Ladies and gentlemen, thank you for standing by and welcome to Q4 and FY2020 TAL Education Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would like to hand over the conference over to your first speaker today, Echo Yan, IR Director of TAL. Thank you. Please go ahead.

Thanks, Operator. Thank you, all, for joining us today for TAL Education Group's fourth fiscal quarter and fiscal year 2020 earnings conference call. The earnings release was distributed earlier today. You may find a copy on the Company's IR website as well as the newsletter. During this call, you will hear from Chief Financial Officer, Mr. Rong Luo; Linda Huo, Vice President of Finance; and myself, IR of TAL. Following the prepared remarks, Mr. Luo and Ms. Huo will be available to answer your questions. Before we continue, please note that the discussions 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 are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in public filings with the SEC. For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release in this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would like now to turn the call over to Mr. Rong Luo. Rong, please.

Thank you, Echo. Good evening, and good morning to you all. Thank you for joining us today on this earnings call. Before I reflect on our company performance, please allow me to say a few words about the current extraordinary time in China and worldwide. We would like to express our sincere sadness for the great loss of life and our sympathy to those who lost their loved ones and to all the others who have directly suffered from this tragic pandemic. But also extend our deep gratitude and appreciation to people from all walks of life, including our employees who have been working hard and doing absolutely everything to fight against this epidemic. Our first fiscal quarter revenue performance was impacted by the outbreak of COVID-19 in China and our precautionary measures with respect to the offline business. The negative impact on our offline business was partially offset by the growth in the student enrollments in online courses and related revenues for the quarter. Net revenue growth in the fourth quarter was 18% year-over-year in U.S. Dollar terms to US$857.7 million and 21% in RMB terms, which is in-line with our forecast reflected in our pre-announcement on February 28. After the outbreak of COVID-19, total normal priced long-term courses student enrollments increased by 56.6% year-over-year, mostly driven by online enrollment, as well as Xueersi Peiyou small class. GAAP loss for operations was US$41.3 million compared to GAAP income from operations of US$114.7 million in the same period of the prior year. Non-GAAP loss from operations was US$8.4 million compared to non-GAAP income from operations of US$157 million in the same year ago period. As we previously announced on April 7, we discovered certain employee wrongdoing in relation to compliance issues in our routine internal auditing process. There was a total revenue impact of around US$86.1 million, or RMB600 or US$2.6 million in the first three quarters of fiscal 2020, as well as corresponding impacts to other financial metrics after each quarter of fiscal 2020. The details are available with our earnings release published a few hours ago. I would like to reiterate that we will always follow the highest standards of corporate governance and always have zero tolerance for any illegal conduct. I will now turn the call over to Linda Huo, our Vice President of Finance. She will give you an update on our operational progress in the fourth quarter; next, Echo, our IR Director will review the fourth quarter financials. After that, I will update you on our business strategy and discuss our business outlook. Linda, please.

Thank you. I will review the various revenue streams of our tutoring business for the fourth quarter. Let me start with small class and other businesses which consist of Xueersi Peiyou small class, First Leap, Mobby, and some other education programs and services. These account for 68% of total net revenue compared to 76% in the fourth quarter. The revenue growth rate was 6% in U.S. dollar terms and 9% in RMB terms. The lower than year-over-year revenue growth rate was mainly due to two factors: first, the price guide refund we offered in February where we had to migrate a new offline small class students to online small class; second, the impact from term rescheduling. In this period, during the winter semester, we migrated all our offline business to our online platform. As you know, Peiyou online average selling price or ASP is lower than that of Peiyou offline. We offered our customers the pricing refund as compensation for not providing perfect service on account of a brief transition, preparation and teacher training time available. Furthermore, we also changed the scheduling of our interim classes to fully comply with relevant education policies. As a result, Xueersi Peiyou small class' fourth quarter revenue reflects the impact of these factors. Let me emphasize that we are impressed by the immediate flexibility that our teachers, students, and parents have demonstrated in light of this urgent transition. Xueersi Peiyou small class which remains our stable core business represented 59% of total net revenue in the fourth quarter compared to 66% in the same year-ago period. The lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which accounted for 24% of total revenue in the quarter compared to 17% in the same period last year. Net revenue from Xueersi Peiyou small class was up by 6% in U.S. dollar terms and 8% in RMB terms. Our normal-priced long-term class enrollments increased by 37% year-over-year. In Q4, normal-priced long-term Xueersi Peiyou small class ASP decreased by 23% in RMB terms and 25% in U.S. dollar terms year-over-year. Mainly due to the pricing adjustments that we found we offered, moving offline small class to online small class in February 2020. Given the current circumstances, we will now separately disclose offline and online Peiyou performance until the period is over. Our offline business will have been resumed. Due to the impact of the COVID-19 outbreak Xueersi Peiyou small class revenue from the top five cities, which are Beijing, Shanghai, Guangzhou, Shenzhen, and Nanjing decreased by 3% year-over-year in U.S. dollar terms and accounted for 54% of Xueersi Peiyou small class business. Revenue generated from cities other than the top five grew by 18% in U.S. dollar terms, contributing 46% of the Xueersi Peiyou small class business. Next, I'd like to briefly discuss our Tutor one-on-one business. This business sector achieved year-over-year revenue growth of 30% in U.S. dollar terms and 34% in RMB terms. Tutor one-on-one accounted for approximately 8% of total revenue in the fourth quarter of fiscal year 2020, compared to 7% in the same year-ago period. In Q4, normal-priced long-term Tutor one-on-one courses ASP increased by 8% in RMB terms and increased by 5% in U.S. dollar terms year-over-year. Now, let me update you on our current capacity expansion strategy for the purpose of addressing the COVID-19 near-term impact. We will temporarily slow down how we spend on our current offline capacity growth plan and mainly focus on improving the utilization rate and operational efficiency. However, we are fully confident regarding the outlook of China's progress in work and school resumption in the education industry market potential. We will closely follow the government's instructions regarding offline activity resumption and adjust our capacity expansion plan accordingly, based on market demand after this special period. In Q4, we added a net of 77 learning centers mainly in December and January, before the epidemic outbreak. We opened 73 new Peiyou small class learning centers and further one-on-one centers and closed a net of 3 First Leap and Mobby centers. During the quarter, we added 963 Peiyou small class classrooms. We did not enter any new cities in the first quarter. By the end of February 2020, we had 871 Learning Centers in 70 cities, of which 69 in China have one Peiyou learning center in the United States, with 648 being Peiyou small class and international education centers, 95 newly merged First Leap and Mobby small class, and 124 being Tutor one-on-one. As for Q1 of fiscal year 2021, till now gradual work resumption in different cities is ongoing, we have conditionally granted 44 Peiyou small class learning centers. We expect to add a few more and close down some learning centers based on standard operations. These estimates reflect our current expectations, which are subject to change. Moving now to our online business. First-quarter revenue from xueersi.com grew by 68% in U.S. dollar terms year-over-year, and 72% in RMB terms where normal-priced long-term classes enrollments grew by 96% year-over-year to over US$2 million. Online contributed 24% of total revenue and 44% of the total normal-priced long-term enrollments this quarter, compared to 17% of total revenue and 35% of total normal-priced long-term class enrollments in the same year-ago period respectively. The rapid growth in the online business was supported by the current circumstances boosting the secular demand for online education, as well as sales and marketing efforts and retentions from previous quarters. In addition, in Q4, normal-priced long-term online courses ASP increased by 15% in RMB terms and 17% in U.S. dollar terms year-over-year due to the mixed change of our diversified online course offerings. With that, I will now turn the call over to Echo Yan for the updates on the fourth fiscal quarter financial results. Echo, please.

Thanks, Linda. Let me now go through some key financial points for the fourth quarter of fiscal year 2020. Gross profit increased by 7.5% to US$451.8 million from US$420.4 million in the same year-ago period. Gross margin for the fourth quarter decreased to 52.7% as compared to 57.9% for the same period of last year. Loss from operations was US$41.3 million in the fourth quarter of fiscal year 2020 compared to income from operations of US$114.7 million in the fourth quarter of fiscal year 2019. Non-GAAP loss from operations, which excluded the share-based compensation expenses was US$8.4 million compared to non-GAAP income from operations of US$137 million in the fourth quarter of fiscal year 2019. Net loss attributable to TAL was US$90.1 million in the fourth quarter of fiscal year 2020 compared to net income attributable to TAL of US$99.6 million in the fourth quarter of fiscal year 2019. Non-GAAP net loss attributable to TAL which excluded the share-based compensation expenses was US$57.2 million in the fourth quarter of fiscal year 2020, compared to non-GAAP net income attributable to TAL of US$121.9 million in the same year-ago period. From the balance sheet as of February 29, 2020, the company had US$1,873.9 million of cash and cash equivalents and US$345.4 million of short-term investments compared to US$1,247.1 million of cash and cash equivalents and US$268.4 million of short-term investments as of February 28, 2019. As of February 29, 2020, the company's deferred revenue balance was US$781 million compared to US$436.1 million as of February 28, 2019, representing a year-over-year increase of 79.1%. Deferred revenue primarily consisted of tuition classes that yield from one-off courses, as well as revenue related to other businesses. Now, I will hand the call back to Mr. Luo to briefly update you on our strategic execution and to provide you the business outlook for the next quarter. Rong?

Thank you, Echo. Let me update you on our current business development strategy. First off, I would like to express my deep appreciation for the quick adaptations that our students, parents, teachers, technology staff, and our employees demonstrated during this difficult time, which enabled us to bring all of our content services online and remain operational as much as possible. In fiscal year 2020, despite the impact of COVID-19, we realized a total net revenue growth of 27.7% in U.S. dollar terms, and 32.4% in RMB terms. Breaking down by different business lines, total net revenue of Peiyou increased by 23% in RMB terms. Xueersi.com, our online business, increased by 88% in RMB terms, while Tutor one-on-one increased by 39% in RMB terms year-over-year. Our overall revenues, as well as the major benefactors, have met our full-year expectations. On January 26, TAL announced the total encashment of RMB100 million special fund for the purpose of alleviating the impact of COVID-19; of this RMB100 million, RMB20 million is a direct donation to charity federations, and RMB80 million is for education-related investments to provide free technology, teaching, training and other necessary support for students and partners in the industry in Hubei province and all over China to continue their daily studies during this special time. Xueersi.com, our own education platform, has offered free online courses to students all over China. In addition, we have opened our smart education platform systems to public schools and medium-sized training companies. Despite the pandemic, we believe the situation in China is material improving day-by-day. We will abide by all government policies and regulations regarding the protection of public health. We will always treat the safety of our students and employees as our first priority and operate our business based on these priorities. Despite a difficult current environment, I would like to emphasize that for the long term, our growth strategy remains unchanged. We will continuously invest to improve our all-around online and offline education technologies, diversify our product and service offerings, and optimize all related promotional and operational efficiencies. All in all, as one of the leading companies in China's education market, with a long-standing record in education, technology, and services, we have full confidence in our future development. On April 28, TAL's Board of Directors authorized the repurchase of up to US$500 million of the company's common shares over the next 12 months. In addition, the company's management informed the company of their intention to repurchase up to a total of US$100 million of the company's common shares, subject to applicable rules under exchange acts. We will disclose further information on the share repurchases in accordance with the rules. Let me conclude with our business outlook. Based on our current estimates, total net revenue for the first quarter of fiscal 2021 is expected to be between US$875.4 million and US$895.6 million, representing an increase of 30% to 33% on a year-over-year basis. This does not take into consideration the potential impact of changes in exchange rates between RMB and dollars; the projected revenue growth rate is expected to be in the range of 35% to 38% for the first quarter of fiscal 2021. That concludes my prepared remarks. Operator, we are now ready to take questions.

Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Alex Xie from Credit Suisse. Please ask your questions.

Hi management, thank you for taking my questions. Hopefully, you could share more details about your guidance for the first quarter of FY21 in terms of outlook in different business lines? Secondly, what will be the expectation for the margins in the first quarter of FY21? And we have seen massive investments in online, what do you plan for the first quarter of FY21 for online investment plans? Thank you.

Thank you, Alex. Just as we know, Q4 was a very difficult time and even coming closer to Q1, like March and April, it still wasn't a good time for us. All of our current business was under high pressure, the same as our counterparts in this industry. Let me try to give you more clarity on my Q1 guidance. I'll split it into three segments: number one, the Peiyou small class business. Right after Q4 in February, the outbreak surprised us; we had very little time to move the students from offline to online. In Q1, we did a much better job than what we did in Q4, so we expect to maintain healthy growth in the range of 20% to 30%. The one-on-one business, which was also impacted by the outbreak of COVID-19, we also moved students from offline to online, but the growth of this segment may only be in the high single digits. Number three segment is our Xueersi Online School. Its growth has been accelerated by this tough situation because online became the only available offering to the students to continue studying. Therefore, Xueersi Online school business is projected to see triple-digit growth. Our Q1 guidance reflects all of the key information from our mainstream business, and this guidance does not include any acquisitions or other activities. Regarding your question about margins, similar to our counterparts, Q1 margins are also under pressure. Let me provide more clarity. In the Xueersi Online School business, we are continuously offering free courses to K-12 students all over China, starting from February and continuing possibly into March and April. Most of these are free classes, which will cost us some money. The number of online students experienced significant growth, which requires investments in teaching quality. We need to ensure we have well-trained teachers and adequate teaching assistants to maintain quality. Additionally, we must optimize our online teaching technologies and enrich our product offerings. We also plan to invest in sales and marketing efforts, especially since we are seeing more students from lower-tier cities, which were not our usual targets. Overall, our expense from these areas will decrease our margin in Q1. However, our main focus is on student satisfaction, and we believe these are necessary short-term investments for our long-term vision.

Just a quick follow-up. Do you think the online investment in the coming two quarters will be front-loaded, or will the online investment for the whole year of FY21 be increased?

To clarify your question; do you mean the investment in Q1 will lead to…

Because I think in this year, the promotion schedule of Xueersi Online school was earlier than before; is this front-loaded schedule ending or is the whole budget more than before?

Okay. Last year, in Q1 or Q2, we were in a rush mode with promotions. This year, we are much more prepared and are spending money carefully to capture opportunity. However, it's too early to judge what the full-year number will be, as the situation is still changing rapidly. So, we will cautiously manage our investment and marketing quarter-over-quarter, and Q1 shows positive results so far.

Your next question comes from the line of Mark Li from Citi. Please ask your question.

Hi, management. Thanks for taking my question. I want to ask if this quarter's online revenue growth seems a little slow; could you share any reason for that? Also, I've noticed for the upcoming quarter, there seems to be some price adjustment for One-South. What is your strategy and how much do you think it will help going forward? Thank you.

Okay, I think Q4 online school growth was around 70%, plus or minus. Last year Q4 was a big quarter, and as we go into Q1, growth should accelerate due to special circumstances and changing conditions in the market. For the long-term outlook, we're optimistic about Xueersi Online school; we see healthy opportunities to gain market share. As for the price adjustments for One-South, the goal is to make it more accessible without creating high-priced products. The key is to take care of as many students as possible at an affordable price. While there have been drops in ASPs earlier, we expect improvements moving forward.

Your next question comes from the line of Yuzhong Gao from CICC. Please ask your question.

Hey, management, thanks for the opportunity. My question is on your offline business. Given that 73 of Peiyou learning centers were added during the quarter, which was a meaningful acceleration, how should we think about your offline strategy in 2020 or 2021? Particularly on your capacity expansion plan, are you more optimistic about this given the bigger offline market consolidation opportunity?

Thank you. Regarding the capacity plan, as mentioned, during this special period, we temporarily slowed down our expansion plans, focusing on optimizing our internal operations and controlling unnecessary costs during the COVID-19 impact period. Our company has years of experience in capacity expansion. We have the capability to adjust our near-term and long-term capacity expansion rates based on market needs, achieving a balance of online and offline investments. We all hope this epidemic can be completely controlled, and life can return to normal. Once that happens, we will follow government instructions for offline activities and act accordingly.

To add more context, we don't want to be overly optimistic or pessimistic about returning to normal offline business. The pandemic has pushed many students to adapt to studying online. Some may choose to continue online, while others may return offline. We're adopting a conservative approach to expanding our network for now. As the situation improves, we will rapidly adjust our strategy based on the market. Thank you, Yuzhong.

Your next question comes from the line of Sheng Zhong from Morgan Stanley. Please ask your question.

Thank you for taking my question. I want to follow up about the share stock compensation pricing question. You mentioned that you have more diversified courses. Can I confirm whether that includes your Pre-K new program as a whole? If so, could you provide some color on how big the program is now? Also, if we look at the Xueersi courses on the website, in the summer, the price goes up about 10% for primary school and middle school courses, and a little more for high school courses. Are we seeing surprising trends, or do you think the overall blend? Additionally, how should we look at the positioning of xueersi.com and Peiyou online?

Thank you, Sheng Zhong. Let me address your three questions. First, we have significant student enrollments in main subjects like math and Chinese online, allowing us to develop additional offerings, including Pre-K products. The program is still in its early stage, requiring patience for growth. We also expanded coding and other offerings. The goal is to leverage online technology to serve more learners at affordable prices. While we have various price points among our products, our aim is to maximize accessibility. The second question about price increases; while prices are slightly higher, we also offer many promotions. Generally, we believe that online pricing is key. Our focus is to enhance our product range while attracting more students. Regarding Peiyou live, it is connected to localized content strategies. Our online school serves a broader audience, while Peiyou live caters to local needs. Overall, we prioritize quality of service and customer satisfaction over sheer scale.

Your next question comes from the line of Felix Liu from UBS. Please ask your question.

Good evening management. Thank you for taking my question. My question is a follow-up on the online strategy. First, you previously mentioned several areas of investments such as teaching quality, technology, and selling and marketing. I'm wondering between those three, what are your priorities in Q1, and for the rest of the year, how should we rank in terms of amount of spending? Secondly, as you mentioned, there is a shift in our user base for xueersi.com. I'm just wondering what that means for our selling or marketing strategy going forward? Thirdly, could you share the size of the teaching staff for xueersi.com, including the instructors and tutors?

Let me summarize your questions. First: what is my priority of investment across different areas for Xueersi Online School? Second: what changes are in our marketing strategy, given the larger customer base in lower-tier cities? Third: what’s the size of our teaching staff? Regarding investment priorities in Xueersi Online School, teaching quality remains our top priority. Next is product and technology to manage the sudden surge in student numbers. Therefore, we are directing significant investment towards quality assurance and ongoing support for our instructors. In terms of marketing, we're cautiously exploring opportunities across multiple channels. Lastly, we focus on continuously expanding and maintaining a robust teaching staff, balancing operational efficiency with ensuring student satisfaction as a priority. Thank you.

Your next question comes from the line of Alex Liu from China Renaissance. Please ask your question.

Thank you, management. I have two questions. The first one is about Peiyou online. Currently, almost every student is shifting to online; how should we think about the standalone margin for Peiyou online? As Peiyou online grows more significant, how will this affect long-term margin targets for Peiyou small class? The second question is, for the xueersi.com business model, how important is maintaining the number one market position if competitors are losing money? Thank you.

Regarding Peiyou live, most of our students transitioned online from offline, which reduces our marketing costs, hence improving the margin outlook for Peiyou live. As the contribution of Peiyou live grows, we expect to see leverage benefits. We understand that currently moving students online has caused operating pressures, and adjustments will be made based on what we learn from responses to our services. As for your second question about the importance of maintaining the number one position in the online education sector; at our company, we greatly value quality over size. Being the largest doesn’t necessarily translate to being the best. Our emphasis on quality service ultimately leads to customer satisfaction and long-term loyalty, regardless of competitors' performance.

Thank you, ladies and gentlemen. Unfortunately, we have run out of time for further questions. This concludes today's conference call. Thank you for participating. You may all disconnect.