Good evening, and thank you for standing by for New Oriental's FY 2026 First Quarter Results Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I'd like to turn the meeting over to your host for today's conference, Ms. Sisi Zhao.

Thank you. Hello, everyone, and welcome to New Oriental's First Fiscal Quarter 2026 Earnings Conference Call. Our financial results for the period were released earlier today and are available on the company's website as well as on Newswire services. Today, Stephen Yang, Executive President and Chief Financial Officer; and I will share New Oriental's latest earnings results and business updates in detail with you. After that, Stephen and I will be available to answer your questions. Before we continue, please note that the discussion 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 involve inherent risks and uncertainties. As such, our results may be materially different from the view expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements, except as required under applicable law. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's Investor Relations website at investor.neworiental.org. I'll now first turn the call over to Mr. Yang Stephen. Please go ahead.

Thank you, Sisi. Hello, everyone, and thank you for joining us on the call. Before diving into the details of our first quarter results, I would like to share that after periods of testing and trialing various business models and offerings, formulating the right strategy and direction for New Oriental. We're pleased to see that the company has now entered a stable growth trajectory. This quarter, we recorded an encouraging set of results that exceeded our expectations, mainly driven by our strong capabilities, enhancing operational resilience and sustainable profitability. This quarter's total net revenue has increased by 6.1% year-over-year. Bottom line-wise, we're delighted to see that our efforts to manage costs and streamline efficiency has yielded tangible success with non-GAAP operating margin reaching 22% this quarter, representing a year-over-year improvement of 100 basis points. Our key remaining business remains solid, while our new initiatives have continuously demonstrated positive momentum. Breaking it down for the first fiscal quarter of 2026. Overseas test prep business recorded a revenue increase of about 1% year-over-year. Overseas study consulting business recorded a revenue increase of about 2% year-over-year. Our adults and university students business recorded a revenue increase of 14% year-over-year. At the same time, our continued investments in new education business initiatives primarily centered on facilitating students all around development have delivered consistent progress, further driving the company's overall momentum. Firstly, the non-academic tutoring business, which focused on cultivating students' innovative ability and comprehensive qualities has now been rolled out to around 60 cities. Market penetration has grown steadily, particularly across high-tier cities. The top 10 cities contribute over 60% of this business. Secondly, the intelligent learning system and device business, which utilize our past teaching experience, data technology to provide personalized and targeted learning and exercise content to improve students' learning efficiency has…

Thank you, Stephen. Now I'd like to share our key financial details for this quarter. Operating costs and expenses for the quarter were $1,212.2 million, representing a 6.1% increase year-over-year. Cost of revenues increased by 9.3% year-over-year to $637.8 million. Selling and marketing expenses increased by 3.6% year-over-year to $200.6 million. G&A expenses increased by 2.4% year-over-year to $373.8 million. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 239.8% to $23.3 million in the first fiscal quarter of 2026. Operating income was $310.8 million, representing a 6% increase year-over-year. Non-GAAP operating income, excluding share-based compensation expenses and amortization of intangible assets resulting from business acquisitions was $335.5 million, representing an 11.3% increase year-over-year. Net income attributable to New Oriental for the quarter was $240.7 million, representing a 1.9% decrease year-over-year. Basic and diluted net income per ADS attributable to New Oriental were $1.52 and $1.5, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $258.3 million, representing a 1.6% decrease year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $1.63 and $1.61, respectively. Net cash flow generated from operations for the first fiscal quarter of 2026 was approximately $192.3 million, and capital expenditure for the quarter were $55.4 million. Turning to the balance sheet. As of August 31, 2025, New Oriental had cash and cash equivalents of $1,282.3 million, $1,570.2 million in term deposits and $2,178.1 million in short-term investments. New Oriental's deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as the service or goods were delivered at the end of the first fiscal quarter of 2026 was $1,906.7 million, an increase of 10% as compared to $1,733.1 million at the end of the first fiscal quarter of 2025. Now, I will hand over to Stephen to go through our outlook, guidance and our new shareholder return plan. Stephen?

Thank you, Sisi. Following a strong start to the fiscal year, we're optimistic about further improving our margins and operational efficiency while staying committed to effect cost control and sustainable profitability across our all business. As part of these efforts, we are taking a thoughtful and strategic approach to capacity expansion and hiring, ensuring that we continue to grow without compromising the quality of our offerings. We plan to increase our presence in cities with stronger top line and bottom line performance last year, while carefully managing resources. Rest assured, we will closely monitor the pace and scale of new openings, aligning them with local official needs and financial results throughout the year. Guidance-wise, we expect total net revenue for the group, including East Buy in the second quarter of the fiscal year 2026, September 1, 2025 to November 30, 2025, to be in the range of $1,132.1 million to $1,263.3 million, representing year-over-year increase in the range of 9% to 12%. In the second quarter, we projected a notable acceleration of revenue growth in K-12 business, driven by our enhanced service quality, which has led to steady year-on-year and quarter-on-quarter improvement in student retention rates. As for the full fiscal year 2026, we are very confident that our previously provided guidance of total net revenue for the group, also including East Buy to be in the range of $5,145.3 million to $5,390.3 million will be realized, representing a year-over-year increase in the range of 5% to 10%. As part of our appreciation for our shareholders' unwavering support, we today announced that the shareholder return plan for the fiscal year 2026 has begun. The Board of Directors has approved an ordinary cash dividend and new share repurchase program. Regarding the ordinary share dividend, the ordinary cash dividend of $0.12 per…

[Operator Instructions] We will now take our first question from the line of Felix Liu from UBS. Please ask your question, Felix.

I'm glad to hear that you mentioned or expect a notable acceleration in your K-12 business in the upcoming quarter. I know previously, there are market concerns over increased competition, especially over the summer. So, could management elaborate on how is the latest competition landscape in K-12 that you're feeling at the moment? What are the -- have you made any adjustments to your strategy? And what is a reasonable level of sustainable growth for your K-12 business in the mid- to long term?

Thank you, Felix. First of all, I'm very happy to see the revenue growth acceleration in our K-12 business since Q2. As you know, started in Q1 and even for the whole year, I think our target is to enhance our quality of product and service in K-12 business. And I think since Q2, we will see the good result. I think, the better quality drives the student retention rate up after the summer. So, that means more and more students chose our Q2 course and also the better word of mouth attracts new student enrollment of our autumn classes. Yes, as you know, we missed some competition pressure in the summer, because of some competitors were using the low price or even the free course strategy. But now we are happy to see students came back to New Oriental to enroll our classes in autumn. So, that's why we raised the guidance of the K-12 business. So, let's divide the K-12 business one by one. And so, we expect the K9 new business revenue growth will be around 20% year-over-year growth in Q2. And for the high school business, I think in the Q2, the growth rate will return to double-digit growth. So, I think you see the revenue acceleration since Q2. And so, I think the high student retention rate and the better word of mouth will drive the revenue growth acceleration. And I think, I believe the revenue growth acceleration will continuously since Q2 and throughout the year. So for -- yes, so for the whole year, 2026, I think the K9 business will be -- the year-over-year growth will be over 20%. And for the high school, like double-digit growth. So, I think, our strategy is correct, because the student retention rate, both for the primary school students and middle school students and high school students, all this is why the student retention rate is getting higher year-over-year.

Our next question comes from the line of Alice Cai from Citibank.

I have two quick questions. First on SBC. It jumped into a lot to $23 million this quarter. I'm wondering what drove this increase and what's the outlook? The other increase, $21 million, would you break down what the driver is for the SBC?

Yes. I think, Alice, your question is about the SBC, the share-based compensation. I think in the second half of the last fiscal year, we issued -- we grant the ADS shares to the management and the staff and teachers in the next 3 years. So, it's driving the SBC up. And yes, so the number of the SBC in this quarter is bigger than that of last year. And yes, but as you know...

Yes. You can roughly estimate going forward, every quarter, the SBC expenses will be similar with this quarter and at this kind of level for the coming several quarters.

Yes. But I think typically, the first year we recorded more SBC expenses, more in first year and then less in second and third year.

We will now take our next question from the line of Lucy Yu from Bank of America Securities.

Stephen, I have a question on overseas. It looks like overseas has been stronger than your earlier expectation. Could you please break down the test prep growth by age and also the consulting growth break down by subsegment? How should we think about the overseas sustainability growth? And will that impact your guidance for the full year?

Yes. As for the overseas-related business, as you know, we are adversely affected by the external environment. Last quarter, we guided in Q1, the revenue of the overseas-related business would be down by 5%. But in Q1, I think overseas test prep still grew by 1%. Overseas consulting business grew by 2%. I think, we will strive to minimize the negative impact going forward. And so, in the Q2, we still guide the overseas-related business will be down by low single digits in Q2, which were still use the conservative method to make the forecast. And I think, yes, the negative impact from the -- like the international relationship, even the outside environment changed a lot. But I think, we will strive to minimize the impact. And so, we do expect we can beat our guidance, because we do the guidance in Q2, even for the whole year more conservatively. Lucy.

Stephen, just to follow up. So for example, your test prep is positive. So by age group, like younger age, high school and like, college students, which one of them is better than expected? And also for the consulting business, I believe that 60% is around pure consulting and the other 40% is like background raising. So which part of that is better than expected?

Within the overseas test prep, the younger age students group, the business of that part grew very fast, even more than 25% year-over-year. So, that's why the makeup of the like the adults or even the college students business is down. And within the overseas consulting business, I think the non-U.S. and U.K. business, especially for the Asia country consulting business and the background improving the business still grew very fast. So as a whole, I think the overseas test prep and consulting business, we will still give the guidance like the 4% or 5% down year-over-year. But I believe we will do better than our guidance, Lucy.

Our next question comes from the line of D.S. Kim from JPMorgan.

I actually wanted to ask why the share price is down 6%, 7% pre-market, but I guess that's a question for the market not you. I actually have a question regarding shareholder return policy, if that's okay. How shall we think about the policy going forward, say, is this based on your projected or budgeted net profit and payout ratio? Or is it more based on our expectation on cash flows and whatnot? The reason why I'm asking is, if I use my own estimated the GAAP EPS, what you announced is roughly about 100% payout, say, like 40% payout for the dividend and 60% for buyback based on my GAAP net profit or EPS. Is that what we should think about going forward, i.e., like we could pay regularly over 50% as you guided, but more like 100% payout going forward based on this earnings and payout? Or shall we treat the buyback as one-off only for current year, because of the stock price is low and we only -- we can only expect 50% going forward? Like can we walk us through how we can think about the payout ratio or shareholder return going forward?

Thank you, D. S. It's a good question. I think last quarter, our Board approved 3-year shareholder return plan. And this -- we announced earlier today, we paid $190 million dividend, which amounted to the 50% of net profit, we generated last year. And combined with the $300 million, the new share buyback program. So let's do the math. We -- I think, the payout ratio this year is over 130% if you compare the capital allocation with the net profit we made last year. And the dividend plus the share buyback yield is over 5%. So, I think the -- going forward, next year, I think the dividend we will pay, because I think, it is a regular dividend. And the $300 million share buyback we announced this year is not onetime. It's not onetime. I think, next year, I think, I will discuss with the Board and to push the Board to approve the new capital allocation program. And I think, we will keep the high level of the payout ratio and the yield, because think about that, we meet some pressure slowing down the top line. And -- but we can still like the 10% or plus topline growth and generate higher margin. And also, we are piling up the cash. So, that's why the Board support the management to pay more capital allocation to investors. And I think the investors deserve to get more money the capital allocation from the company. And so we announced the 3 years -- the shareholder return plan. So, I think in the next year, we will pay more.

If I may follow up just on that part, just to clarify, when I said 100%, that was based on fiscal year '26, my EPS. Because the wording of the announcement say this is a dividend for fiscal year 2026. But based on what you say, shall we, going forward, expect that, like, what you announced is actually coming out of fiscal year '25 earnings and what you are going to announce next year will be coming out of fiscal '26. So, will there be 1-year delay? And is that how we should think about? Or I guess, it's all flexible, but just wanted to get your thoughts.

I think, this is our internal policy. Because we make the calculation based on the last year net profit. So, we -- last quarter, we announced that we paid no less than 50%. But finally, we paid about 30% -- 30%. And next year, I think we will calculate based on the net profit we made in fiscal year 2026, and we will do the same thing.

I think that's actually much, much better than what I had expected. So, I am again wondering why stock is down 6%, not up 6%. But anyway, let's see how it goes.

Next question comes from the line of Yikun Zheng from Citic.

Congratulations on the strong results. My question is regarding the operating margin. Since the operating margin in Q1 is quite good, I'm not sure if it was mainly due to the cost reduction plan or some other reasons? And how can we expect the contribution of the cost reduction plan for the next season or for the full year? And how do we expect the operating margin for the full year?

It's a good question about margin. Let us start the margin analysis of Q1 this quarter. Even though we meet some margin pressure from the slowdown of the overseas-related business, but we still got the group margin expansion by 100 basis points in Q1. And I think the margin expansion was mainly driven by the better utilization, operating leverage and the cost control and the profit contribution from East Buy. As you know, we started to do the cost control since March in the last fiscal year, this year March. And we have seen the good results. And I think, it will help the margin expansion even in the rest of the year, this fiscal year. And we look ahead into the Q2 margin guidance. I think, we are quite optimistic about the margin expansion for the whole group in Q2. And so that means the core business and the East Buy business, both of the business, the margin will be up in Q2. And I believe the margin expansion in Q2 will be greater than that of Q1. And as for the margin outlook for the whole year, I think the whole group are focusing on the profitability across all business lines. We are doing the cost control in all business lines. So, we do hope we can get the margin expansion for the whole year for the group.

We'll take our next question from the line of Elsie Sheng from CLSA.

Congratulations on the very good results. I have a quick question on the tax rate, because I noticed that the tax rate in the first quarter is higher. So, could you let us -- so what should we look at the tax rate in the next quarter and also for the full year?

In Q1, I think the situation is special, because even the -- since the second half of last year and Q1, we paid dividend from the WFOE to ListCo. And so, we need to pay the withholding tax to the tax bureau. So, it drive the ETR up in Q1. So it was 27%. And typically, we paid 25% of the ETR. And going forward, I think we probably -- we will do more -- pay more dividends from WFOE to ListCo. So, I think in this year, the ETR will be higher than that of last year or normal. But I think the reason is that, you saw, we announced earlier today, we raised the capital allocation to investors roughly $490 million as the capital allocation total. So, we need more dollars, and that's why it drives the ETR up.

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

My question is regarding the Q2 K9 new initiatives. When I look at the enrollment growth for this quarter, I still noticed a pretty big gap between the non-academic tutoring and the intelligent learning system and devices. Just wondering, can we use that gap to model the revenue growth gap between these two segments for the first quarter or the second quarter? And do we think that this gap may sustain, I think, going forward, given I think for the intelligent learning system, I think it's a very good business. It's probably also margin accretive to you.

I think, the growth rate, the revenue growth of the junior high school business is a little bit faster than the primary schools business. Because, first of all, it's a little bit low base than the kids' business. And secondly, we spent a lot of the efforts and resources in the last 3, 4 years to open a new business of the middle school business. And I think, the whole team contribute a lot of the -- provide a better the product to the customers and the students love the new product. That's why the revenue growth is better. And so going forward, I think we believe the revenue growth of the middle school business will be a little bit higher than the kids' business. But as a whole, the K9 new business growth, you saw our guidance for Q2 and even for the whole year. I think definitely, it's the revenue acceleration is coming. And so as I said, in Q2, the K9 business roughly 20% top line growth. And we do hope we can do better in the second half of the year.

We are now approaching the end of the conference call. I'll now turn the call over to New Oriental's Executive President and CFO, Stephen Yang, for his closing remarks.

Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our Investor Relations representatives. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect your lines.