GOTU Q2 2026 Earnings Call
Speaker #1 (AI Assigned): Hello, ladies and gentlemen. Thank you for standing by, and welcome to the Gaotu Techedu Inc. second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode.
Speaker #1 (AI Assigned): 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.
Speaker #1 (AI Assigned): Head of Investor Relations, please go ahead, Catherine.
Speaker #2 (AI Assigned): Thank you.
Speaker #3 (AI Assigned): Good evening, everyone. Thank you for joining Gaotu's second quarter 2026 earnings conference call. My name is Catherine, and I'll be helping to host the earnings call today.
Speaker #3 (AI Assigned): Gaotu's earnings release for the quarter was distributed, and it's available on the company's IR website at ir.gaotu.cn, as well as through PR Newswire services.
Speaker #3 (AI Assigned): Joining the call with me tonight from Gaotu senior management are Mr. Larry Chen, Gaotu's founder, chairman, and chief executive officer, and Mr. Robin Luo, Gaotu's chief operating officer.
Speaker #3 (AI Assigned): Mr. Mike.
Speaker #4 (AI Assigned): Xu, Gaotu's Head of Strategy, and Ms. Wila Yao, Gaotu's Senior Finance Director. Larry.
Speaker #3 (AI Assigned): First, a business highlight and strategy, followed by Robin's overview of our operational performance. We will finish with a detailed discussion of our financial performance by Wila.
Speaker #3 (AI Assigned): Following their prepared remarks, we'll open the floor to questions from analysts. Robin 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.
Speaker #3 (AI Assigned): Made under the U.S. Private Securities Litigation Reform Act of 1995, these forward-looking statements are based on expectations as well as current market and operating conditions.
Speaker #3 (AI Assigned): They involve known or unknown risks and certainties, 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 forward-looking statements.
Speaker #3 (AI Assigned): Further information regarding this and other risks is included in the company's public filing with the US SEC. The company has no obligation to update any forward-looking statements except as required under applicable law.
Speaker #3 (AI Assigned): During today's call, management will also discuss certain non-GAAP measures for comparison purposes only. For a definition of non-GAAP financials and a reconciliation of GAAP to non-GAAP financial results, please refer to our second quarter 2026 earnings release published earlier today.
Speaker #3 (AI Assigned): As a reminder, this conference is being recorded. In addition, an archived 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 #5 (AI Assigned): Good evening and good morning, everyone. Thank you for joining us on Gaotu's second quarter 2026 earnings conference call. I would like to take this opportunity to thank each of you for your interest in and support of Gaotu.
Speaker #5 (AI Assigned): Before I start, please be reminded that all financial figures discussed today are in RMB unless stated otherwise. This quarter, our sustained user-focused investment in educational products, learning services, and organizational capabilities is steadily translating into healthier unit economics and a more efficient operating system.
Speaker #5 (AI Assigned): Meanwhile, the AI capabilities we have been building are becoming more deeply embedded across business processes, driving tangible improvements in product experience, service efficiency, and organizational productivity.
Speaker #5 (AI Assigned): For Gaotu, high-quality growth means more than skill alone. It's about establishing a solid foundation for sustainable growth, building user trust through superior products and services, improving the quality of growth through stronger retention and word of mouth, enhancing profitability through more disciplined resource allocation, and leveraging technology to extend the reach of high-caliber educational services.
Speaker #5 (AI Assigned): Today, I'd like to share our thinking on three fronts: our strategic priority around user value and brand building, resource allocation, and AI capability development.
Speaker #5 (AI Assigned): First, we have always placed user value at the heart of our sustainable, long-term development. Over the past 12 years, Gaotu has built a comprehensive learning service ecosystem that supports learners at different stages of growth and integrates both online and offline offerings.
Speaker #5 (AI Assigned): We strive to provide premium products and services that fit every user's needs throughout their life and learning journey. The value of this system lies not only in the breadth of educational products it offers, but also in the deep insights it continuously provides us into users' evolving needs—insights that enable us to deliver high-quality services on an ongoing basis.
Speaker #5 (AI Assigned): As a digital-native learning service provider, we capture data on learning behaviors, service touchpoints, and interactive feedback across multiple scenarios, and convert this data into dynamic user insights that directly refine our product design, teaching services, and operational systems.
Speaker #5 (AI Assigned): As products and services become more closely aligned with real needs, the learning experience naturally improves, which in turn strengthens user recognition, retention, word-of-mouth, and overall brand awareness.
Speaker #5 (AI Assigned): This organic momentum gives rise to three self-reinforcing flywheels: data, experience, and brand, that continuously compound and fuel each other over time. We are beginning to see this virtuous cycle take hold.
Speaker #5 (AI Assigned): Many students who studied with Gaotu in their early years have now returned to Gaotu, either as students or as employees. Their return reflects the lasting trust built through genuine learning experiences and informs the ongoing iteration of our teaching and service systems.
Speaker #5 (AI Assigned): It also reinforces our conviction that educational service is inherently a long-term endeavor built on being chosen, trusted, and proven over time. Second, we remain committed to driving profitable growth, concentrating our resources on businesses with stronger user value propositions and clearer operational returns.
Speaker #5 (AI Assigned): Our innovation and exploration over the past few years have deepened our understanding of the needs of different user groups, and how products mature and scale, while sharpening our criteria for business prioritization.
Speaker #5 (AI Assigned): For businesses that have demonstrated strong user satisfaction, solid market fit, and sound operating efficiency, we seek to unlock greater operating leverage by strengthening their products, allocating greater channel resources, and providing stronger organizational support to drive higher-quality growth.
Speaker #5 (AI Assigned): For businesses still in their early stages, with prudently and dynamically optimized resource allocation, we are contributing our investment to areas featuring the strongest return potential. Our operating performance in the first half of the year demonstrates that this strategy is beginning to deliver results.
Speaker #5 (AI Assigned): In our online business, high retention rates and improved operating efficiency contributed to ongoing improvements in unit economics. Meanwhile, our offline business—spanning diverse scenarios, including stream centers, booth campuses, and offline learning centers—delivered high double-digit EOE revenue growth in the first half of this year, with steady gains in its operating quantity and business fundamentals.
Speaker #5 (AI Assigned): More importantly, the synergies between our online and offline businesses continue to strengthen. The brand equity and user trust we've cultivated online support offline expansion. In turn, our differentiated offline service experience reinforces brand awareness and user engagement.
Speaker #5 (AI Assigned): Measurable learning outcomes remain the clearest proof of the value we deliver as we expand our business footprint and build operational resilience. They also underscore the effectiveness of our teaching and service capabilities across diverse scenarios.
Speaker #5 (AI Assigned): Since the beginning of 2026, our traditional online business has helped over 200 students gain admission to the top two domestic universities. Building on years of accumulated service expertise, our offline overseas study business has assisted nearly 700 students in securing offers from the world's top 50 universities.
Speaker #5 (AI Assigned): These tangible achievements stem from our relentless pursuit of quality and our long-term commitment to our mission. High-quality course and service delivery have always been central to earning user trust and building brand reputation, and they remain the cornerstone of our business's sustainable, healthy development.
Speaker #5 (AI Assigned): Third, moving on to long-term capability development, AI is emerging as a critical productivity driver for Gaotu's future. As a digital-native education company, we're already seeing AI generate tangible value across several key areas of our business. In curriculum development, AI is helping us restructure the content development workflow, improving efficiency by 5 to 8 times in certain scenarios while significantly lowering the cost of producing personalized content.
Speaker #5 (AI Assigned): In course delivery and tutoring services, AI-powered systems and quality control now capture thousands of key checkpoints across the service workflow. For instance, automated assignment grading has substantially reduced repetitive work, enabling our tutors to devote more time and energy to high-quality guidance and personalized services.
Speaker #5 (AI Assigned): AI is also sharpening our user insights. By analyzing learning behaviors and interactive data, we can identify user profiles and shifts in demand more promptly.
Speaker #5 (AI Assigned): And deliver more precise learning support at critical milestones, enhancing students' learning experiences, boosting engagement, and improving user retention. On the user-facing side, we continue to refine our "quiet teacher" model, promoting more efficient synergies among instructors, tutors, and AI capabilities to provide users with more seamless and personalized learning support.
Speaker #5 (AI Assigned): This drives product stickiness and depth of use. As we embed AI more deeply across our business, it is poised to be a key driver in elevating Gaotu's product quality and operating efficiency.
Speaker #5 (AI Assigned): We remain committed to balancing sustainable growth, disciplined capital allocation, and our long-term mission of creating value for both shareholders and society. Guided by these principles, as of August 26, 2026, we had repurchased a total of nearly 36.5 million ADSs for RMB 741.8 million. Going forward, we will continue to advance our share repurchase program while preserving the financial strength and flexibility needed to support long-term growth.
Speaker #5 (AI Assigned): We will also continue to fulfill our responsibilities as a corporate citizen by making quality educational resources more widely accessible. Looking ahead, we will remain deeply focused on users' long-term growth, leveraging advanced technology to elevate our service capabilities and operating efficiency, while navigating market cycles through disciplined operations.
Speaker #5 (AI Assigned): At Gaotu, we believe the value of education compounds over time through every meaningful and effective service we deliver. As we continue to integrate AI capabilities across teaching, service delivery, and operations, Gaotu will forge a more resilient business foundation and drive stronger operational performance, creating superior learning experiences for our long-standing users and value for shareholders who have placed their trust in Gaotu.
Speaker #5 (AI Assigned): Thank you very much, everyone. This concludes my prepared remarks. I will now pass the call over to our CEO, Robin, to walk you through the quarter's operational performance.
Speaker #1 (AI Assigned): Thank you, Larry, and thank you, everyone, for joining our call today. Let me take you through our operating performance and business update for the second quarter of 2026.
Speaker #2 (AI Assigned): Please note that all financial data is in RMB terms unless otherwise stated. Guided by a focus on profitable growth, we continue to upgrade our educational products and services and strengthen our teacher development system.
Speaker #2 (AI Assigned): Expanding user base and delivering long-term user value. Net revenues for the quarter increased by 20.2% year over year to nearly $1.7 billion, while gross billing grew by 19.4% to approximately $2.7 billion.
Speaker #2 (AI Assigned): Reflecting our ability to effectively capture user demand, as enrollment grew and operating efficiency improved, we unlocked greater operating leverage. Adjusted operating loss and adjusted net loss narrowed significantly by 38.5% and 37.6% year over year, respectively.
Speaker #2 (AI Assigned): And operating expenses as a percentage of net revenues declined by 7%.
Speaker #1 (AI Assigned): The improvement in our operating expense ratio was primarily driven by continued optimization throughout the end-to-end user acquisition funnel and efficiency gains across our middle and back office operations.
Speaker #1 (AI Assigned): In user acquisition, we remain focused on enhancing unit economics, dynamically optimizing our channel mix and resource allocation, while leveraging AI capabilities to sharpen operational execution and improve conversion efficiency.
Speaker #1 (AI Assigned): During the quarter, selling expenses grew at a slower pace than gross billings. At the same time, the integration of AI and other digital tools into our business processes continued to improve middle- and back-office operating efficiency, driving our cost structure.
Speaker #1 (AI Assigned): Specifically, R&D and G&A expenses as a percentage declined by 3.5 percentage points year over year. The enhancement in operational quality is also reflected in our cash flow performance and balance sheet strength.
Speaker #1 (AI Assigned): During the quarter, net operating cash inflow increased by 46.3% year over year to $861.2 million. As of June 30, 2026, our cash reserves, including cash and cash equivalents, restricted short-term and long-term investments, totaled nearly $4.0 billion.
Speaker #1 (AI Assigned): Excluding the impact of share buybacks, our cash reserves increased by $340.5 million year over year. Deferred revenue reached $2.6 billion, representing 18.9% year over year growth.
Speaker #1 (AI Assigned): These operational achievements are not the result of any single initiative, but rather the bonding effect of our ongoing focus on organizational development.
Speaker #2 (AI Assigned): Capabilities and operational excellence. Next, let me turn to our business progress by segment. Learning.
Speaker #1 (AI Assigned): 95% of net revenues. Our two core segments, non-academic tutoring services and traditional learning services, generated over 84 new initiatives focused on online and offline non-academic tutoring services.
Speaker #1 (AI Assigned): During the quarter, this segment's revenue increased by over 30% year over year, accounting for over 40% of total revenues. While gross billings grew by over 20% year over year, contributing over 45% of total gross billings.
Speaker #1 (AI Assigned): Within this line, business remained profitable this quarter, with continued improvements in gross quality as well as operating stability. On the service front, we integrated AI.
Speaker #2 (AI Assigned): We further refined service granularity, significantly enhancing the responsiveness, personalization, and depth of our tutor support services. This contributed to a meaningful year-over-year increase of over 5 percentage points in the retention rate for our online business developments in the spring season.
Speaker #2 (AI Assigned): Further reinforcing user trust and brand loyalty. On the product side, we focus on curriculum.
Speaker #1 (AI Assigned): to the developmental needs and learning patterns of younger learners. While broadening our product offerings,
Speaker #2 (AI Assigned): This effort has helped create a healthier and more balanced user base as well.
Speaker #1 (AI Assigned): For sustainable long-term growth, our traditional business continued to deliver solid growth during the quarter, with gross billings increasing by over 16% year over year and accounting for over 40% of total gross billings.
Speaker #1 (AI Assigned): While revenue contribution exceeded 40%, during the summer enrollment, we placed a greater emphasis on acquisition quality and conversion efficiency by refining our marketing content.
Speaker #1 (AI Assigned): Dynamically optimizing our acquisition channels and reallocating resources toward higher ROI channels. Meanwhile, leverage AI capabilities to enhance lead allocation and conversion management throughout the user acquisition process.
Speaker #1 (AI Assigned): This quarter, the contribution from private traffic and word-of-mouth referrals further increased year over year, driving steady improvements in channel mix and overall acquisition efficiency.
Speaker #1 (AI Assigned): To better meet the concentrated demand during the summer enrollment period, we also enhanced our comprehensive curriculum and talent development system for promotional course tutors.
Speaker #1 (AI Assigned): We are shortening ramp-up time for new hires and improving new tutor productivity by more than 20% year over year. In addition, since 2025, we have continued to enrich the talent pipeline and service delivery system for our online one-on-one tutoring business.
Speaker #1 (AI Assigned): These accumulated investments have increasingly translated into tangible operating outcomes this quarter, driving year-over-year growth of more than 55% in gross billings from new enrollments for this business.
Speaker #1 (AI Assigned): Stronger talent reserves and service capabilities enable us to capture large-scale user demand while maintaining consistently high standards of teaching and service delivery.
Speaker #1 (AI Assigned): Another key component of our learning services is educational services for college students and adults, where revenue grew by more than 15% year over year, accounting for over 10% of total revenues.
Speaker #1 (AI Assigned): Demand for college students is both strong and varied. As such, we continue to explore service scenarios spanning the full development arc from academic study to career development, and we are strengthening the cross-business synergy between our college learning programs and our civil service exam preparation offerings.
Speaker #1 (AI Assigned): On the user front, we've updated our service framework to better address students' needs across different stages of development, elevating user lifetime value. Operationally, we have connected lead management and resource sharing across the two businesses, improving the utilization of offline classrooms and other operational resources.
Speaker #1 (AI Assigned): This has enhanced both organizational agility and profitability. As synergies like this gradually materialize, our service capabilities around college students are strengthening, driving stronger growth momentum.
Speaker #1 (AI Assigned): This quarter, for the college learning programs and the civil service exam preparation businesses combined, both revenue and gross billings grew by over 40% year over year, while operational cash flow improved substantially.
Speaker #1 (AI Assigned): In our offline operations, our two Dream Centers in Zhengzhou and Wuhan reached full capacity as of the second quarter, proving that our centralized learning center model can be replicated and scaled.
Speaker #1 (AI Assigned): Supported by strong existing market demands and our accumulated operational experience, we see further room to expand this model's service capacity and geographic reach.
Speaker #1 (AI Assigned): Going forward, we will take a prudent approach to expansion, setting in space based on actual demand and operational efficiency. Looking ahead, we will remain focused on advancing our core strategic priorities with a disciplined approach to resource allocation.
Speaker #1 (AI Assigned): While maintaining a premium user experience and high-quality services, we will pursue healthier and more efficient growth across all business segments to drive sustained profitability.
Speaker #1 (AI Assigned): With that, I will now turn the call over to our Senior Finance Director, Willa, who will walk you through our financial data.
Speaker #3 (AI Assigned): Thank you, Robin. I will now walk you through our financial data. Please note that all financial data are in RMB unless otherwise stated. Our cost of revenue this quarter was RMB 559.2 million.
Speaker #3 (AI Assigned): Gross profit increased 21.2% year over year to over $1.1 billion, with a gross margin of 66.5%. Total operating expenses during the quarter increased 8.8% year over year to nearly $1.3 billion.
Speaker #3 (AI Assigned): Breaking it down, selling expenses increased 11.2% year over year this quarter to $913.2 million, accounting for 54.7% of net revenues. Research and development expenses increased 12.5% year over year to $154.8 million, accounting for 9.3% of net revenues.
Speaker #3 (AI Assigned): General and administrative expenses increased 1.8% year over year to $192.6 million, accounting for 11.5% of net revenues. Loss from operations was $149.8 million, and the operating loss margin was 9.0%.
Speaker #3 (AI Assigned): Non net loss from operations was $143.0 million and non GAAP operating loss margin was 8.6%. Net loss was $135.8 million and net loss margin was 8.1%.
Speaker #3 (AI Assigned): Non GAAP loss non GAAP net loss was $129.1 million and non GAAP net loss margin was 7.7%. Our net operating cash inflow increased 46.3% year over year to $861.2 million.
Speaker #3 (AI Assigned): Now turning to our balance sheet. As of June the 30th, 2026, we held $929.6 million in cash cash equivalents and restricted cash along with 2.4 billion in short-term investment and $642.9 million in long-term investments.
Speaker #3 (AI Assigned): This comes to a total of nearly $4.0 billion. As of June 30, 2026, our deferred revenue balance was $2.6 billion, primarily consisting of tuition received in advance.
Speaker #3 (AI Assigned): As of August the 26th, 2026, we had repurchased an aggregate of nearly $36.5 million ADIs on the open market for $741.8 million RMB. 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 defer materially from our predictions.
Speaker #3 (AI Assigned): Based on our current estimates, total net revenues for the third quarter of 2026 are expected to be between $1,838 million and $1,858 million, representing an increase of 16.4% to 17.7% on a year over year basis.
Speaker #3 (AI Assigned): This concludes my prepared remarks. Operator, right now reads ready for the Q&A session. Thank you everyone for listening.
Speaker #1 (AI Assigned): 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.
Speaker #1 (AI Assigned): 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.
Speaker #1 (AI Assigned): 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 (AI Assigned): 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 (AI Assigned): At this time, we will pause momentarily to assemble our roster. Our first question comes from Daisy Chen with Haitong International. Please go ahead.
Speaker #3 (AI Assigned): 感谢管理层接受我的提问。恭喜公司啊这个季度业绩表现稳健，想请教一下管理层这个线下业务的一个进展，就是目前的话咱们最新的运营情况如何。同时也想说了解一下管理层对于近三年具体的扩张策略，包括啊网点的一个扩张节奏，还有盈利能力提升的呃路线是什么样子。嗯，L Translate myself. Thank you management for my question and congratulations on the solid results. my question is about the. Of my business. Could management share the latest operational progress of the of my segment?
Speaker #3 (AI Assigned): can you explain more details about your offline expansion strategy for the next two or three years? such as the capacity expansion pace and the your margin improvement to the map.
Speaker #3 (AI Assigned): Thank you.
Speaker #2 (AI Assigned): Okay, I'll take this question on mic. Thank you, Daisy, for your question. And sir, offline is becoming an important growth area for Gaotu. But...
Speaker #4 (AI Assigned): We are managing it with a very clear principle, that is, profitable growth comes before blind expansion.
Speaker #2 (AI Assigned): In Q2 and during the summer season, offline continued to show encouraging momentum. We are seeing active cities, and some earlier entry locations are beginning to benefit from stronger local brand recognition and word of mouth.
Speaker #2 (AI Assigned): That matters because offline education is very local. Once trust is built in a city, acquisition follows.
Speaker #4 (AI Assigned): Gradually become healthier.
Speaker #2 (AI Assigned): The current growth is mainly coming from aggressive food.
Speaker #4 (AI Assigned): A large part of the improvement is coming from the operating quality, which includes a better renewal rate, better classroom utilization, better staff productivity, etc.
Speaker #4 (AI Assigned): We are working to fill existing capacity more effectively, improve cost scheduling, and strengthen teacher supply, which will lead to a higher retention rate. These are the levers that matter for profitability.
Speaker #4 (AI Assigned): And at the same time, we are realistic about the offline model. In the early stage, investment is front-loaded, so we need a local team, teaching space, and local curriculum adoption.
Speaker #4 (AI Assigned): It takes time for a city to mature. So, on expansion, our approach is selective. We will still consider new capacity where demand is clear and the local model is healthy.
Speaker #4 (AI Assigned): But footprint growth itself is not the main KPI. In some cities, the best use of resources is to fill existing classrooms better. In some products, the priority is to strengthen teacher supply or improve conversion.
Speaker #4 (AI Assigned): And after the summer cycle, we will review performance carefully, city by city, project by project, and with respect to demand.
Speaker #2 (AI Assigned): Model is improving.
Speaker #4 (AI Assigned): We will continue to allocate resource. We are a project or city do not meet our our profitability standard. We will optimize resource allocation. or even eliminate projects and sites that we do not see potential to get to generate right economic returns.
Speaker #4 (AI Assigned): So the goal is to concentrate resources on profitable and promising sites and projects, so offline can move toward meaningful profit contribution over time. That concludes my answer.
Speaker #4 (AI Assigned): Hope that addresses your question, Daisy.
Speaker #1 (AI Assigned): Thank you Daisy. Did you have a follow-up question?
Speaker #3 (AI Assigned): No, thank you. That's perfect. Thank you.
Speaker #5 (AI Assigned): Thank you. That's perfect. Thank you.
Speaker #1 (AI Assigned): Thank you again. If you have a question, please press star then one. As there are no further questions at this time, I would like to turn the call back over to Catherine Chen for closing remarks.
Speaker #5 (AI Assigned): Remarks.
Speaker #6 (AI Assigned): 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.
Speaker #6 (AI Assigned): You are also welcome to subscribe to our news alert on the company's IR website. Thank you very much again for your time. Have a great night.
