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.