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New Oriental Education & Technology (EDU)

Participants
Sisi Zhao Director, Investor Relations
Stephen Yang Executive President and Chief Financial Officer
Felix Liu UBS
DS Kim J.P. Morgan
Lucy Yu Bank of America
Liping Zhao CICC
Call transcript
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Operator

00:02 Good evening and thank you for standing by for New Oriental’s FY 2022 Third Quarter Results Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements' 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. to conference, meeting Ms. like host to now today’s for I turn over the your XX:XX Sisi Zhao.

Sisi Zhao

call. you. to fiscal conference New Thank Oriental’s XX:XX Hello third quarter everyone, XXXX and welcome earnings

please released remarks, Our provisions and Officer. questions. earlier the financial and Chief website, that as I made available will Financial be today Before Today, contain well the Litigation note After Newswire Stephen U.S. as the Yang, hear continue, results will periods from company’s to answer today are Stephen available for and on Services. discussion you XXXX. prepared on Securities XX:XX under we your Act the his of will were Executive forward-looking Private of Reform statements Safe the Harbor President

inherent involve statements uncertainties. and risks Forward-looking

from SEC. results expressed and uncertainties our may views A of public different our the in materially be filings potential the number such, with are risks XX:XX today. As outlined

obligation Oriental statements, any New is any required this reminder, As being not as applicable conference recorded. forward-looking except does law. a XX:XX undertake to update under

be addition, will this go call I to now the webcast on New website of investor.neworiental.org. conference will turn call Investor ahead. XX:XX Stephen, Yang. a please Mr. over at Oriental’s In Relations available

Stephen Yang

XX:XX for the call. and Thank thank Sisi. everyone, joining you, Hello you us on

conference the from the introduced have business employee costs, by gratitude and XX:XX we closure will I our pandemic It’s the and and policy our thank extend for Oriental. in the and authorities quarters and governments while impacted by cost perhaps people and since supporting schools to of earnings time. heroes to would been year. characterized have to convey like who our the in their Before result during been was been XX:XX incurred last of centers, significant believing begin, and While the this local as opportunity to learning like commitment those we the layoffs, cancellation sympathy last New to a hard the all who our previous all difficult work a calls, take healthcare

time new study detail. initiatives exam I this about shown over to same year. study increase a was entered initiatives innovative latest growth and to This the and company to such revenue in a obtain camp, of of positive our results. smart turning has and that recorded including facing momentum X% would XX:XX respectively key the diplomas trend been review emerging university the test period, of and approximately our degrees. the Simultaneously, phase, solutions, college resilience and time business about non-academic and of student our first nine business [indiscernible] students. In XX% XX:XX business system the management journey adult XX:XX prep remarkable the in during students talk along overseas educational stive see the the is have and XX% overseas restructuring our to set study learning many across forefront as a quarter promising have as rapid designed performed Now, our business teams come across business opportunities, performance lines some to announced the of of with Our remaining fresh as a current research and development we and about challenges spend fiscal embarks new new we’re tutoring, for quarter financial materials decisive like year-over-year. all new tour on a opportunities, for businesses endeavors, recorded Despite our of junior and as as to business pleased has growth year-over-year digitalized change well courses devices, company remaining intelligent exceptionally we introducing this business months key consulting with leaf bachelor's exploring remaining of and prep XX:XX

XX% of growth year-over-year [ph] for business remaining for key in first fiscal got dollar of reported the students the year-over-year revenue targeting it domestic XX% The adults approximately year. about terms, and increase [test a nine business for months in dollar The breaking the first trends year. months first study promising this terms of nine The of rapid Our university of XX:XX the drive down. consulting months increase nine a X% business overseas recorded this of this test prep] overseas year. recorded revenue

greatly XX:XX service a The monitoring] the our intelligence system. not XX:XX learning the experience have with in I’m digital in tailored rolled China more and we happy in existing contributed learning personalized habits. we glad and to students in on our this these ability students, device learning past the have new months, cities cultivate business, have focused with to service launched students, top also As we students and We're see for [indiscernible] designed out Firstly, students technology five market and revolve to market efficiency, initiatives, all penetration shown provide for positive both system [ph] cultivating new curve cities, and accessing mostly Secondly, educational together facilitating teaching as have over you and momentum. students increased new than quality. targeted our The share initiatives new which initiatives have exercise around data only business provide XX:XX tapped our business innovative developments. which business. of of but around into. improved XX a XX% experience, learning utilized proactive revenue XX to the comprehensive learning that that past content backend is a learning [teachers

broaden existing initiatives customer The have cities tested scalability of China cities over in offering revenue is and improved and cultivate students that the initiative. in opportunity the tour XX XX at delighted of to over is to aims the study free adoption XX%. the We their the knowledge contribution and an interest. leverage top these XX:XX Meanwhile, research are to [indiscernible] from business this camp subject newly fully time holidays see retention and initiative

intelligence, technology have primary, cities XX%. and presence remote kindergartens while progress where require We're to flexibility service, students taking common and becomes The revenue become of diplomas degrees. tours in authorities, is education solutions. in Business is fiscal camp to across these addition, complete forward research market over have cities for degree about and [gap] in from to in in XX:XX digitalized has XX smart associated designed We university and the Kindergartens. XXX the piloting year. secondary excited age, the service also obtain students of initiatives the not and bachelors plan the other It more Oriental’s smart In artificial across course prep over their We're the university smart, providing XX:XX system leap XX:XX and increasingly education and level. business but educational education to enlightenment] secondary like junior enables tier prospect and country local courses new China in in some Last, schools least, quality space The the high and over college among and it out A Smart study now holders comprised initiative and such who country. services feature have schools these primary next over study to would pace country. and relates to learning, share further students, New cities advanced X,XXX would goal to contribution providing over to the I other many by we of to XX:XX very them the XX to very the top science with XX:XX that comprehensive college material mainstream. support ladder applying a diploma self-learning in XX:XX saw the educational [ph] innovation higher that products leveraging and technology for conducted in hardware, resources prep smart Education educational [scientific roll and this service [indiscernible] our governments, cities [ph] learning control

policy. certain two new during $XXX key the quarters industry invested online Koolearn landscape the remaining performance in in in to part infrastructure kept opportunities China, end developments education During fiscal our learning of was strength in college adjusting strong high to And committed We as We of disruption. has learning the OMO online total developing we changing business XX:XX more leveraging minimize to our the structure XX:XX this $XX ages. one online leveraging comply technology OMO market pure business [ph] the our and quarter service our reduced the On is and and to between initiatives classes [actually] technology industry revamping million company's ensured change which existing of been education of for Regarding students resurgence service of by and quality education our service in-light system, prove in investing to efforts migrating business offering. The the new seeking result, the in across where by other our continue our existing has institution and the XX:XX fiscal the year to students number the have this strategic in of committed service of is the the and Koolearn leading expand and maintain and in diversified the restructuring as centers XXX the fully Koolearn, phase teaching the platform, of [underscored] well of which The OMO improve last infrastructure in teaching to remain and been offering. three to all platform, schools the XX:XX and advanced to the have OMO offline the [ph] existing government's lines first during million significant the and fiscal and technology. quarter. for our customer quarters, consistent and segments, the XX:XX education as during China of as and products pandemic continued importance R&D as required focus have been platform outbreaks that uncompromised. COVID-XX shifting well is flexibility as of been process, instrumental our hand, XX:XX we

to products Koolearn stream exploring, and innovations. the offerings. impact region developing different After the changing XX:XX structural meet hand, doubt has learning high quality Chinese our and no XX:XX actively government new the Some the and that marketing place regulatory it's base which [indiscernible] tutoring posted of direct initiatives the live of business. policy by introduction institutional after year, environment cooperation seeking school other traditional the in and needs the our to last of new including On to from intelligent agriculture customer culture initiatives broaden of other China, been exploring on have of new educational implementing and changes

closure losses. the $X.X investments learning at a in We As we XX:XX and the they have to received third inquiries capable and of over cost the sure weathering phase are made the that – fiscal deposit nonrecurring our for and short-term of are strong employee quarter term we end totaled the equivalents layoffs. the the changes cash concerns believe relation in throughout always company's position. with in during to XX:XX from and By approximately this incurred that generated considerable and XX:XX in many long-standing prepared position investors reflects the of process. company ability termination whole billion. temporary agreements of that heritage, this year, and the In centers company the quarter, second as market We cash from restructuring cost financial the and have leasing the our cash are the maintain its

Now, opportunities the closure With and profit new company stage older of Zhao the profitable values operational entered of in is will flexibility go this our of remaining our more process shareholders Sisi company's potential has management to We're now XX:XX over the work greater fresh, the The will to and our and We profitability commitment starting and sustainable generate financials. confident the long-term. new of and initiatives. the strong to believe efficiency to well now business, as as with it a growth. exploring a over cash completed, to high society, the customers, our call XX:XX quality turn will I flows. continued service the key key seek XX:XX largely continue school team together that signals Sisi? to that growth through

Sisi Zhao

Okay. XX:XX

expenses decrease of in quarter. the walk the to increase and New costs fiscal was attributable year. the of Now, cost of to $XX.X $XXX.X $XXX.X number were in million, $XXX.X decreased to year-over-year. the the prior which grants based for same based XX:XX loss operations the New and decreased million million representing years. and year. compensation $XXX.X for attributable by loss expenses of per cash restructuring year-over-year I'd an exclude were share vesting The and $XXX.X revenue the XX.X% period Non-GAAP the of loss increased a share like was New attributable and income million Oriental to quarter expenses fiscal ADS XX.X% Oriental XX.X% of three quarter a two graded million. in the of compared the for loss operating company were by to operating an of net the compared and marketing by XX% to New million Oriental XX:XX representing due and million, to as Net $XXX.X million diluted in $XXX period basic period excludes and XX.X% quarter for was quarters. year-over-year. share to Turning of XXXX, $X.XX $XXX.X from income had Non-GAAP million. same $XXX.X last for to was million, million. $XXX.X expenses, Cost February equivalents last Operating Net the Non-GAAP employees year. year-over-year year-over-year. $XXX.X related loss $XX million. diluted were XX:XX sheet, $X.XX, per same to last cash reduction $XX.X by share Operating compensation of decrease which decrease XX:XX year-over-year XX.X% income for the were were quarter. other New G&A approximately to of operating over million, through XX:XX of an was million, Total facilities as $XX.X and the Selling decreased representing of $XXX.X which costs expenses allocated the with directors is or quarter restricted units Basic compared primarily to same to to May attributable ADS of to to G&A for XXXX result expenses the based million, million, and expenses, decrease compared respectively. XXX.X% the for to CapEx Oriental financial staff a period quarter, key the last details in quarter Non-GAAP you of million for The due the $X.XX, quarter outflow Oriental the the income net quarter $XXX.X year. $X.XX was XX:XX an balance million. loss cash of XX:XX XX, net Non-GAAP $X,XXX.X in and respectively. and to in the

XXXX. instructions XX.X% registered company the $X,XXX.X short-term investment. of New for in and $XXX.X after-school at due Stephen recognized with in term collected as of decrease to $XXX.X of addition, which order The Now, as over the from revenue and million in is hand to cessation K-X In the the deferred courses through balance, Oriental's was year fiscal XX:XX academic proportionally million of year our outlook in last quarter students tutoring revenue at guidance. is comply delivered, XX:XX the to cash as services quarter policy the the decrease had the the to compared the of government are end deposits as the a same million, go I’ll China. third and to end primarily

Stephen Yang

a market run. measures adopted the clearer in of policies have for as trends for the and next XXXX, term the are new performance XX:XX regulations, about we quarter near latest identify beginning we now and the and response opportunities long year Looking fiscal new having company's profitable financial the into recovery of ahead to prepared picture

as continue half will a In to we’re in XX:XX closure to our of the already centers first a will the learning non-recurring fuel performing lease meantime, fiscal the markets. left current of us serve profitable relates for and are business to as of relatively costs business the provide and of off its with year. the all months. nearing possibilities be end new foundation portion coming the were a in As to terminations performance with stage the small executed in accrued the the solid schools explore remaining the one closure strong The key

initiatives, Our strategic our investments into We're confident [indiscernible] the the at be going will forward new key future the trends this the market. business. XX:XX aim as which approach in and in for gross service focus expanding success engines our about they with echo of current

to solutions facilitation is trending XX:XX education proof of the general students learning full industry. remote development of of fruition. Though they It study thanks on growth students, that disruption. centers But the learning intelligent customers has and system, classes, targeting of camp online [indiscernible] time OMO is and experience, some service were us which [indiscernible] locked much the the recent to in the limited, is to theme and direction. recruitment business impacted Student personalized this operation we courses. business guidance likes experienced We pandemic where next business consideration which to the students research contribute learning to digital saw digitalized starting are offline striving right XX:XX migrate and will the quarter, to down, of we showing With a since that the achieve. which revenue cities enable been enabled system have as in our March study fiscal development that we to unable the some smart XX:XX encouraging our non-academic will impact And that a confident inevitably Shanghai onwards. in goal other towards the the students Meanwhile, locally. access is from be are has to taking and would the meaningful industry small our overall device disruption, these new heading and like tutoring offering business into and come to know our as this the that to from avoiding swiftly take are cities, been already overall and year still we're for post-pandemic the has tour trajectory

weather in cities other the presence XX:XX don't in infrastructure growth our situation also flexibility by Shanghai some led expect has remains shown [indiscernible] in pandemic strength China. revenue small disruptions, prepare system country stands will fluid, the we years many the our We time. the on cities across – the respond operations. across confident a China couple as operation and effect in in disruption in of outbreaks have experience that OMO our on our Experience a Although got significant will business. and Therefore, future to have the for overall our COVID past cities the to while limited have the other impact of future only have staff test that XX:XX any we're

the differentiation and experience and time. XX:XX has period. during and very of of proven and we cash built have healthy years. the New the our depreciation has between be And been a difficult Oriental’s our challenging One Leveraging as [ph] brand balance very legacy well the as during players other recognition, to the us that strengths [enhanced] this over experience

would its to comply and various in rules, guidance have remaining in actions with the promote confidence in now in At our efforts of new restructuring in on with see the business different our and the we’re open regulatory business. will great implementation the profitable measures, any required. this. connection adjust prospects will for to as situation, future. of for long-run. I engine policies, well change. and to which To key business questions. permanent accelerates current we’re structure We us government which the to must will continue I mentioned and initiatives, operational our XX:XX With subject same expectations further We in and view, and measures our open new call that the cooperate our will growth like is relevant bring latest we investing kinds be believe regulations as guidelines, floor investments the all conclude, again new the phase reflects returns overall company to in brighter and XX:XX XX:XX related province these the fruit-full considerations business that the this of operations as Operator, turn pandemic please that the optimistic the near falling from taking authorities XX:XX time, strategies, point, to with in At our our recovery. China

Operator

Please [Operator your UBS. question. Our question you. Instructions] first from from XX:XX Liu comes Felix Thank as

Felix Liu

management due I’m pleased you Thank environment. restructuring and very external and you for taking question to question the resilience XX:XX to the shown My the first have is restructuring my on see tough progress. the

most the are almost So, restructuring you that finished. mentioned of

that making] will upcoming expect QX on learning I in have future you sustainable part you costs. in or is end noticed the I more may that this the center restructuring the the question of And the [ph] this be have you closures my the by do So, or know more less accounting turned the of into Unfortunately, second of [loss months? quarter.

So, related much the how to may cost be you. quarter ongoing? and Thank initiative much appreciated? any be And how on of maybe color restructuring will new one-off [indiscernible] this the is your much I know of will the

Stephen Yang

Thank you, Felix. XX:XX

first And the question center. centers. down XXX learning plan learning the in last we In total. end, we of centers. in close centers we learners the to X,XXX had learning about And this fiscal end, quarter some of year Your have

fiscal in we number expect to XXX decreased So, the to be this learning will center XXX year-end.

relates answer for center my the accrued XX:XX cost is of I were first year. of the in the and think in this learning and yes, And to learning your close utility the question. one-off half centers lay-off down the we're So the phase this numbers restructuring already

college in last of get for bachelor’s or new like I their worthy we the degree. to [indiscernible] the think think new of quarter, started [indiscernible] some fight means recorded the new for you it's students because future. better to devices exams one-time saw the than mainly [indiscernible] the learning the and most intelligent So first due to like year. XX:XX investments business we for the have already So, but cost the system I into but the this this Yes, half the that initiatives

new need initiatives new build-up the to those good So, our investment future.

in test new we year profitable the domestic initiatives near and now in profitable, near be where because all we prep do domestic investment will – do make consulting a but believe English the business we we all, business, so, do profit can in the future, the So, XX:XX we phase, And I think fiscal are next future. those new believe adult first the test the the prep, of our be believe are and the and business [indiscernible] overseas new business, would profitable. [indiscernible]

So, the I will optimistic think fiscal profile year, the margin be in Felix. coming new

Operator

from you. next Instructions] Our ask Thank Kim XX:XX Morgan. question question. your comes [Operator DS from J.P. Please

DS Kim

a XX:XX ask question Hi of one safe in hope again Stephen. resuming here. And will but results and I Hi, later. to Sisi, and are I have for ask reminder, the because the of well questions, would I thanks Beijing. actually call you try couple

the how that, How of in big that terms quarter, December much it, of you In year? the roughly Jan, revenue how much much in dose quarter? the how whatnot? versus happened contribution if the And mentioned of to into Feb revenues and new non-academic learning third like third in revenue of that was you the initiative number one, quarter – third relation systems intelligent look in this was the details,

Stephen Yang

Okay. XX:XX

of than calendar last a we bit revenue the February, January, down little year. closed revenue, revenue I the because December the contribution higher it's the the For end of quarter, in the K-X business this by think

yeah. some it's course, yes, So, grown little launched so very December, small, it's the but of and XX:XX the have And revenue. We a the just bit courses in did would the report tutoring – The months [indiscernible] K-X, ago. we new new. the fast. now couple And it's quite [indiscernible] business. So, business,

courses business learning more what revenue new the the the XX:XX next the non-academic will in So, related new year. like revenue XX% of we and including intelligent some the the to think service contribute new contribute I over the business business, year. believe next will I contribution the new So, mean, I system,

high. extremely saw is So, the growth you

Operator

XX:XX Thank you.

Morgan from Please [indiscernible] from Stanley. Our question. next comes as your question

Unidentified Analyst

XX:XX also related Thank you, the management. My is business. new to question

like So, competition share? like is the the there data and causes operation could – see in how also area? you the for rate this example the any non-academic that new For do Thank you. retention

Stephen Yang

very higher. started new a Actually, couple XX:XX ago, we are we have the months of has quickly you retention seen, rates developed student and but and with guiding business know higher

cities, student retention in retention the seeing – new So, academic last – the rates the to courses rates close of is the that some main [indiscernible] were we we the courses year.

a good result for small, And I XX:XX competition. it's is And very So the good yes, of [Technical Difficulty] news second us. – revenue the but the for is contribution fast. the growth know

the because the competition there, our whole competition, less, I believe think changes, competition you disappear markets. do we have environment so the the the will know – market seen become from a upon is still but the in I lot of competitors will

a is So, not for problem you. Thank us. the competition

Operator

comes Please question [indiscernible]. Chen] [ph] ask your from next question. The you. from Thank [Candice XX:XX

Unidentified Analyst

prep thank question, for about domestic like and you Sisi ask would and Hello. my the and XX:XX businesses. recovery I taking of the test Stephen, overseas to

the very [indiscernible] also countries. domestic border because time, test growth business And of –revenue far control the So the has looked strong. has easing that noticed at I the same prep in of other

test next and does for strong the business growth? overall So, will prep this for achieve been to the fiscal what test how you. done has look year, revenue Thank past prep growth that like, domestic kind development year business, over of

Stephen Yang

very test in overseas overseas the and the despite change Yes. grew prep test have the the last relative students domestic college XX:XX study see couple of test decision Great prep abroad in overseas China. don't happy pandemic So, business restructuring and fast question. their students are but to the students decision. the we of some to of still you is phase, But business counties, we're months year-over-year. classes. year. you, prep And the the the X%, you still we're most nine Overseas consulting business the about first And months. and know know know test enrolled actually and consulting test this what business, prep yes, high of XX% revenue they for overseas – XX:XX prep Yes, you in seeing some school XX% And the increase are is someday. is students. Because totally they to other we in made know, about

the So, human beings can beat believe the and I coronavirus.

you So, chose university – you and market a consulting the I there's brought prep do believe [GRE] And business our test domestic will overseas new and meaningful in think exam. test is are the two of [indiscernible] take and the of XXXX. year, be the I Chinese and in coming the internal the students one of the the K-XX of China, will news people part to of more department, XX:XX internally college test think things test booming. we in the business [indiscernible] recently prep. in Chinese And prep, fiscal way move the more know year English, the overseas know years to ago, some And, adult So, are [ph] talent arranged dominator the business from this domestic we business. the I GRE

we think last years. I So, to the market prepared three for two this for

will believe will fast Thank and and generate you. more profit very the grow I So, for more test Oriental. do prep New domestic

Operator

Thank you. XX:XX

Please question of Bank comes ask next Our from from America. your Lucy Yu question.

Lucy Yu

side. my taking for the on you, question My Thank XX:XX modern is more question. Stephen

the mentioned remaining You profitable. business is

also us profitability the fiscal you year. you share business, next turn will for mentioned business? those the And of new remaining it can So, profitable

So, what you. new those for in upcoming year? Thank margins of are business the the expectation

Stephen Yang

And the new theoretically, a typically XX%. margin but suffered now [it to XX%. bit test do will XX% profitable the business, together [indiscernible] [indiscernible] test will – will like around where new business, new be is and for the believe business. prep And believe, the the next Okay. I is] of the year XX%. overseas low, I do prep business The And barge is XX:XX the [ph] domestic business, we

good a so business. And

Operator

you. Thank XX:XX

question from comes next Our Zhao Please your from ask question. Liping CICC.

Liping Zhao

XX:XX Thanks for my Stephen taking and Sisi question.

So, see glad have made new some to progress initiatives. you that in

competitive contributor? So one future direction? what's you. key will may EDU’s Thank that be most which I in the know advantage likely And revenue

Stephen Yang

new opportunities, new business. XX:XX Yes. business the like including It's [indiscernible] the five,

last art, design, sports, and since double as [indiscernible] firstly, know during So, you weekends, deduction time innovative the improve more we’re very focused new tutoring, on skill, And are the you holidays. know students programming to their you helping that policy the and growth students the because seeing quality. and during fast the ability have year, the know such comprehensive [indiscernible] present

So, the [indiscernible]. see parents their to to kids their love improve

we to and one. two, by the past to as system teaching themselves. experience And self-study intelligent device learning is our and data number students technologies Number like this the so this utilized do XX:XX the launched have

think parents I a product. know, the new them hence the love You and students system the lot, helped

The two are product. going contribute [non-academic] devices courses the intelligent more those so learning [ph] system forward. and And the will revenue

Operator

you. Thank Alright. XX:XX

the of will turn call end Yang I Executive CFO, the approaching call. and remarks. now to New the Stephen conference now his Oriental’s back President We’re closing for

Stephen Yang

XX:XX Again, us today. joining for thank you

to our questions, or contact do you If any Thank me not have you. relation of hesitate any further please investor representatives.

Operator

today. conference you concludes you. Thank This Thank XX:XX for for our participating.

disconnect. all may You