Ladies and gentlemen, thank you for standing by and welcome to First Quarter FY2021 TAL Education Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, there will be a Q&A session. Today’s conference call is being recorded. I would now like to hand the call over to your first speaker today, Ms. Echo Yan, IR Director of TAL. Thank you. Please go ahead.

Thanks, operator. Thank you, all, for joining us today for TAL Education Group's first fiscal quarter 2021 earnings conference call. The earnings release was distributed earlier today. And you may find a copy on the Company’s IR website also with the newswires. During this call, you will hear from; and myself, IR of TAL. Following the prepared remarks, Mr. Luo and Ms. Huo will be available to answer your questions. Before we continue, please note that the discussions today will contain forward-looking statements, made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release in this call includes 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 now to turn the call over to Mr. Rong Luo. Rong, please.

Thank you, Echo. Good evening and good morning to you all. Thank you for joining us today on this earnings call. Compared to the situations one quarter ago. We have been encouraged by the progress that the government and people in China had made to keep the COVID-19 under control. We are still saddened by the strains that this pandemic has put on public and personal life and ongoing challenges in many other countries. At TAL, during the first fiscal quarter. We continue to operate within the possibility in the restraints of the organization you off with operational adjustments in case since February. We are managed to mitigate the negative impact on our offline business after the first quarter. By the growth in student enrollments in online causes and related to revenue. Net revenue growth in the first quarter was 35.2% year-over-year in US dollar terms to US$910.7 million and 41.5% in R&D terms. Total normal price loans and causes student enrollments increased by 72.1% year-over-year, mostly driven by the online enrollment as well as trust pays more class. GAAP income from operations was US$35.5 million a year-on-year decrease of 26.8% for US$48.5 million. Non-GAAP operating income of US $68.8 million decreased by 7.8% for US$24.6 million in a same year ago period. I will now turn the call over to Linda Huo, our Vice President of Finance. She will give you an update on our operational progress in the first quarter. Then Echo Yan, our IR Director will reveal our first quarter financials. After that I'll update you on our bidding strategy and discuss our business for next quarter. Linda, please.

Thanks you. I will review the various strategy of our children meeting for the first quarter. Let me start with small class and other business which consist of Xueersi Peiyou small class, Firstleap, Mobby and some other education programs and services. These accounted for 68% of total net revenue compared to 77% in the fourth quarter last fiscal year. The revenue growth rate was 21% in U.S dollar terms and 27% in RMB terms. Xueersi Peiyou small class which remain our stable core business so presented 60% of total revenue in the first quarter compared to 67% in the same year ago period, the lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of dotcom online courses, which accounted for 25% of total revenue in the culture compared to 15% in the same period last year. Net revenue for Xueersi Peiyou small class was up by 22% in U.S dollar terms and 28% in RMB terms where our normal price long-term cost enrollment increased by 43% year over year. In the fourth quarter, almost all of Peiyou business continued to be delivered by online platform due to impact of the COVID-19 outbreak. In Q1 normal price long-term Xueersi Peiyou small class AIP decrease by 13% in RMD terms and 17% in U.S terms year-over-year. The decline was mainly due to the mix change of more lower tier cities coverage as well as the courthouse offered to online small class customers who had to move from offline to online during the COVID 19 outbreak period. Our first quarter performance reflected stable growth of small class business across our cities, in our geographic network. Xueersi Peiyou small class revenue from the top five cities, which are Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing increased the by 18% year over year…

Thanks, Linda. Let me now go through some key financial points for the first quarter of fiscal year 2021. Gross margin increased by 27.6% to US$481.1 million from US$377 million in the senior goal period. Gross margin for the first quarter decrease to 52.8% as compared to 56% for the same period of last year. Sales and marketing expenses increased by 41% to US$219.1 million from US$155.4 million in the first quarter of fiscal year 2020. Non-GAAP selling marketing expenses, which included share-based compensation expenses increased by 39.6% to US$211.2 million from US$151.4 million in the senior goal period. The year-on-year increase of selling and marketing expenses in the first quarter of fiscal year 2021 was primarily a result for more marketing promotion activities to strengthen our customer base and brand, as well as higher compensation to sales and marketing stuff to support more programs and the service offering. Other income was US$42.1 million for the first quarter of fiscal year 2021, compared to our other expenses of US$31.3 million in the same year ago period. Impairment loss on long-term investment was US$2.3 million for the first quarter of fiscal year 2021, compared to US$50.6 million for the first quarter of fiscal year 2020. Impairment loss on long-term investments was mainly due to declines in the value of long-term investment in several universities. Income tax expenses was US$22 million in the first quarter of fiscal year 2021, compared to US$2.8 million of income tax benefits in the first quarter of fiscal year 2020. Net income attributable to TAL was US$81.7 million in the first quarter of fiscal year 2021, compared to net loss attribute to TAL of US$16.2 million in the first quarter of fiscal year 2020. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses was US$$114.9 million, compared to non-GAAP net income attributable to TAL of US$9.9 million in the same period of the prior year. From the balance sheet as of May 31, 2020, the company had US$2,323.8 million of cash and cash equivalents and US$590.6 million of short term investments, compared to US$1876.9 million of cash and cash equivalents and the 345.4 million of short term investments as of February29, 2020. As of May 31, 2020 the company’s deferred revenue balance was US$1495.4 million, compared to US$968.4 million as of May 31, 2019, representing a year-over-year increase of 54.4%. Deferred revenue primarily consisted of the tuition classes, the ones of sure to Peiyou small classes and online courses through www.xueersi.com as well as deferred revenue related to other business. A final point, concerns a repurchase program that the Board of Directors had authorized on April 28, 2020. By May 31, 2020, the company had repurchased 185,000 ADS so a total of about US$10 million. Company management also bought back 36,000 ADS in this period. Now I will hand the call back to Mr. Luo to briefly update you on our strategy execution and provide the business outlook for the next quarter. Rong please.

Thank you, Echo. Firstly, I would like to say that we are most grateful for the recent government progress in stopping the spread of COVID-19 in China, and intends to concerning efforts of our teachers, technology staff, or all our employees, and the trust and cooperation from our customers and partners. We have been able to offer our children's services online and deliver some free online courses and technology service in support of our education continuity. Secondly, I would like to emphasize that to achieve the long-term success of our business requires a strong foundation and this is more important than just pure apple [indiscernible] we will end to offer the best possible quality of goods and services really understand and adjust the needs of our students and satisfy the parents in demonstrations at different times. Based on this principle our market share again, and profitability optimizations have to go hand-in-hand with our serious ambition for long-term quality service. Last but not least, given the situation China continues to improve by all government policies and regulations regarding the protection of the National Public Health. We are always treated the health and the safety of our students and employees that is our first priority and operate our business based on that priority. All-in-all, as one reflected in players with a long track record in education, technology and service will remain fully confident in our future development and education market options in China. Let me turn finally to our outlook based on our current estimates, total net revenue for the second quarter of fiscal year 2021 is expected to be between $1077.6 million and $1105 million representing an increase of 18% to 21% on a year over year basis. If not taking into consideration of potential change in exchange rates between RMB and U.S dollar, the projected revenue gross rate is expected to be in a range of 20% to 23% for the second quarter of fiscal year 2021. That concludes my prepared remarks. Operator we are now ready to take questions.

[Operator Instructions] Your first question comes from the line of Natalie Wu from CICC. Please ask your question.

Hi, good evening, Rong, Linda and Echo thanks for taking my question, just wondering for your next quarter guidance 20% to 23% year-on-year in RMB terms how does that imply the goals of offline Peiyou and online xueersi.com respectively. And how should we think about the margin going forward. Also in the long run how should we think about the online business module profile as well as the competitive landscape? Just curious if there are any change of your thoughts on long-term prospects for online business given the dynamics in latest December month. Thank you.

Thank you, Natalie. I think in the first place we need to correct our own numbers, Q1 we grow our revenue in 41.5% in RMB terms and in Q2 our guidance 20% to 23% and here we need to take something into consideration to actually cost of [indiscernible] where revenue spent actually shift from Q2 to Q1, so Q1 numbers loose that in the real numbers where Q2 lose a little bit smaller. I think one of the best way to look at our numbers is combined the Q1 and Q2 together, I think, which is also quite similar for our other counterparts in this industry. So if we are combining together, our first half revenue gross will exceed around 40%. And secondly I think if we go deeper to different segments, we need to watch our numbers one by one. In the first pace for the Peiyou small class business care, we need to be very careful. Peiyou small class means our transition will be offline being some models. In last quarter the cost of COVID-19 outbreak. So most offline lending actually is delivered through our online platform. So, for this kind of Peiyou small class business I think we have experienced and we are continuing to experience less than challenge and extent pressures other companies in this industry. We need to wait what is going on COVID-19 operate. We are very happy to see coming into this quarter with the government efforts. So, we are under control. And we have seen most, most of our new cities actually they have stopped operate. Graduates, by some help through the normal time we have in the previous years. We don't have any kind of the virus is before actually the recovery is still slower and we are in the pretty…

Got it. Very clear. Thank you, Rong Luo.

Your next question comes from the line of Mark Li of Citi. Please ask your question.

Hi, Rong Luo. Congratulations on the results. I want to ask a few more on the online because I remember last year you mentioned, you mostly focused in the process of online strategy, and it seems like for all the shares online growth has been stronger than what we expected in recent quarters. So looking back for the online some of promotion, using what we make right, this as a promotion and looking ahead for the second half of it, and into the upcoming quarter? What do you focus on the strategy as for this year compared to last year? I just want to hear bit more? Thank you.

Thank you, Mark. I think if you recap some numbers. And last year, our Xueersi online school revenue growth is around 86% to 87%, close to around 90% last year. And this year Q1 grow by 133%, and Q2 we are pretty much on track to around the triple digit growth plus minus in this range. So, I think part of the reason is because of their market change, in the past few months its most of China students are forced to stay at home and pay their own offers. So which a salary flow online popularities through the students and teachers. So, we are one of the leading players in education player, we also got some benefit from there. So if you guys can do into some other online players in this market actually that is quite common and not new for us, but also for the whole industry. So with these the marking environment is a very important reason we need to be very honest for that. Secondly, I think right after running the beans for a few years, especially for the online for the few years. I think we have training improve our competitiveness upload products. And when sometimes on avocation is now kind of the magic, actually they require a lot of the digital operations and efforts. So that is now simply stay were just moving students for offline and online, we are just moving them from classroom to screen, everything okay that is not a case. Actually we need to read that a lot of process. We need to restructure the way hallway peruse the students to rest in our platform, hallway widen to pilot class and hallway can make sure online interactions is better than offline measure students feel actually they are learning in…

Next question please.

Your next question comes from the line of DS Kim from JP Morgan. Please ask your question.

Hi, everyone. Good evening. Thanks for taking my questions, and congrats on the good results. First, I have two questions if I may. First on margin, today I checked why gross margins this quarter went down 300 plus despite your contribution from circle nine, i.e. optimizing was a big positive surprise. So, just trying to understand why Q2 margin was lower versus the mix and wondering whether this is because of a big chop in slow margin segment or else, and I have one small follow up after this. Thank you.

Thank you for question. I think for the gross margin. For Q1, it is a little bit decline is because when we are moving this period Peiyou small class students from offline to online, which is quite successful, most of our students actually moved there and one thing we need to draw is actually in a second quarter when we try to retain the students from sprains into some of them, actually, the retention is quite good, even a little bit higher than last year. So, the efforts work, when we are moving the students from offline to online, actually, we provide some kind of price coupons to them. So, which we will deduct a little bit in revenues. So, which will make the gross margins of appeals more, a little bit lower than before? And I think that is the most important reason that we have full of gross margins, why they a little bit different. And can I clarify your second question it is about OP margins?

Yes, I think you are right, he kindly explained all that. Thank you. And, if I may follow up on other point. This is more medium term, but how are we going to balance Peiyou offline and Peiyou online, given now, the lines between the two are a little bit blurred since COVID, so are we in the future, thinking of matching online price to terrible fine, essentially deflate replacing, Peiyou offline with the life or are we going to keep two segments completely separate or complimentary to each other and try to serve a different group of students. And that is all and thank you gin for taking my question.

First speaking, I think the best answer for this question should be go to parents. Because actually, our different drivers, of course models, actually the fundamental drivers to then actually needs from this market, needs for the parents and needs for the students. And I think the past several months is after COVID-19 outbreak, I think that it is a special time. That is the first time for all of us. So it is very special, and maybe it is very unique. So we can't just use the three months or four months experience to decide what will we need to do in the coming three or five years. So we carefully evaluate and observe what is happening in the past three or four months especially I've seen some more students they choose the online offering. We need to make sure is there a temporary phenomena or that is forever phenomenon. Today, it is too early to make a judgment call. And in the second is I think today same as slowly running a company before it is very good, the shorts to smart class and short the online things as they are running separately, because the Peiyou small class business they cover city-by-city [indiscernible], we covered the other 20 new cities. So the total number is around 90 cities, not zero including one in the U.S.. So the Peiyou Life is highly connected to the Peiyou small classes, to the Peiyou Life complimentary service to them. So they will focus on how to provide the better to offline students. Especially, they will provide more localized content to them. And that is our progress for the Peiyou Life offerings. So they are part of the Peiyou small class. [indiscernible] online schools, since its beginning is a breath strategy. We want…

Thank you. that is very clear.

Your next question comes from the line of Sheng Zhong of Morgan Stanley.

Hi good evening Thank you for taking the questions My question is about your online business. So can you give us roughly number, how much of students now is for lower cities for online learning? And I think previously, you mentioned that you are doing some trial of different business models in lower cities to see which are the best models. So, can you share some color, some observation with us and the company is thinking about the future strategy in lower cities? Thank you.

Thank you, Sheng Zhong. I think it is always a very important questions how it impact to the local tier cities. And in last year, for [indiscernible] we have around 20 plus students coming from low tier cities. Now this year, the situation has a little bit change, especially right after the outbreak of the COVID-19. And we are running some free class promotions and classes to the students all over China. And we are also optimize our products to try to assemble students for low tier cities. So what we can see is actually for the new students, and especially for the promotion students, more and more of them are coming from low tier cities. I think even today, I don't have a perfect answer to say hey, that is best strategy to penetrate the low tier cities, we don't have the shortcut yet. But we are happy to see that is with our continued involvement of our progress and we are seeing way more students actually are coming from the low tier cities and coming in the past few months. And this trend will continue in the coming few quarters. Again, I want to say is actually the students who live in the low tier cities, compared to the students who live in the big cities, they understand, they have same demand, they have the same needs, and they have the same ambition try to be more competitive, they want to learn better and they want to have better life. So what we need to do is when we go into the low tier cities, we need to find [indiscernible] to how to make our offerings more affordable, but the teaching quality should always be the same. So we need to treat it using the product quality as high priority when we go in there. We need to make sure we teach very hard. So we will continue our current offering now and we will evaluate other data and especially in the low tier city student status to consider workflow products to fit their needs. So all-in-all what I can say is we are good to see more and more students of our platform, online platform. Actually, they coming from local geographies, and this trend will continue in the coming two quarters. Thank you, Sheng Zhong.

Thank you.

Your next question comes from the line of Felix Liu of UBS. Please asked your question.

Thanks for taking my question and congratulations on this Q1. My question is on the progressive side, I see your deferred revenues are 1.5 billion. Well, the guidance for the next quarter is, I think, a little bit below that. So could you help us understand the different tiers I think the government doesn't really allow prepayment for too long side.

Yes, thank you for your question. The differed revenue growth was impacted by our factor growth of all our business as well as consolidation of newly acquired online one-on-one English tutoring providers. The consolidation stack from may the first of this year, and hopefully answer your question. Thank you.

Okay. Thank you very much and just as follow up on that. What is the timeline for recognizing this increase differ revenue from consolidation what is the typical period to portfolio recognize.

I think, this acquisitions happen in the Q1 mid-fiscal year, but to give them more kind color about this actually because they have higher numbers in the governance studies with net revenue because that is depending on their contention one-on-one. So actually revenues are paying out the [indiscernible] is immaterial.

Thank you very much.

Your next question comes from the line of Alex Xie with Credit Suisse. Please ask your question.

Hi, thank you for taking my question. So actually would like to ask about your thoughts about, the online small class model. I think in the last quarter you provided the online small class model to millions of students and goods retention rate has its destinations. So in the future, I'm are you going to keep some online small class offerings in your previously large class dominated Peiyou Life and did you see demand or do you have plan to do online small class in the hot cities say to attract the strongly cities as a way to penetrate into low tier cities to see the potential in that. Thank you.

.: A lot of cities come back to normal we are also seeing a lot of students and the parents, they are coming back to offline schools now. So, I think what wherever decision we will may need to depending on the parent's satisfaction rates rather they will continue offers in the longer term, today with this preliminary positive sign or results [indiscernible] only two to three months, it is too early to judge or is too early to draw the conclusion. So we will continue to run our business in this way and we will also resume our offline business in the cities is come back to normal. So, we will leave more time for the parents and the students. And we are based on the feedback of the market. We are based on the feedback of the customers to make the decisions. Our strategy is to always evolve based on this kind of new dynamics in the market. Thank you.

Got it. Thanks.

Your next question comes from the line of Lucy Yu of Bank of America. Please ask your questions.

Thank you. I got two questions. First is one the expansion strategy. I think that you had enter more new cities this quarter populated becomes delayed from the previous quarters. Going forward, it was a strategy of offline expansion. Would that be largely concentrated in new cities like what we have done or more of that will be existing cities. Because as we mentioned, penetrating to new cities will dilute or at least pressure on margins in the near term. So whether we will continue to do that, or scale back new cities a little bit and focus more on margins. So, that is question number one. Number two is on the revenue forecast of around 20%. Have you mentioned that the xueersi.com is likely to grow as triple digit in the following quarter, as well as the Peiyou Life will also grow at triple digits, it looks like the rest of the business it will be under huge pressure, then we will achieve or we will arrive at 20% otherwise it will be much higher than that. So, could you please help us to understand better of your revenue forecast? Thank you.

Okay, I think for the geographic expansion, actually, we are pretty much on track our plans last year and this plan has been stopped a little bit by the last several months since the COVID-19 operate. Today, we gradually resume back to our pace. But again, we will be very cautious about that. We need to spend still more time to look into what will happen of this kind of pandemic in China in the coming from few months. In Q1 we had enter 20 new cities, and we have at been around to 65 new learning centers. In Q2 by the end of today we have rented around 10, new learning centers. So, I think this is higher depending on what happened as far as in the coming month is based on what we see today. If everything still were under control, we will be more positive about that. And around your question about the new cities or the current cities. First taking, I think we are going to maintain our similar pace to enter new cities. Last year, if I remember correctly, we have entered around 15 new cities. And the year before last year it was around 13 to 14 plus minus. So, this year in Q1 and it changes. So, that is pretty much on share. We continue to answer the sizable number of the new cities every year. And we also continue to optimize our current stages efficiencies and based on the different KPIs especially the system for summarizing or other KPIs to decide if the annual incentive. I think we run in our to our new network expansion strategies pretty much thing is already in the past, but considering we have COVID-19 here, so in the most quarters will be more cautious than before.…

Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.