China Distance Education Holdings, Ltd. ( DL)

F1Q2011 Earnings Call

February 23, 2011 8:00 AM ET

Executives

Zhengdong Zhu – Chairman and CEO

Ping Wei – CFO

Analysts

Mark Marostica – Piper Jaffray

Ella Ji – Oppenheimer

Presentation

Operator

Good evening, and thank you for standing by for the China Distance Education Holdings Limited first quarter fiscal 2011 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’s management will be available to answer your questions.

Before we start, we would like to remind the 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 the other things, the outlook of the second quarter of fiscal year 2011 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 statements. 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 I.R. website and which we’ll refer to during the course of the call. In addition, a webcast of this conference 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

[Interpreted] Thank you, everyone, for joining us on our fourth quarter and fiscal 2011 results conference call. Our operating results were released earlier and available on the company’s website as well as on Newswire services.

We’re pleased to report a strong start to the year in what’s typically our lowest quarter, delivering revenues exceeding our guidance and net profit on a non-GAAP basis. Our performance was 45.2% base growth [ph], of course, our online education services, a growing contribution from some of our newer initiatives and a better than expected cash collection from the sales of books and the reference material.

Our steady growth and improved profitability in the tight set, the benefit of our unique business model are beginning to bear fruit. Over the years, we have worked to build a robust I.T. and courseware platform coupled with centralized processes such as marketing distribution and student services.

When combined with our strong brand name and a very high internet traffic, this platform allows us to create or integrate and roll out new verticals and business lines with nearly unlimited scalability.

Our ultimate goal is to become the leading lifelong comprehensive online educational content patrol in China. The place to go for students of NIH and of any learning needs, if we wish to do it online. This will translate into diverse and a high quality comprehensive course and service offering generating multiple revenue streams for the company.

The investments we have made and continue to make in new technologies, new business verticals and partnership has been heard to achieve this goal. And well much what we meant ahead, we are encouraged with the progress we have made so far.

Let me now take you through our operational development for the quarter in more detail starting on slide five.

Net revenues for the quarter increased 40% year-over-year to $7.8 million exceeding our guidance. Total cost enrollment were $510,000, an increase of 39.7% year-over-year.

As noted, this result was supported by steady enrollment across all our verticals with especially strong enrollment growth in self-taught higher education and accounting continuous education as well as effective cash collection. I will discuss these items in more detail in the coming slides, starting with our accounting vertical on slide seven.

Our accounting vertical performed well in the first quarter with total accounting enrollment increasing 39.4%, primarily the course accounting continuous education enrollment, grew an impressive 65.3%.

As indicated in our press release, we have again seen softening overall demand for CPA and APQE test participation and we expect this trend may continue. Nevertheless, as accounting continuous education and accounting certificate courses have been growing very fast. We do expect the accounting segment overall to remain healthy.

Moving on slide eight, our self-taught higher education courses. We’re pleased to see momentum building behind our self-taught higher education workflow [ph] as enrollment increased a 167% year-over-year to 27,200. We continue to expand the geographic rate of the program in the fourth quarter with the addition of the Guangxi province.

Currently, we have entered into nine provinces in total including Tianjin, Beijing, Jiangsu, Yunnan, Hainan, Zheijang, Hunan, Sichuan and Guangxi, and we are in the process of developing a steady process monitoring course and service platform for Sichuan province.

On the enrollment side, five provinces have started actually offering the program to students. Despite generating a slow season for exams, we had over 19,000 enrollments from our study process module program.

Basically, the outlook for this segment is favorable given the high level of interest that we have seen to date from both students and provincial government. Going forward, we will continue working to expand this program into more provinces, roll out the program in more provinces and continue to promote the program in the provinces that have started offering it.

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