Ladies and gentlemen, good day, and thank you for standing by. Welcome to TAL Education Group 3rd quarter fiscal year 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer 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 third quarter fiscal year 2023 earnings conference call. The earnings release was distributed earlier today. You may find a copy on the company's IR website or through the Newswire. 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 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.
Thanks, Jackson. I appreciate you all for joining us on today's call, especially as we are approaching the Chinese New Year's holidays. I'd like to really take this opportunity to wish you and your families a very happy Chinese New Year. One of the traditions of Chinese New Year is to recap the past and plan for the future. On this call, I'd also like to share with you our performance in the last quarter, as well as our expectations for the quarters to come. During this fiscal Q3, we continued to enhance our offerings while developing our go-to-market capabilities. We recorded $232.7 million and RMB 1,658.5 million in net revenues for the quarter. The net revenues decreased by 16% and 21% in RMB and USD terms compared to Q2, respectively.
Historically, our fiscal Q2 tend to benefit from seasonality effects in terms of revenue. If we look at a quarter that's more comparable to Q3, for example, Q1, the net revenues increased 4% in U.S. dollar terms and 14% in RMB terms. We expect to continue our development in the next quarter. In terms of profitability, for the fiscal quarter ended on November 30th, 2022, we recorded $4.5 million and $23.2 million in non-GAAP operating loss and non-GAAP net loss attributable to TAL, respectively. You may have noticed that our operating income decreased by $47.6 million quarter-over-quarter. The decrease in operating income was primarily driven by the reduction in revenue due to seasonality, as well as our investment into new initiatives.
With that overview, I'd like to give Jackson the floor to share more color on the operational developments and the financial performance of our core business lines. Afterwards, I will update our business strategy for you, and then we'll open the call for questions. Jackson, please go ahead.
Thank you, Alex. I'm pleased to share more details on the progress we made in our three main business lines this quarter. Before we start, please note that the financial data is based on our unaudited results for the quarter. I'll start with our learning services and other business. Learning services and other continues to be our largest revenue stream, and it accounted for slightly more than two-thirds of our total revenues for the quarter. Within learning services, we continue to fine-tune our enrichment learning programs, and as a result, saw an increase in average retention rate for two consecutive quarters. We believe a healthy retention rate is key to the long-term sustainable growth of our enrichment learning programs. We'll continue to monitor our learner retention and optimize our offerings to drive healthy retention level.
In terms of learner enrollment, we recorded a quarter-over-quarter decrease in average learner enrollment from Q2, primarily due to seasonal fluctuation. However, if we compare the enrollment of Q3 to that of Q1, we recorded growth in learner enrollment between these two periods. Further, some recently rolled out enrichment programs such as Rhetorics and International Chess demonstrated initial customer reception in this past quarter. Like I mentioned in our prior conversations, our enrichment programs are designed to facilitate learners' all-around development. This is a concept that requires some time for the market to digest and accept. Aside from operating metrics, we're also closely monitoring customer feedback on our enrichment programs. We're encouraged by our customers' feedback and appreciated trust and support. We'll continue to fine-tune our enrichment offerings to deliver value to our customers. In this past quarter, we also witnessed recovery in our offline learning centers.
Revenue generated from offline enrichment programs increased in Q3 when compared with Q2. Typically and historically, Q3 has been a down quarter from Q2. We increased our offline learning centers by single-digit in this past quarter. This is the second consecutive quarter where the number of our learning centers grew slightly. In this day and age, where OMO learning experience continues to proliferate, we see online and offline presence both as important components in our learning services business. Our online presence reaches customers despite their geographic locations, while our offline presence provides us the opportunity to interact with our customers face-to-face. We continue to optimize our learning center network, will gradually and cautiously increase the number of our learning centers in the next few quarters to come.
While our domestic learning services business continues on its development path, Think Academy, our overseas learning services business, maintains its momentum. With online operations covering a global market and offline operations in countries such as U.S. and Singapore, Think Academy again booked a year-over-year triple digit growth in this quarter. We see significant market potential for Think Academy, we'll continue to drive the growth of this business. Moving on to our content solutions business, which accounted for roughly 20% of total net revenue compared to slightly more than 15% a quarter ago. Revenue from content solutions grew quarter-over-quarter, driven by growth from multiple product line. I talked about Smart Books in the last couple quarters, the products where we embed videos into print books to supplement learning experience of our users.
In this quarter, we're glad to see that a significant portion of the users who purchased and activated the online features of the Smart Books are learners who historically never enrolled in our learning program, to the best of our knowledge. We see this as a positive sign, and that our content products are reaching new customers and increasing our total addressable market. Within content solutions, we also made progress on the exploration of smart learning devices. We tend to think of smart learning devices as comprehensive content solutions that combine our exclusive learning contents and personalized learning experience, supported by AI technology. We'll continue to enrich our products based on insights into users' learning habits and their learning demand. In addition to product development, we also continue to build our go-to-market capabilities for our content solutions business.
In an industry where offline distribution channel typically constitutes a large portion of the total volume. The majority of our content solutions are sold through online channels, such as e-commerce and live streaming. We're embracing these new distribution channels and will continue to build our capabilities within these channels. Let's look at our learning technology solutions business. Total revenues for our learning technology solutions business accounted for more than 10% of our total net revenues in Q3. In this past quarter, we updated our products and further developed our selling and marketing efforts. For learning technology solutions, we sell to both private and public sectors. I talked about the private sector before, and we'll shed more light on our effort in the public sector today. In this past quarter, we released a new sub-brand called Meixue Smart Education, which targets the market for schools.
Our solution for schools primarily includes smart homework, smart lesson preparation, integrated teaching platform, and smart after-school care. This business is still in its early stage and will provide more details as the business matures. After updating the above business progress, now let me take you through the key financial results for the quarter. Our net revenues totaled $272.7 million, representing a 77.2% decrease from $1.02 billion in the same period last year. The decline in revenue was a result of the session of our K-9 academic services in the mainland of China. Cost of revenue decreased by 80.2% to $103 million from $519.5 million in the third quarter of fiscal year 2022.
Non-GAAP cost of revenues, which excluded share-based compensations, decreased by 80.9% to $99.4 million from $519.2 million in the third quarter of fiscal year 2022. Gross profit declined by 74.1% to $129.7 million from $501.4 million in the same period last year, while our gross margin increased from 49.1%- 55.8%. Selling and marketing expenses decreased by 74.3% to $70.4 million from $273.6 million in the same period last year.
Non-GAAP selling and marketing expenses, which excluded share-based compensations, decreased by 75.3% year-over-year to $63.8 million from $258.6 million in the same period last year. The year-over-year decrease was primarily the result of a reduced number of selling and marketing activities. General and administrative expenses decreased by 69.0% from $93.0 million from $300 million in the third quarter of last fiscal year. Non-GAAP general and administrative expenses, which excluded share-based compensations, decreased year-over-year by 72.7% to $74.8 million from $274.4 million in the same period last year.
Loss from operations was $32.9 million compared to loss from operations of $108.4 million in the third quarter of fiscal year 2022. Non-GAAP loss from operations, which excluded share-based compensations, was $4.5 million compared to non-GAAP loss of operations of $67.6 million in the same period last year. Net loss attributable to TAL was $51.6 million in this quarter, compared with net loss attributable to TAL of $99.4 million in the same period last year. Non-GAAP net income attributable to TAL, Excuse me. Excuse me. operator, can you hear us all right?
Yes, you're coming through loud and clear.
Great. I think I got cut off when I said non-GAAP net loss attributable to TAL, which excluded share-based compensations, was $23.2 million compared with non-GAAP net loss attributable to TAL of $58.6 million in the same period of last year. Turning to the balance sheet. As of November 30th, 2022, the company had $1.86 billion in cash and cash equivalents, $1.18 billion of short-term investments, and $447.4 million in current and non-current restricted cash. The company's deferred revenue balance was $270.8 million by the end of the 3rd quarter. I'll hand the call back to Mr. Alex Peng to briefly update you on our business strategy outlook. Alex, please go ahead.
Thanks, Jackson. I think Jackson has just given everybody a pretty detailed picture and lots of numbers. What I'll try is to maybe take a step back and paint the big picture. As we continue to transform our business into a smart learning solutions provider, we remain committed to executing our company's long-term growth strategies with each of our four business lines. Although the revenue of this quarter was affected by exchange rate fluctuations and seasonality, our new business has maintained the momentum of continuous development. We expect our main businesses to continue to develop in the next few quarters. The first are learning services and other business. We will continue to strengthen the quality of the products and services while also gradually roll out more programs and increase our physical footprint. We are a believer of enrichment learning and all-around development.
As the market for enrichment learning develops, we plan to leverage our expertise in learning and our operational know-how to further serve our customers. For our content solutions business, we're really encouraged by the progress, but we also do understand that we have a long way to go before we become competitive in this relatively new market for us. We intend to increase our TAM through serving our customers with quality content in various form factors. In the next few quarters, we'll roll out new product SKUs while investing in our go-to-market capabilities, especially in online channels. Turning to learning technology solutions, we are committed to enhancing our services for clients in both private and public sectors with quality content, innovative devices, and advanced technologies. Our goal is to work with our clients to deliver better learning experience through end customers. About the outlook for Q4.
We expect our development to continue in the fourth quarter. We do not expect to break even in the next quarter as we continue to invest in certain new initiatives. We believe the transformation into a smart learning solution provider is a long journey and are currently focused on creating value for our customers through our offerings. As I come to the end of my remarks, I'd like just to say, we're just a few days away from Chinese New Year. There's another name for Chinese New Year, which is Spring Festival. Spring is the season of renewal and growth. I think on the previous call with you all, I reflected on the fact that we changed our mission statement and how critical it is for us to adopt a growth mindset going forward.
As we head into the spring season, it is with that growth mindset that we'll embrace the future. That concludes my prepared remarks. Operator, we're now ready to open the call for questions.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. Our first question comes from the line of Lucy Yu from Bank of America. Please go ahead. Your line is open.
Thank you. Thank you, Alex. Thank you, Jackson, for sharing the result details. I have a question on margin. Can you share a bit more color on the margin for this quarter and also expectation of the main business operating margins going forward? Thank you.
Lucy, thanks for the question. This is Jackson. I'll take this one. Before I say more about the numbers, I would just say, you know, as we transform our business
How we think about profitability, we probably focus more on creating more value for our customers and have structurally healthy business model as opposed to focusing on near-term operating profitability itself. Let me break this down for you a bit. When I look at these three main business lines, for learning services and other, in this past quarter, we had a positive operating margin. For learning technology solutions, we are also operating profit and have double-digit operating margin. For content solutions, if we look at the more mature SKUs, they're profitable on a contribution margin basis. Some of the newer SKUs are still in investment phase. You also asked about margin outlook in the future.
I would say as we look in the long run, when we think about learning services and other, we tend to think operating margin will have some fairly small room for margin improvement as the business scales up. The improvement will be quite gradual. For content solutions, we'll carefully manage our operating profitability as we manage the balance between mature and new SKUs. Lucy, I hope that answers your question.
Thank you so much, Jackson.
Thank you. We will take our next question. Our next question comes from the line of Liping Zhao from CICC. Please go ahead. Your line is open.
Good evening, Alex and Jackson. Thanks for taking my questions. According to your introduction report, the content solution business is still in the investment period. Can you share the main direction of investment? Could you also share your thoughts about how the company becomes an industry enhancer? Thank you.
Thanks, Liping. Let me unpack that question. In terms of the directions for investment, it will probably in a few areas. The first that we mentioned, I think on a couple of previous calls, our aim is really to build world-class content. You know, much of it is gonna be built in-house. We're gonna also increase our collaboration with our partners to bring those content to market. As I think about that, more topics, more topic areas for printed Smart Books, and continue to enhance the digital features of those content. More form factors for hardware. Those are all going to be the investment areas on the content side. Secondly, I think we're gonna continue to enhance our channel capabilities.
You know, I think we talked about this just now, that much of our content products are sold on online channels. These channels are developing rapidly. To be able to, you know, build a competitive channel presence, we need to continue to invest into our capabilities. We're also gonna need to invest into an omni-channel approach, so that our customers will have a seamless experience across all these touchpoints. Lastly, I'm also gonna, you know, mention infrastructure, especially on the supply chain side. As we go into these various form factors, we obviously are getting deeper into various kind of supply chains for physical group. These are all deep expertise areas for us to build up our experience and capabilities.
one, to, you know, continue to enhance our product quality and experience and also to ensure we have a competitive cost structure. I think if you look at the investment, that's what we are going to be looking at, the three main areas. You know, in terms of the strategy direction, I think, you know, I mentioned this on the, on a few calls, over the past quarters. I think we are continue to commit to building that world-class content. We continue to infuse more technology such as an AI into our product. We also ensure there's an integrated experience for our customers across all these form factors. Liping, I hope that answers your question.
Yes.
Thank you. We will take our next question. Our next question comes from the line of Felix Liu from UBS. Please go ahead. Your line is open.
Good evening. Thank you, Alex, and thank you, Jackson, for taking my question. My question is on the COVID outbreak that happened in China recently. How does that impact our business in the February quarter? Given offline activities have largely resumed in many cities in China now, how should we think about the online and offline strategy from here? Would you expect a re-acceleration of our offline expansion? Thank you.
Felix, thanks for the question. Regarding the first part of your question, you know, the impact of the epidemic, I would say historically we carefully managed that impact through offering a online option to students who are enrolled in our offline classes when the epidemic caused inconvenience. Looking forward, obviously as the impact of COVID starts to diminish in China, we'll offer a balanced and hybrid online and offline solution learning experience to our learners. We do see both online and offline offerings as important components in the learning experience we provide to our learners, and they each have their own merit. You.
The second part of the question asked a bit about offline expansion plan and future outlook. I would just say with regard to our offline learning centers, for the last two consecutive quarters, we increased the number of our learning centers by a bit, both single-digit increase in the last two quarters. We currently have somewhere between 100 and 200 learning centers. In the next few quarters to come, we'll continue to slowly but gradually increase the number of our learning centers. Felix, I hope that answers your question.
Got it. Thank you very much.
Thank you. We will take our next question. Our next question comes from the line of DS Kim from JP Morgan. Please go ahead. Your line is open.
Hi, Alex. Hi, hi, Jackson. Happy New Year. I was actually gonna ask about profitability, but both of you have already provided great insight, so thanks for that. May I then follow up with quick housekeeping questions? Perhaps 2, if I may ask. First one is, what was this $32 million other expenses this quarter in the below OP line? Just curious, any details there. Can you remind us on the nature of the restricted cash on our balance sheet, which was quite sizable, I think at a $450 million total including our non-current. I remember this was somewhat related to some financial products, wealth management products and whatnot. Just wanted some clarification or elaboration would be really appreciated. Thank you very much.
Got it. DS, this is Jackson. Thanks for the question. I heard the second part of the question loud and clear, with regard to restricted cash. And just to confirm that the first part of your questions was related to other, that $32 million of other expense?
Yes. Correct, sir. Thank you.
Got it. Yeah. So that $32 million of other expense obviously is not related to any operating activities. That is a combination of multiple factors, including, one, exchange rate fluctuation, and two, some of the fair value equities we hold and booked according to the fair value. The second part of your question, with regard to restricted cash, again, it's a combination of multiple factors, you know, including, one, some of the payment we collect for our learning programs are restricted. And two, some of the wealth management product depending on the nature of the underlying instrument are restricted as well.
Thank you so much for the clarification. Yes. Thank you, sir. And, congrats on a decent and strong, restructuring and a great, performance. Thank you again.
Thanks, DS.
Thank you. I would now like to hand back to management for closing remarks.
Great. Again, thank you everybody for joining us today. A happy Chinese New Year. We'll see you next quarter. Bye-bye.
This concludes today's conference call. Thank you all for participating. You may now disconnect. Speakers, please stand by.