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China Distance Education Holdings Limited Reports Financial Results for Third Quarter Fiscal Year 2018

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China Distance Education Holdings Limited Reports Financial Results for Third Quarter Fiscal Year 2018

PR Newswire

Third Quarter 2018 Net Revenue Up 33.8% Year-Over-Year to $47.4 Million, Exceeding High-End of Guidance Range -
- Third Quarter 2018 Net Income Up 75.3% Year-Over-Year to $5.1 Million -
Third Quarter 2018 Cash Receipts from Online Course Registration Up 51.6% Year -Over-Year to $38.5 Million -

BEIJING, Aug. 15, 2018 /PRNewswire/ -- China Distance Education Holdings Limited (NYSE:DL) ("CDEL", or the "Company"), a leading provider of online education and value-added services for professionals and corporate clients in China, today announced unaudited financial results for the third quarter of fiscal year 2018 ended June 30, 2018.

Third Quarter Fiscal 2018 Financial and Operational Highlights

  • Net revenue increased by 33.8% to $47.4 million from $35.4 million in the prior year period.
  • Total course enrollments were 568,800, a decrease of 13.7% from the third quarter of fiscal 2017.
  • Cash receipts from online course registration were $38.5 million, a 51.6% increase from the third quarter of fiscal 2017.
  • Gross profit increased by 19.0% to $22.8 million from $19.2 million in the prior year period.
  • Non-GAAP[1] gross profit increased by 19.0% to $22.9 million from $19.2 million in the prior year period.
  • Gross margin was 48.2%, compared with 54.1% in the prior year period. Non-GAAP1 gross margin was 48.2%, compared with 54.3% in the prior year period.
  • Operating income decreased by 66.5% to $1.6 million from $4.7 million in the prior year period.
  • Non-GAAP[1] operating income decreased by 57.5% to $2.2 million from $5.2 million in the prior year period.
  • Net income increased by 75.3% to $5.1 million from $2.9 million in the prior year period.
  • Non-GAAP[1] net income increased by 68.8% to $5.8 million from $3.4 million in the prior year period.
  • Basic and diluted net income per American Depositary Share ("ADS") were $0.154 compared with basic and diluted net income per ADS of $0.089, for the third quarter of fiscal 2017. Each ADS represents four ordinary shares.
  • Basic and diluted non-GAAP[1] net income per ADS were $0.174 and $0.173, respectively, compared with basic and diluted non-GAAP[1] net income per ADS of $0.104 and $0.103, respectively, for the third quarter of fiscal 2017.
  • Cash flow from operations increased by 59.6% to $12.4 million from $7.8 million in the third quarter of fiscal 2017.

Mr. Zhengdong Zhu, Chairman and CEO of CDEL, said, "We delivered strong results in our third quarter, highlighted by a 33.8% year-over-year increase in net revenue which exceeded the high end of our guidance range. The top-line outperformance in the third quarter relative to our guidance was driven primarily by our market-leading accounting vertical, which has produced strong revenue growth since the beginning of fiscal year 2018 through the third fiscal quarter. In addition, we are pleased to report that our cash receipts from online course registration were up 51.6% year-over-year in our third fiscal quarter, primarily due to strong cash receipts from our core accounting test preparation courses, and more student enrollments in our longer duration premium and elite classes. Our total course enrollments were down 13.7% year-over-year in the third quarter, primarily attributable to a decrease in enrollments of our continuing education courses. However, our accounting test preparation course enrollments grew 9.9% year-over-year."

Mr. Zhu concluded, "As we look ahead, in addition to driving growth in our three established industry verticals – accounting, healthcare, and engineering and construction, our previously announced acquisition of Beijing Ruida, a leading provider of exam preparation services for participants in China's national judicial examination, further diversifies our business model and squarely positions us in a fourth important vertical – legal. Our investment in Beijing Ruida is well aligned with our strategy of expanding into select educational disciplines, with the goal of further enhancing our life-long learning ecosystem and our future growth opportunities."

Mr. Mark Marostica, Co-Chief Financial Officer of CDEL, said, "Strong revenue growth combined with effective cost control drove a return to profitability in our third fiscal quarter as anticipated. However, the increase in fair value of contingent consideration with respect to our 40% equity interest investment in Beijing Ruida, resulting from the outperformance of Beijing Ruida in 2017, adversely impacted our operating income in the third fiscal quarter. Excluding such change in fair value impact, our adjusted operating income and adjusted net income in the third fiscal quarter were $6.0 million and $8.5 million, representing 27.9% and 191.6% year-over-year growth, respectively. We will continue to balance our efforts to drive growth with a keen focus on profitability and prudent cost control."

CEO Share Purchase Plan

As previously announced on June 25, 2018 by the Company, Mr. Zhengdong Zhu, Chairman and CEO of CDEL, had informed the Company of his intention to use his personal funds to purchase the Company's shares for an amount up to a maximum of $25 million within one year. As of July 31, 2018, Mr. Zhu had bought a total of approximately $450,000 of the Company's ADSs on the open market pursuant to a 10b5-1 plan in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

Third Quarter Fiscal 2018 Financial Results

Net Revenue. Total net revenue increased by 33.8% to $47.4 million in the third quarter of fiscal 2018 from $35.4 million in the third quarter of fiscal 2017. Net revenue from online education services, books and reference materials, and other sources contributed 73.1%, 11.2% and 15.7%, respectively, of total net revenues for the third quarter of fiscal 2018.

Online education services. Net revenue from online education services increased by 30.9% to $34.7 million in the third quarter of fiscal 2018 from $26.5 million in the third quarter of fiscal 2017, mainly due to strong revenue growth from the core test preparation courses and practical skills training courses of our accounting vertical.

Books and reference materials. Net revenue from books and reference materials increased by 34.0% to $5.3 million in the third quarter of fiscal 2018, from $4.0 million in the third quarter of fiscal 2017. 

Others. Net revenue from other sources increased by 49.1% to $7.4 million in the third quarter of fiscal 2018 from $5.0 million in the third quarter of fiscal 2017, primarily due to revenue growth from offline accounting professional training courses, the sale of learning simulation software, as well as revenue from accounting and related advisory services contributed by Jiangsu Zhengbao Asset Financial Advisory Co., Ltd.. The increase in revenue from other sources was partially offset by a decrease in revenue from business start-up training services.

Cost of Sales. Cost of sales increased by 51.3% to $24.6 million in the third quarter of fiscal 2018 from $16.3 million in the third quarter of fiscal 2017. Non-GAAP[1] cost of sales increased by 51.4% to $24.5 million in the third quarter of fiscal 2018 from $16.2 million in the third quarter of fiscal 2017. The increase was mainly due to increased salaries and related expenses resulting from a higher number of personnel for the expansion of online and offline course offerings, increased lecture fees, increased cost of books and reference materials, increased rental and related expenses, as well as other miscellaneous expenses.

Gross Profit and Gross Margin. Gross profit was $22.8 million in the third quarter of fiscal 2018, up 19.0% from $19.2 million in the prior year period. Non-GAAP[1] gross profit was $22.9 million, increasing by 19.0% from $19.2 million in the prior year period. Gross margin was 48.2% in the third quarter of fiscal 2018, compared with 54.1% in the third quarter of fiscal 2017. Non-GAAP[1] gross margin was 48.2% in the third quarter of fiscal 2018, compared with 54.3% in the third quarter of fiscal 2017.

Operating Expenses. Total operating expenses increased by 20.7% to $17.7 million in the third quarter of fiscal 2018, from $14.6 million in the prior year period. Non-GAAP[1] total operating expenses increased by 20.3% to $17.1 million in the third quarter of fiscal 2018, from $14.2 million in the prior year period.

Selling expenses. Selling expenses increased by 24.8% to $13.0 million in the third quarter of fiscal 2018 from $10.4 million in the prior year period. Non-GAAP[1] selling expenses increased by 24.9% to $12.9 million in the third quarter of fiscal 2018 from $10.4 million in the prior year period. The increase was primarily driven by an increase in salaries and related expenses and higher commissions to our agents. The increase was partially offset by a decrease in advertising and promotional expenses.

General and administrative expenses. General and administrative expenses increased by 10.5% to $4.7 million in the third quarter of fiscal 2018 from $4.3 million in the prior year period. Non-GAAP[1] general and administrative expenses increased by 8.0% to $4.1 million in the third quarter of fiscal 2018 from $3.8 million in the prior year period. The increase was mainly due to increased salaries and related expenses.

Change in fair value of contingent consideration payable. Change in fair value of contingent consideration payable of $4.4 million was attributable to the increase in fair value of contingent consideration with respect to our 40% equity interest investment in Beijing Ruida, resulting from the outperformance of Beijing Ruida in 2017.

Income Tax Expense. Income tax expense increased by 80.3% to $1.3 million in the third quarter of fiscal 2018 from $0.7 million in the prior year period, primarily due to an increase in taxable income.

Net Income. As a result of the foregoing, net income was $5.1 million in the third quarter of fiscal 2018 compared with $2.9 million in the prior year period. Non-GAAP[1] net income was $5.8 million in the third quarter of fiscal 2018 compared with $3.4 million in the prior year period.

Operating Cash Flow. Net operating cash inflow increased by 59.6% to $12.4 million in the third quarter of fiscal 2018 from $7.8 million in the prior year period. The operating cash inflow was mainly attributable to net income before non-cash items generated in the third quarter of fiscal 2018. The decrease in accounts receivable and the increase in accrued expenses and other liabilities, income tax payable and refundable fees also contributed to the operating cash inflow. The operating cash inflow was partially offset by the increase in inventories and deferred cost, and the decrease in deferred revenue.

Cash and Cash Equivalents, Restricted Cash and Short-term Investments. Cash and cash equivalents, restricted cash and short-term investments as of June 30, 2018 decreased by 2.2% to $91.5 million from $93.5 million as of March 31, 2018, mainly due to (i) the payment of investments of $0.7 million, (ii) the capital expenditure of $4.5 million, and (iii) the exchange rate effect of depreciation of Renminbi against U.S. dollar on our funds denominated in Renminbi. The decrease was partially offset by the operating cash inflow generated in the third quarter of fiscal 2018.

First Nine Months of Fiscal 2018 Financial Results

Net Revenue. Total net revenue increased by 26.6% to $113.0 million in the first nine months of fiscal 2018 from $89.3 million in the first nine months of fiscal 2017. Net revenue from online education services, books and reference materials, and other sources contributed 71.2%, 8.0% and 20.8%, respectively, of total net revenues for the first nine months of fiscal 2018.

Online education services. Net revenue from online education services increased by 26.8% to $80.5 million in the first nine months of fiscal 2018 from $63.5 million in the first nine months of fiscal 2017.

Books and reference materials. Net revenue from books and reference materials increased by 32.0% to $9.1 million in the first nine months of fiscal 2018, from $6.9 million in the first nine months of fiscal 2017. 

Others. Net revenue from other sources increased by 23.9% to $23.5 million in the first nine months of fiscal 2018 from $18.9 million in the first nine months of fiscal 2017.

Cost of Sales. Cost of sales increased by 50.9% to $61.6 million in the first nine months of fiscal 2018 from $40.9 million in the first nine months of fiscal 2017. Non-GAAP[1] cost of sales increased by 51.0% to $61.5 million in the first nine months of fiscal 2018 from $40.7 million in the first nine months of fiscal 2017.

Gross Profit and Gross Margin. Gross profit was $51.4 million in the first nine months of fiscal 2018, up 6.1% from $48.4 million in the prior year period. Non-GAAP[1] gross profit was $51.5 million, up 6.1% from $48.5 million in the prior year period. Gross margin was 45.5% in the first nine months of fiscal 2018, compared with 54.2% in the first nine months of fiscal 2017. Non-GAAP[1] gross margin was 45.6% in the first nine months of fiscal 2018, compared with 54.4% in the first nine months of fiscal 2017.

Operating Expenses. Total operating expenses increased by 16.4% to $45.9 million in the first nine months of fiscal 2018, from $39.4 million in the prior year period. Non-GAAP[1] total operating expenses increased by 16.4% to $44.3 million in the first nine months of fiscal 2018, from $38.1 million in the prior year period.

Selling expenses. Selling expenses increased by 17.0% to $30.4 million in the first nine months of fiscal 2018 from $26.0 million in the prior year period. Non-GAAP[1] selling expenses increased by 17.1% to $30.4 million in the first nine months of fiscal 2018 from $25.9 million in the prior year period.

General and administrative expenses. General and administrative expenses increased by 15.1% to $15.5 million in the first nine months of fiscal 2018 from $13.4 million in the prior year period. Non-GAAP[1] general and administrative expenses increased by 14.9% to $14.0 million in the first nine months of fiscal 2018 from $12.2 million in the prior year period.

Income Tax Expense. Income tax expense decreased by 77.1% to $0.6 million in the first nine months of fiscal 2018 from $2.6 million in the prior year period.

Net Income. As a result of the foregoing, net income was $2.0 million in the first nine months of fiscal 2018 compared with net income of $9.1 million in the prior year period. Non-GAAP[1] net income was $3.6 million in the first nine months of fiscal 2018 compared with net income of $10.5 million in the prior year period.

Operating Cash Flow. Net operating cash inflow increased by 1.7% to $35.1 million in the first nine months of fiscal 2018 from $34.5 million in the prior year period.

Outlook

For the fourth quarter of fiscal 2018, the Company expects to generate total net revenue in the range of $54.2 million to $56.3 million, representing year-over-year growth of approximately 30% to 35%.

For fiscal year 2018, the Company expects to generate total net revenues in the range of $167.3 million to $169.3 million, representing year-over-year growth of approximately 27.7% to 29.3%.

The above guidance reflects the Company's current and preliminary view, which is subject to change.

Conference Call

Management will hold a conference call at 8:00 a.m. Eastern Time on Thursday, August 16, 2018 (8:00 p.m. Beijing Time on Thursday, August 16, 2018) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

US Toll Free:

+1-866-519-4004

International:

+65-6713-5090

Mainland China:

400-620-8038

Hong Kong:

+852-3018-6771

United Kingdom:

+44-203-6214-779

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