Q2 2026 TAL Education Group Earnings Call
Speaker #2: Ladies and gentlemen , good day and thank you for standing by . Welcome to TAL Education Group fiscal 2026 , second quarter Earnings Conference Call .
Speaker #2: At this time , all participants are in a listen only mode . After the speaker's presentation , there will be question and answer session .
Speaker #2: Please be informed that today's conference is being recorded. I would like to hand the conference over to Mr. Fang Liu, Investor Relations Director.
Speaker #2: Thank you . Please go ahead .
Fang Liu: 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.
Speaker #3: Thank you all for joining us today for TAL Education Group 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 newswires .
Speaker #3: During this call , you will hear from Mr. Alex Palm , President and Chief Financial Officer . And Mr. Jackson Dean , Deputy Chief Financial Officer .
Speaker #3: Following the prepared remarks , Mr. Peng and Mrs. Dean will be available to answer your questions . Before we continue , please note that today's discussions will contain forward looking statements made under the provisions of the US Private Securities Litigation Reform Act of 1995 .
Speaker #3: 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 , but are not limited to , those outlined in our public filings with the SEC .
Fang Liu: 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'd like to turn the call over to Mr. Alex Peng. Alex, please go ahead.
Speaker #3: 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 .
Speaker #3: Please refer to our earnings release , which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures . I'd like to turn the call over to Mr. Alex Peng .
Speaker #3: Alex, please go ahead.
Alex Peng: Thank you, Fang, and thank all of you.
Speaker #4: Thank you . 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 .
Alex Peng: 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 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-powered learning products continue to reshape education at an impressive 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 society. Building our business is analogous to nurturing a tree. It demands patience, long-term commitment, and careful cultivation.
Speaker #4: We've consistently invested in products and services , enhancements to deliver a quality learning experience while integrating cutting edge technologies to fuel innovation and advanced learning models .
Speaker #4: 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 .
Speaker #4: 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 .
Speaker #4: 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 .
Alex Peng: 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 FY2026 performance. Our learning services achieved growth this quarter, with both our offline Peiyou Small Class Enrichment programs and online enrichment offerings increasing year over year. This underscores our commitment to providing quality.
Speaker #4: 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 .
Speaker #4: 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 .
Speaker #4: I will now provide detailed updates on starting with our second quarter FY 2026 performance . Our learning services achieved growth this quarter with both our offline Piu programs and online enrichment offerings increasing year over year .
Speaker #4: This underscores our commitment to providing quality learning experiences while expanding our operational capacity . We're continuing to take a disciplined approach in managing our learning Center network , focusing on long term sustainability .
Alex Peng: Learning experiences while expanding our operational capacity.
Alex Peng: We're 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.
Speaker #4: We evaluate factors such as local market demand , user acceptance of our products and our operational capabilities , and efficiency to ensure service quality .
Speaker #4: The effectiveness of this approach is reflected in the positive user feedback and key operating metrics, such as retention rates for online enrichment and learning.
Speaker #4: 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, improved learning outcomes, and ultimately create value for our users.
Alex Peng: Create value for our users.
Alex Peng: At the same time, we have embraced a technology-focused approach to adapt to the evolving market landscape of the online learning sector. Guided by our strategic objectives, we continue to integrate updated features like interactive sessions, personalized guidance, and real-time feedback to improve user engagement. These enhancements have made the learning experience.
Speaker #4: 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 .
Speaker #4: 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 .
Alex Peng: More immersive and effective.
Alex Peng: 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 three new models of learning devices. This expansion has allowed us to reach a broader user base while delivering tailored.
Speaker #4: 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 .
Speaker #4: In response to a fast changing and highly competitive market where 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 .
Speaker #4: Several months ago , we expanded our product portfolio by launching three 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 .
Alex Peng: Solutions to meet their individual needs.
Alex Peng: Building on these efforts and strategies, this quarter our learning device business grew its revenue on both a year over year.
Speaker #4: 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 .
Alex Peng: On a sequential basis.
Alex Peng: By helping students learn well in class.
Speaker #4: 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 .
Alex Peng: Practice well after class, and read well.
Alex Peng: 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 books, 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.
Speaker #4: 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.
Speaker #4: 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 .
Speaker #4: 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 .
Alex Peng: To achieve their personal development objectives.
Alex Peng: With that over, I'd like to turn to our financial performance for the quarter. Our net revenues were $861.4 million U.S.
Speaker #4: Our net revenues were 861.4 million USD , or 6,000,000,180.4 million RMB for the quarter , representing year over year increases of 39.1% and 38.1% in US dollar and RMB terms , respectively .
Alex Peng: 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.
Alex Peng: Our non-GAAP income from operations and non-GAAP net income attributable to TAL.
Speaker #4: Our non-GAAP income from operations and non-GAAP net income attributable to Tao for the quarter were 107.8 million USD and 135.8 million USD , respectively .
Alex Peng: For the quarter were $107.8 million and $135.8 million, respectively.
Alex Peng: Now I'll hand the call over to Jackson Ding, 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.
Speaker #4: Now , I'll hand the call over to Jackson , who will provide an update on the operational advancements we made in our core businesses .
Speaker #4: He will also review our financial performance for the second fiscal quarter . Jackson , over to you .
Jackson Ding: Thank you, Alex. I'm pleased to share some details on the 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 demands 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.
Speaker #5: Thank you, Alex. I'm pleased to share some details on the progress we made in the second fiscal quarter across our core businesses.
Speaker #5: Please note that all financial data for the quarter are unaudited . During the second fiscal quarter , pale , small cost in Richmond programs continued its development path .
Speaker #5: Its year over year growth was fueled by higher enrollments , which were supported by the continued expansion of our offline learning Center network .
Speaker #5: 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 .
Speaker #5: By prioritizing the overall health of the business . Small class maintained its steady performance . As Alex mentioned , we're adopting a technology driven approach to enhance our online enrichment learning programs .
Jackson Ding: 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 in-class and after-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 literary contributions. We have also created AI-powered companion cartoons to assist with after-class exercises, making the learning process a more enjoyable experience.
Speaker #5: 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 .
Speaker #5: To that end , we have introduced a series of new initiatives that integrate technology into our in-class and after 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 .
Speaker #5: By empowering students with classroom management responsibilities . They're engagement and interaction within the classroom . Have improved . In some of humanities programs .
Speaker #5: We have used AI to bring to life over 100 historical authors , enabling students to interact with AI powered versions of these figures .
Speaker #5: This allows students to gain a deeper understanding of the authors' historical backgrounds and literary contributions. We have also created AI-powered companion cartoons to assist with art class exercises, making the learning process a more enjoyable experience.
Jackson Ding: 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 Thinke 101, an interactive step by step tutoring AI companion for learning devices that enables a seamless interaction between the screen based and paper based learning experience.
Speaker #5: These initiatives have 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.
Speaker #5: 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.
Speaker #5: To meet our users diverse needs . We have expanded our product portfolios , introducing three introducing new models at various price points . Since 2023 that have gained market traction .
Speaker #5: 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 Thinky one on one and Interactive step by step tutoring .
Speaker #5: AI companion for 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 .
Jackson Ding: 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 Thinke 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 Thinke 101 the industry's highest rating, Level Four Plus. This recognition further establishes 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.
Speaker #5: 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 .
Speaker #5: Since its launch , Learning device models equipped with AI Thinky one on one have been well received by users . In August 2025 , the China Academy of Information and Communications Technology evaluated educational AI agents and awarded AI Thinky one on one the industry's highest rating level four plus .
Speaker #5: This recognition further establishes its position as an innovator of educational agents . I will continue to focus on improving product capabilities , as contributed to progress in our learning device business .
Speaker #5: 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.
Jackson Ding: The average weekly active rate among all learning device users was approximately 80% and average data 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 $861.4 million or RMB 6,180.4 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 $370.3 million from $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 $369.8 million from $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 $491.0 million from $348.7 million for the same period last year.
Speaker #5: The average weekly active rate amongst all learning device users was approximately 80% , and average daily usage time per active device exceeded an hour .
Speaker #5: The above concludes the operational update . Now I would like to walk you through our key financial results for the second fiscal quarter .
Speaker #5: Our net revenues were 861.4 million USD , or 6,000,000,180.4 million RMB . An increase of 39.1% . And 38.1% year over year in US dollar and RMB terms , respectively .
Speaker #5: Cost of revenues increased by 36.8% to 370.3 million USD , from 270.6 million USD in the second quarter of fiscal year 2025 . non-GAAP cost of revenues , which excludes share based compensation expenses , increased by 37.6% to 369.8 million USD , from 268.8 million USD in the second quarter of fiscal year 2025 .
Speaker #5: Gross profit increased in the second quarter of fiscal 2026 , rising by 40.8% year over year to 491.0 million USD . From 348.7 million USD for the same period last year .
Jackson Ding: Gross margin increased to 57.0% from 56.3% for the same period last year. Selling and marketing expenses for the quarter were $267.3 million, representing an increase of 46.9% from $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 $264.4 million from $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 $129.1 million from $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 $120.8 million from $108.3 million for the same period of last year.
Speaker #5: Gross margin increased to 57.0% from 56.3% for the same period last year . Selling and marketing expenses for the quarter were 267.3 million USD , representing an increase of 46.9% from 181.9 million USD .
Speaker #5: For the same period last year . non-GAAP selling and marketing expenses , which excludes share based compensation expenses , increased by 48.6% to 264.4 million USD from 177.9 million USD for the same period last year .
Speaker #5: 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 129.1 million USD , from 119.5 million USD in the same period of last year .
Speaker #5: non-GAAP general and administrative expenses , which excludes share based compensation costs , increased by 11.5% year over year to 120.8 million USD from 108.3 million USD for the same period of last year .
Jackson Ding: Non-GAAP general administrative expenses as a percentage of total net revenues decreased from 17.5%, excuse me, 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 $11.8 million in the second quarter of fiscal year 2026 from $16.9 million in the same period last year. Income from operations was $96.1 million in the second quarter fiscal year 2026 compared with an income from operations of $47.6 million in the same period last year. Non-GAAP income from operations, which excludes share-based compensation expenses, was $107.8 million compared with a non-GAAP income from operations of $64.5 million in the same period last year. Net income attributable to TAL was $124.1 million in the second quarter of fiscal year 2026 compared to net income attributable to TAL of $57.4 million in the same period last year.
Speaker #5: non-GAAP general and administrative expenses . As a percentage of total net revenues decreased from 17.5 . Excuse me , 17.5% to 14.0% year over year .
Speaker #5: Total share based compensation expenses allocated to related operating costs and expenses decreased by 30.5% to 11.8 million USD in the second quarter of fiscal year 2026 , from 16.9 million USD in the same period of last year .
Speaker #5: Income from operations was 96.1 million USD in the second quarter of fiscal year , 2026 , compared with an income from operations of 47.6 million USD in the same period of last year .
Speaker #5: non-GAAP income from operations , which excludes share based compensation expenses , was 107.8 million USD compared with a non-GAAP income from operations of 64.5 million USD .
Speaker #5: In the same period last year . Net income attributable to Tao was 124.1 million USD in the second quarter of fiscal year 2026 , compared to net income attributable to Tao of 57.4 million USD in the same period of last year .
Jackson Ding: Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was $135.8 million compared to a non-GAAP net income attributable to TAL of $74.3 million in the same period. Moving on to our balance sheet, as of August 31, 2025, we had $1,542.2 million in cash and cash equivalents, $1,706.6 million in short-term investments, and $239.2 million in current and non-current restricted cash. Our deferred revenue balance was $822.7 million as of the end of the 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 $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.
Speaker #5: non-GAAP net income attributable to Tao , which excludes share based compensation expenses , was 135.8 million USD , compared to a non-GAAP net income attributable to Tao of 74.3 million USD in the same period of last year .
Speaker #5: Moving on to a balance sheet as of August 31st , 2025 , we had 1,000,000,542.2 million USD in cash and cash equivalents , 1,000,000,706.6 million USD in short term investments , and 239.2 million USD in current and non-current restricted cash .
Speaker #5: Our deferred revenue balance was 822.7 million USD . As of the end of second fiscal quarter . Now , turning to our cash flow statement .
Speaker #5: Net cash used in operating activities for the second quarter of fiscal year 2026 was 58.1 million USD . Finally , I would like to briefly address our shared repurchase program in July 2025 .
Speaker #5: The company's board of directors authorized a new share repurchase program under the program . The company may spend up to approximately 600 million USD to purchase its common shares over the next 12 months .
Jackson Ding: Under the program, the Company may spend up to approximately $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 $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.
Speaker #5: The change July 31st and October 29th , 2025 . The company has repurchased approximately 4.2 million common shares and aggregate consideration of approximately 134.7 million USD .
Speaker #5: concludes the financial section . I will now hand the call back to Alex to briefly update you on our business outlook and strategic priorities .
Speaker #5: Alex , please go ahead .
Alex Peng: 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.
Speaker #4: Thanks , Jackson . I'd like to share some thoughts on our outlook for the company's future development
Speaker #4: . The fiscal third quarter is generally not a peak season for That enrichment learning demand , so we may experience fluctuations in our business performance due to seasonal factors .
Speaker #4: 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 .
Speaker #4: Our goal is to serve a broader user base while adhering to the quality standards for both our enrichment learning programs and content solutions .
Speaker #4: To achieve this , we are making continued investments in content and technology . These investments will fuel innovation and position us to meet the evolving needs of our users in the long term .
Speaker #4: 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 .
Alex Peng: In today's highly connected world, integrating online and offline user engagement is more crucial than ever. Offline touchpoints 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 continue 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 are committed to exploring expansion and innovation opportunities within our core businesses to enhance our competitiveness.
Speaker #4: Offline touchpoints 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 .
Speaker #4: It is therefore essential that we strengthen our go to market capabilities in this area , which will make time , which will take time and continue investment .
Speaker #4: 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 .
Speaker #4: 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 .
Alex Peng: 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.
Speaker #4: 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 periods exceeding our fault or falling short of market expectations .
Alex Peng: Fluctuations with some periods exceeding or falling short of market expectations. Indeed, in recent quarters we have experienced margin compression as we see the new initiatives and scaled 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.
Speaker #4: Indeed , in recent quarters , we have experienced margin compression as we see the new initiatives and scaled emerging opportunities . Conversely , we've also seen periods of outperformance as these investments matured .
Speaker #4: Thus , variability underscores our intentional focus on sustainable growth over short term optimization , while also reflecting limited visibility into near-term financial performance .
Alex Peng: Despite these dynamics, our commitment to long.
Speaker #4: 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 .
Alex Peng: Term growth remains unwavering, particularly in the K-12 sector. Our ultimate goal is to deliver transformative learning solutions that empower students in their holistic development. That concludes my prepared remarks. Operator, I think we're now ready to open the call for questions.
Speaker #4: Operator I think we're now ready to open the call for questions .
Operator: Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. We will now take our first question from the line of Timothy Zhao from Goldman Sachs. Please ask your question, Timothy.
Speaker #2: Thank you . We will now begin the question and answer session . To ask the question , please press star one . One on your telephone keypad and wait for your name to be announced .
Speaker #2: To withdraw your question , please press star one . One again , we will now take our first question from the line of Timothy Zhao from Goldman Sachs .
Speaker #2: Please ask your question , Timothy .
[Analyst 1]: Good evening, Alex, Jackson, and Fang. Thank you for taking my question. My question is regarding the Peiyou Small Class Enrichment programs offline enrichment business. Just wondering if management can share with us some updates on the market dynamics and also competitive landscape for this business. Could you offer some color into the second quarter performance and also the expansion in the offline learning centers and offline business? For example, have you offered any discount or promotions during the summer? Looking ahead, just wondering if you can provide us a growth outlook for the overall enrichment business for the offline business. Thank you.
Speaker #6: Good evening . Alex Jackson , and thank you for taking my question . My question is regarding the PayU offline enrichment business . Just wondering if management can share with us some updates on the market dynamics and also competitive landscape for this business .
Speaker #6: And also , could you offer some color into the second quarter performance and also the expansion in the offline learning centers and offline business ?
Speaker #6: So for example , have you offered any discount or promotions during the summer ? And also looking ahead , I just wondering if you can provide us a growth outlook for the overall enrichment of business for the offline business .
Speaker #6: Thank you .
Alex Peng: Thanks Timothy. This is Alex. Let me take this one on. It's a multi-part question, so let me try to unpack that and address each component of that question. Right. First of all, in the offline payer market, we've really observed steady growth in our Peiyou Small Class Enrichment programs. I think that mirrors learners' increasing interest in them. As with any market during its development, competition is really inevitable. The offline small class enrichment learning market, if we define it like that—offline small class enrichment learning market—is notably more fragmented than many other consumer or services markets, making it somewhat challenging to accurately assess the total.
Speaker #4: Thanks , Timothy . This is Alex . Let me take this one on . It's a it's a multi-part question . So let me try to unpack that .
Speaker #4: And address each component of that question . Right . So first of all , in the offline PayU market . We've really observed steady growth in our payroll enrichment programs .
Speaker #4: I think that mirrors learners' increasing interest in them. You know, as with any market during its development, competition is really inevitable.
Speaker #4: The offline small class enrichment learning market , you know , if we define it like that , offline , small class enrichment learning market , really it's it's notably more fragmented than many other consumer or services markets .
Speaker #4: You know , 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 .
Alex Peng: Market size and demand.
Alex Peng: 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. With regard to our performance in the second quarter, revenue for Peiyou Small Class Enrichment programs offline enrichment programs has grown largely in line with our learning center footprint. For network expansion, we maintain the same operational approaches as before. 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 saw a moderate increase in offline enrichment learning centers.
Speaker #4: 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 matter , to better meet the needs of learners and deliver long term value .
Speaker #4: So with regard to our performance in the second quarter , revenue for offline enrichment programs has grown largely in line with our learning center footprint .
Speaker #4: know , for network expansion , we maintain the same operational approach as before . You know , 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 You of our products .
Speaker #4: You know , this quarter 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 .
Alex Peng: 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 remains stable really compared with the same period last year. Lastly, I think you asked for the outlook. 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 the scaling requires broader service coverage, while upholding high quality service, we expect Peiyou's year over year revenue growth to gradually taper off. Timothy, I hope that answered your question.
Speaker #4: Regarding summer class pricing , the ASP of our summer courses remain stable really , compared with the same period last year . And lastly , I think , you know , he asked for the outlook .
Speaker #4: So looking ahead , we'll continue to prioritize sustainability and healthy growth over scale in our approach to expanding offline learning centers . As we new centers , maintaining consistent service quality and efficiency is really critical .
Speaker #4: You know , given that scaling requires broader open service coverage while upholding high quality service , we expect POS year over year revenue growth to gradually taper off .
Speaker #4: So , Timothy , I hope that answered your question .
[Analyst 1]: Sure. Thank you, Alex. Congrats on the very solid result this quarter.
Speaker #6: Sure . Thank you , Alex . And congrats on the very solid results this quarter .
Alex Peng: Thank you.
Speaker #4: Thank you .
Operator: Thank you. We'll take our next question from the line of Felix Liu from UBS. Please ask your question, Felix.
Speaker #2: Thank you . We'll take our next question from the line of Felix Liu from UBS . Please ask your question , Felix .
[Analyst 2]: Hi, good evening. Thank you, management, for taking my question. Congratulations on the very strong quarter. I have a few questions on the learning device business. Management, share some color on the business performance, especially on the sales volume and pricing for the devices. For your newly launched product, 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? Looking ahead, how does management see the competition landscape for learning devices? Thank you.
Speaker #7: Hi . Good evening . Thank you , management , for taking my question . And congratulations on the very strong quarter . I have a few questions on the learning device business commencement .
Speaker #7: Share some color on the business performance , especially on the sales volume and pricing for the devices . For your newly launched product .
Speaker #7: What are the user feedback so far and the products overall performance on the PNL side of this segment ? Are there a notable differences in margins across various price pricing points ?
Speaker #7: And looking ahead , how does management see the competition landscape for learning devices ? Thank you .
Alex Peng: Thanks.
Alex Peng: Felix, this is Alex.
Speaker #4: Thanks , Felix , this is Alex again . Let me let me take on this . So let's start with the performance of our learning devices business .
Alex Peng: Let me take on this.
Alex Peng: Let's start with the performance of our learning devices business in the past quarter.
Speaker #4: 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 .
Alex Peng: Right.
Alex Peng: 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. Let me add some colors to this. In May, a few months ago, we launched three new models, the P4, the S4, and the T4. These target different price tiers. These products were well received, driving year.
Speaker #4: 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 .
Speaker #4: Right ? So let me add some colors to this in May . So if few months ago we launched three new models , the P4 , the S4 and the T4 right .
Speaker #4: So these target different price tiers . These products were well received . You know , driving year on year sales growth . The sequential growth also benefited from , Q2 seasonal strength in terms of ASP .
Alex Peng: On year sales growth.
Alex Peng: The sequential growth also benefited from Q2 seasonal strength. In terms of ASP, the blended ASP declined below ¥4,000 and that really reflects the shift in the product mix. From a financial perspective, the BoM, the bill of materials cost ratios for our learning devices across different price points, I think that really remains stable in Q2 at the P&L level. Our learning devices still incurred an adjusted operating loss. We will continue to allocate resources to this line of business as ensuring our long-term competitiveness remains a key priority. Quarterly bottom line fluctuations are expected given market dynamics, given competition and the resource allocation point that I've been making. 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.
Speaker #4: The blended ASP declined below 4000 RMB . And that really reflects the shift in the product mix . So from a from a perspective , the bomb , the bill of materials , cost ratios for our learning devices across different price points .
Speaker #4: I think that really remains stable in Q2 at the PNL 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 .
Speaker #4: Right , so quarterly bottom line fluctuations are expected given market dynamics given competition and the resource allocation point that I've been making . So let's focus .
Speaker #4: 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 .
Speaker #4: In addition , AI driven learning products are reshaping education at an unprecedented pace . While we leverage our financial K-12 focused , high quality content and continuously enhance product excellence and AI capabilities , really , you know , building hardware that expertise and channels expertise , those require foundational level efforts , right ?
Alex Peng: 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. Rather than prioritizing short-term profitability, we remain 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. Felix, I hope that answered your question.
Speaker #4: So rather than prioritizing short term profitability , we remain really focused on key areas that drive long term competitiveness . Things like , you know , user feedback , market share , brand influence and broader user engagement .
Speaker #4: We think the strategy really ensures a solid foundation for sustainable , long term growth . You know , based on our constant solutions , including learning devices , books and other early initiatives , we'll continue to invest so that you know , more students can access affordable , high quality learning content tools .
Speaker #4: 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 answered your question .
[Analyst 2]: Yep, that's clear. Thank you.
Speaker #7: Yeah . That's clear . Thank you .
Operator: Thank you. The next question comes from the line of Li Ping Zhao from CICC. Please ask your question, Li Ping.
Speaker #2: Thank you . The next question comes from the line of Li Ping Zhao from SIC , please ask your question . Li Ping .
[Analyst 3]: Good evening Alex and Jackson. Thanks for taking my questions 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.
Speaker #8: Good evening , Alex and Jackson . Thanks for taking my questions 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 ?
Speaker #8: For example , in Q3 or the second half of this fiscal year ? Thank you .
Jackson Ding: Thank you. Li Ping, this is Jackson. Let me take this one. Let me start with the top line and then move on to the bottom line. On the top line, we expect year over year revenue growth of Peiyou Small Class Enrichment programs 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 among other factors.
Speaker #5: Thank you . Li Ping . This is Jackson . Let me take this one . Let me start with with the top line and then move on to the bottom line .
Speaker #5: So on the top line we expect year over year revenue growth of 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 .
Speaker #5: 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 .
Speaker #5: 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 .
Jackson Ding: From a broader perspective, we believe a company's growth and development depend on the value it creates for its users and society as a whole. This principle underpins every aspect of a business, big and small. We view revenue growth at the company and industry levels as the 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 programs business has reached a more mature stage, delivering relatively stable profit margins.
Speaker #5: From a broader perspective , we believe a company's growth and development depending on the depend on the value creates for its users and the society as a whole .
Speaker #5: This principle underpins every aspect of our business , big and small . We view revenue growth at the company and industry levels as the result of continuous innovation , greater organizational capabilities and stronger operational execution .
Speaker #5: 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 .
Speaker #5: Businesses , notably , these businesses are at different stages of development , each with distinct priorities . On one hand , our small class enrichment learning business has reached a more mature stage , delivering relatively stable profit margins .
Jackson Ding: On the other hand, regarding our newer initiatives such as learning devices, as we mentioned earlier, 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 generalize 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. Li Ping, I hope that answers your question.
Speaker #5: On the other hand , regarding our newer 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 .
Speaker #5: 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 and making ongoing optimizations to drive performance improvements .
Speaker #5: Therefore, the company's overall margin profile reflects the mix of mature and emerging businesses, making it challenging to generalize future margin trends.
Speaker #5: 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 .
Speaker #5: Leaving , I hope that answers your question .
[Analyst 3]: Thanks, Jackson, that's helpful.
Speaker #8: Thanks , Jackson . That's helpful .
Operator: Thank you. Our next question comes from the line of Elsie Sheng from CLSA. Please ask your question, Elsie.
Speaker #2: Thank you . Our next question comes from the line of Elsie Cheng from CLSA . Please ask your question , Elsie .
[Analyst 3]: Thank you management for taking my question and congratulations on the strong result. My question is on the plan of allocation in cash because we noticed that following the launch of the new share repurchase program, you have repurchased about 4.2 million common shares. Could you provide an outlook on the pace of share repurchase for the rest of the year?
Speaker #8: Thank you . Management , for taking my question and congratulations on the strong result . My question is on the plan of allocation in cash , because we noticed that following the launch of the new share repurchase plan , the you have repurchase of about 4.2 million common shares .
Speaker #8: So could you provide an outlook on the pace of share repurchase for the rest of the year ?
Jackson Ding: Thank you, Aussie. 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 $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 $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 $600 million repurchase program. Between July 31 and October 29, 2025, the Company has repurchased 4.2 million common shares for a total consideration of $134.7 million.
Speaker #5: Thank you . This is Jackson . I'll take this one . Let me share some updates on our capital allocation plans . As of August 31st , 2025 , the company held approximately 3.5 billion USD in cash and cash equivalents .
Speaker #5: 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 .
Speaker #5: Regarding shareholder returns , we launched our first 1 billion USD share repurchase program in April 2021 . Later extending it through 2025 . In July 2025 , that program was nearly completed and we announced a new 600 million USD repurchase program between July 31st and October 29th , 2025 .
Speaker #5: The company has repurchased 4.2 million common shares for a total consideration of 134.7 million USD . We will continue to execute a program in line with market conditions , and may or may not utilize the full authorization over the next 12 months .
Jackson Ding: We will continue to execute a program in line with market conditions and may or may not utilize the full authorization over the next four months. Looking ahead, we'll take a long term perspective when 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.
Speaker #5: Looking ahead , we'll take a long term perspective when 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 .
Speaker #5: 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 .
Speaker #5: We will provide timely and appropriate disclosures to ensure investors are well informed on this matter . Elsie , I hope that answers your question .
Jackson Ding: Elsie, I hope that answers your question.
[Analyst 3]: Yes, thank you. It's very clear.
Speaker #8: Yes . Thank you . It's very clear .
Operator: Thank you. 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.
Speaker #2: Thank you . 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 .
Alex Peng: Thank you again to everyone for joining.
Speaker #4: So again , thanks to everyone for joining us today . And we're looking we look forward to seeing you all next quarter . Thanks .
Alex Peng: Us today, and we look forward to.
Alex Peng: Seeing you all next quarter.
Alex Peng: Thanks. Bye bye.
Speaker #4: Bye bye .
Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect your lines.