China Distance Education Holdings' CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: China Distance (DL)

China Distance Education Holdings Limited (NYSE:DL)

Q4 2011 Earnings Call

November 17, 2011 8:00 AM ET


Zhengdong Zhu – Chairman and CEO

Ping Wei – Chief Financial Officer


Mark Marostica – Piper Jaffray

Isabella Zhao – Oppenheimer


Good evening. And thank you for standing by for the China Distance Education Holdings Limited Fourth Quarter and Fiscal Year 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 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 first quarter of fiscal year 2012 and oral statements from management on this call, as well as the company's strategic and operational plans, contain certain 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 obligations 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 on the conference call. In addition, a webcast of this conference call is available on the company's Investor Relations website at

I’ll now like to turn the call over to Mr. Zhu to discuss the operational highlights. Mr. Zhu, please go ahead.

Zhengdong Zhu

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 our new slide services.

We delivered better than expected revenue growth in the quarter and ended the year with a very strong cash position. Revenue for the fourth quarter before adjusting for revenue from a business segment that will be discontinued within a year stood at over US$7.3 million, exceeding our guidance range for the full year before adjusting for revenue from discounted operation revenue would have come at US$43.3 million.

After adjusting for the discontinued operation net revenue from continued operation increased by 18.2% for the fourth quarter to US$13.1 million and increase a solid 27.6% year-over-year to US$41.6 million on a full year basis.

Our performance throughout the year has been supported by steady enrollment growth in most of our online courses and healthy ASP growth across our core test-preparation courses. Our performance in the fourth quarter indicates that the underlying demand for our course -- online courses will remain strong in the year ahead.

We have also made significant progress throughout fiscal 2011 on a number of key strategic initiatives, namely our effort to maximize a long-term growth potential of our business model and operating platform.

Fundamentally, our business model has not changed, CDEL has always been first and foremost educational content provider, delivering our high quality [through attracting] test-preparation courses, continued education courses and professional development courses and related services through our internet base online learning platform.

We also build centralized marketing distribution network, powerful content development and student service processes to ensure the quality of our courses and learning results of our student.

We will focus primarily on professional education, but we have recently expanding our service in such areas as K-12 after-school training to provide a broader offering of educational services to reach more students that seek high quality, comprehensive and lifelong learning programs.

As we have invested and grow our content delivery platform, we’ve also gained greater insight into how our unique platform can better directed to build sustainable long-term growth. As such we plan to direct more internal resources in this area going forward.

At the same time to focus our effort on our key businesses, we have decided to discontinue a certain segment of our business, more information on this decision will be publicized in due time.

Well, our GAAP financial results were negatively impacted in the fourth quarter and fiscal 2011 due to the strategic decision. We believe this realignment of our service offerings and resources will allow us to better focus on our key growth initiatives and on building shareholders value over the long-term.

We believe that our people exceed to the successful executing of our growth strategy and retaining and motivating our lecturers and staff is of high important. As such, we have decided to again modify the terms of our existing share options granted under the share initiative plan that we have adopted on 18 April, 2008, and grant additional options to our employees and lecturers as announced in our earnings release. We are confident in our prospects and remain committed to increasing value for our shareholders over the long-term.

Let me know walk you through our operational development for the quarter in more detail. Starting on slide five. Net revenue from continued operations increased 18.2% to US$13.1 million. Total cost enrollments from continued operations increased 33.7% year-over-year to 536,000.

Our results for the quarter was driven by especially strong enrollment growth from our continued education courses and continue momentum from non-accounting courses including healthcare and construction engineering courses.

For the full year net revenues from continued education increased 27.6% year-over-year to US$41.6 million and total cost enrollment increased 32.2% year-over-year to US$1.6 million.

Moving to our accounting vertical on slide seven. We had another strong performance from our online accounting vertical in the fourth quarter. The total accounting enrollment increasing 40.1% year-over-year, we experienced especially strong demand for accounting continued education courses, where enrollment increased 56.4% year-over-year, the overall market of accounting continued education is huge and we are pleased to see robust demand in this offering.

We also delivered solid growth in other accounting courses including accounting certificate exam test-preparation courses. Total other accounting enrollment increased 35.3% year-over-year in the fourth quarter.

The steady growth in enrollment was matched by strong ASP growth in most of our accounting test-preparation courses. ASP for other accounting courses grew 36.6% year-over-year, where ASP for APQE and CPA increased 22.4% and 72.4%, respectively year-over-year.

For accounting continued education we have maintained our competitive pricing strategy in order to gain further share in 13 million student strong market, which includes a high level of repeat customers.

We believe the growth in ASP [are expected] demonstrate the growing strength of our brand name and recognition of our high quality and results oriented service, differencing aiding us from other low price competitors.

Let’s turn to slide eight about other non-accounting course offerings. Our healthcare vertical maintained reaching of steady as enrollments grew by 17.6% and ASP increased 8.3% year-over-year. For the full year healthcare enrollment increased 17.8% resulting in total cash revenue increase of 31.9% as compared to fiscal 2010.

Looking ahead, we expect our healthcare vertical to continue growing fast as we continue to build brand awareness by promoting our products and services to a larger student base.

Enrollment for our construction engineering vertical decreased by 40.2% year-over-year due to the varying timing of construction continued education enrollment. On a full year basis enrollment and cash revenue increased 1.7% and 13.7%, respectively.

Also due to the delayed timing in continued education enrollments increased for 2011. We expect enrollment and revenue for construction engineering courses to grow fast in fiscal 2012, as we continue to build out our programs and gain market share in this vertical.

Moving to slide nine. Enrollment in self-taught higher education decreased 18.6% year-over-year to 19,000 mainly due to seasonality. Looking ahead, we are now focused on building our brand awareness and rolling out the programs in the provinces where we have signed contracts and we will work to continue to sign up new provinces to expand our market reach. As such, we expect enrollments to continue to grow steadily in fiscal 2012.

Moving on slide 10. This year we started testing the [vertical] by offering online and offline combined courses at higher ASP compared to our prior online courses to further broaden our program offerings in some of our main test-preparation verticals, such as accounting and healthcare.

For fiscal 2011 alone cash revenue generated from this new initiative other than Big Four coming from exceeded US$0.9 million.

However, as this program is still relatively new and due to the program design a portion of program revenue will not be recognized until fiscal 2012. This new initiative negatively affected our gross margin as lecture fees and related travel and rental experience -- expanses increased significantly in this quarter.

Going forward, we will focus our offline offerings to only limited high-enrollment courses to fully unleash the potential of this comprehensive program offering and improve program margin simultaneously.

This quarter Yucai delivered healthy revenue contribution of US$0.5 million and came at profitable in the quarter as our hard work and historical investment in Yucai started to payoff. We expect revenue from Yucai business started gaining to continue to grow strongly in fiscal 2012 as we have laid a very strong foundation in 2011 by improving our course content, building a robust online sand-table simulation platform and maintaining strict focus on program delivery and cash collection.

Finally turning to slide 11. We continue to make progress in our online K-12 after school training vertical. As I noted earlier many of the investments we have made in recent years have been geared toward expanding our presence and enhancing our service offerings in the K-12 after school training vertical.

Our combined suite of services which include important courses TStudy digital class solutions and EduComp Smart Class content product provide us with a comprehensive set of interactive multimedia educational tools and content, which are complemented by our scalable online platform.

The rollout of this offering is moving forward in line with our expectations and we expect this program to start gaining growth momentum and a meaningful revenue contribution in fiscal 2012.

Finally, as our cash and bank deposit balance from continuing operations stood at historical high of US$60.3 million and we expect to continue to generate strong free cash flow in the foreseeable future.

The Board of Directors yesterday decided to declare and pay a special dividend of US$0.12 per ordinary share or US$0.48 per ADR to shareholders of record on 15 December, 2011 and we expect to pay the dividend around 25 December of this year.

We believe that this dividend is further proved of our focus on creating value for our shareholders and our commitment to giving back to our shareholders in any possible way.

This completes my update on business operations. Let me now turn the call over to Wei Ping, our CFO, to walk you through our financials.

Ping Wei

Thank you, Mr. Zhu. Before I get into details I would like to point out that throughout the financial discussions we’ll use non-GAAP measures. For the quarter and fiscal year 2011 non-GAAP cost and expenses generally excludes share-based compensation expenses, impairment and write-off of goodwill, long leaving assets and intangible assets and purchased call options for the acquisition of additional equity interest in Zhengbao Yucai and Champion Xinlixiang.

This quarter we delivered yet another quarter of strong revenue growth. On the cost and expenses front, we continue to exercise conservative accounting practices, this quarter we rolled off US$0.03 million of inventory, representation costs of all unpaid, shifts 2010 textbooks and reference materials. Even though, we may continue to collect cash and recognize revenue in the future on these books.

In addition inline with our accounting policy, this quarter 100% of our account receivable 18 over 360 days and are still not collected as of yesterday were written off. As such, we again rolled off another US$0.09 million of slow paying account receivables or balance. This provision maximally affected our gross and margin for the quarter.

In addition as the company has made the decision to discontinue the operation of the certain business segment, we have written down most assets including to -- and intangible assets of the discontinued operation to the fair value next cost to sell, as such we recorded a gap charge net of tax of US$2 million and non-GAAP loss from discontinued operations of US$1 million in the quarter.

Lastly, as mentioned earlier by Mr. Zhu in our press release. In September we modified our 2008 option grant to reduce the exercise size to the closing clients of September 27, 2011 and zero and also accelerated all the options to full invest it immediately. As a result we incurred additional share based compensation charge, a non-cash GAAP expense up $0.06 million and accelerated the recognition of US$1.4 million of expense from fiscal 2012 to this quarter.

Other options I mentioned is that, negatively affected our GAAP and non-GAAP earnings for the quarter significantly. However our cash generation for the quarter and for the year is very strong. Our present cash inflow for the quarter was US$4.4 million free cash flow was US$3.3 million for the quarter, for exceeding our non-GAAP net income. Our full year basis operating cash flow was US$9.2 million.

Let me now recap our key financial metrics for the fiscal fourth quarter 2011, on slide 16. Total net revenues from continuing operations for the fourth quarter of fiscal 2011 was US$13.1 representing a year-over-year increase of 18.2% from US$11.1 million in the fourth quarter of fiscal 2010.

Online education services net revenues for the fourth quarter of fiscal 2011 were US$9.9 million, an increase of 24.4% from the fourth quarter of fiscal 2010. This increase was a result of increased revenue in accounting certificate exams, CPA examinations, healthcare and construction engineering courses.

Net revenues from books and reference materials decreased by 22.7% year-over-year to US$1.3 million in the fourth quarter in 2011. In 2011, we adopted a new approach to allocate revenue amounts between study cards and books for certain bundled arrangements which resulted in a decrease of US$0.3 million in book revenue and a corresponding increase of US$0.3 million in online revenue in this quarter.

Net revenues from others increased 31.4% year-over-year to US$1.9 million for the fourth quarter of fiscal 2011 from US$1.5 million in the corresponding period of last year. The increase was a result of increased revenues from off-line business start-up training courses provided by Zhengbao Yucai and other off-line supplementary training courses.

Cost of sales for the fourth quarter of fiscal 2011 was US$6.3 million, representing a 34.3% increase over the fourth quarter of fiscal 2010. Non-GAAP cost of sales for the fourth quarter of fiscal 2011 was US$5.4 million, an increase of 29.7% over the same period last year. The increase in cost of sales as compared to the same period last year was primarily due to increased in lecturer fees and teachers travel, while we’ve highlight the new online, off-line combine courses. Salaries and related expense and rent and related expenses also increase.

Gross profit for the fourth quarter of fiscal 2011 was US$6.8 million, with representing a 6.3% increase from US$6.4 million in the same period last year. Non-GAAP gross profit was US$7.7 million, an increase of 11.2% year-over-year. Gross profit margin for the fourth quarter of fiscal 2011 was 51.7%, compared to 57.4% in the fourth quarter of fiscal 2010. Non-GAAP gross profit margin for the fourth quarter of fiscal 2011 was 58.6%, compared to 62.3% in the same period last year. The decrease in non-GAAP gross margin was primarily a result of increased lecturer fees and rent and related expenses.

Total operating expenses for the fourth quarter was US$7.4 million, an increase of 35.8% year-over-year. Non-GAAP operating expenses were US$5.2 million, representing a year-over-year increase of 15.2%. Selling expenses amounted to US$2.5 million for the fourth quarter with representing up a 52.6% increase year-over-year. Non-GAAP1 selling expenses were US$2.1 million, a 51.4% increase from the same period last year as a result of increased salaries and related expenses, advertising and promotional activities and commissions to our agents due to the increase in sales.

General and administrative expenses were US$4.9 million in the fourth quarter of fiscal 2011, representing a 34.5% year-over-year increase. Non-GAAP G&A expenses were US$3.1 million, a decrease of 1.3% year-over-year. The decrease in non-GAAP G&A expenses was primarily due to decreased bad debt provision for outstanding receivables, in accordance with our accounting policy, which was partially offset by increased professional fees.

Income tax expenses was US$0.8 million for the fourth quarter, compared with the income tax expenses of $1 million in the same period last year. Net loss from continuing operations was US$1.2 million for the fourth quarter of fiscal 2011, compared to net income of US$0.2 million in the same period of 2010. Non-GAAP net income from continuing operations this quarter was US$1.9 million, compared to non-GAAP net income of US$1.6 million in the corresponding quarter in 2010.

Net loss from discontinued operations was US$3.0 million for the fourth quarter of this year, compared to net loss of US$2.2 million in the same period last year. Non-GAAP net loss from discontinued operations for the fourth quarter of fiscal 2011 was US$1 million, compared to non-GAAP net loss of US$0.2 million in the corresponding quarter in 2010. Net loss was US$4.1 million for the fourth quarter of fiscal 2011, compared to net loss of US$2.1 million in the same period last year. Non-GAAP net income for the fourth quarter of fiscal 2011 was US$0.9 million, compared to US$1.3 million in the same period last year.

At summary as our full-year results are shown on slide 17. Please note that operating results of the discontinued operations were already removed from revenue and operating cost and expenses line from fiscal year 2010 and 2011 numbers. Total net revenues increased by 27.6% to $41.6 million for the fiscal year 2011. Online education services net revenues for the fiscal year 2011 increased by 28.4% to US$30.8 million. Net revenues from books and reference materials for the fiscal year 2011 increased by 20.4% to US$4.7 million. In addition, net revenue from others increased by 29.5% year-over-year to US$6.0 million.

Cost of sales increased by 27.9% to US$19.6 million for the fiscal year 2011. Non-GAAP cost of sales for the fiscal year 2011 was US$17.6 million, a 30.0% increase over the previous year. Gross profit increased by 27.3% to US$21.9 million for the fiscal year 2011. Non-GAAP gross profit was US$23.9 million, a 25.9% increase from the fiscal year 2010. Gross profit margin for the fiscal year 2011 was 52.8%, down slightly from 52.9% in the fiscal year 2010. Non-GAAP gross profit margin for the fiscal year 2011 was 57.6%, compared to 58.4% in the fiscal year 2010.

Now for the fiscal year 2011, total operating expenses increased by 29.2% to US$23.1 million. Non-GAAP operating expenses were US$18.0 million, an increase of 18.8% from the prior year. For the fiscal year 2011, selling expenses increased by 36.2% year-over-year to US$9.8 million. Non-GAAP selling expenses were US$9.1 million, up 37.6% increase from the previous year.

For the fiscal year 2011, G&A expenses increased by 15.9% to US$12.2 million. Non-GAAP G&A expenses were US$8.9 million, up 4.3% increase from the previous year. Fiscal year 2011, income tax expenses was US$1.0 million compared to an income tax expense of US$0.6 million in fiscal year 2010.

Net loss from continuing operations was US$0.5 million for the fiscal year 2011, as compared to a net income of US$0.2 million in 2010. Non-GAAP net income from continuing operations increased by 36.3% year-over-year to US$6.4 million for the fiscal year 2011.

Net loss from discontinued operations was US$3.3 million, compared to net loss of US$2.1 million in the prior year. Non-GAAP net loss from discontinued operations for the fiscal year 2011 was US$1.2 million, compared to non-GAAP net loss of US$0.1 million last year. Net loss was US$3.8 million for the fiscal year 2011, compared to a net loss of US$1.9 million in the fiscal year 2010. Non-GAAP net income, increased by 13.2% year-over-year to US$5.2 million for the fiscal year 2011.

Turning to our balance sheet on slide 18. Net operating cash inflow for the fourth quarter of fiscal 2011 was US$4.4 million, compared to a net operating cash inflow of US$4.8 million last year, primarily due to the decrease in deferred revenue, partially offset by the contribution of increased net income before non-cash items, decrease in prepayment and other current assets and increase in accrued expenses and other liabilities. Net operating cash inflow for fiscal year 2011 was US$9.2 million, an increase of 20.2% over the same period last year.

Cash and cash equivalents, term deposits and restricted cash from continuing operations increased to US$60.3 million as of September 30, 2010 from US$58 million as of June 30, 2011, as we continue to generate cash flow from operations, partially offset by the purchase of property, plant and equipment, intangible assets and repurchase of shares was US$1.3 million as part of the share repurchased program.

And this completes the financial overview. Now I’ll turn the call back to Mr. Zhu for the final remark and strategy and business updates as well as financial guidance for the first quarter and fiscal year 2012. Mr. Zhu?

Zhengdong Zhu

Thank you, Ping. We enter fiscal 2012 with a clear strategy in place to realize the full potential of our unique business model. As part of this strategy we are starting to leverage -- we’re actually expanding world of mobile and a social technology to enhance our content and delivery. Today, we have introduced the mobile learning on smartphone operating platform and high resolution audio/video courses supported by interactive life board.

Throughout 2012, we will continue to overview more cutting edge of interactive online learning course and technologies to empower our students learning, all these matters will further strengthen our pricing power and quickly expand our program reach.

We believe the underlying demand for our educational services remains strong and we believe we are well-positioned to deliver increasing shareholders value in the years ahead.

As such, we expect our revenue for the fourth quarter coming between US$7.5 to US$8.5 to US$9 million, as compared to net revenue of US$7.8 million in the fourth quarter of fiscal 2011. We expect our fiscal year 2012 annual revenue will be decrease US$50 to US$54 million, representing year-over-year growth of 20% to 30%. This represents our current and creating no review which is subject to change.

Thank you for your time. We’re happy to take your questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Mark Marostica from Piper Jaffray. Please ask you question.

Mark Marostica – Piper Jaffray

Yes. Thank you. My first question is related to the guidance that you just provided for the full year 20% to 30%. And I’m curious as such a wide range of guidance, what has to growth rate to hit the 30% level? And what’s implied in your 20% level as well?

Ping Wei

Thank you, Mark and -- for the question. Basically, 20% is relatively conservative number as and we -- our online cash revenue right now is growing at a run rate of about 25 % to 30%. So that’s a very comfortable number. As you probably noticed that we basically use the online number as a base and sort of provided a bit of cushion on other non-online business that, like books and we could press faster we could press slower so we did not want to be too aggressive and the other non-online businesses Big Four accounting firm increment, our supplementary business is actually ready for the stable and this highest business startup training as on the right track, so we’re very comfortable with 20%. Now what do we need to do right to achieve 30%. I guess, we guess putting a lot of efforts and we ship you there.

Mark Marostica – Piper Jaffray

Anything specific that you think Ping, could drive that upper end of the revenue range?

Ping Wei

First of all, Zhu mentioned, the new high definition course in mobile learning those new technologies and new course will format definitely are sort of differentiating ours apart from other players, which position us well for not even better so with online revenue growth. So we could have presence of, or we could be presently surprised on online revenue side.

And secondly, we do see fairly strong momentum with our business startup training program having investing and then having been start up, we’re working very hard on content and sort of delivery and marketing, et cetera of this particular sort of project per say. And this program does have a lot of potential, right now we’re working actively with over eight cities I believe and with 20 years contract we already have and we expect to keep on adding new cities and roll out programs in the more cities as well. So we are well on track.

We also actually have a pretty healthy differed revenue and refundable fee balance, you probably notice that -- on appearance our deferred revenue and refundable fee balancing total only increased by about 10% year-over-year. However, in the deferred revenue, we actually have two major categories, one is in advanced payments we received from our distributors and the other is actually cash sitting with student account and cash, student already paid off throughout registered for courses.

Now the second part has increased quite significantly while the first part basic advanced payment by our distributors actually was lower by almost US$2 million, this year as compared to last year, due to seasonality as a main factor because this year APQE enrollments started about two weeks later than usual.

And secondly, we are also sort of being more strict with our distributors sort of online phone bill sort of individual promotions of study cards to maintain sort of tighter control over pricing and over core discounts. So that’s, those two factors actually sort of and expand lower at agent account with us. However, the deferred revenue and refundable fee balance we have on the balance sheet actually also point to solid strong future revenue recognition. I hope that answer the Mark.

Mark Marostica – Piper Jaffray

Yeah. Great. Thank you for the detail. And as a follow-up, I want to get a sense of how you are thinking about the business from a profitability standpoint as you budget fiscal ’12? What I am getting at here is do you expect margin expansion or you running the business to achieve a certain target margin? Give us a sense of how you’re thinking about the profitability picture this year?

Ping Wei

Okay. I am going to have [Ling Ing] translate the question, because I actually think that Zhengdong probably has and -- Zhengdong would you like to take this question?

Zhengdong Zhu

For fiscal 2012 conservatively speaking our margin will be stable. And in fiscal 2012 our traditional online training will still show leverage and we will still see margin expansion there. But we will be investing more into our online learning platform. Because we have set our last building base and because we offered of course different professional areas, therefore giving the reach experience in developing and innovating our delivery platform.

We expect that, the investment will bring us sustainable long-term growth. And we are still testing the [wonders], in offering online and offline combined courses, so giving about factors conservatively speaking the margin will remain stable.

Ping Wei

So just a few more sort of basic, what Zhengdong mentioned is that for, one, our traditional content, our proprietary content sort of revenue source will grow hopefully and we will see margin expansion on those businesses. However, we will sort of intentionally invest the incremental margin and incremental profit, like incremental profit more than the margin we sort of end to maintain back to operations to speed up the development and rollout of our powerful online learning platform and so that, we will achieve faster growth going forward in revenue line and hopefully also in bottom line.

So basically we should be able to comfortably achieve the non-GAAP net income margin of about 16% to 17% for fiscal year 2012. And we do have room to go up but we may choose to spend more on marketing platform if we have extra sort of incremental profit from the traditional businesses. Hope that answer the question, Mark?

Mark Marostica – Piper Jaffray

Yes. No. Definitely does. Thank you very much for the color. I will turn it over.


Thank you for your questions. (Operator Instructions) Your next question comes from the line of Isabella Zhao from Oppenheimer. Please ask your question.

Isabella Zhao – Oppenheimer

Hello. Good morning. And thanks for taking my questions. The first question is regarding the enrollment trend, I see the enrollment has decrease over 30% for the last two quarter. And so what do you think the growth rate for the enrollment for the fiscal year ’12? And also I understand the ASP decrease was mainly due to the higher growth of continue education for accounting, which have lower ASP and what’s your ASP outlook for the next year? Thank you.

Ping Wei

Thank you, Isabella. In terms of enrollment trend, overall we’re still seeing very slight enrollment in heading into fiscal year 2012, like we are already about seven weeks into fiscal year 2012. And the enrollment growth is running right now at over 40% overall which is very strong.

Now, yes, you are right the, that’s strong enrollment growth again is driven by very strong enrollment growth from accounting continuing eduction. Now, however, we’re seeing fairly strong growth elsewhere as well, the traditionally pricing sort of pay one APQE and CPA running stable enrollment and newer verticals like accounting other healthcare, construction and engineering growing faster.

Now ASP as if it harder to sort of to just give you a simple number from continued education side ASP will decrease. Again, as we continue to sort of aggressively rollout the continued eduction to reach our largest student base and sort of low price is our competition strategy.

On the test-prep courses, most of the test-prep courses ASP are trending up very nicely again. I’m seeing actually, probably 15%, 20% kind of ASP increase again heading into the New Year, we hear -- like we mentioned sort of no discount, sort of no unauthorized discount, tighter management of our distributors as well as the high definition courses, mobile learning platform, all those mechanisms are actually helping us to push our ASP for our test-prep courses. So you could see fairly nice ASP increase again this year on the test-prep courses.

Isabella Zhao – Oppenheimer

Okay. Thank you. My next question our trending growth to the now on online business and could you give us more color about your revenue expectation for the offline business such as Yucai or K-12 tutoring?

Ping Wei

Yeah. We expect at least high end the offline business to grow fast, Yucai offer about US$1.2 million of revenue base for fiscal year 2011. 2012 we expect the revenue to grow conservatively another 100% something like that. Now K-12 again offer slow – offer smaller revenue base and growth rate will be very high.

Isabella Zhao – Oppenheimer

Okay. Thank you. That’s all my questions. Thank you.


Thank you for your questions. (Operator Instructions) There are no further questions from the phone line. I’d like to hand the call back to the management for closing remarks. Please continue.

Ping Wei

Thank you. Thank you again for joining us today and we look forward to updating you on our progress in the near future. Thank you.

Zhengdong Zhu

Thank you.


Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may all disconnect the line.

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