China Distance Education Holdings Limited Reports Second Quarter 2009 Results

Net Revenues Doubled YoY to US$6.8 million

Total Online Course Enrollment Grew 72.6% YoY to 197,000

BEIJING, China, May 16 /PRNewswire-Asia/ -- China Distance Education Holdings Limited (NYSE: DL) ("CDEL", or the "Company"), a leading provider of online education in China focusing on professional education, reported today its unaudited financial results for the second quarter of fiscal year 2009 ended on March 31, 2009.

Second Quarter Fiscal 2009 Business and Financial Highlights:

-- Total online course enrollments exceeded 197,000, an increase of 72.6%

from the second quarter of fiscal 2008.

-- Net revenues increased 99.3% over the second quarter of fiscal 2008 to

US$6.8 million.

-- Gross profit increased 53.2% over the second quarter of fiscal 2008 to

US$3.3 million. Non-GAAP gross profit excluding share-based

compensation charge was US$3.9 million, an increase of 80.0% over the

same period of fiscal 2008.

-- Gross profit margin was 48.8%, compared to 63.5% in the second quarter

of fiscal 2008. Non-GAAP gross margin excluding share-based

compensation charge was 57.4%, compared to 63.5% in the same period of

fiscal 2008.

-- Net income was US$0.3 million, compared to US$0.7 million in the second

quarter of fiscal 2008.

-- Non-GAAP net income excluding share-based compensation was US$1.4

million, an increase of 85.0% as compared to US$0.7 million in the

second quarter of fiscal 2008. Non-GAAP net income margin for the

second quarter of fiscal 2009 excluding the impact of share-based

compensation was 20.0% as compared to 21.6% in the same period of

2008.(1)

-- Basic and diluted net income per American Depositary Share ("ADS") was

US$0.01 and US$0.01, respectively, compared to basic and diluted net

income per ADS of US$0.01 and US$0.01, respectively, for the second

quarter of fiscal 2008. Each ADS represents four ordinary shares.

-- Basic and diluted non-GAAP net income per ADS excluding share-based

compensation charge and the effect of Series A convertible contingently

redeemable preferred shares ("Series A shares") were US$0.04 and

US$0.04, compared to basic and diluted non-GAAP net income per ADS of

US$0.03 and US$0.03, respectively, for the second quarter of fiscal

2008.

-- Deferred revenue and refundable fees balance maintained at US$9.6

million, as elite class revenue of CPA Qualification Examination and

healthcare has been recognized during the quarter.

(1) For more information about the non-GAAP financial measures contained

in this press release, please see "Use of Non-GAAP Financial Measures"

below.

Commenting on the results, Mr. Zhengdong Zhu, CDEL Chairman and Chief Executive Officer said, "We are pleased to report another quarter of solid financial results. Our performance further demonstrates the resilient nature of the education industry in China and the strength of our professional education business model and growth strategy, which is allowing the Company to deliver sustainable growth throughout the economic cycle."

Mr. Zhu continued, "The sustained growth in enrollments in both accounting and non-accounting subjects demonstrates our ability to replicate our successful accounting model to other subject and course offerings. The strong acceptance of our premium classes has also proven our diversified pricing and marketing strategies, which have helped to maintain our average selling-price (ASP) level.

"The non-cyclical nature of the education industry has shielded us thus far from experiencing any significant adverse impact from the soft economic environment. While the half-price promotion launched in the previous quarters was expected to have pressure on ASPs of the affected courses, it has helped expand our student base and our market share.

"We are confident that our focused growth strategy and competitive advantages, including a well recognized brand name, diversified and high quality course offerings, superior services and a strong technology platform, will continue to position our business to maintain strong growth as we capitalize on the immense opportunities in the education market in China" Mr. Zhu concluded.

Ms. Ping Wei, Chief Financial Officer of CDEL, commented, "As a result of continued demand for our existing course offerings, we were able to deliver strong revenue growth during the quarter, despite the fact that our

self-taught courses have not yet made a substantial contribution.

"As part of our strategy to further bolster our market position and to improve service quality, we continued to invest in strengthening our sales, teaching services, tutoring and technical support, and general customer services during the period by further expanding our headcount and office space. While this impacted our margins in the quarter, we believe these efforts are necessary to support our continued growth and will allow us to strengthen our market position moving forward. In addition, the newly acquired Yucai contributed an additional US$0.3 million of cost and expenses for the quarter."

Fiscal Second Quarter 2009 Unaudited Financial Results

Net Revenues. Total net revenues for the second quarter of fiscal 2009 were US$6.8 million, representing a year-over-year increase of 99.3% from US$3.4 million in the second quarter of fiscal 2008.

Online education services net revenues for the second quarter of fiscal 2009 were US$5.4 million, an increase of 71.6% from the second quarter of fiscal 2008. The increase was primarily driven by robust enrollment growth in most of our business lines as total enrollments grew to approximately 197,000 from 114,000 in the second quarter of fiscal 2008. Elite class revenue recognized in the quarter amounted to US$1.3 million, an increase of 76.0% compared with the second quarter of fiscal 2008.

The Company's complementary businesses achieved exceptional growth in revenue for the second quarter of fiscal 2009. Revenue from books and reference materials sales increased by 181.9% to US$0.6 million for the second quarter of fiscal 2009. Other revenues, primarily comprised of platform production and related services, course production services, and magazine content production services reached US$0.8 million for the second quarter of fiscal 2009 from a negligible amount in the corresponding period of last year.

Cost of Sales. Cost of sales for the second quarter of fiscal 2009 was US$3.5 million, an increase of 179.7% year-over-year and a 37.7% sequential increase over the first quarter of fiscal 2009. Excluding share-based compensation (non-GAAP), cost of sales for the second quarter of fiscal 2009 was US$2.9 million, an increase of 133.1% year-over-year and an increase of 39.7% over the first quarter of fiscal 2009. The increase in cost of sales was primarily due to increased salaries and welfare expenses, rental and utilities expenses as we continued to add more personnel and increased rental space to accommodate the increased headcount, costs from the newly acquired Yucai, and the increased share-based compensation charge in the quarter. Cost of books and reference materials also increased in proportion with the increase in sales.

Gross Profit and Gross Margin. Gross profit for the second quarter of fiscal 2009 was US$3.3 million, representing a 53.2% increase from US$2.2 million in the same period last year. Excluding share-based compensation,

non-GAAP gross profit was US$3.9 million, an increase of 80.0% year-over-year. Gross margin for the second quarter of fiscal 2009 decreased to 48.8% from 63.5% in the second quarter of fiscal 2008. Excluding share-based compensation, the non-GAAP gross margin for the second quarter of fiscal 2009 was 57.4%, compared to 63.5% in the same period of 2008. The decrease in gross margin was primarily due to the lower margin books and reference materials revenue, expenses related to the newly acquired Yucai, personnel cost and rental and utilities expenses as the Company expanded its office space to accommodate increased headcount.

Operating Expenses. Total operating expenses for the second quarter of fiscal 2009 were US$3.3 million, an increase of 176.1% year-over-year and a decrease of 2.6% over the first quarter of fiscal 2009. Excluding share-based compensation (non-GAAP), operating expenses were US$2.8 million, representing a year-over-year increase of 133.5% and a sequential decrease of 4.2%.

Selling expenses amounted to US$1.6 million for the second quarter of fiscal 2009, representing a 272.6% increase year-over-year and a 22.0% sequential quarter-over-quarter increase. Excluding share-based compensation (non-GAAP), selling expenses were US$1.5 million, representing a 247.0%

year-over-year increase and a 23.2% sequential increase. The increase in selling expenses was primarily due to increased headcount in the customer service and sales departments as the Company further strengthened the internal sales team, increased advertising and promotional activities, and increased commissions to its online agents.

General and administrative expenses were US$1.7 million in the second quarter of fiscal 2009, representing a 122.0% year-over-year increase and a 18.2% sequential quarter-over-quarter decline. Excluding share-based compensation charge (non-GAAP), general and administrative expenses were US$1.3 million, an increase of 69.9% year-over-year and a decrease of 23.6% compared to the first quarter of fiscal 2009. The year-over-year increase was primarily the result of increased headcount and additional expenses associated with being a US public company.

Income Tax Expense. Income tax expense for the second quarter of fiscal 2009 was US$0.23 million, compared with US$0.17 million in the same period last year.

Net Income. Net income was US$0.3 million for the second quarter of fiscal 2009, compared to US$0.7 million in the same period of 2008. Excluding share-based compensation, non-GAAP net income for the second quarter of fiscal 2009 was US$1.4 million, compared to US$0.7 million in the corresponding quarter in 2008 and the newly acquired Yucai contributed to a reduction in net income by US$0.2 million.

Operating Cash Flow. Net operating cash flow for the second quarter of fiscal 2009 was US$1.0 million, a decrease of 3.3% over the same period last year primarily due to the negative changes in working capital.

Cash and Cash Equivalents. Cash and cash equivalents as of March 31, 2009 decreased to US$61.4 million from US$64.4 million as of December 31, 2008. This decrease was mainly due to the Yucai acquisition, capital expenditure for the purchase of electronic equipment and intangible assets, and the repurchase of our ADSs from the open market in the amount of US$2.4 million, US$0.8 million and US$1.0 million, respectively, despite US$1.0 million generated from operating cash flow.

Third Quarter Fiscal 2009 Guidance -- Due to the seasonality of our business, we typically experience fluctuations in our results. As such, CDEL expects to generate total net revenues for the third quarter of fiscal 2009 in the range of US$7 million to US$8 million, as compared to net revenues of US$4.6 million in the third quarter of fiscal 2008. This represents our current and preliminary view, which is subject to change.

Conference Call

China Distance Education Holdings Limited senior management will host a conference call at 8:00 am (Eastern) / 5:00 am (Pacific) / 8:00 pm (Beijing) on Monday, May 18, 2009 to discuss its fiscal second quarter 2009 financial results and recent business activities. The conference call may be accessed by calling +1 866 519 4004 (US), 800 933 053 (Hong Kong), 800 819 0121 (China), or 0 808 234 6646 (UK). A telephone replay will be available shortly after the call until May 25, 2009 at +1 866 214 5335 (US), 800 901 596 (Hong Kong), 10 800 714 0386 (China North), 10 800 140 0386 (China South) or 0 800 731 7846 (UK). Pass code 97553376.

A live webcast of the conference call and replay will be available on the investor relations page of China Distance Education Holdings Limited's website at:

http://ir.cdeledu.com/versions/Financials_en/EarningsAnnouncements_en.html

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 and other course participants obtain and maintain the skills, licenses and certifications necessary to pursue careers in China in the areas of accounting, law, healthcare, construction engineering, information technology and other industries. The Company also offers online test preparation courses to self-taught learners pursuing higher education diplomas or degrees and to secondary school and college students preparing for various academic and entrance exams. In addition, the Company offers online foreign language courses.

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," "anticipate," "future," "intend," "plan," "believe," "is/are likely to," "estimate" and similar statements. Among other things, the outlook for the third quarter of the fiscal year 2009 and quotations from management in this announcement, as well as the Company's strategic and operational plans contain forward-looking statements. The Company may also make written or oral forward-looking statements in its periodic reports to the US Securities and Exchange Commission, or SEC in its annual report to shareholders, 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: the Company's goals and growth strategies; its future prospects and market acceptance of its online courses and other products and services; its future business development and results of operations; projected revenues, profits, earnings and other estimated financial information; projected enrollment numbers; its plans to expand and enhance its online courses and other products and services; competition in the online education and test preparation markets; and Chinese laws, regulations and policies, including those applicable to the Internet and 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 registration statement on Form F-1 and other documents filed with the SEC. The Company does not undertake any obligation to update any

forward-looking statement, except as required under applicable law. All information provided in this press release and in the attachments is as of the date of this press release.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above 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 by the SEC: net income excluding share-based compensation expenses, operating income excluding share-based compensation expenses, gross profit excluding share-based compensation expenses, cost of sales excluding share-based compensation expenses, selling expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, net income margin excluding share-based compensation expenses, operating margin excluding share-based compensation expenses, gross profit margin excluding share-based compensation expenses and basic and diluted earnings per ADS and per share excluding share-based compensation expenses, and the effect of Series A Shares. 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 GAAP to non-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 expenses that may not be indicative of its 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, except basic and diluted earnings per ADS and per share excluding share-based compensation expenses, and the effect of Series A shares. 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 share-based compensation charges will 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.

China Distance Education Holdings Limited

Unaudited Consolidated Balance Sheets

(in thousands of US Dollars, except number of shares and per share data)

September 30, 2008 March 31, 2009

Assets: (audited) (unaudited)

Current assets:

Cash and cash equivalents 66,223 61,427

Accounts receivable 715 1,690

Inventories 177 353

Prepayment and other current assets 1,469 3,127

Deferred tax assets, current portion 2,297 1,799

Deferred cost – current portion 448 1,309

Total current assets 71,329 69,705

Non-current assets:

Property, plant and equipment, net 7,089 8,136

Goodwill 5,278 5,724

Other intangible assets, net 1,390 4,524

Deposit for non-current assets 151 --

Deferred tax assets, non-current

portion 89 255

Total non-current assets 13,997 18,639

Total assets 85,326 88,344

Liabilities and shareholders' equity:

Current liabilities:

Accrued expenses and other

liabilities 2,983 2,912

Income tax payable 1,014 215

Deferred revenue, current portion 3,728 8,036

Refundable fees 4,688 1,445

Total current liabilities 12,413 12,608

Non-current liabilities:

Deferred revenue, non-current portion 163 116

Deferred tax liabilities, non-current

portion -- 487

Total non-current liabilities 163 603

Total liabilities 12,576 13,211

Commitments and contingencies -- --

Minority interest -- 2,064

Shareholders’ equity

Ordinary shares (par value of

US$0.0001 per share at September 30,

2008 and March 31, 2009,

respectively; Authorized –

480,000,000 shares at September 30,

2008 and March 31, 2009; Issued and

outstanding –141,897,737 and

140,522,137 shares at September 30, 14 14

Additional paid-in capital 76,811 77,381

Foreign currency translation 1,717 1,678

Cumulative deficits (5,792) (6,004)

Total shareholders’ equity 72,750 73,069

Total liabilities and shareholders’

equity 85,326 88,344

China Distance Education Holdings Limited

Unaudited Consolidated Statements Of Income

(in thousands of US dollars, except number of shares, per share and per

ADS data)

Three Months Ended March 31,

2008 2009

Sales, net of business tax, value-

added tax and related surcharges:

Online education services 3,166 5,434

Books and reference materials 201 561

Others 22 757

Total net revenues 3,389 6,752

Cost of sales

Cost of services (1,134) (3,166)

Cost of tangible goods sold (101) (288)

Total cost of sales (1,235) (3,454)

Gross profit 2,154 3,298

Operating expenses

Selling expenses (432) (1,608)

General and administrative expenses (769) (1,707)

Total operating expenses (1,201) (3,315)

Other operating income -- 292

Operating income 953 275

Interest income 14 177

Interest expense (8) --

Exchange loss (16) (4)

Equity in loss of an affiliated

company (40) --

Income before income taxes 903 448

Income tax expense (172) (227)

Minority interest, net of taxes -- 43

Net income 731 264

Accretion of Series A convertible

contingently redeemable preferred

shares to redemption amount and

accretion of beneficial conversion

feature of Series A convertible

contingently redeemable preferred

shares (398) --

Net income attributable to ordinary

shareholders 333 264

Earnings per share

Basic 0.00 0.00

Diluted 0.00 0.00

Earnings per ADS

Basic 0.01 0.01

Diluted 0.01 0.01

Weighted average number of ordinary

shares outstanding:

Basic and diluted shares 91,877,000 140,846,061

China Distance Education Holdings Limited

Reconciliation of GAAP to non-GAAP measures

(In thousands of US Dollars, except number of shares, per share and per

ADS data)

Three Months Ended March 31,

2008 2009

(Unaudited) (Unaudited)

Cost of sales 1,235 3,454

Share-based compensation expense in

cost of sales -- 575

Non-GAAP cost of sales 1,235 2,879

Selling expenses 432 1,608

Share-based compensation expense in

selling expenses -- 111

Non-GAAP selling expenses 432 1,497

General and administrative expenses 769 1,707

Share-based compensation expense in

general and administrative expenses -- 400

Non-GAAP general and administrative

expenses 769 1,307

Gross profit 2,154 3,298

Share-based compensation expenses -- 575

Non-GAAP gross profit 2,154 3,873

Gross profit margin 63.5% 48.8%

Non-GAAP gross profit margin 63.5% 57.4%

Operating income 953 275

Share-based compensation expenses -- 1,086

Non-GAAP operating income 953 1,361

Operating margin 28.1% 4.1%

Non-GAAP operating margin 28.1% 20.2%

Net income 731 264

Share-based compensation expense -- 1,086

Non-GAAP net income 731 1,350

Net income margin 21.6% 3.9%

Non-GAAP net income margin 21.6% 20.0%

Earnings per share-basic 0.00 0.00

Earnings per share-diluted 0.00 0.00

Non-GAAP earnings per share-basic 0.01 0.01

Non-GAAP earnings per share-diluted 0.01 0.01

Earnings per ADS-basic (note 1) 0.01 0.01

Earnings per ADS-diluted (note 1) 0.01 0.01

Non-GAAP earnings per ADS basic (note

1) 0.03 0.04

Non-GAAP earnings per ADS-diluted

(note 1) 0.03 0.04

Weighted average shares used in

calculating basic earnings per share 91,877,000 140,846,061

Weighted average shares used in

calculating diluted earnings per

share 91,877,000 140,846,061

Weighted average shares used in

calculating basic non-GAAP earnings

per share 91,877,000 140,846,061

Weighted average shares used in

calculating diluted non-GAAP

earnings per share 91,877,000 140,846,061

Note 1: Each ADS represents four ordinary shares.