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New Oriental Education & Technology Group Inc. (EDU) Q2 2024 Earnings Call Transcript

New Oriental Education & Technology Group Inc. (EDU)

Q2 2024 Earnings Conference Call

Company Participants

Sisi Zhao - Investor Relations

Stephen Yang - Executive President and Chief Financial Officer

Conference Call Participants

Felix Liu - UBS

Yiwen Zhang - China Renaissance

Lucy Yu - Bank of America Securities

Timothy Zhao - Goldman Sachs

Tian Hou - T.H. Capital

Candice Chen - Daiwa

Presentation

Operator

Good evening and thank you for standing by for New Oriental's FY 2024 Second Quarter Results Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to your host for today’s conference, Ms. Sisi Zhao.

Sisi Zhao

Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter 2024 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website, as well as on newswire services. Today, Stephen Yang, Executive 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 uncertainties. As such, our results may be materially different from the view expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC.

New Oriental does not undertake any obligation to update any forward-looking statements except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor neorental.org.

I will now first turn the call over to Mr. Yang. Stephen, please go ahead.

Stephen Yang

Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. It's our pleasure to announce that New Oriental has delivered a set of fruitful financial results that have surpassed our expectations this quarter. Our diverse business lines have embarked 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 continuing 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 brush up our operational efficiency and cost control, as well as the combined efforts of our restructured business model, were used less resources and streamlined cost structure. Encouraged by the company's sustainable profitability, resilient business lines and fostering new business, we've been forced our commitment to maintain a healthy market share growth and creating sustainable value for customers and shareholders in the long-term.

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. Our key remaining business have depicted a propitious trend, while the new initiatives secured positive momentum. Breaking it down, the overseas test prep business recorded the revenue increase of 47% in dollar terms or 50% in RMB terms year-over-year for this quarter.

The overseas study consulting business recorded revenue increase of about 32% in dollar terms or 35% in RMB terms year-over-year for this quarter. The adults and university students business recorded a revenue increase of 43% in dollar terms or 46% increase in RMB terms year-over-year for this quarter.

As mentioned in the past quarters, we have launched multipronged new initiatives, which mostly revolve around facilitating students around development. They have continued to prosper with consistent growth, delivering meaningful profits to the company. Firstly, the non-academic tutoring courses, which we have offered in around 60 existing cities, 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 enrollment recorded in this quarter. The top 10 cities in China contribute over 60% of the revenue of this business.

Secondly, the intelligent learning system and devices 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 fiscal quarter. The revenue contribution of these initiatives from the top 10 cities in China is around 55%. Our smart education business, educational materials and digitalized smart study solutions have continued to contribute material results to the overall [Technical Difficulty]

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. New Oriental's cultural tourism business shares the spirit to provide premium quality of 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 traveling. 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.

And 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 featured provinces. As we are still at a preliminary stage of planning, testifying, and evaluating the viability of the business in selected regions, we will keep you posted should there be timely updates.

With regard to our OMO system, we have persisted in revamping our platform and leveraged our educational infrastructure and technology edge on remaining key business and new business with a vision to provide advanced, diversified education service 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, East Buy has attained strong growth momentum through a series of new initiatives aimed to foster the development of its private label products and upgrades on customer service. A comprehensive detailed optimization of product quality has been conducted. And East Buy has made remarkable breakthroughs in supply chain integration, boosting its private label products to a total of a total of 264 SKUs. Furthermore, nationwide broadcast events across provinces were launched with the consistent support from local cultural and tourism authorities.

East Buy also began introducing cultural tourism products and incorporates century-long history, culture, geographies and folklore into the hours of live streaming, e-commerce broadcast, presenting lively introductions of historical monuments, tourism attractions and local specialties to their audience. We look forward to witnessing the continued growth of the East Buy 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 a healthy -- is in a healthy financial status with cash and cash equivalent term deposit 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 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 six million ADS for approximately $194.2 million from the open market under the share repurchase program.

Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead....

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