TAL Education Group Announces Unaudited Financial Results for the Second Fiscal Quarter Ended August 31, 2017

-Quarterly Net Revenues up by 68.1% Year-Over-Year

-Quarterly Income from Operations Increased by 32.6% Year-Over-Year

-Quarterly Non-GAAP Income from Operations Increased by 33.7% Year-Over-Year

-Quarterly Total Student Enrollments up by 100.6% Year-Over-Year

BEIJING, Oct. 26, 2017 /PRNewswire/ -- TAL Education Group (NYSE: TAL) ("TAL" or the "Company"), a leading K-12 after-school tutoring services provider in China, today announced its unaudited financial results for the second quarter of fiscal year 2018 ended August 31, 2017.

Highlights for the Second Quarter of Fiscal Year 2018

• Net revenues increased by 68.1% year-over-year to US$455.7 million from US$271.1 million in the same period of the prior year.
• Income from operations increased by 32.6% to US$68.3 million from US$51.5 million in the same period of the prior year.
• Non-GAAP income from operations increased by 33.7% to US$79.9 million from US$59.8 million in the same period of the prior year.
• Net income attributable to TAL increased by 6.7% year-over-year to US$59.5 million, from US$55.7 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 11.0% to US$71.1 million from US$64.0 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS") ¹ were US$0.11 and US$0.10, respectively. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.14 and US$0.12, respectively. Three ADSs represent one Class A common share.
• Cash, cash equivalents and short-term investments totaled US$946.1 million as of August 31, 2017, compared to US$699.7 million as of February 28, 2017.
• Total student enrollments increased by 100.6% year-over-year to approximately 2,242,380 from approximately 1,117,650 in the same period of the prior year.

Highlights for the Six Months Ended August 31, 2017

• Net revenues increased by 66.8% year-over-year to US$777.7 million from US$466.2 million in the same period of the prior year.
• Income from operations increased by 40.6% to US$97.1 million from US$69.1 million in the same period of fiscal year 2017.
• Non-GAAP income from operations increased by 39.2% to US$119.4 million from US$85.8 million in the same period of the prior year.
• Net income attributable to TAL increased by 27.9% year-over-year to US$88.2 million, from US$69.0 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 29.1% to US$110.5 million from US$85.7 million in the same period of the prior year.
• Basic and diluted net income per ADS were US$0.17 and US$0.16, respectively. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were US$0.22 and US$0.19, respectively.
• Total student enrollments during the first six months of fiscal year 2018 increased by 86.5% year-over-year to approximately 3,290,140 from approximately 1,763,700.
• Total physical network increased from 507 learning centers in 30 cities as of February 28, 2017 to 575 learning centers in 36 cities as of August 31, 2017.

"I'm pleased to see that our capacity expansion continued to drive our top-line growth in the second quarter. All our business segments performed well during the second quarter, and our revenues increased 70% year-over-year in RMB terms, backed by 101% enrollment growth year-on-year," said Mr. Rong Luo, TAL's Chief Financial Officer. "During the quarter, we continued to offer more classes with the classrooms and teachers that we have added year-to-date. We expect to see normalized utilization gradually in the second half of the year. As we further scale our business, we intend to explore new opportunities to strengthen the foundation for our future growth."

Mr. Luo continued, "We continue to explore new technologies in our online and offline products and promote education progress through smart intelligence. We are confident that our investments enable us to offer students the most innovative technology-based tutoring, and that positive student outcomes will reinforce, as they always have done, our distinctive word-of-mouth based business and brand."

Financial Results for the Second Quarter of Fiscal Year 2018

Net Revenues
In the second quarter of fiscal year 2018, TAL reported net revenues of US$455.7 million, representing a 68.1% increase from US$271.1 million in the second quarter of fiscal year 2017. The increase was mainly driven by the growth in total student enrollments, which rose by 100.6% to approximately 2,242,380 from approximately 1,117,650 in the same period of the prior year. The increase in total student enrollments was driven primarily by summer promotions in small classes and online courses.

Operating Costs and Expenses
In the second quarter of fiscal year 2018, operating costs and expenses were US$390.7 million, a 76.1% increase from US$221.8 million in the second quarter of fiscal year 2017. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$379.1 million, a 77.5% increase from US$213.6 million in the second quarter of fiscal year 2017.

Cost of revenues grew by 85.7% to US$244.9 million from US$131.9 million in the second quarter of fiscal year 2017. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs, as well as the acquisition of Beijing Shunshun Bida Information Consulting Co., Ltd ("Shunshun Bida"). Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 85.7% to US$244.8 million, from US$131.9 million in the second quarter of fiscal year 2017.

Selling and marketing expenses increased by 104.4% to US$58.5 million from US$28.6 million in the second quarter of fiscal year 2017. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 105.4% to US$57.2 million from US$27.9 million in the second quarter of fiscal year 2017. The increase of selling and marketing expenses in the second quarter of fiscal year 2018 was primarily a result of a rise in the compensation to sales and marketing staff to support a greater number of programs and service offerings compared to the year-ago period, as well as more marketing promotion activities both in brand enhancement and consumer experience.

General and administrative expenses increased by 42.3% to US$87.3 million from US$61.3 million in the second quarter of fiscal year 2017. The increase in general and administrative expenses was mainly due to an increase of the number of our general and administrative personnel compared to the year-ago period and a rise in compensation to our general and administrative personnel, as well as an increase in rental cost. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 43.1% to US$77.1 million, from US$53.8 million in the second quarter of fiscal year 2017.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 40.3% to US$11.6 million in the second quarter of fiscal year 2018 from US$8.3 million in the same period of fiscal year 2017.

Gross Profit                                                                                                                                 
Gross profit grew by 51.4% to US$210.8 million from US$139.2 million in the second quarter of fiscal year 2017.

Income from Operations
Income from operations increased by 32.6% to US$68.3 million from US$51.5 million in the second quarter of fiscal year 2017. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 33.7% to US$79.9 million from US$59.8 million in the second quarter of fiscal year 2017.

Other Income
Other income was US$2.0 million for the second quarter of fiscal year 2018, compared to other income of US$23.8 million in the second quarter of fiscal year 2017. Other income in the second quarter of fiscal year 2017 was mainly due to a gain from remeasuring the fair value of the previously held equity interests in an acquiree at its acquisition date fair value during a business combination achieved in stages.

Impairment loss on long-term investments
Impairment loss on long-term investments was nil in this quarter, compared to impairment loss on long-term investments of US$2.2 million in the second quarter of fiscal year 2017. Impairment loss on long-term investments was due to the other-than-temporary declines in the value of long-term investments in several investees.

Income Tax Expense
Income tax expense was US$16.2 million in the second quarter of fiscal year 2018, compared to US$17.6 million in the second quarter of fiscal year 2017.

Net Income Attributable to TAL Education Group
Net income attributable to TAL increased by 6.7% to US$59.5 million from US$55.7 million in the second quarter of fiscal year 2017. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 11.0% to US$71.1 million from US$64.0 million in the second quarter of fiscal year 2017.

Basic and Diluted Net Income per ADS
Basic and diluted net income per ADS were US$0.11 and US$0.10 respectively in the second quarter of fiscal year 2018. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.14 and US$0.12, respectively.

Capital Expenditures
Capital expenditures for the second quarter of fiscal year 2018 were US$37.6 million, representing an increase of US$18.7 million from US$18.9 million in the second quarter of fiscal year 2017. 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 and mobile network research and development.

Cash, Cash Equivalents, and Short-Term Investments
As of August 31, 2017, the Company had US$431.4 million of cash and cash equivalents and US$514.7 million of short-term investments, compared to US$470.2 million of cash and cash equivalents and US$229.5 million of short-term investments as of February 28, 2017.

Deferred Revenue
As of August 31, 2017, the Company's deferred revenue balance was US$728.8 million, compared to US$463.4 million as of August 31, 2016, representing an increase of 57.3%. Deferred revenue primarily consisted of the tuition collected in advance for the fall semester of Xueersi Peiyou small classes, as well as the deferred revenue related to the acquired businesses.

Financial Results for the First Six Months of Fiscal Year 2018

Net Revenues
For the first six months of fiscal year 2018, TAL reported net revenues of US$777.7 million, representing a 66.8% increase from US$466.2 million in the first six months of fiscal year 2017. The increase was mainly driven by a growth in total student enrollments, which increased by 86.5% to approximately 3,290,140 from approximately 1,763,700 in the same period of the prior year. The increase in total student enrollments was driven primarily by the growth of enrollments in the small class offerings and online courses.

Operating Costs and Expenses
In the first six months of fiscal year 2018, operating costs and expenses were US$684.4 million, a 71.2% increase from US$399.9 million in the first six months of fiscal year 2017. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$662.1 million, a 72.8% increase from US$383.2 million in the first six months of fiscal year 2017.

Cost of revenues grew by 78.4% to US$414.5 million from US$232.4 million in the first six months of fiscal year 2017. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs, as well as the acquisition of Shunshun Bida. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 78.4% to US$414.4 million from US$232.3 million in the first six months of fiscal year 2017.

Selling and marketing expenses increased by 93.3% to US$102.0 million from US$52.7 million in the first six months of fiscal year 2017. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 94.5% to US$99.6 million from US$51.2 million in the first six months of fiscal year 2017. The increase of selling and marketing expenses in the first six months of fiscal year 2018 was primarily a result of a rise in the compensation to sales and marketing staff to support a greater number of programs and service offerings compared to the year-ago period, as well as more marketing promotion activities both in brand enhancement and consumer experience.

General and administrative expenses increased by 46.3% to US$167.9 million from US$114.8 million in the first six months of fiscal year 2017. The increase in general and administrative expenses was mainly due to an increase of the number of our general and administrative personnel compared to the year-ago period and a rise in compensation to our general and administrative personnel, as well as an increase in rental cost. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 48.7% to US$148.2 million from US$99.7 million in the first six months of fiscal year 2017.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 33.8% to US$22.3 million in the first six months of fiscal year 2018 from US$16.7 million in the same period of fiscal year 2017.

Gross Profit
Gross profit grew by 55.3% to US$363.1 million from US$233.9 million in the first six months of fiscal year 2017.

Income from Operations
Income from operations increased by 40.6% to US$97.1 million from US$69.1 million in the first six months of fiscal year 2017. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 39.2% to US$119.4 million from US$85.8 million in the first six months of fiscal year 2017.

Other Income
Other income was US$8.8 million for the first six months of fiscal year 2018, compared to other income of US$23.8 million in the first six months of fiscal year 2017. Other income for the first six months of fiscal year 2018 was mainly due to a gain from fair value change of an investment. Other income for the first six months of fiscal year 2017 was mainly due to a gain from remeasuring the fair value of the previously held equity interests in an acquiree at its acquisition date fair value during a business combination achieved in stages.

Income Tax Expense
Income tax expense was US$24.6 million in the first six months of fiscal year 2018, compared to US$22.1 million in the first six months of fiscal year 2017.

Net Income Attributable to TAL Education Group
Net income attributable to TAL increased by 27.9% to US$88.2 million from US$69.0 million in the first six months of fiscal year 2017. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 29.1% to US$110.5 million from US$85.7 million in the first six months of fiscal year 2017.

Basic and Diluted Net Income per ADS
Basic and diluted net income per ADS were US$0.17 and US$0.16, respectively, in the first six months of fiscal year 2018. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.22 and US$0.19, respectively.

Capital Expenditures
Capital expenditures for the first six months of fiscal year 2018 were US$67.2 million, an increase of US$35.6 million from US$31.6 million in the first six months of fiscal year 2017. 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 and mobile network research and development.

Business Outlook
Based on the Company's current estimates, total net revenues for the third quarter of fiscal year 2018 are expected to be between US$411.7 million and US$416.9 million, representing an increase of 58% to 60% on a year-over-year basis, assuming no material change in exchange rates.

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 2018 ended August 31, 2017 at 8:00 a.m. Eastern Time on October 26, 2017 (8:00 p.m. Beijing time on October 26, 2017).

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 8:59 a.m. U.S. Eastern time, November 3, 2017 (8:59 p.m. Beijing time, November 3, 2017).

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 2018, 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 575 physical learning centers as of August 31, 2017, located in 36 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, Fuzhou , Hefei, Xiamen, Lanzhou, Dalian, Changchun, Guiyang, Dongguan, Changzhou, Xuzhou, Nantong, Foshan and Zhenjiang. 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 "TAL."

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

Note1: Share-based compensation expenses are included in the operating costs and expenses as follows:

Note 2: Three ADSs represent one Class A common Share.

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.

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