China Education Alliance Announced Second Quarter 2011 Financial Results

Aug 09, 2011, 20:56 ET from China Education Alliance, Inc.

HARBIN, China, Aug. 9, 2011 /PRNewswire-Asia/ -- China Education Alliance, Inc. ("China Education Alliance" or the "Company") (NYSE: CEU), a China-based education resource and services company, today announced second quarter 2011 results.  The Company will host a conference call on Wednesday, August 10, 2011, at 8 a.m. EDT or 8 p.m. Harbin time.

Financial Highlights for the Second Quarter ended June 30, 2011

  • Total revenue decreased 10.2% year-over-year to $9.7 million.
  • Gross profit declined to $7.0 million, or to 71.2% of sales, compared to $9.1 million, or to 83.4% of sales during the same period in 2010.
  • On a GAAP-basis, net income was $1.9 million compared with net income of $4.3 million during the same period in 2010.
  • Non-GAAP net income was $3.0 million compared with non-GAAP net income of $4.4 million in the second quarter of 2010. Non-GAAP fully diluted earnings per share were $0.10, compared with EPS of $0.14 per fully diluted share in the second quarter of 2010.

"We are encouraged by the early signs of an improvement in our business following the baseless allegations made against the Company at the end of last year. The strategic promotional and marketing campaigns that we implemented in response to the allegations have been successful in restoring our reputation," said Xiqun Yu, Chairman and Chief executive Officer of China Education Alliance. "We continue to execute on our strategy of acquiring businesses to explore our educational platform."

Second Quarter 2011 Review

China Education Alliance reported total revenue of $9.7 million for the second quarter ended June 30, 2011, a decrease of $1.1 million or 10.2%, compared to revenues of $10.9 million for the second quarter of 2010. Revenues for the training center increased 51.5% to $4.4 million but were offset by a 39.0% decline on online education revenues to $4.5 million. The decrease was due to the negative allegations mentioned above which was offset by the positive contributions of recent acquisitions. Other revenues increased 45.0% to $0.8 million compared with $0.5 million during the period ended June 30, 2010.

Overall cost of sales increased to $2.8 million in the second quarter of 2011, compared to $1.8 million for the second quarter of 2010. The increase was mainly due to continuous amortization of prepaid class materials.

Gross profit was $7.0 million in the second quarter 2011 compared with $9.1 million for the second quarter of 2010. As a percentage of sales, gross margin was 71.2% during the quarter, compared with 83.4% in the second quarter of 2010.

Gross profit in the online division decreased to $3.0 million compared with $6.3 million in the comparable period of 2010, or to 66.6% as a percent of sales in the second quarter of 2011 from 84.7% in the same period of 2010 due to lower online revenues and higher costs. Gross profit for the training center increased 44% to $3.3 million compared with $2.3 million during the second quarter of 2010. However, gross margin as a percentage of sales in the division decreased to 74.4% from 78.5% during the second quarter of 2010 due to higher amortization charges.   Gross profit for other revenues increased 33% to $0.7 million. Gross margin in the segment was 85.5% versus 93.1% during the second quarter of 2010.  

Selling expenses decreased 10.3% to $3.1 million from $3.5 million. As a percentage of sales, selling expenses remained flat at 31.1% of sales.

Administrative expenses increased to $1.2 million for the second quarter of 2011 compared with $0.6 million for the second quarter of 2010. Depreciation and amortization increased to $0.4 million, up from $0.3 million during the second quarter of 2010.

During the quarter, the Company disposed of one training center building and other fixed assets after evaluating the lack of profitability of the location. The total disposal loss and loss of other fixed assets was $0.5 million which was recorded under other income and expenses.

Net income was $2.0 million, or $.06 per share, basic and diluted, for the second quarter as compared with net income of $4.3 million, or $0.14 per share, basic and diluted, during the second quarter of 2010.

On a non-GAAP basis, net income was $3.0 million in the second quarter of 2011, or $0.10 per fully diluted share as compared with non-GAAP net income of $4.4 million, or $0.14 per fully diluted share for the second quarter of 2010.  

Recent Developments

During the quarter, the Company acquired Nuoya Foreign Languages School  (a.k.a. "Noah International"), the largest multi-language learning institute in Northern China offering courses in English, Japanese, Korean, Russian, German, French, Spanish, Italian, Arabic, etc., for RMB 16 million in cash. Currently, Noah International serves a student body of roughly 1,000 students with its two training centers in Harbin and Changchun, and generates annual revenue of RMB 10 million and net profit of RMB 3 million.

The Company was also notified by the New York Stock Exchange ("NYSE") that it was not in compliance with the NYSE continued listing standard requiring a listed security to maintain a minimum average closing price of $1.00 per share over a consecutive 30-trading-day period. The Company has six months from receipt of the notification to bring its share price and average share price back above $1.00.

Business Outlook

China Education Alliance continues to execute its strategy to augment its National Expansion Plan with the completion of several acquisitions.

During the quarter, the Company established a new Board of Directors following its purchase of a 60% interest in Harbin Tianlang Culture and Education School. The Company appointed three out of the five new directors and co-manages the school with the previous majority owner.

In June, the Company also acquired the aforementioned, Noah International, for RMB16 million in cash. Its financial statement was been consolidated with the Company's balance sheets as of May 2011.

"We continue to identify opportunities to expand our platform with quality businesses that fit our overall business strategy. We are pleased that our recent acquisitions positively contributed to sales in the current quarter," said Chairman Yu.

2011 Guidance

The Company reiterates that it expects full year 2011 total revenues to be between $47 million and $52 million.

Financial Position

As of June 30, 2011, China Education Alliance had approximately $72.6 million cash and cash equivalents, an increase from $71.1 million at December 31, 2010. Working capital was $72.4 million, a decrease of $0.2 million from working capital of $72.6 million at December 31, 2010. The Company believes that current working capital and borrowing capabilities are adequate to cover its planned operating and capital requirements. Cash provided from operating activities was $6.3 million for the six months ended June 30, 2011, compared with cash provided from operating activities of $10.1 million for the six months ended June 30, 2010. 

Conference Call

China Education Alliance will host a conference call and live webcast at 8 a.m. Eastern Daylight Time (EDT) (8 p.m. Harbin/Beijing time on Wednesday, August 10, 2011).

The dial-in details for the live conference call are as follows:

- Participant Dial In (Toll Free USA): + 1-866-770-7051 - International Dial In: +1-617-213-8064 - China Toll Free: +86-108008521490 - Hong Kong Toll Free: +852-3002-1672 Passcode: CEU

A live webcast of the conference call will be available on the investor relations section of the Company's website at: http://www.chinaeducationalliance.com. A telephone replay of the call will be available for seven days after the conclusion of the conference call. The dial-in details for the replay are as follows:

- U.S. Toll Free Number:

+1-888-286-8010

- International dial-in number:            

+1-617-801-6888

Passcode:

32845653

About China Education Alliance, Inc.

China Education Alliance, Inc. (http://www.chinaeducationalliance.com) is a fast-growing, leading, China-based company offering high-quality education resources and services to students ages 6 to 18 and adults (university students and professionals) ages 18 and over. For students ages 6 to 18, China Education Alliance offers supplemental, online exam-oriented training materials and onsite, exam-oriented training and tutoring services. The company provides online, downloadable resources prepared by distinguished teachers and onsite, personalized instruction. All resources and tutoring services are provided by distinguished teachers within mainland China. The purpose of online exam-orientated resources and onsite tutoring is to help Chinese students (ages 6 to 18) pass the two most important and highly competitive exams in their educational career: the senior high school entrance and college entrance exams. For graduates and professionals age 18 and over, China Education Alliance provides vocational training including IT and several professional training programs.

Forward-Looking Statements

Statements contained in this press release, which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, expectations of signing new customers and contracts, developing new products, projected revenues and earnings, and the success of new products. These forward-looking statements are based largely on current expectations and are subject to a number of known and unknown risks, uncertainties and other factors beyond our control that could cause actual events and results to differ materially from these statements. These statements are not guarantees of future performance, and readers are cautioned not to place undue reliance on these forward-looking statements, which are relevant as of the date of the given press release and should not be relied upon as of any subsequent date. China Education Alliance undertakes no obligation to update the forward-looking information contained in this press release.

For more information, please contact:

China Education Alliance, Inc. Alice Lee Rogers, CFO Tel: +1-626-379-5956 Email: alice@edu-chn.com

Christensen Jenny Wu Telephone: +86 10 5826 4939 Email: jwu@christensenIR.com

China Education Alliance, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

Three months ended

Six months ended

June 30, 2011

March 31, 2011

June 30, 2010

June 30, 2011

June 30, 2010

Revenues

Online education revenues

$4,506,649

$3,923,588

$7,386,469

$8,430,237

$12,617,532

Training center revenues

4,443,432

3,026,843

2,932,222

7,470,275

5,789,419

Other Revenues

773,027

49,973

533,405

823,000

1,062,879

Total revenue

9,723,108

7,000,404

10,852,096

16,723,620

19,469,830

Cost of Goods Sold

Online education costs

1,507,330

1,693,222

1,128,927

3,200,552

2,242,485

Training center costs

1,138,760

676,116

630,956

1,814,876

1,262,925

Other costs

112,299

8,079

37,060

120,378

77,837

Total cost of goods sold

2,758,389

2,377,416

1,796,943

5,135,806

3,583,247

Gross Profit

Online education gross profit

2,999,319

2,230,366

6,257,542

5,229,685

10,375,047

Training center gross profit

3,304,672

2,350,726

2,301,266

5,655,399

4,526,494

Other gross profit

660,728

41,895

496,345

702,622

985,042

Total gross profit

6,964,719

4,622,987

9,055,153

11,587,815

15,886,583

Operating Expenses

Selling expenses

3,117,607

2,426,297

3,478,810

5,543,904

5,719,764

Administrative

1,237,904

2,449,891

572,847

3,687,795

1,027,040

Depreciation and amortization

405,107

317,862

264,663

722,969

497,474

Total operating expenses

4,760,618

5,194,050

4,316,320

9,954,668

7,244,278

 

Income/(Loss) from operations

2,204,101

(571,063)

4,738,833

1,633,146

8,642,305

Other Income/ (Expense)

Other income/(Expense)

(10,164)

(59,856)

2,245

(70,020)

21,138

Loss on disposal of fixed assets

(499,532)

(141,912)

-

(641,444)

-

Interest income

80,661

62,459

50,842

143,120

97,535

Investment loss

-

-

(6,076)

-

(7,606)

Total other income/(Expense)

(429,034)

(139,309)

47,011

(568,343)

111,067

Net Income Before Provision for Income Tax

1,775,067

(710,373)

4,785,844

1,064,803

8,753,372

Income taxes:

Current

344,541

-

(549,966)

344,541

(893,145)

Deferred

(71,353)

163,279

-

91,926

-

Net Income

2,048,254

(547,094)

4,235,878

1,501,270

7,860,227

Net Income attributable to the noncontrolling interests

(128,946)

48,340

21,162

(80,606)

59,685

Net Income/(Loss) - attributable to CEU and Subsidiaries

$1,919,308

($498,754)

$4,257,040

$1,420,664

$7,919,912

Basic Earnings Per Share

$0.06

($0.02)

$0.14

$0.05

$0.25

Diluted Earnings Per Share

$0.06

($0.02)

$0.14

$0.05

$0.25

Basic Weighted Average Shares Outstanding

31,324,823

30,976,810

31,323,734

31,273,519

31,323,734

Diluted Weighted Average Shares Outstanding

31,324,823

30,976,810

31,363,255

31,273,519

31,377,877

The Components of Other Comprehensive Income

Net income/(Loss)

$1,919,308

($498,754)

$4,257,040

$1,420,664

$7,919,912

Foreign currency translation adjustment

1,028,559

522,060

242,100

1,550,619

169,665

Comprehensive income

$2,947,867

$23,306

$4,499,140

$2,971,282

$8,089,577

China Education Alliance, Inc. and Subsidiaries

Consolidated Balance Sheets

(Expressed in US Dollars)

As at December 31, 2010 and June 30, 2011

June 30,

December 31,

2011

2010

(Unaudited)

(Audited)

ASSETS

Current Assets

Cash and cash equivalents

$      72,643,017

$      71,105,415

Accounts receivable

127,340

-

Other receivable

393,536

432,030

Prepaid expenses

2,197,498

2,834,976

Total current assets

75,361,392

74,372,421

Non-current Assets

Note receivable

7,349,528

7,172,301

Property and equipment, net

6,531,891

9,946,729

Intangibles and capitalized software, net

12,908,169

1,515,381

Long-term investment

-

559,269

Deferred tax assets

441,464

-

Total non-current assets

27,231,052

19,193,680

Total Assets

$    102,592,444

$      93,566,101

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued expenses

$209,952

$          686,102

Deferred revenues

2,658,865

1,072,373

Total current liabilities

2,868,817

1,758,475

Stockholders' Equity

Common stock ($0.001 par value, 150,000,000 shares authorized,31,747,249and 31,261,911 issued at June 30, 2011 and  December 31, 2010, respectively; and 412,536 shares held in treasury)

31,747

31,263

Additional paid-in capital

40,864,105

39,705,625

Statutory reserve

5,063,769

3,731,672

Retained earnings

44,760,739

44,591,566

Accumulated other comprehensive income

7,124,184

5,573,565

Less: Treasury stock

(977,072)

(977,072)

Stockholders' equity - China Education Alliance, Inc. and Subsidiaries

96,867,471

92,656,619

Noncontrolling interests in subsidiaries

2,856,156

(848,991)

Total stockholders' equity

99,723,627

91,807,627

Total Liabilities and stockholders' Equity

$    102,592,444

$      93,566,101

China Education Alliance, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Expressed in US Dollars)

As at June 30, 2010 and 2011

Six Months Ended June 30,

2011

2010

Cash flows from operating activities

Net Income

$    1,501,270

$    7,860,227

Adjustments to reconcile net income to net cash provided by Operating activities

Depreciation and amortization

722,969

497,474

Depreciation and amortization-Cost of goods sold

915,447

416,180

Loss on disposal of fixed asset

641,444

-

Stock based compensation

1,158,965

157,730

Loss on equity investment

-

8,174

Deferred tax asset                                                                                                              

(441,464)

-

Net change in assets and liabilities

Account receivables

(120,542)

(272,210)

Prepaid expenses and other

701,043

713,278

Accounts payable and accrued liabilities

(297,760)

919,764

Other receivable

97,732

-

Deferred revenue

1,378,346

(165,976)

Net cash provided by operating activities

6,257,450

10,134,641

Cash flows from investing activities

Proceeds from disposal of fixed assets

1,772,265

(110,111)

Cash used for acquisitions

(7,788,424)

(876,395)

Net cash used in investing activities

(6,016,159)

(986,506)

Cash flows from financing activities

Warrants exercised

-

298,749

Options exercised

-

38,657

Net cash provided by financing activities

-

337,406

Effect of exchange rate changes on cash

1,296,311

169,665

Net increase in cash

1,537,602

9,655,206

Cash and cash equivalents at beginning of period

71,105,415

65,035,332

Cash and cash equivalents at end of period

$  72,643,017

$  74,690,538

Supplemental disclosure of cash flow information

Income taxes paid

$    2,187,294

$    2,719,163

Non-cash investing and financing activities

Conversion of preferred stock to common

$                -

$    1,867,644

SOURCE China Education Alliance, Inc.



RELATED LINKS

http://www.chinaeducationalliance.com