Summary of TAL Education Conference Call Company Overview - **Company**: TAL Education - **Industry**: Education Technology Key Points Financial Performance - **2QF26 Results**: TAL reported a revenue increase of 38% to $861 million, exceeding JP Morgan's estimate by 1% and consensus by 4% [9] - **Profitability**: Gross Profit Margin (GPM) improved by 50 basis points to 57.1%, driven by a stable mix of high-margin tutoring and lower-margin devices [9] - **Operating Profit**: Operating Profit (OP) surged by 67% to $108 million, approximately 20% above Bloomberg consensus [9] - **Net Profit**: Net profit increased by 83% to $136 million, significantly surpassing the consensus estimate of $98 million [9] Growth Drivers - **Segment Performance**: Both tutoring and device segments are estimated to have grown at around 35-40%, with tutoring likely contributing to the consensus beat [9] - **Deferred Revenue**: Deferred revenue rose by 59% year-over-year, indicating strong future revenue potential [9] Cost Management - **Operating Expenses (OPEX)**: OPEX rose by 35%, consistent with the previous quarter, while Sales & Marketing (S&M) expenses increased by 49%, a significant reduction from previous spikes of 70% [9] - **Operating Margin**: Operating Margin (OM) improved by 210 basis points to 12.5% [9] Share Buyback Program - **Buyback Activity**: TAL executed a buyback of $135 million in the last three months, aligning with a $600 million program, signaling management's commitment to stabilizing share prices [9][12] Market Sentiment and Valuation - **Upgrade to Overweight**: JP Morgan upgraded TAL to Overweight, citing normalized results and a potential inflection point for investor confidence [2][12] - **Price Target Increase**: The price target for December 2026 was raised to $16 from $12, based on a 15x CY27E EPS multiple, suggesting a 33% potential upside [2][12] Long-term Outlook - **Growth Projections**: TAL is expected to deliver record profits from CY26E as it scales its operations, with projected EPS growth of over 60% CAGR from FY25-28E [17] - **Valuation Metrics**: TAL is currently trading at 28x P/E on CY25E, with expectations of multiple compression as growth materializes [17] Additional Insights - **Investor Confidence**: The recent results are seen as a strong start to rebuilding investor trust, with the need for continued performance in subsequent quarters [2][12] - **Market Position**: TAL's growth trajectory contrasts with competitors, indicating a robust market position despite rising competition [9] Conclusion TAL Education's recent performance indicates a strong recovery and potential for future growth, supported by effective cost management and a strategic buyback program. The upgrade to Overweight reflects renewed investor confidence, with a favorable long-term outlook based on projected earnings growth.

Financial Data and Key Metrics Changes - The company's net revenues for Q2 FY2026 were $861.4 million, representing a year-over-year increase of 39.1% in U.S. dollar terms and 38.1% in RMB terms [9][15][18] - Non-GAAP income from operations was $107.8 million, compared to $64.5 million in the same period last year [10][17] - Net income attributable to TAL was $124.1 million, up from $57.4 million year-over-year [18] Business Line Data and Key Metrics Changes - PAYU Small Class Enrichment Programs experienced growth driven by higher enrollments and expansion of offline learning centers [11][28] - The learning device business saw revenue growth both year-over-year and sequentially, with sales volumes increasing due to new product launches [14][35] - The average weekly active rate among learning device users was approximately 80%, with average data usage time per active device exceeding one hour [15] Market Data and Key Metrics Changes - The offline small class enrichment learning market is fragmented, making it challenging to assess total market size and demand [26] - The blended average selling price (ASP) for learning devices declined below RMB 4,000 due to changes in product mix [34] Company Strategy and Development Direction - The company is focused on long-term sustainable growth, investing in technology and content to enhance user engagement and learning outcomes [4][21] - A technology-driven approach is being adopted to improve online enrichment learning programs, integrating smart interactive features [12][35] - The company aims to strengthen its go-to-market capabilities in the learning device sector, which is still in its early stages [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged potential fluctuations in business performance due to seasonal factors but remains committed to long-term growth [21][23] - The company is prioritizing resource allocation to critical areas aligned with long-term strategic goals, focusing on sustainable growth rather than short-term financial results [22][23] Other Important Information - The company has authorized a new share repurchase program of approximately $600 million, with $134.7 million spent on repurchasing shares so far [19][50] - As of August 31, 2025, the company held approximately $3.5 billion in cash and cash equivalents, short-term investments, and restricted cash [50] Q&A Session Summary Question: Updates on PAYU Small Class Enrichment Programs - Management noted steady growth in PAYU Small Class Enrichment Programs, with revenue growth in line with learning center expansion and stable pricing for summer courses [26][28] Question: Performance of Learning Device Business - The learning device business saw increased sales volumes, but the blended ASP declined due to product mix changes; the company remains focused on long-term competitiveness [34][35] Question: Breakdown of Top Line and Bottom Line Performance - Management indicated that PAYU Small Class revenue growth is expected to taper off, while learning devices are still in early stages with fluctuating performance [43][45] Question: Share Repurchase Plan Outlook - The company will continue to execute the share repurchase program in line with market conditions, maintaining a long-term perspective on capital allocation [50]

Core Viewpoint - TAL Education Group reported significant financial growth in the second quarter of fiscal year 2026, with net revenues increasing by 39.1% year-over-year, driven by strong performance in enrichment learning programs and learning devices [4][8][21]. Financial Results for the Second Quarter of Fiscal Year 2026 - Net revenues reached US$861.4 million, up from US$619.4 million in the same quarter of the previous year, marking a 39.1% increase [4][8]. - Income from operations was US$96.1 million, compared to US$47.6 million in the prior year, reflecting a 101.8% increase [8][12]. - Non-GAAP income from operations was US$107.8 million, up from US$64.5 million, a 67.2% increase [8][12]. - Net income attributable to TAL was US$124.1 million, a 116.1% increase from US$57.4 million in the same period last year [8][16]. - Non-GAAP net income attributable to TAL was US$135.8 million, compared to US$74.3 million, an 82.7% increase [8][16]. - Basic net income per ADS was US$0.22, and diluted net income per ADS was US$0.21, both showing significant increases from the previous year [8][17]. Financial Results for the First Six Months of Fiscal Year 2026 - For the first six months, net revenues totaled US$1,436.4 million, a 39.0% increase from US$1,033.5 million in the same period last year [21]. - Income from operations was US$110.4 million, compared to US$30.3 million in the prior year, reflecting a 264.6% increase [29][33]. - Non-GAAP income from operations was US$133.0 million, up from US$65.4 million, a 103.3% increase [29][33]. - Net income attributable to TAL was US$155.4 million, compared to US$68.8 million, a 125.7% increase [33]. - Non-GAAP net income attributable to TAL was US$177.9 million, compared to US$103.9 million, a 71.1% increase [33]. - Basic and diluted net income per ADS were both US$0.26, with non-GAAP figures also at US$0.30 [34]. Operating Costs and Expenses - Operating costs and expenses for the second quarter were US$766.7 million, a 34.0% increase from US$572.0 million in the same quarter of the previous year [5][22]. - Non-GAAP operating costs and expenses were US$755.0 million, a 36.0% increase from US$555.1 million [5][22]. - Selling and marketing expenses increased by 46.9% to US$267.3 million from US$181.9 million [7][24]. - General and administrative expenses rose by 8.0% to US$129.1 million from US$119.5 million [9][25]. Cash and Investments - As of August 31, 2025, cash, cash equivalents, and short-term investments totaled US$3,248.8 million, down from US$3,618.4 million as of February 28, 2025 [19]. - The deferred revenue balance was US$822.7 million, compared to US$671.2 million as of February 28, 2025 [20]. Share Repurchase Program - The board of directors authorized a new share repurchase program allowing the company to repurchase up to US$600 million of its common shares over the next 12 months [36].

Financial Data and Key Metrics Changes - In Q4 2025, the company recorded net revenues of $610.2 million, reflecting a year-over-year growth of 42.1% in USD and 44.3% in RMB [10][20] - For the full fiscal year 2025, net revenues totaled $2.3 billion, up 51% in USD and 52.2% in RMB year-over-year [11][24] - Non-GAAP income from operations for the full year was $61.8 million, compared to $19.7 million in the prior fiscal year [25] Business Line Data and Key Metrics Changes - The Peiyou small class enrichment programs remained the largest revenue contributor within the learning services business, achieving solid growth [55] - The learning devices segment saw a year-over-year growth, although it experienced a typical seasonal decline in Q4 [56] - The retention rate for Peiyou small class reached 80% in the fiscal quarter [14] Market Data and Key Metrics Changes - The company expanded its learning center footprint while maintaining a disciplined approach to evaluate market demand and operational efficiency [14] - The online enrichment learning business continued to thrive, driven by user feedback and technological advancements [15] Company Strategy and Development Direction - The company is committed to sustainable growth in core business lines, focusing on high-quality standards for both offline and online enrichment learning products [28] - There is an emphasis on integrating AI-driven features to enhance learning outcomes and improve product capabilities [30] - The company aims to refine operational details to boost overall efficiency and profitability as it scales [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the industry's growth potential and the ability to deliver quality products to meet future needs [40] - The focus will remain on sustainable, healthy growth rather than pursuing hyper-growth for growth's sake [41] - Improving overall profitability is a key priority, with expectations of leveraging an expanding revenue base for operational efficiency [61] Other Important Information - The company welcomed Mr. Yi Wang as the new independent director and chairman of the compensation committee [12] - A share repurchase program was extended, allowing for up to $490.7 million in repurchases through April 2026 [26][80] Q&A Session Summary Question: Update on Peiyou enrichment learning business and growth strategy - Management noted steady year-over-year growth for Peiyou and emphasized the importance of technology in their strategy moving forward [36][38] Question: Profitability profile of Learning Devices segment - The learning device business reported an adjusted operating loss, with a focus on enhancing device functionality and expanding the product portfolio [44][46] Question: Breakdown of top line growth by business line - Peiyou small class enrichment programs were the largest revenue contributor, while learning devices remained a key growth driver [55][56] Question: Future investment strategy and shareholder returns - The company plans to maintain operational flexibility while strategically investing in areas that enhance existing products and services [78][80]