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China Distance Education Holdings Limited Reports Financial Results for Fourth Quarter and Fiscal Year 2019

2019-11-20 08:41

- Fourth Quarter 2019 Net Revenue Up 28.1% Year-Over-Year to $68.7 Million -

- Fourth Quarter 2019 Non-GAAP Net Income Attributable to CDEL Up 48.8% Year-Over-Year to $18.6 Million -

- Fiscal Year 2019 Net Income Attributable to CDEL Up 82.8% Year-Over-Year to $21.3 million -

BEIJING —November 19, 2019— 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 fourth quarter and fiscal year 2019 ended September 30, 2019.

Fourth Quarter Fiscal 2019 Financial and Operational Highlights

• Net revenue increased by 28.1% to $68.7 million from $53.6 million in the prior year period.

• Total course enrollments were 1,132,300, an increase of 40.6% from the fourth quarter of fiscal 2018.

• Cash receipts from online course registration were $43.8 million, a 21.6% increase from the fourth quarter of fiscal 2018.

• Gross profit increased by 58.5% to $43.4 million from $27.4 million in the prior year period.

• Non-GAAP1 gross profit increased by 58.2% to $43.4 million from $27.4 million in the prior year period.

• Gross margin was 63.2%, compared with 51.1% in the prior year period. Non-GAAP1 gross margin was 63.2%, compared with 51.2% in the prior year period.

• Operating income increased by 70.3% to $20.7 million from $12.2 million in the prior year period.

• Non-GAAP1 operating income increased by 65.8% to $21.2 million from $12.8 million in the prior year period.

• Net income attributable to CDEL increased by 42.4% to $13.8 million from $9.7 million in the prior year period.

• Non-GAAP1 net income attributable to CDEL increased by 48.8% to $18.6 million from $12.5 million in the prior year period.

• Basic and diluted net income per American Depositary Share (“ADS”) attributable to CDEL were both $0.411, compared with basic and diluted net income per ADS attributable to CDEL of $0.290 for the fourth quarter of fiscal 2018. Each ADS represents four ordinary shares.

• Basic and diluted non-GAAP1 net income per ADS attributable to CDEL were $0.558 and $0.554, respectively, compared with basic and diluted non-GAAP1 net income per ADS attributable to CDEL of $0.377 and $0.375, respectively, for the fourth quarter of fiscal 2018.

• Cash flow from operations increased by 20.2% to $20.0 million from $16.7 million in the fourth quarter of fiscal 2018.

Fiscal Year 2019 Financial and Operational Highlights

• Net revenue increased by 27.1% to $211.8 million from $166.7 million in fiscal year 2018.

• Total course enrollments were 3,793,100, an increase of 18.9% from fiscal year 2018.

• Cash receipts from online course registration were $211.7 million, a 33.1% increase from fiscal year 2018.

• Gross profit increased by 35.9% to $107.1 million from $78.8 million in fiscal year 2018.

• Non-GAAP1 gross profit increased by 35.7% to $107.1 million from $78.9 million in fiscal year 2018.

• Gross margin was 50.6%, compared with 47.3% in fiscal year 2018. Non-GAAP1 gross margin was 50.6%, compared with 47.4% in fiscal year 2018.

• Operating income increased by 52.8% to $24.4 million from $16.0 million in fiscal year 2018.

• Non-GAAP1 operating income increased by 44.5% to $26.4 million from $18.3 million in fiscal year 2018.

• Net income attributable to CDEL increased by 82.8% to $21.3 million from $11.6 million in fiscal year 2018.

• Non-GAAP1 net income attributable to CDEL increased by 71.0% to $27.6 million from $16.1 million in fiscal year 2018.

• Basic and diluted net income per American Depositary Share (“ADS”) attributable to CDEL were both $0.635, compared with basic and diluted net income per ADS attributable to CDEL of $0.347 for fiscal year 2018. Each ADS represents four ordinary shares.

• Basic and diluted non-GAAP1 net income per ADS attributable to CDEL were $0.830 and $0.823, respectively, compared with basic and diluted non-GAAP1 net income per ADS attributable to CDEL of $0.488 and $0.485, respectively, for the fiscal year 2018.

• Cash flow from operations increased by 45.7% to $73.0 million from $50.1 million in the fiscal year 2018.

Mr. Zhengdong Zhu, Chairman and CEO of CDEL, said, “We ended fiscal 2019 on a positive note, with fourth quarter revenue growth of 28.1% year-over-year, above our guidance range. Our fourth quarter revenue performance was primarily driven by continued strength from our industry-leading accounting vertical, together with higher-than-anticipated revenue from our legal vertical, primarily due to the earlier release of exam results for the objective section of the Legal Professional Qualification Exam compared with the same period last year. Total course enrollments were up 40.6% year-over-year in the fourth quarter, primarily due to significant enrollment growth in accounting continuing education courses. Cash receipts from online course registration grew 21.6% year-over-year in the fourth quarter, contributing to the robust growth of cash receipts of 33.1% in fiscal 2019, due in large part to the popularity of our longer duration premium and elite classes.”

Mr. Zhu concluded, “During fiscal 2019, we continued our efforts to enhance our comprehensive lifelong learning ecosystem. Through our acquisition of Beijing Ruida, we have established our fourth key industry vertical – legal, while solidifying our market position in accounting, healthcare, and engineering & construction (E&C) professional education with extensive and diversified educational offerings, such as our popular longer duration premium and elite classes. Overall, we remain focused on providing students with best-of-breed educational content and value-added services to guide them in their pursuit of professional licensure in their chosen fields. We are dedicated to serving a broader base of students at different stages of their careers to help them achieve positive learning outcomes and career advancement.”

Mr. Mark Marostica, Co-Chief Financial Officer of CDEL, added, “The healthy fourth quarter revenue growth, together with continued effective expense control and leverage of our cost structure, contributed to the significant expansion of our fourth quarter non-GAAP operating margin, which came in at 30.9%, up from 23.9% in the prior year period.”

Mr. Marostica, continued, “With fiscal 2020 well underway, we aim to continue to focus on balancing growth with diligent expense control, in an effort to build on the momentum of our operating margin improvement in the second half of fiscal 2019, and drive higher levels of profitability in fiscal 2020.”

Fourth Quarter Fiscal 2019 Financial Results

Net Revenue. Total net revenue increased by 28.1% to $68.7 million in the fourth quarter of fiscal 2019 from $53.6 million in the fourth quarter of fiscal 2018. Net revenue from online education services, books and reference materials, and other sources contributed 72.0%, 8.4% and 19.6%, respectively, of total net revenues for the fourth quarter of fiscal 2019.

Online education services. Net revenue from online education services increased by 35.4% to $49.5 million in the fourth quarter of fiscal 2019 from $36.5 million in the fourth quarter of fiscal 2018, mainly due to revenue growth from the accounting vertical. Revenue from the legal vertical generated by Beijing Ruida also contributed to the growth.

Books and reference materials. Net revenue from books and reference materials increased by 410.2% to $5.7 million in the fourth quarter of fiscal 2019 from $1.1 million in the fourth quarter of fiscal 2018, mainly due to book sale revenue from the Legal Professional Qualification Examination contributed by Beijing Ruida.

Others. Net revenue from other sources decreased by 15.5% to $13.5 million in the fourth quarter of fiscal 2019 from $16.0 million in the fourth quarter of fiscal 2018, primarily due to the decrease in revenue from the “Tax School Program,” which the Company disposed in the first quarter of fiscal 2019; and the decrease in revenue from business start-up training services. This decrease in revenue was partially offset by the increase in offline training revenue from the Legal Professional Qualification Examination contributed by Beijing Ruida, and the increase in revenue from the sale of learning simulation software.

Cost of Sales. Cost of sales decreased by 3.6% to $25.3 million in the fourth quarter of fiscal 2019 from $26.2 million in the fourth quarter of fiscal 2018. Non-GAAP1 cost of sales decreased by 3.5% to $25.3 million in the fourth quarter of fiscal 2019 from $26.2 million in the fourth quarter of fiscal 2018. The decrease was mainly due to the decrease in salaries and related expenses, and rental and related expenses. This decrease was partially offset by the increase in cost of books and reference materials, and lecture fees.

Gross Profit and Gross Margin. Gross profit was $43.4 million in the fourth quarter of fiscal 2019, up 58.5% from $27.4 million in the prior year period. Non-GAAP1 gross profit was $43.4 million, increasing by 58.2% from $27.4 million in the prior year period. Gross margin was 63.2% in the fourth quarter of fiscal 2019, compared with 51.1% in the fourth quarter of fiscal 2018. Non-GAAP1 gross margin was 63.2% in the fourth quarter of fiscal 2019, compared with 51.2% in the fourth quarter of fiscal 2018.

Operating Expenses. Total operating expenses increased by 15.5% to $23.2 million in the fourth quarter of fiscal 2019, from $20.1 million in the prior year period. Non-GAAP1 total operating expenses increased by 16.4% to $22.7 million in the fourth quarter of fiscal 2019, from $19.5 million in the prior year period.

Selling expenses. Selling expenses increased by 12.9% to $16.1 million in the fourth quarter of fiscal 2019 from $14.3 million in the prior year period. Non-GAAP1 selling expenses increased by 13.1% to $16.1 million in the fourth quarter of fiscal 2019 from $14.3 million in the prior year period. The increase was primarily driven by higher advertising and promotional expenses, the increase in rental and related expenses and other miscellaneous selling expenses. This increase was partially offset by the decrease in commission to agents and, salaries and related expenses.

General and administrative expenses. General and administrative expenses increased by 21.9% to $7.1 million in the fourth quarter of fiscal 2019 from $5.8 million in the prior year period. Non-GAAP1 general and administrative expenses increased by 25.6% to $6.6 million in the fourth quarter of fiscal 2019 from $5.2 million in the prior year period. The increase was mainly due to the provision for doubtful debts related to the Company’s investee company, Hangzhou Wanting Technology Co., Ltd., and the sale of learning simulation software.

Impairment loss from long-term investments. Impairment loss from long-term investments increased to $6.9 million in the fourth quarter of fiscal 2019 from $2.8 million in the prior year period, due to impairment of the value of the Company’s investment in investee companies, Hangzhou Wanting Technology Co., Ltd. and Amdon Consulting Pte Ltd of $6.4 million and $0.5 million, respectively.

Impairment of goodwill. Impairment of goodwill was $1.5 million in the fourth quarter of fiscal 2019, due to impairment of the value of the Company’s business start-up training services segment.

Income Tax Expense. Income tax expense increased by 251.5% to $6.0 million in the fourth quarter of fiscal 2019 from $1.7 million in the prior year period, primarily due to an increase in taxable income.

Net Income Attributable to CDEL. As a result of the foregoing, net income attributable to CDEL was $13.8 million in the fourth quarter of fiscal 2019, up 42.4% compared with $9.7 million in the prior year period. Non-GAAP1 net income attributable to CDEL was $18.6 million in the fourth quarter of fiscal 2019, up 48.8% compared with $12.5 million in the prior year period.

Operating Cash Flow. Net operating cash inflow increased by 20.2% to $20.0 million in the fourth quarter of fiscal 2019 from $16.7 million in the prior year period. The operating cash inflow was mainly attributable to net income before non-cash items generated in the fourth quarter of fiscal 2019. The decrease in deferred tax assets, other non-current assets, 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 accounts receivable, prepayments and other current assets, 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 September 30, 2019 increased by 2.9% to $128.5 million from $124.9 million as of June 30, 2019, mainly due to the operating cash inflow generated in the fourth quarter of fiscal 2019. The increase was partially offset by (i) the repayment of an offshore loan of $6.0 million and (ii) the capital expenditure of $2.0 million.

Fiscal Year 2019 Financial Results

Net Revenue. Total net revenue increased by 27.1% to $211.8 million in fiscal year 2019 from $166.7 million in fiscal year 2018. Net revenue from online education services, books and reference materials, and other sources contributed 68.9%, 12.9% and 18.2%, respectively, of total net revenues for fiscal year 2019.

Online education services. Net revenue from online education services increased by 24.7% to $145.9 million in fiscal year 2019 from $117.0 million in fiscal year 2018.

Books and reference materials. Net revenue from books and reference materials increased by 168.0% to $27.4 million in fiscal year 2019 from $10.2 million in fiscal year 2018.

Others. Net revenue from other sources decreased by 2.2% to $38.5 million in fiscal year 2019 from $39.4 million in fiscal year 2018.

Cost of Sales. Cost of sales increased by 19.2% to $104.7 million in fiscal year 2019 from $87.9 million in fiscal year 2018. Non-GAAP1 cost of sales increased by 19.4% to $104.7 million in fiscal year 2019 from $87.7 million in fiscal year 2018.

Gross Profit and Gross Margin. Gross profit was $107.1 million in fiscal year 2019, up 35.9% from $78.8 million in fiscal year 2018. Non-GAAP1 gross profit was $107.1 million, increasing by 35.7% from $78.9 million in fiscal year 2018. Gross margin was 50.6% in the fiscal year 2019, compared with 47.3% in fiscal year 2018. Non-GAAP1 gross margin was 50.6% in fiscal year 2019, compared with 47.4% in fiscal year 2018.

Operating Expenses. Total operating expenses increased by 30.9% to $86.4 million in fiscal year 2019 from $66.0 million in fiscal year 2018. Non-GAAP1 total operating expenses increased by 32.2% to $84.4 million in fiscal year 2019 from $63.8 million in fiscal year 2018.

Selling expenses. Selling expenses increased by 37.4% to $61.5 million in fiscal year 2019 from $44.7 million in fiscal year 2018. Non-GAAP1 selling expenses increased by 37.7% to $61.5 million in fiscal year 2019 from $44.6 million in fiscal year 2018.

General and administrative expenses. General and administrative expenses increased by 17.2% to $24.9 million in fiscal year 2019 from $21.3 million in fiscal year 2018. Non-GAAP1 general and administrative expenses increased by 19.6% to $22.9 million in fiscal year 2019 from $19.2 million in fiscal year 2018.

Change in fair value in connection with business combination. Change in fair value in connection with business combination was $0.7 million in fiscal year 2019, compared with $0.1 million in fiscal year 2018, attributable to the decrease in fair value of contingent consideration with respect to the Company’s equity interest investment in Beijing Ruida.

Gain from Deconsolidation of a Subsidiary. Gain from deconsolidation of a subsidiary of $6.9 million related to the gain on the disposal of 60% equity interest, and fair value change of the remaining 40% equity interest, in Champion Tax Advisory or “Tax School Program.”

Impairment loss from long-term investments. Impairment loss from long-term investments increased to $6.9 million in fiscal year 2019 from $2.8 million in fiscal year 2018.

Impairment of goodwill. Impairment of goodwill was $1.5 million in fiscal year 2019, due to impairment of the value of the Company’s business start-up training services segment.

Income Tax Expense. Income tax expense increased by 252.0% to $8.1 million in fiscal year 2019 from $2.3 million in fiscal year 2018.

Net Income Attributable to CDEL. As a result of the foregoing, net income attributable to CDEL was $21.3 million in fiscal year 2019, up 82.8% compared with net income attributable to CDEL of $11.6 million in fiscal year 2018. Non-GAAP1 net income attributable to CDEL was $27.6 million in fiscal year 2019, up 71.0% compared with non-GAAP1 net income attributable to CDEL of $16.1 million in fiscal year 2018.

Operating Cash Flow. Net operating cash inflow increased by 45.7% to $73.0 million in fiscal year 2019 from $50.1 million in fiscal year 2018.

Outlook

For the first quarter of fiscal 2020, the Company expects to generate total net revenue in the range of $51.1 million to $53.3 million, representing year-over-year growth of approximately 20% to 25%.

For fiscal year 2020, the Company expects to generate total net revenues in the range of $254.2 million to $264.8 million, representing year-over-year growth of approximately 20% to 25%.

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 Wednesday, November 20, 2019 (9:00 p.m. Beijing Time on Wednesday, November 20, 2019) 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, China: +852-3018-6771

United Kingdom: +44-203-6214-779

Passcode: CDEL or DL

A telephone replay will be available two hours after the call until November 27, 2019 by dialing:

US Toll Free: +1-855-452-5696

International: +61-2-8199-0299

Mainland China: 400-632-2162

Hong Kong, China: 800-963-117

United Kingdom: 0808-234-0072

Replay Passcode: 3816479

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 and value-added services for professionals and corporate clients in China. 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, legal and other industries. The Company also offers online test preparation courses for self-taught learners pursuing higher education diplomas or degrees, practical accounting training courses for college students and working professionals, as well as third-party developed online courses. In addition, the Company provides business services to corporate clients, including but not limited to tax advisory and accounting outsourcing services. 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 first quarter and full fiscal year 2020 and quotations from management in this announcement, as well as the Company’s strategic and operational plans (in particular, the anticipated benefits of strategic growth initiatives, including the promotion of the Company’s lifelong learning ecosystem, as well as cost control and year-over-year improvement of operating margins, revenue and 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; future prospects and market acceptance of our courses and other products and services; our future business development and results of operations; projected revenues, profits, earnings and other estimated financial information; projected enrollment numbers; our plans to expand and enhance our 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 attributable to CDEL, operating income, gross profit, cost of sales, selling expenses, general and administrative expenses, net income margin attributable to CDEL, operating margin, gross profit margin, and basic and diluted earnings per ADS and per share attributable to CDEL. 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 by excluding share-based compensation expenses, impairment loss of long-term investments net of noncontrolling interests and taxes calculated using specific tax treatments applicable to the adjustments based on their respective jurisdictions, and impairment of goodwill. 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, impairment loss of long-term investments net of noncontrolling interests and taxes calculated using specific tax treatments applicable to the adjustments based on their respective jurisdictions, and impairment of goodwill from the above-mentioned line items and presenting these non-GAAP measures is that such items 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.

Contacts:

In China:

China Distance Education Holdings Limited

Jiao Jiao

Tel: +86-10-8231-9999 ext. 1826

Email: IR@cdeledu.com

The Piacente Group, Inc.

Xi Zhang

Tel: +86-10-6508-0677

E-mail: dl@tpg-ir.com

In the United States:

The Piacente Group, Inc.

Brandi Piacente

Tel: +1 212-481-2050

Email: dl@tpg-ir.com

1 For more information about the non-GAAP financial measures contained in this press release, please see “Use of Non-GAAP Financial Measures” below.

(Financial Tables on Following Pages)






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