Q1 2023 TAL Education Group Earnings Call

Okay.

Ladies and gentlemen, good day and thank you for standing by welcome to T. L Education Group first quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be question and answer session.

Please be informed todays conference is being recorded.

I would now like to hand, the conference over to Mr. Jackson, Ding Investor Relations director.

Please go ahead Sir.

Okay.

Thank you operator, thank you all for joining us today for Tal Education group's first fiscal quarter 2023 earnings conference call.

The earnings release was distributed earlier today and you may find a copy on the Companys IR website or through the newswires.

During this call you'll hear from Mr. Alex Combs.

President and Chief Financial Officer.

And myself.

Strong relations director.

Following the prepared remarks, Mr. Paul and I will be available to answer your questions.

Before we continue please note that today's discussion 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.

Risks and uncertainties include but are not limited to those outlined in public filings with the SEC.

For more information about these risks.

Ts.

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.

Most directly comparable GAAP measures.

I would like to now to turn the call over to Mr. Alex Paul Alex Please.

Thanks Jackson.

And thank you all for joining us on today's call.

I think it was exactly three months ago to the dates.

For 2019, which also happened to be a Friday.

We last spoke.

And I really look forward to sharing with you today on some of the progress we've made in restructuring and transforming our business.

Let's go first with the numbers.

The first quarter ending on May 31, 2022.

We recorded $224 million in revenue for the quarter.

One 8 million in non-GAAP operating loss.

17, 4 million and non-GAAP net loss attributable to <unk>.

As a reminder.

We seize offering canine after school tutoring services on academic subjects in the mainland of China as of December 31, 2021.

So all of revenues for the first quarter was contributed by our current business.

It's awful establishes a new starting point for our future developments.

Our performance this quarter I would really like to note demonstrates the combined efforts of our experienced management team innovative employees and our extensive business partners.

In the process of our transformation.

We're focused on developing new initiatives.

The mega trends in our industry.

The broader ecosystem.

This is really like.

The hockey phrase.

Getting to where the puck is going.

Next Jackson will update you on the operational departments in our current business.

The first quarter financial results after that.

Great you on our business strategy and then we'll open the floor for questions.

So Jackson. Please go ahead.

Thank you Alex.

Now I would like to share with you more details on the development of each of our three business lines.

Including one learning services and other.

Content solutions at three learning technology solutions during this past quarter.

Please note that the financial data for each business line mesh at below is based on unaudited data for the quarter.

First is the learning services and other.

Which primarily includes the learning programs. So we provide a various class sizes, both online and offline.

This includes <unk> <unk> small class <unk> <unk> dot com <unk>.

<unk> Academy.

And other learning services businesses.

During the quarter.

Learning services and other accounted for approximately 70%.

Of our overall revenue.

Maintaining its position as our largest revenue contributor.

With the learning services.

I'd like to first talk about enrichment learning programs.

Which aimed at helping with learners or around development.

In the first quarter we.

We improved products and services of all existing programs, leveraging our expertise and use us learning journey as well as our knowledge and pedagogical methodologies.

In addition to our current programs cover covering science and creativity.

Loading of programming and.

The humanity and aesthetics.

We also rolled out new programs, such as international Chess rhetoric.

And natural size for learning.

In a time when COVID-19 continues to post complexities for offline operations.

Our <unk> model demonstrated its resilience.

Many of our offline customers opt to take their classes online with us mitigating the impact of the pandemic.

As the pandemic normalizes, we believe that being online will be an inevitable trend for learners going forward.

Okay.

I will also like to share some progress of our overseas learning services.

<unk> achieved a year over year triple digit growth rate in the last quarter.

We operate in that I think academy brand outside of the mainland of China.

Providing diversified programs for K 12 students.

And the last quarter.

In addition to learning centers, we already have in Singapore, the United Kingdom, and the United States.

We also started doing business this in new locations such as Canada.

Moving forward, we expect learning services to make to remain our primary revenue contributor.

At the same time, while proactively exploring new opportunities in terms of program expansion domestically.

Market expansion globally.

Secondly content solutions is one of the initiatives we have explored in depth.

The beginning of our transformation into a smart learning solutions provider.

With this business line, we offer academic and non academic learning content in both print and digital formats by leveraging the broad content library, and we accumulated over the company's history.

As well as the content acquired or licensed from our domestic and global partners.

Total revenue generated from our content solutions business for the quarter accounted for more than 10% of the overall net revenue.

Driven by product expansion as sales growth.

As for products.

A product format that hasnt been particularly well received by our customers as smart box.

Sure Jeff.

Smart book is a product format, where we embed videos onto print books.

These.

This is al.

Yes.

Okay.

Sure.

Okay.

I apologize.

Yeah.

Thanks.

Okay.

Okay.

Understood.

Okay.

Yes.

Sure.

Hello.

Okay.

Janet Hong Kong, Australia and elsewhere.

Sure.

Okay.

Okay.

Actual claims.

Okay.

Okay.

Research.

Operator can you hear me.

Yes.

Okay.

Sure.

Operator cant guarantee.

We can hear you again, Tim can you.

I apology my apologize for the technical difficulties here and I Hope you can all caveat.

Before I got cut off I'll last nationally that content solutions business is still in its early stage, we remain committed to investing in this business and developing our products et cetera.

30 learning technology solutions provider.

We defer enterprise grade technology products and services.

Educational institutions.

Total revenue for the quarter accounted for around 15%.

Overall net revenue.

The offering which cover the entire value chain across the annuity.

Including our posture.

Pumpkin development teaching support and.

And the only sensor management.

It is gratifying to see end of last quarter whole product being adopted by our institutional clients.

And a trend.

P them improve their own user engagement and operational efficiencies.

We remain committed to fundamental R&D related to our business.

Which is why in this last quarter, we were delighted to see.

Our AI vision research team won two computer vision Championships.

The CVP.

Our computer vision and pattern recognition conference hosted by he exits you.

Mexico.

<unk> continues.

Moving on to financial results for the first quarter, our net revenues totaled 224 million U S dollars.

Representing 880.

<unk> 83, 8% decrease.

<unk> 1 billion $384 9 million in the same period last year.

The declining revenue was primarily driven by a secession or pay through nine.

A character in IFC services static subjects and the government of China.

Gross profit declined by 82, 4% to $135 5 million from.

771, 8 million U S dollars.

Thank you <unk>.

While our gross margin increased from 56% to 60%.

Selling and marketing expenses decreased by 86, 1% to $60 million.

<unk>.

431, 3 billion in the same period last year.

non-GAAP, selling and marketing expenses, which excluded share based compensation.

Decreased by 87 point to year over year to $52 million from $407 4 million in the same period last year.

The year over year decrease was primarily a result of the reduction in marketing promotion activities.

General and administrative expenses decreased by 66, 3% too.

$111 5 million from $331 1 million in the first quarter.

Okay.

non-GAAP general and administrative expenses, which excluded share based compensation costs.

Decrease year over year.

By 66, 9% to 95 4 million from 288 million the same period last year.

Loss from operations for the quarter decreased by 77, 7% year over year to $28 3 million.

$126 9 million in this quarter.

non-GAAP loss from operations.

Which excluded share based compensation expenses was $1 8 million U S dollars compared to $59 4 million in the same.

Period last year.

The year over year decrease in operating loss was primarily driven by the succession.

Kate them deny authentic tea services.

In mainland China.

Same time our.

New initiatives are still in their nascent stages of development.

Net loss attributable to common was $43 8 million U S dollars in the quarter compared with $102 1 million in the same period last year.

non-GAAP net loss attributable to Tal, which excluded share based compensation expenses.

$17 4 million compared with $34 6 million in the same period of months.

For Beijing.

So for the first quarter.

Paired with 187 7 million.

As of the end of February 'twenty, eight 2022 representing an increase of 21, 1%.

Now I'll hand, the call back over to Mr. Alex commented briefly update you on our business strategy in the house.

Please go ahead, thanks Jackson.

Let me update you on our desktop search development strategy.

We continue to transform our business into a smart <unk> solutions provider, we're really encouraged by the trends demonstrated by our current business in the last quarter.

We believe Taos trusted brand operational excellence.

Apple and technology know, how well positioned the company toward the transformation journey, we are embarked.

As I mentioned last quarter, we look at our bis helps us in three buckets.

<unk> service with some other contents solutions and technology solution I'll go through those one by one.

First of all learning services and other customers continue to execute our existing programs.

Before launching a few new programs.

We believe <unk> services are beginning to demonstrate a viable business model.

And we'll continue to drive the business around.

Our pulp mill expansion.

<unk> optimization.

And operational efficiency.

Secondly.

For content solutions.

We're seeing a robust market demand for innovative and integrated product format.

We'll continue to expand our product offerings and the investments in building our diversified sales channels.

Although the vessels or results might fluctuate in certain quarters.

Due to seasonality.

Moving ahead, we expect our content solutions business to contribute a more significant proportion to the overall revenues in FY 2023.

Thirdly regarding learning technology.

Thank God knows what blacks pilot, we're really looking at an opportunity.

Digital transformation for our whole industry and our extended ecosystem.

We believe our Lurgan technology solutions will help our institutional customers, what's their user experience and operational efficiency.

In the quarters to call, we aim to develop new customers.

To create more value for our existing customers.

Last time.

I mentioned four words.

Which we believe really underlies the mega trends of the education industry.

Those are online digital intelligence can okay.

Our license.

Just begun.

The.

Long and are sure argues transformers transformational journey.

Towards that future.

We're seeing not only new opportunities.

But also new challenges.

Our focus at this current stage really building a solid foundation for the business in the years to come.

We remain key shifts and positive.

In this transformation journey.

As I come to the end of my prepared remarks.

I'd like to really.

Paraphrase our mission statement.

We are ever more committed to laugh and technology, creating a better future and better life.

That concludes my prepared remarks, operator, we're now ready to open.

Thank you.

Ladies and gentlemen to ask that question you would need to press star one one on your telephone please limit to one question at a time, please standby, while we compile the Q&A roster.

Our first question comes from the line of John Liang from <unk> Securities. Please ask your question.

Sure.

Okay Army management team.

Yes.

Okay.

Hey.

Net income for the mutation and congratulations on the business farmers.

How has the pandemic lockdown situation of this quarter impacting the company's business and how do you evaluate impacting future.

Thank you for that question. This is Alex let me take that one on so first of all I think during this entire period as we look at how businesses of Covid spring up in different parts of.

China, Our first hospital to all those who are affected by those.

And to our customers to the students and parents.

We have actually had the opportunity to.

What students are parents.

And.

Guide us to.

To continue with their learning online.

We've also made efforts to ensure that the learning quality and <unk>.

<unk> remained high.

As you can switch across different formats.

We've also made upgrades to our technology's performance and Craig who will be designed to accommodate so central Asia.

In places where the conditions have improved.

Some of our offline learning center, some larger league the openings.

Therefore, I think.

Although the pandemic does have impact on our overall learning services. It does not change the viability of your customers.

I would also like to mention that.

Yes.

Past few months, we've also seen disruptions to supply chains across many industries.

I mentioned four learning our content solutions, we are adding.

Our printed books, which also rely on supply chain for production and delivery.

I think we've all Ho Hum zero, those periods with more experience and operational Knowhow.

Manish a distributed network of logistics for that vessels going forward.

Lastly, I would just like to add.

Think as the situation stabilizes normalized.

Really we focus on Macau, the attitudes behaviors obscure knows how they each launch.

And really are building the infrastructure to deliver high quality services online and I think that really has become the consensus for the industry.

In fact in the last quarter online programs contributed to the majority of our all of our revenue in Richland learning programs.

I hope that answers your questions.

Sure.

Thank you.

Our next question comes from the line of Kansas Chang, Kansas. Your line is now open. Please ask your question.

Hello, Hi.

Alex Thank you hear me.

Yes, we can.

Yeah. So thank you all right. Thank you for taking my question and I said that this quarter the gross margin actually has.

Please proceed.

Even though even though the revenue.

Sequentially, our which is very impressive so may I know, how many learning centers.

<unk> has now and also what is your problem.

Expansion plan for this year and also next year and finally and follow up is that.

With the capacity become a cost for us to grow the learning services. Thank you.

Yes, thanks for the question.

All of the business restructuring and loss share we have.

<unk> taken a balanced approach to adjust our online presence.

And in doing so we wanted to ensure all client.

Learning centers offer sufficient geographic coverage.

And can also operate was efficiency.

The way, we look at learning centers at that Theyre, not only an indispensable claris lawsuit.

Communicate and engage with our parents and learners.

But also in an attractive channel to establish and enhance our brand awareness.

At the end of this last quarter.

We had.

Somewhere between 100, and 150 learning centers in more than 30 cities and regions.

Also as Alex mentioned earlier, we have spent a good number of our students moving online and we believe online will continue to be the industry.

So you asked about expansion priority here as we are proactively developing our online programs and diversifying our products and business models. We believe that offline learning center is just one of the many ways, we can grow our business.

I hope that answers your question.

Okay.

Thank you.

Our next question will come from Mark Li from Citi. Mark. Your line is now open. Please ask your question.

Okay.

Hi management. Thank you very much for the presentation.

Mark Li from Citi.

Just a question on the enrichment lending program could you share a bit more on the operating metrics such as our retention rate and the ESP and any more subject. All caucus you may expand boundary road. Thank you.

Yes.

Excellent question.

I will say our enrichment.

<unk> team and investments have been primarily focused on two things one is a product of service vendor vaccination across various enrichment programs.

Two.

Finding the right learning processes and user journey for our learners and improving satisfaction.

We believe operating metrics are and results.

As such.

Operational focuses.

At this point enrichment Army business is still in its early stage, we are still in process of optimizing various operational metrics.

We also see some early trends of this business.

ASP for the quarter remains relatively stable compared to two banner before whole business restructuring.

You also asked about retention for certain subjects retention rates are very close to that of academic theory in the last few years volatile other subjects retention rates.

Still significantly below pre restructure level.

In terms of subject expansion, we did rollout rhetoric international chess and natural science learning.

And the last demos and we'll continue to look for program expansion opportunities.

Share more details of the business reaches its master ballot.

I hope that answers your question Mark.

Thank you.

Our next question comes from Lee <unk> from CIBC Leaping. Your line is now open. Please ask your question.

Sure Good evening, Eric and Jackson. Thanks for taking my question I'm wondering whether you could talk a little bit more.

On the development strategy of your content solution business. Thank you.

Excellent. Thanks. This is Alex for me.

Take that one on.

I've actually had the opportunity of suspect quite a bit of time.

With our content solutions teams.

So let me talk about this.

Across a few dimensions.

First.

I think from a strategic press factor, we look at the.

As one of the key.

Leading edge for arc has formation.

Toward a smart learning solutions provider.

When we look at the customer demand.

From the beginning of the pandemic as to the last couple of years with really sand and accelerated change the dawning happens.

We are also seeing very strong demand.

Our high quality.

This is highest concerns.

In constant across an ever more diverse supplies.

Number of areas. So I think this is a really.

It's a long term loss trends.

Going forward.

<unk> family as well.

We know the.

The kind of healthy.

Sure.

Thanks.

It is difficult comp sorry.

We also believe that educational content needs to be matched with the appropriate interactive design.

Services processes and technology.

To really assure learning efficacy.

Looking forward.

I've mentioned this last time.

We really strive to her.

Provide an integrated experience.

World Class first party.

And third party Constance.

Across the entire learning journey.

And lastly, I'll just also like to mention that.

As we look at content solutions for us.

We're really experimenting more.

Always.

Yes.

Sales channel growth.

For this business.

We have been.

Providing our products our e-commerce platforms. We've also started to.

Rollout our products.

The new type of digital platforms.

Platforms, such as the OEM.

We are somewhat knee.

We are doing that but.

But I think thats really.

Showing us a lot more opportunities.

Our ways to Craigs.

Personal values and also too.

Could be much more responsive to customer demands in our product design.

So I hope that answers your questions.

Okay.

Thank you next question comes from the line of Elsie Sheng LLC. Your line is now open. Please ask your question.

Hi, Thank you management for taking my question.

Matt My question is related to <unk> future augment you mentioned that you plan to continue in <unk> could you give us more color about the plan the.

The direction and estimated size of investment to support your new business. Thank you.

Okay. Thank you for the question. This is Jackson and I will take us.

As of the end of last quarter the company has.

More than one 7 billion of cash and cash equivalents were $1 1 billion in short term investments of 781 million and current and non current restricted cash.

We believe this cash position.

Provides us a solid foundation for both of our business transformation and <unk>.

And any future development.

In terms of investment we're interested in investment areas that pivot.

Further improve our existing products or services.

Supplement our capabilities or advanced our business expansions.

At the same time, we are always looking at is looking for ways to create value for our long term shareholders.

We have taken a diversifying measures in the past to generate a return for shareholders.

We'll continue to do so in accordance with market conditions.

I hope that answers your question.

Thank you. Our next question comes from the line of Alex Liu from UBS. Your line is now open. Please ask your question.

Thank you Mr. Mcmahon According to my question.

And then congratulations on that.

And margin despite the restructuring.

Let me share more color on my question on.

On the margin trend.

Cohort accolade.

A question on that matured.

The economy Echo.

Okay.

That would be comparable to the deregulation academic opex would be great. Thank you.

Thanks for the question for Us.

I would say, it's probably a bit too early to put.

That margin trend at this point, but I definitely can share some thoughts on.

Our views.

Our margin will be impacted by various factors.

First gross margin gross margin, mostly depends on two things one is our overall revenue structure and serious gross margin profile for each business line.

And we expect our overall revenue mix to continue to develop that.

Alex mentioned earlier, we expect content to contribute to gradually contribute to a larger portion of our overall revenue.

As for gross margin of each business.

That will continue to adjust according to market conditions and our operating staff.

As for operating margin.

Given our recent business restructuring and transformation will remain focused on building our business asset through continuous investments to create value and online.

I hope that answers your question.

Thank you very much for your questions. We have reached the end of <unk> question.

I'll now turn the call back to the management team for closing remarks.

Thanks, operator, and thanks for everybody online.

And thanks for the great set of partners.

As we conclude todays conference call again, thank you all for joining and we look forward to seeing.

See you next quarter.

Great. Thank you Sir This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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