New Oriental (Minutes): Study abroad expectations are cautious, and the slowdown in quality education is a seasonal fluctuation.
The following are the minutes of the FY25 Q4 earnings call for$New Oriental EDU & Tech(EDU.US) compiled by Dolphin Research. For earnings interpretation, please refer to the article "New Oriental's Thunderous Path to Rebirth is Not Easy"
I. Review of Core Financial Information
1. Operating Revenue
In the fourth quarter of fiscal year 2025, the company's total net revenue (excluding revenue from self-branded products and live streaming business of Oriental Selection) increased by 18.7% year-on-year.
2. Operating Profit Margin
In the fourth quarter of fiscal year 2025, the company's non-GAAP operating profit margin (also excluding operating profit from Oriental Selection) reached 6.5%, a significant year-on-year increase of 410 basis points. This indicates that the company's efforts in cost control and efficiency improvement have been effective.
3. Business Segment Performance
Overseas Test Preparation Business: In the fourth quarter of fiscal year 2025, this business achieved a year-on-year revenue growth of 15%.
Overseas Study Consulting Business: This business saw a year-on-year revenue growth of approximately 8% in the fourth quarter of fiscal year 2025.
Adult and College Student Business: In the fourth quarter of fiscal year 2025, revenue from the adult and college student business grew by 17% year-on-year.
New Education Business Combined: Overall, new education initiatives achieved a 33% year-on-year revenue growth in the fourth quarter of fiscal year 2025, showing positive development momentum.
Non-Academic Tutoring Business: This business focuses on cultivating students' innovation capabilities and comprehensive qualities and has been promoted in about 60 cities. Its market penetration has significantly increased, especially in high-tier cities, where the top 10 cities contributed over 60% of the business's revenue.
Intelligent Learning Systems and Devices Business: This business leverages the company's past teaching experience, data, and technology to provide personalized and targeted learning and practice content to improve students' learning efficiency. This business has been tested in about 60 existing cities and has shown higher customer retention rates and scalability, with the top 10 cities contributing over 50% of the business's revenue.
Travel-Related Business Segment: Includes study tours and camps for K-12 students and college students, as well as travel services for middle-aged and elderly groups. This business line achieved a year-on-year revenue growth of approximately 71% in the fourth quarter of fiscal year 2025.
Domestic and international study tours and camps for K-12 students and college students have been launched in 55 cities nationwide, with the top 10 cities contributing over 50% of the revenue.
The company also offers a range of high-end travel products, primarily designed for middle-aged and elderly groups, covering 30 distinctive provinces in China and international destinations.
The product range has expanded to now include cultural travel, China study tours, global study tours, and camp education.
4. Key Financial Metrics
Operating Costs and Expenses: In the fourth quarter of fiscal year 2025, it was $1.2518 billion, an increase of 11.2% year-on-year.
Cost of Revenue: In the fourth quarter of fiscal year 2025, it increased by 5.1% year-on-year to $569.9 million.
Sales and Marketing Expenses: In the fourth quarter of fiscal year 2025, it increased by 1.8% year-on-year to $211.9 million.
General and Administrative (G&A) Expenses: In the fourth quarter of fiscal year 2025, it increased by 9.1% year-on-year to $409.8 million.
Total Stock-Based Compensation Expenses: Included in the relevant operating costs and expenses, it increased by 11% to $28.6 million in the fourth quarter of fiscal year 2025.
Goodwill Impairment: In the fourth quarter of fiscal year 2025, it was $68.3 million, compared to zero in the same period last year.
Operating Loss: In the fourth quarter of fiscal year 2025, it was $8.7 million, compared to an operating income of $10.5 million in the same period last year.
Non-GAAP Operating Income: In the fourth quarter of fiscal year 2025, it was $81.7 million, an increase of 116.3% year-on-year.
Net Income Attributable to New Oriental: In the fourth quarter of fiscal year 2025, it was $7.1 million, a decrease of 73.7% year-on-year.
Basic and Diluted Net Income per ADS Attributable to New Oriental: In the fourth quarter of fiscal year 2025, both were $0.04.
Non-GAAP Net Income Attributable to New Oriental: In the fourth quarter of fiscal year 2025, it was $98.1 million, an increase of 59.4% year-on-year.
Non-GAAP Basic and Diluted Net Income per ADS Attributable to New Oriental: In the fourth quarter of fiscal year 2025, they were $0.62 and $0.61, respectively.
Net Cash Flow from Operating Activities: In the fourth quarter of fiscal year 2025, it was approximately $399.1 million.
Capital Expenditures: In the fourth quarter of fiscal year 2025, it was $65.9 million.
5. Balance Sheet (as of May 31, 2025)
Cash and Cash Equivalents: The company held $1.6124 billion.
Term Deposits: The company had $1.4478 billion.
Short-term Investments: The company held $1.8735 billion.
Deferred Revenue: At the end of the fourth quarter of fiscal year 2025, it was $1.9545 billion, an increase of 9.8% from $1.7801 billion at the end of the fourth quarter of fiscal year 2024.
II. Detailed Content of the Earnings Call
2.1 Key Information from Executive Statements
1. Share Repurchase Plan
The company continues to execute its share repurchase plan. As of May 31, 2025, the company had cumulatively repurchased approximately 14.5 million ADS from the open market, totaling approximately $700 million.
2. Outlook and Guidance
(1) Next Quarter Guidance: The company remains optimistic about fiscal year 2026 and expects total net revenue for the group, including Oriental Selection, to be between $5.1453 billion and $5.3903 billion in the first quarter of fiscal year 2026 (June 1, 2025, to August 31, 2025), representing a year-on-year growth of 5% to 10%.
This guidance is relatively conservative, mainly because the group has entered a more stable and sustainable development stage, and the current quarter is being compared to a high base from the same period last year. Additionally, the restructuring of Oriental Selection had not occurred in the first quarter of fiscal year 2025, and the early Chinese New Year led to the rescheduling of temporary courses, which boosted revenue recognition in the second half of fiscal year 2025 but correspondingly reduced revenue recognition in the first quarter of fiscal year 2026.
(2) Full-Year and Long-Term Guidance: The company has now decided to provide full-year guidance in addition to quarterly outlooks to more comprehensively and accurately reflect its business performance and strategy, and to effectively smooth out short-term seasonal fluctuations. The company expects revenue growth to accelerate from the second quarter of fiscal year 2026 and throughout the remainder of the year. The company will place greater emphasis on maintaining profitability across all business lines, thanks to ongoing cost control and efficiency improvement measures. Additionally, the non-GAAP operating profit margin of future education business is expected to achieve year-on-year growth.
(3) Cost Control and Efficiency Improvement Measures: The company has fully launched cost control and efficiency improvement measures across all business lines and expects these measures to show results in the coming quarters. The financial report for the fourth quarter of fiscal year 2025 has already shown positive results from cost reduction and efficiency improvement efforts.
3. Strategic Initiatives and Investments
(1) Investment in OMO Teaching Platform: The company continues to develop and improve its online-merge-offline (OMO) teaching platform, with a total investment of $28 million in this quarter (fourth quarter of fiscal year 2025) for its upgrade and maintenance. These efforts aim to leverage the company's educational infrastructure and technological advantages to provide more advanced and diversified educational services to customers of all ages.
(2) Development and Application of Artificial Intelligence (AI) Technology: The company actively combines the use of open-source large models such as DeepSeek and GPT, along with self-developed AI technology, to develop innovative educational solutions and enhance the learning experience. New Oriental has successfully launched two new AI-driven products: the next-generation AI intelligent learning device and a new AI-driven intelligent learning solution.
4. Commitment to Long-Term Growth
The company is firmly committed to providing high-quality products and services to customers through strategic planning and continuous enhancement of capabilities, pursuing sustainable growth and profitability. New Oriental will continue to increase investment in the application of core business and advanced technology (especially AI) in different fields. Additionally, the company actively seeks cooperation and guidance from authoritative institutions at all levels of government in China and ensures that all business operations strictly comply with relevant policies, regulations, and measures.
5. Shareholder Return Plan
To thank shareholders for their steadfast support, the company's board of directors has approved a three-year shareholder return plan, effective from fiscal year 2026. Under this plan, no less than 50% of the net profit attributable to New Oriental from the previous fiscal year will be distributed to shareholders in the form of dividends and/or share repurchases to return value. For fiscal year 2026, the board will decide on the specific implementation of this plan based on the net profit attributable to New Oriental for the fiscal year ending May 31, 2025.
2.2 Q&A Session
Q: Can the company provide a breakdown of revenue data and guidance for the first quarter, and explain the specific business factors leading to this seasonal slowdown, as well as management's outlook on growth recovery drivers after the first quarter?
A: For the upcoming first quarter, the company's revenue growth guidance is 2% to 5%.
This guidance adopts a conservative strategy due to: (1) the business being adversely affected by the economic environment and international relations; (2) comparison with a high base of core education business and Oriental Selection from the same period last year; (3) settlement timing issues in the K-12 business, as the early Chinese New Year led to increased revenue in the second half of fiscal year 2025, thereby reducing first-quarter revenue.
However, revenue growth in the K-12 business is expected to accelerate from the second quarter. Oriental Selection also faces a high base as it had not been restructured in the first quarter of last year, but improvement is expected from the second quarter.
The company is providing full-year guidance for fiscal year 2026 for the first time, covering the entire group, with expected year-on-year revenue growth of 5% to 10%, indicating that growth will accelerate from the second quarter.
By business line:
Overseas-related business is expected to decline by about 4% to 5%, affected by economic and international situations;
K-9 business revenue growth is expected to be about 15% to 16% in the first quarter, with an annual growth expectation of around 20%;
High school business is expected to grow by about 11% to 12% year-on-year in both the first quarter and the entire year;
University business is expected to have a growth rate of 10% in both the first quarter and the new year.
Q: Compared to the previous quarter, what are the main differences in the fiscal year 2026 guidance, especially in terms of business line coverage? Also, can you clarify whether the shareholder return plan is based on reported net income or non-GAAP net income?
A: Firstly, regarding the shareholder return plan, future capital allocation over the next three years will be based on GAAP net profit attributable to New Oriental. Secondly, regarding the revision of fiscal year 2026 guidance, the biggest change this quarter is that the guidance scope has expanded from excluding Oriental Selection's business to covering the entire group, including all of Oriental Selection's business. This adjustment is because Oriental Selection has completed operational adjustments over the past four quarters since its restructuring in the first quarter of last year, and it remains under New Oriental's control. Therefore, the company believes it is now appropriate to issue comprehensive guidance for the entire group, including Oriental Selection, and will continue to provide such comprehensive guidance in the future.
Q: Is the revenue growth guidance provided by the company denominated in USD or RMB? Additionally, is the current exchange rate used in the application?
A: The revenue growth guidance provided by the company is denominated in USD. In terms of exchange rate application, the company used the current exchange rate from the past 45 to 50 days for estimation.
Q: What are the main reasons for the slowdown in revenue, particularly for non-academic business? Is this related to market competition or internal adjustments? And from a long-term perspective, what is the expected growth rate for the next three years?
A: The main reasons for the slowdown in revenue are attributed to changes in the current economic environment and international relations. Specifically, some parents' willingness to send their children abroad for study has weakened, directly impacting the company's overseas-related business.In the K-12 field, although competition has slightly intensified compared to last year, the level of market competition has significantly decreased compared to a few years ago before policy changes. The company believes there is still significant market potential, especially in the K-9 non-academic business.
For the K-9 business, the company still guides for 20% growth in the coming year, which is considered a good performance given the current macroeconomic situation. In the short term, first-quarter revenue is expected to be relatively weak, but based on current estimates, performance in the second, third, and fourth quarters is expected to improve. In the long run, the company firmly believes that the K-12 business will continue to be a key growth driver for the entire group.
Q: Given that the K-12 business revenue growth rate exceeded 20% before policy adjustments and is currently around 15%, is the growth rate expected to return to over 20% in the coming years, or remain in the 10% to 20% range?
A: For the K-9 business, the company is confident in achieving a 20% growth target. Although the current K-9 business revenue growth is about 15% to 16% in the first quarter, the company remains committed to achieving a 20% growth expectation for the year. This indicates the company's dedication to driving the K-9 business to reach and maintain a high growth level in the coming years.
Q: How do you view the operating profit margin trend for the core education business and the overall business in fiscal year 2026? Please elaborate on the specifics of goodwill impairment, its association with the kindergarten business, and whether the company will continue to expand skill-based non-K-12 demand and cultural tourism business?
A: Regarding the profit margin trend, the company achieved a 410 basis point profit expansion in the fourth quarter, mainly due to operating leverage, efficiency improvement, and cost control. The cost control measures initiated in March this year have shown results and are expected to enhance profit conditions in the coming year and fiscal year 2026.
Despite the slowdown in first-quarter revenue, the company remains optimistic about profit expansion for the quarter. For the full year, the company will focus more on profitability rather than revenue growth, striving to achieve healthy profit levels in fiscal year 2026 through enhanced cost control, efficiency improvement, and operating leverage.
Regarding goodwill impairment, the company incurred a one-time impairment loss of $60 million this quarter. This impairment is related to the kindergarten business acquired about 18 years ago, due to policy changes and a decrease in the number of newborns.
In the cultural tourism business, which was launched a year and a half ago, the company achieved high revenue growth in fiscal year 2025, mainly covering domestic and international summer camps and study tours. However, the company expects future revenue growth to slow down as it still needs time to establish and refine the business model for this new business.
Q: Please quantify the impact of cost control measures since March on the 4.1 percentage point profit growth of the core business, and explain the cost control potential entering the new year. Additionally, provide the number of new learning centers opened in the May quarter and the expansion plan for learning centers or capacity in fiscal year 2026.
A: Regarding profitability, the company achieved a 410 basis point profit expansion in the fourth quarter. Although it is difficult to precisely quantify the specific contribution of cost control, this, combined with maintaining high operating leverage, has yielded good results. Looking ahead, cost control is expected to continue to enhance profits, with a rough estimate of contributing 100 to 150 basis points of profit improvement for the year.
As for capacity expansion, the net increase in learning centers in the fourth quarter was 8% to 9%. Looking ahead to fiscal year 2026, the company plans to control capacity expansion to ensure it aligns with revenue growth, aiming to gain operating leverage effects from high utilization rates of new learning centers.
The initial plan is to open 10% to 15% new learning centers, with the specific number depending on revenue growth. New learning centers are typically opened in the second half of the year, so the company has one to two quarters to decide on the specific expansion scale for the second half of the year. It is worth emphasizing that the company only allows cities with good revenue growth and profit margin performance, especially in the K-12 business, to open learning centers.
Q: You previously mentioned that first-quarter profits might rise. Does this refer to the group level or just the core education business? Also, can you confirm whether the approximately 100 to 150 basis point profit expansion from cost control is for the first quarter or the entire year?
A: Regarding profit analysis and guidance, the company has returned to providing guidance at the group level. Therefore, the mentioned first-quarter profit expansion refers to the profit expansion of the entire group. As for the expected 100 to 150 basis point profit improvement from cost control, this refers to the profit expansion for the entire year. This indicates that the positive effects of cost control will run through the entire fiscal year and be reflected in the overall profitability of the group.
Q: According to existing data, the growth guidance for the core education business (excluding Oriental Selection) in fiscal year 2026 is about 11% to 12%, which is lower than the 14% to 15% mentioned in the previous quarter. Is this revision accurate, and can management comment on the changes in guidance for such educational business?
A: The guidance for fiscal year 2026 is indeed slightly lower than the guidance given in the previous quarter. The main reason for this revision is that overseas-related business is expected to be negatively impacted by changes in the macroeconomic environment and international relations. Therefore, the company has revised the overall guidance for fiscal year 2026, expecting overseas-related business to decline by about 4% or 5% year-on-year for the entire year. This is a key new change in this guidance adjustment.
Q: Please elaborate on the trade-offs between stock repurchase and dividend distribution, such as whether it is influenced by stock price levels or if there is a specific distribution strategy for the 50% dividend.
A: Regarding capital allocation strategy, the company completed a $700 million stock repurchase in the fourth quarter and paid a $100 million special dividend last September. Recently, the board of directors has approved a new capital allocation plan, which will cover the next three years (fiscal year 2026 to fiscal year 2028). The allocation amount will be equivalent to 50% of GAAP net profit.
Currently, the company has not yet finalized whether to distribute dividends, conduct stock repurchases, or adopt a combination of both. This decision will be further discussed by management and the board of directors (including Michael). The company notes that the final distribution plan and amount will be determined after the final audit report for fiscal year 2025 is submitted, which is expected to be submitted around the end of September.
Q: What are the reasons for the significant slowdown in non-academic enrollment growth? Can you share the growth situation of K-9 non-academic tutoring summer enrollment and compare it with industry growth trends?
A: The main reason for the slowdown in non-academic enrollment growth is seasonal impact, as the early Chinese New Year led to some revenue being recognized in the third and fourth quarters of last year, resulting in lower first-quarter revenue and enrollment data. However, based on the second-quarter course cash and student enrollment data obtained, these numbers are higher than in the first quarter. Therefore, the company expects revenue growth to accelerate from the second quarter, which is also why the full-year guidance is higher than the first quarter. As for the overall industry growth situation, the company states that it cannot provide relevant data and finds it difficult to compare with competitors.
Q: Given that it is currently the summer vacation period, please provide information on summer student enrollment, including the growth rate of new student enrollment and retention rate, and indicate whether there are any changes on the demand side?
A: Regarding the demand side, due to the overall economic situation, current demand is slightly lower than the company's expectations from a quarter ago. However, overall, the K-12 business is still performing well, and the company believes it is still gaining market share, even if the overall industry performance is not good. The company expects revenue growth to continue to accelerate.
For summer student enrollment data, as the summer enrollment window has not yet closed, the company will share complete summer enrollment data in the next quarter's earnings call. As for retention rates, both the K-9 business and high school business retention rates are still rising.
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