Gaotu Techedu Inc. (GOTU) Earnings

Management highlights

- Strategic Priorities for Profitable Growth * The company is shifting from delivering periodic profitable results to building stable, sustainable operational capabilities. * The mature online business has built scalable cross-functional capabilities and maintained resilient profitability, with management maintaining a disciplined operating approach to improve resource allocation and execution precision. * After excluding share repurchase impacts, cash position increased 69.7 million year-over-year to support long-term investments in products, technology, and talent. - AI Integration as a Core Capability * AI has evolved from a productivity tool to a fundamental capability driving scalable growth and organizational transformation, integrated across curriculum development, content creation, operations, collaboration, and learning services. * AI enhances question banks, knowledge graphs, and assessment, automates repetitive tasks, and supports core business workflows and operational decision-making. * The company is developing multiple AI-powered product formats for diverse learning needs, enabling scalable deployment of expert teacher content and service models while improving user experience and operational leverage. - User Experience and Talent Development * The company maintains a user-centric approach to product and service improvement, with real-time weekly feedback loops capturing student needs to adjust course content and pacing for online large classes. * The company expanded spring 2026 campus recruitment at top domestic and international universities to build a long-term talent pipeline for product innovation, teaching excellence, and organizational growth. - Offline Business Expansion * Offline services are progressing in line with expectations, currently operating in 7 cities focused on college student needs. * The Zhengzhou Dream Center validated an integrated model combining learning, daily life, and personal development services with high utilization, improved user satisfaction, and stronger brand awareness; the model will be expanded to Wuhan in 2026, with broader offline expansion across all segments planned to enhance the lifelong learning user experience. - Capital Allocation and Social Impact * The company remains committed to returning value to shareholders, having repurchased 33.1 million ADS for approximately 704 million RMB as of June 1, 2026. * The company’s CSR initiative My AI Science Class has reached 33 rural schools across 7 provinces and trained over 23,000 teachers, with plans to expand coverage to improve access to quality education in underserved regions. - Overall Operational Performance * The company achieved second consecutive first quarter profitability, with R&D and G&A expenses as a percentage of revenue declining 0.7 percentage points year-over-year, reflecting improved efficiency. * Deferred revenue increased 24.1% year-over-year to nearly 1.8 billion RMB, providing clear visibility for future revenue recognition and supporting full-year plan execution.

Guidance

- For the second quarter of 2026, GAL 2 TechEDU Inc. expects total net revenue to be between $1,578 million and $1,598 million, representing 13.6% to 15.0% year-over-year growth. - Management remains confident in delivering continued improvements in operational quality for the full year 2026, and remains optimistic about full-year operating performance as product mix, organizational collaboration, and resource allocation efficiency are further optimized. - Management expects operating leverage from AI-driven productivity improvements to become increasingly visible in upcoming quarters.

Segment performance

Overall learning services contributed over 95% of total net revenues. 1) Core non-academic and traditional learning services: Generated over 85% of total revenue. The new online/offline non-academic tutoring sub-segment achieved over 15% year-over-year revenue growth, accounting for nearly 40% of total revenue, with gross billings increasing over 20% year-over-year and contributing over 35% of total gross billings; the online portion of this sub-segment achieved its second consecutive first quarter profitability. 2) One-on-one tutoring: Accounted for over 45% of total revenue, with both revenue and gross billings growing more than 20% year-over-year, supported by stable talent supply and refined service models enhanced by AI. 3) College student and adult educational services: Contributed 10% of total revenue, with gross billings growing over 15% year-over-year and accounting for over 25% of total gross billings. Within this segment, college student educational services grew more than 20% year-over-year in both gross billings and revenue, with improved year-over-year operating cash flow; civil service exam preparation also achieved year-over-year growth in revenue and gross billings with improving productivity.

Risks & headwinds

- Forward-looking statements included in this call are subject to known and unknown risks, uncertainties, and other factors that are largely unpredictable and outside of the company’s control, which could cause actual results to differ materially from the expectations stated in the call. - Seasonal patterns tied to student learning cycles affect performance; the 2026 timing shift of Chinese New Year altered course delivery and enrollment timing across quarters, making half-year performance a more accurate measure of underlying trends. - Further risks related to the company’s business and operations are detailed in the company’s public filings with the U.S. Securities and Exchange Commission.

Analyst Q&A

• Q: Can you share more details on current offline business operations and your 2026 expansion plan? /

  A: Offline services are a core long-term strategic component, not just an additional revenue stream, designed to deepen local user trust, improve direct service access, and build a second sustainable growth curve. Early investments in localized curriculum, local teams, operating talent, and data systems have started delivering results: retention is improving, utilization rates are rising, and online brand equity supports offline market penetration. Summer enrollment is progressing in line with expectations, with first five-month gross billings and revenue tracking target ranges, and management expects strong first-half 2026 growth for the offline segment. Expansion will remain disciplined, with expansion to new cities conditional on proven demand, utilization, retention, teacher supply, and efficiency, to ensure growth is built on solid product quality and local reputation.

• Q: What is your outlook for cost control and operational efficiency in coming quarters, especially given AI integration? /

  A: The company has maintained a disciplined approach to resource allocation, customer acquisition efficiency, and organizational operations for six consecutive quarters. AI is improving per-capita productivity across both back-end operations and customer-facing functions including content creation and teaching services: this has already supported margin expansion in the online business, with new non-academic tutoring achieving its second consecutive profitable first quarter, and high school tutoring also profitable this quarter. The company is rolling out AI tools and agents to all employees to boost productivity, and expects operating leverage from these improvements to continue to materialize in upcoming quarters.