Gaotu Techedu Inc. American Depositary Shares, three of which representing two Class A Ordinary Shares 2026 Q2 Earnings Call

Please go ahead, Catherine. Thank you and good evening, everyone.

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 it 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. Mr. Bin Luo, Gaotu's Chief Operating Officer. Mr. Mike Xu, Gaotu's Head of Strategy, and Ms. Willa Yao, Gaotu Senior Finance Director. Larry will go over business highlights and strategy, followed by Bin's overview of our operational performance. We will finish with a detailed discussion of our financial performance by Willa. Following their prepared remarks, we will open the floor to questions from analysts. Bin and Mike will address analyst questions during the Q&A session.

Before we begin, I would like to remind you that this conference call will contain forward-looking statements made under the safe harbor of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on and 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 materially from the 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 has no 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 and reconciliation of GAAP to non-GAAP financial results, please refer to our second quarter 2026 earnings release published earlier today. As a reminder, this conference is being recorded. In addition, our 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.

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 unless 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 Gaotu, high-quality growth means more than scale 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 allocation, 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 around user value and brand building, resource allocation, 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, Gaotu has built a comprehensive learning service ecosystem that supports learners at different stages of growth and integrates both online and offline offerings. We strive to provide 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 touchpoints, 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 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 Gaotu in their early years have now returned to Gaotu, either 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 operational 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 allocation, concentrating our investments on areas featuring strong risk-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, high retention rates and improved operational 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 we've 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's sustainable high development. Third, moving on to long-term capability development. AI is emerging as a critical productivity driver for Gaotu's 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 developmental workflow, improving efficiency by five to eight times in certain scenarios, while significantly lowering the cost of producing personalized content. In course delivery and tutoring services, AI-powered systems and quality control now cover thousands of key checkpoints across the service workflow. For instance, automated assignment grading has substantially reduced the 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 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 tri-teacher model, forging more efficient synergies among instructors, tutors, and AI capabilities to provide users with more seamless and personalized learning support, which drives product stickiness and depth of use. As we embed AI more deeply across our business, it's poised to be a key driver in elevating Gaotu's 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 shareholders and society.

Guided by this principle, as of August 26, 2026, we had repurchased a total of nearly 36.5 million ADSs for RMB 741.8 million. Going forward, we will continue to advance our share repurchase program while preserving the financial strength and 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 Gaotu, we believe the value of education compounds over time through every meaningful and effective service we deliver.