TAL Education Group Stock

Ladies and gentlemen, good day and thank you for standing by. Welcome to TAL Education Group's Fiscal 2027 First Quarter Earnings Conference Call. [Operator Instructions] Please be informed today's conference is being recorded.

I would now like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead.

Thank you all for joining us today for TAL Education Group's First Quarter Fiscal Year 2027 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 Newswire. During this call, we will hear from Mr. Alex Peng, President and Chief Financial Officer; and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding 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 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, Fang, and thanks to everybody for joining today's conference call. As we embark on fiscal year 2027, we remain focused on our key priorities of high-quality growth, disciplined execution and continuous efficiency improvement. Our mission is to empower students and nurture their holistic development. Guided by this mission, we are further refining our offerings, strengthening our operational capabilities and applying technology to address the evolving needs of students, their families and the society.

We believe this commitment will unlock the potential of individual learners while driving high quality growth and sustainable profitability. Learning services remain the cornerstone of our business delivering high quality learning experiences to our users across both online and offline platforms. Alongside it, we are developing our content solutions business to reach more users with our proprietary and third-party content. Together, these 2 pillars create an integrated learning journey fostering longer, deeper and stronger user engagement.

Our first quarter performance reflected progress across both learning services and content solutions. Let me first discuss our offline learning services. We continue to see healthy growth in our offline Peiyou learning programs building on our deep expertise, proven teacher development system and strong organizational capabilities. What sets these programs apart is the face-to-face interaction between teachers and students, particularly the empathy, encouragement and real connection that our teachers provide every day.

These human-centric elements foster higher engagement, motivation and the learning experience that other formats can't match. We have witnessed sustained demand for our offline programs. To serve this demand, we're expanding our learning center network with discipline. This quarter, we focused on strengthening our presence in existing cities to prepare for summer season. Today, we operate in 44 cities across Chinese Mainland as well as select international markets with over 600 learning centers in total. Our online enrichment learning business also made steady progress.

We continue to refine our programs with enhanced course offerings and more interactive teaching approaches. This technology empowered approach provides an engaging and personalized learning experience helping sustain user engagement and foster greater interest in learning. Revenue from learning devices business grew year-over-year in the quarter driven by our dual focus on strengthening product capabilities and enhancing go-to-market execution. In July, we launched the new T6 series, our latest flagship tablet model, featuring major upgrades across the AI experience, content and hardware.

These innovations set the direction of our ongoing product iteration by building learning devices that better understand students' needs, provide personalized guidance and foster self-directed learning. As our learning device portfolio and user base continues to expand, key engagement metrics remain stable and healthy. In the first quarter, weekly active learning devices exceeded 2 million units with a weekly active rate of around 80% and average daily active usage of about 1 hour per device.

With that overview, let me turn to our financial performance for the quarter. We delivered robust top and bottom line growth in the first quarter. Our net revenues were USD 758 million or RMB 5.191 billion representing a year-over-year increase of 32% and 25% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations was USD 149 million representing a year-over-year increase of 492%. Our non-GAAP operating margin increased to 19.6% from 4.4% for the same period last year. This profitability improvement reflects greater operating leverage and lower sales and marketing costs made possible by the strength of our services and products.

Our non-GAAP net income attributable to TAL reached USD 420 million for the quarter. These healthy results highlight our ability to optimize core operations and build a more efficient operating model, reinforcing our confidence in achieving high-quality growth and creating long-term value.

I will now hand the call over to Jackson, who will provide more details on our operational developments across core business lines and review our financial results for the first fiscal quarter. Jackson, over to you.

Thank you, Alex. I will discuss our operating progress across our core business lines and then review our financial results for the first fiscal quarter.

Let me start with our offline Peiyou enrichment programs. In the first quarter, Peiyou learning programs continued to deliver year-over-year revenue growth. Consistent service quality and broad user recognition drove steady year-over-year growth in student enrollment. Positive feedback from students and parents continues to reaffirm the value we provide. We continued to expand our learning center network at a measured pace during the quarter.

Our priority is to maintain service quality and operating efficiency as we grow. We evaluate local demand, user receptivity, organizational capability and overall business health when making expansion decisions. This allows us to serve more users while maintaining a healthy and sustainable operating model. In the first quarter, Peiyou's overall business and financial health remained solid. We expect this business to continue growing at a steady pace while remaining an efficient operating model.

Turning to online enrichment learning. We continued to leverage technology to improve how students learn and interact in online settings. During the quarter, we refined our products with enhanced course offerings and more interactive learning experiences tailored to students' online learning needs. These upgrades make the learning progress more responsive and engaging, driving a more personalized learning journey.

Next, let me discuss our learning device business. It delivered year-over-year revenue growth, reflecting our continued progress in product development, user experience and go-to-market execution. We remain focused on building a complete and differentiated product portfolio that meets users' diverse learning needs. Recently, we launched the new T6 series to better support students' thinking process and inspire self-directed learning. A key upgrade is the enhanced AI learning companion for recorded courses, which provides preclass guidance, real-time feedback, post-class summaries and question-and-answer support.

The companion also features AI-driven diagnostics, tailored study plans and AI-generated notes, acting as both a learning partner and a personalized study coach. We have also enriched the content offerings for the T6 flagship International Edition with expanded global educational resources and course materials. On the hardware front, the T6 series features upgraded ultra-high resolution displays backed by 10 respected eye protection certifications. It is also the first learning device globally to receive SGS certification for natural lighting viewing giving students a clearer and more comfortable experience.

Next, I would like to walk you through our key financial results for the first fiscal quarter. Please note that all financial data for the quarter are unaudited. Our net revenues were USD 658 million (sic) [ USD 758 million ] or RMB 5.191 billion, representing a year-over-year increase of 32% and 25% in U.S. dollar and RMB terms, respectively. Cost of revenues increased by 23% year-over-year to USD 320 million. On a non-GAAP basis, excluding share-based compensation expenses, cost of revenues also increased by 24% year-over-year to USD 320 million.

Gross profit increased by 39% year-over-year to USD 438 million. Gross margin for the first quarter of fiscal year 2027 was 57.8% compared to 54.9% in the same period of the prior year. Turning to operating expenses. Selling and marketing expenses decreased by 5% year-over-year to USD 172 million. On a non-GAAP basis, excluding share-based compensation expenses, selling and marketing expenses also decreased by 5% year-over-year to USD 169 million, representing 22% of total net revenues compared to 31% in the same period last year.

General and administrative expenses increased by 7% year-over-year to USD 129 million. On a non-GAAP basis, excluding share-based compensation expenses, general and administrative expenses also increased by 7% year-over-year to USD 121 million, representing 16% of total net revenues compared to 20% in the same period last year. Total share-based compensation expenses allocated to related operating costs and expenses were USD 12 million in the first quarter of fiscal year 2027 compared to USD 11 million in the same period last year.

Income from operations was USD 137 million in the first quarter of fiscal year 2027 compared to USD 14 million in the same period last year. Non-GAAP income from operations, which excludes share-based compensation expenses, was USD 149 million compared to USD 25 million in the same period last year. Net income attributable to TAL was USD 408 million in the first quarter of fiscal year 2027 compared to USD 31 million in the same period last year. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was USD 420 million compared to USD 42 million in the same period last year.

Moving on to our balance sheet. As of May 31, 2026, the company had approximately USD 1.6 billion of cash and cash equivalents, USD 1.2 billion of short-term investments and USD 306 million in current and noncurrent restricted cash. Our deferred revenue balance was approximately USD 1.2 billion as of the end of the first fiscal quarter. Now turning to our cash flow statement. Net cash provided by operating activities for the first quarter of fiscal year 2027 was USD 478 million.

Finally, I would like to briefly address our share repurchase program. In July 2026, the company's Board of Directors approved a 12-month extension of its share repurchase program originally launched in July 2025. Under the extended program, the company may spend up to approximately USD 393.7 million to repurchase its common shares through July 28, 2027. Between April 23, 2026, and July 28, 2026, the company repurchased approximately 1.2 million common shares at an aggregate consideration of approximately USD 41 million.

In terms of our overarching capital allocation strategy, we will continue to take a prudent and balanced approach; weigh our business development needs, investment opportunities and financial position and market conditions.

That concludes my review. I will now turn the call back to Alex for his comments on our strategy and outlook. Alex, please go ahead.

Thanks, Jackson. I would like to share a few thoughts on our outlook and strategy. Looking ahead to the full fiscal year 2027, we'll continue to build on the progress we've made. Our priorities are unchanged: high-quality growth, disciplined execution and continuous efficiency improvement. From an operational standpoint, we will keep strengthening execution across all of our businesses. This means refining our offerings, enhancing our go-to-market strategies and further building our organizational capabilities. Technology will continue to play a key role helping us improve the learning experience, streamline operations and boost efficiency.

Financially, we are focused on achieving sustainable, high-quality growth and stronger long-term competitiveness rather than pursuing growth for its own sake. Building on the solid progress we achieved in the first quarter, we remain committed to improving efficiency and operating margin for the full fiscal year. In short, by balancing disciplined growth with continued efficiency gains, we aim to improve operating leverage, deliver sustained profitability improvement and build a more efficient operating model for the long-term growth.

That concludes my prepared remarks. Operator, we are ready to open the call for questions.

[Operator Instructions] And today's first question comes from Jenny Yuan with UBS.

Congrats on the strong quarter results. My question is regarding our Peiyou offline business. So could you please share some color on Peiyou's business momentum, including current revenue growth trends, overall business health, learning center expansion plans and also summer enrollment performance? And looking ahead, how should we think about Peiyou's growth trajectory over the next 2 to 3 years and what are the key growth drivers behind?

This is Alex. Let me take this question. So in the first quarter, our Peiyou offline business really continued to deliver double-digit year-over-year growth. That's the first thing I want to register. Consistent with the strategy, I think we've talked about the strategy previously, we really continue to prioritize the overall health of our Peiyou offline programs and the operating efficiency of our learning center network. So if you take the Peiyou enrichment learning as an example, the retention rate, which is a key metric, it remained healthy at over 80% in the first quarter, which was consistent with the previous year.

So as we talked about this earlier, while technology and AI continue to shape the future of education, we believe that human interaction really remains an essential part of the learning experience. So building on this belief, we continue to strengthen our organizational capabilities around what we call the human intensity of that learning experience, the human intensity. But of course we also leverage technology to enhance both the classroom experience and the teaching, the efficiency of that delivery of the teaching.

So for example, we continue to upgrade and roll out our dual smart large and small screen solution in our enrichment learning center classrooms. Through the small screen, students can participate in interactive learning games. They earn points, they stay more engaged and they stay more motivated throughout the class. And they can also have the performance of that learning journey recorded across the entire lesson. So we'll also continue to strengthen our curriculum development, something we've been very steadfast and committed to over the past decade, enhance our products and improve our services as these remain the fundamental drivers of our long-term competitiveness.

We're exploring offerings across different age groups and additional subjects based on demand and how we look at the future progress of what parents and students may need. We'll continue to develop our teaching talent, which again is key, key to that human intensity and expand our learning center network. So we'll bring a broader range of offline learning programs to more students. So looking ahead, we remain confident that offline Peiyou learning programs will continue to grow at a healthy pace over the longer term supported by our product capabilities, solid demand for offline learning and the still fragmented offline market. So Jenny, I hope that answers your question.

And the next question comes from Timothy Zhao with Goldman Sachs.

Congrats on the very strong results this quarter. My question is regarding the learning devices business. Just wondering how do you view the overall demand trend for this fiscal year in this specific market? What are the strategic priorities and the profitability level of your learning device business? And this year, we are seeing a softer consumer electronics market, including the learning devices demand and also the BOM cost increased quite a bit. Just wondering what is your latest strategy in this business segment and how do you prioritize volume, pricing and margins within this learning devices segment?

Timothy, this is Alex. Let me take this one as well. So you asked a complex question about a very complex set of dynamics in the market. Let me try to unpack that. But let me first just share some color on our recent financial performance and the trends we see. So learning device revenue grew year-over-year in the first quarter. The business also saw an improvement in the bottom line. We think that really reflects the operational initiatives we've implemented as well as the timing of deferred revenue recognition, okay? So as I said, there's a set of complex dynamics in the market and this performance was really achieved in the midst of that complex and evolving market.

The learning device market continues to be shaped by respectable competition, shifting consumer sentiment and, as you said, rising component costs. So we really see all of these result in increased market volatility and we expect these dynamics to persist into fiscal year 2027. So for this fiscal year 2027, we'll continue to drive the overall margin profile of the learning devices business. In response to higher memory chip costs, we've taken some proactive measures to optimize our inventory, streamline SKUs and refine our product portfolio. I think we are also driving greater operating efficiency and also greater discipline, I would say, across the organization.

So together, if you look at these initiatives, they're really intended to mitigate -- I would say, mitigate the cost pressures while preserving our long-term competitiveness. So if I take a step back and look at this from a longer-term strategic perspective, at their core, the learning devices, they really deliver strong value to users. They empower students with AI-driven personalization and self-directed learning for example. They also broaden access for the students to our proprietary and third-party content. So combined with our services, the learning devices, they really create a more integrated learning journey. They drive longer, deeper, stronger user engagement, right?

I shared some of the numbers earlier on the call. We now have, as of first quarter, over 2 million devices. The weekly active usage is 80% and we average about 1 hour per device per day. So these really, I'd say, they broaden access to more students and they drive longer, deeper and stronger user engagement. So this is really why we remain committed to continued strategic investment in the space as we explore the, I would call, convergence of education and technology. So Timothy, I hope that answers your question.

And the next question comes from Jing Yuan with CICC.

Congratulations on the strong quarter. So we can see first quarter's revenue and profitability came in well ahead of our expectation. Could you provide more color on revenue growth and profitability? In addition, could you share any further color for the rest of this fiscal year?

Thank you for the question. This is Jackson. Let me take this one. So first on top line revenue growth, I think we've discussed this a few times in the past few quarters. As the scale of the business expands, you have seen our growth rate normalizing over the last few quarters and we expect growth rate to continue to moderate in the next quarter. Let me offer a bit more color on business level growth. If you look at Peiyou offline learning services business which, by the way, remains our largest revenue contributor, it delivered another quarter of double-digit year-over-year growth.

This performance was driven by steady demand, consistent service quality, broad user recognition and ongoing expansion of our learning centers. As for our learning device business, as Alex talked about, we are operating in an evolving market shaped by changing competitive dynamics, shifting user sentiment and rising component costs. We expect these trends to persist over the next several quarters and we expect market conditions to remain volatile. We are committed to serving more users and delivering more learning hours through our learning devices.

Our priorities are to strengthen the product experience and to improve operating efficiency. We believe disciplined execution across both product and operations will position the business well for sustainable long-term growth. Now as for profitability, improving our profitability remains an important priority for us in fiscal 2027. As always, we view profitability as the result of both value creation and operating efficiency. This requires us to consistently deliver valuable products and services to our users while driving operational excellence across the company.

At the company level, we're seeing operating leverage materialize as our business scales and as our business processes become more efficient year-over-year. This allows us to manage our expenses with greater discipline and improve overall profitability. Looking ahead, we remain committed to achieving improvements in profitability this year versus last. If you recall, if you compare our non-GAAP operating margin in fiscal '26 versus fiscal '25 full year, our non-GAAP operating margin improved by approximately 8 percentage points. This year in fiscal '27, we aim to continue to achieve improvements in operating margin. I hope that answers your question.

And the next question comes from Elsie Sheng with CLSA.

My question is I noticed there is a big increase in other income this quarter. Could you explain on that as well as the significant increase in the long-term investment if you look at the balance sheet?

Elsie, thank you for the question. This is Jackson. Let me also take this one. I would say as a part of capital allocation strategy, we maintain an investment portfolio that's aimed at both enhancing shareholder returns and supporting business development. This portfolio ranges from traditional wealth management products to minority equity stakes and occasionally full-on acquisitions as you have seen in recent years. Elsie, you asked about other income. In this past quarter, valuations for some of our investment holdings increased and that's the primary driver of an increase in our other income.

While these gains contributed positively to our financial results, I would just emphasize again that they are driven by market movements and may not recur in future. In terms of the increase in long-term investments on our balance sheet, that reflects 2 things. One is higher valuations for some of our investment holdings and two, ongoing capital deployment into our portfolio. We remain disciplined in allocating capital to opportunities that align with our long-term objectives while managing risks accordingly. I hope that answers your question.

Thank you. It's very clear and congratulations on the results.

And the next question comes from Eddy Wang with Morgan Stanley.

My question is regarding the shareholder return. I want to ask on top of the annual share buyback plan, do we have a more formal and holistic capital return policy? And especially, I think in the past 6 to 12 months, the pressure on the U.S. listed Chinese stocks actually are pretty high so prices are very volatile. sentiment has been changed a lot. So will we have any plan to increase the size or faster pace of share repurchase in the next year or in the longer term?

Eddy, thank you for the question. This is Jackson. Let me also take this one. First of all, I would just say returning value to our shareholders remain an important part of our overall capital allocation framework. We take a prudent and balanced approach, weighing our business development needs, investment opportunities, financial position and market conditions. Regarding share repurchase programs, if you look at last year, we executed roughly USD 210 million in share buyback over the last 12 months with roughly USD 41 million of that in the past quarter.

We expect to keep executing our share repurchase program in a prudent and disciplined manner in line with our overall capital allocation priorities. Looking ahead, we intend to implement a more systematic and regular approach to returning capital to our shareholders. Ultimately, our focus is on delivering an ongoing and relatively stable stream of value to reward those who hold long-term conviction in our company. As always, we'll continue to provide timely disclosures on our repurchase activities and keep investors informed of our progress. Eddy, I hope that answers your question.

Thank you. And this concludes the question-and-answer session. I would like to turn the conference back over to management for any closing comments.

Again, thanks to everybody for joining us today and we'll see you again next quarter. Bye-bye.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Ladies and gentlemen, good day, and thank you for standing by. Welcome to TAL Education Group's Fourth Quarter and Fiscal Year 2026 Earnings Conference Call. [Operator Instructions] Please be informed today's conference is being recorded. I would like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead.

Thank you all for joining us today for TAL Education Group's Fourth Quarter and Fiscal Year 2026 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 Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding 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, Fang, and thanks to all of you for joining today's conference call. As we reflect on fiscal year 2026, it is worth stepping back to consider the progress we've made over the past several years. That progress has been built on more than 2 decades of experience in education, along with continued investment in our capabilities and innovation. Together, these efforts have enabled us to continuously refine our offerings and better serve the evolving needs of students and society.

So with that context in mind, let me now turn to our Learning Services business. Learning Services business remains our largest revenue contributor. We are committed to delivering quality learning experiences to our user base. We're also building our Content Solutions business including Learning Devices. These products significantly expand the accessibility and customer reach of our proprietary and third-party content. They work alongside our Learning Services to create a more integrated learning experience, driving longer, deeper and stronger user engagement. Beyond our domestic operations, we also expanded into select international markets, leveraging our R&D capabilities and operational know-how to serve educational needs globally.

While our businesses are at different stages of maturity, we are beginning to see meaningful improvement in company level profitability. This underscores our ability to optimize core operations and build a more efficient operating model, further strengthening our foundation for sustainable growth and long-term value creation. So with that overview, let me walk you through our business progress for the fourth fiscal quarter and full year 2026.

Our off-line Peiyou enrichment programs demonstrated continued year-over-year growth in both the fourth quarter and the full fiscal year. Throughout the past year, we maintained a disciplined and consistent approach to expanding our offline learning center network with a strong focus on service quality, operational health and sustainable growth. Our expansion decisions are guided by a holistic assessment of factors, including local market demand, receptivity to our offerings, our operational capabilities and our commitment to maintaining high service quality. This approach supported solid growth and healthy operating performance throughout fiscal year 2026.

In our Online Enrichment Learning business, we continue to enhance user experience and service quality through technology. During the fourth quarter and throughout fiscal year 2026, we upgraded key products with richer content and technology-enabled features, creating a more engaging learning experience. Together, these efforts strengthen the value proposition of our online enrichment offerings and supported sustained user growth and user engagement over time.

Our Learning Device business achieved year-over-year revenue growth this quarter. In the last couple of quarters, this business has transitioned from its rapid expansion phase to a more moderate growth. We believe product quality and go-to-market capabilities will be critical to this business' long-term success. In March 2026, we introduced the X5 Ultra Classic, a device incorporating enriched content and upgraded AI capabilities. With the X5 Ultra now integrated into our Learning Devices portfolio, we are positioned to address a broader spectrum of at-home, self-directed learning needs.

As we expand our installed base, our key user engagement metrics remain strong with around 80% weekly active users and an average daily active usage time of about 1 hour per device. This allows us to serve customers beyond our physical presence and enhance at-home engagement.

Next, let me turn to our financial performance for the quarter. In the fourth quarter, our net revenues were USD 802.4 million or RMB 5.59 billion, representing a year-over-year increase of 31.5% and 25.8% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations was USD 82.2 million and non-GAAP net income attributable to TAL reached USD 254.5 million for the quarter.

I will now hand the call over to Jackson, who will provide an update on the operational developments across our 4 business lines and a review of our financial results for the fiscal fourth quarter. Jackson, over to you.

Thank you, Alex. I am pleased to update you on our progress during the fourth fiscal quarter and full year across our core business lines. Our Peiyou Small Class enrichment programs continued its operational momentum during this quarter. As we grow, we continue to uphold our service quality and operational efficiency.

In terms of physical footprint, we expanded our learning center network at a measured pace. Our operational discipline is reflected in our key performance indicators. with Peiyou Small Class maintaining a generally stable retention rate of around 80% across fiscal year 2026 with certain quarters exceeding that level.

Turning to our Online Enrichment Learning business. We continue to leverage technology to enhance the student learning experience. A core focus remains deepening student engagement to drive meaningful learning outcomes. To that end, we have driven engagement through interactive formats such as immersive online classrooms and role playing activities. By offering both off-line and online enrichment programs, we aim to address the evolving needs of students and support their holistic development.

Next, our Learning Devices business delivered year-over-year growth in the fourth quarter as well as the full fiscal year. This reflects our progress in product development and go-to-market execution. Over the past year, we have also broadened our content library and incorporated AI-driven features to support a more engaging and effective self-directed learning experience.

As Alex mentioned, last month, we launched the X5 Ultra. This device expands our pricing points while offering more content, a unified learning interface and improved AI tools. Among them, the upgraded AI Thinkie One-on-One tutoring feature. To complement these upgrades, we've also improved the hardware. The X5 Ultra includes a faster processor and a 13.2-inch eye comfort display, ensuring solid performance across different learning activities. While technology itself is important, we believe the true value lies in how it integrates curriculum aligned content, scenario-based AI and seamless hardware into a cohesive learning system, one that is intended to be more intuitive and practical for students.

By organizing fragmented learning materials and tools into a clear structured progression, it helps students monitor their progress and identify next steps. With these efforts, we aim to gradually evolve our learning device into a personalized learning companion designed to foster independent learning over time.

I would now like to walk you through our financial results for the fourth fiscal quarter. Our net revenues were USD 802.4 million or RMB 5.59 billion, an increase of 31.5% and 25.8% year-over-year in U.S. dollar and RMB terms, respectively. Cost of revenues increased by 28.2% to USD 375.2 million from USD 292.6 million for the same period last year. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 28.5% to USD 374.8 million from USD 291.7 million for the same period last year.

Gross profit increased by 34.5% to USD 427.2 million from USD 317.6 million in the fourth quarter of fiscal year 2025. The gross margin for the fourth quarter of fiscal year 2026 was 53.2% compared to 52.0% in the same period of the prior year.

Turning to operating expenses. Selling and marketing expenses for the quarter were USD 220.9 million, representing an increase of 1.4% from USD 218.0 million for the same period last year. Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, increased by 2.0% to USD 218.5 million from USD 214.3 million for the same period last year. Non-GAAP selling and marketing expenses as a percentage of total net revenues decreased from 35.1% to 27.2% year-over-year.

General and administrative expenses increased by 15.7% to USD 133.8 million from USD 115.6 million in the fourth quarter of fiscal year 2025. Non-GAAP general and administrative expenses, which excluded share-based compensation expenses, increased by 19.7% to USD 126.8 million from USD 106.0 million in the fourth quarter of fiscal year 2025. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 17.4% to 15.8% year-over-year.

Total share-based compensation expenses allocated to related operating costs and expenses decreased by 31.9% to USD 9.8 million in the fourth quarter of fiscal year 2026 from USD 14.3 million in the same period of fiscal 2025. Income from operations was USD 72.5 million in the fourth quarter of fiscal year 2025 compared to loss from operations of USD 16.0 million in the fourth quarter of fiscal year 2025. Non-GAAP income from operations, which excluded share-based compensation expenses, was USD 82.2 million compared to non-GAAP loss from operations of USD 1.7 million in the same period of the prior year.

Other income was USD 275.0 million for the fourth quarter of fiscal year 2026 compared to other income of USD 13.0 million in the fourth quarter of fiscal year 2025. The change in other income for the fourth quarter was mainly driven by fluctuations in the fair value of certain investments. Net income attributable to TAL was USD 244.8 million in the fourth quarter of fiscal year 2026 compared to net loss attributable to TAL of USD 7.3 million in the fourth quarter of fiscal year 2025. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was USD 254.5 million compared to non-GAAP net income attributable to TAL of USD 7.0 million in the fourth quarter of fiscal year 2025.

Moving on to our balance sheet. As of February 28, 2026, the company had USD 1,523.9 million of cash and cash equivalents, USD 1,715.4 million of short-term investments and [ USD 262.2 million ] in current and noncurrent restricted cash. Our deferred revenue balance was USD 882.2 million as of the end of the fourth fiscal quarter.

Now turning to our cash flows. Net cash used in operating activities for the fourth quarter in fiscal year 2026 was USD 215.0 million.

Finally, I would like to briefly address our share repurchase program. On July 28, 2025, the company's Board of Directors authorized a share repurchase program under which the company may purchase up to USD 600 million of the company's common shares over the next 12 months. Between January 29, 2025 and April 22, 2026, the company has repurchased 101,371 common shares at an aggregate consideration of approximately USD 3.3 million. That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook. Alex, please go ahead.

Thanks, Jackson. Before turning to fiscal 2027, I want to take a moment to speak to the responsibility and mission we carry in serving students and families, particularly in the K-12 sector. At TAL, this is not a peripheral consideration. It is at the heart of how we think about our products, our services and the standards to which we hold ourselves. It shapes not only what we build, but also how we grow.

As we move into fiscal 2027, our strategy is centered on 3 priorities. First, we aim to drive quality growth across our businesses. We expect learning services to remain our largest revenue contributor, and we will continue emphasizing quality across both digital and in-person offerings so that we can serve more users effectively while preserving a strong user experience. In Content Solutions, we will focus on expanding through stronger product capabilities, richer content offerings and more effective go-to-market execution.

Second, AI remains key to our long-term strategy, and we are approaching it with a clear sense of focus and discipline. Our approach is application first. Rather than pursuing foundation models ourselves, we are focused on deploying AI in ways that meaningfully enhance the user experience, improve operational efficiency and strengthen our products and services. In learning, that means helping students find the right content more effectively, staying engaged more deeply and learning more efficiently. Across the company, it also means applying AI to improve how we operate from customer service and content production to software development, enabling us to grow with greater leverage over time.

Finally, we remain focused on disciplined execution as we scale. By continuing to strengthen execution across content, product, operations and go-to-market, we can further improve efficiency and enhance profitability over time.

So that concludes my prepared remarks. Operator, I think we are ready to open the call for questions.

Hello operator, before we take the first question, we'd like to make one correction. We just talked about the -- we have repurchased at an aggregate consideration of approximately USD 3.3 million. This has happened between January 29, 2026 and April 22, 2026. Okay. That's the correction we'd like to make. Now please open to analyst.

[Operator Instructions]

The first question comes from the line of Jenny Yuan with UBS.

First of all, congrats on another solid quarter. So my question is related to other income. So we noticed a significant increase in other income in the fourth quarter. So could you please provide more color on what drove this?

Jenny, thank you for the question. This is Jackson. Let me take this one. Look, from time to time, we make financial strategic investments, right, to either generate capital return for shareholders or -- and/or to accelerate business. And these investment targets vary from the classic wealth management products to minority equity investments to sometimes outright all-out mergers and acquisitions, as you've seen in the last -- all of which as you've seen in the last few years, right?

Specifically, what happened in this quarter is that a couple of investments in our portfolio experienced an increase in valuation. And this resulted in an investment gain on our financial statements, which is booked under other income. I would also like to mention that this is a onetime event. Therefore, we don't recommend using this quarter's other income as a baseline for future performance projections. Jenny, I hope that answers your question.

The next question comes from the line of Timothy Zhao with Goldman Sachs.

Congratulations on the solid quarter. My question is related to the off-line Peiyou Small Class business. Just wondering if the management can share some color on the most recent development of this business in the fourth quarter of last year? And what was the growth rate look like on the revenue side? And looking forward into the fiscal year of '27, what is your strategic approach in expanding the learning center network? And what kind of capacity growth that we can expect?

Thanks, Timothy. This is Alex. Let me take that one on. So I'll first talk about our fourth quarter performance and then share our approach to expanding the learning center network in the new fiscal year, okay? So in the first -- in the fourth quarter, Peiyou Small Class Enrichment business, as we mentioned earlier on the call, really had steady growth. Revenue increased year-over-year, which is primarily driven by higher enrollment, which reflects both our learning center network expansion and continued efforts to enhance the learning experience for our students, right?

We talked earlier about the key operational metrics. They remained healthy in the fourth quarter. For example, retention, we talked about retention rate of over 80%. So this really underscores the trust our students and families place in our programs and the consistent quality -- I should say, the consistent high quality we maintain in our services delivery.

From our day-to-day offline operations, we really continue to see steady demand for enrichment learning, which is driven by, I think, the evolving parental and educational priorities of this new generation of parents. So to align with these changing needs, we're really increasing capacity and refining our offerings, both of which we believe will support the business long-term growth trajectory.

You asked about our network expansion. So network expansion in the fourth quarter, we really stick to the disciplined approach that we follow throughout the year and throughout the past several years, right? For the full year, we entered 5 new cities, which brings our total coverage to over 40 cities across China. Looking ahead to the new fiscal year, we'll continue to prioritize the business long-term health and sustainability. Our expansion strategy will remain disciplined, focusing primarily on consolidating our presence in existing cities rather than pursuing aggressive geographical coverage expansion.

Operating from a higher baseline, right? We talked about that a little bit earlier. We're really operating from a much higher baseline. And we need to prioritize sustainable development over expansion for its own sake. We expect the revenue growth for this business to gradually taper in FY 2027 relative to its rate of growth in FY 2026. So Timothy, I hope that answers your question.

The next question comes from the line of Eddy Wang with Morgan Stanley.

Congratulations on a very strong quarter. So my question is regarding the Learning Devices. Could you give me some color on the performance of the Learning Devices business in this quarter? And how did you mitigate the memory cost hike? Also, how do you view the current competitive landscape in the Learning Devices business? And what's your strategy to navigate and strengthen your position?

Thanks, Eddie. This is Alex. So let me first share some color on our Learning Device performance in the fourth quarter and then our views on the competitive landscape. So our Learning Device business achieved year-over-year revenue growth in the fourth quarter. This really reflects the consistent execution of our strategy, which has always been prioritizing improving product capabilities and refining our go-to-market approach.

So sales volume also increased compared to the same period last year, which is supported by an expanded and more diversified product portfolio, which meets a broader range of customer segments and their needs. We also see that the blended average selling price was over RMB 3,000, which is consistent with our current product mix.

I mean there's a lot of talk about memory cost pressures. Really, this is an industry-wide challenge that many consumer electronics companies are facing. I mean the sector has pretty extensive experience managing these kind of cycles through operational adjustment, and we are applying those lessons alongside strategies catered to our business model, right? So our key initiatives include optimizing inventory turnover, stock management for greater efficiency as well as refining our product portfolio by streamlining SKUs and really adjusting our product mix where it's appropriate. These steps are helping us mitigate the impact of rising cost cycle while maintaining our focus on long-term competitiveness.

For the question on competition, I think the learning devices sector remains pretty highly dynamic with competitors advancing in hardware content offerings and AI-driven features. In this kind of environment, our strategy is to really focus on continued innovation across our own product and user experience while staying responsive to shifting market conditions.

So if you look at the past year, we've really expanded our lineup to serve different user segments. We talked about the recent launch of the X5 Ultra. We continue to enrich our content offering to enhance the learning experience. We've also maintained a pretty good cadence of software updates. I think we have delivered something like 19 major operating system upgrades and introduced nearly 300 new features over the last fiscal year.

So together, these efforts really help us reinforce our integrated approach with combining hardware, software and distribution to create a cohesive learning solution and at-home learning solution. We believe building innovation and product capability is really the key to navigating the competitive landscape. And I think our progress to date in market share really aligns with our expectation and our -- that approach we've adopted.

So really beyond devices, we also see Content Solutions as a strategic initiative that extends learning beyond the classroom and deepens and provide longer engagement for us between us and our users at home. And we think this can really build together as an integrated learning experience for our students across learning services and content solutions. Really, our long-term goal is to make quality learning resources more accessible while supporting students holistic development along their journey of learning and development. So I hope that answers your question.

The next question comes from the line of Jing Yuan with CICC.

Congratulations on this strong quarter. So my question is about the bottom line profitability. Could you walk us through the primary driver behind this quarter's top line growth? And what were the key factors contributing to the improved profitability?

Thank you for the question. This is Jackson. Let me take this one. First of all, I would just like to say profitability is a priority for us, and we continue to take measures to drive profitability improvement, right? When we think about profitability, we see profitability as a manifestation of the value we create for customers and society as a whole, combined with our operating efficiency, right? So when I -- when we think about measures we take to improve profitability, it's really measures along the lines of, one, value creation, but two, also operating efficiency.

Now let's break down the drivers a bit. I think there are several contributing factors to profitability momentum this past quarter. One, as Peiyou small class continue to grow, its operating margin -- its margin profiles remain steady and hence it generated more absolute profit dollar. Other business lines, including Online Enrichment Learning programs, including Learning Devices, showed varying degree of profitability improvement as well. In addition to business unit level profitability improvement, the overall company is also unlocking more of the operating leverage, which has been a contributing factor to overall profitability improvement as well.

I'd like to also comment a bit on the overall trend of our profitability. If we look at non-GAAP operating income margin for the last few quarters, I think for every single quarter this past fiscal year, our non-GAAP operating margin improved compared to the same period of last year. And we really see this as a result of all the profitability improvement measures we're taking discussed above. I hope that answers your question.

The next question comes from the line of Candis Chan with Daiwa.

Congrats on this very strong set of results. Can you provide us a breakdown of the top line growth performance across the major business lines this quarter? And additionally, what is the outlook of the growth for these business lines in the coming fiscal year? And one more question, if I may, is that we do observe a very solid margin expansion for 3 consecutive quarters still at above 10%. What is the potential for the further margin improvement going forward?

Thanks, Candis. This is Alex. Let me take it on. Let me unpack that. So first of all, let's look at the first part of the question, which really is a breakdown of the top line growth performance across our major business lines this quarter, right?

So let's start with Peiyou offline enrichment business, which, as we mentioned on this call, remains our largest revenue driver. It really continued its solid growth this quarter. This was supported by, as we said, the ongoing expansion of our learning center network and the consistent improvement to service quality. Moving into fiscal year 2027, the expansion strategy remains disciplined. We're going to focus on increasing center density within existing cities to ensure we maintain high operational standards.

We anticipate this business continues to grow at a healthy rate as the operations grow larger and the baseline becomes larger. We've seen the year-over-year revenue growth rate moderate naturally, which is a trend that we expect to continue into the next fiscal year.

Second, the Online Enrichment Learning business, we remain committed to delivering high-quality interactive learning experiences. We continue to enhance the user experience by introducing more interactive features and leveraging AI in both content production and our internal workflows. This product and user-centric approach really support user engagement over time. In terms of the Online Enrichment Learning business' channel strategies, we balance between growth objectives and return on investment to build long-term operational capabilities.

Next, Learning Device business. it delivered year-over-year revenue growth this quarter, driven by increased sales volume and a higher contribution from deferred revenue recognition. The market, as we discussed, is evolving toward a more sustainable growth path. And we are focused on strengthening our long-term competitiveness through the kind of investment in product innovation and channel development.

Our product strategy focuses on creating integrated learning solutions that really combine hardware, proprietary software, content and AI-enhanced experiences. We often talk about channel development. Here, the plan is really to further diversify distribution by balancing investment across both online and offline channels to effectively reach and serve our users.

So if I put all of that together, when we look at the company holistically, as our operations scale with an increasingly larger baseline, we anticipate that our year-on-year growth rate will gradually moderate. With growing maturity, we also expect operational efficiency to improve and we'll remain focused on driving profitability. We may see some quarterly fluctuations, but improving overall profitability remains a top priority for fiscal year 2027. Looking ahead, we'll continue advancing our strategic initiatives and also strengthen core capabilities to support sustainable margin improvement over time.

So Candis, I hope that answers your question.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

So thanks again for joining us today, and we look forward to seeing all of you next quarter. Thank you. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the TAL Education Group's Fiscal 2026 Third Quarter Earnings Conference Call. [Operator Instructions] Please be informed today's conference is being recorded.

I would now like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead.

Thank you all for joining us today for TAL Education Group's third quarter fiscal year 2026 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 Newswire.

During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer; and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Ms. Ding 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, Fang, and thanks to all of you for participating in today's conference call.

Over the past fiscal quarter, we continue to make steady progress on our strategic priorities with a consistent focus on supporting the holistic development of our students. Our commitment to innovation, user engagement and service quality continues to guide our efforts as we refine our offerings and adapt to the evolving learning landscape.

Guided by these objectives, our core businesses have continued to operate with stability and consistency. At the same time, we recognize that changes in market demand and advances in technology continue to introduce new dynamics. Across several of our newer initiatives, including the learning devices business, we face a highly competitive environment in areas like content, hardware and AI.

In response to this evolving environment, we'll continue to advance our strategic initiatives and flexibly allocate resources to build long-term capabilities. Consequently, we may face occasional variability and limited visibility in our financial performance due to seasonal demand shifts, competitive pressures and deliberate resource reallocation. While these factors may cause short-term fluctuations, we remain focused on building the long-term capabilities needed to seize the opportunities in the market.

I will now provide detailed updates, starting with our Q3 FY 2026 performance. During the quarter, our learning services recorded year-over-year revenue growth across both off-line Peiyou programs and online enrichment offerings. This was driven by sustained user demand and reflects our commitment to providing students with high-quality learning experiences through a diverse portfolio of enrichment programs delivered in both offline and online formats.

Meanwhile, we maintain a disciplined approach to expanding the Peiyou learning center network, balancing demand with operational capacity, efficiency and long-term sustainability. Positive feedback from parents and students alongside solid operating metrics such as retention rates, affirms the trust placed in our products and the consistency of our service standards.

Our online enrichment learning programs also maintained year-over-year growth during the quarter. By leveraging technology-driven innovation, we continue to enhance users' learning experience. Building on this approach, we introduced immersive classroom solutions designed to improve engagement and learning outcomes. We also expanded our offerings to include more technology themes such as 3D printing with the goal of fostering interest in emerging technologies and supporting future skill development.

Alongside our learning services, our content solutions encompass a wide range of offerings with learning devices remaining a key focus for our long-term development. The learning device market continues to evolve, shaped by ongoing advancements in hardware, software and AI technologies.

Given this context, we are focused on further enhancing our devices across 3 key areas: user learning experience, AI-enabled capabilities and overall effectiveness. Compared with general purpose AI models, we believe that educational AI agents should go beyond simply providing students with correct answers. We believe they should focus on guiding students through the learning process, adapting explanations to their level of understanding, diagnosing learning gaps and supporting personalized learning path.

Building on this vision, we have incorporated over 2 decades of educational insights into the interaction logic of our learning devices. Instead of simply providing answers, our devices are designed to apply structured instructional processes and guided teaching approaches with the aim of approximating one-on-one tutoring experiences. This design enables them to function not only as tools for problem solving, but also learning companions that provide individualized support.

Looking ahead, we'll continue to enhance our AI functions, including capabilities in problem solving, explanation and other forms of learning assistance. Our goal is to steadily evolve our learning devices into personalized AI companion that inspires thinking and support deeper learning.

In addition to learning devices, we're also exploring new product formats to address a range of use cases. At CES 2026, we showcased several early-stage concepts, including our AI Buddy, which received industry CES Picks Award. Designed for children aged 6 to 12, the smart companion uses interactive features such as voice, touch and motion-based interactions to support age-appropriate engagement.

These initiatives reflect our broader exploration of how technology can support children's development in learning-related and everyday use scenarios and with a continued focus on responsible design and practical application.

So with that overview, I'd like to turn to our financial performance for the quarter. Our net revenues were USD 770.2 million or RMB 5,480.4 billion for the quarter, representing year-over-year increases of 27.0% and 26.8% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter were USD 104.0 million and USD 141.4 million, respectively.

I will now hand the call over to Jackson, who will provide an update on the operational developments across our core business lines and a review of our financial results for the fiscal third quarter. So, Jackson, over to you.

Thank you, Alex. I am pleased to walk you through our operational highlights and financial results across our core businesses for the third fiscal quarter. Please note that all financial data for the quarter are unaudited.

During the quarter, Peiyou small class enrichment programs demonstrated stable operations, delivering year-over-year growth driven by increased enrollment. We continue to expand access to high-quality enrichment learning programs for a broader user base, supporting students' holistic development.

In our online enrichment learning programs, we have embraced a technology-driven approach to enhance the learning experience. For instance, some of the humanity courses now feature immersive online classrooms powered by virtual settings and interactive activities designed to boost student engagement and support learning outcomes.

Students role play as protagonists from classic literature and collaborate with peers to complete themed challenges, deepening their grasp of character traits and story backgrounds. These immersive programs also incorporate gamified learning mechanisms during class to promote learning and comprehension, followed by auto class challenges that encourage reinforcement of key concepts. This cyclical engagement helps students internalize the material, while building the language skills and knowledge needed for effective expression.

Looking ahead, we will continue to build on this foundation by further integrating technology into our engagement tools and instructional design. This effort will be supported by sustained investments in content, product development and services. Our focus remains on the continuous improvement of learning experience with the goal of supporting student engagement, while meeting the evolving demands of online learning.

Next, let's turn to our learning device business. Our diverse portfolio equipped with intelligent features and learning resources is designed to empower users on their self-learning journeys. Operationally, our learning devices delivered year-over-year growth in both revenue and sales volume this quarter. The average weekly active rate among learning device users remained at approximately 80%, with average daily usage per active device at approximately 1-hour. These metrics reflect sustained engagement even as we expanded both our product lineup and our user base.

On the product innovation front, as Alex highlighted, we are transforming learning devices into more intelligent learning tutoring AI companions rather than simple problem-solving tools. Our AI Thinkie 101, the interactive step-by-step tutoring AI companion embedded in our learning devices has facilitated over hundreds of thousands of hours of guided learning. Meanwhile, our AI assistant, [ Xueersi ] remains a trusted companion for our users.

As of December 2025, students have activated Xueersi over 1 billion times. These developments reaffirm our belief in AI's role in supporting students' learning and development.

Earlier this month, we launched the X5 classic learning device, positioned as a comprehensive solution in the mid-price segment. This new product further expands our product lineup. Designed as an allrounder, the X5 integrates a systematic learning platform with specialized modules with the aim of structuring and supporting self-directed learning.

Beyond our business progress, we contributed to the ongoing development of the industry. In October, the Standardization Administration of China released the national standard for mobile learning terminal function requirements. By sharing practical insights from our device ecosystem, we participated in the formation of the standard. We believe that well-defined standards help elevate product quality, protect user interests and support the industry's sustainable development.

That concludes the operational update, and I'd like to now walk you through our key financial results for the third fiscal quarter. Our net revenues were USD 770.2 million or RMB 5,480.4 million, an increase of 27.0% and 26.8% year-over-year in U.S. dollar and RMB terms, respectively.

Cost of revenues increased by 18.0% to USD 338.4 million from USD 286.7 million in the third quarter of fiscal year 2025. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 18.4% to USD 338.0 million from 284.4 -- excuse me, from USD 285.4 million in the third quarter of fiscal year 2025.

Gross profit increased in the third quarter of fiscal 2026, rising by 35.0% year-over-year to USD 431.8 million from USD 319.8 million for the same period last year. Gross margin increased to 56.1% from 52.7% for the same period last year.

Selling and marketing expenses for the quarter were USD 220.1 million, representing a decrease of 2.8% from USD 226.4 million for the same period last year. Non-GAAP selling and marketing expenses, which exclude share-based compensation expenses, decreased by 2.1% to USD 217.6 million from USD 222.4 million for the same period last year.

Non-GAAP selling and marketing expenses as a percentage of total net revenues decreased from 36.7% to 28.3% year-over-year. General and administrative expenses increased by 7.1% to USD 118.6 million from USD 110.7 million in the same period of last year.

Non-GAAP general and administrative expenses, which excludes share-based compensation costs, increased by 10% year-over-year to USD 110.7 million from USD 100.6 million for the same period of last year. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 16.6% to 14.4% year-over-year.

Total share-based compensation expenses allocated to related operating costs and expenses decreased by 30.2% to USD 10.8 million in the third quarter of fiscal year 2026 from USD 15.5 million in the same period of last year. Income from operations was USD 93.1 million in the third quarter of fiscal year 2026 compared with a loss from operations of $17.4 million in the same period of last year.

Non-GAAP income from operations, which excludes share-based compensation expenses, was USD 104.0 million compared with a non-GAAP loss from operations of USD 1.9 million in the same period last year.

Net income attributable to TAL was $130.6 million in the third quarter of fiscal year 2026, compared to net income attributable to TAL of USD 23.1 million in the same period of last year. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was USD 141.4 million compared to a non-GAAP net income attributable to TAL of USD 38.6 million in the same period of last year.

Moving on to our balance sheet. As of November 30, 2025, we had USD 2,146.3 billion in cash and cash equivalents -- excuse me, USD 1,471.1 [ billion ] in short-term investments and USD 339.3 million in current and noncurrent restricted cash. Our deferred revenue balance was USD 1,162.8 [ billion ] as of the end of the third fiscal quarter.

Now turning to our cash flow statement. Net cash provided by operating activities for the third quarter of fiscal year 2026 was USD 526.7 million.

Finally, I would like to briefly address our share repurchase program. In July 2025, the company's Board of Directors authorized a new share repurchase program. Under the program, the company may spend up to approximately USD 600 million to purchase its common shares over the next 12 months. Between October 30, 2025, and January 28, 2026, the company has repurchased 844,856 common shares at an aggregate consideration of approximately USD 27.7 million.

That concludes the financial section. Alex, I will now hand the call back to you for business outlook. Alex, please go ahead.

Thanks, Jackson. I'd like to share some thoughts on our outlook for the company's future development.

We view the intersection of learning and technology as one of our long-term strategic priorities. By integrating technology with our industry expertise, we aim to continue enhancing our product design and service delivery across our businesses.

In addition, we are strengthening our go-to-market capabilities. For newer businesses such as learning devices, we are implementing more agile channel management strategies, dynamically optimizing resource deployment based on market conditions and performance indicators. At the same time, we are reinforcing our multichannel ecosystem by combining digital and physical touch points to broaden market reach and user engagement.

From a financial perspective, as I mentioned previously, improving overall profitability remains a key priority for us. At the same time, we remain mindful of near-term variability, which may be influenced by factors such as market conditions, investment cycles and seasonal fluctuations. These factors may also require timely adjustments to our operational execution, potentially resulting in limited short-term visibility.

Nevertheless, we'll continue to advance our strategic initiatives and strengthen capabilities across our core business lines, maintaining a focus on long-term sustainable development rather than short-term financial outcomes.

So that concludes my prepared remarks. Operator, we are now ready to open the call for questions.

[Operator Instructions] The first question today comes from Felix Liu with UBS.

Congratulations on the very strong quarter. If my memory is correct, this is probably the highest level of the November quarter margin since 2018. So congratulations on that.

My question is related to off-line Peiyou small class. Could management provide some update on the learning center network expansion in Q3 and your latest perspective on the pace of expansion going forward. With respect to Peiyou revenue, what has been the key drivers of [ Peiyou's ] year-over-year growth? And could you provide more color on the upcoming winter season as well as the growth outlook from here?

Thanks, Felix. This is Alex. Let me -- first of all, thank you for your kind remarks and your continued long-term attention to the company.

Let me take this question. So I'll provide an update on Peiyou's Q3 performance and outlook. During the third fiscal quarter, Peiyou offline enrichment programs delivered year-over-year revenue growth, which is largely aligned with the expansion of our learning center network.

We really maintain our disciplined operational approach to network expansion. We evaluate factors such as our organizational readiness and capability, our operational efficiency, the regional market demand, really this come down to a very micro level of districts and neighborhood and user acceptance of our offerings. So based on this measured and multidimensional approach, the business remains on a stable growth trajectory.

Our operating metrics, really, they show that we built a solid and sustainable business framework. And we aim to maintain this level of operational efficiency for the upcoming winter season. So when I look ahead, I think we'll continue to manage the pace of learning center expansion prudently, balancing growth with operational efficiency and long-term sustainability.

So when I look at the drivers of Peiyou's year-over-year growth, revenue growth during the quarter was primarily driven by increased enrollment, while our ASP remained relatively stable. So this performance really reflects both market demand for high-quality enrichment programs and the internal capabilities we've been developing. If you look at these capabilities, product design, service quality and content development, just to name a few, right?

So on the product and service front, we really emphasize a standardized teaching framework, while fostering an interactive student-centric classroom experience, right? On the talent front, we train our lecturers in-house to ensure consistent teaching quality.

So provided that these growth drivers remain in place, we expect this business line to continue growing. At the same time, given that we are coming off a higher comparison base, and we talked about this in the past as well. It's coming off a higher comparison base than in prior years. We anticipate a gradual moderation in the pace of revenue growth in FY 2026. So Felix, I hope that answers your question.

That's clear. And congrats on the results.

The next question comes from Charlotte Wei with HSBC.

Congratulations on a strong set of results. My question is related to the top line growth momentum. We noticed that the growth kind of slowed down compared to last quarter. Could you please elaborate the key reasons behind this trend? In addition, how should we think about the revenue growth outlook for different business lines, especially for learning devices for the upcoming quarter?

Charlotte, thanks for the question. This is Jackson. I'll take this one.

For your question regarding revenue trend, I think we talked about this a few times in the previous quarters. As we continue to grow, our growth rate will taper off, naturally normalizing to a more moderate growth result. More specifically, if we look at this quarter, the moderation in our top line growth was primarily driven by a deceleration in the growth rate of our learning device business, which stems from multiple factors. First, it reflects the evolving patterns in our learning device business, which is transitioning from its initial rapid expansion phase to a more sustained growth trajectory.

Another consideration is the timing of our product launch across fiscal years, creating a different kind of comparable base. If you look at last year's fiscal quarter 3, for example, it benefited from late August introduction of some of our new product lines back then. While this year, our major product launches happened earlier in the year in May, boosting fiscal quarter 2 sales instead. So the shift in product launch cycles result would -- the shift in product launch cycle resulted in different sales patterns between the 2 fiscal years, leading to a higher comparison base in quarter 3 of last year.

Additionally, as we have consistently emphasized in the previous quarters, we continue to prioritize long-term competitiveness. By applying this philosophy across all business lines, we aim to balance sustainable high-quality growth with prudent execution. Given factors such as market condition, investment cycles and seasonal fluctuations, dynamic and timely adjustments to our operational actions may be required, potentially resulting in quarterly variability in financial performance. Looking ahead, we expect continued fluctuation in learning device revenue.

Now coming back to the group level. We believe year-over-year growth rate to moderate in the second half of this fiscal year, primarily due to a higher comparison base. Consequently, the year-over-year growth rate in the second half of this fiscal year is expected to be lower than in the first half.

Our growth strategy remains grounded in the value we deliver to our users and the society. This guiding principle informs our business decisions and operations as we continue to develop our business. Over the long-term, we believe that sustainable growth is driven by 3 core factors: continuous innovation, strengthened organizational capabilities and disciplined operational execution.

By maintaining our focus on these fundamentals, we aim to support sustainable development over time, as we continue developing solutions that address learning needs and contribute to education development. Charlotte, I hope that answers your question.

This is very clear.

The next question comes from Liping Zhao with CICC.

Congrats on a strong quarter. I have a follow-up question on learning devices. Could you please share the Q3 sales performance of your learning device and how they performed during the Double 11 promotion period relative to management's expectations before? And how do you view the competitive landscape in the learning device market at present?

Liping, this is Alex. Thanks for the question.

So let me begin with our Q3 sales performance. We saw year-over-year volume growth driven by enhancements to our product portfolio and channel strategies. I also note the blended ASP came in below RMB 4,000, which really reflects a shift in our product mix compared to the same period last year.

Financially speaking, the learning device business reported an adjusted operating loss as it remains in an investment phase. We'll continue to allocate resources to strengthen our capabilities and support long-term competitiveness in this area.

So speaking of competitiveness, if I turn to the competitive landscape question, we are really operating in a dynamic environment where artificial intelligence advancements are fundamentally transforming the educational technology landscape. Our approach really combines vertical domain large models with general AI capabilities to create more intelligent, personalized learning experiences.

One of the -- when I think about it, one of the common challenges in at-home learning involves students encountering difficult questions, unclear, unfamiliar concepts, but they don't have immediate access to teacher support. Rather than simply providing answers, in that moment, our AI solutions really aim to emulate the human teaching methodologies, right?

So you break down complex problems, you offer tailored explanations, you take in the students' feedback, right? And then you guide students through learning progression pathways. So to this end, we are developing our AI agent full stack capabilities across these diverse learning scenarios.

So investment in product innovation and channel expansion continue to yield positive feedback, which really underscore the user value we're creating with our products. Our key user engagement metrics, they remain very solid with an average weekly active rate exceeding 80% and an average daily user time per active device at approximately 1-hour.

During the recent Double 11 promotion period. If you look at our market share performance, that's really aligned with our expectations. So these outcomes, I think they demonstrate that our learning devices are gaining market traction through growing product market fit and diversified user acquisition channels. So these collectively enhance our long-term competitiveness.

So -- I mean, I also know that we look at AI's integration into education as a long-term process shaped by technological breakthroughs and evolving market demand. So short-term fluctuations are inevitable, I think. But our commitment to the strategic business remains unwavering. Our vision really extends beyond just the current offerings.

As artificial intelligence continues to advance, we aspire to bring the principle of teaching in accordance with individual aptitude to a wider scale. So this really helps ensure that more students regardless of where they're coming from, what kind of learning environment they have at home, they really have the access to high-quality learning resources. So -- Liping, I hope that answered your question.

Yes, that's very helpful.

The next question comes from Timothy Zhao with Goldman Sachs.

Congrats on the very strong results again. My question is regarding your profitability and bottom line performance. As I think our colleague just mentioned just now, the operating margin in the third quarter reached the highest level probably over the past 5 years or so. Just wondering what is the main drivers ahead?

And also, if you can share how is the operating margin performance across different major business lines in the Q3? And what is your outlook in terms of profit margin for the group and for different segments? That will be very helpful.

Timothy, thank you for the question. This is Jackson. Let me take this one.

Let me maybe first address the key drivers of our operating margin performance this quarter. On a year-over-year basis, the improvement primarily reflects the volatility in our selling and marketing expenses, coupled with disciplined cost management across all business lines that continue to drive operating leverage.

In this quarter, online marketing and branding expenses for our learning device business were lower compared to the same period last year. Our marketing expenditures naturally fluctuate as we dynamically adjust spending levels and marketing strategies based on market conditions, campaign performance and strategic priorities. As we continue building our long-term core competitiveness, we actively diversify our marketing approaches across different platforms. Brand-related expenses also declined during this period.

On a sequential basis, online marketing and branding expenses for learning device business also declined. In addition, for online enrichment learning programs, this quarter is not peak season for online customer acquisition, results in lower online marketing expenditure compared to Q2.

We consider these adjustments a normal part of resource allocation as we balance short-term needs with long-term objectives, and the resulting margin volatility aligns with our expectation. For these reasons, we would caution against using this quarter's margin performance as a benchmark for future periods.

For our learning device business, we reported an adjusted operating loss this quarter. As we've emphasized, we prioritize establishing long-term competitiveness over short-term profitability for this emerging business. The breakeven time line remains uncertain. We are continuing to refine our offerings through new product development, content expansion, AI-driven user experience enhancement and ongoing optimization in operations and sales channels.

Looking at our overall margin profile, it is important to note that we are managing a portfolio comprising both mature profitable business and new initiatives still in the investment phase. This dynamic will result in quarterly margin fluctuations, making it inappropriate to extrapolate color results as indicative of future trends.

Timothy, I hope that answers your question.

Perfect.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

So thanks to everyone again for joining us today as it is that time of the year, I also wish you an early happy Chinese New Year, and we'll talk to you next quarter. Thank you. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ladies and gentlemen, good day, and thank you for standing by. Welcome to TAL Education Group's Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions] Please be informed that today's conference is being recorded. I'd now like to hand the conference over to Ms. Fang Liu, Investor Relations Director. Thank you. Please go ahead.

Thank you all for joining us today for TAL Education Group's Second Quarter Fiscal Year 2026 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 newswire.

During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer, and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding 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, Fang, and thank all of you for participating in today's conference call. Over the past years, our focus has been on driving the holistic development of our students. We have consistently invested in products and service enhancements to deliver a quality learning experience while integrating cutting-edge technologies to fuel innovation and advanced learning models. These initiatives have built a solid foundation for our long-term sustainable growth.

While we are encouraged by this momentum, we recognize the dynamic and competitive landscape. The learning devices market faces escalating competition, and AI-driven learning products continue to reshape education at an unprecedented pace. In navigating these opportunities, we embrace a long-term approach aimed at fortifying our competitive moats and ensuring sustained value creation for both our users and the society.

Building our business is analogous to nurturing a tree. It demands patience, long-term commitment, and careful cultivation. Because some of our strategic initiatives are still in early stages, they require ongoing investment. Consequently, we may face occasional variability and limited visibility in our financial performance due to seasonal demand shifts, competitive pressures, and deliberate resource reallocation. While these factors may cause short-term fluctuations, we remain focused on building the long-term capabilities needed to seize the opportunities in the market.

I will now provide detailed updates, starting with our second quarter FY 2026 performance. Our learning services achieved growth this quarter with both our off-line Peiyou programs and online enrichment offerings increasing year-over-year. This underscores our commitment to providing quality learning experiences while expanding our operational capacity. We are continuing to take a disciplined approach in managing our Peiyou learning center network, focusing on long-term sustainability. We evaluate factors such as local market demand, user acceptance of our products, and our operational capabilities and efficiency to ensure service quality. The effectiveness of this approach is reflected in the positive user feedback and key operating metrics such as retention rates.

For online enrichment learning, we continuously optimize our services and expand our offerings by launching new programs tailored to diverse user groups. These initiatives aim to provide engaging and interactive experiences, improve learning outcomes, and ultimately create value for our users. At the same time, we've embraced a technology-focused approach to adapt to the evolving market landscape of the online learning sector. Guided by our strategic objectives, we've continued to integrate updated features like interactive sessions, personalized guidance, and real-time feedback to improve user engagement.

These enhancements have made the learning experience more immersive and effective. The positive feedback we've received from both students and parents has underscored the value of our technology-focused approach. Alongside our learning, we are advancing our content solutions. Learning devices are a key component of the strategy, offering potential for integrating AI technology into education. Enhancing product capabilities is essential for developing this business. In response to a fast-changing and highly competitive market, we're continuously refining our product design, innovating functionality, and expanding our offerings. We're also dynamically adjusting our business strategies to maintain agile and well-positioned in the sector.

Several months ago, we expanded our product portfolio by launching 3 new models of learning devices. This expansion has allowed us to reach a broader user base while delivering tailored solutions to meet their individual needs. Building on these efforts and strategies, this quarter, our learning device business grew its revenue on both a year-over-year and a sequential basis. By helping students learn well in class, practice well after class, and read well beyond class, our learning devices aim to motivate students to unlock their learning potential while fostering holistic development.

Our content solutions have evolved into a diversified portfolio that encompasses learning devices, print and digital books and other content-based physical products and digital resources. This integrated ecosystem reflects our core mission of bringing quality learning resources to a wider audience, overcoming geographical and temporal limitations and narrowing the gap in access to education. Our ultimate goal is to empower learners to achieve their personal development objectives.

So, with that overview, I'd like to turn to our financial performance for the quarter. Our net revenues were USD 861.4 million or RMB 6,180.4 million for the quarter, representing year-over-year increases of 39.1% and 38.1% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter were USD 107.8 million and USD 135.8 million, respectively.

Now I'll hand the call over to Jackson, who will provide an update on the operational advancements we made in our core businesses. He will also review our financial performance for the second fiscal quarter. Jackson, over to you.

Thank you, Alex. I'm pleased to share some details on progress we made in the second fiscal quarter across our core businesses. Please note that all financial data for the quarter are unaudited.

During the second fiscal quarter, Peiyou small class enrichment programs continued its development path. Its year-over-year growth was fueled by higher enrollments, which were supported by the continued expansion of our offline learning center network. In terms of learning center expansion, we have maintained a dynamic and methodical approach. We struck a balance that allowed us to meet the demand during the summer vacation period while maintaining teaching quality, business sustainability and operational efficiency. By prioritizing the overall health of the business, Peiyou small class maintained its steady performance.

As Alex mentioned, we're adopting a technology-driven approach to enhance our online enrichment learning programs. Our main goal is to boost user motivation, deepen engagement and improve the overall learning experience by integrating smart interactive features tailored to online learning habits. To that end, we have introduced a series of new initiatives that integrate technology into our in-class and out-class learning. For instance, we have created immersive online classrooms with role playing experiences in which students can take on roles such as class helper or subject representative. By empowering students with classroom management responsibilities, their engagement and interaction within the classroom have improved.

In some of our humanities programs, we have used AI to bring to life over 100 historical authors, enabling students to interact with AI-powered versions of these figures. This allows students to gain a deeper understanding of the authors historical backgrounds and literacy contributions. We have also created AI-powered companion cartoons to assist with ad class exercises, making the learning process a more enjoyable experience. These initiatives have all been well received by our users.

Looking ahead, we'll continue to enhance engagement tools and invest in content, products and services to meet the evolving needs of online learning. Next, I'd like to talk about our learning device business. Our goal is to empower users on their self-learning journeys by offering a wide selection of products with advanced smart features and comprehensive learning resources. To meet our users' diverse needs, we have expanded our product portfolio, introducing new models at various price points since 2023 that have gained market traction. This quarter, our learning devices delivered revenue and sales volume growth on both a year-over-year and a sequential basis.

In June 2025, we officially launched AI Think 101, an interactive step-by-step tutoring AI companion for our learning devices that enables a seamless interaction between the screen-based and paper-based learning experience. Supported by an advanced camera system and AI technology, it is able to recognize questions, evaluate answers and dynamically adjust explanations in a timely manner to help students master problem-solving methods and provide support in various learning scenarios.

Since its launch, learning device models equipped with AI Think 101 have been well received by users. In August 2025, the China Academy of Information and Communications Technology evaluated educational AI agents and awarded AI Thinking 101, the industry's highest rating Level 4. This recognition further established its position as an innovator of educational agents. Our continued focus on improving product capabilities has contributed to progress in our learning device business. As our product portfolios and user base have expanded, key engagement metrics such as weekly active rates and average weekly usage time have remained stable and healthy. This quarter, the average weekly active rate amongst all learning device users was approximately 80% and average daily usage time per active device exceeded an hour.

The above concludes the operational update. Now I'd like to walk you through our key financial results for the second fiscal quarter. Our net revenues were USD 861.4 million or RMB 680.4 million, an increase of 39.1% and 38.1% year-over-year in U.S. dollar and RMB terms, respectively. Cost of revenues increased by 36.8% to USD 370.3 million from USD 270.6 million in the second quarter of fiscal year 2025. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 37.6% to USD 369.8 million from USD 268.8 million in the second quarter of fiscal year 2025.

Gross profit increased in the second quarter of fiscal 2026, rising by 40.8% year-over-year to USD 491.0 million from USD 348.7 million for the same period last year. Gross margin increased to 57.0% from 56.3% for the same period last year. Selling and marketing expenses for the quarter were USD 267.3 million, representing an increase of 46.9% from USD 181.9 million for the same period last year. Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, increased by 48.6% to USD 264.4 million from USD 177.9 million for the same period last year. Non-GAAP selling and marketing expenses as a percentage of total net revenues increased from 28.7% to 30.7% year-over-year.

General and administrative expenses increased by 8% to USD 129.1 million from USD 119.5 million in the same period of last year. Non-GAAP general and administrative expenses, which excludes share-based compensation costs, increased by 11.5% year-over-year to USD 120.8 million from USD 108.3 million for the same period of last year. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 17.5% to 14.0% year-over-year. Total share-based compensation expenses allocated to related operating costs and expenses decreased by 30.5% to USD 11.8 million in the second quarter of fiscal year 2026 from USD 16.9 million in the same period of last year.

Income from operations was USD 96.1 million in the second quarter of fiscal year 2026 compared with an income from operations of USD 47.6 million in the same period last year. Non-GAAP income from operations, which excludes share-based compensation expenses, was USD 107.8 million compared with a non-GAAP income from operations of USD 64.5 million in the same period last year. Net income attributable to TAL was USD 124.1 million in the second quarter of fiscal year 2026 compared to net income attributable to TAL of USD 57.4 million in the same period last year. Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was USD 135.8 million compared to a non-GAAP net income attributable to TAL of USD 74.3 million in the same period last year.

Moving on to our balance sheet. As of August 31, 2025, we had USD 1,542.2 million in cash and cash equivalents, USD 1,706.6 million in short-term investments and USD 239.2 million in current and noncurrent restricted cash. Our deferred revenue balance was USD 822.7 million as of the end of second fiscal quarter.

Now turning to our cash flow statement. Net cash used in operating activities for the second quarter of fiscal year 2026 was USD 58.1 million. Finally, I would like to briefly address our share repurchase program. In July 2025, the company's Board of Directors authorized a new share repurchase program. Under the program, the company may spend up to approximately USD 600 million to purchase its common shares over the next 12 months. Between July 31 and October 29, 2025, the company has repurchased approximately 4.2 million common shares at an aggregate consideration of approximately USD 134.7 million.

That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook and strategic priorities. Alex, please go ahead.

Thanks, Jackson. I'd like to share some thoughts on our outlook for the company's future development. The fiscal third quarter is generally not a peak season for enrichment learning demand, so we may experience fluctuations in our business performance due to seasonal factors. Nevertheless, we remain dedicated to driving sustainable long-term growth across all our business lines.

Looking ahead, we'll continue to enhance our products and services to support students' holistic development. Our goal is to serve a broader user base while adhering to the quality standards for both our enrichment learning programs and content solutions. To achieve this, we are making continued investments in content and technology. This investment will fuel innovation and position us to meet the evolving needs of our users in the long-term. In addition, we are committed to exploring and building diverse sales channels to drive growth in our core business. In today's highly connected world, integrating online and offline user engagement is more crucial than ever. Offline touch points remain essential for fostering meaningful interactions with users. While we have established offline communication in learning services, newer areas such as the learning device business are still in the nascent stages. It is, therefore, essential that we strengthen our go-to-market capabilities in this area, which will take time and continued investment.

Regarding our future financial performance outlook, as we've emphasized in recent quarters, our primary objective remains achieving sustainable long-term growth rather than focusing solely on short-term financial results. Accordingly, we will continue prioritizing resource allocation to critical areas aligned with our long-term strategic goals. We're committed to exploring expansion and innovation opportunities within our core businesses to enhance our competitiveness. To execute these strategies effectively, we will maintain flexibility in resource allocation, carefully considering factors such as business dynamics, product cycles, market conditions, seasonality, and organizational capabilities. These adjustments may result in financial performance fluctuations, with some peers exceeding or falling short of market expectations.

Indeed, in recent quarters, we have experienced margin compression as we seed the new initiatives and scale emerging opportunities. Conversely, we've also seen periods of outperformance as these investments matured. This variability underscores our intentional focus on sustainable growth over short-term optimization while also reflecting limited visibility into near-term financial performance. Despite these dynamics, our commitment to long-term growth remains unwavering, particularly in the K-12 learning sector. Our ultimate goal is to deliver transformative learning solutions that empower students in their holistic development.

So that concludes my prepared remarks. Operator, I think we're now ready to open the call for questions.

[Operator Instructions] We will now take our first question from the line of Timothy Zhao from Goldman Sachs.

My question is regarding the Peiyou offline enrichment business. Just wondering if management can share with us some updates on the market dynamics and also the competitive landscape for this business. And also, could you offer some color on the second quarter performance, and also the expansion in the offline learning centers and offline business? So, for example, have you offered any discounts or promotions during the summer? And also looking ahead, just wondering if you can provide us with a growth outlook for the overall enrichment business for the offline business.

Thanks, Timothy. This is Alex. Let me take this one on. It's a multipart question. So, let me try to unpack that and address each component of that question, right? So, first of all, in the offline Peiyou market, we've really observed steady growth in our Peiyou enrichment programs. I think that mirrors learners' increasing interest in them. As with any market during its development, competition is inevitable. The offline small class enrichment learning market, if we define it like that, offline small class enrichment learning market, really, it's notably more fragmented than many other consumer or services markets, making it somewhat challenging to accurately assess the total market size and demand.

So, to remain competitive in this fragmented landscape, the key really lies in developing high-quality products and services, which are supported by solid performance metrics. While we continue to monitor the broader trends and dynamics of the enrichment learning market, our primary focus really remains on strengthening our product capabilities to better meet the needs of learners and deliver long-term value. So, with regard to our performance in the second quarter, revenue for Peiyou offline enrichment programs has grown largely in line with our learning center footprint. For network expansion, we maintain the same operational approach as before. I think as I mentioned during the prepared remarks, we evaluated several key factors such as our organizational capability and efficiency, regional market demand, and user acceptance of our products.

This quarter, we saw a moderate increase in offline enrichment learning centers. Given our disciplined approach to expansion, I think we are satisfied really with the overall health of the business. Regarding summer class pricing, the ASP of our summer courses remained stable really compared with the same period last year.

And lastly, I think you asked for the outlook. So, looking ahead, we'll continue to prioritize sustainability and healthy growth over scale in our approach to expanding offline learning centers. As we open new centers, maintaining consistent service quality and efficiency is really critical. Given that scaling requires broader service coverage while upholding high-quality service, we expect Peiyou's year-over-year revenue growth to gradually taper off. So, Timothy, I hope that answered your question.

Congrats on the very solid results this quarter.

We'll take our next question from the line of Felix Liu from UBS.

Congratulations on the very strong quarter. I have a few questions on the learning device business. Can management share some color on the business performance, especially on the sales volume and pricing for the devices? For your newly launched products, what are the user feedback so far and the product's overall performance? On the P&L side of this segment, are there notable differences in margins across various pricing points? And looking ahead, how does management see the competition landscape for learning devices?

Thanks, Felix. This is Alex again. Let me take on this. So, let's start with the performance of our learning devices business in the past quarter, right? So, for the past quarter, sales volumes increased year-over-year and quarter-over-quarter, I think primarily due to our product and channel efforts. On the other hand, we do note that the blended ASP declined both sequentially and year-over-year, mainly due to changes in the product mix, right? So let me add some color to this. In May, so a few months ago, we launched3 new models, the P4, the S4 and the T4, right? So, these target different price tiers. These products were well received, driving year-on-year sales growth. The sequential growth also benefited from Q2 seasonal strength.

In terms of ASP, the blended ASP declined below RMB 4,000, and that really reflects the shift in the product mix. So, from a financial perspective, the BOM, the bill of materials cost ratios for our learning devices across different price points, I think that really remained stable in Q2. At the P&L level, our learning devices still incurred an adjusted operating loss. We'll continue to allocate resources to this line of business as ensuring our long-term competitiveness remains a key priority, right?

So quarterly bottom line fluctuations are expected given market dynamics, given competition and the resource allocation point that I've been making. So, this focus, I'd like to add, is really critical in today's competitive smart education hardware landscape. You see major players continue to launch compelling learning tablet products. In addition, AI-driven learning products are reshaping education at an unprecedented pace. While we leverage our K-12 focused high-quality content, and continuously enhance product excellence and AI capabilities, really building hardware expertise and channels expertise, those require foundational level efforts, right?

So rather than prioritizing short-term profitability, we remain like really focused on key areas that drive long-term competitiveness, things like user feedback, market share, brand influence and broader user engagement. We think the strategy really ensures a solid foundation for sustainable long-term growth.

Based on our content solutions, including learning devices, books and other early initiatives, we'll continue to invest so that more students can access affordable, high-quality learning content and tools. Our goal really is to leverage technological innovation and quality content to reach a broader audience and provide meaningful value to society. So, Felix, I hope that answers your question.

The next question comes from the line of Liping Zhao from CICC.

Regarding your Q2 financial performance, I'm wondering, could you please provide a breakdown of top line growth and bottom line performance across different business lines? And how do we think about the trend for these business lines, for example, in Q3 or the second half of this fiscal year?

Thank you, Liping. This is Jackson. Let me take this one. Let me start with the top line and then move on to the bottom line. So, on the top line, we expect year-over-year revenue growth of Peiyou small class to gradually taper off. This moderation really reflects a more normalized growth rate and will result in a measured pace of capacity expansion. As for learning devices, the business achieved year-over-year and quarter-over-quarter growth in Q2. However, please note that this business is still in its early stage. It is essential for fostering meaningful customer engagement, expanding our user base and encouraging broader adoption.

We remain committed to driving business development, though performance may fluctuate due to market conditions, product cycles, seasonality and amongst other factors. From a broader perspective, we believe the company's growth and development depending on the value it creates for its users and the society as a whole. This principle underpins every aspect of our business, big and small. We view revenue growth at the company and industry levels as a result of continuous innovation, greater organizational capabilities and stronger operational execution.

Now let's turn to the bottom line. As previously noted, we have established a presence across multiple business lines, including various learning -- enrichment learning programs, learning devices and other content solutions businesses. Notably, these businesses are at different stages of development, each with distinct priorities. On one hand, our Peiyou small class enrichment learning business has reached a more mature stage, delivering relatively stable profit margins. On the other hand, regarding our new initiatives such as learning devices, as we mentioned earlier that we prioritize long-term competitiveness over short-term profitability with a focus on operational metrics such as user feedback, market share, brand influence and broader user reach.

At this stage, the timeline to achieve profitability of the learning device business remains uncertain. We will continue to invest in this area through new product launches, content enrichment, developing AI-powered experiences and making ongoing optimizations to drive performance improvements. Therefore, the company's overall margin profile reflects the mix of mature and emerging businesses, making it challenging to generalizing future margin trends. I would also like to mention that Q2 is typically a peak season for us in terms of profitability, and we should not expect this level of profit margins in the next couple of quarters to come. Liping, I hope that answers your question.

Our next question comes from the line of Elsie Sheng from CLSA.

Congratulations on the strong results. My question is on the plan of allocation in cash because we noted that following the launch of the new share repurchase plan, you have repurchased about 4.2 million common shares. So, could you provide an outlook on the pace of share repurchase for the rest of the year?

Thank you, Elsie. This is Jackson. I'll take this one. Let me share some updates on our capital allocation plans. As of August 31, 2025, the company held approximately USD 3.5 billion in cash and cash equivalents, short-term investments and restricted cash. We have always taken a prudent and balanced approach to capital allocation. We carefully evaluate potential uses of cash, striving to strike the balance between short-term needs and long-term development.

Regarding shareholder returns, we launched our first USD 1 billion share repurchase program in April 2021, later extending it through 2025. In July 2025, that program was nearly completed, and we announced a new USD 600 million repurchase program. Between July 31st and October 29, 2025, the company has repurchased 4.2 million common shares for a total consideration of USD 134.7 million. We will continue to execute the program in line with market conditions and may or may not utilize the full authorization over the next 12 months.

Looking ahead, we take a long-term perspective, we're making strategic investments to promote sustainable and healthy growth. We'll maintain steady investments in content, learning devices and other new initiatives as we believe these efforts will create long-term value for shareholders. Backed by our cash position, we're confident in our ability to fund business expansion while delivering returns to shareholders. As we drive business development, we will also remain attentive to shareholder interests. The specific level of shareholder returns will be comprehensively evaluated and periodically adjusted, taking into account dynamic factors such as market conditions, investment opportunities, business outlook and capital allocation priorities. We will provide timely and appropriate disclosures to ensure investors are well informed on this matter. Elsie, I hope that answers your question.

We have reached the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to the management team for closing comments.

So again, thanks to everyone for joining us today, and we look forward to seeing you all next quarter. Thanks. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.