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

BEIJING, Jan. 22, 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$, except per ADS(1) data)	2Q FY2019	2Q FY2018	% of change ARIVA.DE Börsen-Geflüster Kurse New Oriental Education & Technology Group Inc. ADR 82,50 € 0,00%
Net revenues	597,072	467,183	27.8%
Operating loss	28,553	13,070	118.5%
Non-GAAP operating loss (2)(3)	14,866	3,757	295.7%
Net (loss) / income attributable to New Oriental	(25,826)	4,279	-
Non-GAAP net income attributable to New Oriental (2)(3)	22,996	13,592	69.2%
Net (loss) / income per ADS attributable to New Oriental - basic	(0.16)	0.03	-
Net (loss) / income per ADS attributable to New Oriental - diluted	(0.16)	0.03	-
Non-GAAP net income per ADS attributable to New Oriental - basic(3)(4)	0.14	0.09	68.6%
Non-GAAP net income per ADS attributable to New Oriental - diluted(3)(4)	0.14	0.09	68.4%
(in thousands US$, 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 - basic(3)(4)	1.31	1.11	17.9%
Non-GAAP net income per ADS attributable to New Oriental - diluted(3)(4)	1.30	1.11	17.7%

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.  

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