Press Release

BEIJING, April 21, 2015 /PRNewswire/ -- New Oriental Education and Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU), the largest provider of private educational services in China, today announced its unaudited financial results for the fiscal quarter ended February 28, 2015, which is the third quarter of New Oriental's fiscal year 2015.   

Financial Highlights for the Third Fiscal Quarter Ended February 28, 2015

• Total net revenues increased by 13.1% year-over-year to US$287.7 million for the third fiscal quarter of 2015. Total net revenues would have increased 14.6% if including US$3.7 million of temporarily deferred revenue resulting from the Company's new customer loyalty programs[1].
• Income from operations increased by 2.4% year-over-year to US$31.4 million for the third fiscal quarter of 2015. Income from operations would have been approximately US$35.1 million if not for the accounting effects of the Company's new customer loyalty programs.
• Net income attributable to New Oriental decreased by 2.6% year-over-year to US$41.0 million for the third fiscal quarter of 2015.

Key Financial Results

Operating Highlights for the Third Fiscal Quarter Ended February 28, 2015

• Total student enrollments in academic subjects tutoring and test preparation courses increased slightly to 603,000 for the third fiscal quarter of 2015.
• The total number of schools and learning centers was 722 as of February 28, 2015, an increase of 22 compared to 700 as of February 28, 2014, and an increase of 9 compared to 713 as of November 30, 2014. New Oriental built a net of 6 learning centers in the quarter. In addition, the Company acquired a kindergarten chain, which has 3 schools in the city of Qingdao. The total number of schools increased to 60 and the total number of learning centers to 662 as of February 28, 2015.

Michael Minhong Yu, New Oriental's Chairman and Chief Executive Officer, commented, "We are pleased to report solid results for the third quarter with sustained top-line growth of 13.1%.  Revenue growth would have been as high as 14.6% if including temporarily deferred revenue resulting from our customer loyalty programs launched in the second quarter of 2015. Strong momentum continued in our K-12 after-school tutoring business with year-over-year gross revenue growth of approximately 22% to US$143 million, contributing to almost half of our revenues.  Our U-Can middle and high school all-subjects after-school tutoring business recorded gross revenue growth of approximately 29%.  Of particular importance, since its nationwide roll-out in the second quarter, our revamped POP Kids program has begun a noteworthy turnaround with gross revenue growth of about 7% and enrollment growth of 16%, reversing previous declines. We expect this program's positive performance to accelerate as the new offerings have been well received by both our students and the market.  Total enrollments for the third quarter were flat year-over-year but mainly due to the timing of Chinese New Year in 2015.  The holiday occurred later this year, delaying enrollments for Spring classes and resulting in a shift to the fourth quarter.  In the first six weeks of the fourth quarter there have been a significant 35.8% uplift in enrollments and a 43% increase in cash receipts versus the same period last year. Looking at the aggregated third fiscal quarter and first six weeks of fourth quarter will be most accurate to understand the business trend."

Mr. Yu continued, "During the third quarter we also made encouraging progress in executing our "Optimize the Market" strategy. To further penetrate into the existing markets, we added a net of six learning centers and expanded some existing learning centers by adding a total of over 2,500 square meters of additional classroom area. Further, we made solid progress in building our online and offline integrated education ecosystem. We are rolling out the O2O Two-way Interactive Education System for our K-12 after-school tutoring program in most of our existing cities.  Also, our online business continued to expand rapidly as evidenced by revenue growth of approximately 39% in koolearn.com, our pure online education platform, as well as registered users growth of more than 200% and paid users growth of more than 110%."

Stephen Zhihui Yang, New Oriental's Chief Financial Officer, commented, "As mentioned previously, fiscal 2015 is an important investment year.  During the third quarter we continued to allocate capital to the development of digitalized educational content and supplementary online education products and services for all business lines, and as a result our operating margin and net margin have been facing short term pressure as expected.  However, we are very confident that these efforts will further differentiate New Oriental in a competitive market and it will allow our student customers access to fresh, new online offerings, greater efficiencies and a better overall learning experience.  This is essential to our continuous effort to create long-term growth and sustainable profitability for our shareholders."

Recent Developments

In a separate press release issued today the Company announced a transition in the role of Chief Financial Officer.  Mr. Stephen Zhihui Yang, the current Vice President of Finance who has been with the Company since 2006, will be promoted to Chief Financial Officer, effective April 21, 2015. Mr. Louis T. Hsieh, the current Chief Financial Officer, will remain as the Company's President overseeing overall corporate strategy and business development and will continue to serve as a member of the board of directors. The Company expects a smooth transition as Mr. Hsieh and Mr. Yang have worked together for more than nine years in their current roles.

Completion of Share Repurchase Program

In July 2014, New Oriental's board of directors authorized the repurchase of up to US$120 million of the Company's common shares during the period from July 28, 2014 through March 31, 2015. The share repurchase program has now been completed. As of March 31, 2015, the Company has repurchased 2,800,849 ADSs, each representing one common share of the Company, in the open market, at an average price of US$21.2 per ADS, for an aggregate consideration of US$59.4 million.

Financial Results for the Third Fiscal Quarter Ended February 28, 2015

Net Revenues

For the third fiscal quarter of 2015, New Oriental reported net revenues of US$287.7 million, representing a 13.1% increase year-over-year. Net revenues from educational programs and services for the third fiscal quarter were US$262.0 million, representing a 14.8% increase year-over-year. The growth was mainly driven by increases in student enrollments in K-12 after-school tutoring courses and in average selling price of test preparation courses.

Total student enrollments in academic subjects tutoring and test preparation courses in the third fiscal quarter of 2015 increased slightly to approximately 603,000.

Operating Costs and Expenses

Operating costs and expenses for the quarter were US$256.3 million, representing a 14.6% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were US$251.9 million, representing a 15.3% increase year-over-year.

• Cost of revenues increased by 17.0% year-over-year to US$126.1 million, primarily due to increases in teachers' compensation for more teaching hours.
• Selling and marketing expenses increased by 10.0 % year-over-year to US$41.7 million, primarily due to an increase in selling and marketing staff's compensation.
• General and administrative expenses for the quarter increased by 13.4% year-over-year to US$88.5 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were US$84.2 million, representing a 15.8% increase year-over-year, primarily due to increases 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 costs and expenses, decreased by 16.7% to US$4.5 million in the third fiscal quarter of 2015.

Operating Income and Operating Margin

Income from operations was US$31.4 million, a 2.4% increase from US$30.7 million in the same period of the prior fiscal year. Non-GAAP income from operations for the quarter was US$35.9 million, a 0.4% decrease from US$36.0 million in the same period of the prior fiscal year.

Operating margin for the quarter was 10.9%, compared to 12.0% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 12.5%, compared to 14.2% in the same period of the prior fiscal year.

Net Income and EPS

Net income attributable to New Oriental for the quarter was US$41.0 million, representing a 2.6% decrease from the same period of the prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were US$0.26 and US$0.26, respectively.

Non-GAAP Net Income and Non-GAAP EPS

Non-GAAP net income attributable to New Oriental for the quarter was US$45.4 million, representing a 4.2% decrease from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were US$0.29 and US$0.29, respectively.

Cash Flow

Net operating cash flow for the third fiscal quarter of 2015 was approximately US$64.7 million. Capital expenditures for the quarter were US$16.9 million, which were primarily attributable to the opening of 20 new learning centers and renovations at existing learning centers.

Balance Sheet

As of February 28, 2015, New Oriental had cash and cash equivalents of US$411.9 million, as compared to US$451.7 million as of November 30, 2014. In addition, the Company had US$64.4 million in term deposits, US$583.5 million in short-term investment and US$248.9 million in long-term held-to-maturity investments consisting of trusts guaranteed by a bank with the maturity date more than one year from the date of purchase as of February 28, 2015.

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 third quarter of fiscal year 2015 was US$424.9 million, an increase of 11.4% as compared to US$381.4 million at the end of the third quarter of fiscal year 2014.

Financial Results for the Nine Months Ended February 28, 2015

For the first nine months of fiscal year 2015, New Oriental reported net revenues of US$918.0 million, representing a 7.8% increase year-over-year.

Total student enrollments in academic subjects tutoring and test preparation courses in the first nine months of fiscal year 2015 increased by 1.2% to approximately 2,112,900.

Income from operations for the first nine months of fiscal year 2015 was US$128.9 million, representing a 22.7% decrease year-over-year. Non-GAAP income from operations for the first nine months of fiscal year 2015 was US$141.5 million, representing a 22.6% decrease year-over-year.

Operating margin for the first nine months of fiscal year 2015 was 14.0%, compared to 19.6% for the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses for the first nine months of fiscal year 2015, was 15.4%, compared to 21.5% for the same period of the prior fiscal year.

Net income attributable to New Oriental for the first nine months of fiscal year 2015 was US$155.7 million, representing a 9.9% decrease year-over-year. Basic and diluted net income per ADS attributable to New Oriental for the first nine months of fiscal year 2015 amounted to US$0.99 and US$0.99, respectively.

Non-GAAP net income attributable to New Oriental for the first nine months of fiscal year 2015 was US$168.3 million, representing a 10.9% decrease year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental for the first nine months of fiscal year 2015 amounted to US$1.07 and US$1.06, respectively.

Outlook for Fourth Quarter of Fiscal Year 2015

New Oriental expects total net revenues in the fourth quarter of fiscal year 2015 (March 1, 2015 to May 31, 2015) to be in the range of US$322.0 million to US$333.5 million, representing year-over-year growth in the range of 12% to 16%.

If not including the deduction of approximately US$5 million revenue that will be deferred resulting from the Company's customer loyalty programs, the projected revenue growth rate is expected to be in the range of 14% to 18% for the fourth quarter of fiscal year 2015.

This forecast reflects New Oriental's current and preliminary view, which is subject to change.

Conference Call Information

New Oriental's management will host an earnings conference call at 8 AM on April 21, 2015, U.S. Eastern Time (8 PM on April 21, 2015, Beijing/Hong Kong Time).

Dial-in details for the earnings conference call are as follows:

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 April 29, 2015:

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 one common share, 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 the fourth quarter of fiscal year 2015, 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 reports filed or furnished to the U.S. Securities and Exchange Commission, in its annual reports 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 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; Chinese governmental policies relating to private educational services and providers of such services; health epidemics and other outbreaks in China; and general economic conditions in China. Further information regarding these and other risks is included in our annual report on Form 20-F 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 the date of this press release, 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, operating income excluding share-based compensation expenses, operating costs and expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, operating margin excluding share-based compensation expenses, and basic and diluted net income per ADS and per share 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 tables 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 compensation expenses that may not be indicative of its operating performance from a cash perspective. New Oriental believes that both management and investors benefit from referring to 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 these non-GAAP measures is that they 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.

Contacts

For investor and media inquiries, please contact:

In China:

Ms. Cara O'Brien
FTI Consulting
Tel:       +852-3768-4537
Email:    cara.obrien@fticonsulting.com

Ms. Sisi Zhao
New Oriental Education and Technology Group Inc.
Tel:       +86-10-6260-5568
Email:    zhaosisi@xdf.cn

 

 

 

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SOURCE New Oriental Education and Technology Group Inc.