ChinaEdu Reports First Quarter 2011 Results
First Quarter Net Revenue Grows to $14 Million, In Line with Guidance;
Net Income Attributable to ChinaEdu per Diluted ADS Reaches $0.031
o ChinaEdu Corporation
Symbol Price Change
CEDU 6.37 0.00
Press Release Source: ChinaEdu Corporation On Wednesday June 1, 2011, 5:30 pm EDT
BEIJING, June 1, 2011 /PRNewswire-Asia/ -- ChinaEdu Corporation (NASDAQ:CEDU - News) ("ChinaEdu" or the "Company"), a leading online education services provider in China, today announced its unaudited financial results for the first quarter ended March 31, 2011.(1)
First Quarter 2011 Highlights
; First quarter 2011 total net revenue grew 4.7 percent
year-over-year to $14.0 million, in line with Company guidance.
; First quarter 2011 net revenue from online degree programs
increased 4.6 percent year-over-year to $10.9 million.
; Operating margin in the first quarter of 2011 was 11.9 percent.
; Net income attributable to ChinaEdu per diluted ADS(2) in the first
quarter of 2011 was $0.031.
; Adjusted net income attributable to ChinaEdu per diluted ADS(3) was
$0.054 in the first quarter of 2011.
; The number of revenue students(4) in online degree programs during
the 2010 fall semester increased 10 percent year-over-year from
approximately 140,000 to approximately 154,000.(5)
Julia Huang, chairman and chief executive officer of ChinaEdu commented, "Our financial results for the first quarter are in line with our expectations and we are pleased with the progress we've made executing our growth strategy. During the first quarter, recognizing a growing market demand for more consumer-focused products and services, we launched a series of marketing campaigns that will expand throughout 2011 and are focused on enhancing brand awareness among students, institutions and parents. These marketing efforts have already started to impact engagement with our student-centric learning products in the first quarter. Traffic of users and teachers to our new web-based interactive tutoring question and answer service grew dramatically, reaching 17 million accumulated page views in the first quarter. In our off-line businesses in the first quarter, management focused on building and training targeted marketing and operational teams to complete the groundwork for our newly launched Elite and International programs. Efforts have begun to pay off as the market reaction to these programs has been very positive. With our degree programs contributing consistent revenue, we are well positioned to leverage our educational expertise and well-known brand name to access the tremendous opportunities presented by today's education market."
Financial Results for the First Quarter Ended March 31, 2011 Net Revenue
Total net revenue for the first quarter of 2011 was $14.0 million, representing a 4.7 percent increase from $13.3 million in the corresponding period in 2010. Net revenue from online degree programs for
the first quarter of 2011 was $10.9 million, a 4.6 percent increase from $10.5 million for the corresponding period in 2010. The increase in net revenue was primarily due to the continued expansion of our learning center network. It is also due to organic growth in revenue students enrolled in our online degree programs. Enrollment for 2010 fall semester online degree programs was approximately 154,000 revenue students, representing an increase of 10 percent as compared to approximately 140,000 revenue students in the 2009 fall semester.
By the end of the first quarter of 2011, the Company had 96 operational learning centers of which 53 were proprietary centers(6) and 43 were contracted centers(7). This compares to 62 operational learning centers as of the end of the first quarter of 2010, of which 24 were proprietary and 38 were contracted. Our learning centers network served a total of 21 university online degree programs, as of the end of the first quarter of 2011.
Net revenue from our non-degree programs (online tutoring programs, private primary and secondary schools and international curriculum programs) in the first quarter of 2011 was $3.0 million, representing a 4.9 percent increase from $2.9 million in the corresponding period in 2010. The increase in net revenue from our non-degree programs was mainly attributable to a 21.1 percent increase in net revenue contributed from increased student enrollment at our private school in Anqing Online tutoring programs continued to expand in terms of program offerings in the first quarter of 2011. While not yet contributing significant revenue, our two new web-based products, "Weekly Practice" and "Key Knowledge Points" have gained traction, attracting a larger number of users to their respective websites thus far in 2011.
Cost of Revenue
Total cost of revenue for the first quarter of 2011 was $6.1 million, representing an increase of 26.8 percent, compared to $4.8 million in the corresponding period of 2010. Cost of revenue for online degree programs for the first quarter of 2011 was $4.1 million, representing an increase of 26.9 percent compared to $3.2 million in the corresponding period of 2010. The increase in cost of revenue for online degree programs was primarily the result of continued expansion of the Company's learning centers network as well as continued efforts developing certain training programs hosted by our collaborative alliance partners.
Cost of revenue for non-degree programs in the first quarter of 2011 was $2.0 million, representing an increase of 26.6 percent from $1.6 million
in the corresponding period in 2010. This increase was primarily the result of an increase in costs associated with the Anqing School as well as additional headcount required to develop interactive and personalized learning products for online tutoring programs. The rise in cost was also due to an increase in teaching costs related to the expansion of our international and elite programs to meet market demand for study-abroad programs.
Gross Profit and Gross Margin
Gross profit for the first quarter of 2011 was $7.9 million, compared to $8.5 million in the corresponding period of 2010. Total gross margin in the first quarter of 2011 decreased to 56.5 percent, compared to 64.1 percent for the corresponding period in 2010. Gross margin for online degree programs decreased to 62.7 percent for the first quarter of 2011, compared to 69.3 percent in the corresponding period of 2010, primarily due to the rapid expansion of our learning centers network and increased costs associated with developing training programs.
Gross margin for the online tutoring programs decreased to 64.4 percent for the first quarter of 2011, as compared to 78.4 percent in the corresponding period of 2010, largely due to increased staff costs associated with expanding course offerings and newly added off-line personalized tutoring services. The gross margin for private primary and secondary schools decreased to 25.6 percent, as compared to 27.5 percent in the corresponding period in 2010. The decrease was primarily attributable to increased depreciation as well as increased teaching staff costs incurred at our Anqing school.
Total operating expenses were $6.2 million in the first quarter of 2011, representing an 11.8 percent increase from $5.6 million for the corresponding period in 2010. As a percentage of net revenue, total operating expenses increased to 44.6 percent, compared with 41.7 percent in the corresponding period in 2010. The increase in total operating expenses resulted from the following:
; General and administrative expenses for the first quarter of 2011
were $3.3 million, representing a 9.9 percent increase from $3.0
million for the corresponding period in 2010. As a percentage of
net revenue, general and administrative expenses increased to 24.0
percent, compared with 22.8 percent in the same period last year.
The increase was mainly due to rising costs for leased facilities
to accommodate a growing number of employees.
; Selling and marketing expenses were $1.4 million in the first
quarter of 2011, representing a 17.2 percent increase from $1.2
million for the corresponding period in 2010. As a percentage of
net revenue, selling and marketing expenses increased to 9.9
percent, rising from 8.9 percent in the same period last year. The
increase in selling and marketing expenses were mainly related to
growth in sales force headcount for online tutoring programs in
Beijing and expenses related to national promotional and marketing
; Research and development expenses for the first quarter of 2011 were
$1.5 million, representing an increase of 11.3 percent from $1.3
million in the corresponding period in 2010. As a percentage of net
revenue, research and development expenses increased to 10.7
percent, rising slightly from 10.0 percent in the same period of
last year. The increase was mainly attributable to an increase in
research and development headcount in connection with upgrading our
learning management systems and enhancing courseware development,
particularly for interactive product development.
; Share-based compensation for the first quarter of 2011, which is
allocated to the related cost and operating expense line items,
decreased 27.3 percent to $0.2 million, compared to $0.3 million
in the corresponding period in 2010.
Income from Operations
Income from operations for the first quarter of 2011 was $1.7 million, a decrease of 44.2 percent as compared to $3.0 million in the corresponding period of 2010. Operating margin decreased to 11.9 percent for the first quarter of 2011, as compared to 22.3 percent in the corresponding period of 2010.
Adjusted income from operations, a non-GAAP measure defined as income from operations excluding share-based compensation, and amortization of intangible assets and land use rights, was $2.1 million for the first quarter of 2011, representing a decrease of 40.5 percent as compared to $3.5 million in the corresponding period of 2010.
Adjusted operating margin, a non-GAAP measure defined as the ratio of adjusted operating income from operations (non-GAAP) over net revenue, for the first quarter of 2011 decreased to 14.9 percent, as compared to 26.2 percent for the corresponding period of 2010.
Income Tax Expense
In the first quarter of 2011, income tax expense was $0.4 million and the effective income tax rate was 19 percent. The lower effective income tax rate was primarily due to the fact that in December 2010, one of our collaborative alliance partners received notice from the tax authority that it had qualified as a "new and high technology enterprise" and was therefore entitled to a preferential tax rate of 15 percent for 2010. This is reflected as a change in the enacted tax rate in the first quarter of 2011 and resulted in a reduction of income tax expense of approximately $0.7 million for the first quarter.
Net Income attributable to ChinaEdu
Net income attributable to ChinaEdu, which is net income, excluding net income attributable to non-controlling interests, was $0.5 million in the first quarter of 2011, representing a decrease of 51.7 percent from $1.1 million in the corresponding period of 2010.
Net income attributable to ChinaEdu per basic and diluted ADS was $0.034 and $0.031, respectively, for the first quarter of 2011, as compared to $0.069 and $0.064, respectively, for the corresponding period in 2010. Adjusted net income attributable to ChinaEdu (non-GAAP)(8) was $0.9 million in the first quarter of 2011 compared to $1.6 million in the corresponding period of 2010. Adjusted net margin, a non-GAAP measure defined as the ratio of adjusted net income attributable to ChinaEdu (non-GAAP) over net revenue, was 6.7 percent in the first quarter of 2011, as compared to 11.9 percent in the corresponding period of 2010. Adjusted net income attributable to ChinaEdu per basic and diluted ADS (non-GAAP) was $0.058 and $0.054, respectively, for the first quarter of 2011, as compared to $0.099 and $0.092, respectively, in the corresponding period of 2010.
At the end of the first quarter of 2011 current deferred revenue was $6.7 million and non-current deferred revenue was $1.6 million or $8.3 million in aggregate. In general, fall semester tuition is received during the fourth quarter but is recognized both in the fourth quarter of that year as well as in the first quarter of the following year.
Cash and Cash Equivalents and Term Deposits
As of March 31, 2011, the Company reported cash and cash equivalents and term deposits of $51.5 million, as compared to $47.5 million as of December 31, 2010(9).
Amounts Due from Related Parties
Amounts due from related parties, which represents cash owed to the Company by collaborative alliance partners, were $26.6 million as of March 31, 2011 as compared to $37.7 million as of December 31, 2010. Second Quarter 2011 Total Net Revenue Guidance
ChinaEdu expects total net revenue in the second quarter of 2011 to range from RMB100 million to RMB105 million or $15.3 million to $16.0 million. This forecast reflects ChinaEdu's current and preliminary view, which is subject to change.
ChinaEdu's management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on June 2, 2011 (8:00 p.m. Beijing/Hong Kong Time on June 2, 2011).
Dial-in details for the earnings conference call are as follows: U.S. Toll Free Number 1-800-561-2693 International Dial-in Number 1- 617-614-3523 Mainland China Toll Free Number 10-800-130-0399 Hong Kong Dial-in Number 852-3002-1672 Conference ID: 14203725
A live and archived webcast of the conference call will be available on the investor relations page of ChinaEdu's website at
http://ir.chinaedu.net and a replay of the conference call may be accessed by phone at the following numbers until June 25, 2011.
Dial-in numbers for the replay are as follows:
U.S. Toll Free Number 1-888-286-8010 International Dial-in Number 1-617-801-6888 Conference ID: 24296013
Non-GAAP Financial Measures
To supplement the unaudited condensed consolidated financial information presented in accordance with Generally Accepted Accounting Principles in the United States of America ("GAAP"), the Company uses non-GAAP measures of income from operations and net income attributable to ChinaEdu, which are adjusted from results based on GAAP to exclude certain non-cash items of share-based compensation and amortization of intangible assets and land use rights. These non-GAAP financial measures are provided to enhance
investors' overall understanding of the Company's current and past the
financial performance in on-going core operations as well as prospects for the future. These measures should be considered in addition to results prepared and presented in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. Management considers the non-GAAP information as important measures internally and therefore deems it important to provide all of this information to investors.
ChinaEdu Corporation is an educational services provider in China, incorporated as an exempted limited liability company in the Cayman Islands. Established in 1999, the Company's primary business is to provide comprehensive services to the online degree programs of leading Chinese universities. These services include academic program development, technology services, enrollment marketing, student support services and finance operations. The Company's other lines of businesses include the operation of private primary and secondary schools, online interactive tutoring services and providing marketing, support for international curriculum programs and online learning community for adult students. The Company believes it is the largest service provider to online degree programs in China in terms of the number of higher education institutions that are served and the number of student enrollments supported. The Company currently has 17 long-term contracts that generally vary from 10 to 50 years in length. ChinaEdu also performs recruiting services for 21 universities through our nationwide learning center network. Forward-Looking Statement
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and contingencies, many of which are beyond our control which may cause actual results, levels of activity, performance or achievements to differ
materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those described under the heading "Risk Factors" in the Company's Annual Report on Form 20-F for the year ended December 31, 2009, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Unless required by law, the Company undertakes no obligation to (and expressly disclaim any such obligation to) update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
(1) The reporting currency of the Company is RMB, but for the convenience of the reader, the amounts for the three months ended on March 31, 2010 and March 31, 2011 are presented in U.S. dollars. Unless otherwise stated, all
translations from RMB to U.S. dollars were made at the rate of RMB6.5483 to $1.00, the noon buying rate in effect on March 31, 2011 in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation
that the RMB or U.S. dollar amounts referred could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the
financial statements contained in this earnings release. An explanation of the Company's non-GAAP financial
measures is included in the section entitled "Non-GAAP Financial Measures" below, and the related reconciliations to
GAAP financial measures are presented in the accompanying financial statements.
(2) "ADS" is American Depositary Share. Each ADS represents three ordinary shares. (3) "Adjusted net income attributable to ChinaEdu per diluted ADS" is a non-GAAP measure which is computed using
adjusted net income attributable to ChinaEdu over number of ADSs used in net income attributable to ChinaEdu per diluted ADS calculation.
(4) "Revenue students" refers to students of university online degree programs who have paid tuition. The numbers
for the three months ended March 31, 2010 and 2011 are revenue students in fall 2009 and fall 2010, respectively.
(5) In general, the fall semester refers to a period of time that spans the fourth quarter and the first quarter of the
(6) Proprietary centers refer to learning centers owned by the Company and operated under either the Company's own brand name or the brand name of a university pursuant to a licensing arrangement with the university.
(7) Contracted centers refer learning centers owned by third parties who provide facilities and staff assistance to ChinaEdu for the online degree programs.
(8) Adjusted net income attributable to ChinaEdu is a non-GAAP measure, which is adjusted from results based on
GAAP to exclude certain non-cash items of share-based compensation and amortization of intangible assets and land use rights.
(9) Cash, cash equivalents and term deposits primarily consisted of cash, demand deposits with original maturity terms of three months or less, and term deposits with original maturity terms of greater than three months but less than one year.
For investor and media inquiries, please contact: Helen Plummer
Senior Investor Relations Coordinator
Investor Relations Manager
ChinaEdu Corporation Phone: +86-157-1109-6022
Unaudited Condensed Consolidated Balance Sheets
December March March (in thousands, unaudited) 31,2010 31,2011 31,2011
RMB RMB US$ Current assets: Cash and cash equivalents 190,493 173,586 26,509 Term deposits 120,500 163,500 24,968 Short-term investments 32,469 38,440 5,870 Accounts receivable, net 35,091 15,295 2,336 Inventories 358 360 55 Prepaid expenses and other current assets 30,966 31,435 4,800 Amounts due from related parties 246,925 173,867 26,551 Deferred tax assets-current 5,003 2,316 354 Total current assets 661,805 598,799 91,443 Deferred tax assets-non-current 3,470 4,958 757 Rental deposits 936 2,253 344 Land use rights 27,265 27,113 4,140 Property and equipment, net 227,507 232,715 35,538 Deposits paid for acquisition of property and equipment 19,792 12,768 1,950 Acquired intangible assets, net 65,849 64,832 9,901 Goodwill 43,255 43,255 6,606 Total assets 1,049,879 986,693 150,679 Liabilities and equity Current liabilities: Accounts payable (including accounts payable of the consolidated VIE without
recourse to the Group of 10,277 and 7,810 as of December 31, 2010 and March 31, 2011) 11,410 8,846 1,351
Deferred revenues-current (including deferred revenues of the consolidated VIE
without recourse to 105,891 43,886 6,702