China Education Alliance, Inc. Announces Record Third Quarter 2010 Financial Results

HARBIN, China, Nov. 9, 2010 /PRNewswire-Asia-FirstCall/ -- China Education Alliance, Inc. (NYSE: CEU) today announced strong financial results for the three and nine months ended September 30, 2010. The Company will host a conference call Tuesday, November 9, 2010, at 10:00 a.m. EST to discuss these results.

Financial Highlights for the Three Months Ended September 30, 2010

• Total revenue increased 40.5% year-over-year to $14.4 million
• Gross profit rose 45.7% to $12 million; gross margin increased 290 basis points to 83.3%
• Net income increased 26% year-over-year to $5.3 million; fully diluted EPS was $0.17

"We achieved strong growth in our online education and training center businesses. This acceleration in our organic revenue growth led to further margin expansion, signifying the high profitability of incremental revenues in our business model," stated Xiqun Yu, Chief Executive Officer of China Education Alliance, Inc. "Today our operations are centered within the four northeast provinces of China where there are an estimated 10 million students, aged 6 to 18. Of those students, we are currently providing our education services to approximately 500,000 to 600,000, or 5% of the addressable market. Going forward, we expect our growth initiative will enable us to penetrate this market and gain additional market share, and for this year, we remain confident in achieving our target of 30 percent revenue growth."

Summary Financials for Three Months ended September 30, 2010:

China Education Alliance reported total revenue of $14.4 million for the third quarter ended September 30, 2010, an increase of 40.5% compared to $10.2 million for the third quarter of 2009. The Company's online education business generated 60% of its total revenue in the third quarter of 2010 compared to 56.4% for the same prior-year period. The training center division of the business generated 36.3% of total revenue in the third quarter of 2010 compared to 37.7% for the same prior-year period. Other business, including advertising, generated the remaining 3.7% of total revenue in the third quarter of 2010, compared to 5.9% for the same prior-year period.

Online education revenue totaled $8.6 million for the third quarter of 2010, an increase of 49.6% compared to $5.8 million for the third quarter of 2009. Training center revenue in the third quarter of 2010 totaled $5.2 million, up 35.6% from $3.9 million in the third quarter last year. Other revenue, including advertising, was approximately $0.52 million for the third quarter of 2010, a decrease of 14.0% from $0.61 million in the third quarter last year.

Total cost of sales was $2.4 million for the third quarter of 2010 compared to $2.0 million for the same period in 2009. Gross profit increased 45.7% to $12 million in the third quarter of 2010. Gross margin was 83.3% for the third quarter of 2010, compared to 80.4% for the same quarter a year ago. Third quarter 2010 gross margins were 85.1%, 79.3%, and 93% for online education, training center, and other, respectively.

Selling expenses increased 68.3% to approximately $5.2 million for the third quarter of 2010, compared to $3.1 million in the third quarter of 2009, which include media advertising, outdoor advertising ,agent fees and commissions associated with sales of our exam prep debit cards and enrollment of onsite training centers. A major part of the selling expenses were the 10-20% sales commission associated with sales of our exam prep debit cards. General and administrative ("G&A") expenses were approximately $0.78 million for the third quarter of 2010, compared to $0.43 million in the third quarter of 2009. The G&A increase was due to refurbishment of our Harbin office, the expenses from the newly acquired New Xifan, and  the activities from U.S. company.  As a percentage of revenue, selling expenses totaled 36% of the total revenue in the third quarter 2010 compared to 30% for the same period one year prior. G&A expenses totaled 5.4% of total revenue in the third quarter 2010 compared to 4.2% for the same period of last year.

Operating income for the third quarter of 2010 increased 30% to $5.8 million compared to $4.4 million in the same period a year ago. Operating income margin was 40% in the third quarter of 2010 compared to 43% in the third quarter of 2009.

Net income for the third quarter of 2010 was $5.3 million, an increase of 25.8% compared to net income of $4.2 million for the third quarter of 2009. Diluted earnings per share were $0.17 based on 31.3 million shares outstanding for the third quarter of 2010, compared to $0.16 per diluted share based on 25.6 million shares outstanding for the same period one year prior.

Summary Financials for nine months ended September 30, 2010:

Financial results for the nine months ended September 30, 2010

Revenue for the nine months ended September 30, 2010 was $33.9 million, an increase of 27.5% compared to $26.6 million for the same nine-month period in 2009. Online education revenue increased 32.2% compared to $16.1 million due to increase in the sale of debit cards for students downloading our online exam prep material. Training center revenue was $11 million, an increase of 31% due to increase in our IT center, compared to $8.4 million in the year-ago period.

Other revenue decreased 23.6% in the nine months ended September 30, 2010 due to a strategic shift away from advertising and network service.

Total gross profit increased 33.8% to $27.9 million for the nine months ended September 30, 2010 compared to $20.8 million for the same period one year earlier. Gross margin expanded 390 basis points year-over-year to 82.3% due to positive operating leverage from the strong sales growth.

Operating expenses were $13.4 million for the first nine months of 2010, an increase of 44.6% from the $9.3 million reported in the comparable period last year.

Net income for the nine months ended September 30, 2010 totaled $13.2 million, an increase of 22.8% compared to $10.7 million for the same period a year ago. Diluted earnings per share totaled $0.42 based on 31.6 million shares outstanding for the first nine months of 2010.

Liquidity and Capital Resources

As of September 30, 2010, China Education Alliance had approximately $77.5 million or $2.48 per share in cash. The increase was primarily due to $16.9 million of cash flows from operations during the first nine months of 2010. As of September 30, 2010 working capital totaled $81.4 million, an increase of $14.6 million or 21.9% compared to $66.7 million as of December 31, 2009. The company had no long-term debt as of September 30, 2010. Shareholders' equity was approximately $89.4 million, an increase of $14.1 million from approximately $75.3 million on December 31, 2009.

Mr. Xiqun Yu, stated, "Our strong cash flow and balance sheet provides our company with tremendous financial flexibility to invest in our future growth. While organic growth will continue to represent the largest contributor to our growth, we will accelerate the pace of new onsite tutoring facilities and acquisitions. Organically, we remain committed to providing our students the best teachers and curriculum and providing our adult students the best education platform to ensure they are marketable to employers."

Mr. Yu, continued, "We have completed construction of one new tutoring facility in Beijing and have three under construction. We plan to reach a minimum of 50 facilities over the next three years. We expect the facilities currently under construction to be completed and begin generating revenue in early 2011. We project an average cost to a new tutoring facility to be around $500,000, resulting in a 12-18 months average payback period.

In addition to constructing our own facilities, we are also aggressively evaluating several facility acquisition candidates. Our overall growth strategy will significantly enhance our product offering, expand our brand value and customer reach, which will drive revenue and earnings growth and ultimately increase shareholder value."

Conference Call and Webcast Details

The Company will host a conference call to discuss financial results for the third quarter ended September 30, 2010 on Tuesday, November 9, 2010 at 10:00 a.m. Eastern time (7:00 a.m. Pacific).

To participate in the call, please dial (877) 941-8602, or (480) 629-9811 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties may also listen via a live Internet webcast, which can be found at the Company's website at http://www.chinaeducationalliance.com.

A replay of the call will be available for two weeks from 1:00 p.m. Eastern on November 9, 2010, until 11:59 p.m. Eastern on November 23, 2010. The number for the replay is (877) 870-5176, or (858) 384-5517 for international calls. The passcode for the replay is 4382872. In addition, a recording of the call will be available via the company's website at http://www.chinaeducationalliance.com for one year.

About China Education Alliance, Inc.

China Education Alliance, Inc. (http://www.chinaeducationalliance.com) is a fast-growing, leading, China-based company offering high-quality education resources and services to students ages 6 to 18 and adults (university students and professionals) ages 18 and over. For students ages 6 to 18, China Education Alliance offers supplemental, online exam-oriented training materials and onsite, exam-oriented training and tutoring services. The company provides online, downloadable famous-teacher resources and onsite, personalized instruction. All resources and tutoring services are provided by famous teachers within mainland China. The purpose of online exam-orientated resources and onsite tutoring is to help Chinese students (ages 6 to 18) pass the two most important and highly competitive exams in their educational career: the senior high school entrance and college entrance exams. For graduates and professionals age 18 and over, China Education Alliance provides vocational training including IT and several professional training programs.

Safe Harbor Statement

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release, constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our ability to prepare the company for growth, the Company's planned expansion in 2009 and predictions and guidance relating to the Company's future financial performance. We have based these forward- looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs and are not a guarantee of future performance but they involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as unanticipated changes in product demand especially in the education industry, pricing and demand trends for the Company's products, changes to government regulations, risk associated with operation of the Company's new facilities, risk associated with large scale implementation of the company's business plan, the ability to attract new customers, ability to increase its product's applications, cost of raw materials, downturns in the Chinese economy, the adoption by consumers of its new game business, the unproven advertising model that is dependent on attracting a large game user base, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission. Investors are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release, readers are cautioned not to place undue reliance on any of them and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.

-- Financial tables follow --