Ladies and gentlemen, good day and thank you for standing by. Welcome to TAL Education Group First Quarter of Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be informed that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference call over to Mr. Jackson Ding, Investor Relations Director. Thank you. Please go ahead, sir.

Thank you, operator. Thank you all for joining us today for TAL Education Group's first quarter fiscal year 2024 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 Peng, President and Chief Financial Officer; and myself, Investor Relations Director. Following the prepared remarks, Mr. Peng and I 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 release and this call include discussions of certain non-GAAP financial measures. Please refer to our earnings release, 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 Peng. Alex, please go ahead.

Thank you, Jackson. I'd also like to thank all of you for participating in today’s conference call. During this call, we will review the financial performance and business progress of the first quarter of the fiscal year 2024. After that, I will share some thoughts on the outlook for the next quarter. So first in this quarter, unless ongoing effort to fine tune our core offerings and optimize our operations such as enrichment learning, we also achieved progress in some of our newer initiatives, taking the example as XPATH [ph], our smart device which we launched to the market at the end of the last quarter. That has really demonstrated satisfactory sales performance and has received positive customer feedback over the past few months. Furthermore, we've been making progress in our artificial intelligence strategy and are working towards a rollout of AI products in the future. In terms of financial performance, we recorded net revenues of US$275.4 million and RMB1 billion RMB906.7 million for the quarter which is an increase of 22.9% and 31.1% year-on-year in U.S. dollar and RMB terms respectively. In terms of profitability, our non-GAAP loss from operations and non-GAAP net loss attributable to TAU for the quarter were US$32.3 million and $US19.5 million respectively. So with that overview I'd like to hand the call over to Jackson. He'll give you an update on our core business lines operational developments and review our first quarter financial results. After that, I'll return to share more details regarding our outlook for the next quarter and then open the call for questions. Jackson, please go ahead.

Thank you, Alex. I'm pleased to share some details on the progress we've made in this quarter across our core business lines. Please note that all financial data for this quarter is unaudited. First, let's take a look at our learning services and others business, which consists of a broad range of learning programs for consumers as well as technology solutions for institutional customers. In the first quarter of fiscal year 2024, our learning services and others business accounted for just less than 75% of our net revenues. Within learning services, enrichment learning continued to make material progress with net revenues achieving double digit year-over-year growth. The progress was predominantly attributed to enrollment growth from our offline small class offerings. In response to the notable demand from our customers, we expanded our learning center network this quarter, increasing the total number of learning centers from roughly 170 to north of 200. Through our net network expansion, we conscientiously managed our operating efficiency. Efficiency indicators such as retention rate have been relatively stable quarter-over-quarter. At the current level of operating efficiency, our offline small class enrichment learning services business has a viable business model. As for online large class enrichment learning business, we're focused on sustaining our existing level of operating efficiency while introducing a new array of offerings to the market. On our last few calls, I discussed some new programs such as eloquence training and natural science learning. These programs, although only contributing a fraction of our total revenues, garnered incremental customer traction in the last couple quarters. When we look at the next couple of quarters to come, for enrichment learning, we'll continue to optimize our product offerings, user experience, and operational efficiency to further develop suitable and differentiated strategies for both online and offline business. Moving on,…

Thanks, Jackson. As we introduced before, some of the achievements in this quarter are just a start to this fiscal year. Next, I would like to share some thoughts on our outlook for the next quarter. About the outlook for the upcoming Q2, we expect that development momentum will continue as the next quarter will cover the summer vacation and e-commerce shopping festivals. We expect Q2 to be high season with seasonality having a positive impact on our revenues. On a non-GAAP basis we anticipate an improvement in operating profit compared to this quarter. As generative AI is on the cusp of redefining our industry, I'd also like to speak a bit more about our endeavor in artificial intelligence. We'll apply AI technology and launch learning products in the number of learning subjects in the near future. We'll update you on the progress in this area after the products are launched. We'll continue to invest in the artificial intelligence technologies to innovate our business. We really sit at a very interesting time in our industry. When I look back at TAL's track record in the last 20 years, I see a pattern of providing high quality affordable services to customers through technology and or business model innovations. We really believe AI has the potential to enable us to provide more accessibility to our customers and redefine the industry paradigm for decades to come. And that concludes my prepared remarks. Operator, we're now ready to open the call for questions.

Certainly. [Operator Instructions] And our first question comes from the line of Ivan Jung [ph] from China Renaissance. Your question, please.

Hey good evening, management. Thanks for taking my question. So my question is regarding the learning device. Glad to say we have made a considerable progress iPad. So how do you view the current market dynamics and what is our company's competitive advantage that you expect? Thank you.

Thanks Ivan [ph]. This is Alex. Let me take this question. So I think first of all, we are really striving to meet the daily learning needs of our young learners and be their trusted companion on their journey of growth. I think this is a journey that goes across multiple years. It's intense in terms of what the young learners need to learn. So there's quite a bit of support they need along the way. What we've found is that their learning needs are really very diversified across different age groups, across different types of students their personal learning journey up-to-date and so on. So in addition to attending classes, I think hardware products can really be an effective way to meet that kind of personal needs in different scenarios and really lots of self-learning needs. So that's the first thought. So in terms of our competitive advantages I think there are a few things. One is there's 20 years of pedagogical and education research experience and through that two decades of experience, I think the company has developed a set of tailored content for the learning devices. This not only ensures consistently high quality content, but also serves to students different types of what they're accustomed to in terms of utilizing fragmented time for learning. So I think that's really an important foundation. Now, on top of that, as I mentioned before, we've, we continue to strive and seize this, the secular trend around artificial intelligence. We think that AI combined with our content that we've developed over the years can really be a powerful support for students, especially for their personalized learning needs across that learning journey. So, and lastly, I think the users have given us pretty positive feedback regarding both our, the content and the personalized user experience. We realized this is still fairly early in our endeavor into the learning devices space. And we just take these feedback as further encouragement and guidance for our continued endeavor and further polish our products, bring additional content and artificial intelligence experience to this product in the future. So Ivan [ph] hopefully that answers your question.

Yes, sure. That's very clear. Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Candis Chan from Daiwa.

Hi, good evening, Alex and Jackson. So thank you for taking my question. My question is related to our expansion plan for this year. So I know that, you Jackson just mentioned that we actually added roughly 30 new learning centers this quarter, and how would be the pace for the remaining quarters and in the longer term, what sort of expansion rate that we should expect? Thank you.

Candis, thanks for the question. This is Jackson. I'll take this one. Maybe before I go into the specific plan, I think it would be helpful to kind of share with you our thoughts behind how we manage our learning center then. All right? So when I think about managing our learning center network, a general rule of thumb we have is that we want to manage and maintain operating efficiencies of our existing centers as we open up new centers to the extent that there's market demand and we have operating capabilities. In the last couple of quarters on these calls I think I've talked about how we are gradually adding new learning centers and you can see this pattern continue this quarter. Now, this quarter, the number of learning centers did continue to grow. Our total number of learning centers has increased from roughly 170 at the end of the previous quarter to north of 200 at the end of Q1. I would caution you though that the growth of learning -- number of learning centers in this quarter is partially in preparation for the peak season during the summer. So we don't necessarily expect to see the same level of increase at this pace every single quarter from now on. As to the future, we will expand our learning centers at a steady pace to ensure a smooth and balanced growth. I hope that answers your question, Candis.

Great. Thank you, Jackson.

Thank you. One moment for our next question. And our next question comes from the line of Felix Liu from UBS. Your question please.

Good evening and thank you management for taking my question. Congratulations on the fast growth of the hardware and that's where my question is. So first, I'd like to, get your thought on the potential addressable market of our hardware business. Could you share a bit more about our target demographics or what are -- which part of the student population are our learning hardware popular among? And a second part of the question is on the margin commencement, provide more color on the margin profile of the learning hardware currently, and where do you expect the margin to eventually arrive at? Thank you.

Felix, thanks for the question. This is Jackson. I'll take this one. So the first part of the question was related to TAM. When I look at -- if I limit this conversation to the China market in terms of TAM I think on an annual basis, we see shipments of 45 million units of learning tablets every year and that's the kind of existing market size. And if we, but when we look at our products, we not only, we believe we not only tackle the existing market, we also have an opportunity to serve the broadly speaking, learning industry. We really look at this as customers should want it, how much they spend on, on learning, on supplemental learning in general, and how much of that use case and use scenarios could be served through a learning tablet by offering more intelligent functionalities as well as high quality and personalized content. So the short answer to the TAM questions it is, that the, depending on what you look at, the current TAM is probably 45 million units per year. If you look at the broadly speaking wallet for the learning industry, it's a much, much higher, potentially it could be a much higher number. The second part of the question was related to margin profile. Let me break that down for you a little bit. First, it may be helpful to understand how we, how top line works. I think it's worth noting that a meaningful portion of the revenue from a hardware business will be recognized as deferred revenue and will be deferred over the next year or two depending on the product. Where substantially all cost and expenses would be recognized upfront. So this accounting technicality would have a negative impact on margin profile while the business is growing. That's number one. Two is when we look at, when we look at fixed costs for this business we have, we've made upfront investments in fixed costs predominantly in the form of building a team who manage and develop the product as well as producing content for our device. So that part of the fixed cost is there. Now our hardware business is still in its early stage of development. So as sale increases, we believe there will be potential upside to the profitability of this business. I hope that answers your question Felix.

Okay, thank you.

Thank you. One moment for our next question. And our next question comes from the line of [indiscernible] from CICC. Your question please?

Hi Alex and Jackson. Thank you for taking my question, so just a quick one. Could the management team provide an overview of the specific plans and future plans for the share buyback program? Thank you.

[Indiscernible] thanks for the question. This is Jackson. I'll take this. We always look for ways to generate shareholder returns and share buyback is one of those tools that from time to time we deploy when what condition fits. If we dial back a year ago in fiscal year 2023, we've repurchased close to 18 million ADS at an aggregate consideration of approximately US$66 million. In April, now this year, in April 2023, the company's Board of Directors extended the share repurchase program from the previous year. The current program authorized the company to spend up to approximately US$737 million in proceeds in share repurchases through April 30, 2024. In this fiscal year as of May 31, 2023, the company has repurchased US$25.9 million ADS at an aggregate consideration of approximately US$151.3 million under the share repurchase program. In the next quarter, we'll continue to buy back and the amount spent will be subject to market and business conditions. I hope that answers your question.

Yes, thank you very much.

Thank you. One moment for our next question. And our final question for today comes from the line of Howard [indiscernible] from Macquarie. Your question please? Howard, you might have your phone on mute.

Hello. Hi. Can you hear me?

Yes, we can hear you now.

Okay, okay, sure. So I have a question on AI products. I'm wondering if management could share more on the details of our AI product and if there is current, like what's the current R&D status and when do you plan to launch the product?

Hey, Howard, this is Alex. Let me take that one on, but let me just actually add one point before we get to the specific R&D progress and product launch road map. I think this is really truly a long-term secular trend. You know, as I mentioned in the last call with all of you, really in the time about seven months since generative AI has broken into the public discourse, we've spent tons of time discussing with players across the entire ecosystem from dedicated large language model developers to leading technology companies, startups, researchers. We've spent that time both in China and have taken a few trips to the United States as well. I think there's this pretty much of a consensus looking forward that the power unleashed by the large language model would really redefine and help us reimagine the future of education. So it's absolutely exciting and it's the area where I think the management team and the company as a whole have already embraced and will continue to embrace for many years to come. So as that's a long journey, right, that's again I think a decade long journey as all of us learn how to grow and develop and build a world with artificial intelligence. So the products that we have is just the very, very start of it. It's in the internal testing phase now for our employees and a very limited set of customers are testing them and we are continuously optimizing obviously the performance of the product and improving the user experience in preparation for the future launch. So moving forward we plan to extend the capabilities of these large language models with a few things. I think obviously there is a large set of proprietary data that we have accumulated over the years through our pedagogical experience and customer service. I think that's invaluable in terms of helping the large language model to become more suitable for the various scenarios across the learning journey. I think we would need to continue to work on better alignment for the model for the type of interactions with students on various types of subjects. And lastly, I think it's just in terms of features and functionalities across our learning services, type of business models, as well as our content and learning devices business models to meet the diversified learning needs of our customers. So Howard I hope that answers your question.

Yes, thank you for the update.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Great. Again thanks to everybody for joining us today and we look forward to talking to you next quarter. Bye, bye now.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.