TAL Education Group Announces Unaudited Financial Results for the Second Fiscal Quarter Ended August 31, 2015

BEIJING, Oct. 22, 2015 /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 second quarter of fiscal year 2016 ended August 31, 2015.

Highlights for the Second Quarter of Fiscal Year 2016

• Net revenues increased by 41.6% year-over-year to US$173.3 million from US$122.4 million in the same period of the prior year.
• Income from operations increased by 28.5% to US$39.2 million from US$30.5 million in the same period of the prior year.
• Non-GAAP income from operations increased by 29.3% to US$44.9 million from US$34.7 million in the same period of the prior year.
• Net income attributable to TAL increased by 118.0% year-over-year to US$63.5 million from US$29.1 million in the same period of the prior year, taking into account US$3.7 million of exchange losses.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 107.6% year-over-year to US$69.2 million from US$33.3 million in the same period of the prior year,taking into account US$3.7 million of exchange losses.
• Basic and diluted net income per American Depositary Share ("ADS") were US$0.79 and US$0.72, respectively. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.87 and US$0.78, respectively. Each ADS represents two Class A common shares.
• Cash, cash equivalents and term deposits totaled US$537.7 million as of August 31, 2015, compared to US$491.4 million as of February 28, 2015.
• Total student enrollments increased by 54.8% year-over-year to approximately 631,430 from approximately 407,970 in the same period of the prior year.

Highlights for the Six Months Ended August 31, 2015

• Net revenues increased by 43.2% year-over-year to US$302.7 million from US$211.4 million in the same period of the prior year.
• Income from operations increased by 33.1% to US$58.8 million from US$44.2 million in the same period of fiscal year 2015.
• Non-GAAP income from operations increased by 32.7% to US$69.5 million from US$52.4 million in the same period of the prior year.
• Net income attributable to TAL increased by 94.1% year-over-year to US$82.4 million from US$42.5 million in the same period of the prior year, taking into account US$2.2 million of exchange losses.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 83.8% year-over-year to US$93.2 million from US$50.7 million in the same period of the prior year, taking into account US$2.2 million of exchange losses.
• Basic and diluted net income per ADS were US$1.03 and US$0.94, respectively. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were US$1.17 and US$1.06, respectively.
• Total student enrollments during the first six months of fiscal year 2016 increased by 51.9% year-over-year to approximately 1,043,550.
• Total physical network increased to 300 learning centers as of August 31, 2015 from 289 learning centers as of February 28, 2015.

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

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

"Second quarter revenue again exceeded our expectation due to outstanding growth of our core small class business in cities other than Beijing. The widely spread growth momentum we saw in the first quarter continues, and we recorded triple-digit year-on-year growth in revenue in nine cities outside Beijing. Additionally, we are very pleased that our targeted summer class promotion in Beijing has begun to regenerate enrollment-driven growth for the fall term. We expect our organic business momentum to remain robust in the third quarter, mostly driven by enrollments, through our offline learning center network and deeper online engagement," said Mr. Rong Luo, TAL's Chief Financial Officer.

"We believe that in addition to our solid organic business development, we have made sound third-party investments and acquisitions in recent months, which will bring long-term value to our shareholders. These investments and acquisitions have been well coordinated and aligned with our overall strategic plan of being strongly leveraged in future education business models. All of these investments and acquisitions share a common focus on education in the K-12 segment, which is complementary to our organic growth," Mr. Luo added.

Financial Results for the Second Quarter of Fiscal Year 2016

Net Revenues

In the second quarter of fiscal year 2016, TAL reported net revenues of US$173.3 million, representing a 41.6% increase from US$122.4 million in the second quarter of fiscal year 2015. The increase was mainly driven by an increase in total student enrollments, which increased by 54.8% to approximately 631,430 from approximately 407,970 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 8.5% from US$300 in the second quarter of fiscal year 2015 to US$275 in the same quarter of fiscal year 2016. The decrease in ASP was mainly attributable to our small class summer promotion in Beijing, more offering of the small-group class and more enrollment contribution from online courses, and was partially offset by the increase in the hourly rate of the small class course offerings. 

Operating Costs and Expenses

In the second quarter of fiscal year 2016, operating costs and expenses were US$136.7 million, a 48.8% increase from US$91.9 million in the second quarter of fiscal year 2015. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$131.1 million, a 49.4% increase from US$87.7 million in the second quarter of fiscal year 2015.

Cost of revenues increased by 51.1% to US$80.5 million from US$53.2 million in the second 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 51.1% to US$80.4 million, from US$53.2 million in the second quarter of fiscal year 2015.

Selling and marketing expenses increased by 42.8% to US$18.8 million from US$13.2 million in the second quarter of fiscal year 2015. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 45.1% to US$18.2 million from US$12.6 million in the second quarter of fiscal year 2015. The increase of selling and marketing expenses in the second 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 46.9% to US$37.5 million from US$25.5 million in the second 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 47.7% to US$32.4 million, from US$21.9 million in the second quarter of fiscal year 2015.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 35.4% to US$5.7 million in the second quarter of fiscal year 2016 from US$4.2 million in the same period of fiscal year 2015.

Gross Profit 

Gross profit increased by 34.3% to US$92.9 million from US$69.1 million in the second quarter of fiscal year 2015.

Income from Operations

Income from operations increased by 28.5% to US$39.2 million from US$30.5 million in the second quarter of fiscal year 2015. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 29.3% to US$44.9 million from US$34.7 million in the second quarter of fiscal year 2015.

Other Income / (Expense)

Other expense was US$4.1 million for the second quarter of fiscal year 2016, compared to other income of US$1.4 million in the second quarter of fiscal year 2015. Other expense in this quarter was mainly due to exchange losses. As the 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 a component

Gain from disposal of a component was $50.0 million, which was 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.

Income Tax Expense

Income tax expense was US$17.8 million in the second quarter of fiscal year 2016, compared to US$5.4 million in the second quarter 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 was entitled to a two-year exemption from enterprise income tax for calendar years 2013 and 2014 as a Newly Established Software Enterprise, and enjoys 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 118.0% to US$63.5 million from US$29.1 million in the second quarter of fiscal year 2015. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 107.6% to US$69.2 million from US$33.3 million in the second quarter of fiscal year 2015.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were US$0.79 and US$0.72 respectively in the second quarter of fiscal year 2016. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.87 and US$0.78, respectively.

Capital Expenditures

Capital expenditures for the second quarter of fiscal year 2016 were US$10.8 million, representing an increase of US$2.2 million from US$8.6 million in the second quarter of fiscal year 2015. The increase was mainly due to leasehold improvements, expenditures on mobile network research and development, 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 August 31, 2015, the Company had US$513.2 million of cash and cash equivalents and US$24.6 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 August 31, 2015, the Company's deferred revenue balance was US$239.0 million, compared to US$177.9 million as of August 31, 2014, representing an increase of 34.4%.

Financial Results for the First Six Months of Fiscal Year 2016

Net Revenues

For the first six months of fiscal year 2016, TAL reported net revenues of US$302.7 million, representing a 43.2% increase from US$211.4 million in the first six months of fiscal year 2015. The increase was mainly driven by an increase in total student enrollments, which increased by 51.9% to approximately 1,043,550 from approximately 687,170 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. ASP decreased by 5.7% from US$308 in the first six months of fiscal year 2015 to US$290 in the first six months of fiscal year 2016. The decrease in ASP was mainly attributable to our small class summer promotion in Beijing, more offering of the small-group class and more enrollment contribution from online courses, and was partially offset by the increase in the hourly rate of the small class course offerings.

Operating Costs and Expenses

In the first six months of fiscal year 2016, operating costs and expenses were US$246.5 million, a 47.3% increase from US$167.4 million in the first six months of fiscal year 2015. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$235.8 million, a 48.1% increase from US$159.2 million in the first six months of fiscal year 2015.

Cost of revenues increased by 49.0% to US$141.4 million from US$94.9 million in the first six 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 49.0% to US$141.4 million from US$94.9 million in the first six months of fiscal year 2015.

Selling and marketing expenses increased by 38.8% to US$34.0 million from US$24.5 million in the first six months of fiscal year 2015. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 40.6% to US$33.0 million from US$23.5 million in the first six months of fiscal year 2015. The increase of selling and marketing expenses in the first six 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$71.1 million from US$47.9 million in the first six 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 50.5% to US$61.4 million from US$40.8 million in the first six months of fiscal year 2015.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 30.5% to US$10.7 million in the first six months of fiscal year 2016 from US$8.2 million in the same period of fiscal year 2015.

Gross Profit

Gross profit increased by 38.5% to US$161.3 million from US$116.5 million in the first six months of fiscal year 2015.

Income from Operations

Income from operations increased by 33.1% to US$58.8 million from US$44.2 million in the first six months of fiscal year 2015. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 32.7% to US$69.5 million from US$52.4 million in the first six months of fiscal year 2015.

Other Income / (Expense)

Other expense was US$2.7 million for the first six months of fiscal year 2016, compared to other income of US$1.2 million in the first six months of fiscal year 2015. Other expense in the first six months was mainly due to exchange losses. As the 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.

Income Tax Expense

Income tax expense was US$22.6 million in the first six months of fiscal year 2016, compared to US$7.8 million in the first six 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 was entitled to a two-year exemption from enterprise income tax for calendar years 2013 and 2014 as a Newly Established Software Enterprise, and enjoys 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 94.1% to US$82.4 million from US$42.5 million in the first six months of fiscal year 2015. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 83.8% to US$93.2 million from US$50.7 million in the first six months of fiscal year 2015.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were US$1.03 and US$0.94, respectively, in the first six months of fiscal year 2016. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$1.17 and US$1.06, respectively.

Business Outlook

Based on the Company's current estimates, total net revenues for the third quarter of fiscal year 2016 are expected to grow 40% to 43% on a year-over-year basis, in RMB terms. Taking into consideration the recent significant change in RMB exchange rate against the US dollar, the Company expects total net revenues for the third quarter of fiscal year 2016 to be between US$135.1 million and US$138.1 million, representing an increase of 36% to 39% 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 2016 ended August 31, 2015 at 8:00 a.m. Eastern Time on October 22, 2015 (8:00 p.m. Beijing time on October 22, 2015).

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, October 30, 2015 (11:59 a.m. Beijing time, October 31, 2015).

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 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 300 physical learning centers as of August 31, 2015, located in 19 key cities in China: Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Xi'an, Chengdu, Nanjing, Hangzhou, Taiyuan, Zhengzhou, Chongqing, Suzhou, Shenyang, Jinan, Shijiazhuang, Qingdao and Changsha. 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: [email protected]

Caroline Straathof
IR Inside
Tel: +31-6-5462-4301
Email: [email protected]

SOURCE TAL Education Group

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