Good evening, and thank you for standing by for New Oriental's FY 2020 fourth quarter results earnings conference call. At this time, all participants are in the 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 would now like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao. Thank you. Please go ahead.
Thank you. Hello, everyone, and welcome to New Oriental's fourth fiscal quarter 2020 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 Stephen Yang, Chief Financial Officer. After his prepared remarks, Stephen 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 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'll now turn the call over to Mr. Yang. Stephen, please go ahead.
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. Despite the outbreak of COVID-19 pandemic, starting from March posed a continuing pressure on all business across the globe, including ours. We're pleased to report a set of financial results in the fourth fiscal quarter of this fiscal year that is in line with our expectation. Total net revenue was $798.5 million, a slight decrease of 5.3% in dollar term or 1% in RMB term. A mix of results amongst various business line were reported, which I will elaborate each of them shortly. Total student enrollments in academic subjects tutoring and test prep courses in the fourth quarter of fiscal year 2020 decreased by 6.2% year-over-year to approximately 2,585,600.
The lower than normal increase in the number of student enrollments is primarily due to the outbreak of the COVID-19, which has made new customer acquisition in the quarter much more challenging, while the enrollment for the summer and autumn classes have also been delayed. In terms of the bottom line performance, for the entire fiscal year of 2020, we managed to deliver an expansion of non-GAAP operating margin of 70 basis points year-over-year to 12.9%, compared to 12.2% for the prior fiscal year. For the fourth quarter of 2020, due to the negative impact from the pandemic on our top-line performance and the increased spending from offering free classes to promote our K-12 large classes with the aim of taking more market share, our gross margin recorded for the quarter was 51%, down 500 basis points year-over-year.
Our non-GAAP operating margin for the quarter was 4.1%, down 810 basis points year-over-year. Non-GAAP net margin for the quarter was 6.1%, down by 520 basis points year-over-year. In order to minimize the negative impact caused by the COVID-19 pandemic to our bottom line, we actively adjusted our operational strategy and made more efforts on cost control and reducing expenditures, especially for business lines facing bigger negative impact in the near term. We believe that our continuous efforts will sustain us through the crisis, and hopefully that the adverse effect on our business from the pandemic will subside gradually. Per program blended ASP, which is cash revenue divided by total student enrollments, decreased by 14.8% year-over-year in dollar terms.
As for hourly blended ASP, which is cash revenue divided by the total teaching hours, decreased by approximately 3.5% year-over-year in RMB terms. To provide the breakdown of the hourly blended ASP, please know that U-Can class increased by 0.2%, U-Can VIP classes increased by 3.5%, POP Kids increased by 6.4%, and Overseas Test Prep program increased by 16.1% all year-over-year in RMB terms.
Comparing with the normal price increase of 5%-8%, this quarter's hourly blended ASP decrease was lower than normal level, mainly because of the bigger decline of the Overseas Test Prep program and U-Can VIP personalized classes business, which hourly blended ASP are much higher than the other programs, as well as the usage of the coupons as we provided to the customer to support the migration from offline class to online OMO class during the winter. I would like to spend some time to talk about fourth quarter performance across our individual business line in detail. Amid this unprecedented period, we see a mix of the results amongst each of the business line. Our key revenue driver, K-12 after-school tutoring business, achieved a year-over-year revenue growth of approximately 4% in dollar terms or 8% in RMB terms.
Breaking it down, the U-Can middle school, high school, all subjects after-school tutoring business, reported a revenue increase of approximately 1% in dollar terms or 5% in RMB terms for the quarter. Student enrollment grew approximately 0.1% year-over-year for the quarter. Excluding VIP one-on-one business, U-Can small class business grew by approximately 15% in dollar terms or 20% if measured in RMB. Our POP Kids program delivered outstanding results, with revenue up by about 10% in dollar terms or 14% in RMB terms for the quarter. Enrollment decreased by 9% for the quarter, though as the outbreak of the COVID-19 has caused the challenges acquiring new customer in the quarter, while the enrollments for the summer and autumn classes have been delayed.
Our overseas test-prep related business, including test-prep and consulting business, faced the most difficult challenges due to the cancellation of the overseas exams, suspension of the overseas schools, and restriction on travels. The overseas test-prep business revenue declined by approximately 52% in dollar terms or 50% if measured in RMB. Despite the challenges, the consulting business grew by approximately 6% in dollar terms or 11% in RMB terms. Finally, VIP personalized classes business, reported revenue decline of about 36% year-over-year in dollar terms or 34% in RMB terms year-over-year for the quarter. Our summer promotion strategy also delivered outstanding results. We offered low-price experiential courses for multiple subjects in total of about 69 cities, targeting entry grades of primary and secondary school students customers before they start this new school year. The promotion price is similar to last year at around 400 RMB.
Even though we launched the summer promotion campaign almost one month later than we did last year due to the pandemic situation, the summer promotion remains very well-received by the market. We're pleased to see that the promotion enrollments we brought in before the start of the summer holiday by mid-July this year, achieved a 20% increase comparing the same period of last year, reaching 986,000 enrollments. The encouraging results have proven that such sound and highly profitable strategy enable us to capture and increase our market share in high-growth K-12 after-school tutoring market. Also, puts us in a more favorable position during this market consolidation period, as certain players may lack financial or digital capabilities to sustain their operation during these challenging times.
As these students move to the higher grades, we expect the continuing improvement in retention rate, and customer loyalty will drive revenue growth in the next three to six years. We continue to be guided by our optimized market strategy in this quarter, and carried out capacity expansion in cities where we see potential for rapid growth and strong profitability. This quarter, we added a net of 44 learning centers in existing cities, opened a new training school in the city of Weihai, as well as four two-t eacher model schools in the city of Hebi, Xingtai, Zhumadian, and Xuchang. Altogether, this increased the total square meter of classroom area by approximately 26% year-over-year, 5% quarter-over-quarter by the end of this quarter. Despite such challenging times, we didn't put our expansion plan on hold, as we wanted to ensure that we are fully prepared when the pandemic's over.
Our service will resume with strong presence across different Chinese cities. As the outbreak of COVID-19 has highlighted the importance and demand of online education, we have placed more resources in this area and invested $36 million in the quarter to improve and maintain our OMO integrated education ecosystem. The investment also supported the migration of our offline class to small-sized online class during the pandemic. Apart from the OMO infrastructure, we have allocated part of the resources in advanced training programs for our teachers to enhance their online and offline integrated teaching skills in response to the growing demand in the market.
At the same time, we continue to upgrade our technology platforms and will broaden the usage of the online tools and content in our OMO system for all business lines through the whole network, as well as further develop the best teaching content and courseware to cater to online, offline integrated education methods. We're glad to see that our industry-leading OMO ecosystem has not only successfully managed to cushion most of the impact our service and operation caused by the pandemic, but we also see the refund rates from the cancellations have been stabilized at a normal level as we entered into the spring semester. While our customer retention rates from winter to spring semester and from spring to summer semester were trending higher than the same period last year, which further demonstrated that our customer satisfaction and effectiveness of our online course through our OMO system.
To further tap into the huge market opportunity in online education, we continue to placing more resources in Koolearn, in executing new initiatives in our K-12 online after-school tutoring business in fiscal year 2020. This includes content development, teachers recruiting training, sales marketing, R&D, and other necessary cost expenses to drive the growth of the new online programs. With these programs, we're able to reach out to more students in low-tier cities in interactive and scalable approach. We believe this will help Koolearn.com to gain new market share in the online education space and drive up top-line growth. In the past quarter, Koolearn did a large-scale market promotion by offering free large-sized online live broadcasting classes to the public and attract several times more traffic than normal time.
Koolearn also added a meaningful amount of customer service representatives and marketing staff to support the new initiatives in K-12 tutoring. These moves have raised our spending on the marketing front, but we believe those are necessary and understandable measures as we found ourselves in a pandemic situation. The two-teacher class model has been offered for POP Kids program in 48 existing cities, U-Can program in 29 existing cities, and for both POP Kids and U-Can K-12 business in 10 new cities. We're glad to see the model has proven to be successful, and there is increased market penetration in those markets we have tapped into. We also saw improved customer retention and scalability. With these proven results, we will continue this strategy going forward. Now, let me walk you through the other key financial details for the fourth quarter.
Operating costs and expenses for the quarter were $788.2 million, representing a 2.9% increase year-over-year. Non-GAAP operating cost and expenses for the quarter, which exclude share-based compensation expenses, were $765.9 million, representing a 3.5% increase year-over-year. Cost of revenue increased by 5.3% year-over-year to $391.1 million, primarily due to increased teachers compensation for more teaching hours and higher rental cost for the increased number of the schools and learning centers in operation. Selling marketing expenses increased by 11.4% year-over-year to $118.0 million, primarily due to the addition of a number of customer service representatives and marketing staff with the aim of capturing the new market opportunity during the pandemic, especially for the new initiatives in K-12 tutoring, our pure online education platform, Koolearn.com. General and administrative expenses for the quarter decreased by 3.3% year-over-year to $279.2 million.
Non-GAAP general administrative expenses, which exclude the share-based compensation expenses, were $261.0 million, representing a 1.3% decrease year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 13.5% to $22.3 million in the fourth quarter of fiscal year 2020. Operating income was $10.3 million, an 86.7% decrease from $77 million in the same period of prior fiscal year. Non-GAAP operating income for the quarter was $32.5 million, a 68.3% decrease from $102.7 million in the same period of prior fiscal year. Operating margin for the quarter was 1.3% compared to 9.1% in the same period of prior fiscal year. Non-GAAP operating margin, which exclude share-based compensation expenses for the quarter, was 4.1% compared to 12.2% in the same period of prior fiscal year.
Net income attributable to New Oriental for the quarter was $13.2 million, representing a 69.5% decrease from the same period of prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were $0.08 and $0.08, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $48.5 million, representing a 49% decreased from the same period of prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributed to New Oriental were $0.31 and $0.30 respectively. Net margin for the quarter was 1.7%, compared to 5.1% in the same period of prior fiscal year. Non-GAAP net margin for the quarter was 6.1%, compared to 11.3% in the same period of prior fiscal year. Net operating cash flow for the fourth quarter of 2020 was approximately $108.5 million.
Capital expenditures for the quarter were $89.7 million, which were primarily attributable to the opening of 73 facility and renovations at existing learning centers. Turning to the balance sheet. As of May 31st of 2020, New Oriental had cash and cash equivalents of $915.1 million compared to $1,414.2 million as of May 31st of 2019. In addition, the company had $284.8 million in term deposits and $2,318.3 million in short-term investments. New Oriental's deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instruction are delivered, at the end of the fourth quarter of fiscal year 2020, was $1,324.4 million, an increase of 1.8% from $1,301.1 million at the end of the fourth quarter of the prior fiscal year. We are now approaching to the new fiscal year. Despite the continued challenge from the COVID-19 pandemic, I expect to remain.
We're still optimistic towards the company's business in the long run, and we'll continue to focus on the following key areas. First, we will continue to expand our offline business. We aim to add around 20%-25% capacity, including new learning centers and expanding classroom area of some existing learning centers for K-12 business. We believe it will prepare us for further take more market share from other players post-COVID, as we believe some small players without strong financial position and online class capability may not be able to sustain its business during the hard period. We expect the industry will undergo a wave of market consolidation upon the pandemic phase. The fact that we are a major player with strong financial capacity and a fresh offline facility enable us to further strengthen our market-leading position and penetration.
Second, we will continue to leverage our investments into digital technologies and introduce our OMO system in more offline language training and test offerings, especially for our K-12 business. The usage of online tools and contents in our OMO system for all business lines throughout the whole network will be enhanced. To uplift the whole OMO teaching experience, we will place more efforts in developing the best teaching content courseware, and also developing more advanced training programs to our teachers. For some who might not be very familiar with our OMO business model, allow me to spare a few minutes now to elaborate the four key OMO strategy we have in place. Number one, the online system is mainly used to supplement the offline classes we have in existing cities with a hybrid format.
Number two, for the cities we have a presence but might not have enough learning centers to cater all our customers. Our OMO system enable us to reach out to more students and customers. Number three, for some provinces where we don't have centers in all of the cities, our OMO system allow us to reach out to students of the surrounding satellite cities. Number four, we offered a series of complimentary low-cost experiential online classes for people and students to experience our classes, hoping to attract new customers. Here, I have to highlight that all of these OMO products are supported by our offline classes. They supplement each other, as the teaching content courseware materials, as well our teachers and technology, developed and originated from our existing offline centers and resources.
We believe that the above-mentioned OMO initiatives will be one of our growth engines to increase our customer acquisition post-COVID, and enabling us to capture the market consolidation opportunity. This revamped new business model will also accelerate our margin recovery in the rest of the year and further expand our long-term margin target. Furthermore, we will continue to invest in and implement new initiatives, including content development, teachers recruiting training, R&D, as well as sales marketing in K-12 after-school tutoring business on Koolearn.com. Third, our top priority will remain as the focus on controlling costs and reducing expenditures across the company to minimize the negative impacts from the pandemic on our bottom line. We believe we will resume the expansion of overall non-GAAP operating margin year-over-year as COVID-19 subside gradually.
Here, I would like to stress that we have great confidence in the fundamentals of our business, which we believe will continuously remain strong. Although we are facing various short-term negative impacts from the pandemic, and we have been increasing our investment in different strategy, we remain optimistic of a brighter prospective of our business, and believe our investments now will bring us fruitful returns in the long run. We're certain that with New Oriental's leading brand, superior education products and system, and the best teachers' resources, we have the ability to take further market share in China's huge after-school children market, and deliver long-term value for our customers and shareholders.
When looking at the near term and our expectations for the next quarter, we have factored in various considerations, including the one-month delay of national Gaokao and Zhongkao, the delayed enrollments for summer and autumn classes this year in many major cities, and the shortening of the summer holiday in many major cities by one to two weeks. Summer courses in July and August will be trimmed down to three to four terms only, which we typically have four to five terms historically. The recent reemergence of the COVID-19 cases in cities such as Beijing has delayed the resumption of both public schools and our children's schools in these areas. Inevitably, all these unprecedented situation have caused a lower visibility of our business performance data for the summer quarter. We take most conservative approach to make our forecast for Q1 2021.
We expect total revenue to be in the range of $911.2 million-$953.5 million, representing a year-over-year decline in the range of 15%-11% in dollar terms. If not taking into consideration of the impact of potential change in exchange rate between RMB and U.S. dollar, the projected revenue decline rate is expected to be in the range of 14%-10% for the first quarter of fiscal year 2021. To provide a breakdown of the expected top line growth for key business line, K-12 all subjects after-school tutoring business is expected to grow 3%-7%. Overseas Test Prep program is expected to decline 55%-61%. Overseas Study Consulting business is expected to decline 7%-11%, all year-over-year in RMB terms.
We also expect oversea-related business, including Overseas Test Prep and consulting service, will continue to decline due to the pandemics around the globe caused by the cancellation of the oversea exams and suspension of the oversea schools and restriction on travels. The negative impact on those oversea-related business will affect the entire education, the Overseas Test Prep-related industry in China, not only New Oriental, and may last over the coming one or two quarters. That said, in contrast, China's effective control of the pandemic situation has shed a more positive light on our business domestically. We're pleased to see that we have gradually resumed our offline operation in over 90% of cities that we are in, and the vast majority of students in these cities have successfully migrated back to our learning centers from OMO online classes.
We have also seen significant pickup in the year-over-year trend of student enrollment and cash proceeds from students in July this month for the summer quarter, which is a positive sign of recovery. To conclude, we're now taking all kinds of the operational actions to boost the enrollments and classroom utilization for the summer and autumn semester, and speed up recovery of business after the resumption of the schools and learning centers. We're confident that demand for after-school tutoring business will pick up gradually in the summer and in the rest of the fiscal year. I must mention that these expectations reflect New Oriental's current and preliminary view, which is subject to change. At this point, I will take your questions. Operator, please open the call for these. Thank you.
Thank you so much. The question- and- answer session of this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to join the question queue again after your first question has been addressed. To ask a question, please press star and one on your telephone keypad. Again, it's star and one if you wish to ask a question. Our first question comes from the line of Binnie Wong from HSBC. Binnie, your line is now open.
Hi, good evening, Stephen and Sisi. Thank you for taking my questions. In terms of the revenue guidance, the outlook, it seems a little bit soft, right? Can you help us to understand the assumptions behind? I think that we are talking about the recovery is already ongoing. I think there's a very interesting point, as Stephen mentioned since the last quarter call, about the consolidation of the market. Just want to see if there's any numbers that you can quantify on the industry side. Say, I don't know, like number of centers or number of institutions, something along the line to help us better to understand how much the consolidation has been progressing. Thank you so much.
Thank you, Binnie. Due to the less visibility of the performance data for the summer quarter, we were using the most conservative way to make the forecast of the Q1. I think there were several key reasons. Number one, we have the shortening by one to two weeks in summer holiday.
Typically, we had five terms of the summer courses within the summer vacation, in one summer vacation. Now we only have the 3.5 terms. Also, the Gaokao and Zhongkao were delayed by one month.
That means the enrollment window for the summer had to be postponed by at least one month. Number two the recent re-emergence of the COVID-19 in Beijing and Hebei province last week. In Dalian and Ürümqi. I think they impact us again. I must mention that the Beijing, in the summer, I think it's really hard for us to acquire the new student enrollment for the summer. If you take out the Beijing impact, all the other schools, the K-12 business will grow by 11%. Yeah.
Mm-hmm. Okay.
The last one is the Overseas Test Prep business. All the exams are canceled, and these students cannot travel, and the volatile China-United States, the two countries' relationship. We just wait.
Yeah, there's so many reasons. I think we are confident about the future.
90% of cities, most of the students of the 90 cities we are in went back to our learning centers. We do believe we can take more market share from the consolidation potentially, because yeah, we have seen a lot of small players disappear from the market. I don't have the numbers.
Yeah
It is what it is. That's why we opened 26% expansion last year in fiscal year 2020.
We plan to open 20%-25% new expansion in fiscal year 2021. I think this shows us the confidence to take more market share from the small players.
Yeah. I also want to add that the successful results by far for the summer promotion also indicated the potential opportunity to keep taking market share from smaller players that are facing much bigger challenges during the pandemic period than us. Our summer promotion total volume increase by far is already 20% increase year-over-year. It's very likely that when we finish the whole summer, the total enrollments will be even increased higher than that. These are all indicators for the potential opportunity for market consolidation for us.
Thank you. Thank you, Sisi and Stephen. Just a quick follow-up. In terms of the summer promotion course prices, how does it compare to last year as well?
Yeah. We got 986,000 enrollments till the mid-July, it's close to 1 million.
Right.
That means we got the 20% year-over-year growth. We keep the same price at the RMB 400, and we believe the retention rate will be higher than last year. We do hope we can get the 5% higher of the retention rate after the summer promotion. We did a very good job, and we do believe those students we got from the summer promotion this year will stay with us for three or six more years.
Thank you. That's very helpful. I think the situation is quite understandable, too. Thank you.
Thank you, Binnie.
Thank you so much. As a reminder, we will take one question at a time from each caller. The next question comes from the line of Jin Yoon from New Street Research. Your line is now open.
Hey, good morning, good evening, everyone. Stephen and Sisi, thanks for taking my question. I guess my question is related to your capacity expansion of 20%-25%. With that guidance that you gave, some of these, I guess, segments that you're seeing underperformance in, things like Overseas Test Prep, have you moved capacity over from these underperforming, I guess, segments to your better performing segments already? And is the capacity expansion already accounting for the shift in capacity that you're potentially seeing in your classrooms already, going from less performing to more performing type of classrooms? I guess the reason I ask that is that the cost of capacity expansion, if it's net of a lot of this, I guess, shift in capacity already, should we expect the actual capacity expand, the cost of it, to be materially less than what we've seen in the past? Thanks.
We set up the expansion plan 20%- 25% in fiscal year 2021, as we did, same as we did in last year. We do have the plan to make a shift of some non-performing learning centers to close down or to move it from the Overseas Test Prep to K-12 business. With all the numbers in, I think we will keep the same guidance of the expansion plan by 20%-25%. We do believe post COVID-19, we do have a lot of the market potential to take more market share from the small players and to fill more students into the new learning centers. Even after the COVID-19 happens in January and February, after that, in the last three, four months, we opened nine or 10 new learning centers.
I think we are quite ready, prepared for the new market consolidation opportunity. Jin?
Got it. Thanks, Stephen.
Thank you, Jin Yoon.
Thank you so much. Your next question comes from the line of Yuzhong Ga o from CICC. Your line is now open.
Hey, Stephen. This is Yuzhong Gao from CICC. Thanks for the opportunity. I think I have a rather longer-term question. Imagine a situation, given the sustained COVID-19 threat, where maybe structurally a higher and meaningful portion of the enrollment will be from online, either in a pure online form or a OMO model form. How do you think this will impact your margin profile in the long term? Thank you.
Okay. Yeah, I think this is a great question. I think going forward, we care both the online and the OMO. I think in terms of the revenue contribution, OMO class will continue to be our primary business model. We learn a lot from the pandemic, and I think we started to bear fruit from the heavy investment in last two to three years of the OMO model. As I said, where we're seeing the higher student retention rates and the customer satisfaction and the student retention rates are higher than the same period of last year. Going forward, I think we will do more and more on our OMO system. The key is the OMO system, that means we build the barrier entry higher for the whole industry.
We have the most advanced OMO system. Going forward, I think the OMO system will bring us more student enrollment, and it will drive the margin up by our new OMO model. The pure online Koolearn is just only 4%-5% of our total revenue. In the last quarter, they did very good the summer promotion, and also we started to spend more money especially on the R&D and on the teachers training, something like that. We spend a little bit more money on the marketing as well. We do believe we can take more market share even from the very heavy competition among the big players, but we will have a good future for the Koolearn. We have two as the growth engine, OMO and the Koolearn, the pure online platform.
Understood. Very helpful. Thank you.
Thank you.
Thank you so much. Your next question comes from the line of Mark Li from Citi. Mark, you may now ask your question.
Hi, Stephen and Sisi. Thanks for your sharing. I want to ask for this quarter, we have seen, like in the P&L, the gross margin is impacted by a few factors you mentioned, like online, also the revenue, and then also coupled with the higher selling expense, et cetera. You're also saying the driver. May I know, in the short term view, let's say in the next few quarters, how would we think these drivers to move? How about in the coming a few years, more medium term? Which part of the P&L you think you have a better upside in improvement? Thanks.
It's a hard time, especially for last quarter, for the Q4, and maybe in the Q1, you saw our guidance. We're doing the two things at the same time. Number one, we are focusing on the cost control and reduce the expenditures across the company to minimize the negative impact of the COVID-19. This is number one. Number two. We do believe the revamped OMO model will accelerate our margin recovery in the rest of the year, and further extend our margin profile going forward. As for the fiscal year 2021, the Q1 margin, we believe the margin decline in Q1 will be narrowed down compared to Q4 last year, compared to this quarter. We're confident that we'll be able to deliver continued margin expansion after the pandemic is over.
For fiscal year 2021, we expect the margin will be recovered in the second half of the year, especially. In mid long term, we want to change our guidance of our mid long-term margin guidance. The non-GAAP operating margin in mid long term should be somewhere around 17%. I must mention that with more and more OMO model we add into our learning centers, I do believe someday we will raise our mid long-term margin guidance, okay, because of the new model. Thank you, Mark.
Okay. Thank you very much, Stephen.
Thank you so much. Your next question comes from the line of Felix Liu from UBS. Felix, your line is now open.
Hi. Thank you, management, for taking my question. My question is on the online side. Definitely, I'm very happy to see some positive progress there. Could you maybe share with us how well the traffic for Koolearn pertaining to summer? Also for the online, I noticed the OMO model as well as your new teacher is penetrating fairly successfully into lower tier cities. How would you balance that with the DFUB brand that Koolearn runs that runs on ASP similar business models? Thank you.
Yeah. During last quarter, Koolearn did a large scale of market promotion by offering the free large size online classes. I think that we attract several times more traffic than that of last year. I don't think that I can say something in detail or numbers in detail of the Koolearn because they haven't announced their result. What I can say is we do believe we did a very good job in last quarter of the promotion after the COVID-19. We spend more money on the R&D and the teachers training side as well as the marketing side. I do believe the Koolearn will get the healthy top-line growth and they provide the better quality product to the students going forward.
Thank you, Stephen. Also, how would you balance the OMO with DFUB going forward, say, from a longer term perspective?
Yeah. I think there is a two way we're using at the same time. Koolearn is 100% online, okay? The OMO is the leverage offline resources to our online platform that help us to reach out more student enrollment. All the OMO class coursework content, and even the teachers are originated from our offline learning center and schools. I know in some cities, maybe there might be like internal competition in the same city, by the Koolearn and our OMO model. I think the market is huge enough, so we care more about taking more market share from the others. I do believe the cannibalization between the two parts will be very minimal. Okay, Felix?
Okay. Thank you very much for the color. This is great. Thank you.
Thank you.
Thank you so much. Your next question comes from the line of Tian X. Hou from T.H. Capital. Tian, your line is now open.
Hi, Stephen, Sisi. Thank you for picking my question. It's regarding the OMO. OMO is a very effective tool to deliver the courses in the area, hard to reach or deliver the courses when we have this pandemic. When we mix them together, what's the result? What is the impact to the gross margin? I expect to be positive. What is the impact on that? When students taking the class online, offline, will there be a price difference for the offline? Also, we are entering into a new fiscal year. Is the price going to be higher than last year? That's the question. Thank you.
I think the OMO model will bring us more revenue compared to the traditional way. This is number one. Number two, I think the students and parents love the new OMO model. They think that the new model is progress better than the traditional one. It drives the retention rate up and the learning center utilization rate up. To some extent, we can save some classroom rentals. It will drive the margin up going forward by the OMO model.
The price.
Oh, the price. We charge the same.
Yeah.
We charge the same for the OMO classes with the traditional offline classes. We will use the same price strategy going forward. This quarter, the prices are a little bit weird because of the coupons, because of the one-on-one business impact of the ASP. Going forward, I think the hourly rate, our ASP, will be increased by 5% - 8% as normal. We don't want to change our price strategy going forward. It will be very stable.
Okay. Thank you, Stephen.
Yeah.
Thank you.
Thank you so much. As a reminder, we will take one question at a time from each caller. Your next question comes from the line of Alex Xie from Credit Suisse. Alex, your line is now open.
Hi, Stephen, Sisi, for taking my questions. Firstly, a very quick question. You have shared the guidance for K-12 in next quarter will be about 3%-7% growth. What about the difference between POP Kids and U-Can and VIP one-on-one in your assumptions for the next quarter? Secondly, if we assume the pandemic in Beijing and other cities were well-controlled before the start of the next academic year, what's your expectations for the recovery pace of the K-12 business in the rest of the fiscal year? When do we expect the business to get the normal growth rates in FY 2021?
Yeah, Alex, the revenue guidance in the coming Q1, as I said, we are using the most conservative way approach to make the forecast because of the uncertainty. Even within this week, our enrollment window is still opening. Okay. It's delayed by one to two months. The different business lines, the U-Can program, I think in the Q1, in most conservative way, the revenue growth will be 7%-8%. I think the VIP business in Q1 should be recovered, should be better than we did in Q4, because I think that the parents will push their kids to study more to make up for the last quarter. The POP Kids, I think the revenue growth will be somewhere around 5%-6%. What I'm saying is in RMB term.
The recovery pace, I think, as I said, 90% of our cities, our learning centers were reopened in last one or two months, and I think the trend will be better. I do believe we'll do better in step at that in fiscal year 2021. I just want to persuade you guys to be a little bit more patient. In the Q1, there's some uncertainty, like the Beijing or Hebi province. Going forward, I do believe our K-12 business will be recovered step by step, especially for the Q2, Q3, and Q4.
Yeah. Actually, to share more details with you, for the Q1 guidance for K-12, because of the second round of newly identified COVID-19 cases in Beijing, put more pressure on the recovery of Beijing city. The new customer acquisition in Beijing are facing bigger challenges than other cities that have already resumed the offline operation. If you take out Beijing, all the other cities, K-12, if you look at our forecast in Q1, the year-over-year growth trend are similar to Q4's. I think the business are already started to recover for the K-12 business. Yeah.
Yeah. I do believe our Beijing school will reopen our learning centers in September. Okay?
Sure. Thank you. Very helpful.
Thank you. Thank you very much.
Thank you so much. Your next question comes from the line of John Choi from Daiwa Capital Markets. John, your line is now open.
Hey, guys. Thanks for taking my question. I have a quick question on your overseas business, including test prep and consulting. I know it's a very difficult time due to the uncertainty and also pandemic going globally. Do you think the recent COVID-19 situation will have an impact, like a more of a long-term fundamental impact on your Overseas Test Prep business? Obviously, next quarter, you guys guided a pretty conservative figure. I'm just wondering for the remaining part of this year and also in the long term, how should we think about this business? Thank you.
The Overseas Test Prep business, we saw the significant decline in Q4. We give the conservative guidance of the Q1 because of the COVID-19 and cancellation of the exams, like the TOEFL, GRE, IELTS, and suspension of the overseas schools and the restriction on travels. We have seen in some cities like Beijing, then eight to nine cities, the IELTS and TOEFL tests will be reopened in this month. We read this news. We do hope our Overseas Test Prep business can be recovered step by step. It's a very hard time because of the volatile China-United States relationship between the two countries. Some students and parents choose to hold the time to make the final decision to study abroad or not. I do believe our business can be recovered step by step.
It depends on the students in China know the exact time of the overseas, the college and universities will be reopened, and all the exams can be reopened, something like that. It's a hard time. We just wait and see. Okay. Thank you. One more thing is, the Overseas Test Prep business, I think in the Q4, the revenue contribution of the Overseas Test Prep was only 5.6%. We do believe because of the hard time, the revenue contribution in the Q1 from the Overseas Test Prep should be below 10%. The revenue contribution from the Overseas Test Prep will be smaller and smaller. Thank you.
Thank you so much. Your next question comes from the line of Sheng Zhong from Morgan Stanley. Your line is now open.
Okay.
Hi. Thank you for taking my question. Just one question about the K-12 growth. As you mentioned, the trend outside Beijing in Q1 is similar with Q4. Actually, the summer holiday is shortened, and the period is only about 70% of the normal summer holiday. If they take this into account, can we say that in the summer holiday, the K-12 real growth during the summer season is actually mid to high teens? Thank you.
To some extent, in pro forma basis, because yeah, you are correct, Sheng Zhong, we have the 30% time loss of the summer holiday. As for the pro forma basis, I think the top-line growth of the K-12 business, the actual, the real top-line growth of the K-12 business should be over 10%. In the quarters after, like Q2 and Q3, Q4, I do believe the K-12 business, the growth will go back to normal as we did in last year, unless the bad things come back again, like the COVID-19 in some major cities. Sheng Zhong.
Thank you very much.
Thank you, Sheng Zhong.
Thank you so much. Your next question comes from the line of DS Kim from JP Morgan. Your line is now open.
Hi. Thank you, Stephen and Sisi, for taking my question. Quick one from me on VIP only. I think I may have missed this all year. Can you remind us how much did the VIP revenue drop in fourth quarter in $ term or CNY, and what's implied in the guidance? The follow-up from here would be that I'm just wondering why this segment is so bad into the summer still. Is this just a function of high price and people are reluctant to convert to online or spending less because less cash flows and whatnot? Is there anything else more structural, i.e., how much of this VIP drag is structural in your view versus temporary and cyclical setback? Thank you.
The U-Can VIP business in Q4 was down by 21% year-over-year. I think it's easy to understand the parents and the kids choice. They pay you a lot of money, and we move the offline class to online, and some students choose to postpone their study plan by one-on-one business in Q4. In the Q1, based on our forecast, I think the one-on-one business recovered very quickly, especially in June. We have seen a lot of new student enroll in our VIP classes to prepare for the Gaokao and Zhongkao. I do believe the VIP business will be recovered step by step. Okay.
Thank you. May I just follow up? When you say recovery, are we talking about year-over-year growth or still down but much less than what we saw?
Year-over-year growth. I do believe we will get the U-Can, the active business grow in the coming Q1 year-over-year.
Thank you very much.
Thank you.
That answers my earlier question that the downturn is more temporary and cyclical than structural. Thank you.
Okay. Thank you.
Thank you so much. Your next question comes from the line of Alex Liu from China Renaissance. Alex, your line is now open.
Thanks, Sisi and Stephen. My first question is on the OMO strategy. Specifically, I know that some small class courses in fall semester are now 100% online. We obviously know TAL has a pure online business within its Peiyou segment. I was just wondering, when we are talking about OMO, how should we think about the importance of pure online small class program within U-Can and POP Kids, in the longer term? A quick follow-up. How should we think about the revenue growth across different segments in the fiscal year 2021? Thank you.
Yeah. Koolearn is a pure online platform. The OMO is the more supplemental tool to our offline business. Yeah, you are right. In last quarter, in the Q4, we moved 100% of the offline class to online. Afterwards, 90% of our students went back to our offline learning centers. We will put more and more. We will keep some online elements going forward. Yeah. As I said, both the Koolearn and the OMO side, the market's huge enough for both parts of the potential growth. As I said, I think the internal competition will be very small. Yeah. What's the second one?
Revenue growth for fiscal year 2021.
Yeah. The revenue growth in 2021 across different segments.
I think, this time is very special. Even for the Q1 guidance, we spent a lot of time and as I said, we are still in the student enrollment window in this week and next week. I will put the question to the next quarter of our earnings call. I do believe our business will be recovered step by step, especially for the Q2 , and I think all the business will be recovered as normal. Yeah.
Yeah, I understand. Thank you very much.
Thank you, Alex.
Thank you so much. Your next question comes from the line of Tommy Wong from China Merchants Securities. Tommy, the line is now open.
Okay, thank you. Hi, Stephen, Sisi Zhao . I just have a general question. If you look at the overall market, we can see a lot of the online players like Youdao and GSX, the share price has done really, really well. When I looking at your selling expenses, it seems has not really increased a lot. I was kind of expecting to increase a little bit for the fourth quarter, but actually hasn't increased. I'm kind of concerned, are we not being aggressive enough? Maybe if you can talk about your sales and marketing kind of breakdown between the OMO versus Koolearn, and what's your strategy going forward? I'm just kind of concerned that we're not being aggressive. Thank you.
Yeah. I think we spent a little bit more money on the koolearn.com in last quarter. I think we did the first time, the free course for the large size class, in the spring semester. As I said, in the last several earnings call, we don't want to spend crazy money on marketing side. We would rather spend more money on the R&D and teachers training and some core product development. Yeah, I know there's some players spend a lot of money on the marketing side, but I think the market is huge enough. We are special because we have the number one education brand name in China. I think the Koolearn can benefit from our New Oriental brand name to acquire the new student enrollment. This is very unique.
Okay. Thank you. Thank you.
Also, our Koolearn.com, we have the DFUB, the small size online broadcasting classes. These are very special, and I think we are one of the few players can do the small size pure online classes. I think the business model does work. We testified in last two to three years, and it grows very fast. Yeah. That's it. Is it clear?
Thank you. Thank you.
Yeah. Thank you very much.
Thank you so much. We are now approaching the end of the conference call. I will now turn the call over to New Oriental CFO, Mr. Stephen Yang, for his closing remarks.
Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you.