New Oriental Education & Technology Group, Inc. Q3 FY2025 earnings call

• Revenue excluding revenues from Eastbuy showed a 21.2% year over year increase. Core educational business operating margin was 12.1% and non-GAAP operating margin excluding Eastbuy was 13.3%. - Children business rolled out to around 60 cities, with top ten cities contributing over 60% of the business. Intelligent learning system and device business tested in approximately 60 distinct cities, showing improvement in customer retention and scalability. Smart education business, including education material and digitalized smart study solutions, continued healthy development. - Integrated tourism-related business had 85% year over year revenue growth, with positive feedback on culture travels, etc., and top ten cities contributing over 50% of revenue. - $29.7 million invested in Q3 to improve and maintain the OMO teaching platform. Leveraged AI technologies like open-source large language models and self-developed AI for education solutions, including AI-powered tools for essay grading, etc. - Board extended share repurchase program to May 31, 2025, increased authorization to $700 million; repurchased ~14.4 million ADS for ~$695.5 million as of April 22, 2025.

New Oriental Education & Technology Group Inc.'s segment performance: Overseas test drive business had a 7% dollar terms revenue increase year over year. Overseas study consulting business saw about a 21% dollar terms revenue increase year over year. Adults and university students business recorded a 17% dollar terms revenue increase year over year. New education business initiatives (including children, intelligent learning system, smart education) combined had a 35% year over year revenue increase. The integrated tourism-related business had an 85% year over year revenue increase. Deferred revenue at the end of the third fiscal quarter of 2025 was $1,749.9 million, an increase of 15% compared to the previous year.

• Total net revenue excluding revenue from Eastbuy for the coming quarter (March 1 - May 31, 2025) expected to be in the range of $1,009.1 million to $1,036.6 million, representing a year-over-year increase of 10% to 13% in USD, and 12% to 15% in RMB. - Non-GAAP operating margin for the educational business expected to expand year over year in the coming fourth quarter. - Q4 guidance: Overseas-related business to grow ~8% in RMB; domestic university students business to grow ~19% in RMB; high school business to grow ~16%-17% in RMB; new K-9 new business educational business to grow ~30%-35% in RMB.

• Macro-economic and international relation impacts on overseas-related businesses. - Potential changes in regulatory measures affecting business operations.

Q: On overseas-related businesses, what's the major driver of slowdown and outlook?

A: Slowdown due to macro and international relations; Q4 overseas test prep to grow 5%-10%, new year overseas test prep 5%-10%, consultant zero/flattish.

Q: Breakdown of other business growth in Q4?

A: Overseas-related ~8% RMB growth, domestic university students ~19% RMB growth, high school ~16%-17% RMB growth, new K-9 ~30%-35% RMB growth.

Q: About shareholder feedback plan, any future plans?

A: Almost finished $700 million share buyback; already paid $1 million special dividend; will discuss capital allocation plan with board for future, possibly dividends or new repurchase plan.

Q: Outlook for other business segments next year?

A: Similar growth to Q4's revenue growth for core business lines; overseas-related business to stabilize with single-digit growth; new K-9 new business to grow ~25%-30%; high school business ~12%-13% growth; tourism business ~15%-20% growth.

Q: How AI and large language models reshape education industry and investment plan?

A: Leveraged AI for teaching and learning process, including essay grading, etc.; investments reasonable going forward, AI helps with cost control and efficiency.

Q: Learning hardware business strategy and competition?

A: Confident in learning hardware business leveraging education strengths, creating stickiness with customers through interactive system and recurring revenue; operating margin over 22%-23% already, potential to enhance margin with more technology.