Ladies and gentlemen, thank you for standing by, and welcome to the Gaotu Techedu Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Ms. Sherry Liu, IR Manager of Gaotu. Please go ahead.

Thank you very much, operator. Good evening, everyone, and thank you all for joining us tonight. For Gaotu Second Quarter 2020 Earnings Conference Call. Gaotu's second quarter earnings release was published earlier today and is available on the company's IR website at ir.gaotu.ca. On the call with me tonight are Mr. Larry Chen, Gauto's Founder, Chairman and Chief Executive Officer; and Ms. Shanahan, Sato's Chief Financial Officer. Larry will give the general business overview for the quarter, and Nan Shen will discuss the financials -- on the prepared remarks, Larry and Nan Shen will be available for the Q&A session. I will translate for Larry. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements as we file in 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, and they will involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict, 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 these and other risks is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce Larry. Larry, please go ahead.

Thank you, Sherry. Thank you for joining us on Gaotu's Second Quarter 2022 Earnings Conference Call. Before I start, I would like to remind everyone that all financial information that I mention later is based on RMB unless otherwise noted. During the second quarter of this year, our STEAM sales sustained a healthy and stable growth. Our growth billing nearly doubled compared with that of last quarter, and we successfully generated positive net operating cash flow. Moreover, our net loss substantially narrowed year-over-year, and this is the third consecutive quarter that we realized non-GAAP profitability after our business restructuring. Going forward, we will continue to focus on educational services for college students and adult, non-academic tutoring services and educational contents and digitalized learning products, continue to uphold our strategy of profitable growth and continue to strive for effective growth through improving operational efficiency and optimizing cost structure. During this quarter, our net revenue reached RMB 537.8 million, and our gross billing increased 92.3% quarter-over-quarter to RMB 611.7 million. To provide a consistent basis of comparison, if we compare continuing businesses, the net revenues of our comparable business sales increased over 30% quarter-over-quarter. And the gross billings of comparable business have also achieved quarter-over-quarter growth for 4 consecutive quarters. Further, our gross margin this quarter was 70.2%, slightly higher than that of the same period of last year. Additionally, we also generated a net operating cash flow of RMB 93.8 million, demonstrating that we have achieved effective growth. In the second quarter, we upgraded our user products and made a solid progress in our main businesses. Additionally, we saw decent improvement in terms -- in some of our key operational metrics, including ROI for selling expenses and employee efficiency. I will now briefly talk about the progress we made in each…

Thank you, Larry, and thank you, everyone, for joining our call today. I will now walk you through our operating and financial performance for the second quarter 2022. Please know that our financial data, that I mentioned later is based on RMB terms, unless otherwise noted. The education industry highly relies on employees' operational efficiency and the synergies among the workforce. During the second quarter, through optimizing costs and enhancing operational efficiency, we continued to achieve effective growth under this challenging economic environment. Net revenues generated by comparable businesses showed quarter-over-quarter growth for 3 consecutive quarters. And [indiscernible] showed a quarter-over-quarter growth for 4 consecutive quarters. We expect this momentum to continue in the next quarter. Additionally, net loss was hugely narrowed by 94.6% year-over-year to RMB 49.8 million on the GAAP basis. And we remained profitable this quarter on the non-GAAP basis with the amount of 645,400. We are also seeing a positive net operating cash flow of RMB 93.8 million, with that, our capital position remains strong. As of June 30, 2022, we had a total of approximately RMB 3.4 billion in terms of cash, cash equivalents, restricted cash and short-term investments on our balance sheet, providing ample resources for continued business development. Going forward, we will continue to focus on our 3 core businesses, educational services for college students and adults, non-academic tutoring services and educational content and digital learning products, well guided by our strategy of sustainable growth. Now I will go through our key financial data for the second quarter. As the new businesses we initiated after our business restructuring are still in their early development phases, we will compare our financial performance on a quarter-over-quarter basis, alongside with year-over-year comparisons to better present the development of our comparable businesses. In the second quarter of…

Thanks for your presentation and congrats on breaking even in this quarter in the non-GAAP net profit. My first question is about Q3 revenue outlook. We see the Q-on-Q revenue improvement. Could you share a bit on maybe the breakdown of the major segments? Or could you comment on the Q-o-Q growth drivers for the major segments?

Thanks, Mark. We are gradually becoming more focused on our businesses and products to target a more vertical student population and in this way, to create synergies between our users and to enhance our branding and to increase the market penetration rate. As such, during this quarter, we are focused on the 3 main businesses, including educational services for college students and adults and academic tutoring services and educational content and digitalized learning products. Our new businesses are still in their early development stages and the revenue contributed by each of the business lines will be affected by different seasonalities and different stage of the development. So currently, we did not disclose our revenue breakdown in detail because our current revenue structure is not a very perfect indication for what's going on, and we expect it to change in the following quarters as our revenues grow larger. But I can give you a high-level picture. Like this quarter, I mean, in the second quarter, our academic tutoring services and educational content and digitalized learning products, combined together, contributing roughly 60% of our revenues and constantly contributed operating profit and sizable net operating cash flow. So we will leverage our brand recognition and large user base that we have accumulated in the past years to constantly upgrade our products and to better serve our students. And other than the 60%, the rest of the -- our 40% revenue were contributed by educational services for college students and adults, which includes some vertical categories such as whether through entrance exam preparation and civil servants exam preparation and also like financial and accounting qualification test preps as well as other exam preparation categories. Because different business lines are still at different stages so we will not disclose more -- we will disclose more information when this businesses enter a more mature phase. So then if you're looking to next quarter for Q3 outlook, we foresee all these 3 categories of revenue to grow, but it still depends on like the seasonality and the different stages. Hope that helps.

Got it. May I have a quick follow-up on the education service for the college doubts. Like looking into Q3, what are the major driver for the courses or any new costs you could highlight to us?

Yes. Thanks for your question, Mark. So this is the third quarter, we're transforming and restructuring our business. Currently, we have categorized our core businesses according to the groups of clients that we wanted to target. So college students and working adults are a group of students, which is still energetic for about learning and their demand is very strong. And historically speaking, we have achieved decent progresses for these new businesses. If we look into last quarter, this business achieved over 200% year-over-year growth and gross billing also achieved over 68% year-over-year growth. And this quarter, we are happy to see the momentum to continue. And we also think the gross billing is always an indicator and it will build a strong foundation for the future development. So further, some of our business lines raising this group have achieved a quarterly operating profit, such as financial qualification prep businesses. And also, like the graduate school entrance exam preparation businesses also achieved around 30% quarter-over-quarter growth in revenue. Besides we have courses called [indiscernible] and overseas tax preparation. This also achieved a savable quarter-over-quarter revenue growth about like over 30%. So based on this, because we invest in certain categories, and they all like grow in a sustainable way so we can see that in Q3, we do foresee like our education services for the college students and working adults to continue to grow. So yes, so then in terms of the seasonality, for instance, I will use the graduate school entrance examination reoperation as an example. So this business shows a strong seasonality, like Q1 and Q3 are usually the season that we collect the tuition fees, then you will see the gross billing to increase. Then for the second quarter and the fourth quarter, that's usually when the students started to take the courses, so we will see revenue to grow. So like -- because we -- there're certain categories in the direction so both of them are in a very fair way to grow.

This concludes our question-and-answer session. I would like to turn the conference back over to Sherry Liu for any closing remarks.

Thank you operator and thank you everyone for joining the call tonight. If you have any further questions, please don't hesitate to contact our Investor Relations department or our management through e-mail [indiscernible]. You are also welcome to subscribe to our new sellers on the company's IR website. Thank you very much again for your time. Have a great night.

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