Gaotu Techedu Inc (GOTU) 2025 Q3 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by, and welcome to the Gaotu Techedu third quarter 2025 earnings conference call. (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 third quarter 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'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'll 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 this and other risks is included in the company's public filings with the US SEC. The company does not undertake any obligations 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 third 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 third 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 for Gaotu.

Before I start, I would like to remind everyone that all financial figures discussed today are in RMB unless stated otherwise. Our user-centric approach continues to drive progress in our high-quality growth strategy. As we continually enrich the product portfolio to support learners of all ages across diverse study scenarios, we are deepening user insights, strengthening the high-quality teacher pipeline and comprehensively enhancing product quality, delivery process and operational excellence.

At the same time, the full stack integration of AI across our teaching services and operations is driving measurable efficiency gains and smarter resource at teaching. As our core capabilities expand, our differentiated value proposition is becoming increasingly evident and our trajectory towards profitability is becoming more defined, creating a robust foundation for scalable long-term growth.

In the third quarter, we delivered another solid set of financial results. Revenue grew by 30.7% year over year to nearly RMB1.6 billion, while on a non-GAAP basis, both loss from operations and net loss narrowed significantly by 64.6% and 69.9%, respectively, reflecting sustained improvement in growth quality and profitability. Excluding the impact of share repurchases, our cash position increased year over year, strengthening the balance sheet and highlighting our disciplined financial management.

We remain committed to creating long-term shareholder value. As of this quarter, we have completed the full amount of the initial share repurchase program approved in November 2022 and expanded to $80 million in 2023. Meanwhile, the new $100 million program approved by our board in May has already commenced. We will continue to execute the share repurchase program in a prudent and disciplined manner while safeguarding operational and financial health, further reinforcing our commitment to enhancing shareholder value.

Now I'd like to elaborate on our progress this quarter by reviewing our strategic priorities and key developments across five fronts. First, we are solidifying our strategic edge by extending the coverage across the full learner journey and diversifying our service scenarios. Through sustained investment and refinement, we have built a cohesive product and service ecosystem, spanning primary school through adult learning.

This brings us a deep understanding of users' learning trajectories, enabling us to deliver increasingly differentiated and personalized services at every stage and establish a unique user value proposition and brand equity. Building on this foundation, we continually iterate our service models in lockstep with user demand.

We began with online delivery, gradually expanded our offerings to include online merge offline models and offline boot camps to meet user demand for enhanced interactivity and immersive experiences and have ultimately established offline learning centers. Our online model provides broad reach and leverages high-caliber teaching resources and flexible learning format to deliver efficient and highly accessible services.

Meanwhile, our offline learning centers enhance localized support and personalized instruction, naturally complementing our core online framework. Notably, for the first time this quarter, the revenue contribution of offline learning services exceeded 10% of our total revenues. We believe our deeply integrated online offline model not only aligns with users' lifelong development, but also forms a resilient, flexible and scalable service network. By harnessing the efficient scalability of online learning while incorporating the interactive and immersive value of offline education, Gaotu is poised to become a premium lifelong learning platform.

Second, we are building a robust pipeline of high-quality educators to strengthen our talent strategy. Exceptional educators are at the heart of our competitiveness. To attract talent, we have for long-term strategic partnerships with thousand of leading domestic universities and continuously broaden our talent pool through career mentoring program and other initiatives. Applications from our key targeted universities increased notably during this year's campus recruitment season.

In terms of talent development, we have further enhanced our professional training system and integrated assessment competition and evaluation framework augmented by AI tools to systematically elevate employees' professional skills and foster their long-term growth. We have also fine-tuned our incentive system and organizational culture to enhance teachers' sense of belonging and job satisfaction. Together, these efforts are cultivating a sustainable, high-quality talent ecosystem and lays a solid foundation for our long-term development.

Third, both internally and externally, we are leveraging the power of AI to drive innovation and enhance efficiency. As a digital native education company, we are committed to integrating AI technology throughout our business operations. Internally, initiatives like AI tech science encourage business units to identify efficiency improvement opportunities and develop AI-driven solutions and agents creating a closed loop process from exploration to implementation. These efforts have improved operational efficiency and embedded AI into daily workflows, boosting employee satisfaction and fostering creativity.

Externally, we are partnering with local governments and leading universities to co-establish educational AI R&D centers and labs, advancing the research, development and application of AI models in the education sector. These collaborations strengthen industry academia integrations and help make learning more intelligent, personalized and effective.

Fourth, we remain focused on strengthening execution, improving organizational efficiency and driving profitable growth. This year, we continued to build our results-driven culture and made profitable growth a core objective. In the budgeting process, we implemented an operational metric tracking system for each business line, using measurable quality and efficiency indicators to ensure that the teams are reaching their goals.

At the management level, we are leveraging this driven decision-making and disciplined execution to fuel growth. We believe that the future competition will be about more than product services, organizational efficiency will also be key underpinned by an agile organizational framework and technology-powered decision-making systems, we will boost our execution capabilities and drive high-quality growth.

Fifth, we remain committed to fulfilling our social responsibilities and creating long-term value for all stakeholders. We firmly believe that the value of an educational company lies not only in its commercial success, but also in its contributions to society.

In the third quarter, Gaotu Foundation partnered with several leading universities to launch the Gaotu Teacher empowerment program. This initiative provides comprehensive training and practical courses to teachers in Central and Western China, improving their teaching skills and promoting educational equity. In addition, we collaborated with Jingxin Medical, a mental health care company to explore Healthcare + Education service model. Together, we launched an AI-powered training lab that trained counselors in adolescent mental health through practical exercises and help students on leave due to mental health changes reintegrate into school life.

From focusing on operational efficiency to expanding our business boundaries and from a single point breakthroughs to systematic growth, we are steadily shaping a distinctive development path. Today, Gaotu has evolved into a technology-driven and AI-powered Edtech company centered on user needs, providing end-to-end solutions across the full learning life cycle.

Thank you very much, everyone. This concludes my prepared remarks. I will now pass the call over to our CFO, Shannon, to walk you through the quarter's financial and operational details.

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 third quarter of fiscal year 2025. Please note that all financial data are in RMB terms, unless otherwise stated. In the third quarter, net revenues continued to grow and operating efficiency maintained a healthy trajectory, demonstrating that our investments in resource allocation optimization, cost structure refinement and AI-driven process transformation are steadily translating into structural improvements in profitability.

We reduced operating expenses by 3.7% year over year by broadening our adoption of digital tools to enhance our traffic monetization effectiveness, workforce synergy and operational decision-making. From dynamic management of user acquisition efficiency to elevating efficient channels and promoting team collaboration through systematical tools, we remain deeply focused on boosting operational quality and return efficiency.

While fully addressing user demand, we achieved a 1.4% year over year decrease in marketing expenses, improving customer acquisition efficiency by 12.8%. R&D and G&A expenses as a percentage of net revenues declined 9.6 percentage-points year over year, reflecting a steady improvement in operating leverage. Enhanced operational performance also led to a substantial year over year decrease in operating net cash outflow of approximately RMB54.2 million. Our deferred revenue sustained healthy growth, up 23.2% year over year to nearly RMB1.8 billion, providing strong visibility into revenue recognition in future quarters.

In shaping our growth strategy, we constantly prioritize healthy unit economics, setting specific operational goals for each business segment based on its stage of development. For our mature businesses with clear and well-defined commercial models, we focus on sustainable, steady growth while expanding margins through scaled service delivery, enabling incremental growth to follow through to the bottom line. For businesses still in the early growth stage, we emphasize refining educational products, strengthening our instructor and tutor development system and calculating brand mind share to deliver user experiences that drive long-term enhancement in retention, referrals and willingness to pay.

Ultimately, this strategy ensures every investment yields measurable returns, whether in the form of profitability, business resilience or long-term user value. We remain committed to building organizational capabilities through disciplined quality improvements, positioning operating efficiency rather than a focus on speed alone to get the pace and scale of our growth.

Next, an overview of this quarter's progress by business segment. Learning services contributed over 95% of net revenues. Traditional learning services and nonacademic learning services as our core segments contributed more than 80% of our total revenues and recorded over 55% year over year growth. Revenue from our new initiatives focused on nonacademic tutoring services in both online and off-line settings increased by around 60% year over year this quarter. The online segment for traditional learning services and nonacademic learning services is on track to achieve a double-digit profit margin for the full year of 2025, supported by increased user enrollment and enhanced operational capabilities.

On the curriculum side, we constantly explore genuine user needs through high-quality educational products. One standout example is our programming courses, which delivered impressive results in the National Youth Innovation Commendation, further solidifying our product reputation and user trust. Our traditional learning services maintained a healthy growth trajectory with revenue increasing by 15% year over year in the third quarter.

On the product front, we continued to advance our localized course development and service systems to enhance teaching delivery flexibility and adaptability. Regarding user acquisition, we focused on optimizing operational processes and addressing real user needs, achieving steady improvements in gross savings performance. At the same time, a more mature and stronger team and AI-powered traffic operations boosted our customer acquisition efficiency by nearly 20% year over year, providing stronger support for healthy business growth.

Another key component of our learning services is educational services for college students and adults, which contributed more than 15% of total revenue in the third quarter. This segment has returned to a positive growth trajectory following our strategic adjustments, achieving double-digit year over year growth in both revenues and gross billings alongside quarterly profitability.

Within this segment, our educational services for college students leveraged intelligent student learning profile management to enable clear and more precise learning path learning. We also accelerate the development of a high-caliber teaching team. These efforts further expanded our service capabilities, boosted user satisfaction and promoted brand awareness. In this quarter, revenues from educational services for college students increased by nearly 50% and net profit delivered high double-digit growth year over year.

Lastly, I will walk you through our financial data. Our cost of revenue this quarter was RMB535.5 million. Gross profit increased 34% year over year to over RMB1.0 billion with a gross margin of 66.1%. Total operating expenses during the quarter decreased 3.7% year over year to approximately RMB1.2 billion.

Breaking it down, selling expenses decreased 1.4% year over year this quarter to RMB873.4 million, accounting for 55.3% of net revenues. Research and development expenses decreased 13.9% year over year to RMB162.9 million, accounting for 10.3% of net revenues. General and administrative expenses decreased 4.3% year over year to RMB185.2 million, accounting for 11.7% of net revenues.

Loss from operations was RMB178 million and operating loss margin was 11.3%. Non-GAAP loss from operations was RMB168.6 million, and non-GAAP operating loss margin was 10.7%. Net loss was RMB147.1 million, and net loss margin was 9.3%. Non-GAAP net loss was RMB137.7 million, and non-GAAP net loss margin was 8.7%. Our net operating cash outflow was RMB660.2 million, narrowed by 7.6% year over year.

Now turning to our balance sheet. As of September 30, 2025, we held RMB444 million in cash, cash equivalents and restricted cash, along with nearly RMB2.1 billion in short-term investments and RMB500.4 million in long-term investments. This comes to a total of over RMB3.0 billion. As of September 30, 2025, our deferred revenue balance was around RMB1.8 billion, primarily consisting of tuition received in advance. As of November 25, 2025, we have repurchased an aggregate of around 27.5 million ADS on the open market of nearly RMB619 million.

Before I provide our business outlook for the next quarter, please allow me to remind everyone that this contains forward-looking statements, which include risks and uncertainties that are beyond our control and could cause the actual results to differ materially from our predictions. Based on our current estimates, total net revenue for the fourth quarter of 2025 are expected to be between RMB1,628 million and RMB1,648 million, representing an increase of 17.2% to 18.7% on a year over year basis.

This concludes my prepared remarks. Operator, we are now ready for the Q&A section. Thank you, everyone, for listening.

(Operator Instructions)

Crystal Li, CMS.

Congratulations on strong results. And could you give us some color on your 2026 top line growth and your expectations on each business line? And in terms of the bottom line, how is your plan? Maybe could you share more about your plan to balance your growth and loss reduction?

Thanks, Crystal, for your question. So looking back at 2024 and 2025, our revenue grew 53.8% year over year in 2024. And based on our latest guidance, we expect close to 35% year over year growth of our top line in 2025. So over the past two years, our revenue actually more than doubled. We achieved relatively strong top line expansion in the past two years. So behind this growth is the steady increase in the number of students and parents we serve, the continued strengthening of our product portfolio and also the growing influence of our brand.

As of today, our offerings cover the key needs of users with strong learning demand and learning motivation. And also from a product perspective, the integration of our online and offline solutions, along with the use of AI to enhance the user experience in our courses is progressing steadily and continuously improving. At our scale expense, we are seeing sustained operating leverage, which adds a solid foundation for achieving full profitability at our target scale.

So in 2026, we expect our growth trajectory to become more balanced with profitability as the major focus, driving the execution of our overall strategy. So which means in 2026, profitability will play the most important role. So based on our expected gross billings in 2025 in Q4, together with our operating plans and upcoming initiatives, we anticipate approximately 15% year over year revenue growth in 2026. We also expect to see further improvements in our operating cash flows with ongoing efforts aimed at moving the company towards sustainable net profitability in 2026. I hope that addressed your question.

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

Thank you, operator, and 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 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 has now concluded. Thank you for attending today's presentation. You may now disconnect.