IPO calendar, Nov 1wk
Xueda Education Group (NYSE:XUE) $111mm IPO
Market cap of $554mm at the price range mid-point of $8.25.
Scheduled for Tuesday, Nov 2
XUE valuaton metrics
. A market leader in a fragmented market
. Adding learning centers & apparently keeping costs under control
. Lower gross margins than already public Chines education companies, also has a lower P/E ratio based on the six months comparisons than the public companies listed below.
Note: most of the other public education companies experience a seasonally strong September quarter. XUE, on the other hand, experiences a seasonally weak September quarter.
Each ADS represents two ordinary shares
. The leading national provider of tutoring services for primary and secondary school students in China with a focus on offering personalized tutoring services.
. According to the IDC report, as of December 31, 2009, was the largest provider of primary and secondary school tutoring services in China in terms of revenue and number of cities covered
THIRD QTR DEVELOPMENTS
XUE’s business continued to grow rapidly in the three months ended September 30, 2010.
. In this quarter, XUE opened 21 new learning centers, bringing the total number of learning centers to 178. . In addition, XUE served more than 40,000 students and delivered a total of over 1.8 million course hours during this period.
• Net revenue. Net revenue for the September quarter 2010 almost double 2009’s Sept qtr.
For the three months ended September 30, 2010 was no less than $37.0 million, compared to total net revenue of $47.0 million for the three months ended June 30, 2010 and $18.6 million for the three months ended September 30, 2009.
• Gross margin. For the Sept qtr increased to 25% from 19% in the year earlier qrt
Gross margin estimate for the three months ended September 30, 2010 was no less than 25.0%. Gross margin for the three months ended June 30, 2010 and September 30, 2009 was 42.1% and 19.0%, respectively.
• Loss from operations. Down to $2mm from $4.1 for the same qtr in 2009
Estimates that the loss from operations for the three months ended September 30, 2010 was no more than $2.0 million. For the three months ended June 30, 2010 and September 30, 2009, XUE recorded income from operations of $9.2 million and loss from operations of $4.1 million, respectively.
• XUE’s profitability in the third quarter of the year is usually affected most by adverse seasonal factors. Estimated financial and operating data for the three months ended September 30, 2010 were largely consistent with this historical seasonal pattern of results of operations.
EXPANSION & COST CONTROLS
. The significant growth in the estimated net revenue and improvement of gross margin for the three months ended September 30, 2010 from the three months ended September 30, 2009 was primarily the result of XUE’s continued business expansion and efforts to enhance the utilization of facilities and teaching staff and operating efficiency.
. Compared to the three months ended September 30, 2009, all estimated major costs and expenses as percentages of the estimated net revenue decreased in the three months ended September 30, 2010. As a result, the estimated loss from operations for the three months ended September 30, 2010 decreased significantly both in the absolute amount and as a percentage of the estimated net revenue from the three months ended September 30, 2009.
> Number of learning centers.
. The increase in course hours delivered has been driven to a substantial extent by the expansion of the tutoring service network. The total number of learning centers in operation increased from 32 at the end of 2007 to 108, 131 and 157 at the end of 2008 and 2009 and as of June 30, 2010, respectively.
. The number of cities covered by the tutoring service network increased from eight cities at the end of 2007 to 28, 33 and 44 cities at the end of 2008 and 2009 and as of June 30, 2010, respectively.
> Number of students served.
. Increased the number of students served through increasing both the capacity and utilization of existing learning centers, as well as through opening new learning centers.
. The number of annual students served increased from 5,500 in 2007 to approximately 27,100 in 2008 and 54,100 in 2009.
. In the first six months of 2010, XUE served 54,000 students, compared to 30,300 students for the same period in 2009.
> "Size" of service contracts
. The "size" of our service contracts refers to both the total course hours purchased and service periods under the service contracts.
. In the six months ended June 30, 2010, the average number of course hours purchased under each service contract ranged from 110 to 120 hours
. According to the IDC report, the top five players by revenue accounted for 1.6% of the primary and secondary school tutoring market in terms of total revenues for 2009.
. With a market share of 0.42% by revenue in this highly fragmented market, XUE was the largest primary and secondary school tutoring service provider in 2009 according to the IDC report
. The educational services market in China, particularly the tutoring sector, is highly fragmented, competitive and rapidly evolving.
. Competitors consist of private schools, public and private companies that provide tutoring services and individual private tutors.
. XUE has not yet faced significant direct competition from other tutoring service providers on a national scale
USE OF PROCEEDS
$130mm includes investment by Warburg Pincus
• $90.0 million for (i) the improvement of the operating platform and technology infrastructure, (ii) the development and offering of new services and products to students through the VIE and its subsidiaries to enhance tutoring services, and (iii) the enhancement of PRC subsidiary's services
• balance for general corporate purposes.
XUE valuaton metrics