NEW ORIENTAL(EDU) - 2019 Q4 - Annual Report

Revenue Growth - In the fiscal years ended May 31, 2017, 2018, and 2019, the company generated total net revenues of $1,799.5 million, $2,477.4 million, and $3,096.5 million, respectively, reflecting a growth trend in revenue [407]. - Total net revenues increased by 26.5% from US$2,447.4 million for the fiscal year ended May 31, 2018 to US$3,096.5 million for the fiscal year ended May 31, 2019 [438]. - Net revenues from educational programs and services rose by 28.6% from US$2,165.2 million in fiscal year 2018 to US$2,785.3 million in fiscal year 2019, driven by an increase in student enrollments from approximately 6.3 million to 8.4 million [438]. - Net revenues from language training and test preparation courses increased by 28.8% from US$2,023.0 million for the fiscal year ended May 31, 2018 to US$2,605.8 million for the fiscal year ended May 31, 2019 [452]. Operating Costs and Expenses - Operating costs and expenses as a percentage of total net revenues were 85.4% in 2017, 89.2% in 2018, and 90.3% in 2019, indicating rising operational costs [417]. - Total operating costs and expenses rose by 27.9% from US$2,184.5 million in fiscal year 2018 to US$2,794.6 million in fiscal year 2019 [440]. - Cost of revenues increased from $749.6 million (41.7% of net revenues) in 2017 to $1,376.3 million (44.5% of net revenues) in 2019, reflecting higher teaching fees and operational expenses [417]. - Cost of revenues increased by 29.1% from US$1,065.7 million in fiscal year 2018 to US$1,376.3 million in fiscal year 2019, mainly due to higher teaching fees and performance-linked bonuses [440]. Marketing and Administrative Expenses - Selling and marketing expenses were $232.8 million (12.9% of net revenues) in 2017, $324.2 million (13.2%) in 2018, and $384.3 million (12.4%) in 2019, showing a consistent investment in brand promotion [418]. - General and administrative expenses rose from $554.9 million (30.8% of net revenues) in 2017 to $1,034.0 million (33.4%) in 2019, driven by increased personnel costs [418]. - Selling and marketing expenses grew by 18.5% from US$324.2 million in fiscal year 2018 to US$384.3 million in fiscal year 2019, attributed to the addition of over 3,800 new sales and marketing personnel [440]. - General and administrative expenses increased by 30.1% from US$794.5 million in fiscal year 2018 to US$1,034.0 million in fiscal year 2019, primarily due to a US$601.1 million rise in human resources expenses [440]. Student Enrollment and Market Expansion - The number of student enrollments is a significant factor affecting revenues, driven by demand for courses, marketing effectiveness, and competitive pressure [404]. - The company plans to expand its school network and increase the variety of courses offered, including smaller-size classes, to capture a larger share of the education market in China [406]. - The number of student enrollments in language training and test preparation courses increased from approximately 4.8 million in the fiscal year ended May 31, 2017 to over 6.3 million in the fiscal year ended May 31, 2018 [442]. Financial Position and Cash Flow - As of May 31, 2019, the company had US$1,414.2 million in cash and cash equivalents and US$4.0 million in restricted cash [496]. - Net cash provided by operating activities was US$805.6 million for the fiscal year ended May 31, 2019, reflecting a net income of US$227.8 million [501]. - Net cash used in investing activities amounted to US$574.7 million in the fiscal year ended May 31, 2019, primarily for the purchase of property and equipment [505]. - Net cash provided by financing activities was US$266.6 million in the fiscal year ended May 31, 2019, mainly due to proceeds from the IPO of Koolearn [508]. Acquisitions and Investments - The company acquired Hangzhou Shengshen Technology Co., Ltd for US$11.0 million and Suzhou Hongyi Education Investment Co., Ltd for US$41.7 million in recent acquisitions [433]. - Capital expenditures for the fiscal year ended May 31, 2019, were US$269.1 million, primarily for investments in facilities, equipment, technology, and operating systems to support expected growth [516]. - The company intends to allocate capital resources cost-efficiently by leasing most new facilities and may pursue acquisitions that complement operations [516]. Legal and Regulatory Matters - The company is subject to legal proceedings, including a putative securities class action filed in December 2016, which alleges material misstatements in public filings [585]. - The company relies on dividends from its subsidiaries in China, which are subject to PRC regulations regarding profit distribution [590]. Shareholder and Employee Matters - The company paid approximately US$3.2 million in cash to executive officers and non-executive directors for the fiscal year ended May 31, 2019 [540]. - Contributions to pension insurance, medical insurance, housing fund, and other benefits for executive officers and non-executive directors totaled US$133,000 [540]. - As of May 31, 2019, the company had 54,758 full-time employees and 9,569 contract teachers and staff, showing an increase from 44,531 and 9,711 in 2018 [564]. Technology and Operational Efficiency - The company has developed an O2O two-way interactive learning platform to enhance the learning experience and integrate online and offline education [410]. - The technology platform includes e-learning systems and licensed speech recognition platforms, aimed at enhancing operational efficiency and scalability [517]. - The company has established performance monitoring for key systems to ensure reliability and quick response to potential issues [518].