Q1 2023 New Oriental Education & Technology Group Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yeah.
Yeah.
Good evening and thank you for standing by for New Orientals, FY 2023 first quarter results earnings Conference call.
At this time all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference is being recorded if.
If you have any objections you may disconnect at this time.
Like to turn the meeting over to your host for today's conference Ms <unk> Zhao.
Thank you Hello, everyone and welcome to New Orientals first fiscal quarter 2023 earnings conference call. Our financial results for the period were released earlier today and.
Available on the company's website.
Newswire services 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 question.
Before we continue please note that.
Session today will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
We're 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 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 recorded in addition, a webcast of this conference call will be available on your own.
Our relations website at Investor Dop, New Oriental doesn't work.
Now I'll turn the call over to Mr. Yao. Please go ahead. Thank you Susie Hello, everyone and thank you for joining us on the call.
This fourth quarter costs, not only marks a fresh beginning of our 2020 free physical year, but also a new page to new Oriental.
Before going into detail of our financial performance for this quarter I would like to take this opportunity to extend our gratitude to those who have to be believing and supporting new Oriental along the way.
I'm delighted to share with you that's the restructuring process has been largely completed.
New Oriental has successfully derived a new business model combined with a certain existing business and the new business opportunities.
Our new business ventures have been performing well and are starting to generate.
Positive results to new Oriental for.
No more.
Even more encouraging to see that we have achieved a turnaround in profitability and the better we expect margin this quarter.
Our non-GAAP okay.
Operating margin for the quarter was four 2% and non-GAAP loss margin for the quarter was 11, 2% both higher than last year same period. We believe the company has embarked on a fresh journey.
<unk> strives to encourage all around development of students and the customers in the fourth of the betterment of the society.
And at the same time generate the profit and fruitful returns for our shareholders.
Now I would like to spend some time to talk about this quarter's performance across our remaining business lines and the new initiatives to you in detail.
Our key remaining business have shown remarkable resilience and achieved promising trends breaking it all.
The overseas test prep business recorded a revenue increase of 2% in dollar terms year over year for the first quarter 2023 physical year.
Adults University students business recorded revenue growth of about 2% in dollar terms year over year for the quarter.
The overseas study consulting business recorded a revenue increase of about 21% in dollar terms steel leader for the quarter.
As for our new business initiatives as mentioned in past quarter, we have launched several new initiatives, which mostly revolve around specific real students all royalty vitamins I'm glad to share with you that these new initiatives have shown positive.
Momentum and have started to generate revenue to the group.
Firstly, the NOG stomach children business, which we have rolled out in over 60 Crystal city focus on cultivating students innovative ability and a comprehensive quality.
We're happy to see increased market penetration in those markets, we have tapped into.
With 290, southern solvency enrolment in the first quarter.
Top 10 cities in China have to contribute about 60% of the revenue of this business.
Secondly, the intelligence learning system and device business.
Service designed to provide a tailored digital learning experience for students.
To utilize our path to teaching experience data and technology to provide personalized targeted learning exercise content.
Together with our teachers monitoring and assessing the learning curve of the students or the backend system. The new application service not only greatly improve students' learning efficiency, but also codebase students proactive learning habits.
We have pockets in adoption, rather 60 existing cities with 131000 active paying users in this quarter and are delighted to see improved customer retention rates and scalability of this new illustrates the revenue contribution of this business from the top 10 cities in.
China is over 60%.
Meanwhile, the study tour and their research camp business initiative.
Initiatives that aim side offer incidence of K 12 and University students.
I'd be the opportunity to fully leverage their free time of holidays to broaden the scope knowledge and cultivate subject interest we have conducted the study tour and the research caps.
See in over 50 cities across the country.
The revenue contribution of this initiative.
The top 10 cities in China is over 55%.
Last but not least our smart education business.
Which comprises smart teaching smart hardware SaaS technology innovation education and other services.
<unk> local governments education authority as schools and the kindergartens.
Our education no material until who is the smart study solution, a self learning system, which leverages advanced technology enables students to have complete control over the pace and the flexibility of learning age where remote learning becomes increasingly mainstream.
We also offer exam prep courses designed for students with junior college diplomas to protect to obtain bachelor's degrees.
The above mentioned the businesses have been gaining the traction and the.
And contributes to the overall growth of the company.
Oh I'm all system has continued to be instrumental post our restructuring process.
We're continuing our efforts in revamping on maintaining B O M O teaching platform and cost leveraging our education infrastructure and type dollar distress across key remaining business and the new initiatives to provide more advanced and diversify the application service.
To our customers at all ages.
We have invested $31 million in the quarter are our multichannel platform to ensure that we continue to offer high quality service and flexibility to our students.
In response to our evolving industry landscape in China, we have to implement structural changes to our pure online education platform cooler.
Previously mentioned.
While cooler and continued to extend its online education offerings to add us and University students.
It has also actually salt business opportunities in new areas.
Leveraging on the technology developed.
For a live broadcast of classrooms with our existing team talents.
Cooler has established e-commerce platform under the brand name <unk> foundry and Sean.
For the sale of agriculture, and other products and offer premium service for tens of millions of followers through a tight supply chain ecosystem.
Lapsed premium marketing and diversify our cooperation with our suppliers and producers to maximize the full potential and our social values of this new business cooler has placed a strategic focus to develop a high quality and cost the effective e-commerce platform offering.
Agriculture products and daily necessities, so as to bring better quality of life and it promotes healthy lifestyles to its customers.
Yeah.
During the reporting period, Tom found to ensure highest broadens its product selection and skus, thereby continuously improving shopping experience office customers.
The platform does not only serve as the alternate all lights for farmers and the local companies to sell their high quality farmer grows and other products to a broader customer base, but also provides a platform which offers a range of top notch products with the transparency and pricing to customers.
Leveraging the wild develops the production capacity and the commercial infrastructure, such as logistic centers and the communication networks in China cooler has also successfully launched its own.
Okay.
Sure.
During the reporting periods <unk> has broadened its.
Product selection, the ice skus, thereby continuously improving shopping experience of its customers the platform desktop only serve as a.
The offsets all lives for farmers at a local companies to sell their high quality, Florida rules.
And other products to a broader customer base, but also provide a platform, which obviously ran over the top products.
With the transparency.
In pricing to customers.
During the well developed production capacity and the commercial infrastructure, such as logistics centers and the communication network in China cooler has also successfully launched its own private label products and establish.
Our high quality supply chain management system within a short period of time.
Although variety of the product selection and our product quality continued to grow strong foundation has earned.
<unk> has earned a prominent position.
And again, the strong traction with brand loyalty from these customers.
Looking forward cooler will strengthen his team of talent to continuously be great positive unique interesting content to attract user switch platform and promote traditional Chinese culture.
<unk> will also placed additional investments so its products and technology upgrades, so as to concentrate on selecting and launching and top quality products from different origins in China through the third party confirmation and private labels, so creating value for our customers.
And the wider society.
With regards to the company's latest financial position I'm confidence to share with you that the company is in a healthy financial status with cash and cash equivalents term deposits and short term investments totaling approximately $4 3 billion.
On July 26 2022.
The company's board of directors authorized a share repurchase plan of up to $400 million of the company Aes or common shares during the period from July 28th So luxury two through May 31, so luxury three.
As of October .
October 26 2025.
The company Accumulatively repurchased.
Aggregates approximately one.
One 6 million for approximately $39.6 million from the open market and other.
Share repurchase program.
Now I will turn the call over to <unk> to share with you about the chief financial <unk>. Please go ahead now.
Now I'd like to walk you through the other key financial details for this quarter operating cost and expenses for the quarter were $666 $8 million, representing a 47, 8% decrease year over year, non-GAAP operating cost and expenses for the quarter, which excludes share based compensation expenses.
Our 647 8 million U S dollars, representing a 47, 5% decrease year over year. The decrease was primarily due to the reduction of <unk> and numbers of staff as a result of the restructuring in fiscal 2022.
Cost of revenues decreased by 51, 4% year over year to 312 1 million U S dollars, selling and marketing expenses decreased by 42% year over year.
$98 7 million U S dollars G&A expenses for the quarter decreased by 45, 4% year over year to $256 million non-GAAP G&A expenses with <unk>.
It excludes share based compensation expenses were $237 $4 million, representing a 44, 5% decrease year over year.
Share based compensation expenses, which were allocated to related operating costs and expenses decreased by 55, 9% to $19 1 million U S dollars in the fiscal.
First fiscal quarter of 2023.
Operating income were $78 million, representing a 145% increase year over year non-GAAP income from operations for the quarter.
It was $97 million, representing a 28, 3% increase year over year net income attributable to new Oriental for the quarter were $66 million, representing a 9% increase year over year basic and diluted net income per ads attributable to new Oriental.
We're at 39 and.
<unk> 38, respectively.
non-GAAP net income attributable to new Oriental for the quarter was $83 $7 million, representing a 24, 7% decrease year over year, non-GAAP basic and diluted net loss per ads.
Attributable to new Oriental.
Sure.
Asheville to new Oriental were 48, 9% and 48.
Secondly.
Net operating cash.
Cash flow for the first fiscal quarter of 2023, whereas approximately $185 2 million U S.
And capital expenditure for the quarter were at $14 million turning to the balance sheet.
August 31, two that 'twenty, two new Oriental has cash and cash equivalents.
11, Hendra noted $319 million. In addition, the company had $1054 $7 million in term deposit and $2092 $3 million in short term investments.
Oriental deferred revenue balance.
Which is primarily cash collected from Reggie.
Our registered students for courses and recognized proportionally as revenue as the instructions are delivered at the end of the first quarter of fiscal year 2023 was.
1012, $5 million, a decrease of 33% as compared to one <unk>.
<unk> hundred $53 $3 million at the end of the first quarter of our fiscal year 2022. The decrease is primarily due to the secession of K Tonight academic afterschool tutoring services in compliance with the governments policies in China, now and hand over back to Stephen to.
Go through our outlook and guidance.
Yes.
Good afternoon.
For the second quarter of fiscal year 2023, with the restructuring process now largely completed we expect that our school net worth and the geographic coverage to become stabilized.
The company has now entered the stage of starting a fresh page.
Exploring new opportunities with greater flexibility and strong cash flows.
Our confidence in this sustainable profitability.
All <unk>.
Our remaining key business as well as the growth prospects of our new initiatives.
For our new businesses.
We observed in this quarter.
The encouraging performance that these businesses have achieved proof that we are heading towards the right direction and we're confident the business will be able to contribute meaningful revenue to the company.
Fiscal year.
2023.
I just wanted to continue the pandemic developing China, thanks to our <unk> system, we believe overall.
Overall impact that would cause to our business and financial will be limited. We have also have measures in place to control and handle lockdown situations may rise.
However, due to the seasonality of some of our business such as test prep courses and overseas study consulting service, New Oriental General really record lower revenue during the second quarter of the fiscal year with revenue typically below those of the first quarter.
We expect total net revenue in the second quarter of fiscal year 'twenty three.
September 1st Tony.
Tony until 2000.
How do you choose.
<unk> Nomura.
<unk> 102 to be in the range of $601 4 million to $619 2 million representing year over year decline in the range of 9% to 6%.
Protect the increase of the revenue in our functional.
Currency RMB.
We expect to be in the range of 1% to 4%. This was the increase for the second quarter of fiscal year 2023.
Bottom line wise, we're confident that we'll achieve operating profit in the full year of fiscal year 'twenty three.
To conclude while adult taking all kinds of operational excellence.
All of our key remaining business, while we cautiously investing in new initiatives, which will be new growth engines.
Accelerates, our recovery and the pursuit of profitable growth in future.
At the same time, we will continue to seek guidance.
Operator.
From end of covered what the government authorities and virus province in China in alignment with the efforts to comply with the relevant policies guidelines and relative implementations regulations and measures.
As well as to further adjust our business operations as required by law.
I have to say that this forecast reflects our considerations of latest.
Regulatory measure as well as a recurrence.
Preliminary view, which is subject to change.
This is the end of our fiscal.
Our fiscal year 2023, Q1 summary.
This poise our lives will open the floor for questions. Operator, Please open the call for <unk>.
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'll 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 has been under duress.
Since you asked the question now please press star one one on your telephone so once again that stall one one plus.
Our first question comes from the line of Mark Li from Citi. Please ask your question.
Hi, Steven.
Congratulations on the profitable status up all this quarter.
Also I noticed that we have disclosed the 297000.
Enrollment I think it's the first time, we disclosed.
May I know, how whats the number for last quarter.
All four last financial year.
What do you have any pocket for this new financial year for the enrollment.
Thank you Mark.
We just launched the Exxon nickel courses. This is a pure new product.
Since the second quarter of last year. So the last three years numbers was very small very small so that means this quarter. This quarter are timing of course is the business.
Pro forma very well and the <unk>.
The revenue growth.
Hi.
So and we we expect the timing of course this business.
Well growth.
<unk>.
Very fast in the future.
Sure.
No.
Mark can you press star one one again.
Go ahead, Mark could you hear me.
As we can.
Okay.
I just wanted to follow up is for the Q1 number.
We have guided seasonality for the full year like.
Can we just you.
You know.
Multiply that number is that for them.
Q1 for the full year.
Because I'm a guy enrollment all could you share a bit more color on this year. Thank you.
Yes for <unk>.
Non academic courses specifically actually this is nowadays should not be very apparent.
Not like other business like overseas test prep and domestic test prep business, which is quite seasonal.
So I think this will be similar to other kg 90.
K 12 business.
Should be pretty smooth throughout the whole year, but actually now this year is the beginning of this new initiatives.
So we should start to see each quarter.
Start to contribute more and more revenue overall revenue from these new businesses.
Great. Thank you. Our next question comes from the line of <unk> Liu from UBS.
Please ask your question.
Hi, Good evening management. Thank you for taking my question and congratulations for the very strong without them.
It's very impressive the macro weakness and considering the magnitude of the restructuring that you have just completed.
So my question is on margins.
We noticed that the GP margin of this quarter is very strong and I know what the driver behind is it due to mix or any particular cost savings that we have achieved and is there any margin seasonality that we should keep in mind for rest of this year. Thank you okay.
Thank you <unk>.
As for the margins Yeah as you saw in this quarter. The gross margin operating margin has increased both.
The increase was mainly driven by following reasons number one.
The downsizing of the learning centers and the employee employee layoffs lights will be lower fixed cost you know with your loved the.
The learning center close song and the employee layoffs LASA physical year and.
<unk>.
It makes the.
<unk> drives to the margin up.
For learning centers and the whole groups. So this is the first luisa.
The revenue from the the cooler from the foundry issue at group this quarter.
These color I think it helps the margin up for the whole group.
And the lastly.
Lastly.
We didn't do the summer promotion classes this quarter.
Lastly, lots a year the summer quarter.
We did we did some deals.
Summer.
The.
Our summer promotion and this year.
We didn't do that so it helps the margin up and.
So those are both mentioned three our reasons to ask the whole margin up and you know.
As SaaS.
We have entered the stage of the starting fresh.
Fresh pace of new Oriental.
<unk> sold for the us for the remaining of the remaining business, we will keep it there and to keep the profitability of that and asphalt in newly.
New initiatives.
We will invest very costly so the good news for US is the new businesses.
A very very fast and.
We'll be profitable very quickly.
And so going forward I think the margin.
I support the margin wise.
Upon my wise, we're confident that we will be profitable in the full year.
Phil.
223, I wanted to give the guidance of the next quarter Q2 is our guidance for the margins.
Alex.
Great. Thank you next question comes from Tien Ho from T. H capital. Please ask your question Tien.
Uh huh.
Congratulations.
So.
It's not a number.
Growth.
Uh huh.
<unk>.
The outlook combined with the business.
Well the growth outlook for each line of business going forward.
Topic number one and also.
I know.
Jose from Apio revenue for each of the business how much the coffee break for the telcos.
Is it possible.
You are good for people on that part.
Quick question.
Yes.
Look at looking at the looking at <unk> in the second quarter or even the B b.
The quarters after that into Q3, and Q4 and I think as I said.
That.
Restructuring process now largely completed and going forward I think the the the remaining business such as the oldest overseas.
Oversee related defense and domestic test prep college students business will grow, especially for the overseas related business will grow faster and because in the Q in this quarter, we have seen the strong enrolment growth would be overseas related business and the new business.
Yeah.
The learning.
The learning device and.
Some of them like the summer comps also and the other new businesses.
It's grown very fast.
<unk> is a business of last year, but this year in Europe .
We will start to bear fruit of this business so the growth.
The growth will be extremely high in the in the in this.
The whole year and the cooler so felicia.
I'm afraid I can't share the numbers of the cooler, but seals I can say is <unk> has developed.
Innovative plan like a broadcasting model of the knowledge sharing and the selling agriculture and other products and this quarter.
Foundry is achieved is remarkable.
Official results and start will contribute noto revenue on the profit attuned to the schools and going forward I think it's a dual foundation will will do.
Better.
Because you look at the trend.
Very good response from the customers.
And.
Yes. This is there'll be.
The trends of the different business lines as for the revenue contribution.
For the.
For the for the whole year for the new year.
Yes.
Okay.
Let me give you will be revenue contributors.
Yes.
Yes.
I think.
The overseas related business will contribute to the 30% roughly.
30% of the total revenue.
K 12 equally.
Traditional business and the new business will contribute 45%, 45% of total revenue.
The college students.
The touch private business.
<unk> will contribute 5% of the revenue and all the others equal the cooler and the others will contribute.
The more than 30% of total revenue because Korea launch growth very fast and the others. The other small businesses.
Okay. So this is the breakdown revenue contribution of the from.
From different business lines.
Yes.
Okay.
Yeah.
And if you have follow up question. Please press star one one.
Okay.
Okay.
Alright, So I'm Neal till next question from.
Kansas Chen from <unk>. Please ask your question.
Okay.
Hello, Hi.
Hi, Stephen answer Steve. Thank you for taking my question and.
Congratulations on the very strong set of results.
My question is related to the new business intelligence learning system and devices and May I know.
Our target customers and 230000.
Users are they mainly charged by subscription and I just wanted to see whether this part of revenue will be recurring and how significant revenue contribution could be for <unk>.
With new business. Thank you.
Yes.
Intelligent learning devices system match fee is something Neil after we comply with the government policy terminated academic training for our student to deny students.
We realize that we still got some students have the mount for studying the academic subjects.
We use actually we have the content trends.
And targeted those students who have the day mounts for epidemic.
Eddie and we use our technology and content strengths in.
In that hour.
Existing like Digitalized content into the hardware and hand over to students and.
Let students are used to steady machine to do with the self study.
And it can actually helps students to two.
<unk>.
And has their academic results and also.
To help them to do.
Drive them too.
It has there are proactive study habits. So this is something this is a new business model and nowadays we are mostly using the rent that their lives to students and let customers subscribed the content from from the platform.
And we believe that this revenue this business should be generating recurring revenue because students if they think the.
Michigan is helpful and they can use it to do with the efficient self study than the they can re subscribe continue to subscribe new content.
From the platform.
Yes.
Sorry, let me clarify the revenue contribution for them for the new year. So.
The other the revenue from others will contribute 20% of the total revenue.
Sorry.
Yeah.
Okay.
Okay.
Thank you.
Our next question comes from the line of whole eat Chow from C. ICC. Please ask your question Heng.
Okay. Good evening gentlemen.
Thank you for taking my question first congratulations on the strong performance for the first quarter.
I have a follow up question.
You mentioned the revenue breakdown before and.
I'm wondering can you share the number of accounts IPO days by the <unk> and <unk>.
Maybe could you share more color on what kind of car Ts.
<unk>.
It has strong performance. Thank you.
The numbers.
<unk> will give you the numbers for the lung are kind of of course, the revenue contribution for Q1 or the full year.
Okay. So for Q1 here for Q1.
Doug.
All of the new business together are counterbalancing roughly about.
Okay.
Yes, sure sorry, let me check the detailed numbers for all new business together, our comforter building six roughly about 16% of total revenue and <unk>.
Now all the new businesses.
<unk> tutoring is the biggest one.
The biggest contribution and next to it is the learning device business.
And I think to be noncash.
<unk> non <unk> children focused on like <unk> helped us students to improve their innovative ability and comprehensive policies and we don't have a lot of subjects like the.
The reading programming are Robert design presentation skill art sports now I'll be reading and programming.
Ah contribute a little bit more revenue within the old <unk>.
Thanks.
Okay.
Okay. Thank you.
Thank you.
Our next question will come from the line of Lucy Yu from Bank of America. Please ask your question Lucy.
Thank you Stephen and thank you for taking my question too.
Two questions first is the first quarter revenue breakdown you just mentioned the new business is 16%, but the rest like a test prep consulting et cetera second.
Second question is on the second quarter revenue guidance, what is the breakdown of a different business in the second quarter. Thank you.
Yes for Q1.
Ken.
Russ.
Contributions so for overseas related business like test prep and consulting together contributing roughly about 24, 25% of total revenue.
And.
We have.
New business roughly about 16%.
And.
Okay.
At all to University students business.
Tutoring and new business together.
<unk> roughly.
Like 55% 50, 557% of total revenue and the remaining are others.
Mostly the online platform and some other.
Businesses like book content et cetera, Okay.
Okay.
Okay.
Okay.
Sure.
And also.
Okay. The Q2 Q2 revenue guidance breakdown the overseas related business will contribute 20% of total revenue.
And the college.
And the University students business contributed 6% of total revenue.
And the <unk>.
And the traditional and new business on the books to go to 40% of our revenue the others.
Others.
Yes, roughly 25% to 30% of total revenue.
It included the cooler and others and others.
Great. Thank you next question comes from the line of Tien Ho from Th capital. Please ask your question.
<unk>.
Hi, Jeff.
Just another question.
Peter.
That doesn't really totally new so.
Yes, I think on line.
Seasonality.
Now let me go to have a different season.
You know most of the new business.
Half the seasonality impacts thoughtfully I think the only one new business.
<unk>.
<unk>.
Some are comps and the research comp business do have the seasonality.
A summer and winter the revenue contribute more but.
As you know well.
While launching some weekends.
The comps there.
Study camps during the weekend, so the seasonality impacts becomes less than before.
Okay got it perfect. Thank you.
Thank you we are now approaching the end of the conference call I will now turn the call over to new Orientals Executive President and CFO , Mr. 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 Representatives. Thank you.
Okay.
Thank you. This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect your lines.
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