Alice Cai

Alice Cai inquired about the expected margin expansion and customer acquisition cost reduction resulting from the integration of New Oriental's overseas test prep and consulting units, as well as the target cross-selling rate.

Answer

Stephen Yang, CFO, explained that the merger aims to offer a one-stop service, enhance customer experience, and reduce operational costs and expenses by consolidating management, staff, and marketing efforts. He indicated that more specific details on cost savings, revenue improvement, and the impact on group margin profile would be shared in the next quarter's earnings call.

Alice Cai inquired about the expected margin expansion from the integration of test prep and consulting units, its potential to offset U.S. market headwinds, and targets for customer acquisition cost reduction and cross-selling rates.

Answer

Executive President and CFO Stephen Yang confirmed the merger aims to provide one-stop service, enhance customer experience, and reduce costs by consolidating resources. He stated that specific figures for cost savings, revenue improvement, and margin impact would be disclosed in the next quarter's earnings call.

Alice Cai asked about the significant increase in share-based compensation (SBC) expenses in the current quarter, its underlying drivers, and the expected outlook for SBC in future quarters.

Answer

Executive President and CFO Stephen Yang and Director of Investor Relations Sisi Zhao clarified that the SBC increase was primarily due to the granting of AES shares to management and staff in the second half of the last fiscal year, which is amortized over three years. They anticipate SBC expenses to remain at a similar level for the next several quarters, with typically higher amounts recorded earlier in the fiscal year.

Alice Cai inquired about the significant jump in share-based compensation (SBC) to $23 million this quarter, asking for the drivers behind this increase and the outlook for SBC expenses going forward.

Answer

Stephen Yang, Executive President and CFO, attributed the SBC increase to the grant of AES shares to management, staff, and teachers in the second half of the last fiscal year. Sisi Zhao, Director of Investor Relations, added that SBC expenses are expected to remain at similar levels for the coming several quarters, typically being higher in the first quarter of the fiscal year.

Alice Cai from Citigroup Inc. questioned the operating margin trend for FY26 for both the core and consolidated business. She also asked for details on the goodwill impairment related to the kindergarten business and inquired about any plans to spin off the cultural tourism segment.

Answer

Stephen Zhihui Yang, Executive President & CFO, stated that margin expansion is expected to continue in FY26, driven by ongoing cost controls and operating leverage. He explained the ~$60M goodwill impairment was a one-time charge for a kindergarten business acquired 18 years ago, prompted by policy changes. He noted the tourism business is still in an early phase of building its model, with no mention of a spin-off.

Alice Cai from Citigroup Inc. inquired about the operating margin trend for fiscal 2026 for both the core and consolidated business, the details behind the goodwill impairment, and the company's strategic plans for its cultural tourism business.

Answer

Stephen Zhihui Yang, Executive President & CFO, stated that Q4 margin expansion was driven by operating leverage and cost controls, which he expects to continue benefiting margins in FY26. He explained the goodwill impairment was a one-time charge for a kindergarten business acquired 18 years ago. He added that the tourism business is still developing its model and its growth is expected to slow.

Alice Cai of Citi followed up on the potential business restructuring, asking about the pipeline for the sale of the education segment.

Answer

CFO Dong Xie confirmed that the pipeline for the restructuring is "very, very strong," indicating confidence in the property business's performance and its ability to deliver long-term value, which underpins the decision to pursue the divestment of existing businesses.

Alice Cai of Citigroup Global Markets Inc. inquired about QuantaSing's recent total revenue trajectory, specifically the contribution from Last One in Q4, the impact of new IP launches like Cinnodle, the revenue run rate for July to September, and the confirmed order backlog in dollar terms. She also asked for clarification on the duration and specific arrangements for the Last One acquisition, particularly regarding the three tranches of 18 million common shares, their vesting period, and whether they are tied to performance milestones. Additionally, Cai questioned if QuantaSing's Q1 fiscal year 2026 revenue guidance and full-year guidance for the property business were conservative, and when property revenue is expected to surpass the education business. She followed up on the potential restructuring, asking about the pipeline for the sale of the education segment.

Answer

Dong Xie, CFO & Director, explained the explosive growth of Makuku since March and the rapid initial sales of the new IP Cinnodle, which exceeded 300,000 boxes. He noted strong demand and high user repurchase behavior, providing strong visibility for future performance, and mentioned that the current product delivery rate is less than 50% of ordered sales. Regarding the Last One acquisition, Xie stated that the remaining equity acquisition is in settlement, highlighting that Mr. Zhen, Last One's founder, opted for shares as consideration (no cash), with approximately 60% paid in newly issued shares and 40% granted as long-term incentives vesting over about eight years. He added that the remaining equity from other shareholders was acquired for cash at a valuation not exceeding RMB 1 billion. On guidance, Xie explained that forecasts were based on prudent assessment but acknowledged growth has outpaced earlier expectations due to better-than-expected performance of hit products, continuous expansion of online and offline sales channels (online GMV over RMB 18 million in August, 3-5 flagship stores by year-end), and accelerated global expansion. He reiterated confidence in the forecasts and the strategic focus on the property business, with potential adjustments in future quarters. Xie confirmed a 'very, very strong' pipeline for the education segment sale, emphasizing confidence in the property business's performance.

Alice Cai from Citi inquired about QuantaSing's recent revenue trajectory for its property business, specifically asking for the July-September run rate, Wakuku's Q4 contribution, and the confirmed order backlog in dollar terms, considering the launch of Cinnodle and the company's growing IP portfolio. She also questioned the conservatism of the Q1 and full-year fiscal 2026 property business revenue guidance, and sought clarification on the Last One acquisition's share vesting schedule and performance milestones. Additionally, Cai asked about the pipeline for the potential divestment of the education segment.

Answer

CFO Tim Xie explained that Wakuku's growth has been explosive since March, with monthly production capacity increasing 20-fold by August. He noted strong demand and high user repurchase behavior provide visibility for future performance. Xie highlighted Cinnodle's explosive initial sales of over 300,000 boxes, reflecting continuous evolution in product design and marketing. He stated that the current delivery rate for ordered products is less than 50%, indicating a huge pipeline. Regarding the Last One acquisition, Xie clarified that founder Mr. Zhen opted for shares as consideration, with 60% paid in newly issued shares and 40% as long-term incentives vesting over eight years, demonstrating a long-term commitment. Other shareholders were acquired for cash at a valuation not exceeding RMB 1 billion. Xie addressed the guidance, stating it was based on prudent assessment but acknowledged growth has outpaced earlier expectations due to better-than-expected product performance, IP matrix maturity, continuous channel expansion, and accelerated global growth. He confirmed discussions for divesting non-property businesses are ongoing, with a strong pipeline of interested buyers.

Alice Cai asked about the expected revenue contribution from LETZVAN in Q4, how the company will balance resource allocation between the declining education business and new initiatives, and when overall revenue is projected to return to growth in fiscal year 2026.

Answer

CFO & Director Dong Xie stated that LETZVAN's results will be fully consolidated starting in Q4 and are expected to account for a 'very significant level' of total revenue. He explained that the decline in education revenue is a deliberate result of a strategic shift and that future investments will be strictly based on ROI. Xie expressed confidence that strong growth from the pop toy business will drive the group's overall revenue recovery, while growth in other segments will only resume once product-driven KPIs are met.

Alice Cai asked about the company's upcoming investment plans in AI, specifically regarding the learning device sector, the AI product roadmap, and the required scale of investment.

Answer

Executive Zhuangzhuang Peng explained that TAL is leveraging its industry-specific data to train vertical AI models and develop applications. The product roadmap includes embedding AI functions into existing products (like correction for handwritten math answers in XBook) and creating new AI-native applications, such as a real-time Q&A tool that guides students step-by-step. Peng stated that past investments in compute infrastructure are adequate for now, and future AI investments will focus more on the application layer, talent, and data rather than on compute power.

Alice Cai inquired about the progress of Gaotu's offline business expansion, asking for specifics on the number of cities entered, learning centers opened, and current student enrollment figures.

Answer

CFO Nan Shen explained that offline expansion has exceeded initial expectations due to strong brand recognition and rapid team assembly. She highlighted synergies with the online business in teacher recruitment and content sharing but noted that investments in localized content and separate operational systems have increased R&D expenses. Shen stated that specific operational metrics for the offline business will be disclosed once its revenue contribution becomes more significant.