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spk07: Good evening, and thank you for standing by for New Oriental's full year 2024 fourth quarter results earnings conference call. At this time, all participants are in listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect this time. I would now like to turn the meeting over to your host for today's conference, Ms. Ceci Tsao. Please go ahead. Thank you.
spk04: Hello, everyone, and welcome to New Oriental's fourth fiscal quarter 2024 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as our News Square services. Today, Stephen Yang, 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 Security Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public 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 has been recorded. In addition, a webcast of this conference call will be available on New Oriental's investor relations website at investor.neworiental.org. I will now first turn the call over to Mr. Stephen Yang. Please go ahead.
spk18: Thank you, Cici. Hello, everyone, and thank you for joining us on the call. Before we begin, we would like to firstly extend our gratitude to those who have been supporting and believing in New Oriental. We understand there might be some questions with regards to the latest separation of Easter by and time with Yuhui. Before we go into New Oriental's performance, we would like to stress that this decision was carefully made upon a considerable amount of transparent communication with Dong Yuhui, who has been a beloved colleague of ours and drove instrumental growth of East Dubai. As we sent Yuhui our best regards for his new venture, the company remains fully dedicated in forging a stable path of healthy growth for the platform, devoting our very best to live up to our customer-centric promise to offer a diverse range of premium, healthy, delicious, yet cost-effective products to our customers. Anchored by the exceptional teams, far-reaching partnerships, over 400 SKUs, and distribution channels, which we thankfully built over the years, strategic pivot to expand our multi-client presence are in the works. And we will continue to leverage Easterby to propel knowledge sharing, product dissemination, and culture promotion to our valued customers in the long term. For more details, please refer to Easterby's latest announcements. And now, let's deep dive into New Oriental's fiscal year 2024 performance. For New Oriental's financial results of this fiscal quarter, We are pleased to announce that the company has achieved a healthy growth in our key businesses with a solid top line growth of 32.1%. Strong demands have fueled stable recovery across our business lines, while our portfolio of innovative ventures have invigorated the company's revenue with healthy contributions. New Oriental's bottom line performance has achieved the yields with operating margin and non-GAAP operating margin reaching 0.9% and 3.2% for this quarter, respectively. Except for Easter Bites investment in private label products and certain costs and expenses related to the platform of time with Yuhui, our spending accelerated capacity expansion and newly integrated tourism-related business as well as additional incentives to the management and staff have led to a short-term impact on our operating margin this quarter. However, coupled with the increasing market demand, we strongly believe we made the right move to input the right investment. We anticipate that the pressure on margins for the educational business will reduce in the next fiscal year. as we continue to improve the utilization of facility and operating efficiency. We expect our operating margin of the company, excluding Easterby, will expand year-over-year in the first quarter of 2025 and deliver satisfactory operating profit for the full fiscal year 2025. Now, I would like to spend some time to talk about this quarter's performance across our existing business lines and new initiatives to you in detail. Our key remaining business secured an encouraging trend, and new initiatives have shown positive momentum. Breaking it down, the overseas test drive business recorded a revenue increase of 18% in dollar terms were 23% in RMB terms year-over-year for this quarter. The overseas study consulting business recorded revenue increase of about 17% in dollar terms or 23% in RMB terms year-over-year for the first fiscal quarter of 2024. The adults and university students business recorded the revenue increase of 16% in dollar terms were 21% increase in R&B terms year-over-year for this quarter. Our new initiatives, which mostly revolve around facilitating students' all-round development, have continued to sustain a strong momentum in their respective ventures. Firstly, the non-academic tutoring courses, which we have offered in around 60 existing cities, focuses on cultivating students' innovative ability and comprehensive quality. We're excited to see further penetration in those markets we have tapped into, especially in high-tier cities, which total approximately 875,000 students' enrollments reported in this fiscal quarter. The top 10 cities in China contribute over 60% of this business. Secondly, the intelligent learning system and device business has been adopted in around 60 cities. We're happy to see stable customer retention and scalability with approximately 188,000 active paid users reported in this quarter. The revenue contribution of this initiative from the top 10 cities in China is over 55%. Our smart education business, education material and digitalized smart study solutions have continued to contribute material yields to the overall advancement of the company. In summary, our new educational business initiatives recorded a revenue increase of 50% in dollar terms or 57% increase in RMB terms year-over-year for this quarter. In addition, the newly integrated tourism-related business line One of our creative endeavors is tailored with diverse offerings of cultural trips, study tours in China and overseas, as well as the camp education. Within the business line, our study tour and research camp is for students of K-12 and university age continuing to achieve sustainable growth this quarter. We have conducted the study towards the research camp in over 55 cities across the country, with the top 10 cities in China offering over 55% of the revenue share of this new business. We also piloted a number of top-notch tourism offerings to expand our reach to old age groups, including middle-aged and elderly individuals across 27 featured provinces. As we are still at a preliminary stage of planning, testifying, and evaluating the visibility of the business in selected regions, we will keep you posted should there be timely updates. With regards to our OMO system, we have proceeded in revamping our platform and leveraged our education infrastructure and technology edge on remaining key business and new initiatives. with a vision to provide advanced diversified education service to customers of all ages. During the reporting period, a total of $30.5 million has been invested in our OMO teaching platform, which equips us of the flexibility to maintain arrival service to students. With regards 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 $4.9 billion. In addition, we would like to highlight the company's board of directors approved a share repurchase program in July 2022, under which the company is authorized to repurchase up to $400 million of the company's ABS or common shares through the next 12 months. The company's board of directors further approved to extend the effective time of the share repurchase program to May 31st, 2025. As of July 30th, to 124. The company repurchased an aggregate of approximately 7.3 million ADSs for approximately $296.1 million from the open market. Now, I will turn the call over to Cici to share with you about the key financials. Cici, please go ahead.
spk04: CICI LIU- Before we go into our key financials, We'd like to inform you that as part of the company's business line reorganization, the company's wholly owned subsidiary and variable interest entity entered into an agreement with East Dubai and its subsidiaries and variable interest entity to acquire East Dubai's online education business at an aggregate consideration of 1.5 billion RMB. The consideration was agreed by both parties after arm's length negotiations with reference to an independent valuation. The acquisition was completed in this fiscal quarter. Upon completion, the online education business was consolidated from ISTABI's consolidated financial statements and was deconsolidated from ISTABI's consolidated financial statements and is now recorded by the company under educational services. Now for our key financial details for this quarter. Operating costs and expenses for the quarter were $1,126.2 million, representing a 38.6% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which include share-based compensation expenses, were $1,100.4 million, representing a 40.7% increase year-over-year. The increase was primarily due to the costs and expenses related to the substantial growth in ISABI's private label products, live streaming, e-commerce business, and accelerated capacity expansion for education business. Cost of revenue increased by 38.5% year over year to $542.4 million. Selling and marketing expenses increased by 40.9% year over year to $208.2 million. G&A expenses for the quarter increased by 37.5% year-over-year to $375.5 million. Non-GAAP G&A expenses, which is called share-based compensation expenses, were $355.2 million, representing a 42.3% increase year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 15.5%, to $25.8 million in the fourth fiscal quarter of 2024. Operating income was $10.5 million, representing a 78.1% decrease year over year. Non-GAAP income from operations for the quarter was $36.3 million, representing a 53.8% decrease year over year. Net income attributable to New Oriental for the quarter was $27 million, representing a 6.9% decrease year over year. Basic and diluted net income per ADS attributable to New Oriental were $0.16 and $0.16, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $36.9 million, representing a 40.5% decrease year over year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.22 and $0.22, respectively. Net cash flow generated from operation for the fourth fiscal quarter of 2024 was approximately $376.8 million, and capital expenditure for the quarter was $27.4 million. Turning to the balance sheet, as of May 31, New Oriental has cash and cash equivalents of $1,389.4 million. In addition, the company has $1,489.4 million in term deposit and $2,065.6 million in term deposit in short-term investments. New Oriental's deferred revenue, which representing cash collected up front from customers and related revenue that will be recognized as the service or goods are delivered at the end of the fourth quarter of fiscal year 2024, was $780.1 million, an increase of 33.1% as compared to $1,337.6 million at the end of the fourth quarter of last fiscal year. Now I'll hand over to Stephen to go through our outlook and guidance.
spk18: Thank you, Cici. As we look ahead for 2025, we're confident that our educational business will embark on a healthy trajectory of growth fueled by the continuously strong demand. Supported by New Oriental's rooted resources that have stood at the top of time We have firm belief in delivering margin expansion for the whole company except for East Dubai in the first quarter of 2025 and attending satisfactory operating profit for the full fiscal year. Simultaneously, we expect to achieve tremendous growth for our new tourism-related business in belief that the significant resource we invested for a nationwide rollout in these tours will contribute meaningful revenue in the new fiscal year. As we ensure a healthy balance between revenue and profitability growth, we will cautiously manage our capacity expansion and hiring to underpin the development of educational business in the new year. We plan to increase our capacity by around 20 to 25% for the fiscal year 2025. The most new openings will be launched in the cities with better top-line and bottom-line performance. Rest assured, we will closely monitor the pace and scale of the new openings in accordance to the local operations and the financial performance during the year. We expect total net revenue excluding revenue generated from Easter buy in the first quarter of fiscal year 2025, June 1st, 2024, to August 31st, 2024, to be in the range of $1,254.7 million to $1,283.5 million, representing year-over-year increase in the range of 31%, to 34%. In addition, based on our current estimation, we expect the operating margin for the whole company except for East Dubai in the first quarter will be expanded year-over-year. To conclude, New Oriental has been known as a resilient adventure that sails on its voyage changes for the transformation, thanks to the support of our valued customer, promising premium offering and giving back to society in the long term stand firm as our priorities from day one. As always, we will devote reasonable resources on research and application of new technologies such as AI and chat GPD into our educational and product offerings. with a vision to uplift our strength in pursuit of the growth and operating efficiency. We will continue to seek guidance from and cooperate with the government authorities in various provinces in China, comply with relevant policies, as well as to further adjust our business operations as required. We'll also work diligently to enhancing the nation's education level to strengthen its leading position so as to unveil further potential across all our business lines and realize our vision. 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 2024 Q4 summary. At this point, I would like
spk07: open the floor for questions operator please open the call for these thank you 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 please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by. We will compile the Q&A roster. Our first question is from Alice Cai from Citi. Please proceed with your question.
spk05: Good evening, Stephen and Citi. Thank you for your presentation. I have a question about the growth strategy. Since you are not planning to expand into new cities, how much room for growth is left in your existing locations before reaching saturation? Could you please share your color about this? Thank you so much.
spk18: OK. Thank you, Alice. As for the learning center expansion plan, I think we, as I said, You know, we plan to increase the capacity expansion by 20% to 25% in the new fiscal year. And I think we will open most of the new learning centers or the new classroom areas mostly in the existing cities. And I think most of the openings will be in the cities with a better performance both the top line growth and the margin expansion in fiscal year 24. And I think we will keep monitoring the pace and the scale of the new openings. We care more about the balance of the top line growth and the margin expansion. So this is our strategy. And I think in the coming new year, You know, upon the extension of the new learning center by 20 to 25%, we will keep the utilization rates up. And I think the strong revenue growth in the year will cover the incremental classroom rental.
spk17: Thank you, Alice.
spk06: Thank you so much for your sharing.
spk07: Thank you. We will now take the next question. From the line of Yuwen Zhang from ChinaRenaissance.com, please go ahead.
spk13: Hey, thanks. Good evening. Thanks for taking my question. So I would like to follow up on the, you know, margin decline in this particular quarter. So you mentioned several reasons in your prepared remarks. Could you discuss more about, you know, which ones are, like, which ones are recurring? And also, if we look at the education business alone, how do we see the margin decline? actually trending in our specific quarter. And thank you.
spk18: Yeah. Thank you, Yiven. Let's start with this quarter's margin analysis. Yeah, the OK margin decreased in this quarter. I think this is mainly due to a couple of the reasons. Number one, so we accelerated the Learning Center extension in this quarter and even in the last two quarters. And also, you know, we newly invested the new tourism business. And number two reason, you know, we made the additional incentives to the management and staff in Q4. And number three is, you know, East Dubai's investments in private label products and some certain, you know, one-time costs and expenses relate to the sales time with the Yihui. So I think partly some of the expenses is one time of the incremental cost and expenses in Q4. And as for the margin outlook, we expect the OP margin in the coming Q1 of the whole company, excluding East Dubai, will be expanded by 200 basis points year over year. So that means you will see the more operating leverage and the higher operating efficiency in the coming Q1. And we are quite optimistic about the margin expansion of the company, except for East Dubai in fiscal year 25, the margin will be expanded. I think we will assess that we will get more operating leverage and keep the learning center utilization rates up. So this quarter's margin decrease is just one time. And next quarter, you will see the margin expansion for the educational business.
spk17: Thank you, Ivan.
spk11: OK, thanks. That's very clear.
spk07: Thank you. We will now take the next question. from the line of Felix Liu from UBS. Please go ahead.
spk14: Thank you, management, for taking my question. First, I just want to say that I have a lot of respect to how New Oriental handled the situation with Dongyi Hui and believe the decisions you made will be beneficial to the long-term branding of New Oriental. My question is a follow-up on the margin expansion. You mentioned that Q1 you expect the margin to expand by 200 bps. May I check the pace of margin expansion or your expectation on the pace of expansion for the rest of the year? Do you think Q1 will be the peak of margin expansion or do you expect this momentum to continue or even improve in the following quarters after Q1? And also on the margin improvement driver, do you see the driver as mainly from operating leverage, or do you see the underlying segment margin also has potential for improvement? Thank you.
spk18: Yeah, Felix, you know, as for the margin outlook, you know, yeah, we guided the margin extension in Q1 for the educational business will be expanded by 200 basis points. And as you know, Q1 is the peak season for the educational business. And so in the rest of the year, Q2 to Q4, I think we'll keep posted your guys' margin expansion in detail. But as I said, we're quite confident about the whole year margin expansion for the education business. And the operating leverage, yeah. Yeah, you know, we open more learning centers and hire more people in Q3 and Q4. But I think this market demand for educational business, both for the overseas related businesses, especially for the K-12 business, I think the demand is very, very strong. And where we have seen the less competition in the market, even though we know the competitors are or invest more money and human resources to take more market share. But we're quite optimistic that new rental will take more market share from the market. And I think we do have the operating leverage in hand. So we will leverage the business by the top-line growth what I mean is the top-line goals will, I think we will beat the top-line guidance again in the Q1 for the whole new year. And so I would believe the margin extension in Q1 and the whole year of the 2025.
spk09: Thank you.
spk07: We will now take the next question from the line of Alice Ma from Bank of America.
spk09: Please go ahead. Hi, this is Lucy from Bank of America.
spk03: So I have a question on the enrollment growth versus the capacity expansion pace. So if we're looking at this quarter, actually our number of learning centers have been expanded by like 42% on a year-over-year basis, but the non-academic tutoring enrollment only grows like 39%. I know it's not a big difference, but if we're looking at the past quarters, enrollment growth is always higher than the capacity expansion pace. So how should we think about the difference? between these two? Is it because of timing or some other reasons? Thank you.
spk18: Partly it's because of the timing, like the steering enrollment window, the open, like the timing difference. And so, yeah, I think as I said, you know, I think in this quarter, you know, At the end of this fiscal year, we have added around 37% of new capacity. Yes, that's a little bit bigger than we expected. But I think we will bear fruit of things the Q1. So for example, as for the new business for the Q12, for the new business, top-line growth in this quarter, in RMB terms, is 57% year-over-year. And even in the coming summer, in the Q1, we believe the revenue of the new business will be somewhere around 50%, 45% to 50% year-over-year growth. So I think the revenue will cover the incremental cost of the new learning centers. And on the other hand, I think the rentals per Learning Center per square meters get decreased because the markets change a lot. So I do believe we will get the operating leverage on rentals, even on the other costs and expenses going forward.
spk17: Lucy.
spk03: Thank you, Stephen. Sorry, just if I may, one small question is that you mentioned in the May quarter, there's a small amount of one-off compensation paid to Dong Yuhui. So I think it's one-off, but will that be any compensation paid to Dong Yuhui in the first quarter? That'd be all, thank you.
spk18: Yeah, I think some of the costs and expenses related to the sale of the Yuhui Tongxing, will be happens in the Q4 and the coming Q1. So we will keep you posted in the next call to tell you the exact numbers of how much we spent in the coming Q1.
spk17: But it's one time.
spk10: Okay, thank you. Okay, thank you so much.
spk07: Thank you. We will now take the next question from the line of Timothy Tsao from Goldman Sachs. Please go ahead.
spk12: Great. Hi, Steven. Hi, thank you for taking my question. So my question is regarding your revenue outlook for the new fiscal year. Just wondering if you can give us certain guidance on the revenue growth for different segments of the business, including the traditional K-12, the overseas test prep consulting, and the K-12 new initiative. I think that would be very helpful. Thank you.
spk18: Yeah. As for the revenue outlook for fiscal year for the new year, in different segments. You know, the oversea tax prep business, I think the revenue growth in the coming year will be somewhere around 20 to 25% of the year. And the consulting business, you know, the revenue growth will be somewhere around 15% of the year. And the new business, I think the top-line growth of the new business will be expanded by, will be increased by 45 to 50%. And as for the high school business, I think the revenue growth will be somewhere around 25 to 30%. And as always, we will give the guidance by most conservative way.
spk09: Thank you. Thank you. Thank you.
spk07: We will now take the next question from the line of Charlotte Wei from HSBC. Please go ahead.
spk08: Good evening, Sisi and Stephen.
spk19: Thank you for taking my question. My question is regarding competitive landscape. So we notice local small players have been more aggressive in terms of expansion. So do you see competition intensifying in this summer, especially in the top tier cities? So can you share more color on the summer enrollment growth and student retention rate? Thank you.
spk18: As for the competition environments, yeah, we have seen some competitors. in that so many were open or learning centers in the top cities. But I think as the whole analysis of the competition, I think the competition situation now is less a lot than a couple of years ago, before the policy. So I believe the competition is less And I think new rental will take more market share and seize the opportunity to provide the good services to the students. And the student enrollment for the summer, and we have already given the guidance. And the top-line growth will be in the range of the 31% to 34% in dollar terms year-over-year. And this is for education business. And take out the excluding the . And yeah, considering the style of the guidance, I think there will be the guidance in Q1. And the student enrollment in Q1, I think this is very good.
spk17: So I think we're quite optimistic about the top line growth and the market extension in Q1. Thank you.
spk19: Thank you. Very clear. So may I have another question regarding the shareholder return because we have a lot of cash on hand. So do you consider like upside your share buyback plan if the current plan retires? Thank you.
spk18: Yeah, we do have the $400 million share buyback program in hand. And till yesterday, we finished the $294 million. So that means we have $100 million left. So I think the first step, we'll finish the $100 million And, you know, once we finish the $400 million share buyback program, I think I will discuss with Michael and the board to think about the even more of taxable allocation, you know, the share buyback or the dividend to the investors. You know, our company, you know, yeah, I think you're right. We're paying off the cash. And we have a lot of cash. We have $4.9 billion cash in hand. So I think we will create more value to the shareholders. And I think we should pay more tax allocation to the investors.
spk07: Thank you. As a reminder, if you wish to ask a question, press star 1 and 1. We will now take the next question. On the line of Lipin from CICC, please go ahead.
spk09: Thanks, Stephen, for taking my questions.
spk02: Just one quick question on your tourism business. So how much revenue contribution of your tourism business in your Q1 outlook? And looking ahead for the whole fiscal year 2025, how much revenue contribution will that business contribute? And also the bottom line track. Thank you.
spk18: Yeah, as for the tourism business, you know, in fiscal year 2024, in the last year, and the revenue was 380 million RMB. And in fiscal year 2025, you know, we expect the revenue of the whole year will be somewhere around 1.2 billion RMB. So this is our expectations. And in the Q1, I think the revenue growth of the tourism business will be somewhere around 180% year-over-year, just a big number.
spk09: Thank you, Susan.
spk02: And also, on the bottom line, how much will that impact?
spk18: Because we just started the tourism business this year. And last year, in fiscal year 25, I think we will suffer a loss because we started business still in the pace of the investment. But I think in the fiscal year 26, the tourism business will be profitable. And I think we believe the loss of the tourism business in fiscal year 25 will be somewhere around 100 million RMB. This is our expectations.
spk20: All right. Thank you. That's very helpful.
spk01: Thank you.
spk07: Thank you. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone. Once again, if you wish to ask a question, please press star 1 and 1.
spk09: We will now take the next question.
spk07: From the line of DS Kim from JP Morgan, please go ahead.
spk15: Hello, sir. Hi, Cece. Good evening. Thanks for taking my question. I just have one quick follow-up, if I can. have any comment on the recent regulatory environment given the market concerns and whatnot. And as you all know, there was a public consultation paper on the tutoring policy, I think, back in February or end of January, early Feb. Have you heard any updates on that or any anecdotal color that you hear and see and listen from the regulators on the ground? If you could share, it would be appreciated. Thank you.
spk18: I think we haven't seen any new regulations. And as I said, I think the regulation has no change. And as the education industry leader, we comply with the regulations, as always, in the last three years. And I think going forward, we expect the regulation the regulation environment will be stabilized in the coming year or even the year after.
spk15: Thank you, sir. If I may follow up, I think you already discussed that there were one-offs and all. Can you, if you could quantify, just for the modeling purpose, for the past fourth quarter, how much was roughly what you believe was a one-off impact from Yuhui, Dongshin, and whatnot, if you could share? If not, totally fine, but just let me try. Thank you.
spk18: Yeah, but Diaz, I'm afraid I'm unable to share with the detail numbers because I think the East Bay will announce the earnings in late August. So I think in the earnings call of the East Bay, I think the management of East Bay will share more color about the numbers of the questions you asked in all this.
spk07: Thank you.
spk16: Thank you, sir. Thank you very much.
spk07: Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's Executive President and CFO, Steven Zhang, for his closing remarks.
spk18: 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.
spk07: This concludes today's conference call. Thank you for participating. You may now disconnect. Music. Good evening, and thank you for standing by for New Oriental's full year 2024 fourth quarter results earnings conference call. At this time, all participants are in listen-only mode. After the management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect this time. I would now like to turn the meeting over to your host for today's conference, Ms. Sisi Tsao. Please go ahead. Okay, thank you.
spk04: Hello, everyone, and welcome to New Oriental's fourth fiscal quarter 2024 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as our NewsWare services. Today, Stephen Yang, 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 Security Litigation Reform Act of 1995. Forward-looking statements invoke 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 Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law. As a reminder, this conference has been recorded. In addition, a webcast of this conference call will be available on New Oriental's investor relations website at investor.neworiental.org. I will now first turn the call over to Mr. Stephen Yang. Please go ahead.
spk18: Thank you, Cici. Hello, everyone, and thank you for joining us on the call. Before we begin, we would like to firstly extend our gratitude to those who have been supporting and believing in New Oriental. We understand there might be some questions with regards to the latest separation of Easter by and time with Yuhui. Before we go into New Oriental's performance, we would like to stress that this decision was carefully made upon a considerable amount of transparent communication with Dong Yuhui, who has been a beloved colleague of ours and drove instrumental growth of East Dubai. As we sent Yuhui our best regards for his new venture, the company remains fully dedicated in forging a stable path of healthy growth for the platform, devoting our very best to live up to our customer-centric promise to offer a diverse range of premium, healthy, delicious, yet cost-effective products to our customers. Anchored by the exceptional teams, far-reaching partnerships, over 400 SKUs, and distribution channels, which we thankfully built over the years, strategic pivot to expand our multi-client presence are in the works. And we will continue to leverage Easterby to propel knowledge sharing, product dissemination, and culture promotion to our valued customers in the long term. For more details, please refer to Easterby's latest announcements. And now, let's deep dive into New Oriental's fiscal year 2024 performance. For New Oriental's financial results of this fiscal quarter, We are pleased to announce that the company has achieved a healthy growth in our key businesses with a solid top line growth of 32.1%. Strong demands have fueled stable recovery across our business lines, while our portfolio of innovative ventures have invigorated the company's revenue with healthy contributions. New Oriental's bottom line performance has achieved the yields with operating margin and non-GAAP operating margin reaching 0.9% and 3.2% for this quarter, respectively. Except for East Dubai's investment in private label products and certain cost and expenses related to the platform of time with Yuhui, our spending accelerated capacity expansion and newly integrated tourism-related business as well as additional incentives to the management and staff have led to a short-term impact on our operating margin this quarter. However, coupled with the increasing market demand, we strongly believe we made the right move to input the right investment. We anticipate that the pressure on margins for the educational business will reduce in the next fiscal year. as we continue to improve the utilization of facility and operating efficiency. We expect our operating margin of the company, excluding Easterby, will expand year-over-year in the first quarter of 2025 and deliver satisfactory operating profit for the full fiscal year 2025. Now, I would like to spend some time to talk about this quarter's performance across our existing business lines and new initiatives to you in detail. Our key remaining business secured an encouraging trend, and new initiatives have shown positive momentum. Breaking it down, the overseas test drive business recorded a revenue increase of 18% in dollar terms. were 23% in RMB terms year-over-year for this quarter. The overseas study consulting business recorded revenue increase of about 17% in dollar terms were 23% in RMB terms year-over-year for the first fiscal quarter of 2024. The adults and university students business recorded the revenue increase of 16% in dollar terms were 21% increase in RMB terms year-over-year for this quarter. Our new initiatives, which mostly revolve around facilitating students' all-round development, have continued to sustain a strong momentum in their respective ventures. Firstly, the non-academic tutoring courses, which we have offered in around 60 existing cities, focuses on cultivating students' innovative ability and comprehensive quality. We're excited to see further penetration in those markets we have tapped into, especially in high tier cities, which total approximately 875,000 students' enrollments reported in this fiscal quarter. The top 10 cities in China contribute over 60% of this business. Secondly, the intelligence learning system and device business has been adopted in around 60 cities. We're happy to see stable customer retention and scalability with approximately 188,000 active paid users reported in this quarter. The revenue contribution of this initiative from the top 10 cities in China is over 55%. Our smart education business, education material, and digitalized smart study solutions have continued to contribute material yields to the overall advancement of the company. In summary, our new educational business initiatives recorded a revenue increase of 50% in dollar terms or 57% increase in RMB terms year-over-year for this quarter. In addition, the newly integrated tourism-related business line One of our creative endeavors is tailored with diverse offerings of cultural trips, study tours in China and overseas, as well as the camp education. Within the business line, our study tour and research camp business for students of K-12 and university age continue to achieve sustainable growth this quarter. We have conducted the study towards the research camp in over 55 cities across the country, with the top 10 cities in China offering over 55% of the revenue share of this new business. We also piloted a number of top-notch tourism offerings to expand our reach to old age groups, including middle-aged and elderly individuals across 27 featured provinces. As we are still at a preliminary stage of planning, testifying, and evaluating the visibility of the business in selected regions, we will keep you posted should there be timely updates. With regards to our OMO system, we have perceived in revamping our platform and leveraged our education infrastructure and technology edge on remaining key business and new initiatives. with a vision to provide advanced, diversified education service to customers of all ages. During the reporting period, a total of $30.5 million has been invested in our OMO teaching platform, which equips us of the flexibility to maintain arrival service to students. With regards 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 $4.9 billion. In addition, we would like to highlight the company's board of directors approved a share repurchase program in July 2022, under which the company is authorized to repurchase up to $400 million of the company's ADS or common shares through the next 12 months. The company's board of directors further approved to extend the effective time of the share repurchase program to May 31st, 2025. As of July 30th, to 124. The company repurchased an aggregate of approximately 7.3 million ADSs for approximately $296.1 million from the open market. Now, I will turn the call over to Cici to share with you about the key financials. Cici, please go ahead.
spk04: CICI LIU- Before we go into our key financials, We'd like to inform you that as part of the company's business line reorganization, the company's wholly owned subsidiary and variable interest entity entered into an agreement with East Dubai and its subsidiaries and variable interest entity to acquire East Dubai's online education business at an aggregate consideration of 1.5 billion RMB. The consideration was agreed by both parties after arm's length negotiations with reference to an independent valuation. The acquisition was completed in this fiscal quarter. Upon completion, the online education business was consolidated from ISTABI's consolidated financial statements and was deconsolidated from ISTABI's consolidated financial statements and is now recorded by the company under educational services. Now for our key financial details for this quarter. Operating costs and expenses for the quarter were $1,126.2 million, representing a 38.6% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which is called share-based compensation expenses, were $1,100.4 million, representing a 40.7% increase year-over-year. The increase was primarily due to the costs and expenses related to the substantial growth in ISABI's private label products, live streaming, e-commerce business, and accelerated capacity expansion for education business. Cost of revenue increased by 38.5% year over year to $542.4 million. Selling and marketing expenses increased by 40.9% year over year to $208.2 million. G&A expenses for the quarter increased by 37.5% year-over-year to $375.5 million. Non-GAAP G&A expenses, which is called share-based compensation expenses, were $355.2 million, representing a 42.3% increase year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 15.5%. to $25.8 million in the fourth fiscal quarter of 2024. Operating income was $10.5 million, representing a 78.1% decrease year-over-year. Non-GAAP income from operations for the quarter was $36.3 million, representing a 53.8% decrease year-over-year. Net income attributable to New Oriental for the quarter was $27 million, representing a 6.9% decrease year over year. Basic and diluted net income per ADS attributable to New Oriental were $0.16 and $0.16, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $36.9 million, representing a 40.5% decrease year over year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.22 and $0.22, respectively. Net cash flow generated from operation for the fourth fiscal quarter of 2024 was approximately $376.8 million, and capital expenditure for the quarter was $27.4 million. Turning to the balance sheet, as of May 31, New Oriental has cash and cash equivalents of $1,389.4 million. In addition, the company has $1,489.4 million in term deposit and $2,865.6 million in term deposit in short-term investments. New Oriental's deferred revenue, which representing cash collected up front from customers and related revenue that will be recognized as the service or goods are delivered at the end of the fourth quarter of fiscal year 2024, was $780.1 million, an increase of 33.1% as compared to $1,337.6 million at the end of the fourth quarter of last fiscal year. Now I'll hand over to Stephen to go through our outlook and guidance.
spk18: Thank you, Cici. As we look ahead for 2025, we're confident that our educational business will embark on a healthy trajectory of growth fueled by the continuously strong demands. Supported by New Oriental's rooted resources that have stood at the test of time, We have firm belief in delivering margin expansion for the whole company except for East Dubai in the first quarter of 2025 and attending satisfactory operating profit for the full fiscal year. Simultaneously, we expect to achieve tremendous growth for our new tourism related business in belief that the significant resource we invested for a nationwide rollout these tours will contribute meaningful revenue in the new fiscal year. As we ensure a healthy balance between revenue and profitability growth, we will cautiously manage our capacity expansion and hiring to underpin the development of educational business in the new year. We plan to increase our capacity by around 20 to 25% for the fiscal year 2025. The most new openings will be launched in the cities with better top-line and bottom-line performance. Rest assured, we will closely monitor the pace and scale of the new openings in accordance to the local operations and the financial performance during the year. We expect total net revenue excluding revenue generated from Easter buy in the first quarter of fiscal year 2025, June 1, 2024, to August 31, 2024, to be in the range of $1,254.7 million to $1,283.5 million, representing year-over-year increase in the range of 31% to 34%. In addition, based on our current estimation, we expect the operating margin for the whole company except for East Dubai in the first quarter will be expanded year-over-year. To conclude, New Oriental has been known as a resilient adventurer that sails on its voyage changes for the transformation thanks to the support of our valued customer promising premium offering and giving back to society in the long term stand firm as our priorities from day one as always we will 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 the growth and operating efficiency. We will continue to seek guidance from and cooperate with the government authorities in various provinces in China, comply with relevant policies, as well as to further adjust our business operations as required. We'll also work diligently to enhancing the nation's education level to strengthen its leading position so as to unveil further potential across all our business lines and realize our vision. 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 2024 Q4 summary. At this point, I would like open the floor for questions. Operator, please open the call for these. Thank you.
spk07: 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, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by. We will compile the Q&A roster. Our first question is from Alice Cai from Citi. Please proceed with your question.
spk05: Good evening, Stephen and Citi. Thank you for your presentation. I have a question about the growth strategy. Since you are not planning to expand into new cities, how much room for growth is left in your existing locations before reaching saturation? Could you please share your color about this? Thank you so much.
spk18: OK. Thank you, Alice. As for the learning center expansion plan, I think we, as I said, You know, we plan to increase the capacity expansion by 20% to 25% in the new fiscal year. And I think we will open the most of the new learning centers where the new classroom areas, mostly in the existing cities. And I think most of the openings will be in the cities with the better performance both the top line growth and the margin expansion in fiscal year 24. And I think we will keep monitoring the pace and the scale of the new openings. We care more about the balance of the top line growth and the margin expansion. So this is our strategy. And I think in the coming new year, You know, upon the extension of the new learning center by 20 to 25%, we will keep the utilization rates up. And I think the strong revenue growth in the year will cover the incremental classroom rental.
spk17: Thank you, Alice.
spk06: Thank you so much for your sharing.
spk07: Thank you. We will now take the next question. From the line of Yuwen Tsang from ChinaRenaissance.com, please go ahead.
spk13: Hey, thanks. Good evening. Thanks for taking my question. So I would like to follow up on the, you know, margin decline in this fiscal quarter. So you mentioned several reasons in your prepared remarks. Could you discuss more about, you know, which ones are, like, which ones are recurring? And also, if we look at education business alone, how do we see the margin decline? actually trending in our specific quarter. Thank you.
spk18: Yeah, thank you, Yilan. Let's start with this quarter's margin analysis. Yeah, the OP margin decreased in this quarter. I think this is mainly due to a couple of reasons. Number one, we accelerated the Learning Center extension in this quarter and even in the last two quarters. And also, you know, we newly invested the new tourism business. And number two reason, you know, we made the additional incentives to the management and staff in Q4. And number three is, you know, East Baye's investment in private label products and some certain, you know, one-time costs and expenses relate to the sales time with Yuhui. So I think partly some of the expenses is one time of the incremental cost and expenses in Q4. And as for the margin outlook, we expect the OP margin in the coming Q1 of the whole company, excluding East Dubai, will be expanded by 200 basis points year over year. So that means you will see the more operating leverage and the higher operating efficiency in the coming Q1. And we are quite optimistic about the margin expansion of the company, except for in fiscal year 2025, the margin will be expanded. I think we will assess that we will get more operating leverage and keep the learning center utilization rates up. So this quarter's margin decrease is just one time. And next quarter, you will see the margin expansion for the educational business.
spk17: Thank you, Ivan.
spk11: OK, thanks. That's very clear.
spk07: Thank you. We will now take the next question. from the line of Felix Liu from UBS. Please go ahead.
spk14: Thank you, management, for taking my question. First, I just want to say that I have a lot of respect to how New Oriental handled the situation with Dongyi Hui and believe the decisions you made will be beneficial to the long-term branding of New Oriental. My question is a follow-up on the margin expansion. You mentioned that Q1 you expect the margin to expand by 200 bps. May I check the pace of margin expansion or your expectation on the pace of expansion for the rest of the year? Do you think Q1 will be the peak of margin expansion or do you expect this momentum to continue or even improve in the following quarters after Q1? And also on the margin improvement driver, do you see the driver as mainly from operating leverage, or do you see the underlying segment margin also has potential for improvement? Thank you.
spk18: Yeah, Felix. You know, as for the margin outlook, you know, yeah, we guided the margin extension in Q1 for the educational business will be expanded by 200 basis points. And as you know, Q1 is the peak season for the educational business. And so in the rest of the year, Q2 to Q4, I think we'll keep posted your guys that the margin expansion in detail. But as I said, we're quite confident about the whole year margin expansion for the education business. And the operating leverage, yeah. Yeah, you know, we open more learning centers and hire more people in Q3 and Q4. But I think this market demand for educational business, both for the overseas related business, especially for the K-12 business, I think the demand is very, very strong. And where we have seen the less competition in the market, even though we know the competitors are or invest more money and human resources to take more market share. But we're quite optimistic that New Rental will take more market share from the market. And I think we do have the operating leverage in hand. We will leverage the business by the top-line growth What I mean is the top-line growth, I think we will beat the top-line guidance again in Q1 for the whole new year. And so I would believe the margin extension in Q1 and the whole year of 2025.
spk09: Thank you.
spk07: We will now take the next question from the line of Alice Ma from Bank of America.
spk09: Please go ahead. Hi. This is Lucy from Bank of America.
spk03: So I have a question on the enrollment growth versus the capacity expansion pace. So if we're looking at this quarter, actually our number of learning centers have been expanded by like 42% on a year-over-year basis, but the non-academic tutoring enrollment only grows like 39%. I know it's not a big difference, but if we're looking at the past quarters, enrollment growth is always higher than the capacity expansion pace. So how should we think about the difference? between these two? Is it because of timing or some other reasons? Thank you.
spk18: Partly it's because of the timing, like the steering enrollment window, the open, like the timing difference. And so, yeah, I think as I said, you know, I think in this quarter, you know, At the end of this fiscal year, we have added around 37% of new capacity. Yes, that's a little bit bigger than we expected. But I think we will bear fruit of things the Q1. So for example, as for the new business for the Q12, for the new business, top-line growth in this quarter, in RMB terms, is 57% year-over-year. And even in the coming summer, in the Q1, we believe the revenue of the new business will be somewhere around 50%, 45% to 50% year-over-year growth. So I think the revenue will cover the incremental cost of the new learning centers. And on the other hand, I think the rentals per learning center per square meters get decreased because the markets change a lot. So I do believe we will get the operating leverage on rentals, even on the other costs and expenses going forward.
spk17: Lucy.
spk03: Thank you, Stephen. Sorry, just if I may, one small question is that you mentioned in the May quarter, there's a small amount of one-off compensation paid to Dong Yuhui. So I think it's one-off, but will that be any compensation paid to Dong Yuhui in the first quarter? That'd be all, thank you.
spk18: Yeah, I think some of the costs and expenses related to the sale of the Yuhui Tongxing, will happen in the Q4 and the coming Q1. So we will keep you posted in the next earnings call to tell you the exact numbers of how much we spent in the coming Q1.
spk17: But it's one time.
spk10: Okay, thank you. Okay, thank you so much.
spk07: Thank you. We will now take the next question from the line of Timothy Tsao from Goldman Sachs. Please go ahead.
spk12: Great. Hi, Steven. Hi. Thank you for taking my question. So my question is regarding your revenue outlook for the new fiscal year. Just wondering if you can give us certain guidance on the revenue growth for different segments of the business, including the traditional K-12, the overseas test prep consulting, and the K-12 new initiative. I think that would be very helpful. Thank you.
spk18: Yeah. As for the revenue outlook for fiscal year for the new year, in different segments. You know, the oversea tax prep business, I think the revenue growth in the coming year will be somewhere around 20 to 25% the year over year. And the consulting business, you know, the revenue growth will be somewhere around 15% the year over year. And the new business, I think the top-line growth of the new business will be expanded by – will be increased by 45 to 50 percent. And as for the high school business, I think the revenue growth will be somewhere around 25 to 30 percent. And as always, we will give the guidance by most conservative way.
spk09: Thank you. Great. Thank you. Thank you.
spk07: We will now take the next question from the line of Charlotte Wei from HSBC. Please go ahead.
spk08: Good evening, Sisi and Stephen.
spk19: Thank you for taking my question. My question is regarding competitive landscape. So we notice local small players have been more aggressive in terms of expansion. So do you see competition intensifying in this summer, especially in the top tier cities? So can you share more color on the summer enrollment growth and student retention rate? Thank you.
spk18: As for the competition environments, yeah, we have seen some competitors. in that so many were open or learning centers in the top cities. But I think as the whole analysis of the competition, I think the competition situation now is less a lot than a couple of years ago before the policy. So I believe the competition is less And I think new rental will take more market share and seize the opportunity to provide the good services to the students. And the student enrollment for the summer, and we have already given the guidance. And the top-line growth will be in the range of the 31% to 34% in dollar terms year over year. And this is for education business. And take out the excluding the . And yeah, consider the style of the guidance. I think there will be the guidance in Q1. And the student enrollment in Q1, I think this is very good.
spk17: So I think we're quite optimistic about the top-line growth and the market extension in QOI. Thank you.
spk19: Thank you. Very clear. So may I have another question regarding the shareholder return because we have a lot of cash on hand. So do you consider like upside your share buyback plan if the current plan retires? Thank you.
spk18: Yeah, we do have the $400 million share buyback program in hand. And until yesterday, we finished the $294 million. So that means we have somewhere $100 million left. So I think in the first step, we'll finish the $100 million And, you know, once we finish the $400 million share buyback program, I think I will discuss with Michael and the board to think about the even more types of allocation, you know, the share buyback or the dividend to the investors. You know, our company, you know, yeah, I think you're right. We're piling up the cash. And we have a lot of cash. We have $4.9 billion cash in hand. So I think we will create more value to the shareholders. And I think we should pay more capital allocation to the investors.
spk07: Thank you. As a reminder, if you wish to ask a question, press star 1 and 1. We will now take the next question. From the line of Lipin from CICC, please go ahead.
spk09: Thanks, Stephen, for taking my questions.
spk02: Just one quick question on your tourism business. So how much revenue contribution of your tourism business in your Q1 outlook? And looking ahead for the whole fiscal year 2025, how much revenue contribution will that business contribute? And also the bottom line track. Thank you.
spk18: Yeah, as for the tourism business, in fiscal year 2024, in the last year, the revenue was 380 million RMB. And in fiscal year 2025, we expect the revenue of the whole year will be somewhere around 1.2 billion RMB. So this is our expectations. And in the Q1, I think the revenue growth of the tourism business will be somewhere around 180% year-over-year, just a big number.
spk09: Thank you, Susan.
spk02: And also, on the bottom line, how much will that impact?
spk18: Because we just started the tourism business this year, and last year, in fiscal year 25, I think we will suffer a loss because we started the business still in the pace of the investment. But I think in the fiscal year 26, the tourism business will be profitable. And I think we believe the loss of the tourism business in fiscal year 25 will be somewhere around 100 million RMB. This is our expectations.
spk20: All right. Thank you. That's very helpful.
spk01: Thank you.
spk07: Thank you. As a reminder, if you wish to ask a question, please press star 1 1 on your telephone. Once again, if you wish to ask a question, please press star 1 and 1.
spk09: We will now take the next question.
spk07: From the line of DS Kim from JP Morgan, please go ahead.
spk15: Hello, sir. Hi, Sisi. Good evening. Thanks for taking my question. I just have one quick follow-up, if I can. have any comment on the recent regulatory environment given the market concerns and whatnot. And as you all know, there was a public consultation paper on the tutoring policy, I think, back in February or end of January, early Feb. Have you heard any updates on that or any anecdotal color that you hear and see and listen from the regulators on the ground? If you could share, it would be appreciated. Thank you.
spk18: I think we haven't seen any new regulations. And as I said, I think the regulation has no change. And as the education industry leader, we comply with the regulations, as always, in the last three years. And I think going forward, we expect the regulation the regulation environment will be stabilized in the coming new year or even the year after.
spk15: Thank you, sir. If I may follow up, I think you already discussed that there were one-offs and all. Can you, if you could quantify, just for the modeling purpose, for the past fourth quarter, how much was roughly what you believe was a one-off impact from Yuhui, Dongshin, and whatnot, if you could share? If not, totally fine, but just let me try. Thank you.
spk18: Yeah, but Diaz, you know, I'm afraid I'm unable to share with the detail numbers because, you know, I think the East Bay will announce the earnings in late August. So I think, you know, in the earnings call of the East Bay, I think the management of East Bay will share more color about the numbers of the questions you asked in all this.
spk16: Thank you. Thank you, sir. Thank you very much.
spk07: Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's Executive President and CFO, Steven Zhang, for his closing remarks.
spk18: 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.
spk07: This concludes today's conference call. Thank you for participating. You may now disconnect.
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