Yahoo Finance TAL Education Group (NYSE:TAL) Q4 2024 Earnings Call Transcript
TAL Education Group (NYSE:TAL) Q4 2024 Earnings Call Transcript April 25, 2024
TAL Education Group beats earnings expectations. Reported EPS is $0.04, expectations were $-0.06. TAL Education Group isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: 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. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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.
Jackson Ding: 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.
Alex Peng: 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 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 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 Number 1 in national rankings. From basic arithmetic to advanced series of mathematics, the MathGPT LLM delivers responses to a student's learning experience. In terms of our financial performance, we recorded net revenues of $429.6 million or RMB3.08 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 million, respectively. For the full fiscal year of 2024, we reported net revenues of $1.5 billion or RMB10.7 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 $85.3 million, respectively. We also reported positive non-GAAP net profit during the whole year, which was $84.8 million. And with that, I will now hand over the call back to Jackson, who will 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.
Jackson Ding: 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 expanded 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 xPad stood out as a key contributor to our Content Solutions business's 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 new 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 AI-enabled learning tools for math problem solving, Chinese or English ethic 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 $429.6 million or RMB3.08 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 $202.2 million from $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 $199.6 million from $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 $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% to $120.4 million from $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 $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 of fiscal year 2024 from $26.3 million in the same period of last year.
Loss from operations was $11.1 million in the fourth quarter of fiscal year 2024 compared to loss 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 compared to non-GAAP loss from operations of $18.1 million in the same period of 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 $39.4 million in the same period of last year. Non-GAAP net income attributable to TAL was -- which excluded share-based compensation expenses was $48.0 million compared to non-GAAP net loss attributable to TAL of $13.1 million in the same period of last year.
Moving on to our 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 $1,490.4 million or RMB10.7 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 $806.1 million. Loss 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 TAL was $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 $85.3 million compared to non-GAAP net loss attributable to TAL of $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 $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 at an aggregate consideration of approximately $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 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.
Alex Peng: Thanks, Jackson. As highlighted throughout this call, during fiscal year 2024, for Learning Services, we extended our learning center footprint, developed additional learning programs catering to various user groups' specific need 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 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 interactions. 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 collaborations and share our findings with the hope of contributing some valuable insight 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 sectors 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.
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