Core Insights - New Oriental Education & Technology Group Inc. reported a 6.1% year-over-year revenue increase to $1.52 billion for the first quarter of its fiscal year, with operating profit rising 6% to $310 million, but net profit declined by 1.9% to $240 million, disappointing investors [2][3][4] Financial Performance - Revenue from overseas test preparation and overseas study consulting grew by only 1% and 2% year-over-year, respectively, while domestic exam prep for adults and university students increased by 14.4% and new educational initiatives grew by 15.3% [3][10] - The company’s revenue for the fiscal year through May is projected to reach up to $5.4 billion, with current quarter revenue guidance between $1.13 billion and $1.16 billion, indicating 9% to 12% year-over-year growth [8][13] Market Reaction - Following the profit decline, New Oriental's U.S.-listed shares fell over 9% intraday, closing down 3.4% at $58.56, while Hong Kong shares also dropped [4][5] - Despite the selloff, the stock is trading over 20% higher than its six-month lows, indicating some investor confidence remains [5] Strategic Focus - In light of limited revenue growth potential, the company is prioritizing cost optimization and operational efficiency to improve profits, as stated by CFO Yang Zhihui [11][12] - New Oriental aims to maintain discipline in cost management across all business lines for sustainable growth [12] Growth Challenges - The growth of overseas test preparation and study consulting services has significantly slowed, with expectations of flat revenue for overseas study consulting and only 5% to 10% growth for overseas test preparation in the current fiscal year [9][16] - Ongoing U.S.-China tensions and protectionist policies are creating uncertainty for the overseas study business, which is a major revenue source for New Oriental [9][15] Valuation and Leadership - The current stock price gives New Oriental a forward P/E ratio of 25, reflecting steady operations but lacking immediate growth catalysts [17] - CEO Yu Minhong's leadership is highlighted as a key asset, with a strong track record in navigating regulatory challenges, positioning the company for future opportunities [18]

Financial Data and Key Metrics Changes - Total net revenue increased by 6.1% year over year, reaching $1,412.6 million [4] - Non-GAAP operating margin improved to 22%, a year-over-year increase of 100 basis points [4] - Operating income rose by 6% year over year to $310.8 million [11] - Net income attributable to New Oriental decreased by 1.9% year over year to $240.7 million [12] - Non-GAAP net income decreased by 1.6% year over year to $258.3 million [12] - Deferred revenue increased by 10% year over year to $1,906.7 million [14] Business Line Data and Key Metrics Changes - Overseas test prep business revenue increased by about 1% year over year [5] - Overseas study consulting business revenue increased by about 2% year over year [5] - Adults and university students business revenue increased by 14% year over year [5] - New educational business initiatives recorded a revenue increase of about 15% year over year [7] Market Data and Key Metrics Changes - Non-academic tutoring business expanded to around 60 cities, with top 10 cities contributing over 60% of revenue [6] - Intelligent learning system and device business tested in around 60 cities, with top 10 cities contributing over 50% of revenue [7] - Integrated tourism-related business connected across 55 cities, with top 10 cities contributing over 50% of revenue [7] Company Strategy and Development Direction - The company is focused on enhancing operational resilience and sustainable profitability [4] - Plans to increase presence in cities with stronger performance while managing resources carefully [15] - Continued investments in AI and OMO (online merging offline) systems to improve educational services [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving margins and operational efficiency while maintaining cost control [15] - Guidance for total net revenue in Q2 2026 is projected to be between $1,132.1 million and $1,263.3 million, representing a year-over-year increase of 9% to 12% [16] - Full fiscal year 2026 revenue guidance remains between $5,145.3 million and $5,390.3 million, indicating a year-over-year increase of 5% to 10% [16] Other Important Information - The company announced a cash dividend of $0.12 per common share and a share repurchase program of up to $300 million [17][18] - The effective tax rate for Q1 was higher due to special circumstances, expected to normalize in future quarters [54] Q&A Session Summary Question: Competition landscape in K-12 business - Management noted increased competition during summer but highlighted improved student retention and enrollment in autumn classes [22][23] Question: Share-based compensation increase - The increase in share-based compensation was attributed to grants issued in the previous fiscal year, expected to remain at similar levels in upcoming quarters [28][29] Question: Overseas business growth breakdown - Management indicated that younger age groups in overseas test prep grew over 25% year over year, while consulting business saw strong growth in non-U.S. and U.K. markets [34][35] Question: Operating margin outlook - Management expects continued margin expansion driven by cost control and operational efficiency, with optimism for Q2 [49][50] Question: Tax rate expectations - The effective tax rate was higher in Q1 due to special circumstances, with expectations for it to normalize in future quarters [54]

Financial Data and Key Metrics Changes - Total net revenue increased by 6.1% year over year, reaching $1,412.2 million [4][11] - Non-GAAP operating margin improved to 22%, a year-over-year increase of 100 basis points [4] - Operating income rose by 6% year over year to $310.8 million [11] - Net income attributable to New Oriental decreased by 1.9% year over year to $240.7 million [12] - Deferred revenue increased by 10% year over year to $1,906.7 million [13] Business Line Data and Key Metrics Changes - Overseas test prep business revenue increased by about 1% year over year [5] - Overseas study consulting business revenue increased by about 2% year over year [5] - Adults and university students business revenue increased by 14% year over year [5] - New educational business initiatives recorded a revenue increase of about 15% year over year [6] Market Data and Key Metrics Changes - The top 10 cities contributed over 60% of the non-academic tutoring business revenue [5] - The top 10 cities contributed over 50% of the intelligent learning system and device business revenue [6] - Integrated tourism-related business connected across 55 cities, with the top 10 cities contributing over 50% of revenue [6] Company Strategy and Development Direction - The company is focused on enhancing operational resilience and sustainable profitability [4] - Continued investments in new education business initiatives aim to facilitate students' all-around development [5] - The company is leveraging AI to streamline internal operations and improve teaching efficiency [8][9] - A strategic approach to capacity expansion and hiring is being implemented to ensure quality offerings [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improving margins and operational efficiency while maintaining cost control [15] - Guidance for total net revenue in Q2 FY 2026 is projected to be between $1,132.1 million and $1,263.3 million, representing a year-over-year increase of 9% to 12% [16] - For the full fiscal year 2026, total net revenue is expected to be between $5,145.3 million and $5,390.3 million, indicating a year-over-year increase of 5% to 10% [16] Other Important Information - A shareholder return plan has been initiated, including a cash dividend of $0.12 per common share and a share repurchase program of up to $300 million [17][18] - The effective tax rate for Q1 was higher due to special circumstances, expected to normalize in future quarters [46] Q&A Session Summary Question: Competition in K-12 Business - Management noted that K-12 business revenue growth is expected to accelerate, with K-9 new business projected to grow around 20% year-over-year in Q2 [21][24] Question: Share-Based Compensation Increase - The increase in share-based compensation was attributed to grants issued in the previous fiscal year, with expectations for similar levels in upcoming quarters [26][27] Question: Overseas Business Performance - Overseas test prep for younger age groups grew over 25% year over year, while consulting business in Asia showed strong growth [29][32] Question: Shareholder Return Policy - The shareholder return policy is based on net profit and cash flow expectations, with a commitment to maintain a high payout ratio [35][37] Question: Operating Margin Outlook - Management expects margin expansion to continue, driven by cost control and operational efficiency [41][44] Question: Tax Rate Expectations - The effective tax rate in Q1 was higher due to special circumstances, with expectations for it to normalize in future quarters [46]