Ladies and gentlemen, thank you for standing by and welcome to the Gaotu Techedu [Fourth Quarter and Fiscal Year 2023] (ph) Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event 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.

Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's First Quarter 2024 Earnings Conference Call. My name is Catherine, and I'll help host the earnings call today. Gaotu's earnings release for the quarter 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’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 the business highlights for the quarter, and then afterwards Shannon will discuss our financial performance in more detail. Following their prepared remarks, we will open the floor to questions from analysts. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements made under the Safe Harbor provision of the US 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 US SEC. The company does not undertake any obligation to update any forward-looking statement except as required under applicable law. During today's call, management will also discuss certain non-GAAP measures for comparison purposes only. For a definition of non-GAAP financial measures and 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 our Founder, Chairman and Chief Executive Officer, Larry. Larry, please.

Good evening and good morning, everyone. Thank you for joining us on Gaotu’s first quarter of fiscal year 2024 earnings conference call. I would like to take this opportunity to express my gratitude to all of you for your interest and support of Gaotu. Before I start, I would like to remind everyone that all financial figures discussed today are quoted in RMB and stated otherwise. I am pleased to report our financial and operational results for the opening quarter of the year. During the first quarter, we remained laser-focused on refining our educational products and expanding our customer acquisition channels. On the product front, we worked diligently to align our offerings more closely with user needs, while enhancing the educational [prow] (ph) of our established products, we also made significant progress in diversifying our portfolio to better address user needs and improve learning efficiency. On the customer acquisition front, we expanded customer outreach by tapping into diverse channels and boost acquisition efficiency by streamlining and optimizing the teaching processes tailored to our product and content characteristics. This combination of high caliber educational offerings and robust customer acquisition channels have laid a solid foundation for the sustainable and rapid growth of our business. In the first quarter, our net revenue increased 33.9% year-over-year to RMB946.9 million, while year-over-year to 946.9 million, while our gross billings grew 35.3% year-over-year to RMB729.4 million. Excluding the one-off impact such as different class retention schedules, our comparable gross billings saw an annual increase of more than 70%. Non-GAAP net income reached RMB3.0 million and non-GAAP net income margin was 0.3%. Our cash position remains strong with a total of RMB3.8 billion in cash, cash equivalents, restricted cash, and short and long-term investments, RMB374.6 million higher than the same time point last year. Our strong…

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 fiscal year 2024. We commenced 2024 with a notable surge in growth momentum in the first quarter. Backed by ample cash reserves, they remained committed to enhancing the expansion of our core business. This was achieved by strengthening our portfolio and organizational capabilities, thereby reinforcing our leading positions in brand recognition and competitive advantages. In parallel, we actively explored and cultivate product optimization and channel innovation, fortifying our core competitive moats and create lasting value for our shareholders. Our gross billings demonstrated robust growth. On a comparable basis, gross billings surged by more than 70% year-over-year to RMB729.4 million. We anticipate maintaining this growth trajectory throughout the remainder of the year, which will gradually translate into accelerated revenue growth. In the first quarter of the year, our net revenues increased by 33.9% year-over-year to RMB946.9 million. The business model for online education exhibits certain statistical and seasonal patterns. The second quarter is typically the peak demand season, necessitating proactive investments in marketing expenses and teaching resources reserves to capitalize on the enrollment window. This strategy ensures the maximization of operational efficiency and economics of scale. Historically, this entails certain upfront market expenditure in marketing costs with revenue realization gradually materializing in the latter half of the year. As student retention increases and concurrent enrollment, product penetration, and brand recognition improves, the manpower costs associated with course and service delivery can be amortized and economic of scale, progressively unlocking profitability potential. As such, profitability in a single quarter for online education is contingent on the ratio of the users to existing users. Well, working to ensure a healthy unit economy, we recognize the…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Alice Cai with Citibank. Please go ahead.

Good evening management. Thank you for talking my question. I have a question regarding the 2Q revenue guidance and the impact of the shift in re-enrollment timeline. Because we know that the guidance appears relatively conservative, could you please provide more information on whether it is influenced by the shift in the re-enrollment period? Last year, re-enrollment occurred in March. While this year it took place in April. Could you please break down the situation for us, sharing details on how re-enrollment of existing students and enrollment of new students are performing separately? Thank you.

Thanks, Alice. Let's start with the guidance of the second quarter, then we can dive into our expectations for the whole year. So from the revenue perspective, we expected the revenue to be between RMB908 million and RMB928 million in the second quarter of 2024, representing an increase of 29% to 32% on a year-over-year basis. So the primary revenue contributor is learning services, within which around 75% of our total revenues came from non-academic tutoring services and our traditional learning services. So we still in the second quarter, we see strong momentum for this segment and we foresee this part of revenue to grow near or over 45% on a year-over-year basis in the second quarter. So the segments with growth rates lower than the overall company growth primarily the impact of the education services we provided for college students and adults. Although the gross billings increased in the past two quarters showed a strong momentum, but it's mainly contributed by college learning services and overseas related business. According to the class schedule and the seasonality, the revenue usually recognized in the third quarter and even the second half of the year. So therefore, although we saw the strong growth momentum in gross billings, the revenue remains flat in the second quarter and therefore it kind of [drags] (ph) down the whole company's revenue growth rate. So in terms of gross billings, we expected to, I mean in the second quarter of 2024, we still anticipate it to grow at a high double digit growth rate in the second quarter on a year-over-year basis. And also, especially for our academic children's services and our traditional learning services, the gross billings collected from new students are expected to grow over triple digits. And this momentum has been continued from last…

Thank you.

And the next question comes from Jeffrey Chan with CLSA. Please go ahead.

Hi, thank you, management, for taking my question. I have a question regarding the OpEx and also the GP margin. Can management give us some more color on the GP margin and the OpEx ratio in the next quarter and in the rest of this year, 2024? And perhaps if you could, can you give a small color on the profitability in full year 2024? Thank you.

Thanks Jeffrey for your question. So let's [believe] (ph) the OpEx line-by-line and start with the change of our GP -- gross profit margin. So first for the growth profit margin, we observed a around 6% decrease in GP margin on a year-over-year basis. So the year-over-year decrease in gross profit margin was due to a few reasons. The primary reason was the revenue mix change. In terms of revenue contributor, to meet diversified user demand, we have constructed a product mix primarily focused on online large class business, complemented by one-on-one class, smart textbooks, and offline small classes. Among all these business models, online large class boosts the highest the GP margin level. As our business expands, the proportion of revenue generated from our one-on-one classes, smart textbooks and offline classes is gradually increasing, altering the revenue mix and subsequently impacting gross profit margins. Especially, our offline learning center expansion is accelerating, brought us a higher level of cost of good sale, which marks the GP margin lower at this point of time. Secondly, to enhance the comprehensiveness and competitiveness of our curriculum system, we are making efforts to introduce and develop new courses. The associated investment in faculty resources in the early stage will also impact the gross profit margin before they achieve their full capacity. So in the long run, our GP margin will highly depend on the future revenue structures. So that's the reason for the GP margin fluctuation. Then secondly, let's look into the details of our R&D expenses change. So the year-over-year increase in our research and development expenses in this quarter was mainly due to corresponding resources investment in innovative technologies, such as artificial intelligence, started in the second half of last year. Education [with its] (ph) vast potential stand as a promising…

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

Thank you, operator, and thank you everyone for joining the call today. And if you have any further questions, please don't hesitate to contact our investor relations department or our management team via email at ir@gaotu.cn directly. 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.

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