Q1 2023 Gaotu Techedu Inc. Earnings Call
I se.
today's event is being recorded. I would now like to turn the conference over to your first speaker today, Ms. Sherry Liu, IR manager of Gautu. Please go ahead Sherry.
Thank you for joining this first quarter conference call. It was published earlier today and is available on the company's website. Join the call with me tonight from Galtube Senior Management.
to remind you that this conference call will contain forward-looking statements as defined in the U.S. private security investigation 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 conditions, 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 cross the company's actual results, performance, or achievements.
for material from those contained in any form of a statement. Further information regarding these and others is included in the company's public fighting with the U.S. Embassy.
The company does not undertake any obligation to update any forward-looking statement except as required under applicable law. During today's call, management will also discuss certain non-GAAP measures for comparative purposes only. For definition of non-GAAP financial measures and reconciliation of gaps to non-GAAP financial se
please refer to our first quarter earnings review published earlier today. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Gautam's IR website. It is now my pleasure to introduce Larry. Larry, please. Thank you, Sherry. Good evening and good morning, everyone.
Thank you for joining us on Galt with the first quarter 2023 earnings conference call. Before I start, I would like to remind everyone that all financial figures discussed tonight are quoting RMB and as stated otherwise. During the first quarter of 2023, we maintained the healthy and stable sequential growth in...
our gross billions were up 69.4% year-over-year to 539 million. Moreover, the improvement in operational efficiency strengthened our profitability, which was demonstrated by the triple-digit year-over-year increase in both income from operational efficiency and our gross billions were up 69.4% year-over-year to 539 million.
I am really driven by our exceptional organizational capabilities and our unwavering commitment to our strategy of long-term sustainable and profitable growth. And it further reinforces our confidence in achieving any effective growth and generating a sizeable, positive net operating cash flow.
for the full year 2023. Our folks continue to major in the learning services and educational content and digitalized learning products.
Learning services continue to serve as the core pillar of our business and the predominant revenue contributor. It mainly includes educational services for college students and adults, overseas study-related services, non-examic tutoring services, and other traditional learning services.
I will now discuss the business highlights of the quarter through three aspects. First, all of our core business segments continue to remain on a transient development trajectory. To start, our occasional services for college students and adults generated a positive net of reaching cash flow during the quarter.
roughly 36% sequential increase in growth billions, as well as a triple digit of year growth in marketing expense ally while positioning edge to gain further revenue growth. Moreover, some of our overseas studies related services, such as the IOS Prime business, delivered triple digit of the year growth in both growth billions and revenues.
We have been ramping up our efforts to develop a diverse range of regional and self-operated consumer acquisition channels with higher conversion rates with a particular focus on private traffic such as short video live streaming operations.
During the quarter I created my own account on Doyin to lead and encourage our team to explore the candidate's opportunities in the short video ecosystem. Live streaming on Doyin has already become one of the major customer acquisition channels for some of our new businesses and live streaming sessions.
hosted by a number of our instructors have repeatedly ranked among the top platformers.
in their respective verticals in terms of growth, merchandise value, or GMB.
in terms of gross merchandise value or GMB.
to the value of their premium content, revealing presentations and their seamless collaboration with our dedicated professionals and efficient backend teams.
Through setting up our own matrix accounts on the Dohin platform, we have dramatically improved customer acquisition efficiency and strengthened recognition of the Galt brand which will facilitate word of mouth referrals going forward forming a positive feedback loop.
Finally, we are convinced that artificial intelligence will have a tremendously transformative effect on a broad range of industries, especially the education sector.
As an online education company, we will leverage our advantages in students' learning statistics and the technological expertise that we have accumulated over the years to seize emerging opportunities. At the federal reading, the realization of AI technologies in educational settings...
and develop innovative and highly personalized intelligent products that exceed expectations to reinforce user engagement.
Sir, we continue to enhance our operational efficiency. On one hand, the integration of a generative AI with the efficient had already, and we further expedite internal efficiency improvements, allowing our instructors and tutors to dedicate more time to assist the students with the data.
we achieved the third consecutive sequential improvement in growth profit model. Further, thanks to our improved consumer acquisition efficiency and growing brand popularity, selling expenses our eye was up by approximately [...]
74% year-over-year, prompting the notable year-over-year growth in gross billions. Move forward, we will continue to boost efficiency and profitability while ensuring high standards for teaching quality and customer satisfaction.
We are convinced that the rapid development of AI technology will bring about a paradigm-shifting transformation across the education industry. We are actively embracing all the emerging changes as we push.
the boundaries with unremitting efforts to develop and innovate across this dynamic market landscape to create more efficient educational products with superior learning services and more convincing results and to better fulfill the educational needs of next generation.
Nevertheless, regardless of how the industry will be received, we will stay true to our cherished original aspiration to educate.
Our pursuit of excellence in educational products, teaching quality, and learning services is unprecedented. As we look ahead, committed to our mission of making learning better, we will continue to deepen our presence in the education sector.
by leveraging our outstanding cohesive team to create sustainable value for all of our stakeholders.
Thank you very much. This is the end of my prepared remarks. Now I will pass the call over to our CEO , Shannon, to walk you through our financial and operational details of this quarter. Shannon, please.
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 first quarter of 2023.
Please note that all financial figures discussed today are quoted in RMB, unless otherwise noted.
We reported another quarter of solid financial performance. It is encouraging to see that our net revenues recorded the third quarter of consecutive growth.
increasing by 12.3% for the work quarter to 700 and 7.3 million.
Additionally, growth feelings increased by a considerable 69.4% year-over-year to 539 million. Thor122
Even more noteworthy is that during the quarter, we considerably enhanced our key profit metrics on both an annual and quarterly basis.
Specifically, net income grows sharply by 112.1% year-over-year to $113.9 million.
which led to an 8.7% point year-over-year increase in net income margin to 16.1%.
non-GAAP net income rose to 133.6 million, accompanying an in-line GAAP net income margin of 18.9 percent.
representing the highest quarterly net income margin since our business's restructuring in 2022.
The substantial improvement in profitability is a testament to our sound business model, sustainable growth strategy, and an outstanding cohensive organization.
and also underlines the effectiveness of our continuous endeavor to refine operations, optimize costs, and enhance customer acquisition and operational efficiency.
Breaking down more than 75% of total revenues came from an academic shooting services.
and other traditional learning services.
which remain a key priority for our business.
For the education industry, non-academic children services represent an emerging vertical with booming market demand and high growth potential.
Our academic and children's services focus on offering holistic and systematic education for school-aged kids by sharpening their oral learning, logical reasoning, and critical thinking abilities.
During the quarter, in addition to being profitable, this segment achieved a triple-digit EOA growth in gross feelings.
At present, our top priority for this business line is to develop products that exceed customer expectations by leveraging our extensive resources.
At present, our top priority for this business line is to develop products that exceed customer expectations by leveraging our expensive resources, conducting in-depth market analysis, and managing our
and driving products and technology innovation.
Leaning on our competitive strength in traditional learning services, we will further refine our products and services and diversify our delivery formats to cater to customer needs.
Through which we aim to improve environments and retention to promote the substantial growth of our non-academic children business.
The other crucial component of our learning services is education services for college students and adults.
which accounted for nearly 20% of the quarter's total revenues.
This segment generated positive net offering cash flow during the first quarter through building up a more comprehensive spectrum of educational products.
and a more systematic process of student retention, cross-registration and referral.
Efficiency in customer acquisition has also been notably improved through higher reliance on content given top military channels.
Our business demonstrates salient seasonality, chiefly through the following three measures.
First, in terms of gross buildings, which is a leading indicator of revenues in the agriculture industry.
We attained a 69.4% EOLE increase in this measure.
God's willing for our learning services are normally recognized as revenue within six to 12 months.
To align with the good schedule, we designate the second and the fourth quarter as our main customer retention season.
Due to which, God's buildings are not only higher compared to the first and the third quarters.
This is particularly true for the fourth quarter when our total concurrent student enrollment typically climbs to the peak of the year, following custom acquisition efforts during the summer holiday period.
leading to the highest quarterly level in growth buildings. In fact, I believe in the first quarter, I generally lower than in the preceding fourth quarter as it is a non-pick season for students retention.
Additionally, you may notice that of net revenues slightly declined in quarter compared to the same period of last year. This was mainly due to the higher base in revenues of our existing traditional services as a result of regulatory adjustments in the first quarter of last year.
along with the ongoing steady recovery of our traditional business.
We expect to see a year over year growth in that revenues and in growth buildings next quarter, as well as a meaningful profitability.
According to management, current use of the occasion, wait for C in AB2 24.2% year-old-year girls in revenues, and a much higher year-old-year girls rate in girls' living next quarter.
Turning to our bottom line, the meetings will improve our often margins on both year-over-year and quarter-hour quarter-bass and student quarter.
Our margins during the first and the fourth quarter are usually higher relative to the rest of the year due to reduced marketing expenses during the summer holiday period. For example, our selling expenses are no more lower in the first quarter given the fact.
that it is a low season for custom acquisition and that demand is weak during the Chinese New Year holiday giving rise to improve profitability.
Moreover, due to a higher student with tutorical and technical scheduling, we also usually venase an increase in growth margins during the first quarter.
However, in the second and the third quarter, which are the most effective seasons for customer acquisition, we often allocate a higher amount of sales and marketing expense proportionate to market demand as we strive to attract and engage with potential students to expand our top-down, low-cost, low-cost, low-base.
In the second and the third quarter, which are the most effective seasons for customer acquisition, we often allocate a higher amount of sales and marketing expense proportionate to market demand as we strive to attract and engage with potential students to expand our customer base, at the same time enhancing efficiency.
This implies relatively lower expected margins in the second and third quarter relative to the fourth quarter.
We believe these marketing investments are essential to strengthening our competitive position. And we are firmly confident that we will maintain a meaningful probability as we improve our market penetration rate next quarter. With regard to the four year 2023,
Our prior projections of generating sizable positive net operating cash flow as well as achieving effective growth remain unchanged.
Lastly, regarding custom acquisition efficiency.
Our selling expenses in the quarter decreased 2.5% over year. That brought about a nearly 70% over year increase in growth earnings.
which implies that our sales and marketing expenses ROI has registered a 73.8% increase.
This was mainly attained through our continued efforts to explore more innovative channels to target and acquire high quality and motivated students at lower cost with higher returns.
First, we enhanced our autonomy over customer acquisition by expanding the proper relatively self-operated channels and through which effectively lowered our customer acquisition cost and fostered user engagement across our platform through creating premium content.
After months of continuous hard work, we have made a promising progress with some of our key business lines on short radio platforms and will reapply the insights and know how to add their businesses.
Secondly, we also have expanded into offline channels, such as hosting on-campus seminars.
Third, we are also conducting personal lives and the localized operations to acquire and serve students more effectively. We are currently conducting personal lives and the localized operations to acquire and serve students more effectively.
Going forward, we will continue to improve our customer position efficiency to drive sustainable growth and to create long-term value for all of our state holders.
Now, I will present our financials in detailed numbers. Our cost of revenues with quarter was $100.60 million.
Growth profit increased 7% year over year, and 16.4% total quarter to 500, and 47.3 million.
Growth problem margin was 77.4%, representing a 677 basis points increased year over year. M is 268 basis points increased quarter over quarter.
non-GAAP gross profit was $571.3 million and non-GAAP gross profit margin was 77.9%. The increase in gross profit margin was largely due to higher efficiency in cost delivery as our instructors and tutors.
became more experienced and our new initiative continued to develop.
Total operating expenses during the quarter decreased 7% over year, and 6.5% total quarter, 2.420, and 32.2 million. In going operating leverage, that resulted in an increase in operating profit margins.
Breaking down, selling expenses decreased 2.5% over year, and 4.4% quarter to 277 million.
Staling extensive margin was 39.2%, which was almost 7 percentage points lower than in a prior quarter.
Moving on, research and development expenses decreased 21.3% year-over-year and 12.9% quarter-to-quarter June "!
accounting for 13.7% of net revenues.
General and administrative expenses decreased 0.9% year-over-year and 5.1% quarter-to-quarter to 78.2 million, accounting for 11.1% of net revenues.
Accordingly, income from operations for the quarter sharply rose to 275.9% year-over-year to 95.1 million.
Nangag income from operations was $1.00 and $4.49 million.
Opening margin increased 10% points year-over-year to 13.5% and non-GAAP opening margin increased 7.4% points year-over-year to 16.2%.
Net income significantly increased 112.1% over year to 13.9 million.
Now get that income was $100,000 in the citizen's report and 6 million. This is $100,000. You are often going to have a lot of revenue.
Net income margin increased 8.7 percentage points year over year to 16.1 percent. And net net net income margin was 18.9 percent.
Our net operating cash outflow this quarter was $216.4 million, mainly due to annual bonus payouts and the fact that stock feelings during non-pig retention seasons are generally lower than those during pig season. He's profoundly wise.
Cash flows from operations in the second and fourth quarter are generally positive compared with those in the first and the third quarters. We expect net operating cash flow to turn positive at a meaningful scale next quarter.
Turning to our balance sheet, as of March 31, 2023, we had $1.2 billion of cash, cash equivalents and restricted cash, and $2.2 billion of short-term investments, which totaled approximately $3.4 billion.
Providing ample resources for continued business development.
Additionally, as of March 1, 2023, we had receivables from third-party payment platforms such as WeChat Pay and Alipay of 86.6 million, which consists of cash payments received from our students, but held by third-party payment platforms.
As of the date of this earnings release, we have collected almost all of the above-mentioned balance from the third-party payment platform and converted into cash and cash recurvements.
If we counted forest balance, our cash position reached around $3.5 billion, nearly $303 million higher than at the end of the same period of last year. As of March 31, 2023, our default revenue balance was $770.6 million.
data beyond our control and could cause the actual results to differ materially from our predictions.
Based on management's current estimates, total net revenue for the second quarter of 2023 are expected to be between $648 million and $668 million, representing a year-over-year increase in total net revenue.
of 20.5% to 24.2%. This concludes my prepared remarks. Operator, we are now ready for the Q&A session. Thank you everyone for listening.
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Our first question comes from Crystal Lee from CMS. Please go ahead.
Hi, thanks for taking my question. I have one question regarding your margin. I noticed that your first quarter margin improved a lot. Could you provide some insight into the margin outlook for the next three quarters? And how should we think about any potential systematic factors impacting margin?
your business.
On top of the revenue guidance, we still anticipate gross billions to grow far more quickly than revenue in the second quarter year-over-year. Considering the nearly 70% year-over-year increase in gross billions in the first quarter and a mid-double digit growth rate in the second quarter, we have a...
full and firm competence in the scale of annual revenue growth in 2023. In terms of margins, our profitability primarily depends on our operational efficiency. I have elaborated from a few aspects. Firstly, over the past year, we've been...
focused on building up organizational capabilities and optimizing our cost structure. The work itself has yielded significant results, leading to continuous improvements in our key profit margins. And secondly, we have benefited from opening leverage as our total R&D and G&A.
expenses have remained relatively stable. With the increase in scale in revenues, opening leverage will have a more pronounced impact on profitability enhancement. And last, customer acquisition efficiency is another critical factor influencing our margin. We've been dedicated to exploring.
customer acquisition channels with high antivirus. And we have gradually shifted our customer acquisition strategy from purchasing traffic from those social platforms to more like a content driven platform such as short radio live streaming platforms and offline channels.
This has resulted in a significant improvement in ROI levels. As you can see, our first quarter results, our ROI actually increased over 73% on a year-over-year basis. Overall, as Larry mentioned earlier, our goal remains to achieve profitable growth. And we believe that we'll...
a meaningful level of profitability for the full year of 2023.
And actually our business shows a salient seasonality. They would suggest you and other investors to put more weight on the year-over-year comparisons from now on. Taking the second quarter as an example, we usually generate a large scale of net operating cash flow in the second quarter because it is a typical retention season.
you see the second quarter as a quarter that will provide a meaningful profitability as well as a large scale of net opening cash flow. Hope that addressed your questions. Thank you Crystal.
that will provide a meaningful profitability as well as a large scale of net opening cash flow. I hope that addressed your question. Thank you Crystal.
This concludes our question and answer session. I would like to turn the conference back over to Sherry Lu for any closing remarks. Thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact our operations department or management via the email atPAIR. cruises.ca
S