New Oriental Announces Results for the Second Fiscal Quarter Ended November 30, 2010

BEIJING, Jan. 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 November 30, 2010, which is the second quarter of New Oriental's fiscal year 2011.

Highlights for the Second Fiscal Quarter Ended November 30, 2010

• Total net revenues increased by 56.3% year-over-year to US$95.7 million from US$61.2 million in the same period of the prior fiscal year.
• Net income attributable to New Oriental increased by 65.9% year-over-year to US$1.8 million from US$1.1 million in the same period of the prior fiscal year.
• Non-GAAP net income attributable to New Oriental, which excludes share-based compensation expenses, decreased by 5.5% year-over-year to US$5.2 million from US$5.5 million in the same period of the prior fiscal year.
• Loss from operations increased by 125.0% year-over-year to US$2.1 million from US$0.9 million in the same period of the prior fiscal year. Non-GAAP income from operations, which excludes share-based compensation expenses, decreased by 62.9% year-over-year to US$1.3 million from US$3.5 million in the same period of the prior fiscal year.
• Basic and diluted net income attributable to New Oriental per ADS was US$0.05 and US$0.05, respectively. Non-GAAP basic and diluted net income per ADS attributable to New Oriental, which excludes share-based compensation expenses, was US$0.13 and US$0.13, respectively. Each ADS represents four common shares of the Company.
• Total student enrollments in academic subjects tutoring and test preparation courses increased by 32.2% year-over-year to approximately 405,800 from approximately 307,000 in the same period of the prior fiscal year.
• Total number of schools and learning centers increased to 447 in the quarter ended November 30, 2010, up from 402 in the previous quarter. New Oriental built a net of 24 schools and learning centers in the quarter. In addition, we acquired Newave Education, which has 1 school and 20 learning centers. The total number of schools increased to 51 and the total number of learning centers to 396 as of November 30, 2010.

Financial and Student Enrollments Summary – Second Quarter 2011 and First Six Months of FY2011

(US$ in thousands, except per ADS data, student enrollments and percentages)

1. New Oriental provides net income attributable to New Oriental, operating income, and net income per ADS attributable to New Oriental on a Non-GAAP basis that excludes share-based compensation expenses to reflect meaningful 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.
2. Each ADS represents four common shares.

Michael Yu, New Oriental's Chairman and Chief Executive Officer, commented, "As we predicted in last quarter's earnings call, we saw a strong bounce back from the negative effects on our business from the Shanghai World Expo, achieving year-over-year revenue growth of 56.3% to US$95.7 million and earnings growth of 65.9% to US$1.8 million. Our student enrollments grew by 32.2% to about 405,800 in the second quarter of fiscal year 2011, demonstrating strong market preference for our high quality educational programs, superior customer service and "one-stop" convenient offerings. We continue to extend our substantial market leading positions in our key business segments of overseas test preparation, K-12 all-subjects after-school tutoring and English language training. We have recorded over 1.1 million student enrollments in the first half of our fiscal year 2011 and are well on our way to passing the 2 million student enrollment milestone for this fiscal year, comprised of over 1 million adult enrollments and over 1 million K-12 enrollments."

Mr. Yu continued, "We opened one new school in Luoyang city, Henan province, and a net of 24 learning centers in about 20 existing cities during this quarter. The majority of the new learning centers in large cities are small K-12 after-school tutoring facilities with only 8 to 15 classrooms which is part of our "fill-in" convenient location strategy within cities to better serve our rapidly growing student base. To further develop our K-12 all-subjects after-school tutoring business and enhance our "one-stop" shop services with not only large classes but also one-to-one and small size classes, we continued the investment in hiring and training new teachers and customer service representatives. In the 12-month period ended November 30, 2010 we added a net of over 4,700 new teachers, bringing our total headcount of teachers to over 10,800 at the end of the second quarter of fiscal year 2011. Meanwhile, we added about 950 customer service representatives and marketing staff, representing an increase of approximately 43%. The learning center expansion and headcount increase resulted in an increase in operating costs and expenses of approximately 57% year-over-year in this quarter. However, compared with the last quarter, we have managed our learning center expansion and headcount increase at a more moderate pace in the second quarter of fiscal year 2011. In the quarters ahead we will focus more attention on expense control and improving utilization of our existing facilities and staff."

Louis T. Hsieh, New Oriental's President and Chief Financial Officer, stated, "We have seen continued strong growth in each of our key business segments. First, our K-12 all-subjects after-school tutoring business recorded year-over-year enrollment growth of more than 50% to over 174,400 and year-over-year revenue growth of over 80% to over US$30.5 million for the second fiscal quarter. Within this segment, our non-English U-Can all-subjects business showed particular strength, recording year-over-year enrollment growth of more than 102% to over 27,200 and year-over-year revenue growth of over 200% to over US$8.1 million for the quarter. We continue to be the leading service provider in the K-12 all-subjects after-school tutoring market in China with approximately US$153 million in revenues and approximately 920,900 in enrollments in the 12-month period ended November 30, 2010.

Second, our overseas test preparation segment recorded year-over-year enrollment growth of more than 38% to over 73,500 and year-over-year revenue growth of over 75% to about US$28.5 million for the second fiscal quarter. We are the leader in the overseas test preparation market with approximately US$136.5 million in revenues and approximately 292,700 in enrollments in the 12–month period ended November 30, 2010.

Third, our English language training programs for K-12 students and adults recorded year-over-year enrollment growth of more than 22% to over 277,400 and year-over-year revenue growth of over 40% to over US$36 million for the second fiscal quarter. We are the leading service provider in the English language training market with approximately US$194 million revenues and approximately 1,386,000 enrollments in the 12-month period ended November 30, 2010."

Mr. Hsieh continued, "We are extremely pleased with the performance of our VIP (one-to-one to one-to-five) personalized services offered in each of our key business segments, which recorded year-over-year enrollment growth of more than 100% to over 14,200 and year-over-year revenue growth of over 225% to over US$29.6 million for the second fiscal quarter.  For the first half of fiscal year 2011, our VIP personalized services business recorded year-over-year enrollment growth of more than 114% to over 28,600 and year-over-year revenue growth of over 240% to about US$55 million. The market-driven shift in our course mix toward more VIP offerings is the primary reason we experienced an over 25% year-over-year increase in blended average selling price (ASPs) for the second fiscal quarter to over US$250 per enrollment."

Financial Results for the Fiscal Quarter Ended November 30, 2010

For the second quarter of fiscal year 2011, New Oriental reported net revenues of US$95.7 million, representing a 56.3% increase year-over-year.

Net revenues from educational programs and services for the second fiscal quarter were US$84.5 million, representing a 57.7% increase year-over-year. The growth was mainly driven by the increase in number of student enrollments in academic subjects tutoring and test preparation courses and higher average selling prices (ASPs) resulting from students selecting more expensive, smaller class options. Total student enrollments in academic subjects tutoring and test preparation courses in the second quarter of fiscal year 2011 increased by 32.2% year-over-year to approximately 405,800 from approximately 307,000 in the same period of the prior fiscal year.

Operating costs and expenses for the quarter were US$97.7 million, a 57.3% increase year-over-year. Non-GAAP operating costs and expenses, which exclude share-based compensation expenses, for the quarter were US$94.4 million, a 63.4% increase year-over-year.

Cost of revenues for the quarter increased by 60.3% year-over-year to US$44.6 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 58.9% year-over-year to US$18.6 million, primarily due to our promotion of newer service offerings and the addition of about 950 customer service representatives and marketing staff in the 12-month period ended November 30, 2010.

General and administrative expenses for the quarter increased by 52.9% year-over-year to US$34.6 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were US$31.5 million, a 70.3% increase year-over-year, primarily due to increased headcount as the Company expanded its network of schools and learning centers.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 23.6% to US$3.3 million in the second quarter of fiscal year 2011 from US$4.4 million in the same period of the prior fiscal year.

Loss from operations for the quarter was US$2.1 million, a 125.0% increase from a loss from operations of US$0.9 million in the same period of the prior fiscal year. Non-GAAP income from operations for the quarter was US$1.3 million, a 62.9% decrease from US$3.5 million in the same period of the prior fiscal year.

Operating margin for the quarter was negative 2.1%, compared to negative 1.5% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 1.3%, compared to 5.6% in the same period of the prior fiscal year.

Net income attributable to New Oriental for the quarter was US$1.8 million, representing a 65.9% increase from the same period of the prior fiscal year. Basic and diluted net income per ADS attributable to New Oriental were US$0.05 and US$0.05, respectively.

Non-GAAP net income attributable to New Oriental for the quarter was US$5.2 million, representing a 5.5% decrease from the same period of the prior fiscal year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were US$0.13 and US$0.13, respectively.

Capital expenditures for the quarter were US$19.9 million, primarily used to purchase two new buildings in Kunming and Wuhan, respectively, costing approximately US$11.1 million in total, and to add a net of 24 schools and learning centers.

As of November 30, 2010, New Oriental had cash and cash equivalents of US$248.1 million, as compared to US$293.3 million as of August 31, 2010. In addition, the Company had US$255.8 million in term deposits at the end of the quarter. Net operating cash flow for the second quarter of fiscal year 2011 was approximately US$24.3 million.

The deferred revenue balance, which is cash collected from registered students for courses and is recognized proportionally as revenue as the instructions are delivered, at the end of the second quarter of fiscal year 2011 was US$137.9 million, an increase of 94.1% as compared to US$71.1 million at the end of the second quarter of fiscal year 2010.

Financial Results for the Six Months Ended November 30, 2010

For the first six months of fiscal year 2011, New Oriental reported net revenues of US$288.0 million, representing a 36.8% increase year-over-year.  

Total student enrollments in academic subjects tutoring and test preparation courses in the first six months of fiscal year 2011 increased by 16.3% to approximately 1,110,300 from approximately 954,500 in the same period of the prior fiscal year.

Income from operations for the first six months of fiscal year 2011 was US$63.9 million, representing a 6.4% increase year-over-year. Non-GAAP income from operations for the first six months of fiscal year 2011 was US$72.2 million, representing a 6.0% increase year-over-year.

Operating margin for the first six months of fiscal year 2011 was 22.2%, compared to 28.5% 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 2011 was 25.1%, compared to 32.3% for the same period of the prior fiscal year.

Net income attributable to New Oriental for the first six months of fiscal year 2011 was US$64.2 million, representing a10.4% increase year-over-year. Basic and diluted net income per ADS attributable to New Oriental for the first six months of fiscal year 2011 amounted to US$1.68 and US$1.65, respectively.

Non-GAAP net income attributable to New Oriental for the first six months of fiscal year 2011 was US$72.5 million, representing a 9.4% 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 2011 amounted to US$1.90 and US$1.86, respectively.

Outlook for Third Quarter of Fiscal Year 2011

New Oriental expects its total net revenues in the third quarter of fiscal year 2011 (December 1, 2010 to February 28, 2011) to be in the range of US$116.8 million to US$121.3 million, representing year-over-year growth in the range of 31% to 36%. The year-over-year comparison growth forecast for the third fiscal quarter of 2011 has factored in a regular three-week winter holiday for students this year, compared to last year's longer-than-usual winter holidays for students in most Chinese provinces due to the late timing of Chinese New Year, which fell on February 14, 2010, allowing our students to study for longer periods and enroll in more sessions last year. 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 18, 2011 U.S. Eastern Time (9 PM on January 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 January 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 four 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 third quarter of fiscal year 2011 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.

SOURCE New Oriental Education and Technology Group Inc.

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