TAL Education Group Announces Unaudited Financial Results for the Third Fiscal Quarter Ended November 30, 2015

BEIJING, January 27, 2016 /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 third quarter of fiscal year 2016 ended November 30, 2015.

Highlights for the Third Quarter of Fiscal Year 2016

• Net revenues increased by 43.1% year-over-year to US$142.2 million from US$99.4 million in the same period of the prior year.
• Income from operations increased by 16.8% to US$9.6 million from US$8.2 million in the same period of the prior year. Non-GAAP income from operations increased by 22.8% to US$16.1 million from US$13.1 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS") were both US$0.12. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.20 and US$0.19, respectively. Each ADS represents two Class A common shares.
• Cash, cash equivalents and term deposits totaled US$590.2 million as of November 30, 2015, compared to US$491.4 million as of February 28, 2015.
• Total student enrollments increased by 56.8% year-over-year to approximately 477,960 from approximately 304,910 in the same period of the prior year.
• Total physical network increased to 301 learning centers in 24 cities as of November 30, 2015 from 300 in 19 cities as of August 31, 2015.

Highlights for the Nine Months Ended November 30, 2015

• Net revenues increased by 43.2% year-over-year to US$444.9 million from US$310.8 million in the same period of the prior year.
• Income from operations increased by 30.6% to US$68.4 million from US$52.4 million in the same period of fiscal year 2015. Non-GAAP income from operations increased by 30.7% to US$85.7 million from US$65.5 million in the same period of the prior year.
• Net income attributable to TAL increased by 72.2% year-over-year to US$92.0 million from US$53.4 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 64.2% year-over-year to US$109.3 million from US$66.6 million in the same period of the prior year.
• Basic and diluted net income per ADS were US$1.15 and US$1.07, respectively. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were US$1.37 and US$1.26, respectively.
• Total student enrollments during the first nine months of fiscal year 2016 increased by 53.4% year-over-year to approximately 1,521,510 from approximately 992,080 in the same period of the prior year.
• Total physical network increased to 301 learning centers in 24 cities as of November 30, 2015 from 289 learning centers in 19 cities as of February 28, 2015.

Financial and Operating Data -- Third Quarter of Fiscal Year 2016

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

"Topline growth for the third fiscal quarter was stronger than guidance due to strong demand for our core small class business throughout our network of learning centers. We are particularly pleased with the resumption of enrollment driven growth in Beijing," said Mr. Rong Luo, TAL's Chief Financial Officer.

"We continued to add learning center capacity and widen our geographical footprint in the third fiscal quarter, laying a firm foundation for future growth. Fiscal year-to-date we have expanded learning center capacity by 40% over the same year-ago period to meet the ongoing high demand for our tutoring services. Our network now mostly consists of larger centers than before, which is in line with our long-term objective to achieve high operational efficiencies and center utilization. Moreover, we have extended our reach to 24 cities by entering into five new cities in the third fiscal quarter, and will add another city in the fourth fiscal quarter," Mr. Luo added.

Financial Results for the Third Quarter of Fiscal Year 2016

Net Revenues

In the third quarter of fiscal year 2016, TAL reported net revenues of US$142.2 million, representing a 43.1% increase from US$99.4 million in the third quarter of fiscal year 2015. The increase was mainly driven by an increase in total student enrollments, which increased by 56.8% to approximately 477,960 from approximately 304,910 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 and online courses, as well as more offering of the small-group class as a supplement to one-on-one tutoring. Average selling price (ASP) decreased by 8.7% from US$326 in the third quarter of fiscal year 2015 to US$297 in the same quarter of fiscal year 2016. The decrease in ASP was mainly attributable to more enrollment contribution from online courses and small class offerings, and the foreign exchange rate fluctuation.

Operating Costs and Expenses

In the third quarter of fiscal year 2016, operating costs and expenses were US$133.2 million, a 46.1% increase from US$91.2 million in the third quarter of fiscal year 2015. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$126.7 million, a 46.9% increase from US$86.3 million in the third quarter of fiscal year 2015.

Cost of revenues increased by 50.0% to US$73.4 million, from US$49.0 million in the third quarter of fiscal year 2015. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs, as well as increases in wages and teacher fees. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 50.0% to US$73.4 million from US$48.9 million in the third quarter of fiscal year 2015.

Selling and marketing expenses increased by 27.1% to US$17.2 million from US$13.6 million in the third quarter of fiscal year 2015. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 27.3% to US$16.6 million from US$13.1 million in the third quarter of fiscal year 2015. The increase of selling and marketing expenses in the third quarter of fiscal year 2016 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 48.5% to US$42.6 million from US$28.7 million in the third quarter of fiscal year 2015. The increase in general and administrative expenses was mainly due to an increase in the number of our general and administrative personnel compared to the year-ago period and an increase in compensation to our general and administrative personnel, in particular such personnel supporting our online education initiatives among other new programs and service offerings. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 51.1% to US$36.7 million from US$24.3 million in the third quarter of fiscal year 2015.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 32.8% to US$6.5 million in the third quarter of fiscal year 2016 from US$4.9 million in the same period of fiscal year 2015. The increase was mainly due to new grants of non-vested shares and options to directors and employees by the Company in fiscal year 2016.

Gross Profit

Gross profit increased by 36.4% to US$68.7 million from US$50.4 million in the third quarter of fiscal year 2015.

Income from Operations

Income from operations increased by 16.8% to US$9.6 million from US$8.2 million in the third quarter of fiscal year 2015. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 22.8% to US$16.1 million from US$13.1 million in the third quarter of fiscal year 2015.

Other Expense

Other expense was US$0.4 million for the third quarter of fiscal year 2016, compared to other expense of US$0.3 million in the third quarter of fiscal year 2015.

Income Tax Expense

Income tax expense was US$2.6 million in the third quarter of fiscal year 2016, compared to US$0.4 million in the third quarter of fiscal year 2015. The increase was mainly due to the expiration of an enterprise income tax ("EIT") exemption period for one of TAL's subsidiaries, Beijing Xintang Sichuang, upon which the subsidiary became subject to an EIT rate of 12.5%, and the reversal of around US$1.1 million of EIT accruals in the third quarter of fiscal year 2015, as one of TAL's subsidiaries, TAL Beijing, was affirmed to be entitled to a preferential EIT rate.

Net Income Attributable to TAL Education Group

Net income attributable to TAL decreased by 12.5% to US$9.6 million from US$11.0 million in the third quarter of fiscal year 2015. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 1.5% to US$16.1 million from US$15.9 million in the third quarter of fiscal year 2015.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were both US$0.12 in the third quarter of fiscal year 2016. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.20 and US$0.19, respectively.

Capital Expenditures

Capital expenditures for the third quarter of fiscal year 2016 were US$6.4 million, representing a decrease of US$1.1 million from US$7.5 million in the third quarter of fiscal year 2015.

Cash, Cash Equivalents, and Term Deposits

As of November 30, 2015, the Company had US$563.2 million of cash and cash equivalents and US$27.0 million of term deposits, compared to US$470.2 million of cash and cash equivalents and US$21.2 million of term deposits as of February 28, 2015.

Deferred Revenue

As of November 30, 2015, the Company's deferred revenue balance was US$351.7 million, compared to US$247.0 million as of November 30, 2014, representing an increase of 42.4%.

Financial Results for the First Nine Months of Fiscal Year 2016

Net Revenues

For the first nine months of fiscal year 2016, TAL reported net revenues of US$444.9 million, representing a 43.2% increase from US$310.8 million in the first nine months of fiscal year 2015. The increase was mainly driven by an increase in total student enrollments, which increased by 53.4% to approximately 1,521,510 from approximately 992,080 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 and online courses, as well as more offering of the small-group classas as a supplement to one-on-one tutoring. ASP decreased by 6.7% from US$313 in the first nine months of fiscal year 2015 to US$292 in the first nine months of fiscal year 2016. The decrease in ASP was mainly attributable to more enrollment contribution from online courses and small class offerings and the foreign exchange rate fluctuation, and was partially offset by the increase in the hourly rate of the small class course offerings.

Operating Costs and Expenses

In the first nine months of fiscal year 2016, operating costs and expenses were US$379.8 million, a 46.9% increase from US$258.6 million in the first nine months of fiscal year 2015. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$362.5 million, a 47.7% increase from US$245.4 million in the first nine months of fiscal year 205.

Cost of revenues increased by 49.3% to US$214.9 million from US$143.9 million in the first nine months of fiscal year 2015. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs, as well as increases in wages and teacher fees. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 49.3% to US$214.8 million from US$143.9 million in the first nine months of fiscal year 2015.

Selling and marketing expenses increased by 34.6% to US$51.3 million from US$38.1 million in the first nine months of fiscal year 2015. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 35.8% to US$49.6 million from US$36.5 million in the first nine months of fiscal year 2015. The increase of selling and marketing expenses in the first nine months of fiscal year 2016 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 48.3% to US$113.6 million from US$76.6 million in the first nine months of fiscal year 2015. The increase in general and administrative expenses was mainly due to an increase in the number of our general and administrative personnel compared to the year-ago period and an increase in compensation to our general and administrative personnel, in particular such personnel supporting our online education initiatives among other new programs and service offerings. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 50.7% to US$98.1 million from US$65.1 million in the first nine months of fiscal year 2015.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 31.4% to US$17.3 million in the first nine months of fiscal year 2016 from US$13.1 million in the same period of fiscal year 2015. The increase was mainly due to new grants of non-vested shares and options to directors and employees by the Company in fiscal year 2016.

Gross Profit

Gross profit increased by 37.9% to US$230.0 million from US$166.9 million in the first nine months of fiscal year 2015.

Income from Operations

Income from operations increased by 30.6% to US$68.4 million from US$52.4 million in the first nine months of fiscal year 2015. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 30.7% to US$85.7 million from US$65.5 million in the first nine months of fiscal year 2015.

Other Income/ (Expense)

Other expense was US$3.0 million for the first nine months of fiscal year 2016, compared to other income of US$0.8 million in the first nine months of fiscal year 2015. Other expense in the first nine months was mainly due to exchange losses. As the holding company holds a significant portion of cash balance in RMB and reports in U.S. 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.

Impairment loss on long-term investments

Impairment loss on long-term investments was $7.5 million, mainly because there were other-than-temporary declines in the value of long-term investments in several investees, primarily due to significant deteriorations in their operations, earnings performance and abilities to continue as a going concern.

Gain from disposal of components

Gain from disposal of components were $50.4 million, which was mainly derived from a transaction in which the Company transferred its one-on-one business component in Guangzhou in exchange for noncontrolling equity interest in a third party. US$12.6 million of income tax expense was accrued accordingly by applying applicable EIT rates.

Income Tax Expense

Income tax expense was US$25.3 million in the first nine months of fiscal year 2016, compared to US$8.2 million in the first nine months of fiscal year 2015. The increase was mainly due to the increase in income before tax and estimated annual effective income tax rate. The estimated annual effective income tax rate increased mainly because one of TAL's subsidiaries, Beijing Xintang Sichuang, was exempted from enterprise income tax for calendar years 2013 and 2014 as a Newly Established Software Enterprise, and is subject to preferential tax rate of 12.5% for calendar years 2015 through 2017.

Net Income Attributable to TAL Education Group

Net income attributable to TAL increased by 72.2% to US$92.0 million from US$53.4 million in the first nine months of fiscal year 2015. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 64.2% to US$109.3 million from US$66.6 million in the first nine months of fiscal year 2015.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were US$1.15 and US$1.07, respectively, in the first nine months of fiscal year 2016. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$1.37 and US$1.26, respectively.

Business Outlook

Taking into consideration the recent significant change in RMB exchange rate against the U.S. dollar, based on the Company's current estimates, total net revenues for the fourth quarter of fiscal year 2016 are expected to be between US$166.3 million and US$168.8 million, representing an increase of 35% to 37% on a year-over-year basis. If not including the impact from the recent depreciation of RMB against the U.S. Dollar, the projected revenue growth rate is expected to be in the range of 40% to 42% for the fourth quarter of fiscal year 2016.

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 third fiscal quarter of fiscal year 2016 ended November 30, 2015 at 8:00a.m. U.S. Eastern Time on January 27, 2016 (9:00p.m. Beijing time on January 27, 2016).

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

- U.S. toll free: +1-866-519-4004
- Hong Kong toll free: 800-906-601
- Mainland China toll free: 400-620-8038
- International toll: +65-6713-5090
Conference ID: 14170103

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, February 4, 2016 (12:59 p.m. Beijing time, February 5, 2016).

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: 14170103

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 fourth quarter of fiscal year 2016 and the fiscal year ending February 29, 2016, 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: the Company's ability to continue to attract students to enroll in its courses; the Company's ability to continue to recruit, train and retain qualified teachers; the Company's ability to improve the content of its existing course offerings and to develop new courses; the Company's ability to maintain and enhance its brand; the Company's ability to maintain and continue to improve its teaching results; and the Company's 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 U.S. 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 301 physical learning centers as of November 30, 2015, located in 24 key cities in China:Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Xi`an, Chengdu, Nanjing, Hangzhou, Taiyuan, Zhengzhou, Chongqing, Suzhou, Shenyang, Jinan, Shijiazhuang, Qingdao, Changsha, Luoyang, Nanchang, Ningbo, Wuxi and Fuzhou. We also operate www.jzb.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 U.S. Securities and Exchange Commission 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 from 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: +86 10 5292 6658
Email: ir@100tal.com

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

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