New Oriental Education & Technology Group Q3 2025 Earnings Call Transcript

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April 23, 2025
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Operator

Good evening, and thank you for standing by for New Oriental's Third Fiscal Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After management's 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.

Operator

I would now like to turn the meeting over to your host for today's conference, Ms. Siti Zhao.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Thank you. Hello, everyone, and welcome to New Oriental's third fiscal quarter twenty twenty five earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as on newswire services. Today, Stephen Yang, Executive President and Chief Financial Officer, and I will share New Oriental's latest earnings results and business updates in detail with you. After that, Stephen and I will be available to answer your questions.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor permissions of The US Private Securities Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the view expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward looking statements, except as required under applicable law.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org. I will now first turn the call over to Mr. Yang. Stephen, please go ahead.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Thank you, Sisi. Hello everyone and thank you for joining us on the call. Our Q3 results reflect a steady performance, reinforcing our ongoing commitment to long term value creation and operational consistency. Despite our revenue decreased by 2% year over year, but the total net revenue excluding revenues generated from Easter buy increased by 21.2% year over year. The continued growth of our new ventures has contributed to the company's revenue and we anticipate further progress in the future.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

New Oriental's bottom line performance of our core educational business has also shown stable returns. To better reflect New Oriental's core educational business, we have excludes the operating margin generate from Easter buy for this quarter. Our operating margin and non GAAP operating margin, excluding operating margin and non GAAP operating margin generated from Easter buy for the quarter reached 12.113.3% respectively, resulted from the substantial efforts invested in our offerings and platforms. Now, I would like to spend some time to talk about each business lines and new initiatives to you in detail. Our key remaining business are showing promising trends and our new initiatives have demonstrated positive momentum.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Breaking it down, the overseas test drive business recorded revenue increase of 7% in dollar terms year over year for this quarter. The oversea study consulting business reported the revenue increase of about 21% in dollar terms year over year for this quarter. The adults and university students business recorded a revenue increase of 17% in dollar terms year over year for this quarter. Meanwhile, our ongoing investments in new educational business initiatives primarily focused on facilitating students all around development have sustained steady growth, further driving the company's momentum. Firstly, did not add to tutoring business.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

We have now rolled out to around 60 cities for students. We're happy to see increased market penetration in those markets we have tapped into, especially in high tier cities. The top 10 cities contribute over 60% of this business. Secondly, the intelligent learning system and device business. We have tested the adoption of this new initiative in approximately 60 existing cities and we're pleased to see improvement to customer retention and scalability.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

The top 10 cities contribute approximately 50% of the business. As for the smart education business, education material and digitalized smart study solutions, they have all continued healthy development. In summary, our new education business initiatives combined have recorded a revenue increase of 35% year over year for this quarter. With regards to our integrated tourism related business line, it performed exceptionally with a revenue increase of 85% year over year for this quarter. We received very positive feedback with our range of culture travels, China study tour, global study tour, and CAP education products.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

We have also conducted study tours and research camp, both internationally and domestically for the students of K-twelve and university age in around 55 cities across the country. In the top 10 cities, revenue contribution is over 50%. Middle aged and senior audience targeted towards end products are also available in 30 feature province in China and internationally. This business line has begun to demonstrate its potential to contribute meaningful revenue to the group. While we're encouraged by positive achievements across our various business line, we remain committed to provide the best to our customers.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

We have been and will continue strategically investing in our business to elevate the overall user's experience, greater efficiency and capacity. Building on the progress from the previous quarter, we have continued to refine our online merge offline teaching platform. Dollars 29,700,000.0 have been invested in this quarter to improve and maintain our OMO teaching platform, which provide us the flexibility to continue our high quality service to students. Beyond OMO, I would like to take this chance to highlight our investments in AI and how we integrate AI to our teaching ecosystem. It is an area we have looked at and invested in over a long period of time.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

New Oriental has leveraged a combination of open source large language models, such as DeepSeek and GPT, and self developed AI technologies to develop innovative education solutions and enhance learning experience. AI powered tools such as essay grading, speaking assessment, and error correction notebooks deliver intelligence evaluations and customize learning plans, ultimately improving the students outcomes while saving the time for both teachers and parents. To further drive internal efficiency, we introduced an AI content creation platform and student performance feedback applications to support lesson planning and strengthen home school communication. These tools has also allowed us to collect meaningful data on learning habits and the user engagement, giving us deeper insights into how students and families interact with our services. In addition, we have built an AI supported comprehensive FAQ knowledge database with analysis of our sales conversations.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

By using the database, we're able to reduce the training cost for our sales people and boost the sales efficiency and the conversion rates. As an industry leader, we're dedicated to driving long term revenue growth by strengthening our product capability and optimize management efficiency. We look forward to sharing tangible results from our investments in AI integration and their positive impact on our performance. Now, I would like to take this opportunity to talk about our share repurchase actions. The company's board of directors further approved extending the effective time of the share repurchase program to May thirty first of twenty twenty five, increasing the aggregate value of the shares that the company is authorized to repurchase from $400,000,000 to $700,000,000 As of 04/22/2025, the company repurchased an aggregate of approximately 14,400,000.0 ADS for approximately $695,500,000 from the open market and the share repurchase program.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Now, I will turn the call over to Cece to share with you about the key financials. Cece, please go ahead.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Thank you, Stephen. Now, I'd like to share our key financial details for the quarter. Operating costs and expenses for the quarter were $1,058,500,000 representing a 3.2% decrease year over year. Cost of revenues decreased by 17.6% year over year to $531,600,000 Selling and marketing expenses increased by 13% year over year to $182,200,000 G and A expenses for the quarter increased by 19.8 year over year to $344,700,000 Total share based compensation expenses, which are allocated to related operating costs and expenses decreased by 41.3% to $16,100,000 in the third quarter of twenty twenty five. Operating income was $124,500,000 representing a 9.8% increase year over year.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Non GAAP income from operations, excluding share based compensation expenses and amortization of intangible assets resulting from business acquisitions was $142,100,000 representing a 0.2% decrease year over year. Net income attributable to New Oriental for the quarter was $87,300,000 representing a 0.1% increase year over year. Basic and diluted net income per ADS attributable to New Oriental were $0.54 and $0.54 respectively. Non GAAP net income attributable to New Oriental for the quarter was $113,300,000 representing a 14.3% decrease year over year. Non GAAP basic and diluted net income per ADS attributable to New Oriental were $0.70 and $0.70 respectively.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Net cash flow generated from operation for the third fiscal quarter of twenty twenty five was approximately $1,000,000 and capital expenditure for the quarter were $52,400,000. Turning to the balance sheet, as of 02/28/2025, New Oriental had cash and cash equivalents of $1,418,800,000 1 thousand hundred and 11 point 7 million dollars in term deposits and $1,853,600,000 in short term investments, totaling approximately $4,700,000,000. The company is in a healthy financial position. New Oriental's deferred revenue, which representing cash collected upfront from customers and related revenue that will be recognized as the services and goods are delivered at the end of the third fiscal quarter of twenty twenty five was $1,749,900,000 an increase of 15% compared to $1,521,700,000 at the end of the third quarter of last fiscal year. Now, I'll hand over to Stephen to go through our outlook and guidance.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Thank you, Sisi. With an evolving market dynamics, we will remain committed to resilience and focus on achieving steady sustainable growth across our business line in the coming quarter. Leveraging our experience in navigating shifting conditions, we're confident in our ability to advance our business lines as an industry leader. The strong performance of our diverse operations and the depth of the educational resources further strengthen our confidence in the sustainable growth. We expect the total net revenue excluding revenue generated from the Easter buy in the coming quarter, 03/01/2025 to 05/31/2025 to be in the range of $1,009,100,000 to $1,036,600,000 representing year over year increase in the range of 10% to 13.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

It projects the increase of the revenue in our functional currency RMB is expected to be in the range of 12% to 15% for the first quarter of fiscal year twenty twenty five. In addition, this slowdown of the revenue growth of our overseas related business and the investments in newly integrated tourism related business has led to the short term impact on our operating margin this quarter. We have initiated our cost control and efficiency enhancement across all business lines since this quarter and expect these actions to take effect in the coming quarters. We anticipate the non GAAP operating margin for educational business will expand year over year in the coming fourth quarter. I must say that these expectations and forecasts reflect our considerations of latest regulatory measures, as well as the current and preliminary view, which is subject to change.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

To conclude, New Oriental is dedicated to delivering premium offerings to our customers while pursuing sustainable growth through a strategic blend of capabilities. We will continue investing in our business and the different application of advanced technologies, including AI. Our aim is to strengthen our competencies, driving growth and improve operating efficiency. We will also continue to seek guidance from and cooperating with the government authorities in China, ensuring the compliance with the relevant policies, guidelines, and any related implementations, regulations, and measures, and adjust our business operations as required. As always, we will work diligently to enhance the nation's education level to strengthen its leading position, unlocking further potential across all of our business lines and realizing our vision.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

This is the end of our fiscal year twenty twenty five Q3 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these. Thank you.

Operator

Thank you. The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question now, please press 1 1 on your telephone keypad We will now take our first question from the line of Felix Liu from UBS.

Operator

Please ask your question, Felix.

Felix Liu
Felix Liu
Director - Equity Research at UBS Group

Thank you, and good evening management. Thank you for taking my question. My question is on the overseas related businesses. You mentioned that the slowdown in overseas test prep and consulting caused the caused the deceleration in Q4 growth. May I just check what has been the major drivers of the slowdown?

Felix Liu
Felix Liu
Director - Equity Research at UBS Group

Do you think the situation could get worse with these ongoing tariffs? And what is your outlook for this business, especially when do you think growth will bottom out? Thank you.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Yeah, I think the overseas related business, including the overseas test reps and the consultant business, that the slowing down is due to the impact of the macro economy situation and the international relation change situation. And so, based on our current guidance of the Q4, I think the overseas related business will be growth in the range of 5% to 10% in the Q4. And in the coming new year, we have not finished the budget, but we anticipate the overseas test prep business will grow by five to 10% in the new year and oversea consultant business. I think the growth will be zero or flattish in the coming new year. But, you know, what I'm saying now is based on the conservative estimation for the New Year.

Operator

Thank you. Will now take our next question from the line of Lucy Yu from Bank of America Securities. Please ask your question, Lucy.

Lucy Yu
Lucy Yu
Incoming Investment Banking Analyst at Bank of America Merrill Lynch

Thank you so much. So my question is more on the fourth quarter guidance. You did mention that overseas test prep is going to slow down. May we have a breakdown of the other business growth in the fourth quarter? Thank you.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Yeah, so roughly, like, based on our forecast for Q4 in the RMB term, the overseas related business will grow around eight percent and domestic university students business will grow maybe around 19% and the high school business growth will be around 1617% and the new K to nine new business educational business will grow maybe around 30 to 35%. So, that's the rough estimation based on our current forecast for Q4. This is RMB growth. And if you want US dollar growth, maybe each line roughly deducts by roughly 2%, two or 3%.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

But, you know, we must mention that we're using the conservative methods to give the guidance of Q4.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Yes.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Lucy?

Lucy Yu
Lucy Yu
Incoming Investment Banking Analyst at Bank of America Merrill Lynch

Understood. Thank you so much.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Thank you.

Operator

Thank you.

Operator

Our next question comes from the line of Alice Tsai from Citibank. Please ask your question, Alice.

Alice Cai
Analyst at Citigroup Global Markets Inc.

Steven, this is I noticed that the K-nine offline enrollment grew by 15% year over year this quarter, which is slower than second, while limited by users increased by 54% year over year. Are limited by starting to replace offline copies? And how much of the slower k nine p o c is simply because the base getting bigger? Thanks.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Can you repeat again? I think, you know, we cannot hear you very clearly. Can you repeat the question again? I think that you're

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Your line is not clear. Yes. Alice. Alice?

Alice Cai
Analyst at Citigroup Global Markets Inc.

Can you hear me now?

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

A bit better. Yeah. Please say again of your question. Thank you.

Alice Cai
Analyst at Citigroup Global Markets Inc.

Okay. I noticed that the K-nine offline enrollment grew by 15% year over year this quarter, which is lower than expected. While learning device user increased by 54% year over year, our learning device starting to replace offline courses. And how much of the slower canine growth is simply because the base are getting bigger. Is that clear now?

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Yes. Yeah, actually the enrollment growth for the non academic tutoring business this year is a little bit impacted by the timing difference of cutoff of each quarter. And also, because we have some enrollments that last year divided into two parts for the spring quarter and autumn quarter. But this year, some cities combined as one enrollment. So, that's also explained the relatively slower growth of the enrollments if you're comparing that with the revenue growth.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

And the learning path for middle school students mainly is also growing very, very fast. And this year, the number of users increased dramatically compared with last year. Yes, and next year, we also continue to believe that the business, including mainly the elementary school, non academic tutoring and the middle school learning path business will continue to drive the overall growth will be the fastest growth category.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Yeah, so within the Q4 guidance, you know, the K9 business, you know, we expect the K9 business will grow by over 35% year over year in the Q4. Alice?

Alice Cai
Analyst at Citigroup Global Markets Inc.

Okay, thank you so much. Very clear.

Operator

Thank you.

Operator

We will now take our next question from Timothy Chao from Goldman Sachs. Please ask your question, Timothy.

Timothy Zhao
Timothy Zhao
Equity Research Analyst at Goldman Sachs

Sure. Thank you, management, for taking my question. I think you mentioned that in the fourth quarter this year, you do expect the OP margin for the core business to expand on a year on year basis. Just wondering how do you think about the sustainability of the margin expansion into fiscal year twenty twenty six? And what kind of measures are you going to take to increase the operating efficiency and the control cost?

Timothy Zhao
Timothy Zhao
Equity Research Analyst at Goldman Sachs

And how do you think about the balance?

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Yes.

Timothy Zhao
Timothy Zhao
Equity Research Analyst at Goldman Sachs

Balance between the revenue growth margins. Yeah. As

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

I said, we expect the margin expansion in the coming quarter, Q4. And I think this is mainly due to following reasons. Number one, we started to do the cost control and the efficiency enhancement since this quarter. And we do believe it will take effect to help the margin profile in Q4 and the next fiscal year. And secondly, you know, I think we continue to focus on improving the utilization facilities.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

And so, you know, we're doing the cost control in all business lines with the companies because of the I think it's reasonable to do at this time. And for the new year, fiscal year twenty six, we do believe we will get the margin expansion for the education business, you know, which exclude in the margin expansion in the New Year. Okay. Great.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Thank you, Steven. Thank you.

Operator

Thank you. Our next question comes from the line of Yi Kun Zheng from Citi. Please ask your question, Yi Kun.

Yikun Zheng
Equity Research Analyst at CITIC Securities Company

Hello, Siri and Sisi. Thank you for taking my question. My question is about the shareholder payback plan. We are glad to see that we have almost finished our ongoing repurchase plan. So do we have some more shareholder payback plan in the future by dividend or new repurchase plan?

Yikun Zheng
Equity Research Analyst at CITIC Securities Company

Thank you.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Yes, we almost finished the $700,000,000 share buyback. And as well, we have already paid $1,000,000 special dividends in September. And so that means the last two years, two and a half year, we paid $800,000,000 already. And going forward, I think in the near future, I think I will discuss with the board to do another, the capital allocation plan to the investors.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

And, yeah, I know we're piling up the cash and we generate the net cash flow and make profit every year. So I think it's reasonable for us to pay the capital allocation to investors. Either the some dividends, you know, the regular dividends or the special dividends combined with the share buyback.

Yikun Zheng
Equity Research Analyst at CITIC Securities Company

Thank you.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Thank you.

Operator

Thank you. Your next question comes from the line of Elsie Shen from CLSA. Please ask your question, Elsie.

Elsie Sheng
Analyst at CLSA Limited

Thank you, Steven and Sisi. My question is more about the outlook next year. So you mentioned the expectation for the growth of overseas business in next financial year. Could you also update your expectation of growth for other business segments in the next year? Thank you.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

I think Ceci will give you the guidance.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Yeah. Actually, I think it's reasonable to continue to estimate maybe similar growth with Q4's revenue growth for all the core business lines for next fiscal year. As we said, the continued pressure definitely is from the overseas related business. And, but we do believe that this business will stabilize and based on so far estimation, the single digit growth is okay for us and it's already conservative for us. And for the new business, K to nine new business should grow at around 25, maybe 25 to 30% growth.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

The high end probably growth is from the middle school session and also elementary school students, because the higher base, our revenue scale is already bigger than before the policy level. And the growth around this kind of level is also something that we feel sustainable and healthy pace. And high school business continue maybe around fifteen twelve to 13% growth, conservatively speaking as well. And the tourism business, probably around 15 to 20% growth, also conservative estimation for next year. Okay, that's all the core business lines.

Elsie Sheng
Analyst at CLSA Limited

Okay. Thank you. It's very clear.

Operator

Thank you. We will now take our next question from Charlotte Wei from HSBC. Please ask your question, Charlotte.

Charlotte Wei
Charlotte Wei
Analyst at HSBC

Thank you, management, for taking my question. I have a question related to the new technology development. So, do you expect AI and large language model will reshape the education industry? Can you share with us your strategy and investment plan for this area? Thank you.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Yeah, you know, as I said, you know, actually we started to use the AI technology to help the whole process of the teaching and learning, from both the teacher side and the students and parents side. Yeah, as I said, we have issued some AI tools like the essay grading, speaking assistance and some error correction notebooks. You know, all this behavior or all this new technology help us to grasp the more data from the students and to help the students, their study outcome even better. But we don't have the plan to do the like the big model, I think that the investment will be reasonable going forward. And on the other hand, on the cost control side, I think the AI technology can help us to do like some of these sales, the salespeople and even some, you know, the on the GNA side, I think it will make us the work more efficiency, you know, we can save some, you people and expenses of these selling marketing expenses and G and A expenses.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

So it will help us to drive the margin up. So this is another benefit from the AI technology.

Charlotte Wei
Charlotte Wei
Analyst at HSBC

Thank you. Very clear.

Operator

Thank you. We will now take our next question from D. S. Kim from JPMorgan. Please ask your question, D.

Operator

S. Hi,

DS Kim
DS Kim
Analyst at JP Morgan

Stephen. Hi, Sisu. Thanks for taking my question. I think most of my questions have already been answered, but two minor stuff. A, can we talk a bit about expansion, the center capacity expansion plan for next year?

DS Kim
DS Kim
Analyst at JP Morgan

I got disconnected in the middle, so you may have already discussed that. Sorry if you did that already, that's A. And B, I think we talked a bit about cost control starting this quarter. I'm just wondering what kind of cost control we are planning to do. Would it involve some rationalization of our workforce?

DS Kim
DS Kim
Analyst at JP Morgan

And if that were the case, would there be some one off expenses related to the workforce adjustment? Or when we talk about a cost control, it's more about spending less than previous budget, hence there wouldn't be any meaningful one off around there. And now that I think about it, can I ask one more thing? How do we think about the headquarter overhead cost for 2026? I think last year or this fiscal year, we are spending probably about mid to high teens more than last year on the headquarter overhead.

DS Kim
DS Kim
Analyst at JP Morgan

How shall we think about that overhead cost into 2026? Thank you so much, sir.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Three questions, the learning center expansion plan for the new year. So, I think we plan to open 10 to 15% new capacity in the the the new year, you know, it's a little bit less than the fiscal year twenty five, you know, this is roughly 20% plus, and next year 10 to 15%. And I think, you know, it's, it will be almost backloaded in Q3 and Q4 to prepare for the year after next year. And so I think, you know, our key, you know, job is to raise the utilization rates up for the new year, fiscal year twenty six. The cost control, I think the cost control assignment is not a one time job.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

So you know we started to do the cost control this quarter and I think we will keep doing the cost control in the whole year of the fiscal year twenty six. You know, I know, you know, we're facing the challenge time of the slowing down of the top line growth. So I think it's reasonable for us to do the cost control, you know, continuously. And so it will help the higher efficiency and the margin profile of the whole company. The headquarters expenses, you know, this year's roughly, the headquarters expenses is roughly 6% of the total educational revenue and 6% of the total educational core business.

DS Kim
DS Kim
Analyst at JP Morgan

Thank you, sir. Just to double check the 6%. Thank you. So the ratio would be similar to this year versus next year or sorry, I missed that part.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Next year, I think our job is to make the percentage even lower than the let's say the 5% plus or 5% of the total revenue as the headquarters of expenses. So that means we will get the leverage on the headquarters expenses in the fiscal year twenty six. It will help the margin up.

DS Kim
DS Kim
Analyst at JP Morgan

You, I think it's really clear and I agree that we should focus on the utilization and efficiency in this hard time and we can deliver margin expansion. Thank you so much.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Okay.

Operator

Thank you.

Operator

We now have a follow-up question from the line of D. S. Kim from JPMorgan. Please go ahead, D. S.

DS Kim
DS Kim
Analyst at JP Morgan

Sorry, and thank you. Just a follow-up since others don't seem to have question. Since I think earlier you said K-nine new businesses next year, 2026, we expect about 25% to 30% growth environment midterm. Can I double check if this is only for K9 excluding other new businesses or new businesses including non K9 for 25% to 30%?

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Including everything. So, the key ones are the non academic and PET, and also we added other minor things together.

DS Kim
DS Kim
Analyst at JP Morgan

Thank you. That means canine should grow faster than what you give us, is not too bad, actually similar to this quarter. So, thank you. Thank you so much.

Operator

Thank you. Our next follow-up question comes from the line of Felix Liu from UBS. Please ask your question, Felix.

Felix Liu
Felix Liu
Director - Equity Research at UBS Group

Thank you, management. I actually have one additional question on the learning hardware business. I noticed that recently, some of our competitors who also sell learning hardware, they launched new models at cheaper increasingly cheaper and cheaper prices. So how do you think about our strategy in the learning hardware business? And how should we think about competition pressure from price cuts from other players?

Felix Liu
Felix Liu
Director - Equity Research at UBS Group

Thank you.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Yes. Actually, we're quite confident on the future of these learning path device model, especially that we leverage our strengths in the educational sector. We have this kind of interactive teaching and learning system, So, we have our users create the stickiness of our customers. They not only buying the products, but also they subscribe the content and the process of using our system to continue their self study and create the stickiness and can generate recurring revenue. So, we're still confident that this is the best model to use and also to leverage our education strengths.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

Also, by using more and more AI technologies, we're now developing all kinds of apps and new functions embedded into our service process, so that the learning experience of our customers will enhance going forward gradually. And also, provide them more and more technology support and also with the real teachers supporting learning process for them. So, we believe that this business will continue to be the key growth driver for our overall revenue. And also, the operating margins. This year, we have already seen this business to generate over 22%, twenty three % operating margin, which is similar with our other offline teaching class margin.

Sisi Zhao
Sisi Zhao
Investor Relations Director at New Oriental Education & Technology Group

And also, have confidence that it has potential to continue to enhance the margin because of the involvement of more technology and we can leverage and save more time for our labor costs. And also, our teachers can serve more students than before. So, the business model is better than even offline training format. Yeah.

Felix Liu
Felix Liu
Director - Equity Research at UBS Group

Thank you. That's very clear.

Operator

Thank you. We are now approaching the end of the conference call. I'll now turn the call over to New Oriental's Executive President and CFO, Stephen Yang, for his closing remarks.

Stephen Zhihui Yang
Stephen Zhihui Yang
Executive President & CFO at New Oriental Education & Technology Group

Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Executives
    • Sisi Zhao
      Sisi Zhao
      Investor Relations Director
    • Stephen Zhihui Yang
      Stephen Zhihui Yang
      Executive President & CFO
Analysts
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Key Takeaways

  • Excluding the Easter buy, New Oriental’s net revenue rose 21.2% year-over-year this quarter, and its core educational business achieved a 13.3% non-GAAP operating margin.
  • Key segments showed strong growth: overseas test-prep revenue up 7% in USD, overseas study consulting up 21%, adult and university student business up 17%, new educational initiatives up 35%, and integrated tourism offerings surged 85% year-over-year.
  • The company invested $29.7 million to enhance its online-merge-offline (OMO) teaching platform and has integrated AI tools—leveraging open-source LLMs and proprietary technology—for essay grading, speaking assessment, content creation and sales efficiency improvements.
  • New Oriental extended its share repurchase program to May 31, 2025, increasing the authorization to $700 million, and has repurchased approximately $695.5 million of ADS (14.4 million ADS) to date.
  • For Q4, excluding Easter buy, the company guides total net revenue to grow 10%–13% year-over-year (12%–15% in RMB) and expects non-GAAP operating margin expansion, with overseas business projected to grow 5%–10%.
AI Generated. May Contain Errors.
Earnings Conference Call
New Oriental Education & Technology Group Q3 2025
00:00 / 00:00

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