Ladies and gentlemen, good evening and thank you for standing by for New Oriental’s Fourth Fiscal Quarter and Fiscal Year 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management’s prepared remarks there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the 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 fourth quarter and fiscal year 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 Stephen Yang, New Oriental’s new 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 Stephen. Stephen, please.

Thank you, Sisi. Hello, everyone, and thank you for joining us. I’m pleased to be able to provide an overview on both the fourth quarter and for fiscal year 2015, which we ended on a quite positive note. We concluded the final quarter of the fiscal year with a continuing steady recovery in both top line growth as well as student enrollments. We believe the highlight of strength of the business as well as our success in driving forward the growth strategy we launched in early fiscal year 2015. Introduced in the first quarter this year our Optimize the Market strategy is allowing us to focus on maintaining a balance between top line and bottom line growth, as well as building out our online and offline integrated education ecosystem. Our decision has proven right and our investments are beginning to pay off. I’d like to sum up our key achievements in fiscal year 2015 by stating three areas. First, we made good progress in expanding our footprint. We successfully further penetrated our existing market, where we see the greatest growth potential to drive our margin. We had our learning centers expand hours increasing our office in cities with the most potential. Second, we had a very good success with adding to and upgrading our major products which then in turn had a positive impact on revenue growth. As an example, with respect to K-12 all-subjects after-school tutoring business, we continue to have great business and it has become the key revenue driver. It achieved our revenue growth above 15% for the fiscal year and also had a significant enrollment increase. For further detailed note, that our U-Can program, which is a part of the business achieved more than 22% revenue growth for the full fiscal year. This was achieved despite…

Thank you, sir. The question-and-answer session for this conference call will start in a moment. [Operator Instructions] We have the first question from the line of Vivian Hao from Deutsche Bank. Please ask your question.

Hi, management. This is Irene Dun [ph] asking question on behalf of Vivian Hao. We have a question regarding the POP Kids. We know that this segment enrollment growth was quite encouraging. So we would like to get management’s expectation of the forward-looking trend for fiscal year 2016?

Okay. The student enrollment for POP Kids is quite strong. And I think this is mainly driven by our good O2O products. So the students will give us a very positive feedback for our product. So we’re taking the market share now, and going-forward I think for the next whole year, I’d like to guide the student enrollment for the POP Kids about 10% to 15%. With price increase to 5% to 8%, I think the value of POP Kids will grow by 15% to 20% next year. Does it answer your question?

Yes, thank you. I’ll get back to the queue for my next question. Thanks.

Okay. Thank you.

We have the next question from the line of Cynthia Meng from Jefferies. Please ask your question.

Thank you, management. We have one question. Is the lower gross margin a result of lower pricing or a more - it’s because of the increasing mix shifts towards the K-12 business?

I think the gross margin was decreased by 2% this quarter. And first we’ve been asked that, we spent the more teaching hours in this quarter, that means the VIP class contributes the percentage of the total revenue more than the - our small and big classes. This is the first reason. The second reason is for pure online company Koolearn.com, they spend $2 million to $3 million more than we expect before this quarter. So they are the two events that drag the GP margin. But going forward, I think the gross margin will keep flat or a little bit lower in next fiscal year. I think positive reason for - the positive thing for the gross margin is to - for our rental expenses is only increased by like the 10%, it will be lower than the revenue growth. And even though we capped VIP class by 30% of the total revenue and the fact the VIP class - the revenue of VIP class contribute more and more. So the next year, I think teaching hours will be little bit more than this year. So I think the gross margin will be flat or little bit lower - slightly lower.

Okay. Thank you.

Did it answer your question?

Yes. Thank you.

We have the next question from the line of Alice Yang from Macquaire. Please ask your question.

Hi, Stephen, thanks for taking my question. This is Alice from Macquarie. I have a question about your 2Q guidance. As the case, enrollment grew around 35% year-on-year in this quarter, so I assume most of them will be realized than accounted as revenue in the next quarter given on average three months cost spent. I don’t know whether it’s right. If this is right, then why you guided relatively speaking a conservative 2Q revenue growth. This is only 12% to 16%. Is that the ASP sort of reason? Thanks.

Okay. The student enrollment is quite strong which is increased by 34% this quarter. I think it’s mainly due to the timing difference with two events. The first one is the Chinese New Year for this year is late. So that’s why the student enrollment growth for the last quarter was flat or zero growth. And the other one is that one more K-12 business students choose to be enrolled in summer class earlier than before. So, even with this tiny difference, the student enrollment is really quite strong, but on apple-to-apple basis, I think the student enrollment is increased by like 8% to 10%, with the price increase to 5% to 10%. That’s why we guided the revenue of the first quarter by 12% to 16%. Does it answer your question?

Sure. I just want to clarify one point. When you say if we compare in an apple-to-apple basis, enrollment increased by 8% to 10%, so what does it mean apple-to-apple comparison 8% to 10%?

Well, that means, you should exclude the timing difference like the Chinese New Year and the early enrollment in Q1. So, you can compare like the three quarters in total.

Oh, I understand, got you. Thanks.

Yes.

We have the next question from the line of Anne Shih from Brean Capital. Please ask your question.

Hi Stephen and Sisi, thanks for taking my call. So, could you provide some color on the underlying dynamics of your overall average selling price? It just looks like it dropped considerably this quarter and what trends can you anticipate going forward, I guess, by the different segments, I know you’ve touched on the overall.

Okay. I think your question is about the price increase. On apple-to-apple basis, we calculate the ASP by the GAAP revenue divided by the total teaching hours. So, the apple-to-apple ASP increase is about 5% to 10% in this quarter. And going forward the numbers would be same. The ASP will be increased by 5% to 10% overall.

And any sort of very different kind of dynamics in each of the different segments or are you seeing generally a strong ASP growth in all of the products?

What I mean is the overall ASP growth will be right between 5% to 10%, but for individual business lines for the overseas test prep the ASP increase will be over 10%. And for the U-Can, the ASP increase will be at 6% to 10%. And for POP Kids the price increase will be at 5% to 10%. And for the Adult English the price increase will be at 5% to 10%. So, overall, it’s 6% to 10%.

Okay. That’s very helpful, thank you.

Okay, thank you.

We have the next question from the line of Fan Liu from Goldman Sachs. Please ask your question.

Hi, Stephen and Sisi. Congratulations on a solid result. So, it’s very encouraging that K-12’s enrollment grew by 57% year-on-year this quarter. Would the management share with us the drivers behind i.e., which grades or which subjects or which regions we witnessed the outperformance? And if excluding the effects on late CNY timing what would the normalized growth look like? And we also know that revenue growth of the overall business, K-12 and the POP Kids all lack the enrollment growth accordingly, so could the management share with us the reason behind this? Is this more attributable to the decreasing paid course hours of the student? How should we think about that trend going forward? Thank you.

Okay. And our K-12 business grew very strong in this quarter. And I think the main driver for the - in terms of the grades, I think the U-Can is much better than POP Kids. And the U-Can, regarding the student enrollment, rose by more than 50%. And I think for the subject the non-English class grew faster than the English classes. And as I said earlier, if you compare to the student enrollments and price apple-to-apple, the student enrollment growth will be at 15% to 20% for the K-12 business with the price increase above 5% to 10%. So, I think going forward, the K-12 business will get the revenue above 20% going forward. And mainly you have heard like some class with very low price in the market, but this is only for the science [ph] class for the Grade 1 and Grade 6, so it’s a small number of the total classes. So, the overall price for the - the price increase for the K-12 business is 5% to 10% on apple-to-apple basis. Does it answer your question?

Actually, I mean, so the revenue growth of the overall business and also K-12 and POP Kids are all lower than the enrollment growth. So the ARPU is decreasing. So, I mean, what’s the reason behind that, because the hourly rates are still growing. So, for ASP, it still grows by 5% to 10%. Now, what’s the reason behind the ARPU decrease, is that because of the decrease in paid course hours of the students?

I think, yeah, parallely you see the price decrease for the K-12 business is the - the first reason is the timing difference like the late Chinese New Year and people enrolled in summer class earlier. And second reason is the - in the summer we will range some like the short-term classes compared to the last year. So, that’s why you will see the - like the price difference. But like I said, on apple-to-apple basis the hourly rate of the price will be increased by 5% to 10%.

Okay, got it. Thank you.

Okay. Thank you.

We have the next question from the line of Leon Chik from JPMorgan, Hong Kong. Please ask your question?

Yes, hi. Thanks. Congrats. The question is, if all these enrollment growth and all these enrollment numbers you’re talking about and even for the full year enrollment of 2,896,400 student enrollment, like do these include like online, pure online and very low ASP like non-physical courses or are these all like live courses for the enrollment?

Hi, Leon. Our enrollment is only calculated for the - our offline student enrollment, not calculating the online and very low ASP students.

So the huge - I mean, like for U-Can for instance the huge difference between your apples-to-apples 8% to 10% and your actual 65% enrollment growth. I mean, that’s just purely all of this timing difference, there is no other reason?

As I said, firstly, the timing difference; then secondly, there is - in the summer we have some like the short-term classes. So adding to the ASP, the ASP changes some like the structural or some like the mix to shift, yes.

So, let’s just say for the summer courses, and I’m enrolling like at the end of May, right? I would be counted as an enrollment even though the sales and the short courses start mostly in the 1Q, is that how it works? Like if I sign up on…

Yes.

May 29, I’m counted as one enrollment even though like the courses is mostly in 1Q, is that how it works?

Yes. Almost all these short-term classes will happen in 1Q in the summer classes.

Okay. But If I signed up in 4Q, you’ve counted in 4Q, right?

Yes. If you sign in 4Q, well, we reported the enrollments in Q4, but we reported the GAAP revenue in the coming Q1.

Okay. Okay, that’s how you get this huge difference.

Yes.

Okay, that’s fine.

Yes.

Okay, thanks. Thank you.

Okay. Thank you.

We have the next question from the line of Tian Hou from T.H. Capital. Please ask your question.

Hi, Stephen, Sisi. One question is related to your loyalty program, and you put that in place a couple of quarters ago. So the purpose of that is really to increase the renewal rate. So I wonder what you’ll see today compared with that, the time before you’ll put this program in place? That’s the question?

Yes. I think the - okay, go ahead, please?

Stephen, one more question.

Okay.

So there’s one thing in the market, I think there is a very tremendous uncertainty among investors, which is a lot of Chinese companies go private. However, some company when they go private, they either purposely lower the price, or whatever they do. So that make investor concern, if everything go Chinese company planning to go private, and purposely lower the price, then no one will ever buy China stock, right? So definitely it’s not good thing, so I would like to have a clear answer from the management, what’s your plan for your stock? So two questions. Thank you.

Okay. And the first question is about the loyalty program. We lost the loyalty program in last October. And in March, we narrowed down from the old subject to K-12 business only. And after the excuse of the customer loyalty program, we are seeing the student retention rates guide higher by 1% to 2%. So the loyalty program helps us to strengthen the thickness of our students. And so going forward, I think the loyalty program will help us. And for your second question and yes, we’re seeing a lot of United States Chinese ADRs announced the privatization plan this year and plan to release in the Asia market some day. But New Oriental has no plan to privatize. Our goal of the whole company is to focus on the business and create shareholder value continuously in long-term.

That’s very helpful. Thank you.

Okay. Thank you.

Yes.

Yes.

We have the next question from the line of Alvin Jiang from Morgan Stanley. Please ask your question.

Hi, Sisi and Stephen. Thank you for taking my question, and congratulations on the strong quarter. I only have a quick question on the competition. Do you think that the price fall in tier 1 cities especially in the afterschool tutoring market is going worse this summer, because I noticed there are a lot of attractive promotions from both you and your competitors like online [indiscernible]. Do you have a special concern and this kind of price will impact the margin in long-term. Thank you.

Okay. Yes, there is a lot of noise about the - like the price war. Someone told the price war in the reasonably [ph] and maybe you have heard the New Oriental provide like the very low price with like ¥50 or ¥10 in the market. But it’s the only for the Grade 1 and Grade 6 and for some cities in the science class like the math, where like the chemistry. So I think the purpose of this is to attract more students to try our new O2O products. But the total number is quite small, is very small. So our - I don’t think we’ll keep a margin, because I think the impacts are very tiny, okay?

Okay. Thank you.

Does it answer your question?

Yes, thank you. That’s helpful.

Okay.

We have the next question from the line of Jialong Shi from Credit Suisse. Please ask your question.

Hi, good evening, Stephen. Thanks for taking my call. My question is actually somewhat related to previous question. I read from Chinese media, which quoted your Chairman, Michael Yu saying, New Oriental may consider to spin-off some of your business segments in the future and list those segments - business segments separately in Chinese Asia market. So I just wonder what are the business segments that most likely get listed in Chinese Asian market? Thank you.

Okay. Thanks, Jialong. As I answered to Jiang’s question, the New Oriental has no plan to privatize or and go public in the Asia market. And also we don’t have any plan to spin-off any subsidiaries to go public till now. So that’s my answer.

Okay. And can I ask another follow-up for relating to your K-12 program. I just wonder if you guys provide any sort of a breakdown of your U-Can revenue by top three cities and their respective growth rates?

You mean the - this quarter or going forward?

For Q4?

I’m sorry.

For Q4?

For Q4, okay.

Right.

The middle-school, high-school student enrollments has increased by 68%, and the GAAP revenue has increased by 28%. But you cannot calculate - just use the GAAP revenue divided by the student enrollment to calculate the ASP.

Right. So what is the revenue breakdown by top three cities? What are the top three cities for U-Can?

All the cities, the Beijing account for 24%, 25% of the total revenue. And the second one is Shanghai, Shanghai is 7% of the total revenue. The third one is Xi’an, Xi’an is 5% of the total revenue.

5%. So this is for U-Can?

5% for Xi’an.

So this is for U-Can, right?

Yes.

So what are the growth rate…

Not only for U-Can, but overall business, yes, also.

For the overall business. So what are the growth rates? So what are the growth rate for - sorry, what are the breakdown for U-Can program? The top three cities…

We don’t disclose the revenue growth rates by cities. So I can just let - can disclose by the K-12 business by cities.

Sure, sure. Yes, that would be great.

Okay. Beijing is 24%, the first one. And the second one is, I think is Shanghai is - the second one is the Xi’an, it account for 8% of the total revenue of K-12 business. The third one is Shanghai, Shanghai is 5% for K-12 business. I don’t have number of the U-Can business.

I see, I see. So I just wonder what are the growth rates for each of these three cities?

The - for the K-12 business, Beijing has increased by more than 15%; and Xi’an growth by 30%, it did very good job; and Shanghai increased by only 4% because of the low base number. Yes.

Okay. Yes. Thank you very much.

Okay. Thank you.

We have the next question from the line of Andrew Orchard from Nomura. Please ask your question.

Hi, thanks for taking my question. I had the question with regards to your enrollment outside of the K-12. And I think based on my calculations, we saw your test prep and English adult enrollment pickup this quarter. And that’s I think been a robust trend that we’ve seen over the last few quarters. Can you give us some disclosure on why that’s been the case? Thanks.

I think this of mainly the timing difference. So, overall, if you look at a member going forward, the student enrollments of the adult English and domestic test prep will be decreased by 15% year-over-year. With ASP increased by 5% to 10%, the GAAP revenue will be decreased by 10%. But we have the same situation in the last two years in a row.

Got it. And sorry, they’re 50% downwards for the next quarter or the - this current quarter?

For the next quarter, yes. 10% to 15% down year-over-year in student enrollment.

Got it. Okay. Thank you.

Okay. Thank you.

We’re now approaching the end of the conference call. I will now turn the call over to New Oriental’s CFO, Stephen Yang for closing remarks.

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 and Sisi. Okay, thank you. Thank you, everybody.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.