Youdao, Inc.

Good day and welcome to the YODO 2020 third quarter earnings conference call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Regina. Regina, 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 Litigation 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 those risks are beyond the company's control and could 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 your DAO's business and financial results is included in certain filing of the company with the Securities and Exchange Commission, including our annual report filed on Form 20-F. The company does not 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 reconciliation of GAAP to non-GAAP financial results, please see the 2020 Third Quarter Financial Results News Release Issues 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, 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 the strategic direction.

Thank you, Regina. 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 the NIMBY. Online education is more relevant today than ever before, and it is profoundly transforming how people learn. We accelerated our rapid growth momentum in the third quarter and generated total revenue of RMB 896 million. Growth billions from online courses reached RMB 965 million, up to 28% year-over-year, and 76% quarter-over-quarter. supported by our large-scale marketing and branding campaign during the summer. Growth in our K-12 segments was particularly strong, reaching a record high. Growth fillings from this group were RMB $676 million, up 369% and 120% year-over-year and quarter-over-quarter, respectively. K-12 paid enrollments reached $499,000, up 52% quarter-over-quarter. The K-12 gross billing proportion of UDOT premium courses increased to 77% from 67% in the same period last year. ASP for the K-12 segments was slightly down, primarily due to the increased proportion of primary school enrollments, which have relatively lower ASPs than our high and junior high school courses. 22% of all newly enrolled students' gross billings came from organic traffic for Q3, which grew 188% year-over-year. Gross margins also continued to improve with product improvements and larger scale. Overall gross margin was 45.9%, and the gross margin for our learning services was 53.9%, up to 20 basis points from Q2. We expect to maintain this growth momentum of our GP margin, mainly due to further improvement of economy of skill. We continue to strengthen our STAR instructor and teaching assistance team. More than 70% of our current instructors come from Tsinghua University, Peking University, or a top 50 university in the world. This year, we hired only about 0.3% of all instructor candidates. We are committed to continue hiring elite instructors and to offer high-quality courses. Regarding TA teams, we continue to expand our capacity. Total TAs reached 3,368 at the end of Q3 at operation centers around the country. On the product side, our K-12 math courses made significant progress in Q3, The number of paid enrollments for math students in grades 1 to 12 increased in the third quarter by over 800 a year. For primary school, we added more interactions in classes for key knowledge points. For junior high school, we started to offer regional and textbook-specific courses. For high school, several newly recruited staff teachers are available for students to meet diverse demands. We released a new set of kids' programming courses, including Python programming and a custom hardware programming kit in Q3. Student retention of the programming courses exceeded 85%. Q3 is the main quarter for our summer marketing campaign. The campaign included online performance advertisements, TV sponsorships and ads, and et cetera. We expect this marketing campaign to be the largest for fiscal year 2020. In Q3, brand and performance advertisement spending on courses amounted to RMB 881 million. Although increased spending led to more short-term losses, it helped drive scale and was done under strict unit economics requirements. We looked at front-loaded marketing spending in this quarter and the total of expected returns over the next several quarters for each project to make sure it is healthy. Turning to our adult segments, growth buildings increased to RMB 201 million, up 185% year-over-year and 34% quarter-over-quarter. We continue our twofold strategy here. One, we focus on high-value courses such as skill learning and interest-oriented courses and shift away from low-value courses such as college English. Second, we leverage our expertise in content development in this area to launch and quickly iterate new cost offerings. Our staple courses continue to do well. For example, Logic English grew over 100% in gross billing year-over-year. Practical English courses released this year including English recitation camp and oral English training have ramped quickly, which become the major component of our adults with over five times growth year-over-year in gross balance. Our intelligent learning devices also grew at an accelerated clip in Q3, with revenues reaching RMB 163 million, up to 89% year-over-year. and 89% quarter-over-quarter. We shipped about 250,000 units of our dictionary pen too, up 59% from Q2. Over 70% of our dictionary pens were purchased by or for a K-12 user. We continue to integrate software and hardware here to deliver even more seamless experience. For example, you can now scan words or phrases with your dictionary pen and read the results on your phone screen, which is even faster than using the pen alone. In Q4, we are launching a new dictionary pen, and we are confident that it will further strengthen our leading position in intelligent learning devices. Let me say a few more words about how we look at learning devices. During the last two years in the market, we have clearly witnessed the introduction of a flourishing set of smart learning devices that parents and kids both love. We believe every kid will eventually own one or more of these devices. And these devices will be more and more tightly integrated with online learning services, leading to important cross-selling and other opportunities. As adults, with our expertise in AI, learning content, hardware design, and brand recognition, we believe we are well positioned to lead this fledgling area. Overall, our strategy this year is to seize key expansion opportunities. One important principle we base many decisions on is the principle of value accumulation. We have put a lot of effort into ensuring that, along with revenue growth, we also accumulate a large amount of value regarding product innovation and ability, customer base expansion, teaching expertise, learning content, learning-oriented AI technology, distributing channels, and on the ground, and et cetera. Accumulating all this value enables us to offer constantly better courses now and long into the future to a huge population of parents willing to pay for high quality education products. With that overview, I will now turn the call over to Supong to review our financial results. We will then open to questions. Supong.