Ambow Education Announces Third Quarter 2010 Unaudited Financial Results

BEIJING, Nov. 16, 2010 /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 third quarter and nine months ended September 30, 2010. Ambow reported net revenues of $147.2 million(1), an increase of 80.5% year-over-year, and net income attributable to the Company of $18.7 million, an increase of 129.0% year-over-year, in the first nine months of 2010.

Financial Highlights for the First Nine Months of 2010

• Total net revenues in the first nine months of 2010 were $147.2 million, increasing 80.5% year-over-year from $81.5 million in the same period in 2009.
• Net income attributable to Ambow in the first nine months of 2010 increased 129.0% to $18.7 million from $8.2 million in the same period in 2009.
• Non-GAAP net income(2), being net income attributable to Ambow excluding share-based compensation expenses ("Non-GAAP net income"), for the first nine months of 2010 increased 131.0% year-over-year to $22.3 million from $9.7 million in the same period in 2009.

Financial Highlights for the Third Quarter of 2010

• Total net revenues in the third quarter of 2010 were $48.7 million, increasing 78.9% year-over-year from $27.2 million in the third quarter of 2009.
• Net income attributable to Ambow in the third quarter of 2010 increased 415.8% to $5.0 million from $1.0 million in the third quarter of 2009.
• Non-GAAP net income in the third quarter of 2010 increased 336.7% year-over-year to $6.3 million from $1.4 million in the third quarter of 2009.

1. The reporting currency of the Company is Renminbi ("RMB"), but for the convenience of the reader, the amounts presented throughout the release are in US dollar ("US$"). Unless otherwise stated, all translations from RMB to US$ are based on the historical exchange rate of US$1.0 to RMB6.6905, representing the noon buying rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board on September 30, 2010. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.
2. The Company provides certain non-GAAP financial measures to reflect meaningful supplemental information regarding its operating performance. For more information on these non-GAAP financial measures, please see the section captioned "About Non-GAAP Financial Measures" and the tables captioned "Reconciliations of Non-GAAP Financial Measures to the Most Comparable GAAP Measures" set forth at the end of this release.

Ambow’s President and Chief Executive Officer Dr. Jin Huang said, “I am pleased to report solid top- and bottom-line growth in our first earnings release as a public company. Our vision and strategy of providing individualized learning through a blended on-line and off-line delivery model is materializing according to our long term plan.

We aim to continue to strengthen our market leadership position in existing regions through organic growth. In new regions in which we plan to expand, we will continue to build on our successful acquisition strategy, acquiring top players in the local markets that meet our financial, managerial, and operational criteria. This strategy enables us to quickly enter into and grow in key markets, while leveraging best local leadership, and lowering our operational risk.

As reported in our IPO prospectus, we had signed exclusivity agreements with seven companies, and to-date we have signed sales and purchase agreements and initiated the closing process with six of them. Going forward, our revenue from new acquisitions as a percentage of total revenue will gradually decrease in-line with an increasing focus on post-integration organic growth.”

Ambow's Chief Financial Officer Paul Chow commented, "We maintained a keen focus on increasing efficiency and optimizing costs and expenses over the year. Specifically, we have maintained our disciplined approach of investing in web-based infrastructure to support our integration, business planning, and reporting. This has enabled us to track and deliver desired performance in both our 'Better Schools' and 'Better Jobs' business lines during the quarters."

Financial Results for the First Nine Months of 2010

Net Revenues

Total net revenues were $147.2 million in the first nine months of 2010, increasing 80.5% year-over-year from $81.5 million in the same period in 2009.

Net Revenue Breakdown by Key Operating Divisions:

Better Schools

Better Schools increased to $97.4 million, of which, Tutoring and K-12 Schools accounted for $71.2 million and $26.2 million of total net revenues, respectively, in the first nine months of 2010.

The Company noted that the increase in Tutoring was primarily due to strategic growth by acquisition (the Company acquired five new entities providing tutoring services during 2009 (2010: nil)) and strong demand for its proprietary intelligence learning systems which provide an individualized learning experience. The increase in K-12 Schools was due to annualization effects from acquisitions (the Company operates five K-12 schools of which three were acquired during 2009 (2010: nil)) and additional tuition fees recognized for international courses.

Better Jobs

Better Jobs increased to $49.8 million, of which, Career Enhancement and Colleges accounted for $27.5 million and $22.3 million of total net revenues, respectively, in the first nine months of 2010.

The Company noted that the increase in Career Enhancement was primarily driven by strong enrollment growth, while the increase in Colleges was primarily due to annualization effects from acquisitions (the Company operates two Colleges, both acquired in 2009).

Gross Profit and Gross Margin

Gross profit was $83.7 million in the first nine months of 2010, increasing 97.3% year-over-year from $42.4 million in the same period in 2009. Gross margin was 56.9% in the first nine months of 2010 compared to 52.0% in the same period in 2009. The Company noted that the improvement was due to the improved gross margins generated by the Company's acquired entities and the change in the mix of the Company's net revenues among its two operating divisions.

Net Income, Net Margin and Adjusted EBITDA (non-GAAP)

Net income attributable to Ambow was $18.7 million in the first nine months of 2010, increasing 129.0% year-over-year from $8.2 million in the same period in 2009. Net margin, being net income attributable to Ambow over net revenues, improved to 12.7% in the first nine months of 2010 from 10.0% in the same period in 2009, mostly due to increased operating efficiency.

Non-GAAP net income was $22.3 million in the first nine months of 2010, increasing 131.0% year-over-year from $9.7 million in the same period in 2009. Non-GAAP net margin, being non-GAAP net income over net revenues, was 15.2% in the first nine months of 2010 compared to 11.9% in the same period in 2009.

Net loss attributable to ordinary shareholders was $3.6 million in the first nine months of 2010 compared to a net loss attributable to ordinary shareholders of $20.9 million in the same period in 2009. Both net loss per basic and diluted ADS were $0.11 in the first nine months of 2010 compared to both net loss per basic and diluted ADS of $1.13 in the same period in 2009. The losses under GAAP in the first nine months of 2010 and 2009 were primarily due to the impact of a non-cash accounting charge relating to preferred shares. All outstanding preferred shares were converted into ordinary shares upon the completion of the Company's IPO on August 5, 2010. Thereafter, there is no accretion of the preferred shares' redemption value and all net income will be attributable to the ordinary shareholders.

Adjusted EBITDA (non-GAAP) was $39.1 million in the first nine months of 2010, increasing 126.1% year-over-year compared to $17.3 million in the same period in 2009. Adjusted EBITDA margin (non-GAAP) was 26.5% in the first nine months of 2010 compared to 21.2% in the same period in 2009.

Financial Results for the Third Quarter of 2010

Net Revenues

Total net revenues were $48.7 million in the third quarter of 2010, increasing 78.9% year-over-year from $27.2 million in the same period in 2009.

Net Revenue Breakdown by Key Operating Divisions:

Better Schools

Better Schools increased to $31.8 million, of which, Tutoring and K-12 Schools accounted for $24.3 million and $7.5 million of total net revenues, respectively, in the third quarter of 2010.

The Company noted that the increase in Tutoring was primarily due to growth from its 2009 acquisitions and strong demand for its proprietary intelligence system which provides an individualized learning experience. The increase in K-12 Schools was due to annualization effects from acquisitions, additional tuition fees recognized for international courses, and an increase in sales of educational software products during the quarter.

Better Jobs

Better Jobs increased to $16.9 million of which, Career Enhancement and Colleges accounted for $11.6 million and $5.3 million of total net revenues, respectively, in the third quarter of 2010.  

The Company noted that the increase in Career Enhancement was primarily driven by strong enrollment growth while the increase in Colleges was primarily due to annualization effects from acquisitions.

Gross Profit and Gross Margin

Gross profit was $27.8 million in the third quarter of 2010, increasing 84.9% year-over-year from $15.0 million in the same period in 2009. Gross margin was 57.1% in the third quarter of 2010 compared to 55.3% in the same period in 2009. The Company noted that the improvement was due to the improved gross margins generated by the Company's acquired entities and the change in the mix of the Company's net revenues among its two operating divisions.

Operating Expenses

Operating expenses, which include selling and marketing, general and administrative, and research and development expenses, were $21.4 million in the third quarter of 2010, increasing 59.6% year-over-year from $13.4 million in the same period in 2009. Operating expenses as a percentage of total net revenues were 44.0% in the third quarter of 2010 compared to 49.3% in the same period in 2009. The Company noted that the improvement was primarily due to disciplined control of general and administrative expenses this quarter.

Income Tax Expenses

Income tax expenses were $1.0 million in the third quarter of 2010 compared to a tax benefit $0.1 million in the same period in 2009. One of the Company's entities has been recognized as a "Software Enterprise" and, after being entitled to a full tax exemption in 2008 and 2009, is now entitled to a 50% reduction in income tax rate in 2010 which has contributed to the increased tax expense.

Net Income, Net Margin and Adjusted EBITDA (non-GAAP)

Net income attributable to Ambow was $5.0 million in the third quarter of 2010, increasing 415.8% from $1.0 million in the same period in 2009. Net margin, being net income attributable to Ambow over net revenues, improved to 10.3% in the third quarter of 2010 from 3.6% in the same period in 2009. The Company noted that its net income improvement was primarily due to increased operating efficiency.

Non-GAAP net income was $6.3 million in the third quarter of 2010, increasing 336.7% year-over-year compared to $1.4 million in the same period in 2009. Non-GAAP net margin, being non-GAAP net income over net revenues, was 13.0% in the third quarter of 2010 compared to 5.3% in the same period in 2009.

Net income attributable to ordinary shareholders was $11.7 million in the third quarter of 2010, increasing significantly from a net loss attributable to ordinary shareholders of $7.6 million in the same period in 2009. Net income per basic and diluted ADS was $0.22 and $0.07 in the third quarter of 2010 compared to net loss per basic and diluted ADS of $0.39 in the same period in 2009. The loss in the same period last year was primarily due to the impact of a non-cash accounting charge relating to preferred shares. All outstanding preferred shares were converted into ordinary shares upon the completion of the Company's IPO on August 5, 2010. Thereafter, accretion of the preferred shares' redemption value and allocation of net income is not required and all net income will be attributable to the ordinary shareholders.

Adjusted EBITDA (non-GAAP) was $12.0 million in the third quarter of 2010, increasing 142.0% year-over-year compared to $5.0 million in the same period in 2009. Adjusted EBITDA margin (non-GAAP) was 24.6% in the third quarter of 2010 compared to 18.2% in the same period in 2009.

Balance Sheet

Cash and cash equivalents, restricted cash and term deposits as of September 30, 2010, were $161.1 million, compared to $67.7 million as of June 30, 2010. The Company noted that the significant increase was primarily driven by the receipt of IPO proceeds and strong operating cash flow generated during the quarter.

The Company’s deferred revenue balances as of September 30, 2010 and June 30, 2010 were $87.0 million and $38.1 million, respectively. Deferred revenue includes tuition fees from enrolled students for courses not yet delivered as of the third quarter ended September 30, 2010. The significant increase was due to tuition fees received upfront at the start of a new academic year from students in K-12 Schools and Colleges in late August and early September 2010.

Recent Business Developments

As reported in the Ambow's IPO prospectus, the Company had signed exclusivity agreements with seven companies, and to-date the Company has signed sales and purchase agreements and initiated the closing process with six of them. As the Company is approaching year end, it expects the acquisitions will not have significant financial impact in 2010.

Financial Outlook for the Fourth Quarter of 2010

Ambow expects total net revenues in the fourth quarter of 2010 to be in the range of $55.3 million (RMB370.0 million) to $58.3 million (RMB390.0 million).

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

Conference Call Information

Ambow's management will host an earnings conference call at 8:00 p.m. U.S. Eastern Time on November 15, 2010 (9:00 a.m. Beijing/Hong Kong Time on November 16, 2010).

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

The passcode for the call is "ambow2010".

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 fourth quarter of 2010 and quotations from management concerning Ambow's strategic and operational plans and expectations, including without limitation, regarding continuing to strengthen market leadership by organic growth and identification of top regional players for geographic expansion purposes, 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 filings and reports, including the risks described under the heading "Risk Factors" in Ambow's final prospectus relating to its initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on August 5, 2010. 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, that the Company considers necessary for a fair presentation of its financial position and results of operations for the quarters presented. Quarterly results may not be indicative of the Company's results of operations for the year ending December 31, 2010 or 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) Adjusted EBITDA (non-GAAP), (ii) Non-GAAP net income, (iii) Non-GAAP operating expenses, (iv) net income attributable to Ambow per ADS (diluted), and (v) Non-GAAP net income attributable to Ambow per ADS (diluted).  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.