Q3 2022 Youdao Inc Earnings Call
Good day and welcome to the <unk> 2022 third quarter earnings Conference call.
All participants will be another send only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, we will have a question and answer session.
Ask a question you May press Star then one on you touched on children.
Youre using a speakerphone please pick up your handset before pressing the keys.
They need time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two today's conference is being recorded at.
At this time I would like to turn the conference over to Mr. Jeffrey Wong and Mr Relations.
That drove Investor relations of <unk>. 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 sleep copper from liability.
Stablish Patrick you asked probably Securities later Education Reform Act.
Statements are not guarantees of future performance and are subject to certain risks and uncertainties assumptions and other factors. Some of these rigs are beyond the company's control and could cause actual rebounds to differ materially from those mentioned in today's press release and this discussion.
A general discussion of the risk factors that could affect <unk> business and financial results is included and it stood his findings of the companies are we that you asked securities and Exchange Commission.
The company does not entertain any obligation to update these forward looking information.
As required by law.
During today's call management will also discuss certain non-GAAP financial measures for comparison purposes, only for the definition of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results. Please see the 2022 third quarter financial would be about in your news release issued earlier today.
<unk>.
As a reminder, the comfort is being recorded besides wiped-out rep, causing a replay of this conference call will be available I don't you would ask corporate web site at IR <unk> com.
Joining us today on the call from <unk> Senior management is Doctor falling Joe our Chief Executive Officer.
Mr. Lei, Zhang our president Mr. Pelling, Sue <unk> VP of strategy and capital markets and Mr. Wayne Lee Our V. P. O finish I will now turn the call over to Dr. Joe to review with some of our recent highlights and strategic direction.
Thank you Jeffrey and thank you all for participating in today's call before we begin I would like to remind everyone that the financial information and non-GAAP financial information mentioned in this release is presented on a continuing operations basis.
And all the numbers are based on it I mean, b unless otherwise specifically stated.
We had a strong third quarter with solid financial and operating results.
Our net revenue.
It'll be one 4 billion.
Up 35% year over year.
Total gross gross margin climbed to a record high of.
54, 2%, improving one 6% year over year.
These results were attributable to strong performance of our new services and smart devices.
The digital content services reached over RMB 400 million with gross margin rate ratio exceeding 60%.
For smart devices. The first 100000 units of the newly launched <unk> Dictionary Pen X five have been sold out propelling net revenues from smart devices to RMB.
356 point.
$5 million in Q3, a new record.
Fact, net revenues from you'd have extremely Penn serious in Q3 of this year.
Wrong tenfold compared with Q3 2019.
After you got dictionary pen two was launched.
The first 10000 units of our smart learning pads why 10.
At least in August I've been also been sold out reflecting strong demand for this new category.
In terms of our operating loss narrowed to RMB $219 million with the operating loss margin narrowing by 661% year over year to 15, 6%.
We have improved the margin structure of the business lines, while growing the top line at the same time.
Example, in Q3, but digital content services.
Dr Dictionary pen.
And you don't listen impart their net revenues cover their costs and operating expenses respectively.
Today, we announced that the board of directors has authorized the company to adopt a share repurchase program in the near future.
Accordance with applicable laws and regulations for up to U S dollars and 20 million of its class a ordinary shares including in the form of a D. S. J.
During the period of up to.
36 months.
We are bullish about the future growth of the business.
With all of you I would like to share more color on our business lines in Q3.
Smart devices revenue reached RMB $356 5 million in Q3, a new record up with it.
Sector and up to and up 41% year over year.
Gross margin of smart devices reached 44% up six 7% year over year.
Mainly due to the launch of new products.
Application of advanced AI technology, and a unique learning concepts.
Make us confident that the gross margin of smart devices will be around 40% in the law.
Right.
Our new flagship Dictionary pen.
Penn X five is a great showcase of our strengths in R&D and product innovation in fact.
In September we cannot make enough X fives are due to the strong demand.
Not only did X five feature even better translation precision.
For over 100 languages.
Whole new design. It also includes the world's first smart dictionary pen operating system.
It allows users to download apps to customize the dictionary pen to their liking with endless possibilities.
Many top content providers, who are already on board, including Shimon.
A R E Z English.
He is cloud music and Kai so storytelling.
Bush.
Are they all created apps using our easy to use software development kits and offered them all and you'd have dictionary pen, creating a unique ecosystem.
That will grow stronger with more consumers and developers joined it.
Recently, we launched a your dollar smile loading Pat X 10.
The second learning powered products.
Which significantly improved precision learning larger screen and more storage and other improvements.
In the long term the learning part of hat how.
Difficult market potential.
According to Frost <unk> Sullivan, our expected volume fishing tablets are likely to reach a 7.26 million units in 2025 with.
With total sales of RMB 25.4 billion.
Our adaptive learning feature provides high quality personalized learning for students and has received very positive feedback from consumers overtime, we expect smart learning how to become as popular that's already dictionary pen.
Now, let's turn to learning services.
Net revenues from learning services reached a record high of RMB $888 5 million in Q3 up 37, 2% year over year.
With a relatively flat gross margin.
64, 5%.
Breaking this down a bit further net revenues from steam courses increased by more than 200% year over year.
Got it for over 25% of the net revenues of this segment.
We continue to make progress on the golf course in collaboration with the Chinese wait She association and the junk food chest Sports Association, we held the National children's which he open championships in Q3, which was highly recognized by the General administration of sports Oh, China.
That's for adult closest we see a downward trend in gross margins year over year, mainly due to the macro environment. We are actively re aligning our resources to focus on growth areas in the Sigma.
Graduate school entrance exams and vocational courses at two bright spots out there of course gross billings increased by over 150% and over 200% year over year, respectively.
Looking forward, we are confident in our operations in Q4, the transition from regulatory changes last year is mostly finished for the last four quarters. We have maintained our investment level for our business kept innovating in challenging times and this allowed us to gain share.
And the market.
It was made possible by the long term investments in AI technology, and a diversified product portfolio.
By firm support from our parents that eastgroup.
But going forward. We believe we are in a good position today to achieve sustainable growth and drive towards profitability with a portfolio of strong products and businesses.
Our team continues to capitalize on tail winds.
Including the quick adoption of smart devices.
Content services and steam caused us, we look forward to bringing our products and services to more and more consumers with that.
I will turn the call over to Sue Paul to give you more details on our financial performance.
Okay.
Okay.
Essentially the hospital and Hello, everyone today, I will be presenting some financial highlights for the third quarter herself hundreds I need to read and I encourage you to read through our press release issued earlier today for further details.
Third quarter total net revenue were RMB, one 4 billion or U S. Dollar by 197 point to me that this would represent an increase of 35% around the so called all the time.
Net revenue from our but in services were RMB 888, 5 million or U S. Dollar by 124 9 million, representing a 37, 2% in Chris brought the same periodically and plenty of Honeywell. They attribute this growth to the strong sales performance grants of new services and U shaped off towards the implementation of the type of attacks.
Policy.
Net revenue for our smart devices were RMB, $356 5 million or U S. Dollar 50 point about minutes up 41% and thrombus MPR to in 2021.
Due to the impact of the popularity of the newly launched products in 2022.
Net revenue from our online marketing services were RMB, 157, 5 million or U S. Dollar.
Turning to claim a minute.
Presenting a 14, 9% increase from the same period in 2021.
Chris was mainly attributable to the increase in performance based advertisement.
Third parties Internet properties.
For the third quarter, our gross profit was RMB.
762 million or U S dollar black glass explain 9 billion, representing a 39% increase from the third quarter of plenty of Honeywell.
We're smarter in pole loading services was 64, 5%.
For the so called plenty plenty to compare with a six 5% for the same here in the Pentagon knew what we're smart in a post market by itself was 40.4%, but what are you going to compare with the 33, 7% for the same period in the tiny tiny what.
Of course market for all of the online marketing services was 27, putting about per cent for so called plenty plenty to compare with plenty of nine 2% for the same period in 2021.
For the third quarter total operating expenses were RMB, 979, 2 million or U S dollar 537.7 minutes.
Compared with RMB 717, 6 million for the same period last year.
With that for the third quarter, our sales and marketing expenses were RMB 700 at 9.9, 0.8 minutes compared with RMB 500, and that could be implemented in the third quarter I'll put it anyway.
Research and development expense.
212, 9 million compared with RMB hungry on 63.6 million in the so called all the time you're talking about.
Operating loss margin was 15, 6% in the so called upon to comparable at 21, 7% for the same period last year.
Well, so quarter I'll touch on Youtube or a net loss from continuing operations attributable to ordinary shareholders was RMB one.
We had 83 9 million or U S. Dollar 25.9 billion compared with RMB 225 planes for a minute, but the same here at all philosophy or not.
non-GAAP net loss from our continuing operation a triple blow to Orient, our shareholders Busch for the soap water was RMB 464.4 minutes or U S. Dollar 23 point million.
Compared with RMB 222 million for the same period, our adult philosophy.
Basic and diluting net loss.
From continuing operations attributable to ordinary shareholders for the third quarter of 2022 was RMB, one playing fortnite or U S. Dollar zero point to what non-GAAP basic and diluted net loss from continuing operations radios.
Third quarter was one what's the RMB 1.2, or three or U S. Dollar Euro 0.1.
Our net cash used in continuing operating activities was RMB 294 claims one minute or U S dollar 41.3 minutes.
For the soap water.
Looking at our balance sheet as of September 30th plenty plenty to our contract liabilities, which mainly consist of the deferred revenue generator for our services were RMB 990, 625 minute or U S. Dollar 140 point about minutes compared with RMB, One 1 billion as often as of December 31, 2021.
At the end of the Peoria or our cash cash equivalents restricted cash time deposit and short term investments totaled RMB 953 point about a minute well U S dollar the hungry I'm sorry for a minute.
This conclude our prepared remarks central for your attention we will now like to open the call to questions. Operator. Please go ahead.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you like using a speakerphone please pick up your handset before pressing the keys.
But anytime you have a question has been interesting you would like to withdraw your question. Please.
Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Yeah.
Our first question comes from Brian <unk> with Citigroup. Please go ahead.
Good evening management, Thanks for taking my questions and congratulations on the solid results.
So I saw a revenue increase in the breadth of the media you can tell us.
Core her and May I know, what's the main contributors to our rapidly transition and the hospital. We do catch you know the rules for the near future. Thank you.
Oh, Hello, Brian So as far as excuse me gross so digital content services in the smart devices are two main drivers for this quarter for our growth.
In both of our.
Based on our strengths in the technology and R&D.
So digital content service are doing well so compare with the online services that we offer before are they the differences they are mostly oh, yeah, there mostly.
Contains prerecorded video content or interactive learning or.
Oh steam content steam steam courses has with the our courses before they or their life life courses, mainly so so that the format is different so it's such a new product. After after last year. So in Q3, our digital content services maintained strong.
<unk> momentum so sales reached over RMB 400 million compare with over RMB $200 million in Q2.
So basically doubled quarter to quarter.
So while our gross margin also rose from over 50% in Q2, two or I should say.
60% in Q3.
So.
Net revenues from digital content services.
It can cover their costs and operating expenses in Q3.
So.
This supports our bottomline improvements in this quarter.
Second our smart devices revenues are at a as you can see the record high of RMB 356 million up 40% year over year in Q3.
But more work.
This of course also comes with a healthy operating metrics. So on a net revenue from Utah Dictionary pen, they're not listening part Oh. These two products. They they can also cover their own costs and expenses in Q3.
So one product.
That's pretty important as a dictionary pen X five lunched in the August so.
This new generation of Dictionary pen.
<unk> supports all on translation of over 100 languages and these are equipped with a world's first dictionary pen operating system.
<unk> operating system.
So.
So after it's released its already the top seller.
Oh dictionary pens or electronic dictionaries on both JD com and Tmall spelling out the.
First batch up on a 100000 units quickly.
So the.
The launch of another product is the launch of our smart learning Pat Oh, why 10, and also more recently X 10.
So.
This marked our entry into the alerting tablet market and.
And also the first batch of Oh 10000, my 10 units.
Sold out in about two months so.
So that gives our teams are.
I'm more confident in this category.
Our plan is to have a steady flow of new product, new learning smart devices, our products to drive sustainable growth in this category.
Recently after Q3, so we relaunched our three more new products are that is a dictionary pen.
A P five.
For a more advanced learners and professionals.
And also you have you done smart learning pads X 10, I just mentioned so with the learning dashboard that further improves the acquisition or the experience.
And.
Lastly, an upgraded version of figured Allison impart with new English and Chinese content are inline with textbooks.
Also with more advanced AI technology helps.
It helps users group listening and speaking Skus in both English and Chinese so.
But given the strong pipelines, we sold more than a 100000 units. So you don't accidentally pens in the sea.
The Singles' day on November 11 shopping festival this year so.
Over 100000, and it's something you're not extremely pets.
So that's an overview of our Drybulk Crows gross for Q3 I think.
Thank you.
Our next question comes from Amit Dayal with CIC. Please go ahead.
Okay.
Hey, Good evening management, Thanks for taking my question and congratulation on the good performance.
We can see that's yeah, that's that's about new but it does feel safe to operate.
So my question is what's our strategy for improving the loss making sector. Thank you.
Yeah.
Oh, Yeah, I think Amanda Yeah, that's a very natural question.
So first of all I would say that the drilling towards our profitability, yes. They are a priority for us.
Operating loss in Q3, mainly came from our early stage products and our businesses.
These include steam courses.
Yeah, with all smart learning paths of the new AR device.
And education Digitalization solutions.
The other three are three.
So we are significantly.
Significant loss makers yeah.
We have plans for profitability for each product area here. So let me break that down a little bit so our steam courses there they're growing fast and we believe they'll have a bright future for this segment.
What we are doing is to optimize our product offerings and marketing tactics and we're seeing continuous improvements in our return of investments every month.
Gold classes are more mature or all the steam courses or others seem causes such as chest programming.
Audience music and Chinese painting.
They are mostly still in are in their early days so.
The investments we've made in these areas are there they are paying off so you don't go and it's a companion app has accumulated over one 6 million users.
And is already the leader in the online go learning in China.
That's that's where the.
Steam courses for small learning Pat.
It is.
Strategic product for us and it is in the early stages of.
The opportunity here.
Is that the learning pad market is going through a generational transformation from a hardware and content based business to a technology centered adaptive.
That tip learning based.
Business.
We were taking advantage of this transport transformational opportunity and Oh. It is a very good investment for us and.
And.
And very importantly, the first two products my tenure, an X 10, they are off to a good start.
And and we believe they have a bright future.
As for the.
The third category the education utilization solutions.
We recently reduced our resources here.
There are progress in our products and services here, So our campus sports education realization solution with the vision and analytics.
<unk> was released and then did Uh huh.
It was recently released and they started to into schools.
And schools like them however.
However, due.
Due to macro economic challenges.
The landscape has been a different from our projections, one or two years ago.
Spending on digitalization solutions has been slower than we expected. So our goal here is to.
Find better.
Better put our positions in this.
Challenging environment with a with less resources.
And Oh achieve profitable growth.
So we know.
If we add all our.
The business that that's operating profitably and also the D. D. D. These are three year loss makers together, we we'd be able to narrow our net operating cash flow cash outflow to RMB 294 million in Q3.
Operating loss also improved to <unk>.
RMB 219 million with operating loss margin, improving six 1% year over year.
Going forward our plan is to operate prudently.
Growing the business while.
At the same time, our drive towards a.
Profitability I hope that answers the question. Thank you.
Thank you.
Our next question will come from Thomas Chong with Jefferies. Please go ahead.
Hi, good evening happens miniature monopoly picking up my questions in.
In Q2, I think we mentioned that we are confident in the second half of this year, we'll do piece I saw your Q4 expectation. Thank you.
Yeah.
Thank you Thomas.
Yeah, I think Oh, Yeah, you have seen our Q3 numbers and Uh huh.
The solid Q3.
At our financials and operating results.
Give us a competency in Q4 so.
Our net revenue reached the $1 4 billion in Q3, so a 35% year over year. So.
So one thing is even if you compare the net revenue in Q3.
Hum too.
So Q3 last last year ended up Q3, 'twenty 'twenty without giving if that's effects to the recent disposal of our academic business revenues.
<unk> increased by a one 1% and 56, 5% respectively.
So in Q4, we will keep focusing on the healthiness of our key financials in the operating indicators that's for sure.
As for.
Are there any services Q3 Q4 is the retention season for it for steam courses, which is expected to have a positive effect on the cash flow and other financial metrics.
Besides digital content services released in Q2, all have performed well in sales and gross margin over the past two quarters.
In terms of our smart devices.
Q4 is a typically a.
[noise] season.
With the the November 11th in December 12th shopping festivals.
Smart devices sales performed well during the.
November 11th shopping festival.
With the aggregate astellas over RMB.
$100 million.
I.
In Tmall JD com and.
Up over 80% year over year.
So in terms of Oh Dictionary pen.
It has really turned the leading position and say it was in the in its category for three consecutive years in both Tmall and JD com.
You would have listened in part also ranked number one in its category in E. N J D. Dot Com I think these are all bodes well for Q4.
Oh today, we announced that the board of directors of authorized us to adopt a share repurchase program in the near future.
Four four up to U S dollar.
20 billion.
So you basically reflects managements.
Management's confidence in.
In the in the business both in the short term in the long term.
Yeah.
Yeah, I think that that's all for me. So if you have anything to add.
Yeah.
That is exactly.
Thanks, so much for questions I, just want to ask one more.
All of our comments at it after the Doctor told and we think about the Oh.
So sort of our expectation of another tool for if you.
We expect to maintain the momentum of the business world and whatever in the usual kind of service.
But also.
That also is a smart devices and the rest of the sector, we all see and.
We feel confident about this growth and we see what we find.
Find a great potential if the market problems that customers see that and that's why we would think of all the cockpit and also we still have to have enough capability, we can battle with Oh.
Our new categories and the learnings paradox that that's the wise thing I'm sorry.
Initiate this new service off with her afterwards, a policy change.
If you look at our balance sheet, we still have almost 1 billion.
Our army of I'm getting cash on our balance sheet as far as at least you have the all the tools to address that.
U S dollar revolving flowing from that school, that's people some more capabilities lien baskets and are waiting for them and us.
The feedback from the market and that's what we used to go up with people about the promising almost market in the long run.
That's also a question second Tomas.
Thank you.
Our next question comes from Linda Huang with Macquarie. Please go ahead.
Hi management. Thank you for taking my question. My question is regarding for the learning devices, because we launched a very successful learning pilots in the second quarter. So can you share with us how do you think about the future for these products, especially management you just mentioned.
Sorry at the sizeable addressable market. So you know.
What's kind of the market, we can capture in a long time and we also hope that the management can share with us what is the product strategy.
Maybe you can explain with us regarding for your products back and let the pricing strategy. Thank you very much.
A sampling of this superb technical questions and Oh question Sandy first of all we all feel confident about.
All of them are our products all of us at all.
Pat and VP philosophy, the see about the weak demand in spot markets.
And we we.
Thanks that are.
According to that sort of thing and the personal or unexpected volume up that accretion tablets is likely to reach up almost seven minutes units independently and are there still tell us about the type of business as we mentioned.
And actually lost actually mentioning last call.
Remember, we sat with you.
Coffee and alcohol paradox and Uh huh.
Last time, we just released in August will be leased up all of our new products offer that he was all.
Yeah.
It's not running Pat I know, it's right that that's what he said August I'm happy right. Now I think has been sold out for the first batch of 10000 units.
And that's I think reflecting the smoking ban bronchus nail category and there is more and more recently, we've also made use of all of our next generations you adult learning pad at least a quarter acts test and we think that's where we have operated up all the definitely in the future is that a function Saturday there'll be more recession not mother, yes.
That's it that's the nose sticks and we think of all of that that's what will be more at that.
Okay.
And more suitable for the student learnings.
The Roadmaps and we think we've tried to build up a cannot bathroom I propose that each individual student types will provide highly customer and outside services for the people that students based on their technology. So that's what we that's why we think of all of the feel confident about our products and are even right now we see you'll see that all the production.
A lot of humanity bond market and the right all of them. So that's too early stage to see how volatile finally, how much.
Market, maybe our counsel.
What is small paper market, but right now we see the role of software.
Oh, the off our products still see myself because by week. So we think that actual software products that kind of part of our successful product strategy and we are keeping a vast maintenance market.
Whatever would be all operational upgrade all of our products and upgrade the features and to provide a more diversified services with a marked with the swaps to our customers. That's the lapping of all but that's all spread what we expectation for this market.
Yeah. So let me let me add a few points. So so first are the addressable market of our learning tablets are a larger than oh, probably larger than fixture in Japan. So if.
If you look at different numbers, it's either Oh, five times six times or maybe 10 times larger now so.
So so that's a so so that's.
That's a very a very a good market to be in a if we can if we can actually take share from it and.
Hum.
The reason, we think we are at a very good position to a 222 guitar tablets into the hands of a lot of consumers is that.
As I said, it's a it's AI driven product and.
From our experience for the last few years or so.
L B.
Whenever we can come up with a really useful.
Expenses are like the for the for the Dictionary pen.
The Oh I thought that the very quick translation.
Lookup Oh all of its off Dictionary pen and also for example for our recent dictionary Pen P. Five you can't scan multiple lines.
With a single swipe of the of the pen.
Whenever we can come up with experiences like this we will be at a good position in the market. So.
We'll have a good reputation and we will have lower marketing costs and everything things work.
Paper and we are going to just do that for their for their learning learning path and our first two products have Uh huh I've already bringing new experiences to the to the to our users. So that's one and the other pointed out want to make is that.
Uh huh.
Is that too we we we will be using a quick pretty quick.
Product cadence.
You have seen so we have already released Oh five different skus this year already and and that's faster than last year and Oh, that's because.
Our teams have been getting more and more experience we have any more.
The knowhow in the in the supply chain.
Learning hardware and we're also getting a good.
Getting getting more intellectual property is more pet patents and everything we have we have more of that Oh.
Already in place. So so we can innovate faster and.
And and we are also building a ecosystem of content providers as we have seen in the dictionary pen Oh S initiatives. So that's also going well yeah. So so with that I think we can we are at a good position to.
With a with a lot of effort from the team of course to be able to achieve a leading position in the learning learning tablets market.
Yeah. Thank you yeah. So just one more point to radically around or just the if you go back to see our strategy all while world.
Uh huh.
Our past and you can see that in the Wasatch well, what do we spend almost two years to increase eyeballs are 10 times in terms of the number of units sold.
We expect we are weeks we also.
For the <unk> tablets market here, so for us, it's a long term strategy mass merch.
Now well be patient and we that's who we hadn't you weeks back to copy our successful strategy of you know you know addiction of pet.
Our smart people. So that's what we exactly expect for what a special category.
And so we are we can we have to do.
I know we have to do in the investment stage and it's just a stab at various data. It's just beginning and we expect that's going to be seats, a lot of us very strong demand.
Demanding honest he has a positive feedback from the market, that's all where expectations are for these new categories.
Thank you. Thank you management for <unk>. Thank you.
Thank goodness.
Oh, a question comes somebody and the one with <unk>.
Hi, guys. They can go home.
Good evening management and some coffee question.
Question.
Hum you recent called her so we saw that I'll call it seems to be some challenges.
What is our strategy for improving the business.
Thank you Daniel.
This is a.
Your Pennsylvania yesterday.
I thought the closest to face the challenge and the given the macro economies.
The fact that her thunder pathetic.
If you adjust all our strategy bumped the interests.
Interest of your data that causes the settlement.
Students are better Chow, who got that's all.
They're a graduate school entrance exam.
The patient and Oh location, though BDO cases, such as the digital skills are improving.
We have been seeing a booming demand thumbed up Brad do you want to do that.
There is a big had a high number off of Ratchets itself.
For pumped 5 million this year and 21% growth a year.
Over here.
Double the number from punting 17.
Is that likely to grow further in the coming years.
Cause a hurried because it means the higher probability.
Better dog.
That's all what you would all campus recruitment both graduates that domain.
Accounted for over 70% of the total candidates for the five years.
Oh, a graduate school enhanced because that causes focused on plus nine but the surveys.
We know truth in a Super Bowl College on the subject is the key factor.
Oh, well, yeah assistant Oh relocation consulting service ultra tailor made otherwise.
Students based on their own okay that makes our performance under the heart of the Colorado.
The recruitment.
Well most of it especially in the pandemic conditions.
Great comprehensively appearance in the online learning and offline Simon Com.
In terms of what you'll sell because they use it.
Most of the published study a b piece.
Well college students in China, including the Extranet and 10 are you'll know what's the playbook.
In Q3.
Overfield tell but they'll gossiping came from this I'll go make the perfect and our increased over 150.
Present year over year.
Well he didn't know either occasion, especially to those who get all your Peruvian ease the other focus.
It is consistent with the government's policy direction awful.
Well, Stephen and Cleveland.
Oh These are those school classes and they include the.
Data analysis and deal driven design.
So why the virtual opinion system, where the nurse.
Loving and practice with the fiberglass.
Yes.
With the water system the opinion of the amendment, that's already being at the top and the older operation by the lenders can be recorded and replayed.
Peter I'll put it that also have a guidance on the feedback in the online system come in it.
With an easy to use system.
We can see how protean hundreds of percent year over year growth of the golf Union bump. This closet in Q3. Thank.
Thank you.
Thank you for your detailed explanation. Thank you.
Yep.
Our next question comes from Ken This churn with <unk>. Please go ahead.
Great.
Management congrats on the solid.
Oh, we actually see that.
For this quarter the gross margin of learning services.
There is call at close to <unk>.
So I wonder whether this margin level will be sustainable in the following quarters.
Any colors on the margin.
The first part of next year.
That would be great. Thank you.
Yeah.
Thank you for your classroom tenants this is Wayne.
You'll see a gross margin of course once.
Once we arrived at around 55% up.
13% quarter over quarter, which mainly contributed to the benefits from economic Hill.
From the higher revenue base.
Proved margin fuzzy.
Digital content and services.
We are pleased to see the gross margin returned to the similar level as last year up two weeks.
Transitional period since their release.
The redemption policy last year.
Last quarter, we got a relatively low revenue base for our <unk>.
Learning services due to the transition which directly resulted in decreased the gross margin performance of fueling.
Not quite.
With the launch of our new services the digital content services.
But to and is it relevant.
Inquiries are up quickly.
And the reached over RMB 400 million.
In this quarter.
Along with the over.
Over 60%.
Gross margin increased 150 per se on that.
Two two.
With the further.
Pension of our new associates, and we expect to enjoy good benefit.
On the economic skills and higher gross margin.
This low before.
Yes.
Although.
No.
He didn't know frontier issue.
Is that.
Well, we are very competent in our revenue growth.
Yes.
Al It's lost margin.
Yeah.
For the service cost.
Gross margin.
Actually I'd like to add some other color to our smart devices plus margin so much.
In this quarter the gross margin of modulus.
<unk>, Inc.
<unk> to around 40%.
So it's 4% for the same period.
Of last year, which mainly contributed funds itself.
Five we should carry.
A higher gross margin.
Yeah.
You don't have the advanced AI technology has reached learning content and technology.
Technology and innovation.
Rina disadvantage in product and the more premium.
Price.
We also believe our Hyatt glass module will be achieved for flour smart devices.
So.
That's all thank you for your question.
Yeah.
That's very clear thank you.
Okay.
Yeah.
This concludes our question and answer that question.
The conference back over to the management for any closing comments.
Okay. Thank you once again for joining US today, if you have any further questions. Please feel free to contact us at your doubt directly or reach out to TPG investor relations in China or the U S have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
Yeah.