Ladies and gentlemen, good day and thank you for standing by. Welcome to TAL Education Group’s fiscal 2025 third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. Please be informed today’s conference is being recorded. I would now like to hand the conference over to Ms. Huang Liu [ph], Investor Relations. Thank you, please go ahead.

Thank you all for joining us today for TAL Education Group’s third quarter fiscal year 2025 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 discussion 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’d like to turn the call over to Mr. Alex Peng. Alex, please go ahead.

Thank you Huang, and I’d also like to thank all of you for joining today’s conference call. I’ll provide an overview of our business progress and financial performance for the third quarter of fiscal year 2025 followed by Jackson’s review of our operational advancements and key business results, then I will finish up with a brief update on our future strategy and outlook. We remain committed to delivering high quality learning experiences and services throughout the last fiscal quarter. More students and parents are choosing our products and services to enhance their children’s daily learning. These users provide valuable feedback throughout their journey with TAL, empowering our ongoing innovation as we refine product features and formats based on actual user needs. As always, we aim to improve the learning experience and support students’ holistic development. This quarter, we’ve provided more engaging learning experiences through our learning services programs. Both our offline and online enrichment learning programs continued to receive positive feedback from users, reflecting the quality of our products and services. Our enrichment learning programs are designed to elevate learners’ abilities, fostering well rounded development across a range of competencies. As we recognize that true learning extends beyond just acquiring knowledge, at TAL we prioritize the growth of skills such as reading comprehension, critical thinking, problem solving and quantitative reasoning. These competencies equip learners with the tools to navigate real world challenges. We believe this product market positioning aligns with the needs of a new generation of parents who are seeking in depth cross-disciplinary educational opportunities for their children. Take our Peiyou enrichment small classes as an example - market demand for enrichment learning and our consistent delivery of high quality services drove continued growth of this business line during the fiscal quarter. For content solutions, we remain dedicated to…

Thank you Alex. Before I get started with my review, please note that all financial data for the quarter are unaudited. Let me begin with our learning services and others business, which encompasses a wide range of learning programs. This business line maintained its growth momentum for the third quarter of fiscal year 2025, achieving year-over-year revenue growth thanks to the development of multiple product lines. Notably, our Peiyou small class enrichment programs remain the largest revenue contributor within learning services and others business. Under the tailwind of increasing customer acceptance of enrichment learning, Peiyou enrichment small class continues its development momentum. For this business, our priority is to provide quality in-person learning experience for our users. We take a dynamic and methodical approach in managing our learning center network. Each decision is based on careful evaluation of factors such as market demand, user acceptance, operational capability and efficiency. Our online enrichment learning business continues to progress in line with our strategic objectives. We have differentiated our online programs from offline offerings by integrating smart interactive features that cater to online learning habits, boosting user motivation and deepening engagement. By consistently innovating and refining our online products, we strive to meet the growing demand for dynamic and impactful digital learning experiences. For learning devices, our goal is to support users' self learning journeys with a diverse product selection and richer smart features and learning resources. This fiscal quarter, we expanded our offerings to reach a broader user base, helping more users find learning solutions that suit their unique needs. It has been two years since the launch of our first generation learning device. Last year, we offered only one product; now, we are featuring a lineup of four. Bolstered by the ecommerce event season in the third fiscal quarter of…

Thanks Jackson. I'd like to share some insights on the outlook for the company's future development. Moving forward, we may experience some fluctuations in our business performance due to seasonal factors; for example, in fiscal year 2025 fourth quarter, we anticipate a year-over-year decline in revenue from learning devices as the third quarter is typically a peak season for e-commerce activities. Nevertheless, we remain committed to achieving healthy and sustainable long term growth across all our business lines. For learning services, we will maintain our high quality standards for both offline and online learning products and strive to deliver premium enrichment programs to an even broader user base. We plan to prudently manage our learning center network and develop additional programs tailored to meet the specific needs of various user groups while also managing our operational efficiency. In terms of content solutions, we'll closely monitor user feedback and market demand and use those insights to further enhance our learning devices and their features. We'll also expand our learning content library and explore new product developments. At the same time, we'll keep refining our go-to-market strategies. By aligning innovation with user needs, we aim to deliver impactful learning experiences to all of our customers. For the past few years, we've been innovating at the intersection of learning and technology, advancing our technological capabilities to deliver quality learning solutions. The potential of emerging technologies, particularly artificial intelligence, is transformative and inspiring. Over the last year or two, we have gained a clear understanding of what is achievable with AI in education and what is still needed to fully unleash its possibilities. Our focus now is twofold: first, leveraging industry specific data to train vertical models; and second, developing applications that harness the power of both foundational models and vertical models. Today's children and parents face a major challenge: how to grow into individuals who can thrive in the age of artificial intelligence. Their demand for intelligent solutions exceeds the capabilities of current technology. This creates an opportunity for us to bridge the gap between traditional solutions from centuries ago and the advanced needs of today's children and parents. With a love of learning and technology at the heart of everything we do, we remain committed to creating innovative products that empower students, families and educators. We look forward to shaping and witnessing this exciting future together. That concludes my prepared remarks. Operator, we're ready to open the call for questions.

Thank you. We will now begin the question and answer session. [Operator instructions] Our first question comes from the line of Alice Tsai from Citi. Please go ahead.

Good evening management. Congratulations on the strong results. I have two questions. For the Peiyou enrichment offline business, could you please share any recent changes in the market dynamics? Have you ever noticed any negative impacts from consumption downgrades or intensified competition? My second question is how was the network expansion in Q3 for TL, and has there been any changes in key operating metrics, such as renewal rates? Thank you so much.

Thanks for your question - this is Alex. Let me take on those two questions, and let me first start with my market observations, right? In terms of enrichment learning, what we observed is sustained growth momentum in both market demand and our enrichment learning business performance over the past few quarters. This newest generation of parents, they’ve really started to form their own parental and educational philosophies. Many of them are today emphasizing their children's holistic development rather than focusing only on academic performance at school. Official data on how fast the enrichment learning market is growing is still limited, but we are seeing more on-the-ground activity and user inquiries, which I think really reflects increasing interest from customers. Our products are designed to really meet this growing demand. Our enrichment programs’ interactive and engaging experiences, they aim to improve learners' critical thinking and logical reasoning, and they foster an appreciation for the humanities, the arts, and enhance hands-on capabilities. As the enrichment learning market grows, our learning services business also continues to progress with it. I'd like to say a few words about market competition - it's a question that often comes to us. It really is a natural part of every market and every stage of development, right, so when it comes to the enrichment learning offline small class market, it is more fragmented than many other markets. The key to remaining competitive in this market is really developing high quality products with solid performance-focused metrics and ensuring our products serve local users well, so while we don't--you know, we do monitor the enrichment learning sectors dynamics, our core focus is really on strengthening our own product capabilities. We really think what truly matters is meeting the needs of parents and students, delivering that meaningful value to…

Thank you for the question. The next question comes from the line of Yiwen Zhang from China Renaissance. Please go ahead.

Yes, thanks management for taking my question. My question is regarding R1 investment. Are there any updates management can provide regarding the long term investment, and specifically, where have the investments been made and have we seen any notable change in returns so far? Thank you.

Yes, thanks Yiwen. That's a great question. We've been focusing on the K-12 educational sector and we've developed a number of business lines across the entire learning journey and in different types of learning scenarios. I would say these are really at different stages of growth and they each face their unique challenges or opportunities, and we remain committed to elevating our presence in the space with continuous innovation. We're deepening our investment in areas that are still in their early stages to enhance user experience, expand our customer base and generate greater societal value. You may have observed our product advancements in these areas, right? I think they're really propelled by sustained investments in product development, research, marketing and operational enhancements; for instance, if you look at our learning services, we've been steadily broadening the scope of our online offerings. Originally, our online classes were based on dual teacher live streaming models, and now we've introduced new product formats such as recorded classes. We also launched two new smart learning devices in 2024 and we're really consistently and continuously upgrading their AI-powered software and content. In the smart learning devices business, we're continuing to invest in hardware, software research and development in content, and also strengthening our go-to-market capabilities across both online and offline channels, and really--additionally, as I mentioned the Consumer Electronics Show, we're exploring opportunities to expand our products reach internationally. Overall, based on our experience serving users, we believe that this full stack capability, right, this full stack capability across hardware, software, content, AI technology, offline operational and online services operational capabilities, that's the cornerstone of our user service, of our future growth and long-term strategy, so it's really essential for us to continue to invest across these full stack capabilities. Let me maybe walk you…

Thank you for the questions. Our next question comes from the line of. Please go ahead.

Thank you management for taking my question, and congrats on the very solid results. My question is regarding your online enrichment programs. I was just wondering if management can provide more insights into [indiscernible] dot-com. Is the primary growth driver for this business driven by SKU expansion innovation or access to marketing [indiscernible]? Thank you.

Timothy, thanks for the question - this is Jackson. I'll take this one, and I'm happy to share some thoughts on [indiscernible] dot-com. Based on our observations of market demand and our confidence in our product quality, [indiscernible] dot-com remains one of our strategic priorities. We have consistently invested in this business to strengthen our online enrichment product capabilities and enhance operational and marketing strategies. Our current goal is to serve more users by creating and offering quality products. Just like in many other businesses, our strategic focus for [indiscernible] dot-com is product quality, so we're focused on developing high quality products and competing through product excellence. Additionally, we also believe it's important to engage our users across multiple channels, especially during exploratory phases of some products - that's why we're constantly exploring ways to reach our users more efficiently. Customer acquisition is also a key growth driver for this business, but let me again talk about product first. Our product development efforts are primarily focused on refining and expanding product offerings. As you may have noticed, we are consistently upgrading existing products while developing new SKUs and diversifying our online formats. When we first launched our online enrichment business, our main product format was the dual teacher live streaming model. Since then, we've adapted our products to better meet user demand and we're now offering more topics and formats in addition to what we already have. We're also continually refining our products' interactive features and technology. We have meticulously designed our online programs to differentiate them from offline offerings. Their smart interactive features engage users and enhance teaching effectiveness; as a result, our programs align well with online learning habits and meet the growing demand for digital learning experiences. For example, online classes today offer interactions that mimic real life experiences, right? In some of our online classes, students will be divided into small groups, for example, for in-class discussions and then regroup again for the lectures. We have observed an impact on user engagement driven by such interactive features. Now coming back to user acquisition, effectively reaching new users is always crucial in building [indiscernible] dot-com. As we continue to deepen our understanding of user needs and enhance our product offerings, we're also improving our marketing efforts to better match our products with user demand. Additionally, we're leveraging multiple marketing channels to connect with a broader audience of target customers. This increases users' awareness of our offerings and attracts more users to engage with our private domain operations and driving increased user conversion. Looking ahead, we aim to further strengthen these efforts and build connections with our audience. Timothy, I hope that answers your question.

Thank you Jackson.

Thank you for the questions. One moment for the next questions. Our next question comes from Felix Liu of UBS. Please go ahead.

Hi, good evening everyone. This is Jenny on behalf of Felix Liu from UBS. Thanks management for taking my question, and congrats on strong quarter results. My question is regarding our learning device. Some third party data that shows the device performed well during [indiscernible], so could you please elaborate more on the reasons behind the strong sales performance, and could management provide some updates from both the channel and product side? Management mentioned earlier that you expect a revenue decline in learning device in the fourth quarter. Just want to confirm here the decline is year-over-year or quarter-over-quarter. Thanks a lot.

Hi, so this is Alex. Let me take on the--so first, just on your last point, we expect the learning devices revenue to somewhat have a decline quarter-over-quarter because the quarter we just had is really the peak e-commerce season, so that's a quarter-to-quarter statement. Let me come back to the main portion of your question. I think our devices business, they've experienced so far year-over-year and quarter-over-quarter growth, especially during the e-commerce season, and I think this growth is really attributable to the growth and evolution of the industry as a whole. As I mentioned last time, we're seeing more players with great number of capabilities coming into the market and they're driving the continued improvement on the products. If you look at the products today, they're really increasingly being looked by parents as a valuable tool in the at-home learning scenario, and that's a very important part of the entire learning journey. The products have advanced quite a bit compared to even just a few years ago, but still that said, at-home learning is still an area where user experience can be continuously improved, so we believe there is a significant market potential for this type of intelligent hardware solutions that combine software and hardware and content to support this at-home self-learning scenario. In addition to that overall industry growth, our product expansion and growing product capabilities, they also serve as the second key growth driver, right? Based on what we've heard from users, we've now launched three different types of xPad learning devices and one XBook this year. They cater to different consumer segments and preferences, different types of learning scenarios, and they offer a different selection of functionality, performance and prices. Our xPads are currently priced at RMB 4000, RMB 6000, RMB 8000, XBook at just…

Thank you for the questions. One moment for the next question. Our next question comes from Candace Chen [ph] from Daiwa. Please go ahead.

Hi Alex and Justin. Thank you for taking my question. Regarding this quarter, the 50% top line growth, can you shed more light on the revenue growth from various business lines, and also some comments for the following quarters would be great. Thank you.

Candace, thanks for the question - this is Jackson, let me take this one. We have two main business lines, learning services and others, and content solutions. The revenue generated from both business lines in this quarter experienced year-over-year growth, and if we look at the first nine months of fiscal 2025, the mix between these two business lines remained largely stable year-over-year when you compare to the same period last year. Now, for Peiyou enrichment small class programs and for smart learning devices, those two are the largest revenue contributors and key revenue growth drivers for learning services and content solutions, respectively. We remain dedicated to delivering high quality enrichment learning services, advanced hardware and engaging content to more users. Smart learning devices revenue was up this quarter during the e-commerce peak season. The contributing factors were already covered by Alex earlier, so I won't repeat that again. As for Peiyou enrichment small class learning, in recent quarters we have observed year-over-year growth in this business. We've already covered the particulars of this business, but as far as our growth drivers, including market demand, our service quality and our capability to recruit and train lecturers, as long as these are still in play, we expect growth in this business line to continue. That said, Candace, you asked about long term trend. We do expect Peiyou enrichment's long term growth rate to gradually taper off going forward as we're comparing to higher base numbers than a couple of years ago. From a broader perspective, we believe the company's growth and development are fundamentally tied to the value it creates, both for its users and for its society--and for the society. This principle is embedded in every aspect of our business, large and small. At both the company and industry levels, we view revenue growth as a direct outcome of improved innovation, product capabilities, organizational efficiency and operational effectiveness. I hope that answers your question, Candace.

Thank you for the questions. Our last question comes from the line of Liping Chao from CICC. Please go ahead.

Good evening Alex and Jackson. Thanks for taking my question. I noticed the company is currently at a breakeven level in terms of profits. Could you provide some insights into the bottom line, please? Any plans to improve margins moving forward? Thank you.

This is Jackson, and thanks for the question, Liping. It's a good question, and a complicated one. We have developed multiple business lines around enrichment learning, around technology-powered smart learning solutions. Each business is at a different stage with its own sets of priorities and parameters; for instance, in the learning device business, we are still exploring and validating user value. Our priority there is to closely track user feedback, net promoter score and engagement. Although our learning device business is still operating at a loss, it remains a key long term strategic initiative. We will continue investing in this area, launching new products, building content, crafting AI-driven experiences and iterating on a regular basis. On the other hand, our Peiyou small class enrichment learning business is more mature with a relatively stable profit margin. The company's overall margin is influenced by the mix of its different business lines, so it's a little hard to generalize. Going forward, we will continue to prioritize innovation and investment in business lines with high long-term strategic value. By combining technology and learning, we aim to develop and enhance the experience for our users. This requires us to commit to continuous innovation. The challenge and opportunity for us is realizing this mission while balancing growth and efficiency, so some of our early stage businesses will continue to operate at a loss for a while as we focus on user experience. We believe this allows us to expand our current operations while building a solid foundation for long term competitiveness. This will also enable us to be well positioned to capture the market opportunities and deliver long term value. However, from a group perspective, we will continue to proactively address this challenge and opportunity by closely monitoring the efficiency metrics in all business factors and make timely adjustments to optimize various factors in our operations, including content generations, product R&D, sales and marketing, and more. Liping, I hope that answers your question.

Got it, thank you.

Thank you for the questions. That concludes the Q&A session. I would like to hand the call back to the management for closing.

Again, thanks to everybody for joining us today, and we bid everybody an early Happy Chinese New Year and we'll see you next quarter. Bye bye.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.