Good evening, and thank you for standing by for New Oriental Education & Technology Group Inc.'s Third Fiscal Quarter 2025 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. On the line to turn the meeting over to your host for today's conference, Ms. Sisi Zhao. Thank you. Hello, everyone, and welcome to New Oriental Education & Technology Group Inc.'s third fiscal quarter 2025 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 NewsWare services. Today, Stephen Yang, Executive President and Chief Financial Officer, and I will share New Oriental Education & Technology Group Inc.'s latest earnings results and business updates in detail with you. After that, Stephen and I will be available to answer your questions. Before we continue, please note that discussion today will contain forward-looking statements made under the Safe Harbor provisions 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 Education & Technology Group Inc. does not undertake any obligation to update any forward-looking statements, except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental Education & Technology Group Inc.'s Investor Relations website at investor.neworiental.org. I will now first turn the call over to Mr. Yang. Stephen, please go ahead.

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, the total net revenue excluding revenues generated from Eastbuy 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. New Oriental Education & Technology Group Inc.'s bottom line performance of our core educational business has also shown stable returns. To better reflect New Oriental Education & Technology Group Inc.'s core educational business, we have excluded the operating margin generated from Eastbuy for the quarter. Our operating margin and non-GAAP operating margin excluding operating margin and non-GAAP operating margin generated from Eastbuy for the quarter reached 12.1% and 13.3%, respectively, resulting from the substantial efforts invested in our offerings and platforms. Now I would like to spend some time to talk about each business line and new initiatives to you in detail. Our key remaining businesses are showing promising trends, and our new initiatives have demonstrated positive momentum. Breaking it down, the overseas test drive business recorded a revenue increase of 7% in dollar terms year over year for this quarter. The overseas study consulting business reported a 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, we did not abandon the children business. We have now rolled out to around…

Thank you, Stephen. Now I'd like to share our key financial details for the quarter. Operating costs and expenses for the quarter were $1,558.5 million, representing a 3.2% decrease year over year. Cost of revenues decreased by 17.6% year over year to $531.6 million. Selling and marketing expenses increased by 13.13% year over year to $182.2 million. G&A expenses for the quarter increased by 19.8% year over year to $344.7 million. Total share-based compensation expenses, which are allocated to related operating costs and expenses, decreased by 41.3% to $16.1 million in the third quarter of 2025. Operating income was $124.5 million, representing a 9.8% increase year over year. Non-GAAP income from operations excluding share-based compensation expenses and amortization of intangible assets resulting from business acquisitions was $142.1 million, representing a 0.2% decrease year over year. Net income attributable to New Oriental Education & Technology Group Inc. for the quarter was $87.3 million, representing a 0.1% increase year over year. Basic and diluted net income per ADS attributable to New Oriental Education & Technology Group Inc. were $0.54 and $0.54, respectively. Non-GAAP net income attributable to New Oriental Education & Technology Group Inc. for the quarter was $113.3 million, representing a 14.3% decrease year over year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental Education & Technology Group Inc. were $0.70 and $0.70, respectively. Net cash flow generated from operations for the third fiscal quarter of 2025 was approximately $1 million, and capital expenditures for the quarter were $52.4 million. Turning to the balance sheet, as of February 28, 2025, New Oriental Education & Technology Group Inc. had cash and cash equivalents of $1,418.8 million, $1,411.7 million in term deposits, and $1,853.6 million in short-term investments, totaling approximately $4.7 billion. The company is in a healthy financial position. New Oriental Education & Technology Group Inc.'s deferred revenue, which represents 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 2025 was $1,749.9 million, an increase of 15% compared to $1,521.7 million 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.

Thank you, Sisi. With the evolving market dynamics, we remain committed to resilience and focus on achieving steady sustainable growth across our business lines in the coming quarter. Leveraging our experience in navigating shifting conditions, we are 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 sustainable growth. We expect the total net revenue excluding revenue generated from Eastbuy in the coming quarter, March 1st, 2025 to May 31st, 2025, to be in the range of $1,009.1 million to $1,036.6 million, representing a year-over-year increase in the range of 10% to 13%. 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 2025. In addition, the slowdown of the revenue growth of our overseas-related business and the investments in newly integrated tourism-related business have led to the short-term impact on our operating margin this quarter. We have initiated initiatives for cost control and efficiency enhancement across all business lines since this quarter, and we expect these actions to take effect in the coming quarters. We anticipate the non-GAAP operating margin for the educational business will expand year over year in the coming fourth quarter. I must say that these expectations and forecasts reflect our considerations of the latest regulatory measures, as well as the current and preliminary view, which is subject to change. To conclude, New Oriental Education & Technology Group Inc. 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 improving operating efficiency. We will also continue to seek guidance from and cooperate with the government authorities in China, ensuring compliance with the relevant policies, guidelines, and any related implementations, regulations, and measures. And not just 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. This is the end of our fiscal year 2025 Q3 summary. At this point, I would like to open the floor for questions. Operator, please open the call for questions. Thank you.

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 ask a question now. We will now take our first question from the line of Felix Liu from UBS. Please ask your question, Felix.

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, you know, was caused the deceleration in Q4 growth. May I just check, you know, what has been the major drivers of the slowdown? 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.

Yeah. I think the overseas-related business, you know, including the overseas test prep and the consultant business, you know, the slowing down is due to the impacts of the macroeconomic situation and the international relation change situation. And so, you know, based on our current guidance of the Q4, I think the overseas-related business will be will be growth, you know, in the range of 5% to 10% in the Q4. And in the coming new year, you know, we have not finished the budget, but, you know, we anticipate the overseas test prep business will grow by 5% to 10% in the new year. And the overseas 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 our the, you know, the conservative estimation for the new year.

Right. Thank you. Thank you.

We will now take our next question from the line of Lucy Yu from Bank of America Securities. Please ask your question, Lucy.

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.

Yeah. So, roughly, like, based on our forecast, for Q4, in the RMB term, the overseas-related business will grow around 8%. So and domestic university students business will grow maybe around 19%. And the high school business growth will be around 16%, 17%. And the new K to 9 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 deduct by roughly 2% to 3%. Yeah. But, you know, we must mention that we're using the conservative method. Keep the guidance of Q4.

Understood. Thank you so much. Thank you.

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

I noticed that when came on, apply enrollment grew by 15% real in the mid-quarter, which is slower than second. Let me advise you this. Increase by 54% year over year. Our learning device starting to replace offline copies. And how much of the slower K-9 on 53 because of based Thanks.

Can you repeat again? I think, you know, we we we cannot hear you very clearly. Can you repeat the question again? I think that you are your line is not clear. Yes. Alice,

Okay. Can you hear me now?

A bit better.

Yeah. Please say again of your question.

Thank you.

Okay. I noticed that the K-9 offline enrollment grew by 15% year over year this quarter, which is lower than expected. While the new device user increased by 54% year over year. Our learning device starting to replace offline copies. And how much of the slower K-9 growth is simply because the base are getting bigger. Is that clear now?

Yes. Yeah. Actually, like, enrollment growth for the nonacademic tutoring business this year is a little bit impacted by the timing difference of cutoff of each quarter. And also, you know, because we 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 the relatively slower growth of the enrollments if you're comparing that with the revenue growth. And the learning path, the for middle school students mainly, is also growing very, very fast. And this year, the the number of users increased dramatically comparing with last year. Yes. And next year, we we also continue to believe that the K to 9 business including mainly the elementary school. Nonacademic tutoring and the middle school learning pad business will continue to drive the overall growth, will be the fastest growth category. Yeah. So within within the Q4 guidance, you know, the K-9 business, you know, we expect the K-9 business will grow by over 35% year over year in the Q4. That is

Okay. Thank you so much. Very clear. Thank you.

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

Sure. Thank you, Benjamin, 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 2026? And what kind of matters that you're going to take to increase the operating efficiency and either control cost and how this is about the balance? Yes. The balance and the revenue growth margin. Yeah.

As I said, you know, we expect the margin expansion in the coming quarter, Q4. And you know, I think this is mainly due to following reasons. Number one, you know, we started to to do the cost control and the efficiency has been since this quarter. And, you know, we do believe will take effect, you know, to help the margin profile in Q4. And the next fiscal year. And and secondly, you know, I think we continue to focus on improving the the utilization facilities. And so, you know, we're doing the cost control in all those lines with the companies because of the slowing down, I think this is reasonable. Know, to do at this this time. And for the new year, fiscal year 2026, know, we do believe we will gonna be margin expansion for the education business. Know, which exclude in the the Eastbuy. Emerging venture in the new year.

Great. Thank you, Steven. Thank you.

Our next question comes from the line of Yiwen Zhang from Citrix. Please ask your question, Yiwen.

Hello. CRM assistive. You for taking my question. My question is about the shareholder feedback plan. We are glad to see that we have almost finished our ongoing purchase plan. So do we have some more shareholder feedback then in the future? By dividend or a new repurchase plan? Thank you.

Yes. You know, we almost, you know, finished the $700 million share buyback. And, you know, you know, as well, we we we have already paid $1 million special dividend in September last year. And so that means the last two years two and a half year, we paid $800 million, you know, already. And and going forward, I I think you need in the near future, I think I will discuss with the board to to do the, you know, the another the capital allocation plan. You know, to the investors. And know, yeah. I know, you 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 to pay the capital allocation to investors. Either the some dividends, you know, the regular dividends the special dividend combined with the share buyback.

Thank you. Thank you.

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

Thank you, Steven. Elsie, 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 segment in the next year. Thank you.

I think Sisi will give you the guidance. Yeah.

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 we do believe that this business will stabilize and and based on so far's estimation, the single-digit growth is is okay for us. And it's already conservative for us. And for the the new business, K to 9 new business should grow at around 25 maybe 25 to 30% growth. You know, the high high end probably growth is from the middle school session. And also elementary school students because the higher base, you know, the 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 15 12 to 13% 12, 13% growth, conservatively speaking, at well. And the the tourism business probably around 15 to 15 to 20% growth also. Conservative estimation for next year. Okay? That that's all the core business lines. Okay. Thank you. It's very clear.

Thank you.

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

Thank you, management, for taking my question. I have a question related to the new technology development. So how 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.

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

Thank you. Very clear. Thank you.

We will now take our next question from DS Kim from JPMorgan. Please ask your question, DS.

Hi, Steven. Hi, Sisi. 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? I got disconnected in the middle, so you may have already discussed that. I'm sorry. Sorry if you did that already. That's a. And b, I think we manage we we talked a bit about course control starting this quarter. I'm just wondering what kind of course control we are planning to do. Like, would it involve some rationalization of our workforce? And if that were the case, would there be some one-off fixed expenses related to, like, the workforce adjustment or when we talk about, school's control, it's more about, like, spending less than previous budget. Hence, there wouldn't be any meaningful one-off. Around there. And and now that I think a lot, 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 headquarter overhead. How shall we think about that overhead cost into 2026? Thank you so much, sir.

Three yes. Three questions. The learning center extension plan for the new year. Right? And so, you know, I think we plan to open ten to fifteen new capacity. In the in the in the new year. You know, it's a little bit less than you than fiscal year 2025. You know, this is roughly 20% plus. And next year, ten to fifteen percent. And I think you know, it's it will be almost, you know, back loaded Q3 and Q4. To prepare for the year after next year. So I think, you know, our key you know, job is to raise the utilization rates up from for the new year, fiscal year 2026. The cost control. I think the cost control assignment is not a one-time job. So, you know, we started we started to do the cost control through this quarter, and I think we will keep doing the cost control in the in the whole year of the fiscal year 2026. You know, I know you know, we're facing the challenging time of the slowing slowing down of the top end growth. I think it's reasonable for us to do the cost control, you know, continuously. And so it it will help the know, higher efficiency and the margin profile of the whole company. The headquarters expenses know, this is roughly the headquarters expenses is roughly 6% of the total educational revenue. And the 6% of the total the educational core business.

Thank you, sir. Just to double check, the six Yeah. Six percent. So

Thank you. So the ratio would be similar to this year this year versus next year or sorry. I missed that part. Next year, I think our job is to make the percentage even lower. You know, let's say, the 5%, you know, plus or 5% of the total revenue. As of, you know, the headquarters of the the the expenses. So that means the we will get the leverage on the headquarters expenses in the fiscal year 2026. It will help the margin up.

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

Thank you. As a reminder, to ask a question, please press Once again, this We now have a follow-up question from the line of DS Kim from JPMorgan. Please go ahead, DS.

Sorry. I sent you just a follow-up since other other students have questions. Since I I think earlier you said K-9 new businesses next year, 2026, we expect about 25% to 30% growth environment return. Can I double check if this is only for K-9 excluding other new businesses or new businesses including non K-9, for 25% to 30%?

Including including everything. So the key ones are are the yeah, nonacademic and pat, and also we added other minor things. Together.

Thank you. That means K-9 should grow faster than what you give us, which Correct. It's not too bad. Actually, similar to this quarter. So thank you. Thank you so much.

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

Thank you, management. I I actually have one additional question on the learning hardware business. I noticed that recently, some of our competitors who also sell learning hardwares, they launched a 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, you know, price cuts from other players? Thank you.

Yeah. Actually, we're quite confident on the future of this learning path device model. Especially that we leverage our strengths in the educational sector. You know, we have this kind of interactive teaching and learning system. So we have our users like, create the stickiness of our customers. They not only buying the products, but also they subscribe the content. And 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 to use and also to leverage our education strength. And and also, you know, by using more and more AI technologies, we we're now developing all kinds of apps and, you know, new functions embedded into our service process. So that's the learning experience of our customers will enhance going forward gradually and also provide them more and more technology supported and also with the real teacher supporting learning process for them. So we believe that the this business will continue to be the key growth driver for our overall revenue. And also the operating margin this year, we have already seen this business to generate over 22%, 23% operating margin. Which is similar with our our other offline teaching class margin. And, also, we 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 from for our labor cost. And, also, our teachers can serve more students than before. So the business model is better than even offline training. Formats.

Yeah. Thank you. That's very clear.

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

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

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