Ladies and gentlemen, thank you for standing by, and welcome to the Gaotu Techedu Inc. Second Quarter 2025 Earnings Conference Call. 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, sir. Good evening, everyone. Thank you for joining the second quarter 2025 earnings conference call. My name is Catherine Chen, and I will 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 would like to remind you that this conference call will contain forward-looking statements made under the Safe Harbor provision 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 purposes only. For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please refer to our second 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 Chen. Larry, please.

Good evening and good morning, everyone. Thank you for joining us on Gaotu's second 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 unless stated otherwise. Over the past quarter, we maintained solid growth momentum in our core business while harnessing the power of AI to enhance our service models, bolster product innovation, and strengthen our organizational capabilities. Together, these efforts are shaping a clear growth trajectory and sustainable competitive advantages. Upholding our user-centric approach, we consistently upgraded our educational products, improved teaching quality, and refined service delivery. Our strategic prioritization and efficient resource allocation have significantly increased per capita productivity. As we progress through 2025, we are steadily enriching our scale of reaching efficiency and user satisfaction, underscoring the resilience and disciplined execution driving our business' high-quality growth. In the second quarter, our revenue increased by 37.6% year over year to nearly RMB 1.4 billion, with gross billings up by 36.2% to approximately RMB 2.3 billion. Thanks to our refined operational execution and improved organizational efficiency, we narrowed our net loss by 50.5% year over year on a non-GAAP basis. We achieved a net operating cash inflow of RMB 588.8 million this quarter, an increase of RMB 202.6 million from the same period last year. These results reflect our ability to sustain solid growth momentum while strengthening operational quality and sharpening our competitive edge. Now I would like to elaborate on this quarter's operating highlights on four fronts. First and foremost, we are deepening our investment in AI, advancing our Always strategy to upgrade both our teaching models…

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 of fiscal year 2025. In this quarter, we remained focused on advancing our healthy growth strategy, creating solid, high-quality growth momentum. Net revenues reached nearly RMB 1.4 billion, exceeding the upper end of our guidance by 5.4%. Gross billings grew by 36.2% year over year, outpacing last quarter's growth rate by 14.4 percentage points. In addition to our top-line growth, loss from operations and net loss narrowed by 48.9% and 49.7%, respectively, reflecting continued gains in operational efficiency and outstanding resource allocation. Deferred revenue increased by 38.9% year over year to about RMB 2.2 billion, providing a solid foundation for sustained future growth. We maintained our ample cash position with cash, cash equivalents, restricted cash, and short-term and long-term investments totaling over RMB 3.8 billion as of 06/30/2025. Excluding the impact of share buybacks, our cash position increased by RMB 1.1 billion compared to a year ago, supported by consistent investments in enhancing user experience, course and service quality, and organizational capabilities. The profitability and operational quality of our core established business continued to strengthen. In our ongoing efforts to boost operating leverage and efficiency, AI and other cutting-edge technologies are increasingly playing a crucial role in the refinement of operations, reducing operating expenses as a percentage of net revenue by 31.6 percentage points compared to the same period last year. To capitalize on the peak student demand during the summer period, we typically allocate key resources such as teacher recruitment, team training, and customer acquisition channels well in advance. Given the approximately three to six months gap between marketing investment and revenue recognition, we recommend using the ratio of gross billings to…

Thank you. We will now begin the question and answer session. The first question comes from Elsie Chang with CLSA. Please go ahead.

Thank you, management, for taking my question and also congratulations on continuing to deliver strong growth. I have a question on the offline centers development because although right now the offline is a relatively small portion of our revenue, there is potential room to grow in the future. So I would like to know our latest update, especially on the offline business, and do you have any operating metrics or indicators to share like the ramp-up and the future growth target? Thank you.

Thanks, Elsie, for your question and for your interest in our offline new initiatives. Our offline business is experiencing strong momentum and has quickly become a new growth engine for us. In the second quarter, offline learning center revenue grew by more than 20% on a year over year basis and has already contributed over 5% of gross billings this quarter. The reason behind that is, first, on the customer side, we are leveraging the unique advantage of in-person interaction to build deeper trust with students and parents in a more direct way. By precisely matching localized and personalized learning needs and fostering high-frequency engagement, we are significantly strengthening our customer loyalty. Secondly, from the educational product perspective, leveraging the meticulously refined online content, there is no need for the offline learning centers to build up the content from scratch. The offline learning centers are able to extend vertically our localization and personalization, speed up iteration, and improve their content quality quickly. Third, on brand awareness and headquarter support, Gaotu has strong brand recognition, enhances customer trust, and attracts high-quality talent. We have the ability to provide critical faculty support for our online operations in their early stages. We are also integrating some online private traffic with offline channels to meet diverse student needs, and it is also a strong support for our offline business to grow at the beginning stage. In addition, our headquarters has been able to invest in digital infrastructure to improve the quality and efficiency of our offline operations. We already saw the trend that in certain cities, especially for those cities and regions we already entered after two to three years of operations, we are seeing a virtuous cycle where if we have strong teachers and high-quality new factories and companies there, they all drive…

Yes, it is very clear and congratulations again. Thank you.

Your next question comes from Crystal Li with CMS. Please go ahead.

Okay. Thanks, Larry, Shannon, and Catherine. Congratulations on the strong results. I have two questions here. One is for the summer enrollment. Could you share more color on that and maybe the industry insight? And my second question is how should we look at the full year growth outlook given your strong first half and third quarter guidance? Thank you.

Thanks, Crystal. Summer is very important for the whole academic year. As the summer enrollment season draws to a close, I mean, it is almost closed by the end of this month, we are very glad to share that our overall performance has successfully exceeded expectations, and probably you can tell from the guidance we provided for the next quarter. The biggest contributor is the improvement of teaching quality. The retention rate, a core indicator that directly reflects customer recognition and product satisfaction, delivered an outstanding performance this summer. As I just mentioned in my prepared remarks, compared to both our own historical levels and industry average, retention has been continuously improved. What surprises us more is that we saw the new student retention rate keep improving, which also helped with our customer acquisition efficiencies. From the perspective of operational efficiencies, specifically, our ROI in the second quarter improved from 1.99% in the same period last year to 2.75% this year. This means an increase of 38.6%, reflecting our significant step-up in efficiency. As I just mentioned in my prepared remarks, the absolute number of our sales and marketing expenses actually decreased on a year over year basis, but our gross billings still show over 36% year on year increase. That suggests the positive trend will continue. We also have confidence in Q3 that our ROIs for sales and marketing will further improve on a year over year basis. Beyond the refinement of teaching quality, ROI gains also reflect our multiple prolonged efforts on customer acquisition, ongoing explorations of diversified channels, our long-term investment in referrals and private traffic, and systematic enhancement of organizational capabilities. Both of these efforts are inseparable from the deep empowerment of our AI technology. Our AI strategy is crystal clear, as Larry just mentioned, Always…

Very clear.

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

Thank you, operator, and thank you, everyone, for joining the call today. If you have any further questions, please do not 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's IR website. Thank you very much again for your time. Have a great night.

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