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ChinaEdu Reports First Quarter 2011 Results

By Sue Gonzalez,2014-07-20 11:42
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ChinaEdu Reports First Quarter 2011 Results

    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

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    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.

    Operating Expenses

    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

    activities.

    ; 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.

    Deferred Revenue

    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.

    Conference Call

    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