New Oriental Education & Technology Group Inc. (the “Company” or “New Oriental”) (NYSE: EDU/ 9901.SEHK), a provider of private educational services in China, announced its unaudited financial results for the first fiscal quarter ended August 31, 2022, which is the first quarter of New Oriental’s fiscal year 2023.
Financial Highlights for the First Fiscal Quarter Ended August 31, 2022
- Total net revenues decreased by 43.1% year over year to US$744.8 million for the first fiscal quarter of 2023.
- Operating income increased by 140.5% year over year to US$78.0 million for the first fiscal quarter of 2023.
- Net income attributable to New Oriental increased by 9.0% year over year to US$66.0 million for the first fiscal quarter of 2023.
Key Financial Results
|(in thousands US$, except per ADS(1) data)||1Q FY2023||1Q FY2022(5)||% of change|
|Net revenues||744,822||1,308,811||-43.1 %|
|Operating income||77,989||32,433||140.5 %|
|Non-GAAP operating income (2)(3)||97,044||75,610||28.3 %|
|Net income attributable to New Oriental||66,002||60,530||9.0 %|
|Non-GAAP net income attributable to New Oriental (2)(3)||83,706||111,229||-24.7 %|
|Net income per ADS attributable to New Oriental – basic||0.39||0.36||8.7 %|
|Net income per ADS attributable to New Oriental – diluted||0.38||0.36||6.8 %|
|Non-GAAP net income per ADS attributable to New Oriental
|Non-GAAP net income per ADS attributable to New Oriental
|(1) Each ADS represents ten common shares. The Hong Kong-listed shares are fully fungible with the ADSs listed on NYSE. The weighted average number of ADS and earnings per ADS have been retrospectively adjusted to reflect the ADS ratio change from one ADS representing one common share to one ADS representing ten common shares, which became effective on April 8, 2022.|
|(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 Oriental on a non-GAAP basis that excludes share-based compensation expenses and gain from fair value change of investments to provide 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.|
|(4) The Non-GAAP net income per ADS attributable to New Oriental is computed using Non-GAAP net income attributable to New Oriental and the same number of shares and ADSs used in GAAP basic and diluted EPS calculation.|
|(5) The key financial results for the first fiscal quarter of 2022 have not been previously released.|
Operating Highlights for the First Fiscal Quarter Ended August 31, 2022
- The total number of schools and learning centers was 706 as of August 31, 2022, a decrease of 38 and 850 compared to 744 as of May 31, 2022 and 1,556 as of August 31, 2021, respectively. The total number of schools was 98 as of August 31, 2022.
Michael Yu, New Oriental’s Executive Chairman, commented, “We are delighted to mark a fresh beginning of our fiscal year 2023 with both solid operational foundation and thriving new business opportunities. Our remaining key businesses continued to see a promising trend. In this fiscal quarter, the overseas test preparation and overseas study consulting businesses increased by approximately 2% and 21% year over year, respectively. Our domestic test preparation business targeting adults and university students increased by approximately 2% year over year. Simultaneously, various new business initiatives that we embarked on since the second half of fiscal year 2022 achieved positive results. The non-academic tutoring business was rolled out in over 60 cities, with 297,000 enrollments in this fiscal quarter, while the intelligent learning system and devices were adopted in around 60 cities, with 131,000 active paid users in this fiscal quarter. The encouraging performance, improving customer retention and positive customer feedback manifest our path towards a positive direction. We are delighted to see these businesses are generating revenue and we are confident that these businesses will make meaningful contribution to the Company’s revenue in this fiscal year.”
Chenggang Zhou, New Oriental’s Chief Executive Officer, added, “By the end of this fiscal quarter, the total number of schools and learning centers was reduced to 706. We focus more strategically on business opportunities in the major markets of higher-tier cities, and proactively leverage our existing infrastructure and education resources for both the remaining key businesses and new educational initiatives across cities. The continued investment in maintaining our online-merge-offline teaching system provides flexibility and high teaching quality to our customers amid the pandemic. Koolearn.com, our online education platform, further expands its online educational offerings to adults and university students. It is also very encouraging to see that DONG FANG ZHEN XUAN(东方甄选), Koolearn’s new e-commerce business featuring the sale of agricultural and other products, has continued to experience a rapid growth in the number of subscribers and customers and received overwhelming responses.”
Stephen Zhihui Yang, New Oriental’s Executive President and Chief Financial Officer, commented, “We are pleased to have achieved turnaround in profitability this quarter upon the restructuring throughout the last fiscal year. Our Non-GAAP operating margin for the quarter was 13.0% and Non-GAAP net margin for the quarter was 11.2%. We recorded a positive operating cash flow of US$185.2 million and by the end of this fiscal quarter, our cash and cash equivalents, term deposits and short-term investments totaled approximately US$4.3 billion. Our commitment to promoting our key remaining businesses, as well as cautious investment in our new initiatives will become emerging growth engines that accelerate our recovery and pursuit of profitable growth. We are confident in delivering more value to our customers, society and shareholders in the long term.”
On July 26, 2022, the Company’s board of directors authorized a share repurchase program, under which the Company may repurchase up to US$400 million of the Company’s ADSs or common shares during the period from July 28, 2022 through May 31, 2023. As of October 25, 2022, the Company accumulatively repurchased an aggregate of approximately 1.6 million ADSs for approximately US$39.6 million from the open market under the share repurchase program.
Financial Results for the First Fiscal Quarter Ended August 31, 2022
For the first fiscal quarter of 2023, New Oriental reported net revenues of US$744.8 million, representing a 43.1% decrease year over year. The decline was mainly due to the cessation of K-9 academic after-school tutoring services in compliance with the government policies in China.
Operating Costs and Expenses
Operating costs and expenses for the quarter were US$666.8 million, representing a 47.8% decrease year over year. Non-GAAP operating costs and expenses for the quarter, which exclude share-based compensation expenses, were US$647.8 million, representing a 47.5% 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 fiscal year 2022.
- Cost of revenues decreased by 51.4% year over year to US$312.1 million.
- Selling and marketing expenses decreased by 40.2% year over year to US$98.7 million.
- General and administrative expenses for the quarter decreased by 45.4% year over year to US$256.0 million. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, were US$237.4 million, representing a 44.5% decrease year over year.
Total share-based compensation expenses, which were allocated to related operating costs and expenses, decreased by 55.9% to US$19.1 million in the first fiscal quarter of 2023.
Operating Income and Operating Margin
Operating income was US$78.0 million, representing a 140.5% increase year over year. Non-GAAP income from operations for the quarter was US$97.0 million, representing a 28.3% increase year over year.
Operating margin for the quarter was 10.5%, compared to 2.5% in the same period of the prior fiscal year. Non-GAAP operating margin, which excludes share-based compensation expenses, for the quarter was 13.0%, compared to 5.8% in the same period of the prior fiscal year.
Net Income and Net Income per ADS
Net income attributable to New Oriental for the quarter was US$66.0 million, representing a 9.0% increase year over year. Basic and diluted net income per ADS attributable to New Oriental were US$0.39 and US$0.38, respectively.
Non-GAAP Net Income and Non-GAAP Net Income per ADS
Non-GAAP net income attributable to New Oriental for the quarter was US$83.7 million, representing a 24.7% decrease year over year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were US$0.49 and US$0.48, respectively.
Net operating cash flow for the first fiscal quarter of 2023 was approximately US$185.2 million and capital expenditures for the quarter were US$14.0 million.
As of August 31, 2022, New Oriental had cash and cash equivalents of US$1,103.9 million. In addition, the Company had US$1,054.7 million in term deposits and US$2,092.3 million in short-term investments.
New Oriental’s deferred revenue balance, which is primarily 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 2023 was US$1,012.5 million, a decrease of 30.3% as compared to US$1,453.3 million at the end of the first quarter of fiscal year 2022. The decrease is primarily due to the cessation of K-9 academic after-school tutoring services in compliance with the government policies in China.
Outlook for the Second Quarter of the Fiscal Year 2023
Due to seasonality of some of New Oriental’s major businesses, such as test preparation courses and overseas study consulting services, New Oriental generally records lower revenues in the second quarter of the fiscal year, with revenues typically below those of the first quarter. New Oriental expects total net revenues in the second quarter of the fiscal year 2023 (September 1, 2022 to November 30, 2022) to be in the range of US$601.4 million to US$619.2 million, representing year-over-year decline in the range of 9% to 6%.
The projected increase of revenue in our functional currency Renminbi is expected to be in the range of 1% to 4% for the second quarter of the fiscal year 2023.
This forecast reflects New Oriental’s current and preliminary view, which is subject to change.
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