Ladies and gentlemen, thank you for standing by, and welcome to the Gaotu Techedu First Quarter 2023 Earnings Conference Call. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to your first speaker today Ms. Sherry Liu, IR Manager of Gaotu. Please go ahead, Sherry.

Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's first quarter 2023 earnings conference call. Gaotu's earnings release for the quarter was published earlier today and is available on the company's IR website at ir.gaotu.cn. Joining the call with me tonight from Gaotu's senior management is Mr. Larry Chen, Gaotu's Founder, Chairman and Chief Executive Officer, and Ms. Shannon Shen, Gaotu's Chief Financial Officer. Larry will first provide business highlights for the quarter, and then afterwards, Shannon will discuss our financial performance in more detail. Following their prepared remarks, Larry and Shannon will be available for the Q&A session. Before we begin, I would like to remind you that this conference call will contain forward-looking statements as defined 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 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 these and other risks is included in the company's public 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. During today's call, management will also discuss certain non-GAAP measures for comparison purposes only. For a definition of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please refer to our first quarter earnings release published earlier today. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Gaotu's IR website. It is now my pleasure to introduce Larry. Larry, please.

Thank you, Sherry. Good evening and good morning, everyone. Thank you for joining us on Gaotu's first quarter 2023 earnings conference call. Before I start, I would like to remind everyone that all financial figures discussed tonight are quoted in RMB, unless stated otherwise. During the first quarter of 2023, we maintained the healthy and stable sequential growth in net revenues and drove a significant year-over-year increase in gross billings with lower selling expenses. Our net revenues increased 12.3% quarter-over-quarter to RMB707.3 million, and our gross billings were up 69.4% year-over-year to RMB539 million. Moreover, the improvement in operational efficiency strengthened our profitability, which was demonstrated by the triple-digit year-over-year increase in both income from operations and net income. Our non-GAAP net income margin for the quarter reached 18.9%. While favorable seasonality partially contributed to the strong start to the year, it was primarily driven by our exceptional organizational capabilities and unwavering commitment to our strategy of long-term sustainable and profitable growth, and it further reinforced our confidence in achieving annual effective growth and generating a sizable positive net operating cash flow for the full year 2023. Our focus continues to remain on to major business lines, learning services and educational content and digitalized learning products. Learning services continue to serve as the core pillar of our business and the predominant revenue contributor. It mainly includes educational services for college students and adults overseas study-related services, non-academic tutoring services and other traditional learning services. I will now discuss the business highlights of the quarter through three aspects. First, all of our core business segments continue to remain on a healthy development trajectory. To start, our educational services for college students and adults generated positive net operating cash flow during the quarter, which not only reflected the seasonal uptick in gross…

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 first quarter of 2023. Please note that all financial figures discussed today are quoted in RMB, unless otherwise noted. We reported another quarter of solid financial performance. It is encouraging to see that our net revenues recorded the third quarter of consecutive sequential growth, increasing by 12.3% quarter-over-quarter to RMB707.3 million. Additionally, gross billings increased by a considerable 69.4% year-over-year to RMB539 million. Even more noteworthy is that, during the quarter, we considerably enhanced our key profit metrics on both an annual and quarterly basis. Specifically, net income grew sharply by 112.1% year-over-year to RMB113.9 million, which led to an 8.7 percentage points year-over-year increase in net income margin to 16.1%. Non-GAAP net income rose to RMB133.6 million, accompanying in non-GAAP net income margin of 18.9%, representing the highest quarterly net income margin since our business restructuring in 2022. The substantial improvement in profitability is a testament to our sound business model, sustainable growth strategy and outstandingly cohesive organization, and also underlines the effectiveness of our continuous endeavor to refine operations, optimize cost and enhance customer acquisition and operational efficiency. Breaking down, more than 75% of total revenues came from non-academic tutoring services and other traditional learning services, which remain a key priority for our business. For the education industry, non-academic tutoring services represent an emerging vertical with booming market demand and high growth potential. Our non-academic tutoring services focused on offering holistic and systematic education for school-age kids by sharpening their [own] (ph) learning, logical reasoning and critical thinking abilities. During the quarter, in addition to being profitable, this segment achieved a triple-digit year-over-year growth in gross billings. At present, our top priority for…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Crystal Lee from CMS. Please go ahead.

Hi, management. Thanks for taking my question. I have one question regarding your margin. I noticed that your first quarter net margin improved a lot. Could you provide some insight into the margin outlook for the next few quarters? And how should we think about any potential seasonality factors impacting margins? Thanks.

Thanks, Crystal, for your questions. So, let me repeat our guidance first. Per our guidance for the net quarter, we are foreseeing an up to 24.2% revenue increase on a year-over-year basis. On top of the revenue guidance, we still anticipate gross billings to grow far more quickly than revenue in the second quarter year-over-year. Considering the nearly 70% year-over-year increase in gross billings in the first quarter and a mid-double-digit growth rate in the second quarter, we have full and firm confidence in the scale of annual revenue growth in 2023. And in terms of margins, our profitability primarily depends on our operational efficiency and [let me] (ph) elaborate it from a few aspects. Firstly, over the past year, we've been focused on building up organizational capabilities and optimizing our cost structure. The work itself has yielded significant results, leading to continuous improvement in our key profit margins. And secondly, we have benefited from operating leverage as our total R&D and G&A expenses have remained relatively stable. With the increase in scale in revenues, operating leverage will have a more pronounced impact on profitability enhancements. And last, customer acquisition efficiency is another critical factor influencing our margin. We've been dedicated to exploring customer acquisition channels with high entry barriers and we have gradually shifted our customer acquisition strategy from purchasing traffic from those social platforms to more like a content-driven platforms and such as short video live streaming platforms and offline channels. This has resulted in a significant improvement in ROI levels. As you can see, like, our first quarter results, our ROI actually increased over, like, 73% on a year-over-year basis. Overall, as Larry mentioned earlier, our goal remains to achieve profitable growth and we believe that will witness a meaningful level of profitability for the full year of 2023. And actually, our business shows a salient seasonality. We would stress you and other investors to put more weight on the year-over-year comparisons from now on. Taking the second quarter as an example, we usually generate a large scale of net operating cash flow in the second quarter because it is a typical retention season. And although the summer campaign usually begins in middle June, our strategic focus on improving efficiency remains strong as ever. And we expect to see a meaningful profitability in the second quarter as well. So, actually we still see the second quarter as a quarter that will provide a meaningful profitability as well as a large scale of net operating cash flow. Hope that address your questions. Thank you, Crystal.

Thanks, Shannon.

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. Thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact our Investor Relations Department or our management via e-mail at ir@gaotu.cn directly. You're 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 day.

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