New Oriental Announces Results for the Second Fiscal Quarter Ended November 30, 2018

BEIJING, Jan. 22, 2019 /PRNewswire/ -- New Oriental Education & 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 second fiscal quarter ended November 30, 2018, which is the second quarter of New Oriental's fiscal year 2019.

Financial Highlights for the Second Fiscal Quarter Ended November 30, 2018

    --  Total net revenues increased by 27.8% year-over-year to US$597.1 million
        for the second fiscal quarter of 2019.
    --  Operating loss increased by 118.5% year-over-year to US$28.6 million for
        the second fiscal quarter of 2019.
    --  Non-GAAP operating loss, which excludes share-based compensation
        expenses, was US$14.9 million, an increase of 295.7% year-over-year
        compared to US$3.8 million in the same period of the prior fiscal year.
    --  Net loss attributable to New Oriental was US$25.8 million for the second
        fiscal quarter of 2019, compared to an income of US$4.3 million in the
        same period of the prior fiscal year.
    --  Non-GAAP net income attributable to New Oriental, which excludes
        share-based compensation expenses and loss from fair value change of
        long-term investments, was US$23.0 million, an increase of 69.2%
        year-over-year compared to US$13.6 million in the same period of the
        prior fiscal year.

Key Financial Results


             (in thousands
              US$, except per
              ADS(1) data)    
     
     2Q FY2019  
     
     2Q FY2018   % of change

    ---

             Net revenues            597,072         467,183         27.8%


             Operating loss           28,553          13,070        118.5%


             Non-GAAP
              operating loss
              (2)(3)                  14,866           3,757        295.7%


             Net (loss) /
              income
              attributable to
              New Oriental          (25,826)          4,279


             Non-GAAP net
              income
              attributable to
              New Oriental
              (2)(3)                  22,996          13,592         69.2%


             Net (loss) /
              income per ADS
              attributable to
              New Oriental -          (0.16)           0.03
    basic


             Net (loss) /
              income per ADS
              attributable to
              New Oriental -          (0.16)           0.03
    diluted


             Non-GAAP net
              income per ADS
              attributable to
              New Oriental -            0.14            0.09         68.6%
    basic(3)(4)


             Non-GAAP net
              income per ADS
              attributable to
              New Oriental -            0.14            0.09         68.4%
    diluted(3)(4)


             (in thousands
              US$, except per
              ADS(1) data)    
     
     1H FY2019  
     
     1H FY2018   % of change

    ---

             Net revenues          1,456,918       1,128,348         29.1%


             Operating income        132,782         148,007        -10.3%


             Non-GAAP
              operating
              income(2)(3)           160,389         160,446          0.0%


             Net income
              attributable to
              New Oriental            97,406         162,672        -40.1%


             Non-GAAP net
              income
              attributable to
              New
              Oriental(2)(3)         207,132         175,111         18.3%


             Net income per
              ADS
              attributable to
              New Oriental -
              basic                     0.61            1.03        -40.3%


             Net income per
              ADS
              attributable to
              New Oriental -
              diluted                   0.61            1.03        -40.4%


             Non-GAAP net
              income per ADS
              attributable to
              New Oriental -            1.31            1.11         17.9%
    basic(3)(4)


             Non-GAAP net
              income per ADS
              attributable to
              New Oriental -            1.30            1.11         17.7%
    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 (loss) /
              income attributable to New Oriental,
              operating (loss) /income and net
              (loss) /income per ADS attributable
              to New Oriental on a non-GAAP basis
              that excludes share-based
              compensation expenses and loss from
              fair value change of long-term
              investments 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.


            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

     
     (4)  EPS calculation.

Operating Highlights for the Second Fiscal Quarter Ended November 30, 2018

    --  Total student enrollments in academic subjects tutoring and test
        preparation courses increased by 23.6% year-over-year to approximately
        2,320,800 for the second fiscal quarter of 2019.
    --  The total number of schools and learning centers was 1,125 as of
        November 30, 2018, an increase of 185 compared to 940 as of November 30,
        2017, and an increase of 25 compared to 1,100 as of August 31, 2018. The
        total number of schools was 89 as of November 30, 2018.

Michael Minhong Yu, New Oriental's Executive Chairman, commented, "We are pleased to see our overall business continue its strong momentum in the second quarter of fiscal year 2019 and achieve a top line growth of 27.8%, or 33.6% if computed in Renminbi. This was driven largely by our key business unit, K-12 all-subjects after-school tutoring, which recorded a remarkable year-over-year revenue growth of approximately 38%, or 44% if computed in Renminbi, reflecting a combination of a solid high-quality product portfolio and a sustained market demand. Furthermore, our U-Can middle and high school all-subjects after-school tutoring business grew by approximately 39%, or 46% if computed in Renminbi, and the POP Kids program achieved a growth of approximately 35%, or 41% if computed in Renminbi."

Chenggang Zhou, New Oriental's Chief Executive Officer, added, "As we execute our well-proven 'Optimize the Market' strategy', we continued to progress our capacity expansion plan in this quarter. We added a net of 24 learning centers in existing cities, and opened a new training school in the city of Jinhua. Altogether, this increased the total square meters of classroom area by approximately 30% year-over-year and 5% quarter-over-quarter by the end of this quarter. At the same time, we continued to refine and leverage our online and offline integrated standardized teaching system for the K-12 business across the nation, and particularly in some of the larger cities for our overseas test preparation business. Starting from the fiscal year 2019, we initiated a pilot program to standardize teaching content and methodology in the U-Can middle and high school tutoring business, which has started to bear fruit as we achieved a remarkable increase of customer retention. As we develop best practices gradually, we will begin to roll out the pilot program in our online and offline K-12 tutoring business to further improve teaching quality. We believe this will in turn boost our competitive advantages as we offer the best learning experience to our students. Moreover, we continued to make strategic investments in our dual-teacher model classes and new initiatives for K-12 tutoring on our pure online education platform, Koolearn.com, which is expected to see increasing demand in cities of lower tiers and in remote areas."

Stephen Zhihui Yang, New Oriental's Chief Financial Officer, commented, "In this quarter we continued to see a healthy ramping up of the new facilities we built in the previous fiscal year, which is highly encouraging. Our Non-GAAP operating margin and the utilization rate in the offline language training and test preparation business remained flattish year-over-year in the second quarter. Going forward, we will remain focused on improving our operational efficiency and ensuring consistently-high quality of education across all business lines, through a standardized, modular and systematic approach. We believe that, altogether, these will enable us to leverage our existing capability to capture growth opportunities and generate sustainable long-term value for our customers and shareholders."

Recent Development

In December 2018, New Oriental entered into a 3-year US$200 million term and revolving facilities agreement with a group of arrangers led by Credit Suisse AG, Singapore Branch. The facilities consist of a US$100 million 3-year bullet maturity term loan and a US$100 million 3-year revolving facility. The use of proceeds of the facilities is for the Company's existing share repurchase program and other general corporate purposes.

Financial Results for the Second Fiscal Quarter Ended November 30, 2018

Net Revenues

For the second fiscal quarter of 2019, New Oriental reported net revenues of US$597.1 million, representing a 27.8% increase year-over-year. Net revenues from educational programs and services for the second fiscal quarter were US$543.6 million, representing a 28.6% increase year-over-year. The growth was mainly driven by increases in student enrollments in K-12 after-school tutoring courses.

Total student enrollments in academic subjects tutoring and test preparation courses in the second fiscal quarter of 2019 increased by 23.6% year-over-year to approximately 2,320,800.

Operating Cost and Expenses

Operating cost and expenses for the quarter were US$627.3 million, representing a 30.6% increase year-over-year. Non-GAAP operating cost and expenses for the quarter, which exclude share-based compensation expenses, were US$613.7 million, representing a 30.3% increase year-over-year.

    --  Cost of revenues increased by 32.1% year-over-year to US$300.1 million,
        primarily due to increases in teachers' compensation for more teaching
        hours and rental cost for increased number of schools and learning
        centers in operation.
    --  Selling and marketing expenses increased by 27.1% year-over-year to
        US$91.6 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 30.3%
        year-over-year to US$235.6 million. Non-GAAP general and administrative
        expenses, which exclude share-based compensation expenses, were US$222.0
        million, representing a 29.4% increase year-over-year. The increase was
        primarily due to increased headcount as the Company expanded its network
        of schools and learning centers, as well as increases in R&D expenses
        and human resources expenses related to the development of the Company's
        online and offline integrated education ecosystem.

Total share-based compensation expenses, which were allocated to related operating cost and expenses, increased by 47.0% to US$13.7 million in the second fiscal quarter of 2019.

Operating Loss and Operating Margin

Operating loss for the quarter was US$28.6 million, representing a 118.5% increase year-over-year. Non-GAAP loss operating loss for the quarter was US$14.9 million, representing a 295.7% increase year-over-year.

Operating margin for the quarter was negative 4.8%, compared to negative 2.8% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was negative 2.5%, compared to negative 0.8% in the same period of the prior fiscal year.

Loss from Fair Value Change of Long-Term Investments

Loss from fair value change of long term investments for the quarter was US$35.1 million.

Net (Loss) / Income and EPS

Net loss attributable to New Oriental for the quarter was US$25.8 million, compared to an income of US$4.3 million. Basic and diluted loss per ADS attributable to New Oriental were US$0.16 and US$0.16, respectively.

Non-GAAP Net Income and Non-GAAP EPS

Non-GAAP net income attributable to New Oriental, which excludes share-based compensation expenses and loss from fair value change of long-term investments, for the quarter was US$23.0 million, representing a 69.2% increase from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were US$0.14 and US$0.14, respectively.

Cash Flow

Net operating cash flow for the second fiscal quarter of 2019 was approximately US$125.3 million. Capital expenditures for the quarter were US$43.1 million, which were primarily attributable to the opening of 48 facilities and renovations at existing learning centers.

Balance Sheet

As of November 30, 2018, New Oriental had cash and cash equivalents of US$842.9 million, compared to US$983.3 million as of May 31, 2018. In addition, the Company had US$94.6 million in term deposits, US$1,700.7 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 second quarter of fiscal year 2019 was US$1,250.3 million, an increase of 9.9% from US$1,137.3 million at the end of the second quarter of fiscal year 2018. The lower than usual increase is due to the change of tuition fees collection schedule for K-12 after-school tutoring courses.

Financial Results for the Six Months Ended November 30, 2018

For the first six months of fiscal year 2019, New Oriental reported net revenues of US$1,456.9 million, representing a 29.1% increase year-over-year.

Total student enrollments in academic subjects tutoring and test preparation courses in the first six months of fiscal year 2019 increased by 18.9% to approximately 4,056,100.

Income from operations for the first six months of fiscal year 2019 was US$132.8 million, representing a 10.3% decrease year-over-year. Non-GAAP income from operations for the first six months of fiscal year 2019 was US$160.4 million, representing a 0.04% decrease year-over-year.

Operating margin for the first six months of fiscal year 2019 was 9.1%, compared to 13.1% for the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses for the first six months of fiscal year 2019, was 11.0%, compared to 14.2% for the same period of the prior fiscal year.

Net income attributable to New Oriental for the first six months of fiscal year 2019 was US$97.4 million, representing a 40.1% decrease year-over-year. Basic and diluted net income per ADS attributable to New Oriental for the first six months of fiscal year 2019 amounted to US$0.61 and US$0.61, respectively.

Non-GAAP net income attributable to New Oriental for the first six months of fiscal year 2019 was US$207.1 million, representing an 18.3% increase year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental for the first six months of fiscal year 2019 amounted to US$1.31 and US$1.30, respectively.

Outlook for Third Quarter of Fiscal Year 2019

New Oriental expects total net revenues in the third quarter of fiscal year 2019 (December 1, 2018 to February 28, 2019) to be in the range of US$769.9 million to US$793.2 million, representing year-over-year growth in the range of 25% to 28%.

The projected growth rate of revenue in Renminbi is expected to be in the range of 32% to 36% for the third quarter of fiscal year 2019.

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 January 22, 2019, U.S. Eastern Time (9 PM on January 22, 2019, 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

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is "3990216".

A replay of the conference call may be accessed by phone at the following number until January 31, 2019:



              International:                      +61-2-8199-0299



              Passcode:                                   3990216

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://www.neworiental.org/english/.

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 third quarter of fiscal year 2019, 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 (loss) / income excluding share-based compensation expenses and loss from fair value change of long-term investments, operating income excluding share-based compensation expenses, operating cost 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 and loss from fair value change of long-term investments. 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 and loss from fair value of long-term investments 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 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 and loss from fair value change of long-term investments 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. Joyce Wu
FTI Consulting
Tel: +852-3768-4548
Email: NewOriental@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 November 30        As of May 31


                                                            
              
                2018                                                                              2018

                                                                         ---

                                                         
              
                (Unaudited)                                                  
         
         (Audited)


                                                                                                                                                   
       USD                 
     USD

                                                                                                                                                                                        ---


              
                ASSETS:



              
                Current assets:



              Cash and cash equivalents                                                                                                                           842,860           983,319



              Restricted cash                                                                                                                                          43                47



              Term deposits                                                                                                                                        94,569           107,741



              Short-term investments                                                                                                                            1,700,650         1,623,763



              Accounts receivable, net                                                                                                                              5,351             3,179



              Inventory, net                                                                                                                                       35,141            40,175



              Prepaid expenses and other current assets, net                                                                                                      207,768           182,095



              Amounts due from related parties, current                                                                                                            20,261             1,595



              
                Total current assets                                                                                                                 2,906,643         2,941,914






              Restricted cash, non-current                                                                                                                          3,683             3,399



              Property and equipment, net                                                                                                                         488,941           449,592



              Land use rights, net                                                                                                                                 12,941             3,785



              Amounts due from related parties, non-current                                                                                                         2,006             2,226



              Long-term deposits                                                                                                                                   44,431            40,099



              Long-term prepaid rents                                                                                                                                 535               191



              Intangible assets, net                                                                                                                               12,921             8,544



              Goodwill, net                                                                                                                                        66,365            31,729



              Long-term investments, net                                                                                                                          391,334           433,333



              Deferred tax assets, non-current, net                                                                                                                47,175            43,323



              Other non-current assets                                                                                                                             25,668            19,577



              
                Total assets                                                                                                                         4,002,643         3,977,712






              
                LIABILITIES, MEZZANINE EQUITY AND EQUITY



              
                Current liabilities:



              Accounts payable (including accounts payable of the                                                                                                  36,126            39,889
    consolidated variable interest entities without recourse to New
    Oriental of US$39,279 and US$35,450 as of May 31, 2018 and
    November30, 2018, respectively)



              Accrued expenses and other current liabilities (including accrued                                                                                   456,406           373,537
    expenses and other current liabilities of the consolidated variable
    interest entities without recourse to New Oriental of US$335,955
    and US$414,654 as of May 31, 2018 and November30, 2018,
    respectively)



              Income taxes payable (including income tax payable of the                                                                                            66,610            67,233
    consolidated variable interest entities without recourse to New
    Oriental of US$54,844 and US$69,305 as of May 31, 2018 and
    November30, 2018, respectively)



              Amounts due to related parties (including amounts due to related                                                                                        393                30
    parties of the consolidated variable interest entities without
    recourse to New Oriental of US$30 and US$393 as of May 31,
    2018 andNovember30, 2018, respectively)



              Deferred revenue (including deferred revenue of the                                                                                               1,250,262         1,270,195
    consolidated variable interest entities without recourse to New
    Oriental of US$1,244,748 and US$1,244,039 as of May 31, 2018
    and November 30, 2018, respectively)





              
                Total current liabilities                                                                                                            1,809,797         1,750,884






              Deferred tax liabilities, non-current (including deferred tax                                                                                        18,170            12,133
    liabilities of the consolidated variable interest entities without
    recourse to New Oriental of US$13,782 and US$7,745 as of May
    31, 2018 and November30, 2018, respectively)





              
                Total liabilities                                                                                                                    1,827,967         1,763,017






              
                Mezzanine equity



                Redeemable non-controlling interests                                                                                                              206,624           206,624



              
                Equity



                New Oriental Education & Technology Group Inc. shareholders'                                                                                    1,951,653         1,991,589
    equity



                Non-controlling interests                                                                                                                          16,399            16,482



              
                Total equity                                                                                                                         1,968,052         2,008,071






              
                Total liabilities, mezzanine equity and equity                                                                                       4,002,643         3,977,712


                                                          
              
                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

                                                                    ---

                                                                                                                                                   2018                   2017

                                                                                                                                                                          ---

                                                                                                                                      
     
       (Unaudited) 
     
       (Unaudited)


                                                                                                                                        
     USD             
     USD




              
                Net revenues                                                                                                        597,072                467,183

                                                                                                                                                                          ---




              
                Operating cost and expenses (note 1)



              Cost of revenues                                                                                                                 300,105                227,258



              Selling and marketing                                                                                                             91,597                 72,091



              General and administrative                                                                                                       235,647                180,904

                                                                                                                                                                          ---


              
                Total operating cost and expenses                                                                                   627,349                480,253



              Gain on disposal of a subsidiary                                                                                                   1,724



              
                Operating loss                                                                                                     (28,553)              (13,070)

                                                                                                                                                                          ---


              Loss from fair value change of long-term investments                                                                            (35,135)



              Other income, net                                                                                                                 35,783                 23,578



              Provision for income taxes                                                                                                          (11)               (2,973)



              Income from equity method investments                                                                                              1,575                    224





              
                Net (loss) income                                                                                                  (26,341)                 7,759

                                                                                                                                                                          ===


              Add: Net loss (income) attributable to non-controlling interests                                                                     515                (3,480)

                                                                                                                                                                          ---




              
                Net (loss) income attributable to New Oriental                                                                     (25,826)                 4,279
    Education & Technology Group Inc.'s shareholders

                                                                                                                                                                          ---




              
                Net (loss) income per common share



              
                       - Basic                                                                                                       (0.16)                  0.03



              
                       - Diluted                                                                                                     (0.16)                  0.03





              
                Net (loss) income per ADS (note 2)



              
                       - Basic                                                                                                       (0.16)                  0.03



              
                       - Diluted                                                                                                     (0.16)                  0.03


                                                     
            
                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 November 30



                                                                                                                                                  2018                                            2017

                                                                                                                                                                                                  ---

                                                                                                                             
             
       (Unaudited)                      
         
       (Unaudited)


                                                                                                                                       
     USD                                      
     USD






              General and administrative expenses                                                                                             235,647                                         180,904



              Less: Share-based compensation expenses in                                                                                       13,687                                           9,313
    general and administrative expenses

                                                                                                                                                                                                  ---


              Non-GAAP general and administrative                                                                                             221,960                                         171,591
    expenses

                                                                                                                                                                                                  ---




              Total operating cost and expenses                                                                                               627,349                                         480,253



              Less: Share-based compensation expenses                                                                                          13,687                                           9,313

                                                                                                                                                                                                  ---


              Non-GAAP operating cost and expenses                                                                                            613,662                                         470,940

                                                                                                                                                                                                  ---




              Operating loss                                                                                                                 (28,553)                                       (13,070)



              Add: Share-based compensation expenses                                                                                           13,687                                           9,313



              Non-GAAP operating loss                                                                                                        (14,866)                                        (3,757)

                                                                                                                                                                                                  ---




              Operating margin                                                                                                                  -4.8%                                          -2.8%



              Non-GAAP operating margin                                                                                                         -2.5%                                          -0.8%





              Net (loss) income attributable to New Oriental                                                                                 (25,826)                                          4,279



              Add: Share-based compensation expenses                                                                                           13,687                                           9,313



              Add: Loss from fair value change of long-                                                                                        35,135
    term investments



              Non-GAAP net income attributable to New                                                                                          22,996                                          13,592
    Oriental

                                                                                                                                                                                                  ---




              Net (loss) income per ADS attributable to                                                                                        (0.16)                                           0.03
    New Orienta l- Basic (note 2)



              Net (loss) income per ADS attributable to                                                                                        (0.16)                                           0.03
    New Oriental - Diluted (note 2)





              Non-GAAP net income per ADS                                                                                                        0.14                                            0.09
    attributable to New Oriental - Basic (note 2)



              Non-GAAP net income per ADS                                                                                                        0.14                                            0.09
    attributable to New Oriental - Diluted (note 2)





              Weighted average shares used in calculating                                                                                 158,690,714                                     158,119,910
    basic net income per ADS (note 2)



              Weighted average shares used in calculating                                                                                 159,030,698                                     158,322,404
    diluted net income per ADS (note 2)





              Non-GAAP income per share - basic                                                                                                  0.14                                            0.09



              Non-GAAP income per share - diluted                                                                                                0.14                                            0.09



              
                Notes:





              Note 1: Share-based compensation expenses (in thousands) are included in the operating cost
    and expenses as follows:




                                                                                                                 For the Three Months Ended November 30



                                                                                                                        2018                                            2017

                                                                                                                                                                        ---

                                                                                                           
     
       (Unaudited)                    
           
       (Unaudited)


                                                                                                             
     USD                                      
     USD




              General and administrative expenses                                                                    13,687                                           9,313



              Total                                                                                                  13,687                                           9,313

                                                                                                                                                                        ===




              Note 2: Each ADS represents one common share.


                                                           
              
                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

                                                                    ---

                                                                                                                                                   2018                    2017

                                                                                                                                                                           ---

                                                                                                                                      
     
       (Unaudited) 
      
        (Unaudited)


                                                                                                                                        
     USD             
      USD






              
                Net Revenues:                                                                                                     1,456,918               1,128,348

                                                                                                                                                                           ---




              
                Operating cost and expenses (note 1):



              Cost of revenues                                                                                                                 667,504                 497,452



              Selling and marketing                                                                                                            190,898                 145,994



              General and administrative                                                                                                       469,309                 336,895

                                                                                                                                                                           ---


              
                Total operating cost and expenses                                                                                 1,327,711                 980,341

                                                                                                                                                                           ---


              Gain on disposal of a subsidiary                                                                                                   3,575

                                                                                                                                                                           ---


              
                Operating income                                                                                                    132,782                 148,007

                                                                                                                                                                           ---


              Loss from fair value change of long-term investments                                                                            (82,119)





              Other income, net                                                                                                                 69,292                  48,511



              Provision for income taxes                                                                                                      (25,695)               (29,851)



              Income from equity method investments                                                                                                522                     249





              
                Net income                                                                                                           94,782                 166,916

                                                                                                                                                                           ===




              Add: Net loss (income) attributable to non-controlling interests                                                                   2,624                 (4,244)

                                                                                                                                                                           ---




              
                Net income attributable to New Oriental Education &                                                                  97,406                 162,672
    Technology Group Inc.

                                                                                                                                                                           ---






              
                Net income per share attributable to New Oriental -                                                                    0.61                    1.03
    Basic





              
                Net income per share attributable to New Oriental -                                                                    0.61                    1.03
    Diluted





              
                Net income per ADS attributable to New Oriental -                                                                      0.61                    1.03
    Basic (note 2)





              
                Net income per ADS attributable to New Oriental -                                                                      0.61                    1.03
    Diluted (note 2)


                                           
              
                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 Six Months Ended November 30



                                                                                                                                     2018                                                 2017

                                                                                                                                                                                          ---

                                                                                                                         
              USD                               
            USD






              General and administrative expenses                                                                                469,309                                              336,895



              Share-based compensation expense in                                                                                 27,607                                               12,439
    general and administrative expenses

                                                                                                                                                                                          ---


              Non-GAAP general and administrative                                                                                441,702                                              324,456
    expenses

                                                                                                                                                                                          ---




              Total operating cost and expenses                                                                                1,327,711                                              980,341



              Share-based compensation expenses                                                                                   27,607                                               12,439

                                                                                                                                                                                          ---


              Non-GAAP operating cost and                                                                                      1,300,104                                              967,902
    expenses

                                                                                                                                                                                          ---




              Operating income                                                                                                   132,782                                              148,007



              Share-based compensation expenses                                                                                   27,607                                               12,439

                                                                                                                                                                                          ---


              Non-GAAP operating income                                                                                          160,389                                              160,446

                                                                                                                                                                                          ---




              Operating margin                                                                                                      9.1%                                               13.1%



              Non-GAAP operating margin                                                                                            11.0%                                               14.2%





              Net income attributable to New Oriental                                                                             97,406                                              162,672



              Share-based compensation expenses                                                                                   27,607                                               12,439

                                                                                                                                                                                          ---


              Add: Loss from fair value change of                                                                                 82,119
    long-term investments

                                                                                                                                                                                          ---


              Non-GAAP net income to New Oriental                                                                                207,132                                              175,111

                                                                                                                                                                                          ---




              Net income per ADS attributable to                                                                                    0.61                                                 1.03
    New Oriental - Basic (note 2)



              Net income per ADS attributable to                                                                                    0.61                                                 1.03
    New Oriental - Diluted (note 2)





              Non-GAAP net income per ADS                                                                                           1.31                                                 1.11
    attributable to New Oriental - Basic
    (note 2)



              Non-GAAP net income per ADS                                                                                           1.30                                                 1.11
    attributable to New Oriental - Diluted
    (note 2)





              Weighted average shares used in                                                                                158,631,953                                          158,051,290
    calculating basic net income per ADS
    (note 2)



              Weighted average shares used in                                                                                159,111,883                                          158,277,981
    calculating diluted net income per ADS
    (note 2)





              Non-GAAP income per share - basic                                                                                     1.31                                                 1.11



              Non-GAAP income per share - diluted                                                                                   1.30                                                 1.11



              
                Notes:





              Note 1: Share-based compensation expenses (in thousands) are included in the operating
    cost and expenses as follows:




                                                                                                            For the Six Months Ended November 30



                                                                                                                   2018                                         2017

                                                                                                                                                                ---

                                                                                                      
     
       (Unaudited)                   
          
       (Unaudited)


                                                                                                        
     USD                                    
     USD




              General and administrative expense                                                                27,607                                       12,439



              Total                                                                                             27,607                                       12,439

                                                                                                                                                                ===




              Note 2: Each ADS represents one common share.

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SOURCE New Oriental Education and Technology Group Inc.