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China Distance Education Holdings Limited (NYSE:DL)

Q1 2012 Earnings Call

February 29, 2012 8:00 p.m. ET

Executives

Zhengdong Zhu – Chairman, CEO

Ping Wei – Chief Financial Officer

Analysts

Janice Chen – Piper Jaffray

Ella Ji – Oppenheimer

Philip Ehrmann – Jupiter

Operator

Good evening. And thank you for standing by for the China Distance Education Holdings Limited First Quarter Fiscal Year 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 US 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 companys 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 companys 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 companys 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 companys Investor Relations website at ir.cdeledu.com.

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 on our first quarter fiscal 2012 results conference call. Our operating results were released earlier and available on the companys website, as well as our new slide services.

We are pleased to report a strong start to the year and whats typically our lowest revenue quarter, delivering revenues far exceeding our guidance, net profit on both GAAP and non-GAAP basis. Meanwhile, total cash collections from operations in the quarter exceeded RMB100 million for the fourth time in our operating history.

Our strong performance was supported by broad based enrollment growth, of course our traditional online education services increased in average student payment in our online cash operation courses and growing contribution from our new investment.

In addition to our strong performance in the quarter, we have made significant progress in the divestment of a new added dynamic content delivery platform from educational content and services. After years of research and divestment in fiscal 2012, we rolled out mobile learning solutions for test-preparation courses at the end of calendar year 2011.

With the mobile learning platform, our students can now view our courses directly from their iPhones and android powered smartphones. With growing smartphone usage across China, our students will now have the freedom and flexibility to access our content at times and places that best suits their needs.

We also wrote out our new high definition source, this new course features fine quality high definition streaming video with teachers doing their lecture using an interactive to the blackboard.

Teachers can show prepared online, show illustrations and highlight the key points on the detailed blackboard creating a high quality visual classroom learning experience to our students.

We have also recently obtained a mobile value added telecommunication business license or ST license. In January of this year, we developed and introduced our daily mobile learning magazine for some of our main exams.

The magazine is pushed to the subscribers smartphone everyday, providing students with learning and access among other things to help them improve their studying habits and get more out of our courses.

This new platforms and learning solutions are major improvements to our traditional formats and has been very well received by the market, resulting us in (inaudible) since their introduction.

As an innovative online education company, were constantly seeking ways to leverage new technologies that provide our students with more comprehensive and excessive educational products and services. We will continue to leverage our strength in technology and education as we go forward to maintain our leadership position in the online education market.

Let me now walk you through our operational developments for the quarter in more detail. Starting on slide six. Net revenues from continued operations for the quarter increased 35.8% year-over-year to US$9.9 million, exceeding our guidance.

In particular, net revenues for our online education services grew approximately 49% as compared to the same period last year, a clear acceleration from prior periods. Total cost enrollments from continued operations were 828,000, an increase of 62.1% year-over-year.

The strong enrollment growth, supported in part by new platforms and solutions these costs earlier helped to drive our strong top line growth for the quarter. This results indicate to us that our efforts at improving our online learning technology and enhancing the learning experience for all our students is starting to pay off.

Let me now walk you through our verticals in more detail. Starting with our accounting vertical on slide eight. We had a strong performance in our online accounting vertical overall with total enrollment increasing 65.2% year-over-year, this was supported by especially robust performance in our companys continued education, where enrollment increased 19.6% year-over-year.

Online APQE enrollment increased by 13.5% year-over-year, the acceleration in APQE enrollments was particularly noticeable as a result of our mobile learning platform and our high definition cost there towards the second half of the quarter.

Online CPA enrollment in the quarter was down by 12.6%, primarily affected by the delayed publication of 2011 tax write-downs from 31 December 2011, to 31 January 2012. Due to the delay, students could not decide which subject exams they needed to take in 2012 and hence delayed enrolling in our courses.

However post quarter end, after the CPA exam results were announced, we saw a surge in our online CPA course enrollment. As of last Friday, February 21, cumulative year-to-date enrollments for the CPA exam test-preparation courses have registered a double digit increase as compared to last year.

In addition, ASP for both online APQE and CPA test-preparation courses increased 31.9% and 29.8% year-over-year respectively demonstrating the strength of our brand name and the value that our students place in our results oriented services.

Lets turn to slide nine about other non-accounting course offerings. Our online healthcare segment gained significant momentum this quarter with revenue growing 116.2% and enrollment increasing by 207.7% year-over-year. The strong enrollment growth was supported by four days enrollment growth in our healthcare test-preparation courses as our students continue to achieve superior test results.

In addition, last year we developed a professional quality assessment system for doctors, which was piloted in a few cities in China and accounted for about 14,500 of the total online healthcare enrollment in the quarter. Last year in our earlier stage, we are encouraged by the results of this pilot project.

Online constructing engineering course also delivered a strong growth in the quarter, with enrollments increasing by 130.7% year-over-year and cash revenue increasing by 89.4% year-over-year. We again experienced a strong enrollment growth in both construction engineering test-preparation course, for this and continued education courses, a consistent chain over the last two quarters.

As we have previously noted, continuous education courses carry a lower average student payment. And as a result, overall average student payment decreased by 17.9% year-over-year, even though most test-preparation courses for higher ASP in the quarter.

Enrollments for stock or higher education courses decreased this quarter by 44.3% year-over-year, primarily due to the timing of enrollment.

Moving on to slide 10. We are pleased with the performance of our business that our training subsidiary is high, as announced in December 2011, with scientific new contracts with value and the government authorities for business that are streaming and relative services throughout 2011.

In the first quarter, total revenue from the segment was US$0.5 million, 163.6% increase from the same period last year. In addition, (inaudible) has been running cash flow positive for the past three quarters and waits that this business to contribute many probably revenues this fiscal year.

The progress we have made demonstrates that this program offering based on the idea of creating employments through entrepreneurship positions as well as in the post second grade school employment ready training market. Our area is strongly supported by those, the Ministry of Labor and Social Security, and from both secondary colleges and universities.

Finally, as we announced our board has approved tweaks and our share reporters program to April 28, 2013. We are also like supported another US$5.8 million of our stock if needed. Were going to carryout this program prudently so that it would not affect the liquidity of our stock while continuing to provide support to our shareholders value.

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, Zhengdong Zhu. As Mr. Zhu mentioned, the fiscal first quarter is typically our lowest revenue quarter of the year. Nevertheless, we delivered a strong financial performance supported by robust enrollment growth and increasing AAP in most of our online test-preparation courses.

The investment weve made in our business including new content services and platforms have helped to generate revenue growth in our existing courses, creating new revenue streams and further strengthen our brand name and our unique position as the largest student leader the Online Education in China.

In addition, the scalability inheriting our business model has allowed us to deliver margin expansion in the quarter with our top line growth outpacing expense growth, which we believe whos the strength of our strategy and operating platform.

Despite signs of increasing macroeconomic headwinds in China and a lingering inflationary environment would believe that the demand for high quality and without oriented education services remain strong. And while we will continue to invest prudently in our content and services, to enhance our offering, we believe that were well positioned in fiscal year 2012 to achieve a non-GAAP margin from continuing operation at a level similar to that in the non-GAAP margins of fiscal 2011, which was about US$6.4 million.

Let me now recap our key financial metrics for the first quarter on slide 12. Total net revenues from continuing operations for the first quarter was US$9.9 million representing a year-over-year increase of 35.8% from US$7.3 million in the first quarter of fiscal 2011.

Online education services net revenues for the first quarter US$7.7 million, an increase of 48.6% year-over-year. The increase was a result of increased revenue in accounting continuing education, accounting certifications, APQE and healthcare and construction engineering courses, partially offset by decreased revenues in self-taught higher education.

Revenues from books and reference materials decreased by 17.9% to US$1 million for the first quarter, due to lower cash collections from customers in the quarter. Revenue from authors increased 30.8% year-over-year to US$1.2 million for the first quarter of 2012, due to increased revenue from top line business start-up training courses provided by our subsidiary and other offline supplementary training courses. The increase was partially offset by decreased revenue from magazine content production, corresponding productions and platform production services.

Cost of services from continuing operations for the first quarter was US$4.63 million, representing a 17.4% increase over the first quarter of fiscal 2011. Non-GAAP cost of sales from continuing operations were US$4.61 million, an increase of 30.2% year-over-year. The increase in cost of sales was primarily due to the increased salary and related expenses, lecturer fees and rent and related expenses.

Gross profit from continuing operations for the first quarter was US$5.28 million, representing a 57.3% increase from US$3.4 million in the same period last year. Non-GAAP gross profit from continuing operations was US$5.29 million, an increase of 41% year-over-year. Gross margin from continuing operations was 53.3%, compared to 46% in the fiscal 2011 same quarter. Non-GAAP gross profit gross margin from continuing operations was 53.4%, compared to 51.4% in the same period of 2011. The increase in non-GAAP gross margins was primarily a result of gross profit contributed from business start-up training courses.

And relatively modest increase in salaries and related expenses, service management fee and depreciation and amortization compel this out and small revenue contributions from our lower margin book and reference material business. Such increase was partially impacted by the relatively higher growth in lecture fees.

Total operating expenses from continuing operations for fiscal first quarter 2012 was US$5 million, an increase of 5.3% year-over-year. Non-GAAP operating expenses from continuing operations were US$4.9 million, a year-over-year increase of 18.82%.

Selling expenses from continuing operations was US$2.87 million for the first quarter representing a 15.1% increase year-over-year. Non-GAAP selling expenses from continuing operations was US$2.86 million, a 21.2% 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.

G&A expenses from continuing operations were US$2.2 million in the first quarter representing a 5.2% decrease year-over-year. Non-GAAP G&A expenses from continuing operations were US$2.1 million, an increase of 15.7% year-over-year, primarily due to increased salaries and related expenses.

Income tax expenses for the first quarter was US$0.09 million compared with income tax benefit US$0.3 million in the same period last year. Net income from continuing operations was US$0.4 million for the first quarter compared to net loss of US$0.9 million in the same period of 2011. Non-GAAP net income from continuing operations for the first quarter of fiscal 2012 was US$0.5 million, compared to non-GAAP net income of US$0.1 million in the same period last year.

Net loss from discontinued operations for the first quarter was $6,000 virtually breaking even, as compared to a net loss of US$0.1 million in the same period last year. Non-GAAP net loss from discontinued operations for the quarter was also US$6,000, as compared to non-GAAP net income of US$10,000 in the same period last year.

Net income was US$0.4 million for the company for the first quarter of fiscal 2012, as compared to net loss of US$1 million in the same period last year. Non-GAAP net income for the first quarter was US$0.5 million, as compared to non-GAAP net income of US$0.1 million in the same period last year.

Turning to our balance sheet on slide 13. Net operating cash inflow for the first quarter was US$5 million, compared to a net operating cash inflow of US$1.4 million in the same period last year, an increase of more than three folds. This is primarily due to the increased profits generated in the quarter decrease in accounts receivables, increase in accrued expenses and other liabilities and higher deferred revenue and refundable fees balance, primarily by increased payments by our students to obtain our courses. Such increase was partially offset by increasing prepayments in other current assets and decrease in income tax payable.

Cash and cash equivalents, term deposits and restricted cash as of December 31, 2011 decreased to US$49.7 million from US$60.3 million as of September 30, 2011, mainly due to the payment of US$15.9 million of special tax dividend and US$0.3 of capital expenditures, partially offset by $5 million of operating cash flows generated in the quarter.

And this completes the financial overview. Now I would turn the call back to Mr. Zhu for final remarks on strategy and business updates as well as financial guidance for the second quarter of fiscal 2012. Mr. Zhu?

Zhengdong Zhu

(Interpreted) Thank you, Ping. With our fourth quarter results we see up here, the acceleration of our revenue and enrollment growth from our high quality traditional tax population continuous education and a professional development courses, supported by our powerful new online learning platform, technology and services.

Our new online learning platform is providing us with a strong foundation upon which we can easily incorporate and realize new courses and services provided by our partners.

The advancement of internet and the mobile technology which allow for more convenience engaging and interacting platforms with high quality online and mobile, overview, review and data transmission solutions, whilst you being highly flexible and affordable, and making internet and the mobile basically learning not only more feasible but also manage better read out.

Were confident that were in an ideal position to benefit the transformational impact that the internet is having on society and particularly on how people learn.

For the near term, we will continue to grow our business prudently and conservatively. As such, we expand our revenue from continuing operations for the second quarter to be in the range of US$11.3 million to US$12.2 million. As compared to net revenue from continuing operations of US$9 million in the second quarter of fiscal 2011, represents 25% to 35% year-over-year increase, this represents our current and preliminary ways which is subject to change.

Thank you for your time. Wed now be happy to take your questions.

Operator

(Operator Instructions) Your first question comes from the line of Janice Chen of Piper Jaffray.

Janice Chen – Piper Jaffray

Hi, this is Janice from Piper Jaffray asking questions on behalf of Mark Marostica. My first question is about, we compared, given the decline in revenue for the season in the first quarter, what should we expect for the balance of the fiscal year?

Ping Wei

What decline Janice?

Janice Chen – Piper Jaffray

The revenue per student in the first quarter?

Ping Wei

Okay, sorry, I missed that. Actually, every student, every revenue core enrollment is done primarily because continuing education from accounting has registered significant growth. As Zhu mentioned, it was 90% kind of enrollment growth. And therefore a significant portion of Q1 fiscal 2012 revenue was coming from continuing education.

So, what youll see as continuous education, ASP was stable at about just RMB$30 per enrollment going forward. However – and however I would test-prep courses, ASP for test-prep courses has been turning up consistently and fairly significantly. If you look at then CPA and APQE they are all trending 30% AIT growth.

Healthcare started with fairly strong – fairly high number in ASP, is still growing at about 10% ASP as in test-prep courses. In this quarter because of our 14,500 continuous education equivalent kind of enrollment in healthcare of vertical, you saw also sales like then, the enrollment outpaced the revenue growth.

But then, you know, going forward, what well do so you have a better view of whats happening with our continuous education courses which is then by, low ASP, high volume annual repeat business and well separate ASP and enrollment for continuing education and ASP for test-prep courses, that way you know, everybody can see better and more clear what the trends are like for ASP with continuous stand and test-prep courses. Hope that helps, and then, if needed we can supply additional information to you Janice so that you can have a better view on continuing education courses, enrollment ASP trends and test-prep courses enrollment and ASP trends.

Janice Chen – Piper Jaffray

Thats very helpful, thanks so much.

Ping Wei

Youre welcome.

Janice Chen – Piper Jaffray

My second question is about of course you mentioned that there is ASP increase across the book. Would you like to give a bit more color in terms ASP growth increase change in the first quarter or in the current quarter as well?

Ping Wei

Yeah, we should expect to see a decent healthy ASP growth with our test-prep courses. Our sort of apple to apple same cost ASP for our main accounting forces went up by another like that 10%, around 10% this year as we introduced a much better course and a credit services is better is the year. Now, simultaneously we are seeing more students shifting from sort of getting on courses through buying study cards to paying us directly online as you probably noticed that online payment and online e-commerce is getting more popularity in China.

In addition, were seeing another very encouraging trend that is more students are sort of turning to higher pay but higher service kind of a more elite premium cards as compared to the traditional regular cards, and that also helped in our ASP increase with our test-prep courses. So, all-in-all, the ASP increase for accounting should test-prep courses should stay at 20% plus and ASP for healthcare and construction engineering test-prep courses probably will be between 10% and 20% throughout this year.

Janice Chen – Piper Jaffray

Thanks, thanks very much. My third question is about gross margins and gross margin trends. We see a significant improvement for the gross margin in the first quarter. Would you lie to provide more color on how, what the factors behind is gross margin improvements and how should we expect for the gross margin trend going forward? Thanks.

Ping Wei

Our first quarter margin expansion is a clear indication of the for the scalability of our model which is inhered to our business model, you know, sort of the power of being an online education company is just being unleashed.

So, you know, as you know this, in the past year or two with the now venture into a lot of new areas, were still expanding but we did not had a lot of new services, new business minds, instead focus on technological advancement and continue to sort of increase enrollment in our sort of more – in our existing courses to say, thats why you see this years growth came primarily from existing courses, existing verticals and naturally that will give us higher margins.

Now, without shifting from the traditional the course format to this more dynamic high definition online course as well as on the mobile learning etcetera, its more demanding on our teachers. So, naturally we also increased our teachers pay on the high definition courses. And that sort of well, sort of put a bit of a downside pressure on our gross margin. But all-in-all, our investors should expect our margin to naturally expand, probably conservatively at about 100 basis points for fiscal year 2012, and more room to further elaborating in future years.

From operating expenses and aside, coming down to net margins, you know, we dont need to increase a lot of our sales and marketing or G&A expenses as our operational scale is already here and youre familiar, we havent increased many headcount in our G&A and even self function over the past year or two and we do not need to add a lot of people going forward either.

However, Zhu mentioned that, well prudently invest in the growth of the business. So, well still manage our G&A and SG&A expenses the way weve been doing it before, that is, well basically look at how fast were growing our revenues and plan our sales and marketing, particularly branding and marketing strategies accordingly. In the end, we will make sure selling expenses will grow in line or slower than our revenue growth and G&A probably would say relatively stable for a period of time, hope that helps.

Janice Chen – Piper Jaffray

Yes, this is very helpful, thanks very much. Just Ill go back to your remark that you said because of the introduction of high definition online courses, also the mobile, learning solutions. I just wanted to know, is any undue price difference between these and the traditional cost is offering?

Ping Wei

We basically offer, whoever is signing up for high definition courses will open up the traditional course format to them as well, if they sell too.

Janice Chen – Piper Jaffray

So, well, we know the price difference between these two options?

Ping Wei

I have Lee translate the question and have (inaudible).

Zhengdong Zhu

(Interpreted) Janice, we actually keep this inclined either for high definition course or the traditional ones. This, the high definition course and animal by learning is just save students another way to learn our courses.

Janice Chen – Piper Jaffray

All right, thanks very much. Sorry for that, these are my last questions about the mobile, the new mobile initiative. Im just wondering, any of those into new initiatives and has done particularly well in this quarter, in terms of record revenue contribution also the first quarter out performance? Thanks.

Interpreter: I will translate this question okay and decide either Zhengdong Zhu will answer it.

Zhengdong Zhu

(Interpreted). Actually in the short term we can see that the high definition course has been very well received by our students. And in terms of the longer term, we think that the mobile learning actually is – its taking the lead. Due to its convenience and flexibility, we can actually we can enlarge our student base through mobile learning. This both ways can contribute to our business even through either enrollment growth or revenue growth. Hope that answers your question Janice.

Janice Chen – Piper Jaffray

Yes, its very helpful. Thanks very much, Zhu and Wei, Ill turn over.

Ping Wei

Thank you Janice.

Operator

Your next question comes from the line of Ella Ji of Oppenheimer.

Ella Ji – Oppenheimer

Thank you, Zhengdong Zhu. My first question is so, its great to see there to your investments in our cash flow has generated very good results. So in these coming years will you continue investing in such platform or are you mostly done with these technology investments?

Zhengdong Zhu

(Interpreted). Currently we are mainly an education company using internet applications to the overall educational content or students. But as going forward and with the advancement of internet and other online technologies, we will become the internet – mainly as a internet company delivering educational content to our students.

And it has been proven that the usage of new technologies has been very well received by our students. The investment is not huge. But with the new technologies and robust platforms building in with it so, this could trade long term growth potential.

Ping Wei

Yeah. And basically in short, we will continue to invest and well continue to evoke the – our online and mobile delivery platform and services and support adopting the newest of technologies available to an internet and mobile learning company. And but, its – the monetary cost is not huge. The biggest and sort of a challenge would be technological know how. And we with over 10 years of offering education online we definitely have the deepest understanding of internet and mobile related technologies that can best adopt it to advancing and enhancing education and learning experience and educational sort of – sort of the again, also the improvement of educational qualities through the usage of technology.

Ella Ji – Oppenheimer

Okay, thats very helpful. Thank you. And then, on the next question about the growth trajectory in your continuing education, if you view as a large results this quarter and I know that transitions away and December is a seasonally high quarter for continuing education. So, going forward in the coming quarters, how do you expect the only growth trend to be?

Ping Wei

Thats okay. First of all, our continuous education in accounting is actually a huge market. Right now it stands anywhere between 13 million to 15 million people a year. And its repetitive business every year, with an over 500,000 of enrollment in this quarter alone were still taking only less then our 5% of the total market and they remind we are the largest online or offline accounting education provider in China.

And we have the best brand name in the industry and we are well recognized, well respected by students accountants and the initial finance to local officer alike. So, that paves a great platform for us to grow that business. Now, because we only have like really just three four years of offering history each year basically you know, with an 50% to 100% kind of enrollment growth rate, you know, if history has indication, then lets say going forward, we still grow very fast. But this is relatively new so I dont know how fast well grow but conservatively at least like 30% better going forward.

We should be able to reach a market penetration level that will be similar to our test-prep or even better than our test-prep market penetration.

Ella Ji – Oppenheimer

Great. And lastly, could you also talk about the progress at UTI and also whats your growth trend for UTI business in this full year?

Ping Wei

First quarter revenue for UTI grow more than 100% as compared to the same period last year. But more pronounce is actually cash collection for UTI in the quarter, its actually even higher than the revenue number we recognized in the quarter. This is yet another first in our UTI operation history. As then, our – as some of you may know I remember, in the past the biggest challenge was UTI was correcting from the government on the training we delivered. So, from collecting and recognizing to highly advanced payment from government this is the long way we have come.

Going forward, we should expect very healthy revenue growth from UTI probably doubling the revenue level of last year and even better and also a healthy level of cash collection. Some of you may ask whats the, you know, where your confidence come from. You know, I look at my sort of book and our sort of trainings delivered, in prior years. In fact, we adopt a very conservative revenue policy for UTI that is we actually only recognize revenue one after we completed training to after we got confirmation from the government that we have met the funding requirements.

And thirdly we either got a confirmation from the government officially saying we have met the funding requirements and theyll be paying us soon or we actually have collected cash. So, with that kind of revenue part of the I actually have already on my book unrecognized revenues both well over US$1 million, hope that answers your question.

Ella Ji – Oppenheimer

Yeah, sure, thats very helpful. Thats all my questions. Thank you and congratulations again.

Ping Wei

Thank you Ella.

Operator

Your next question comes from the line of Philip Ehrmann of Jupiter.

Philip Ehrmann – Jupiter

Hello, good evening. Thank you very much for a very clear presentation and once again, congratulations on what a good results.

Ping Wei

Thank you Philip.

Philip Ehrmann – Jupiter

And the hard work. My question is somewhat technical and goes back over the last two months or so. And it is really to the chairman and the unwinding of the bottles men position in the stock. I wonder whether he has any comments to make about the transaction he announced whereby he has basically got an option to repurchase their stake some years in the future. Quite a high premium to the current price and what his thoughts and thinking behind it is? Thank you.

Zhengdong Zhu

(Interpreted). The short answer is my confidence is on the companys operation and the companys future. As a consideration as and the shareholders who invested in the company had a relatively high tides a few years back, I need to be considerate to their – so theyre sort of a need for a reasonable return on their investment.

I feel like its my responsibility as – and our responsibility as an education company to be responsible to our shareholders and responsible our shareholders and being able to get a return on their investment.

Philip Ehrmann – Jupiter

Right, well, thank you, thank you very much and obviously quite a lot of hard work ahead of you to achieve everything. But as a shareholder Im delighted to hear it.

Ping Wei

Thank you, Philip.

Philip Ehrmann – Jupiter

Thanks.

Operator

(Operator Instructions). Your next question comes from Jun Hu of Credit.

Jun Hu – Credit

Ive got a question about mobile channels. As is indicated in the record, it shows that the financial is good because of our new mobile platform. But I know that in time, looking video, watching video through the mobile is not very cheap. So, I dont quite understand why so much, consumers theyll choose this kind of platform. So, could you please indicate how many new enrollments in last quarter are coming from the mobile channels?

Zhengdong Zhu

(Foreign language).

Jun Hu – Credit

Okay, thank you very much. Hope we can see a bright future of the mobile video with education content. And if it is available I hope that in the future if more and more people – more and more students choose to use the mobile platform, maybe the company can release the enrollment number of this content. Thank you.

Ping Wei

Thank you Jun Hu. Let me briefly translate what Zhengdong mentioned. Basically as Zhengdong said is that one is that, back in 2000 when internet was also very slow and very early stage, weve already launched online learning. And so, you know, its not a new challenge to us.

And secondly, you know, we have a very good mobile technology support, one is, which in what two things, one is basically compressed and compressed to data content and data download. And secondly is we enable the offline download technology whereby students actually review most of the download in Wi-Fi environment and they can watch the videos without 3G data usage etcetera. And thirdly, finally, its we also believe that within the advancement of mobile technology and more popular use of smartphones in the future, the mobile, our mobile learning will bring in more student enrollment and pay the enrollment.

And finally bit of your question Jun, right now our mobile courses are not sold as a separate course yet. Our students who register online and become our online students will get mobile learning access. So, right now mobile learning is really done sort of an additional option for our online paying students. Going forward, when we have separate and independent mobile registers, paid registers we will disclose the information. Thank you very much.

Jun Hu – Credit

Okay, thank you.

Operator

(Operator Instructions). Your next question is a follow up from Janice Chen of Piper Jaffray.

Janice Chen – Piper Jaffray

Hi sorry, I have four last questions. And I remember that you mentioned in the last quarter you allow some third party contents can be offered on your platform. Would you like to provide latest update on this front? Thanks very much.

Ping Wei

Yeah, actually you know, the third party contents we have license into date includes the AICT content from record CPA review which is part of the rights. And that project is growing very well we should expect US$1 million or more of contribution in revenue from this new project. Now, we also introduced a few third party inbuilt language learning products. And one is the (inaudible) and generating some revenue. And second one is a product from Illusion, we actually (inaudible) product. We are actually bringing that product and then services offering online in the next few days.

Now finally, EduComp smartcard content is also licensing last year. And right now its an online and we have started to offer it to retail students, in addition to offering to regular schools. And were seeing a healthy level of interest and were looking at expanding the offering and hopefully well generate meaningful revenue from that business as well.

Janice Chen – Piper Jaffray

Thats very helpful, thanks very much. Congratulations on the good results again.

Ping Wei

Thank you Janice.

Operator

(Operator Instructions). And there are no questions at this time. I would like to turn the call back over to management for closing remarks.

Ping Wei

Okay, thank you all again for joining us today. And we look forward to updating you on our progress in the near future, thank you.

Operator

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Source: China Distance Education CEO Discusses Q1 2012 Results - Earnings Call Transcript
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