Ladies and gentlemen, good day, and thank you for standing by. Welcome to TAL Education Group's second quarter of fiscal year 2024 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a Q&A session. Please be informed today's conference is being recorded. I would now like to hand the conference 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 second 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 newswires. 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 discussion 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 now 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'll review the financial performance and business progress of the second quarter of this fiscal year, 2024. After that, I'll share some thoughts on the outlook for the next quarter. During this quarter, we continued to operate and manage our core business lines while exploring new initiatives and seizing new opportunities. With respect to our Learning Services and others business, we further optimized our online and offline offerings for varied user preferences and expanded our learning center network at a measured pace. As for the Content Solutions business, our learning devices launched near the end of the last fiscal year, maintained their growth momentum and delivered solid user engagement performance. In addition to our core business, our innovative endeavors have made progress in this fiscal quarter.
We have rolled out the beta version of MathGPT, and we intend to continuously improve the model's efficiency, guided by the feedback we receive from selected users to whom we provided test invitations of this experimental version. In terms of our financial performance, we recorded net revenues of $411.9 million and CNY 2,965.9 million for the quarter, representing an increase of 40.1% and 49.5% year-over-year in U.S. dollar and RMB terms, respectively. With respect to profitability, our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter, or $52.7 million and $58.8 million, respectively. With that overview, I'd like to hand the call over to Jackson to give you an update on our core business lines, operational developments, and review our second quarter financial results.
After that, I'll return to share more details regarding our outlook for the next quarter, and then I'm really looking forward to opening the call for questions. Jackson, please go ahead.
Thank you, Alex. I'm pleased to share some details on the progress we made and during the second fiscal quarter across our core business lines. Please note that all financial data for the quarter is unaudited. Let me start with 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 second quarter of fiscal year 2024, our Learning Services and others business contributed to our year-over-year growth momentum. Within Learning Services, our enrichment learning business achieved double-digit revenue growth year-over-year during the quarter, driven by continued increase in our offline learning center network's capacity and seasonal benefits of summer vacation, which led to a year-over-year increase in enrollments in this quarter. We continue to expand our offline learning center network to better adapt to users' needs.
Our learning centers reached approximately 220 at the end of the second quarter, which increased from roughly 200 at the end of the previous quarter. Furthermore, efficiency metrics, such as learning center utilization rate, illustrate the overall level of business health. We believe offline small class enrichment learning has a viable business model and a clear path for future development. In addition, our online large class enrichment learning business continued to make progress this quarter. Operational efficiency indicators, such as retention rate, have been consistently at a viable level. We have been expanding our learning program offerings over the last few quarters. While these new programs still constitute a small percentage of our total revenue, they have shown year-over-year growth in this fiscal quarter. Moving on, let's discuss Think Academy, our Overseas Learning Services business.
Our Overseas business also continued to expand during the second quarter. In this fiscal quarter, we have established new learning centers in the United States, Singapore, and Hong Kong. We're committed to serving the overseas markets with Think Academy while balancing our standard of service and our locally customized contents. As we look forward to the next quarter, we expect a quarter-on-quarter decrease in revenue from our Learning Services and others business, driven by seasonal influences. However, we remain committed to the ongoing development of our learning center network, managing our product offerings, and sustaining operational efficiency. Moving on to our Content Solutions business. This business primarily consists of sales of smart books, print books, learning devices, and digital contents. In this quarter, smart and print books combined delivered year-over-year double-digit growth.
As for learning devices, it is a relatively new business for us, so year-over-year growth rate will be less relevant. If we look at the growth trend for learning devices from Q1- Q2, the business experienced quarter-over-quarter sequential growth, driven by both seasonal benefits and business progress. The learning devices business remains one of the main revenue contributors to our Content Solutions business. During this quarter, we continued to receive recognition for its functions and content library. While we continue to develop our capabilities in supply chain and sales and marketing, we are also iterating new features for learning devices based on user feedback in order to meet their diverse learning needs. As an example, we have fine-tuned our product functionalities in AI-based precision learning, targeting students from a broader range of age groups, including elementary school and junior high school.
Beyond improvements in software and hardware functionalities, we're also exploring possibilities in diversifying our business model and our go-to-market channels. Looking ahead to the next quarter, we intend to serve more customers with better experiences through our Content Solutions business. Our goal is to offer customers content and formats suitable to their learning needs and serve them in their self-learning journeys. We expect Content Solutions to contribute to a larger proportion of our total net revenues in the next quarter. With that overview, I would now like to share our key financial results for the quarter. We recorded net revenues of $411.9 million and CNY 2,965.9 million this quarter, an increase of 40.1% and 49.5% year-over-year in USD and CNY terms.
Our revenue growth is attributable to the steady increase in our Learning Services business and the continuous growth in sales of the products in the Content Solutions business. Gross profit also increased in the second quarter of fiscal 2024, rising from $176.9 million for the same period last year, to $242.5 million for this quarter. Gross margin decreased to 58.9% from 60.2% for the same period last year, mainly due to a higher revenue contribution from our Content Solutions business, which currently has a lower margin percentage. Sales and marketing expenses for the quarter were $116.3 million, an increase of $48.9 million, compared to $78.1 million for the fiscal second quarter last year.
Selling and marketing expenses as a percentage of total revenue increased to 28.2% from 26.6% for the same period last year. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 57.8% to $110.1 million, from $69.8 million for the second quarter of fiscal year 2023. The year-over-year increase was primarily due to increased selling and marketing activities. General and administrative expenses for the quarter have been relatively stable, decreasing by 0.1% to $97.1 million from $97.2 million for the fiscal second quarter last year.
Income from operations expanded by 113.5% to $31.8 million, from $14.9 million for the second quarter of fiscal year 2023. Non-GAAP income from operations, which excludes share-based compensation expenses, was $52.7 million, compared with $42.3 million in the same period of the prior fiscal year. Net income attributable to TAL was $37.9 million for the quarter, compared with the net loss attributable to TAL of $0.8 million for the same period of the prior fiscal year. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was $58.8 million, compared with $26.6 million for the same period of the prior fiscal year. Moving on to our balance sheet.
As of August 31, 2023, we have, we had $2,195.9 million of cash and cash equivalents, $767.6 million in short-term investments, and $281.2 million in current and non-current restricted cash. Our deferred revenue balance was $325.4 million as of the end of the second fiscal quarter, compared with $387.7 million a quarter ago. Now, turning to our cash flow statement. Net cash used in operating activities for the second quarter of fiscal year 2024 was $42.7 million. In April 2023, the company's Board of Directors authorized to extend its share repurchase program, launched in April 2021, by 12 months.
Pursuant to the extended share repurchase program, the company may spend up to approximately $337.4 million to repurchase its common shares through April 30, 2024. As of August 31, 2023, the company has repurchased approximately 13.4 million common shares at an aggregate consideration of approximately $233.6 million under the share repurchase program. That concludes the financial section. I'll now hand the call back to Alex to briefly update you on our business outlook. Alex, please go ahead.
Thanks, Jackson. As I mentioned earlier, I think we made encouraging progress during the quarter. Now, I'd like to share some thoughts on our strategic plans for the next quarter of this fiscal year. So looking ahead to the third quarter, as previously noted by Jackson, we anticipate a quarter-over-quarter decrease in revenue due to the seasonal nature of our business. In terms of our Learning Services, our focus remains on developing our learning center network in a balanced way and persistently introducing appropriate products across both online and offline platforms. As for our Content Services, our focus will be on enhancing product functionalities, enriching the breadth of learning content, and exploring opportunities for developing new products. As we move ahead, we intend to continue to invest in AI. We will continue to optimize our model to improve its response, speed, and accuracy.
Recently, we've collaborated with a number of technology companies and academic institutions, leveraging the National New Generation Artificial Intelligence Open Innovation Platform for Smart Education, to co-host the AA AI 2024 Global Large Model Mathematical Reasoning Competition. This competition invites AI experts, developers, and math enthusiasts worldwide to use large language models to automatically solve challenging math problems for primary and secondary school students. In addition, we continue to explore the application of artificial intelligence technology in specific use cases. In the near future, we really intend to launch applications based on MathGPT. This represents our ongoing endeavors to leverage advanced technology to enhance learning experiences. So to sum it up, in this quarter, our major business lines delivered material development, both in terms of product offerings and operational capabilities. Our posted financial results are a manifestation of such developments.
We've been observing customers' evolving needs in their learning journeys and intend to serve them through a variety of products in our Learning Services and Content Solutions portfolios. So that concludes my prepared remarks. Operator, we're now ready to open the call for questions.
Certainly. Ladies and gentlemen, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, you may press star one one again. Please stand by while we compile the current roster. Now, first question coming from the line of Felix Liu with UBS. Your line is open.
Good evening, management. Thank you for taking my question, and congratulations on the strong results. So in the most recent quarterly results, especially the strong performance of Learning Service and under the context of good non-academic tutoring market demand, how do you see your long-term strategic priority? If you would rank these businesses in terms of future resource allocations, how would you rank them? Namely, Domestic Learning Service business, hardware, AI, and overseas. How would you think of these in terms of future resource allocations? Thank you.
Thanks, Felix. This is Alex. Let me take that one on. So let me try to unpack this question. To start with, our company's strategy, I think it will really revolve around providing world-class learning products for our users. These products are gonna come in various form factors, right? So they're gonna include, but not limited to, for example, learning services, learning devices, smart and printed books, and other learning content in various form factors, right? I think this is really. We believe that collection, that portfolio, of products really give the parents and learners a set of choices that fit with their needs and fit with the stages they're on, on their own learning journeys.
Under that context, I would say it's not necessarily an issue of priority, but more so that these different business models and business lines are in different phases in their development path. You know, if we take these three that you named, I would say Learning Services business. It's really demonstrated the fact that it has viable business models. It's got a clear development path going forward. We really anticipate that it will continue to show growth momentum in the future. We'll obviously continue to invest resources in our learning centers network and in our faculty and staff teams. You know, this is an area where we've had and we've built up strong operational capabilities that we actually continue to hone, you know, in the ever-evolving environment.
And so with that, we really expect this business to be profitable. So that's the first one. If I look at the, you know, the second. You brought up Content Solutions, right? It's really addressing a different, use case. It's self-learning. It's self-learning at home, it's self-learning at the time that's, you know, oftentimes somewhat fragmented times that's available to the learners. So beyond the growth in sales volume for our hardware business, we really fundamentally aim to leverage our understanding of learning content, hardware, and artificial intelligence to provide a unique value to our users. And, you know, we continue to, to look at both engagement and, learning impact, you know, from this, this new set of solutions to address these different use cases.
So the final set is really, you know, artificial intelligence and overseas. I would say, look, they're really still in the exploration phase. You know, we look forward to the long-term trends that these are, you know, these businesses are operating within. And, you know, and we'll look forward to keeping you guys updated on our progress. So Felix, I hope that answers your question.
Yep. Thank you very much.
Thank you. One moment for our next question. Our next question coming from the line of Linda Huang with Macquarie. Your line is open.
Thank you very much. I just have a question regarding for the our learning devices. Could management share the sales performance of the hardware product during the quarter? And then, any change in the user engagement data. I think that would be great if you can share more about that. Thank you.
Thanks, Linda. This is Alex again. Let me address that question. So to start with, the sales of our hardware in this quarter have increased compared to the first quarter, right? So there's quarter-over-quarter growth in the sales volume. And we really believe this is largely due to the overlapping factors of the shopping festival in June and the summer vacation. I would say on the engagement side, we're seeing some, you know, pretty encouraging user activity data and user feedback. Our users continue to spend a significant amount of time learning on our devices.
And additionally, we've noticed that the users are exploring multiple features that we're bringing to the devices, and they're making use of both first-party and third-party learning content in all kinds of manners that really they feel is most suitable to their learning style. And I think, you know, just Linda, I would just emphasize the second point. I think, too, for us, the engagement is really paramount. We want to make sure the learning devices are used, and they're helpful, and they come in a way that's most suitable for the individual learning journey. I think, as I mentioned in a call a number of quarters ago, and we're also really looking forward to working with a number of, you know, world-class content players to continue to build up third-party content that's valuable and that's engaging for our learners. So Linda, I hope that answers your question.
Yes, very clear. Thank you very much.
Thank you. Our next question coming from the line of Candis Chan with Daiwa. Your line is open.
Great. Good evening, Alex and Jackson. Congratulations on a very strong set of results. Next I have a question related to MathGPT. Can you share with us the progress of MathGPT co-commercialization, and also how this will be applied to our services? Thank you.
Thanks, Candis. This is Alex. So thanks for that question, you know, MathGPT. And let me just share some thoughts on this. So to start with, we really think that the product design of generative AI is a crucial part of its ability to create values for users. You know, I think we started mentioning this topic and discussing this topic from a number of calls in the past quarters. And as we continue to engage in conversation with developers, experts, and industry players in China, across the world, I think globally, we see that application is really receiving more and more attention across all the domains and industries, right? I think this is really critical as we think about artificial intelligence for the future and the generative AI for the future.
So there are really a lot of opportunities worth exploring for the implementation of generative AI in the learning field, especially for K-12 learners. So we think that the collaboration of AI with human faculty and staff can really improve the efficiency of supply and accessibility of high quality learning content. You know, as I mentioned earlier, we're still, and I think really for that matter, across so many industries, we're still in the early stages of this, and we're working on the product design and, you know, we'll have some user tests in the very near future. So, Candis, I hope that answered your question.
Well, thank you.
Thank you. Our next question coming from the line of Caini Wang with CICC. Your line is now open.
Good evening, Alex, Jackson. This is, Caini Wang from CICC. So again, congrats on the very strong results this quarter. So, you have consistently mentioned that expanding our, learning centers would be a balanced approach. So my question is, like, what kind of factors would you consider before deciding to increase the number of learning centers? Thank you.
Caini, thanks for the question. This is Jackson. I'll take this one. I think there are two, you know, broader sets of factors that we consider when we think about managing our learning center network, right? One on the demand side and the other more on the operating side or supply side, if you will, right? So on demand side first, I think at this stage of a business, if you look at, you know, our the size of a business, and you look at the population at, you know, the corresponding age group, it is not the potential size of the market that we mostly consider, but it's more so to what extent can we have a suitable product and market fit between our products and our users in certain markets, right?
Be it certain, you know, cities, be it in China, or be it outside of, outside of China, right? So that's kind of the demand side factor we are considering. In the last few quarters, we have been seeing, you know, development on the product itself and development on product market fit. Now moving on to kind of the operating side or the supply side. When we speak to a balanced approach, what we mean is that we're not only focused on building our capacity for future business development, but we also wanna make sure that as we expand our learning centers, we can still provide a sustainable level of quality of service, right?
And a sustainable level of operational efficiency as we manage our learning center network. So these are the few factors we tend to consider when it comes down to making decisions on learning center expansion. I hope that answers your question, Caini.
Sure. That's very clear. Thank you very much.
Thank you. Our next question coming from the line of Lucy Yu with Bank of America. Your line is now open.
Hi, Alex. Hi, Jackson. This is Lucy from Bank of America. I have a question on margins. So I noticed that our GP margin and OP margin have been quite volatile. You already explained that this quarter, the GP margin contraction is largely due to the business mix change. But how should we think about the GP margin in the future? And if we're looking at same business on a like-for-like basis, how is the margin trend at the moment? Thank you.
Lucy, thank you for the question. This is Jackson. I'll take this one. When we talk about gross margin trend, I think it'd be mostly helpful if we dial back a couple quarters and look at the trend over time, right? So just to set the stage, I think if we look at last fiscal year, right, for most quarters, our gross margin bounced between 50%-60% range, right? In fiscal Q1, so a quarter ago, our gross margin was 49.3, and in this quarter, our gross margin was 58.9, which was down year-over-year, but up quite a bit quarter-over-quarter, right?
And when I look at, you know, gross margin of the overall company, two things, I would say the most, two factors I would say have the most influence on gross margin eventually. One is the overall business mix of various business lines. And two is the kind of underlying, the intrinsic gross margin, right? If you will, of the underlying businesses. So maybe let me explain to you first what happened in Q1, and that will probably help us understand what happened in Q2. So in Q1, what we saw was a gross margin dip to below 50, just below 50%. And that was primarily a result of shift in underlying business mix, right? With some of our lower margin business constitution, constituting a larger portion of our total revenue.
Now, from Q1- Q2, the mix stayed relatively stable, so it was a factor of the underlying business picking up on their gross margin. I will caution you, though, Q2 is, given the summer vacation and seasonal influences, Q2 tend to be a quarter where our offline learning centers are at a fairly high utilization, and hence resulting in a relatively high gross margin, if you look across the quarters. So in the next quarter, I do expect a decrease in gross margin in general. I hope that answers your question, Lucy.
Thank you, Jackson. Just to follow up, when you mentioned decrease, I assume you meant QoQ decrease. But if we're looking on a YoY basis, how should we think about the margin in this third quarter?
Yeah, you know, I'll just leave it as we do see a quarter-over-quarter decrease. Honestly, when we manage the business, I pay less focus on YoY gross margin change because the underlying business shape is just less comparable YoY at this point.
Understood. Thank you so much.
Thank you. I will now turn the call back over to management for any closing remarks.
All right. Thanks, operator. And again, thanks everybody for joining today, and thanks for your questions. And, you know, we look forward to speaking with everybody next quarter. Have a good day. Bye-bye!
Ladies and gentlemen, that does end our conference for today. Thank you for your participation. You may now disconnect.