Ladies and gentlemen, thank you for standing by, and welcome to the New Oriental third fiscal quarter 2017 earnings conference call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone. I must advise you that this conference is being recorded today, 24th of April, 2017. I would now like to hand the conference over to your first speaker today, Ms. Sisi Zhao. Please go ahead.
Thank you. Hello, everyone, and welcome to New Oriental's third fiscal quarter 2017 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 news wire services. Today, you will hear from Stephen Yang, Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law.
As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's investor relations website at investor.neworiental.org. I will now turn the call over to Mr. Stephen Yang. Please go ahead, Stephen.
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. We're pleased to report another strong quarter, during which we achieved both accelerated top-line growth and continued solid bottom-line performance this quarter. Net revenues increased to $437.8 million, which is an increase of 26.2% in U.S. dollar terms and 33.4% in our functional currency, RMB, beating the high end of our expected range. Net income was $67.6 million, representing a 39.6% increase year-over-year. As you know, accelerating revenue growth through capturing opportunities across our diversified business model has been a key priority for us. Substantively, the strong top-line growth was attributable to a significant increase in student enrollment in the recent two quarters. It's worth noting that in this year, we started to bundle winter and spring courses registrations in Q2, and summer and autumn courses registration in Q4.
As a result, we saw extremely strong year-on-year growth of student enrollment in Q2 and Q4 versus moderate growth in Q1 and Q3. We recorded a 56% year-over-year enrollment growth in the second quarter, followed by 5.9% year-over-year growth in the third quarter. The combined enrollment growth for the second and third quarter reached 32%. It is also encouraging to see a continuous strong momentum in enrollment and RMB cash proceeds from student registration in the first seven weeks of the fourth fiscal quarter, which grew by approximately 37% and 39% year-over-year. Our key revenue driver, K12 all subjects after-school tutoring business, reported revenue growth of approximately 41% in US dollar terms and 49% in RMB terms. The combined enrollment growth of K12 after-school tutoring business for the second and third quarter was 45%.
This was mainly supported by U-Can business and the revamped Pop Kids program, which achieved revenue growth of 36% and 52% in US dollar terms respectively. This quarter, we remain focused on strong execution of the optimized market strategy, which means we are continuing to expand our offline business, while also investing in O2O two-way interactive education system. In the third quarter, we added a net of 10 learning centers in existing cities, opened a new kindergarten in Beijing, adding a total approximately 71,100 sq m of classroom area, which represents approximately 6% capacity expansion. We started to pilot the new Dual-Teacher class model in select cities in July 2016, utilizing online live broadcasting to reach students in the low-tier cities with access to high-quality teacher resources from high-tier cities. In the third quarter, we rolled out three Dual-Teacher model schools in the city of Kaifeng, Changzhou, and Qinhuangdao.
We have began to see increased market penetration in more remote areas. Turning to pricing. Per program blended ASP, which is cash revenue divided by total student enrollment, increased by approximately 10% year-over-year in US dollar terms or 17% in RMB terms. The increase is mainly due to a higher than normal cash revenue growth of 32% in VIP business in US dollar terms, or 39% in RMB terms during this quarter. Starting from this quarter, we began to concentrate the registration for U-Can VIP classes in June and December, the first month of the first fiscal quarter and third fiscal quarter, respectively, rather than spreading evenly throughout the year, with an effort to streamline the registration process. As a result, we saw very large year-on-year increase in enrollments for U-Can VIP classes in this quarter.
In the fourth fiscal quarter and over the long run, we expect that growth of our VIP business will be slower than our overall revenue growth. Also, in order to improve the effectiveness and results of our training offer to younger age customers for overseas Test Prep, we doubled the class length of TOEFL and IELTS program targeting middle and high school students since this fiscal year. Hourly blended ASP, which is cash revenue divided by total teaching hours, increased by approximately 3% year-over-year in RMB terms. To provide a breakdown of the hourly blended ASP in RMB terms, please note that U-Can increased by 1%, Pop Kids increased by 10%, and overseas Test Prep program increased by 10% year-over-year. On the margin front, we continue to make great progress by improving operational efficiency and utilization of facilities, and controlling costs within the company.
Operating margin increased 90 basis points, net margin increased 140 basis points year-over-year. The continued strong bottom-line performance demonstrates the results of our commitment in creating sustainable long-term value for our customers and shareholders. Now, let's move on to the third quarter performance across our individual business lines. Our key revenue driver, K12 all subjects after-school tutoring business, achieved year-over-year revenue growth of 41% in US dollar terms, or 49% in RMB terms, and enrollment growth of about 9% year-over-year. Breaking it down, the U-Can middle school, high school all subjects after-school tutoring business recorded a revenue increase of 36% in US dollar terms, or 44% in RMB terms, seeing enrollments grow by 10% year-over-year. Our Pop Kids program revenue was up by 52% in US dollar terms, or 60% in RMB terms, and enrollment grew by 8% year-over-year.
Our overseas Test Prep and consulting business together reported revenue growth of 9% in US dollar terms, or 15% in RMB terms year-over-year. Finally, VIP personalized class business recorded the cash revenue growth of 32% in US dollar terms, or 39% in RMB terms year-over-year. Next, I'll provide some updates on the progress we have continued to make with our optimized market strategy. We have been focusing on maintaining a healthy balance between top-line and bottom-line growth while investing in the build-out of our O2O integrated education system, this continue to work well. Starting with our core offline business. As mentioned earlier, we added a net of 10 learning centers in existing cities, opened a new kindergarten in Beijing, and three Dual-Teacher-model schools in the city of Kaifeng, Changzhou, and Qinhuangdao. All together, we added a total of approximately 71,100 sq m of classroom area, representing 6% capacity expansion.
For the whole year 2017, we plan to add 70 to 80 new learning centers for K12 business in all of our existing cities. We moderately scale up the new learning center opening plan over the course of the year, as we want to be better positioned to benefit from positive market dynamics. We also plan to enter three or four new cities where we identify markets with most business opportunities. We also plan to pilot the newly initiated Dual-Teacher class model in around 20 existing cities and enter five to seven new cities, all specifically targeting lower-tier markets. Regarding our online business, we invest approximately $15 million in the third quarter to improve and maintain our O2O integrated education ecosystem. Most of the investments were recorded under G&A expenses.
We have been devoted to this online business build-out since 2014, with an increase in customer retention rates and addition of new customers. We fully believe this is transforming our business, investments will bring continued and long-term benefits. Before I go into the details, just a quick recap of our 3 levels of online platform. The 1st level, also the core of our online system, is an O2O two-way interactive education system across all of our business lines. The 2nd level is our pure online learning platform, supplementary online education products under New Oriental brand. The 3rd level of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complement our online education offerings. Starting with O2O two-way interactive education system, we aim to extend New Oriental's traditional offline classroom teaching offerings to online education services.
This is also an important factor that sets us apart from other key players in the market. With advanced O2O product services, we're poised to gain more market share and improve brand recognition going forward. Since its launch in September 2014, U-Can Visible Progress Teaching System, our interactive education system, has been successfully rolled out across all existing cities in our nationwide school network, and this expansion drove positive performance. Our newly revamped Pop Kids English program, Shuangyou, has also expanded its coverage to 54 cities by the end of the third quarter. The interactive education system has been gradually used in more and more cities. The O2O system for the domestic test-prep program was being used in five cities for some classes by the end of the third quarter.
Since its launch in the second quarter of fiscal year 2016, the interactive education system for overseas test-prep program, including IELTS, TOEFL, and SAT courses, was rolled out in seven cities by the end of the third quarter. For the 2 level of our online education ecosystem, we have seen consistent growth in our pure online learning platform and other supplementary online educational products. As you may have known, we announced in March that Beijing New Oriental Xuncheng Network Technology Company, which operates our online education platform, koolearn.com, has received approval of the listing of Xuncheng shares on the National Equities Exchange and Quotations in China. We believe this could help better strengthen its operation and further improve our online service offering.
In the third quarter, koolearn.com generated net revenue of $15 million, representing an increase of 19% in US dollar terms or a 26% increase in RMB terms. The number of paid users increased significantly this quarter, approximately 92% year-over-year. The number of cumulative registered users in this quarter has reached 15.8 million. koo.cn, our own live broadcast open platform for both New Oriental and third-party teachers, achieved around 470,700 registrations in the third quarter. DONUT, a series of game-based mobile learning apps for children, recorded over 56.3 million downloads by quarter end. Leci, an English language vocabulary training app for mobile phones and tablets app, recorded over 5.8 million users by quarter end.
For the 3 level of our online education ecosystem, we invest in select online education companies with a minority stake, and we continue to look for new opportunities that will not only complete our own offerings, but also facilitate our own O2O integration. Let me walk you through the other key financial details for the third quarter. Operating costs and expenses were $380.3 million, representing a 24.9% increase year-over-year. Non-GAAP operating costs and expenses, which excludes share-based compensation expenses, were $372.1 million, representing a 24% increase year-over-year. Cost of revenues increased by 26.5% to $183.8 million, primarily due to increase in teachers compensation for more teacher hours. Selling marketing expenses increased by 24.2% to $55.9 million, primarily due to increase in brand promotion expenses. G&A expenses for the quarter increased by 23% to $140.9 million.
Non-GAAP G&A expenses, which excludes share-based compensation expenses, were $132.6 million, representing a 20.4% increase year-over-year. This is primarily due to increased headcounts as the company expanded its network of schools and learning centers by about 10% year-over-year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 86% to $8.3 million. Operating income for the quarter was $57.5 million, a 36% increase from $42.3 million in same quarter of prior fiscal year. Non-GAAP income from operations was $65.8 million, a 40.7% increase from $46.7 million in the same period of prior fiscal year. Operating margin for the quarter was 13.1%, compared to 12.2% in the same prior period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses for the quarter, was 15%, compared to 13.5% in the same period of prior fiscal year.
Net income attributable to New Oriental for the quarter was $67.6 million, representing a 39.6% increase from the same period of prior fiscal year. Capital expenditures for the quarter was $24 million, and this was primarily attributable to the opening of 4 new schools and 30 new learning centers and renovations of existing learning centers. Turning to the balance sheet. At the end of third quarter, the deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instruction's delivered, was $760.5 million, an increase of 29.9% as compared to $585.3 million at the end of third quarter of fiscal year 2016. Before talking about our expectations for the fourth quarter, I wanted to take a moment to reiterate our overarching goals for the year, which we outlined on the 2016 Q4 and full-year conference calls.
During fiscal year 2017, we will continue to focus our optimized market strategy. With the current success achieved, we're confident that we have the right strategy in place, that will continue to drive additional progress and help us create long-term value for all shareholders. To give you more specifics, first, we will continue to expand our offline business. In fiscal year 2017, we plan to add 70-80 new learning centers for K12 business in existing cities. This is higher than our initial targets provided ahead of fiscal year, we're raising this because we are seeing a growing momentum for our K12 business due to the combination of our broad product portfolio, solid market demand, and effective operation. We also plan to enter 3 or 4 new cities where we identify as markets with the most business opportunities.
Further, we plan to implement the newly initiated Dual-Teacher model, class model in around 20 existing cities and enter 5-7 new cities successively, targeting low-tier markets. Second, we will continue to invest in our O2O integration and initiatives in our online education offerings, promoting the strongest products possible in the marketplace in order to continue to take more market share. While investments will continue, we believe that the total spending will begin to stabilize this year compared to the large annual incremental increases in the last two fiscal years when we were building a foundation. Third, we will continue to have a top priority on improving utilization of facilities and controlling cost and expenses across the company to drive the continued margin expansion and profitability.
Looking at the near term, in terms of the fourth quarter of fiscal year 2017, we expect total revenues to be in the range of $465.1 million-$479.9 million, representing year-over-year growth in the range of 18%-22%. The projected growth rate of net revenues in our functional currency, RMB, is expected to be in the range of 25%-29% for the fourth quarter. Lastly, 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.
Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question, please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Our first question comes from the line of Tian Hou from TH Capital. Please ask your question.
Good evening, Sisi and Steve. Congratulations on a good quarter. Two questions. One is related to your expansion. Previously, you were planning to open 30, 40 new learning centers and as what you just said, you're going to pretty much double it. I wonder what the impact is going to be on your margin? Are we going to maintain our margin or the margin is going to be impacted a bit? That's the first question. Second question, not long ago, in Shanghai, I think the government had some kind of a policy, like students to stay in the school a little bit longer, so that reduce their time to go to off-school tutoring program. Do you see any impact from that? That's the two questions.
Thanks, Tian. Your first question's about our expansion plan. Yes, we raised the new learning center opening within this year. Originally, we planned to set up 30, 40 new learning centers. We're seeing our K12 business, the growing momentum is very good. Also, we're seeing strong market demand, and we're quite confident about our new cultural product, not only in camp, also in public. We decide to open more learning centers. Even though we opened 70, 80 new learning centers within this year, that means the 10% expansion. Capacity expansion. It will not settle the margin. In office, we're seeing the margin expansion by 110 basis points or 100 basis points in this year. Also next year, I think we will still open 10% more learning centers. We expect the margin should be improved by 50 to 100 basis points up in next fiscal year.
this is the answer for your question about expansion plan. The second question is about policy.
Policy.
We saw the policy change in Shanghai several months ago. Till now, we haven't seen any negative impacts of our business. Typically, the students spend 30 or 40 hours a week in public schools.
The students only spend four or six hours a week with New Oriental. I don't think we give a lot of burden to students. We help the students to study in more efficiency and to teach them the better study method.
I don't see any negative impact of our business. You see our business, the trend is very good. That's it.
Yes.
Thank you. Okay.
Okay. That's all my question. Thank you.
Okay, thanks, Tian.
Thank you. Our next question comes from the line of Fan Liu from Goldman Sachs. Please ask your question.
Hi, management. Thanks for taking my question. You have mentioned that in the first seven weeks of fourth quarter, the enrollment grew by 37% year-on-year. May I know if this is related to registration for summer courses only or summer and autumn courses combined? Also, could you please share with us the utilization and the retention rate this quarter? Thank you.
Okay. In the first seven weeks of the fourth quarter, we're seeing a 37% growth in enrollments. I think the most of the student enrollment in the first seven weeks of the first quarter will be reported the GAAP revenue in Q4 and Q1. We make a change of the time window for the student enrollment registration in K12 business this year. That means you will see the two windows of the whole year. The first one is in autumn, that means in November, and the second is in May. You will see more and more student enrollment growth in the rest of the time of the Q4. The utilization rate, this year is 21%, that means we're seeing the 200 basis points up compared to 19% utilization rate in last year. Going forward, we expect the utilization rate will go up continuously.
The What's your-
Retention.
Oh, retention rate. Yeah. In terms of the K12 business, the retention rate is 75%-80% this year. Last year, was 65%-70%, so that means the 10% improvement this year. Okay.
Thank you. Very helpful.
Okay, thanks. Bye.
Thank you. Our next question comes from the line of Wendy Wang from Macquarie. Please ask your question.
Hi, Stephen. Hi, Sisi. This is Ivy asking on behalf of Wendy. I just first want to clarify on that this year we combine our enrollment, basically 4Q and 1Q and 2Q and 3Q. When did it exactly start? Did it start basically in the second quarter fiscal year 2017, so that this quarter is the first quarter that we're seeing the moderate 6% enrollment growth because of the combination? My second question is on our, there's a net loss that's attributable to the minority shareholding. Is that from Koolearn? For Koolearn, after now it's listing on the New Third Board, what's our strategy going forward to continue push forward the pure online learning? That's my two questions. Thank you.
Okay. We started to bundle winter and spring courses registration in Q2, this was the first time. We will do the same thing in Q4. That means the summer and autumn courses registrations will happen in Q4. We're seeing our classes are popular from students, so they want to enroll into the class as early as they can. That means you will see very strong year-over-year growth on enrollments in Q2 and Q4 versus moderate growth in Q1 and Q3. I suggest you guys to combine the student enrollment growth into two quarters, or maybe three quarters. I suggest you combine the Q2 and Q3 and first seven weeks of the enrollment in a row together, so you can get the more reasonable student enrollment trends. This is the answer for your first question. What's your second question?
It's on the.
Non-gaap.
Okay. We have several subsidiaries, the West, the Max, and the others, et cetera. Some companies are still in loss, but the MI is not a big deal. It's not a big number. As for the Koolearn.com, our pure online platform, it's at least in third board market, and I think it will help the Koolearn.com to develop more rapidly. Going forward, I think we expect top line growth of Koolearn.com will be 30% or 40% year-over-year, and you will see the margin improvement of Koolearn.com. Okay.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Alvin Zhang from Deutsche Bank. Please ask your question.
Hi, management. This is Maria Mao asking on behalf of Alvin Zhang. First, congratulations on another strong quarter, and we have two questions here. The first one is, we know that some cities have launched this year's summer promotion campaigns. Can management share some feedback of the promotion and what will be the impact on our financial results? Second question is, we noticed the margin improvement is quite strong this quarter, so can management give us some color on the margin growth next quarter or even the quarter going forward? Thank you.
Okay. We did large scale promotion in last summer in order to rapidly acquire Grade 7 students in 27 cities. I think it's very successful because, in this fiscal year 2017, the summer promotion generates 3% or 4% incremental revenues, and there's no margin impact on that. This year, I think we will do more summer promotion. We plan to conduct the summer promotion this year in about 30 cities or more. I think the top priority of summer promotion this year, what I mean, our job, is to get higher retention rates. We're quite confident that the retention rate in the coming autumn will be higher than that of last year. We hope the summer promotion will bring more and more new student enrollment and yeah, 3% or 4% or maybe 5% new student incremental revenues in fiscal year 2018.
I think, yeah, as we did in last year, there's no margin impact. What I mean is no negative impact on margins.
Okay.
Is it clear?
The second question is on the margin.
Okay, margin. Yeah. We're happy to see the margin improvement. In the coming quarter, we expect the margin improve continuously. As I shared with you guys several quarters ago, our margin target is to get 17%-18% operating margin, GAAP operating margin in next three, four years. This year, I think the operating margin for the whole year should be somewhere between 14%-14.5% or 14.6%. So I think the margin will be improved gradually in next whole year or in next three years. Okay.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Ms. Cheryl Liang from CICC. Please ask your question.
Good evening, Stephen and Sisi. Thanks for taking my question, and congratulations for the strong quarter. I have two questions. Could you please share more detailed pipeline to roll out your Dual-Teacher model in the next quarter and in the fiscal year 2018? The second question is, could you please help us to break down the operating margin by segment? What's the target for the next quarter and the fiscal year 2018? Thanks.
Okay. As for the Dual-Teacher model, now we pilot the Dual-Teacher model in five cities. Three new cities combined with the two cities we opened last quarter. Also on the other hand, we are in 20 learning centers in existing cities to pilot the Dual-Teacher model. Our plan is to open, I think, five to 10 new cities in the next whole year to open the learning centers to run the Dual-Teacher model. Anyway, you will see more and more existing cities to run the Dual-Teacher model. The operating margin by segment. The operating margin, all what I said is before the head office expenses. The overseas Test-Prep margin is about 30%, and the U-Can business, the op margin is 25%.
The operating margins for Pop Kids improved a lot in last two years, and now it's between 15%-20%. The next year, I think you will see the margin improvement in all business lines. This is our target. Okay?
Very helpful. Thank you.
Thank you.
Thank you. Our next question comes from the line of Terry Cheng from HSBC. Please ask your question.
Hi. Thank you, Stephen and Sisi, for taking my questions. You talked about a capacity expansion acceleration. I'm just wondering what kind of cities are we targeting to enter. What's our strategy in the maybe next three to five years? Are we entering expansionary mode for the next three years? Thank you.
Okay. Yeah, we plan to enter three or four new cities by opening offline schools in this year. Next year, I think almost the same number, three to four new cities. We will enter into the low-tier cities. I think if you see the chart or the data, I think that there's a lot of cities we can enter into because there are more than 100 cities with a population more than 2 million we're not in. We will do it very carefully, just to open like three or four new cities every year. Don't forget, next year we will open more and more cities by the pure Dual-Teacher model. That means we're seeing the very good momentum in our K12 business. We have the best teachers and best content. We will open more cities and learning centers.
The key is we care about margin. We won't let the new learning centers and the cities drag the margin. This is our top priority in terms of the strategy. Yeah. Okay?
Yeah. Thank you very much. Just a quick follow-up on your summer promotion strategy.
Okay.
You talk about doing this promotion in 30 more cities, and the goal is to have higher retention rate this year. I am just wondering.
Yeah
What kind of enrollment are you targeting for this year? Last year, we have 200,000, right? What kind of enrollment number do you think would be achievable for this year?
We don't have the specific budget on the summer promotion enrollment. I think we should get more students compared to the 200,000 enrollments in last summer promotion. Yeah. As I said earlier, I think we care about the retention rates. We learned a lot from the last year. That means we have more experience, so we push the local school head to get more student retention rate for summer promotion. Yeah. This is our first top priority job this year. Okay?
Okay, great. Thank you, Stephen.
Okay. Thank you, Terry.
Thank you. Our next question comes from the line of Charles Zhou from Credit Suisse. Please ask your question.
Hi, management. Thank you for taking my question. I've got several questions here. First of all, on the margin expansion, could management give us some outlook on the gross profit margin specifically? Because we noticed the absolute costs picked up a bit this quarter on a Q-on-Q basis versus the previous year. When we talk about margin expansion, does it mainly come from operating cost savings or GPM has more upside? The second question is regarding the change of your enrollment window. Would that affect your marketing strategy? Because the sales marketing expenses seem to have some operating leverage this quarter, just wondering how would the change of the enrollment window affect the expenses spread out. The third question is on the enrollment growth in your top five cities versus the others. Could management give us some colors? Thank you.
No problem. Okay. The gross margin, I think going forward, you will see the gross margin will be flattening or improve a little bit. We have some leverage on the rental or the teaching cost. The GP margin will be flattening or improve a little bit going forward. The selling marketing expenses, I think it's not related to the enrollment registration window change, because now we rely on the word of mouth, not the selling marketing activities. You will see the more and more leverage on the selling marketing expenses as a percentage of the revenue going forward. The top five cities, I think the question is about revenue contribution or the enrollment contribution?
Yeah. If you could mention both, that would be great.
Okay. Yeah, the revenue contribution, the top five cities, the biggest one is Beijing. That's 24%-25% revenue contribution. The other, the second is Shanghai, 7%. The third one, Guangzhou and Xi'an, and Wuhan. This is the top five cities. Besides Beijing, each city contributes 3%-7% revenue contribution each. Yeah. That's it. Is that clear?
Okay. Thank you.
Yeah. Thank you.
Yes, it's clear. Thank you.
Thank you. Our next question comes from the line of Mr. Alex Liu from Daiwa. Please ask your question.
Thanks, Stephen and Sisi. A quick question on the overseas test prep business. I think the business itself has been more or less stable over the past few quarters. Considering the fact that we are undergoing some revamp on the course content and structures for that business, how should we think about it, this segment's enrollments and revenue growth in the next 2 years?
Actually, the student enrollment is up by 1% of overseas test prep and 2 quarters decline. This is good news for us. Actually, the cash revenue in Q3 is up by 21%. What I mean is the cash revenue in RMB terms. It's a good start. We're revamping the new O2O product on overseas test prep as we did in last 2 years in Pop Kids and U-Can. The new products will be more interactive, more diagnostic. I think it's more suitable for the younger age students. In the coming quarter, I think the student enrollment for overseas test prep will be flattening or low single-digit growth. With the price increase, the revenue will grow by 10%. For the next whole year, I think we're confident that the overseas test prep business will grow by 10%-15% or more.
The first launch of the new O2O product we did was on IELTS. We have been doing well on IELTS, Yasi courses. We're doing the same thing for TOEFL, SAT, GRE and GMAT. This is the reason why we feel confident about the future of the overseas test business. Don't forget, we also have the overseas consulting business. In this quarter, the GAAP revenue of the overseas consulting business was 30% year-over-year growth. I suggest that you guys combine the overseas consulting business with the overseas test prep business. Our CEO, Chenggang Zhou, ran overseas consulting business in last 7, 8 years. He and the whole management team have done a great job. Going forward, I think the top-line growth of the overseas consulting business will grow very well. Thank you.
Thank you. Before we proceed, let me remind our participants that are still in the Q&A queue. For time constraint, we would limit one question per person. We would open the next line for Ms. Lucy Yu from Merrill Lynch. Please ask your question.
Hi, management. Congratulations on a solid quarter. Just a quick question on Dual-Teacher. Could we please learn some color on the revenue contribution from Dual-Teacher classes as well as margins? Is it a suitable time to share more color with us? Thank you.
Thanks, Lucy. So far so good. What I mean is for the Dual-Teacher model, it's too early to make a prediction of the revenue contribution because we just opened five new cities and 20 new learning centers in existing cities. It's too early to say. Maybe in the next six or nine months, I will tell you the revenue contribution of the Dual-Teacher model. Okay.
Just one quick follow-up. How many classes can one teacher take on average at the moment?
Okay. Till now, as I said in the last earnings call, in last November, we successfully pilot a class in Pop Kids. That one teacher can face to 39 classes at the same time. This is the back, on average, the one teacher can face to 15-20 classes at the same time. That means, in the lower tier cities, the students like to take the class of the top teacher from Beijing or Shanghai, the top cities. This is very good for them. If the one teacher can face so many classes at the same time, I think the margin of the Dual-Teacher model should be higher than offline classes. Yeah. Thank you.
Okay, thank you very much.
Okay, thanks.
Thank you. Our next question comes from the line of Leon Chik from JP Morgan, Hong Kong. Please ask your question.
Hi, congrats. Just a simple question. I think your stock-based comp is up 80%. Just wondering the main reason why. Thanks.
Okay. Leon, we issued the restrictions to the management this fiscal year in last November. We report most of the share-based compensation in Q3 and Q4. This is the reason that you see the stock-based compensation increased by 80%. Yeah.
Okay. Thanks.
Thanks.
Thank you. Our next question comes from the line of Eric Xu from CCBI. Please ask your question.
Hey, good evening, Stephen, thank you for taking my question. My question is regarding to the revenue growth breakdown. Your top line grows by 33% in terms of RMB, for K12, it grew by 46%. I was wondering if we divided by ASP growth and also the enrollment utilization growth and new learning center, what's the contribution of these three? I know there's a fourth quarter ahead, could you give some color of these three factors for next year and maybe color of next year's top-line growth? I was thinking if excluding the RMB depreciation effect, if three would still maintain over 30% year-over-year for next year. Thank you.
Okay. Yeah. I suggest that you guys use the hourly rate, as I said earlier, as the ASP. The hourly rate in Q3 was increased by 3.1%.
Okay, could you give some more detail?
Yeah, volume growth is 29.5%. If you combine the two parts together, you get the 34% growth in RMB term. Going forward, I think we will increase the price. What I mean is in terms of the hourly rate, the price increase will be 5%-8%. This is our strategy, and the others will be the volume growth. Most of the revenue growth come from the organic growth. That's why you see the margin expansion. Going forward in fiscal year 2018, I think we will execute the same strategy as we did in this year. Most of the revenue in the next year will come from the organic growth. Yeah, I think it's too early to give the guidance of the next year, but you see the very good student enrollment trend in this quarter and the Q4.
Maybe, I think in next quarter, we will give you the guidance of the next whole year. You'll see the good trends anyway. Okay.
Oh, okay. I just want to follow up on, for the existing schools and learning centers, which are opened like one or two years before, what's the utilization rate of them? Is there still much upside from the existing centers?
Yes. You know, the utilization rate overall is only 21%-22% currently. The maximum of the utilization rate will be somewhere between 30%-35%. There will be a lot of room to improve. This is the key margin improvement driver. Yeah.
Okay. Thank you.
Okay, thanks.
Thank you. Our next question comes from the line of Mariana Kou from CLSA. Please ask your question.
Thank you, management. Just about another small question on dividends. I know we previously discussed that we don't want to have a regular dividend that would cause some withholding tax impact. Should we expect that this would still be something management would consider on an annual basis, would view that because of the huge cash build-out we already have on the balance sheet?
Okay. Thank you, Mariana. It's a great question. I think the question is for me. Our policy is that every July, our board will discuss what the next year dividend policy. Also we need one more quarter to see how much cash we generate in the whole last fiscal year. Don't forget, in last three, four years, we paid three times special dividends and did several times share buyback. We have shown the investor slowly. We almost paid $350 million-$400 million in total in the last four, five years. Please wait for three more months, and we will discuss in board meeting in July. Okay? Thank you.
Thank you.
Thanks.
Thank you. We don't have any further question at this time, sir, you may continue.
Okay. Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you.
That does conclude our conference for today. Thank you all for participating. You may all disconnect.