TAL Education Group Announces Second Fiscal Quarter Results and Declares Dividend

BEIJING, October 23, 2012 /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 quarter ended August 31, 2012, which is the second quarter of TAL's fiscal year 2013.

Highlights for the Second Quarter of Fiscal Year 2013

• Net revenues increased by 32.3% year-over-year to US$68.1 million from US$51.4 million in the same period of the prior year.
• Income from operations increased by 65.1% to US$16.7 million, from US$10.1 million in the second quarter of fiscal year 2012.
• Net income attributable to TAL increased by 49.7 % year-over-year to US$16.0 million from US$10.7 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 36.8 % year-over-year to US$18.1 million from US$13.2 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS")(1) were both US$0.21. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were both US$0.23.
• Total student enrollments during the second quarter of fiscal year 2013 increased by 24.8% year-over-year to approximately 247,100.
• Total physical network decreased to 257 learning centers as of August 31, 2012 from 268 learning centers as of August 31, 2011.

Highlights for the First Six Months Ended August 31, 2012

• Net revenues increased by 38.7% year-over-year to US$117.4 million from US$84.7 million in the same period of the prior year.
• Income from operations increased by 67.6% to US$22.7 million, from US$13.5 million in the same period of fiscal year 2012.
• Net income attributable to TAL increased by 37.3 % year-over-year to US$21.0 million from US$15.3 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 24.6% year-over-year to US$25.3 million from US$20.3 million in the same period of the prior year.
• Basic and diluted net income per ADS were both US$0.27. Non-GAAP basic and diluted net income per ADS, in each case excluding share-based compensation expenses, were US$0.33 and US$0.32.
• Total student enrollments during the first six months of fiscal year 2013 increased by 28.4% year-over-year to approximately 411,610.
• Total physical network decreased to 257 learning centers as of August 31, 2012 from 270 learning centers as of February 29, 2012.

Financial and Operating Data - Second Quarter and First Six Months of Fiscal Year 2013
(In US$ thousands, except per ADS data, student enrollments and percentages)

"I am pleased to report solid top and bottom line results in the second fiscal quarter, which underscore how well we have executed on our plan to improve the quality of our revenue growth this year. During the quarter, we further progressed in better utilizing our learning center network. We closed underperforming, mostly one-on-one, centers while at the same time we grasped opportunities to open new small class centers in new markets. This continued ability to replicate our model in new markets led to our small class business in cities other than Beijing and Shanghai contributing 22% of total small class revenues in the second fiscal quarter versus 11% in the same period last year and 21% in the previous quarter," said TAL's Chairman and Chief Executive Officer, Mr. Bangxin Zhang.

"Beginning with the fall term, based on a new policy adopted by the Beijing Education Commission, we have amended and upgraded the mathematics course offerings in our primary school classes in Beijing. We expect this adjustment to our curriculum to have a near-term impact on student enrollments in our third and fourth fiscal quarters, but believe over a longer time frame the improvements we are now making will support the ongoing health and sustainable growth of our business by providing students with an even more enjoyable and effective environment to pursue their studies."

Mr. Joseph Kauffman, Chief Financial Officer, continued, "Once again this quarter, revenues exceeded our guidance. Growth of operating income and net income outpaced revenue growth and resulted in margin expansion, due mainly to a combination of more effective utilization of learning centers and budgetary discipline. As we believe we have ample room for further growth, particularly in the new cities where we are relatively underpenetrated, we plan to continue to make the appropriate investment to realize this business opportunity."

"Furthermore, we are happy to announce that the Board of Directors has approved our first ever dividend after we became a listed company of 25 cents per common share, or 50 cents per ADS. We believe this is a suitable strategy to achieve capital returns for our shareholders at this time," Mr. Kauffman added.

Financial Results for the Second Quarter of Fiscal Year 2013

Net Revenues

For the second quarter of fiscal year 2013, TAL reported net revenues of US$68.1 million, representing a 32.3% increase from US$51.4 million in the second quarter of fiscal year 2012. The increase was mainly driven by an increased number of total student enrollments combined with higher average selling prices (ASPs). Total student enrollments increased by 24.8% to approximately 247,100 from approximately 198,000 in the same period one year ago. The increase in total student enrollments was driven primarily by increases in enrollments in our small class offerings and to a lesser degree by increases in enrollments in our online courses and one-on-one tutoring services. ASP increased by 5.8% from US$260 in the second quarter of fiscal year 2012 to US$275 in the same quarter of fiscal year 2013. The growth in ASP was mainly driven by the hourly rate increases of a portion of our center-based course offerings.

Operating Costs and Expenses

Operating costs and expenses were US$51.4 million, a 24.1% increase from US$41.4 million in the second quarter of fiscal year 2012. Non-GAAP operating costs and expenses, which exclude share-based compensation expenses, were US$49.3 million, a 26.8% increase from US$38.9 million in the second quarter of fiscal year 2012.

Cost of revenues increased by 26.0% to US$31.8 million, from US$25.3 million in the second quarter of fiscal year 2012. The increase in cost of revenues was primarily due to an increase in teacher compensation, other staff costs, and increased rental costs associated primarily with an expansion of learning center capacity. Non-GAAP cost of revenues, which exclude share-based compensation expenses, increased by 26.4% to US$31.8 million, from US$25.2 million in the second quarter of fiscal year 2012.

Selling and marketing expenses increased by 2.7% to US$7.0 million, from US$6.8 million in the second quarter of fiscal year 2012. This slight increase primarily reflected an increase in sales and marketing staff expense to support a greater number of programs and service offerings, which was mostly offset by reduced advertising and other expenses. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, increased by 1.2% to US$6.5 million, from US$6.4 million in the second quarter of fiscal year 2012.

General and administrative expenses increased by 36.7% to US$12.5 million, from US$9.2 million in the second quarter of fiscal year 2012. The increase in general and administrative expenses was mainly due to an increase in general and administrative staff expenses to support expanded number of cities in which the Company had learning center operations and related rental and office expenses. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, increased by 54.1% to US$11.0 million, from US$7.1 million in the second quarter of fiscal year 2012.

Total share-based compensation expenses allocated to the related operating costs and expenses decreased by 17.9% to US$2.1 million in the second quarter of fiscal year 2013, from US$2.5 million in the same period of fiscal year 2012.

Gross Profit

Gross profit increased by 38.5% to US$36.2 million, from US$26.2 million in the second quarter of fiscal year 2012.

Income from Operations

Income from operations increased by 65.1% to US$16.7 million, from US$10.1 million in the second quarter of fiscal year 2012. Non-GAAP income from operations, which excludes share-based compensation expenses, increased by 48.5% to US$18.8 million, from US$12.6 million in the second quarter of fiscal year 2012.

Other Income/(Expense)

Other income was US$0.3 million for the second quarter of fiscal year 2013, compared to other income of US$1.5 million in the second quarter of fiscal year 2012. In both years, other income was primarily driven by foreign exchange gains. As the Company holds the vast majority of its cash balance in RMB and reports in US Dollars, the Company 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 second quarter of fiscal year 2013, as compared to US$1.9 million in the second quarter of fiscal year 2012. The increase was mainly a result of the increase of income before income tax.

Net Income Attributable to TAL Education Group

Net income attributable to TAL Education Group increased by 49.7% to US$16.0 million, from US$10.7 million in the second quarter of fiscal year 2012. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, increased by 36.8% to US$18.1 million, from US$13.2 million in the second quarter of fiscal year 2012.

Basic and Diluted Net Income per ADS

Both basic and diluted net income per ADS were US$0.21, in the second quarter of fiscal year 2013. Both Non-GAAP basic and Non-GAAP diluted net income per ADS, which exclude share-based compensation expenses, were US$0.23 in the second quarter of fiscal year 2013.

Capital Expenditures

Capital expenditures for the second quarter of fiscal year 2013 were US$1.7 million, representing a decrease of US$27.1 million from US$28.8 million in the second quarter of fiscal year 2012. The decrease was mainly a result of our making a payment in the second quarter of fiscal year 2012 for office space purchased last year, which did not recur again in the second quarter of fiscal year 2013.

Cash and Cash Equivalents

As of August 31, 2012, the Company had US$223.0 million of cash and cash equivalents and US$15.8 million of term deposits, as compared to US$188.6 million of cash and cash equivalents and US$10.3 million of term deposit as of February 29, 2012.

Deferred Revenue

As of August 31, 2012, the Company's deferred revenue balance was US$103.3 million as compared to US$70.1 million as of August 31, 2011, representing an increase of 47.3%.

Completion of the Share Repurchase Program

The Company's Share Repurchase Program authorizing the Company to repurchase up to US$50 million of its ADSs, which was approved by its Board of Directors in October 2011, has now been completed. The Company has repurchased 288,969 ADSs in the open market, at an average price of US$8.43 per ADS, for an aggregate consideration of US$2.44 million.

Declaration of Cash Dividend

TAL Education Group's Board of Directors has approved a cash dividend of US$0.25 per share on the Company's common shares. Each of the Company's ADS represents two common shares. The cash dividend will be paid on or about December 28, 2012 to shareholders of record at the close of business on December 7, 2012. The cash dividends will be funded by surplus cash on the Company's balance sheet.

Business Outlook

Based on the Company's current estimates, total net revenues for the third quarter of fiscal year 2013 are expected to be between US$48.0 million and US$49.2 million, representing an increase of 18% to 21% on a year-over-year basis.

Taking into account the near-term impact of the new Beijing policy, the company is adjusting its full year guidance from that provided on February 29, 2012 and reaffirmed on July 24, 2012. For the fiscal year ending February 28, 2013, the Company expects total net revenues to be in the estimated range of US$227.2 million to US$232.6 million, representing an increase of 28% to 31% year-over-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 second fiscal quarter of fiscal year 2013 ended August 31, 2012 at 8:00 a.m. Eastern Daylight Time on October 23, 2012 (8:00 p.m. Beijing time on October 23, 2012).

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

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

A telephone replay of the conference call will be available through October 30, 2012.

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

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 third quarter of fiscal year 2013 and the fiscal year ending February 28, 2013, as well as quotations from management in this announcement, as well as TAL'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 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, which operates under the brand "Xueersi," is a leading K-12 after-school tutoring service provider in China. Its tutoring services cover the core subjects in China's school curriculum, including mathematics, English, Chinese, physics, chemistry and biology, and are delivered through three formats: small class, one-on-one, and online courses. The Company's network includes 257 physical learning centers as of August 31, 2012, located in 15 key cities in China: Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Xi'an, Chengdu, Nanjing, Hangzhou, Taiyuan, Zhengzhou, Chongqing, Suzhou and Shenyang. It also operates www.eduu.com, a leading online education platform in China. The Company's 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: +86 10 5292 6658
Email: ir@xueersi.com

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

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

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

Note 3: Non-GAAP net income per share and per ADS are computed using Non-GAAP net income and the same number of shares and ADSs used in U.S. GAAP basic and diluted EPS calculation.