Youdao, Inc.

Good day and welcome to the YoDAF 2025 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 Wang, Investor Relations Director of YoDAF. Thank you and over to you.

Thank you, operator. Please note the discussion today will continue for 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 UDAH'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 2025 Second Quarter Financial Results News Release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on UDOT's corporate website at ir.udot.com. Join us today on the call from UDOT's senior management, Dr. Feng Zhou, our chief executive officer, Mr. Lei Jin, our president, Mr. Peng Su, our senior VP, and Mr. Wen Li, our VP of finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights in a 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. Strong execution of our AI-native strategy drove robust financial results in the second quarter, highlighted by our first profitable second quarter. Operating income was RMB 28.8 million, compared with an operating loss of RMB 72.6 million in the same period last year. Net revenues reached RMB 1.4 billion, an increase of 7.2% year-over-year. Operating cash inflow was RMB 185 million, down 26.1% year-over-year, primarily due to the strategic scaling back of certain STEAM and adult courses, which reduced the gross billions. Next, let's review our progress by business lines. Net revenues from learning services rose 2.2% year over year to RMB 657.8 million in Q2, given primarily by the strong performance of Youdao Lingshi. Within the learning services segment, net revenues from digital content services reached RMB 447.4 million. As a strategically focused initiative, achieved exceptional results, with net revenues growing approximately 30% year-over-year. On the product front, our large language model, Confucius, continued to power innovation. In Q2, we introduced the AI essay grading feature, designed in line with exam grading standards to provide comprehensive personalized evaluation and generates tailored feedback reports. The feature received widespread acclaim upon launch, driving Q2 retention rate above 75%, a historical high. We also leveraged LLM Confucius' capabilities to create personalized learning plans, further enhancing learning efficiency and outcomes. For our STEAM courses, we broadened enrollment channels, driving a year-over-year increase of roughly 15% in gross billings for programming courses. User satisfaction continues to rise, with Q2 retention rates hitting a record high of over 75%. Additionally, we signed 12 gold medalists from the National Olympics in Informatics to strengthen our top-tier teaching and R&D team, laying a strong foundation for future student services. On the app side, total sales of AI-driven subscription services rose approximately 30% year-over-year, to nearly RMB 80 million in Q2, setting a record high. During the quarter, we released Confucius 3, our latest education LLM powering our education and translation services. An open source Confucius 3 math, China's first reasoning model dedicated to math education. Combining large scale reinforcement learning with algorithmic innovations, Confucius 3 math delivers State-of-the-art accuracy with exceptional cost efficiency, 15 times the inference performance of DeepSeq R1 at just US dollar 0.15 per million tokens, well below typical LLM costs, enabling the low-cost deployment of professional-grade math AI applications. One notable milestone is Scholar AI launched in May, which has already attracted over 1 million cumulative users. Designed to support students and scholars in research paper writing, it offers AI-powered plagiarism detection, proofreading, and other tools to improve academic work. Powered by Confucius 3 math, we also upgraded our Mr. P AI tutor to achieve over 95% accuracy for K-12 math problem solving and tutoring. Mr. PAI Tutor received the Gold Me Award, the highest honor granted to developers on the Xiaomi App Store. Additionally, Yu Dao Dictionary was named the China's top 50 most valuable AGI innovators in 2025. Moving to our online marketing services segment, Q2 net revenues reached a record RMB 632.9 million, up 23.8% year-over-year. driven by strong demand from the gaming industry and Chinese clients expanding overseas. The growth margin was 25.8%, down 13 percentage points from a year ago, primarily due to the initial onboarding of new clients. We continue to expect this segment's growth margin to stabilize in the 25% to 35% range over the medium to long term. Gaming was a highlight this quarter. We deepened the collaboration with NetEase Games and other gaming advertisers on both domestic and overseas campaigns, driving gaming ad revenue growth of more than 50% year-over-year, a trend we expect to sustain under stable macroeconomic conditions. On the product front, we continue to invest in GenAI-powered advertising technologies, we launched the AI App Placement Optimizer in Q2, an end-to-end AI-driven agentic solution covering demand analysis, strategy formation, data analytics, and iterative optimizations. We also significantly upgraded our antifraud system to enable real-time diagnosis and automated monitoring of ad delivery, including traffic requests, clicks, and conversions, improving service quality and strengthening our risk control framework. These advances build on iMagicBox, our AI creative generation product introduced in Q1. Our team continues to move quickly in the J&AI powered ad technology space, delivery fully integrated services from creative production and placement to post campaign analytics We believe we are still in the early stages of a new cycle in which GenAI will create substantial value for advertisers and fuel our long-term growth. We see significant growth potential in the advertising business, in gaming, e-commerce, overseas markets, and GenAI applications, and remain focused on capturing these opportunities to build a strong foundation for sustained growth. Next, in our Smart Devices segment, business health improved in Q2, while net revenues declined 23.9% year-over-year to IMB 126.8 million, primarily attributable to two factors. First, certain high-end dictionary pain models approached the end of their product life cycles during the quarter. Second, we reduced the marketing expenditure in hardware prioritize business health at this stage. Within this segment, we focused on Udall Dictionary PAN, which maintained its market leadership, securing the number one spot in sales on JD.com and Tmall during the 618 Shopping Festival for the sixth consecutive year. We also expanded our mid-range coverage with the launch of Udall Dictionary PAN S7 Pro and A7 in Q2. Looking ahead, I remain confident in the long-term potential of AI-powered devices. I'm excited to share that we will be unveiling a new AI-powered smart device next week. Please stay tuned. Before I conclude, let me quickly recap a strong first half. We significantly enhanced our large language model portfolio, launching Confucius 3 and open sourcing both Confucius 01, and Confucius 3 Math. Our learning services hit new heights, with Lingshi achieving a 75% retention rate and the launch of successful new AI apps like Scholar AI. In advertising, we expanded our customer base, deepened the relationships with key accounts, and deployed more Gen AI capabilities, fueling strong Q2 growth. Financially, H1 total net revenue reached RMB 2.7 billion, up slightly year-over-year, while operating income surged to a record RMB 132.8 million from a loss of RMB 42.6 million a year ago. Looking ahead, we will continue to advance our AI-native strategy, driving scenario-based optimizations of our large language models and agents to serve both learning and advertising customers. Our goal is clear. Enhance learner productivity and deliver higher return on advertising with industry-leading AI technology and operational expertise. We remain committed to sustainably create customer values while further strengthening our financial performance. With that, I will hand over to Supong for a deeper dive into our financial results. Thank you.