Ambow Education Announces Strong First Quarter 2011 Unaudited Financial Results

BEIJING, May 18, 2011 /PRNewswire-Asia/ -- Ambow Education Holding Ltd. ("Ambow" or the "Company") (NYSE: AMBO), a leading national provider of educational and career enhancement services in China, today reported its unaudited financial results for the first quarter of 2011.

Financial Highlights for the Quarter Ended March 31, 2011:

• Total net revenues increased 29.6% to $51.5 million(1) from $39.7 million for the same period in 2010. Existing business contributed 24.2% growth, while 5.4% came from acquisitions.  
  • Tutoring revenues increased 24.6% to $25.3 million from $20.3 million for the same period in 2010.
  • Career Enhancement revenues increased 116.2% to $11.8 million from $5.5 million for the same period in 2010.
• Net income(2) increased 151.6% to $1.5 million from $0.6 million for the same period in 2010.
• Operating income increased 86.5% to $2.8 million from $1.5 million for the same period in 2010.
• Adjusted EBITDA(3) increased 28.9% to $8.6 million from $6.7 million for the same period in 2010.
• Total student enrollments increased 16% year-over-year to 234,000.

Commenting on the first quarter results, Ambow's President and Chief Executive Officer Dr. Jin Huang said, "We are pleased to report that Ambow started the year with a strong quarter, highlighted by impressive revenue and net income growth.  Ambow is the only listed company in the education sector that is able to address two fundamental market demands in China - the desire to get into a better school and the desire to get a better job.  Our business objective is to acquire more and more students and retain them through Ambow's education services platform."  

Dr. Huang continued, "We continue to execute our strategy to maintain sustained growth in order to provide quality services to more students.  A highlight of our first quarter was the robust growth in our Career Enhancement segment, where we experienced a 116.2% increase in revenues and a 110.2% increase in enrollment year-over-year.  We have seen great demand in our Career Enhancement segment, where Ambow is a clear market leader.  Our strategy is to continue to increase market penetration with a broad range of products and services tailored to meet the demands of people pursuing career development."

"Turning to acquisitions, we closed five acquisitions during the quarter, which is in line with our strategy to expand Ambow's footprint and offerings throughout China. Given the nature of China's highly fragmented education market and our proven ability to successfully identify and integrate acquisition targets, we believe we are well positioned to consolidate this market," said Dr. Huang.

Ambow's Chief Financial Officer Paul Chow added, "I'm pleased to report that our net revenues increased 29.6% year-over-year, with 24.2% of revenues growth attributable to existing business and 5.4% attributable to acquisitions. Our net income attributable to the Company increased by 151.6% year-over-year, despite the seasonal effect of school and public holidays, which always makes the first quarter challenging.  In addition, our operating margin improved 1.7% to 5.4% in the first quarter of 2011."

Mr. Chow continued, "Turning to margins, net income margin(4) improved 1.4% to 2.9% in the first quarter of 2011.  The Company's net margin is traditionally lowest in the first quarter as it is subject to seasonality.  Adjusted EBITDA margin was 16.7% in the first quarter of 2011.  Ambow's depreciation and amortization constitute a relatively high percentage of revenue, so adjusted EBITDA is a particularly useful metric for understanding Ambow's profitability."

Financial Results for the First Quarter of 2011

Net Revenues

Total net revenues for the first quarter of 2011 increased 29.6% to $51.5 million from $39.7 million for the same period in 2010.  This improvement was primarily the result of strong revenues contribution from Career Enhancement and Tutoring.

Net Revenue Breakdown by Key Operating Segments:

Better Schools

Better Schools increased 19.7% to $33.5 million, with Tutoring and K-12 Schools accounting for $25.2 million and $8.3 million of total net revenues, respectively, for the first quarter of 2011.

The Company noted that Tutoring revenues grew 24.6% year-over-year, with a balanced 12.2% growth in enrollments and 11.1% growth in Average Selling Price ("ASP").

Total student enrollments in Better Schools during the first quarter of 2011 was approximately 204,000, with 181,000 in Tutoring and 23,000 in K-12 Schools. Compared with the same period in 2010, there was a 11.4% increase in total Better Schools enrollments, with an increase of 12.2% and an increase of 5.4% for Tutoring and K-12 Schools enrollments, respectively.

Better Jobs

Better Jobs increased 53.2% to $18.0 million, with Career Enhancement and Colleges accounting for $11.8 million and $6.2 million of total net revenues, respectively, for the first quarter of 2011.

The Company noted that Career Enhancement revenues grew a record 116.2% year-over-year, with an impressive 110.2% growth in enrollments to 18,000 and a 2.8% increase in ASP.  This revenue increase was primarily driven by strong growth in existing business (83%) with the remaining growth attributable to acquisition activities.

Total student enrollments in Better Jobs during the first quarter of 2011 was approximately 30,000, with 18,000 in Career Enhancement and over 12,000 in Colleges. Compared with the same period in 2010, there was a 44.0% increase in total Better Jobs enrollments, with an increase of 110.2% in Career Enhancement enrollments, while enrollments in Colleges remained flat.

Gross Profit and Gross Margin

Gross profit was $26.4 million for the first quarter of 2011, increasing 29.8% year-over-year from $20.3 million for the same period in 2010. Gross margin was 51.2% for the first quarter of 2011, compared to 51.1% for the same period in 2010.

Operating Expenses

Operating expenses, which include selling and marketing, general and administrative and research and development expenses, were $23.6 million for the first quarter of 2011, increasing 25.3% year-over-year from $18.8 million for the same period in 2010. This increase is mainly attributable to the increased expense of being a public company, costs related to recent acquisitions and a higher number of centers as compared to the first quarter of 2010.  The increased operating expenses are primarily due to the Company's continued investment in growth, which is necessary to support Ambow's continued business expansion.

Operating expenses, as a percentage of revenues, improved 1.6%, from 47.4% in the first quarter of 2010 to 45.8% in the same period in 2011.  Selling and marketing expenses, as a percentage of revenues, decreased 2.2%, from 19.9% to 17.7%, as a result of operating efficiency contributing to revenues growth. General and administrative expenses, as a percentage of revenue, remained nearly flat at 25.8%, a slight increase compared to 25.5% for the same period in 2010.  General and administrative expenses include increased expenses attributable to being a public company. Research and development expenses, as a percentage of revenues, were 2.3%, a slight increase compared to 2.0% for the same period in 2010.  The research and development expenses are consistent with the Company's strategy to support future business growth.  The Company believes that continued investments in growth, and the associated increases in operating expenses, will support its continued business expansion.

Income Tax Expenses

Our income tax expenses were $236,000 for the first quarter of 2011 compared to income tax expenses of $570,000 for the same period in 2010. The Group anticipates that in 2011 it will be able to utilise certain tax losses brought forward and take advantage of tax exemptions for a recently established entity, resulting in a full-year effective tax rate of 10% compared to 15% in 2010.

Net Income

Net income was $1.5 million for the first quarter of 2011, increasing 151.6% year-over-year from $0.6 million for the same period in 2010. Net income margin was 2.9%, improving 1.4%, compared to net income margin of 1.5% for the same period in 2010.  Basic and diluted net income per adjusted ADS(5) attributable to Ambow was $0.02, compared to net income per adjusted ADS of $0.01 for the same period in 2010.

Non-GAAP net income(6) was $2.5 million for the first quarter of 2011, increasing 72.4% year-over-year, compared to $1.5 million for the same period in 2010. Non-GAAP net income margin(7) was 4.9% for the first quarter of 2011, compared to 3.7% for the same period in 2010.  Basic and diluted non-GAAP net income per adjusted ADS attributable to Ambow(8) was $0.04 and $0.03, respectively, compared to $0.02 for the same period in 2010.

Adjusted EBITDA

Adjusted EBITDA was $8.6 million for the first quarter of 2011, increasing 28.9% year-over-year, compared to $6.7 million for the same period in 2010. Depreciation and amortization in the first quarter of 2011 was $5.0 million as compared to $4.2 million in the same period 2010.

Adjusted EBITDA margin(9) was 16.7%, compared to 16.8% for the same period in 2010.  Depreciation and amortization as a percentage of revenue was 9.7%.

Balance Sheet and Cash Flow Information

Cash and cash equivalents, restricted cash and term deposits as of March 31, 2011 were $125.3 million, compared to $141.8 million as of December 31, 2010.   The reduction in cash is mainly due to payments for acquisitions and deposits in connection with establishing the Company's Career Enhancement Center.

The Company's deferred revenue balance as of March 31, 2011 was $72.9 million compared to $68.1 million as of March 31, 2010, an increase of 7.1%. Deferred revenue includes tuition fees from enrolled students for courses not yet delivered as of the period ended March 31, 2011.

Financial Outlook for the Second Quarter of Full-Year 2011

Ambow expects total net revenues for the second quarter of 2011 to be in the range of $74.8 million (Rmb490 million) to $76.4 million (Rmb500 million).

This is the Company's current view and it is subject to change.

Conference Call Information

Ambow's management will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on May 18, 2011 (8:00 p.m. Beijing/Hong Kong Time on May 18, 2011).

The dial-in number and passcode for the conference call are as follows:

The passcode for the call is "657079".

Additionally, a live and archived webcast of this call will be available on the Investor Relations section of Ambow's website at: http://investors.ir.ambow.com/us/AMBO/irwebsite/

About Ambow Education Holding Ltd.

Ambow Education Holding Ltd. (NYSE: AMBO) is a leading national provider of educational and career enhancement services in China, offering high-quality, individualized services and products. Ambow has two business divisions: "Better Schools," which includes K-12 schools and tutoring centers; and "Better Jobs," which includes colleges and career enhancement centers. With its extensive network of regional service hubs complemented by a dynamic proprietary learning platform and distributors, Ambow provides its services and products to students in 30 out of the 31 provinces and autonomous regions within China.

Forward Looking Statements

Certain statements in this press release, including statements regarding the outlook for the second quarter of 2011 and quotations from management concerning Ambow's strategic and operational plans and expectations, are forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Ambow uses words such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates", "target" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. The following important factors, without limitation, could cause actual results to differ materially from those contained in these forward-looking statements: Ambow's ability to manage its business expansion and operations effectively, to make strategic acquisitions and investments and to successfully integrate acquired businesses; significant competition; Ambow's ability to continue to attract students to enroll in its programs, to continually enhance its programs, services and products, to successfully develop and introduce new services and products in time and to adequately and promptly respond to changes in curriculum, testing materials and standards; economic conditions; and changes in government policies, laws and regulations. More information on factors that could affect Ambow's results is included from time to time in Ambow's Securities and Exchange Commission (SEC) filings and reports, including the risks described in its annual report on Form 20-F for the fiscal year ended December 31, 2010 filed with the SEC on April 14, 2011 and in Ambow's other filings with the SEC from time to time, including on Form 6-K. Other unknown or unpredictable factors also could have material adverse effects on Ambow's future results.  In light of these risks, uncertainties and factors, you are cautioned not to place undue reliance on forward-looking statements. Ambow disclaims any obligation to update information contained in forward-looking statements, whether as a result of new information, future events or otherwise.

Statement Regarding Unaudited Financial Information

The Company has prepared the unaudited consolidated financial information on the same basis as its audited consolidated financial statements. The unaudited consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of its financial position and results of operations for the quarters presented. Quarterly and year end results may not be indicative of the Company's results of operations for future quarterly periods.

About Non-GAAP Financial Measures

To supplement Ambow's unaudited consolidated financial results presented in accordance with GAAP, Ambow uses the following measures defined as non-GAAP financial measures by the SEC: (i) Non-GAAP operating expenses, (ii) Non-GAAP net income, (iii) Non-GAAP net income attributable to Ambow per ADS basic and diluted and (iv) Adjusted EBITDA. The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for 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 measures to the most comparable GAAP measures" set forth at the end of this release.

Ambow believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity that may not be indicative of its operating performance from a cash perspective. Ambow believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Ambow's historical performance and liquidity. Ambow computes its non-GAAP financial measures using the same consistent method from quarter to quarter. These non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP. Ambow believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations with GAAP financial measures that are most directly comparable to non-GAAP financial measures.

***** Tables to Follow *****