Good evening, and thank you for standing by for New Oriental's fourth fiscal quarter and fiscal year 2019 earnings conference call. At this time, all participants are in listen-only mode. After management 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 like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao. Thank you. Please go ahead.
Thank you. Yeah, thank you. Hello, everyone, and welcome to New Oriental's fourth fiscal quarter and fiscal year 2019 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 will 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. We're very pleased to conclude fiscal year 2019 on a strong note, with robust growth in the top line, as well as improvement in operating margin. In fiscal year 2019, we reported a net revenue of $3,096.5 million, representing a 26.5% increase year-over-year or 31.4% if computed in RMB. Total student enrollments in academic subjects tutoring and test-prep courses in fiscal year 2019 increased by 32.4% to approximately 8,382,700. During fiscal year 2019, we added a total of 152 new facilities, which includes 141 new learning centers in existing cities, nine offline training facilities in six new cities, and two two-teacher model facilities in two low-tier cities. Altogether, our total square meters of classroom area by the end of the fiscal year has expanded by approximately 24% year-over-year.
We also continue to strategically deepen our investments into the two-teacher model classes and new initiatives for K-12 tutoring in our pure education platform, Koolearn.com. With innovative application technology, our education services were well-placed to continue to capture new business opportunities in low-tier cities and remote areas. In the fourth quarter, we continued to execute our well-proven optimized market strategy and focus our efforts improving utilization in facilities and controlling cost expenses. This has enabled us to tap into tremendous market opportunities with our standardized online, offline integrated education system. As we continue to expand our capacity, we remain focused on improving utilization rates and investing in enhancing teaching quality in line with our long-term strategy. In the fourth quarter of 2019, we reported revenue of $842.9 million, representing a 20.2% increase year-over-year or 28.4% if computed in RMB.
Net revenue from education program and services for the fourth quarter was $717.0 million, representing a 25.1% increase year- over- year or 33.6% if computed in RMB. The growth was mainly driven by increase in student enrollment in K-12 after-school tutoring courses. Total student enrollments in academic subjects tutoring, and test-prep courses in the fourth quarter of 2019 increased by 33.9% year- over- year to approximately 2,756,000. I will now turn to pricing. Program blended ASP, which is cash revenue divided by total student enrollments, decreased by about 18% year- over- year. Please note that the lower-than-normal blended ASP is primarily due to the change in tuition fees collection schedule for our K-12 after-school tutoring courses, which split the autumn semester into two parts, similar to what we did in the spring semester.
The number of the students recruited and the amount of the fee collected during the quarter only cover the first half of the autumn semester. This is different from the past, where we historically collect the full sum of the tuition fee for autumn semester in the fourth quarter. The change in tuition collection schedule, therefore, means our blended ASP for the fourth quarter of 2019 appears to be lower. Hourly blended ASP, which is cash revenue divided by total teaching hours, increased by approximately 10% year-over-year in RMB terms. To provide a breakdown of the already blended ASP, U-Can middle school, high school increased by 10%, POP Kids increased by 12%, and the overseas test prep program increased by 7% all year-over-year in RMB terms. Our solid progress in fiscal year 2019 is in line with our expansion plan and our emphasis on improving our operational efficiency.
We would like to highlight that we once again delivered another year-over-year operating margin expansion in this quarter. During the quarter, our non-GAAP operating income increased by 30.3% year-over-year to approximately $102.7 million. Non-GAAP operating margin rose by 100 basis points to 12.2% from 11.2% a year ago. As we enter fiscal year 2020, we will continue to leverage our online, offline integrated education system across all business lines and improve efficiency using standardized, modularized, and systemized operating processes. We're confident that we will be able to deliver continual margin expansion and generate sustainable long-term value for our customers and shareholders. We would also like to take the chance to talk about our recent summer promotion strategy, which has delivered outstanding results.
In consistence with last few years, we launched the summer promotion this year to rapidly secure Grade 7 students customers before they started their first year of secondary school. We offered low-priced experiential courses for multiple subjects in total of about 43 cities. We're extremely pleased to see that even with an increase in our promotion price from around RMB 200 to around RMB 400, the summer promotion remains very well-received by the market. In fact, the promotion enrollments we brought in before the start of the summer holiday in early July this year, saw a 4% increase comparing the same period of last year, reaching 765,400 enrollments. Under this strategy, we're also able to better identify and retain customers with higher loyalty. Overall, we are pleased to see the higher positive outcome. Please know that these promotion enrollments are not recorded in our reported enrollments.
Looking ahead, this year we will become even more focused on efforts in retaining a larger portion of students following the promotion, which will boost the revenue and drive profit growth throughout the fiscal year 2020. We do not foresee any negative impact of the promotions on operating margin throughout the whole fiscal year. We're confident that the summer promotion will continue to be a sound and highly profitable strategy to rapidly increase and secure market share in the high-growth K-12 after-school tutor market. As these students move from Grade 7 through to Grade 12, the continued improvement in retention rate and customer loyalty will drive revenue growth in the next three to six years. Now, let us move on to the fourth quarter performance across our individual business lines.
Our key revenue driver K-12 all subjects after-school tutoring business achieved year-over-year revenue growth of 29% in dollar terms or 37% in RMB terms. We should highlight that, as we have mentioned in last quarter's earnings call, we moved one week of K-12 tutoring classes from March to June to ensure our teachers have enough time to complete the licensing procedures. Therefore, our K-12 tutoring revenue in this quarter saw a degree of impact from the arrangement. The revenue related to the adjustment will be recognized in the first quarter of fiscal year 2020. Breaking it down, the U-Can middle school, high school all subjects after-school tutoring business recorded a revenue increase of about 27% in dollar terms or 36% in RMB terms for the quarter. New enrollments grew approximately 24% year-over-year for the quarter.
The lower than normal enrollment growth is due to delayed registration for classes in certain cities in compliance with the new industry regulation, stating that the tuition fees will not be collected more than three months before the class start. Our POP Kids program continues to produce outstanding results, with revenue up by about 31% in dollar terms or 40% in RMB terms for the quarter. Enrollment was up about 56% for the quarter. The overseas test prep business recorded a revenue increase of 13% in dollar terms or 21% in RMB terms for the quarter. The consulting business recorded revenue growth of about 2% in dollar terms or 9% in RMB terms year-over-year for the quarter.
As we mentioned in the last quarter's earnings call, the adoption of the new accounting standards has led to greater portion of the revenue from the overseas consulting business being recognized in Q3 instead of Q4, which is peak season for the business line. Finally, VIP personalized class business recorded the cash revenue growth about 14% year-over-year in dollar terms or 21% in RMB terms year-over-year for the quarter. Next, I will provide some updates on the progress we're making with our optimized market strategy. Consistent with our long-term plan, we have been focusing on expanding our capacity by investing in the build-out of our online and offline integrated education system, and this continues to produce very promising results. We will start with our offline business.
In the fourth quarter of fiscal year 2019, we added a net of 65 learning centers in existing cities and opened three offline training schools and one learning center in the city of Baotou, Changshu, and Yuzhou. Altogether, this increased the total square meters of classroom area by approximately 24% year-over-year, and 9% quarter-over-quarter by the end of the quarter. Since July 2016, we started to pilot a new tuition model class in select cities. By the end of the fourth quarter of fiscal year 2019, the new offering has been tested in the POP Kids program in 37 existing cities, and U-Can middle school, high school program in 29 cities. In both POP Kids and U-Can K-12 business in nine new low-tier cities. We're encouraged to see increased market penetration in those markets we have tapped into as a result of the offering.
We also saw maintained customer retention rates improve the scalability generated by the model. We will continue to execute the strategy in the coming new fiscal year, given this proven result. Moving on to the online part. We invested $31.5 million in the quarter to improve and maintain our online to offline integrated education ecosystem, and a total of $103.1 million for the full fiscal year 2019. Most of the investments were recorded under G&A expenses. I will walk you through some updates on the online, offline two-way interactive education system. Since the launching of the U-Can Visible Progress Teaching System in September 2014, the interactive education system has been used in all existing cities. We have launched the newly revamped POP Kids English program, Shuangyu, in most of the cities by end of the Q4 fiscal year 2019.
The interactive education system has been gradually used in more and more cities. The interactive education system for overseas test prep program, including IELTS, TOEFL, and SAT courses, was rolled out and tested in most major cities by end of Q4 fiscal year 2019. At the same time, we also standardized our product offerings across 14 major cities. We also made strides in the Koolearn.com business line and other supplementary online education products. With the goal of tap into the huge market opportunity in the online education space, we continue to deepen our investment of resources into executing new initiatives in our online K-12 after-school tutoring business during the fiscal year 2019. This includes investment into content development, teachers recruiting and training, sales marketing, R&D, and other cost expenses necessary to drive the growth of the new online programs.
These programs have enabled us to cover more students in both low-tier new cities and higher-tier cities covered by our offline business interactive and scalable approach through these programs. We're confident that this will help Koolearn.com gain new market share in the online education market and drive up top-line growth. Now, let me walk you through the other key financial details for the fourth quarter. Operating cost expenses for the quarter were $765.9 million, representing an 18.9% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were $740.2 million, representing a 19.0% increase year-over-year. Cost of revenue increased by 24% year-over-year to $371.2 million, primarily due to increase in teachers' compensation for more teaching hours and the rental cost for the increased number of schools and learning centers in operation. Selling, marketing expenses increased by 4.8% year-over-year to $105.9 million.
General administrative expenses for the quarter increased by 18.4% year-over-year to $288.8 million. Non-GAAP general administrative expenses, which exclude share-based compensation expenses, were $264.4 million, representing a 19.2% increase year-over-year. This increase was primarily due to the increased headcount as the company grew its network of schools and learning centers, as well as the increase in R&D expenses and human resource expenses related to the development of the company's online, offline integrated education system. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 15.9% to $25.7 million in the first quarter of fiscal year 2019. Operating income was $77 million, a 36.0% increase from $56.6 million in the same period of the prior fiscal year. Non-GAAP operating income for the quarter was $102.7 million, a 30.3% increase from $78.8 million in the same period of prior fiscal year.
Operating margin for the quarter was 9.1% compared to 8.1% in the same period of prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses and the changes from fair value change of the long-term investment for the quarter, was 12.2% compared to 11.2% in the same period of the prior fiscal year. That means our margin expansion was 100 basis points up in this quarter. Net income attributable to New Oriental for the quarter was $43.2 million, representing a 33.5% decrease from the same period of prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were $0.27 and $0.27 respectively. Non-GAAP net income attributable to New Oriental for the quarter was $95.1 million, representing an 8.9% increase from the same period of last year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were $0.60 and $0.60 respectively.
Net operating cash flow for the fourth quarter of 2019 was approximately $326.9 million. Capital expenditures for the quarter were $65.3 million, which were primarily due to the opening of 104 learning centers and renovations of the existing learning centers. Turning to the balance sheet. As of May 31st, 2019, New Oriental had cash and cash equivalents of $1,157.1 million, compared to $983.3 million as of May 31st, 2018. In addition, the company had $365.7 million in term deposits and $1,668.7 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 delivered, at the end of the first quarter of fiscal year 2019 was $1,301.1 million, an increase of 2.4% from $1,270.2 million at the end of the fourth quarter of fiscal year 2018.
Due to the company's adoption of new accounting standard starting June 1st, 2018, as of the end of the first quarter of fiscal year 2019, $76.1 million of deferred revenue was reclassified to the accrued expenses and other current liabilities, representing the estimated amount of the tuition collected that may be refunded in future if students withdraw from a course before completing all classes. In addition, the lower than usual increase was due to the change of tuition fee collection schedule in compliance with the latest regulatory requirements. Heading into the new fiscal year, we will continue to execute the optimized markets strategy. The approach has consistently supported us to achieve success in the last several years, and we're well-placed to capture a wider range of the market opportunities.
To give you more specifics on our areas of focus for fiscal year 2020, first, we will continue to expand our offline business. We aim to add around 20% capacity, including new learning centers and expanding classroom areas of some existing learning centers for K-12 business in existing cities. In addition, we will continue to roll out our new teacher model schools to a number of new low-tier cities in certain provinces throughout the year. Second, we will continue to leverage our investments in online/offline integrated standardized teaching system for our offline business, especially for our K-12 tutoring and overseas test p rep business. We will continue to make investments, and we believe that the total spending in absolute dollar terms in fiscal year 2020 will increase moderately compared with the last fiscal year.
We will continue to invest in and execute the initiatives, including the product content development, teachers recruiting and training, R&D, as well as sales marketing in pure online K-12 after-school tutoring business, our Koolearn.com. Third, our top priority will remain as the focus on optimizing utilization of facilities and controlling cost expenses across the business to drive continued margin expansion and increased operational efficiency. We have solid confidence to deliver continued non-GAAP operating margin expansion and enhanced operational efficiency for the coming fiscal year, as new facilities built in fiscal year 2018 and 2019 continue to be ramped up and utilized efficiently. To improve utilization, we'll cover the margin pressure resulting from our investments in the Koolearn.com, as well as the other pure online education products.
In short, we expect our overall non-GAAP operating margin to expand year-over-year in the first quarter of fiscal year 2020, and for the whole fiscal year. With newly introduced policy related to the after-school tutoring institutions being implemented on city-by-city basis, we continue to comply with the regulatory requirements closely and cooperatively. Administrative costs that incurred as a result of new policy have been in line with our expectation and have been digested within fiscal year 2019. As such, we do not currently see material impact on the business. As a leading education service provider in China, we're firmly supportive of these reforms, which will improve market standards and foster healthy growth of the industry. We're committed to provide high-quality education service and contributing to the creation of a sustainable market.
Finally, the recent RMB depreciation against the U.S. dollar will also impact our earnings in dollar terms for the first quarter of 2020. Finally, I would like to emphasize that we have great confidence in the fundamentals of our business, which is set to remain strong. As we continue our optimized market strategy, we're certain that New Oriental will continue to capture sustainable growth opportunities in the market and deliver long-term value for our customers and shareholders. Looking at the near term and our expectations for the next quarter, we expect total revenue to be in the range of $1,050.5 million-$1,075.5 million, representing a year-over-year growth in the range of 22%-25%.
If not taking into consideration the impact of the potential change in the exchange rates between RMB and the U.S. dollar, the projected revenue growth rate is expected to be in the range of 26%-29% for the first quarter of fiscal year 2020. The estimated exchange rate used to calculate the expected revenue for the first quarter of fiscal year 2020 is RMB 6.8851. The historical exchange rate used to calculate the revenue for the first quarter of fiscal year 2019 was RMB 6.6757. This forecast has taken into account the factor that traditionally, our overseas test prep business has relatively large contribution to the overall business in the first quarter compared to the rest of the year. Thus, the overall year-over-year growth rate in the first quarter tends to be slowest when compared to the other quarters. With this, we anticipate the upward trend to emerge throughout the 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, please. Thank you.
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. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Please note there will be a short pause as the questions are being collated. We thank you for your patience. Your first question comes from the line of Alex Xie from Credit Suisse. Please ask your question.
Hi, Stephen and Sisi. Thank you for taking my questions, and congratulations on very strong results. I'd like to ask for management's expectations about FY 2020 in terms of both revenue growth and margins after delivering a strong Q4. Have we become more optimistic about FY 2020 than before? Secondly, I think for this quarter, the revenue growth of overseas test prep and consulting business I think exceeded expectations. What's the reason behind such outperformance? These are my two questions first. Thank you.
Okay. Thanks, Alex. This quarter, the revenue growth was 28.4% in RMB terms year-over-year. It was a very strong quarter. Even though we have the lower than usual Q4 revenue because we moved the one week revenue from March to June, that means we will record the one week more revenue in the coming Q1 rather than this quarter. Some overseas consulting revenue, that means based on the accounting policy change, we record some revenue of the overseas consulting revenue in Q3 rather than this quarter. We still get the very strong quarter. In fiscal year 2020, I think as we guided before, we got in the s treet our top line growth in RMB terms year-over-year in fiscal year 2020 will be over 30%. This is our official guidance for the fiscal year 2020 top line growth. I think this is because of the three reasons.
Number one is we are seeing a higher student retention rate. Number two is, you saw we expanded 24% new square meter classroom area in fiscal year 2020, and we plan to open another 20% new classroom area in the fiscal year 2020. Number three, we get very strong performance from the summer promotion enrollments. As for the margin, you guys see another strong quarter of the margin expansion. In the Q1 fiscal year 2020 and the whole year, as I said before, we guided the still guided margin expansion in the Q1 fiscal year 2020 for the whole year. Because we have more operating leverage from the operation. This is my answer to your first question. Second question, overseas test prep.
This quarter, our overseas test prep business recorded revenue growth of about 13% in dollar terms or 21% in RMB terms. I think it's much better than we did in the last three quarters of fiscal year 2019. I think this is a result of our product reform for overseas test prep classes because we are seeing more and more the young students to take our TOEFL, SAT courses. So we're rolling out the new online/offline integrated product as we did in the K-12 for the overseas test prep. I think going forward, our overseas test prep business will achieve a positive result in fiscal year 2020. Okay, thank you.
Oh, actually, please note that the revenue guidance for next fiscal year is in RMB term, okay?
Yeah, RMB term, over 30% year-over-year. Okay. Thank you, Alex.
Okay. Thank you. May I just have a follow-up about our summer promotion, because I think our expectations for FY 2020 is actually quite strong. I think in terms of number of summer promotion enrollments, it seemed that absolute amount of increase in the number of enrollments is not that high as before. What are our expectations for the retention rate or have we changed the strategy to grow our business in this year?
Yeah. Consistent with the last few years. Even we raised the price from RMB 200 last year to RMB 400 this year. We're still seeing the strong enrollments from the summer promotion. Far we've brought the enrollments from the summer promotion of about 765,000, which is a 4% increase compared to last year. This year, I think the strategy change we made of the summer promotion is for us, we are able to better identify who are the real customers and retain the customers, more customers after the summer promotion. We believe the retention rate after summer promotion this year will be better, higher than last year, definitely. Okay.
Okay. Thank you. Thank you very much. It's very clear.
Your next question comes from the line of Tian Hou from TH Capital. Please ask your question. Tian Hou, your line is open. You may ask your question.
Sorry, I was silent myself. Hi, Sisi and Stephen. Congratulations on a good quarter. I also have two questions. One is related to online education. We see the competition of the online education in China sort of heated up, and we saw a lot of advertising, offline advertising, online advertising. EDU is also one of the online education vendors. I wonder, what is the strategy for EDU to further develop your online education's brand awareness and as well as revenue market share? That's number one. I'm gonna give you the second question also, which is, it seems like your tone for next fiscal years is much more optimistic than last year. What are the drivers behind those optimistic tone for this fiscal year? Thank you.
Okay. Thanks, Tian. Your first question relates to the online education. With a goal to tapping into the market opportunities in the pure online sector, I think we continue to invest, but we would rather spend more money on the content development, R&D, and teachers recruiting and training. Also, we will spend some money on the marketing and selling marketing expenses. I think the spend on the marketing will be reasonable, because we won't use the burning money way to acquire students as we did in our offline business historically. This is our online strategy, okay? Your number two question is about the guidance, okay? The guidance.
Yes.
Actually, in this quarter, we got very strong numbers. I think, in the fiscal year 2019, we opened 24% new learning centers in square meter size. It brought us more student enrollment, and we will be able to guidance again this quarter. We're seeing the higher student retention rate. I think this is the result of the investment on the product since several years now. I think we are more confident about our product. That means we're providing better quality service to students compared to before. Second, even though we raised the price of the summer promotion courses, but we still got the full numbers, and we believe the retention rate after the summer promotion will be higher. If you look at the competition environment, I don't think it changed.
Our job is to provide the best service as we did before going forward, and to take market share as much as we can going forward. Okay.
Thank you. Thank you. Congratulations again.
Thank you. Thanks.
Your next question comes from the line of Sheng Zhong from Morgan Stanley. Please ask your question.
Hi, Stephen, Congratulations on the good results. I want to follow up your revenue outlook of more than 30% year-over-year growth. Can you give us a breakdown of the growth expectation for the different business lines? You are also very confident about the margin expansion. Can you give us more color on the margin expansion magnitude, if possible? Thank you.
Okay. The breakdown of the old business lines, I think the K-12 business will be the key revenue driver in fiscal year 2020. We got the top-line growth of the K-12 business growth will be 40%, somewhere around 40% year-over-year. All what I'm saying is in RMB terms, okay? overseas test prep, I think the top-line growth will be 10%+ year-over-year, okay? The domestic test prep, I think the growth rate will be somewhere between 15%-20% in RMB terms. I'm sorry I can't give the detailed guidance of the pure online, the Koolearn.com, but I think the revenue will be strong, okay? Overseas consulting, I think the top-line growth will be somewhere around 15%-20%. This is my guidance by different business lines, okay? Margin, yeah.
I think we do believe we have the more optional leverage going forward, because when I give the top-line guidance of over 30% in fiscal year 2020. That last year and fiscal year 2019, the expansion was 24%. In fiscal year 2018, we opened a lot of learning centers. I think it was over 40%. I think the first job in fiscal year 2020 for us is to fill more students into the learning centers we set up in last two years. In fiscal year, as I said, we plan to expand 20% new learning centers, but the top-line growth will be over 30%. You will see more leverage going forward. That's why I give the margin expansion guidance for this new fiscal year 2020. Yeah.
Sure. Thank you very much.
Yeah. As well, we do have the more optional leverage on the selling marketing expenses and G&A. If you saw the numbers of this quarter, our selling marketing expenses just increased by low single- digits. Okay.
Okay. Thank you.
Yeah. Okay. Thank you.
Your next question comes from the line of Tianli Wen from Blue Lotus. Please ask your question.
Hi, management. Thanks for taking my call and congratulations for a solid quarter. I have one question here. We see the gross margin down 1.3% year-over-year. Could management provide more color on that? Thank you.
Okay. Yeah. Thanks, Tianli. I think the margin was down by 130 basis points. I think it was mainly due to the lower than expected revenue this quarter. As I said, we moved the one week revenue from Q4 to Q1.
Because of regulation.
Yeah, because of the regulation. This quarter is one-time impact of the overseas consulting revenue. We do have some the fixed cost of the teachers and staff cost in Q4. I do believe we will have the gross margin expansion in the coming new quarter. Okay.
Thank you.
Thank you.
Your next question comes from the line of Alex Liu from China Renaissance. Please ask your question.
Hi, thanks, Stephen. This is two questions. First, I think given the recent regulations, which basically limits the competition and admission selection for middle school, do we see any positive spillover effect for our middle and high school tutoring business going forward? Second question is on the financial questions. We see the non-controlling loss was actually expanding a bit this quarter sequentially and year-on-year. Is that something related to the loss of Koolearn or is that something from other business sections?
Okay. My second answer for question two. Yes. This is some impact from the Koolearn.com, yeah, the NCI.
Okay.
Yeah. The regulations, there's some regulations since the last year, our attitude is to we're fully supported the government reforms and the implementation. Actually for the offline side the regulations is carried out on city-by-city basis. We do not foresee any material impact from the regulations. On the contrary, we fully support the regulations from the government because I think it's good for the whole industry. We're doing our jobs and to provide better service to the students and to provide a better product and to give the better feedback from the parents and kids. This is our target. I think this is a good timing for us to take more market share by providing the better product. This is our attitude to the policy. Okay.
Okay. Thank you, Stephen.
Okay. Thank you, Alex.
Your next question comes from the line of Jin Yoon from New Street Research. Please ask your question.
Hi, good evening. Thanks for taking my questions, guys. Just a couple from me. Excuse me. On the summer program, with the pricing increase, has there been a change in content in relation to that pricing increase? That's my first question. What percentage of the, I guess, the summer program or the programs today that you see is coming from the two-teacher model, and how should we expect that for the fiscal 2020 going forward? My second question is related to your FX. Not sure if I calculated this right, but I think my FX estimate in the prior quarter was a little bit different than what you guys provided. There was probably somewhere like a 300 basis point impact to FX according to my numbers, and which impacted revenues upwards of $20 million.
I'm just wondering if there was something different about FX in the quarter, or is it something that I was just kind of mistaken myself. Anyhow, any color on that would be great. Thanks, guys.
Yeah. I think we keep almost the same price strategy. This quarter the hourly rate for all business lines was 10%. Yeah, we raise the price by a reasonable price. Going forward, I think our price increase will be 5%-10% year-over-year in the fiscal year 2020. We made some change of the product for both the U-Can and POP Kids. We spent a lot since three years ago, and even in the last 12 months, we update our product for the POP Kids product. That means we add more and more the online/offline elements to our offline classes. The kids in our classes are taking better classes than before. As I said, we'll keep the same price strategy. This is our price strategy. The exchange rate, the Q4, this quarter, we used the RMB 6.37601.
Last year Q4, we used the RMB 6.3287. This is the exchange rates we used to calculate the revenues. In the coming new quarter, the Q1 2020, we used the RMB 6.8851 compared to the last year Q1, RMB 6.6757. This is all the numbers we're using. Okay.
Great. Thank you.
Is it clear? Thanks anyway. Okay. Thank you.
Once again, 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. Your next question comes from the line of Christine Cho from Goldman Sachs. Please ask your question.
Hello, Stephen, Sisi. Congratulations. I think, quickly on the tax rate this quarter, I noticed it was a bit higher than usual. Was there any specific that you would highlight regarding that? Then in terms of looking at FY 2020, what would be your expected tax rate?
Okay. Thanks, Christine. It's a good question. In this quarter, the GAAP effective tax rate was 27%. It seems to be high. There are two reasons. Number one, if you take out the loss from the fair value change, the ETR was 20%. This is number one reason. Number two reason, most our software, high tech entities have a certain period of tax holiday. When they expire, the tax rates tend to go up. This quarter, I think it's very special. Going forward, we expect the GAAP ETR in fiscal year 2020 will be somewhere between 20%-23%. Because we don't believe we will have such a big fair value loss in fiscal year 2020 as we had in fiscal year 2019. On the contrary, if we get the fair value gain in fiscal year 2020, the ETR will be lower. Okay.
Thank you. That's very clear.
Okay.
Your next question comes from the line of Felix Liu from UBS. Please ask your question.
Hello, Stephen. Congratulations on the strong results. One more question on the margin. I'm just wondering if there is any drag from the online business regarding to the year-on-year GPM decline. Thank you.
Okay. Yeah, we invest on the online platform, Koolearn.com. As I said, we expect the non-GAAP operating margin of the offline core business continue to be expanded in the coming fiscal year 2020. I think this margin improvement is expected to be cover the margin pressure from the online side. As I said, in short, overall margin, we expect our overall non-GAAP operating margin to expand in the next quarter, the Q1, and the whole fiscal year 2020. Okay.
Thank you. Thank you for the positive-
Thank you. Okay. Thank you.
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Hey, Stephen. Since this is an excellent opportunity. This is Liu for Natalie. Maybe we have two larger questions. On your K-12 revenue by several major cities. We noticed Beijing still achieved solid growth despite the fierce competition and the high penetration rate. Also several other cities seems to demonstrate tremendous growth. Can management share with us, by ranking of importance, what are the key success factors behind those growth rate and specifically the factors for Beijing? Second question is that we know that pure online player have been spending heavily for user acquisition this summer. Do you think the rising penetration of online education where you short or medium term, while our Koolearn is still a bit smaller compared with others that somehow impact our offline growth? Thanks a lot.
Yeah. What I can just close for the revenue by cities, what I can say is, in last 12 months, our top 10 cities, the K-12 revenue growth was 37% in RMB term year-over-year. You can see the strong momentum. Going forward, in fiscal year 2020, I think for the top 10 cities, we can still get at least the same growth number, okay, in fiscal year 2020. Actually, we don't care more about the competition. I think the competition environment has not changed. Competition is always there. Okay. Your second question is about the online acquisition cost. As I said before, our investment for the online platform, Koolearn.com. I think most of our spending will be spent on the R&D and content development and teacher recruiting and training.
We will spend the marketing and selling marketing expenses in a reasonable scale. This is our strategy. Okay. If you look at the historical, what happens in the past, New Oriental is, we didn't like to spend too much more on the marketing because I think we rely more on the word of mouth, because we have the nationwide brand name in China. Okay. Thank you.
Okay, got it. Thanks.
Okay. Thank you.
Your next question comes from the line of Mark Li from Citi. Please ask your question.
Hi, management. Thanks for the time. May I ask, actually, given the positive margin development we have, could you remind us our medium-term margin target? Is there any change? Thanks.
Thanks, Mark. Great question. As I said, we got the margin expansion in fiscal year 2020, and we won't make any change of the medium long-term margin guidance. Our medium long-term margin guidance will be 17%, the margin guidance. There's no change. Okay.
Okay, thanks.
Thank you, Mark.
Your next question comes from the line of Jon Huang from Macquarie. Please ask your question.
Thanks, Stephen and Sisi, for taking my question. My question is that it seems that the quarter-over-quarter capacity expansion sped up a little bit. Does that mean we are facing less regulatory pressures on the opening new learning centers? Also, can management show some color on the utilization rate currently and going forward? If considering not moving one week's lesson to the next quarter, is the utilization rate going to be higher? Thanks.
Yeah. The expansion quarter-on-quarter in Q4 was 9%. I think it's not related to the regulations. It's just on track compared to our budget because we need to open more learning centers to prepare for the new summer and the new year. If you combine the new square meters we opened in first three quarters with the 9% this quarter, we got a 24% for the whole year, fiscal year 2019. This is just on track. What's your second question?
The second question is on the utilization rate.
I'm sorry. The utilization rate this quarter was 21%-22%. I think this is 100- 200 basis points up compared to the same period of the last fiscal year. I think the math is very simple. The expansion was 24% for fiscal year 2019, but we got the 31% top line growth in RMB terms year-over-year in fiscal year 2019. Next year, as I said, our expansion plan will be somewhere around 20%, and top line growth in RMB term will be over 30%. I think we believe the utilization rate will go up going forward. Okay. Thank you.
Thanks.
Your next question comes from the line of Lucy Yu from Bank of America. Please ask your question.
Hi, Stephen , Sisi. I got one question for FY 2019. How much has rental and tutor cost increased year-over-year for the fiscal year? Secondly, on the selling and distribution expense for the fourth quarter is only up by 5% in U.S. dollar term. How should we expect this cost item to grow in FY 2020? Thank you.
Sisi, can you check the numbers of the rent on tutor?
Yes. For full- year, the staff cost increased about 27%, 28%, and rental is roughly about 25%- 26%.
This is dollar term.
U.S. dollar term.
Dollar term.
Okay. This is whole year number?
Whole year.
Oh, okay. We performed better in the second half of the year than the first half. Okay. Selling marketing expense, I think, Sisi, yeah, you are right. The selling marketing expense just increased by 5% in Q4. As I said, we don't want to spend too much money on the selling marketing or on the student acquisition cost. We care more about the word of mouth. Also we have the very strong performance from the summer promotion. We don't need to spend so much on the marketing expenses. Going forward, I believe we have the more operating leverage from the selling marketing side in fiscal year 2020. Yeah.
Okay, thank you.
Thank you. Thank you, Lucy.
Your next question comes from the line of John Choi from Daiwa. Please ask your question.
Thanks, Stephen and Sisi, for taking my questions. Quickly, I'll follow up on the margin side. Things that you mentioned, sales and marketing, you guys will see pretty decent operating leverage, but on the G&A should be expecting also decent leverage. Then if you combine gross profit margin, as you mentioned, for offline will continue to expand, it seems to me that the operating margin expansion is likely to accelerate versus this coming fiscal year versus what the recent quarter we're seeing. Just quickly, there's been a lot of education startups and also investments around. What are our plans in terms of investing into this ecosystem? Thank you.
Yeah. I think you will see more leverage from the selling, marketing, and G&A expenses going forward. The gross margin in the fiscal year 2020, I believe it will be flattish or up a little bit. Okay. Our money, I think we're looking at some new startups, especially for the online education side. If we can find the potential synergy between New Oriental and the target companies, we'll buy it. We'll make investments. Okay. Thank you. Hello.
Yes. Your next question comes from the line of Johnny Wong from Jefferies. Please ask your question.
Hi, Stephen and Sisi. Thank you for taking my question, and congratulations. My question relates to the summer promotion. You said that we are seeing very good enrollment, 765,000. Can you give us an approximate breakdown between online and offline? Is it mainly offline, or is that mainly online students? Also, I know we've had very good conversion rates in the past, over 50%, if I remember correctly. What type of target conversion rate are we seeing? Thank you very much.
Yeah. Hey, Johnny. It's a great question. I think that the 765,000 summer promotion enrollments, as I said, is pure offline summer promotion enrollments. We don't count any online summer promotion enrollment. Okay? Is it clear? Last year, yeah, you're right. Last year, we got a 54% retention rate after the summer promotion in autumn last year. We do believe we can get higher student retention rates after this year's summer. Okay? Think about that. We raised the price of the summer promotion from RMB 200 to RMB 400, and I think it's much better for us to identify the real customers and to enhance the customer loyalty. That's why we believe the retention rates will be higher this year. Okay.
Thank you.
Johnny, is it clear? Thank you.
Yes, it is. Thank you.
Thank you, Johnny. Okay.
Your next question comes from the line of Lilian Wong from HSBC. Please ask your question.
My question has been answered. Thank you.
Okay.
We are now approaching the end of the conference call. I will now turn the call over to New Oriental's CFO, 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.
Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.