New Oriental Education & Technology Group - Q3 2024

Transcript

Operator (participant)

Good evening, and thank you for standing by for New Oriental's FY 2024 third quarter results earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.

Sisi Zhao (Director of Investor Relations)

Thank you. Hello, everyone, and welcome to New Oriental's third fiscal quarter 2024 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, Stephen Yang, Executive President and Chief Financial Officer, and I will share New Oriental's latest earnings results and business updates in detail with you. After that, Stephen and I will be available to answer your questions. Before we continue, please note that 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 websites at investor.neworiental.org. I'll now first turn the call over to Mr. Yang. Stephen, please go ahead.

Stephen Yang (EVP and CFO)

Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. We're pleased to announce that New Oriental has achieved a robust growth this quarter that has surpassed our expectations. The remarkable top-line performance this quarter has spoken volumes about sustained recovery across our diverse business lines, while steady expansion of our new business made healthy contributions to the company's revenue, invigorating our portfolio of innovative endeavors. New Oriental's bottom line performance has achieved encouraging yields, with operating margin and non-GAAP operating margin reaching 9.4% and 11.7% for this quarter, respectively.

Thanks to the combined efforts of our restructured business model, better utilize the resources and streamline cost structure, bolstered by a vital growth across all business line, our commitment to maintaining a healthy market share growth stands firm as we strive to create sustainable value for our customers and shareholders in the long-term. Now, I would like to spend some time to talk about the quarter's performance across our remaining business line and new initiatives to you in detail. Our key remaining business have painted a promising upward trajectory, while the new initiatives secure positive momentum. Breaking it down, the overseas test prep business recorded a revenue increase of about 53% in dollar terms or 59% in RMB terms year-over-year for the third fiscal quarter of 2024.

The overseas study consulting business recorded a revenue increase of about 26% in dollar terms, or 31% in RMB terms year-over-year for this quarter. The adults and university students business recorded a revenue increase of 53% in dollar terms or 60% increase in RMB terms year-over-year for this quarter. Our multi-pronged new initiatives, which mostly revolve around facilitating students' all-round development, have continued to deliver continued growth and meaningful profits to the company. Firstly, the non-academic tutoring courses, which we have offered in around 60 different cities, focuses on cultivating students' innovative ability and comprehensive quality. The markets we have tapped into have recorded elevated penetration, especially in higher-tier cities, with a total of approximately 355,000 student enrollments recorded in this quarter. The top 10 cities in China contribute over 60% of this business.

Secondly, the intelligent learning system and device business, a service designed to provide a tailored digital learning experience for students to enhance learning efficiency, has been adopted in around 60 cities. We have observed enhanced customer retention rate and scalability of this new initiative business, with approximately 188,000 active paid users recorded in this quarter. The revenue contribution of this initiative from the top 10 cities in China is over 55%. Our smart education business, educational material, and digitalized smart study solutions have continued to contribute material results to the overall advancements of the company. In summary, our new educational business initiatives reported a revenue increase of 73% in dollar terms or 80% increase in RMB terms year-over-year for this quarter.

In addition, as mentioned in the past quarters, we inaugurated a newly integrated tourism-related business line as one of our creative venture. Tailored with diverse offerings of cultural trips, study tours in China and overseas, as well as camp education. New Oriental's cultural tourism business shared the spirit to provide premium quality travel experience that are infused with the joy from cultural exchange, knowledge sharing, and personal fulfillment. Within the new business line, our study tour and research camp business for students of K-12 and university age, achieved inspiring growth in this quarter. We have conducted study tours and research camp in over 50 cities across the country, with the top 10 city in China offering over 55% of revenue share of this business.

We also pilot a number of top-notch tourism offerings to expand our reach to all age groups, including the middle-aged and elderly individuals across 25 featured provinces. As we are still at the preliminary stage of the planning, testing, and evaluating the viability of this business in select regions, we will keep you posted should there be timely updates. With regards to our OMO system, Online Merge Offline system, we have persisted in revamping our platform and leveraged our educational infrastructure and technology edge on remaining key business and new initiative, with a vision to provide advanced, diversified education services to customers of all ages. During this reporting period, a total of $25.5 million has been invested in our OMO teaching platform, which equips us with the flexibility to maintain unrivaled service to students.

With regards to East Buy, East Buy attains sustainable growth momentum in this quarter, thanks to a rapid development of its private label products. As part of the ongoing expansion strategy for an early venture like East Buy, we have devoted substantial investments to support the growth of the company, including the optimization of East Buy's multi-platform strategies, supply chains, product offerings, as well as quality control to safeguard on product quality in the regions. We're glad to see East Buy has further enlarged its customer base, following the latest establishment of Time with Yuhui channel on Douyin. In addition, further enhancements in East Buy have been made through our comprehensive organizational structure, strategy hands for professional talents and app upgrades. All of which strengthened East Buy's private label products and live streaming, live streaming e-commerce.

The resources we committed into East Buy have thankfully nourished, improved user management and loyalty, and we look forward to leverage this input to propel further growth of the platform that promise premium offerings and sustainable growth for our customers. With regards to the company's latest financial position, I'm confident to share with you that the company is in a healthy financial status, with cash and cash equivalent, term deposits, and short-term investments totaling approximately $4.8 billion. On July 26th, 2022, the company's board of directors authorized a share repurchase of up to $100 million of the company ADS, or common shares, during the period from July 28th, 2022 to May 31st, 2023.

The company's board of directors further authorized the company to extend its share repurchase program, launched in July 2022, by 12 months to May 31st, 2024. As of today, as of yesterday, April 23, 2024, the company repurchased an aggregate of approximately 6 million ADS for approximately $195.3 million from the open market under the share repurchase program. Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead.

Sisi Zhao (Director of Investor Relations)

Okay. Now, I'd like to walk you through the other key financial details for this quarter. Operating costs and expenses for the quarter were $1,093.9 million, representing a 59.1% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which excludes share-based compensation expenses, were $1,066.4 million, representing a 60.1% increase year-over-year. The increase was primarily due to the cost expenses related to substantial growth in East Buy's private label products and live streaming e-commerce business. Cost of revenue increased by 74.5% year-over-year to $644.8 million. Selling and marketing expenses increased by 57.1% year-over-year to $161.3 million.

G&A expenses for the quarter increased by 33.6% year-over-year to $287.8 million. Non-GAAP G&A expenses, which excludes share-based compensation expenses, were $273.6 million, representing a 40.7% increase year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 28.3% to $27.5 million in the third fiscal quarter of 2024. Operating income was $113.4 million, representing a 70.6% increase year-over-year. Non-GAAP income from operations for the quarter was $140.9 million, representing a 60.3% increase year-over-year. Net income attributable to New Oriental for the quarter was $87.2 million, representing a 6.8% increase year-over-year.

Basic and diluted net income per ADS attributable to New Oriental were $0.53 and $0.52, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $104.7 million, representing a 9.8% increase year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.63 and $0.63, respectively. Net cash flow generated from operation for the third fiscal quarter of 2024 was approximately $109.4 million, and capital expenditure for the quarter were $80.1 million. Turning to the balance sheet. As of February 29th, 2024, New Oriental had cash and cash equivalents of $2,013.6 million.

In addition, the company had $1,570.8 million in term deposit and $1,175.3 million in short-term investments. New Oriental's deferred revenue, which represent cash collected upfront from customers and related revenue that will be recognized as the services or goods are delivered at the end of the third quarter of fiscal year 2024, was $1,521.7 million, an increase of 30.8% as compared to $1,163.2 million at the end of the third quarter of last fiscal year. Now, I'll hand over to Stephen to go through our outlook and guidance.

Stephen Yang (EVP and CFO)

Thank you, Sisi. As we progress into the fourth quarter, which is typically expected as a slower quarter comparing with the third quarter in terms of the revenue growth and profitability due to various seasonality of our key educational businesses, we place confidence in sustaining a healthy growth building on the collective breaks of our rooted foundation, brand advantage, and influential teaching resources. Our strategic focus and investment approach aim at achieving satisfactory operating profits in the rest of the year, coupled with the year-over-year margin expansion for the full year. As always, we will work diligently to adhere to the latest guidance from the Chinese authorities on enhancing the nation's education level to strengthen its leading position, to further strengthen our edge on all business lines and creative endeavors.

With regards to the learning center and classroom space, as part of the continued evolution of our offering across business line, we plan to increase our capacity by around about 30% for this fiscal year, by which a reasonable amount of new learning centers is expected to be opened, while classroom areas of some existing learning centers will be expanded in a few major cities. Most of the new openings will be launched in the city with better top line and bottom line performance in this year. At the same time, we will continue to hire new teachers and staff to match our capacity expansion and support our revenue growth, especially for new education business initiatives and newly integrated tourism-related business.

We expect total net revenue in the fourth quarter, 2024, March 1st, 2024 to May 31st, 2024, to be in the range of $1,101.5 million-$1,127.3 million, representing year-over-year increase in the range of 28%-31% in dollar terms. The projected increase of revenue in our functional currency, RMB, is expected to be in the range of 34%-37% for the fourth quarter of this fiscal year, 2024. To conclude, New Oriental is determined to persistently expand our existing offerings and fertilize new endeavors, dedicating strategic inputs to sharpen our capability.

We will also continue to devote reasonable resources on research and application of new technologies such as AI and ChatGPT into our offerings, in strong belief that we could uplift our strengths to favor further growth, better margin, and operating efficiency. At the same time, we will also continue to seek guidance from and cooperate with the government authorities in various provinces and municipalities in China, in alignment with these efforts to comply with the relevant policies, regulations, and measures, as well as to further adjust our business operations as required. I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and preliminary view, which is subject to change. This is the end of our fiscal year 2024 Q3 summary. At this point, I would like to open the floor for questions.

Operator, please open the call for this. Thank you.

Operator (participant)

Thank you. The question and answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question now, please press star one one on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Your first question comes from the line of Felix Liu from UBS. Please ask your question, Felix.

Felix Liu (Executive Director)

Hi, good evening, management. Thank you very much for taking my question, and congratulations on the strong growth and guidance. My question is on growth. So first, I understand that Q4, we will have a bit of seasonality in the education business, but maybe could you just share more color on the growth in different business segments in Q4? And also you mentioned that the capacity expansion guidance for the year is now lifted to 30%. How do you see that as a, you know, capacity expansion pace going forward? Do you think 30% is a sustainable expansion that we can, you know, maybe keep for two to three years? Thank you.

Stephen Yang (EVP and CFO)

Thank you, Felix. Yeah, yeah, as you know, we beat the top line guidance this quarter a lot, you know, you know, it just like the past couple of quarters. And, you know, as for the revenue guidance in Q4, which seems to be a little bit lower than the Q3 year-over-year revenue growth. There are three reasons. You know, number one, as always, we're quite conservative to give the guidance. So this is number one. And number two, yeah, as you know, Q4 is typically expected as a slower quarter compared to the Q1 and Q3, and because of the seasonality.

For example, like for the K-12 related business and the overseas related business, typically, Q2-Q4 is the low season. Number three is, in last year Q4, without the impact of the pandemic, I think our business in last year Q4 was basically back to normal. So that's why we give the Q4 top line guidance seems to be a little bit lower. But I think in my personal view, I think the guidance, you know, the in dollar terms is 28%-31%. In RMB terms, it's 34%-37%. I think it's still very strong.

I think in the coming new fiscal year, that means the fiscal year 2025, we're quite optimistic about revenue growth with the market share for the whole fiscal year 2025. As for the expansion plan, yeah, we raised the guidance of the capacity expansion, you know, by 30% year-over-year, this time. Because, you know, we're actually taking market share, and I think the demands from the customers are very strong, and that's why we raised the guidance of the expansion plan again this quarter.

So going forward, next year, I think we will keep almost the same pace to open the new learning centers because, you know, because when we made the analysis of the market demand and the supply. So I think we're still on the pace to take more market share. And as for the revenue growth of the different business, and if we disclose it in next quarter?

Sisi Zhao (Director of Investor Relations)

Just roughly, for key business lines, like overseas related, including the test prep and consulting, will grow roughly about 15%-20% range. And domestic test prep, university students, business revenue growth will be around 20-25% range. And you know, high school tutoring will grow moderately. And the new business, new initiative, which is the key growth driver, will be over maybe 60% revenue growth. This is based on the exchange rate that estimated by us, when we do the projection.

Stephen Yang (EVP and CFO)

Mm-hmm. Sounds right.

Sisi Zhao (Director of Investor Relations)

Yeah.

Stephen Yang (EVP and CFO)

Okay. Felix?

Felix Liu (Executive Director)

Okay. That's very clear. Thank you.

Stephen Yang (EVP and CFO)

Thank you.

Operator (participant)

Thank you, Felix. Our next question comes from the line of Yiwen Zhang from China Renaissance. Please ask your question, Yiwen.

Yiwen Zhang (Research Analyst)

Good evening, management. Thanks for taking my question. So my question regarding our margin, if we look at the group level operating adjusted operating margin, it was 11.7%, which was flattish year-on-year basis. I understand that, you know, a lot of incremental OpEx was due to the East Buy expansion. So if we just look at the education-related margin, how does it expand on year-on-year basis, and how would you expect to trend in the next few quarters? Thank you.

Stephen Yang (EVP and CFO)

Yes. Yeah, the group's non-GAAP OP margin was flattish in this quarter. You know, within the education business, I think we're seeing the meaningful GP margin and non-GAAP OP margin expansion for education business in this quarter. You know, I think that thanks to the combined, the newly, the businesses, the structure model and the higher utilized resources and the better utilization for the learning centers and the streamlined cost structure, so it make the education business margin expansion again this quarter. And so going forward, I think in the coming Q4, and even for the whole year, the new year, fiscal year 25, I think we do have the operating leverage in hand.

Yeah, as you know, we raised the guidance of the learning center expansion by 30%, and we hire more teachers and staffs to, you know, to match with the new expansion. But I think the top-line growth in the new fiscal year 2025 will be very strong. And we do have a leverage in fiscal year 2025. So, we expect you will see the margin expansion with the health, with the healthy top-line growth for education business, in fiscal year, in the new fiscal year, 2025. Yeah, and the East Buy. Yes, I think the, the cost of the expenses, especially for the selling marketing expenses this quarter increase, was primarily due to, partly due to the, the East Buy, the investment.

Yeah, I think, you know, you saw the very strong growth in East Buy top line, especially for the private label products and the e-commerce business. I think East Buy has devoted substantial investment to support the growth of the company, including, like, the optimization of the multi-platform strategies in Douyin, Taobao, and the other platform, supply chain and product offerings and the quality control. Also, East Buy recruits some more the professional talent people from the market. So we are optimistic on East Buy's development going forward, and we look forward to leverage this investment, this, leverage this investment or input, this time and going forward.

So in summary, the margin profile for the whole group, so we're quite optimistic about the margin expansion for the whole group in the education business and in fiscal year 25. And also, as well, we do think, you know, East Buy will generate more revenue, top-line growth, and more profit to the company going forward.

Yiwen Zhang (Research Analyst)

Oh, okay. Thank you. That's very clear.

Stephen Yang (EVP and CFO)

Thank you.

Operator (participant)

Thank you, Yiwen. Our next question comes from the line of Lucy Yu from Bank of America. Please ask your question, Lucy.

Lucy Yu (Analyst)

Thank you, Stephen. So, so my question is, still on the margins. So it looks like judging from the minority interest is that East Buy might be, loss-making for the quarter. So how should we think about the East Buy margin volatility impact on the, on a group level, in the upcoming quarter and upcoming fiscal year? So Stephen, how do you plan those, margin, for the next fiscal year? Thank you.

Stephen Yang (EVP and CFO)

Lucy, you know, I'm glad to hear from you that the questions about the East Buy. But, you know, I'm afraid I'm unable to share with you about the latest financial results at this moment and our guidance for the East Buy. You know, in the next quarter, in July, I think East Buy will announce their whole year report, half year report, and the whole year report. So at the time, I think the management of Dongfang Zhenxuan, of East Buy, will share more color with you about the margins and the top-line growth. Yeah, but, you know, I must mention that, you know, we're still quite optimistic about the East Buy's investment in this quarter.

Over the long run, I think East Buy will bear fruit from this strong investment and will generate more revenue and profit to the whole group. Lucy.

Lucy Yu (Analyst)

Thank you, Stephen.

Stephen Yang (EVP and CFO)

Thank you.

Operator (participant)

Thank you, Lucy. Our next question comes from the line of Tian Hou from TH Capital. Please ask your question, Tian.

Tian Hou (Analyst)

Yes. Hi, Stephen, Sisi. The question is related to the high school learning center expansion and also the non-academic course learning center. You know, what's the retention rate and utilization rate for both of them? Thank you.

Stephen Yang (EVP and CFO)

I think for the utilization rate and the student retention rate for both the high school business and the non-academic courses for K-9 are still improving, you know, year-over-year, actually quarter by quarter. And so the good news for us is we're seeing the trend is still there. And so going forward, we will, I think we will see the higher utilization rates for this business for the existing learning centers and the higher student retention rates. And, you know, a couple of years ago, typically, it will spend us for 12 months to get to break-even point, you know, after we open the new learning center.

But now, I think roughly it will take the half year or let's say the six months to get to break-even point. And so

Tian Hou (Analyst)

Mm-hmm.

Stephen Yang (EVP and CFO)

I think going forward, we expect the better, the higher utilization rate for learning centers and the higher students retention rate for all business lines. Thank you.

Yeah. So, one follow-up question. So before the Double Reduction, so when you guys do the learning center expansion, so there's a tricky line. So how much you do the expansion? If you do a little bit bigger, more, then will it impact the gross profit margin? So I saw this quarter, the gross profit margin relative to last year's same time was down, like, 5 percentage points. Is that because the learning center expansion or it's because the East Buy?

Yeah, I think the learning center expansion, we raised, again, the learning center expansion by 30%. I think it is the results that we analyze the whole picture of this business for the last two to three quarters. And as I said, on demand side, it's very strong, especially for the non-academic courses for the kids. And on the competition side, you know, the competition environment is different compared with a couple of years ago. And so I think, you know, and the kids would only choose the top performance cities, both the bottom line and the top line and the bottom line, to allow them to open more learning centers or expand the new classroom area for the existing learning centers.

I think it will not drag the whole margin. The opposite, it will help the margin expansion going forward. Yeah.

Tian Hou (Analyst)

Mm-hmm. Got it. Thank you so much, Stephen. Good quarter.

Stephen Yang (EVP and CFO)

Thank you.

Operator (participant)

Thank you, Tim. Our next question comes from the line of Timothy Zhao from Goldman Sachs. Please ask your question, Timothy.

Timothy Zhao (Research Analyst)

Great. Hi, Stephen. Hi, Sisi. Thank you for taking my question. My question is regarding the cash flow statement. So basically, one is on the operating cash flow. I noticed that for this quarter, I think the operating cash flow dropped a little bit on a year-on-year basis. Just wondering if you can share some color on the rationale or the reason behind that. And second, also on the financing cash flow, I do notice that the existing share repurchase program is about to expire. Just wondering, regarding your capital allocation and shareholder return, any thoughts on the shareholder policy going forward in terms of potential dividend or further share repurchase programs? Thank you.

Stephen Yang (EVP and CFO)

As for the operation, operating cash flow, I think, you know, I suggest the investors to make the analysis of the cash flow by year-on-year, not quarter-on-quarter. Because of the business seasonality or the student enrollment window change, you know, quarter by quarter. So, that, that's why I suggest you guys to make the analysis year-on-year. So if you saw the deferred revenue balance year-on-year, the increase is still very strong. And, so yeah, that's it. And, that's why we give the very strong the top-line guidance for Q4. Yeah. Even though Q4 is a weak the slow quarter. Yeah.

As for the share buyback plan, yeah, I think, you know, we keep to create more value to the shareholders, and I think we will keep buying the share back. And, you know, this round, you know, we announced the share repurchase plan roughly two years ago. And, we finished almost half, $195 million. And I think we'll keep buying in this quarter. And, at the end of this fiscal year, I think we will discuss with the board to decide whether or not to accept, extend the share repurchase plan. But historically, we made a couple of times share buyback and a couple, several times this special dividend.

Our aim is to create more value to the investors as the capital return, either share buyback or dividends. Thank you, Tim.

Timothy Zhao (Research Analyst)

Thank you. Thank you, Stephen. That's helpful.

Operator (participant)

Thank you, Timothy. Our next question comes from the line of Xinyi Wang from CICC. Please ask your question, Xinyi.

Xinyi Wang (Analyst)

Hi, Stephen and Sisi. So actually I have a question about the financials. So we saw a larger loss from equity method investments, this quarter, as well as, a less investment interest this quarter compared to the same period of last year. So I'm just wondering which factors, led to these changes? Thank you.

Stephen Yang (EVP and CFO)

Oh, I think, yeah, we, in this quarter, we made the two invested companies' entire loss in this quarter. So it, I think we do have the one-time impact on the very bottom line this quarter. I think all those two companies was, you know, negatively impacted by the Double Reduction policy two and a half years ago. And, but it is one time. It's not, you know, it's just one time. Yeah.

Xinyi Wang (Analyst)

Okay, thank you. Just a follow-up question about as we also saw less investment interest this quarter, QoQ. So I'm just wondering, the reason?

Stephen Yang (EVP and CFO)

Yeah. I'm sorry? Can you re-repeat again? The investment what?

Xinyi Wang (Analyst)

Yeah. Yeah, as we saw, less other income, which I suppose is mainly our investment interest this quarter, it decreased.

Stephen Yang (EVP and CFO)

Yeah, I think the interest rate, you know, in China, you know, it has been down and in this quarter. And so it will, I think it impacts some interest income. Yeah.

Sisi Zhao (Director of Investor Relations)

Actually, the interest income is the absolute dollar number are similar with previous 1-2 quarters.

Stephen Yang (EVP and CFO)

Yeah.

Sisi Zhao (Director of Investor Relations)

Yeah.

Stephen Yang (EVP and CFO)

Yeah.

Sisi Zhao (Director of Investor Relations)

So it's pretty stable.

Xinyi Wang (Analyst)

Yeah, that's it. Thank you, Stephen and Sisi. Congrats on the results again.

Stephen Yang (EVP and CFO)

Thank you.

Operator (participant)

Thank you. As a reminder, to ask a question now, please press star one one on your telephone keypad. Once again, to ask a question, please press star one one on your telephone keypad. Once again, that's star one one for questions, ladies and gentlemen. All right, we are now approaching the end of the conference call. We do have one more question from DS Kim from JPMorgan. Please ask your question, DS Kim.

DS Kim (Research Analyst)

Hello, sir, good evening, and, congrats on amazing top line growth again. Actually, I wanted to ask about margins and expansion. I think you already discussed all of that. So just wanted to follow up on one small thing, if that's okay. You mentioned earlier that a new center expansions are now, could be a margin accretive, because it's primarily expansion of the existing center. But if we only look at, say, newly opened location, newly opened centers for non-academic, courses, how long do you think, how long, does it take, for those new centers to hit breakeven and then to ramp up to the, full level, on the center level?

I think back in the days, it took about a year to turn breakeven for the new learning center, K-12, AST, and another couple more quarters to fully ramp up. I'm wondering how this has changed now versus now that the courses has changed to primarily for non-academic.

Stephen Yang (EVP and CFO)

I think, you know, now, typically, on average, it will take six months to get a breakeven point in the new learning. That means we ramp up the learning centers, you know, even more faster than before. And so in the second year, typically the margin of the new learning centers depends on the different areas. But I think the margin of that new learning centers to get somewhere around 15%-20%, so it's much better. That's why we make the decision to raise the learning center expansion guidance by 30%. And so I think this is a good trade-off.

You know, this round, in this quarter and next quarter, in Q3, Q4, even for the whole year, in fiscal year 2024, we opened more earnings than the 30%. But it will drive the top line growth up in the new fiscal year, 2025. And I believe that for the whole business, education business, the whole margin of the education business will be improved in the fiscal year 2024, because of the better utilization and the higher student retention.

DS Kim (Research Analyst)

Thank you, sir. I think, it's not just good, it's amazing trade-off, to have. But if I, if I may follow up here, like, do you think that faster ramp up or faster breakeven is just a timing thing, earlier recovery, earlier ramp up in utilization? And/or do you think that even after the ramp up, the ultimate level of center level margin can be actually higher than the, back in the days, the academic, i.e., like on a center level, do you think that 5 years down the road, some of the, non-academic centers can make more than 20%, margins, better than the K-9 academic of the past, or just the timing is all there?

Stephen Yang (EVP and CFO)

Both. You know, yeah, as I said, it will take the shorter time to get the breakeven point. You know, this is number one. And number two is, you know, throughout, theoretically, I think the ultimate or, the, the margin, of the, the new learning centers, I think will be a little bit higher than a couple of years ago. Yeah. So it's a good trade-off for us to open more learning centers for non-academic courses or even for the overseas related business.

DS Kim (Research Analyst)

For sure, sir. It's an amazing trend, and, congrats again. Thank you.

Stephen Yang (EVP and CFO)

Thank you.

Operator (participant)

Thank you, DS. We have now approached the end of the conference call. We'll now turn the call over to New Oriental's Executive President and CFO, Stephen Yang, for his closing remarks.

Stephen Yang (EVP and CFO)

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 relation representatives. Thank you.

Operator (participant)

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