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ChinaEdu Reports Third Quarter 2010 Results

2010-11-19 05:28

Third Quarter Net Revenue Exceeding Guidance with 12.6% Growth Year-Over-Year; Net income per diluted ADS is $0.101, Exceeding Analyst Consensus

Live Conference Call to be held on Friday, November 19, 2010 at 8 a.m. (Eastern) / 5 a.m. (Pacific) / 9 p.m. (Beijing/Hong Kong)

BEIJING, Nov. 19, 2010 /PRNewswire-Asia-FirstCall/ -- ChinaEdu Corporation (Nasdaq: CEDU) ("ChinaEdu" or the "Company"), a leading online education services provider in China, today announced its unaudited financial results for the third quarter ended September 30, 2010 (1).







(in thousands, unaudited)

Three Months Ended


Nine Months Ended


Period ended

September

30, 2009

September

30, 2010

Period over

Period %


September

30,2009

September

30, 2010

Year over

Year %


Currency

USD

USD



USD

USD



Financial Data:









         Net revenue

13,414

15,107

12.6%


38,740

43,026

11.1%


         Gross profit

8,187

9,581

17.0%


23,683

27,590

16.5%


         Income from operations

2,985

3,733

25.1%


8,897

10,921

22.7%


         Net income attributable to ChinaEdu

1,091

1,752

60.6%


3,845

4,858

26.3%


         Adjusted EBITDA(2) (non-GAAP)

4,012

4,996

24.5%


12,248

14,426

17.8%


         Adjusted net income attributable to ChinaEdu (3) (non-GAAP)

1,477

2,170

46.9%


5,285

5,925

12.1%











         Net income attributable to ChinaEdu per ADS (4)

0.067

0.109

62.7%


0.236

0.303

28.4%


         Adjusted net income attributable to ChinaEdu per ADS (5) (non-GAAP)

0.091

0.135

48.4%


0.324

0.370

14.2%


         Net income attributable to ChinaEdu per diluted ADS

0.061

0.101

65.6%


0.220

0.280

27.3%


         Adjusted net income attributable to ChinaEdu per diluted ADS(6) (non-GAAP)

0.084

0.125

48.8%


0.302

0.341

12.9%











Operating Data:









        Revenue students (7) for online degree program

147,000

157,000

6.8%


265,000

297,000

12.1%














(1) The reporting currency of the Company is RMB, but for the convenience of the reader, the amounts for the three and nine months ended on September 30, 2009 and September 30, 2010 are presented in U.S. dollars. Unless otherwise stated, all translations from RMB to U.S. dollars were made at the rate of RMB6.6905 to $1.00, the noon buying rate in effect on September 30, 2010 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)  "Adjusted EBITDA" is a non-GAAP measure defined as net income before interest income, taxes, depreciation, amortization of intangible assets and land use rights and share-based compensation.

(3) "Adjusted net income attributable to ChinaEdu" is a non-GAAP measure defined as net income attributable to ChinaEdu excluding share-based compensation net of noncontrolling interest portion, and amortization of intangible assets and land use rights.

(4) "ADS" is American Depositary Share. Each ADS represents three ordinary shares.

(5) "Adjusted net income attributable to ChinaEdu per 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 ADS calculation.

(6) "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.

(7) "Revenue students" refers to students of university online degree programs who have paid tuitions. The numbers for the three months ended September 30, 2009 and 2010 are revenue students in spring 2009 and spring 2010, respectively. The numbers for the nine months ended September 30, 2009 and 2010 are total revenue students in fall 2008 and spring 2009, and total revenue students in fall 2009 and spring 2010, respectively.

Third Quarter 2010 Highlights

  • Total net revenue grew by 12.6% to $15.1 million for the third quarter of 2010 from $13.4 million for the corresponding period in 2009, exceeding our guidance for the third quarter of 2010 of $14.3 million to $14.8 million.
  • Net revenue from online degree programs increased by 12.7% to $12.0 million for the third quarter of 2010 from $10.7 million for the corresponding period in 2009.
  • The number of revenue students in online degree programs during 2010 spring semester increased by approximately 6.8% to over 157,000 from approximately 147,000 for the corresponding period in 2009.
  • Adjusted EBITDA increased by 24.5% to $5.0 million in the third quarter of 2010 from $4.0 million for the corresponding period in 2009.
  • Net income attributable to ChinaEdu increased by 60.6% to $1.8 million in the third quarter of 2010 from $1.1 million for the corresponding period in 2009.
  • Adjusted net income attributable to ChinaEdu increased by 46.9% to $2.2 million in the third quarter of 2010 from $1.5 million for the corresponding period in 2009.
  • Net income attributable to ChinaEdu per diluted ADS was $0.101 for the third quarter of 2010, as compared to $0.061 for the corresponding period in 2009.
  • Adjusted net income attributable to ChinaEdu per diluted ADS was $0.125 for the third quarter of 2010, as compared to $0.084 for the corresponding period in 2009.

"Our third quarter performance continued on track." said Ms. Julia Huang, ChinaEdu's Chairman and Chief Executive Officer, "Similar to our second quarter results, online degree programs grew steadily in the third quarter as a result of healthy spring semester enrollment. While we continue to improve our margins, we are committing significant efforts in developing and expanding businesses in our learning centers, both online and offline after school tutoring, and international curriculum programs to drive future growth.  As we see increasing demand of learning and education contents from Internet and mobile users, we are also committed to further developing our education contents and improving user learning experience for our Internet and mobile applications."

Financial Results for the Third Quarter Ended September 30, 2010

Net Revenue

Total net revenue for the third quarter of 2010 was $15.1 million, representing a 12.6% increase from $13.4 million for the corresponding period in 2009. Net revenue from online degree programs for the third quarter of 2010 was $12.0 million, representing a 12.7% increase from $10.7 million for the corresponding period in 2009. The revenue growth was primarily due to 2010 spring semester enrollment which registered over 157,000 revenue students as compared to 147,000 revenue students for 2009 spring semester. As explained in our second quarter results, the higher online degree programs revenue growth compared to enrollment growth was primarily attributable to lower expenses incurred by third-party learning centers, and increased tuition rate at selected online colleges for the 2010 spring semester.

Learning centers network continued to expand both in geographic coverage and universities served. By the end of the third quarter of 2010, we had 86 operational learning centers of which 43 were proprietary, and 43 were contracted locations, as compared to 56 operational learning centers as of the end of the third quarter of 2009, of which 23 were proprietary and 33 were contracted locations.  Of the 43 proprietary learning centers, 14 were newly established service stations. In the past, our number of learning centers disclosed corresponds to the number of cities in which we established the learning centers. Beginning this year, in order to further the penetration in large cities, we also began to establish branch networks in key cities.  Our learning centers network was serving a total of 18 universities' online degree programs as of the end of the third quarter of 2010.

Also in this quarter, the Company signed an agreement to acquire the remaining 81% of Hongcheng Xueyuan, which will expand our learning centers network by eight new learning centers in six additional cities and add service agreements with five additional universities.  The transaction is expected to close in the fourth quarter of 2010 and Hongcheng Xueyuan will become one of our wholly owned subsidiaries.

Net revenue from the Company's non-online degree programs (online tutoring programs, private primary and secondary schools and international curriculum programs) for the third quarter of 2010 was $3.1 million, representing a 12.5% increase from $2.7 million for the corresponding period in 2009. This increase was attributable to a 7.0% increase in net revenue for the 101 online tutoring programs and a 41.5% increase in net revenue at Anqing School due to an increase in student enrollment as a result of new campus opening. The increases were offset by a 27.2% decrease in net revenue for the international curriculum programs which was in line with the management expectation.

Cost of Revenue

Total cost of revenue for the third quarter of 2010 was $5.5 million, representing an increase of 5.7%, as compared to $5.2 million for the corresponding period of 2009. Cost of revenue for online degree programs for the third quarter of 2010 was $3.9 million, representing an increase of 10.0% as compared to $3.5 million for the third quarter of 2009. The increase in online degree programs' cost of revenue was primarily related to the increase in student enrollment in the 2010 spring semester as compared to 2009 spring semester.

Cost of revenue for non-online degree programs for the third quarter of 2010 was $1.6 million, representing a decrease of 3.1% for the corresponding period in 2009. This decrease was attributable primarily to a decrease in cost of revenue for international curriculum programs.

Gross Profit and Gross Margin

Gross profit for the third quarter of 2010 was $9.6 million, representing a 17.0% increase from $8.2 million for the corresponding period of 2009. Total gross margin for the third quarter of 2010 increased to 63.4%, as compared to 61.0% for the corresponding period of 2009. Gross margin for the online degree programs increased to 67.7% for the third quarter of 2010, as compared to 67.0% for the corresponding period of 2009.

Gross margin for 101 online tutoring programs increased to 76.0% for the third quarter of 2010, as compared to 75.3% for the third quarter of 2009. Gross margin for private schools improved significantly to 34.2%, as compared to 7.8% in the corresponding period in 2009, due to increased enrollment at Anqing School's new campus. Gross margin for the international curriculum programs decreased to 32.2% for the third quarter of 2010, as compared to 40.7% in the corresponding period of 2009, due to increased expenses related to summer groups.

Operating Expenses

Total operating expenses were $5.8 million for the third quarter of 2010, representing a 12.4% increase from $5.2 million for the corresponding period in 2009. This increase was a result of the factors discussed below:

  • General and administrative expenses for the third quarter of 2010 were $2.9 million, which represented a 4.5% decrease from $3.1 million for the corresponding period in 2009, primarily due to reduced corporate events in the third quarter and other miscellaneous expenses.
  • Selling and marketing expenses were $1.5 million for the third quarter of 2010, which represented a 45.7% increase from $1.0 million for the corresponding period in 2009. This increase was attributable primarily to an increase in advertising expenses at our 101 online tutoring programs, learning centers network, and selected subsidiaries in the third quarter of 2010.
  • Research and development expenses for the third quarter of 2010 were $1.4 million, representing a 28.5% increase from $1.1 million in the corresponding period in 2009, primarily due to increased staff and related increased depreciation expenses associated with the new research and development initiatives for both degree and non-degree programs.
  • Share-based compensation for the third quarter of 2010, which was allocated to the related cost and operating expense line items, slightly increased to $0.3 million, as compared to $0.2 million for the corresponding period in 2009.

Income from Operations

As a result of the factors discussed above, income from operations for the third quarter of 2010 was $3.7 million, representing a 25.1% increase as compared to $3.0 million for the corresponding period of 2009. Operating margin increased to 24.7% for the third quarter of 2010, as compared to 22.2% in the corresponding period of 2009.

Adjusted income from operations, which is a non-GAAP measure defined as income from operations excluding share-based compensation, and amortization of intangible assets and land use rights, was $4.2 million for the third quarter of 2010, representing an increase of 22.9% as compared to $3.4 million in the corresponding period of 2009. Adjusted operating margin, which is a non-GAAP measure defined as a ratio of adjusted operating income from operations (non-GAAP) over net revenue, for the third quarter of 2010 improved to 27.6% as compared to 25.3% for the corresponding period of 2009.

Interest Income and Investment Income

Interest income and investment income for the third quarter of 2010 increased 101.9% to $0.32 million, as compared to $0.16 million in the corresponding quarter of 2009.

Income Tax Expense

Income tax expense for the third quarter of 2010 was $0.7 million, which remained flat from income tax expense of $0.7 million for the corresponding period in 2009.

Noncontrolling Interest

Noncontrolling interest was $1.6 million in the third quarter of 2010, representing an increase from $1.3 million in the corresponding period in 2009, which was attributable primarily to the noncontrolling interest impact related to the increased net income from the online degree programs for the third quarter of 2010, as compared to the third quarter of 2009.

Net Income attributable to ChinaEdu

Net income attributable to ChinaEdu, which is net income excluding net income attributable to noncontrolling interest, was $1.8 million for the third quarter of 2010, representing an increase of 60.6% from $1.1 million for the corresponding period in 2009. The increase was primarily due to the increased revenue and improved gross margin across all of our business lines except for the international curriculum programs, as well as improved operating efficiencies.

Net income attributable to ChinaEdu per basic and diluted ADS were $0.109 and $0.101, respectively, for the third quarter of 2010, as compared to $0.067 and $0.061, respectively, for the corresponding period in 2009, which represented increase of 62.7% and 65.6%, respectively.

Adjusted net income attributable to ChinaEdu (non-GAAP) increased by 46.9% to $2.2 million for the third quarter of 2010 from $1.5 million in the corresponding period of 2009. Adjusted net margin, which is a non-GAAP measure defined as a ratio of adjusted net income attributable to ChinaEdu (non-GAAP) over net revenue, was 14.4% in the third quarter of 2010, as compared to 11.0% in the corresponding period of 2009. The increase was primarily due to improvement in operating results across our online degree programs including learning centers network, 101 online tutoring programs and private schools, offset by a decline in operating results of the international curriculum programs.

Adjusted net income attributable to ChinaEdu per basic and diluted ADS (non-GAAP) were $0.135 and $0.125, respectively, for the third quarter of 2010, as compared to $0.091 and $0.084, respectively, for the corresponding period in 2009, which represented increase of 48.4% and 48.8%, respectively.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITDA (non-GAAP) was $5.0 million for the third quarter of 2010, which increased by 24.5%, as compared to $4.0 million for the corresponding period in 2009. Adjusted EBITDA margin (non-GAAP) was 33.1% in the third quarter of 2010 as compared to 29.9% in the third quarter of 2009. This increase was attributable primarily to improved operating results as discussed above.

Deferred Revenue

Deferred revenue at the end of the third quarter of 2010 was $6.7 million, with current deferred revenue of $5.4 million and non-current deferred revenue of $1.3 million. Spring semester tuition is received generally during the second quarter and revenue is recognized in the second and third quarter of each year.

Cash and Cash Equivalents and Term Deposits

As of September 30, 2010, ChinaEdu reported cash and cash equivalents and term deposits of $47.2 million, which 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.

Amounts Due from Related Parties

Amounts due from related parties (which represent cash owed to us by our collaborative alliance partners) were $30.3 million as of September 30, 2010.

2010 Year-to-Date Financial Results

Net Revenue

For the nine months ended September 30, 2010, total net revenue was $43.0 million, which represented an increase of 11.1% from $38.7 million for the corresponding period in 2009. Net revenue from online degree programs for the nine months ended September 30, 2010 was $34.3 million, representing a 9.8% increase from $31.2 million for the corresponding period in 2009. And net revenue from non-online degree programs for the nine months ended September 30, 2010 was $8.8 million, as compared to $7.5 million for the corresponding period in 2009, representing a 16.1% increase. The growth in total net revenue was mainly attributable to (i) strong enrollment for the online degree programs both in the fall semester of 2009 and spring semester of 2010, representing an increase in total enrollment of 12.1%, as compared to the total enrollment in the fall semester of 2008 and spring semester of 2009; (ii) 42.1% growth in net revenue at Anqing School resulting from increased enrollment at the new campus, and (iii) 25.5% net revenue growth at 101 online tutoring programs.

Cost of Revenue

For the nine months ended September 30, 2010, total cost of revenue was $15.4 million, which remained stable as compared to $15.1 million for the corresponding period in 2009. Cost of revenue at our online degree programs slightly increased for the nine months ended September 30, 2010 as compared to the corresponding period of 2009. For non-online degree programs, the slight decrease in cost of revenue for 101 online tutoring programs and decrease in cost of revenue at the international curriculum programs were offset by an increase in staff and depreciation charges at the Anqing School.

Gross Profit and Gross Margin

Gross profit for the nine months ended September 30, 2010 was $27.6 million which grew by 16.5% as compared with $23.7 million for the corresponding period in 2009. Total gross margin for the first nine months of 2010 increased to 64.1% as compared to 61.1% in corresponding period in 2009. Gross margin improved across our business lines except for the international curriculum programs, primarily due to improved profitability at our learning centers networks, 101 online tutoring programs and private schools.

Income from Operations

Income from operations was $10.9 million for the nine months ended September 30, 2010, representing an increase of 22.7% from $8.9 million for the corresponding period in 2009. Operating margin was 25.4% for the nine months ended September 30, 2010, as compared to 23.0% for the corresponding period in 2009.

Adjusted income from operations (non-GAAP) was $12.1 million for the nine months ended September 30, 2010, representing an increase of 15.8%, compared to $10.4 million in the corresponding period of 2009. Adjusted operating margin (non-GAAP) for the nine months ended September 30, 2010 was 28.1%, which improved from 27.0% for the corresponding period in 2009.

Net Income attributable to ChinaEdu

Net income attributable to ChinaEdu was $4.9 million for the nine months ended September 30, 2010, representing an increase of 26.4% from $3.8 million for the corresponding period in 2009. Net margin was 11.3% for the nine months ended September 30, 2010, as compared to 9.9% for the corresponding period in 2009.

Adjusted net margin was 13.8% for the nine months ended September 30, 2010, which increased slightly from 13.6% for the corresponding period of 2009.

Adjusted EBITDA (Non-GAAP)

Adjusted EBITDA (non-GAAP) was $14.4 million for the nine months ended September 30, 2010, representing an increase of 17.8%, as compared to $12.2 million for the corresponding period in 2009. Adjusted EBITDA margin was 33.5% for the nine months ended September 30, 2010, which improved as compared to 31.6% for the corresponding period of 2009. This increase was attributable primarily to improved operating results as discussed above.

Fourth Quarter 2010 Total Net Revenue Guidance

For the fourth quarter of 2010, ChinaEdu expects its total net revenue to be in the range of RMB99 million to RMB106 million or $14.8 million to $15.8 million. This forecast reflects ChinaEdu's current and preliminary view, which is subject to change.

Conference Call

ChinaEdu senior management will host a conference call on Friday, November 19, 2010 at 8:00 a.m. U.S. Eastern time / 5:00 a.m. U.S. Pacific time / 9:00 p.m. Beijing/Hong Kong time.

The conference call may be accessed by calling (US) 866 783 2137/ (International) +1 857 350 1596/ (HK) +852 3002 1672/ (China) +86 10 800 130 0399; Passcode: 86174106.  A telephone replay will be available shortly after the call until November 26, 2010 at (US) 888 286 8010/ (International) +1 617 801 6888; Passcode: 45690405. A live and archived webcast may be accessed via ChinaEdu's investor relations website at http://ir.chinaedu.net.

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. The Company also uses adjusted EBITDA, which is also a non-GAAP measure and is adjusted from GAAP results of net income to exclude interest income, taxes, depreciation, amortization of intangible assets and land use rights, and share-based compensation. These non-GAAP financial measures are provided to enhance the investors' overall understanding of the Company's current and past 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.

About ChinaEdu

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 and support for international curriculum programs.

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 18 universities through its nationwide learning centers 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.

Company Contacts:


Min Yang


ChinaEdu Corporation


Phone: +86-10-8418-6655 ext.1012


E-mail: ir@chinaedu.net






ChinaEdu Corporation


Unaudited Condensed Consolidated Balance Sheets




(in thousands, unaudited)

December
31,2009

September
30,2010

September
30,2010




RMB

RMB

US$








Current assets:






Cash and cash equivalents

203,143

153,988

23,016



Term deposits

122,304

161,572

24,149



Restricted cash

365

365

55



Short-term investments

17,706

32,060

4,792



Accounts receivable, net

28,334

23,261

3,477



Inventory

1,852

1,329

199



Prepaid expenses and other current assets

25,315

22,065

3,297



Amounts due from related parties

176,802

203,022

30,345



Deferred tax assets

3,309

966

144


Total current assets

579,130

598,628

89,474



Long-term investments

4,210

1,210

181



Prepaid acquisition cost

-

7,460

1,115



Deferred tax assets

1,541

3,009

450



Rental deposits

868

1,055

157



Land use rights, net

27,874

27,417

4,098



Property and equipment, net

203,995

223,496

33,405



Deposits paid for acquisition of property and equipment

13,898

19,792

2,958



Acquired intangible assets, net

66,621

64,335

9,616



Goodwill

38,155

38,155

5,703


Total assets

936,292

984,557

147,157








Liabilities and equity





Current liabilities:






Short term loan

-

5,756

860



Accounts payable (including accounts payable of the consolidated VIEs without recourse to
 ChinaEdu Group of 5,351 and 4,519 as of December 31, 2009 and September 30, 2010)

6,467

6,362

951



Deferred revenues (including deferred revenues of the consolidated VIEs without recourse to
 ChinaEdu Group of 17,786 and 18,335 as of December 31, 2009 and September 30, 2010)

97,853

35,970

5,376



Accrued expenses and other current liabilities (including accrued expenses and other current
 liabilities of the consolidated VIEs without recourse to ChinaEdu Group of 11,066 and 14,842
 as of December 31, 2009 and September 30, 2010)

68,917

77,755

11,622



Amounts due to related parties (including amounts due to related parties of the consolidated VIEs
 without recourse to ChinaEdu Group of 2,065 and 1,631 as of December 31, 2009 and
 September 30, 2010)

25,668

52,482

7,844



Income taxes payable (including income taxes payable of the consolidated VIEs without recourse to
 ChinaEdu Group of 7,770 and 9,237 as of December 31, 2009 and September 30, 2010)

33,389

42,439

6,343



Other taxes payable (including other taxes payable of the consolidated VIEs without recourse to
 ChinaEdu Group of 2,285 and 2,269 as of December 31, 2009 and September 30, 2010)

15,900

15,979

2,388


Total current liabilities

248,194

236,743

35,384



Deferred revenues (including deferred revenues of the consolidated VIEs without recourse to
 ChinaEdu Group of 113 and 97 as of December 31, 2009 and September 30, 2010)

8,075

8,934

1,336



Deferred tax liabilities (including deferred tax liabilities of the consolidated VIEs without recourse to
 ChinaEdu Group of 1,381 and 1,365 as of December 31, 2009 and September 30, 2010)

10,143

9,704

1,450



Unrecognized tax benefit (including unrecognized tax benefit of the consolidated VIEs without
 recourse to ChinaEdu Group of 1,145 and 1,235 as of December 31, 2009 and September 30, 2010)

7,727

8,275

1,237


Total liabilities

274,139

263,656

39,407








   ChinaEdu shareholders’ equity

559,973

599,152

89,553



Noncontrolling interests

102,180

121,749

18,197


Total  equity

662,153

720,901

107,750


Total liabilities and equity

936,292

984,557

147,157
















ChinaEdu Corporation


Unaudited Condensed Consolidated Statements of Operations




Three Months Ended


Nine Months Ended


(in thousands, unaudited, except for percentage,
share, and per share information)


September
30,2009


June
30,2010


September
30,2010


September
30,2010


September
30,2009


September
30,2010


September
30,2010




RMB


RMB


RMB


US$


RMB


RMB


US$


















Gross Revenue *


94,303


104,108


105,115


15,711


272,576


300,312


44,887


















Business Tax and Surcharge


4,559


4,591


4,044


604


13,387


12,447


1,861


















Net Revenue:
















Online degree programs


71,510


80,188


80,560


12,041


208,721


229,263


34,267


Online tutoring programs


5,778


6,084


6,180


924


14,074


17,665


2,640


Private primary and secondary schools


7,669


9,454


10,848


1,621


20,811


29,582


4,422


International curriculum programs


4,787


3,791


3,483


521


15,583


11,355


1,697


Total net revenue


89,744


99,517


101,071


15,107


259,189


287,865


43,026


















Cost of revenue:
















Online degree programs


23,633


24,417


25,986


3,884


68,853


71,451


10,679


Online tutoring programs


1,426


1,473


1,486


222


4,491


4,124


616


Private primary and secondary schools


7,070


7,016


7,138


1,067


18,811


20,878


3,121


International curriculum programs


2,840


2,052


2,362


353


8,581


6,825


1,020


Total cost of revenue


34,969


34,958


36,972


5,526


100,736


103,278


15,436


















Gross profit:
















Online degree programs


47,877


55,771


54,574


8,157


139,868


157,812


23,588


Online tutoring programs


4,352


4,611


4,694


702


9,583


13,541


2,024


Private primary and secondary schools


599


2,438


3,710


554


2,000


8,704


1,301


International curriculum programs


1,947


1,739


1,121


168


7,002


4,530


677


Total gross profit


54,775


64,559


64,099


9,581


158,453


184,587


27,590


















Online degree programs


67.0%


69.6%


67.7%


67.7%


67.0%


68.8%


68.8%


Online tutoring programs


75.3%


75.8%


76.0%


76.0%


68.1%


76.7%


76.7%


Private primary and secondary schools


7.8%


25.8%


34.2%


34.2%


9.6%


29.4%


29.4%


International curriculum programs


40.7%


45.9%


32.2%


32.2%


44.9%


39.9%


39.9%


Gross margin


61.0%


64.9%


63.4%


63.4%


61.1%


64.1%


64.1%


















Operating expenses:
















General and administrative


20,519


18,400


19,605


2,930


59,844


57,925


8,658


Selling and marketing


6,766


8,056


9,856


1,473


17,110


25,652


3,834


Research and development


7,522


9,512


9,665


1,445


21,975


27,948


4,177


Total operating expenses


34,807


35,968


39,126


5,848


98,929


111,525


16,669


Income from operations


19,968


28,591


24,973


3,733


59,524


73,062


10,921


Operating margin


22.2%


28.7%


24.7%


24.7%


23.0%


25.4%


25.4%


















Other income


(264)


144


143


21


987


431


64


Interest income


1,041


1,345


1,560


233


3,895


3,962


592


Interest expense


(1)


-


-


-


(1)


-


-


Investment income


-


522


549


82


-


1,071


160


Income before income tax provisions


20,744


30,602


27,225


4,069


64,405


78,526


11,737


















Income tax expense


(4,835)


(6,441)


(4,723)


(706)


(13,800)


(19,335)


(2,890)


Net income


15,909


24,161


22,502


3,363


50,605


59,191


8,847


Net income attributable to the noncontrolling interests


(8,610)


(10,616)


(10,777)


(1,611)


(24,882)


(26,689)


(3,989)


Net income attributable to ChinaEdu


7,299


13,545


11,725


1,752


25,723


32,502


4,858


Net margin


8.1%


13.6%


11.6%


11.6%


9.9%


11.3%


11.3%


















Net income attributable to ChinaEdu per ADS:
















     Basic


0.45


0.84


0.73


0.109


1.58


2.03


0.303


     Diluted


0.41


0.78


0.68


0.101


1.47


1.87


0.280


















Weighted average aggregate number of ADSs outstanding:
















     Basic


16,227,267


16,029,983


16,043,240


16,043,240


16,326,294


16,009,690


16,009,690


     Diluted


17,604,567


17,376,199


17,306,106


17,306,106


17,479,334


17,359,851


17,359,851


































* Gross revenue are detailed as follows
















Online degree programs


75,564


84,365


84,148


12,577


220,751


240,971


36,017


Online tutoring programs


6,002


6,278


6,399


957


14,472


17,710


2,647


Private primary and secondary schools


7,671


9,454


10,882


1,626


20,863


29,616


4,427


International curriculum programs


5,066


4,011


3,686


551


16,490


12,015


1,796




















ChinaEdu Corporation


Unaudited Condensed Consolidated Statements of Cash Flow




Three Months Ended


Nine Months Ended


(in thousands, unaudited)


September

30,2009


June

30,2010


September

30,2010


September

30,2010


September

30,2009


September

30,2010


September

30,2010




RMB


RMB


RMB


US$


RMB


RMB


US$


















Operating activities:
















      Net income


15,909


24,161


22,502


3,363


50,605


59,191


8,847


      Adjustments to reconcile net income to net cash provided by operating activities:
















          Share-based compensation


1,488


366


1,700


254


5,805


4,204


628


          Depreciation and amortization of property and equipment


4,119


4,820


4,957


741


12,043


14,467


2,162


          Amortization of land use rights


152


153


152


23


467


457


68


          Amortization of acquired intangible assets


1,114


1,093


1,088


163


4,108


3,261


487


          Provision for amounts due from related parties and account receivables


16


-


-


-


425


-


-


          Loss (gain) from disposal of property and equipment  


110


(8)


4


1


203


-


-


          Deferred income taxes


(613)


269


(318)


(48)


357


436


65


     Changes in assets and liabilities
















          Accounts receivable


11,797


(16,907)


9,100


1,360


1,277


5,073


758


          Inventory


(722)


119


4


1


(1,799)


523


78


          Prepaid expenses and other current assets


(6,582)


(4,805)


348


52


(2,275)


5,043


754


          Amounts due from related parties


26,821


(112,040)


50,989


7,621


(37,841)


(26,220)


(3,919)


          Rental deposits


(67)


(111)


(65)


(10)


28


(187)


(28)


          Land use rights


-


-


-


-


(1,989)


-


-


          Accounts payable


(1,368)


1,164


1,636


245


1,488


1,992


298


          Deferred revenues


(60,114)


70,558


(70,660)


(10,561)


(60,725)


(61,023)


(9,121)


          Accrued expenses and other current liabilities


8,437


9,310


4,975


744


9,039


8,839


1,321


          Amounts due to related parties


11,946


27,653


(17,200)


(2,571)


37,791


21,183


3,166


          Income tax payable  


4,800


6,401


4,960


741


341


9,050


1,353


          Other taxes payable


2,122


3,380


1,533


229


1,838


79


12


          Unrecognized tax benefit


89


125


60


9


2,070


547


82


Net cash provided by operating activities


19,454


15,701


15,765


2,357


23,256


46,915


7,011


















Investing activities:
















          Purchase of property and equipment


(10,270)


(3,509)


(12,052)


(1,801)


(50,794)


(22,251)


(3,326)


          Deposits paid for acquisition of property and equipment


2,616


-


(19,792)


(2,958)


2,616


(19,792)


(2,958)


          Purchase of term deposits


(8,988)


(55,318)


17,800


2,660


(24,988)


(39,537)


(5,909)


          Prepaid acquisition cost


-


-


(7,460)


(1,115)


-


(7,460)


(1,115)


          Purchase of investments


(14,083)


(11,924)


(1,494)


(223)


(14,083)


(13,418)


(2,006)


          Proceeds from sale of investment


-


-


3,000


448


-


3,000


448


          Purchase of contractual right


-


-


-


-


(500)


-


-


          Acqisition of noncontrolling interest


-


-


(998)


(149)


-


(998)


(149)


          Proceeds from disposal of property and equipment


-


59


-


-


-


108


16


Net cash used in investing activities


(30,725)


(70,692)


(20,996)


(3,138)


(87,749)


(100,348)


(14,999)


















Financing activities:
















          Proceeds from exercise of share options


2,463


847


574


86


3,887


2,760


413


          Prepayment for share repurchase


-


(1,824)


-


-


-


(1,824)


(273)


          Repurchase and cancellation of ordinary shares


(249)


(210)


-


-


(61,896)


(323)


(48)


          Short term loan


2,117


-


5,756


860


2,117


5,756


860


          Cash dividends paid to noncontrolling shareholders


-


-


(196)


(29)


(10,600)


(1,666)


(249)


          Capital contributions by noncontrolling shareholders


-


-


-


-


980


-


-


Net cash provided by (used in) financing activities


4,331


(1,187)


6,134


917


(65,512)


4,703


703


















Effect of foreign exchange rate changes


48


(213)


(208)


(32)


312


(425)


(62)


















CASH AND CASH EQUIVALENTS, beginning of period


231,132


209,684


153,293


22,912


353,933


203,143


30,363


















CASH AND CASH EQUIVALENTS, end of period


224,240


153,293


153,988


23,016


224,240


153,988


23,016


















Net  increase (decrease) in cash and cash equivalents


(6,892)


(56,391)


695


104


(129,693)


(49,155)


(7,347)




















































ChinaEdu Corporation


Reconciliations from income from operations to adjusted income from operations (non-GAAP) and adjusted operating margin (non-GAAP)






Three Months Ended


Nine Months Ended


(in thousands, unaudited)


September

30,2009


June

30,2010


September

30, 2010


September

30, 2010


September

30,2009


September

30, 2010


September

30, 2010




RMB


RMB


RMB


US$


RMB


RMB


US$


















Net revenue


89,744


99,517


101,071


15,107


259,189


287,865


43,026


Income from operations


19,968


28,591


24,973


3,733


59,524


73,062


10,921


Adjustment:
















 Share-based compensation


1,488


366


1,700


254


5,805


4,204


628


 Amortization


1,266


1,246


1,240


186


4,575


3,718


555


Adjusted income from operations (non-GAAP)


22,722


30,203


27,913


4,173


69,904


80,984


12,104


Adjusted operating margin (non-GAAP)


25.3%


30.3%


27.6%


27.6%


27.0%


28.1%


28.1%




















ChinaEdu Corporation


Reconciliation from net income to adjusted EBITDA (non-GAAP) and adjusted EBITDA margin (non-GAAP)






Three Months Ended


Nine Months Ended


(in thousands, unaudited)


September
30,2009


June
30,2010


September
30, 2010


September
30, 2010


September
30,2009


September
30, 2010


September
30, 2010




RMB


RMB


RMB


US$


RMB


RMB


US$


















Net revenue


89,744


99,517


101,071


15,107


259,189


287,865


43,026


Net income


15,909


24,161


22,502


3,363


50,605


59,191


8,847


Adjustment:
















 Income tax expense


4,835


6,441


4,723


706


13,800


19,335


2,890


 Share-based compensation


1,488


366


1,700


254


5,805


4,204


628


 Amortization


1,266


1,246


1,240


186


4,575


3,718


555


 Depreciation


4,119


4,820


4,957


741


12,043


14,467


2,162


 Interest income and other, net


(776)


(1,489)


(1,703)


(254)


(4,881)


(4,393)


(656)


Adjusted EBITDA (non-GAAP)


26,841


35,545


33,419


4,996


81,947


96,522


14,426


Adjusted EBITDA margin (non-GAAP)


29.9%


35.7%


33.1%


33.1%


31.6%


33.5%


33.5%




















ChinaEdu Corporation


Reconciliations from net income attributable to ChinaEdu to adjusted net income attributable to ChinaEdu (non-GAAP),
adjusted net margin (non-GAAP) and adjusted net income per ADS (non-GAAP)






Three Months Ended


Nine Months Ended


(in thousands, unaudited)


September

30,2009


June

30,2010


September

30, 2010


September

30, 2010


September

30,2009


September

30, 2010


September

30, 2010




RMB


RMB


RMB


US$


RMB


RMB


US$


















Net revenue


89,744


99,517


101,071


15,107


259,189


287,865


43,026


Net income attributable to ChinaEdu


7,299


13,545


11,725


1,752


25,723


32,502


4,858


Adjustment:
















 Share-based compensation


1,488


366


1,700


254


5,805


4,204


628


 Share-based compensation attributable to the noncontrolling interest


(168)


(381)


(149)


(22)


(742)


(773)


(116)


 Amortization


1,266


1,246


1,240


186


4,575


3,718


555


Adjusted net income attributable to ChinaEdu (non-GAAP)


9,885


14,776


14,516


2,170


35,361


39,651


5,925


Adjusted net margin (non-GAAP)


11.0%


14.8%


14.4%


14.4%


13.6%


13.8%


13.8%


















Adjusted net income attributable to ChinaEdu per ADS (non-GAAP)
















     Basic


0.61


0.92


0.90


0.135


2.17


2.48


0.370


     Diluted


0.56


0.85


0.84


0.125


2.02


2.28


0.341


















Weighted average aggregate number of ADSs outstanding:
















     Basic


16,227,267


16,029,983


16,043,240


16,043,240


16,326,294


16,009,690


16,009,690


     Diluted


17,604,567


17,376,199


17,306,106


17,306,106


17,479,334


17,359,851


17,359,851

















Source: ChinaEdu Corporation

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