New Oriental Education & Technology Group - Earnings Call - Q2 2020
January 20, 2020
Transcript
Speaker 0
Good evening and thank you for standing by for the New Oriental's FY twenty twenty Second Quarter and Interim Results 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. Sissy Zhao.
Speaker 1
Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter twenty twenty earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as on newswire services. Today, 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. New Oriental 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 are very pleased to report a set of solid financial results in the second fiscal quarter of this year, delivering both accelerated top line growth and continued operating margin expansion. Total net revenue growth was $785,200,000 representing a growth of 31.5% or 34.8% if measured in RMB, exceeding the high end of our expected range. Net revenues from educational programs and services for the second quarter were 7 and $23,300,000 representing a 33% increase year over year.
The growth was mainly driven by increase in student enrollments in K-twelve after school tutoring courses, which continued its strong momentum and achieved a year over year revenue growth of approximately 46% in dollar terms or 49% if computed in RMB. We continue to be guided by our optimized market strategy in this quarter and carried out our capacity expansion in cities where we see potential for rapid growth and strong profitability. During this quarter, we added another 41 learning centers in existing cities, opened a new training school in the city of Huizhou and a dual teacher model school in the city of Chengdu. By the end of this quarter, the total square meters of classroom area increased by approximately 25% year over year and 6% quarter over quarter. Total student enrollment, academic subjects tutoring and test prep courses in the 2020 increased by 63.3% year over year to approximately 3,789,200.
Please note that the higher than normal increase in student enrollments is primarily due to the division of the autumn semester into two parts, meaning that the student enrollments are recorded separately and fall into separate quarters. At the same time, we continued our efforts in upgrading our online merger offline standardized classroom teaching system, while the interactive courseware in the POP Kids program was rolled out to more cities. We are very encouraged to have received positive feedback from our customers and see sustained improvement in customer retention rates. We also continue to make strategic investments into our dual teacher model classes as well as new initiatives in K-twelve tutoring, our pure online education platform, coollearn.com, to leverage our advanced teaching resources in low tier cities and those in remote areas. Following last quarter's strong bottom line performance, we once again achieved year over year operating margin expansion in this quarter.
During this quarter, we recorded non GAAP operating income of $36,500,000 compared to a loss of $14,900,000 in the same period of last year. Non GAAP operating margin rose by seven twenty basis points to 4.7% from negative 2.5% a year ago. The continued margin expansion is mainly driven by better leverage in classroom rental and related operating expenses, just as we consistently improve the utilization of facilities. In addition, supported by a standardized, modularized and systemized operating process, we achieved an outstanding improvement in operational efficiency within each key business units. We're confident that we will be able to deliver continued margin expansion and generate sustainable long term value to our customers and shareholders.
Per program blended ASP, which is cash revenue divided by total student enrollments, decreased by about 10% year over year. We like to know that the lower than normal blended ASP is primarily due to the change in the tuition fee collection schedule for our K-twelve after school tutoring courses. As explained above, the number of students we recruited and the amount of fee collected during the quarter reflect the second half of the autumn semester, winter semester and the first half of the spring semester. Therefore, our blended ASP for the 2020 appears to be lower. Hourly blended ASP, which is GAAP revenue divided by total teaching hours, increased by approximately 6% year over year in RMB terms.
To provide a breakdown of the hourly blended ASP, please note that U Can program increased by 7%, POP Kids increased by 11% and overseas tax credit program increased by 7%, all year over year in RMB terms. Now let's move on to the second quarter performance across our individual business lines. As mentioned earlier, our key revenue driver, K-twelve all subjects after school tutoring business achieved year over year revenue growth of 46% in dollar terms or 49% in RMB terms. Breaking down, the UCAM middle school high school all subjects after school tutoring business recorded a revenue increase of 43% in dollar terms or 46% in RMB terms for the quarter. Our student enrollments grew approximately 55% year over year for the quarter.
Our POP Kids program delivered outstanding results with revenue up by about 51% in dollar terms or 55% in RMB terms for the quarter. Enrollments in the program went up about 87% for the quarter. The overseas test prep recorded a revenue increase of 3% in dollar terms or 5% in RMB terms for the quarter. The consulting business recorded revenue growth of about 1% in dollar terms or 4% in RMB terms year over year for the quarter. Finally, VIP personalized classes business recorded revenue growth of about 37% year over year in dollar terms or 40% in RMB terms year over year for the quarter.
Next, I will provide some updates on the progress we are making with our Optimize the Market strategy. Beginning with our offline business this quarter, as mentioned earlier, we added a net of 41 learning centers in existing cities, opened a new training school in the city of Huizhou and dual teacher model school in the city of Chengdu. Altogether, this increased the total square meters of classroom area by approximately 25% year over year and 6% quarter over quarter by the end of this quarter. By the end of Q2 twenty twenty, the dual teacher class model has been introduced into the POP Kids program in '48 existing cities, for U Can program in 30 existing cities, and for both POP Kids and U Can K-twelve business in seven new cities. The initiatives supported the increased market penetration in those markets we have tapped into.
We also saw improved customer retention rate and scalability of this new model. With these proven results, we will continue this strategy in the rest of the year. On the digital technologies front, we invested $44,000,000 in the quarter to improve and maintain our online merger offline called OMO standardized classroom teaching system. Most of the investments were recorded under G and A expenses. Furthermore, we also made stable progress in the pure online koolearn.com business line and other supplementary online education products, which is experiencing growing market demand.
More resources are investing into the executing new initiatives in pure online K-twelve after school tutoring business in fiscal year twenty twenty. The investments includes content development, teaching, recruiting and training, sales marketing, R and D and other necessary costs and expenses to drive the growth for new pure online programs. With these programs, we're able to reach more students in low tier cities in an interactive and scalable manner. We believe this will help the koolearn.com to gain new market share in the online education space and drive top line growth. Now let me walk you through the other key financial details for the second quarter.
Operating cost and expenses for the quarter were $759,900,000 representing a 21.1% increase year over year. Non GAAP operating cost expenses for the quarter, which excludes share based compensation expenses, were $748,700,000 representing a 22% increase year over year. Cost of revenue increased by 19.6% year over year to $359,000,000 primarily due to increase in teachers' compensation for more teaching hours and higher rental cost for the increased number of schools and learning centers in operation. Selling and marketing expenses increased by 17.7% year over year to $107,800,000 G and A expenses for the quarter increased by 24.4% year over year to $293,100,000 Non GAAP G and A expenses, which exclude share based compensation expense were $282,100,000 representing a 21 I'm sorry, representing a 27.1% increase year over year. Total share based compensation expenses, which were allocated to related operating cost and expenses decreased by 18.1% to $11,200,000 in the 2020.
Operating income was $25,300,000 representing 188.6% increase year over year. Non GAAP income from operations for the quarter was $36,500,000 representing a 345.6% increase year over year. Operating margin for the quarter was 3.2% compared to a negative 4.8% in the same period of prior fiscal year. Non GAAP operating margin, which excludes share based compensation expenses for the quarter, was 4.7% compared to a negative 2.5% in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $53,400,000 representing a 306.9% increase from the same period of prior fiscal year.
Basic and diluted earnings per ADS attributable to New Oriental was $0.34 and $0.34 respectively. Non GAAP net income attributable to New Oriental for the quarter was $57,000,000 representing a 147.8% increase from the same period of prior fiscal year. Non GAAP basic and diluted earnings per ADS attributable to New Oriental was $0.36 and $0.36 respectively. Net operating cash flow for the 2020 was approximately $291,800,000 Capital expenditures for the quarter were $52,400,000 which were primarily attributable of the opening of 78 facilities and new learning centers and renovations at the existing learning centers. Turning to the balance sheet.
As of November 3039, New Oriental had cash and cash equivalents of $1,047,600,000 as compared to $1,414,200,000 as May 3139. In addition, the company had $348,300,000 in term deposits and $221,500,000 in the short term investments. New Oriental's deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions are delivered the end of the 2020 was $1,570,400,000 an increase of 25.6% as compared to $1,150,300,000 at the end of the 2019. Before moving on to our outlook and guidance for the third quarter, I would like to provide some updates on the Cooler. Cooler Technology Holdings Limited, a subsidiary of NewRental, which provides online extracurricular education service in China, also announced its interim results for fiscal year twenty twenty earlier today.
I'd like to emphasize that Cooler is a very important platform for New Oriental and we're optimistic about the opportunities in online education markets and confident in our investments into the platform. During the period, has undergone a process of restructuring its college education business line, which had some negative impact on Cooler near term revenue growth. Cooler also continued to invest more resources in executing new initiatives in the areas of content development, teachers recruitment and training, sales marketing, research and development and other necessary cost and expenses to drive the growth of new online programs. For the first six months ended November 3039, Cooler recorded an 18.8% year over year increase in revenue to RMB 5 and 67,600,000.0 or US81 million dollars Gross profit was RMB $317,100,000 or $45,200,000 Losses of the period was RMB 87,500,000.0 or $12,500,000 compared to a profit of RMB 36,200,000.0 in the same period of prior fiscal year. It's encouraging that one of his K-twelve business new initiatives location based live interactive after school tutoring courses or Dongfang Youbo DFUB have been rolled out to 128 cities in China and recorded enrollment growth of 186.2% year over year.
For more details, please refer to Koolearn's financial results announcements in full. Looking ahead into the next quarter and the rest of the fiscal year 2020, we will continue to be guided by our Optimize the Market strategy and further rise upon the success and momentum we have viewed. We're confident about capturing a wider range of the market opportunity moving forward. To provide more detail on our areas of focus for the rest of the year, First, we will continue to expand our offline business. We aim to add around 20% to 25% capacity, including new learning centers and expanding classroom area of some existing learning centers for K-twelve business in existing cities.
In addition, we'll continue to roll out our dual teacher model schools to a number of new low tier cities in certain provinces for the whole year. Second, we'll continue to leverage our investments into digital technologies and introduce our online merge offline system to more offline language training and test offerings, especially for our K-twelve tutoring and overseas test prep key businesses. We will continue to make investments and we believe that total spending in absolute dollar terms in fiscal year twenty twenty will increase compared to with the prior fiscal year. Furthermore, we will continue to invest in and execute new initiatives including product development, teachers recruiting and training, R and D as well as sales and marketing expenses in pure online K-twelve after school tutoring business, our koolearn.com. Third, our top priority will remain as to focus on optimizing utilization of facilities and controlling cost and expenses across the company to drive the continued margin expansion and increased operational efficiency.
The new facilities built in the last two fiscal years are being ramped up more efficiently than before. We expect our non GAAP operating margin of the offline language training and test prep business to continue to expand in the 2020. This improvement is expected to cover the margin pressure resulting from our online investments in the koolearn.com. On the whole, we expect our overall non GAAP operating margin to continue to improve year over year in fiscal year twenty twenty compared to the year over year decline last two fiscal years. Fourth, as of today, we have decided to move two days of classes in our Wuhan New Oriental School from before the Chinese New Year to after the Chinese New Year in view of the disease cases.
Class will be taught via our online lab broadcasting technology if the learning center's operations remain suspended after the Chinese New Year. Please note that class in the cities except Wuhan have not been adjusted or suspended. The health and safety of our students is our top priority, and we will continue to closely monitor the situation and cooperate with the relevant authorities. Also note, we have taken the impact from the conditions in Wuhan into consideration in our third quarter's guidance. The impact is immaterial based on our current estimation.
Finally, the recent RMB depreciation against the U. S. Dollar might cause impacts on our earnings in dollar terms for the 2020. Finally, I would like to emphasize that we have great confidence in fundamentals of our business, which we believe will continue to remain strong. As we continue to execute our optimized market strategy, we are certain that New Oriental will continue to capture the sustainable growth opportunities in the market and deliver long term value for our shareholders.
Looking at the near term and our expectations for the next quarter, we expect total net revenues in the 2020 to be in the range of $983,000,000 to $1,006,400,000 representing year over year growth in the range of 23% to 26%. If not taking into consideration the impact of the potential change in exchange rate between RMB and U. S. Dollars, the projects revenue growth rate in our functional RMB in our functional currency RMB is expected to be in the range of 26% to 29% for the 2020. The exchange rate used to calculate expected revenue for the third quarter for fiscal year twenty twenty is 6.95.
The historical exchange rate used to calculate revenues for the 2019 was 6.81. 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. Thank you.
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, Your first question comes from the line of Mark Li from Citi.
Speaker 3
Question.
Speaker 4
Hi, management. Congratulations on the very strong margin performance for this quarter. We think it's a bit guidance by pretty nicely. May I know what are the reasoning major reasons for the non GAAP OP margin beat for this quarter? And also, I would like to know maybe our revenue guidance breakdown across different segments.
Speaker 5
Thank
Speaker 2
you. Mark, yes, we beat the margin guidance a lot. Our non GAAP operating margin rose by seven twenty basis points in this quarter. I think it's because of the following reasons. Number one is the I think the continued margin expansion is mainly driven by the better utilization of the facilities.
Typically, our top line growth is over 30% year over year in RMB terms, but the expansion in last trailing twelve months is just 25%. And also number two is, build a standardized and modularized and systemized operating process. So you see the results. We achieved outstanding improvement the operational efficiencies and we get a lot of leverage on the selling, marketing and G and A expenses. And finally, we're seeing the revenue acceleration.
Typically, we're taking market share from the small player in the market. So the revenue is very good. And I think those three reasons get us the better results of the margin expansion. But as I mentioned in the prepared remarks, in the rest of the year, even in the Q3 and Q2 in fiscal year twenty twenty, I think we still got more leverage going forward. So we believe we will have the margin expansion in the rest of this fiscal year and even for fiscal year twenty twenty one.
I think our margin will get the expansion as of this year. Okay. So and the revenue breakdown, yes, in the Q3 revenue guidance, I think the Q12, the business will grow by 40% in RMB terms. Okay. What I'm saying is all in RMB terms, year over year growth 40%.
And overseas test prep, I think, is the low single digit growth. And the domestic test rep, it will be down by like let's say the 3% to 4%. And the overseas consulting business, the growth will be over 20%. So this is a breakdown of the Q3 guidance. Thank you
Speaker 4
very much, Stephen.
Speaker 2
Thank you. Okay. Thanks, Mark.
Speaker 0
Your next question comes from the line of Yu Zhong Gao. Please ask your question.
Speaker 6
Hey, Steven, this is Congress on the very strong result. So we noticed that you seem to have revised up your capacity expansion target from 20% to 20% to 25%. How should we think about the margin expense scale in the 2020 fiscal 2020? Thanks.
Speaker 2
Okay. Yes, we this quarter, the quarter over quarter expansion was 6% combined with 3% in Q1. So we got 9% in the first half of this fiscal year. And typically, in terms of the seasonality, we opened more learning centers in second half of the year. So it's more back loaded.
And so I think we believe the whole year expansion plan will be somewhere around 20% to 25%. Actually, it's close to 25%. And but the top line growth will be somewhere around 30%. I think it's impossible to get the over 30% top line growth in RMB terms. So in the rest of the year, as I said, I think we do have the more leverage on the GP level and the SG and A level.
But typically we don't give the detailed guidance of the margin expansion in the next quarter. But I believe we can get the margin expansion in the rest of the year and the year after.
Speaker 6
Thank you. Very helpful.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Tian Hou of T. H. Capital. Please ask your question.
Speaker 7
Hi, Stephen, C. C. Thanks for taking my question. The question is related to your, you know, regional expansion. So now we have 1,300 more than 1,300 learning centers.
So for the newly for the for the new learning centers you are planning to open, where are those center going to be? In what kind of a region? And to support the additional expansion 20% to 25% and how do you prepare your teachers force, you know, the team of teachers? So that's the question related to expansion. Thank you.
Speaker 2
Tian, yes, we have 1,300 learning centers in total and we plan to open, let's say, 20% to 25% new capacity one year. And so most of the new learning centers we set up going forward will be happened in the existing cities. Internally, we only allow the good performing schools to open more learning centers in their cities. And but we have another business model called Dongfang Youbo. So it belongs to the cooler and we will open more the new business in low tier cities.
Okay. There's two ways, okay. For traditional offline business, we'll open more cities, schools or learning centers in existing cities. Okay. And as a teacher's resource, we do believe we pay the best in the market to our teachers.
And also since last year, we built up the online teachers' training system. So that means we have the more ability to generate or produce more qualified teachers than before. So we do believe we have the more qualified teachers to support the new opening of new learning centers going forward. Thanks, Tian.
Speaker 7
Thank you. Very helpful.
Speaker 2
Thank you, Tian.
Speaker 0
Your next question comes from the line of Alex Liu of China Renaissance. Please ask your question.
Speaker 8
Hi, thanks, Stephen. Thank you for this opportunity. I just want to follow-up first on Tian's questions. Could
Speaker 1
you share
Speaker 8
more color on for example, how fast is the capacity growth in top cities, for example, Beijing right now? And a follow-up question, I think the overseas test business is growing, if I remember correctly, it's low single digit growth this quarter. And may what's the reason behind this seemingly a little bit unexciting growth in the past few quarters? Thank you.
Speaker 2
Yes. Actually thanks, Alex. Actually, we opened the learning centers almost everywhere. If that city got the better results in last trailing twelve months. So we opened the learning centers in the top tier, tier one or tier two cities and we opened also opened the learning centers in like the tier three, four cities.
So I think the only one indicator for us to decide whether or not open the learning centers is the performance of that school's last year, okay? And but I think even for the big cities like Beijing and Shanghai and Wuhan and Guangzhou, I think there's a lot of room to open more offline learning centers, okay. So yes, and the overseas test lab, yes, this quarter the numbers is no good. The only the 5% in RMB terms year over year growth for overseas test lab business. I think the main reason is because of The United States, China, the two countries relationship change.
So I think the our non United States related business like the else or the other subjects, the growth is very good, but The United States related businesses keep flattish this quarter. And we even in the Q3, I think the growth will be flattish again. So I think this is the main reason. Okay.
Speaker 8
Okay. Just sorry, one more follow-up.
Speaker 2
On the
Speaker 8
gross there seems to be notable jump this quarter. May I know what was the driver behind this notable improvement on
Speaker 2
the gross margin? Thank you. Firstly, the revenue growth beat our guidance. As I said, we're taking market share from the small players and also there are a lot of schools provide very good numbers of this quarter on top line growth. And secondly, if you compare the top line growth with expansion capacity expansion, you're going get the we have the better leverage on the rental side.
And yes, I think this is those are the two key reasons to expand the GP margin expansion. Thank you. Okay. Thank you, Alex.
Speaker 0
Your next question comes from the line of Lucy Yu of Bank of America. Please ask your question.
Speaker 9
Hi, Stephen. I got one question on the class scheduling. So actually this year, Chinese New Year is earlier than last year. So is it fair to say that we started our spring semester a little bit earlier than last year? So theoretically, in February, we are seeing more positive benefit from this kind of calendar shift.
Is that true? If so, can you give us a quantified impact on the class scheduling? Thank you.
Speaker 2
I think, yes, this year, the Chinese New Year is a little bit earlier, but I think the impact from class schedule is the impact is very small, very minimal. Okay. So but I must mention that typically last year, the Q2, we started to do some like the facility movement of the and the class scheduling change in last year Q2, so which lead to a postponement of some K-twelve classes from Q2 to Q3 last year. So that means last year this year, we have an easier comparison in Q2, but a little bit harder comparison in Q3. But anyway, it's a seasonal whereas timing difference issue is not a big issue.
Speaker 9
Thank you. And the second question is that in the first half, you have already expanded your non GAAP operating margin by close to five percentage points. This is much higher than your previous expectation of 1.5% to like 2% for the full year. So is it fair to say the risk is on the upside to your full year guidance in terms of margin? Thank you.
Speaker 2
Yes. I think I don't guide the second half of the year margin guidance, But we do believe we will have the margin expansion in the Q3 and Q4. We'll see the I think for the whole year, margin will be better than we expected several months ago.
Speaker 9
Great. Thank you.
Speaker 2
Okay. Thank you, Lucy.
Speaker 0
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. Your next question comes from the line of John Choi from Daiwa. Please ask your question.
Speaker 10
Hey, Steve and Cece. Thanks for taking my question. I have a question on your online. I know Koolearn basically on the cost said they'll step up more, open you up in the lower tier cities.
Speaker 2
give a
Speaker 10
sense, will the EDU and Kooler in general will kind of step up the investment in online? As a result, we'll see more on the back end loaded for their fiscal year in terms of marketing expenses and user acquisition costs? And just quickly, after the regulation, which has been in place for more than about a year on the offline schools, are you seeing more visibility or better visibility compared given that the smaller players are being phased out? And as a result, you're seeing higher retention rate and better capacity growth in selective regions? Thank you.
Speaker 2
Yes. As for the cooler investment on cooler, yes, this year we started to invest on the coollearning.com, includes the content development for teachers training or R and D and some marketing expenses things this fiscal year. And in the first half of the year, margin drag from the cooler to EDU is roughly is 100 bps, okay? This is the margin impact from the cooler for EDU. And in the second half of the year, we expect we still have some of the negative impacts of the margins from the cooler.
But we believe the margin expansion of the core business or our school business, offline business will cover the margin pressure from cooler. So we do believe on the whole, our margin will be expanded in the rest of the year, even though we spend a lot on the cooler. And yes, your number two question is about regulation. Last year, there were several of the new regulations. And but as I said in the last two earnings call, we almost meet all the requirements by the new regulations in almost all the cities.
And we have seen some small players disappear from the market and we have seen some students join our classes who are the students from the small player. So I think our target even going forward is to provide the best service to the Chinese students. And so we believe we can take more market share from the old players in the market. Thank you.
Speaker 0
Your next question comes from the line of Binnie Wong of HSBC. Please ask your question.
Speaker 11
Hi, good evening, Stephen and Sisi. Thank you for taking my question. So question here is that if you look at 2020 like last year, right, we see a wave of a lot of online education companies, smaller and middle sized ones compete, right, especially if you see the user acquisition costs, right, has been rising up a lot. So if you look into 2020, how do you see I mean, calendar twenty twenty, how do you see that has will change? Do you see that how our marketing strategy will be different from our players?
And also, if you look at the, I guess, the deceleration of growth in Koolearn, do you think that will continue or do there will be some drivers to reaccelerate the online business growth? Thank you.
Speaker 2
Okay. I think firstly, Koolearn cooler has been in transition mode in last two to three quarters. As you know, we changed the team management team members last year. And we prefer to give the new management team member more time, okay? And but education is very special business.
We don't want them to do the business too fast by like spending the crazy dollars on the marketing activities. So even in last year, we didn't attend the like the burning money to acquire the students. And going forward, I think we will allow the cooler to spend a little bit more on the marketing expenses, but it's not a huge number. We prefer to make the more or huge investments on the R and D and like the teachers training or the product itself. This is our strategy.
Speaker 3
Thank you. Okay. Thank you. Very helpful. Thank you.
Speaker 2
Okay, Binny. Thank you.
Speaker 0
Your next question comes from the line of Alex Xie of Credit Suisse. Please ask your question.
Speaker 5
Hi, management. Congratulations on very strong results. So I would like to ask about our magnitude of utilization rate improvement. I think in the last quarter's earnings call we mentioned it was 212% year over year increase. Thank you.
Speaker 2
Yes. This year, I think the utilization rates for this year is somewhere around 21%, which means the we got the 200 bps up of utilization rates. So that's why you see the margin expansion. Okay. And so going forward, as I said, we plan to open 20%, 25% new learning centers and it bring us like 30% top line growth in RMB terms year over year.
So I think you will see the higher utilization rate going forward in the rest of this fiscal year and the year after.
Speaker 5
Got it. Thank you.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Sheng Zhong of Morgan Stanley. Please ask your question.
Speaker 3
Hi, I want to ask a question about our dual teacher model because you are still adding more dual teachers in the cities. So can you share some operating data about the margin of dual teacher model and how what the current class what the average class a teacher can teach in the dual teacher model? And at the same time, I noticed that you have you still invest a lot in your digital technology. Wondering whether this is partly because of this dual teacher model? And if possible, can you share more color on your on this spending going forward?
Thank you.
Speaker 2
Okay. Yes, dual teacher model. Yes, we changed our dual teacher model strategy last year. So we focused more dual teacher model in the Hebei and Henan province. So now we have the seven low tier cities for both top case and UCAM programs to buy the dual teacher model.
And now the revenue contribution from the dual teacher model is very small. So the think the growth is very high, but revenue contribution is very small. And now I think it's too early to say the margin of the dual teacher model because it's in the early stage. But throughout the way, as I said, I think the dual teacher model margin should be higher than the offline business. Okay?
And the yes, this quarter, the OMO investments yes, this quarter we invested $44,000,000 on the like the OMO ecosystem. I think this is on track, okay, because we started to invest on the OMO things three, four years ago. And we started to bear fruit things last year. And I think this is this year's very good result. I think this is that means we bear fruit from the investment we made several years ago.
So the whole year, I think we plan to spend somewhere around 150,000,000 to $160,000,000 for the whole year. It's a little bit higher than we expected several months ago. But I think even though we spend a little bit more, but it should be covered by the offline school margin expansion. So that will be okay. We will see the overall margin expansion even though we spend a little bit more.
Speaker 3
Thank you very much. Yes, we are happy to see you spending more on the technology improvement. Can you give us any color on on the spending areas of our technology?
Speaker 2
We hire more IT people and the content development people in the head office for to provide more better better products for offline schools and dual the teacher model schools. And also we hire some new people work for AI departments. And yes, so I think most of the investments we spent is only is happened in the head office. So but we do believe it will bring us the better student retention rates going forward. And we do believe this money we spend the money today will bring us the better quality products in the future.
Speaker 3
You very much.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Hugo Shen of Macquarie. Please ask your question.
Speaker 12
Hi, thank you for taking my question. I wonder if anything could give us a breakdown of enrollment growth by business in this quarter. Thank
Speaker 2
you. Enrollment, do we disclose it, the enrollment breakdown?
Speaker 1
You can send email to me and I'll send you the details, okay, after the call.
Speaker 2
Yes, because of the long Okay. You. Thank you.
Speaker 0
Your next question comes from the line of Please ask your question.
Speaker 13
Hello, good evening. Congratulations, Stephen, for the very strong quarter. So two quick questions from me. One is that you mentioned the ramp up is getting faster than expected than previously. So could you share us the latest timeline to ramp up a new center?
And second one is a follow-up to the previous question home and all investment. So I understand a lot of the costs are in staff salary. So going forward, if we look at the second half of next year, do we plan to further increase the headcount or is it likely to stay at this level? Thank you.
Speaker 2
Yes. Historically, let's say the two to three years ago, typically we need twelve months to get the breakeven point for the new learning center. But now it's only spent five to seven months to get the breakeven point. So that means we ramp up new learning centers faster than before. And I think this is one of the reasons that we decided to open more learning centers in the every year.
Your second question is about the OMO investments. Yes, I think we will hire more people, more qualified, more talent people work for the IT departments and the content development team also for the AI department. Because firstly, I think it's a good investment. We spend more money today, but we get better future. And but anyway, I think total spending it will be controlled by the management team.
We don't want to waste the money. So as I said, even though we spend a little bit more on the OMO investments, we do believe we have the margin expansion going forward even for the second half of the year and the year after.
Speaker 13
Great. Thank you. Glad to see we have the budget to invest in the longer term growth. Congratulations again on the strong quarter. Thank you.
Speaker 2
Okay. Thank you. Thank you, Phillips.
Speaker 0
Your next question comes from the line of Christine Cho of Goldman Sachs. Please ask your question.
Speaker 14
Thanks, Stephen and Sisu. Just a quick question on the revenue guidance. You mentioned that you consider the Wuhan situation in terms of coming up with the third quarter guidance. Can you give us a little bit more detail here? And also, if this situation prolongs, what are some of the alternatives you can consider to kind of mitigate the impact from the situation?
Thank you.
Speaker 2
Yeah. You know, we our Wuhan school actually decided today to move the two days courses before Chinese New Year to sometime after the Chinese New Year because of the new disease. But also we have the plan B. Let's say if after the Chinese New Year, we cannot run the business by offline, we'll make it up by the online courses. Actually, we are ready.
Yes, we're ready. And so far we have not made the decision of the class adjust suspend in the other cities except for Wuhan. So Wuhan is the only one. And yes, we have taken some impact from the disease in Wuhan, but the amount is not material. One's revenue contribution for New Oriental is 4%.
But don't forget forty five days has had and also we have the makeup plan, Plan B to make it up. Okay. So I think the impact will be immaterial so far by our the current estimation, okay.
Speaker 14
Okay. Thank you.
Speaker 2
Thank you.
Speaker 11
Thank you.
Speaker 0
Your next question comes from the line of Yongren Kim of CLSA. Please ask your question.
Speaker 4
Hi management. Congrats on the good quarter. I have two questions. The first is how much of revenue growth is actually coming from organic growth versus stealing market share from other small players? That's my first question.
My second question is I know in the past you have provided mid to long term margin guidance of 17% to 19%. But do you still stick by this margin guidance? Or do you see room for increase or things like that? Thank you.
Speaker 2
Okay. Yes, the organic growth. I think typically in the first twelve months after the new learning centers opening, it will bring us lastly the for example, we opened 20% new learning centers. But in the first year one, typically it will bring us 5% to 10% new revenues. I share, okay.
And so I think all the others are the organic growth. And the market share we don't have the numbers of the how much market share we get from the small players. We just do our business to get a 30% top line growth. That's it.
Susie, you have the numbers?
Speaker 1
No, it's hard to quantify, but we keep taking market share from small players every day, almost every day. And the market growth is like 10%, 15%, but our K-twelve business are growing over 40%. So definitely, majority of the growth is from taking market share from other small players in each city.
Speaker 2
And the mid long term margin guidance, we don't want change the mid long term actually mid term margin guidance. We keep it as of 17%. And but this year, market expansion is better than we expected. And we are more optimistic on the overall margin expansion in the rest of the year and the year after.
Speaker 4
All right. Thank you very much.
Speaker 2
Thank you.
Speaker 0
Your next question comes from the line of Joy Wei of 86N Research. Please ask your question.
Speaker 7
Thank you for taking my question. So my question is during the quarter, we saw that Yukon and POP Kids growth accelerated. What's driving that? Do you see more opportunities in terms of perspectives like class offering and also product format? Thank you.
Speaker 2
I think there are several reasons. The number one is the if you remember clearly in the last quarter's earnings call, the summer promotion retention rate is 5% higher of this year than last year. So this is number one reason. Number two is we are seeing the higher student retention rate for both U Can and POP Kids program. Actually the U Can business, the retention rate is close to 80% and the POP Kids retention rate is close to 90%.
So it's it's higher than the those numbers of last year. And third, we spend a lot on the marketing expenses. The selling and marketing expenses in this quarter is just increased by I'm right, 17%, okay. But I think that we typically would rely on word-of-mouth to acquire the new student enrollments. And that means we're providing better the products to the students than before.
So it bring us the good results, better results than we expected. Is it clear?
Speaker 7
Yes. Thank you.
Speaker 2
Okay. Thank you.
Speaker 0
We are now approaching the end of the conference call. I will now turn the call over to New Oriental CFO, Mr. Steven Yang for his closing remarks.
Speaker 2
Again, thank you for joining us today. If you have any other further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you. Thank you, guys.
Speaker 0
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.