New Oriental Education (EDU) Tops Q3 EPS by 3c, Revenues Beat; Offers 4Q Revenue Guidance Above Consensus

New Oriental Education (NYSE: EDU) reported Q3 EPS of $0.10, $0.03 better than the analyst estimate of $0.07. Revenue for the quarter came in at $1.19 billion versus the consensus estimate of $1.14 billion.

Financial Highlights for the Third Fiscal Quarter Ended February 28, 2021

• Total net revenues increased by 29.0% year-over-year to US$1,190.5 million for the third fiscal quarter of 2021.
• Operating income decreased by 13.5% year-over-year to US$101.5 million for the third fiscal quarter of 2021.
• Net income attributable to New Oriental increased by 9.9% year-over-year to US$151.3 million for the third fiscal quarter of 2021.

Michael Yu, New Oriental's Executive Chairman, commented, "We are pleased to see continued strong recovery of businesses for the third quarter despite the challenges from a small wave of Covid-19 outbreak in around 20 cities in north China where we responded swiftly and migrated offline classes to online using our OMO system during the winter. Net revenue for the third quarter exceeded our expectation, up 29.0% year over year. Our key growth driver, K-12 all-subjects after-school tutoring business, achieved year-over-year revenue growth of approximately 37%. U-Can middle and high school all-subjects after-school tutoring business grew by approximately 35%, while our POP Kids program recorded a growth of approximately 40%. Overseas related businesses are still under pressure due to the uncertainty of the pandemic situation and travel restrictions around the globe. The overseas test preparation business declined by approximately 12%, while the overseas consulting and study tour business increased by 11%, respectively. Looking ahead, we believe our business will trend toward a normalized level in the coming quarters after seeing the underlying demand for after-school tutoring picking up rapidly as the pandemic situation was well controlled nationwide. As one of the market leaders in China, we are confident that our exceptional products and services, as well as our constantly enhanced learning experience would enable us to gain market share and deliver long-term value for our shareholders."

Chenggang Zhou, New Oriental's Chief Executive Officer, added, "We believe we are well positioned to capture the market consolidation opportunity as the pandemic fades. We remain committed to ramp up our expansion effort to prepare for further taking market share from other players post-COVID. During this quarter, we opened 1 new offline training school in the city of Hengshui. The total square meters of classroom area by the end of this quarter increased approximately 17% year-over-year, and 7% quarter-over-quarter. Student enrollments for K-12 after-school tutoring business during the quarter increase by 57% year-over-year. At the same time, we continued leveraging our OMO (online merging offline) strategy, which enables our service to virtually reach a broader pool of students in existing cities and the surrounding satellite cities. In the winter semester, we piloted the OMO online courses in vast majority of existing cities and around 25 new surrounding satellite cities, attracting a promising number of new customers, accompanied by improved student retention with low customer acquisition cost. These OMO initiatives, filled with localized and differentiating content, effectively boosted enrollments and revenue with low customer acquisition cost, enabled us to seize more market share and improved our overall profitability. We are pleased to see that the OMO initiatives have solicited an increased contribution to the Company's overall revenue this quarter. Last but not least, our pure online education platform, Koolearn.com have successfully reduced their customer acquisition cost and enhanced overall in-class learning experience for customers."

Stephen Zhihui Yang, New Oriental's Executive President and Chief Financial Officer, commented, "With the gradual recovery of our topline, our margins have improved. Our Non-GAAP operating margin for the quarter was 9.7%, down 490 basis points year-over-year, which is a smaller year-over-year decline comparing with the previous quarter. Non-GAAP net margin for the quarter was 13.7%, down 240 basis points year-over-year. We will continue to buckle down on cost control and be cautious in making investment in our OMO initiatives and pure online education platform in order to keep a balance in growth and profitability. "

GUIDANCE:

New Oriental Education sees Q4 2021 revenue of $1.1019-1.1418 billion, versus the consensus of $1.09 billion.

New Oriental expects total net revenues in the fourth quarter of fiscal year 2021 (March 1, 2021 to May 31, 2021) to be in the range of US$1,101.9 million to US$1,141.8 million, representing year-over-year growth in the range of 38% to 43%.

This forecast reflects New Oriental's current and preliminary view, which is subject to change.

For earnings history and earnings-related data on New Oriental Education (EDU) click here.

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