Elsie Sheng

Elsie Sheng asked about the connection between the decrease in New Oriental's marketing expense ratio and the new cross-department customer service system, and whether this trend of lower marketing expenses is expected to continue in future quarters.

Answer

Stephen Yang, CFO, confirmed that the trend of a declining marketing expense ratio is expected to persist. He attributed this to a strategic focus on product quality over marketing spend, the new cross-department customer service system effectively leveraging internal customer resources, and a reduced rate of learning center expansion (10% new centers). He also highlighted that improved core competency and product quality led to students returning from competitors in autumn, further supporting the reduction in marketing needs.

Elsie Sheng inquired about the higher tax rate observed in the first quarter, seeking clarification on its causes and the expected tax rate outlook for the upcoming quarter and the full fiscal year.

Answer

Executive President and CFO Stephen Yang explained that the Q1 tax rate of 27% was elevated due to withholding tax paid on dividends transferred from the company's office to LISCO. He noted that the effective tax rate (ETR) for the current fiscal year is expected to be higher than the typical 25% or last year's rate, as more dividends will be paid to fund the substantial capital allocation to investors.

Elsie Sheng inquired about the higher tax rate observed in the first quarter, asking for clarification on its drivers and the expected tax rate for the next quarter and the full fiscal year.

Answer

Stephen Yang, Executive President and CFO, explained that the Q1 effective tax rate (ETR) of 27% was higher due to withholding tax paid on dividends from offshore to LISCO. He noted that the ETR for the current fiscal year is expected to be higher than normal due to increased capital allocation to investors, which necessitates more dividend payments.

Elsie Sheng from CLSA Limited requested color on summer student recruitment, including new student enrollment growth and retention rates. She also asked if the company observed any changes in customer demand.

Answer

Stephen Zhihui Yang, Executive President & CFO, noted that demand is slightly weaker than previously expected due to the macroeconomic situation but remains solid for the K-12 business. He confirmed that retention rates for both K-9 and high school businesses are still improving. Final summer enrollment numbers will be shared next quarter as the recruitment period is ongoing.

Elsie Sheng from CLSA Limited asked for an update on summer student recruitment, focusing on new student enrollment growth, retention rates, and any observable shifts in customer demand.

Answer

Stephen Zhihui Yang, Executive President & CFO, observed that demand is slightly weaker than previously expected due to the macroeconomic climate, but the overall industry remains healthy. He confirmed that retention rates for the K-9 and high school businesses continue to improve. He did not provide specific summer enrollment figures, as the season was not yet complete.

Elsie Sheng of CLSA Limited inquired about the latest developments in Gaotu's offline business, asking for updates on operating metrics, ramp-up progress, and future growth targets for the segment.

Answer

CFO Shannon Shen explained that the offline business is a key growth driver, with revenue up over 20% year-over-year and contributing more than 5% to gross billings in Q2. Shen highlighted that the model leverages in-person trust-building, existing online content, strong brand recognition, and headquarters' support for digital infrastructure. She noted that established centers are seeing positive word-of-mouth referrals and improving retention rates, giving management confidence in the model's scalability and its role in enriching the company's overall product mix.

Elsie Sheng of CLSA Limited inquired about the latest developments in Gaotu's offline learning centers, asking for updates on operating metrics, ramp-up progress, and future growth targets for this segment.

Answer

CFO Shannon Shen responded that the offline business is a new growth engine, with revenue growing over 20% year-over-year and contributing over 5% of gross billings in Q2. Shen attributed this success to building deeper trust with students through in-person interaction, leveraging existing online content to accelerate quality improvements, and capitalizing on strong brand recognition. She noted that the business model is being validated and enriches the company's overall product matrix by serving diverse student needs.