Youdao, Inc.

Good day, and welcome to the Yodal 2024 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 Wang, Investor Relations Director of Yodal. 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 sleep fiber from liability as established by the U.S. Private Securities 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 UDAO's business and financial results is included in certain company findings 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 purpose only. For the definitions of non-GAAP financial measures and recommendations of GAAP to non-GAAP financial results, please see the 2024 Fourth Quarter Financial Results News Release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will be available on UDOT's corporate website at ir.udot.com. Joining us today on the call from UDOT Senior Management Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jin, our President, Mr. Peng Shu, 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'd like to remind everyone All numbers are based on revenue, unless otherwise specifically stated. We had a solid quarter in Q1, 2024. Net revenues reached RMB 1.4 billion, marking 19.7% year-over-year growth. Income from operations amounted to RMB 29.9 million, a significant turnaround from the RMB 195.8 million lost from operations in the same period of last year. This marks our first-ever profitable first quarter and our first-ever consecutive two quarters of profitability. In terms of cash flow used in operating activities in the first quarter was RMB $391 million. As Q1 is seasonally low on course renewals, this represents an improvement of 10.5% year-over-year. Now let's review the development across our business lines. Learning services revenue reached RMB 718 million, largely flat compared with the same period last year. Within the segment, digital content services maintained strong momentum with net revenues of RMB 499.8 million in Q1, marking a 11% year-over-year growth. Gross margin has consistently exceeded 70% for three consecutive quarters. Furthermore, the net revenues generated by digital content services cover the costs and operating expenses and yielded meaningful profits. In terms of product enhancements, we upgraded Yougao Lingshi in Q1 by introducing a tiered teaching approach tailored to individual needs and capabilities. More recently, we concluded the spring renewals for Yudaling Shi students and the retention rate reached a historic high of over 70%, up more than 10 percentage points year-over-year. This retention rate is remarkably high for this age group and competitive with offline services while offering higher growth margins. Additionally, We launched a new product for Youda Literature called Virtual Tour of 24 Cities, Yun You 24 Cheng, designed to help students improve their reading and writing abilities. Lastly, leveraging our AI capabilities, we efficiently offered over 30,000 high-quality writing refinements in the first quarter through AI writing refinements, 80% more than last quarter. Next in Learning Services are our AI-driven apps and services. On previous calls, we have discussed extensively our AI initiatives, particularly our large language model projects. We believe Yodog is uniquely positioned to bring AI experiences to a lot of users in China and other countries, driving business growth due to our large user base and the long-standing experience in algorithm-driven products. Adopting a lean approach, we develop our models and multiple applications simultaneously at a fast pace. I'm pleased to share that the total sales of our AI-driven subscription services reached approximately RMB 50 million for the first time in Q1, representing a remarkable year-over-year increase of over 140%. This segment has grown year-over-year by over 50% for five consecutive quarters, and we expect the trend to continue. These AI-driven subscription services primarily include your DAW dictionary, your DAW desktop translation, High Echo, and multiple international apps that provide translation, language learning, and other services. While we are still in the early days, the future looks incredibly promising. We firmly believe that consumer-facing products are the largest growth opportunity for AI at present, and the combination of large language models and subscriptions are a very natural route for growing AI products. For instance, leveraging our proprietary large language model Ziyue, we have increased the accuracy of Chinese-English translation in approximately 98% driving more subscriptions. Additionally, we recently launched an upgraded version of High Echo in collaboration with the IELTS organization, introducing modules for IELTS speaking practice, simulated exams, and a bilingual teaching mode to better cater to Chinese users' learning needs. Furthermore, Quest Mobile recognized High Echo as a pioneer application in the education industry for AI-generated content. Our online marketing services segment continues to demonstrate remarkable growth, with net revenues reaching a historic high of RMB $492.7 million in the first quarter, marking an impressive 125.9% year-over-year growth. This segment has sustained robust momentum, achieving over 50% year-over-year growth for six consecutive quarters. driven largely by the strong performance of real-time API, RTA, and the rapid expansion of domestic key opinion leader, KOL, advertising verticals, both of which experienced over 100% year-over-year growth in the first quarter, underscoring the segment's strength and our ability to capitalize on emerging trends. Looking ahead, we see multiple avenues for further growth. including leveraging industry trends like data management platforms, DMP, as well as strengthening our collaboration and synergy with the NetEase group. Our partnership with NetEase brings us the benefit of their vast traffic sources and access to more customers within the group. In the first quarter, less than 10% of our app revenue originates from NetEase, indicating significant future growth potential as we deepen the partnership. At the same time, our AI capabilities will empower the groups to conduct advertising placement more accurately and efficiently across business lines, creating a mutually beneficial synergy that drives growth for both parties. Regarding the smart devices segment, net revenues were RMB $81.2 million in the first quarter, reflecting a 14.8% yearly decline. However, It is encouraging to note that the rate of decline has narrowed by 30 percentage points compared to the previous quarter, indicating a stabilization. On the product front, we recently released Yudao dictionary pen S6 Pro, which quickly became the top-selling dictionary pen in terms of sales volume on JD.com after its launch. While we continue to face headwinds in this segment, we remain confident in the medium to long-term outlook for our learning devices, underpinned by our commitment to product innovation and our deep understanding of the education technology market. As usual, let me share with you some thoughts about our overall strategy. As our recent financials indicate, our business is nearing the achievement of sustainable profitability. A key strategic question for us is, How do we cross the sustainable profitability threshold and build long-term growth in this highly competitive education technology sector? Our strategy is to maintain financial discipline and focus on a few key businesses with high growth and strong competitive advantages. Currently, we have identified the three areas where we are concentrating more energy and resources. Our focus is on digital content services, in particular, Youdao Lingshi for high school students. Over the past few years, Lingshi has emerged as the leading player in its segment. We believe there is a healthy multi-language trajectory for Lingshi in front of us. Secondly, we are focusing on online marketing services, which is approaching RMB 500 million in quarterly revenues. We see two main growth drivers working in our favor, the trend of tech-driven advertisement product innovations, including wide applications of RTA, DMP, and particularly generative AI in the industry, as well as untapped customer acquisition opportunities as we achieve larger scale and product leadership. Thirdly, our focus is on AI-driven subscription services, currently generating around RMB 50 million in quarterly total sales. Although relatively small at present, this segment is growing at a high speed with over 100% year-over-year growth this quarter. It is a key conduit through which our investments in AI will pay off. I'm pleased to share that we will be launching Mr. P AI Tutor, the first all-subject AI Tutor in China as a free mobile app in June. We encourage you to try it out and provide us with feedback once it's available. In conclusion, we are later focused on driving robust growth by offering premium online learning services and spearheading AI innovations for consumers while concurrently maintaining financial discipline. The future holds immense promise for AI-driven learning, advertisement, and consumer services. With that, I will turn the call over to Sukong to provide you with more detailed insights into our financial performance. Thank you.

Thank you, Dr. Zhou, and hello, everyone. Today I will be presenting some financial highlights from the first quarter of the 2024. We encourage you to read through our press release issued earlier today for further details. For the first quarter, total net revenue, or RMB, 1.4 billion. For U.S. dollar, 192.8 million. representing a 19.7% increase from the same period of 2023. Net revenue from our learning services were RMB $718 million, or US dollar $99.4 million, representing a 2% decrease from the same period of 2023. Net revenue from our smart devices were RMB $181.2 million, or US dollar $25.1 million, down 14.8% from the same period of 2023, primarily due to the decreased demand for the learning products in the first quarter of 2024. Net revenue from our online marketing services were RMB $492.7 million, or US dollar $68.2 million, representing a 125.9% increase from the same period of 2023. The year-over-year increase in revenue from the online marketing services was primarily due to the increase in sales of the performance-based advertisements through the third-party's internet properties, which was driven by our continuing investments in the cutting-edge AI technology. For the first quarter, our total gross profit was RMB 681.5 million. For the US dollar, 94.4 million, representing a 13.2% increase from the third quarter of 2023. Gross margin for learning services was 63.1% for the first quarter of 2024, compared with 62% for the same period of 2003. Gross margin for smart devices was 32.6% for the first quarter of 2024, compared with 39.6% for the same period of 2003. Gross margin for online marketing services was 34.3% for the first quarter of 2024, compared with 29.1% for the same period of 2023. For the first quarter, total operating expense were RMB $651.6 million, or US dollar $90.2 million, compared with RMB $797.6 million for the same period of last year. With that, for the first quarter, our sales and marketing expense were RMB $455.4 million, compared with RMB $565.2 million in the first quarter of 2003. Research and development expense were RMB 146.7 million, compared with RMB 182.8 million for the first quarter of 2023. Our operating income margin was 2.1% in the first quarter of 2024, compared with operating loss margin of 16.8% for the same period of last year. For the first quarter of 2024, our net income attributable to ordinary shareholders was RMB 12.4 million, for US dollar, 1.7 million, compared with net loss attributable to the ordinary shareholders of the 204.4 million for the same period of last year. Non-GAAP net income attributable to the ordinary shareholders for the first quarter was RMB 20.3 million, for US dollar, 2.8 million, compared with non-GAAP net loss attributable to the ordinary shareholders of the RMB 193.9 million for the same period of last year. Basic and diluted net income per ADS attributable to the ordinary shareholders for the first quarter of 2024 were RMB 0.11 or US dollar 0.02 and RMB 0.1 or US dollar 0.01. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the first quarter was RMB 0.17 or US dollar 0.02. Our net cash used in operating activity was RMB 391 million, or US dollar, 54.1 million for the first quarter. Looking at our balance sheet, as of March 31, 2024, our contract liability, which mainly consists of the deferred revenue generated from our online learning services, or RMB 769.1 million, or US dollar, 206.5 million. Compared with RMB 1.1 billion as of December 31, 2023, At the end of the period, our cash, cash equivalents, restricted cash, time deposit, and short-term investment totaled RMB $326 million. For US dollar, $45.2 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.

We will now begin the question and answer session. To ask a question, you may press star, then 1 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 momentarily to assemble our roster. Our first question comes from the line of Brian Kong with Citigroup. Please go ahead.

Thank you for taking my question and congratulations on decent results. My question is regarding digital content service, which has demonstrated rapid growth over the past several quarters. So can you share what are the primary factors following future growth? Thank you.

Thank you, Brian. This is . We think the first is about digital content services, particularly . are the most in-demand and financial robust parts with our learning services. In the last year, net revenue from digital content services is around $2 billion for the RMB, up about 11% year-over-year. Additionally, digital content services generated profit for the full year last year. In the first quarter of this year, net revenue from digital content services reached close to the 500 million in RMB, reflecting around 11% year-over-year growth as well. At the same time, we do not only keep the revenue growth at the same level, but significantly improve the profitability at the same time. We expect we can just expand out the profitability of digital content services quickly in this year. I think the factors which has driven the growth of the digital content services, definitely first is because we see the very strong demand from the market. I think that's the part that we see the signals from the market regarding our services. And secondly, it's about definitely we provide pretty unique values to our customers from our products. And we think about our two examples. With our AI capabilities, we can offer the users academic diagnostics, personal learning test plan, and recommended access following the video content consumptions. And also, the AI-based college admissions advisors, we call the AI ,, provided comprehensive services such as college application assistance, course selection advice, as well as the college admissions policy guidance. We think that's a pretty unique value we provide to our customers for these products. I think in the remaining three quarters of this year, we will continue to focus the profitability of each product. For the key products and services, such as Lingshi, we will allocate more resources and efforts striving for the faster growth in this year. And secondly, we find significant potentials for the offline service as well. Through this initiative, we aim to reach a broader range of students and provide more high-quality consulting services. While our digital content learning is primarily delivered online, we believe that is the integration of online and offline services. We think that we offer better services to all the students and customers as well. With that, we are pretty confident about the probability of our digital services. It's expected to see a rapid improvement in the full year of 2024. In addition, our core products expect to mean a rapid growth in the foreseeable future.

Thank you. Brian, this is Zhoufeng. I just want to add one point. So as Zhoufeng just said, we are working on offline services for Lingshi as of right now. We already have about 10 cities in service right now. This is an important initiative for the team. We think about online and offline a lot, so I just want to add a little bit of thinking about this. So we think online courses are really great. So fundamentally, they are more efficient. And if we look at LingXu, a lot of the course content is actually delivered with pre-recorded video. And this is a very good thing for the business because the users really like this format. It allows them more freedom in how they schedule their time. And it's good for the business because of the high efficient nature of pre-recorded videos and AI content. However, we also recognize that to reach these students, potential students, and also to provide consultation for students. A lot of students and parents, they prefer offline, face-to-face kind of service. So we think the future is, online will be really great and we will kind of complement that with offline and combining the two will actually bring a lot of values to to the users and also kind of opening new avenues of growth for the business. Thank you.

Thank you.

Our next question comes from the line of Kenny Wang, CICC. Please go ahead.

Thanks for taking my question. So I have one question about our online marketing services. I think our online marketing services have been experiencing rapid growth for six consecutive quarters. So how could we achieve a sustainable growth in the future? Thank you.

Hi, this is Lei Jing. As we discussed during the call last quarter, UDAO's AD business is a performance-based AD platform. We aggregate traffic from both within UDAO and outside of UDAO to serve the customer's marketing needs. And our competitive strength lies in the unique combination of the technology skills and the customer services and operations skills. In the first quarter of this year, Our advertising business achieved a net revenue of nearly RMB 500 million and a gross margin of 34.3%. Both of these are record highs. Additionally, this segment generates meaningful profits. Looking ahead, there are three key factors to drive the sustainable growth in the future. In the first quarter, we expanded the real-time API RTA coverage to include industries such as entertainment, social media, automotive, and e-commerce, covering over 10 sectors now. The proportion of RTA AD revenue has increased to around 30% in Q1. The implementation of RTA data strategy has improved conversion efficiency by over 50% for some clients. Looking ahead, RTA revenue is expected to further increase. By continuously optimizing AI algorithm and data analysis, we can better meet the diverse needs of our clients and improve advertising effectiveness. In addition, our data management platform, DMP, is a centralized application repository designed for collecting, storing, and processing user data from multiple sources. This enables advertisers to gain a deep understanding of their target audience behaviors and preferences. Our DMP enhances this by integrating user tags and audience package management functionalities with the future guide target advertising deployment and optimization, thereby improving advertising efficiency and effectiveness. And the second, the further extension of customer acquisition opportunities. The proportion of the advertising traffic and the revenue from the NetEase group was relatively small. indicating significant growth potential in the future. Moving forward, we will better utilize the traffic resources within the 90s group. Compared to the purely external traffic, the traffic from the 90s is relatively more predictable and controllable. Furthermore, by suggesting our collaboration with the 90s group, we will gain deeper insight into the needs of the gaming industry users, which will help us expand our client base in the gaming sector. The third, overseas marketing expansion. In terms of global key opinion leader, KOL marketing, we have access to over 5 million global internet celebrities, including more than 1,000 It can provide the client with a personalized KOL marketing solution, including KOL selection, marketing strategy development, video content planning, as well as monitoring and optimization of KOL content performance. Our leading AI technology further empowers global KOL marketing efforts to support the international extension of Chinese enterprises, UDAO ADS launched China's first face-to-face oversea marketing platform in Q1. UDAO ADS has already assisted several Chinese companies overseas, including NetEase Games, BRD, Anchor, and Shein. In their global extension efforts, currently the global KOL marketing business is still in the early stages, presenting substantial growth potential in the future. Thank you.

The next question comes from Thomas Chong with Jefferies. Please go ahead.

Hi. Good evening. Thanks, management, for taking my question. My question is about what are the main products for our AI-driven subscription services? Thank you.

We apply AI and large language model heavily in multiple business lines, including advertising courses and subscriptions in apps. So AI subscriptions cover the last category. As we discussed in prepared remarks, AI subscription sales have been growing rapidly, up 140% this quarter year-over-year, reaching about 50 million RMB. So to break it down a little bit for you, here are the major products that contribute to that. First is UDAW dictionary and UDAW desktop translation. So dictionary is our flagship mobile app and desktop translation is our most popular app for PCs and Macs. According to Quest Mobile, they have over 100 million combined monthly active users and are the top translation apps in China. So last year we introduced the AI translation feature powered by our large language model last year to web users. In Q1, we significantly improved the translation quality, reaching 98% accuracy rate for English to Chinese, Chinese to English translation, and then wrote it out to all users of U.S. dictionary free of charge. more demanding scenarios. So paid subscription users enjoy more usage quotas. So the user feedback has been overwhelmingly positive, leading to a lot of new subscriptions. Currently, these two apps are the largest contributors to our subscription sales, and we expect some potential growth as our large language model gain more capabilities and expand into new usage scenarios. Second, there's a high echo. It is the world's first digital human language coach introduced last year. We recently launched a module tailored for IELTS preparation, IELTS, in collaboration with the British Council. This module, available through a separate subscription, assists users to better prepare for the IELTS exam through personalized exercises, customized feedback, and simulated mock exams. So we expect the new offering to further boost the sales of Hayako. So for international users, so it is the first time we share that we have several apps that's popular. iRecord is the perfect app for those looking to capture high-quality voice recordings and transcribe them with high accuracy through automatic speech recognition. Currently, iRecord ranks at the top two places in the voice recording apps category in North America. Lectimate is an innovative app designed to help overseas college students comprehend lectures more effectively by using the power of voice recognition and large language model technologies. It is the number two in its category in North America. So finally, there's Mr. P AI Tutor. As discussed in our prepared remarks, we will be launching the app version of Mr. P AI Tutor in June. Compared with the end of last year, we have further optimized our language model for K-12. achieving improved accuracy in problem solving. Accuracy of problem solving has increased by 3% and our serving cost has decreased by over 50%. So these six apps are our main offerings for AI subscription services. Subscription is a very natural monetization approach for AI and large language models. Currently, subscriptions are experiencing rapid growth, and we have a pipeline of new features and new products under development. So for this year, we can already see a clear growth trajectory. Yeah, hope that answers your questions.

Thank you.

The next question comes from the line of Bojan, Huatai Securities. Please go ahead.

Good evening, management. Thank you for taking my question. This is from Huatai. My question is the net revenue from smart device continue to decline on a year-over-year basis. How do we view the future development of this segment? Thank you.

Thank you. Yeah, we shared in our last call that we concluded the optimization of our sales channels of learning devices at the end of last year. So we exited some low return of investment sales channels. While this significantly improved the bottom line of the hardware segment, it also led to year-over-year decline of sales. As we build new sales channels and release new products this year, we are in the process of driving the recovery of the business. In Q1, we expanded into new healthy offline and online sales channels and released three new products, the A6 Pro Dictionary Pen, the E6 Listening Pod, and the X20 Learning Pad. The result is that the year-over-year decline decreased to 14.8%, over 30 percentage points less than Q4. A6 Pro quickly became the top-selling dictionary pen on Douyin and JD.com. More recently, after Q1, we launched the S6 Pro, which again surpassed the A6 Pro and became the number one dictionary pen. A6 Pro and S6 Pro are affordable and mid-priced dictionary pens at 349 RMB and 599 RMB. The ASIC Pro is actually our most affordable dictionary pen at launch. However, it is more expensive than its peers in the market, which are priced at 299 or even 200 RMB. We made a conscious choice here. We made the choice to build high-quality products even at affordable prices. We do not intend to engage in a race to the bottom by undercutting each other with lower and lower prices. So the result is that customers responded positively. And ASICs Pro and ASICs Pro, as we just discussed, swiftly became the number one seller after their releases. So I believe this is excellent news. The A6 Pro is covering a price range that we were not serving before, expanding our customer base. And the S6 Pro is our top-selling mid-priced product. In the summer, we have some very innovative new products in the pipeline for the new school year. I'm optimistic about their outlook, as there are several factors that are working in our favor. One is our established product leadership positions in categories like dictionary and listening pods. Second is our ability to apply AI and the large language models to these devices. So parents tell us that they are very interested in these features, which have become increasingly mature and helpful. Our sales and marketing channels are now more established and more efficient than before. The device team obviously has a lot of work ahead of them. We are eager to launch these new products. Stay tuned for more updates.

Thank you. The next question comes from the line of Yukun Zheng, Citix. Please go ahead.

Good evening, management. Thank you for taking my question. My question is about the outlook. Could the management share some insights into the outlook of 2022? Thank you. Thank you.

This is Supong. And I think for the outlook for this year, for the full year 2024, as Dr. Hong discussed in the prepared speech, definitely we will dedicate on the digital content services, online marketing services, and AI-driven subscription services. Firstly, for the digital content services, definitely it's our top priority for our business development. We will develop and ensure and exceeding the increased demand, but it continues to improve our products with our AI capabilities and expanding or precedence in the offline market, as Dr. Wu mentioned. We have the confidence in the further improvement in profits from data content services in this year. And secondly, as for the online marketing services, we think that it has made significant strides since last year. We are focused on the long-term growth of our advertising business by deepening our RTA technology and generate AI applications In addition, we will definitely strengthen our partnership with the NetEase Group in traffic, advertisement placements, and as well as the other areas. Our investment in the AI, as you know, we have already invested in the AI for a long time, and we expect we can just generate more results from the AI-driven subscription services in this year. We think we will continue to iterate about and develop new products, advancing the process of AI monetization as well. For the sales of the AI subscription services, I expect to see rapid growth momentum throughout this year. And finally, I think we will share more color from the financial perspective. We have been making a great endeavors to achieve the full-year possibilities in the near future, we expect. Since the last year, we have been diligently focusing on controlling the operating costs and expense while improving the operation efficiency. This effort has already yielded significant results, as evidenced by our achieved probability for the two consecutive quarters for the first time. And moving forward, we will maintain our costs as an expense management will. striving to increase the revenue at the same time. I think that's our outlook for the full year of 2024. Thank you.

The last question for today comes from the line of Linda Huang. Macquarie, please go ahead.

Hi, management. This is Macquarie Linda. Thank you very much for this opportunity. I want to ask about operating expenses because I noticed that we have the decent decline for the sales and marketing and as well as the R&D. So I just want to know about that for the rest of the year. How is the trend for these two, the OPEX item? And how should we think about the expense to the revenue ratio? Thank you very much.

Thank you for your question. This is Wayne. I will take your question. Marketing efficiency is a crucial metric and a key indicator of our profitability. We are dedicated to improving the efficiency of online customer acquisition. We continuously explore various innovations to optimize marketing efficiency, which includes but not limited to diversifying marketing channels to leverage our most advanced one, AI technology, and two, continuously enrich content to improve product experience. Thereby, migrating the challenges such as writing acquisition cost due to the intense competition. I will add more color on these three areas mentioned above. First, diversification of user acquisition channel. Take learning service as example. Online education companies have inherent advantages in channel innovation compared to offline education institutions. Online education allows us to reach customers beyond the geographic boundaries and accurately capture traffic on high traffic platforms. In contrast, customer acquisition for offline education institutions is often influenced by physical location constraints, limiting their source of acquisition. In recent years, acquisition channels have become increasingly diversified, including KOL, Key Opinion Leader, lead streaming and integrated online versus offline environments. Such innovations enable us to reach a broader and more relevant audience, thereby reducing acquisition costs or improving conversion rates. Second, leverage AI capability into our products. The application of AI technology can reduce the cost of material preparations and enhance product experience, thereby attracting users and increasing conversion rates. For instance, we employed an AI assay refinement function to enhance user experience during trial lessons by providing timely feedback on assets, thus improving the conversion efficiency of this lesson. We believe that our advanced AI technology and the large Language models can help us to build a stronger product ecosystem, further enhancing marketing efficiency. Third, enhancing user experience through innovation of premium content. Each competitor pays a lot of attention and tries to get an excellent conversion rate through certain forms of advertising. Innovative premium content is the key. to get good results by satisfying the needs of customers. Let me give you another example. One of our most important learning services has transitioned from traditional live streaming online classes to innovative pre-recorded content, just mentioned by Dr. Zou, embedded with AI technology, such as adaptive question bank, which resolves the concerns the inflexible time schedule and offer the personalized user experience. This transformation has proved successful in meeting user needs and enriching their user experience, gathering widespread claims. Back to your question. In 2022 and 2023, the sales And the marketing expense accounts for approximately 46% and 42% of our total revenue, respectively. And in the first quarter of 2024, the further decreased to 33%. So we are very confident in maintaining this optimization trend in the long run. 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 Pearson Financial Communications in China or the US. Have a great day.