ChinaCast Education Reports Strong Fourth Quarter and Full Year 2010 Financial Results

BEIJING, March 17, 2011 /PRNewswire-Asia-FirstCall/ -- ChinaCast Education Corporation (the "Company" or "ChinaCast") (Nasdaq: CAST), a leading for-profit, post-secondary and e-learning services provider in China, today announced its financial results for the fourth quarter ended December 31, 2010.

Full Year 2010 Highlights(1):

• Total revenues increased 53% to $77.9 million
• Gross profit increased 28% to $37.4 million; Gross profit margin was 48%
• Net income decreased 20% to $10.9 million; Net income margin was 14%
• Diluted EPS of $0.22
• Before a one-time, non-cash impairment charge of $9.1 million
  • Net income increased 47% to $19.9 million; Net income margin was 26%
  • Diluted EPS of $0.41
• Adjusted net income (non-GAAP) increased 43% to $27.1 million; Adjusted net income (non-GAAP) margin was 35%
• Adjusted diluted EPS of $0.56
• Adjusted EBITDA (non-GAAP) increased 42% to $41.7 million; Adjusted EBITDA margin (non-GAAP) was 54%
• Cash, cash equivalents and term deposits was $143.7 million
• Total equity was $269.8 million

Fourth Quarter 2010 Highlights:

• Total revenues increased 56% to $25.7 million
• Gross profit increased 28% to $10.2 million; Gross profit margin was 40%
• Net income decreased 279% to ($5.1) million
• Diluted EPS of ($0.10)
• Before a one-time, non-cash impairment charge of $9.1 million
  • Net income increased 42% to $4.0 million; Net income margin was 16%
  • Diluted EPS of $0.08
• Adjusted net income (non-GAAP) increased 31% to $6.1 million; Adjusted net income (non-GAAP) margin was 23.5%
• Adjusted diluted EPS (non-GAAP) of $0.12
• Adjusted EBITDA (non-GAAP) increased 29% to $10.2 million; Adjusted EBITDA margin (non-GAAP) was 40%

"I am pleased to report another successful year of robust growth while achieving key strategic objectives which we believe pave a clear path for future growth," commented Ron Chan, Chairman and Chief Executive Officer.  "First and foremost, we acquired our third accredited university, Hubei Industrial University Business College ("HIUBC"), bringing our total university enrollment to over 32,000 students and adding degree programs in computer engineering, industrial design and law to our curriculum. This expands our geographic presence to central China and further solidifies our position as a leading nationwide operator of accredited universities in China. We also launched our international degree programs by signing inaugural partnerships with two renowned U.S. universities, Seton Hall and The University of North Carolina at Greensboro. These agreements cover both undergraduate and graduate degree programs and provide us with a conduit to capitalize on the burgeoning demand for international degree programs in China. Finally, we successfully commenced our e-learning joint venture with China University of Petroleum ("CUP") which will further expand our vocational training business. We are leveraging our existing technology and infrastructure to quickly scale this high growth, high margin business. With private post-secondary education services expanding with the rise in consumer spending power, we believe ChinaCast Education is poised for long term earnings growth."

Added Antonio Sena, Chief Financial Officer, "During the fourth quarter, we were able to achieve double-digit organic growth in our TUG business augmented by the acquisition of our third university, HIUBC.  We also decided to incur a one-time, non-cash impairment charge which related to a write-down of non-current receivables.

"Additionally, we are pleased to report a 170% increase in our operating cash flow to $53.7 million in 2010 from $19.9 million in 2009.  Our total cash balance as of year end 2010, is now $143.5 million, which places us in a strong position to capitalize on future acquisitions and/or share repurchase opportunities.  The educational market in China continues its strong growth, and we are optimistic about our prospects for continued strong financial growth in 2011."

Full Year 2010 Financial Results

ChinaCast is organized into two business segments, the Traditional University Group and the E-Learning Services Group.  The TUG offers fully-accredited bachelor and diploma degree programs to students from three universities in China:  the Foreign Trade and Business College ("FTBC") campus in Chongqing, the Lijiang College ("LJC") campus in Guilin and Hubei Industrial University Business College ("HIUBC") in Wuhan.  The ELG encompasses the Company's E-learning education service businesses.

Total Revenues – Total revenues for the year increased 53% to $77.9 million from $51.0 million in 2009.  TUG revenue for the year increased 110% to $46.4 million from $22.1 million in 2009 primarily due to the acquisition of LJC and HIUBC.  ELG revenue for the year increased 9% to $31.5 million from $28.9 million in the 2009 primarily due to an increase in equipment sales.

Cost of Sales – Cost of sales for the year increased 87% to $40.5 million from $21.7 million in 2009 primarily due to the acquisition of LJC and HIUBC.

Gross Profit and Gross Margin – Gross profit for the year increased 28% to $37.4 million from $29.3 million in 2009.   Gross profit margin for the year was 48% compared to 57% in 2009 primarily due to the increase in percentage of total revenue attributed to the TUG business which has a lower gross margin than the ELG business and the increase in equipment sales.  The gross profit margin of the TUG business for the year was 27% compared to 29% in 2009.  The gross profit margin of the ELG business for the year was 79% compared to 78% in 2009.

Share Based Compensation – Share based compensation for the year decreased 50% to $1.2 million from $2.4 million in 2009.

Amortization of Acquired Intangible Assets – Amortization of acquired intangible assets for the year increased 97% to $6.0 million from $3.0 million in 2009 primarily due to the acquisition of LJC and HIUBC.

Operating Expenses – Operating expenses for the year increased 107% to $21.0 million from $10.2 million in 2009 due to a one-time, non-cash impairment charge of $9.1 million against a non-current receivable. Before this impairment charge, operating expenses increased 17% to $11.9 million from $10.2 million in 2009 primarily due to an increase in administration expenses due to the acquisition of LJC and HIUBC but partially offset by a one-time gain of $1.4 million due to an adjustment in the purchase price of the acquisition of LJC.

Operating Income and Operating Income Margin – Operating income for the year decreased 14% to $16.4 million from $19.1 million in 2009 due to a one-time, non-cash impairment charge of $9.1 million against a non-current receivable. Before this impairment charge, operating income for the year increased 33% to $25.4 million from $19.1 million in 2009.  Operating income margin for the year was 21% compared to 38% in 2009 primarily due to the impairment charge and increase in percentage of total revenue attributed to the TUG business which has a lower operating income margin than the ELG business.  The operating income margin of the TUG business for the year was 22% compared to 27% in 2009 primarily due to the acquisition of LJC and HIUBC.  The operating income margin of the ELG business for the year was 48% compared to 56% in 2009 primarily due to the increase in equipment sales.

Income Taxes – Income taxes for the year increased 33% to $5.8 million from $4.4 million for the year 2009.

Net Income and Net Income Margin – Net income attributable to the Company for the year decreased to $10.9 million from $13.5 million in 2009 due to a one-time, non-cash impairment charge of $9.1 million. Net income margin 14% compared to 27% in 2009.  Before this impairment charge, net income increased 47% to $19.9 million from $13.5 million in 2009.

Diluted EPS - Diluted earnings per share for the year were $0.22 compared to $0.36 in 2009 due a one-time, non-cash impairment charge of $9.1 million.  The weighted average number of shares used in the computation was 48,767,142for the fourth quarter of 2010 and 37,167,694 for the fourth quarter of 2009.  

Adjusted Net Income and Adjusted Net Income Margin - Adjusted net income excluding share based compensation expenses, one-time, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the year increased 43% to $27.1 million from $19.0 million in 2009.  Adjusted net income margin excluding share based compensation expenses, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the year was 35% compared to 37% in 2009.  

Adjusted Diluted EPS - Adjusted diluted earnings per share excluding share based compensation expenses, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the year were $0.56 compared to $0.53.  

Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA (non-GAAP) for the year increased 42% to $41.7 million from $29.4 million in 2009.  Adjusted EBITDA margin (non-GAAP) for the year was 54% compared to 58% in 2009 primarily due to the large increase in percentage of total revenue attributed to the TUG business which has a lower adjusted EBITDA margin (non-GAAP) than the ELG business.

Cash and Bank Balances together with Term Deposits - Cash and bank balances together with term deposits was $143.7 million as of December 31, 2010.  Total equity was $269.8 million.

Fourth Quarter 2010 Financial Results

Total Revenues – Total revenues for the quarter increased 56% to $25.7 million from $16.5 million in the fourth quarter of 2009.  TUG revenue for the quarter increased 80% to $16.0 million from $8.9 million in the fourth quarter of 2009, primarily due to the acquisition of HIUBC in the third quarter of 2010.  TUG total student enrollment for the quarter increased 60% to approximately 32,700 from approximately 20,400 in the fourth quarter of 2009.  TUG average revenue per student for the quarter increased 12% to $489 per quarter compared to $436 per quarter in the fourth quarter of 2009.  ELG revenue for the quarter increased 28% to $9.7 million from $7.6 million in the fourth quarter of 2009 primarily due to equipment sales.  ELG total number of post-secondary students enrolled in courses using the Company's distance learning platform in the quarter increased to 143,000 compared to 138,000 in the fourth quarter of 2009.  ELG total number of subscribing schools for K-12 distance learning services for the quarter remained stable year-over-year at 6,500.  

Cost of Sales – Cost of sales for the quarter increased 83% to $15.6 million from $8.5 million in the fourth quarter of 2009 primarily due to the acquisition of HIUBC and ELG equipment sales.

Gross Profit and Gross Margin – Gross profit for the quarter increased 28% to $10.2 million from $8.0 million in the fourth quarter of 2009.   Gross profit margin for the quarter was 40% compared to 48% in the fourth quarter of 2009 primarily due to the increase in equipment sales and the increase in percentage of total revenue attributed to the TUG business which has a lower gross margin than the ELG business.  The gross profit margin of the TUG business for the quarter was 23% compared to 22% in the fourth quarter of 2009 primarily due to the acquisition of HIUBC.  The gross profit margin for the ELG business was 66% compared to 79% in the fourth quarter of 2009 primarily due to the increase in equipment sales.

Share Based Compensation – Share based compensation for the quarter decreased 60% to $0.2 million from $0.5 million in the fourth quarter of 2009.

Amortization of Acquired Intangible Assets – Amortization of acquired intangible assets for the quarter increased 44% to $1.9 million from $1.3 million in the fourth quarter of 2009 primarily due to the acquisition of HIUBC.

Operating Expenses –Operating expenses for the quarter increased 265% to $14.2 million compared to $3.9 million in 2009 due to one-time, non-cash impairment charge of US$9.1 million. Before the impairment charge, operating expenses increased 31% to $5.1 million from $3.9 million in the fourth quarter of 2009.

Operating Income and Operating Income Margin –Operating income loss for the quarter was $4.0 million compared to operating income of $4.1 million in the fourth quarter of 2009 due to a one-time, non-cash impairment charge of $9.1 million. Before the impairment charge, operating income increased 24% to $5.1 million from $4.1 million in the fourth quarter of 2009.  The operating income margin of the TUG business for the quarter was 13% compared to 11% in the fourth quarter of 2009 primarily due to the acquisition of HIUBC.  The operating income margin of the ELG business for the quarter was 31% compared to 41% in the fourth quarter of 2009 primarily due to the increase in equipment sales.

Income Taxes – Income taxes for the quarter increased 28% to $1.7 million from $1.3 million in the fourth quarter of 2009.

Net Income and Net Income Margin – Net income attributable to the Company for the quarter decreased 279% to ($5.1) million from $2.8 million for the fourth quarter of 2009 due to a one-time, non-cash impairment charge of $9.1 million. Net income margin for the quarter was (19.7%) compared to 17% in the fourth quarter of 2009 to 16% this quarter.  Before the impairment charge, net income for the quarter increased 42% to $4.0 million from $2.8 million in the fourth quarter of 2009.

Diluted EPS - Diluted losses per share for the quarter were $0.10 compared to earnings of $0.07 in the fourth quarter of 2009..  The weighted average number of shares used in the computation was 50,521,366 for the fourth quarter of 2010 and 40,538,186 for the fourth quarter of 2009.  

Adjusted Net Income and Adjusted Net Income Margin - Adjusted net income excluding share based compensation, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the quarter increased 31% to $6.1 million from $4.6 million in the fourth quarter of 2009.  Adjusted net income margin (non-GAAP) for the quarter was 24% compared to 28% in the fourth quarter of 2009.

Adjusted Diluted EPS - Adjusted diluted earnings per share excluding share based compensation expenses, non-cash impairment charges and amortization of acquired intangible assets (non-GAAP) for the quarter were $0.12 compared to $0.12 in the fourth quarter of 2009.

Adjusted EBITDA and Adjusted EBITDA Margin – Adjusted EBITDA (non-GAAP) for the quarter increased 29% to $10.2 million from $7.9 million in the fourth quarter of 2009.  Adjusted EBITDA margin (non-GAAP) for the quarter was 40% compared to 48% in the fourth quarter of 2009.

Financial Outlook for 2011

For the full year ending December 31, 2011, the Company provides the following guidance:

• Total net revenue will be between $94 million to $96 million (a year-on-year increase of 21% to 23%)
• Adjusted net income excluding share based compensation, amortization of intangibles, gain on disposal of property and equipment, and impairment expenses (non-GAAP) will be between $32 million to $34 million (a year-on-year increase of 18% to 25%)
• Adjusted EBITDA excluding share based compensation (non-GAAP) will be between $50 million to $52 million (a year-on-year increase of 20% to 25%)  

This is the Company's current and preliminary view, which is subject to change.

Conference Call Information

ChinaCast's management team will host an earnings conference call at 8:00 am ET, Thursday, March 17, 2011.  The dial-in details for the earnings conference call are as follows:

A replay of the earnings conference call will be available at the following numbers:

The replay will be available starting at 10:00 am ET, Thursday, March 17, 2011, through 11:59 pm ET, Thursday, March 31, 2011.

Additionally, a live and archived version of the earnings call will be available at www.chinacasteducation.com.  Please access the website approximately 10 minutes prior to the start time in order to download and install any necessary software.

About ChinaCast Education Corporation

Established in 1999, ChinaCast Education Corporation is a leading for-profit, post-secondary education and e-Learning services provider in China. The Company provides post-secondary degree and diploma programs through its three universities in China: The Foreign Trade and Business College of Chongqing Normal University, the Lijiang College of Guangxi Normal University and Hubei Industrial University Business College. These universities offer fully accredited, career-oriented bachelor's degree and diploma programs in business, economics, law, IT/computer engineering, hospitality and tourism management, advertising, language studies, art and music. The Company provides its e-Learning services to post-secondary institutions, K-12 schools, government agencies and corporate enterprises via its nationwide satellite/fiber broadband network. These services include interactive distance learning applications, multimedia education content delivery, English language training and vocational training courses. The Company is listed on NASDAQ Global Select Market with the ticker symbol CAST.

Safe Harbor Statement

This press release may contain statements that are forward-looking, as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements express our current expectations or forecasts of possible future results or events, including projections of future performance, statements of management's plans and objectives, future contracts, and forecasts of trends and other matters. These projections, expectations and trends are dependent on certain risks and uncertainties including such factors, among others, as growth in demand for education services, smooth and timely implementation of new training centers and other risk factors listed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2010. Forward-looking statements speak only as of the date of this filing, and we undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. You can identify these statements by the fact that they do not relate strictly to historic or current facts and often use words such as "anticipate'", "estimate", "expect", "believe," "will likely result," "outlook," "project" and other words and expressions of similar meaning. No assurance can be given that the results in any forward-looking statements will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: adjusted net income, adjusted net-income margin, adjusted EPS (basic and diluted), adjusted EBITDA and adjusted EBITDA margin. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures" included at the end of this release.

We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenses and expenditures that may not be indicative of our recurring core business operating results."  These non-GAAP financial measures exclude from our operating performance not only non-cash charges, such as stock-based compensation, but also discrete cash charges that are infrequent in nature. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to our historical performance and liquidity as well as comparisons to our competitors' operating results. We believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.  The accompanying tables have more details on the GAAP financial measures that are most directly comparable to non-GAAP financial measures and the related reconciliations between these financial measures.