China Distance Education Holdings Limited
03/08/2019
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, recently declared unaudited financial results for the 1st-quarter of fiscal year 2K19 ended December 31, 2K18.
1st-quarter Fiscal 2K19 Financial and Operational Highlights
- Net revenue raised by 18.8 percent to $42.6M from $35.9M in the previous year period.
- Whole course enrollments were 1,284,000, a boost of 4.6 percent from the 1st-quarter of fiscal 2K18.
- Cash receipts from online course registration were $60.5M, a 50.1 percent increase from the 1st-quarter of fiscal 2K18.
- Gross profit reduced by 2.8 percent to $17.0M from $17.5M in the previous year period.
- Non-GAAP[1] gross profit reduced by 2.9 percent to $17.0M from $17.5M in the previous year period.
- Gross margin was 39.9 percent, difference with 48.8 percent in the previous year period. Non-GAAP[1] gross margin was 40.0 percent, difference with 48.9 percent in the previous year period.
- Operating loss was $2.2M, difference with operating income of $5.1M in the previous year period.
- Non-GAAP[1] operating loss was $1.7M, difference with non-GAAP[1] operating income of $5.6M in the previous year period.
- Net income was $1.9M, difference with net income of $94,000 in the previous year period.
- Non-GAAP[1] net income was $2.4M, difference with non-GAAP[1] net income of $0.6M in the previous year period.
- Basic and diluted net income per American Depositary Share (“ADS”) were $0.057, difference with basic and diluted net income per ADS of $0.003 for the 1st-quarter of fiscal 2K18. Each ADS represents four ordinary shares.
- Basic and diluted non-GAAP[1] net income per ADS were $0.073 and $0.072, respectively, difference with basic and diluted non-GAAP[1] net income per ADS of $0.018 for the 1st-quarter of fiscal 2K18.
- Cash flow from operations raised by 101.6 percent to $26.6M from $13.2M in the 1st-quarter of fiscal 2K18.
- Disposal of the Tax School Program was accomplished on December 29, 2K18.
Mr. Zhengdong Zhu, Chairman and CEO of CDEL, said, “In the 1st-quarter of fiscal 2K19, net revenue raised by 18.8 percent year-over-year, surpassing the high end of our guidance range and reflecting the pliability of our business model in the face of a softer economic setting, as professionals seek self-improvement and career progression through continued study.
As such, we have retained well-built momentum in generating cash receipts from online course registration during a portfolio of course offerings across our core verticals, designed in accordance with market demand. Whole cash receipts from online course registration raised by about 50 percent year-over-year in the 1st-quarter, mainly as a result of strong cash receipt development in our core verticals of accounting and healthcare, and more student enrollments in our longer duration premium and elite classes difference with the year-ago period.
Mr. Mark Marostica, Co-Chief Financial Officer of CDEL, said, “While our 1st-quarter revenue came in in front of expectations, we recorded an operating loss in the 1st-quarter, mainly because of the amortization costs of intangibles arising from the acquisition of Beijing Ruida of $1.7M, a boost in rental costs from our new office location in Beijing, higher commissions to agents, and higher advertising and promotional costs.
Nonetheless, we are very encouraged by the strong operating cash flow in the quarter which grew over 100 percent year-over-year, bolstered by the robust development in cash receipts from online course registration.”
Mr. Marostica, continued, “Despite the 1st-quarter operating loss, we believe we will see year-over-year improvement in our operating margins in fiscal year 2K19 as a result of our expectation of healthy revenue development in the fiscal year, together with the implementation of certain expense control measures. As we head into our busy enrollment season, we are focused on continuing to balance development with a strong emphasis on profitability and expense controls.”
CEO Share Purchase Plan
As declared on June 25, 2K18 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 $25M within one year.
As of February 28, 2K19, Mr. Zhu had bought a whole of about $8.9M of the Company’s ordinary shares and ADSs following a 10b5-1 plan in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.
1st-quarter Fiscal 2K19 Financial Results
Net Revenue. Whole net revenue raised by 18.8 percent to $42.6M in the 1st-quarter of fiscal 2K19 from $35.9M in the 1st-quarter of fiscal 2K18.
Net revenue from online education services, books and reference materials, and other sources contributed 58.8 percent, 15.0 percent and 26.2 percent, respectively, of whole net revenues for the 1st-quarter of fiscal 2K19.
Online education services. Net revenue from online education services raised by 11.6 percent to $25.0M in the 1st-quarter of fiscal 2K19 from $22.4M in the 1st-quarter of fiscal 2K18, mainly because of revenue development from the accounting vertical, partially offset by a decrease in revenue from the healthcare vertical.
The softer development in revenue from online education services was mainly because of the adoption of U.S. GAAP ASC 606, Revenue from Contracts with Customers, which influenced the timing of revenue credit related to our premium classes.
Under the accounting standards in effect in the previous period, a noteworthy portion of revenue from premium classes associated to our 2K17 Intermediate and Advanced Level Accounting Professional Qualifications Exams, CPA Qualification Exam and National Practicing Medical Doctor Qualification Exam was considered contingent and deferred until the release of the related exam results and the expiration of the students’ right to retake the course which typically occurred in the 1st-quarter of each fiscal year.
Under the new standard, revenue related to the premium classes is recognized over the expected service period using best estimates, which results in a decrease in revenue development in the 1st-quarter of fiscal 2K19.
Books and reference materials. Net revenue from books and reference materials raised by 169.5 percent to $6.4M in the 1st-quarter of fiscal 2K19, from $2.4M in the 1st-quarter of fiscal 2K18, mainly because of book sale revenue contributed by Beijing Ruida.
Others. Net revenue from other sources raised by 1.0 percent to $11.2M in the 1st-quarter of fiscal 2K19 from $11.1Min the 1st-quarter of fiscal 2K18, mainly because of revenue from legal professional training courses contributed by Beijing Ruida.
The increase in revenue from other sources was partially offset by the decrease in revenue from both business start-up training services and the sale of learning simulation software.
Cost of Sales. Cost of sales raised by 39.3 percent to $25.6M in the 1st-quarter of fiscal 2K19 from $18.4M in the 1st-quarter of fiscal 2K18. Non-GAAP[1] cost of sales raised by 39.5 percent to $25.6M in the 1st-quarter of fiscal 2K19 from $18.3M in the 1st-quarter of fiscal 2K18.
The increase was mainly because of raised salaries and related costs, raised rental and related costs associated with the Company’s new office space in Beijing and offline training courses, and costs associated with Beijing Ruida, counting amortization costs of intangibles arising from the acquisition of Beijing Ruida.
Gross Profit and Gross Margin. Gross profit was $17.0M in the 1st-quarter of fiscal 2K19, down 2.8 percent from $17.5M in the previous year period. Non-GAAP[1] gross profit was $17.0M, decreasing by 2.9 percent from $17.5M in the previous year period.
Gross margin was 39.9 percent in the 1st-quarter of fiscal 2K19, difference with 48.8 percent in the 1st-quarter of fiscal 2K18. Non-GAAP[1] gross margin was 40.0 percent in the 1st-quarter of fiscal 2K19, difference with 48.9 percent in the 1st-quarter of fiscal 2K18.
Operating Costs. Whole operating costs raised by 47.4 percent to $20.8M in the 1st-quarter of fiscal 2K19, from $14.1M in the previous year period. Non-GAAP[1] whole operating costs raised by 48.8 percent to $20.3M in the 1st-quarter of fiscal 2K19, from $13.7M in the previous year period.
By Jordan Farrell