China Distance Education's CEO Discusses F3Q12 Results - Earnings Call Transcript

China Distance Education Holdings Ltd. (DL)

F3Q12 Earnings Call

August 16, 2012 8:00 AM ET

Executives

Zhengdong Zhu – Chairman and CEO

Ping Wei – CFO

Analysts

Mark Marostica – Piper Jaffray

Fiona [ph] – Oppenheimer

Presentation

Operator

Good evening and thank you for standing by for the China Distance Education Holdings Limited Third 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 their 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 fourth 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 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

[Interpreted] Thank you everyone for joining us on our third 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.

Our results for the third quarter again demonstrated the resilience of our business model. As you are aware, APQE exams have been delayed for five months this year and the CPA exam policy was not released till the beginning of June, more than two months later than last year and the actual exam dates have been also delayed over one month as well.

All this delays post challenges for our financial results, particularly for this quarter, as over US$1.5 million of APQE cash revenue generated from prior quarters has been delayed to later quarters and some enrollments for the CPA exam have also been pushed into later quarters. And as a significant function of our costs and expenses are fixed in nature, the impact to our gross and net margins is even more profound.

Nevertheless, we still registered a healthy financial performance in the quarter, with online enrollments growing 14.1% and net revenues from continued operations for the quarter increased 8.1% year-over-year to US$13.1 million, near the high-end of our guidance range. Our net income increased 45.1%. Earnings per share increased 42.9% and our operating cash flow increased a 188.8% to US$2.2 million in the quarter as compared to the same period last year.

This healthy performance highlights the significant progress we have made in recent years to develop diversified high-quality course offerings and educational services. That diversification helped especially mitigate the impact of this year’s APQE and the CPA exam delay. In addition, our continued investments in content development and in utilizing cutting edge online and the mobile learning technologies in our courseware and online learning platform is helping to enhance our students learning experiences and their test results. All this factors in turn, helped us to achieve a healthy growth.

Specifically utilizing in our in-house technological expertise and our use of CPA exam test preparation content development capabilities, this quarter we rolled out a CPA exam simulation system as the CPA exam this year have changed from paper-based exams to computer-based exams. Our new simulation system will enable our students to better prepare for this new exam format.

In addition, we further enhanced our mobile learning platform by rolling out a fully interactive mobile exercise platform, whereby our students cannot only listen to our test preparation classes, but also review course notes and to exercise questions on these mobile devices. All these enhancements have been very well received by the market, as indicated by our healthy enrollment numbers in the third quarter and year-to-date.

We are encouraged by our results as they indicate that demand for educational services remains healthy. Furthermore, as the impact from the delay in APQE and the CPA exams is primarily a matter of timing and is temporary in nature, we believe that we’re well positioned to deliver continued top and bottom line growth in the fourth quarter and next fiscal year.

Let me now walk you through our operational developments for the quarter in more detail, starting on slide six. Net revenues for online education services were US$9.3 million, an increase of 4.6% as compared to the same period last year. Total course enrollments from continuing operations were US$377,600, an increase of 16.4% year-over-year.

Revenue in the quarter was driven by increased revenue from accounting test preparation courses and healthcare courses, which continued to perform well. However as discussed our performance was offset decreased revenue from APQE and CPA courses due to the delayed timing of the examination. We expect revenue growth to return to its normal level by the second half of fiscal 2013 as the testing cycle for these exams normalize, while GAAP revenue in the interim quarters will likely to be higher than normal as a result of this delay.

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

More from Stocks

Earnings Season Is Simply Out of Control Madness - How Are You Surviving?

Earnings Season Is Simply Out of Control Madness - How Are You Surviving?

Key Numbers for Investors to Watch as Amazon, Microsoft and Intel Report Results

Key Numbers for Investors to Watch as Amazon, Microsoft and Intel Report Results

Facebook, Amazon, Microsoft and Ford - 5 Things You Must Know

Facebook, Amazon, Microsoft and Ford - 5 Things You Must Know

Global Stocks Mixed, U.S. Futures Soften as Earnings, Oil, Rates Cloud Sentiment

Global Stocks Mixed, U.S. Futures Soften as Earnings, Oil, Rates Cloud Sentiment

3 Things We Just Learned About Chip Stocks -- and It's Not All Bad News

3 Things We Just Learned About Chip Stocks -- and It's Not All Bad News