Q3 2024 Gaotu Techedu Inc Earnings Call
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the GAL2TechEDU 3rd Quarter 2024 Earnings Conference Call.
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Before we begin I'd like to remind you that this conference call will contain 4 looking statements. Made under the Safe Harbor position of the ux private security litigation Reform, Act of 1995
before looking statements are based upon Management's, current beliefs and expectations.
as well as the current markets and operating conditions,
And they involve Nan or annoyance 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 companies
Performance for achievements to differ materially from those containing any forward-looking statements.
further information regarding this and other is,
included in the
public filing with the US sec.
The company does not undertake any obligations to update any forwarding statement, except as required under a paper law.
During today's call, Benjamin will also discuss certain non-GAAP measures for comparison purposes.
For definition of non-GAAP financial measures and Reconciliation of gaap to non-GAAP financial results. Please refer to our second, a third quarter 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 available on go to our 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. Go to third quarter of fiscal year to assign on the 24th call I would like to take this opportunity to express my gratitude to each of you for your interest in and the support of go to before I start I would like to remind everyone that all Financial figures is a cast today according in R&B and that's stated otherwise
During the past quarter, our car, businesses continued to make steady progress with the growth experience, increasing by 67.2% over year to approximately 1.1 billion and the revenue growing by 53.1% year-over-year to over 1.2 billion.
These growth is attributed to our keen understanding of market trends and the continuous optimization of our strategy and execution.
And our business skills rapidly and the product Matrix in reaches gradually. We ramped up Investments with a particular books, on upgrading our Educational Systems in changing organizational, capabilities and improving management of practices. We also anticipate that efforts in Talent Development and the professional training
In the course of the business development and refinement, we have nurtured and promoted High performing Frontline and the mandatory real talent from within while also attracting seasoned professionals from the broader industry. This has enhanced our team's ability to navigate various complex, business environments, and improve execution efficiency.
In this quarter, we educated, more than 120 million for share BuyBacks underscoring, our strong commitment to shareholder returns.
Wednesdays are share repurchase has impacted our cash balance.
Our liquidity position remains solid, and robust, as of September the 30th 2024, we held a total of over 3.3 billion in cash, cash equivalents restricted cash, and the short-term and long-term Investments, providing a firm foundation for our strategic, priorities and long-term growth.
Next, I will provide an update on the progress. We have achieved this quarter first, we further enhance our educational products learning services and teaching quantity by seemingly integrating the expertise of our top tier instructors outstanding chaters and the content development team with advanced technology.
Our ultimate goal has always been to deliver an exceptional learning experience that leads to tangible, learning outcomes for our users.
For our instructors.
Which describe to achieve the best teaching practices through systematic, coarse refinement, and training by our content development team. Ensuring, the complex knowledge in is presented to students in a clear engagement and accurate way. At the same time,
Emerging Technologies, such as AI are empowering our tutors with deep insight into each students individual needs.
Enabling them to provide comprehensive and efficient assessment, tailored learning plans, and 20 support to boost user engagement and learning efficiency.
This quarter, the referral rate of our Educational Services for the current students achieved a significant break through serving as a strong. Endorsement of the value we provided and highlighting the growing recognition of our brand.
Furthermore, we have established a multi-tiered educational support and content system designed to meet the diverse needs of students at different stages of their Learning Journey. Meanwhile, our Dream coach program has been ruled out at scale.
Where outstanding alumni from chinua and Peak University are invited to share their learning experiences provide the career guidance and over both emotional support, and practical advice to current students. Further enhancing students engagement
Second, we actively embrace the market changes and proactively advanced our customer acquisition capabilities.
Despite the evolving Market landscape and the macro environment. Our efficiency in custom Acquisitions through live streaming and other channel, remains industry, leading
This.
Had even significant growth in growth, experience and federally increase our market share.
Since 2023, we have consistently focused on expanding and diversifying our customer acquisition channels.
Building a comprehensive and resilient acquisition system that encompasses.
Self-operated channels private traffic activation and the content driven strategies.
This decline, the approach can effectively reduce exposure to external volatility and mitigate Market risks.
Going forward. We will further increase investments into proprietary channels and private traffic engagement and the conversion efforts maintaining a strong emphasis on their efficiency and Effectiveness. Our goal is to build a more robust and sustainable traffic acquisition system. There's a part our steady growth in the long run.
third, we remain committed to social responsibility and creating
Long-term evaluation.
This quarter, we continue to promote, education, Equity by awarding underprivileged. First year culture students in the province with scholarships to pursue their dreams and Advance their educational Journeys. Additionally, we supported Regional Education by building libraries and donating a substantial collection of books to schools in Gansu Province, providing locals buildings with enhanced educational resources and a better reading environment.
In alignment with our mission, to generate a value. For our all stakeholders, we have also made progress in delivering shareholder returns.
From the start of the Year through December, the 3rd, we repurchased. An aggregate of more than 6.5, meaning ads for approximately 25.21 million US Dollars, representing our approximately 2.6% of the total outstanding shares as of the end of 2023.
this brings the community value of share repurchase under the program of
the program to approximately 37.5 million soldiers.
Looking ahead, we will continue to uphold our social responsibilities while prioritizing shareholder value.
By creating business values and contributing to the success of progress, we aim to drive sustainable and high quality long-term growth for our company.
Thank you very much, everyone. This is the end of my prepared remarks. Now, I will pass the call over to our table, 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 third quarter of fiscal year 2024.
In the past quarter, we capitalized on the robust market demand during the summer vacation, period successfully, achieving our growth feeling targets.
Aimed rapid business growth.
And driving meaningful increases in student. Enrollment and market share.
With the continuous rise in student enrollments.
Girls in our Top Line, has auxiliary related sequentially in each of the past 3 quarters.
In the third quarter, our Revenue increased 533.1%, year-over-year and grew by approximately 10 percentage points. Sequentially
As of September, the 30th 2024, our deferred revenue balance. Increased 89.0% year-over-year to over 1.4 billion.
looking ahead, we anticipate year-on-year Revenue growth
To pick in the fourth quarter, with our core online businesses that to outpace the broader industry.
Further consolidating, our leading position in the market and laying a strong foundation for future growth.
Well, continuing to strengthen the core competence of our online products.
We are actively deploying resources to explore and expand into diverse, educational, offerings.
This approach helps us better drive students learning needs across various scenarios.
Expanding our addressable market, and enhancing user engagement.
We are focusing on segments, with clear user demand.
John willingness to pay and proven business models.
Additionally, we are utilizing Advanced Technologies like artificial intelligence to continuously optimize both teaching quality and operational efficiency.
Although this Investments May weigh on our financial results, in the short term, we remain committed to refining our operations and dynamically tracking key business metrics to effectively balance Investments and returns.
We believe these educational offerings with great growth potential will further boost our market share and the brand recognition.
Supporting long-term Revenue, extension and value creation for our users.
Next, I will walk you through the progress. We have made during the quarter.
Learning Services, contribute in 95% of net revenues.
Breaking it down more than 75 percentage of total revenues. Came from an academic tutoring services.
And other traditional learning services.
Representing an increase of 70% year-over-year.
In new initiatives, centered around non-academic Ting, Services, experienced remarkable growth in this quarter.
In products development.
We consistently refine our knowledge, graphs and curriculum.
And conduct index analysis of students needs at different stage of their development.
This approach ensured that our courses are scientifically grounded and systematic for the structures to provide students with course Arrangements that by the line with their learning path.
On the delivery front, we have developed a standardized, scalable Talent Development system through careful screening records training and ongoing performance evaluations.
as a result of these efforts,
not revenues and gross buildings from our new initiatives. Third, by more than triple digits year-over-year.
Graph buildings from new student enrollments soared by over 200% compared to the same period last year.
Our traditional learning Services, maintained static growth.
During the quarter. We further optimized our students composition by refining operations for key entry grades.
Strengthening the foundation for sustainable future development.
Well, leverage in the influence of our top tier instructors. We have also enhanced the professional expertise and service quality of our tutors.
Building on the Improvement of teaching quality, we have placed greater emphasize on addressing user needs.
By offering comprehensive Solutions in compassing study plans and family education. Guidance to Foster students collectic development
as a result, God's feelings of this segment will be more than 40% year-over-year in the quarter.
underscoring, the high regard and Trust students have for the while we have provided
The other crucial component of our learning Services. Its Educational Services for college students and adults.
Which contributed under 20% of total revenues in the quarter.
We optimized our business, mix and resource allocation to focus on areas with strong market, demand and clear path to profitability.
During the quarter. Paul brings in his segment, maintained Healthy Growth momentum
Educational Services for college students achieved High double digits year-over-year, Revenue growth.
Along with quarterly profit and positive cash flow.
Similarly, overseas study related Services, achieved, High double digits year-over-year, Revenue increase, and generated, positive cash flow for the quarter.
For the demonstrating, the success of our product, our play musician and business adjustment effort.
I will now present our financials in more detail.
Our cost of Revenue, this quarter was 429.8 Million.
Gross profit, increased 36.3% year-over-year to 700 and 778.5 million with a growth margin of 64.4%.
Total operating expenses during the quarter increased 89.1% year-over-year to approximately 1.3 billion.
From a seasonal perspective.
The fourth quarter is typically not a peak period for new customer acquisition, in our traditional and the academic businesses.
As such, we plan to adjust our selling expenses accordingly.
Breaking it down selling expenses, this quarter increased 103.9% year-over-year to 885.8 million.
Accounting for 73.3% of net revenues.
This was primarily driven by higher marketing expenses in response to heightened market demand during the summer vacation period.
Research and development expenses. Increased 444.9% year-over-year,
To 100 and 189.3 million.
The accounting for 15.7% of net revenue.
General and administrative expenses increased 82.9% year-over-year to 100 and 1933.5 million.
Accounting for 16.0% of net revenues.
Loss from operations was 490.1 Million.
And operating margin was negative 4.6%.
non-GAAP loss from operations was 476 million.
And N Gap. Open margin was negative. 39.4%.
That loss was 471.3 million and that income margin was negative. 39.0%
Nan loss was 467.2 million and 9. Gaap. Net income. Margin was negative 37.8%.
I would not operating cash outflow with 714.4 million.
now, turning to our balance sheet,
As of September, the 30th 2024, we held 862.7 million in cash, cash equivalents and restricted cash.
Along with 1.5 billion in short-term Investments.
And 964.4 million in long-term Investments.
Let's come to a total of over 3.3 billion.
As of September, the 30th 2024, our deferred revenue balance was over 1.4 billion.
Primarily consisting of 2. Asian received in around.
As of December, the 3rd 2024, we will push it. An aggregate of our proximity to the 11.5 million ads on the open market for approximately over, 37.5 million US dollar and the existing share repurchase program.
We will continue to execute. Share Buybacks in accordance with the board directors guidance.
to create long-term value for our shareholders,
Before I provide our business outlook for the next quarter.
I would like to remind everyone that this contains forward-looking statements that involve risks and uncertainties beyond our control, which may cause the actual results to differ materially from our expectations.
Based on our current estimates.
We expect total net revenue for the fourth quarter of 2024 to be between 1,200 and 88 million, and 1,300 and 8 million.
Representing an increase of 69.2%.
To 71.9% 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.
To ask a question. You may press star and 1 on your telephone keypad.
If you are using a speaker-phone, please pick up your handset before pressing the key.
if at any time your question has been addressed and you would like to withdraw your question, please press star then 2
At this time, we will pause momentarily to assemble our roster.
The first question today comes from Crystal Li with CMS. Please go ahead.
Uh next measurement for taking my questions. I saw you provided the growth guidance for group Revenue in for quarter. Uh how about the growth by different business segments?
And could you give us some color on 2025 schools, Outlook? Thank you.
Uh, thanks Crystal um, from the current perspective, looking at the overall operational performance in 2024, uh, we observed 2, primary deviations from the expectations, we set at the beginning of this year.
First, the judgments in the psychological Consulting segments within the educational services for college students and adults.
Impacted by the certification requirements which led to a revenue shortfall compared to the projections uh we performed at the beginning of the year.
And second some of our, uh, Innovative efforts in traditional Education Services. Did not fully exceed our expectations.
And also in the second half of the year. We we are navigating a period of subdued economic growth accompanied by a more cautious consumer spending environment together with the uh, switch on social platforms further handled the recovery of the gaap.
And also our loss, in our 2024 has widened on 1 hand, our increased, uh, investments in the offline operations, and overseas study Services while creating short-term pressure. Uh, actually strategic decisions aimed at long-term growth
Sleepy. Leave this effort, will eventually generate better returns for our students and and shareholders uh and create the value. We provided and on the other hand, our handling of uh, explosive business opportunities in the first half of the Year. Tap hold was inefficiencies in resource allocation, During the period of rapid growth, which also contributed to the current loss as well. So, looking ahead to 2025, we will take a more Dynamic approach to balancing scaling investment and profitability, our Focus will be on expanding the prophet base and improving our operating profit margins in our existing business. Also, at the same time, we will be optimizing our fixed cost structures such as um uh research and development expenses. And also uh, GNA expenses and we will be continuously driving
Cost reductions and efficiency improvements.
So we expect both cross buildings and revenues to achieve steady growth uh in 2025 with a significant reduction uh, in losses. And during this period, we will also strive to enhance, shareholder value, and continue to execute the share, your purchase plan, and the guidance of our, uh, board of directors and hope that address your questions. Thanks Crystal.
Thanks a lot.
This concludes our question and answer session, I would like to turn the conference back over to Katherine Chen for any closing, remarks.
Thank you, operator. And thank you everyone, for joining the call today. If you have any further questions, please don't hesitate to contact our investor investor relations department or our management via email at IRS go to 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.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect