ChinaEdu Reports First Quarter 2010 Results

First Quarter Net Revenue in Line with Guidance with 7.5% Growth Year-Over-Year;
Net income per diluted ADS is $0.061, Exceeding Analyst Consensus

Live Conference Call to be held on Tuesday, May 25, 2010
at 8 a.m. (Eastern) / 5 a.m. (Pacific) / 8 p.m. (Beijing/Hong Kong)

BEIJING, CHINA – May 24, 2010 – ChinaEdu Corporation (NASDAQ: CEDU) (“ChinaEdu” or the “Company”), an educational services provider in China, today announced its unaudited financial results for the first quarter ended March 31, 2010.¹

The reporting currency of the Company is RMB, but for the convenience of the reader, the amounts for the three months ended March 31, 2010 are presented in U.S. dollars. Unless otherwise stated, all translations from RMB to U.S. dollars were made at the rate of RMB6.8258 to $1.00, the noon buying rate in effect on March 31, 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.

First Quarter 2010 Highlights

• Total net revenue for the first quarter of 2010 grew by 7.5% to $12.8 million from $11.9 million for the corresponding period in 2009, in line with our guidance for the first quarter of 2010 of $12.7 million to $13.2 million.
• Net revenue from online degree programs increased by 4.2% to $10.0 million for the first quarter of 2010 from $9.6 million for the corresponding period in 2009.
• The number of revenue students in online degree programs during 2009 fall semester increased by approximately 18.6% to over 140,000 from approximately 118,000 for the corresponding period in 2008.
• Adjusted EBITDA increased by 7.7% to $4.0 million in the first quarter of 2010 from $3.7 million for the corresponding period in 2009.
• Net income attributable to ChinaEdu decreased to $1.1 million in the first quarter of 2010 from $1.4 million for the corresponding period in 2009.
• Net income per diluted ADS was $0.061 for the first quarter of 2010 as compared to $0.079 for the corresponding period in 2009.
• Adjusted net income per diluted ADS was $0.087 for the first quarter of 2010 as compared to $0.111 for the corresponding period in 2009.

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¹The reporting currency of the Company is RMB, but for the convenience of the reader, the amounts for the three months ended March 31, 2010 are presented in U.S. dollars. Unless otherwise stated, all translations from RMB to U.S. dollars were made at the rate of RMB6.8258 to $1.00, the noon buying rate in effect on March 31, 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“ADS” is American Depositary Share. Each ADS represents three ordinary shares.
⁴“Adjusted net income 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 per diluted ADS calculation.
⁵“Revenue students” refer to students of university online degree programs who have paid tuitions in the applicable period.

“We are pleased to report a solid first quarter of 2010, with strong revenue growth particularly in our learning centers network and 101 online tutoring programs as we set out to do in 2009,” said Ms. Julia Huang, ChinaEdu’s Chairman and Chief Executive Officer. “For our online degree programs, we will continue to build strategic partnerships in 2010. We are pleased to announce two new strategic partnerships signed in the first quarter of this year. One of which, Huazhong Normal University is within the 67 universities approved to offer online degree programs. In addition, we will continue to push ahead with the various non-degree programs at our subsidiaries, including English language proficiency program with McGraw-Hill and teachers training program. We are committed to continue research and development efforts of our technology platform, internet and mobile applications for the online degree and non-degree programs including interactive online learning community for both K-12 students and adult learners, while we continue to maintain a tight control over our expenses. Overall, we believe our company is positioned strongly to capture the immense potential that online education can offer in the future.”

Financial Results for the First Quarter Ended March 31, 2010

Net Revenue
Total net revenue for the first quarter of 2010 was $12.8 million, representing a 7.5% increase from the corresponding period in 2009. Net revenue from online degree programs for the first quarter of 2010 was $10.0 million, representing a 4.2% increase from $9.6 million for the corresponding period in 2009. Enrollment for the 2009 fall semester online degree programs registered over 140,000 revenue students, which represented an increase of 18.6% as compared to 118,000 revenue students for the 2008 fall semester.

Learning centers network continued to expand with respect to both geographic coverage and universities served. By the end of the first quarter of 2010, we had 62 operational learning centers of which 24 were proprietary and 38 were contracted locations, as compared to 49 operational learning centers as of the end of the first quarter of 2009, of which 20 were proprietary and 29 were contracted locations. Our learning centers network is now serving a total of 17 universities’ online degree programs.

Net revenue from the Company’s non-online degree programs (online tutoring programs, private primary and secondary schools and international curriculum programs) for the first quarter of 2010 was $2.7 million, representing a 21.8% increase from $2.3 million for the corresponding period in 2009. This increase was attributable to a 50.4% increase in net revenue for the 101 online tutoring programs from increased sales and a 48.9% increase in net revenue at Anqing School due to an increase in student enrollment as a result of the increased enrollment at the new campus, but offset by an expected 26.9% decrease in net revenue for the international curriculum programs.

Cost of Revenue
Total cost of revenue for the first quarter of 2010 was $4.6 million, representing a decrease of 3.8% as compared to $4.8 million for the corresponding period of 2009. Cost of revenue for online degree programs for the first quarter of 2010 was $3.1 million, representing a decrease of 7.2% as compared to $3.3 million for the first quarter of 2009. The decrease in online degree programs’ cost of revenue was primarily due to a decrease in special courseware development for selected university partners at our collaborative alliances in the first quarter of 2010, as compared to the first quarter of 2009.

Cost of revenue for non-online degree programs for the first quarter of 2010 was $1.5 million, representing a 4.2% increase for the corresponding period in 2009. This increase was attributable primarily to an increase in cost of revenue due to increased staff, depreciation charges, transportation costs related to Anqing School’s new campus, which was partially offset by a decrease in cost of revenue for our 101 online tutoring programs and the international curriculum programs. The minor decrease in cost of revenue for 101 online tutoring programs was primarily due to lower cost of revenue related to third-party distribution channels, as compared to the corresponding period in 2009. The minor decrease in cost of revenue for the international curriculum programs was primarily due to a small decrease in staff.

Gross Profit and Gross Margin
Gross profit for the first quarter of 2010 was $8.2 million, representing a 15.1% increase from $7.1 million for the corresponding period of 2009. Total gross margin for the first quarter of 2010 increased to 64.1%, as compared to 59.9% for the corresponding period of 2009. Gross margin for the online degree programs increased to 69.3% for the first quarter of 2010, as compared to 65.5% for the corresponding period of 2009, primarily due to a decrease in special courseware development for selected university partners at our collaborate alliances as discussed above. Gross margin for 101 online tutoring programs improved significantly to 78.4% for the first quarter of 2010, as compared to 59.9% for the first quarter of 2009, due to more efficient management of our distribution channels. Gross margin for Anqing School improved significantly, as compared to the corresponding period in 2009, due to increased enrollment at the new campus, despite additional depreciation and staff expenses resulting from the new campus. Gross margin for the international curriculum programs declined to 40.9% for the first quarter of 2010, as compared to 47.2% in the corresponding period of 2009, primarily due to a decline in revenue.

Operating Expenses

Total operating expenses were $5.3 million for the first quarter of 2010, representing a 17.3% increase from $4.6 million for the corresponding period in 2009. This increase was attributable primarily to the factors discussed below:

• General and administrative expenses for the first quarter of 2010 were $2.9 million, which remained relatively flat comparing to the corresponding period of 2009.
• Selling and marketing expenses were $1.1 million for the first quarter of 2010, which represented a 57.6% increase from $0.7 million for the corresponding period in 2009. This increase was attributable primarily to an increase in sales conferences and other sales activities and increase in expense associated with more sales and marketing staff at our online degree programs and 101 online tutoring programs in the first quarter of 2010.
• Research and development expenses, mainly contributing to technology platform upgrade as well as internet and mobile applications development , for the first quarter of 2010 were $1.3 million, representing a 33.5% increase from $1.0 million for the corresponding period in 2009, primarily due to increased staff for the new research and development initiatives.
• Share-based compensation for the first quarter of 2010, which was allocated to the related cost and operating expense line items, remained flat at $0.3 million, as compared to $0.3 million for the corresponding period in 2009.

 

Income from Operations
As a result of the factors discussed above, income from operations for the first quarter of 2010 was $2.9 million, representing an 11.2% increase as compared to $2.6 million for the corresponding period of 2009. Operating margin expanded by 0.7% to 22.3% for the first quarter of 2010, as compared to 21.6% 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 $3.3 million for the first quarter of 2010, which increased by 5.6% as compared to $3.2 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 first quarter of 2010 remained relatively flat at 26.2% as compared to 26.7% for the corresponding period of 2009.

Interest Income
Interest income for the first quarter of 2010 decreased slightly to $0.16 million, as compared to $0.25 million in the corresponding quarter of 2009.

Income Tax Expense
Income tax expense for the first quarter of 2010 was $1.2 million, representing a 201.7% increase from income tax expense of $0.4 million for the corresponding period in 2009. The increase is mainly due to an increase in deferred tax rate at our collaborative alliance with Chongqing University. Its current preferential tax rate of 12.5% resulting from its status as a “software enterprise” will expire in 2011. We are in the process of applying for the “high and new technology enterprises” status, however, until we receive official approval of this status, we must use 25% statutory tax rate on its deferred tax liabilities. As a result, the effective income tax rate increased significantly for the first quarter of 2010, as compared to the corresponding period in 2009.

Noncontrolling Interest

Noncontrolling interest was $0.8 million in the first quarter of 2010, representing a decrease from $1.1 million in the corresponding period in 2009, which was attributable primarily to the noncontrolling interest impact related to the increased income tax expense for the first quarter of 2010, as compared to the first 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 $1.1 million for the first quarter of 2010, representing a decrease of 24.4% from $1.4 million for the corresponding period in 2009. The decrease was primarily due to the increased income tax expense at one of our collaborative alliance. We have begun the process of applying for the “high and new technology enterprise” status for the collaborative alliance. When we receive the official approval of the “high and new technology enterprise” status, a one-time reversal of the deferred tax expenses will be recorded in that quarter. Net margin was 8.3% in the first quarter of 2010 as compared to 11.8% in the first quarter of 2009.

Net income attributable to ChinaEdu per basic and diluted ADS were $0.066 and $0.061, respectively, for the first quarter of 2010, as compared to $0.084 and $0.079, respectively, for the corresponding period in 2009.

Adjusted net income attributable to ChinaEdu(6) (non-GAAP) decreased to $1.5 million for the first quarter of 2010, as compared to $2.0 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 11.9% in the first quarter of 2010, as compared to 16.5% in the corresponding period of 2009. The decrease in adjusted net income attributable to ChinaEdu (non-GAAP) was primarily due to the increased income tax expenses at one of our collaborative alliances as discussed above.

Adjusted net income per basic and diluted ADS(7) were $0.095 and $0.087, respectively, for the first quarter of 2010.

Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA (non-GAAP) was $4.0 million for the first quarter of 2010, which increased by 7.7%, as compared to $3.7 million for the corresponding period in 2009. Adjusted EBITDA margin was 31.6% in the first quarter of 2010 as compared to 31.5% in the first quarter of 2009. This increase was attributable primarily to improved operating results from our learning centers network, 101 online tutoring programs and Anqing School.

Deferred Revenue
Deferred revenue at the end of the first quarter of 2010 was $6.6 million, with current deferred revenue of $5.4 million and non-current deferred revenue of $1.2 million. Deferred revenue at the end of the first quarter of 2010 decreased as compared to deferred revenue of $15.5 million at the end of the fourth quarter 2009 due to seasonality of enrollments. Tuition is received generally during the second quarter (spring semester) and the fourth quarter (fall semester) of each year.

Cash and Cash Equivalents and Term Deposits
As of March 31, 2010, ChinaEdu reported cash and cash equivalents and term deposits of $48.9 million, which primarily consisted of cash, demand deposits with original maturities 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 represents cash owed to us by our collaborative alliance partners) were $20.8 million as of March 31, 2010, as compared to amounts due from related parties of $25.9 million as of December 31, 2009.

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⁶“Adjusted net income attributable to ChinaEdu” is a non-GAAP measure defined as net income attributable to ChinaEdu excluding share-based compensation, noncontrolling interest for share-based compensation, and amortization of intangible assets and land use rights.
⁷“Adjusted net income 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.

Second Quarter 2010 Total Net Revenue Guidance
For the second quarter of 2010, ChinaEdu expects its total net revenue to be in the range of RMB91 million to RMB97 million or $13.3 million to $14.2 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, May 25, 2010 at 8:00 a.m. U.S. Eastern time / 5:00 a.m. U.S. Pacific time / 8:00 p.m. Beijing/Hong Kong time.

The conference call may be accessed by calling (US) 800 573 4752/ (International) +1 617 224 4324/ (HK) +852 3002 1672/ (China) +86 10 800 152 1490, and entering the passcode: 95741166. A telephone replay of the conference call will be available shortly after the call until June 1, 2010 at (US) 888 286 8010/ (International) +1 617 801 6888 and entering passcode: 64679582. 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, 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 16 long-term, exclusive contracts that generally vary from 10 to 50 years in length. ChinaEdu also performs recruiting services for 17 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, 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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