Ambow Education Announces First Quarter 2012 Unaudited Financial Results

BEIJING, July 4, 2012 /PRNewswire-Asia/ -- Ambow Education Holding Ltd. ("Ambow" or the "Company") (NYSE: AMBO), a leading national provider of educational and career enhancement services in China, reported its preliminary and unaudited financial results for the first quarter of 2012 on July 5 Beijing Time. The unaudited financial information disclosed in this press release is preliminary and subject to completion of review procedures.

Financial Highlights for the First Quarter Ended March 31, 2012:

• Total net revenue increased 22.1% year-over-year to $59.5 million[1] from $48.8[2] million for the same period in 2011 and organic growth is over 11.4% year-over-year.
  • The growth assets, which consist of Tutoring and Career Enhancement, achieved 27.6% year-over-year revenue growth, of which organic growth was 13.6%.  $14.3 million of services and products delivered in the first quarter will be recognized as revenue in future periods upon cash collection while $4.3 million of services and products delivered in 2011 were recognized as revenue in the first quarter of 2012.
  • Tutoring revenue increased 42.0% to $35.9 million from $25.3 million for the same period in 2011, of which organic growth was 28.4% year-over-year. $4.8 million of services and products delivered in the first quarter will be recognized as revenue in future periods upon cash collection while $2.4 million of services and products delivered in 2011 were recognized as revenue in the first quarter of 2012.
  • Career Enhancement revenue decreased 2.8% to $11.7 million from $12.0 million for the same period in 2011. $9.5 million of services and products delivered in the first quarter will be recognized as revenue in future periods upon cash collection while $1.9 million of services and products delivered in 2011 were recognized as revenue in the first quarter of 2012.
• Operating loss was $13.0 million compared to operating income of $3.4 million for the same period in 2011. Non-GAAP operating loss[3] was $10.6 million compared to non-GAAP operation income of $4.5 million for the same period in 2011.
• Net loss was $12.7 million compared to net income of $2.0 million for the same period in 2011. Non-GAAP net loss[4] was $10.2 million compared to non-GAAP net income of $3.0 million for the same period in 2011.
• Diluted non-GAAP net loss per ADS attributable to Ambow[5] was $0.14 as compared to diluted non-GAAP net income per ADS attributable to Ambow of $0.04 for the same period in 2011.
• Total student enrollments[6] increased 17.4% to 265,400 from 226,000 for the same period in 2011. 
  • The student enrollments for growth assets increased 21.3 % to 239,000 from 197,000 for the same period in 2011.
• As part of the latest development, Ambow has signed a US$50 million loan package agreement with International Financial Corporation (IFC), a member of the World Bank Group, to support Ambow's employment oriented career enhancement developments. The loan package consists of 1) a $30 million 8-year loan with a variable interest rate of Libor + 4.5%, and 2) a $20 million 5-year convertible bond with a variable interest rate of Libor +4.2% and a conversion price of $10 per ADS. Both loans have interest rate step down features. Disbursement of the loan proceeds to Ambow is subject to various conditions.  Subject to satisfaction of these conditions and disbursement of the loan proceeds, the company will use IFC's $50 million loan to build two new campuses in the capital Beijing and the southern city of Guangzhou, and expand existing campuses in the eastern cities of Kunshan and Dalian. The Company cannot be sure that we will satisfy the conditions to the disbursement in a timely manner, or at all.

Commenting on the first quarter results, Ambow's President and Chief Executive Officer Dr. Jin Huang provided the following remarks: 

In the first half of this year, we experienced unexpected challenges as a young publicly listed company. Despite delivering a substantial portion of certain services and products, the revenues for these services and products could not be recognized in the first quarter.  Nevertheless and under the circumstances, our company delivered satisfactory results.

Regarding our tutoring services, our same center sales[7] growth was around 8% year-over-year. Our enrollment growth has accelerated to over 22%, driven by the new centers that we opened in the last four quarters. Building on the initial success of new store expansion last year, we have added 15 more learning centers during the first quarter. We expect to add around 20 more centers in the second quarter. Moreover, we are making good progress on the brand integration for tutoring in Beijing. Ambow's tutoring operations are also entering Shanghai, which is the largest city in China. The momentum for tutoring operations is expected to continue into the later part of the year.

Career Enhancement, which is our highest margin and growth segment, has approximately 40% of its sales sold through distributors. A large portion of the revenues coming through this channel will be recognized later this year instead of the first quarter. Sales through the distributor's channel have been temporarily interrupted for the second quarter of 2012. We are in the process of switching career enhancement service and product sales that were originally handled by distributors to an online e-commerce model. 

Ambow's Chief Strategy Officer Ms. Jenny Zhan added, "I am happy to report that as of the last month of the second quarter we are again focusing our efforts on growing the business. We believe that our business fundamentals are strong and that our operations are resilient. Concurrently, we expect our growth to recover in the second half of the year."

Financial Results for the First Quarter of 2012

Net Revenues

Total net revenues for the first quarter of 2012 increased 22.1% to $59.5 million from $48.8 million for the same period in 2011. $14.3 million of services and products delivered in the first quarter will be recognized as revenue in future periods upon cash collection while $4.3 million of services and products delivered in 2011 were recognized as revenue in the first quarter of 2012.

Better Schools

Tutoring revenue increased 42.0% to $35.9 million from $25.3 million for the same period in 2011. The revenue growth in Tutoring was due to a 23.5% increase in enrollments and a 15.0% increase in Average Selling Price ("ASP") year-over-year.  $4.8 million of services and products delivered in the first quarter will be recognized as revenue in future periods upon cash collection while $2.4 million of services and products delivered in 2011 were recognized as revenue in the first quarter of 2012.

K-12 Schools revenue increased 1.0% to $8.7 million from $8.6 million for the same period in 2011.  During the quarter, enrollments decreased 15.0% while ASP increased 18.9% year-on-year. The drop in enrollments was because we reverted the operating right for the Junior High portion of Zhenjiang Foreign Language School back to the original owner and stopped recording revenue from the school in the third quarter of 2011.

Total student enrollments in Better Schools for the first quarter of 2012 were about 241,000 of which approximately 221,000 were in Tutoring and 20,000 were in K-12 Schools.

Better Jobs

Career Enhancement revenue was $11.7 million in the first quarter of 2012, compared to $12.0 million for the same period in 2011. The Company recorded a 2.1% increase in enrollment and a 4.8% decrease in ASP year-on-year. $9.5 million of services and products delivered in the first quarter will be recognized as revenue in future periods upon cash collection while $1.9 million of services and products delivered in 2011 were recognized as revenue in the first quarter of 2012.

Colleges revenue increased 14.0% to $3.3 million from $2.9 million for the same period in 2011.

Total student enrollments in Better Jobs for the first quarter of 2012 were about 24,400 with approximately 18,000 in Career Enhancement and 6,400 in Colleges.

Gross Profit and Gross Margin

Overall gross profit increased 9.4% to $27.9 million for the first quarter of 2012 from $25.5 million for the same period in 2011. Gross margin was 46.9% for the first quarter of 2012, compared to 52.4% for the same period in 2011. The decrease in gross margin is largely due to high margin services and products that were delivered in the first quarter, but will be recognized as revenue in future periods upon cash collection.

Operating Expenses

Operating expenses, which include selling and marketing, general and administrative, and research and development expenses, were $41.0 million for the first quarter of 2012, a 85.4% year-over-year increase from $22.1 million for the same period in 2011. Operating expenses as a percentage of total net revenues were 68.8% for the first quarter of 2012, compared to 45.3% for the same period in 2011.  The increase in operating expenses as a percentage of total net revenues were partly because $14.3 million of services and products delivered in the first quarter will only be recognized as revenue in future periods upon cash collection.  Besides that, other main reasons for the increase in operating expenses as a percentage of total net revenues were as follows:

• Selling and marketing expenses increased to $20.7 million for the first quarter of 2012 from $9.3 million for the same period in 2011.  The increase was mainly because of higher advertising expenses associated with business expansion in tutoring and career enhancement segments. 
• General and administrative expenses increased to $18.5 million for the first quarter of 2012 from $11.5 million for the same period in 2011.  The increase was mainly because of the provision of bad debts of $2.3 million, an increase in share based compensation expenses of $1.4 million and an increase in general and administrative expenses in connection with businesses acquired in the past four quarters.   Included in the share based computation in the first quarter of 2012 was a non-cash compensation expense of $0.6 million arising from a participation agreement entered between Dr. Jin Huang and Baring Private Equity Asia ("Baring Transaction") in October 2011 for the acquisition of Ambow shares.  In total, $6 million of non-cash compensation charge in connection to the Baring Transaction will be expensed over a 4-year period.
• Research and development increased to $1.8 million for the first quarter of 2012 from $1.2 million for the same period in 2011.   

Non-GAAP operating loss was $10.6 million compared to non-GAAP operating income of $4.5 million for the same period in 2011.

Income Tax Expenses

Income tax benefits were $0.6 million for the first quarter of 2012, compared to income tax expenses of $0.3 million for the same period in 2011.

Net Loss and EPS

Net loss was $12.7 million for the first quarter of 2012, compared to net income of $2.0 million for the same period in 2011

Non-GAAP net loss was $10.2 million for the first quarter of 2012, compared to non-GAAP net income of $3.0 million for the same period in 2011.

Both basic and diluted non-GAAP net loss per ADS[8] attributable to Ambow were $0.14, compared to basic and diluted non-GAAP net income per ADS of $0.04 for the same period in 2011.

Adjusted EBITDA

Adjusted EBITDA was negative $4.7 million for the first quarter of 2012, compared to positive $8.6 million for the same period in 2011.  Depreciation and amortization in the first quarter of 2012 was $5.4 million as compared to $4.3 million in the same period in 2011.

Adjusted EBITDA margin[9] was negative 8.0%, compared to positive 17.7% for the same period in 2011.  Depreciation and amortization as a percentage of revenue was 9.1% in the first quarter of 2012.

Balance Sheet and Cash Flow Information

Cash and cash equivalents, restricted cash and term deposits as of March 31, 2012 were $52.9 million, compared to $82.4 million as of December 31, 2011. The decrease was mainly because of the payments related to previous acquisitions as well as capital expenditure payments and prepayments made in the first quarter of 2012. 

Prepaid and other current assets as of March 31, 2012 were $130.0 million, compared to $91.2 million as of December 31, 2011. The increase was mainly due to the receivable arising from the disposal of Beijing Century College and the disposal of the equity of 21^st   Century School.

Goodwill increased to $194.2 million as of March 31, 2012 from $184.1 million as of March 31, 2011 as a result of the acquisition of sixteen early-stage tutoring centers from a third party during the first quarter of 2012. 

Other non-current assets decreased to $40.1 million as of March 31, 2012 from $50.8 million as of December 31, 2011.  The decrease was mainly due to the reclassification of part of the prepaid advertising expense from non-current portion to current portion and the reclassification of the long-term lease prepayments for a new career enhancement campus to fixed assets.

Deferred revenue balance of growth assets as of March 31, 2012 increased 12.1% to $58.0 million compared to $51.7 million as of March 31, 2011.

Accrued and other liabilities increased to $90.3 million as of March 31, 2012 from $76.6 million as of December 31, 2011.  The increase was mainly due to the reclassification of part of consideration payable for previous acquisitions from non-current portion to current portion.

Assets and liabilities held for sale as of December 31, 2011 had since been removed from the balance sheet because the disposal of Beijing Century College was completed in the first quarter of 2012.

The disposal of the equity of 21^st Century School (the "School") was also completed in the first quarter of 2012.  However, the Company continues to consolidate the financial statements of the School on the basis that due to Ambow's continuing involvement in the operation of the School, it is deemed to be a variable interest entity for which Ambow is the primary beneficiary.   The buyer's equity interest in the School was reflected in the balance sheet as non-controlling interest.

Financial Outlook for the Second Quarter and Full-Year of 2012

Ambow expects total net revenues for the second quarter of 2012 to be in the range of $69.9 million (Rmb440 million) to $73.0 million (Rmb460 million). The net revenue for the full year of 2012 is expected to be in the range of $301.7 million (Rmb1.9 billion) to $333.5 million (Rmb2.1 billion).

This is the Company's current view and it is subject to change.  This guidance is subject to various risks and uncertainties, including those related to additional legal or advisory costs associated with litigation and investigation matters.

Conference Call Information

Ambow's management will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on July 5, 2012 (8:00 p.m. Beijing/Hong Kong Time on July 5, 2012).

The dial-in number and passcode for the conference call are as follows:

U.S. Toll Free: +1-866-549-1292
China Toll Free: +400-681-6949
International: +852-3005-2050

The passcode for the call is "657079#"

Additionally, a live and archived webcast of this call will be available on the Investor Relations section of Ambow's website at: http://investors.ir.ambow.com/us/AMBO/irwebsite/

About Ambow Education Holding Ltd.

Ambow Education Holding Ltd. (NYSE: AMBO) is a leading national provider of educational and career enhancement services in China, offering high-quality, individualized services and products. Ambow has two business divisions: "Better Schools," which includes K-12 schools and tutoring centers; and "Better Jobs," which includes colleges and career enhancement centers. With its extensive network of regional service hubs complemented by a dynamic proprietary learning platform and distributors, Ambow provides its services and products to students in 30 out of the 31 provinces and autonomous regions within China.

Forward Looking Statements

Certain statements in this press release, including statements regarding the outlook for the second quarter and full year of 2012, expected growth recovery in the second half of the year, quotations from management concerning Ambow's strategic and operational plans and expectations, and Ambow's plans regarding the IFC loan, are forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.  Ambow uses words such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates", "target" and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are based on management's current expectations and involve risks and uncertainties. The following important factors, without limitation, could cause actual results to differ materially from those contained in these forward-looking statements: Ambow's ability to manage its business expansion and operations effectively, to make strategic acquisitions and investments and to successfully integrate acquired businesses; significant competition; Ambow's ability to continue to attract students to enroll in its programs, to continually enhance its programs, services and products, to successfully develop and introduce new services and products in time and to adequately and promptly respond to changes in curriculum, testing materials and standards; economic conditions; changes in government policies, laws and regulations; Ambow's ability to satisfy the conditions to disbursement of funds under its loan agreement with IFC; risks related to Ambow's ability to complete its annual audits in a timely manner, risks related to Ambow's ability to file its annual reports on Form 20-F within the time periods prescribed by the rules of the SEC (or any extension period thereof) and risks related to Ambow's identification of adjustments in its audited financial statements subsequent to announcing preliminary financial results. More information on factors that could affect Ambow's results is included from time to time in Ambow's Securities and Exchange Commission (SEC) filings and reports, including the risks described in its annual report on Form 20-F for the fiscal year ended December 31, 2011 filed with the SEC on May 29, 2012 and in Ambow's other filings with the SEC from time to time, including on Form 6-K. Other unknown or unpredictable factors also could have material adverse effects on Ambow's future results.  In light of these risks, uncertainties and factors, you are cautioned not to place undue reliance on forward-looking statements. Ambow disclaims any obligation to update information contained in forward-looking statements, whether as a result of new information, future events or otherwise.

Statement Regarding Unaudited Financial Information

The unaudited financial information disclosed in this press release is preliminary and subject to completion of review procedures.  Adjustments to the unaudited financial information disclosed in this press release may be identified in the future, which could result in significant differences between the Company's audited financial statements and this preliminary unaudited financial information.  Quarterly and year end results may not be indicative of the Company's results of operations for future quarterly periods.

About Non-GAAP Financial Measures

To supplement Ambow's unaudited consolidated financial results presented in accordance with GAAP, Ambow uses the following measures defined as non-GAAP financial measures by the SEC: (i) Non-GAAP operating loss, (ii) Non-GAAP net loss, (iii) Non-GAAP net loss attributable to Ambow per ADS basic and diluted and (iv) Adjusted EBITDA. 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. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

Ambow believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity that may not be indicative of its operating performance from a cash perspective. Ambow believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to Ambow's historical performance and liquidity. Ambow computes its non-GAAP financial measures using the same consistent method from quarter to quarter. These non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP. Ambow believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations with GAAP financial measures that are most directly comparable to non-GAAP financial measures.

For investor and media inquiries please contact:                                   

Ms. Mandy Li
Investor Relations Manager
Ambow Education Holding Ltd.
Tel: +86-10-6206-8130
Email: ir@ambow.com

---

[1] The reporting currency of the Company is Renminbi ("RMB"), but for the convenience of the reader, the amounts presented throughout the release are in US dollar ("$"). Unless otherwise stated, all translations from RMB to US$ are based on the historical exchange rate of US$1.0 to RMB6.2975, representing the noon buying rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board on March 30, 2012. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate.

[2] The 2011 comparative figures exclude the discontinued operations which comprise Beijing Century College disposed in the first quarter of 2012 and the four subdivisions, including three in Tutoring and one in Career Enhancement. The four subdivisions were disposed in the fourth quarter of 2011.

[3] Non-GAAP operating loss is defined as operating loss excluding share-based compensation expenses.

[4] Non-GAAP net loss is defined as net loss excluding share-based compensation expenses.

[5] Diluted non-GAAP net loss per ADS attributed to Ambow is computed by dividing non-GAAP net loss attributed to Ambow by weighted average number of common shares outstanding for the period plus (1) shares issuable upon the exercise of outstanding shares options and (2) the number of common shares resulting from the assumed conversion of all the outstanding redeemable convertible preferred share and exercise of warrants upon closing of the initial public offering as if the conversion or exercise had occurred at the beginning of the period.

[6] Enrollments refers to the cumulative total number of course enrolled in and paid for by students either directly through our schools or through our distributors for the respective period, including multiple online and offline courses enrolled in and paid for by the same student.

[7] Same center sales are sales dollars generated only by those centers that have been open for more than one year and have historical data to compare current quarter's sales to the sales of  same quarter last year.

[8] Each ADS represents two ordinary shares.

[9] Adjusted EBITDA margin, being Adjusted EBITDA as a percentage of total net revenues.

AMBOW EDUCATION HOLDING LTD
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
		As of March 31,		As of December 31,		As of March 31,		As of December 31,
		2012		2011		2012		2011
		USD		USD		RMB		RMB
ASSETS
Current assets:
Cash and cash equivalents		52,176		74,741		328,578		470,682
Restricted cash		588		349		3,700		2,200
Term deposits		159		7,337		1,000		46,205
Accounts receivable, net		21,705		17,189		136,686		108,247
Amounts due from related parties		9,531		10,563		60,021		66,521
Deferred tax assets, current		2,583		2,719		16,267		17,126
Prepaid and other current assets		129,954		91,168		818,388		574,123
Assets classified as held for sale		-		61,040		-		384,401
TOTAL CURRENT ASSETS		216,696		265,106		1,364,640		1,669,505
Property and equipment, net		137,439		125,290		865,521		789,016
Intangible assets and land use rights, net		123,473		120,013		777,570		755,784
Goodwill		194,226		184,103		1,223,137		1,159,386
Deferred tax assets, non-current		733		762		4,613		4,800
Non-current amounts due from related parties		3,560		3,567		22,418		22,463
Other non-current assets		40,135		50,762		252,752		319,673
TOTAL NON-CURRENT ASSETS		499,566		484,497		3,146,011		3,051,122
TOTAL ASSETS		716,262		749,603		4,510,651		4,720,627
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings		11,433		18,749		72,000		118,070
Current portion of Long-term borrowings		3,890		2,541		24,500		16,000
Deferred revenue		79,255		72,440		499,108		456,189
Accounts payable		8,369		8,240		52,701		51,896
Accrued and other liabilities		90,270		76,613		568,466		482,476
Income tax payable		19,228		21,025		121,088		132,406
Amount due to related parties		11,691		7,548		73,626		47,531
Liabilities classified as held for sale		-		23,052		-		145,169
TOTAL CURRENT LIABILITIES		224,136		230,208		1,411,489		1,449,737
Deferred tax liabilities		24,951		24,513		157,128		154,368
Long-term borrowings		6,034		7,384		38,000		46,500
Non-current portion of consideration payable for acquisitions and other liabilities		9,375		48,202		59,038		303,559
TOTAL NON-CURRENT LIABILITIES		40,360		80,099		254,166		504,427
TOTAL LIABILITIES		264,496		310,307		1,665,655		1,954,164
SHAREHOLDERS' EQUITY		420,232		430,581		2,646,413		2,711,582
TOTAL AMBOW EDUCATION HOLDING LTD'S EQUITY		420,232		430,581		2,646,413		2,711,582
Non-controlling interest		31,534		8,715		198,583		54,881
TOTAL SHAREHOLDERS' EQUITY		451,766		439,296		2,844,996		2,766,463
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		716,262		749,603		4,510,651		4,720,627

SOURCE Ambow Education Holding Ltd.