TAL Education Group

Ladies and gentlemen, good day and thank you for standing by. Welcome to TEL Education Group's fourth quarter and fiscal year 2025 earnings conference call. At this time, all participants are in a 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. I would now like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead.

Thank you all for joining us today for TAO Education Group's fourth quarter and fiscal year 2025 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 Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Ms. Peng and Mr. Ding 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 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 limited to those outlined in our 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 include discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. I would like to turn the call over to Mr. Alex Peng. Alex, please go ahead.

Thank you, Fang. I'd also like to thank all of you for participating in today's conference call. So I'll begin with an overview of our business progress for the fourth quarter and full fiscal year 2025. Next, Jackson will review our operational advancements and financial results. To conclude, I'll also provide a brief update on our strategic priorities and outlook moving forward. So with that, let's get started with our core business performance this fiscal year. To begin with, our learning services delivered steady growth in fiscal year 2025. really empowering learners through both offline and online enrichment programs. An uptick in user demand and our relentless focus on high-quality learning experiences were really the key drivers of this progress. During the past quarter, we strategically added new enrichment learning centers in existing cities. providing local communities with more accessible and convenient learning opportunities. Our online enrichment learning business also remained healthy, consistently providing engaging learning experiences through technology-driven learning products. Over the past year, we conducted in-depth analysis of user preferences and tailored the development of new products to better meet their needs. We also continue to refine listing offerings based on user feedback. And we enhance teaching effectiveness by integrating smart interactive features to boost user engagement. Then for learning devices, we expanded our product offerings to reach a broader user base, making it easier for users to find the right learning solutions for their needs. We also integrated more smart features and learning resources to better support users on their self-learning journeys. Through monthly feature updates and content refresh, we provided users with an increasingly intelligent and practical study companion, making at-home self-learning more engaging and efficient. So with this operational momentum as a backdrop, let's turn to our financial highlights for the quarter and the full year. In the fourth quarter, we recorded net revenues of $610.2 million U.S. dollars or 4.44 billion RMB. reflecting year-over-year growth of 42.1% and 44.3% respectively. On a non-GAAP basis, loss from operations was $1.7 million, while net income attributable to TAL reached $7 million. For the full fiscal year, net revenues totaled $2.3 billion, or 16.2 billion RMB, up 51.0% and 52.2% year-over-year respectively. Non-GAAP income from operations amounted to 61.8 million U.S. dollars, with non-GAAP net income attributable total at 149.5 million U.S. dollars. Before Jackson takes us through the detailed operational and financial review, I'd like to share a brief update from the board. We are delighted to welcome Mr. E. Wang as TAO's new independent director and chairman of the compensation committee. Mr. Wong brings extensive experience across both the business and education sectors, and we are confident that his insights will further strengthen Tile's strategic direction, governance, and operational excellence. We also want to express our deep appreciation to Dr. Wei-Wu Chen for his outstanding service and invaluable contributions over the past decade. We look forward to continue our collaboration with Dr. Chan in his new advisor role. So with that high-level overview complete, I'll now pass the call to Jackson to delve deeper into our operational execution and detailed financial performance. Jackson. Thank you, Alex. Before diving into the details, I'd like to note that all quarterly financial figures discussed today are unaudited. I'll start with our learning services and others business, which includes a broad range of learning programs for our customers. Learning services sustained its revenue growth momentum in the fourth quarter of fiscal year 2025. fueled by advancements across multiple product lines. Over the past few quarters, revenue from PAO small class enrichment programs has achieved year-over-year growth. We have consistently provided high-quality services, earning positive feedback from both the learners and their parents. While we have expanded our Learning Center footprint, we've maintained a disciplined approach. We're carefully evaluating market demand, user feedback, and operational efficiency to balance growth with quality. This approach has been further validated by key operational metrics and has directly contributed to year-over-year enrollment growth. Notably, The retention rate for Payo's small class reached 80% this fiscal quarter. In our online enrichment learning business, ongoing innovation has helped us navigate the ever-evolving market landscape and our users' dynamic needs. Guided by user feedback and market insights, We're continually investing in strengthening our online product capabilities and refining our operational and marketing strategies. Through new products and interactive formats, we deliver tangible value to learners, enhancing both learning outcomes and user experiences. Recent initiatives include interactive learning modules, and AI-powered assistance. Additionally, by building diverse customer touchpoints across multiple channels, we're expanding our market reach among current and potential users and gaining deeper insights into their needs. This has enabled us to scale our operations while laying the foundation for sustained long-term competitiveness. Next, let's turn to our content solutions business. Our learning devices business grew year over year in the fourth fiscal quarter, fueled by our enhanced product development and go-to-market capabilities. We have expanded our learning devices product portfolio to appeal to a wider audience in the past year. We also further upgraded our hardware and software, enriching our content library, refining the reading experience, and integrating practical AI features to create more immersive self-directed learning. This February, We further enriched our content across our entire range of learning devices. By providing fresh and classic materials with progressively challenging exercises, we keep students engaged while developing their ability to question, analyze, and problem solve. Our unique ladder approach, which guides children step by step with tailored hints, helps them build confidence as they master new skills. To strengthen foundational literacy, we launched a seamless graded reading system covering early education through high school with age-appropriate tools like phonetic aids for young learners and interdisciplinary content for older students. Through partnerships with over 20 publishers, we have expanded our library to include thousands of titles. Thanks to our enhanced product capabilities, our learning devices have sustained solid user engagement while reaching a broader audience, notably As our active user base continues to grow, the weekly active rate has remained stable at around 80%, with an average daily time spent of approximately an hour per device throughout the quarter. Next, please let me now review our financial performance for the quarter. The company reported net revenues of $610.2 million, or 4.44 billion RMB, representing a year-over-year growth of 42.1% in U.S. dollar terms and 44.3% in RMB terms. This increases were attributable to the growth in both our learning services business and our content solutions business. Now, looking at costs. Cost of revenues rose 44.7% year over year to $292.6 million from $202.2 million. When excluding share-based compensation expenses, Non-GAAP cost of revenues moved 46.1% higher to $291.7 million compared to $199.6 million in the same quarter last year. Gross profit stood at $317.6 million, which was 39.7 above the prior year period. Gross margin was at 52.0% compared to 52.9% from the same period last year. Turning to operating expenses, selling and marketing expenses for the quarter were $218.0 million, up 73.1% from the prior year. the non-GAAP equivalent of these expenses increased 77.9% to $214.3 million. As a percentage of net revenues, non-GAAP selling and marketing expenses accounted for 35.1% versus 28.0% in the prior year period. with the change mainly resulting from increased selling and marketing activities through some online channels. General and administrative expenses increased 0.8% to $118.2 million compared to the same period last year. The non-GAAP measure showed a 3.5% rise to $108.5 million. However, as a percentage of net revenues, non-GAAP general administrative expenses decreased from 24.4% to 17.8%. Total share-based compensation expenses declined 30.1% to $14.3 million from $20.5 million in a comparable period. Loss from operations was $16.0 million for the quarter. This compares to a loss from operations of $11.1 million in the same period last year. On a non-GAAP basis, the loss from operations was 1.7 million U.S. dollars compared to non-GAAP income from operations of 9.4 million U.S. dollars in the same period of last year. Net loss attributable to Tao was 7.3 million U.S. dollars for the quarter. While in the same period last year, there was net income attributable to Tao of $27.5 million. Non-GAAP net income attributable to Tao was $7.0 million versus $48.0 million in the same period last year. Regarding our cash position as of February 28, 2025, we held $1.77 billion in cash and cash equivalents, along with $1.85 billion in short-term investments. and $220.5 million in restricted cash. Our deferred revenue balance was $671.2 million a quarter end. In terms of cash flow, net cash used in operating activities was $226.3 million during the quarter. For the full fiscal year 2025, net revenues were 2.3 billion US dollars or 16.2 billion RMB. Reflecting year over year increase of 51.0% in US dollar terms and 52.2% in RMB terms. Gross profit was 1.2 billion US dollars 48.9% higher than the previous year. Lost from operations was 3.2 million US dollars in the fiscal year 2025 compared to lost from operations of 69.2 million US dollars in fiscal 2024. On a non-GAAP basis, Income from operations was 61.8 million U.S. dollars versus 19.7 million U.S. dollars in the prior fiscal year. On the bottom line, net income attributable to TAO came to 84.6 million U.S. dollars compared to a net loss attributable to TAO of 3.6 million U.S. dollars in fiscal 2024. non-GAAP net income attributable to TAO was 149.5 million U.S. dollars, while previous fiscal year showed 85.3 million U.S. dollars. Finally, I'd like to briefly address our Shared Repurchase Program. In April 2025, The company's board of directors approved a 12-month extension of its share repurchase program, originally launched in April 2021. Under the extended program, the company may spend up to approximately $490.7 million to repurchase its common shares through April 30, 2026. In fiscal 2025, the company had repurchased 0.5 million common shares for a total consideration of approximately 13.1 million U.S. dollars under the program. That concludes my review of our business performance and financial updates. Alex, I'll now hand the call back to you for our outlook. Thanks, Jackson. Overall, we believe fiscal year 2025 laid a solid foundation for our future developments. Now I'd like to share insights into the company's strategy and outlook for fiscal year 2026. So first, we remain committed to sustainable growth in our core business lines. we will continue to uphold the high quality standards for both our offline and online enrichment learning products and services to deliver quality programs to an even broader user base. We anticipate that our learning services will continue to be our largest revenue stream in the new fiscal year. Beyond learning services, we're also focused on expanding our learning content solutions. we will continue scaling this business thoughtfully, refining our content and device features, and leveraging technological advancements, particularly AI-driven features, to enhance learning outcomes. As our business continues to evolve and grow, we're actively exploring new fields and emerging sectors to extend our core business line's reach. Along the way, we're also steadily strengthening our channel capabilities, building brand recognition, and deepening our engagement with a new generation of parents and learners. Through these efforts, we're consistently gleaning valuable insights from outstanding companies across various industries, and we'll continue to refine our growth strategies accordingly in the upcoming fiscal year. Secondly, we're committed to ongoing innovation at the intersection of learning and technology. By integrating cutting edge AI with pedagogical expertise, we seek to meaningfully improve both learning and teaching experiences. Looking ahead, we'll continue to enhance our products and services to meet the evolving demands of digital learning redefining intelligent learning solutions for the AI era. Throughout history, every major technological breakthrough from television to computers and the internet has found its way into education. Today, we are discovering and shaping how AI can transform learning and integrating these advancements into our products and services. We also remain open to collaboration and knowledge sharing, ensuring that our insights into smart learning contribute meaningful value to the education community. Finally, we will focus on refining operation details to boost overall efficiency and profitability. While we expect to benefit from economies of scale as our revenue grows, efficient management will be increasingly critical as our operations expand and become more complex. We'll closely monitor efficiency metrics across all business lines and make timely adjustments to optimize every aspect of our operations. including content creation, product R&D, sales, marketing, and beyond. So that concludes my prepared remarks. Operator, I think we are ready to open the call for questions.