Q2 2020 Earnings Call
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I'd now like to trying to meeting over to your host for today's conference Mrcc jobs.
Thank you Hello, everyone and welcome to New Orientals second fiscal quarter 2020, <unk> earnings conference call our financial results for the period.
Are there today and are available on the company's website as well and on newswire services.
Today, you will hear from Stephen Yang Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your question 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.
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.
Our synergies are outlined in our public filings with the FCC, New Oriental does not undertake any obligation to update any forward looking statements, except as required under applicable law. As a reminder, this conference is being recorded in addition, a webcast of this conference call will be available on your rentals Investor Relations website.
Investors are not new Oriental Dot work I'll now turn the call over to Mr.
Stephen Please go ahead.
Hi, Joe Susie.
Hello.
Just on the call.
We're pleased to report a set of solid financial results in the second fiscal quarter.
This year do you were delivering also accelerate topline growth will come true.
Would you margin expansion.
Total net revenue goals.
So out of that $85.2 million represented here girls with 31.5% War.
4.8% mushrooms, RMB exceedingly high and although expects its ranch nuts revenues from educational programs and services for the second quarter.
We're still on the $23.3 million.
33.0% seem course year over year.
The girls was mainly driven by increased since doing a woman digital 12.
Oh the school children courses, which continues its strong momentum and achieved a year over year revenue was.
Oh smelly, 46% in dollar terms for 49% is computed RMB.
We continue to be able to guided by our optimized market strategy in this quarter.
Oh or capacity expansion in cities, where we see potential for Roddick woolson strong profitability.
During this quarter.
But I'm not a 41 learning centers existing cities opened a new training school in the city of quite Joel and the dual teacher model school in a city total.
The animal, but this quarter the total square meters.
Classroom <unk> increased by approximately 25% year over year, and 6% quarter over quarter.
Well just doing a woman's exotic subjects children tough prep courses in the second fiscal quarter tool and plenty increased by 63.3% year over year for approximately 3 million someone that 89 solvent <unk>.
Please note this higher than normal includes seems to me woman.
It's from already due to the division.
Awesome semester into two parts.
Meaning by the screen woman's reported separately and fully into separate quarters.
The same time.
It continues our efforts.
All lines murder off last otherwise classroom teaching system.
While these lots of course, where it would pop kids program was rolled out to more cities.
We're very encouraged.
You have received positive feedback from our customers.
He sits just can't improvement it took them are essential wage.
We also continue to make strategic see must bench into our do teacher model classes as well as it used to have seen kill 12 children or pure online education platform cool, our corn dot com to leverage our advanced the teaching resources in multiple cities and those your remote areas.
Following last quarter's strong bottom line performance.
We once again achieved year over year obsolete unit margin expansion in this quarter.
During this quarter, we reported non-GAAP operating income of $36.5 million compared to loss.
Jim <unk> million dollars in the same pure lofty or not we got all fujimoto loss by some on the 20 basis 0.24, 0.7% from not to 2.5 for since a year ago.
The continued margin expansion, it's mainly driven by better leveraging.
In classroom rental relates to operating expenses, just last week to sisley pulls the utilization of facilities.
In addition, supported the bio stents, otherwise multiple horizons 60 miles an hour printing process, what chieftain outstanding improvements in operational efficiency within each key business units.
We're confident that we'll be able to deliver a consumer marketing expansion and the general it's sustainable long term value talk our customers.
Sure holders.
Oh poor unblended, the ASP, which is cash revenue divided by total student enrollment decreased the by about 10% year over year, we'd like to know about the more than normal blended ASP is primarily due to the change in the tuition fee collection schedule for kids <unk> horses.
That's explains above the number will students, we quoted and the modeled feet KLAX during the quarter reflect second half of the outcomes Master Wintrust Master and the first half the Sprint's Master.
There are four Oh blended ASP <unk> second quarter, two and plenty appears to be lower.
Already blended ASP, we just got revenue divided by total teaching hours increased by approximately 6% Yachvili RMBS rooms.
Why don't booked all the already blended ASP. Please know that you can go brown eclipsed by 7% pop kids sequenced the by 11% and Oversea test prep problem increased by 7% or year over year RMB terms.
Now, let's move on to the second quarter performance across our individual business lines.
As mentioned earlier, our key revenue driver Kids Love all subjects after school tutoring business achieved yeah, we are ready to walls.
46% in dollar terms or 49% she RMB terms.
Taking down the U can middle School High school subjects. After school children business reported revenue increased 43% in dollar terms or 46% RMB terms for the quarter.
Oh, So we want you all in school plucked nearly 65%.
We are for the quarter.
Our pop kids footwear I'm delivered outstanding results.
With regard to all by about 51% in dollar terms or 55% the army terms for the quarter.
Enrollments in the <unk> went up about 87% for the quarter.
The oversea test prep recorded the revenue increased 3% in dollar terms or 5% RMB terms for the quarter.
Consulting business reported rather than girls of about 1% in dollar terms more focus on the RV terms year over year for the quarter.
Finally, we actually personal lives the Clos assistance recorders robbed a world of about 37% year over year in dollar terms or 40 person. The army attempts to your your full floor.
Next I'll provide some updates on the progress were making with our optimized market strategy beginning with our offline business this quarter as mentioned earlier.
I'm not only 41 learning centers existing cities opened a new training school in the city wage all and due to model school in the city tone, though.
Oh together.
This includes the total square meter so cost from area like approximately 25% year over year, and 6% quarter over quarter by that number this quarter.
Then the Q2 2020.
Due to her class model has been introduced into the pop Kids program in 48 existing cities. So you can you kind of Hawaii in 30 existing cities and the football's pop kids and you kind of good long distance seven new cities.
So you should have supported increased market penetration rate in both markets well probably into.
We also saw improved customer retention rates and scalability of this new model.
Well this probably results well continue this strategy in the referred to you.
On the digital technologies is swaps, we lost as a $44 million in quarter, two pools and tower online to offline called Oh, I'm old Stendras classroom teaching system. Most of the investments were recorded energy and the expenses.
Furthermore, we also made a stable for West Indies, fewer falling cooler dot com business line and other supplementary online education pool products.
Which is experiencing growing market demand.
More resources already last into that executing new initiative scene.
You are likely to 12 after school tutoring business in fiscal year told them 20.
We must balance includes constant development teaching recruiting and training sales marketing R&D and other than that suddenly costs and expenses you brought the girls Neil pure online programs.
Well this programs were able to reach more students little Geo cities instructive and scalable manner.
I believe this will help to cooler dot com, giving you more T shirt, and all I education space and drive topline wells.
Now, let me work for food.
Other key financial details for the second quarter.
Switching cost expenses for the quarter, where somebody went to $59.9 million with presenting a 21.1 for sense increased year over year.
non-GAAP operating cost expenses for the quarter, which excludes share based compensation expenses were $748.7 million, representing a 22.0% increased year over year.
Possibly revenue increased by 19.6%, you'll be EUR $359 million from already do between quickly into trust compensation for more teaching hours and the higher rental.
For the input Nemo school, some learning centers the office.
Selling marketing expenses increased by 17.7% year over year, well I'm going to $7.8 million.
<unk> expenses for the quarter inputs, the by 24.4% year over year.
2290, $3.1 million non-GAAP general expenses, which excludes share based compensation expenses were $282.1 million.
We're presenting at 21 plane, Oh, I'm, sorry, what was as you know 27.1% increased year over year.
Total share based compensation expenses, which were okay. Two related operating cost and expenses decreased by 18.1% to $11.2 million to the second fiscal quarter pool I'm 20.
Operating income.
$25.3 million, representing 100, well how did that 88.6 person increased year over year non-GAAP income from operations for the quarter was $36.5 million, representing a 345.6% English you your.
Hopefully tomorrow to for the quarter was 3.2 per cent compared to an active 4.8% simply or prior fiscal year non-GAAP operating margin, which excludes share based compensation expenses for the quarter was 4.7 per cent compared to a negative 2.5 for.
Sense in a similar to prior fiscal year.
Net income attributable to new Oriental for the quarter was $53.4 million, representing a 306.9% inquires from the same pure cloud fiscal year basic and diluted earnings per adss attributable to new Oriental was zero point.
$4 and deal points, we $4 with respectively.
non-GAAP net income attributable to new wins hole for the quarter was $57 million, we're presenting a 147.8% gene claims from the same pure auclair fiscal year, non-GAAP basic and diluted earnings per adss attributable to new Oriental what's your old points, we $6.
M. 0.3 $6 respectively.
Not operating cash flow for the second quarter of two on plenty.
Lets parts believe $291.8 million capital expenditures for the quarter.
Well $62.4 million.
Yes were primarily attributable to the opening of 78 subsidies and you'll learning centers and renovations.
The existing learning centers, turning from a balance sheets.
With that November Thirtyth 2019, new Oriental had cash cash equivalent of one solvent $47.6 million as compared to one solvents $414.2 million. That's may 31st of 2019. In addition, the company had 300.
In 48 point swimming in dollars interim deposits and 2000 $12 million to $21.5 million in the short term investments.
You are in supposed to do for Romney wireless, which is cash Clark from such students full courses and works can that's proportionally us revenue will have some the instructions saw delivered.
The second quarter fiscal year, two on plenty was 1000 $570.4 million.
I equals, 25.6%, that's compared to what solvent funded $50.3 million a bundle the second quarter physical you're told on lighting.
Before moving onto our although the guidance.
Third quarter I like to provide us some updates on the cooler.
Cooler and technology Holdings limited a subsidiary of new rental which provides all <unk> extra curricular I don't business or listen China also announced is interim result.
Fiscal years will and plenty are there today I.
I like to enforce life. That's core there's some very important platform for new Oriental and were optimistic about the opportunity assume all adds because some markets.
Confidence.
Our investments into the platform.
During the pure its core has undergone a process that restructuring as college education business line, what's cut some active impart I'm cooler near term from the wells.
Cooler also continue in left more resources in executing initiatives I listened constant development teachers free pool in the training sales marketing research and developments and other unnecessary costs expenses to Bob Wilson, you all NPL ones.
Well the first the six mouse and November Thirtyth 2019, cooler reported an 18.8% year over year Enquist new revenue.
RMB 567.6 million or 81 million.
You asked dollars.
Gross profits.
It was RMB, where I'm going to 17.1 million or $45.2 million.
Losses, some of the appeal it was RMB $87.5 million.
Lawful the POS was RMB 87.5 smell it war.
Clos.
$25 million.
Compared to a profits of RMB 36.2 minutes in the center auto prior fiscal year.
Encouraging to us well just kids all this new initiatives location based a lot instructive. After school children courses Wharton's All your war D.F. you be hops being rolled out to one of the 28 cities in China and recorded the woman Wells 186.2 person deal year.
For more details please refer to of course financial results announcement useful.
Looking ahead into the next quarter and the rest of the fiscal year 2020, well continue to be guidance, our optimized market strategy.
Further wide upon the success and momentum will have to do it.
We're confident.
About capturing a wider randall the market.
Opportunity moving forward.
To provide more detail our IRISL focus for the rest of the year first we will continue to expense our offline business. We aim to add a wild type or sense to 25% capacity, including new learning centers and studying expanding across my rare or somebody exists in learning center folks as well.
Since existing cities in addition.
Well continue to Aldo duties from all those schools to animals Nuno tier cities in certain province, you for the whole year.
Sergant well continue to leverage our reinvestment into digital.
Digital technologies and introduce our all I'm weren't all flash systems more offline that we're training and test offerings.
Especially Form 10-K , 12 children and oversea test prep keep businesses.
Well continue to make investments and we believe that the total spending absolute dollar terms in fiscal year insulin plenty well inputs to compare to where the prior fiscal year. Furthermore, little continues to be lastly, in and execute new initiatives, including product developments to trust recruiting training R&D as well since.
Marketing expenses.
We're all I can talk off after school tutoring distance, our cooler and I'll call.
Third our top priority will remain as to focus on optimizing utilization all facilities and controlling cost and expenses across the company to drive the continued margin expansion and includes the operational efficiency.
The new facility just beauty in the last two physical irrs are being ramped up more efficiently some before.
We expect our non-GAAP operating margin of the off left off line, we're trending on test prep distance to continue to expense in the second half of fiscal year until then plenty.
Improvements is expected to cover the margin pressure, resulting from a from our ally investments in the cooler and dot com.
On the whole weeks that overall non-GAAP operating margin to continue to improve year over year in fiscal year two of them 20 compared to the year over year decline last two fiscal years force.
Today, we have decided to move to diesel cost classes, you know hot new ones will school from before the Chinese new year or two after the Chinese new year.
Well the disease cases.
Clos won't be tops, we are all I love forecasting technology, if the learning centers operations remain suspended the opposite the Chinese new year. Please know that Clos seamless cities excess huh hospitals being a justice were suspended.
The health and safety of our students. It's our top priority and then we'll continue to closely monitoring the situation and the kaplowitz would be relevant authorities.
Also note we have taken the impact from the conditions seem huh into consideration yelled third quarter guidance.
The impact to the impacts is immaterial based on our current estimation.
Finally, the recent RMB depreciation against the U.S. dollar must cost impacts all earnings in dollar terms for the for quarter two and plenty.
Finally, I will like to enforce I felt we have great confidence in fundamentals, our business, which would believe we'll continue to remain strong.
We continue to execute our optimized market strategy, where certain thoughts new Oriental we're continuing to capture the sustainable growth opportunities in the market and do you deliver long term value for shareholders.
Moving on the near term and our expectations for the next quarter.
We expect total not rather than seeing third quarter fiscal year two of them plenty to be in the rundle.
<unk> hundred $83 million.
Two one solvent and $6.4 million, we're presenting you'll be of wells in the rental.
I mean, we present to 26%.
It's now taking into consideration be in parts of the potential change essentially each arm b on the U.S. dollars Supertex <unk> revenue growth rates, you know are functioned RMB.
Functional currency on B is expected to be the rendell, 26% your 29% for a third quarter fiscal year for a funny.
They change with used to calculate except to the revenue for the fourth quarter full fiscal year blown funny if.
6.9 flights.
The historical extends which used to calculate revenues for third quarter fiscal years. One my team was 6.81 [noise].
[noise] I must mention this expectations reflect new orientals current and preliminary view, which subject to change.
At this point I'll take your questions operator, please open the call. This thanks [noise].
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Your first question comes from the line of Mark Lee from Citi. Please ask your question.
Hi management, congratulations on a very strong margin performance for this quarter.
We think it's a beat guidance by <unk> nicely.
No.
The reason that major reasons for the gap I Hope you margin beat for this quarter.
Also I would like to know up maybe our revenue guidance at Mcdonalds.
Also different segments.
Thank you, Okay does well get Mark you know yeah, we would be the margin guidance a lot.
You know our non-GAAP operating margin rose by a somewhat of 720 best supporting a in this quarter I think is Ah Ah it's up because the the falling reasons number why is that going all the I think the continued margin expansion, a it's mainly driven by the better utilization althea facilities.
You know are typically a you know that up in the ER, the typically our topline growth and all.
Yes over 30% a year over year RMB terms, but you know the expansion and lots of putting called miles isn't just a 25% and.
And also a number two is a you know all we oh, what we'd be able to us and arrives them modal arrives and Systemized operating process. So are you see the result, we achieve I'll spend the improvement in the officially efficiencies and we we got we got a lot of leverage only selling marketing and that you had the expenses.
And ER and finally, you know a Wi.
Were seeing the revenue acceleration or a typical even though we're taking market share from the small player in the market. So the revenue is a very good and I think the those three reasons, but b.
Got it I've got us the better results healthy margin expansion, but yeah I mentioned in the prepared remarks, you know in the rest of the year even in the Q3 Q2 in fiscal year Funny I think we still got more leverage going forward. So we believe will will.
The margin expansion in the rest of the that this fiscal year and even for fiscal year 21, I think with our margin will get the expansion.
At this year.
So.
But the revenue breakdown yeah in the Q on Q3 revenue guidance I think the kids Walt.
The business a world by 40% Army terms, okay, what I'm, saying Oh in RMB terms, you'll hear world, 40% and oversea test prep or I think sort of low single digit Ross.
And see the domestic test prep it won't be done by like let's say, the 3% to 4% and the oversea consulting business the growth will be over 20 person. So this is a perfect all of the Q3 guidance.
Thank you very much Steven Thank you okay. Thanks Mark.
Your next question comes from the line of you don't Gals. Please ask your question.
Oh, Hey, Steven assisted Congress on the a very strong result, so.
So you seem to have revised up you'll capacity expansion target from 20% to 20% to 25 cents. So how should we see bazile emerging spend scale.
Second of all 25th year Tony.
Yeah.
Okay, Yeah, we.
This quarter, you'll all be the quarter over quarter expansion was a 6% combined with a 3% in Q1. So we got a 9% in the first half of this fiscal year and typically you know in terms of less seasonality, we opened the more learning centers.
In in a in second half a year. So he says.
More it as some more backloaded and to so I think we believe the the whole we are especially on plan will be somewhere around 20% for 25% actually as close to 25 or size.
And so but you know the topline growth will be somewhere around a 30 horizontal well it's impossible to over two gotta, though the of the over a 30% topline girls. The army terms. So in the rest of the or as I said I think we do have them more leverage on the the GP level and the the as a journey.
Okay.
And Ah, but you don't typically wouldn't give the detail guidance the merger.
Extension in the next the partner, but I believe we can gather the margin expansion in the rest of the year avidly after that.
Thank you very helpful.
Thank you.
Your next question comes from the line of young how Lucky H. capital. Please ask your question.
Hi, Stephen Cc Ah. Thanks for taking my question and the question. It's really teach you Oh youre, reaching the expansion. So now we have a 13 I wasn't thinking hendi, yet learning centers, so for the Neely and for the.
For the for the new learning centers, you're planning to open why aren't those centers are going to be <unk>, what kind of like needs and and to support the additional expansion 20.
Makes sense I'm How'd, you put here.
She choose for US you know that's a team of teachers. So that's the question.
Thank you.
Yeah, Yeah, Yeah, we would have a 1500 learning centers in total and so we plan to open a let's say the 20% to 25% <unk> new capacity.
And so you know most of the new learning centers, we set up going forward I will be happens in the existing cities you know internally, we only allow the good performing schools to open more learning centers in those cities and ER, but you know we have another a business model custom file your war so.
You know set of belongs to the cooler and we will open more.
The or be a deal.
New business, you low tier cities <unk>, there's a twist, okay books, which isn't a traditional offline business more cities a schools, we're learning centers in different cities okay.
And I repeat for three or four resource you know a wouldn't believe would pay the back.
In the market to our teachers and also a thing salafi or are we build up or the online futures trading system. So that means we have the more ability to generate war sat produce more qualified teachers than before so we believe will not be more.
More qualified teachers to support the new opening up new learning centers going forward.
Thanks.
Very helpful.
Thank you can.
Your next question comes from the line as Alex you have China Renaissance. Please ask your question.
Hi, Thanks, Steven for this opportunity I just want to follow up first on Oh, I can ask questions or put your share more color on for example, how how fast is the capacity growth.
The top cities for example, Beijing right now.
And a follow up.
Question, So I think the oversea test it says.
Growing a if I remember correctly is low single digit growth this quarter.
Water and the man out you know what.
You know what was the reason behind us seemingly a little bit unexciting growth.
In the past.
Few quarters.
Yeah actually a a thanks oh it actually you know we opened over the learning centers almost everywhere if the that city got to be better resolved a lot. The clinphone miles. So you know we're open to of the learning synergies in the top tier tier one or tier two cities and.
We will open we opened also open to learning centers in like with your fleet here for cities. So I think like the only one to indicative for us to decide whether or not open the learning sometimes it's be performance not schools lumpier, Okay, and but you know up I think even even even for the big cities like Beijing and Shanghai.
<unk> and won't go I think there's lot of won't open more offline learning centers.
So yeah, and they oversea test prep yeah. This quarter, you know the numbers the snow but.
The only 5% RMB terms, you'll be at wells for Oversea test tough our business I think the BP memories as that's because to be a b, the United States, China FY two countries through relationships to change.
So I think the b.
No. The hour now you know United States related this is like the out where the other subjects and all the cost for but but the.
The United States relates businesses keep flattish this quarter and I wouldn't I know we.
Even though in the truth, we I think the wells will be flattish again, so I think this.
Man raising.
Okay. Okay.
Okay. That's just sorry, one more follow on a.
Gross margin there seems to be notable charge this quarter I mean, I don't know what was so what's the driver behind us a notable improvement on the gross margin. Thank you.
Firstly on all the other revenue growth beat our guidance okay.
Yes. This out of were taking market share from the small players and also out there. So there are a lot of schools or provide a very good numbers of this quarter on topline girls and steadily at all or be a you feel compared the topline wells with an expansion capacity expansion lent Gabby you know the.
We have the better leverage on the rental site and yeah. I think this up those are the two key reason.
To be at the GP margin expansion.
Okay. Thank you.
Thanks, Alex.
Your next question comes from the line athletes views of Bank of America. Please ask your question.
Oh, Hi, Stephen I got one question on a gradually actually this year Chinese new year, it's funny it or not.
Oh.
Say that we started our bring some nice <unk>.
So.
Fabulous already seen.
More positive.
Benefits from this kind of kind of ownership.
That's true.
So.
Hi.
Thank you.
Oh I can yet this year the talking school year, So maybe a little earlier, but I think we.
The impact from the are the caused us gerdaus the impacts very small ever minimal okay. So, but but do you know I must mention that you know are typically you know last a year or the Q2, we started a true or to do something like the facility most.
End of the and the cost schedule in Tennessee last year, Q2, so which the true a postponement of the some kick off classes from Q2 Q3 last year. So that means he dog gloppy or you know this year, we Oh, we have an easier comparison, Inc.
Your true, but a little bit harder comparison in Kuwait, but anyway, so season as a seasonal whereas timing difference usually it's not a big if uh huh.
Okay. Thank you.
Second question is that in the first off you have already expanded it going non-GAAP operating margin by.
Close to five percentage point.
Yeah, Hi, everything previous expectation of I wouldn't be applied to like 2% for you. So.
To say the risk is on the upside to your full year guidance in terms of margin. Thank you.
Yes, I think because Oh I don't guide the I'd be a the ER.
The.
Second half of your margin or the guidance, but you know we do believe we will have the margin expansion in the into Q3 in Q4, Okay, Yeah, let's see here.
I think for the whole year, the or the margin will be better than we expected.
Several months ago Huh.
Huh.
Great. Thank you.
Okay. Thank you will see.
Once again in order to be fair to all callers, who wish to ask questions. We will take one question any time from each caller. If he has more than one question lease requested joined a question Q again. After your first question has been addressed.
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Your next question comes from the line John July from Daiwa. Please ask your question.
Hey, Steven TCR. Thanks for taking my question on my other question on your all my I know who learn on basically on the cost said I'm sure they'll step up war on open you up in the board tier cities can you kind of give a sense will you know that you learn in general I step up the investment and normally going into the results I will see warranted.
Backend loaded for them for their own physical you're in terms of marketing expenses or use or did you cost I just quickly. After the I'm you know the regulation, its which I've seen in place for more than you know about a year on the off my schools are you see more visibility or a better visibility compared to keeping that the smaller players are being phased out anyway.
Results, you're seeing on higher retention rate and better off.
Capacity growth and selected regions. Thank you.
Yeah, that's holding the core investment Encore you know yeah. This year, we we started to invest on the aldi cooler and dot com.
Oh it includes the Constantine relevance for teachers training or R&D and yeah, I have some marketing expenses things out this fiscal year and you know in the first half of the year. The Ah Ah the margin drag from the cooler too easy to you as Oh roughly its wanda.
Okay.
So the the margin impact from the poor for you.
And Ah you know in the secondly, you for a second half a year Oh, we expect to them. We still have some of the negative impact of the margins from the core but we believe the margin expansion off the core business, where our school. This the offline business a will cover the.
Margin pressure from core so wouldn't believe on the whole our margin will be expand is in the rest of year, even though we've spent a lot Army Corps.
And Yeah was you were.
Number two questions about regulation.
A lot there.
There are several of the new regulations and ER, but as I sat in that left the to earnings call. You know we are we almost needs all the requirements by the <unk> regulation you almost all of these cities and we have seen some smoked small players disappear from the market and we have seen.
Some students are drawing our classes you know for the students from the small player. So I think our targets.
Going forward as to provide the path to service to the tons through them and so we believe we can take more market share from the old players in the markets.
Okay.
Your next question comes from the line.
Binnie Wong of HSBC. Please ask your question.
Hi, good evening teenagers here. Thank you for taking my question.
So could you any here is that if you look at Ah Tony like Gosh. It right, we see a wave of a lot of online education companies small and midsize warrants compete right, especially if you see that you'd acquisition costs right has been rising up a lot. So if you look into the 20 trendy how do you see I mean count that 2020, Oh, how do you see you guys I won't change.
Can you see that Oh, how long mocking shedding she would be different from all players and also if you look at the I guess would there be calibration of Probuphine coolant do you think that will continue or deal will be I'm trying to fish to reaccelerate online business growth. Thank you [noise].
Okay, well I think Jim or a firstly, you know cooler courthouse being and transition mall the left.
Two to three quarters. That's you know we changed the machine Mad men on the members last a year and are we prefer to keep the new management team member more time, Okay, and but you know business, where especially business Oh, we don't we don't have them through the distance to fast by like the spending a study crazy.
He dollars not only marketing activities. So even in a lot. The are you know what didn't they attend the likely at the burning money to to acquire the students and going forward I think we Oh, we will allow the deep pool or choose spend at least be the more all the marketing.
The expenses, but anyway, it's not a huge number okay. We refer to make the more work huge investments on the R&D and like the teachers underpinning work the product is selling this hour.
Okay.
Thanks.
Thank you very helpful.
Thank you. Thank you.
Okay, then excitement.
Your next question comes from the line as Alex Yes, That's credit Suisse. Please ask your question.
Hi, congratulations on very strong results, so I'd like to talk about Oh, or a magnitude of a utilization rate improvement I think in the last quarter's earnings call. We mentioned it was a 21% and a 2%.
Thank you.
Yeah.
Yeah. This you know this year the I think the utilization rates for <unk> for this year, so somewhere around 21 person, a which means the oh, we got the twice the best up off the off the utilization right. So that's why you'll see the margin expansion.
Okay, and so going forward or you know a aside we plan to open 2025 or 8% learning centers.
And it bring us like 30% called nine wells are RV terms year over year. So a I think you will see the higher utilization right <unk> going forward.
In the rest of the this fiscal year and the after.
Got it thank you.
Thank you.
Your next question comes from the line Shangdong of Morgan Stanley . Please ask your question.
Hi, Stephen a 1005 shop, I would do teacher model across U.S. deal or any more teachers I think he's so can you shed some operating data about.
Doug imagine a lot there teacher model and Oh, what the cabin.
Hi, I'm Oh, what the average got a teacher can teach in teaching model and that same time may I noticed that you have fun on how you feel you mentioned not ERP cutover technology I won't Danny I Wonder, whether these CCEP happy because they'll ski school teacher model.
And if possible can you shed more color Oh, yeah, Oh, he's spending going forward. Thank you.
Okay, Yeah duties of auto Yeah, you know we changed our dual teacher mother as a strategy a lot the or so you know we focus the more with volcker focused more to this model in the Oh, Dan when I'm Province. So now you know a you know we happen to be as seven low tier city.
These are four for both pop kids. So you can't programs to by the two teacher model and a you know now you know a the revenue contribution from the to teach them on as far as small as a so the ER I think you know the gross is very high but you know revenue contributions for small and are now.
So a you know I think since is a too early to ER to save the margin off the two each model because it's in the early stage, but throughout locally as I said I think the duties modem margins would be higher R&D. The a the offline business okay.
And ER the yeah. This quarter, a the I'll be Oh, I'm only my sense, Yeah. This quarter, we messed up 44 million Dollarss Oh, we like the all I'm all ecosystem I think the you know this on track Okay. Because you know we we started to you must omni.
All things US we for your school and we started to bear fruit things a lot here and I think this is a you know the they'd be a this year's burden would resolve I think since the the are we talking as we but we Baird food from the investments we've made several years call. So.
And so the whole year I think we plan to spend.
Somewhere around a wild under $50 million to $160 million for the whole year, so little bit higher than we expected several months ago, but I think even though we spend a little bit more but I guess would be covered by the offline school margin expansion, so that would be okay.
We'll see the overall margin expansion given the with me, especially the ones.
Oh, Thank you very much yeah, we're happy to see you spending more on the technology for me. So I can you can think here.
Oh.
Yeah, a key lacking some kind of on the Oh spending areas Osama technology.
Oh.
Well you know, we we are more IP people and the of the content development people in the head office for to provide more better.
Better product for off last schools, and the a and B b duties from auto schools and also a we oh, we hire some the new people work for <unk> Department and yeah. So I.
I think most of the.
Last month, we spent a us Ali it's happened in the head office, so, but you know while we believe it's will bring us the better student retention rates going forward and it would do believe this money was spent the money today will bring us to better quality <unk> products in the future.
Uh huh.
Thank you very much.
Andrew <unk>.
Your next question comes from the line if you, though Shannon Mcclary. Please ask your question.
Hi, Thank you for taking my question I Wonder.
So we all know schools.
Thank you.
Well.
Enrollment.
Oh.
We disclose it the woman breakdown on you can say email to me and Allison ended the detailed okay. After the call because it's a long pizza.
Okay.
Thank you think of.
Your next question comes from the line fill excuse.
Yes. Please ask your question.
Hello, Good evening, congratulations even for the various calm quarter Ah. So two quick questions from me a one is that you mentioned the ramp up as the getting faster than expect a then dumping is.
Could you share as late as timeline to ramp how the Aimia Center and a second one is that a lot to the previous question Oh, My and all that men. So I understand a lot of the that that cause our and Ah staff salary so calling in for it if they like heads and then the second happen.
Next here at the we plan to further increase the headcount or is it likely to stay at this level. Thank you.
Hmm, Yeah, you know historically lastly, the two to three years ago, typically we need 12 months to gather breakeven point.
For the New learning center, but no you know, it's only spend five to seven.
Let us together break even point so about man. So we run tops and do you know learning centers faster than before.
And I think this is one of the reason that we would decide to open more learning centers, okay, and the ever year, Okay, and the second questions about the ongoing investments yeah. I think we will hire more people more qualified or more color on people worked for the IP Department.
And the the constant the vitamin team also for the I'd Department, because you know a.
Firstly, although I think.
It's a good investment we are we we spend more money today, but you know we got better future.
And ER and but anyway, I think total spending it won't be controlled by the management team you know wouldn't want to work with them money.
Okay. So as I said, even though it's going to leave them more on the on we must and but we do believe we'll have the margin expansion going forward Unifill, the second half a year and the Yasser okay.
Okay, great. Thank you [laughter] glad to see we have a.
The budget today and that's in a in the longer term well.
Congratulations again on that strong quarter. Thank you. Okay. Thank you I think of pellets.
Your next question comes from the line as Christine Cho of Goldman Sachs. Please ask your question.
Hi, Thanks, Steven and he said I'm just a quick question on the revenue guidance I you mentioned that you consider the line situation in terms, if I'm coming up with <unk> third quarter guidance can you give us a little bit more detail here and also a if the situation prolongs. The what are some of the alternative it I'll turn it if you can consider.
It or do you kind of mitigate the impact from the situation. Thank you.
Yeah, Yeah, Yeah, you know, we Oh, Wow school or actually decide to today to move the two days courses before Chinese new year to sometime after the Chinese new year because of the new disease.
But also we have seen plan to be let's say if the after the Chinese new year, we cannot run the business by offline I will make that make it up by the a ally courses. Okay actually we are ready.
Yeah, we're ready and so but the so far we have not.
He made the decision healthy.
Cross adjust or worse suspense in the other cities, except a full time, so why it's only the only while and Oh, yeah. We have taken some impact from the does this help you Mohan, but even on the theme amount is not material god once or rather the contribution for new rental as for.
Makes sense, Okay, but you don't don't Borgata 45 days, a path and also a we have the make up for that plan b to make it off okay. So I think be impact will be a immaterial so far by our the current estimation.
Thank you.
Banker.
Keith.
Your next question comes from the line of the young Green Kim I feel as safe. Please ask your question.
Hi management congrats on the good quarter I've two questions. The first is how much of revenue growth is actually coming from organic growth versus.
Stealing market share from other small pairs. That's my first question. My second question is.
I know in the past.
You have provided mid to long term margin guidance of 17% to 19%. So do you still stick by this margin guidance or do you see room for increase or things like that thank you.
Okay, and the organic growth you know I'm, having typically in the first.
Paul mess after the new learning centers opening its will bring us lastly, the.
For example, you know we opened 20 person you're learning center, but in first year Watt Tobey its will bring about 5% to 10% new revenues. So.
Sure, Okay, and so I think the only other sort of the organic growth and the marquee or the merger. We don't we are we don't have a members all see how much market share we got to from the small player. We're okay. So we're just <unk> business.
Together with 30% topline growth that's it okay. Because you have the number [laughter] no. It's hard to quantify that we keep taking market share from small players on everyday almost every day.
In the market growth is like a 10%, 15%, but our kids.
Business are growing over 40% on the definitely a majority of the growth is from taking market share from some other small players.
In a in each city.
No.
And the me long term margin guidance, we don't know tend to them the middle onto them Oh actually has made me a term margin guidance at all I would keep it as a 17% and but this year it'll be marks expansion, it's better than we expected and we we're more optimistic on the overall margin expansion in the rest.
The year and the after that.
Alright, Thank you very much.
Thank you.
Your next question comes from the line of Joy way.
86 and research please ask your question.
Thank you.
Right.
You can.
Gross.
What's driving.
<unk>.
Oh.
Yes.
Oh I think the there were several reasons number why is the you know if you'll remember clearly in the last quarter's earnings call. It all the summer promotion or much retention rate is 5% higher off this year that labia. So this number one reason number two is what we are.
Number two yes, we will we are seasonally higher stood still gonna retention rate.
For both UK and pop Kids program actually that you can't business, although retention rates is close to 80% and the pop kids with interest rates is close to 90%. So it's just a couple of the as a some.
A higher than the a and b.
Those numbers of last year.
And a third you know we don't we don't spend a lot on the marketing expenses you know the southern markets business. In this quarter is just a quick by.
I'm a life was 17%. Okay. That's you know I think the we typically when we relied on word of mouth to acquire the new student enrollments.
And Oh that means to them were providing a better or the the products to the students than before so.
We lost the results that are resolved some expenses.
Huh.
It's clear.
Yeah.
Okay. Thank you.
We are now approaching the end of the conference call I will now turn to call over 10, New Oriental CFO Mr., Stephen Yang for his closing remarks.
Again, thanks for joining us today, if you will have any other further questions. Please do not hesitate to contact me, where any of our Investor Relations Representatives. Thank you. Thanks guys.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.