New Oriental Education & Technology Group, Inc. Q2 FY2025 earnings call

• Revenue grew 19.4% year-over-year, with total net revenues excluding East Buy's private label products and livestreaming business up 31.3% year-over-year.
• Core education business operating margin was 2.8% GAAP and 3.2% non-GAAP.
• Investments in new education businesses: non-academic tutoring with ~994,000 student enrollments, intelligent learning systems tested in ~60 cities, smart education and tourism related businesses showing growth.
• East Buy expanded product range, used multichannel strategy (Mini Program, WeChat Mini Store, etc.) and explored offline channels with vending machines in learning centers.
• Financial position: cash and cash equivalents, term deposits, short-term investments totaling ~$4.8B; paid special dividend of $0.06 per common share; share repurchase program extended to $700M with ~$542.8M spent on repurchasing ADSs.

New Oriental's revenue grew 19.4% year-over-year. Total net revenues excluding East Buy's private label products and livestreaming business increased by 31.3% year-over-year. Overseas test prep business had a 21% year-over-year revenue increase. Overseas study consulting business reported a ~31% year-over-year revenue increase. Adults and university students business saw a 35% year-over-year revenue increase. Non-academic tutoring business had approximately 994,000 student enrollments in the quarter, with the top 10 cities contributing over 60% of the business, and revenue increased by ~43% year-over-year. Intelligent learning system and device business was tested in around 60 cities, with top 10 cities in China contributing ~50% of its revenue. Tourism related business, including study tour and research camps, saw a 233% year-over-year revenue increase, with study tour and research camps operating in around 55 cities and top 10 cities contributing over 50% of the revenue share. East Buy expanded its product range, with private label products contributing approximately 37% of total GMV for the six months ending November 2024, and its multichannel strategy drove growth.

• Q3 total net revenue excluding East Buy expected to be in the range of $1,017.3 million to $1,032.5 million, representing year-over-year increase of 18% to 21% in dollar terms and 20% to 23% in RMB terms.
• Plan to open 20% to 25% of new learning centers in the whole year, focusing on cities with strong performance, balancing revenue growth and operating efficiency.

• Macroeconomic uncertainties impacting higher-end businesses like overseas test prep and one-on-one business.
• Competition in new business areas.
• Regulatory risks, though currently neutral to positive as per management's view.

Q: About Q3 revenue guidance and learning center expansion, how is the revenue growth trend and learning center expansion pace?

A: Stephen Yang mentioned that macroeconomy uncertainty has negative impact on high-end education business, revenue base is increasing, exchange rate impact is about 3%, management aims to beat guidance and balance revenue growth and operating efficiency; for expansion, Q2 had 5% Q-on-Q expansion, whole year plans to open 20%-25% new learning centers in cities with good performance and care about utilization.

Q: Impact of macro on mass market services and competition?

A: New business still has strong growth, around 40% mid-term year-over-year growth; competition is present but company is still taking market share, base in Q3 leads to guidance of 40% mid-term growth.

Q: Full year guidance and OP margin?

A: Full year RMB term growth expected to be less than 25%, non-GAAP OP margin for educational business expanded by 12 basis points year-over-year in Q2, margin outlook for second half has some pressure from overseas related business but expects margin expansion next year.

Q: Dividend policy and learning center breakeven?

A: Stephen Yang said new learning centers typically take six months to breakeven, share buyback program ongoing, special dividend paid in September, Board of Directors to discuss new year capital allocation policy in July.

Q: Regulatory landscape on core and non-core businesses?

A: No change in regulation, okay to open new learning centers with local government licenses.