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New Oriental Education & Technology Group Inc. (EDU 2.77%)
Q1Â 2019 Earnings Conference Call
Oct. 23, 2018, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Sisi Zhao -- Investor Relations Director
Hello, everyone, and welcome to New Oriental's First Fiscal Quarter 2019 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, 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 US 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. Yang -- Stephen Yang. Please go ahead.
Zhihui Yang -- Chief Financial Officer
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. We are very pleased to start the fiscal year 2019 with a year-over-year acceleration in our top-line growth. Net revenues in the first fiscal quarter 2019 increased by 30.1% to $859.8 million. Student enrollments in academic subjects tutoring and test prep courses in the first fiscal quarter went up by 13.2% year over year to approximately $1.7 million -- 1.7 million student enrollments. The actual number is 1,735,300. Guided by our successful Optimize the Market Strategy, we continue to expand our offline business, while also investing in our online and offline integrated education system.
In this quarter, we added a total of 19 new facilities, which include 18 new learning centers in existing cities and 1 new training school in the city of Yiwu. All together, the total square meters of classroom area by end of the quarter increased approximately 34% year-over-year and 3% quarter-over-quarter. Our strategic capacity expansion is on the right track to capture market opportunities in cities with the robust growth momentum and remains the important focus in fiscal year 2019. We will also continue to focus on improving utilization rate and investing in enhancing teaching quality in line with our long-term strategy.
Our business has started the year with the accelerated revenue growth, even with the discounted revenue due to the large scale summer promotion. Our key revenue driver K-12 all subjects after-school tutoring business achieved remarkable year-over-year revenue growth of 49%. This is largely driven by our solid performance in student enrollment in the recent two quarters, which had a year-over-year increase approximately of 34% in the fourth fiscal quarter of 2018 and first fiscal quarter of 2019. The growth in the K-12 business can be broken down into the outstanding performance from U-Can middle school, high school, after-school tutoring business and POP Kids program, each of which achieved impressive growth respectively.
One of the key areas of focus for the first quarter was our summer promotion efforts. Similar with the last few years, we conducted the summer promotion campaign to readily acquire services and customers before they started the first year of secondary school. Large scale promotion offering, low price experiential courses was launched a total of 39 cities. Once again, the promotion was very well received by the market. The low cost of trial course enrollments for this summer reached 762,000, which increased 37.5% year-over-year. Note that, these promotion enrollments were not included in our report of the enrollments. More importantly, 54% of student recruits from the summer promotion campaign were successfully retained to our full price courses for the autumn semester, which is 5% more than that of last year.
This will certainly boost our revenue and drive profit growth throughout the whole fiscal year 2019. Overall, we believe the summer promotion is generating long-term benefit and will continue to be a successful and effective strategy to capture as much market share as possible and acquire long-term loyal student customers in the K-12 after-school tutoring market. As these students move from grade seven to grade 12, the continued improvement in retention rate and customer loyalty will further drive revenue growth in the next three to six years. These investments will set a solid foundation for stronger growth in long-term and further strengthen our leadership in the market.
I'll now turn to pricing. Per program blended ASP, which is cash revenue divided by total student enrollments, increased by about 14% year-over-year, partially due to the longer summer course hours. Hourly blended ASP, which is GAAP revenue divided by total teaching hours, increased by approximately 3% year-over-year in RMB terms. To provide a breakdown of the hourly blended ASP in RMB terms, please note that U-Can increased by 6 -- by 7 -- by 9%. POP Kids increased by 4% and overseas test prep program increased by 10% all year-over-year.
We remain firmly optimistic about our overall top-line performance, which we expect will be supported by the continuous improvement of the retention rates of existing customers and ability to acquire new customers. The goal of our expansion remains at adding approximately 20% to 25% in overall capacity for the full year 2019 through opening new learning centers in existing cities and rolling out tutor model schools in new cities. All the while, we will continue to uphold the balance between our strong growth momentum and cost control in most efficient manner, with constant efforts in further improving utilization rate.
As for our offline language training and test prep business, the cost pressure in this quarter from our large scale summer promotion and our online business investment had a short-term impact on our operating margin. But as mentioned, this important investment will help set foundation forward and further generate long-term growth. In terms of the details, non-GAAP operating margin for offline language training and test prep business decreased by approximately 110 basis point year-over-year in this quarter, as we continued to see revamping of the new facilities. We believe the short-term margin pressure for offline business will generally balance out as the year progresses.
For our Koolearn.com pure online education platform, we'll continue making investments in new initiatives in K-12 after-school tutoring business to capture the huge market opportunity in remote areas in China. Even with the short-term margin pressure from these investments, we're confident that our efforts in building out our ecosystem integrating both offline and online education will deliver sustainable long-term value for our customers and shareholders.
Now, let's move on to the first quarter performance across our individual business lines. As mentioned, our key revenue driver, K-12, all subjects after-school tutoring business achieved revenue growth of about 49% year-over-year, driven by the solid enrollment growth in the recent two quarters of about 34% year-over-year. Breaking it down, the U-Can middle and high school all subjects after-school tutoring business recorded a revenue increase of 49% for the quarter. Student enrollment grew approximately 80 -- 18% year-over-year for the quarter. Our POP Kids program delivered outstanding results, with the revenue up significantly by about 48% for the first quarter. Enrollment went up about 12% for the quarter.
Our overseas test prep and consulting businesses together recorded revenue growth of about 5% year-over-year for the quarter. This comparatively slower growth for this quarter is mainly due to the change of the revenue recognition of our consulting business upon the adoption of the new revenue accounting standard starting June 1, 2018. VIP personalized class business recorded revenue growth of about 34% year-over-year for the quarter.
Next, I will provide some updates on the progress we are making with our Optimize the Market strategy. We have been focusing on expanding our capacity by investing in the build out of our online and offline integrated education system and this continues to produce very promising results. Starting with our core offline business, in the first quarter, we added a net of 18 learning centers in existing cities and opened a new training school in the city of Yiwu. All together, the total square meter of the classroom area by the end of the quarter increased approximately 34% year-over-year and 3% quarter-over-quarter.
To further tap into the booming private education market and fully strengthen our leadership, we started to pilot our new two-teacher model in select cities in July 2016. By the end of the first quarter of 2019, we have tested the adoption of the new model in 40 existing cities for POP Kids program, in 28 existing cities for U-Can program and in 10 low-tier cities for both POP Kids and U-Can K-12 programs. It's encouraging to see increasing market penetration and student retention in those markets we have tapped into. The scalability of the new model also continuing to improve and started to bear fruit. With this proven result, we're confident that our two-teacher model will carry on the strategy in the first -- in the fiscal year of 2019.
With respect to our online business, we invested $22.7 in the first quarter to improve and maintain our online, offline integrated education ecosystem. Most -- which has been an area of focus since 2014. Most of the investments were recorded under G&A expenses. With the high customer retention rates and the acquisition of new customers, we are positive that our investments will bring sustainable long-term benefits.
I will first talk about online offline two-way interactive education system. On the whole, we aim to expand New Oriental's traditional offline classroom teaching offerings to online education services. With the booming market and our advanced online offline integrated product service, we're poised to get more market share and strengthen our hold going forward. Since the launching U-Can Visible Progress Teaching System in September 2014, the interactive education system has been deployed in all existing cities.
We have launched the newly revamped POP Kids program, Shuang You, in most of cities by the end of the first quarter in fiscal year 2019. At the same time, the interactive education system has been broadly used in increasing number of cities. The interactive education system for overseas test prep, including IELTS, TOEFL and SAT courses was rolled out and tested in most of major cities by end of fiscal year -- or the first fiscal quarter 2019. At the same time, we also standardized the product offerings across 14 cities. We also made great progresses in the Koolearn.com business line and other supplementary online education products.
To capture the huge market opportunity in online education area, we continue to invest in more resources, in executing new initiatives in online K-12 after-school tutoring business in fiscal year 2019. This includes content development, teacher recruitment and training, sales, marketing, R&D and other cost incentives that are necessary to drive the growth of new online programs. With these programs, we're able to cover more students in low-tier cities in an interactive and scalable approach and gain further market share in online education space.
Now, let me walk you through the other key financial details for the first quarter. Operating cost and expenses for the first quarter was $700.4 million, representing a 40% increase year-over-year. Non-GAAP operating cost and expenses for the quarter, which exclude share-based compensation expenses, were $686.4 million, representing a 38.1% increase year-over-year. Cost of revenue increased by 36% year-over-year to $367.4 million, primarily due to increase in teachers' compensation for more teaching hours and rental cost for increased number of schools and learning centers in operation.
Selling and marketing expenses increased 34.4% year-over-year to $99.3million, primarily due to increases in brand promotion expenses and selling and marketing staff's compensation. General and administrative expenses for the quarter increased by 49.8% year-over-year to $233.7 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were $219.7 million, representing a 43.7% increase year-over-year, primarily due to increased headcount as the Company expanded its network of schools and learning centers, as well as increase in R&D expenses and human resources expenses related to the development of our online and offline integrated education ecosystem.
Total share-based compensation expenses, which were allocated to related operating cost and expenses, increased by 345.3% to $13.9 million in the first fiscal quarter of 2019. The substantial increase was primarily due to the grants of total 1.5 million restricted shares units of the Company to employees and directors in October 2017 with graded vesting over three years.
Operating income for the quarter was $161.3 million, an increase of 0.2% compared to $161.1 million in the same period of the prior fiscal year. Non-GAAP income from operations from -- for the quarter was $175.3 million, a 6.7% increase compared to non-GAAP income from operations of $164.2 million in the same period of prior fiscal year.
Operating margin for the quarter was 18.8% compared to 24.4% in the same period of prior fiscal year. Non-GAAP operating margin, which exclude share-based compensation expenses for the quarter was 20.4% compared to 24.8% in the same period in the prior fiscal year. Operating margins were affected by the increase in the cost and expenses, mainly due to the cost pressure from the larger scale summer promotion and the continued heavy investment in our online education platform in this quarter.
Loss from fair value change of long-term investments for the quarter was $47.0 million. Please note that this is resulted from the adoption of the new financial instruments accounting standard starting from June 1, 2018, which means the Company will measure its long-term investments and fair value with gains or losses recorded through the income statement. On the other hand, approximately 7 -- I'm sorry, $97.9 million of accumulated other comprehensive income for the available for sale equity securities as of May 31, 2018 was reclassified into retained earnings.
Net income attributable to New Oriental for the quarter was $123.2 million, representing a 22.2% decrease from the same period of the prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were $0.78 and $0.77 respectively. Non-GAAP net income attributable to New Oriental for the quarter was $184.1 million, representing a 14% increase from the same period of prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were $1.16 and $1.16 respectively. Net operating cash flow for the first quarter of 2019 was approximately $231.5 million. Capital expenditures for the quarter were $62.4 million, and which were primarily attributable to the opening of 1 new school and 65 facilities and renovations at the existing learning centers.
Turning to the balance sheet. The deferred revenue balance, which is cash collected from the registered students for courses and recognized proportionally as revenue as the instructions are delivered, at the end of the first quarter of 2019, was $1,146.7 million, an increase of 23.3% as compared to $930 million at the end of the first quarter of fiscal year 2018. On this note, I also want to mention that, as a result of adopting of new revenue accounting standard from June 1, 2018, a $66.0 million of deferred revenue was reclassified to accrued expenses and other current liabilities, which represents the estimated amount of the tuition that may be refunded in the future, if students withdraw from the course.
Before moving on to our priority for the second quarter, I would like to take a moment to reiterate our overarching goals and our Optimize the Market strategy, as well as the challenges and opportunities we anticipate in the future. First, we remain determined to expand our offline business. Our goal remains adding around 20% to 25% capacity, including new learning centers and expanding classroom hours of some existing learning centers for K-12 business in existing cities. We also plan to further roll-out two-teacher model schools to about 10 new low-tier cities in the year.
Second, we will continue to leverage our investments in online and offline integration for our offline language training and test prep offerings. As always, we will focus on product refinements and maintenance for the online and offline integrated education system for K-12 business and continue to revamp and roll-out our online and offline integrated standardized teaching system for overseas test prep business. We believe that spending in absolute dollars terms in fiscal year 2019 will increase moderately compared to the previous fiscal year. In addition, we will continue our investment in new initiatives, including content development, teacher recruiting and training as well as sales, marketing in pure online K-12 after-school tutoring business and our Koolearn.com platform.
Third, our top priority will continue to focus on improving utilization facilities and controlling cost across the entire company, so that we will be able to improve our margins and to enhance efficiently effectiveness of our offline core business. Fourth, as the Chinese Government continues to enhance regulatory oversight, we expect China's after-school tutoring market to further consolidate. We believe that regulatory efforts will bolster a positive environment with the improved market standards and enhance the teaching quality, supporting a healthy growth of the market in the long-term.
As a leading education service provider in China, our company is fully supportive of these reforms and we're committed to providing high quality education service and doing our shares to build out a sustainable and robust market. At this stage, we do not foresee any material impacts of the regulatory reform on our top-line growth, while our administrative cost and expenses may increase in the short-term. Finally, the recent RMB depreciation against the US dollar will also impact our earnings in dollar terms for the second quarter of 2019. Again, I would like to emphasize that the fundamentals of our business remain strong, as we believe with our Optimize the Market strategy being the focus as always, we are confident that New Oriental will continue to capture sustainable growth opportunities in the market and deliver long-term value for our shareholders.
Looking at the near-term and our expectations for the next quarter, we expect total net revenues in the second quarter of fiscal year 2019 to be in the range of $568.5 million to $586.4 million, representing year-over-year growth in the range of 22% to 26%. If not considering the impact of the potential changes in exchange rate between RMB and the US dollars, the projected revenue growth rate is expected to be in the range of 27% to 31% for the second quarter of fiscal year 2019. I must mention that these expectations reflect New Oriental's current and preliminary view, which is subject to change.
Before I conclude, I also want take a moment to address our efforts to enhance our shareholder value. As you may have seen in today's press release, our Board of Directors has authorized the repurchase of up to $200 million of the Company's common shares during the period from October 29, 2018 through May 31, 2019. The share repurchase program is planned to be implemented in line with market conditions and funded from the Company's available cash balance. Our Board of Directors will review the share repurchase program periodically and may authorize the adjustment of its terms and size accordingly. The initiative once again underlies our determination to deliver value for our shareholders and reiterate our confidence in the long-term prospect for our business.
At this point, I will take your questions. Operator, please open the call for this. Thank you.
Questions and Answers:
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Your first question comes from the line of Jin Yoon from Newstreet Research. Please ask your question.
Jin Yoon -- Newstreet Research -- Analyst
Hi, good evening, guys. Thanks for taking my question. Stephen, you guys mentioned -- you just mentioned about costs associated with the regulatory environment impacting SG&A. What exactly are those costs and how much of that cost is actually reoccurring cost going forward? And are you still comfortable with the 100 basis point upside in your margins for this year? Thanks.
Zhihui Yang -- Chief Financial Officer
Okay. The question about the regulation, the most recent regulation that the State Council issued the circular 80 in late August. So what I said, the incremental cost and expenses, I think most of them is related to the -- like the classroom rental and some incremental future cost. But I think -- we're still in process of the communication with the local governments in each cities. So it's early -- it's too early to say the accurate number, but I don't think it will be a big number. So we do have the impacts on the margins from the new regulation, but it's not a big deal. And yeah, we -- the Q1 margin, so it's because the non-GAAP operating margin has declined by 440 bps and partially it's because of the large -- the scale of the summer promotion and these promotion enrollments was 38% higher than that of last year. And -- but the retention rate is good. So for the offline business, I think the margin pressure will generally balance out as the rest of the year. And for the online, yeah, we started to invest a lot since the -- two quarters ago, like the HR cost, the IT cost and marketing expenses. I think it's a great opportunity for us, so it's worthy to spend more money on that. And then -- but it's the margin drag. Yes, it's a margin drag. And so this year is margin pressure year. And -- but for the mid to long-term margin guidance, we keep a positive view of the margin expansion in the next year and the year after. So this is my view of the margins. Okay. Thanks.
Jin Yoon -- Newstreet Research -- Analyst
Great, thanks guys.
Zhihui Yang -- Chief Financial Officer
Okay.
Operator
Your next question comes from the line of Natalie Wu from CICC. Please ask your question.
Natalie Wu -- CICC -- Analyst
Hi. Good evening, Stephen and Sisi. Thanks for taking my question. I noticed that the net add of facility is only like 19 compared with 65 new openings this quarter. So may I know the major consideration behind the closing down of the learning centers during the past quarter? And should we think about it in the upcoming quarters? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Natalie, I don't think slowing down of the expansion. Typically, the Q1 is not the peak season to open the new learning centers. Don't forget, we opened almost 40% new square meters last year. So the -- we don't want to change the whole year the new -- the whole year expansion guidance is 20% to 25%. So typically, we open most learning -- new learning centers in the second half of the year because we prepare for the new coming year. So for the whole year 20% to 25% expansion. We don't want to slow down our expansion plan. Okay? Thanks.
Natalie Wu -- CICC -- Analyst
Thank you, Stephen, but what I mean is that you mentioned that the K packs you spend is majorly for the 65 new openings in the past quarter, right? But if we look at the net add, it's only 19, 1-9.
Zhihui Yang -- Chief Financial Officer
Okay.
Natalie Wu -- CICC -- Analyst
So just wondering the major consideration behind the 46 closing down of the learning centers in the past quarter in --
Zhihui Yang -- Chief Financial Officer
Okay. Natalie, we have one -- we have 1,100 learning centers. Some learning centers we rent for five or even 10 years, so some of them, let's say, the 4% or 5% of the learning centers, which -- some learning centers expire the --
Natalie Wu -- CICC -- Analyst
The term.
Zhihui Yang -- Chief Financial Officer
Yeah, the terms. So --
Natalie Wu -- CICC -- Analyst
So it's not regulation related today?
Zhihui Yang -- Chief Financial Officer
It's not. It's not. It's not regulation related. Okay?
Natalie Wu -- CICC -- Analyst
Great. Got it. Thank you.
Zhihui Yang -- Chief Financial Officer
Okay.
Operator
Your next question comes from the line of Thomas Chong from Credit Suisse. Please ask your question.
Thomas Chong -- Credit Suisse -- Analyst
Hi. Thanks management for taking my questions. I have two quick questions. The first one is about our revenue trend. Should we stick to our 20% year-on-year growth, for our revenue growth for FY '19 in RMB terms? And should we expect there should be reacceleration in terms of the revenue? And my second question is a follow-up for the first question. I think Stephen when you're talking about FY '19 is a margin pressure year, is there any direction in terms of the margin trend? And how should we think about the absolute amount of online investment in FY '19? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Yeah, the revenue guidance, yeah, we would give the guidance of the -- in RMB term, range is 27% to 31% year-over-year growth in Q2. So for the whole year, fiscal year '19, we don't want to change our guidance as we guided before. So the whole year, our revenue growth will be, in RMB term, will be around 30% year-over-year. And most of the growth will come from the K-12 business (inaudible). So this is the -- my answer of the -- of your question about the top-line growth. And for the margin, yeah, we meet the margin pressure in the Q1 because of the larger -- the promotion and also the heavy online investments in the Q1. And then continuously going forward, I think we will spend the big amount in the online platform. So this is the margin drag. But on the other hand, the -- as I said, the total expansion plan in this year will be 20% to 25%, but the top-line growth will be 30%. So we do have leverage on the utilization rate and the -- this is the margin expansion, the factor. But as I said, we do have some negative impact from the new regulations. So this is also a margin drag factor. So that's why I said this is a margin pressure year. Okay?
Thomas Chong -- Credit Suisse -- Analyst
Got it. Thank you, Stephen.
Zhihui Yang -- Chief Financial Officer
Thanks, Thomas.
Operator
(Operator Instructions) Your next question comes from the line of Tian Hou from TH Capital. Please ask your question.
Tian Hou -- TH Capital -- Analyst
Hi, Stephen, Sisi. Good evening. So the question is really related to -- I don't really want to focus on margin issue, I want to focus on the growth issue. So I think the growth is really great. And when we reviewed the Company website, we also saw some new program, which we didn't see before. One of the programs is called SLIMA(ph)and -- so I really want to ask the Company, once you added a new program, we saw some welcome enrollments by students and the students' parents. So how the -- what's the Company's plan in the future? One, is it to continue to roll out such a healthy content? Second, what are some other healthy content are in the pipelines of the Company's education inventory? That's my question.
Zhihui Yang -- Chief Financial Officer
Okay. We're keeping -- focusing on the development of new products. As you have seen in our website, the SLIM(ph)courses, it's a high-end courses for the -- not only for the English, but also for some non-academic courses, like the programming and some -- like the science courses. So I think our purpose is to provide all kind of the subjects, not only for the academic-only courses to the Chinese kids. I think this is the market demand and the parents need us to provide more and more courses besides the traditional ones. And we will keep focusing to develop more and more new courses. And it's still in the early phase, so while the contribution is small, but it's growth extremely fast. So I think going forward maybe in the next year or the year after, it will generate more and more revenue contribution from the new courses. Okay?
Tian Hou -- TH Capital -- Analyst
Thank you.
Zhihui Yang -- Chief Financial Officer
Thanks. Okay, thanks, Tian.
Operator
Your next question comes from the line of Mark Li from Citi. Please ask your question.
Mark Li -- Citi -- Analyst
Hi, management. Thanks for taking my question. I want to know for this quarter, have we already incurred any margin pressure due to the regulation or do you expect the regulation margin pressure to emerge in the future quarter? And also, I noticed the POP Kids growth seems to be a bit slowing down compared to U-Can despite like a lower base. So may I know like any reasoning or any strategy going forward? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Let me answer the second question first. The POP Kids, I think the growth rate is good. And in some quarters because of the heavy difference in some quarters, POP Kids is better some quarter or the U-Can is better. So in general, the K-12 business together is booming, so the run growth is good. And yeah, in the Q1, I don't think we had the material impact from the new regulation of the -- in terms of the margin. And going forward, as I said, there might be some incremental cost and expenses of the coming quarters in the -- in this -- in the last fiscal year. But what I'm saying is that it's just a short-term impact. Maybe, it will impact like the two quarters, one or two quarters, but I don't think that it will impact us in the next fiscal year or the year after. Okay? That's just one time.
Mark Li -- Citi -- Analyst
Okay, thank you.
Zhihui Yang -- Chief Financial Officer
Thanks.
Operator
Your next question comes from the line of Mariana Kou from CLSA. Please ask your question.
Mariana Kou -- CLSA -- Analyst
Hi. Thanks management for taking my question. My question is actually more on the, I guess, the share repurchase program and also the competitive landscape, given the regulation changes. Would management be open to consider other opportunities, where -- now where the smaller players might be actually getting into a tough situation to actually be compliant to all regulations? Would there be opportunities available for market leader as yourself to absorb some of the smaller players or would you actually consider sticking to more organic growth and kind of expanding yourself? Thank you.
Zhihui Yang -- Chief Financial Officer
Yeah. I think it's a great question. The government continues to enhance the regulatory oversight. And as a leading education provider, absolutely, we will -- we fully support the government reforms. And I think it's a great opportunity for big players like us. I think we will keep doing to provide the best of service in the whole market. So I think this is a opportunity for us to take more market share from the small players. Maybe you read some news historically, some small players, they can do the business in the proper way. So -- and we have seen some students in the last six months, the students from the small players originally to join our classes. So this is what we have seen in the last six months. And I think this is a great opportunity for us. And yeah, as we announced this afternoon, the Board of the Directors approved the $200 million share buyback program. I think this is the -- this is underlining our determination of the provide -- to deliver values to the shareholders and restore our confidence of the long-term prospects for the shareholders. So this show our confidence of the future -- in the future. Okay? This is the whole logic of the share buyback. Thanks. Okay?
Mariana Kou -- CLSA -- Analyst
Thank you, Stephen.
Zhihui Yang -- Chief Financial Officer
Thanks.
Operator
Your next question comes from the line of Lucy Yu from Bank of America Merrill Lynch. Please ask your question.
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
Hi, Stephen. Would you mind giving us some breakdown of the non-GAAP operating margin contraction this quarter? It has been down by 450 basis points. How much of that is coming from summer promotion? How much is from online investment? And how much is from the consulting business due to the timing of revenue recognition? And how should we expect the margin for the following quarters, given these three drivers? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. The -- within the margin (inaudible) one-tenth bps comes from the offline business, this is a core business. Within it, it's mainly due to the summer promotion and summer rental cost we setup in most of the learning centers in the second half of the last year. And so all the others has come from the online business, overseas consulting and other business. So this is a breakdown of the margin. Okay? And going forward, I think for the offline business itself, we do have leverage on the core business, the offline business. So we do believe in the rest of the year, the margin of the core business will be flattish or a little bit down. Okay? So I think it's a good sign of the margins because we started to fill the students into the learning centers we set up last year. So it's good news. And for the other business, I think it's a great trade-off because if we do the -- if we think the online business is a great opportunity, it's worthy to spend more on the online platform. Okay? And -- but one other thing for this quarter, for the overseas consulting business, typically Q1 is not the peak season for the overseas consulting business. And then we adopted the new accounting standard, the -- since the first quarter, so we lost like $1.1 million revenue of the Q1. We reported into the retained earnings, but it's just one time. I think the -- for the whole year, the overseas consulting business, the margin will be flattish and the top-line growth will be 20%. This is growth at normal. Okay? Thanks.
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
Hi, Stephen, just to clarify. You mentioned that for the offline business for the full year, you're expecting flattish or slightly down margins.
Zhihui Yang -- Chief Financial Officer
Yeah.
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
So the online will also negatively impact the margin as well, whereas --
Zhihui Yang -- Chief Financial Officer
Yeah.
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
-- consulting business is likely to be largely flattish. So is it --
Zhihui Yang -- Chief Financial Officer
Yeah.
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
-- fair to say that for full year, we are expecting non-GAAP operating margin to contract this year?
Zhihui Yang -- Chief Financial Officer
Yes. We are -- we need maybe one more quarter to guide the whole year margin. Okay? It's just one quarter past.
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
Yeah, sure. Thank you.
Zhihui Yang -- Chief Financial Officer
Thanks.
Operator
Your next question comes from the line of John Choi from Daiwa. Please ask your question.
John Choi -- Daiwa -- Analyst
Good evening, guys. Thanks for taking my question. Just quickly a follow-up on the margin part that Stephen you mentioned that it's going to be more or less flat to slightly down this year for the offline because if we look at the utilization rate have been picking up, and as we go into the second half this year with less, as you said you're adding about 20%, 25% and top-line is growing 30%. So where is this drag coming from? Is it more from the regulatory front or is it because of other factors that we haven't really seen more or G&A or operating expense that has to be factored in toward -- more in the second half this year? If you could give us a little bit more color on that, that'll be great. Thank you.
Zhihui Yang -- Chief Financial Officer
Yeah. My answer after your question is that, if -- I said, if you take all the impacts from the new regulation, I think the margin outlook for business will be expanded in this year. But we have to take some incremental cost and expenses from the new regulation. So it's -- absolutely, it's an excess impact of the margins. Okay? So you combined the core business -- the normal condition combined with the new regulation impact that is the result of the margin. Okay? Okay? Is it clear?
John Choi -- Daiwa -- Analyst
Yeah, that's great. Thank you.
Zhihui Yang -- Chief Financial Officer
Okay, thanks.
Operator
Your next question comes from the line of Johnny Wong from Jefferies. Please ask your question.
Johnny Wong -- Jefferies -- Analyst
Hello, thank you for taking my call, Sisi and Stephen. My question is regards to the revenue for the first quarter. We see that the overall revenue growth was about -- it was 30%, whereas our enrollment was about 13%. Can you clarify, is the difference between that, is it then the increase in ASPs? And if so, I mean, the -- it does seem to be quite a large increase in ASP. Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Johnny, I think I suggest that you combine the enrollment of the Q4 and this quarter, Q1, together. The two quarters together, the enrollment was 28.4%. So I think this is in line with the revenue growth. The revenue growth is 30%. So the price is just in line with our guidance, the price increase, for the K-12 business, 5% to 8% price increase and the overseas test prep is 10% increase. It's just -- we don't want to change our price guidance.
Sisi Zhao -- Investor Relations Director
Yeah. Just to remind everyone that we have the registration window in May -- in April and May allowing existing customers to register both the summer course and autumn semesters course, that's why -- so the Q4 borrowed a lot of enrollments from Q1. That's why we suggest everyone to combine these two quarters together to calculate the actual trend, the normal trend for enrollments to match the revenue growth. Okay?
Zhihui Yang -- Chief Financial Officer
Yeah. Thanks, Sisi. But I want to add one point. Is -- due to the new regulation, no advance tuition fees of more than three months may be collected. So we have already changed the tuition fee collection payment terms to meet new regulation requirements. So in the new quarter and the year after, you -- I think that you will not see the up and down of the timing difference of the student enrollments in different quarters. Okay? Thanks.
Johnny Wong -- Jefferies -- Analyst
All right. Thank you very much.
Operator
Your next question comes from the line of Eric Wen from Blue lotus. Please ask your question.
Eric Wen -- Blue Lotus -- Analyst
Hi, management. Thanks for taking my question. I had one question regarding company expansions dedicated on new city. How many cities is company planning to enter this year and how many of them are like second-tier city and how many are third or lower tier city? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. I think the -- most of the new cities we set out in the -- in this year, we will use the two-teacher mode. We covered almost 70 cities already. So in the -- most of low-tier cities, I think the best way for us to take market share is to use the two-teacher model. So we plan to open 10 new cities by two-teacher model in the -- in this year. This is our plan to setup the new cities. Okay?
Eric Wen -- Blue Lotus -- Analyst
Okay, thank you.
Zhihui Yang -- Chief Financial Officer
Thanks.
Operator
Your next question comes from the line of Julia Pan from UOB. Please ask your question.
Julia Pan -- UOB -- Analyst
Thank you management for taking my question. First, could you please give us some update on the latest new learning center approval situations, major reasons? Do you see any withholding on approvals? And also, do you maintain your guidance of 20 to 25 capacity expansion for FY '19? And second is to follow up on the regulations that schools can only collect money before -- three months before the course starts. How is -- will -- how do we look at the deferred revenue growth going forward and how is the impact on your retention rate and also maybe on the interest income as well going forward? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. We opened 18 new learning centers in this quarter. So in the past quarter -- or -- what I'm saying is since the new regulation till now, we didn't meet any difficulties to apply for the new license in the certain cities. So -- and we don't want to change, as I said, we don't want to change our expansion plan, still 20% to 25% expansion plan within this fiscal year. And yeah, as I said, we changed our -- the students payment terms. Actually, we don't need to make change for the summer and winter courses. Typically, the course is within three months. But for the spring and autumn courses, we have to change. Typically, we divide the one course to two payment terms. But I think the retention rate will be not impacted because for our K-12 business, the retention rate is very high. For example, the POP Kids program, the retention rate is close to 90%. And typically, for example in the autumn or the spring, these students take one semester courses, typically it lasts three and half months or four months. So I don't think it will impact our -- like, retention rates, OK, during the spring and autumn semester. Okay?
Julia Pan -- UOB -- Analyst
Okay, thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Thanks, Julia.
Operator
Your next question comes from the line of Andrew Orchard from Nomura. Please ask your question.
Andrew Orchard -- Nomura -- Analyst
Hi. Evening. Thanks for taking my question. Can you give us more color on the specific regulation that is most impacting your cost? I know you talked about rental, for example, so is it things like having to allocate more space, is that part of the pinpoint or is there anything else that is really meaningful that we should be noticing? And the other quick question is on the long-term margin guidance. I think you mentioned before that that 17% to 18% in two to three years' time, are you still standing by that long-term guidance? Thanks.
Zhihui Yang -- Chief Financial Officer
I don't want to change my long-term margin guidance, it's just we postponed one year. Okay? So we don't want to -- because this year that we have to meet the requirement of the new regulations and some online management. So I don't want to change my guidance of the long-term margin. And -- yeah, for the three new regulations, yeah, there's maybe some -- the -- incremental rental or the future cost. For example, for -- within the new regulation, all the future for Chinese Math, English, Physics, Chemistry and Biology courses, the teachers need to have the teaching qualification. And based on our statistics, 50% of our teachers have the qualifications. I think the reason that the other half, they don't have the qualifications is because historically we pushed all the teachers to take the exam, but in some province, the government need to the teachers take exams in their birthplace. It's really hard for us, for our teachers to take the exams. But now, almost all the cities have changed, make the reform of the exams. So if New Oriental gave the working certificate to the government, they will allow us -- our teachers to attend the test. So in the coming new tests, almost all the -- our teachers with our license will attend tests. And we believe the pass rate will be very high. Okay? But I can't say 100% of our teachers will get the license. So if, I said if some teachers cannot get the license, we will move them from the teacher position to the teaching assistant position or we will change some teachers. There might be some incremental costs. Okay? But we do believe we have the high level of the whole industry to meet the government requirements. Okay. Thanks, Andrew. Is it clear?
Andrew Orchard -- Nomura -- Analyst
Yeah. Thanks a lot.
Zhihui Yang -- Chief Financial Officer
Okay, thanks.
Operator
Your next question comes from the line of Edwin Chen from UBS. Please ask your question.
Edwin Chen -- UBS -- Analyst
Hey, Stephen, Sisi, thank you for taking the call, taking the question. So just one quick question. What growth for online in the first quarter and our guidance for online growth in the rest of the year? And also, you mentioned that in the first quarter, we spent some -- I forgot the number, investment online, but I think it's mostly on G&A. Do we have a budget for the rest of the year or each of the quarter how much we plan to spend online on G&A and maybe on selling and marketing expenses to drive that online growth case? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. As for the Koolearn, we have already filed the A-1 in the Hong Kong market, so we can't disclose the numbers. Sorry -- I'm sorry, I won't. And as for the margin impact, I think we will continuously invest in the online and other businesses going forward. So it's still a margin drag, but I don't think -- in the rest of the year, I don't think we will suffer from the same level of the negative impacts as the Q1. So the -- you'll seem them, the margin will balance out in the rest of the year. Okay? But as I said, this year is the margin pressure year, but we do believe the margin expansion in the coming new year, in fiscal year '20 or the year after. Okay? Thanks.
Edwin Chen -- UBS -- Analyst
Considering the online expansion, right? So lower margin?
Zhihui Yang -- Chief Financial Officer
Yeah. So it's still a margin drag because we will spend money. But as online business is not a poor business, it's worthy to spend more money to acquire new customers. Okay? It's a huge market.
Edwin Chen -- UBS -- Analyst
Yeah.
Zhihui Yang -- Chief Financial Officer
Okay?
Edwin Chen -- UBS -- Analyst
And also, could you remind me the utilization and the retention rates for K-12 business in the first quarter, please?
Zhihui Yang -- Chief Financial Officer
Okay. The utilization rate was down by 50 bps in the Q1 year-over-year because the learning center opening in the last two to three quarters. And -- but we do believe the utilization rates would -- get improvements in the future. And the retention rates, the POP Kids is close to 90% the retention rate, it's still getting higher and U-Can 75% the retention rate. Okay?
Edwin Chen -- UBS -- Analyst
Okay, thank you.
Zhihui Yang -- Chief Financial Officer
Thanks.
Operator
There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.
Zhihui Yang -- Chief Financial Officer
Okay. Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any other Investor Relations representatives. Thanks again. Thanks.
Operator
Ladies and gentlemen, that does conclude the conference for today. Thank you for participating. You may all disconnect.
Duration: 59 minutes
Call participants:
Sisi Zhao -- Investor Relations Director
Zhihui Yang -- Chief Financial Officer
Jin Yoon -- Newstreet Research -- Analyst
Natalie Wu -- CICC -- Analyst
Thomas Chong -- Credit Suisse -- Analyst
Tian Hou -- TH Capital -- Analyst
Mark Li -- Citi -- Analyst
Mariana Kou -- CLSA -- Analyst
Lucy Yu -- Bank of America Merrill Lynch -- Analyst
John Choi -- Daiwa -- Analyst
Johnny Wong -- Jefferies -- Analyst
Eric Wen -- Blue Lotus -- Analyst
Julia Pan -- UOB -- Analyst
Andrew Orchard -- Nomura -- Analyst
Edwin Chen -- UBS -- Analyst
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