TAL (TAL) Q3 2026 Earnings Call Transcript

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Date

Thursday, January 29, 2026 at 7:00 a.m. ET

Call participants

• President and Chief Financial Officer — Alex Peng
• Deputy Chief Financial Officer — Jackson Ding
• Director of Investor Relations — Fang Liu

Takeaways

• Net Revenues -- $770.2 million, increasing 27% year over year, representing 5,480.4 million RMB with a 26.8% increase in local currency terms.
• Gross Profit -- $431.8 million, up 35% year over year, resulting in gross margin expansion from 52.7% to 56.1%.
• Non-GAAP Operating Income -- $104.0 million compared with a non-GAAP operating loss of $1.9 million in the prior year period.
• Net Income Attributable to TAL -- $130.6 million versus $23.1 million the previous year; non-GAAP net income rose to $141.4 million from $38.6 million.
• Cost of Revenues -- $338.4 million, up 18% year over year, while non-GAAP cost of revenues increased 18.4% to $338.0 million.
• Selling and Marketing Expenses -- $220.1 million, a 2.8% decrease from $226.4 million; non-GAAP selling and marketing expenses fell 2.1% to $217.6 million, moving from 36.7% to 28.3% of net revenues.
• General and Administrative Expenses -- $118.6 million, up 7.1%; non-GAAP G&A rose 10% to $110.7 million, but fell as a share of revenue from 16.6% to 14.4%.
• Share-Based Compensation Expenses -- Total decreased by 30.2% to $10.8 million compared to $15.5 million last year.
• Operating Segment Dynamics -- Peiyou and online enrichment programs both saw year-over-year revenue growth fueled by rising enrollments and sustained user engagement.
• Learning Devices -- Delivered year-over-year revenue and sales volume growth; user engagement was reflected by a weekly active rate around 80% and average daily usage near one hour per device.
• Learning Device Product Mix -- The blended average selling price (ASP) remained below RMB4,000, indicating a shift in product mix.
• Learning Device Profitability -- Segment reported an adjusted operating loss as it remains in an investment phase targeting long-term competitiveness.
• Cash, Investments, and Restricted Cash -- Totaled $3.96 billion as of November 30, 2025, comprising $2.15 billion in cash and equivalents, $1.47 billion in short-term investments, and $339.3 million in restricted cash.
• Deferred Revenue -- Reported at $1.16 billion at quarter-end.
• Operating Cash Flow -- Net cash from operating activities reached $526.7 million for the quarter.
• Share Repurchase -- Company repurchased 844,856 shares for a total of $27.7 million between October 30, 2025, and January 28, 2026, under a $500 million buyback program authorized in July 2025.
• Product Innovation -- Recent launch of the X5 Classic Learning Device aims at the mid-price segment, expanding the product lineup with enhanced AI-based educational features.
• AI Engagement Metrics -- The embedded AI assistant "Xiao Si" logged one billion activations as of December 2025.
• National Standard Participation -- Company contributed to China's new national standard on mobile learning terminal functionality, emphasizing industry-wide product quality and safety.

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Risks

• President and Chief Financial Officer Peng stated, "we may face occasional variability and limited visibility in our financial performance due to seasonal demand shifts, competitive pressures and deliberate resource reallocation."
• Deputy Chief Financial Officer Ding said, "For learning device business, we reported adjusted operating loss this quarter. As we've emphasized."
• Management indicated that "quarterly margin fluctuations" will occur as the portfolio mixes mature and investment-phase business lines, cautioning "against using this quarter's margin performance as a benchmark for future periods."
• Year-over-year growth rates are expected to "moderate in the second half of this fiscal year," with top-line growth anticipated to decrease due to a higher comparison base.

Summary

TAL Education Group (NYSE:TAL) reported a 27% revenue increase and a significant rebound in operating profitability, with substantial gross margin improvement. Management noted stable growth in both the core Peiyou and online enrichment offerings, supported by robust student demand and high user engagement metrics. Investments remain focused on AI-driven product development and expanding the learning device portfolio, though the learning device segment is still operating at a loss. Strategic commentary highlighted the company's resource reallocation and market-responsive execution, with explicit warnings regarding near-term financial variability and an expected moderation of revenue growth in the second half.

• The company executed $27.7 million in share repurchases as part of an active $500 million program, supporting shareholder value.
• TAL played an advisory role in the development of new Chinese national standards for mobile learning terminal functions, reflecting ongoing regulatory engagement.
• AI integration milestones were cited, including one billion user activations of the "Xiao Si" assistant, as part of TAL's effort to advance adaptive education technologies.
• Liquidity remained robust, with total cash and investments approaching $4 billion on the balance sheet at quarter-end.

Industry glossary

• Peiyou: TAL's branded small-class offline enrichment programs targeting K-12 students with a standardized curriculum format.
• Learning Devices: Hardware products integrating educational content and AI functions, designed to serve as personalized learning companions for students.
• Xiao Si: TAL's proprietary embedded AI assistant designed to facilitate interactive learning support on the company's devices.
• Double 11: China's annual November 11 e-commerce promotion period, heavily influencing consumer electronics and education product sales cycles.

Full Conference Call Transcript

Fang Liu: Thank you all for joining us today for TAL Education Group's third quarter fiscal year twenty six Earnings Conference Call. The earnings release was distributed earlier today and you may find it on the company's IR website, also the newswire. During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding will be available to answer your questions. Before we continue, please note that today's discussions 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 our 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 and this call include discussion 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 to turn the call over to Mr. Alex Peng, Alex, please go ahead.

Alex Peng: Thank you, Fang, and thanks to all of you for participating in today's conference call. Over the past fiscal quarter, we continue to make steady progress on our strategic priorities. With a consistent focus on supporting the holistic development of our students. Our commitment to innovation, user engagement, and service quality continues to guide our efforts as we refine our offerings and adapt to the evolving learning landscape. Guided by these objectives, our core businesses have continued to operate with stability and consistency. At the same time, we recognize that changes in the market demand and advances in technology continue to introduce new dynamics.

Across several of our newer initiatives, including the learning devices business, we face a highly competitive environment. In areas like content, hardware and AI. In response to this evolving environment, we'll continue to advance our strategic initiatives and flexibly allocate resources to build long term capabilities. Consequently, we may face occasional variability and limited visibility in our financial performance due to seasonal demand shifts, competitive pressures and deliberate resource reallocation. While these factors may cause short term fluctuations, we remain focused on building the long term capabilities needed to seize the opportunities in the market.I will now provide detailed updates starting with our Q3 FY twenty six performance.

During the quarter, our learning services recorded year over year revenue growth across both offline Peiyou programs and online enrichment offerings. This was driven by sustained user demand and reflects our commitment to providing students with high quality learning experiences through a diverse portfolio of the enrichment programs delivered in both offline and online formats. Meanwhile, we maintain a disciplined approach to expanding the Peiyou learning center network. Balancing demand with operational capacity, efficiencies and long term sustainability. Positive feedback from parents and students alongside solid operating metrics such as retention rates, affirms the trust placed in our products and the consistency of our service standards. Our online enrichment learning programs also maintain year over year growth during the quarter.

By leveraging technology driven innovation, we continue to enhance users' learning experience. Building on this approach, we introduced immersive classroom solutions to improve engagement and learning outcomes. We also extended our offerings to include more technology themes such as three d printing, with the goal of fostering interest in emerging technologies and supporting future skill development.Alongside our learning services, our content solutions encompass a wide range of offerings. With learning devices remaining a key focus for our long term development. The learning device market continues to evolve, shaped by ongoing advancements in hardware, software and AI technologies.

Given this context, we are focused on further enhancing our devices across three key areas: User learning experience, AI enabled capabilities, and overall effectiveness. Compared with general purpose AI models, we believe an educational AI agent should go beyond simply providing students with correct answers. We believe they should focus on guiding students through the learning process. Adapting explanations to their level of understanding, diagnosing learning gaps, and supporting personalized learning path. Building on this vision, we have incorporated over two decades of educational insight into the interaction logic of our learning devices.

Instead of simply providing answers, our devices are designed to apply structured instructional processes and guided teaching approaches with the aim of approximating one on one tutoring experiences. This design enables them to function not only as tools for problem solving, but also learning companions that provide individualized support. Looking ahead, we'll continue to enhance our AI functions including capabilities in problem solving, explanation and other forms of learning assistance. Our goal is to steadily evolve our learning devices into personalized AI companions that inspire thinking and support deeper learning.In addition to learning devices, we're also exploring new product formats to address a range of use cases.

At CES twenty six, we showcased several early stage concepts including our AI buddy, which received industry CES picks award. Designed for children aged six to 12, the smart companion uses interactive features such as voice, touch, and motion based interactions to support age appropriate engagement. These initiatives reflect our broader exploration of how technology can support children's development in learning related and everyday use scenarios, and with a continued focus on responsible design and practical application. So with that overview, I'd like to turn to our financial performance for the quarter. Our net revenues were $770,200,000 or 5,480,400,000.0 for the quarter representing year over year increases of 27% and 26.8% in U.S. dollar and RMB terms respectively.

Our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter were US$104.0 million dollars and US$141.4 million dollars respectively. I will now hand the call over to Jackson who will provide an update on the operational developments across our core business lines and a review of our financial results for the fiscal third quarter. So Jackson, over to you.

Jackson Ding: Thank you, Alex. I am pleased to walk you through our operational highlights and financial results across our core businesses for the third fiscal quarter. Please note that all financial data for the quarter are unaudited. During the quarter, Peiyou small class enrichment programs demonstrated stable operations delivering year over year growth driven by increased enrollment. We continued to expand access to high quality enrichment learning programs for a broader user base. Supporting students' holistic development. In our online enrichment learning programs, we have embraced a technology driven approach to enhance the learning experience. For instance, some of our humanities courses now feature immersive online classrooms powered by virtual settings and interactive activities.

Designed to boost student engagement and support learning outcomes. Students role play as protagonists from classic literature and collaborate with peers to complete themed challenges, deepening their grasp of character traits and story backgrounds. These immersive programs also incorporate gamified learning mechanisms during class to promote learning and comprehension, followed by out of class challenges that encourage reinforcement of key concepts. This cyclical engagement helps students internalize the material while building the language skills and knowledge needed for effective expression. Looking ahead, we will continue to build on this foundation by further integrating technology into our engagement tools and instructional design. This effort will be supported by sustained investments in content, product development, and services.

Our focus remains on the continuous improvement of learning experience with the goal of supporting student engagement while meeting the evolving demands of online learning.Next, let's turn to our learning device business. Our diverse portfolio equipped with intelligent features and learning resources is designed to empower users on their self learning journeys. Operationally, our learning devices delivered year over year growth in both revenue and sales volume this quarter. The average weekly active rate among learning device users remained at approximately 80% with average daily usage per active device at approximately one hour. These metrics reflect sustained engagement even as we expanded both our product lineup and our user base.

On the product innovation front, as Alex highlighted, we are transforming learning devices into more intelligent learning tutoring AI companions rather than simple problem solving tools. Our AI Thinky one-on-one, the interactive step by step tutoring AI companion embedded in our learning devices, has facilitated over hundreds of thousands of hours of guided learning. Meanwhile, our AI assistant, Xiao Si, remains a trusted companion for users. As of December 2025, students have activated it 1,000,000,000 times. These developments reaffirm our belief in AI's role in supporting students' learning and development.Earlier this month, we launched the X5 Classic Learning Device, positioned as a comprehensive solution for the mid price segment. This new product further expands our product lineup.

Designed as an all rounder, the X5 integrates a systematic learning platform with specialized modules with the aim of structuring and supporting self directed learning. Beyond our business progress, we contributed to the ongoing development of the industry. In October, the standardization administration of China released the national standard for mobile learning terminal function requirements. By sharing practical insights from our device ecosystem, we participated in the formation of the standard. We believe that well defined standards help elevate product quality, protect user interests, and support the industry's sustainable development. That concludes the operational update.And I'd like to now walk you through our key financial results for the third fiscal quarter. Our net revenues were $770,200,000 or RMB5,480.4 million.

An increase of 27% and 26.8% year over year, in US dollar and RMB terms, respectively. Cost of revenues increased by 18% to 338,400,000.0 US dollars from 286,700,000.0 US dollars in the 3Q FY 2025. Non-GAAP cost of revenues which excludes share based compensation expenses, increased by 18.4% to 338,000,000 US dollars from 285,400,000.0 US dollars in the 3Q FY 2025. Gross profit increased in the 3Q FY 2026, rising by 35% year over year to 431,800,000.0 US dollars from 319,800,000.0 US dollars for the same period last year. Gross margin increased to 56.1% from 52.7% for the same period last year.

Selling and marketing expenses for the quarter were US$220.1 million dollars representing a decrease of 2.8% from 226,400,000.0 US dollars for the same period last year. Non-GAAP selling and marketing expenses which exclude share based compensation expenses, decreased by 2.1% to 217,600,000.0 US dollars from 222,400,000.0 US dollars for the same period last year. Non-GAAP selling and marketing expenses as a percentage of total net revenues decreased from 36.7% to 28.3% year over year. General and administrative expenses increased by 7.1% to 118,600,000.0 US dollars from 110,700,000.0 US dollars in the same period of last year.

Non-GAAP general and administrative expenses which excludes share based compensation costs, increased by 10% year over year to 110,700,000.0 US dollars from 100,600,000.0 US dollars for the same period of last year. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 16.6% to 14.4% year over year. Total share based compensation expenses allocated to related operating costs and expenses decreased by 30.2% to 10,800,000.0 US dollars in the 3Q FY 2026 from 15,500,000.0 US dollars in the same period of last year.Income from operations was 93,100,000.0 in the 3Q FY 2026, compared with a loss from operations of 17,400,000.0 in the same period of last year.

Non-GAAP income from operations which excludes share based compensation expenses, was US$104.0 million dollars compared with a non-GAAP loss from operations of 1,900,000.0 US dollars in the same period last year. Net income attributable to TAL was $130,600,000 in the 3Q FY 2026, compared to net income attributable to TAL of US$23.1 million dollars in the same period of last year. Non-GAAP net income attributable to TAL which excludes share based compensation expenses, was 141,400,000.0 US dollars, compared to a non-GAAP net income attributable to TAL of 38,600,000.0 US dollars in the same period of last year. Moving on to our balance sheet.

As of 11/30/2025, we had 2,146,300,000.0 US dollars in cash and cash equivalents, 1,471,100,000.0 US dollars in short term investments and 339,300,000.0 US dollars in current and noncurrent restricted cash. Our deferred revenue balance was 1,162,800,000.0 US dollars, as of the end of the third fiscal quarter. Now turning to our cash flow statement. Net cash provided by operating activities for the 3Q FY 2026 was 526,700,000.0 US dollars.Finally, I would like to briefly address our share repurchase program. In July 2025, the company's Board of Directors authorized a new share repurchase program. Under the program, the company may spend up to approximately $500 million dollars to purchase its common shares over the next twelve months.

Between 10/30/2025, and 01/28/2026, the company has repurchased 844,856 common shares and an aggregate consideration of approximately 27,700,000.0 US dollars. That concludes the financial section. Alex, I will now hand the call back to you for business outlook. Alex, please go ahead.

Alex Peng: Thanks, Jackson. I'd like to share some thoughts on our outlook for the company's future development. We view the intersection of learning and technology as one of our long term strategic priorities. By integrating technology with our industry expertise, we aim to continue enhancing our product design and service delivery across our businesses. In addition, we are strengthening our go to market capabilities. For newer businesses such as learning devices, we are implementing more agile channel management strategies, dynamically optimizing resource deployment based on market conditions, and performance indicators. At the same time, we are reinforcing our multi channel ecosystem by combining digital and physical touch points to broaden market reach and user engagement.

From a financial perspective, as I mentioned previously, improving overall profitability remains a key priority for us. At the same time, we remain mindful of near term variability which may be influenced by factors such as market conditions, investment cycles, and seasonal fluctuations. These factors may also require timely adjustments to our operational execution, potentially resulting in limited short term visibility. Nevertheless, we'll continue to advance our strategic initiatives and strengthen capabilities across our core business lines. Maintaining a focus on long term sustainable development rather than short term financial outcomes. So, that concludes my prepared remarks. Operator, we are now ready to open the call for questions. Thank you.

Operator: We will now begin the question and answer session. You may press star then 1. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question today comes from Felix Liu with UBS. Please go ahead.

Felix Liu: Thank you, Alex and Jackson for taking my question and congratulations on the very strong quarter. If my memory is correct, this is probably the highest level of the November margin since 2018. So congratulations on that. My question is related to offline Peiyou small class. Could management provide some update on the learning center network expansion in Q3? And your latest perspective on the pace of expansion going forward? With respect to Peiyou revenue, what has been the key drivers of your year over year growth? And could you provide more color on the upcoming winter season as well as growth outlook from here? Thank you.

Alex Peng: Thanks, Felix. This is Alex. Let me first of all thank you for your kind remark and your continued long term attention to the company. Let me take this question. So I'll provide an update on Peiyou's Q3 performance and outlook. During the third fiscal quarter, Peiyou offline enrichment programs delivered year over year revenue growth which is largely aligned with the expansion of our learning center network. We really maintain our disciplined operational approach to network expansion. We evaluate factors such as our organizational readiness and capability, our operational efficiency, the regional market demand—really, this does come down to a very micro level of districts and neighborhood—and user acceptance of our offerings.

So based on this measured and multidimensional approach, the business remains on a stable growth trajectory. Our operating metrics, really, they show that we built a solid and sustainable business framework, and we aim to maintain this level of operational efficiency for the upcoming winter season. So when I look ahead, I think we'll continue to manage the pace of learning center expansion prudently, balancing growth with operational efficiency, and long term sustainability. So when I look at the drivers of Peiyou's year over year growth, revenue growth during the quarter was primarily driven by increased enrollments while our ASP remained relatively stable.

So, this performance really reflects both market demand for high quality enrichment programs and the internal capabilities we've been developing. If you look at these capabilities: product design, service quality, and content development just to name a few. Right? So on the product and service front, we really emphasize a standardized teaching framework while fostering an interactive student centric classroom experience. On the talent front, we train our lecturers in house to ensure consistent teaching quality. So, provided that these growth drivers remain in place, we expect this business line to continue growing.

At the same time, given that we are coming off a higher comparison base and we talked about this in the past as well—it's coming off a higher comparison base than in prior years—we anticipate a gradual moderation in the pace of revenue growth in FY 2026. So, Felix, I hope that answered your question.

Felix Liu: That's clear and congratulations on the results. Thank you.

Operator: The next question comes from Charlotte Wei with HSBC. Please go ahead.

Charlotte Wei: Good evening. Thank you for taking my question and congratulations on a strong set of results. My question is related to the top line growth momentum. We noticed that the growth kind of slowed down compared to last quarter. Could you please elaborate the key reasons behind this trend? In addition, how should we think about the revenue growth outlook for different business lines, especially for learning devices for the upcoming quarter? Thank you.

Jackson Ding: Charlotte, thanks for the question. This is Jackson and I'll take this one. For your question regarding revenue trend, I think we talked about this a few times in the previous quarters. As we continue to grow, our growth rate will taper off naturally, normalizing to a more moderate growth result. More specifically, if we look at this quarter, the moderation in our top line growth was primarily driven by a deceleration in the growth rate of our learning device business, which stems from multiple factors. First, it reflects the evolving patterns in our learning device business, which is transitioning from its initial rapid expansion phase to a more sustained growth trajectory.

Another consideration is the timing of a product launch across fiscal years, creating a different kind of comparable base. If you look at last year's fiscal quarter three, for example, it benefited from late August introduction of some of our new product lines back then. While this year, our major product launches happened earlier in the year in May, boosting fiscal quarter two sales instead. So the shift in product launch cycles resulted in different sales paths between the two fiscal years, leading to a higher comparison base in quarter three of last year.Additionally, as we have consistently emphasized in the previous quarters, we continue to prioritize long term competitiveness.

By applying this philosophy across all business lines, we aim to balance sustainable high quality growth with prudent execution. Given factors such as market condition, investment cycles, and seasonal fluctuations, dynamic and timely adjustments to operational actions may be required, potentially resulting in quarterly variability in financial performance. Looking ahead, we expect continued fluctuation in learning device revenue. Now coming back to the group level, we believe year over year growth rate will moderate in the second half of this fiscal year, primarily due to a higher comparison base. Consequently, the year over year growth rate in the second half of this fiscal year is expected to be lower than in the first half.

Our growth strategy remains grounded in the value we deliver to our users and the society. This guiding principle informs our business decisions and operations as we continue to develop our business. Over the long term, we believe that sustainable growth is driven by three core factors: continuous innovation, strengthened organizational capabilities, and disciplined operational execution. By maintaining our focus on these fundamentals, we aim to support sustainable development over time as we continue developing solutions that address learning needs and contribute to education development. Charlotte, I hope that answers your question.

Charlotte Wei: This is very clear. Thank you, Jackson.

Operator: The next question comes from Li Ping Zhao with CICC. Please go ahead.

Li Ping Zhao: Good evening, Alex and Jackson. Thanks for taking my questions and congrats on a strong quarter. I have a follow-up question on the learning devices. Could you please share the Q3 sales performance of your learning device and how they performed during the Double 11 promotion period relative to management's expectations before? And how do you view the competitive landscape in the learning device market at present? Thank you.

Alex Peng: Hi, Liqing. This is Alex. Thanks for the question. So let me begin with our Q3 sales performance. We saw year over year volume growth driven by enhancements to our product portfolio and channel strategies. I also note the blended ASP remained below RMB4,000, which really reflects a shift in our product mix compared to the same period last year. Financially speaking, the learning device business reported an adjusted operating loss as it remains in an investment phase. We'll continue to allocate resources to strengthen our capabilities and support long term competitiveness in this area.

So speaking of competitiveness, if I turn to the competitive landscape question: We are really operating in a dynamic environment where artificial intelligence advancements are fundamentally transforming the educational technology landscape. Our approach really combines vertical domain large models with general AI capabilities to create more intelligent personalized learning experiences.One of the... when I think about it, one of the common challenges in at home learning involves students encountering difficult questions or unclear unfamiliar concepts, but they don't have immediate access to teacher support. Rather than simply providing answers in that moment our AI solutions really aim to emulate the human teaching methodologies. Right?

So you break down complex problems, you offer tailored explanations, you take in the student's feedback, and then you guide students through learning progression pathways. So to this end, we are developing our AI agents full stack capabilities across these diverse learning scenarios. Investment in product innovation and channel expansion continue to yield positive feedback, which really underscores the user value we're creating with our products. Our key user engagement metrics remain very solid, with an average weekly active rate exceeding 80% and then average daily user time per active device at approximately one hour. During the recent Double 11 promotion period, if you look at our market share performance, that's really aligned with our expectations.

So these outcomes, I think they demonstrate that our learning devices are gaining market traction through growing product market fit and diversified user acquisition channels. So these collectively enhance our long term competitiveness. So I'll also note that we look at AI's integration into education as a long term process shaped by technological breakthroughs and evolving market demands. So short term fluctuations are inevitable. But our commitment to the strategic business remains unwavering. Our vision really extends beyond just the current offerings. As artificial intelligence continues to advance, we aspire to bring the principle of teaching in accordance with individual aptitude to a wider scale.

So this really helps ensure that more students, regardless of where they're coming from, or what kind of learning environment they have at home, they really have the access to high quality learning resources. So, Liqing, I hope that answered your question.

Li Ping Zhao: Yes, that's very helpful. Thanks, Alex.

Operator: The next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Timothy Zhao: Great. Thank you for taking my question and congrats on the very strong results again. My question is regarding your profitability and the bottom line performance. As I think our colleague just mentioned just now, the operating margin in the third quarter reached the highest level probably over the past five years or so. Just wondering what is the main drivers ahead and also if you can share how is the operating margin performance across different major business lines in the Q3? And what is your outlook in terms of profit margin for the group and for different segments? That'll be very helpful. Thank you.

Jackson Ding: Timothy, thank you for the question. This is Jackson. Let me take this one. Let me maybe first address the key drivers of our operating margin performance this quarter. On a year over year basis, the improvement primarily reflects the volatility in our selling and marketing expenses, coupled with disciplined cost management across all business lines that continue to drive operating leverage. In this quarter, online marketing and branding expenses for our learning device business were lower compared to the same period last year. Our marketing expenditures naturally fluctuate as we dynamically adjust spending levels and marketing strategies based on market conditions, campaign performance, and strategic priorities.

As we continue building our long term core competitiveness, we actively diversify our marketing approaches across different platforms. Brand related expenses also declined during this period. On a sequential basis, online marketing and branding expenses for learning device business also declined. In addition, for online enrichment learning programs, this quarter is not peak season for online customer acquisition, resulting in lower online marketing expenditure compared to Q2. We consider these adjustments a normal part of resource allocation as we balance short term needs with the long term objectives, and the resulting margin volatility aligns with our expectation.For these reasons, we would caution against using this quarter's margin performance as a benchmark for future periods.

For learning device business, we reported adjusted operating loss this quarter. As we've emphasized, we prioritize establishing long term competitiveness over short term profitability for this emerging business. The breakeven time line remains uncertain. We are continuing to refine our offerings through new product development, content expansion, AI driven user experience enhancement, and ongoing optimization in operations and sales channels. Looking at our overall margin profile, it is important to note that we are managing a portfolio comprising both mature profitable businesses and newer initiatives still in the investment phase. This dynamic will result in quarterly margin fluctuations, making it inappropriate to extrapolate current results as indicative of future trends. Timothy, I hope that answers your question.

Timothy Zhao: Sure. Thank you for the color.

Operator: This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Alex Peng: Thanks to everyone again for joining us today. As it is that time of the year, I also bid you an early happy Chinese New Year. And we'll talk to you next quarter. Thank you. Bye.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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