TAL Education Group (NYSE:TAL) First Quarter 2023 Earnings Conference Call July 29, 2022 8:00 a. m. m. , Eastern Time
Participating companies
Jackson Ding – Director de RI
Alex Peng – President and Chief Financial Officer
Conference Call Participants
Mark Lee – Citi
Liping Zhao – CICC
Felix Liu – UBS
Operator
Ladies and gentlemen, good morning and thank you for being here. Welcome to the call for TAL Education Group’s first quarter 2023 earnings convention.
At this time, everyone is in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Be informed, today’s convention is recorded.
I would now like to speak with Mr. Jackson Ding, Director of Investor Relations. Thank you. Continue, sir.
jackson ding
Thank you, operator. Thank you all for joining us today for TAL Education Group’s fiscal 2023 first quarter 2023 earnings convention call. The publication of the effects was distributed the day before. You can find a copy on the company’s IR online page or through news cables. During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer; and me, Director of Investor Relations. After the prepared comments, Mr. Peng and I will be available to answer your questions.
Before proceeding, please note that discussions will involve forward-looking statements made pursuant to the disclaimers of the U. S. Private Securities Litigation Reform Act. UU. de 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual effects to differ materially. of our existing expectations. The potential dangers and uncertainties come with, but are not limited to, those described in public filings with the SEC. To learn more about those dangers and uncertainties, see our FILINGS with the SEC. In addition, our earnings release and this call comes with discussions about certain non-GAAP monetary measures. Please see our earnings release, which provides a reconciliation of non-GAAP measures with directly comparable maximum GAAP measures.
Now I would like to go down to Mr. Alex Peng. Alex, please.
alex peng
Thank you Jackson, and thank you all for joining us on today’s call. I think it was exactly 3 months ago, April 29th, which was also a Friday when we last spoke, and I hope to share it with you today. some of the progress we have made in restructuring and transforming our business.
Let’s start with the numbers. For the first quarter ended May 31, 2022, we recorded $224 million in revenue for the quarter, $1. 8 million in non-GAAP operating losses and $17. 4 million in non-GAAP net losses attributable to TAL. As a reminder, we are entering the K-9 after-school tutoring offer on educational topics in mainland China starting December 31, 2021. Therefore, all first quarter revenue was earned through our existing activity, which also sets a new starting point for our long term. development.
Our functionality this quarter, we like to highlight, demonstrates the combined efforts of our experienced control team, state-of-the-art workers and our many business partners. In the process of our transformation, we focus on generating new projects that fit the megatrends of our industry. and the broader ecosystem. I think it’s like the expression of hockey; skates where the disc is going.
Next; Jackson will update you on operational progress in our existing business and review first quarter monetary results. After that, I will inform you about our trading strategy and then we will give rise to the questions.
So Jackson, please go ahead.
jackson ding
Thank you Alex. Now I would like to share with you more important points about the progression of each of the 3 professions; adding one, learning and others, two content responses and 3, learning generation responses in the last trimester. Please note that monetary knowledge for each of the lines of business discussed below is based on unaudited quarter knowledge.
First, learning and other arrangements that basically come with the apprenticeship programs we offer in other sizes of elegance; either online and offline. This comes with small elegances from ADS, share. com, Think Academy, and other learning companies.
During the quarter, learning and other facilities accounted for approximately 70% of our total revenue, maintaining its position as the largest contributor to revenue. Within the learning facilities, I would first like to communicate to you about enrichment learning programs, which were intended to aid student development.
In the first quarter, we took a step forward in our existing products and systems, leveraging our expertise in the user learning journey as well as our wisdom from pedagogical methodologies. In addition to our existing systems, which cover science and creativity, coding and programming, and humanity and aesthetics, we have also written new systems such as foreign chess, rhetoric, and learning the herbal sciences.
At a time when COVID-19 continues to complicate offline operations, our OMO style has proven its resilience. Many of our offline consumers decide to take their online courses with us, mitigating the effect of the pandemic. As the pandemic normalizes, we believe that being online will be an inevitable trend for students in the future.
I would also like to share some of the advances in our learning services, which achieved a triple-digit expansion rate year over year during the last quarter. We operate under the Think Academy logo outside of mainland China through a variety of systems for K-12 students.
In the last quarter, in addition to the learning centers we already have in Singapore, the UK and the US. In the U. S. , we also started doing business in new places, like Canada. Going forward, we expect learning to remain our biggest revenue contributor. At the same time, we will proactively explore new opportunities in terms of expanding the program nationally and expanding the market globally.
Second, content responses are one of the projects explored in depth since the beginning of our transformation into a small provider of learning responses. With this line of business, we will offer educational and non-educational learning content in print and virtual formats leveraging the extensive library of content we have accumulated throughout the company’s history, as well as content purchased or authorized from our national and global partners.
Total profit generated through our content solutions business for the quarter represented more than 10% of total sales generated through product expansion and sales growth.
When it comes to products, one product format that has been well earned by our consumers is Smart Books or [indistinguishable]. Smart ebook is a product format in which we embed videos to print e-books.
Operator, can you hear me?
Operator
We can hear from you. Please continue.
jackson ding
I apologize for the technical difficulties here, and I hope everyone will listen to me well. I would like, before interrupting, I discussed for the last time that the content solutions business is still in its infancy. We remain committed to making an investment in the business. and soon our products and services.
Third, Learning Technology Solutions provides a complete set of enterprise-grade generation products and facilities for educational institutions. Total profit for the quarter represented approximately 15% of our overall net sales. , business development, pedagogical help and middle management learning.
It is gratifying to see, this past quarter, our products followed by our institutional clients and, in turn, help them improve their own user engagement and operational efficiency. We remain committed to R
Turning to first-quarter monetary results, our net profit totaled $224 million, down 83. 8% from $1,384. 9 million at the same time last year. The decline in profits is basically due to the succession of K-9, K-9 academics to nine TFTs in mainland China,
Gross profit minimized by 82. 4% to $135. 5 million from $771. 8 million at the same time last year, while our gross margin increased from 56% to 60%. it was the same last year. Non-GAAP promotion and marketing expenses, which exclude stock-based compensation, dropped to $87. 2 year-over-year to $52 million, compared to $407. 4 million in the same era last year. Minimizing is basically due to relief in marketing promotion activities.
General and administrative expenses decreased 66. 3% to $111. 5 million from $331. 1 million in the first quarter of last year. Non-GAAP general and administrative expenses, which exclude stock-based reimbursement costs, decreased 66. 9% year-over-year to $95. 4 million. to $288 million at the same time last year. Operating loss for the quarter decreased 77. 7% year-over-year to $28. 3 million from $126. 9 million in the quarter.
Non-GAAP operating loss, which excludes stock-based reimbursement expense, was $1. 8 million, compared with $59. 4 million at the same time last year. The minimum year-over-year operating loss is basically due to the succession of K-9 AST university in mainland China. At the same time, our new projects are still in their early stages of development.
Net loss attributable to TAL $43. 8 million in the quarter, compared to $102. 1 million at the same time last year. Non-GAAP net loss attributable to TAL, which excluded stock-based reimbursement expenses, $17. 4 million, compared to $34. 6 million in the same was last year $0. 4 million at the end of the first quarter, compared to $187. 7 million for the United States as of February 28, 2022, an increase of 21. 1%.
I will now turn the call on to Mr. Alex Peng to brief him on the trading strategy and prospects. Alex, go ahead.
alex peng
Thank you Jackson. Let me tell you about our business and development strategy. As we continue to reshape our company into a provider of intelligent learning solutions, we are indeed encouraged by the trends demonstrated through our existing company over the past quarter. We Power’s trusted brand, operational excellence, content and generation know-how have set the company up for the remodeling adventure we are embarking on.
As I mentioned last quarter, we took a look at our business in 3 categories; learning and other content responses from matrices and technological responses. I will spend them one by one with you. First, learning and other activities, continuing to deliver our existing systems while we launch some new systems.
Our learning facilities are beginning to demonstrate a viable business style and we will continue to drive the business around product portfolio expansion, delighting in optimization and operational efficiency.
Second, for content solutions, we see strong market demand for cutting-edge prints and a built-in virtual product format. We will continue to expand our product offering and invest in building our various sales channels. Due to seasonality, going forward, we expect our content solutions business to contribute a greater proportion to overall earnings in fiscal 2023.
Thirdly, on the generation of learning; I think I discussed it last time, we’re actually looking for a virtual transformation opportunity for our entire industry and our extensive ecosystem. Our learning generation responses will help our institutional clients with their user experience and operational efficiency. In the next carriers, we aim to expand new consumers and create more prices for our existing consumers.
Last time, I discussed 4 that we believe underpin the big trends in the education industry globally. These are online, digital, smart and open, and I think we have just begun this long and safe adventure of transformation into that future.
We see not only new opportunities, but also new challenges; our purpose at this existing stage, to build a solid foundation for the company in the coming years. We will continue to be patient and positive in this adventure of transformation.
As I come to the end of my prepared remarks, I would like to paraphrase our project statement. We are increasingly committed to love and generation for a better future and a better life. This concludes my prepared remarks. Operator, we are now in a position to answer questions.
Q&A session
Operator
[Operator Instructions] The first comes from the line of [indistinguishable]. Ask your parent
unidentified analyst
Can you listen to the management?
jackson ding
Yes she is.
unidentified analyst
My query is about the impact of the pandemic and the closing scenario of this quarter on the company’s operations and how do you evaluate its impact in the future?Thank you.
alex peng
Thank you for that question. Let me take that with you. So first of all, I think this period, as we look at how COVID cases are popping up in other parts of China, our first idea is to go to everyone affected by those and our customers, students, and parents.
We had the opportunity to communicate with students and parents and advise them to continue their online learning. We have also worked to ensure that the quality and enjoyment of learning remains the best as students move from one format to another. We have also made updates to our program generation and design systems to suit a situation.
In places where situations have improved, some of our offline learning centers have gradually reopened. So, while the pandemic is affecting our learning services overall, it is not changing the viability of the business.
I would also like to mention that in recent months we have also noticed disruptions in supply chains in many sectors. I discussed prospective learning for Content Solutions, we are in printed books, which also have the source chain for production and delivery. I think we will also go through this era with more experience in operational technology to manage a distributed logistics network for this company in the future.
Finally, I would like to add, I think as the scenario stabilizes, normalizes, we focus on the attitude and behavior of students, how they replace and on building the infrastructure to provide high-quality online facilities and I think it has become the industry consensus. In fact, in the last quarter, online systems contributed the lion’s share of our overall earnings in the Richmond Learning Program. I hope this answers your questions.
Operator
Our next comes from the lineage of Candice Chan [ph]. Candace. Your line is now open. Please ask your Array
unidentified analyst
Hello. Hi Alex, can you hear me?
jackson ding
Yes we can.
unidentified analyst
So thank you for answering my query and I see that this quarter, gross margin remained above 60%. And even if the invoicing was done sequentially, which is very impressive. , and what is your expansion plan for this year and next?And finally, and continuing with this, will the ability be a limitation to expand learning services?Thank you
jackson ding
Thanks for the question. When we restructured the company last year, we took a balanced approach to adjusting our offline presence and, in doing so, sought to ensure that our offline learning centers presented a sufficient geographic policy and could also operate efficiently. The way we see learning centers is that they are not only an indispensable position for us, to talk and interact with our parents and students, but also an effective channel to identify and publicize our logo.
At the end of this last quarter, we had between one hundred learning centres and 150 learning centres in more than 30 cities and regions. Also, as Alex mentioned earlier, we have noticed that a lot of academics are moving online and we the web will continue to be the trfinish of the industry.
So, before you asked about the expansion plan, as we proactively expand our online systems and diversify all products and business models, we, the offline learning medium, is just one of the many tactics with which we can grow our business. I hope that answers your question.
Operator
Our next one will be Mark Lee of Citi. Mark, his line is now open. Please ask your Array
marc lee
Hello management. Thank you very much for the presentation. I’m Mark Lee from the city. Could you elaborate a little more on operational parameters, such as retention rate and ASP, as well as other topics or categories that you can expand on later?Thank you.
jackson ding
Yes, Marc. Thanks for the question. I would say that our enrichment learning team and our activities have basically focused on two things. One is the means of products and facilities through various enrichment systems and the other, the search for the right learning processes and user journeys for our students and improvement. of your satisfaction. We believe that operational parameters are the ultimate effects of those operational objectives.
At this point, the business of enrichment-based learning is still in its infancy. We are still in the process of optimizing operational measures, but we are also seeing some early trends in this business. Asp for the quarter remains relatively strong compared to before the company’s restructuring.
He also made a consultation on the detention; for some topics, retention rates are very close to those of educational tutoring in recent years, while for other topics, retention rates are still well below the pre-restructuring level. In terms of topic expansion, we have deployed learning in rhetoric, chess languages and herbal sciences over the past 3 months and will continue to look for opportunities to expand the program. We will share more main points as the company reaches its next phase of development. I hope that answers your query, Marc.
Operator
Thanks. Our next one comes from Liping Zhao of THE CICC. Liping, your line is now open. Please ask your Array
liping zhao
Of course. Good evening, Alex and Jackson. Thank you for answering my questions. I’d like to tell us a little more about your content solutions company’s progression strategy. Thank you.
alex peng
It’s Alex. Let me take that one. I had the opportunity to spend a lot of time with our content solutions teams. Let me give you a few dimensions. First of all, I believe that from a strategic point of view, we see ourselves as one of the key elements of our transformation into a provider of intelligent learning solutions.
When we take a look at visitor demand, from the beginning of the pandemic to the last two years, we notice an accelerated change in learning habits. We also noticed a very significant demand for high-quality digitized content and content in an increasingly varied number of areas. So I think it’s a very broad and long-term trend as families look at the kind of assistance they want with books and virtual content.
We also believe that educational content should be combined with appropriate interactive design services, processes and technologies, to effectively ensure the ethics of learning. Looking to the future, I think I discussed this last time, we are actually striving to provide an integrated experience with proprietary content and world-class third-party content throughout the learning journey.
And finally, I’d also like to mention that when it comes to the content response business, we’re experimenting with new sales channels and expansion. For this company, we source our products on e-commerce platforms. present our products on new types of virtual platforms as [indistinguishable]. We’re a little new to this, but I think it shows us a lot more opportunities and tactics to create more prices and also to be much more responsive to visitor demands. in the design of our products. I hope that answers your question.
Operator
Merci. La next comes from the line of [indistinguishable]. Your line is now open. Please ask your Array
unidentified analyst
Thanks to control for responding to my queries. My query is similar to your long-term investment. Have you commented that you plan to continue making an investment and can you give us more information about this plan and the direction and estimated duration of the investment in your new business?Thank you.
jackson ding
Thanks for the question. That’s Jackson. Me’m left with it. At the end of the last quarter, the company had more than $1. 7 billion in money and money equivalents, more than $1. 1 billion in short-term investments and about $181 million in money subject to existing investments. and non-existent restrictions. We believe this monetary position provides us with a solid foundation for the transformation of our business and any long-term developments.
In terms of investment, we are interested in investment spaces that can further decorate our existing products and services, complement our functions, or drive our business expansions. At the same time, we are looking for tactics to create long-term shareholder value. We have taken diversified steps in the afterlife to generate returns for shareholders and will continue to do so in accordance with market conditions. I hope that answers your question.
Operator
Merci. Et the next one comes from the Felix Liu line of UBS. Felix, your line is already open. Please ask your Array
Felix Liu
Thanks to the control for answering my query and congratulations on the margin despite the restructuring. Could you give us more details about your expectations in relation to the trend of margins in the future, as well as your expectations in relation to the economic point of the matured unit of new learning and other activities. Would it be comparable to after-school tutoring before regulation?Thank you.
jackson ding
thanks Felix ask? I’d say it’s probably too early to expect margin trends right now, but I can actually think about how our margin will be affected by factors.
First, gross margin, gross margin is basically based on two things. One is our overall earnings design and the other is the gross margin profile for the line of business. And we expect our overall earnings mix to continue to grow. be waiting for content to give a contribution – to gradually give a contribution to the market’s share of our total profit.
As for the company’s gross margin, it will continue to adjust according to market situations and we are exploiting it. In terms of operating margin, given the recent restructuring and transformation of our business, we remain focused on building our business assets through continued investments to create long-term value. I hope you will answer your query Felix.
Operator
Thank you very much for your questions. We have reached the end of the question-and-answer session. I will now call back the control team for final comments.
jackson ding
Thank you operator and thank you for everyone on the line. And thank you for the series of questions. As we wrap up today’s convention call, once again, thank you all for joining in and we look forward to seeing you in the next quarter.
Operator
Super. Gracias. With this concludes the call of today’s convention. Thank you for participating. You can now log out.
jackson ding
We look forward to seeing it in the next quarter.
Operator
Super. Gracias. With this concludes the call of today’s convention. Thank you for participating. You can now log out.