Gaotu Techedu Inc. Price & Performance (GOTU)

Thank you, operator.

Good evening, everyone.

Thank you for joining Gautu's fourth quarter and fiscal year twenty twenty four earnings conference call. My name is Kathryn. And I'll help host the earnings call today Gautu's earnings release for the quarter was distributed earlier. And is available on the company's IR website at ir.galtu.cn Gaotu. As well as through PR newsware services. Joining the call with me tonight from Gaotu Senior Management is Mr.

Larry Chen, Gaoutou's Founder, Chairman and Chief Executive Officer. And Ms. Shannon Shen, Xiaotu's Chief Financial Officer. Larry will first provide the business highlights for the quarter. And then afterwards, Shannon will discuss our financial performance in more detail. Following their prepared remarks, we'll open the floor to questions from analysts. Before we begin, I'd like to remind you that this conference call will contain forward looking statements. Made under the Safe Harbor provision of the U. S. Private Securities Litigation Reform Act of 1995. These forward looking statements are based upon management's current beliefs and expectations, as well as the current market and operating condition. And they involve known or unknown risks. Uncertainties and other factors all of which are difficult to predict. And many of which are beyond the company's control. And may cause the company's actual results, performance, or achievements to differ materially from those contained in any forward looking Further information regarding this and other risks is included in the company's public filings with the U. S. SEC The company does not undertake any obligations to update any forward looking statement, except as required under applicable law. During today's call, management will also discuss certain non GAAP measures, comparison purpose only.

For a definition of non GAAP financial measures, and reconciliation of GAAP to non GAAP financial results, please refer to our fourth quarter and fiscal year twenty twenty four earnings release published earlier today. As a reminder, This conference is being recorded. In addition, a live and archived webcast of this conference call will be live on Gautu's IR website. It is now my pleasure to introduce our Founder, Chairman and Chief Executive Officer, Larry. Larry, please.

Good evening and good morning, everyone. Thank you for joining us on Gaoutou's fourth quarter and fiscal twenty twenty four earnings conference call. I would like to take this opportunity to my gratitude to each of you for your interest and support of Gauthu. Before I start, I would like to remind everyone that all financial figures discussed today are quoted in RMB. Unless stated otherwise. Driven by our dual pillars of strategic focus and organizational capability enhancement. The value for customers has been comprehensively improved This quarter, we made substantial progress in both revenue growth and user expansion. Utilizing profound insights into user needs, we have developed a comprehensive spectrum of products and services that cover various learning scenarios. Further enhancing the user experience and driving some substantial high quality growth. What is particularly exhilarating is the breakthrough in cognitive reasoning achieved by AGI represented by deep seek coupled with its outstanding cost efficiency, this innovation is not merely a technological leap it acts as a powerful catalyst, surprise sparkling the development of a new generation of intelligent educational resolutions Not only does this technological advancement aligns strongly with our existing AI strategy, but it also significantly accelerates our efforts to enhance learning effectiveness and organizational [indiscernible] As you see, some of the areas are opportunity at the intersection, of technology and education.

We are proactively and vigorously pursuing the deep integration of AI within educational frameworks. We are steadfast in commitment to the core educational principles of providing per personalized and adaptive learning experiences for every learner. Our fourth quarter financial results underscore this positive momentum a dynamic growth as well as strong resilience of our business. Revenue increased by 82.5% year over year to nearly 1,400,000,000.0. With gross billions significantly exceeding our expectations up by 69% to over 2,100,000,000.0. Dollars Loss from operations narrowed by 20.6% with operating margin improving by 13.9 percentage points demonstrating our continued progress in profitability and impact of our efficiency driven initiatives Additionally, we generated a net operating cash inflow of 783,600,000.0 this quarter, bringing our cash cash equivalents, restricted cash, short and long term investments to $4,100,000,000 as of December 31, 2024. This robust cash position provides a solid foundation for our further strategic initiatives long term sustainable growth. Now I will introduce our strategic for this quarter from three perspectives. First and foremost, fully in Fully embracing our AI strategy, we are dedicated to creating a personalized, efficient and scalable system for learner growth and support. As a persistent innovation and a pioneer in the field of education, We firmly believe that the next gen [indiscernible] will suddenly transform the learning experience and significantly enhance learning efficiency.

Our years of focused efforts in the education sector and the hands on teaching experience have enabled us to accurately grasp the diverse needs of students and parents. Deeply understand their pain point in the learning process and develop keen insights into the fundamental principles of education. [indiscernible] [indiscernible] invaluable real world insights from the foundation of our innovation development enabling us to offer students more tailored and targeted learning support, making the learning process more precise, intelligent, and personalized. Moving forward, we will continue to invest in key areas such as technological development, talent cultivation and resource integration, We remain committed to exploring diverse AI driven solutions in education and fostering more personalized learning environments that help students learn in ways that best suits their needs and love their full potential and support their personal growth. As we continue to optimize the user learning experience, we are similar simultaneously translating our technological prowess into tangible educational outcomes achieving mutual reinforcement through a through systematic implementation. Our AI driven Copilot Intelligent Teaching platform is made solidly upgrading the entire educational services value chain. In certain user reducing the response time and the energy efficiency by nine forward leveraging key insights into user needs and [indiscernible] Regarding homework, AI assisted engines are boosting teacher grading efficiency by over 50% in study planning the deep sea powered cross selection model is providing students with tailored data making support This technological penetration now extends to core aspects, including research and development, and curriculum design creating a precise, intelligent and personalized educational service loop Second, we remain committed to the essence of education.

Driving sustained growth through teaching excellence. We firmly believe that refining educational products enhancing teaching quality and optimizing learning services are fundamental to building a competitive edge To this end, we continue to invest in product development, fine tuning content and fostering close collaboration between instructors and tutors to ensure seamless integrity In terms of curriculum development, we have built a diverse portfolio and competing online large classes, one on one sessions, study aids and books among others. Supported by AI driven recommendations and adaptive learning technology we are able to deliver personalized learning solutions that cater to each student's unique needs. This quarter, the retention rate for new enrollments in both our non academic tutoring and traditional learning services showed steady improvement highlighting the effectiveness of our efforts in enhancing educational products and learning services and the strong recognition of our teaching outcomes by users. Third, we actively uphold the social responsibilities aligning long term shareholder value with broader societal impact. Staying true to our original aspirations, we remain dedicated to promoting educational equal take.

As a part of this effort, we have established the Beijing foundation leveraging our advanced technology high quality educational resources to support the holistic development of rural students, broadening their perspectives and elevating the overall teaching capabilities of Zhu Zhu educators. We have also made solid progress in enhancing long term shareholder value. As of February 21, 02/2025, we have allocated nearly $47,500,000 in aggregate for share buybacks, including our 8,100,000.0 ADS bought back for US28.8 million dollars in 02/2024. This represents 3.2% of our total outstanding shares at the end of twenty twenty four reflecting a further improvement from 2023 These actions highlight our unwavering commitment to shareholder return and reinforce our strong confidence in the company's future. Looking ahead to 2025 guided by our healthy growth strategy we will further advance our AI initiatives driving innovation across the education industry while creating long term value for our shareholders, users, and society at large, Thank you very much, everyone. This is the end of my prepared remarks. Now I will pass the call over to our CFO, Shannon to walk you through the financial and operational details of the quarter. Thank you, Larry.

And thank you everyone for joining our call today. I will now walk you through our operating and financial performance For the fourth quarter and fiscal year, 2024, This year, we demonstrated strong strategic perseverance in a rapidly evolving and changing market landscape achieving key milestones in our business. As the scale of our business reaches new heights, we have established flexible and dynamic resource allocation mechanisms to continuously calibrate and guide our approach to steer the business toward sustainable Gaotu.

We ended the year on a high note with solid financial results and major business breakthroughs, Further strengthening the competitive edge of our core operations, Given the fourth quarter, our revenue grew by 82.5% year over year.

Reaching an annual peak and increased by 29.4%. Sequentially. Driven by the continued expansion of our active user base, and long term accumulation of teaching excellence. Meanwhile, gross billings maintained strong growth momentum. Rising by 69% your year.

Li's results not only underscore our business success in expanding market scale but also highlight the increasing strength of our brand influence and growing market recognition.

On the profitability front, a growing base of existing users contributed to improve margins further supported by the economics of scale, As a result, loss from operations for the quarter narrowed significantly year over year. This progress reflects our success in maintaining a healthy unit economics model and driving greater operational efficiency. Laying a solid foundation for long term growth For the full year, net revenues increased by 53.8% year over year to approximately RMB4.6 billion while gross billings grew by 68.1% year over year to over RMB5.6 billion, We generated 258,000,000 in net operating cash inflow for the year As of December 31, 2024, our total cash position including cash and cash equivalents restricted cash and short- and long term investments to do it at 4,100,000,000.0 Excluding the impact of share repurchase, our cash reserves increased by 183,900,000.0 compared to the same time last year. Ensuring ample financial flexibility to support business development YAM provides a sufficient margin of Citi for our strategic investments Next, I will walk you through the progress we have made during the quarter. Learning services contributed more than 95% of net revenues breaking it down. Nearly 85% of total revenues came from non academic tutoring services, and other traditional learning services.

Representing a triple digit year over year increase Focusing on online academic tutoring services, our new initiatives remain dedicated to driving continuous innovation in educational products [indiscernible] to enhance teaching effectiveness and the overall learning experience.

By introducing new products and diverse interactive course formats, We are constantly igniting students' interest in learning fostering cognitive growth improving practical skills, cultivating critical thinking and instilling lifelong learning During the quarter, this segment sustained strong growth momentum. Achieving triple digit year over year growth in gross billings, for the third consecutive quarters. Our ongoing refinement of both educational products and teaching approaches has also contributed to improved retention With retention rate for new students rising by more than five percentage points year over year.

Our traditional learning services continue to maintain a leading position in the online education sector. On the product development front, we further enhanced our content mode by building a comprehensive multi tiered ecosystem of teaching assistants and books to meet the diverse learning needs of students at different levels, Our self developed book series has been adopted by schools across multiple provinces in China. This highlights the strong demand for our products and expands our brand presence and market reach. In terms of teaching quality and services, key performance indicators such as retention rates, and user satisfaction remain at industry leading levels. Reaffirming the strength of our offerings. And supporting sustained healthy growth of our business. The other crucial component of our learning services Educational Services for college students and adults. Through strategic focus and streamlined optimization, core offerings in this segment gained robust growth momentum contributing nearly 15% of total revenues in the quarter. We have leveraged AI technology to enhance the teaching model for our educational services college students significantly improving teaching efficiency and enabling a sustainable increase in the tutor to student ratio. Additionally, ongoing enhancements in product and service quality further optimize the overall user experience.

Leading to a steady rise in referrals and creating a self reinforcing word-of-mouth effect. From a financial perspective, Gaut's billings for this segment grew by high double digit growth year over year this quarter. While revenue doubled compared to the same period last year, On a full year basis, both revenue and gross billings experienced rapid expansion And for the first time, the segment hit profitability on an annual basis With operating net cash inflow reaching 3.5 times that of the prior year. This marks a major milestone in our path towards more sustainable operations. Our overseas test prep business continues to demonstrate its professional value. This year, we successfully helped students gain admission [indiscernible] [indiscernible] [indiscernible] And other prestigious international universities highlighting the effectiveness of our service offerings, These achievements stem from our deep understanding of user needs and our ongoing commitment to service quality and the process excellence Looking ahead, we will remain focused on the technological innovation and deepening user value. To drive high quality growth By leveraging cutting edge AI technologies, a diverse product portfolio and unique advantage of rich learning scenarios we aim to deliver user centric personalized and high effective learning solutions establishing ourselves as the most trusted partner in every learner's journey I will now present our financials in more detail.

Our cost of revenue this quarter was 4 and 40,300,000.0 Gross profit increased 77.8% year over year to 948,300,000.0 with a gross margin of 68.3%, Total operating expenses during the quarter increased 52.2% year over year to approximately RMB1.1 billion Breaking it down, selling expenses this quarter [indiscernible] 58.1% year over year.

To 700,000,000 accounting for 53% of net revenue Research and development expenses increased 6.6% year over year to 145,100,000.0 accounting for 10.4% of net revenues. General and administrative expenses increased 81.1% year over year to $216,400,000 accounting for 15.6% of net revenues. The notable increase was attributable to our proactive talent acquisition efforts to support the expansion of our product portfolio. Including on boarding industry professionals, with extensive experience and strong management capabilities, as well as certain one time expense associated with business adjustments Loss from operations was RMB139.3 million narrowing by 20.6%. Operating margin improved by 13.9 percentage points year over year to negative 10.7% Non GAAP loss from operations was RMB167 million yen non GAAP Opium margin was negative 9.9%. Net loss was was RMB135.8 million and net income margin was negative 9.8% Non GAAP net loss was 123,500,000.0 and non GAAP net income margin was negative 8.9% Net operating inflow [indiscernible] dollars Now turning to our balance sheet. As of December 31, 2024, we held RMB1.3 billion in cash cash equivalents and restricted cash along with RMB1.8 billion in short term investments and RMB922.7 million in long term investments. This comes to a total of RMB4.1 billion As of 12/31/2024, our deferred revenue balance [indiscernible] approximately 2,100,000,000.0 primarily consisting of tuition received in advance.

As of the most recent trading day, we repurchased an aggregate of approximately 16,300,000.0 ADS on the open market for approximately 300 RMB15 million under the existing share repurchase program. We will accelerate the execution of share buybacks in the forthcoming open window in accordance with the Board of Directors' guidance, to create long term value for our shareholders. Before I provide our business outlook, for the next quarter, please allow me to remind everyone that this contains forward looking statements which involve risks and uncertainties beyond our control and could cause the actual results to differ materially from our predictions Based on our current estimates, total net revenues for the first quarter of twenty twenty five are expected to be between 1,000 RMB1408 million and RMB1228 million representing an increase of 48.7% to 50.8% on a year over year basis. This concludes my prepared remarks. Operator, we are now ready for the QE section. Thank you, everyone, for listening.

We will now begin the question and answer session. The first question comes from Elsie Shun with CLSA. Please go ahead. [indiscernible] you for taking my question and hello Larry. Shannon and Kathleen. So my question is mainly on the guidance.

You provided a strong growth, revenue growth in first quarter. Could you also elaborate more on the margin now outlook and also the guidance for 2025 full year? Okay. Welcome, Elsie, and thanks for your questions. So during our last earnings call, we shared our expectations for the overall financial performance in 2024. So looking at a full year last year, we achieved RMB5.6 billion in gross billings and RMB 4,550,000,000.00 in revenue. So in Q4 alone, our gross billings already exceeded RMB2.16 billion, contributing around 39% of the year's total. At the same time, our student enrollment actually hit a record high after the new initiatives. So given the relatively fast growth targets for 2024 we gather extensive student data and feedbacks on our products which provided a more clear direction for enhancing our product quality. This also led solid foundation for our data accumulation and experience optimization in our AI era. So also through all the factor growth process our team has undergone significant development with improvements in capabilities a cohort of outstanding leaders has merged those who excel in teaching quality particular services and operational excellence these are all the most valuable assets and achievements for our organization in the year of 2024.

So looking ahead to 2025, we will place greater emphasis on enhancing the inspiration and engagement in student learning, optimizing our user experience and ensure the scientific solution of our comprehensive learning. While at the same time, our operation will be more focused on a more efficiency driven approach On one hand, as our business continues to expand, we want to further strengthen and refine our top teaching talents. And on the other hand, we have already embedded AI into basically all aspects of our operations from content creation data feedback, and teaching support and like real time Q and A section, as well as internal process optimization, etcetera. We've been working closely with major AI large scale models to optimize all the above mentioned processes. As a result, we are highly confident in achieving greater operational efficiency enhancing profitability in 2025. So leveraging the momentum of strong growth in the Q4 in 2024, we anticipate achieving profitability at the net profit level in Q1 twenty twenty five while maintaining the fast revenue growth momentum. Thanks, Elty. Hope that address your question. Yes, it's very clear. Thank you.

The next question comes from Crystal Lee with China Merchant Securities. Please go ahead.

Okay. Thank you. Thanks management for taking my questions. And congratulations on your strong results. I just have one question on AI. Given the rapid development in AI, [indiscernible] And what measurable improvements have you seen in your business? Thank you. Thanks, Crystal, for your question. AI is a really hot topic right now and it's it's become more popular after DeepSeq launched their R1 model. So AI is reshaping education in multiple ways. Including personalized learning, automated assessment, intelligent tutoring and enhanced operational efficiencies So for us, it's both an opportunity and a challenge. Requiring a strategic approach to integration. AI can also provide personalized learning paths for each student by analyzing their data dynamically, adjusting content based on the students' learning progress, their interest and even their weakness. AI driven adaptive learning platforms will significantly enhancing learning efficiency and it can solve the problem that all the educators have been dreaming for thousands of years that we can provide a more adaptive learning content to each of the individual. So and at the same time, AI can automatically generate educational content such as exercises course outlines and even video lectures and continuously optimize them based on student feedback.

And [indiscernible] the cost of producing those educational content will decrease significantly. Update cycles will shorten and content quality will improve through AI driven optimization. Right after this earnings call, we just received a message saying that the [indiscernible] Further, reduced their cost. And AI will handle more repetitive and fundamental teaching tasks freeing teachers to focusing on individual student needs and fostering creative thinking. AI should argument not replace educators. Especially leveraging AI for efficiency while maintaining human integration sorry, interactions for creativity and emotional intelligence. AI technology will profoundly reshape education product in the medium and long term. Are intelligent tutoring and content generation and data analytics So we would actively embrace these changes investing in AI research and applications, especially for the scientific learning solutions and address data privacy and ethics concerns to ensure that these technologies can serve the long term interest of education. And through continuous innovation and optimization, we'll maintain a competitive edge in the market and provide students with more efficient equitable and personalized learning experience. And our investment in AI will focus on applications and solution [indiscernible] aiming to provide our students and parents with the learning journeys that the student really enjoy the parents can trust and that also carry warmth and aspirations This build upon our deep understanding of education products.

And our insight into the education system. And our investment will also be flexible, adapted and the development and evolution of the AI top And also as I just mentioned in my prepared remarks, actually have embedded [indiscernible] into basically all aspects of our operations already started to leverage the power of AI to improve our learning contact and basically like all the operating processes and hopefully in the near future, we can develop a really innovative and really the student can really like the learning product that we provided to them. Thanks, Crystal. Thanks.

This concludes our question and answer session. I would like to turn the conference back over to Katherine Chen, any closing remarks. [indiscernible] And thank you everyone for joining the call today. If you have any further questions, please don't hesitate to contact our Investor Relations department or our management via e mail at irgao2. Cn directly. You are also welcome to subscribe to our news alert on the company's IR website. Thank you very much again for your time. Have a great night.