Q2 2022 Youdao Inc Earnings Call
Yeah.
Good day and welcome to the Euro down 2022 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 of Joe Del Please go ahead.
Thank you operator. Please note the discussion today will contain forward looking statements relating to the future performance of the company, which are intended to qualify for the safe Harbor from liability.
Establishing the U S. Private Securities Litigation Reform Act, such statements are not announced guarantees of the future performance and are subject to set their risks and uncertainties assumptions and other factors. Some of these risks are beyond the company's control and could cause actual rate.
Could differ materially from those mentioned in today's press release.
Discussion.
General discussion of the risk factors that could affect you without business and financial news out is including installing in filings of the company with the Securities and Exchange Commission. The company does not entertain any obligation to update these forward looking information exactly.
We acquired the law during today's call management will also discuss certain non-GAAP financial measures for comparison purposes only.
Definitions of non-GAAP financial measures and reconciliations.
GAAP to non-GAAP financial results. Please see the 'twenty to 'twenty two second quarter financial results news release used to believe today as a reminder, this conference is being recorded.
A webcast, but has a replay of this conference call will be available all your Dallas corporate web site at IR Dot Dot dot partner Johnny.
Joining us today on the call from the senior management is Doctor from Joel <unk>, Our Chief Executive Officer, Mr. Lei Chen our president Mr. Pelling, Sue <unk> VP of strategy and kept our markets and Mr. Wang Li Oh our.
Our VP of finance.
I will now turn the call over to Dr. Joe to review some of our recent highlights and our strategic direction.
Thank you Geoffrey.
Thank you all for participating in today's call.
Before we begin I would like to remind everyone that the financial information and non-GAAP financial information mentioned.
This release is presented on a continuing operations basis and all numbers are based on I mean, b unless otherwise.
Specifically stated.
As you may have noticed in Q2 regional COVID-19 resurgence significantly disturbed the macro economy.
Especially in April and May it by June the economy began to recover in our business followed suit.
The challenges Q2, net revenue was largely stable year over year.
That RMB 956 minutes.
We narrowed our net loss to RMB 461 million in Q2.
0.3% improvements year over year.
Besides operating cash flow reached positive RMB $104 million in Q2.
Highest we've achieved in any second quarter periods since our IPO.
Due to the strong sales performance of our new services and smart devices.
One metric we track is digital content services.
Find as sales of new digital non hardware services released after the double reduction policy.
Sales of digital content and services reached over RMB 200 million in Q2.
With gross margins exceeding 50%.
Persisting demand, we expect digital content and services to keep going for the next few quarters.
Because of the quick ramp up of our new products and services in the first half of the year and relatively strong demand from consumers across all business lines. We believe our prospects for the second half of the year are strong.
With that overview I'd now like to share more color on our strategy and progress in the second quarter.
Technology and innovation are the cornerstones of our business and directly deployed to our smart devices.
Revenues from Smart devices reached the RMB $239 9 million for the second quarter.
16, 3% year over year.
Fight the pandemic impact on the delivery of smart devices. In Q2. This demonstrates the resilience of our business and popularity of our newly launched products.
Particularly those that have hit the market over the course of the last year.
You had a big serious game continues to lead its category.
The third consecutive year, it's top of the charts on JD Com and Tmall driven the June 18th shopping festival with the most of the sales volume and number of units sold in its category.
Our Utah listening part, which was released last year also grew quickly in Q2, but during the festival lettuce category on JD com with the highest sales volume and number of units sold.
More recently after Q2, we.
We have two significant product launches one is your direct salary pen X files.
And all news Dictionary pen.
And as more possibilities to the dictionary pen category.
Support for more than 100 language.
The word database size no taken features and a new design. It is again, leading the market.
And how can you even more language learners everywhere.
A video about the new you don't Dictionary Pen X five.
On our IR website, and I encourage you to view.
The other new product is smart learning path.
This marks our entry into the learning tablet market.
Tablet market is interesting because it is a growing market that is.
Undergoing a fundamental technological change.
The learning tablets are going from video content to AI.
Learning technology base.
And of course, we are good at applying AI technologies to learn which is exactly what has made you that dictionary pen and listen impasse successful.
With our experience and learning technology and device designing our teams are bringing important innovations to this product form factor and are making a lot of learners learn more efficiency.
Turning to the learning services segment, our strategy is to create a unique and comprehensive experiences for curious minds by using our sharp technology edge applying our cost offerings.
Across more scenarios and creating more synergies between our proprietary courses in us.
Net revenues from learning services was RMB 564 minutes.
Down 7% year over year.
Due to macro headwinds and different seasonality after double reduction.
Uh huh.
Sales of learning services performed well in Q2, and total sales were up significantly year over year.
So looking at the full year, we expect Q2 learning service revenue.
To be a one time event.
Moreover, we are making good progress on our growing new learning citizens.
Revenues generated from steam costs grew to over 20% of our total net revenue.
Since double reduction the compound quarterly growth of gross billings from steam cost is a pass 70 per cent.
This bodes well for our future growth.
We continue to leverage our strong capabilities in AI functions to enhance our courses by further integrating into your dog chest. For example, second quarter gross billings from the course rose over 60% quarter over quarter.
Similarly, the compounds monthly close rates of daily active users.
He was a board game Academy up rose over 130%.
Gross billings from graduate school entrance exam courses grew by triple digits year over year in Q2.
Led by upgrades to our one stop service the unit economy explored these courses improved as well.
Demand also sorts for vocational education.
Our data analysis close was a stand out for the periods with gross billings up over 1000% year over year in Q2.
Demand for our English course also began to go up particularly in June with the markets return along with our upgrades to enact a more immersive first person.
Learning as an hour ago.
Gross billings for my English courses rose by over 30% quarter over quarter.
Despite the pandemic impact.
Our other business lines are progressing mostly net revenue from online marketing services reached RMB 152, 8% million.
Up 25, 9% quarter over quarter. Despite the headwinds from pandemic, we released a new campus sports education digital solution in Q2, and it had a good start.
Q2 marks the completion of our product and service transformation since the introduction of the double protection policy.
The year over year trend.
It is clear that our diversified and technology driven business model has allowed us to weather the storm more resilient.
Our revenue structure changed also reflects the effectiveness of our strategy.
Net revenues from the new services and devices initiated hosted this double reduction policy already accounted for over 40% of our total net revenue compared to.
Looking ahead, our focus will be on building products and services with the support of technology and innovation.
While we navigate the short term macro challenges, we will continue to build out and strengthen our long term competitiveness our confidence in our prospects for the second half of the year bolstered by the support of our new products and services as well on the right track with the right technology.
And the right service offerings.
Advanced technology powered learning.
With that I will turn the call over to Sue Palmer to give you more details on our financial performance.
Yeah.
Okay.
Thank you and Hello, everyone today, I will be presenting some financial highlights for the second quarter of 2022, leading car for you to read through our press release issued earlier today for further details.
For the second quarter total net revenue total net revenue of RMB, $956 2 million or U S. Dollar 100 out of 42 point in a minute.
Robert do Crystal too painful part that prompt the second quarter of 'twenty one.
Revenue for our services were RMB, $503 6 million or U S. Dollar 84 point about meaning do you ever sense, representing a seven 3% of depressed prompts us impurity in 2021.
I don't attribute the secret to the decline in revenue from that at all.
Putting in front of depressed demand due to the resurgence of COVID-19.
Net revenue for our smart devices were RMB, 239, 9 million or U S. Dollar 35 minute up 16, 3% thrombus impurity in 2021.
The popularity of the newly launched had her ducks in philosophy here.
Net revenue from our online marketing services.
M. B 100 people playing a minute we're U S dollar 22.8 million, representing a 8% decrease from the same to you already in 'twenty. If I knew what the decrease was mainly attributable to the curtailed I don't write about that.
But it actually advertising customers.
For the second quarter. Our total gross profit was RMB 497 million or U S. Dollar six gigabyte I'm playing for a minute representing 18 point and a 1% decrease from the second quarter all dependent on any one.
Gross margin for learning services was 52, 2% for the second quarter of 'twenty 72, compared with 58, 8% for the same here in 2021.
Of course, Martin for Smart devices.
He 0.6% plus.
For the second quarter of <unk> 72, compared with 43% for the same people already plenty of Honeywell.
Gross margin for online marketing services.
27, 7% for the same quarter of two compared with 32, 7% for the same here in Tennessee.
For the same quarter total operating.
Expense were RMB, $864 9 million or U S. Dollar the hundred and 99 point about minutes compared with RMB $755 1 million for the same period of last year.
Is that for the second quarter, our sales and marketing sense, well MB 596 minutes compared with RMB 555 planes in the second quarter.
Her all honeypot anyway.
Research and development expenses were RMB 204 million compared with RMB five.
45 minutes.
Courthouse plenty of Honeywell.
Our operating loss margin was 47, 6% in the same quarter of 152 compared with 26% for the same period of last year.
For the second quarter off the Chinese who are in that loss from continued accretion attributable to ordinary shareholder was RMB $453 9 million or U S. Dollar 67 point that made it come Harris RMB $234 9 million for the same period of last year.
GAAP net loss from continuing operation attributable to ordinary shareholders for second quarter was RMB 445 minute, where U S. Dollar 55.1 minute compared with RMB 215 minutes or so.
Same period of last year.
Basic and diluted net loss.
From continuing operations attributable to ordinary shareholder for the second quarter of 2022 was RMB 367, or U S. Dollar Euro playing five five non-GAAP basic and diluted net loss from continuing operation.
For the second quarter was RMB three point impact to our U S dollar you'll reporting tax rate.
Net cash.
Provided by the continuing operation activity.
Well, it's RMB, well hungry and $4 2 million or <unk>.
15.6 minutes per second quarter.
Looking at our balance sheet, that's off to him. So he plenty plenty who are a contract liability, which mainly consists of deferred revenue generate for all of their services were RMB, one 1 billion or U S.
Dollar hungry and 868.1 minute.
Paris RMB, one 1 billion that's after December 31st 2021.
At the end of a carrier or our cash cash equivalents restricted cash term deposit and short term investment totaled RMB, one 3 billion or U S. Dollar 180 825 minutes.
This conclude our prepared remarks, thank you for your attention.
Now I'd like to open the call to your questions. Operator. Please go ahead.
Thank you.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
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It is star and then one to ask a question.
Our first question today will come from the LLC.
Chan of Morgan Stanley . Please go ahead with your question.
Hi, Thank you management and congratulations on that to kill that result.
The question was do you all of the second half you mentioned that.
You have a strong view on the second half could you elaborate more on why we are confident on the outlook and a weight average.
So I can't really see the potential thank you.
Okay.
Thank you I'll see Oh this is Joe Paul.
Hum.
A number of factors that give us confidence in the second half are firstly.
Oh, we have mostly completed our products and our offerings transition.
After the double reduction last year. So our revenue structure you see you have a changed.
Very dramatically so no revenue from a.
New services and devices as I, just talked about launched after double reduction.
Accounted for over 40% of our total net revenue in Q2. So we basically went from a zero percent to 40 plus.
Percent in less than a year.
And the rest of the 60% are are are pretty stable businesses, including.
Some devices, probably lunched before before before type of reduction and also our online marketing business and everything else. So this.
Quick.
Ramp up of new business gave us the confidence that we can oh actually continue to grow new revenue going forward. So we see this trend our X tend to second half.
So that's one.
So secondly sales of our smart devices continue to grow.
Q2 was actually a.
A very challenging quarter for our device team because of Ah Ah Ah Ah cold or is it because of the logistics difficulties and the surprising factor all of the Oh, the pandemic situation in Oh April and especially an airplane.
Right.
So despite that our revenue for our Oh smart devices were up 66 16.
And.
In the quarter to RMB $239 million.
So if you look at per months trend Hey, Paul M may sales of devices were actually done multiple double digits percentage yeah. So so so a lot of challenge and however June I'll say it was rebounded very quickly to achieve.
For the overall for the whole quarter on year over year growth. So so we may.
I think we may still see challenges from a colgate down the road.
As I think the government gets better at local governments gets better at handling handling these situations and also.
Also the growing demand of our devices and our new a new device that we launched a after Q2 and Q3 so.
We think we have already shown that the demand for our learning devices is small and if you look at the whole learning device a market a frost and Sullivan.
The estimates that are the smart learning devices market to be RMB 66 billion in.
And in 2000 and last year, our 2021 and expect it to grow.
100, and a 45 billion in 2026.
So we think we have a pretty long runway to grow here.
And finally, our new digital content services are growing rapidly and we expect to see continue with the fast growth in the second half of this.
As I've said the.
Gross billings for digital content services reached over RMB 200 million in Q2, and gross margin was over 50%. So we expect this sector digital content service, that's basically new services and products not including the hardware.
To keep the momentum in the second half of this year.
I hope that the that helps thanks.
Yeah, it's very helpful. Thank you.
Our next question today will come from Brian Gong of Citigroup. Please go ahead.
Thanks management for taking my question I noticed when we just mentioned that we plan to introduce smart learning pads.
Congrats on getting some more elaboration on the Starbucks and the like what's the reason we launched this product and whats our expectation for this product over the long run. Thank you.
No I think Woodbine.
So yeah. So the the other smartphone and pass it was launched a couple of weeks ago and so so it's a it's a it's already launched so I think what's interesting here is that.
Uh Huh, there's a clear a generational transformation that has taken place in the learning tablets or education tablet market.
Kit.
Hum.
So that's going from kind of content or let's call. It the video base a learning experience two to a P. I adaptive learning technology Center experience.
So of course, we all know that so whenever there is a there's kind of this kind of a generational change either in technology or in our business model. Yeah. There is the opportunity.
For new players for newcomers. So so that's basically what we are trying to leverage fear.
And we we are we have and the whole learning tablets. A second one is is a pretty popular our potash segment.
So so overall, we think it's a it's a good opportunity for us.
So so talking about the the product form factor a little bit.
So the Oh, yeah adaptive learning technology is a can be very effective.
If it is done right.
So indeed in the U S market a lot of companies are offering adaptive learning products for school on it.
And including I think Google kind of Caribbean I'm curious.
Other companies so in China, our view is that.
Our home learning is actually the most promising market.
Adaptive learning to do to have a greater impact.
Because the sort of the tradition of actually.
Our parents buying a home learning devices, so whether you're downloading pad.
Yeah, I can diagnose a learners are weak points with either within six minutes.
Quick quizzes or buffer actually snapping a picture of the learners school testing.
So then so it's very convenient than than the learners learning efficiency can be increased the buy it in a more personalized way with with videos and Oh exercises. So this is a.
Very attractive value.
Value proposition for for learners and.
And that's the key benefits of that of the new technology and we are banking on that for the product to be successful.
And we view learning tablets to be a very good vehicle for delivering the technology.
Because if it's a parents how old are they buying a lot of tablets.
Again.
Firstly on Sullivan data, they expect the Chinese education tablet market.
To be RMB 26 billion in 2026, Oh, so what's the size of a market.
<unk> learning tablets presents a significant opportunity for us and we expect to.
Launch more products in this line in the coming quarters.
And I just wanted to add that our adaptive learning technology is his heart.
Take the scenario I just described so takes six minutes of course, it's all snap a picture of a school tax paper are to be able to diagnose a learners are weak points are there.
This is a this was technically not feasible just 10 years ago now we can do it but.
It still takes a lot of research and engineering.
We basically leverage technologies and the experience we accumulated over over the last 10 years or.
So, including like the video basic text processing and everything else.
And and I I think.
There are a few companies in the market can actually do this well and we believe we are one of them. So we believe we we can be very competitive in this space yeah. Thank you.
Thank you that's very helpful.
Yeah.
The next question will come from Liping Zhao Hep C. I C. C. Please go ahead.
Yeah, Good evening Dr. Joanne.
For taking my questions.
His did the theme carpet.
That's been achieved.
Compound quarterly growth rate post tableau reduction policy could.
Could you please share the broad strategy for your student class a sector and what's your competitive advantage in this business segment. Thank you.
Yeah.
This will.
I'll take the questions and the first that's the balls of leasing a cheap.
Foster sustainable growth ourselves impulsive and.
And of course bearings in Crystal worth now have your percent of year over year in Q2, we're thinking that's the basically from the numbers you can see that we just built up a very strong.
There are some of my dad power for the business World.
And I think as high as.
I stopped all these costs in the prepared remarks, we think we always try to.
Build up so high quality content and the provider that's kind of unique calls with different experience for our customers always.
And if you see the for example, you can see all of the all with Chinese School program and that's almost.
Right I was just about the biggest forward a program, where all operating all reading about in the course of.
It's almost two years ago, we just released that.
Our products to the market.
And we are not the only one at that time, so I'll take that.
We are not even the first one while offering that service with the customer spot. If you'll go back to placebo. There was to see the performance all gets broken right. Now you can see we have maybe come at least evolves the leading companies in these areas.
On the maybe the biggest player.
In the sector.
And so I think what we would have achieved in the sector. Because we are not following a routine way to build out that program and.
I did too.
Create that service.
Can we elaborate our.
It was technology into their products.
Cannot forgive me I know, we think we are we how experience and learn a lot from the group.
And how can we help them to build up a lot of fun and interesting and attractive programs with a kit and we think we got it all.
It's a kit and all students and the customer can learn a lot to learn from our products and that they have achieved so far.
Successful firms approach success for them also in that program. So I think that's the reason why we can't achieve the successful first talking about the out years.
And as we are asked often mentioned and if you go back to see the so your doppelganger Mcdaniel.
She has a platform to provide the service for free services to our customers and plays a tennis spoke it means.
Over the Internet.
And then kind of see that as the the due date.
Users and also you without ball game.
Yeah, Chris I'll wrap around the 10% in Q2, it's mainly attributed to the with your uncle, we update our features of the App and the Bachelor synergy between the chess related clauses in there that we're.
We're seeing things along well and you you know what's the thinking process that starts off with diversified program diversify products and are you sort of it's not.
Concentrates into the into some small area I think they are so great opportunity potentially.
In this market.
We expect that we can provide more high quality products in the long run and also some we think very interesting and exciting program in the pipeline to all parts of the market in the in the next few quarters. That's what that's what we think eyeballs.
Of course this growth strategy I hope that answers your question.
Thank you.
Yeah.
Our next question today will come from Thomas Chong of Jefferies. Please go ahead.
Hi.
Expense management now let me take my questions could you share about the progress for our education Digitization solutions. Thank you.
Oh I agree with him up a visit today for the <unk>.
You couldn't be the type of person solutions.
The main product with a somewhat linear.
Criminal it targets a hormone scenario basically your assumption.
This is the main message there are over 30000 students you'll see it in the scoop and.
I look at the most and 2 million paid yourself from work, maybe theyre going to depart from the homebuilder data.
Starting with the plans they are targeting the license more efficiently with all of our personalized the practice students, but also you know home.
No new patients.
Homework, you do put that Doosan solution.
Have you been awarded by the typical it is using.
Using information technology of.
What about the men and women.
It seems you deal with that.
By the government.
Hello, Liam for Eylea.
And then in Beijing Xinjiang.
Hangzhou, and who though and I tell them even further.
No it isn't without a hard decision, what's the likelihood that I said one of the teachers hold true innovation and that's in Oh look fusion created opportunity I'm probably in 'twenty two.
Sure.
The only one outstanding pace of the micro irrigation segment.
In Q2, we also introduced the you'll come up with what they do with Houston.
Put that base.
With our cardio renal.
And a lot to this technology.
Yeah, I can literally reported measure and analyze.
For myself the student in.
In the playground.
I mean, they're both Eli.
As we know them well.
Workplaces by the policy.
And then it has the past the English will be who became the third.
Third largest subjects during the compulsory education state so that'd be my own up for the lost Peter Hutton Ingrid.
So I didn't know me with what Peter had to cover the thousands of students.
Manually because of their pro forma Monday a lot.
Although it takes a lot of time to prepare the improvement.
This all will put us well he'd heard no longer need to report on the matter they pay today.
But but having more time to be building.
Otherwise, there's oh these huh.
You're right from the students exercise.
I supposed students they have.
Tao to access it really flies himself with other memory device.
Yeah. It is it.
Their parents.
Can better understand their children.
Countries that end up growing in progress.
On the whole that defies our ability to kind of pull from the government due to the COVID-19.
Yeah, Oh, because that's pegged to achieve a better if enough appointment well educated and deal with hydrogen solution. The second yeah. Thank you.
Yeah.
Okay.
Yeah.
And our next question today will come from Kansas Challenge of di Wow. Please go ahead.
Good evening management. Thank you for taking my question I want to follow up on your earlier comments about our second half outlook.
We've put that on fact.
And at that of course, given the current macro and also the Covid situation holiday.
Recovery and also the growth outlook for the second half. Thank you.
Yeah.
Thank you kind of say supposed to come out every I'll take some questions.
I think so first of all a whole lot there so.
Diversity.
That sector.
Although the only I'll say I'll call it the vocational like that at all so far in this sector diversity diversity of that product for restaurants in this area. So we are right. All those things are several different vertical.
Vertical sectors and the first of all I think it's a graduate school interesting that causes are likely to keep them on my time in the second half as well and we think that's a as close as our top priority at all deposits in this year.
So you'll see the numbers off the students who register for the graduate school entrance exam.
Indeed in the 2022 it's reaching up also over a full point of five minutes.
So in Crystal ball to almost 800.
Peoples comparison.
I didn't hear it off last year.
There are a lot of the let's say.
The growing demand from the market, we think that that's the reason why we are focused on his base salary.
And that's I think that's also kind of leverage some of our advantage in this sector. So first of all definitely there'll be the users and Oh operating the largest.
Fixed rate a fixed when that happens in the China and most of the rest.
At least we think about the roughly up I'll hop off the registers, yes.
About the 18th Stephanie has the potential to go up with the college students and we think we can do that's the that's the first that's the first.
And then on the other hand, we also operate in the market.
Chinese University amongst product and our in terminals. So the number of.
Number of Rochester.
College students are almost over 40% of all kind of school University and the University of ready to serve with our products. So we're thinking of all the we have upgraded the potential users who you know are you.
In our in all products.
We think that usually people have reshuffled, all wattup advantageous to convert them to the courthouse users are in the in the long run so to think about so that's what will be the first advantage when they operate.
And so I think that we had that sports health.
Healthy and Oh, what.
That's possible with a healthy business.
Secondly, with all the we are out of it.
Last year, we restructured our teams and provide more services and Mercury with our tech tax features in our products listings, that's just like that and I shouldn't get into all the input products. We think that's also a ballpark we're talking about.
Ballpark broadband here all of those things are in the la La land that we think we can provide it must haves.
Perfect service too that you shouldn't do video or central help them I don't know about what they need and what the mountains and what's the how can we help them as they are academic level since they started.
Well I think that that's a little piece of a very very important part when do we when does he wouldn't have to choose the different products in this area and finally lifting in velocity or before we start I'll write off seems it seems sort of ultrasound in 2016, that's a we have already come out of all its a lot of experience and there to help.
Produce and how to operate that kind of.
So the thing because that's a little bit also.
Also another differentiation they saw a hospital they saw a purer seen he isn't getting a salary.
That's the that's what the graduate school exempt products and secondly is about the same but because you know it's also.
That's another very interesting area. It seems that a lot of stuff starting to sit in front of US here. So and then we saw the very strong demand from for this quarter.
In the in the in this year in the last year, so and.
Example standards.
Of course, leading off the illustrations quarters were all about over 700% year over year.
So I think that we are limited to adopt that product. We are but we are definitely spoke or songs or quality of the content of our products and help them. We expected for why that's kind of the high quality of service a smaller users in the on the other hand, the weeks that we know about what do you need to do that.
Our survey suggests also that well see with Merck, we're starting her ship experience put tackled even ownership experience with that product and a quick example, likely U S patient program and potentially if we do have the internal in Hershey opportunities followed by users, but it still depends on the market.
I think that's the way we all work together with our student help them to design a career path. After they are they taking our courses. So it's absolutely we think of all the stuff that's in long haul High school Hustle help all students.
Learn more through all the services.
And finally.
Finally, we think the English courts are thought likely it would be the first sort of rebound back in the second half.
Subject to the pandemic had to address other macroeconomic conditions.
As I discussed in the prepared remarks, you saw the recovery in demand and so for the English classes that sports variance racing or for 40% quarter over quarter into Q2, and as we think about that property contributes to the academic to the operation of all English.
Immersive first person scenarios has been bill come by the users and the Blue circles are completed these completion rates to about 50%.
And finally I think the.
And if the yards are interested related clauses are likely to be continue to be faced with challenging and Oh I'm sorry.
To close off the current macro conditions I think that's our general overview stand Oh looks after the outbreak vocational and that of course as you know the second half of 'twenty.
Thank you.
Kind of.
That's very helpful. Thank you so much.
Yeah.
Okay.
Again, if you would like to ask a question. Please.
Please press Star and then one.
Yeah.
Our next question will come from Linda Huang of Macquarie. Please go ahead.
Yeah, Hi management. Thank you for your briefing them I have one question regarding for the margin because we thought that the certain headwind for the second quarter up.
But looking into the longer time, how should we think about a normalized gross margin for the different business division and in terms of the operating profit margin can you also give us an outlook on what he said normalized level for the longer term. Thank you very much.
Thank you Linda this is Wayne I Love your question.
In respect to our gross margin we saw.
Declined from 51% in last quarter to sweep in the in this quarter.
This change was mainly from the new student seasonality fluctuations due to the.
The seasonality of being recognized as revenue on our learning services.
On a revenue side.
Okay.
New generation of Dictionary pen.
Right.
Those kind of weak potentially improve our loss.
On cost side, we will continue to grow out different ways to optimize our cost structure to improve our margin.
Considering the fastest mentioned like that yeah.
We are very confident.
Ability to improve our margin over the long run.
Let's look at some details on the margin of our learning services and smart devices.
For learning services we.
A much higher revenue base.
They can have yet.
With the completion of our learning services and transition.
The economics of skills will now appear to be back to normal level and we did.
Annual gross margin for our learning services.
Well, it's better to be stable, even better than last year.
That's cool Materazzi lockdown policy, causing significant uncertainty on the production and the lever.
Our smart about it.
Following a relatively slow in April and May.
We saw signs of recovery in cross.
Business in June .
And finally, we achieved.
15% of annual increase on a year.
Year over year basis.
Part of the challenge, we face the jewelry as a coffee.
Surgeons and a diverse micro environment, we actively depth and remain focused on our long term strategy by continue to span I won't keep abilities in creating value for our customers.
The release of our new theories as to chant five and the learning path.
It makes it possible to achieve higher skills in the bedroom.
Profitability.
Our smart devices category.
Hum our opinion margin.
We are dedicated to improving sales and marketing efficiency.
Our staff costs.
We are simultaneously chancing, our technical and R&D investment to mid teen our advantages in technology.
And you can see.
In this quarter, our net loss narrowed by.
12 to standard to RMB 460 million.
We have.
Be.
Looking on the lantern solutions to improve our operating margin.
So hopefully this is helpful. Thank you Linda.
Yeah.
Yeah.
Okay.
Yeah very clear thank you very much.
Our next question today will come from land one of high Tide Securities. Please go ahead.
Okay. That's 19 for taking my question. My question is about two could you. Please update.
Okay.
China, all online and offline off market like this.
We understand that there could be some impact on Q2.
Oh, Oh Oh.
For myself.
On the new products in second half year.
Oh sure so regarding India different sales channels, yeah. So.
Right now over 50% of our of our devices sales out through online channels. Yeah. So so the Oh of course, the major e-commerce.
You called the services on our other key online channels and also we have.
The lifetime.
We do triple channels for sales of these devices also online and.
The offline channels are also very important to us because oh, we have been working with are these.
These partners for a long time and.
So through the.
<unk> thousand we have a civil thousands ourselves endpoints.
Across the country. These are actually very important for us.
Mid income areas not the tier one cities, but the mid income Oh, yes, and become mid income cities are a lot of our customers. They are are they they are.
They like to buy a hardware devices from frontier offline shops.
And.
The Q2 the impacts from Covid.
It's actually several several factors yeah, let me explain that a little bit. So so one is oh is it is actually the delivery process.
The impact to it.
Kind of Ah is Uh huh.
A key reason is that when people go online.
The older device when they see that the device kind of takes several weeks or even sometimes even longer to arrive.
It impacts their willingness to place the order or so so that impacts our overall sales process and efficiency.
So that's that's one of the key reason of course.
And kind of.
In Shanghai, where it where people there.
They are they don't have the data.
We cannot happen at all.
Of course, there is a oh basically no sales plus the other element is there still impacts because of the well.
Just like Oh kind of difficulties.
And the other in.
Impact is oh is for storage and Uh huh.
So for the storage of the devices that we would have some.
Warehouses, that's oh, that's within the impacted area. So that's also another factor and.
Looking ahead to Oh as I said I think the local governments are getting increasingly better at our hand.
Handling the T D.
The corporate events without actually incurring a lot of logistics troubles. So we see that as a is a is that fair.
Uh huh.
On the line and also we have also.
We have also kind of rearranged our warehouses so that it's more diversified in terms of locations. So we would think about truth that should help too. So so overall oh overall, we are where we are where we see probably promising change for us if I say it.
And they're coming in coming quarters and.
Keep the new Dictionary Pen X five is.
We think it's a it's a great product so oh okay.
Check out a video on our IR website, and Oh, I think he would like it and and and of course, we are looking out from who look at this from a very long perspective. So we are we think.
Our teams have a lot of experience designing with devices. So the learning tablets learning paths.
Alright.
Category for Us So we will know pets this category.
Very carefully and we will have new new devices on the line so.
We will keep you posted.
Yeah.
Oh I'm a points we added here is such a thing.
For the online offline channels questions with me all day. So if you go to the different tier cities, that's little bit of a difference following those comments.
And if it was a feat in the tier one tier two city are definitely sell more devices through the online channel and in E Commerce platforms.
And in that area stuff out in the industry just before we used to sell more.
This was all planned China, but trust me underpin those cities and but right now because of all the penetration. So I'll stop short short short videos pop up and I felt like the others platforms.
And as the automation to be a wholesale kind of the industrial channels in the in that cycle and we expect in the long run that's really changed probably probably there'll be change on either as a percentage of the online and offline channels in the tertiary butyl status as we think about that is it probably will be the trend in the long run. So I think that's the that's my.
How much hope that answer your question.
That's very clear.
Okay.
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.
As you go through I E or the child to TPG Investor Relations in China, or the U S have a great day.
The conference has now concluded we do thank you for attending today's presentation.
You may now disconnect your lines.
Okay.