The following is the summary of the fourth quarter financial report conference call for $New Oriental EDU & Tech(EDU.US) in 2024. For financial report analysis, please refer to "New Oriental: Riding the Live Broadcasting Trend, Education is Heating Up" here .

I. Review of Core Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1) Operational Highlights:

① Performance by Business Segments:

a. Overseas Exam Business: Revenue increased by 18% (USD) or 23% (RMB) year-on-year.

b. Overseas Study Consultation Business: Revenue increased by 17% (USD) or 23% (RMB) year-on-year.

c. Adult and College Student Business: Revenue increased by 16% (USD) or 21% (RMB) year-on-year.

d. New Education Business: Revenue from new business in this quarter increased by 50% (USD) or 57% (RMB) year-on-year.

- Non-subject education: Provided in 60 existing cities, focusing on cultivating students' innovation ability and comprehensive quality. Approximately 875,000 students registered this quarter, with over 60% from high-end cities.

- Intelligent Learning Systems and Equipment Business: Expanded to 60 cities, with around 188,000 active paying users. The top ten cities contributed over 55% of the revenue.

- Smart Education Business: Educational materials and digital intelligent learning solutions continue to make significant contributions to the company's overall progress.

e. Newly Integrated Cultural and Tourism Business: Launched diversified cultural tourism, domestic and international study tours, and camp education. Study tours and camp visits for K12 and college students were conducted in 55 cities nationwide this quarter, with the top ten cities contributing over 55% of the revenue share. Some top tourism projects were piloted in 27 provinces, expanding to the middle-aged and elderly groups.

② OMO System: Invested $30.5 million in the OMO teaching platform during this reporting period, transforming the platform to provide diversified advanced educational services using educational infrastructure and technological advantages.

③ Stock Repurchase Plan: The board approved an extension of the stock repurchase plan until May 31, 2025. As of July 30, 2024, the company has repurchased approximately 7.3 million ADS, totaling around $296.1 million

2) Financial Highlights:

① Capacity Expansion: Prudently manage capacity expansion and recruitment to support the development of the education business in the new fiscal year. Plan to increase capacity by approximately 20% to 25% in the 2025 fiscal year. New opening locations will focus on cities with good performance, closely monitor the speed and scale of new openings, and make adjustments based on local operational and financial performance.

② Q1 Guidance:

a. It is expected that the total net revenue excluding Eastern Select in the first quarter of the 2025 fiscal year will be between USD 1.2547 billion and USD 1.2835 billion, a year-on-year increase of 31% to 34%.

b. Operating Profit Margin: It is expected that the overall operating profit margin of the company in the first quarter (excluding Eastern Select) will expand year-on-year, with the education sector excluding Eastern Select seeing a 200bps increase in operating profit margin.

2.2, Analyst Q&A

Q: Regarding the growth strategy, how much growth space is there in existing regions before saturation if new cities are not entered?

A: Our learning center expansion plan will increase capacity by 20% to 25% in the current fiscal year, mainly by opening new learning centers or classrooms in existing cities. We will focus on expanding in cities with outstanding performance, balancing revenue growth and profit margins. We will continue to monitor the progress and scale of new center openings and ensure high utilization rates in the new fiscal year. It is expected that revenue growth in the new year will exceed the additional classroom rental costs.

Q: Regarding the decline in profit margin this quarter, you mentioned multiple reasons. Which are the ongoing factors? Also, regarding the profit margin trend for the education business alone this quarter?

A: The decline in profit margin this quarter is mainly due to three reasons: firstly, we accelerated the expansion speed of learning centers; secondly, we made new investments in the tourism business; thirdly, we increased incentives for management and employees in the fourth quarter and incurred some one-time investments and sales-related cost expenditures on our proprietary brand products.

Looking ahead, we expect the company's operating profit margin in the next quarter, excluding the impact of Eastern Select, to increase by 200 basis points year-on-year, demonstrating more operational leverage and efficiency improvements. We are optimistic about the profit margin expansion in the 2025 fiscal year. Excluding Eastern Select, we will continue to maintain operational leverage and increase the utilization rate of learning centers. The profit margin decline this quarter is one-time, and the profit margin for the education business in the next quarter is expected to expand.

Q: Regarding the expansion of profit margin, you expect a 200 basis point increase in the first quarter. How about the full-year profit margin growth rate? Will the first quarter be the peak of growth, or will the following quarters continue to grow or even accelerate? What are the main drivers of profit margin improvement? Is it operational leverage, or is there also room for improvement in the profit margin of the business sector itself?

A: We expect a 200 basis point increase in the profit margin of the education business in the first quarter. The first quarter is the peak period for the education business, and we will provide detailed guidance on the remaining quarters' profit margin growth in due course.

We have increased learning centers and staff in the third and fourth quarters, and the market demand, especially in the K12 business, is very strong. Despite competitors increasing investments to gain market share, we believe New Oriental will be able to gain more market share. We have the advantage of operational leverage and expect to surpass revenue targets in the first quarter Therefore, I am optimistic about the profit margin expansion in the first quarter and the whole year of 2025.

Q: The number of learning centers in this quarter increased by 42% year-on-year, but the enrollment in non-academic education only increased by 39%. Although the difference is not significant, in the past, registration growth has always exceeded capacity expansion. Is this difference due to timing or other reasons?

A: It is due to timing difference. The capacity of learning centers increased by 37% in this quarter, exceeding expectations. This additional capacity will be monetized in the first quarter. The K12 new business, calculated in RMB, grew by 57% year-on-year this quarter, and we expect revenue in the first quarter to continue to grow by 45% to 50% year-on-year, enough to cover the costs of new centers.

Additionally, due to market changes, the rental per square meter of learning centers has actually decreased. We expect to gain operational leverage from rental and other costs and expenses in the future.

Q: You mentioned a one-time compensation paid to Yuhui previously. Will there be similar compensation paid to Yuhui in the first quarter?

A: Some costs and expenses related to Yuhui will occur in the fourth quarter and the first quarter. We will provide specific numbers in the next earnings conference call, and these are one-time expenses.

Q: I would like to know the revenue growth expectations for each business segment in the new fiscal year, including traditional K12, overseas exam consulting, and K12 new projects.

A: Revenue expectations for the new fiscal year are as follows: overseas exam preparation business is expected to grow by 20%-25% year-on-year, consulting business is expected to grow by 15%, new business is expected to grow by 45%-50%, and high school business is expected to grow by 25%-30%. We provide relatively conservative growth guidance.

Q: Regarding the competitive environment, we have observed that local small businesses are more active in expansion. Do you foresee more intense competition this summer, especially in first-tier cities? Can you provide more details on summer registration growth and student retention rates?

A: We have observed some competitors opening new learning centers in first-tier cities. Nevertheless, compared to a few years ago, the current competitive situation has decreased, especially after the policy was introduced. New Oriental will seize this opportunity to increase market share and provide better services to students.

The student enrollment growth rate in summer is expected to be between 31% and 34%, which is the expected education business revenue excluding Dongfang Selection. We are optimistic about the enrollment situation in the first quarter and the trend of market expansion.

Q: With sufficient cash on hand currently, if the current buyback plan is completed, are you considering expanding the stock buyback plan?

A: We have a $400 million stock buyback plan, of which approximately $294 million has been completed, leaving about $100 million to be completed. After completing this $400 million buyback, we will discuss further capital allocation strategies with the board, including possible stock buybacks or increasing dividends to investors. We currently hold $4.9 billion in cash and plan to create more value for shareholders and increase capital returns.

Q: What is the contribution of the cultural and tourism business to revenue in the first quarter? How much revenue is expected to be generated by this business for the entire fiscal year 2025? What is the trend of net profit?

A: In the 2024 fiscal year, our tourism business revenue was 380 million RMB. It is expected that the full-year revenue in the 2025 fiscal year will reach 1.2 billion RMB. The revenue growth of the tourism business in the first quarter is expected to reach 180% year-on-year. As we just started the cultural tourism business this year, it is expected to incur a loss in the 2025 fiscal year due to initial investment, with an estimated loss of about 100 million RMB. However, we anticipate that the tourism business will turn profitable by the 2026 fiscal year.

Q: Can you comment on the current regulatory environment and the market concerns it has raised? There was a public consultation document on regulatory policies at the end of January or early February. Do you have any updated information or have you heard any relevant news from the regulatory authorities?

A: We have not seen any new regulations being introduced, and the regulatory environment remains unchanged. As industry leaders, we always comply with regulations. We expect the regulatory environment to remain stable for the next year or longer.

Q: Can you quantify the impact of one-time factors such as the previous quarter and the collaboration with Huitong on the financials for modeling analysis?

A: Since Dongfang Selection Company plans to release its financial report at the end of August, I am unable to disclose specific numbers at the moment. The management of Dongfang Selection will provide more details on the questions you raised during the financial report conference call.

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New Oriental: Optimistic about the trend of profit margin improvement without looking at East Buy (4Q24FY conference call)