Good evening, and thank you for standing by for New Oriental's FY 2022 fourth quarter results earnings conference call. At this time, all participants will be in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call 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, operator. Hello, everyone, and welcome to New Oriental's fourth fiscal quarter 2022 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, Executive President and Chief Financial Officer. After his prepared remarks, Stephen and I 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 the 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. Before going into details of our financial performance, I would like to take this opportunity to extend our gratitude to those who have been supporting and still believing in New Oriental. While our business in the previous quarters were largely affected by the government policies introduced last year, I'm glad to announce that we are now paving a new path in innovative business opportunity. As the company embarks on a fresh journey that strives to encourage all-round development of students and for the betterment of the society. At the same time, focus on generating profit and returns for our shareholders. Now, I would like to spend some time to talk about the quarter performance across our remaining business lines and introducing our new initiatives to you in detail.
Our key remaining businesses have shown remarkable resilience and achieved promising trends. Breaking it down, the overseas test prep business recorded the revenue increase of 6% in dollar terms for the fiscal year 2022. The overseas study consulting business recorded the revenue increase of about 16% in dollar terms year over year for the fiscal year 2022. The adults and university students business recorded a rapid growth of approximately 30% year over year for the fiscal year 2022. As for our new business initiatives, as mentioned in past quarter, we have launched several new initiatives throughout the year, which mostly revolve around facilitating students all around development. I'm glad to share with you that these new initiatives have shown positive momentum.
Firstly, the non-academic children business, which we have rolled out in over 50 existing cities, focused on cultivating students' innovative ability and comprehensive ability. We're happy to see increased market penetration in those markets we have tapped into. The top 10 cities in China have contributed more than 60% of the revenue of this business. Secondly, the intelligent learning system and device business is a service designed to provide a tailored digital learning experience for students. It utilize our past teaching experience, data, and technology to provide personalized and targeted learning and exercise content, together with our teachers monitoring and assessing the learning curve of the students at the back-end system. The new initiative education service not only greatly improves the students' learning efficiency, but also cultivate students' proactive learning habits.
We have tested its adoption in around 60 cities and are delighted to see improved customer retention rate and scalability of this new initiative. The revenue contribution of these initiatives from the top 10 cities in China is over 60%. Meanwhile, the study tour and the research camp business is an initiative that aims at offering students of K-12 and university ages the opportunity to fully leverage their free time and holidays to broaden the scope of knowledge and cultivate a subject interest. We have conducted the study tours and research camp in over 50 cities across the country. The revenue contribution of this new initiative from the top 10 cities in China is over 55%.
At the same time, we have also been launching smart education business, which comprises smart teaching, smart hardware, science and technology, innovation, education and other services targeting local governments, educational authorities, primary, secondary schools and kindergartens. Educational material and digitalized smart study solutions, the self-learning system leveraging advanced technology that will enable students to have complete control over the pace and the flexibility of the learning in an age where remote learning becomes increasingly mainstream. As well as exam prep course designed for students with junior college diplomas to obtain bachelor's degree. The above-mentioned business have been gaining traction and contributing to the overall growth of the company. During the last fiscal quarter, we have been fully committed to complying with government policy. As a result, the total number of schools and learning centers was reduced to 744 by the end of this fiscal year.
The significant change in our structure has underscored the importance of our industry-leading OMO system, which has been one of the constants during the company's resurging phase as we remain committed to investing in our
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Yeah, we got lost on the line. I repeat again. Okay. Sorry. I started from the. Okay. Before going into the detail of our financial performance, I would like to take this opportunity to extend our gratitude to those who have been supporting and believing in New Oriental. While our business in the previous quarters were largely affected by the government policies introduced last year, I'm glad to announce that we are now paving a new path in innovative business opportunities as the company embarks on a fresh journey that strives to encourage all-around development of students and for the betterment of the society, and at the same time focuses on generating profit and returns for our shareholders.
Now, I would like to spend some time to talk about this quarter performance across our remaining business line and re-introduce our new initiatives to you in detail. Our key remaining business have shown remarkable resilience and achieved a promising trend. Breaking it down. The overseas test prep business recorded a revenue increase of 6% in dollar terms for the fiscal year 2022. The overseas study consulting business recorded a revenue increase of about 16% in dollar terms year-over-year for the fiscal year 2022. The adults and university students business recorded a rapid growth of approximately 30% year-over-year for the fiscal year 2022. As for our new business initiatives, as mentioned in the past quarter, we have launched several new initiatives throughout the year, which mostly revolve around facilitating students' all-round development.
I'm glad to share with you that these new initiatives have shown positive momentum. Firstly, the non-academic children business, which we have rolled out in over 50 existing cities, focuses on cultivating students' innovative ability and comprehensive quality. We're happy to see increased market penetration in those markets we have tapped into. The top 10 cities in China have contributed more than 60% of the revenue of its business. Secondly, the intelligence learning system and device business is a service designed to provide a tailored digital learning experience for students. It's utilized our past teaching experience, data, and technology to provide personalized and targeted learning exercise content, together with our teachers monitoring and assessing the learning curve of our students at the back-end system. This new innovative education service not only greatly improves students' learning efficiency, but also cultivates students' proactive learning habits.
We have tested its adoption in around 60 cities and are delighted to see improved customer retention rate and scalability of this new initiative. The revenue contribution of this from the top 10 cities in China is over 60%. Meanwhile, the study tour and the research camp business is an initiative that aims at offering students of K-12 and university ages of the opportunity to fully leverage their free time and holidays to broaden the scope of knowledge and cultivate the subject's interest. We have conducted the study tour and the research camp in over 50 cities across the country. The revenue contribution of this from the top 10 cities in China is over 55%.
At the same time, we have also been launching smart education business, which comprises smart teaching, smart hardware, science and technology, innovation, education, and other service, targeting local governments, education authority, primary and secondary schools and kindergartens. Educational material and utilize the smart study solutions, a self-learning system leveraging advanced technology that will enable students to have complete control over the pace and the flexibility of learning, in an age where remote learning becomes increasingly mainstream. As well as exam prep courses designed for students with junior college diplomas to obtain bachelor's degree. The above-mentioned business have been gaining traction and contributing to the overall growth of the company.
During the last fiscal years, we have been fully committed to complying with government policies, and as a result, the total number of the schools and learning centers was reduced to 744 by the end of this fiscal year. The significant changes in our structure have underscored the importance of our industry-leading OMO system, which has been one of the constants during the company's restructuring phase, as we remain committed to investing in the R&D of the technology. The OMO has been instrumental during the restructuring process, as well as COVID-19 outbreaks in certain part of China, where a strong flexibility is required in migrating students between online and offline classes to minimize the learning disruption.
We continued our efforts in developing and revamping our OMO teaching platform, and kept leveraging our education infrastructure and technology strength across the remaining key business and new business to provide more advanced and diversified education service to the customers for all ages. We have invested $36 million in this quarter and $166 million in full fiscal year to improve and maintain our OMO teaching platform, which ensures that we may continue to offer high quality service and flexibility to our students during the pandemic. In response to the evolving industrial situation in China, and in compliance with the latest regulations in the education space, we have been implementing structural changes to our pure online platform, Koolearn.
We're actively exploring new initiative and broadening its customer base and offerings by leveraging its existing technology that has been the core of its business. One good example of the potential business direction that has shown promising results to date is Dongfang Zhenxuan, an e-commerce platform for selling agriculture and other products. Towards the end of December 2021, Koolearn began piloting live streaming events on various short video platforms such as Douyin, which allows Koolearn to promote high quality agriculture and other products, such as books, to the younger group of audience through the social media. It also enabled Koolearn to tap into the broader customer base, the new e-commerce live streaming generation, while bringing our nation's agricultural producers, farmers, and their products to the foreground where we believe they belong.
This has resulted in, to date, a notable user adoption and attraction to this platform, with the Dongfang Zhenxuan heading the way in an encouraging and optimistic direction. After the introduction of the government policy on after-school children last year, which has no doubt posed a direct impact on our business, we have received many inquiries and concerns from investors over the company's financial position. As a company with longstanding heritage, we have always made sure that we are prepared for and capable in weathering changes in the market. That is reflected in our ability to maintain a strong cash position throughout the whole restructuring process. By the end of this quarter, our cash and cash equivalents, term deposits, and short-term investments totaled approximately $4.2 billion. The company continued to seek opportunities to create more value to shareholders.
On July 26, 2022, New Oriental's board of directors authorized the repurchase of up to $400 million of the company's common shares during the period from July 28, 2022, through May 31, 2023. This share repurchase program authorized the company to purchase its ADS or common shares from time to time on open market in accordance with applicable rules and regulations. The timing and extent of any purchase will depend upon market conditions, the trading price of ADS, and its common shares, as well as the other factors. Now, I will turn the call over to Sisi to share with you about the key financials. Sisi, please go ahead.
Okay. Now I'd like to walk you through the other key financial details for the first quarter. Operating costs and expenses for the quarter were $629.7 million, representing a 52.1% decrease year-over-year. Non-GAAP operating costs and expenses for the quarter, which excludes share-based compensation expenses, were $629.9 million, representing a 53.6% decrease year-over-year. The decrease was mainly because of the reduction of the facilities and numbers of staff as a result of the restructuring in this fiscal year. Cost of revenue decreased by 57.2% year-over-year to $247.8 million. Selling and marketing expenses decreased by 50.7% year-over-year to $95.8 million.
G&A expenses for the quarter decreased by 43.9% year-over-year to $286.1 million. Non-GAAP G&A expenses, which excludes share-based compensation, were $257.2 million, represents a 47.4% decrease year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 42.9% to $28.8 million in the first quarter. The increase is due to the grant of restricted shares of the company to employees and directors in May 2021 was granted vesting over the three years . Operating loss was $105.6 million compared to the loss of $102.4 million in the same period of the last fiscal year.
Non-GAAP operating loss for the quarter was $76.9 million compared to a loss of $82.2 million in the same period of the previous fiscal year. Net loss attributable to New Oriental for the quarter was $189.3 million compared to the loss of $45.5 million in the same period of last year. Basic and diluted net loss per ADS attributable to New Oriental were $1.12 and $1.12, respectively. Non-GAAP net loss attributable to New Oriental for the quarter was $160.3 million compared to the loss of $27.9 million in the same period last year. Non-GAAP basic and diluted net loss per ADS attributable to New Oriental were $0.94 and $0.94, respectively.
Net operating cash flow for the quarter was approximately $29.3 million, and CapEx for the quarter was $22.3 million. Turning to the balance sheet. As of May 31, 2022, New Oriental had cash and cash equivalents of $1,148.6 million. In addition, the company has $1,140.1 million in term deposits and $1,902.3 million in the short-term investment.
New Oriental's deferred revenue balance, which is cash collected from the registered students for the courses and recognized proportionally as revenue as the instructions were delivered at the end of this quarter, was $933.1 million, a decrease of 51.6% as compared to $1,926.4 million at the end of this quarter. The decrease is primarily due to the cessation of K-9 academic after-school tutoring services in compliance with the government's policy in China. Now I'll hand over to Stephen to go through the outlook and guidance.
Thank you, Sisi. Looking ahead into the first quarter of fiscal year 2023, with the process of school closures now largely completed, we expect our school networks to become stabilized . The company has now entered a stage of starting afresh, exploring new opportunities with greater flexibility and strong cash flows. We're confident in the sustainable profitability of all our remaining key business, as well as the growth and profit potential of our new initiatives. For our new businesses, it will take time for them to come to full fruition. But as we saw in this quarter, the encouraging performance they have already achieved is showing proofs that we are heading towards the right direction. We're confident that the business will be starting to contribute meaningful revenue from the next fiscal year onwards.
As for the recent pandemic development in China, thanks to our OMO system, we believe that the overall impact that would cause to our business and financials will be limited. We have also had measures in place to control and handle lockdown situations should they ever arise again. In sum, we expect the total net revenues in the first quarter of fiscal year 2023 to be in the range of $641.3 million-$680.6 million, representing a year-over-year decline in the range of 51%-48%. Bottom line-wise, we're confident that we will achieve a turnaround and profitability in the first quarter as well as achieving operating profit in the full year of 2023 fiscal year.
To conclude, we're now taking all kinds of operational actions to promote our key remaining business and cautiously investing in new business, which will be the new growth engines that accelerates our recovery and to seek profitable growth. At the same time, we will continue to seek guidance from and cooperate with government authorities in various provinces in China in connection with these efforts to comply with the relevant policies, guidelines, and any related implementation rules, regulations, and measures, and to further adjust our business operations as required. I must say that these expectations and forecasts reflect our considerations of the latest regulatory measure, as well as our current and preliminary view, which is subject to change. This is the end of our fiscal year 2022 Q4 summary. At this point, Sisi and I like to open the floor for questions.
Operator, please open the call for this. Thank you.
Yes. Yes. Yes. 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 and your question will be addressed then. In order to ask a question, please press star then one on your touchtone phone. Press star then two to remove yourself from the list. Once again, star then one will allow you to ask a question, star then two will remove your question. Thank you. Please hold while we assemble the list. The first question comes from Mark Lee with Citi.
Hi, Stephen. Sisi, may I ask, would you have any breakdown of revenue for the guidance that you provide by the major categories?
Sorry, Mark. You know, as before, you know, we don't want to give the breakdown of the revenue breakdown in next quarter.
Got it. Maybe I follow up with a quick question is, I noticed, we have around 744 campus, and it should be stabilized going forward. It looks like it's higher than the previous mention, 650-700, when it bottomed. Would it mean there is a positive difference from the time we last spoke? What would be your outlook for this-
Yes. You know, first of all, yeah, I must mention that, you know, our remaining business, you can call the traditional business, like the overseas related business and the consulting business and the adult and university students business. You know, I think they are all remarkable at resilience because, you know, you saw the numbers of this fiscal year 2022. We do hope we can do better in fiscal year 2023 in the new year.
On the other hand, you know, well, you know, we launched some new initiatives like the non-academic children courses and some new like the intelligent learning system and devices, the service to the students were as well, the study tour and research camp. You know, I think, you know, the market demand is always there. You know, even for the new business, we started in the fiscal year, it's just a couple of months ago. You know, we have seen the customer retention rate is very high. You know, we do hope they can do better in the fiscal year, in the new fiscal year.
That's why we do keep the, you know, a little bit, the more number or higher number of the learning centers than we expected three months ago. Yeah, Mark.
I just have a quick follow-up. How many of the learning centers you have, both you know, non-academic tutoring and existing business?
We don't have the detailed number, but as in more than 50 cities, we do have the new business, like the non-academic courses. You can say the non-academic courses will be the new growth engine, you know, going forward.
Copy. Thank you, Stephen.
Okay. Thank you. Thank you, Mark.
Thank you. The next question comes from Felix Liu with UBS.
Thank you, Stephen. Thank you for taking my question, and congratulations on the very resilient quarter post restructuring. First, I wanted to ask a question about the new initiative. You mentioned, you know, good progress on the non-academic tutoring as well as study camp. If we look at this from a 1-year to 2- to 3-year horizon, which one of these new initiatives do you expect the biggest revenue contribution? Or could you rank your expectation on the revenue contribution from the bigger to the lower initiative? My second question is on Dongfang Zhenxuan. I know this is a very good initiative that we launched under Koolearn.
Have we seen any, you know, positive synergies between the live streaming commerce with our education businesses? Thank you.
Okay. You know, as for the non-academic children courses, you know, we launched these courses is focused on cultivating the students' innovative ability and comprehensive ability. You know, we do have a lot of courses like the courses to improve the students' reading and presentation, the presentation skill and some like the programming, robot, the arts, sports. Yeah, we have a lot of courses. You know, we have seen extremely revenue growth in last couple of months. Because as I said, you know, the market demand is always there. You know, after the government policy, you know, last year, we saw, you know, some students, they do have a more spare time.
You know, the parents and students love to enroll in our new classes. You know, it's new business. The revenue contribution is very small, but you know, it grows very fast. We do believe the new business will contribute more and more revenue going forward. Dongfang Zhenxuan. Yeah, I share with you more information about Dongfang Zhenxuan. You know, but I have to say, you know, I can't share the business performance in detail with you. I will leave the Dongfang Zhenxuan's management, the Koolearn management to share with you more information in their earnings release announcements in this month, right? In next month.
In next month. You know, as I mentioned earlier, Dongfang Zhenxuan events are innovative, the blend of the knowledge sharing and the agriculture product promotion. You can check the numbers, like the followers and the GMV on third-party data platforms as reference. We are also grateful to be widely recognized across the media in China and even in the other countries. Beyond the financial gains, I think we're pleased to see we have also generated intangible returns. You know, which is to fulfill our the social responsibility by helping the farmers and some like the agriculture product producers. This new business model has been our expectations.
You saw, you know, what happens in last month. We expect the Koolearn will become a key growth driver and gradually deliver meaningful contribution to the New Oriental's revenue and profit margin in the new year or even in the next 2-3 years. Yeah, I do. You know, I think the audience, you know, loves the Dongfang Zhenxuan platforms. I think the Dongfang Zhenxuan's performance, you know, helps our the these local schools and the learning centers to get more students into our classrooms, even for the traditional business or the new business. This is very good for us. Felix?
Okay, great. Thank you for the color.
Yeah. Thank you.
Thank you. The next question comes from Liping Zhao with CICC.
Good evening, Stephen, Susan. Thanks for taking my questions. I got two here. First, could you please share the revenue contribution of the new initiatives in the first three, 4Q FY 2022, and also in first quarter FY 2023, guidance? Second question is about the GP margin. Are they expecting the around 53% GP margin in 4Q FY 2022 to be in the relatively stable state for the coming quarters? Thank you.
Okay. The new business. You know, I think the revenue contribution from the new business will contribute around 20% of total revenue. This does not include the revenue from the Dongfang Zhenxuan or from the Koolearn. This is all the EDU on the EDU side, like the non-academic course or the research, the summer camp, something like that, where some the new business. This does not include the Dongfang Zhenxuan. On the GP margin side, I think we got lucky in this quarter, in Q4.
We do believe we can get the higher gross margin in Q1, in the next quarter or even for the next full year, fiscal year 2023. That's why I said, as a bottom line-wise, we're confident we will achieve turnaround and profitable in the first quarter, next quarter. I think we expect we will be profitable in the full year of fiscal year 2023.
Okay, thanks. That's helpful.
Thank you.
Thank you. Once again, we ask you please limit yourself to one question. If you have a follow-up, please return to the question queue. The next question comes from Tian Hou with T.H. Capital, LLC.
Hi, Stephen. Can you guys hear me?
Thank you.
Hello?
Yeah. Yeah.
Yes, we can hear you.
How about you?
Yes. Yeah, the question is that, you know, as you guys have moved on to the new business, and what is the new seasonality will be going forward?
Yeah. Actually, as we restructured all the business lines, you know, terminated K to nine academic training, the remaining business, remaining key businesses like overseas related business and also domestic test prep for university students, these business are much more seasonal than the K to twelve. So actually, you will see going forward since next fiscal quarter, our Q1 revenue contribution for full year will increase compared with previous years. So Q1 will be peak season, continue to be the peak season and also Q3 will be second peak season, and Q2 and Q4 will be relatively less in terms of the revenue contribution for full year. Yeah.
Okay, thank you. That's helpful.
Thank you. The next question comes from Lucy Yu with Bank of America.
Thank you, Stephen. Thank you, Sisi Zhao, for taking my question. My question is on the GP margin. Can you please elaborate on the margin expansion in the fourth quarter, up from the 39% in the third quarter? You also mentioned that the GP margin going forward might be higher than the 53%. What is the driver behind that? Thank you.
Yeah. You know, Lucy Yu, you know, we have already almost have just done the learning center closure and some layoffs in the last year, last three quarters. As I said, we will keep the same number of the learning centers. We want to hire more like new people. That means, you know, the fixed cost is there. We are seeing the revenue growth is, you know, the revenue growth is getting recovered. I think we will see more and more the operating leverage going forward. In Q4, because, you know, the overseas consulting business, you know, typically contribute more revenue in Q4.
We do have that seasonality in Q4 for the overseas consulting business. Let's do the analysis year-over-year. We do believe in fiscal year 2023 both the GP margin and the profit margin will get better for the new year. As I said, we will be profitable in fiscal year 2023.
Thank you, Stephen.
Thank you. The next question comes from Eddy Wang with Morgan Stanley.
Thank you management for it, and congratulations. I want to ask about the new business that you see positive momentum in your new business. Do you have any operational data that you could share about, for example, the non-academic tutoring, the new student recruitments in summer and the retention and also like the student acquisition, any details that you could share? How do you see the competition with the public schools because they also offer some non-academic courses or after-school service. Thank you.
Yeah. Some business bit data for the new business. Yeah, even though we started business a couple of quarters ago. You know, as I said, the business developed very good. You know, the student retention rates for some like the reading and the presentation skill courses is almost closely to the traditional K12 academic courses. It sounds very good, right? Yeah, on the margin side, you know, I remember in the last earnings call, you know, we guided our targets is to get breakeven for the new business. This time, you know, we feel better. I think we do believe we can get the profit for the new business.
It is too early to say the detailed numbers. What is the margin for the new business. We do believe we can get profitable in the new fiscal year.
Okay, thank you. Also on the commitment with the public schools, do you have a view on our advantage with them?
Because, you know, we do have a lot of data and system and the teaching experience or even some data in hand. You know, we set up a new department to sell the product to the public schools or even the kindergartens, primary, and secondary schools. It's just a new start. We do believe we can do better.
Because, you know, I do believe the public schools and kindergartens, they need our service because, you know, if you pull out for so many years and we spend a lot of money and invest a lot of the human resource, IT workers and content writers, to build our system, and even the questionnaire base. I think we will find a new way to monetize this. Yeah.
Okay, thank you.
Thank you.
Thank you. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's Executive President and 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 relation representatives. Thank you.
Thank you. This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.