Good evening, and thank you for standing by for the New Oriental's FY 2020 second quarter and interim results earnings conference call. At this time, all participants are in a 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. Hello, everyone, and welcome to New Oriental's second 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. We are very pleased to report a set of solid financial results in the second fiscal quarter of this year, delivering both accelerated top-line growth and continued operating margin expansion. Total net revenue growth was $785.2 million, representing a growth of 31.5%, or 34.8% if measured in RMB, exceeding the high end of our expected range. Net revenues from educational programs and services for the second quarter were $723.3 million, representing a 33.0% increase year-over-year. The growth was mainly driven by increase in student enrollments in K-12 after-school tutoring courses, which continued its strong momentum and achieved a year-over-year revenue growth of approximately 46% in dollar terms, or 49% if computed in RMB.
We continued to be guided by our optimized market strategy in this quarter and carried out our capacity expansion in cities where we see potential for rapid growth and strong profitability. During this quarter, we added a net of 41 learning centers in existing cities, opened a new training school in the city of Huizhou, and the new teacher model school in the city of Chengde. By the end of this quarter, the total sq m of classroom area increased by approximately 25% year-over-year and 6% quarter-over-quarter. Total student enrollments in academic subjects, tutoring, and test prep courses in the second fiscal quarter of 2020 increased by 63.3% year-over-year to approximately 3,789,200. Please note that the higher-than-normal increase in student enrollments is primarily due to the division of the autumn semester into two parts, meaning that the student enrollments are recorded separately and fall into separate quarters.
At the same time, we continued our efforts in upgrading our online merger offline standardized classroom teaching system, while the interactive courseware in the Pop Kids program was rolled out to more cities. We're very encouraged to have received positive feedback from our customers and see sustained improvement in customer retention rate. We also continue to make strategic investments into our new teacher model classes, as well as new initiatives in K-12 tutoring, our pure online education platform, Koolearn.com, to leverage our advanced teaching resources in lower-tier cities and those in remote areas. Following last quarter's strong bottom line performance, we once again achieved year-over-year operating margin expansion in this quarter. During this quarter, we recorded non-GAAP operating income of $36.5 million, compared to a loss of $14.9 million in the same period of last year.
Non-GAAP operating margin rose by 720 basis points to 4.7% from -2.5% a year ago. The continued margin expansion is mainly driven by better leverage in classroom rental and relates to operating expenses, just as we consistently improve the utilization of facilities. In addition, supported by a standardized, modularized, and systemized operating process, we achieved an outstanding improvement in operational efficiency within each key business unit. We're confident that we will be able to deliver continued margin expansion and generate sustainable long-term value to our customers and shareholders. Per program blended ASP, which is cash revenue divided by total student enrollment, decreased by about 10% year-over-year. We like to know that the lower than normal blended ASP is primarily due to the change in the tuition fee collection schedule for our K-12 after-school tutoring courses.
As explained above, the number of students we recruited and amount of fee collect during the quarter reflect the second half of the autumn semester, winter semester, and the first half of the spring semester. Therefore, our blended ASP for the second quarter of 2020 appears to be lower. Hourly blended ASP, which is GAAP revenue divided by total teaching hours, increased by approximately 6% year-over-year in RMB terms. To provide a breakdown of the hourly blended ASP, please know that U-Can program increased by 7%, Pop Kids increased by 11%, and overseas test-prep program increased by 7% all year-over-year in RMB terms. Let's move on to the second quarter performance across our individual business lines. As mentioned earlier, our key revenue driver, K-12 all subjects after-school tutoring business, achieved year-over-year revenue growth of 46% in USD terms or 49% in RMB terms.
Breaking it down, the U-Can middle school, high school, all subjects after-school tutoring business recorded a revenue increase of 43% in $ terms or 46% in RMB terms for the quarter. Our student enrollment grew approximately 55% year-over-year for the quarter. Our Pop Kids program delivered outstanding results with revenue up by about 51% in $ terms or 55% in RMB terms for the quarter. Enrollments in the program went up about 87% for the quarter. The overseas test-prep recorded the revenue increase of 3% in $ terms or 5% in RMB terms for the quarter. The consulting business recorded revenue growth of about 1% in $ terms or 4% in RMB terms year-over-year for the quarter. Finally, we actually personalized the classes business, recorded revenue growth of about 37% year-over-year in $ terms or 40% 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. Beginning with our offline business this quarter, as mentioned earlier, we added a net of 41 learning centers in existing cities, opened a new training school in the city of Huizhou, and two teacher model school in the city of Chengde. Altogether, this increased the total sq m of classroom area by approximately 25% year-over-year and 6% quarter-over-quarter by the end of this quarter. By the end of Q2 2020, the two teacher class model has been introduced into the Pop Kids program in 48 existing cities. For U-Can program in 30 existing cities. For both Pop Kids and U-Can K-12 business in seven new cities. The initiative supported the increased market penetration in those markets we have tapped into. We also saw improved customer retention rate and scalability of this new model.
With this probably results, we will continue this strategy in the rest of the year. On the digital technologies front, we invested $44 million in the quarter to improve and maintain our online merge offline, called OMO standardized classroom teaching system. Most of the investments were recorded under G&A expenses. Furthermore, we also made a stable progress in the pure online Koolearn.com business line and other supplementary online education products, which is experiencing growing market demand. More resources are investing into the executing new initiatives in pure online K12 after-school tutoring business in fiscal year 2020. The investments includes content development, teaching, recruiting and training, sales, marketing, R&D, and other necessary costs and expenses to drive the growth for new pure online programs. With these programs, we're able to reach more students in lower tier cities in an interactive and scalable manner.
We believe this will help the Koolearn.com to gain new market share in the online education space and drive top-line growth. Now let me walk you through the other key financial details for the second quarter. Operating costs and expenses for the quarter were $759.9 million, representing a 21.1% increase year-over-year. non-GAAP operating costs and expenses for the quarter, which excludes share-based compensation expenses, were $748.7 million, representing a 22.0% increase year-over-year. Cost of revenue increased by 19.6% year-over-year to $359 million, primarily due to increase in teachers' compensation for more teaching hours and the higher rental cost for the increased number of schools and learning centers in operation. Selling marketing expenses increased by 17.7% year-over-year to $107.8 million. G&A expenses for the quarter increased by 24.4% year-over-year to $293.1 million. non-GAAP G&A expenses, which excludes share-based compensation expenses, were $282.1 million, representing a 27.1% increase year-over-year.
Total share-based compensation expenses, which were allocated to relate to operating cost expenses, decreased by 18.1% to $11.2 million in the second fiscal quarter of 2020. Operating income was $25.3 million, representing 188.6% increase year-over-year. Non-GAAP income from operations for the quarter was $36.5 million, representing a 345.6% increase year-over-year. Operating margin for the quarter was 3.2% compared to a negative 4.8% in the same period of prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses for the quarter, was 4.7% compared to a negative 2.5% in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $53.4 million, representing a 306.9% increase from the same period of prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental was $0.34 and $0.34 respectively.
non-GAAP net income attributable to New Oriental for the quarter was $57 million, representing a 147.8% increase from the same period of prior fiscal year. non-GAAP basic and diluted earnings per ADS attributable to New Oriental was $0.36 and $0.36 respectively. Net operating cash flow for the second quarter of 2020 was approximately $291.8 million. Capital expenditures for the quarter were $52.4 million, which were primarily attributable of the opening of 78 facilities and new learning centers and renovations at the existing learning centers. Turning to the balance sheet. As of November 30, 2019, New Oriental had cash and cash equivalents of $1,047.6 million as compared to $1,414.2 million as of May 31, 2019. In addition, the company had $348.3 million in term deposits and $221.5 million in the 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 instructions are delivered, at the end of the second quarter of fiscal year 2020 was $1,570.4 million, an increase of 25.6% as compared to $1,150.3 million at the end of the second quarter of fiscal year 2019. Before moving on to our outlook and guidance for the third quarter, I would like to provide some updates on the Koolearn. Koolearn Technology Holding Limited, a subsidiary of New Oriental, which provides online extracurricular education service in China, also announced its interim results for the fiscal year 2020 earlier today. I'd like to emphasize that Koolearn is a very important platform for New Oriental, and we're optimistic about the opportunities in the online education market, and confident in our investments into the platform.
During the period, Koolearn has undergone a process of restructuring its college education business line, which had some negative impact on Koolearn near-term revenue growth. Koolearn also continued to invest more resources in executing new initiatives in the areas of content development, teachers recruitment and training, sales, marketing, research and development, and other necessary cost expenses to drive the growth of new online programs. For the first 6 months ending November 30th, 2019, Koolearn recorded an 18.8% year-over-year increase in revenue to CNY 567.6 million, or $81 million. Gross profits was CNY 317.1 million, or $45.2 million. Loss of the period was CNY 87.5 million, or $12.5 million, compared to a profit of CNY 36.2 million in the same period of prior fiscal year.
It's encouraging that one of its K-12 business new initiatives, location-based live interactive after-school children courses, where Dongfang Youbo, DFUB, have been rolled out to 128 cities in China and recorded the enrollment growth of 186.2% year-over-year. For more details, please refer to Koolearn's financial results announcement in full. Looking ahead into the next quarter and the rest of the fiscal year 2020, we will continue to be guided by our optimized market strategy, and further ride upon the success and momentum we have built. We're confident about capturing a wider range of the market opportunity moving forward. To provide more detail on our areas of focus for the rest of the year, 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 in existing cities. We'll continue to roll out our two-teacher model schools to a number of new low-tier cities in certain provinces for the whole year. Second, we will continue to leverage our investments into digital technologies and introduce our online merge offline system to more offline language training and test offerings, especially for our K-12 children and overseas test prep key businesses. We will continue to make investments and we believe that total spending in absolute dollar terms in fiscal year 2020 will increase compared with the prior fiscal year.
Furthermore, we will continue to invest in and execute new initiatives, including product development, teachers recruiting training, R&D, as well as sales marketing expenses 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 company to drive the continued margin expansion and increase the operational efficiency. The new facilities built in the last two physical years are being ramped up more efficiently than before. We expect our non-GAAP operating margin of the offline language training and test prep business to continue to expand in the second half of fiscal year 2020. This improvement is expected to cover the margin pressure resulting from our online investments in the koolearn.com.
On the whole, we expect our overall non-GAAP operating margin to continue to improve year-over-year in fiscal year 2020, compared to the year-over-year decline last two fiscal years. Fourth, as of today, we have decided to move two days of classes in our Wuhan New Oriental school from before the Chinese New Year to after the Chinese New Year in view of the disease cases. Class will be taught via our online live broadcasting technology if the learning center's operations remain suspended after the Chinese New Year. Please know that classes in the cities except Wuhan have not been adjusted or suspended. The health and safety of our students is our top priority, and we will continue to closely monitor the situation and cooperate with the relevant authorities.
Note, we have taken the impact from the conditions in Wuhan into consideration in our third quarter's guidance. The impact is immaterial based on our current estimation. The recent RMB depreciation against the US dollar might cause impacts on our earnings in dollar terms for the third quarter of 2020. I would like to emphasize we have great confidence in the fundamentals of our business, which we believe will continue to remain strong. We continue to execute our optimized market strategy, we are certain that New Oriental will continue to capture the sustainable growth opportunities in the market and deliver long-term value for our shareholders.
Looking at the near term and our expectations for the next quarter, we expect total net revenues in the third quarter of fiscal year 2020 to be in the range of $983 million-$1,006.4 million, representing year-over-year growth in the range of 23%-26%. If not taking into consideration the impact of the potential change in exchange rate between RMB and the U.S. dollars, it projects the revenue growth rate in our functional currency RMB is expected to be in the range of 26%-29% for the third quarter of fiscal year 2020. The exchange rate used to calculate expected revenue for the third quarter for fiscal year 2020 is 6.95. The historical exchange rate used to calculate revenues for the third quarter of fiscal year 2019 was 6.81.
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 this. 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, press star one on your telephone now and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Your first question comes from the line of Mark Li from Citi. Please ask your question.
Hi, management. Congratulations on the very strong margin performance for this quarter. We think it beat the guidance by pretty nicely. May I know what are the major reasons for the non-GAAP OP margin beat for this quarter? Also, I would like to know maybe our revenue guidance breakdown across different segments. Thank you.
Okay. Okay, Mark. Yeah, we beat the margin guidance a lot. Our non-GAAP operating margin rose by 720 basis points in this quarter. I think it's because of the following reasons. Number one is, I think the continuing margin expansion is mainly driven by the better utilization of the facilities. Typically, our top-line growth is over 30% year-over-year in RMB terms. But the expansion in the last 12 months is just at 25%. Also, number two is we build a standardized and modularized and systemized operating process. You see the results. We achieve outstanding improvement in the operational efficiencies, and we get a lot of leverage on the selling, marketing, and G&A expenses. Finally, we're seeing the revenue acceleration. Typically, we're taking market share from the small player in the market. The revenue is very good.
I think those three reasons got us the better result of the margin expansion. As I mentioned in the prepared remarks, in the rest of the year, even in the Q3 and Q2 in fiscal year 2020, I think we still get more leverage going forward. We believe we will have the margin expansion in the rest of this fiscal year and even for fiscal year 2021. I think our margin will get the expansion as this year. The revenue breakdown, in the Q3 revenue guidance, I think the K-12 business will grow by 40% in RMB terms. What I'm saying is all in RMB terms, year-over-year growth 40%. Overseas test prep, I think it's the low single-digit growth. The domestic test prep, it will be down by, let's say 3%-4%.
The overseas consulting business, the growth will be over 20%. This is a breakdown of the Q3 guidance. Okay.
Thank you very much, Stephen. Thank you.
Okay. Thanks, Mark.
Your next question comes from the line of Yuzhong Gao. Please ask your question.
Hey, Stephen. Congrats on the very strong result. We noticed that you seem to have revised up your capacity expansion target from 20% to 25%. How should we think about the margin expansion scale in the second half of fiscal year 2020? Thanks.
Okay. Yeah. This quarter, the quarter-over-quarter expansion was 6%, combined with the 3% in Q1. We got 9% in the first half of this fiscal year. Typically, in terms of the seasonality, we open more learning centers in the second half of the year. It's more back-loaded. I think we would believe the whole year expansion plan will be somewhere around 20%-25%. Actually, it's close to 25%. The top-line growth will be somewhere around 30%, or I think it's possible to get above the over 30% top-line growth in RMB terms. In the rest of the year, as I said, I think we do have more leverage on the GP level and the SG&A level. Okay. Typically, we don't give the detailed guidance of the margin expansion in the next quarter.
I believe we can get the margin expansion in the rest of the year and the year after. Okay.
Thank you. Very helpful.
Thank you.
Your next question comes from the line of Tian Hou of T.H. Capital. Please ask your question.
Hi, Stephen, Sisi. Thanks for taking my question. Now we have more than 1,300 learning centers. For the new learning centers you're planning to open, where are those centers going to be? In what kind of a region? To support the additional expansion, 20%-25%, how do you prepare your teachers force, the team of teachers? That's the question related to expansion. Thank you.
Tian. We have the 1,300 learning centers in total, we plan to open, let's say, the 20%-25% new capacity one year. Most of the new learning centers we set up going forward will happen in the existing cities. Internally, we only allow the good-performing schools to open more learning centers in their cities. We have another business model called Dongfang Youbo, so it belongs to the Koolearn, we will open more of the new business in lower-tier cities. Okay? There's the two ways. Okay? For traditional offline business, we open more cities, schools, or learning centers in existing cities. As the teachers resource, we believe we pay the best in the market to our teachers. Also, since last year, we built up the online teachers training system.
That means we have the more ability to generate, or produce more qualified teachers than before. We believe we have the more qualified teachers to support the opening of the new learning centers going forward. Okay. Thanks, Tian.
Thank you. Very helpful.
Thank you, Tian.
Your next question comes from the line of Alex Liu of China Renaissance. Please ask your question.
Hi. Thanks, Stephen and Sisi, for this opportunity. I just want to follow up first on Tian's questions. Could you share more color on, for example, how fast is the capacity growth in top cities, for example, Beijing right now? A follow-up question. I think the overseas test business is growing, if I remember correctly, it's low single-digit growth this quarter. May I know what's the reason behind this seemingly a little bit unexciting growth in the past few quarters? Thank you.
Yeah. Thanks, Alex. Actually, we opened the learning centers almost everywhere if that city got the better results in the last 12 months. We opened the learning center in the top tier 1 or tier 2 cities, and we also opened the learning centers in the tier 3, tier 4 cities. I think the only one indicator for us to decide whether or not to open the learning centers is the performance of that school for the last year. Okay? I think even for the big cities like Beijing and Shanghai and Wuhan and Guangzhou, I think there's a lot of room to open more offline learning centers. Okay. Yeah. The overseas test lab, yeah this quarter, the numbers is no good. The only 5% RMB terms year-over-year growth for overseas test lab business.
I think the main reason is because of the U.S., China, the two countries relationship change. I think our non-U.S. related business, like the IELTS or the other subjects, the growth is very good. The U.S. related businesses keep flattish this quarter. Even in the Q3, I think the growth will be flattish again. I think this is the main reason. Okay.
Okay. Sorry, one more follow-up. Just on the gross margin, there seems to be notable jump this quarter. May I know what was the driver behind this notable improvement on the gross margin? Thank you.
Firstly, the revenue growth beat our guidance. Okay? As I said, we're taking market share from the small players. Also there are a lot of schools provide very good numbers of this quarter on top line growth. If you compare the top line growth with the expansion, capacity expansion, you know we have the better leverage on the rental side. I think those are the two key reasons to explain the GP margin expansion. Okay.
Okay. Thank you.
Okay. Thank you, Alex.
Your next question comes from the line of Lucy Yu of Bank of America. Please ask your question.
Hi, Stephen. I got one question on the class scheduling. Actually this year, Chinese New Year is earlier than last year. Is it fair to say that we started our spring semester a little bit earlier than last year? Theoretically, in February, we are seeing more positive benefit from this kind of calendar shift. Is that true? If so, can you give us a quantified impact on the class scheduling? Thank you.
I think, yes, this year, the Chinese New Year is a little bit earlier, but I think the impact from the class schedule is very small, very minimal. Okay. I must mention that, last year, the Q2, we started to do some facility movement and class scheduling change in last year Q2, which led to a postponement of some K-12 classes from Q2 to Q3 last year. That means this year, we have an easier comparison in Q2, but a little bit harder comparison in Q3. Anyway, it's a seasonal, where this timing difference issue is not a big issue. Okay.
Okay, thank you. The second question is that in the first half, you have already expanded your non-GAAP operating margin by close to five percentage point.
Yeah.
This is much higher than your previous expectation of 1.5%-2% for the full year.
Yeah.
Is it fair to say the risk is on the upside to your full year guidance in terms of margin? Thank you.
Yes. I don't want to guide the second half of year margin, the guidance. We do believe we will have the margin expansion in the Q3 and Q4. Okay? Yeah. We'll see. I think for the whole year, the margin will be better than we expected several months ago. Yeah. Okay.
Yeah. Great. Thank you.
Okay. Thank you, Lucy.
Once again, 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. Again, to ask a question, it's star one on your telephone. Your next question comes from the line of John Choi from Daiwa. Please ask your question.
Hey, Stephen and Sisi. Thanks for taking my question. I have a question on your online. I know Koolearn, basically on the call said they'll step up more, open you up in the lower tier cities. Can you kind of give a sense, will the EDU and Koolearn in general kind of step up the investment in online and as a result, we'll see more on the back-end loaded for the fiscal year in terms of marketing expenses and user acquisition costs? Just quickly, after the regulation, which has been in place for more than about a year on the offline schools, are you seeing more visibility or better visibility given that the smaller players are being phased out and as a result, you're seeing higher retention rate and better capacity growth in selective regions? Thank you.
As for the investment on Koolearn. This year we started to invest on the koolearn.com, includes the content development for teachers training or R&D, and some marketing expenses things this fiscal year. In the first half of the year, the margin drag from the Koolearn to EDU roughly is 100 basis points. Okay. This is the margin impact from the Koolearn for EDU. In the second half of the year, we expect we still have some of the negative impact of the margins from the Koolearn. We believe the margin expansion of the core business or our school business, offline business, will cover the margin pressure from Koolearn. We do believe on the whole, our margin will be expanded in the rest of the year, even though we spent a lot on the Koolearn. Okay. Your number 2 question is about regulation.
Last year, there was several of the new regulations. As I said in the last two earnings call, we almost meet all the requirements by the new regulations in almost all the cities. We have seen some small players disappear from the market, and we have seen some students join our classes who are the students from the small player. I think our target even going forward is to provide the best service to the Chinese students. We believe we can take more market share from the old players in the market. Okay. Thank you.
Your next question comes from the line of Binnie Wong of HSBC. Please ask your question.
Hi. Good evening, Stephen and Sisi. Thank you for taking my question. Question in here is that if you look at 2019 like last year, right? We see a wave of a lot of online education companies, small, middle-sized ones compete, right? Especially if you see the user acquisition cost has been rising up a lot. If you look into 2020, how do you see I mean, calendar 2020, how do you see that will change? Do you see that how our marketing strategy would be different from our players? If you look at the, I guess, the deceleration of growth in Koolearn, do you think that will continue, or there will be some drivers to re-accelerate the online business growth? Thank you.
Okay. I think, firstly, Koolearn has been in transition mode in last two to three quarters. As you know, we changed the team management members last year. We prefer to give the new management team member more time. Okay? Education is a very special business. We don't want them to do the business too fast by spending the crazy dollars on the marketing activities. Even in last year, we didn't attempt the burning the money to acquire the students. Going forward, I think we will allow Koolearn to spend a little bit more on the marketing expenses. It's not a huge number. Okay? We prefer to make the more or huge investments on the R&D, and the teachers training or the product itself. This is our strategy. Thank you.
Okay. Thank you. Very helpful. Thank you.
Okay. Binnie, thank you.
Your next question comes from the line of Alex Xie of Credit Suisse. Please ask your question.
Hi, management. Congratulations on very strong results. I would like to ask about our magnitude of utilization rate improvement. I think in the last quarter's earnings call, we mentioned it was 21% and 2% year-over-year increase. Thank you.
Yeah. This year, I think the utilization rate for this year is somewhere around 21%, which means we got the 200 basis points up of the utilization rates. That's why you see the margin expansion. Okay. Going forward, as I said, we plan to open 20%-25% new learning centers, and it bring us like 30% top line growth in CNY terms year-over-year. I think you will see the higher utilization rate going forward in the rest of this fiscal year and the year after.
Got it. Thank you.
Thank you.
Your next question comes from the line of Sheng Zhong of Morgan Stanley. Please ask your question.
Hi, Stephen. I want to ask a question about our dual-teacher model. You are still adding more dual teachers in the cities. Can you share some operating data about the margin of dual-teacher model and what the average class a teacher can teach in the dual-teacher model? At the same time, I noticed that you still invest a lot in your digital technology. I wonder whether this is partly because of this dual-teacher model. If possible, can you share more color on this spending going forward? Thank you.
Okay. Yeah. Dual-teacher model. We changed our dual-teacher model strategy last year. We focused more dual-teacher model in the Hebei and Henan province. Now, we have the 7 low-tier cities for both Pop Kids and U-Can programs by the dual-teacher model. Now, the revenue contribution from the dual-teacher model is very small. I think the growth is very high, but revenue contribution is very small. Now, I think it's too early to say the margin of the dual-teacher model because it's in the early stage. Philosophically, as I said, I think the dual-teacher model margin should be higher than the offline business. Okay? This quarter, the OMO investments. This quarter, we invested $44 million on the OMO ecosystem. I think this is on track, okay?
We started to invest on the OMO things three, four years ago, we started to bear fruit things last year. I think this year's very good result. I think that means we bear fruit from the investments we made several years ago. The whole year, I think we plan to spend somewhere around $150 million-$160 million for the whole year. It's a little bit higher than we expected several months ago. I think even though we spend a little bit more, but it should be covered by the offline school margin expansion. That would be okay. We will see the overall margin expansion, even though we spend a little bit more. Okay?
Thank you very much. Yeah, we are happy to see you spending more on the technology improvement. can you give-
Thank you. Thank you, Georgia.
me some color on
Go ahead.
Yeah. Can you give some color on the spending areas of our technology?
Typically, we hire more IT people and the content development people in the head office to provide better products for offline schools and the new teacher model schools. Also we hire some new people work for AI departments. I think most of the investments we spent happens in the head office. We do believe it will bring us the better student retention rates going forward. We do believe this money, we spend the money today, will bring us the better quality products in the future. Okay.
Thank you very much.
Thank you, Sheng Zhong.
Your next question comes from the line of Hugo Shen of Macquarie. Please ask your question.
Hi. Thank you for taking my question. I wonder if you could give us a breakdown of enrollment growth by business in this quarter. Thank you.
Enrollment. Do we disclose it, the enrollment breakdown?
You can send email to me and I will send you the details, okay, after the call.
Yeah. Because of the long question. Yeah. Okay. Thank you.
Your next question comes from the line of Felix Yu of UBS. Please ask your question.
Hello, good evening. Congratulations, Stephen and Sisi, for the very strong quarter. Two quick questions from me. One is that you mentioned the ramp-up is getting faster than previously. Could you share us the latest timeline to ramp up a new center? Second one is a follow-up to the previous question on OMO investment. I understand a lot of the costs are in staff salary. Going forward, if we look at the second half and next year, do we plan to further increase the headcount, or is it likely to stay at this level? Thank you.
Historically, two to three years ago, typically we need 12 months to get a break-even point for the new learning center. Now, it's only spent five to seven months to get a break-even point. That means we ramp up the new learning centers faster than before. I think this is one of the reason that we decide to open more learning centers in every year. Your second question is about the OMO investments. I think we will hire more people, more qualified, more talent people work for the IT department and the content development team, also for the AI department. Firstly, I think it's a good investment. We spend more money today, we get better future. Anyway, I think total spending, it will be controlled by the management team.
We don't want to waste the money, okay. As I said, even though we spend a little bit more on the OMO investments, but we do believe we have the margin expansion going forward, even for the second half of the year and the year after. Okay.
Okay, great. Thank you.
Okay.
I'm glad to see we have the budget to invest in the longer-term growth. Congratulations again on a strong quarter. Thank you.
Okay. Thank you. Thank you, Felix.
Your next question comes from the line of Christine Cho of Goldman Sachs. Please ask your question.
Thanks, Stephen and Sisi. Just a quick question on the revenue guidance. You mentioned that you consider the Wuhan situation in terms of coming up with the third quarter guidance. Can you give us a little bit more detail here? Also, if this situation prolongs, what are some of the alternatives you can consider to kind of mitigate the impact from the situation? Thank you.
Yeah. Our Wuhan school actually decided today to move the two days courses before Chinese New Year to sometime after the Chinese New Year because of the new disease. Okay. Also we have the plan B. Let's say if after the Chinese New Year, we cannot run the business by offline, we'll make it up by the online courses, okay. Actually, we are ready. Yeah, we're ready. So far, we have not made the decision of the class adjust or suspend in the other cities except for Wuhan. Wuhan is the only one. Yeah, we have taken some impact from the disease in Wuhan, but the amount is not material, okay. Wuhan's revenue contribution for New Oriental is 4%. Okay. Don't forget 45 days has passed, and also we have the make up plan B to make it up, okay.
I think the impact will be immaterial so far by the current estimation. Okay.
Thank you.
Thank you.
Thank you.
Your next question comes from the line of Youngrin Kim of CLSA. Please ask your question.
Hi, management. Congrats on the good quarter. I have two questions. The first is, how much of revenue growth is actually coming from organic growth versus stealing market share from other small players? That's my first question. My second question is, I know in the past, you have provided mid to long-term margin guidance of 17%-19%. Do you still stick by this margin guidance, or do you see room for increase or things like that? Thank you.
Okay. Yeah. In the organic growth. I think typically in the first 12 months after the new learning center's opening, it will bring us, let's say, for example, we open 20% new learning centers. In first year one, typically, it will bring us 5%-10% new revenues. Sure. Okay. I think all the others are the organic growth. The market share, we don't have the numbers of how much market share we get from the small players. We're just our business together, 30% top-line growth. That's it. Okay. Sisi, you have the numbers?
No, it's hard to quantify, but we keep taking market share from small players every day, almost every day. The market growth is like 10%, 15%, but our K-12 business are growing over 40%. Definitely, majority of the growth is from taking market share from other small players in each city.
Yeah. The mid long-term margin guidance, we don't want to change the mid long-term, actually, it's mid-term margin guidance. We keep it as a 17%. This year, the market expansion is better than we expected, and we are more optimistic on the overall margin expansion in the rest of the year and the after. Okay.
All right. Thank you very much.
Thank you.
Your next question comes from the line of Joy Wei of 86Research. Please ask your question.
Thank you for taking my question. My question is, during the quarter, we saw that U-Can and Pop Kids growth accelerated. What's driving that? Do you see more opportunities in terms of perspectives like class offering and also product format? Thank you.
I think there are several reasons. Number one is, if you remember clearly in the last quarter's earnings call, the summer promotion retention rate is 5% higher of this year than last year. This is number one reason. Number two is we are seeing the higher student retention rate, for both U-Can and Pop Kids program. Actually, the U-Can business, the retention rate is close to 80%, and the Pop Kids retention rate is close to 90%. It's higher than those numbers of last year. Third, we don't spend a lot on marketing expenses. The selling marketing expenses in this quarter is just increased by, am I right, by 17%, okay? I think typically, we rely on word of mouth to acquire the new student enrollments. Yeah, that means we're providing better the product to the students than before.
It bring us the good results, better results than we expected. Okay. Is it clear?
Yes. Thank you.
Okay. Thank you.
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 other further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you. Thank you, guys.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.