Youdao, Inc.

Good day, and welcome to the UDAO 2024 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 Wong, Investor Relations Director of UDAO. Please go ahead, sir.

Thank you, operator. Please note that 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, 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 13 company filings 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 recalculations of GAAP to non-GAAP financial results, please see the 2024 Third Quarter Financial Results News Release issued early today. As a reminder, this conference is being recorded. A webcast replay of this conference call will be also available on UDOT's corporate website at ir.udot.com. Joining us today on the call from UDOT's senior management are 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 directions.

Thank you, Jackson. 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 RMB, unless otherwise specifically stated. We're thrilled to announce an outstanding third quarter. Revenues for the quarter reached RMB 1.57 billion, marking a 2.2% increase year over year. Our profitability improves remarkably. Income from operations reached RMB 107.3 million, compared with the loss of RMB 57.7 million in the same period last year. This represents our first profitable third quarter and sets a new quarterly record for income from operations. We are on track to achieve our first full-year operational profitability this year. Additionally, operating cash outflow narrowed to RMB $85.4 million, an improvement of 71% compared to the same period last year. Now let's review the major developments across our business lines. Revenues from learning services were RMB $767.9 million, down 19.2% year-over-year, primarily due to our proactive focus on high-demand services and a reduction in low return of investment customer acquisition operations during the summer. Notably, customer retention continued to improve. Therefore, the overall financial health of our learning services segment significantly improved in Q3. Within this segment, net revenues generated by digital content services, that is, online courses, were RMB 513.7 million. These revenues covered the costs and operating expenses, and yielded meaningful profit. Our team focused on improving the products of Youdao Lingshi. We expanded our knowledge video library to nearly 40,000, targeting students of different learning levels. Additionally, we doubled the question bank to around 100,000 questions. Leveraging our advanced large language model, our AI can now automatically collect and categorize users' mistakes, adding new questions to enhance personalized learning experience. We also released new small-class study experiences, including personalized monthly learning plans developed by our experienced learning counselors and AI-recommended quizzes. This provides students with a welcoming and motivating learning experience that delivers great results and high retention rates. In the meantime, UDAW literature continues to expand the use of AI writing refinements in Q3, leading to a 7 percentage point increase in conversion rates. We expect to sustain strong demand for online learning services in the coming years. The key to success lies in our ability to deliver high-quality service and learning outcomes at scale. While we have made significant progress in online learning innovations, as evidenced by quickly improving retention rates and positive customer feedback, there is still substantial room for further innovation. Fortunately, we now have new AI tools at our disposal, and customer demand remains robust. We look forward to serving learners and families in innovative online learning solutions in the years ahead. Sales of our AI-driven subscription services in the learning services segment continue to grow rapidly, approaching RMB 70 million in Q3, representing over 150% year-over-year growth. This marks the seventh consecutive quarter of more than 50% year-over-year growth. On the product front, we released new AI translation upgrades in UDAW Dictionary and UDAW Translation, These updates includes multilingual translation support, customized glossaries, and multi-modal input capabilities for images and documents. To date, our AI document translation service has processed over 100 million documents. Yuda Dictionary introduced an AI-powered voice simultaneous interpretation feature, powered by our large language model, Ziyue. This feature has seen over 4 million users in its first quarter and has become the most popular paid feature in the U.S. dictionary. High Echo also gained prestigious recognition this quarter and was prominently featured on the Apple App Store homepage. It also ranked in the top 10 for next-day retention on the renowned AI application ranking chart by AICPB.com. Following this launch, Mr. P, AI tutor, received an enthusiastic reception with nearly 20 million users in the third quarter and a monthly compound growth rate exceeding 100%. For online marketing services, net revenues reached RMB 489.4 million in Q3, representing an increase of 45.6% year-over-year. Gross margin increased to 36.3%, up 4.4 percentage points year-over-year. This growth was mainly driven by our expansion into new sectors and leveraging data applications and AI to optimize app performance, pushing RTA revenues to a historical high and an over 100% increase year-over-year. Additionally, we observed positive developments in overseas advertising, which accounted for approximately 20% of the ad revenue in the third quarter. Robust demand in games and related industries fueled growth, driving overseas KOL ad revenue up by over 50% year-over-year. We also upgraded our anti-fraud system for advertising in Q3. integrating real-time monitoring across multiple dimensions, optimizing quality control, and identifying potential audiences. We expect ongoing algorithm upgrades and enhanced service quality to support the long-term growth of our online marketing services. In the smart devices segment, net revenues reached RMB 315.3 million in Q3, up 25.2% year-over-year. and marking the highest revenues since 2023. Alongside this growth, this segment's overall health has significantly improved, with gross margin rose to 42.8%, also reaching its highest levels since 2023. In terms of product upgrades, we launched the latest generation of our flagship dictionary pen, the X7 Pro, This high-end device featured a comprehensive 78 million word database and an AI camera that supports advanced LRM functions such as Mr. P, AI tutor, and AI translation. Notably, the X7 series has become the first learning device in the industry to support offline large language model translation with accuracy surpassing online neural machine translation. The strong performance of our new products drove over 50% year-over-year net incomes growth for dictionary pens in Q3. Building on this success, I am pleased to announce that we will launch a new product in the fourth quarter. Please stay tuned for further details. So that is the summary of our progress in Q3. As discussed on this call earlier this year, We have two key objectives for 2024. Rapidly integrating generative AI technology across our businesses to enhance competitiveness both now and in the future. And operational focus on streamlining our business lines to achieve full-year operating profitability. With robust results from Q3, we are making significant strides towards meeting these goals. By the end of the third quarter, cumulative income from operations had reached RMB 64.6 million, a significant improvement compared with RMB 542.6 million loss from operations in the same period last year. I am confident that we will achieve four-year operational profitability this year. Looking ahead, we are committed to the continued implementation of our large language models. to enhance user experience and create a greater value through digital content services, AI-driven subscription services, and smart devices. In our online marketing services, we aim to explore new domestic opportunities while also expanding internationally to better support client success. Lastly, financially, we remain dedicated to prudent operations and strengthening our profitability. With that, I will turn the call over to Supong to provide you with more detailed insights into our financial performance. Thank you.