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spk04: Ladies and gentlemen, good day and thank you for standing by. Welcome to Tele-Education Group's fourth quarter and fiscal year 2024 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be informed that today's conference is being recorded. And I'd like to hand the conference over to Mr. Jackson Ding, Investor Relations Director. Thank you. Please go ahead, sir.
spk07: Thank you, operator. And thank you all for joining us today with TAL Education Group's fourth quarter fiscal year 2024 earnings conference call. The 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, 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 today's discussions will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Security 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 our 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 and this call include 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 to turn the call over now to Mr. Alex Poon. Alex, please go ahead.
spk06: Thank you, Jackson. I'd also like to thank all of you for participating in today's conference call. In this call, we'll discuss our financial performance and business progress for the fourth quarter and review some of the key results from the full fiscal year 2024. Following that, I'll briefly update you on our business strategy outlook. Throughout the fiscal quarter, we continue to manage our learning services programs to serve users who seek engaging and effective learning experiences. Our pay you small class and Sharesit.com enrichment learning programs continue to receive positive feedback from users for the quality of their products and services. Our efforts to offer quality learning experience, along with our Learning Center network expansion and increased enrollment led to continued growth in our learning services business. For learning devices, we extended our products and services to a broader user base, enabling more users to find the suitable learning solutions for their needs. We aim to help users with their self-learning journey by leveraging the smart features and abundant resources integrated into our learning devices. With this objective in mind, we launched two new versions of learning devices in this fiscal quarter with enhanced hardware and software capabilities, XPAT 2 Pro and XPAT 2 Pro Max. Both have gained early market traction and received solid user engagement feedback since their launch. Going forward, we remain committed to developing both our product capabilities and our go-to-market capabilities. To that end, We continue to pursue new technologies and refine our existing research and development endeavors. In a recent national collaborative initiative dedicated to comprehensively assessing large language models' mathematical abilities, our MassGBT large language model recently ranked number one in national rankings. From basic arithmetic to advanced theories of mathematics, the MathGBT-LLM delivers responses to aid students' learning experience. In terms of our financial performance, we recorded net revenues of $429.6 million, or $3.08 billion for the quarter. representing an increase of 59.7% and 66.9% year-over-year in U.S. dollar and RMB terms. With respect to profitability, our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter were $9.4 million and $48.0 USD. million U.S. dollars respectively. For the full fiscal year of 2024, we reported net revenues of 1.5 billion U.S. dollars or 10.7 billion RMB, representing 46.2% and 53.7% year-over-year growth in U.S. dollar and RMB terms respectively. Our non-GAAP income from operations and non-GAAP net income attributable to TAO for the quarter were $19.7 million and 85.3 million US dollars respectively. We also reported positive non-GAAP net profit during the whole year, which was 84.8 million US dollars. With that, I will now hand over the call back to Jackson. He'll provide an update on the operational advancements within our core business lines and discuss our financial performance for the fourth fiscal quarter. Jackson, back to you.
spk07: Thank you, Alex. I'm pleased to share some details of the progress we made in the fourth quarter across our core business lines. Please note that all financial data for this quarter is unaudited. Let me start with our Learning Services and Others business, which comprises a broad range of learning programs for consumers, amongst other things. In the fourth quarter of fiscal year 2024, we extended Learning Services and Others' year-over-year growth momentum through continued advancements across our various product lines. Our online and offline enrichment learning programs and continue to serve as a primary revenue generator for our learning services. Through our systematic teaching design, up-to-date learning content, and interactive classroom design, we help users develop multifaceted capabilities and apply what they've learned into real-life situations. Our enrichment learning programs enable students to build their own thoughts from diverse perspectives, fostering comprehensive development with engaging and effective learning experience. Our offline pay-all small class programs maintained its trajectory of year-over-year growth in this period. This was attributable to, among other factors, our learning center network expansion. Our decision to add learning centers during the quarter was supported by an assessment of market demand, as well as our operational capabilities and efficiency. Notably, efficiency indicators, such as retention rate, had been relatively stable as we expanded our capacity and enrolled more learners. we see a visible growth path for offline small class enrichment learning. In alignment with our strategic objectives, our online enrichment learning business has maintained its course of operations. To enhance teaching effectiveness, we tailored our online programs to differentiate them from offline offerings and applied smart interactive features to motivate users and enhance their engagement. These programs are designed not only to align with online learning habits, but also fully leverage online education's unique advantages, bringing scarce, high-quality educational resources to a broader audience. Looking ahead, We'll continue to innovate and iterate our products and services to meet evolving user demand for digital learning experiences. Next is our content solutions business, which encompasses smart books, print books, learning devices, and digital content. Our product portfolio and go-to-market capabilities drove continued year-over-year growth momentum during this fiscal quarter. As in previous quarters, Shares to XPAP stood out as a key contributor to our content solutions business revenue growth. Revenue generated from our learning devices continued on its path of growth in fiscal fourth quarter. thanks to our launch of a couple of newer products in our XPAT series, XPAT 2 Pro and XPAT 2 Pro Max. The latest XPATs feature enhanced hardware and software capabilities, abundant embedded learning resources, and AI functions from our self-developed large language model, MathGPT. For example, customers can use our AI-enabled learning tools for math problem solving, Chinese or English essay review, step-by-step answer explanation, and much more. Together, these upgrades provide an improved human-machine interaction experience and more precise and efficient learning solutions while delivering consistent user engagement levels. Meanwhile, we focus on managing our sales channels and optimizing our marketing strategies. While we're closely monitoring the efficiency of our online channels, we also started to explore opportunities in offline channels to extend our products market. With that overview, I would now like to share our key financial results for the quarter. we recorded net revenues of $429.6 million U.S. dollars or 3.08 billion RMB, an increase of 59.7% and 66.9% year-over-year in U.S. dollar and RMB terms, respectively. The increase was attributable to the growth in both our learning services business and our content solutions business. Cost of revenues increased by 58.4% to $202.2 million from $127.7 million in the fourth quarter of fiscal year 2023. Non-GAAP cost of revenues, which excluded share-based compensation expenses, increased by 59.8 percent to 199.6 million U.S. dollars from 124.9 million U.S. dollars in the fourth quarter of fiscal year 2023. Gross profit also increased in the fourth quarter of fiscal 2024. rising by 60.9% from $141.3 million for the same period last year to $227.3 million for this quarter. Gross margin increased to 52.9% from 52.5% for the same period last year. Selling and marketing expenses for the quarter were $125.9 million, representing an increase of 69% from $74.5 million for the same period last year. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 80.1 percent to 120.4 million US dollars from 66.9 million US dollars for the same period last year. The uptick in selling and marketing expenses was primarily driven by increased selling and marketing activities. Selling and marketing expenses as a percentage of total net revenues increased from 27.7% to 29.3% year over year. General and administrative expenses increased by 4.5% to $117.2 million from $112.2 million in the same period of last year. Non-GAAP general and administrative expenses, which excludes share-based compensation costs, increased by 8.9% year-over-year to $104.9 million from $96.3 million for the same period of last year. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 35.8% to 24.4% year-over-year. Total share-based compensation expense allocated to the related operating costs and expenses decreased by 22.1%. to $20.5 million in the fourth quarter fiscal year 2024 from $26.3 million in the same period of last year. Lost from operations was $11.1 million in the fourth quarter fiscal year 2024 compared to lost from operations of $44.4 million in the same period of last year. Non-GAAP income from operations, which excluded share-based compensation expenses, was 9.4 million U.S. dollars compared to non-GAAP loss from operations of 18.1 million U.S. dollars in the same period of last year. Net income attributable to TAO was 27.5 million in the fourth quarter of fiscal year 2024, compared to net loss attributable to TAO of 39.4 million US dollars in the same period of last year. Non-GAAP net income attributable to TAO was, which excluded share-based compensation expenses, was 48.0 million US dollars, compared to non-GAAP net loss attributable to TAO of $13.1 million in the same period of last year. Moving on to a balance sheet, as of February 29, 2024, we had $2,208.7 million of cash and cash equivalents, $1,094.6 million in short-term investments, and $248.7 million in current and non-current restricted cash. Our deferred revenue balance was $428.3 million as of the end of the fourth fiscal quarter. Now, turning to our cash flow statement. Net cash used in operating activities for the fourth quarter of fiscal year 2024 was $23.7 million. Now let's switch gears and move on to full fiscal year 2024 financial results. Let me briefly review some key financials as follows. Fiscal year net revenue increased to $1 billion 490.4 million U.S. dollars or 10.7 billion RMB, representing a 46.2% and 53.7% year-over-year increase in U.S. dollar and RMB terms, respectively. Gross profit increased by 38.2% to $806.1 million. Lost from operations was $69.2 million in the fiscal year 2024, compared to loss of operations of $90.7 million in the prior year. Non-GAAP income from operations which excluded share-based compensation expenses, was 19.7 million for the fiscal year 2024, compared to non-GAAP income from operations of 17.8 million for the fiscal year 2023. Net loss attributable to TAO was 3.6 million US dollars in the fiscal year 2024, compared to net loss attributable to TAO of 135.6 million in the previous fiscal year. Non-GAAP net income attributable to TAO, which excluded share-based compensation expenses, was 85.3 million U.S. dollars. compared to non-GAAP net loss attributable to TAO of 27 million US dollars in fiscal year 2023.
spk05: That concludes the financial highlights section.
spk07: In April 2023, the company's board of directors authorized a 12-month extension of the company's share repurchase program launched in April 2021. Pursuant to the extended share repurchase program, the company may purchase up to approximately 737.4 million U.S. dollars of its common shares through April 30, 2024. As of August 31st, 2023, the company had repurchased 13.4 million common shares and an aggregate consideration of approximately $233.6 million under the Shared Repurchase Program. We did not make any additional purchases in the fourth quarter of fiscal year 2024. In April 2024, TAO's board of directors has authorized to extend its share repurchase program by 12 months. That concludes the financial section. I'll now hand the call back to Alex to briefly update you on our business outlook. Alex, please go ahead.
spk06: Thanks, Jackson. As highlighted throughout this call, During fiscal year 2024, for learning services, we expanded our learning center footprint, developed additional learning programs catering to various user groups' specific needs, and also managed our operational efficiency. So as a result, the business experienced year-over-year growth in the last few quarters. Our content solutions also made progress through offering high-quality learning devices and engaging in conversations with our target customers through various go-to-market channels. We believe Cisco 2024 laid a foundation for our future development. So now I would like to share some insights on the company's strategy and objectives for fiscal year 2025. First of all, We remain focused on further refining our mature businesses. We will continue to uphold high quality standards for our offline and online learning products and services. Our goal is to make our learning experience engaging and effective by applying technology and improving teaching content and student interaction. Among our mature businesses, we expect our various learning services programs to continue to serve as our largest revenue contributor in the new fiscal year. We'll also continue to innovate and explore during fiscal year 2025 to keep up with our customers ever evolving needs. We'll explore and design differentiated products and services. We'll also continue to invest in artificial intelligence to optimize our model, improving its response speed and accuracy, and working to integrate artificial intelligence with our existing products and services. We keep a close eye on industry trends and how education is transforming in the AI era, staying keenly attuned to how we can interact with other players and identify potential areas where we can seize new opportunities. We remain open to explore collaboration and share our findings with the hope of contributing some valuable insights to the global education community. Finally, we'll focus on refining the details of our operations to enhance overall efficiency and profitability. We believe our dedication to providing learning services and products will create value for our users and our society while driving our business forward. We'll also closely monitor our efficiency metrics in all different factors and make timely adjustments to optimize each step in our operations, including content generation, product R&D, sales and marketing, and more. So that concludes my prepared remarks. Operator, I think we're now ready to open the call for questions.
spk04: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Our first question comes from the line of Candace Chen from Daiwa. Please ask your question, Candace.
spk03: Great. Hi, Justin and Alex. Thanks for taking my question and also congratulations on this very strong set of results. After achieving a robust 46% revenue growth for this year, can you share some colors on the revenue growth target for the new fiscal year and also what will be the key investment focus for this year? Thank you.
spk06: Thanks, Candice. This is Alex. Let me take this one. So I think at a very high level, I would say growth is really the output of investment input. I think that the investment input is going to span from product and services innovation, technology, channel and network, and last but not least, our people and our organization. So at a very high level, I think I'll just sort of answer both of your questions in that one go. And if I would unpack it a little bit further, I think obviously we'll remain focused on further revitalizing and refining our mature businesses. I would really expect our various learning services programs to continue to serve as our largest revenue contributor. in the new fiscal year and continues to show robust growth. We'll obviously continue to innovate, to explore and design differentiated products and services that really fit with all segments of our customers and all learning scenarios and to provide them with an integrated experience, and an integrated learning journey. We'll obviously continue to invest in artificial intelligence. I think I've mentioned earlier on the call, it's an area that we pay a huge amount of attention to, and we believe that that AI era and its transformative impact on education is just starting. You know, we'll continue to refine the details of our operations to enhance overall efficiency and profitability. And this really, I think, goes across the entire chain of operation. You go from, you know, content generation to product R&D to sales and marketing.
spk05: So, Candice, I hope that answers your question.
spk04: All right. Thank you, Candice. Our next question comes from the line of Linda Huang from Macquarie. Please ask your question, Linda.
spk02: Thank you very much. Hi, management. So my question is regarding for the Learning Center expansion. I remember that in the previous conference call, our learning center number is 250 to 300. So can you share with us new color regarding for your other learning center expansion at the end of the previous quarter? And then for FY25, how do you gauge the market demand and the expansion plan? Thank you very much.
spk06: Thanks, Linda. This is Alex. Let me take this one as well. So first of all, we expanded for capacity in the past quarter, which was in line with our expectation. And with retention rate being relatively stable, as we expanded our capacity and involved more students, I think we're increasingly feel good about that line of growth for the future. Now, just to share a bit more color on how we look at this for the upcoming year, I think this is a theme that I've addressed in the past couple of years. Enrichment learning, it's got a new product market set. And we always would adopt a balanced approach. We'll look at the demand. We'll look at the geographical density of that demand. We'll look at user response to our product or services, whether it's positive. And, you know, obviously there are metrics such as user retention, which will tell us whether it's hitting our expectation. We'll also obviously be very mindful of the operational metrics. such as classroom utilization rate and teacher utilization rate. And these are all the things that we consider together, right? So I would say, you know, when I look at our PayU enrichment learning programs, they're really designed to help users develop a multifaceted set of capabilities. They need to apply what they've learned into real life situations. They need to develop their own thoughts from different perspectives and really foster a full person development approach. So far, I think we've observed really positive user feedback related to this enhancement in the capabilities mentioned above. And we believe our dedication, quality, and effectiveness will continue to drive our sustained growth. So for the next year, you know, I think we're seeing signs, very good signs of visible road paths. We'll continue to expand our learning center network to meet user demand in the upcoming year. I think we'll start to a dynamic and balanced approach, right? really taking market demand in a particular area, in a particular city or district, how customers are responding to our product and services, our own operating capabilities, especially our teams on the ground, the front line capabilities that they're building and enhancing, and also those operational metrics, efficiency metrics that I mentioned about. We'll take all of those into consideration So, I think, you know, just to summarize it, we expect to further expand our network and we'll continue to manage this in a dynamic and balanced approach. So, Linda, I hope that answers your question.
spk04: Thank you, Linda. Our next question comes from the line of Felix Liu from UBS. Please ask your question, Felix.
spk00: Hi, good evening, management. Thank you for taking my question and congratulations on the strong first quarter results. You just talked about our offline strategy, offline expansion strategy. May I just shift the focus to online? How do you think of your strategy with online enrichment learning? Do you plan to, similar to your commitment to offline expansion, do you plan to increase your investment in the online enrichment learning segment? Thank you.
spk07: Thanks for the question, and this is Jackson. I'll take this one. You know, when we look at the online enrichment learning business, or the industry really, we see this as a, you know, dynamic market landscape. uh especially over the last uh couple years we see user experiences gradually evolve in this particular landscape uh now before i get into the future maybe uh let me just talk a little bit about kind of what happened in this quarter with our online richland business you know and and in this past fiscal Q4, our online enrichment learning business maintained its course of operations. We also refined our operation efficiency while at the same time explored new SKUs as well. Online enrichment learning remains a strategic area for us. not only because of the market opportunity itself, but also because we see it as a unique opportunity to leverage interactive online features to provide an engaging and effective digital learning experience to a broader audience. You asked about investment plan. I would say it's It's less about, you know, increase or decrease investments. It's more about, you know, making sure that we deploy the resources needed to provide our customers with high-quality learning experience. So looking forward, you know, online enrichment learning remains a strategic area for us. We'll focus on delivering quality products and services to our customers while leveraging the benefits of online learning. And we'll continue to bring scarce, high-quality educational resources to a broader audience while enhancing user value and social benefits. I hope that answers your question, Felix.
spk04: Thank you, Felix. Our next question comes from the line of Timothy Chow from Goldman Sachs. Please ask your question, Timothy.
spk01: Great. Hi, Alex. Hi, Jackson. Thank you for taking my question, and congrats on the very strong results. So my question is on the content solutions business line. Just wondering, could management share some colors on the sales and the user engagement of the latest hardware that you launched over the quarter? And what is, I think, your plan to further make the business line more sustainable into the longer term? Thank you. Thanks, Timothy. This is Alex.
spk06: Let me take this one. So first of all, just to address this past quarter, as you mentioned and I alluded to earlier on the call, we launched two new products in this quarter, XPAT2 Pro and XPAT2 Pro Max. So in this quarter, I really look at growth being driven by increasing volume and higher ASP. But in reality, there is another set of metrics which I keep a very close eye to, which is that engagement. So in general, we look at the average weekly usage time it remains relatively stable despite the, you know, ever larger user base. And that's credible. And I think another interesting thing that we're observing, this, you know, new set of products that we launched in the quarter, because they came with enhancements in the hardware, and enhancement in artificial intelligence learning tools, we're really seeing an uptick in the usage of those tools. And, you know, I think it's showing early signs that these tools actually become great competitors for students as they learn on their own, in their homes, according to their own style and learning profiles. So going forward, I really look at sort of two main directions. I think, obviously, the first one is to continue to improve our products. We just launched a hardware, a new hardware. This is coming on about 10 months since we first launched Expat 1. But actually, the software and the content continue to be upgraded. on these devices. And I think what really drives us, the North Star, is that engagement, learning engagement and learning impact, right? So we look at, you know, further improvement on the hardware design, additional high-quality content, and those artificial intelligence learning tools to continue to enhance the learning engagement the human-machine interaction, and provide a much more effective and impactful learning journey for our customers. And if I may add, I think this journey has just begun. I think there's a huge amount of additional potential as we make further investment into artificial intelligence, our large language model. It's going to become better and better for the future. The other main direction I will look at is obviously we need to continue to build our brand. RCR is a brand that's a very strong and well-known brand, but we're new to hardware, so we'll continue to drive brand building and also to expand our sales channels. We'll obviously continue to monitor closely the efficiency of our online sales channels, which really goes from you know, live streaming to the, you know, mainstream e-commerce platforms. But we'll also start to, you know, explore opportunities in more offline channels. We believe these channels will actually bring opportunity for, you know, more customers to engage in a conversation with us, right? To, you know, to look at what are the possible impacts that this device could bring to their kids. And, you know, I think we'll also be able to reach a larger set of customer segments in the future. So, Timothy, I hope that answers your question.
spk04: All right. Thank you, Timothy. Our next question comes from the line of Chinese Wang from CICC. Please ask your question, Chinese.
spk03: Good evening, Alex and Jackson. Thank you for taking my question. Actually, my question is, the company still has a big amount of cash in hand. So how are we considering our cash usage? And do we have any plans on further improving the shareholder returns? Thank you.
spk07: Thanks for the question. And this is Jackson. I'll take this one. Look, like you said, the company has almost 3.6 billion U.S. dollars in cash and cash equivalents, short-term investments, and restricted cash as of February 29, 2024. When we think about potential use of cash, there are several factors we think about and we try to balance. One is we try to balance between short-term and long-term development. A second is that we try to balance re-investing into the business and generating shareholder returns. As of now, a few areas of cash usage that are on our mind are, one, is that we'll maintain a steady investment pace into a core business segment. to deliver high-quality products and create value for customers in their learning journey. And second is we'll fund new business initiatives that are still, you know, some of them I talked about on the call or during our previous conversations. We want to fund these new business initiatives that are still in exploratory phases. and will continue to explore new opportunities as the industry evolves. And lastly, We always seek, you know, diversified means to generate shareholder returns, one of which could be stock repurchase. I talked about the buyback program that the board authorized, which was extended for another year and allow us to purchase up to 500, roughly 500 and 4 million U.S. dollars in considerations. So that's kind of how we think about cash usage for now. I hope that answers your question, Tiny.
spk04: Thank you, Tiny. We have now reached the end of the question and answer session. I'd now like to turn the conference back to the management team for closing comments.
spk06: So this is Alex again. Thanks, everybody, for participating in today's call, and we'll See you next quarter. Thanks and bye-bye.
spk04: That concludes today's conference call. Thank you for participating. You may now disconnect.
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