3Q 2010 Net Revenue Increased 47.2% Year-Over-Year
3Q 2010 Net Income Increased 25.6% Year-Over-Year
BEIJING, Nov. 22, 2010 (GLOBE NEWSWIRE) -- Global Education & Technology Group Ltd. (Nasdaq:GEDU) ("Global Education" or the "Company"), the largest test preparation provider for the International English Language Testing System ("IELTS") and a leading provider of educational courses and related services in China, today announced unaudited financial results for the third quarter of 2010.
Third Quarter 2010 Highlights
- Total net revenues increased 47.2% year-over-year to RMB127.8 million ($19.1 million1) from RMB86.8 million in the third quarter of 2009.
- Operating income increased 35.4% year-over-year to RMB36.7 million ($5.5 million) from RMB27.1 million in the third quarter of 2009.
- Net income increased 25.6% year-over-year to RMB34.3 million ($5.1 million) from RMB27.3 million in the third quarter of 2009.
- Test preparation course enrollments increased 41.2% year-over-year to 51,907.
- Total number of learning centers increased to 317, covering 109 cities as of September 30, 2010, up from 292 as of June 30, 2010.
- Total number of directly-owned-and-operated learning centers increased by 11 to 77 as of September 30, 2010 from the end of the previous quarter.
Mr. David Yongqi Zhang, Founder and Chief Executive Officer of Global Education, commented, "We are very pleased with our third quarter financial results, which marks our first quarter reporting as a publicly traded company. Our rapid growth in revenue and strong operating cash flows demonstrate the advantages of our business model and our unique competitive position. Driven by our expanding network of learning centers, excellent brand, and superior content and services, we are gaining additional market share from smaller competitors. Looking ahead, I'm more excited than ever with the strong and growing demand for our core services. Chinese parents and students alike continue to greatly value the overseas educational experience. With their rapidly growing disposable incomes, Chinese continue to invest heavily in their children's ability to excel and compete in an increasingly global marketplace. In light of these robust long-term trends, we are confident of executing on our growth strategies, which include further increasing enrollments and profitability, growing our learning center network, broadening our service offerings and expanding our online learning business."
Ms. Hannah Lee, Vice President & Chief Financial Officer of Global Education, stated, "With the additional cash from our recent IPO which was completed after the end of the third quarter, we are excited by the increased flexibility that our current financial position allows. As demonstrated by our strong third quarter financial performance with net revenues increasing by 47.2% year-over-year and test preparation enrollments growing by 41.2% compared to the same quarter of 2009, our business model not only can scale rapidly but can also generate strong profitability and cash flows. Given the strong demand for our education services and our multi-pronged expansion plans, we believe our platform is poised to drive sustainable growth in sales and profits for the foreseeable future."
Third Quarter 2010 Financial Performance
Third quarter 2010 net revenues increased 47.2% year-over-year to RMB127.8 million ($19.1 million) from RMB86.8 million in the same period of 2009. The increase was primarily due to the following:
- Net revenues from educational programs and services increased by 48.5% to RMB120.9 million ($18.1 million) in the third quarter of 2010 compared to RMB81.4 million in the third quarter of 2009, driven primarily by an increase in test preparation course enrollments.
- Net revenues from franchise fees, study abroad consulting services and sales of books and course materials increased by 27.8% to RMB6.9 million ($1.0 million) in the third quarter of 2010, compared to RMB5.4 million in the prior year period.
Cost of revenues, which primarily consisted of salaries and benefits, rent payments, costs associated with summer camps, and book and course material printing costs, increased 69.6% to RMB55.8 million ($8.3 million) in the third quarter of 2010 compared to RMB32.9 million in the same period of 2009, primarily due to increased costs related to the expansion of the Company's network of directly operated learning centers and offering of summer camp programs to help promote the "Global" brand. As a result, cost of revenues represented 43.7% of net revenues in the third quarter of 2010, up from 37.9% of net revenues in the same period of 2009.
Selling and marketing expenses increased 35.6% to RMB25.5 million ($3.8 million) in the third quarter of 2010 compared to RMB18.8 million in the same period in 2009, reflecting an increase in expenses relating to commission to sales agents and and salaries and benefits of sales and marketing personnel. Selling and marketing expenses represented 20.0% of net revenues, a decrease from 21.7% in the same period of 2009, mainly due to economies of scale and more efficient marketing campaigns.
General and administrative expenses increased 19.8% to RMB9.7 million ($1.4 million) in the third quarter of 2010 compared to RMB8.1 million in the same period of 2009 mainly due to increased professional fees and headcount in anticipation of the Company's initial public offering. Even with increased share based compensation expenses of RMB0.9 million ($0.1 million) in the third quarter of 2010 compared to RMB0.1 million in the same period in 2009, as a percentage of the net revenues, general and administrative expense decreased from 9.3% in the third quarter of 2009 to 7.6% in the third quarter of 2010, reflecting greater operating leverage.
Operating income increased 35.4% to RMB36.7 million ($5.5 million) in the third quarter of 2010, from RMB27.1 million in the same period of 2009, driven by strong revenue growth. Operating margin for the third quarter of 2010 was 28.7%, compared to 31.2% in the same period of last year. The decrease in the Company's operating margin was mainly due to the growth of summer camp programs and increased share-based compensation expenses. While these programs operate at a lower gross margin than our test preparation businesses, they strategically complement our student acquisition and branding efforts.
Income tax expenses in the third quarter of 2010 were RMB4.9 million ($0.7 million), representing an effective tax rate of 12.5%, as compared to income tax expenses of RMB1.8 million and an effective tax rate of 6.2% in the same period of 2009. The increase in effective tax rate was mainly because the Company's main Chinese operating entity has been subject to 7.5% income tax rate in 2010 compared to nil in 2009 due to expiration of tax exemption status relating to such entity being a high-tech enterprise for tax purposes.
Net income increased 25.6% to RMB34.3 million ($5.1 million) in the third quarter of 2010, compared to RMB27.3 million in the same quarter of 2009. Diluted earnings per ADS were RMB1.84 ($0.28) in the third quarter of 2010. The Company had approximately 18.6 million weighted average diluted ADSs outstanding during the quarter ended September 30, 2010.
Non-GAAP net income excluding share-based compensation expenses and fair value change in contingent consideration payable attributable to Global Education was RMB35.8 million ($5.4 million) in the third quarter of 2010, representing a 29.7% increase from the same period of 2009. Basic and diluted non-GAAP net income per ADS were RMB2.08 ($0.31) and RMB1.92 ($0.29), respectively.
As of September 30, 2010, the Company had cash and cash equivalents of RMB339.8 million ($50.8 million), compared to RMB103.8 million as of December 31, 2009. Cash flows provided by operating activities for the three months ended September 30, 2010 were approximately RMB28.5 million ($4.3 million) due to the continued strength of the Company's operating results. Deferred revenues increased to RMB91.8 million ($13.7 million) as of September 30, 2010, up from RMB71.3 million in the third quarter of 2009.
Initial Public Offering
On October 14, 2010, Global Education completed an initial public offering of 6.375 million American Depositary Shares ("ADSs"), each representing four ordinary shares, at a price of $10.50 per ADS. On October 20, 2010, the underwriters in the initial public offering exercised their over-allotment option to purchase an additional 956,250 additional ADSs from us at the initial public offering price. The total proceeds from the offering, net of underwriting discounts, were U.S.$71.6 million.
Financial Outlook for Fourth Quarter of 2010
The Company estimates that its net revenues for the fourth quarter of 2010 will be in the range of RMB75.0 million ($11.2 million) to RMB78.0 million ($11.7 million), an increase of approximately 26.6% to 35.1% over the previous year.
This forecast reflects the Company's current and preliminary view, which is subject to change.
The Company will hold a conference call at 8:00 am ET on Monday, November 22, 2010, to discuss its results. Listeners may access the call by dialing +1-800-860-2442 or +1-412-858-4600 for international callers, access code: Global Education & Technology. A webcast will also be available through the Company's website at ir.globaleducation.cn.
A replay of the call will be available through November 30, 2010. Listeners may access the replay by dialing +1-877-344-7529 or +1-412-317-0088 for international callers, access code: 446188.
About Global Education
Global Education & Technology Group Ltd. (Nasdaq:GEDU) is the largest test preparation provider for IELTS and a leading provider of educational courses and related services in China. Under its "Global" brand, the Company also offers diversified services that span a student's educational life cycle, including after-school courses, overseas study consulting, and professional certification test preparation. As of September 30, 2010, the Company's network comprised 77 directly operated and 240 franchised learning centers across China, as well as an online course delivery platform with more than one million registered members. For more information, please visit .
The Global Education & Technology Group Ltd. logo is available at
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can be identified by terms such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "future," "intend," "look forward to," "outlook," "plan," "should, "will," and similar terms and include, among other things, the Company's guidance relating to anticipated financial and operating results for the year 2010 and the growth prospects of the Company's business and industry. The factors that could cause the Company's actual financial and operating results to differ from what the Company currently anticipates can include its ability to meet challenges associated with its rapid expansion, its ability to anticipate and meet market demand, the growth of China's economy and education market, uncertainties with respect to the China's legal and regulatory environments, and other factors stated in the Company's filings with the U.S. Securities and Exchange Commission (the "SEC"). The financial information contained in this release should be read in conjunction with the consolidated financial statements and related notes included in the Company's prospectus dated October 7, 2010 which was filed with the SEC and is available on the SEC's website at www.sec.gov.
The forward-looking statements in this release involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates, and projections about Global Education and the markets in which it operates. The Company undertakes no obligation to update forward-looking statements, which speak only of the Company's views as of the date of this release, to reflect subsequent events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, the Company cannot assure you that its expectations and assumptions will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.
About Non-GAAP Measures
To supplement Global Education's unaudited consolidated financial results presented in accordance with United States Generally Accepted Accounting Principles (GAAP), the Company uses the following measures defined as non-GAAP financial measures: net income attributable to Global Education excluding share-based compensation expenses and fair value change in contingent consideration, operating income excluding share-based compensation expenses, operating costs and expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, operating margin excluding share-based compensation expenses, and basic and diluted net income per ADS attributable to the Company excluding share-based compensation expenses and fair value change in contingent consideration payable.
Global Education believes that these non-GAAP financial measures are useful for its management and investors to assess and analyze the Company's core operating results as share-based compensation expense and fair value change in contingent consideration payable is not directly attributable to the underlying performance of the Company's business operations and may not be indicative of its operating performance from a cash perspective. These non-GAAP financial measures also facilitate management's internal comparisons to its historical performance and liquidity. A limitation of using these non-GAAP financial measures is that these non-GAAP measures exclude the share-based compensation charge and fair value change in contingent consideration payable that have been and will continue to be for the foreseeable future a significant recurring expense in Global Education's business.
The presentation of these non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. The Company is only providing these non-GAAP performance measures in the press release, and will not incorporate into GAAP financial statements. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliation of Unaudited non-GAAP measures to the Most comparable GAAP measures" set forth at the end of this press release.
This press release contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars for the quarter ended September 30, 2010 were made at a rate of RMB6.6905 to USD1.00, the U.S. dollar exchange rate against the Renminbi on September 30, 2010 as set forth in the H.10 weekly statistical release of Federal Reserve Board. Global Education & Technology Group makes no representation that the Renminbi or US dollar amounts referred to in this press release could have been or could be converted into US dollars or Renminbi, at any particular rate or at all.
CONTACT: Global Education & Technology Group Ltd. Hannah Lee, VP & CFO firstname.lastname@example.org ICR LLC. Michael Tieu +86-10-6583-7509 email@example.com William Zima +1-203-682-8200 firstname.lastname@example.org