New Oriental Announces Results for the First Fiscal Quarter Ended August 31, 2017
BEIJING, Oct. 24, 2017 /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 first fiscal quarter ended August 31, 2017, which is the first quarter of New Oriental's fiscal year 2018.
Financial Highlights for the First Fiscal Quarter Ended August 31, 2017
-- Total net revenues increased by 23.8% year-over-year to US$661.2 million
for the first fiscal quarter of 2018.
-- Operating income increased by 5.6% year-over-year to US$161.1 million
for the first fiscal quarter of 2018.
-- Net income attributable to New Oriental increased by 12.3%
year-over-year to US$158.4 million for the first fiscal quarter of 2018.
Key Financial Results
(in thousands US$, except per ADS(1) data) 1Q FY2018 1Q FY2017 % of change
----------------------------------------- --------- --------- -----------
Net revenues 661,165 534,069 23.8%
Operating income 161,077 152,584 5.6%
Non-GAAP operating income (2)(3) 164,203 153,465 7.0%
Net income attributable to New Oriental 158,393 141,062 12.3%
Non-GAAP net income attributable to New Oriental 161,519 141,943 13.8%
(2)(3)
Net income per ADS attributable to New Oriental - 1.00 0.90 11.9%
basic
Net income per ADS attributable to New Oriental - 1.00 0.89 12.0%
diluted
Non-GAAP net income per ADS attributable to New 1.02 0.90 13.4%
Oriental - basic(3)(4)
Non-GAAP net income per ADS attributable to New 1.02 0.90 13.5%
Oriental - diluted(3)(4)
(1) Each ADS represents one common share.
(2) GAAP represents Generally Accepted Accounting Principles in the United States of America.
(3) New Oriental provides net income attributable to New Oriental, operating income and net income per ADS attributable to New
Oriental on a non-GAAP basis that excludes share-based compensation expenses to provide supplemental information regarding
its operating performance. For more information on these non-GAAP financial measures, please see the section captioned
"About Non-GAAP Financial Measures" and the tables captioned "Reconciliations of Non-GAAP Measures to the Most
Comparable GAAP Measures" set forth at the end of this release.
(4) The Non-GAAP net income per ADS is computed using Non-GAAP net income and the same number of shares and ADSs used in
GAAP basic and diluted EPS calculation.
Operating Highlights for the First Fiscal Quarter Ended August 31, 2017
-- Total student enrollments in academic subjects tutoring and test
preparation courses increased by 15.6% year-over-year to approximately
1,532,900 for the first fiscal quarter of 2018.
-- The total number of schools and learning centers was 899 as of August
31, 2017, an increase of 128 compared to 771 as of August 31, 2016, and
an increase of 44 compared to 855 as of May 31, 2017. The total number
of schools was 78 as of August 31, 2017.
Michael Yu, New Oriental's Executive Chairman, commented, "We are pleased to mark a robust start of our fiscal year 2018 with overall first quarter revenue growth of 23.8%, or 25.9% if computed in Renminbi, which exceeded our initial expectations. This strong top-line growth was largely fueled by our solid performance in student enrollments in the recent two quarters, which had a steady year-over-year increase of 24.9% for the fourth fiscal quarter of 2017 and the first fiscal quarter of 2018. Our key revenue driver, K-12 all-subjects after-school tutoring business, recorded accelerated year-over-year revenue growth of approximately 35.3%, or 37.6% if computed in Renminbi, reflecting on-going powerful momentum. Further, our U-Can middle and high school all-subjects after-school tutoring business grew by approximately 37.3% year-over-year, and POP Kids program delivered a year-over-year revenue increase of approximately 38.3% if computed in Renminbi."
Chenggang Zhou, New Oriental's Chief Executive Officer, added, "Our first quarter performance demonstrates the strength of our steadfast and proven "Optimize the Market" strategy. Since last fiscal quarter, we started to moderately accelerate our capacity expansion across cities with strong growth potential, to capture untapped opportunities in China's enormous education market. This quarter, we added a net of 43 learning centers in 22 existing cities and rolled out one dual-teacher model school in the city of Zhongshan. Altogether, the total square meters of classroom area by end of this quarter increased approximately 31.4% year-over-year. Furthermore, we carried out a large-scale summer promotion this quarter by offering low-cost trial courses for multiple subjects in 38 cities mainly targeting students before they start the first secondary school year. Trial course enrolments during the period reached 554,000, more than doubling year-over-year, and student retention rose year-over-year as well. Meanwhile, we continued our progress in building our online and offline integrated education ecosystem and rolling out O2O standardized teaching system for our overseas test preparation business, such as IELTS, TOEFL and SAT programs, in some of the large cities in China. Also, our pure online education platform, Koolearn.com, achieved a year-over-year revenue growth of approximately 41.9%, or 44.3% if computed in Renminbi, with registered users up by approximately 30.8% and paid users up by approximately 45.3%. We believe our successful strategy to acquire and effectively retain customers and expand capacity will further strengthen our market leadership while setting a solid foundation for stronger growth throughout fiscal year 2018 and beyond."
Stephen Zhihui Yang, New Oriental's Chief Financial Officer, commented, "Our continued investment in capacity expansion and a larger scale summer promotion has led to a lower utilization of facilities and higher cost. While this had a short-term impact on our operating margin and net margin in the first quarter, we currently believe the pressure on margins will lessen and reverse throughout the remainder of the fiscal year. Most importantly, our expansion strategy and the recent incentives should drive additional revenue growth and market share in the long run. We expect significant return on the efforts we have made and believe this will also deliver long-term value for our customers and shareholders."
Financial Results for the First Fiscal Quarter Ended August 31, 2017
Net Revenues
For the first fiscal quarter of 2018, New Oriental reported net revenues of US$661.2 million, representing a 23.8% increase year-over-year. Net revenues from educational programs and services for the first fiscal quarter were US$604.5 million, representing a 22.3% increase year-over-year. The growth was mainly driven by increases in student enrollments in academic subjects tutoring and test preparation courses in the recent two quarters. Further to an exceptional 36.9% year-over-year enrollment growth in the fourth fiscal quarter of 2017, student enrollment continued to grow by 15.6% year-over-year in the first fiscal quarter of 2018. The combined enrollment growth for the fourth fiscal quarter of 2017 and the first fiscal quarter of 2018 reached 24.9%.
Total student enrollments in academic subjects tutoring and test preparation courses in the first fiscal quarter of 2018 increased by 15.6% year-over-year to approximately 1,532,900.
Operating Costs and Expenses
Operating costs and expenses for the quarter were US$500.1 million, representing a 31.1% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were US$497.0 million, representing a 30.6% increase year-over-year.
-- Cost of revenues increased by 32.9% year-over-year to US$270.2 million,
primarily due to increases in teachers' compensation for more teaching
hours and the number of schools and learning centers in operation.
-- Selling and marketing expenses increased by 26.4% year-over-year to US$
73.9 million, primarily due to increases in brand promotion expenses and
selling and marketing staff's compensation.
-- General and administrative expenses for the quarter increased by 30.4%
year-over-year to US$156.0 million. Non-GAAP general and administrative
expenses, which exclude share-based compensation expenses, were US$152.9
million, representing a 28.7% increase year-over-year, primarily due to
increased headcount as the Company expanded its network of schools and
learning centers by approximately 16.6% year-over-year.
Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 254.8% to US$3.1 million in the first fiscal quarter of 2018.
Operating Income and Operating Margin
Operating income was US$161.1 million, representing a 5.6% increase year-over-year. Non-GAAP income from operations for the quarter was US$164.2 million, representing a 7.0% increase year-over-year.
Operating margin for the quarter was 24.4%, compared to 28.6% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 24.8%, compared to 28.7% in the same period of the prior fiscal year. Operating margin was negatively affected by the increase in costs and expenses mainly due to capacity expansion in the recent two quarters and the larger scale summer promotion.
Net Income and EPS
Net income attributable to New Oriental for the quarter was US$158.4 million, representing a 12.3% increase from the same period of the prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were US$1.0 and US$1.0, respectively.
Non-GAAP Net Income and Non-GAAP EPS
Non-GAAP net income attributable to New Oriental for the quarter was US$161.5 million, representing a 13.8% increase from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were US$1.02 and US$1.02, respectively.
Cash Flow
Net operating cash flow for the first fiscal quarter of 2018 was approximately US$204.4 million. Capital expenditures for the quarter were US$54.1 million, which were primarily attributable to the opening of one new school and 74 learning centers and renovations at existing learning centers.
Balance Sheet
As of August 31, 2017, New Oriental had cash and cash equivalents of US$838.9 million, compared to US$641.0 million as of May 31, 2017. In addition, the Company had US$122.4 million in term deposits, US$1.4 billion in short-term investment, and US$17.6 million in long-term held-to-maturity investments due within one year from August 31, 2017 consisting of trusts guaranteed by a bank.
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 first quarter of fiscal year 2018 was US$930.0 million, an increase of 41.5% as compared to US$657.1 million at the end of the first quarter of fiscal year 2017.
Outlook for Second Quarter of Fiscal Year 2018
New Oriental expects total net revenues in the second quarter of fiscal year 2018 (September 1, 2017 to November 30, 2017) to be in the range of US$447.0 million to US$460.7 million, representing year-over-year growth in the range of 31% to 35%.
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 October 24, 2017, U.S. Eastern Time (8 PM on October 24, 2017, Beijing/Hong Kong Time).
Dial-in details for the earnings conference call are as follows:
US: +1-845-675-0437
Hong Kong: +852-3018-6771
UK: +44-20-3621-4779
Passcode: 90617427
Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call.
A replay of the conference call may be accessed by phone at the following number until November 1, 2017:
International: +61 2 8199 0299
Passcode: 90617427
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 language training and test preparation, primary and secondary school education, online education, content development and distribution, overseas study consulting services, pre-school education and study tour. 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 second quarter of fiscal year 2018, 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:
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
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of August 31 As of May 31
2017 2017
---- ----
(Unaudited) (Unaudited)
USD USD
--- ---
ASSETS:
Current assets:
Cash and cash equivalents 838,910 641,018
Restricted cash, current 44 44
Term deposits 122,398 195,085
Short term investments 1,413,951 1,312,942
Accounts receivable, net 4,261 3,343
Inventory, net 31,801 31,742
Prepaid expenses and other current assets, net 144,643 119,397
Amounts due from related parties, current 1,590 5,948
Long term investments due within one year 17,630 16,743
------ ------
Total current assets 2,575,228 2,326,262
Property and equipment, net 333,942 282,800
Land use rights, net 3,764 3,668
Amounts due from related parties, non-current 1,673 1,748
Deferred tax assets, net 23,983 28,858
Long term deposit 29,085 24,023
Long term prepaid rent 287 849
Restricted cash, non-current 3,379 3,608
Intangible assets, net 3,742 4,005
Goodwill, net 18,194 14,083
Long term investments, net 230,299 217,259
Other non-current assets 13,828 17,816
Total assets 3,237,404 2,924,979
========= =========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable (including accounts payable of the 26,882 24,258
consolidated VIE without recourse to New Oriental of US$24,138
and US$26,622 as of May 31, 2017 and August 31, 2017,
respectively)
Accrued expenses and other current liabilities (including accrued 283,534 260,700
expenses and other current liabilities of the consolidated VIE
without recourse to New Oriental of US$238,864 and US$240,329
as of May 31, 2017 and August 31, 2017, respectively)
Dividend payable (including dividend payable of the 71,154 -
consolidated VIE without recourse to New Oriental of nil and nil
as of May 31, 2017 and August 31, 2017, respectively)
Income taxes payable (including income tax payable of the 63,022 51,045
consolidated VIE without recourse to New Oriental of US$40,306
and US$55,667 as of May 31, 2017 and August 31, 2017,
respectively)
Amounts due to related parties (including amounts due to related 17 48
parties of the consolidated VIE without recourse to New Oriental
of US$48 and US$17 as of May 31, 2017 and August 31, 2017,
respectively)
Deferred revenue (including deferred revenue of the 930,008 866,630
consolidated VIE without recourse to New Oriental of
US$833,932 and US$928,156 as of May 31, 2017 and August 31,
2017, respectively)
Total current liabilities 1,374,617 1,202,681
Deferred tax liabilities (including deferred tax liabilities of the 2,761 2,220
consolidated VIE without recourse to New Oriental of US$2,174
and US$2,716 as of May 31, 2017 and August 31, 2017,
respectively)
Total long-term liabilities 2,761 2,220
Total liabilities 1,377,378 1,204,901
========= =========
Noncontrolling interests 41,402 39,130
Total New Oriental Education & Technology Group Inc. 1,818,624 1,680,948
shareholders' equity
Total shareholders' equity 1,860,026 1,720,078
Total liabilities and shareholders' equity 3,237,404 2,924,979
========= =========
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 August 31
------------------------------------
2017 2016
---- ----
(Unaudited) (Unaudited)
USD USD
--- ---
Net Revenues:
Educational programs and services 604,471 494,307
Books and others 56,694 39,762
Total net revenues 661,165 534,069
------- -------
Operating costs and expenses (note 1):
Cost of revenues 270,194 203,370
Selling and marketing 73,903 58,465
General and administrative 155,991 119,650
------- -------
Total operating costs and expenses 500,088 381,485
Operating Income 161,077 152,584
------- -------
Other income, net 24,933 14,047
Provision for income taxes (26,878) (22,711)
Income (Loss) from equity method investments 25 (1,837)
--- ------
Net income 159,157 142,083
Net (gain) attributable to the noncontrolling interests (764) (1,021)
Net income attributable to New Oriental Education & 158,393 141,062
Technology Group Inc.
---
Net income per share attributable to New Oriental- 1.00 0.90
Basic
Net income per share attributable to New Oriental- 1.00 0.89
Diluted
Net income per ADS attributable to New Oriental-Basic 1.00 0.90
(note 2)
Net income per ADS attributable to New Oriental- 1.00 0.89
Diluted (note 2)
Other comprehensive income (loss), net of tax 49,048 (15,602)
Comprehensive income 208,205 126,481
Comprehensive income attributable to New Oriental 205,934 125,013
Education & Technology Group Inc.
===
Notes:
Note 1: Share-based compensation expenses (in thousands) are included in the
operating costs and expenses as follows:
For the Three Months Ended August 31
------------------------------------
2017 2016
---- ----
(Unaudited) (Unaudited)
USD USD
--- ---
General and administrative 3,126 881
Total 3,126 881
===== ===
Note 2: Each ADS represents one common share.
NEW ORIENTAL EDUCATION & TECHNOLOGY GROUP INC.
RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE GAAP MEASURES
(In thousands except for per share and per ADS amounts)
For the Three Months Ended August 31
------------------------------------
2017 2016
---- ----
(Unaudited) (Unaudited)
USD USD
--- ---
General and administrative expenses 155,991 119,650
Share-based compensation expense in general 3,126 881
and administrative expenses
---
Non-GAAP general and administrative 152,865 118,769
expenses
Total operating costs and expenses 500,088 381,485
Share-based compensation expenses 3,126 881
----- ---
Non-GAAP operating costs and expenses 496,962 380,604
Operating income 161,077 152,584
Share-based compensation expenses 3,126 881
Non-GAAP operating income 164,203 153,465
Operating margin 24.4% 28.6%
Non-GAAP operating margin 24.8% 28.7%
Net income attributable to New Oriental 158,393 141,062
Share-based compensation expenses 3,126 881
----- ---
Non-GAAP net income 161,519 141,943
Net income per ADS attributable to New 1.00 0.90
Oriental- Basic (note 2)
Net income per ADS attributable to New 1.00 0.89
Oriental- Diluted (note 2)
Non-GAAP net income per ADS attributable 1.02 0.90
to New Oriental - Basic (note 2)
Non-GAAP net income per ADS attributable 1.02 0.90
to New Oriental - Diluted (note 2)
Weighted average shares used in calculating 157,983,415 157,447,723
basic net income per ADS (note 2)
Weighted average shares used in calculating 158,234,303 157,829,525
diluted net income per ADS (note 2)
Non-GAAP income per share - basic 1.02 0.90
Non-GAAP income per share - diluted 1.02 0.90
Note 2: Each ADS represents one common share.
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SOURCE New Oriental Education and Technology Group Inc.
