high. This is the number one revenue growth within all business lines. Also, we don't have the Dongfang Zhenxuan. The management of the Dongfang Zhenxuan reported their first half year reports today, and you saw the growth, you saw the numbers, and so we're excited for the exciting performance for Dongfang Zhenxia. And so, yeah, the new businesses within the EDU side, the K-12 schools and Dongfang Zhenxia are the two top performers within the business lines.
spk19: Felix.
spk07: Got it. Thank you, and congratulations on the results again.
spk19: Thank you again.
spk09: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Kaney Wang from CICC. Please go ahead. Your line is open.
spk13: So congrats on the profitable status for this quarter. And my question is, since COVID-19 restrictions have been lifted in China, Do we expect a higher growth rate of our new business line in the next quarter and also in the next fiscal year? And are there any new opportunities for our new initiative business? Thanks.
spk20: Yeah, for the new business, yeah, as we saw in this quarter and last quarter, the encouraging performance proves that we're heading towards the right direction. And we firmly believe the new business will be able to maintain upward growth you know, in the Q3 and Q4 and the next fiscal year. What I mean is the fiscal year 2024. And, you know, we started a new business in last year, but, you know, I think we ramped up the new business very quickly. And the good news for us is, you know, the margin for the new business in this quarter is already over 10%. So, you know, think about that. We started this last year, and it's just to spend like the two to three quarters to get a break-even point, and then we make profitable. So it sounds very good. And I think we are on the good track. I think the management of New Rental will pay more efforts, will create more business opportunities to develop the new business as we did in Dongfang Zhenxuan and the new business in this year. We will do more to do more creative in the future.
spk04: Actually, the new pandemic situation with the graduate opening up after these recent developments of the new situation, I think probably we can see more opportunities in some certain kind of new initiatives such as the study tour and research camping business that we mentioned one to two quarters ago that as one of the new initiatives But as the pandemic situation happened in last one to two quarters, we did not have a very good chance to roll out that business domestically. But with the new situation, we have confidence that there's more opportunity for this business to perform better.
spk13: Okay, thanks. That's very helpful.
spk09: Thank you. Once again, if you would like to ask a question, you will need to press star followed by one and one on your telephone and wait for your name to be announced. Please stand by. And once again, that's star one and one on your telephone to ask a question. Please wait for your name to be announced. Please stand by. Our next question comes from the line of Lucy Yu from Bank of BofA. Please go ahead. Your line is open.
spk11: Thank you. Thank you, Stephen, for taking my question. Congratulations on a profitable quarter. Could you please give us some color on the revenue breakdown this quarter as well as the margin profile for different business lines? I know, Stephen, you already mentioned the new business is 10% OP margin. How about the rest? Thank you.
spk04: Yeah, for the reported quarter, the overseas-related business, including the overseas TASPRAP and consulting, contributed roughly about 21% of total revenue. And the domestic TASPRAP, the adult university students' business, contributed roughly about 6%. And the school business, including our remaining high school business, and also the new initiatives for younger students, together are contributing roughly over 40% of total revenue. And the rest are Cool Learn and some other businesses. So that's the rough contribution.
spk20: Yeah, Lucy, I just want to share with you the margins by different business lines. You know, the overseas related business, overseas test labs combined with the consulting business, the margin for the whole year, fiscal year 2023, will be around 10 to 15% margin. What I'm saying the margin is before the corporate overhead. And the adults and the university study business I think the margin profile, I think the business will be break even in this year. The school business, including the remaining business and the new initiatives, as you said, contributed 45% of total revenue. The margin should be somewhere around 20% to 25% or even a little bit higher. The others, this is the big others, including the cooler and the others. I think if you follow the numbers, the coolers, the first half a year report, I think you will see more the color on the margin profile of the cooler and the others.
spk10: Thank you, Stephen.
spk11: Thank you, Susie. One follow-up. Could you also talk about the YOY growth for different business lines in this quarter?
spk20: Thank you.
spk04: I think the revenue contribution is... Yeah, we talked about it in the prepared remarks. So for this quarter, like U.S. dollar term, overseas tax prep business increased by roughly 17%. Actually, for RMB term, you should add another 10%, 15% more. The university students' business is stable, and US dollar term is negative 8%, but RMB term is positive. The school business actually increased because of the new initiatives. and also Cool Learn and other business increase a lot.
spk09: Thank you so much. Thank you. We'll now take our next question. Please stand by. Our next question comes from the line of Candice Chan from Daiwa. Please go ahead. Your line is open.
spk08: Thank you. Congratulations on the very strong set of results and also the strong guidance for next quarter. So my first question is related to the third quarter revenue guidance and also the profitability that we are aiming for. So firstly, can you give us a rough breakdown of revenue for the third quarter? And also in terms of the operating margin, how should we look at it for the third quarter given given the strong revenue. Thank you.
spk20: Okay. In the Q3 forecast, you know, I think the number one, the overseas related business, test draft and consulting business will contribute 24, 25% of total revenue in Q3. And the second, the adults and the university students business contribute 2% of total revenue because of the COVID. And the school business, including the traditional business, remaining business and the new initiatives will contribute 43, 44% of total revenue. And the other 30% comes from the cooler and the other business like the books or the other, the 2B business. And the margin profile. You know, I think the margins, you know, we, I think, let us start the margin analysis from this quarter. In Q2, you saw our GP margin and OP margin increased a lot compared to last year. And I think this is mainly driven by four different reasons. The number one is, in last year Q2, even for the last whole year, the first three quarters, we had the considerable one-off cost related to the class cancellation, the learning center closures, and the staff layoffs. In this quarter, and even in this whole year, we have no one-off cost. Number two, I think the downsizing learning center numbers led to the lower fixed cost, so it drives the margin up per learning center. Number three is the new businesses, the margin is over 10% this year. I think it's good news for us. And also, the recovery of the remaining business, for example, like the overseas related business, generated higher margin than that of last year. And the last reason, the number four, is the Dongfang Zhenxuan, the cooler. The last stream e-commerce business enjoys higher margin. So it makes the margin you know, the draft margin up for the whole group. And going forward, I think all of this business alliance, we will contribute, you know, even higher profit, the profit and drive the whole margin up year over year. So we're quite optimistic of the margin profile of the whole year, fiscal year 2023.
spk08: Great. Thank you, Susan. So my second question is related to the regulations recently in late December that we saw that there is new document about the non-academic tutoring activities. So do we see any impact on our business overall, like in terms of pricing and also the expansion? Thank you.
spk20: Actually, since the government has issued the policy last year, I think we have been actively exploring the new business direction and follow all the central and local government authorities' rules. You mentioned the new rules in last October. in October last year, I think there will be no material impact that could impact our business.
spk12: Thank you very much.
spk20: Thank you.
spk09: Thank you. We'll move on to our next question. Please stand by. We have a follow-up question from the line of Felix Liu from UBS. Please go ahead. Your line is open.
spk07: Hi, Stephen. My follow-up question is on your learning center network. I noticed you opened two centers in this quarter. So I think that's a good step forward, although a small step. Could you share some color on your expansion outlook from here, maybe this year and next year? Thank you. Okay.
spk20: I think in the rest of this fiscal year, I think we have no big plan to set up new learning centers. I think the learning center number will be stabilized because, you know, we invest a lot on OMO system, you know, in past so many years. And we moved a lot of class from the offline to online. So it saved the classroom, the areas. And also, we changed some of the traditional business classroom areas to the new businesses. So this is the internal change. And the next year, we do hope we open more learning centers. But so far, I think it's too early to say how many learning centers we set up for the new year because we have not finished the new year budget. I think I want to share with you the new learning center expansion plan next quarter, next quarter earnings call.
spk06: Okay, great. Thank you. Thanks.
spk09: Thank you. Once again, that's star 11 to ask a question. Please stand by. Our next question comes from the line of Lian Duan from HTSC. Please go ahead. Your line is open.
spk21: Good evening, Steve and Sisi. My question is about the ratio of teachers to students. Could you share some color on the teacher to student ratio on each learning service segment? Thank you. And do you have more questions? plan to recruit more teachers in the next two years. Thanks.
spk20: I can share with you the teacher's number. By the end of this quarter, we have 26,000 teachers in total. And because we started a new business just since the last year, so I think it's too early to calculate the teachers to student ratio. I think maybe next quarter, in the new year, we'll disclose the ratio. And yeah, I think we're hiring new teachers because we started with new businesses. And for some non-academic courses or the other new businesses, we do need to hire more teachers. But the key is we don't want to hire two more teachers. So we care more about the utilization and the efficiency of the whole company. So I think we will believe we will keep the higher utilization and the higher the operation efficiency for the whole company in the future. Thank you.
spk02: Okay. Thank you.
spk09: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of DS Kim from JP Morgan. Please go ahead. Your line is open.
spk17: Hi, Stephen. Hi, sister. Happy New Year, and congrats on a strong result. I actually just have one quick follow-up question on all your comments. regarding margins, can I ask how much of a corporate overhead had close to how we expect at this stage? I.e., I remember corporate overhead used to be like high single-digit-ish of revenue pre-double reduction policy like two years back, but given much smaller or reasonably smaller revenue base now, I'm wondering how much of overhead we should model and expect for this year, either as percentage of revenue or dollar term would be appreciated.
spk20: Yeah, but I think the last year, we would cut off some fixed costs and expenses in the headquarters. So I think the headquarters expenses as the percentage of the total revenue
spk17: uh will be stabilized and uh you know roughly it's a six percent seven percent of total revenue this is the the the total expense from higher corners thank you that's a very impressive and a great uh margin guidance if i may follow up again uh on on all your comments uh on the expansion plan i don't want to ask too much about the number of learning centers but may i uh check for uh non-subject tutoring classes like where do we see incremental demand opportunity say uh top tier cities top 10 cities versus the rest of the uh nation like where do you see stronger demand and where do you think uh we would open more store and more centers uh in terms of the geographical uh exposure and that's that's all for me thank you again for taking my questions
spk20: I think the new business development in the top tier cities is a little bit better than the low tier cities. This is what we have seen in the past quarters. I do believe even in some low tier cities, I think they will catch up because they started the business a little bit slower than the top tier cities.
spk19: And so in almost everywhere, you know, we're seeing the business opportunities for the non-dynamic courses, you know, almost everywhere.
spk20: And, yeah, that's all. Yeah, capacity. Capacity, yeah, as I said, now we don't have the capacity extension plan. And we just want to keep the same learning center numbers till the next quarter or even till the end of this fiscal year. And next year, maybe we'll expand some new learning centers. But so far, we haven't finished the next year budget. I will show you the numbers next quarter. Thank you.
spk02: Thank you, sir.
spk09: Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Kaney Wang from CICC. Please go ahead. Your line is open.
spk13: Hi, Stephen. I have a follow-up question. I noticed that there's a significant increase in non-academic tutoring enrollment in Q2. Would you like to specify the driver behind and do we have any target for the enrollment during the whole year? Thanks.
spk20: I think the market is always there. And, you know, we do have the famous brands and we do have the good teachers. And, yeah, we started the business just a year ago that you saw the numbers. And the exciting news for us is that the profitable of the new business is exciting. It's much better than we expected. And for the new business, I don't believe in the rest of this fiscal year, the new business, the revenue growth will be accelerated again. And even for the next new year, fiscal year 2024, I do believe the revenue growth of the new business will be high.
spk19: We're optimistic about the non-academic courses business.
spk04: By the way, the non-academic tutoring business, according to our experience in the last several quarters, I think its seasonality is not that apparent as some other test prep business. So every quarter probably the enrollments will be relatively stable if you do the queue on queue comparison. And also as new business development in all the local cities probably you can see strong momentum as we have seen that Q2's growth or the enrollment trends are also similar or even better than Q1. Yeah.
spk13: Yeah, I see. That's very clear. Thank you.
spk04: Okay.
spk09: Thank you. We'll now go to our next question. Please stand by. We have a follow-up question from the line of Lian Duan from HTSC. Please go ahead with your question.
spk21: Just one more follow-up question. Do we have any color on the retention rate for each segment?
spk20: Retention rates, you know, it's related to the, you know, traditional, the K-12 business. But, you know, we closed down the K-9 business last year. But for new businesses, like the dynamic courses, we just trace the retention rate. The good news for us is we are seeing the retention rate is getting higher and higher. For example, as for the non-academic courses, the retention rate now is between 65% to 70%. You know, we just started a new business, and, you know, the retention rate now is better than we expected. And we believe the retention rate will get higher going forward. And Overseas Task Force and the adult, the university student business.
spk03: That's not one-off.
spk20: Yeah, that's one, roughly it's one-off.
spk22: Understood. Thanks. Thank you. Thank you. It's very clear.
spk09: Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Orientals Executive President and CFO Stephen Yang for his closing remarks.
spk20: Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations
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