CEDU Chinaedu Corp. ADS, Each Representing Three Ordinary Shares (MM)

BEIJING, Nov. 21, 2011 /PRNewswire-Asia/ -- ChinaEdu Corporation (NASDAQ: CEDU) ("ChinaEdu" or the "Company"), a leading online education services provider in China, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2011(1).

Key Quarterly Financial and Operating Data

• Total net revenue for the third quarter of 2011 was $17.9 million, a 12.7 percent increase from $15.8 million in the corresponding period in 2010, meeting the high end of Company guidance.
• Net revenue from online degree programs was $14.2 million, an increase of 12.5 percent from $12.6 million in the corresponding period of 2010.
• Net income attributable to ChinaEdu was $0.9 million.
• Adjusted net income attributable to ChinaEdu(2) was $1.4 million.
• Net income attributable to ChinaEdu per diluted ADS(3) was $0.056.
• Adjusted net income attributable to ChinaEdu per diluted ADS(4) was $0.081.

Julia Huang, chairman and chief executive officer of ChinaEdu commented, "Focusing on growth in our online degree programs continued to pay off this quarter with net revenue for the third quarter increasing 12.7 percent over the corresponding period in 2010 and meeting the high end of our quarterly revenue guidance. With a solid business in online degree programs, we continue to expand into other areas that leverage our core knowledge of interactive learning to find scalability, such as online tutoring programs. We continue to push to be the market leader in each of our divisions and we intend to maintain profitability through this period of investment to continue adding to our already strong track record of steady profitability since our IPO in 2007."

Ms. Huang continued, "As we work towards our long-term goals, we are pleased to have Simon Mei aboard as our chief financial officer. Mr. Mei brings over nineteen years of professional experience in audit, accounting and financial operations and management and a strong Big Four background as well as experience with educational service providers. He has an in-depth understanding of the education industry in China and I am confident that he will make positive contributions to ChinaEdu."

Financial Results for the Third Quarter Ended September 30, 2011

Net Revenue

Total net revenue for the third quarter of 2011 was $17.9 million, a 12.7 percent increase from $15.8 million in the corresponding period in 2010. Net revenue from online degree programs for the third quarter of 2011 was $14.2 million, a 12.5 percent increase from $12.6 million for the corresponding period in 2010. The increase was primarily due to the continued expansion of the Company's learning center network, with organic growth in revenue students enrolled in online degree programs contributing as well. As stated in our second quarter 2011 results, enrollment for 2011 Spring semester online degree programs was approximately 159,000 revenue students, a 1.3 percent increase from approximately 157,000 revenue students enrolled in the Spring 2010 semester.

As of September 30, 2011, ChinaEdu's learning center network was providing online degree programs for 21 universities with 103 operational learning centers, of which 59 were proprietary centers(5) and 44 were contracted centers(6). This compares to 86 operational learning centers as of the end of the third quarter of 2010, of which 43 were proprietary and an equal number were contracted centers.

Net revenue from non-degree programs, including online tutoring programs, private primary and secondary schools and international and elite curriculum programs, in the third quarter of 2011 was $3.7 million, a 13.7 percent increase from $3.2 million in the third quarter of 2010. Of that, approximately $0.3 million was mainly attributable to increased student enrollment at our private school in Anqing. Recently, students at ChinaEdu's private schools have done particularly well on college and high school entrance exams, increasing awareness of the schools and thereby driving higher enrollment numbers.

Cost of Revenue

Total cost of revenue for the third quarter of 2011 was $7.5 million, an increase of 28.8 percent, from $5.8 million in the corresponding period of 2010. Cost of revenue for online degree programs in the third quarter of 2011 was $5.0 million, an increase of 21.6 percent compared to $4.1 million in the corresponding period of 2010. Continued expansion of the Company's learning center network, as well as spending related to the development of teacher training programs hosted by collaborative alliance university partners, drove the increase in cost of revenue for online degree programs.

Cost of revenue for non-degree programs in the third quarter of 2011 was $2.5 million, an increase of 45.8 percent from $1.7 million in the third quarter of 2010. The rise in cost was related to an increase in staff and rental costs associated with the expansion of international and elite curriculum programs as well as the further development of interactive and personalized learning products for online tutoring programs. There were also increased costs associated with the Anqing School, including continued increases in teaching staff costs and cafeteria costs related to a growing student body as well as an increased depreciation charge for the new campus.

Gross Profit and Gross Margin

Gross profit for the third quarter of 2011 was $10.4 million, compared to $10.1 million in the corresponding period of 2010. Total gross margin decreased to 58.2 percent, compared to 63.4 percent for the corresponding period in 2010. Gross margin for online degree programs decreased to 65.1 percent for the third quarter of 2011, compared to 67.7 percent in the corresponding period of 2010. The decrease in gross margin was primarily due to the expansion of our learning center network and was also due to increased costs associated with the development of our teacher training programs. In the future, we expect gross margin for online degree programs to continue to decrease somewhat as the percentage of total net revenue contributed by the Company's learning center network increases. This is because the learning center network's sales and service based model results in a higher cost of sales, whereas the traditional joint venture model is more operationally driven.

Gross margin for online tutoring programs decreased to 65.6 percent, down from 76.0 percent in third quarter of 2010, largely due to increased staff costs associated with the expansion of our interactive course offerings and the addition of more off-line personalized tutoring services. Gross margin for private schools decreased to 29.4 percent, compared to 34.2 percent in the corresponding period in 2010. The decrease was related to an increased depreciation charge for our Anqing School's new campus as well as increased staff costs associated with a growing student body.

Having launched an entirely new program in our international division this fiscal year, gross margin for the international curriculum and elite programs was negative 20.0 percent for the third quarter of 2011, compared to positive 32.2 percent for the third quarter of 2010. This was primarily due to increases in staff costs and rental costs related to the expansion of new programs in this division.

Operating Expenses

Total operating expenses were $7.6 million in the third quarter of 2011, a 23.8 percent increase from $6.1 million for the corresponding period in 2010. As a percentage of net revenue, total operating expenses increased to 42.5 percent, compared to 38.7 percent in the corresponding period in 2010. The increase in total operating expenses was the result of the following:

• General and administrative expenses for the third quarter of 2011 were $3.7 million, an increase of 18.9 percent from $3.1 million for the corresponding period in 2010. As a percentage of net revenue, general and administrative expenses increased to 20.5 percent from 19.4 percent in the same period in 2010. Increased staff costs and rising costs associated with leased facilities were the primary reasons for the increase.
• Selling and marketing expenses were $2.2 million in the third quarter of 2011, an increase of 44.7 percent compared to $1.5 million for the corresponding period in 2010. As a percentage of net revenue, selling and marketing expenses increased to 12.5 percent, up from 9.8 percent in the same period in 2010. The increase in selling and marketing expenses were mainly related to growth in sales force headcount for online tutoring programs in Beijing and expenses related to promotional and branding activities on a national level.
• Research and development expenses for the third quarter of 2011 were $1.7 million, an increase of 12.2 percent from $1.5 million in the corresponding period in 2010. The increase was primarily attributable to an increase in research and development headcount in connection with upgrading learning management systems and enhancing courseware development, particularly for the development of interactive products. As a percentage of net revenue, the research and development expense was 9.5 percent in the third quarter 2011, a slight decrease from 9.6 percent in the same period of 2010.
• Share-based compensation for the third quarter of 2011, which is allocated to the related cost and operating expense line items, remained stable as $0.3 million, level with the corresponding period in 2010.

Income from Operations

Income from operations in the third quarter of 2011 was $2.8 million, a decrease of 28.4 percent compared to $3.9 million in the corresponding period of 2010. Operating margin decreased to 15.7 percent for the third quarter of 2011, compared to 24.7 percent in the corresponding period of 2010.

Adjusted income from operations, a non-GAAP measure defined as income from operations excluding share-based compensation, and amortization of intangible assets and land use rights, was $3.2 million for the third quarter of 2011, a decrease of 25.8 percent compared to $4.4 million in the corresponding period of 2010.

Adjusted operating margin, a non-GAAP measure defined as the ratio of adjusted income from operations (non-GAAP) over net revenue, for the third quarter of 2011 decreased to 18.2 percent, compared to 27.6 percent for the corresponding period of 2010.

Interest Income and Investment Income

Interest income and investment income for the third quarter of 2011 remained stable at $0.3 million, compared to $0.3 million for the corresponding quarter of 2010.

Income Tax Expense

In the third quarter of 2011, income tax expense was $0.5 million and the effective income tax rate was 14.2 percent, compared with an income tax expense of $0.7 million and effective income tax rate of 17.3 percent in same period of 2010.

Net Income Attributable to Non-controlling Interests

Net income attributable to non-controlling interests remained stable at $1.8 million in the third quarter of 2011, compared to $1.7 million in the corresponding period in 2010.

Net Income Attributable to ChinaEdu

Net income attributable to ChinaEdu, which is net income, excluding net income attributable to non-controlling interests, was $0.9 million in the third quarter of 2011, representing a decrease of 49.2 percent from $1.8 million in the corresponding period of 2010.

Net income attributable to ChinaEdu per basic and diluted ADS was $0.059 and $0.056, respectively, for the third quarter of 2011, as compared to $0.114 and $0.107, respectively, for the corresponding period in 2010.

Adjusted net income attributable to ChinaEdu (non-GAAP) was $1.4 million in the third quarter of 2011 compared to $2.3 million in the corresponding period of 2010. Adjusted net margin, a non-GAAP measure defined as the ratio of adjusted net income attributable to ChinaEdu (non-GAAP) over net revenue, was 7.6 percent in the third quarter of 2011, compared to 14.4 percent in the corresponding period of 2010.

Adjusted net income attributable to ChinaEdu per basic and diluted ADS (non-GAAP) was $0.086 and $0.081, respectively, for the third quarter of 2011, compared to $0.141 and $0.132, respectively, in the corresponding period of 2010.

Deferred Revenue

At the end of the third quarter of 2011, deferred revenue was $8.8 million, consisting of current deferred revenue in the amount of $7.1 million and non-current deferred revenue in the amount of $1.7 million. The majority of the balance of deferred revenue is comprised of private school and online tutoring program revenue. Private school revenue is received in September, but amortized over 6 or 12 months while online tutoring program revenue is received and mostly amortized over 12 months.

Cash and Cash Equivalents and Term Deposits

As of September 30, 2011, the Company reported cash and cash equivalents and term deposits of $48.5 million, which primarily consisted of cash, demand deposits with original maturity terms 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 the Company by collaborative alliance partners, were $36.0 million as of September 30, 2011 as compared to $38.7 million as of December 31, 2010.

2011 Year-to-Date Financial Results

Net Revenue

For the nine months ended September 30, 2011, total net revenue was $49.4 million, which represented an increase of 9.5 percent over $45.1 million in the corresponding period in 2010. Net revenue from online degree programs for the first nine months of 2011 was $39.2 million, representing a 9.2 percent increase from $35.9 million in the corresponding period of 2010. Net revenue from non-online degree programs for the nine months ended September 30, 2011 was $10.2 million, compared to $9.2 million in 2010, a 10.8 percent increase. The growth in total net revenue is mainly the result of strong enrollment in our online degree programs both in the Fall semester of 2010 and Spring semester of 2011, particularly through our learning center network. Growth in net revenue from our Anqing School and our 101 online tutoring programs also contributed to the net revenue increase.

Cost of Revenue

For the nine months ended September 30, 2011, total cost of revenue was $20.6 million, an increase from $16.2 million for the corresponding period in 2010. Cost of revenue for online degree programs for the nine months ended September 30, 2011 was $13.8 million, an increase of 22.9 percent compared to $11.2 million in the corresponding period of 2010. The increase was primarily due to cost increases related to the expansion of the Company's learning center network and increases in headcount across business lines.

Cost of revenue for non-online degree programs in the nine months of 2011 was $6.8 million, an increase of 37.3 percent compared to $5.0 million in the corresponding period of 2010. The increase was primarily attributable to an increase in teaching and recruiting costs related to the expansion of international and elite curriculum programs to meet market demand for study-abroad opportunities. The increase was also due to an increased depreciation charge at the Anqing School as well as additional headcount required to develop interactive and personalized learning products for online tutoring programs.

Gross Profit

Gross profit for the nine months ended September 30, 2011 was $28.8 million, a slight decrease of 0.4 percent compared with $28.9 million for the corresponding period in 2010. The decrease was primarily due to a decrease in gross margin for international and elite curriculum programs.

Income from Operations

Income from operations was $7.1 million for the nine months ended September 30, 2011, representing a decrease of 37.8 percent from $11.5 million for the corresponding period in 2010. Operating margin was 14.4 percent for the nine months ended September 30, 2011 compared to 25.4 percent for the corresponding period in 2010.

Adjusted income from operations (non-GAAP) was $8.4 million for the nine months ended September 30, 2011, representing a decrease of 33.5 percent, compared to $12.7 million in the corresponding period of 2010. Adjusted operating margin (non-GAAP) for the nine months ended September 30, 2011 was 17.1 percent, compared to 28.1 percent for the corresponding period in 2010.

Interest Income and Investment Income

Interest income and investment income increased 36.5 percent to $1.1 million in the nine months ended September 30, 2011, compared to $0.8 million for the correspondence period of 2010.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2011 was $1.5 million, compared with $3.0 million for the correspondence period of 2010.

Net Income Attributable to Non-controlling Interests

Net income attributable to non-controlling interests was $4.6 million for the nine months ended September 30, 2011, an increase of 9.4 percent compared to $4.2 million in the corresponding period of 2010. The increase was primarily due to a non-controlling interest impact related to the increase in net income from online degree programs.

Net Income attributable to ChinaEdu

Net income attributable to ChinaEdu was $2.3 million for the nine months ended September 30, 2011, representing a decrease of 55.4 percent from $5.1 million for the corresponding period in 2010. Net margin was 4.6 percent for the nine months ended September 30, 2011, compared to 11.3 percent for the corresponding period in 2010.

Adjusted net margin was 7.1 percent for the nine months ended September 30, 2011, compared to 13.8 percent for the corresponding period of 2010. The decrease was primarily due to decreased net profit in the second and third quarter of 2011.

Fourth Quarter 2011 Guidance

ChinaEdu expects total net revenue in the fourth quarter of 2011 to range from RMB110 million to RMB115 million or $17.4 million to $18.0 million. This forecast reflects ChinaEdu's current and preliminary view, which is subject to change.

Recent Developments –CFO Appointment

On November 3, 2011, the Company announced the appointment of Mr. Simon Mei as chief financial officer. Simon Mei joined ChinaEdu Corporation from Deloitte Touche Tohmatsu CPA Ltd., where he was a senior manager in assurance and advisory services in Beijing. Previously, Mr. Mei held senior manager and manager positions at Ernst & Young LLP and KPMG LLP respectively, during his nine years in Canada. His years of Big Four audit work included the execution of multiple IPO audits including companies in the education industry. Before going into audit, Mr. Mei was a finance and administrative manager in Beijing for Kennametal Ltd., a US$3 billion NYSE- listed company that manufactures metal cutting and mining products in China through its subsidiary Kennametal (China). There, he was responsible for financial reporting, strategic planning, treasury, risk management, investor and bank relations, corporate governance, taxation, audit and budgeting. Mr. Mei began his career as a corporate accountant for China Trust and Investment Corporation in Beijing, where he was responsible for financial reporting for this RMB20 billion financial institution. Mr. Mei holds a master's degree in finance from Renmin University of China in Beijing and a bachelor's degree in finance from Zhong Nan University of Finance and Economics in Wuhan, China. He earned his certified management accountant designation in the United States in 2003 and his Canadian chartered accountant designation in Edmonton, Alberta in 2006.

Conference Call

ChinaEdu's management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on November 22, 2011 (9:00 p.m. Beijing/Hong Kong Time on November 22, 2011).

Dial-in details for the earnings conference call are as follows:

A live and archived webcast of the conference call will be available on the investor relations page of ChinaEdu's website at http://ir.chinaedu.net and a replay of the conference call may be accessed by phone until November 29, 2011.

Dial-in numbers for the replay are as follows:

Non-GAAP Financial Measures

To supplement the unaudited condensed consolidated financial information presented in accordance with Generally Accepted Accounting Principles 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. 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, support for international and elite curriculum programs and online learning community for adult students.

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 19 long-term contracts that generally vary from 10 to 50 years in length. ChinaEdu also performs recruiting services for 21 universities through 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, 2010, 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: +86 13911672124

E-mail: helen@chinaedu.net

Jin Yu

Investor Relations Manager

ChinaEdu Corporation

Phone: +86 15711096022

E-mail: jinyu@chinaedu.net

SOURCE ChinaEdu Corporation