New Oriental (Minutes): Guidance is a conservative estimate, with the focus next year on improving efficiency.

Below is the $New Oriental EDU & Tech(EDU.US) FY25 Q1 earnings call Minutes. For Quick Interpretation of the earnings report, please refer to《New Oriental: Out of the "Breakup Pit" but Hit by "Tariff Hammer", Can Non-Academic Training Hold the Fort?》

1. Key Earnings Highlights

1. Revenue: Total net profit decreased by 2% YoY. Excluding revenue from East Buy business, core education revenue increased by 21.2% YoY.

2. Operating Margin: Operating margin was 12.1%. Non-GAAP operating margin (excluding East Buy business) was 13.3%.

3. Segment Performance:

1) Overseas test preparation: Revenue increased by 7% YoY in USD terms.

2) Overseas study consulting: Revenue increased by ~21% YoY in USD terms.

3) College student ancillary services: Revenue increased by 17% YoY in USD terms.

4) New education initiatives: Combined revenue increased by 35% YoY. Non-academic tutoring is mainly concentrated in Tier 1/2 cities, with Top 10 cities contributing over 60% of business; learning devices have been adopted in ~60 cities, with Top 10 cities contributing over 50%.

5) Integrated tourism-related business: Revenue increased by 85% YoY, with international/domestic study tours launched in ~55 cities (Top 10 cities contributed over 50%).

4. Key Financial Metrics:

1) Operating costs & expenses: $1.0585B, down 3.2% YoY.

2) Cost of revenues: Down 17.6% YoY to $531.6M.

3) S&M expenses: Up 13% YoY to $182.2M.

4) G&A expenses: Up 19.8% YoY to $344.7M.

5) Total share-based compensation: Down 41.3% YoY in Q3 to $16.1M.

6) Operating income: $124.5M, up 9.8% YoY.

7) Non-GAAP operating income: $142.1M, down 0.2% YoY.

8) Net income attributable to shareholders: $87.3M, up 0.1% YoY.

9) Basic/diluted net income per ADS: Both $0.54.

10) Non-GAAP net income attributable to shareholders: $113.3M, down 14.3% YoY.

11) Non-GAAP basic/diluted net income per ADS: Both $0.70.

12) Net cash from operating activities: ~$1M.

13) Capex: $52.4M.

5. Balance Sheet:

1) Cash & equivalents: $1.4188B.

2) Term deposits: $1.4117B.

3) Short-term investments: $1.8536B.

4) Total cash reserves: ~$4.7B.

5) Deferred revenue: $1.7499B, up 15% YoY.

2. Earnings Call Details

2.1 Management Commentary

1. Share Repurchase:

1) Board approved extension of repurchase program to May 31, 2025.

2) Authorized repurchase amount increased from $400M to $700M.

3) As of April 22, 2025, repurchased ~14.4M ADS worth $695.5M (program ongoing).

2. Guidance:

1) For Q4 (Mar 1-May 31), expects total net revenue (ex-East Buy) of $1.0091B-$1.0366B (+10%-13% YoY in USD; +12%-15% in RMB).

3) Cost control measures initiated across all business lines this quarter, with effects expected in coming quarters.

4) Expects YoY growth in Non-GAAP operating margin for education business in Q4.

3. Strategic Initiatives:

1) Invested $29.7M in OMO platform upgrades.

2) Developing AI-powered educational solutions using open-source LLMs.

3) Launched AI tools for essay scoring, oral assessments, and Aero Correction notebooks.

4) Building AI-based FAQ database to reduce sales training costs.

4. Growth Commitment:

1) Focus on sustainable growth through strategic planning.

2) Continued investment in AI and advanced technologies.

3) Strengthening compliance with government policies.

2.2 Q&A

Q: Drivers behind overseas test prep/consulting slowdown? Will tariffs worsen this? Outlook?

A: Slowdown due to macro conditions and geopolitical changes. Expects high-single-digit growth in Q4. For FY26: test prep +5%-10%, consulting flat (conservative estimates).

Q: Q4 growth expectations for other businesses?

A: In RMB terms: overseas +8%, college +19%, high school +16%-17%, new biz +32%-35%. USD growth ~2%-3% lower. Guidance is conservative.

Q: K9 offline enrollment +15% YoY (below expectations) vs learning devices +54% - is device adoption impacting? Is slower K9 growth due to larger base?

A: Enrollment timing differences caused discrepancy (some cities merged spring/fall enrollments). High school tutoring growing rapidly. Expects K9 biz to grow >35% YoY in Q4.

Q: Sustainability of Q4 margin expansion into FY26? Efficiency measures?

A: Expects margin growth due to: 1) cost controls initiated this quarter; 2) focus on facility utilization. Believes education biz (ex-East Buy) will achieve margin expansion in FY26.

Q: Future capital return plans (dividends/buybacks)?

A: Completed $700M buyback; paid $100M special dividend last September ($800M returned in past 2.5 years). Will discuss new capital allocation plan with board (likely combo of dividends + buybacks).

Q: FY26 growth expectations by segment?

A: Expects current growth trends to continue: overseas low-single digits, K9 +25%-30%, high school +12%-13%, tourism +15%-20%.

Q: AI/LLM strategy?

A: Using AI across teaching/learning process (tools for writing/speaking assessments). No plans to develop LLMs. AI helps reduce S&M/G&A costs.

Q: FY26 learning center capacity plans?

A: Plans +10%-15% new capacity (vs >20% in FY25), mostly in H2. FY26 focus is utilization improvement.

Q: Cost control measures? One-time restructuring charges?

A: Ongoing process (no one-time charges). Necessary given revenue slowdown.

Q: FY26 corporate expense ratio target?

A: Aiming to reduce from 6% to 5% of education revenue.

Q: Is +25%-30% FY26 growth for K9 only or all new biz?

A: Includes all new initiatives (mainly non-academic tutoring + learning devices).

Q: Strategy against cheaper learning hardware competitors?

A: Confident in online course model. Combines interactive system with AI tools to enhance stickiness. Current 22%-23% operating margin (similar to offline) has upside potential from labor savings.

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Disclosures: Dolphin Research Disclaimer