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Puxin Limited Announces Third Quarter 2018 Unaudited Financial Results

BEIJING, Nov. 26, 2018 /PRNewswire/ -- Puxin Limited (NEW) ("Puxin" or the "Company"), a successful consolidator of the after-school education industry in China, today announced its unaudited financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Financial and Operational Highlights

  • Net revenues were RMB669.7 million (US$97.5 million), representing an increase of 60.1% from the third quarter of 2017.
  • Operating loss was RMB61.1 million, a decrease of 25.0% from RMB81.4 million in the same period of the prior year.
  • Adjusted operating loss[1] was RMB41.8 million, a decrease of 38.6% from RMB68.1 million in the same period of the prior year.
  • Net loss attributable to Puxin Limited was RMB50.2 million (US$7.3 million), a decrease of 53.0% from RMB107.0 million in the third quarter of 2017.
  • Adjusted net loss attributable to Puxin Limited[2] decreased by 28.1% to RMB51.0 million from RMB70.9 million in the same period of the prior year.
  • Cash and cash equivalents were RMB684.2 million (US$99.6 million), compared with RMB164.7 million as of December 31, 2017.
  • Student enrollments increased by 48.8% to 544,253 from 365,810 in the third quarter of 2017.

"We delivered solid top line growth and narrowed our net loss during the quarter," commented, Yunlong Sha, Chairman and Chief Executive Officer of Puxin. "Net revenues grew in line with our expectations, increasing over 60% year-over-year as our net loss narrowed on both a sequential and year-over-year basis. Top line growth was driven by an organic increase in student enrolments and in part by revenue from Global Education which reached a historical high during the quarter, its third consecutive quarter of positive revenue growth following its acquisition in August last year. We also continued to invest in expanding our online service offerings and product mix to diversify revenue streams and create new growth drivers."

"We slowed the pace of acquisitions during the quarter in response to recently announced government policies. We support the government's new policies and believe that enhanced regulation will create a stronger and more sustainable market environment over the long term. We are confident in our strategies and believe we will be well positioned to benefit from a well-regulated market by leveraging our extensive experience in completing acquisitions and rapidly improving operations and management of acquired schools. Our ability to generate solid organic growth while integrating and restructuring a number of acquired schools demonstrates the effectiveness of Puxin Business System[3], which we use to analyse a school's growth potential and formulate plans to improve their performance."  

[1] Adjusted operating loss is a non-GAAP financial measure, which is defined as operating loss excluding share-based compensation expenses. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" elsewhere in this earnings release.

[2] Adjusted net loss attributable to Puxin Limited is a non-GAAP financial measure, which is defined as net loss attributable to Puxin Limited excluding share-based compensation expenses and loss/gain on changes in fair value of convertible notes, derivative liabilities and warrants. See "Use of Non-GAAP Financial Measures" and "Reconciliations of GAAP and non-GAAP results" elsewhere in this earnings release.

[3] Puxin Business System ("PBS") is designed in-house by our core management team reflecting over 15 years of accumulated management experience in China's education industry. PBS incorporates the best practices of operating after-school learning centers in a standard, common collection of business processes and process improvement methodologies. It covers over 3,000 management processes and we use PBS tools to analyze schools' growth potential and formulate improvement plans.

Financial Results for the Third Quarter of 2018

Net Revenues

Net revenues increased by 60.1% to RMB669.7 million (US$97.5 million) from RMB418.4 million in the third quarter of 2017. This increase was primarily driven by increases in student enrollments. Student enrollments increased by 48.8% from 365,810 in the third quarter of 2017 to 544,253 in the same period of 2018.

On January 1, 2018, the Company adopted the modified retrospective method of FASB Accounting Standards Codification (ASC) Topic 606 ("Topic 606"), which relates to revenue from contracts with customers. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

Cost of Revenues

Cost of revenues increased by 44.7% to RMB374.6 million (US$54.5 million) from RMB258.8 million for the same period in 2017, primarily due to an increase in rental costs and teacher compensation. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 44.1% to RMB372.5 million from RMB258.4 million in the third quarter of fiscal year 2017.

Gross Profit and Gross Margin

Gross profit was RMB295.1 million (US$43.0 million), an increase of 84.9% from RMB159.6 million during the same period in 2017. Gross margin was 44.1%, compared with 38.1% for the same period in 2017.

Operating Expenses

Total operating expenses increased by 47.8% to RMB356.1 million (US$51.9 million) from RMB240.9 million in the third quarter of 2017.

Selling expenses increased by 68.7% to RMB237.3 million (US$34.6 million) from RMB140.7 million in the third quarter of 2017. Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, increased by 62.8% to RMB227.6 million from RMB139.8 million in the third quarter of fiscal year 2017. The increase was primarily due to increases in brand promotion expenses and selling and marketing staff compensation.

General and administrative expenses increased by 18.5% to RMB118.8 million (US$17.3 million) from RMB100.3 million during the same period of 2017. Non-GAAP general and administrative expenses, which excludes share-based compensation expenses, increased by 26.2% to RMB111.3 million from RMB88.3 million in the third quarter of fiscal year 2017.

Total share-based compensation expenses allocated to related operating costs and expenses increased by 44.9% to RMB19.3 million (US$2.8 million) from RMB13.3 million in the same period of 2017. The increase was mainly due to new grants of options to employees in 2018.

Operating Loss and Operating Margin

Operating loss decreased by 25.0% to RMB61.1 million (US$8.9 million) from RMB81.4 million in the third quarter of 2017.

Operating margin was (9.1)% in the third quarter of 2018, compared with (19.5)% for the same period in 2017.

Non-GAAP operating margin, which excludes share-based compensation expenses, was (6.2)%, compared with (16.3)% in the same period of the prior year.

Net Loss 

Net loss attributable to Puxin Limited decreased by 53.0% to RMB50.2 million (US$7.3 million), compared toRMB107.0 million during the third quarter of 2017. Basic and diluted net loss per ADS attributable to Puxin Limited were RMB0.62 (US$0.08), compared with basic and diluted net loss per ADS attributable to Puxin Limited of RMB2.14 during the same period last year.

Non-GAAP net loss attributable to Puxin Limited was RMB51.0 million (US$7.4 million) compared with RMB70.9 million during the same period of last year. Non-GAAP basic and diluted net loss per ADS attributable to Puxin Limited were RMB0.62 (US$0.08), compared with RMB1.42 during the same period of last year.

Cash and cash equivalents

As of September 30, 2018, the Company had total cash and cash equivalents of RMB684.2 million (US$99.6 million), compared with RMB164.7 million as of December 31, 2017.

Business Outlook

For the fourth quarter of 2018, based on the information available as of the date of this press release, the Company expects net revenues to be between RMB513.0 million and RMB535.0 million, which represents an increase of 20% to 25% year-over-year. These forecasts reflect the Company's current and preliminary views on the market and operational conditions, which are subject to change.

Conference Call Information

Puxin's management team will hold a conference call on November 26, 2018 at 8:00 AM U.S. Eastern Time (or 9:00 PM on the same day, Beijing/Hong Kong Time) following the quarterly results announcement. Participants may access the call by dialing the following numbers:

International:

+1-412-902-4272

China:

4001-201203

US:

+1-888-346-8982

Hong Kong:

+852-301-84992

Passcode:

Puxin

Please dial in 10 minutes before the call is scheduled to begin. When prompted, ask to be connected to the Puxin Limited Call. Participants will be required to state their name and company upon entering the call.

A replay of the conference call will be accessible two hours after the conclusion of the conference call through December 3, 2018 by dialing the following numbers:

International:

+1-412-317-0088

US:

+1-877-344-7529

Passcode:

10126429

A live webcast and archive of the conference call will be available on the Investor Relations section of Puxin's website at http://ir.pxjy.com/.

Exchange Rate

The Company's business is primarily conducted in China and all of the revenues are denominated in Renminbi ("RMB"). This announcement contains translations of certain RMB amounts into U.S. dollars ("USD") at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to USD are made at the rate of RMB6.8680 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on September 28, 2018. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 28, 2018, or at any other rate.

Use of Non-GAAP Financial Measures

To supplement the Company's financial results presented in accordance with U.S. GAAP, the Company also uses non-GAAP financial measures, including adjusted operating loss, adjusted net loss attributable to Puxin Limited, basic and adjusted diluted net loss per ADS attributable to Puxin Limited, as supplemental measures to review and assess the Company's operating performance. Adjusted operating loss is defined as operating loss excluding share-based compensation expenses; adjusted net loss attributable to Puxin Limited is defined as net loss attributable to Puxin Limited excluding share-based compensation expenses, loss/gain on changes in fair value of convertible notes, derivative liabilities and warrants and loss on extinguishment of convertible notes; and adjusted basic and diluted net loss per ADS attributable to Puxin Limited are defined as basic and diluted net loss per ADS attributable to Puxin Limited excluding share-based compensation expenses, loss/gain on changes in fair value of convertible notes, derivative liabilities and warrants and loss on extinguishment of convertible notes.

The Company believes that these non-GAAP financial measures provide useful information about the Company's operating results, enhance the overall understanding of the Company's past performance and future prospects and allow for greater visibility with respect to key metrics used by the Company's management in its financial and operational decision-making.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These non-GAAP financial measures have limitations as analytical tools, and when assessing the Company's operating performance, investors should not consider them in isolation. In addition, calculations of this non-GAAP financial information may be different from calculations used by other companies, and therefore comparability may be limited.

The Company mitigates these limitations by reconciling the non-GAAP financial measures to the most comparable U.S. GAAP performance measures, all of which should be considered when evaluating our performance.

For more information on this non-GAAP financial measure, please see the table captioned "Reconciliations of GAAP and non-GAAP results" set forth at the end of this press release.

Safe Harbor Statement

This press release contains forward-looking statements made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will", "expects", "anticipates", "future", "intends", "plans", "believes", "estimates", "confident" and similar statements. The Company may also make written or oral forward-looking statements in its reports filed with or furnished to the U.S. Securities and Exchange Commission, 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. Any statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include, but not limited to the following: its goals and strategies, its ability to achieve and maintain profitability, its ability to attract and retain students to enroll in its courses, its ability to effectively manage its business expansion and successfully integrate businesses it acquired, its ability to identify or pursue targets for acquisitions, its ability to compete effectively against its competitors, its ability to improve the content of its existing courses or to develop new courses, and relevant government policies and regulations relating to the Company's corporate structure, business and industry. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission. All information provided in this press release is current as of the date of the press release, and the Company does not undertake any obligation to update such information, except as required under applicable law.

About Puxin Limited

Puxin Limited ("Puxin" or the "Company") is a successful consolidator of the after-school education industry in China. Puxin has a strong acquisition and integration expertise to effectively improve education quality and operational performance of acquired schools. Puxin offers a full spectrum of K-12 and study-abroad tutoring programs designed to help students achieve academic excellence, as well as prepare for admission tests and applications for top schools, universities and graduate programs in China and other countries. The Company has developed a business model effectively combining strategic acquisitions and organic growth achieved through successful post-acquisition integration, which has differentiated the Company from other after-school education service providers in China. For more information, please visit http://www.pxjy.com/.

Contacts

Puxin Limited

Phone: +86-10-6269-8930
E-mail: ir@pxjy.com

Christensen

In China
Mr. Christian Arnell
Phone: +86-10-5900-1548
E-mail: carnell@christensenir.com   

In US  
Ms. Linda Bergkamp
Phone: +1-480-614-3004
Email: lbergkamp@christensenir.com


PUXIN LIMITED


UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands of RMB and USD, except for share, per share and per ADS data)










As of December 31, 


As of September 30, 





2017


2018


2018



RMB


RMB


USD


ASSETS







Current assets







  Cash and cash equivalents

164,684


684,184


99,619


  Inventories

10,408


7,775


1,132


  Prepaid expenses and other current assets

132,473


144,633


21,059


  Amounts due from related parties

113


-


-


Total current assets

307,678


836,592


121,810









Non-current assets







  Restricted cash

24,478


49,619


7,225


  Property, plant and equipment, net

221,212


248,406


36,169


  Intangible assets

243,927


220,795


32,148


  Goodwill

1,152,913


1,171,431


170,565


  Deferred tax assets

3,012


7,213


1,050


  Rental deposit

55,173


60,615


8,826


TOTAL ASSETS

2,008,393


2,594,671


377,793









LIABILITIES







Current liabilities







  Accrued expenses and other current liabilities (including accrued expenses
    and other current liabilities of the consolidated VIE without recourse to
    the Group of RMB345,100 and RMB396,015as of December 31, 2017
    and September 30, 2018, respectively)

350,446


448,696


65,332


  Income tax payable of the consolidated VIE without recourse 
     to the Group

10,022


12,828


1,868


  Deferred revenue, current portion (including deferred revenue, current
    portion of the consolidated VIE without recourse to the Group of
    RMB906,480 and RMB771,537 as of December 31, 2017 and
    September 30, 2018, respectively)

906,480


783,980


114,150


  Amounts due to related parties (including amounts due to related parties
    of the consolidated VIE without recourse to the Group of RMB3,836 and
    RMB31,699 as of December 31, 2017 and September 30, 2018, respectively)

3,836


35,133


5,115


  Bank borrowing of the consolidated VIE without recourse to the Group 

-


37,773


5,500


  Promissory notes, current portion of the consolidated VIE without 
    recourse to the Group

-


193,400


28,160


Total current liabilities

1,270,784


1,511,810


220,125









Non-current liabilities







  Deferred revenue, non-current portion of the consolidated VIE without 
    recourse to the Group

128,890


94,104


13,702


  Deferred tax liabilities of the consolidated VIE without recourse 
    to the Group

77,580


71,591


10,424


  Franchise deposits of the consolidated VIE without recourse 
    to the Group

3,856


1,591


232


  Convertible notes (including convertible notes of the consolidated VIE
    without recourse to the Group of RMB150,200 and RMB nil as of
    December 31, 2017 and September 30, 2018, respectively)

499,192


-


-


  Promissory note, non-current portion (including promissory note,
    non-current portion of the consolidated VIE without recourse to the
    Group of RMB nil and RMB nil as of December 31, 2017 and
    September 30, 2018, respectively)

162,658


171,700


25,000


  Derivative liabilities (including derivative liabilities of the consolidated
    VIE without recourse to the Group of RMB nil and RMB nil as of
    December 31, 2017 and September 30, 2018, respectively)

18,218


25,412


3,700


  Warrant (including warrant of the consolidated 
    VIE without recourse to the Group of RMB nil and RMB nil as of
    December 31, 2017 and September 30, 2018, respectively)

-


3,100


451


TOTAL LIABILITIES

2,161,178


1,879,308


273,634









Commitments and Contingencies







MEZZANINE EQUITY







  Convertible redeemable preferred shares

120,000


-


-









SHAREHOLDERS' DEFICIT







  Ordinary shares (par value of USD0.00005 per share;
  100,000,000 and 1,000,000,000 shares authorized,
  100,000,000 and 188,627,228 shares issued and
  100,000,000 and 163,323,504 shares outstanding 
  as of December 31, 2017 and September 30, 2018, respectively)

34


62


9


  Additional paid-in capital

391,099


1,914,136


278,704


  Accumulated other comprehensive income

15,718


26,125


3,804


  Accumulated deficit

(679,613)


(1,224,968)


(178,359)


Total Puxin Limited shareholders' deficit

(272,762)


715,355


104,158


Non-controlling interest

(23)


8


1


TOTAL SHAREHOLDERS' DEFICIT

(272,785)


715,363


104,159


TOTAL LIABILITIES, MEZZANINE EQUITY AND TOTAL 
  SHAREHOLDERS' DEFICIT

2,008,393


2,594,671


377,793


 


PUXIN LIMITED


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands of RMB and USD, except for share, per share and per ADS data)










For the three months ended September 30,









2017


2018


2018



RMB


RMB


USD









Net revenues

418,360


669,664


97,505


Cost of revenues (including share-based compensation expenses of
  RMB406 and RMB2,153 for the three months ended September 30, 2017 and
  2018, respectively)

258,806


374,614


54,545


Gross profit

159,554


295,050


42,960


Operating expenses:







  Selling expenses (including share-based compensation expenses of
    RMB881 and RMB9,646 for the three months ended September 30, 2017
    and 2018, respectively)

140,677


237,291


34,550


  General and administrative expenses (including share-based
    compensation expenses of RMB12,021 and RMB7,486 for the
    three months ended September 30, 2017 and 2018, respectively) 

100,270


118,834


17,302


Total operating expenses

240,947


356,125


51,852


Operating loss

(81,393)


(61,075)


(8,892)


Interest expense

2,150


9,827


1,431


Interest income

53


1,418


206


Loss (Gain) on changes in fair value of convertible notes, derivative  
  liabilities and warrants

22,795


(20,022)


(2,915)


Losson disposal of subsidiary

-


11


2


Loss before income taxes

(106,285)


(49,473)


(7,204)


Income tax expenses

656


746


109


Net loss

(106,941)


(50,219)


(7,313)


Less: Net loss attributable to non-controlling interest

28


18


3


Net loss attributable to Puxin Limited

(106,969)


(50,237)


(7,316)


Net loss per share attributable to Puxin Limited







  Basic and diluted

(1.07)


(0.31)


(0.04)


Net loss per ADS attributable to Puxin Limited







  Basic and diluted

(2.14)


(0.62)


(0.08)


Weighted average shares used in calculating basic and diluted net loss 
  per share

99,849,546


163,323,504


163,323,504









Note: Each ADS represents two ordinary shares.






 


PUXIN LIMITED


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


(In thousands of RMB and USD)










For the three months ended  September 30,










2017


2018


2018



RMB


RMB


USD
















Net loss

(106,941)


(50,219)


(7,313)


Other comprehensive loss, net of tax:







  Change in cumulative foreign currency translation adjustments

-


(4,308)


(627)


Total comprehensive loss

(106,941)


(54,527)


(7,940)


Less: comprehensive income attributable to non-controlling interest

28


18


3


Total comprehensive loss attributable to Puxin Limited

(106,969)


(54,545)


(7,943)

 


PUXIN LIMITED


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands of RMB and USD, except for share, per share and per ADS data)










For the nine months ended September 30,









2017


2018


2018



RMB


RMB


USD









Net revenues

854,610


1,696,676


247,040


Cost of revenues (including share-based compensation expenses of
  RMB747 and RMB5,405 for the nine months ended September 30, 2017 and
  2018, respectively)

520,416


936,654


136,379


Gross profit

334,194


760,022


110,661


Operating expenses:







  Selling expenses (including share-based compensation expenses of
    RMB2,177 and RMB20,293 for the nine months ended September 30, 2017
    and 2018, respectively)

268,283


611,963


89,103


  General and administrative expenses (including share-based
    compensation expenses of RMB31,779 and RMB304,057 for the
    nine months ended September 30, 2017 and 2018, respectively)

220,216


620,954


90,411


Total operating expenses

488,499


1,232,917


179,514


Operating loss

(154,305)


(472,895)


(68,853)


Interest expense

2,150


27,473


4,000


Interest income

509


1,702


247


Loss on changes in fair value of convertible notes, derivative  
  liabilities and warrants

22,795


96,128


13,997


Loss on extinguishment of convertible notes

-


900


131


Gain on disposal of subsidiary

-


82


12


Loss before income taxes

(178,741)


(595,612)


(86,722)


Income tax expenses (benefits)

1,103


(1,953)


(284)


Net loss

(179,844)


(593,659)


(86,438)


Less: Net loss attributable to non-controlling interest

43


12


2


Net loss attributable to Puxin Limited

(179,887)


(593,671)


(86,440)


Net loss per share attributable to Puxin Limited







  Basic and diluted

(1.81)


(4.32)


(0.63)


Net loss per ADS attributable to Puxin Limited







  Basic and diluted

(3.62)


(8.64)


(1.26)


Weighted average shares used in calculating basic and diluted net loss 
  per share

99,648,940


137,560,036


137,560,036









Note: Each ADS represents two ordinary shares.






 


PUXIN LIMITED


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS


(In thousands of RMB and USD)










For the nine months ended  September 30,










2017


2018


2018



RMB


RMB


USD
















Net loss

(179,844)


(593,659)


(86,438)


Other comprehensive income, net of tax:







  Change in cumulative foreign currency translation adjustments

-


10,407


1,515


Total comprehensive loss

(179,844)


(583,252)


(84,923)


Less: comprehensive income attributable to non-controlling interest

43


12


2


Total comprehensive loss attributable to Puxin Limited

(179,887)


(583,264)


(84,925)

 


PUXIN LIMITED


RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS


(In thousands of RMB and USD, except for share, per share and per ADS data)





For the three months ended  September 30,










2017


2018


2018



RMB


RMB


USD









Operating loss

(81,393)


(61,075)


(8,892)


Add: Share-based compensation expenses

13,308


19,285


2,808


Adjusted operating loss

(68,085)


(41,790)


(6,084)









Net loss attributable to Puxin Limited

(106,969)


(50,237)


(7,316)


Add: Share-based compensation expense

13,308


19,285


2,808


Add: Loss on changes in fair value of convertible notes, derivative 
  liabilities and warrants

22,795


(20,022)


(2,915)


Adjusted net loss attributable to Puxin Limited

(70,866)


(50,974)


(7,423)









Net loss per ADS attributable to Puxin Limited 







  - Basic and diluted

(2.14)


(0.62)


(0.08)


Adjusted net loss per ADS attributable to Puxin Limited 







  - Basic and diluted

(1.42)


(0.62)


(0.08)









Weighted average shares used in calculating basic and diluted
  net loss per share

99,849,546


163,323,504


163,323,504









Note: Each ADS represents two ordinary shares.

 


PUXIN LIMITED


RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS


(In thousands of RMB and USD, except for share, per share and per ADS data)





For the nine months ended  September 30,










2017


2018


2018



RMB


RMB


USD









Operating loss

(154,305)


(472,895)


(68,853)


Add: Share-based compensation expenses

34,703


329,755


48,013


Adjusted operating loss

(119,602)


(143,140)


(20,840)









Net loss attributable to Puxin Limited

(179,887)


(593,671)


(86,440)


Add: Share-based compensation expense

34,703


329,755


48,013


Add: Loss on changes in fair value of convertible notes, derivative 
  liabilities and warrants

22,795


96,128


13,997


Add: Loss on extinguishment of convertible notes

-


900


131


Adjusted net loss attributable to Puxin Limited

(122,389)


(166,888)


(24,299)









Net loss per ADS attributable to Puxin Limited 







  - Basic and diluted

(3.62)


(8.64)


(1.26)


Adjusted net loss per ADS attributable to Puxin Limited 







  - Basic and diluted

(2.46)


(2.43)


(0.35)









Weighted average shares used in calculating basic and diluted
  net loss per share

99,648,940


137,560,036


137,560,036









Note: Each ADS represents two ordinary shares.

 

Cision

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