China Distance Education Holdings Limited Reports Third Quarter Fiscal 2016 Financial Results

BEIJING, Aug. 23, 2016 /PRNewswire/ -- China Distance Education Holdings Limited (NYSE: DL) ("CDEL", or the "Company"), a leading provider of online education in China focusing on professional education, today announced unaudited financial results for the third quarter fiscal year 2016 ended June 30, 2016.

Third Quarter Fiscal 2016 Financial and Operational Highlights

• Total course enrollments reached 956,000, an increase of 12.5% from the third quarter of fiscal 2015.
• Cash receipts from online course registration were $24.3 million, a 15.2% decrease from the third quarter of fiscal 2015. Excluding the impact of the depreciation of the Renminbi against the U.S. Dollar, cash receipts from online course registration decreased by 10.8% year-over-year.
• Net revenue increased by 7.0% to $30.8 million from $28.8 million in the prior year period, exceeding the Company's guidance range of $27.3 million to $28.8 million. Xiamen NetinNet, which was acquired in the third quarter fiscal 2016, contributed net revenue of $1.1 million in the third quarter.
• Gross profit increased by 1.0% to $17.6 million from $17.4 million in the prior year period.
• Non-GAAP¹ gross profit increased by 1.0% to $17.6 million from $17.4 million in the prior year period.
• Gross margin was 57.1%, compared with 60.5% in the prior year period. Non-GAAP¹ gross margin was 57.2%, compared with 60.6% in the prior year period.
• Operating income increased by 1.4% to $6.0 million from $5.9 million in the prior year period.
• Non-GAAP¹ operating income increased by 1.6% to $6.5 million from $6.4 million in the prior year period.
• Net income increased by 41.2% to $7.4 million from $5.2 million in the prior year period.
• Non-GAAP¹ net income increased by 38.0% to $7.9 million from $5.7 million in the prior year period.
• Basic and diluted net income per American Depositary Share ("ADS") were $0.219 and $0.218, respectively, compared with basic and diluted net income per ADS of $0.146 for the third quarter of fiscal 2015. Each ADS represents four ordinary shares.
• Basic and diluted non-GAAP¹ net income per ADS were $0.234 and $0.233, respectively, compared with basic and diluted non-GAAP¹ net income per ADS of $0.161 and $0.160, respectively, for the third quarter of fiscal 2015.
• Operating cash inflow decreased by 34.7% to $8.8 million from $13.5 million in the third quarter of fiscal 2015.
• Completion of acquisition of an 80% equity interest in Xiamen NetinNet Software Co., Ltd. ("Xiamen NetinNet") for a total consideration of RMB212.0 million ($32.5 million) in May 2016.
• Successful listing of majority-owned subsidiary, Beijing Zhengbao Yucai Education Technology Co., Ltd. ("Zhengbao Yucai"), on China's New Third Board in June 2016.

Mr. Zhengdong Zhu, Chairman and CEO of CDEL, said, "We are pleased to report third quarter net revenue of $30.8 million, a 7.0% year-over-year increase, exceeding our guidance, as well as net income of $7.4 million, a 41.2% year-over-year increase compared with the third quarter of fiscal 2015. The primary drivers of our third quarter revenue growth include contributions from our accounting vertical, books and reference materials, together with our recently acquired Xiamen NetinNet business, which performed better than our expectations during the quarter. We look forward to the valuable contributions from Xiamen NetinNet in the upcoming quarters."

Mr. Zhu added, "While third quarter cash receipts from online course registration decreased by 15.2% year-over-year, we still achieved growth in cash receipts from online course registration for the first three quarters of fiscal year 2016 of 2.2% year-over-year, primarily attributable to more rapid growth of our accounting vertical during the first half of fiscal year 2016, partially offset by the continued weak demand in our engineering and construction (E&C) vertical and the impact of a later start to the enrollment season for our National Pharmacist Qualification Examination test preparation courses compared with the year-ago period as previously disclosed. Of note, since the mid-July 2016 release of the licensed pharmacist exam policy, we are pleased to see a significant rebound in the cash receipts from the related courses."

He concluded, "In the third quarter, we continued to execute on our strategic growth initiatives, including K-12 teacher continuing education, our Open Learning Platform, mobile related products, Big Data solutions, and our College Cooperation Program. In addition, we were especially pleased to complete the listing of our Zhengbao Yucai subsidiary on China's New Third Board, the over-the-counter stock exchange, in June 2016. We anticipate the listing of Zhengbao Yucai on the New Third Board will further enhance our brand awareness within the China market, and enable us to raise capital from the Chinese capital markets to fund future growth."

Mr. Mark Marostica, Co-Chief Financial Officer of CDEL, added, "Our third quarter results reflect solid operating execution coupled with diligent cost control. Of note, excluding the operating results of Xiamen NetinNet, our third quarter non-GAAP operating margin was 23.3%, up 110 basis points year-over-year, demonstrating our focus on the profitability of our business. As we head into our fourth quarter of fiscal 2016 (September), we will continue to balance investments in growth initiatives while maintaining a keen focus on profitability."

Third Quarter Fiscal 2016 Financial Results

Net Revenue. Total net revenue increased by 7.0% to $30.8 million in the third quarter of fiscal 2016 from $28.8 million in the third quarter of fiscal 2015. Net revenue from online education services, books and reference materials, and other sources contributed 82.1%, 6.3% and 11.6%, respectively, of total net revenues for the third quarter of fiscal 2016.

Online education services. Net revenue from online education services was $25.3 million in the third quarter of fiscal 2016, a 3.8% increase from $24.4 million in the third quarter of fiscal 2015, mainly due to revenue growth in our accounting vertical. This increase was partially offset by decreased revenue in healthcare and E&C verticals.

Books and reference materials. Net revenue from books and reference materials increased by 8.1% to $1.9 million in the third quarter of fiscal 2016 from $1.8 million in the third quarter of fiscal 2015.

Others. Net revenue from other sources increased by 35.2% to $3.6 million in the third quarter of fiscal 2016 from $2.6 million in the third quarter of fiscal 2015, mainly due to our recently acquired Xiamen NetinNet business, which contributed third quarter fiscal 2016 revenue of $1.1 million.

Cost of Sales. Cost of sales increased by 16.1% to $13.2 million in the third quarter of fiscal 2016 from $11.4 million in the third quarter of fiscal 2015. Non-GAAP¹ cost of sales increased by 16.1% to $13.2 million in the third quarter of fiscal 2016 from $11.4 million in the third quarter of fiscal 2015. The increase was mainly due to increased salaries and related expenses, lecture fees, cost of books and reference materials, as well as expenses associated with our Xiamen NetinNet business.

Gross Profit. Gross profit increased by 1.0% to $17.6 million in the third quarter of fiscal 2016 from $17.4 million in the prior year period. Non-GAAP¹ gross profit increased by 1.0% to $17.6 million in the third quarter of fiscal 2016 from $17.4 million in the prior year period. Gross margin was 57.1% in the third quarter of fiscal 2016, compared with 60.5% in the third quarter of fiscal 2015. Non-GAAP¹ gross margin was 57.2% in the third quarter of fiscal 2016, compared with 60.6% in the third quarter of fiscal 2015.

Operating Expenses. Total operating expenses increased by 2.0% to $11.8 million in the third quarter of fiscal 2016, from $11.5 million in the prior year period. Non-GAAP¹ total operating expenses increased by 2.0% to $11.3 million in the third quarter of fiscal 2016, from $11.1 million in the prior year period.

Selling expenses. Selling expenses decreased by 7.0% to $7.7 million in the third quarter of fiscal 2016 from $8.3 million in the prior year period. Non-GAAP¹ selling expenses decreased by 7.1% to $7.7 million in the third quarter of fiscal 2016 from $8.2 million in the prior year period. The decrease was primarily driven by decreased commissions for the Company's online distributors. This decrease was partially offset by increased salaries and related expenses, together with expenses associated with our Xiamen NetinNet business.

General and administrative expenses. General and administrative expenses increased by 25.0% to $4.1 million in the third quarter of fiscal 2016 from $3.3 million in the prior year period. Non-GAAP¹ general and administrative expenses increased by 28.5% to $3.6 million in the third quarter of fiscal 2016 from $2.8 million in the prior year period. The increase was mainly due to increased salaries and related expenses, a decrease in reversal of doubtful debts, due to collection, compared to the prior-year period, as well as expenses associated with our Xiamen NetinNet business.

Income Tax Expense. Income tax expense increased by 32.8% to $1.8 million in the third quarter of fiscal 2016 from $1.3 million in the prior year period, primarily due to an increase in taxable income.

Net Income. As a result of the foregoing, net income increased by 41.2% to $7.4 million in the third quarter of fiscal 2016 from $5.2 million in the prior year period. Non-GAAP¹ net income increased by 38.0% to $7.9 million in the third quarter of fiscal 2016 from $5.7 million in the prior year period.

Operating Cash Flow. Net operating cash inflow decreased by 34.7% to $8.8 million in the third quarter of fiscal 2016 from $13.5 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 2016. The decrease in accounts receivable, inventories, prepayment and other current assets also contributed to the operating cash inflow. This operating cash inflow was partially offset by the decrease in accrued expenses and other liabilities, and deferred revenue.

Cash and Cash Equivalents, Term Deposits, Restricted Cash and Short-term Investments. Cash and cash equivalents, term deposits, restricted cash and short-term investments as of June 30, 2016 decreased by 34.0% to $71.9 million from $109.0 million as of March 31, 2016, mainly due to the repurchase of ADSs on the open market of $14.4 million, the payment of the acquisition balance for Xiamen NetinNet of $27.6 million, a long-term investment of $0.7 million, and the capital expenditure of $0.8 million. This decrease was partially offset by cash flow generated from operating activities in the third quarter of $8.8 million.

First Nine Months of Fiscal 2016 Financial Results

Net Revenue. Total net revenue increased by 9.2% to $79.3 million in the first nine months of fiscal 2016 from $72.6 million in the first nine months of fiscal 2015. Net revenue from online education services, books and reference materials, and other sources contributed 80.0%, 6.7% and 13.3%, respectively, of total net revenues for the first nine months of fiscal 2016.

Online education services. Net revenue from online education services was $63.5 million in the first nine months of fiscal 2016, an 8.2% increase from $58.6 million in the first nine months of fiscal 2015.

Books and reference materials. Net revenue from books and reference materials increased by 1.9% to $5.3 million in the first nine months of fiscal 2016 from $5.2 million in the first nine months of fiscal 2015.

Others. Net revenue from other sources increased by 20.4% to $10.5 million in the first nine months of fiscal 2016 from $8.7 million in the first nine months of fiscal 2015.

Cost of Sales. Cost of sales increased by 8.9% to $35.2 million in the first nine months of fiscal 2016 from $32.4 million in the first nine months of fiscal 2015. Non-GAAP¹ cost of sales increased by 8.9% to $35.1 million in the first nine months of fiscal 2016 from $32.3 million in the first nine months of fiscal 2015.

Gross Profit. Gross profit increased by 9.5% to $44.1 million in the first nine months of fiscal 2016 from $40.2 million in the prior year period. Non-GAAP¹ gross profit increased by 9.6% to $44.2 million in the first nine months of fiscal 2016 from $40.3 million in the prior year period. Gross margin was 55.6% in the first nine months of fiscal 2016, compared with 55.4% in the first nine months of fiscal 2015. Non-GAAP¹ gross margin was 55.7% in the first nine months of fiscal 2016, compared with 55.6% in the first nine months of fiscal 2015.

Operating Expenses. Total operating expenses increased by 4.9% to $30.3 million in the first nine months of fiscal 2016, from $28.9 million in the prior year period. Non-GAAP¹ total operating expenses increased by 4.3% to $28.9 million in the first nine months of fiscal 2016, from $27.7 million in the prior year period.

Selling expenses. Selling expenses decreased by 7.6% to $18.3 million in the first nine months of fiscal 2016 from $19.9 million in the prior year period. Non-GAAP¹ selling expenses decreased by 7.7% to $18.3 million in the first nine months of fiscal 2016 from $19.8 million in the prior year period.

General and administrative expenses. General and administrative expenses increased by 32.5% to $11.9 million in the first nine months of fiscal 2016 from $9.0 million in the prior year period. Non-GAAP¹ general and administrative expenses increased by 34.5% to $10.6 million in the first nine months of fiscal 2016 from $7.9 million in the prior year period.

Income Tax Expense. Income tax expense increased by 23.9% to $3.5 million in the first nine months of fiscal 2016 from $2.8 million in the prior year period.

Net Income. As a result of the foregoing, net income increased by 27.2% to $14.1 million in the first nine months of fiscal 2016 from $11.1 million in the prior year period. Non-GAAP¹ net income increased by 26.3% to $15.6 million in the first nine months of fiscal 2016 from $12.3 million in the prior year period.

Operating Cash Flow. Net operating cash inflow decreased by 0.8% to $33.1 million in the first nine months of fiscal 2016 from $33.4 million in the prior year period.

Outlook

For the fourth quarter of fiscal 2016, the Company expects to generate total net revenues in the range of $35.6 million to $37.4 million, representing a year-over-year increase of approximately 0% to 5%. 

For fiscal year 2016, the Company expects to generate total net revenues in the range of $114.8 million to $116.6 million, representing year-over-year growth of approximately 6.2% to 7.8%. The Company's prior fiscal 2016 full year total net revenues guidance range was $108.2 million to $113.6 million.

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 the following morning on Wednesday, August 24, 2016 (8:00 p.m. Beijing Time on August 24, 2016) to discuss financial results and answer questions from investors and analysts. Listeners may access the call by dialing:

A telephone replay will be available approximately two hours after the call until August 31, 2016 by dialing:

Additionally, a live and archived webcast of the conference call will be available at http://ir.cdeledu.com.

About China Distance Education Holdings Limited

China Distance Education Holdings Limited is a leading provider of online education in China focusing on professional education. The courses offered by the Company through its websites are designed to help professionals seeking to obtain and maintain professional licenses and to enhance their job skills through our professional development courses in China in the areas of accounting, healthcare, engineering & construction, and other industries. The Company also offers other professional education courses for the national judicial examination, online test preparation courses for self-taught learners pursuing higher education diplomas or degrees, test preparation courses for university students intending to take the nationwide graduate school entrance exam, and online language courses. The Company also offers third-party developed online courses through its Online Open Learning Platform, a proprietary education platform that allows people to share their educational content or deliver live courses online. For further information, please visit http://ir.cdeledu.com.

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," "may," "should," "potential," "continue," "expect," "predict," "anticipate," "future," "intend," "plan," "believe," "is/are likely to," "estimate" and similar statements. Among other things, the outlook for the fourth quarter of fiscal year 2016 and fiscal year 2016 and quotations from management in this announcement, as well as the Company's strategic and operational plans (in particular, the anticipated benefits of CDEL's investment in strategic growth initiatives, and listing of Zhengbao Yucai on China's New Third Board, the anticipated contributions from Xiamen NetinNet, and the implementation of expense control initiatives and its intended effect on the Company's profitability) contain forward-looking statements. The Company may also make written or oral forward-looking statements in its periodic and annual reports to the SEC, 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 the Company'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 goals and growth strategies; our future prospects and market acceptance of the Company's courses and other products and services; future business development and results of operations; projected revenues, profits, earnings and other estimated financial information; projected enrollment numbers; plans to expand and enhance courses and other products and services; competition in the education and test preparation markets; and Chinese laws, regulations and policies, including those applicable to the Internet, Internet content providers, the education and telecommunications industries, mergers and acquisitions, taxation and foreign exchange.

Further information regarding these and other risks is included in the Company's annual report on Form 20-F and other documents filed or furnished with the SEC. All information provided in this press release is as of the date of this press release. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth in this press release is preliminary and subject to adjustments. Adjustments to the financial statements may be identified when audit work is performed for the year-end audit, which could result in significant differences from this preliminary unaudited financial information.

Use of Non-GAAP Financial Measures

To supplement the Company's consolidated financial results presented in accordance with U.S. generally accepted accounting principles, or GAAP, the Company uses the following measures defined as non-GAAP financial measures: non-GAAP net income, operating income, gross profit, cost of sales, selling expenses, general and administrative expenses, net income margin, operating margin, gross profit margin and basic and diluted earnings per ADS and per share. 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 table captioned "Reconciliations of non-GAAP measures to comparable GAAP measures" set forth at the end of this release.

The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses. However, non-GAAP financial measures may not be indicative of the Company's operating performance from a cash perspective. The Company believes that both management and investors benefit from 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 the Company's historical performance and liquidity. The Company computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The Company 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 excluding share-based compensation expenses from the above-mentioned line items and presenting these non-GAAP measures is that such charges may continue to be for the foreseeable future a significant recurring expense in our business. Management compensates for this limitation by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying table at the end of this release provides more detail on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

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