TAL Education Group Announces Unaudited Financial Results for the Fourth Fiscal Quarter and the Fiscal Year 2018

- Quarterly Results:

Net Revenues up by 59.4% Year-Over-Year
Income from Operations up by 54.0% Year-Over-Year
Non-GAAP Income from Operations up by 47.7% Year-Over-Year
Total Student Enrollments up by 95.7% Year-Over-Year

- Fiscal Year Results:

Net Revenues up by 64.4%
Income from Operations up by 55.0%
Non-GAAP Income from Operations up by 49.8%

BEIJING, April 26, 2018 /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 fourth quarter and the fiscal year ended February 28, 2018.

Highlights for the Fourth Quarter of Fiscal Year 2018

• Net revenues increased by 59.4% year-over-year to US$504.1 million from US$316.3 million in the same period of the prior year.
• Income from operations increased by 54.0% to US$66.9 million from US$43.4 million in the same period of the prior year.
• Non-GAAP income from operations increased by 47.7% to US$79.5 million from US$53.8 million in the same period of the prior year.
• Net income attributable to TAL increased by 102.9% to US$69.5 million from US$34.3 million in the same period of the prior year.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 83.9% to US$82.1 million from US$44.7 million in the same period of the prior year.
• Basic and diluted net income per American Depositary Share ("ADS") were US$0.13 and US$0.12, respectively. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.15 and US$0.14, respectively. Three ADSs represent one Class A common share.
• Cash, cash equivalents and short-term investments totaled US$1,498.9 million as of February 28, 2018, compared to US$699.7 million as of February 28, 2017.
• Total student enrollments increased by 95.7% year-over-year to approximately 2,615,760 from approximately 1,336,600 in the same period of the prior year.
  

Highlights for the Fiscal Year Ended February 28, 2018

• Net revenues increased by 64.4% year-over-year to US$1,715.0 million from US$1,043.1 million in fiscal year 2017.
• Income from operations increased by 55.0% to US$208.6 million from US$134.6 million in fiscal year 2017.
• Non-GAAP income from operations increased by 49.8% to US$255.8 million from US$170.7 million in fiscal year 2017.
• Net income attributable to TAL increased by 69.8% year-over-year to US$198.4 million from US$116.9 million in fiscal year 2017.
• Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 60.5% year-over-year to US$245.6 million from US$153.0 million in fiscal year 2017.
• Basic and diluted net income per ADS were US$0.38 and US$0.34, respectively. Non-GAAP basic and diluted net income per ADS, excluding share-based compensation expenses, were US$0.47 and US$0.43, respectively.
• Average student enrollments per quarter in fiscal year 2018 increased by 89.3% year-over-year to approximately 1,862,410 from approximately 983,680 in fiscal year 2017.
• Total physical network increased from 507 learning centers in 30 cities as of February 28, 2017 to 594 learning centers in 42 cities as of February 28, 2018.

Financial and Operating Data--Fourth Quarter and Fiscal Year 2018

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

"We are pleased to have finished a robust fiscal year 2018 with good fourth quarter performance. Our progress was mainly driven by rapid enrollment growth and all-round structural improvement in our business. In fiscal year 2018, we continued to invest in new education initiatives to develop online courses and further improve our teaching and learning experience and other operational efficiencies," said Mr. Rong Luo, TAL's Chief Financial Officer.

Mr. Luo continued, "Looking ahead, we believe we are well positioned to maintain healthy growth in the core small class business as we continue our dynamic growth trajectory for online in fiscal 2019. As always, we remain committed to investing in research and development for our long-term growth."

Financial Results for the Fourth Quarter of Fiscal Year 2018

Net Revenues

In the fourth quarter of fiscal year 2018, TAL reported net revenues of US$504.1 million, representing a 59.4% increase from US$316.3 million in the fourth quarter of fiscal year 2017. The increase was mainly driven by an increase in total student enrollments, which increased by 95.7% to approximately 2,615,760 from approximately 1,336,600 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 fourth quarter of fiscal year 2018, operating costs and expenses were US$437.4 million, a 60.3% increase from US$272.9 million in the fourth quarter of fiscal year 2017. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$424.8 million, a 61.8% increase from US$262.5 million in the fourth quarter of fiscal year 2017.

Cost of revenues increased by 56.0% to US$246.7 million, from US$158.1 million in the fourth quarter of fiscal year 2017. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 56.0% to US$246.6 million from US$158.0 million in the fourth quarter of fiscal year 2017.

Selling and marketing expenses increased by 106.0% to US$78.3 million from US$38.0 million in the fourth quarter of fiscal year 2017. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 108.1% to US$77.0 million from US$37.0 million in the fourth quarter of fiscal year 2017. The increase in selling and marketing expenses in the fourth 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 same period in prior year, as well as more marketing promotion activities both for brand enhancement and consumer experience.

General and administrative expenses increased by 46.3% to US$112.3 million from US$76.8 million in the fourth 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 same period in prior year, 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 50.0% to US$101.2 million from US$67.5 million in the fourth quarter of fiscal year 2017.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 21.3% to US$12.6 million in the fourth quarter of fiscal year 2018 from US$10.4 million in the same period of fiscal year 2017.

Gross Profit                                                                                                                                 

Gross profit increased by 62.7% to US$257.4 million from US$158.2 million in the fourth quarter of fiscal year 2017.

Income from Operations

Income from operations increased by 54.0% to US$66.9 million from US$43.4 million in the fourth quarter of fiscal year 2017. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 47.7% to US$79.5 million from US$53.8 million in the fourth quarter of fiscal year 2017.

Other (expenses) / income 

Other income was US$3.2 million in the fourth quarter of fiscal year 2018, compared to other expense of US$52.7 thousand in the fourth quarter of fiscal year 2017.

Impairment loss on long-term investments

Impairment loss on long-term investments was nil in the fourth quarter of fiscal year 2018, compared to US$2.1 million in the fourth quarter of fiscal year 2017. Impairment loss on long-term investments was mainly 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$8.7 million in the fourth quarter of fiscal year 2018, compared to US$8.9 million in the fourth quarter of fiscal year 2017.

Net Income Attributable to TAL Education Group

Net income attributable to TAL increased by 102.9% to US$69.5 million from US$34.3 million in the fourth quarter of fiscal year 2017. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 83.9% to US$82.1 million from US$44.7 million in the fourth quarter of fiscal year 2017.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were US$0.13 and US$0.12, respectively, in the fourth quarter of fiscal year 2018. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.15 and US$0.14, respectively.

Capital Expenditures

Capital expenditures for the fourth quarter of fiscal year 2018 were US$30.8 million, an increase of US$8.4 million from US$22.4 million in the fourth 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 February 28, 2018, the Company had US$711.5 million of cash and cash equivalents and US$787.4 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 February 28, 2018, the Company's deferred revenue balance was US$842.3 million, compared to US$518.9 million as of February 28, 2017, representing a year-over-year increase of approximately 62.3%. Deferred revenue primarily consisted of the tuition collected in advance for the spring semester of Xueersi Peiyou small classes, as well as the deferred revenue related to other businesses.

Financial Results for the Fiscal Year Ended February 28, 2018

Net Revenues

For fiscal year 2018, TAL reported net revenues of US$1,715.0 million, representing a 64.4% increase from US$1,043.1 million in fiscal year 2017. The increase was mainly driven by an increase in total student enrollments. Average student enrollments per quarter increased by 89.3% to approximately 1,862,410 from approximately 983,680 in 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 fiscal year 2018, operating costs and expenses were US$1,511.1 million, a 65.8% increase from US$911.6 million in fiscal year 2017. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$1,463.9 million, a 67.2% increase from US$875.5 million in fiscal year 2017.

Cost of revenues increased by 68.9% to US$882.3 million from US$522.3 million in fiscal year 2017. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 68.9% to US$882.0 million from US$522.2 million in fiscal year 2017.

Selling and marketing expenses increased by 92.1% to US$242.1 million from US$126.0 million in fiscal year 2017. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 93.3% to US$237.1 million from US$122.6 million in fiscal year 2017. The increase in selling and marketing expenses in 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 same period in prior year, as well as more marketing promotion activities both for brand enhancement and consumer experience.

General and administrative expenses increased by 46.7% to US$386.3 million from US$263.3 million in 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 same period in prior year, 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 49.4% to US$344.5 million from US$230.7 million in fiscal year 2017.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 30.6% to US$47.1 million in fiscal year 2018 from US$36.1 million in fiscal year 2017.

Gross Profit

Gross profit increased by 59.9% to US$832.7 million from US$520.8 million in fiscal year 2017.

Income from Operations

Income from operations increased by 55.0% to US$208.6 million from US$134.6 million in fiscal year 2017. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 49.8% to US$255.8 million from US$170.7 million in fiscal year 2017.

Other (expenses) / income

Other income was US$17.4 million for fiscal year 2018, compared to other income of US$23.1 million for fiscal year 2017. Other income for the fiscal year 2018 was mainly due to gains from the disposal of investments. Other income for the fiscal year 2017 was mainly due to a gain from remeasuring the fair value of the previously held equity interests in an acquiree during a business combination achieved in stages.

Impairment loss on long-term investments

Impairment loss on long-term investments was US$2.2 million in fiscal year 2018, compared to US$8.1 million in fiscal year 2017. Impairment loss on long-term investments was mainly 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$44.7 million in fiscal year 2018, compared to US$34.1 million in fiscal year 2017.

Net Income Attributable to TAL Education Group

Net income attributable to TAL increased by 69.8% to US$198.4 million from US$116.9 million in fiscal year 2017. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, increased by 60.5% to US$245.6 million from US$153.0 million in fiscal year 2017.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were US$0.38 and US$0.34, respectively, in fiscal year 2018. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.47 and US$0.43, respectively.

Capital Expenditures

Capital expenditures for fiscal year 2018 were US$126.3 million, an increase of US$55.2 million from US$71.1 million in 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 first quarter of fiscal year 2019 are expected to be between US$508.6 million and US$515.0 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 fourth fiscal quarter and the fiscal year ended February 28, 2018 at 8:00 a.m. Eastern Time on April 26, 2018 (8:00 p.m. Beijing time on April 26, 2018).

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 9:59 a.m. U.S. Eastern time, May 4, 2018 (9:59 p.m. Beijing time, May 4, 2018).

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 first quarter of fiscal year 2019, 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 594 physical learning centers as of February 28, 2018, located in 42 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, Zhenjiang, Shaoxing, Yangzhou, Yantai, Wenzhou, Zhongshan and Zibo. 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:

Echo Yan
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