Q2 2021 Youdao Inc Earnings Call
Good day and welcome to the Yo down 2021 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 Wong Investor Relations Director for you Dow. Please go ahead.
Thank you operator. Please note the discussion today will contain forward looking statements relate a tooth wheelchair performance of the company, which are intended to qualify for the safe Harbor from liability ASP.
The established by the U S private Securities Litigations Reform Act.
Such statements are not guarantees of 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 readout to differ materially from those mentioned in today's press release.
Gotcha.
A general discussion of the risk factors that could affect <unk> business and if that actually would be about is included in certain filings the company with the securities and exchange.
Commission.
The company does not undertake any obligation to update these 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.
Definitions of our non-GAAP financial measures and recalculation of GAAP and non-GAAP financial results. Please see the.
2021 second quarter financial results news release issued earlier today as a reminder, these California is being recording besides a webcast replay of this call conference call. We will be available on <unk> corporate website at IR Docs, you without dot com.
Joining us today on the call from you at all senior management is Doctor phone, Joel our Chief Executive Officer.
Mr Lai Junior VP of operations.
Turning to our VP of strategy and capital markets and Mr. William Li VP of Finance and we will now turn the call over to Dr. Joe <unk> to review some of our recent highlights and strategic direction.
Thank you Geoffrey.
Thank you all for participating in today's call.
So let me begin I would like to remind everyone that all numbers are based on them.
Q2 was another solid quarter for US total net revenue were RMB, one 3 billion, representing a 107% increase from the same period in 2020.
Revenue from all three segments learning services learning products and online marketing services grew by 112%.
Hundred and 38% and 60% year over year, respectively.
Loss from operations for the second quarter of 2021 was RMB 544 million that translates to margin of a loss from operations improvement of 330 basis points from the same period in 2020.
As you all know a significant regulatory changes regarding after school tutoring were introduced recently in China. After our fiscal Q2 concluded.
Our remarks will be two parts I will first talk about the double reduction policy its impact on us and our plans then we will go over our Q2 results in more detail.
Regarding the double reduction policy, we saw four major points most relevant trusts first publishing of a S. T advertising is banned on most immediate platforms seconds access to capital markets is severely limited.
Example, Isps are not allowed to cause so IPO.
Tutoring timing limitations for example, no school subject academic tutoring on weekends or holidays fault.
Academic <unk> Ts are required to register as non profit going forward.
We have been exploring strategic and operational changes to our tutoring business and setting new priorities for the whole company.
Since the regulation was published on July 24.
As always we are committed to embracing fully comply with these laws and government policies.
We have already made changes to our business like stopping academic classes during the summer holidays, and we are actively communicating with the regulators on further changes like the nonprofit requirements.
Steve has a major impact on our future operations. Therefore.
We expect academic ASP business will be severely limited in the coming quarters.
Well that's it.
S. T is not our sole business the case, which all English T made up about 41, 2% of our Q2 total revenue, we believe our other businesses, which contributes over half of our revenue.
I'm not directly impacted by the regulation and.
And we have several high growth business lines in non ASP part of Utah, So while we step on the brakes on the ASP side, we will be driving more growth on the minus two side of our business.
We think our deep technology roots in large user base games.
It gives us options and diversity much needed in this kind of a challenging scenario.
Overall, when we add the two sides off.
I expect this to be a speed bump in our journey.
Headwinds for a few quarters.
Looking to the future I see four pillars of growth in our non ASP business.
Turning service learning devices.
Adult education steam courses and education Digitization solutions.
We have talked a lot about the learning devices in adult education opportunities in past calls and our team will keep innovating in these areas in Q3, both these businesses are doing well.
We released Utah Dictionary, and phase III designed to be more friendly to elementary school in Prepays kits.
More affordable and supports learning of arithmetic in addition to English and Chinese.
As for the third growth area steam closest it is an area.
That is made more attractive now that the students have more time.
We believe we have a competitive advantage in online steam costs is because we have been operating staying cautious.
Since 2018, and our teams I've put up contemplation applying technology and also monetization in this area.
In Q2.
Oh wait she continued scaling up nicely.
Revenue of Yodle wage increased by 180% quota.
We also launched advanced level small class clauses of late she floor students start playing more competitive as well.
Programming classes the retention rates reached all time high of nearly 90% in Q2 steam education is a great area and we will continue.
More closest in coming quarters.
Last of the four growth areas.
He is education Digitization solution.
By that we mean any product or service delivered.
Business to business fashion, all business to government fashion that uses digitization to improve learning and education.
The customer could be schools universities. All enterprises. This is the first time with discuss education capitalization solutions on our call.
We think has huge potential it fits very well and now it's the right time to do it. According to quantize securities. The expected market size for education Digitization is over RMB 650 billion.
In 2023.
I told you about without expertise in AI smart devices design and manufacturing as well as a deep understanding of teaching and learning. We believe we are well positioned to seize the opportunity and the rising tide sufficiently evaluation market.
Now we also have an innovative product in this area.
You don't intelligent learning terminal is an appliance that automates a paper based the homework processing and provides learning diagnostic losses through AI technology, our schools. It works by integrating scanning printing and.
Diagnosis.
Our single aisle airplanes.
Adult helped a junk district in Hangzhou to facilitate.
Education digitalization in our intelligent learning terminal was praised for helping instructors analyze students' learning and knowledge points aimed.
To improve teaching quality and efficacy.
We also continue investing in R&D to build up our learning technology in Q2, we released or you don't intelligent practice system.
Our first fully adaptive practice and learning system is already in production using our junior high school, and perhaps clusters and we plan to integrate it with our learning devices in the future.
Going forward here, our immediate action plans.
Bye now.
Well first we have been streaming streamlining our workforce for pivotal trials of ASP business, we have been following the guidance from the government.
Got it and how we are supposed to operate this segment in the future.
A second.
For the online courses settlement, we will focus on adult courses and steam courses.
In line with the policy direction.
Just talk about kind of a tough students have more free time after double reduction.
We believe our demands for steam cost this will significantly increase regarding adult education, we have seen a strong growing demand for professional certificate and interest based.
Courses and we continue to offer competitive products to drive sustainable growth in this area.
Thirdly.
We're learning products, we will continue leveraging our advantages in the attack and innovative patient to further drive growth.
We always hold the view that smart learning devices presents a great opportunity for growth.
We already have achieved scale and profitability in our dictionary pen products and we will continue to launch more new products to strengthen our leadership in London clubs.
Fortunately for.
Education, Digitization solutions business as I introduce the just now.
There is a huge demand and it is in line with the government's policy direction, we will leverage our advantages to.
To meet the rising demand for public from public schools universities and et cetera.
Looking ahead, we are very confident with our plans as we have a strong team we offer high quality products and so we have.
Long term support from our parent company nephews, let's use today announced that it has adopted a share purchase program of up to.
$50 million of your adult outstanding Idiots.
A period not to exceed 36 months beginning on September the second 2021.
Under the terms of this program that he has made purchase your thoughts a D. S. In open market transactions on the New York State exchange or the purchase program may be suspended or discontinued.
Got it any time.
Along with continuing optimizing on our business. We are also dedicated to fulfilling our social responsibilities as a corporate citizen, we always strive to help wherever we can leveraging our strengths.
To help communities in need for instance, pushing the recent hefty a rainstorm in Saddam problems without joined hands with public wildfire institutions tool to provide.
Post disaster reconstruction and infrastructure support for 10 to 15 schools and kindergartens. These activities are expected to support at least 10000 students in the affected areas and we will continue making ongoing contributions to society in the future without with you I will now turn the call over to Silicon to review.
Our operational and financial results in Q2, we will then open to questions.
Yeah.
Frankly with uncle.
Hello, everyone today, I will be presenting some operational and financial highlights for our country's 91 in the second quarter. We encourage you to read through our press release, you said earlier today for further details.
After that I'll introduce our strategic and operational changes to our children's business and are on your priority you just now.
Adam or colored almost the operating side in Q2.
First of all in turmoil for adult Sacramento premium quarter, the revenue account for 21.5% off the total net revenue in Q2.
Extra ordinary memory feed hunky cost, what's the biggest one front of orthopedic perspective in Q2.
In the meantime, I upgraded version of the practical English class has been lapsed the recently.
English for all enjoy them at a cam offer immersive teaching from the first person view you can optimize the education, they're treating modal sounds a learning characteristics and alerting habits after adult.
Furthermore, the upgraded corp, presenting to language learning scenario by using AI technology and integrate learning practice in the past to improve the concentration helps do that.
So intelligent assessment system trackless students' learning condition, who help them cut some ice they are learning course that accurately in front of the familiar with dementia.
And fourth enhancing service by AI technology has made education training easier.
That's what kind of University MOOC massive.
Massive open online course, the leading mobile platform in China, and all sorts of major online course, its platform for Chinese Chinese University students.
That's 47 quarters has been certified at the national level premium online courses football cushion of Education Minister Ministry of.
The patient.
Looking at how are your addiction app.
A new function named the high weighting in Q2. It is the first one learning apps that'll support real time assessment of the oral English and the professional sounds good morning, if I were in China.
Making oral English learning more efficient.
That's why the war community watch when we launched it into what is called fast I mean, you.
Of more than 10 million in Q2.
Monthly active users of our learning apps in Q2 reached more than 100 out of the 13 minutes.
Besides of course, leading for all new users contribute by organic traffic increased by 97, 3% year over year and of course being in front of the cocoa organic traffic are comfortable that 28.4%. After all course meeting in Q2.
Then I will be presenting the financial highlights in Q2 total gross feeling from our online courses reached RMB, one 1 billion for the second quarter up 99, 7% in the year over year and of course feeding for our premium process real SKU RMB 1 billion.
Plentiful point, 11% year over year.
Of course meeting for our K 12 segment account for 76, 7% of the total breast feeding in second quarter.
Okay.
Per student enrollments for premium courses were up by 129% year over year Pittsfield enrollments from our K 12, and adult segments account for 86, 6% and 13.4% August up his student enrollments for premium classes respectively.
For the second quarter total net revenue reached a record RMB one planes to rebel it all U S. Dollar 200 planes for a minute.
This would represent an increase off the Henry.
Seven 5% from the second quarter of 'twenty 'twenty looking.
Looking at growth by segment.
That revenue from over a dozen corporate services were RMB 921, putting about million or U S.
142.7 minutes up behind me out and 12, 4% from the same here in 'twenty.
We attribute this growth to the increased revenue we generate from our online courses mutual first of all driven by the increase in pass through lean walnuts proposed K 12, and adult courses of your premium courses.
Net revenue for our lending products were RMB, 206, 3 million or U S. Dollar. So I think two minutes up 138, 8% from the same period in 2019 Covid impacts a substantial interest in your dictionary pen Seltzer water.
Net revenue from our online marketing services were RMB 466 minute Oh you were.
S dollar 25, 27 million, representing a 68% increase.
So with him here in 2019.
But in the second quarter, our total gross profit reached RMB $683.0 million or U S dollar, while hungry and $12.0 million up 144% compared with the second quarter also plenty of money.
Of course market for learning services increased to 57, 9% for the second quarter of 2021 upfront 51, 7% for the second quarter of 20th any the increase was driven by improved economics of scale and ongoing optimization of all faculty compensation structure.
Gross margin for loading products English to increase to 43% for the.
Second quarter profit of 32, 4% for the same period in 'twenty two.
The improvement was mainly attributable to the substantial rise in sales volume of your adult because independents here are three which carry a higher gross margin than other learning product.
Gross margin for online marketing services was 32, 7% for second quarter of Chinese Honeywell compared with 28, 5% for the same period in 2019. The increase was mainly attributable to higher sales of performance based advertisement so with third party.
Her down to par piece, we've had our improved gross margin profile over the last year.
For the second quarter total operating expenses were RMB, one 2 billion or U S dollar well hungry at $90.0 million compared with RMB $564 six minute for the same period of last year.
With that for the second quarter, our sales and the marketing spend well RMB 970, Sweet 0.2 minute compared with RMB $447.0 million in the second quarter of any country.
Research and development you can start were RMB 180 million compared with RMB $95.0 million in the second quarter of kind of funny.
Yeah.
Our operating loss market well, what's what are your 2.1% in the second quarter, all the time and finally, what compared with the 45, 4% for the same period of last year.
For the same quarter on the 20th only what our net loss attributable to ordinary shareholder was RMB $524 four minute.
All U S dollar $83.0 million.
Compared with RMB 257, 8 million for the same period of last year.
Non-GAAP net loss.
Good ball to ordinary shareholder for the second quarter was RMB $525 million or U S. Dollar 77.5 million compared with RMB 255 minutes for the same period of last year.
Basic and diluted net loss Crazy ASP for second quarter was RMB four two not all U S. Dollar Phillips 66.
Non-GAAP basic and diluted net loss Quay the ASP for.
For the second quarter was RMB 400, all in I O U S dollar Euro six three.
Our net cash used in operating activities for the second quarter was RMB $250.0 million or a scholar $84.0 million.
Looking at our balance sheet as off the two uncertainty plenty of any one or a contract liability, which mainly consist of the deferred revenue for online courses were RMB, one 4 billion or U S dollar to hungry and third he pointed what 13.1 million compared with RMB. One 4 billion that's off of the December 31st before Neocon.
At the end of the Purion <unk> cash cash equivalents.
Restricted cash term deposit and short term investments totaled RMB, one 9 billion or U S. Dollar 294 point for a minute.
This concludes our prepared remarks, thank you for your attention.
I would like to open the call to questions. Operator. Please go ahead.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
Once again that with Star then the number one to ask a question at this time, we will pause momentarily to assemble our roster.
And our first question comes from Sheng Zhong of Morgan Stanley. Please go ahead.
Thank you for taking my question. My question is I think you mentioned that Oh, it's kind of in this rate environment, you will focus more on the non K 12 space.
Question is.
How long do we know what this means for K 12 tutoring business to pick up gradually.
This market and if you have any.
I appreciate it gentlemen, thank you Shelly ASP that's good yeah, great. Thank you.
Thanks, Sean.
Yeah right right now we are following guidance from the government at the working level. So for example, we stopped our summer courses, we removed almost to a scheduled on weekends.
And and things like that so.
Going forward are we.
We'll see more changes like this and basically.
The way we.
All of our service for Covergirl will be different.
<unk>.
And in the process, we will follow guidance from the government.
Well one thing is that we see that the national policy Beijing policy and other local policies regarding it as T. They oh there.
Actually quite consistent in their content. So so so our current thinking is we expect the measures in these policies.
Some already implemented someone not implemented yet, but do we expect them to be executed implemented in the coming months.
So so we're still in the process. So so some of the timing is not clear yet and the schedules are the government schedules could be moved around but basically we will follow.
The government's instructions.
And so so this is the this is a common view and so so I think it's a still earlier for a very clear, but could you tell us just mine plan from us again.
Again as.
As we said we do expect the measures to have significant impact on our existing set of top class business.
And these impacts will come in the.
Coming quarters.
Yeah, Let me take this opportunity to talk a bit more about where we are from a more macro perspective.
So first I think the policies are designed for the for the long term development of China's education.
So let kids have more free time, let them develop more extracurricular interests and put more resources into schools. Yeah. These are all designed for the for the long term.
Therefore, we are we fully embraced these changes these policies and will be a complaint as our.
Our original intention to do education business is.
It's actually very consistent with the with the reform.
Yeah.
So there's a actually a Chinese saying Oh sure try and I'll show you that you acquire.
Teachers are those who preaches values teachers, skus and the spouse thoughts.
Yes.
It's a fitting one right now yeah, because it is all a purpose to do these things purchase values teachers skus into spelled out.
And we use technology to do that.
The final purpose is to empower the kids for children to get brighter futures.
Yeah. So this is why we fully embraced the.
Alison.
Second.
Regarding non Kid yourself.
We also see that.
The governments are embracing and actually driving digital transformation in many fields in the economy, including education.
Digitization is a powerful force.
Yeah.
Really increases productivity and transform a lot of the fields.
And the government understands that well.
We will not stop doing it.
Including agile patients. So for example in July six ministries jointly released the guiding my opinion on education, New infrastructure beauty, Oh, you shouldn't just yet.
Mainly to promote more deployments of digital technology and education.
So.
Did you fishing technology in China in our view is definitely moving forward.
So online I S. T of course is part of education technology, but there's lots more.
Two attacks than ASP.
<unk>.
So as I've talked about in <unk>.
Prepared remarks.
So we will focus on the four for four streams four pillars of growth learning devices didn't close this adult doses in education Digitization solutions. These are all in line with the overall government direction and are already it's not something that we are.
Come up after the policy of default.
It's something that we've been working on for some time and that these four areas are all high growth areas for.
Yeah, if you actually look at the numbers so that is what it is.
Clear swaps right now and what's that's also what's many of our teams are hot are hard at work focusing on.
Yeah, I hope that answers your question thanks for that.
Well, thank you very much.
The next question comes from Brian Gong of Citi. Please go ahead.
Okay.
Yeah. Thanks management for taking my question. My question really is about the competition or learning devices adult alright. Appreciate it Steve medication. So do you think you know are the completion of all of those areas will become more intensified since you know after the new regulation new policy.
S. T names are there are other areas also.
Some of them are also looking to come into this area or to fund a new growth drivers. Yeah. That's my question. Thank you.
Brian This is football.
The first is we always believe that intelligent learning devices will provide us with a huge opportunity for the entire company.
And you know in China, that's annuity of about 20 minutes kick off students. That's why it's even more that's all goodness.
That's why our to improve their learning English.
You can see.
Also apparent right now are already ready are ready to invest in some patients.
Indeed, we are scoring to mine that probably many other companies have already entered the segment.
However.
What do we think about basketball.
Intelligent learning products.
So I mean really the technique technical barrier to the entire first half include.
Including the development production in itself.
Well, we think so you would all has made a substantial inputs in the area for a long time and to achieve exceptional results.
Yeah.
Yeah. So if you go back two or three years ago about the we reduced our so dictionary pen serious too in the.
Oh gosh close on 19th we think that we we.
We thought we had expect establish a good hockey reputation recommendations and we think we have pushed us up there as to maybe the impressive metrics to the parents and parents mind. So we think we are in the leading area. We are definitely will be the leading one.
We are the leading brand in the learning device factors. So we think about the yeah.
Larry about the beauty comprehend nickel finish up all the competition in the sector.
The second thing is about the sort of adult education product yeah.
Yes, you if you'll see about the numbers and that's revenue problems.
Our adult education, but it's honestly, it's not talked about or a new person on a year over year in Q2.
And also we are a we are successfully operated as a tool.
Florida ask you all the content all the products in our pipeline Firstly, it's volatile recalled practical English and English language learning programs decades, Baltimore called extra ordinary family that can also help people see pain.
Finally, our memory capabilities. So that's the Franco at there are two entirely.
Entirely different products with different call value to our users. So I think we think about that so we have to put people up but we are capable to operations or to give up on the operating side.
Entirely different ask you at same time.
With our adult T SEC.
Secondly for this part of the course, we are always to try to leverage our organic traffic from our quite sad history without the current app. So as we mentioned we are we have had some nice job all several new functions in the English in the in the <unk>.
First half of this year, so what's the ASP realized a new.
Hi, reading programs. So those things are all the way through that program.
No more.
No more.
A lot of so you're supposed to behavior it shouldn't be too different functions.
We expect that we'd have no more they aren't demands through they are activity our apps. So we can provide them.
Provides.
More product whatever the button, so listen quality because we have this.
I always have organic traffic.
So we think about it or we will definitely will be a have a leading position in this.
Sector.
Yeah, We think that's the that's the that's why I always think about class a survey with the ball. So you know the difference last thought that automation, we find out another very quick opportunity into be psoriasis and two business.
It's not only high school ski mountain, but he is also consistent with the policy directions.
This quarter, we called it.
Digitalization education piss off.
Everything.
We think that it is providing a new opportunities we can spool fabrication in classroom enhance the management of the.
Okay.
But also consider innovative modal delevering.
Alright, and the innovative intelligence alerting communal booster digitalization for primarily in the high school.
Across China, and we adopt intelligent educational solutions will help the self study and the personal teaching dust.
Think about improving the efficacy and the reduced burden both teachers and students.
Yeah, we hope that.
That's helpful question, that's correct.
Brian This is Jack So let me let me add a few words so.
Hum.
So the question is about the competition in these new areas, Yes of course, we will see.
A lot of competition and we already see companies coming out with new products and services already yeah. So.
The way, we think about it is that the.
We view ourselves as a.
As a product company.
So that's the.
And we think we have a product focused company that can service for such companies.
In education, and Botox Botox, both models are good but.
I think for some products for some things.
This this is this will lead to different ways of doing things and different.
Different.
Competitiveness and before.
Four devices, it's obviously.
Because if you actually hold the product so we.
We think for devices, we are we absolutely have advantage clear.
Because we've been doing it for us.
For a couple of years and we have.
Very strong teams.
There are some product teams.
Defining.
In refining and Oh selling.
These products and also for scheme.
We think we are stronger.
Online yeah. So that's why we are where we've already always been focusing on the online side of.
It doesn't matter education and four for steam courses, we will also focus on online and.
It's a.
It's different from the academic courses in the sense that steam.
Steam courses.
At least it should be more attractive and more friendly to the to the students because it's extra curricular alright, yeah. So we think we have good experience and good track record in creating really attractive.
Steven classes like the.
The way it should be the bowl games of course those yeah. So so we think we will be able to create more of these are really successful skus and oh.
Yeah, Yeah. So so I hope that's helpful. Thank you.
Yes. Thank you very much that's very helpful.
Okay.
The next question comes from Alex Xie of Credit Suisse. Please go ahead.
Hi management, Thank you for taking my questions.
My first question is about your customer acquisition strategy and customer acquisition costs things.
I think he was shifting you shipped your biggest.
Focus to the.
Non K 12 segment, how should we think think about them.
Sure.
That's my second question.
It's about the profitability of your non K 12 business lines.
Would you please.
Shell with some of your ideas about Oh.
What kind of margins because you're a monkey itself.
Isn't it so cheap.
No.
This is Ken thank you.
Second of all it does is football and I will take the first question that in the first and I think I said before of course I.
I shouldn't say if it's up also tell you, though is coming to a fully combined with the Beijing After school tutoring.
The matters and similar matters to be adopted by the other local governments and are you planning to implement.
Requirements helped the central governments all opinions.
And for the <unk> customer acquisition strategy for the MAU Ah takes up obviously with children and best of luck.
In the first place ballroom for the Steve Madden.
The adult side locations, we definitely will elaborate for existing users traffic and attach more importance towards the conversions and the contribute by organic traffic to boost the conversion rate and expand our user school as far as the world community every call to watch them eventually in the dictionary into.
In Q1 grew fast with us.
More than two minutes in Q2, and I think the Bachelor show All war.
Oh, Oh, oh capabilities to our booth stalwart.
Organic traffic volumes in the in our different apps.
So for the for the.
So the adult business I think is the perfect falter.
You have to create high quality content in our products for your spending in the market and volatile to further customer acquisition and so with income volatile whatsoever.
What was it before that all of the strategy is for the customer acquisition. We are internally, we are traveling well always try to provide some sort of high quality course, they've tried to create high quality content to our customer first and then we just with meal before we release to the public because obviously, we'll take the several round up all in.
Turtle internal interrupt hat for the all the content and then suddenly find the content and the again and again to make sure. We can provide the high quality content to our customers. We think that's the way our people strategy and philosophy are going towards the adult adult education.
For the steam for a photo steam production definitely Brazil always we'll also build up so several different new content in our pipeline and to create more cross adding scenario for.
For the kids are over six years old and we think we are right now we are operating a successful product like Beachy vibe Ricci like.
Oh Kids kids programming and we expect that we will have time at the others.
Steven will be online and will be available for the.
It's over 60 are sold in the in the Indian auto for some answers we hope will create the most scenario for them to do the cross sell between our existing customer.
I Hope that's also question central Alex.
And the second question is about the profitability of seafood, Yeah, let's think about it just like we always emphasize we always care about the healthy business model and healthy.
Economics at least and therefore to operate our business before we became a successful business model definitely that will be the house they distance forest and so if you go to the different sector. So you will see the hour running the wireless and the gas will be the great. Examples. So we've just seen proof all work.
Gross profit margins year over year, and you'll see the tremendous I'll pick up all of our course for gross margins in the compare with philosophy here. It is here in the learning devices.
And also you can see up although we are improve all most of almost all of our operating matrix year over year.
Since we became a public company and I always think about but we'll always keep that Chinese and we expect that's real pizza.
Every single segments in all businesses, it's very bright futures.
Potentially it's a great opportunity for us to give up all the vessels. So let's think of all that we just keep that you all track and keep.
Keep moving forward and improve our operating matrix industrial pizza, a piece of profit will be something for Lamar.
That's the I hope that will be helpful for central.
Got it thank you very much.
The next question comes from Thomas Shen of Nomura. Please go ahead.
Yeah.
Yeah.
That's starting to management for taking my question.
One question about how should we forecast the impact from the recent regulations for after school tutoring on the colors on the top line our margins will be very helpful. Thank you.
Uh huh.
Religion.
Firstly, you would always committed to fully complying with the P. S Tomatoes, and the thing that matters.
Other local governments.
If I move to implement the requirements of the central government the opinion income.
Income, Pennsylvania estimator.
I'll start with operating one of the few clauses or because there's no holidays and the current dose briefing period in Beijing.
Such measures are expected to have a material impact on all what because it's too could you tell me because that makes the cost base.
And the first to call her off this year the revenue from kidney.
She S P collapses accounted for less.
Less than 50% of our total revenue.
Uh huh.
<unk> intelligent learning company not to just talk to your own company.
So we will double deduction.
Our external forces.
This does not change our long term reversion on the B, we are truly optimistic about the long term development.
In the medium term I think that this is a maybe a tougher must be the bump.
Maybe a few quarters Fortunately the transition.
The whole couldn't help ASP it makes up about a.
What he wants a ton off our go to total revenue.
Computer infusion agreed upon Tonight.
Subject to make up about 24 months on top of Q2 total revenue.
At the same time, we run a diversified business with others to get people convinced the demand.
Uh huh.
Impacted by the regulation.
Oh, not only STB, Tennessee, so obviously, they're quite big.
At over 50% of our revenue on a growing about her.
100%.
So let me think no bullshit.
Maybe the amendment.
We'd be able to manage the precise carefully and prudently.
Video dominated than team has a long term vision and the commitment and the real account in the tool and navigate the challenges and how about better pricing in the market.
Now he is supporting us in the long run.
Uh huh.
Thank you.
Thank you that's helpful.
Yeah.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
Hi, guys. Good evening, Thanks management for taking on my questions.
The outlook in terms of the operating expenses like R&D sales and marketing and G&A in the next couple of quarters in particular.
How about the sales and marketing side.
Should we expect it to.
Mkay really slowing down the next couple of quarters and on the headcount.
Any color about what we should expect the head count by the animals yeah. Thank you.
Yeah.
Yeah.
Hi, Thomas Thank you for your question this is Wayne.
I just mentioned the buy something so we are getting on the bridge. The P. S. T side at the same time.
Finally MAU growth.
T side.
Businesses, such as market indications.
Indications education Digitalization solutions Nicole.
It is not easy to have a clear direction for the change.
Our provision expense and the home.
Financials level.
I just mentioned.
E Tech company, and we have multiple business.
K 12 as T. It's not our so goodness.
And the non keeps you optimistic revenue pool.
Second quarter of this year.
About 60%.
Which again is no.
The negative impact from the Boeing reduction policy.
I'm willing to ship two points on the channel all operating expenses for our K 12 F T H.
And part of our financial outlook.
First to.
Send to the government poly.
Policy population ASP tithing almost.
Media platform, it's been we stopped advertising for keeps well to chance feeds and the branding activities for our coffee.
Which resulted in a sharp decrease in marketing expenses.
Spent.
We will downsize the teach outs.
SKU.
As you mentioned, we had come off considering the limited tendering.
Tying the salesperson and the children in countries keep sales will be reduced accordingly.
Accordingly.
Bulk or the R&D investment.
I think we.
Tom Yeah Technology company, we will continue to invest a lot in our other.
Isn't it.
There's a chance it will be continue to increase for R&D.
Finally, I'd like to.
And besides that.
Diversification is our.
One of our the vintages, we will try to take any chance to grow our business.
The condition could condition is to fully embrace and compliant with the law and the government policy.
Thank you.
Thank you.
The next question comes from leaping Zhao of C. ICC. Please go ahead.
Good evening management, Thanks for taking my questions I have two questions here.
I think the returns policy encourage students to study at home or at school.
Uh huh.
Demand for our educational.
Martin I think.
And any plans for the new product launch of <unk>.
Smart devices.
And secondly, your related question I mean, I think to do share purchase program, we noticed that net net is announced.
New share purchase program.
$15 million and D R.
Management elaborate a little bit more on the reason behind it. Thank you.
Okay.
Uh huh.
Yeah, Thanks, Brian Yeah, So oh, well regarding the first question about our learning devices. Yeah, you asked about our and any plans for new products in this area. Yeah. So so we actually do have a new product.
Very very.
A recent time, yeah, So tomorrow, yeah. So yeah.
I was just Oh.
You guys will be the first to know you know tomorrow, we will launch a new book.
And of the Dictionary pen.
In collaboration with the People's.
Vacation press, Yeah, Let me tell you saw that show.
So tomorrow September 1st we will launch.
This new dictionary pen.
That has a feature a stop work directly.
Which are the students textbooks yeah. So this is a one of the most asked about feature.
That oh, the parents and students need and we have finally been able to to work out all the details and lunches tomorrow and Oh.
Yeah, we are very looking looking forward too.
You guys like it and.
I'd say a couple of days after that.
We will have another problem.
That's.
Ready to language learning also language, Tony but the other another side of language learning yeah, not reading parks, yeah. So yeah, yeah yeah.
I guess, which split it's about.
How do you learn language right now so Oh you read at all are you you do so.
So we also we also like that product very very much and Oh, yeah. Yeah. We think we'll have no yeah. So.
So so so we will know how.
Oh, how how the how the students reacts to it.
As we talked about September is.
Startup school, yeah. So it's a very important periods for any product related to two two learning.
So we think the two new products along with the existing dictionary opinions that are selling very well yeah. So so so we think oh.
Think of it we have a very good oh quite a lineup for this school year.
Yeah. Thanks.
Yeah.
Yeah.
The next question comes from Kansas Chan of Tyler. Please go ahead.
Uh huh.
I'm, sorry, operator, yeah, we I think we have a second question right.
Yeah. So.
Yeah. So just a quick question regarding the share repurchase.
Third purchase program for from Moody's.
Yeah, So I introduced in that Oh.
In my prepared remarks that Oh that is today announced that Oh, there's a share purchase program.
Proved for up to $50 million so kudos.
And.
It starts up two days from now lasting Oh, almost oh three years. So so it's some of these will purchase shares on the open market. So.
So the.
He is the announced this year.
Purchase program.
I think.
On one hand, it demonstrates the strong support.
For your Das business for our long term development. So as you all know so there is a has has supported us on.
On multiple occasions for example, providing us with a with liquidity line a couple of quarters back and and this shows again there their support I think that's that's very important in this in this market are phenomenal.
On the other hand.
I think there is certainly hope Oh, I would hope and that is you'll Dol has a a good performance in the capital market in the long run, yes, So oh.
So I think that that's quota share purchase program and.
And we will provide you with mop it when we if we have more in the future.
King.
Yeah.
The next question will now come from Kansas Chan of dialogue. Please go ahead.
Hi management. Thank you for taking my question I just want to quickly follow up on your comments about downsizing.
I think I'll stick, our K 12 business can you just.
Quantify the restructuring costs for this cases 12, I asked your business and how would that impact your cash flow position. Thank you.
Okay. Thank you for your question.
Yeah, Paul Paul keeps out for chips and cards.
We believe each player will incur additional costs such as compensation cockpit dismissed the stuff cancellation positive clauses into office and certain impairment loss from prepaid content. It's the materials.
However, I think different to play in my face different situations.
Hum.
And just to mention the pent up until.
<unk> already has a good basis for K.
K 12 business.
And then in the future, we expect to be driving more growth on the T side.
Our business.
Part of our K 12 tenants, where John did not catch up and as such as.
Bean coffees and adult education, there will continue to create validation for us.
Hey.
Compared with other to drink company, we have relatively low additional costs on the compensation side, and we will offer more opportunity to our tenant.
Second as a company.
They are fewer fixed cost us a chance to venture fee to be considered a do we see with triptan.
And finally, we believe the restructuring costs that you're close to being choosy signed a policy.
Now for Crosby organization for two P M.
Currently.
We are actively communicating with the regulators on the details of the policy.
<unk>.
For non for profit organization.
But the policies.
The way so we will fully compliant with government.
Policy.
And.
We still need to wait for the final policy.
We should get is helpful for your question.
Yes, thank you very much.
Yeah.
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 call.
Without directly or reach out to the TPG investor relation or in China, or the U S Purple Thursday.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
Okay.
[music].