Youdao, Inc.

Good day and welcome to the YoDAO 2021 Third Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of YoDAO. Please go ahead, sir.

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 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 and this discussion. A general discussion of the risk factors that could affect UDAF business and financial results is included in the certain filings 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 non-GAAP financial measures and recalculations of GAAP to non-GAAP financial results, please see the 2021 Third Quarter Financial Results News release issued earlier today. As a reminder, the conference is being recorded. A webcast replay of this conference call will be available on UDAO's corporate website at ir.udao.com. Joining us today on the call from UDAO's 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. 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 direction.

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 Renminbi. The third quarter was a good quarter for us with some development of our non-tutoring business. With the announcement of sweeping industry changes in late July, we quickly evaluated our business and set out steps to better align with the PRC's latest regulations. On September 30, we anticipated to terminate and announced a plan to dispose of the after-school tutoring services for academic subjects included in China's compulsory education system and apply to the competent local governments to approve the proposed disposal. We expect the disposal to be completed by the end of 2021, subject to regulatory approval. There can be no assurance regarding the ultimate timing or that the transaction will be completed. Due to the execution of the double reduction policy, gross billings from academic subjects included in China's compulsory education system decreased by approximately 70% year-over-year in the third quarter. Gross billings including adult courses decreased by 33.9% year-over-year to RMB $631 million in the third quarter. Total net revenues of third quarter were RMB $1.4 billion, representing a 54% increase year-over-year, with approximately 25% of our total revenue derived from academic tutoring for compulsory education. Operating loss decreased significantly to RMB 129 million, and the operating loss margin was 9.3%, a sharp narrowing compared with 99% for the same period of last year. As we mentioned in the last call, learning products, adult and vocational courses, team courses, and education digitization solutions are the four core pillars for our future growth. Now, let me walk you through the progress of each segment. First, our learning product segment maintains strong growth momentum. Q3 learning product revenue reached a record RMB 254 million, a 56% increase year-over-year, and a 23% increase quarter-over-quarter, led by our industry-leading dictionary claim. We continue to upgrade the dictionary pen and launch the People's Education version in collaboration with People's Education Electronic and Audiovisual Press in September. The product marks our first significant partnership with PEEAP, whose parent company publishes basic education textbooks directly under China's Ministry of Education. Through the upgraded dictionary pane, we provide over 4,000 recordings of listening and speaking training textbook content. In Q3, we shipped approximately 400,000 dictionary panes. We also launched Yudao Dictionary Pa, Yudao Tingli Pa, powered by our new generation adaptive AI learning technology. Features like AI subtitles, real-time speech scoring, and pronunciation correction facilitate students' more effective English learning. The first batch of Youda listening pods were sold out within one week, reflecting strong demand. We encourage you to view a related video on our IR website to get a more complete picture of Youda listening pods. Now let's look at a theme course. Youda Weiqi or Youda Go is becoming more and more popular each quarter. In Q3, revenue from your WHE again increased by more than 30% quarter over quarter. We upgraded our WHE AI system and launched a WeChat mini program, which supports assessments and interactive features so that students can check their learning progress at any time. As for our youth programming product, iCode, we launched a new Python course, which our users have asked for a lot. Also, a lot of middle school and high school students are learning coding to participate in programming contests like the CSP or NOIP, the most popular youth programming contests in China. Youdao iCode provides a CSP assessment tool, allowing students to better understand how well they are doing. It has become quite popular and is now used by more than one-third of all CSP contestants. Finally, China Computer Federation, the organizing body of CSP and OIT contests, officially announced that Yoda Aiko has become a programming trainer accreditation PTA member in the third quarter, combining efforts in promoting programming teacher training. Overall, team is already a very active area for us, and we are seeing good results. Moving on to adult and vocational courses, Gross billings were RMB 182 million with a slight decline of 9% year-over-year. The decrease is mainly due to relative weakness in English learning courses for reasons including COVID. The memory training course, Extraordinary Memory, is doing very well. It's retained the leading position in the segment with gross billings approaching RMB 100 million in Q3. Recently, NetEase Cloud Classroom officially launched about 100 digital training courses of Amazon Web Services in Chinese. It is created by Amazon Web Services experts, and we promise to provide these courses complementary to the whole society to help learners improve their cloud-related skills. On a more general level, there are increasing consumer needs. for adult learning and vocational training courses. It is also an area supported by government policies going forward. Our teams have a lot of experience in creating popular learning contents like the extraordinary memory courses. We will release more self-developed courses in the coming quarters and drive growth in this area. As for education digitization solutions, the Ministry of Education and other departments jointly issued guidelines on this initiative called New Infrastructure for Education in Q3. The guidelines proposed constructing an intensive, efficient, safe, and reliable national new education infrastructure by 2025. The initiative requires the comprehensive application of new technologies such as 5G artificial intelligence, big data, cloud computing, and blockchains. We believe our products and expertise fit this and other recent policies very well. In Q3, we launched Udall Smart Learning Terminal 2, an AI-driven appliance that helps classrooms process homework and learning materials digitally. It supports high-speed scanning of paper-based homework and tests, automatic grading of the student's work, and generation of in-depth analytics for students, teachers, schools, and school districts. It is the first of this kind product that seamlessly bridges paper-based learning and digital intelligence, which we believe is both easy to deploy and truly helps teaching a lot. Since last year, the first generation of the adult smart learning terminal has been deployed in many schools. We look forward to working with more schools and educators on the adoption of the second generation. Looking at other parts of our business, in Q3, Yodar Dictionary launched an academic search function in its mobile app, supporting searching for academic papers and one-click translation. We also extended its search functionality to content like learning videos. Yodar Dictionary reached a milestone of 900 million cumulative users in Q3. Moreover, as an intelligent learning company with a mission to help all learners achieve more efficient learning, Udall Dictionary started to provide accessible feature services for visually challenged users. This feature aims to support users with disabilities to enjoy the benefits of technological advancements and expand their learning boundaries equitably. We also help those in need when we can. we helped the customers of some tutoring companies going out of business by exchanging course hours on these companies for UDAOs. UDAO was commanded by the China Association for Non-Government Education for these industry mutual assistance efforts. So far, we have helped customers from over a dozen AST institutions. The last few months have been a period of introspection, planning, and implementation for us. In July, we started on a journey in transforming our company to a new growth trajectory. As we finished Q3, we have made good progress. As always, we are committed to running the business within the scope of laws and regulations and taking on corporate responsibilities for our community and the society at large. We believe we have a solid growth plan and the right teams to execute it. We look forward to helping a lot more users learn better through all our efforts and products. With that, I will hand over to Supong to give you more updates on our financials. Thank you.

Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from our 2021 third quarter. We encourage you to read through our press release issued earlier today for further details. As for tutoring service, gross billing and pay student enrollment decreased due to the execution of the double reduction policy. Growth speeding from academic subjects included in China compulsory education system decreased by approximately 70% year-over-year in the third quarter. Total growth speeding, including adult courses, decreased by 33.9% year-over-year to RMB 631.6 million in the third quarter. Student enrollment included in China's compulsory education system decreased by approximately 70% year-over-year in the third quarter as well. Total pay enrollments, including the adult courses, for premium courses decreased by 40.9% year-over-year. Pay student enrollments from our K-12 and adult segments account for 64% and 36% of the pay student enrollments for premium courses, respectively. For third quarter, total net revenue reached a record RMB 1.4 billion, or U.S. dollar, 215.3 million. This represents an increase of 54.8% from the third quarter of 2020. Looking at this growth by segment, net revenue from our learning services were around $995.7 million, or US dollar, $154.5 million, up 65.9% from the same period in 2020. We attribute this growth to the increased revenue generated from our teaching services, which were further driven by the growth in paid student enrollments during the period in the second quarter of 2021. Net revenue for our learning products were RMB 254.5 million, for U.S. dollar, 39.5 million, up 56% from the same period in 2020, driven by the substantial increase in sales volume of U.D.C. Net revenue from our online marketing services were RMB 137 million, or US dollar, 21.3 million, representing a 3.4% increase from the same period in 2020. For the third quarter, our total gross profit reached RMB 785.6 million, or US dollar, 121.9 million, up 90.9% compared with the third quarter of 2020. Course margin for learning services increased to 66.2% for the third quarter of 2021, up from the 53.9% for the third quarter of 2020. The increase was driven by the improved economy of scale and the ongoing optimization of Yezao's faculty compensation structure. Course margin for learning products increased to 33.7% for the third quarter of 2021, from 29.8% for the same period in 2020. The improvement was mainly attributable to substantial rise in the sales volume of Udall dictionary pen version 3, which carried a higher gross margin than other learning products. Gross margin for online marketing services was 29.2% for the third quarter of 2021, compared with 29.5% for the same period in 2020. For the third quarter, total operating expense was RMB $914.9 million. For U.S. dollar, $142 million, down 29.9% from RMB $1.3 billion for the same period last year. With that, for the third quarter, our sales and marketing expense were RMB $650.2 million, significantly decreased from RMB $1.1 billion in the third quarter of 2020. research and development expense for RMB 193.3 million compared with RMB 121 million in the third quarter of 2020. Our operating loss margin was 9.3% in the third quarter of 2021 compared with 99.8% for the same period of last year. For the third quarter of 2021, Our net loss attributable to ordinary shareholders was RMB 128.9 million, or U.S. dollar 20 million, compared with RMB 877.8 million for the same period last year. Non-GAAP net loss attributable to ordinary shareholders for the third quarter was RMB 101 million, or U.S. dollar 15.7 million, compared with RMB 865.7 million for the same period last year. Basic and diluted net loss per ADS for the third quarter was RMB 1.05, or U.S. dollar 0.16. Non-GAAP basic and diluted net loss per ADS for the third quarter was RMB 0.82, or U.S. dollar 0.13. Net cash used in operating activity for the third quarter was RMB 628.7 million, or U.S. dollar 97.6 million. Looking at our balance sheet, as of September 30, 2021, our contract liabilities, which mainly consist of deferred revenue for our tuition services, were RMB $1.1 billion, or US dollar $175.8 million, compared with RMB $1.4 billion as of December 31, 2020. At the end of the period, our cash, cash equivalents, restricted share, cash, time deposit, and short-term investment Total RMB $1.3 billion. For U.S. dollar, $201.7 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to our questions. Operator, please go ahead.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchscreen phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from the line of Zhong Sheng of Morgan Stanley.

Please go ahead. Thank you for taking my question, and congratulations for the good result. So, like I said, after the double reduction, I think all the eyes are on the potential of the non-K-12 business. And I would like to start my question from the learning devices. Can you please give more color on the learning devices industry? sales momentum and what's the product pipeline and any measurement target for the learning devices next year. And also Q3, we see the growth margin of learning devices is a bit lower than last quarter. Any particular reason for this and what is the normalized margin should be for the learning devices. Thank you very much.

Thank you so much for the question. Yeah, this is from Joe. Yeah, learning products revenue comes in at around the $255 million. Yeah, so it's 56% year-over-year growth. So we're happy with it. Yeah, so it is a positively impacted by new product launches like the People's Education Dictionary PIN in collaboration with People's Education. It is negatively impacted by COVID episodes in August and September. So within the quarter, September sales were the strongest in Q3. So this is the start of the new school year. and September, the start of this new school year. And parents and students, they shop for new learning gears. So our lineup of products this year turned out to be performing very well, despite more competition. Last year, we didn't have any competition. This year, we have more competition, and despite the COVID episodes. So more recently, Last Thursday was the conclusion of the W11 shopping festival. So our learning devices sales were up 57% compared to 2020's W11. So we have been the leading electronic dictionary seller for three consecutive years on the JD platform. The talking about new products. So the People's Education Dictionary Pen was released on September 1st, and it includes the full text and the audio materials from all the official elementary school English textbooks. So this is, as we said, this is the number one ask-for feature for the Dictionary Pen since the Dictionary Pen's release. So now finally, the students can enjoy a more convenient and canonical textbook experience. And we also have another new product, the Yodah Listening Pod. It is also released in Q3. Let me talk a little bit about its performance. So it is our first new product, new category product since 2020. It focuses on enhancing students' English listening and also speaking capabilities. So it provides over 4,000 of listening material, employees in adaptive AI-driven learning technology, and solves key challenges students face in standardized English tests. So it really solves students' key problems. And perhaps more importantly, it provides all these features without using the cell phone. So the students enjoy a learning experience without the distraction from cell phones. So once it's released, it actually turns out to be quite popular. As we said, the first batch of several... Several thousands of the listening pods were sold out in a week. It was off to a great start. Let me quickly comment on the competitive landscape here. The key thing is that for every learning product, we always leverage our proprietary AI technology and our deep understanding of students' learning habits. This comes from many years of R&D and working on these education products. So we believe these are our advantages against other hardware companies and also internet companies entering this space. Also, as we talked about in Q2, we are doubling down on learning products R&D. So we believe now... we have the strongest ever product pipeline in the next few quarters. Yeah. So new products will come out in the next few quarters and we'll share more information about them as we get close. So our teams are very confident about these future, future products. So we can await and talking about the margins. So gross margins for, It's actually increased compared to the same period last year from 29% to 33%. Compared to Q2, it's down from 43%. It is mainly due to the timing because we are now at the end of the life cycle of the second generation dictionary PIM. So we are selling more third generation dictionary pens than the second generation. But as we get close to the end of life for second generation, so naturally we lower the price to clean the inventory. So we expect this to be a temporary situation. After cleaning up the dictionary pane 2 inventory, the gross margin we expect to start to increase. Yeah, I hope that answers your question. Thanks a lot.

Yeah, that's very helpful. Thank you.

The next question is from Brian Gong of Citibank. Please go ahead. Mr. Gong, your line is open. Is your telephone on mute? Mr. Gong, your line is open. If you want, you can proceed. The next question is from Hong Jikal of CICC. Please go ahead.

Hi, thanks for taking up my question. Following the government's opinion, many other leading AST companies also plan to transform their business to STEM courses, such as coding or art, et cetera, in the future. So what do you think about the competition in this sector, and what is our competitive advantage? Thanks.

Thank you, Brenda. Yeah, this is Joe Fung. Yeah, so STEM courses or STEAM courses, yeah, so it's a lot of companies are focusing on this segment now. Yeah, so I can share with you several thinkings we have right now in terms of competition. Yeah, so first is... We always try to focus on large verticals that we really think we have a competitive advantage. So STEM and STEAM, they are actually quite large areas, segments. So when we talk about STEM or STEAM courses, we're actually talking about specific verticals. So for example, so... A lot of people ask us, why do we focus on Weiqi? When we started doing the Weiqi course, it's a very small area, so not a lot of people pay attention to it. But if you look at how many people are actually interested in learning Weiqi, why they actually have a hard time learning it themselves, then you can understand that it is a good choice for online courses. So, for example, according to the president of the Chinese Weiqi Association, there are over 60 million Weiqi players in China. And every year, 3 million new learners actually go about learning Weiqi. So we think it potentially has a lot of users and it is hard actually for people to language by themselves because it's a hard game. So in Q3, the WeChat revenue grew 30% potentially. So we think we chose the right product. So we expect it to continue to grow quickly. So first we focus on large verticals, potentially large verticals. So the second one principle we have is that we think quality and depth are key for kind of long-lasting and highly satisfied products. courses or products, their quality and depth. So both Weiqi and coding, our top products right now, have been in development for more than two years. So we involve our self-developed AI systems, interactive learning techniques, or even hardware products. So we have a hardware product for our coding course. It's got good feedback. So overall, we think product excellence is more important than marketing, as always, especially so given that double reduction limits marketing. And we think our teams are very good at building excellent products. and also grow the product with what amount. So we think we have a very good shot at STEM courses because we focus on quality and depth. And lastly, I think the students' needs are increasing. So, for example, because a lot of students, young students, have more time. So Students now have more time to pursue their STEAM interests after double reduction. We will also work with schools and other institutions on these courses. Again, we expect the market to be more organic and rational after double reduction, and so no money-burning promotion wars. We think the high-quality and really good products, they will win in the end. Thank you.

Thank you. The next question is from Thomas Chong of Jefferies. Please go ahead. Mr. Chong, your line is open.

Mr. Chong, your line is open. 我的問題是關於成人課程方面 我們現在的 strategy 未來的方向可以跟大家分享一下 尤其是面對越來越激烈的競爭 我們的 competitive edge 在哪一個方面 Thanks management for taking my questions I have a question regarding our adult education. Can management comment about our strategies in light of the competition as well as our competitive edge in this segment? Thank you.

Thank you, Chairman Thomas. This is Supong. I have a handful of questions. The first is about, I will probably ask you a second question first, and I think it's about the intensive comparative landscape. Yes, indeed, because of the regulation change, more and more players enter into the adult education business. But we just want to highlight for these ECOCs because we are not starting our business just now. And we have already started our business back to 2016 when we started our education business. We restarted our business from our China English test, level 4 and level 6 test for the education business started for the UDAO. So we think about we have already... collected a lot of the cumulative experience about how to operate about the adult business and how to build up the high-quality online courses content for the adult education for different SQ. Especially, we have probably very successfully built up the SQ for the English education as well as for the extraordinary memories. courses for the adults. So we think in the long run, we will definitely be following our experience to how we build up the content and how we operate about those successful courses for the adults and to offer more content and services to the adults for their upcoming needs in the long run. And also, in addition, we think we strengthen our planning to invest in vocational training as well, and especially in the third quarters, after the third quarters, and because there's a lot of support from the different levels of the government. to encourage all the investments as well as more resources into this sector to help to promote vocational education in China. So we think about there's a lot of great potentials for this area. So we think about that bright future for this business. And go back to your first question about the progress of our process. Yeah, we are right now, we are building up our SQL pipeline. And we expect, besides our English courses and also our extraordinary courses, we expect to offer more vocational training, especially for the IT training and also the other courses in the next few quarters. We expect to share more information with you when it gets close. I hope that answers your question. Thank you so much. Thank you.

The next question is from Candice Chan of Daiwa. Please go ahead.

Hi. Good evening, Dr. Joseph and Joanne, also the team. So thank you for taking my question. And my question is about the education digitalization. Can you share the progress in this business? And also, will you further increase the investments in this segment? And finally, may I ask one more question as well? Who are the key competitors in this area? Thank you.

Hi, this is Lei Jin. We believe that there is a huge potential for education digitalization solutions. According to the Huat Hai Securities, the expected market size is over RMB $650 billion in 2023. And we built a new team intelligence education department in our company. which we targeted to evaluate the development of efficient digitalization solutions. The policy encourages companies with advantageous technology to help the universities and the public schools to establish the education infrastructure. Nodal has AI and related technology, hardware design and integration experience, and digital content creation ability. and we have a deep understanding of education. Therefore, we believe we have an advantage to meet the demand of education infrastructure building. In this quarter, we launched the U.S. Smart Learning Terminal 2. This is the first test to create a high-speed scanning and high-speed printing 2-in-1 functions which big data, AI, and other technologies effectively create a teaching loop that spans before, during, and after class to comprehensively collect the data in school's daily teaching process. Through the hardware, software, and the content trinity of full-size learning data collection and analysis, we achieved a targeted teaching and scientific decisions with data intelligence and help educators and students learn more effectively and efficiently using our technology. Thank you.

Let me add a few words on the position here. So education digitization solutions, so this is a quite large area. $400 billion to $500 billion in total market size. There are a lot of companies doing this. More traditional companies are doing this for a longer time, not necessarily traditional. Companies doing this for a longer time, these include... Shunfei Siwo, I-flag tech and Siwo, S-E-W-O. And there are also new companies entering the space, including more familiar names like ByteDance and Tencent. Yeah, so a lot of companies are interested in doing this. But we think we have been doing education products for a long time, and we can combine, as our product has shown, we combine hardware, artificial intelligence and education content. So we think we can have a different way of doing these products and better ways. Thank you.

Great. Thank you. Very helpful.

As a reminder, if you wish to ask a question, please press star and one on your telephone. The next question is from Sharon Yi of Macquarie. Please go ahead.

Hello, management. Thank you for taking my questions. My question is about the spinning off of the canine business. What is the progress of it and how, well, what do you project with it all finished in a more specific time? And my second question is, how about the business license application? What is progress of that? Thank you.

Hi, thank you for your question. This is Wayne. I will take your question. We are still in the process of disposing our K-9 academic FD business or K-9 business for compensatory education. As mentioned in our script, the revenues from our K-9 business accounted for approximately 25% of our total revenues in third quarters. Up to now, the government authority actively assessing on the material related to the business license application for the nonprofit organization. But there is still no clear timetable on this. We will continue to work constructively with the government authority in connection with the proposed deal and still accept the K-9 business to be disposed or be terminated by the end of this year. As discussed in our official announcement on September 30th, we reminded all of you again that there is no any assurance regarding the ultimate timing of the proposed deal or that the transaction will be completed We will update the status of the deal or the status of business license application to the market if any material process was made. Thank you.

Okay, thank you. The next question is from Brian Gong of Citibank. Please go ahead.

Thank you, management, for taking my question. I'm very sorry about the technical error that just happened earlier. And my question is that it has been a few months since we proposed some new directions on the business, which includes other education, STEAM courses, and also smart devices. So can management give us some updates on the latest progress and whether there are any modifications to our new strategies. Thank you very much.

You're asking about whether there's any change to the new strategy after the double reduction. So let me talk about a few key things. Yeah, so the short answer is that we think we have the right strategy and we are executing it and we are making good progress. And let me talk about a few things about actually more thinking about the four pillar, what we call a four pillar strategy. So the first point I want to make is that Our business always will have a strong core. That is the AI and learning content creation. So we talk about the four directions, four businesses. It's actually centered around a single core. The core is artificial intelligence and learning content. Around this core, we have built these four different products or services. Right now, we thought about whether we want to focus on one of them or two of them. We do think that all of them represent good growth opportunities, and we will put efforts into each of them right now. And down the road, we may find that one of them is so compelling that we will just focus on that. That could be the case, but now we think this is a good setup for us. So the second point I want to make is that the importance of good products. So I've always had the view that if you can build one differentiated, focused product that solves a lot of people's problems, then you can already build a very strong business around the product. So product progress is key for future growth of all business. So at this particular time when some of these two core businesses are relatively small in scale, so it is more important to actually look at product programs. That's why we spend more time talking about products during the last two courses. So we will watch for sign of success from these products. So for example, I talked about Yudao Listening Pod, Yudao Tingli Bao, selling out the first batch in a week. it's an early sign that shows that we've actually likely achieved a product market fit for this product after many months of R&D. So we think this is the key. So as long as we have product market fit for products, then we can relentlessly iterate and improve in the spend more energy on marketing and sales, and then we can scale the business. But before all that, achieving product market fit is key. So we will pay more attention and talk to you more about product progress. And let me also share with you that another example is that we launched a chess course, course in September. So I think it's a pretty special course because it uses innovative teaching methods combining Chinese and English. And also, it's bilingual and also interactive AI-based teaching. So the first month, we watched for its trajectory. And we found out that the chess course was actually multiple times better compared with Yodah Weiichi for Weiichi's first month. So we think that's another way, another sign that we are doing something right here. The third and last point I want to make is what about the financial ramifications of this new strategy going forward? as the academic tutoring side of our business quickly goes down. That's to be expected. And non-tutoring business, they actually keep growing. They have been growing for some time, for many quarters now, but they keep growing. And overall, we expect our top-line growth to see a deceleration in the short term. And after that, accelerated growth again because the non-Turian business will take more part, be a larger part at that time. So in terms of bottom line, we expect to see relatively stable or slightly improving bottom line. As sales and marketing, S&M cost expense quickly go down in the short term. I would like to highlight that in Q3 operating loss has substantially shrunk. So it's $130 million versus $890 million year-over-year, or compared with $540 million last quarter. So I think we're making good progress. So that's the three points. So I hope that answers your question. Thank you very much.

Thank you very much. And that concludes the question and answer session. I would like to turn the conference back over to the management for an additional or closing comment.

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

Ladies and gentlemen, thank you for joining the conference. It's now over. You may disconnect your telephones. Thank you.