Good evening and thank you for standing by for New Aurento's FY2026 Second Quarter Results Earnings Conference Call. At this time, all participants are in this unknowingly mode. After management preparing remarks, there will be a question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Ms. C.C. Zhao. Thank you. Please go ahead.

Thank you. Hello, everyone, and welcome to New Oriental's second fiscal quarter, 2026 earnings conference call. Our financial results for the bid period were released earlier today and available on the company's website as well as Newswear services. Today, Stephen Young, 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 Security 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 findings 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 Semester 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 are delighted to see strong profit growth, accompanied by a significant improvement in non-GAAP operating margin, up more than four percentage points, again exceeded 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 physical quarter, our K9 new educational business and high school tutoring business reported accelerated year-of-year revenue growth, outpacing the previous quarter. Overseas related business have shown resilience, delivered modest revenue growth despite the ongoing macroeconomy headwind exceeding our earlier conservative expectations. Overseas tax price business recorded the revenue increase of four percent year-over-year. Overseas study consulting business recorded a slightly decrease of about three percent year-over-year. Our adults and university students' business recorded the 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, deliver solid, sustainable results. Revenue from this business grew 22% year-over-year this quarter. Our non-academic tutoring business has soon been rolled out to around 60 existing cities. market penetration has grown steadily particularly across high tier cities the top 10 cities contribute over 60 of the revenue as for our intelligence learning system and device business that has been launched in around 60 cities were encouraged by improved customer retention and scalability of the new initiative the top 10 cities contribute 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 when the top 10 cities contribute over 50% of the revenue. In parallel, our newly launched tourism offering for middle-aged and senior citizens have been well expanded, has been well received, now available in 30 key provinces in the national markets. So 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 are now also exploring opportunities in the health and wellness sector for seniors. We are partners with over 30 health and wellness spaces in locations such as Hainan, Yunnan, and Guangxi, piloting this segment with a light abstract model. With regards to our OMO system, our efforts in developing and revamping our online merging offline teaching platform continues. These efforts aim to deliver more advanced and diversified education service to our customers of all ages. A total of $28.4 million has been invested during this quarter to upgrade to 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 an embedded 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 an industry leader, we are dedicated to driving long-term revenue growth through dual focus on products in innovation and operational efficiency. In the upcoming quarters, we look forward to showing tangible results and positive highlights on performance that are backed by our investment in AI. Now, turning to the EastBuy's performance, I'm pleased to share that during the reporting period, EastBuy remained customer-centric and made strong progress in both product development and supply chain enhancements. EastBuy has expanded beyond its original focus on fresh foods and snacks to offer a broader, more diversified product range. As of the end of the period, private label SPUs reached 801. New categories include seafood, health care products, kitchen condiments, meat, eggs, dairy, and personal care, household and cleaning items, paper goods, home textiles, apparel and underwear. These offerings are thoughtfully created to meet customers' growing demand to health, quality of life, and convenience. They contribute to both sales and profit growth to the group, while further optimizes product mix. Beyond expanding FDUs, EastBuy also focused on product iteration, cost efficiency, and targeted marketing to build blockbuster products that resonate strongly with the customers. At the same time, EastBuy began exploring offline channels, leveraging strong brand recognition, and new orientals 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 is the buy refocused and back on track making a positive contribution to the group both top line and bottom line we expect is the buy to contribute contribute more revenue and profits to the group in the 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.

Sisi Hoang- Thank you, Stephen. Let me now work you through the key financial highlights for the quarter. Operating cost and expenses for the quarter were $1125.1 million, representing a 10.4 percent 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 cost expenses, increased by 156.8% to $21.4 million in the second fiscal quarter of 2026. Operating income worth $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 $0.29 and $0.28 respectively. Non-GAAP net income, attributable to New Oriental for the quarter, were $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 $0.46 and $0.45 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 30, 2025, New Oriental has 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 investment. Near-Intel's deferred revenue, which represents cash collected upfront from customers and related revenue that will be recognized as a service of goods were 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-over-year, year-on-year. Now I'll hand over to Steven 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 the fiscal year, 2020. 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, for strategic approach to capacity expansion and hiring, ensuring that growth does not come at the extent of quality. We plan to deepen our presence in cities that demonstrate strong top and bottom line performance. We are continuing to manage the resource carefully. We will closely monitor the pace and scale for new options, 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 the recovery of East Dubai, we are now in a more optimistic position regarding our business outlook. We expect the total net revenue for the group, including East Dubai, in the third quarter of the 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 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-of-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 would 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 adopt three-year shareholder return plan, the board of directors had approved an ordinary dividend of 0.12 US dollar per common share or 1.2 US dollar per ADS to be distributed in two installments as part of the shareholder return for the fiscal year 2026. As of today, the first installment has been fully paid to shareholders and ADIs holders. Details of the second installment will be determined and announced in due course. Additionally, we also announced a share repurchase program in which new rental is authorized to repurchase up to $300 million of its ADIs or common shares over the subsequent 12 months. As of January 27th yesterday, we had repurchased a total of approximately 1.6 million ADS for a great consideration of approximately $86.3 million from the open market and 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 province provinces and municipalities in china to ensure full compliance with the relevant policies regulations measures and to adjust our operations as needed in this response this is the end of our fiscal year 2026 q2 summary at this point i would like with sissy to open the floor for questions operator please open the call for this thank you thank you the question and answer session of this conference call will start in a moment in order to be fair to all callers who wish to ask questions we will take one question at a time from each caller if you have more than one question please request to join the questions queue again after your first question has been addressed to

ask a question please press star 1 1 and wait for your name to be announced to cancel request you can press star 1 1 again question hi good evening hi good evening Steven and sister first of all congratulations on the very solid second quarter results as well as on the left to your four-year guidance my question is on your guidance, could 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 four-year guidance. Thank you.

Yeah, thank you, Felix. So let us start with this quarter's revenue growth analysis. You know, we are very pleased to see the acceleration, what I mean is the growth of the K-12 business. You know, as you know, I think this, our strategy this year is to improve the product quality and service quality. And we have seen good results in Q2, you know, we have seen the higher student retention rates and the better feedback from the customers. And so this is the K12 business. And so in Q3, I think the K-12 business will grow somewhere around 20% year-over-year or more. So let's say it's in 20% plus year-over-year growth. And overseas, yeah, overseas-related business, yeah, we need some revenue growth pressure. But I think, you know, we in the Q2, you know, we still got the top-hand growth of the overseas tax rate by, you know, 4% yield growth, and, you know, we're quite resilient. And actually, I think we are taking the market share from the market. And so in the Q3, let's say that in the second half of the year, so I believe, you know, the revenue growth will be flattish of the overseas related business. It's still a drag, but I think we will do as much, you know, as good as we can. College business, let's say the 14, 15% top line growth. And yeah, this is a breakdown. And so in the second half of the year, I think, you know, we're quite positive about the revenue growth and the, you know, even the higher margin because, you know, things last year, you know, March 2025, we started to the cost control. And I think we have done the great job. And going forward, we'll do more on cost control. So it will improve the margin expansion going forward in the second and a half of the year and the year after, finished.

Okay, this is great progress, and thank you.

Thank you.

One moment for the next questions. Our next question comes from Alice Chai of Citibank. Please go ahead.

Good evening, management. Thank you for taking my questions, and congratulations on the strong results. We heard about the business union integration between your tech and consulting units. Then I have two questions, quick questions. First, what is the expected margin expansion from this merge and 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 and what is your target for the cross-selling rate? Thank you so much.

Yeah, I think, yeah, I saw the news of the emerging of the Overseas TestRap business and the consulting business. And as you know, before the merging, Overseas TestRap, you know, the unit and the consulting business, you know, provide the service to their clients respectively. And each site has their own management teams, teachers, marketing staff, admin staff. And I think, you know, we now we put it together, you know, we merged the Overseas TaskRab and consultant business. And I think the merge, so let's say the restructuring aims to provide a customer with a one-stop service. And I think we will provide even the better service to the customers and also to be reduced absolutely some costs and expenses because, you know, we put it together and I think one person can do more jobs, you know, even stronger than before. So, let's wait until the next quarter's earnings call. I will share with you about how much cost we can save or even how much can get more revenue or improve the top-end growth and to save some cost to have the group margin profile. Alex, thank you.

Okay, thanks. It's very helpful.

One moment for the next question. Next question comes from Lucy Yu from Bank of America Securities. Please go ahead.

Congratulations. So, my question is on the margin expansion in the second quarter, which has been more than one 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?

Oh, yeah. Okay, yeah, Lucy, you know, I think your question is about margin. Yeah, even as I said, even though we made some margin drag from the overseas related business, but we still got the group margin session in future, you know, the non-GAAP OP margin was increased by 470 basis toward the 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 Easter pie. And I think, you know, we will, you know, continuously focus on operational efficiency and disciplined resource management, let's say, in the cost control. You know, we control the learning center expansion plan, and we control the, you know, the marketing expenses. You saw the numbers, you know, the results. And I think that going forward, even the Q3 and the Q4, in the second half of the year, we will get the margin extension, you know. I don't want to give the detail guidance because, you know, typically we don't give the margin guidance. But, you know, we are quite optimistic about the margin extension in the second half of this year.

Thank you so much, Steven.

Thank you for the next question. Next question will come from the line of Yikun Cheng from CITICS. Please go ahead. Good evening, Susan and Stephen.

Thank you for taking my question and I also congrats on the strong results. So my question is about the OAC business. As you mentioned that the OAC business has earned like 4% of growth rates. Actually the market condition is quite challenging. So, just wondering the future trends and the main reason for the, for this overseas business that can get such a good result.

Yeah, I think, yeah, as I said, you know, the overseas business, you know, needs some impacts of the economy environment, you know, outside. But I think our team have done a great job. You know, they have shown very resilient, you know, in the first half of the year. And we believe they will take in the more market share from, you know, all the competitors. And also, you know, I think the group gave the team more support than before because it needs some pressure. We should help them to do more jobs. And going forward, in the second half of the year, you know, I think I just want to give the guidance, the flattest or little bit of depth at low single digit growth because, you know, the outside environment, you know, has no change. But I believe our team will do the great job as they did in the first half of the year.

Thank you, Stephen. For the next question.

Our next question comes from DS Kim of JP Morgan. Please go ahead.

Hi, Stephen. Congrats on the great quarter, and 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 Bay, to the extent that you can elaborate? And I have my question after this.

Yeah, actually, East Dubai also reported their first half results, so you can roughly calculate. So if you take out East Dubai, all the rest together, margin expansion is roughly about 300 bps margin expansion year over year.

Thank you. And 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, like, sustainable growth rate for this segment from here? Say, assuming stable 10% capacity expansion for, like, next three to five years, say, you know, like, 10% for the group capacity expansion, maybe that means K9 capacity can grow maybe 15% per annum, and then we can add on maybe 4% or 5% of ASP growth, and a 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, like, next few years, based on this level of capacity expansion, or, you know, the growth algorithm or formula can change versus what we had in the past?

Yes, I think that is a great question. You know, we change our strategy, you know, Before the starting of this fiscal year, we slowed down the learning center expansion from 20, 30 percent the year before to, let's say, the 10 percent. So that means we put more focus on the quality and quality improvement. So I think all the business line, even the high school and the K9 business, the student retention rate is getting higher. You know, I think it's even better than expected. And also, that means we got the better word of mouth. So we don't need to spend like crazy marketing expenses to acquire the new student enrollment. That means, you know, we get the new student enrollment by better word of mouth. And so I think in the second half of the year, you know, we got 20% plus the top-end growth of the K-12 business. I believe we will keep the sustainable growth in the year after because, you know, the better quality and also the even the more the high, the competitive, the edge of new rental. So I think we we deserve to get more students, new student enrollment, you know, we cut some market advances and and also, you know, definitely will see more leverage because, you know, we're just open like 10 percent new learning centers, but you know, the revenue growth is something somewhere around 20 percent. So it will you will see the higher utilization rate and the higher margin of the catalyst. Yes.

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

And also, you know, I want to add one point to Stacey's comments. You know, in the Q3, I would believe we get the margin improvement from both core business and East Dubai.

Thank you, sir.

Thank you for the questions. As a reminder, to ask questions, please press star 1-1 and wait for our name to be announced. Our next question comes from Timothy Chow of Goldman Sachs. Please go ahead.

Hi, Stephen. Congrats on the study results. So my question is that I recall in the last quarter of the results, you mentioned that I think about some of the new AI initiatives that you are launching. I'm just wondering if you can share any tangible results or any updates on the AI investments that you are making. for example, of a new course format that you launched probably in the late last year. Just wondering if there's any advice on that. Thank you.

I think, you know, in the last three months, I think our team, you know, have done a lot on the new offerings of the new AI product. And I think we need one, maybe one quarter to testify, you know, the new offerings. And also, you know, and I believe it will contribute more revenue going forward. And one more point is, you know, even the I think the AI technology help us on the existing product. You know, you're slowly higher student retention rate. Yeah, we, we put more focus on the like the product quality and even service quality. But I do believe the AI helps us to guide the even higher the student retention rate going forward. So and also the AI help us to get more efficiently efficiency to save some expenses and cost. So AI helps the whole group, you know, three points, new offerings, and the, the, the existing product improvement and the cost saving. So, you know, I think we should spend a little bit more on AI technology, but it's not that much and 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.

Moment forward, the next question. Our next question comes from Elsie Sheng from CLSA. Please go ahead.

Hi, Steven, 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. And because I noticed that you earlier mentioned that you have initiated a cross-department customer service system to improve the service efficiency and also reduce the customer acquisition cost. So, I wonder if the decrease in the market expense ratio related to this initiative, and if it's so, how do we expect the impact of this going forward? Do we expect this trend of lower market expense ratio to continue in the next few quarters? Thank you.

I think the situation will continue because, you know, yeah, first of all, we put more focus on the product itself rather than spend, you know, more money on marketing. But the growth is still very healthy. And also, as you said, you know, we set up a new customer service department and, you You know, 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 other businesses, and the tourism business at the East Dubai. So I think these new departments will bring us, you know, more traffic, even within New or rental customer resources so this is a I think that is a very good tool to save more marketing expenses and also you know we just set up the 10% new learning center this year so we don't need to spend more money on marketing and yeah even in the q1 you know some I know some competitors You know, there's some summer promotion where even the free course in the summer, but, you know, we have, we are happy to see more students from our competitors came back to New Oriental in autumn. So that means, you know, our core competency or the product quality of quality turns to be better. And going forward, I think the selling marketing expenses as the percentage of the revenue will go down Going forward in the second half a year and a year after.

Thank you.

It's very helpful Thank you Thank you for the questions. We're now approaching the end of the conference call I'll now turn the call back to you around those executive president and CFO.

Mr. Steven young 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 thank you very much that does conclude today's conference call thank you for your participation you may now disconnect your lines