New Oriental Education & Technology Group, Inc. (EDU)

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New Oriental Education & Technology Group Inc. (EDU)

F3Q10 Earnings Call

April 19, 2010; 8:00 am ET


Louis Hsieh - President & Chief Financial Officer

Sisi Zhao - Senior Investor Relations Manager


James Mitchell - Goldman Sachs

Ella Ji - Oppenheimer

Jeff Lee - Signal Hill

Catherine Leung - Citigroup

Amy Junker - Robert W. Baird

Brandon Dobell - William Blair & Co.

Chenyi Lu - Cowen and Company

Mark Marostica - Piper Jaffray



Good evening and thank you for standing by for the New Oriental’s third fiscal quarter 2010 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. (Operator Instructions)

I would now like to turn the meeting over to your host for today’s conference, Ms. Sisi Zhao, New Oriental’s Senior Investor Relations Manager. Please proceed.

Sisi Zhao

Hello everyone and welcome to New Oriental’s third fiscal quarter 2010 earnings conference call. Our third fiscal quarter earnings results were released earlier today and are available on the company’s website, as well as on newswire services.

Today you will hear from Louis Hsieh, New Oriental’s President and Chief Financial Officer. After his prepared remarks, Louis 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. New Oriental does not undertake any obligation to update any forward-looking statement, 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

I would now turn the call over to New Oriental’s President and CFO, Louis Hsieh. Louis, please.

Louis Hsieh

Thank you Sisi. Hello to everyone on the call and thanks for being with us today. Let me begin by taking you through some highlights from the quarter, after which I’ll go over some financial results and we’ll wrap up with some Q-and-A.

As many of you already know, the third quarter is typically New Oriental’s second strongest quarter, with students taking advantage of the month long Chinese New Year holiday to catch up on their individual studies. This year Chinese New Year falls on February 14, two and a half weeks later than it did in 2009, when the holiday fell on January 26.

As a results of the later Chinese New Year holiday this year, enrolments for spring classes were logged both in the third quarter which ends on February 28, and in the fourth quarter which begins on March 1. By contrast with the earlier Chinese New Year holiday in 2009, when Chinese students returned from vacation and signed up for our spring classes, the enrollments were mostly logged in the third fiscal quarter. In fact, student enrolments in Q3 last year increased by a whopping 31%, to approximately 351,700.

As such, the comparison of Q3, 2010 to Q3, 2009 is a difficult one. So I’m very happy to say that despite this tough comparison, our third quarter fiscal results are still very strong with student enrolments up 18%, to over 416,000, and net revenues up 36% to $89.2 million.

In most years, in order to give students more options for Chinese New Year time classes, we offer short-term sessions before and after the holiday. This gives students more flexibility to fit in some extra training. This year in light of the later timing of the Chinese New Year, in a majority of our schools we offered an additional special short-term session before the start of the holiday. So we were offering two pre Chinese New Year and one post Chinese New Year short-term sessions.

This proves to be a good move, because it gives students more options to fit a course in before leaving for the family vacation or taking part in the traditional New Year festivities. This boosted our enrolments for this quarter, but at the expense of our ASP growth. Shorter duration classes carry lower ASP’s. Average ASP’s for language training and test prep course came in at just over 10% for Q3; slightly below our norm.

Now I’ll go into a bit more detail on each of the major growth drivers for the quarter; POP Kids English, Middle and High School English, all-subjects U- Can training and Overseas Test Prep.

POP Kids English felt continued strong growth in Q3, with enrolments up more than 40% to over 121,000 for the quarter, reflecting the abatement of the H1N1 fears that had parents keeping their children inside in a precaution against illness. We have emphasized before, that crucial role early childhood education plays in China, with parents willing to pull out all the stops for their only one child.

The creative and fun POP Kids English curriculum combined with New Oriental’s leading brand name and stellar reputation, results in an offering that parents turn to when choosing education solutions for their children from age five to 12.

In observing the huge opportunity for our kids POP’s English program, we have been thinking about ways to reach children in an even younger age, and helping instill in these kids and help them learn as they grow up. So in the third quarter we launched our partnership with Kinderdance; the US based provider of dance, music and motor development, gymnastics and fitness programs for young children.

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