管理層發言
Good evening, and thank you for standing by for New Oriental's Full-Year 2024 Fourth Quarter Results Earnings Conference Call. At this time, all participants are in listen-only mode. After the 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. Please go ahead.
Thank you. Hello, everyone, and welcome to New Oriental's fourth 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 views 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.neworiental.org. I will now first turn the call over to Mr. Stephen Yang. Please go ahead.
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. Before we begin, we would like to firstly extend our gratitude to those who have been supporting and believing in New Oriental. We understand there might be some questions with regards to the latest separation of East Buy and Time with Yuhui. Before we go into New Oriental's performance, we would like to stress that this decision was carefully made upon a considerable amount of transparent communication with Dong Yuhui, who has been a beloved colleague of ours and drove instrumental growth of East Buy. As we send Yuhui our best regards for his new venture, the company remains fully dedicated to forging a stable path of healthy growth for the platform, devoting our very best to live up to our customer-centric promise to offer a diverse range of premium, healthy, delicious, yet cost-effective products to our customers, anchored by the exceptional teams, far-reaching partnerships, over 400 SKUs and distribution channels, which we successfully built over the years.
A strategic pivot to expand our multi-pronged presence are in the works. We will continue to leverage East Buy to propel knowledge sharing, product dissemination, and culture promotion to our valued customers in the long-term. For more details, please refer to East Buy's latest announcement. Now, let's dive into New Oriental's fiscal year 2024 performance. For New Oriental's financial results of this fiscal quarter, we are pleased to announce that the company has achieved a healthy growth in our key businesses with a solid topline growth of 32.1%. Strong demand has fueled stable recovery across our business lines, while our portfolio of innovative ventures has invigorated the company's revenue with healthy contributions. New Oriental's bottom line performance has achieved yields, with operating margin and non-GAAP operating margin reaching 0.9% and 3.2% for this quarter, respectively. Except for East Buy's investment in private label products and certain costs and expenses related to the platform of Time with Yuhui, our spending in accelerated capacity expansion and newly integrated tourism-related businesses, as well as additional incentives to the management and staff, have led to a short-term impact on our operating margin in this quarter.
However, coupled with the increasing market demand, we strongly believe we made the right move to impose the right investment. We anticipate that the pressure on margins for the educational business will reduce in the next fiscal year as we continue to improve the utilization of facilities and operating efficiency. We expect our operating margin of the company, excluding East Buy, will expand year-over-year in the first quarter of 2025 and deliver satisfactory operating profit for the full fiscal year 2025. Now I would like to spend some time discussing this quarter's performance across our existing business lines and new initiatives in detail. Our key remaining business secured an encouraging trend and the new initiatives have shown positive momentum. Breaking it down, the overseas test-prep business recorded a revenue increase of 18% in dollar terms, or 23% in RMB terms year-over-year for this quarter.
The overseas study consulting business recorded a revenue increase of about 17% in dollar terms, or 23% in RMB terms year-over-year for the first fiscal quarter of 2024. The adults and university students' business recorded a revenue increase of 16% in dollar terms, or 21% increase in RMB terms year-over-year for this quarter. Our new initiatives, which mostly revolve around facilitating students' all-round development, have continued to sustain a strong momentum in their respective ventures. Firstly, the non-academic tutoring courses, which we have offered in around 60 existing cities, focus on cultivating students' innovative ability and comprehensive quality. We are excited to see further penetration in those markets we have tapped into, especially in high-tier cities, which total approximately 875,000 student enrollments recorded in this fiscal quarter. The top 10 cities in China contribute over 60% of this business.
Secondly, the Intelligent Learning System and Device business have been adopted in around 60 cities. We are happy to see stable customer retention and scalability, with approximately 188,000 active paid users reported in this quarter. The revenue contribution of this initiative from the top 10 cities in China is over 55%. Our smart education business, educational material, and digitalized smart study solutions have continued to contribute materially to the overall advancement of the company. In summary, our new educational business initiatives reported a revenue increase of 50% in dollar terms, or a 57% increase in RMB terms year-over-year for this quarter. In addition, the newly integrated tourism-related business line, one of our creative endeavors, is tailored with diverse offerings of cultural trips, study tours in China and overseas, as well as camp education. Within this business line, our study tour and research camp business for students of K-12 and university age continued to achieve sustainable growth this quarter.
We have conducted study tours and research camps in over 65 cities across the country, with the top 10 cities in China offering over 55% of the revenue share of this new business. We also piloted a number of top-notch tourism offerings to extend our reach to all age groups, including middle-aged and elderly individuals across 27 featured provinces. As we are still at a preliminary stage of planning, testing, and evaluating the visibility of the business in selected regions, we will keep you posted should there be timely updates. With regards to our OMO system, we have proceeded in revamping our platform and leveraging our education infrastructure and technology edge on remaining key business and new initiatives, with a vision to provide advanced, diversified education services to customers of all ages. During the reporting period, a total of $30.5 million has been invested in our OMO teaching platform, which equips us with the flexibility to maintain unrivaled service to students.
Regarding the company's latest financial position, I am confident to share with you that the company is in a healthy financial status, with cash and cash equivalents, term deposits, and short-term investments totaling approximately $4.9 billion. In addition, we would like to highlight that the Board of Directors approved a share repurchase program in July 2022, under which the company is authorized to repurchase up to $400 million of the company's ADS or common shares through the next 12 months. The company's Board of Directors further approved extending the effective time of the share repurchase program to May 31, 2025. As of July 30, 2024, the company repurchased an aggregate of approximately 7.3 million ADSs for approximately $296.1 million from the open market. Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead.
Okay. Before we go into our key financials, we'd like to inform you that as part of the company's business line reorganization, the company's wholly-owned subsidiary and variable interest entity entered into an agreement with East Buy and its subsidiaries and variable interest entities to acquire East Buy's online education business at an aggregate consideration of RMB1.5 billion. The consideration was agreed by both parties after arm's-length negotiations, with reference to an independent valuation. The acquisition was completed in this fiscal quarter. Upon completion, the online education business was consolidated from East Buy's consolidated financial statements and is now recorded by the company under educational services. Now, for our key financial details for this quarter. Operating costs and expenses for the quarter were US$1,126.2 million, representing a 38.6% increase year-over-year.
Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were US$1,100.4 million, representing a 40.7% increase year-over-year. The increase was primarily due to the costs and expenses related to the substantial growth in East Buy's private label products, live streaming, e-commerce business, and accelerated capacity expansion for the education business. Cost of revenue increased by 38.5% year-over-year to $542.4 million. Selling and marketing expenses increased by 40.9% year-over-year to $208.2 million. G&A expenses for the quarter increased by 37.5% year-over-year to $375.5 million. Non-GAAP G&A expenses, which exclude share-based compensation expenses, were $355.2 million, representing a 42.3% increase year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 15.5% to $25.8 million in the fourth fiscal quarter of 2024.
Operating income was $10.5 million, representing a 78.1% decrease year-over-year. Non-GAAP income from operations for the quarter was $36.3 million, representing a 53.8% decrease year-over-year. Net income attributable to New Oriental for the quarter was $27 million, representing a 6.9% decrease year-over-year. Basic and diluted net income per ADS attributable to New Oriental were $0.16 and $0.16, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $36.9 million, representing a 40.5% decrease year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.22 and $0.22, respectively. Net cash flow generated from operations for the fourth fiscal quarter of 2024 was approximately $376.8 million and capital expenditure for the quarter was $27.4 million. Turning to the balance sheet. As of May 31, 2024, New Oriental had cash and cash equivalents of $1,389.4 million.
In addition, the company has $1,489.4 million in term deposits and $2,065.6 million in short-term investments. New Oriental's deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as the service or goods are delivered, at the end of the fourth quarter of fiscal year 2024 was $780.1 million, an increase of 33.1% as compared to $1,337.6 million at the end of the fourth quarter of last fiscal year. Now, I'll hand over to Stephen to go through our outlook and guidance.
Thank you, Sisi. As we look ahead for 2025, we are confident that our educational business will embark on a healthy trajectory of growth fueled by the continuously strong demand, supported by New Oriental's rooted resources that have stood through the test of time. We firmly believe in delivering margin expansion for the whole company except for East Buy in the first quarter of 2025, and attaining satisfactory operating profit for the full fiscal year. Simultaneously, we expect to achieve tremendous growth for our new tourism-related business and believe that the significant resources we invested for a nationwide rollout of these tours will contribute meaningful revenue in the new fiscal year. As we ensure a healthy balance between revenue growth and profitability growth, we will cautiously manage our capacity expansion and hiring to underpin the development of educational business in the New Year.
We plan to increase our capacity by around 20% to 25% for the fiscal year 2025. The most new openings will be launched in the cities with better topline and bottom line performance. Rest assured, we will closely monitor the pace and scale of the new openings in accordance with the local operations and financial performance during the year. We expect total net revenue, excluding revenue generated from East Buy, in the first quarter of fiscal year 2025, June 1, 2024 to August 31, 2024, to be in the range of $1,254.7 million to $1,283.5 million, representing a year-over-year increase in the range of 31% to 34%. In addition, based on our current estimation, we expect the operating margin for the whole company, excluding East Buy, in the first quarter to expand year-over-year. To conclude, New Oriental has been known as a resilient adventurer that sails on its voyage amid years of changes for transformation.
Thanks to the support of our valued customers, promising premium offerings, and giving back to society in the long-term have stood firm as our priorities from day one. As always, we will devote reasonable resources to the research and application of new technologies such as AI and ChatGPT into our educational and product offerings, with a vision to uplift our strength in pursuit of fee growth and operating efficiency. We will continue to seek guidance from and cooperate with the government authorities in various provinces in China, comply with relevant policies, as well as further adjust our business operations as required. We will also work diligently to enhance the nation's education level to strengthen its leading position and to unveil further potential across all our business lines and realize our vision. I must say that these expectations and forecasts reflect our considerations of the latest regulatory measures as well as our current and preliminary view, which is subject to change. This is the end of our fiscal year 2024 Q4 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these. Thank you.
分析師問答
Thank you. Our first question is from Alice Cai from Citi. Please proceed with your question.
Good evening, Stephen and Sisi. Thank you for your presentation. I have a question about the growth strategy. Since you are not planning to expand into new cities, how much room for growth is left in your existing locations before reaching saturation? Could you please share your color about this? Thank you so much.
Okay. Yes. Thank you, Alice. In regard to the learning center expansion plan, as I said, we plan to increase the capacity by 20% to 25% in the new fiscal year. Most of the new learning centers, the new classroom areas will be opened in existing cities, particularly in those with better performance in terms of both topline growth and margin expansion in fiscal year 2024. We will keep monitoring the pace and scale of the new openings. We care more about the balance of topline growth and margin expansion. So this is our strategy. In the coming New Year, with the extension of the new learning centers by 20% to 25%, we will keep the utilization rate up. I believe the strong revenue growth in the New Year will cover the incremental classroom rental. Thank you, Alice.
Thank you so much for your sharing.
Thank you. We will now take the next question from the line of Yiwen Zhang from China Renaissance. Please go ahead.
Hey. Thanks. Good evening. Thanks for taking my question. So I would like to follow up on the margin decline in this fiscal quarter. You mentioned several reasons in your prepared remarks. Could you discuss more about which ones are one-off and which ones are recurring? And also, if we look at the education business now, how do we see the margin actually trending in the last fiscal quarter? Thank you.
Yes. Thank you, Yiwen. Let's start with this quarter's margin analysis. Yes, the operating margin decreased in this quarter mainly due to a couple of reasons. First, we accelerated the learning center extension in this quarter and even in the last two quarters. Secondly, we made additional incentives to the management and staff in Q4. Thirdly, East Buy's investments in private label products and some certain one-time costs and expenses related to the sales with Time with Yuhui led to this decrease. Some of the expenses are one-time incremental costs incurred in Q4. Regarding the margin outlook, we expect the operating margin in the coming Q1 of the whole company, excluding East Buy, to expand by 200 basis points year-over-year. This indicates that you'll see more operating leverage and increased operating efficiency in the coming Q1. We are optimistic about the margin expansion of the company, excluding East Buy. In fiscal year 2025, the margin will expand as we will leverage the operating growth and maintain high utilization rates at the learning centers. This quarter's margin decrease is just a one-time occurrence. You will see margin expansion for the educational business in the next quarter. Thank you, Yiwen.
Okay. Thanks. That’s very clear.
Thank you. We will now take the next question from the line of Felix Liu from UBS. Please go ahead.
Thank you, management, for taking my question. First, I just want to say that I have a lot of respect for how New Oriental handled the situation with Dong Yuhui and believe the decisions you made will be beneficial to the long-term branding of New Oriental. My question is a follow-up on the margin expansion. You mentioned that in Q1 you expect the margin to expand by 200 basis points. May I check the pace of margin expansion, or your expectation on the pace of the expansion for the rest of the year? Do you think Q1 will be the peak of margin expansion? Or do you expect this momentum to continue or even improve in the following quarters after Q1? Additionally, on the margin improvement driver, do you see the driver mainly from operating leverage? Or do you see the underlying segment margin also has potential for improvement? Thank you.
Yes. Felix, regarding the margin outlook, we guided the margin expansion for Q1 of the educational business will expand by 200 basis points. As you know, Q1 is the peak season for the educational business. For the rest of the year, Q2 to Q4, we will keep you posted about the margin expansion in detail. However, we are quite confident about the overall year margin expansion for the education business. Operating leverage will also play a significant role. We opened more learning centers and hired additional staff in Q3 and Q4. The demand for educational services, especially for the K-12 business, remains very strong. Although we recognize that competitors are investing more resources to capture market share, we are optimistic that New Oriental will continue to gain market share moving forward. The combination of topline growth and effective cost management should enhance margin expansion in Q1 and throughout the entire year of 2025.
Thank you. We will now take the next question from the line of Alice Ma from Bank of America. Please go ahead.
Hi. This is Lucy from Bank of America. So I have a question on the enrollment growth versus the capacity expansion pace. If we're looking at this quarter, our number of learning centers has expanded by around 42% on a year-over-year basis, but the non-academic tutoring enrollment only grew by 39%. I know it's not a big difference, but historically, enrollment growth tends to be higher than the pace of capacity expansion. So, how should we think about the difference between these two? Is it due to timing or some other reason? Thank you.
Partly, it's because of timing, like the student enrollment window and the opening periods. As I mentioned, at the end of this fiscal year, we added around 37% of new capacity. Yes, that's a little bit bigger than we expected, but I believe it will yield results starting next Q1. For example, in this quarter, our new business for K-12 has shown a topline growth in RMB terms of 57% year-over-year. Going into the summer in Q1, we believe revenues from the new business will see around 45% to 50% year-over-year growth. So, I think we will cover the incremental costs associated with new learning centers. Additionally, I believe the rental costs per learning center will decrease as market conditions have changed. We expect to achieve operating leverage on rentals and other costs moving forward.
Thank you, Stephen. Sorry, just one small question. You mentioned in the May quarter there was a small one-off compensation paid to Dong Yuhui. I understand it's a one-off, but will there be any compensation paid to him in the first quarter?
Yes, the costs and expenses related to the sale of the Yuhui Tongxing will occur in Q4 and the coming Q1. We will keep you posted in the next earnings call regarding the exact numbers of how much we spend in the upcoming Q1. But it will be a one-time expense.
Thank you. We will now take the next question from the line of Timothy Zhao from Goldman Sachs. Please go ahead.
Hi, Stephen. Hi, Sisi. Thank you for taking my question. My question is regarding your revenue outlook for the new fiscal year. I'm wondering if you can provide certain guidance on the revenue growth for different segments of the business, including traditional K-12, overseas test-prep, consulting, and K-12 new initiatives. I think that would be very helpful. Thank you.
Yes. In regard to the revenue outlook for fiscal year 2025 for the different segments, we expect the overseas test-prep business's revenue growth will be around 20% to 25% year-over-year. For consulting, the revenue growth will be around 15% year-over-year. The topline growth of the new business will be approximately 45% to 50%. For the high school business, we project revenue growth of about 25% to 30%. We will continuously provide guidance in a conservative manner.
Thank you. We will now take the next question from the line of Charlotte Wei from HSBC. Please go ahead.
Good evening, Sisi and Stephen. Thank you for taking my question. My question pertains to the competitive landscape. We have noticed that local small players have been more aggressive in terms of expansion. Do you see competition intensifying this summer, especially in the top-tier cities? Can you share more color on summer enrollment growth and student retention rate? Thank you.
Regarding the competitive environment, yes, we have seen some competitors invest additional resources and open more learning centers in top cities. However, I believe the competition landscape is less intense compared to a couple of years ago, particularly before regulatory changes. I am optimistic about New Oriental's ability to capture more market share and provide quality services to students. We are targeting strong enrollment for the summer, and we have already provided guidance indicating topline growth in the range of 31% to 34% in dollar terms year-over-year for the education business, excluding East Buy. We are quite optimistic about topline growth and market expansion in Q1.
Thank you. Very clear. May I ask another question regarding shareholder return because we have a lot of cash on hand? Do you consider increasing your share buyback plan once the current plan concludes?
Yes, we do have the $400 million share buyback program in hand. As of yesterday, we have finished purchasing $294 million. This means we have about $100 million remaining. Our first step will be to complete the remaining $100 million buyback. Once we conclude the current $400 million buyback program, I will discuss with Michael and the Board about potentially upsizing the plan or considering other forms of capital allocation, including dividends. You're correct that we are holding a lot of cash, approximately $4.9 billion. We should create more value for our shareholders and increase capital allocation.
Thank you. We will now take the next question from Liping Zhao from CICC. Please go ahead.
Thanks, Stephen and Sisi for taking my question. Just one quick question on your tourism business. How much revenue contribution do you expect from your tourism business in your Q1 outlook, and looking ahead for the whole fiscal year 2025, how much revenue contribution will that business make? And also what's your expectation for the bottom line impact?
Yes, regarding the tourism business, last fiscal year, the revenue was RMB380 million. For fiscal year 2025, we expect overall revenue to reach around RMB1.2 billion. In Q1, we anticipate the revenue growth of the tourism business will be somewhere around 180% year-over-year. This is a substantial number.
Thank you, Stephen. And what about the bottom line impact?
Since we just started the tourism business this year and last year, I expect we will incur a loss from this segment in fiscal year 2025 as the business is still in its investment phase. However, by fiscal year 2026, I believe the business will become profitable. We estimate that the tourism business will incur a loss of around RMB100 million in fiscal year 2025.
All right. Thank you. That’s very helpful.
Thank you.
Thank you. We will now take the next question from DS Kim at JP Morgan. Please go ahead.
Hello, Stephen. Hi, Sisi. Good evening. Thanks for taking my question. I just have one quick follow-up, if I may. Would you have any comment on the recent regulatory environment, given the market concerns and whatnot? As you are aware, there was a public consultation paper on the tutoring policy, I think, back in February or early March. Have you heard any updates or any anecdotal insights from the regulators on the ground? If you could share, it would be appreciated.
I think we haven't seen any new regulations. As I mentioned, the regulatory framework has not changed. As the education industry leader, we have complied with regulations for the past three years. We expect that the regulatory environment will stabilize in the coming New Year or even the year after.
Thank you, sir. If I may follow up. You discussed the one-off impacts earlier. Can you quantify how much you believe the one-off impact from Dong Yuhui Tongxin was for the past fourth quarter? If you're unable to disclose that, that's fine, but I wanted to ask.
Unfortunately, I'm unable to share the detailed numbers at this time. East Buy will announce their earnings in late August, and their management will provide more insights into these queries during their earnings call. Yes.
Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's Executive President and CFO, Stephen Yang, for his closing remarks.
Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.