Good evening, and thank you for joining New Oriental's FY 2025 Fourth Quarter Results Earnings Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect now. I will now hand the meeting over to your host for today's conference, Ms. Sisi Zhao.

Thank you. Hello, everyone, and welcome to New Oriental's Fourth Fiscal Quarter 2025 Earnings Conference Call. Our financial results for the period were released earlier today and are available on the company's website as well as our 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 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. It's that time of the year again. We're pleased to announce that Q4 performance exceeded expectations, demonstrating our strong commitment and capabilities to enhance operational consistency and drive long-term value creation. This quarter's total net revenue, excluding revenues generated from East Buy private label product and live streaming business, increased by 18.7% year-over-year, mainly contributed by the continued expansion of our new ventures. Bottom line-wise, we're delighted to see that our efforts to reduce costs and improve efficiency have proven effective, with non-GAAP operating margin, again, excluding operating margin generated from East Buy, reaching 6.5% this quarter, representing a year-over-year improvement of 410 basis points. Our key remaining business remains solid, while our new initiatives have also shown positive momentum. Breaking it down for the fourth quarter of 2025. The overseas test prep business recorded a revenue increase of 15% year-over-year. The overseas studies consulting business reported a revenue increase of about 8% year-over-year. Our adult and university students' business recorded a revenue increase of 17% year-over-year. At the same time, our continued investments in new education business initiatives, primarily centered on facilitating students' all-around development, have also delivered consistent progress, further driving the company's overall momentum. Firstly, the non-academic tutoring business, which focuses on cultivating students' innovative ability and comprehensive quality, has shown to be rolled out to around 60 cities. Market penetration has significantly increased, particularly across higher-tier cities. The top 10 cities contribute over 60% of this business. Secondly, the intelligence learning system and device business, which utilizes our past teaching experience data and technology to provide personalized and targeted learning and exercise content to improve students' learning efficiency, has been tested in around 60 existing cities. We're happy to see improved customer retention and scalability of this new business. The top 10 cities contribute over 50% of this business. In summary, our new educational business initiatives reported a revenue increase of 33% year-over-year for the fourth quarter of 2025. Moving to our integrated tourism-related business line, which includes study tours, research camps for K-12 and university students, and targeting middle-aged senior audiences, recorded a revenue increase of about 71% year-over-year for the fourth fiscal quarter of 2025. Breaking down, both domestic and international study tours and the research camp for K-12 and university students were conducted across 55 cities nationwide, with the top 10 cities contributing over 50% of the revenue. We also provided a series of premium tourism offerings primarily designed for middle-aged senior audiences across 30 featured provinces in China and internationally. Our product range has also been expanded, now including cultural travel, China study tours, global study tours, and camp education. With regard to our OMO system, we continue our efforts in developing and revamping our online-merge-offline teaching platform, while leveraging our educational infrastructure and technological strengths across our key business lines and new industries. These efforts aim to deliver more advanced and diversified education services to our customers of all ages. A total of $28 million has been invested during the quarter to upgrade and maintain our OMO teaching platform. Beyond OMO, I would like to take this opportunity to highlight our investments in AI and how we integrate it into our teaching ecosystem. Leveraging a combination of open-source large models such as Deepseek and GPT, along with our self-developed AI technologies, we have developed new innovative education solutions for our students. Recently, we launched two new products: first, a new generation of AI-powered intelligent learning devices. These products feature deep AI integration and equip K-9 students with multifunctional tools, including spoken language coaching, automated IC grading, dictation exercises, classical text recitation, and voice assessment functionality, all designed to enhance learning outcomes while saving time for both teachers, students, and parents. Second, a new AI-driven smart study solution. This product combines premium content from global sources with our very own accumulation of teaching and research experience in AI technology. These achievements mark key progress in our customer-focused education products, positioning us as a leader in applying AI to the education field. We will continue investing in AI to drive future innovation. Not only does AI help enhance our offerings, but it also improves internal efficiency. We have launched an AI content creation platform and student performance feedback application which will help support lesson planning and strengthen home-school communication. These tools also provide valuable insights into learning habits and user engagements. Additionally, an AI-powered FAQ database has been created, built from our day-to-day sales conversations, which have significantly reduced training costs for our sales team and improved sales efficiency and conversion rates. Now I would like to take a moment to talk about East Buy, as I know many of you are interested in it. In fiscal year 2025, East Buy continued to invest in a private label product strategy centered around green, healthy, and high-quality products while enriching its product portfolio and exploring new categories. It also achieved breakthroughs in blockbuster products and product upgrades. With consistent quality and broad consumer appeal, East Buy's private label products have become household staples, gaining greater market recognition. During the reporting period, East Buy further advanced its multichannel strategy and implemented enhancements to its East Buy app and East Buy миниstore, all of which have provided users with improved experiences. As the business continues to develop steadily, East Buy has placed greater emphasis on improving operational efficiency and profitability levels to align with the group's overall strategy. Now I would like to take this opportunity to talk about our share repurchase actions. As of May 31, 2025, the company repurchased approximately 14.5 million ADSs for about $700 million from the open market. Now I will turn the call over to Sisi to share with you the key financials.

Thank you, Stephen. Now I'd like to share our key financial details for this quarter. Operating costs and expenses for the quarter were $1,251.8 million, representing an 11.2% increase year-over-year. Cost of revenues increased by 5.1% year-over-year to $569.9 million. Selling and marketing expenses increased by 1.8% year-over-year to $211.9 million. General and administrative expenses increased by 9.1% year-over-year to $409.8 million. Impairment of goodwill was $60.3 million compared to 0 in the same period of the prior fiscal year. Total share-based compensation expenses, which were allocated to related operating costs and expenses, increased by 11% to $28.6 million in the fourth fiscal quarter of 2025. Operating loss was $8.7 million compared to operating income of $10.5 million in the same period of the prior fiscal year. Non-GAAP operating income, excluding share-based compensation expenses, amortization of intangible assets resulting from the business acquisitions, and impairment of goodwill assigned to the reporting units of the kindergarten business, was $81.7 million, representing a 116.3% increase year-over-year. Net income attributable to New Oriental for the quarter was $7.1 million, representing a 73.7% decrease year-over-year. Basic and diluted net income per ADS attributable to New Oriental were $0.04 and $0.04, respectively. Non-GAAP net income attributable to New Oriental for the quarter was $98.1 million, representing a 59.4% increase year-over-year. Non-GAAP basic and diluted net income per ADS attributable to New Oriental were $0.62 and $0.61, respectively. Net cash flow generated from operations for the fourth fiscal quarter of 2025 was approximately $399.1 million, and capital expenditures for the quarter were $65.9 million. Turning to the balance sheet. As of May 31, 2025, New Oriental had cash and cash equivalents of $1,612.4 million, $1,447.8 million in term deposits, and $1,873.5 million in short-term investments. New Oriental's deferred revenue, which represents cash collected upfront from customers related to revenue that will be recognized as the services or goods are delivered, at the end of the fourth fiscal quarter of fiscal year 2025 was $1,954.5 million, an increase of 9.8% compared to $1,780.1 million at the end of the fourth quarter of fiscal year 2024. Now I'll hand over to Stephen to go through our outlook, guidance, and our new shareholder return plan.

Thank you, Sisi. As we look ahead for fiscal year 2026, we remain optimistic and committed to not only driving revenue growth but also placing greater emphasis on upholding profitability across all business lines, supported by various cost control and efficiency enhancement measures. To better reflect our long-term strategic priorities and align with the nature of the education industry, characterized by longer business cycles with seasonality, we are now providing full-year guidance in addition to our quarterly outlook. We believe this expanded guidance offers a more meaningful and accurate reflection of our business performance and strategy as it smooths out short-term seasonal volatility. We encourage investors to focus on this long-term indicator, which provides a clearer and more comprehensive view of our business, operational progress, and growth trajectory. We expect total net revenue for the group, including East Buy in the first quarter of fiscal year 2026, from June 1, 2025, to August 31, 2025, to be in the range of $1,464.1 million to $1,507.2 million, representing a year-over-year increase in the range of 2% to 5%. As for the total net revenue for the group, also including East Buy for the full year 2026, from June 1, 2025, to May 31, 2026, we expect it to be in the range of $5,145.3 million to $5,390.3 million, representing a year-over-year increase in the range of 5% to 10%. You may notice that our fiscal year '26 Q1 guidance looks relatively conservative. This is primarily because the group has now entered a more stable and sustainable phase, and we are comparing against a high base from last year's Q1, unlike two years ago, when we were still undergoing major transformation. Moreover, East Buy's restructuring has not yet taken place in fiscal year '25 Q1 either. Additionally, the earlier timing of the Chinese New Year this year led to temporary class rescheduling, which boosted the revenue recognition in the second half of fiscal year 2025, but will reduce revenue recognition in fiscal year '26 Q1. As a result, we expect the year-over-year revenue growth to accelerate since the second quarter and throughout the rest of the year. Hence, as I mentioned earlier, I would encourage all of you to focus on our annual guidance. Before ending this quarter's earnings summary, I would like to announce that the Board approved a 3-year shareholder return plan yesterday, effective from fiscal year 2026. As a gesture of appreciation for our shareholders' unwavering support. Under this plan, no less than 50% of the company's net income attributable to New Oriental for the preceding fiscal year will be allocated to returning value to shareholders through dividend distributions and/or share repurchases. For fiscal year '26, the Board will determine the implementation of the plan based on the net income attributable to New Oriental for the fiscal year ended May 31, 2025, in due course. Now to conclude, New Oriental remains committed to delivering premium offerings for our customers who are pursuing sustainable growth and profitability and sharing the fruits of our success with our shareholders. We're also in close collaboration with government authorities in various provinces in China, issuing compliance with the relevant policy guidelines and the related implementations and adjusting our business operation as required. This is the end of our fiscal year 2025 Q4 summary. At this point, I would like to open the floor for questions. Operator, please open the call for these. Thank you.

First question comes from the line of Felix Liu from UBS.

My question is on your Q1 and FY '26 guidance. We noticed that Q4 EDU anyway for core business actually grew pretty fast. But as you mentioned, there was a seasonal slowdown in Q1. Can I just ask for more breakdown of your Q1 as well as full-year guidance? What are the drags on the business that led to this slowdown? And can you share about the drivers for the recovery in growth after Q1?

Okay. Thank you, Felix. Yes, as for the Q1 guidance and the whole year guidance of fiscal year '26, in the coming Q1, we give the guidance of the revenue growth in the range of 2% to 5%. I must mention, firstly, that we are using a conservative method to give the guidance. And there were some following reasons. Number one, to some extent, I think our business is adversely affected by the economic environment and the changes in international relations. So in the coming Q1, we are comparing against a high base last year in Q1 for both the core educational business and the East Buy. And number two, as for the K-12 business, we have some cutoff issues because this year's Chinese New Year was earlier than '24. So that means some — in the second half of fiscal year '25, we had more revenue. And the result is that in the coming Q1, we have less revenue. So this is a cutoff issue. But as we expect, the K-12 revenue growth will accelerate in the coming Q2 and the rest of the year in Q3 and Q4, because based on our current as mentioned, the forecast for the whole year and the cash we will collect already for the Q2 courses. So that's why, as I said, we expect the revenue to accelerate since Q2 for the K-12 business. And the last reason is last year Q1, East Buy restructuring had not yet taken place in Q1 either. So we will have a hard comparison for East Buy in the coming Q1. But since Q2, it will be better. And this quarter, we start to give the whole year guidance. We give the guidance of 5% to 10% year-over-year growth for the whole group. And it shows that revenue growth will accelerate since Q2 and throughout the rest of the year.

Next, we have Lucy Yu from Bank of America.

I have actually a follow-up question on the guidance that you just gave. What is the major difference that you have revised this quarter versus last quarter when you gave the guidance for FY '26? So what has changed in terms of line of business? And secondly, just to clarify on the shareholder return program. Is it based on reported net income or non-GAAP net income?

Second question answered first. The capital allocation for the next three years is calculated based on the net income, the net income attributable to GAAP net income attributable to New Oriental. And I think, yes, this time, we changed the guidance from non-East Buy to the whole group, including the East Buy. Because East Buy started to restructure the business since last year — so in past four quarters, I think the management of the East Bay fixed the operations. And East Buy is still — we will control East Buy. So I think it's a good time for us to give the guidance for the whole group, including the East Buy. And I think going forward, we will give the guidance for the whole group, including the East Buy. Lucy?

One more follow-up. So the guidance revenue growth is all in U.S. dollars or renminbi?

Dollars. In dollars.

And you are using current rates?

Yes, yes, we're using the current exchange rate in the first 45-50 days of this quarter.

Thank you. Next, we have a question from CITIC.

Hello. Good evening, Stephen and Sisi. My question is about the deterioration of our revenue. So what is the main reason for our revenue deterioration, especially for the non-academic business? So is it because of competition, or is it just our own adjustment? And if we look long-term, exactly in the next three years, how do we think of our growth rate in the next three years?

I think the revenue slowing down is mainly due to the economic environment and the change in international relationships because we have seen some transparency; some parents don't want to send their kids to study abroad in the future. So this will negatively impact our international business. And as for the competition in the K-12 field, I think the competition is a little bit stronger than that of last year. But I think it's okay. If you compare the competition level now with a couple of years ago, before the policy changes, it has decreased significantly. The market is still huge, especially for the K-9 business. So we still guide for K-9 business growth of around 20% in the coming year. I think during this macroeconomic situation, it is still favorable. And going forward, yes, the Q1 is a little bit weak. But based on our current estimations, I think Q2, Q3, and Q4 will be better. In the longer term, I still think the K-12 business will be the key growth driver of the whole group.

Yes. Can I have a follow-up question regarding that? If you look at the revenue growth before the policy changes, maybe our K-12 revenue growth rate could be over 20%. Well right now, maybe it's just around 15%. So if you look at it in the next few years, will the growth rate for K-12 business go back to over 20%, or will it just be around 10% to 20%?

I think for the K-9 business, we do believe we can achieve revenue growth of around 20%. That will still be very good. The high school business, because we achieved an all-time high in the last fiscal year, we have a high base. So going forward, I think the revenue growth will be somewhere around 10% to 15%.

Next, we have Alice Chow from Citibank.

I have two questions. And first one is on the margin trend. How should we think about the operating margin trend for FY '26 for the core education business and also the whole business because since we started to provide guidance for the whole business, right? And my second question is on the goodwill impairment. Can you please give us some more color on this? Why was the goodwill associated with the kindergarten business to begin with? And will the company continue to divest off the non-core business and also like cultural tourism?

Okay. Thank you, Alice. Your margin question. Let us start with this quarter's margin analysis. In Q4, we achieved 410 basis points margin expansion. I think the margin expansion for Q4 and the whole fiscal year '25 was mainly due to operating leverage and efficiency enhancements along with cost control. As you know, we started to implement cost control measures since March this year, and we have seen good results, which helps to drive the margin up. I do believe the cost control will help the margin profile in the coming year, for Q1 and throughout the whole fiscal year '26. As we look at the margin of Q1, we remain optimistic about the margin profile in Q1, even though we're facing some revenue slowdowns. We still expect the margin to expand in the coming Q1. For the entire year, I think it's a little early to forecast the margin for the new year, but we are focusing more on profitability than revenue growth. Therefore, we will strive to achieve a healthy margin profile in the whole fiscal year '26. In summary, while revenue is slowing down, we will focus more on the bottom line and continue pursuing cost control and efficiency enhancements to drive margin growth in the coming quarter and the new year. Your second question is about the goodwill impairment of the kindergarten business. We acquired some kindergartens many years ago, roughly eight to ten years ago. Due to some reasons, policy changes led to decreased enrollment. After discussions with auditors, we decided that goodwill impairment should be recorded at this time. So we implemented a one-time impairment loss of $60 million this quarter.

May I have a follow-up question? I would like to know more about the cultural tourism? Is there any plan to scale back this business?

Our tourism business. Yes, we started with the tourism business 1.5 years ago. The revenue growth in the last fiscal year, fiscal year '25, was extremely high. Most of the tourism business is related to summer camps and study tours, both domestically and internationally. But going forward, I think we still need time to build the business model. I expect revenue growth of the tourism business to slow down in the new year. As a new business, we will require more time to refine the business model.

Next, we have Timothy Zhao from Goldman Sachs.

I think my question is regarding the profitability and margin outlook. I think one is regarding the 4.1 percentage point margin increase for the core business in the past quarter. Just wondering if you can help quantify the impact of the cost control measures that you have implemented since March. Going forward into the new year, how much room do you have for further cost control? And secondly, also on the margin-related question on capacity expansion. Just wondering, I think for the May quarter, how many new learning centers were newly opened? And what is your learning center or capacity expansion plan into fiscal year '26?

The margins, yes, in Q4, we got the margin expansion by 410 basis points, and it is challenging for us to quantify how much of that was due to cost control. Nevertheless, it is a strong result, and the cost control measures are contributing positively. For Q1 and the new year, I believe cost control will further drive margin growth. I estimate that cost control may provide roughly 100 to 150 basis points of margin improvement. Regarding the second question about expansion, in Q4, the net addition for learning centers was about 8% to 9%. Going forward, in the upcoming year, I think our plan is to monitor capacity expansion to ensure alignment with revenue growth. So we aim to control the expansion of learning centers in conjunction with revenue growth. Generally, we plan to open between 10% to 15% of new learning centers, but it depends on revenue growth. Typically, we set up new learning centers in the second half of the year. So we will have one or two quarters to assess how many learning centers we establish in the latter half of the year in preparation for the new year. I must emphasize that we will only allow cities with better top-line growth and solid margins to open new learning centers, especially for the K-12 business.

Next, we have D.S. Kim from JPMorgan.

I just have a few follow-ups from the previous comments, if that's okay. So you earlier mentioned that margin could go up in the first quarter. Were you referring to the group level or core education only? That's my first follow-up. And second, can I double-check that the margin expansion from cost control measures is about 100 to 150 bps for the full year? Just as a follow-up, then I have one more question.

For the full year, the cost control guidance refers to the entire group. Yes, because we have returned to providing guidance for the whole group, so the margin analysis and guidance apply to the entire group. Therefore, I'm indicating that the group margin expansion will occur in Q1.

Got it. And again, this is kind of a follow-up, but I did a very rough calculation based on the numbers you shared, and I think we are essentially guiding for core education, excluding East Buy to grow about 11%, 12% in fiscal '26 versus, I think, last quarter, you mentioned 14%, 15% growth. Am I right about this? Or can you comment on education on the apples-to-apples guidance versus last quarter? Just want to double-check.

In fiscal year '26, right? Yes, it seems to be a little bit lower than the guidance we provided last quarter because, as I mentioned, the overseas-related business will likely be negatively impacted by the macro economy and changes in international relationships. We have revised the guidance for fiscal year '26 to predict the overseas-related business will be down by around 4% to 5% year-over-year. This reflects our updated expectations compared to last quarter.

So I think that probably implies 11%, 12%, if you have those numbers. If not, that's totally fine. And final question is, in terms of the buyback and dividend, can you give us a little bit of color on how you are thinking about the two? Like is it going to be dependent on the level of share prices? Or do you have certain pockets within that 50% in mind for dividends at least this much? Any sort of qualitative color would be appreciated, and that's it.

I think, first of all, we finished the $700 million share buyback in this quarter, in Q4. We also paid a $100 million special dividend last year in September. I'm pleased to inform you that the Board approved the new capital allocation program not just for this year, but also for the next three years, from fiscal year '26 to fiscal year '28, amounting to at least 50% of GAAP net income. We have yet to determine the distribution between dividends and share buybacks, but I will discuss this with the Board, including with Michael, to make a final decision on whether to opt for dividends, share buybacks, or both. One more point of information is that we still need the auditors to finalize their report for fiscal year '25. We plan to file the 20-F at the end of September. By then, we should have decided how much amount to allocate for capital distribution.

If I just make a comment, not a question, I think many or most investors may prefer dividends rather than buybacks because dividends seem a little more visible and sustainable. So please, please consider that, especially if it is a regular dividend instead of the special one we did pre-COVID. Just sharing my perspective.

Next, we have Charlotte Wei from HSBC.

I have a question regarding the non-academic enrollment. So I noticed that this quarter's enrollment growth slowed down quite meaningfully. Could you please provide some color on the reasons? Additionally, can you share the summer enrollment growth for the K-9 nonacademic tutoring? And how does it compare to the industry growth trend?

Yes. As I mentioned, there is some seasonality impact because of the early Chinese New Year and some revenues were recorded in Q3 and Q4 last year. Therefore, it will negatively impact the Q1 revenue and enrollment. It appears that Q1 enrollment is low. However, I think based on our current statistics, the cash and student enrollment we already have from customers for the Q2 courses are higher than in Q1. That's why I mentioned we expect revenue growth to accelerate starting in Q2. As for industry growth, I do not have clear data to compare our performance against competitors.

Next, we have Elsie Sheng from CLSA.

So my question is about the summer enrollment. Since we are now in the summer, I would like to see if you have any color on the summer student recruitment, such as the new student enrollment growth and also the retention rate? Additionally, do you observe any changes on the demand side?

The demand is slightly less than we expected compared to a quarter ago due to the overall economic situation. Nonetheless, I think the K-12 business is still performing well, even within the industry. I believe the industry continues to show growth and we are gaining market share. As I stated, starting from Q2, we expect revenue growth to accelerate again. Currently, we have not concluded the enrollment window for the summer, so I will share the enrollment numbers in the next quarter's earnings call. The retention rate is still rising, both for the K-9 business and the high school business.

Thank you. We are now approaching the end of the conference call. I will 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.