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New Oriental Education & Technology Group Inc. (EDU 2.77%)
Q4Â 2020 Earnings Call
Jul 28, 2020, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good evening, and thank you for standing by for New Oriental's FY 2020 Fourth Quarter Results Earnings Conference Call. [Operator Instructions] After managements 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 like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao. Thank you. Please go ahead.
Sisi Zhao -- Investor Relations Director
Thank you. Hello, everyone, and welcome to New Oriental's fourth fiscal quarter 2020 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. Yang. Stephen, please go ahead.
Zhihui Yang -- Chief Financial Officer
Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. Despite the outbreak of COVID-19 pandemics starting from March posted continuing pressure on all business across the globe, including ours. We are pleased to report a set of financial results in the fourth fiscal quarter of this fiscal year, that is in line with our expectation. Total net revenue was $798.5 million, a slight difference of 5.3% in dollar term, or 1% in RMB term.
A mix of results amounted to various business line were reported, which I will elaborate each of them shortly. Total student enrollments in academic subjects tutoring and test prep courses in the fourth quarter of fiscal year 2020 decreased by 6.2% year-over-year to approximately 2,585,600. The lower than normal increase in the number of student enrollments is primarily due to the outbreak of the COVID-19, which has made new customer acquisition in quarter much more challenging. While the enrollment for the summer and autumn classes have also been delayed.
In terms of the bottom line performance, for the entire fiscal year of 2020, we managed to deliver expansion of the non-GAAP operating margin of 70 basis points year-over-year to 12.9% compared to 12.2% for the prior fiscal year. However, for the fourth quarter of 2020, due to the negative impacts from pandemic, our top line performance, and the increased spending from operating free classes to promote our Koolearn's K-12 large classes with the aim of taking more market share, our gross margin recorded for the quarter was 51%, down 500 basis points year-over-year.
Our non-GAAP operating margin for quarter was 4.1%, down 810 basis points year-over-year and non-GAAP net margin for the quarter was 6.1%, down by 520 basis points year-over-year. In order to minimize the negative impacts caused by COVID-19 pandemic to our bottom line, we actively adjusted our operational strategy and the made more efforts on cost control and reducing expenditures. Especially for business lines facing bigger negative impacts in the near-term.
We believe that our continuous efforts will sustain us through the crises and hopefully that the adverse effects on our business from the pandemic will subside gradually. Per program blended ASP, which is cash revenue divided by total student enrollment decreased by 14.8% year-over-year in dollar terms as for hourly blended ASP, which is GAAP revenue divided by the total teaching hours decreased by approximately 3.5% year-over-year in RMB terms.
To provide the breakdown of the hourly blended ASP, please note that U-Can class increased by 0.2%. U-Can VIP classes increased by 3.5%, POP Kids increased by 6.4% and overseas test prep programs increased by 16.1%, all year-over-year in RMB terms. Comparing with the normal pricing increase of 5% to 8%, this quarter's hourly blended ASP decrease was lower than normal level mainly because of the bigger decline of the overseas test prep program and U-Can VIP personalized classes business, which hourly blended ASP are much higher than the other programs as well as the the usage of the coupons as we provided to the customer to support the migration from offline class to online OMO class during the winter.
Now I would like to spend some time to talk about fourth quarter performance across our individual business line in detail. Amid this unprecedented period, we see a mix of the results among each of the business line. Our key revenue driver, K-12 after-school tutoring business achieved year-over-year revenue growth of approximately 4% in dollar terms, or 8% in RMB terms.
Breaking down, the U-Can middle school/high school all-subjects after-school tutoring business recorded revenue increase of approximately 1% in dollar terms, or 5% in RMB terms for the quarter. Student enrollments grew approximately at 0.1% year-over-year for the quarter. Excluding VIP one-on-one business, U-Can's small class business grew by approximately 15% in dollars terms, or 20% if measured in RMB.
Our POP Kids program delivered outstanding results with revenue up by about 10% in dollar terms, or 14% in RMB terms for the quarter. Enrollment decreased by 9% for the quarter, though as the outbreak of the COVID-19 has caused the challenges on acquiring new customer in the quarter, while the enrollment for the summer autumn classes had been delayed.
Our overseas test prep -- overseas-related business including test prep and consulting business, faced the most difficult challenges due to the cancellation for overseas exams, suspension of the overseas schools and restriction on travels. The overseas test prep business revenue declined by approximately 52% in dollar terms, or 50% if measured in RMB. However, despite the challenges, the consulting business grew by approximately 6% in dollars terms, or 11% in RMB terms.
And finally, VIP personalized classes business recorded revenue decline of about 36% year-over-year in dollar terms, or 44% in RMB terms year-over-year for the quarter. Our summer promotion strategy also delivered outstanding results. We offered low-price experimental courses for multiple subjects in total of about 69 cities, targeting entry grades of primary and secondary school students customers before they start this new school year.
The promotion price is similar to last year at around RMB400. Even though we launched the summer promotion campaign almost one month later than we did last year due to the pandemic situation. This summer promotion remains very well received by the market. We are pleased to see that the promotion enrollment we brought in before the start of the summer holiday by mid-July this year achieved a 20% increase comparing the same period of last year, reaching 986,000 enrollments.
The encouraging results have proven that such sound and highly profitable strategy enable us to capture and increase our market share in high growth K-12 after-school tutoring market, also puts us in a more favorable position during this market consolidation period. As certain players may lack financial or digital capabilities to sustain their operation during this challenging times.
As these students move to the higher grades, we expect the continued improvements in retention rates and customer loyalty will drive revenue growth in the next three to six years. We'll continue to be guided by our optimized market strategy in this quarter and carried out capacity expansion in cities where we see potential for rapid growth and strong profitability.
This quarter, we added a net of 44 learning centers in existing cities, opened a new training school in the city of Weihai, as well as four dual-teacher model schools in the city of Hubei, Xingtai, Zhumadian and Xuchang. All together, this increase the total square meter of classroom area by approximately 26% year-over-year, 5% quarter-over-quarter by the end of this quarter. Despite such challenging times. we didn't put our expansion plan on hold as we wanted to ensure that we are fully prepared when the pandemic is over. And our service will resume with strong presence across different Chinese cities.
As outbreak of COVID-19 has highlighted the importance and demand of the online education, we have placed more resources in these area and invested $36 million in the quarter to improve and maintain our OMO integrated education ecosystem. The investments also supported to be migration of our offline class to small size online class during the pandemic. Apart from the OMO infrastructure, we have allocate part of the resources in advance to the training programs for our teachers to enhance their online and offline integrated teaching skills in response to be growing demand in the market.
At the same time we continue to upgrade our technology platforms and will broaden the usage of the online tools and contents in our OMO system for all business line through the whole network, as well as further develop the best teaching content and courseware to cater on online/offline integrated educational methods. We are glad to see that our industry leading OMO ecosystem has now only successfully managed to cushion most of the impact our service and operation caused by the pandemic, but we also see the refund rate from the cancellations have been stabilized at a normal level as we entered into the spring semester.
While our customer retention rates from winter to spring semester and from spring to summer semester were trending higher than the same period last year. Which further demonstrated that our customer satisfaction and effectiveness of our online course through our OMO system.
To further tap into the huge market opportunity in online education, we continue to place in more resources in Koolearn in executing new initiatives in our K-12 online after-school tutoring business in fiscal year 2020. This includes content development, teachers recruiting and training, sales and marketing, R&D and other necessary cost expenses to drive the growth of the new online programs.
With these programs, we are able to reach out to more students in the low tier cities in an interactive and scalable approach. We believe this will help koolearn.com to gain new market share in the online education space and drive up top line growth. In the past quarter, koolearn see the large-scale market promotion by offering free large size online live broadcasting classes through public and attracts several times more traffic than normal time.
Koolearn also added a meaningful amount of customer service, representatives and marketing staff to support the new initiatives in K-12 tutoring. These moves have raised our standing on the marketing front, but we believe those are necessary and understandable measures as we found ourselves in an enduring pandemic situation.
The dual-teacher class model has been offered for POP Kids program in 48 existing cities, U-Can program in 29 existing cities and for both POP Kids and U-Can K-12 business in 10 new cities. We are glad to see the model has proven to be successful as there is an increased market penetration in those markets we have tapped into. We also saw improved customer retention and scalability. With these proven results, we will continue this strategy going forward.
Now, let me walk you through the other key financial details for the fourth quarter. Operating costs and expenses for the quarter was $788.2 million, representing a 2.9% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses were $765.9 million, representing a 3.5% increase year-over-year.
Cost of revenue increased by 5.3% year-over-year to $391.1 million, primarily due to increased teachers' compensation for more teaching hours and higher rental costs for the increased number of the schools and learning centers in operation.
Selling and marketing expenses increased by 11.4% year-over-year to $118.0 million, primarily due to the addition of a number of customer sales -- customer service representatives and marketing staff with the aim of capturing the new market opportunity during the pandemic, especially for the new initiatives in K-12 tutoring on our pure online education platform, Koolearn.com.
General and administrative expenses for the quarter decreased by 3.3% year-over-year to $279.2 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were $261.0 million, representing a 1.3% decrease year-over-year.
Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 13.5% to $22.3 million in the fourth quarter of fiscal year 2020.
Operating income was $10.3 million, an 86.7% decrease from $77 million in the same period of the prior fiscal year. Non-GAAP operating income for the quarter was $32.5 million, a 68.3% decrease from $102.7 million in the same period of the prior fiscal year. Operating margin for the quarter was 1.3%, compared to 9.1% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 4.1%, compared to 12.2% in the same period of the prior fiscal year.
Net income attributable to New Oriental for the quarter was $13.2 million, representing a 69.5% decrease from the same period of prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were $0.08 and $0.08, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $48.5 million, representing a 49% decrease from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were $0.31 and $0.30, respectively.
Net margin was 1.7%, compared to 5.1% in same period of prior fiscal year. Non-GAAP net margin for the quarter was 6.1%, compared to 11.3% in the same period of prior fiscal year.
Net operating cash flow for the fourth quarter of 2020 was approximately $108.5 million. Capital expenditures for the quarter were $89.7 million, which were primarily attributable to the opening of 73 facilities and renovations at existing learning centers.
Turning to a balance sheet. As of May 31, 2020, New Oriental had cash and cash equivalents of $915.1 million, compared to $1,414.2 million as of May 31, 2019. In addition, the Company had $284.8 million in term deposits and $2,318.3 million in short-term investments.
New Oriental's deferred revenue balance, which is cash collected from registered students for courses and recognized proportionally as revenue as the instructions are delivered, at the end of the fourth quarter of the fiscal year 2020 was $1,324.4 million, an increase of 1.8% from $1,301.1 million at the end of the fourth quarter of prior fiscal year.
We are now approaching to new fiscal year. Despite the continued challenge from the COVID-19 pandemic, I expect to be remain -- we're still optimistic toward the Company's business in the long run, and we'll continue to focus on following key areas.
First, we will continue to expand our offline business. We aim to add around 20% to 25% capacity, including new learning centers and expanding classroom area of some existing learning centers for K-12 business. We believe it will prepare us to further take more market share from other players post-COVID, as we believe some small players without strong financial position and online class capability may not be able to sustain its business during the hard period. And we expect the industry will undergo a wave of market consolidation upon the pandemic phase. The fact that we are a major player with the strong financial capacity and a fresh offline facility enable us to further strengthen our market-leading position and penetration.
Second, we will continue to leverage our investments into digital technologies as we introduce our OMO system in more offline language training and test offerings, especially for our K-12 business. The usage of the online tools and the contents in our OMO system for all business lines throughout the whole network will be enhanced. To uplift the whole OMO teaching experience, we will place more efforts in developing the best teaching content and courseware, and also developing more advanced training programs to our teachers.
For some who might not be very familiar with our OMO business model, allow me to spare a few minutes now to elaborate the four key OMO strategy we have in place. Number one, the online system is mainly used to supplement the offline classes we have in existing cities with a hybrid format. Number two, for the cities, we have presence but might not have enough learning centers to cater our -- all our customers, our OMO system enables us to reach out to more students and customers.
Number three, for some provinces, where we don't have centers in all of the cities, our OMO system allows to reach out to students of the surrounding existing cities. Number four, we offered a series of complimentary low-cost experimental online classes for people and students to experience our classes, hoping to attract new customers. Here, I have to highlight that all of this OMO products are supported by our offline classes. They supplement each other as the teaching content, courseware materials as well our teachers and technology development originated from our existing offline centers and resources.
We believe that the above-mentioned OMO initiatives will be one of our growth engines to increase our customer acquisition post-COVID and enabling us to capture the market consolidation opportunity. This revamped new business model will also accelerate our margin recovery in the rest of the year and further expand our long-term margin targets.
Furthermore, we will continuously invest in and implement new initiatives, including product -- content development, teachers we put in training, R&D as well as sales and marketing in K-12 after school tutoring business on our Koolearn.com.
Third, our top priority will remain as the focus on controlling costs and reducing expenditures across the Company to minimize the negative impact from the pandemic on our bottom line. We believe we will resume the expansion of overall non-GAAP operating margin year-over-year as COVID-19 subsides gradually. Here, I would like to stress that we have great confidence in the fundamentals of our business, which we believe will continue to remain strong. Although we are facing various short-term negative impacts from the pandemic and we have been increasing our investment in different strategy, we remain optimistic of the brighter prospective of our business and we believe our investments now will bring up fruitful returns in the long run.
We're certain that with New Oriental's leading brands, superior education products and systems and the best teaching resources, we have the ability to take further market share in China's huge after-school tutoring market and deliver long-term value for our customers and shareholders.
When looking on a near-term and our expectations for the next quarter, we have factored various considerations, including the one-month delay of national gaokao and zhongkao, the delayed enrollments for summer and autumn classes this year in many major cities and the shortening of the summer holiday in many major cities by one to two weeks. Summer courses in July and August will be trimmed down to three terms to four terms only, which will typically have four terms to five terms historically, as well as of the recent emergence of the COVID-19 cases in cities such as Beijing has delayed the resumption of both public schools and our tutoring schools in these areas.
Inevitably, all these and personal situation have caused a lower visibility of our business and performance data for the summer quarter. Hence, we take most conservative approach to make our forecast for Q1 '21. We expect total revenue to be in the range of $911.2 million to $953.5 million, representing a year-over-year decline in the range of 15% to 11% in dollar terms. If not taking into consideration of the impact of potential change in exchange rates between RMB and the U.S. dollar, the projected revenue decline rates is expected to be in the range of 14% to 10% for the first quarter of fiscal year 2021.
To provide a breakdown of the effects the topline growth for key business lines, K-12 all-subjects after-school tutoring business is expected to grow 3% to 7%, overseas test prep program is expected to decline 55% to 51% and overseas study consulting business is expected to decline 7% to 11% year-over-year in RMB terms.
We also expect the overseas-related business, including overseas test prep and consulting service, will continue to decline due to the pandemic around the globe, caused by the cancellation of the overseas exams and suspension of the overseas schools and the restriction on travel. The negative impact on those overseas-related business will affect the entire education, the overseas test preps related industry in China, not only New Oriental, and may last over the coming one or two quarters.
That said, in contrast, China's effective control of the pandemic situation has shed a more positive light on our business domestically. We're pleased to see that we have gradually resumed our offline operations in over 90% of cities that we are in, and vast majority students in these cities have successfully migrated back to our learning centers from our OMO online classes.
We have also seen a significant pick up in the year-over-year trend of student enrollment and cash proceeds from students in July this month for the summer quarter, which is positive sign of recovery.
To conclude, we're now taking all kinds of the operational actions to boost the enrollments and classroom utilization through summer and autumn semester and speed up recovery of business after the resumption of the schools and learning centers. We're confident that demand for after-school tutoring business will pick up gradually in the summer and in the rest of the fiscal year. I must mention that these expectations reflect New Oriental's current and preliminary view, which is subject to change.
At this point, I will take your questions. Operator, please open the call for these. Thank you.
Questions and Answers:
Operator
Thank you so much. [Operator Instructions] And our first question comes from the line of Binnie Wong from HSBC. Binnie, your line is now open.
Binnie Wong -- HSBC -- Analyst
Hi. Good evening, Stephen and Sisi. Thank you for taking my questions. So in terms of the revenue guidance, the outlook, it seems a little bi soft right? Can you help us to understand the assumptions behind? And then also, I think that we are talking about like the recovery is already ongoing. And I think that's a very interesting point as Stephen mentioned, since like last quarter call, that about the consolidation of the market. So, just want to see if there is any numbers that you can quantify as far on the industry side, say, I don't know, like number of centers or number of institutions or something right along the line to help us better to understand, whether, like, how much the consolidation has been progressing. Thank you so much.
Zhihui Yang -- Chief Financial Officer
Yeah. Thank you, Binnie. Yeah. Due to the lack of visibility of the performance data for the summer quarter, yeah, we're using the most conservative way to make the forecast of the Q1. I think there were several key reasons. Number one, we have the shortening like by one to two weeks in summer holiday. Typically, we have -- we had a four -- we had a five terms of the summer courses within the summer vacation -- one summer vacation, but now we only have 3.5 terms. And also, the gaokao and zhongkao were delayed by one month. So that means the enrollment window for the summer had to be postponed by at least one month.
And number two, the recent reemergence of the COVID-19 in Beijing and Hubei province, last week in Dalian and Urumqi. And I think they impact us again, but I must mention that the Beijing in the summer, I think is really hard for us to make the new -- to acquire the new student enrollment for the summer. So if you take out the Beijing, the impacts, all the other schools, the K-12 business will grow by 11%. So yeah.
And the last one is overseas test prep related business. All the exams are canceled and the students cannot travel and the volatile China, United States, the two countries relationships. So we will just wait. And, yeah, there is so many reasons. But I think we are confident about the future because so far 90% of the cities -- most of the students of the 90 cities we're in, went back to our learning centers. And we do believe we can take more market share from the consolidation potentially, because, yeah, we have seen a lot of small players disappear from the market.
I don't have the numbers, but, yeah, it is what it is. And that's why we opened 26% expansion last year in fiscal year '20, and we plan to open 20% to 25% new expansion in fiscal year '21. So I think this shows us the confidence to take more market share from the small players.
Sisi Zhao -- Investor Relations Director
Yeah. And I also want to add that the successful results by far for the summer promotion also indicated the potential opportunity to keep taking market share from smaller players that are facing much bigger challenges during the pandemic period than us. Our summer promotion increased, total volume increased by far is already 20% increase year-over-year. And it is very likely that when we finished the whole summer, the total enrollments will be even increased higher than that. So these are all indicators for the potential opportunity for a market consolidation for us.
Binnie Wong -- HSBC -- Analyst
Thank you, Sisi and Stephen. Just a quick follow-up. In terms of summer promotion course prices, how does it compare to last year as well?
Zhihui Yang -- Chief Financial Officer
Yeah. We've got 986,000 enrollments till mid-July, and it's close to 1 million. So that means we got 20% year-over-year growth and we keep the same price at RMB400 and we believe the retention rate will be higher than last year. So, we do hope we can get 5% higher of the retention rate after the summer promotion. So, we did a very good job, and we do believe that those new students we got from the summer promotion this year will stay with us for three or six more years.
Binnie Wong -- HSBC -- Analyst
Thank you. Thank you. That's very helpful. And I think the situation is quiet understandable too. Thank you.
Zhihui Yang -- Chief Financial Officer
Thank you, Binnie.
Operator
Thank you so much. As a reminder, we will take one question at a time from each caller. And your next question comes from the line of Jin Yoon from Newstreet Research. Your line is now open.
Jin K. Yoon -- Newstreet Research -- Analyst
Hey, good morning, good evening, everyone. Stephen, thanks -- Stephen and Sisi, thanks for taking my question. I guess my question has -- is related to your capacity expansion of 20% to 25%. With the guidance that you gave, some of these, I guess, segments that you're seeing underperformance in things like overseas test prep, have you moved capacity over from these underperforming, I guess, segments to your better-performing segments already?
And is the capacity expansion already accounting for the shift in capacity that you're potentially seeing in your classrooms already going from less performing to more performing type of classrooms? And so if -- I guess, the reason I ask that is that the cost of capacity expansion if it's net of a lot of this, I guess, shift in capacity already, should we expect the actual capacity spend, the cost of it to be materially less than what we've seen in the past? Thanks.
Zhihui Yang -- Chief Financial Officer
Yeah. We -- yeah, with some of the expansion plan that 20% to 25% in fiscal year '21, as we did is same as we did in last year. And, yeah, we do have the plan to make a shift of some non-performing learning center to close down or to move it from overseas test prep to K-12 business. But with all the numbers in, I think we will keep the same guidance of the expansion plan by 20% to 25% because we do believe post-COVID, we do have a lot of the market potential to take more market share from the small players and to fill with more students into the new learning centers. And even after the COVID-19 happens in January and February, after that in the last three or four months, we opened at nine -- were 10% new learning centers. I think we are quite ready prepared for the new market consolidation opportunity. Jin?
Jin K. Yoon -- Newstreet Research -- Analyst
Got it. Thanks, Stephen.
Zhihui Yang -- Chief Financial Officer
Thank you, Jin.
Operator
Thank you so much. And your next question comes from the line of Yuzhong Gao from CICC. Your line is now open.
Yuzhong Gao -- CICC -- Analyst
Hey, Stephen. Thanks for the opportunity. So I think I have a rather longer-term question. So imagine a situation, given the sustained COVID-19 threat, where maybe structurally higher -- the meaningful portion of the enrollment will be from online, either pure online form or OMO form, how do you think this will impact your margin profile on the long term? Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Yeah, I think this is a great question. I think, going forward, we care more -- we care both the online and he OMO. I think in terms of the revenue contribution, OMO class will be continued to be our primary business model. But we'll learn a lot from the from the pandemic and I think we started to bear fruit from the heavy investment in the last two years to three years of the OMO model.
And, yeah, as I said, we're seeing the highest retention rates and the customer satisfaction. And the student retention rates are higher than -- similar to last year. So, going forward, I think we will do more and more on our OMO systems. And the key is, the OMO system, that means we build the barrier actually higher for the whole industry. We have the most advanced OMO system. And going forward, I think the OMO system will bring us more student enrollments and it will drive the margins up by the new -- our new OMO model.
And the pure online Koolearn -- and the Koolearn is just only 4% to 5% of our total revenue, but in the last quarter we did very good summer promotion and also we started to spend more money, especially on the R&D and on the teachers' training and something like that, and we spent a little bit more money on marketing as well. But we do believe we can take more market share from -- even from the very heavy competition among the big players. But we do -- we will have a good future for the Koolearn. So, we have the two as the growth engine, OMO and the Koolearn, the pure online platform.
Yuzhong Gao -- CICC -- Analyst
Understood. Understood. Very helpful. Thank you.
Zhihui Yang -- Chief Financial Officer
Thank you.
Operator
Thank you so much. And your next question comes from the line of Mark Li from Citi. Mark, you may now now ask your question.
Mark Li -- Citi Research -- Analyst
Hi, Stephen, thanks for your sharing. I want a answer, for this quarter, we have seen like in the P&L, the gross margin is impacted by a few factors you mentioned like online revenue, and then also coupled with a higher selling expenses, etc., you were also saying the driver. May I know, in a short-term view, let's say, in the next few quarters, how would we think these drivers to move and how far like in the coming few years, more medium term, like which part of the P&L you think you have better upside improvement? Thanks.
Zhihui Yang -- Chief Financial Officer
Yeah. It is a hard time for -- especially for last quarter, for the Q4, and maybe in Q1, you saw our guidance. But we are doing the two things at the same time. Number one, we are focusing on the cost control, so -- and reduced the expenditures across the Company to minimize the negative impact of the COVID-19, so this is number one.
And number two, we do believe the revamped OMO model will accelerate our margin recovery in the rest of the year and further expand our margin profile going forward. So, as for the Q1 -- fiscal year '21, the Q1 margin, we believe the margin decline in Q1 will be narrowed down, compared to Q4 last year -- compared to this quarter. And we are confident that we will be able to deliver continued margin expansion after this pandemic is over.
For fiscal year '21, we expect the margin will be recovered in the second half of the year, especially. And long-term, we would want to change our guidance of mid-long-term margin guidance. The on-GAAP operating margin in the mid-long-term should be somewhere around 17%. But I must mention that with more and more OMO model we add into our learning centers, I do believe someday we will raise our mid-long-term margin guidance, because of the new model. Thank you, Mark.
Mark Li -- Citi Research -- Analyst
Okay. Thank you very much, Stephen.
Operator
Thank you so much. And your next question comes from the line of Felix Liu from UBS. Felix, your line is now open.
Felix Liu -- UBS Securities -- Analyst
Hi. Thank you, management, for taking my question. My question is the online side. Definitely, I'm very happy to see some positive progress there. So could you maybe share with us how well the traffic for Koolearn pertain into summer? And also for the online, I noticed that OMO model, as well as dual-teacher is penetrating fairly successfully into larger cities. So how would you balance that the DFUB brand, that Koolearn runs similar from -- on paper, similar business models? Thank you.
Zhihui Yang -- Chief Financial Officer
Yeah. During last quarter, Koolearn did large-scale market promotions by offering the free, large-sized online classes. And I think that we attracted several times more traffic than that of last year. But I'm afraid, I'm not seeing -- I think that -- I don't think I can see something in detail or numbers in detail of the Koolearn because they haven't got their result. But [Technical Issues] we do believe we did a very good job in last quarter of the promotion, after the COVID-19. And we spent more money on the R&D and the teacher's training side as well as some margins side. But I do believe we will -- I think, I do believe our Koolearn will get the healthy top -- the fat topline growth and provide the better-quality product to the students going forward.
Felix Liu -- UBS Securities -- Analyst
Thank you, Stephen. And also how would you balance the OMO with the DFUB going forward, let's say, from a longer-term perspective?
Zhihui Yang -- Chief Financial Officer
I think there is two ways we're using same time. Koolearn is 100% online, OK. And the OMO is to leverage offline resources to our online platform that help us to reach out to more students at once. But all the OMO classwork content and even the teachers are originated from our offline learning center and the schools. And so -- and I know even in some cities, maybe there might be like internal competition in the same city by the Koolearn and our OMO model. But I think, the market is huge enough, so we care more about picking more market share from others. So I do believe the cannibalization between the two parts will be very minimal. Okay, Felix?
Felix Liu -- UBS Securities -- Analyst
Okay. Thank you very much for the color. This is great. Thank you.
Zhihui Yang -- Chief Financial Officer
Thank you.
Operator
Thank you so much. And your next question comes from the line of Tian. X. Hou from T.H. Capital. Tian, your line is now open.
Tian. X. Hou -- T.H. Capital, LLC -- Analyst
Hi, Stephen and Sisi. Thank you for picking my questions. It's regarding the OMO. OMO is a very effective tool to deliver the courses in the area hard to reach or deliver the courses where we have this pandemic. So when we mix them together, and so what is the result -- what is the impact to the gross margin, I expect to be positive? And what is the impact on that? Also when students picking the class online and offline, and will there be a price difference for the online and offline? And also, we are entering into a new fiscal year, is the price going to be higher than last year? So that's the question. Thank you.
Zhihui Yang -- Chief Financial Officer
I think the OMO model will bring us more revenue compared to the traditional way, so this is number one. Number two, I think the OMO model -- I think the students and parents love the new OMO model. They think that the new model is -- probably is better than the traditional one. So, it drives the retention rate up and the learning center utilization rate up. So to some extent, we can save some classroom rentals. So it will drive the margin up going forward by the OMO model. And the second...
Tian. X. Hou -- T.H. Capital, LLC -- Analyst
Price.
Zhihui Yang -- Chief Financial Officer
On the price, we try the same for the OMO classes, or with the traditional offline classes. And we will use the same class strategy going forward. Yes, this quarter, the prices are a little worse because of the coupons, because of the one-on-one -- the one-one-one definitely impacted [Phonetic] ASP. But going forward, I think the hourly rates, our ASP will be increased by 5% to 8% at normal. So we will not change our price strategy going forward. It will be very stable.
Tian. X. Hou -- T.H. Capital, LLC -- Analyst
Oaky. Thank you, Stephen, yes.
Zhihui Yang -- Chief Financial Officer
Thank you.
Operator
Thank you so much. [Operator Instructions] And your next question comes from the line of Alex Xie from Credit Suisse. Alex, your line is now open.
Alex Xie -- Credit Suisse -- Analyst
Hi, Stephen. Thank you for taking my questions. So, firstly, a very quick question. You have shared the guidance for K-12 in next quarter will be about 3% to 7% growth. Then what about the difference between POP Kids and U-Can and U-Can VIP in your assumptions for the next quarter. And then also, secondly, if we assume the pandemic in Beijing and other cities were well controlled before the start of the next academic year, what is your expectations for the recovery pace of the K-12 business in the rest of the fiscal year? When do we expect the business to get into the normal growth rates in FY '21?
Zhihui Yang -- Chief Financial Officer
Yes, Alex, the revenue guidance in the coming Q1, as I said, we are using the most conservative way approach to make the forecast because of the uncertainty. And even within this week our where our enrollment window is still opening, OK. So is delayed by one to two months.
And the different business lines, the U-Can program, I think in Q1 in most conservative way the revenue growth will be to 7% to 8%. And I think the VIP business in Q1 should be recovered, should be better than we did in Q4 because I think the parents will push their kids to study more to make that up for the last quarter. And the POP Kids, I think the revenue growth will be somewhere around 5% to 6%. What I'm saying is in RMB term.
And the recovery pace, I think as I said, 90% of our cities -- our learning centers were reopened in less than one or two months and I think the trend will be better. And I do believe will do better, better in Q -- in step-by-step in fiscal year 2021.
And so -- I think yes, I just want to persuade your guide to be a little bit more patient. In the Q1, there are some -- like some uncertainty like the Beijing where the -- Beijing or Hubei province. But going forward, I do believe our K-12 business will be recovered step-by-step, especially for the Q2, Q3 and Q4.
Sisi Zhao -- Investor Relations Director
Yes, actually to share more details with you for the Q1 guidance, for K-12 because of the second round of newly identified COVID-19 cases in Beijing, put more pressure on the recovery of Beijing city. So, the new customer acquisition in Beijing are facing bigger challenges than other cities that have already resumed the offline operation. So if you take out Beijing, all the other cities K-12, if you look at our forecast in Q1, the trend -- year-over-year growth trend are similar to Q4. So, I think the business already started to recover for the K-12 business. Yes.
Zhihui Yang -- Chief Financial Officer
Yes. And I do believe our Beijing school will reopen our learning centers in September. Okay.
Alex Xie -- Credit Suisse -- Analyst
Sure. Thank you. Very helpful.
Zhihui Yang -- Chief Financial Officer
Thank you. Thank you very much.
Operator
Thank you so much. And your next question comes from the line of John Choi from Daiwa Capital Markets. John, your line is now open.
John Choi -- Daiwa Capital Markets -- Analyst
Hey, guys, thanks for taking my question. I have a quick question on your overseas business, including test prep and consulting. I know it is a very difficult time due to the uncertainty and also pandemic going globally, but do you think this the recent COVID situation will have impact like a -- more of a long-term fundamental impact on your overseas test prep business? Obviously, next quarter you guys guided a pretty conservative figure, but I'm just wondering for the remaining part of this year, and also in long-term how should we think about this business? Thank you.
Zhihui Yang -- Chief Financial Officer
Yes, the overseas test prep business, we saw the significant decline in Q4, and we gave the conservative guidance of the Q1 and because of the COVID-19 and cancellation of the exams, like TOEFL, GRE and IELTS and suspension of the overseas schools and the restriction on travel. But we have seen, in some cities like Beijing, and in eight to nine cities, the IELTS and TOEFL test will be reopening this month. We know we read this news and we do hope our overseas test prep business can be recovered, stuff like that. But it is a very hard time because of the volatile, the China and United States relationship between the two countries. So some students and parents choose to hold the time to make the final decision to study abroad or not.
So, yes. But I do believe our business can be recovered step-by-step. It depends on the students in China knows the exam -- exact time of the overseas college and universities will be reopened and all the exams can be reopened, something like that. And yes, but it is a hard time, we have to wait and see. Okay. Thank you.
See, one more thing, the overseas test prep business, I think in the Q4, the revenue contribution of the overseas test preps was only 5.6%. And so we do believe because of the hard time, the revenue contribution in the Q1 from the overseas test prep should below 10%. So the revenue contribution from the overseas test prep will be smaller and smaller. Thank you.
Operator
Thank you so much. And your next question comes from the line of Sheng Zhong from Morgan Stanley. Your line is now open.
Sheng Zhong -- Morgan Stanley -- Analyst
Hi, thank you for taking my question. Just one question about the K-12 growth. As you mentioned, the trends outside Beijing is similar with -- in Q1 is similar with Q4, but actually, the summer holiday is shortened and the period is only about 70% of the normal summer holidays if they take this into account. So can we say that in the summer holiday the K-12 will grow in -- during the summer season is actually high teens to -- mid to high teens. Thank you.
Zhihui Yang -- Chief Financial Officer
To some extent, in pro forma basis, because, yeah, you are correct, Zhong Sheng, we have the 30% time loss of this summer holiday. And as for the pro forma basis, I think the topline growth of the K-12 business, the actual -- the real topline growth of the K-12 business should be over 10%. And I do believe in the quarters after like Q2 and Q3, Q4, I think -- I do believe the K-12 business -- the growth will go back to normal as we did in last year, unless the bad things come back again, like the COVID-19, in some major cities. Zhong Sheng?
Sheng Zhong -- Morgan Stanley -- Analyst
Thank you very much.
Zhihui Yang -- Chief Financial Officer
Thank you, Zhong Sheng.
Operator
Thank you so much. And your next question comes from the line of DS Kim from J.P. Morgan. Your line is now open.
DS Kim -- J.P. Morgan -- Analyst
Hi. Thank you, Stephen and Sisi for taking my question. Quick one from me on VIP only. I think I may have missed this all year, but can you remind us how much did the VIP revenue dropped in fourth quarter in dollar term or RMB, unless implied in the guidance? And the follow-up from here would be that I'm just wondering why this segment is so bad into the summer still. Is this just a function of high price and like people are reluctant to convert to online or spending less because less cash pools and what not or is there anything else more structural i.e., how much of this VIP drag is structured in your view versus temporary and cyclical setback? Thank you.
Zhihui Yang -- Chief Financial Officer
Yeah. The VIP business -- the U-Can VIP business in Q4 was down by 21% year-over-year. I think it's easy to understand the parents and the kids toward -- they paid you a lot of money and we moved the offline class to online, and some students choose to postpone their study plan by one-on-one business in Q4. But in the Q1, based on our forecast, I think the one-on-one business recovered very quickly, especially after -- especially in June, we have seen a lot of new student enrollments enroll to our VIP classes to prepare for the gaokao and zhongkao. So, I do believe the VIP business will be recovered step-by-step.
DS Kim -- J.P. Morgan -- Analyst
Thank you. May I just follow-up? How much of the VIP -- so when you say recovery, are we talking about year-over-year growth or still down but much less than what we thought...
Zhihui Yang -- Chief Financial Officer
Year-over-year growth. I don't believe we will get the U-Can VIP business grow in the coming Q1. Year-over-year.
DS Kim -- J.P. Morgan -- Analyst
Thank you very much. That answers my all-year question that downturn is more temporary and cyclical than structural. Thank you.
Zhihui Yang -- Chief Financial Officer
Okay. Thank you.
Operator
Thank you so much. And your next question comes from the line of Alex Liu from China Renaissance. Alex, your line is now open.
Alex Liu -- China Renaissance Securities -- Analyst
Thanks, Sisi and Stephen. So, my first question is on the OMO strategy. Specifically, I noticed some small cost courses in fall semester are now 100% online. So, we obviously know TAL has a pure online business within its K-12 segments. So I was just wondering -- so when we are talking about OMO, how should we think about the importance of pure online small class program within U-Can and POP Kids in the longer term? And a quick follow-up, how should we think about the revenue growth across different segments in the fiscal years 2021? Thank you.
Zhihui Yang -- Chief Financial Officer
Yeah. The pure online is -- Koolearn is a pure online platform, but OMO is the more supplemental tool to our offline business, but yeah, you are right. In the last quarter, in the Q4, we moved 100% of the offline class to online, but afterwards 90% of our students went back to our offline learning centers. And -- but we pull more and more -- we will keep some, like the online elements, going forward. And so, yeah, as I said, both the pure online and the OMO site, although the market is huge enough for both part of the potential growth. And as a fact, I think the competition -- internal competition will be very small. And so, yeah -- what's the second question?
Alex Liu -- China Renaissance Securities -- Analyst
Yeah. So the revenue growth in 2021 across different segments.
Zhihui Yang -- Chief Financial Officer
I think this time is very special. And even for the Q1 guidance. we spent a lot of time. And as I said, we are still in the student enrollment window in this week and next week. So, I will put the question to the next quarter's earnings call. But I do believe our business will be recovered step-by-step, especially for the -- since the Q2, and I think the old business will be recovered as normal.
Alex Liu -- China Renaissance Securities -- Analyst
Yeah, I understand. Thank you very much.
Zhihui Yang -- Chief Financial Officer
Thank you, Alex.
Operator
Thank you so much. And your next question comes from the line of Tommy Wong from China Merchants Securities. Tommy, your line is now open.
Tommy Wong -- China Merchants Securities (HK) Co., Ltd -- Analyst
Okay. Thank you. Hi, Stephen and Sisi. I just have a general question. If you look at the overall market, we can see a lot of the online players, like TAL and GSX, their share prices went really, really well. And when I look from your selling expenses, it seems it has not really increased a lot. I was kind of expecting it to increase a little bit for the fourth quarter, but it actually hasn't increased. I'm kind of concerned are we not being aggressive enough and maybe if you can talk about your sales and marketing kind of breakdown between the OMO versus Koolearn and what's your strategy going forward? I'm just kind of concerned that we are not being aggressive. Thank you.
Zhihui Yang -- Chief Financial Officer
Yeah. I think we spent a little bit more money on the Koolearn.com in last quarter. We did the first -- I think we did the first time the free course for the large size class in the spring semester, but as a fact in the last several -- last earnings call, we don't want to spend crazy money on margin side. We would rather spend more money on the R&D and teachers' training and some, like the core product developments. And -- but yeah, I know there are some players spend a lot of money on the marketing side, but I think the market is huge enough. And we are special because we have the number one education brand name in China. And I think the Koolearn can benefit from the -- our New Oriental brand name to acquire the new student enrollment. This is very unique.
Tommy Wong -- China Merchants Securities (HK) Co., Ltd -- Analyst
Okay. Thank you.
Zhihui Yang -- Chief Financial Officer
And also our Koolearn.com, we have DFUB, the small size online broadcasting classes. These are very special. And I think we are one of the few players who can do these small size pure online classes. And now I think the business model does works and we testified in the last two years to three years, and it grows very fast. And yeah, that's it. Is it clear?
Tommy Wong -- China Merchants Securities (HK) Co., Ltd -- Analyst
Thank you.
Zhihui Yang -- Chief Financial Officer
Thank you very much.
Operator
Thank you so much. We are now approaching the end of the conference call. I will now turn the call over to New Oriental's CFO, Mr. Stephen Yang, for his closing remarks.
Zhihui Yang -- Chief Financial Officer
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.
Duration: 68 minutes
Call participants:
Sisi Zhao -- Investor Relations Director
Zhihui Yang -- Chief Financial Officer
Binnie Wong -- HSBC -- Analyst
Jin K. Yoon -- Newstreet Research -- Analyst
Yuzhong Gao -- CICC -- Analyst
Mark Li -- Citi Research -- Analyst
Felix Liu -- UBS Securities -- Analyst
Tian. X. Hou -- T.H. Capital, LLC -- Analyst
Alex Xie -- Credit Suisse -- Analyst
John Choi -- Daiwa Capital Markets -- Analyst
Sheng Zhong -- Morgan Stanley -- Analyst
DS Kim -- J.P. Morgan -- Analyst
Alex Liu -- China Renaissance Securities -- Analyst
Tommy Wong -- China Merchants Securities (HK) Co., Ltd -- Analyst
