Youdao, Inc.

And welcome to the UDAL 2023 Second 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 UDAL. Please go ahead.

Thank you, operator. Please note the discussion today will contain forward-looking statements related to the future performance of the company. which are intended to qualify for the safe harbor from liability established by the U.S. Premier Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain 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 UDA's business and financial results is included in certain filings of the company with the U.S. 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 reconciliation of GAAP to non-GAAP financial results, please see the 2023 second quarter financial results news release issued 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 www.ir.udah.com. Joining us today on the call from UDAH's senior management is Dr. Feng Zhou, our chief executive officer, Mr. Lei Jin, our president, Mr. Peng Xu, 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 the financial information and non-GAAP financial information mentioned in this release is presented on a continuing operations basis and all numbers are based on RMB unless otherwise specifically stated. In Q2 2023, our net revenues came in strong and reached RMB 1.2 billion representing a year-over-year increase of 26.2%. Lost from operations narrowed to RMB 289.1 million, marking a year-over-year improvement of 36.5%. Net cash provided by continuing operating activities stood at RMB 133 million, reflecting growth of 27.6% year-over-year. We are on a clear path to achieving profitability. As for our business segment, learning services and online marketing services continue to be our current main driver of growth, both reaching record levels of sales. In the meantime, we're making solid progress in learning devices R&D, and we are leading the charge to apply AIGC in education by rapidly releasing applications of generative AI. In the first half of the year, we see an overall positive trend in key financial indicators. Net revenues amounted to RMB 2.4 billion, indicating an increase of 9.9% year-over-year. Lost firm operations in the first half reduced to RMB 484.9 million, improving by 16.4% year-over-year. Net cash used in continuing operating activities reached RMB 304 million, marking a 5% year-over-year improvement. For our learning services segment, Q2 sales of digital content exceeded RMB 800 million, reaching a record high. Customer retention rate across the services was over 60%, leading to over RMB 200 million in operating cash inflow for this area. In addition to our learning content, we launched an AI university application advisor, AI Zhiyuan Tianbao Xitong, in Q2 to support students in their college selection process. Users were quick to adopt this tool, leading to over two million page views. Online marketing services maintained the rapid growth momentum over the last two quarters. Net revenues reached RMB 303 million in Q2, a historical high. representing an increase of 98.7% year-over-year. Moreover, gross profit margin improved by 4.2% year-over-year. These achievements were primarily due to advancements in our app platform driven by AI algorithms. First, we used proprietary AI technology to effectively identify and track the topics and products, matching the audiences of specific key opinion leaders. with accuracy rates approaching 90%, resulting in more precise ad placement. Secondly, AIGC not only reduced the time for producing ad materials by more than 80%, which showed better user satisfaction, but also reduced production costs for certain ad materials by over 90%, driving the improvement in gross margin. Positive trained in digital content services and online marketing services in Q2, is expected to continue in the second half. Regarding our STEAM courses, on the policy front, the Ministry of Education announced that starting from June 20th this year, primary and secondary schools will add new programming courses to their curriculum. This new policy is expected to further expand the demand for programming content and services from families. UDAR recently hosted the 7th Wisdom Cup computer programming contest for primary and secondary school students in Beijing's Haidian District in Q2, which showcased the Yeodao's influence in the field of programming. In addition, both programming and Go courses performed well with retention in Q2, with the retention rates for the advanced classes approaching 70%. Besides, the students from the Champions class won the Go Championship at Jiangsu Mind Sports Games, In terms of the smart devices, total revenues of smart devices were down by 7.4% in Q2 year-over-year. We're still in a transitional period for our devices business, mostly due to sluggish consumer spending in recent months and our stricter sales and marketing budget control. Both UDAW Dictionary 10 and UDAW Listening Pod performed well during the June 18 shopping festival. popping the chart for four consecutive years and two consecutive years, respectively, on JD.com for both sales volume and number of unit sales in this category. In addition, UDAO Listening Pod was updated to support UDAO Learning Aware, featuring additional apps such as Chinese Children's Encyclopedia, Collins Big Path Reading, and UDAO AI Listening, further enriching users' experiences. More recently, in August, we released the UDAH Dictionary Pen X6 Pro and the UDAH Listening Pod Pro. We believe in the long-term prospects of learning devices as they are convenient, helpful, and affordable for consumers. We're focusing on two things to drive growth and profitability. One is new products, which we will have more to be released in Q4, and second, is optimization to our marketing and sales, which is underway. Then let's discuss our progress with AI. As a leading education technology provider in China, we have always been proud of our capabilities in technological innovations. We believe large language models and AIGC presented a great innovation and growth opportunity for us. In July, we announced our proprietary large language model optimized for education applications, and have successfully deployed it to six applications, starting from the second quarter. We believe we are among the fastest in adopting LRM and making the most solid business in this area in China. I'm happy to report that one of the year's applications, the AI box feature in your translation, has already driven nearly 100% year-over-year growth of translation subscription and over 200% year-over-year subscription fee. AI Box provides very convenient in-application AI features like sentence refinement, grammar correction, writing suggestions, and summarization. In July, we also launched the first digital human language coach in China named Echo. Echo teaches spoken English one-on-one And thanks to large language model technology, she understands the learner very well, is fun to talk to, and provides high quality feedback, and really helps the learner improve their language acquisition. ECHO made its debut at the World Artificial Intelligence Conference in Shanghai, receiving great enthusiasm from the audience and media. Two weeks ago, ECHO became generally available in UDAW Dictionary PAN X6 Pro. The reviews so far are great, and we expect ECHO and more AIGC launches to drive our business growth in the coming months. Looking ahead, we believe education could be among the top verticals for large language models. This technology provides great potential for personalization of the learning experience, effective guidance throughout the learning process, and integration of knowledge across subjects. That summarizes our business operations in Q2. At a higher level, our strategy this year is twofold. First, we prioritize driving healthy growth by offering high-quality digital content services. Secondly, we dedicate efforts to accelerate the integration of generative AI into our products and services. In Q2, our teams made significant progress in both areas. The user demand for high-quality learning products and services remained consistently high. Leveraging our strength in content creation, user understanding, and technological capabilities, we're committed to continuously delivering exceptional products that address the needs of our users. Finally, I would like to share Yodal and Nettie's group have both approved a proposed amendment to the aforementioned US dollar 300 million revolving loan facility to extend the maturity dates of the facility, including loans already drawn from it until March 31st, 2027. In addition, we announced that the Board of Directors have approved an amendment to the foregoing program to increase the total authorized repurchase amount by additional U.S. dollar 20 million. This demonstrates the long-term support from NIDIS and the confidence from U.S. management. Thank you. And now it's Supong to give you an update on our financials.

Thank you, Dr. Zhou, and hello, everyone. Today I will be presenting some financial highlights from the second quarter of 2023. We encourage you to listen to our press release issue earlier today for further details. For the second quarter total net revenue RMB 1.2 billion for U.S. dollar 166.4 million representing a 26.2% increase from the same period in 2022. Net revenue for our lending services for RMB 680.9 million for U.S. dollar 93.9 million representing a 20.8% increase from the same period in 2022. primarily driven by the strong sales performance of digital content services compared with the same period of 2022. Net revenue from our smart devices were RMB $222.2 million, OUS $30.6 million, down 7.4% from the same period in 2022, primarily due to the decreased demand for the intelligent learning products in the second quarter of 2023. Net revenue from our online marketing services were RMB $303.6 million, OUS $41.9 million, representing a 98.7% increase from the same period in 2022. The increase was mainly attributable to the increased demand for the performance-based advertisement through the third-party's internet properties. For the second quarter, our total gross profit was RMB 567.2 million, or US dollar, 78.2 million, representing a 38.4% increase from the second quarter of 2022. Gross margin for learning services was 57.4% for the second quarter of 2023, compared with 52.2% for the same period in 2022. Gross margin for smart devices was 35.8% for the second quarter of 2023, compared with 30.6% for the same period in 2022. Gross margin for online marketing services was 31.9% for the second quarter of 2023, compared with 27.7%. for the same period in 2022. For the second quarter, total operating expense for RMB $856.3 million, for US dollar $118.1 million, compared with RMB $864.9 million for the same period of last year. With that, for the second quarter, our sales and marketing expense for RMB $587.7 million, compared with RMB $596 million in the second quarter of 2022. Research and development expense were RMB 205.1 million, compared with RMB 280.4 million in the second quarter of 2022. Our operating loss margin was 24% in the second quarter of 2023, compared with 47.6% for the same period of last year. For the second quarter of 2023, our net loss from continuing operations attributable to ordinary shareholders was RMB 299.2 million. or US dollar 41.3 million, compared with RMB 453.9 million for the same period of last year. Non-GAAP net loss from continuing operation attributable to ordinary shareholder for the second quarter was RMB 283.6 million, or US dollar 39.1 million, compared with RMB 435.8 million for the same period of last year. Basic and diluting net loss from continuing operation per EDS attributable to ordinary shareholders for the second quarter of 2003 was RMB 2.45 or US dollar 0.34. Non-GAAP basic and diluted net loss from continuing operation for ADS attributable to ordinary shareholders for the second quarter was RMB 2.32 or US dollar 0.32. Or net cash provided by the continuing operating activities was RMB $233 million or US dollar 18.3 million for the second quarter. Looking at our balance sheet, as of the June 30, 2023, our contract liabilities, which mainly consists of the deferred revenue generated from our loan services, were RMB $1.2 billion, or US dollar $167.3 million, compared with RMB $1.1 billion as of December 31, 2022. At the end of the period, our cash, cash equivalents, restricted cash, temp deposits, and short-term investment total RMB $680 million. or US dollar, next 3.8 million. This concludes our prepared remarks. Thank you for your attention. We will now open the call to your 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 one on your touch-tone 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 for a moment to assemble our roster. And our first question today will come from Brian Gong with Citi. Please go ahead.

Good evening, management. Thanks for taking my questions. I have a very quick one on our plan on AIGC technology. What AI applications will be launched in the second half of this year, and what impact will they have on our business in your view? Thank you.

Hi, Brian. Yeah, this is Zhou Feng. Yeah, we announced our proprietary large language model for education in July. We are looking to leverage this breakthrough technology to drive both short-term and future growth. So we have plans for both the coming months and also for the longer term. So in the short term, we've already launched six applications of CVS, including our digital human language coach named Echo, AI Box 2.0, and AI Translation, et cetera. So the first line of work for us is to deploy these applications to more of our services, apps, and devices, and start to drive business growth with these new capabilities. So in fact, it is already driving growth as early as in Q2. For example, AI Box 1.0 already drove nearly 100% year-over-year growth of translation subscriptions and over 200% year-over-year growth of subscription fees in Q2, as we just discussed in prepared talks. We've also launched ECHO, our digital human language coach and English grammar instruction feature, in the latest UDAW dictionary in x6 Pro, launched earlier this month. ECHO is the first a large language model-based digital human language coach in China. So this is a groundbreaking product. It is liked a lot by our customers from our feedback. And our AI grammar instruction feature is also the first of its kind in learning devices. Users tell us that they really like these two new features because they are really helpful and engaging. We will continue to upgrade these features over the coming months, and we plan to launch and monetize them on other platforms, for example, on phones. So Echo and other features will be on phones too. One of the strengths of AIGC products from our observation is that consumers are willing to pay for them because they are really useful and helpful. This has been shown to be true by the tremendous growth of products like Majority and Chachi BT itself. So we do not need to go through the free-to-use model to kind of indirectly monetize these products. Instead, they could be monetized directly from day one. So this shortens the investment cycle of these products. Regarding entirely new applications, I am also happy to share that we plan to launch more LLM-based applications in Q4 this year. There are other aspects of the English language learning that KIGC can really help with, not only grammar. And there are other subjects that we should provide AIGC products for. Our teams are now more familiar with how these language models work and have accumulated substantial experience in their applications. So we are able to quickly iterate and build more applications. So more applications will come in Q4 this year. So in short, we are off to a good start with the career project. So we entered the market early. And it is already driving growth, and it has great long-term potential. So looking further ahead, generative AI represents a transformative opportunity for the education technology sector, as well as a lot of other industries, as we all know. So it has the potential to allow much more personalized learning and to increase the productivity of the overall education process. So we are also studying early in LRM with the aim to drive long-term future. So for that purpose, the basic LRM technology is important. And we believe what's more important is the application scenarios. We are looking looking at a lot of the different scenarios in education and because we are early into the day our teams have more experience so we believe we can maintain the early lead that we already have enjoying in this area so overall we are bullish about combining large language models in education and we'll keep innovating in this era yeah thank you thank you that's very helpful

Our next question today will come from Kelly Wong of CICC. Please go ahead.

Good evening, Maginot. This is Kelly Wong from CICC. Thank you for taking my question. So in terms of the smart devices, since we have released the UDAO Dictionary PEN X6 Pro and Listening Pop Pro earlier this month, so would you mind provide an update on the user feedback for these new smart devices? And also, as we saw a slight decline in revenue in the smart devices sector this quarter, does management still maintain our confidence in the long-term prospects of this business, which might give us more color on this. Thank you.

Yeah, thank you. This is Zhoufeng again. As you mentioned, we launched Dictionary Payment X 6 Pro and Without Listening Pod Pro earlier this month. So let me provide a quick update. For the X6 Pro Dictionary 10, this is our flagship product. And the most popular features were the 100-day ultra-long standby time, English grammar instruction, little human language codes, and test and lab analysis from the popular 5.3 series, Wushan, Wuyang Gaokao 3D model. So these are the four most popular features we got from user feedback. The users like these features very, very much. So what's exciting for us is that the AIGC language coach is actually among the most popular features. It's the number three feature, so it's one of the most popular features. So we're happy to share that for the first 20 days of August, driven by the popularity of xDicts Pro and S6, new dictionary pane activations were up by more than 20% year-over-year. So that's for the new dictionary pane product. As for UDA listening pod Pro, the most popular features from user feedback is The AI player and AI dialogue, these two features are the most popular. As from kind of new product sales activation, so we've observed that year-over-year increase in new activations of our listening pod line. So this year is higher in activation than the same period last year. That's also for the first 20 days in August. And as I discussed in prepared remarks, we will have new devices to be released in Q4. So we are looking forward to bringing more new products to our customers in Q4 this year. So that's a quick update on new products. Now let's discuss our thinking regards the current market environment. Recently, the consumer electronics industry, exhibited overall weakness due to mostly the macro cycle. The demand for smart learning devices, although relatively resilient compared to other categories, was also affected to some extent. We are continually monitoring the practice condition and optimizing our operation. Right now, for Q2 and Q3, we are focusing on user satisfaction and profitability. Two things, user satisfaction and profitability. In Q2, we moved out of some low return of investment sales channels and reduced our costs. So this contributed to the slightly lower year-over-year device. We believe this is the right approach in this market, given our overall objective of sustainable growth and moving towards company-wide profitability. We're also actively adjusting the price points we cover. For example, the new S6 dictionary pen is priced at 499 grand, a relatively low price point. The product has very good experience and also very good profitability for us. So this is one example of us kind of covering, adjusting the price points we cover. The X6 is very popular right now, along with the very popular flagship X6 Pro. So that's a quick summary of our current operating tactics regarding smart devices. We're focusing on user satisfaction with our best products and also driving profitability of the business, not absolute scale growth. And we are doing all this by actively managing our R&D process and also, very importantly, sales and marketing costs with discipline. Now, looking ahead to the long term, I believe Lenin's devices do have a relatively low penetration rate, representing a significant opportunity for growth. The market size growth observed in the overall market over the last few years indicates that this upward trend is there. According to a research report released by the Internet Society of China in July this year, the market size of learning devices is projected to increase from RMB 24.9 billion in 2019 to an estimated RMB 43.1 billion in 2022. So Yodao is poised to be a leading brand in this space with our expansive user base, strong product design capabilities, and also commitment to advanced technologies like the large language models. So we believe the slowdown is temporary, and we are optimistic about the long-term opportunity. Yeah, I hope that answers your question.

Yes, on the Chinese business phone address, only one point I've added after Dr. Rowe's comments. We think the XU Pro is totally different or innovative. One of the most innovative dictionary pens compared with all the dictionary pens we released in the past years. It's because it used to be the hardware to help students learn English more efficiently. Right now, we think we not only just enhance the features of the dictionary functions and At the same time, we also added about the service content like the interactive training program as well as the grammar instructing program. That will be the most useful features for the student when they learn the language. So we believe after the added advanced services, they can create more interactive between the users and our hardware that we can help us to know more about their demands for the in the long run. So we think that will be a totally different product compared with the past one. So we are still confident about the actual product growth in the mid-term long run. And like Doctor mentioned, we expect to, in our future products, we can enable more features of the transformative large library models into our hardware. Thank you.

Yeah, more exciting products are coming later, Q4. Yeah.

Okay, got it. Thank you. That's very clear, and we look forward to them.

Our next question is from Thomas Chong of Jefferies. Please go ahead.

Hi, good evening. Thanks, management, for taking my questions. My question is regarding the online marketing side. What were the driving factors behind the rapid growth in revenue from online marketing services over the past three quarters? Furthermore, what are the key directions for the later half of this year? Thank you.

Hi, this is Lei Jin. The online marketing service has already had robust growth for the three quarters in a row, with a surge of nearly 100% for Q2. And Q2 is the first quarter which online marketing revenue exceeds RMB 300 million. Internally, there are mainly two factors that drive the growth. Firstly, the advancement of AI technology has improved matching accuracy in our AD platform. QL can precisely reach the users across various major platforms. Our AI technology allow us to accurately identify the relevant themes associated with the QL, achieving an accurate rate of nearly 90%. This enables us to deliver highly-processed advertising and help our clients reach their target audience faster and more accurately. Secondly, we upgrade the data analytics abilities of our AD platform. With more and more convincing data, we can enhance and optimize the traffic and the advertisement materials based on our effectiveness. And it results in improved advertising performance. It still defies a sluggish consumer environment. There is still a strong consumption awareness among the young people aged between 18 and 35 in gaming, cosmetics, and fast-moving consumer goods. Our AD clients would like to capitalize the purchasing intent of young people. As for your data, a lot of young people are using our products, and we have a deep understanding of them. In the second half year, we will focus on two key directions for the ADM. Firstly, we will focus on oversea ADM marketing. This is a strong demand. We have an advantage in terms of resources, language capabilities, and experience in this field. With our in-house AI technology recommendation algorithm and user network translation, we can connect with over 1 million Nintendo celebrities worldwide. directly reaching more than 2 billion users in over 65 countries and regions. Those are assisting Chinese brands to oversee expansion. Secondly, we will further enhance our data capabilities. Since the upgrade of our AD platform in Q4 last year, we have seen the huge benefits of the real-time and accurate data in helping our users decision-making and pushing the AD revenue. By the end of this year, we will strive to further enhance our AD platform to give our client better marketing performance. Thank you.

Our next question today will come from Candice Chan of Daiwa. Please go ahead.

Great. Thank you for taking my question. I have a question regarding the learning services. Can management talk about our coming focus for the learning services in the second half this year, both on the K-12 and also the education, sorry, the adult segment? Thank you.

Digital content services are the largest part of our learning services business segment. As we mentioned in the prepared remarks, digital content services are actually a bright spot. Its sales reached RMB 800 million in Q2. It's the first time. It's a record high. And retention is also at a high level of around 60%. So within the digital content category, in Q2, we launched AI University Application Advisor to support students in their college selection process. So this is, we think going forward, this is going to be important because it allows us to touch many users. So in this, since its launch, it's already gained over 2 million page views, as we mentioned in preparer marks. So if you look at the data content service over the last five quarters, it's actually been growing very rapidly over the course, over the last five quarters. As our learners keep adopting this new form of interactive online learning, Yeah, so it's different from online learning before. So it's a new form with video materials, personalized practices, and also AI feedback. So it's great for us to see that more and more users adopt this new form. And the business is growing very quickly. Yeah, so we're happy to see that. So we expect the digital learning content and learning services as a whole to continue to perform well in the second half. So we will enhance online learning further by investing in educational R&D to create high quality content, and also improve our personalized assessment and feedback system, which is a strong feature of our systems. Furthermore, our collaboration with the Shaanxi History Museum for immersive learning on Yu Da literature. That project was a great success. So we have more IP collaboration planned for this year, offering users more opportunity to learn about Chinese culture through immersive experiences. So the second category of learning services is STEAM courses. uh, including, uh, mainly, uh, school courses and, uh, uh, kids programming. Uh, so, uh, Yodal became a GESP, uh, certification service center. Uh, GESP is a graded examination of, uh, software programming, uh, of the China Computer Federation in the first half of the year. Uh, in addition, uh, as a exclusive online education partner, Yudha hosted the seventh Wisdom Cup, as we talked about. So in the second half of the year, we will continue to focus on our strength in the STEAM area, which is two leading online course systems for students enthusiastic about goal and also competitive programming, respectively. So we already upgraded our programming courses for the summer, and we'll move on to upgrade our fall and winter courses in the second half. Another project we have ongoing for Steam customers is we also plan to offer more offline activities and events for our customers. We've had offline events like Go game events and competitive programming events for years. And they are particularly popular this summer because parents and students are eager to go out and participate in community activities and events. So given our huge online learning audience and also our experience in organizing offline STEAM events, we are working to provide more STEAM events opportunities to our learners and families in the second half of the year. to drive engagement and growth. Lastly, in terms of adult courses, we made positive progress in Q2. Despite macro challenges, we launched a devised product for math preparation for postgraduate entrance exams, which provide knowledge teaching, step-by-step guidance, and personalized practice. So this product has been very well received by users. with a next-day retention rate of over 50%. So in the second half of the year, we will continue to focus on postgraduate entrance exam courses in the adult category because of strong demand. It is projected that college graduates and postgraduate exam participants will exceed 4 million and 5 million respectively in 2024, both historical heights. We will strive to further explore and expand our digitalized product with a specific focus on enhancing our English preparation for postgraduate entrance exams. Yeah, that's our plans for learning services. I hope that answers your question. Thank you.

Great, thank you very much.

The next question will come from Lian Duan of Houtai Securities. Please go ahead.

Good evening, management. I'm Duan Lian from Houtai Securities. Thanks for taking my question. Just a quick one. The ongoing investment in AI results in the significant increase in the R&D expenses in the second half of this year.

This is Wayne. Thank you for your question. I will take your question. In terms of the investment, we are prudent on it and we believe our AI investment is continual and more focused on education scenarios, not widespread for all scenarios. As just mentioned by Dr. So, our recent AI investment mainly focused on six applications, such as like language model-based translation in English grammar instruction and the AIS instruction. Just remember that this is not our first time we invested in AI area. Your DAO is a journey in implementing AI technology, and such technologies have been widely applied in our learning services and smart devices. At the same time, we have received the benefits from adopting more effective development methods which enhance our R&D efficiency. For example, in the first half of this year, although we deployed our proprietary large language model in certain education scenarios, we still experienced around 6% year-over-year decline in R&D incentives when compared to the same period last year. which mainly contributed from our efficiency improvement with more comprehensive experiences in AI investment and saving costs through applying AIGC technology. The introduction of AIGC has resulted in a notable enhancement in work efficiency. For instance, the implementation of AIGC has lead to a 50% increase in the efficient of producing art content for our courses, teaching materials, and anticipate that such improvements will be continued in the future. Both cost-saving in AI investments and the application of AIGC technology enable us to accumulate substantial technological expertise and knowledge for further advancement. By the end of this year, we plan to launch more AI application . We will continuously balance our investment in large language models and applications. We believe our team will gain more experience on it and will develop a clear understanding of investment with greater effectiveness. The effectiveness of the application side will continue to improve. Going forward, we are continuously on a clear path to achieving profitability, and we will continue to optimize the structure of our R&D investments. For example, eliminating R&D expenditure on those unclear prospective projects so that we can allocate the savings to our preferred AI projects. Above all, we will enhance in AI, but we do not expect a significant year-over-year increase in overall IMD expense in the second half year, which it is helpful. Thank you. Thank you.

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

Thank you once again for joining us today. If you have any further questions, please feel free to contact us at UDAO directly or reach out to Business Financial Communications 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.