Ladies and gentlemen, good evening and thank you for standing by for New Oriental's first fiscal quarter 2015 earnings conference call. At this time, all participants are in listen only mode. After the 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 call over to your host for today's conference, Ms. Sisi Zhao, New Oriental's Investor Relations Director. Ms. Zhao, please proceed.
Thank you. Hello, everyone, and welcome to New Oriental's first fiscal quarter 2015 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 Louis Hsieh, New Oriental's President and Chief Financial Officer, and Stephen Yang, New Oriental's Vice President of Finance. After their prepared remarks, Louis and 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 statement, 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 New Oriental's President and CFO, Mr. Louis Hsieh. Louis, please.
Thank you, Sisi. Hello, everyone, and thanks for joining us today. For the first fiscal quarter of 2015, we recorded $394 million in net revenue, slightly up 1.4% year-over-year. The lower than expected revenue growth was mainly due to several challenges we detailed quite extensively last quarter. Among these was the uncertainty about the implementation of the new policies relating to the English test for Gaokao for the Chinese college entrance exam. This, at the end, was the main cause for the softer than planned performance. Due to the uncertainty around the implementation of the newly introduced policy sign-ups for our English summer camp and dorm tutoring classes for middle and high school students for the first fiscal quarter were severely weakened, and there was a decline of approximately 30% in revenues of this business. Second, we are also revamping our POP Kids English program.
As we expected, this impacted enrollments and revenues in this business line for the first fiscal quarter, as schools held off on marketing and promotion around this until we complete the rollout of the new program. The growth of our POP Kids program was therefore hindered and revenue down by 9% year-over-year. Third, related to the uncertainty about the Gaokao English test, we also saw a much larger than expected 31% decrease in adult comprehensive English enrollments in the quarter as some middle and high school students also take that program. As you will recall, we took the confluence of factors that impacted revenues I just mentioned into account when we gave our top-line expectations for the first quarter. But unfortunately, we underestimated the extent of the near-term impact.
However, I would like to emphasize that many of these were non-recurring challenges, and here are the reasons why we are fairly certain we can put them behind us as we move forward into the balance of the fiscal year 2015. First, the new Gaokao guidelines was announced by the government last month, which has not only provided clarity on how the reform will be carried out, but also spelled out the opportunities we are poised to capture. On one hand, the score of the English test remains unchanged, and that is at 150 points, which is the same as the score of Math and Chinese. This has cleared the doubt that the English subject test will be less important portion of the total Gaokao score. And the exam is not going to be less difficult as rumor had it.
On the other hand, students will be allowed to take the English exam twice and select a better score to be included in their total Gaokao score, and this is expected to boost the demand for our U-Can middle and high school all-subjects after-school tutoring business. In addition, some provinces will be using the standardized English test for students. More provinces will be using the standardized English test for these students in the future, which is good news for New Oriental as we can leverage our nationwide standardized teaching content. Just to provide a little bit more detail on the reform. A pilot program has begun in Shanghai City, in Zhejiang Province, as we speak, targeting the students that are starting year 1 of high school this year. So 3 years later, in 2017, the students will take the experimental new college entrance exam.
According to the schedule, the new college entrance exam will be rolled out nationwide by the year 2020. What is important here is that the uncertainty of whether the English subject will be underweight has been pushed aside. For the long term, we certainly believe that the reform will benefit New Oriental, especially the multiple administrations of the English portion of the Gaokao. Second, the new POP Kids program will be rolled out across the school network in the second fiscal quarter of 2015. We are excited about the integrated online and offline learning capabilities that we built into the new version, and we are hopeful to reverse recent declines in the important business segment. We are very confident that the POP Kids performance will improve again from the second half of fiscal year 2015, once this new product is out in the market.
Third, we have continued to extend our penetration rate in existing markets by adding capacity in cities where we are experiencing rapid growth and strong profitability. In the first fiscal quarter, we added a net of eight learning centers and expanded some existing learning centers by adding a total of 3,800 sq m of additional classroom area. For fiscal 2015, we plan to continue to add learning centers across the country. We will continue to focus on the cities or areas where we see the best opportunities and can optimize resource allocation. I will discuss this in a few minutes when we move to the update on our growth strategy. Let me address the performance across our individual business lines. Our K-12 all subjects after-school tutoring business recorded gross revenue growth of 3.6% year-over-year for the first fiscal quarter.
Breaking it down, U-Can middle and high school all subjects after-school tutoring business achieved a gross revenue increase of about 9% year-over-year for the first fiscal quarter. If we take out the impact of the English summer camp and dorm tutoring classes from middle and high school, due to the uncertainty about the implementation of the new policies relating to Gaokao, other U-Can business actually perform well with over 22% year-over-year growth in the first fiscal quarter. As mentioned, our POP Kids program is experiencing a slower growth as we are still in the process of revamping the entire program across the network. We are all very excited about the rollout in the next quarter, as we are confident that this business will improve in the second half of fiscal 2015.
Overall, the K-12 after-school segment is and will continue to be our fastest-growing segment and a major revenue driver going forward. This rapid growing segment is China's education sector, and New Oriental has been very successful in capturing a huge share in this important market. Our overseas test prep business recorded revenue growth of approximately 7% year-over-year in the first fiscal quarter, and our overseas study consulting business recorded revenue growth of approximately 30%. Finally, for the first fiscal quarter, VIP personalized classes business recorded stable revenue growth of about 15% year-over-year, which is consistent with the ratio we are trying to achieve for the next few quarters. Before I introduce our updated going forward strategy, I would like to walk you through our past strategies, Occupy the Market and Harvest the Market, and then talk about where we're going and where we're focused on in the future.
As you may recall, we were focused on implementing the Occupy the Market strategy from 2008 to August 2012. During that time, we more than tripled the number of learning centers to almost 750 learning centers and entrenched our market leadership position, growing to three to four times larger than any of our tens of thousands of competitors in China. In November 2012, we shifted to Harvest the Market strategy to substantially improve profitability and our utilization of learning centers. During the last couple of years, these two strategies helped the company grow and perform very well at various stages in the evolution of the business. More specifically, these initiatives allowed for aggressive growth of both revenues and profitability, respectively, given well-timed strategies and areas of focus.
Further, as a result of New Oriental's achieved business milestones by the end of the recent concluded fiscal year 2014, a period in which the company achieved $1 billion in revenues for the first time and recorded high net income of above $200 million. Again, multiples times larger than our competitors in China. Meanwhile, we started introducing an online education strategy aiming to establish an online and offline integrated education ecosystem a few quarters ago. This has been designed to improve the learning experience for our students and drive cross-selling opportunities for our business. It's encouraging to see that these online education initiatives have been working very well in the last few quarters, with users up 180% year-over-year and online enrollments up over 50% in the first fiscal quarter.
With all the successes that we've achieved, we believe it is now time to shift to a more comprehensive and balanced go-forward strategy to optimize market opportunities and achieve a sustainable and balanced growth overall. Therefore, starting in fiscal year 2015, we will launch the Optimize the Market strategy, transitioning to a focus on maintaining a healthy balance between top and bottom-line growth, as well as meeting the growing demands for online education services in China. The new strategy consists of two components, offline strategy and online strategy. For the offline strategy going forward, New Oriental will focus on maintaining a healthy balance between top and bottom-line growth, as well as increasing penetration rates of better-performing cities.
With the online strategy, we will continue the process of establishing a fully integrated online and offline education ecosystem with the potential to drive growth in online channels across all our existing business lines. Starting with the offline part of the strategy, we are now shifting our focus to equally drive both top and bottom-line growth going forward. Entering the new phase and refocusing again on the top line, we've already began extending our penetration rate in existing markets by adding capacity in cities where we are experiencing rapid growth and strong profitability. In the first fiscal quarter, we added a net of eight learning centers and expanded some existing learning centers by adding a total of 3,800 sq m of additional classroom space.
As we are eyeing the huge market potential in some existing cities, we will be carefully selecting cities that we are driving both revenue growth and margin expansion. Following that, we aim to open 30 to 40 new learning centers or expansion of existing learning centers this fiscal year, while the new expansion will be targeted at where we see the best opportunities. We are confident that New Oriental's market leadership position, combined with strong execution of the new strategy, will ensure a healthy balance between top and bottom-line growth in the next few quarters and in the long term, excluding this quarter, which we believe is an unusual non-recurring event due to the policy impact of the POP Kids revamp, as I mentioned earlier. Now let's take a look at the online side of the go-forward strategy.
As you all know from recent quarterly discussions, we've embarked on an online path and have achieved significant milestones already. This is a very exciting segment for New Oriental, as demand for online education services is on the surge in China. With the potential to drive growth across all existing business lines and to open up opportunities for new market entry, we will continue to aggressively invest and drive the development of our online strategy with an investment of $25 million-$30 million this fiscal year. Based on our premium brand recognition, high-quality education resources, extensive teaching experience, and nationwide scale with comprehensive data of students' information, I would like to highlight again that we believe no other company is better positioned than New Oriental to benefit from the growth of online education.
We also firmly believe that our fully integrated online and offline education ecosystem will help continue New Oriental's strong performance going forward. As set up described a few quarters ago, the ecosystem consists of 3 levels. The first level is the O2O two-way interactive education system across all of our business lines. This will be the core of our online education system. The second level is our pure online learning platform, koolearn.com, and supplementary online education products under the New Oriental brand. The third level of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complement our own online educational offerings. These 3 levels of the ecosystem experienced encouraging progress in the fiscal quarter that I'm excited to share with you now.
Let's start with the O2O two-way interactive education system, as it's the core element of our ecosystem, and we aim to extend New Oriental's traditional offline classroom teaching offerings to online education services. Able to work across multiple devices, the system consists of a series of online education modules that enable us to improve the quality of the learning while helping students study with enjoyment via the internet. The theory of O2O behind the system is that students can get interactive experience through learning progress, including communicating with teachers and other students, and complete the online modules recommended based on their own learning habits and needs.
As we discussed in the last earnings call, we've rolled out an updated graded pilot program of the O2O two-way interactive education system in the first fiscal quarter across all major product lines, enabling online-based learning resources, sharing individualized exercises and tests, supplementary micro video teaching, and interactive services. We believe that the new approach will better retain customers, increase our pricing power, and become a great revenue contributor in the long run. In September 2014, we launched the revamped U-Can all-subject after-school tutoring program called You Can Visible Progress Teaching System into over 30 cities. With a broadened network, the online offering to support after-class self-learning under the strong business stream and will earn more credits from the customer and retain the market leadership position.
To spread the success of the system, we also plan to roll out the O2O two-way interactive education system for overseas test preparation and domestic test preparation courses in the third fiscal quarter of 2015. Another update is the POP Kids side. In the second fiscal quarter of 2015, we aim to fully launch the newly revamped POP Kids English program. It's called Shuangyu, which is on track as we planned. At the time, enrolled students for the new POP Kids offering will have access to the interactive learning resources and multicultural experiences based on their own interests and characteristics. Turning to the second level of our online education ecosystem, we continue to invest in Koolearn.com and other supplementary online educational products, including online education platforms, technology content, and mobile applications. This will help the company reach more students.
In the first fiscal quarter, we generated net revenue of $7.4 million in Koolearn.com, representing a 37.5% increase year-over-year. Our platform offered over 2,000 online courses and over 9.6 million cumulative registered users by the end of the first fiscal quarter. This has encouraged us to continue our endeavor towards online education. In August 2014, we launched Koo.com, our new live broadcast open platform for both New Oriental and third-party teachers. This platform currently offers more than 100 courses and achieved over 102,300 registrations in the first fiscal quarter. Additionally, our DONUT, or D-O-N-U-T, is a series of game-based mobile learning applications for children, recorded over 9 million downloads in the end of the first fiscal quarter. This product is now used in about 80 kindergarten and training institutions.
Besides improvements in the Koolearn.com offerings, I would also like to share with you some success we've achieved in developing other supplementary online education products and services under the New Oriental brand, either independently or majority positions with other companies, partnerships with other companies. Le Ci, or L-E C-I, an English language vocabulary training application we launched last quarter for mobile phones and tablets, recorded over 436,000 users by the end of the first fiscal quarter. The application provides a personalized learning curve to memorize vocabulary and has generated positive feedback from the market. Also, it's encouraging to see that our OK Program, an online education platform for primary and secondary schools that we introduced in July this year, has been used in several public high schools in China, or several public schools in China.
Separately, regarding the strategic partnership with Tencent Holdings Limited that we developed for unique mobile-based English language learning offerings, we are excited to see that the first product is under development and will be promoted through Tencent's online channels and New Oriental's offline network once ready for launch. Now turning to the third level of our online education ecosystem. We have invested in select online education companies with a minority stake. Our investments include ALO7.com, a company providing customized digital course content for children, and Tarena, a public company providing IT professional services education in China. Another investment is for Juesheng, J-U-E-S-H-E-N-G.com, an education service platform connecting users and service providers in overseas study consulting, test preparation training, and tutoring areas. The platform connects the users and service providers very well. It will allow us to access to more some useful data, such as students' preferences and market information.
We think these investments are a good way to leverage the power of our brand and our learning resources by partnering with exciting young companies that have interesting business models or services that complement our own offerings. We will also further support New Oriental's efforts to develop a comprehensive online and offline integrated ecosystem. All this said, we believe it is clear that New Oriental will drive new initiatives for both the core offline and developing online businesses going forward. We believe that this optimize the market strategy is a more comprehensive, balanced go-forward strategy to balance revenue growth and profitability in our fully integrated online and offline education ecosystems. We'll optimize to extend our clear leadership position in China's education market.
Now I'd like to turn the call over to Stephen Yang, our VP of Finance, to provide more financial detail on our performance the first quarter and describe our outlook for the upcoming quarter. Stephen?
Thank you, Louis. Hello, everyone. Now let's take a quick glance at some of the key financial metrics for the first fiscal quarter, in addition to financials we mentioned in the beginning of the call. Selling marketing expenses for the first fiscal quarter increased 16% year-over-year to $49.5 million, primarily due to the increase in selling marketing staff compensation. General and administrative expenses for the quarter increased 9.7% year-over-year to $85.5 million. Total head counts at the end of August 2014 stood at about 32,300, addition of about 2,300 from the same time last year. Quarterly operating income decreased 18.4% year-over-year to $110.5 million. Operating margin for the quarter amounted to 28.1% compared to 34.9% in the same period of the prior fiscal year. The non-GAAP-based operating margin for the quarter was 28.8% compared to 36.2% in the same period last year.
Net income attributable to New Oriental for the quarter was $112.4 million, down by 11.2% year-over-year. Basic and diluted earnings per ADS attributable to New Oriental were $0.71 and $0.71 respectively. Capital expenditures for the quarter were $12.2 million compared to $8.6 million in the same period of the prior fiscal year and were primarily attributable to opening of 26 new learning centers and renovations at older existing learning centers. We generated approximately $139.7 million operating cash flow for the quarter compared to $167.4 million in the period a year ago. Now let me go through our expectations for the second fiscal quarter of 2015 before we move into the Q&A session. We expect total net revenue in the second fiscal quarter of 2015 to be in the range of $235.4 million-$243.7 million. Representing year-over-year growth and revenue of 13%-17%.
The above forecast reflects New Oriental's current preliminary review, which is subject to change. At this point, Louis and I will take your questions. Operator, please begin.
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. Ladies and gentlemen, at this time, if you wish to raise a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel a request, please press the pound or hash key. Your first question comes from the line of Alice Yang from Macquarie. Please ask the question.
Hi, Louis, Stephen, and Sisi. Thank you for taking my question. My first question is about the recent enrollment growth and ASP trend. We all understand that relatively poor performance in the first quarter was affected largely by the uncertainty from English test policies in Gaokao. What's your current view for the future enrollment growth and price trend? If it's possible, is there any revenue guidance for the whole fiscal year 2015? Thanks a lot.
Thank you. Good question. I think the recent trend, August was quite good. September and October are okay. That's why we guided about 15% top-line growth for this quarter. We expect sort of similar or higher growth for the next two quarters, so Q3 and Q4 of next year as our new programs, the POP Kids and the U-Can businesses, basically get seasonally strong in Q3 and Q4. We expect better performance going forward. For the whole fiscal year because of the Q1 quarter, it will be less than we've done in the past. Going forward, we expect somewhere around 15% or higher growth, in each quarter going forward. Hopefully next year we won't encounter these policy changes. With this revamp of the POP Kids, this should last us for a couple of years.
We don't expect a confluence of factors to occur next year. As far as enrollment trends, we would expect if our POP Kids enrollment revamp is successful, and we'll find out later this quarter and in the next quarter, we expect revenue growth, especially in K-12, to pick up again into the over 10% range for K-12 and for the whole company as a whole around 5%, because we're still seeing declines in adult English and domestic test prep. We expect around 5% overall enrollment growth going forward, not counting this first fiscal quarter. Also we'll probably see 8%-10% price increases and a shift towards smaller classes will add a couple percentage points. So that's why we're targeting growth of about 15% going forward.
Okay. Thanks, Louis. Very helpful. Just a very quick follow-up. It's about the revamped POP Kids. We see that there is a little bit of delay in the kind of launch of revamped POP Kids. Can you share with us something more about the current progress of these courses?
Yes. There was a slight delay. We were hoping to get it out this quarter. It's going to probably be at the end of this quarter. So that's why we would expect sort of better growth in Q3 and Q4 as it's fully rolled out. It's difficult to roll out across 50 cities, and so it's taking more time than anticipated. And because of the technical difficulties, given the IT needs of the new program, it is taking a little bit more time. So we want to hopefully get out almost all the cities by the end of this fiscal quarter, meaning end of November, and have it ready in Q3 and Q4. So it is slightly delayed.
Okay, understand. Thank you. Thank you very much. Very helpful.
Thank you.
Thank you very much. Your next question comes from the line of Philip Wan from Morgan Stanley. Please ask the question.
Hi, Louis. Thanks for taking my question. In this quarter, I figure that the other revenue dropped about 8%, in the earlier remark, you also mentioned consulting up 30%. Could you give us some color on what is causing this drop this quarter?
Which part of the drop, Philip?
The other revenue. Books and other revenue.
Stephen, do you want to take that? You want to take that?
Okay, I'll take the question. I think, Philip, your question is about the overseas consulting business. It was only increased by 7% in Q1. As you know, what I mean is, as the same as last year, the Q3 and Q4 are the peak season for the overseas consulting business. Q1 is a very low season for the overseas consulting business. I think for the trends in the whole year, we still hope the total revenue increase, what I mean, the growth rates of the overseas consulting will be above 25%-30%.
Yeah. Philip, the cash revenue number I gave you, 30%, is the cash taken in, it gets recognized mostly in Q3 and Q4 as the kids get into colleges.
Okay.
there's a time delay.
All right, thank you.
Does that make sense?
One more. Yeah, sure.
Most of the revenue will actually get recognized in May.
Okay.
Once the kids have their acceptance letters.
Right. Could you share with us, you mentioned $25 million-$30 million spending for the technology online. How much did you spend in Q1?
Well, it's going to be proportional. It's hard for us to break it out separately because everything we do now has an online component. We kind of give up. It's all built into G&A and capital expenditures. It's a recognition, since last year that everything needs to have an online and IT component. IT is basically pervading all our products. Really, online and offline are becoming blended, the IT cost that we're experiencing and the R&D development is what accounts for the $25 million-$30 million additional cost.
Philip-
It's all our G&A now.
Yeah, Philip, I'm Stephen. Maybe I can give you some amounts of the R&D expenses in Q1. We spent $7 million-$8 million in Q1.
It's on track for $25-$30.
Yeah. Yes.
That's helpful. Thanks, Louis and Steve.
Thank you. Your next question comes from the line of Ella Ji from Oppenheimer. Please ask a question.
Good evening, Louis, Steven. My first question is also relating to your full-year growth outlook. I understand that you are seeing rebound in enrollment for physical Q2, but as we enter physical Q3, which is winter breaks, which usually you will have just some little bit maybe dorm-based studying. How do you expect that growth would be?
It's too early to tell yet, Ella, but the summer quarter was heavily impacted by the uncertainty about the policy regarding English. Now that it's been clarified more or less, and that English will remain at equal weight with Chinese and Math and not underweight, and that English will be given twice a year, starting in a couple of years, we believe that the dorm-based classes will not be impacted by 30% as it was in Q1. In general, dorm-based classes have been slowing for a couple of years, but not to this level. We would expect dorm-based classes to be slightly down or equal with last year, and we're hopeful that it may be some increase because the students who didn't come in during the summer quarter may want to do it during the winter quarter. It's too early to tell.
We haven't seen the enrollment come in on there yet.
Okay. Got it. Thank you. Relating to your POP Kids, along with your full rollout nationwide, can you talk about your sales and marketing budget for that? Are we expected to see some sales and marketing increases in the coming quarters?
Stephen, you want to take that? You have the budget.
I think, we will spend a little bit more selling marketing expenses in POP Kids, the new rolling out program. A little bit, but not much in the Q2 and Q3.
I think it's been well telegraphed to the market that these programs are coming. Our competitors have been bashing us, saying that we have old content. I think a lot of the parents know that the new program is coming.
Got it. Thank you.
Thank you very much. The next question comes from Trace Urdan from Wells Fargo Securities. Please ask a question.
Thank you. Louis, you referenced in your prepared remarks the strategies of first expanding the markets then Harvest the Market, I think that I heard you describe now a more balanced strategy going forward. In each of these phases, one of the challenges that you seem to have had has been having the right incentives with the local managers. I'm wondering how to think about that in the context of this new strategy going forward, whether you've made any changes and whether you feel comfortable that all of the folks that are managing the centers locally are on board with what you're planning.
That's a great question, Trace. Yes. In the old days, four or five years ago, we used to incentivize school heads where their bonus component of their compensation was more or less about 75% related to revenue growth. That's why we experienced very rapid revenue growth of 35%-40% for many years as we expanded into new cities and added learning centers. When we started Harvest the Market two years ago, we flipped it on its head and did 75% or so targeted at profit and operating statistics instead of revenue. We saw the effect of 500, 600 basis point improvement in operating margin last year to 17.3% on the GAAP basis. Now for this year, starting June 1, we have done it more or less 50/50.
We're hoping that the same effect will take hold, the school heads will balance as we've asked them to do, profit and revenue targets. They'll be incentivized half revenue and half profitability measures.
Okay. Thank you. I wondered if you might also just. I know you spoke extensively about your online strategy, I wondered if you could sort of take a step back and talk more broadly about what your intention is here. I think that one of the perceptions is that you have so many different things going on. I wonder if the sort of brand power that you have in the marketplace is diluted across all of these different efforts that you're making online, I wonder if you could speak to that a little bit and why you've chosen that strategy of having so many different online things happening at once.
Yeah. That's also a very good question. I think our key core strategy is to offline, online integrate the whole ecosystem. Basically, to make it easier for kids and make children much more productive in the courses. That's the key component, and that's where most of the revenue will come from. You won't see it because it'll be built into the course fees. The O2O integration is the key. The rest of the investments are in online, pure online model with Koolearn, is because that's where the market is going. The third part of taking minority investments is because we don't know when and if the new next disruptive technology will come from.
We're trying to sort of take almost a machine gun approach in trying to hit all the points that relate to K to college, and somewhat a little bit of professional training because we think that's a good area for online education. We're trying to cover our bases, Trace, and looking at partnerships as a way to grow in this area, because we don't know how it's going to shape out.
Do the local managers feel any level of anxiety with respect to the online activities, and do they have any kind of share in the revenue that comes from the supplemental online offerings?
They do get a share of the supplemental ones for the O2O offerings because it's built into their courses. They don't get a share of the Koolearn revenue because that's a separate subsidiary of New Oriental. I think as the local school heads, I don't think they feel so much anxiety. I think there's been a lot of hype about online education, a lot of investment going in, and a lot of talk. There really hasn't been anything yet where there's a lot of revenue and profit being generated. It's mostly talk right now, but we can't take any chances. We have to have our hands in as many different pies as we can.
Okay. Thank you.
Thank you. Your next question comes from the line of Vivian Hao from Deutsche Bank. Please ask your question.
Vivian, are you there?
As a reminder, the line of Vivian Hao is now open.
Hello.
Please go ahead with your question.
Hi, sorry. Can you hear me?
Hey, Vivian.
Hi, Louis. Hi, thank you for taking my question. Sorry about this. My first question is, could you please give us a guidance or indication of where we should be looking at the margins in terms of operating margins for this year and next year? We understand for this year, probably the business will see deleveraging from the disappointing first quarter results. Also, what is the margin trend or our target for the future years? I do have a follow-up question regarding this. Thank you.
Thank you, Vivian. Yeah, I think the operating margin for Q1 was 600 basis points below that of last year. Or more, it was 35% down to 28%, 29%. Yeah, it'll be difficult for us to catch up for this fiscal year. Q2 margins should be better than last year, and Q3 and Q4 as well should be better than last year, assuming we're successful in our POP Kids rollout and the other programs perform as expected. We did 17.3% GAAP operating margins last year. In the long term, we would expect still to get to over 18% as time goes on, once some of the spending begins to turn into revenue in the online sector as well. We would expect future years to be, for sure, better than this year. This year is slightly down from last year.
Last year was 17.3%, probably this year we'll be down 15%-16%, and then next year should go back up.
Okay. That's very helpful.
Yeah, we're still targeting 18% or higher for the fiscal year.
Right. That's fair. Yeah. My second question, probably a tough one. I guess some of the market understand this might be a one-off thing because of the policy change. Probably from my perspective, it looks like it's more structural that we may not have recurring or re-acceleration of dorm students and some of the higher margin segments. They'll see deceleration over quite some period of time. What gives us the confidence that we can re-accelerate our business and to see margin improvement going forward?
Well, I don't think we're re-accelerating, right? We had one quarter, for last year, we grew 19%. This year, we're forecasting, even not counting this disappointing quarter, we're only forecasting 15%. We are decelerating, and it's because we're off a much larger base. It's because, as you just mentioned, the dorm-based classes are a structural issue, and adult English is a structural issue. What gives us confidence that we will continue to grow at 15% or so is because our K-12 business, especially the U-Can business, is growing over 20%. It's over 30% of our business. Kids is about 16%, 17% of our business. If we take out the last couple of quarters, it's also growing over 20%. Overseas test prep and overseas study consulting are growing 15%-22% or so. That's what gives us confidence.
Together, those three groups, K-12, including U-Can and POP Kids, and also overseas test prep and study consulting, is about over 80% of our revenue. If we can get those right, the ones that are dragging us down are becoming a less and less large piece of the business. Also, as you mentioned earlier, Vivian Hao is correct. Structurally, we're getting so big, $1.15 billion in revenue, we're three times, four times larger than anybody else, any of our competitors. It is harder to grow off that base.
Okay. This is very helpful. Thank you.
Thank you.
Thank you very much. The next question comes from Tian Hou from T.H. Capital. Please ask a question.
Hello, Stephen and Sisi. My question is related to your business, the seasonality and the impact of the seasonality. For summer season, the Q1, you have this summer camp or boarding school. It looks like this part of the business has become a big negative to your business growth, dragged down the quarter. Certainly Q2, we see a much better year-over-year compared with Q1. However, as we're going forward, next year, we'll have another Q1, and we'll have another boarding school. How do you see the future of this part of business? Is there any way to prevent this part of business become a big negative again? If so, how? If you can't prevent it, what some other alternatives do you have to actually drive the company as a whole to grow further and while you offset the decline of the boarding school?
Thank you, Tian Hou. That's a good question. We've been facing these kind of challenges for years with adult English. As you recall, 8 or 9 years ago, adult English was 30% of our business, now it's down to 10%. The dorm-based classes for the summer used to be a third to 40% of our revenue, and now they're down to around 20%. It's the same thing of every year, it becomes less and less important in our business mix as our faster-growing businesses like all subjects U-Can, non-English, and overseas test prep and others continue to grow in kids. I think we'll outgrow it. The other thing is that this year was particularly bad. Actually, we'll have easier comparisons next year because of the policy changes. Once the policy changes have been clarified, we don't expect the same 30% drop next year.
Plus, we'll adjust our cost accordingly, so we won't be expecting as much in the summer camps.
That's very helpful. Thank you.
Yeah. I think this year was particularly bad. Policy changes and pandemics, remember, are the two biggest risks to our business. We've seen this kind of thing happen before with policy changes, where we have one year where it's quite negative, and then the next year it bounces back. I agree with you wholeheartedly that over time, dorm-based classes will become less important as students study throughout the year.
That's also a function of the increase in competitiveness of other schools across the country, as we highlighted last quarter. People used to pay the extra money to come to Beijing and Shanghai because it was viewed as New Oriental classes were so much better than the local offerings. Well, now after five or six or 10 years, the local offerings are getting better, it's not as necessary to send your children to Beijing and Shanghai for the summer. We understand that. It's similar to what happened to adult English seven, eight years ago, and we've managed through that quite well.
Okay.
That's why we're always looking for new revenues, right, Tian? We're looking for online, we're looking for the continued growth of non-English U-Can and POP Kids.
Another question is related to the joint venture or joint effort with Tencent regarding the online education. You guys made an announcement last quarter, and three months have been passed. Do you mind to share some updates to us?
Yeah. I can't tell you the specific program because I'll get in trouble if I do. We have three different applications lined up, and we expect a beta or a version of the program to come out hopefully early next year, is the target. It may be delayed a month or two, but right now is that the teams are fervently working on the applications, and we would hope to announce something or beta test something early next year.
Okay. That's very helpful. That's all my question. Thank you.
Thank you, Tian.
Thank you. The next question comes from Fei Fang from Goldman Sachs. Please ask your question.
Hi, Louis, Stephen, and Sisi. Thanks for taking my question. Can you give us an update on the share buyback program?
Sure. I think for the first couple of months, we've bought back about $35 million-$40 million so far, I believe. The average price is somewhere in the $21 something, where their current price is. Our share buyback is ahead of schedule.
Great.
We set up to $120 million over nine months. In two months, we've bought back about a third of it.
Understood. Thanks.
Welcome.
Thank you very much. Your next question comes from the line of Charles Cartledge from Sloane Robinson. Please ask your question.
Hi, Louis, Sisi. Steven. There hasn't been, I don't think, any granularity given as to the size of revenue and cost for the summer camp and dorm tutoring classes. You've told us today that it is or was 20% of total revenue. Do you think you could just elaborate on the revenue and cost element? I guess these results will have fallen short of street forecasts, in part because it's very hard for anyone to know how much. You did tell us that revenues are going to be down 30%, we don't know whether costs were flat in that division, for example, which would have obviously created a margin squeeze which won't go down a lot next year.
Yeah. For the analysts and for investors like you, Charles, I think Sisi can send out something on that. I don't have the exact breakdown in front of me. Sisi, can you prepare something-
Okay. That would be great
for the analysts and the investors?
Yeah.
Okay.
Okay. I'll follow up.
For the dorm, especially the U-Can summer camp.
Okay.
Thank you. That's a good point, Charles.
Thank you.
Thank you very much. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's President and CFO, Louis Hsieh, for his closing remarks.
Thank you, operator. Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect.