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

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

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

Highlights for the Second Quarter of Fiscal Year 2018

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

1 Effective on August 16, 2017, the Company adjusted the ratio of its American depositary shares (“ADSs”) to Class A common shares (“Shares”) from one (1) ADS representing two (2) Shares to three (3) ADSs representing one (1) Share. All earnings per ADS figures in this announcement give effect to the foregoing ADS to share ratio change.  

Highlights for the Six Months Ended August 31, 2017

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

Financial and Operating Data — Second Quarter and First Six Months of Fiscal Year 2018

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

Three Months Ended

August 31,

2016

2017

Pct. Change

Net revenues

271,121

455,750

68.1%

Net income attributable to TAL

55,740

59,451

6.7%

Non-GAAP net income attributable to
TAL

 

64,023

 

71,070

11.0%

Operating income

51,526

68,326

32.6%

Non-GAAP operating income

59,808

79,945

33.7%

Net income per ADS attributable to
TAL – basic

0.11

0.11

0.3%

Net income per ADS attributable to
TAL – diluted

0.10

0.10

1.0%

Non-GAAP net income per ADS
attributable to TAL – basic

0.13

0.14

4.4%

Non-GAAP net income per ADS
attributable to TAL – diluted

0.12

0.12

5.5%

Total student enrollments in small
class, one-on-one, and online courses

1,117,650

2,242,380

100.6%

Six Months Ended

August 31,

2016

2017

Pct. Change

Net revenues

 

466,216

777,653

66.8%

Net income attributable to TAL

68,976

88,239

27.9%

Non-GAAP net income attributable to
TAL

85,651

110,543

29.1%

Operating income

69,095

97,131

40.6%

Non-GAAP operating income

85,770

119,434

39.2%

Net income per ADS attributable to
TAL – basic

0.14

0.17

22.1%

Net income per ADS attributable to
TAL – diluted

0.13

0.16

20.2%

Non-GAAP net income per ADS
attributable to TAL – basic

0.18

0.22

23.2%

Non-GAAP net income per ADS
attributable to TAL – diluted

0.16

0.19

21.9%

Total student enrollments in small
class, one-on-one, and online courses

1,763,700

3,290,140

86.5%

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

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

Financial Results for the Second Quarter of Fiscal Year 2018

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

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

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

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

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

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

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

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

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

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

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

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

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

Capital Expenditures
Capital expenditures for the second quarter of fiscal year 2018 were US$37.6 million, representing an increase of US$18.7 million from US$18.9 million in the second quarter of fiscal year 2017. The increase was mainly due to leasehold improvements and the purchase of servers, computers, software systems and other hardware for the Company’s teaching facilities and mobile network research and development.

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

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

Financial Results for the First Six Months of Fiscal Year 2018

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

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

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

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

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

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

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

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

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

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

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

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

Capital Expenditures
Capital expenditures for the first six months of fiscal year 2018 were US$67.2 million, an increase of US$35.6 million from US$31.6 million in the first six months of fiscal year 2017. The increase was mainly due to leasehold improvements and the purchase of servers, computers, software systems and other hardware for the Company’s teaching facilities and mobile network research and development.

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

These estimates reflect the Company’s current expectation, which is subject to change.

Conference Call

The Company will host a conference call and live webcast to discuss its financial results for the second fiscal quarter of fiscal year 2018 ended August 31, 2017 at 8:00 a.m. Eastern Time on October 26, 2017 (8:00 p.m. Beijing time on October 26, 2017).

The dial-in details for the live conference call are as follows:

U.S. toll free: 

+1-866-519-4004

Hong Kong toll free:

800-906-601

International toll:

+65-6713-5090

Conference ID:

87036636

A live and archived webcast of the conference call will be available on the Investor Relations section of TAL’s website at en.100tal.com.

A telephone replay of the conference call will be available through 8:59 a.m. U.S. Eastern time, November 3, 2017 (8:59 p.m. Beijing time, November 3, 2017).

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

U.S. toll free: 

+1-855-452-5696

Hong Kong toll free:

800-963-117

International toll:

+61-2-8199-0299

Conference ID:

87036636

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements. Among other things, the outlook for the third quarter of fiscal year 2018, quotations from management in this announcement, as well as TAL Education Group’s strategic and operational plans, contain forward-looking statements. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company’s ability to continue to attract students to enroll in its courses; the Company’s ability to continue to recruit, train and retain qualified teachers; the Company’s ability to improve the content of its existing course offerings and to develop new courses; the Company’s ability to maintain and enhance its brand; the Company’s ability to maintain and continue to improve its teaching results; and the Company’s ability to compete effectively against its competitors. Further information regarding these and other risks is included in the Company’s reports filed with, or furnished to the U.S. Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and TAL Education Group undertakes no duty to update such information or any forward-looking statement, except as required under applicable law.

About TAL Education Group

TAL Education Group is a leading K-12 after-school tutoring services provider in China. The acronym “TAL” stands for “Tomorrow Advancing Life,” which reflects our vision to promote top learning opportunities for Chinese students through both high-quality teaching and content, as well as leading edge application of technology in the education experience. TAL Education Group offers comprehensive tutoring services to students from pre-school to the twelfth grade through three flexible class formats: small classes, personalized premium services, and online courses. Our tutoring services cover the core academic subjects in China’s school curriculum including mathematics, English, Chinese, physics, chemistry, and biology. The Company’s learning center network includes 575 physical learning centers as of August 31, 2017, located in 36 key cities in China: Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Wuhan, Xi’an, Chengdu, Nanjing, Hangzhou, Taiyuan, Zhengzhou, Chongqing, Suzhou, Shenyang, Jinan, Shijiazhuang, Qingdao, Changsha, Luoyang, Nanchang, Ningbo, Wuxi, Fuzhou , Hefei, Xiamen, Lanzhou, Dalian, Changchun, Guiyang, Dongguan, Changzhou, Xuzhou, Nantong, Foshan and Zhenjiang. We also operate www.jzb.com, a leading online education platform in China. Our ADSs trade on the New York Stock Exchange under the symbol “TAL.”

About Non-GAAP Financial Measures

In evaluating its business, TAL considers and uses the following measures defined as non-GAAP financial measures by the U.S. Securities and Exchange Commission as supplemental metrics to review and assess its operating performance: non-GAAP operating costs and expenses, non-GAAP cost of revenues, non-GAAP selling and marketing expenses, non-GAAP general and administrative expenses, non-GAAP income from operations, non-GAAP net income attributable to TAL, non-GAAP basic and non-GAAP diluted net income per ADS. To present each of these non-GAAP measures, the Company excludes share-based compensation expenses. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned “Reconciliations of non-GAAP measures to the most comparable GAAP measures” set forth at the end of this release.

TAL believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective. TAL believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management’s internal comparisons to TAL’s historical performance and liquidity. TAL computes its non-GAAP financial measures using the same consistent method from quarter to quarter and from period to period. TAL believes these non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using non-GAAP measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be for the foreseeable future a significant recurring expense in the Company’s business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

For further information, please contact:

Mei Li
Investor Relations
TAL Education Group
Tel: +86 10 5292 6658
Email: [email protected]

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

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. dollars)

As of

February 28,
2017

As of

August 31,
2017

ASSETS

Current assets

  Cash and cash equivalents

$ 470,217,004

$ 431,397,021

  Restricted cash-current

2,732,559

1,684,933

  Short-term investments

229,456,397

514,673,149

  Inventory

2,823,039

5,444,085

  Amounts due from related parties-current

3,424,285

3,462,788

  Income tax receivables

2,244,898

6,921,943

  Prepaid expenses and other current assets

160,222,823

150,018,132

Total current assets

871,121,005

1,113,602,051

  Restricted cash-non-current

5,660,713

8,367,682

  Property and equipment, net

154,306,718

216,265,791

  Deferred tax assets-non-current

16,188,301

20,570,237

  Rental deposits

32,659,360

42,813,425

  Intangible assets, net

37,966,808

41,661,385

  Goodwill

267,162,685

286,450,694

  Long-term investments

347,732,444

375,237,956

  Long-term prepayments and other non-current assets

96,107,917

109,672,343

Total assets

$ 1,828,905,951

$ 2,214,641,564

LIABILITIES AND EQUITY

Current liabilities

Accounts payable (including accounts payable of
  the consolidated VIEs without recourse to TAL
  Education Group of 20,905,226 and 46,398,744 as
  of  February 28, 2017, and August 31, 2017,
  respectively)

$ 22,637,199

$ 48,943,530

Deferred revenue-current (including deferred revenue-
  current of the consolidated VIEs without recourse to
  TAL Education Group of 465,944,822 and
  682,785,276 as of February 28, 2017, and August
  31, 2017, respectively)

504,147,032

720,182,698

Amounts due to related parties-current (including
  amounts due to related parties-current of the
  consolidated VIEs without recourse to TAL
  Education Group of 192,785 and 3,006,711 as of
  February 28, 2017, and August 31, 2017,
  respectively)

3,042,785

5,856,711

Accrued expenses and other current liabilities
  (including accrued expenses and other current
  liabilities of the consolidated VIEs without recourse
  to TAL Education Group of 90,834,954 and 
  145,038,484 as of February 28, 2017, and August
  31, 2017, respectively)

116,830,290

172,623,012

Income tax payable (including income tax payable of
  the consolidated VIEs without recourse to TAL
  Education Group of 15,204,900 and 17,947,819 as
  of February 28, 2017, and August 31, 2017,
  respectively)

20,483,037

27,573,585

Total current liabilities

667,140,343

975,179,536

Deferred revenue-non-current (including deferred
  revenue-non-current of the consolidated VIEs
  without recourse to TAL Education Group of
  14,726,473 and 8,648,404 as of February 28, 2017,
  and August 31, 2017, respectively)

14,726,473

8,648,404

Amounts due to related parties-non-current (including
  amounts due to related parties-non-current of the
  consolidated VIEs without recourse to TAL
  Education Group of nil and nil as of February 28,
  2017, and August 31, 2017, respectively)

2,840,000

2,840,000

Deferred tax liabilities-non-current (including deferred
  tax liabilities-non-current of the consolidated VIEs
  without recourse to TAL Education Group of
  13,063,488 and 16,277,272 as of February 28, 2017,
  and August 31, 2017, respectively)

 

13,185,886

 

16,480,428

Bond payable (including bond payable of the
  consolidated VIEs without recourse to TAL
  Education Group of nil and nil as of February 28,
  2017, and August 31,2017, respectively)

225,148,918

72,008,000

Long-term debt (including long-term debt of the
  consolidated VIEs without recourse to TAL
  Education Group of nil and nil as of February 28,
  2017, and August 31, 2017, respectively)

225,000,000

225,000,000

Total liabilities

1,148,041,620

1,300,156,368

TAL Education Group Shareholders’ Equity

Class A common shares

93,131

106,588

Class B common shares

71,456

70,556

Additional paid-in capital

141,968,264

298,062,275

Statutory reserve

28,407,421

28,407,421

Retained earnings

417,835,502

464,909,105

Accumulated other comprehensive income

55,869,132

87,168,364

Total TAL Education Group’s equity

644,244,906

878,724,309

Non-controlling interest

36,619,425

35,760,887

Total equity

680,864,331

914,485,196

Total liabilities and equity

$ 1,828,905,951

$ 2,214,641,564

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

For the Three Months
Ended
August 31,

For the Six Months Ended
August 31,

2016

2017

2016

2017

 

Net revenues

 

$ 271,121,287

 

$ 455,749,893

 

$ 466,216,375

 

$ 777,653,115

Cost of revenues

131,879,033

244,929,963

232,366,242

414,534,386

Gross profit

139,242,254

210,819,930

233,850,133

363,118,729

Operating expenses (note 1)

  Selling and marketing

28,620,113

58,490,896

52,743,743

101,952,975

  General and administrative

61,343,393

87,311,774

114,773,223

167,943,064

Total operating expenses

89,963,506

145,802,670

167,516,966

269,896,039

Government subsidies

2,246,800

3,309,031

2,761,607

3,907,997

Income from operations

51,525,548

68,326,291

69,094,774

97,130,687

Interest income

4,449,108

10,534,422

7,837,460

18,235,679

Interest expense

(2,667,238)

(3,869,794)

(4,555,211)

(9,094,878)

Other income

23,802,211

2,017,878

23,787,119

8,806,037

Impairment loss on long-term
  investments

(2,211,642)

(2,211,642)

(699,748)

Income before provision for
  income tax and loss from
  equity method investments

 

74,897,987

 

77,008,797

 

93,952,500

 

114,377,777

Provision for income tax

(17,597,079)

(16,158,324)

(22,075,286)

(24,553,778)

Loss from equity method
  investments

(2,168,346)

(1,964,530)

(3,840,133)

(3,247,334)

Net income

55,132,562

58,885,943

68,037,081

86,576,665

Add: Net loss attributable to
noncontrolling interest

607,705

565,061

939,332

1,662,772

Total net income attributable
       to TAL Education Group

$ 55,740,267

$ 59,451,004

$ 68,976,413

$ 88,239,437

Net income per common share

Basic

$ 0.34

$ 0.34

$ 0.43

$ 0.52

Diluted

0.31

0.31

0.39

0.47

Net income per ADS (note 2)

Basic

$ 0.11

$ 0.11

$ 0.14

$ 0.17

Diluted

0.10

0.10

0.13

0.16

Weighted average shares used in
calculating net income per
common share

  Basic

162,158,462

172,388,942

161,961,997

169,669,402

  Diluted

188,197,500

193,131,866

187,541,900

193,585,695

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

For the Three Months

For the Six Months

Ended August 31,

Ended August 31,

2016

2017

2016

2017

Cost of revenues

$ 15,598

$ 108,633

$ 23,338

$ 141,537

Selling and marketing

762,661

1,257,967

1,538,626

2,375,599

General and administrative

7,504,515

10,252,433

15,113,099

19,786,118

Total

$ 8,282,774

$ 11,619,033

$ 16,675,063

$ 22,303,254

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

TAL EDUCATION GROUP

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In U.S. dollars)

For the Three Months Ended

August 31,

For the Six Months Ended

August 31,

2016

2017

2016

2017

Net income

$ 55,132,562

$ 58,885,943

$ 68,037,081

$ 86,576,665

Other comprehensive
(loss)/income, net of tax

(30,496,590)

24,005,053

64,347,466

31,299,232

Comprehensive income

24,635,972

82,890,996

132,384,547

117,875,897

Add: Comprehensive loss
attributable to noncontrolling
interest

659,981

565,061

1,004,756

1,662,772

Comprehensive income
attributable to TAL
Education Group

$ 25,295,953

$ 83,456,057

$ 133,389,303

$ 119,538,669

TAL EDUCATION GROUP

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

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

For the Three Months

Ended August 31,

For the Six Months
Ended August 31,

2016

2017

2016

2017

Cost of revenues

$ 131,879,033

$ 244,929,963

$ 232,366,242

$ 414,534,386

Share-based compensation expense
  in cost of revenues

15,598

108,633

23,338

141,537

Non-GAAP cost of revenues

131,863,435

244,821,330

232,342,904

414,392,849

Selling and marketing expenses

28,620,113

58,490,896

52,743,743

101,952,975

Share-based compensation expense
  in selling and marketing expenses

762,661

1,257,967

1,538,626

2,375,599

Non-GAAP selling and marketing
expenses

27,857,452

57,232,929

51,205,117

99,577,376

 

General and administrative expenses

61,343,393

87,311,774

114,773,223

167,943,064

Share-based compensation expense
  in general and administrative
  expenses

7,504,515

10,252,433

15,113,099

19,786,118

Non-GAAP general and administrative
expenses

53,838,878

77,059,341

99,660,124

148,156,946

Operating costs and expenses

221,842,539

390,732,633

399,883,208

684,430,425

Share-based compensation expense
  in operating costs and expenses

8,282,774

11,619,033

16,675,063

22,303,254

Non-GAAP operating costs and
expenses

213,559,765

379,113,600

383,208,145

662,127,171

Income from operations

51,525,548

68,326,291

69,094,774

97,130,687

Share based compensation expenses

8,282,774

11,619,033

16,675,063

22,303,254

Non-GAAP income from
operations

59,808,322

79,945,324

85,769,837

119,433,941

Net income attributable to TAL
Education Group

55,740,267

59,451,005

68,976,413

88,239,438

Share based compensation expenses

8,282,774

11,619,033

16,675,063

22,303,254

Non-GAAP net income
attributable to TAL Education
Group

$ 64,023,041

$ 71,070,038

$ 85,651,476

$ 110,542,692

Net income per ADS

Basic

$ 0.11

$ 0.11

$ 0.14

$ 0.17

Diluted

0.10

0.10

0.13

0.16

Non-GAAP Net income per ADS
(note 3)

Basic

$ 0.13

$ 0.14

$ 0.18

$ 0.22

Diluted

0.12

0.12

0.16

0.19

ADSs used in calculating net
income per ADS

Basic

486,475,386

517,166,827

485,885,991

509,008,205

Diluted

564,592,500

579,395,597

562,625,701

580,757,085

Note 3: The Non-GAAP adjusted net income per ADS is computed using Non-GAAP adjusted net income and the same number of ADSs used in GAAP basic and diluted EPS calculation.

SOURCE TAL Education Group

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