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

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Sisi Zhao - Senior Investor Relations Manager

Louis Hsieh - President &CFO


Philip Wan - Morgan Stanley

Chenyi Lu - Cowen &Company

Catherine Leung - Goldman Sachs

Brandon Dobell - William Blair

Ruby Zhang - Nomura

Jeff Mueller – Robert W. Baird & Company Inc

Janice Chen - Piper Jaffray

Eric Wen - Mirae Asset

Jennifer Kao - Credit Suisse

Paul Ginocchio - Deutsche Bank

Chao Wang – Merrill Lynch

Ella Ji - Oppenheimer

Ming Zhao - Susquehanna Financial Group

Leonie Foong - Janchor Partners

Charles Cartledge - Sloane Robinson

New Oriental Education & Technology Group Inc. (EDU) F2Q2012 Earnings Call January 17, 2012 8:00 AM ET



Good evening and thank you for standing by for New Oriental’s Second Quarter of Fiscal Year 2012 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’d now like to turn the meeting over to your host for today’s conference, Ms. Sisi Zhao. Thank you. Please go ahead.

Sisi Zhao

Hello everyone, and welcome to New Oriental’s second quarter of fiscal year 2012 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 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 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 laws.

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

Louis Hsieh

Thank you, Sisi. Hello everyone and thanks for joining us. The second quarter is seasonally the slowest quarter for New Oriental. But I’m very pleased that we’re presenting a very healthy set of financial results today.

Total student enrollments grew by 16.2%, revenue grew by 38% and profit rose by 80.5%. This is despite some very tough comparisons in the same period a year-ago when revenues were up about 56% and enrollments up over 32%.

First, you recall that in the second quarter 2011 we benefited from a strong rebound in enrollments after the World Expo in Shanghai closed. Second, certain low performing businesses which we discontinued over the past 12 months contributed approximately $3 million in revenue in Q2 of 2011 that are not accounted in this year’s second fiscal quarter results.

The driving force behind the solid performance is simple. New Oriental remains the most trusted brand in private education services in China. We see huge unmet demand for our services and we continue to execute successful strategy to take advantage of this demand. Across our business lines we recorded sustained growth in the second fiscal quarter. Our overseas test preparation program recorded year-over-year enrollment growth of about 1% to over 74,200. The moderate growth is still pleasing given that we experience such a huge spike in enrollments in the second quarter of last year, when enrollments were up 39%.

As you remember a lot of students chose to defer their studies from the summer quarter in the – to the autumn quarter last year in part because of the Shanghai World Expo. In addition, gross revenues this quarter is up more than 52% year-over-year to over $43 million in part because more students are choosing to register for smaller more expensive classes.

The K-12 all subjects after school tutoring business continues to impress. The segment recorded year-over-year enrollment growth of more than 33% to over 233,900 and year-over-year gross revenue growth of over 45% to over $44 million.

Once again, this quarter we’re seeing the most rapid growth in our VIP personalized classes with year-over-year enrollment growth of about 42% to 20,100 and year-over-year revenue growth of over 52% to over $45 million. This particularly encouraged by our success in the segment because it really illustrates New Oriental’s position as the premium provider – private education provider in China.

We were gaining market share much more quickly than our competitors in the VIP small class segment because our students recognize the unquestioned premium quality unanimous with the New Oriental brand.

On a related note, we wanted to mention that our new intensive English training program, Maxen, which we introduced last quarter. Maxen is a very high end after school tutoring program that aims to provide students with a U.S standard English education in U.S standard English learning environment.

Over the past few quarters, we’ve opened five Maxen centers around China and already we were getting traction. Enrollments have reached 330 students in total in the first half of the fiscal year and ASP of approximately $2300 for one year course. Again, I want to emphasize that New Oriental is uniquely positioned to offer a product like this in the Chinese market. It is only New Oriental has established that premium brand cache entrust with parents of students to justify this premium position.

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