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Actionable news in TEDU: TARENA INTERNATIONAL Inc,

Tarena International, Inc. Announces Third Quarter 2016 Results

Starting from the third quarter of 2016, the Company changed its reporting currency from the U.S. dollar ("US$") to the Renminbi ("RMB"). The aligning of the reporting currency with the underlying operations will better depict the Company's results of operations for each period. Prior periods' financial information have been recasted as if the Company always used RMB as the Company's reporting currency.

Third Quarter 2016 Financial and Operational Highlights

  • Net revenues increased by 29.4% year-over-year to RMB481.0 (US$72.0) from RMB371.6 in the same period in 2015.
  • Gross profit increased by 28.9% year-over-year to RMB360.1 (US$53.9) fromRMB279.4 in the same period in 2015.
  • Operating income increased by 25.1% year-over-year to RMB113.8 (US$17.0) from RMB91.0 in the same period in 2015. Non-GAAP operating income, which excluded share-based compensation expenses, increased by 27.6% year-over-year to RMB127.1 (US$19.0) from RMB99.6 in the same period in 2015.
  • Net income increased by 40.7% year-over-year to RMB120.3 (US$18.0) from RMB85.5 in the same period in 2015. Non-GAAP net income, which excluded share-based compensation expenses, increased by 42.0% year-over-year to RMB133.6 (US$20.0) from RMB94.1 in the same period in 2015.
  • Basic and diluted net income per American Depositary Share ("ADS") were RMB2.16(US$0.32) and RMB2.05 (US$0.31), respectively. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were RMB2.40 (US$0.36) and RMB2.28 (US$0.34), respectively. Each ADS represents one Class A ordinary share.
  • Total student enrollments, defined as the total number of new students recruited and registered, in the third quarter of 2016 increased by 28.0% year-over-year to 30,818.
  • Total course enrollments, defined as the cumulative number of courses enrolled in by our students, in the third quarter of 2016 increased by 23.7% year-over-year to 29,586.
  • Cash, cash equivalents and time deposits totaled RMB1,375.8 (US$206.0) as of September 30, 2016, compared to RMB1,228.0 as of December 31, 2015.
  • Deferred revenue totaled RMB331.5 (US$49.6) as of September 30, 2016, compared to RMB164.5 as of December 31, 2015.
  • Total seat capacity, defined as the total number of seats available in our learning centers, increased by 21.0% to 50,270 as of September 30, 2016, from 41,557 as of September 30, 2015.
  • Total number of learning centers increased to 138 as of September 30, 2016, from 128 as of September 30, 2015.

First Nine Months 2016 Financial and Operational Highlights

  • Net revenues increased by 39.9% year-over-year to RMB1,115.6 (US$167.1) from RMB797.7 in the same period in 2015.
  • Gross profit increased by 41.0% year-over-year to RMB789.9 (US$118.3) from RMB560.1 in the same period in 2015.
  • Operating income increased by 91.8% year-over-year to RMB133.9 (US$20.0) from RMB69.8 in the same period in 2015. Non-GAAP operating income, which excluded share-based compensation expenses, increased by 89.8% year-over-year to RMB177.7 (US$26.6) from RMB93.6 in the same period in 2015.
  • Net income increased by 58.6% year-over-year to RMB139.1 (US$20.8) from RMB87.7 in the same period in 2015. Non-GAAP net income, which excluded share-based compensation expenses and loss on foreign currency forward contract, increased by 75.5% year-over-year to RMB195.8 (US$29.3) from RMB111.6 in the same period in 2015.
  • Basic and diluted net income per American Depositary Share ("ADS")were RMB2.51(US$0.38) and RMB2.37(US$0.36), respectively. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses and loss on foreign currency forward contract, were RMB3.54 (US$0.53) and RMB3.34 (US$0.50),respectively.
  • Total student enrollments during the first nine months of 2016 increased by 31.6% year-over-year to 80,595.
  • Total course enrollments during the first nine months of 2016 increased by 34.6% year-over-year to 74,401.

"We are pleased to report another strong quarter in terms of both growth and profitability," said Mr. Shaoyun Han, Tarena's Chairman and Chief Executive Officer. "For the third quarter of 2016, we continued to make solid progress on all fronts, given better course selections for our students, positive job market dynamics and improved operational efficiency. Our student enrollments for both IT and non-IT courses grew strongly at 28.0% year over year to reach 30,818, which marks a record high. This can be attributable to the execution of our core strategy to penetrate additional verticals and extend our reach into new geographical areas and new consumer segments. In the third quarter of 2016, we commenced our inaugural class in Beijing, Guangzhou and Hangzhou for our new course in Virtual Reality /Augmented Reality and opened 5 new learning centers in 5 cities, including Huhhot, a second tier city we newly entered. Going forward, we will continue to diversify our course offerings and revenues."

"More importantly, we began to implement a series of initiatives to further strengthen our position as a leading professional education services provider. In the third quarter of 2016, we have successfully cooperated with China Higher Education Publishing House to launch textbooks in Java, Digital arts and Android and forged joint major programs with Beijing Open University to deepen the cooperation with universities and colleges in China. Also in the third quarter, we continued to improve our employee productivity and operational efficiency by streamlining our organizational structure, upgrading IT facilities to promote communication and learning process, as well as continuing to optimize our advertising spending. As the number of college graduates in China has risen to a record high of 7.7 in 2016, Tarena has been well positioned to capture the opportunities presented by this favorable market environment to drive future growth." Mr. Han continued.

Mr. YuduoYang, Tarena's Chief Financial Officer, added, "despite the business expansion, both of our gross profit margin and operating margin stabilized at high level and we again delivered a strong growth in operating profit. Operating profits in the third quarter of 2016 increased by 25.1% year-over-year while operating profits for the first nine months of 2016 increased by 91.8% year-over-year. We will continue to manage our business with a passion for driving efficiency and bringing value to more students."

Third Quarter 2016 Results

Net Revenues

Net revenues increased by 29.4% to RMB481.0 (US$72.0) in the third quarter of 2016, from RMB371.6 in the same period in 2015. The increase was primarily due to increased course enrollments and to a lesser extent, an increase in the standard tuition fees.

Total course enrollments in the third quarter of 2016 increased by 23.7% to 29,586 from 23,912 in the same period in 2015, which was driven mainly by the number and the popularity of our course offerings. The number of our course offerings increased from 14 to 18 in the third quarter year-over-year while the total seat capacity in our learning centers increased by 21.0% from 41,557 as of September 30, 2015 to 50,270 as of September 30, 2016, to cater to the increased demand for our courses.

We also raised the standard tuition fees on selected courses by RMB1,000 to RMB 2,000 per course since March 2016. We charge students enrolled through the retail channel our standard tuition fee and provide students enrolled through the university channel a discount of approximately RMB4,000 per person per course. Our student enrollment mix from retail and university channel was 84%/16% and 86%/14% in the third quarter of 2016 and 2015, respectively.

Cost of Revenues

Cost of revenues grew by 31.0% to RMB120.9 (US$18.1) in the third quarter of 2016, from RMB92.2 in the same period in 2015. Along with the business expansion, the increase in cost of revenues was mainly due to an increase in personnel cost and welfare expenses resulting from growing number of teaching and advisory staff at our learning centers, rental cost resulting from higher seat capacity, as well as depreciation expenses for our learning centers.

Gross Profit and Gross Margin

Gross profit increased by 28.9% to RMB360.1 (US$53.9) in the third quarter of 2016, from RMB279.4 in the same period in 2015. Gross margin was flattish at 74.9% in the third quarter of 2016 as compared with 75.2% in the same period in 2015. The slight decrease in gross margin was mainly due to increased number of learning centers and expansion of course offerings.

Operating Expenses

Total operating expenses increased by 30.8% to RMB246.3 (US$36.9) in the third quarter of 2016, from RMB188.4 in the same period in 2015. Total non-GAAP operating expenses, which excluded share-based compensation expenses, increased by 30.0% to RMB234.0 (US$35.0) in the third quarter of 2016, from RMB179.9 in the same period in 2015. Total share-based compensation expenses allocated to the related operating expenses increased by 45.9% to RMB12.3 (US$1.8) in the third quarter of 2016, from RMB8.4 in the same period in 2015.

Selling and marketing expenses increased by 48.6% to RMB149.7 (US$22.4) in the third quarter of 2016, from RMB100.8 in the same period in 2015. The increase was due to an increase in personnel cost and welfare expenses related to the growth in our selling and marketing headcount, and marketing efforts as we expanded our course offerings and network of learning centers.

General and administrative expenses increased by 7.4% to RMB79.8 (US$11.9) in the third quarter of 2016, from RMB74.2 in the same period in 2015. The increase was mainly due to an increase in compensation cost for our increased number of general and administrative personnel to support our growing operations and an increase in share-based compensation expenses. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 4.0% to RMB69.6 (US$10.4), from RMB66.9 in the same period in 2015.

Research and development expenses increased by 26.0% to RMB16.8 (US$2.5) in the third quarter of 2016, from RMB13.3 in the same period in 2015. The increase was mainly due to an increase in personnel cost and welfare expenses of our instructors allocated to their content development activities for our courses, as well as growing number of research and development staff as we expanded our course offerings and operations.

Operating Income

Operating income increased by 25.1% to RMB113.8 (US$17.0) in the third quarter of 2016, from RMB91.0 in the same period in 2015. Operating margin was 23.7% in the third quarter of 2016 as compared to 24.5% in the same period in 2015. Non-GAAP operating income, which excluded share-based compensation expenses, increased by 27.6% to RMB127.1 (US$19.0) in the third quarter of 2016, from RMB99.6 in the same period in 2015. Non-GAAP operating margin remained stable at 26.4% in the third quarter of 2016 as compared to 26.8% in the same period in 2015.

Interest Income

Interest income was RMB4.3 (US$0.6) in the third quarter of 2016, compared to RMB13.0 in the same period in 2015. Interest income in both periods consisted of interest earned on our cash, cash equivalents and time deposits in commercial banks and interest income recognized in relation to our installment payment plan for students. The decrease in interest income was primarily due to lower bank deposits and interest rate, as well as lower tuition interest income in relation to our installment payment plan for students.

Foreign Exchange Gain (Loss)

Foreign exchange gain was RMB1.3 (US$0.2) in the third quarter of 2016, compared to RMB21.0 foreign exchange loss in the same period in 2015. Due to the depreciation of China's RMB against U.S. Dollar, the company has converted its offshore bank deposits previously in RMB into US dollars under a foreign currency forward contract. The contract had been settled in May 2016.

Income Tax Expense

Income tax expense was RMB4.7 (US$0.7) in the third quarter of 2016, compared to RMB1.6 in the same period in 2015. The increase was mainly due to an increase in the effective income tax rate and higher taxable income.

Net Income

As a result of the foregoing, net income increased by 40.7% to RMB120.3 (US$18.0) in the third quarter of 2016, from RMB85.5 in the same period in...


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