NEW ORIENTAL(EDU) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net revenue for Q3 2021 was $1,190 million, representing a 29% year-over-year increase [5][19] - Operating income was$ 101.5 million, a 13.5% decrease year-over-year, with a non-GAAP operating income of $115.9 million, reflecting a 14% decrease [19] - Net income attributable to New Oriental was$ 151.3 million, a 9.9% increase year-over-year, with non-GAAP net income also increasing by 9.9% to $163.2 million [21][19] - Operating margin decreased to 8.5% from 12.7% year-over-year, while non-GAAP operating margin fell to 9.7% from 14.6% [19] Business Line Data and Key Metrics Changes - K-12 all-subjects after-school tutoring business achieved approximately 37% year-over-year revenue growth [5][10] - U-Can middle school and high school business recorded a revenue increase of approximately 35% with student enrollments growing by 56% [10][11] - POP Kids program revenue increased by about 40%, with enrollments up by 61% [11] - Overseas test prep revenue decreased by about 12%, while overseas consulting and study tour business recorded an 11% increase [11][6] Market Data and Key Metrics Changes - Total student enrollments in academic subjects tutoring and test prep courses increased by 43% year-over-year to approximately 2,296,800 [8] - Per program blended average selling price (ASP) increased by about 7% year-over-year [9] - Hourly blended ASP also increased by 7% year-over-year, consistent with normal price increases of 5% to 8% [9] Company Strategy and Development Direction - The company is focusing on expanding its offline business by adding around 20% capacity and enhancing classroom areas [25] - Investments in digital technologies and the OMO system are prioritized to improve service quality and capture market opportunities post-COVID [26][27] - The company aims to leverage its strong financial position to take market share from smaller players during the expected market consolidation [25][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery trend and long-term market opportunities, emphasizing a balanced investment strategy [24][28] - The company expects total revenue for the next quarter to be in the range of$ 1,101.9 million to $1,141.8 million, representing a year-over-year increase of 38% to 43% [29] - The K-12 business is expected to grow by 45% to 50% in the next quarter, while overseas test prep is projected to grow around 30% [29] Other Important Information - The company invested$ 59 million in the quarter to enhance its OMO integrated education ecosystem [13] - Cash and cash equivalents as of February 28, 2021, were $1,569.8 million, up from$ 915.1 million a year earlier [22] - Deferred revenue increased by 35.7% year-over-year to $1,865.7 million [23] Q&A Session Summary Question: Regulatory environment and potential impacts - Management acknowledged the government's intention to tighten regulations in the after-school tutoring sector but does not foresee material impacts on top-line revenue [32] Question: Summer promotion plans - The company plans to replicate last year's successful summer promotion, expecting higher retention rates and significant enrollments [35] Question: OMO revenue contribution and margin profile - OMO currently contributes single-digit revenue but is expected to grow rapidly, with margins anticipated to be higher than traditional offline classes [38] Question: Outlook for overseas testing and consulting - Management noted a recovery in overseas test prep, with a projected revenue increase of around 30% in the next quarter [41] Question: Capacity expansion plans - The company plans to open more learning centers, particularly in Beijing, and aims for a 20% capacity expansion this fiscal year [45] Question: Margin trends - Management expects margin decline to narrow in the next quarter, with confidence in long-term margin recovery post-pandemic [50]