China Distance Education Holdings Limited ( DL)

F3Q 2011 Earnings Conference Call

August 18, 2011 8:00 AM EST


Zhengdong Zhu – Chairman and CEO

Ping Wei – CFO


Mark Marostica – Piper Jaffray

Grace Lam – Citi

Ella Ji – Oppenheimer



Good evening and thank you for standing by for the China Distance Education Holdings Limited third 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 a listen-only mode. After that, the company's 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 US Private Securities Litigation Reform Act of 1995. Among other things, the outlook of the fourth 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 risk and uncertainty. 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 risk 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

I will now turn the call over to Mr. Zhu to discuss the operational highlights. Mr. Zhu, you may begin.

Zhengdong Zhu


Thank you, everyone for joining us on our third quarter fiscal 2011 results conference call. Our operating results were released earlier and are available on the company’s website as well as our new slide services.

We are pleased to report yet another quarter of healthy performance in the third quarter with 22.7% year-over-year revenue growth exceeding our guidance range and increasing profitability on a non-GAAP basis.

Our results were driven by a steady increase in our core online education services net revenue, supported by broad based enrollment and ASP growth. Of course, our APQE and other accounting courses, healthcare and the construction engineering courses, as well as strong enrollment growth from accounting continuous education courses.

We also benefited from an increase in other revenue, resulting from offline business start-up training courses provided by Yucai, in-person courses for the “Big Four” accounting firms in addition to our online courses and services and the primary and secondary school supplementary courses. Such increase was partially offset by the decrease in revenues from courseware production services.

Our results reflect the continued execution of our strategy to provide a high-quality comprehensive life-long learning programs. Throughout 2011 we have focused on investing in our co-businesses and continuing to develop our newer initiative.

Our goal is to provide more students with comprehensive and high-quality educational content and services, by leveraging our scalable IT platform and our centralized marketing distribution network, powerful content development and the student service processes.

This investment which incur investments in our online learning platform, extensive marketing and advertising campaigns and efforts to bolster the quality of our courses and services are all aimed at further strengthening our brand name and delivering balanced top and bottom-line growth.

We believe we are successfully executing on this strategy and that our investment will lead to continued growth. We remain confident in our prospects and are committed to increasing value of our shareholders over the long-term.

Let me now walk you through our operational development for the quarter in more detail, starting on slide five. Net revenue for the quarter increased 22.7% year-over-year to $12.7 million, exceeding our guidance and the total cost enrollment was $324,400, an increase of 34% year-over-year. As noted, this result was supported by a healthy increase in online education service net revenue.

Starting with our accounting vertical on slide 7, our online accounting vertical performed well in the third quarter, with total accounting enrollment increasing 45.5% and average student payment or ASP for our accounting test preparation courses increasing by 25.5%. This quarter, we continued to deliver strong growth with our other online accounting training courses, in particular accounting certificate exam test preparation courses and accounting practical training. All-in-all, other online accounting enrollments grew by 52.4% year-over-year and ASP grew 17.5%.

Online accounting continuous education also continued its trend of strong growth with a 106.4% year-over-year enrollment increase. We continue to offer this course at a low ASP to grow our market share in this large market, which accounts for about 30 million students per year at impressive 54.9%. APQE exam was held last weekend. As this market tends to include a high level of repeat customers, we believe our relatively low pricing point is a good strategy to attract more students to CDEL’s online learning motto. And we believe our competitive pricing strategy will eventually payoff handsomely with large market share gains.

Online APQE exam enrollment increased 9% in the third quarter. In addition, ASP for APQE also increased 31.2% in the quarter as compared to the same period of last year. All-in-all for the 2011 test season which is roughly from Q4 of 2010 to Q3 of 2011, enrollment for APQE has been relatively unchanged as compared to the last year due to the relatively flat overall growth of the market. However, we demonstrated that we can grow our revenue amid a slow market as ASP for this test season increased again by 18.4%. Thanks to our diligence in delivering quality courses and services and our consistent focus on building a strong brand name. For the third quarter, online CPA test preparation course cash revenue continues to grow, even though enrollment decreased by 16%. Thanks to a strong ASP increase of 33.5%.

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