New Oriental Education & Technology Group Inc. (EDU) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call indicates strong financial performance with significant revenue growth across various segments, improved margins, and effective cost management. Despite some macroeconomic challenges, the company shows resilience, particularly in the K-12 segment. Management's optimistic guidance and strategic initiatives, including AI and operational efficiency, further bolster positive sentiment. Although some specifics were not disclosed, the overall outlook remains favorable, supporting a positive stock price movement prediction.
Key Financial Performance
Total Net Revenue $1.19 billion, a 14.7% increase year-over-year. The growth was driven by operational efficiency and disciplined resource management.
Non-GAAP Operating Income $89.1 million, a 206.9% increase year-over-year. This was attributed to strong profit growth and improved operating margins.
Non-GAAP Net Income Attributable to New Oriental $72.9 million, a 68.6% increase year-over-year. The increase was supported by steady core business performance and contributions from new initiatives.
K-9 and High School Tutoring Business Revenue Accelerated year-over-year growth, outpacing the previous quarter. Growth was driven by strong demand.
Overseas Test Prep Business Revenue 4% increase year-over-year. Growth was modest due to ongoing macroeconomic headwinds.
Overseas Study Consulting Business Revenue 3% decrease year-over-year. The decline was attributed to macroeconomic challenges.
Adults and University Students Business Revenue 13% increase year-over-year. Growth was driven by strong demand.
Non-Academic Tutoring and Intelligent Learning System Revenue 22% increase year-over-year. Growth was driven by market penetration in high-tier cities and improved customer retention.
Operating Costs and Expenses $1,125.1 million, a 10.4% increase year-over-year. The increase was due to higher costs of revenues and G&A expenses.
Cost of Revenues $566.9 million, an 11.8% increase year-over-year. The increase was due to higher operational costs.
Selling and Marketing Expenses $194 million, a 1.1% decrease year-over-year. The decrease was due to cost optimization.
G&A Expenses $374.3 million, a 15.2% increase year-over-year. The increase was due to higher administrative costs.
Share-Based Compensation Expenses $21.4 million, a 156.8% increase year-over-year. The increase was due to higher allocations to operating costs and expenses.
Operating Income $66.3 million, a 244.4% increase year-over-year. The increase was driven by strong revenue growth and cost management.
Net Income Attributable to New Oriental $45.5 million, a 42.3% increase year-over-year. The increase was supported by strong operational performance.
Net Cash Flow from Operations $323.5 million. This reflects strong cash generation during the quarter.
Capital Expenditure $23.7 million. This was allocated for upgrades and maintenance.
Deferred Revenue $2,161.5 million, a 10.2% increase year-over-year. The increase was due to higher upfront cash collections from customers.
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Operating Highlights
Non-academic tutoring: Revenue grew 22% year-over-year. Rolled out to around 60 cities, with top 10 cities contributing over 60% of revenue.
Intelligent learning system and devices: Launched in around 60 cities. Improved customer retention and scalability, with top 10 cities contributing over 50% of revenue.
Tourism offerings for middle-aged and senior citizens: Expanded to 30 key provinces and international markets. Includes cultural travel, study tours, and wellness sector exploration.
East Buy product expansion: Expanded product range to include seafood, healthcare products, kitchen items, and more. Private label SPUs reached 801.
Overseas test prep business: Revenue increased by 4% year-over-year despite macroeconomic headwinds.
Adults and university students business: Revenue increased by 13% year-over-year.
Integrated tourism-related business: Domestic and international study tours held in 55 cities, with top 10 cities contributing over 50% of revenue.
Operational efficiency: Non-GAAP operating margin improved by over 4 percentage points. Non-GAAP operating income rose 206.9% to $89.1 million.
OMO teaching platform: Invested $28.4 million to upgrade and maintain the platform, aiming to deliver advanced education services.
AI integration: Leveraging AI to streamline operations and enhance teaching support. Positive market feedback received.
Capacity expansion and hiring: Focus on cities with strong top and bottom-line performance. Strategic approach to new openings.
Shareholder return plan: Announced a dividend of $0.12 per common share and a $300 million share repurchase program.
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Risk or Challenges
Regulatory Compliance: The company must work closely with government authorities across provinces and municipalities in China to ensure full compliance with relevant policies, regulations, and measures. This could pose challenges in adjusting operations as needed to meet regulatory requirements.
Macroeconomic Headwinds: Overseas-related businesses, including test prep and study consulting, are facing challenges due to ongoing macroeconomic headwinds, which could impact revenue growth.
Cost Management: Operating costs and expenses increased by 10.4% year-over-year, with significant rises in cost of revenues and G&A expenses, which could pressure profitability if not managed effectively.
Scalability of New Initiatives: The scalability of new initiatives, such as intelligent learning systems and non-academic tutoring, depends on market penetration and customer retention, particularly in high-tier cities. Failure to scale effectively could limit revenue growth.
Supply Chain and Product Development: East Buy's expansion into new product categories and offline channels requires effective supply chain management and product development. Any inefficiencies could hinder growth and profitability.
AI Integration: The company is investing in AI to enhance offerings and streamline operations. However, the success of these initiatives depends on effective implementation and market acceptance.
Expansion Risks: Plans to deepen presence in high-performing cities and scale new openings must align with operational needs and financial performance. Mismanagement could lead to resource wastage and reduced profitability.
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Guidance & Outlook
Revenue Guidance for Q3 FY 2026: The company expects total net revenue for the group, including East Buy, to be in the range of $1,313.2 million to $1,348.7 million, representing a year-over-year increase of 11% to 14%.
Revenue Guidance for FY 2026: The company has raised its total net revenue guidance for the fiscal year to be in the range of $5,292.3 million to $5,488.3 million, representing a year-over-year increase of 8% to 12%.
Strategic Focus on Growth and Profitability: The company plans to pursue a balanced approach to revenue and profitability growth, emphasizing cost discipline and sustainable profitability across all business lines. It will strategically expand capacity and hiring while maintaining quality.
Expansion Strategy: The company will deepen its presence in cities with strong top and bottom-line performance and carefully manage the pace and scale of new openings to align with operational needs and financial performance.
K-12 Business Growth: The company anticipates healthy growth in its K-12 business, contributing positively to its overall performance.
East Buy Recovery: The recovery of East Buy is expected to contribute more revenue and profits to the group in the future, enhancing brand influence.
AI Integration: The company will continue to refine and embed AI across its offerings to strengthen core capabilities, streamline internal operations, and enhance support for teaching staff.
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Shareholder Return Plan
Ordinary Dividend: In October 2025, the Board of Directors approved an ordinary dividend of USD 0.12 per common share or USD 1.2 per ADS for fiscal year 2026. This dividend is to be distributed in two installments. The first installment has already been fully paid to shareholders and ADS holders. Details of the second installment will be announced later.
Share Repurchase Program: New Oriental announced a share repurchase program authorizing the repurchase of up to $300 million of its ADS or common shares over the subsequent 12 months. As of January 27, 2026, the company had repurchased approximately 1.6 million ADS for a total consideration of approximately $86.3 million from the open market under this plan.
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Key Q&A
Q:Can management provide a breakdown on the segment growth and key drivers for the lift to the full year guidance?
A:The K-12 business showed strong growth with a 20%+ year-over-year increase expected in Q3. Overseas-related business faced revenue growth pressure but achieved a 4% year-over-year growth in Q2. College business saw 14-15% top-line growth. Management emphasized cost control and margin expansion as key drivers for the improved guidance.
Q:What is the expected margin expansion from the merger of test prep and consulting units, and can it offset U.S. market headwinds?
A:The merger aims to provide a one-stop service, reduce costs, and improve service quality. Management did not provide specific margin expansion figures but promised to share more details in the next earnings call.
Q:How much reduction is expected in customer acquisition costs, and what is the target for the cross-selling rate?
A:Management did not provide specific figures for customer acquisition cost reduction or cross-selling rate targets but highlighted operational efficiency and cost savings from the merger.
Q:What drove the margin expansion in Q2, and what is the outlook for the second half?
A:Q2 margin expansion was driven by better utilization, higher operating leverage, cost control, and profit contribution from East Buy. Non-GAAP operating margin increased by 470 basis points year-over-year. Management is optimistic about further margin expansion in the second half but did not provide detailed guidance.
Q:What are the future trends and reasons for the overseas business achieving a 4% growth rate despite challenging market conditions?
A:The overseas business showed resilience and gained market share despite economic challenges. Management expects flattish or low single-digit growth in the second half due to unchanged external conditions but remains confident in the team's performance.
Q:What is the sustainable growth rate for the new education business, and can it maintain 20%+ growth in the coming years?
A:Management believes the K-12 business can sustain 20%+ growth due to improved quality, higher student retention rates, and reduced marketing expenses. They expect higher utilization rates and margins from the business.
Q:Are there any updates on AI initiatives and their impact on the business?
A:AI initiatives are contributing to new product offerings, improving existing products, and enhancing operational efficiency. Management expects AI to drive revenue growth and cost savings but did not provide specific figures.
Q:Is the decrease in marketing expense ratio related to the new customer service system, and will this trend continue?
A:Yes, the decrease in marketing expense ratio is linked to the new customer service system, which improves efficiency and reduces costs. Management expects this trend to continue in the second half and beyond.
Q:Review of Unclear Management Responses
A:Management avoided providing specific figures for the expected margin expansion from the merger, customer acquisition cost reduction, and cross-selling rate targets. They also refrained from giving detailed guidance on margin expansion for the second half and specific impacts of AI initiatives.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI East
AI market
Buy customer
Buy profit
Buy reporting
Buy track
China city
China tour
East Buy
Hainan Yunnan
Hello set
Ms discussion
New Orientals
Oriental cash
Oriental core
Oriental surge
Orientals center
SPUs East
SPUs category
Yunnan segment
age citizen
apparel offering
asset model
brand influence
brand recognition
care household
care product
category seafood
center network
chain
contribution group
culture
focus
health
highlight
income increase
initiative
learning system
wellness
EDU Transcript
New Oriental Education & Technology Group Inc. (EDU) Q2 2026 Earnings Call Transcript
Positive1-28
The earnings call indicates strong financial performance with significant revenue growth across various segments, improved margins, and effective cost management. Despite some macroeconomic challenges, the company shows resilience, particularly in the K-12 segment. Management's optimistic guidance and strategic initiatives, including AI and operational efficiency, further bolster positive sentiment. Although some specifics were not disclosed, the overall outlook remains favorable, supporting a positive stock price movement prediction.
New Oriental Education & Technology Group Inc. (EDU) Q1 2026 Earnings Call Transcript
Positive10-28
The earnings call reflects a positive sentiment due to revenue growth in educational initiatives, operating income increase, and a strong shareholder return plan. Despite some declines in net income, the optimistic growth outlook in K-12 and high school segments, margin expansion, and strategic cost control measures indicate positive future performance. The Q&A insights emphasize management's confidence in overcoming competitive challenges and maintaining high shareholder returns. However, increased SBC expenses and lack of specific guidance details introduce some caution, but overall, the sentiment leans positive, predicting a stock price increase of 2% to 8%.
New Oriental Education & Technology Group Inc. (EDU) Q4 2025 Earnings Call Transcript
Positive7-30
The earnings call presents a positive outlook with a 59.4% revenue increase and strong cash flow. The Q&A reveals challenges such as economic factors affecting guidance but also highlights optimism in margin improvements and K-12 growth. The expanded share repurchase program and expected margin expansion further support a positive sentiment. Despite some uncertainties in non-academic segments, the overall guidance and strategic initiatives indicate a favorable stock price movement.
New Oriental Education & Technology Group Inc. (NYSE:EDU) Q3 2025 Earnings Call Transcript
Unknown4-24
Earnings call summary presents mixed signals: revenue miss but optimistic growth in several segments; strong share repurchase plan, but increased expenses and flat non-GAAP income. Q&A reveals concerns about overseas growth and competition, but management expects margin expansion and growth in core segments. Overall, the sentiment is balanced with both positive and negative factors, leading to a neutral prediction.
EDU Report
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