Stephen Zhihui Yang
Thank you, Sisi. Hello, everyone, and thank you for joining us. I’m pleased to be able to provide an overview on both the fourth quarter and for fiscal year 2015, which we ended on a quite positive note. We concluded the final quarter of the fiscal year with a continuing steady recovery in both top line growth as well as student enrollments. We believe the highlight of strength of the business as well as our success in driving forward the growth strategy we launched in early fiscal year 2015. Introduced in the first quarter this year our Optimize the Market strategy is allowing us to focus on maintaining a balance between top line and bottom line growth, as well as building out our online and offline integrated education ecosystem. Our decision has proven right and our investments are beginning to pay off. I’d like to sum up our key achievements in fiscal year 2015 by stating three areas. First, we made good progress in expanding our footprint. We successfully further penetrated our existing market, where we see the greatest growth potential to drive our margin. We had our learning centers expand hours increasing our office in cities with the most potential. Second, we had a very good success with adding to and upgrading our major products which then in turn had a positive impact on revenue growth. As an example, with respect to K-12 all-subjects after-school tutoring business, we continue to have great business and it has become the key revenue driver. It achieved our revenue growth above 15% for the fiscal year and also had a significant enrollment increase. For further detailed note, that our U-Can program, which is a part of the business achieved more than 22% revenue growth for the full fiscal year. This was achieved despite the negative impact from and certainly of the Gaokao reform at the beginning of fiscal year 2015. Third, we made great strides in following our integrated ecosystem and pushing forward into the online space. We are making a lot of progress in developing online presence and one that will be well integrated with our offline offerings. We believe our offline and online integrated program is more advanced than anything else that we offer in the marketplace, as it truly address the needs of both students and teachers. This will surely further set us apart from our peers going forward. Among all our offerings in this area, our new POP Kids English program was a shining star during the fiscal year. Since its launch in the second quarter, we have registered two consecutive quarters of positive revenue growth and student enrollments have significance [ph] in taking part. Judging by the very positive feedback from students in markets, we expect the product to achieve double-digits revenue in fiscal year 2016. Also the other business line of O2O system, U-Can Visible Progress Teaching system extends reach to more than 40 cities by the end of this year. With a superior O2O integrated ecosystem, we’ll be more able to increase customer business, improve our pricing power, and eventually look for new revenue streams through the provision of value-added learning services. So as you can see, what a busy year and although we did face challenges, particularly at the start of the fiscal year, we made great progress pushing forward our overall Optimize the Market strategy. Also I want to take a minute to address our efforts to enhance shareholder’s value during fiscal year 2015. As we reported, we announced in third quarter we completed a share repurchase program in March 2015. In an 8-month period, we repurchased nearly 3 million ADS for an aggregate consideration of $59.4 million. Further to this, as you will have seen in today’s press release, our board of directors has approved a special cash dividend of $0.40 per ADS to be paid on October 7, 2015, which will be another $63 million capital returned to shareholders, funded by the surplus cash on the capital in company’s balance sheet. We’re pleased that even while investing for long-term growth in both 2015 and 2016, we’re able to deliver direct value back to our shareholders via buybacks and dividends. Now, let me turn to a full overview for the fourth quarter revenue results. Revenue was up by 14.4% year-over-year to $328.8 million and it was mainly driven by the enrollment recovery. Total enrollments for the fourth quarter increased almost 35% year-over-year, as we said in the previous call, the Chinese New Year holiday occurred later year in 2015, delaying enrollment for Spring classes and resulting in a shift from third quarter to fourth quarter. And also students choose to enroll in the summer class earlier than before, resulting in a shift from the first quarter of fiscal year 2016 to the fourth quarter of fiscal year 2015. Our key revenue driver, the K-12 all-subjects after-school tutoring basis, grew almost 21% year over year to about $164 million, contributing 48% of our revenues for the quarter. The U-Can business saw an increase of about 27% in gross revenue and significant 65% growth in enrollment. As discussed earlier, we started new customer loyalty program to encourage repeat business and for the fourth quarter this resulted deferred revenue of about $5.3 million, which is expected to be recognized within two years without any additional expenditures subject with such revenue. So, if including this, our top line growth will have been 16.2%. As mentioned, the dampening effect on revenue will just be temporary. Starting in April 2015 the company decided to narrow the scope of the program to include only K-12 business for select cities, such that we expect the dampening impact to reduce starting in the first quarter of fiscal year 2016. With respect to the key sectors on pricing on an apple-to-apple basis with GAAP revenue divided by total teaching hours. ASPs increased by about 10%. Breaking it down on hourly base plan, ASP for U-Can increased 5% to 10%. And ASP for oversea test program increased about 15%. For our POP Kids, we’re focusing on getting the market share and capturing potential growth right now, so we continue the strategy of not increase ASP much and to gain further penetration into the market. Now, let me work you through our performance across individual business lines. As mentioned, our K-12 all-subjects after-school tutoring business, continue to have strong momentum. We recorded gross revenue growth of 21% year-over-year for the fourth quarter and 15% for the fiscal year. With improved offerings for POP Kids and our advanced teaching methods, we expect K-12 to continue to drive our business growth. Breaking down a bit further, you U-Can middle and high school all-subjects after-school tutoring business achieved a gross revenue increase of approximately 27% year-over-year for the quarter and 22% for the fiscal year. Student enrollment grew significantly around 65% year-over-year for the quarter and 29% year-over-year for the fiscal year. And for the fourth quarter, our new POP Kids program business continues steady recovery with gross revenue growth of 6%, and the enrollment growth as much as 48% year-over-year. This is an outstanding result as we have achieved two consecutive quarters of positive revenue growth following by the revamp of this program. Our oversea test preps into some business achieved growth of more than 14% year-over-year for the fourth quarter and 11% for the fiscal year - 11% for the fiscal year, sorry. Finally, revenue growth of VIP personalized class business increased principally by 31% year-over-year in the fourth quarter, and increased 19% for the fiscal year. Now, let me go through some more specifics and progress we’ve made in the fourth quarter and fiscal year with our Optimize the Market strategy. Let me first touch on our core offline business. In the fourth quarter was fully expand in existing market adding a net of the two learning centers. For fiscal year 2015 as a whole, we added another 21 learning centers bringing our total learning centers to 724 and expanded certain existing learning centers by adding a total of over 11,000 square meters of additional classroom area. As for our online business, we invested roughly $12 million in the fourth quarter and $39 million for the fiscal year to continue to drive this forward. This has many untapped opportunities in the online education market in China, and we’re preparing ourselves to provide the students and teachers with the best and most interactive resources and truly enhance ourselves valid to the platform customers. We believe nowhere in the China, education service market is better positioned than us to capture this market growth. Before I go into details of progress, we made during the quarter and the year just a brief recap all three levels of our online platform. The first level also the core of our online system is an O2O Two-way Interactive Education System across all our business lines. The second level is our pure online learning platform koolearn.com and supplementary online education products under the New Oriental brand. The third level of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complement our own online education offerings. Let’s start with O2O Two-way Interactive Education System, which we’ve rolled out and upgraded in the first quarter of the fiscal year across all major product lines, aiming to extend New Oriental’s traditional offline classroom teaching offerings to online education services. We launched the U-Can Visible Progress Teaching System into over 30 cities in September 2014, and in which reached more than 40 cities by the end of the fiscal year 2016. This is a unique online platform that helps students to study after class as an memorable and enjoyable manner. It’s one of the key offerings that set us apart from our peers in the markets. I said earlier, as we rollout a newly revamped POP kids English program Shuang You, our POP kids program reported 6% of revenue growth and drastic increase of 48% in enrollment in fourth quarter. The new program is designed to provide a multi-interactive learning resources and create more personalized learning experience based on students own study records and interest. 38 cities in China are using these new programs and more to come, because pushing out the improved offerings is our focus in 2016. We have full confidence that this advanced POP kids offerings will spread New Oriental’s brand awareness in the highly competitive education service market in China and help us capture extra growth. The O2O Two-way Interactive Education System for the domestic test prep program was being used in six cities by the end of this quarter. And we’re testing that O2O oversee test prep program in seven cities so far. For the second level online education ecosystem, we have seen continued growth in Koolearn.com and other supplementary online education products. In the fourth quarter, Koolearn.com generated net revenue of $9.1 million, representing a 26% increase year-over-year. The number one registered users increased more than 67% year-over-year and the number of paid users increased over 138% year-over-year. The number of cumulative registered users has reached more than $10.7 million. Koo.cn, our own live broadcast open platform for both New Oriental and third-party teachers achieved about 515,000 and 900 registrations in the fourth quarter. DONUT, a series of game-based mobile learning applications for children reported over 32.5 million downloads in the fourth quarter, up from 7 million in the third quarter. Le Ci, an English language vocabulary training application were launched in late 2014 for mobile phones and tablets app reported over 2.4 million users by the end of fourth quarter. This more than doubled from the results we had for the third quarter. Turning to the third quarter, the third level of our online education ecosystem, we have invested in select online education companies with the minority stakes and we’re constantly looking for new opportunities that will not only complete our own offerings, but also support our goal to achieve hopefully in tuition. In December 2014, we’ve made investments in Golden Finance [ph], the largest finance training school in China, providing both offline/online test prep course, including CFA, ACCA, CIMA, and CPA, as well as some coverage training programs. As of the end of the fourth quarter, the school was opening in four cities. Later in March 2015, we’ve made investments in RoboRobo, the largest robots-making education company in China targeting young learners aged from 4 to 15. But end of this fourth quarter, it had about 50 self-owned learning centers and over 70 franchised learning centers in [indiscernible] in China. Together with our previous investments in uda100.com, [ph] Alo7.com, Tarena, and Juesheng.com we’re in process of building our O2O integrated educational ecosystem and create more opportunities to partner with other new online education companies to enhance our broad offerings and extend our leading position in China’s private education market. Now let’s take a look at some of the key financial metrics for the fourth quarter. Operating costs and expenses for the quarter were $306.3 million, a 17.7% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses were $301.1 million, a 17.4% increase year-over-year. Cost of revenues increased by 20.8% year-over-year to $137.5 million, primarily due to the increase in teachers’ compensation for more teaching hours and part of R&D cost of our pure online education platform koolearn.com. Selling and marketing expense increased by 3.3% year-over-year to $53.3 million, primarily due to the increase in selling and marketing staff’s compensation. General and administrative expenses for the quarter increased by 21.7% year-over-year to US$115.4 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were $110.4 million, a 21.4% increase year-over-year, primarily due to increase in R&D expenses and HR expenses related to the development of our online/offline integrated ecosystem. Total share-based compensation expenses, which were allocated to related operating costs and expenses increased by 32.1% to $5.2 million in the fourth quarter of 2015. Income from operations for the quarter decreased by $26.9 million to $22.5 million. Income from operations will have been about $27.8 million, if not for the accounting effect for the company’s new customer loyalty programs. Non-GAAP operating income decreased by 20.2% to $27.7 million for the quarter. Operating margin for the quarter was 6.8%, compared to 10.7% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 8.4%, compared to 12.1% in the same period of the prior year. Net income attributable to New Oriental for the quarter was $35.2 million, representing a 17.9% decrease from the same period of the prior year. Capital expenditures for the quarter were $11 million, which were primarily attributable to the opening of 26 new learning centers and renovations at existing learning centers. Turning to the balance sheet, deferred revenue balance was cash collected from the registered students for courses and recognized proportionally as revenue as the instructions are delivered, at the end of the fiscal year 2015 was $501.2 million, an increase of 31.6% as compared to $380.8 million at the end of the fiscal year 2014. I’d like to talk just a bit about our overall outlook for fiscal year 2016. During fiscal year 2016, we will continue to implement Optimize the Market strategy to further build and improve the foundation we have laid over the past year. As part of this, we will have four key areas of focus. We will continue to expand our offline business. We aim to enter three to four new cities, where we identified the most growth potential and open 30 to 40 new learning centers for our K-12 after-school tutoring business in existing cities that are driving both revenue growth and margin expansion. We will continue to invest heavily as we did in fiscal year 2015. Fiscal year 2016, will also be an investment year as we work to fully build out our integrated offline and online ecosystem. We will continue to invest and spending about $50 million in the fiscal year. We consider this investment is essential to helping stronger our market dominance and we are fully confident that all of this effort will bring higher growth and sustainable stability in the long-term. We’ll focus on additional quality improvements for all of our offers. We’ll hire better and more senior management features, R&D, and IT staff for our offline business, to upgrade content and be innovative with our products. This is to ensure we are the premium offer in the China market. To achieve this, we expect the total compensation for school heads, business line managers, and key R&D and IT managers will increase by more than 30% year-over-year. We will drive further operating efficiencies. We remain keen on improving operational efficiency and cost control across our organization, so we’ll continue to focus on this. We have this strategy as our guide for the year. We expect to achieve double-digit annual revenue growth, at the same time, the strategic investments will continue temporarily dampen our overall operating margin. And we believe our fiscal year 2016 operating margin will be slightly lower than in fiscal year 2015. This being flat, we will like to highlight that our operating margin for our offline business has been experiencing study recovery over the past three quarters. With respect to the first quarter of fiscal year 2016 specifically, we anticipate total net revenue to be in the range of $441.3 million to $457 million, representing year-over-year growth in the range of 12% to 16%. About $5.3 million revenue will be deferred resulting from the company’s customer loyalty programs. If not considering that, the product revenue growth rate is expected to be in the range of a 13% to 17%. All in, we’re excited of our future and believe we are taking all the right steps and are on the right track to achieve sustainable profitability over the long-term and to consistently to create value for our shareholders. This forecast reflects New Oriental’s current and preliminary view, which is subject to change. At this point, we will take your questions. Operator, please begin.
