OREANDA-NEWS. TAL Education Group, a leading K-12 after-school tutoring services provider in China, today announced its unaudited financial results for the first quarter of fiscal year 2017 ended May 31, 2016.

Highlights for the First Quarter of Fiscal Year 2017

  • Net revenues increased by 50.8% year-over-year to US$195.1 million from US$129.4 million in the same period of the prior year.
  • Income from operations was US$17.6 million, compared to US$19.6 million in the same period of the prior year.
  • Non-GAAP income from operations was US$26.0 million, compared to US$24.7 million in the same period of the prior year.
  • Net income attributable to TAL was US$13.2 million, compared to US$19.0 million in the same period of the prior year.
  • Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was US$21.6 million, compared to US$24.0 million in the same period of the prior year.
  • Basic and diluted net income per American Depositary Share ("ADS") were both US$0.16. Non-GAAP basic and diluted net income per ADS, which excluded share-based compensation expenses, were US$0.27 and US$0.25, respectively. Each ADS represents two Class A common shares.
  • Cash, cash equivalents and term deposits totaled US$687.8 million as of May 31, 2016, compared to US$451.3 million as of February 29, 2016.
  • Total student enrollments increased by 56.8% year-over-year to approximately 646,050 from approximately 412,120 in the same period of the prior year.
  • Total physical network increased from 363 learning centers in 25 cities as of February 29, 2016 to 395 learning centers in 25 cities as of May 31, 2016, including 47 learning centers in 5 cities from Firstleap Education ("Firstleap").

Financial and Operating Data -- First Quarter of Fiscal Year 2017

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

 

Three Months Ended
 

May 31,
 

2015

2016

Pct. Change

Net revenues

129,387

195,095

50.8%

Net income attributable to TAL

18,954

13,236

-30.2%

Non-GAAP net income attributable to
TAL

24,019

21,628

-10.0%

Operating income

19,600

17,569

-10.4%

Non-GAAP operating income

24,666

25,962

5.3%

Net income per ADS attributable to
TAL – basic

0.24

0.16

-31.0%

Net income per ADS attributable to
TAL – diluted

0.23

0.16

-31.4%

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

0.30

0.27

-11.0%

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

0.28

0.25

-11.2%

Total student enrollments

412,120

646,050

56.8%

"TAL enjoyed another quarter of strong topline growth due to the continuously high demand for small class tutoring in all cities. In the quarter we achieved 58% revenue growth in RMB terms, driven by a 57% year-over-year enrollment growth. We expanded small class classroom capacity by 50% year-over-year in the quarter and managed higher utilization rate and retention rates," said Mr. Rong Luo, TAL's Chief Financial Officer.

Mr. Luo continued, "In the coming quarters, we expect our business momentum to continue giving us a strong and positive outlook. We will continue to invest in new initiatives and further advance our global brand building."

Financial Results for the First Quarter of Fiscal Year 2017

Net Revenues

In the first quarter of fiscal year 2017, TAL reported net revenues of US$195.1 million, representing a 50.8% increase from US$129.4 million in the first quarter of fiscal year 2016. The increase was mainly driven by an increase in total student enrollments, which increased by 56.8% to approximately 646,050 from approximately 412,120 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. Average selling price (ASP) decreased by 3.8% to US$302 in the first quarter of fiscal year 2017 from US$314 in the first quarter of fiscal year 2016. The decrease in ASP was mainly because of the foreign exchange rate fluctuation.

Operating Costs and Expenses

In the first quarter of fiscal year 2017, operating costs and expenses were US$178.0 million, a 62.1% increase from US$109.8 million in the first quarter of fiscal year 2016. Non-GAAP operating costs and expenses, which excluded share-based compensation expenses, were US$169.6 million, a 62.0% increase from US$104.7 million in the first quarter of fiscal year 2016.

Cost of revenues increased by 64.8% to US$100.5 million from US$61.0 million in the first quarter of fiscal year 2016. The increase in cost of revenues was mainly due to an increase in teacher compensation and rental costs, and the acquisition of Firstleap. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 64.8% to US$100.5 million, from US$61.0 million in the first quarter of fiscal year 2016.

Selling and marketing expenses increased by 58.2% to US$24.1 million from US$15.3 million in the first quarter of fiscal year 2016. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 58.2% to US$23.3 million, from US$14.8 million in the first quarter of fiscal year 2016. The increase of selling and marketing expenses in the first quarter of fiscal year 2017 was primarily a result of an increase in the compensation to sales and marketing staff to support a greater number of programs and service offerings compared to the year-ago period.

General and administrative expenses increased by 59.1% to US$53.4 million from US$33.6 million in the first quarter of fiscal year 2016. 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, as well as an increase in rental cost. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 57.9% to US$45.8 million, from US$29.0 million in the first quarter of fiscal year 2016.

Total share-based compensation expenses allocated to the related operating costs and expenses increased by 65.7% to US$8.4 million in the first quarter of fiscal year 2017 from US$5.1 million in the same period of fiscal year 2016.

Gross Profit

Gross profit increased by 38.3% to US$94.6 million from US$68.4 million in the first quarter of fiscal year 2016.

Income from Operations

Income from operations decreased by 10.4% to US$17.6 million from US$19.6 million in the first quarter of fiscal year 2016. Non-GAAP income from operations, which excluded share-based compensation expenses, increased by 5.3% to US$26.0 million from US$24.7 million in the first quarter of fiscal year 2016.

Other Income / (Expense)

Other expense was US$15.1 thousand for the first quarter of fiscal year 2017, compared to other income of US$1.4 million in the first quarter of fiscal year 2016. Other income for the first quarter of fiscal year 2016 was mainly due to foreign exchange gains. As the holding company held a significant portion of the cash balance denominated in RMB and reported in US Dollars in the first quarter of fiscal year 2016, it benefited from exchange gains due to relative strength of the RMB.

Income Tax Expense

Income tax expense was US$4.5 million in the first quarter of fiscal year 2017, compared to US$4.8 million in the first quarter of fiscal year 2016.

Net Income Attributable to TAL Education Group

Net income attributable to TAL decreased by 30.2% to US$13.2 million from US$19.0 million in the first quarter of fiscal year 2016. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, decreased by 10.0% to US$21.6 million, from US$24.0 million in the first quarter of fiscal year 2016.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were both US$0.16 in the first quarter of fiscal year 2017. Non-GAAP basic and Non-GAAP diluted net income per ADS, which excluded share-based compensation expenses, were US$0.27 and US$0.25, respectively.

Capital Expenditures

Capital expenditures for the first quarter of fiscal year 2017 were US$12.7 million, an increase of US$6.4 million from US$6.3 million in the first quarter of fiscal year 2016. 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 Term Deposits

As of May 31, 2016, the Company had US$684.6 million of cash and cash equivalents and US$3.2 million of term deposits, compared to US$434.0 million of cash and cash equivalents and US$17.3 million of term deposits as of February 29, 2016.

Deferred Revenue

As of May 31, 2016, the Company's deferred revenue balance was US$558.7 million, compared to US$331.3 million as of May 31, 2015, representing a year-over-year increase of 68.7%, which was mainly contributed by the tuition revenue collected in advance for the Xueersi Peiyou small class summer and fall semesters.

Business Outlook

Based on the Company's current estimates, total net revenues for the second quarter of fiscal year 2017 are expected to be between US$247.9 million and US$251.3 million, representing an increase of 43% to 45% on a year-over-year basis. If not including the impact from the recent depreciation of RMB against the U.S. Dollar, the projected revenue growth rate is expected to be in the range of 50% to 52% for the second quarter of fiscal year 2017.

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