PR Newswire | Jul 30, 2020 04:00AM EDT

Quarter Ended May 31, 2020

07/30 03:00 CDT

TAL Education Group Announces Unaudited Financial Results for the First Fiscal Quarter Ended May 31, 2020 BEIJING, July 30, 2020

-Net Revenues up by 35.2% Year-Over-Year-Income from Operations decreased by 26.8% Year-Over-Year-Non-GAAP Income from Operations decreased by 7.8% Year-Over-Year-Total Student Enrollments of Normal Priced Long-term Course up by 72.1% Year-Over-Year

BEIJING, July 30, 2020 /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 first quarter of fiscal year 2021 ended May 31, 2020.

Highlights for the First Quarter of Fiscal Year 2021

* Net revenues increased by 35.2% year-over-year to US$910.7 million from US$673.4 million in the same period of the prior year. * Income from operations decreased by 26.8% year-over-year to US$35.5 million, from US$48.5 million in the same period of the prior year. * Non-GAAP income from operations, which excluded share-based compensation expenses, decreased by 7.8% year-over-year to US$68.8 million, from US$74.6 million in the same period of the prior year. * Net income attributable to TAL was US$81.7 million, compared to net loss attributable to TAL of US$16.2 million in the same period of the prior year. * Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was US$114.9 million, compared to Non-GAAP net income attributable to TAL of US$9.9 million in the same period of the prior year. * Basic and diluted net income per American Depositary Share ("ADS") were US$0.14 and US$0.13, 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. Three ADSs represent one Class A common share. * Cash, cash equivalents and short-term investments totaled US$2,914.4 million as of May 31, 2020, compared to US$2,219.3 million as of February 29, 2020. * Total student enrollments of normal priced long-term course increased by 72.1% year-over-year to approximately 2,956,380 from approximately 1,718,190 in the same period of the prior year. * Total physical network increased from 871 learning centers in 70 cities as of February 29, 2020 to 936 learning centers in 90 cities as of May 31, 2020.

Financial and Operating Data--First Quarter of Fiscal Year 2021(In US$ thousands, except per ADS data, student enrollments and percentages)

Three Months Ended

May 31,

2019 2020 Pct. Change

Net revenues 673,414 910,664 35.2%

Operating income 48,466 35,491 (26.8%)

Non-GAAP operating income 74,550 68,756 (7.8%)

Net (loss)/ income attributable to TAL (16,156) 81,651 (605.4%)

Non-GAAP net income attributable to TAL 9,928 114,916 1057.5%

Net (loss)/income per ADS attributable to TAL - (0.03) 0.14 (598.4%)basic

Net (loss)/income per ADS attributable to TAL - diluted (0.03) 0.13 (578.3%)

Non-GAAP net income per ADS attributable to TAL - 0.02basic 0.19 1041.4%

Non-GAAP net income per ADS attributable to TAL - 0.02diluted 0.18 1045.9%

Total Student Enrollments of normal pricedlong-term 1,718,190 2,956,380 72.1%course

"The first fiscal quarter revenue results were driven by a solid performance of online courses and the healthy growth of Xueersi Peiyou business," said Rong Luo, TAL's chief financial officer. "Our offline business may still face some continued pressure due to the COVID-19 outbreak, but as progress is made in containing the spread of COVID-19, we are working on the gradual resumption of our offline activities across different business segments."

"We continue to follow the necessary and appropriate guidelines and protect the safety and health of all our students and employees. We believe our business operations are prepared to offer TAL's services under any circumstance and make any short-term adjustments when needed. We remain fully confident about the market potential of China's education industry and the general progress towards resumption of regular work and school activities," Mr. Luo continued.

Financial Results for the First Quarter of Fiscal Year 2021

Net Revenues

In the first quarter of fiscal year 2021, TAL reported net revenues of US$910.7 million, representing a 35.2% increase from US$673.4 million in the first quarter of fiscal year 2020. The increase was mainly driven by an increase in total student enrollments of normal priced long-term course, which increased by 72.1% to approximately 2,956,380 from approximately 1,718,190 in the same period of the prior year. The increase in total student enrollments of normal priced long-term course was primarily driven by the growth of enrollments in the small class offerings and online courses.

Operating Costs and Expenses

In the first quarter of fiscal year 2021, operating costs and expenses were US$880.0 million, representing a 40.3% increase from US$627.4 million in the first quarter of fiscal year 2020. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$846.8 million, a 40.8% increase from US$601.3 million in the first quarter of fiscal year 2020.

Cost of revenues increased by 44.9% to US$429.5 million from US$296.4 million in the first quarter of fiscal year 2020. The increase in cost of revenues was mainly due to an increase in teacher compensation, rental costs and learning materials. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 45.0% to US$429.2 million, from US$296.1 million in the first quarter of fiscal year 2020.

Selling and marketing expenses increased by 41.0% to US$219.1 million from US$155.4 million in the first quarter of fiscal year 2020. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 39.6% to US$211.2 million, from US$151.4 million in the first quarter of fiscal year 2020. The increase of selling and marketing expenses in the first quarter of fiscal year 2021 was primarily a result of more marketing promotion activities to expand our customer base and brand enhancement, as well as 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 the prior year.

General and administrative expenses increased by 31.6% to US$231.1 million from US$175.6 million in the first quarter of fiscal year 2020. 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 the prior year and a rise in compensation to our general and administrative personnel. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 33.9% to US$206.0 million, from US$153.8 million in the first quarter of fiscal year 2020.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 27.5% to US$33.3 million in the first quarter of fiscal year 2021 from US$26.1 million in the same period of fiscal year 2020.

Gross Profit

Gross profit increased by 27.6% to US$481.1 million from US$377.0 million in the first quarter of fiscal year 2020.

Income from Operations

Income from operations decreased by 26.8% year-over-year to US$35.5 million, from US$48.5 million in the first quarter of fiscal year 2020. Non-GAAP income from operations, which excluded share-based compensation expenses, decreased by 7.8% to US$68.8 million from US$74.6 million in the first quarter of fiscal year 2020.

Other (expense)/Income

Other income was US$42.1 million for the first quarter of fiscal year 2021, compared to other expense of US$31.3 million in the first quarter of fiscal year 2020.

Impairment Loss on Long-term Investments

Impairment loss on long-term investments was US$2.3 million for the first quarter of fiscal year 2021, compared to US$50.6 million for the first quarter of fiscal year 2020. Impairment loss on long-term investments was mainly due to declines in the value of long-term investments in several investees.

Income Tax Benefit/(expense)

Income tax expense was US$22.0 million in the first quarter of fiscal year 2021, compared to US$2.8 million of income tax benefit in the first quarter of fiscal year 2020.

Net (loss)/Income Attributable to TAL Education Group

Net income attributable to TAL was US$81.7 million in the first quarter of fiscal year 2021, compared to net loss attributable to TAL of US$16.2 million in the first quarter of fiscal year 2020. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was US$114.9 million, compared to Non-GAAP net income attributable to TAL of US$9.9 million in the first quarter of fiscal year 2020.

Basic and Diluted Net (loss)/Income per ADS

Basic and diluted net income per ADS were US$0.14 and US$0.13, respectively, in the first quarter of fiscal year 2021. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.19 and US$0.18, respectively, in the first quarter of fiscal year 2021.

Cash Flow

Net operating cash flow for the first quarter of fiscal year 2021 was US$799.6 million. Capital expenditures for the first quarter of fiscal year 2021 were US$53.2 million, compared to US$41.4 million for the first quarter of fiscal year 2020. The capital expenditures for the first quarter of fiscal year 2021 was expenditure in relation to our construction project.

Cash, Cash Equivalents, and Short-Term Investments

As of May 31, 2020, the Company had US$2,323.8 million of cash and cash equivalents and US$590.6 million of short-term investments, compared to US$1,873.9 million of cash and cash equivalents and US$345.4 million of short-term investments as of February 29, 2020.

Deferred Revenue

The Company's deferred revenue balance was US$1,495.4 million, compared to US$968.4 million as of May 31, 2019, representing a year-over-year increase of 54.4%. Deferred revenue primarily consisted of the tuition collected in advance of Xueersi Peiyou small classes and online courses through www.xueersi.com, as well as deferred revenue related to other businesses.

Business Outlook

Based on our current estimates, total net revenues for the second quarter of fiscal year 2021 are expected to be between US$1,077.6 million and US$1,105.0 million, representing an increase of 18% to 21% on a year-over-year basis.

If not taking into consideration the impact of potential change in exchange rate between Renminbi and the U.S. Dollar, the projected revenue growth rate is expected to be in the range of 20% to 23% for the second quarter of fiscal year 2021.

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 first fiscal quarter of fiscal year 2021 ended May 31, 2020 at 8:00 a.m. Eastern Time on July 30, 2020 (8:00 p.m.Beijing time on July 30, 2020).

Please note that you will need to pre-register for conference call participation, using the link provided below. Upon registering, you will be sent participant dial-in numbers, Direct Event passcode and unique registrant ID by email.

Conference call registration link: http://apac.directeventreg.com/registration/event/6360713. It will automatically direct you to the registration page of "TAL Education Group First Quarter of Fiscal Year 2021 Earnings Conference Call", where you may fill in your details for RSVP. When you are requested to submit a participant conference ID, please enter the number "6360713".

In the 10 minutes prior to the call start time, you may use the conference access information (including dial-in number(s), Direct Event passcode and unique registrant ID) provided in the confirmation email that you have received following your pre-registration.

A live and archived webcast of the conference call will be available on the Investor Relations section of TAL's website at https://ir.100tal.com/.

A telephone replay of the conference call will be available through 9:59 a.m. on August 7, 2020, U.S. Eastern time (9:59 p.m. on August 7, 2020, Beijing time, 2020).

The dial-in details for the replay are as follows:

- U.S. toll free: +1-855-452-5696

- Hong Kong toll free: 800-963-117

- International toll: +61-2-8199-0299

Conference ID: 6360713

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 second quarter of fiscal year 2021, 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 as well as competence oriented programs. The Company's learning center network currently covers 90 cities.

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 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:

Echo YanInvestor Relations TAL Education GroupTel: +86 10 5292 6658Email: ir@100tal.com

Caroline StraathofIR InsideTel: +31 6 5462 4301Email: info@irinside.com

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

As of As of

February May 31, 29, 2020 2020

ASSETS

Current assets

Cash and cash equivalents $ 1,873,866 $ 2,323,778

Restricted cash-current 28,084 26,575

Short-term investments 345,457 590,644

Inventory 25,832 32,980

Amounts due from related parties-current 3,642 2,095

Income tax receivables 11,548 15,317

Prepaid expenses and other current assets 207,352 189,219

Total current assets 2,495,781 3,180,608

Restricted cash-non-current 13,235 13,934

Property and equipment, net 366,656 396,599

Deferred tax assets-non-current 79,534 87,610

Rental deposits 72,721 79,629

Intangible assets, net 58,985 77,287

Land use right, net 204,853 199,676

Goodwill 378,913 542,870

Long-term investments 571,601 604,992

Long-term prepayments and other non-current assets 85,275 59,669

Operating lease right-of-use assets 1,243,692 1,326,530

Total assets $ 5,571,246 $ 6,569,404

LIABILITIES AND EQUITY

Current liabilities

Accounts payable (including accounts payable of the consolidated VIEs without recourse to TAL Education $ 117,770 $ 151,970 Group of 104,231 and 140,300 as of February 29, 2020 and May 31, 2020, respectively)

Deferred revenue-current (including deferred revenue-current of the consolidated VIEs without recourse to TAL 780,167 1,445,072 Education Group of 733,253 and 1,362,996 as of February 29, 2020 and May 31, 2020, respectively)

Amounts due to related parties-current (including amounts due to related parties-current of the consolidated VIEs without recourse to TAL Education Group of 4,264 and 2,838 as of 4,361 2,890February 29, 2020 and May 31, 2020, respectively)

Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to TAL Education 552,650 658,305 Group of 470,519 and 558,949 as of February 29, 2020 and May 31, 2020, respectively)

Income tax payable (including income tax payable of the consolidated VIEs without recourse to TAL Education 46,650 19,976 Group of 43,233 and 25,402 as of February 29, 2020 and May 31, 2020, respectively)

Short-term debt and current portion of long-term debt (including short-term debt and current portion of long-term debt of the consolidated VIEs without recourse to TAL - 2,383 Education Group of nil and 2,383 as of February 29, 2020 and May 31, 2020, respectively)

Operating lease liabilities, current portion (including operating lease liabilities, current portion of theconsolidated 304,960 327,360 VIEs without recourse to TAL Education Group of 276,712 and 299,120 as of February 29, 2020 and May 31, 2020, respectively)

Total current liabilities 1,806,558 2,607,956

Deferred revenue-non-current (including deferred revenue- non-current of the consolidated VIEs without recourse to 833 50,339 TAL Education Group of 833 and 50,339 as of February 29, 2020 and May 31, 2020, respectively)

Deferred tax liabilities-non-current (including deferred tax liabilities-non-current of the consolidated VIEs without 7,789 12,678 recourse to TAL Education Group of 7,197 and 11,977 as of February 29, 2020 and May 31, 2020, respectively)

Long-term debt (including long-term debt of the consolidated VIEs without recourse to TAL Education Group of nil and 261,950 263,000 nil as of February 29, 2020 and May 31, 2020, respectively)

Operating lease liabilities, non-current portion (including operating lease liabilities, non-current portion of the consolidated VIEs without recourse to TAL Education 949,919 1,018,471 Group of 883,603 and 950,083 as of February 29, 2020 and May 31, 2020, respectively)

Total liabilities 3,027,049 3,952,444

Mezzanine equity

Redeemable non-controlling interests - 1,775

Equity

Class A common shares 133 133

Class B common shares 67 67

Additional paid-in capital 1,675,640 1,699,808

Statutory reserve 82,712 82,632

Retained earnings 786,097 861,177

Accumulated other comprehensive loss (28,913) (53,876)

Total TAL Education Group's equity 2,515,736 2,589,941

Noncontrolling interest 28,461 25,244

Total equity 2,544,197 2,615,185

Total liabilities, mezzanine equity and equity $ 5,571,246 $ 6,569,404

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share, ADS, per share and per ADS data)

For the Three Months Ended

May 31,

2019 2020



Net revenues $ 673,414 $ 910,664

Cost of revenues (note 1) 296,371 429,515

Gross profit 377,043 481,149

Operating expenses (note 1)

Selling and marketing 155,399 219,077

General and administrative 175,585 231,136

Impairment loss on intangible assets and goodwill - 304

Total operating expenses 330,984 450,517

Government subsidies 2,407 4,859

Income from operations 48,466 35,491

Interest income 16,087 26,489

Interest expense (3,124) (3,596)

Other (expense)/income (31,331) 42,111

Impairment loss on long-term investments (50,594) (2,300)

(Loss)/income before income tax and loss from equity method (20,496) 98,195 investments

Income tax benefit/(expense) 2,759 (22,000)

(Loss)/income from equity method investments (1,331) 3,340

Net (loss)/income $ (19,068) $ 79,535

Add: Net loss attributable to noncontrolling interest 2,912 2,116

Total net (loss)/income attributable to TAL Education $ (16,156) $ 81,651 Group

Net (loss)/income per common share

Basic $ (0.08) $ 0.41

Diluted (0.08) 0.39

Net (loss)/income per ADS (note 2)

Basic $ (0.03) $ 0.14

Diluted (0.03) 0.13

Weighted average shares used in calculating net (loss)/income per common share

Basic 197,160,090 199,942,865

Diluted 197,160,090 208,308,474

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

For the Three Months

Ended May 31,

2019 2020

Cost of revenues $ 247 $ 264

Selling and marketing expenses 4,040 7,853

General and administrative expenses 21,797 25,148

Total $ 26,084 $ 33,265

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

TAL EDUCATION GROUPUNAUDITED CONDENSED CONSOLIDATED STATEMENTS OFCOMPREHENSIVE (LOSS)/INCOME

(In thousands of U.S. dollars)

For the Three Months Ended

May 31,

2019 2020

Net (loss)/income $ (19,068) $ 79,535

Other comprehensive loss, net of tax (34,956) (25,435)

Comprehensive (loss)/income (54,024) 54,100

Add: Comprehensive loss attributable to 4,178 2,588 noncontrolling interest

Comprehensive (loss)/income attributable to $ (49,846) $ 56,688 TAL Education Group



TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

CASH FLOWS

(In thousands of U.S. dollars)



For the Three Months Ended

May 31,

2019 2020

Net cash provided by operating activities $ 568,464 $ 792,910

Net cash used in investing activities (115,840) (330,549)

Net cash used in financing activities (140,025) (9,728)

Effect of exchange rate changes 2,267 (3,531)

Net increase in cash, cash equivalents and 314,866 449,102restricted cash

Cash, cash equivalents and restricted cash at 1,263,701 1,915,185beginning of period

Cash, cash equivalents and restricted cash at end of $ 1,578,567 $ 2,364,287period

TAL EDUCATION GROUP

Reconciliation of Non-GAAP Measures to the Most Comparable GAAP Measures

(In thousands of U.S. dollars, except share, ADS, per share and per ADS data)

For the Three Months Ended

May 31,

2019 2020

Cost of revenues $ 296,371 $ 429,515

Share-based compensation expense in cost of 247 264 revenues

Non-GAAP cost of revenues 296,124 429,251

Selling and marketing expenses 155,399 219,077

Share-based compensation expense in selling and 4,040 7,853 marketing expenses

Non-GAAP selling and marketing expenses 151,359 211,224

175,585 231,136General and administrative expenses

Share-based compensation expense in general and 21,797 25,148 administrative expenses

Non-GAAP general and administrative expenses 153,788 205,988

Operating costs and expenses 627,355 880,032

Share-based compensation expense in operating costs 26,084 33,265 and expenses

Non-GAAP operating costs and expenses 601,271 846,767

Income from operations 48,466 35,491

Share-based compensation expenses 26,084 33,265

Non-GAAP income from operations 74,550 68,756

Net (loss)/income attributable to TAL Education (16,156) 81,651Group

Share-based compensation expenses 26,084 33,265

Non-GAAP net income attributable to TAL $ 9,928 $ 114,916Education Group



Net (loss)/income per ADS

Basic $ (0.03) $ 0.14

Diluted (0.03) 0.13

Non-GAAP net income per ADS

Basic $ 0.02 $ 0.19

Diluted 0.02 0.18

ADSs used in calculating net (loss)/income perADS

Basic 591,480,270 599,828,595

Diluted 591,480,270 624,925,422

ADSs used in calculating Non-GAAP net income per ADS

Basic 591,480,270 599,828,595

Diluted 618,664,848 624,925,422

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SOURCE TAL Education Group