Gaotu Techedu Inc. (GOTU) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the GSX Techedu Inc. First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] Please note, this event is being recorded on Wednesday, May 6th, 2020. I would now like to hand the conference over to your first speaker today, Ms. Sandy Qin, IR senior manager of GSX. Thank you. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. GSX earnings release was distributed earlier today and is available on the company's IR website. On the call with me today are Mr. Larry Chen, GSX Founder, Chairman, and Chief Executive Officer; and Ms. Shannon Shen, Chief Financial Officer. Larry will give a general overview, and then, Shannon will discuss the financials. Following the prepared remarks, Larry and Shannon will be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current expectations and current market and operating conditions and relate to events that 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. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the SEC. The company does not undertake any obligation to update any forward-looking statements, except as required in the applicable law. It is now my pleasure to introduce Larry. Larry, please go ahead.

Thank you, Sandy. Good evening and good morning to you all. Thank you all for joining us for our first quarter 2020 earnings call. First and foremost, on behalf of GSX Techedu, I would like to extend our sincere condolences to the students, parents, and the families affected by the COVID-19 outbreak. I would like to send our utmost gratitude and respect to the medical staff, teachers, public officials, and people from all industries who have united in the fight against the epidemic and kept our society running during the global health crisis. For the first quarter of 2020, we have achieved another period of solid and rapid growth, including the seventh consecutive quarter of GAAP profitability and the eighth consecutive quarter of non-GAAP profitability. During the pandemic, I'm proud to say that we have shouldered our social responsibility and tried our best to contribute within the scope of our capabilities as a young company. Firstly, during the COVID-19 period, we have donated RMB20 million worth of courses to students in Wuhan. Those courses didn't contribute any revenues, but they share the same instructors, tutors, technologies, operations across courses, and learning experiences with our regular winter semester courses. Secondly, we took 49 of our best teachers and launched free courses covering all subjects and all grades. We invested in promoting and attracting traffic to those free courses. Our proprietary live broadcasting technology, which had been functioning well for over five years, strongly supported the smooth delivery of the free courses. Meanwhile, to host the massive number of the new students and ensure the high-quality delivery of the courses, we have deployed three independent live broadcasting support systems, upgraded our service setting by three times, boosted our server capability by three times, and increased our bandwidth capabilities by four times, et cetera. Thirdly, our video live broadcasting services tool, which supported over 134,000 newly joined educational institutions and professional to transfer offline courses to online. To better support those investments, we invested significantly in our servers and cloud infrastructure. The total costs and expenses incurred by the above-mentioned services, including compensation for instructors and tutors, technology support, and marketing expenses were close to several tens of millions of RMB. Despite the extra cash spending as previously mentioned, our net operating cash flow for the first quarter still reached RMB118 million, significantly higher than RMB65 million for the same period for 2019. Most inspiringly, both our revenues and gross billings are over 4.5 times of the same period last year. And I have always stressed -- as I have always stressed, cash is a vital field to propel the growth of our company and operating cash flow is an essential indicator to measure the operating efficiency of a company. In the first quarter of 2020, despite all of our money-consuming charitable activities, we were still able to generate positive net operating cash flow as we have consistently done over the past quarters. We believe all that is primarily due to our extremely high operating efficiency. Our selling expenses for the first quarter of 2020 were RMB757 million, which was 7.6 times that of last year. Paid enrollments were 774,000 for the fourth quarter, which was 4.1 times of the same quarter last year. As a pure online education service provider, our fiscal year may change the calendar year. As such, the most important retention students for our K-12 business happen in the second and fourth quarters. So, the number of paid enrollments tend to be much higher than the first and the third quarters. However, in the first and the third quarters, a majority of the enrollments are first-time paid enrollments. So, if we take LTV into consideration, one new enrollment, one new enrollment in the first quarter or third quarter will bring several actual paid enrollments in the following quarters. That's why we always underline organizational capability and operational efficiency, which are the key factors to bring us an outstanding ROI and push us to meticulously plan our -- plan out investments with a long-term perspective. This quarter, we expanded our investments in customer acquisition and technology development just as we -- just as what we did in the prior quarter. In the first quarter, we observed that the gross billings from our primary school segment, which has a larger customer lifetime value, achieved the fastest growth among all segments. This gives us a healthier student structure and benefits our long-term development. Some investors might ask, is to have achieved high ROI sustainable? As I have mentioned on the prior earnings conference call and the investor conference call, our robust growth of revenues enables us to invest more money on our customer acquisition this year than in 2019. The cost to obtain external traffic tends to be the same for all companies eventually. However, after the student traffic flows in, the divergent quality of instructors, tutors, services, operations, and technologies for different online education providers ends up widening the gap between different players. If a company incrementally outperformed the industry average by 3% at every facet of the business, two years later, its ultimate retention rate will be significantly higher. Since we are growing at quite fast speed, we spend money on marketing now but it might take us longer to see the full benefit from a lifetime value of the paid enrollments. The net profit margin might fluctuate between quarters due to seasonality but we strongly believe that we can remain profitable for the full year of 2020, speaking to our profitable growth strategy. Apart from strategically expanding marketing expenses to secure new customers, we remain committed to investing in talent, investing in technologies, investing in efficiencies, investing in content, and investing in brands. We are extremely proud to have the highly efficient organization we've built up today. It's rooted in our belief, rooted in our faith, rooted in our mission, rooted in our vision, rooted in our values, and rooted in our culture. The external scrutiny, to some extent, pushes us to review everything ourselves, and we view those as positive feedback and advocates to our core value of integrity. Since the first day of our founding, we have regarded integrity as our core value. We are honest to not only our investors, but also our students and the parents, and every employee of the company. Throughout the company, we value integrity a lot and hold a zero-tolerance policy toward any behavior that go against our value. We believe that only honest people deserve to work with honest people. Only by having complete trust with each other can we build a loving, enduring, and devoting team, and that integrity is a key code in uniting the entire team. We treat integrity as our core value: so that we only choose those honest people to our workmates; so that we deliver real, high-quality education services to the students and the parents as we promised; so that we are absolutely honest, transparent, devoted, and dedicated company; so that we gain solid trust from investors who believe in our value and culture, and deeply understand our exponential growth. Now, I will hand the call over to Shannon, our CFO, who will walk you guys through the details of our financial and operating details.

Thanks Larry and thank you everyone for joining the call. The first quarter of 2020 is unusual. During which period, we witnessed a public health crisis, radical changes in all industries, and a profound evolution that the Internet brought to our lives and the unprecedented volatility across the capital market. Living through this period, we could review ourselves better to quickly adapt to external changes and firmly remain focused on our values. Now, I will walk you through our operations and financial results, as well as, provide guidelines for the next quarter. Please be reminded that all the financial data mentioned are in RMB terms unless otherwise noted. Despite the severe challenges brought by the COVID-19, we have achieved a remarkable result in the first quarter. Net revenue increased by 382% year-over-year to RMB1.298 billion. This is our sixth consecutive quarter with revenue growth more than 350%. Our K-12 revenue growth rose 400% and 48% -- 448% year-over-year. In fact, our K-12 revenue growth has exceeded 400% each quarter since we went public. During the pandemic, we had offered free classes for nearly three weeks, which has intercepted our routine enrollment recruitment process for regular courses. Nevertheless, we still have achieved RMB1.374 billion in gross billings, a 358% growth year-over-year. Our GAAP net income, RMB148 million and non-GAAP net income, RMB191 million are both over four times high as the same period last year and approached the historical high. This is our eighth consecutive quarter that we achieved non-GAAP profitability. In the past first quarter, a majority of our enrollments were first-time students to our platform. We have recorded paid enrollments of 774,000. Paid enrollments rose by 307% year-over-year. Moreover, the paid enrollments contributed by the first-time students surged significantly compared with the fourth quarter of 2019 when recurring students contributed a larger proportion. During the COVID-19 outbreak, the initiatives that we took to fulfill our social responsibility caused actual costs and expenses and weighted down our operating profit margin. The negative impact on our operating profit margin was partially offset by a value-added tax exemption issued by the government that we recorded in other income. Excluding those impacts, the net income is still beyond expectations. Now, let's break down our operating and revenue streams by business lines. Net revenue from our K-12 courses mainly offered through two brands, Gaotu Ketang and Genshuixue, increased by 448% year-over-year to RMB1.12 billion and accounted for 86% of net revenues. Net revenue from K-12 segment has continuously grown by over 400% year-over-year and we expected the proportion of K-12 revenue will continue to expand as our main source of revenue. Gross billings contributed by K-12 courses rose by 356% year-over-year to $1.09 billion. Paid course enrollments for K-12 increased by 315% year-over-year to 647,000. For the past several quarters, the gross billings of foreign language, professional, and interest courses kept increasing either on a year-over-year or quarter-over-quarter basis. However, gross billings for K-12 business show distinct seasonality. Typically, most retentions happened in the second and the fourth quarter, while most new student recruitments happened in first and the third quarter. We may have a large student base right now. Existing students will contribute more to gross billings, which indicates the importance of retention for an education company. The continued growth of gross billings from new paid enrollments also explains why our revenue is consistently able to increase both on a year-over-year and quarter-over-quarter level. Within 9the K-12 segment, I wanted to highlight our primary school business. As Larry mentioned earlier, the growth rate of our primary school segment has been leading our K-12 segments and its gross billings has exceeded all the other K-12 segments in the first quarter of 2020. The achievement signals that we have obtained a considerable amount of new enrollments from primary school during the pandemic period and also testifies our improvements in curriculums and interactive courseware. Average enrollments per class further increased from 1,700 in the fourth quarter of 2019 to around 2,000 in the first quarter of 2020. Net revenue from our foreign language, professional, and interest courses were up by 188% year-over-year to RMB174 million, and accounted for 13% of net revenues. Gross billings contributed by free language, professional, and interest courses were up by 412% year-over-year to RMB279 million. Paid course enrollments for foreign language, professional, and interest courses increased by 270% year-over-year to 127,000. This segment achieved the fastest gross billing year-over-year growth ever since the second quarter of 2019. Adults had plenty of time to take more courses during the pandemic period, which brought a great opportunity for market growth. GAAP gross profit margin increased by 8.7% year-over-year to 78.2%. Non-GAAP gross profit margin, which excludes share-based compensation, increased by 9.5% year-over-year to 79.2%. This increase was mainly due to greater economics of scale as our average enrollments per class has expanded from 980 in the first quarter of 2019 to around 2,000 in the first quarter of 2020. Meanwhile, through the average class size expanded from the fourth quarter of 2019, the gross profit margin slipped slightly quarter-over-quarter because we raised the compensation for tutors to attract the best talent. We always believe that education is about building emotional connections between people. As such, we think of our raised compensation for tutors as an investment that will vastly drive up our talent competitiveness, our organizational capabilities, and the satisfaction of our students and parents. Selling expenses increased to RMB757.2 million, up from RMB99.5 million in the first quarter of 2019. We recommend you to review our selling expenses and growing gross billing together from an ROI perspective. This quarter, impacted by actual selling expenses for free courses, our ROI, which is dividing gross billing by selling expenses, was below 2%. We view the free courses enrollments as pure traffic because those have lower engagement, lower stickiness, and lower conversion compared to our regular low-priced promotional courses. However, the free courses helped us to raise brand awareness, fulfill our social duties, and enhance the public perception on online education. As the majority of this quarter's paid enrollments are first-time students, we need to wait longer to see the lifetime values effect on improving ROI. The new enrollments we acquired this quarter will push up our gross billings in the second quarter. Despite the impact of the free courses, we believe that our ROI in the first quarter continued to lead the sector. Research and development expenses increased by 227% year-over-year to RMB99.4 million. This increase was primarily due to an increase in the number of content professionals and technology development personnel, as well as, an increase in compensation for such staff. Going forward, we will continue to expand investments in R&D to further upgrade operating efficiency, which should bring additional leverage. Interest income and realized gains from investments were RMB12.6 million in the first quarter of 2020, up by 1,046% year-over-year, representing the interest we received from matured cash and cash equivalents, short and long-term investments. To utilize our capital in an efficient way, we continued to invest in wealth management products with low risk and high liquidity. In Q1 2020, except for interest income and realized gains from investments, amounted to RMB12.6 million, our short-term investment also brought accrued interest income which was recognized in accumulated other comprehensive income on balance sheet. All the aforementioned combined indicates an annual return of approximately 4%. The yield level was in line with the market average and shows our strong capability of treasury management. In terms of our long-term investment with Citibank, it is offshore and 100% principal protected if held to maturity. Following the accounting standard, we record the fair value change based on an independent third-party report on a monthly basis. The return related to the Citibank notes has no impact on the income statement until it reaches maturity. As of March 31st, affected by the extended volatility in the capital market, the mark-to-market loss on the structured note was $6.6 million. By the end of April, according to the valuation report we have received, the mark-to-market loss for the second note has squeezed to $3.3 million. The structured note is redeemable three months after purchase. Since we have held the investment for over three months, we could redeem the product any time. We have redeemed part of the above-mentioned products at par in April and will continue to redeem the rest when yield hits a suitable level to support our stock repurchase fund. Other income increased to RMB61.9 million from RMB503,000 in the first quarter of 2019. This increase was primarily due to the value-added tax exemption issued by the government, partially deducted by related costs during the COVID-19 outbreak, which amounted to RMB53.2 million, as well as, government grant of RMB8.2 million received in the first quarter of 2020. GAAP net income was RMB148 million. Non-GAAP net income increased by 406% year-over-year to RMB190.7 million in the first quarter from RMB37.7 million one year ago. The additional costs and expenses from the pandemic dragged down the operating profit margin but was partially offset by the government tax exemption benefits led to our still decent level of net profit margin. As of March 31st, 2020, we had RMB565.2 million cash and cash equivalents, RMB1.003 billion short-term investments, and RMB1.169 billion long-term investments. Part of our short-term investments matured during the first quarter and to prevent the interest rate risk in the uncertain market, we held this part of assets in cash and did not invest in new wealth management product as of the quarter end. In the future, we will invest in the suitable product that matches our liquidity and yield needs. As of March 31st, 2020, our prepaid expenses and other current assets include prepayment for traffic acquisition, test book materials, rental cost, and tuition fee we stored in platforms, including WeChat and AliPay, that have not been transferred to our bank account. As we scale up, the balance of prepaid expenses and other current assets will increase accordingly. As of March 31st, 2020, our deferred revenue balance was RMB1.34 billion. Deferred revenue primarily consists of the tuition collected in advance. The balance of deferred tax liability was RMB73 million by the end of first quarter. The similar amount increased the balance of PPE and land use rights in the non-current assets as well. The deferred tax liability is caused by the temporary difference between accounting basis and tax basis for purchasing Zhengzhou property. The remaining useful life for Zhengzhou property was 37 years and the balance of PPE, land use rights, and deferred tax liability will gradually decrease at the same time -- at the same amount in the following 37 years and basically has no impact on P&L. As of March 31st, 2020, our non-current other payables totaled RMB221 million, which are payable to purchase the Zhengzhou property. In this quarter, we incurred additional cash outflow for free courses and expansion of operation centers in 11 cities out of Beijing. Under such circumstances, we still achieved net operating cash inflow of RMB118 million, up by 82% from RMB65 million in the first quarter 2019. We also paid for capex expansion totaled amount RMB106 million. Going forward, we will discuss around the most frequently asked topics as well to enhance the efficiency and transparency. Please note the topics we discuss might change along with the market conditions. First, about our cash balance. Our RMB-denominated cash and cash equivalents and short-term and long-term investments are jointly held by nine onshore entities. While the USD-denominated are mainly held by our offshore entity in Cayman Islands, our cash and cash equivalents are mainly held at the following branches bank [Foreign language]. Our cash savings total RMB20.9 million at China Merchant Bank; RMB6,101,000 at China Construction Bank; RMB494,000 at Bank of Beijing; RMB195.7 million at Industrial Bank, and $48.2 million at Citibank. Our short-term and long-term wealth management investments consist of: $150 million from Citibank, RMB507 million from China Merchant Bank, RMB633 million from Industrial Bank. Secondly, related party transaction. The first quarter of 2020, we did not have any transaction with either [Indiscernible]. As for [Indiscernible], which is our related party, we paid RMB327,000 in the first-quarter 2020 for its service, and the payment amounts for 0.025% of our first-quarter net revenues. Certainly, at download numbers, we would like to reiterate that the new download -- the new app download number for Gaotu Ketang and Genshuixue apps combined has been among the top after-school tutoring centers in China since the second half of 2019, according to QuestMobile. In the first quarter of 2020, many apps attracted more traffic for free courses but we believe download for free courses does not represent the performance of regular-priced courses. Please do not compare us with [Indiscernible] platform apps, picture taking apps, and other irrelevant apps, which is extremely unprofessional. Firstly, in 2019, Gaotu Ketang contributed 69.34% of our K-12 revenue, nearly 70%. Since the start of last year, we have accumulated RMB4.733 billion in gross billings, maintained positive net operating cash flow and consistently realized profitability. We have no complex investment, no significant related party transactions, maintains a constant high ROI level, and have no loans, no mortgages, and low prices at the end of the first quarter of 2020. We have a diversified management team with clean professional background. Furthermore, Larry has never sold his shares in the company, but only focused on the one core business. Our revenue and net income are all attributed to each employee's full dedication in serving students and parents to their satisfaction. Today, we also announced a two-year stock buyback program amounting up to $150 million, which reflects the board and management team's firm confidence in our long-term development. With that, I will now provide our business outlook. Our revenue guidelines for the first quarter is between RMB1.526 billion and RMB1.556 billion, representing an increase of 331% to 340% on a year-over-year basis. These estimates reflect the company's current expectations, which are subject to change. That concludes my prepared remarks. Operator, we are now ready to take questions. Thank you.

We'll now begin the question-and-answer session. [Operator instructions] The first question is from Alex Xie from Credit Suisse. Please go ahead.

Hi management. Thank you for taking my questions and congratulations on very strong set of results. My first question is about our sales and marketing spending. I think since the start of this year, we have observed much more branding campaign by all the online education companies. So, I would like to know what's the percentage of brand spending in GSX sales and marketing expenses and what's the plan for the future? This is my first question. Secondly, I would like to ask about the referral of existing customers for new customers. Is there any related motivation mechanism or data to share with us, such as the referral rates? And then thirdly, I think you -- management has mentioned the tutors are one of the most important segment of our services and you have increased the compensation for the tutors. I read some news that you plan to hire more than 10,000 tutors for this year. Would you please comment on that plan? And what's your expected retention of your existing tutors? Thank you.

[Foreign language]

Thanks for your questions. So, the sales and marketing expense is related to our gross billings and the gross billings will be recognized as revenue in the next three to six months. Sales and marketing, as I just mentioned, is over seven7 times of the same period of last year. But we also observed the gross billings has increased a lot year-over-year, too. In the first quarter, our gross billings has achieved RMB1.37 billion. And as we heard from the capital market, actually, this is among the highest of all the online live large-class education courses providers. Especially for K-12 students, they will bring us more gross billings and revenues in Q2 and Q3. So our belief has always been that, of course, we serve every students to their satisfaction. We serve every parent to their satisfaction. That sense is to build a great brand awareness. And we believe -- and it's just because we stick to this belief and strategy, and that is how we are able to achieve the numbers you see today. Even though we -- this quarter, we provided free courses and we donated some regular courses, those efforts actually weighted down our gross billings and increased more costs and expenses, but we are still seeing our net profit growing very fast.

[Foreign language]

So, after COVID-19 broke out, many parents choose to stay at home. This provides a great opportunity for us and we are very glad to see that in the first quarter, our sales and marketing brought us really remarkable performance. In the first quarter, when you check the paid enrollment, actually a majority of them are first-time users. And we believe this value will brought us security for the revenues of Q2 and Q3, and help us achieve an ideal performance in the following quarters.

[Foreign language]

As we are accumulating more and more students at GSX and as we are raising our brand awareness more and more, we do notice a lot of the new enrollments come from word-of-mouth referrals. But as of now, we cannot publicize this data because -- we cannot disclose this data because the market, there is not a unified manner of calculating it.

[Foreign language]

And as for the thing you mentioned that we plan to recruit 10,000 tutors, we make this plan based on our current part growing fee. In Q1, as you can see, actually, our revenue and gross billings are still growing near to 400% year-over-year. And we believe only the best service and the better results, if we want to provide them, we -- it's necessary for us to attract the most suitable and best-performing tutors. So, that's why we are executing this plan as we planned. And I like your way of mentioning the retention rate of tutors because when we are doing education industry, in a sense, it adapt to growth of humans. And there are two types of people we care: one is the growth of students; the other is the growth of our tutors. And the key metrics we are valuing for the growth of students is still retention rates. For tutors, that's the same, also the retention rate. And we are proud to say that our retention rate of tutors is actually leading the sector.

[Foreign language]

So, many -- since the capital market and many investors, they care -- ask a lot of questions about customer acquisitions and the competitive landscape this year, so I want to add something. So, we noticed -- we can observe that a lot of the big names that also entered online education sector this year. And when we review these market conditions, we believe a common great opinion is it's a little late to enter at this time.

[Foreign language]

So, when we compare this first quarter with last year, why we are so confident to expand our investments in customer acquisitions? That decision is based on two reasons; number one, because of the COVID-19 outbreak, we precisely figure out that a lot of students and parents; they are staying at home during Q1. And we observed that a lot of our operational metrics are reaching a historical high, such as the students attention in class rate and their way of completing the courses, and the homework submission rate and their feedback rate, and net promoting scores, all of those metrics has a reach historical high. And we grab this because there is the opportunities to increase our customer acquisition. And based on this, we noticed that for Q1, after the new students, the first-time users, they join our platform to study, this April is actually the most important month, the first important month for us to do the retention for this year. And because we monitored a lot of the operational metrics has been performing well, we are very confident that then in April that we will achieve a great retention rate and based on that that's why we increased our sales and marketing spend.

[Foreign language]

The second reason that we have confidence in expanding our sales margin was because ever since last year, we have been continually upgrading our organizational capabilities and trying to retool and train our talent and professionals. We have trained and stored a lot of really great tutors, and those actually brought us back rewards in the first quarter. If we look at the first quarter of last year 2019, we have a limited size of tutors and that does not support a very large-scale of sales and marketing investments because that will bring a waste of money. But this year, because we have a really strong supply chain and talent, professionals already there to support this large scale of sales and marketing, that's why we make the decision. And right now, the sell-side consensus about our full-year revenue is around RMB6 billion. And based on our revenue of Q1 and our guidance of Q2, actually in the first half of this year, we can already reach around RMB2.8 billion or more. So, for the first quarter, the first-time users that has come to our courses, actually lay the solid foundation for our revenue growth, not only in the first half of the year, but also in the second half this year. Thank you.

The next question comes from Maggie Zheng from Haitong International. Please go ahead.

Thank you management for taking my questions. I have two questions. The first question is regarding the rescheduling courses in second quarter and third quarter actually [Indiscernible] postponed by one month, so which may allow for more time in the second quarter, but also a shortened summer holiday. So, will we have additional courses, say, in June? And also, how will we stay doing courses for the summer? And the second question is regarding the student breakdown. We know now, the primary student is now contributing the largest portion of our enrollments. And could you share with us the enrollment and revenue breakdown for primary, secondary, and high school, as well as, the margin difference between the three segments? Thank you.

Thanks Maggie. For your first question, we are glad to see that basically, all provinces have announced the schedule for kids to go back to school and everything is getting back to normal in China right now. And as of now, we can see that Gaotu has been delayed to July and it's most likely Genshuixue will follow the schedule. So as such, we have been adjusting our course schedule in the first half. For instance, courses for high school, in the past, we scheduled two times of classes for high school students, especially for the 12th grade and now we can adjust it to one classes each week to better adjust the pace they are having back at school. And also, we can add in some more short-term courses to kind of like elevating their knowledge level before they take the test. And also, we will take out actions to cater the students to their preference. And also like we have noticed that the summer break is squeezed to around six weeks based on like all the schedules we saw. It started in the middle of July and ended in the -- by the end of August. And so, which means -- but the good thing is all the uncertainty has been removed and the clarity is very high. And it's always like, for online education company, we have more flexibilities and we will adjust our courses offering according to the specific market conditions. For instance, most likely, probably, we will be hosting more students at the same time. Then, it's an also challenge for online education company because that's a big test for us about our organizational capability and our supply chain, our capability to provide a really good service during such a short time. But still, with all the flexibility we have, we still think we can grab this opportunity, and keep attracting the students and help them migrating from off-line to online. Thanks. And your second question is about our primary, middle, high school segments. So, as I just mentioned in the prepared remarks, in the first quarter, revenue growth for primary school was still far above the overall growth rate for other segments. Because we always believe primary school is a key segment and it has the largest student base, lower penetration rate, longer customer life, and broader market potential. So, the parents for this generation are more open to online education as well. This is why we always see primary school segment has a more strategic significance for our branding. And this quarter, this is the first time that gross billing from primary school sector actually ranked the top across all of our K-12 sectors. And also the concurrent students who are starting with us, the number has far exceeding other segment as well. So, going forward, we will continue to improve our course development, instructor recruitment, and training for primary school segment. Thanks.

The next question comes from Felix Liu from UBS. Please go ahead.

Good evening. Congratulations on the very strong quarter and big guidance. My first question is mainly on the teacher and teaching assistants side. I understand that you are a lot more prepared this time to capture the increased traffic from COVID-19 in your marketing activities. So, could you just share with us the updated teacher and teaching assistant headcount? And secondly, on -- I think on the teacher regulation side, could you give an update about the licensing requirement for teachers and teaching assistants? Thirdly, I think I noticed that the ASP of your courses increased quite a lot in this quarter, which is impressive. Could you help us understand the ASP trend going forward? Thank you.

Thanks Felix. I may not have enough time to address all your questions. So I just -- I probably, I will take the first one. So, the teachers and tutors headcount, so as of now, we have already -- we have like our employee number exceed 10,000. And actually, during the period of COVID-19, that actually provides us a lot of opportunities to recruit talents that we cannot imagine in the past. One is because our company has become larger and more attractive. The other is because like the good opportunity -- working positions or opportunities in the market is very limited. So, that's why we kind of like grab the golden period to recruit a lot more talent that we really like and we really feel proud of. And for teachers and tutors, as we just mentioned, we actually raised the compensation for tutors. Investors may have concerns about the gross profit margin and if we raise the compensation level for tutors, whether that will lower the GP margin. But actually for long run, invest in people is always the best strategy. And from our observation, after we raised the compensation to our tutors, we basically we can get all the top tutors. And even though for teachers, they used to teach one-on-one or they used to teach small classes, they're all join us as tutors. And that's why that provided our students with a better learning experience. And in the long run, they will help with a higher retention rate. So, that's the strategy we have always to attract the best talent. And sorry that our prepared remarks today took a longer time because we want to share everything we think you may have questions or interest in the future even though you just saw our earnings and haven't noticed some questions in such a short notice. We also would like to take this opportunity to quickly talk about the disagreement we have with the recent short-seller report that we sell a recorded phone interview transcript. Actually, in China, brushing is illegal. It's hard to imagine that a criminal can take an extra call to take the risk and with no apparent benefits and the content of the interview was completely different from our actual operations. For example, the recording says that the brushing has stopped because of the epidemic. But if you can tell that our growth in the first quarter and in the second quarter will still be very fast. And our ROI in 2019 was 3.2% in general. We definitely couldn't figure out how brushing can improve ROI and make it more than one since we already divided big classes into several smaller classes that are hosted by tutors and to improve the learning experience like other companies are doing in the industry. This basically, you do not see other students, except for the small class. So, many things mentioned in the conversation make zero sense. We highly suspect the content of the phone interview recording is fake. And if so, in the future, if the fake recording can be used as evidence, there will be no order in the capital market. And we hope that they can provide any piece of evidence like name from our management that involve in brushing or any contract single-nature bank receipt of which ID they used to brush. Upon receiving this evidence, we will show our official stance, official seal and the full set of bank statement as proof. We've already provided all the banks we use. Please just pick one. And based on the fact that essentially means Gaotu's revenue, as well as, they kept comparing us with companies run completely different business model, we strongly feel that they know very little about our operation. Therefore, we are also waiting to invite to [Indiscernible] to our office to take a tour that we can introduce to him about our business. We offer to reimburse all their travel costs. And just in one word, I hope that our communication is transparent and smooth. I also hope that your criticism can help us continuously make processes that can help us to become a better company. So that's all. Thank you.

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

Thank you, operator. Thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact us or the company directly. Please feel free to set to our new alert on the company's IR website at gsx.investorroom.com. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.