Q1 2024 Gaotu Techedu Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the GATU Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

Ladies and gentlemen, thank you for standing by and welcome to the gas too.

Tech E D U a fourth quarter and fiscal year 'twenty twenty-three earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on a touchtone phone.

You withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to your first speaker today, Ms. Catherine Chen head of Investor Relations. Please go ahead Catherine.

Xiangdong Chen: Thank you operator.

Unknown Executive: Thank you, Operator. Good evening, everyone.

Xiangdong Chen: Hello, everyone. Thank you for joining.

Catherine: Thank you for joining Galtu's first quarter 2024 earnings conference call. My name is Catherine, and I'll help host the earnings call today. Galtu's earnings release for the quarter was distributed earlier and is available on the company's IR website at ir.galtu.cn, as well as through PR Newsletter services. Joining the call with Ms. Mai from Galtu Senior Management are Mr. Larry Chen, Galtu's Founder, Chairman, and Chief Executive Officer, and Ms. Shannon Shen, Galtu's Chief Financial Officer.

Xiangdong Chen: First quarter 2024.

Speaker Change: This call my name is possible.

Speaker Change: Both the earnings.

Speaker Change: Well for me.

Speaker Change: For the quarter.

Speaker Change: It earlier and is available on the company.

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Speaker Change: We're off to a PR.

Speaker Change: Joining the call with me.

Speaker Change: The senior management.

Larry: Sure Larry.

Speaker Change: <unk> founder Chairman and Chief Executive Officer.

Larry: Shannon.

Speaker Change: Chief Financial Officer.

Speaker Change: I will first provide color for the quarter.

Speaker Change: One after life channel will be stopped.

Speaker Change: Although our financial performance.

Speaker Change: Paul.

Speaker Change: During their prepared remarks, we will open the floor for questions from analysts.

Catherine: 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 will open the floor to questions from analysts. Before we begin, I'd like to remind you that this conference call will contain four forward-looking statements made under the safe harbor position of the U.S. Private Security Legislation Reform Act of 1993.

Speaker Change: Before we begin.

Speaker Change: To remind you that this conference call will contain forward looking statements made under the safe Harbor provisions of that you add private security litigation reform up nicely.

Speaker Change: These forward looking statements are based upon management's current beliefs.

Catherine: These forward-looking statements are based upon management's current beliefs and expectations, as well as the current market and operating conditions. 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 statement. Further information regarding this and other risks is included in the company's public filing with the U.S. SEC.

Speaker Change: As well as the current market and operating condition.

Speaker Change: And they involve known and unknown.

Speaker Change: And secondly, and other factors all of which are difficult to predict and many of which are beyond our company's culture. It may cause the company's actual results performance or achievement.

Speaker Change: Defer materially from those contained in any forward looking statements.

Speaker Change: What other information regarding this and operate it in court and the court.

Speaker Change: Oh yeah.

Speaker Change: Yeah.

Catherine: The company does not undertake any obligation to update any forward-looking statements, except as required under applicable rules. During today's call, management will also discuss certain non-GAAP measures for comparison purposes only. For a definition of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please refer to our first quarter earnings release published early this year. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Galtis IRS. It is now my pleasure to introduce our Founder, Chairman, and Chief Executive Officer, Larry. Larry, please.

Speaker Change: The company does not undertake any obligation to update any forward looking statements, except as required under applicable law.

Speaker Change: During today's call management will also discuss certain non-GAAP measures for comparison purpose.

Speaker Change: So our definition of non-GAAP financial measures a reconciliation of GAAP to non-GAAP financial results. Please refer to our first quarter earnings release published.

Speaker Change: I should remind this conference is being recorded.

Speaker Change: Our lives.

Speaker Change: This conference call will be available on southwest Iowa.

Speaker Change: It is now my pleasure to introduce <unk>, founder Chairman and Chief Executive Officer, Larry Larry.

Larry: Good evening, good morning, everyone. Thank you for joining us on GOTO, the first quarter of fiscal year 2024 Earnings Proposal Call. I would like to take this opportunity to express my gratitude to all of you for your interest in and support of GOTO. Before I start, I would like to remind everyone that all financial figures discussed today are quoted in RMB and not stated otherwise. I am pleased to report our financial and operational results for the opening quarter of the year.

Speaker Change: Good morning, everyone. Thank you for joining us on the call towards the first quarter of fiscal year 2024 earnings Conference call.

Speaker Change: I'd like to take this opportunity towards express my gratitude to all of you for your interest.

Speaker Change: What type of cultural before I start I would like to remind everyone that all financial figures discussed today are qualitative in RMB unless stated otherwise.

Speaker Change: I'm pleased to report our financial and operational results for the opening quarter.

Speaker Change: Eric.

Larry: During the first quarter, we remained laser-focused on refining our educational products and expanding our customer acquisition channels. On the product front, we worked diligently to align our offerings more closely with user needs. While enhancing the educational breadth of our established products, we also made significant progress in diversifying our portfolio to better address user needs and improve learning efficiency. On the customer acquisition front, we expanded customer outreach by tapping into diverse channels and boosted acquisition efficiency by streamlining and optimizing the teaching processes tailored to our product and content characteristics.

Eric: Do you remember the first quarter, we'd been man the laser focused on refining our educational products and expanding our customer acquisition channels.

Eric: On the product front, we worked diligently to align our offerings more closely where the user needs.

Why are you hinting at Christian I'll draw off of our established products. We also made significant progress in diversifying our portfolio to better address the user needs and it's true but learning efficiency.

The customer acquisition front weighted as a band aid customer outreach by typing into diverse channels and the bullet stabilization efficiency by streamlining and optimizing the teaching Prof assay is catered to our product and content cabinet service picks.

Eric: This combination of a high caliber educational operands and it's all part of customer acquisition channels have laid a solid foundation forward is sustainable and the rapid growth of our business.

Larry: This combination of high-caliber educational offerings and robust customer acquisition channels has laid a solid foundation for the sustainable and rapid growth of our business. In the first quarter, our net revenues increased 33.9% year-over-year to $946.9 million, while our gross revenue grew 35.3% year-over-year to $729.4 million. Excluding the one-off impacts such as different class retention schedules, our comparable growth experience saw an annual increase of more than 70%. Non-GAAP net income reached $3.0 million, and the non-GAAP net income margin was 0.3%.

Eric: In the first quarter, our net revenues increased 33.9% year over year to 900, and the 40 states plus the 9 million, while our gross premiums, but the rule 35 time to 3% year over year to 700 end of 'twenty.

Speaker Change: I am trying to afford a median.

Speaker Change: Excluding the one off impact that started I had a different class retention schedules.

Speaker Change: Our comparable grasping and saw a new increase of more than 70%.

Speaker Change: non-GAAP net income reached the three ponder zero mini and the non-GAAP net income margin was zero applying the 3%.

Larry: Our cash position remains strong with a total of $3.8 billion in cash, cash equivalents, restricted cash, and short and long-term investments. 374.6, meaning it is higher than the same time point last year. Our strong performance in the first quarter has strengthened our confidence in continuing strategic investment in educational products and learning services, talent development, and organizational enhancement and expansion to diverse customer acquisition channels. High-quality educational products, teaching excellence, and premium learning services are the cornerstones of the education business.

Speaker Change: Our cash position remains strong with a total of a 3.8 debating in cash cash equivalents restricted cash and short and long term investments 300 and.

Speaker Change: 74 to ponder sake, the media higher than at the same time point the last ear.

Speaker Change: Our strong performance in the first call just had strengths and our confidence in continuing our strategic investment in educational products and services tenants with the vitamin and organizational enhancements and expansion into diverse customer acquisition channels.

Speaker Change: High quality educational products.

Speaker Change: Excellence and premium learning services are the cornerstones of the education business.

Larry: At Gaotu, we deployed diverse incentive mechanisms, including regular mock classes, teaching competitions, and performance evaluations to ensure rigorous quality control of our learning services, improve the quality of teaching and the service capabilities of our teachers, and provide targeted support to enhance their professional growth. With respect to product design, we enriched our offerings by introducing localized online content and personalized solutions that cater to different learning needs and ensure optimal learning outcomes. Our internal data revealed that the success rate of our class of 2024 on the national graduate school entrance exam was more than twice the national average.

Speaker Change: The Gao tool, we deploy that diversity and sudden teva mechanisms, including Vancouver in a mock classes teaching competitions and the performance evaluations to ensure rigorous quality control of our menu service days improve the quality of teaching under surveys capabilities.

Speaker Change: All of our teachers and providing turnkey the support between your hands. They are professional growth whether it's back of the tour product design. We reached all the operating hours of by introducing localized online content personalized solutions that cater to different Iranian knees.

Speaker Change: Sure I'll be telling me call out the team more learning outcomes.

Speaker Change: All of our internal data reviews is that that's the fastest rate of our class a.

Speaker Change: To assign them 24 on the National graduate High School.

Speaker Change: School entrance exam with him more than twice the national average.

Larry: Alongside boosting the long-term competitive strength of our established business, we are also pushing forward with new initiatives. For example, within our learning services for college students and adults, we have established online boot camps to help users achieve their academic goals within a shorter time frame.

Speaker Change: Try the upholstery in the long term competitive us grounds of our established preparedness. We're also pushing forward with Aneel initiative.

Within our learning services for college students and I know, we have established the overlying pool with a camera to inhabit users achieve their academic a cool was Louisiana shorter time frame.

Larry: We have also launched offline all-round education services to better cultivate students' holistic development and improve their overall well-being. As our business has experienced rapid growth, we have been increasingly ramping up our investment in cross-content development. Specifically, the number of our full-time cross-content development professionals increased by roughly 50% year-over-year in the first quarter.

Speaker Change: We have also launched overlying all wrong education services for banner to cultivate the student so let's take debate of mines and they prove as their overall well being.

Speaker Change: All are opinionated kras experienced rapid growth wherever being increasingly wrapping up our investment in cost content that environment.

Speaker Change: So, but typically there's a number of our full time across content that they're bad moments professional has increased by roughly 50% that year over year in the first quarter as our business continues to expand we are taking proactive steps to engage with the regulatory bodies and the bay area.

Larry: As our business continues to expand, we are taking proactive steps to engage with regulatory bodies at various levels, seeking guidance on industry policies and compliance, and enlisting and entering our educational product services based on related guidelines. Exceptional talent is one of the most critical strategic assets in the education industry. At GoTo, we are committed to investing in and strengthening our ability to recruit, cultivate, and retain outstanding individuals to advance our strategic goals and drive rapid business growth.

Speaker Change: <unk> seeking guidance our industry partners on the compliance and in Missouri.

Adrian: Adrian our educational products and services based on really tell you the guidelines.

Adrian: Like a favorite should know talent is one of the most critical is to retreat Jake asked assay in the education industry and like all tool, we are committed to investing and strengthening our ability to recruit cultivated and routine outstanding individuals to advance our strategic goal was on the private rate paid to finance growth.

Larry: Time for recruitment is one of our most important hiring channels. By collaborating with top-tier universities nationwide, we are able to proactively engage with and secure promising candidates, ensuring a steady expansion of our talent pool. As of the first quarter, we have entered into a strategic partnership with thousands of universities. In addition, we have taken several initiatives to support our teams in improving their professional expertise. These include refining our talent development and retention mechanisms, strengthening our organizational culture and cohesion, and offering various themed courses and internal experience-sharing opportunities.

Speaker Change: Hi, I'm prepared recruitment is one of our most important and the hiring China.

Speaker Change: Neighborhood with top potato and rich taste nationwide, we are able to proactively engage with and is the QE are promising candidates, ensuring a steady it's a bandwidth of our tenant the poll.

Speaker Change: And that was the first clause or we have entered into a strategic partnership with thousands of universities.

Speaker Change: Yeah station, we have taken several initiatives to support our teams.

Speaker Change: Improving their professional expertise.

Speaker Change: These include refining our talent development and retention mechanism.

Speaker Change: And with any of our organizational culture, and the cohesion and the offering where as a theme of the cost saves and internal experience sharing opportunities and lastly, we have improved our organizational VI penalty by implementing a fast track of promotion mechanism.

Larry: Lastly, we have improved our organizational vitality by implementing a fast-track promotion mechanism for exceptional team members. Investing in the development of diverse customer acquisition channels and competitive content while ensuring operational efficiency is critical to our company's long-term success. So far, we have expanded into a diverse range of new acquisition channels, including live streaming, short-form videos, book sales, and offline presence. By consistently offering high-quality content, we have built up our competitive edge in these channels, amplified user engagement, and reduced acquisition costs.

Speaker Change: Our exceptional team members.

Speaker Change: Investing in the development of diverse customer acquisition channels, and a competitive content, while ensuring operational efficiency.

Speaker Change: You go to our company's long term success.

Speaker Change: So far we have expanded into a diverse range of new acquisition channels, including live streaming short form videos book of sales on the open line try this.

Speaker Change: By consistently they operate in high quality content, we have build up our competitive edge.

Speaker Change: Z the channels amplify the user engagement and the reduced acquisition costs, along with ancillary and operational efficiency were also activity.

Larry: Along with ensuring operational efficiency, we are also actively exploring new avenues to acquire customer traffic and maintain our competitive edge. This year, we will boost our regional brand recognition and market penetration by ramping up investment in online channels with initiatives like establishing online learning centers for college students. Galt is about to mark its 10th anniversary since founding; throughout this decade-long journey, we have stayed true to our educational aspirations and actively embraced our social responsibility by collaborating with philanthropic organizations to promote rural development and advance educational activities.

Speaker Change: Lottery and everything.

Speaker Change: I have any else to acquire customer traffic and maintaining our competitive.

Speaker Change: Pensive ACH.

Speaker Change: This year, we will post our regional brand recognition and market penetration by raping up when you're Mad men. The offline triangles ways initiative like established team offline learning Center for college students.

Speaker Change: Golf is about to Mark is a trends anniversary since funding.

Speaker Change: Throughout this bank its a long journey, we have stayed true to our kitchen, though aspirations and activity and actively embraced our social responsibilities by come <unk>.

Speaker Change: Collaboration with <unk>.

Rob: It's Rob Hey organizations promoted rural development and advanced at Christian now empty.

Rob: Well I have full confidence in our ability to provide a nasty model for our for our users shareholders and society at large how do we continue to contribute to and that's the brand that has a.

Larry: We have full confidence in our ability to provide lasting value for our users, shareholders, and society at large as we continue to contribute to and promote the sustainable development of China's education industry. Thank you very much. Now I will pass the call over to our CFO, Shannon, to walk you through the financial and operational details of this quarter.

Rob: Sustainable.

Rob: China's education industry.

Speaker Change: Thank you very much. This is at the end of my prepared remarks, now I will pass the call over to our CFO Shannon So walk us through the financial and the operational details of tool obviously, it's Walter.

Shannon: Thank you, Larry, and thank you, everyone, for joining our call today. I will now welcome you through our operating and financial performance for the first quarter of fiscal year 2024. We commenced 2024 with a notable surge in growth momentum in the first quarter. Backed by Ample Cash Reserve, we remain committed to enhancing the expansion of our core business. This was achieved by strengthening our portfolio and organizational capabilities, thereby reinforcing our leading positions in brand recognition and competitive advantages. In parallel, we actively explored andcultivated product optimization and channel innovation, fortifying our core competitive modes and creating lasting value for our shareholders. Our growth feelings demonstrated robust growth.

Thank you Larry and thanks, everyone for joining our call today.

Walter: I don't know well costs through our operating and financial performance for the first quarter of fiscal year 2024.

We commenced 2024 with a notable surge in growth momentum in the first quarter.

Walter: Backed by ample cash reserves.

Speaker Change: We remain committed to your hunting the convention.

Speaker Change: One of our core business.

Speaker Change: At least it was achieved by strengthening our portfolio and organizational capabilities.

Speaker Change: And thereby reinforcing our leading position in brand recognition.

Speaker Change: Competitive advantages.

Speaker Change: In parallel we are.

Speaker Change: Actively explored and cultivate product optimization and China innovation.

Speaker Change: But if buying our core our competitive moat and create lasting value for our shareholders.

Speaker Change: Our gross billings demonstrated go back to Carlos.

Shannon: On a comparable basis, gross billing surged by more than 70% year-over-year to $729.4 million. We anticipate maintaining this growth trajectory throughout the remainder of the year, which will gradually translate into accelerated revenue growth. In the fourth quarter of the year, our net revenue increased by 33.9% year-over-year to $946.9 million. The business model for online education exhibits certain cyclical and seasonal patterns. The second quarter is typically the peak demand season.

Speaker Change: All our comparable basis gross billings.

Carlos: By more than 70% year over year to $729 4 million.

Carlos: We anticipate maintaining this growth trajectory throughout the remainder of the year.

Carlos: Which will gradually translate into other salary revenue girls.

Carlos: In the fourth quarter of the year, our net revenues increased by 33, 9% year over year to $946 9 million.

Carlos: The business model for online education exhibit certain sit at home and seasonal patterns.

Carlos: The second quarter is typically the peak demand season.

Shannon: Necessitating proactive investments in marketing expenses and teaching resources reserves to capitalize on the enrollment window. This strategy ensures the maximization of operational efficiency and economics of scale. Historically, this entails certain upfront market expenditure on marketing costs, with revenue realization gradually materializing in the latter half of the year. Furthermore, as student retention increases. In concurrent enrollments, product penetration and brand recognition improve. Demand power costs associated with course and service delivery can be amortized, and the economy upscale, progressively unlocking profitability potential.

Carlos: Necessitating proactive investments in marketing expenses and teaching resources reserves to capitalize all the Eagle men's bingo.

Carlos: At least the strategy ensures the maximization of operational efficiency and economies of scale.

Carlos: Historically, these intel's certain upfront marketing spend atria in marketing costs with revenue realization gradually what's your lighting in the latter half of the year.

Carlos: As student retention increases and concurrently element for that penetration and the brand recognition improve the manpower costs associated with CT and service delivery can be amortized and economy of scale.

Carlos: Progressively unlocking profitability potential.

Carlos: As such profitability in a single quarter.

Shannon: As such, profitability in a single quarter for online education is contingent on the ratio of new users to existing users. Well, working to ensure a healthy union economy, we recognize the need for a simultaneous escalation in market investment going forward.

Carlos: Online education is contingent on the ratio up their users to existing users.

Speaker Change: Well working to ensure a healthy unit economics, but we recognize the need for simultaneous escalation you Martini investments going forward.

Speaker Change: Beginning in the second quarter, we plan to deploy additional children, who have done the resources, yeah and that makes me manage our customer because even China was to see if the acquisition window to drive meaningful growth in the student enrollments.

Shannon: Beginning in the second quarter, we plan to deploy additional tutors and resources and dynamically manage our customer acquisition channels to seize the acquisition window to drive meaningful growth in student enrollment. Next, I will walk you through the progress we have made during the quarter. Learning services contributed over 95% of net revenue. Breaking it down, more than 75% of total revenues came from non-academic children's services and other traditional learning services, representing an increase of roughly 35% year-over-year. Our new initiatives are centered on academic tutoring services aimed at unleashing students' innate potential and fostering activities and holistic development through engaging content.

Speaker Change: No I don't.

Speaker Change: I'll walk you through the progress we have made during the quarter.

Speaker Change: Learning services contributed over 95% of net revenues.

Breaking it down more than 75% of total revenues came from non academic children services and other traditional learning services.

Speaker Change: Presenting an increase of roughly 5% year over year.

Speaker Change: Our newly initiated Hayes I centered all know academic children of services aimed at Alicia students in its potential and purchasing activities and holistic development through engaging content.

Speaker Change: During the quarter. This segment generated year over year growth of more than triple digit gross billings on a comparable basis.

Shannon: During the quarter, this segment generated year-over-year growth of more than triple digits in gross billings on a comparable basis. Furthermore, it surpassed 20% for the first time as a percentage of total gross billing. This increasing progress is a testament to our ongoing efforts to improve the teaching standards of our instructors and tutors, coupled with the continuous refinements we have made to our educational offerings. Additionally, we are venturing into offline non-academic all-around education courses, including coding and basketball, that align with government and regulatory initiatives to promote diversified education and holistic development for K-9 students.

Speaker Change: Furthermore, it surpassed 10%, Florida first time as a percentage of total cloud spending.

Speaker Change: Leif equation progress is a testament to our ongoing efforts to improve the teaching standard of our instructors and tutors.

Speaker Change: Coupled with the continued refinements, we have made to our educational offerings.

Speaker Change: Additionally, we have been training into offline now.

Speaker Change: All around education courses, including coding and basketball.

Speaker Change: With government and the regulator was initiated to promote diversified education and holistic development for canine students.

Speaker Change: Our traditional learning services continued its a generated robust growth momentum.

Shannon: Our traditional learning services continue to generate robust growth momentum, with a diversified portfolio tailored to varied user needs. We have expanded user outreach and enhanced the sustainability and scalability of our product pipeline, which will serve as a long-term driver for sustainable growth.

Well it is a diversified portfolio tailored to wherever they use their knees, they expanded user outrage and enhance the sustainability and scalability of our product pipeline.

Speaker Change: This will serve as a long term driver for sustainable growth.

Speaker Change: During the quarter. This segment recorded high double digit growth in God's fittings, all on a comparable basis and a year over year rapidly increase up four instead of 5%.

Shannon: During the quarter, this segment recorded high double-digit growth in gross buildings on a comparable basis and a year-over-year revenue increase of more than 35%. The other crucial component of our learning services is educational services for college students and adults, which accounted for around 20% of total revenues during the quarter. Revenue and growth billings both increased by more than 30% year-over-year.

Speaker Change: Yeah, that's a crucial component of our linear services.

Speaker Change: As you know service for college students and adults.

Speaker Change: They accounted for around 10% of total revenues during the quarter.

Speaker Change: Revenue and gross billings increased by more than 30% year over year.

Speaker Change: The better than expected performance of this segment was primarily attributable to rapid growth in overseas that is related to services.

Shannon: The better-than-expected performance of this segment was primarily attributable to rapid growth in overseas study-related services, driven by our expanded customer acquisition efforts across short form radio and live streaming platform. During the quarter, our overseas data-related services saw a year-over-year increase of more than triple digits in revenue and gross billing, jointly developed by industry-leading teachers and course content development professionals. Our educational offerings harness cutting-edge technologies, like artificial intelligence, providing users with a personalized, one-stop, exact preparation experience, a future in tailored content plan, learning paths that adapt to their pace, and progress evaluation tools.

Speaker Change: Driven by our expanded customer acquisition efforts.

Speaker Change: Rouse yourself, some radio and less premium platform.

During the quarter, our overseas that age where they had the services saw a year over year increase of more than triple digit in revenue and gross billings.

Speaker Change: Jointly developed by industry, leading teachers and of course content development professionals.

Speaker Change: Education offerings harnessed cutting edge technologies like artificial intelligence, providing users with a personalized one stop exempt preparation experience.

Speaker Change: Eugene Taylor accounting plant.

Speaker Change: Learning paths that adopt to their pace and progress evaluation tools.

Speaker Change: Notably our post graduate E entrance exam prep services generated a positive cash flow for the third consecutive quarter.

Shannon: Notably, our post-graduate entrance exam prep services generated positive cash flow for the third consecutive quarter, while our civil service exam prep business achieved profitability for the second consecutive quarter. I will now present our financials in more detail. Our cost of revenues this quarter was $271.4 million; gross profit increased 23.4% year-over-year to $675.5 million, with a gross profit margin of 71.3%. The year-over-year decrease in gross margin was predominantly a result of changes to our product mix and the more proactive recruitment of teaching staff to meet future demands.

Speaker Change: Well I wish they were service exam prep business achieved profitability for the second consecutive quarter.

Speaker Change: I will now present, our financials in more detail.

Shannon: Total operating expenses during the quarter increased 66.6% year-over-year to $753.2 million. Breaking it down, selling expenses increased 82.8% year-over-year to $566.4 million, accounting for 53.5% of net revenue. This was partially attributable to the low base effect created during the same period last year.

Speaker Change: Our cost of revenues this quarter was 271 4 million.

Speaker Change: Gross profit increased 23, 4% year over year to $675 5 million.

Speaker Change: Our gross profit margin of 71, 3%.

Speaker Change: The year over year decrease in gross margin was predominantly a result of the changes to our product mix and the more proactive recruitment of teaching staff to meet future demand.

Speaker Change: Total operating expenses during the quarter increased 66, 6% year over year to 700 amps to pacer upon two minutes.

Speaker Change: Breaking it down selling expenses increased at a two.

Two 8% year over year to 506 246.4 million accounting for 53, 5% up net revenues.

Speaker Change: This was partially attributable to the low base eat that creating during the same period of last year. The increase also reflected a rice your marketing expenses in response to heightened market demand over the winter season.

Shannon: The increase also reflected a rise in market expenses in response to heightened market demand over the winter season. We track and monitor sales and marketing efficiency on a weekly basis and drive scalable growth within such boundaries to enhance brand awareness, provided that our unit economics meets specific profit bill criteria. Based on the performance in the first quarter, our long-term investment in diversified channels and the meticulous refinement of our expert teaching quality have yielded satisfactory results, our return on investment metrics remain high efficiency, promoting us to appropriately increase our investment in sales expenses, thereby laying a solid foundation for long-term growth.

Speaker Change: We track and monitor our sales and marketing efficiency, all basically basis.

Speaker Change: And drive scalable girls, leading such foundry to enhance brand awareness.

Speaker Change: Provided that our United corner makes me specific profit criteria.

Speaker Change: Based on the performance in the first quarter, our long term investment in diversified the China and the particular refinement of our expert teaching quality have yielded a satisfactory.

Speaker Change: Our return on investment metrics remain high efficiency promoting us to appropriately increase our investment in sales expenses, thereby laying a solid foundation for long term growth.

Speaker Change: Moving out research and development expenses increased 56, 3% year over year to $151 6 million.

Shannon: Moving on, research and development expenses increased 56.3% year-over-year to $151.6 million, accounting for 16.0% of net revenue. General and administrative expenses increased 21.7% year-over-year to $95.2 million, accounting for 10.1% of net revenue. Loss from operations was $77.7 million, and the operating margin was negative 8.2%. Non-GAAP loss from operations was $62.4 million, and the non-GAAP operating margin was negative 6.6%. The loss was $12.3 million, and the income margin was negative 1.3%. Non-GAAP net income was $3.0 million, and the non-GAAP net income margin was 0.3%. Our net operating cash outflow was $197.4 million.

Accounting for 16.0% of net revenues.

Speaker Change: General and administrative expenses increased to 21, 7% year over year.

Speaker Change: G&A was $5 2 million accounting for 10, 41% of net revenues.

Speaker Change: Loss from operations was $77 7 million and operating margin was negative eight 2%.

Speaker Change: non-GAAP loss from operations was $52 4 million and non-GAAP operating margin was negative six 6%.

Speaker Change: Net loss was $12 3 million, yeah that income margin was negative one 3%.

Speaker Change: non-GAAP net income was 3.0 million and non-GAAP net income margin was 0.3%.

Speaker Change: I will not operating cash outflow was $197 4 million.

Shannon: Turning to our balance sheet, as of March 31, 2024, we held 1.2 billion in cash, cash equivalents, and restricted cash, and $1.6 billion in short-term investments. 974.1 million in long-term investment. This comes to a total of $1,000,000. $3.8 billion, approximately $374.6 million higher than that at the same point last year. As of March 31, 2024, our deferred revenue balance was $1.0 billion, which primarily consists of tuition received in advance. As of March 31, 2024, we have repurchased an aggregate of approximately $4.9 million of ADS on the open market for approximately $12.4 million US dollars.

Speaker Change: Turning to our balance sheet as of March after sort of for 2024, we held $1 2 billion in cash cash equivalents and restricted cash $1 6 billion in short term investments.

Speaker Change: $974 1 million in long term investments.

Speaker Change: This comes to a total.

Speaker Change: So its one 8 billion approximately $374 6 million higher than that at the same time a point last year.

Speaker Change: As of March 1st 2024, our deferred revenue balance was 1.0 billion, which primarily consist of show you shouldn't received you know the lungs.

Speaker Change: As of March the Senate first 2024, we have pushes in aggregate of approximately $4 9 million a D. S. On the open market for approximately $12 4 million U S dollar.

Shannon: We will continue to execute stock buybacks in accordance with the guidance of the Board of Directors and create long-term value for our shareholders. Furthermore, Larry has reinforced his confidence in the company, and I'm viewing his commitment to the original aspiration of education by personally appreciating an additional 0.51 million ADS in 2024. Before I provide our business outlook for the next quarter, please allow me to remind everyone that this contains forward-looking statements, which include risks and uncertainties that are beyond our control and could cause the actual results to differ materially from our prediction. Based on our current estimates, total net revenues for the second quarter of 2024 are expected to be between $908 million and $928 million, representing an increase of 29.1% to 32.0% on a year-over-year basis.

Speaker Change: We will continue to executive stock buybacks, you accordance with the guidance of the board of directors.

And to create long term value for our shareholders.

Speaker Change: Furthermore, Larry has reinforced his confidence in the company and I literally amendment to the original aspiration to education.

Speaker Change: I personally pushy on additional zero point 51 million in 2024.

Speaker Change: Before I provide our business outlook for the next quarter. Please allow me to remind everyone that this contains forward looking statements.

Speaker Change: Which include risks and uncertainties that are beyond our control and could cause the actual results to differ materially from our predictions.

Speaker Change: Based on our current estimates total net revenues for the second quarter of 2024, I expected to be between 908 million and 928 million representing an increase of.

Speaker Change: 29, 1% to 32.0% all year over year basis.

Shannon: This concludes my prepared remarks. Operator, we are now ready for the Q&A section. Thank you, everyone, for listening.

Speaker Change: This concludes my prepared remarks, operator, we're now ready for the Q&A section. Thank you everyone for listening.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: Youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Our first question comes from Alice Cai with Citibank. Please go ahead.

Yijing Cai: Good evening management.

Yijing Cai: Good evening, management. Thank you for taking my question. I have a question regarding the 2Q revenue guidance and the impact of the shift in the re-enrollment timeline, because we know that the guidance appears relatively conservative. Could you please provide more information on whether it is influenced by the shift in the re-enrollment period? Last year, re-enrollment occurred in March, while this year it took place in April. Could you please break down the situation for us, sharing details on how re-enrollment of existing students and enrollment of new students are performing separately? Thank you. Thanks, Alex.

Yijing Cai: Thank you for taking my question I have a question regarding the two kilograms partnering and in fact, often shifting enrollment timeline.

Speaker Change: Because we know that the the guidance appears relatively Pennsylvania could you. Please provide more information on would've influenced by the shipping degreed enrollment period, Nokia clean room and occurred in March well did you know it took place in April.

Speaker Change: Could you give me a mcdonald's situation for my sharing detailed demo how reading Goldman dumping you'd think students enrollment of new students up from.

Speaker Change: Thank you.

Alex: Thanks, Alex.

Shannon: Thanks, Alice. Let's start with the guidance for the second quarter, then we can dive into our expectations for the whole year. From the revenue perspective, we expected revenue to be between RMB 908 million and RMB 928 million in the second quarter of 2024, representing an increase of 29% to 32% on a year-over-year basis. The primary revenue contributor is learning services, of which around 75% of our total revenues came from non-academic tutoring services and our traditional learning services.

Speaker Change: Start with the guidance of the second quarter than they can damage to our expectations for the whole year. So from the revenue perspective, they expected the revenue to be between RMB 900, and at mainland and RMB 928 million in the second quarter up 20% as for brokerage.

Speaker Change: <unk>, an increase of 29% to 32% all year over year basis.

Speaker Change: So the primary revenue contributor as learning services Amazing, which.

Speaker Change: <unk> 75 for Santa Barbara total revenues came from non academic children's services and our traditional learning services. So late in the.

Shannon: So we still see strong momentum for this segment in the second quarter, and we foresee this part of revenue growing near or over 45% on a year-over-year basis in the second quarter. So the segments with growth rates slower than the overall company growth are primarily the impact of the education services we provided for college students and adults. Although the gross billing increase in the past two quarters shows strong momentum, it's mainly contributed by college learning services and overseas-related business.

Speaker Change: Second quarter, we see strong momentum for this segment and we're supposed to release part of revenue to grow a near all or four 5% all year over year basis in the second quarter. So the Sacramento ways gross rate slower than the overall company goals are primarily the impact of the outpatient services.

Speaker Change: Provide us for college students in adult.

Speaker Change: Although the golf billings inquiries in the past two quarters show, there's still momentum, but it's mainly in country. The OTA by college learning services and overseas related business. According to their class schedule around the seasonality the revenue usually recognized in the third quarter and even the second half over the year.

Shannon: According to the class schedule and the seasonality, revenue is usually recognized in the third quarter and even the second half of the year. So, therefore, although we saw strong growth momentum in gross billing, revenue remains flat in the second quarter. And therefore, it kind of dragged down the whole company's revenue growth rate.

Speaker Change: So therefore, although with all the.

The strong growth momentum in golf Billings revenue remains flat in the second quarter and therefore, it kind of a drag down the whole company's revenue growth rate.

Shannon: So in terms of gross buildings, we expect it to, I mean, in the second quarter of 2024, we still anticipate it to grow at a high double-digit growth rate in the second quarter on a year-over-year basis. And also, especially for our non-academic tutoring services and our traditional learning services, the gross buildings collected from new students are expected to grow over triple digits. And this momentum has continued since last November, and we still see the momentum to continue in the second quarter.

Speaker Change: So in terms of gross billings, we expect it to I mean in the second quarter of 'twenty 'twenty, four which do you anticipate it to grow at a high double digit growth rate in the second quarter, our year over year basis, and also for especially for our academic children or somebody stays in our traditional.

Speaker Change: Learning services are the golf billions collected from new students is expected to grow over triple digits and this momentum has been continued from.

Speaker Change: From last November and they still see the momentum to continue in the second quarter.

Shannon: So regardless of all the scheduling differences compared with last year, if we see the first half of 2024 as a whole, we do expect the gross billings to grow at the high end of the middle double-digits on a year-over-year basis. So because we all know that gross billings is a leading indicator for revenue growth, so this can basically place a solid foundation for the whole year's revenue growth. So, if we're looking into the second half, the demand for non-academic tutoring and traditional business is still substantial.

Speaker Change: So regardless of all the scheduling differences compared with last year, because they see the first half in 'twenty 'twenty four as a whole where it still are you started the golf billings to grow at the high end of middle double digits, all year over year basis.

Speaker Change: Because we all know about golf billings as a leading indicator for revenue growth, So, which basically Atlas can place a solid foundation for the whole year revenue growth.

Speaker Change: Then if we're looking into the second half of that in mind, if or not that makes cooking and traditional business is still a potential whereas a clear compliance on the governor Scott has in place our business girls initiate hey, what's the best new enrollments and subsequent you'll generate generated incremental revenue.

Shannon: With clear compliance and governance guidance in place, our business growth initiatives with new enrollments and subsequent generated incremental revenue through retention and cost expansion. So we do have confidence in our operational capabilities and the reputation we have established among students and parents.

Speaker Change: Retention and of course the expansion. So we do have the confidence yeah. My all our operational capabilities and the reputation we have at the base the amount of students and parents.

Shannon: Therefore, we anticipate that the growth rate for both gross biddings and revenues will accelerate in the second quarter and especially in the second half of the year. Thus, we should have a higher level of clarity by the time of our next earnings call. But based on our assessment of the current situation, we saw revenue growth move towards the high end of our expectations for the whole year. And in terms of the enrollment changes, because we haven't disclosed details of the enrollment by segment.

Speaker Change: Therefore, we anticipate that the growth rate for both golf billings and revenues to accelerate.

Speaker Change: In the second quarter, and especially in the second half of the year. So we should have a higher level of clarity by the time of our last earnings call, but based on our assessment of the current situation, where he saw revenue gross rate move towards to the higher high end of our expectations for the whole.

Speaker Change: Yes.

Speaker Change: And in terms of thinking you'd almost 10 days because like we haven't disclosed the house, they get almost by Sacramento, but because the S. T. It stayed stable so actually the inquiries up the gross billings shows are basically the same pace with the enormous increase.

Shannon: But because the ASP is date-stable, the increase in the graph billings shows basically the same pace with the enrollment increase. So let's put all this information together. So although the revenue guidance for the second quarter seems a little bit weak, but if we put emphasis on the growth feelings we collected during the fourth quarter last year and the first half of 2024, we still have strong confidence for the whole year's revenue goal. And for specific quarterly growth guidance, we will regularly share updates with you in each earnings release. I hope that this answers your questions, Alice.

Speaker Change: So like that that's that's put all this information together so although the revenue guidance over the second quarter. It seems at least was awake, but easily put exercise. It's all the golf billings will be collected during the fourth quarter of last year and the first half of the of 'twenty 'twenty four but still.

Speaker Change: Have some confidence for the whole year's revenue will go and source that doesn't correlate girls guidance Louisville, a promo lay share updates with you in each of the earnings release hope that address all questions Atlas.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: And the next question comes from Jeffrey Chen with C. O S. A please go ahead.

Operator: And the next question comes from Jeffrey Chen with CLSA. Please go ahead.

Speaker Change: Yeah.

Xiangdong Chen: Hi, Thank you management for taking my question other question, Bobby and D. One person awesome teeth in margin.

Xiangdong Chen: Hi. Thank you, management, for taking my question. I have a question regarding the OPEX and also the GP margin. Can management give us some more color on the GP margin and the OPEX ratio for the next quarter and the rest of this year, 2024? And perhaps, if you could, could they give us more color on the profitability for full year 2024? Thank you. Thank you, Jeffrey.

Speaker Change: Can management give us some more color on the GP margin.

Xiangdong Chen: Sure.

Xiangdong Chen: Hum.

Xiangdong Chen: Cool.

Speaker Change: Uh huh.

Speaker Change: Smoke home now and be a type of community.

Speaker Change: Oh.

Speaker Change: Thank you.

Speaker Change: That's definitely a part no question. So that's really the Opex line by line by line and start ways are the change up our.

Shannon: Thanks, Jeffrey, for your question. So let's split the OPEX line by line and start with the change in our GP gross profit margin. So first, for the gross profit margin, we observed around a 6% decrease in GP margin on a year-over-year basis. And the year-over-year decrease in gross profit margin was due to a few reasons.

Speaker Change: G P. A golf property margin. So first for the golf club imagine they observe a around 6% decrease in our GP margin all year over year basis. So the year over year decrease in gross profit margin was due to a few reasons. The primary reason was the revenue mix change.

Shannon: The primary reason was the revenue mix change. In terms of revenue contributors, to meet diversified user demand, we have constructed a product mix primarily focused on online large class businesses, complemented by one-on-one classes, smart textbooks, and offline small classes. Among all these business models, the online large class boosts the highest GP margin level. As our business expands, the proportion of revenue generated from our one-on-one classes, smart textbooks, and offline classes is gradually increasing, altering the revenue mix, and subsequently impacting gross profit margins.

Speaker Change: In terms of a revenue contributor to meet diverse diversified user demand we have constructed a product mix primarily focused on all our lives large class business complemented by one on one class smart textbooks and offline small classes.

All of these business models online large class supports the highest the GP margin level as our business is that the proportion of revenue generated from our Val one classes smart textbooks and offline classes is gradually going crazy alternate revenue mix and so sequentially.

Speaker Change: <unk> gross profit margins.

Shannon: Especially, our offline learning center expansion is accelerating, which has brought us a higher level of cost of goods sale, which marks the GP margin lower at this point of time. Secondly, to enhance the comprehensiveness and competitiveness of our curriculum system, we are making efforts to introduce and develop new courses. The associated investment in faculty resources in the early stage will also impact the gross profit margin before they achieve their full capacity. So, in the long run, our GP margin will highly depend on future revenue structures. So that's the reason for the GP margin fluctuation.

Speaker Change: Actually our offline learning center expansion and the salary team Brown as a higher level of Cosmo herself, which marks the GP margin lower at this point of time.

Speaker Change: Secondly to enhance the comprehensiveness and a competitor M&A yourself ever curriculum system.

Speaker Change: We are making efforts to introduce and give out new courses associated investment in fact, the data sources in the early stage will also impact our gross profit margin before they achieve their full capacity. So in the long run our G. P. Marder will highly depend on the future of revenues factors. So.

Speaker Change: All.

Speaker Change: Reason for the GP margin fluctuation than secondly, Ah, let's look into the details of our R&D expenses are changed so the llano well yeah increase our in our research and development expenses. This quarter was mainly due to.

Shannon: Then secondly, let's look into the details of our R&D expenses change. So the year-over-year increase in our research and development expenses in this quarter was mainly due to. Corresponding Resources Investment in Innovative Technology, such as artificial intelligence, started in the second half of last year. Education, with its vast potential, stands as a promising domain for practical implementation.

Speaker Change: A corresponding the sources the investments in our innovative technologies such as artificial intelligence started in the second half of last year education wages lots of potential stands as a promising domain for a practical implementation. So currently our apps.

Shannon: So currently, our application of AI is primarily focused on enhancing internal efficiency other than external tools. This includes areas such as curriculum research, student auto question and answer section, and also product research and design, customer service call center, and overall internal operations. Simultaneously, we are also exploring tool-based products aimed at improving learning efficiency so that they can assist our students to learn at a higher, more efficient level. Also, to support the development of our offline business, we have started to invest in the research and development of offline operating systems. That's basically a new system and different from our online operating system, as well as content development.

Speaker Change: Patient of AI primary landfall grass valley of housing internal efficiency other than external tools lease includes such as curriculum a research student Oh I'll tell a question and answer section and also product research and design.

Speaker Change: Customer service call Center, and all all your internal operations simultaneous leave it I'll also exploring tool. This tool based products are aimed at improving the learning efficiency like that they can assist our students to learn.

Speaker Change: At a higher efficient level also to support the development of our of our offline business. We also are starting to invest in the research and development of offline I'll put in a system. That's basically a nail system and the difference from our I'll I'll put in system as well as.

Speaker Change: Our content development.

Speaker Change: Our offline business as are expanding very fast so very good crude a top notch content researchers to help pass to Ah too.

Shannon: Our offline business is expanding very fast, so we recruit top-notch content researchers to help us to lay a solid foundation for content development. But if we make a quarter-over-quarter comparison, the R&D expenses as a percentage of revenue actually decreased nearly 2%, which shows the economics of scale and operating leverage. And thirdly, if we dive into the G&A section, the year-over-year growth in our G&A census was mainly due to the increase in labor costs. So since the beginning of this year, we've brought a reasonable number of general management talents to our non-academic tutoring services, especially a couple of numbers of top-notch offline learning center managers.

Speaker Change: To make a solid foundation for the content development. So.

Speaker Change: But it would make a quarter over quarter comparison, the R&D expenses as a percentage of revenue actually decreased nearly 2%, which shows the economies of scale and I'll pay elaborate.

Speaker Change: And certainly if we dive into the Q&A session. So the year over year girls in our G&A expenses was mainly due to the increase in labor cost.

Speaker Change: So things are at the beginning of this year. They brought a reasonable number of general management and talent to our no academic children or services, especially Ah Ah Ah.

Speaker Change: A couple of numbers off the top notch offline learning center managers, and we believe that by doing so our teach out related to the business will achieve rapid goes well also improving operational quality and efficiency because we all know that talent is the most of the factors to success for our offline business.

Shannon: And we believe that by doing so, our K-12-related business will achieve rapid growth while also improving operational quality and efficiency, because we all know that talent is the most important factor to success for our offline business. And last but not least, the most important factor is our expenses we spend on sales marketing. So it's highly relative to our gross earnings increase. As I mentioned in the prepared remarks, if we make an apple-to-apple comparison, actually, the gross earnings collected from our newly added students increased over 70% on a year-over-year basis.

Speaker Change: And last but the most is our our expenses. We spent all sales marketing so it's highly relative to our golf golf golf Golf's biddings in quake. So as I mentioned in our prepared remarks that if we make an apple to Apple comparison actually the gross savings.

Speaker Change: I paid a from our newly added students increased over 17% all year over year basis, well, our sales and marketing expenses increased nearly a around a 58% all year over year basis, so, but still see our customer acquisition cost.

Shannon: Well, our sales marketing expenses increased nearly around 58% on a year-over-year basis. So we still see our customer acquisition cost is within the profitability boundaries. And we still see we have cushion and room there that we sell our investment, our returns over investment on the customer acquisition side still. So that gives you a high level or some color on our OPAX variations there. And I hope that helps. Jessica.

Speaker Change: Within the other but the profitability of boundaries and we still see like we have cushion down the room, there that we saw over a Bachelor and Oh, our returns over our investment although it has some I have somebody who just inside you want maintains a high efficiency. So that gives you a high level.

Speaker Change: Paul or a color on our old packs all variations there and help that helps thanks Jeffrey.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Catherine Chen for any closing remarks.

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

Thank you operator, and thank you everyone for joining the call today and if you have any further questions. Please don't hesitate to contact.

Catherine: Thank you, operator, and thank you, everyone, for joining the call today. And if you have any further questions, please don't hesitate to contact our Investor Relations Department or our management team via email at ir at go2.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.

Speaker Change: Our Investor Relations Department or our management team.

Speaker Change: Now I'll go through that.

Speaker Change: Exactly.

Speaker Change: You are also welcome to subscribe to our newsprint or on the company's IR website.

Speaker Change: Thank you very much again for your time.

Speaker Change: Okay.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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