Q1 2026 GSX Techedu Inc Earnings Call

June 2, 2026

Operator: Inc. Q1 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question and answer session. Today's conference call 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.

Operator: Inc. Q1 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session. Today's conference call 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.

Speaker #1: Inc. 1st quarter 2026 earnings conference call. All at this time, all participants are in listen-only mode. After management's remarks, there will be a question-and-answer session.

Speaker #1: Today's conference call 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.

Speaker #2: Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's 1st quarter 2026 earnings conference call. My name is Catherine, and I'll help host the earnings call today.

Catherine Chen: Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's Q1 2026 earnings conference call. My name is Catherine, and I'll help host the earnings call today. Gaotu's earnings release for the Q1 was distributed earlier and is available on the company's IR website at ir.gaotu.cn as well as through PR Newswire services. Joining the call with me tonight from Gaotu senior management is Mr. Larry Chen, Gaotu's Founder, Chairman, and Chief Executive Officer, Mr. Robin Luo, Gaotu's Chief Operating Officer, Mr. Mike Xu, Gaotu's Head of Strategy, and Ms. Weila Yao, Gaotu Senior Finance Director. Larry will first begin with the Q1's business highlights and strategy, followed by Robin's overview of our operational performance. We will finish with a detailed discussion of our financial performance by Weila. Following their prepared remarks, we'll open the floor to questions from analysts.

Speaker #2: Gaotu's earnings release for the quarter was distributed earlier, and it's available on the company's IR website, at ir.gaotu.ca. As well as through PR newsletter services.

Speaker #2: Joining the call with me tonight from Gaotu Senior Management is Mr. Larry Chen. Gaotu's founder, chairman, and chief executive officer. Mr. Robin Luo, Gaotu's chief operating officer.

Speaker #2: Mr. Mike Xu, Gaotu's head of strategy. And Ms. Wila Yao, Gaotu's senior finance director. Larry will first begin with the quarter's business highlights and strategy, followed by Robin's overview of our operational performance.

Speaker #2: And we will finish with a detailed discussion of our financial performance by Wila. Following their prepared remarks, we'll open the floor to questions from analysts.

Speaker #2: Robin and Mike, we'll address analyst questions during the Q&A session. 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 US Private Security Litigation Reform Act of 1995.

Catherine Chen: Bin and Mike will address analyst questions during the Q&A session. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current beliefs and expectations, as well as the current market and operating conditions. 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. SEC. The company does not undertake any obligations to update any forward-looking statements, except as required under applicable law.

Speaker #2: This forward-looking statement is based upon management's current beliefs and expectations as well as the current market and operating conditions. They involve known or unknown risks, uncertainty, and other factors all of which are difficult to predict and many of which are beyond the company's control.

Speaker #2: 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 US SEC.

Speaker #2: The company does not undertake any obligations to update any forward-looking statements, except as required under applicable law. During today's call, management will also discuss certain non-GAAP measures for comparison purpose only.

Catherine Chen: During today's call, management will also discuss certain non-GAAP measures for comparison purpose only. For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please 2026 earnings release published earlier today. As a reminder, this conference is being recorded. In addition, a live and archive webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce our Founder, Chairman, and Chief Executive Officer, Larry. Larry, speak to us.

Speaker #2: For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please. 2026 earnings release published earlier today. As a reminder, this conference is being recorded.

Speaker #2: In addition, a live and RTAP webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce our founder, chairman, and chief executive officer, Larry.

Speaker #2: Larry, please go ahead.

Speaker #3: Good evening and good morning, everyone. Thank you for joining us on Gaotu's 1st quarter 2026 earnings conference call. I would like to take this opportunity to thank each of you for your interest and support for Gaotu.

Larry Xiangdong Chen: Good evening and good morning, everyone. Thank you for joining us on Gaotu's Q1 2026 earnings conference call. I would like to take this opportunity to thank each of you for your interest and support for Gaotu. Before I start, please be reminded that all financial figures discussed today are in RMB, unless stated otherwise. The Q1 2026 marks another important step in strengthening Gaotu's operational quality and long-term capabilities under our profitable growth strategy. Revenue grew by 13.2% year-over-year to approximately RMB 1.7 billion, with non-GAAP operating profit and net profit reaching RMB 13.8 million and RMB 41.4 million respectively. After excluding the impacts of share repurchases, our cash position increased by RMB 69.7 million year-over-year, providing strong support for our ongoing investment in products, technology, and talents to drive sustainable long-term growth.

Larry Chen: Good evening and good morning, everyone. Thank you for joining us on Gaotu's Q1 2026 earnings conference call. I would like to take this opportunity to thank each of you for your interest and support for Gaotu. Before I start, please be reminded that all financial figures discussed today are in RMB, unless stated otherwise. The Q1 2026 marks another important step in strengthening Gaotu's operational quality and long-term capabilities under our profitable growth strategy. Revenue grew by 13.2% year-over-year to approximately RMB 1.7 billion, with non-GAAP operating profit and net profit reaching RMB 13.8 million and RMB 41.4 million respectively. After excluding the impacts of share repurchases, our cash position increased by RMB 69.7 million year-over-year, providing strong support for our ongoing investment in products, technology, and talents to drive sustainable long-term growth.

Speaker #3: Before I start, please be reminded that all financial figures discussed today are in MB, unless they did otherwise. The 1st quarter of 2026 marked another important step in strengthening Gaotu's operational quality and long-term capabilities under our profitable growth strategy.

Speaker #3: Revenue grew by 13.2% year over year to approximately 1.7 billion. With non-GAAP operating profits and net profits reaching 13.8 million, and 41.4 million respectively.

Speaker #3: After excluding the impacts of share repurchases, our cash position increased by 69.7 million year over year, providing strong support for our ongoing investment in products and knowledge and talent to drive sustainable long-term growth.

Speaker #3: The value of allocation is not limited to short-term outcomes but rather compounds over time through sustained engagement, consistent efforts, and incremental progress. The same is true in business.

Larry Xiangdong Chen: The value of education is not limited to short-term outcomes, but rather compounds over time through sustained engagement, consistent effort, and incremental progress. The same is true in business. What drives long-term resilience through cycles is not scale alone, but the organizational capabilities, product strength, and user trust built over time. With this in mind, while we remain focused on delivering near-term results, we are equally committed to advancing user value, organizational efficiency, and operational resilience across our business fundamentals. Next, I would like to walk you through our strategic priorities and key developments this quarter across five areas. First, profitable growth is moving beyond the periodic results toward a more stable, sustainable operational capability. In recent quarters, we have continued to optimize our operating structure, focusing on balancing business health, operating efficiency, and long-term returns.

Larry Chen: The value of education is not limited to short-term outcomes, but rather compounds over time through sustained engagement, consistent effort, and incremental progress. The same is true in business. What drives long-term resilience through cycles is not scale alone, but the organizational capabilities, product strength, and user trust built over time. With this in mind, while we remain focused on delivering near-term results, we are equally committed to advancing user value, organizational efficiency, and operational resilience across our business fundamentals. Next, I would like to walk you through our strategic priorities and key developments this quarter across five areas. First, profitable growth is moving beyond the periodic results toward a more stable, sustainable operational capability. In recent quarters, we have continued to optimize our operating structure, focusing on balancing business health, operating efficiency, and long-term returns.

Speaker #3: What drives long-term resilience through cycles is not scale alone. But the organizational capabilities, product strengths, and user trust built over time with these in mind while we remain focused on delivering near-term results, we are equally committed to advancing user value, organizational efficiency, and operational resilience across our business fundamentals.

Speaker #3: Next, I would like to walk you through our strategic priorities and key developments this quarter across five areas. First, profitable growth is moving beyond the periodic results toward a more stable, sustainable operational capability.

Speaker #3: In recent quarters, we have continued to optimize our operating structure focusing on balancing business health, operating efficiency, and long-term returns. Our mature online business has built robust, scalable capabilities across offerings, teaching services, user engagement, and organizational collaboration, and continued to demonstrate resilient profitability this quarter.

Larry Xiangdong Chen: Our mature online business has built robust, scalable capabilities across operations, teaching services, user engagement, and organizational collaboration, and continued to demonstrate resilient profitability this quarter. As we navigate a dynamic marketing environment in 2026, we will maintain our disciplined operating approach, improving resource allocation efficiency, and execution precision, so that growth is built on an increasingly healthy and sustainable foundation. Based on our current business momentum and operating performance, we remain confident in delivering continued improvement in operational quality throughout the year. Second, AI is evolving from a mere productivity tool into a key fundamental capability, powering Gaotu's scalable growth and organizational transformation. In recent period, we have progressively integrated AI across the curriculum development, content creation, operational collaboration, and learning services.

Larry Chen: Our mature online business has built robust, scalable capabilities across operations, teaching services, user engagement, and organizational collaboration, and continued to demonstrate resilient profitability this quarter. As we navigate a dynamic marketing environment in 2026, we will maintain our disciplined operating approach, improving resource allocation efficiency, and execution precision, so that growth is built on an increasingly healthy and sustainable foundation. Based on our current business momentum and operating performance, we remain confident in delivering continued improvement in operational quality throughout the year. Second, AI is evolving from a mere productivity tool into a key fundamental capability, powering Gaotu's scalable growth and organizational transformation. In recent period, we have progressively integrated AI across the curriculum development, content creation, operational collaboration, and learning services.

Speaker #3: As we navigate a dynamic market environment in 2026, we will maintain our disciplined operating approach improving results, allocation efficiency, and execution precision so that growth is built on an increasingly healthy and sustainable foundation.

Speaker #3: Based on our current business momentum and operating performance, we remain confident in delivering continued improvement in operational quality throughout the year. Second, AI is evolving from a mere productivity tool into a key fundamental capability powering Gaotu's scalable growth and organizational transformation.

Speaker #3: In recent period, we have progressively integrated AI across curriculum, development content creation, operational collaboration, and learning services. Within our curriculum development system, for example, AI is enhancing our question banks and knowledge graphs supporting teaching and formative assessment and assisting teachers and curriculum teams with repetitive standardized tasks.

Larry Xiangdong Chen: Within our curriculum development system, for example, AI is enhancing our question banks and knowledge graphs, supporting teaching and formative assessment, and assisting teachers and curriculum teams with repetitive standardized tasks. Before that, we are weaving AI into our business workflows, operational processes, and organizational systems to serve as core infrastructure for operational decision-making and cross-functional collaboration. On the user side, we continue to explore a spectrum of AI-powered product formats tailored to diverse learning needs, including learning tools, AI-enhanced one-on-one tutoring scenarios, and AI-integrated online large class courses. As AI becomes more deeply embedded in our core business, we are establishing a scale with AI framework that allows our best teachers, curriculum expertise, and proven service models to scale with greater efficiency, enhancing user experience while unlocking organizational and operational leverage.

Larry Chen: Within our curriculum development system, for example, AI is enhancing our question banks and knowledge graphs, supporting teaching and formative assessment, and assisting teachers and curriculum teams with repetitive standardized tasks. Before that, we are weaving AI into our business workflows, operational processes, and organizational systems to serve as core infrastructure for operational decision-making and cross-functional collaboration. On the user side, we continue to explore a spectrum of AI-powered product formats tailored to diverse learning needs, including learning tools, AI-enhanced one-on-one tutoring scenarios, and AI-integrated online large class courses. As AI becomes more deeply embedded in our core business, we are establishing a scale with AI framework that allows our best teachers, curriculum expertise, and proven service models to scale with greater efficiency, enhancing user experience while unlocking organizational and operational leverage.

Speaker #3: Before that, we are weaving AI into our business workflows. Operational processes and organizational systems to serve as core infrastructure for operational decision-making across functional collaboration.

Speaker #3: On the user side, we continue to explore a spectrum of AI-powered product formats tailored to diverse learning needs. Including learning tools, AI-enhanced one-on-one tutoring, scenarios, and AI-integrated online large-class courses.

Speaker #3: As AI becomes more deeply embedded in our core business, we are establishing a scale with AI framework that allows our best teachers, curriculum expertise, and proven service models to scale with greater efficiency enhancing user experience while unlocking organizational and operational leverage.

Speaker #3: Third, user needs and learning experience remain the fundamental drivers behind our continuous product and service integration and guide our efforts to strengthen talent development initiatives.

Larry Xiangdong Chen: Third, user needs and learning experience remains the fundamental drivers behind our continuous product and service iteration, and guide our efforts to strengthen talent development initiatives. On the teaching services front, we continue to optimize our feedback mechanisms and service framework. Take our online large class as an example. By deepening collaboration across instructors, tutors, and the curriculum team, we have formed a weekly feedback loop that captures student pain points, progress variations, and classroom feedbacks in real time. These learning insights flow directly back into course iteration, and service support, keeping content closely aligned with students' actual learning pace. At the same time, we continue to reinforce our talent pipeline. This spring, we expanded our campus recruitment and early career talent development efforts with campus engagement across prestigious domestic and international universities, including Oxford, Cambridge, Tsinghua, and Peking University.

Larry Chen: Third, user needs and learning experience remains the fundamental drivers behind our continuous product and service iteration, and guide our efforts to strengthen talent development initiatives. On the teaching services front, we continue to optimize our feedback mechanisms and service framework. Take our online large class as an example. By deepening collaboration across instructors, tutors, and the curriculum team, we have formed a weekly feedback loop that captures student pain points, progress variations, and classroom feedbacks in real time. These learning insights flow directly back into course iteration, and service support, keeping content closely aligned with students' actual learning pace. At the same time, we continue to reinforce our talent pipeline. This spring, we expanded our campus recruitment and early career talent development efforts with campus engagement across prestigious domestic and international universities, including Oxford, Cambridge, Tsinghua, and Peking University.

Speaker #3: On the teaching services front, we continue to optimize our feedback mechanisms and service framework. Take our online large-class as an example. By deepening collaboration across instructors, tutors, and curriculum teams, we have formed a weekly feedback loop that captures student pain points progress variations and classroom feedbacks in real-time.

Speaker #3: These learning insights flow directly back into course integration iteration and service support keeping content closely aligned with students' actual learning pace. At the same time, we continue to reinforce our talent pipeline.

Speaker #3: This brings expanded our campus recruitment and early career talent development efforts. With campus engagement across prestigious domestic and international universities including Oxford, Cambridge, Tsinghua, and Peking University, our attracting individuals who are genuinely passionate about education and demonstrates the motivation and potential to grow with us.

Larry Xiangdong Chen: By attracting individuals who are genuinely passionate about education and demonstrate the motivation and potential to grow with us, we are building a strong talent foundation to support our long-term capabilities in product innovation, teaching excellence, and organizational development. Fourth, our offline service offerings are progressing in line with expectations and are increasingly demonstrating their value in enhancing user engagement, building brand equity, and driving long-term value creation. For example, our offline educational services for college students now span seven cities, where we have developed durable service and engagement capabilities centered around college students' evolving needs. Our Zhengzhou Dream Center has spent the past year validating an integrated service model that brings together learning, digital life services, and personal development, achieving notably high utilization rates in the process. These enriched service touchpoints have also driven meaningful improvements in user satisfaction and brand awareness.

Larry Chen: By attracting individuals who are genuinely passionate about education and demonstrate the motivation and potential to grow with us, we are building a strong talent foundation to support our long-term capabilities in product innovation, teaching excellence, and organizational development. Fourth, our offline service offerings are progressing in line with expectations and are increasingly demonstrating their value in enhancing user engagement, building brand equity, and driving long-term value creation. For example, our offline educational services for college students now span seven cities, where we have developed durable service and engagement capabilities centered around college students' evolving needs. Our Zhengzhou Dream Center has spent the past year validating an integrated service model that brings together learning, digital life services, and personal development, achieving notably high utilization rates in the process. These enriched service touchpoints have also driven meaningful improvements in user satisfaction and brand awareness.

Speaker #3: We are building a strong talent foundation to support our long-term capabilities in product innovation, teaching excellence, and organizational development. Fourth, our offline service offerings are progressing in line with expectations and are increasingly demonstrating their value in enhancing user engagement, building brand equity, and driving long-term value creation.

Speaker #3: For example, our offline educational services for college students now span seven cities. Where we have developed durable service and engagement capabilities centered around college students' evolving needs.

Speaker #3: Our Zhengzhou Dream Center has spent the past year validating and integrated service model that brings tailored learning daily life services and personal development achieving notably high utilization rates.

Speaker #3: In the process, these enriched service touchpoints have also driven meaningful improvements in user satisfaction and brand awareness. We plan to extend this model to Wuhan in 2026.

Larry Xiangdong Chen: We plan to extend this model to Wuhan in 2026. Additionally, we will further expand our offline presence across all business segments, sharpening our service delivery capabilities to better align with these cohorts' diverse learning stages, growth objectives, and service needs. This will comprehensively elevate the learning experience, deepen user trust, and enhance brand value throughout users' lifelong learning journey. Fifth, we believe long-term value goes beyond financial results. It's equally reflected in our ability to create lasting social impact for all our shareholders and society. Through efficient, disciplined capital allocation, we remain committed to sharing the benefits of the company's long-term development with our shareholders. As of 1 June 2026, we had repurchased a total of 33.1 million ADSs for approximately RMB 704 million. In addition, we continue to invest in initiatives that broaden access to quality education.

Larry Chen: We plan to extend this model to Wuhan in 2026. Additionally, we will further expand our offline presence across all business segments, sharpening our service delivery capabilities to better align with these cohorts' diverse learning stages, growth objectives, and service needs. This will comprehensively elevate the learning experience, deepen user trust, and enhance brand value throughout users' lifelong learning journey. Fifth, we believe long-term value goes beyond financial results. It's equally reflected in our ability to create lasting social impact for all our shareholders and society. Through efficient, disciplined capital allocation, we remain committed to sharing the benefits of the company's long-term development with our shareholders. As of 1 June 2026, we had repurchased a total of 33.1 million ADSs for approximately RMB 704 million. In addition, we continue to invest in initiatives that broaden access to quality education.

Speaker #3: Additionally, we will further expand our offline presence across all business segments sharpening our service delivery capabilities to better align with these cohorts' diverse learning stages growth objectives and service needs.

Speaker #3: This will comprehensively elevate the learning experience deepen user trust and enhance brand value throughout users' lifelong learning journey. Fifth, we believe long-term value goes beyond financial results.

Speaker #3: It's equally reflected in our ability to create lasting social impact for our shareholders and the society. Through efficient disciplined capital allocation, we remain committed to sharing the benefits of the company's long-term development with our shareholders.

Speaker #3: As of June 1st, 2026, we had repurchased the total of 33.1 million ADIs. For approximately 704 million RMB, in addition, we continue to invest in initiatives that broaden access to quality education.

Speaker #3: For example, Gaotu Foundation the My AI Science class project has reached 33 rural schools across seven provinces and empowered more than 23,000 teachers. We plan to expand its coverage hold regular on-site classes in Baisuo and improve the accessibility of educational resources in under-served regions.

Larry Xiangdong Chen: For example, Gaotu Foundation, the My AI Science Class project, has reached 33 rural schools across seven provinces and empowered more than 23,000 teachers. We plan to expand its coverage for the regular on-site classes in Baise and improve the accessibility of educational resources in underserved regions. We believe technology should not only improve efficiency, but also help bridge regional gaps in high-quality educational resources and create broader social value. Enduring success comes from unwavering commitment, and future momentum begins with the steps we take today. Looking ahead, we will continue to advance with focus and resolve, leveraging technology and innovation to expand the boundaries of education and further strengthening our business foundations through disciplined execution. We are fully confident in our capability to accompany and support students throughout their growth journey, creating sustainable long-term value for our users and our shareholders. Thank you very much, everyone.

Larry Chen: For example, Gaotu Foundation, the My AI Science Class project, has reached 33 rural schools across seven provinces and empowered more than 23,000 teachers. We plan to expand its coverage for the regular on-site classes in Baise and improve the accessibility of educational resources in underserved regions. We believe technology should not only improve efficiency, but also help bridge regional gaps in high-quality educational resources and create broader social value. Enduring success comes from unwavering commitment, and future momentum begins with the steps we take today. Looking ahead, we will continue to advance with focus and resolve, leveraging technology and innovation to expand the boundaries of education and further strengthening our business foundations through disciplined execution. We are fully confident in our capability to accompany and support students throughout their growth journey, creating sustainable long-term value for our users and our shareholders. Thank you very much, everyone.

Speaker #3: We believe technology should not only improve efficiency but also help bridge regional gaps in high-quality educational resources and create broader social value. In during success comes from unwavering commitment and future momentum begins with the steps we take today.

Speaker #3: Looking ahead we will continue to advance with focus and resolve leveraging technology and innovation to expand the boundaries of education and further strengthening our business foundations through disciplined execution.

Speaker #3: We are fully confident in our capability to accompany and support students throughout their growth journey. Creating sustainable long-term value for our users and our shareholders.

Speaker #3: Thank you very much, everyone. This concludes my prepared remarks. I will now pass the call over to our COO, Robin, to walk you through the quarter's operational performance.

Larry Xiangdong Chen: This concludes my prepared remarks. I will now pass the call over to our COO, Robin, to walk you through the quarter's operational performance.

Larry Chen: This concludes my prepared remarks. I will now pass the call over to our COO, Robin, to walk you through the quarter's operational performance.

Speaker #2: Thank you, Larry. And thank you, everyone, for joining our call today. I'm Robin. I will now walk you through our operating performance and business.

Bin Luo: Thank you, Larry, and thanks to everyone for joining our call today. I'm Robin. I will now walk you through our operating performance and business updates for Q1 2026. Please note that all financial data are in RMB terms unless otherwise stated. Building on the progress we made over the past year in enhancing operational quality and organizational efficiency, we continue to advance our profitable growth strategy as we enter 2026. Notably, we achieved Q1 profitability for the second consecutive year, reflecting the resilience of our mature business model, as well as our continued improvement in organizational execution and resource allocation. R&D and G&A expenses as a percentage of revenue declined by 0.7 percentage points year over year, demonstrating ongoing gains in management efficiency and organizational collaboration.

Speaker #2: State for the first quarter of 2026. Please note that all financial data are in RMB terms unless otherwise stated. Building on the progress we made over the past year in enhancing operational quality, and organizational efficiency, we continue to advance our profitable growth strategy as we enter the 2026.

Speaker #2: Notably, we achieved the first quarter profitability for the second consecutive year. Reflecting and resilience of our mature business model, as well as our continued improvements in organizational execution and resource allocation.

Speaker #2: RMB and GNA expenses as a percentage of revenue declined by 0.7 percentage points year over year. Demonstrating ongoing gains in management efficiency, and organizational collaboration.

Speaker #2: Deferred revenue totaled nearly 1.8 of 24.1% year over year. Providing clear visibility into revenue recognition in the coming quarters and laying a solid foundation for the steady execution for our full-year business plan.

Bin Luo: Deferred revenue totaled nearly RMB 1.8, up 24.1% year over year, providing clear visibility into revenue recognition in the coming quarters and laying a solid foundation for the steady execution for our full year business plan. The education subject to seasonal patterns closely aligned with students' learning cycles and course schedules. This year, the later timing of Chinese New Year shifted the delivery mix session and the spring classes across quarters. Our resource deployment is also calibrated to these enrollment windows and the business cycles. Therefore, we believe that evaluating the company's performance over H1 as a more complete operating cycle offers a clearer picture of our underlying trends. Looking at our current execution progress, our profitability and operational efficiency continue to . As we further optimize our product mix, organizational collaboration, and resource allocation efficiency, we remain optimistic about our full year operating performance.

Speaker #2: The education subject to seasonal patterns closely aligned with students' learning cycles and course schedules. This year, the later timing of Chinese New Year shifted the delivery mix session and the spring classes across quarters.

Speaker #2: Our resource deployment is also calibrated to this enrollment with those and the business cycles. Therefore, we believe that evaluating the company's performance over the first half of the year as a more complete operating trends.

Speaker #2: Looking at our current execution progress, our profitability and operational efficiency continue to as we further optimize our product mix, organizational collaboration, and resource allocation efficiency.

Speaker #2: We remain optimistic about our full year operating performance. Next, our business progress by segment. Learning contributed over 95% of net revenues. No academic tutoring services and traditional learning services as our core segment generated over 85% of our total revenues.

Bin Luo: Our business progress by segment. Learning services contributed over 95% of net revenues. Non-academic tutoring services and traditional learning services, as our core segments, generated over 85% of our total revenues. In our new initiatives focused on online and offline non-academic tutoring services, gross billings increased by over 20% year-over-year in the Q1, contributing more than 35% of total gross billings, while revenue grew by over 15% year-over-year, accounting for near 40% of total revenues. As enrollment additional capabilities mature, the online business within this segment maintained a Q1 profitability for the second consecutive years, underscoring strong product market fit and operational resilience. On the business front, we continue to advance our learning service systems and strengthen educational product innovation, leveraging AI capabilities to build diverse learning scenarios that spark students' interest, sharpen critical thinking, and develop practical skills.

Speaker #2: In our new initiatives, focused on online and offline non-academic tutoring services for students increased by over 20% year over year in the first quarter.

Speaker #2: Contributing more than 35% of total gross billions while revenue grew by over 15% year over year. Accounting for near 40% of total revenues. As enrollment additional capabilities mature, the online business within this segment maintained the first quarter profitability for the second consecutive years.

Speaker #2: Underscoring strong product market fit and operational resilience. On the business front, we continue to advance our learning service systems and strengthen educational product innovation.

Speaker #2: Leveraging AI capabilities to build diverse learning scenarios that spark students' interest sharp in critical thinking and develop practical skills. We are also deepening our focus on localized curriculum development to make our teaching content more relevant and our services more tailored.

Bin Luo: We are also deepening our focus on localized curriculum development to make our teaching content more relevant and our services more tailored. By meeting user needs with greater precision, this effort collectively lay a solid foundation for enhanced learning outcomes and higher user retention. Our accounted for over 45% of total revenues and maintained a healthy growth trajectory during Q1. Our consistent investments in strengthening our teaching talent pipeline and upgrading our service system are gradually translating into tangible operating results. In particular, our one-on-one tutoring business recorded year-over-year growth of more than 20% in both revenue and gross billings, supported by professional capabilities, service engagement, and supply stability. AI is playing an important role in improving the efficiency and precision of personalized learning services.

Speaker #2: By meeting user needs with greater precision, this effort collectively lay a solid foundation for enhanced learning outcomes and higher user retention. Our count is for over 45% of total revenues and maintained a healthy growth trajectory during the first quarter.

Speaker #2: Our consistent investments in strengthening our teaching talent pipeline and upgrading our service system are gradually translating into tangible operating results. In particular, our one-on-one tutoring business recorded year-over-year growth of more than 20% in both revenue and gross billions.

Speaker #2: Supported by professional capabilities, service, and engagement, and supply stability. For our AI is playing an important role in improving the efficiency and precision of personalized learning services.

Speaker #2: We continue to strengthen our end-to-end tailored service model across key stages of the learning process, including learning assessment, study planning, progress tracking, and performance feedback.

Bin Luo: We continue to strengthen our end-to-end tailored service model across key stages of the learning process, including learning assessment, study planning, progress tracking, and performance feedback. Our AI-powered learning analytics and enable tutors to more efficiently consolidate and analyze users' learning data, identify individual knowledge gaps and learning more personalized plans. This not only makes our service delivery more effective, but also provides students and parents with clear progress milestones and next step planning, further enhancing overall user experience and service satisfaction. On the channel front, we continue to optimize our channel mix by for higher quality acquisition channels. While from paid traffic and word of mouth referrals. The resulting improvements in user quality, conversion efficiency, and the retention rates continue to strengthen the operation fundamentals of our traditional business.

Speaker #2: Our AI-powered learning analytics and data enable tutors to more efficiently consolidate and analyze users' learning data. Identify individual knowledge gaps and learning more personalized plans.

Speaker #2: This not only makes our service delivery more effective but also provides students and parents with clear progress and the next step planning. Further enhancing overall user experience and service satisfaction.

Speaker #2: On the channel front, we continue to optimize our channel mix by a higher quality acquisition channels. While from private traffic and word of mouth referrals.

Speaker #2: The resulting improvements in user quality conversion efficiency and retention rates continue to strengthen the operation fundamentals of our traditional business. Another key component of our learning services is educational services for college students and adults.

Bin Luo: Another key component of our learning services is educational services for college students and adults, while sustained its solid growth momentum this quarter. Gross billings grew over 15% year-over-year and contributed over 25% of total gross billings, with revenue accounting for 10% of total revenue. This performance reflects our continued focus on users' evolving needs, as well as ongoing optimization of product offerings, service management, and operational. Taking our educational services for college students as an example, building high quality engagement throughout the user's learning journey has always been our key priority. We have structured framework to evaluate teacher-student engagement across interaction frequency, emotional connection, and professional academic support, improving the quality of tutor services and optimizing user experience.

Speaker #2: While sustained is a solid growth momentum this quarter. Gross billions grew over 15% year over year and contributed over 25% of total gross billions.

Speaker #2: With revenue accounting for 10% of total revenues. This performance reflects our continued focus on users involving needs as well as ongoing optimization of product offerings service management and operational.

Speaker #2: Taking our educational services for college students as an example, building high-quality engagement throughout users' learning journey has always been our key priority. We have more structured framework to evaluate teacher students' engagement across interaction frequency emotional connection and professional academic support.

Speaker #2: Improving the quality of tutor services and optimizing user experience. At the same time, we are embedding AI capabilities more deeply in our daily operations to streamline standardized workflows and enhance operational enabling teachers to dedicate more time to higher value activities.

Bin Luo: At the same time, we are embedding AI capabilities more deeply in our daily operations to streamline, standardize the workflows, and enhance operational enabling teachers to dedicate more time to higher value activities, such as personalize the learning plan, and regular mentorship. This quarter, gross billings and revenues for our educational services for college students grew by more than 20% year-over-year, with operating cash flow also improving year-over-year. Our civil service exam preparation business also did see year-over-year growth in both revenue and gross billings during the quarter, with our chapter productivity continuing to improve, reflecting ongoing enhancement in user value and operational efficiency. Across all, we are advancing towards the same goal, driving gains in both business scale and operational quality through sharper understanding of user needs, stronger product and service relevance, and more efficient organization, collaboration, and resource allocation.

Speaker #2: Such as personalized learning plan and regular mentorship. This quarter gross billions and revenues for our educational services for college students grew by more than 20% year over year.

Speaker #2: With operating cash flow also improving year over year. Our civil service exam preparation business also digits year over year growth in both revenue and gross billions during the quarter.

Speaker #2: With our captive productivity continuing to improve reflecting ongoing enhancements in user value and operational efficiency. Across all lines, we are advancing towards the same goal.

Speaker #2: Driving gains in both business scale and operational quality through sharper understanding of user needs stronger product and service relevance. And more efficient organization collaboration and resource allocation.

Speaker #2: As we move towards this direction, we are our operational decisions and resource deployment. Enabling each business to chart a healthier and more sustainable growth path at its respective stage of development.

Bin Luo: As we move towards this direction, we are our operational decisions and resource deployment, enabling each business to chart a healthier and more sustainable growth path at its respective stage of development. With that, I will now turn the call over to our Senior Finance Director, Willam, who will walk you through our financial data.

Speaker #2: With that, I'll turn the call over to our senior. Director Willa, who will walk you through our financial data.

Speaker #3: Thank you, Robin. I will now walk you through our financial data. Please note that all financial data are in R&B terms unless otherwise stated.

Willa Jia Yao: Thank you, Robin. I will now walk you through our financial data. Please note that all financial data are in RMB terms unless otherwise stated. Our cost of revenue this quarter was RMB 714.8 million. Gross profit increased 12.9% year-over-year to nearly RMB 1.2 billion, with a gross margin of 69.5%. Total operating expenses during the quarter increased 16.1% year-over-year to nearly RMB 1.2 billion. Breaking it down, selling expenses increased 19.0% year-over-year this quarter to RMB 844.1 million, accounting for 50.0% of net revenue. Research and development expenses increased 5.7% year-over-year to RMB 159.0 million, accounting for 9.4% of net revenues. General and administrative expenses increased 12.9% year-over-year to RMB 164.7 million, accounting for 9.7% of net revenues. Income from operations was RMB 6.9 million, and the operating income margin was 0.4%.

Speaker #3: Our cost of revenue this quarter was $514.8 million. Gross profit increased 12.9% year over year to nearly $1.2 billion with a gross margin of 69.5%.

Speaker #3: Total operating expenses during the quarter increased $16.1% year over year to nearly $1.2 billion. Breaking it down, selling expenses increased $19.0% year over year this quarter to $844.1 million accounting for $50.0% of net revenue.

Speaker #3: Research and development expenses increased $5.7% year over year to $159.0 million accounting for $9.4% of net revenues. General and administrative expenses increased $12.9% year over year to $164.7 million accounting for $9.7% of net revenues.

Speaker #3: Income from operations was $6.9 million and the operating income margin was $0.4%. Non-GAAP income from operations was $13.8 million and the non-GAAP operating income margin was $0.8%.

Willa Jia Yao: Non-GAAP income from operations was RMB 13.8 million, and the non-GAAP operating income margin was 0.8%. Net income was RMB 34.5 million, and net income margin was 2.0%. Non-GAAP net income was RMB 41.4 million, and the non-GAAP net income margin was 2.5%. Our net operating cash outflow increased 73.6% year over year to RMB 828.4 million. Now turning to our balance sheet. As of 31 March 2026, we have RMB 691.2 million in cash equivalents, and restricted cash, along with RMB 2.1 billion in short-term investments and RMB 501.4 million in long-term investments. This comes to a total of nearly RMB 3.3 billion. As of 31 March 2026, our deferred revenue balance was around RMB 1.8 billion, primarily consisting of tuition received in advance. As of 1 June 2026, we had repurchased an aggregate of around 33.1 million ADSs on the open market for nearly 704 million RMB.

Speaker #3: Net income was $34.5 million and net income margin was $2.0%. Non-GAAP net income was $41.4 million and the non-GAAP net income margin was $2.5%.

Speaker #3: Our net operating cash outflow increased $73.6% year over year to $828.4 million. Now turning to our balance sheet. As of March the 31st, 2026, we have $691.2 million in cash cash equivalent and the restricted cash along with $2.1 billion in short-term investments and $501.4 million in long-term investments.

Speaker #3: This comes to a total of nearly $3.3 billion. As of March the 21st, 31st, 2026, our deferred revenue balance was around $1.8 billion. Primarily consisting of creation, received in advance.

Speaker #3: As of June the 1st, 2026, we had repurchased and aggregate of around $33.1 million ADIs on the open market for nearly $704 million RMB.

Speaker #3: 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 the uncertainties that are beyond our control and could cause the actual results to defer maturely from our predictions.

Willa Jia Yao: 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 predictions. Based on our current estimates, total net revenue for Q2 2026 are expected to be between RMB 1,578 million and RMB 1,798 million, representing an increase of 13.6% to 15.0% on a year-over-year basis. This concludes my prepared remarks. Operator, we are now ready for the Q&A session. Thank you everyone for listening.

Speaker #3: Based on our current estimates, total net revenue for the second quarter of 2026 is expected to be between $1,578 million and $1,598 million, representing an increase of 13.6% to 15.0% on a year-over-year basis.

Speaker #3: This concludes my prepared remarks. Operator, we are now ready for the Q&A session. Thank you everyone for listening.

Speaker #1: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one. On your telephone keypad, if you're using a speakerphone, please pick up your handset before pressing the keys.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're 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. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond. Feel free to follow up with your next question. At this time, we will pause momentarily to assemble our roster. The first question comes from Elsie Sheng with CLSA. Please go ahead.

Speaker #1: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English.

Speaker #1: For the sake of clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next question.

Speaker #1: At this time, we will pause momentarily to assemble our roster. The first question comes from Elsie Sheng with CLSA. Please go ahead.

Speaker #4: Thank you, management, for taking my question and congratulations on the steady results. My question is about the offline business. So we mentioned in our opening remark that the offline business progress right now is in line with our expectation, could you share more details on the latest update in terms of operation and also our plan for this year?

Elsie Sheng: Thank you management for taking my question and congratulations on the steady results. My question is about the offline business. We mentioned in our opening remarks that the offline business progress right now is in line with our expectation. Could you share more details on the latest updates in terms of operation and also our plan for this year?

Speaker #4: I will translate to Chinese so 我问题主要是关于现在的学习中心就是刚才一开始的时候有提到我们目前现在业务进展是符合预期的能不能就是提供一些更具体的更新在运营上等等其他方面以及今年我们现在业务的这块的计划谢谢。

[Company Representative] (Gaotu Techedu): I will translate to Chinese. My question is mainly about the offline learning center. As mentioned at the beginning, our current offline business performance is meeting expectations. Could you provide some more specific updates on operations and revenue aspects, as well as Gaotu's plans for the offline business this year? Thank you.

[Company Representative] (Gaotu Techedu): I will translate to Chinese. [Foreign Language]

Speaker #1: Okay, thank you, Elsie. This is Mike. I will take this question. So let me first start with how we think about our offline business.

Mike Buqing Xu: Okay. Thank you, Elsie. This is Mike. I will take this question. Let me first start with how we think about our offline business. For Gaotu, offline is an important part of our long-term learning service strategy. It is not just another revenue stream. It can help us build deeper local trust, provide more direct service to student parents, and create a meaningful second growth curve over time. Since we launched offline business, we have been building the capabilities needed to run it well. That includes a localized curriculum, local teams, experienced operating talents, and better data systems. The goal is straightforward, and we want each city to have products that fit the local demand, and we want our delivery quality to be consistent. As we enter 2026, we are starting to see these earlier investments translate into clearer operating results.

Speaker #1: For Gaotu, offline is an important part of our long-term learning service strategy. It is not just another revenue stream. It can help us build deeper local trust, provide more direct service to student parents, and create a meaningful second growth curve over time.

Speaker #1: Since we launched offline business, we have been capabilities needed to run it well. That includes localized curriculum, local teams, experienced operating talents, and better data systems.

Speaker #1: The goal is straightforward, and we want each city to have products and that fit the local demands. And we want our delivery quality to be consistent.

Speaker #1: As we enter 2026, we are starting to see these earlier investments translate into clearer operating results. So at the operating level, retention has been improving steadily, and some cities and products are already showing stronger competitiveness.

Mike Buqing Xu: At operating level, retention has been improving steadily, and some cities and products are already showing stronger competitiveness. Classroom utilization is also moving in the right direction. In cities where we have operated for a longer period of time, brand recognition and word of mouth are helping us scale more efficiently. In some markets, we are also seeing the brand equity from our online business to support our offline services. We also see user demand becoming more clear. Families with specific learning goals and high expectations for service quality are looking for strong teachers, localized products, and more attractive learning support. This regards long-term commitment to our teacher strategy and service excellence. Let's move to the summer enrollments. The offline business is progressing broadly in line with our expectation. As the enrollment is still going on, we will provide further updates accordingly.

Speaker #1: Classroom utilization is also moving in the right direction. In cities where we have operated for a longer period of time, brand recognition and word of mouth are helping us scale more efficiently.

Speaker #1: In some markets, we are also seeing the brand equity from our online business to support our offline services. We also see user demand becoming more clear.

Speaker #1: Families with specific learning goals and high expectations for service quality are looking for strong teachers localized products and more attractive learning support. This is Gaotu's long-term commitment to.

Speaker #1: Star teacher strategy and service excellence. So let's move to the summer enrollment. The offline business is progressing broadly in line with our expectation. As the enrollment is still going on, so we will provide further updates accordingly.

Speaker #1: But based on the first five months, both gross billion and the revenue have been tracking with our expected range. And we are seeing user demand and channel conversion gradually pick up.

Mike Buqing Xu: Based on the first five months, both gross billing and the revenue have been tracking with our expected range, and we are seeing user demand and channel conversion gradually pick up. Based on the current progress, we expect offline billing and revenue to maintain relatively strong growth in H1. Going forward, we will continue to expand with discipline. We'll closely look at each city, including user demand, classroom utilization, retention, teacher supply, and operating efficiency before we scale further. More importantly, we want offline growth to be built on a solid product quality, consistent service experience, and steady accumulation of local trust and reputation. That concludes my answer. Hope that can address your question, Elsie.

Speaker #1: Based on the current progress, we expect offline billion and revenue to maintain relatively strong growth in the first half of the year. Going forward, we will continue to expand with discipline.

Speaker #1: We'll closely look at each city, including user demand, classroom utilization, retention, teacher supply, and operating efficiency before we scale further. More importantly, we want offline growth to be built on a solid product quality.

Speaker #1: Consistent service experience and steady accumulation of local trust and reputation. So that concludes my answer. Hope that can address your question, Elsie.

Speaker #4: Yeah, thank you. It's very clear.

Elsie Sheng: Yes, thank you. It's very clear.

Speaker #1: The next question comes from Yikun Zheng with Citic. Please go ahead.

Operator: The next question comes from Yukon Zheng with CITIC. Please go ahead.

Speaker #5: Good evening, management. Thank you for taking my question. And my question is about the cost control we noticed that the company has achieved great R&D expense control this quarter.

Yukon Zheng: Good evening, management. Thank you for taking my question. My question is about the cost control. We noticed that your company has achieved great R&D expense control this quarter. Do we have an outlook on the cost control and efficiency over the coming quarter? I will translate myself.

Speaker #5: So do we have an outlook on the cost control and efficiency over the coming quarter? And I will transfer myself. 观众朋友大家好，我主要还是问一下这个项目增效，因为现在整个行业其实都在做这个项目增效，然后这个季度其实我们整个费控还是做得不错的。然后后面几个季度看，就我们整个费用控制或者项目增效的这个计划大概是怎么样的，谢谢。

Yukon Zheng: [Foreign language]

Speaker #4: Okay, like answer the question, yes, we are joining our team language for almost like six consecutive quarters. And we are having this really disciplined approach regarding resource allocation, our customer acquisition efficiency, as well as the whole organizational operation.

[Company Representative] (Gaotu Techedu): Okay.

Catherine Chen: To answer the question, yes, we are enjoying our cost advantage for almost six consecutive quarters. We are having this really disciplined approach, regarding resource allocation, our customer acquisition efficiency, as well as the whole organizational operation. One thing is that AI is playing a more and more important role in our daily operations, where not just in the operation front, but also in the customer-facing side, including content creation, and also improving our teaching services, et cetera. By empowering our teachers and children to have these technologies, we are really increasing their productivity per capita, which you could see in our online business margin. For our non-academic children services, it's our second consecutive quarter gaining profit in Q1. Our high school children are also seeing profit in this quarter. For the operational front, it really empowering all the employees.

Speaker #4: And one thing is that AI is playing a more and more important role in our daily operations. Where not just in the operation front, but also in the customer-facing side, including content creation, and also improving our teaching services, etc.

Speaker #4: And by empowering our teachers and tutoring to have this technologies, we are really increasing their productivity per capita. Which you could see in our online business margin.

Speaker #4: For our non-academic tutoring services, we are enjoying the it's our second consecutive quarter gaining profit in the first quarter. And also our high school tutoring sectors are also gaining profit in this quarter.

Speaker #4: And for the operational front, so it really empowering all the employees so we are actually deploying AI tools and AI agents to all of our employees to increase their productivity and improve their working efficiencies.

Catherine Chen: We are actually deploying AI tools and AI agents to all of our employees to increase their productivity and improve their working efficiencies. We expect the operating leverage continue to show in the upcoming quarter. I hope that answers your question.

Speaker #4: And we expect the operation leverage continue to show in the upcoming quarter. Yeah. I hope that answers your question.

Speaker #5: Thank you. It's very clear.

Yukon Zheng: Thank you. It's very clear.

Speaker #1: As there are no further questions now, I'd like to turn the call back over to Catherine Chen for closing remarks.

Operator: As there are no further questions now, I'd like to turn the call back over to Catherine Chen for closing remarks.

Speaker #4: Yeah. Yeah, thank you, everyone, for joining our call tonight. And if you have any further questions, please don't hesitate to contact our investor relations department or our management via email at ir@gaotu.cn directly.

Catherine Chen: Thank you everyone for joining our call tonight. If you have any further questions, please don't hesitate to contact our investor relations department or our management via email at ir@gaotu.cn directly. You are also welcome to subscribe to our news alerts on the company's IR website. Thank you very much again for your time. Have a great night.

Speaker #4: You are also welcome to subscribe to our news alerts on the company's IR website. Thank you very much again for your time. Have a great night.

Operator: Thank you. This concludes today's conference call. You may now disconnect your line. Thank you.

Q1 2026 GSX Techedu Inc Earnings Call

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