Gaotu Techedu (NYSE: GOTU), a leading provider of online education, has reported a significant increase in financial performance for the second quarter of 2024. The company's net revenues rose by 43.6% year-over-year to RMB1.0 billion, surpassing market expectations.
Gross billings also saw a substantial jump of 87.4% to RMB1.7 billion, indicating strong growth potential. The company's focus on enhancing the quality of teaching and the learning experience has led to increased retention rates and student engagement. With a strategic emphasis on talent cultivation and operational efficiency in customer acquisition, Gaotu Techedu is positioning itself for sustainable growth and expansion in educational offerings.
Key Takeaways
- Net revenues up by 43.6% year-over-year to RMB1.0 billion.
- Gross billings increased by 87.4% to RMB1.7 billion.
- Cash reserves reached RMB4.1 billion, an increase of RMB361.3 million from the previous year.
- Significant investments made in summer expected to impact near-term operating profit positively.
- Learning services accounted for over 95% of net revenues; non-academic tutoring and traditional learning services represented over 75% of total revenues.
- Triple-digit growth in new initiatives in non-academic tutoring services.
- Over 200% increase in gross billings from new student enrollments year-over-year.
- Educational services for college students and adults grew by approximately 10% year-over-year.
- Total operating expenses increased to about RMB1.2 billion, with a net loss of RMB429.6 million.
- For Q3 2024, expected total net revenues between RMB1.188 billion and RMB1.208 billion.
Company Outlook
- Gaotu Techedu plans to refine educational offerings and expand product offerings.
- The company is focused on offline expansion and applying AI to improve cost reduction and efficiency.
- Strong growth in gross billings and deferred revenue expected to continue.
Bearish Highlights
- Loss from operations amounted to RMB464.8 million.
- Net loss reported at RMB429.6 million.
- Total operating expenses saw a significant increase of 144.2% year-over-year.
Bullish Highlights
- Robust growth in gross billings and net revenues.
- Enhanced teaching quality and learning experience leading to higher retention rates.
- Strategic investments in summer anticipated to boost student enrollments and brand recognition.
- Expansion in non-academic tutoring services showing significant revenue growth.
Misses
- Despite strong revenue and billing growth, the company incurred a substantial net loss.
- The increase in operating expenses outpaced revenue growth, impacting profitability.
Q&A Highlights
- The company is taking a conservative approach to AI investment, focusing on improving internal efficiency.
- Strong performance attributed to increased retention rates and a well-executed summer campaign.
- Diversification of customer acquisition channels, including live streaming, social media, and offline channels.
Gaotu Techedu's performance in the second quarter of 2024 reflects the company's ability to grow its core business while making strategic investments for future expansion. With a focus on AI to enhance efficiency and a commitment to quality education, Gaotu Techedu is poised to maintain its momentum in the competitive online education market. Investors and stakeholders will be watching closely as the company continues to navigate its growth trajectory.
InvestingPro Insights
Gaotu Techedu (NYSE: GOTU), already recognized for its impressive gross profit margins and status as a prominent player in the Diversified Consumer Services industry, holds a market capitalization of $1.06 billion as of the first quarter of 2024. With a gross profit margin of 71.83% for the last twelve months, the company demonstrates its ability to effectively manage its cost of goods sold, contributing to its financial health. This is particularly noteworthy as gross profit margins are a key indicator of a company's financial sustainability and efficiency in production or service delivery.
InvestingPro Tips highlight that Gaotu Techedu holds more cash than debt on its balance sheet, which is a positive sign of the company's liquidity and financial resilience. Moreover, the company's liquid assets exceed its short-term obligations, providing it with a cushion to manage its current liabilities and invest in growth opportunities.
Key InvestingPro Data metrics to consider include:
- Revenue Growth (Quarterly) for Q1 2024: A substantial increase of 33.87%.
- Gross Profit for the last twelve months as of Q1 2024: $318.37 million USD.
- Price, Previous Close: $4.08 USD.
These metrics are particularly relevant as they paint a picture of Gaotu Techedu's recent financial performance and stock valuation. The revenue growth figure signals the company's ability to increase sales and expand its market presence, while the gross profit figure underlines its profitability at the core operational level. The stock's closing price provides a snapshot of investor sentiment and market valuation at a specific point in time.
For readers interested in further insights, there are additional InvestingPro Tips available, offering a deeper dive into Gaotu Techedu's financial health and market performance. These tips can be accessed through the InvestingPro platform, which provides a comprehensive analysis of the company's financials and stock trends.
Full transcript - GSX Techedu Inc Class A (NYSE:GOTU) Q2 2024:
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Gaotu Techedu Second Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Catherine Chen, Head of Investor Relations. Please go ahead.
Catherine Chen: Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's second quarter 2024 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 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 provisions 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 purpose 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. Larry, please.
Larry Chen: Good evening and good morning, everyone. Thank you for joining us on Gaotu's second quarter of fiscal year 2024 earnings conference call. I would like to take this opportunity to express my gratitude to all of you for your interest 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. We achieved encouraging results in the second quarter with net revenues increasing 43.6% year-over-year to RMB1.0 billion, reflecting strong accelerating growth momentum. Our gross billings grew by a substantial 87.4% year-over-year to RMB1.7 billion, which not only exceeded market expectations, but also underscored our growth potential in the education sector. Thanks to our long-term investments in diversified and proprietary channels, we maintained industry-leading customer acquisition efficiency, while serving robust market demand. During the quarter, our net operating cash inflow reached RMB386.2 million. Our cash reserves remained strong, totaling RMB4.1 billion in cash, cash equivalents, restricted cash and short-term and long-term investments, which is RMB361.3 million higher than at the same point in time last year. This ongoing improvement in our operational efficiency is a result of our consistent focus on business health and commitment to our educational aspirations. As of June 30, 2024, our deferred revenue reached RMB1.6 billion, representing a 71.5% increase from the same point in time last year, ensuring robust support for our continued growth in the second half of the year. I will now provide an update on the progress we have achieved in the quarter. We've consistently recognized that learning services and teaching quality form the bedrock of our core competencies. Over the past few months, we have significantly enhanced learning experience and outcomes for students through the continuous optimization and refinement of course content alongside the strategic strengthening of our instructors and the tutors' expertise and qualification. For instance, within our educational services for college students, we have increased the proportion of our tutors and content development team holding master's degree, thereby, elevating our overall professional acumen and teaching quality. In our non-academic tutoring services, we have not only fostered our team by raising the percentage of tutors from top-ranked universities, but also diligently refined classroom activities and course design based on student feedback and industry insights. This has boosted greater student engagement, fostering their comprehensive [capability in] (ph) innovation, problem solving and self-directed learnings. To address individualized learning needs, we have introduced innovative teaching models and flexible course structures that have significantly boosted student engagement and satisfaction. This approach had in turn contributed to the overall health of our business. During the quarter, we observed a steady increase in retention rates for our traditional learning services with a particularly notable uptick among new enrollments. These efforts have reinforced our competitive edge within the industry and laid a solid foundation for the effective growth of our business. Looking forward, our strategic priorities will remain focused on refining our educational offerings, improving our teaching quality and optimizing the learning experience. Top-tier talent is a core driving force behind the long-term growth of our company and the education industry at large. At Gaotu, we have enhanced the professional expertise and the stability of our leading instructors and tutors by refining our incentive and valuation framework, strengthening our organizational culture and expanding our training and feedback mechanism. We have also established a robust recruitment system and made a substantial investment in cultivating new teachers. In the first half of 2024, we formed strategic partnership with over 60 leading universities across China, engaging in collaborative initiatives, such as joint programs and on-campus lecture series. To support new hires, we have implemented programs like mentor orientation and newcomer camp to facilitate their seamless and [culmination] (ph) to our culture, smooth team integration and effective transition into teaching roles. These initiatives equip them with the skills and knowledge needed to succeed in their role. Moreover, we are actively onboarding seasoned industry professionals with extensive industry experience and management capabilities. Their proven methodologies and strategic insights are infusing our rapidly expanding business with invaluable expertise and comprehensive perspective. Going forward, we remain dedicated to cultivating our talent pool to ensure a solid foundation for sustained and effective growth. While rapidly expanding our business, we have maintained an unwavering focus on operational efficiency in terms of customer acquisition. We have proactively increased investment in talent and resources, developed a diverse range of acquisition channels with a particular focus on building proprietary channels and private [traffic posts] (ph). This strategy not only established a competitive market position for us, but also effectively mitigated risks by fostering closer cross-team collaboration and streamlining operations, we have consistently maintained user conversion rates at a high level. Looking ahead, as our enrollments grow and brand recognition expands, we will continue to leverage the power of positive word-of-mouth to further strengthen our brand and drive effective business growth. June 16th marked the 10th anniversary of Gaotu's founding. Over the past decade, we have stayed true to our educational aspirations of striving for excellence by harnessing the power of artificial intelligence. We are advancing our mission to make learning better and working -- diligently pursuing our operational goal of fostering student growth through exceptional teachers and realizing meaningful social value. In response to China's evolving demand for talent cultivation, we co-hosted the second top-notch innovative talent collaborative cultivating academic forum in collaboration with esteemed official organizations, including the Chinese Society of Educational Development Strategy. This initiative underscores our dedication to advancing the framework and the practices essential for nurturing innovative talent in the education sector. According to our internal data, the number of Gaotu students admitted to the top two Chinese universities in 2024 has seen a further increase from last year, a strong testament to our excellence in cultivating outstanding innovative talent. Our success is fundamentally rooted in the trust and the support of our shareholders. We remain steadfastly committed to enhancing shareholder value. As of August 26, 2024, the company had repurchased around 7.9 million ADS in aggregate for a total of approximately US$27 million under the existing share repurchase program. Moving forward, we remain committed to prioritizing customer needs and creating lasting value for our shareholders. Thank you very much. This is the end of my prepared remarks. Now, I will pass the call over to our CFO, Shannon, to walk you through the financial and operational details of the quarter.
Shannon Shen: 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 2024. We kicked off the year with robust growth and successfully carried this momentum into the second quarter, further scaling our operations, while delivering results that exceeded our expectations in both revenues and gross billings. Specifically, net revenues grew 43.6% year-over-year to RMB1.0 billion, outpacing the growth rate we set in the first quarter by approximately 10 percentage points. Gross billings for the first half of the year increased 67.7% to RMB2.4 billion, laying a solid foundation for further revenue growth in the second half of the year. These results reflect our ongoing efforts to boost operational efficiency, address market demand, and enhance teaching quality. Moving forward, we will maintain our focus on core education business, expand our product offerings, attract top talent, and refine operations to capitalize on market opportunities and drive long-term sustainable growth. Before diving into the results this quarter, I would like to first address the seasonality and the [volatility] (ph) inherent in our online education business. To effectively manage the summer surge in demand, we strategically planned and allocated resources ahead of time, particularly for teacher recruitment, team training, and customer acquisition channels. Since there is typical a three to six months lag between these investments and revenue recognition, we recommend using the ratio of gross billings to market expenditure as a key metric to more accurately [gauge] (ph) customer acquisition efficiency for our online business. During the quarter, we dynamically adjusted our investments in marketing activities and customer acquisition channels, which led to better-than-expected gross billings, while ensuring acquisition efficiency, thereby successfully delivering on our goal of effective growth. Additionally, since our fiscal quarter do not fully align with the school calendar, the extensive investments made during the summer would span substantially both in the second and the third fiscal quarters, impacting our near-term operating profit. We are confident that our strategic investments in summer will drive meaningful growth in student enrollments, further solidify our market position and boost brand recognition. Next, I will walk you through the progress we've made during the quarter. Learning services contributed over 95% of net revenues. Breaking it down, more than 75% of total revenues came from non-academic tutoring services and other traditional learning services, representing an increase of nearly 55% year-over-year. Our new initiatives centered around non-academic tutoring services experienced remarkable growth in this quarter. Net revenues and gross billings both surged by more than triple digit year-over-year. Notably, gross billings from new student enrollments soared by more than 200% compared to the same period last year. These results speak volumes about the strong market recognition our educational products and the learning services have received. For the first time, this segment contributed more than 20% of total revenues, making it one of our key revenue drivers. This success is the result of our key insights into market trends and deep understanding of user needs, which have enabled us to continually optimize curriculums and learning services, making them more engaging and interactive while better integrating the underlying transferable knowledge and skills. Additionally, the average number of enrolled courses per student also improved on a year-over-year basis, further demonstrating the effectiveness of our courses and services in addressing driver -- user needs. Our educational learning services maintained a healthy growth trajectory. During the quarter, this segment saw a high double-digit year-over-year increase in gross billings, with revenue growth exceeding 40% compared to the same period last year. Our ongoing efforts to optimize and refine learning services significantly boosted student retention, especially for new enrollments. Moreover, the notable enrollments in our overall student structure and a more diverse student base further bolstered the health of this segment. The other crucial component of our learning services is educational services for college students and adults. During the quarter, this segment contributed just under 20% of total revenues, growing roughly 10% year-over-year. To better address the diverse learning needs of users from various backgrounds, we have rebranded our postgraduate entrance exam prep services into educational services for college students and expanded our offerings to include services such as CET4 and CET6, examination prep and career consulting. Additionally, we have partnered with [Prestigious Prize] (ph) to provide high-quality educational content and resources to college students, servicing their need for academic support, career planning and quality job opportunities. During the quarter, gross billings from our educational services for college students increased by high double-digits year-over-year, while revenues from our overseas study related services rose by high double-digits. I will now present our financials in more detail. Our cost of revenue this quarter was RMB313.4 million. Gross profit increased 34.3% year-over-year to RMB696.4 million, with a gross margin of 69.0%. The year-over-year decrease in gross margin was predominantly a result of change to our product mix. Total operating expenses during the quarter increased 144.2% year-over-year to about RMB1.2 billion. Breaking it down, selling expenses increased 157.8% year-over-year to RMB835.4 million, accounting for 82.7% of net revenues. This was partially attributable to our proactive recruitment of short-term tutors at the beginning of the quarter to ensure operational efficiency during the peak summer season. The increase also reflected a rise in our marketing expenses in response to heightened market demand over the period, while maintaining solid unit economics. Research and development expenses increased 64.7% year-over-year to RMB162.1 million, accounting for 16.1% of net revenues. General and administrative expenses increased 209.3% year-over-year to RMB169.6 million, accounting for 16.2% of net revenues. The increase was largely driven by the recruitment of seasoned management professionals and operational staff to support and scale growth of our online business and the expansion of our offline operations, ensuring the smooth development of our business. Loss from operations was RMB464.8 million and operating margin was negative 46.0%. Non-GAAP loss from operations was RMB453.2 million and non-GAAP operating margin was negative 44.9%. Net loss was RMB429.6 million and net income margin was negative 42.5%. Non-GAAP net loss was RMB418.0 million and non-GAAP net income margin was negative 41.2%. Our net operating cash inflow was RMB386.2 million. Now, turning to our balance sheet. As of June 30, 2024, we held RMB1.4 billion in cash, cash equivalents and restricted cash, along with RMB1.8 billion in short-term investments and RMB905.8 million in long-term investments. This comes to a total of over RMB4.1 billion, approximately RMB301 million higher than at the same point in time last year. As of June 30, 2024, our deferred revenue balance was RMB1.6 billion, which primarily consists of tuition received in advance. As of August 26, 2024, we had repurchased an aggregate of around 7.9 million ADS on the open market for approximately US$27 million under the existing share repurchase program. We will continue to execute stock buybacks in accordance with the guidance of the Board of Directors and create long-term value for our shareholders. 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 2024 are expected to be between RMB1.188 billion and RMB1.208 billion, representing an increase of 50.5% to 53.0% 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: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Alice Cai with Citibank. Please go ahead.
Alice Cai: Good evening, Larry and Shannon. I have a question about the offline expansion, because we've noticed the increase of losses, probably related to offline expansion, I guess. Could you please share some insights on the progress of offline expansion? For instance, how many cities have you entered? How many learning centers have you opened so far? And how is the student enrollment in the city? Any color will be appreciated. Thank you.
Shannon Shen: Thanks, Alice. You were asking about our offline business expansion progress and the numbers of learning centers, right? And we are very glad to share the progress we have made on our offline business. Relying on the brand recognition and the industry influence of our Founder, Larry, a highly efficient and professional team was rapidly assembled in the first half in 2024, providing a strong foundation for our offline operations. And therefore, the expansion of learning centers, both in terms of city coverage and the number of learning centers, has significantly exceeded our expectations at the beginning of the year. At the same time, the business is progressing steadily and rapidly with notable achievements across a lot of tasks. And on the journey of exploring our offline business, we found several key parts where offline and online business can work synergistically. Firstly, in teacher recruitment, we have a strong capability in recruiting top-tier talent from prestigious domestic universities like Beijing, Fuzhou, and also other top-notch universities. And our headquarters recruitment team have been able to across these institutions combined with the abilities to share excellent teaching resources to our offline operations, provides critical faculty support for our offline operations in their early stage, which is very important for an offline learning center. This will greatly enhance the quality of our offline education, offering students superior educational resources, because we all know that teacher is the most successful factors of all offline learning centers. And secondly, in terms of educational products and content, the meticulously refined online teaching materials, particularly those overlapping with offline education, such as [indiscernible], can be shared. This could significantly increase the efficiency of our offline education product process. This is only conservative resources, but also ensure that offline teaching is supported by high-quality content. And also and the most importantly is our brand awareness. Compared to other brand new offline education brands, our brand holds significant value in demand of parents and students, providing a strong boost to our offline business. However, there are notable differences between offline and online operations that have been identified in the past half of the year. Offline education products place a greater emphasis on localization and personalization. Given our simultaneous expansion into multiple cities and multiple learning centers, current education research efforts are paid to meet the specific needs of students in different regions. That means we need to invest in localized content at this stage and this is partially explained the increase in our R&D expenses. And also, the operation is quite different as well if we compare the [online] (ph) business to the offline business. We need to develop an operational support system distinct from our online business, requiring investment in product research and development. For example, systems to support site selection and renovation of campus as well as systems for students who check-in and class rescheduling, et cetera. These significant difference in operation details between online and offline business make a comprehensive operational support system crucial for our multiple locations and multiple campus expansion. Such a system will significantly enhance operational efficiency and ensure that our operation in offline business will be successful. At the same time, we fully recognize that the entry barriers for offline business are very high and the moat is deep. Building systems for teacher recruitment and training, [principle] (ph) cultivation, educational products and operational support requires a long, long cycle. And we do not underestimate the challenge of accessibility, recognition and reputation among students and parents as a new entrant, nor do we overlook the time and cost of team integration and development. However, we are deeply committed to our offline business strategy with a high level of patience and determination. The current investment is of great importance for our long-term growth. Finally, when the time is right and when our offline revenue contribution reach a certain level of significance, we will begin disclosing relevant operation metrics, including the cities we entered and also the numbers of our learning centers and that can help us to gain a more comprehensive understanding of the progress of our offline business in the future. Thanks, Alice.
Alice Cai: Thank you, Shannon.
Operator: The next question comes from Timothy Zhao with Goldman Sachs (NYSE:GS). Please go ahead.
Timothy Zhao: Great. Thank you, management, for taking my question. I think in your prepared remarks, you mentioned about the AI. So, my question is regarding the AI empowerment in education. Just wondering what is management view and what is your strategy in this field for different business segments? And how much potential operating efficiency gains do you think AI will bring to your business? Thank you.
Shannon Shen: Yeah. Thanks, Timothy. This is a very good question and the whole management team pay a lot of attention in the most recent update on the artificial intelligence. So, with the rapid development of AI technology and the continuous evolution and development of AI firms in various industries recently, we have a more profound and clear understanding of the application of artificial intelligence. And Larry personally visited the United States and personally met a couple of entrepreneurs in the Silicon Valley to get the most recent knowledge about artificial intelligence. So, currently, AI has been widely used in quite a few aspects of our business and the current applications are mainly focused on internal cost reduction and efficiency improvement. Firstly, in the field of teaching product design and research and development, artificial intelligence can help our designers improve efficiencies very well by automatic corrections of the students' homework and AI oral language practice that the students can talk to the app or the programs on their WeChat and to do the all the daily oral practice. And also the design of more interactive AI teaching products are used to assist all of our tutors and our teachers to provide more personalized learning of our existing students. But currently, majority of our product were provided to our existing students instead of promoting them to the new students, because we want them to be polished and we want to make sure they can create incremental value to our students before we promote them to the market. And secondly, in the link of Internet product research and development, AI has significantly improved the efficiency in front-end research and development, including our internal instant message system and also other internal efficiency tools, we all applied AI technology to improve our office efficiency. Finally, to -- like in other operational links such as constructions of customer service and automatic responses, AI is also playing an important role in reducing cost and improve efficiency in different links. So, we believe in the future as the technology develops, artificial intelligence can create huge value to our company. But right now, we want the investment in this field to be more conservative. And right now, we only use it to improve our internal efficiency at this stage. Thanks, Timothy.
Timothy Zhao: Thank you, Shannon.
Operator: The next question comes from [Summer Chan] (ph) with CLSA. Please go ahead.
Unidentified Analyst: Thank you for taking my question and congratulations on a strong quarter. My question is that we -- sorry, can you hear me? My question is that we see the guidance that quarter three will be a faster growth quarter. So, can you share more color about the revenue growth breakdown for quarter three, like, say, online or offline, and in fact, business segment? Thank you.
Shannon Shen: Thanks, Summer. We wouldn't be able to hear clearly, but I guess you were asking about the revenue guidance for the next quarter. Yeah, I do think the guidance should be diving into the numbers deeply. So, as of now, our gross billings in the first half of the year is approximately RMB2.4 billion, with a year-over-year growth rate of about 67.7% and the deferred revenue balance increased over 30% year-over-year. That all indicated a higher revenue growth rate in the third quarter, right? And the upper limit of revenue guidance we provided in the earnings release is RMB1.208 billion with a year-over-year growth rate of 53%. It appears that the growth rate of gross billings is much higher than that of revenue. There are mainly two reasons for this. And first, the class schedule in September, which is the last month in Q3, has one less weekend compared to 2023, which negatively impacts the year-over-year growth rate by approximately 5 percentage points and the related revenue will be recognized in Q4. And secondly, we conducted some special price class operations for entrance-level grade during the summer course, seizing the precious strategic window to increase the student scale. For these students, the main contribution in Q3 is gross billings instead of revenues, and the revenue contribution will be present in Q4. We could continuously predict the revenue growth rate in Q4 by referring to our Q3 gross billings growth rate together with Q1 and Q2 gross billings. This is also the typical seasonality of the online large live class business model. The combined effect of these reasons causes our revenue guidance to fall within the currently indicated range. And I think your second part of your question indicate the breakdown of our offline revenues contribution and online revenues contribution. So, as of this year, the offline revenues contribution is not significant enough to be disclosed separately. So, majority of the contribution of revenue and gross billings were contributed by our online business. Thanks, Summer. Hope that addresses your question.
Unidentified Analyst: It's very clear. Thank you.
Operator: The next question comes from Crystal Li with CMS. Please go ahead.
Crystal Li: Thanks management for taking my question. So, I see you have exceptional new enrollment in this summer reflected by the -- your gross billings growth. And could you elaborate more on the main driver behind this? And how about the retention of these new enrollments? And my second question regarding your marketing strategy going forward. Thank you.
Shannon Shen: Sure. Thanks a lot. Right, actually, Q2 is a critical quarter for our business for every year because there were two significant events happening in the second quarter. The first is the retention happen usually at the end of April or in the early part of May. Then, because in the past few years, we keep investing in our teachers' recruitment and training and we keep polishing our educational product, so that -- I just mentioned in my prepared remarks, we do see our retention rate keep increasing, especially for our newly joined students. And that's something we really have confidence in our future business. And the second important part is the preparation for the summer campaign or -- usually started in the middle May. And this summer, the education market has shown a vibrant landscape, and we've felt the strong demand firsthand. And to ensure we can fully meet the diverse learning needs of students and parents during the summer, we proactively plan operations to better seize this valuable opportunity. First, in terms of our teacher recruitment training, we understand that excellent teachers are the key to the success of our summer operation. Outstandingly, teachers and tutors can provide high-quality educational services, greatly enhancing the learning experience. Therefore, we initiated the recruitment of tutor early on this year, followed by comprehensive and systematic training immediately after they join us. Most teachers began their training four to six weeks in advance, focusing on professional skills, teaching masters and improving their communication skills and training up them to be more familiar with our educational products. This thorough preparation allowed them to approach their summer teaching assignments with greater passion and professionalism. And secondly, and also to address your second question, in terms of our customer acquisition channels, we've been characterized by a highly diversified approach, particularly in the live streaming sector, where we've already achieved scalable customer acquisition and also contributed a majority of the customer acquisition this summer, we intensified our investment during the summer. We successfully attracted attention from students and parents. During the summer enrollment, we fully capitalized on the benefits of this diversified channel strategy. Additionally, we actively expanded other channels such as social media and some offline channels to comprehensively cover potential customer groups, thereby increasing brand awareness and influence. So, through these strategic and operational measures, we successfully achieved the expected growth in student enrollments, and we've been able to maintain a favorable level of return on investment of our sales and marketing expenses, as you can [account] (ph) on our P&L and the operating metrics we provided. Based on the information provided by third parties, because we always do channel tracks during the summer vacation, we found our customer acquisition cost remained relatively low within the industry. And this does not only reflect the effectiveness of our operational strategies, but also gives us a competitive edge in the market. So, we will continue to optimize our operational -- our operations to provide even better educational services to students and parents. And for our customer acquisition channels, we will further to optimize the structure of the channels and we make sure like the low-cost channels and more private-type channels will contribute in more student enrollments in the future. Thanks, Crystal.
Crystal Li: Thanks, Shannon. That's very helpful.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Catherine for any closing remarks.
Catherine Chen: 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 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. Thanks.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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