China Distance Education Holdings CEO Discusses Q2 2012 Results - Earnings Call Transcript

China Distance Education Holdings Limited (DL)

Q2 2012 Earnings Results Conference

May 17, 2012 08:00 am ET


Zhengdong Zhu – Chairman, CEO

Ping Wei – Chief Financial Officer


Mark Marostica - Piper Jaffray Asia Equity Research

Ella Ji – Oppenheimer & Co.



Good evening and thank you for standing by for the China Distance Education Holdings Limited Second Quarter Fiscal 2012 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 the third quarter of fiscal year 2012 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 this 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 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 conference call. In addition, a webcast of this conference call is available on the Company’s Investor Relations website at

I will now like to 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 our second quarter fiscal 2012 results conference call. Our operating results were released earlier and are available on the Company’s website as well as on newswire services.

We are pleased to report another quarter of strong top and bottom line growth with revenues exceeding our guidance and the continued expansion in both gross and net margins. In addition, we again delivered a strong increase in cash flow from operation.

Our results indicate that the demand for high quality online training and educational services remain strong, resulting [in-house] enrollment growth across our educational courses. We are also pleased to report a steady increase in average student payments across our key subject areas demonstrating the growing strength of our brand name in China’s education market, which is allowing us to charge premium prices.

We have made significant strategic and operational progress over the past few quarters, strengthening our core online verticals and expanding into new on and offline courses and additional value added services including our high definition courses and the mobile learning platform.

Together these actions have helped us pre-publish a more robust and a sustainable operational platform with multiple revenue streams. And given the fundamentally scalable nature of our business and our focus on maintaining effective cost controls, we have delivered yet another quarter of excellent financial performance.

We believe that the progress that we’ve made is sustainable and that we’re well positioned to deliver continuous growth over the long-term. However, as indicated in our earnings release, we expect to face some near-term challenges due to the delayed timing of certain APQE exams and the CPA exam policy information. I will return to this topic later in the call as we update you on our performance in our accounting verticals.

Let me now look through our operational developments for the quarter in more detail. Starting on slide 5, net revenues from continued operations for the quarter increased 36.7% year-over-year to US$12.3 million, exceeding our guidance. Net revenues for our education services were US$9.2 million, an increase of 36.4% as compared to the same period last year. Total cost enrollments from continuing operations were US$293,000, an increase of 27.7% year-over-year.

Our performance was supported by increased revenue across our major test preparation courses. And we continue to see a positive response to our high definition courseware and mobile learning platform, which have helped drive enrollment growth.

Let me now walk you through our verticals in more detail, starting with our accounting vertical on slide 7. Our online accounting vertical performed well in the quarter, especially in our test preparation courses with total enrollments increasing 20.6% year-over-year. Enrollments for accounting continuous education were comparable year-over-year as it is due to low season in continuous education courses.

We expect accounting continuous education enrollments to rebound in the third quarter of this fiscal year. Building on the positive pricing change from recent quarters, online APQE enrollments increased by a strong 54.5% year-over-year, while ASP for online APQE test preparation courses increased 31.1% year-over-year. Online CPA enrollments in the quarter increased marginally by 1%. ASP for online CPA test preparation courses increased 21.2% year-over-year.

Let’s turn to slide 8. On March 23, 2012 the Ministry of Finance decide to delay the entry and intermediary level APQE exams from May 12th and 13th to October 27th and 28th. The purpose of this shift in timing is to allow extra time for the government to pilot a computer-based testing system.

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