New Oriental Education & Technology Group Inc. Q2 FY2026 earnings call

• Strong profit growth with non-GAAP operating margin up more than four percentage points. - Total net revenue grew 14.7% year over year to $1.19 billion. Non-GAAP operating income more than tripled to $89.1 million. Non-GAAP net income attributable to the company increased 6068.6% to $72.9 million. - Core business steady, new initiatives gaining traction. - Focus on operational efficiency and disciplined resource management. - Investments in new education initiatives, tourism, OMO, and AI. - EsterBio expanded product range and plans to scale vending machine model nationwide.

K-9 new educational business and high school tutoring: Accelerated year-over-year revenue growth, outpacing previous quarter. Overseas-related business: Overseas test prep business had 4% year-over-year revenue increase; overseas study consulting business had slight decrease of about 3% year-over-year. Adults and university students business: Recorded revenue increase. New education initiatives (non-academic tutoring, intelligent learning system/devices): Revenue grew 22% year over year this quarter. Non-dynamic two-front business rolled out to around 60 existing cities, with top 10 cities contributing over 60% of revenue. Intelligent learning system and device business launched in around 60 cities, top 10 cities contributing over 50% of this business. Integrated tourism-related business: Domestic and international study tours and research camp for K-12 and university students held in 55 cities, top 10 cities contributing over 50% of revenue. Newly launched tourism offering for middle-aged and senior citizens available in 30 key provinces, exploring health and wellness sector for seniors with over 30 partners in Hainan, Yunnan, and Guangxi. OMO system: $28.4 million invested during the quarter to upgrade and maintain platforms. AI: Refining and embedding AI across offerings, streamlining internal operations. East device (EsterBio): Private label SPUs reached 801, expanded product range to include seafood, healthcare products, etc., vending machine model profitable in select cities, plan to scale nationwide.

• Total net revenue for the 2026 fiscal year (including EsterBio) expected to be in the range of $1.3132 billion to $1.3487 billion, representing a year-over-year increase of 11% to 14%. - Full fiscal year 2026 total net revenue guidance raised to $5.2923 billion to $5.4883 billion, representing a year-over-year increase of 8% to 12%. - Shareholder return plan: $0.12 per common share dividend, first installment paid, second installment to be announced. Share repurchase program: Repurchased approximately $86.3 million of ADS from the open market.

• Forward-looking statements involve inherent risks and uncertainties outlined in SEC filings. - Macroeconomic headwinds affecting overseas-related business. - Regulatory changes and their potential impact on operations.

Q: Felix Liu from UBS asked about segment growth breakdown and drivers of the lift in full-year guidance.

A: Stephen Yang discussed K-12 growth, overseas resilience, college business growth, and cost control.

Q: Alice Cai of Citibank inquired about business unit integration and margin impact.

A: Stephen Yang talked about merging overseas test prep and consulting businesses for better service and cost reduction.

Q: Lucy Yu from Bank of America Securities asked about margin expansion in Q2.

A: Stephen Yang mentioned margin expansion driven by better utilization, operating leverage, cost control, and EsterBio's profit contribution.

Q: Yikun Zheng from Citi asked about overseas business trends.

A: Stephen Yang noted overseas business resilience and market share gain, with flattish growth expected in the second half.

Q: D. S. Kim of JPMorgan asked about sustainable growth rate of new education business.

A: Stephen Yang discussed strategy shift to quality improvement, student retention, and expected sustainable growth.

Q: Timothy Zhao of Goldman Sachs asked about AI investment updates.

A: Stephen Yang mentioned AI helping new offerings, existing product improvement, and cost saving.

Q: Elsie Sheng from CLSA asked about marketing expense ratio and its relation to service efficiency.

A: Stephen Yang stated marketing expense ratio trend to continue down due to focus on product quality and internal customer service system.