NEW ORIENTAL(EDU) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net revenue for Q1 2021 was $986.4 million, representing an 8% decrease year-over-year, which was better than previous guidance [4] - Net revenues from education programs and services were$ 935.6 million, a 6.1% decrease year-over-year [4] - Operating income was $150.3 million, a 38.9% decrease year-over-year, with a non-GAAP operating income of$ 166.1 million, down 35.4% year-over-year [19] - Net income attributable to New Oriental was $174.7 million, a 16.4% decrease from the same period last year [20] - Operating margin for the quarter was 15.2%, compared to 23.0% in the same period of the prior fiscal year [19] Business Line Data and Key Metrics Changes - K-12 after-school tutoring business achieved year-over-year revenue growth of approximately 8% [8] - U-Can middle and high school all-subjects after-school tutoring business recorded a revenue increase of approximately 9% and student enrollments grew 23% year-over-year [8] - POP Kids program saw a revenue increase of about 3.5% with a 17% increase in enrollment [9] - Overseas test prep business recorded a revenue decrease of about 51% due to pandemic-related challenges [9] - VIP personalized class business experienced a cash revenue decline of about 10% year-over-year [10] Market Data and Key Metrics Changes - Total student enrollments in academic subjects tutoring and test preparation courses increased by about 13.5% year-over-year to approximately 2,961,100 [5] - Deferred revenue balance increased by 17.5% year-over-year to$ 1,563.1 million [21] - The company opened seven new offline training schools, increasing classroom area by approximately 23% year-over-year [12] Company Strategy and Development Direction - The company is focusing on expanding its offline business by adding around 20% to 25% capacity, including new learning centers [22] - Investment in digital technologies and the OMO system will be leveraged for K-12 distance and overseas test prep offerings [24] - The company aims to capture market share from smaller players during the post-COVID market consolidation [23] - Continued investment in teacher training and technology platforms to enhance the OMO integrated education ecosystem [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovery trends and market opportunities despite ongoing pandemic challenges [21] - The company expects total revenue for the next quarter to be in the range of $863.7 million to$ 887.3 million, representing a year-over-year increase of 10% to 13% [28] - Management highlighted the importance of maintaining a stable investment strategy focused on product quality and teacher salaries [22] Other Important Information - The company invested $39 million in the quarter to improve its OMO integrated education ecosystem [14] - The summer promotion campaign resulted in a 31% increase in total promotion enrollments year-over-year, reaching 1,079,000 [10] Q&A Session Summary Question: What caused the significant decline in gross margin year-over-year? - Management noted that the gross margin was down by roughly 6% due to an 8% revenue decline and increased teacher salaries [34] Question: What is the current utilization rate of offline classes? - Management indicated that it is difficult to disclose the utilization rate due to the pandemic but expects it to improve as operations normalize [38] Question: Can you discuss the outlook for the overseas test prep business? - Management acknowledged a 51% decline in overseas test prep revenue but expects gradual recovery in Q2 with a forecasted decline of 30% to 35% [41] Question: What is the guidance for FY '21 and operating margin targets? - Management provided guidance for Q2 revenue growth of 10% to 15% and indicated that margin decline will continue to narrow in Q2 [44] Question: How will the company approach capacity expansion amid the pandemic? - Management aims to add 20% to 25% new capacity in FY '21 and sees opportunities to capture market share during consolidation [74]