TAL Education Group (TAL) Q4 2026 earnings call transcript

Thank you. Please go ahead. Thank you all for joining us today for TAL Education Group's fourth quarter and fiscal year 2026 earnings conference call. The earnings release was distributed earlier today, and you may find a copy on the company's IR website or through the news wires. During this call, you will hear from Mr. Alex Pong, President and Chief Financial Officer, and Mr. Jackson Dean, Deputy Chief financial officer. Following the prepared remarks, Mr. Pong and Ms. Dean will be available to answer your questions. Before we continue, please note that today's discussions will contain forward-looking statements made under the safe harbor provisions of the U. S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations.

Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings relief and this call include discussions of certain non-GAAP financial measures. Please refer to our earnings relief, 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. Alex Tong. Alex, please go ahead.

Alex Tong Thank you, Fang, and thanks to all of you for joining today's conference call. As we reflect on fiscal year 2026, it is worth stepping back to consider the progress we've made over the past several years. That progress has been built on more than two decades of experience in education, along with continued investment in our capabilities and innovation.

Together, these efforts have enabled us to continuously refine our offerings and better serve the evolving needs of students and society. So with that contact in mind, let me now turn to our learning services business. Learning services business remains our largest revenue contributor. We are committed to delivering quality learning experiences to our user base. We're also building our content solutions business, including learning devices.

These products significantly expand the accessibility and customer reach of our proprietary and third-party content. They work alongside our learning services to create a more integrated learning experience, driving longer, deeper, and stronger user engagement. Beyond our domestic operations, we also expanded into select international markets, leveraging our R&D capabilities and operational know-how to serve educational needs globally. While our businesses are at different stages of maturity, we are beginning to see meaningful improvement in company-level profitability.

This underscores our ability to optimize core operations and build a more efficient operating model, further strengthening our foundation for sustainable growth and long-term value creation. So with that overview, let me walk you through our business progress for the fourth fiscal quarter and full year 2026.

Our offline pay-in enrichment programs demonstrated continued year-over-year growth in both the fourth quarter and the full fiscal year. Throughout the past year, we've maintained a disciplined and consistent approach to expanding our offline learning center network. with a strong focus on service quality, operational health, and sustainable growth. Our expansion decisions are guided by a holistic assessment of factors, including local market demand, receptivity to our offerings, our operational capabilities, and our commitment to maintaining high service quality. This approach supported solid growth and healthy operating performance throughout fiscal year 2026.

In our online enrichment learning business, we continue to enhance user experience and service quality through technology. During the fourth quarter and throughout fiscal year 2026, we upgraded key products with richer content and technology-enabled features, creating a more engaging learning experience. Together, these efforts strengthened the value proposition of our online enrichment offerings and supported sustained user growth and user engagement over time.

Our learning device business achieved year-over-year revenue growth this quarter. In the last couple of quarters, this business has transitioned from its rapid expansion phase toward more moderate growth. We believe product quality and go-to-market capabilities will be critical to this business' long-term success. In March 2026, we introduced the X5 Ultra Classic, a device incorporating enriched content and upgraded AI capabilities.

With the X5 Ultra now integrated into our learning devices portfolio, we are positioned to address a broader spectrum of at-home, self-directed learning needs. As we expand our install base, our key user engagement metrics remain strong with around 80% weekly active users and an average daily active usage time of about one hour per device. This allows us to serve customers beyond our physical presence and enhance at-home engagement.

Next, let me turn to our financial performance for the quarter. In the fourth quarter, our net revenues were $802.4 million U. S. dollars or $5,590 million RMB, representing a year-over-year increase of 31.5% and 25.8% in U. S. dollars and RMB terms, respectively. Our non-GAAP income from operations was $82.2 million, and non-GAAP net income attributable to town reached $254.5 million for the quarter. I will now hand the call over to Jackson, who will provide an update on the operational developments across our core business lines and a review of our financial results for the fiscal fourth quarter.

Jackson, over to you.

Thank you, Alex. I am pleased to update you on our progress during the fiscal quarter and full year across our core business lines.

Our PayO small cost enrichment programs continue its operational momentum during this quarter. As we grow, we continue to uphold our service quality and operational efficiency. In terms of physical footprint, we expanded our learning center network at a measured pace. Our operational discipline is reflected in our key performance indicators. with PAIO small class maintaining a generally stable retention rate of around 80% across fiscal year 2026, with certain quarters exceeding that level.

Turning to our online enrichment learning business, We continue to leverage technology to enhance the student learning experience. A core focus remains deepening student engagement to drive meaningful learning outcomes. To that end, we have driven engagement through interactive formats such as immersive online classrooms and role-playing activities. By offering both offline and online enrichment programs, we aim to address the evolving needs of students and support their holistic development.

Next, our learning devices business delivers year-over-year growth in the fourth quarter as well as the full fiscal year. This reflects our progress in product development and go-to-market execution. Over the past year, we have also broadened our content library and incorporated AI-driven features to support a more engaging and effective self-directed learning experience. As Alex mentioned, last month we launched the X5 Ultra. This device expands our pricing points while offering more content, a unified learning interface, and improved AI tools. Among them, the upgraded AI Thinkkey 101 tool feature. To complement these upgrades, we've also improved the hardware. The X5 Ultra includes a faster processor and a 13.2-inch eye-comfort display, ensuring solid performance across different learning activities. While technology itself is important we believe the true value lies in how it integrates curriculum content scenario AI and seamless hardware into a cohesive learning system, one that is intended to be more intuitive and practical for students.

By organizing fragmented learning materials and tools into a clear structured progression. It helps students monitor their progress and identify next steps. With these efforts, we aim to gradually evolve our learning device into a personalized learning companion designed to foster independent learning over time. I would now like to walk you through our financial results for the fourth fiscal quarter. So net revenues were $802.4 million or $5,590 million RMB, an increase of 31.5% and 25.8% year-over-year in US dollar and RMB terms respectively. Cost of revenues increased by 28.2% to $375.2 million from $292.6 million for the same period last year. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 28.5% to 374.8 million years dollars from 291.7 million years dollars for the same period last year.

Gross profit increased by 34.5% to $427.2 million from $317.6 million in the fourth quarter of fiscal year 2025. The gross margin for the fourth quarter fiscal year 2026 was 53.2% compared to 52.0% in the same period of the prior year.

Turning to operating expenses, selling and marketing expenses for the quarter were $220.9 million, representing an increase of 1.4% from $218.0 million for the same period last year. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, increased by 2.0% to $218.5 million from $214.3 million for the same period last year. Long-gap selling and marketing expenses as a percentage of total net revenues decreased from 35.1% to 27.2% year-over-year. General and administrative expenses increased by 15.7% to $133.8 million from $133.8 million from $115.6 million in the fourth quarter of fiscal year 2025.

Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 19.7% to $126.8 million from $106.0 million in the fourth quarter of fiscal year 2025. Non-gap general administrative expenses as a percentage of total net revenues decreased from 17.4% to 15.8% year-over-year. Total share-based compensation expenses allocated to related operating costs and expenses decreased by 31.9% to 9.8 million years dollars in the fourth quarter of fiscal year 2026 from 14.3 million years dollars in the same period of fiscal 2025. Income from operations was $72.5 million in the fourth quarter of fiscal year 2025, compared to loss from operations of $16.0 million in the fourth quarter of fiscal year 2025.

Non-GAAP income from operations, which excluded share-based compensation expenses, was $82.2 million a year dollars compared to non-GAAP loss from operations of $1.7 million a year dollars in the same period of the prior year. Other income was $275.0 million a year dollars for the fourth quarter fiscal year 2026 compared to other income of $13.0 million in the fourth quarter of fiscal year 2025. The change in other income for the fourth quarter was mainly driven by fluctuations in the fair value of certain investments. Net income attributable to TAU was $244.8 million in the fourth quarter of fiscal year 2026 compared to net loss attributable to TAU of $7.3 million in the fourth quarter of fiscal year 2025.

Non-GAAP net income attributable to TAU, which excluded share-based compensation expenses, was $254.5 million a year dollars compared to non-GAAP net income attributable to TAU of $7.0 million a year dollars in the fourth quarter fiscal year 2025.

Moving on to a balance sheet. As of February 28, 2026, the company had $1,523,000,000 of cash and cash equivalents, billion, $1,715.4 million U. S. dollars of short-term investments, and $262.2 million U. S. dollars in current and non-current restricted cash. Our deferred revenue balance was $882.2 million as of the end of the fourth fiscal quarter.

Now turning to our cash flow system. Net cash used in operating activities for the fourth quarter in fiscal year 2026 was $215.0 million.

Finally, I would like to briefly address our shared repurchase program. On July 28, 2025, the company's board of directors authorized a share repurchase program under which the company may purchase up to $600 million of the company's common shares over the next 12 months. Between January 29, 2025 and April 22, 2026, the company has repurchased 101,371 common shares and an aggregate consideration of approximately $3.3 million.

That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook. Alex, please go ahead.

Thanks, Jackson. Before turning to fiscal 2027, I want to take a moment to speak to the responsibility and mission we carry in serving students and families, particularly in the K-12 sector. At TAO, this is not a peripheral consideration. It is at the heart of how we think about our products, our services, and the standards to which we hold ourselves. It shapes not only what we build, but also how we grow. As we move into fiscal 2027, our strategy is centered on three priorities.

First, we aim to drive quality growth across our businesses. We expect learning services to remain our largest revenue contributor, and we will continue emphasizing quality across both digital and in-person offerings so that we can serve more users effectively while preserving a strong user experience. In content solutions, we will focus on expanding through stronger product capabilities, richer content offerings, and more effective go-to-market execution.

Second, AI remains key to our long-term strategy, and we're approaching it with a clear sense of focus and discipline. Our approach is application first. Rather than pursuing foundation models ourselves, we are focused on deploying AI in ways that meaningfully enhance the user experience, improve operational efficiency, and strengthen our products and services. In learning, that means helping students find the right content more effectively, staying engaged more deeply, and learning more efficiently.

Across the company, it also means applying AI to improve how we operate, from customer service and content production to software development, enabling us to grow with greater leverage over time Finally we remain focused on discipline execution as we scale By continuing to strengthen execution across content product operations and good market we can further improve efficiency and enhance profitability over time. So that concludes my prepared remarks. Operator, I think we are ready to open the call for questions.

Hello, operator. Before we take the first question, we'd like to make one correction. We just talked about we have repurchased an aggregate consideration of approximately $3.3 million. U. S. dollar. This is happened between January 29, 2026 and April 22, 2026. Okay, that's the correction we like to make. Now please open to Emily's question.

you Jenny thank you for the question this is Jackson let me let me take this one look from time to time we make financial strategic investments right to to either generate capital return for shareholders or and or to accelerate business and these investment targets Varied from the classic wealth management products to minority equity investments to sometimes outright, prolonged mergers and acquisitions, as you've seen in the last – all of which, as you've seen in the last few years. Specifically, what happened in this quarter is that a couple of investments in our portfolio experienced an increase in valuation.

And this resulted in an investment gain on our financial statements, which is booked under other income. I would also like to mention that this is a one-time event. Therefore, we don't recommend using this quarter's other income as a baseline for future performance projections.

Jenny, I hope that answers your question.

This is Alex. Let me take that one on. So I'll first talk about our fourth quarter performance and then share our approach to expanding the Learning Center network in the new fiscal year. Okay. So in the fourth quarter, PayU Small Class Enrichment Business, as we mentioned earlier on the call, really had steady growth. revenue increased year over year, which is primarily driven by higher enrollment, which reflects both our learning center network expansion and continued effort to enhance the learning experience for our students.

We talked earlier about the key operational metrics. They remained healthy in the fourth quarter. For example, retention. We talked about retention rate of over 80%. So this really underscores the trust our students and families placed in our programs and the consistent quality, I should say the consistent high quality we maintain in our services delivery. You know, from our day-to-day offline operations, we really continue to see steady demand for enrichment learning, which was driven by, you know, I think the evolving parental and educational priorities of this new generation of parents. So to align with these changing needs, we're really increasing capacity and refining our offerings, both of which we believe will support the business long-term growth trajectory.

You know, you asked about our network expansion. So network expansion in the fourth quarter, we really stick to the discipline approach that we follow throughout the year and throughout the past several years. For the full year, we entered five new cities, which brings our total coverage to over 40 cities across China.

Looking ahead to the new fiscal year, we'll continue to prioritize the business long-term health and sustainability. Our expansion strategy will remain disciplined, focusing primarily on consolidating our presence in existing cities rather than pursuing aggressive geographical coverage expansion. operating from a higher baseline, right? We talked about that a little bit earlier. We're really operating from a much higher baseline, and we need to prioritize sustainable development over expansion for its own sake.

We expect the revenue growth for this business to gradually taper in FY 2027. relative to its rate of growth in FY 2026. So, Timothy, I hope that answers your question.

Thanks, Eddie. This is Alex. So, let me first share some color on our learning device performance in the fourth quarter and then, you know, our views on the competitive landscape. So our learning device business achieved year-over-year revenue growth in the fourth quarter. This really reflects the consistent execution of our strategy, which has always been prioritizing improving product capabilities and refining our go-to-market approach. So sales volume also increased compared to the same period last year, which is supported by an expanded and more diversified product portfolio, which meets a broader range of customer segments and their needs. We also see that the blended average selling price was over 3,000 RMB, which is consistent with our current product mix.

You know, I mean, there's, you know, a lot of talk about, you know, memory cost pressures. really this is an industry-wide challenge that many consumer electronics companies are facing. You know, I mean the sector has pretty extensive experience managing these kind of cycles through operational adjustment and we're applying those lessons alongside strategies catered to our business model. So our key initiatives include optimizing inventory turnover, stock management for greater efficiency, as well as refining our product portfolio by streamlining SKUs and really adjusting our product mix where it's appropriate. These steps are helping us mitigate the impact of rising cost cycle while maintaining our focus on long-term competitiveness. So the question on competition, you know, I think the learning devices sector remains pretty highly dynamic with competitors advancing, you know, in hardware, content offerings, and, you know, AI-driven features.

In this kind of environment, our strategy is to really focus on continued innovation across our own product and user experience while staying responsive to shifting market conditions. So if you look at the past year, we really expanded our lineup to serve different user segments. We talked about the recent launch of the X5 Ultra We continue to enrich our content offering to enhance the learning experience We've also maintained a pretty good cadence of software updates. I think we delivered something like 19 major operating system upgrades and introduced nearly 300 new features over the last fiscal year.

So, you know, together these efforts really help us reinforce our integrated approach with combining hardware, software, and distribution to create a cohesive learning solution, an at-home learning solution. We believe, you know, building innovation and product capability is really the key to navigating the competitive landscape. And, you know, I think our progress to date, you know, in market share really aligns with our expectation and that approach we've adopted. So, you know, really beyond devices, we also see Content Solutions as a strategic initiative that extends learning beyond the classroom and deepens and provides longer engagement for us, you know, between us and our users at home.

And we think this can really build together as an integrated learning experience for our students. across learning services and content solutions.

Really, our long-term goal is to make quality learning resources more accessible while supporting students' holistic development along their journey of learning and development. So I hope that answers your question.

Thank you for the question. This is Jackson. Let me take this one. First of all, I would just like to say profitability is a priority for us, and we continue to take measures to drive profitability improvement. When we think about profitability, we see profitability as a manifestation of the value we create for customers and society as a whole combined with our operating efficiency. So when we think about measures we take to improve profitability, it's really measures along the lines of, one, value creation, but two, also operating efficiency.

Now, let's break down the drivers of it. I think there are several contributing factors to profitability momentum this past quarter. However, one, as payo's small class continue to grow, its operating margin, its margin profiles remain steady and has generated more absolute profit dollar. Other business lines, including online enrichment learning programs, including learning devices, showed varying degree of profitability improvement as well. In addition to business unit level profitability improvement, the overall company is also unlocking mobile operating leverage, which has been a contributing factor to overall profitability improvement as well.

I'd like to also comment a bit on the overall trend of our profitability. If we look at non-GAAP operating income margin for the last few quarters, I think for every single quarter this past fiscal year, our non-GAAP operating margin improved compared to the same period of last year. And we really see this as a result of all the profitability improvement measures we're taking discussed above.

I hope that answers your question.

Thanks, Candice. This is Alex. Let me take that down. Let me unpack that. So, first of all, you know, let's look at the first part of the question, which really is a breakdown of the top-line growth performance across our major business lines this quarter, right? So, let's start with PayU Offline Enrichment Business, which, as we mentioned on this call, remains our largest revenue driver.

It really continued its solid growth this quarter. This was supported by, as we said, the ongoing expansion of our learning center network and the consistent improvement to service quality. Moving into fiscal year 2027, the expansion strategy remains disciplined. we're going to focus on increasing center density within existing cities, you know, to ensure we maintain high operational standards.

We anticipate this business continues to grow at a healthy rate. As the operations, you know, grow larger and the baseline becomes larger, We've seen the year-over-year revenue growth rate moderate naturally, which is a trend that we expect to continue into the next fiscal year.

Second, the online enrichment learning business. You know, we remain committed to delivering high-quality, interactive learning experiences. we continue to enhance the user experience by introducing more interactive features and leveraging AI in both content production and our internal workflows. This product and user-centric approach really support user engagement over time. In terms of the online enrichment learning business's channel strategies, we balance between growth objectives and return on investments to build long-term operational capabilities.

Next, learning device business. It delivered year-over-year revenue growth this quarter, driven by increased sales volume and a higher contribution from deferred revenue recognition. The market, you know, as we discussed, is evolving toward a more sustainable growth path. And we are focused on strengthening our long-term competitiveness through the kind of investment in product innovation and channel development. You know, our product strategy focuses on creating integrated learning solutions that really combine hardware, proprietary software, content, and AI-enhanced experiences.

We often talk about channel development. Here, the plan is really to further diversify distribution by balancing investment across both online and offline channels to effectively reach and serve our users. So, if I put all of that together, when we look at a company holistically, as our operations scale with an increasingly larger baseline, we anticipate that our year-on-year growth rate will gradually moderate. With growing maturity, we also expect operational efficiency to improve and will remain focused on driving profitability. You know, we may see some quarterly fluctuations, but improving overall profitability remains a top priority for fiscal year 2027.

Looking ahead, we'll continue advancing our strategic initiatives and also strengthen core capabilities to support sustainable margin improvement over time. So, Candice, I hope that answers your question.

Thanks again for joining us today. We look forward to seeing all of you next quarter. Thank you. Bye-bye.