Hello, ladies and gentlemen, thank you for standing by, and welcome to the Gaotu Techedu First Quarter 2025 Earnings Conference Call. At this time all participants will be in listen-only mode. [Operator Instructions] 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.

Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's first quarter and 2025 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 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'll open the floor to questions from analysts. Before we begin, I 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, 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 this 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 purpose only. For a definition of non-GAAP financial measures and reconciliation 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 live 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 2025 earnings conference call. I would like to take this opportunity to express my gratitude to each of you for your interest in and support of Gaotu. Before I start, I would like to remind everyone that all financial figures discussed today are quoted in RMB, less stated otherwise. Over the past year, we have consistently executed on our strategic priorities, providing meaningful progress across product innovation, organizational development, technological advancement, and operational excellence. These efforts have built a transformative business expansion, while also comprehensively enhancing our organizational capabilities. As we entered 2025, we sustained our robust growth momentum, delivering results that surpassed market expectations across revenue, profitability, user growth, and organizational efficiency. Notably, our substantial profit realization represents the culture's most significant milestone, validating the effectiveness of our efforts to enhance of regional leverage and improve cost efficiency. In the first quarter of 2025, our revenue increased by about 58% year-over- year to nearly 1.5 billion exceeding the upper end of items. Operating profit reached 34.8 million with a net income of 124.0 million. On a non-GAAP basis, net income reached 137.3 million with the net margin of 9.2%. These financial results not only reflect strong top-line momentum, but also underscore our disciplined approach to high-quality growth and marginal improvement. In addition, we consistently prioritize the shareholder returns and remain committed to creating long-term value for our shareholders. During the quarter, we educated approximately 136 million to our share repurchase program under the current buyback plan, the accumulated total amount of stock buybacks has reached 460 million. The pure mutative number of ADS we purchased represents 9.0% of our total outstanding shares as of March 31st, 2025, serving as an effective…

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 2025. We started the year strongly with a high-quality performance in the first quarter, achieving profitable at scale while maintaining robust growth momentum. Revenue maintained its rapid growth trajectory, making the third consecutive quarter with year-over-year growth exceeding 50%, and the core business has demonstrated a stronger growth momentum. Through strategic enhancement of customer value, efficient task management, and refined operational improvements, we have fully unleashed our operational leverage, providing robust support for continued profit growth. Our operating margin and net income margin rose by 10.5 and 9.6 percentage points on an annual basis, further affirming the continuous improvement of our profit quality. Meanwhile, deferred revenue amounted to over 1.4 billion, representing a year-over-year increase of 4.0%, offering a solid foundation for sustained revenue growth in the subsequent quarters. Driven by the dynamic evolution of customer needs, we have strategically invested in improving product quality, expanding our user base, and delivering more personalized and diversified learning solutions in prior years. With effective execution of these strategies, our revenue structure has become more growth-oriented and sustainable. Notably, our portfolio of non-academic children services, which generated superior customer lifetime value, has emerged as a significant growth engine alongside our traditional learning services. Next, let me walk you through the progress we made during this quarter. Learning services contributed over 95% of net revenues. Breaking it down, more than 85% of total revenues came from net academic tutoring services and our traditional learning services, representing over 80% year-over-year growth. Combined, gross earnings from these two segments increased by approximately 30% year-over-year. Our new initiatives focused on online and offline academic tutoring services delivered…

[Operator Instructions] 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 and then feel free to follow up with your next question. Our first question comes from Crystal Li from CMS.

Thanks, management for taking my questions, and congratulations on the very strong results. We saw you achieve a very solid margin in the first quarter. May we know more about the drivers behind this margin extension, and could you give us some color on your full-year guidance? Thank you.

Pardon me, ladies and gentlemen, it appears we have lost the connection to our speakers. Please stand by while we reconnect. We thank you for your patience. Pardon me, everybody. We are now rejoined with the speakers. You may now go ahead.

Sorry. We ran into some technical issues, and, thanks, Crystal for your question, and let me rephrase your question. And first is like the margin proportion of the first quarter. And the second question was the guidance for the whole year. Is that right?

Yes, that's correct. Thank you.

Yeah, yeah. Thanks. Thanks, Crystal. Also, before discussing the annual guidance, it's necessary to first explain the seasonality and it helps to better understand the underlying data and build up more confidence in our business. So education business has distinct seasonality from the perspective of growth billings, the first and the third quarter at peak new enrollments registration seasons with cross billings mainly from new students. And at the same time, the second and fourth quarters are supported by both new enrollments and retentions. So cross-billings in the second and fourth quarters are significantly higher than those in the first and third quarter, and also affected by like spring festival and other holidays. The course schedule individual quarters may be reduced or increased by one or two sessions, which in return affects the revenue recognition. So it is highly recommended to analysis the revenue growth rate by the first and the second half of the year respectively, instead of just looking into one single quarter. Taking the first half of 2025 as an example, our revenue in the first quarter was approximately 1.5 billion. And the upper end of the revenue guidance for the second quarter is 1.3 billion. Taken together, this represents a 44% year-on-year increase compared to the first half of last year, especially considering that the college students and the adult business it's still in the adjusting cycle, and it shows a decrease year-over-year on revenue side. This means that the growth rate for our non-academic tutoring business and the traditional business is at a high double-digit level, which far exceeds the industry average. And in terms of the profits, the first and fourth quarters are key stages for concentrated profitable release -- of profitability release, which is closely related to the revenue recognition and the new…

Thank you. That's very clear.

The next question comes from Elsie Chang from CLSA. Please go ahead.

Thank you, management. Thank you for taking my question, and congratulations on the strong growth momentum and also the profitability. I have a question related to the sector demand side. So we know that we are now facing a relatively weak cycle, and but we also know that education demand, large more resilience. But I would also be interested to check that do you observe any changes on the human side, compared to like maybe, one year ago? And is there any changes on the parents’ preference in terms of like the course format or like the course content, et cetera? Thank you.

Thanks, Elsie. This is a really good question, because like, we are a customer oriented company and we always focus on the demand from our customers, and indeed we have observed several changes in students and parents along with the change of macroeconomics, parents' expectations, their achieved in education concepts and also the technological involvements. So, first, the demand for children's comprehensive development has been continuously increasing beyond traditional academic performance. Parents are gradually increasing investments in their children's all-around growings, including like critical thinking, problem solving abilities, responsibility, teamwork, and like especially their physical and mental health. Gaotu has keenly captured this trend and continues to actively promote high-quality content through multi-scenario coverage of like online and offline channels. We create immersive learning experience for students to cultivate their creativity, collaboration, and critical thinking, et cetera, and also our non-academic training gradually becoming a core driver of business growth. And these all drive from the change of the demand from our customer. From an operational metrics perspective, the retention rate of non-academic tutoring has continued to rise, particularly in our like coding business when the rate exceeded 90% in the first quarter, as I just mentioned in my prepared remarks. Second, parents and students have shown increasing acceptance of technology-driven educational solutions, further promoting us to accelerate the deep integration of AI technology with teaching scenarios, and we saw like in a lot of social medias, that parents started to prepare some small sessions for their children by those AI tools. We also innovated us about our new initiatives in our educational product, and also empowered by AI, we have significantly improved the timeliness of teachers' responses and the quality of integrations with students in enhancing their satisfaction, and now, like the time we respond to the student's spontaneous request is much more short than before. Third, the demand for more personalized education among students and parents has gradually increased. We saw some demand rising in some one-on-one session, et cetera, because it's more personalized and more diversified. However, we also observe that parents' pursuit and recognition of high-quality education resources remain constant, which means, particularly for excellent teachers and premium teaching content with the sense and always something always not changing for the parents and the students, and they're all what we are constantly building for. Thanks Elsie. Thank you. It's very clear.

The next question comes from Eunice Liu from Goldman Sachs.

Good evening, Larry, and Shannon. Thanks for taking my question and congrats on further results. My question is on the operating cash flow. I noticed that the operating cash flow this quarter was negative and was more than twice its level for the first quarter last year. So could management elaborate on the reason behind? Thank you.

Thanks. This is also a very good question, and thanks for diving into these details. And so regarding the increase in operating cash outflow in the first quarter compared to the same period of last year, so, this is primarily due to the payment of 2024 annual bonuses and incremental labor costs in the first quarter. As our business scale, the number of our teachers has correspondingly increased as well. But like the cash we invested in employees in the first quarter, we'll leverage and contribute larger cash inflow in the following quarters. And based on our efficiency improvements and profit enhancements, we expect the operating cash inflow of 2025 to be at least 3x that of the full-year of 2024 lease implies that we will be having a net operating cash inflow of over US$100 million this year. This is also the source of confidence for the board and management to additionally approve an extra US$100 million share repurchase plan today. So we sent shareholders and investors for the long-term support, and we will continue to create greater value for shareholders. So, leveraging the positive cash flow we expect to generate this year, we'll do a better job on this task. Thanks.

As there are no further questions now I'd like to turn the call back over to the company for closing remarks.

Operator, thank you everyone for joining the conference today. 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 alert on the company IR website. Thank you very much again for your time. Have a great time.

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