TAL Education Group American Depositary Shares

31st, 2025, we had $1,542.2 million in cash and cash equivalents, $1,706.6 million in short-term investments, and $239.2 million in current and non-current restricted cash. Our deferred revenue balance was $822.7 million as of the end of second fiscal quarter. Now, turning to our cash flow statement, net cash used in operating activities for the second quarter of fiscal year 2026 was $58.1 million. Finally, I would like to briefly address our Share Your Purchase program. In July 2025, the company's board of directors authorized a new Share Your Purchase program. Under the program, the company may spend up to approximately $600 million to purchase its common shares over the next 12 months. Between July 31st and October 29th, 2025, the company has repurchased approximately 4.2 million common shares and an aggregate consideration of approximately $134.7 million. That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook and strategic priorities. Alex, please go ahead.

Thanks, Jackson. I'd like to share some thoughts on our outlook for the company's future development. The fiscal third quarter is generally not a peak season for enrichment learning demand. so we may experience fluctuations in our business performance due to seasonal factors. Nevertheless, we remain dedicated to driving sustainable long-term growth across all our business lines. Looking ahead, we'll continue to enhance our products and services to support students' holistic development. Our goal is to serve a broader user base while adhering to the quality standards for both our enrichment learning programs and content solutions. To achieve this, we are making continued investments in content and technology. These investments will fuel innovation and position us to meet the evolving needs of our users in the long term. In addition, we are committed to exploring and building diverse sales channels to drive growth in our core business. In today's highly connected world, integrating online and offline user engagement is more crucial than ever. Offline touchpoints remain essential for fostering meaningful interactions with users. While we have established offline communication in learning services, newer areas such as the learning device business are still in the nascent stages. It is therefore essential that we strengthen our go-to-market capabilities in this area, which will take time and continue investment. Regarding our future financial performance outlook, As we've emphasized in recent quarters, our primary objective remains achieving sustainable long-term growth rather than focusing solely on short-term financial results. Accordingly, we will continue prioritizing resource allocation to critical areas aligned with our long-term strategic goals. We're committed to exploring expansion and innovation opportunities within our core businesses to enhance our competitiveness. To execute these strategies effectively, we will maintain flexibility in resource allocation, carefully considering factors such as business dynamics, product cycles, market conditions, seasonality, and organizational capabilities. These adjustments may result in financial performance fluctuations, with some periods exceeding or falling short of market expectations. Indeed, in recent quarters, we have experienced margin compression as we see the new initiatives and scaled emerging opportunities. Conversely, we've also seen periods of outperformance as these investments matured. This variability underscores our intentional focus on sustainable growth over short-term optimization while also reflecting limited visibility into near-term financial performance. Despite these dynamics, our commitment to long-term growth remains unwavering, particularly in the K-12 learning sector. Our ultimate goal is to deliver transformative learning solutions that empower students in their holistic development. So that concludes my prepared remarks. Operator, I think we're now ready to open the call for questions.

Thank you. We will now begin the question and answer session. To ask a question, please press star one one on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star one one again. We will now take our first question from the line of Timothy Zhao from Goldman Sachs. Please ask your question, Timothy.

Good evening, Alex, Jackson, and the fans. Thank you for taking my question. My question is regarding the PayU offline enrichment business. Just wondering if management can share with us some updates on the market dynamics and also competitive landscape for this business. And also, could you offer some color into the second quarter performance and also the expansion in the offline learning centers and offline business? So, for example, have you offered any discount or promotions during the summer? And also, looking ahead, just wondering if you can provide us a growth outlook for the overall enrichment business, for the offline business. Thank you.

Thanks, Timothy. This is Alex. Let me take this one on. It's a multi-part question. So let me try to unpack that and address each component of that question, right? So first of all, in the offline payment market, we've really observed steady growth. in our pay enrichment programs. I think that mirrors learners' increasing interest in them. As with any market during its development, competition is really inevitable. The offline small class enrichment learning market, if we define it like that, offline small class enrichment learning market, Really, it's notably more fragmented than many other consumer or services markets, making it somewhat challenging to accurately assess the total market size and demand. So to remain competitive in this fragmented landscape, the key really lies in developing high-quality products and services which are supported by solid performance metrics. While we continue to monitor the broader trends and dynamics of the enrichment learning market, our primary focus really remains on strengthening our product capabilities to better meet the needs of learners and deliver long-term value. So with regard to our performance in the second quarter, Revenue for PAYU offline enrichment programs has grown largely in line with our learning center footprint. For network expansion, we maintain the same operational approaches before. I think as I mentioned during the prepared remarks, we evaluated several key factors such as our organizational capability and efficiency, regional market demand, and user acceptance of our products. This quarter saw a moderate increase in offline enrichment learning centers. Given our disciplined approach to expansion, I think we are satisfied, really, with the overall health of the business. Regarding summer class pricing, the ASP of our summer courses remain stable, really, compared with the same period last year. And lastly, I think, you know, as for the outlook, so looking ahead, we'll continue to prioritize sustainability and healthy growth over scale in our approach to expanding offline learning centers. As we open new centers, maintaining consistent service quality and efficiency is really critical. You know, given that scaling requires broader service coverage while upholding high-quality service, we expect PayOS year-over-year revenue growth to gradually taper off. So, Timothy, I hope that answered your question.

Sure. Thank you, Alex, and congrats on the very solid result this quarter.

Thank you. Thank you. We'll take our next question from the line of Felix Liu from UBS. Please ask your question, Felix.

Hi. Good evening. Thank you, Benjamin, for taking my question, and congratulations on the very strong quarter. I have a few questions on the learning device business. commencement share some color on the business performance, especially on the sales volume and pricing for the devices? For your newly launched product, what are the user feedback so far and the product's overall performance? On the P&L side of this segment, are there notable differences in margins across various pricing points? And looking ahead, how does management see the competition landscape? for learning devices. Thank you.

All right, thanks, Felix. This is Alex again. Let me take on this. So let's start with the performance of our learning devices business in the past quarter, right? So for the past quarter, sales volumes increased year over year and quarter over quarter, I think primarily due to our product and channel efforts. On the other hand, we do note that the blended ASP declined both sequentially and year over year, mainly due to changes in the product mix. So let me add some colors to this. In May, so a few months ago, we launched three new models. the P4, the S4, and the T4. So these target different price tiers. These products were well-received, driving year-on-year sales growth. The sequential growth also benefited from Q2 seasonal strength. In terms of ASP, the blended ASP declined below 4,000 RMB. And that really reflects the shift in the product mix. So from a financial perspective, the BOM, the bill of materials cost ratios for our learning devices across different price points, I think that really remains stable in Q2. At the P&L level, Are learning devices still incurred in that adjusted operating loss? We'll continue to allocate resources to this line of business as ensuring our long-term competitiveness remains a key priority. So quarterly bottom line fluctuations are expected given market dynamics, given competition, and the resource allocation point that I've been making. So this focus, I'd like to add, is really critical in today's competitive smart education hardware landscape. You see major players continue to launch compelling learning tablet products. In addition, AI-driven learning products are reshaping education at an unprecedented pace. While we leverage our T12-focused high-quality content and continuously enhance product excellence and AI capabilities, really building hardware, that expertise, and channels expertise, those require foundational-level efforts. So rather than prioritizing short-term profitability, We remain like really focused on key areas that drive long-term competitiveness Things like you know user feedback market share brand influence and broader user engagement We think the strategy really ensures a solid foundation for sustainable long-term growth You know based on our content solutions including learning devices books and other early initiatives will continue to invest so that you know more students can access affordable high quality learning content and tools our goal really is to leverage technological innovation and quality content to reach a broader audience and provide meaningful value to society. So, Felix, I hope that answered your question.

Yeah, that's clear. Thank you.

Thank you. The next question comes from the line of Li Ping Zhao from CICC. Please ask your question, Li Ping.

Good evening, Alex and Jackson. Thanks for taking my question. Regarding your Q2 financial performance, I'm wondering, could you please provide a breakdown of top line growth and bottom line performance across different business lines? And how do we think about the trend for these business lines, for example, in Q3 or the second half of this fiscal year? Thank you.

Thank you, Li-Ping. This is Jackson. Let me take this one. Let me start with the top line and then move on to the bottom line. So on the top line, we expect year-over-year revenue growth of pay your small class to gradually taper off. This moderation really reflects a more normalized growth rate and will result in a measured pace of capacity expansion. As for learning devices, the business achieved year-over-year and quarter-over-quarter growth in Q2. However, please note that this business is still in its early stage. It is essential for fostering meaningful customer engagement, expanding our user base, and encouraging broader adoption. We remain committed to driving business development, though performance may fluctuate due to market conditions, product cycles, seasonality, and most other factors. From a broader perspective, we believe a company's growth and development depend on the value it creates for its users and the society as a whole. This principle underpins every aspect of a business, big and small. We view revenue growth at the company and industry levels as the result of continuous innovation greater organizational capabilities, and stronger operational execution. Now, let's turn to the bottom line. As previously noted, we have established a presence across multiple business lines, including various enrichment learning programs, learning devices, and other content solutions. Notably, these businesses are at different stages of development, each with distinct priorities. On one hand, Opeo Small Castle enrichment learning business has reached a more mature stage, delivering relatively stable profit margins. On the other hand, regarding our newer initiatives, such as learning devices, as we mentioned earlier, that we prioritize long-term competitiveness over short-term profitability with a focus on operational metrics such as user feedback, market share, brand influence, and broader user reach. At this stage, the timeline to achieve profitability of the learning device business remains uncertain. We will continue to invest in this area through new product launches, content enrichment, developing AI-powered experiences, and making ongoing optimizations to drive performance improvements. Therefore, the company's overall margin profile reflects the mix of mature and emerging businesses, making it challenging to generalizing future margin trends. I would also like to mention that Q2 is typically a peak season for us in terms of profitability, and we should not expect this level of profit margins in the next couple quarters to come. Li Ping, I hope that answers your question.

Thanks, Jackson.

That's helpful. Thank you. Our next question comes from the line of LC Sheng from CLSA. Please ask your question, LC.

Thank you, management, for taking my question, and congratulations on the strong result. My question is on the plan of allocation in cash. Because we noticed that following the launch of the new share repurchase plan, you have repurchase of about 4.2 million common shares. So could you provide an outlook on the pace of share repurchase for the rest of the year?

Thank you, Aosli. This is Jackson. I'll take this one. Let me share some updates on our capital allocation plans. As of August 31st, 2025, the company held approximately 3.5 billion US dollars in cash and cash equivalents, short-term investments, and restricted cash. We have always taken a prudent and balanced approach to capital allocation. We carefully evaluate potential uses of cash, striving to strike the balance between short-term need and long-term development. Regarding shareholder returns, we launched our first $1 billion share repurchase program in April 2021, later extending it through 2025. In July 2025, that program was nearly completed and we announced a new $600 million repurchase program. Between July 31st and October 29th, 2025, the company has repurchased 4.2 million common shares for a total consideration of $134.7 million. We will continue to execute the program in line with market conditions and may or may not utilize the full authorization over the next four months. Looking ahead, we'll take a long-term perspective when making strategic investments to promote sustainable and healthy growth. We'll maintain steady investments in content, learning devices, and other new initiatives as we believe these efforts will create long-term value for shareholders. Backed by our cash position, we're confident in our ability to fund business expansion while delivering returns to shareholders. As we drive business development, we will also remain attentive to shareholder interests. The specific level of shareholder returns will be comprehensively evaluated and periodically adjusted. taking into account dynamic factors such as market conditions, investment opportunities, business outlook, and capital allocation priorities. We will provide timely and appropriate disclosures to ensure investors are well informed on this matter. LC, I hope that answers your question.

Yes, thank you. It's very clear.

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

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

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