Q1 2024 TAL Education Group Earnings Call
Ladies and gentlemen, good day and thank you for standing by welcome to the tile Education Group first quarter fiscal year 2024 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.
Today's conference is being recorded I would now like to hand, the conference call over to Mr. Jackson thing.
Relations director. Thank you. Please go ahead Sir.
Thank you operator.
You all for joining us today for Tal Education group's first quarter fiscal year 2024 earnings conference call.
The earnings release was distributed earlier today.
Can find a copy on the company's IR website.
Through the newswires.
During this call you will hear from Mr. Alex Poon.
President and Chief Financial Officer.
Myself and.
Investor Relations director.
Following the prepared remarks, Mr. Tony and I will be available to answer your questions.
Before we continue please.
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.
1995.
Forward looking statements.
Subject to risks and <unk>.
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.
Refer to our filings with the SEC.
Also our earnings release and this call.
Discussions of certain non-GAAP financial measures.
Please refer to our earnings release, which contains a reconciliation of the non.
non-GAAP measures to the most directly comparable GAAP measures.
I would like to turn the call over to Mr. Okta Com.
Please go ahead.
Thank you Jackson.
I'd also like to thank all of you for participating in today's conference call.
During this call we'll review the financial performance and business progress of the first quarter of the fiscal year 2024.
After that.
I will share some thoughts on the outlook for the next quarter.
So first in this quarter.
<unk> ongoing effort too.
Fine tuning our core offerings.
And optimize our operations such as enrichment burning.
We also achieved progress in some of our newer initiatives.
Taken as examples X pad, our smart device, which we launched to the market at the end of.
Last quarter.
It has really demonstrated a satisfactory sales performance.
And has received positive customer feedback over the past few months.
Furthermore, we've been making progress in our artificial intelligence strategy.
And are working towards a rollout of AI products in the future.
In terms of financial performance.
We recorded net revenues of 275 point for.
Million U S dollars.
And 1 billion $906 7 million RMB for the quarter.
Which is an increase of 22, 9% and 31, 1% year on year in U S dollar and RMB terms, respectively.
In terms of profitability.
non-GAAP loss from operations and non-GAAP net loss attributable to apparel for the quarter or $32 3 million U S dollars and $19 5 million U S dollars respectively.
So with that overview.
I would like to hand, the call over to Jackson.
It will give you an update on our core business lines operational developments.
And review, our first quarter financial results after that I'll return to share more details.
Regarding our outlook for the next quarter and then open the call for questions.
Jackson. Please go ahead.
Thank you Alex.
I'm pleased to share some details on the progress we made in this quarter across our core business lines.
Please note that all financial data for this quarter and audits.
First let's take a look at our learning services and others business.
Which consists of a broad range of learning programs for consumers.
As well as technology solutions.
<unk> customers.
In the first quarter of fiscal year 2024.
Our learning services and others business accounted for just less than 75% of net.
Net revenues.
Within learning services.
Enrichment learning continue to make material progress.
With net revenues, achieving double digit year over year growth.
The progress was predominantly attributed to the enrollment growth from our offline small class offerings.
In response to the notable demand from our customers.
We expanded our learning center network this quarter.
Increasing the total number of learning centers from roughly 172 north of 200.
Through our network expansion, we conscientiously managed our operating efficiency.
Efficiency indicators, such as retention rate.
<unk> been relatively stable quarter over quarter.
At the current level of operating efficiency.
Offline small cost enrichment learning services business has a viable business model.
As for online large class enrichment and learning business.
We're focused on sustaining our existing level of operating efficiency.
While introducing a new array of offerings to the market.
On our last few calls.
Discuss some new programs such as our constraining in the natural Sciences arm.
These programs, although only contributing a fraction of our total revenues garnered incremental customer traction in the last couple of quarters.
When we look at the next couple of quarters to come for enrichment and earnings will continue to optimize our product offerings.
User experience and operational efficiency.
Further develop suitable and differentiated strategies for both online and offline business.
Moving on let's discuss <unk>.
Our overseas learning services business.
We continue to apply our industry knowhow to the overseas market during this quarter.
Delivering another consecutive quarter of triple digit year over year growth.
We added another learning Center think Academy this quarter.
And we will further manage on network expansion plan overseas in the next quarter.
Okay.
Now, let's talk about our comfort solutions business.
Which accounted for more than 25% of total net revenues for the quarter.
The revenue generated by content solutions has well more than doubled year over year.
This revenue growth was a result of the combined effects of our product and go to market capabilities.
Smart books and print books.
Which were the key growth drivers last fiscal year continue to exhibit material demand.
Year.
A significant growth contributor from Concho solutions was sure.
Pat.
AI driven learning device, we launched towards the end of last quarter.
Ex Pat has proven attractive to learners by virtue of its personalized learning experiences powered by intelligent functions.
<unk> quantity content library.
In fiscal Q1, not only do we ship a considerable number of apt patents.
But we also witnessed month to month growth.
Shipment volume all three months in Q1.
Moving forward well.
Play close attention to customer feedback.
And upgrade software and hardware functions for ask Pat to better meet the demand of our learners.
We're closely monitoring several key indicators such as average time spend.
The frequency of usage to understand user behaviors and managed product update accordingly.
Additionally, we have continued to build confidence.
Both internal development and external partnerships.
And this quarter, we have established strategic cooperations with Tencent publishing houses to jointly promote innovative exploration and the content industry.
Together, we aim to create diverse and high quality content for learners.
And the next quarter, we anticipate that accomplished solutions business will continue to grow.
With revenues derived from comfort solutions expanding year over year.
Other than shipping more units of products to consumers. We also endeavor to provide our learners holistic learning experience.
Device and all comps.
We will closely observe user behaviors and provide more confidence services through.
Our device.
With that overview I would now like to share our key financial results for the quarter.
We reported net revenues of $275 4 million U S dollars.
1 billion of $906 7 million RMB for this quarter.
An increase of 20.
22, 9%.
31, 1% year over year.
U S dollar and RMB terms, respectively.
The revenue growth was driven by the steady growth.
Learning services and others business.
In the release of new products within the content solutions business.
Gross profit.
Also increased in the first quarter of fiscal year 2024, rising slightly from 135 $5 million for the same period last year too.
$135 $9 million in this quarter.
Gross margin decreased to 49 three.
Percent from 65% for the same period last year.
Mainly due to a higher revenue contribution from our content solutions business, which currently has a lower gross margin percentage.
Sales and marketing expenses for the quarter were $97 7 million U S dollars.
Increased by 62, 7% compared to 60.0 million U S dollars in the fiscal first quarter last year.
Selling and marketing expenses as a percentage of total revenue increased to 35, 5% from 26, 8% for the same period last year.
non-GAAP, selling and marketing expenses, which excluded share based compensation expenses increased by 73, 7% to $92 million from $52 million in the first quarter.
Fiscal year 2023.
The year over year increase was primarily due to increased selling and marketing activities.
General and administrative expenses for the quarter decreased by five 9% to $104 $9 million from $111 $5 million in the fiscal quarter and the fiscal first.
Quarter last year.
non-GAAP general and administrative expenses, which excludes share based compensation costs decreased by five.
5% year over year to $89 2 million in U S dollars from $95 $4 million in the same period of fiscal year 2023.
Loss from operations.
<unk>.
Bye.
<unk> hundred 4% to $57 $8 million from $28 $3 million in the first quarter of fiscal year 2023.
non-GAAP loss from operations, which excludes share based compensation expenses was $32 $3 million compared with $1 $8 million in the same period of the prior fiscal year.
Yes.
Net loss attributable to Tal was $45 million in the quarter compared with $43 8 million U S dollars in the same periods of the prior fiscal year.
non-GAAP net loss attributable to tackle which excludes share based compensation expenses was $19 $5 million compared with $17 4 million U S dollars in the same period of the prior fiscal year.
Moving onto our balance sheet as of May 30 May 31 2023.
We had.
To get in and $85 $4 million of cash and cash equivalents.
$959 3 million short term investments.
And $342 million in U S dollars and current and non current restricted cash.
Our deferred revenue balance was $387 7 million as of the end of the first fiscal quarter.
Compared with $237 4 million as of February 28, 2023.
Now turning to cash flow statement net cash provided by operating activities for the first quarter of fiscal year 2024 was $125 5 million U S dollars.
In April 2023, the company's board of directors authorized to extend its share repurchase program by 12 months.
I would like to share some thoughts on our I'll look for the next quarter.
About the all looking for the upcoming two two we expect that development momentum will continue.
Next quarter will cover the summer vacation and e-commerce shopping festivals.
We expect you to to be a high season was seasonality of having a positive impact on our revenues.
On a non-GAAP basis, we anticipate an improvement in operating profit compared to this quarter.
As generative AI is on the cusp of redefining our industry I'd also like to speak a bit more about our endeavour in artificial intelligence.
Well apply technology.
Technology launch learning products.
And the number of learning subjects in the near future will update you on the progress in this area. After the products are launched.
We will continue to invest in the artificial intelligence technologies to innovate our business.
We really set out a very interesting time in our industry wanted to look back at house track record in the last 20 years I.
I see a pattern of providing high quality.
Four double services to customers through technology and or business model innovations.
Really believe AI has the potential to enable us to provide more accessibility to our customers and redefine the industry paradigm for decades to come.
And that.
Concludes my prepared remarks, operator, we're now ready to open the call for questions.
Certainly ladies and gentlemen, if you have a question at this time simply press Star one one on your telephone to get into the queue to remove yourself from the queue simply press star one one again, one moment for our first question.
And our first question comes from the line of you one junk from China Renaissance Your question. Please.
Hey, can you and they mentioned <unk>, particularly my question. So I'm not crushing your economy turned on any device try to stay away have made up cause the double poleglass ice pad. So how do you view. The current you know market dynamics and I want to get our company's competitive advantage Pat. Thank you.
Thanks to you when this is Alex let me take this question. So I think first of all we are really striving to meet the daily learning these needs off our young learners and be there trusted companion.
On their journey of growth I think this is a journey that goes across multiple years. It's intense in terms of what the young learners need to learn so there's quite a bit of support they need along the way.
What we've found is that they're learning needs are really.
Very diversified you know across different age groups across different types of students their personal learning journey up to date and so long. So in addition to attending classes I think hardware.
Products and really be in their fact of way to meet that kind of.
Personal needs and different scenarios and really lots of self learning needs. So that's the that's the first dog so <unk> so far <unk>.
Competitive advantages I think there are a few things one is there's 20 years of.
<unk> and education research experience and through that to.
Two decades of experience I think the company has developed a set of tailored confidence for the learning devices.
Does not only ensures consistently high quality content, but also serves to students.
Different types of you know what they are accustomed to in terms of utilizing <unk> time for learning. So I think that's that's really an important foundation now on top of that you know as I mentioned before <unk>.
You know, we continue to strive and sees this.
You know the secular trend around artificial intelligence with think that E I combine with our.
Confidence that we've developed over the years can really be a powerful support for students, especially for their personal lives.
Learning.
Learning needs across that learning journey.
And lastly, I think the users have given us pretty.
Pretty positive feedback regarding both are the constant and a personalised you.
You know user experience would realize this is still fairly early in our endeavor into the.
Learning devices space and you know, we just take these feedback as as further.
Encouragements and guidance for you know for a continued.
You know endeavor and further Polish our products bring additional content and artificial intelligence experience to this to this product in the future.
So you Wanna hopefully that answers your question.
Yeah sure if that's what it <unk>. Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Candace <unk> from <unk>.
Hi, Good evening, Alex Justin Thank you for taking my question Uhm, a Christian Gotcha alright.
Yeah, So I hope that I, just mentioned that we actually added that'd.
<unk>.
<unk> and how would be the page after the email <unk> and.
10, Uhm, what what's the last expansion of maintenance <unk>. Thank you.
Thanks for the question. This is Jackson and I'll take this one maybe before I go into the specifics.
It could be helpful do my share with your thoughts behind.
How you manage all.
Right.
So when I think about managing alimony faster network, a general rule all we have is.
Want to men manage.
Manage and maintain operating efficiencies.
Sanchez as we open up and use the answers to the extent that there's market. The man we have operating.
And.
And the last couple of quarters. All these calls I think I'll talk about home gradually adding you learn Sanchez and you can you can see this pattern continued decor.
Now this cold or the number of learning centers continued.
Oh, a total number of 90 Sanchez has increased from roughly 170 at the end of the previous owner to to North of 200 at the end of two one.
I would caution you know that the growth of learning at the number of learning centers in this corner.
Partially in preparation for the P C as in during the summer.
So we don't necessarily expect to see the same level of increase.
Every single corner.
Actually the future long span or learning centers.
Paid to to ensure a smooth.
I hope I answered your questions.
Okay. Thank you Justin.
Thank you one moment for our next question.
And our next question comes from the line Felix layer from UBS. Your question. Please.
And good good evening and thank you for taking my question.
Congratulations on the task whales have the hardware and and that's why I My question S.
So first I I'd like to you know get get your thought on the potential like festival market Alpha have weapons does could you share a bit more about you know our target demographics.
<unk> at <unk>, which part of the student population are learning hardware popular amount and a second part of the question is on the margin to management and provide more color on the market and profile. After learning hardware currently and where do you expect to emerge into it eventually arrive at thank you.
Thanks for the question. This is Jonathan I'll take this one so the first part of the question was related to Tan.
Okay, if a limited conversation too for the China market.
In terms of 10, I think on an annual basis, we see shipments 45 million units of uploading tablets every year and that that that's the address.
Existing market size and if we.
Well look at all products, we normally we believe we normally tackled.
Yeah. We also have an O G 222 served <unk> speaking learning industry.
Industry, we really look at this.
Customers Xinhua, how much did they spend it all on me also.
Most of the natural learning in general.
General and how much of that use case in Houston.
Could be could be sir.
Alright.
By offering.
Intelligent functionalities as well as a high quality and Personalised calm.
So the short answer to to to the 10 questions is depending on what you look at the current time was probably 45 million.
Units per per year, if you look at the broadly speaking 144.
Roni industry is so much much harder to potentially could be much higher number.
The second part of your question was related to margin for Awhile, Let me break that down for you a little bit first.
May be helpful to understand how we <unk> hotline I would I think it's worth noting that a meaningful portion of the revenue from a hardware business will be recognized.
Revenue.
And will be deferred over the next year or two depending on the product.
Whereas substantially Oh Hoffman expenses would be recognized.
So get a coffee.
An economy would have a negative impact on margin profile.
This is tomorrow.
Number one.
Two is when we can what we look at fixed costs for this business. We have we've made a <unk> predominantly in the form of building a team who manage and develop the problem.
As well as producing Thompson for the box.
That part of the sixth cough is there.
No hardware business is still in its early stages about.
So at itself increases, we believe there will be potential upside to the profitability.
I hope the answer some questions for us.
Okay. Thank you.
Thank you one moment for our next question.
[noise] and our next question comes from the line of Clinton Young from C. I C. C. Your question. Please.
Hi, <unk>. Thank you for taking my questions. So I just took like one to the management team provide an overview.
Specific plan I'll get you transferred.
Sure by that.
Okay. Thank you.
Tiny thanks for the question. This is Jackson I'll I'll take this we always look for ways to generate shareholder returns and share buyback is one of those tools.
From time to time.
Detroit when when conditions.
If a dialed back a year ago in fiscal year 2023, we usually purchase close to 18 million a D. S is an aggregate consideration of approximately 66.
Sauce.
In April now this year in April 2023, the company's board of directors extended to share repurchase program.
Yeah.
The current program authorize the company has been up to approximately 737 million. He proceeds you should purchase.
Through April 30th 2024.
In this fiscal year as of May 31st 2023. The company has the purchase of 25.9 million a D. S. S N.
And an average aggregate consideration of approximately 151.3 million and did a show the purchase program.
In the next quarter will continue to buy back and the amount spent will be subject to market and business conditions.
I hope that answers your question.
Okay. Thank you ma'am.
Thank you one moment for our next question.
And our final question for today comes from the line of Howard soon from Macquarie. Your question. Please.
However, you might have your phone on mute.
Hello, Hi can you hear me.
Yeah. So we can hear you now.
Okay. Okay sure. So I have a question on AI products wondering if medicine to share more on the details of AI product <unk>.
And if there is karen but like what's that okay, I N D status and when do you plan to launch the product.
Hey, Howard This is Alex let me take that one on but let me just actually at one point <unk>.
Before we get to the specific.
Either R&D progress product launch roadmap I think this is really truly a longterm secular trend you know I said medicine in the last call with all of your really in the <unk>.
The time about seven months since channels have AI has broken to the public discourse, we've been Tulsa time discussing was play.
Players across the entire ecosystem from you.
You know dedicated large language model <unk> to you know leading technology companies startups researchers we've spent that time, both in China and have taken a few trips to the United States as well I think <unk>.
Pretty much of a cough said assess looking forward that you know the power of leash by the large language model, what are really redefine and and help us re imagine.
Future off education. So it's it's absolutely exciting and this is the area, where I think the management team and the company as a whole have already in price and will continue to embrace.
For the for many years to come so I, that's a long journey I hate. That's again I think you know a decade long journey has all of US learn you know how to.
Grow and develop until the world was artificial intelligence. So the products that we have it's it's just very very start of it. It's in the internal testing phase now you know for our employees in a very limited set of.
Customers are testing them and we're continuously optimizing obviously the performance of the product and improving the user experience and you know in preparation for the future large.
So moving forward, we plan to extend the the.
The capabilities of these Walsh language models with a few things I think you know.
Obviously, there is a large set of proprietary data that we have accumulated over the years through our pedagogical experience and customer service I think that's invaluable in terms of helping the large language model to.
To become more suitable for the various scenarios <unk> across the learning journey.
I think we would need to continue to work on you know better alignment.
For the model for the type of interactions with students on various types of subjects and lastly, I think it's just in terms of features functionalities you know a cross.
Are you know learning services type of business models as well as our you know content learning devices business models to meet the diversified learning needs off our customers.
So how would I hope that answers your question.
Yeah. Thank you for the update.
[noise]. Thank you. This does include the question and answer session of today's program I'd like to hand, the program back to management for any further remarks <unk>.
Great again, thanks to everybody for joining us today, and we look forward to talking to your next quarter Bye.
Bye Bye now.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Mmm [music].
[music].
[music].
[music].
Ladies and gentlemen, good day and thank you for standing by welcome to the Tal Education group first quarter of <unk>.
<unk> year 2024 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 call over to Mr. Jackson Day Investor Relations director.
Please go ahead Sir.
Thank you operator, thank you all for joining us today with Tal education group's first quarter fiscal year 2024.
<unk> conference call.
The earnings release.
<unk> earlier today.
You can find a copy on the company's IR website.
Through the newswires.
During this call you will hear from Mr. Alex <unk>.
President and Chief Financial Officer.
Myself.
Investor Relations director.
Following their prepared remarks, Mr. Kang and I will be available to answer your questions.
Before we can take that.
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 19.
Forward looking statements.
Subject to risks and <unk>.
Uncertainties that may cause actual results.
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.
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 to Mr ask com.
Please go ahead.
Thank you Jackson.
I'd also like to thank all of you for participating in today's conference call.
During this call we'll review the financial performance and business progress of the first quarter of the fiscal year 2024.
After that.
I'll share some thoughts on the outlook for the next quarter.
So first in this quarter.
Ongoing effort to fine tune, our core offerings and optimize our operations such as enrichment Bernanke. We also achieved progress in some of our newer initiatives.
Taken for example, ex Pat our smart device, which we launched to the market at the end of.
Last quarter.
It has really demonstrated a satisfactory sales performance and has received positive customer feedback over the past few months.
Furthermore, we've been making progress in our artificial intelligence strategy.
And are working towards a rollout of AI products in the future.
In terms of financial performance, we recorded net revenues of.
Million U S dollars.
And 1 billion $906 7 million RMB for the quarter.
<unk>, which is an increase of 22, 9% and 31, 1% year on year in U S. Dollar.
RMB terms respectively.
In terms of profitability.
Our non-GAAP loss from operations and non-GAAP net loss attributable to <unk> for the quarter or 32.3 million U S dollars and $19 5 million U S dollars respectively.
So with that overview.
I'd like to hand, the call over to Jackson Hill.
He will give you an update on our core business lines operational developments.
And review, our first quarter financial results after that I'll return to share more details.
Regarding our outlook for next quarter, and then open the call for questions.
Jackson. Please go ahead.
Thank you Alex.
I'm pleased to share some details on the progress we made in this quarter across our core business.
Please note that all financial data for this quarter as an auditor.
First.
Which consists of a broad range of learning programs for consumers.
As well as technology solutions for institutional customers.
In the first quarter of fiscal year 2024.
Our learning services and others business accounted for just less than 75% of our net revenues.
Within learning services.
Enrichment learning continue to make material progress.
With net revenues, achieving double digit year over year growth.
The progress was predominantly attributed to the enrolment growth from offline more class offerings.
In response to the notable demand from our customers.
We expanded our learning center network this quarter.
Increasing the total number of learning centers from roughly 172 north of 200.
Through our network expansion, we coffee anxiously managed our operating efficiency.
Efficiency indicators, such as retention rate.
Have been relatively stable quarter over quarter.
At the current level of operating efficiency.
As for online large class enrichment learning business.
We are focused on sustaining our existing level of operating efficiency.
While introducing a new array of offerings to the market.
On our last few calls I discussed some new programs, such as adequate training and natural science.
These programs, although only contributing a fraction of our total revenues.
<unk> hundred incremental customer traction in the last couple of quarters.
When we look at the next couple of quarters to come.
Enrichment learning, we will continue to optimize our product offerings user experience and operational efficiency.
Regardless of all suitable and differentiated strategies for both online and offline business.
Moving on let's discuss bank account.
Our overseas learning services business.
We continue to apply our industry knowhow to the overseas market during this quarter.
Delivering another consecutive quarter of triple digit year over year growth.
We added another learning answer from bank of cash this quarter.
And we will further manage on network expansion plan overseas in the next quarter.
Okay.
Now, let's talk about copper solutions business.
Which accounted for more than 25% of total net revenues for the quarter.
The revenue generated by Congress solutions has well more than doubled year over year.
Results of the combined effects of our product and go to market capabilities.
Smart books and print books, which.
Which were the key growth drivers in last fiscal year continued to exhibit material development.
Year.
A significant growth contributor from Congress solutions with surety App.
And AI driven earnings.
We launched towards the end of last quarter.
Act has proven attractive to learners by virtue of it personalized learning experiences powered by intelligent functions.
Benefit quantity content library.
In fiscal Q1, not only do we ship a considerable number of aspects.
But we also witnessed marked in mask growth.
Moving forward well.
Pay close attention to customer feedback.
And upgrades software and hardware functions for ask Pat to better meet the demand of learners.
We're closely monitoring several key indicators such as average time spend.
The frequency of usage to understand user behaviors and managed product.
Accordingly.
Additionally, we have continued to build Congress.
Both internal development and external partnerships.
And this quarter, we have established a strategic collaboration with 10 publishing houses to jointly promote innovative exploration and the content industry.
Together, we aim to create a diverse and high quality content for learners.
And the next quarter, we anticipate that content solutions business will continue to grow.
With revenues derived from Congress evolutions expanding year over year.
Other than shipping more units of products to consumers. We also intend to provide our learners holistic learning experience through <unk>.
The device and all comp.
We will closely observing user behaviors and provide more confidence services.
Our device.
With that overview I would now like to share our key financial results for the quarter.
We reported net revenues of $275 4 million U S dollars.
1 billion $906 7 million RMB for this quarter.
An increase of 20.
22, 9%.
At 31, 1% year over year.
U S dollar and RMB terms, respectively.
The revenue growth was driven by the steady growth.
Learning services and others business.
In the release of new products within the content solutions business.
Gross profit.
Also increased in the first quarter of fiscal year 2020.
Rising slightly from $135 $5 million for the same period last year too.
$135 $9 million in this quarter.
Gross margin decreased two.
$49 three.
Percent from 55% for the same period last year.
Mainly due to a higher revenue contribution from our content solutions business, which currently have lower gross margin percentage.
Sales and marketing assets for the quarter were $97 7 million U S dollars.
Increased by 52, 7% compared to 60.0, meaning U S dollars in the fiscal first quarter last year.
Selling and marketing expenses as a percentage of total revenues increased to 35, 5% from 26, 8% for the same period last year.
non-GAAP, selling and marketing expenses, which excluded share based compensation expenses increased by.
73, 7% to $92 million from $52 million in the first quarter of fiscal year 2023.
The year over year increase was primarily due to increased selling and marketing activities.
General and administrative expenses for the quarter decreased by five 9% to $104 $9 million from $111 5 million U S dollars in the fiscal quarter in the fiscal first quarter.
Last year.
non-GAAP general and administrative expenses, which excludes share based compensation costs.
<unk> bye.
5% year over year to $89 2 million U S dollars from $95 4 million U S dollars in the same period of fiscal year 'twenty.
Loss from operations.
Expanded.
Bye bye.
104% to $57 $8 million from $28 3 million U S dollars in the first quarter of fiscal year 2023.
non-GAAP loss from operations, which excludes share based compensation expenses.
$32 3 million U S dollars.
<unk> was $1 8 million U S dollars in the same period the prior fiscal year.
Yes.
Net loss attributable to Tal was $45 million in the quarter compared with $43 8 million U S dollars in the same period of the prior fiscal year.
non-GAAP net loss attributable to tackle which exclude share based compensation expenses was $19 5 million compared with $17 4 million U S dollars in the same period of the prior fiscal year.
Moving onto our balance sheet as of May 30 May 31 2023.
We had.
To get in and $85 $4 million of cash and cash equivalents.
$959 3 million short term investments.
And $340 2 million in U S dollars and current and non current restricted cash.
Our deferred revenue balance was $387 7 million as of the end of the first fiscal quarter.
Compared with 237 4 million as of February 28, 2020.
Now turning to cash flow statement net cash provided by operating activities for the first quarter of fiscal year 2024 was $125 $5 million.
In April 2023, the company's board of directors authorized to extend its share repurchase program, but 12 months.
Pursuant to the extend the share repurchase program the company may span up to approximately.
$737 4 million U.
U S dollars to purchase shares through April 32024.
As of May 31, 2023, the company repurchased an aggregate of approximately $25 9 million asked us.
Approximately.
151 $3 million from the open market under the share repurchase program.
That concludes the financial highlights section.
I'll now hand, the call back to Alex to briefly update you our business outlook.
Please go ahead.
Thanks Jackson.
As we introduced before some of the achievements in this quarter.
Just a start to this fiscal year next I would like to share some thoughts on our outlook for the next quarter.
About the outlook for the upcoming two two.
We expect that development momentum will continue.
So next quarter will cover the summer vacation and E Commerce shopping.
Festivals.
We expect Q2 to be a high season with seasonality happening a positive impact on our revenues.
On a non-GAAP basis, we anticipate an improvement in operating profit compared to this quarter.
As generative AI is on the cusp of redefining our industry I'd also like to speak a bit more about our endeavor in artificial intelligence.
Or apply AI technology launch learning products.
And the number of learning subjects in the near future.
We will update you on our progress in this area. After the products are launched.
We'll continue to invest in the artificial intelligence technologies to innovate our business.
We really set out a very interesting time in our industry.
When I look back at <unk> track record in the last 20 years.
I see a pattern of providing high quality affordable services to customers through technology and business model innovations.
We really believe AI has the potential to it.
Enable us to provide more accessibility to our customers.
<unk> redefined the industry paradigm.
For decades to come.
And that <unk>.
Concludes my prepared remarks, operator, we're now ready to open the call for questions.
Certainly ladies and gentlemen, if you have a question at this time simply press Star one one on your telephone to get into the queue to remove yourself from the queue simply press star one again, one moment for our first question.
And our first question comes from the line of <unk> Zhang from China Renaissance. Your question. Please.
Hey, Good evening management. Thanks for taking my question. So my question your recon into learning device.
Let's say, we have made a considerable progress IX pad.
Do you view the current.
Market dynamics and what he is our company's competitive Ecmo Tetra Pak.
Q.
Thanks <unk>. This is Alex let me take.
This question.
So I think first of all we're really striving to meet the daily learning the needs of our yellow learners and be their trusted companion.
Their journey of growth.
This is a journey that goes across multiple years.
<unk>.
In terms of what the young learners need to learn so.
It's quite a bit of support.
They need all along the way.
We have found is that their learning needs are really <unk>.
Very diversified.
Across different age groups across different types of <unk>.
<unk>.
Their personal learning journey up to date and so on.
So in addition to attending class I think hardware products that really be an effective way.
To meet that kind of.
Personal needs and different scenarios.
And really lots of self learning.
Neve.
So that's the that's the first thoughts.
So in terms so far.
Patterns of advantages.
I think there are a few things one is there is 20 years of.
Heather Cox, our coal and education research experience.
And through that too.
Two decades of experience.
I think the company has developed.
A set of tailored contents.
For the learning devices.
It does not only ensures consistently high quality content.
It also serves to students.
Our different types of.
You know what they are accustomed to.
In terms of utilizing.
Fragments have time.
For learning.
So I think that that's really an important foundation now on top of that.
Measured before.
We've.
We continue to strive as to is this.
The secular trend around artificial intelligence with think that AI combined with our.
Constant.
Over the years.
Powerful.
Port.
For students is pressuring further personalized.
Learning <unk>.
Turning needs across that learning journey.
So and then lastly, I think the users have given us.
Pretty positive feedback rig.
Regarding both are constant.
And the personalized.
User experience.
We realize this is still fairly early.
In our in depth into the.
Learning devices space.
We just take these feedback as further.
Encouragement and guidance.
Four.
<unk> continued.
<unk>.
Endeavour and.
Further Polish our products bring that additional content and artificial intelligence <unk> prs to the to this product in the future.
So hopefully that answers to your questions.
Yes, yes, sure that's very clear thank you.
Thank you one moment for our next question.
And our next question comes from the line of Kansas Chan from Daiwa.
Hi, good evening Alex.
Justin.
Thanks for taking my question.
And as you laid out your ally.
Okay.
So I look.
As Jeff mentioned that we actually added roughly steady.
<unk> center with quota and how would be the pace of go to the remaining quarters.
In the longer term.
Let's start off.
And the rate that we should expect thank you.
Okay.
Ken Thanks for the question. This is Jackson and I will take this one maybe before I go into the specific plan I think it would be helpful to kind of share with you our thoughts behind.
How we manage our alone our learning centers.
So when I think about managing our learning Center network a general rule. We have is is that we want to.
Men manage.
Manage and maintain operating efficiencies.
Two factors.
As we open up new centers to the extent that there is market demand and we have operating capability.
And the last couple of quarters.
All of these calls I think I've talked about how we are gradually adding new learning centers.
You can see that pattern continued this quarter.
Now this quarter the number of learning centers that continue to grow.
Our total number of learning centers has increased from roughly 170.
At the end of the previous quarter to North of 200 at the end of Q1.
I would caution you, though that the growth of <unk>.
Any number of learning centers in this quarter is partially in preparation for the peak season during the summer.
So we don't necessarily expect to see the same level of increase at this pace every single quarter from now.
Actually the future won't expand our learning centers at a steady pace to ensure a smooth and balanced growth I hope that answers your question.
Yes.
Okay. Thank you gentlemen.
Thank you one moment for our next question.
And our next question comes from the line of Felix Liu from UBS. Your question. Please.
Sure.
Good evening, Thank you management for taking my question.
Congratulations on the pathway without the high <unk> and Thats, where my question is.
So first I would like to get your thought on the potential addressable market.
Weapons does could you share a bit more about the our target demographics.
What are which part of the student population, our learning hardware popular amount and.
The second part of the question is on the margin can management provide more color on the margin profile of that learning hardware currently and where do you expect the margin to it eventually.
Alright, thank you.
Thanks for the question. This is Jonathan ill take this one.
So the first part of the question was related to Tam when I look at it.
This conversation to the China market.
In terms of Tam I think on an annual basis, we see shipments.
45 million units.
Uploading tablets every year.
That's fair.
Okay.
Existing market size and if we.
But when we look at our products, we not only we believe we not only top of the existing market. We also have an opportunity to to to serve the broadly speaking learning.
Any industry.
We really look at this.
Our customers ship, one how much do they spend on top of the natural or.
General and how much of that.
Use case in Houston could be could be served through learning talent by offering more intelligent functionality as well as high quality and personalized content. So the short answer.
10 questions.
Pending on what you look at the current time is probably four to 5 million units per year.
If you look at the broadly speaking.
For the loyalty industry, it's a much much higher to potentially it could be a much higher number.
The second part of your question was related to margin profile, let me break that down for you a little bit.
First in May be helpful to understand how we book our top line.
I would.
It's worth noting that a meaningful portion of the revenue from our hardware business will be recognized.
Revenue and will be deferred over the next year or two depending on the product.
Whereas substantially all costs and expenses will be recognized upfront. So it gives a coffee.
<unk> Academy.
Have a negative impact on margin profile, while the business is growing that's number one.
Two is when we look at.
When we look at fixed cost for this business, we have we've made upfront investments in fixed costs predominantly.
Predominantly in the form of building a team.
Who manages about crop.
As well as producing content.
For all of the box.
That part of the fixed cost is there.
Now our hardware business is still in its early stage of development.
So.
<unk> increases we believe there will be potential upside to the profitability of this business.
I hope that answers your question.
Okay. Thank you.
Thank you one moment for our next question.
And our next question comes from the line of clearing young from CIC. Your question. Please.
Hi, Thank you for taking my question.
Just a quick one.
Kim will provide an overview.
Specific plans on future trends.
Share buyback program. Thank you.
Tanya Thanks for the question. This is Jackson I'll take this.
We always look for ways to generate shareholder returns.
Share buyback is one of those tools.
From time to time, we deploy when what condition.
If we dial back a year ago in fiscal year 2023.
We've repurchased.
Close to $18 million in ABS as an aggregate consideration of approximately $6 6 million U S dollars.
<unk>.
In April now this year in April 2023, the company's board of directors extended the share repurchase program from the previous year.
The current program authorized the company to spend up to approximately.
$737 million in proceeds and share repurchase.
Through April 32024.
And in this fiscal year as of May 31, 2023, the company has.
The repurchase of $25 9 million in the Aes.
And in aggregate aggregate consideration of approximately 151 3 million under the share repurchase program.
In the last quarter, we will continue to buyback.
And the amount of spend will be subject to market and business conditions.
I hope that answers your question.
Thank you very much.
Thank you one moment for our next question.
And our final question for today comes from the line of Howard soon from Macquarie. Your question. Please.
Howard do you might have your phone on mute.
Hello.
We can hear you, yes, we can hear you now.
Okay. Okay.
So I have a question on AI products wondering if management could share more on the details.
AI product.
And if there is.
Ken.
But like what's the current R&D status and when do you plan to launch the product.
Hey, Howard This is Alex let me take that one on.
But let me just actually at one point.
Before we get to the specifics.
The R&D progress.
<unk> will launch roadmap.
I think this is really truly a long term secular trend.
As I've mentioned in the last call with all of you.
Really in the.
In the time about seven months.
Since channels have AI.
Has broken into the public discourse.
<unk> spend.
Full time.
Discussing with Pla.
Players.
Across the entire ecosystem from you.
Dedicated large language model <unk> two.
Leading technology companies startups researchers.
And that time, both in China.
And have taken a few trips to the United States as well.
I think this is pretty much of a sense us looking forward.
The power of leash by the large language model.
Ed.
Really.
Redefine and and help us re imagine the future of education. So.
It's absolutely exciting.
That's the area, where I think the management team and the company as a whole.
Ill have already embraced and will continue.
To embrace.
For the for many years to come.
That's a long journey right Hey, that's again I think a decade long journey all of us learn.
Hi.
Grow and to follow up.
Build a world with artificial intelligence.
So the products that we have it's just very very start of that.
It's in the internal testing phase now.
For our employees.
Or a limited set of customers are testing them.
And we're continuously optimizing obviously the performance of the product and the improving the user experience.
And in preparation for the future launch.
So moving forward, we plan to extend the.
The capabilities of these Soares language models, what is a few things I think.
Obviously, there is a large set of proprietary data that we have accumulated over the years through our helicopter coal.
<unk> and customer service.
I think thats a valuable in terms of helping the large language model.
To become more suitable for the various.
Scenarios across the learning journey.
I think we will need to continue to work on.
<unk>.
Better alignment.
For the model for.
The type of <unk>.
<unk> with students on.
Various types of subjects and lastly, I think.
Just in terms of features and functionalities.
Across.
Our learning services type of business models as well as our content learning devices.
Those models.
To meet the diversified learning needs of our customers.
Howard I hope that answers your question.
Yes, thank you for the update.
Sure.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to management for any further remarks.
Great again, thanks to everybody for joining us today.
And we look forward to talking to you next quarter bye.
Bye Bye now.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.