Q2 2024 New Oriental Education & Technology Group Inc Earnings Call

Subtitles by the Amara.org community

Okay.

Good evening, and thank you for standing by for New Orientals FY 2020 for Second Quarter Results Earnings Conference Call.

Good evening and thank you for standing by for New Orientals, FY 'twenty 'twenty four second quarter results earnings Conference call.

At this time, all participants are in the listen-only mode after management's prepared remarks to be questioned and answered sessions.

At this time all of that.

That's a in a listen only mode.

She has prepared remarks, you'd be question and answer session.

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

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

And I'd like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.

I'd now like to turn the meeting over to your host for today's conference Ms. Michelle.

Sisi Zhao: Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter 2024 earnings conference call. Our financial results for the program were released earlier today and are available on the company's website as well as on our services. Today, Stephen Yellen, President and Chief Financial Officer, and I will share New Oriental's latest earnings results and business updates in detail with you. After that, Stephen 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. Private Securities Litigation Reform Act of 1995.

Michelle: Thank you Hello, everyone and welcome to New Orientals second fiscal quarter 2024 earnings conference call our financial results.

Michelle: Released earlier today and are available on the company's website as well.

Michelle: Our services.

Speaker Change: Hey, Steven.

Speaker Change: President and Chief Financial Officer, and I will share new Orientals latest earnings results and business updates in detail with you after that Stephen 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 private.

Speaker Change: Securities Litigation Reform Act of 90 95.

Sisi Zhao: Forward-looking statements involve inherent risks and assiduanties.

Speaker Change: Forward looking statements involve inherent risks and uncertainties.

Stephen Yellen: 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 findings 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 New Oriental's Investor Relations website at investor.neworiental.org. I'll now first turn the call over to Mr. Yang. Stephen, please go ahead.

Speaker Change: 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.

Speaker Change: As a reminder, this conference is being recorded in addition, a webcast of this conference call will be available on new Orientals Investor Relations website at Investor Day, New Oriental Dot Org.

Speaker Change: I'll first turn the call over to Mr. Steven. Please go ahead.

Stephen Yellen: Thank you, Sisi.

Steven: Thank you C C.

Stephen Yellen: Hello everyone and thank you for joining us on the call.

Steven: Hello, everyone and thank you for joining us on the call.

Stephen Yellen: It's our pleasure to announce that New Rental has delivered a set of fruitful financial results that have surpassed our expectations this quarter. Our diverse business lines have embarked.

Steven: So a pleasure to announce that new Oriental has delivered a set of a suitable financial results that have surpassed our expectations. This quarter, our diverse business lines have seen parts.

Stephen Yellen: Our healthy recovery and anchored stable top-line performance, while the enduring momentum of our new business has made meaningful contribution to the company's revenue and continue to pave the way for further acceleration.

Steven: A healthy recovery and anchored stable top line performance, while enjoying momentum all of our new business.

Steven: Made a meaningful contribution to the company's revenue and are continuing to pave the way fulfill their acceleration.

Stephen Yellen: New Oriental's bottom line performance has achieved promising growth with operating margin and non-GAAP operating margin reaching 2.5% and 5.9% for this quarter respectively.

Neil rentals bottom line performance has achieved promising growth with operating margin and non-GAAP operating margin, reaching 2.5% and five 9% for this quarter respectively.

Stephen Yellen: Thanks to our unwavering efforts to brush up operational efficiency and cost control as well as the combined efforts of our restructured business model while utilizing resources and streamlined cost structure.

Speaker Change: Thanks to our unwavering efforts to brush up our operational efficiency and cost control as well as well as the combined efforts of our restructured business model, where you have lots of resources and a streamlined cost structure.

Stephen Yellen: Encouraged by the company's sustainable profitability, resilient business lines, and prospering new businesses.

Speaker Change: Encouraged by the company's sustainable profitability resilience is lines and fostering new business, we've been force our commit commitment to maintaining a healthy market share growth and creating sustainable value for customers and shareholders in the long term.

Stephen Yellen: We reinforce our commitment to maintaining healthy market share growth and creating sustainable value for customers and shareholders in the long term.

Stephen Yellen: Now, I'd like to spend some time to talk about the quarter's performance across our remaining business lines and new initiatives to you in detail.

No I like to spend some time to talk about the quarter's performance across our Romanian business, the life and annuity Miss Jeffs to you in detail.

Stephen Yellen: Our key remaining pieces have depicted a propitious trend

Speaker Change: Our key remaining business have depicted a propitious.

Speaker Change: Propitious trends.

Stephen Yellen: While the new initiatives secured positive momentum, breaking it down, the overseas test flight business reported a revenue increase of 47% in dollar terms, or 50% in RMB terms of the year for this quarter.

Speaker Change: While the new initiatives secured a positive momentum breaking down the oversea test prep business reported a revenue increase of 47% in dollar terms or 50% RMB terms year over year for this quarter.

Stephen Yellen: The overseas study consulting business recorded the revenue increase of about 32% in dollar terms or 35% in RMB terms year-over-year for this.

Speaker Change: The overseas study consulting business recorded a revenue increase of about 32% in dollar terms or 35% in RMB terms year over year for this quarter.

Stephen Yellen: The Adolphe University students' business recorded a revenue increase of 43% in dollar terms or 46% increase in RPA terms year-over-year for this quarter.

Speaker Change: I don't see University students business reported a revenue increase of 43% in dollar terms or 46% and in Pristina RV in terms of year over year for this quarter.

Stephen Yellen: As mentioned in the past quarters, we have launched multi-pronged new initiatives, which mostly revolve around facilitating students or around development.

Speaker Change: Especially in the past quarters.

Speaker Change: I've launched multi pronged new initiatives, which mostly revolved around the facility can students or round developments. So they have continued to prosper with consistent growth delivering meaningful profits for the company.

Stephen Yellen: They have continued to prosper with consistent growth, delivering meaningful profits to the company.

Stephen Yellen: Firstly, the nine dynamic tutoring courses which we have offered in around 60 existences focus on cultivating students' innovative ability and comprehensive quality,

Speaker Change: Firstly did not dominant tutoring courses, which behalf offered you know around 60 existing six focus on cultivating students Slovenia fidelity and a comprehensive quality.

Stephen Yellen: The markets we have tapped into have recorded elevated penetration, especially in higher tier cities, with a total of approximately 786,000 students' enrollments reported in this quarter. The top 10 cities in China contribute over 60% of the revenue of this business.

Speaker Change: Market swapped half inch you have recorded elaborated penetration, especially in higher tier cities with a total of approximately 786000 students enrollments reported in this quarter. The top 10 cities in China contributes over 60% of the revenue of this business.

Stephen Yellen: Secondly, the Intelligent Learning System and Device Business, a service designed to provide a tailored digital learning experience for students to enhance learning efficiency, has been adopted in around 60 existing cities. We have observed enhanced customer retention rate and scalability of this new initiative. Approximately 181,000 active paid users reported in this quarter. The revenue contribution of this initiative from the top 10 cities in China is around 55%.

Speaker Change: Secondly, the intelligence learning system and device business.

Speaker Change: Service designed to provide a tailored digital learning experience for students to enhance learning efficiency has been adopted in around 60 existing cities.

Speaker Change: Observed you have the customer retention rates and the scalability of this new initiative.

Speaker Change: Nearly 181 solvents active should pay to users reported.

Speaker Change: The revenue contribution of these initiatives from the top 10 cities in China, it's around 55%.

Stephen Yellen: Our smart education business. Education, no materials, and digitalize the smart.

Speaker Change: Our smart either.

Speaker Change: This educational materials and sees a lot the smarts studies losses have continued to contribute material results. So the overall.

Stephen Yellen: The study solutions have continued to contribute material results to the overall.

Speaker Change: Okay.

Stephen Yellen: In summary, our new educational business initiatives reported a revenue increase of about 68% in dollar terms or 72% increase in RMB terms year-over-year for this fiscal quarter.

Speaker Change: In summary, our new educational business initiatives reported a revenue increase of about 68% in dollar terms or 17, 2% increase in RMB terms year over year for this physical quarter.

Stephen Yellen: In addition, as mentioned in the last quarter, we have inaugurated a newly integrated tourism-related business line as one of our innovative ventures.

Speaker Change: In addition, as mentioned in the last quarter, we have inaugurated our newly integrates tourism related business lines as one of our innovative ventures.

Stephen Yellen: tailored with diverse offerings of cultural trips, study tours in China and overseas, as well as camp education. New Rental's cultural tourism business shares a spirit to provide premium quality travel experiences that are infused with joy from cultural exchange, knowledge sharing, and personal fulfillment.

Speaker Change: Tailored with diverse offerings of cultural chips, Saudi tourists in China and overseas as well as camps education, New Orientals cultural tourism business shared a spirit to provide premium high quality you travel experience that's already infused withdrawing from culture.

Speaker Change: Knowledge sharing and the personal fulfillment.

Stephen Yellen: Within this new business line, our study tour and research camp business for students of K-12 and university age anchors encouraging growth this quarter, thanks to a strong post-COVID recovery of demand and resumed traveling.

Speaker Change: We'll be in this new business line, our study tour and our research channel business for Sudan's of K, 12, and University H anchors encouraging growth this quarter.

Speaker Change: Two a strong post COVID-19 recovery of demand and the resumes its probably will have conducted the study tours and research camp over CTG cities across the country with the top 10 cities in China offering over 65% of revenue share of this new initiative.

Stephen Yellen: We have conducted study tours and research camps in over 50 cities across the country, with the top 10 cities in China offering over 55% revenue share of this new initiative.

Stephen Yellen: also pilots a number of top-notch tourism offerings to expand our reach to old age groups including the middle-aged and elderly individuals across 17 featured provinces.

Speaker Change: Also pilots a number of top notch tourism offerings to expand our reach to all age groups, including the middle aged and elderly individuals across 17 features provinces.

Stephen Yellen: As we are still at the preliminary stage of planning, testifying, and evaluating the viability of the business in select regions, we will keep you posted should there be timely updates.

Speaker Change: We're still at a preliminary stage of planning testifying in evaluating them.

Speaker Change: The ability of the business in select regions.

We'll keep you posted shouldn't there be timely updates.

Stephen Yellen: With regard to our OMO system, we have perceived in revamping our platform and leveraged our educational infrastructure and technology edge of remaining key business and new business with a vision to provide advanced diversified education service to customers of all ages.

Speaker Change: With regards to our Oh Atmos system without perceived in revamping, our platform and leveraged our educational infrastructure and technology edge, our remaining key business and new business with a vision to provide advanced diversified education service to customers of all ages.

Stephen Yellen: During this reporting period, a total of $28.7 million has been invested in our OMO teaching platform, which equips us with the flexibility to maintain unrivaled service to students continuously.

Speaker Change: During this reporting period, a total of $28.7 million has been invested in our mold teaching platform.

Speaker Change: She kept us with the flexibility to maintain reliable service to students continuously.

Stephen Yellen: During the reporting period, if the buy has a chance,

Speaker Change: During the reporting periods is the bi asset turns.

Stephen Yellen: Strong growth momentum through a series of new initiatives aimed to foster the development of its private label products and upgrades on customer service.

Speaker Change: Gross momentum through a series of new initiatives aimed to foster the development of the <unk> private label products and upgrades and customer service.

Stephen Yellen: Comprehensive detail optimization of product quality has been conducted.

Speaker Change: Comprehensive detailed optimization of product quality has been contacts.

Stephen Yellen: and East By has made remarkable breakthroughs in supply chain integration, boosting its private label products.

Speaker Change: And if the buy has made remarkable breakthroughs in supply chain integration boosting its private label products to a total of tools all of them no.

Stephen Yellen: to a total of 2,000, no, a total of 264 SKUs.

Speaker Change: A total of 200 and the 64 Skus. Furthermore, nationwide broke has to events across provinces were launched with the consistent support from local cultural and tourism authorities.

Stephen Yellen: Furthermore, nationwide broadcast events across provinces were launched with the consistent support from local cultural and tourism authorities.

Stephen Yellen: Yizebai also began introducing cultural tourism products and incorporates century-long history, culture, geographies, and folklore into the hours of live streaming e-commerce broadcast.

Speaker Change: The bi also began introducing cultural tourism product and in coverage century long history culture geographies.

Speaker Change: Or into the hours last streaming e-commerce broadcast.

Stephen Yellen: Presenting lively introductions of historical monuments, tourism attractions, and local specialties to their audience.

Speaker Change: Prevention likely introductions of our historical monuments, tourism attractions and local specialties to their audience.

Stephen Yellen: We look forward to witnessing the continued growth of the Easter by and its positive reception within the community.

Speaker Change: We'll look forward to what can this thing be continue the growth of the east Dubai and its positive reception within the community.

Stephen Yellen: With regard to the company's latest financial position, I'm confident to share with you that the company is in a healthy financial status with cash and cash equivalent term deposits and short-term investments totaling approximately $4.8 billion.

Speaker Change: With regard to the company's latest financial position and confidence to share with you that the company is healthy it's in a healthy financial status with cash and cash equivalents term deposits and short term investments totaling approximately $4.8 billion.

Stephen Yellen: On July 26, 2022, the company's board of directors authorized a share repurchase of up to $500 million of the company's ADS or common shares during the period from July 28, 2022 through May 31, 2023. The company's board of directors further authorized the company to extend its share repurchase program launched in July 2022 by 12 months through May 31, 2024. As of January 23, 2024, the company repurchased an aggregate of approximately 6 million ADS.

And two like suddenly face 2022, the company's board of directors authorized a share repurchase of up to $500 million of the company's common shares during the period from July 28, 28, 2022 through May 31 to 23, the company's board of directors.

Speaker Change: Further of our authority.

Speaker Change: Although our authorized the company to extend its share repurchase program launched in July 2022 by 12 months through May 31, 284 as of January 20.

Speaker Change: Third stool on 24, the company repurchased an aggregate of approximately 6 million avs.

Speaker Change: for approximately $194.2 million from the open market under the Shared Repurchase Program. Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead. Now, I'd like to go through the other key financial details for this quarter. Operating costs and expenses for the quarter were $848.3 million, representing a 32.4% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were $818.7 million, representing a 31.6% increase year-over-year. The increase was primarily due to the costs and expenses related to the substantial growth in East Dubai's private label products and live streaming e-commerce business. Cost of revenue increased by 25.7% year-over-year to $422.6 million. Setting and marketing expenses increased by 62.2% year-over-year to $155 million.

Speaker Change: For approximately $194 $2 million from the open market under the share repurchase program now I will turn the call over to <unk> to share with you about the key financials. Please.

Speaker Change: Please go ahead.

Speaker Change: Okay.

<unk>: For this quarter.

<unk>: Cost and expenses for the quarter were $848 3 million, representing a 32, 4% increase year over year non-GAAP operating costs and expenses for the quarter, which exclude share based compensation expenses were $818 $7 million, representing a 31, 6% increase year on.

<unk>: The increase was primarily due to the costs and expenses related to the substantial growth and is Tobias private label products and life streaming E Commerce business.

<unk>: Cost of revenue increased by 25, 7%.

<unk>: So $422 $6 million, selling and marketing expenses increased by 622% year over year to one or another $55 million.

Sisi Zhao: T&A expenses for the quarter increased by 29.6% year-over-year to $270.7 million,

<unk>: G&A expenses for the quarter increased by 29, 6% year over year to $277 million.

Sisi Zhao: Non-GAAP G&A expenses, which exclude share-based compensation expenses, were $256.1 million, representing a 34.2% increase year-over-year.

<unk>: non-GAAP G&A expenses, which excludes share based compensation expenses were 220 to.

<unk>: $256 1 million, representing a 34, 2% increase year over year.

Sisi Zhao: Total share-based compensation expenses which were allocated to related operating cost expenses increased by 57.3% to $29.6 million in the second fiscal quarter of 2024.

<unk>: Total share based compensation expenses, which were allocated to related operating costs and expenses increased by 57, 3% to 29 $6 million in the second fiscal quarter of 2024.

Speaker Change: Thank you.

Speaker Change: Operating income was $21.3 million compared to a loss of $2.5 million in the same period of the prior fiscal year. Non-GAAP income from operations for the quarter was $50.9 million, representing a 212.2% increase year-over-year. Net income attributable to New Oriental for the quarter was $30.1 million, representing a 4,007.4% increase year-over-year. Basic and diluted net income per ADS attributable to New Oriental were $0.18 and $0.18 respectively.

<unk>: Operating income was 21 $3 million compared to a loss of two $5 million in the same period of the prior fiscal year non-GAAP non-GAAP income from operations for the quarter was $59 million, representing a 200 and <unk>.

<unk>: 12, 2% increase year over year net income attributable to new Oriental for the quarter was $31 million, representing a 4007, 4% increase year over year basic and diluted net income per ads attributable to new Oriental or AT&T and AT&T.

<unk>: Respectively.

Speaker Change: Non-GAAP net income attributable to New Oriental for the quarter was $50.2 million, representing a 182.6% increase year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.30 and $0.29, respectively.

<unk>: non-GAAP net income attributable to new Oriental for the quarter was $52 million, representing a 182, 6% increase year over year non-GAAP basic and diluted net income per ads attributable to new Oriental or <unk> and <unk> respectively.

Speaker Change: Net cash flow generated from operation for the second fiscal quarter of 2024 was approximately $300.6 million and capital expenditure for the quarter were $43.4 million. Turning to the balance sheet, as of November 30th,

<unk>: Net cash flow generated from operations for the second fiscal quarter of 2024 was approximately $306 million and capital our capital expenditure for the quarter were $43 $4 million turning to the balance sheet as of November 32.

Speaker Change: In 2023, New Oriental had cash and cash equivalents of $1,942.6 million. In addition, the company had $1,324.1 million in term deposit and $1,571.2 million in short-term investments. New Oriental's deferred revenue, which represents cash collected up front from customers and related revenue that will be recognized

<unk>: 2023, new Oriental had cash and cash equivalents of 19, <unk> hundred $42 $6 million. In addition, the company had <unk> hundred $24 $1 million in term deposit.

<unk>: 50, <unk> hundred 71, $2 million and short term investments, new orientals deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as.

Speaker Change: as the services or goods are delivered at the end of the second quarter of fiscal year 2024 was $1,645 million, an increase of 44.4% as compared to $1,139.1 million at the end of the second fiscal quarter of 2023. Now I'll hand over to Stephen to go through our outlook and guidance.

<unk>: As the services are goods are delivered.

<unk>: The end of the second quarter of fiscal year, 2024 was <unk> hundred $45 million, an increase of 44, 4% as compared to 1100 30 $39 $1 million at the end of the second fiscal quarter.

Speaker Change: To that 23, now hand over to Stephen to go through our outlook and guidance.

Stephen Yellen: As we enter the new quarter, we look forward to delivering, assuring growth and ongoing margin expansion, building on the blend of our brand advantage, rooted history, influential teaching content resources, and solid foundation.

Stephen: As we enter the new quarter, we look forward to delivering a scoring roles and ongoing margin expansion moving on the plan of our brand advantage roots Q3 influential teaching content resources and solid foundation.

Stephen Yellen: We're also committed to working diligently, adhering to the latest guidance from the Chinese authorities on the nation's education level to strengthen its leading position to further unveil our possibility across all business lines and creative endeavors.

Stephen: We're also committed to working diligently adhering to the latest guidance from the Chinese authorities.

Stephen: The nation's education level to strengthen its leading position to further unveil our possibility across all business lines and the creative endeavors.

Stephen Yellen: With regard to the learning center and classroom space, we plan to increase our capacity moderately by about 20% year-over-year.

Stephen: With regard to the learning center and classroom space, we plan to increase our capacity moderately by about 20% year over year.

Stephen Yellen: We will keep monitoring the pace and scale of new openings according to the local operation and our financial results in this fiscal year.

Stephen: We will keep monitoring the pace and scale of new openings. According to the local operation and our financial results in this fiscal year.

Stephen Yellen: The groundwork we have laid and the progress we have made thus far have fulfilled our optimism, our performance, and our possible future.

Stephen: The groundwork we have laid and the progress we have made thus far.

Stephen: Our fuels our optimism.

Stephen: Performance fee.

Stephen Yellen: We've been dedicated to achieving margin expansion throughout the whole year. In the coming quarter, we expect total net revenue to be in the range of $1,070.9 million to $1,093.5 million, representing year-over-year increase in the range of 42% to 45%.

Stephen: Sure.

Stephen: Dedicated to achieving margin expansion throughout the whole year in the coming quarter. We expect total net revenue to be in the range of 170.

$79 million to one solvent and 93 $5 million representing year over year increase in the range of 42% to 45%.

Stephen Yellen: To conclude, we're delighted to share our latest set of the results to all of you while confident in our ability to drive our business towards an even more positive trajectory and enhance profitability throughout the remainder of the fiscal year 2024.

Stephen: To conclude were delighted to share our latest set of results to all of them.

Stephen: Confidence.

Stephen: Our ability to drive our business towards even more positive trajectory.

Stephen: Hence profitability throughout the remainder of the fiscal year 2024.

Stephen Yellen: While we cultivate new endeavors to build upon our capabilities, we will also devote research and application of new technologies such as AI and in our educational and product offerings to uplift our strengths in pursuit of further growth and operating

Stephen: Well, we cultivate new endeavors.

Stephen: To build upon.

Stephen: The abilities, we will devote.

Stephen: Research and application of new technologies.

Stephen: AI and checks.

Stephen: And our.

Stephen: Oh and education around the product offerings, so at least our stress <unk> pursuits, the further growth and operating efficiency.

Stephen Yellen: At the same time, we will continue to seek guidance from and cooperate with government authorities in various provinces in China in alignment with the current situation.

Stephen: At the same time, we will continue to seek guidance from the cloud.

Problem and the coverage with governmental authorities in various provinces in China and alignments.

Stephen Yellen: with its efforts to comply with the relevant policies, guidelines, and regulations, as well as to further adjust our business operations as required.

Stephen: With its efforts to comply with the relevance policies guidelines and regulations as well as to further adjust our business operations as required.

Stephen Yellen: I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and preliminary view, which is subject to change.

Stephen: I must say that these expectations and forecast reflect our consideration of the latest regulatory measure as well as our current and preliminary view, which is subject to change.

Speaker Change: This is the end of our fiscal year 2024 Q2 summary. At this point, I'd like to open the floor for questions. Operator, please open the call for these. Thank you.

Stephen: This is the end of our fiscal year 2024, Q2 summary.

Speaker Change: This point I'd like to open the floor for questions. Operator, Please open the call for leaf. Thank you.

Speaker Change: Thank you. The question and answer session of this conference call will start in a moment.

Thank you.

Speaker Change: The question and answer session of this conference call will start in a moment.

Speaker Change: 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 has been addressed.

Speaker Change: 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 has been addressed.

Speaker Change: To ask a question now, please press star 1 1 on your telephone keypad.

Speaker Change: To ask a question now please press star one one on your telephone keypad.

Speaker Change: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.

Speaker Change: You wouldn't get an automated message advising yohan, it's raised to withdraw your question. Please press star one one again.

Speaker Change: Our first question comes from the line of Felix Liu from UBS. Please ask your question, Felix.

Speaker Change: Our first question comes from the line of Silex Lille from UBS. Please ask your question for Alex.

Felix Liu: Hi. Good evening, Stephen. Congratulations again on a strong set of results. My question is on your very good third quarter guidance of 40% revenue growth. Could you give us a rough breakdown of what's driving this strong growth? Thank you.

Silex Lille: Hi, good evening.

Silex Lille: Congratulations again on that strong set of results. My question is dominantly are very good at that.

Silex Lille: Quarter guidance out.

Silex Lille: 40% revenue.

Silex Lille: Could you give us.

Silex Lille: About the breakdown of what's driving that drop well. Thank you.

Speaker Change: Okay. Thank you, Felix. I think, you know, we beat the top line guidance a lot, as we did in previous quarters. So as for the revenue guidance for the Q3, I think, you know, we're still taking a conservative approach in giving the Q3 growth guidance, you know, which will be in the range of 42% to 45%. In dollar terms, year over year. You know, given the strong demands in education sector and growth momentum we have seen so far in this fiscal year, so we're quite confident about the whole year's revenue growth will be better than we originally expected, especially in the coming Q3. And so for the, you know, all the business lines, you know, the overseas related business, on demand side, we have seen this very strong growth. Demand for overseas test drive and the consulting business.

Silex Lille: Okay.

Speaker Change: Thank you Phil.

Speaker Change: I think we would be in the top line guidance.

Speaker Change: A lot as we did in previous quarters, so as for the revenue guidance for the Q3 I think.

We're still taking a conservative approach.

Speaker Change: The Q3.

Speaker Change: Growth guidance.

Speaker Change: Which will be in the range of 42% to 45% in dollar terms year over year.

Speaker Change: Given the strong demands.

Speaker Change: Management sector.

Speaker Change: And the growth momentum we have seen so far in this fiscal year. So we're quite a confidence about the whole year's revenue growth will be better than we originally expected essentially.

Speaker Change: Coming to three and so far for the.

Speaker Change: All the business lines the overseas.

Speaker Change: They the business and demand side, we have seen very strong demand for overseas test prep and consulting business and the on supply sites. You know we have seen some players disappear from the market during the call that.

Speaker Change: And on supply side, we have seen some players disappear from the market during the COVID. And so that means we're facing less competition in the market.

Speaker Change: So that means we're facing less competition in the market.

Speaker Change: And for the other revenue contributor, the new businesses, I think the incurring performance in this quarter, in Q2, proves that we're heading towards the right direction. And so we believe this business will be able to maintain the very good top-line growth in the Q3. And yes, so overall, so that's why we give the guidance of the top-line growth by 40, 42 to 45%. And so if you want to add.

Host: Subtitles by the Amara.org community

Speaker Change: And the four hour.

Speaker Change: The other other revenue contributor the new businesses I think the encouraging performance in our in this quarter in Q2.

Host: Good evening, and thank you for standing by for New Oriental's FY 2020 Second Quarter Results and Earnings Conference Call.

Host: At this time, all participants are in the listen-only mode after management's prepared remarks to be questioned and answered sessions. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Speaker Change: Proof that we are heading towards the right direction and so we believe this business will be able to maintain.

Speaker Change: The very good top line growth in our in the Q3.

Speaker Change: And yes. So overall so that's why we gave the guidance of the top line growth.

And I'd like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao. Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter 2024 earnings conference call.

Speaker Change: 40, 42% to 45% and SEC.

Speaker Change: The bricks and mortar.

Speaker Change: Yeah, actually the revenue contribution from key business lines is pretty consistent in this year, very similar to last quarter. Like overseas related business contributes like 20, 20, 20 to 21 percent of total revenue, like domestic test prep, two to three percent. And also the K to 12 newly developed educational initiatives for K to 9 and also some remaining other training, tutoring business for high school together contribute over 41, 42 percent of total revenue. So the key drivers are growing very, very well, and we're seeing continued trend for all the key business lines as well.

Yeah actually the revenue contribution from key business lines.

Our financial results for the program were released earlier today and are available on the company's website as well as in our services. Today, Stephen Yellen, President and Chief Financial Officer, and I will share New Oriental's latest earnings results and business updates in detail with you. After that, Stephen 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. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and assumptions.

Speaker Change: It's pretty consistent.

Speaker Change: Or are there are similar to last quarter like overseas related business country builds like 22020% to 21% of total revenue.

Speaker Change: Like domestic test prep, 2% to 3% and also the.

Speaker Change: CAGR 12, newly newly developed educational initiatives for a kid deny and also with some remaining other training touring business for high school together accountable 40 over 42% 41, 42% of total revenue.

Speaker Change: So the key drivers are growing library.

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 findings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

Speaker Change: Well and we are seeing continued a trend for all of the key business lines as well.

Speaker Change: Thank you very much.

Speaker Change: Thank you Alex.

Speaker Change: Okay, thank you. Very clear. Congratulations on the results.

Speaker Change: Okay.

Speaker Change: Congratulations on the way.

Speaker Change: Thank you again.

Speaker Change: Thank you again.

Speaker Change: Thank you. Our next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.

Speaker Change: Thank you Alex.

As a reminder, this conference call is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org.

Speaker Change: Next question comes from the line of <unk>, Zhang from China Renaissance. Please ask your question.

Yiwen Zhang: Hey, good evening, management. Thanks for taking my question. Congrats on that strong quoted result. So my question is about our learning center expansion. You mentioned about whole year 20% capacity growth. If I calculate correctly, that actually implies second half net add would slow down a bit. So could you discuss what are our considerations there, given the very strong demand? Thank you.

Zhang: Hey, good evening management.

Zhang: Taking my question.

I'll now first turn the call over to Mr. Yang.

Zhang: Oh another strong quarterly result, so my question you talked about I want you know learning center expansion and measure apologies you know a whole year, 20% capacity growth.

Stephen, please go ahead.

Thank you, Sisi.

Hello everyone, and thank you for joining us on the call. It's our pleasure to announce that New Rental has delivered a set of fruitful financial results that have surpassed our expectations this quarter. Our diverse business lines have embarked on a healthy recovery and anchored stable top-line performance, while the enduring momentum of our new business has made a meaningful contribution to the company's revenue and continues to pave the way for further acceleration. New Oriental's bottom line performance has achieved promising growth with operating margin and non-GAAP operating margin reaching 2.5% and 5.9% for this quarter, respectively. Thanks to our unwavering efforts to improve operational efficiency and cost control as well as the combined efforts of our restructured business model while utilizing resources and a streamlined cost structure. We are encouraged by the company's sustainable profitability, resilient business lines, and prospering new businesses. We reinforce our commitment to maintaining healthy market share growth and creating sustainable value for customers and shareholders in the long term.

Zhang: If I can.

Zhang: Could it correctly that titanium price cut in half.

Zhang: Not at all to slow down a bit so curtis comparable to our casino ratio. They are keeping them very very strong demand. Thank you.

Speaker Change: Yeah, this quarter we added around 7% new capacity and you know at this time you know you know last quarter we guided the capacity expansion will be you know somewhere around 15% to 20% so this time we raise the extension guidance to you know somewhere around 20% and so and you know I think we will open a reasonable amount of the new learning centers you know while some the new classroom areas or some existing centers you know will be expanded in the second half of the year and and I think most of the new openings will be in the cities with a better top line and bottom line performance and I think we will keep monitoring the pace and scale of the new options according to the operation and financial results in the second half of the year and I think maybe in the in the next quarter we're just you know in in Q4 I think we will you know share with you about the new our new decision of the learning center expansion maybe we'll raise again

Zhang: This quarter, we added around 7% new capacity and.

Zhang: At this time.

Zhang: Last quarter, we guided the capacity expansion will be.

Zhang: Some are around 15% to 20%. So this time, we raise the expansion guidance to.

Zhang: Somewhere around 20%.

So.

Zhang: You know I think we will.

Zhang: A reasonable amount of new learning centers.

Zhang: Well, some the new classroom areas.

Zhang: Some others.

Zhang: You know will be extended in the second half of the year and and.

Zhang: I think most of the new openings will be in the cities with a better topline and Bottomline performance and I think we'll keep monitoring the pace and scale new offerings accordingly to the operation and financial results in the second half of the year and I think maybe in the next.

Zhang: Quarter It worked just.

Zhang: In Q4, I think we will.

Now, I'd like to spend some time talking about the quarter's performance across our remaining business lines and new initiatives with you in detail. Our key remaining pieces have shown a positive trend, while the new initiatives secured positive momentum. Breaking it down, the overseas test flight business reported a revenue increase of 47% in dollar terms, or 50% in RMB terms of the year for this quarter. The overseas study consulting business recorded a revenue increase of about 32% in dollar terms or 35% in RMB terms year-over-year for this. The Adolphe University students' business recorded a revenue increase of 43% in dollar terms or a 46% increase in RPA terms year-over-year for this quarter. As mentioned in the past quarters, we have launched multi-pronged new initiatives, which mostly revolve around facilitating students or around development.

Zhang: Share with you about the new our new decision of the learning center expansion, maybe what where race again.

Speaker Change: Thank you.

Speaker Change: Yeah, okay, okay, thank you.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you, Yuen.

Speaker Change: Thank you Elaine.

Speaker Change: Our next question comes from the line of Lucy Yu from Bank of America Securities. Please ask your question, Lucy.

Speaker Change: Our next question comes from the line of Lucy You from Bank of America Securities. Please ask your question Lucy.

Speaker Change: Hi, students. This is Lucy from BOFA. So, follow up on the earlier question on expansion. So, actually, we have seen very, very strong demand on the ground. Many of my friends trying to enroll to a learning center, but was told it's already full. Even the learning center is still under reservation at the moment. So, I'm wondering what is the bottleneck for us to expand faster at the moment? Is it teacher recruitment or is it like finding the right location or get the license? So, what is the bottleneck from preventing us expanding even faster? Thank you.

Lucy Yu: Oh, Hi, Joseph this is mostly from a USA. So a follow up on the earlier question on the expansion.

Lucy Yu: Actually we have seen very very strong demand on the ground and many of my friends trying to enroll to our London, Santa Barbara holidays already pool, even though it's still under evaluation at the moment. So I'm wondering what is the bottleneck for us to expand.

Lucy Yu: At the moment is a teacher.

Lucy Yu: Or is it like finding the right location or get the license. So what is the bottleneck from preventing us.

Lucy Yu: Expanding in Boston. Thank you.

They have continued to prosper with consistent growth, delivering meaningful profits to the company. Firstly, the nine dynamic tutoring courses which we have offered in around 60 locations focus on cultivating students' innovative ability and comprehensive quality. The markets we have tapped into have recorded elevated penetration, especially in higher-tier cities, with a total of approximately 786,000 students' enrollments reported in this quarter. The top 10 cities in China contribute over 60% of the revenue of this business. Secondly, the Intelligent Learning System and Device Business, a service designed to provide a tailored digital learning experience for students to enhance learning efficiency, has been adopted in around 60 existing cities.

Speaker Change: Thank you, Lucy. You know, I think the reason that we give the guidance of the learning center expansion about 20% because I think, you know, we do have the OMO system and the OMO model. So that means the online sites will help us to take over more students into the existing classrooms and the learning centers. So OMO model helps a lot. And secondly, you know, education is typically a long-term business, so we care more about the top-line growth and the bottom-line growth, that means the marketing expansion. So we don't want to grow the business too fast. So, you know, what we're carrying is that the top-line growth, you know, actually, we have already given the guidance of 45% top-line growth. And also, we also care about the marketing expansion. So it's the growth balance between the top-line and bottom-line.

Speaker Change: Thank you Lucy.

Speaker Change: Thank you.

Speaker Change: The reason that we gave the guidance.

Speaker Change: The learning center expansion about 20%.

Speaker Change: Because I think we will have two or more.

Speaker Change: System and the <unk> model, so that to me is the online.

Speaker Change: Our sites will help us to chew.

Speaker Change: Take over more students into the existing classrooms in the learning centers, so or more model helps a lot.

Speaker Change: Secondly, you know educationally so typical of the long term our business. So we care more about the topline growth and bottom line growth that means the margin expansion. So what it wants to do to grow the business is too fast so you know what.

Speaker Change: What we're carrying that.

Speaker Change: The top line growth.

Speaker Change: Actually we have already gave the guidance of 45% topline growth you eat your fleet and also <unk>.

We have observed enhanced customer retention rates and scalability of this new initiative. Approximately 181,000 active paid users reported in this quarter. The revenue contribution of this initiative from the top 10 cities in China is around 55%. Our smart education business Education, no materials, and digitalize the smart. The study solutions have continued to contribute material results to the overall. In summary, our new educational business initiatives reported a revenue increase of about 68% in dollar terms or 72% increase in RMB terms year-over-year for this fiscal quarter. In addition, as mentioned in the last quarter, we have inaugurated a newly integrated tourism-related business line as one of our innovative ventures, tailored with diverse offerings of cultural trips, study tours in China and overseas, as well as camp education.

Speaker Change: We're also care about the margin expansion so it's up.

Speaker Change: The gross balance between the topline and Bottomline Uzi.

Speaker Change: Thank you, Steven. Just to follow up, you mean the OMO model, I know it's adopted for the high school, but for the non-curricular training, we are also using OMO at the moment? So what's the percentage of like online versus offline at the moment? Yes, Lucy. For some of the non-advanced courses and the overseas test labs, even for some college students' business, all of the business, we do have the OMO model.

Speaker Change: Thank you Steven just a follow up.

Speaker Change: The OMB model I know if adopted for the high school.

Non curricular training we are also looking.

Speaker Change: At the moment, so yes, the percentage look like online versus offline, yes, yes, mostly for for some the knockdown of course and at the Oversea test prep for some college students business. We do all of the business, we will have the alignment model.

Speaker Change: And also the intelligent learning devices, which is also the one that we don't require too many new locations.

Speaker Change: And also the intelligent learning devices, which is also the one that we don't require too many new locations.

Speaker Change: I see. Thank you so much. Thank you.

Speaker Change: Thank you so much.

Speaker Change: Thank you Lucy.

Speaker Change: Thank you, Lucy.

Speaker Change: Thank you Lucy.

Speaker Change: Our next question comes from the line of

Speaker Change: Our next question comes from the line of.

Speaker Change: Timothy Chou from Gilbert Sachs, please ask your question Timothy.

Speaker Change: Timothy Zhao from Goldman Sachs. Please ask your question Timothy.

Timothy Chou: Thank you. Hi, Stephen. Hi, Stephanie.

Zoe Zhao: Thank you hi.

Zoe Zhao: Hi, Stephen Hi, this is Timothy from Goldman.

Timothy Chou: from Goldman. My question is on the margins. I saw this quarter the Nangai working margin expanded by around 3%.

Zoe Zhao: My question is on the margins I saw this call it hurt our non-GAAP op margin expanded by around three three percentage point just wondering if you can provide any color in terms of breakdown because on the other hand, I think for your Spider with.

New Rental's cultural tourism business shares a spirit to provide premium quality travel experiences that are infused with joy from cultural exchange, knowledge sharing, and personal fulfillment. Within this new business line, our study tour and research camp business for students of K-12 and university age anchors encouraging growth this quarter, thanks to a strong post-COVID recovery of demand and resumed travel. We have conducted study tours and research camps in over 50 cities across the country, with the top 10 cities in China offering over 55% revenue share of this new initiative. It also pilots a number of top-notch tourism offerings to expand its reach to old age groups, including middle-aged and elderly individuals across 17 featured provinces.

Goldman: I'm just wondering if you can provide any color in terms of breakdown because on the other hand

Speaker Change: Thank you for inspiring us.

Speaker Change: Thank you.

Zoe Zhao: Some pressure on the margins just wondering if we exclude the market impact from east by what kind of margin expansion that we're seeing.

Speaker Change: and Martin

Speaker Change: What cannot Martin's pensions?

Speaker Change: for the Corbett.

Zoe Zhao: The core business and then after this quarter, how do we think about the full year op margin guidance. Thank you.

Speaker Change: And then after this quarter, how do we think about that?

Speaker Change: You know, yeah, let's start with the quarter, this quarter margin analysis, even though, yeah, as you said, even though it's the bias margin drag in this quarter, we still got the non-GAF OP margin expansion by 330 basis points. And I think the margin increase was mainly driven by the following reasons. Number one is the, you know, the utilization rates improving of our facilities and the teaching resources increased the learning center margins on average. So that means we have the lower fixed cost and expenses compared to that of last year.

Zoe Zhao: Okay.

Zoe Zhao: Yes.

Zoe Zhao: With the.

Zoe Zhao: Quarter this water Martin, even though yeah as SaaS, even though is the bias on margin drag in this quarter.

We're still guiding non-GAAP op margin expansion by 330 basis points and I think the margin increase was mainly driven by the following reasons number one is the utilization rates.

Zoe Zhao: Rates improving of our facilities and the teaching resources increased learning center margins on average so that means we have the lower fixed cost and expenses compared to that of last year and number two as you know the new business.

As we are still at the preliminary stage of planning, testifying, and evaluating the viability of the business in select regions, we will keep you posted should there be timely updates. With regard to our OMO system, we have perceived the need for revamping our platform and leveraging our educational infrastructure and technology edge of remaining key business and new business with a vision to provide advanced diversified education services to customers of all ages. During this reporting period, a total of $28.7 million has been invested in our OMO teaching platform, which equips us with the flexibility to maintain unrivaled service to students continuously. During the reporting period, if the buy has a chance, strong growth momentum through a series of new initiatives aimed to foster the development of its private label products and upgrades customer service. Comprehensive detail optimization of product quality has been conducted, and East By has made remarkable breakthroughs in supply chain integration, boosting its private label products to a total of 2,000, no, a total of 264 SKUs.

Speaker Change: and number two is you know the new business margin is over is around like the 19 20 percent so you know we just started the new business two years ago so that means the ramping up uh pace is much faster uh than we expected and also the remaining business such as oversea related business business and the college business you know generally higher margin than that of last

Zoe Zhao: Margin is over is run like the 19, 20%. So just to start with new business two years ago, So that means the ramping up.

Zoe Zhao: Pay as much faster than we expected and also the remaining business such as overseas related business and the college business.

Zoe Zhao: The higher margin than that of last year. So in the Q2, we take all the east device.

Speaker Change: So in the Q2, if we take out the EastBuy's impact education, the non-GAAP open margins is what was that? Increased, actually, it's much higher than the overall margin, yeah. Because they don't, actually, EastBuy don't release quarterly earnings, so you can look at the results of their first half. So you can roughly get the calculation of the educational business margin expansion.

Zoe Zhao: Education, and then that will be my disease, what would that increase.

Zoe Zhao: It actually is much higher than the overall margin yeah.

Zoe Zhao: Because they they don't they don't actually used to buy released quarterly earnings. So you can you can you can look at the results of the first half. So you can you can roughly it got the calculation of that.

Zoe Zhao: Educational business marketing expense.

Speaker Change: And, you know, as we head into the Q3, with the operating leverage and the higher utilization control, I think the remaining will get the margin expansion continuously, you know, in the Q3 and in the Q4. So that means that the second half of the year, I think you will see the margin expansion in education.

Zoe Zhao: Okay.

Zoe Zhao: And you know what.

Zoe Zhao: As we head into the Q3.

Zoe Zhao: With the operating leverage and higher utilization control I think the revenue.

Zoe Zhao: Yes.

Zoe Zhao: Well.

Zoe Zhao: You will get the margin expansion continuously.

Zoe Zhao: Q3.

Furthermore, nationwide broadcast events across provinces were launched with consistent support from local cultural and tourism authorities.

Zoe Zhao: In Q4, so that means that the second half of the year.

Zoe Zhao: I think you will see the margin expansion.

Zoe Zhao: Education business.

Speaker Change: Thank you.

Yizebai also began introducing cultural tourism products and incorporating century-long history, culture, geography, and folklore into the hours of live streaming e-commerce broadcast, presenting lively introductions of historical monuments, tourist attractions, and local specialties to their audience. We look forward to witnessing the continued growth of the Easter by and its positive reception within the community. With regard to the company's latest financial position, I'm confident to share with you that the company is in a healthy financial status with cash and cash equivalent term deposits and short-term investments totaling approximately $4.8 billion. On July 26, 2022, the company's board of directors authorized a share repurchase of up to $500 million of the company's ADS or common shares during the period from July 28, 2022 through May 31, 2023. The board of directors further authorized the company to extend its share repurchase program launched in July 2022 by 12 months through May 31, 2024. As of January 23, 2024, the company repurchased an aggregate of approximately 6 million ADS for approximately $194.2 million from the open market under the Shared Repurchase Program.

Speaker Change: Thank you Steven for <unk> very helpful.

Speaker Change: Thank you, team.

Speaker Change: Thank you team.

Speaker Change: Our next question comes from the line of Tian Hou from TH Capital. Please ask your question, Tian.

Speaker Change: Our next question comes from the line of Tien Ho from T. H capital. Please ask your question Tien.

Tian X. Hou: Hi, Sisi, Stephen. Congratulations for a good quarter. I have actually two questions. One is how this culture and tourism business is conducted. You know, how do you record the revenue from that? That's number one. Number two, can you break down the results and guidance into different segments for both revenues and the margin profiles? That's two. Thank you.

Tian X. Hou: ICC Steven.

Tian X. Hou: Congratulations for a quarter.

Tian X. Hou: Uh huh.

Tian X. Hou: I have two questions one is Uh huh.

Tian X. Hou: There's a culture and to tourism business is conducted.

How do you record the revenue from that.

Tian X. Hou: One number two can you breakdown the results and guidance.

In two different segments.

Tian X. Hou: For both revenues and the margin profile that's too thank you.

Sisi Zhao: Thank you, Tian. I will take the question about tourism businesses.

Speaker Change: Thank you again I would think about it.

Speaker Change: A question about tourism business Okay.

Sisi Zhao: As mentioned in the last quarter, we have started the tourism business as one of our innovative ventures.

Speaker Change: As mentioned in the last quarter.

Speaker Change: We have started the tourism business.

Speaker Change: I see.

Speaker Change: One of our innovative ventures.

Sisi Zhao: And, you know, the tourism business includes our well-grounded study tour and the research camp business for the students, as well as our new tourism business that serves the middle-aged and senior people.

Speaker Change: And so you know this.

Speaker Change: At the.

Speaker Change: Tourism business includes sour what granted the study tour and the research cat business for students.

Speaker Change: Students.

Speaker Change: As well as the our new tourism business that serves the middle age the sooner people.

Sisi Zhao: You know, we don't have a lot of...

Speaker Change: You know what.

Speaker Change: We don't have a lot of teachers.

Sisi Zhao: And I think that our new tourism business will utilize our strength in knowledge sharing of those teachers. And as well, we have abundant sales channels, including Dongfang Zhenxuan and online-offline channels in New Oriental.

Speaker Change: And I think that the our new tourism business will utilize our strengths in knowledge sharing those teachers.

Speaker Change: As well, we have abundance sales channel, including 2000 shot and online offline channels.

Speaker Change: In new Oriental.

Sisi Zhao: So during this quarter, we piloted a number of tourism offerings to expand to reach all ages people and the top line growth is very good in this quarter because in the last year, we did have the negative impact from the COVID.

Now, I will turn the call over to Sisi to share with you the key financials. Sisi, please go ahead. Now, I'd like to go through the other key financial details for this quarter. Operating costs and expenses for the quarter were $848.3 million, representing a 32.4% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were $818.7 million, representing a 31.6% increase year-over-year.

Speaker Change: During this quarter, we piloted a number of tourism offering to expense.

Speaker Change: We reached all our agents people.

Speaker Change: The top line grows.

Speaker Change: It's very very good in this quarter because it can last a year.

Speaker Change: We have seen that we.

We did have the negative impacts from the Covid.

Sisi Zhao: and you know we we set up the new company named the New Oriental Cultural Tourism Group and also this group company set up the the 100 percent the the subsidiaries in all cities so you know we divided the revenue and the effect the financial statement you know from the education to the education to the tourism business so that means going forward we will record the two business lines uh you know uh in two parts

Speaker Change: Yes.

Speaker Change: We set up the new company named the New Oriental Cultural Tourism group and also.

The increase was primarily due to the costs and expenses related to the substantial growth in East Dubai's private label products and live streaming e-commerce business. Cost of revenue increased by 25.7% year-over-year to $422.6 million. Setting and marketing expenses increased by 62.2% year-over-year to $155 million. T&A expenses for the quarter increased by 29.6% year-over-year to $270.7 million. Non-GAAP G&A expenses, which exclude share-based compensation expenses, were $256.1 million, representing a 34.2% increase year-over-year. Total share-based compensation expenses, which were allocated to related operating cost expenses, increased by 57.3% to $29.6 million in the second fiscal quarter of 2024. Operating income was $21.3 million compared to a loss of $2.5 million in the same period of the prior fiscal year. Non-GAAP income from operations for the quarter was $50.9 million, representing a 212.2% increase year-over-year.

Speaker Change: This group of companies set up the 100%.

Speaker Change: The subsidiaries all cities. So we divided the revenue and the financial statements.

Speaker Change: From the education to be agile to the tourism business. So that gets going forward. We will report the two business lines.

Speaker Change: Right.

Speaker Change: Into parts.

Sisi Zhao: and so going forward I think our goal is to be leading the cultural tourism company in China and to provide the best service to the customers as much as we can and I do hope the going forward the tourism business will contribute more revenues and the profits to the whole

Speaker Change: So going forward I think our goal is to be the leading.

Speaker Change: The cultural tourism company in China and to provide the best service.

Speaker Change: To the customers as much as we can and I do hope the.

Speaker Change: Going forward.

Tourism business will contribute with more revenues and the profits to the whole group.

Speaker Change: Yeah, Tian, your second question on the guidance breakdown, as I mentioned earlier, for overseas-related business for Q3, roughly the contributions are similar with previous quarter, about 21-22%. And the domestic test prep is about 2-3%. And the K-12, including the new educational initiatives for K-9, and also remaining high school business together, contribute over 40%. Of total revenue, yeah, so that's the key business lies. Mix. Thank you. Thank you. Thank you.

Speaker Change: Okay, Yeah, that's good.

Speaker Change: Yeah, Ken your second question on the guidance breakdown.

Ken: I mentioned earlier for overseas related business for Q3, roughly at Houston are similar with previous quarter about 21, 22% and the domestic test prep is about 2% to 3% and the K 12, including that new educational you Nisha lives for our kids nine and also remaining.

Ken: Our high school business together contributed over 40% of total revenue yeah. So that's the key key business line mix. Thank you. Thank you. Thank you.

Speaker Change: Thank you again. That's all.

Speaker Change: Thank you Kim.

Speaker Change: Thank you, Tian.

Speaker Change: Thank you Tien.

Speaker Change: Before we take the next question, a reminder to press star 1 1 if you have any questions.

Speaker Change: Before we take the next question reminded to press Star one run if you have any questions.

Net income attributable to New Oriental for the quarter was $30.1 million, representing a 4,007.4% increase year-over-year.

Speaker Change: Our next question comes from Candice Chen from Daiwa. Please ask your question, Candice.

Speaker Change: Our next question comes from Kansas Chen from Daiwa. Please ask your question Candace.

Candice Chen: Great. Hi, Sisi and Stephen. Congratulations on a very strong quarter and also the learning guidance. My question is on the margins for longer term. So I think you just mentioned that for the new education businesses that actually we are looking at around 19 to 20 percent operating margin, which is pretty impressive as compared to what you mentioned in the previous quarters. And I'm just wondering, I just wonder for the in the longer term that we are talking about, like two to three years down the road, what should we expect for this new education business in terms of their operating margins? And also for the overseas test practices, what kind of margins should we be expecting given the very strong demand out of the revenue here? Okay.

Speaker Change: Great.

Basic and diluted net income per ADS attributable to New Oriental were $0.18 and $0.18, respectively.

Kansas Chen: And Stephen Congratulations on the very strong quarter and I'll take the revenue guidance.

Question is.

Kansas Chen: On the margin for a longer term. So I think we just mentioned that for the more education business is that actually we are looking at around 19% to 20% Aqua in Washington, which is pretty impressive does come back to.

Non-GAAP net income attributable to New Oriental for the quarter was $50.2 million, representing a 182.6% increase year-over-year.

Speaker Change: What you mentioned in the previous quarters and I was just wondering I just wanted to ask with it in the longer term debt that we are talking about like cubic meters.

Non-GAAP basic and diluted net income per ADS attributable to New Oriental was $0.30 and $0.29, respectively. Net cash flow generated from operations for the second fiscal quarter of 2024 was approximately $300.6 million, and capital expenditure for the quarter was $43.4 million. Turning to the balance sheet, as of November 30th, In 2023, New Oriental had cash and cash equivalents of $1,942.6 million. In addition, the company had $1,324.1 million in term deposits and $1,571.2 million in short-term investments. New Oriental's deferred revenue, which represents cash collected up front from customers and related revenue that will be recognized as the services or goods are delivered at the end of the second quarter of fiscal year 2024, was $1,645 million, an increase of 44.4% as compared to $1,139.1 million at the end of the second fiscal quarter of 2023.

Speaker Change: What should we expect.

Speaker Change: No education business.

Speaker Change: In terms of the operating margin and also for the overseas test prep business.

Speaker Change: What kind of margin should we be exciting given that that has gone.

Speaker Change: You may now as other revenue.

Speaker Change: Yeah, as you know, we started the new education business two years ago, and, you know, in this quarter, the margin of this business is roughly 19%, and going forward, I think the margin will be over 20%, you know, so that means we expand the margin of this business, you know, we will expand the margin of this business in the second half of this year. And even in the new year, fiscal year 25, you know, we expect the margin of the education business overall will be expanded because of the, yeah, as I said, because of the lower fixed cost and the higher utilization of the learning centers and the cost control. I think, you know, both the existing business, such as the overseas-led business. And the college business and the new business, new initiatives will expand the margin, you know, so going forward, even in the second half of this fiscal year and the fiscal year 25, I think the margin will be expanded.

Speaker Change: Thank you.

Speaker Change: Yeah as you know we started the new division business three years ago and.

Speaker Change: In this quarter the margin of this business is roughly 19% and going forward I think what the the margin will be over 20%.

Speaker Change: So that means we expand the margin on this business.

Speaker Change: You know we are we will extend the margin of this business in the in the second half of this year and even in the new year physically you're 25 weeks that the the margin of the education business overall will be extended because of the yes is that because of the.

Speaker Change: Lower fixed cost and the higher utilization of the learning centers and the cost control I think.

Speaker Change: Both.

Speaker Change: The existing business.

Speaker Change: As such as the overseas less visits and the college business business and the new business, new our new initiatives.

Speaker Change: <unk> extends the margin.

Speaker Change: So going forward, even in the second half of <unk>.

Speaker Change: This fiscal year <unk> to fiscal year 'twenty five I think the margin will be expanded.

Speaker Change: So yeah, and you know, we care more about the top line growth and the margin expansion. So we believe we will create more value to the shareholders.

Speaker Change: So yeah, and you know we care more about the topline growth and the margin expansion. So we believe we will create more value to the shareholders.

Speaker Change: I see bottom line.

Now I'll hand over to Stephen to go through our outlook and guidance. As we enter the new quarter, we look forward to delivering, reassuring growth, and ongoing margin expansion, building on the blend of our brand advantage, rooted history, influential teaching content resources, and solid foundation. We're also committed to working diligently, adhering to the latest guidance from the Chinese authorities on the nation's education level to strengthen its leading position to further unveil our possibilities across all business lines and creative endeavors. With regard to the learning center and classroom space, we plan to increase our capacity moderately by about 20% year-over-year. We will keep monitoring the pace and scale of new openings according to the local operation and our financial results during this fiscal year.

As the bottom of my life.

Speaker Change: Another question is about our cash. I think we are having almost $5 billion cash right now. So in terms of shareholder returns, what are we going to do with the cash in the following years?

Speaker Change: Great.

Speaker Change: The other question is about our council yeah.

Speaker Change: Almost almost <unk> 5 billion in cash right now so in terms of shareholder returns what are we going.

Speaker Change: Hi.

Speaker Change: Everything to do with the cash in the following years.

Speaker Change:

Speaker Change: Yeah, you know, we announced the $400 million share buyback program, and so, you know, so far we finished $194 million, and I think we will buy the share back, you know, from the open markets going forward. And, you know, this round, we choose to buy the share back, and, you know, but it's arguably, you know, we paid the several times special dividend, and did several times share buyback, so going forward, you know, next round, maybe we will choose the dividend again, and order the share buyback.

Speaker Change: Yeah, you know, we announced the $400 million of share buyback.

Speaker Change: Our program and so so far we finished the 194.

Speaker Change: <unk> million dollars.

Speaker Change: And so I think it will by the share buybacks.

Speaker Change: From the open markets going forward and you.

Speaker Change: You know this round, if we choose to buy the share back.

Speaker Change: But it is our belief we.

Speaker Change: We paid these several times special dividends and several times share buyback. So going forward you know next round and maybe we will choose the TWC and <unk> and where did the share buyback.

Speaker Change: Okay, good to hear. Thank you, Susan.

Speaker Change: Okay. Thank you. Thank you Susan.

The groundwork we have laid and the progress we have made thus far have fulfilled our optimism, our performance, and our possible future. We've been dedicated to achieving margin expansion throughout the whole year. In the coming quarter, we expect total net revenue to be in the range of $1,070.9 million to $1,093.5 million, representing year-over-year increase in the range of 42% to 45%. To conclude, we're delighted to share our latest set of the results to all of you while confident in our ability to drive our business towards an even more positive trajectory and enhance profitability throughout the remainder of the fiscal year 2024. While we cultivate new endeavors to build upon our capabilities, we will also devote research and application of new technologies such as AI and in our educational and product offerings to uplift our strengths in pursuit of further growth and operating, At the same time, we will continue to seek guidance from and cooperate with government authorities in various provinces in China in alignment with the current situation, with its efforts to comply with the relevant policies, guidelines, and regulations, as well as to further adjust our business operations as required.

Speaker Change: Yes.

Speaker Change: Thank you, Candice. As a reminder, to ask a question, please press star 1 1 on your telephone keypad. Our next follow-up question comes from the line of Felix Liu from UBS. Please go ahead, Felix.

Speaker Change: Thank you Candice.

Speaker Change: Minder to ask a question. Please press star one one on your telephone keypad.

Speaker Change: A full up question comes from the line of Felix Liu from UBS. Please go ahead.

Felix Liu: Good evening Steven and Sisi. I have a follow up question on competition. You mentioned that the supply-demand dynamics of the sector is very strong. Do you see any risk in competition intensifying? Do you see smaller players also ramping up capacity expansions or is not what is happening from the ground? Thank you.

Speaker Change: Okay.

Hi, good evening.

Felix Liu: All of the follow up question on competition.

Felix Liu: Mentioned that the supply demand dynamics of the sectarian draw.

Felix Liu: Do you see any risk.

Felix Liu: Christian.

Felix Liu: Hi.

Can you see a smaller player is also ramping up capacity expansions.

Felix Liu: What is happening.

Felix Liu: You know, Felix, we have seen a lot of the competitors.

Speaker Change: Thank you.

Speaker Change: Phillips.

Speaker Change: We have seen.

Speaker Change: A lot of the competitors disappear from the market.

Speaker Change: I think this is true, you know, both for the K-12 business and the overseas related business, even with the college business. And going forward, I think we expect the competition environment will be stabilized.

Speaker Change: Things.

Speaker Change: It seems that two or three years ago and.

Speaker Change: Especially in <unk>.

Speaker Change: Is that.

Speaker Change: Our fishing in Alaska.

Speaker Change: Yeah. So.

Speaker Change: I think this is true in a boastful.

Speaker Change: Both for the <unk> business and the overseas related business, even whether they'd be colors business.

Speaker Change: And going forward I think we expect the competition environment will be stabilized.

Speaker Change: Okay.

Speaker Change: Okay, got it. Thank you.

Speaker Change: Okay got it thank you.

Speaker Change: Thank you, Felix.

Speaker Change: Thank you Felix.

Speaker Change: Once again, to ask a question, please press star 1 1 on your telephone keypad.

Speaker Change: Once again to ask a question. Please press star one one on your telephone keypad.

Speaker Change: Okay.

I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and preliminary view, which is subject to change.

Okay.

Speaker Change: Our next follow-up question comes from the line of Timothy Chow from Goldman Sachs. Please go ahead, Tim.

Speaker Change: Our next follow up question comes from the line of Timothy Zhao from Goldman Sachs. Please go ahead.

Timothy Chow: Hi, Steven. Just a follow-up question, I think, on the intelligent learning system and devices. I saw the number of active users, I think, for the past quarter is actually quite similar to the summer semester. Just wondering if you can share some color in terms of the seasonality of these business lines and what it's

Zoe Zhao: Hi, This is Steven just a follow up question I think on the <unk>.

This is the end of our fiscal year 2024 Q2 summary.

Steven: Intelligent learning system and devices I saw the number of active users I think for the past quarter is actually quite similar to the.

Host: At this point, I'd like to open the floor for questions. Operator, please open the call for these.

Steven: Summer semester, just wondering if you can share some color in terms of the seasonality of this business lines and what is the profitability that we're seeing and how do you think about the I think the Q on Q growth I think into a third quarter fourth quarter that'd be helpful.

Host: Thank you.

Timothy Chow: The probability that we are seeing and how to think about the

Host: Thank you.

Host: 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 has been addressed. To ask a question now, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again.

Timothy Chow: Thank you for watching.

Speaker Change: Yeah, actually, the intelligent learning device business are developing also very well. You know, the growth is pretty strong, and we're seeing actually not very seasonal pattern for this business, quite similar with previous tutoring business, especially for middle school students. And, you know, this year, the year-over-year increase of user is very high, and also where we have prepared a lot of new devices to cater the needs of customers. The key drivers, growth drivers, are new customers, and also we're making efforts on expanding to more subjects for existing customers as well. Because this is a very good project. You know, we have products that are helping kids to enhance their self-study ability, you know, even without our teachers' instruction, but using the device and also benefiting from our very, very good content, you know, differentiating content embedded in the device that kids can also prepare for the academic study and do the process by themselves. So this is a good solution after the policy changes. And all the restructuring of the whole company, so we're confident in the development of this new product, and also, you know, the profitability is also currently, we're seeing the margin are similar with our tutoring business, like the non-academic tutoring business for mostly for elementary school students. And also, we're seeing the potential for this kind of learning device business, the margin potential. It's also quite strong, and we can leverage more of our teacher resources, and also, we don't need to spend a lot of cost on the learning center opening, yeah.

Speaker Change: Yeah actually the intelligent learning devices.

Speaker Change: Business are developing also very well the growth is pretty strong and we're seeing actually.

Speaker Change: Not various there's no pattern for.

Speaker Change: This business quite similar with <unk> tutoring business, especially for Middle school students and.

Speaker Change: This year the year over year increase a few sir.

Great.

Speaker Change: Hi, and also where we have prepared a lot of new devices to cater the needs of customers.

Speaker Change: The key drivers growth drivers are new customers and also we're making efforts on expanding to more subjects for existing customers as well because this is a very good products that helping kids to eat has there.

Felix Liu: Our first question comes from the line of Felix Liu from UBS. Please ask your question, Felix. Hi. Good evening, Stephen. My question is on your very good third quarter guidance of 40% revenue growth. Could you give us a rough breakdown of what's driving this strong growth? Thank you.

Speaker Change: Self study ability, even without our teachers instruction, but using the device and also benefiting from our very very good content.

Speaker Change: Differentiating content embedded in the device.

Speaker Change: Device that kids and also prepare for the academic study and.

Okay. Thank you, Felix. I think, you know, we beat the top line guidance a lot, as we did in previous quarters. So as for the revenue guidance for Q3, I think, you know, we're still taking a conservative approach in giving the Q3 growth guidance, which will be in the range of 42% to 45%. In dollar terms, year over year. You know, given the strong demand in the education sector and the growth momentum we have seen so far in this fiscal year, so we're quite confident that the whole year's revenue growth will be better than we originally expected, especially in the coming Q3. And so for all the business lines, you know, the overseas related business, on the demand side, we have seen this very strong growth.

Speaker Change: The process by themselves. So this is a good solution.

Speaker Change: After after the policy change and all of that.

Speaker Change: The restructuring of the whole company.

Speaker Change: We're confident in the development of this new product and also the profitability is also currently we're seeing the margin are similar with our children.

Speaker Change: Business like the Nike <unk> 200, <unk> business for mostly for elementary school students and also we're seeing the potential for this kind of learning device.

Speaker Change: Business the margin potential is also quite strong.

Speaker Change: We can leverage more of our future.

Speaker Change: Resources and Oh, so we don't need to spend a lot of cost on the learning center opening yeah.

Speaker Change: That's clear. Thank you.

Speaker Change: That's clear thank you.

Speaker Change: Thank you, team.

Demand for overseas test drives and the consulting business. And on the supply side, we have seen some players disappear from the market during COVID, and so that means we're facing less competition in the market. And for the other revenue contributor, the new businesses, I think the arising performance in this quarter, in Q2, proves that we're heading towards the right direction.

Speaker Change: Thank you Tim.

Speaker Change: Our next follow-up question comes from the line of Tian Hou from TH Capital. Please go ahead, Tian.

Speaker Change: Our next follow up question comes from the line of Tien Ho from T. H capital. Please go ahead Ken.

Tian X. Hou: Yes, Sisi and Steven, just a follow-up question is also related to the season 90.

Tian X. Hou: Yes, I see Steven just a follow up question is also related to the season that AP. So.

Tian X. Hou: So, just not quite sure, you know, what's the, you know, the seasonality under the current business structure. So, can you share some color?

I'm just not quite sure you know what's the you know the seasonality onto the current business structure. So can you share some color.

Stephen: And so we believe this business will be able to maintain its very good top-line growth in Q3. And yes, so overall, that's why we give the guidance of top-line growth of 40, 42 to 45%.

Speaker Change: Yeah, Q2 decisibility becomes more smooth than many years ago, but the Q2 is still the lowest season, and so the strongest season is Q1, then followed by the Q3 and Q4, and then the Q2 is the lowest season. Is the margin also full of the same trend? I think so, yeah. You look at the margin in Q2, the non-GAAP OB margin is roughly 5.9%. I think the margin in Q3 definitely will be higher than Q2.

Yes, Q3 seasonality.

Tian X. Hou: Becomes more things than you do.

Tian X. Hou: Many years ago, and but the Q2 is still the lowest the season and so this strongly this season.

Speaker: And so if you want to add, actually, the revenue contribution from key business lines is pretty consistent this year, very similar to last quarter. Like overseas related business contributes like 20, 20, 20 to 21 percent of total revenue; like domestic test prep, two to three percent. And also, the K to 12 newly developed educational initiatives for K to 9 and also some remaining other training, and tutoring businesses for high school together contribute over 41, 42 percent of total revenue. So the key drivers are growing very, very well, and we're seeing continued trends for all the key business lines as well. Thank you very much.

Tian X. Hou: One thing followed by the Q3 and Q4 and then the Q2.

Tian X. Hou: The lowest.

Tian X. Hou: Season.

It's just the margin also follow the same trend.

Speaker Change: I think so yeah. If you look at the margin in Q2.

Speaker Change: non-GAAP op margin roughly <unk>, 5.9% I think the margin.

Speaker Change: In Q3 definitely will be higher than that thank you too.

Speaker Change: Okay, got it. Thank you.

Speaker Change: Okay. Okay got it. Thank you. Thank you.

Speaker Change: and St. Stent.

Speaker Change: Thanks Tien.

Speaker Change: We are now approaching the end of the conference call. I'll turn the call over to New Oriental's Executive President and CFO, Mr. Stephen Young, for his closing remarks.

Speaker Change: We are now approaching the end of the conference call.

Speaker Change: Turn the call over to new Orientals executive President and CFO, Mr. Stephen Yang for his closing remarks.

Stephen Young: 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.

Zhihui Stephen Yang: Again, thank you for joining us today, if you have any further questions. Please do not hesitate to come back to me or any of our Investor Relations Representatives. Thank you.

Speaker Change: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: Thank you that concludes today's conference call. Thank you for participating you may now disconnect.

Felix Liu: Okay, thank you.

Felix Liu: Very clear.

Felix Liu: Congratulations on the results!

Speaker Change: Thank you.

Speaker Change: Thank you.

Felix Liu: Thank you again.

Speaker: Thank you.

Speaker Change: Yeah.

Our next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.

Hey, good evening, management.

Speaker Change: Thank you for watching! Thank you for watching!

Speaker Change: Okay.

Thanks for taking my question.

Speaker Change: [music].

Congratulations on that strong quoted result. So my question is about our learning center expansion.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].

You mentioned about whole year 20% capacity growth. If I calculate correctly, that actually implies second half net add would slow down a bit. So could you discuss what our considerations are there, given the very strong demand? Thank you.

Speaker Change: Okay.

Speaker Change: [music].

Speaker: Yeah, this quarter we added around 7% new capacity and you know at this time you know you know last quarter we guided the capacity expansion will be you know somewhere around 15% to 20% so this time we raise the extension guidance to you know somewhere around 20% and so and you know I think we will open a reasonable amount of the new learning centers you know while some the new classroom areas or some existing centers you know will be expanded in the second half of the year and and I think most of the new openings will be in the cities with a better top line and bottom line performance and I think we will keep monitoring the pace and scale of the new options according to the operation and financial results in the second half of the year and I think maybe in the in the next quarter we're just you know in in Q4 I think we will you know share with you about the new our new decision of the learning center expansion maybe we'll raise again, Yeah, okay, okay, thank you. Thank you, Yuen.

Lucy Yu: Our next question comes from the line of Lucy Yu from Bank of America Securities. Please ask your question, Lucy. Hi, students. This is Lucy from BOFA. So, to follow up on the earlier question on expansion, actually, we have seen very, very strong demand on the ground. Many of my friends tried to enroll in a learning center, but they were told it's already full. Even the learning center is still under reservation at the moment. So, I'm wondering what the bottleneck for us to expand faster at the moment is. Is it teacher recruitment, or is it like finding the right location or getting the license? So, what is the bottleneck that is preventing us from expanding even faster? Thank you.

Speaker: Thank you, Lucy. You know, I think the reason that we give the guidance for the learning center expansion by about 20% because I think, you know, we do have the OMO system and the OMO model.

Speaker: So that means the online sites will help us to take over more students into the existing classrooms and the learning centers. So the OMO model helps a lot. And secondly, you know, education is typically a long-term business, so we care more about top-line growth and bottom-line growth, that means marketing expansion. So we don't want to grow the business too fast. So, you know, what we're carrying is that top-line growth. Actually, we have already given guidance of 45% top-line growth. And also, we also care about marketing expansion. So it's the growth balance between the top-line and bottom-line. Thank you, Steven.

Lucy Yu: Just to follow up, you mean the OMO model. I know it's adopted for the high school, but for the non-curricular training, are we also using OMO at the moment? So what's the percentage of like online versus offline at the moment?

Speaker: Yes, Lucy. For some of the non-advanced courses and the overseas test labs, even for some college students' businesses, all of the businesses, we do have the OMO model. And also the intelligent learning devices, which is also one that we don't require too many new locations.

Lucy Yu: Thank you so much.

Lucy Yu: Thank you.

Lucy Yu: Thank you, Lucy.

Our next question comes from the line of Timothy Chou from Gilbert Sachs. Please ask your question, Timothy. Thank you. Hi Stephen. Hi Stephanie, from Goldman. My question is on the margins.

Speaker: I saw that this quarter the Nangai working margin expanded by around 3%. I'm just wondering if you can provide any color in terms of breakdown because, on the other hand, Thank you for inspiring us. Thank you, and Martin, What cannot be Martin's pensions? for the Corbett. And then after this quarter, how do we think about that? You know, yeah, let's start with the quarter, this quarter's margin analysis. Even though, as you said, even though it's a bias margin drag in this quarter, we still got the non-GAF OP margin expansion by 330 basis points. And I think the margin increase was mainly driven by the following reasons. Number one is that, you know, the utilization rates of our facilities improved, and the teaching resources increased the learning center margins on average.

Speaker: So that means we have lower fixed costs and expenses compared to that of last year, and number two is you know the new business margin is around like 19 or 20 percent, so you know we just started the new business two years ago, so that means the ramping up uh pace is much faster uh than we expected, and also, the remaining business, such as the oversea related business business and the college business, you know generally higher margin than that of Increased Actually, it's much higher than the overall margin, yeah. Because they don't, actually, EastBuy doesn't release quarterly earnings, so you can look at the results of their first half.

Speaker: So you can roughly get the calculation of the educational business margin expansion. And, you know, as we head into the Q3, with the operating leverage and the higher utilization control, I think the remaining will get the margin expansion continuously in the Q3 and in the Q4. So that means that in the second half of the year, I think you will see margin expansion in education. Thank you. Thank you, team. Our next question comes from the line of Tian Hou from TH Capital.

Please ask your question, Tian.

Hi Sisi, Stephen. Congratulations on a good quarter.

I have actually two questions.

One problem is how this culture and tourism business is conducted.

You know, how do you record the revenue from that? That's number one. Number two, can you break down the results and guidance into different segments for both revenues and margin profiles? That's number two.

Speaker: Thank you.

Speaker: Thank you, Tian. I will take the question about tourism businesses. As mentioned in the last quarter, we have started the tourism business as one of our innovative ventures. And, you know, the tourism business includes our well-grounded study tour and research camp business for students, as well as our new tourism business that serves middle-aged and senior people. You know, we don't have a lot of... And I think that our new tourism business will utilize our strength in knowledge sharing among those teachers. And as well, we have abundant sales channels, including Dongfang Zhenxuan and online-offline channels in New Oriental.

Speaker: So during this quarter, we piloted a number of tourism offerings to expand to reach all ages people and the top line growth is very good in this quarter because in the last year, we did have the negative impact from the COVID, and you know we we set up the new company named the New Oriental Cultural Tourism Group and also this group company set up the the 100 percent the the subsidiaries in all cities so you know we divided the revenue and the effect the financial statement you know from the education to the education to the tourism business so that means going forward we will record the two business lines uh you know uh in two parts and so going forward I think our goal is to be leading the cultural tourism company in China and to provide the best service to the customers as much as we can and I do hope the going forward the tourism business will contribute more revenues and the profits to the whole, Yeah, Tian, your second question on the guidance breakdown, as I mentioned earlier, for overseas-related business for Q3, roughly the contributions are similar with previous quarter, about 21-22%. And the domestic test prep is about 2-3%. And the K-12, including the new educational initiatives for K-9, and also remaining high school business together, contribute over 40%.

Speaker: Of total revenue, yeah, so that's the key business lies. Mix. Thank you. Thank you. Thank you. Thank you again. That's all. Thank you, Tian. Before we take the next question, a reminder to press star 1 1 if you have any questions. Our next question comes from Candice Chen from Daiwa.

Please ask your question, Candice.

Great. Hi, Sisi and Stephen. Congratulations on a very strong quarter and also the learning guidance. My question is on the margins for the longer term.

Speaker: So I think you just mentioned that for the new education businesses, we are actually looking at around 19 to 20 percent operating margin, which is pretty impressive as compared to what you mentioned in the previous quarters. And I'm just wondering, I just wonder for the longer term that we are talking about, like two to three years down the road, what should we expect for this new education business in terms of its operating margins? And also for overseas test practices, what kind of margins should we be expecting given the very strong demand from revenue here? Okay. Yeah, as you know, we started the new education business two years ago, and, you know, in this quarter, the margin of this business is roughly 19%, and going forward, I think the margin will be over 20%. That means we will expand the margin of this business, you know, we will expand the margin of this business in the second half of this year.

Speaker: And even in the new year, fiscal year 25, you know, we expect the margin of the education business overall will be expanded because of the, yeah, as I said, because of the lower fixed costs and the higher utilization of the learning centers and the cost control. I think, you know, both the existing business, such as the overseas-led business. And the college business and the new business, new initiatives will expand the margin, you know, so going forward, even in the second half of this fiscal year and fiscal year 25, I think the margin will be expanded. So yeah, and you know, we care more about the top line growth and the margin expansion. So we believe we will create more value for the shareholders. I see the bottom line. Another question is about our cash.

Unnamed Speaker: I think we are having almost $5 billion in cash right now. So in terms of shareholder returns, what are we going to do with the cash in the following years? Yeah, you know, we announced the $400 million share buyback program, and so, you know, so far, we've finished $194 million, and I think we will buy the shares back from the open markets going forward. And, you know, this round, we chose to buy the share back, and, you know, but it's arguably, you know, we paid the special dividend several times and did several share buybacks, so going forward, you know, next round, maybe we will choose the dividend again and order the share buyback.

Unnamed Speaker: Okay, good to hear.

Susan: Thank you, Susan.

Thank you, Candice.

Operator: As a reminder, to ask a question, please press star 1 1 on your telephone keypad. Our next follow-up question comes from the line of Felix Liu from UBS.

Felix Liu: Please go ahead, Felix.

Felix Liu: Good evening, Steven and Sisi. I have a follow-up question on competition. You mentioned that the supply-demand dynamics of the sector are very strong. Do you see any risk in competition intensifying? Do you see smaller players also ramping up capacity expansions, or is that not what is happening from the ground? Thank you.

Unnamed Speaker: You know, Felix, we have seen a lot of competitors. I think this is true, you know, both for the K-12 business and the overseas-related business, even with the college business. And going forward, I think we expect the competition environment will be stabilized. Okay.

Felix Liu: Thank you.

Felix Liu: Thank you, Felix.

Operator: Once again, to ask a question, please press star 1 1 on your telephone keypad. Our next follow-up question comes from the line of Timothy Chow from Goldman Sachs.

Please go ahead, Tim. Hi Steven. Just a follow-up question, I think, on the intelligent learning system and devices. I saw that the number of active users for the past quarter was actually quite similar to the summer semester. Just wondering if you can share some color in terms of the seasonality of these business lines and what it's, the probability that we are seeing, and how to think about it. Thank you for watching.

Unnamed Speaker: Yeah, actually, the intelligent learning device business is also developing very well. You know, the growth is pretty strong, and we're seeing actually a not very seasonal pattern for this business, quite similar to the previous tutoring business, especially for middle school students. And, you know, this year, the year-over-year increase in users is very high, and also we have prepared a lot of new devices to cater to the needs of customers.

Unnamed Speaker: The key drivers, growth drivers, are new customers, and we're also making efforts to expand to more subjects for existing customers as well. Because this is a very good project. You know, we have products that are helping kids to enhance their self-study ability, you know, even without our teachers' instruction but using the device and also benefiting from our very, very good content, differentiated content embedded in the device so that kids can also prepare for academic study and do the process by themselves. So this is a good solution after the policy changes. And all the restructuring of the whole company, so we're confident in the development of this new product, and also, you know, the profitability is also currently, we're seeing the margins are similar with our tutoring business, like the non-academic tutoring business for mostly elementary school students. And also, we're seeing the potential for this kind of learning device business, the margin potential. It's also quite strong, and we can leverage more of our teacher resources, and also, we don't need to spend a lot of money on the learning center opening, yeah.

Unnamed Speaker: The other revenue contributor, the new businesses. I think, you know, the encouraging performance in this quarter, in Q2, proves that we're heading towards the right direction. And so we believe this business will be able to maintain, you know, the very good top-line growth in Q3. And yes, so overall, that's why we give the guidance of top-line growth of 40, 42 to 45 percent. Yeah, actually, the revenue contribution from key business lines is pretty consistent this year. Very similar to last quarter, like overseas related business contributes like 20, 20, 20 to 21 percent of total revenue. Like domestic test prep, 2 to 3 percent.

That's clear.

Thank you.

Thank you, team.

Operator: Our next follow-up question comes from the line of Tian Hou from TH Capital.

Please go ahead, Tian. Yes, Sisi and Steven, just a follow-up question is also related to season 90. So, just not quite sure, you know, what's the, you know, seasonality under the current business structure.

Unnamed Speaker: And also the K-12 newly developed educational initiatives for K-9 and also some remaining other training, and tutoring business for high school together contribute over 41, 42 percent of total revenue. So the key drivers are growing very, very well, and we're seeing continued trends for all the key business lines as well. Thank you very much.

Unnamed Speaker: So, can you share some color? Yeah, Q2 decisibility has become more smooth than many years ago, but Q2 is still the lowest season, and so the strongest season is Q1, then followed by Q3 and Q4, and then Q2 is the lowest season. Is the margin also full of the same trend? I think so, yeah. If you look at the margin in Q2, the non-GAAP OB margin is roughly 5.9%. I think the margin in Q3 definitely will be higher than Q2.

Unnamed Speaker: Okay, thank you very much, Claire. Congratulations on the results. Thank you, yeah. Thank you. Our next question comes from the line of Yiwen Zhang from China Renaissance.

Yiwen Zhang: Please ask your question, Yiwen. Hey, good evening management. Thanks for taking my question. Congratulations on that strong quarterly result. So my question is about our, you know, learning center expansion. You mentioned about whole year 20% capacity growth. If I calculated correctly, that actually implies the second half net add would slow down a bit.

Okay, I got it. Thank you, and St. Stent.

Operator: We are now approaching the end of the conference call.

I'll turn the call over to New Oriental's Executive President and CFO, Mr. Stephen Young, 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.

Unnamed Speaker: So could you discuss what our considerations there are given the very strong demand? Thank you. Yeah, this quarter, we added around 7% new capacity. And, you know, at this time of year, you know, last quarter, we guided that the capacity expansion would be somewhere around 15% to 20%. So this time, we'll raise the expansion guidance to, you know, somewhere around 20%. And you know, I think we will open a reasonable number of new learning centers this year, while some of the new classroom areas or some existing centers will be expanded in the second half of the year. And I think most of the new openings will be in cities with a better top line and bottom line performance.

Operator: Thank you.

Operator: That concludes today's conference call.

Operator: Thank you for participating.

Operator: You may now disconnect.

Operator: Thank you.

Operator: Thank you for watching!

Unnamed Speaker: And I think we will keep monitoring the pace and scale of the new openings according to the operation and financial results in the second half of the year. And I think maybe in the next quarter or just, you know, in Q4, I think we will share with you our new decision on the learning center expansion. Maybe we'll race again.

Lucy Yu: Okay, okay, thank you. Thank you, Yuen. Our next question comes from the line of Lucy Yu from Bank of America Securities. Please ask your question, Lucy.

Operator: Thank you for watching!

Lucy Yu: Hi students, this is Lucy from BOFA. So a follow-up to the earlier question on expansion. So actually, we have seen very, very strong demand on the ground. Many of my friends have tried to enroll in a learning center but were told it's already full; even the learning center is still under reservation at the moment. So I'm wondering what the bottleneck for us to expand faster at the moment is. Is it teacher recruitment, or is it like finding the right location or getting the license?

Unnamed Speaker: So what is the bottleneck that prevents us from expanding even faster? Thank you. Yeah, thank you, Lucy.

Unnamed Speaker: You know, I think the reason that we give the guidance for the learning center expansion by about 20% because I think, you know, we will have the OMO system and the OMO model. So that means the online sites will help us to take over more students into the existing classrooms and the learning centers. So the OMO model helps a lot.

Unnamed Speaker: And secondly, you know, education is typically a long-term business. So we care more about top line growth and bottom line growth. That means margin expansion. So we don't want to grow the business too fast.

Lucy Yu: So, you know, what we're carrying is that top line growth. Actually, we have already given guidance of 45% top line growth in Q3. And also, we also care about margin expansion. So it's the growth balance between the top line and the bottom line. Thank you, Steven. Just to follow up, you mean the OMO model. I know it's adopted for the high school, but for the non-curricular training, are we also using OMO at the moment? So what's the percentage of like online versus offline at the moment?

Unnamed Speaker: Yes, Lucy, for some of the non-academic courses and the overseas test prep, even for some college students' businesses, all of the businesses, we do have the OMO model. And also the intelligent learning devices, which is also one that we don't require too many new locations. I see. Thank you so much.

The next question comes from the line of... Timothy Cho from Goldman Sachs. Please ask your question, Timothy. Thank you. Hi Stephen.

Hi. My question is on the margins. I saw this quarter the Nangai Oki margin expanded by around 3% at this point. Just wondering if you can provide any color in terms of breakdown, because on the other hand, from the eSpa area, there is some pressure on the margin. By What Can a Martinique's Pension Do for the Corbett?

Unnamed Speaker: And then after this quarter, how do we think about, Yeah, let's start with the quarter, this quarter's margin analysis. Even though, yeah, as you said, even though it's the bias of margin drag in this quarter, we still got the non-GAF OP margin expansion by 330 basis points. And I think the margin increase was mainly driven by the following reasons. Number one, the utilization rates of our facilities and the teaching resources increase the learning center margins on average. So that means we have lower fixed costs and expenses compared to that of last year.

Unnamed Speaker: And number two is, you know, the new business margin is over around 19-20%. So, you know, we just started a new business two years ago. So that means the ramping up pace is much faster than we expected.

Unnamed Speaker: And also the remaining business, such as oversee related business and the college business, you know, generally a higher margin than that of last. So in Q2, if we take out East Bayh's impact on education, the non-gap open margins, what was that? Increased Actually, it's much higher than the overall margin. Yeah. Because they don't, actually, East Bayh doesn't release quarterly earnings. So you can look at the results of their first half.

Unnamed Speaker: So you can roughly get the calculation of the educational business margins then. And that's one point. And as we head into the Q3, with the opt-in leverage and the higher utilization control, I think the remittances will see margin expansion continuously in Q3 and Q4. So that means that the second half of the year, I think you will see margin expansion. Thank you. Thank you, team.

Tian X. Hou: Our next question comes from the line of Tian Hou from TH Capital. Please ask your question, Tian. Hi Sisi, Steven, congratulations on a good quarter. I actually have two questions. One is, how is the culture and tourism business conducted? How do you record the revenue from that? That's number one. Number two, can you break down the results and guidance into different segments for both revenues and margin profiles? That's number two.

Unnamed Speaker: Thank you. Thank you, Tian. I will take the question about the tourism business.

Unnamed Speaker: You know, as mentioned in the last quarter, we have started the tourism business, you know, as one of our innovative ventures. And, you know, this tourism business includes our well-grounded study tour and research camp business for students, as well as our new tourism business that serves middle-aged and senior people. You know, we don't have a lot of woods, and I think that our new tourism business will utilize our strength in knowledge sharing among those teachers, and as well, we have abundant sales channels, including Dongfang Zhenxuan and online offline channels in New Oriental. So during this quarter, we piloted a number of tourism offerings to expand to reach all ages of people.

Unnamed Speaker: And the top line growth is very, very good in this quarter because last year we did have the negative impact from COVID. And, you know, we set up a new company named the New Oriental Cultural Tourism Group. And also, this group of companies set up 100% of the subsidiaries in all cities.

Unnamed Speaker: So, you know, we divided the revenue and the financial statement, you know, from the education business to the tourism business. So that means going forward, we will record the two business lines in two parts. And so, going forward, I think our goal is to be the leading cultural tourism company in China and to provide the best service to the customers as much as we can.

Unnamed Speaker: And I do hope that going forward, the tourism business will contribute more revenues and profits to the whole. Yeah, that's good. Yeah, Tian, your second question on the guidance breakdown, as I mentioned earlier, for overseas-related business for Q3, roughly, the contributions are similar to the previous quarter, about 21%, 22%. And the domestic test prep is about 2% to 3%.

Unnamed Speaker: And the K-12, including the new educational initiatives for K-9, and also remaining high school business together contribute over 40% of total revenue. Yeah, so that's the key business slide.

Unnamed Speaker: Thank you. Thank you. Thank you again.

Candice Chen: Thank you. Thank you, Tian. Before we take the next question, a reminder to press star 11 if you have any questions. Our next question comes from Candice Chen from Daiwa. Please ask your question, Candice.

Unnamed Speaker: Hi Sisi and Stephen, congratulations on a very strong quarter and also the very new guidance. My question is on the margins for the longer term. So I think you just mentioned that for the new education businesses, we are actually looking at around 19 to 20 percent upgrade margin, which is pretty impressive as compared to what you mentioned in the previous quarters. And I just wondering, for the longer term that we are talking about, like two to three years down the road, what should we expect from these new education businesses in terms of their operating margins? And also for overseas test purposes, what kind of margins should we be expecting given the very strong demand from revenue here?

Unnamed Speaker: Thank you. Yeah, as you know, we started the new education business three years ago, and in this quarter, the margin for this business is roughly 19%. And going forward, I think the margin will be over 20%. So that means we will expand the margin of this business. We will expand the margin of this business in the second half of this year. And even in the new year, fiscal year 25, you know, we expect the margin of the education business overall to be expanded. Because of the lower fixed costs and the higher utilization of the learning centers and the cost control, I think, you know, both the existing business, such as the overseas-led business and the college business, and the new business, new initiatives, will expand the margin.

Unnamed Speaker: So going forward, even in the second half of this fiscal year and fiscal year 25, I think the margin will be expanded. So yeah, and you know, we care more about the top line growth and the margin expansion. So we believe we will create more value for the shareholder as the bottom line. Great. So another question is about our cash. I think we have like almost, almost five billion in cash right now.

Unnamed Speaker: So in terms of shareholder returns, what are we going to do? What are we going to do with the cash in the following years? Yeah, you know, we announced a $400 million share buyback program. And so, you know, so far, we've finished $194 million.

Unnamed Speaker: And I think we will buy the shares back, you know, from the open markets going forward, and you know this round we chose to buy the shares back, and you know, but exactly, you know, we paid the special dividend several times and did several times share buyback, so going forward, you know, next round, maybe we will choose this dividend again and or the share buyback. Okay. Good to hear. Thank you, Sisi. Thank you, Candice. As a reminder, to ask a question, please press star 11 on your telephone keypad. Our next follow-up question comes from the line of Felix Liu from UBS. Please go ahead, Felix.

Felix Liu: Good evening, Stephen and Sisi. May I have a follow-up question on competition? You mentioned that the supply-demand dynamics of the sector are very strong. Do you see any risk in competition intensifying? Do you see smaller players also ramping up capacity expansions, or is that not what is happening on the ground? You know, Felix, we have seen a lot of competitors. I think this is true, you know, both for the K-pop business and the overseas related business, even with the college business.

Unnamed Speaker: And going forward, I think we expect the competition environment will be stabilized. Okay, got it. Thank you. Thank you, Felix. Once again, to ask a question, please press star 11 on your telephone keypad. Our next follow-up question comes from the line of Timothy Chow from Goldman Sachs. Please go ahead, Tim. Hi Sisi, hi Stephen.

Timothy Chow: Just a follow-up question on the intelligent learning system and devices. I saw that the number of active users I think for the past quarter is actually quite similar to the summer semester. Just wondering if you can share some color in terms of the seasonality of this business line and what is the probability that we are seeing and how to think about the Xiong Q. Gross.

Unnamed Speaker: Yeah, actually, the intelligent learning device business is also developing very well, you know, the growth is pretty strong, and we're seeing, actually, a not very seasonal pattern for this business, quite similar to the previous tutoring business, especially for middle school students. And, you know, this year, the year over year increase in users is very high. And also, where we have prepared a lot of new devices to cater to the needs of customers, the key drivers, growth drivers are new customers, and also we're making efforts to expand to more subjects for existing customers as well, because this is a very good product that helps kids to enhance their self-study ability, you know, even without our teachers' instruction but using the device and also benefiting from it. Our very, very good content, you know, differentiated content embedded in the device so that kids can also prepare for academic study and do the process by themselves.

Unnamed Speaker: So, this is a good solution after the policy change and all the new, the restructuring of the whole company. So, we're confident in the development of this new product and also, you know, the profitability is also currently, we're seeing the margins are similar with our tutoring business, like the non-academic tutoring business for mostly elementary school students. And also, we're seeing the potential for this kind of learning device business. The margin potential is also quite strong. We can leverage more of our teacher resources, and we also don't need to spend a lot of money on the learning center opening.

Unnamed Speaker: Yeah. That's clear. Thank you. Thank you, team. Our next follow-up question comes from the line of Tian Hou from TH Capital. Please go ahead, Tian. Yes, Sisi, Steven, just a follow-up question. It's also related to season 9. So just not quite sure what the seasonality is under the current business structure. So can you share some color?

Tian X. Hou: I think, yeah, the seasonality, you know, has become more smooth, you know, than, you know, many years ago. But Q2 is still the lowest season. And so the strongest season is Q1, then followed by Q3 and Q4, and then Q2 is the lowest season. So, does the margin also follow the same trend? I think so. Yeah, you look at the margin, you know, in Q2, it's only margin is roughly 5.9%. I think the margin in Q3 definitely will be higher than Q2.

Unnamed Speaker: Okay, got it. Thank you. Thanks, Tim. We are now approaching the end of the conference call. I'll turn the call over to New Oriental's Executive President and CFO, Mr. Steven Yeung, 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. Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect. Thank you. Thank you.