Q4 2024 Gaotu Techedu Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the GAO 2 Tech EDU 4th Quarter and Fiscal Year 2024 Earnings Conference Call. All participants will be in listen-only mode.
Larry will first provide the business highlights for the quarter and then outdoors Shannon will discuss our financial performance in more detail.
Following their prepared remarks, well open the floor to questions from analysts.
Before we begin I'd like to remind you that this conference call will contain forward looking statements made under the safe Harbor provision of the U S. Private Security Litigation Reform Act of 1995.
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 cause the company's actual results performance or achievements to.
Differ materially from those contained in any forward looking statements.
Further information regarding this and other risks is included in the company's public filings with the U S. S E T.
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 comparison purposes only.
For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results. Please refer to our fourth quarter and physical year 2024 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 alive on golf with IR website. It.
Speaker Change: It is now my pleasure to introduce our founder Chairman and Chief Executive Officer, Larry Larry Please.
Speaker Change: Good evening and good morning, everyone. Thanks for joining us on call. It was fourth quarter and fiscal year 2024 earnings conference call I would like to take this opportunity to express my gratitude to each of <unk> for your interest and support.
Before I start I would like to remind everyone that all financial figures discussed today are quoted are in RMB.
As stated otherwise.
Driven by our two pillars of our strategic focus and organizational capability enhancement.
Radio for the customers had been comprehensively improved this quarter, we made substantial progress in both revenue growth and the user expansion.
Utility and pro forma the insights haynesville user needs. We have developed a comprehensive a spectrum of products and services is there to cover various learning scenarios.
Further in fencing, the user experience and driving substantial high quantity gross water is particularly because zero rating as a precursor to rule in covenant tabled reasoning achieved by a G. III technologies represented by deep Sea.
Speaker Change: Nick.
Speaker Change: Top of the waves as outstanding cost efficiency.
Speaker Change: This innovation is not technology co leap it acts as a powerful catalyst sparkling the regimens of a new generation of intelligent educational resolutions.
Speaker Change: No. The only thought that these technology co advancement aligned strongly with our existing AI strategy, but the aide also significantly accelerates our efforts to enhance the learning effect jimenez and boost organizational performance.
Speaker Change: Why does he sounded the ear as opportunity and the intersection of technology.
Speaker Change: The patients we are proactively vigorously pursuing the deep integration of AI weezy in educational frameworks.
Speaker Change: We are steadfast in meet them into two of the color education, our principles of providing personalized and adaptive learning experience say the for every lender.
Speaker Change: Our fourth quarter financial results underscored, there's a positive momentum in the pan.
Speaker Change: MC gross adds aware I have a strong resilience of all of your business.
Speaker Change: <unk> increased by 82 point of 5% year over year to nearly one point afford opinion way, the Crosby and significantly exceeding our expectations up by 69 point of zero percent to over two point the $1 billion.
Speaker Change: Loss from operations narrowed by 20 points to 6% with operating margin improving by a certain point the nine percentage points demonstrating all are to continue the progress in profitability and a tangible impact of our efficiency driven initiative.
Speaker Change: Additionally, we generated a net operating cash inflow of 708 days III PON to fix the mania this quarter, bringing our cash cash equivalents restricted cash short and long term investments to 4.1 billion as of December.
Speaker Change: 31st 2024.
Speaker Change: This robust cash position provides us Sony the foundation for our further.
Speaker Change: And if you had to have it on a long term sustainable growth now I will introduce our strategic progress and the key highlights for this quarter from three perspectives.
Speaker Change: First and foremost fully in.
Speaker Change: Fully embracing our AI strategy, we are dedicated to creating a personalized efficient and scalable suits him for lennar grows and the support.
Speaker Change: As a persistence of innovation and a pioneer in the field of education. We firmly believe is out of the next generation of AI technology will suddenly transformed the lending eighth appearance and significantly enhance the learning efficiency.
Speaker Change: I'll, let years of a forest I for us it means the education sector and the hands on teaching interference have enabled us to accurately grasp the diverse needs of our students and the parents deeply understand their pain points in their learning process and develop king.
Speaker Change: Insights into the fundamental principles of education.
Speaker Change: Z as in valuable real war, the inside from a foundation of our innovation development and enabling us to offer students a more tailored and targeted learning support making of their journey and policy is more.
Speaker Change: More precise the intelligence and the personalized moving forward the way, we will continue to invest in key areas such as a technological development tightened the cultivation and the resource didn't take region.
Speaker Change: We remain committed to a cause of Ferrari diverse AI treatment solutions, yeah, education, and fostering more personal than either learning environments that habit still dancing Iranian waves or the pads pursuant to their knees and lowers their full potential and to support as a personal growth.
Speaker Change: We continue to optimize the user experience we are simultaneously translating our technology.
Speaker Change: Prowess into tangible educational outcomes, achieving mutual reinforcement through.
Speaker Change: Sort of a systematic implementation our AI driven copilots intended into teaching platform as amaze salt they claim upgrading the entire educational services value chain.
Speaker Change: In certain user because these in scenarios are intended to enter content sort of it's detainment romantically right Youll see the response time and the antibodies efficiency by mine Ford leveraging 10 insights into user needs on the agenda, reaching dynamic content.
Speaker Change: Regarding homework.
Speaker Change: As he and James are boosting teacher gradient efficiency by over 50% you started planning of the deep seek a powered.
Speaker Change: Cause collection model is providing students away the pain or the data driven decision making support.
Speaker Change: This technology called penetration now it tends to current aspects, including research and development and the curriculum design, creating a precise intentions and a personalized education those surveys loop.
Speaker Change: Second we remain commitment towards the essence of education.
Speaker Change: Sustained growth through teaching excellence.
Speaker Change: We firmly believe that a refining educational products.
Speaker Change: In teaching quantity and optimizing learning services are fundamental to building a lasting competitive edge.
Speaker Change: Towards this end, we continue to invest in products at the very moment fine tuning content and fostering close collaboration between structures and the children to ensure a seamless integration of our curriculum and teaching services in.
Speaker Change: In terms of our curriculum development, we have a built a diverse portfolio income passing online large classes on y on Y and sanctions by the A's and the books among others.
Speaker Change: Parties by AI, driven recommendations and timetable learning technology, we are able to deliver personalized learning solutions that cater to each student's unique needs.
Speaker Change: Quieter because of it.
Speaker Change: Pensions race for new enrollments in both our non academic chartering and a traditional learning services showed a steady improvement highlighting the effectiveness, our I first union fencing educational products and services and the strong reclamation.
Speaker Change: Of our teaching auto chrome and Safari users third we activity uphold the social responsibilities aligning long term shareholder value with a broader societal impact.
Speaker Change: So staying true to our regional aspirations, we remain dedicated to promoting educational equaled hey, I had a part of as I referred to we have established as a Beijing Golf Foundation, leveraging our advanced technology and high quality educational resources.
Speaker Change: Part of the whole, let's say development of zero is still dan's broadening their perspectives and elevating the overall teaching capabilities was order educators. We have also made solid progress at Union fanzine long term shareholder value.
Speaker Change: As of February 20, <unk> 2025, we have allocated the nearly 47.5, mainly U S daughters in aggregate for share buybacks, including over 8.1 Mania as bought back a 428.
Speaker Change: <unk> eight mainly U S dollars in 2024. This represents a 3.2% of our total outstanding shares at the end of 2024, reflecting a further improvement from the to sell.
Speaker Change: Then in 'twenty three.
Speaker Change: These actions highlight our and we've read and commitment to shareholder returns and reinforce our strong confidence in the company is filter looking.
Speaker Change: Looking ahead to 2025 guide either by hour in a fantasy growth strategy, where we will further advance our AI initiative is driving innovation across the education industry, while creating long term value for our shareholders.
Speaker Change: Users and the society at large.
Speaker Change: Thank you very much everyone. They say as of the end of my prepared remarks, now I will pass the call over to our CFO Shannon to walk you through our financial and operational details of the quarter.
Shannon: Thank you Larry and thanks, everyone for joining our call today.
Shannon: I will now walk you through our operating and financial performance for the fourth quarter and fiscal year 2024.
Shannon: This year, we've demonstrated Josh J T take for salaries in a rapidly evolving and changing market landscape.
Shannon: Achieving key milestone in our business.
Shannon: As the scale of our business really chase new highs, we have asked the bailey flexible and dynamic resource allocation mechanism.
Shannon: To continuously calibrate and guide our approach to steer the business towards sustainable growth.
Shannon: We ended the year on a high note with solid financial results and major business breakthroughs.
Shannon: Well that doesn't mean, the competitive edge of I won't call operation.
Shannon: Given the fourth quarter, our revenue grew by eight 5% year over year.
Shannon: Reaching an annual peak.
Shannon: <unk> increased by 29, 4%.
Shannon: Crucially drill.
Shannon: Driven by the continued expansion of our active user base and long term accumulation of teaching excellence.
Shannon: Meanwhile, Gulf spinning maintained strong growth momentum.
Shannon: Driving by 69.0%, you'll all year.
Shannon: Lease result, not only underscore our success in expanding our market scale, but also highlights the increasing strength of our brand influence and.
Shannon: The only market regulation.
Shannon: On the profitability from our growing base of existing user attention to deal with it to improve margin.
Shannon: Well it is supported by the economies of scale.
Shannon: As a result.
Shannon: Loss from operations for the quarter nailed and then they typically year over year.
Shannon: This progress reflects our success in maintaining a healthy unit call. It makes model.
Shannon: Driving greater operational efficiency.
Shannon: Laying a solid foundation for long term growth.
Shannon: For the full year net revenues increased by three 8% year over year to approximately $4 6 billion.
Shannon: Well go spitting school by six to eight 1% year over year to over 516 billion.
Shannon: We generated 200 and say the 8.0 million in net operating cash inflow for the year.
Shannon: As of December 31st 2024, our total cash position.
Shannon: <unk> cash and cash equivalents restricted cash and.
Shannon: Short and long term investments.
Shannon: To do it at full one 1 billion.
Shannon: Excluding the impact of share repurchase.
Shannon: Our cash reserves increased by 100, and it is variable and 9 million.
Shannon: Compared to the same time last year.
Shannon: Ensuring ample financial flexibility to support business development.
Shannon: Provides a sufficient margin opposite pay for our strategic investments.
Shannon: Next I will walk you through the progress we have made during the quarter.
Shannon: Learning services contributing more than 95% of net revenues.
Shannon: Breaking it down.
Shannon: 85% of total revenue came from non academic services and other traditional learning services.
Shannon: Representing a triple digit year over year in Kuwait.
Shannon: Focusing on the academic children, if somebody says our newly initiated remain dedicated to driving continuous innovation in educational products.
Shannon: And learning services to enhance teaching effectiveness, yeah. The overall learning experience.
Shannon: By introducing new products and the worst interactive course formats.
Shannon: We are constantly igniting students' interest in learning.
Shannon: Faltering called tomato growth.
Shannon: Improving practical skewed.
Shannon: Called waiting critical thinking and is seeing a lifelong learning abilities.
Shannon: During the quarter.
Shannon: This segment sustained strong growth momentum.
Shannon: Cheating triple digit year over year growth in gross billings for the third consecutive quarter.
Shannon: Our ongoing refinement of both educational products.
Shannon: Teach and approaches.
Shannon: <unk> also contributed to improved retention.
Shannon: <unk> retention rate for new students rising by more than five percentage points year over year.
Shannon: Our traditional learning services continue to maintain our leading position in the online education sector.
Shannon: On the product development front.
Shannon: With further enhanced our content mode.
Shannon: Building a comprehensive.
Shannon: Multi tiered ecosystem of teaching assistance and books to meet the diverse needs of students at different levels.
Shannon: I myself throughout the book series has been adopt by schools across multiple provinces in China.
Shannon: This highlights the strong demand for our products and expand our brand presence and market rates.
Shannon: In terms of teaching quality and services.
Shannon: Key performance indicators, such as retention rate and user satisfaction remained at industry leading levels.
Shannon: Reaffirming the strength of our offerings.
Shannon: Sporting sustained healthy growth of our business.
Shannon: The other crucial component of our learning services as educational services for college students and adults.
Shannon: Through strategic focus and James line optimization co.
Shannon: Oh offerings in this segment gained robust growth momentum.
Shannon: Country beauty near at 15% of total revenues in the quarter.
Shannon: We have leverage AI technology to enhance the teaching model for our educational services for college students.
Shannon: And I think Ali improving teaching efficiency and enabling a sustainable increase in the tutor to student ratio.
Shannon: Additionally, ongoing enhancements in product and service quality, Florida, obviously, Mike the overall user experience.
Shannon: Leading to a steady rise in referrals.
Shannon: Creating a self reinforcing word of mouth effect.
Shannon: From a financial perspective.
Shannon: Gosh billings for this segment grew by high double digit growth year over year this quarter well.
Shannon: Well revenue doubled compared to the same period of last year.
Shannon: On a full year basis.
Shannon: Revenue and gross billing experienced rapid expansion.
Shannon: And for the first time the segment he had profitability on an annual basis.
Shannon: With operating net cash inflow, reaching three five times that of the prior year.
Shannon: This marks a major milestone in our path toward more sustainable operations.
Shannon: Our overseas test prep business.
Shannon: <unk> to demonstrate its professional value.
Shannon: This year, we're successfully help students gained admission to Howard, Colombia, Cornell and Adam Ivy League schools and other prestigious International University.
Shannon: Highlighting the effectiveness of our service offerings.
Shannon: Please acumen stem from our deep understanding of user needs and our ongoing commitment to service quality and process excellence.
Shannon: Looking ahead, we will remain focused on the technological innovation and deepening user value to drive high quality growth.
Shannon: By leveraging our cutting edge AI technologies.
Shannon: That work for that portfolio and you'll need the one page of rich learning scenarios.
Shannon: The aim to deliver user centric personal life and high effective learning solutions.
Shannon: As the bullish ourselves as the most trusted partner in their next journey.
Shannon: I will now present, our financials in more detail.
Shannon: Our cost of revenue this quarter was 408.3 million.
Shannon: Gross profit increased 77, 8% year over year to 948 3 million with a gross margin of 68, 3%.
Shannon: Total operating expenses during the quarter increased 52, 2% year over year to approximately $1 1 billion.
Shannon: Breaking it down selling expenses this quarter increased to eight 1% year over year to $706 2 million.
Shannon: Accounting for the phase 3.0% of net revenue.
Shannon: Research and development expenses increased six 6% year over year to 145 1 million.
Shannon: Accounting for 10, 4% of net revenues.
Shannon: General and administrative expenses increased 81, 1% year over year to 200, and a 16.4 million accounting for 15, 6% of net revenues.
Shannon: The notable increase was attributable to our proactive talent acquisition efforts to support the expansion of our product portfolio.
Shannon: Including on boarding industry professionals with extensive experience and strong management capabilities.
Shannon: As well as certain one time expense associated with business adjustments.
Shannon: Loss from operations was 149 3 million.
Shannon: Narrowing by 26% year over year.
Shannon: Operating margin improved by seven percentage points year over year to negative 10, 7%.
Shannon: non-GAAP loss from operations was 157 million.
Shannon: non-GAAP operating margin was negative nine 9%.
Shannon: Net loss was 100 instead of five 1 million.
Shannon: Net income margin was negative <unk>, 8%.
Shannon: non-GAAP net loss was 123 5 million.
Shannon: non-GAAP net income margin was negative eight 9%.
Shannon: Net operating inflow was 700 and it is $3 6 million.
Shannon: Now turning to our balance sheet.
Shannon: As of December of <unk> first 2024, we held one through billing and cash.
Shannon: Cash equivalents and restricted cash.
Shannon: Long ways, one 8 billion in short term investments and $924 7 million long term investment.
Shannon: This comes to a total of 411 billion.
Shannon: As of December to set up for 2024.
Shannon: Our deferred revenue balance was approximately $2 1 billion.
Shannon: Primarily consisting of Jewish and received no long.
Shannon: As of the most recent trading day, we would push it in aggregate of approximately 16 points to remain in a D. S.
Shannon: The open market.
Shannon: For approximately 300 and something million RMB under the existing share repurchase program.
Shannon: Well a salaried the exact fusion of share buybacks in the forthcoming open window, you know Cortez was the board of directors guidance.
Shannon: To create long term value for our shareholders.
Shannon: Before I provide our business outlook for the next quarter.
Shannon: Please allow me to remind everyone that this contains forward looking statements.
Which involve risks and uncertainties beyond our control and could cause actual results to differ materially from our predictions.
Shannon: Based on our current estimates.
Shannon: Total net revenues for the first quarter of 2025.
Shannon: I expected to be between 1000 $408 million and 1420 8 million.
Shannon: Resenting, a increase of 48, 7% to 58%.
Shannon: Oh, yeah basis.
This concludes my prepared remarks, operator, we're now ready for the choice section. Thank you IRA.
Shannon: Thanks for listening.
Shannon: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Shannon: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Shannon: At this time, we will pause momentarily to assemble our roster.
Shannon: The first question comes from.
Speaker Change: <unk> shown with C O S. A please go ahead.
Speaker Change: Oh, Thank you for taking my question and how he or she.
Speaker Change: And then Kathy So what my question is mainly on the guidance you provided a strong growth of amnio closing first quarter and could you also elaborate more on the margin outlook and also the guidance for 25 for you. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay, Oh, welcome IOC and thanks for your question.
Speaker Change: So during our last earnings call, we shared our expectations for the overall financial performance and trying to run it for so looking at our full year last year, we achieved RMB five 6 billion in gross billings.
Speaker Change: In RMB four 5 billion in revenue.
Speaker Change: In Q4 alone our gross billings are they exceed a coupon of one 6 billion contributing around 39% of the total at the same time, our theater needleman actually hit a record high after the new initiate has so given the relatively faster.
Speaker Change: Gross targets for kind of got it for we got her extensive student data and feedbacks on our products, which provided a more a clearer direction for your hunting our product quality.
Speaker Change: Also laid a.
Speaker Change: Solid foundation for our data accumulation and experience optimization, you know AI era. So.
Speaker Change: Also through all the physicals our process our team has undergone significant debarment ways improvements being capabilities.
Speaker Change: Heart of outstanding leaders has merged those who excel in teaching quality might take care of their services and operational excellence leaves out all of the most valuable assets and that humans for our organization you know the year up 20 funded for it.
Speaker Change: So looking ahead to 275 little place greater emphasizes all your housing the inspiration and engage them in student learning optimizing our user experience and ensure the scientific solution of our comprehensive learning.
Speaker Change: At the same time, our accretion will be more focused to all in more efficiency driven approach on.
Speaker Change: My hand, as our business continues to expand we want to further strengthen and refining our top teaching talent.
Speaker Change: And on the other hand, we have already embedded AI into basically all aspects of our operations from counting equation based on feedback and teaching support and like real time study section as well as internal process authorization et cetera, but we've been working closely with.
Speaker Change: These major AI loves to go models to optimize all the abovementioned processes. As a result, we are highly confident in achieving greater operational efficiency and enhancing profitability in trend was 95.
Speaker Change: So leveraging the momentum of strong growth in our Q4 in 2024, we anticipate achieving profitability.
Speaker Change: I felt the lower in Q1, 'twenty five well maintaining the fast revenue growth momentum.
al: Thanks Al do you hope that address your question.
Speaker Change: Yeah very clear thank you.
Speaker Change: The next question comes from Crystal Li with China Merchants Securities. Please go ahead.
Crystal Li: Okay. Thank you management for taking my questions and congratulations on your drone adult.
Speaker Change: Had one question on the I didn't.
Speaker Change: He then development.
Speaker Change: Oh skull to integrating into your accretion and with measurable improvements how do you see your business. Thank you.
Speaker Change: Oh, that's crystal for your question, Yeah, It's a really hot topic right now and.
Speaker Change: It's become more popular app to seek launched there are one model. So aia's reshaping education in multiple ways, including personalized learning automated assessment intelligent tutoring and enhance operational efficiencies. So for us, it's both an opportunity and a.
Speaker Change: Islands, requiring a strategic approach to integration.
Speaker Change: Yeah I can also provide personalized learning path for each student by analyzing their data dynamically adapting content based on all of the students learning progress their interest and even their business, yeah, driven adaptive learning platform, we're all seeing and ethically housing law.
Speaker Change: Deficiency and it can solve the problem that all educators has been training for thousands of years that we can provide a more adaptive learning.
Speaker Change: Counter to each of the individuals so and at the same time AI can automatically generated educational accountant satirize exercises course, all lines and even redo lectures and continuously optimize them placed out there don't sit back and and the cost of producing those.
Speaker Change: Patient Accountants will decrease significantly I bet cycle will shorten and counting quality will improve through AI driven optimization.
Speaker Change: Right. After this earnings call. We just received a message that the big thing that they further reduced their their cost and AI will handle more repetitive and fundamental teaching task freeing teachers to all focusing all your individual student needs and fostering creative thinking yeah should argument.
Speaker Change: Replace educators, especially leveraging AI for efficiency, while maintaining human.
Speaker Change: Migration, Oh, sorry interactions for our creativity and emotional intelligence.
Speaker Change: Yeah technology will profoundly reshaped the education product in the medium and long term driving innovations and personalized learning intelligent tutoring and the content generation and data analytics.
Speaker Change: But it would actively embraced the changes no bias in AI research and application, especially for the scientific learning solutions and drive they'd have privacy and ethics concerns to ensure that these technologies can serve the long term interest of education.
Speaker Change: And through continuous innovation and optimization, we will maintain a competitive edge in the market and provide students with more efficient actionable and personalized learning experience.
Speaker Change: Our investment in AI real focus on applications and solutions aiming to provide our students and parents, whereas the learning journey is that the student really enjoy and the parents can trust and that also carry walls and inspirations.
Speaker Change: Let's build upon our deep understanding of education products and our insights into at the adaptation of our system and our investments will also be flexible adapted and adjusted Ingersoll to the development and evolution of the AD hoc technology.
Speaker Change: Technology and also as I just mentioned in my prepared remarks, we're actually has embedded AI into basically all aspects of our operations. They already started to leverage the power of AI to improve our learning contact and basically like all the operating process.
Speaker Change: And hopefully.
Speaker Change: Danielle future or we can derive a.
Speaker Change: Hum.
Speaker Change: And really the student can I really liked the product that they pull that until that.
Speaker Change: That's crystal.
Speaker Change: Thanks.
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.
Speaker Change: 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 Relations Department or a management via email at IRA at golf to D. C. N directly are you are also welcome to subscribe to our news the law.
Speaker Change: Third on the Companys IR website. Thank you very much again for your time and have a great night.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].