Tarena International, Inc. :TEDU-US: Earnings Analysis: Q3, 2016 By the Numbers : November 23, 2016

Tarena International, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Tarena International, Inc. – Franklin Covey Co. and New Oriental Education & Technology Group, Inc. Sponsored ADR (FC-US and EDU-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 70.56 million, Net Earnings of USD 17.65 million.
  • Gross margins narrowed from 75.26% to 74.87% compared to the same period last year, operating (EBITDA) margins now 23.66% from 24.74%.
  • Earnings growth due to contribution of one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 70.56 54.79 40.19 58.86 58.84
Revenue Growth (%YOY) 19.91 32.83 43.66 48.62 46.46
Earnings (mil) 17.65 6.5 -3.65 14.23 13.65
Earnings Growth (%YOY) 29.33 127.34 -47.34 88.91 30.82
Net Margin (%) 25.01 11.87 -9.09 24.17 23.19
EPS 0.3 0.11 -0.07 0.25 0.24
Return on Equity (%) 33.73 13.03 -7.23 28.53 28.58
Return on Assets (%) 24.89 9.7 -5.59 22.76 22.41

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Market Share Versus Profits

Revenues History
Earnings History

TEDU-US‘s change in revenue this period compared to the same period last year of 19.91% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that TEDU-US is holding onto its market share. Also, for comparison purposes, revenues changed by 28.77% and earnings by 171.38% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 74.87% to 75.26% for the same period last year, while operating margins (EBITDA margins) went from 23.66% to 24.74% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

TEDU-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 182.42 days from 235.68 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Margins

The company’s operating (EBIT) margins contracted from 24.74% to 23.66%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 23.61% to 26.00%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Tarena International, Inc. is a holding company which engages in the provision of education services. It operates through the Training segment which offers live distance instruction, classroom-based tutoring, and online learning module focused on information technology. The company was founded by Shao Yun Han on October 8, 2003 and is headquartered in Beijing, China.

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