Q2 2021 New Oriental Education & Technology Group Inc Earnings Call
Good evening and thank you for standing by for New Oriental FY 'twenty 'twenty, one second quarter results earnings Conference call.
This time, all participants are in a listen only mode. After the management's prepared remarks, there will be a question and answer session. Today's conference is being recorded if you have any objections you may disconnect at this time.
I'd now like to turn the meeting over to your host for today's conference and Mitsubishi Zhao. Thank you. Please go ahead.
Thank you Hello, everyone and welcome to new Oriental and second fiscal quarters for Us on 'twenty, One earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well, it's a new newswire services today.
Today, you will hear from Stephen Yang Executive President and Chief Financial Officer. After his prepared remarks, Stephen and I will be available to answer your questions. Before we continue and please note that the discussion today will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act.
90, and 95 for looking statements involve inherent risks and uncertainty.
And as such our results may be materially different from the views expressed today a number of potential risks and uncertainties are outlined in our public filings with the SEC New Oriental does not undertake any obligation to update any forward looking statements, except as required under applicable law. As a reminder, this conference is being.
And recorded in addition, a webcast of this conference call will be available on the Oriental to Investor Relations website at Investor Day, New Oriental Dot work and now I'll turn the call over to Mr. Steven.
You bet.
Thank you Susie Hello, everyone and thank you for joining us on the call.
Although the impact of the pandemic continues to rip hurdles for business across the globe. We're pleased to announce for certain financial results and the second quarter of this year.
And with our expectation.
Well, reflecting strong signs of recovery and some of our business lines, a certain city has began and pass through normalization.
Total net revenue was 887 $7 million reps.
Representing a 13, one percentage increase year over year.
Which is a encouraging results despite the challenges.
Our key revenue growth driver K 12, after school tutoring business achieved year over year and revenue growth of approximately 26%.
Are you kept Middle School High school all subjects. After school tutoring business continued its momentum with a growth growth of approximately 27%, while our pop kids program reported a growth of approximately 24 per cent.
Our industry, leading or more system has been vital in the previous quarters, three and for all classes run smoothly and it has once again proved to be instrumental and this quarter.
And this has provided our operations with strong flexibility to help for the majority of our students migrated from ore and well I'll pass back to offline learning centers, which have gradually resumed the service and using of the pandemic restriction measures.
Okay.
And Curtis bias effectiveness, we have been committed to expand the reach of our oil and more system and are delighted to say that we have pilots for or more.
Online course, and vast majority of existing cities and true.
And the new surrounding satellite C D and C. In the autumn semester, attracting a promising number of new customers and students, while the oil and more system contribute a single digits for the overall revenue and this quarter.
This ability to virtually reach both major and satellite cities across China, we have no doubt that it will grow rapidly and the coming quarters and become a major driver to our business growth and the future.
Cost control has become a key feature and our.
Operations.
And to cushion the impact from the pandemic, we're focused on being cost effective strategies that will deliver a strong return and outcome and avoid spending all strategies or promotion starts would have little impact well all applications are growing trend and China pure.
Oh and platforms.
Tend to require substantial spending on marketing and promotion and hence with all of them. All system, we have been able to achieve consistently high number of enrollments with cost effective promotions because for strong on the ground presence and online channel supplements, each other which enable us to more <unk>.
Actively recruit new customers and deliver better service to our students.
Total student enrollment and stomach subjects tutoring and test prep courses and the second and physical quality for a lot and 21 increased by 10, 4% year over year for approximately $4 million 183001 hundred.
Which is in line with our expectation.
In terms of pricing per program blended ASP, which is cash revenue divided by total student enrollments increased by about <unk> 10 per cent year over year in dollar terms.
As for already blended Asps were just GAAP revenue divided by total teaching hours was flat year over year to provide a breakdown of the already blended ASP. Please.
Please note that U can classes increased by 8% you can VIP increased by 5% pop kids increased by 0.3 per cent and the overseas test prep program increased by 13% all year over year in RMB terms.
Comparing will be our normal price interest of five 8%. This quarter was already and blended ASP flat was mainly because of the bigger decline of oversea test prep program, which already blended ASP was much higher than the other programs.
Now I'd like to spend some time to talk about the quarter performance across our individual business the lives and detail.
Pandemic became largely under control and China recovery and momentum continued to pick up in this quarter across our business lines.
Our key revenue driver.
Can you talk all subjects after school tutoring and business achieved year over year revenue growth of approximately 26 per cent in dollar terms breaking dawn for U can middle High school all subjects. After school tutoring business recorded a revenue increase of approximately 27 per cent for the quarter, So and enrollment grew.
Approximately 15% year over year for the quarter.
Pop Kids program delivered outstanding results with revenue up by about 24% in dollar terms for the quarter enrollment increased by 14 per cent and for the quarter.
Our overseas related business, including test prep and consulting business showed encouraging signs of recovery. Despite facing the most difficult challenge due to the cancellation of the overseas overseas test our exams and restrictions on travel as well as the and predictability of the paradigm.
Situations and different parts of the world.
These students Hesitance to study abroad, the overseas test for our business reported a revenue decrease of.
About 29% in dollar terms for the quarter in comparison to a deferral of 51% and in the last quarter.
While the oversea consulting on the overseas study tour business reported a revenue increase of about 6% in dollar terms year over year for the quarter recovering from last quarters, 31% decrease.
And finally, we actually personalized class business and recorded the cash revenue increased by about 20% year over year in dollar terms for the quarter.
We care for our capacity expansion and cities, where we see potential for rapid growth and strong profitability and this quarter. We opened five new offline training schools and the city of long Fong couldn't Shan Dong Young day.
And Jos young altogether.
This increased the total square meters of classroom area by approximately 21% year over year for percent of quarter over quarter.
By the end of this quarter.
This increase is in line with our expectation as we gradually ramp up our expansion efforts throughout the diamond year to prepare us for recruiting more new student enrollment at <unk>.
Start of the falling of dynamic here.
Yeah.
The expansion in our offline education and that work has also made for that we are fully prepared.
For when the pandemic solar and our services can resume with strong presence.
Across different Chinese cities.
We rolled all the do teacher class model for pop Kids program in 58 existing cities for U can program and in 27 existing cities.
With a satisfactory customer retention and scalability, we will continue to use the model to increase our market penetration and those markets we have tapped into.
And outbreak of Covid has highlighted the importance and demand of the online education, we have placed more resources in this area and then lastly, the $54 million and this quarter to improve and maintain and roll them all integrated education ecosystem.
Success and piloting the <unk> system and around 20, new solar cities through the new year by major cities. This quarter is yet another test beds of how this low cost but high.
<unk> business model can rapidly becoming loans, the most far reaching education services and China.
Leveraging the presence of the offline schools and learning centers and brand visibility and major cities, we're able to reach for nearby satellite cities and continue to bring in high number for enrollments without the need to spend a few to some money and promotion marketing.
More importantly, this is a model that we can easily and cost effectively replicate in different parts of China.
Hence we are very optimistic about the growth potential for all of them all system and the next few quarters.
Apart from the ongoing infrastructure, we have allocated part of the resources and vascular teacher.
Screening programs for our teachers.
Has there online and offline integrated teaching skills and respond to prune the math.
At the same time, we continue to upgrade our technology platforms and will broaden the usage of the online tools and content and see how we're all more and more system for all business lines throughout the whole network as well as to further develop the path for future content and courseware to cater to online offline education and my third.
It's important to highlight by 12 and.
The key aspect that's made Rommel system standard hours from the industry is the localization of our teaching content.
And more teaching material for each city are developed by the local schools rather than mass produced the centrally.
Which means our content tailored with local and once and reference for for how to help students and stand the materials better and encourage them to be more engaged and classes.
And the promotional from the nature of our more system and label enable us to implement and cross selling strategy, whereby we promote the courses through would be both online and offline channels, reaching the broader range of the customer from different locations.
We're glad to see that our industry, leading ecosystem has not only successfully manage two coos and most of the impact.
Our services penetration.
Talked about and pandemic, but we also see our customer retention rates remain stable, which further demonstrates our customers said he felt satisfaction and the effectiveness of our online for through our system.
System.
We believe diesel and more initiatives will effectively boost enrollments and speed up the recovery business in the coming quarters.
To capture the huge opportunity and the online education space, we're continuing to invest in more resources in executing new initiatives in online K 12, after school children and business and physical year 2021.
And so on the Covid.
Cooler and day to larger scale and market promotion by offering for larger all I love for them has been class for the public and the track for several more.
Several times more traffic than normal time to capture this new market opportunity a cooler and also added a meaningful number of customer service representatives and mugging and staff to support for new initiatives in K 12 tutoring.
And this moves.
How comfortable you raised our spending on the margin for us, but we believe these are necessary and understandable measures as we've found our selves.
Those situations.
Our total from Europe, or the U b small size classes currently enjoy a significant and the first mover advantage and they stand to benefit from the increasing demand and low tier cities.
Cooler large size K 12 courses are able to offer the past day in class learning experience through the loss and upgrading the app and all and platforms introduced and the new application technologies, and adding more new and attractive features.
And classes.
Cooler and also continued to establish teaching and training centers and other geographic locations to attract more qualified teachers and tutors and.
And provide assistance and systematic screening programs.
At the same time, we will be very cautious and I didn't.
Hi, and high ROI marketing channels and evaluate their unit.
And economics and real time.
Which will in return and keep the average user acquisition cost at a relatively low level.
We believe as a result of the improvements true operational teams as well positive word of mouth promotion and brand loyalty cooler and we'll continue to quickly acquire new users, while enhancing the student retention rates.
No our turn the call over to <unk> to walk you through the other key financial details for the second quarter.
Operating expense.
Expenses for the Qatar and we're at $919 $8 million, representing a 21% increase year over year, non-GAAP operating causing expenses for the quarter, which exclude share based compensation expenses for 900, and and one $4 million, representing a 24% increase year over year.
Cost of revenue increased by $26 four per cent a year over year to $453 $7 million, primarily due to the increases and teachers compensation for more teaching hours and higher rental costs for the increased number of schools and learning centers and operation selling and marketing expenses.
<unk> increased by 23, 9% and year over year to wonder and $33 $6 million, primarily due to the addition of a number of customer service Representatives and marketing staff with the aim of capture the new market opportunity during COVID-19 period.
And especially for the new initiatives and K 12, tutoring and on our pure online education platform cooler and dot com.
G&A expenses for the quarter increased by 13, 5% year over year, two and $332 6 million U S dollars.
Non-GAAP general and administrative expenses, which excludes share based compensation expenses were at $319 8 million U S dollars, representing a 13, 4% increase year over year total share based compensation and expenses, which were allocated to related operating costs and expenses increased by.
And 64, 8% to $18 $5 million in the second fiscal quarter of 2021 operating loss for the quarter was.
$32 1 million U S dollar compared to an increase of $25 3 million U S dollars non-GAAP loss from operating operations for the quarter were $13 $7 million compared to an increase income of $36 5 million U S dollars operating margin.
For the quarter was negative three 6% compared to three 2% and the same period of the prior fiscal year non-GAAP operating margin, which excludes share based compensations.
For the quarter, where it was negative one 5% compared to four 7% and the same period of the prior fiscal year net.
Net income attributable attributable to new Oriental for the quarter was $53 $9 million, representing a 0.9% increase from the same period of the prior fiscal year basic and diluted earnings per ads attributable to new Oriental were at 33, and 33 cents, respectively non-GAAP net.
Income attributable to new Oriental for the quarter was 66, eight and $9 1 million and U S dollars.
Renting at 21, 3% increase from the same period of the prior fiscal year, non-GAAP basic and basic and diluted earnings for Aes, Asheville, Volta, and new Oriental or 43 cents and 43, respectively.
Net operating cash flow for the second fiscal quarter of two that and 21 with approximately $410 $7 million capital expenditures for the quarter.
For $62 million.
Which was primarily attributable to the opening up 70 eights for therapies and renovations and existing learning centers turning to the balance sheet as of November 32020, New Oriental had cash and cash equivalents of 2000, and $643 2 million U S dollars as comparative.
$915 $1 million as of.
May 31 2020.
In addition, the company had $416 $1 million in.
In term deposits and $3035 $3 million and short term and last month.
Oriental deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions are delivered and the end of the quarter second quarter of fiscal year 2021 was 1980%.
$7 $1 million and increase of 26, 5% as compared to $1578 $4 million and.
And the second quarter of fiscal year 2020, new.
Now I'll hand over hand back to Stephen to talk about the outlook and guidance.
Looking ahead into next quarter and the rest of fiscal year, two and 21. Despite the continued challenge from Potomac and her concerns and cover the new wave of the outbreak emerging.
In China, we're more clear about the recovery trends of the company's near term financial performance and the market opportunity over the long run.
Strategic focus and invest and approach this year and Matt.
And improving product quality, increasing future salaries, and enhancing our industry, leading system, which fully reflects our ethos and focusing on the essence of education and V.
And so of market competition and opportunity to take advantage of a post COVID-19 market consolidation, we firmly maintain a stable and balanced investment strategy that will improve the quality of our education service with the aim to achieve a sustainable and long term growth.
Those two unhealthy short term growth that alternative of course.
<unk> investments and higher cost to acquire customers.
And as such we will continue to focus on the following key areas first we will continue to expand our offline business, we aim to add around 20% to 25% and capacity, including new learning centers and expanding classroom area of some existing learning centers for K 12 business.
And this fiscal year.
We believe our capacity expansion will prepare us to further take mercury share from other players post COVID-19 as we believe some smaller players with our strong financial position and online class capability may not be able to sustain and this business. During this period.
We expect for industry, where under go away from market consolidation upon the pandemic phase and the fact that we are a major player with a strong financial capacity and fresh offline facilities enable us to further strengthen our market leading position and penetration.
Segment.
We will continue to leverage our investments into digital technologies and introduce our ore and more system in more offline language training and test offerings, especially our K 12, tutoring and overseas test prep Keith.
<unk> business.
For usage of online tools and content and see our.
For a more system for all business lines throughout the whole network will be enhanced.
Two I believe for the whole AMOLED teaching experience will place more effort.
And developing the path for teaching content and courseware and also developing more advanced training programs to our teachers with all of the above mentioned infrastructure in place. We will continue to pilot, our oil and more online initiatives and major cities, where the high demand and higher operational.
Efficiency and its surrounding sunlight cities.
We believe that our all our more initiatives will be one of the.
Our growth engines to increase our customer acquisition post COVID-19.
Either they can quickly replicates and team to empower our.
<unk> for the China, enabling us to capture the market consolidation opportunities.
This revamped new business model will also accelerates our margin recovery when the pandemic is over and further expand our long term margin targets.
Here I have to highlight all of this or more products.
Supported the Bauer offline positive.
There is some demand for each other and I'll have ray format.
All the teaching content and courseware materials as well as the teachers are developed and originated from our existing offline centers and resources.
And implement new munis tips, including products for content development teachers recruiting and training R&D as well as sales and marketing.
And just in pure online K 12, after school tutoring business, all our cooler and dot com platform.
Third our top priority will remain as the focus on controlling costs and reducing expenditures across the organization to minimize the negative impact from the pandemic on our bottom line.
And we believe we will resume the expansion of overall non-GAAP operating margin year over year as COVID-19 subsides gradually.
Here I would like to stress that.
We have great confidence and the fundamentals of our business, which we believe we will continue to remain strong.
Although we are feeling very good support from negative impacts from per dynamic, we have been increasing our investments and different strategies and.
Optimistic of a brighter prospects of our business and believe our investments now will bring us fruitful returns and low long run.
Due to the concerns that a new wave of COVID-19 outbreak is emerging in north China as of today, we have moved our offline classes to small size online book has been classes through the <unk> system and over tenancy DS and <unk>.
In the major cities, such as Beijing XI and Thailand.
Despite these challenges are more system enable us to migrate classes between offline and online platforms swiftly and seamlessly and therefore the impact on our business will be cousens should there be a significant and I'll break in the meantime, the and predictability of the potash.
<unk> has also remind us to plan ahead of the future as we continue to Butte, New learning centers to ensure we will be ready to accommodate a large number of students with situations normalized.
We're looking I have and near term our expectations for the next quarter, we expect total revenue to be in the range of one solvent.
<unk>.
$98 $6 million true 1144, 8 million, representing a year over year increase in the range of 19% to <unk> 24 per cent to provide a breakdown of fee expects with top line growth for the key business units.
K 12 after school tutoring business.
Back to grow and range of 27% to 32% overseas test Prep program is expected to decline and 25% to 20% overseas study.
And our consulting and study tour business.
<unk> declined 5% to zero percent and the growth of the cooler and dot com pure online education platform is expected to accelerate all year over year in dollar terms.
Despite the fact that our overseas test prep and consulting services for the second quarter fared better than the first physical quarter, we still expect for overseas related business to continue to behave.
And the B the harder due to the pandemic around the globe.
Caused by the cancellation for the overseas exams suspend.
Suspension of the overseas schools and restriction on titles the negative impact on this overseas related business will affect the entire education industry in China, not only new Oriental and May lost over the coming one or two quarters.
We're pleased to see that China has been controlling the pandemic situation and relatively well.
Which set a more positive light our business domestically.
To conclude we're now taking all counts book operational actions to both for enrollments and the classroom utilization from ultimately mouth or and speed up the recovery of our business. After the rhythm resumption of the schools and learning centers. We are confident that the demand for after school tutoring them, we're gradually pick up and.
And the trend toward a normalized level gradually and.
Must mention that these expectations reflect our considerations of the latest pandemic situation as well.
Current and preliminary view, which is subject to change.
This poor and <unk> and I will take for questions. Operator. Please open the call for these thank you.
The question and answer session of this conference call will start in a moment in order to be fair to all callers who wish to ask questions. We will take one question at a time from each caller. If you have more than one question. Please request to join the question queue again after your first question.
And address.
To ask a question. Please press star one and wait for your name to be announced depends from your request. Please press the pound or husky.
First question comes from the line of Ken Hill of T. H capital. Please ask your question.
Yeah.
And Steven.
Stephen Congratulations on a good quarter.
So new.
The opening remarks, you talked about for OLED, Oh, and yes Youre right.
It also shows some positive.
So the positive thoughts and you on last quarter's earnings and Jay your offline.
And gentlemen growth revenue growth is much more higher than peers, So I wonder.
Thank you elaborate.
How important and Mo strategy for you.
Physical 2021 as well as the next couple of years and so by the end of this year this fiscal year or next fiscal year.
What's the proportion of O and O is going to be a.
Total.
And open or rapid growth so what.
Basic and east.
You elaborate on your strategy for the future.
And thanks, Jim This is a great culture.
The market from actually we're seeing the the great business opportunity originally because more and small players disappear from the market and.
And you know we put more efforts on our offline business combined with the OMB model and we have pilot and it'll be the market, leading or more model in a vast majority of the Cds and to set up of the <unk> business in 2000, and new satellite cities.
Nearby the core for me and.
And the key is understood and retention rates and the first satisfaction from the customers are better than we expected in the summer okay and.
So this this quarter.
More contribute the single digits to the overall revenue contribution and that's you know we believe the <unk> model.
Our growth rapidly going forward and.
Will be it will become a major driver for our business growth. So that means for amo will help the top line growth of the hour, but this is all the offline business and let me repeat the some advantage of the Ardmore model Okay.
<unk> Mato typically has the lower customer acquisition. This account that may occur.
And we do have the very strong.
Our marketing teams and so that means we don't need spend printing money on the.
The other items in there.
That's where it's unlikely the channels and the online channels and segments.
It's very easy for us to replicate the oil and memorial in the B B.
The other provinces in China and and.
And.
Third you know.
And I think our content offer.
And our model or more localized than the like the typical super large online and broke has been classes. I think this is our advantage and the all the course work all the all day like materials are reasonable from the local our local staff and so I think this makes for the students.
The loved the hour or more for us its more and.
And for them to book more engaged in the classes and and Las Vegas.
And I do believe at the AMA model will bring us the you won't be.
The opportunity of the cross selling we can cross sell the <unk> or the online of course and others.
And the offline course, each other so I asked me and us.
Over time, our model, but I think there's a very.
<unk> reported.
Ken is it clear.
Yes. Thank you so much Stephen.
Others.
And yeah, I think that'd be a contraction.
In fiscal year in last fiscal year will be more than others.
And that of this year and I think that we will see one or two more quarters true estimate of the revenue contribution, but I do believe the royalty contribution from the Amo model will be a meaningful number next year.
Okay, Okay, great and then there's so much.
Thank you Jim.
Your next question comes from the line of Mark Li of Citi. Please ask your question.
Uh huh.
Hi, Steven its Izzy.
And thanks for the presentation.
I want to answer at this point could you give us some color for that.
Why 20 true guidance.
In terms of the revenue growth or the capacity expansion.
The lower tier city penetration and any color would be helpful. Thank you.
Yeah, I think the.
No.
I think we'd all we have done wherewithal to to run the business during the.
The call that the hard time and.
We you know we.
<unk> extends our capacity by 2025 per cent.
And and also.
And we raised for salary of the teachers to do and the hard time and.
And I think and we are ready for the for the new year and and so in the physical year 2022, I think the revenue growth will be booming, okay and in the fiscal year 'twenty is going to I believe the margin will be expanded b K.
First from the first of all you know we have a low base. This year and second you know I do believe the the China will control the pandemic relative to new wall and I do believe most of the students can go back to our learning centers and some new cities low new.
And the low tier city and students can enjoy the service of our AMA model and.
Yeah.
Mark.
Sure. Thank you Steven.
Thank you Mark.
And just a quick reminder, if you will ask a question. Please ask one question at a time. Thank you.
Next question is from Felix Liu of UBS.
Good evening management and congratulations on the readout and my question is on COVID-19 impact and.
And I know your guidance.
Twice and I think he.
224% and revenue growth for the next quarter.
I had that in and.
Collected in the current.
Level of COVID-19, Lockdown or are we expecting you know well potentially more cities to rollout similar measures and.
And for this round of COVID-19, you mentioned that you're better prepared.
The last time and I know.
No.
Well, the new enrollment growth for the may quarter, it'd be impacted or are we okay with new email and well at this time.
Yes.
And so let's.
Due to the concerns and a new way for the COVID-19 outbreak in North China I think we are.
Today, we have moved the.
And all the offline classes to online.
Over 10 cities, such as the major city, like Beijing, Xi'an, and and Thailand, and all the CDC and new.
North East rigor and.
And so you know I think the yes.
Yes, well I think there is.
And test.
The negative impact, but the key is decidedly talent I think an hour or more system enable us to migrate plus between offline and online and I think this time, we prepare better.
Fifth the challenge compared to that of last year.
And the one more point you know the Q3 because for the late Chinese new year holiday. The Q3, the cost schedule and will be negative impact.
To some extent, but anyway, and we face the challenge of the.
The new wave of Covid I think the Q3 Q3 revenue growth will be accelerated and the Q2 and we're kind of optimistic about the business performance in Q4, and net ear and and.
The last one I want to add is we are using the conservative way to Mega B guidance, a forecast because you and all the.
The environment changed for almost every day.
Thank you.
Okay and I. Thank you very much.
Next question comes from the line of Alex <unk> of Credit Suisse. Please ask your question.
Hi management and thank you for taking my questions.
And so my first question would be about OLED.
David You mentioned you covered plenty.
It is now open.
Of course, it is and but that we want to cover 2000 and satellite cities and what will be your plan to expand in.
And the next fiscal year for this.
And then.
And.
Oh, no model to cover more cities and close it.
And secondly.
And I'm glad you, congratulations and almost new low I'd say that that is quite a bit.
Please share.
So with us.
And Thats, new is low and sales.
Thank you for the U K pension.
And for the corporate governance.
This new low thank you.
Oh.
Okay. Thank you for for I didn't get.
Yeah.
I think I'm happy to take the roar of the.
Execute he is the president and the CFO and I believe I will spend more time on the.
And my and my job and but the good news for for me as you know I have a very strong PMC and all.
We worked together for so many so many years.
And I think the B b.
The all the monitors and my thoughts like CSC will support and me.
Stronger than before and also.
Actually I think two years ago and it's been.
And some time on the operations side I think for some investors.
New that so.
To spend more time with the business with the operating operational team because it makes a me too to more from familiar with the business and to give them.
Even though the.
And the better instructions on guidance.
And I think that I will turn it back to do these.
New drop and to create and.
Create more value to the shareholders and our customers and.
And the.
Yes, the OMB reported.
<unk> reported.
Thank you.
We are we are we are running the southern provinces.
<unk> a model we call you saw some degree and moisture we started from.
And from the Hangzhou, and the Chilean Province, and.
And like the Shandong and.
And ICEE and.
For you and some of the key provinces fallout.
So good actually it was multiple.
And so.
<unk> performed better than we expected. So I don't believe they will do better going forward and we will probably a new home or a model and more provinces going forward. Thank you.
Got it very helpful. Thank you.
Yes.
Your next question comes from the line of Sheng Zhong from Morgan Stanley. Please ask your question.
Hi, Good evening. Thank you for taking my question just one question about your.
And I go offline price.
And you mentioned that increased Oh that was John so low.
And to me the reasons for the price increase, especially do matter and not all our competition from online and also.
CEB small assets.
Supply and more institutions and also price.
Provide price discount.
And because you see the Oh signs for Pi decrease post COVID-19.
For for.
For some other reasons.
Pricing strategy.
For you.
Uh Huh, John So I think for our price strategy.
And has been very consistent and you know.
This calls for hourly blended ASP.
It was flat was flat and.
And yes, we.
With the price of the U can.
Programs by 5% by 8% and VIP U K VIP price.
This increase was a 5% pop kids, we keep the same price.
I don't think the online platforms competition will impact our price strategy.
Not for Youll remember a clear clearly we're not going to be very good successful summer promotion and <unk>.
Javier go and during the summer, we got more than $1 million.
Our summer promotion and enrollment and.
We charged for under RMB.
And I haven't seen much expensive for them.
The other of the online players you know most of them are providing or providing be freeport's, we're likely to acquire jewel and banking and our retention rates whatsoever.
60%, So I think the Chinese parents of students they care more about the the teaching quality and the study results of their test and rather than the price.
So going forward I think our price.
Our strategy will be consistent.
Thank you. Thank you.
Sure.
Your next question comes from the line of Blue for you of.
Bank of America, Please ask it from us.
Hi, Steve and I, just got a very quick question you mentioned that the in the third quarter there'll be some negative impact from costs casualty could.
Could you please quantify that for us please.
Yeah.
Total is b b.
Typically the all day.
The late Chinese new year will impact would be the revenue by 5% to 6%.
Because you're right.
K 12.
The kids, while business because you know.
Loss per year. The first the first award for the two courses and.
And the experienced master.
What's happened in the Q3.
III, but this year, we started all the courses.
Okay. So that means we sacrifice, a 5%, 6% and revenue won't be part of the pop kids and new cash, but it's just the one time impacts to the timing difference.
So and that's with.
Just to make sure that your guidance on the third quarter. K 12 is 26, I'm, sorry, 27% to 32%. So if we add in the five to six person back and should be like low <unk> to high <unk> kind of growth I got it yes. Thank you yeah. Thank you.
Your next question comes from the line of Christina Cha from Goldman Sachs. Please ask your question.
Hi, Thank you and it just didn't.
And then so I know its a dual listing.
Quite a substantial net cash position.
And could you give us some color as to your capital allocation strategy going forward.
And then secondly, just very quickly.
And do you have any thoughts on either and mid term guidance of 17% to 18% operating profit margin and.
And any time to revisit that and Kim.
Oh, Yes, Chrissy and you know the capital allocation, Yeah, we're risk money.
Last year and November.
And Hong Kong markets.
From the second of all those things and.
And you know we'll.
And we'll love to pay the.
The.
And capital allocation to investors and our historically with these several times, a special dividend and several times and share buybacks and.
And of the year.
And the or the money I think we are.
We prefer to use the money to make some of the potential vulnerable.
And.
If we can find some potential synergy between the targeted company and Oswald with but we will do it very carefully and second we will have to pay the investors right and.
And.
This would be your number one question number two question is about.
For the longer margin yeah.
We don't want to change our mid and long term margin guidance you know.
I think the.
Let me start with the revenue first I think the revenue growth recovery as seen in the profit and.
I think we feel need one to two quarters to go back to the normal and.
On the market from you know, we're seeing the great opportunity everywhere because of the small players disappear from the market and I do believe it's a great opportunity for new Oriental going forward. So that's why we tend to firmly and make more investment and now you know.
And make the learning center expansion by 25 per cent do me a hard time, and we're ready for the teacher salary and we we hired more ground marketing stuff to do the one promotion, which is more effective and the online channel and also expand from R&D.
Oh and memorial and so all the above.
The investment plus the negative impact from the overseas test prep and the cooler and tracks the margin and for time, but we're confident that we'll be able to deliver the continuing and the margin expansion upon the pandemic phase.
And that's.
And that's why I said I don't want to change our mid and long term guidance.
Thank you.
Mhm.
Yeah.
Your next question comes from the line of Alex <unk> of <unk>.
And I know Renaissance. Please ask your question.
Hi.
Yellow shows.
I think you've kind of answered my question, but.
Actually my question was that in terms of margin.
And look at our non-GAAP operating margin I think this quarter was to a slight decline year over year.
So just just how fast or specifically around what time should we expect the margin to bottom out.
And the next few quarters. Thank you.
I think you know.
As I said, so entered the crusher and from Christine.
What's wrong and be careful and I'll be out.
And we our revenue recoveries are still need to get there.
And go back to normal is still need maybe one for two quarters.
The top line.
The draw.
Like the to be a very bottom line and and also.
We're in the investing phase two a higher more true.
And spend more on the future on the expenditure and.
And.
That's.
And especially for the for it.
Especially for the impact for all fee.
And the new way for people to call that in North, China, like Beijing share and tie that and all.
And all provinces and done by others.
And we will hit us a little bit and the Q3, but I'm going to trust them and tie it all.
And we believe fee.
The China will manage the the call that's relatively wall and the and.
Going forward and I do believe our performance in the Q in the coming quarters and even.
And the and the next year will be better.
And then to Q2.
Thank you.
Okay. Thank you I actually have a quick follow up just on the teacher compensation and I think we changed.
The teacher compensation structure and.
And the past in this fiscal year and I'm just wondering.
And how should we think about it and future compensation smells and the next few quarters.
Is it fair to say that you know COVID-19.
And we might be already past the time.
And when the when the competition and pressure on teacher compensation and she's already.
You know is the most zone.
Samir.
And then.
And players.
As a group crusher.
All of the reasons that we risked for future salary is not because of the competition from the online players you and all the all and players just to name a few.
For teachers and we we have a lot of features and I think this that this was totally made by Michael.
Do you think you know he think he discussed a lot internally.
All the managers and school has just a range the teacher salary because this is our molded and vantage now only for the for time, but also for the long time for you know, we fully internally with 40 or.
Support and Michael's position and.
I know you've been doing the hard time and.
And.
And our topline growth was negatively impacted to some extent, but we firmly with the teacher salary I don't I don't think it will attract the margin because I think the heart of our pay for futures higher.
We are pretty low for hired the utilization rates and the student and retention rates in the mail law firm.
Yeah.
Great. Thank you.
Yeah, and now approaching the end of the conference call I will now turn the call over to new Orientals Executive President and CFO, Stephen Yang for his closing remarks.
Again, thank you for joining us today, if you have any further questions. Please do not hesitate to contact me or any of our investor relations there potentially for you. Thank you very much.
Thank you, ladies and gentlemen that does conclude your conference for today. Thank you for participating you may now all disconnect.
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