Noah Education Announces Unaudited Third Quarter of Fiscal Year 2012 Results

SHENZHEN, China, May 15, 2012 /PRNewswire-Asia/ -- Noah Education Holdings Ltd. ("Noah" or the "Company") (NYSE: NED), a leading provider of education services in China, today announced its unaudited financial results for the third quarter of fiscal year 2012 ended March 31, 2012

Third Quarter Fiscal 2012 Highlights

• Net revenue increased 61.1% year-over-year to RMB37.3 million (US$5.9 million)
• Gross profit increased 38.8% year-over-year to RMB17.3 million (US$2.8 million), and gross profit margin was 46.5%
• Operating loss was RMB1.8 million (US$0.3 million), compared to operating loss of RMB6.7 million in the third quarter of fiscal 2011
• Net income increased 31.7% year-over-year to RMB2.2 million (US$0.3 million)
• Basic and diluted earnings per share were RMB0.04 (US$0.01), compared to basic and diluted earnings per share of RMB0.02in the third quarter of fiscal 2011 from continuing operations
• Non-GAAP basic and diluted earnings per share were RMB0.05 (US$0.01) from continuing operations, compared to non-GAAP basic and diluted earnings per share of RMB0.06 in the third quarter of fiscal 2011
• Total student enrollments reached approximately 17,500, representing an increase of approximately 43% year-over-year

Commenting on the results, Dong Xu, Chairman and Chief Executive Officer of Noah, said, "We are pleased to report another strong quarter of revenue growth that exceeded guidance, in a quarter that is traditionally a slow season with the presence of the winter break. The kindergarten operations remain our key growth driver, recording about a 220.3% year-over-year growth and accounting for 55.0% of our net revenue. The robust performance of our kindergarten platform, as a vital entry point for a student's lifelong education and a sound base from which to broaden our offering, validates our growth strategy and is expected to continue to fuel our organic growth."

Mr. Xu continued, "Looking ahead into the next quarter, we will continue to seek a balance of growth and profitability. We will continue to ramp up existing schools and kindergartens, with the aim to achieve higher utilization rates and operating efficiency in the next academic year, while managing gross margin at the expected level. We also expect a strong quarter in terms of revenue recognition, as there is no school break between April and June and we anticipate full three months revenue contribution from all kindergartens and schools. As our operations grow organically, we will continue to pursue acquisition opportunities with our strong cash position, creating long-term values for our shareholders."

Commenting on the financials, Dora Li, Chief Financial Officer, said, "We saw a modest improvement in our gross margin this quarter over last quarter, and successfully exceeded the indicated 45% level. We expect the overall gross margin for fiscal 2012 to maintain above 45%. On the operations front we sustained our investment in R&D, brand building and human capital, which is vital for future development. While we were impacted by a number of one-off expenses during the current fiscal year, we expect that, excluding these one-off expenses, our operations are on course to achieve break even by the end of fiscal 2012."

Third Quarter Fiscal Year 2012 Unaudited Financial Results

Net revenue

Net revenue for the third quarter of fiscal 2012 increased 61.1% to RMB37.3 million (US$5.9 million) from RMB23.1 million in the third quarter of fiscal 2011, driven mainly by the organic and acquisitive growth from the kindergartens and incremental revenue from newly opened schools.

In terms of revenue breakdown by business lines, revenue from kindergartens for the third quarter of fiscal 2012 was RMB20.5 million (US$3.3 million), representing a year-over-year increase of 220.3% and was driven by incremental revenue contribution from Yuanbo Education's kindergartens and organic growth from existing kindergartens. Revenue from primary and secondary schools was RMB8.7 million (US$1.4 million), representing a year-over-year increase of 1.2%. Revenue from supplemental education, which includes English training courses and sale of teaching materials, was RMB8.1 million (US$1.3 million), remained at a similar level when compared with the third quarter of fiscal 2011 as two of the learning centers were closed for relocation.

Gross profit and gross profit margin

Gross profit for the third quarter of fiscal 2012 increased 38.8% year-over-year to RMB17.3 million (US$2.8 million) from RMB12.5 million for the third quarter of fiscal 2011. The increase in gross profit was primarily driven by the continued strong growth of the kindergarten operations.

Gross profit margin was 46.5%, compared with 53.9% in the third quarter of fiscal 2011, and 44.5% in the second quarter of fiscal 2012. The contraction was mainly due to an expanded portion of revenue contributed by kindergartens, which increased its contribution and accounted for 55.0% of total revenue in the current quarter, as compared with 27.7% in the third quarter of fiscal 2011. The improvement over the last quarter was due to kindergarten operations having made improvements on gross margin while in ramp up stage.

Operating expenses

Operating expenses for the third quarter of fiscal 2012 totaled RMB23.2 million (US$3.7 million), a year-over-year increase of 9.4% from RMB21.2 million. As a percentage of net revenue, operating expenses were 62.3%, down from 91.7% in the same period of fiscal 2011. The operating expenses at its current level were a result of incremental expenses of approximately RMB 4.1 million (US$0.65 million) from Yuanbo Education's kindergartens and newly opened schools in the current fiscal year.

Research and development ("R&D") expenses for the third quarter of fiscal 2012 increased 63.4% year-over-year to RMB0.8 million (US$0.1 million) from RMB0.5 million. As a percentage of net revenue, R&D expenses were 2.1%, a similar level akin to the third quarter of fiscal 2011. In order to build on teaching material and content development capabilities, the Company will maintain its investment in R&D while at the same time focusing its efforts to achieve operational leverage.

Sales and marketing ("S&M") expenses for the third quarter increased 61.8% year-over-year to RMB1.3 million (US$0.2 million) from RMB0.8 million. As a percentage of net revenue, S&M expenses were 3.5%, maintained at the same level as in the same period of fiscal 2011. With the continued expansion of revenue, S&M expenses as a percentage of revenue is expected to maintain at a similar level in fiscal 2012 while the Company sustains its initiatives in brand promotion.

General and administrative ("G&A") expenses for the third quarter of fiscal 2012 increased 6.0% year-over-year to RMB21.1 million (US$3.4 million) from RMB19.9 million. The increase in G&A expenses was mainly due to incremental expenses of RMB4.1 million (US$0.65 million) incurred by Yuanbo Education's kindergartens and newly opened schools in the current fiscal year. As a percentage of net revenue, G&A expenses were 56.6%, compared to 86.1% in the same period of fiscal 2011. The lower percentage of G&A expenses to net revenue primarily reflected the improvement of the Company's operational leverage with the expansion of revenue scale.

Other operating income

Other operating income for the third quarter of fiscal 2012 totaled RMB4.1 million (US$0.6 million), compared to RMB2.1 million in the same quarter of fiscal 2011. The increase was mainly attributable to rental income.

Operating loss

Operating loss for the third quarter of fiscal 2012 was RMB1.8 million (US$0.3 million), compared to an operating loss of RMB6.7 million in the third quarter of fiscal 2011.

Other non-operating income

Interest income for the third quarter of fiscal 2012 was RMB0.2 million (US$0.04 million), compared to RMB0.2 million in the third quarter of fiscal 2011. Investment income for the third quarter of fiscal 2012 was RMB5.5million (US$0.9 million), compared to RMB2.6 million in the third quarter of fiscal 2011. Other non-operating income was RMB0.04 million (US$0.01 million), compared to other non-operating income of RMB7.3 million in the same period of fiscal 2011, which included RMB6.9 million in foreign exchange gains due to the impact of the US dollar depreciation on intercompany loans.

Income tax expenses

Income tax expenses were RMB1.7 million (US$0.3 million) in the third quarter of fiscal 2012, compared to RMB1.8 million for the same period in fiscal 2011.

Net income

Net income for the third quarter of fiscal 2012 was RMB2.2 million (US$0.3 million), a year-over-year increase of 31.7% from RMB1.6 million in the same period of fiscal 2011. Basic and diluted earnings per share were RMB0.04 (US$0.01), compared with basic and diluted earnings per share of RMB0.02in the third quarter of fiscal 2011 from continuing operations.

Net income excluding share-based compensation expenses (non-GAAP) for the third quarter of fiscal 2012 was RMB2.6 million (US$0.4 million), compared with RMB3.2 million in the same period of fiscal 2011. Non-GAAP basic and diluted earnings per share for the third quarter of fiscal 2012 were RMB0.05 (US$0.01), compared with RMB0.06 in the third quarter of fiscal 2011.

Liquidity

Cash and cash equivalents, and short-term other investments totaled RMB526.2 million (US$83.6 million) on March 31, 2012, compared to RMB504.6 million on December 31, 2011. For the three months ended March 31, 2012, the Company generated RMB26.6 million (US$4.2 million) in cash from operations as a result of tuition fees collection at the beginning of the spring school term.

Deferred revenue

Deferred revenue related to tuition fees and franchising fees as of March 31, 2012 was RMB44.5 million (US$7.1 million). This compares to deferred revenue related to tuition fees and franchising fees of RMB24.1 million as of December 31, 2011. Deferred revenue primarily includes the tuition fees and franchising fees collected but has not yet recognized during the quarter. It will be recognized according to course and contract schedule.

Operating Updates

• Total schools and kindergartens network was 51 at the end of the third quarter of fiscal 2012, compared with 27 as of March 31, 2011.The network included:
  • 33 kindergartens - one of the kindergartens was in the process of finalizing licenses and did not contribute to the revenue during the quarter; six of them are in a ramp up period.
  • 5 primary and secondary schools - one of them opened in first quarter of fiscal 2012 remained in ramp up stage.
  • 13 directly owned supplemental training centers - two training centers were closed for relocation and we are in the process of selecting suitable relocation sites. The number of students enrolled in supplemental training centers may temporarily be impacted as a result.
• Student enrollment totaled approximately 17,500, a year-over-year increase of about 43% due to the expansion of the network, and includes:
  • More than 8,900 for kindergartens
  • More than 3,900 for primary and secondary schools
  • More than 4,500 for directly owned supplemental training centers

Financial Outlook for Full Fiscal 2012 and for the Fourth Quarter of Fiscal 2012

Based on current estimates and market conditions, for the fourth quarter of fiscal 2012, Noah expects to generate net revenue in the range of RMB37 million (US$5.9 million) to RMB39 million (US$6.2 million). For the full fiscal 2012, the Company expects to generate revenue between RMB145 million (US$23.0 million) and RMB155 million (US$24.6 million). This forecast reflects Noah's current and preliminary view, which is subject to change.

Conference Call

Noah's senior management will host a conference call at 8:00 am (Eastern)/5:00 am (Pacific)/8:00 pm (Beijing) on Tuesday, May 15, 2012 to discuss its third quarter of fiscal year 2012 financial results and recent business activities. The conference call may be accessed by calling:

Please dial in 10 minutes before the scheduled starting time. An operator will answer your call and please use "Noah" as the verbal passcode to access the call. Replay of the conference call will be available from 11:00 am on May15, 2012 until May 22, 2012 by dialing the following numbers:

A live webcast and replay will be available on the investor relations page of Noah's website at http://ir.noaheducation.com.

Statement Regarding Unaudited Financial Information

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on our year-end financial statements, which could result in significant differences from this unaudited financial information.

Currency Convenience Translation

For the convenience of readers, certain RMB amounts in the statement of operations, balance sheet and cash flow statements have been translated into US dollars at the average rate of RMB6.2975, the noon buying rate for US dollars in effect on March 31, 2012 for cable transfers of RMB per US dollar as certified for customs purposes by the Federal Reserve Bank of New York.

Use of Non-GAAP Financial Measures

In addition to consolidated financial results under GAAP, the Company also provides non-GAAP financial measures, including non-GAAP net income which excludes non-cash share-based compensation. The Company believes that the non-GAAP financial measures provide investors with another method for assessing the Company's operating results in a manner that is focused on the performance of its ongoing operations. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of the Company's liquidity and when planning and forecasting future periods.

About Noah Education Holdings Ltd

Noah is a leading provider of education services in China. The Company's brands include Wentai Education, which operates and manages high-end kindergartens, primary and secondary schools, Little New Star, which provides English language training for children aged 3-12 in its directly owned and franchised training centers, and Yuanbo Education, which focuses on early childhood education services in the Yangtze Delta region. Noah was founded in 2004 and is listed on the New York Stock Exchange under the ticker symbol NED. For more information about Noah, please visit http://ir.noaheducation.com.

Safe Harbor Statement

This press release contains forward-looking statements that reflect Noah's current expectations and views of future events that involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Noah has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. You should understand that our actual future results may be materially different from and worse than what Noah expects. Information regarding these risks, uncertainties and other factors is included in Noah's most recent Annual Report on Form 20-F and other filings with the SEC.

Investor Contacts

Noah Education Holdings Ltd.
Email: ir@noaheducation.com