TAL Education Group Q1 FY2026 earnings call

Management Statement and Operational Highlights

• Core Business Performance: Learning services showed steady growth in offline Peiyou programs and online enrichment. Content solutions leveraged AI-powered learning devices, with 3 new models launched in May to enhance the learning experience.
• Financial Results: Cost of revenues increased by 29.8%, but gross profit rose by 47.3% to USD 315.4 million. Selling and marketing expenses increased due to online marketing activities and brand-building. General and administrative expenses saw a 10.4% increase, but non-GAAP general and administrative expenses as a percentage of revenues decreased. Share-based compensation expense decreased by 40.9%. Balance sheet had cash and cash equivalents of USD 1,267.2 million, short-term investments of USD 2,205.6 million, and deferred revenue of USD 967.9 million. Share repurchase program extended with a new plan to repurchase up to USD 600 million in shares.

Segment Performance

• Learning Services: Peiyou Small Class Enrichment programs saw year-over-year revenue growth with enrollment rising and a retention rate of around 80% for Peiyou Small Class. Online enrichment learning, such as Xueersi Reading, continued to innovate with upgraded features.
• Learning Devices: Recorded year-over-year revenue growth, with the launch of 3 new models in May. The average weekly active rate across learning device users was around 80% with an average daily usage time of 1 hour per active device.
• Financials: Net revenues for the first quarter were USD 575 million (RMB 4.2 billion), a year-over-year increase of 38.8% (USD) and 39.4% (RMB). Non-GAAP income from operations was USD 25.1 million, and net income attributable to TAL was USD 42 million.

Guidance

• Anticipate continued progress into Q2 2026, benefiting from summer vacation and e-commerce festivals, expecting revenue growth.
• On a non-GAAP basis, expect improved operating profit compared to Q1.
• Focus on enhancing product and service quality in learning services, and product optimization, innovation, and go-to-market execution in content solutions.
• Committed to innovating in K-12 learning with AI and technology, building organizational strength for adaptability.

Risks

• Forward-looking statements subject to risks outlined in SEC filings.
• Non-GAAP financial measures may differ from GAAP.
• Market uncertainties affecting business performance.
• Intense competition in the learning devices industry impacting margins and market position.

Question and Answer

• Q: Regarding Peiyou business expansion pace and outlook: A: Focus on increasing center density in existing cities, disciplined expansion based on market demand and organizational capacity. Anticipate Peiyou revenue growth to gradually taper off.
• Q: Learning devices performance, new models impact: A: Q1 was a low season, but year-over-year growth due to sales volume. New models in early stages, P series for value, S and T series as upgraded versions. Competitive landscape intensifying, driving innovation.
• Q: Sales and marketing expense trend and learning devices margin: A: Sales and marketing expenses increased due to online marketing and brand-building. Learning devices in investment phase, monitoring market dynamics for long-term growth.
• Q: Margin drivers and outlook: A: Margin improvement due to operating leverage from scale, operational refinements, and AI-driven efficiency measures. Focus on sustainable growth with strategic investments and flexible resource allocation.