Youdao, Inc.

UDAO 2021 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wong, Investor Relations Director of UDAO. Please go ahead.

Thank you, Operator. Please note the discussion today will contain forward-looking statements relating to future performance of the company which are intended to qualify for the safe harbor from liability, as established by the U.S. Private Security Litigation 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 could cause actual results to differ materially from those mentioned in today's press release. press release and this discussion. A general discussion of the risk factors that could affect UW's business and financial results is included in certain findings of the company with the Securities and Exchange Commission. 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 definitions of the non-GAAP financial measures and recalculations of GAAP to non-GAAP financial results, please see the 2021 first quarter financial results news release issued earlier today. As a reminder, the 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 UW Senior Management is Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jin, VP of Finance of Operations, Mr. Peng Su, our VP of Strategy and Capital Markets, and Mr. Wayne Lee, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic directions.

Thank you, Jeffrey, 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 your needs. We achieved sound and sustainable growth across our businesses in the first quarter of this year. Total revenue in Q1 was RMB $1.3 billion. Net revenue from K-12 is RMB $639 million, up 217% year-over-year. Meanwhile, gross billings from K-12 reached RMB 442 million in this quarter, up 130% year-over-year. Paid student enrollments from K-12 climbed to 306,000, up 100% year-over-year. With larger scale, we have also achieved higher operating efficiency. Gross billings from K-12 and adult segments reached approximately on the $742 million. Brand and performance advertisements standing on courses amounted to approximately on the $556 million. Compared with Q3 2020, the last quarter with mostly new student acquisitions and almost no renewals, our return on investment, or ROI, improved by more than 30%. Growth fillings from the adult segment reached RMB 299 million in the first quarter this year, up 17% year-over-year. Remember that the outbreak of COVID-19 in Q1 2020 led to a higher base and thus more moderate year-over-year growth of the adult segment. Margins were also improving. Growth profit margins from learning services reached 65% in the first quarter this year, up from 51% in Q1 2020. It is the best level since we became public. Operating loss margin narrowed down to 23.9% in the first quarter this year, compared to the 32% in Q1 2020. With our financial overview, I would like to review some business highlights. Looking at our K-12 segment, we launched the industry's first localized version of junior high school Chinese with two instructors during the spring semester in Q1. One instructor covers nationwide content and the other covers localized content. More than 50% of our junior high school Chinese core students opted for this localized version of junior high school Chinese. reflecting high interest in this course format. Course participation and satisfaction data were also promising. As for high school and primaries, we continued to polish courses and offered more tailor-made math content to students of different learning levels. Growth buildings of high school math increased by over 210% year-over-year in Q1 2021. We had 197 instructors and 4,093 tutors at the end of Q1 2021. For our extracurricular segments, ,, or in Chinese, we maintained a strong momentum from last quarter. and achieved more than 100% quarter-over-quarter growth in gross feelings. In the meantime, Youdao Zhongheng sponsored the Jiangsu Weiqi Youth Team, and we signed Kejie, daytime Weiqi world champion, as our brand spokesperson. And for our adult segment, in March 2021, we established adult education business units. This puts several teams under the same umbrella, including the adult-oriented courses in adult premium courses, NetEase Cloud Classroom, and China University MOOC. New courses will be released under the NetEase Cloud Classroom brand, concentrating our investment in a single brand. According to our data, the extraordinary memory, 非常记忆, course has become the number one memory-oriented course in the industry, only three quarters into its operation. Our intelligent learning devices also grow at an accelerated clip in Q1. I'd like to highlight that growth profit margin hits 44% in the first quarter, a record high for our devices, compared with 25.6% in Q1 2020. In March, we introduced Udall Dictionary Pen 3 Pro, further supporting bilingual translation of Japanese and Korean to meet the demand of more language learners. We shipped over 297,000 units of our dictionary pen series in Q1, up 198% year-over-year. We're only getting started. We have more device products in the pipeline for 2021, and our teams are very excited about them. As for our mobile learning apps, we launched a short video feature called Wow Community, Wow Trans in Yudha Dictionary. Users and content creators could finally share short videos about learning and fun things in their life in Yudha Dictionary. This led to users staying much longer on Yudha Dictionary, and that is more ways for us to engage with our users down the road. This, along with other improvements of our apps, facilitated organic traffic growth. In the first quarter of this year, 26% of all newly enrolled students' gross billings came from organic traffic. Gross billings from the K-12 segment generated by organic traffic increased by 129% year-over-year. Let us quickly discuss the potential additional regulations on the AST market. The new regulation is not out yet. Obviously, we will not know the details until it is out. With that said, we continue to hold a cautiously optimistic attitude towards business operations under the new regulatory environment. We believe the purpose here is to curb unorderly competition and promote healthy development of the industry. This will ultimately benefit highly compliant players of scale in the mid to long term. We believe our product and strategy are very competitive with our recently advanced application of AI technology. And our diversified business lines, including learning devices and adult courses, could help us better navigate the evolving online education industry. Now let us turn our attention to other aspects of the company. We pay attention to fulfilling social responsibilities while we operate our business. In Q1, we made several donations, including to Labor Middle School in Liangshan, Sichuan Province. NetEase donated RMB 66 million to the Yao Xintan Science foundation to support its math research. And we are looking forward to further cooperation with Mr. Yao's team in AI and basic education areas. We are still working towards profitability. In Q1, we secured additional funding to support our long-term plan. We raised approximately $232 million to a follow-on offering in February. NetEase recently offered us a $300 million loan facility agreement. In addition, a bank group provided a commitment letter in April with a three-year $150 million revolving a loan facility under the guarantee of NetEase. In total, that is over $680 million of additional funding. Looking ahead, we are confident we can build on our position as a top-quality cost provider and producer of industry-leading intelligent learning devices, services, and products to meet our customers' needs. Our diversified business model, along with products and technologies that truly improve learning efficiency, will help us navigate the evolving AST and edtech markets. With that overview, I will now turn the call over to Supong to review our financial results. We will then open to questions.

Thank you, Dr. Zhou. And hello, everyone. Today, I will be presenting some financial highlights from our 2021 first quarter. We encourage you to read through our press release issued earlier today for further details. We started the year with a robust first quarter with multiple operational and financial achievements. Total growth speeding from our online courses reached RMB 808.7 million for the first quarter, up 55.9% from the Q1 2020. And the growth speeding from our premium courses rose to RMB 741.5 million, up 66.2% year-over-year. Our K-12 segments continue to lead our growth, reaching RMB 442.2 million in growth speeding in the first quarter, up 130.2% year-over-year. K-student enrollments from our K-12 group reached 306,000 in Q1, up 100.3% year-over-year. K-student enrollments for premium courses were up by 75.6% year-over-year. 29% of our K-12 new enrolled student score speeding came from organic traffic for Q1, which grew 129% year-over-year. This growth shows not only our determination, but our ability to quickly expand our business, and that our model is working. For the first quarter, total net revenue reached a record RMB $1.3 billion. For U.S. dollar, $204.5 million. This represents an increase of 147.5% from the first quarter of 2020. Looking at this growth by segment, net revenue from our learning services or RMB $998.9 million, or US dollar $152.5 million, up 156.8% from the same period in 2020. They attribute this growth to the increased revenue generated from our online courses, which were further driven by a substantial increase in paid student enrollment for the K-12 courses of the UW premium courses. Net revenue from our living products were RMB $201.9 million. For US dollar, $30.8 million, up 279.8% from the same period in 2020, driven by increased sales of our UDAO dictionary pen of over 297,000 units in the first quarter. And net revenue from our online marketing services were RMB $139.1 million. For US dollar, $21.2 million. representing a 40.1% increase from the same period in 2020. For the first quarter of 2021, our total gross profit greatly improved, reaching RMB $767.5 million, or U.S. dollar $117.1 million, up 225.6% compared with the first quarter of 2020. Gross margin for learning services increased to the 65.6% for the first quarter of 2021, up from the 51.9% for the first quarter of 2020. The growth was primarily attributable to better economic scale and the further optimization of our faculty compensation structure. First margin for learning products increased to 44.1% for the first quarter, from 25.6% for the same period in 2020. The growth was driven by tremendous growth in sales of our UDAO dictionary pen version 3, which carry a higher gross margin profile than other learning products. Gross margin for online marketing services was 16.4% for the first quarter of 2021. Compared with the 20.5% for the same period in 2020, the decrease was mainly due to the increase in performance-based advertisement through the third-party internet properties. which carried lower margins. For the first quarter, total operating expense for RMB 1.1 billion, for U.S. dollar, $166.1 million, compared with RMB $411.7 million for the same period last year. We continue to invest in our future and the top-line expansion. Specifically, technology, acquiring talented teachers, and the sales and marketing efforts focused on student acquisition and expanding our branding awareness. In Q1, brand and performance advertisements spending on courses amounted to approximately RMB $555.9 million. With that, for the first quarter, our sales and marketing expense were RMB $883.9 million compared with RMB $299.2 million in the first quarter of 2020. Research and development expense were RMB $155.1 million compared with RMB $84.1 million in the first quarter of 2020. Our operating loss margin was 23.9% in the first quarter of 2021 compared with 32.5% for the same period of last year. For the first quarter of 2021, our net loss attributable to ordinary shareholders was RMB $325.8 million. For U.S. dollars, $49.7 million. Compared with RMB $169.4 million for the same period last year, non-GAAP net loss attributable to ordinary shareholders for the first quarter was RMB $307.8 million. For U.S. dollars, $47 million. compared with RMB 161.9 million for the comparable period last year. Basic and diluted net loss per ADS for the first quarter was RMB 2.75 for U.S. dollar 0.42. Non-GAAP basic and diluted net loss per ADS for the first quarter was RMB 2.6 for U.S. dollar 0.4. Our net cash used in operating activity for the first quarter was RMB 517.8 million for U.S. dollar, 79 million. Looking at our balance sheet, as of the March 31st, 2021, our contract liability, which mainly consists of deferred revenue for our online courses, for RMB 1.2 billion, for U.S. dollar, 186.5 million. Compared with the RMB 1.4 billion as of the December 31st, 2020, at the end of the period, our cash, cash equivalents, 10 deposits, and the short-term investments, total MB 2.2 billion. For U.S. dollar, 333.7 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

We will now begin the question and answer session. To ask a question, you may press star, then 1, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, it is star then 1 to ask a question. At this time, we will pause momentarily to assemble our roster? The first question comes from Sheng Zhong with Morgan Stanley. Please go ahead.

Hi, good evening, management. Thank you for taking my question. I have two questions. The first one is, can you share more color about the current promotion and advertisement? status on the market and what's your promotion plan for the summer holiday? Do you have any budget you can share with us? marketing budget. And secondly, we know there are a lot of uncertainties about the regulation. And can you please share us some more about your operation, like the retention rate after your localized content? And also, what's your current growth target for K-12 after-school tutoring business? And at the same time, we see with the regulation tightening or uncertainty, a lot of competition increased in the non-K-12 segment, including the hardware learning devices and also like adults' education. So what's your view about these sectors the growth and whether you will also invest more in this non-K-12 business. Thank you.

Thanks, Sean. So regarding the current promotional activities on the market, yeah, the first is that currently we are running advertisements on Facebook non-mainstream media only. Because recent changes doesn't allow AST business to run ads on the mainstream media anymore right now. So we're running ads on the non-mainstream media. And also the scrutiny for the materials, the ad materials become stricter. And From our side, we have always been fully compliant with the regulations. We think it's a smooth process. We do need some changes, but the changes are not much. That's the current update on the ad. As you probably know, we have suspended advanced enrollment and fee collection for the fall semester as required by the authority. And these courses will be sold at a later time. And right now, only spring and summer semester courses are being sold. So overall, we have already been fully compliant with the current regulation. Regarding the new regulations, it's not out yet, so we don't know the details. As I said in the remarks, we are cautiously optimistic about the coming future operation, in particular the summer operation. Obviously, there's a cost to being compliant under a stricter regulation. So we will understand that when we think this out. However, we have a couple of reasons that we think we can be cautiously optimistic about. So first is the leading companies... used to be more, have been more compliant, and compared with the smaller ones. So relatively speaking, the leading companies could be at an advantage here when the new regulation is out. And also, as we talked about, Utah has a diversified business line. Yeah, so this is basically a choice we made a couple of years back. not for regulation per se, not for being compliant per se, but more for broadening our potential for innovation. And it surely benefited us. However, diversification obviously has its benefits when there is more regulation. So our learning devices and adult education business will probably not be impacted by this run of regulation as far as we know. So for the summer, basically, the current actions the teams are taking is that we get several plans ready for the summer. And the structure of the courses will be a little bit different, but as far as we know, We think we will have solid plans to execute when the regulation comes out. So again, we remain cautiously optimistic. And lastly, I want to mention that the industry has sort of a theater effect. It's not a good thing. So everybody goes forward. So for example, institutions compete to set their enrollment dates earlier and earlier every year. So now the enrollment dates are pushed back kind of together. So we think in our experience, we think this leads to more orderly business. Actually, the date when it gets closer to when the course starts, actually conversion rates get better. So that's our view on the regulation and the summit plan. So we have a couple of plans ready. We will know which plan to execute when the regulation actually comes out. And I think you also asked about more competition on the non-K-12 front, hardware adults. Yeah, so obviously this overall kind of new direction plays in our favor. I think, yeah, because we have been working on the hardware business for three, four years now. Yeah, almost four years. So we all know that it's really hard to make devices. Yeah, so a lot of challenges. So how do you manage inventory? How do you manage your supply chain? what if the products are faulty, quality issues, a lot of that. And we have gone through all that. So we think it is a good thing, actually, more and more people pay attention to learning devices. And other people, when they go to advertisements, it also helps people pay more attention to the whole segment. Yeah, we think... It's a way to build the segment as an industry. So we think we're not worried about more competition, and obviously we will treat every competitor very seriously, pay a lot of attention, but we think it's a good thing that people are paying more and more attention to these segments, and it's a testament to to the strategy that we set some time ago. Yeah, thanks.

Yeah, just one more point with the doctor's comments. And yes, first of all, Definitely, right now, it's strictly, it's in compliance with all existing regulations as well. Definitely, we are fully confident about to be compliant with all the upcoming regulations in the future. And also, just like Dr. mentioned, although there's some effect on the mainstream media for the advertisement, but right now, for the new media platform, as well as some internet and as well as the mobile net, maybe the social network right now is didn't change it by now and so we can just still execute our plan without attachment to for the customer position in the in the in the by now and but we are let's go back to the regulation questions that definitely will keep our eye open to work watch closely about the regulation movement and definitely we'll put ourselves into the compliance upcoming regulations thank you

Thank you very much.

The next question comes from Brian Gong with Citigroup. Please go ahead.

Thanks, management, for taking my question. So my question is still regarding the regulation. So given the current regulatory environment, so can management share our growth strategies going forward for the whole company, and do we figure out any new ways to gain students? Another quick question is about our GP margin of learning services, which jumped a lot in the first quarter, and how should we know the reason behind this, and also how should we look at the trend ahead? Thank you.

Okay, I'll take the first question. So regarding new ways to acquire customers, so we are obviously, as we talked about in meetings before, so we are looking at many different fronts, including customer referrals and subject expanding of the existing customers. And these actually have recently picked up really well. And also, another area we are putting a lot of efforts into is conversion of our organic users. And as we just talked about, 26% of K-12 ghostbilling actually come from our traffic. And in Q1, we the WAV community, the short video community on the dictionary actually is a good example of that effort because video is really becoming, short video becomes kind of really, really popular given that traffic has kind of, the cost of the bandwidth has really come down to near zero, and also the young generation really loves to watch videos on their cell phones. So that has been... We have been working on that for some time, and really Q1 is the quarter where we released it and actually really already get very good results. As we said, the... the average time a user spends on the dictionary actually doubled because of this feature. So it's a very good feature. And because these short videos, we can show a lot of content with this media. So one of the key types of content is actually conversion to our courses. So we also have some progress on the offline channels. And there are many, many different ways to do offline conversion. And we have some that has already yield good results. And on the other hand, some we are still working on. And so overall, put together, we are somewhat the teams are confident that they can do a good job. And even if we do get some loss from the regulatory front, the other channels can make up most, if not all, of all the losses. So we think we are cautiously optimistic about this. Yeah, so I don't know, Supong, if you have anything to add. Yeah.

Yeah, I just have one more point to add, and it's just, as you asked, Brian, and you asked about how we grow our business, and besides those documents regarding how we handle the impact on our business for the K-12, potentially, by the potentially possible upcoming regulations, and also, besides the K-12 business, we also operate multiple different businesses under your dollars. like the adult education business as well as the hardware business. We don't think that's going to have any impact on the upcoming potentially or the possible upcoming regulations. And for the adult and for those two businesses, we operate over several years and we have already established have some more experience and some insight about how to operate that kind of business, whatever for the adult education or the hardware business. And we think about building some of the barriers in these sectors. We also can just grow our total business, drive by the KPL as well as the adult and hardware business. And in the long run, that's our expectation of our business futures besides KPL. And then go back to the KPL, whatever we think the fundamental thing for the KPL business is about content and products because all the parents really care about the quality of the courses you offer to their kids and students. And just like Dalton mentioned in the call, we are the first one to offer the localization content for the junior high school Chinese for the online B-class new teachers model. And then we even increased one instructor as a localization content instructor into that model. And we received very positive feedback from parents and students. And so we think about, we will create more innovative way to deliver our content and deliver our products. And it's and deliver the message to our users to try to leverage more beneficial for our product and content upgrades. Thank you, Brian. For the second question, the gross margin of our learning services, we got good performance at the gross margin improvement during this quarter and It is the first quarter to achieve over 50% GDP margin on learning services segment. We believe the most key point is our capability to offer good quality service with good price, which is further driven by our good instructors and best technology. and the synergy of deposits and our other businesses. We will insist on the strategy and invest more. In detail, the continued economic scale of revenue and the composition structure improvements, as we mentioned before, mostly contributes the improvement in GDP margins. As for the composition structures, Capability of passively selling young instructors is the key to make us maintain good capability to improve our cost structure. This quarter's high GDP margin mainly contributed from our high revenue base of our online courses. because more courses are delivered in Q1. So what we believe, maybe there's some seasonal flux in our learning service GP margin. In the long run, we reasonably believe the annual gross margin Our learning services will back it to around 60% in this year. I think maybe it is helpful for our question. That's all.

Thank you. That's very helpful.

Once again, if you have a question, please press star then 1 on a touch tone phone. The next question comes from Hongyi Zhao with CICC. Please go ahead.

Hi, this is Hongyi from CICC. First, congratulations for the great performance this quarter. And I have two questions. First, since you have introduced many business strategies for the non-K-12 business, does this mean based on the policy uncertainty for the K-12 business, are we going to switch our attention or put more investment to the adult business and learning projects in the future? So what's the strategy for the long term? And the second question is, are we considering to develop more offline developed strategy, such as opening some experiences as one of the traffic acquisition strategies. Thanks.

Yeah, I will take the first one. Regarding investment in the non-K-12 segments, yeah, I would say that when we did our planning for 2021, we've already taken into account the growth needs of the hardware and also of the adult section for us. So currently we will keep on executing that plan. And so we don't actually foresee kind of significantly different plan to invest in other segments than K-12. we think both hardware and uh and adults are very very interesting yeah so and uh very promising so i i would use this opportunity to maybe talk a little bit about uh our thinking behind the uh the adult uh education segment so uh the main point is that we we believe um the long-term potential and we we we have leading assets and experience. So we think this is a good fit for us. So lifelong learning in China, we think it's really going to take off. It's a very clear trend because the economy continues to grow and more and more people will realize that they have to They need to, and they would like to be a lifelong learner. So that's where our adult education products are really positioned at. So if you look at the sector's history, so the Chinese adult education industry sector has a long history. And we see that there are a couple of verticals that are really stand out. So the first one is ESL, English as a Second Language. The second one is Civil Servants Exam Test Track. These two verticals are really good examples of successful business. They have reached the kind of billion dollar annual run rate business level. And I think what's gonna happen, in the future is first there will be new verticals. These two will not be the only verticals that become large business. First there will be new verticals. Then there will be new models for existing verticals. And that's basically the approach our teams think about it. So when we look at some vertical, we think whether we have something to some way to reimagine it? Or do we see some new vertical that really has the potential to be as large as civil service testbeds or English as a second language? So for example, our ESL course, including a really popular Yang Liang's English course, it's already quite popular. So these are basically reimagining of the existing verticals, English learning. So I don't have time to talk about details, but for anyone who's tried those courses, they will see that it's really innovative. And for new verticals, we are already seeing potential ones. For example, our astronomy memory training course are really picking up. And also, like others, what others are doing, like personal finance skills courses. These are also quite popular and promising. So this is our thinking behind the adult education sector. We think it's really promising. And we will take the long view and we will focus on that. Thank you.

And for the second question, we end about our offline stores strategies and how we develop our offline, our ground levels customer organization strategies. And from our point, we actually have disclosed in the last several quarters in our earnings, we mentioned about we have some, we have set up some offline exhibitions, stores. It's not all, this is not the learning center people, so we didn't get the right services in that store. And in the different province to test about how can we looking for the best strategy or the best solution for the offline or the ground levels customer positions for online business operators. So we think we are on the way because we just started a couple months ago, and we see all the promising feedback from the data. But right now, it's still in very small scales. We didn't expand the scale too much in the last couple of months. So in the past couple of months. So we think about that we can probably share more information regarding these issues if we have cheaper kind of scale data from the offline customer acquisition. But we think about that just like Dr. Long mentioned, right now we are testing several different channels for the customer acquisition through the offline channel. Not only for the execution centers, And we think about we are now looking for the best solutions for the customer positions with the offline channels. Thank you.

Thank you.

The next question comes from Jesse Xu with Nomura. Please go ahead.

Thank you. Thanks, management, for taking my question. We noticed that the revenue growth of smart devices has been very strong for the past few quarters. Should we expect the momentum to continue? And on top of that, is there any opportunity for cross-selling with your Dell premium course? Thanks.

Thanks, Jessie. Yeah, yeah, I'll talk about the growth and the teammates and talk about the cross-training. Yeah, so, yeah, relative growth of smart devices, it's looking very good. And Q4 is a traditional strong quarter. Yeah, so Q1. Q1 numbers we are happy with. As I said in the remarks, we have new products upcoming this year. We don't talk about actual new products before they are launched. So, yeah, so we do have new products and new category of products. So we really think this year is the year that we have products serving people's different needs that's going to be released in this year. Yeah, so different categories. Okay. So the seasonality of the learning devices business is that normally you would see Q3 and Q4 being the strong quarters, because Q3 is the beginning of the new learning year, new academic year, and Q4 is the e-commerce most strong quarter. So these two quarters are the stronger quarters. Q1 and Q2, relatively weaker. And obviously, the start of the academic year is a very important time for the smart devices, for the learning devices business. So I would look at Q3 as a pretty important quarter for that business. So the teams have a lot of ideas, a lot of projects going on, so we think this is going to be an important and fruitful year for learning devices.

As the cost setting of our smart devices, we are updating the latest apps on our smart devices. there will be more customer-friendly functions in our app. We focus on the productivity and continuously update our existing products, such as the dictionary plan series product, which leads to better sale and better margin in the learning product segment. In the first quarter, we shipped over almost 300,000 units of our Dictator 10 series in Q1, up 200% growth year-over-year. For providing a better linear experience, we deliver an effective linear experience with integrated across our smart devices and linear apps. Especially, we enhance the synergy between our Dictator 10 apps and without Dictator 10. during the period where the Dictionary 10 users may find their personal learning summary and the vocabulary notebook in their Yodao Dictionary app. Thank you.

The next question comes from Charlotte Wei with HSBC. Please go ahead.

Hello, management. Thank you for taking my question, and congratulations on a very strong quarter. I have a small follow-up question regarding the regulation item. There are some news saying that online education players are not allowed to offer classes at low cost. Is it a confirmed rule or just a rumor? How will this affect the strategy of entry courses to attract new users? And how will our summer promotion plan change according to this? Thank you.

Yeah, regarding the course of kind of selling courses below cost, So we are having ongoing discussions with the authorities and by now basically being conservative. So we have actually for the summer courses we have reviewed the sales price for our courses actually raised some of the prices of some of the courses. So obviously we are awaiting clarification from the authorities on this issue and also other issues. And we believe we will get them in some time. And I think the important thing here is that is that the conversion funnels for acquiring new customers, the teams, as we have operated in this business for quite a long time, we have many choices in the way that we convert users from someone who is interested in getting a course to actually paying customers our courses. So we have many choices that we can choose one from the other. So we think as long as we get clear guidance from our authority, our teams will have kind of change that they need to apply to the conversion channel. And that's true for us. the low-cost courses. That's also true for how long before course opens you can sell. You can start selling those courses. So there are several issues here that's pretty important, but as long as we can get clear guidance, we should be okay.

Thank you. I have one more question regarding the C2R business. So I'm wondering what is the revenue contribution percentage from the non-subject tutoring? Yeah, because I know that, like, Game of Go courses are very popular in Youdao. Just want to have a sense of non-subject tutoring.

Yeah, for the... Not subject to . And we think about, yeah, right now we are, as the doctor mentioned in the poll, we are starting, we have to receive a very promising, we have a very promising program for this U of W program and for the pre-school or for the primary school students. And I think for this business, we see a tremendous potential from the parents and the users and for their demands. And we think about and we expect to develop more capability performance-based programs offered to the preschool kids or the young students in the primary school. And we think about that probably maybe in different areas. And we think about that will have more great potentials for us to produced besides of the program existing, like the UW Kids Programming, as well as the UWHE program. We think about we have to, we know we have been started for this business for several years, and we have been, we had experience on how to develop and also build up the kind of momentum for those programs for the kids and the young students. And we think about we are in a great position for this business.

Thank you.

The next question comes from Linda Wong with Macquarie. Please go ahead.

Hi, management. I have one question. This is regarding for our gross billing. Because for this quarter, we saw that the gross billing up by 56%. And when I'm looking back for the several quarters after we go listed, I think this probably is the slowest growth for the gross billing. So how should we think about this number? And is there any reason behind the slowdown for this gross billing? And whether we should worry about that, imply that our growth is likely to moderate for the coming quarters? Meanwhile, for the enrollment, we also see that this quarter the enrollment is up by almost 100%, but compared to in the previous quarter, it's almost up by 200% to 300%. So that's also the other question I want to ask is whether we need to think about the moderating trend and what should be the optimal, I should say, the growth estimation for this number going forward. Thank you.

Okay, first it's about for the total growth spilling. Indeed, we just growth a little bit moderate compared with the same period last year. That's also just like we explained in our discourse in our course, and because that's mixed by the adult and the K-12. If you just only go to the K-12 sectors, it still grow about 132% year-over-year. That's still in the relatively high growth rate, thinking of the scale of our business. And in total, it just goes a little bit slow down. It's because of the adult business only grow about double digits in the first quarter compared with the same period last year. That's because of the impact of COVID-19 in the last year. Regular growth speeding for the adult business in the last Q1 is a little bit high base compared with Seoul that we just achieved for only double-digit growth for the adult business so by together you see about the total number combined with the kids off and the adults that's go to that's the double-digit numbers but you go back to see independently for the kids off and the adults you can see the kids in the very good great growth momentum for our business and go back to enrollment and the q1 is not only it's just like the I mentioned about in the last two ones, also whatever the business in the case of an adult is being impacted by the COVID-19 in the last year. And although we are just only, we are most likely in the last year, we're beneficial about the growth through that impact for the adult sessions. But for the case of in moments, we're also beneficial through that growth. Yes, it's benefited through that growth for the business in the last Q1. And we think in this year, 100%, we think about it as a relatively still great momentum for the growth. And also for the Q1, it's not really the big season for our customer acquisition in this momentum. And we think about if you go back to see our growth rate about the K12 business in the last year from the Q1 to Q4, you think about it's also accelerated about... growth rates compared with the same time last year before. So we think about we will expect about more good numbers for the growth. in the rest of the quarter in our expectation. But that still depends on the situation, whatever the surroundings, the environment, and also including the regulation or the other issues. Probably potentially will be a fact about the growth rate. But in our expectation, we expect the business will be, the growth rate for our business and it will be acceleration by the first quarter in one year. Thank you.

And that concludes the question and answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or reach out to TPG Investor Relations in China or the US. Have a great day.

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