New Oriental Education & Technology Group - Earnings Call - Q1 2018
October 24, 2017
Transcript
Speaker 0
Good evening, and thank you for standing by for New Oriental's First Fiscal Quarter twenty eighteen Earnings Conference Call. At this time, all participants are in a listen only mode. After the 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.
I would now like to turn the meeting over to your host for today, Ms. Sisi Zhao. Thank you. Please go ahead.
Speaker 1
Thank you. Hello, everyone, and welcome to New Oriental's first fiscal quarter twenty eighteen earnings conference call. Our financial results for the period were released earlier today and are available on our company's website as well as on newswire services. Today, you will hear from Stephen Yang, Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your questions.
Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor provisions of The U. S. 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 views expressed today.
A number of potential risks and uncertainties are outlined in our public filings with the SEC. NewRental 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's Investor Relations website at investor.neworiental.org. I will now turn the call over to Mr.
Yang. Stephen, please go ahead.
Speaker 2
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. We're off to a strong start for fiscal year twenty eighteen. And in the first quarter, we laid down a solid basis on which to build during the rest of the fiscal year. Net revenues in the first quarter increased to $661,200,000 which is 23.8% growth in dollar term or 25.9% if computed in RMB.
Net income increased by 12.3% and total student enrollment in academic subjects tutoring and test prep courses went up by 15.6% year over year to approximately 1,532,900 in the first quarter. To further tap into the booming private education market and further strengthen our leadership in the market, we also added a net of 43 learning centers in 22 existing cities and rolled out the dual teacher model school in the city of Zhongshan. Altogether, this added a total of approximately 116,700 square meters of classroom area, representing approximately 8% capacity expansion over the previous quarter and 31% growth year over year. In the first quarter, we remain focused on our well proven optimized market strategy. This means we are continuing to expand our offline business while also investing in the O2O two way interactive education system.
As just mentioned, our business has started the year with a better than expected revenue growth, and this is mainly driven by the substantial increase in student enrollments in the recent two quarters. Even with the discount of the revenue due to the large scale summer promotion, our key revenue driver, K-twelve or subjects after school tutoring business, has so far achieved revenue growth of about 35% in dollar terms or 38% in RMB terms year over year. The enrollment growth rate of K-twelve business in the recent two quarters is at a very encouraging 35% year over year. The growth in our K-twelve business can be both down into the outstanding performance from our UCAM middle school, high school, after school tutoring business and POP Kids program, each of which achieved impressive growth respectively. The key area of focus for the first quarter was our summer promotion campaign, which we accelerated and made larger than last year, with aims to capture as much market share as possible and acquire long term loyal student customers.
The large scale promotion offering a low price experiential courses was launched in a total of 38 cities this year. On this note, I would also like to mention our deferred revenue balance, meaning cash collected from the students for courses and recognized proportionally as revenue as the instructions were delivered, was $930,000,000 at the end of the first quarter, an increase of 41.5% as compared to 6 and $57,100,000 at the same period last year. This shows that the promotion was very well received and is generating long term benefits. The low cost of trial course enrollment for this summer reached 554,000, which more than doubled compared to the same period of last year. I would like to reiterate that we do not include this promotion enrollment in our reported enrollment.
Compared with the last year, this year, retained a higher portion of students who went on to enroll in full price classes for the autumn. This will boost revenue and drive profit growth throughout the full fiscal year 2018. At the same time, the cost in teachers' labor and facility rental resulting from the summer promotion negatively impacting our operating margin by about 2% in the first quarter. That said, we're not expecting material impact on operating margin from the summer promotion throughout the whole fiscal year. Overall, we're very pleased with this outcome.
We believe the summer promotion will continue to be a successful and effective strategy to optimize our market share in the fast growing K-twelve after school tutoring market. As these students move from grade seven through grade 12, the continued improvement in retention rate and customer loyalty will drive revenue growth in the next three six years. These investments will set a solid foundation for stronger growth in the long term and further strengthen our leadership in the market. I will now turn to pricing. Per program blended ASP, which is cash revenue divided by total student enrollments, increased by about 8% year over year in dollar terms or 10% in RMB terms.
VIP business recorded a cash revenue growth of 32% during this quarter. Starting from the third quarter last year, we began to concentrate the registration for U Can VIP classes in June and December, which are the first months of the first and third fiscal quarter, respectively, instead of spreading them evenly throughout the year. So the decision is designed to streamline the registration process. As a result of the adjustment, we saw a large year on year increase of enrollment for U Can VIP class in this quarter. Over the long run, we expect a slower growth of our VIP business compared to our overall revenue growth, which will continue to drive down blended ASP.
Hourly blended ASP, which is GAAP revenue divided by total teaching hours, increased by approximately 4% year over year in RMB terms. To provide a breakdown of the hourly blended ASP in RMB terms, please note that U CAM increased by 1%, POP Kids increased by 3%, and Overseas Test Drive program increased by 10% year over year. We remain firmly optimistic about our top line performance, which we expect will be supported by the continuous improvement of retention rate of existing customers and ability to acquire new customers. As mentioned, the summer promotion capacity expansions have a short term impact on our operating margin, but this important investment will help build our long term growth. In terms of the details, operating margin for the quarter decreased by four twenty basis points and net margin decreased by 40 basis points year over year.
We believe that this is a short term dilution that will generate the balance out as the year progresses. But we will provide some additional important thoughts on this at the end of the call today. Now let's move on to the first quarter performance across our individual business lines. Our revenue driver, K-twelve all subjects after school tutoring business achieved revenue growth of about 35% in dollar term or 38% in RMB terms year over year, driven by enrollment growth in the recent two quarters of about 35% year over year. Breaking down, U Can Middle School, High School, all subjects after school tutoring business reported a revenue increase of about 35 in dollar terms or 37% in RMB terms.
Student enrollment grew approximately 22% year over year for the quarter. Our POP Kids program again delivered outstanding results with revenue up significantly above 36% in dollar term or 38% in RMB terms for the first quarter. Enrollment went up about 23% for the quarter. Our overseas test prep and consultant business, Scalar, reported revenue growth of about 16% in dollar terms or 18% in RMB terms year over year for the first quarter. Finally, VIP personalized plus business reported revenue growth of about 32% in dollar term or 34% in RMB term year over year for the first quarter.
Next, I will provide some updates on the progress we are making with our Optimize Market strategy. We have been focusing on expanding our capacity by investing in the build out of our ultra interactive education system, and this continues to produce very promising results. Starting with our core offline business. In the first quarter, we added another 43 learning centers in 22 existing cities and rolled out one dual teacher model schools in the city of Zhongshan. Altogether, this added a total of approximately 116,700 square meters of classroom area, representing approximately 8% capacity expansion over the previous quarter and 31% year over year.
In order to capture growth opportunities in low tier cities, we continue to roll out our dual teacher model schools and expand our business into remote areas in China. We started to pilot a new dual teacher model in select cities in July 2016. And by end of the first quarter, we have tested these new offerings in over 30 existing cities and seven new cities. And we are pleased to see increased market penetration in the markets we're testing too. With these encouraging results, we'll continue to deploy the strategy in the rest of the fiscal year.
With respect to our online business, we invested $14,400,000 in the first quarter to improve and maintain our O2O interactive integrated education system. This has been an area of focus since 2014. Most of the investments were reported under G and A expenses. With a high customer retention rates and a position of new customers, we believe the investments will bring continuing long term benefits. I will first talk about O2O two way interactive education system.
On whole, we aim to extend New Oriental's traditional offline classroom teaching offerings to online education services. This is an important front on which we set ourselves apart from other key players in the market. For the booming market and our advanced O2O product service, we're poised to gain more market share and strengthen our hold going forward. Since the launch of UCAM Visible Provide teaching system in September 2014, the interactive education system has been used in all existing cities. We also revamped our top kids English program in all existing cities by end of the first quarter.
The interactive education system for overseas test prep program, including IELTS, TOEFL and ACT courses was rolled out and tested in about 20 cities by the end of the first quarter. Now I will talk about our online education ecosystem. We have seen consistent growth in our koolearn.com learning platform and other supplementary online education products. Hoolearn.com generated net revenue of $20,000,000 representing 42% increase in dollar terms or 44 in RMB terms year over year in the first quarter. The number of paid users increased about 45% year over year in the quarter, and cumulative registered users reached 17,700,000.
Qudong CN live broadcast platform achieved about 662,200 registrations in the first quarter. Donut's learning apps recorded over 68,900,000 downloads by quarter end. And MeiLi app recorded about 6,600,000 users by quarter end. Now let me walk you through the other key financial details for the first quarter. Operating costs and expenses for the first quarter were $500,100,000 representing a 31.1% increase year over year.
Non GAAP operating cost and expenses for the quarter, which excludes share based compensation expenses, were $497,000,000 representing a 30.6% increase year over year. Cost of revenues increased by 32.9% year over year to $270,200,000 primarily due to increase in teachers' compensation for more teaching hours and number of schools and learning centers in operation. Selling and marketing expenses increased by 26.4% year over year to $73,900,000 primarily due to increase in brand promotion expenses and selling and marketing staff compensation. General and administrative expenses for the quarter increased by 30.4% year over year to $156,000,000 Non GAAP general and administrative expenses, which exclude share based compensation expenses, were $152,900,000 representing a 28.7% increase year over year, primarily due to increased headcount as the company expenses network of schools and learning centers by about 17% year over year. Total share based compensation expenses, which were allocated to related operating cost expenses increased by 254.8% to $3,100,000 in the first quarter.
Operating income for the quarter was $161,100,000 an increase of 5.6% compared to US152.6 million in the same period of prior fiscal year. Non GAAP income from operations for the quarter was $164,200,000 a 7% increase compared to non GAAP income from operations of $153,500,000 in the same period in the prior fiscal year. Operating margin for the quarter was 24.4% compared to 28.6 in the same period of prior fiscal year. Non GAAP operating margin, which excludes share based compensation expenses for the quarter, was 24.8% compared to 28.7% in the same period in the prior fiscal year. Operating margins were negatively affected by the increase in cost and expenses, mainly due to the capacity expansion in the recent two quarters and a bigger scale summer promotion.
Net income attributable to New Oriental for the quarter was $158,400,000 representing a 12.3% increase from the same period in the prior fiscal year. Capital expenditures for the quarter were $54,100,000 and this was primarily attributable to the opening of one new school and 74 new learning centers and renovations at existing learning centers. Turning to the balance sheet. The deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions were delivered at the end of the 2018 was $930,000,000 an increase of 41.5% as compared to 657,100,000 as of now in the 2017. Before moving on to our expectations for the second quarter, I would like to take a moment to reiterate our overarching goals for the year, which is outside of our fiscal year twenty seventeen year end conference call.
During the fiscal year twenty eighteen, we will continue execute our optimized market strategy and build on the success we have achieved through this approach. We're optimistic and confident that we have the right strategy in place and that it will continue to drive the business in a way that creates long term value for our shareholders. In terms of our priorities, first, we will continue to expand our offline business. We aim to add around 20% new learning centers and expand classroom area of some existing learning centers for K-twelve business in existing cities. And we also plan to enter two to four new cities where we identify as markets with the most business opportunities.
In addition, we will continue to roll out our dual teacher model schools to about five to 10 new low tier cities in China. Second, we will continue to leverage our investments in our O2O integration and initiatives in online education offerings. In particular, we will continue our focus on product refinement and maintenance for the O2O system for K-twelve business. Meanwhile, we will continue to revamp and roll out our overall standardized teaching system for our overseas test prep business. We will continue to make investments as we believe that total spending in absolute dollar terms in fiscal year twenty eighteen will be similar or increase moderately compared with the prior fiscal year.
Third, we will continue to focus on driving up utilization of our facilities and controlling costs to drive operational effectiveness and deliver long term bottom line growth. However, even while we are focused on this, it's important to point out that the utilization rates of facilities declined in the 2018 versus the same period last year due to the capacity expansion we have been driving in the last few months. Also, as mentioned earlier in the call, this excess capacity as well as a short term impact on margins from our aggressive summer promotion this year also had a slight deafening effect on the overall margins in the first quarter, we currently believe the pressure on margins will lessen and reverse throughout the remainder of the fiscal year. Given the expected acceleration of revenue growth and anticipated boost in facility utilization in the coming quarters, we will keep you updated on this as we move through the fiscal year. In any event, what is most important is that our expansion strategy and recent incentives should drive additional revenue growth and market shares in the long run.
We expect a significant return on the investments we have made and believe this will also deliver long term value for our customers and shareholders. Looking at the near term and our expectations for the second quarter, we expect total net revenues to be in the range of $447,000,000 to $560,700,000 representing year over year growth in the range of 31% to 35%. Lastly, I must mention that these expectations reflect NewRentals' current and premium view, which is subject to change. At this point, I will take your questions. Operator, please open the call
Speaker 0
Ladies and gentlemen, 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. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from the line of Alvin Zhang from Deutsche Bank.
Your line is open.
Speaker 3
Hi, management. Thank you for taking my questions. I have two quick questions. First one is still on margin. Could you give us more color on the margin or EPS outlook for the full year?
Thank you. I have a follow-up.
Speaker 2
Okay. The margin question. I think this aggressive summer promotion and excess capacity expansion in the last two quarters has a short term impact our operating margins for this quarter. But we think the important investments we make will help build our long term growth of the top line and deliver long term value for our customers. And we currently believe the pressure on margins will lessen and reverse in the rest of this fiscal year.
Actually, if you see the margin in the next twelve months, what I mean is in the Q3, Q4 Q3 Q2, Q3, Q4 and Q1 next year, the next twelve months, you will see the more operating leverage. Because I take out the Q1 is because we did large scale summer promotion and the capacity expansion. So going forward, in the mid long term margin guidance, we will keep the same I will keep the same view as I guided before. So this is the margin question. My answer is clear.
Speaker 3
Okay. Got it. Got it. Yes, it's very helpful. And then my second question is on the guidance.
The second quarter guidance is very strong. Could you also give us the breakdown of different business lines underlying this strong revenue guidance? Okay.
Speaker 2
In the yes, within the Q2 guidance, I think in different business lines, first one, the U Can, middle school, high school, the top line growth will be 45% to 50% year over year. POP Kids, over 50%. Overseat test prep, 12% to 15% growth year over year. Domestic test prep will be increased by 10%. And the only drag is our adult English.
I think it will be down by 10% to 15%. In the overseas consulting business, expect the growth rate will be 25%. Pure online, what I answered, the coolant.com will grow by 40% to 50% year over year.
Speaker 3
Okay. Got you. Got you. Thank you. This is very helpful.
Speaker 2
Okay. Thank you, Oliver.
Speaker 0
Your next question comes from the line of Ivy Luo from Macquarie. Your line is open.
Speaker 1
Hi, management. Thank you for taking my question. My first question is on the capacity. So we do see that we lifted our guidance from 10 to 15 to 20% capacity increase. Just wondering how much of it is actually coming from the new learning center opening?
Because we said that capacity increased 31 year over year, but based on the number of learning centers, it actually increased 16% or 17%. So just wondering exactly like how many learning centers we plan to open in fiscal twenty eighteen. Yes, that's my first question.
Speaker 2
Okay. In terms of the capacity expansion, I think we have two parts. Firstly, we are raising our expansion plan of the new learning center opening to 20%. That means we plan to open 20% new learning centers for the whole year. And also, we will add 10% the classroom area of existing learning centers.
So if you plus the 20% with the 10%, you will get 30% the capacity expansion. And I think this is yes, I want to say something about our change of the the expansion plan. We we think, you know, the mark first one, the the market is is very good. So we raised our expansion plan just to meet the requirement or demands of the market. Second, I think we're quite confident about our outdoor product.
So the expansion is controlled this time. And we won't repeat the overextension mistakes we made several years ago. So this time, we are doing this, I think it's because of the just the win to meet the demand of the market. And I think we will control the cost. Yes, that's it.
Speaker 1
Yes. Very helpful, very helpful. Thank you. And my second question is still on the margin pressure and, I guess, utilization. So we'll be able to break down, like, how much of the margin pressure in this quarter is coming from summer promotion and how much is from the new center opening, I.
E, the utilization rate? And when would we expect the utilization rate of the newly opened learning center to ramp up to our average? Thank you.
Speaker 2
Okay. The non GAAP operating margin decreased by three eighty, 90 basis points in the Q1. And within this, 200 bps up comes from the summer promotion. And then another, like, 1.8 one eighty basis points down comes from the new learnings in the opening. Actually, we opened 94 new learning centers that add in the last two quarters.
And I think since Q2, what I mean, in the next quarter, we will see the operating leverage or higher utilization rates of the new learning center opening. And as I said, we control the expansion by the management, and we only allow the schools or the cities with high growth rates and high margins to open more learning centers. For example, in Wuhan, in Hangzhou and Beijing, we open more learning centers than before. Yeah. So in the in the rest of the year, we expect the utilization rates will go up going forward.
Yeah. Okay?
Speaker 1
Thank you. Just to clarify, for utilization rate on a full year basis should be up year over year. That's what we are expecting here.
Speaker 2
I think it's too early to say because we have a decrease of the utilization rate in Q1. So but as I said, in the rest of the year, the utilization rates will go up. So we'll keep you updated on this as we move through the fiscal year.
Speaker 1
Yes, definitely. Very helpful. Thank you.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Fan Liu from Goldman Sachs.
Speaker 4
This is Seth asking questions on behalf of Fan. We have a couple of questions. So the first one, would you mind sharing with us your latest utilization rate and also the breakdown between old learning centers and new learning centers that you opened within the past one year?
Speaker 2
Okay. I think in the first quarter, our utilization rate in this quarter was down by 1% to 2% because we opened 94 learning centers in last two quarters. And also we have a large scale summer promotion and we don't charge common price to the customers. So this is the utilization rates of this quarter.
Speaker 4
Okay. And in terms of the breakdown between the old and new learning centers that was opened over the past one year, is that possible to disclose?
Speaker 2
We have 800, 900 learning centers, so we don't disclose utilization rates by different learning centers. I'm sorry.
Speaker 4
Okay. Sure. No problem. One more question is could you also please share with us your enrollment and revenue growth figures for Beijing, Shanghai and Guangzhou and Sinton as well? Thank
Speaker 2
you. Okay. I just want to share with you the K-twelve after school tutoring business. In the last trailing twelve months, the revenue growth of K-twelve business in Beijing was 39% and Shanghai was 36%. And the top five cities, including Beijing, Shanghai, Xi'an, etcetera, was 40%.
So the top five cities contribute 45 to 46% of total revenue.
Speaker 4
Okay. Got it. Thank you so much.
Speaker 2
Okay.
Speaker 0
Your next question comes from the line of Jin Yoon from Mizuho Securities. Your line is open.
Speaker 5
Hi, good evening.
Speaker 2
I think
Speaker 5
in the past, said, that the retention rate among summer users for this summer was better than the years past. Can you just talk about the just the timing of this retention in terms of how it should flow going forward? Should we expect quite a bit of the retention to happen one or two quarters after the promotional period? Or can you just kind of talk about the timing of that retention? And second of all, on the first question that was asked, are you saying that full year margin should be higher this year than last?
I just wanted to make sure that I clarify that. Thanks, guys.
Speaker 2
Okay. Thanks, Jin. Your first question is about the retention rates of the summer promotion. Actually, I think we got a higher student retention rate after the summer promotion this year. It's close to 50%.
And last year, the same number was 40%. So we got improvement. 40% Can
Speaker 5
you talk about the timing of that, though? Like, when when should we expect that retention rate to come in? Is that right after the summer, or is that kind of a step function?
Speaker 2
Actually, it happened already. So Okay.
Speaker 0
Got it.
Speaker 2
After after the summer promotion, the students has already enrolled for the autumn class.
Speaker 1
Yeah. That's the retention q on q. So from summer course to the autumn course. Yes.
Speaker 5
Got it. Okay. Perfect. And then forward.
Speaker 2
Yeah. I Jean, and going forward, you know, I I think you you should be interested in the the student retention rates after the autumn or even next spring. I can share with you the last year numbers. You know, 90% of the summer promotion students we got last year enrolled, which who's enrolled in autumn courses are our current students. So the retention rate is rather higher than on average.
So going forward, we believe the retention rate of the students come from the summer promotion will be higher.
Speaker 5
Got it. Got it. And then the
Speaker 2
second question is about margin.
Speaker 5
Yes. I just wanted to clarify. Did you I just wanted to make sure, are you saying that full year margins this year should be higher than margins last year on a full year basis?
Speaker 2
We just passed the one quarter, and we got three eighty bps down of the operating margin. But as I said, in the rest of the year, we will make up the margins. So I think that's too early to say. But what I can say is we do believe the margin expansion in the rest of the year. And so I think that we will keep you updated on that as we move throughout the year.
Speaker 0
Your next question comes from the line of Tian Hou from CH Capital. Your line is open.
Speaker 1
Stephen, Cici, congratulations on a good quarter and strong guidance. I think it is time for you guys to actually start to expansion because the market is needed. So one thing I would be a little bit concerned is the management capacity. So the the expansion of the learning center is just not like the the physical location, but has to be run by people. Student has to be taught by teachers.
And so in those kind of much faster expansion, how do you resolve the quality of teaching? So that's my question.
Speaker 2
Okay. Tian, thanks Tian. I think it's a great question. As I said, even we're raising the expansion, the new learning center opening. But I think we do believe we have the ability to manage teaching quality.
First one, maybe I mentioned earlier, NewRental is becoming more and more centralized. That means the head office is managing the teaching quality and the content and the teacher quality. And it's quite better than before. And and I just want to say, we just opened 20% new learning centers combined with a 10% new classroom classroom area. I think it's not overbuilt.
You know? Mhmm. The 30% is okay for us. And the kids, we are quite confident about the teacher compensation. We pay
Speaker 0
Mhmm.
Speaker 2
The best in the market to pay our teachers. So we're quite confident about the teacher the teacher's quality themselves. Okay.
Speaker 1
Mhmm. Thanks. Okay. So another question is I think a lot of even investors or analysts are concerned about margin. I'm not quite concerned about margin because I really think you guys learned from post 02/2008, that kind of expansion.
So I wonder this time of expansion compared with last time expansion, what's the difference for your KPIs when you're managing those teachers or Xiaodhan's performance?
Speaker 2
Okay. Okay. Yes. In 02/2008, six, seven years ago, we tripled our learning centers in three point five years. We caused overbuild a period.
At the time, the KPI 80% of the local school have KPI came from the top line growth. So that means only 20% was related to the margin. But now it's quite balanced. 50% of the school health KPI comes from the top line growth and 50% comes from the operating margin expansion. So it's quite balanced.
And we're quite confident about the KPI system we set up for the local school heads.
Speaker 1
I have one last question.
Speaker 2
Okay. We pushed through the local school heads to care about the not only the top angles, but also the margin, the teaching quality and so on. Mhmm. Go ahead, please.
Speaker 1
Mhmm. So so, Steven, one last question. So in the past, how long does it take you for the full ramping up of a learning center? How long does it take you today to ramp up a new learning center?
Speaker 2
Yes. Actually, I I remember several years ago, typically, it took it took twelve months. That means one year to get the breakeven point since the learning center opening. But now I think the the pure rates becoming short. So, typically, on average, it takes five to eight months of the specific learning center to get the breakeven point.
That means we ramp up the learning center more quickly than before.
Speaker 0
Your next question comes from the line of Alex Liu from Daiwa. Your line is open. Hi. Thanks, Stephen. Just for the benefit of the audience, would you mind remind us at the end the medium to long term margin guidance?
And how soon should we expect the company to achieve this medium to long term guidance margin guidance?
Speaker 2
Okay, Alex. Yes, I think that in the last earnings call were the earnings calls before the last one, I shared with you our the long term margin guidance is to get 1718% in the next three, four years. I think we'll keep the same, the margin target now because even though we opened 94 learning centers in the last two quarters, we're quite confident to fill the students into the new learning centers as quick as we can. So I think you will see the more operating leverage and high utilization rates going forward. And this is our target to manage the local schools.
So, yeah, actually, I want to change my mid long term guidance of margin. Okay.
Speaker 0
Okay. My second question is on the on the overseas test preparation business. Just would you mind reminding us the overseas test enrollment this quarter as well as the revenue growth? How should we think about the direction for the rest of the year?
Speaker 2
Okay. The revenue growth was 14% in RMB terms for overseas test drive business. And the enrollment per programming enrollment decreased by 3% for this quarter. But maybe you remember that in order to improve the effectiveness of the results of the training offered to the younger age customers of the overseas test lab, we doubled the class length of TOEFL and ELCE or SAT programs in the last year. And this change negatively impacted enrollment by 8% to 8% or nine percent year over year.
So the actual volume growth in this quarter of overseas test lab is 3.5%. Is it clear, Alex?
Speaker 0
Yes. Thank you.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Lucy Yu from Bank of America Merrill Lynch.
Speaker 1
I've got a quick question on the operating expenses, I. E, adding up selling and distribution and the mix together. This expense was growing at teens to around low 20s in the past several quarters. But this quarter, it went up by 29%. I believe it's largely related to your acceleration of learning centers.
Could you please give us some guidance on this expense, the growth outlook in the next few quarters? Thank you.
Speaker 2
Yes. I think this is mainly due to the new learnings in the opening in this quarter. But over the long run, going forward, I think as a percentage of the revenue, the selling and marketing expenses and G and A as a percentage of the revenue will go down going forward. So we still have the leverage on the OpEx.
Speaker 0
Your next question comes from the line of Thomas Chong from Credit Suisse. Your line is open.
Speaker 3
Hi. Thanks for taking my questions. I have a quick question about the full year revenue growth. And given the strong set of second quarter guidance, should we expect the revenue growth reacceleration to be better than previously expected? Thanks.
Speaker 2
Yes. Thanks, Thomas. Yes, we raised our revenue guidance for the whole year of fiscal year twenty eighteen. And I think the revenue growth of this year will be around 30%. That means the 25% comes from the volume growth and 5% to 7% comes from the price increase.
Actually, the key driver is still the K-twelve business. And that's why we decided to open more learning centers, more K-twelve learning centers in past two quarters. And also, we're seeing the higher student retention rate. And also, we have the ability to acquire new customers because of the better quality of product. So that's why that's the reason we raised the revenue guidance for the whole year.
Speaker 3
Thank you.
Speaker 0
Thanks, Tom. Your next question comes from the line of Mark Li from Citi. Your line is open.
Speaker 6
Good evening, management. Thanks for your presentation. I want to ask for the learning center density for your existing city, actually, how many learning center do you think you have over the medium term? I wonder maybe for the top cities like Beijing, Shanghai, Shenzhen, and also maybe the cities like the in the Tier two cities. Thank you.
Speaker 2
Okay. Actually, in the existing cities, we're I think we are, you know, we are in the 66 cities already. And and we we have 900 learning centers now currently. And I think the maximum learning center, maybe in the next couple of years, the maximum should be 1,500, one one one thousand five hundred. Because, for example, in Beijing, we have 90 learning centers here.
But I think the maximum learning centers we can stack into in Beijing will be one fifty. And also, have a lot of we have a lot of cities with a population of over 2,000,000, and and we're now set in two. But I think most of the new cities were doing the business by the two teacher model going forward. So the market is big. And our market share in the K-twelve business, even though we're the leading player, our market share is below 2%.
So it's a long way to go. And originally, actually since last year, we have been seeing the market is booming of the K-twelve after school tutoring business. And that's why we accelerate the learning center opening recently. Thank
Speaker 6
you. How about a tier two city? Like, do you think how many learning center is possible?
Speaker 2
Actually, we we don't have the statistics. But what I can say is it's long way to go. Yeah. For for example, like, with tier two or with tier three, three, must be the the maximum learning centers to be 50 to 70. But now we only have the 20 or 30 learning centers pro.
Speaker 6
Sure. Thanks, Stephen.
Speaker 2
Okay. Thank you.
Speaker 0
Your next question comes from the line of Wayne Wang from HSBC. Your line is open. Thank you management for taking my question. I have a question on cooling part. So we are very glad to see the growth rates accelerating in revenue and the new number of users.
So could management share with us the margin profile for this business currently like future outlook and also what kind of progress we have made so that make the growth accelerating in the revenue and the users? Thank you very much.
Speaker 2
Okay. In terms of the coolers, margin is 10% to 15%. And maybe since you can share more accurate numbers. But going forward, I think the top end growth of the coolers.com should be 40% to 50% or even better. And I think Coolant is one of the one of a few players of the pure online platform in the China market can make money.
And so we believe the CoolRent's outcome will do a better job going forward. Okay.
Speaker 5
Thank you very much.
Speaker 2
Okay. Thanks.
Speaker 0
Your next question comes from the line of Johnny Wong from Jefferies. Your line is open. Hi, Steven, Sisi. Thank you very much for taking my question. My question is about the summer promotion.
It seems that for the last few years, there has been an acceleration in the summer promotion. I'm wondering if this will be a continuing trend. And do you think that will negatively affect margins in the next few years in our fiscal year first quarter?
Speaker 2
Okay. Actually, we got more than doubled summer promotions enrollment of this year compared to last year because I think we believe that summer promotion is a successful and effective way to optimize the market share and to meet the fast growing K-twelve market demand. And in terms of the margin impact, yes, we have the 2% negative impact of the on the margins in the first quarter. But for but over the one year what I mean for the whole year, we don't see the material impact on the margin because of the we're seeing the high retention rate in autumn. And we do expect the high retention rates in the rest of the year of the students come from the summer promotion.
So the rest of the year, the margin will make up the margin dilution in the first quarter. Okay.
Speaker 0
Thank you very much.
Speaker 2
Thanks.
Speaker 0
Your next question comes from the line of Cheryl Yang from CICC. Your line is open.
Speaker 1
Thanks, Steven and Sisit. Thanks for taking my question. I have three questions. The first one is regarding your dual teacher classes. What's the current retention rate and utilization rate under this model?
And what's your future expansion plan regarding this model in fiscal twenty eighteen and beyond that? And how long does it take to reach breakeven for the teacher model? And how long to collect the investment in this under this model?
Speaker 2
Actually, the retention rates of the dual teacher model we just piloted the dual teacher model one year ago, so it's too early to say. But what I want to say is the retention rate of the student is 50% to 60%. I think this is better than we expected. And in terms of the expansion plan, in this fiscal year twenty eighteen, we plan to open a five to 10 more new cities for the dual teacher model. And I think we will open more learning centers in existing cities to roll out the dual teacher model for POP Kids and U Can.
And yes, but I think it's still too early to say we can get something from the investments of the dual teacher model. Because, you know, we do it very carefully. We cover the the teacher the teachers and students and parents' response of the new product. And we open the learning center very carefully. So that's why we only opened seven cities, and each city only have one learning centers of the dual teacher model in last year.
Okay.
Speaker 1
Thanks.
Speaker 2
Thanks.
Speaker 1
And my second question is that we noticed that Mr. Yu has set up a RMB10 billion fund reemphasizing this MN merger and acquisition strategy. So given you have been quite conservative this year, shall we expect to see more investment to be carried out by EDU? And what types of company would you be interested in?
Speaker 2
Actually, we're in process planning of the fans. And but I think that going forward for our company, I think we will look at some of the pure online companies or offline schools for the kindergartens to buy. If we find the potential synergy between the target company and us, I think we will buy. And also we care about valuation and we care about the cooperation between us. That's it.
Speaker 1
Got it. Thanks. And my last question is about the competition landscape. Can management please share your views on current market competition in K-twelve and in overseas test prep market?
Speaker 2
Yes. As I said, I think, yeah, even though we're the leading player in the market, our market share is quite small, it's below 2%. So the competition is still there. And I think my view is if we have the qualified teachers and the good product, I think we should take more market share from small player. So it's a long way to go.
And the overseas test prep competition yeah. I think we dominate the the the market of overseas test prep because we run the business for twenty four years already, but there's still a long way to go. And in last quarter, if you remembered, the our top line growth of the overseas test prep was 17%. This year, 14% in RMB term year over year growth. So we still have a lot of room to get improvement of the overseas test lab business.
Speaker 1
Yes. What's your view on this the g e d u R?
Speaker 2
G E D U R. What was that? I'm sorry.
Speaker 1
Can
Speaker 2
you hear me?
Speaker 1
Yes. Yes.
Speaker 2
So what was the question?
Speaker 1
I I was trying to ask your your views on this GDOG, the the Guangzhou. Yes. Okay.
Speaker 2
I think I I don't I don't want to make comments on our competitors. But what I can say is the market is there, and we care about the improvements of our teacher teacher quality. And we just want to provide better services to the students. And that's it. I think if we do things right, we'll take more market share from the small players in the market.
Speaker 1
Got it. That's very helpful. Thanks.
Speaker 4
Okay. Thank you.
Speaker 0
Your next question comes from the line of Allison Lee from CLSA. Your line is open.
Speaker 1
Hi. Thank you for taking my question. I'm asking on behalf of Mariana. Just one quick question on the dual teacher model again. I just want to confirm how many cities are you testing the dual teacher model on?
And if there are any metrics that you could share on the student performance by using this model compared to the traditional classroom? Thanks.
Speaker 2
Okay. Actually, till now, we start into seven cities already, new cities, to roll out dual teacher model. And also, we have 30 learning centers in existing cities to perform the dual teacher model. And even though it's too early to say, but so far so good, what is the response of the parents and students are good? And in the low tier cities, I think the students have less opportunity to take the good teachers' classes.
So, you know, we're providing the good teachers from the hub city like Beijing, Shanghai, or Wuhan and to bulk up the the the better classes into the low tier cities. So Okay. I think it's great opportunity for us for the to the business in low tier cities. K?
Speaker 1
Thank you. So seven cities already and then 30 learning centers?
Speaker 2
Yes.
Speaker 1
Okay. Thank you. Perfect.
Speaker 2
Okay. Thank you.
Speaker 0
Your next question comes from the line of Nicole Huang from Hufua Securities. Your line is open.
Speaker 1
Hi, management. Thank you for taking my questions. I just want to question. Could you let know a little bit more about your quarterly student enrollment? Because you are saying that the last quarter, YOY is 15%.
And compared to the revenue growth is about 23%. Could you elaborate about that? And also, how do you expect your student enrollment in q two? Thank you.
Speaker 2
Okay. Actually, since last year, we started to bundle the winter and spring courses registration in Q2 and summer and autumn courses registration in Q4. So that's why we recorded 37% year over year enrollment growth in q four last quarter and 15.6 year over year enrollment growth in this quarter. So the combined enrollment growth is 25%. Going forward, I think the trend will continue.
And so that's why I guide you the volume growth. I think in the coming Q2, we guided the top line growth will be 31% to 35%. And I think the 25 to 27% comes from the volume growth or enrollment growth and others will be the price increase. Thank you. Thank you very much.
Speaker 0
We are now approaching the end of the conference call. I will now turn the call over to NIO's Oriental CFO, Mr. Steven Yang, for his closing remarks. Please go ahead.
Speaker 2
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 representative. Thank you.
Speaker 0
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect.