New Oriental FY2026 Q2 Earnings Call - K-12 Rebound and Cost Discipline Lift Revenue 14.7% and Non‑GAAP Op Margin +470 bps

Conference Operator: Good evening, and thank you for standing by for New Oriental’s FY 2026 second quarter results earnings conference call. At this time, all participants are in listen-only mode. After management 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. Please go ahead.

Sisi Zhao, Executive/Investor Relations, New Oriental: Thank you. Hello, everyone, and welcome to New Oriental’s second fiscal quarter 2026 earnings conference call. Our financial results for the bid period were released earlier today and are available on the company’s website as well as Newswire Services. Today, Stephen Yang, Executive President and Chief Financial Officer, and I will share New Oriental’s latest earnings results and business updates in detail with you. After that, 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 first turn the call over to Mr. Yang. Stephen, please go ahead.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. I’m pleased to report a strong set of results for the second fiscal quarter of 2026. Our continued focus on operational efficiency and disciplined resource management has been a key driver of our solid performance and continues to support our path to sustainable profitability. We’re delighted to see strong profit growth, accompanied by a significant improvement in non-GAAP operating margin, up more than 4 percentage points, again, exceeded our expectations. This quarter, total net revenue grew 14.7% year-over-year to $1.19 billion. Non-GAAP operating income more than tripled, rising 206.9% to $89.1 million. Non-GAAP net income attributable to New Oriental increased 68.6% to $72.9 million.

Our core business remains steady, and I’m pleased to share that our new initiatives are gaining traction and making meaningful contribution to the group’s overall performance. For the second fiscal quarter, our K-9 new educational business and high school tutoring business recorded accelerated year-over-year revenue growth, outpacing the previous quarter. Overseas-related business have shown resilience, delivered modest revenue growth despite the ongoing macroeconomy headwinds, exceeding our earlier conservative expectations. Overseas test prep business recorded a revenue increase of 4% year-over-year. Overseas study consulting business recorded a slightly decrease of about 3% year-over-year. Our adults and university students business recorded a revenue increase of 13% year-over-year. As for our continued investments in new education initiatives, including non-academic tutoring and our intelligent learning system and devices, deliver solid, sustainable results. Revenue from this business grew 22% year-over-year this quarter.

Our non-academic tutoring business has been rolled out to around 60 existing cities. Market penetration has grown steadily, particularly across high-tier cities. The top 10 cities contribute over 60% of the revenue. As for our intelligent learning system and device business, it has been launched in around 60 cities. We’re encouraged by improved customer retention and scalability of the new initiative. The top 10 cities contribute over 50% of this business. Turning to our integrated tourism-related business. Our domestic and international study tours and research camp for K-12 and university students were held in 55 cities across China, with the top 10 cities contribute over 50% of the revenue. In parallel, our newly launched tourism offering for middle-aged and senior citizens have been well received, now available in 30 key provinces in international markets.

We’ve expanded our product portfolio to include Culture Travel, China Study Tour, Global Study Tour, and Camp Education, all designed to deliver enriching experience through culture and knowledge sharing and personal growth. We are now also exploring opportunities in the health and wellness sector for seniors. We will partner with over thirty health and wellness spaces in locations such as Hainan, Yunnan, and Guangxi, piloting the segment with a light asset model. With regards to our OMO system, our efforts in developing and revamping our online merge offline teaching platform continues. These efforts aim to deliver more advanced and diversified education service to our customers of all ages. A total of $28.4 million has been invested during this quarter to upgrade and maintain our OMO teaching platforms. Beyond OMO, we continue to focus on our venture in AI.

Encouraged by the positive market feedback, we have been and will continue to refine and embed AI across our offerings to strengthen New Oriental’s core capabilities. Simultaneously, we’re also leveraging AI to streamline internal operations, thereby boosting efficiency and providing enhanced support for our teaching staff. As a industry leader, we’re dedicated to driving long-term revenue growth through dual focus on product innovation and operational efficiency. In upcoming quarters, we look forward to sharing tangible results and positive highlights on performance that are backed by our investment in AI. Now, turning to the East Buy’s performance. I’m pleased to share that during the reporting period, East Buy remained customer-centric and made strong progress in both product development and supply chain enhancements. East Buy has expanded beyond its original focus on fresh foods and snacks to offer a broader, more diversified product range.

As of the end of the period, private label SKUs reached 801. New categories include seafood, healthcare products, kitchen condiments, meats, eggs, dairy, and personal care, household, and cleaning items, paper goods, home textiles, apparel, and underwear. These offerings are thoughtfully curated to meet customers’ growing demand to health, quality of life, and convenience. They’ve contributed to both sales and profit growth to the group, while further optimizing its product mix. Beyond expanding SKUs, East Buy also focused on product iteration, cost efficiency, and targeted marketing to build blockbuster products that resonate strongly with the customers. At the same time, East Buy began exploring offline channels, leveraging its strong brand recognition and New Oriental’s learning center network. With the vending machine model now profitable in select cities, we plan to scale this initiative nationwide.

All in all, we are pleased to see East Buy refocused and back on track, making a positive contribution to the group, both top line and bottom line. We expect East Buy to contribute more revenue and profits to the group in future, while continuously enhancing our brand influence. Now, I will turn the call over to Sisi to share with you about the key financials. Please go ahead, Sisi.

Sisi Zhao, Executive/Investor Relations, New Oriental: Thank you, Stephen. Let me now walk you through the key financial highlights for the quarter. Operating costs and expenses for the quarter were $1,125.1 million, representing a 10.4% increase year-over-year. Cost of revenues increased by 11.8% year-over-year to $556.9 million. Selling and marketing expenses decreased by 1.1% year-over-year to $194 million. G&A expenses for the quarter increased by 15.2% year-over-year to $374.3 million. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 156.8% to $21.4 million in the second fiscal quarter of 2026.

Operating income was $66.3 million, representing a 264.4% increase year-over-year. Non-GAAP income from operations for the quarter was $89.1 million, representing a 206.9% increase year-over-year. Net income attributable to New Oriental for the quarter was $45.5 million, representing a 42.3% increase year-over-year. Basic and diluted net income per ADS attributable to New Oriental were $0.29 and $0.28, respectively. Non-GAAP net income attributable to New Oriental for the quarter were $72.9 million, representing a surge of 68.6% year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.46 and $0.45, respectively.

Net cash flow generated from operation for the second fiscal quarter was approximately $323.5 million, and capital expenditure for the quarter were $23.7 million. Turning to the balance sheet. As of November 30, 2025, New Oriental had cash and cash equivalents of $1,842.9 million. In addition, the company had $1,609.9 million in term deposit, and $1,875.2 million in short-term investment.

New Oriental’s deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as the service or goods were delivered at the end of the second quarter of fiscal year 2026, was $2,161.5 million, an increase of 10.2% as compared to $1,960.6 million year over year, year on year. Now, I’ll hand over to Stephen to go through our outlook and guidance.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Thank you, Sisi. We’re very encouraged by the strong results we’ve achieved this quarter and in the first half of the fiscal year 2026. These outcomes give us greater confidence in our operational resilience and the growth trajectory. Looking ahead, we will continue to pursue a balanced approach to revenue and profitability growth. We remain committed to cost discipline and sustainable profitability across all business lines. At the same time, we will take a thoughtful, strategic approach to capacity expansion and hiring, ensuring that growth does not come at the expense of quality. We plan to deepen our presence in cities that demonstrate strong top and bottom line performance, while continuing to manage the resource carefully. We will closely monitor the pace and scale of the new openings, aligning them with operational needs and financial performance throughout the year.

Given our positive momentum, including the healthy growth of our K-12 business and the recovery of East Buy, we are now in a more optimistic position regarding our business outlook. We expect the total net revenue for the group, including East Buy, in the third quarter of the fiscal year 2026, December 1, 2025 to February 28, 2026, to be in the range of $1,313.2 million-$1,348.7 million, representing a year-over-year increase in the range of 11%-14%.

As the full fiscal year 2026, we’re raising our total net revenue guidance for the group to be in the range of $5,292.3 million-$5,488.3 million, representing a year-over-year increase in the range of 8%-12%. These expectations reflect our current outlook, taking into account recent regulatory developments, as well as our preliminary view of market conditions. They remain subject to change. I would like to give you an update on our shareholder return plan for fiscal year 2026.

In October 2025, we announced that pursuant to the previous adopted three-year shareholder return plan, the board of directors had approved an ordinary dividend of $0.12 per common share or $1.2 per ADS, to be distributed in two installments as part of the shareholder return for the fiscal year 2026. As of today, the first installment has been fully paid to shareholders and ADS holders. Details of the second installment will be determined and announced in due course. Additionally, we also announced a share repurchase program under which New Oriental is authorized to repurchase up to $300 million of its ADS or common shares over the subsequent 12 months.

As of January 27th, yesterday, we had repurchased a total of approximately 1.6 million ADS for an aggregate consideration of approximately $86.3 million from open market under this share repurchase plan. To conclude, New Oriental remains firmly committed to sustainable growth, delivering high-quality offerings to our customers and creating long-term value for our shareholders. We also continue to work closely with government authorities across province, provinces and municipalities in China to ensure full compliance with the relevant policies, regulations, measures, and to adjust our operations as needed in this response. This is the end of our fiscal year 2026 Q2 summary. At this point, I would like with Sisi to open the floor for questions. Operator, please open the call for this. Thank you.

Conference Operator: 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. To ask a question, please press star one one and wait for your name to be announced. To cancel a request, you can press star one one again. Welcome, for the first question.

Felix, Analyst: Hi, good evening. Hi, good evening, Stephen and Sisi. First of all, congratulations on the very solid, second quarter results as well as on the lift to your full year guidance. My question is on your guidance. Can management provide some breakdown on the segment growth as much as you can? I’m keen to understand the key drivers for the lift to your full year guidance. Thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Yeah. Thank you, Felix. So let us start with this quarter’s revenue growth analysis. You know, we’re very pleased to see the acceleration. What I mean is the growth of the K-12 business. You know, as you know, I think this our strategy this year is to improve the product quality and service quality. And we have seen good results in Q2. You know, we have seen the higher student retention rates and the better feedback from the customers. And so this is the K-12 business. And so in Q3, I think the K-12 business will be grow somewhere around 20% year-over-year. Yeah, or more. So let’s say it’s in 20%+ year-over-year growth. And overseas. Yeah, overseas related business, yeah, we meet some the revenue prior growth pressure.

But I think, you know, we in the Q2, you know, we still got the top line growth of the overseas test prep by, you know, 4% year-over-year growth. And, you know, we’re quite resilient. And actually, I think we, we are taking the market share from the, from the market. And so in the Q3, let’s say in the second half of the year, so I do believe, you know, the revenue growth will be flattish of the overseas related business. It’s still a drag, but it is, but I think we will do, you know, as good as we can. College business, you know, let’s say the 14, 15% top line growth. And yeah, this is a breakdown.

And so, in the second half of the year, I think, you know, we’re quite positive about the revenue growth and the, you know, even the higher margin. Because, you know, since last year, you know, March 2025, we started to do the cost control, and I think we have done a great job. And going forward, we will do more on cost control, so it will improve the margin expansion going forward in the second half of the year and the year after. Felix?

Felix, Analyst: Okay, this is great progress, and thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Thank you.

Conference Operator: ... Moment for the next questions. Our next question comes from Alice Cai of Citibank. Please go ahead.

Alice Cai, Analyst, Citibank: Good evening, management. Thank you for taking my questions, and congratulations on the strong results. We heard about that the business unit integration between your test prep and consulting units. There I have two questions, quick questions. First, what is the expected margin expansion from this merge, and can it effectively offset the headwinds in the U.S. market? Second, regarding efficiency, how much reduction do you expect in the customer cost acquisition? And what is your target for the cross-selling rate? Thank you so much.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Yeah, yeah. Yeah, we, I think, yeah, we I saw the news, you know, of the merging of the overseas test prep business and the consulting business. And as you know, before the merging, overseas test prep, you know, the unit and the consulting business, you know, provide the service to their clients respectively. And each side has their own management teams, teachers, marketing staffs, admin staffs. And I think, you know, we now, we put it together. You know, we merged the overseas test prep and consulting business. And I think the merge, so let’s say the restructuring aims to provide the customer with a one-stop service. And I think we will provide even the better service to the customers, and also to the reduced absolutely some cost and expenses.

Because, you know, we put it together, and I think the, you know, one person can do more jobs, you know, even stronger than before. So, let’s wait till the next quarter’s earnings call. I will, share with you about the, like, how much cost we can save or even the, the, to how much can get more revenue or improve the top line growth and to save some cost to help the group margin profile. Alice, thank you.

Alice Cai, Analyst, Citibank: Okay, thanks. It’s very helpful.

Conference Operator: One moment for the next question. The next question comes from Lucy Yu from Bank of America Securities. Please go ahead.

Lucy Yu, Analyst, Bank of America Securities: Thank you. Hi, Stephen and Sisi. Congratulations. So my question is on the margin expansion in the second quarter, which has been more than one percentage point. Could you please elaborate on the margin expansion? What is driving that, and how should we think about the margin expansion magnitude in the second half? Thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: ... Oh, yeah. Okay. Yeah, Lucy, you know, I think, your question is about margin. Yeah, even as, as I said, even though we missed some margin drag from the overseas-related business, but we, we still got the group margin expansion in Q2, you know. The non-GAAP OP margin was increased by 470 basis points year-over-year. I think the margin expansion was mainly driven by the, the better utilization, the higher operating leverage and cost control, and the, and also the profit contribution from the East Buy. And, I think, you know, we will, you know, continuously focus on operational efficiency and disciplined resource management, let’s say, in, cost control. You know, we control the, the learning center expansion plan, and we control the, you know, the marketing expenses.

You saw the numbers, you know, the results. I think that going forward, even the Q3 and the Q4, in the second half of the year, we will get the margin expansion, you know. I don’t want to give the detailed guidance because, you know, typically, we’d only give the margin guidance. But, you know, we are quite optimistic about the margin expansion in the second half of this year. Lucy?

DS Kim, Analyst, J.P. Morgan: Understood. Thank you so much, Stephen.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Thank you.

Conference Operator: For the next question. Next question will come from the line of Yi Kuen Cheng from CITIC. Please go ahead.

Yi Kuen Cheng, Analyst, CITIC: Good evening, Cici and Stephen. Thank you for taking my question, and also congrats on the strong results. So my question is about the overseas business. As you mentioned, the overseas business has, you know, like 4% growth rate. Actually, the market condition is quite challenging, so just wondering the future trends and the main reasons for this overseas business that can get such a good result. Thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Yeah, I think, yeah, as I said, you know, the overseas-related business, you know, meets some impacts of the economy environments, you know, outside. But I think our team have done a great job. You know, they have shown very resilient, you know, in the first half of the year. And we believe they will taking the more market share from, you know, all the competitors. And also, you know, I think the group gave the team more support than before, because they need some pressure. We should help them to do more jobs. And going forward, in the second half of the year, you know, I think I just want to give the guidance.

The flat is a little bit down, at low single digit growth, because, you know, the outside environment, you know, has no change. But I believe our team will do the great job as they did in the first half of the year.

Yi Kuen Cheng, Analyst, CITIC: Thank you, Stephen.

Conference Operator: For the next question. Our next question comes from DS Kim of J.P. Morgan. Please go ahead.

DS Kim, Analyst, J.P. Morgan: Hi, hi, hi, Stephen. Hi, Sisi. Congrats on the great quarter, and, I hope that this is first of many, many more quarters to come. Before I actually ask my question, can I double-check on, Lucy’s earlier question, on margin? Can we talk about how much of the margin expansion in 2Q, not the forward-looking, but 2Q, came from core education versus East Buy, to the extent that you can, elaborate? I have my question after this.

Sisi Zhao, Executive/Investor Relations, New Oriental: Yeah. Actually, East Buy also reported their first year... first half results, so you can roughly calculate. So, if you take out East Buy, all the rest together, margin expansion is roughly about 300 basis points, margin expansion year-over-year.

DS Kim, Analyst, J.P. Morgan: Thank you. My actual question is for our new education business. It’s great that we printed more than 20% growth. What do you think, in your view, is like sustainable growth rate for this segment from here? Say, assuming stable 10% capacity expansion for like next three to five years. Say, you know, like 10% for the group capacity expansion, maybe that means K-9 capacity can grow maybe 15% per annum, and then we can add on maybe 4% or 5% of ASP growth, and couple more points for efficiency gain or utilization gain, if you will. Does that mean that...? Can we continue to expect, say, 20%+ growth?

I’m not talking about second half, but, like, next few years, based on this level of capacity expansion, or, you know, the growth algorithm or formula can change versus what we had in the past?

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Yes, I think that it’s a great question. You know, we changed our strategy, you know, before the starting of this fiscal year. You know, we, you know, we slowed, you know, we slowed down the learning center expansion from 20%-30%, you know, the year, the year before, to, let’s say, the 10%. So that means we put more focus on the quality and, quality, improvement. So I think all the business line, even the, high school and the K-9 business, the student retention rate is getting higher. You know, I think it’s even better than we expected. And also, that means we got the better word of mouth. So we don’t need to spend, like, crazy marketing expenses to acquire the new student enrollment. That means, you know, we get the new student enrollment by better word of mouth.

So I think in the second half of the year, Yunnan, we got the 20% plus the top-line growth of the K12 business. I believe we will keep the sustainable growth even in the year after. Because, you know, the better quality and also the even the more the high, the competitive the edge of New Oriental, I think we deserve to get more student, new student enrollment, even we cut some marketing expenses. And also, you know, definitely we’ll see more leverage because, you know, we just opened, like last week, 10% new learning centers, but, you know, the revenue growth is something somewhere around 20%. So it will. You will see the higher utilization rate and the higher margin of the K12 business. Yes.

DS Kim, Analyst, J.P. Morgan: Thank you so much, sir, and I hope to see that coming through in many more years to come. Thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Yeah. And also, you know, I want to add one point to Cici’s comments. You know, in the Q3, I do believe we get the margin improvement from both core business and East Buy.

DS Kim, Analyst, J.P. Morgan: Thank you, sir.

Conference Operator: Thank you for the question. As a reminder, to ask question, please press star one one and wait for your name to be announced. Our next question comes from Timothy Zhao of Goldman Sachs. Please go ahead.

Timothy Zhao, Analyst, Goldman Sachs: Great. Hi, Stephen. Hi, Cici. Congrats on the solid results. So my question is that, I recall in the last quarter results, you mentioned that, I think, about the, some of the new AI initiatives that you are launching. Just wondering if you can share any tangible results or any updates on the AI investments that you are making. For example, some of the new course format, that you launched probably in the, late last year. Just wondering if there’s any progress on that. Thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: I think, you know, in the last three months, I think our team, you know, have done a lot on the new offerings of the new AI product. And I think we need one, maybe one quarter to testify, you know, the new offerings. And also, you know, and I believe it will contribute more revenue going forward. And one more point is, you know, even the, I think the AI technology help us on the existing product. You know, you saw the higher student retention rate. Yeah, we put more focus on the, like, the product quality and even service quality, but I do believe the AI helps us to get the even higher the student retention rate going forward.

So, and also the AI help us to get more efficient and efficiency to save some, you know, expenses and cost. So AI helps the whole group, you know, three points, new offerings and the existing products, improvement and the cost saving. So, you know, I think we should spend a little bit more on AI technology, but it’s not that, it’s not that much, and we’ll control the whole spending. But I think we will bear more fruit from the AI investment going forward.

Timothy Zhao, Analyst, Goldman Sachs: Got it. Thank you, Stephen.

Conference Operator: Moment for the next question. Our next question comes from Elsie Sheng from CLSA. Please go ahead.

Elsie Sheng, Analyst, CLSA: Hi, Stephen. This is congratulations on the results. I have a follow-up question on the margin expansion, because if we’re looking into the details, in the second quarter, the gross margin is going up and also the marketing expense ratio is also going down. Because I noticed that you earlier mentioned that you have initiated cross-department customer service system to improve the service efficiency and also reduce the customer acquisition cost. So I wonder, is the decrease in the marketing expense ratio related to this initiative? And if it’s so, how do you expect the impact of this going forward? Do you expect this trend of lower marketing expense ratio to continue in the next few quarters? Thank you.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: I think the situation will continue because, you know, yeah, first of all, we put more focus on the product itself, rather than spend even more money on marketing. But growth is still very healthy. And also, yeah, as you said, you know, we set up a new customer service department, and, you know, that means, I think we will bring the information within New Oriental, even the old departments, overseas consulting, college, K12 business, high school, K9, and even other business, and the tourism business at East Buy. So I think this new department will bring us, you know, more traffic, even within, you know, New Oriental customer resources. So this is a, I think that it’s a very good tool to save more marketing expenses.

And also, you know, we just set up the 10% new learning center this year, so we don’t need to spend more money on marketing. And, yeah, even in the Q1, you know, some competitors did some summer promotion or even the free course in the summer. But, you know, we are happy to see more students from our competitors came back to New Oriental in autumn. So that means, you know, our core competency or the product quality, quality turns to be better. And going forward, I think the selling marketing expenses, as the percentage of the revenue, will go down, going forward. In the second half of the year and the year after.

Elsie Sheng, Analyst, CLSA: Thank you. It’s very helpful.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: Thank you.

Conference Operator: Thank you for the questions. We’re now approaching the end of the conference call. I’ll now turn the call back to New Oriental’s Executive President and CFO, Mr. Stephen Yang, for his closing remarks.

Stephen Yang, Executive President and Chief Financial Officer, New Oriental: 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. Thank you very much.

Conference Operator: That does conclude today’s conference call. Thank you for your participation. You may now disconnect your lines.