Ladies and gentlemen, good day, and thank you for standing by. Welcome to the TAL Education Group First Quarter of Fiscal Year 2024 Earnings Conference Call. At this time, all participants are on listen only mode. After the speaker's presentation, there will be a question and answer session. Please be informed that today's conference is being recorded. 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 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 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. 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'll 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. First, in this quarter, this 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 of XPAD, our smart device, which we launched to the market at the end of last quarter, it has really demonstrated satisfactory sales performance and has received positive customer feedback over the past few months. We've been making progress in our artificial intelligence strategy and are working towards the rollout of AI products in the future.
In terms of financial performance, we recorded net revenues of $275.4 million, and RMB 1,906.7 million for the quarter, which is an increase of 22.9% and 31.1% year-on-year in US dollar and RMB terms, respectively. In terms of profitability, our non-GAAP loss from operations and non-GAAP net loss attributable to TAL for the quarter were $32.3 million and $19.5 million, respectively. 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 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 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 of 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, let's discuss Think Academy, our overseas learning services business. We continue to apply our industry know-how to the overseas market during this quarter, delivering another consecutive quarter of triple-digit year-over-year growth. We added another learning center for Think Academy this quarter, and we'll further manage our network expansion plan overseas in the next quarter. Now, let's talk about our content solutions business, which accounted for more than 25% of total net revenues for the quarter. The revenue generated by content solutions has well more than doubled year-over-year. This revenue growth was a result of the combined effects of our product and go-to-market capabilities.
smart books and print books, which were the key growth drivers last fiscal year, continued to exhibit material development year-over-year. A significant growth contributor for content solutions was XPAD, an AI-driven learning device we launched towards the end of last quarter. XPAD has proven attractive to learners by virtue of its personalized learning experiences, powered by intelligent functions and expansive quality content library. In fiscal Q1, not only did we ship a considerable number of XPADs, but we also witnessed month-to-month growth in shipment volume for all three months in Q1. Moving forward, we'll pay close attention to customer feedback and upgrade software and hardware functions for XPAD to better meet the demand of our learners. We're closely monitoring several key indicators, such as average time spent and frequency of usage, to understand user behaviors and manage our product updates accordingly.
Additionally, we have continued to build content supply through both internal development and external partnerships. In this quarter, we have established strategic collaborations with 10 publishing houses to jointly promote innovative exploration in the content industry. Together, we aim to create diverse and high-quality content for learners. In the next quarter, we anticipate that content solutions business will continue to grow, with revenues derived from content solutions expanding year-over-year. Other than shipping more units of products to our consumers, we also endeavor to provide our learners holistic learning experience through our device and our content. We'll closely observe user behaviors and provide more content and services through our device. With that overview, I would now like to share our key financial results for the quarter. We reported net revenues of $275.4 million.
RMB 1,906.7 million for this quarter. An increase of 22.9% and 31.1% year-over-year in U.S. dollar and RMB terms, respectively. The revenue growth was driven by the steady growth of learning services and others business, and the release of new products within the content solutions business. Gross profit also increased in the first quarter of fiscal year 2024, rising slightly from $135.5 million for the same period last year to $135.9 million in this quarter. Gross margin decreased to 49.3% from 60.5% for the same period last year, mainly due to a higher revenue contribution from our content solutions business, which currently has lower gross margin percentage.
Sales and marketing expenses for the quarter were $97.7 million, increased by 62.7% compared to $60.0 million in the fiscal first quarter last year. Selling and marketing expenses as a percentage of total revenue increased to 35.5% from 26.8% for the same period last year. Non-GAAP selling and marketing expenses, which excluded share-based compensation expenses, increased by 73.7% to $90.2 million, from $52 million in the first 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 decreased by 5.9% to $104.9 million, from $111.5 million in the fiscal first quarter last year. Non-GAAP general and administrative expenses, which excludes share-based compensation costs, decreased by 6.5% year-over-year to $89.2 million, from $95.4 million in the same period of fiscal year 2023. Loss from operations expanded by 104% to $57.8 million from $28.3 million in the first quarter of fiscal year 2023.
Non-GAAP loss from operations, which excludes share-based compensation expenses, was $32.3 million, compared with $1.8 million in the same period of the prior fiscal year. Net loss attributable to TAL was $45 million in the quarter, compared with $43.8 million in the same period of the prior fiscal year. Non-GAAP net loss attributable to TAL, which excludes share-based compensation expenses, was $19.5 million, compared with $17.4 million in the same period of the prior fiscal year. Moving on to our balance sheet.
As of May 31, 2023, we had $2,085.4 million of cash and cash equivalents, $959.3 million of short-term investments, and $340.2 million in current and non-current restricted cash. Our deferred revenue balance was $387.7 million as of the end of the first fiscal quarter, compared with $237.4 million as of February 28, 2023. Turning to cash flow statement. Net cash provided by operating activities for the first quarter of fiscal year 2024 was $125.5 million. In April 2023, the company's board of directors authorized to extend its share repurchase program by 12 months.
Pursuant to the extended share repurchase program, the company may spend up to approximately $737.4 million to purchase shares through April 30, 2024. As of May 31, 2023, the company repurchased an aggregate of approximately 25.9 million ADSs for approximately $151.3 million from the open market under the share repurchase program. That concludes the financial highlights 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 we introduced before, some of the achievements in this quarter are just a start to this fiscal year. 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 a 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 a 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. That concludes my prepared remarks. Operator, we're now ready to open the call for questions.
Certainly. Ladies and gentlemen, if you have a question at this time, simply press star one one on your telephone to get into the queue. To remove yourself from the queue, simply press star one one again. One moment for our first question. Our first question comes from the line of Yiwen Zhang from China Renaissance. Your question please.
Hey, good evening, management. Thanks for taking my question. My question is regarding the learning device. Glad to say we have made considerable progress on XPAD. How do you view the current, you know, market dynamics, and what is our company's competitive advantage in XPAD? Thank you.
Thanks, Yiwen. This is Alex. Let me take this question. 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 found is that their learning needs are really very diversified, you know, across different age groups, across different types of students, their personal learning journey up to date, and so on.
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. That's the first thought. 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. Through that 2 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, you know, what they're accustomed to, in terms of utilizing fragmented time for learning. I think that's really an important foundation.
On top of that, you know, as I mentioned before, we've, you know, we continue to strive and seize this, you know, 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. Lastly, I think the users have given us pretty positive feedback regarding both our, the content and the personalized, you know, user experience. We realize this is still fairly early in our endeavor into the learning devices space.
You know, we just take these feedback as, as further, you know, encouragement and guidance for, you know, for our continued, you know, endeavor and further polish our products, bring additional content and artificial intelligence experience to this product in the future. Ivan, hopefully that answers your question.
Yeah, yeah, sure. That's very clear. Thank you.
Thank you. One moment for our next question. Our next question comes from the line of Candis Chan from Daiwa.
Hi, good evening, Alex and Jackson. Thank you for taking my question. My question is related to our expansion plan for this year. I note that the engagement, as Jackson just mentioned, that we actually added roughly 30 new learning centers this quarter. How would be the pace for the remaining quarters? In the longer term, what sort of expansion rate that we should expect? Thank you.
Candis Chan, thanks for the question. This is Jackson Ding. 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 network, right? 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're gradually adding new learning centers. You can see this pattern continue this quarter.
Now this quarter of 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 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. Out to the future, we'll 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. Our next question comes from the line of Felix Liu from UBS. Your question, please.
Good, 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. First, I'd like to, you know, get your thought on the potential addressable market of our hardware business. Could you share a bit more about, you know, our target demographics, or what are, which part of the student population are our learning hardware popular among? A second part of the question is on the margin. Can management 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. The first part of the question was related to TAM. You know, 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. That's the kind of, you know, existing market size. You know, when we look at our products, we believe we not only tackle the existing market, you know, we also have an opportunity to serve the broadly speaking, learning industry.
We really look at this as, you know, customers' should wallet, how much they, they spend on, on learning, on supplemental learning in general, and how much of that use case and use scenarios could be, could be served through a learning tablet by offering more intelligent functionalities, as well as, high quality and personalized content. You know, the short answer to the TAM questions is depending on what you look at, the current TAM is probably 45 million units per year. If you look at the broadly speaking, you know, wallet for the learning industry, it's a much, much higher, potentially 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 book our top line. I would, 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. Whereas substantially all cost and expenses would be recognized upfront. This accounting technicality would have a, you know, negative impact on margin profile while the business is growing. That's number one. Two is, when we look at fixed costs for this business, 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 devices.
That part of the fixed cost is there. Now, our hardware business is still in its early stage of development. As sales 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. Our next question comes from the line of Queenie Yong from CICC. Your question please.
Hi, Alex, Jackson. Thank you for taking my question. Just a quick one. Could the management team provide an overview of the specific plans and future trends for the share buyback program? Thank you.
Tammy, thanks for the question. This is Jackson. I'll take this. We always look for ways to generate shareholder returns, and, you know, share buyback is one of those tools that from time to time we deploy when condition fits. If we dial back a year ago, in fiscal year 2023, we repurchased close to 18 million ADSs at an aggregate consideration of approximately $63 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 $737 million in proceeds in share repurchase through April 30th, 2024.
In this fiscal year, as of May 31st, 2023, the company has repurchased 25.9 million ADSs at an aggregate consideration of approximately $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.
Yeah, thank you very much.
Thank you. One moment for our next question. Our final question for today comes from the line of Howard Tsui 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. I have a question on AI products. I'm wondering if management could share more on the details of AI product, and if there is a current. 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. Let me just actually add 1 point before we get to the specific, you know, R&D progress and product launch roadmap. 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, in the time, about 7 months, since generative AI has broken to the public discourse, we've spent tons of time discussing with players across the entire ecosystem from, you know, dedicated large language model developers, to, you know, 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 this is pretty much of a consensus looking forward, that, you know, the power unleashed by the large language model would really redefine and help us reimagine the future of education. It's absolutely exciting, and it's, 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. As that's a long journey, right? That's again, I think, you know, a decade-long journey as all of us learn, you know, how to grow and develop and build a world with artificial intelligence. The products that we have, it's just the very, very start of it.
It's in the internal testing phase now, you know, for our employees, and a very limited set of customers are testing them. We're continuously optimizing, obviously, the performance of the product and improving the user experience, and, you know, in preparation for the future launch. Moving forward, we plan to extend the capabilities of these large language models with a few things. I think, you know, 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, you know, better alignment, for the model, for the type of interactions with students on various types of subjects. Lastly, I think, it's just in terms of features and functionalities, you know, across our, you know, learning services, type of business models, as well as our, you know, content and learning devices, business models, to meet the diversified learning needs of our customers. Howard, I hope that answers your question.
Yeah. 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!