Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- New Oriental Education & Technology Group Inc (EDU, Financial) reported a 30.5% top-line growth for the first fiscal quarter of 2025, with net revenues excluding East Buy increasing by 33.5% year over year.
- The company's operating margin and non-GAAP operating margin improved significantly, reaching 23.7% and 24.4%, respectively, marking a 370 basis point and 220 basis point improvement year over year.
- The overseas test prep, overseas study consulting, and adults and university students business segments all recorded strong revenue increases of 19%, 21%, and 30% year over year, respectively.
- New educational business initiatives, including non-academic tutoring and intelligent learning systems, saw a revenue increase of 50% year over year, with strong student enrollments and active user growth.
- The newly integrated tourism-related business line achieved a remarkable 221% revenue increase year over year, indicating successful diversification efforts.
Negative Points
- Operating costs and expenses increased by 27.6% year over year, primarily due to accelerated capacity expansion and new business initiatives.
- Selling and marketing expenses rose by 42.3% year over year, which could impact profitability if not managed effectively.
- The company anticipates margin pressure in the second quarter due to seasonality and increased investments in new business lines.
- Despite strong growth in the tourism business, it is expected to be loss-making for the full fiscal year, indicating potential challenges in achieving profitability.
- The company faces inherent risks and uncertainties related to forward-looking statements, which could impact future performance.
Q & A Highlights
Q: Your second quarter guidance seems slower than your first quarter capacity expansion. How should we think about the gap between capacity growth and revenue guidance?
A: Zhihui Yang, Executive President and CFO: The second quarter is typically slower due to seasonality. We expect steady growth of around 30% year-over-year for the whole year, with revenue growth accelerating in Q3 and Q4. We opened more learning centers last year, and we expect to fill them with more students, especially in Q3 and Q4.
Q: Are you considering slowing down capacity expansion in Q2 to improve margins, given it's a low season?
A: Zhihui Yang, Executive President and CFO: We plan to increase capacity by 20% to 25% for the year. While Q2 might see some margin pressure due to seasonality, we expect margin expansion for the whole year, excluding East Buy.
Q: What are the drivers behind the 220 basis point increase in adjusted operating margin?
A: Zhihui Yang, Executive President and CFO: The margin expansion is due to positive topline growth across business lines, improved utilization rates from last year's learning center expansion, and cost control measures. Despite spending on new tourism business, educational business margins exceeded expectations.
Q: Can you provide more details on the cultural tourism business's revenue and profitability?
A: Zhihui Yang, Executive President and CFO: The tourism business generated around $90 million in Q1, which is its peak season, and was profitable. However, we expect it to be loss-making for the whole year as we refine products and business models.
Q: Could you break down the revenue growth between non-academic tutoring and intelligent learning devices?
A: Sisi Zhao, Investor Relations Director: The new K-9 educational initiatives, including non-academic tutoring and intelligent learning devices, grew by over 50% in Q1. Both segments are growing at similar rates, with non-academic tutoring contributing more than half of the revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
