TAL Education Group Announces Unaudited Financial Results for the Third Fiscal Quarter Ended November 30, 2013

BEIJING, January 22, 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 quarter ended November 30, 2013, which is the third quarter of TAL's fiscal year 2014.

Highlights for the Third Quarter of Fiscal Year 2014

• Net revenues increased by 50.4% year-over-year to US$73.5 million from US$48.9 million in the same period of the prior year.
• Income from operations increased by 287.5% to US$11.9 million, from US$3.1 million in the third quarter of fiscal year 2013.
• Net income attributable to TAL increased by 123.4% year-over-year to US$12.5 million from US$5.6 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 85.6% year-over-year to US$14.6 million from US$7.9 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS") were US$0.16 and US$0.15, respectively. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.19 and US$0.18, respectively. Each ADS represents two Class A common shares.
• Cash, cash equivalents and term deposits totaled US$333.2 million as of November 30, 2013, compared to US$209.2 million as of February 28, 2013.
• Total student enrollments increased by 46.2% year-over-year to approximately 224,810.
• Total physical network consisted of 265 learning centers as of November 30, 2013, from 264 as of August 31, 2013.

Highlights for the First Nine Months Ended November 30, 2013

• Net revenues increased by 36.5% year-over-year to US$226.9 million from US$166.3 million in the same period of the prior year.
• Income from operations increased by 66.9% to US$43.0 million, from US$25.8 million in the same period of fiscal year 2013.
• Net income attributable to TAL increased by 65.1% year-over-year to US$43.9 million from US$26.6 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 49.8% year-over-year to US$49.7 million from US$33.2 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS") were US$0.56 and US$0.55, respectively. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were US$0.63 and US$0.62, respectively.
• Total student enrollments during the first nine months of fiscal year 2014 increased by 28.4% year-over-year to approximately 725,950.
• Total physical network increased to 265 learning centers as of November 30, 2013 from 255 learning centers as of February 28, 2013.

Financial and Operating Data -- Third Quarter and First Nine Months of Fiscal Year 2014

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

"We are pleased to report a stellar quarter with outperformance on our revenue guidance and strong profitability, resulting from higher-than-expected enrollment growth and center utilization. Net revenue of US$73.5 million came in US$2.5 million above the top end of our guidance. Revenue growth was supported by a 46.2% increase in enrollments. Our execution on the top line was better than expected as cities outside Beijing and Shanghai continued to outperform and contributed 40% of our total small class revenue, while at the same time Shanghai once again performed well and Beijing began to show signs of recovery," said TAL's Chairman and Chief Executive Officer, Mr. Bangxin Zhang.

"Given our healthy business fundamentals, we are ready to lead the business into newly evolving growth opportunities in the market. Consumer behavior on Internet and mobile, education reform, and the changing needs of the labor market in China are revolutionizing the ways in which students learn in and around school. With our recent launch of the ICS 3.0 version that creates an upgraded interactive white board and pad-based environment in the classroom, we are bringing class-based tutoring to a new level. In addition, we see a host of new opportunities in terms of expanding addressable markets, widening the range of subjects and introducing new tutoring formats."

Mr. Joseph Kauffman, Chief Financial Officer, continued, "Our top line growth and effective cost control resulted in the strong bottom line in the third quarter. We were able to keep the costs of business expansion well under control as we tempered the pace of center and classroom capacity expansion as guided. Other factors contributing to gross margin strength in this quarter were improved center utilization and changing business mix as small class continued to grow faster than our one-on-one business. We expect small class to remain our key growth driver in coming quarters."

"Our expectation for the fourth quarter is strong as we see the positive momentum to continue and cap a remarkable year of growth, business expansion and profitability. The fourth quarter outlook looks particularly high on a year-on-year basis because it will cycle a low quarter and include an extra week of classes due to the timing of Chinese New Year."

Financial Results for the Third Quarter of Fiscal Year 2014

Net Revenues
In the third quarter of fiscal year 2014, TAL reported net revenues of US$73.5 million, representing a 50.4% increase from US$48.9 million in the third quarter of fiscal year 2013. The increase was mainly driven by an increased number of total student enrollments combined with increased average selling prices (ASPs). Total student enrollments increased by 46.2% to approximately 224,810 from approximately 153,800 in the same period one year ago. The increase in total student enrollments was driven primarily by increases of enrollments in the small class offerings. ASP increased by 2.8% from US$318 in the third quarter of fiscal year 2013 to US$327 in the same quarter of fiscal year 2014. The growth in ASP was mainly driven by the hourly rate increases of a portion of the small class course offerings and the foreign exchange rate fluctuation.

Operating Costs and Expenses
Operating costs and expenses were US$62.5 million, a 34.5% increase from US$46.4 million in the third quarter of fiscal year 2013. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$60.4 million, a 36.7% increase from US$44.2 million in the third quarter of fiscal year 2013.

Cost of revenues increased by 34.1% to US$35.9 million, from US$26.7 million in the third quarter of fiscal year 2013. 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. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 34.2% to US$35.9 million, from US$26.7 million in the third quarter of fiscal year 2013.

Selling and marketing expenses increased by 34.8% to US$9.3 million, from US$6.9 million in the third quarter of fiscal year 2013. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 40.0% to US$9.0 million, from US$6.4 million in the third quarter of fiscal year 2013. The increase of selling and marketing expenses in the third quarter of fiscal year 2014 was primarily a result of an increase in compensation to sales and marketing staff to support a greater number of programs and service offerings.

General and administrative expenses increased by 35.2% to US$17.3 million, from US$12.8 million in the third quarter of fiscal year 2013. The increase in general and administrative expenses was mainly due to an increase in compensation to our general and administrative personnel in recognition of outperformance against budget and to support a greater number of programs and service offerings. Also, the depreciation of the Beijing office space was an expense the Company incurred this quarter but not in the same period of the previous year. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 41.0% to US$15.5 million, from US$11.0 million in the third quarter of fiscal year 2013.

Total share-based compensation expenses allocated to the related operating costs and expenses decreased by 8.3% to US$2.1 million in the third quarter of fiscal year 2014, from US$2.3 million in the same period of fiscal year 2013.

Gross Profit
Gross profit increased by 69.9% to US$37.7 million, from US$22.2 million in the third quarter of fiscal year 2013.

Income from Operations
Income from operations increased by 287.5% to US$11.9 million, from US$3.1 million in the third quarter of fiscal year 2013. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 162.3% to US$14.0 million, from US$5.3 million in the third quarter of fiscal year 2013.

Other Income /(Expense)
Other expense was US$51 thousand for the third quarter of fiscal year 2014, compared to other income of US$1.8 million in the third quarter of fiscal year 2013. Other expense in this quarter was mainly due to the Company's donation to the TAL Charitable Foundation, which was created in order to support the Company's corporate social responsibility initiatives. The other income in the same period of the previous fiscal year was primarily driven by exchange gains. As the Company holds the vast majority of its 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 US Dollar.

Income Tax Expense
Income tax expense was US$1.9 million in the third quarter of fiscal year 2014, as compared to US$0.8 million in the third quarter of fiscal year 2013.

Net Income Attributable to TAL Education Group
Net income attributable to TAL increased by 123.4% to US$12.5 million, from US$5.6 million in the third quarter of fiscal year 2013. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 85.6% to US$14.6 million, from US$7.9 million in the third quarter of fiscal year 2013.

Basic and Diluted Net Income per ADS
Basic and diluted net income per ADS were US$0.16 and US$0.15, respectively, in the third quarter of fiscal year 2014. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.19 and US$0.18, respectively.

Capital Expenditures
Capital expenditures for the third quarter of fiscal year 2014 were US$3.3 million, representing an increase of US$2.0 million from US$1.3 million in the third quarter of fiscal year 2013. 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 November 30, 2013, the Company had US$304.0 million of cash and cash equivalents and US$29.2 million of term deposits, as compared to US$185.1 million of cash and cash equivalents and US$24.1 million of term deposits as of February 28, 2013.

Deferred Revenue
As of November 30, 2013, the Company's deferred revenue balance was US$173.0 million as compared to US$107.3 million as of November 30, 2012, representing a year-over-year increase of 61.2%.

Business Outlook
Based on the Company's current estimates, total net revenues for the fourth quarter of fiscal year 2014 are expected to be between US$84.7 million and US$87.1 million, representing an increase of 42% to 46% on a year-over-year basis.

For the fiscal year ending February 28, 2014, the Company expects total net revenues to be in the estimated range of US$311.6 million to US$314.0 million, representing an increase of 37.9% to 39.0% 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 third fiscal quarter of fiscal year 2014 ended November 30, 2013 at 8:00 a.m. Eastern Time on January 22, 2014 (9:00 p.m. Beijing time on January 22, 2014).

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.100tal.com.

A telephone replay of the conference call will be available through 11:59 p.m. U.S. Eastern time, January 29, 2014 (12:59 p.m. Beijing time, January 30, 2014).

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 fourth quarter of fiscal year 2014 and the fiscal year ending February 28, 2014, 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 265 physical learning centers as of November 30, 2013, located in fifteen key cities in China: Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Xi`an, Chengdu, Nanjing, Hangzhou, Taiyuan, Zhengzhou, Chongqing, Suzhou and Shenyang. 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