Youdao, Inc.

Good day and welcome to the UDAO 2024 Fourth Quarter and Full Year 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 UDAO. Please go ahead.

Thank you, operator. Please note the discussion today will contain further 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 future performance and are subject to certain risks and uncertainties, exceptions 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 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 fourth quarter and full year 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 UW's senior management are Dr. Feng Zhou, our chief executive officer, Mr. Lei Jin, our president, 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 RMB, unless otherwise specifically stated. In the fourth quarter, our profitability further improved. Net revenues reached RMB 1.3 billion, a 9.5% decline compared to the same period last year, primarily driven by a decrease in revenues from learning services. Since the summer, we have proactively focused on courses and services with strong demand and maintained a rational approach to customer acquisition. This strategy has enhanced our overall health. Income of operations for the fourth quarter reached RMB 84.2 million, representing an increase of 10.3% year-over-year. Operating cash inflow was RMB 158.2 million, largely stable compared with the same period of last year. For the full year 2024, our key financial indicators demonstrated significant improvements with record profitability and cash flow performance. Net revenues totaled RMB 5.6 billion, up 4.4% year-over-year. Income from operations amounted to RMB 148.8 million. a remarkable turnaround from loss of operations of RMB 466.3 million in 2023, marking a substantial improvement in financial health and achieving our first-ever operating profit from a full-year basis. Operating cash outflow narrowed to RMB 67.9 million, representing an improvement of 84.5% year-over-year. Then let's review the major progresses across our business lines. In the first quarter, net revenues from learning services reached RMB 617.7 million, down by 21.2% year-over-year. By maintaining financial disciplines and focusing on courses like Youdao Lingshi, we enhanced our financial health and long-term competitiveness significantly. Within the learning services segment, net revenues from Digital content services reached RMB $388.8 million in the fourth quarter, which covered the cost and operating expenses, generating meaningful profits. We are committed to fostering long-term growth with top priorities centered on elevating customer satisfaction, optimizing operational vitality, and driving forward-looking innovation initiatives. Yudoling Shi has pioneered a customer acquisition path by focusing on operations on director's IP, leading to over 10% year-over-year growth in gross billings for the fourth quarter. Additionally, our flagship product, which integrates AI tiered learning videos, comprehensive learning counseling, and small-class study experiences, has enhanced customer loyalty, with retention rates surpassing 70% in the fourth quarter. in an improvement of more than 5 percentage points year-over-year. This rise in customer loyalty gives us greater confidence in the future development of Yu Da Ling Shi. In terms of STEAM courses, our franchise programming courses focused on informatics programming and have continuously iterated our products about transitioning from large class to smaller classes. This approach has driven at more than 20% year-over-year increase in gross billings during the fourth quarter, with retention rates exceeding 70%. Next, within the learning services segment, we see strong growth in our AI-driven subscription services. Total sales witnessed an impressive streak of eight conservative quarters with over 50% year-over-year growth. For the fourth year of 2024, AI-driven subscription services generated sales of over RMB 200 million, representing an increase of over 130% year-over-year. Recently, we launched an open source to China's first step-by-step exposition reasoning model, Confucius 01. As a 14 billion parameter lightweight single model, Confucius 01 supports deployments on consumer-grade GPUs and utilizes chain of thought technology to provide detailed problem solving processes. It achieves high accuracy in problem solving with strong logic and reasoning capabilities and offers reasoning in Chinese. Notably, Confucius 01 has officially been open sourced to encourage broader use and innovation of reasoning models in the education sector. Currently, Confucius 01 has been implemented in our AI learning assistant, Mr. PAI Tutor, which received positive feedback with over 100 million cumulative users since the product launched. Udall Desktop Translation has won the Best Online Education App Award at the Microsoft Store 2024 Annual App Awards. Furthermore, we are continuing to develop the HiEcho ecosystem. In the fourth quarter, we partnered with Rokit to deliver an immersive AI-powered English learning experience through AI plus AR technology. Hayako, alongside Yuda Dictionary, was named one of the top nine apps of 2024 by LaTeX. We quickly embraced the recent DeepSeq wave by integrating both Confucius models and DeepSeq R1 across many of our products. Our teams rapidly experimented with blending the best of both worlds. DeepSeq R1 delivers robust reasoning and intelligence, while our domain-specific Confucius models are optimized for high traffic scenarios unique to our offerings. This powerful combination already enhances products like Mr. P's AI Tutor, providing users with smarter, more friendly chat experiences, deeper insights into learning materials, and more effective support for challenging problems. Additionally, it enables us to offer faster, more responsive, and cost-efficient service. For online marketing services, net revenue reached RMB $481.7 million in Q4, representing an increase of 1.6% year-over-year. Gross margin increased to 34.2%, up 1.5 percentage points year-over-year. In terms of domestic performance-based advertising, industries such as gaming and AI tools have seen record-breaking revenues. On the international advertising front, we recently established an official partnership with Google. This milestone lays a solid foundation for the future growth of our overseas advertising. Additionally, in the field of overseas KOL, Key Opinion Leader Marketing, we have leveraged our extensive database of global influencers and advanced technologies, such as large language models and image recognition. With these tools, we have developed an evaluation model for KOL video conversion effectiveness. This model comprehensively analyzes trends in influencer videos and their comment sections, allowing us to identify which creator possesses strong virality and widespread reach, therefore driving high conversion rates. By using commercial conversion effectiveness as a key metric, the model assigns ratings to each influencer and uses existing data to predict their conversion potential. Furthermore, we played a pivotal role in the global promotion of the game Marvel Rivals. In the first two weeks after the game's launch, we successfully facilitate the release of nearly 200 pieces of KOR content, resulting in over 80 million impressions across the Internet. Looking ahead, we are optimistic about the long-term prospects of our online marketing services. We are committed to strengthening collaboration with clients in the gaming sector, particularly through enhanced synergy with NetEase Group in both traffic side and demand side. Turning to our Smart Devices segment, Net Revenues reached RMB $240.4 million in Q4, marking an 8.1% year-over-year increase, which significantly improved financial health. Our flagship product, the UDOT Dictionary Pen, performed exceptionally well during the November 11th Shopping Festival, maintaining its position as the top seller in its category on both JD.com and Tmall for five consecutive years. the X7 Pro also earned the top spot in single item sales for dictionary pens on both platforms. These successes contributed to an annual 20% year-over-year increase of revenues for the dictionary pen. In addition, we're thrilled to announce that cumulative sales of our dictionary pen have surpassed 10 million units since its market debut. In terms of product, We recently launched the UDAW Dictionary Pen A7 Pro, featuring an instant scan and translation feature. The product offers top-tier performance at an accessible price point. Earlier this week, we also launched the Space One, a brand new dictionary pen, incorporating the DeepSeq reasoning model, delivering in-depth analytical reasoning capabilities and providing clear guidance for complex problem-solving scenarios. Moving forward, we are committed to continuing to pioneer innovations in smart devices, particularly for dictionary PAN, enhancing personalized educational experiences for our users and strengthening our leadership in this product. In 2024, we executed a focused business strategy that combined rapid generative AI implementation with a steadfast drive towards operational profitability. It was a breakthrough year, during which several of our business units, such as Youda Ads, Youda Lingshi, our dictionary pens, and our AI-powered English learning and translation apps, emerged as clear leaders in their respective segments. Looking ahead, 2025 has started with the explosive popularity of DeepSeek, a trend that is reshaping the Chinese tech industry. As we discussed on this call, we anticipated that open source and reasoning models would revolutionize how people learn and market. And that transformation is now underway. Our response has been swift. Over the past few weeks, we have seamlessly integrated DeepSeq into our apps, courses, app platforms, and hardware devices. Yet, this is just the beginning. We believe that large AI models should serve not merely as additional features, but as autonomous agents that drive outcomes. They should be deeply embedded into our learning and work processes to unlock higher productivity. Accordingly, we are launching our AI native strategy, integrating AI more comprehensively across our business lines by, for example, automating our advertising platforms and introducing AI-driven tutoring for our cost customers. We're excited by the rapid maturing of reasoning models and eager to deliver these innovative projects to our customers this year. Another significant milestone for 2024 was achieving four-year operating profitability for the first time. For 2025, given the current economic conditions and our ongoing progress, we are targeting moderate revenue growth alongside fast-paced improvements in our bottom line. With that, I will turn the call over to Supong to provide you with more detailed insights into our financial performance.