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

| About: China Distance (DL)

China Distance Education Holdings Ltd. (NYSE: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

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.

Let me now walk you through our verticals in more detail, starting with our accounting vertical on slide 8. Online APQE enrollment increased 6.7% year-over-year while CPA enrollment decreased 10.8% year-over-year, with both segment impacted by the delayed timing of the exams. Despite these delays, APQE for – sorry ASP for online APQE and the CPA Test Preparation courses remained strong, with ASP having increased 17.4% and 27.9% respectively year-over-year.

Other Online Accounting Test Preparation courses saw enrollment growth of 12% and ASP increases of 78.5% year-over-year, an indicator that our accounting vertical continues to grow at a healthy pace. Revenue from Accounting Continuing Education courses decreased in the quarter, due to a delay in the timing of students completing the courses which affected the timing of revenue recognition. However, enrollment increased by a solid 25.9% year-over-year.

Let’s turn to slide nine about Other Non-Accounting course offerings. We maintained strong momentum in our Online Healthcare vertical. As our result-oriented, high-quality courses continue to help us build a strong brand presence in this growing market segment. In the third quarter, Online Healthcare enrollments increased by 22.6% year-over-year, while ASP grew by 9.2% year-over-year.

Performance in Online Construction Engineering courses was more mixed with healthy revenue growth in the Test Preparation segment but a decrease in the Continuous Education segment. Online Construction Engineering Test Preparation course enrollments grew by 84.1% while ASP increased slightly by 0.2%. However, Online Construction Engineering Continuous Education enrollments decreased by 41% year-over-year. We believe this decrease is mainly a seasonality issue and we expect enrollments to improve in the coming quarter.

Moving to our Self-Taught Education segment, we’re pleased to see the growth trend from the previous quarter continuing as enrollment increased 29.7% year-over-year and ASP increased by 10.9%. Finally, in the third quarter, we generated US$1 million of revenue from Yucai, our business start-up training subsidiary representing 230.1% increase from the same period last year.

Let’s complete 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. As Mr. Zhu discussed, the growing diversity of our course and service offering and development of additional revenue streams helped us to deliver a healthy financial performance, even though we faced some challenges due to the delay examination timing. In fact, this quarter our course enrollment revenue increased another 25%, yet another quarter of strong course enrollment growth.

Year-to-date, we have grown course enrollments at about 35% year-over-year. Our ability to deliver profitable growth in the third quarter proves the merits of our strategy and the fundamental strengths of our business model. As Zhu mentioned earlier, overall our financial performance remains healthy this quarter, but a few factors contributed to the decrease of our non-GAAP net income from continuous operations, from US$2.9 million in the fiscal 2011 to US$1.2 million in this quarter. We have highlighted these items on slide 11 through 13 of our presentation.

First, the unexpected five months delay in the APQE exam directly resulted in the delayed recognition of over US$1.5 million of cash collected from APQE test preparation courses, prior to the change of exam time to the fourth quarter of fiscal 2012 and first half of fiscal 2013. Secondly – sorry, still first, on APQE, usually some of our students starting to enroll for next year’s test preparation courses right after they take the current year’s exams. And a good number of students enrolled for our courses after they obtain the current year’s test results, either they repeat failed subjects or enroll for new subjects.

We expect that a significant portion of such post-exam enrollments will be delayed into fiscal 2013, due to the delayed exam this year. As such, enrollment for APQE is expected to decrease significantly in the fiscal fourth quarter as compared to the same period last year, which saw APQE course enrollments of US$2.4 million.

Secondly, CPA exams are to be held on October 13th and 14th, only a one month delay from the usual timeline. However, as the exam policy which outlines the CPA exam timeline, eligibility policies, registration time et cetera only came out in the beginning of June, almost two months later than last year, a signification portion of CPA enrollment for this quarter came in toward the last three weeks of June and a good portion in July. This resulted in a delay of a certain amount of revenue recognition from this quarter to the fourth quarter of this year and the fiscal – and the first quarter of 2013.

Thirdly, in this quarter we finalized our new revenue sharing arrangements with our online distributors and signed a new contract with them. Initially, we aimed to change the collaboration model to make it more economical operationally as well as enabling us to record GAAP revenue on a net basis, the same manner as our offline distribution model. However, based on our review of U.S. GAAP literature, EITF 99-19, the only situation where we could record revenue on net basis would be if we relinquish control over the price which our online distributors sell our courses to our students.

We’re not willing to go this far. As to do so could cannibalize our direct enrollment revenues, which is our most lucrative revenue source. As such, under this new revenue sharing arrangement, revenue generated from online distributors is recognized at the full amount charged to students while the distributors’ portion of revenue was recorded as selling expense. In this quarter, about US$1.6 million of revenue sharing with these distributors were recorded as selling expense.

However, of this US$1.6 million, only US$0.8 were topped-up into this quarter’s GAAP revenue as a significant portion are delayed to the fourth quarter of this year, primarily due to the delayed timing of APQE and CPA exams. We expect most of this mismatch to be reversed in the fourth quarter, resulting in increased profitability in the fourth quarter.

As such, all in all, our revenue growth ex the delays would have increased over 20% as compared to last year. Furthermore, our bottom line was significantly affected by such delayed recognitions both due to the revenue delays and from the fact that we recognized the full distributor commission while a good portion of the related revenue would not be recognized until later quarters.

Let me now recap our key financial metrics for the third quarter on slide 14. Total net revenues from continuing operations for the third quarter of fiscal 2012 were US$13.1 million, representing a year-over-year increase of 8.1%.

Online education services net revenues for the third quarter was US$9.3 million, an increase of 4.6% year-over-year. As Mr. Zhu noted already, the increase was a result of increased revenue in Other Accounting Test Preparation courses and Healthcare courses partially offset by decreased revenue from APQE and CPA courses due to the delayed timing of examinations. In addition, Accounting Continuing Education courses revenues decreased as revenue recognition for such courses was impacted by the delayed timing of course completion by students.

Net revenues from books and reference materials for the third quarter of fiscal 2012 were US$1.1 million, an increase of 10.1% year-over-year, after reallocating the delivery of online course services deliverable of US$0.5 million, which are included in online education services net revenues.

Net revenues from others increased by 21.2% year-over-year to US$2.7 million for the third quarter of fiscal 2012 from US$2.2 million in the same period of last year. The increase was a result of increased revenue in platform production services, offline business start-up training courses provided by Zhengbao Yucai and other offline supplementary training courses. Such increase was partially offset by decreased revenue from magazine content production services and courseware production services.

Cost of sales from continuing operations for the third quarter of fiscal 2012 was US$6.32 million, representing a 25.5% increase over the third quarter of fiscal 2011. Non-GAAP cost of sales from continuing operations was US$6.31 million, an increase of 35% over the same period last year. The increase in cost of sales was due to increased server management fee, salaries and related expenses, lecturer fees, cost of books and reference materials due to the increasing sales volume, and expenses incurred by our growing business start-up training services.

Gross profit from continuing operations for the third quarter was US$6.81 million, representing a 4.2% decrease from US$7.1 million last year. Non-GAAP gross profit from continuing operations was US$6.82 million, a decrease of 8.7% year-over-year. Gross profit margin from continuing operations for the third quarter of fiscal 2012 was 51.9%, compared to 58.5% in the third quarter of fiscal 2011.

Non-GAAP gross profit margin from continuing operations was 52%, compared to 61.5% in the same period last year. The decrease in gross profit margin was primarily due to decreased revenue from APQE and CPA exams, resulted from the delayed timing of such examinations.

Total operating expenses from continuing operations for the third quarter of fiscal 2012 was US$5.8 million, a decrease of 11.7% year-over-year. Non- GAAP operating expenses from continuing operations were US$5.7 million, representing a year-over-year increase of 18.4%. Selling expenses from continuing operations amounted to US$3.5 million for the third quarter of fiscal 2012, representing an increase of 21.9% year-over-year.

Non-GAAP selling expenses from continuing operations were US$3.5 million, a 27.4% increase from period year, as a result of increased commissions to our online distributors. Such increase was actually partially offset by a significant decrease in the advertising and promotional activities due to the delayed timing of the APQE and CPA exams.

General and administrative expenses from continuing operations were US$2.3 million in the third quarter, representing an 11.1% decrease year-over-year. Non-GAAP G&A expense from continuing operations were US$2.2 million, an increase of 6.4% year-over-year, primarily due to increased salaries and related expenses and bad debt provision of accounts receivable aging over one year. Such increase was partially offset by decreased professional fees.

Income tax expenses for the third quarter was US$0.3 million, unchanged from the same period last year. Net Income from continuing operations was US$1.11 million for the third quarter of fiscal 2012, compared to net income from continuing operations of US$1.1 million in the same period last year. Non-GAAP net income from continuing operations for the third quarter of 2012 was US$1.2 million, as compared to US$2.9 million in the same period last year.

Net income from discontinued operations was US$0.2 million for the third quarter of fiscal 2012, as we completed the disposition of our Gaokao retake business. This is compared to a net loss from discontinued operations of US$0.2 million in the same period last year. Net income was US$1.3 million for the third quarter of fiscal 2012, compared to net income of US$0.9 million in the same period last year. Non-GAAP net income for the third quarter was US$1.4 million, as compared to non-GAAP net income of US$2.7 million in the same period last year.

Turning to our cash flow on slide 15. Net operating cash inflow for the third quarter of fiscal 2012 was US$2.2 million, compared to a net operating cash inflow of US$0.8 million in the same period last year. The increase was primarily as a result of increased net income generated in the quarter, increased deferred revenue and refundable fees as more APQE and CPA exam revenue were deferred to later quarters, increases in accrued expenses balances and decreases in prepaid expense balance. Such increase was partially offset by the increase in accounts receivable and deferred cost balances and the decrease in tax payables.

To-date, we have generated about US$11.9 million of net operating cash flow, far exceeded our GAAP net income as we continued to generate very strong cash flow from operations and as we prudently have managed our working capital, reducing the number of days that are accounts receivable outstanding. Free cash flow generated to-date has reached US$10.4 million, a good indicator of our ability to generate cash for our shareholders.

Turning to our balance sheet on slide 16. Cash and cash equivalents, term deposits and restricted cash as of June 30, 2012 amounted to US$55.6 million as compared to US$54.5 million as of March 31, 2012 primarily due to US$2.2 million of cash flow generated from operating activities in the quarter, partially offset by US$0.9 million of capital expenditures, US$0.3 million of remaining dividend payments and the repurchase of US$0.2 million worth of our shares as part of our share repurchase program, disposition of our Gaokao retake business, Xinlixiang also bought in about US$0.2 million cash in the quarter.

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

Zhengdong Zhu

[Interpreted] Thank you, Ping. Our results for the quarter, highlights the underlying strength of our operational platform and the merits of our growth strategy. The enhancements we have made to our online and mobile learning technologies and our content delivery platform including our high definition courseware and interacting mobile services are helping us to strengthen our brand power and drive ASP.

The market for high-quality result-oriented educational services remains strong. As the continued diversification of our educational offerings, which have created multiple revenue streams, has allowed us to weather the impact from unforeseen events such as the delayed timing of the APQE and the CPA exams. As a result, we entered the fourth quarter and look ahead to fiscal 2013 with the high degree of confidence in our ability to deliver sustainable revenue and profit growth.

Moving to our guidance, for the fourth quarter, we expect our revenue from continuing operations to be in the range of US$15.7 million to US$16.2 million, as compared to net revenues from continuing operations of US$13.1 million in the fourth quarter of fiscal 2011, representing a 20% to 24% year-over-year increase.

Thank you for your time. We’d now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) We’ll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mark Marostica with Piper Jaffray.

Mark Marostica – Piper Jaffray

Yes, thank you. My first question is related to the delay in APQE and CPA. You talked about revenue shifting to the fourth quarter and to fiscal ‘13, can you give us an idea of how much, Ping, revenue would go to fourth quarter and how much would it be allocated in the first half of fiscal ‘13 of the amount that’s delayed?

Ping Wei

Yes, Mark. Actually the Q4 revenue already reflect – our guidance already reflects all the shifting, so the current guide of 20% to 24% revenue growth for fourth quarter has already factored in the delays. Now so I did not actually separate the amount that will be recognized or be further deferred from Q4 – or into Q4.

In terms of deferring to fiscal 2013, APQE is based on end of June, course enrollment number which is cash already received by the Company. APQE deferral will be amounting to close to US$1.9 million. And the CPA based on the current expectation delay or will be around above US$500,000. So that’s the deferral into fiscal year 2013.

In terms costs and expenses, we actually have fully conservative cost and expense policy. Most of our cost and expenses are poured [ph] into P&L as they incurred. So this – between US$2.3 million and US$2.4 million of deferral into fiscal year 2013 actually does not have any matching costs deferral. Therefore, they are – the deferrals of the revenue more or less equal to the deferred net income before tax amount into fiscal year 2013 as well. Does that answer your question, Mark?

Mark Marostica – Piper Jaffray

Yes. And then would presumably that US$2.3 million to US$2.4 million hit the first quarter of 2013?

Ping Wei

Actually not necessarily, because it depends on the timing of APQE result announcements. Usually when APQE exam is held in May, results usually come out towards end of July. And within a month, we will be able to recognize all the elite class revenues and some of our premium class revenues. So that will be fueled in the fourth quarter. Now because the exams now will be held in October, we don’t know when the exam results will come out.

So in short, for the premium and elite class revenue component, which is actually totaling to about, let me see – to about actually over US$1 million – around US$1 million. The timing of that recognition will depend on the timing of the results of the exams. It could be Q1, it could be Q2. Most likely this year it will be Q2 actually of fiscal year 2013. We’ll let you know because it is really something I don’t know at this time.

Mark Marostica – Piper Jaffray

Okay. Presumably in the non-elite premium deferral would be Q1 then?

Ping Wei

Well no, if the results come out – let’s say if the results come out end of November or even first half of December, we will be able to recognize them in Q1. If it comes out towards end of December, then we’ll have to recognize in Q2.

Mark Marostica – Piper Jaffray

Okay, I understand. Thank you for the explanation. And then also a question regarding the move to an electronic CPA exam format, I am curious whether or not that has any impact at all on the test prep that you do for the CPA exam or whether it’s a non-event from your standpoint?

Ping Wei

Actually there is a positive side to it and there is a negative side to it. I’ll talk about the positive side first. The positive side is moving the CPA to online test, actually sort of on a highlighted this technological strength we have in the online education space, because as Zhu discussed earlier, as soon as the government announced that, they will be doing the CPA exam online via computer. We rolled out online simulation system whereby students can sort of take these simulation tests based on a formal almost identical to the actual exam preparing our students better for the exams.

And we are the only Company that has the kind of expertise, technological know-how and the kind of in-house sort of capability to roll it out very quickly as well as with high quality. And that actually further differentiates us from competitors and other players on the market, so that’s a positive side.

Now negative side, as every time there are major changes to major exams, people to tend to hold back and pause for a bit before they attend the exam. This will most likely be the case for this year’s overall CPA exam takers. We thought – right now, we are seeing year-to-date or cumulative to-date our CPA enrollment has actually increased as compared to last year. However, we think that on the market in general the CPA – number of test takers for CPA exam this year should be lower than last year, because of all those major changes.

One is computerized exam and second is actually the delayed timing. All of those affected the number of test takers this year.

Mark Marostica – Piper Jaffray

Okay, good. That’s very helpful. Thanks for that explanation. Also in the prepared remarks it was mentioned that the ASP increase for the Accounting Continuous Education or the other category was up quite a lot, I thought it was 70% plus. It just struck me as a pretty large jump in the ASP. Can you talk about what drove that and what you think ASPs for that category will be going forward?

Ping Wei

That was – I think it’s actually kind of abnormal to say because in other accounting prep courses, there are quite a few things. One of which is actually US CPA exam. The ASP for US CPA test prep course is about RMB 30,000 per enrollment for four subjects. So that enrollment sort of, really sort of affected the ASP for Other Accounting Test Prep courses. Well if our US CPA courses continue to grow very fast, we may continue to see ASP trending out very fast, but that’s not a trend that’s firmly set yet.

Mark Marostica – Piper Jaffray

Okay, so it’s a more mix than anything that drove that?

Ping Wei

Yes, exactly. Yes.

Mark Marostica – Piper Jaffray

Okay. And then last question for me is, we’re closing in on fiscal ‘12 end soon, and all attention will turn to fiscal ‘13. Can you give us your early indications of fiscal ‘13 in terms of top line growth and margins?

Ping Wei

Sure. In terms of fiscal ‘13, to talk about fiscal 2013, we have to first normalize fiscal 2012. With our guided revenue of US$15.7 million to US$16.2 million for fourth quarter that actually bring our 2012 GAAP revenue to about US$51 million to US$51 point – between US$51 million and US$51.5 million which represent about 25% of revenue growth as compared to the same period last year.

Now that number is already taking out the delayed recognition of – I’m sorry, that was about 20%, over 20% of increase from same period last year. Now that’s already taking out the delayed APQE and CPA recognition of about US$2.4 million. So to bring it back, that will normalize our 2012 revenue to about US$52.5 million to US$53 million-ish. And we are very comfortable with in line sort of profit growth before we consider – before the APQE and CPA revenues are brought in which means that 20% of growth from last year, it’s about US$6.5 million of bottom line growth.

And then because the delayed APQE and CPA revenue did not have any matching cost or expenses, this year’s actually bottom line should be whatever 20% growth number which is actually between US$7.5 million and US$8 million for this year. The real normalized net income should be around US$10 million because we should add that one back. So that’s actually our sort of actual operational performance for fiscal 2012.

Now with that normalized top and bottom line number for fiscal year 2012, we are comfortable given the technological advancement we’ve made, given the consistent pursuit of quality and results for our students – in our course and for our students, we are very comfortable that next year we’ll grow another 20% or better, both top and bottom line. I hope that answers your question, Mark.

Mark Marostica – Piper Jaffray

Very clear. Thank you so much and I’ll turn it over.

Ping Wei

And finally [ph] a very good question.

Operator

(Operator Instructions) Your next question comes from the line of Ella Ji with Oppenheimer.

Fiona [ph] – Oppenheimer

Hi, thank you for taking my questions. It’s Fiona calling on behalf of Ella.

Ping Wei

He Fiona.

Fiona – Oppenheimer

So my first question is on your commissions to your online distributors. So I am just wondering under this new contract, do you expect any impact on margins in fiscal year ‘13 overall, or is it just change of timing? Thanks.

Ping Wei

Well this year’s commission – actually the online distributors have started to contribute fairly significantly to our revenue and to our selling expense ever since 2010. This year really what we’ve tried to do is make new arrangements with them, so that it’s actually more tax beneficial and also more economically beneficial to us.

We were hoping that we could book net revenue, therefore we would not need to book commission expenses, but even when we book gross revenues and book all the commission expenses as selling expense, usually it won’t post a issue because they tend to even out basically meaning, if we record a commission expense of let’s say a US$1 million in a quarter, we tend to record around US$2 million of online distributor generated revenues in that quarter as well, give or take a few hundred thousand which is not major.

Now this year is different in timing allocation. The mismatch between expenses and top line, that’s why this quarter, we particular (inaudible) because over US$800,000 of revenues were has to be recorded in later quarters because of the revenue timing. Now expenses are fully recognized in this current quarter. That’s why this quarter is particularly bad, but the short answer to your question going forward into fiscal year 2013 is, no, we don’t expect it to negatively affect our margins to the extent that we cannot leverage it.

Bear in mind [ph] that one very important factor to our business model, that is our model is highly leveraged, highly scalable. As you can see from this year, if we normalize this year’s financials, you can see our bottom line has grown much faster than top line. Okay?

Fiona – Oppenheimer

Okay. Okay, thank you.

Ping Wei

Next year, we’re comfortable actually with, in line top and bottom, but what I think, we’ll deliver better than in line top and bottom line. Sort of if top line grows 20%, I’m fairly confident that we’ll do better than 20% bottom line but we’ll guide conservatively.

Fiona – Oppenheimer

Okay, it’s helpful. So my next question is on your mobile platform. So I was wondering do you expect any incremental revenues directly from it or is it just an enhancement of your platform? Thanks.

Ping Wei

Actually, we are not charging students separately on the mobile learning per se on itself. When we charge for, the two things we do ask students to pay for, one is online simulation system that students actually need to pay separate to get. One is actually a mobile learning magazine which is separately put – a subscription service. But the mobile learning platform itself is part of our online offering and it’s given to our students for free.

Fiona – Oppenheimer

Okay, thank you. So the charge...

Ping Wei

Make it more – yes.

Fiona – Oppenheimer

I am sorry.

Ping Wei

Make it more sort of easier for students to learn anywhere they are.

Fiona – Oppenheimer

Okay. So the charge part is relatively small, right?

Ping Wei

Relatively small, yes.

Fiona – Oppenheimer

Okay, thanks. So lastly…

Ping Wei

However the key thing is Fiona, the important thing is with that kind of online learning and the mobile learning platform and all those technologies goes into it, we basically sort of move farther and farther away from other players in the market, not a lot of players have technological expertise even close to us. So this kind of leading – this kind of a comprehensive learning package sets a stage very well for us to grow revenues at a faster pace in market.

Fiona – Oppenheimer

Yes, understood. So my last question is, I was wondering have you seeing any impact from the macro environment, for example on your financial securities? Thanks.

Ping Wei

Well financial security banks business is actually a very small portion of our business, very, very small in fact. Now there are quite a bit of uncertainties in macroeconomic environments in China based on what I see around me, but with CDEL, because we are actually growing very strong this year as I mentioned a cumulative course enrollment growth as actually 35% year-to-date. So because we’re growing so fast, we didn’t really feel much of the impact on macro environment, but if we sort of have to look at the sort of the macro level, at micro lever to our operations, my suspicion is it does have that some impact but to-date it’s negligible.

And there is also very important factoring that as well as, our course tends to be relatively sort of cheap, compared to companies like a few other offline players in the education space. Our ASPs do it like $30, $40 US audits, highly affordable.

Fiona – Oppenheimer

Okay, great. So that’s all my questions. Thank you.

Operator

(Operator Instructions).

Ping Wei

Okay. It seems like there is no one…

Operator

Yes, at this time I am showing there are – that is correct.

Ping Wei

Okay. Go ahead. Operator, go ahead.

Operator

I apologize. There are no further questions in queue. I would like to turn the conference back over to management for closing remarks.

Ping Wei

Yes, on behalf of the management team, we like to thank you again for joining us today, and we look forward to updating you on our progress in the near future. Thank you.

Operator

This does conclude today’s conference call. Thank you for your participating. You may now disconnect. Presenters please hold.

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