Thank you. Hello, everyone, and welcome to New Oriental's second 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 views 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 will 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.

I'm pleased to report a strong set of results for the second fiscal quarter of 2026. Our continued focus on operational efficiency and disciplined resource management has been a key driver of our solid performance and continues to support our path to sustainable profitability.

We're delighted to see strong profit growth, accompanied by a significant improvement in non-GAAP operating margin, up more than 4 percentage points, again, exceeding our expectations. This quarter, total net revenue grew 14.7% year-over-year to $1.19 billion.

Non-GAAP operating income more than tripled, rising 206.9% to $89.1 million. Non-GAAP net income attributable to New Oriental increased 68.6% to $72.9 million.

Our core business remains steady, and I'm pleased to share that our new initiatives are gaining traction and making meaningful contribution to the group's overall performance. For the second fiscal quarter, our K-9 new educational business and high school tutoring business recorded accelerated year-over-year revenue growth, outpacing the previous quarters.

Overseas-related businesses have shown resilience, delivered modest revenue growth despite the ongoing macroeconomic headwinds, exceeding our earlier conservative expectations. Overseas test prep business recorded revenue increase of 4% year-over-year.

Overseas study consulting business recorded a slightly decrease of about 3% year-over-year. Our adults and university students business recorded revenue increase of 13% year-over-year.

As for our continued investments in new education initiatives, including non-academic tutoring and our intelligent learning system and devices, delivered solid, sustainable results. Revenue from this business grew 22% year-over-year this quarter.

Our non-academic tutoring business has so been rolled out to around 60 existing cities. Market penetration has grown steadily, particularly across high-tier cities.

The top 10 cities contributed over 60% of the revenue. As for our intelligent learning system and device business, that has been launched in around 60 cities.

We're encouraged by improved customer retention and scalability of the new initiative. The top 10 cities contributed over 50% of this business.

Turning to our integrated tourism-related business, our domestic and international study tours and research camp for K-12 and university students were held in 55 cities across China, with the top 10 cities contributed over 50% of the revenue. In parallel, our newly launched tourism offerings for middle-aged and senior citizens has been well received, now available in 30 key provinces in national markets.

We've expanded our product portfolio to include culture travel, China study tour, global study tour, and camp education, all designed to deliver enriching experience through culture and knowledge sharing and personal growth. We're now also exploring opportunities in the health and wellness sector for seniors.

We've partnered with the over 30 health and wellness bases in locations such as Hainan, Yunnan, and Guangxi, piloting these segments with a light asset model. With regards to our OMO system, our efforts in developing and revamping our online-merge-offline teaching platform continued.

These efforts aim to deliver more advanced and diversified education services to our customers of all ages. A total of $28.4 million has been invested during this quarter to upgrade and maintain our OMO teaching platforms.

Beyond OMO, we continue to focus on our venture in AI. Encouraged by the positive market feedback, we have been and will continue to refine and embed AI across our offerings to strengthen New Oriental's core capabilities.

Simultaneously, we're also leveraging AI to streamline internal operations, thereby boosting efficiency and providing enhanced support for our teaching staff. As a industry leader, we're dedicated to driving long-term revenue growth through dual focus on product innovation and operational efficiency.

In upcoming quarters, we look forward to sharing tangible results and positive highlights on performance that are backed by our investment in AI. Now turning to the East Buy's performance, I'm pleased to share that during the reporting period, East Buy remained customer-centric and made strong progress in both product development and supply chain enhancement.

East Buy has expanded beyond its original focus on fresh food and snacks to offer a broader, more diversified product range. As of the end of the period, private label SKUs reached 801.

New categories include seafood, healthcare products, kitchen condiments, meat, eggs, dairy, and personal care, household, and cleaning items, paper goods, home textiles, apparel, and underwear. These offerings are thoughtfully curated to meet customers' growing demand to health, quality of life, and convenience.

They've contributed to both sales and profit growth to the group, while further optimizing its product mix. Beyond expanding SKUs, East Buy also focused on product iteration, cost efficiency, and targeted marketing to build blockbuster products that resonates strongly with the customers.

At the same time, East Buy began exploring offline channels, leveraging its strong brand recognition and New Oriental's learning center network. With the vending machine model now profitable in select cities, we plan to scale this initiative nationwide.

All in all, we are pleased to see East Buy refocused and back on track, making a positive contribution to the group, both top line and bottom line. We expect East Buy to contribute more revenue and profits to the group in future, while continuously enhancing our brand influence.

Now I will turn the call over to Sisi to share with you about the key financials. Please go ahead, Sisi.

Thank you, Stephen. Let me now walk you through the key financial highlights for the quarter.

Operating costs and expenses for the quarter were $1,125.1 million, representing a 10.4% increase year-over-year. Cost of revenues increased by 11.8% year-over-year to $556.9 million.

Selling and marketing expenses decreased by 1.1% year-over-year to $194 million. G&A expenses for the quarter increased by 15.2% year-over-year to $374.3 million.

Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 156.8% to $21.4 million in the second fiscal quarter of 2026. Operating income was $66.3 million, representing a 244.4% increase year-over-year.

Non-GAAP income from operations for the quarter was $89.1 million, representing a 206.9% increase year-over-year. Net income attributable to New Oriental for the quarter was $45.5 million, representing a 42.3% increase year-over-year.

Basic and diluted net income per ADS attributable to New Oriental were 29 cents and 28 cents, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $72.9 million, representing a surge of 68.6% year-over-year.

Non-GAAP basic and diluted net income per ADS attributable to New Oriental were 46 cents and 45 cents, respectively. Net cash flow generated from operation for the second fiscal quarter was approximately $323.5 million, and capital expenditure for the quarter were $23.7 million.

Turning to the balance sheet, as of November 30th, 2025, New Oriental had cash and cash equivalents of $1,842.9 million. In addition, the company had $1,609.9 million in term deposit and $1,875.2 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 are delivered, at the end of the second quarter of fiscal year 2026 was $2,161.5 million, an increase of 10.2% as compared to $1,960.6 million year-on-year. Now I'll hand over to Stephen to go through our outlook and guidance.

Thank you, Sisi. We're very encouraged by the strong results we've achieved this quarter and in the first half of fiscal year 2026.

These outcomes give us greater confidence in our operational resilience and growth trajectory. Looking ahead, we will continue to pursue a balanced approach to revenue and profitability growth.

We remain committed to cost discipline and sustainable profitability across all business lines. At the same time, we will take a thoughtful strategic approach to capacity expansion and hiring, ensuring that growth does not come at the expense of quality.

We plan to deepen our presence in cities that demonstrate strong top- and bottom-line performance, while continuing to manage resource carefully. We will closely monitor the pace and scale of the new openings, aligning them with operational needs and financial performance throughout the year.

Given our positive momentum, including the healthy growth of our K-12 business and recovery of East Buy, we are now in a more optimistic position regarding our business outlook. We expect total net revenue for the group, including East Buy, in the third quarter of fiscal year 2026, December 1st, 2025 to February 28th, 2026, to be in the range of $1,313.2 million to $1,348.7 million, representing a year-over-year increase in the range of 11% to 14%.

As the full fiscal year 2026, we're raising our total net revenue guidance for the group to be in the range of $5,292.3 million to $5,488.3 million, representing a year-over-year increase in the range of 8% to 12%. These expectations reflect our current outlook, taking into account recent regulatory development as well as our preliminary view of market conditions.

They remain subject to change. I'd like to give you an update on our shareholder return plan for fiscal year 2026.

In October 2025, we announced that pursuing to the previous adopted three-year shareholder return plan, the board of directors had approved an ordinary dividend of $0.12 per common share, or $1.20 per ADS, to be distributed in two installments as part of the shareholder return for fiscal year 2026. As of today, the first installment has been fully paid to shareholders and ADS holders.

Details of the second installment will be determined and announced in due course. Additionally, we also announced a share repurchase program under which New Oriental is authorized to repurchase up to $300 million of its ADSs or common shares over the subsequent 12 months.

As of January 27th, yesterday, we had repurchase a total of approximately 1.6 million ADSs for an aggregate consideration of approximately $86.3 million from open market under this share repurchase plan. To conclude, New Oriental remains firmly committed to sustainable growth, delivering high-quality offerings to our customers, and creating long-term value for our shareholders.

We also continue to work closely with government authorities across provinces and municipalities in China to ensure full compliance with the relevant policies, regulations, measures, and to adjust our operations as needed in response. This is the end of our fiscal year 2026 Q2 summary.

At this point, I would like with Sisi to open the floor for questions. Operator, please open the call for this.

Thank you.

Hi, good evening, Stephen and Sisi. Congratulations on the very solid second quarter results as well as on the lift to your full-year guidance.

My question is on your guidance. Can management provide some breakdown on the segment growth as much as you can?

I'm keen to understand the key drivers for the lift to your full-year guidance. Thank you.

Thank you, Felix. Let us start with this quarter's revenue growth analysis.

We're very pleased to see the growth of the K-12 business. As I think our strategy this year is to improve the product quality and service quality.

We have seen the good results in Q2. We have seen the higher student retention rate and the better feedback from the customers.

This is the K-12 business. In Q3, I think the K-12 business will be grow somewhere around 20% year-over-year, or more.

Let's say it's in 20% plus year-over-year growth. Overseas-related business, we meet some the revenue growth pressure.

I think in the Q2, we still get the top-line growth of the overseas test prep by 4% year-over-year growth. We're quite resilient.

Actually, I think we are taking the market share from the market. In the Q3, let's say in the second half of the year, I do believe the revenue growth will be flattish of the overseas-related business.

It's still a drag, but I think we will do as good as we can. College business, let's say with 14%, 15% top-line growth.

This is a breakdown. In the second half of the year, I think we're quite positive about the revenue growth and even the higher margin.

Because since last year, March 2025, we started to the cost control. I think we have done the great job.

Going forward, we will do more on cost control. It will improve the margin expansion going forward in the second half of the year and the year after.

Felix.

This is great progress. Thank you.

Thank you. One

Good evening, management. Thank you for taking my questions, and congratulation on the strong results.

We heard about the business unit integration between your test prep and consulting units. I have two quick questions.

First, what is the expected margin expansion from this merge? Can it effectively offset the headwinds in the U.S.

market? Second, regarding efficiency, how much reduction do you expect in the customer cost acquisition?

What is your target for the cross-selling rate? Thank you so much.

I saw the news of the merging of the overseas test prep business and consulting business. As before the merging, overseas test prep, the unit and consulting business provide a service to their client respectively.

Each side has their own management teams, teachers, marketing staffs, admin staffs. I think now we put it together.

We merged the overseas test prep and consulting business. I think the restructuring aims to provide customer with a one-stop service.

I think we will provide even the better service to the customers and also to the reduced absolutely some cost and expenses because we put it together and I think one person can do more jobs, even stronger than before. Let's wait till the next quarter's earnings call.

I will share with you about how much cost we can save or even how much can get the more revenue or improve the top-line growth and to save some cost to help the group margin profile. Alice, thank you.

Thanks. It's very helpful.

Thank you. Hi, Stephen, Sisi.

Congratulations. My question is on the margin expansion in the second quarter, which has been more than 1 percentage point.

Could you please elaborate on the margin expansion, what is driving that, and how should we think about the margin expansion magnitude in the second half? Thank you.

Oh yeah, okay. Lucy, I think your question is about margin.

Even though we meet some margin drag from the overseas-related business, but we still got the group margin expansion in Q2. The non-GAAP OP margin was increased by 400 470 basis points year-over-year.

I think the margin expansion was mainly driven by the better utilization, the higher operating leverage, and cost control, and also the profit contribution from the East Buy. I think we will continuously focus on operational efficiency and disciplined resource management, let's say, in the cost control.

We control the learning center extension plan, and we control the marketing expenses. You saw the numbers, the results.

I think going forward, even the Q3 and the Q4 in the second half of the year, we will get the margin expansion. I don't give the detail guidance because typically we don't give the margin guidance, but we are quite optimistic about the margin expansion in the second half of this year.

Lucy.

Understood. Thank you so much, Stephen.

Thank you.

Good evening, Sisi and Stephen. Thank you for taking my question, and also congrats on the strong results.

My question is about the overseas business. As you mentioned that the overseas business has 4% of growth rate.

Actually the market condition is quite challenging. Just wondering the future trends and the main reasons for this overseas business that can get such a good results.

Thank you.

As I said, the overseas-related business meets some impacts of the economy environment outside. I think our team have done a great job.

They have shown very resilient in the first half of the year. We believe they will taking the more market share from all the competitors.

Also, I think the group gave the team more support than before because they meet some pressure. We should help them to do more jobs.

Going forward, in the second half of the year, I think I just want to give the guidance, the flat is a little bit down, low single digit growth, because the outside environment has no change. I believe our team will do the great job as they did in the first half of the year.

Yeah.

Thank you, Stephen.

Hi, Stephen. Hi, Sisi.

Congrats on the great quarter. I hope that this is first of many, many more quarters to come.

Before I actually ask my question, can I double check on Lucy's earlier question on margin? Can we talk about how much of the margin expansion in 2Q, not the forward-looking, but 2Q came from core education versus East Buy, to the extent that you can elaborate?

I have my question after this.

Actually East Buy also reported their first year first half results, you can roughly calculate. If you take out East Buy, all the rest together, margin expansion is roughly about 3 300 bps margin expansion year-over-year.

Thank you. My actual question is for our new education business, it's great that we printed more than 20% growth.

What do you think in your view is sustainable growth rate for this segment from here? Say, assuming stable 10% capacity expansion for next 3 to 5 years, say, 10% for the group capacity expansion, maybe that means K-9 capacity can grow maybe 15% per annum, and then we can add on maybe 4%, 5% of ASP growth, and couple more points for efficiency gain or utilization gain, if you will.

Does that mean that can we continue to expect, say, 20% plus growth, I'm not talking about second half, but next few years based on this level of capacity expansion, or the growth algorithm or formula can change versus what we had in the past?

Yes, I think it's a great question. We change our strategy, before the starting of this fiscal year.

We, we slow we slowed down the learning center expansion from 20%, 30%, the year the year before to let's say the 10%. That means we put more focus on the quality and quality improvement.

I think all the business line, even the high school and K-9 business, the student retention rate is getting higher. I think it's even better than we expected.

Also, that means we got the better word of mouth. We don't need to spend like crazy marketing expenses to acquire the new student enrollment.

That means, we get the new student enrollment by better word of mouth. I think in the second half of the year, we got the 20% plus the top-line growth of the K-12 business.

I believe we will keep the the the sustainable growth even in the year after. Because, the better quality and and also the even the more the high the competitive the edge of New Oriental, I think we we deserve to get more student new student enrollment, we cut some marketing expenses.

Also, definitely we will see more leverage because, we just opened let's say the 10% new learning centers, but the revenue growth is something somewhere around 20%. It will you will see the higher utilization rate and the higher margin of the K-12 business.

Yes. Great.

Thank you so much, sir. I hope to see that coming through in many more years to come.

Thank you.

Also, I want to add one point to Sisi's comments. In the Q3, I do believe we got the margin improvement from both core business and East Buy.

Thank you, sir.

Great. Hi, Stephen.

Hi, Sisi. Congrats on the solid results.

My question is that I recall in the last quarter results, you mentioned that I think about some of the new AI initiatives that you are launching. Just wondering if you can share any tangible results or any updates on the AI investments that you are making.

For example, what type of new course format that you launched, probably in the late last year? Just wondering if there's any colors on that.

Thank you.

I think in the last three months, I think our team have done a lot on the new offerings of the new AI product. I think we need maybe one quarter to testify the new offerings.

Also, I believe it will contribute more revenue going forward. One more point is I think the AI technology help us on the existing product.

You saw the higher student retention rate. We put more focus on the product quality and even service quality, but I do believe the AI helped us to get the even higher student retention rate going forward.

Also the AI helped us to get more operational efficiency, to save some expenses and cost. AI helps the whole group, three points: new offerings and the existing products improvement and the cost saving.

I think we should spend a little bit more on AI technology, but it's not that much. We'll control the whole spending, but I think we will bear more fruit from the AI investment going forward.

Got it. Thank you, Stephen.

One

Hi, Stephen and Sisi. Congratulations on the result.

I have a follow-up question on the margin expansion because if we look into the details, in the second quarter, the gross margin is going up, and also the marketing expense ratio is also going down. Because I noticed that you earlier mentioned that you have initiated cross-department customer service system to improve the service efficiency and also reduce the customer acquisition cost.

I wonder if is the decrease in the marketing expense ratio related to this initiative? If it's so, how do you expect the impact of this going forward?

Do you expect this trend of lower marketing expense ratio to continue in the next few quarters? Thank you.

I think the situation will continue because, yeah, first of all, we put more focus on the product itself rather than spend more money on marketing. Growth is still very healthy.

Also, as you said, we set up the new customer service department. That means I think we will bring the information within New Oriental, even the old departments: overseas consulting, college, K-12 business, high school, K-9, and even the other business, and the tourism business, and the East Buy.

I think this new department will bring us more traffic, even within New Oriental customer resources. I think is a very good tool to save more marketing expenses.

Also, we just set up the 10% new learning centers this year, we don't need to spend more money on marketing. Even in the Q1, I know some competitors did some summer promotion or even the free course in the summer, but we are happy to see more students from our competitors came back to New Oriental in autumn.

That means our core competency or the product quality turns to be better. Going forward, I think the selling marketing expenses as the percentage of the revenue will go down going forward, even the second half of the year and the year after.

Thank you. It's very helpful.

Thank you.

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. Thank you very much.