NetDragon Announces 2017 Third Quarter Financial Results

[4] Segmental operating expenses exclude unallocated expenses such as depreciation and amortisation that have been grouped into SG & A categories on the Company's reported consolidated financial statements but cannot be allocated to specific business segments for purpose of calculating the segmental profit (loss) figures in accordance with HKFRS 8.

Gaming Business

The Company's gaming business delivered another exceptional quarter with record high revenue at RMB440.2 million in the third quarter, registering a 53.6% increase year-over-year, and core segmental profit at RMB179.1 million, a 123.5% increase year-over-year. The robust performance was attributable to overall revenue growth of games under our flagship IPs, Eudemons Online and Heroes Evolved, as well as increasing contribution from mobile games as mobile gaming revenue increased by 124.1% year-over-year. We achieved our revenue growth with a broad-based uptick of key operating metrics including 51.7% increase in ARPU and 38.4% increase in APA on a year-over-year basis. In addition, Monthly Active Users ("MAU") and Daily Active Users ("DAU") also increased significantly by 86.7% and 19.0% respectively on a year-over-year basis.

Our dual strategy of IP value maximization and mobile extension continued to pay dividends. Our flagship IP Eudemons Online continued to produce outstanding result as the PC version delivered six consecutive months of monthly gross billings over RMB100 million, while the pocket version reached a record high monthly gross billing in September and was ranked as the 'top ten most outstanding app by billings' on Tencent Open Platform in August and September. A new Eudemons Online browser-based game with IP licensed by the Company also went open-beta launch in September with monthly gross billing of RMB27.1 million. Our long-awaited flagship Eudemons Online Mobile (launched in partnership with Kingsoft) was officially launched in October and produced a gross billing of over RMB100 million in the first month of operation.

Heroes Evolved, another flagship IP, continued to expand on its user base as MAU under this IP increased by 33.4% quarter-over-quarter and 140.9% year-over-year. Mobile monetization gained significant traction in the quarter as revenue of the pocket version increased by 181.3% quarter-over-quarter. To date, this game has already been downloaded by over 100 million players, and has been ranked as the 'top three downloaded mobile games' on Tencent Open Platform for nine consecutive months.

Looking forward, we expect momentum to carry on as we build on this initial success of our IP and mobile strategy with an exciting pipeline of new games which we are confident will bring our gaming business to another level.

Education Business

Our education business delivered another strong quarter both in China and in overseas markets. Promethean, our international education subsidiary, achieved revenue of RMB525.9 million, a 56.2% increase year-over-year, and a second consecutive quarter of operating profitability. This is on the back of our proven success in major markets including the U.S., Europe, Middle East and Central Asia, as we remain as the K-12 market share leader in international markets1.

We have seen the U.S. market pick up significantly in Q3 as total K-12 market shipment volumes in the U.S. increased by 48.8%1 year-over-year, while Promethean's shipment volume exceeded the market growth by growing 107.2% year-over-year. As the K-12 space continues to embrace interactive classroom technologies with increasing traction, we expect this trend will bode well for (1) higher adoption by emerging countries as they follow the lead of the U.S., and (2) increasing need of internet platforms to work with the hardware, which plays into the strength of NetDragon with our internet and platform capabilities.

We continued to see fruitful results along the Belt and Road Initiatives as revenue from our partnership in the City of Moscow materialized during the year as we prepare ourselves for upcoming opportunities. Meanwhile, we also see significant opportunities in other emerging countries, particularly in Turkey and Malaysia. Overall, our progress in the emerging markets is strong and on track.

In China, our contracted sales reached a record-high of RMB150 million in the third quarter as we won over 100 tenders in the quarter, more than three times year-over-year. As of end of Q3, our China sales backlog, representing signed sales order to be delivered to or validated by the customers, was RMB344 million. We believe the increasing traction that we are seeing in our sales orders is a testament to the market receptiveness of our software products.

As at the end of November, we achieved our year-end goal of reaching one million installed teachers of our flagship software platform 101 Education PPT. This is on the back of our successful user acquisition strategy of launching teacher training programs nationwide across a large span of cities and provinces, and working closely with education bureaus. With this critical mass of installed teachers in China, we will focus on developing our engagement with these teachers and the stickiness of our platform, as we aim to make 101 Education PPT the platform of choice for delivery of digital classroom and content distribution in China.

Looking forward, with our leading interactive classroom and internet platform technologies, we expect the rapid digitization of classrooms around the world will be conducive to not only our revenue growth, but also adoption of our software platform which we aim to become the world's largest learning community.

Management Conference Call

NetDragon will host a management conference call with a PowerPoint presentation and webcast to review its third quarter financial results on 6 December 2017 at 6:30 p.m. Hong Kong time.

Details of the live conference call are as follows: