Q1 2021 New Oriental Education & Technology Group Inc Earnings Call

[music].

Ladies and gentlemen, today's conference call. It to begin shortly until such time you like we remain on music hold. Please can you need to standby we thank you for patients.

[music].

Good evening and thank you for standing by for New Orientals asked why 2021 first quarter results earnings Conference call.

At this time, all participants I'm in listen only mode. After managements prepared remarks, there will be a question and answer session.

Today's conference call is being recorded if you have any objections you may disconnect at this time.

I like to turn the meeting over to your host for today's conference Ms. CCGT Joel.

Hey, Hello, everyone and welcome to new Orientals.

First fiscal quarter 2021 earnings conference call, our financial results for the period, where at least earlier today and are available on the company's website as well as on Newswire services. Today, you will hear from Steven Yao Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your questions before we can.

<unk>. 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, So 90 95.

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 SEC.

New Oriental does not undertake any obligation to update any forward looking statements, except as required under applicable law. As a reminder, this conference is being recorded in addition, a webcast of this conference call will be available on new Orientals Investor Relations website at Investor adopt new Oriental Dot or Oh no.

I will now turn the call over to Mr. deeper now.

Go ahead, Steven Thanks.

Thank you Suzy.

Hello, everyone and thank you for doing that also on the call below.

Although <unk> hopes or keep on that continues to live hurdles for business across school, we're pleased to kick off the fiscal year with a set of wouldn't poking fun. This will result in the.

For the quarter was either bothers me along with our expectations.

Well is showing signs of the recovery in some of our business line of domestic markets began.

It's tough to normalization.

Total net revenue was $986.4 million, representing 8% growth year over year wishes, but are the only guy that in the previous quarter.

Revenue from other peers and pull them in service for the first quarter were.

We're not going to $35.6 million, representing a 6.1% of deep with year over year or you're Gonna Middle School High School all subjects. After school tutoring business show a publicly flights with a growth of approximately my person.

Well I'll pop Kids program report or the gross profits to be four persons.

Or even go through eating or most of them have been vital in the previous quarter 24 hour. So if it's running smoothly and they didnt have once again proves to be instrumental in this quarter.

Okay and for a lot of our operation with strong flexibility to help the vast majority of our students Maguire from Oh, I'm all online classes bar tool offline learning centers, which have gradually resumed service.

Where do you see more political dynamics with switching measures.

Encouraged by its effectiveness, we have put more focus on executing our almost strategy.

He will be piloting the omo online courses in the wrong 26 cities and those charts promising number of new customers in the summer quarter.

Total student enrollments Dominic subjects tutoring and test prep courses in the fourth quarter of 2021 includes the by about 13.5% year over year.

Ultimately 2 million and 961, 161 solvents and 100.

Or the normally you could assume that number of student enrollments, it's primarily due to the delay of the woman for summer and ultimate classes and shortening of the summer holiday in many major cities, but one or two weeks this year as well as to delay the resumption of the offline officially in cities such as Beijing due to the re emerge.

So the Kobin Darchinyan cases before the summer holidays.

She highlights in this quarter is a highly successful summer promotion comparing this part of the challenge of the shorts in the summer holidays were delighted to see the total promotion any woman reach the 1 million and it's going to be like solvent.

31% increase year over year, a combo accompanied by improved student retention year over year.

In terms of the pricing per program blend that U.S.P., which discussed revenue divided by total student enrollment.

The principal by about 10% a year over year in dollar terms, our four already blended ASP, which is GAAP revenue divided by the total teaching hours decreased by approximately 2% of the year over year.

To provide a brief donald the already blended ASP. Please know that you kind of Clos is increased by 2% you can we I P of courses increased by 3% pop kids decreased by 1%.

Overly PEPFAR programs England's combined seven her son's oh year over year in dollar terms.

However, with our normal Christ Lucas Oh.

5% to 8% this quarter was already blend the SP plus was mainly because percolating a bigger decline oversee PEPFAR program, which all of the blended ASP was much higher than other programs.

Secondly, the piloting of promotional level online courses in some major cities, we discounted pricing summer.

Literally a bigger portion of the woman's uncoupled, mostly know courses to encourage students to register for more subjects.

No I would like to spend some time to talk about the quarter performance across our individual business line in detail.

Oh, Hi, Dominic Ruggedly face in China, encouraging signs of recovery has started to emerge across our business lines with 16% jump instituting woman's ARPU revenue driver K 12 after school tutoring business achieved year over year revenue growth of approximately 8%.

In dollars arms, breaking it down the U can middle School High school all subjects. After school tutoring business recorded the revenue increase of approximately 9% in dollar terms for the quarter. So enrollments grew 23% year over year for the quarter.

Our pop kids program with quarterly revenue increase of about 3.5% in dollar terms for the quarter enrollment increased by 17% for the quarter.

Oversee pass, but I will oversee related business, including test prep and consulting and study tour business continued to face be difficult challenges due to the cancellation of the oversea exams and restrictions on travel well the predictability of the patent situation in different parts of the world.

World has raised to students hesitate to help them to study abroad.

The oversea test prep business reported a revenue decrease of about 51% in dollar terms for the quarter, while the oversea consulting and overseas study poor business recorded revenue decrease of about 31% in dollar terms year over year for the quarter.

And finally, we had a few personal life core classes business recorded cash revenue decline of about 10% in dollar terms year over year for the quarter.

We're pleased to see that our summer promotion.

Energy delivered outstanding results, we offered a low priced experience of course is the four month both subjects in the total for about 70 cities.

Targeting with Southern secondary school and Gray the three Premier school student customers before they start.

There are new school year.

The promotion prior to similar with that of last year at around RMB 400.

Very encouraging that even we launched this summer promotion almost a one month later than last year because of this new talents from that that makes our daily operation. This summer promotion remains very well received by the market.

We believe the promotion enrollments, we broke even busier reported a 31% increase year over year, reaching 1.079 million enrollments.

The encouraging results indicated the opportunity to be able to market consolidation as koby nights into them face an uncertain players main life's financial and digital capabilities to suspend their operations.

Well proven by the end of this strategy, we're able to better identify and retain customer with a higher largely.

Please note that these promotions enrollments are not recorded in our current report is the enrollment.

Going into the ultimate semester, we have returned about 60% of the students following the promotion, which will boost the revenue and margin recovery throughout the whole fiscal year 221 and.

And we do not foresee any negative impacts of the promotions offering to Margo slaughter hope throughout the whole fiscal year.

As these students move to the higher grades the continual improvement in retention rates and.

And customer loyalty will drive revenue growth in the last three to six years.

We continue to be guided by our optimized market strategy in this quarter and kind of capacity expensing cities, while with the potential for rapid growth and strong profitability.

This quarter, we opened seven new offline treating schools in the city Council choir Hydro Miss you.

And Justin.

Altogether. This increased the total square meters of classroom earlier, but costs, many of 23% year over year, 1% quarter over quarter by the end of this quarter.

This slight increase if you lie and with our expectation.

We intend to achieve a more modest growth in capacity in the first quarter of the year and run off our expansion efforts in the latter part of the year to prepare us for recruiting more news to enrollment at the start of the following a timing here.

Three expanding our offline education that work has also meant for it but we are fully prepared for when pemex over and our service and.

We do with a strong presence across different kind of cities.

We roll out our duties her class model for pop Kids program.

46 existing cities for U can program, new 28 existing nuclear and proposed pop revenue kind of hit to our business in 10 new cities.

So far this quarter.

We're happy to see increased market penetration in both markets, we are passing through.

We also sold be improved customer retention and scalability of this new model with proven results. We will continue this strategy and the rest of the year.

Ari outbreak of Colgate has highlighted the importance of demand on the online education, we have placed a more resources in this area and the less the $39 million in the quarter.

Improved and maintain our Ola Moana integrated education ecosystem and ask for Cobiz operate over Koby My team have highlighted the importance.

The importance and the man of the online education of her.

Apart from the automobile Internet infrastructure, we have idled is the part of the resources, we advanced training programs for teachers, three hence the hand their online to offline integrated teaching skills in response to the growing demand.

At the same time.

Continue to upgrade our technology platforms and will broaden the usage of online tools and confidence in our ally most system for all business lines throughout the whole network as well as further develop the too fast to teach in Canada, and courseware to cater to online offline liquids allocation method.

We are glad to see that industry, leading OEM or ecosystem has not only successfully managed to cushion most of the impact on our service on price and cost about a panic, but it will also see the customer retention rate from spring to summer semester and from the summer to outcomes Master.

We're trending higher than the fem care last year, which.

We further demonstrated our customer for the customer and the effectiveness of our online course withdraw the optimal system.

We believe both automotive nieces, it's where we effectively boosting enrollment and still be speed up the recovery on persons in the rest of the year.

To capture the huge market opportunity in our education space, we continue investing more resources.

Can you new initiatives the online sales, while adverse waterfront business fiscal year 220 watt during recovering lighting panoramic koolearn. This large scale marketing promotion by offering free large five online broadcasting classes to the public and the impact of several times.

More traffic than normal time.

To capture this new market opportunity.

Cooler and also added a meaningful number of customer service Representatives and marketing staff to support the new in this is bringing to 12 tutoring.

This move has consequently reduced our spending on market marketing problem, but we believe these are necessary and understandable measures as were from our self and euro and panic situation.

Our home phone, you'll both both sides cloth currently enjoy a significant first mover advantage.

And stand to benefit from the increase in demand in larger cities.

Cool or large five kilowatt courses are able to offer the packaging class learning experience, who will be less than we are.

Upgrading the App and online platform, introducing new application technologies, and adding more interactive features online courses.

Cooler also continuing to establish teaching training center, yes, other locations to attract more qualified futures and tutor to provide a systematic training programs.

At the same time cooler has dedicated a significant need significant amount of the investment to marketing and servicing hasn't in the past two quarters to attract customers during the peak of the permit.

But do we expect spending to be normalized in the coming quarters.

In the coming quarter us as we will be cautious in identifying high ROI marketing channels and evaluate that unit.

Our next in real time, which rose in we're trying to keep the average user acquisition cost at a relatively low level.

We believe as a result of the improvement of operational teams as well as positive word of mouth promotion and brand loyalty Koolearn will continue to quickly acquire new users, while enhancing the student retention rates.

Now, let me walk you through the other key financial details of the quarter.

Operating cost and expenses for the quarter.

Hundred $36.1 million, representing a 1.3% increase year over year non-GAAP operating cost expenses for the quarter, which exclude share based compensation expenses were $820.2 million, representing a 0.7% increase.

A year.

Cost of revenue increased by 5.6% year over year too.

To $464.9 million, primarily due to increase in teachers compensation for more teaching hours.

And higher rental cost for the increased number of schools and learning centers in operation.

Selling and marketing expenses increased by 15.5% year over year to $116.9 million, primarily due to the additional number of customer service representative and marketing staff with the aim of capturing that no new market opportunity, especially for new Egistics.

Okay trough tutoring, our pure online education platform called on Dotcom.

General and administrative expenses for the quarter decreased by 10.5% year over year to $254.3 million.

Non-GAAP DNA expenses, which exclude share based compensation expenses were $242.6 million, representing a 11.3% decrease year over year.

Total share based compensation expenses, which were allocated to related operating costs and expenses increased by 43.7% to $15.8 million in the fiscal third quarter of 2021.

Operating income was.

Was wondering a $50.3 million, representing a 38.9% decrease year over year non-GAAP income from operations for the quarter.

Was $166.1 million, representing a 35.4% decrease year over year.

Operating margin for the quarter was 15.2% compared to 23.0% incentive prior fiscal year.

Non-GAAP operating margin, which excludes share based compensation expenses for the quarter was 16.8% compared to 24% in the same period prior fiscal year.

Net income attributable to new Oriental for the quarter was $174.7 million, representing a 16.4% decrease from the same period prior fiscal year basic and diluted earnings per adss attributable to new Oriental were 1.10 dollar and 1.0.

Hi, Paul.

Respectively, non-GAAP net income attributable to new Oriental for the quarter.

It was $184.5 million, representing a 19.8% decrease from the same period prior fiscal year non-GAAP basic and diluted earnings per Mcf attributable to new Oriental were 1.1, $6 and 1.1 $5.

Net operating cash flow for the first quarter of 221 was approximately $391.6 million cut.

Capital expenditure for the quarter were $95.2 million, which were chrome are primarily attributable to the opening of 42 facilities and renovations.

This new learning centers.

Turning to the balance sheet as of at the August August 31, 2020, we will enter had cash and cash equivalents of 1004.

And $47.6 million as compared to $951.1 million as of May 30.

31 for 220.

In addition, the company the company had $291.8 million in term deposits 2000, and $778.4 million in short term investments.

We oriental deferred revenue balance, which is cash classes from registered students for courses and recognized proportionally as revenue as these such with instructions are delivered at the end of the first quarter fiscal year 2021 was 1560 $3.1 million.

An increase of 17.5% as compared to 1330 ups.

Point $7 million at the end of the first quarter fiscal year 2020.

Looking ahead into the next quarter and the rest of the fiscal year 2021. Despite the continued challenges from the cobalt action to dynamics are expected to remain well more clear about the recovery trends of the company near term financial performance and the market opportunity.

Over the long run.

Our strategic focus and investment approach this year aimed at improving product quality, increasing future salaries and enhancing our industry leading system was fully reflects our ethos.

Focusing on the essence of I do patient you'll be all open market competition and opportunities to take advantage of post Kobe market consolidation, we firmly maintained a stable and a balanced investment strategy that would improve the quality of our education service.

With the aim to achieve such as sustainable and long term goals.

As opposed to two unhealthy for term growth. That's also requires obsessive investments and the higher cost to acquire customers.

As such we will continue to focus on the following Iris first we will continue to expand our offline business.

And to add around 20%.

Percents to 25% capacity equal the new learning centers and expanded in class malware of some existing learning centers for K 12 business in this fiscal year.

We believe our client expansion, we will prepare us to further take market share from the other players hold Co. base as we believe some small players without strong financial position and online class capability and not be able to sustain their business during the period.

We expect that the industry will undergo a wave of market consolidation opponent as dynamic phase.

The fact that we are.

Major player with the strong financial capability and the flash offline facility enable us to further strengthen the market leading position penetration.

Second we will continue to leverage our investments into digital technologies and introduce our allow mosys coming in more often than we're training and test offerings, especially for the K 12 business and over the past five key business.

The usage of the online tools and content in our automotive from for all business lines throughout the whole network will be enhanced.

Absolutely the whole ammo treating sealants will play a more effort developing the past the Q2 content and courseware and also developing more advanced training programs to our teachers with all the above mentioned the first infrastructure in place, we'll continue to pilot to pile.

Propel as our OEM will online newspapers in some major cities with high demand and higher operational efficiency.

We believe that.

Oh on more new sales will be one of our growth engines to increase our customer acquisition.

Post recall that and.

And enabling us to capture the market to consolidate to Austin.

This revamped new business model will also accelerate our margin recovery in the rest of the year and further.

Extend our long term margin target.

Here I have to highlight that all of these or more products are supported our offline causes.

This topic man to each other in a hybrid format over futures over teaching constant coursework materials as well our key features and technologies are developed and our regions like from our existing offline some personnel resources.

This seems equally as a system continue to broaden our customer base.

Enable us to reach students, we settle us cities as well as the Cds, while we have fewer.

Learning centers to catering hour to cater or other customers.

Furthermore, we will continue to invest again and implement new initiatives, including product accountancy development teachers recruiting and training R&D as well as the sales marketing Im sure Kip Ralph After school tutoring business, our coolant pump platform.

Third our top priority will remain as the focus on controlling cost and reducing expenditures across the company to minimize the negative impact from academic on bottom line. We believe we will resume the expansion of the overall non-GAAP operating margin this year over year.

Colby matching subside fried or.

Here I would like to stress that we have great confidence in the fundamentals of our business, which we believe will continue to remain strong although.

Although we are facing lowers forthcoming active impact from the pandemic and.

And we have been increasing our investment in different strategy, we remain optimistic of the brighter prospects of our business and we believe our investments now, bringing footfall returns in the long run.

Of timing situation endless, Rick, including the miners beginning to ease in China, the timely reopening of our schools and our offline learning centers in September the start of the new fiscal year.

Is seemingly to be of massive boost for our business. We believe this will enable us.

Enable our recovery to pick up the momentum, which will likely to be reflected in the results in the coming quarters.

We are certain that with new rentals, leading brands superior education products and system and the past the teacher resources, we have the ability.

Two and further into market share I mean, China huge after school.

After school tutoring market and deliver long term value for our shareholders.

We're looking at or near term.

And our expectations for the next quarter Big five total revenue to be in the range of.

$863.7 million to $887.3 million, representing year over year increase in the windows, 10% to 13% to provide the breakdown of the impact to top line growth for key business lines casual tall business.

In fact in fact to grow around 25% oversee PEPFAR program. If expect is tied to the client 30% to 35% and overseas study consulting and steady poor business is expect to be to decline zero percent to 5%.

Oh year over year in dollar terms.

We're also excited to oversee related businesses, including Oversea test prep and consulting service will continue to decline due to the dynamics around the globe cost to buy the cancellation of the overseas exams suspension of the overseas schools and risk restriction on travel.

Thats heavy impact on this oversee will lead the business well sites the entire.

Locations of industry in China, not only for new Oriental.

And may love to over the coming one or two quarters. Thus us in contrast, tightness effective control of the Pemex situation has said a more hubs will drive our business domestically. We're pleased to see that we gradually resume our AFI operation in all cities that we are in.

By mid September and the vast majority of the students in the cities have sufficient successfully migrate back to our learning centers from our OEM online classes to conclude we are.

We're now talking on Oak has of the operational actions to boost the enrollments on possible utilization for the outcomes master and speed speed up the recovery of the business after the resumption of the schools.

And learning centers, we're confident that the demand for after school tutoring will grow will kick off and the trend toward normalized level in the rest of this fiscal year among.

I must mention that these expectations reflect reflects new orientals current and preliminary view, which is subject to change at this point I will take two questions. Operator, Please open the call for this.

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 piece Reclassed to two point the question.

Thank you again after your first question has been addressed.

To ask that question now please press star one on your telephone and light free name to be announced if you wish you can see your rants. Please press the pound or hash key.

Once again Thats star one so questions.

Your first question comes from the line of 10 homes from T.H. capital. Please go ahead.

Hi, Good evening, Stephen Cc, congratulations on a good quarter and guidance.

Even though it's kind of a challenging time.

So the question is related to the margin on the gross margin on a year on year basis, It was down pretty significantly.

So I wonder how much is cost overseas.

They see this year and going forward, what's the gross margin is going to trend. Thank you.

Hi, Ken.

The gross margin was was down by roughly 6% year over year. This quarter I think the the first agreement is that you know the revenue was down by 8% in this quarter year over year and.

In this quarter, we feel with the seller LP the futures and because we think of a piece was quality is a core competence of the education business. So as were dead.

In in.

After several years, you know, we with the teacher salary.

And also you know, we we acquired the pop teacher from the other small players during the epidemic and the rentals you know I think.

I think that.

During the Cobi lighting, Pos we still expanded our capacity in the areas where in the city, but we are we feel comfort for for drive the potential.

Growth in the future and this quarter the year over year expansion.

Was 23% at the quarter end so its drive the.

The gross margin down I think I think it's just about onetime okay, because youre aside our business units.

In the process of the recovery and we have already gave the guidance of the.

The the Q2 and so within that in the Q2 guidance you know the K 12 business will be.

<unk> increased by 25%. So I do believe the GPU margin recovery will be happened in the second quarter.

Pat.

Thank you. Our next question comes from sales of clear from you be asked please ask your question.

Good evening management and congratulations on a good results.

Given the challenging environment. My question is on utilization and extend that a lot about flights at classes have museums and north of the city like acute and connect and color on when that utilization is like currently and how is the trajectory going forward.

Thank you.

Yeah, you know as well as you know so little.

You know, it's a little bit harder for us to disclose the utilization rates because you know the west deal I during the year, we're still in the time of the dynamic you know for example in Beijing School or are they just school openings would be all the learning centers in mid September that means were lost.

Almost 10 to 15 days.

In a in September in September and doing the whole summer you know I think some of our learning centers. We're now open so it's really hard for us to disclose the utilization right now and I think we will both the flow feel additional rate in.

I think the Q2 or three and but you know.

We do believe the utilization rates.

We'll go out get higher and higher.

For the past pandemics or because for Neal a couple Corey our revenue growth is higher than the expansion plan. So I think that means you know we do have elaborated on the on the learning center utilization. So this is the RP being mid long term trends.

Hi, Alex.

Thank you next question comes from Jean Yves families Street Research. Please go ahead.

Hi, Good evening swears just talking about the overseas test prep your guidance kind of suggests obviously.

The bottom line is the bottom is the bottom is in terms of is a slight improvement from last year's quarter last years or last quarter's numbers can you just give you could talk about if that's really the case or if we're seeing us kind of a seasonal.

Great and then.

And on the other the second question I have is I think we're.

I think we're seeing a massive testing in Qingdao.

Approximately like 9 million people or something like I think just hit the press.

Just wanted to see how big is that right.

Revenue from that city is in case, there is a second wave in that particular cities. Thanks.

Hedging and as the overcapacity yeah. The other rather the decline of this quarter, because Q1 was a 51%, but a weekend we have already give the cadence of the Q2 be over.

The oversea test prep will be down by 30 somewhere around 35%. So the things currently.

Turning to be better in Q2, and because you know we have seen some like metoprolol or word our GRT pack up outward we open in China in different cities and good but anyway, I think I think the the oversea test prep business Oh.

We will be actively to some extent to connect negatively impact by the by the cold it.

And the balloon on the Q1 this quarter will be the.

What the work and I do believe the oversea test prep business will be recovered stop at that.

So this is my.

This is my answer focusing on by the overseas test prep and Qingdao, Yeah. We we know what happens in China since last week and so far we don't get any notice from the governments of the the the shutdown of the schools for revenue to our learning centers in Qingdao are still.

We'll open now, but anyway will meet the requirements of the <unk> of the government, but you know.

During the B R. I've been doing this the key time of the Cobi 19 times I think we have the ability to move all the offline courses to online were tested with touches the in fact for yes for two off of the RP pardon me.

And so I don't think it will negatively impact our revenue auctioned off anyway tinnitus Nada.

The revenue contribution assumption is very small.

Jane.

Thank you. Our next question comes from Mark Lee from Citi. Please go ahead.

Hi, Steve.

Thank you for taking my question.

I will Oh, I'm, sorry, I couldn't hear clearly.

Hi.

I don't know.

Hi, Mark.

Can't hear you.

Hi.

Hello, I think.

I think the line has some problem.

Correct.

Hi, Mark.

Similar to how it just seemed like it was oh.

Oh.

Mark can you come closer to the hit to the mouthpiece. Please.

Hi, Tom.

Hi.

Right Okay.

Okay I just want to ask how is our why 21 guidance could you share the latest guidance for the full year with us.

And also our open imagine pocket.

We haven't changed and the timing to reach that thank you.

Okay.

Yeah actually we have already give the guidance.

Give the guidance of the Q2 and by timber.

Timbers and the other 10 or 10% to 14% and stuff you know actually the business is now fully recovered in Q2 the.

Awesome quarter.

Sales in school once we open in mid September and we.

We expect the revenue growth in the coming Q3, and Q4 will be better than Q2, because of the more our recovery of our business and easy comparison.

Of this year you know the Kobin I can start as seems a lot for your Q threes. So we do believe our.

Our topline growth performance in Q3, and Q4 will be better than to do that and ER margin guidance yeah mm.

I think that you know I think Q2.

The next quarter the margin we believe the margin decline in Q2 will be continued to narrow down compared to this quarter. The Q1, and we're confident that we'll be able to deliver the continued margin expansion after the panic solar, especially in Q3 and Q4 and we.

In all we don't want to change only long term margin guidance.

Mark is that clear.

Thank you. Our next question comes from Alex You from Credit Suisse. Please ask your question.

Hi, Stephen just to thank you for taking my questions. So my first question is about.

Mcdonnell fuel net quarter hits to our revenue guidance. So I think in mid August quarter.

On either that piece of it.

It was a little slower than you can business and what about the next quarter and the second question is about the roll out of your.

Our remote business model I think I read from the news report that you launched the pure online on small cost model.

The school and and received very positive feedback from the hobbies White students would you please share more color on that and what the 10 for the for the roll out. Thank you.

Yes.

Your first question about the.

Currently we will first question I guess.

Sure.

So I noticed that in the August quarter.

The book to Bill this was due to slower than you can visit and then what about the net quarter within the 25% gross what is what about the difference between a bookkeeping you can.

Scott.

I think you know massive quarterly revenue Q2, I think be our growth rates also you can bid business will be a little bit higher than the pop kids business growth. Because you know obviously you can't business is more mission critical so for the Middle School High school students are they tend to study.

More especially after the Cobi nitin. So that's why the peak growth of the U can business.

Growth higher than the pop kids business and yes.

Yeah the old.

The overall, that's a great question almost flat you know.

No actually we started to be a level business, our three years ago.

For our aging school you can business, but you know after the cold in IP and you know we are threatening the development of our mall because you know the only koby lighting.

Well almost all of our students told the car of course is pure online Thats you know after the Cobi lighting.

Vast majority are students Oh.

Goes back to the off our learning centers, but it would choose some percentage of the the online course for those part of the students and also for some new satellite cities. You know we like we are we starting to roll off the new Omo model, Yeah, I think the hundreds of very good case and.

This was the first a year that Hondros school.

The the Obama model. So you know hospitals schools acquired a lot of the new customers off the great turn a students from the outside to see a lot of hospital sales. So I think it's a very good start and we will roll out in more and more CSN provinces.

Okay and added one more thing so you have a retention rates offer our motto is how the school I think.

After the summer as over 50%. So I think it was a very good sign for the study results of the oil on our model so with more and more in more sales through the one last Sunday.

Yes.

As Steven I emphasized earlier in the prepared remarks, Akshay, we have oh, how like at this animal model in around 20 cities already accessing a summer only recovered.

On receiving the offline operation from the summer and now we have already testified this model in several cities key cities and on the feedback is good and then that continue to be the key strategy going forward yeah.

[music].

Thank you. Our next question comes from Shane Jones from Morgan Stanley. Please go ahead.

Hi, Good evening. Thank you for taking my question.

My question is.

So ah so.

Oh.

Uh huh.

So for the no Oh.

Well.

Yeah.

Oh.

And so.

So.

Uh huh.

Hi.

Oh yeah.

Uh huh.

Oh, yes.

Yeah.

Okay.

Hmm.

Thank you.

Yeah.

Hi, Joe So having some quick question you know, we we set up the K.P.I. euro.

Offy US who have you know we are I think the caveat. The school has developed a two part the traditional level, while the traditional offline business and second this the the new home or more model. So two different CPI and I've been really easy to understand the locals who have make the disease.

Russia, you know for those areas that we are aware of we do have to be learning centers I think we need to be on mall.

And ER will be we've reduced our RP the learning central learning centers to acquire new student enrollments and have been for the areas, where we don't have the learning centers or for the new cities. We don't have the learnings into there the oil mall will be for the toys.

And the bus funeral I sat in the pre prepared remarks, all the content costs were and future, which was as even the future training system of the Amo model. Our I recently returned from the local three yeah.

You know the head office will give the fully support to these different areas and different states.

So we'll roll out feed our model up by two.

Two more serious going forward and I do believe the o. on low model will contribute more and more revenue going forward.

And so yes, one more thing at and so you know we.

We don't want to spend increasing money on marketing expenses for the OEM a model. So I think the student acquisition cost for the oil animal model will be very low I think it's worth.

It will be our sales.

Our same as the odd our traditional offline business.

Thank you. Our next question comes from the line of Lucy Yu from Bank of America Securities. Please ask your question.

Thank you Stephen.

So I would like to ask a question on to our teachers and you just mentioned that when we penetrate into new cities actually will be the first choice. So how about dual teacher model are we still going to roll that out.

And.

I can understand that previously before.

Well out we were using that to a teacher to penetrate into lower tier cities. So nowadays what.

Outlet choice.

In terms of business model in a new city and secondly, you mentioned that he dual teacher model, we have seen improving profitability and the retention. So we so cliche mall and number that liquidity and retention off to a teacher model. Thank you.

Yeah, I think the go forward feel our model will be refers to toys up well, we run the business in the new cities and especially for the for the larger cities, but you know we are we're doing while furby are for the dual teacher model you know, we open more and more.

A P P and you'll see us by the idea of the pop kids and you can program, but you know.

Going forward, we will focus to more more of the model fab the teachers in the.

In the head office folks have to be do future model class and to the low tier cities typically it's worth it focused more focused on.

On the on the top students in the.

The high here and look at your sales. So we have the two way to run the business.

In the in this in the in the local cities or more amateur tomorrow.

Lucy.

Thank you. Our next question comes from Alex sales from China Renaissance. Please go ahead.

Okay.

Steven for taking a question first on future compositions, how fast should we think about the teacher compensation growth.

Going forward, especially some online players are.

Rather aggressive in terms of teacher paying out.

Second question is regarding the strong summer enrollment growth.

I was just wondering is there any specific reasons behind or any specific sort of other nations in summer.

Summer.

Why we did so well this year and how much of the growth is coming from small.

Small player exiting the market. Thank you.

Hi, Alex I think the teacher salary yeah, we think the teachers quality as the core competence of the other person business. So we'll raise the teacher salary by 8% to 9% every year, even with phase two the Italians during the period of the Covis, we feel our we still give us.

Sensing I don't think the teacher salary increase will track and monitor on the contrary.

Paying the teacher more will bring us to high quality Oh.

Were high quality for the back from the customers are still in some parents and drives the utilization rate up and the revenue up so I think Pete we pay I think we pay more the future will help the GP margin performance better near term and long term so.

Hello, there arent business our strategy for the four.

For the teachers.

And.

Yeah. This is the.

And the second question is about a similar enrollment, yes, I think you know.

No.

I believe the spreads the spring semester, we may have some problems.

As part of the news because customers because the call it a waiver well we couldn't.

Fate or couldn't see the students and parents face to face, but dealers are doing we are doing the.

The summer quarter, you know most of our learning centers, where we open so we can keep the like the.

The study advisors to the parent kiss a face to face and are absolutely be competition environment. Yeah. I mean, we know some small players for disappear from the market. So I think squares opportunity for the big Big players like us to take more market share.

From the markets postal covet and ER.

And the numbers, especially since the second half of <unk>.

Have to lie you'll know because revenue I know you rolling numbers was booming.

And so that's why we give the guidance of the became 12.

Because while business growth Inc. second quarter will be somewhere around 25% and I do believe pre enrollment growth.

And the revenue growth in Q3, and Q4 will be even better.

Thank you. Thank you. Our next question comes from D.S. Kim from JP Morgan. Please ask your question.

Hello, Sir hasten to say congrats on a good set of results and very good guidance.

Actually most of my questions have already been answered so maybe I can just follow up on that when more Tonight doublets have when you say this new play Lucky where mode are we referring to pure online localize curriculum classes like PEO online and if so can I check or what's the size of the each class a S.P. gap with.

The the similar sales like which is that if there's any difference in offering I.E.

Well, maybe it's more for the weekdays versus weekend or more for a short time courses or is really just same as our sling offerings.

You know, where I worked really of the new level animal model by three ways number one the.

A lot of the classes that means the larger classes and overall Dsos. This was a totally in a majority of the classes are going to all happen. They are alive and I think will be deployed at the price of the of that part of the course.

Yes.

I think it's 20% to 30% lower than our normalized the closet and secondly, the almost both ATCA as it is.

With every class or any of the offline and online.

Integrator classes and.

And the last one and number three is there some like the very short term courses I think that the typical purpose of offers of those part of the business as the you know as to to or to acquire new student enrollment as murder from courses and we.

After the famous teachers to acquire the quarters and I think that as a as kind of though the way too.

Yes, the bundling way so we have a three way anyway. The omo is still in the early days I think but so far so good and we'll do more going forward. So.

Hey last quarter water Whalen via the rest of the year of earnings call I will show more information with you.

Thank you.

Thank you and next question comes from Tommy Wong from China Merchants Securities. Please go ahead.

Oh, Hi, Thank you I management and Steven Congrats on the strongly sales are there.

So quick question I guess, we don't have a lot of time last comment about the secondary listing in Hong Kong.

And.

Potentially we need more funds to compete on the online space you know all these other guys. How they are without soy upon yields are operating a lot of money and if we want to play in this game, we have to kind of participate so just wondering.

Secondary issue bring some more money and played a game just wondering what's your thought on that thank you.

Oh, we're not in the right position to make comments I'm, sending are listening and.

And ER and they need the money yeah as aside you know our strategic focus and investment approach. This year not only this year, but also the mid long term okay.

This aim at the improving the product Paula.

Paul If you are an increase in the teacher salary and helping our system.

I think these are the essence of the education.

So we know there is a huge opportunity in the market, especially on the coal that.

We firmly maintains a stable and balance the investment strategy and we want to spend printed money on marketing and CAD and healthy for some growth. So this is our strategy not only for now but also for the for the mid long term.

Thank you.

Thank you. Our next question comes from sleeping giant Fancy I CCTS go ahead.

Hi, Steven.

For taking my question my question.

Capacity expansion, how should we expect the patches pandemic on your capacity expansion essentially for you on a T 12 business and any chance, we can yeah and et cetera.

In accelerated expansion during the market consolidation. Thank you.

We aim to add around 20% to 20% to 25% a new capacity.

New capacity.

In the fiscal year 21.

And so you know last year, we plan to.

Last year, we plan to open 20%.

Finally, we opened 26%.

And this year, we we wouldn't have the same plan and other anyway.

Anyway, I think display opportunity for for for us to to take more market share. So we'll open 20% to 25% new capacity to acquire new student enrollment and also you know we do have the OEM auto and so the two with the capacity expansion or more will bring us to do customers in the.

Hopefully were 21 and.

Yes.

The the our strategy of the expansion is very stabilized.

Thank you.

Thank you. Our next question comes from Cynic slow from U.P.S.T. skill ahead.

Oh. Thank you I just want to have the follow up question on our deferred revenue balance I notice that the the question is given a revenue is a lot stronger than and then our Q2 revenue guidance. My I know there is the reason behind I think.

That's because the academic phase.

In China, especially in the summer and so as I said I think the second I think that the second half of the to lie.

And the revenue and enrollment growth was booming and ER. So that's why we got to be the higher.

Total revenue balance.

This quarter end and ER and ER I think.

The Q2, the you know were still in the process of the recovery I think you even into Q3 and Q4, you will see a higher enrollment and on topline growth.

Of the especially for kids, while business because I do believe we're taking market share from the small players and also ER and ER and ER.

We do believe we will have to hire in the higher student retention rate going forward, because we match, we left a lot of things.

I think last thing.

I think the four or five years ago, and we do believe we're providing the one off the bat the product in the market in the market.

So I think the recovery.

What will happen to step up and more back loaded to bring to four.

Thank you.

Thank you we are now approaching the end of the conference call I will now turn the call over to new Orientals CFO Mr. Stephen Yang for his closing remarks.

Again, thank you for joining us today, if you have any further questions. Please do not have the contact me or any of our Investor Relations Representatives. Thank you.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you participating you may now disconnect.

[music].

[music].

Good evening and thank you for standing by for New Orientals asked why 2021 fits quota results earnings conference call.

At this time, all participants I'm in listen only mode. After management's prepared remarks, and I will be.

The question and answer session.

Today's conference call is being recorded if you have any objections you may disconnect at this time I'd like to turn the meeting over to your host for today's conference Ms. Cc Chow.

Hey, Hello, everyone and welcome to New Orientals first fiscal quarter 2021 earnings conference call our financial results for the period, where at least earlier today and are available on the company's website as well as our newest fresh services today, we'll hear from Stephen Yang Chief financial.

Officer. After his prepared remarks, Stephen 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 us private six.

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 SEC.

New Oriental does not undertake any obligation to update any forward looking statements, except as required under applicable law. As a reminder, this conference is being recorded in addition.

In addition, a webcast of this conference call will be available on your end sourcing matter relations website at investor that new Oriental not work.

I will now turn the call over to Mr. seeping out please.

Please go ahead.

Thank you Sisi Hello, everyone and thank you for joining us on the call.

Although the impact of steeper bottlenecks continues to raise hurdles for business across the globe.

We're pleased to kick off the fiscal year with a set of encouraging financial results in the first quarter of this year that is in line with our expectation.

Well he is showing signs of the recovery in some of our business lines as domestic markets Beacon is passed to normalization total net revenue was $986.4 million, representing an 8% decrease year over year, which is better.

Sure. So we've guided in the previous quarter.

Net revenues from education programs and service for the first quarter were not.

Were $935.6 million, representing a 6.1% decrease year over year or you can middle School High school all subjects. After school tutoring business shows a positive slides with a growth of approximately 9%, while our pop kids program reported the gross of pasta before.

Our preference.

Our industry, leading almost system has been vital in the previous quarter to ensure our service run smoothly and it has once again proved to be instrumental in this quarter.

As it provides our affiliation with strong flexibility to help vast majority of our students migrated from or I am all online class factual offline learning centers, which have gradually resumed service.

The easing of the paradigm makes restriction measures.

Encouraged by is the effectiveness, we have put more focus on executing our most strategy.

Equal the Impella thing the Omo online courses being around 26 in two cities and attract a promising number of new customers in the summer quarter.

For those two enrollment dynamics subjects tutoring and test prep courses in the fourth quarter of 2021 increased by about 13.5% year over year to approximately 2 million and 961 161 solvents and 100.

Lower than normally increasing the number of student enrollment is primarily due to the delay of the enrollment for summer and ultimate classes and shortening of the summer holiday in many major cities, but one or two weeks this year as well as to delay the resumption of the offline officially cities such as Beijing due to the re.

It is of the Cobi nitrogen in cases before the summer holiday.

A key highlight in this quarter is the highly successful summer promotion campaign. This part of the challenge of the shorts in the summer holiday, we're delighted to see the total promotion enrollment reached 1 million and 79 solvent.

A 31% increase year over year akimbo, accompanied by improved student retention year over year.

In terms of the pricing.

Program blended ASP, which is cash revenue divided by total student enrollment decreased by about 10% a year over year in dollar terms as for already blended ASP, which is GAAP revenue divided by the total teaching hours decreased by approximately 2% a year over year to provide a breakdown of the already.

The ASP. Please know that you can't classes increased by 2% you can we IP courses increased by 3% pop kids decreased by 1% and oversee PEPFAR programs increased by 7% although year over year in dollar terms.

Comparing with our normal price team Chris Hello.

5% to 8%.

This quarters already blend the SPD plus was mainly because firstly a bigger decline of oversea test prep program, which already planned to ASP was much higher other programs ceremony, the piloting of promotional our mobile online courses in some major cities with discounts prior.

In summer and thirdly, a bigger portion of the enrollments on promotional courses to encourage students to register for more subjects.

Now I would like to spend some time to talk about the quarter performance across our individual business line in detail.

Our budget Pandemics ruggedly face in China, encouraging signs of recovery has started to emerge across our business lines with 16% jump in student enrollments are key revenue driver K 12 After school tutoring business achieved year over year revenue growth of approximately 8%.

In dollar terms breaking it down the U can middle School High school all subjects. After school tutoring business recorded the revenue increase of approximately 9% in dollar terms for the quarter. So enrollments grew 23% year over year for the quarter.

Our pop Kids program reported revenue increase of about 3.5% in dollar terms for the quarter enrollment increased by 17% for the quarter.

Ill oversea test, but I will oversee related business, including test prep and consulting and studied for business continued to face be difficult challenges due to the cancellation of the oversea exams and restrictions on travel well the predictability of the pandemic situation in different parts of the way.

World has raised to students has that helped to study abroad.

Oversea test prep business reported a revenue decrease of about 51% in dollar terms for the quarter, while the oversea consulting and overseas study for business recorded revenue decrease of about 31% in dollar terms year over year for the quarter.

And finally, we actually and personal life core plus business week quarter cash revenue decline of about 10% in dollar terms year over year for the quarter.

We're pleased to see that our summer promotion.

Credigy delivered outstanding results, we offered a low priced experience will cost us a four month both subjects.

Total for about 70 cities targeting with Southern secondary school and greater three Premier school student customers before they start.

There are new school year.

The promotion prior to similar with that of last year at around RMB 400.

It's very encouraging that even we launched this summer promotion almost a one month later than lumpy.

Sloppy or because of the huge challenge from that that makes our daily operation. This summer promotion remains very well received by the market.

To complete the promotion enrollments, we brought them in this year reported a 31% increase year over year, reaching 1.079 million enrollments.

The encouraging results indicated the opportunity to be able to market consolidation as the cobi nice into them face an uncertain players main life's financial and digital capabilities to suspend their operations.

It was well programs out to enter this strategy, we're able to better identify and retain customer with a higher largely.

Please note that these promotions enrollments are not recorded in our current report is the enrollment.

Going into the ultimate semester, we have returned about 60% of the students falling the promotion, which will boost the revenue and margin recovery throughout the whole fiscal year 221 and.

And we do not foresee any negative impacts of the promotions offered you Margo fraud hope throughout the whole fiscal year.

These students move to the higher grades the continual improvement in retention rates and.

And customer loyalty will drive revenue growth in the next three to six years.

We'll continue to be guided by our optimized market strategy in this quarter and covered our capacity expansion in cities, where we see potential for rapid growth and strong profitability.

This quarter, we opened seven new offline treating schools in the city Council wire tidal leasing.

And Justin.

Altogether. This increased the total square meters of classroom earlier, but approximately 23% year over year, 1% quarter over quarter by the end of this quarter.

The slight increases in line with our expectation.

We intend to achieve a more modest growth in capacity in the first quarter of the year and run off our expansion efforts in the latter part of the year to prepare us for recruiting more news to enrollment at the start of the following a timing here.

Three expanding our offline education that work has also made sure that we are fully prepared for when Pemex over and our service and resume with a strong presence across different kind of cities we roll.

We roll out our duties her class model for passive problem in 46 existing cities for U can program, new 28 existing serious ample both pop if you kind of good for our business in 10 new cities.

This quarter we are.

We're happy to see increased market penetration in both markets, we are passing through.

We also sold the improved customer retention and scalability of this new model will this proven results. We will continue this strategy and the rest of the year.

Other outbreak of Colgate has highlighted the importance of demand on the online education, we have placed a more resources in this area and the method of $39 million in the quarter, we improve and maintain our Ola moana integrates vision ecosystem and as the Kobe.

Operating over probably my team have highlighted.

The importance and the man of the online education of heart.

Apart from the automotive steel cost structure, we have idled has the part of the resources in advance the training programs for teachers to enhance their online offline integrated teaching skills in response to the growing demand.

At the same time, we continue to upgrade our technology platforms and will broaden the usage of online tools and confidence in our ally most system for all this is ryan throughout the whole network as well as further develop the best of teaching count and courseware to cater to all outlined liquids.

Efficient method.

We are glad to see that industry, leading OEM or ecosystem has not only successfully managed to cushion most of the impact on our service offerings and cost about the panic, but we'll also see the customer retention rate from spring to summer semester and from the summer to outcomes Master.

We're trending higher than the figure of last year.

Which further demonstrated our customer for the first revenue and the effectiveness of our online course withdraw the optimal system with.

We believe both automotive leases, where we effectively boosting enrollment and speed up the recovery of persons in the rest of the year.

To capture the huge market opportunity in the aisle application space, we continue investing more resources.

Executing you new initiatives the online kupol adverse waterfront business fiscal year 221 during the call in lighting pandemic Koolearn. These large scale marketing promotion by offering free large five online broadcasting classes to Republic and the impact of several.

More traffic than normal time too.

To capture this new market opportunity.

We also added a meaningful number of customer service Representatives and marketing staff to support the new in this is bringing K to 12 tutoring.

This move has consequently reduced our spending on a market marketing prom, but would believe these are necessary and tangible measures as were from our self a euro Atlantic situation.

Our goal from your portfolio five Clos currently enjoy a significant Furthermore advantage.

Stand to benefit from the increase in demand in low tier cities.

Cool or large five kilowatt courses are able to offer the factoring in class learning experience through the mess than upgrading the app and online platform introduced new.

I'd location technologies, and adding more interactive features online courses.

Who are also continuing to establish teaching training center, yes, other locations to attract more qualified futures and tutor, who provide a systematic training programs.

At the same time, who has dedicated a significant need significant amount of the investment to marketing and servicing hasn't in the past two quarters to attract customers during the peak of the permit.

But do we expect spending to be normalized in the coming quarters.

In the coming quarter us as we will be cautious in identifying high ROI marketing channels and evaluate the unit economics in real time, which rose and we're trying to keep the average user acquisition costs at a relatively low level.

Belief as a result of the improvement of operational teams as positive word of mouth promotion and brand loyalty cooler, we'll continue to quickly acquire new users, while enhancing the student retention rate.

Now, let me walk you through the other key financial details of the quarter.

Operating costs and expenses for the quarter.

Revenue of $36.1 million, representing a 1.3% increase year over year non-GAAP operating cost expenses for the quarter.

Excluding share based compensation expenses were $820.2 million, representing a 0.7% increase year over year.

Cost of revenue increased by 5.6% year over year too.

To $464.9 million, primarily due to increase in teachers compensation for more teaching hours.

And higher rental cost for the increased number of schools and learning centers in operation.

Selling and marketing expenses increased by 15.5% year over year to $116.9 million, primarily due to the additional number of customer service representative and marketing staff with the aim of capturing that no new market opportunity, especially for new Egistics.

Okay trough tutoring, our pure online education platform called on Dotcom.

General and administrative expenses for the quarter decreased by 10.5% year over year to $254.3 million.

Non-GAAP DNA expenses, which exclude share based compensation expenses were $242.6 million, representing 1.3% decrease year over year.

Total share based compensation expenses, which were allocated to related operating costs and expenses increased by 43.7% to $16.8 million in the fiscal third quarter of 2021.

Operating income was.

Was wondering a $50.3 million, representing a 38.9% decrease year over year non-GAAP income from operations for the quarter.

Was $166.1 million, representing a 35.4% decrease year over year.

Operating margin for the quarter was 15.2% compared to 23.0% in San Pedro prior fiscal year.

Non-GAAP operating margin, which excludes share based compensation expenses for the quarter was 16.8% compared to 24% in the same period of prior fiscal year.

Net income attributable to new Oriental for the quarter was $174.7 million, representing a 16.4% decrease from the same period prior fiscal year basic and diluted earnings per adss attributable to new Oriental were 1.10 dollar and one point.

Zero nine dollar.

Respectively, non-GAAP net income attributable to new Oriental for the quarter.

Was $184.5 million, representing a 19.8% decrease from the same period prior fiscal year non-GAAP basic and diluted earnings per MDF attributable to new Oriental were 1.1, $6 and 1.1 $5.

Net operating cash flow for the first quarter of 2021 was approximately $391.6 million.

Capital expenditure for the quarter were $95.2 million, which were from our primarily attributable to the opening of 42 facilities and renovations our existing learning centers.

Turning to the balance sheet as of at the August August 31, 2020, we will enter or have cash and cash equivalents of one province and.

And $47.6 million as compared to $951.1 million from May 31st with 220.

In addition, the company the company had 291.8 million in term deposits 2000, and $778.4 million in short term investments.

We Oriental deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as these such with instructions are delivered at the end of the first quarter fiscal year 2021 was 1560 $3.1 million a year.

Increase of 17.5% as compared to 1330.

A point $7 million at the end of the first quarter fiscal year 2020.

Looking ahead into the next quarter and the rest of the fiscal year 2021. Despite the continued challenges from the cobi election to dynamics are expected to remain well more clear about the recovery trends of the company near term financial performance and the market opportunity.

Over the long run.

Our strategic focus and investment approach this year aimed at improving product quality, increasing future salaries and enhancing our industry leading system was fully reflect.

Our ethos.

Of focusing on the essence of education.

We all open market competition and opportunities to take advantage of postcode in market consolidation.

We firmly maintained a stable and a balanced investment strategy that would improve the quality of our education service with the aim to achieve such a sustainable long term growth.

As opposed to two unhealthy short term growth that's also requires.

Yes, a few investments and the higher cost to acquire customers as well.

As such we will continue to focus on the following she Iris first we will continue to expand our offline business.

And to add around 20%.

Percents to 25% capacity equal the new learning centers and expanded in classroom area of some existing learning centers for K 12 business in this fiscal year.

We believe our cloud expansion will prepare us to.

To further take market share from the other players post cobiz as we believe some small players without strong financial position and online class capability and not be able to sustain their business during the period.

We expect revenue in the industry will undergo a wave of market consolidation opponent as dynamic phase.

The fact that we are.

Major player with a strong financial capability and the flash offline facility enable us to further strengthen the market leading position penetration.

Segment.

We will continue to leverage our investments into digital technologies and they introduce our allow mosys coming in more often than we're training and test offerings, especially for the K 12 business and overseas help us keep business.

The usage of the online tools and content in our automotive them for all business lines throughout the whole network will be enhanced.

Absolutely.

The whole ammo treating sealants will play a more effort developing they pass the tree to content and courseware and also developing more advanced training programs to our teachers with all the above mentioned plus the infrastructure in place we will continue to pilot to pay.

To pilot, our OEM will online at least stable in some major cities with high demand and higher operational efficiency.

We believe that.

Oh on more new sales will be one of our growth engines to increase our customer acquisition.

Post recall that and.

And enabling us to capture the market to consolidate to Austin.

This revamped new business model will also accelerate our margin recovery in the rest of the year and further.

Expand our long term margin target.

Here I have to highlight that all of these products are supported our offline causes.

This topic Nancy's hover highway format over.

Overall futures over teaching Thompson coursework materials as well our T.T. Terreson technologies are developed and our regions like from our existing offline some personnel resources.

This even deeper in the system continue to broaden our customer base.

As will enable us to reach students in satellite cities as well as the cities, where we have fewer low.

Learning centers to catering our applicator or other customers.

Furthermore, we will continue to invest again and implement new initiatives, including product accountancy development teachers recruiting training R&D as well as the sales marketing Im sure Kevin well after school tutoring business, our coolant pump capital.

Third our top priority will remain as the focus on controlling cost and reducing expenditures across the company to minimize the negative impact from academic on bottom line.

I believe we will resume the expansion of the overall non-GAAP operating margin this year over year as koby matching subside flood organized.

Here I would like to stress that we have great confidence in the fundamentals of our business, which we believe will continue to remain strong although.

Although we are facing lower sports on activity impacts from a dynamic and.

And we have been increasing our investment in different strategy, we remain optimistic of the brighter prospects of our business and we believe our investments now, bringing us footfall returns in the long run.

As Pemex situation and was Rick receiving them errors beginning to ease in China, the timely reopening of our schools and our offline learning centers in September the start of the new fiscal year.

It's seemingly to be a massive boost for our business. We believe this will enable us.

Which enable our recovery to pick up the momentum, which will likely to be reflected in the results in the coming quarters, where.

We're certain that with new lentils, leading brands superior education products and system and the past the teacher resources, we have the ability.

Two and further into market share I mean, China huge.

After school tutoring market and deliver long term value for our shareholders.

We're looking at the near term.

And our expectations for the next quarter Big sales total revenue to be in the rental.

$863.7 million to $887.3 million, representing a year over year increase in the run rate of 10% to 13% provides to put down off the effect to topline growth for key business lines.

Okay too tall business.

In fact in fact to grow around 25% oversee PEPFAR program, Yes expect is tied to the client, 30% to 35% and overseas study consulting and steady poor business.

We expect to be to decline zero percent to 5% full year over year in dollar terms.

We're also excited to oversee related business, including over is that helpful.

And the consulting service will continue to decline due to the dynamics around the globe comforted by the cancellation of the oversea exams suspension of the oversea schools and risk restriction on travels.

Heavy impact on this overseas business were a factor in terror.

Officials industry in China, not only for new Oriental.

And may love to over the coming one or two quarters, thus that encompassed tightness effective control of the pandemic situation has said a more positive drive our business domestically. We're pleased to see that we gradually resume our AFI operation in all cities that we are.

By mid September and the vast majority of the students in the cities have sufficient successfully migrate back to our learning centers from our OEM online classes to conclude we're now talking on Oak has all of the operational actions to boost the enrollments on possible utilization for the outcomes matter.

And speed speed up the recovery of the business after the resumption of the schools.

Learning centers, we're confident faster demands for sales growth for Jan will gradually pick off and the trend toward normalized level in the Russell this fiscal year.

I must mention that this expectations reflect the aflacs, new orientals current and preliminary view, which is subject to change at this point I will take your questions. Operator, Please open the call for this.

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 piece reclassed to to see the question.

Thank you again after your first question has been addressed to.

To ask that question now please press star one on your telephone and light three name to be announced if you wish you can see your rants. Please press the pound or hash key.

Once again Thats star one so questions.

Your first question comes from the line of 10 holes from T.H. capital. Please go ahead.

Hi, Good evening, Stephen Cc, congratulations on a good quarter and guidance and you know, it's kind of a challenging time.

So the question is related to the margin on the gross margin on a year over year basis was down pretty significantly.

So I wonder how much is caused by the overseas this year and going forward. What's the gross margin is going to trend. Thank you.

Hi, Ken.

The gross margin was was down by roughly 6% year over year. This quarter I think the the first agreement is that you know the revenue was down by 8% in this quarter year over year and.

In this quarter, we feel with the seller LC beads futures and because we think of a piece was policy is a core competency of the education business so as with it.

In in in last several years, you know, we with the teacher salary.

And also you know, we we acquired the pop teacher from the other small player during the epidemic and the rent costs you know I think.

I think that you know.

During the Cobi lighting, Pos with deal expanding our capacity in the areas where in the city, but we are we feel the comfort for for drive the potential.

Growth in the future and this quarter that you'll be or expansion.

It was 23% at the quarter end so its drive the.

The gross margin down, but I think I think it's just about onetime okay. Because you know, we'll assess that our our business units.

In the process of the recovery and we have already gave the guidance of the.

B, the a Q2 and so within that in the Q2 guidance you know the kids of all business will be.

<unk> increased by 25%. So I do believe the GP margin recovery will be happened in the second quarter.

Pat.

Thank you. Our next question comes from Santa Clara Fan you be asked please ask your question.

Good evening management and congratulations on it could be itself.

Given the challenging environment and my question is on utilization and extend that a lot about flight classes have museums and most of the city, but could you give us any color on whether the utilization is like currently and how is the trajectory going forward.

Thank you.

Yes, you know itself.

You know, it's a little bit harder for us to disclose the utilization rates because you know the west deal during the we're still in the time of the pandemic in for example in Beijing School. Our biggest school, we opened the be all the learning centers in mid September that means we're locked the.

Almost 10 to 15 days in in a in September in September and doing the whole summer you know I think some of our learning centers. We're now open so it's really hard for us to disclose the utilization right now and I think we will roll to flow the utilization rates in.

I think the Q2 over Q3.

But we do believe the utilization rates will get higher and higher.

After the type of dynamics or because the deal a triple Corey our revenue growth is higher than the expansion plan. So I think that means you know we do have elaborated.

On the on the learning center utilization. So this is the RP the mid long term trends.

Alex.

Thank you. Our next question comes from Jean You send New Street Research. Please go ahead.

Hi, Good evening swears just talking about overseas test prep your guidance kind of suggests obviously the bottom is the bottom is the bottom is in terms of is a slight improvement from last year's quarter last years or last quarter's numbers can you just talk about if that's really the case or if we're seeing.

Kind of a seasonal.

Head fake and then.

And on the other the second question I have is I think.

I think we're seeing a massive testing in Qingdao of approximately like 9 million people or some like I think just hit the press I'm just wondering how big that.

Revenue from that city is in case, there is a second wave in that particular city. Thanks.

Hedging and the overcapacity, yeah be other rather decline of this quarter Q1 was a 51%, but a weekend we have already give the cadence of the Q2.

Oversea test prep will be down by 30 somewhere around 35%. So the thing currently.

Turning to be better in Q2, and because you know we have seen some like the TOEFL or word RCR you've had.

Cool outward we opened the in China in different cities, and but anyway, I think I think the the oversea test prep business are or will be negatively to some extent.

Next is the impact by the by the coal that.

And so you know the Q1 this quarter will be the.

What's the work and I do believe the oversea test prep business will be recovered step at that.

So this is my.

This is my answer focuses on by the overseas test prep and Qingdao here. We are we know what happened as you mentioned I think last week and so far we don't get any notice from the governments of the the the seller and the schools for revenue to our learning centers in Qingdao our steel.

We'll open now, but anyway will meet the requirements of the <unk> of the government, but you know.

During the B R. I wouldn't do the the peak time of the Cobi 19 times I think we have the ability to move all the offline courses to online with US as we talk to the in fact for experts who off of the RP pardon me.

And so I don't think it will negatively impact our revenue auctioned off anyway to not nada.

The relative contribution assumption is very small.

Jim.

Thank you. Our next question comes from Mark Lee from Sidoti. Please go ahead.

Hi.

Thank you for taking my call.

Sure.

I will Oh, I'm, sorry, I couldn't hear clearly.

Hi.

Uh huh.

Hi, Mark.

I didn't hear you.

Hi.

Hello, I think.

I think the line has some problems.

Correct.

Hi, Mark.

So I'm not sure how it just seemed like it was oh.

Oh.

Mark can you come closer to the hit to the mouthpiece. Please.

Hi, Scott.

Hi.

Right Okay.

Okay I just want to ask how is our why 21 guidance could you share the latest guidance for the full year with us.

And also our hope you imagine hakan.

We haven't changed and the timing to reach that thank you.

Okay.

Yeah.

Actually you know.

We have already give the guidance.

Get the guidance of the Q2 and by Tim.

10% to about 10 or 10% to 14% and you know actually the business is now fully recovered in Q2, the the awesome quarter.

In school once we open in mid September and we.

We expect the revenue growth in the coming Q3, and Q4 will be better than Q2 because of the more our recovery a lot of our business and the easy comparison.

Of this year you know the Kobin I can start as seems a lot for your Q3. So we do believe our topline growth performance in Q3, and Q4 will be better than Q2 that and ER margin guidance yeah.

I think that you know I think Q2.

The next quarter or the margin will lead the margins declined in Q2 will be continuing to narrow down compared to this quarter to Q1, and we're confident that we'll be able to deliver continued margin expansion after the pattani solar, especially in Q3 and Q4 and.

You all we don't want to change only long term.

Giving guidance.

Mark is it clear.

Thank you. Our next question comes from Alex <unk> from Credit Suisse. Please ask your question.

Hi, Steven this isnt just taking my questions. So my first question is about the good download fuel net quarter hits to our revenue guidance. So I think in mid August quarter.

Either that piece.

Houston is a little slower than you can disease and what about the next quarter and the second question is about the rollout will fuel.

Our mobile business model.

I think I read from that which we pulled that you launched the pure online on small cost model youre.

The school and.

Since the very positive feedback from the hobbies white students would you please share more color on that and what the 10 for the for the go out. Thank you.

Yes.

Your first question about the.

A couple of years, we will first question I guess.

Sure so.

So I noticed that in the August quarter.

Put simply this was due to slower than you can visit and then what about the next quarter within the 25% gross what is what about the difference between upkeep.

Okay and you can see.

Scott.

I think you know nasacort or the Q2 I think be our growth rates also you can bid business will be a little bit higher than the pop kids business growth because you know I'll be U can business is more mission critical so for the Middle School High school students.

They tend to study more especially after the Cobi nitin. So that's why the the growth of the UK business.

Sales higher than the pop kids business.

And yes.

Yeah Bill.

Well, that's a great question the Alamo slot no.

No actually we started to see a lot more business all three years ago.

A four hour Beijing School, you can business, but after the Cobi Nitin you know we are running the development of our mall because here you know during the Cobi lighting.

Well almost all of our students told the car courses pure online Thats you know after the Cobi lighting.

Vast majority are students Oh.

Goes back to the off our learning centers, but it would choose some percentage of the RP online course for those part of the students and also for some new satellite cities. You know we run we've already started to roll out the new Omo model, Yeah, I think we're onto us very good pace and.

This is sort of for the year that the Hondros school.

The the Obama model. So you know hospitals schools acquired a lot of the new customers off the quick turn students from the satellite will see as a way to handle sales. So I think it's a very good start and will roll out in more and more cities and provinces.

Okay, and just one more thing so you have a retention rates offered our motto of how those school I think.

After the summer is over 50%. So I think it's worth a very good sign for the study results of the oil on the model, so with more and more in more sales.

One last Sunday.

Yes.

Stephen I emphasized earlier in the prepared remarks actually we have thought about how like at this animal model in around 20 cities already I guess in a summer only recover.

RECIUM stay offline operation from the summer and now we have five already testified this model in several cities key cities and on the feedback is good and that continues to be the key strategy going forward yeah.

Okay.

Thank you. Our next question comes from Shane Jones from Morgan Stanley. Please go ahead.

Hi, Good evening. Thank you for taking my question My question is.

So ah so what's on the sales.

Uh huh.

So for the no Oh.

Let's see.

Yes.

And so.

Oh Oh.

Uh huh.

Hi.

Oh.

Uh huh.

Oh sure.

Oh yeah.

Surrounding.

Thank you.

Yeah, Hi.

Hi, Joe So I think there's great question you know, we we set up the K P I will.

Alfie School that you know we are I think the caveat. The school has developed by to parse the traditional nonetheless, the traditional offline business and second as the the new home or more model. So two different CPI and I didn't really easy to understand the locals who have made the decision.

You know for those areas that we are aware of we do have to be learning centers I think we do the mall and.

And Vicki.

We've reduced our odd the delay.

The the learning central learning centers to acquire new student enrollments and but for the areas, where we don't have the learning centers or for the New City is we don't have the learning center there the.

Oh, I am all will be for the toys.

Hands about fuel as the fat in the pre prepared remarks, all the content costs were and future resources, even the futures trading system of the optimal model. Our I recently this from the local city yet but.

But you know the head office will give the fully support to these different areas and delinquencies. So we'll we'll roll out these are more model up by.

Two more serious going forward and I do believe the o. on low model will contribute more and more revenue going forward.

And so yes, one more thing ads and so you know we.

We don't want to spend increasing money on marketing expenses for the Obama model. So I think the student acquisition cost fully oil animal model will be very low I think it will be asset.

As same as the odd our traditional offline business.

Thank you. Our next question comes from the line of Lucy Yu from Bank of America Securities. Please ask your question.

Thank you Stephen.

So I would like to ask a question on to our teachers and you just mentioned that when we penetrate into new cities actually or more will be the first choice. So how about the teacher model are we still going to roll that out.

And.

I can understand that previously before.

Rollout, we were using that as a teacher to penetrate into lower tier cities. So nowadays what.

Outlets choice.

Income saw fit this model in a new city and secondly, you mentioned that he will do a teacher model, we have seen improving profitability and the retention. So we so cliche mall and number on that capacity and the retention of the teacher model. Thank you.

Yeah, I think the go forward feel our model will be the first to talk with Oh, we run the business in the new cities and especially for the for the larger cities, but you know we are we're doing while for the for the teacher model you know, we open more and more.

A P P. You'll see if by the idea of the pop kids and you can program, but you know.

Going forward, we'll focus to more more of the model fab be teachers in the.

In the head office will have to be to future model class and to the low tier cities typically it's worth it focused more focused R&D are the top students in the in the higher end load. Your sales. So we have the two way to run the business.

In the interest in the in the local cities or more amateur tomorrow.

Lucy.

Thank you. Our next question comes from Alex Yu from China Relations. Please go ahead.

Okay.

Steven for taking a question first on teacher compensation is how fast should we think about the teacher compensation growth.

Going forward, especially some online players are rather.

Rather aggressive in terms of teacher paying out.

Second question is regarding the strong summer enrollment growth.

Post Whos just wondering is there any specific reserves behind or any specific server farms operations.

Okay.

Why we did so well this year and how much of the growth is coming from small.

No player exiting the market. Thank you.

Hi, Alex I think the teacher salaries, Yeah, we think the teachers quality as the core competence off the other person business. So we'll raise the teacher salary by 8% to 9% every year, even with phase two these holidays during the period of the Covis, we feel our we will still be able to say.

Anything I don't think the teacher salary increase will track the murder uncomfortable.

Paying the teacher more will bring us the high quality work.

Were high quality for the back from the customers students in Paris and drives the utilization rate up and the revenue off so I think Pete we pay I think we pay more for Peter will help the GP margin performance better near term and long term.

So we all are there arent business our strategy for the four.

Therefore, the futures.

Yeah. This is the.

And the second question is about a similar enrollment, yes I think.

You know.

I believe this past spring semester, we may have some problems.

Part of the news.

Customers because of the cold it always well we couldn't.

Fate or could we see the students and parents face to face, but dealers are doing they are during the December quarter. You know most of our learning centers, where we open so we can't give the like.

The study advisors to the parent will kiss face to face and are absolutely be competition environment. Yeah. I mean, we know some small players so disappear from the market. So I think its great opportunity for the big Big players like us to take more market share.

From the markets postal code it and.

And the numbers, especially since the second half of <unk>.

Have to lie you'll know because revenue I know you rolling numbers was booming and so.

And so that's why we give the guidance of the peak.

Because while business was inc. second quarter will be somewhere around 25% and I do believe FY enrollment growth.

And the revenue growth in Q3, and Q4 will be even better.

Thank you. Thank you our next question.

Next question comes from D.S. Kim from JP Morgan. Please ask your question.

Hello, Sir hasten to say congrats on a good set of results and very good guidance.

Actually most of my questions have already been answered so maybe I can just follow up on our web site.

Tonight Doublets have when you say this new play Lucky where mode are we referring to pure online localize curriculum classes like PEO online and if so can I check what's the size of the each class eight speak at with the similar offering courses and if there's any difference in offering I.E.

You know this is more for the weekdays versus weekend or more for a short time courses or is really just same as our offering offerings.

You know where are what really are the new Alcoa animal model by three ways number one the the larger classes that matches the larger classes and you know this business are totally in a majority of the classes and all I have in the online and I think the the.

The price at the time.

Price of the of that part of the course.

Yes.

I think it's 20% to 30% lower than our normalized the closet and secondly, the almost both our class size.

Every class or any of the offline and online the integrator classes.

And.

And the last one and number three is there something like the very short term horses, I think that the typical purpose awful awful of both part of the business 52 two.

Two.

To to acquire the new student enrollment as move forward from courses and we add to the female teachers to require the courses and the other thing to such as as kind of the all the way to ask.

As the Bosnian way, so we have a three way anyway. The level is still in the early days I think so.

So far so good and we'll do more going forward so I.

Last quarter, we're waiting on the of the rest of the year the earnings call I will show more in.

Formation on the deal.

Thank you.

Thank you. Our next question comes from Tommy Wong from China mentioned Securities. Please go ahead.

Hi, Thank you management and Steven Congrats on the strong results I just a quick question I guess, we don't have a lot of time last comment about the secondary listing in Hong Kong and you know potentially.

Potentially we need more funds to compete on the online space you know all these other guys. How they are without soy upon yields are operating a lot of money and if you want to play. This game, we have to kind of participate. So just wondering you know this.

Their issue bring some more money and played a game just wondering what's your thought on that thank you.

Oh, we're not seeing a.

Well positioned to make comments on.

Second or listing.

And ER and they need the money yeah as the Fassino, our strategic focus and investment approach. This year not only this year, but also the long term.

Our aim at improving the product or Paul.

Paul if you are increasing the teacher salary and enhancing our system.

I think these are the essence of the education.

So we know there is a huge opportunity in the market, especially on the coal that.

We firmly maintains a stable and balance the investment strategy and we want to spend Chris and money on marketing and CAD and healthy for some growth. So this is our strategy not only for now but also for the full year long term.

Thank you.

Thank you. Our next question comes from sleeping Giant France, CIA CCTS go ahead.

Hi, Steven.

My question My question.

Capacity expansion how should we.

How should we expect the hatches pandemic.

Capacity expansion essentially for you on a T 12, fitness and any chance we can yes.

And accelerated expansion during the market consolidation. Thank you.

No, we aim to at or around 20% to 20% to 25%.

Capacity.

In the fiscal year, Tony why and so you know last year, we plan.

Last year, we plan to open 20% are fine.

Finally, we opened 26%.

And this year, we we wouldn't have the same path and anyway.

Anyway, I think the split opportunity for for for us to to take more market share. So we'll open 20% to 25% new capacity to acquire new student enrollment and also you know we do have the OEM or model and so the two with the capacity expansion or more will bring us to do customers in the.

Hopefully were 21 and ER.

Yes.

The the our strategy of the expansion is very stabilized.

Thank you.

Thank you. Our next question comes from Cynic slow from U.P.S.T. skill set.

Oh, thank you.

Just want to have the follow up question on Arctic sort of that balance I notice that the growth is about revenue.

It's a lot stronger than and then our.

Sorry, its revenue guidance my I know that there is the reason behind thank you.

That's because the academics face.

In China, especially in the summer and so the assets that I think the second thing that the second half of the July and the revenue and enrollment growth was booming and so that's why we got to the.

The higher.

Deferred revenue balance at this quarter end and ER and ER I think in the Q2 the were still in the process of the recovery I think even the Q3 and Q4 you will see a higher he wrote.

Romance and topline growth.

Of the especially for kids, while business because I do believe we're taking the market share from a small players and also.

And ER and ER, we do good.

We do believe we will have to hire in the higher student retention rate going forward, because we match, we lapped a lot things.

I think last thing.

I think the four or five years ago, and we do believe.

We do believe we're providing the one off the bat the product.

Mark in the market so.

So I think the recovery.

What will happen to step up and more back loaded to bring two four thank you.

Thank you.

Thank you we are now approaching the end of the conference call I will now turn the call over to new Orientals CFO Mr. Stephen Yang for his closing remarks.

Again, thank you for joining us today, if you have any further questions. Please do not have the contact me or any of our Investor Relations Representatives. Thank you.

Thank you, ladies and gentlemen that does conclude our conference for today. Thank you participating you may now disconnect.