Noah Education Holdings Ltd. F4Q09 (Qtr End 06/30/09) Earnings Call Transcript

Noah Education Holdings Ltd. (NED)

F4Q09 (Qtr End 06/30/09) Earnings Call

August 25, 2009 8:00 am ET

Executives

Dong Zu - Chairman and CEO

Jerry He - EVP

Dora Li - CFO

Analysts

Presentation

Operator

Welcome to the Noah Education fourth quarter and fiscal year 2009 financial results conference call. (Operator Instructions)

Joining the conference today are Mr. Dong Zu, Chairman and CEO; Mr. Jerry He, Executive Vice President; and Ms. Dora Li, Chief Financial Officer.

After the close of the US markets on Monday, Noah issued a press release announcing its fourth quarter and fiscal year 2009 financial results, which is available on the company's IR web page at ir.noahedu.com.cn. This call is also being broadcast live over the internet.

Before Management's presentation, I would like to refer to the Safe Harbor statement in connection with today's conference call. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including certain expectations and goals which are subject to numerous assumptions and risks.

Forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond our control which may cause actual results to differ materially from any future results or achievements implied by such forward-looking statements.

The company's actual results could differ materially from those contained in the risk factor section of the company's final perspective or recent filings filed with the Securities and Exchange Commission. Unless required by law, the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I'd now like to turn the call over to Noah's Chairman and CEO, Mr. Dong Xu.

Dong Xu

[Foreign Language]

Thank you for joining us today for our fourth quarter and fiscal year 2009 results conference call. I am pleased to report that we delivered a strong close to the year, as we increased our revenue exceeding guidance while successfully controlling cost. Our margin performance is indicative of our efforts to grow and become more efficient at the same time.

Our core ELP business remains steady, as we continue to deliver best-in-class content to help student age three through 19 to succeed in a competitive educational environment. Our product mix has evolved as KLDs continue to gain traction since their introduction in August of last year. KLDs remain the key growth driver among our ELP products and now account for almost 28% of total ELP revenue as of Q4.

In order to maintain our market leadership in this space, we continue to focus on research and development to deepen our products pipeline and expand the scope of the industry leading content that we provide. As of the end of fiscal 2009, the total number of courseware titles offered was 47,500.

The integration of Little New Star is progressing well and we are very excited to have made our first step into the fast growing kid's English training market. We see great potential in the Children's education space and plan to pursue a couple of avenues in order to expand our presence and drive growth.

First, we will target organic growth in kid's English training by enhancing Little New Star's existing capabilities. As we have said before, we will leverage Noah's strong sales and marketing network to broaden distribution of Little New Star products and take advantage of cross selling opportunities.

We are also implementing changes to the existing franchise model in order to yield greater revenue from this business line. There are numerous synergies that we can leverage behind the scenes to help drive organic growth, such as knowledge-sharing on the content development and R&D front. All in all, we are confident that Little New Star will continue to thrive as part of the Noah organization

We are also well positioned financially to pursue additional synergistic acquisition opportunities in the children's education market. Our acquisition criteria are strict, but what we are looking for fundamentally are complimentary businesses with strong growth potential that broaden our service offering, enrich our content, and help create a more diverse service delivery platform.

To sum up, 2009 was a very important year for us. We have created a leaner business and a strong foundation from which to grow. Our growth prospects are plentiful and we are very well positioned for success as we began fiscal 2010.

I would like to close by welcoming Jerry He to our team. Jerry joins us as an Executive Vice President responsible for strategic planning, business development, accounting and finance and investor relations. We are confident that he will play an important role in growing the business in the coming years and we are very happy to have him on the Noah team.

I will now turn the call over to Dora Li, our CFO to walk you through the fourth quarter financial result in more detail. Jerry will then walk you through some of our operational and strategic highlights.

Dora Li

I'd like to begin with some of the key line item for the quarter and full year. We are very pleased to report another quarter of solid results demonstrated by a year-over-year increase of 21.6% in net revenue to RMB119.1 million. This exceeded our guidance of RMB114 to RMB116 million and this was attributable to a combination of strong KLD sales and a one time large overseas orders for E-dictionary products.

For the fiscal year ended June 30, 2009, Noah reported net revenue of RMB671.1 million or US$98.3 million, a 2.9% increase from net revenue of RMB651.9 million in fiscal year 2008.

In the first quarter of fiscal 2009, DLD sales accounted for 45% of total revenue at RMB53.6 million or US$7.9 million. KLD sales accounted for 27.7% at RMB33 million or US$4.8 million and E-dictionaries made up 26.5% at RMB31.6 million or US$4.6 million. The increase in E-dictionary sales as a portion of the total sales is due to the one time order I just mentioned.

For full fiscal year 2009, DLD sales accounted for 56.6% of total revenue at RMB380.1 million, or US$55.7 million. KLD sales accounted for 23.3% at RMB156.4 million, or US$22.9 million.

E-dictionary remains stable with the revenue contribution of 19.1% at RMB128.2 million, or US$18.8 million. Gross profit for the fourth quarter of fiscal 2009 increased 22.9% year-over-year to RMB61.5 million, representing a gross margin of 51.6%. This compares with gross profit of RMB50 million and a gross margins 51.1% in the same quarter of fiscal 2008.

Gross profit for fiscal year 2009 was RMB344.7 million US$50.5 million equal to 51.4% of net revenue compared with RMB333.1 million, or 51.1% gross margin in fiscal year 2008.

Operating expenses for the past quarter decreased 2.5% year-over-year to RMB61.4 million, mainly due to lower research and development expenses, but was offset by increased sales and marketing and G&A expenses.

Operating expenses for the fiscal year increased 9.5% to RMB325.7 million. As the company expanded its R&D in content development, software applications, increased its national sales and distribution realignment effort, in conjunction with new product launches and incurred additional professional expenses related to the company's status as a US listed public company. You can find all the details breakdowns of our operating expenses for the quarter and the full year in our press release.

Operating income for the fourth quarter of fiscal 2009 increased to RMB9.8 million representing an operating margin of 8.2%, compared with an operating loss of RMB2.3 million in fourth quarter 2008. For the full fiscal year 2009, operating income was RMB64.7 million or US$9.5 million, representing an operating margin of 9.6% compared to RMB79.8 million or operating margins of 12.2%.

Among other income, during the fourth quarter of 2009, Noah recorded interest income of RMB2.5 million versus a loss of RMB1.1 million in the year ago quarter. Investment income of RMB3.5 million compared with RMB11.1 million in fourth quarter 2008. Other non-operating income of RMB1.9 million compared to RMB18.8 million in the fourth quarter of 2008. Also please note, that the 2008 figure includes an RMB18.4 million foreign exchange gains, which is not reflective of any significant change in our operating performance. Also, Noah did not record any gain on change in the fair value of warrant in fourth quarter 2009, as the warrant expired in April of 2009.

For full fiscal year 2009, interest income was RMB5.3 million or US$0.8 million, compared with RMB13.6 million in fiscal 2008. Invest income was RMB15.3 million or US$2.2 million, compared with RMB11.1 million in fiscal year 2008, and other non-operating income for fiscal 2009 was RMB6.2 million or US$0.9 million, compared with RMB42.7 million in fiscal 2008. Again, the fiscal 2008 number includes an RMB41.6 million foreign exchange gain.

Net income for the fourth quarter of fiscal 2009 was RMB17.9 million or RMB0.50 or US$0.07 per basic and diluted share. This compared with net income of RMB30.5 million or RMB0.82 and RMB0.71 per basic and diluted share respectively in the fourth quarter of 2008. The decrease in net income during the past quarter was primarily due to the decrease in non-operating income I just mentioned.

Net income for the fiscal year ended June 30, 2009 decreased 32.7% year-over-year to RMB97 million. Basic and diluted earnings per share amounted to RMB2.66 or US$0.39 and RMB2.64 or US$0.39 respectively, compared to RMB4.03 and RMB3.93 for basic and diluted share respectively for the fiscal year 2008, and our balance sheet remains solid.

Our cash, cash equivalent and short-term investment remained strong at RMB776.1 million as of June 30, 2009. This compare with cash, cash equivalent and short-term investment of RMB841.7 million as of March 31, 2009.

Looking ahead to the first quarter of fiscal 2010, based on our current estimate we expect net revenue to be in the range of RMB231 million to RMB237 million, which includes RMB220 million to RMB224 million in net revenue from ELP business and approximately RMB11 million to RMB13 million from Little New Star business, representing an overall increase of 14% to 17% year-over-year.

With that said, I'd like to turn the call over to Jerry to go over some of our key strategic initiative.

Jerry He

Thank you Dora, I'm pleased to speak to you all today and I look forward to future dialogues with our investors. In the fourth quarter, we made a significant progress on the M&A front with the completion of the Little New Star acquisition. This acquisition represents a big step forward in our long-term strategy of transforming Noah into a comprehensive provider of education product, service and content to the youth in China. With LNS, we were able to gain a significant footprint in the fast growing kid's English training market and substantially expand our potential as addressable customer base.

We have several specific target for Little New Star in 2010. First, we plan to increase student enrollment at our self-owned learning centers by 20%. We also aim to grow English training material revenue by around 30% with a combination of a price increase and student enrollment growth.

We also plan to add 150 new franchise learning centers, and at the same time raise the franchise fees from RMB40000 over five years to RMB60000 over three years. We are making progress on renewing existing contracts and signing up new contracts with franchised schools.

As our Chairman mentioned, our progress is on track. So far we have integrated the administrative functions such as finance, accounting, human resources and sales and marketing.

We'll soon begin to leverage our sales and marketing capabilities to expand the Little New Star kids' English training services and take advantage of cross-selling opportunities. We see tremendous opportunities in kids' education service business and we expect this segment to be a significant growth driver in the future.

I'm pleased to report that we have completed the design and manufacture of the first batch of Little New Star branded electronic teaching devices, or ETDs for short, and we plan to introduce these devices in September 2009, we will continue our joint effort with Little New Star to develop ETD to enhance the learning experience of Little New Star students.

When combining all this element, we expect Little New Star to contribute RMB13 to RMB15 million in net profit in fiscal 2010. We will continue to improve on operational efficiency and optimize resource allocations with great focus on return on capital. We will work hard to enhance our financial analysis and planning capabilities, improving internal control over budgeting and expenses, while investing more for long term growth.

We are also reaching out for higher [degree] of standards and greater transparency to provide investors with better visibility into our future operational and the financial performance. To this end, starting in first quarter 2010 we will expand our guidance to include both revenue and operating profit for the following quarter and kind of fiscal year. In addition to organic growth, acquisition has always been a key part of our growth strategy to continuously expand the scope of our business and our addressable customer base.

We believe our experience working with Little New Star will open up more opportunities in kid's education markets. With our strong balance sheet we are well positioned to pursue additional acquisitions in order to capitalize on this growth opportunities.

That said, we will continue to actively seek education service and a constant development business with high growth potential a business model that can be replicate with scalability and a greater synergies with our existing business to further our presence in this space. We will of course report back to you with any material news on the acquisition front. I am confident that our initiatives to enhance internal controls together with the strong execution of our focused growth strategy will enable us to deliver growth and drive shareholder value.

That concludes today's presentation, and we will now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). At this time there are no further questions. I would now like to turn the call over to management for closing remarks.

Jerry He

On behalf of the management team, I would like to thank everyone for joining us today and for your support. We are committed to building shareholder value by executing our strategy and we look forward to keeping you apprised of our progress in the business development and strategic acquisitions.

If you have any further questions, please feel free to call either Mr. Xu, Dora or me. Thank you very much. Have a good day.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.

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Comments

[dbackroyal:]

I thought this stock would take off like a rocket, what am I not seeing?

Aug 27 12:09 PM