China Distance Education Holdings Limited (DL)

Q2 2010 Earnings Call

May 17, 2010 8:00 AM ET

Executives

Zhengdong Zhu – Chairman and CEO

Ping Wei – Chief Financial Officer

Analysts

Ella Ji – Oppenheimer

Jeff Lee – Signal Hill

Presentation

Operator

Good evening. And thank you for standing by for the China Distance Education Holdings Limited Second Quarter Fiscal 2010 Earnings Conference Call. Today, you will hear from Mr. Zhengdong Zhu, Chairman and CEO of the company; and Ms. Ping Wei, the CFO. During the prepared remarks, all participants will be in listen-only mode. After that, the company management will be available to answer your questions.

Before we start, we would like to remind listeners that this conference call contains forward-looking statements. These statements are made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Among other things, the outlook for second quarter of fiscal year 2010 and oral statements from management on this call, as well as the company's strategic and operational plans, contain 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.

Further information regarding these and other risks is included in the company's annual report on Form 20-F and other documents of the company as filed with the Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

As a reminder, this conference call is being recorded. A summarized presentation can be downloaded from the company's IR website and which we will refer to during the course of the call. In addition, a webcast of this conference call is available on the company's Investor Relations website at ir.cdeledu.com.

I will now turn the call over to Mr. Zhu to discuss the operational highlights. Mr. Zhu, please go ahead.

Zhengdong Zhu

Thank you everyone for joining us on our second quarter fiscal 2010 results conference call. Our operating results were released earlier and available on the company's website as well as on newswire services.

As you would have seen from our results release, our total revenue came in below our estimated revenue guidance range for the second quarter.

The shortfall resulted mainly from a delay in the signing of a courseware production contract and an additional delay in cash collection for portion of our book sales, which were only recorded as revenue after the cash is collected. However, we expect this delay to be temporary and such revenues to be -- most likely be recorded in this fiscal year.

I would like to provide you with update on courseware production forecast, as this was hurdle the reason that we meet our guidance.

In 2008, the company was unofficially invited to participate in National Primary and Secondary Educational Resources Sharing Coalition Project, a government project will then [constitute] host primary teachers for China are recorded and placed online. Making them accessible to teachers and students, a like from all over China especially those from remote areas. Since then, we have worked hard to divest both online network and the courses.

We understood from that uncertainties evoked from the get go. But we believe that this program has great potential to enhance China’s [K-12] public education system and its staff towards modernizing the sharing of pedagogi back practices among Chinese teachers and promoting a quality and compulsory keen education.

In addition, if this project is successfully rolled out it will give us a big boost and our boost into lucrative [K-12] official market.

As such in the past two years, we’d made strategic investments into the project, and due to the uncertainties all our direct costs and payments associated with the project has been expense as occurred. In March, after own effort we could be -- we were asked to submit our official date to undertake the platform development and courseware production costs of this project.

I’m happy to report that we have officially won the bid and we’ll soon sign a contract to become official part of this very important project.

In addition, we believe that what we have developed over the past two years now constitute a good portion of the work mandated. As such, soon after the completion of the official contract we expect to report sizable revenue.

Despite these two timing issues, our core business remains healthy. Our overall enrollment for the quarter grew slightly. This was partially due to the later timing of Chinese New Year.

In addition, the continued impact of the 2008 to 2009, our price promotion made same period last year, a tough comparison. However, we experienced a solid demand across a number of verticals including accounting continuous education, healthcare and construction engineering in the quarter.

More importantly, with only a few exceptions, we brought increase in growth momentum in virtually all our verticals after the Chinese media holiday and particularly since March positioning us well for delivering of our annual operational target.

Let me now walk you through our operational development for the quarter in more detail.

Starting on slide five. Total course enrollment were about 204,400, a slight increase continued with second quarter of 2009.

This was impacted by challenging year-over-year comparison due to the half-price promotion ended in the second quarter of fiscal 2009. But as I mentioned, we felt stronger growth across most of our core verticals with increasing momentum since March.

Read the rest of this transcript for free on seekingalpha.com

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