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

Thank you, all, for joining us today for TAL Education Group's first 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. During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer; and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding will be available to answer your questions. Before we continue, please note that today's discussions will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release and this call include discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would like to turn the call over to Mr. Alex Peng. Alex, please go ahead.

Thank you, Fang. I'd also like to thank all of you for participating in today's conference call. I'll begin with an overview of our business developments for the first quarter of fiscal year 2026. Following this, Jackson will cover operational developments and financial results. And to wrap it up, I'll share updates on our business outlook and strategic priorities. As we enter this fiscal year, we remain focused on executing our strategic priorities, while strengthening the foundation for future development. As always, we aim to improve the learning experience and support students' holistic development. Our efforts in the first quarter reflect this commitment. So, let me outline our core businesses performance for this fiscal quarter. To start, learning services achieved a steady growth trajectory across both offline Peiyou programs and online enrichment offerings. We strategically expanded our Peiyou learning center network at a measured pace, primarily reinforcing our presence in cities where our services are already established. Our disciplined expansion and ongoing commitment to product quality consistently deliver value to our users, earning the satisfaction from parents and healthy retention. Guided by our strategic objectives, our online enrichment learning progressed steadily with product refinements that feature new, smart, interactive experiences. This technology empowered approach offers a more appealing and personalized learning journey, helping sustain user engagement and fostering greater interest in learning. In addition to our learning services, we continue to support users with motivating and impactful tools and resources through our content solutions. In education, we often reference the impossible triangle, which is the ability to provide high-quality teaching, personalized learning journey and affordable cost at scale. Traditional models rarely deliver all 3 simultaneously. Driven by the goal of addressing this long-standing challenge, we've been strategically focused on AI-powered learning devices over the past 2 years. Our approach is…

Thank you, Alex. Before I begin, I'd like to note that all quarterly financial figures discussed today are unaudited. Let me start with Peiyou Small Class Enrichment programs. Our Peiyou enrichment programs continued to deliver year-over-year revenue growth over the past few quarters, supported by consistent service quality and broad user recognition. Positive feedback from both the learners and parents has reaffirmed the value we provide. To balance growth with quality and long-term sustainability, we have taken a disciplined approach to expanding our learning center network. We holistically evaluate local market demand, user feedback as well as operational capability and efficiency while making center rollout decisions. Our focus remains on achieving sustainable, healthy growth rather than pursuing growth for its own sake. The effectiveness of this approach is reflected in our operating metrics. Enrollment continued to rise on a year-over-year basis. And the retention rate for Peiyou Small Class stood at around 80% this quarter. In our online enrichment learning business, ongoing innovation has helped us respond to the ever-evolving market landscape and user needs. One key example is Xueersi Reading, a product designed to help children develop lifelong reading skills. In May, we marked the second anniversary with an upgraded addition that delivers a more immersive and engaging online classroom experience. The new version features exploratory reading modules that spark children's curiosity. By embedding thought-provoking questions within the text and a series of interactive sessions, these modules encourage students to investigate and discover as they read. This fosters not just an understanding of a topic, but also the skills needed to learn effectively in complex, information-rich environments. Next, our Learning Devices business. The business saw continued year-over-year revenue growth this quarter, driven by our efforts to optimize products, enhance our user experience and strengthen our sales channels. In terms…

Thanks, Jackson. I'd like to share a few thoughts on our outlook for the next quarter. We expect our progress to continue into the second quarter of fiscal year 2026. Q2 is generally a high season for our business, benefiting from summer vacation and major e-commerce shopping festivals, which we expect to contribute positively to revenue. On a non-GAAP basis, we anticipate an improvement in operating profit compared to this quarter. Operationally, in our learning services business, we will remain focused on enhancing both product and service quality to better meet user needs. For the content solutions business, product optimization, innovation and go-to-market execution will remain our key priorities. Looking beyond daily operations, we remain committed to innovating in the K-12 learning sector to meet evolving user needs and keep pace with ongoing advances in AI and technology. In a fast-changing market, we're exploring new areas and pushing beyond our boundaries. More importantly, we are building organizational strength that allows us to adapt quickly as part of our broader effort to foster a learning-driven organization with a growth mindset. With these priorities in place, we remain focused on execution and the long-term development of our core businesses. So that concludes my prepared remarks. Operator, we're ready to open the call for questions.

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

Congrats on the very strong results. My question is regarding your Peiyou business. Just wondering if you can share any updates on the expansion pace of the offline learning centers? And also what is your outlook for the Peiyou business for this year? And also in 2025 -- in fiscal year 2025, I note that you opened around 60% of new learning centers on a year-on-year basis. Just wondering, could you share any color in terms of the new learning center ramp-up and any financial or operating data, that would be helpful.

Thanks, Timothy. This is Alex. Let me take this one. So I would unpack that into a few different parts. So first of all, the continued expansion of our learning center network remains the key growth driver for both fiscal '25 and fiscal '26. We'll open new centers to provide high-quality offerings to more users and really to support their holistic development. For fiscal '26, our focus will be on increasing center density in existing cities, right? This is something that we've covered on a number of previous calls. I think our focus will continue to be increasing center density in those existing cities where we have strong teams and organizational capabilities. Obviously, we'll also explore opening centers in a few new cities, which we've done in the past quarters. And then I think that's where there is a clear local demand for a high-quality learning experience. The second part is really in terms of rollout pace. I think we've maintained -- have always maintained a disciplined approach that we've taken in recent quarters. We look at the pace of network expansion and overall business growth based on a number of factors, the market supply and demand locally in that city, in that district, our organizational capacity and the overall health of the business. So for the Peiyou Small Class Enrichment programs, the service model is built around our organizational capacity. And that's really the key, right? So scaling requires careful capacity planning, building the capabilities for broader service coverage while maintaining the high-quality service, that's going to take time and effort. So, for instance, to support a larger network, we need to recruit and train a sufficient number of high-quality teachers and instructors. At the core of our strategy, we really, really focus on prioritizing long-term, healthy and sustainable…

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

Congratulations on the great results. So my question is mainly focused on the learning devices. Would you please give us some color on the performance of the learning devices in the first quarter? How the 3 new learning devices you launched in May have been doing so far? And why you decided to launch 3 different models? And what the impact the lower priced model have on your revenue and margins? Could you talk about your overall learning devices strategy with this new product in place? And lastly, how do you view the current competitive landscape in the learning devices industry?

Thanks, Eddy. This is Alex. Let me take this one as well. So let me first start with the overall sales performance. Q1, our fiscal first quarter, which covers the month of March, April and May, that is typically a low season for our learning device business and revenue declined quarter-over-quarter compared to, for example, fourth quarter last fiscal year. And that's just normal seasonality, right? On a year-over-year basis, we still recorded healthy growth driven by sales volume expansion. The blended ASP, that's the average sales price, that declined mainly due to changes in the product mix. From a financial standpoint, we observed that our new model, the T series priced at RMB 2,000-plus, has a BOM cost ratio that's roughly in line with our other learning devices. So the 3 new models which I mentioned earlier in the call, they were launched in May. And so, they're still in the early stages of their product life cycles. I would say, it's a bit early to draw conclusions on overall financial impact. But I do want to talk a little bit more about why we introduced these new products. So, the P series is designed to be an ideal first learning device, delivering a clear value for money proposition. As the first product in our portfolio to be priced below RMB 3,000, it fills a pretty critical and strategic gap. By focusing on cost effectiveness, it really helps address common challenges in a home learning and strategically, it allows us to reach a broader user base. The S and T series, on the other hand, they are upgraded versions of our classic and flagship models. The S series is designed as an all-around performer, and the T series sits at the high end of our portfolio and features the…

Our next question comes from the line of Felix Liu from UBS.

Congratulations on the strong quarter. My question is on your sales and marketing expense. I noticed that your sales and marketing expense increased year-on-year this quarter. Was this primarily related to learning devices? And could you provide an update on the margin profile and outlook for your hardware business from here?

Thank you, Felix. This is Jackson. Let me take this one. I think it was a 2-part question, right? First part on the trend for sales and marketing expenses and the second part related to the margin profile of our hardware business. So maybe let me take that piece by piece. First, sales and marketing expenses. Yes, you're right. On a year-over-year basis, non-GAAP selling and marketing expenses, I think as a percentage of revenue increased slightly from 28.5% to 30.9% year-over-year. This increase was primarily driven by our investment in online marketing activities. So as you probably noticed, we do conduct selling and marketing activities in your classic online advertising channels, right? And that's aimed at driving market penetration and improving product visibility for, number one, our learning device business, and number two, also our Xueersi.com. So it wasn't just related to learning devices alone. Additionally, we implemented a few brand-building initiatives. Now these efforts may not contribute to near-term revenue, but they are intended to strengthen our customers' lifetime value and also reinforce our long-term market positioning. Felix, the second part of your question was on the margin profile and outlook for learning devices business. For that business, we recorded a non-GAAP operating loss in Q1. Our learning device business strategy balances near-term investment with long-term development. This business remains in an investment phase and the market environment continues to evolve. We remain confident in its trajectory, actively monitoring developments, continuing to adjust tactics based on market dynamics. If we look beyond near-term financial results, and we remain focused on our long-term strategic priorities. As the business evolves, we are expanding into new sectors and exploring broader opportunities. Throughout this journey, we're committed to building long-lasting competitiveness by strengthening our channel capabilities, increasing brand visibility and deepening engagement with the next generation of parents and users in this evolving market. With continued investment in user engagement, effective channel strategy and a diversified distribution network, we're well-positioned for long-term sustainable growth. I hope that answers your question, Felix.

Our next question comes from the line of Jing Yuan from CICC.

First, congratulation on this quarter's good result. My question is about the margin overall. I noticed that the quarter 1 margin performance was solid. I wonder what was the main driver behind that. What cost optimization measure have you taken? And could management share more on how you view the margin outlook going forward?

Thanks, Jing. This is Jackson. Let me take this one. And I think we talked about this on the past couple of calls. Improving overall profitability is one of the company's key priorities. We take a holistic approach at the group level and have initiatives to enhance our cost efficiency and improve operating profitability. This includes targeted operational refinements at different stages of our workflow. So let me walk you through a few drivers that contributed to our margin performance. First, I would say, is really unlocking our operating leverage through scale. Our expanding revenue base naturally creates operating leverage and allows for more efficient allocation of fixed costs across different business units. I'll give an example, right? If you just look at our general and administrative expenses as a percentage of revenue, that number decreased from 27% -- 23.7% to 19.8% year-over-year on a non-GAAP basis. And that reflected some of the improved efficiency and operating leverage from our larger revenue base I just talked about. The second driver, I would say, is refining our operations at different stages of our workflow. We continue to take efforts and improve operational efficiency, and that includes our activities in research and development, and service delivery, and in selling and marketing. We're also working on optimizing resource allocation to improve overall operational efficiency. The third driver, I would say, is really leveraging today's technology and driving overall efficiency, right? And we're leveraging -- and maybe the best way to explain this is to -- let me give you a few examples. One example could be AI-empowered learning coach, right? We're utilizing AI agents to support our learning coaches with tasks such as tracking student attendance, doing study plans, answering questions and managing routine logistics. By integrating AI agents into these processes, we…

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

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

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