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

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

F1Q11 (Qtr End 08/31/2010) Earnings Call

October 18, 2010 8:00 am ET

Executives

Sisi Zhao - Senior IR Manager

Michael Yu - Founder, Chairman and CEO

Louis Hsieh - President and CFO

Analysts

Ella Ji - Oppenheimer

Catherine Leung - Citi

Jeff Lee - Signal Hill

Brandon Dobell - William Blair

Adele Mao - OLP Global

Chenyi Lu - Cowen and Company

Ingrid Yin - Brean Murray

Eric Wen - Mirae Asset

Eugene Yeoh - Deutsche Bank

Presentation

Operator

Good evening and thank you for standing by for New Oriental's first fiscal quarter 2011 earnings conference call. (Operator Instructions)

I'd now like to turn the meeting over to your host for today, Ms. Sisi Zhao.

Sisi Zhao

Hello, everyone, and welcome to New Oriental's first fiscal quarter 2011 earnings conference call. Our first 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 Michael Yu, New Oriental's Founder, CEO and Chairman; and Louis Hsieh, New Oriental's President and Chief Financial Officer. After his prepared remarks, they 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 investor.neworiental.org.

I would now turn the call over to New Oriental's Founder, CEO and Chairman, Michael Yu.

Michael Yu

Thank you and hello to everyone and thank you for joining us today. To start our call, I want to take this opportunity to clear up some misleading and erroneous market share information, which is being disseminated by some of our competitors, and it concerns our key business segments of K to 12 after-school children, overseas test preparation and the English language training.

Our aggressive growth strategy of our application as China's premier private education service provider and our high-quality instruction and custom service has made New Oriental the clear market leader in China across our three key business segments by both revenue and the enrollment. Specifically, our K to 12 all-subjects after-school children is the clear number one market share leader in China in terms of both revenues which totaled approximately USD$139 million and the enrollments which totaled approximately 860,000 over the last 12 months.

We continue to be dominant in overseas test preparations with revenues of about USD$124 million and the enrollment of approximately 272,000 in the same period.

In the English language training, we are the runaway market leader with approximately USD$183 million of revenue and the enrollments of approximately 1,330,000 over the last 12 months.

To sum up, New Oriental has been one of the pioneers and a clear leader in China's private education market for more than 17 years, and we are privileged to be the most trusted name in each of the markets we serve.

Knowledge is a competitive market. We clearly have been extending our market leading position by growing our network of schools and the learning centers in a rational manner, controlling costs and maintaining our high-quality instructions that have gotten us to where we are today.

In the past four quarters, as we told you in our preliminary earnings announcement, although revenue was strong, our enrollment grew less than in previous quarters. Enrollments were affected by this year's summer break which was one week shorter than usual because of the longer-than-usual winter break to accommodate the Chinese New Year. This means that a student has less time to attend our holiday classes compared to previous years.

Secondly, we found that the Shanghai World Expo has an effect on enrollments in Shanghai which were down 6% year-over-year. We believe that many students were discouraged from coming to study in Shanghai because of the crowd visiting the expo and as a consequent increase in costs of accommodation and the living expenses. In addition, we believe that the students that visited Shanghai mainly chose to spend their time and money visiting the expo rather than enrolling in classes.

As we expected, as the expo begins to wind down, the enrollments are rebounding and are growing steadily. In September, the first month of our second fiscal quarter, we are seeing enrollments up around 27% year-on-year to about 198,000, and the revenues were up 40% for the same period.

Despite these challenges, during the first fiscal quarter, we achieved net revenues of USD$192.3 million, representing 28.8% growth year-over-year, well within our guidance range. Enrollments grew 8.8% and the planned ASP grew approximately 20%.

Turning to the business and the financial highlights, once again our growth in the quarters was driven by our three core business segments. POP Kids remains a strong driver, with enrollments up 29% year-on-year to 168,800, and the revenues up by more than 48%.

As we know, POP Kids is a strong performer because of the trusted New Oriental brands, which parents know will give their kids the best of start from a early age and allow them to continue on the right path to achieve success throughout their educational careers.

Read the rest of this transcript for free on seekingalpha.com