New Oriental Announces Results for the First Fiscal Quarter Ended August 31, 2011

BEIJING, Oct. 18, 2011 /PRNewswire-Asia/ -- New Oriental Education and Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU), the largest provider of private educational services in China, today announced its unaudited financial results for the fiscal quarter ended August 31, 2011, which is the first quarter of New Oriental's fiscal year 2012.

Highlights for the First Fiscal Quarter Ended August 31, 2011

• Total net revenues increased by 41.4% year-over-year to US$272.0 million from US$192.3 million in the same period of the prior fiscal year.
• Net income attributable to New Oriental increased by 45.5% year-over-year to US$90.7 million from US$62.4 million in the same period of the prior fiscal year.
• Non-GAAP net income attributable to New Oriental, which excludes share-based compensation expenses, increased by 44.9% year-over-year to US$97.5 million from US$67.3 million in the same period of the prior fiscal year.
• Income from operations increased by 43.7% year-over-year to US$94.8 million from US$65.9 million in the same period of the prior fiscal year.
• Non-GAAP income from operations, which excludes share-based compensation expenses, increased by 43.3% year-over-year to US$101.6 million from US$70.9 million in the same period of the prior fiscal year.
• Basic and diluted net income attributable to New Oriental per ADS(1) were US$0.59 and US$0.58, respectively. Non-GAAP basic and diluted net income per ADS, which excludes share-based compensation expenses, were US$0.63 and US$0.62, respectively. Each ADS represents one common share of the Company.
• Total student enrollments in academic subjects tutoring and test preparation courses increased by 14.6% year-over-year to approximately 807,700 from approximately 704,500 in the same period of the prior fiscal year.

"We are pleased to start our 2012 fiscal year with solid financial results, recording strong year-over-year revenue growth of 41.4% and even higher profit growth of 45.5%," said Michael Yu, New Oriental's Chairman and Chief Executive Officer. "We continue to see very robust demand for New Oriental's high quality educational programs and service offerings despite the economic challenges facing China and the rest of the world. We had a strong deferred revenue balance of US$175 million at the end of this quarter, up over 73% year-over-year. Education spending is more resilient than other consumer discretionary categories in China, ranking only behind food and housing in priority among Chinese households. In fact, during the last global economic downturn caused by the financial crisis in late 2008 and the first half of 2009, New Oriental continued to experience strong demand with revenues growing by over 45% to more than US$292 million for our 2009 fiscal year ending in May 2009," added Mr. Yu.

Mr. Yu continued, "We executed our expansion plan in this quarter by opening two new schools in the cities of Tangshan and Urumqi, along with a net of 20 learning centers in about 15 existing cities. We had a total of 488 facilities in 49 cities as of August 31, 2011, consisting of 55 schools and 433 learning centers, excluding the one school and 20 learning centers we acquired from Newave Education in September 2010(2)."

Louis T. Hsieh, New Oriental's President and Chief Financial Officer, commented, "Our robust top-line performance was primarily driven by continued strong growth in several of our key business lines. First, our overseas test preparation programs recorded year-over-year enrollment growth of more than 19% to about 107,800 and year-over-year gross revenue growth of over 48% to over US$92 million in this quarter. Second, our K-12 all-subjects after-school tutoring business recorded year-over-year enrollment growth of more than 24% to over 436,600 and year-over-year gross revenue growth of over 50% to over US$94 million in this quarter. Among our different class-size formats, our VIP personalized classes continued the most rapid growth, with year-over-year enrollment growth of more than 46% to about 21,200 and year-over-year cash revenue growth of over 65% to over US$42 million in this quarter. Finally, our Vision Overseas Study Consulting business continued to outperform, with year-over-year gross revenue growth of approximately 110% to over US$13.4 million in this quarter."

Financial Results for the Fiscal Quarter Ended August 31, 2011

For the first fiscal quarter of 2012, New Oriental reported net revenues of US$272.0 million, representing a 41.4% increase year-over-year.

Net revenues from educational programs and services for the first fiscal quarter were US$251.9 million, representing a 39.3% increase year-over-year. Growth was mainly driven by an increase in the number of student enrollments in academic subjects tutoring and test preparation courses.  The growth was also driven by the higher average selling prices resulting from price increases and students selecting more expensive, smaller class options. Total student enrollments in academic subjects tutoring and test preparation courses in the first quarter of fiscal year 2012 increased by 14.6% year-over-year to approximately 807,700 from approximately 704,500 in the same period of the prior fiscal year.

Operating costs and expenses for the quarter were US$177.2 million, a 40.2% increase year-over-year. Non-GAAP operating costs and expenses, which exclude share-based compensation expenses, for the quarter were US$170.4 million, a 40.3% increase year-over-year.

Cost of revenues for the quarter increased by 39.6% year-over-year to US$92.7 million, primarily due to the increased number of courses and the greater number of schools and learning centers in operation.

Selling and marketing expenses for the quarter increased by 22.2% year-over-year to US$28.5 million, primarily due to brand promotion expenses and an increase in the number of customer service representatives and marketing staff.

General and administrative expenses for the quarter increased by 52.8% year-over-year to US$56.0 million. Non-GAAP general and administrative expenses, which excludes share-based compensation expenses, were US$49.4 million, a 54.8% increase year-over-year, primarily due to increased headcount as the Company expanded its network of schools and learning centers, and invested in content and new program development offerings, as well as in improving teacher training resources.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 37.7% to US$6.8 million in the first quarter of fiscal year 2012 from US$4.9 million in the same period of the prior fiscal year. Approximately US$0.7 million of the year-over-year increase was due to an adjustment to account for a lower-than-expected forfeiture rate in previous fiscal years, due to the fact that fewer New Oriental employees who received stock-based compensation awards left the Company and had their unvested awards forfeited than anticipated.

Income from operations for the quarter was US$94.8 million, a 43.7% increase from US$65.9 million in the same period of the prior fiscal year. Non-GAAP income from operations for the quarter was US$101.6 million, a 43.3% increase from US$70.9 million in the same period of the prior fiscal year.

Operating margin for the quarter was 34.8%, compared to 34.3% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 37.3%, compared to 36.9% in the same period of the prior fiscal year. This rise was primarily due to improved operating efficiency as revenue growth outpaced the growth in operating costs and expenses.

Net income attributable to New Oriental for the quarter was US$90.7 million, representing a 45.5% increase from the same period of the prior fiscal year. Basic and diluted earnings per ADS attributable to New Oriental were US$0.59 and US$0.58, respectively.

Non-GAAP net income attributable to New Oriental for the quarter was US$97.5 million, representing a 44.9% increase from the same period of the prior fiscal year. Non-GAAP basic and diluted earnings per ADS attributable to New Oriental were US$0.63 and US$0.62, respectively.

Capital expenditures for the quarter were US$15.0 million, which were primarily used to add schools and learning centers.

As of August 31, 2011, New Oriental had cash and cash equivalents of US$398.4 million, as compared to US$317.3 million as of May 31, 2011. In addition, the Company had US$103.8 million in term deposits and US$203.8 million in short term investment as of August 31, 2011. Net operating cash flow for the first quarter of fiscal year 2012 was approximately US$98.3 million.

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, as of August 31, 2011, was US$174.7 million, an increase of 73.6% as compared to US$100.6 million as of August 31, 2010.

Outlook for Second Quarter of Fiscal Year 2012

New Oriental expects its total net revenues in the second quarter of fiscal year 2012 (September 1, 2011, to November 30, 2011) to be in the range of US$124.4 million to US$129.1 million, representing year-over-year growth in the range of 30% 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 18, 2011, U.S. Eastern Time (8 PM on October 18, 2011 Beijing/Hong Kong time).

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

Please dial-in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is "New Oriental Earnings Call."

A replay of the conference call may be accessed by phone at the following number until October 25, 2011:

Additionally, a live and archived webcast of the conference call will be available at http://investor.neworiental.org.

About New Oriental

New Oriental is the largest provider of private educational services in China based on the number of program offerings, total student enrollments and geographic presence. New Oriental offers a wide range of educational programs, services and products consisting primarily of English and other foreign language training, test preparation courses for major admissions and assessment tests in the United States, the PRC and Commonwealth countries, primary and secondary school education, development and distribution of educational content, software and other technology, and online education. New Oriental's ADSs, each of which represents one common shares, 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 2012 and quotations from management in this announcement, as well as New Oriental's strategic and operational plans, contain forward-looking statements. New Oriental may also make written or oral forward-looking statements in its reports filed or furnished to the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about New Oriental's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: our ability to attract students without a significant decrease in course fees; our ability to continue to hire, train and retain qualified teachers; our ability to maintain and enhance our "New Oriental" brand; our ability to effectively and efficiently manage the expansion of our school network and successfully execute our growth strategy; the outcome of ongoing, or any future, litigation or arbitration, including those relating to copyright and other intellectual property rights; competition in the private education sector in China; changes in our revenues and certain cost or expense items as a percentage of our revenues; the expected growth of the Chinese private education market; Chinese governmental policies relating to private educational services and providers of such services; health epidemics and other outbreaks in China; and general economic conditions in China. Further information regarding these and other risks is included in our annual report on Form 20-F and other documents filed with the Securities and Exchange Commission. New Oriental does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of this press release, and New Oriental undertakes no duty to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement New Oriental's consolidated financial results presented in accordance with GAAP, New Oriental uses the following measures defined as non-GAAP financial measures by the SEC: net income excluding share-based compensation expenses, operating income excluding share-based compensation expenses, operating costs and expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, operating margin excluding share-based compensation expenses, and basic and diluted net income per ADS and per share excluding share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

New Oriental believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses that may not be indicative of its operating performance from a cash perspective. New Oriental believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to New Oriental's historical performance and liquidity.  New Oriental computes its non-GAAP financial measures using the same consistent method from quarter to quarter.  New Oriental believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using these non-GAAP measures is that they exclude share-based compensation charge that has been and will continue to be for the foreseeable future a significant recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Contacts

For investor and media inquiries, please contact:

In China:

Ms. Sisi Zhao
New Oriental Education and Technology Group Inc.
Tel: +86-10-6260-5568
Email: [email protected]

Mr. Martin Reidy
Beijing Brunswick Consultancy Ltd.
Tel: +86-10-5960 8616
Email: [email protected]

In the U.S.:

Ms. Kate Tellier
Brunswick Group LLC
Tel: +1-212 333 3810
Email: [email protected]

SOURCE New Oriental Education and Technology Group Inc.

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