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New Oriental Announces Results for the First Fiscal Quarter Ended August 31, 2018 and Adoption of up to US$200 Million Share Repurchase Program
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PR Newswire
BEIJING, Oct. 23, 2018
BEIJING, Oct. 23, 2018 /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 first fiscal quarter ended August 31, 2018, which is the first quarter of New Oriental's fiscal year 2019.
Financial Highlights for the First Fiscal Quarter Ended August 31, 2018
- Total net revenues increased by 30.1% year-over-year to US$859.8 million for the first fiscal quarter of 2019.
- Operating income increased by 0.2% year-over-year to US$161.3 million for the first fiscal quarter of 2019.
- Net income attributable to New Oriental decreased by 22.2% year-over-year to US$123.2 million for the first fiscal quarter of 2019.
Key Financial Results
| (in thousands US$, except per ADS(1) data) | 1Q FY2019 | 1Q FY2018 | % of change |
| Net revenues | 859,846 | 661,165 | 30.1% |
| Operating income | 161,335 | 161,077 | 0.2% |
| Non-GAAP operating income (2)(3) | 175,255 | 164,203 | 6.7% |
| Net income attributable to New Oriental | 123,232 | 158,393 | -22.2% |
| Non-GAAP net income attributable to New Oriental | 184,136 | 161,519 | 14.0% |
| Net income per ADS attributable to New Oriental - | 0.78 | 1.00 | -22.5% |
| Net income per ADS attributable to New Oriental - | 0.77 | 1.00 | -22.6% |
| Non-GAAP net income per ADS attributable to New | 1.16 | 1.02 | 13.6% |
| Non-GAAP net income per ADS attributable to New | 1.16 | 1.02 | 13.4% |
| (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 (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 | |||
Operating Highlights for the First Fiscal Quarter Ended August 31, 2018
- Total student enrollments in academic subjects tutoring and test preparation courses increased by 13.2% year-over-year to approximately 1,735,300 for the first fiscal quarter of 2019.
- The total number of schools and learning centers was 1,100 as of August 31, 2018, an increase of 201 compared to 899 as of August 31, 2017, and an increase of 19 compared to 1,081 as of May 31, 2018. The total number of schools was 88 as of August 31, 2018.
Michael Yu, New Oriental's Executive Chairman, commented, "We are very pleased to start fiscal year 2019 with a remarkable year-over-year acceleration in our top line growth rate at 30.1%, beating that of the same quarter of the previous year. This strong top-line growth was largely driven by the solid increase in student enrollments in the recent two quarters, which had a steady year-over-year increase of approximately 28% in the two quarters ended August 31, 2018. Our key growth driver, K-12 after-school tutoring business, continued its strong growth and achieved approximately 49% increase in revenue. Furthermore, our U-Can middle and high school all-subjects after-school tutoring business delivered a revenue growth of approximately 49%, while the POP Kids program grew by approximately 48% year-over-year."
Chenggang Zhou, New Oriental's Chief Executive Officer, added, "Guided by our well-proven "Optimize the Market" Strategy, we continued to deepen our market penetration in existing markets, by building out our capacity in cities where we see rapid growth and strong profitability. This quarter, we added a net of 18 learning centers in existing cities, and opened a new training school in the city of Yiwu. Altogether, the total square meters of classroom area by the end of this quarter increased approximately 34% year-over-year and 3% quarter-over-quarter. Furthermore, this quarter we completed a successful summer promotion campaign by offering low-cost trial courses for multiple subjects in 39 cities, mainly targeting students before they start the first year at secondary school. Trial course enrollments during the period reached 762,000, an increase of 37.5% year-over-year, while student retention also improved year-over-year. Meanwhile, we continue to leverage our online and offline integrated standardized teaching system in our core offline business including K-12 tutoring and overseas test preparation businesses."
Stephen Zhihui Yang, New Oriental's Chief Financial Officer, commented, "As a result of the incremental cost pressure from our larger scale summer promotion launched this summer, our non-GAAP operating margin for our offline language training and test preparation business decreased by approximately 110 basis points year-over-year. At the same time, we are deeply encouraged to see constant year-over-year utilization rate of facilities in this quarter, which is a clear indication of the healthy ramping up of new facilities we built in the last fiscal year. As for our offline language training and test preparation business, we will maintain our expansion plan with a goal of adding approximately 20-25% in overall capacity for the full fiscal year 2019, through the opening of new learning centers in existing cities and rolling out of dual-teacher model schools in new cities. All the while, we will continue to sustain the healthy balance between our strong growth momentum and cost control, with continued efforts in improving the utilization rate of our facilities. For our Koolearn.com pure online educational platform, we will continue making investments in new initiatives in the K-12 after-school tutoring business to capture the huge market opportunities in remote areas in China. We are confident that our robust ecosystem integrating both offline and online education will deliver sustainable value for our customers and shareholders over the long term."
Adoption of Share Repurchase Program
On October 22, 2018, New Oriental's board of directors authorized the repurchase of up to US$200 million of the Company's common shares during the period from October 29, 2018 through May 31, 2019.
This share repurchase program authorizes the Company to purchase its ADSs or common shares from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to a 10b5-1 plan or other legally permissible ways in accordance with applicable rules and regulations. The timing and extent of any purchases will depend upon market conditions, the trading price of ADSs and other factors. New Oriental's board of directors will review the share repurchase program periodically and may authorize adjustment to its terms and size accordingly. New Oriental plans to fund any share repurchases made under this program from the Company's available cash balance.
Financial Results for the First Fiscal Quarter Ended August 31, 2018
Net Revenues
For the first fiscal quarter of 2019, New Oriental reported net revenues of US$859.8 million, representing a 30.1% increase year-over-year. Net revenues from educational programs and services for the first fiscal quarter were US$797.5 million, representing a 31.9% 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 44.9% year-over-year enrollment growth in the fourth fiscal quarter of 2018, student enrollment continued to grow by 13.2% year-over-year to approximately 1,735,300 in the first fiscal quarter of 2019. The combined enrollment growth for the fourth fiscal quarter of 2018 and the first fiscal quarter of 2019 reached 28.4%.
Operating Cost and Expenses
Operating cost and expenses for the quarter were US$700.4 million, representing a 40.0% increase year-over-year. Non-GAAP operating cost and expenses for the quarter, which exclude share-based compensation expenses, were US$686.4 million, representing a 38.1% increase year-over-year.
- Cost of revenues increased by 36.0% year-over-year to US$367.4 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 34.4% year-over-year to US$99.3million, primarily due to increases in brand promotion expenses and selling and marketing staff's compensation.
- General and administrative expenses for the quarter increased by 49.8% year-over-year to US$233.7 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were US$219.7 million, representing a 43.7% increase year-over-year, 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 345.3% to US$13.9 million in the first fiscal quarter of 2019. The substantial increase was primarily due to the grants of a total of 1.5 million restricted share units of the Company to employees and directors in October 2017 with graded vesting over three years.
Operating Income and Operating Margin
Operating income for the quarter was US$161.3 million, representing a 0.2% increase year-over-year. Non-GAAP operating income was US$175.3 million, representing a 6.7% increase year-over-year.
Operating margin for the quarter was 18.8%, compared to 24.4% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 20.4%, compared to 24.8% 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$47.0 million in accordance with the new financial instruments accounting standard adopted on June 1, 2018.
Net Income and EPS
Net income attributable to New Oriental for the quarter was US$123.2 million, representing a 22.2% decrease from the same period of the prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were US$0.78 and US$0.77, respectively.
Non-GAAP Net Income and Non-GAAP EPS
Non-GAAP net income attributable to New Oriental for the quarter was US$184.1 million, representing a 14.0% increase from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were US$1.16 and US$1.16, respectively.
Cash Flow
Net operating cash flow for the first fiscal quarter of 2019 was approximately US$231.5 million. Capital expenditures for the quarter were US$62.4 million, which were primarily attributable to the opening of 65 facilities and renovations at existing learning centers.
Balance Sheet
As of August 31, 2018, New Oriental had cash and cash equivalents of US$833.1 million, as compared to US$983.3 million as of May 31, 2018. In addition, the Company had US$100.8 million in term deposits, US$1,698.0 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 first quarter of fiscal year 2019 was US$1,146.7 million, an increase of 23.3% as compared to US$930.0 million at the end of the first quarter of fiscal year 2018. The Company adopted Revenue from Contracts with Customers ("Topic 606") starting June 1, 2018, and as a result, as of August 31, 2018, US$66.0 million of deferred revenue was reclassified to accrued expenses and other current liabilities, representing estimated amounts of tuition collected that may be refunded in the future if students withdraw from a course for any remaining classes.
New Accounting Standards
"New Revenue Accounting Standard"
On June 1, 2018, the Company adopted Revenue from Contracts with Customers ("Topic 606"), applying the modified retrospective method to all contracts that were not completed as of June 1, 2018. Results for reporting periods beginning June 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior periods. The Company assessed variable consideration included in its overseas study consulting service over the expected service period. The cumulative effect of US$1.1 million was recorded as an adjustment to the opening balance of retained earnings upon the initial adoption.
"New Financial Instruments Accounting Standard"
The Company adopted the new financial instruments accounting standard on June 1, 2018. Upon the adoption, the equity securities with readily determinable fair value are stated at fair value with changes recorded through the income statements, which could vary significantly from quarter to quarter. Approximately US$97.9 million of accumulated other comprehensive income for the available-for-sale equity securities with readily determinable fair value that existed as of May 31, 2018 was reclassified to the opening balance of retained earnings. A loss of approximately US$47.0 million from the fair value changes to the equity securities with readily determinable fair value was recorded in other income during the first fiscal quarter ended August 31, 2018.
Outlook for Second Quarter of Fiscal Year 2019
New Oriental expects total net revenues in the second quarter of fiscal year 2019 (September 1, 2018 to November 30, 2018) to be in the range of US$568.5 million to US$586.4 million, representing year-over-year growth in the range of 22% to 26%.
If not taking into consideration the impact of potential change in exchange rate between Renminbi and the U.S. Dollar, the projected revenue growth rate is expected to be in the range of 27% to 31% for the second 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 October 23, 2018, U.S. Eastern Time (8 PM on October 23, 2018, 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: | 6497058 |
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 October 31, 2018:
| International: | +61 2 8199 0299 Werbung Mehr Nachrichten zur New Oriental Education & Technology Group Inc. ADR Aktie kostenlos abonnieren
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