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China Distance Education Holdings Limited Reports Financial Results for Second Quarter Fiscal Year 2019BEIJING, May 15, 2019 /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 second quarter of fiscal year 2019 ended March 31, 2019. Second Quarter Fiscal 2019 Financial and Operational Highlights
Mr. Zhengdong Zhu, Chairman and CEO of CDEL, said, "In the second quarter of fiscal 2019, revenue grew 30.3% year-over-year, exceeding the high end of our guidance range, primarily driven by the strong growth of our accounting vertical together with a significant increase in revenue from the sale of learning simulation software. Revenue from the legal vertical generated by Beijing Ruida also contributed to the growth. Total enrollment growth was 8.9% year-over-year in the second quarter, primarily due to the substantial enrollment growth in accounting and engineering & construction (E&C) continuing education courses. Cash receipts from online course registration grew 29.8% year-over-year in the second quarter, reflecting the continued popularity of our longer duration premium and elite classes." Mr. Zhu concluded, "We are pleased with our second quarter revenue performance as well as the strong momentum of cash receipts growth during the first half of fiscal year 2019. We attribute our performance to our robust lifelong learning ecosystem, well-diversified business model, reputable brand, and a firm commitment to helping our students achieve superior learning outcomes. Recently, the Company decided to increase its equity interest in Beijing Ruida to 60%, from 51% in the second quarter fiscal 2019, based on Ruida's high-quality legal education courseware and considerable growth potential. This strategic investment decision reflects our dedication to further enhancing the Company's comprehensive lifelong learning ecosystem. Looking ahead, we will remain focused on delivering best-of-breed courseware and value-added services to our students at different stages of their careers, and strive to be the premier education partner for our students throughout their lifelong learning journey." Mr. Mark Marostica, Co-Chief Financial Officer of CDEL, said, "Similar to the second quarters of fiscal 2018 and fiscal 2017, we recorded an operating loss in the second quarter of fiscal 2019, as it is typically the lowest revenue quarter of our fiscal year due to seasonality. In addition, the operating loss of the second quarter fiscal 2019 was more pronounced due to our acquisition of Beijing Ruida in July 2018, as Beijing Ruida has quarterly revenue seasonality similar to CDEL's core business, and the operating results of Beijing Ruida include $1.7 million amortization expenses of intangibles arising from the acquisition of Beijing Ruida." Mr. Marostica, continued, "Despite the first half of fiscal year 2019 operating loss, we believe we will see year-over-year improvement in our operating margins in fiscal year 2019 as a result of our expectation of healthy revenue growth in the fiscal year, together with the implementation of certain expense control measures. As we head into our second half of fiscal year 2019, we are focused on continuing to balance growth with a strong emphasis on profitability and expense controls." CEO Share Purchase Plan As 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 May 15, 2019, Mr. Zhu had bought a total of approximately $11.1 million of the Company's ordinary shares and ADSs pursuant to a 10b5-1 plan in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Second Quarter Fiscal 2019 Financial Results Net Revenue. Total net revenue increased by 30.3% to $38.8 million in the second quarter of fiscal 2019 from $29.7 million in the second quarter of fiscal 2018. Net revenue from online education services, books and reference materials, and other sources contributed 71.9%, 14.0% and 14.1%, respectively, of total net revenues for the second quarter of fiscal 2019. Online education services. Net revenue from online education services increased by 19.2% to $27.9 million in the second quarter of fiscal 2019 from $23.4 million in the second quarter of fiscal 2018, mainly due to revenue growth from the accounting vertical. Revenues from courses of Intermediate and Advance Level Accounting Professional Qualifications Exams ("APQE"), and CPA Qualification Exam grew strongly in the second quarter of fiscal 2019. This increase was partially offset by the decrease in revenue from Elementary APQE courses. Books and reference materials. Net revenue from books and reference materials increased by 288.3% to $5.4 million in the second quarter of fiscal 2019 from $1.4 million in the second quarter of fiscal 2018, mainly due to book sale revenue from the Legal Professional Qualification Examination contributed by Beijing Ruida. Book sale revenue from our core accounting professional exams also contributed to the growth. Others. Net revenue from other sources increased by 10.5% to $5.5 million in the second quarter of fiscal 2019 from $5.0 million in the second quarter of fiscal 2018, primarily due to a significant increase in revenue from the sale of learning simulation software. This increase was partially offset by the decrease in revenue from the "Tax School Program" which we disposed in the first quarter of fiscal 2019. Cost of Sales. Cost of sales increased by 24.6% to $23.3 million in the second quarter of fiscal 2019 from $18.7 million in the second quarter of fiscal 2018. Non-GAAP[1] cost of sales increased by 24.8% to $23.3 million in the second quarter of fiscal 2019 from $18.7 million in the second quarter of fiscal 2018. The increase was mainly due to the increase in cost of purchase related to the sale of learning simulation software, cost of books and reference materials, and expenses associated with Beijing Ruida, including amortization expenses of intangibles arising from its acquisition of $1.7 million. This increase was partially offset by the decrease in salaries and related expenses. Gross Profit and Gross Margin. Gross profit was $15.5 million in the second quarter of fiscal 2019, up 39.9% from $11.1 million in the prior year period. Non-GAAP[1] gross profit was $15.5 million, increasing by 39.6% from $11.1 million in the prior year period. Gross margin was 39.9% in the second quarter of fiscal 2019, compared with 37.2% in the second quarter of fiscal 2018. Non-GAAP[1] gross margin was 39.9% in the second quarter of fiscal 2019, compared with 37.3% in the second quarter of fiscal 2018. Operating Expenses. Total operating expenses increased by 44.5% to $20.4 million in the second quarter of fiscal 2019, from $14.1 million in the prior year period. Non-GAAP[1] total operating expenses increased by 46.4% to $19.9 million in the second quarter of fiscal 2019, from $13.6 million in the prior year period. Selling expenses. Selling expenses increased by 65.5% to $13.8 million in the second quarter of fiscal 2019 from $8.3 million in the prior year period. Non-GAAP[1] selling expenses increased by 65.9% to $13.8 million in the second quarter of fiscal 2019 from $8.3 million in the prior year period. The increase was primarily driven by the increase in salaries and related expenses, higher commissions to agents, higher advertising and promotional expenses, expenses associated with Beijing Ruida, and other miscellaneous selling expenses. General and administrative expenses. General and administrative expenses increased by 14.1% to $6.6 million in the second quarter of fiscal 2019 from $5.8 million in the prior year period. Non-GAAP[1] general and administrative expenses increased by 15.5% to $6.1 million in the second quarter of fiscal 2019 from $5.3 million in the prior year period. The increase was mainly due to the increase in salaries and related expenses, and expenses associated with Beijing Ruida. Income Tax Benefit. Income tax benefit decreased by 6.7% to $1.3 million in the second quarter of fiscal 2019 from $1.4 million in the prior year period, primarily due to a lower estimated effective tax rate applied in fiscal year 2019, compared with the prior year period. Net Loss. As a result of the foregoing, net loss was $3.9 million in the second quarter of fiscal 2019, compared with net loss of $3.3 million in the prior year period. Non-GAAP[1] net loss was $3.4 million in the second quarter of fiscal 2019, compared with non-GAAP[1] net loss of $2.7 million in the prior year period. Operating Cash Flow. Net operating cash inflow increased by 128.8% to $16.5 million in the second quarter of fiscal 2019 from $7.2 million in the prior year period. The operating cash inflow was mainly attributable to the increase in deferred revenue generated from our professional education services segment. The operating cash inflow was partially offset by the increase in accounts receivable, prepayments and other current assets, and the decrease in accrued expenses and other liabilities, income tax payable, deferred tax liabilities, and amount due to a related party. Cash and Cash Equivalents, Restricted Cash and Short-term Investments. Cash and cash equivalents, restricted cash and short-term investments as of March 31, 2019 increased by 17.7% to $130.1 million from $110.5 million as of December 31, 2018, mainly due to the operating cash inflow generated in the second quarter of fiscal 2019, which was partially offset by the capital expenditure of $1.7 million. First Six Months of Fiscal 2019 Financial Results Net Revenue. Total net revenue increased by 24.0% to $81.4 million in the first six months of fiscal 2019 from $65.6 million in the first six months of fiscal 2018. Net revenue from online education services, books and reference materials, and other sources contributed 65.0%, 14.5% and 20.5%, respectively, of total net revenues for the first six months of fiscal 2019. Online education services. Net revenue from online education services increased by 15.5% to $52.9 million in the first six months of fiscal 2019 from $45.8 million in the first six months of fiscal 2018. Books and reference materials. Net revenue from books and reference materials increased by 213.3% to $11.8 million in the first six months of fiscal 2019 from $3.8 million in the first six months of fiscal 2018. Others. Net revenue from other sources increased by 3.9% to $16.7 million in the first six months of fiscal 2019 from $16.0 million in the first six months of fiscal 2018. Cost of Sales. Cost of sales increased by 31.9% to $48.9 million in the first six months of fiscal 2019 from $37.1 million in the first six months of fiscal 2018. Non-GAAP[1] cost of sales increased by 32.1% to $48.9 million in the first six months of fiscal 2019 from $37.0 million in the first six months of fiscal 2018. Gross Profit and Gross Margin. Gross profit was $32.5 million in the first six months of fiscal 2019, up 13.8% from $28.6 million in the prior year period. Non-GAAP[1] gross profit was $32.5 million, increasing by 13.6% from $28.6 million in the prior year period. Gross margin was 39.9% in the first six months of fiscal 2019, compared with 43.5% in the first six months of fiscal 2018. Non-GAAP[1] gross margin was 40.0% in the first six months of fiscal 2019, compared with 43.6% in the first six months of fiscal 2018. Operating Expenses. Total operating expenses increased by 45.9% to $41.2 million in the first six months of fiscal 2019 from $28.2 million in the prior year period. Non-GAAP[1] total operating expenses increased by 47.6% to $40.2 million in the first six months of fiscal 2019 from $27.2 million in the prior year period. Selling expenses. Selling expenses increased by 62.0% to $28.3 million in the first six months of fiscal 2019 from $17.5 million in the prior year period. Non-GAAP[1] selling expenses increased by 62.3% to $28.3 million in the first six months of fiscal 2019 from $17.4 million in the prior year period. General and administrative expenses. General and administrative expenses increased by 19.9% to $12.9 million in the first six months of fiscal 2019 from $10.8 million in the prior year period. Non-GAAP[1] general and administrative expenses increased by 21.5% to $11.9 million in the first six months of fiscal 2019 from $9.8 million in the prior year period. Gain on Deconsolidation of a Subsidiary. Gain on deconsolidation of a subsidiary of $6.9 million related to the gain on disposal of 60% equity interest, and fair value change of remaining 40% equity interest, in Champion Tax Advisory or "Tax School Program." Income Tax Benefit. Income tax benefit decreased by 49.6% to $0.4 million in the first six months of fiscal 2019 from $0.8 million in the prior year period. Net Loss. As a result of the foregoing, net loss was $2.0 million in the first six months of fiscal 2019, compared with $3.2 million in the prior year period. Non-GAAP[1] net loss was $1.0 million in the first six months of fiscal 2019, compared with non-GAAP[1] net loss of $2.1 million in the prior year period. Operating Cash Flow. Net operating cash inflow increased by 91.0% to $41.3 million in the first six months of fiscal 2019 from $21.6 million in the prior year period. Outlook For the third quarter of fiscal 2019, the Company expects to generate total net revenue in the range of $61.6 million to $64.0 million, representing year-over-year growth of approximately 30% to 35%. For fiscal year 2019, the Company expects to generate total net revenues in the range of $210.0 million to $218.3 million, representing year-over-year growth of approximately 26% to 31%. The Company's prior fiscal 2019 full-year total net revenue guidance range was $208.3 million to $216.7 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 on Thursday, May 16, 2019 (8:00 p.m. Beijing Time on Thursday, May 16, 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 A telephone replay will be available two hours after the call until May 23, 2019 by dialing: US Toll Free: +1-855-452-5696 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 third quarter and full fiscal year 2019 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) 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, 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 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 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:
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