NEW ORIENTAL(EDU) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net revenue for Q4 2020 was $798.5 million, a decrease of 5.3% in dollar terms or 1% in RMB terms year-over-year [5][6] - Non-GAAP operating margin for the fiscal year 2020 expanded by 70 basis points to 12.9% compared to 12.2% in the prior fiscal year [6] - Gross margin for Q4 2020 was 51%, down 500 basis points year-over-year [6] - Non-GAAP net income for Q4 was$ 48.5 million, representing a 49% decrease from the same period in the prior fiscal year [21] Business Line Data and Key Metrics Changes - Total student enrollments in academic subjects tutoring and test preparation courses decreased by 6.2% year-over-year to approximately 2,585,600 [5][6] - K-12 school total business achieved a year-over-year revenue growth of approximately 4% in dollar terms [9] - Overseas test preparation business revenue declined by approximately 62% in dollar terms, while the consulting business grew by approximately 6% in dollar terms [10] - VIP personalized classes reported a revenue decline of about 36% year-over-year in dollar terms [10] Market Data and Key Metrics Changes - The overseas test prep business faced significant challenges due to the cancellation of overseas exams and travel restrictions, leading to a revenue contribution of only 5.6% in Q4 [68] - The deferred revenue balance at the end of Q4 was $1,324.4 million, an increase of 1.8% from the previous year [22] Company Strategy and Development Direction - The company plans to expand its offline business by 20% to 25% in fiscal year 2021, aiming to capture more market share post-COVID [22][23] - Investments in digital technologies and the OMO (Online-Merge-Offline) system will be leveraged to enhance the learning experience and reach more students [23][24] - The company aims to develop better teaching content and training programs for teachers to improve overall educational quality [24][26] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term business prospects despite short-term challenges posed by the COVID-19 pandemic [26][27] - The company anticipates a gradual recovery in demand for after-school education services as offline operations resume in most cities [29][30] - The management expects total revenue for Q1 2021 to decline by 11% to 15% year-over-year, with specific declines in overseas test prep programs [28] Other Important Information - The company added a net of 44 learning centers, increasing classroom area by approximately 26% year-over-year [13] - Capital expenditures for the quarter were$ 89.7 million, primarily for opening new facilities and renovations [21] Q&A Session Summary Question: Can you help us understand the assumptions behind the revenue guidance and the market consolidation? - Management indicated that the revenue guidance is conservative due to uncertainties, including shortened summer holidays and COVID-19 impacts in major cities [34][35] Question: How is the capacity expansion plan being adjusted in light of underperforming segments? - Management confirmed that they plan to shift capacity from underperforming segments to better-performing ones while maintaining the overall expansion guidance [42] Question: What is the long-term impact of the OMO model on margins? - Management believes the OMO model will enhance revenue and retention rates, positively impacting margins in the long term [45][58] Question: How do you expect the K-12 business to recover in the next fiscal year? - Management expects a gradual recovery in K-12 business, with growth rates returning to normal in subsequent quarters [62][63] Question: What is the outlook for the overseas test prep business? - Management acknowledged significant challenges for the overseas test prep business due to COVID-19 but remains hopeful for gradual recovery as exams resume [68]