Gaotu Techedu, Inc. Q1 FY2025 earnings call

• Product Innovation: Remain user-centric, driving scale and value through continuous innovation. Broaden offerings from academic tutoring to personalized learning solutions. - AI Application: Leverage AI across product, service, and operations. For example, launched Learn Spoken English with [indiscernible] program integrating AI and instructors, and developed diagnostic functions to enhance service efficiency. - Organizational Efficiency: Invest in building long-term competitiveness by enhancing organizational efficiency and talent pipeline. Leverage AI to reduce repetitive work and enhance employee satisfaction. - Shareholder Returns: Board approved new share repurchase program of up to US$100 million over next three years. Accumulated stock buybacks reached 460 million RMB, representing 9.0% of total outstanding shares as of March 31, 2025.

Learning services contributed over 95% of net revenues. More than 85% of total revenues came from net academic tutoring services and traditional learning services, representing over 80% year-over-year growth. Combined, gross earnings from these two segments increased by approximately 30% year-over-year. New initiatives in online and offline academic tutoring services had exceptional growth this quarter, with cross-fillings jumping nearly 90% year-over-year and net revenues growing at a triple-digit rate. Traditional learning services saw revenue grow over 35% year-over-year. Educational services for college students and adults each contributed 10% of total revenues this quarter, with net operating cash inflow increasing by over 84% year-over-year.

• Second quarter 2025 total net revenues expected to be between 1,298 million and 1,380 million, an increase of 28.5% to 35% year-over-year. - First and fourth quarters are key stages for concentrated profitability release. Core business remains strong with non-academic tutoring and traditional business growing at high double-digit levels. - Full-year 2025 growth targets supported by expanded user base, offline business bearing fruit, and product innovation driving referrals.

Forward-looking statements involve known or unknown risks, uncertainties, and other factors that may cause actual results to differ materially from forward-looking statements. Risks are detailed in the company's public filings with the U.S. SEC.

Q: Could you give more on margin extension drivers and full-year guidance?

A: Education business has seasonality; first and fourth quarters key for profitability release. Second quarter revenue guidance provided. Core business growth strong despite some factors.

Q: Any changes in demand side, like parents’ preference?

A: Observed changes in demand for children's comprehensive development, acceptance of tech-driven solutions, and increased demand for personalized education. Non-academic tutoring retention rate rising, AI integration enhancing teacher-student interaction.

Q: Reason for negative operating cash flow this quarter?

A: Primarily due to payment of 2024 annual bonuses and incremental labor costs. Cash invested in employees will contribute larger inflow in following quarters; expect 2025 operating cash inflow to be at least 3x that of 2024.