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TAL Education Group (XRS)
F4Q 2013 Earnings Call
April 23, 2013 08:00 am ET
Joseph Kauffman – Chief Financial Officer
Mei Li – Investor Relations Manager
Fei Fang – Goldman Sachs
Philip Wan – Morgan Stanley
Ella Ji – Oppenheimer & Co.
[Titia Bing] – Jefferies
Chao Wang – Merrill Lynch
Mark Marostica – Piper Jaffray
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Thank you all for joining us today for TAL Education Group’s F4Q and F2013 earnings conference call. The F4Q and F2013 earnings release was distributed earlier today and you may find a copy on the company’s IR website or through the news wires. During this call we will hear from Chief Financial Officer Mr. Joseph Kauffman. Following his prepared remarks Mr. Kauffman will be available to answer your questions.
Before we continue, please note that the discussions today will contain forward-looking statements made under the Safe Harbor Provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include but are not limited to those outlined in public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC.
Also our earnings release and this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.
I would now like to turn the call over to Mr. Joseph Kauffman.
Thank you, Mei, and thank you all for joining us on our earnings conference call for F4Q and F2013. Before I go through the quarter and full year numbers I would like to represent the entire TAL management team in sending our warmest wishes to all of our teachers, employees, parents and students who have been affected by the earthquake disaster that ravaged several areas in Xian over the weekend.
Particularly in our hearts and minds at this time are the family members of our teachers, employees, parents and students in our Guangzhou and Chengdu schools. We’ve decided to donate RMB 1 million to the victims of the earthquake to support reconstruction work and get education back on track after the disaster and we will include (inaudible) in our existing annual teaching assistance program. We’ll monitor the situation and decide on further assistance programs if needed.
Moving to the quarter, we are pleased to report F4Q results with revenues in line with our guidance. Net revenues increased by 14.2% year over year to $59.6 million US, near the high end of our guidance. Revenue growth was supported by a 9.7% increase in enrollments. In Beijing, we continued to operate in a challenging environment due to the change in policy on the use of exam and competition results for selection at key junior high schools. We saw the impact from the change in Beijing policy not only on small classes but also on our one-on-one business in Beijing, which is positioned largely as a cross-sell offering to our small classes.
Revenue growth was also affected as we mentioned last quarter by the late timing of Chinese New Year that reduced the number of classes scheduled in F4Q ending February 28th. In Shanghai on the other hand we saw growth momentum returning once again, and the small class business activities outside Beijing and Shanghai, our new markets, delivered outstanding growth.
Our full year results underscore how F2013 has been a year of harvesting following a year of large scale investment and business expansion. Operating leverage was boosted by our efforts to improve learning center utilization and budgetary discipline. Even as we still managed to grow the top line by 27.3% for the year, we saw operating income increase by 49.4% and net income by 37.5%. Our operating margin expanded to 13.9%, an improvement of 210 basis points versus F2012.
Last quarter I mentioned we are now in the early phase of our next investment cycle and we plan for net center expansion in the first half of F2014. In F4Q we still had a net reduction of centers at the tail end of our year-long focus on operational efficiency. We opened one new small class center in each of Beijing, Xian, Nanjing and Taiyuan, and one one-on-one center in Nanjing; and closed a combined nine small class and one-on-one centers in Beijing, Shanghai and Tianjin.
We had 255 centers by end of February, 2013, of which 159 were small class learning centers including four learning centers for our Mobby-branded pre-K business and 96 were for 101.
Let me now go over the different business lines. The small class business in new markets continued to drive our growth. In the quarter, small class revenues as well as enrollments in cities other than Beijing and Shanghai again more than doubled versus the same period in the previous year. The full year growth rate of small class revenues in cities other than Beijing and Shanghai grew by over 140%, making it the primary driver of our overall growth this fiscal year.