Gaotu Techedu Inc. (GOTU) Q2 2026 Earnings Call Transcript

Hello, ladies and gentlemen. Thank you for standing by, and welcome to the GAU2 TechEDU, Inc. Second Quarter, 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's remarks, there will be a question and answer session. 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 for joining Gaotu's second quarter 2026 earnings conference call.

My name is Catherine, and I will help host the earnings call today. Gaotu's earnings release for the quarter was distributed and is available on the company's IR website at ir.gaotu.cs, as well as through PR news service services. Joining the call with me tonight from Gautu Senior Management is Mr. Larry Chen, Gautu's founder, chairman, and chief executive officer. Mr. Robin Luo, Gautu's chief operating officer. Mr. Mike Xu, Gautu's head of strategy. And Ms. Wee Laiao, Gautu's senior finance director. Larry Luo, business highlight and strategy. followed by Robin's overview of our operational performance, and we will finish with a detailed discussion of our financial performance by VILA. Following their prepared remarks, we'll open the floor to questions from analysts. Robin and Mike will address analyst questions during the QA session. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements made of the U.S. Friday Security Latigation Reform Act of 1995.

These forward-looking statements are based on expectations as well as the current market and operating conditions.

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 material. Further information regarding this and other risks is included in the company's public filing with the USFDC. The company to update any forward-looking statements except under as required under a political law. During today's call, management will also discuss certain non-GAAP measures for comparison purpose only. For definition of non-GAAP financial and reconciliation of gap-to-non-gap financial results, please refer to our second quarter 2026 earnings release published earlier today. As a reminder, this conference is being recorded. In addition, archived webcasts of this conference call will be available on GALTU's IR website. It is now my pleasure to introduce our founder, chairman, and chief executive officer, Larry.

Good evening and good morning, everyone. Thank you for joining us on Gaotu's second quarter 2026 earnings conference call. I would like to take this opportunity to thank each of you for your interest in and support for Gaotu. Before I start, please be reminded that all financial figures discussed today are in RMB, and as stated otherwise. This quarter, our sustained user-focused investment in educational products, learning services, and organizational capabilities are steadily translating into healthier unit economics and a more efficient operating system. Meanwhile, the AI capabilities we have been building are becoming more deeply embedded across business processes, driving tangible improvements in product experience, service efficiency, and organizational productivity. For GoTo, high-quality growth means more than skill alone. It's about establishing a solid foundation for sustainable growth, building user trust through superior products and services, improving the quality of growth through stronger retention and word of mouth, enhancing profitability through more disciplined resource education and leveraging technology to extend the reach of high caliber educational services today i'd like to share our thinking on three fronts our strategic priority the wrong user value and brand building resource education and AI capability development. First, we have always placed the user value at the heart of our sustainable long-term development. Over the past 12 years, GoTo has built a comprehensive learning service ecosystem that supports learners at the different stages of growth and integrates both online and offline offerings we strive to provide the premium products and services that fit every user's needs throughout their life and learning journey the value of this system lies not only in the breadth of educational products it offers but also in the deep insights it continuously provides us into users evolving needs insights that enable us to deliver high quality services on an ongoing basis as a digital native learning service provider we capture data on learning behaviors service touch points and interactive feedback across multiple scenarios and convert this data into dynamic user insights that directly refine our product design teaching services and operational system as products and services become more closely aligned with real needs the learning experience naturally improves which in turn strengthens user recognition, retention, word-of-mouth, and overall brand awareness. This organic momentum gave rise to three self-reinforcing flywheels, data experience, and the brand that continuously compound and fuel each other over time. We are beginning to see this virtuous cycle take hold. Many students who studied with Gautu in their early years have now returned to Gautu each as a student or as an employee. Their return reflects the lasting trust built through genuine learning experiences and informs the ongoing iteration of our teaching and service systems. It also reinforces our conviction that educational service is inherently a long-term endeavor built on being chosen, trusted, and proven over time. Second, we remain committed to driving profitable growth, concentrating our resources on businesses with stronger user value propositions and clearer operational returns. Our innovation and exploration over the past few years have deepened our understanding of the needs of different user groups and how products mature and scale while sharpening our criteria for business prioritization. For businesses that have demonstrated strong user satisfaction, solid market fit, and sound operation efficiency, we seek to unlock greater operating leverage by strengthening their products allocating greater channel resources and providing stronger organizational support to drive higher quality growth for businesses still in their early stages we prudently and dynamically optimize resource education concentrating our investment on areas featuring the strongest return potential our operating performance in the first half of the year demonstrates that this strategy is beginning to deliver results in our online business higher retention rates and improved operation efficiency contributed to ongoing improvements in unit economics Meanwhile, our offline business spanning diverse scenarios, including dream center, boot camps, and offline learning centers delivered high double-digit year-over-year revenue growth in the first half of this year, with steady gains in its operating quality and business fundamentals. More importantly, the synergies between our online and offline businesses continue to strengthen the brand equity and user trust with the cultivated online support offline expansion. In turn, our differentiated offline service experience reinforces brand awareness and user engagement measurable learning outcomes remain the clearest proof of the value we deliver as we expand our business footprint and build operational resilience they also underscore the effectiveness of our teaching and service capabilities across diverse scenarios Since the beginning of 2026, our traditional online business has helped over 200 students gain admission to the top two domestic universities. Building on years of accumulated service expertise, our offline overseas study business has assisted nearly 700 students secure offers from the world's top 50 universities. These tangible achievements stem from our relentless pursuit of quality and a long-term commitment to our mission. Our high-quality course and service delivery have always been central to earning user trust and brand reputation and they remain the cornerstone of our business sustainable healthy development third moving on to long-term capability development AI is emerging as a critical productivity driver for go to the future As a digital native education company, we're already seeing AI generate tangible value across several key areas of our business. In curriculum development, AI is helping us restructure the content development workflow, improving efficiency by five to eight times in certain scenarios, while significantly lowering the cost of producing personalized content. In cost delivery and tutoring services, AI-powered assistance and quality control now have thousands of key checkpoints across the service workflow. For instance, automated assignment grading has substantially reduced repetitive work, enabling our tutors to devote more time and energy to high-quality guidance and personalized services. AI is also sharpening our user insights. By analyzing learning behaviors and the interactive data, we can identify user profiles and shifts in demand more promptly and deliver more precise learning support at critical milestones, enhancing student learning experience, boosting engagement, and improving user retention. On the user-facing side, we continue to refine our high teacher model, putting more efficient synergies among instructors, tutors, and AI capabilities to provide users with more seamless and personalized learning support, which drives the product thickness and depth of use. As we embed AI more deeply across our business, it's poised to be a key driver in elevating the goal to the product quality and operating efficiency. We remain committed to balancing sustainable growth, disciplined capital allocation, and our long-term mission of creating value for both the shareholders and the society. Guided by this principle, as of August the 26th, we had repurchased a total of nearly 36.5 million ADSs for 741.8 million RMB. Going forward, we will continue to advance our shared repurchase program while preserving the financial strengths and the flexibility needed to support long-term growth. We will also continue to fulfill our responsibilities as a corporate citizen by making quality educational resources more widely accessible. Looking ahead, we will remain deeply focused on users' long-term growth, leveraging advanced technology to elevate our service capabilities and operating efficiency while navigating market cycles through disciplined operations. At Gautou, we believe the value of education compounds over time through every meaningful and effective service we deliver. As we continue to integrate AI capabilities across teaching, service delivery, and operations, Galt will forge a more resilient business foundation and drive stronger operational performance, creating superior learning experiences for our long-standing users and generating sustainable value for shareholders who have placed their trust in goto thank you very much everyone this concludes my premier prepared remarks i will now pass the call over to our ceo robin to walk you through

the quarters operational performance thank you larry and thank you everyone for joining our call today let me take you through our operating performance and business update for the second quarter of 2026.

Please note that all financial data are in R&B terms unless otherwise stated.

Guided by a focus on profitable growth, we continue to upgrade our educational products and services and strengthen our teacher development system, expanding user base and delivering long-term user values. Net revenues for the quarter increased by 20.2 percent year-over-year to nearly $1.7 billion, while grossing billing grew by 19.4 percent to approximately $2.7 billion, reflecting our ability to effectively capture user demand. As enrollment grew and operating efficiency improved, we unlocked greater operating leverage. Adjusted operating loss and adjusted net loss narrowed significantly by 38.5% and 37.6% year-over-year, respectively. And operating expenses as a percentage of net revenues declined by 7%. The improvement in our operating expense ratio was primarily driven by continued optimization throughout the end-to-end user acquisition funnel and the efficiency gains across our middle and back-office operations. In user acquisition, we remain focused on enhancing unit economics, dynamically optimizing our channel mix and resource allocation, leveraging AI capabilities to sharp operational execution and improve conversion efficiency. During the quarter, selling expenses grew at a slower pace at the same time, the integration of AI and other digital tools into our business processes continue to improve middle and back-office operating efficiency, driving our cost structure.

Specifically, R&D and the Gen A expenses as a percentage is defined by 3.5 percentage points year-over-year.

The enhancement in operational quality is also reflected in our cash flow performance and balance sheet strength. During the quarter, net operating cash inflow increased by 46.3% year-over $861.2 million. As of June 30, 2026, our cash reserves, including cash and cash equivalents restrict short-term and long-term investments totaled nearly 4.0 billion excluding the impact of share buybacks our cash reserves increased by 340 54.6 million year-over-year Deferred revenue reached $2.6 billion, representing 18.9% year-over-year growth. These operational achievements are not the result of any single initiative, but rather the compounding effect of our ongoing focus on organizational capabilities and operational excellence. Next, let me turn to our business progress by segment. Our two core segments, non-academic tutoring services and the traditional learning services generated over 85% of our new initiatives focused on online and offline non-academic tutoring services. During the quarter, this segment revenue increased by over 30% year-over-year, accounting for over 40% of total revenues, while gross billings grew by over 20% year-over-year, contributing over 45% of total gross billings. Within this segment, buying business remains profitable this quarter, with continued improvement performance in growth quality, as well as operating stability. On the service front, we integrated AI to further refine the service granularity, significantly enhancing the responsiveness, personalization, and the depth of our tutor support services. This contributed to a meaningful year-over-year increase of over 5 percent points in the retention rate for the online business performance in the spring season further reinforce user trust and the brand loyalty on the product side we focus on curriculum to the developmental needs and learning patterns of younger learners while broadening our product offerings. This effort has helped to create a healthier and more balance the user thinks while in sustainable long-term growth. Our traditional business continues to deliver solid growth during the quarter with growth feeling increasing by over 17 percent year-over-year accounting for over 40 percent of total growth feeling while revenue contribution exceeded 40 percent. During Over the summer enrollment, we placed a greater emphasis on acquisition quality and conversion efficiency by refining our marketing content, dynamically optimizing our acquisition channels and reallocating resources toward higher ROI channels. Meanwhile, average AI capabilities to enhance lead allocation and conversion management throughout the user acquisition process this quarter the contribution from private traffic and the word-of-mouth referrals further increased year over year driving steady improvements in channel mix and overall acquisition efficiency to better meet the concentrated demand during the summer enrollment period we also enhanced our comprehensive the specific group training mentor talent development system for promotional course tutors. Shortening ramp up for new hires and improving new tutor productivity by more than 20 percent year-over-year. In addition, since 2025, we have continued to enrich the talent pipeline and service delivery system for our online one-on-one tutoring business. These accumulated investments have increasingly translated into tangible operating outcomes this quarter, having year-over-year growth of more than 55% in growth savings from new enrollments for this business. Stronger talent reserves and service capabilities enable us to capture large-scale user demand while maintaining consistently high standards of teaching and service delivery another key component of our learning services is educational services for college students and adults where revenue grew by more than 15% year-over-year accounting for over 10% of total revenues demand for college students is both strong and varied as such the continue to explore service scenarios spanning the full development arc from academic study to career development and strengthen the cross business synergy between our college learning programs and our civil service exam preparation offerings on the user front we've updated our service framework to better address students needs across different stages of development development, elevating user lifetime value. Operationally, we have connected lead management and the resource sharing across the two businesses, improving the utilization of offline classrooms and other operational resources. This has enhanced both organizational agility and profitability. As synergies like this gradually materialize, our service capabilities around college students are strengthening, driving stronger growth momentum. This quarter, for the college learning programs and the civil service exam preparation businesses combined, both revenue and growth buildings grew by over 40 percent year-over-year, while operational cash flow improved substantially substantially in our offline operations our two dream centers in Zhengzhou and Wuhan reached full capacity as of the second quarter proving our centralized learning center model can be replicated and scaled supported by strong existing market demand and our accumulated operational experience we see further room to expand this model's service capacity and the geographic reach going forward we will take a prudent approach to expansion setting its pace based on actual demand and operational efficiency looking ahead we will remain focused on advancing our core strategic priorities with a disciplined the approach to resource allocation while maintaining a premium premium user experience and the high quality services we will pursue healthier and more efficient growth across all business segments to drive sustained profitability with that i will now turn the call over to our senior finance director willa who will walk you through our financial data Thank you, Rao-Din.

I will now walk you through our financial data. Please note that all financial data are in R&B and otherwise stated. Our cost of revenue this quarter was $559.2 million. Gross profit increased 21.2% year-over-year to over $1.1 billion, with a gross margin of 66.5%. Total operating expenses during the quarter increased 8.8% year-over-year to nearly $1.3 billion. Breaking it down, selling expenses increased 11.2% year-over-year this quarter to $913.2 million, accounting for 54.7% of net revenues. Research and development expenses increased 4.5% year-over-year to $154.8 million, accounting for 9.3 percent of net revenues. General and administrative expenses increased 1.8 percent year-over-year to $192.6 million, accounting for 11.5 percent of net revenues. Loss from operations was $149.8 million, and the operating loss margin was 9.0 percent. Non-GAAP loss from operations was 143.0 million and non-GAAP operating loss margin was 8.6 percent. Net loss was 135.8 million and net loss margin was 8.1 percent. Non-GAAP net loss was 129.1 million, and non-GAAP net loss margin was 7.7%. Our net operating cash inflow increased 46.3% year-over-year to 861.2 million. Now, turning to our balance sheet, as of June 30, 2026, we have $929.6 million in cash, cash equivalents, and restricted cash, along with $2.4 billion in short-term investments, and $642.9 million in long-term investments. This comes to a total of nearly $4.0 billion. As of June the 30th, 2026, our deferred revenue balance was $2.6 billion, primarily consisting of tuition received in advance. As of August the 26th, 2026, we had repurchased an aggregate of nearly 36.5 million ADISes prices on the open market for 741.8 million RMB. 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 revenues for the third quarter of 2026 are expected to be between $1,838 million and $1,858 million, representing an increase of 16.4% to 17.7% on a year-over-year basis. This concludes my prepared remarks. Operator right now is ready for the Q&A session. Thank you everyone for listening.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. 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. At this time, we will pause momentarily to assemble our roster. Our first question comes from Daisy Chen with Hightong International.

Please go ahead. 具体的扩张策略,包括网点的一个扩张节奏,还有能力提升的路线是什么样子。 next two or three years, such as the capacity, expansion pace, and your margin improvement roadmap. Thank you.

Okay, I'll take this question of mine. Thank you, Daisy, for your question. I'm sure offline is becoming an important growth area for Gaotu, but we are managing it with a very clear principle that is the profitable growth comes before a blind Q2 and during the summer season offline continue to show encouraging momentum we are seeing them active cities and some earlier entry locations are beginning to benefit from stronger local brand recognition and load of mouth that matters because offline education is very local once trust is beauty in city acquisition the current growth is mainly coming from aggressive footprint expansion a large part of the improvement is coming from the operating quality which is the better renewal rate and better classroom utilization better staff productivity etc we are working to fill existing capacity more effectively improve course scheduling strengthen teacher supply which will lead to higher retention rate and these are the levers that matters for profitability and at the same time we are realistic about the offline model in the early stage investment is unloaded so we need local team teaching space and local curriculum adoption it takes time for city to mature so on expansion our approach is selective we will still consider new capacity while demand is clear and the local model is healthy But footprint growth itself is not the main KPI. In some cities, the best use of resources to fill existing classroom better. In some products, the priority is to strengthen teacher supply or improve conversion. And after some cycle, we will review performance carefully, city by city, project by project. will demand we will continue to allocate resource where our project or city do not meet our profitability standard we will optimize resource allocation or even eliminate projects and sites that we do not see potential to generate right economic returns so the goal is to concentrate resource on profitable and promising sites and projects. So, offline can move towards meaningful profit contribution over time. So, that concludes my answer. I hope that can address your question, Daisy.

Thank you, Daisy. Did you have a follow-up question?

No, thank you. That's perfect. Thank you.

Thank you. Again, if you have a question, please press star then one. As there are no further questions now. I'd like to turn the call back over to Catherine Chen for closing remarks.

Thank you, everyone, for joining our call tonight. And if you have any further questions, please don't hesitate to contact our Investor Relations Department or our management via email at IR at got2.cn directly. You are also welcome to subscribe to our news alert on the company's Thank you very much again for your time. Have a great night.

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