Youdao, Inc.

Good day, and welcome to YoDAO First Quarter 2020 Earnings Conference Con webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Pei Du, Investor Relations Director of YoDAO. Please go ahead.

Thank you, Mike. Please note, the discussion today will contain forward-looking statements relating to future performance of the company, and I intended to qualify for the safe harbor from liabilities as established by the US Private Securities Delegation Reform Act. Such statements are not guaranteed of the future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and cause actual results to differ materially from those mentioned in today's press release and the discussion. A general discussion of the risk factors that could affect your DAO's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including our annual report filed on Form 20-F. The company doesn't undertake any obligation to update this forward-looking statement, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. The definition of non-GAAP financial measures and the Reconciliation of Gap to Non-Gap Financial Results. Please see the 2020 First Quarter Financial Results News Release issued earlier today. As a reminder, this conference is being recorded. Besides, a webcast replay of this conference call will be available on UDOT's corporate website at ir.udot.com. Joining us today on the call from UDOT's Senior Management is Dr. Feng Zhou, our Chief Executive Officer. Mr. Lei Jin. VP of operations, Mr. Peng Fu, our VP of strategy and capital markets, Mr. Wen Li, our VP of finance. I will now turn the call over to Dr. Zhou to reveal some of our recent highlights on strategic direction.

Thank you, Dupay, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that our phone numbers are based on the I'd like to begin by offering my deepest sympathy to all the families affected by the coronavirus. We have been altered as a society by the global pandemic. As Chinese cities have gradually reopened, we continue to take steps to ensure the safety of our staff and students. Our free online courses ran through January through February, and we are proud to have been able to swiftly change course to prioritize relief efforts. and provide support to those cities that were hardest hit, as well as our broader community. As an online service company, our operations were less impacted than some other businesses. We closed the first quarter with strong financial and operating results. Growth from our core online learning business accelerated. Online courses generated growth billing of RMB 519 million, up 287% year-over-year, and up 50% quarter-over-quarter, stronger than the 211% year-over-year growth in Q4 of 2019. Growth margins from our learning services segment also rose to 52% in the first quarter of 2020 as we continued to benefit from economy of scale. This is a large step up from 30% in Q4 2019 and 17% in Q1 2019. Our intelligent learning devices also grew rapidly despite the virus' impact during January and February. Revenue from devices reached RMB 53 million, up 189% year-over-year. Operating cash flow was nearly RMB 50 million for this quarter, marking Q1 as our first quarter of positive cash operating cash flow since operating at third scale. Longer term, we are seeing improving cash change, but do expect to see some seasonal fluctuation. Looking at our business segment, for online courses, gross billings from K-12 courses reached RMB 192 million, and adult courses were at RMB 254 million. up 330% and 300% year-over-year respectively. The growth came mainly from continuous innovation in course content and products. Let me highlight two areas of significant progress for you. First, we released new versions of junior high school math and high school English courses. In particular, the math course features localized content delivered by both our instructors and teaching assistants. The courses quickly became popular, joining the ranks of junior high school Chinese and physics courses, which have been best-selling courses since last year. Second, more and more courses feature real-time, AI-driven interactions during and after the live course. For example, in our new elementary math courses, students alternate between listening to instructions and practicing using our live stream personalized exercises. It is an important upgrade to the industry standard new teacher large class format, which we call interactive large class model. As for content in new adult courses, we introduced English recitation camp. In Chinese, that's and English oral training courses. which are being taught by two relatively new instructors. These two popular courses are already profitable in Q1, partly because they gain a significant number of users from our dictionary and other apps. These users are interested in learning the language and overseas culture and lifestyle, which are offered by these courses. This shows that as we serve our users through more and more apps and with courses in different ways, synergy within our business segments continue to grow. In line with our growth goals and to support our increasing enrollment, we grew our educator team to 164 instructors and 865 teaching assistants during the first quarter. We have also improved their training, quality control, and incentive programs. More recently, we also began our brand campaign for UDOT premium courses. In mid-April, we partnered with the renowned Chinese women's volleyball coach, Lan Ping, to be our brand spokesperson. Initial feedback has been positive. Our partnership with Lan Ping is set to span multiple quarters, and we look forward to a fruitful relationship. Let's turn to another segment, our intelligent learning device. In Q1, revenue from our intelligent learning devices reached RMB $53 million, up 189% year-over-year. The increase was primarily driven by sales of our Utah Dictionary Pen 2, which has become known among students and parents as an indispensable and fun device for learning. Online distribution was strong in Q1. Offline distribution was negatively impacted by the closures caused by the coronavirus in January and February. By March, offline distribution had returned to previous levels We plan to launch new devices later this year to support students' learning needs. In terms of our app, we introduced a major version of our dictionary app, bringing our more functionalities, like document translation, to the front page. We also launched AI Essay Assessment, AI , a feature that automatically grades and offers suggestions for improving English essays submitted by the users. This feature leverages our proprietary AI technology and uses state-of-the-art transformer architecture and transfer learning techniques. We also made progress with our organic traffic conversion, with our conversion rate from this channel increasing by 5% year-over-year. As a result, K-12 gross billings from organic traffic grew to 36% year-over-year during the first quarter. Also, since the pandemic, Chinese University MOOC has provided teaching tools and teaching infrastructure throughout China, helping 60,000 instructors at 1,200 universities to facilitate over 120,000 courses. As one of the most commonly used learning platforms for college students, Chinese University MOOC had over 40 million registered users and approximately 14 million daily active users at its peak during the first quarter. At the end of April, we released the overseas version of Chinese University MOOC and received positive feedback from the Chinese Ministry of Education. Now for our online marketing sector. Our advertising revenues were RMB 99 million in the first quarter, up 10% COE, and 1% quarter-on-quarter. In the coming period, we expect the advertising sector to continue to face macro challenges and to manage these fluctuations with flexibility. 2020 is no doubt a very unique year for all of us. For the education industry, it may well be a pivotal year where online education adoption and product innovation become greatly accelerated. We believe Yodal is well positioned to capture this opportunity. We are confident that we have a strong pipeline of courses and products for the rest of the year. Our teams are hard at work to get them ready for the summer and fall semester. We cannot wait to have more students and parents to try them. With that overview, I will now turn the call over to Supong to review our financial results. We will then open the call up for questions. Supong.