ChinaEdu Reports Third Quarter 2009 Results

9.4% Increase in Third Quarter Net Revenue Year-Over-Year with Third Quarter Net Revenue Exceeding Guidance;
Earnings per diluted ADS is $0.06 and Adjusted Earnings per diluted ADS Increased 46% in 3Q09 to $0.08

Live Conference Call to be held on Tuesday, November 24, 2009
at 8 a.m. (Eastern) / 5 a.m. (Pacific) / 9 p.m. (Beijing/Hong Kong)

BEIJING, CHINA – November 23, 2009 – ChinaEdu Corporation (NASDAQ: CEDU) (“ChinaEdu” or the “Company”), an educational services provider in China, today announced its unaudited financial results for the third quarter ended September 30, 2009¹.

Third Quarter 2009 Highlights 

 

• Total net revenue for the third quarter of 2009 increased by 9.4% to $13.1 million from $12.0 million for the corresponding period in 2008, exceeding our previously disclosed guidance for the third quarter of 2009 of $12 million to $13 million.   
• Net revenue from online degree programs, the Company’s major business segment, increased by 9.4% to $10.5 million for the third quarter of 2009 from $9.6 million for the corresponding period in 2008.
• The number of revenue students² in online degree programs during the third quarter of 2009 increased by approximately 17.6% to over 147,000 from approximately 125,000 for the corresponding period in 2008.
• Adjusted EBITDA³ increased by 9.1% to $3.9 million in the third quarter of 2009 from $3.6 million for the corresponding period in 2008.
• Net income attributable to ChinaEdu Corporation increased to $1.1 million in the third quarter of 2009 from a loss $2.2 million for the corresponding period in 2008.
• Adjusted net income attributable to ChinaEdu Corporation⁴ increased by 30.6% to $1.4 million in the third quarter of 2009 from $1.1 million for the corresponding period in 2008.
• Diluted EPS or earnings per diluted ADS⁵ was $0.061 for the third quarter of 2009 as compared to a loss of $0.114 for the corresponding period in 2008.
• Adjusted diluted EPS or earnings per diluted ADS (non-GAAP) increased by 46.4% to $0.082 for the third quarter of 2009 from $0.056 for the corresponding period in 2008.

“We are pleased to report another quarter of solid performance during the third quarter of 2009.  Improved operating results and significant increase in adjusted EPS showed the strength of the Company’s operations compared to the third quarter of 2008,” said Ms. Julia Huang, ChinaEdu’s Chairman and Chief Executive Officer. “Our focus remains the continued expansion of the learning centers network and growth in our online degree program and 101 online tutoring programs.  We are also committed to continued research and development efforts of the technology platform for the online degree programs and products for the 101 online tutoring programs, which we believe will position us for sustainable future growth.”

Financial Results for the Third Quarter Ended September 30, 2009

Net Revenue
Total net revenue for the third quarter of 2009 was $13.1 million, representing a 9.4% increase from the corresponding period in 2008.  Net revenue from online degree programs for the third quarter of 2009 was $10.5 million, representing a 9.4% increase from $9.6 million for the corresponding period in 2008.  The growth in net revenue was due to strong enrollment growth for the 2009 spring semester, which registered over 147,000 revenue students as compared to 125,000 revenue students for the 2008 spring semester.

Net revenue from the Company’s non-online degree programs (online tutoring programs, international curriculum programs and private primary and secondary schools) for the third quarter of 2009 was $2.7 million, representing a 9.5% increase from $2.4 million for the corresponding period in 2008.  This increase was attributable to a 60.1% increase in net revenue for the 101 online tutoring programs from increased sales and a 57.9% increase in net revenue at Anqing School due to increase in student enrollment for the academic year beginning in September 2008 as a result of the completion of construction of the new campus, but offset by a 41.5% decrease in net revenue for the international curriculum programs due to the termination of our New Zealand contract.

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¹The reporting currency of the Company is RMB, but for the convenience of the reader, the amounts for three and nine months ended on September 30 of 2008 and 2009 are presented in U.S. dollars. Unless otherwise stated, all translations from RMB to U.S. dollars were made at the rate of RMB6.8262 to $1.00, the noon buying rate in effect on September 30, 2009 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“Revenue students” refers to students of university online degree programs who have paid tuition in the applicable period.

³“Adjusted EBITDA” is a non-GAAP measure defined as net income before interest income, taxes, exchange loss, depreciation, amortization of intangible assets and land use rights, share-based compensation and goodwill and intangibles impairment charges, if applicable.

⁴“Adjusted net income attributable to ChinaEdu Corporation” is a non-GAAP measure defined as net income attributable to ChinaEdu Corporation excluding share-based compensation, exchange loss, noncontrolling interest for share-based compensation, amortization of intangible assets and land use rights and goodwill and intangibles impairment charges, if applicable.

⁵“ADS” is American Depositary Share. Each ADS is equivalent to three ordinary shares.

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Cost of revenue
Total cost of revenue for the third quarter of 2009 was $5.1 million, representing an increase of 12.1% as compared to $4.6 million for the corresponding period of 2008.  Cost of revenue for online degree programs for the third quarter of 2009 was $3.5 million, representing an increase of 22.7% as compared to $2.8 million for the third quarter of 2008.  In addition to increase in cost of revenue corresponding to enrollment growth, the increase in cost of revenue for online degree programs was attributable primarily to the expansion of our learning centers network.  Since most of the recruiting services performed by our learning centers to our university partners are recorded as cost of revenue, our cost of revenue will continue to increase as the expansion of the learning centers network continues.  We had 56 operational learning centers by the end of the third quarter of 2009, of which 23 were proprietary and 33 were contracted locations, as compared to 35 operational learning centers as of the end of the third quarter of 2008.

Cost of revenue for non-online degree programs for the third quarter of 2009 was $1.66 million, representing a 5.0% decrease from $1.74 million for the corresponding period in 2008.  This decrease was attributable primarily to a decrease in cost of revenue for the international curriculum programs, due to the termination of our New Zealand contract,which were partially offset by increase in cost of revenue related to Anqing School’s new campus and increase in cost of revenue for our 101 online tutoring programs.

Gross Profit and Gross Margin
Gross profit for the third quarter of 2009 was $8.0 million, representing a 7.8% increase from $7.4 million for the corresponding period of 2008.  Total gross margin for the third quarter of 2009 was 61.0% as compared to 62.0% for the corresponding period of 2008.  Since most of the recruiting services performed by our learning centers to our university partners are recorded as cost of revenue, our gross margin for the online degree programs segment decreased as a result of expansion of the learning centers network, to 67.0% for the third quarter of 2009 as compared to 70.5% for the corresponding period of 2008.  Gross margin for Anqing School improved significantly, due to increased enrollment capacity, as compared to the corresponding period in 2008 despite additional depreciation expenses resulting from the new campus construction.  Gross margin for the international curriculum programs also improved due to tight cost controls and gross margin for the 101 online tutoring programs remained relatively stable at 75.3% as compared to 76.4% in the third quarter of 2008.

Operating Expenses
Total operating expenses were $5.1 million for the third quarter of 2009, representing a 33.4% decrease from $7.7 million for the corresponding period in 2008.  This decrease was attributable primarily to a lacking of goodwill and intangible assets impairment, despite an increase in research and development expenses as discussed below.

• General and administrative expenses for the third quarter of 2009 were $3.0 million, which represented a minor 1.8% increase from $2.95 million for the corresponding period of 2008.
• Selling and marketing expenses were $1.0 million for the third quarter of 2009, which represented a 22.9% decrease from $1.3 million for the corresponding period in 2008.  This decrease was attributable primarily to a decrease in the amount spent on general advertising and promotional activities, particularly conference related expenses in the third quarter in 2009.
• Research and development expenses for the third quarter of 2009 were $1.1 million, representing a 36.5% increase from $0.8 million for the corresponding period in 2008.  This increase was attributable primarily to increased research and development activities related to our technology platform for the online degree programs and 101 online tutoring programs.
• Share-based compensation for the third quarter of 2009, which was allocated to the related cost and operating expense line items, remained flat at $0.2 million as compared to $0.2 million for the corresponding period in 2008.

Income from Operations
As a result of the factors discussed above, income from operations for the third quarter of 2009 was $2.9 million, as compared to a loss of $0.2 million for the corresponding period of 2008.  Operating margin was 22.2% for the third quarter of 2009 as compared to a loss of 1.8% in the corresponding period of 2008.  The increase was primarily due to a lacking of goodwill and intangible assets impairment. 

Adjusted income from operations, which is a non-GAAP measure defined as income from operations excluding share-based compensation, exchange loss, amortization of intangible assets and land use rights and goodwill and intangibles impairment charges, if applicable, was $3.3 million for the third quarter of 2009, which increased by 5.2% as compared to $3.2 million in the corresponding period of 2008.  Adjusted operating margin for the third quarter of 2009 was 25.3% as compared to 26.3% for the corresponding period of 2008.

Interest Income
Interest income was $0.2 million in the third quarter of 2009, as compared to $0.3 million in the corresponding quarter of 2008.  This decrease was attributable primarily to (i) reduced interest-bearing cash and bank deposit balance of $45.8 million as of September 30, 2009, as compared to $59.7 million as of September 30, 2008, and (ii) a lower interest rate for the third quarter of 2009 as compared to the corresponding period of 2008.

Income Tax Expense
Income tax expense for the third quarter was $0.7 million, as compared to income tax expense of $1.3 million for the corresponding period in 2008.  This decrease was attributable primarily to the fact that, in the fourth quarter of 2008, seven of our subsidiaries and affiliate companies applied and qualified for the “new and high technology enterprises” status under the new Chinese Enterprise Income Tax Regulation, which came into effect on January 1, 2008.  As a result of their qualification for the “new and high technology enterprises” status, these subsidiaries received certain tax exemptions and a preferential statutory tax rate of 15%, as compared to the statutory tax rate of 25% for the corresponding period in 2008.

Noncontrolling Interest
Noncontrolling interest was $1.3 million in the third quarter of 2009, representing a 16.4% increase from $1.1 million in the corresponding period in 2008, which was attributable primarily to increased profitability of our collaborative alliances related to the online degree programs.

Net Income (loss) attributable to ChinaEdu Corporation
Net income attributable to ChinaEdu Corporation, which is net income excluding net income attributable to noncontrolling interest, was $1.1 million for the third quarter of 2009, representing an increase from a net loss attributable to ChinaEdu Corporation of $2.2 million for the corresponding period in 2008.  The increase was primarily due to a lacking of goodwill and intangible assets impairment as well as a decrease in income tax expenses.

Adjusted net income attributable to ChinaEdu Corporation (non-GAAP) increased by 30.6% to $1.4 million for the third quarter of 2009, as compared to $1.1 million in the corresponding period of 2008.  Adjusted net margin was 11.0% in the third quarter of 2009 as compared to 9.2% in the corresponding period of 2008.  The increase in both net income and adjusted net income attributable to ChinaEdu Corporation (non-GAAP) was primarily due to improved operating results as well as a decrease in income tax expenses in the third quarter of 2009 as compared to the corresponding period in 2008.

Basic and diluted EPS or earnings per ADS were $0.066 and $0.061, respectively, for the third quarter of 2009, which have improved significantly as compared to losses of $0.114 and $0.114, respectively, for the corresponding period in 2008.  Similarly, basic and diluted adjusted EPS or adjusted earnings per ADS were $0.089 and $0.082, respectively, for the third quarter of 2009, which increased by 56.1% and 46.4% from $0.057 and $0.056, respectively, for the corresponding period in 2008.

Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA (non-GAAP) was $3.9 million for the third quarter of 2009, which increased by 9.1% as compared to $3.6 million for the corresponding period in 2008.  This increase was attributable primarily to improved operating results as discussed above.

Deferred Revenue
Deferred revenue at the end of the third quarter of 2009 was $6.1 million, with current deferred revenue of $4.8 million and non-current deferred revenue of $1.3 million.  Deferred revenue at the end of the third quarter of 2009 decreased significantly as compared to deferred revenue of $14.9 million at the end of the second quarter 2009 due to the seasonality of enrollments, which results in tuition being received generally during the second quarter (spring semester) and the fourth quarter (fall semester) of each year.

Cash and Cash Equivalents
As of September 30, 2009, ChinaEdu reported cash and cash equivalents of $32.9 million, which primarily consisted of cash-on-hand, demand deposits and term deposits with maturity periods of three months or less.

Term Deposits and Amount Due from Related Parties
Term deposits and the amount due from related parties (which represents cash owed to us by our collaborative alliance partners) amounted to $13.0 million and $29.1 million, respectively, on September 30, 2009.

2009 Year-to-Date Financial Results

Net Revenue
For the nine months ended September 30, 2009, total net revenue was $38.0 million, representing an increase of 12.1% from $33.9 million for the corresponding period in 2008.  Total net revenue for the nine months ended September 30, 2009 consisted of $30.6 million in net revenue from online degree programs and $7.4 million in net revenue from non-online degree programs.  The growth in total net revenue was attributable primarily to strong enrollment growth for the online degree programs and growth in net revenue at Anqing School and 101 online tutoring programs.

Cost of Revenue
For the nine months ended September 30, 2009, total cost of revenue was $14.8 million, representing an increase of 28.0% as compared to $11.5 million for the corresponding period in 2008, primarily due to the expansion of our learning centers network, courseware development for selected university partners at our collaborative alliances, and increase in cost of revenue at Anqing School and 101 online tutoring programs, but offset by a decrease in cost of revenue for the international curriculum programs. 

Gross Profit
Gross profit for the nine months ended September 30, 2009 was $23.2 million as compared with $22.3 million for the corresponding period in 2008, representing an increase of 3.9%. 

Income from Operations
Income from operations were $8.7 million for the nine months ended September 30, 2009, representing an increase of 64.4% from $5.3 million for the corresponding period in 2008.  Operating margin was 23.0% for the nine months ended September 30, 2009 as compared to 15.7% for the corresponding period in 2008.  The increase was primarily due to a lacking of goodwill and intangible assets impairment.

Adjusted operating margin for the nine months ended September 30, 2009 was 27.0% as compared to 28.6% for the corresponding period in 2008, primarily due to the expansion of our learning centers network.

Net Income (loss) attributable to ChinaEdu Corporation
Net income attributable to ChinaEdu Corporation was $3.8 million for the nine months ended September 30, 2009, compared with a loss of $0.6 million for the corresponding period in 2008, primarily due to a lacking of goodwill and intangible assets impairment as well as a decrease in income tax expenses.

Adjusted net margin was 13.6% for the nine months ended September 30, 2009 as compared to 10.9% for the corresponding period of 2008.  The increase was primarily due to improved operating results as well as a decrease in income tax expenses.

Fourth Quarter 2009 Total Net Revenue Guidance
For the fourth quarter of 2009, ChinaEdu expects its total net revenue to be in the range of RMB88 million to RMB92 million or $12.9 million to $13.5 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 Tuesday, November 24, 2009 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) 866 543 6408/ (International) +1 617 213 8899/ (HK) +852 3002 1672/ (China) +86 10 800 152 1490, and entering the passcode: 90226371.  A telephone replay of the conference call will be available shortly after the call until December 2, 2009 at (US) 888 286 8010/ (International) +1 617 801 6888 and entering passcode: 40097404.  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 Accounting Principles Generally Accepted in the United States of America (“GAAP”), the Company uses non-GAAP measures of income from operations and net income attributable to ChinaEdu Corporation, which are adjusted from results based on GAAP to exclude certain non-cash items of share-based compensation, exchange loss, amortization of intangible assets and land use rights and goodwill and intangibles impairment charges, if applicable.  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, exchange loss, depreciation, amortization of intangible assets and land use rights, share-based compensation and goodwill and intangibles impairment charges, if applicable.  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 15 long-term, exclusive contracts that generally vary from 10 to 50 years in length.  ChinaEdu also performs recruiting services for 15 universities through its nationwide Learning Center 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, 2008, 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.

For investor and media inquiries, please contact:

Helen Plummer
Senior Investor Relations Coordinator
ChinaEdu Corporation
Phone: +1 908-442-9395
E-mail: helen@chinaedu.net

Simon Mei
Chief Financial Officer
ChinaEdu Corporation
Phone: +86(10)84187301
E-mail: simon@chinaedu.net

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