TAL Education Group Q2 FY2025 earnings call

• Refined services and experiences for users, generating societal value through focus on customer experience.
• Business experiencing sustained growth through innovation, user engagement, and service excellence.
• Learning services developed steadily with off-line and online enrichment programs.
• Innovated in online learning sector, launched Xbook in August which gained market acceptance.
• Upgraded hardware and software of learning devices, enhancing content library and adding smart features.
• Net revenues increased 50.4% YoY in USD and 50.8% YoY in RMB; non-GAAP income from operations was US$64.5 million and non-GAAP net income attributable to TAL was US$74.3 million.

Net revenues for the quarter were US$619.4 million, representing year-over-year increases of 50.4% in U.S. dollar terms and 50.8% in RMB terms. The learning services and others business saw revenue growth driven by Peiyou’s small class offerings with enrollment growth. The content solutions business also saw revenue growth, with the launch of Xbook in August, which features a color e-paper display and caters to various learning scenarios. Learning services contributed significantly, with Peiyou’s small class being the largest revenue contributor, and content solutions benefited from product optimization and expanded user base.

• Fiscal third quarter may have seasonal fluctuations in business performance.
• Continue refining learning programs to deliver high-quality learning services.
• Remain focused on technological innovation, launching high-quality smart devices for personalized learning.
• Manage sales channels and optimize marketing strategies while exploring new initiatives.

Q: Could you share more color on the growth momentum and operating efficiency of the learning service business and its outlook?

A: Alex Peng and Jackson Ding discussed that enrichment learning demand is growing with new parents focusing on holistic development. Growth drivers include service quality and lecturer recruitment/training. Operating efficiency is maintained through balancing capacity with demand. Outlook is to continue refining programs and investing in learning services.

Q: Is the learning device segment profitable and what about value-added services?

A: The learning device business is currently loss making due to R&D, product, and selling expenses. Investment is ongoing in R&D, content, and upgrading to new curriculum standards. Value-added services depend on an active install base, with high user engagement observed.

Q: How to think about the competitive landscape for learning devices and sales and marketing expenses trend?

A: Competition exists on product, talent, and customer levels. TAL focuses on product competency and efficient communication. Sales and marketing expenses may increase in some channels but are monitored for efficiency.

Q: Upcoming investment plans in AI, particularly in the learning device sector?

A: Investment in AI focuses on application layer. AI is integrated into existing products and new AI native applications. Examples include AI-powered functions in learning devices and an AI question-and-answer application. Investment in compute, infrastructure, talent, and data is ongoing.

Q: Elaboration on xueersi.com's UE and long-term growth outlook?

A: Xueersi.com is a strategic priority with focus on innovation in online enrichment programs. Growth driver is product quality. Currently exploring various product formats to meet demand, balancing growth and profitability during exploration phase.