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spk04: Good evening and thank you for standing by for New Oriental's FY2023 fourth quarter results earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be 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 Chao.
spk03: Thank you. Hello, everyone, and welcome to New Oriental's fourth fiscal quarter 2023 earnings conference call. Our financial results for the period were released earlier today and are available on the company's websites as well as on NewsWare services. Today, Stephen Young, Executive President and Chief Financial Officer, and I will share New Oriental'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 Securities 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 filings with the SEC. New Renta 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 websites at investor.neworiental.org. I'll now first turn the call over to Mr. Yang. Stephen, please go ahead.
spk09: Thank you, Cici. Hello, everyone, and thank you for joining us on the call. It's our great pleasure to announce that New Oriental has managed to conclude this fiscal year with a set of remarkable financial results this quarter and with our top-line performance beating the expectations. Our existing business lines and new initiatives have pivoted towards a stable recovery and anchored fruit-bearing growth, mainly benefiting from the strong post-COVID recovery of demand and the resumption of the consumption. Our bottom-line performance has also achieved solid growth, with operating margin and non-GAAP operating margin reaching 5.6% and 9.1%, respectively, for this quarter, depicting a well-grounded resilience across our business lines, thanks to our ongoing efforts in enhancing operational efficiency and cost control. In particular, I would like to highlight that the solid recovery has been embodied in the growth of our overseas. Our bottom line performance has also achieved a solid growth with operating margin and non-GAAP operating margin reaching 5.6% and 9.1% respectively for this quarter, depicting a well-grounded resilience across our business lines. Thanks to our ongoing efforts, in enhancing operational efficiency and cost control. In particular, I would like to highlight the solid recovery has been embodied in the growth of our oversea test prep and oversea study consulting businesses, which have recorded steady increments in revenues and enrollments. The dedicated blend of our restructured business model, better utilized facility, and streamlined cost structure have not only helped us yield better than expected margins in this fiscal quarter, but also enlivened our continued exploration of new potential ventures as we unfold a new chapter of innovative endeavors. The company's sustainable profitability, resilience, business lines, and emerging new initiatives have reaffirmed our belief in maintaining a healthy growth of our market share amid the encouraging environment of recovery. Now, I would like to spend some time to talk about the quarter's performance across our remaining business lines and the new business to you in detail. Our key remaining business secured a promising trend, coupled with a positive momentum in our new initiatives. Breaking it down, the oversea test drive business recorded the revenue increase of 52% in dollar terms were 62% in RMB terms year-over-year for the first quarter. The overseas study consulting business recorded the revenue increase of about 6% in dollar terms, or 13% in RMB terms year-over-year for this quarter. The adults and university students business recorded the revenue increase of 34% in dollar terms, or 43% increase in RMB terms year-over-year for this quarter. As mentioned in the previous quarters, we have launched several new initiatives which mostly revolve around facilitating students all around development. I'm pleased to share with you that these initiatives have continued to exceed our expectations by sustaining a promising growth and generating minimum profit to the company. Firstly, the non-academic tutoring courses which we have offered in around 60 existing cities focus on cultivating students' innovative ability and comprehensive quality. We're happy to see further rise of market penetration in those markets we have tapped into, especially in higher tier cities, with a total of 629,000 student enrollments reported in this quarter. The top 10 cities in China have contributed about 60% of revenue of this business. The intelligent learning system and device business, a service designed to provide a tailored digital learning experience for students, has been adopted in around 60 existing cities, with 99,000 active paid users reported in this quarter. The revenue contribution of this new business from the top 10 cities in China is around 60%. Thirdly, our study tour and research camp business An initiative that aims at offering students of K-12 and university ages the opportunity to fully leverage their free time to broaden the scope of knowledge and cultivate subject interest has also achieved encouraging results. We have conducted study tours and research camps in over 50 cities across the country, with the top 10 cities in China offering over 55% of revenue contribution to this new business. Benefiting from the post-COVID recovery of demand, we have seen strong enrollment trends and expect the new business to contribute meaningful revenue in the coming new fiscal year. Last but not least, our smart education business, educational materials and digitalized smart study solutions, as well as exam prep courses, have also contributed meaningful results to the overall growth of the company. and have attained instrumental profits since the previous quarters. With regard to our OMO system, our persistence in revamping our platforms and advancing the technology capability has enabled us to continue to provide high-quality service to our customers and successfully capture the new business opportunity during the transition period. During the reporting period, A total of $31.7 million has been invested into the system. Now, I would like to spend a bit of time to give you an update on Easterby's latest performance. Fiscal year 2023 marks Adventure's beginning for Easterby. Since inception, it has achieved significant breakthroughs in both business operations and financial performance through proactive redesigning a strategic plan and the implementation of a series of initiatives to strengthen the long-term sustainability. During the reporting period, the company introduced a change of its name from Cooler Technology Holding Limited to Easterby Holding Limited for closer alignment with its long-term core business direction, which is to offer top quality agricultural products under our private label, Dongfang Zhenxuan. creates a live streaming platform, which safeguards product caliber and use experience for customers, as well as nurture nationwide cultural appreciation. Throughout fiscal year 2023, Easter Buy continued to expand product variety to provide customers with high quality and cost-effective offerings. The extremely stringent standard applies in selecting prime suppliers and the manufacturers have ensured outputs are always curated a better craftsmanship with similar ingredients. In terms of private label products, we're insisting to introduce only high quality products that are price worthy, eased by elevated user experience by applying advanced technology to safeguard the entire process from product development, sales, to after-sales service. Furthermore, with a vision to foster content innovation and knowledge sharing with customers, Easterbyte began leading on-site live streaming events in various provinces in China, joined by the cultural celebrities from all walks of life to document a rich variety of intangible cultural heritage. We're also grateful for the support to East Bight's exploration in cultural tourism, and it's inspiring to see that the platform has since aroused wild public attention, awareness, and most importantly, affection on Chinese cultural assets. We will continue to explore the area of business and provide updates when suited. With regard to the company's latest financial position, I'm confident to share with you that the company is seeing a healthy financial status with cash and cash equivalent term deposit and short-term investment totaling approximately $4.5 billion. On July 26, 2022, the company's board of directors authorized the share repurchase of up to $400 million of the company ADS were common shares during the period from July 28, 2022 through May 31, 2023. The company's board of directors further authorized the company to extend its share repurchase program launched in July 2022 by 12 months through May 31, 2024. As of July 25, 2023, the company repurchased an aggregate of approximately 5.9 million ADS for approximately $191.7 million from the open market under 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.
spk03: Now, I'd like to walk you through the other key financial details for this quarter. Operating costs and expenses for the quarter were $812.5 million, representing a 29% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which includes share-based compensation expenses, were $782 million, representing a 30.1% increase year-over-year. The increase was primarily due to the cost and expenses related to the substantial growth in East Dubai's private label products and its live-streaming e-commerce business. Cost of revenue increased by 58% year-over-year to $391.6 million. Setting and marketing expenses increased by 54.3% year-over-year to $147.8 million. G&A expenses for the quarter decreased by 4.5% year-over-year to $273.1 million. Non-GAAP G&A expenses which exclude share-based compensation expenses were $249.5 million, representing a 3% decrease year over year. Total share-based compensation expenses, which were allocated to related operating cost expenses, increased by 6.1% to $30.5 million in the fourth fiscal quarter of 2023. Operating income was $48.1 million, compared to a loss of $105.6 million in the same period of the prior fiscal year. Non-GAAP income from operations for the quarter was $78.6 million compared to the loss of $76.9 million in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $29 million compared to the loss of $189.3 million in the same period of last year. Basic and diluted net income per ADS attributable to New Oriental were 18 cents and 17 cents respectively. Non-GAAP net income attributable to New Oriental for the quarter were $62.1 million compared to the loss of $160.3 million in the same period of the prior fiscal year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were 38 cents and 37 cents respectively. Net cash flow generated from operation for the fall fiscal quarter of 2023 was approximately $421.6 million, and capital expenditure for the quarter was $68.4 million. Turning to the balance sheet, as of May 31, 2023, New Oriental had cash and cash equivalents of $1,663 million. In addition, the company had $1,318.5 million in term deposits and $1,477.8 million in short-term investments. New Rental's deferred revenue balance, which is cash collected upfront from customers and related revenue, will be recognized as the service and goods are delivered at the end of the fourth fiscal quarter of 2023 was $1,337.6 million, an increase of 43.4% as compared to $933.1 million at the end of the fourth quarter of fiscal year 2022. Now, I'll hand over to Stephen to go through our outlook and guidance. Thank you, Sisi.
spk09: Heading into the first quarter of fiscal year 2024, we firmly believe that our business will progress on a healthy trajectory of growth, which will be reflected in our performance in the new fiscal year. The surge in demand we observed as a result of post-COVID reception and economic recovery has heightened our conviction in leveraging our brand advantage, rooted history, influential the teaching content and resources and our long-established solid foundation. We will continue to work diligently adhering the latest guidance from the Chinese authorities on enhancing the nation's education level to strengthen its leading position to further unveil our potential in all business lines and seize new opportunities as they arise. With regard to learning center and classroom space, we plan to increase our capacity by about 15% to 20% in the new year, by which a small quantity of new learning centers is expected to be opened, while classroom areas of some existing learning centers will be expanded in a few major cities. Most of the new openings will be launched in the city with better top line and bottom line performance in fiscal year 23. We will keep monitoring the pace and the scale of new openings according to the local operation and the financial results during the new year. In summary, we expect total net revenue in the first quarter of fiscal year 2024 to be in the range of $983.2 million to $1,005.5 million, representing year-over-year increase in the range of 32% to 35%. To conclude, the financial results we recorded in fiscal year 23 and performance of our new business have reaffirmed our confidence in achieving the satisfactory level of the operating profit and the improvements of the profitability in the first quarter and the whole year of fiscal year 24. New Oriental placed great determination to evigorate new endeavors with our existing capabilities. Simultaneously, we will also devote reasonable resources on research and application of new technologies such as AI and chat GPT into our educational and product offerings with a vision to uplift our strength in pursuit of growth and opening and operating efficiency at the same time we will continue to stay committed to seek guidance from from and cooperate with government authorities in various provinces in alignment with its efforts to comply with the relevant policies as well as the 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 preliminary view, which is subject to change. This is the end of our fiscal year 2023 Q4 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these. Thank you.
spk04: Thank you. 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 now, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Once again, that's star 11 for question. Our first question comes from the line of Felix Liu from UBS. Please go ahead, Felix.
spk00: Hi, good evening. Thank you, Madeline, for taking my question, and congratulations on the strong quarter and guidance. My question is on capacity. I noticed that your capacity expansion have picked up this quarter. and that you guided the 15 to 20% capacity increase for FY24, which I think is an acceleration from previous plans. So may I ask you to share more color on this capacity re-acceleration? Are they in existing cities or in new cities? And are they just for our new K-12 businesses, or are they multi-purpose in covering overseas test prep And for the plan of 15 to 20% this year, do you see that as a sustainable level if we were to project this into a few years down the road? Thank you.
spk09: Yeah. Thank you, Felix. I think as for the expansion plan, yeah, we raised a little bit about the capacity expansion plan compared to that of the last quarter earnings call in the last quarter. I shared with your guys about the 10% capacity expansion. I think the reason is because we have seen the strong demands in education sector, especially in overseas test prep business and non-academic courses. And also, I think that's why we raised the guidance of the capacity expansion. And I think most of the new opening will be happened in the existing cities. We don't have the plan to open the new cities. But I must mention that we will open these small quality of the new learning centers in existing cities and we will expand some classroom area for some existing cities because it's almost full of the existing some learning centers. And most of the new learning centers or the new areas will be used by the K-12 non-dynamic courses and the overseas related business and some domestic test drive courses. And as for the, this is our fiscal year 24 plan. And I think in the next two to three years, I think we'll keep the same pace of the expansion plan. It depends on the whole market environment and the development of the business.
spk08: Thanks.
spk02: Thank you very much.
spk04: Thank you. Our next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.
spk01: Hey, thank you. Good evening. Thanks for taking my question. Congrats on a very strong set of results. So just a general question about our guidance. So your August quarter guidance is quite impressive and even more so in the mid-term. So actually, what is driving such a strong growth? Can you describe more, maybe by segments? Thank you.
spk09: Okay. Yeah, I think we remain confident and optimistic about the business performance in in the coming Q1 and even for the new fiscal year, 24. And, you know, as the post-COVID reception and the whole economy recovery, I think we have seen the strong demands of the, you know, of our product, like the overseas related big courses and the non-dynamic courses, some new businesses. And so I think with leveraging our brand advantage, and the good teaching content and resources, and our long-established solid foundation, I think we will continue to seize the market opportunity in the market. That means we will take the market share. And for example, as for the oversea related business, on the mind side, we have seen a strong demand for the oversea task rep business. On supply side, we have seen some players disappear from the market. So that means we're facing less competition. And for our new business, like the non-diamond courses, I think the encouraging performance in this quarter, or even in the last year, proves that we are heading towards the right direction. So in the coming Q1, you know, we guided the top line growth will be in the range of 32% to 35% in dollar terms. And in RMB terms, there might be somewhere around 40, 45%. And so, and also as for the bottom line wise, we're confident, you know, achieving the greater the profit in the coming Q1.
spk08: That means we're quite optimistic about the operating margin expansion in the Q1 and the whole new year. Yuan.
spk01: Thank you. Thank you very much. Thank you.
spk04: All right. Thank you. Next question comes from the line of Lucy Yu from Bank of America Securities. Please go ahead, Lucy. Thank you. Hi, Steven.
spk03: This is Lucy from . One question on your selling expense. So I noticed that the selling expense has been up quite a lot, Q on Q and Y on Y. Could you please elaborate what is driving that, and how should we think about the selling expense trend in the new fiscal year? Thank you.
spk09: Thank you, Lucy. I think, yeah, we spend a little bit more money on selling marketing expenses. because we're seeing the strong demand in the market. And yeah, I think you saw our top line growth in this quarter is 64% in dollar terms. And even though we spent a little bit more on selling marketing expense, but I think we do have the operating leverage in hand. And going forward, even in the Q1, the new year, I think we'll spend a little bit more on the selling marketing expenses But I think we do have the operating leverage on the cost and SG&A side.
spk08: So that means you will see the margin improvement in the coming new year.
spk02: Let me just follow up, Stephen.
spk03: So your selling expense up is mainly driven by which business? Is it non-academic and overseas or any other business?
spk09: Both. It's by the education business and East Dubai.
spk04: Okay, thank you. Thank you, Lucy. Our next question comes from the line of Candace Chen from Daiwa. Please ask your question, Candace.
spk05: Hi, Stephen and Cece. Good evening. This is Candace from Daiwa. So, firstly, congratulations on the very strong revenue guidance for the coming quarter. And I would like to follow up on your comments about the operating margin. Would you mind sharing a little bit more on the margins by different businesses such as the non-academic tutoring and also the overseas test prep, et cetera? And my second question is about the revenue this quarter. Would you mind to break it down into different segments as well? Thank you.
spk09: Yeah. You know, yeah, let's start with the margin analysis of this quarter. You know, because of the downsizing of the learning centers and laying off some employees last year, actually the lower fixed cost per learning centers, it drives the margin up. And as for the different business lines, you know, the overseas test threat, you know, the growth is very good in this quarter. And, you know, with the higher utilization of the classrooms, and the operating leverage and the margin was up. And going forward, I think that both the overseer of the business and the new business, the margin will go up in the coming quarter and the coming new year. And the question of the different business line revenue, just kind of take the question.
spk03: You meant for Q4, right?
spk05: Right, mainly for Q4, but if you can also provide some colors under one queue, that would be very great. Thank you.
spk03: Oh, okay. Yeah, so for Q4, the revenue mix is roughly like Q4, the overseas-related business contributes, like test prep is about 11%. And the consulting business is like 17% because it's the seasonally high quarter. And also for university students' business, the revenue contribution in Q4 is about 2% to 3%. And the new business together is about 18%. So roughly same for the whole fiscal year as well. And the rest are high school and some other business, and also including . Yeah.
spk05: Thank you, Sissy. May I ask one more question that is about the coming quarter? So I think that we do see that on the ground, the demand for the research camps and also the study tours have been very strong. Would you mind sharing a little bit more like what we are seeing for this and what is our plan for this new year and going forward for this new business? Thank you.
spk03: Yeah, so actually we give the strong guidance for Q1's revenue. The key driver, if you look at by each categories of businesses, like overseas related business, both including the overseas task rep and consulting are growing faster. And also, we're seeing accelerating trends of the growth for overseas-related business because of the post-COVID recovery. The trend is very clear. And also, you know, some other new business definitely is a key driver, even higher than our original expectation because we are seeing strong growth demands during the summer's registration, and according to our current forecast, this portion can also grow very, very fast. So, these are the key drivers. Definitely, other businesses, the rest of the remaining businesses, and also Zhu Huanzhenxuan are also contributing good revenue growth as well for Q1. Great.
spk05: Thank you very much.
spk04: Great. Thank you. Our next question comes from the line of Taimi Wang from CICC. Please go ahead, Taimi.
spk06: Good evening. So thank you for taking my questions. My question is, since we have announced to offer cultural and tourism services that target middle-aged and older people, So could you mind share more cut on this, like how do we expect to enter this market, and to which extent do we expect this business to contribute to revenue? Thank you.
spk09: Yeah, as for the new cultural tourism business, yeah, I think, you know, first of all, you know, we think it has a big potential, you know, the market opportunity in the country. And, you know, we do have a lot of the good teachers. Some of them are star teachers. And by leveraging the knowledge of the teachers and in the general studies, history, or Chinese history, or some cultural studies, I think we believe we'll be able to present one of a kind cultural tourism offerings. Combine both the entertainment and cultural education for the middle or the older age group of people. In addition, I think we may also be able to leverage our extensive online platforms and the school network as the distribution channel. We have newly developed a couple of the top quality cultural tourism offerings in some featured tourism cities. and province, such as Hangzhou, Chengdu, Xi'an, and Gansu. I think these offerings are gaining the increase in the traction from the market. And yeah, we're still in the very early stage, and we're testing the product and the service process. And I will keep you posted You know first any updates on the new business, but you know we're exciting for the new business You know as we as we did in the you know the year before last year we started the business of the Easter by and you know the Easter by in general a lot of the top-line growth and the profit to the group, you know in fiscal year 23 and
spk08: And this round, we're very excited about the new business of the tourism business. Thank you.
spk02: Great. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone. Once again, to ask a question, please press star 1 1 on your telephone. Reminder, to ask a question, please press star 1 1 on your telephone. All right, there are no further questions.
spk04: I'll now turn the call over to New Oriental's Executive President and CFO, Stephen Young, for his closing remarks.
spk09: 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.
spk04: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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