- Revenue Growth: 32.1% increase year over year.
- Operating Margin: 0.9% for the quarter.
- Non-GAAP Operating Margin: 3.2% for the quarter.
- Overseas Test Drive Business Revenue: 18% increase in dollar terms, 23% in RMB terms year over year.
- Overseas Study Consulting Business Revenue: 17% increase in dollar terms, 23% in RMB terms year over year.
- Adults and University Students Business Revenue: 16% increase in dollar terms, 21% in RMB terms year over year.
- Non-Academic Tutoring Courses Enrollment: Approximately 875,000 students.
- Intelligent Learning System and Device Business Users: Approximately 188,000 active paid users.
- New Educational Business Initiatives Revenue: 50% increase in dollar terms, 57% in RMB terms year over year.
- Operating Costs and Expenses: $1,126.2 million, 38.6% increase year over year.
- Non-GAAP Operating Costs and Expenses: $1,100.4 million, 40.7% increase year over year.
- Cost of Revenue: $542.4 million, 38.5% increase year over year.
- Selling and Marketing Expenses: $208.2 million, 40.9% increase year over year.
- G&A Expenses: $375.5 million, 37.5% increase year over year.
- Non-GAAP G&A Expenses: $355.2 million, 42.3% increase year over year.
- Operating Income: $10.5 million, 78.1% decrease year over year.
- Non-GAAP Income from Operations: $36.3 million, 53.8% decrease year over year.
- Net Income: $27 million, 6.9% decrease year over year.
- Non-GAAP Net Income: $36.9 million, 40.5% decrease year over year.
- Net Cash Flow from Operations: $376.8 million.
- Capital Expenditure: $27.4 million.
- Cash and Cash Equivalents: $1,389.4 million.
- Term Deposits: $1,489.4 million.
- Short-Term Investments: $2,065.6 million.
- Deferred Revenue: $1,780.1 million, 33.1% increase year over year.
Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New Oriental Education & Technology Group Inc (EDU, Financial) achieved a solid top-line growth of 32.1% for the fiscal quarter.
- The company reported a healthy financial status with cash and cash equivalents, term deposits, and short-term investments totaling approximately $4.9 billion.
- New educational business initiatives reported a revenue increase of 50% in dollar terms or 57% in RMB terms year over year for this quarter.
- The overseas test drive business recorded a revenue increase of 18% in dollar terms or 23% in RMB terms year over year for this quarter.
- The company's Board of Directors approved an extension of the share repurchase program to May 31, 2025, with approximately $296.1 million already repurchased.
Negative Points
- Operating income decreased by 78.1% year over year to $10.5 million.
- Non-GAAP income from operations for the quarter decreased by 53.8% year over year to $36.3 million.
- Net income attributable to New Oriental for the quarter decreased by 6.9% year over year to $27 million.
- Operating costs and expenses for the quarter increased by 38.6% year over year.
- The company experienced a short-term impact on operating margin due to investments in private label products, new tourism-related business, and additional incentives to management and staff.
Q & A Highlights
Q: Since you are not planning to expand into new cities, how much room for growth is left in your existing locations before reaching saturation?
A: We plan to increase capacity by 20% to 25% in the new fiscal year, focusing on cities with better performance. We will monitor the pace and scale of new openings to balance top-line growth and margin expansion. Utilization rates will be kept up to cover incremental classroom rental costs.
Q: Could you discuss more about the reasons for margin decline in this fiscal quarter and the outlook for the education business?
A: The margin decline was due to accelerated learning center expansion, new tourism business investments, additional incentives to management and staff, and East Buy's investments in private label products. We expect a 200 basis points margin expansion in Q1 of the next fiscal year, excluding East Buy, driven by higher operating efficiency and leverage.
Q: What is your expectation on the pace of margin expansion for the rest of the year?
A: We expect margin expansion to continue throughout the year, driven by strong market demand and less competition. We anticipate top-line growth will beat guidance, leading to margin expansion for the whole fiscal year 2025.
Q: How should we think about the difference between enrollment growth and capacity expansion pace?
A: The difference is partly due to timing, such as the student enrollment window. We expect revenue growth to cover incremental costs of new learning centers, and rental costs per square meter have decreased, providing operating leverage.
Q: Could you provide guidance on revenue growth for different segments of the business for the new fiscal year?
A: We expect overseas test prep business revenue to grow by 20% to 25%, consulting business by 15%, new business by 45% to 50%, and high school business by 25% to 30%.
Q: Do you see competition intensifying in top-tier cities, and can you share more about summer enrollment growth and student retention rate?
A: Competition is less intense than a few years ago. We expect top-line growth of 31% to 34% year over year in Q1, excluding East Buy. We are optimistic about student enrollments and market share expansion.
Q: Do you consider upsizing your share buyback plan given the cash on hand?
A: We have $100 million left in our current $400 million share buyback program. Once completed, we will discuss with the Board about further capital allocation, including potential additional buybacks or dividends.
Q: How much revenue contribution do you expect from the tourism business in Q1 and the whole fiscal year 2025?
A: We expect tourism business revenue to grow by 180% year over year in Q1 and reach around RMB1.2 billion for the whole fiscal year 2025. However, we anticipate a loss of around RMB100 million in fiscal year 2025, with profitability expected in fiscal year 2026.
Q: Any updates on the regulatory environment and its impact on your business?
A: We haven't seen any new regulations, and the regulatory environment is expected to remain stable. We comply with regulations and expect a stable environment in the coming years.
Q: Can you quantify the one-off impact from Yuhui Tongxing for modeling purposes?
A: We cannot share detailed numbers at this time. East Buy will announce their earnings in late August and provide more information then.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
