Q4 2022 New Oriental Education & Technology Group Inc Earnings Call
Good evening and thank you for standing by for New Orientals FY 2022 4th Quarter Results Earnings Conference Call.
At this time, our participants will be in the Sononi mode.
After management for prayer remarks, there will be a question and answer session.
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I would now like to turn the meeting over to your host for today's conference, Ms. Tseja.
Thank you, operator. Hello everyone and welcome to New Oriental's fourth fiscal quarter 2022 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as on newsware services. Today you will hear from Stephen Yeung, executive president and chief financial officer. After his prepared remarks, Stephen and I will be available to answer your questions.
Before we continue, please note that the discussion today will contain for looking statements made under the safe harbor provisions of the U.S. private security litigation reform act of 1995. For looking statements involved in error risk and assesanties, as such, our results may be materially different from the viewers expressed today. A number of potential risks and assesanties are outlined in our public findings with the SEC. Newer Anto does not undertake any obligation to update any forward-looking statements.
into details of our financial performance, I would like to take this opportunity to extend our gratitude to those who have been supporting and still believing in your rental.
While our business in the previous quarters were largely affected by the government policies introduced the last year, I'm glad to announce that we are now paving a new path in nominated business opportunity as the company embarks.
on a fresh journey that strives to encourage all around development of students and for the betterment of the society.
and at the same time, focus on generating profits and returns for our shareholders.
Now, I would like to spend some time to talk about the quarter performance across our remaining business lines and introducing our new initiatives to you in detail.
Our key remaining business have shown remarkable resilience and achieved promising trends.
Breaking it down, the Overseas Test Rep business recorded the revenue increase of 6% in dollar terms for the fiscal year 2022.
The overseas study consulting business required the revenue increase of about 16% in dollar terms year-over-year for the fiscal year 2022.
The Ad House and University of Students' Business recorded the raps of approximately 30% EOV here for the fiscal year to land 22. The Ad House and University of Students' Business recorded the raps of approximately 30% EOV here for the fiscal year to land 22.
As for our new business initiatives, as mentioned in the past quarter,
We have launched several new initiatives throughout the year.
which mostly revolve around facilitating students or around development. I'm glad to share with you that these new initiatives have shown a tight momentum.
Firstly, the non-academic children business, which we have rolled out in over 50 existing cities focused on cultivating students' innovative ability and a comprehensive ability.
We are happy to see increased market penetration in both markets we have tapped into.
The top 10 cities in China have contributed more than 60% of the revenue of this business.
Secondly, the intelligence learning system and device business is the service designed to provide a tailored digital learning experience for students.
You less our past teaching experience, data and technology to provide personalized and targeted learning and exercise content together with our teachers monitoring and accessing the learning curve of the students at the back end system.
The new initiative education service not only greatly improves the students learning efficiency, but also motivates students to make a reality.
We have tested adoption in around the 60 cities.
and are delighted to see improved customer retention rate and scalability of this new initiative. The revenue contribution of these initiatives from the top 10 cities in China is over 60%.
Meanwhile, the study tour and the research camp business is an initiative that aims at offering students of K-12 and university ages the opportunity to fully leverage their free time and holidays to broaden the scope of knowledge and cultivate a subject's interest.
We have conducted a study tour in a research cap in over 50 cities across the country. We have conducted a study tour in over 50 cities across the country.
The revenue contribution of this initiative from the top 10 cities in China is over 55%. The revenue contribution of this initiative is over 55%.
other same time.
We have also been launching smart education business.
which comprises smart teaching, smart hardware, science and technology innovation education and other services, targeting local governments, educational priorities, primary, secondary schools and kindergarten. Primary, secondary schools and kindergarten.
Education, material and digitalized smart study solutions, the self-learning system leveraging advanced technology that will enable students to have complete control over the pace and the flexibility of the learning age while remote learning becomes increasingly mainstream. Martinez Eric Reporting My CEO bursting Lew St Moss printer robot com Said Mé S Q R U S just nécess Grant OS to extend cam Carl or AC to an A K R K C To all A K R K I MAR E you
As well as exam prep course design for students with junior college diplomas to obtain their? to breathe.
The above-dash-and-business have been gaining traction and contributing to the overall goals of the company.
during the last physical quarter.
We have been fully committed to complying with government policy.
And as a result, the total number of schools and learning centers was reduced to 744 by the end of this fiscal year.
The significant change in our structure has entered the importance of our industry leading OMO system, which has been one of the constants during the company's resorbiting phase, as would remain committed to the investing in the R.
This is your report. Please continue to hold the line. We will reestablish the speakers connections shortly. Thank you. Please continue to hold the line.
Thank you for standing by. The speakers have raised the tab of the presentation. We have the speakers on the line again. The presentation. We have the speakers on the line again.
So, yeah, we got a lot.
You're lying. So I repeat again. Okay. Sorry.
I started from the
Okay.
So before going into the detail of our financial performance, I would like to take this opportunity to extend our gratitude to those who have been supporting and believing in meurential. While our business in the previous quarters were largely affected by the government policies introduced last year.
I'm glad to announce that we are now paving a new path in innovative business opportunities as the company embarks on a fresh journey that strive to encourage all-round development of students and for the betterment of the society.
And at the same time, focuses on generating profit and returns for our shareholders. And returns for our shareholders.
Now, I would like to spend some time to talk about this quarter performance, a quarter-hour remaining business line, and introduce our new initiatives to you in detail.
Our key remaining business have shown remark wall resilience and achieved the promising trend.
Breaking it down, the Oversey Task Prep business recorded the revenue increase of 6% in dollar terms for the fiscal year to 2022.
The overseas study Consulting Business recorded a revenue increase of about 16% in dollar terms year over year for the fiscal year 2022.
The Ad Haus and University Students Business recorded the rapid growth of approximately 30% year over year for the fiscal year 2022.
As for our new business initiatives, as mentioned in the past quarter, we have launched several new initiatives throughout the year, which mostly revolve around facilitating students' old-round development.
I'm glad to share with you that these new initiatives have shown positive momentum.
Firstly, the non-ademic children business, which we have rolled out in over 50s, existing cities, focused on cultivating students' innovative ability and comprehensive quality.
We're happy to see increased market penetration in both markets we have tapped into.
The top 10 cities in China have contributed more than 60% of the revenue of its business.
drly.
The intelligence learning system and device business is a service designed to provide a tiller digital learning experience for students.
It utilizes our past teaching experience, data, and technology to provide personalized and targeted learning and exercise content.
together with our teachers monitoring and obsessing the learning curve of our students how to backhand the system.
This new innovative education service, not only greatly improve students' learning efficiency, but also cultivate students' reflective learning habits.
We have tested a sudden adoption in around the 60 series and are delighted to see improve the customer retention rate and scalability of this new initiative. The revenue contribution of this from the top 10 cities in China is over 60%. In China, it's over 60%.
Meanwhile, the study tour and the research camp business is an initiative that aims at offering students of K-12 University Agiris of the opportunity.
to fully leverage their free time and holidays to broaden the scope of knowledge and cultivate the subject's interest.
We'll have conduct the study tour on the research cap in over 50 cities across the country.
The revenue contribution of this from the top 10 cities in China is over 55%.
At the same time, we have also been launching smart education business.
which comprises smart teaching.
Smart hardware, science and technology innovation, education and other service, targeting local governments, education authority, primary and secondary schools and the kind of guidance.
Educational material and digitalized smart study solutions, a self-learning system leveraging advanced technology that will enable students to have complete control over the pace and flexibility of learning in an age where remote learning becomes increasingly mainstream.
as well as exam prep courses designed for students with junior college diplomas to obtain bachelor's degrees.
The above mentioned business have been gaining traction and contributing to the overall world of the company.
during the last physical years.
Who have you fully committed to complying with government policies?
And the ISA results. The total number of schools and learning centers was reduced to 744 by the end of this fiscal year.
The significant changes in our structure have entered the importance of our industry leading OMO system, which has been one of the constants during the company's restructuring phase, as were the men committed to investing in the R&D of the technology. As were the men committed to investing in the R&D of the technology.
The OMO has been instrumental during the restructuring process, as well as COVID-19 outbreaks in certain parts of China, where strong flexibility is required in migrating students between online and offline classes to minimize the learning disruption.
We continue our efforts in developing and revamping our OMO teaching platform and kept leveraging our education infrastructure and technology strength across the remaining key business and new business to provide more advanced and diverse education for the customers for OOAGES.
We have invested $36 million in this quarter and $166 million in full fiscal year to improve and maintain our OMO teaching platform, which ensures that we may continue to offer high quality service and flexibility for students during the pandemic. For students during the pandemic.
In response to the evolving industrial situation in China, and in compliance with the latest regulations in the education space, we have been implementing structural changes.
12-per-pew online platform cooler.
We are actively exploring new initiatives and broadening its customer base and offerings by leveraging existing technology that has been the core of its business.
One good example of the potential business direction that has shown promising results to date is Dong Fang Chen Xuan.
at e-commerce.
platform for selling agriculture and other products.
Towards the end of December 2021.
Cooler and big began Palatin, last streaming events on various short video platforms, such as Do-In, which allows Cooler to promote high quality agriculture and other products.
such as books to the younger group of audience through the social medium.
It also enables cooler and to tap into the broader customer base.
The new e-commerce lab screen in generation.
while the bringing our nations agriculture producers, farmers, and their products to the foreground, and where we believe the belong.
This has resolved in today's a notable user adoption and attraction to this platform with the Doomfung Gen-Shua, having the way in encouraging and optimistic direction.
After the introduction of the government policy on after-school tutoring last year, which has no doubt posed a direct impact on our business, we have received many inquiries and concerns from investors over the company's financial position.
As a company with long-standing heritage, we have always made sure that we are prepared for an capable, in weathering changes in the market. And a capable, in weathering changes in the market.
And that is reflected in our ability to maintain a strong cash position throughout the whole respecting process.
By the end of this quarter, our cash and cash equivalents, term deposit, and short-term investments totaled approximately $4.2 billion.
The company continued to seek opportunities to create more value to shareholders and to lie 26 to 2022. New R&Tal's Board of Directors authorized the repurchase of up to $400 million of the company commissioners during the period from July 28. The company commissioners during the period from July 28.
2022 through May 31, 2023.
This share repurchase program authorized the company to purchase its ADS or common shares from time to time on open market important applicable rules and regulations.
The timing and extent of any purchase would depend upon marked conditions, the trading price of ADS, and these common shares as well as the other factors. The timing and extent of any purchase would depend upon the other factors. The timing and extent of any purchase would depend upon the other factors.
No, I will attend the call over to CCC to share with you about the key financial CCC. Please go ahead. Okay, now I'd like to walk you through the other key financial details for the first
Operating costing expenses for the cotter was $629.7 million representing of 52.1% decrease year over year. Non-gap operating costing expenses for the cotter which is school's share-based compensation expenses were $600.9 million US dollars representing of 53.6% decrease year over year. The decrease was mainly because the domain isn't looking early for increased comida. mainly because
of the reduction of the facilities and numbers of staff as the results of the restructuring in this fiscal year.
Cost of revenue decreased by 57.2% year over year to $247.8 million. Setting and marketing expenses decreased by 50.7% year over year to $95.8 million.
GNA expenses for the quarter decreased by 43.9% year-over-year to $286.1 million.
non-GAAP GNA expenses, which exclude share-based compensation, were $257.2 million, represents a 47.4% decrease year over year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 42.9% to $28.8 million in the first quarter. For more information, visit www.gna.gov
The increase is due to the grant of shares of the company to employees and directors in May 2021 was graded resting over the three years. Operating loss was $105.6 million compared to the loss of $102.4 million in the same period of the last fiscal year. Ground gap operating loss for the quarter was $76.9 million compared to a loss of $82.2 million.
in the same period of the pre- fiscal year. Net loss attributable to neuro- dental for the quarter was $189.3 million compared to the loss of $45.5 million in the same period of last year.
Basic and diluted net loss per ADS attributed to Nurental were $1.12 and $1.12 respectively. non-GAAP net loss attributed to Nurental for the quarter was $160.3 million compared to the loss of $27.9 million in the same period last year.
Long gap-basic and diluted net loss per ADS at Villa to New York Enzo, where 94 cents and 94 cents respectively. were 94 cents and 94 cents respectively.
Net operating cash flow for the quarter was approximately $29.3 million and CapEx for the quarter was $22.3 million.
Turning to the balance sheet.
As of May 31, 2022, Neuroncle had cash and cash equivalence of $1148.6 million. In addition, the company had $1140.1 million in term deposit and $1,900 and $2.3 million in the short term investment. Neuroncle's deferred revenue balance, which is cash collected from the register students for the courses and recognized.
proportionally has revenue as the instructions were delivered at this quarter.
was $933.1 million a decrease of 51.6% as compared to...
$1926.4 million at the end of this quarter.
The decrease is primarily due to the secession of K-109 academic after school tutoring services, with compliance with the government's policy in China. Now I'll hand over to Stephen to go through the Outlook in guidance. Now I'll hand over to Stephen to go through the Outlook in guidance.
Thank you, Sreeji.
looking ahead into the first quarter of fiscal year 2023.
With the process of school closures now largely completed, we expect that our school networks to become stabilized.
The company has now entered a stage of starting a fresh
exploring new opportunities with greater flexibility and strong cash flows.
We're confident.
in the sustainable profitability of all our remaining keep distance, as well as the growth and profit potential of our new initiatives.
For our new businesses, it will take time for them to come to full fruition. But as we saw in this quarter, the encouraging performance they have already achieved showing proof that we are heading towards the right direction.
And we're confident that the business will be starting to the contribute Minimal revenue from the next fiscal year onwards.
As for the recent pandemic developing in China, thanks to our OMO system, we believe that the overall impact that would cost to our business and financials will be limited.
We have also measured in place to control and handle a lot of down situations should they ever arrest them.
In sum, we expect the total net revenues in the first quarter of fiscal year 2023 to be in the range of $641.3 million to $680.6 million.
Representing EOV or decline in the rendal 51% to 48%.
bottom line wise, we are confident that we will achieve turnaround and profitable in the first quarter, as well as achieving operating profit in the full year of 2-2-23 fiscal year. In the full year of 2-2-23 fiscal year.
To conclude, we are now taking all kinds of operational actions to promote our key remaining business and cautiously investing in new business which will be the new growth engines that accelerate our recovery and to seek profitable growth.
At the same time, we will continue to seek guidance from
and incorporate with government authorities in various provinces in China, in connection with these efforts to comply with relevant policies, guidelines, and any related implementation rules, regulations and measures.
and to further adjust our business operation as required.
I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and preliminary review, which is subject to change.
This is the end of our fiscal year 2020 Q4 summary. At this point CCNI would like to open the floor for questions. I'll please open the call for these. Thank you. Yes. Yes. Yes. Thank you.
The question and answer session of this conference call will start in a moment.
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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 and your question will be addressed then.
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And the first question comes from Mark Lee with city.
Hi, Stephen.
May I ask for one? Would you have any breakdown of revenue for the guidance that you provide by the major categories?
Sorry Mark, you know as before you know we want to give the breakdown of the of the red duper down in next quarter
Got it. So maybe I follow up with a quick question is, I noticed we have around 744 campus, and it should be stabilized going forward. It looks like it's higher than the previous mention, 650 to 700 when it bottom. So what do you mean? There is a positive difference from the time we last spoke, and what would be your outlook for this?
Yes, you know, first of all, I must mention that, you know, our remaining business, you can call it a traditional business like the Overseer Relays Business and the Consulting Business and the Ad Auto and University Students Business. You know, I think they are all remarkable in resilience because you know, you saw the numbers of the, of the, this, this fiscal year to 2022.
So we do hope, we can do better in fiscal year to learn 23th of the new year. And on the other hand, we launched some new initiatives like the endemic children courses and some new intelligence learning system that demises the service to the students and as well the study tour and research cap.
So, you know, I think, you know, the market demand is always there. And, you know, even for the new business, we started in the fiscal year, it's just a couple of months ago, but, you know, we have seen the customer retention rate is very high. And, you know, we do hope they can do better in the new fiscal year. So, that's why we do keep the, you know, a little bit...
The more number, we're higher number of the learning centers than we expected three months ago and Mark.
This has a quick follow up. It's how many of the learning center you have both, you know, non-academic tutoring and existing business.
We don't have the detail number, but in more than 50 cities, we don't have the new business like the NAAC dynamic forces. So you can say the NAAC dynamic forces will be the new growth engine going forward.
talk to you, Ethan. Thank you very much. different.
Okay, thank you. Thank you Mark.
Thank you. And the next question comes from Felix Liu with UBS.
Thank you, Steven. Thank you for taking my question and congratulations on the very resilient quarter post-restructuring. I first wanted to ask a question about the new initiative. You mentioned good program on the not-acadabte tutoring as well as study camps. So if we look at this from a one year to the three year horizon.
Which one of these new initiatives do you expect the biggest revenue contribution, or could you rank your expectation on the revenue contribution from the bigger to the lower initiatives? My second question is on Zhongfang Zhenxian. I know this is a very good initiative that we launched under Cooler. Have we seen any positive synergies between...
the courses to improve the students reading and the presentation scale and some like the programming, robots, the arts, sports, we have a lot of courses. But you know, we have seen the extremely derumnal growth in the last couple of months because the market demand is always there.
And after the government policy launched last year, we saw some students, they do have more spare time. So the parents and students love to enroll in our new classes. And yeah, it's new business. The revenue contribution is very small, but it grows very fast. So we do believe the new business will contribute more and more revenue going forward.
in their earnings release or nonsense in this month, right? In next month, in next month. But as I mentioned earlier, Tom Fung's issue and the events innovative the blend of the knowledge sharing and the agriculture product promotion. You can check the numbers like the followers and the GMA on third party data platforms as reference. And we are also grateful to be widely recognized across the media in China.
last month. And we expect the cooler will become a key group driver and gradually deliver meaningful contribution to the new rental revenue and profit margin in the new year or even in the next two or three years. And yeah, I think the audience loves the Dongfang Zhenxuan platforms. So I think the Dongfang Zhenxuan's performance helps the local schools and the learning centers.
to get more students into our classrooms, even for the traditional business support of the new business. So this is very good for us. So this is very good for us.
Felix
Okay, great. Thank you for the color.
Thank you.
Thank you. The next question comes on Leaping Jowr with CICC.
The E-lease event is here thanks for taking my questions. I got two first, continue please share the revenue contribution of the new initiatives in the first Q4-Q FY22 and also in first quarter FY22 guidance. And second question is about the GP margin. I will be expecting the around 53% GP margin for Q5 FY22.
like the now time reports or the research, the summer camps, something like that, where some of the other business, the new business, this does not include the Dongzang Zhenxuan. And yeah, on the GP margin side, I think we got the, we got a lot in this quarter, in Q4, but we do believe we can get the higher gross margin in Q1.
Thank you. And once again, we ask you, please do me yourself to one question. If you have a follow up, please return to the question.
And the next question comes in to you on how with THKVO LLC.
help them see the Erasm??
Thank you. Thank you.
Yeah. Yeah, so we can hear you. What can you do? Yeah. Yeah, the question is that, you know, I see that class move to the next night. And there will be new season. Now this game will be going forward. Yeah. Yeah.
Yeah, actually as we restructured all the business lines, you know, terminated K-9 academic training, the remaining business, remaining key businesses like overseas related business and also domestic test prep for university students, these businesses are much more seasonal than the K-12. We're busy inagoing the journey. Hey, something's happening in its Lyima. What brought you here? It will be great to see all of you here and building relationships around your When nothing is changed that's why it's here. Let's take a look at Selena takeoff because in some vehicles, I louder than the numbers
So actually, you will see going forward since next fiscal quarter, our Q1 revenue contribution for full year will increase compared with previous years. So Q1 will be peak season, continue to be the peak season, and also Q3 will be set in peak season, and Q2 and Q4 will be relatively less in terms of the revenue contribution for full year. Yeah.
Okay, thank you. That's helpful.
Okay, thank you. Let's help for good.
Thank you. And the next question comes on Lucy U with Bank of America. Thank you, Steve. I think you're so about taking my question. My question is on a GP model. So can you please elaborate the model expansion in the fourth quarter up from the 39% in the third quarter? And you also mentioned that a GP model in volume four will might be higher than the 53%. And what is the driver behind that? Thank you.
Yeah, Lucy, we have already, we almost have sat down the learning center closure and some layoffs in the last three quarters. And as a side, we will keep the same number of the learning centers and we want to hire more like new people. And that means you know the fixed cost is there.
And we're seeing the revenue growth, just the revenue growth gets recovered. And I think we will see more and more the operating library going forward. And in the Q4, because the overseas consulting business, you know, typically contribute more revenue in Q4. So we do have that seasonality in Q4 for the overseas consulting business. So let's do the analysis over here. So we do believe.
we do believe in fiscal year 23, both the GP margin and the profit margin will get better for the new year. As I said, we will be profitable in fiscal year 2023.
Thank you, Steven.
Thank you and the next question from Chelsea Shung with Morgan Stanley .
Thank you.
and congratulations. I want to ask about the new business that you see what's different when it's in your new business. Could you have any operation data that you could share about, for example, the non-actemic children, the new children equipment in summer and retention and also like the student acquisition or any detailed that you could share?
and also how to see the competition is the public schools because they also offer some non-ademic courses or after school service. Thank you.
Yeah, some businesses need data for the new business. Even though we started business a couple of quarters ago, but as I said, the business developed very good. And these students are retention rates for some like the reading and the presentation skill courses. It's almost closely to the traditional K12 economic courses.
So it sounds very good, right? And on the margins that, you know, I remember in a last-door earnings call, you know, we got it. The, our target is to gather brick even for the new business. But this time, you know, we feel better. So I think we, to believe, we can gather the profit for the new business. And it is to already to say the detail numbers, what are the-
and system and the teaching experience were even some data in hand. So, you know, we set up a new department to sell the products to the public schools where even the kindergarten's primary and secondary schools. And it's just a new start, but we do believe we can do better. And because, you know, I do believe the public schools and kindergarten's.
The need our service, because you know, if you pull out for so many years and we spend a lot of money and invest a lot of the human resources to ID workers and counter-writers to build our system and even the question are based. So I think that we will find a new way to monetize this.
Okay, thank you.
Thank you.
Thank you. And we are now approaching the end of the conference call. I will now turn the call over to New Oriental's Executive President and CFO , Stephen Young for his closing remarks. Again, thank you for joining us today. If you have any further questions, please do not have the tips to contact me or any of our investor relations representatives. Thank you.
Thank you. This concludes today's teleconference. Thank you for attending today's presentation. I mean now just connect your lines.
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