New Oriental Announces Results for the Third Fiscal Quarter Ended February 28, 2022

BEIJING, April 26, 2022 /PRNewswire/ -- New Oriental Education & Technology Group Inc. (the "Company" or "New Oriental") (NYSE: EDU/ 9901.SEHK), a provider of private educational services in China, today announced its unaudited financial results for the third fiscal quarter ended February 28, 2022, which is the third quarter of New Oriental's fiscal year 2022.   

Financial Highlights for the Third Fiscal Quarter Ended February 28, 2022

• Total net revenues decreased by 48.4% year-over-year to US$614.1 million for the third fiscal quarter of 2022.
• Operating loss was US$141.2 million for the third fiscal quarter of 2022, compared to an income of US$101.5 million in the same period of the prior fiscal year.
• Net loss attributable to New Oriental was US$122.4 million for the third fiscal quarter of 2022, compared to an income of US$151.3 million in the same period of the prior fiscal year.

Key Financial Results

Operating Highlights for the Third Fiscal Quarter Ended February 28, 2022

• The total number of schools and learning centers was 847 as of February 28, 2022, a decrease of 778 and 822 compared to 1,625 as of February 28, 2021 and 1,669 as of May 31, 2021, respectively. The total number of schools was 111 as of February 28, 2022.

Michael Yu, New Oriental's Executive Chairman, commented, "Although the Company is in a restructuring phase, we are pleased to see a promising trend in our remaining key businesses and a positive momentum across many of our new initiatives. In the first nine months of the current fiscal year, our remaining key business, the overseas test preparation and overseas study consulting business increased by 15% year-over-year. Our domestic test preparation business targeting adults and university students recorded a rapid growth of approximately 59% year-over-year. Simultaneously, we are actively exploring various new business opportunities, including non-academic tutoring, intelligent learning system and devices, study tour and research camp, educational materials and digitalized smart study solutions, as well as exam preparation courses designed for students with junior college diplomas to obtain bachelor's degrees. These new businesses are at their early stage but we firmly believe they present a bright future for the Company, and we are confident that by leveraging our brand recognition and educational resources accumulated over our operating history, these new businesses will start to contribute meaningful revenue from the next fiscal year."

Chenggang Zhou, New Oriental's Chief Executive Officer, added, "During the last two fiscal quarters, we have largely completed our restructuring of businesses and operations to comply with the government policies in China. The total number of schools and learning centers was reduced to 847 by end of this fiscal quarter. Looking ahead, we will continue our efforts in developing and revamping our online-merge-offline teaching platform, and keep leveraging our educational infrastructure and technology strength across our remaining key businesses and new initiatives to provide more advanced and diversified educational services to our customers of all ages. Our pure online education platform, Koolearn.com, continued to expand online educational offerings to adults and university students, and actively seek business opportunities in new areas, including livestream commerce business, institutional cooperation and new intelligent learning innovations."

Stephen Zhihui Yang, New Oriental's Executive President and Chief Financial Officer, commented, " We maintained a strong cash position throughout the whole restructuring process. By the end of this quarter, our cash and cash equivalents, term deposits and short-term investments totaled approximately US$4.4 billion. In the first half of this fiscal year, the Company incurred considerable costs due to the termination of lease agreements in relation to the closure of its learning centers and employee layoffs. We believe that the loss caused by the restructuring is temporary. We are confident in the sustainable profitability of all our remaining key businesses, as well as the growth and profit potential of our new initiatives. The Company's management team will continue to work together to seek profitable growth. Our continued commitment to high quality services and operational efficiency will generate more values to our customers, society and shareholders over the long term."

Financial Results for the Third Fiscal Quarter Ended February 28, 2022

Net Revenues

For the third fiscal quarter of 2022, New Oriental reported net revenues of US$614.1 million, representing a 48.4% decrease year-over-year. Net revenues from educational programs and services for the third fiscal quarter were US$506.4 million, representing a 54.1% decrease year-over-year. The decline was mainly due to the cessation of K-9 academic after-school tutoring services in order to comply with the government policies in China.

Operating Costs and Expenses

Operating costs and expenses for the quarter were US$755.3 million, representing a 30.6% decrease year-over-year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were US$725.3 million, representing a 32.5% decrease year-over-year. The decrease was primarily due to the reduction of facilities and number of staff as a result of the restructuring in the last two fiscal quarters.   

• Cost of revenues decreased by 30.9% year-over-year to US$372.7 million.
• Selling and marketing expenses decreased by 40.0% year-over-year to US$93.7 million.
• General and administrative expenses for the quarter decreased by 26.6% year-over-year to US$288.8 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were US$259.6 million, representing a 32.3% decrease year-over-year.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 107.8% to US$30.0 million in the third fiscal quarter of 2022. The increase is due to the grants of restricted share units of the Company to employees and directors in May 2021 with graded vesting over three years.

Operating Loss / Income and Operating Margin

Operating loss was US$141.2 million, compared to an income of US$101.5 million in the same period of the prior fiscal year. Non-GAAP loss from operations for the quarter was US$111.2 million, compared to an income of US$115.9 million in the same period of the prior fiscal year.

Operating margin for the quarter was negative 23.0%, compared to 8.5% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was negative 18.1%, compared to 9.7% in the same period of the prior fiscal year.

Net Loss / Income and Net Loss per ADS

Net loss attributable to New Oriental for the quarter was US$122.4 million, compared to an income of US$151.3 million in the same period of the prior fiscal year. Basic and diluted net loss per ADS attributable to New Oriental were US$0.72 and US$0.72, respectively.

Non-GAAP Net Loss / Income and Non-GAAP Net Loss per ADS

Non-GAAP net loss attributable to New Oriental for the quarter was US$95.5 million, compared to an income of US$163.2 million in the same period of the prior fiscal year. Non-GAAP basic and diluted net loss per ADS attributable to New Oriental were US$0.56 and US$0.56, respectively.

Cash Flow

Net operating cash outflow for the third fiscal quarter of 2022 was approximately US$235.0 million and capital expenditures for the quarter were US$37.4 million.

Balance Sheet

As of February 28, 2022, New Oriental had cash and cash equivalents of US$1,466.8 million. In addition, the Company had US$915.1 million in term deposits and US$2,028.1 million in short-term investment.

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 third quarter of fiscal year 2022 was US$971.3 million, a decrease of 47.9% as compared to US$1,865.7 million at the end of the third quarter of fiscal year 2021. The decrease is primarily due to the cessation of K-9 academic after-school tutoring services in order to comply with the government policies in China. 

Financial Results for the Nine Months Ended February 28, 2022

For the first nine months of fiscal year 2022, New Oriental reported net revenues of 2,581.2 million, representing a 15.8% decrease year-over-year.

Loss from operations for the first nine months of fiscal year 2022 was US$876.9 million, compared to an income of US$219.6 million in the same period of the prior fiscal year. Non-GAAP loss from operations for the first nine months of fiscal year 2022 was US$772.7 million, compared to an income of US$268.4 million in the same period of the prior fiscal year.

Operating margin for the first nine months of fiscal year 2022 was negative 34.0%, compared to 7.2% for the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses for the first nine months of fiscal year 2022, was negative 29.9%, compared to 8.8% for the same period of the prior fiscal year.

Net loss attributable to New Oriental for the first nine months of fiscal year 2022 was US$998.4 million, compared to an income of US$379.9 million in the same period of the prior fiscal year. Basic and diluted net loss per ADS attributable to New Oriental for the first nine months of fiscal year 2022 amounted to US$5.89 and US$5.89, respectively.

Non-GAAP net loss attributable to New Oriental for the first nine months of fiscal year 2022 was US$885.9 million, compared to an income of US$416.9 million in the same period of the prior fiscal year. Non-GAAP basic and diluted net loss per ADS attributable to New Oriental for the first nine months of fiscal year 2022 amounted to US$5.22 and US$5.22, respectively.

Conference Call Information

New Oriental's management will host an earnings conference call at 8 AM on April 26, 2022, U.S. Eastern Time (8 PM on April 26, 2022, Beijing/Hong Kong Time). Participants can join the conference using the below options:

Dialling-in to the conference call:

Please register in advance of the conference, using the link provided below. Upon registering, you will be provided with participant dial-in numbers, passcode and unique registrant ID.

Conference call registration link: http://apac.directeventreg.com/registration/event/7678797. It will automatically direct you to the registration page of "New Oriental Third Fiscal Quarter 2022 Earnings Conference Call" where you may fill in your details for RSVP. If it requires you to enter a participant conference ID, please enter "7678797".

In the 10 minutes prior to the call start time, you may use the conference access information (including dial in number(s), direct event passcode and registrant ID) provided in the confirmation email received at the point of registering.

Joining the conference call via a live webcast:

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

Listening to the conference call replay:

A replay of the conference call may be accessed by phone at the following number until May 4, 2022:

About New Oriental

New Oriental is a provider of private educational services in China offering a wide range of educational programs, services and products to a varied student population throughout China. New Oriental's program, service and product offerings mainly consist of test preparation, language training for adults, education materials and distribution, online education, and other services. New Oriental is listed on NYSE (NYSE: EDU) and SEHK (9901.SEHK), respectively. New Oriental's ADSs, each of which represents ten common shares. The Hong Kong-listed shares are fully fungible with the ADSs listed on NYSE.

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 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 / (loss) excluding share-based compensation expenses and gain / (loss) from fair value change of long-term investments, operating income / (loss) 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 / (loss) per ADS and per share excluding share-based compensation expenses and gain / (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 gain / (loss) from fair value change 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 expenses and gain / (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. Sisi Zhao                                                                 Ms. Rita Fong
New Oriental Education and Technology Group Inc.     FTI Consulting                          
Tel:         +86-10-6260-5568                                          Tel:        +852 3768 4548                       
Email:     zhaosisi@xdf.cn                                             Email:    rita.fong@fticonsulting.com

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