Youdao, Inc.

Good day and welcome to UDAO third quarter 2025 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 four roles. related to the future performance of the company, which are intended to qualify for the safe harbor fund 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, and substance 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 reconciliations of GAAP to non-GAAP financial results, please see the 2025 Third Quarter Financial Results Release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on UDAO's corporate website at ir.udao.com. Joining us today on the call from UDAO's Senior Management are Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jin, our President, Mr. Peng Su, our Senior VP, 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. Thank you all for participating in today's call. Before we begin, I would like to remind everyone that all is based on RMB, unless otherwise stated. In the third quarter, our strategically prioritized businesses, and online marketing services delivered a strong momentum, supporting our long-term growth trajectory. Net revenues reached RMB 1.6 billion, up 3.6% every year. Operating profit was RMB 28.3 million, a decline of 73.7% year-over-year, primarily due to two factors. First, following the significant operating profit improvements in the first half of the year, we increased investments in new dollars and our online marketing services in Q3 to accelerate medium to long-term expansion. Second, We faced a high comparison base from the same period last year due to a one-off impact from the STEAM courses. Our restructuring of the learning services segment is now complete. For the first nine months of the year, operating profit reached IMB 161.1 million, representing a substantial 149.2% year-over-year increase and highlighting the meaningful progress we have made in enhancing our profitability. Notably, we have now achieved operating profits for five consecutive quarters, the first in our history. From a cash flow perspective, operating cash outflow for the quarter was RMB 58.6 million, an improvement of 31.4% year-over-year. Next, I will delve into the major developments across our businesses. The revenues from the learning services segment were RMB 643.6 million, 1 million, down 16.2% year-over-year, reflecting our disciplined and strategic approach to customer acquisition as we focus on growing the LingXu business. Within the learning services segment, net revenues from digital content services were RMB $425.9 million during the quarter, and our achievements in digital learning have gained international recognition. Youdao was included in the 2026 GSV150, a list that highlights the world's most transformational growth companies in digital learning and workforce skills, selected from more than 3,000 global companies. Turning to Youdao Lingshi, one of our key strategic businesses. We made solid progress during the quarter by diversifying its customer acquisition channels. Lingshi accelerated, achieved over 40% year-over-year growth in gross billions. More recently, retention rate has exceeded 75%, up from over 70% in the fourth quarter of last year. In addition, as part of our broader commitment to cultivate innovative talent, we collaborated with the Yao Mathematical Science Center at Tsinghua University, Tsinghua University's Qiu Chengtong Mathematical Science Center. providing technical support to a platform designed to identify and support mathematically gifted students. The system is currently being piloted in top-tier schools, with a national rollout planned following further refinements. In terms of our programming courses, we introduced an AI tutor for live programming classes in the third quarter, featuring a lifelike avatar and supporting both text and voice interactions. The AI Tutor helps answer students' questions in real time, significantly enhancing the overall learning experience. With ongoing product upgrades, gross billings for our programming courses increased by more than 30% year-over-year in Q3. Additionally, we continued our deep collaboration with the China Computer Federation, CCF, and are honored to have become a golden partner. On the app side, Total sales of our AI-driven subscription services reached a new record of approximately RMB 100 million in the third quarter, representing over 40% year-over-year growth. We launched our Confucius 3 translation model, which supports real-time bidirectional translation across 38 languages and offers advanced multi-model capabilities. Despite its compact parameter size, Confucius 3 translation delivers translation quality that surpasses some larger general-purpose models. In August, our Confucius 3 series LRM was among the first to receive the highest-level trusted AI education large language model certification from the China Academy of Information and Communications Technology. Regarding product development, we introduced a major upgrade to our flagship Youdao dictionary app UDAW Dictionary 11, delivering a truly AI-native experience that has been met with widespread user acclaim. A key highlight is the fully redesigned AI simultaneous interpretation feature. Powered by industry-leading noise reduction technology in our proprietary turn detection algorithm, it achieves top-tier voice translation accuracy with exceptionally low latency. The feature also received one-click summarization of translated content and automatically generates mind maps, significantly improving user efficiency across both learning and the work scenarios. These enhancements have been well received, driving over 200% year-over-year growth in sales of the AI simultaneous interpretation feature during the third quarter. To date, more than 20 million users have engaged with this capability. We have launched a new AI audio and video translation product, UDAO AnyDump, in the third quarter to automate multilingual production of content such as TV shows, marketing videos, and more. It leverages our proprietary adaptive voice cloning technology to learn a speaker's vocal characteristics and generates a natural, fluent, and emotionally rich tone. The system delivers optimal translation results by holistically considering key factors, including voice, speaker identity, and even video scene transitions, to produce dubbing that is more accurate, contextually aligned, and precisely suited the creator's intended purpose. Turning to our online marketing services segment, growth accelerated in the third quarter. Net revenues reached RMB $739.7 million, a new record and an increase of 51 year-over-year. The strong performance was primarily driven by increased demand from the NetEase group and overseas markets, which was driven by our continued investments in AI technology. Gross margin for the segment was 25.4% in Q3, moderated roughly 10 percentage points year-over-year, but largely stable sequentially. remaining within our long-term target range of 25% to 35%. We continue to rapidly expand our new client base during the quarter to support future growth. Advertising revenues from the gaming industry, mainly contributed from NetEase, grew by over 50% year-over-year. We assisted NetEase Games with a growing number of programmatic advertising and influencer marketing campaigns. For example, in promoting the blockbuster title, Where Winds Meet, we executed comprehensive integrated marketing strategy that generated over 500 million video views and more than 21.4 million live streaming exposures. Looking ahead, we plan to further deepen our collaboration with the NetEase Group and other game clients to unlock additional synergies. Our overseas advertising business also delivered strong momentum, with revenues growing by more than 100% year-over-year. We are pleased that our BYD WonderLife Global Influencers co-creation campaign received the Brands and Creators Award at the YouTube Works Awards China. Looking ahead, we plan to further deepen our collaboration with Google and with global advertisers to better support Chinese companies in expanding their global presence. We continue to drive improved advertising performance by our AI Ad Placement Optimizer. It is an end-to-end AI-powered agentic solution covering demand analysis, strategy formulation, data analytics, and iterative optimization. In addition, I am thrilled to share that we will launch AI Ad Placement Optimizer version 2 by the end of this year. Please stay tuned. Moving to our smart devices segment, net revenues were RMB 245.8 million during the quarter, down 22.1% year-over-year. This reflects our strategic decision to exercise greater discipline in marketing expenditures. Focusing on strengthening the segment's operational health, As a result, we saw year-over-year improvement in the segment's fundamentals during the third quarter. Product-wise, we launched a new tutoring plan, UDAO Space X, which offers precise scanning for long-form and multi-graphic problems, AI-powered video explanations for academic problems, and an AI-based mistake ledger. These features empower students to learn and review subjects more effectively and efficiently. Our dictionary pane and tutoring panes were also featured at the World AI Conference, receiving strong exposure to new audiences and coverage from multiple media outlets. Looking ahead, we will continue executing on our AI-native strategy with a focus on deepening the application of and innovating with our large language model, Confucius. across both our learning and advertising businesses to consistently create value for our customers. Financially, we will maintain disciplined operations and remain confident in achieving the four-year targets set at the beginning of the year, including robust year-over-year operating profits growth and reaching annual operational cash flow break-even for the first time. With that, I will hand over to Supong for a deeper dive into our financial results. Thank you.