TAL Education Group Announces Unaudited Financial Results for the First Fiscal Quarter Ended May 31, 2014 - Net Revenues up by 45.0% Year-Over-Year

- Income from Operations up by 105.0% Year-Over-Year

- Net Income Attributable to TAL up by 65.7% Year-Over-Year; Non-GAAP Net Income Attributable to TAL up by 74.8% Year-Over-Year

BEIJING, July 21, 2014 /PRNewswire/ -- TAL Education Group (NYSE: XRS) ("TAL" or the "Company"), a leading K-12 after-school tutoring services provider in China, today announced its unaudited financial results for the first quarter of fiscal year 2015 ended May 31, 2014.

Highlights for the First Quarter of Fiscal Year 2015

  • Net revenues increased by 45.0% year-over-year to US$89.0 million from US$61.4 million in the same period of the prior year.
  • Income from operations increased by 105.0% to US$13.7 million, from US$6.7 million in the same period of the prior year.
  • Net income attributable to TAL increased by 65.7% year-over-year to US$13.4 million from US$8.1 million in the same period of the prior year.
  • Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 74.8% year-over-year to US$17.4 million from US$9.9 million in the same period of the prior year.
  • Basic and diluted net income per American Depositary Share ("ADS") were both US$0.17. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were both US$0.22. Each ADS represents two Class A common shares.
  • Cash, cash equivalents and term deposits totaled US$578.5 million as of May 31, 2014, compared to US$269.9 million as of February 28, 2014.
  • Total student enrollments increased by 44.9% year-over-year to approximately 279,200 from approximately 192,650 in the same period of the prior year
  • Total physical network consisted of 285 learning centers as of May 31, 2014, increased from 274 as of February 28, 2014.

Financial and Operating Data -- First Quarter of Fiscal Year 2015

(In US$ thousands, except per ADS data, student enrollments and percentages)


Three Months Ended


May 31,


2013

2014

Pct. Change

Net revenues

61,398

89,026

45.0%

Net income attributable to TAL

8,058

13,350

65.7%

Non-GAAP net income attributable to TAL

9,948

17,390

74.8%

Operating income

6,667

13,667

105.0%

Non-GAAP operating income

8,557

17,706

106.9%

Net income per ADS attributable to TAL - basic

0.10

0.17

64.0%

Net income per ADS attributable to TAL - diluted

0.10

0.17

62.5%

Non-GAAP net income per ADS attributable to TAL - basic

0.13

0.22

73.0%

Non-GAAP net income per ADS attributable to TAL - diluted

0.13

0.22

71.4%

Total student enrollments in small class, one-on-one, and online courses

192,650

279,200

44.9%

"Over the years we have proven that we can sustain our teaching quality and outstanding reputation as we steadily grow our bricks-and-mortar learning center network. Word-of-mouth is our primary objective; this is what ultimately drives our business results. In determining how quickly to expand our learning center network we will continue to look primarily at customer satisfaction and market reputation as key criteria and not be tempted to expand too quickly in order to achieve short-term business outcomes. As always, we also will not invest heavily in sales and marketing to drive our business results but instead let the quality of our teaching and customer service promote the word-of-mouth which in turn will continue to drive our strong organic growth," said TAL's Chairman and Chief Executive Officer, Mr. Bangxin Zhang.

"TAL's mission is to help students achieve better outcomes through a more efficient learning process. We will use multimedia, Internet, and mobile in a blended learning approach to achieve this goal, and in so doing transform TAL into a leading technology-driven provider of education services in China. Over the last several years we have gradually increased our investment in R&D and online education initiatives and going forward we will continue to reinvest greater resources back into these areas. On August 1, our Eduu platform, which includes websites that we have now run for the last ten years, will change its name to 'Jia Zhang Bang,' or 'Helping Parent Community,' which is the name of our parent community mobile app. Through these efforts and more we will use technology and the mobile Internet to reshape today's teach-and-learn model," Mr. Zhang continued.

Mr. Joseph Kauffman, Chief Financial Officer, added, "With topline growth of 45% and operating income growth of 105%, we further scaled the business with improved efficiencies and utilization driven by strong enrolments. We replicated our successful market entry formula by adding our first learning center in Shijiazhuang and Qingdao in March and April, respectively, and Changsha in June, which extends our footprint to 19 cities in calendar year 2014 as planned. In the first quarter, we expanded our center capacity by a net 199 classrooms in our small class business, including a net ten small class learning centers. We also added a net one new learning center for our one-on-one business. In the coming quarters, we will continue to seek a balance between current and future growth. Our positive outlook remains unchanged."

Financial Results for the First Quarter of Fiscal Year 2015

Net Revenues

In the first quarter of fiscal year 2015, TAL reported net revenues of US$89.0 million, representing a 45.0% increase from US$61.4 million in the first quarter of fiscal year 2014. The increase was mainly driven by an increase in total student enrollments. Total student enrollments increased by 44.9% to approximately 279,200 from approximately 192,650 in the same period of the prior year. The increase in total student enrollments was driven primarily by increases of enrollments in the small class offerings. Average selling price (ASP) was US$319 in the first quarter of fiscal year 2015, and remained flat from the same quarter of fiscal year 2014. ASP was flat year-on-year mainly because the hourly rate increases of the small class course offerings were offset by more enrollment contribution from online courses and the foreign exchange rate fluctuation.

Operating Costs and Expenses

In the first quarter of fiscal year 2015, operating costs and expenses were US$75.5 million, a 37.9% increase from US$54.7 million in the first quarter of fiscal year 2014. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$71.4 million, a 35.2% increase from US$52.8 million in the first quarter of fiscal year 2014.

Cost of revenues increased by 30.6% to US$41.7 million, from US$31.9 million in the first quarter of fiscal year 2014. The increase in cost of revenues was mainly due to an increase in teacher compensation, rental costs and other staff costs associated primarily with an expansion of learning center capacity as well as increases in wages and teacher fees versus the year-ago period. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 30.6% to US$41.7 million, from US$31.9 million in the first quarter of fiscal year 2014.

Selling and marketing expenses increased by 46.0% to US$11.4 million, from US$7.8 million in the first quarter of fiscal year 2014. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 45.8% to US$10.9 million, from US$7.5 million in the first quarter of fiscal year 2014. The increase of selling and marketing expenses in the first quarter of fiscal year 2015 was primarily a result of an increase in compensation to sales and marketing staff to support a greater number of programs and service offerings versus the year-ago period.

General and administrative expenses increased by 49.2% to US$22.4 million, from US$15.0 million in the first quarter of fiscal year 2014. The increase in general and administrative expenses was mainly due to an increase in compensation to our general and administrative personnel to support a greater number of programs and service offerings. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 40.1% to US$18.9 million, from US$13.5 million in the first quarter of fiscal year 2014.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 113.7% to US$4.0 million in the first quarter of fiscal year 2015, from US$1.9 million in the same period of fiscal year 2014.

Gross Profit

Gross profit increased by 60.6% to US$47.3 million, from US$29.5 million in the first quarter of fiscal year 2014.

Income from Operations

Income from operations increased by 105.0% to US$13.7 million, from US$6.7 million in the first quarter of fiscal year 2014. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 106.9% to US$17.7 million, from US$8.6 million in the first quarter of fiscal year 2014.

Other Income / (Expense)

Other expense was US$0.3 million for the first quarter of fiscal year 2015, compared to other income of US$0.8 million in the first quarter of fiscal year 2014. Other expense in this quarter was mainly driven by exchange losses. As the Company holds a portion of cash balance in RMB and reports in US Dollars, it benefits from exchange gains in times of relative strength of the RMB and incurs exchange losses in times of relative strength of the U.S. Dollar.

Income Tax Expense

Income tax expense was US$2.4 million in the first quarter of fiscal year 2015, as compared to US$1.2 million in the first quarter of fiscal year 2014. The increase of ETR was mainly because the income tax preferential period of one of TAL's entities expired at the end of calendar year 2013.

Net Income Attributable to TAL Education Group

Net income attributable to TAL increased by 65.7% to US$13.4 million, from US$8.1 million in the first quarter of fiscal year 2014. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 74.8% to US$17.4 million, from US$9.9 million in the first quarter of fiscal year 2014.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were both US$0.17 in the first quarter of fiscal year 2015. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were both US$0.22.

Capital Expenditures

Capital expenditures for the first quarter of fiscal year 2015 were US$4.4 million, representing an increase of US$2.4 million from US$2.0 million in the first quarter of fiscal year 2014. The increase was mainly due to leasehold improvements, and the purchase of servers, computers, software systems and other hardware, for the Company's teaching facilities.

Cash, Cash Equivalents, and Term Deposits

As of May 31, 2014, the Company had US$578.2 million of cash and cash equivalents and US$0.3 million of term deposits, as compared to US$269.9 million of cash and cash equivalents and nil of term deposits as of February 28, 2014. The Company received net proceeds of US$202.5 million from the convertible bond issued in May 2014.

Deferred Revenue

As of May 31, 2014, the Company's deferred revenue balance was US$235.8 million, as compared to US$154.2 million as of May 31, 2013, representing an increase of 52.9%, which was mainly contributed by the tuition revenue collected in advance for the Xueersi Peiyou small class summer and fall semesters.

Business Outlook

Based on the Company's current estimates, total net revenues for the second quarter of fiscal year 2015 are expected to be between US$120.5 million and US$123.2 million, representing an increase of 31% to 34% on a year-over-year basis, assuming no material change in exchange rates and incorporating the expected impact of the weaker RMB in the second quarter of fiscal year 2015 versus the same period of the previous year.

These estimates reflect the Company's current expectation, which is subject to change.

Conference Call

The Company will host a conference call and live webcast to discuss its financial results for the first fiscal quarter of fiscal year 2015 ended May 31, 2014 at 8:00 a.m. Eastern Time on July 21, 2014 (8:00 p.m. Beijing time on July 21, 2014).

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

- U.S. toll free:

+1-866-519-4004

- Hong Kong toll free:

800-930-346

- Mainland China toll free:

400-620-8038

- International toll:

+65-6723-9381

Conference ID:

69858104

A live and archived webcast of the conference call will be available on the Investor Relations section of TAL's website at en.100tal.com.

A telephone replay of the conference call will be available through 11:59 p.m. U.S. Eastern time, July 28, 2014 (11:59 a.m. Beijing time, July 29, 2014).

The dial-in details for the replay are as follows:

- U.S. toll free:

+1-855-452-5696

- Hong Kong toll free:

800-963-117

- Mainland China toll free:

400-632-2162

- International toll:

+61-2-8199-0299

Conference ID:

69858104

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the outlook for the second quarter of fiscal year 2015, quotations from management in this announcement, as well as TAL Education Group's strategic and operational plans, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: its ability to continue to attract students to enroll in its courses; its ability to continue to recruit, train and retain qualified teachers; its ability to improve the content of its existing course offerings and to develop new courses; its ability to maintain and enhance its brand; its ability to maintain and continue to improve its teaching results; and its ability to compete effectively against its competitors. Further information regarding these and other risks is included in the Company's reports filed with, or furnished to the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and TAL Education Group undertakes no duty to update such information or any forward-looking statement, except as required under applicable law.

About TAL Education Group

TAL Education Group is a leading K-12 after-school tutoring services provider in China. The acronym "TAL" stands for "Tomorrow Advancing Life," which reflects our vision to promote top learning opportunities for Chinese students through both high-quality teaching and content, as well as leading edge application of technology in the education experience. TAL Education Group offers comprehensive tutoring services to students from pre-school to the twelfth grade through three flexible class formats: small classes, personalized premium services, and online courses. Our tutoring services cover the core academic subjects in China's school curriculum including mathematics, English, Chinese, physics, chemistry, and biology. The Company's learning center network includes 285 physical learning centers as of May 31, 2014, located in 18 key cities in China: Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Xi`an, Chengdu, Nanjing, Hangzhou, Taiyuan, Zhengzhou, Chongqing, Suzhou, Shenyang, Jinan, Shijiazhuang and Qingdao. We also operate www.eduu.com, a leading online education platform in China. Our ADSs trade on the New York Stock Exchange under the symbol "XRS."

About Non-GAAP Financial Measures

In evaluating its business, TAL considers and uses the following measures defined as non-GAAP financial measures by the SEC as supplemental metrics to review and assess its operating performance: non-GAAP operating costs and expenses, non-GAAP cost of revenues, non-GAAP selling and marketing expenses, non-GAAP general and administrative expenses, non-GAAP income from operations, non-GAAP net income attributable to TAL, non-GAAP basic and non-GAAP diluted net income per ADS. To present each of these non-GAAP measures, the Company excludes share-based compensation expenses. 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 table captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

TAL believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective. TAL believes that both management and investors benefit from 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 TAL's historical performance and liquidity. TAL computes its non-GAAP financial measures using the same consistent method from quarter to quarter and from period to period. TAL 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. A limitation of using non-GAAP measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be for the foreseeable future a significant recurring expense in the Company's business. 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 between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

For further information, please contact:

Mei Li
Investor Relations
TAL Education Group
Tel: +861052926658
Email: ir@100tal.com

Caroline Straathof
IR Inside
Tel: +31 6 5462 4301
Email: info@irinside.com

 

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. dollars)



As of

February 28,
2014


As of

May 31,
2014

ASSETS








Current assets




 Cash and cash equivalents

$ 269,930,571


$ 578,217,544

 Term deposits

-


320,149

 Restricted cash-current

325,688


240,395

 Inventory

181,759


158,525

 Deferred tax assets-current

3,281,063


3,242,190

Income tax receivable

9,824,333


11,824,849

 Prepaid expenses and other current assets

16,833,208


21,158,175

Total current assets

300,376,622


615,161,827

 Restricted cash-non-current

2,546,878


2,506,930

 Property and equipment, net

78,625,191


79,274,755

 Deferred tax assets-non-current

555,528


336,919

 Rental deposit

7,322,438


8,371,907

 Intangible assets, net

2,535,593


2,757,684

 Goodwill

7,509,824


8,062,485

Amounts due from related party

-


320,149

Long-term prepayments

989,454


2,874,934

Long-term investments

27,137,239


28,079,247

Total assets

$ 427,598,767


$ 747,746,837





LIABILITIES AND EQUITY








Current liabilities




Accounts payable (including accounts payable of the
 consolidated VIEs without recourse to TAL Education
 Group of 2,004,659 and 2,968,667 as of February 28, 2014,
 and May 31, 2014, respectively)

$ 2,349,365


$ 3,552,320

Deferred revenue (including deferred revenue of the
 consolidated VIEs without recourse to TAL Education
 Group of 102,488,333 and 209,529,072 as of February 28, 2014, and
 May 31, 2014, respectively)

132,401,062


235,756,917

Accrued expenses and other current liabilities (including
 accrued expenses and other current liabilities of the
 consolidated VIEs without recourse to TAL Education
 Group of 18,920,194 and 20,778,005 as of February 28, 2014, and
 May 31, 2014, respectively)

27,423,992


29,028,898

Income tax payable (including income tax payable of the
 consolidated VIEs without recourse to TAL Education
 Group of 3,661,860 and 2,561,582 as of February 28, 2014, and May
 31, 2014, respectively)

4,519,807


2,938,112

Deferred tax liabilities-current (including deferred tax
  liabilities-current of the consolidated VIEs without
  recourse to TAL Education Group of nil and nil
  as of February 28, 2014, and May 31, 2014, respectively)

62,100


99,360

Total current liabilities

166,756,326


271,375,607

Deferred tax liabilities-non-current (including deferred tax
liabilities-non-current of the consolidated VIEs without
recourse to TAL Education Group of 32,344 and 131,507
as of February 28, 2014, and May 31, 2014, respectively)

32,344


131,507

Bond payable (including bond payable of the consolidated
VIEs without recourse to TAL Education Group of nil and
nil as of February 28, 2014, and May 31, 2014 respectively)

-


224,809,469

Long-term payable (including long-term payable of the
consolidated VIEs without recourse to TAL Education
Group of 813,696 and nil as of February 28, 2014, and
May 31, 2014, respectively)

813,696


-

Total liabilities

167,602,366


496,316,583





TAL Education Group Shareholders' Equity




Class A common shares

78,204


78,204

Class B common shares

79,531


79,531

Additional paid-in capital

92,664,436


73,818,627

Statutory reserve

15,015,824


15,015,824

Retained earnings

144,311,994


157,662,321

Accumulated other comprehensive income

7,846,412


4,490,858

Total TAL Education Group's equity

259,996,401


251,145,365

Noncontrolling interest

-


284,889

Total equity

259,996,401


251,430,254

Total liabilities and equity

$ 427,598,767


$ 747,746,837

 

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In U.S. dollars, except share, ADS, per share and per ADS data)



For the Three Months Ended

May 31,


2013


2014

Net revenues

$ 61,398,388


$ 89,025,837

Cost of revenues

31,919,652


41,694,239

Gross profit

29,478,736


47,331,598

Operating expenses (note 1)




    Selling and marketing

7,792,023


11,372,702

General and administrative

15,025,991


22,412,592

Total operating expenses

22,818,014


33,785,294

Government subsidies

6,051


120,259

Income from operations

6,666,773


13,666,563

Interest income

1,508,274


2,738,024

Interest expense

-


(302,851)

Other income/(expenses)

807,518


(282,110)

Gain on short-term investment

279,031


-

Income before provision for income tax and loss from equity method investments

9,261,596


15,819,626

Provision for income tax

(1,204,033)


(2,447,606)

Loss from equity method investments

-


(28,621)

Net income

8,057,563


13,343,399

Add: Net loss attributable to noncontrolling interest

-


6,928

Total net income attributable
 to TAL Education Group

$ 8,057,563


$ 13,350,327

Net income per common share




Basic

$ 0.05


$ 0.08

Diluted

0.05


0.08

Net income per ADS (note 2)




Basic

0.10


0.17

Diluted

$ 0.10


$ 0.17





Other comprehensive income/(loss), net of tax

1,981,483


(3,355,554)

Comprehensive income

10,039,046


9,987,845

Add: Comprehensive loss attributable to noncontrolling interest

-


6,928

Comprehensive income attributable to TAL Education Group

$ 10,039,046


$ 9,994,773

 

Weighted average shares used in calculating net income per common share




 Basic

156,120,150


157,735,146

 Diluted

158,474,555


161,601,142


Note 1: Share-based compensation expenses are included in the operating costs and expenses as follows:



For the Three Months


Ended May 31,


2013


2014

Cost of revenues

$ 10,791


$ 11,521

Selling and marketing

323,870


482,434

General and administrative

1,555,751


3,545,236

Total

$ 1,890,412


$ 4,039,191


Note 2: Each ADS represents two Class A common shares.

 

TAL EDUCATION GROUP

Reconciliation of Non-GAAP Measures to the Most Comparable GAAP Measures

(In U.S. dollars, except share, ADS, per share and per ADS data)



For the Three Months Ended

May 31,


2013


2014





Cost of revenues

$ 31,919,652


$ 41,694,239

Share-based compensation expense in cost of revenues

10,791


11,521

Non-GAAP cost of revenues

31,908,861


41,682,718





Selling and marketing expenses

7,792,023


11,372,702

Share-based compensation expense in selling and marketing expenses

323,870


482,434

Non-GAAP selling and marketing expenses

7,468,153


10,890,268





General and administrative expenses

15,025,991


22,412,592

Share-based compensation expense in general and administrative expenses

1,555,751


3,545,236

Non-GAAP general and administrative expenses

13,470,240


18,867,356





Operating costs and expenses

54,737,666


75,479,533

Share-based compensation expense in operating costs and expenses

1,890,412


4,039,191

Non-GAAP operating costs and expenses

52,847,254


71,440,342





Income from operations

6,666,773


13,666,563

Share based compensation expenses

1,890,412


4,039,191

Non-GAAP income from operations

8,557,185


17,705,754





Net income attributable to TAL Education Group

8,057,563


13,350,327

Share based compensation expenses

1,890,412


4,039,191

Non-GAAP net income attributable to TAL Education Group

$ 9,947,975


$ 17,389,518

Net income per ADS




Basic

$ 0.10


$ 0.17

Diluted

0.10


0.17

Non-GAAP Net income per ADS (note 3)




Basic

0.13


0.22

Diluted

$ 0.13


$ 0.22





ADSs used in calculating net income per ADS




Basic

78,060,075


78,867,573

Diluted

79,237,278


80,800,571


Note 3: The Non-GAAP adjusted net income per ADS is computed using Non-GAAP adjusted net income and the same number of ADSs used in GAAP basic and diluted EPS calculation.

SOURCE TAL Education Group



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