Youdao, Inc.

and welcome to the YoDAO 2020 Second Quarter Earnings Conference Call. 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, operator. Please note, the discussion today will contain forward-looking statements related to future performance of the company, which are intended to qualify for the safe harbor from liabilities as established by the U.S. Private Securities Navigation Reform Act. Such statements are not guarantees 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 would cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Udall'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 20F. The company doesn't undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definition of non-GAAP financial measures and the reconsolidation of GAAP to non-GAAP financial results, please see the 2020 second quarter financial results news release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will be available on Udall's corporate website at ir.udall.com. Joining us today on the call from Udall Senior Management is Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jin, VP of Operations, Mr. Peng Su, our VP of Strategy and Capital Markets, and Mr. Wen Li, our VP of Finance. I will now turn the call over to Dr. Zhou to reveal some of our recent highlights and strategic directions.

Thank you, Lupe, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on renminbi. Our business continues to grow at a rapid and healthy pace. Our second quarter shows the strength of our online education courses and products. And despite the current uncertainty of macroenvironment, the online education industry's transformation is well underway. Your dollar is well positioned to emerge as a leader among this change. First, looking at online courses, our gross billings have more than tripled year-over-year, reaching RMB 542 million in Q2. Gross billings from K-12 reached RMB 307 million up to 29% year-over-year and up 60% quarter-over-quarter. Driven by strong retention and larger-scale marketing, In addition to junior high school math and physics that are strong, several other courses contributed significantly to our second quarter growth, primarily high school Chinese and primary school math. Our retention rate also improved by 1,000 basis points in the April to May retention season due to more and better courses and more streamlined services. Summer enrollment for high school students, which used to start in Q2, will push back to Q3 due to COVID-19 as the semester ended later in most cities in China. Birth buildings from our adult segment also increased to RMB 150 million, up 189% year over year. based on the strong performance of our Practical English courses. We've released another new Practical English course title in Q2, bringing the total to five courses, catering to different customer groups. Young, white-collar workers are increasingly looking to learn English language and other skills online. We're working hard to capture this opportunity and drive growth by focusing on creating high-quality content. Building up our servicing capacities is a current priority for the company. As we work to significantly scale our business this year, in Q2, the total number of tutors increased to 2,699, in part to prepare for summer enrollment. This is also three times the number of tutors we had in Q1. Our new tutors have been integrated smoothly as we focused on leveraging hiring managers and improving our experienced tutors last year to prepare for a larger team this year. We also significantly increased our ability to offer more personalized service in Q2 by offering stratified services to students within different grades. For the second quarter, gross margins for learning services were flat with Q1 at 2%. 52%. While we continue to benefit from economies of scale, margins were partially offset by expenses from more servicing personnel. In the meantime, with improving unit economics, we maintained the positive operating cash flow for the second quarter in a row, which came in at just under RMB 93 million. We continue to invest in product and technology innovation. We are in a year-long process of rolling out more interactive large-class features to more subjects and more grades. In our high school Chinese courses, we launched a feature called Intelligent Memorization Plan, Zhileng Beisong Jihua, using ASR technology. This is highly integrated with course content, and students can practice efficiently at their own pace. This contributed significantly to our double-digit increase in retention in high school Chinese. Similarly, our primary school's math has highly tailored interactive exercises that can be generated real-time for different levels of students, all based on feedback data. For instance, in order to develop kids' number fluency, we offer interactive exercises using the vertical strategy playbook gamified roll our play-to-player games, or our fill-in-the-blanks equation solver. After we made these upgrades, our conversion rate in primary school math increased by 4%. Turning to our intelligent learning devices, sales in this category also did well, reaching RMB 86 million, up 2.5 times year-over-year. We released the Dictionary Pen 2.0 Pro, in June, with more premium content and Japanese and Korean language support, which were the number one requested features. Our Dictionary Pen 2 Pro also carries a higher selling price than its early versions. During the online shopping festival on June 18th, the Yudao Dictionary Pen 2 series were ranked the number one electronic dictionary in terms of sales by both JD.com and Tmall. As for our learning apps, in Q2 we grew our MAU to 122 million, up 11% year-over-year. We continue to build our UDAL dictionary app to incorporate more comprehensive offerings as we work to bring this popular tool into the realms of super apps in the learning category. Some of the new features include an English oral proficiency assessment feature, an English listening mock test, and a postgraduate admission In addition to launching a number of new features, we have strengthened the connection between our dictionary and our premium courses. In Q2, gross billings of new paid enrollments from internal traffic increased by 127% year-over-year. Turning to our marketing business, our online advertising revenue reached RMB 103 million, down 28% year-over-year. up 4% from Q1. We expect to see continued volatility in this segment with the ongoing impact of macro uncertainties. Looking ahead, the summer enrollment season is already underway. Our experience shows that customers acquired in the summer are more willing to pay for more courses and renew in the future. And our data in the first half of this year shows that the positive change in online learning is accelerating. regardless of the fluctuating impact of COVID-19. With this in mind, we are moving ahead with the summer campaign we talked about in Q1. We plan to significantly increase our paying customer base this year, and Q3 is an important quarter for achieving this goal. We're taking a threefold approach to this campaign. First, a dry marketing campaign with TV ads, residential community ads, and et cetera. Second, we are engaging in online multi-channel performance-based customer acquisition activities. And third, user conversion on our owned and operated assets. Our goal with our marketing activities in the second half of the year will be to acquire significantly more customers and increase our brand equity while maintaining a focus on healthy unit economics and return of investment over the longer term. The investments we are making Now, I design to support our stable and sustainable growth as we build our student community and brand reputation. 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.