TAL Education Group

Good day and thank you for standing by. Welcome to TAL Education Group fourth quarter, FY 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press dial zero. And now I'd like to hand the conference over to Mr. Jackson Ding, Investor Relations Director. Thank you. Please go ahead, sir.

Thank you, operator. Thank you all for joining us today for TAL Education Group's fourth fiscal quarter and fiscal year 2022 earnings conference call. The earnings release was distributed earlier today, and you may find a copy on the company IR website or through the news wires. During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer, and myself, Investor Relations Director. Following the prepared remarks, Mr. Peng and I will be available to answer your questions. Before we continue, please note that the discussions today will contain forward-looking statements made under the same 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 findings with the SEC. For more information about these risks and uncertainties, please refer to our findings with the SEC. Also, our earnings release in 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 like now to turn the call over to Mr. Alex Poe. Alex, please. Thank you, Jackson, and good evening to everybody on the call. I guess in a way it would be good morning to those joining from the U.S. Let me start by noting it's been about a year since the company last organized an earnings conference call. So thank you all for making the time and joining us today, and I'm looking forward to the discussion. Let me start with our financial results for the fourth quarter and the whole fiscal year 2022. In the fiscal quarter ending on February 28, 2022, we recorded $541 million in revenue, $0.6 million, so that's $600,000 in GAAP operating income, and $108 million in GAAP net loss attributable to TAF. So since the recent market conditions and regulatory environment developing in our industry in the mainland of China, we've been taking actions and making necessary adjustments to our business. First of all, as of December 31st, 2021, we ceased offering K-9 academic after-school tutoring services in the mainland of China. which, as you all know, used to constitute the majority of our overall revenue. We have since realigned our positioning as a smart learning solutions provider, and we have pivoted our products and services along three main thrusts, and those are learning services, technology solutions, and learning content solutions, and we offer these to learners and learning institutions both in China and globally. The financial performance of our fourth fiscal quarter and fiscal year 2022 reflects such transformation and I will add it's a transformation in motion. Let me take this opportunity to express on behalf of TAO's management team our sincere appreciation to our customers for their trust and understanding, to our colleagues and ex-colleagues for their dedication, hard work, and perseverance, to our business partners for their assistance and advice, to regulatory authorities for their supervision and guidance, and last but not least, to our shareholders for their continued support on this transformation journey. Thank you all. As we're transforming into smart learning solutions provider, as I mentioned before, we're primarily offering the following product and services. Learning services and others, learning technology solution, and content solutions. We're also exploring other initiatives in China and globally. Jackson will give you an update on our operational developments in these business areas and review the fourth quarter and fiscal year financial results. After that, I'll update you on our business strategy, and then we'll open the floor for questions. So, Jackson, please go ahead. Thank you, Alex. Let me start by introducing our learning services and others business. We provide enrichment learning programs to learners between two and 18 years old. These programs are offered in various class sizes through both online and offline formats. Our offerings currently include the following programs. Science and Creativity, Coding and Programming, humanity and aesthetics, and et cetera. Let me now spend some time to talk about the programs themselves. Science and Creativity guide learners through observation, analysis, and application of various scientific phenomena and theories. The program is designed to develop learners' scientific curiosity and problem-solving capabilities. Coding and programming covers a broad range of computer science-related topics, including programming literacy, software development, algorithm, and et cetera. The program is designed to advance learners' technological fluency and critical thinking skills. Humanities and Aesthetics provides comprehensive learning at the intersection of history, art, and literature. The program is designed to cultivate learners' cultural and aesthetic literacy. Aside from the offerings mentioned above, we are actively developing additional programs. We have witnessed demand from our customers to develop as well-rounded people and lifelong learners. Our enrichment programs are designed to capture that demand. Enrichment learning will continue to be an important pillar in our business going forward. Our second main business area is learning technology solutions. We provide a full suite of enterprise-grade technology products and services. to learning institutions. Our offerings cover many components in the value chain of the learning process, including online classroom, content development, teacher support, and learning center management. We are currently serving a number of for-profit and non-for-profit learning institutions and will continue to expand our customer base. Our third main business area is content solutions. We offer academic and non-academic learning content in both paper and digital formats. The learning content materials themselves are either created in-house, leveraging the broad content library we accumulated over the course of the company history, or acquired and or licensed from domestic and global partners. These digitally integrated, highly interactive learning contents enable our learners to self-study or to simply consume casually. All these business areas mentioned above are still in development stages and are subject to further adjustments. That concludes the operational development section. Let me now shift gears a little bit to go through some key financial highlights for the fourth fiscal quarter and then briefly review the fiscal year 2022 financial results. Please note that financial results in the fourth quarter in fiscal year 2022 are subject to impact from one-off business adjustments and should be taken with care if to refer to our potential future performance Please also note that such financial performance still includes partial results from K-9 academic after-school tutoring services prior to the succession. In the fourth quarter of fiscal year 2022, net revenue totaled $541 million, representing a 60% decrease from 1,363,000,000 in the fourth quarter of fiscal year 2021. The decrease in revenue was primarily driven by the succession of K-9 academic AST services. Growth profit declined by 56 percent to 343 million U.S. dollars from $781 million in the same year-ago period. Selling and marketing expenses decreased by 84% to $103 million from $660 million in the fourth quarter of fiscal year 2021. Non-GAAP selling and marketing expenses which excluded share-based compensations, decreased by 82% to $113 million from $635 million in the same year-ago period. Selling and marketing expenses as a percentage of revenue decreased by 29 percentage points to 19% in the last quarter on a year-on-year basis. The year-on-year decrease of selling and marketing expenses was primarily a result of the reduction of marketing promotion activity. General and administrative expenses decreased by 39% to 212 million U.S. dollars from 349 million U.S. dollars in the fourth quarter of the fiscal year 2021. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, decreased by 31 percent to $203 million from $294 million in the same year-ago period. Income from operations was $0.6 million in the fourth quarter of fiscal year 2022. compared to loss from operations of 297 million U.S. dollars in the same year-ago period. Non-GAAP income from operations, which excluded share-based compensation expenses, was 0.8 million U.S. dollars compared to non-GAAP loss from operations of 217 million U.S. dollars in the same period of the prior year. Net loss attributable to TAL was $108 million in the fourth quarter of fiscal year 2022, compared to net loss attributable to TAL of $169 million in the fourth fiscal quarter of fiscal year 2021. Non-GAAP net loss attributed to TNL, which excluded share-based compensation, Expenses was 108 million US dollars compared to non gap net loss attributable to TL of 89 million US dollars in the same period of the prior year. As of February 28 2022 the company had 1,638,000,000 of cash and cash equivalents 1,071,000,000 U.S. dollars of short-term investments and 1 billion and 44 million U.S. dollars in current and non-current restricted cash. As of February 28, 2022, the company's deferred revenue balance was 188 million U.S. dollars compared to 1 billion, 417 million U.S. dollars as of February 28, 2021. representing a year-over-year decrease of 87%, which was primarily driven by the succession of K-9 academic AST services. Turning now to the fiscal year 2022 financial results, let me briefly review some key financials as follows. Fiscal year revenues decreased by 2% to $4,391,000,000. World profit decreased by 11% to $2,188,000,000. Lost from operations was $615,000,000 in the fiscal year 2022. Compared to the lost from operations of $438 million in the prior year. Non-GAAP loss from operations, which excluded share-based compensation expenses, was $440 million for the fiscal year 2022, compared to non-GAAP loss from operations of $233 million in the fiscal year 2021. Net loss attributable to TAL was $1,136 million in the fiscal year 2022, compared to net loss attributable to TRL of $116 million in the previous fiscal year. Non-GAAP net loss attributable to TRL, which excluded share-based compensation expenses, was $961 million. compared to non-GAAP net income attributed to TAL of 89 million US dollars in the fiscal year 2021. That concludes the financial highlight section. Now I'll hand the call over to Mr. Peng to briefly update you on our business strategy outlook. Alex, please. Thanks, Jackson. So fiscal year 2022 was certainly and eventful year in our industry. We went through significant changes in the regulatory environment and market conditions, and I think we just entered into the opening chapters of the transformation journey. But when I look forward and look into the future and thinking about the megatrends in technology and in society, we're also seeing new opportunities, but also new challenges. I think the company will continue to strive to capture these opportunities and overcome these challenges. And through the strength of our brands, our experienced staff, our content development capabilities, our technology, and our operational know-how. Looking forward, we expect learning services, learning technology solutions, and content solutions to have viable business models. And we'll continue to invest into other new initiatives. As a smart learning solutions provider in China and abroad, we'll continue to serve learners and learning institutions global. And as I come to the end of my prepared remarks or just make a personal reflection. As the Chinese saying goes, the journey is arduous and long, and you will get through by just going forward. And I think that speaks to the mindset of the management and the company will just go forward. So that concludes my prepared remarks. Operator, we're now ready to take questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and lights for your name to be announced. If you wish to withdraw your request, please press the pound or hash key. Please stand by while we compile the question and answer roster. So once again, it's star 1 for questions. Our first question comes from Lucy Yu from Bank of America. Please go ahead.