Ladies and gentlemen, good evening and thank you for standing by for New Oriental’s Third Fiscal Quarter 2016 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 call 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 third fiscal quarter 2016 earnings conference call. Our financial results for the periods 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, Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental’s Investor Relations website at investor.neworiental.org. I will now turn the call over to Mr. Yahn. Stephen, please.

Thanks you, Sisi. How everyone and thanks for joining us on the call. We are pleased to report another quarter with solid results. The fiscal second half year is traditionally the big season for our K-12 all subjects after-school tutoring business as national exams for college, high school entrance and final exams for all grades approaching. During the third quarter, with these exceptionally well on the top line with revenue up 20.6% year-over-year to $346.9 million and total enrollments up 25.2% to $755,100, if not including the impacts from the RMB depreciation, our revenues growth would have been 26.4%. Our continuing intensive efforts to introduce the new O2O two-ways interactive education system prove to be satisfactory investments of time, capital as recourses. We are pleased by the growth in our K-12 all subjects after-school tutoring business which consistently have been delivering strong growth with the revenue up 35% and enrollment up 31% year over year in the third quarter. At the end of the third quarter, our newly revamped POP Kids program experienced the revenue increase of 40% and new products reached 50 cites, up from 44 in the second quarter. You can visible progress system that it’s been used in all 54 existing cities, happily enjoying growing recognition from both parents and students. So as with that the current market conditions are favorable to us as we are seeing transparence a more incline to investing education with the economy slowing down slightly. With all of this, we have to be able to bringing more new customers and more customers are choosing to stay with New Oriental. To further leverage a success achieved by the O2O system, we expanded the investments in integrated education further to other key business lines. In March, we officially launched the IELTS interactive education system…

Thank you. [Operator Instructions] Your first question comes from the line of Julia Pan from Macquarie. Please go ahead.

Hello, Steven. Hello, Sisi. Thank you for talking my question. Congratulations for another strong quarter. I have two questions, first one is we see an encouraging improvement in the margins in this quarter with only seven increase of learning centers and we do believe the modest improvement to continue. But do you think you think you can expand your learning centers in a faster phase in this stage given your margin share in China and even in Beijing is still low single digit? Same coaching is that - is about Pop Kid, Pop Kid shows that really strong growth in this quarter of 40%, do you think the faster growth in Pop Kid then you can session to continue and would you think the many driven behind this other than O2O injection? Thank you.

Okay, thank you, Julia. You first question is about expansion plan, you know what, yeah we opened seven new learning centers in Q3 and I think in the coming Q4, we plan to setup 10 to 15 new learning centers to prepare for the new fiscal year. And in - yeah, I think the K-12 markets is huge, so in next fiscal year, I think we’ll plan to open 30-40 new learning centers but compared to the 720 learning centers we have in come for only 3% to 5% so it will now drag the margin. And I think it will continue, we will see the market expansion continuously, because the business leverage. And this is my answer for the first question. Also I want to add one point, you know last year we spent - last fiscal year, we spent $39 million on the investment for O2O and pure online. And this we can 50 million. So last year and this year are the peak for the investments, net year I think we can cut some expenditures of the investment. So this is another part for the margin expansion. And your question is for Pop Kids, yes, we did a very strong quarter and I think you know beside the O2O product which is the popular among the students. And I think the trends will continue, so going forward, it just once the Pop Kids program grow by 25% to 30% year-over-year growth. And another reason is I just mentioned earlier you know the market in China is huge, it’s very fragment and I think the big player like New Oriental will take more market share from small players. That’s my answer, is this clear?

Thank you. Our next question comes from the line of Zoe Zhao from Credit Suisse. Please go ahead.

Hi management, congratulation on strong quarter. I have two questions. One is, can you please provide an update on the upcoming summer promotion plan? And the second one is, can you update us with the utilization rate given that our growth profit margins has been improving but then it seems that our VIP revenue growth is also pretty strong this quarter? Yeah that’s my question. Thank you.

Okay, the first question about the price strategy, yeah as you have a - some of you have heard, we have some the class that we low class in the market. And but I think we start the - to provide the lower price summer math class for great sellers since several years ago in Beijing. And privilege of this is to attract more students to our classes. I think this strategy turns out to be successful. I think this is the one of the events why the Beijing kid fall business perform well in past three or fourth years. So we’ll continue do that in Beijing this summer and to spread other four cities. I think we - upon this, we expect the - to accelerate the markets consolidation. You know as the small players can for that and it trims the impact for the like the margins in the coming Q1. I think the impact will minimal. The cost you know - the students who want enrollment for the low price is come for only parts of the total enrollment, so the impact will be minimal. And your second question about the utilization rates. You know in the third quarter, our utilization rates continue to go up. Now we are 20%, last year it was about 18%, so that means 200 bps up. And I think going forward, we will see the utilization rates that are going up, because last thing about that if we open the learning centers, new learning centers above 3% to 5% compared to the learning centers we have, it’s - not the margin. So that means we will see more students within the current classroom, so most of the growths going forward will be the organic growth. Does it answer the question?

Thank you. And our next question comes from the line of Tian Hou from T.H. Capital. Please ask your question.

Hi Sisi, Stephen. The questions related to your upcoming plans for the listing in local market, can you give a little bit color on this upcoming local listing and how your semester is going to benefit from that listing?

Thanks Tian. I think yeah, I know the concerns about potential listing as we mentioned in February announcements, but what I can say we’re still in the planning phase, so we feel need more time to work with the other groups. And so I am to say, but in - I think - if the - we put the listing in the China market, it will give us the more strong [indiscernible]. And I think more Chinese people will know to learn. That’s the benefit.

Thank you. Our next question comes from the line of Fan Liu from Goldman Sachs. Please go ahead.

Hi Stephen, hi Sisi. Thank for taking my questions. So just a two quick questions, number one is about your effect, would you mind share with us the utilization and also the margin profile for each segment, I mean including oversea test preparation and also you can in the Pop Kids? And also the second question about you are allowing growth in Beijing and Shanghai this quarter, would you mind to share with us as well? Thank you.

Okay. Thank you, Fan. The - in terms of the operating margins of difference business lines, the oversea test prep, the operating margins before we had is about 30%. And for the - in terms of the U-Can, the operating is about 25% or a little bit more than 25%. And for Pop Kids, now it’s 13%-14% the operating margin before that but it’s at least 200 to 300 bps up compared to last year. You know we are seeing higher rate for Pop Kids and so this is the key operating margins for business lines. And using, presence about the Beijing, the revenue growth in Shanghai. Beijing, I’ll let Sisi.

Yeah, Beijing’s revenue growth is about 22% this quarter, 20 plus and Shanghai is around 14%-15%, okay.

Thank you.

Thank you. Our next question comes from the line of Anne Shih from Brean Capital. Please ask your question. Ms. Shih from Brean Capital, your line is open, please ask your question. Thank you. We’ll move on to the next question. The line comes from Alvin Jiang from Deutsche Bank. Please go ahead.

Hi Stephen, Sisi. Congratulations on a strong quarter. I have a quick question on the retention rate, you mentioned that the retention rates improved a lot in this quarter, can you give us more colors on the - with the numbers on that? Thank you.

Thanks Alvin. The retention rates in this quarter is about more than 70%, so I think that’s somewhere between 70% to75%. And so compared to last year, last year the number was 60% to 65%. So comes a lot and because I think you know the new O2O product especially for the K-12 business, when these students start to use the new version plans, I don’t think they will go - they will stick with us where the kids stay with us. So that’s why we’re seeing the higher retention rate compared to last year. And going forward, you will see the retention rates go higher in the future.

Great, thank you.

Thank you.

Thank you. Our next question comes from the line of Anne Shih from Brean Capital. Please go ahead.

Hi Stephen and Sisi. Sorry about that earlier. Thanks for taking my questions. You mentioned that the O2O investments should decline in fiscal ‘17, wondering if there is kind of a specific level that you are thinking of and what will be focused on in terms of the spending? I also have a follow-up question from earlier in the call on pricing. I think this year the strategy for K-12 was not gaining enrollments, but average pricing was kept more stable with plans for I think pricing power to be flexed next year. Is this still the target and what sort of like the growth we can probably see on average even with the summer promotion in Q1? Thank you.

Okay. In terms of the investments for the O2O and pure online, you know we spent $15 million this year and next year I think we can cut some expenses for this, let’s say the 45 or $14 million because you know - I think mostly will keep almost all the IT stuff and content writers going forward. But I think in next year, we don’t need the third party services, you know we bought a lot this year and last year, so next year I think we can cut these - some of this kind of expenses. And in terms of your pricing question, this year we use the difference price strategy. For example for K-12 this is, we only - the price by more than 5% year-over-year, now like several years ago, you know we increase supplies by 8% to 10% several years ago. And but you know this year as I said, we are still enrolling out the new product so we used very - the very - we also increase the price suddenly 5%. Next year I think our price strategy will be a little bit more aggressive compared to this year. So our target for the price increase will be 6% to 8% in the next year. That’s my answer.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Leon Chik from J.P. Morgan. Please ask your questions.

Hey, hi. Thanks for talking the question. Just simple one, how did your GPM go down so much in 3Q basically cost of goods sold went up slower than sales, like as we didn’t see that in the second quarter, so we just wondering if there is anything special in the third quarter? Thanks?

Thanks Leon. That’s a great question. You know the Q3 and Q4 are the peak season for K-12 business. So I think the revenue in the Q3 is - the revenue growth in Q3 is better than we expected. And yeah I think you will see the cut leverages here in the especially for rental you know we just - your learning center and for the current learning centers, the rental fee interest about only 5% year-over-year. So the rental interest balance high digits. And also we’re seeing the higher utilization rates that means the one teacher are teaching more students within the same class. So that’s like we are seeing the OP margin improvements. Yeah, I think - the OP margin will still go.

So just basically normal operating stuff, nothing, no special stuff, right, just regular scale advantage?

Yeah, yeah.

Okay, thanks.

Thanks Leon.

Thank you. Our next question comes from the line of Mariana Kou from CLSA. Please ask your questions.

Hi management. Congratulations again on a strong quarter. I just had a quick follow-up I think on the question just now on the cost side. Could you actually remind us what the I guess the fix and liable components of the teaching class and what type of trends that you are seeing in terms of some causing fees for teachers?

Yeah, you know the teacher’s compensation is by two parts, the first part is may be 60% the first ones, so it depends of the level of the different teachers. And the second part let’s say the 40% are the teacher’s bonus as relates to the retention rates, the utilization rates and the evaluation from students. So that’s the percentage of the teacher compensation. So I don’t know is it clear to answer your question.

Yeah, but we are seeing really like what sort of salary increase that we are talking about, within quarters, so it’s seeing double digit on increases that’s expected from teachers?

Yeah, we increase the teacher salary by 8% to 9% year-over-year, so it’s very stable, yeah.

Alright, thank you.

Okay, thanks.

Thank you. Our next question comes from the Claire Cao from Morgan Stanley. Please go ahead.

Hi management. Thanks for taking my question. I have two questions. The first one is related to the present salary. As you mentioned that you may spread a low price strategy to other cities, could you give us some more color on this or that would have be the potential P&L impact in the coming fiscal year when this low price strategy is more widely road out? And I have a follow-up.

Okay. I think Claire it’s good question. Yeah, we as mentioned we will launch the low price class for only for Wenzhou [ph] and for - or maybe some cities for Chinese. But you know even though we launched these, I don’t think it’s - we will have to be not just impact for the margins for the next whole year. Maybe - yeah maybe it won’t have some negative impact for Q1 but there are minimal. For next whole year, I think on the country, the margin will be higher by doing this, because you know we just give the one times this count for this kind for one time. So after one time see the second time I think more than like the 60%-70% of that, this students will take the class with paying, have normal price, so we till - we’ll get the higher utilization rates, so for the year is no margin dilution by this.

And actually based on current retention rate for our K-12 business and O2O, we have plenty of capacity for our K-12 business now. So basically after Q1, most of that students will be attracted in Q1 will stay with us, some for the rest of the year like Q2, Q3, Q4’s courses and that will increase the utilization of our overall business which will contribute a lot to margin expansion. Okay.

Okay, understood, thank you. And my second question is I think Stephen mentioned that we have seen increasing work of mouth referring the quarter, so just wondering is it possible to share some data on this and what magnitude of operating leverage can be expect from sales and marketing line? Thanks.

Sorry, we don’t disclose the referral rates to the methods but definitely it goes up. And that’s why, yeah you have seen the selling marketing expense you know it’s interest only 8% in Q3 and in Q1, Q2 the selling marketing expense growth rates was zero. So going forward, I think the selling marketing expense worth interest be 10%.

Got it, that’s very clear. Thanks.

Okay, thank you.

Thank you. Our next follow-up question comes from the line of Zoe Zhao from Credit Suisse. Please go ahead.

Hi management. I have a follow-up question on the overseas business. Can management breakdown the overseas test prep versus the overseas consulting business? And also I am wondering what’s the margin that operating margin for the consulting business? Thank you.

Okay, the oversea test prep is contributes totally 8% of our total revenue. And oversea consulting business contributes 8% to 9% of our total revenue. And in terms of the margin of the oversea consulting business is about 20%. And I think the margin will go up a little bit higher next year going forward next three to five years, because we won’t see more leverage there, 20% margin for oversea consulting. Thank you, Zoe.

Thank you. Our next follow-up question comes from the line of Tian Hou from T.H. Capital. Please go ahead.

Yes, Stephen. So the follow-up question is related to online education, so process can allow education to grow in the next year or so? So that’s one. Number two is the summer camp, so in the past two years, you have some issues with the summer camp, so with that this year is this issue you know totally you know down with the company? That’s the two questions.

Okay, I think our pure online company, Koolearn, I think going forward, the revenue growth will be let’s say 35% to 50% year-over-year, it’s depended on the testing timing or the different orders and so, but in general it will go up faster than the offline business. And for the summer camp here, we have - we had a very bad summer camp business numbers two years now. So over the last two year I think the summer camp business was okay. We will have to see a like bit decent path, we will have to depend numbers, because you know throughout the year there was uncertainty on policy changes but now it’s very well clear for that with one, so this is the impact for the coming summer - for summer process, yeah. Okay?

Okay, thank you, Stephen.

Okay, thank you, Tian.

Thank you. Our next question comes from the line of Andrew Orchard from Nomura. Please go ahead.

Hi Yang and Sisi. Thanks for talking my question. Two questions, number one on the VIP performance is still growing quite positively 2% but I guess the whole business growing even faster. Can you give us the sense of what the revenue portion from VIP is this quarter versus the same quarter last year? And then the other question is on the IELTS interactive system, given that you just rolling this out but in the longer term, are you also expecting that this interactive system will help you raise ASP for your outs classes because I expect that retention rate is generally quite low due to the nature of the courses? So that’s my two questions, thanks.

Okay, the VIP business of this quarter of the Q3contributes 29% of the total revenue and last year was same 29%. So you know as mentioned several quarters ago, the management just want to cap the VIP business the 3% of total revenue. You know our forecast is on the class business. So going forward, I think the VIP contribution will still within the 30% of the total revenue. And for the new house product will launch in March. I think we used to the same methodology for the O2O product we used in K-12 business. You know more and more, young - what I mean is the high school students were fully in a high school students are talking our house class. So this new nature will be online to help them to study more efficiency in the offline classes. So I think it will help us to increase the price, because you kwon nobody else in the markets has this kind of product, so I think going forward, we’ll still increase the price by flat 10% on apples-to-apples basis.

Thank you. We are approaching the end of the conference call. I will now turn the call over to New Oriental, CFO Mr. Stephen Yang for his 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. Thank you.