Ladies and gentlemen, good evening, and thank you for standing by for New Oriental's first fiscal quarter 2020 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, welcome to New Oriental's first 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 newscast services. Today, you will hear from Stephen Yang, 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 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. Welcome, everyone, and thank you for joining us on the call. We're very pleased to begin fiscal year 2020 with a robust top-line growth, which exceeded the high end of our expected range in RMB terms. For the first quarter of 2020, New Oriental reported net revenue of $1,071.8 million, representing a growth of 24.6% or 29.7% if measured in RMB. Net revenues from educational programs and services for the quarter were $996.5 million, representing a 25% increase year-over-year, or 30% if measured in RMB. Our key growth driver, K to 12 after-school tutoring business, recorded significant increase in student enrollment. Together with overwhelming responses received from the summer promotion campaign, both segments made great contributions to this quarter's outstanding performance.
In the first quarter of fiscal year 2020, we continued to implement our well-proven optimized market strategy and carried out capacity expansion in cities where we see potential for rapid growth and strong profitability. During this quarter, we added a net of seven learning centers in existing cities. The total square meters of classroom area by the end of the quarter increased approximately 24% year-over-year and 3% quarter-over-quarter, in line with our expansion plan. Our total student enrollment, academic subjects tutoring, and test prep courses in the first fiscal quarter of 2020 increased by 50.4% year-over-year to approximately 2,609,200. On this point, please note the higher than normal increases in the number of student enrollments is primarily due to the split of the autumn semester into two sections. A change we adopt to meet the latest regulatory requirements since November 2018.
Which means student enrollments for each half of the autumn semester were calculated separately. To explain, the number of student recruitment and fees collected for the first half of the autumn semester were both in previous quarter, while those for the second half were both in current reported first quarter as well as the following second quarter. Prior to the change, we historically collected the full sum of the tuition fees and recorded the student enrollments for autumn semester in the first quarter of the prior fiscal year. Meanwhile, we also continue to deepen our online merge offline standardized classroom teaching system. In particular, rolled out an innovative interactive courseware for the POP Kids program in some main cities, creating more interactive and high-quality learning experience for our students.
We also made further strategic investments into dual teacher model classes and new initiatives for pure online K12 tutoring through koolearn.com. With our core competency in both offline and online education service, we're confident to capture the substantial business opportunities in low-tier cities and remote areas in China moving forward. We would like to take this opportunity to highlight the success of our summer promotion campaign, as briefly mentioned earlier. Similar with the previous years, we offered low-cost offline trial courses for multiple subjects across most of our existing cities during the summer period. Targeting the students before they begin secondary school. The largest scale promotion this year was launched in 43 cities. We're very encouraged to see that even with a doubled average promotion price compared to last year, our total promotion enrollments reached 820,000, an 8% increase year-over-year, accompanied by improved student retention rate year-over-year.
Please note that these promotion enrollments were not included in our reported enrollment. Overall, 59% of student recruits from the summer promotion campaign were successfully retained as customers for our full price courses for the autumn semester, which is 5% higher than the rate last year. We're confident that this will boost our revenue and drive positive growth throughout the whole of fiscal year 2020. We have firm belief in our summer promotion strategy in generating long-term benefits, and foresee this to continue to be a successful and effective strategy to rapidly capture market share, and acquire long-term loyal student customers in K12 after-school tutoring market. As these students move from grade 7 through grade 12, we expect the continued improvement in retention rate and customer loyalty will further drive revenue growth in the next three to six years.
These investments lay down a solid foundation for stronger growth in the long term, and further cement our leadership in the market. Another highlight of the first quarter of FY 2020 is our year-over-year operating margin expansion, which is compounded by a strong bottom line performance. Our non-GAAP operating income increased by 48% year-over-year in dollar terms to approximately $267.2 million, while non-GAAP operating margin rose by 360 basis points to 24.0% from 20.4% a year ago. Attributable to a strong utilization rate and operational efficiency, in addition to our one-off summer promotion drive. We will continue to focus on furthering this improvement, and we are confident in our ability to deliver stable and positive margin expansion this year, and create sustainable long-term value for customers and shareholders. I will now turn to pricing.
Per program blended ASP, which is cash revenue divided by total student enrollment, decreased by about 13% year-over-year. We like to note that the lower than normal blended ASP is primarily due to the change in tuition fee collection schedule for our K-12 after-school tutoring courses. As explained above, the number of the students we recruited and the amount of fees collected during the quarter only reflect the second half of the autumn semester. Therefore, our blended ASP for the quarter of 2020 appears to be lower. Hourly blended ASP, which is GAAP revenue divided by the total teaching hours, increased by approximately 5% year-over-year in RMB terms. Breaking down our hourly blended ASP, the U-Can middle school, high school rate increased by 7%, POP Kids increased by 9%, and overseas test-prep program increased by 7%, all year-over-year in RMB terms.
Now we will move on to the first 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 35% in U.S. dollar terms or 40% in RMB terms. To provide a breakdown of the growth, the U-Can middle school, high school all subjects after-school tutoring business reported a revenue increase of 33% in U.S. dollar terms or 38% in RMB terms for the quarter. Student enrollment grew approximately 55% year-over-year for the quarter. Our POP Kids program delivered outstanding results with revenue up about 38% in U.S. dollar terms or 44% in RMB terms for the quarter. Enrollment was up about 70% for the quarter. The overseas test-prep business reported a revenue increase of 5% in U.S. dollar terms or 10% in RMB terms for the quarter.
Our consulting business recorded revenue growth of about 23% in USD terms or 28% in RMB terms year-over-year for the quarter. Finally, VIP personalized classes business recorded a revenue growth of about 19% year-over-year in USD terms, or 24% in RMB terms year-over-year for the quarter. Next, I'll provide some updates on the progress we're making with our optimized market strategy. In terms of offline expansion, as mentioned earlier, this quarter we added a net of seven learning centers in existing cities. Altogether, we increased the total sq m of the class area by approximately 24% year-over-year and 3% quarter-over-quarter by the end of this quarter. Our Dual Teacher model has been proven successful.
It has been introduced into the POP Kids program in 46 existing cities and U-Can program in 30 existing cities. For both programs in seven new cities, further deepening our market penetration in both markets we have tapped into. The model also supported further improvement in customer retention and scalability of the new model. With this proven result in mind, we'll continue this strategy in the coming quarters. On the digital technology front, we invested $30 million in the first quarter to improve and maintain our online merged offline standardized classroom teaching system. Most of our investments were recorded under G&A expenses. In particular, we would like to highlight the implementation of our digital interactive courseware for Toddlers program in some major cities.
The digitally-enabled courseware strengthens and standardizes our teaching and learning quality, boosts classroom efficiency, and delivers improved student experience and satisfaction, which also means higher stickiness of our enrollment student customers. Furthermore, we also made stable progress in the pure online koolearn.com business line and other supplementary online educational products, which is experiencing growing market demand. More resources are invested into the executing new initiatives in online K-12 after-school tutoring business in fiscal year 2020. The investment includes content development, teachers recruiting and training, sales and marketing, R&D, and other necessary cost expenses to drive the growth of new pure online programs. With these programs, we're able to reach more students in low-tier cities in an interactive and scalable manner. We believe this will help koolearn.com to gain new market share in the online education area and drive up top-line growth.
Now let me walk you through the other key financial details for the first quarter. Operating cost expenses for the quarter were $825.6 million, representing a 17.9% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which excludes share-based compensation expenses, were $814.6 million, representing an 18.7% increase year-over-year. Cost of revenue increased by 19.8% year-over-year to $440.2 million, primarily due to the increase in teachers' compensation for more teaching hours and rental costs for the increased number of schools and learning centers in operation. Selling and marketing expenses increased by only 1.9% year-over-year to $101.2 million. General and administrative expenses for the quarter increased by 21.6% year-over-year to $284.2 million. Non-GAAP G&A expenses, which excludes share-based compensation expenses, were $273.5 million, representing a 24.5% increase year-over-year.
Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 20.8% to $11 million in the first quarter of 2020. Operating income was $246.2 million, representing a 52.6% increase year-over-year. Non-GAAP income from operations for the quarter was $257.2 million, representing a 46.8% increase year-over-year. Operating margin for the quarter was 23.0% compared to 18.8% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes the share-based compensation expenses for the quarter, was 24% compared to 20.4% in the same period of prior fiscal year. Net income attributable to New Oriental for the quarter was $209.0 million, representing a 69.6% increase from the same period of the prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were $1.32 and $1.31, respectively.
Non-GAAP net income attributable to New Oriental for the quarter was $230.2 million, representing a 25.0% increase from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were $1.45 and $1.44, respectively. Net operating cash flow for the first quarter of 2020 was approximately $364.6 million. Capital expenditures for the quarter were $64.3 million, which were primarily attributable to opening of 43 facilities and renovations of existing learning centers. Turning to the balance sheet. As of August 31, 2019, New Oriental had cash and cash equivalents of $973.2 million. In addition, the company had $351.6 million in term deposits and $210.7 million in short-term investments as of August 31st, 2019. New Oriental's deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructors are delivered.
At the end of the first quarter of fiscal year 2020, was $1,330.7 million, an increase of 16% as compared to $1,146.7 million at the end of the first quarter of fiscal year 2019. The lower-than-usual increase was due to the change of the tuition fee collection schedule for K-12 business in complying with the latest regulatory requirement. This change was implemented during the second quarter of fiscal year 2019. Before moving on to our priority for the second quarter, I would like to take a moment to reiterate our broader goals and our optimized market strategy. We will continue to focus on expansion of our offline business. We aim to add around 20% of capacity in fiscal year 2020, which includes new learning centers and growing classroom area for some existing learning centers for K-12 business mainly.
We will continue to roll out our dual teacher model schools to a number of new low-tier cities in certain provinces for the whole year. We will continue to leverage our investments in the digital technology front, extending new features of our OMO system to more offline language training and test prep offerings, especially for our K-12 children, our overseas test prep key business. We will continue to make such investments, and we believe that the total spending in absolute dollar terms in fiscal year 2020 will increase moderately compared with the prior fiscal year. We will also continue to invest in and execute new initiatives, including product content development, teachers recruiting training, R&D, as well as sales marketing in our pure online K-12 children business on our koolearn.com platform.
At this point, I would like to reiterate that we believe the strong growth in our offline business will offset the online investment expenses on our bottom line. Third, our top priority will remain as the focus on optimizing the utilization of facilities and controlling costs and expenses across the organization to drive continual margin expansion and increase the operational efficiency. The new facilities built in fiscal year 2018 and 2019 are being ramped up at a more efficient level. We expect our non-GAAP operating margin of the offline language training test prep business to continue to expand in the rest of the fiscal year 2020. With a strong operating leverage that consistently improves the utilization rate, our robust offline business growth will be able to cover the margin pressure from our online investment.
On the whole, we expect our overall non-GAAP operating margin to improve year-over-year in fiscal year 2020 compared to the year-over-year decline in last two fiscal years, reflecting a healthy to strong growth trend. Finally, the recent RMB depreciation against the U.S. dollars will also impact our earnings in dollar terms for the first quarter of 2020 and second quarter of the 2020. Again, I would like to emphasize that the fundamentals of our business remain strong as we believe with our optimized market strategy being the focus as always. We're confident that the New Oriental will continue to capture 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 second quarter of fiscal year 2020 to be in the range of $753.6 million-$771.0 million, representing a year-over-year growth in the range of 26%-29% in dollar terms. It projects the growth rate of revenue in our functional currency RMB is expected to be in the range of 30%-33% for the second quarter of fiscal year 2020. The exchange rate used to calculate expected revenue for the second quarter of fiscal year 2020 is 7.11, while historical exchange rate used to calculate revenues for the second quarter of fiscal year 2019 was 6.90. 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 with Sisi.
Operator, please open the call for this.
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 now, and please 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 for the very strong results. My question is, I think the non-GAAP operating margin up 360 basis points is a very good surprise. Do you have any analysis for the breakdown of this basis point? It's quite a bit higher than the previous guidance. Thanks.
Okay. Yeah. Our non-GAAP operating margin rose by 360 basis point year-over-year in this quarter. I think it is much better than we expected three months ago. I think our efforts to keep a healthy balance between the capacity expansion and the operating efficiency have paid off in this quarter. I think there are three reasons. The first one is you have seen the strong utilization rate up in this quarter because our expansion plan, our expansion capacity this quarter is only 3% quarter-over-quarter, but in our midterm, we got the 29.7% revenue growth. Number two is we enhance the cost control within the company. Number three, the last one is we have the one-off summer promotion drive. Of course, because we raised the price from RMB 200 per course on average last year to 400 RMB this year. It helped the margin expansion.
I think from the one-off, the summer promotion positive impact will be similar around 100 basis points. All the others only comes from the operating leverage and high utilization rates. Okay. Yeah, keep going forward, I think within the rest of this fiscal year, we're confident that we will have the margin expansion in the rest of the year because as I guided in the last earnings call, our expansion plan this year is somewhere around 20%, but our top-line growth for the whole year will be 30% year-over-year growth. We believe we'll have the more leverage on the rental side and the SG&A side as well. Okay. Thanks, Mark.
Thanks. May I understand if the first reason is bigger than the second and bigger than the third? Is it in this sequence for the help?
Yes. Yeah, as I said, the major or the main margin driver comes from the better utilization rates and the operational efficiency. Okay.
Okay. Thank you.
Thanks, Mark.
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. Your next question comes from the line of Yuzhong Gao from CICC. Please ask your question.
Hey, Stephen. Thanks for the opportunity. Quick question on your K-12 segment. For the whole year, could you help me color on your margin guidance and basically on your offline, online, how your offline contributed margin expansion, while how the online drive your margin? Maybe if you can quantify this a little bit, that would really help. Thanks.
As I guided, this quarter, we got the very good results of the margin expansion, 360 basis points margin expansion this quarter. For the whole year, we believe we'll have the margin expansion in the rest of the year. Most of the margin expansion comes from the offline business, especially for the K-12 business. I think the online part or the online side is still a drag. I think the drag will be offset by the offline business margin expansion. I don't have the detailed numbers because we just have the one quarter path, but for the whole year as a whole, as the company as a whole, the whole margin will be expanded in the fiscal year 2020.
Okay. That helps. Thanks.
Okay. Thanks.
Your next question comes from the line of Jin Yoon of New Street Research. Please ask your question.
Hey. Good evening, everyone. Thanks for taking my question. Stephen, I think you mentioned on the prepared remarks that on a teaching hour basis, that pricing was up 5%, if I heard that correctly. I guess, for the rest of the year, how should we expect that? With the utilization continuing to ramp and demand environment being strong, should we see that number accelerate throughout the year? Thanks.
Yeah. The price question first. I think, on hourly rate basis, the overall price for this quarter was increased by 5% in CNY terms. Within that, 7% of the U-Can business, the price increased 9% of POP Kids price increased. Going forward, I think we don't want to change our price strategy. In the rest of this fiscal year, the price increase for the whole business overall will be 5%-10% in CNY terms year-over-year. Yeah, we have seen more leverage, operational leverage for the first quarter and we do believe we will see more leverage in the rest of the year. Yeah, as my answer to the first question, we do believe it will see more leverage in the rest of the year.
Yeah, I think that I want to give the digital guidance for the margins for the Q2 and the rest of the year. We believe we have the margin expansion the upside. Yeah.
Great. Thank you.
Thanks.
Your next question comes from the line of Sheng Zhong from Morgan Stanley. Please ask your question.
Thank you for taking my question. I want to have more color of your margin guidance or about the operating expense. I think, Stephen, you mentioned that in first quarter, there were more spending on the team and the product, so the G&A cost is similar while the sales marketing is lower. If we look ahead, say, in the coming winter and the next summer season, do you expect more spending on the sales marketing when the Koolearn products is more ready? In this case, what's your guidance or outlook of the sales marketing spending in the second half of this year? Thank you.
Yeah. This quarter, our selling marketing expenses increased only by 1% in USD terms year-over-year. This is our strategy, as our original plan. Within the quarter, I think we continuously map for more resources, more money on the product and the teachers recruitment and training and content development, as well as good marketing. We will spend the reasonable marketing expenses within the koolearn.com platform in a reasonable way. We don't want to use the burning money way to acquire students as we did in the offline business. Also, on the other hand, for our offline business, I think if I'm not sure, remember clearly, last quarter, our selling marketing expenses didn't increase a lot. I do believe we will have more leverage on the selling marketing side going forward. Yeah, that's my answer.
Also, I think for the G&A and cost of that, like the rentals, we do have the more leverage going forward, yeah, as we did in the selling marketing side. Yeah.
Thank you.
Thanks, Sheng Zhong
Your next question comes from the line of Binnie Wong from HSBC. Please ask your question.
Hi, good evening, management. Thank you for taking my questions. My question is actually on the growth in the top-tier cities. We see that there's also intensive competition, right? If we look at the next quarter growth outlook, right? Excluding the FX impact is actually still quite strong. Can you help us to understand how much of that is driven by your enrollment growth, and then how do you see that the trend going forward? Give us kind of your update in terms of your vision on your online education strategy as well. Thank you.
Okay. I can share with you one number. The top 10 cities in last 12 months, the revenue growth for the top 10 cities was 36% in RMB terms year-over-year. I think we are seeing the good trend. Actually, we're seeing the revenue acceleration in almost all the cities. Go back to your question about the guidance. For the Q2, we give the guidance of the top line growth by 30%-33% in RMB term year-over-year growth. Within it, most of the growth will come from the K-12 business. For U-Can, middle school, high school, I think the growth in the second quarter will be 45% plus year-over-year in the second quarter. For POP Kids, the growth will be somewhere around 50% year-over-year. Overseas Test prep business growth will be somewhere around 10%.
You can calculate the total, the overall growth will be somewhere around 33%. Okay. What?
The enrollment is the key driver.
Yes
for the revenue growth.
Yes. The price increase will be somewhere between 5%-10%. Most of the growth will come from the enrollment growth. I do believe the retention rate after the summer promotion was 59% from the summer promotion, and it's 5% higher than the number of last year. We do believe most of the students will stay with us for at least one year, or hopefully three to six years, so it will help the enrollment growth in rest of the year. Okay. Thank you.
Okay. Thank you so much. Very clear.
Thank you.
Your next question comes from the line of Alex Liu of China. Please ask your question.
Hi. Thanks, Stephen. Thanks, Sisi, for taking my questions. Very strong quarters. Two quick questions. First, I think you guided around 20% full year, fiscal year capacity growth, while I think this quarter you're doing 24% year-over-year growth. Does that imply some kind of a deceleration into the second half this fiscal year? Second, I think we just passed through a very fierce circle competition summer for online. I'm just wondering whether these aggressive promotions have impacted New Oriental's offline business in any way. Thank you.
Okay. The capacity question. Yes, we have the seasonality of the expansion quarter by quarters. If we go back to the last year, the expansion, we set up most of the learning centers in second half of the fiscal year. This year, we will use the same strategy, so it's back-loaded within the same fiscal year. The reason that we open more learning centers in the second half of the year is because we prepare for the coming new summer. Okay. We don't change the guidance of the expansion plan as the 20% expansion plan, yeah, for the whole year, back-loaded. Yeah, the online competition is a great question. I think, firstly, the market is so huge. Even though we are one of the market leader, our offline business, the market share is only 2%, somewhere around 2%. The market is huge enough.
So far, we haven't seen any negative impact from the recent aggressive online education competition. In fact, we are in the revenue acceleration runway in the offline business side. Even though we have seen some players to spend a lot on the online education, on the marketing, selling marketing expenses, but the key is after we raised the price, we double the price of the summer promotion, we still gathered the 820,000 enrollments, which is 8% the increase compared to last year. The retention rate is higher than we expected. 59% is a good result. Our strategy is we care both offline business and online business growth. So that means we will have two growth engines, offline and online.
The online, as I said, we are still in process of the investment period to spend more money and time on the R&D and product development and the teachers training or staff training. The online is still part of New Oriental's future. On the other hand, the offline business, I think we're doing good for the offline business. We have two growth engines in the future. Yeah. Thank you.
Okay. Thank you.
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. Your next question comes from the line of Tian Hou from TH Capital. Please ask your question.
Hi, Sisi, Stephen, congratulations on a good quarter. The question is related to your offline dual teacher model. If you expand the school by school, will be somehow slower, but if you do the Dual Teacher, and can actually accelerated the growth. I wonder, in your future plans, how many the expansion will come from the Dual Teacher, the expansion, and also Dual Teacher, how much it contribute to the margin expansion? That's the question. Thank you.
Hi, Tian. It's a great question for the Dual Teacher model. We have tested the Dual Teacher model in 46 existing cities for the POP Kids and 30 cities for the U-Can business, and in several low tier cities for both POP Kids and U-Can business. We're happy to see the increased market penetration in those markets in low tier cities. We plan to open 10 to 15 more new cities business with a Dual Teacher model, okay, in next 12 months.
The offline business. Philosophically, the margin of the tuition model should be higher than the offline business. Going forward, philosophically, I think the tuition model business will help the margin, the expansion for the whole company. Okay?
Thank you. That's the question.
Thanks, Tian.
Your next question comes from the line of Lucy Yu from Bank of America Merrill Lynch. Please ask your question.
Hi, Stephen. This is Jen. Thanks for taking my question. Stephen, you just mentioned that in the second quarter, U-Can is about to deliver 45%-plus growth, with POP Kids delivering 50% . Actually, the growth rate is accelerating from the first quarter. My understanding is that the better-than-expected retention rate from summer promotion might have something to do with the acceleration. Is my understanding correct?
Because number 1, we had a very strong retention rate after the summer promotion. This is number 1 reason. Number 2 is we have seen the student retention rate for the normal classes, both U-Can and POP Kids, are driving up. It testifies that New Oriental is providing better service and products to the students customers. The better the student retention rate and the higher the retention rates from the summer promotion. Lastly, we open more learning centers in Q1 and Q2. Also we are ramping up the learning centers we set up in last two years. That means we will fill more students into the current learning centers. It helps us to get the revenue acceleration in Q2, in the coming quarter.
Thank you. May I please follow up what's the retention rate for normal class this quarter?
Okay
How is that comparing to the previous quarter?
Okay. The U-Can, middle school, high school business, the retention rate in this quarter is close to 80%. POP Kids is close to 90%, the retention rate. Compared to last year, we got a 3%-5% higher rate year-over-year. Okay. Thank you.
Okay. Thank you very much.
Thanks.
Your next question comes from the line of Christine Cho of Goldman Sachs. Please ask your question.
Thank you. Congratulations, Steve and Sisi. Seems like even pretty mature cities like Beijing, it's off to a very good start this year. What are some key drivers behind this acceleration? Thank you.
I think, yeah, it's not only for Beijing school did very good result, but also for the other big cities. I think since this is a long story. We started to invest on the new products since three or four years ago. We start to bear fruit of these historical investments. Also, we issued the new revamped POP Kids program, the product. Compared to before, it's more interactive, more adaptive for the kids. The kids and their parents love the new product than we expected. It helped us to get a better student retention rate. Anyway, we do believe the big cities, even with a high base number, we do believe they can get a healthy growth in the future going forward. Okay? Thank you, Christine.
Thank you.
Thanks.
Your next question comes from the line of Felix Liu from UBS. Please ask your question.
Hello, Steve and Sisi. Congratulations on the strong quarter, and thank you for taking my question. I think you mentioned that the biggest reason for the margin expansion this quarter is the utilization improvement. May I know what is the current utilization level, and how much upside do we expect going forward? Thank you very much.
Yu, do you want to take the question?
Yeah. This quarter, the overall utilization is 21%, and 2% improvement compared with last year. The key driver is U-Can and POP Kids K-12 business. The learning centers are ramping up faster than before, and the utilization got improved.
Thank you.
Going forward, I think we will see higher utilization rates in the rest of the year because, I think it's simple math. I suggest that your guys compare the top-line growth with the expansion plan. Okay? That means we fill more students into the existing learning centers. This is the math. Okay?
Great.
Thank you.
Thank you very much.
Your next question comes from the line of Alex Xie from Credit Suisse. Please ask your question.
Hi, management. Thank you for taking my questions. I ask about, if we exclude the impact from the regulation changes in tuition fee collection, what will be the student enrollment growth for U-Can and POP Kids? Thank you.
For this quarter?
Yeah.
I think for the K-12 business, if you take out the impact of the regulation, I think the enrollment growth for the U-Can and POP Kids together will be somewhere around 30%-35%. This is the real enrollment growth.
Correct.
Okay. On a pro forma basis.
Thank you.
Okay, thanks.
Your next question comes from the line of Tommy Wong from China Merchants. Please ask your question.
Hi. Thank you. Thanks for taking my question. You mentioned a lot about the success and the retention rate improvement this year. Can you share with us some of anecdotal, maybe strategies or at a learning center level, what kind of efforts did the teacher made or any kind of special programs that led to such a good result? Maybe just a little bit of anecdotal evidence. Thank you.
Yeah. Actually, for our product side, we keep rolling out our online, offline merged standardized teaching system to the whole network. Also, we invested money and also our teaching resources to refine the standardized product. For example, like POP Kids, this year from the summer, we rolled out our new courseware to make the class more interactive. Also, very important, new feature of the new courseware is that our teachers can save a lot of time, and the teaching quality can be improved because it's more and more standardized teaching process. Also, by interactive new features, students are more interested in the class. Also, the effectiveness and stickiness of the customer are also improved. It's shown by the numbers in those cities are using the new product. That's one new feature of the whole standardized system.
Going forward, we'll keep investing in having more and more new features, new services, better services to our customers. That's one key driver. Also, like teachers, because their service quality also got improved, our training process for teachers are getting more and more standardized because the product is standardized. For example, starting from last year, last summer, we train our U-Can teachers using the new modularized new system to train our teachers, especially new teachers, to help those teachers to improve the teaching quality in short period of time. Also the overall teaching quality got improved a lot. That's the benefit that we can get from the standardization of the teaching product. Okay.
Yeah. Thing about that, we raised the price. We doubled the price of the summer promotion this year, then we still got 8% enrollment growth.
Yeah.
From the RMB 200 per course to this year, RMB 400 per course. RMB 400 is something, is some money. I think the strategy for us is better for us to identify who are the real customers, and also, we do believe we were providing better quality services and products to the customer and students.
Okay.
Okay. Thank you. Congrats on the strong results. Thank you.
Thank you very much.
Thank you.
We are now approaching the end of the conference call. I will now turn the call over to New Oriental CFO, Zhihui Yang, for his closing remarks.
Thank you all again 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, this concludes today's conference call. Thank You for participating. You may now disconnect.