New Oriental Education & Technology Group Inc. (NYSE:EDU) Q2 2020 Earnings Conference Call - Final Transcript

Jan 20, 2020 • 08:00 am ET

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New Oriental Education & Technology Group Inc. (NYSE:EDU) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

The question-and-answer session of this conference call will start in a moment. [Operator Instructions]

Your first question comes from the line of Mark Li from Citi. Please ask your question.

Analyst
Mark Li

Hi, management. Congratulations on the very strong margin performance for this quarter. We think is a bit guidance by pretty nicely. May I know what are the reason -- major reasons for the non-GAAP OP margin be for this quarter? And also, I would like to know maybe our revenue guidance breakdown across different segments? Thank you.

Executive
Zhihui Yang

Okay. Okay, Mark, you know, yeah we beat the margin guidance a lot. Our non-GAAP operating margin rose by 720 basis points in this quarter. I think it is because of the following reasons. Number one, I think the continued margin expansion is mainly driven by the better utilization of the facility. Typically -- typically our top line growth is over 30% year-over-year in RMB terms, but the expansion in latter trailing 12 months is just 25%. And also number two is, we build a standardized, modularized, and systemized operating process. So you see the result, we achieve outstanding improvement in the operational efficiencies and we got a lot of leverage on the selling, marketing, and G&A expenses. And finally, you know we are seeing the revenue acceleration, typically we're taking market share from the small player in the market. So the revenue is very good and I think those three reasons got us the better results of the margin expansion.

But yeah, as I mentioned in the prepared remarks, in the rest of the year, even in Q3 and in Q2 in fiscal year '20, I think we still got more leverage going forward. So we believe we will have the margin expansion in the rest of this fiscal year and even for fiscal year '21. I think our margin will get the expansion as this year, okay.

And the revenue breakdown, yeah, in the -- Q3 revenue guidance, I think the K-12 business will grow by 40% in RMB terms, okay. What I'm saying is only in RMB terms year-over-year growth 40% and overseas test prep, I think sort of low single-digit growth and see the domestic test prep, it will be done by, let's say, the 3% to 4% and the overseas consulting business, the growth will be over 20%. So this is the breakdown of the Q3 guidance.

Analyst
Mark Li

Thank you very much Stephen. Okay. Thanks, Mark.

Operator
Operator

Your next question comes from the line of Yuzhong Gao [Phonetic], please ask your question.

Analyst
Yuzhong Gao

Hey, Stephen. Congrats on the very strong results. So we noticed that you seem to have revised up your capacity expansion target from 20% to 25%, so how should we think about the marketing spend scale in the second half of 20 -- fiscal year '20? Thanks.

Executive
Zhihui Yang

Okay. Yeah, we -- this quarter, the quarter-over-quarter expansion was 6% combined with the 3% in Q1. So we get 9% in the first half of this fiscal year. And typically, in