Ladies and gentlemen, thank you for standing by, and welcome to the TAL Education Group First Quarter of Fiscal Year 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Monday, July 22, 2013. I would now like to hand the conference over to your host for today, Ms. Mei Li. Thank you ma’am. Please go ahead.

Thank you operator. Thank you all for joining us today for TAL Education Group’s first fiscal quarter 2014 earnings conference call. The first fiscal quarter earnings release was distributed earlier today and you may find a copy on the company’s IR website or through the newswires. During this call, you 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 certain forward-looking statements made under the Safe Harbor provisions of the U.S. 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 and 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 the first fiscal quarter 2014. We are pleased to report first fiscal quarter results that reflect a solid quarter of execution-on-plan. Net revenues increased by 24.5% year-over-year to $64.1 million, over $2 million above the top end of our guidance. Revenue growth was supported by a 17.1% increase in enrollments. As expected, our small class business in new markets outside of Beijing and Shanghai remained the key engine of our growth. While the tutoring environment in Beijing continue to be challenging, Shanghai has definitely turned the corner with its business performance again showing strong growth momentum this quarter following a year of transition. As planned, we have reentered the investment stage in the first quarter. Even though, we had no net change in the number of centers, we added gross 137 classrooms, net 104 classrooms across our network for our small class business in this quarter. With this expansion, we are well on track to achieve our planned addition of at least 150 gross classroom additions in fiscal year 2014. In addition to solid top line results, we had better than expected net income growth of 62.7% year-on-year on the back of exchange gains, interest income, and short-term investment gains as well as savings from certain operational expenses. We expect to continue to incur operational costs and expenses in coming quarters as we invest in ongoing center expansion as well as the human capital necessary to drive both our competitive advantage in our core business and expansion into new businesses. Our key rationale for opting for classroom additions rather than opening new centers is that expanding from existing capacity is a more cost-efficient way of investing that allows us to achieve greater scale in…

(Operator Instructions) Your first question from the line comes from Fang Fei from Goldman Sachs. Please ask the question. Fang Fei – Goldman Sachs: Thanks Joe and Mei for the opportunity on these great results. My first question is on network expansion, so you added 137 classrooms during the quarter and meanwhile didn’t count much volatility on margin, so what will be the pace of expansion in the next few quarters and how many cities do you intend to penetrate by the end of fiscal year 2014? Thank you.

Sure. Thanks Fang. We are still on track to add another four cities by the end of our fiscal year. It will probably be in the calendar year ‘14 before we start doing that. Remember, we are at February year end, fiscal year end, so you could see January and February that we start to sign these learning centers in these new cities and they will come on board first to short-term classes likely in the spring term. We will begin, of course, preparing school heads and the related personnel to help us build out those new cities over the coming months. In terms of the center expansion number, you are right, we are well on our way to the goal of at least 150 classrooms for this fiscal year, with 137 gross adds in the first quarter. I expect that we will have at least that number as of the end of August probably closer to 200 in terms of gross adds number, and then we will evaluate that. Remember that I said that based on the utilization ramp-up at that time, we will decide about how aggressive we want to be in terms of new adds over the coming quarters in Q3 and Q4, but right now, I mean, it looks like that we will meet this 150 yearend target in Q2 as expected and then evaluate further expansion in the second half of the year depending on the utilization ramp up. Fang Fei – Goldman Sachs: That’s great. Second follow-up question from me, regarding balance sheet, so your cash flow has been great in the past few quarters and comparing that cash position is building up how do you plan to use the cash going forward and whether you are exploring potentially dividend possibilities for this year? And also if we look at the deferred revenue, it went up 43% year-on-year substantially higher than the revenue growth during the quarter, so is that by any chance indicative of your future growth momentum? Thanks.

Yes, sure Fang. Let me answer you to those questions. In terms of the dividend, we are unlikely to do a dividend in the near-term for the reasons I mentioned on previous calls about preferring to be able to do a larger dividend less frequently in order to make it more efficient for ADR holders net of fees. So, we have a great track record since being a listed company of giving back to shareholders, but we want to do it in a way that it is efficient for our ADR holders. We also could use our cash balance to make investments in new business opportunities that are close to our core business as this will position the company well in the long-term as education market evolves. We particularly see it evolving more in terms of the use of technology in learning. So, we want to be well-positioned in that area. So that I hope addresses your question related to use of cash. In addition of course to the center expansion and new city developments which after that I talked about in your previous question of course. In terms of the question on deferred revenue, I wouldn’t read too much into the deferred revenue numbers. Deferred revenues are typically as you know recognized over multiple quarters. For example, students may register for both the summer and the fall term in May. The timing of when these enrollments come in terms of registration also varies year-by-year. In this case, part of what’s driving that large deferred revenue balance is also what I mentioned in my prepared remarks sort of that RMB20 million of deferred revenue, that’s actually carried over from the first classes to spring term that would typically be recognized in Q4 that’s where it’s recognized last year based on the Chinese New Year term that year, and it’s now going to be recognized in Q2. So, since it hadn’t been yet recognized, this hadn’t deferred as of the end of our Q1. Also this year, of course, we are taking a price increase in some markets, so that also affects the deferred revenue balance, so I expect will also impact the recognized revenue as well. So, I guess just to summarize you have timing impact and you also have the CNY and particular timing impact on particularly affecting this year. Fang Fei – Goldman Sachs: Very helpful. Thank you very much.

Thank you. You next question from the line comes from Philip Wan from Morgan Stanley. Please ask the question. Philip Wan – Morgan Stanley: Hi Joe. Thanks for taking my question and congrats on a very strong quarter. My first question is about your Beijing operations, I wonder you quickly share with us what kind of enrollment growth for Beijing in the past quarter? And then also is this the reason are you seeing since it’s slower than expected recovery? Then I have a follow-up. Thank you.

Sure. Beijing enrollments were still down in the single-digits in the most recent quarter. We are expecting Beijing to take a little bit longer to recover than we expected. Enrollments, we expect to still be down in the summer term though the gap is closing versus the spring. So, that’s good news. For the fall semester, we still expect the end of the semester enrollments net of refunds to be higher this year than it was during the same period last year. However, we are positive that we are doing the right things in terms of long-term recovery of this business, in terms of the focus on curriculum, teaching quality, etcetera, and we are also quite pleased by our performance of our cities outside of Beijing, which of course were helping us during this transition period. Philip Wan – Morgan Stanley: Right. And in particular in Shanghai, you mentioned about a very positive momentum, are you seeing a more faster growth in small class or in one-on-one? And then what is your expectation in Shanghai given what you have done to turn the corner around? Thank you.

Sure. Yes, that growth in Shanghai business is being driven by our small class business, which is performing exceptionally well. We also see growth in the one-on-one business, but it’s really the small class business that’s driving the growth. In terms of Shanghai, there was really no magic there. We had the discipline to focus on the basics of teaching quality, allocating resources from headquarters to support on product development, curriculum development, localization, and teacher training, the basics of our business. We’re also going to expand our learning center network in Shanghai and had the patience to endure a couple of semesters you remember last year, where we weren’t focusing on enrollment growth until we can assure we were absolutely satisfied with the high-quality of the offering. In Chinese, there is a word called (inaudible), which is one of our core values of the company, which I guess can be roughly translated as low key and focused on getting things done. So, that’s what we believe the business is about in the end taking responsibility to deliver absolute best quality teaching curriculum to our students. So, that’s what’s happening in Shanghai, nothing more than that, just executing and getting back to the basics of what we believe drives this business. Philip Wan – Morgan Stanley: Thank you. Last question from me, could you talk about on the margin outlook for the coming quarters, I wonder if there is any spending or investments being postponed into the later part of this year? Thank you.

Sure. Overall, in terms of margins, again, I will just give a sense of trend we don’t give guidance on margins lower than they were last year. However, based on the outperformance of Q1 and stronger than active revenue guidance for Q2, there is an opportunity for us to outperform this internal budget. I think the right time to evaluate this again will be the end of Q2, because well the better read on fall term enrollments then and will also have a better read as I mentioned to say about the center expansion as well as continued new business investment in the second half of the year. So, my sense is at this point, the margins will still be down, but probably by not as lot of margin as I initially expected our performance so far this year. Philip Wan – Morgan Stanley: Alright, that’s very helpful. Thank you.

You’re welcome.

Thank you. Your next question comes from Chao Wang from Merrill Lynch. Please ask the question. Chao Wang – Merrill Lynch: Hi, good evening. Thanks for taking the questions. My first question is a follow-up on the Beijing market, you mentioned about competition in Beijing market in the prepared remarks, so just wondering do you mean that you are losing market share to our competitors, could you give us more color? And secondly regarding the guidance, could you let us know how much is driven by the ASP increase and how much prior enrollments increased? Thank you.

Yes, sure Chao. I think there may have been a misunderstanding in terms of my prepared remarks, but in anyway mean to imply that we were losing share to local competitors. If anything, I would say that the overall pie may have shrunk as a result of the policy, but we believe that our position within that pie has remained the same as the market leader within the space. So, I think that may just be a misunderstanding in terms of my prepared remarks. In terms of the guidance, I would expect that the ASP portion would be up a bit versus Q1. So, you could see maybe being closer to the high single-digits to the ASP component, because we are taking the price increase in Beijing in a number of other markets in the quarter. Now, as I have mentioned in the past, that will all be recognized in the quarter you will have coupons that will be given to recurring students. So, I wouldn’t expect a massive increase in ASP versus Q1 levels, but you will see that effect, and then the remainder of the difference to get to our overall revenue growth target 30%, 33% will be enrollments driven. Chao Wang – Merrill Lynch: Alright, thank you.

Thank you, Chao.

Your next question comes from Ella Ji from Oppenheimer. Please ask the question. Ella Ji – Oppenheimer: Thank you. Congratulations on strong quarter. I want to go back and then discuss the drivers of your strong growth for 1Q, so obviously Shanghai performed very well. In addition to Shanghai, what are the cities that you are seeing that are the main drivers of the out-performances, and on average, how many years of operation do you have at those cities?

Sure. Yes, I mean, we are seeing a lot of improvement across the board. The cities that, I mean, if you look at it, they are all performing quite well. You have no real defined aspect in terms of which you are performing, particularly well based on years. I would say that Shanghai is one of the 2008 ones and that one is performing quite well. And then you have the other cities outside that I mentioned are growing over 100% in terms of revenues again in the quarter. So, those are led by cities like Guangzhou, like Shenzhen, Guangzhou was started in 2009. Shenzhen was started in 2010. Then you had the cities that we entered in 2011 are just really turning it on, so you had Xi’an, Nanjing, Chengdu, Hangzhou also performing really well, and then the ones that we added most recently is the much smaller base, but markets like Suzhou, Chongqing, Shenyang, Taiyuan. So, we are getting good levels of growth from each of these markets and what’s encouraging is that we are seeing growth from some of the 2008 markets like Shanghai and Wuhan that are also quite exceptional in the quarter. So, it’s really been across the board, Ella. Ella Ji – Oppenheimer: Okay.

In terms of the small class business, in terms of the one-on-one business, I would say that Guangzhou, Nanjing, Xi’an, and Chengdu are the ones where you are seeing the best growth. Each of those have over 100% enrollment growth. Ella Ji – Oppenheimer: Great. So, would you say that’s with regards to the out-performance is there anything in terms of execution that you are doing differently from the previous terms that other drivers of the growth? And would you think such strong growth is really sustainable in the longer term?

I do. I mean, I think that we have talked about our business before has been kind of tipping point business, where in the early days, you don’t get a lot of enrollment growth in that first semester, because we actively manage the growth of enrollments in that first semester. So, rather than going after enrollments right after the math, after that we purposely limit the enrollments in the initial stages in order to establish the strong word of mouth reputation we have in each market. So, that’s really paying dividends for us now. Guangzhou, I remember even on the IPO roadshow at Shenzhen, they were all relatively small in terms of enrollment contribution, but now they are both really meaningful nicely. So, our belief is if you focus on the basics of teaching quality making sure you have good utilization levels in the centers then this is what creates the basis for long-term sustainable growth. Ella Ji – Oppenheimer: Great. And then my next question is with regards to online businesses, what’s the percentage of its revenue contribution for this quarter? And also recently, we are seeing a lot of discussions on the marketplace with regards to online education, could you comment yourself about the outlook of online education in the next two to three years? Are you seeing your online business to be like independent probably the driver or do you think it will continue to be largely a sales channel for your offline business?

Sure. I think it’s important to differentiate between our various online businesses. The online courses business, we do expect to deliver profits over the longer term. This year, the internal budget is for to breakeven. We do hope that it will turn to profit in the next fiscal year, on fiscal year ‘15. That one is about 3% of revenue now. So, online courses business, we are quite positive about it over the longer term. As a company we have invested a considerable amount of resources over the last few years into the online business. You recall that last year the businesses, the new businesses and online was most of it, were $6.5 million loss, that included EDUU online courses and Mobby, and EDUU and online courses were the bulk of that loss. And this year, we are still expecting $7 million to $8 million loss out of those new businesses. So, we are very much focused on online. We think that in terms of the trend for the future that online will definitely have a place in the overall way that students learn. So, we are going to continue to focus our energies in this area going forward. In terms of EDUU, I mentioned in my remarks, that’s a business that’s really helped to support us especially as we go into new markets and being able to get students into our classes in new markets. We have talked a lot about how EDUU will be there initially and through the discussion boards on EDUU, we will get a sense of the captive demand for our courses and that helps us to have a very strong success rate in getting into these new markets and not have to spend a lot on advertising, brand promotion expenses, etcetera. So, each of those businesses has a different role within our overall platform. EDUU is really as you mentioned about supporting the growth of our online courses business, online courses actually as well as our offline courses businesses. And then the online courses business we do expect to have a greater revenue contribution and profit contribution over time. Ella Ji – Oppenheimer: Great, that’s very helpful. Thank you.

Thank you, Ella.

Your next question comes from Clara Fan from Jefferies. Please ask the question. Clara Fan – Jefferies: Hello, thank you for taking my questions. I’ve got a few questions. Firstly, do you see any improvement in utilization compared to the last quarter? And secondly, can you give us some updates on your new investment initiatives and any impact on your expenses? And lastly, top line guidance for next quarter based consensus more color, is it strong growth in particular provinces or cities? Thank you.

Sure. In terms of the utilization question, yes, we are seeing improvements in utilization. We have actually had improvements in utilization in each of our markets, except for Beijing. So, every other market that we have we saw utilization improvement on the back of very strong class fulfillment and classroom utilization metrics. So, that’s been very encouraging and that’s what led us to be more aggressive in terms of the number of new centers that we add in the first half of the year. That was the question that Fei asked, and I mean, we are measuring this stuff every day. We are trying to get more and more details in terms of how we measure our center expansion really focusing on these kind of metrics, and then based on underperformance or over-performance in terms of utilization, we will try to adjust our center expansion accordingly. So, it was on the back of improved utilization levels that we actually turned the gas up on increased center expansion. And then in terms of the investments, I think I may have answered this question a bit as part of Ella’s question. We still do expect that we will have a $7 million to $8 million loss from new businesses in this year that will include online courses, EDUU, and the Mobby businesses. So, there is not really a change in terms of that versus what I said last quarter. The only difference maybe if the utilization levels are good, you will likely see us expand more centers than I said in previous quarters, but if the utilization levels are good, then that should imply that each of those centers that we have added in the first half of the year are ramping up more quickly than expected and delivering more profit to the bottom line. So, we’ll be kind of evaluating our center expansion strategy based on utilization in that regard. And then in terms of Q2, the guidance I mean, I did mention an important factor in my prepared remarks about the guidance is that if you take out the RMB20 million impact from the timing of Chinese New Year, we are at about 25% to 28% revenue increase for the quarter, which is great. I mean, it’s still really nice acceleration based on the 24.5% we achieved this quarter, and then a nice ramp up from the 14% in Q4. So, the business continues to move in the right direction. And I expect that, that will continue to be based on very strong performance, particularly for our small class business and particularly in those cities outside of Beijing, though as I mentioned in my prior remark, Beijing is also on a nice recovery trend. Clara Fan – Jefferies: Thank you. Just a follow-up question, what about on say new IT systems such as online registration systems, are there any updates?

Yes. No real updates in that regard. We are continuing to focus on various ways to improve our registration including online and also including mobile. So, that will likely be an area of investment for us over the coming quarters, but also over the coming years to put the right strategy in place for making sure that we have the right kind of mobile strategy for each of our businesses is important. In terms of the online registration piece of that, yes, there will be continued investments in that over the coming quarters. Clara Fan – Jefferies: Thank you.

Thank you, Clara.

Thank you. Your next question comes from Mark Marostica from Piper Jaffray. Please ask the question. Mark Marostica – Piper Jaffray: Yes, thank you and nice work in the quarter. My first question is related to the Zhikang business and I wanted to get your thoughts around the strategy for this business in terms of whether or not you are marshaling it to be a certain target percentage of revenue? And just in general, if you could talk through higher look at this business in the quarters ahead, perhaps I will also touch on the margin profile of the one-on-one business versus small class at present? Thanks.

Sure. In terms of the one-on-one business, I mean, what I can say is we are seeing positive developments in the Zhikang business. We are managing that business for the health of the overall business in the long-term. So, we are continuing to focus on things that we think are sustainable over a longer period of time to improve the overall teaching quality and really the value that we are delivering to parents and students through this platform. So, that has included initiatives like increasing the frequency and quality of the feedback that our teachers are giving to parents after the sessions when they are with the students, improving the rate of students who actually come in for classes. There are in that model it’s very strong deferred revenue model, so people signup for many hours and then getting them to come into classes we think is important in terms of achieving their overall study plans. So, I have been focusing in this area. And we have also been doing some pilots with an improved VI or layout of the centers, where we are using mini classrooms which we believe will help students to have a much more dedicated space, where they are able to concentrate more than they are in kind of a cubical environment. So, we are managing the growth of this business. I don’t have a specific target, but I do expect that it will be less than the 23% of revenues that it was last year, I think probably somewhere between 20% and 23%, it’s probably the right number on the low end of that range, because we expect in the following three quarters, they will also continue to grow at a lower rate than our small class business. Did I knock off all of your questions here, Mark? Mark Marostica – Piper Jaffray: Yes, I guess the last piece would be with the investments in one-on-one, do you view the business as margin dilutive here or how can we look at the margin profile of one-on-one versus small class, if you could help us bisect that, that would be helpful?

Yes, it is margin dilutive, because of the scaling of the human capital in that business is just not as strong. So, the ASP difference between the two can nearly mitigate that factor. So, it depends on the quarter and we haven’t given specific margin by business unit, but for Q1 as an example if you take out all the headquarters costs, there is still going to be a 10% gap between one-on-one and small class. And keep in mind that the first quarter is among the best quarters in terms of profitability for the one-on-one business, because that’s when you have the best utilization ahead of the Gaokao (inaudible) in those periods. So, that will give you a sense of what we are talking about. So, that is part of the consideration in terms of managing the growth of that business in terms of managing our overall margins, but it’s also about making sure we are delivering the best quality, best value to parents and students as this part of the overall education sector, we feel life has just become pretty overheated over the last couple of years. So, I think our return to quality is very important for the one-on-one long-term value proposition. So, in order to do that, we believe we have to manage our growth in the near term. So, we can focus on that. Mark Marostica – Piper Jaffray: Great. Thanks for that. And then one last question for me, your thoughts regarding Alibaba’s announcement of entering the education arena, thoughts there?

Interesting question, Mark. Well, we hope that Alibaba’s entry will deliver more value for parents and students. I mean, they have obviously an amazing platform in China. Early days to know what they will bring to the market, but we do think that the platform value of Alibaba is overall a benefit to the overall education industry. We hope that it brings education to more people. And in terms of our position, we focus on content. So, we focus on having the best product, the best content. So, we believe that we are doing different things. So, we don’t necessarily expect a big impact to our business. We will continue focusing on what we do well, which is delivering top features high-quality content. And even for our online courses, that’s how we differentiate. We want to demonstrate a really deep understanding of the content that needs to be delivered, and we focus a lot of R&D on doing that. So, we are quite happy to see that. I think it’s overall likely a positive thing for the education sector in China. We will just have to see how things play out as Alibaba continues to focus on that. Mark Marostica – Piper Jaffray: Great. Thank you. I will turn it over.

Ladies and gentlemen, we have come to the end of the question-and-answer session. That does conclude our conference for today. Thank you for your participation. You may all disconnect.