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Ladies and gentlemen, good day and thank you for standing by. Welcome to TAL Education Group's Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please be informed that today's conference is being recorded. I'd now like to hand the conference over to Mr. Jackson Ding, Investor Relations Director. Thank you. Please go ahead, sir.
Thank you, operator, and thank you all for joining us today for 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 newswires. 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 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 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 the non-GAAP measures to the most directly comparable GAAP measures. I would like to turn the call over now to Mr. Alex Peng. Alex, please go ahead.
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 this fiscal quarter we continued to manage our Learning Services programs to serve users who seek engaging and effective learning experiences. Our Peiyou small class and xueersi.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 the 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, [ xPad2 Pro ] and [ xPad2 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 model's mathematical abilities, our MathGPT large language model, recently ranked #1 in national rankings. From basic arithmetic to advanced series of mathematics, the MathGPT LLM delivers responses to a students learning experience.In terms of our financial performance, we recorded net revenues of USD 429.6 million or RMB 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 USD 9.4 million and USD 48 million respectively. For the full fiscal year of 2024, we reported net revenues of USD 1.5 billion or RMB 10.7 billion, 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 TAL for the quarter were $19.7 million and USD 85.3 million respectively. We also reported positive non-GAAP net profit during the whole year, which was USD 84.8 million.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.
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 other 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 investments across our various product lines. Our online and offline enrichment learning programs continue to serve as a primary revenue generator for 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 Peiyou small class programs maintained its trajectory of year-over-year growth in this period. This was attributable to, amongst 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 have 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 new 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, Xueersi xPads stood out as a key contributor to our Content Solutions business revenue growth. Revenue generated from our learning devices and continued on its path of growth in fiscal fourth quarter, thanks to our launch of a couple newer products in our xPad series, xPad2 Pro and xPad2 Pro Max. The latest xPads feature enhanced hardware and software capabilities, abundant embedded learning resources and AI functions from a self-developed large language model MathGPT. For example, customers can use our in 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 level. 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 expand our products market. With that overview, I would now like to share our key financial results for the quarter. We recorded net revenues of USD 429.6 million or RMB 3.08 billion, 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 USD 202.2 million from USD 127.7 million in the fourth quarter of fiscal year 2023. Non-GAAP cost of revenues, which included -- which excluded share-based compensation expenses, increased by 59.8% to USD 199.6 million from USD 124.9 million in the fourth quarter of fiscal year 2023.Gross profit also increased in the fourth quarter of fiscal 2024, rising by 60.9% from USD 141.3 million for the same period last year to USD 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 USD 125.9 million, representing an increase of 69% from USD 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% to USD 120.4 million from USD 66.9 million 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 USD 117.2 million from USD 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 USD 104.9 million from USD 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 USD 20.5 million in the fourth quarter of fiscal year 2024 from USD 26.3 million in the same period of last year.Loss from operations was USD 11.1 million in the fourth quarter of fiscal year 2024 compared to a loss from operations of USD 44.4 million in the same period of last year. Non-GAAP income from operations, which excluded share-based compensation expenses, was USD 9.4 million compared to non-GAAP loss from operations of USD 18.1 million in the same period last year. Net income attributable to TAL was $27.5 million in the fourth quarter of fiscal year 2024 compared to net loss attributable to TAL of USD 39.4 million in the same period of last year. Non-GAAP net income attributable to TAL was -- which excludes share-based compensation expenses, was USD 48.0 million compared to non-GAAP net loss attributable to TAL of USD 13.1 million in the same period of last year.Moving on to our balance sheet. As of February 29, 2024, we had USD 2,208.7 million of cash and cash equivalents, USD 1,094.6 million in short-term investments and USD 248.7 million in current and noncurrent restricted cash. Our deferred revenue balance was USD 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 USD 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 USD 1,490.4 million or RMB 10.7 billion, 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 USD 806.1 million.Loss from operations was USD 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 TAL was USD 3.6 million in the fiscal year 2024 compared to net loss attributable to TAL of $135.6 million in the previous fiscal year. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses was USD 85.3 million compared to non-GAAP net loss attributable to TAL of USD 27 million in fiscal year 2023. That concludes the financial highlights section.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 USD 737.4 million of its common shares through April 30, 2024. As of August 31, 2023, the company had repurchased 13.4 million common shares and an aggregate consideration of approximately USD 233.6 million under the share repurchase program. We did not make any additional purchases in the fourth quarter of fiscal year 2024. In April 2024, TAL's Board of Directors has authorized to expand 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.
Thanks, Jackson. As highlighted throughout this call, during fiscal year 2024 for Learning Services, we expanded our learning center footprints, develop additional learning programs catering to various user group's specific needs and also manage our operational efficiencies. 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 fiscal 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 business factors and make timely adjustments to optimize each stock 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.
[Operator Instructions] Our first question comes from the line of Candis Chan from Daiwa.
And also congratulations on the 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 would be the key investment focus for this year?
Thanks, Candis. 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 this 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 will just sort of answer both of your questions in 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 continue to show robust growth. We'll obviously continue to innovate to explore and design differentiated products and services that really fits with all segments of our customers and all learning scenarios and to provide them with was an integrated experience and an integrated learning journey. We'll obviously continue to invest in artificial intelligence. I think I 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. We'll continue to refine the details of our operations to enhance overall efficiency and profitability. And this really, I think it goes across the entire chain of operation. You go from content generation to product R&D to sales and marketing. So Candis, I hope that answers your question.
Our next question comes from the line of Linda Huang from Macquarie.
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 more color regarding for your learning center expansion at the end of the previous quarter? And then for FY '25, how do you gauge the market demand and expansion plan?
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 into more students, I think we 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. Look, 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 look at the geographical density of that demand. We'll look at user response to our products and services, whether it's positive. And 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, when I look at our Peiyou enrichment learning programs, they're really designed to help users develop a multifaceted set of capabilities. They need to apply what they learn into real-life situations. They need to develop their own thoughts from different perspectives and really foster a full person development approach. So 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, I think we're seeing signs, very good signs of visible growth path. We'll continue to expand our learning center network to meet user demand in the upcoming year. I think we'll stick to a dynamic and balanced approach, right, really taking market demand in a particular area in particular and particular city or district, how customers are responding to our products and services, our own operating capabilities, especially our teams on the ground, the frontline 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 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.
Our next question comes from the line of Felix Liu from UBS.
Congratulations on the strong fourth 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 the online investment 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?
Felix, thanks for the question, and this is Jackson. I'll take this one. When we look at the online enrichment learning business or the industry really, we see this as a dynamic market landscape, especially over the last couple of years we see user experience has gradually evolved in this particular landscape. Now before I get into the future, maybe let me just talk a little bit about kind of what happened in this quarter with our online enrichment business. In this past fiscal Q4, our online enrichment learning business maintained its course of operations. We also refined our operational efficiency while at the same time explore 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 and a digital learning experience to a broader audience, right? You asked about investment plan. I would say it's less about increased or decreased investments. It's more about making sure that we deploy the resources needed to provide our customers with high-quality learning experience. So looking forward, we -- 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 our 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.
Our next question comes from the line of Timothy Zhao from Goldman Sachs.
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 the I think your plan to further make the business line more sustainable into the longer term?
Thanks, Timothy, this is Alex. 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 2 new products in this quarter xPad2 Pro and xPad2 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 ever larger user base, and that's critical. And I think another interesting thing that we are observing is 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 I think that's showing early signs that these tools actually become great companions for students as they learn on their own in their homes, according to their own style and learning profile. So going forward, I really look at sort of 2 main directions. I think obviously the first one is to continue to improve our products. We just launched the hardware, new hardware. This is coming on about 10 months since we first launched [ xPad1 ]. 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 further improvement on the hardware design, additional high-quality content and those artificial intelligence learning tools to continue to enhance the learning engagements, 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, our share as a brand as 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 motor closely the efficiency of our online sales channels, which really goes from live streaming to the mainstream e-commerce platforms. But we'll also start to explore opportunities in more offline channels. We believe these channels will actually bring opportunity for more customers to engage in a conversation with us, right, to look at what are the possible impact that this device could bring to their kids. And 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.
Our next question comes from the line of Caini Wang from CICC.
Actually my question is the company still has a big amount of cash in hand. And so how are we considering our cash usage? And do we have any plans on further improving the shareholder returns?
Caini, thanks for the question. And this is Jackson. I'll take this one. Look, like you said, we -- the company has almost USD 3.6 billion 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, right? One is we try to kind of balance between short-term and long-term development. The second is that we try to do balance, to reinvest into the business and generate shareholder returns. As of now, a few areas of cash usage that are on our mind are, one, is that we'll maintain a kind of steady investment pace into our core business segments 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 -- some of them I talked about on the call or during our previous conversations. We want to spawn these new business initiatives that are still in exploratory phases. And we'll continue to explore new opportunities as the industry evolves. And lastly, we always seek 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 USD 504 million in considerations. So that's kind of how we think about cash usage for now. I hope that answers your question, Caini.
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.
So this is Alex again. Thanks, everybody, for participating in today's call, and we'll see you next quarter. Thanks, and bye-bye.
That concludes today's conference call. Thank you for participating. You may now disconnect.