Ladies and gentlemen, thank you for standing by and welcome to Q4 and FY2020 TAL Education Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to hand over the conference over to your first speaker today, 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 fourth fiscal quarter and fiscal year 2020 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 newsletter. During this call, you will hear from Chief Financial Officer, Mr. Rong Luo; Linda Huo, Vice President of Finance; 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. Before I reflect on our Company performance, please allow me to say a few words about the current extraordinary time in China and worldwide. We would like to express our sincere sadness for the great loss of life and our sympathy to those who lost their loved one and to all the others who have directly suffered from this tragic pandemic. But also extend our deep gratitude and appreciations to people from all walks of life, including our employees who has been working hard and doing absolutely everything to fighting against this epidemic. Our first fiscal quarter revenue performance was impacted by the outbreak of COVID-19 in China and our precautionary measures with respect to the offline business. The negative impact on our offline business was partially offset by the growth in the student enrollments in online courses and related revenues for the quarter. Net revenue growth in the fourth quarter was 18% year-over-year in U.S. Dollar terms to US$857.7 million and 21% in RMB terms, which is in-line with our forecast reflected in our pre-announcement on February 28. After the outbreak of COVID-19, total normal priced long-term courses student enrollments increased by 56.6% year-over-year, mostly driven by online enrollment, as well as Xueersi Peiyou small class. GAAP loss for operations was US$41.3 million compared to GAAP income from operations of US$114.7 million in the same period of prior year. Non-GAAP loss from operations was US$8.4 million compared to non-GAAP income from operations of US$157 million in the same year ago period. As we previously announced on April 7, we discover certain employee's wrong-doing in relation to [indiscernible] in our routine internal auditing process. There was a total revenue impact of around US$86.1 million, or RMB600 or US$2.6 million in the first three quarters of fiscal 2020, as well as corresponding impacts to stop other financial metrics after each quarter of fiscal 2020. The details are available with our Earnings Release published a few hours ago. I would like to reiterate that we will always follow the highest standards of corporate governance and always have zero tolerance for any illegal conduct. I will now turn the call over to Linda Huo, our Vice President of Finance. She will give you update on our operational progress in the fourth quarter; next to Echo, our IR Director will review the fourth quarter financials. After that, I will update you on our business strategy and discuss our business outlook. Linda, please.

Thank you. I will review the various revenue streams of our tutoring business for the fourth quarter. Let me start with small class and other business which consists Xueersi Peiyou small class, First Leap, Mobby and some other education programs and services. These are accounted for 68% of total net revenue compared to 76% in the fourth quarter. The revenue growth rate was 6% in U.S. dollar terms and 9% in RMB terms. The lower than year-over-year revenue growth rate was mainly due to two factors: first, the pricing guide refund we offered in February where we had to migrate a new offline small class students to online small class; second, the impact from twin-terms with rescheduling. In this period, during the winter semester, we have migrated all our offline business to our online platform. As you know, Peiyou online average selling price or ASP is lower than that of Peiyou offline. We have offered our customers the pricing GAAP refund as compensation for not providing a perfect service on account after a brief transition, preparation and teacher training time available. Furthermore, we also changed the scheduling of our interim complex [ph] to fully comply with relevant education policies. As a result, Xueersi Peiyou small class' fourth quarter revenue reflects the impact of these factors. Let me emphasize that we are impressed by the immediate flexibility that our teachers, students and parents have demonstrated in the light of this urgent transition. Xueersi Peiyou small class which remains our stable core business represented 59% of total net revenue in the fourth quarter compared to 66% in the same year ago period. The lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which we accounted for 24% of total revenue in the quarter compared…

Thanks, Linda. Let me now go through some key financial points for the fourth quarter of fiscal year 2020. Growth profit increased by 7.5% to US$451.8 million from US$420.4 million in the same year ago period. Growth margin for the fourth quarter decreased to 52.7% as compared to 57.9% for the same period of last year. Loss from operations was US$41.3 million in the fourth quarter of fiscal year 2020 compared to income from operations of US$114.7 million in the fourth quarter of fiscal year 2019. Non-GAAP loss from operations, which excluded the share-based compensation expenses was US$8.4 million compared to non-GAAP income from operations of US$137 million in the fourth quarter of fiscal year 2019. Net loss attributable to toll was US$90.1 million in the fourth quarter of fiscal year 2020 compared to net income attributable to toll of US$99.6 million in the fourth quarter of fiscal year 2019. Non-GAAP net loss attributable to toll which excluded the share based compensation expenses was US$57.2 million in the fourth quarter of fiscal year 2020, compared to non-GAAP net income attributable to toll of US$121.9 million in the same year ago period. From the balance sheet as of February 29, 2020, the company had US$1,873.9 million of cash and cash equivalents and US$345.4 million of short term investment, compared to US$1,247.1 million of cash and cash equivalents, and US$268.4 million of short term investment as of February 20, 2019. As of February 29, 2020, the company's deferred revenue balance was US$781 million compared to US$436.1 million as of February 28, 2019, representing a year-over-year increase of 79.1%. Deferred revenue primarily consisted of via tuition classes that yield one-off [indiscernible] small class, as well as different revenue related to other businesses. Now, I will hand the call back to Mr. Luo to briefly update you our strategy execution and to provide you the business outlook of the next quarter. Rong?

Thank you, Echo. Let me update you our current base development strategy. First off, I would like to express my deep appreciations for the quick adaptations that our students, parents, teachers, technology staff and our employees demonstrated in this difficult time, which enabled us to bring all of our content services online and remain in business as much as possible. In fiscal year 2020 despite of the impact of COVID-19 operates, we have realized a total net revenue growth of 27.7% in U.S. dollar terms, and 32.4% in RMB terms. Breaking down by per different business, total net revenue of payroll increased by 23% in RMB terms. Xueersi.com, our online business increased by 88% in RMB terms, while Tutor [ph] one-on-one increased by 39% in RMB terms year-over-year. Our overall revenues, as well as the major benefactors have met our full year expectations. On January 26, KR announced the total encashment of RMB100 million special fund for the purpose of doing RMB in the whole of China's efforts to fight against COVID-19; of this RMB100 million, the RMB20 million is a direct donation to charity federations, and RMB80 million is for education-related investment to provide free technology, teaching and training and to other necessary support for the students and the set of partners in the industry in Hubei province and all over China to continue daily studies during this special time. Xueersi.com, our own education platform, has offered free online courses to students all over China. In addition, we have opened our smart education and opened platform systems to public schools, and others small and medium-sized training companies. In this circumstances, some of our near-term visibility may still be less clearly than in the normal times; but no matter what we believe we have short-term impact on revenues and industry,…

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Alex Xie from Credit Suisse. Please ask your questions.

Hi management, thank you for taking my questions. Hopefully, would you please share more details about your guidance for the first quarter of FY21 in terms of outlook in different business lines? And secondly, what will be expectation for the margins in the first quarter of FY21? And we have seen massive investment in online, I think in the fourth quarter, what do you plan for the first quarter of FY21 for online investment plans? Thank you.

Thank you, Alex. Just as we know, Q4 is a very difficult time and even coming closer to Q1, like March and April today, still that's no good time for us. I think all of our current business is under high pressure, same as our counterparts in this industry. Let me try to give you more clarity on my Q1 guidance. I think I tried to split into three segments; number one, the Peiyou small class business. I think right after Q4 -- our Q4 in February, we are -- you know, the up rate is totally -- that's surprise to us; so we have very few time to move the students from offline to online. But coming to Q1, we do a much better job than what we did in Q4, so we work in [indiscernible] Q1, the Peiyou small class still will maintain our wide healthy growth in the range of 20% to 30%. And the one-on-one business which is also quite impacted by the uprate of COVID-19; so we also moved them from offline to online by the growth off the one-on-one things they have is less than before, I think Q1 in general, we can only grow maybe high single-digit. And the number three segment is our Xueersi Online school. Xueersi Online school-- actually their growth has been accelerated by this kind of tough situation, because the online became only available offering to the students if they want to continue to study. So Xueersi.com, the online school business, will continue to grow. I think it can grow maybe in triple digit, which can provide us some upsets over there. And so our Q1 guidance today have reflecting all of these key information from our mainstream business, and this guidance does not include anything from acquisition or…

Just a quick follow up. Do you think the online investment in the missing two quarters front-loaded or do you think online investment in the whole year of FY21 just increased?

Can I clear your question; do you mean the investment in Q1 will lead to…

Because I think in this year, the promotion schedule of Xueersi Online school was earlier than before; so is this front-loaded schedule ending or the whole budget is more than before?

Okay. Number one, I think if we can recap story last year, last year actually if you can go back to my screen, maybe last year, Q1 or Q2, with me -- at that time actually we were in a rush mode to do that kind of promotions on the -- go into the war. But this year, I think we are much more prepared than before, and because of this special time -- and even today, a lot of schools are still closed in China, online we can only offer for the students, so we spend the money accordingly to measure and capture opportunity. And but today, I think a little bit too early to judge what the full-year number will be because, you know, the situation changes every day. And we're seeing China's getting maturely better and better. So today, I don't have a kind of a full-year view on this. All I can say is we believe Q1 is the right time to invest, and we believe Q1 can help us to grow our online much better than before. I think last year in January we saw 88% in Q1 is triple digit growth; so we'll try to capture the market share and all the new opportunities we have today. And -- but we will worry cautiously to bring to my investment or marketing quarter-over-quarter, so I can give you some kind of colors for the next quarter but I can't give you for the full year. And let's keep our eyes open, and the Q1 is positive from what we have seen, anything materials or anything we can come up with your numbers.

Thank you.

Thank you, Alex.

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

Hi, management. Thanks for taking my question. I want to ask, actually, I think for this quarter, the online revenue growth is a little bit slow. Could you share any reason for that? And I noticed for the upcoming quarter, there seems to be some price adjustment or higher prices for the One-South [ph]. So what is your strategy and how much does it help, do you think, going forward? Thank you.

Okay, I think Q4, Q4 online school gross is around 70% plus minus. And that's part of-- that's because, you know, last year Q4 actually was also a big year, a big quarter class if we put them into maybe at quarter three. And come into Q1 and show us online gross was accelerated because of special time which is also quite normal across the board if you're going through some counterparts in these areas for like the South [ph] companies. And so, we believe for the whole year, we have chance to grow Xueersi Online school and kind of the way a healthy growth and accelerate a little bit which is a very good opportunity for us to gain more market share. And your question [Technical Difficulty] online schools price; let me give you a more color over this. Number one, the reason why we want to do Xueersi online school is because we wish for it to online operate to serve more people, more students. At the same, that's why I said before in earnings call, a similar purpose for Xueersi Online school is to provide affordable solutions to the students, as many as possible. Affordable means we don't have any intention to say we want to make the shots only offering us kind of over-- high-priced product. No, we want to give them fair price and affordable price to all students. So we have some product in the price maybe few thousands per year, we also have some product in the price few hundred a year. So specific to this -- maybe particular products at the price up and down I don't have too much common about that. But what I can say is actually in Q4 if you can see that my online ASP is dropping, and my Q1 and even in the coming year what we want to do is recover more students. So all in all, we believe the key is to take care of more students in an affordable way. We don't have any intentions to make a high-priced product or high-profit products. We wish we can insert more people, as many as possible.

Okay, thank you. Very clear.

Thank you, Mark.

Your next question comes from the line of Yuzhong Gao from CICC. Please ask your question.

Hey, management, thanks for the opportunity. So my question is on your offline business. So given that 73 of Peiyou learning center were added during the quarter, which was a meaningful acceleration, so how should we think about your offline strategy in 2020 or 2021? Particularly on your capacity expansion plan, I wonder if you are being more optimistic about this, given there seems to be a bigger offline and market consolidation opportunity. Thank you.

Thank you. As for the capacity plan, as we have just mentioned a bit, that we're in a current special period that temporarily slowed down and suspend some of our current learning centers, as well as classroom expansion plan. Our team will be focusing more on optimization work of internal operational efficiencies, and controlling of the unnecessary offline cost during the COVID-19 impacts period. Our company has many years of execution experience of capacity expansion. We have the capacity and we have the capability to make impact adjustment of our near term and long term capacity expansion rate based on the actual market needs and seek the best balance of online and offline investment. I believe now, we all share the same wish that this epidemic can be completely controlled worldwide, and the normal life can be completely resumed. China has achieved great progress and we will closely follow the government instructions of offline activity resumption and take our actions accordingly.

Let me try to add more color about this. In the first place, frankly speaking, we don't want to be optimistic or maybe pessimistic on when we can go back to our normal offline business. We have no idea. All you need to do is we're 100% applying the government's policy integrations and make meaningful preparations. In the second place, I think after this virus, a lot of students are forced to study online. After that some of the students, they would choose to stay in online environment, and some of the students, they will decide to go back offline but no matter what I think a certain percentage of the students who get used to the online offerings will get to use online more often than before. So seeing our perspective today in the short term over low down the new learning and expansion pace. Also, we're looking into more spaces to optimize the network. For learning centers with low efficiency, we'll follow our standard operation procedures to close them, or maybe in some area, we'll try to optimize and improve the efficiencies. When the things become more clear, maybe next quarter, or maybe the next two quarters, when things become more clear, we're in the same market, whatever you can see, that's something we can see. When things are more clear, we'll decide it. We're also fully prepared, how we can leverage our advantages in the offline operations in the past 17 years to do our right business. Today, what I can say is, we prefer to take a relatively conservative approach in a network development temperately and we'll wait and see what will happen in the coming one or two quarters. With things getting better we will react quickly. Thank you, Yuzhong.

Thank you, very helpful.

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

Thank you for taking my question. I want to follow up about the share stock comp pricing question. You mentioned that you have more diversified courses. Can I confirm whether it includes your pre-K new program as a whole or [indiscernible]? And if so, can you provide us some color on how big is the program now? If we look at the Xueersi courses on the website, in the summer is to go the price up about 10% for primary school and middle school and up a little bit more for high school courses. Wondering if we see surprise trends or do you still think that for the overall blend, how should we look at this? Actually, if we look at summer cost price, it looks like the share stock comp price is very close to Peiyou online price already. So also wondering if management can give some strategies on how the company position xueersi.com and Peiyou online? Thank you very much.

Thank you, Sheng Zhong. Let me try to capture three questions. Number one, I think we have a huge maybe the normal price student enrollments in Xueersi online in the main subjects like math and Chinese and English so we are able to develop some other offerings on top of that. I think the shareholders mentioned just now that actually is a very early stage product and we need to be patient about all of these products divided into a meaningful business. Today is still in a very early stage and they have a lot of space they need to improve. Besides that, I think previously we were also adding for example in the online coding products and some other products. Yes, your mention is quite right, we're also adding some pre-K products on top of Xueersi online platforms. With all of these products in place, our purpose is very simple. We try to leverage online technology to serve more people in a more affordable way. The price for all of these products are quite different. We decide the pricing, not because we want to charge high price. That is because we want to serve more people. The pricing strategy of online will serve our purpose to get more market share, to serve more people and to make people more satisfied. The second question about the price increase in the specific products, I think on one side we pay the price a little bit high but on the other side, we also give a lot of promotions and coupons and incentives for the parents and students if they can finish the work. All in all, actually, and as you've studied in Q4 you probably see that we dropped by around 10%. In Q1, more or less, we will consider seeing…

That's very clear. Thank you very much.

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

Good evening management. Thank you very much for taking my question. My question is a follow up on the online strategy. First, you previously mentioned several areas of investments such as teaching quality, technology and selling and marketing. I'm wondering between those three, what are your priorities in Q1 and maybe for the rest of the year how should we rank in terms of the amount of spending? Secondly, I think as you mentioned, there is a shift in our user base in terms of xueersi.com. I'm just wondering what that means? Any shift in our selling or marketing strategy going forward? Thirdly, I'm wondering if you could share the size of the teaching staff for xueersi.com such as the instructors and tutors. Thank you.

Okay, so let me try to recap your question first before I answer anything. Number wise, what's my priority of investment in different areas for Xueersi Online School, right?

Yes.

What's number two question?

Number two, is there any change in selling and marketing strategy given we now have more customers in lower tiers today? Number three is the size of our teaching staff in terms of number of instructors and tutors.

Okay. I think for the Xueersi online school actually is not-- sometimes people will say that online is a new animal in this space but frankly speaking when we're running this model for a few years we treated Xueersi online school as a normal business already. In the last Q4 is around 24% of revenue and 44% of enrolments already. Almost half of the enrolments coming from the online space. The investment of priority we'll be saying number one is investment in the teaching quality. That's always the key. We need to make sure our contents and services we deliver to our students can meet their needs. Especially when the number of students has quickly increased from 200,000 to a few millions, the challenge will totally differ so we need to make sure our content development team and the teacher team and all can work together to make sure we deliver high quality. Quality is everything. Second is the product and technology, especially technology. I think probably you guys can remember a story in the very beginning right up to this outbreak of the COVID-19. Online platform will actually be crushed because they can't bear the high pressure from the markets. We are one of the platforms who are doing a little bit better than the other one. We're not perfect, but we are a little bit better than the other one. This kind of level of quality requires a significant level of investment all the time. I think in the first priority definitely we need to spend the relative level of certain marketing to measure our product and reach more people can improve our awareness. Let more people know us. Same as we'll see the other counterparts in this sector, what they did in the past, and most recently,…

Thank you very much.

Your next question comes from the line of Alex Liu from China Renaissance. Please ask your question.

Thank you, management. I have two questions. The first one is on the Peiyou online. Obviously right now, virtually everybody study online right now but as things go normalized, how should we think about the standalone margin for Peiyou online? As Peiyou online grow bigger and bigger, how does this business impact over long term Peiyou small class business margin target? This is the first question. The second question is for the xueersi.com business, how important does maintaining the number one in the market mean if everybody in the market is losing money? Thank you.

Okay, I think the Peiyou live because most Peiyou online students actually they already come from Peiyou offline before, so they don't need to spend that much money on marketing spending to acquire new students. So the margin outlook for the Peiyou live is much better than the other one. With the contribution from Peiyou live gets bigger and bigger more or less we'll have some kind of leverage in my perspective coming from there. But most recently we moved all the Peiyou offline to Peiyou online so we have running the Peiyou small class and the Peiyou flat means [ph] now. So all of these we need to base on the reaction of the students and the parents and make necessary adjustments over there. So, I can't call my wife thedirection for that, my wife will say it's -- we are seeing more and more students and parents they're finding these offers much more than before so we -- we're also seeing well healthy growth coming from Peiyou live; we are confident about that. And the second question is asking me is it important to maintain number one, in the online education sector, is it important to be the first players in this market? Frankly speaking, in our company, we have one very important values called [indiscernible]; being stronger is much more important than being bigger. Personally we don't have any kind of intention to say we need to maintain number one in this market because number one, saying number one means the size, the volume. What we care more is the quality. We strongly believe if we can serve the students well we can let all the parents feel satisfied and we can use our online products and offerings with more automation and even more impact products with the needs that we can bring in the end. For the short term or maybe even long term rather than the volume or the actual size is number one. I think that care less to us. So far because we are the first movers in this market, so we still have some advantages. We are still bigger than the other one in this market. But again, being bigger is not our priority. Being stronger and being more competitive and being better to the students and the parents, that's our key priority. Thank you.

Thank you.

Thank you, ladies and gentlemen. Unfortunately, we have run out of time for any further questions. This concludes today's conference call. Thank you for participating. You may all disconnect.