TAL Education Group Q3 FY2026 earnings call

• Continued to make steady progress on strategic priorities with a focus on supporting students' holistic development, innovation, user engagement, and service quality.
• Learning services: Offline Peiyou programs operated stably with revenue growth driven by increased enrollment; online enrichment offerings leveraged technology to enhance learning experience, introducing immersive classrooms and technology-themed content.
• Learning device business: Delivered year-over-year revenue and sales volume growth; transformed into more intelligent learning tutoring AI companions; launched X5 Classic Learning Device; participated in forming national standards for mobile learning terminal function requirements.
• Financial results: Net revenues increased, gross profit rose by 35% year over year to $431.8 million, gross margin increased to 56.1%, selling and marketing expenses decreased, general and administrative expenses had changes, non-GAAP income from operations and net income were positive.

During the quarter, TAL Education Group's learning services saw year-over-year revenue growth in both offline Peiyou programs and online enrichment offerings. The learning services were driven by sustained user demand and a diverse portfolio of enrichment programs. The learning device business delivered year-over-year growth in both revenue and sales volume. Net revenues for the quarter were $770,200,000, representing year-over-year increases of 27% in U.S. dollar terms. Non-GAAP income from operations was US$104.0 million and non-GAAP net income attributable to TAL was US$141.4 million. The learning services contributed to revenue growth through increased enrollments and stable average selling price (ASP), while the learning device business saw growth in revenue and sales volume with high user engagement metrics like an average weekly active rate of approximately 80% and average daily usage per active device of approximately one hour.

• Viewed the intersection of learning and technology as a long-term strategic priority, aiming to enhance product design and service delivery across businesses.
• Strengthening go-to-market capabilities, implementing agile channel management strategies for newer businesses like learning devices.
• Reinforcing multi-channel ecosystem by combining digital and physical touch points.
• Focusing on long-term sustainable development rather than short-term financial outcomes, acknowledging near-term variability may be influenced by market conditions, investment cycles, and seasonal fluctuations.

• Changes in market demand and advances in technology introduce new competitive dynamics.
• Occasional variability and limited visibility in financial performance due to seasonal demand shifts, competitive pressures, and deliberate resource reallocation.

Q: Could management provide an update on the learning center network expansion in Q3 for offline Peiyou small class enrichment programs and the key drivers of Peiyou revenue growth, as well as growth outlook?

A: During Q3, Peiyou offline enrichment programs had revenue growth aligned with learning center network expansion. Drivers of growth were increased enrollments with stable ASP, driven by market demand for high quality enrichment programs and internal capabilities like product design, service quality, and content development. Outlook was gradual moderation in revenue growth pace in FY 2026 due to higher comparison base.

Q: What are the key reasons behind the top line growth momentum slowing down compared to last quarter, and the revenue growth outlook for different business lines, especially learning devices?

A: Moderation in top line growth was due to deceleration in learning device business growth, including transition from rapid expansion phase to sustained growth, product launch timing differences between fiscal years creating different comparison bases, and prioritizing long-term competitiveness leading to quarterly variability. Outlook for learning device revenue was continued fluctuation, and group level year-over-year growth rate expected to moderate in second half of fiscal year due to higher comparison base.

Q: Could you share the Q3 sales performance of the learning device and how they performed during the Double 11 promotion period relative to expectations, and your view on the competitive landscape in the learning device market?

A: Q3 learning device sales had year-over-year volume growth driven by product portfolio and channel strategies, blended ASP below RMB4,000 due to product mix shift, and reported adjusted operating loss as in investment phase. During Double 11, market share performance aligned with expectations. Competitive landscape involves AI advancements transforming educational technology landscape, with our approach combining vertical domain large models with general AI capabilities to create personalized learning experiences, and key user engagement metrics solid.

Q: What are the main drivers of profitability and the operating margin performance across different major business lines in Q3, and the outlook for profit margin?

A: Profitability drivers included volatility in selling and marketing expenses and disciplined cost management. Operating margin improvement was due to lower marketing expenses for learning device business, lower online marketing expenditure for online enrichment in non-peak season. Learning device business reported adjusted operating loss as in investment phase. Overall margin profile has quarterly fluctuations due to portfolio of mature profitable businesses and newer investment phase initiatives, so current results not indicative of future trends.