ChinaEdu Reports Second Quarter 2010 Results

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Second Quarter Net Revenue Exceeding Guidance with 12.7% Growth Year-Over-Year;
Net income per diluted ADS is $0.115, Exceeding Analyst Consensus

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

BEIJING, CHINA – August 18, 2010 – ChinaEdu Corporation (NASDAQ: CEDU) (“ChinaEdu” or the “Company”), an educational services provider in China, today announced its unaudited financial results for the second quarter ended June 30, 2010.¹

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.

¹The reporting currency of the Company is RMB, but for the convenience of the reader, the amounts for the three and six months ended on June 30, 2009 and June 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 RMB6.7815 to $1.00, the noon buying rate in effect on June 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” refer to students of university online degree programs who have paid tuitions in spring 2009 and spring 2010.

Total net revenue grew by 12.7% to $14.7 million for the second quarter of 2010 from $13.0 million for the corresponding period in 2009, exceeding our guidance for the second quarter of 2010 of $13.3 million to $14.2 million.
Net revenue from online degree programs increased by 12.2% to $11.8 million for the second quarter of 2010 from $10.5 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 20.4% to $5.2 million in the second quarter of 2010 from $4.4 million for the corresponding period in 2009.
Net income attributable to ChinaEdu increased by 52.8% to $2.0 million in the second quarter of 2010 from $1.3 million for the corresponding period in 2009.
Adjusted net income attributable to ChinaEdu increased by 22.1% to $2.2 million in the second quarter of 2010 from $1.8 million for the corresponding period in 2009.
Net income attributable to ChinaEdu per diluted ADS was $0.115 for the second quarter of 2010, as compared to $0.075 for the corresponding period in 2009.
Adjusted net income attributable to ChinaEdu per diluted ADS was $0.125 for the second quarter of 2010, as compared to $0.103 for the corresponding period in 2009.

“As you can see from our second quarter results, we have continued to execute on our stated strategy,” said Ms. Julia Huang, ChinaEdu’s Chairman and Chief Executive Officer, “For our online degree programs, the second quarter wrapped up a healthy 2010 spring semester enrollment period. The technology service agreements and non-degree programs at our subsidiaries have also contributed to the growth in the quarter. We are committed to continuing our research and development efforts on the technology platform, Internet and mobile applications for both the online degree and non-degree programs. All our new initiatives, including interactive online learning community for K-12 students and adult learner, and online teachers training programs have made significant operational progress. Overall, we believe our company is strongly positioned to capture the immense market potential in online education.”

Financial Results for the Second Quarter Ended June 30, 2010

Net Revenue
Total net revenue for the second quarter of 2010 was $14.7 million, representing a 12.7% increase from $13.0 million for the corresponding period in 2009. Net revenue from online degree programs for the second quarter of 2010 was $11.8 million, representing a 12.2% increase from $10.5 million for the corresponding period in 2009. Enrollment for the 2010 spring semester online degree programs was over 157,000 revenue students, which represented an increase of 6.8% as compared to 147,000 revenue students for the 2009 spring semester. The higher revenue growth compared to enrollment growth was primarily attributable to lower third-party learning centers expenses, and increased tuition rate at selected online colleges.

Learning centers network continued to expand both in geographic coverage and universities served. By the end of the second quarter of 2010, we had 65 operational learning centers of which 27 were proprietary and 38 were contracted locations, as compared to 56 operational learning centers as of the end of the second quarter of 2009, of which 21 were proprietary and 35 were contracted locations. Our learning centers network was serving a total of 18 universities’ online degree programs as of the end of the second quarter of 2010.

Net revenue from the Company’s non-online degree programs (online tutoring programs, private primary and secondary schools and international curriculum programs) for the second quarter of 2010 was $2.9 million, representing a 14.9% increase from $2.5 million for the corresponding period in 2009. This increase was attributable to a 29.3% increase in net revenue for the 101 online tutoring programs and a 36.8% increase in net revenue at Anqing School due to an increase in student enrollment as a result of the opening of the new campus. The increases were offset by a 27.3% 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 second quarter of 2010 was $5.2 million, representing an increase of 5.3%, as compared to $4.9 million for the corresponding period of 2009. Cost of revenue for online degree programs for the second quarter of 2010 was $3.6 million, representing an increase of 8.3% as compared to $3.3 million for the second 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, in particular at our learning centers network.

Cost of revenue for non-online degree programs for the second quarter of 2010 was $1.6 million, representing a slight decrease of 1.1% for the corresponding period in 2009. This decrease was attributable primarily to a decrease in cost of revenue for both 101 online tutoring programs and international curriculum programs, offset by an increase in staff and depreciation charges related to Anqing School’s new campus.

Gross Profit and Gross Margin
Gross profit for the second quarter of 2010 was $9.5 million, representing a 17.2% increase from $8.1 million for the corresponding period of 2009. Total gross margin for the second quarter of 2010 increased to 64.9%, as compared to 62.4% for the corresponding period of 2009. Gross margin for the online degree programs increased to 69.6% for the second quarter of 2010, as compared to 68.5% for the corresponding period of 2009.

Gross margin for 101 online tutoring programs improved significantly to 75.8% for the second quarter of 2010, as compared to 65.5% for the second quarter of 2009, due to reduced courseware development cost and a reduction in the number of staff. Despite increased cost of revenue, gross margin for private schools improved significantly to 25.8%, as compared to 9.7% in the corresponding period in 2009, due to increased enrollment at Anqing School’s new campus. Gross margin for the international curriculum programs remained stable at 45.9% for the second quarter of 2010, as compared to 46.4% in the corresponding period of 2009.

Operating Expenses

Total operating expenses were $5.3 million for the second quarter of 2010, representing an 8.8% increase from $4.9 million for the corresponding period in 2009. This increase was a result of the factors discussed below:

General and administrative expenses for the second quarter of 2010 were $2.7 million, which represented a 6.8% decrease from $2.9 million for the corresponding period in 2009. Excluding the impact of our share based compensation in the second quarter of 2010, our general and administrative expenses increased by 4.1%.
Selling and marketing expenses were $1.2 million for the second quarter of 2010, which represented a 48.3% increase from $0.8 million for the corresponding period in 2009. This increase was attributable primarily to an increase in advertising expenses at our 101 online tutoring programs, as well as an increase in sales and marketing staff at selected subsidiaries in the second quarter of 2010.
Research and development expenses for the second quarter of 2010 were $1.4 million, representing a 20.7% increase from $1.2 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 second quarter of 2010, which was allocated to the related cost and operating expense line items, temporarily decreased to $0.1 million as compared to $0.3 million for the corresponding period in 2009, due to a true-up adjustment of forfeiture rate.

Income from Operations
As a result of the factors discussed above, income from operations for the second quarter of 2010 was $4.2 million, representing a 29.8% increase as compared to $3.2 million for the corresponding period of 2009. Operating margin increased to 28.7% for the second quarter of 2010, as compared to 24.9% 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 $4.5 million for the second quarter of 2010, representing an increase of 18.3% as compared to $3.8 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 second quarter of 2010 improved to 30.3% as compared to 28.9% for the corresponding period of 2009.

Interest Income and Investment Income
Interest income and investment income for the second quarter of 2010 increased 58% to $0.28 million, as compared to $0.17 million in the corresponding quarter of 2009.

Income Tax Expense
Income tax expense for the second quarter of 2010 was $1.0 million, which remained flat from income tax expense of $1.0 million for the corresponding period in 2009.

Noncontrolling Interest
Noncontrolling interest was $1.6 million in the second 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 second quarter of 2010, as compared to the second 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 $2.0 million for the second quarter of 2010, representing an increase of 52.8% from $1.3 million for the corresponding period in 2009. The increase was primarily due to improved gross margin across all of our business lines except for the international curriculum programs of which gross margin remained stable, as well as improved operating efficiencies.

Net income attributable to ChinaEdu per basic and diluted ADS were $0.125 and $0.115, respectively, for the second quarter of 2010, as compared to $0.080 and $0.075, respectively, for the corresponding period in 2009, which represented growth of 56.3% and 53.3%, respectively.

Adjusted net income attributable to ChinaEdu (non-GAAP) increased by 22.1% to $2.2 million for the second quarter of 2010 from $1.8 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 14.8% in the second quarter of 2010, as compared to 13.7% in the corresponding period of 2009. The increase was primarily due to improvement in operating results across our online degree programs, 101 online tutoring programs and private schools, as well as stable operating results at the international curriculum programs.

Adjusted net income attributable to ChinaEdu per basic and diluted ADS (non-GAAP) were $0.136 and $0.125, respectively, for the second quarter of 2010, as compared to $0.111 and $0.103, respectively, for the corresponding period in 2009, which represented growth of 22.5% and 21.4%, respectively.

Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA (non-GAAP) was $5.2 million for the second quarter of 2010, which increased by 20.4%, as compared to $4.4 million for the corresponding period in 2009. Adjusted EBITDA margin (non-GAAP) was 35.7% in the second quarter of 2010 as compared to 33.4% in the second quarter of 2009. This increase was attributable primarily to improved operating results as discussed above.

Deferred Revenue
Deferred revenue at the end of the second quarter of 2010 was $17.0 million, with current deferred revenue of $15.8 million and non-current deferred revenue of $1.2 million. Deferred revenue at the end of the second quarter of 2010 increased as compared to deferred revenue of $15.6 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 June 30, 2010, ChinaEdu reported cash and cash equivalents and term deposits of $49.1 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 represent cash owed to us by our collaborative alliance partners) were $37.5 million as of June 30, 2010, as compared to amounts due from related parties of $26.1 million as of December 31, 2009.

2010 Year-to-Date Financial Results

Net Revenue
For the six months ended June 30, 2010, total net revenue was $27.5 million, which represented an increase of 10.2% from $25.0 million for the corresponding period in 2009. Net revenue from online degree programs for the first half of 2010 was $21.9 million, representing an 8.4% increase from $20.2 million for the corresponding period in 2009. And the net revenue from non-online degree programs for the first half of 2010 was $5.6 million, as compared to $4.8 million for the corresponding period in 2009, representing an 18.2% increase. The growth in total net revenue was attributable to strong enrollment for the online degree programs both in the fall semester of 2009 and spring semester of 2010, particularly at our learning centers, and growth in net revenue at Anqing School and 101 online tutoring programs, despite revenue decrease at the international curriculum programs.

Cost of Revenue
For the six months ended June 30, 2010, total cost of revenue was $9.8 million, which remained stable as compared to $9.7 million for the corresponding period in 2009. Cost of revenue at our online degree programs remained stable in the first half of 2010 as compared to the corresponding period of 2009. 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
Gross profit for the six months ended June 30, 2010 was $17.8 million as compared with $15.3 million for the corresponding period in 2009, representing an increase of 16.2%, primarily due to significantly improved gross margins for our online degree programs, 101 online tutoring programs and private schools, as well as stable gross margin at our international curriculum programs.

Income from Operations
Income from operations was $7.1 million for the six months ended June 30, 2010, representing an increase of 21.6% from $5.8 million for the corresponding period in 2009. Operating margin was 25.7% for the six months ended June 30, 2010 as compared to 23.3% for the corresponding period in 2009.

Adjusted income from operations (non-GAAP) was $7.8 million for the first half of 2010, representing an increase of 12.5%, compared to $7.0 million in the corresponding period of 2009. Adjusted operating margin (non-GAAP) for the six months ended June 30, 2010 was 28.4% as compared to 27.8% for the corresponding period in 2009.

Net Income attributable to ChinaEdu
Net income attributable to ChinaEdu was $3.1 million for the six months ended June 30, 2010, representing an increase of 12.8% from $2.7 million for the corresponding period in 2009. Net margin was 11.1% for the six months ended June 30, 2010 as compared to 10.9% for the corresponding period in 2009.

Adjusted net margin was 13.5% for the six months ended June 30, 2010 as compared to 15.0% for the corresponding period of 2009. The decrease was primarily due to the increase in income tax expenses in the first quarter of 2010.

Adjusted EBITDA (Non-GAAP)
Adjusted EBITDA (non-GAAP) was $9.3 million for the first half of 2010, which increased by 14.5%, as compared to $8.1 million for the corresponding period in 2009. Adjusted EBITDA margin was 33.8% in the first half of 2010 as compared to 32.5% in the first half of 2009. This increase was attributable primarily to improved operating results as discussed above.

Third Quarter 2010 Total Net Revenue Guidance
For the third quarter of 2010, ChinaEdu expects its total net revenue to be in the range of RMB96 million to RMB99 million or $14.2 million to $14.6 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 Thursday, August 19, 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) 800 265 0241/ (International) +1 617 847 8704/ (HK) +852 3002 1672/ (China) +86 10 800 152 1490; Passcode: 68155224. A telephone replay will be available shortly after the call until August 25, 2010 at (US) 888 286 8010/ (International) +1 617 801 6888; Passcode: 39011649. 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 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.

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