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New Oriental Announces Results for the Second Fiscal Quarter Ended November 30, 2007
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Highlights for the Fiscal Quarter Ended November 30, 2007
-- Total net revenues increased by 42.4% year-over-year to RMB240.6
million (US$32.6 million) from RMB169.0 million in the same period of
the prior fiscal year.
-- Net income increased by 77.0% year-over-year to RMB14.5 million
(US$2.0 million) from RMB8.2 million in the same period of the prior
fiscal year, and net income attributable to holders of common shares
excluding share-based compensation expenses (non-GAAP) increased by
83.6% year-over-year to RMB29.8 million (US$4.0 million) from RMB16.2
million in the second quarter of fiscal year 2007.
-- Basic and diluted earnings per ADS were RMB0.39 (US$0.05) and RMB0.37
(US$0.05), respectively. Basic and diluted earnings per ADS excluding
share-based compensation expenses (non-GAAP) were RMB0.79 (US$0.11) and
RMB0.76 (US$0.10), respectively. Each ADS represents four common
shares of the Company.
-- Total student enrollments in language training and test preparation
courses increased by 18.5% year-over-year to approximately 257,700 from
approximately 217,500 in the same period of the prior fiscal year.
-- Opened 1 new school, our first private kindergarten in Beijing, and 14
new learning centers in the quarter, bringing the total number of
schools and learning centers to 38 and 164 (including the 38 schools),
respectively, as of the November 30, 2007, up from 37 schools and 149
learning centers (including the 37 schools) as of August 31, 2007,
respectively.
"During the second quarter of fiscal year 2008, we experienced continued strong growth in our student enrollments and net revenues, enabling us to beat our top line guidance," said Michael Yu, New Oriental's Chairman and Chief Executive Officer. "Furthermore, we continue to execute on our strategy of leveraging our leading brand name to enter new areas for growth by establishing our pre-school business with the opening of our first kindergarten in Beijing. To further enhance our content offerings in our educational programs and services, we reached an agreement with ETS to sell their TOEFL Practice Online in our training classes and through our bookstores. We also entered a partnership with Heinle ELT, a part of Cengage Learning, formerly Thomson Learning, to launch a line of custom learning materials tailored to our iEnglish brand conversational English language classes."
New Oriental's Chief Financial Officer, Louis T. Hsieh, stated, "During our second fiscal quarter, we continued our strategy of foregoing short term profit in favor of rapidly expanding our leading nationwide network by establishing 34 new schools and learning centers in the first half of our fiscal year 2008 compared to 19 new schools and learning centers for the entire fiscal year 2007. In order to staff our rapidly growing physical network, we have added over 900 teachers and other employees in the first half of our fiscal year 2008. In addition to increasing our G&A spending, primarily due to headcount increases, we also increased our marketing expenses in the quarter by approximately 50% year-over-year in order to drive strong student enrollment and revenue growth. We expect to continue benefiting from this rapid expansion strategy in the quarters and years to come. Given the vast potential for growth in China's private education market, we are confident that we are well-positioned to continue capturing this lucrative market opportunity."
Mr. Hsieh added, "We continue to see surging demand for our educational programs and services, and to the best of our knowledge, we have not as yet been adversely impacted by the economic slowdown and related events in the US, as almost all of our revenues are derived from the China market. We also continue to benefit from a strengthening RMB given that virtually all of our revenues are in RMB and are translated into US dollars for financial reporting convenience."
Mr. Hsieh noted that the second quarter of the Company's fiscal year is typically the slowest in terms of revenues as students are occupied with the beginning of the formal school year.
Financial Results for the Fiscal Quarter Ended November 30, 2007
For the second fiscal quarter of 2008, New Oriental reported net revenues of RMB240.6 million (US$32.6 million), representing a 42.4 % increase year- over-year.
Net revenues from educational programs and services for the second fiscal quarter were RMB209.5 million (US$28.4 million), representing a 37.9% increase year-over-year. The growth was mainly driven by the increase in the number of student enrollments in language training and test preparation courses. Total student enrollments in language training and test preparation courses in the second quarter of fiscal year 2008 increased by 18.5% year-over-year to approximately 257,700 from approximately 217,500 in the second quarter of fiscal year 2007.
Total operating costs and expenses for the quarter were RMB241.9 million (US$32.8 million), a 43.3% increase year-over-year.
Cost of revenues increased by 35.2% year-over-year to RMB116.1 million (US$15.7 million), primarily due to the increased number of courses being offered to a larger student base and the greater number of schools and learning centers in operation.
Selling and marketing expenses increased by 49.9% year-over-year to RMB38.1 million (US$5.2 million), primarily due to brand promotion expenses and headcount increase.
General and administrative expenses increased by 52.6% year-over-year to RMB87.7 million (US$11.9 million), primarily due to increased headcount as the Company expands its network of schools and learning centers.
Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased to RMB15.3 million (US$2.1 million) in the second quarter of fiscal year 2008.
Operating margin for the quarter was negative 0.5%, compared to 0.2% in the corresponding period of the previous year. Excluding share-based compensation expenses (non-GAAP), operating margin for the quarter was 5.8%, compared to 4.9% in the corresponding period of the prior year. This increase was primarily due to the improved operating efficiency as revenue growth outpaced the growth in operating costs and expenses.
Net income for the quarter was RMB14.5 million (US$2.0 million), representing a 77.0% increase from the second quarter of fiscal year 2007. Basic and diluted earnings per common share amounted to RMB0.10 (US$0.01) and RMB0.09 (US$0.01), respectively, and basic and diluted earnings per ADS were RMB0.39 (US$0.05) and RMB0.37 (US$0.05), respectively.
Income attributable to holders of common shares excluding share-based compensation expenses (non-GAAP) was RMB29.8 million (US$4.0 million). Basic and diluted earnings per ADS excluding share-based compensation expenses (non- GAAP) were RMB0.79 (US$0.11) and RMB0.76 (US$0.10), respectively.
Capital expenditures for the quarter were RMB12.3 million (US$1.7 million).
As of November 30, 2007, New Oriental had cash and cash equivalents of RMB1,824.8 million (US$247.1 million), as compared to RMB1,743.9 million as of August 31, 2007. Net operating cash flow for the second quarter of fiscal year 2008 was RMB63.9 million (US$8.6 million).
Financial Results for the Six Months Ended November 30, 2007
For the six months ended November 30, 2007, New Oriental reported net revenues of RMB852.6 million (US$115.4 million), representing a 42.5% increase year-over-year.
Total student enrollments in language training and test preparation courses in the six months ended November 30, 2007 increased by 25.8% year- over-year to approximately 698,200 from approximately 554,900 in the six months ended November 30, 2006.
Operating margin for the six months ended November 30, 2007 was 31.4%, compared to 30.2% for the six months ended November 30, 2006.
Net income for the six months ended November 30, 2007 was RMB270.5 million (US$36.6 million), representing a 56.1% increase year-over-year. Basic and diluted earnings per ADS for the six months ended November 30, 2007 amounted to RMB7.23 (US$0.98) and RMB6.91 (US$0.94), respectively.
Net income attributable to holders of common shares excluding share-based compensation expenses (non-GAAP) for the six months ended November 30, 2007 was RMB298.5 million (US$40.4 million), representing a 59.6% increase year- over-year. Basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) for the six months ended November 30, 2007 amounted to RMB7.98 (US$1.08) and RMB7.63 (US$1.03), respectively.
Outlook for Third Quarter of Fiscal Year 2008
New Oriental expects its total net revenues in the third quarter of fiscal year 2008 (December 1, 2007 to February 29, 2008) to be in the range of RMB311.2 million (US$42.1 million) to RMB326.5 million (US$44.2 million), representing year-over-year growth in the range of 22.0% to 28.0%, respectively. This forecast reflects New Oriental's current and preliminary view, which is subject to change. New Oriental's third fiscal quarter 2008 revenue growth rate will be especially challenging when compared to the third fiscal quarter of 2007 which showed year-over-year net revenue growth of 51.3%. The Company's third fiscal quarter 2007 benefited from the late timing of Chinese New Year in 2007 which fell in the third week of February 2007 allowing Chinese students an extended winter break and a longer period of time to take language training and test prep courses. This will not be the case in 2008 as Chinese New Year falls in the first week of February, a more typical date for the Lunar New Year holiday. In addition, many schools throughout China, including those in Beijing, have decided to shorten the 2008 winter break for students by one week or more in return for extending the 2008 summer recess by a corresponding length of time, in order to allow students time to study and enjoy the Olympic Games in Beijing this summer.
Conference Call Information
New Oriental's management will host an earnings conference call at 8 AM on January 15, 2008 U.S. Eastern Time (9 PM on January 15, 2008 Beijing/Hong Kong time).
Dial-in details for the earnings conference call are as follows:
US: +1-617-213-8849
Hong Kong: +852-3002-1672
Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is "New Oriental earnings call."
A replay of the conference call may be accessed by phone at the following number until January 22, 2008:
International: +1-617-801-6888
Passcode: 85473887
Additionally, a live and archived webcast of the conference call will be available at http://investor.neworiental.org .
About New Oriental
New Oriental is the largest provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence. New Oriental offers a wide range of educational programs, services and products consisting primarily of English and other foreign language training, test preparation courses for major admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education. New Oriental's ADSs, each of which represents four common shares, currently trade on the New York Stock Exchange under the symbol "EDU."
For more information about New Oriental, please visit http://english.neworiental.org .
Safe Harbor Statement
This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the outlook for third quarter of fiscal year 2008 and quotations from management in this announcement, as well as New Oriental's strategic and operational plans, contain forward-looking statements. New Oriental may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about New Oriental's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward- looking statement, including but not limited to the following: our growth strategies; our future business development, results of operations and financial condition; our ability to attract students without a significant decrease in course fees; our ability to continue to hire, train and retain qualified teachers; our ability to maintain and enhance our "New Oriental" brand; our ability to effectively and efficiently manage the expansion of our school network and successfully execute our growth strategy; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; competition in the private education sector in China; changes in our revenues and certain cost or expense items as a percentage of our revenues; the expected growth of the Chinese private education market; and Chinese governmental policies relating to private educational services and providers of such services. Further information regarding these and other risks is included in our registration statement on Form F-1 and other documents filed with the Securities and Exchange Commission. New Oriental does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of January 15, 2008, and New Oriental undertakes no duty to update such information, except as required under applicable law.
About Non-GAAP Financial Measures
To supplement New Oriental's consolidated financial results presented in accordance with GAAP, New Oriental uses the following measures defined as non- GAAP financial measures by the SEC: net income excluding share-based compensation expenses and basic and diluted earnings per ADS excluding share- based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.
New Oriental believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective. New Oriental believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to New Oriental's historical performance and liquidity. New Oriental computes its non-GAAP financial measures using the same consistent method from quarter to quarter. New Oriental believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP net income excluding share-based compensation expenses, and basic and diluted earnings per share and per ADS excluding share-based compensation expenses is that these non-GAAP measures exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.
(1) The Company's financial information is stated in RMB. The translation
of RMB amounts at and for the quarter ended November 30, 2007 into
United States dollar ("US$") is included solely for the convenience
of the readers and has been made at the rate of RMB7.3850 to US$1.00,
the approximate free rate of exchange at November 30, 2007. Such
translations should not be construed as representations that RMB
amounts could be converted into US$ at that rate or any other rate,
or to be the amounts that would have been reported under US GAAP.
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of November 30 As of August 31
2007 2007
(Unaudited) (Unaudited)
RMB USD RMB
ASSETS:
Current assets:
Cash and cash equivalents 1,824,801 247,096 1,743,898
Restricted cash 3,060 414 3,057
Term deposits 18,500 2,505 20,800
Accounts receivable, net 6,408 868 3,990
Inventory 56,642 7,670 57,258
Prepaid expenses and other current
assets 59,221 8,019 68,084
Total current assets 1,968,632 266,572 1,897,087
Property, plant and equipment, net 695,418 94,166 696,480
Land use right, net 24,626 3,335 24,765
Amounts due from related parties 578 78 244
Deferred tax assets 7,927 1,073 7,935
Trade mark 1,637 222 1,637
Long term investment 15 2 15
Total assets 2,698,833 365,448 2,628,163
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade 53,434 7,235 57,692
Accrued expenses and other current
liabilities 150,763 20,417 178,624
Income tax payable 34,501 4,672 38,793
Amount due to related parties 97 13 97
Deferred revenue 278,750 37,745 201,075
Total current liabilities 517,545 70,082 476,281
Total long-term liabilities -- -- --
Total liabilities 517,545 70,082 476,281
Minority interest 1,612 218 1,690
Total shareholders' equity 2,179,676 295,148 2,150,192
Total liabilities and shareholders'
equity 2,698,833 365,448 2,628,163
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share and per ADS amounts)
For the Three Months Ended November 30
2007 2006
(Unaudited) (Unaudited)
RMB USD RMB
Net Revenues:
Educational Programs and services 209,529 28,372 151,967
Books and others 31,087 4,210 17,062
Total net revenues 240,616 32,582 169,029
Operating costs and expenses (note 1):
Cost of revenues 116,140 15,726 85,903
Selling and marketing 38,076 5,156 25,409
General and administrative 87,673 11,872 57,456
Total operating costs and expenses 241,889 32,754 168,768
Operating income (loss) (1,273) (172) 261
Other income (expenses), net 16,982 2,299 8,085
Provision for income taxes (1,466) (199) (485)
Minority interest, net of taxes 297 40 356
Net Income 14,540 1,968 8,217
Net income per share-basic 0.10 0.01 0.06
Net income per share-diluted 0.09 0.01 0.06
Net income per ADS-basic (note 2) 0.39 0.05 0.23
Net income per ADS-diluted (note 2) 0.37 0.05 0.22
Notes:
Note 1: Share based compensation expenses (in thousands) are included in
the operating costs and expenses as follows:
For the Three Months
Ended November 30
2007 2006
Unaudited Unaudited
RMB USD RMB
Cost of revenues 2,438 330 209
Selling and marketing 504 68 118
General and administrative 12,334 1,670 7,698
Total 15,276 2,068 8,025
Note 2: Each ADS represents four common shares
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for per share and per ADS amounts)
For the Six Months Ended November 30
2007 2006
(Unaudited) (Unaudited)
RMB USD RMB
Net Revenues:
Educational Programs and services 787,746 106,668 563,881
Books and others 64,851 8,781 34,481
Total net revenues 852,597 115,449 598,362
Operating costs and expenses (note 1):
Cost of revenues 310,208 42,005 224,540
Selling and marketing 84,363 11,424 61,141
General and administrative 190,512 25,797 132,246
Total operating costs and expenses 585,083 79,226 417,927
Operating income (loss) 267,514 36,223 180,435
Other income (expenses), net 29,218 3,956 6,168
Provision for income taxes (26,832) (3,633) (13,683)
Minority interest, net of taxes 644 87 356
Net Income 270,544 36,633 173,276
Net income per share-basic 1.81 0.24 1.43
Net income per share-diluted 1.73 0.23 1.33
Net income per ADS-basic (note 2) 7.23 0.98 5.72
Net income per ADS-diluted (note 2) 6.91 0.94 5.31
Notes:
Note 1: Share based compensation expenses (in thousands) are included in
the operating costs and expenses as follows:
For the Six Months
Ended November 30
2007 2006
Unaudited Unaudited
RMB USD RMB
Cost of revenues 3,310 448 352
Selling and marketing 950 129 217
General and administrative 23,715 3,211 13,145
Total 27,975 3,788 13,714
Note 2: Each ADS represents four common shares
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
RECONCILIATION OF NON-GAAP MEASURES TO THE MOST
COMPARABLE GAAP MEASURES
(In thousands except share and per ADS amounts)
For the Three Months Ended November 30
2007 2006
(Unaudited) (Unaudited)
RMB USD RMB
Net income 14,540 1,968 8,217
Share-based compensation expense 15,276 2,068 8,025
Non-GAAP net income 29,816 4,036 16,242
Net income per ADS
- basic (note 1) 0.39 0.05 0.23
Net income per ADS
- diluted (note 1) 0.37 0.05 0.22
Non-GAAP net income per ADS
- basic (note 1) 0.79 0.11 0.46
Non-GAAP net income per ADS
- diluted (note 1) 0.76 0.10 0.44
Weighted average shares used
in calculating basic net
income per ADS (note 1) 150,163,711 150,163,711 142,603,785
Weighted average shares used
in calculating diluted net
income per ADS (note 1) 157,175,447 157,175,447 148,176,297
Note 1: Each ADS represents four common shares
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE GAAP MEASURES
(In thousands except share and per ADS amounts)
For the Six Months Ended November 30
2007 2006
(Unaudited) (Unaudited)
RMB USD RMB
Net income 270,544 36,633 173,276
Share-based compensation expense 27,975 3,788 13,714
Non-GAAP net income 298,519 40,421 186,990
Net income per ADS - basic (note 1) 7.23 0.98 5.72
Net income per ADS - diluted (note 1) 6.91 0.94 5.31
Non-GAAP net income per ADS - basic
(note 1) 7.98 1.08 6.17
Non-GAAP net income per ADS -
diluted (note 1) 7.63 1.03 5.73
Weighted average shares used in
calculating basic net income
per ADS (note 1) 149,669,791 149,669,791 121,185,489
Weighted average shares used in
calculating diluted net income
per ADS (note 1) 156,594,510 156,594,510 130,565,761
Note 1: Each ADS represents four common shares.
For investor and media inquiries, please contact:
In China:
Ms. Sisi Zhao
New Oriental Education and Technology Group Inc.
Tel: +86-10-6260-5566 x8203
Email: zhaosisi@staff.neworiental.org
Mr. Derek Mitchell
Ogilvy Public Relations Worldwide (Beijing)
Tel: +86-10-8520-6284
Email: derek.mitchell@ogilvy.com
In the United States:
Mr. Jeremy Bridgman
Ogilvy Public Relations Worldwide (New York)
Tel: +1-212-880-5363
Email: jeremy.bridgman@ogilvypr.com
SOURCE New Oriental Education and Technology Group Inc.
http://english.neworiental.org