TAL Education Group Announces Unaudited Financial Results for the Third Fiscal Quarter Ended November 30, 2012

BEIJING, January 22, 2013 /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, 2012, which is the third quarter of TAL's fiscal year 2013.

Highlights for the Third Quarter of Fiscal Year 2013

• Net revenues increased by 20.3% year-over-year to US$48.9 million from US$40.7 million in the same period of the prior year.
• Income from operations increased by 163.4% to US$3.1 million, from US$1.2 million in the third quarter of fiscal year 2012.
• Net income attributable to TAL increased by 288.3% year-over-year to US$5.6 million from US$1.4 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 172.0% year-over-year to US$7.9 million from US$2.9 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS")[1] were both US$0.07. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were both US$0.10.
• Total student enrollments during the third quarter of fiscal year 2013 increased by 9.0% year-over-year to approximately 153,800.
• Total physical network increased to 259 learning centers as of November 30, 2012 from 257 as of August 31, 2012, but still remained below the 275 learning centers as of November 30, 2011, as the Company continued to improve operational efficiency and enhance the quality of growth during the period.

Highlights for the First Nine Months Ended November 30, 2012

• Net revenues increased by 32.7% year-over-year to US$166.3 million from US$125.3 million in the same period of the prior year.
• Income from operations increased by 75.2% to US$25.8 million, from US$14.7 million in the same period of fiscal year 2012.
• Net income attributable to TAL increased by 58.9% year-over-year to US$26.6 million from US$16.7 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 42.9%year-over-year to US$33.2 million from US$23.2 million in the same period of the prior year.
• Basic and diluted net income per ADS were both US$0.34. Non-GAAP basic and diluted net income per ADS, in each case excluding share-based compensation expenses, were US$0.43 and US$0.42, respectively.
• Total student enrollments during the first nine months of fiscal year 2013 increased by 22.4% year-over-year to approximately 565,410.
• Total physical network decreased to 259 learning centers as of November 30, 2012 from 270 learning centers as of February 29, 2012, as the Company continued to improve operational efficiency and enhance the quality of growth during the period.

"Third quarter revenues of US$48.9 million came within guidance and reflected the expected impact from the changes we made to our Beijing mathematics course curriculum as well as our ongoing efforts to manage the growth of our one-on-one business. Our small class business in new markets continued to be the outstanding growth driver, with cities other than Beijing and Shanghai contributing 28% of small class revenues in the third quarter."

"In fiscal 2013, we focused on improved utilization and systems implementation to drive operational efficiency rather than maximized top line growth. As we near the closing month of fiscal 2013, I am pleased to see that our strategic focus on operational improvements for this year has enhanced the quality of our revenues, providing us with a solid basis for sustainable growth going forward. In the coming fiscal year, we will seek to continue to maintain the gains in operational efficiency we achieved in fiscal 2013, while shifting our organizational focus back to the 'essence of what makes education education': an unrelenting focus on the needs of our students and the high quality tutoring services we must provide in order to meet those needs. In fiscal 2014, we will continue to strengthen our core tutoring competency and will offer even more innovative and differentiated content to our students," said TAL's Chairman and Chief Executive Officer, Mr. Bangxin Zhang.

Mr. Joseph Kauffman, Chief Financial Officer, continued, "I am very pleased with the operational leverage we have achieved as we worked to build a more efficient business. While we operated only 259 centers in the third quarter as compared to the peak number of 275 centers in the same year ago period, we still managed 20% year-on-year revenue growth and more significantly, 163% operating income growth and a 288% increase in net income."

"We remain optimistic about the attractive growth opportunity ahead of us, even though we anticipate the impact from the change of the Beijing policy to be somewhat longer and deeper than originally expected and we will not aggressively pursue rapid expansion in our one-on-one business for some time. We are confident that our growth prospects for small class, particularly in the new cities where we have strong business momentum but are still relatively underpenetrated, warrant a rebooting of our center expansion. We will, however, maintain a modest pace of center additions to ensure that our recent drive to enhance the quality of growth can be sustained," Mr. Kauffman added.

Financial Results for the Third Quarter of Fiscal Year 2013

Net Revenues

For the third quarter of fiscal year 2013, TAL reported net revenues of US$48.9 million, representing a 20.3% increase from US$40.7 million in the third quarter of fiscal year 2012. The increase was mainly driven by the higher average selling prices (ASPs) and an increased number of total student enrollments. ASP increased by 10.4% from US$288 in the third quarter of fiscal year 2012 to US$318 in the same quarter of fiscal year 2013. The growth in ASP was mainly driven by the hourly rate increases in the Company's small class business. Total student enrollments increased by 9.0% to approximately 153,800 from approximately 141,100 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.

Operating Costs and Expenses

Operating costs and expenses were US$46.4 million, a 17.6% increase from US$39.5 million in the third quarter of fiscal year 2012. Non-GAAP operating costs and expenses, which exclude share-based compensation expenses, were US$44.2 million, a 16.1% increase from US$38.0 million in the third quarter of fiscal year 2012.

Cost of revenues increased by 13.0% to US$26.7 million, from US$23.7 million in the third quarter of fiscal year 2012. The increase in cost of revenues was primarily due to an increase in rental costs, teacher compensation, and other staff costs associated primarily with an expansion of learning center capacity. Non-GAAP cost of revenues, which exclude share-based compensation expenses, increased by 13.0% to US$26.7 million, from US$23.6 million in the third quarter of fiscal year 2012.

Selling and marketing expenses increased by 6.5% to US$6.9 million, from US$6.5 million in the third quarter of fiscal year 2012. This increase primarily reflected an increase in salaries and benefits for our sales and marketing personnel to support a greater number of programs and service offerings. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, increased by 4.6% to US$6.4 million, from US$6.2 million in the third quarter of fiscal year 2012.

General and administrative expenses increased by 36.8% to US$12.8 million, from US$9.3 million in the third quarter of fiscal year 2012. The increase in general and administrative expenses was mainly due to an increase in salaries and benefits for our general and administrative personnel to support expanded number of cities in which the Company had learning center operations. Non-GAAP general and administrative expenses, which exclude share-based compensation expenses, increased by 33.6% to US$11.0 million, from US$8.2 million in the third quarter of fiscal year 2012.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 55.9% to US$2.3 million in the third quarter of fiscal year 2013, from US$1.4 million in the same period of fiscal year 2012.

Gross Profit

Gross profit increased by 30.5% to US$22.2 million, from US$17.0 million in the third quarter of fiscal year 2012.

Income from Operations

Income from operations increased by 163.4% to US$3.1 million, from US$1.2 million in the third quarter of fiscal year 2012. Non-GAAP income from operations, which excludes share-based compensation expenses, increased by 103.9% to US$5.3 million, from US$2.6 million in the third quarter of fiscal year 2012.

Other Income/(Expense)

For the third quarter of fiscal year 2013, other income was US$1.8 million, compared to other expenses of US$0.2 million in the third quarter of fiscal year 2012. This 1.8 million of other income in the third quarter of fiscal year 2013 was primarily driven by an exchange gain. As the Company holds the vast majority of its cash balance in RMB and reports in U.S. dollars, it benefits from exchange gains in times of relative strength of the RMB and incur exchange losses in times of relative strength of the U.S. dollar.

Income Tax Expense

Income tax expense was US$0.8 million in the third quarter of fiscal year 2013, as compared to US$0.3 million in the third quarter of fiscal year 2012. The increase was mainly a result of the growth of income before income tax.

Net Income Attributable to TAL Education Group

Net income attributable to TAL increased by 288.3% to US$5.6 million, from US$1.4 million in the third quarter of fiscal year 2012. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, increased by 172.0% to US$7.9 million, from US$2.9 million in the third quarter of fiscal year 2012.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were both US$0.07 in the third quarter of fiscal year 2013. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excludes share-based compensation expenses, were both US$0.10.

Capital Expenditures

Capital expenditures for the third quarter of fiscal year 2013 were US$1.3 million, representing a decrease of US$40.0 million from US$41.3 million in the third quarter of fiscal year 2012. The decrease was mainly a result of a payment made by the Company in the third quarter of fiscal year 2012 for office space purchased last year, which did not recur in the third quarter of fiscal year 2013.

Cash and Cash Equivalents

As of November 30, 2012, the Company had US$234.4 million of cash and cash equivalents and US$14.5 million of term deposits, as compared to US$188.6 million of cash and cash equivalents and US$10.3 million of term deposits as of February 29, 2012.

Deferred Revenue

As of November 30, 2012, the Company's deferred revenue balance was US$107.3 million as compared to US$77.4 million as of November 30, 2011, representing an increase of 38.6%.

Business Outlook

Based on the Company's current estimates, total net revenues for the fourth quarter of fiscal year 2013 are expected to be between US$58.0 million and US$60.0 million, representing an increase of 11% to 15% on a year-over-year basis.

Taking into account the continued near-term impact of the new Beijing policy and the Company's efforts to manage the growth of its one-on-one business, the Company is adjusting its revenue guidance for the full fiscal year 2013 from that provided on October 23, 2012. For the fiscal year ending February 28, 2013, the Company expects total net revenues to be in the estimated range of US$224.3 million to US$226.3 million, representing an increase of 26% to 27% 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 2013 ended November 30, 2012 at 8:00 a.m. Eastern Time on January 22, 2013 (9:00 p.m. Beijing time on January 22, 2013).

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 January 29, 2013.

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 2013 and the fiscal year ending February 28, 2013, 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, 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 259 physical learning centers as of November 30, 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