Q4 2023 New Oriental Education & Technology Group Inc Earnings Call
Okay.
Good evening and thank you for standing by for New Orientals, FY 2023 fourth quarter results earnings Conference call.
At this time, all participants are in listen only mode.
After management's prepared remarks, there'll be 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 Mr. Chi Chow.
Okay. Thank you Hello, everyone and welcome to new Orientals fourth fiscal quarter of 2023 earnings Conference call.
Results for the period were released earlier today and are available on the company's website. That's all that's on newswire services today, Steven Yeah exactly.
Executive President and Chief Financial Officer, and I will share a new orientals latest earnings results and business updates and detailed with you after that Susan and I will be available to answer your questions. Before we continue. Please note that the discussion today will contain forward looking statements made under the safe Harbor provisions of the U S.
But securities Litigation Reform Act of 1995 forward looking statements involve inherent risks and uncertainties as such our results may be materially different from the views expressed today.
A number of potential risks and uncertainties are outlined in our public filings with 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.
<unk> on new Orientals Investor Relations website at Investor adopt new Oriental doesn't work.
Now for us to turn the call over to Mr. Yao. Please.
Please go ahead.
Thank you C C.
Hello, everyone and thank you for joining us on the call.
It's our great pleasure to announce the new Oriental has managed to conclude this fiscal year with a set of remarkable financial results this quarter and with our topline performance beating expectations.
Our existing business lines and the new initiatives.
Hey, there this corrupt to words, a staple recovery and anchored fruit bearing growth mainly benefiting from the strong post COVID-19 recovery of demand and the resumption of the consumption.
Our bottom line performance has also achieved solid growth with operating margin and non-GAAP operating margin, reaching 5.6% and Knight point and 1% respectively for this quarter.
Picturing, a well rounded resilience resilience across our business lines.
Thanks to our ongoing efforts, yeah, enhancing operational efficiency and cost control.
In particular, I would like to highlight that the solid recovery has been even bought it in the growth of our overseas.
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Our bottom line performance has also achieved a solid growth with operating margin and non-GAAP operating margin, reaching 526% and nine 1% respectively towards this quarter picture.
Picturing a web browser resilience.
Across our business lines sense to our ongoing efforts.
Haven't seen operational efficiency and cost control in particular I would like to highlight the solid recovery has been bought it in the growth of our oversea test prep and overseas study consulting business.
Which have recorded the steady increments you revenues and enrollments.
The dedicated splendour were restructured business model either utilize the facility and a streamlined cost structure has not only helped us yield a better than expect margins in this physical clutter.
But also elevens.
I will continue the exploration of new potential ventures, as we unfold a new chapter of Union innovative endeavors.
The company's sustainable profitability resilience business lives and the emerging U initiatives has reaffirmed our belief in maintaining a healthy growth of our marquee sure many encouraging environmental recoveries.
No I would like to spend some time to talk about the quarter's performance across our remaining business lines and the new business to you in detail.
Our key remaining business secured a promising trends coupled with the positive momentum of our new initiatives breaking down the oversea test prep business reported a revenue increase of 52% in dollar terms were 62% in RMB terms year over year for the first quarter.
So overseas study consulting business recorded a revenue increase of about 6% in dollar terms were 13% in the RMB terms year over year for this quarter.
I don't see the University students business reported a revenue increase of 34% in dollar terms or 43% increase in RMB terms year over year for this quarter.
As mentioned in the previous quarters, we have launched several new initiatives, which mostly revolve around facilitating students all ranked developments.
I'm pleased to share with you that these initiatives have continued to exceed our expectations.
The expectation is attending a promising growth and is generating meaningful profit to the company.
Firstly, the knock dynamic children horses, which we have offered in around the 60 existing cities focus on cultivating students you know video mobility and comprehensive quality.
We're happy to see further licensed market penetration in both markets, we have tapped into especially in higher tier cities with a total of 629000 student enrollments reported this quarter. The top 10 cities in China have contributed about 60% of revenue of this business.
Secondly, the intelligence learning system and device business. Our surveys designed to provoke provides tailored digital learning experience for students has been adopted in around 60 cities with 90 nice all of them.
Active paid users reported in this quarter.
The revenue contribution of this new business from the top 10 cities in China is around 60%.
Thirdly.
Our study tour and their research camp business.
Is that a besides offering incidents of K 12, and University University ages.
Opportunity to fully leverage their free time to broaden the sculpsure knowledge and the calculated subject interest has also achieved encouraging results.
We'll have conducted study toward some research attempt in over 50 cities across the country with the top 10 cities in China offering over 55% of revenue contribution to this new business.
Benefiting from the post Covid recovery of demand, we have seen strong enrollment trends and expect the new business to contribute meaningful revenue in the coming new fiscal year.
Last but not least.
Our smart education business educational materials and to utilize the smart study solutions as well as exam prep courses have also contribute meaningful results to the overall growth of the company.
And have a chance instrumental profits since the previous quarters.
With regard to our <unk> system, our persistence in revamping our platforms.
And advancing the technology capability has enabled us to continue to provide high quality service to our customers successfully captured new business opportunities during the transition period.
During the reporting periods, a total 31 $27 million has been massive into the system.
Now I would like to spend a bit of time to give you updates on Easter bye.
Latest performance fiscal year 2023 marks adventures beginning for east to buy.
Since inception, it has achieved gibson's breakthroughs in both business operations and financial performance through proactive redesigning of.
Our strategic plan and the implementation of a series of these tapes to strengthen the long term.
And utilities.
During the reporting periods. The company introduced a change of its name from cooler and technology holding limited to Easter by holding limited for closer alignment with these long term core business direction, which is to offer top quality agriculture products under our private label Dumbfound changed.
It creates a lapsed streaming platform, which safeguards product caliber and use experience for customers as well as nurture nationwide cultural appreciation.
Throughout fiscal year 2023, if the by continued to expand the product variety to provide customers with high quality and cost effective offerings.
So extremely stringent standards.
Appliance in selecting <unk> suppliers and manufacturers have you Schwartz outputs are always quite.
A better craftsmanship with similar equally then.
In terms of private label products, while our existing to introduce only high quality products that are price worthy Easter by elevated user experience by applying advanced technology to safeguard the entire process from product developments sales too.
After sales service. Furthermore, with ambition to full third content innovation and knowledge sharing with customers is to buy began leading onsite lapsed remain events embarrass province in China joined by the cultural salad elaborate he is from all walks of life to cut.
Comment a rich variety of intangible cultural heritage.
We're also grateful for the support to East of Bice Exploration, Inc. Fourth quarter.
Tourism and it's inspiring to see that the platform has seen some roles, while it's public attention awareness and most importantly affection on Chinese cultural assets.
We will continue to explore the aerial business and provides updates with students.
With regard to the company's latest financial position I'm confidence to share with you that the company has seen a healthy financial status with cash and cash equivalents term deposits and short term investments totaling approximately 4.5 <unk>.
Bill in dollars.
On July 26, 2022, the company's board of directors authorized a share repurchase of up to $400 million of the company Avs, where our common shares during the period from July 28, 2022 through May 31, 2023, the company as a board of directors.
Other authorizes the company to expand its share repurchase program launched in July 2022 by 12 months through May 31st 2024.
As of the July 25, 2023, the company repurchased aggregate to approximately <unk> 5.9 million ABS for approximately $191.7 million from the open market under the share repurchase program.
No our call over to <unk> to share with you about the key financial specifics. Please go ahead.
Now I'd like to walk you through the key but.
Other key financial details for this counter operating cost and expenses for the quarter or 812, one $5 million, representing a 29% increase year over year non-GAAP operating costs and expenses for the quarter, which exclude share based compensation expenses were $782 million.
Representing a 31% increase year over year. The increase was primarily due to a the cost the expenses related to the substantial growth in east to buy private label products and the life streaming e-commerce business cost of revenue increased by 58% year over year to 391.
$6 million, selling and marketing expenses increased by 54, 3% year over year to $147 $8 million.
G&A expenses for the quarter decreased by four 5% and year over year to $273 $1 million.
non-GAAP G&A expenses, which excludes share based compensation expenses were $249 $5 million.
Representing a 3% decrease year over year total share based compensation expenses, which were allocated to related cost.
Getting cost expenses increased by six 1%.
So the $35 million in the fourth fiscal quarter up to that 23 operating income.
With $48 $1 million compared to a loss of $105 6 million in the same period of the prior fiscal year non-GAAP income from operations for the quarter was $778 $6 million compared to the loss of $76 9 million.
In the same period of prior fiscal year net income attributable to new Oriental for the quarter was $29 million compared to the loss of $189 $3 million in the same period of last year.
Basic and diluted net income per ads attributable to new Oriental.
Our 18th and 19th century, <unk> non-GAAP net income attributable to new Oriental for the quarter were $62 $1 million compared to the loss of $163 million in the same periods of the prior fiscal year non-GAAP basic and diluted net income per <unk> <unk>.
So lots of new Oriental, whereas 38, and 37 cents respectively.
Net cash flow generated from operations for the fourth fiscal quarter. After that and 23 was approximately $421 6 million and Capex capital expenditure for the quarter were $68 $4 million.
Turning to the balance sheet as of May 31, 2023, new Oriental had cash and cash equivalents.
16, <unk> hundred $63 million. In addition, the company had 16 <unk> hundred.
$118 $5 million in term deposits.
And 1400 $77 $8 million in short term investments, new orientals deferred revenue balance, which is cash collected upfront from customers and related revenue.
Will be recognized as a service or goods.
As the service and goods are delivered.
At the end of the fourth fiscal quarter.
2023 was <unk> hundred $37 6 million, an increase of 43, 4% as compared to 960 $933 1 million.
At the end of the fourth quarter of fiscal year 2022.
Now I will hand over to Stephen to go through our outlook and guidance. Thank you Susie.
Heading into the first quarter of fiscal year 2024, we firmly believe that our business will progress a healthy trajectory of growth, which will be reflects our performance in the new physical year.
The surge in demand we observed as a result of host Colby the reception and economy recovery has heightened our conviction in leveraging our brand advantage.
Route it's Q3.
Initial the teaching content, our resources and our long established solid foundation.
We will continue to work diligently preparing the latest guidance from the Chinese authorities.
It has in the nation's education level to strengthen its leading position to further unveil our potential in all business lines and seize new opportunities as they arise.
With regard to learning center and classroom space, we plan to increase our capacity.
15% to 20% in the new year our wage.
Small quantity of new learning centers.
Back to be opened while classroom areas of some existing learning centers will be expanded in a few major cities.
Most of the new office deals will be launched in the city with better topline and Bottomline performance in fiscal year 'twenty three.
We will keep monitoring the pace and scale new offerings.
According to the local operation in our financial results during the new year.
In summary, we expect total net revenue in the first quarter of fiscal year 'twenty four to be in the range of 980 $322 million.
1000 on a $525 million.
<unk> year over year increase in the range of 32% to 35%.
To conclude the financial results, we reported in fiscal year, 'twenty, three and performance of our new business have reaffirm our confidence in achieving the satisfactory level.
Off the operating profit and the improvements of the profitability in the first quarter and the whole year of fiscal year 'twenty four.
New Oriental plays to great determination to event Invigorates, new endeavors with our existing capabilities.
Simultaneously, we will also devotes reasonable resources on research and application of new technology, knowledges, such as AI and chat GTT into our educational and product offerings with the ambition to uplift our strengths in pursuit of growth and opening an operator.
King efficiency at the same time.
We'll continue to stay committed to seek guidance from from Anna cooperated with the government authorities in virus provinces.
In alignment with its efforts to comply with the relevant policies as well as the further adjust our business operations as required.
I must say that these expectations and forecast reflects our consideration of the latest regulatory matter.
As well as our current preliminary meal, which is subject to change.
This is the end of our fiscal year 2023, Q4 summary at this point I would like to open the floor for questions. Operator. Please open the call for bees. Thank you.
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.
If you have more than one question. Please request to join the question queue again. After your first question has been addressed.
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Once again Thats Star 114 question.
Our first question comes from the line of Felix Liu from UBS. Please go ahead Sir.
Hi, Good evening. Thank you management for taking my question and congratulations on the strong quarter at guidance.
My question is on capacity I noticed that your capacity expansion have picked up this quarter and that you guided to 15% to 20% capacity increase for the.
FY 'twenty, four which I think is an acceleration from previous plans. So may I ask you to share more color on this capacity reacceleration are they in existing cities or in new cities and are they for Jesper argue.
K 12 businesses or are they a multipurpose covering overseas test prep.
And for the plan of 15% to 20%. This year do you see that as a sustainable level. If we were to project us into.
A few years down the road. Thank you.
Yeah.
Thank you Alex I think as for the expansion plan, yes, we raised a little bit about the capacity expansion plan compared to that of the last quarter earnings call last quarter.
I started with your guys about the 10% capacity expansion.
The reason as you know.
It's because we have seen the strong demands.
Susan sector, especially in overseas test prep business and notwithstanding courses.
So that's and also.
I think that's why we raised the guidance of the capacity expansion and I think most of the the new Ultra Neal.
We'll be happens in the existing cities, we don't have the plan to open the new cities.
But I must mention that we will open these are small quantity of the new learning centers in existing cities cities and we.
We will extend some classroom area for some existing fees because it's almost a full of the peaks we've seen some learning centers.
And.
The most of the new learning centers or the new areas or will be used to buy the IV. The.
Advocates of downtime it forces and overseas related business and the domestic test prep courses.
And as for the you know this is our fiscal year 'twenty for a plant and I think.
In the in the next two to three years I think we'll keep the same pace of the expansion plan and it depends on the a the b a.
The whole marketing environments, and the B and the.
The developments of the business.
Thanks.
Thank you very much.
Yes.
Thank you.
Our next question comes from the line of <unk> Zhang from China Renaissance. Please ask your question.
Alright, thank you.
Thanks for taking my question Congrats on a very strong set of result, so just general country all of our guidance. So your August quarter guidance is quite impressive.
Mostly in immediate term so what is driving such a strong growth because of your life is quite more maybe by effectiveness. Thank you.
Okay.
We remain confident and optimistic about the business performance in in the coming Q1, and even for the new fiscal year 'twenty four and you know as the post call. This a resumption and the b the whole economy recovery I think we have seen a strong demands of the.
Of our products like the overseas related courses and did that not only are some new businesses.
And so I think with the leveraging our brand advantage and the.
The good teaching content and our resources and our.
The the lot the hour long established the solid foundation I think we will continue to seize the market.
The opportunity in the market that means we were taking the market share.
And you'll.
For example, as for the overseas business and the mine sites.
We have seen a strong demand for the overseas test prep business on supply side we.
We have seen some players disappear disappear from the market. So that means we are facing less competition and for our new business like the the long time of course as you know.
We are the encouraging performance in this quarter or even in <unk>.
The last year.
Proof proof that we are heading towards the right direction.
In the.
In the Q in the coming Q1, we've got guidance be.
Top line growth will be.
It will be in the range of 32% to 35% in dollar terms and in RMB terms that might be somewhere around 40% 45%.
And so and also as for the bottom line wise, we're confidence in achieving the greater.
Ah profiting profit in the in the coming to one that means.
Optimist mistake about the operating margin expansion in Q1, and the whole new year.
Okay.
U S.
Thank you very much.
Thank you.
Great. Thank you.
Next question comes from the line of Lucy Yu from Bank of America Securities. Please go ahead Lucie.
Thank you hi, Stephen just to loop from Barnwell.
One question on your stomach.
So I noticed that does that make sense has been up.
Although not a Q on Q and Y O Y could you. Please elaborate what is driving that and how should we think about that is that makes that trend in the new fiscal year. Thank you.
Thank you Lucy.
Yes, we spend a little bit more money on selling.
Selling and marketing expenses, because we're seeing the strong demand in the market and.
I think what you saw our top line growth in this quarter is 60, 64% in dollar terms and even though we spent a little bit more on selling marketing events.
I think we do have the operating leverage in your hands and going forward even in the in the Q1 Q1 would be the new year, I think we'll spend a little bit more on the selling magazines vessels, but I think we do have the operating leverage on the <unk>.
The cost and SG&A side, so that means you will see the margin improvement in the coming year.
Okay.
That was just one off Steven so yes that makes desktop is mainly driven by which business is it mark stomach in the overseas.
Any other business.
Both of these by the aggregation business and that used to buy.
Okay.
Okay. Thank you.
Thank you Lucy.
Our next question comes from the line of Kansas Chen from <unk>. Please ask your question Candace.
Hi, Stephen and <unk> good.
Good evening. This is kenneth from bylaw until present, congratulations on the very strong revenue guidance for the coming quarter.
I'd like to follow up on your comments about the operating margin.
Your mind sharing a little bit more on that on the margin by five different.
By different businesses with such a thin market that mature during analyst with oversea test prep et cetera, and my second question is about the revenue this quarter I would remind you break it down into different welcome. Thank you.
Yeah.
Yeah, let's start with the margin.
And that as of this quarter.
Because of the downsizing of the learning centers laying off some employees last year lateral the lower fixed cost per learning centers. It will drive the margin up and as for the different business lines. You know the oversea test prep and it'll be both very good in this quarter and you'll know whether the higher utilization.
The classrooms, and see all of the operating leverage and the margin was up and going forward I think the both the oversea roller business and the new business. The margin will go up in the coming quarter and coming new year.
The.
The question I believe.
The different business lines revenue Cisco.
You mean for Q4.
Right.
Right.
For Q4, but if you can provide some colors on the <unk> that would be very great.
Thanks.
Oh, Okay, yeah, so far in Q4.
<unk> revenue.
Mix is roughly.
Yes.
Yes.
Like.
Q4, the overseas related business country built.
Like test prep is about 11% and the consulting business is like us 17% because it's the seasonality.
Seasonally high quarter.
So for our University students business the revenue contribution in Q4 is about 2% to 3%.
And the new business together.
Is about.
<unk>.
New business together is about 18% so roughly same for the whole fiscal year as well and.
The rest are high school and some other business and also including the one is yeah yeah.
Okay.
Thank you Susie.
I'll ask one more question that is about the coming quarter. So.
I think that we do see that on the ground the demand for the Mr. Ken and then also the study tourism has been very strong would you mind share a little bit more on that.
Like what we are seeing and what we have.
What is our plan for a smooth going forward. So at this point.
Thank you yeah, so actually we give the strong guidance for Q1s revenue.
Key driver if you look at bike.
Categories of businesses.
Like overseas related.
Related business.
Hosting quoting the overseas test prep and consulting.
Growing faster.
Also we're seeing accelerating trends of the gross for overseas related business because of the post COVID-19 recovery.
The trend is very clear.
Also you know there are.
Some other new business definitely is a key driver even higher than our original expectation because we are seeing strong demand during the summer Ah registration and according to our current forecast. These portion can also grow very fast.
So these are the key driver definitely other business.
The remaining businesses and Oh, so two Mondays are also contributing good revenue growth as well for Q1.
Great. Thank you very much.
Yeah.
Great. Thank you.
Our next question comes from the line of tiny Wang from C. ICC. Please go ahead shiny.
Hi, Steven.
Thank you for taking my questions. My question is I think we have.
You have announced your offer Coco and tourism services.
Target middle aged and older people.
Could you.
Sure Mark how long does like how do we expect to enter this market and to which extent do we expect this business to contribute to revenue. Thank you.
Yes.
For the new or the cultural chosen process, Yes, I think first of all we think the S.
It has a big potential.
The market opportunities in the country.
<unk>.
We do have a lot of the the.
The good teachers, you'll know some of them are star teachers and by leveraging the knowledge of the teachers.
And in like the General study as Q3, or Chinese Q3, where some cultural studies I think we believe we'll be able to present.
One of a kind of cultural sea.
Tourism offerings.
Combining both the.
Her tainment and cultural education for the like the middle worthy EDA or are the older age group people. In addition.
I think we may also be able to leverage our extent.
Extensive theft, the online platforms and the school networks.
So as the distribution channel.
Newly developed a couple of the top quality of cultural tourism offerings in some feature.
In sum Fisher tourism cities and provinces, such as the Hangzhou Chengdu Shia in Gunsel I think these offerings are gaining the increased tracked the interesting detraction from the market.
Yeah, we were we're still in the very early stage and Zhao.
We're testing finally, b products and this survey is a process.
And so in.
And I will keep you.
Posted.
First any updates on the new business.
Right.
We're excited for the new business.
As we did in the.
You know.
Last year, we started the business of these Dubai and.
They used to buy in general a lot of the topline growth and the profit to the group.
In fiscal year, 'twenty, three and this one's for the.
Very exciting about the new business the tourism.
<unk>.
Thank you.
Great. Thank you.
As a reminder to ask a question. Please press star one one on your telephone.
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Once again to ask a question. Please press star one one on your telephone.
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Reminder, to ask a question. Please press star one one on your telephone.
Alright, there are no further questions 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.
Youll have any further questions. Please do not hesitate to contact me or any of our Investor Relations Representatives. Thank you.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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