New Oriental Education & Technology Group - Earnings Call - Q2 2017
January 17, 2017
Transcript
Speaker 0
Good evening and thank you for standing by for New Oriental's Second Fiscal Quarter twenty seventeen 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.
I would now like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.
Speaker 1
Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter twenty seventeen earnings conference call. Our financial results for the periods were released earlier today and are available on the 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 view expressed today.
A number of potential risks and uncertainties are outlined in our public filings with the SEC. Neuroendo 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.
Stephen Yang. Please go ahead, Stephen.
Speaker 2
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. This was a very gratifying quarter for us. We achieved accelerated and better than anticipated top line growth, and our bottom line growth was up significantly. Net revenues increased to $341,200,000 versus the same period last year, which is an increase of 22.7% in U.
Dollar terms and 30.2% in our functional currency RMB. Underlying and driving this revenue growth, we secured impressive 56% increase in our total student enrollments, driven by growing customer acquisition and retention rates. This growth combined with excellent cost control led better than expected bottom line growth. Quarterly operating income increased by 102.1 compared to the same period last year, and net income increased by 76.1% year over year. Our key revenue driver, K-twelve all subjects after school tutoring business achieved growth of approximately 45% and exceptionally high enrollment growth of approximately 78% year over year.
This was mainly a result of significant student enrollment growth of both the U Can business and the revamped POP Kids program, which expanded 7581% respectively. The high enrollment growth demonstrates how we are benefiting from strong brand recognition as we endeavor to consolidate the market in large cities. With that said, we're optimistic about the prospects for exploring new opportunities for expansion existing and new cities. We continue to focus on strong execution of the optimized market strategy, which means we're continuing to expand our offline business, while also investing in O2O2A interactive education system. During the second quarter, we made great progress across the board in building out our successful and now well proven diversified business model.
We added net of 15 learning centers, existing cities, opened a new school and new learning center in the city of Yantai, adding a total approximately 30,000 square meters of classroom area, which represents approximately 3% capacity expansion. Also, as mentioned on the last call, we started to pilot a new teaching model in select cities in July 2016. This is a dual teacher class model and reach we utilize online live broadcasting to enable the students in the lower tier cities to access the better learning experience from our high quality teachers based in high tier cities. In the second quarter, we rolled out the dual teacher model school in the city of Tai'an, Shandong Province. With this strategy, we expect to increase our market penetration in more lower tier markets with quality education and hope to capture some very exciting growth opportunities there.
Turning to pricing. Per program blended ASP decreased by approximately 11% year over year in U. S. Dollar terms or 6% in RMB terms. On an apple to apple basis, which is GAAP revenue divided by total teaching hours, hourly blended ASPRMB terms increased by approximately 2% year over year.
To provide a breakdown of hourly blended ASPRMB terms, U Can increased by 2%, POP Kids increased by 8% and Overseas Test Prep program was up 7% year over year. The decrease of per program blended ASP is mainly due to the shift of revenue mix from the overseas test prep business with higher ASP to the K-twelve business, slowdown of VIP business, which has higher ASP and a huge increase in early registration by customers for our POP Kids spring semester courses. On margin front, we have made great progress, but dramatically improving operational efficiency, improving utilization of facilities and controlling costs within the organization. The strong bottom line performance further proves effectiveness of our Optimize Market strategy and also reinforces our confidence and ability to build long term value for our customers and shareholders. Now let's move on to the second quarter performance across our individual business lines.
Our key revenue driver, K-twelve all subjects after school tutoring business achieved year over year revenue growth of 45% in U. S. Dollar terms or 54% in RMB terms and exceptionally high enrollment growth of 78% year over year. Breaking down, the U Can middle school, high school all subjects after school tutoring business recorded revenue increase of 43% in dollar terms or 52% in RMB terms. Student enrollments grew significantly by 75% year over year.
Our POP Kids program revenue was up by 49% in U. S. Dollar terms or by 58% in RMB terms. And enrollment growth was exceptionally high at 81%. Our overseas test prep and consultant business recorded revenue growth of 2% in U.
S. Dollar terms or 9% in RMB terms year over year. Finally, VIP Personal Life Plus business increased 10% in U. S. Dollar terms or 17% in RMB terms year over year.
Now next, I will provide some updates on progress we have continued to make with our optimized market strategy. We have been focusing on maintaining a healthy balance between top line and bottom line growth, while investing in the build out of our O2O integrated education system and this continues to work well. Starting with our core offline business. As mentioned earlier, we added a net of 15 learning centers in existing cities, opened a new school and new learning centers in the city of Yantai and opened a dual teacher model school in the city of Taia. Altogether, we added a total approximately 30,000 square meters of classroom area, representing about 3% capacity expansion.
For the whole fiscal year 2017, we plan to add 50 to 60 new learning centers for K-twelve business in all existing cities. We also plan to enter two or three new cities where we identify markets with greatest growth potential. We also plan to pilot the newly initiated dual teacher class model in approximately 18 to 20 existing cities and enter five to seven new cities, all specifically targeting lower tier market. Regarding our online business, we invested approximately $13,700,000 in the second quarter to improve and maintain our ultra integrated education ecosystem. Most of the investments were reported under G and A expenses.
We have been devoted to this online business build off since 2014. With an increase in customer retention rates and additional new customers, we fully believe this is transforming our business and the investments will continue to bring continuing long term benefits. Before I go into details, just a quick recap of the three levels of our online platform. The first level, also the core of our online system, is an ultra low two way interactive education system across all of our business lines. The second level is our pure online learning platform and supplementary online educational products and the New Oriental brand.
The third level of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complements our own online education offerings. Starting with O202A interactive education system, we aim to extend New Oriental's traditional offline classroom teaching offerings to online education services. This is also an important factor that sets us apart from other key players market. With advanced O2O product services, we're poised gain more market share and improve brand recognition going forward. Since its launch in September 2014, U Can Visible Progress teaching system, our interactive education system has been successfully rolled out across all 55 existing cities in our nationwide school network and this expansion drove positive performance.
Our newly revamped POP Kids English program Shuang Yu has also expanded its coverage to 54 cities by the end of second quarter. The interactive education system has been gradually used in more and more cities. The O2O system for the domestic test program was being used in facilities for some classes by the end of the second quarter. And since its launch in the 2016, The interactive education system for overseas test prep program, including ELs, TOEFL and SAT courses, was rolled out in seven cities by the end of the second quarter. For the second level of our online education ecosystem, we have seen consistent growth in our pure online learning platform and other supplementary online education products.
In the second quarter, coollearn.com generated net revenue of $17,600,000 representing an increase of 33% in U. S. Dollar terms or a 41% increase in RMB terms. The number of paid users increased significantly, about 33% year over year. The number of cumulative registered users in this quarter has reached 15,000,000.
Coo.cn, our own live broadcast open platform for both New Oriental and third party teachers achieved 570,300 registrations in the second quarter. Donut, a serious game based mobile learning app for children, recorded over 51,300,000 downloads by quarter end. LeiFu, English language vocabulary training app for mobile phones and tablets app, reported over 5,500,000 users by quarter end. For the third level of our online education ecosystem, we invest in select online education companies with a minority stake and we continue to look for new opportunities that will not only complete our own offerings, but also facilitate our O2O integration. Now let me walk you through the other key financial details for the second quarter.
Operating costs and expenses were $341,000,000 representing an 18.2% increase year over year. Non GAAP operating costs and expenses, which excludes share based compensation expenses, were $338,900,000 representing a 19.5% increase year over year. Cost of revenues increased by 21.7% to $163,400,000 primarily due to increases in teachers' compensation for more teaching hours. Selling and marketing expenses increased by 18.2% to $52,200,000 primarily due to increase in brand promotion expenses and selling and marketing staff compensation. General and administrative expenses for the quarter increased by 13.9 to $125,400,000 Non GAAP general and administrative expenses, which exclude share based compensation expenses, were $123,300,000 representing a 17.3% increase year over year.
Total share based compensation expenses, which were allocated to related operating costs and expenses, decreased by 56.5% to $2,200,000 Operating income for the quarter was $200,000 compared to a loss of $10,400,000 in the same period of last fiscal year. Non GAAP income from operations was $2,400,000 compared to non GAAP loss from operations of $5,400,000 in the same period of prior fiscal year. Operating margin for the quarter was 0.1% compared to a negative 3.7 in the same period of prior fiscal year. Non GAAP operating margin, which excludes share based compensation expenses for the quarter, was 0.7% compared to a negative 1.9% in the same period of the prior fiscal year. Net income attributable to NewRental for the quarter was $10,400,000 representing a 76.1% increase from the same period in the prior fiscal year.
Capital expenditures for the quarter were $21,200,000 and this was primarily attributable to the opening of two new schools and 36 new learning centers and renovations at existing learning centers. Turning to the balance sheet. At the end of the second quarter, the deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instruction are delivered was $764,700,000 increase of 30.4% as compared to $586,500,000 at the end of the 2016. Before talking about our expectations for the third quarter, I wanted to take a moment to reiterate our overarching goals for the year, which we outlined on the twenty sixteen Q4 and full year conference call. During fiscal year twenty seventeen, we will continue to focus on our Optimize Market strategy.
With the current success achieved, we're confident that we have the right strategy in place and that is we'll continue to drive additional progress and help us create long term value for all customers and shareholders. To give you more specifics, first, we will continue to expand our offline business. In fiscal year twenty seventeen, as mentioned a few minutes ago, we plan to add 50 to 60 new learning centers for K-twelve business in existing cities. This is higher than our initial target provided ahead of fiscal year And we're raising this because we're seeing a growing momentum for our K-twelve business due to the combination of our broad product portfolio, solid market demands and effective operation. We also plan to enter two or three new cities where we identify as markets with most business opportunities.
Further, we plan to implement the newly initiated dual teacher class model in around 18 to 20 existing cities and enter five to seven new cities specifically targeting lower tier markets. Second, we will continue to invest in our O2O integration and the initiatives in online educational offerings, promoting the strongest products possible in the marketplace in order to continue to take market share. While investments will continue, we believe that total spending will begin to stabilize this year compared to the large annual incremental increases in the last two fiscal years when we were building a foundation. Third, we will continue to have a top priority on improving utilization of facilities and the controlling costs across organization to drive continued margin expansion and profitability. Looking at the near term, in terms of the 2017, we expect total net revenues to be in the range of $408,700,000 to $421,800,000 representing year over year growth in the range of 18% to 22%.
The project's growth rate of revenue in our functional currency, renminbi, is expected to be in the range of 25% to 29% for the third quarter. Lastly, I must mention that these expectations reflect New Oriental's current and preliminary view, which is subject to change. At this point, I will take your questions. Operator, please open the call for this.
Speaker 0
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 Our first question comes from the line of Terry Chen from HSBC. Please go ahead.
Speaker 3
Thank you, Stephen and Steve for taking my questions. And congratulations on the solid results. I have a question on enrollment growth. So in the second quarter, our company overall enrollment growth accelerated to 56% and the K-twelve enrollment growth accelerated to 78%. I'm just wondering what's driving the faster enrollment growth here?
And what do you think will be the trend in the next few quarters?
Speaker 2
Okay. Thank you, Terry. It's a great question. The Q2 in the Q2, the student enrollment was very strong. And I think there were three reasons.
The first, the high rates of the enrollments demonstrate the we are benefiting from this strong brand recognition. And also, we start to consolidate the market in the big cities. And the second reason the first reason that means the market demand is very strong. And also, we have the good the best the brand name. The second reason for the high enrollment growth is the still enrollment growth come from the new customers and also the higher retention rate.
I think this means that we have successfully rolled out the new auto product. And I think the parents and students and the kids are buying in the new product. And the last reason for the student enrollment strong student enrollment is the students choose to enroll the class earlier than before. And we're seeing a huge increase in early registrations for the past kid's spring semester courses. So I think in terms of the trend, I think the trends will be great.
We're happy to see the very strong student enrollments for the overall business, especially for the K-twelve business. Is it clear, Terry?
Speaker 3
Yes, yes, very clear. So you mentioned that there's earlier registration this year from students. As we understand that your enrollments are booked on a cash basis, right? So the higher enrollment growth in the second quarter translate into even higher revenue growth in the coming quarter.
Speaker 2
Yes. That's why you see our guidance. I remember in the last conference call, again, the investor, the top line growth. I think, truly, in my view, I think the top line growth will be a little bit better than we expected several months ago. And as you know, the Q3 and Q4 will be the peak seasons for the K-twelve business.
So I think the trend is very good.
Speaker 3
Great. Thank you, Steven.
Speaker 2
Okay. Thank you, Taro.
Speaker 0
Thank you. Our next question comes from the line of Jing Yun from Mizuho Securities. Please ask
Speaker 4
Hi. Good evening, guys. A couple of questions. First of all, if you look at your COGS, it's been up 22%. And then you attributed part of that due to increasing teaching hours, and your enrollment is up more than 50%.
So your incremental if you could kinda help me clear think this through. If you look at your incremental enrollment growth and incremental COGS, does that mean that your utilization rates are improving faster than what we originally anticipated? Because the fact that the cost is not going up with enrollment. So is that one way to look at it? And the other thing is how much is your enrollment actually fueled by the new school and incremental learning centers opening?
Thanks, guys.
Speaker 2
Okay. The first question is about COGS and enrollment growth. Yes, I think you're correct. We're seeing the utilization rates is going up. And yes, a little bit better than we expected several months ago.
Because I think the teacher salary will be increased by less than the 20% to 25% in RMB terms going forward. But I think the top line growth will be better will be bigger than the teacher salary increases. So that's why you see the utilization rates going up. And your second question is about sorry, can you repeat your second question? Yeah.
Speaker 4
The second question was how much of your enrollment growth is incremental contributions from the new school and the learning centers?
Speaker 2
Yes. We only opened 18 new learning schools and learning centers in this quarter. And if you look at the number of the first six months within this fiscal year, we opened forty one percent forty one new learning centers learning centers. So the expansion is only 7% to 8%, but our enrollments is much stronger. I think most of the enrollment growth comes from the organic growth from the existing cities.
That's why I said our audio utilization rates will go up and it will lead to the margin expansion.
Speaker 4
Got it. Great. Thanks guys.
Speaker 2
Okay. Thank you.
Speaker 0
Thank you. Our next question comes from the line of Tian Hou from TH Capital. Please go ahead. Hi Stephen and Cici. The question is how many learning centers do you expect to open in new fiscal year?
And where those new learning centers could be? So how much the seat capacity will be increased by opening those learning centers?
Speaker 2
Thanks, Tian. Till now, we haven't finished the New Year budget. New fiscal year. Yes, fiscal year twenty eighteen. But I think we are till now, I can say we raised the new learning center numbers, but it's it's in our in our control.
You know, we we will open 50 to 60 new learning centers within this fiscal year. And next year, I think we will open a little bit more. But, you know, as you know, we would care about margin. We'll control the the how many learning centers we set up. And, also, we care about margin.
So going forward, I believe most of the new student most of the enrollment will come from the current learning centers. Yes.
Speaker 0
So as China, the price has some kind of inflation. So are you going to increase your price also?
Speaker 2
Yes, we will increase the price with a reasonable mode. In this quarter, we increased the hourly rate by 2% to 3% in RMB term. And going forward, the Q3, Q4 will be peak season for Q4 business. So we will increase the price by 5% to 8% in RMB term going forward. And even in the next fiscal year, I think we'll use the same price strategy.
Speaker 0
Our next question comes from the line of Alvin Zhang from Deutsche Bank.
Speaker 5
I have two quick questions. The first one is a housekeeping question. What is the utilization rate in this quarter? And what's the year on year improvement? And meanwhile, what's driving the ASP decline?
It seems even for K-twelve business itself, enrollment growth is faster than revenue growth. But you just mentioned that the ASP for K-twelve is actually increasing. How should we understand this trend? I have another follow-up.
Speaker 2
Okay. Yes, the as for the question for utilization rates, this quarter, the utilization rates is 20% to 21%. And we were seeing the 200 bps compared to the same period of last year. And going forward, you will see the higher utilization rate. And as for the question about ASP, yes, in this quarter, the per program brand ASP decreased by 6% in RMB terms.
I think there were several reasons. The first, K-twelve business grew faster than the overseas test prep business. And typically, the K-twelve business has the lower ASP. And also, the second reason is there's a huge increase in early enrollments by customers for our POP Kids experience semester courses. That means kind of the timing difference.
Third, we control the VIP revenue contribution. In this quarter, the revenue from VIP course only increased by 10%. So it's dragged the price down. So that's all three reasons to explain your question about the price.
Speaker 5
Got it. Got it. Got it. My second question is on the policy risk. Here's the thing, according to some news report, Shanghai government is talking about to clean up the K-twelve tutoring market and also help to reduce burden on young kids.
So do you think they will make any potential impact to your business?
Speaker 2
Thanks, Albert. I think, yes, I read the news from the newspaper. And until now, I don't want to explain to you guys about the impact of the new policy. But this is not the first time that the Chinese government settled in public to less burden of its students. I think for the Chinese students, typically, they spend the whole maybe ten or twelve years to prepare for Gaokao, and Gaokao is still there.
So Gaokao is a I think there's a way to select people. And the kids and students are competing to the four year college seat. And also, if they get the good report on their study, they will have a better future. And also, want to add one more thing, that's the market share. Even we are the market leader, our market share is just 1% to 2%.
So it's not a big deal. And and also, you know, typically, the students spend maybe thirty five or forty hours or, thirty to forty hours in the public schools every week. But the kids only spend two or three or four hours within New Oriental. So it's not a big amount of time. Okay.
That's my answer.
Speaker 5
Thank you.
Speaker 2
Thank you.
Speaker 0
Thank you. Our next question comes from the line of Wendy Huang from Macquarie. Please go ahead. Thank you and congratulations on the very solid results. First, I just want to double check and confirm with you that it seems that your guidance implies no impact at all from the recent negative publicity on your overseas test and consulting business.
Speaker 2
Think that in the Q3, our in the coming quarter, our overseas test prep and overseas consultant business will still grow, let's say, by the eight to 10% going forward. And yes, you said about the Reuters report, I think all of our business operations are governed by robust policies and we have designed procedures to guard against any endorsed behavior by employees. And going forward, I think we will continue to conduct our ordinary course of business in accordance with our policy standards. And going forward, I think the growth over the business of the overseas test prep and consulting business will be good. And such, you know, the the market of of of our overseas test prep market, even though it doesn't grow as well as several years ago.
So even the total market has grown by single digit. So our growth is just in line with the market. And I think what we need to do is to do better for our ultra reforms for the overseas test prep product. And we expect we will do better for overseas test product business going forward. I think it's better than we did last year.
Speaker 0
Thank you. And also you mentioned earlier that you have a very aggressive target to roll out dual teacher model in 18 to 20 existing cities. So do you expect to achieve this target by the end of this fiscal year? And also, with this kind of very fast speed of launching out, how should we assess the financial impact and also the enrollment impact from this dual teacher model rolling out? Thank you.
Speaker 2
The dual teacher model, I think so far the feedback from the parents and kids are very good from the dual teacher learning centers. And even in the second quarter, this quarter, we rolled out a new teacher model in the new city of Taoyan. And also, we opened more than 10 learning centers in existing cities. And so we plan to pilot the dual teacher model in 18 to 20 new cities by the end of this fiscal year. And yes, as I said, we don't have a plan till now to tell you how many new dual teacher model learning centers we set up next year.
But I think we'll open more because in terms of the financial model, typically, under the dual teacher model, one teacher phase to five or 10 or maybe 20 classes at the same time. So I think when the model gets matured, we expect the margin will be higher than the offline classes. But it's too early to say the revenue contribution or the margins because it's contributed only a few only a little amount of revenue contribution. So let's say, maybe I can tell you the I will tell you the answers maybe one year or six months later.
Speaker 0
Thank you. Our next question comes from the line of Fang Liu from Goldman Sachs. Please go ahead. Hi, Stephen. Congratulations on another strong quarter.
So would you want to share with us your total headcount of teachers right now? And also, as we can see that you are in a very strong momentum to improve the margin. So will you insist still insist on your twenty seventeen to twenty eighteen GAAP margin operating margin in the next three to five years? Is that is there any possibility to raise this margin? Thank you.
Speaker 2
Okay. The headcount by the end of the quarter end of this quarter end, the headcount was 3,000 was 39,000. And that means we add 2,400 headcount within the first half of this fiscal year. And within the headcount, we have 19,800 the teachers. And this is the headcount question.
And what's your second question?
Speaker 0
Your margin guidance. Margin guidance. Is that yeah.
Speaker 2
I think that you will see the margin expansion in within this fiscal year. And going forward, you know, our target is to get 70%, 80% in, like, three, four years. And I don't want to change my guidance of the market expansion. So our margin will go up gradually in next two to three years.
Speaker 0
Thank you. Our next question comes from the line of Mariana Koh from CLSA. Please go ahead.
Speaker 6
Thanks, management. Congratulations on a strong set of results. I think my question is a bit of a follow-up on enrollment figures and also the ASP. I'm just wondering, think the implied enrollment figures for the overseas and other businesses, So everything other than k 12 is a bit down about teens. So I'm just wondering, have we had did you know, have you done any sort of estimate on, you know, how fast we have to grow the k to 12 enrollment number to really offset the operating deleverage impact?
Because I think we talked previously on calls that the operating margins overseas is quite significantly higher than K-twelve. That's my first question.
Speaker 2
Yes, it's a good question. K-twelve Look, business will be definitely the revenue driver. Yes, you're correct. The K-twelve business the margin of K-twelve business is a little bit lower than the overseas test rep. But for the over for the Q12 business itself, the margin is going up.
So I think the revenue contribution the less revenue contribution of overseas test rep will be offset by the K-twelve margin expansion. So anyway, overall, you will see the margin expansion. Is it clear?
Speaker 6
Okay. Yes. Yes. Thanks. I think my second question is more housekeeping.
I think the tax rate has jumped up quite significantly this quarter, and then the share based comp has declined quite sharply. Could you actually give us some color on what to expect for the coming quarter or for the full year in terms of the tax rate and share based comp?
Speaker 2
Okay. The tax rate in this quarter was 14%. And I would like to guide the tax rate for the whole fiscal year 2017 will be somewhere at 14.5% to 15%. This is the my guidance of the tax rate. And I think the tax rates will steadily move up going forward.
And your second question is about share based compensation. Yes, this quarter, we reported $2,200,000 of the stock based compensation. Typically, last year, we issued the shares to the high management and key staff in July. But this year, we issued the shares to those guys in November. So we record less the share based compensation in this quarter.
But going forward, in the Q3 and Q4, we will record more share based compensation. So for the all share based compensation in this fiscal year, we'll be somewhere between 20,000,000 to $24,000,000 for the whole year.
Speaker 0
Thank you, Stephen.
Speaker 2
Okay. Thanks, Maria.
Speaker 0
Thank you. Our next question comes from the line of Zoe Chao from Credit Suisse. Please go ahead.
Speaker 7
Thank you management for taking my question. I have two questions. One is on can you update us on each segment's operating margin? And the second question is, it seems that we recorded a gain of around US2 million dollars attributable to the minority interest. But just looking at the size of like Xincheon this quarter, this number seems to be very high.
So do we have any other investment associated with this number? Thank you.
Speaker 2
Okay. The operating margin but different business lines. For the overseas test prep, the operating margin before all I said, the operating margin is before the head office expenses. The overseas test prep is 30%. And domestic and adult English, the margin is 25%.
And for the U Can, the margin is 25% And the case is 14 to 15%, the operating margin. And the MI, your second question, yes, I think most of the MI come from thecooler.com because we just hold, let's say, 65% to 70% of total shares of Cooler. So there's an online there. And going forward, it will be there.
Speaker 0
Thank you. Our next question comes from the line of Claire Chou from Morgan Stanley. Please ask your question. Hi, Stephen and Sisi, thanks for taking my question. Could you share with us what's the revenue contribution from Beijing and Shanghai in the quarter?
And also what's the current revenue growth rate for the two cities? Thanks.
Speaker 2
Okay. The revenue contribution from Beijing this quarter is 24%. It's 24%. And Shanghai is 6%. And the revenue growth of Beijing School in this quarter is 24%.
As you know, it's the overall growth rate of Beijing School. And the Shanghai school growth by 34% in the Q2. Thanks.
Speaker 0
Thank you. Our next question comes from the line of Cheryl Yang from CICC. Please go ahead. Hi, good evening management. Thanks for taking my question and congratulations for the strong quarter.
I have one question regarding your pricing strategy for the dual teacher model. I noticed on your website that most of the courses are priced lower Are you planning for offering discount on purpose? Or are you going to keep this pricing strategy for two teacher model going forward?
Speaker 2
Okay. Yes. The as for the pricing strategy for dual teacher model, we're still in the piloting phase. So yes, for the first or second rounds of this new enrollments, we give the students some discount. But going forward, I think the anyway, I think the price of the dual teacher model should be a little bit lower than the offline classes.
But I think it's too early to say the price strategy for the dual teacher model. But as I said, even though the price of the dollar as for the dollar amount, the price is lower than the offline classes. Margins will be higher than the offline classes because the one teacher can fit for so many students at the same time.
Speaker 0
Got it. Given you mentioned that one teacher can take multiple classes, can you show with us more color on how many classes that the teacher can take at current stage?
Speaker 2
Okay. It's a wide range. Typically, one teacher can fit to five to 10 classes at the same time. But I can share with you that in some cities, we are seeing the one teacher can fit to 20 or 30 classes at the same time.
Speaker 0
So the Perfect. Thank you.
Speaker 2
Yeah. I think I think going forward, the model is something like that the one teacher can fit to 10 to 20 class at the same time.
Speaker 0
Next question comes from the line of Lucy Yu from Merrill Lynch. Hi, management. I got two questions here. First of all, with the new administration of US and UK, do you see any risk to our overseas study related business, I. E, the test prep and the consulting?
Because I saw on news that UK home office is planning on cutting the overseas student by half. So will that affect our business? And secondly, it's a follow-up on the open margin question I asked earlier. Could you give us the OP margin for each segment in the second quarter of last year? Thank you.
Speaker 2
Okay. Yes. For the first question, to be frankly, I haven't read the news of The UK changed the policy of the the foreign students. So I don't want to make a change of my guidance of the overseas test prep business. I think our overseas test lab business will grow by five to 10% going forward in RMB terms.
And the operating margin by segment. So typically, we don't disclose the quarterly operating margin by segment. So yes, that's it.
Speaker 0
So can we see that they are improving year over year?
Speaker 2
Yes.
Speaker 0
Or they are largely stable?
Speaker 2
Yes. That's why you you see the overall margin, operating margin improved by three eighty bps. So I think the all the business lines margin are expansion.
Speaker 0
Thank you.
Speaker 2
Thank you.
Speaker 0
Thank you. Our next question comes from the line of Alex Liu from Daiwa. Please go ahead.
Speaker 8
Hi. Thank you, Steven. I was wondering what's the sort of a rough contribution of the students that we retained from the past summer promotion to the past quarter's U Can enrollment? Can we get some ideas here?
Speaker 2
Okay. Yeah, we made a big summer promotion in the summer. And in some big cities like Beijing, Wuhan and Shanghai, the retention rate is approximately 50%. So I think that's okay for us. The that means that 50% of students will stay with New Oriental.
And even in the Q3, the retention rate will go to the normal level. That's the for the U Can business, our average retention student retention rate is somewhere between 70% to 75%. So the retention rate for the summer promotions is okay for me for the company.
Speaker 8
Okay. I have a follow-up here. Just wondering, think we have increased the pace of expansion a bit. I'm just wondering, are we thinking about increase the medium term capacity increase targets of 5% to 10%, maybe to perhaps low teen level in the coming three to five years?
Speaker 2
Yes. We raised our expansion plan several months ago before the start of the fiscal year. I guess the your guys that we will open 30 to 40 new learnings no, 40 to 50 new learning centers at that time. But we increased a little bit. We plan to open 50 to 60 new learning centers because the market demand is so strong.
And also, we're quite confident about our the product, the new auto product. But as I said several minutes ago, we will control the how many learning centers we set up. It will not strike margin. We hope that our margin will go up. Okay.
And Okay. Thank you. Yes. That's it. Okay.
Thank you.
Speaker 0
Thank you. Our next question comes from the line of Eric Chu from CCBI. Please go ahead.
Speaker 9
Hi. Good evening, Steven and Siti. Thank you for taking my question. Congratulations on very solid results. My question is firstly related to the enrollment number growth.
Because this number above 50 is much higher than the previous, like, nine quarters on average. So I was wondering, is it more because of the summer campaign? And will this, like, above 40 or 50 enrollment growth continue in the next several quarters? My second question is related to the online. You released some data about the coolant.com enrollment and the registered user growth.
It seems that the growth was less than the enrollment growth for our offline courses. So I'm wondering if the percentage or contribution from the online was actually decreasing. How are we look at this business going forward? Thank you.
Speaker 2
Okay. The yeah. The the enrollment you know, I will tell you that no. All the enrollments numbers will tell you is not not include the offline enrollments with a price under RMB300. So I think I think, you know, the yeah.
The the the 78% for growth for K-twelve student enrollment is quite high. But partially, we're seeing a huge enrollment. It's early registration for the POP Kids program. Students choose to enroll the class earlier than before. That means some students have already enrolled for the spring classes.
So anyway, the student enrollment trends will be good, but I don't think we can continue to get 7080% enrollment growth in the cafe. And the online your second question is about online. I don't want to change my guidance for the pure online coollearning.com, the revenue guidance, I think the revenue growth will be somewhere between 40% to 50% going forward for thecooleran.com. Okay. Thank you.
Speaker 0
Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's CFO, Mr. Steven Yang, for his closing remarks.
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 representatives. Thank you again.