Four Seasons Education Reports Third Quarter of Fiscal Year 2018 Unaudited Financial Results

(1) Adjusted operating income is defined as operating income excluding share-based compensation expenses.

(2) Adjusted net income is defined as net income excluding share-based compensation expenses and fair value change of warrants.

(3) Adjusted net margin is defined as adjusted net income divided by revenue.

(4) Total student enrollment is defined as the cumulative number of courses enrolled in and paid for by the Company's students during the respective period, including multiple courses enrolled in and paid for by the same student.

For more information on these adjusted financial measures, please see the section captioned under "About Non-GAAP Financial Measures" and the tables captioned "Reconciliation of GAAP and non-GAAP Results" set forth at the end of this release.

"We are pleased to report strong financial and operating results for our first fiscal quarter as an NYSE-listed public company," said Mr. Peiqing Tian, Chairman and Chief Executive Officer of Four Seasons Education. "In particular, we are delighted to reverse the student enrollment trend from the first half of fiscal 2018 by achieving a 9.0% year-over-year growth in total student enrollment during the quarter. This growth was primarily driven by the expansion of our middle school program and non-math subjects recently launched to further diversify our program offerings. Thanks to our dedication to the after-school education market in Shanghai, we have built Four Seasons Education into a trusted brand for primary school math education and have expanded operations to five other cities in China.

"Along with our growth and development, we have remained steadfast in our commitment to providing the highest quality educational services to our students," continued Mr. Tian. "In essence, we believe that mathematics plays a critical role in shaping logic and reasoning and can profoundly benefit students' academic, career and life prospects. We are dedicated to cultivating our students' interest in math and enhancing their cognitive and logic abilities, therefore better prepare them for future development.

"Finally, to demonstrate our commitment to delivering value to our shareholders, we are pleased to declare an approximatelyUS$20 million dividend payment," concluded Mr. Tian.

Ms. Yi (Joanne) Zuo, Director and Chief Financial Officer of Four Seasons Education, commented, "We delivered excellent results in the third quarter with revenue increasing by 45.6% year-over-year to RMB87.2 million and adjusted net income increasing by 58.6% from the same period of last year to RMB17.0 million. Driven by strong student enrollment growth, we also saw accelerated revenue growth on a year-over-year basis compared with the previous quarter, and we are confident to maintain the positive trend in the next quarter. In addition, our gross margin reached 65.4% in the third quarter, a 450 basis point expansion from the same period last year, as we continued to benefit from high learning center utilization. Looking forward, we will maintain our focus on program expansion in terms of grade levels and subjects to meet the significant and ever-growing demand for the after-school education. Coupled with our personalized proprietary curricula and experienced faculty team, we are committed to delivering high-quality educational services to our students with a superior learning experience and outstanding academic results."

Third Quarter Fiscal 2018 Financial Results

Revenue increased by 45.6% to RMB87.2 million (US$13.2 million) for the third quarter of fiscal year 2018 from RMB59.9 million in the same period of last year, primarily due to increased revenue contribution from the Ivy Program, development of the middle school and non-math programs as well as the expansion of the physical learning center network.

Cost of revenue increased by 28.8% to RMB30.2 million (US$4.6 million) for the third quarter of fiscal year 2018 from RMB23.4 million in the same period of last year, primarily attributable to costs associated with the increase in staff and rental costs.

Gross profit increased by 56.5% to RMB57.1 million (US$8.6 million) for the third quarter of fiscal year 2018 from RMB36.5 million in the same period of last year. Gross margin was 65.4% for the third quarter of fiscal year 2018, compared with 60.9% in the same period of last year.

General and administrative expenses increased by 130.2% to RMB25.6 million (US$3.9 million) for the third quarter of fiscal year 2018 from RMB11.1 million in the same period of last year, primarily attributable to share-based compensation expense of RMB5.9 million and the listing expenses in connection with the Company's initial public offering, as well as an increase in compensation and rental costs associated with the relocation of our headquarters.

Sales and marketing expenses increased by 73.3% to RMB9.8 million (US$1.5 million) for the third quarter of fiscal year 2018 from RMB5.7 million in the same period of last year, primarily due to the increase in expenses related to promotional activities for the new course offerings and new centers to be opened and share-based compensation expense of sales and marketing staff.

Operating income increased by 9.9% to RMB21.6 million (US$3.3 million) for the third quarter of fiscal year 2018 from RMB19.7 million in the same period of last year. Adjusted operating income, which excludes share-based compensation expenses, increased by 34.5% to RMB27.9 million (US$4.2 million) for the third quarter of fiscal year 2018 from RMB20.8 million in the same period of last year.

Net interest income increased by 21.0% to RMB1.4 million (US$0.2 million) for the third quarter of fiscal year 2018 from RMB1.2 million in the same period of last year.

Income tax expenses increased by 13.1% to RMB12.3 million (US$1.9 million) for the third quarter of fiscal year 2018 from RMB10.9 million in the same period of last year. The increase was primarily due to improved profitability in the third quarter of fiscal 2018.

Net income reached RMB10.7 million (US$1.6 million) during the third quarter of fiscal year 2018, up 10.9% from RMB9.6 million in the same period of last year. Adjusted net income, which excludes share-based compensation expenses and fair value change of warrants, increased by 58.6% to RMB17.0 million (US$2.6 million) from RMB10.7 million in the same period of last year. Adjusted net margin was 19.5%, compared with 17.9% in the same period of last year.

Basic and diluted net income per ADS attributable to ordinary shareholders was RMB0.27 (US$0.04) and RMB0.26 (US$0.04), respectively, compared with RMB0.25 and RMB0.24, respectively, for the same period of last year. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders was RMB0.46 (US$0.07) and RMB0.44 (US$0.07), respectively, compared with RMB0.29 and RMB0.28, respectively, for the same period of last year.

Cash and cash equivalents. As of November 30, 2017, the Company had cash and cash equivalents of RMB925.4 million (US$140.0 million), an increase of 300.7% compared with RMB231.0 million as of February 28, 2017.

Shares Outstanding

As of January 16, 2018, the Company had a total of 24,026,591 ordinary shares outstanding, or 48,053,182 ADSs. Each two ADSs represent one ordinary share.

First Nine Months Fiscal 2018 Financial Results

Revenue increased by 50.3% to RMB233.4 million (US$35.3 million) for the first nine months of fiscal year 2018 from RMB155.2 million in the same period of last year, primarily due to increased revenue contribution from the Ivy Program and the expansion of the physical learning center network.

Cost of revenue increased by 23.8% to RMB79.9 million (US$12.1 million) for the first nine months of fiscal year 2018 from RMB64.6 million in the same period of last year, primarily attributable to costs associated with the increase in teachers compensation and rental costs.

Gross profit increased by 69.2% to RMB153.4 million (US$23.2 million) for the first nine months of fiscal year 2018 from RMB90.7 million in the same period of last year. Gross margin was 65.7% for the first nine months of fiscal year 2018, compared with 58.4% in the same period of last year.

General and administrative expenses increased by 155.7% to RMB68.7 million (US$10.4 million) for the first nine months of fiscal year 2018 from RMB26.9 million in the same period of last year, primarily attributable to share-based compensation expense and the listing expenses in connection with the Company's initial public offering.

Sales and marketing expenses increased by 270.5% to RMB24.9 million (US$3.8 million) for the first nine months of fiscal year 2018 from RMB6.7 million in the same period of last year.

Operating income increased by 4.8% to RMB59.8 million (US$9.1 million) for the first nine months of fiscal year 2018 from RMB57.1 million in the same period of last year. Adjusted operating income, which excludes share-based compensation expenses, increased by 29.7% to RMB77.0 million (US$11.6 million) for the first nine months of fiscal year 2018 from RMB59.4 million in the same period of last year.

Net interest income increased by 44.5% to RMB3.4 million (US$0.5 million) for the first nine months of fiscal year 2018 from RMB2.4 million in the same period of last year.

Income tax expenses increased by 60.0% to RMB25.8 million (US$3.9 million) for the first nine months of fiscal year 2018 from RMB16.1 million in the same period of last year.

Net income increased by 178.2% to RMB39.2 million (US$5.9 million) during the first nine months of fiscal year 2018, compared with RMB14.1 million in the same period of last year. Adjusted net income, which excludes share-based compensation expenses and fair value change of warrants, was RMB56.3 million (US$8.5 million) during the first nine months of fiscal year 2018, compared with RMB44.8 million in the same period of last year. Adjusted net marginwas 24.1%, compared with 28.9% in the same period of last year.

Basic and diluted net income per ADS attributable to ordinary shareholders was RMB1.03 (US$0.16) and RMB0.97 (US$0.15), respectively, compared with RMB0.39 and RMB0.39, respectively, for the same period of last year. Adjusted basic and diluted net income per ADS attributable to ordinary shareholders was RMB1.61 (US$0.24) and RMB1.52 (US$0.23), respectively, compared with RMB1.49 and RMB1.46, respectively, for the same period of last year.

Business Outlook

For the fourth quarter of fiscal 2018, the Company expects to generate revenue in the range of RMB71 million to RMB73 million, representing year-over-year growth of approximately 48% to 52%.

The above guidance reflects the Company's current and preliminary view, which is subject to change.

Conference Call

The Company's management will host an earnings conference call at 8:00 AM U.S. Eastern Time on January 16, 2018 (9:00 PM Beijing/Hong Kong time on January 16, 2018).

Dial-in details for the earnings conference call are as follows: