Q4 2022 Youdao Inc Earnings Call
Good day and welcome to they go to all 2022 fourth quarter and full year earnings Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Mr. Jeffrey Wang Investor Relations Director of your Hotel. 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 harbors from liability.
Stablish by the U S travelers Securities Litigation Reform Act.
Statements are not guarantees of future performance and are subject to certain risks and uncertainties assumptions and other factors. Some of this race at beyond the company's control and could cause actual results differ materially from those mentioned in today's press release and this discussion.
A general discussion of risk factors that could.
In fact, <unk> business and financial results is included in certain filings of the company with the U S Securities and Exchange Commission.
The company does not entertain any obligation.
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.
Definitions of non-GAAP financial measures and recalculation of GAAP to non-GAAP financial results. Please see the 2022 fourth quarter and full year financial results news release issued earlier today as a reminder, this conference is being recorded.
A webcast replay of this conference call will be available on <unk> corporate website at IR <unk> com.
Joining us today on the call from <unk> Senior management is Doctor friend Joe.
<unk> Executive officer, Mr. Lei, Chen our president Mr. <unk>, <unk>, our VP of strategy and capital markets and Mr. Wang Li our VP of finance.
Now I'll turn the call over to Dr. Joel to review some of our recent highlights and strategic direction.
Thank you Geoffrey.
Okay.
Before we begin I would like to remind everyone that the financial information and the non-GAAP financial information mentioned in this release is presented on a continuing operations basis and our numbers are based on renminbi, unless otherwise specifically stated.
Our financial performance in Q4 was strong producing record high net revenues and achieving our first ever income from operations.
Net revenues saw a record RMB, one 5 billion in Q4 up 38, 6% year over year.
Income from operations reached RMB $24 6 million.
Compared with the loss from operations of RMB $248 3 million in the same period of 2021 total.
Total gross margin climbed to 53, 3% pricing.
But I think by 11%.
Year over year.
In terms of cash flow, we achieved an operating cash inflow of RMB $84 1 million.
These results were primarily driven by the solid performance of our new services and smart devices.
Sales of digital content services reached over RMB $600 million.
Besides the gross margin has been above 60% and never really.
Has covered the cost and operating expenses for two consecutive quarters.
As for smart devices strong new product sales.
Approaching 100% year over year growth on November November 11 shopping festival.
And facilitated the growth of net revenues from this segment to the best level of RMB $407 million in Q4.
Now, let me walk through the key financial metrics for a second half 2022.
Net revenues reached RMB, two 9 billion in second half of 2022, increasing 36, 8% year over year gross margin was 53, 7% improving six percentage points year over year.
From operations reached RMB, $194 4 million narrowing by 59% year over year.
Operating cash outflow improved to RMB $210 million a decline of 63, 8% from the second half of 2021, which included discontinued operations.
The fiscal year.
2022.
Key financial indicators improved significantly net.
Net revenues reached RMB 5 billion up 24, 8% year over year.
Margin was 51, 6% improving two percentage points year over year.
Loss from operations was RMB $774 7 million narrowed by 17, 9% year over year.
Operating cash outflow improved to RMB $603 1 million a decline of 55, 2% from 'twenty to 'twenty, one which included discontinued operations.
Then I would like to add more color to our business progress in Q4.
Net revenues from smart devices hits, RMB $407 million up 28, 1% year over year difference.
Dictionary pen sales exceeded 400000 units the majority of which were at the new products launched in 2022.
Product wise, we launched the <unk> Dictionary pen <unk>.
In Q4.
Especially specifically designed for <unk>.
Professionals.
<unk> with $5 million professional terms in 16 professional fields.
<unk> translation into over 100 languages and enhances recognition that currency.
<unk> advanced natural language processing.
We also launched <unk> smart learning path X 10 in.
Q4 within.
Hey, I supported learning dashboards for better personalized learning experiences.
We entered the field of education tablets in Q3, the compounds monthly growth rates of sales.
<unk> exceeded 100%.
Moreover for the first three months after we launched our learning paths X temp, it's compounded monthly growth rates of sales units was nearly twice that of the 110 for the same period.
As far as learning services net revenues reached RMB 800.
$6 3 million in Q4 up 39, 2% year over year.
Gross margin of learning services climbed to 64, 1%.
Proving 13 percentage points year over year.
We have been exploring the utilization of our learning services and have made significant progress in Q4, we upgraded Utah literature Creative writing now which was co developed by Utah and Minecraft to education. In addition.
The digitized content effectively enhances learners interaction and engagement, making learning materials easier to understand and more attractive.
Carriage you to view the video on our IR website.
In addition, the champion class of Yoda goal was released in Q4 with the teaching team led by World Champion could you.
The yield our golf courses.
Greater learning path starting from entry level to advanced level, followed by champion level classes. The successful adaptation of these progressive causes drove the gross margins up by over 50% year over year in Q4, Besides the retention rates of the advanced.
Class reached over 70%.
In terms of diagnosis, we released upgraded solutions to the Postgraduates entrance exams. It offers comprehensive solutions from target consultation to.
<unk> hybrid tutoring by AI in humans.
Students are thrilled with these new features are leading to gross margins up by nearly triple digits year over year in Q4.
Gross billings from vocational courses such as <unk>.
Internet and constructor causes increased over 100% year over year in Q4.
Looking back.
Stuck to customer oriented philosophy, and enhanced customer experiences with upgraded services and smart devices facility.
Technology and innovation in 2022.
We released for the world's first dictionary pen OS and launched digital content services that enhanced learning efficiency efficiency and effectiveness.
Which was quoted by customers that ultimately reflected in our financials.
Over the share repurchase program demonstrated management's confidence in future growth of the business.
Looking ahead, we will continue to leverage our cutting edge technology and innovation to promote the sustainable development of smart devices digital content services.
Steam causes further improving our business and financial performance.
I will turn the call over to <unk> to give you more details in our financials.
Central talked little and Hello, everyone today have there'll be presenting some financial highlights from our 2017 fourth quarter and the full year. We encourage you to read through our press release issued earlier today for further details.
For the first quarter total net revenue of RMB, one 5 billion or U S. Dollar $210 8 million. This would represent an increase of 38, 6% from the fourth quarter of 2017.
Net revenue for our lending services were RMB 800, and its explain three minutes or U S. Dollar $416 9 million, representing a 39, 2% increase from the same period in 2000 and you bought.
We attribute this growth to the strong sales performance from the new services in Asia. After the implementation of the type of reduction policy now.
Net revenue for our smart devices were RMB 407 minutes or U S dollar 59 minutes.
28, 1% from the same here in 2021, driven by the popularity of our newly launched products such as like you without example in X y.
Net revenue for our online marketing services were RMB, $240 8 million or U S. Dollar spent $4 9 million, representing a 58, 6% increase from the same period Honeywell.
The increase was mainly attributable to the increase in performance based advertisement third party Internet property.
For the first quarter, our total gross profit was RMB $774 seven minutes.
112, quench for a minute.
Representing a 74% increase from the fourth quarter of 2020 Watt.
Gross margin for learning services.
64, 1% for the first quarter of <unk> compared with 51, 4% for the same period in time.
Gross margin for smart devices was 46, 2% for the first quarter of 2019 compared with 38% for the same period in 2021.
Gross margin for online marketing services was 29, 2% for the first quarter of 2022, compared with 32, 6% for the same period in 2000.
For the fourth quarter total operating expense were RMB 750 minute <unk>.
$108 7 million.
Compared with RMB $693 6 million for the same period of last year.
With that for the fourth quarter, our sales and marketing expense were RMB $515 9 million compared with $470 4 million in the first quarter of 2021.
Research and development expenses were RMB, $179 5 million compared with the $170 2 million in the first quarter oftentimes you're talking about.
Our operating income margin was one 7% in the first quarter of <unk> and.
Paris operating loss margin of 23, 7% for the fourth.
Same period of last year.
For the first quarter of 2022, our net income from continuing operations attributable to ordinary shareholder was RMB 12, 3 million or U S. Dollar $1 8 million compared with net loss from continuing operations attributable to ordinary shareholders of RMB $215 9 million.
For the same period of last year.
non-GAAP net income from continuing operation.
Ordinary shareholder for the first quarter was RMB $31 1 million or U S.
Dollar for dollar in five minutes compared with non-GAAP net loss from continuing operations attributable to ordinary shareholder of RMB $168 2 million for the same period of last year.
Basic and diluted net income from continuing operations attributable to ordinary shareholders for the fourth quarter of 2002.
Was RMB four one or U S dollar zero point of view or what not.
non-GAAP basic and diluted net income from continuing operation for EDF attributable to ordinary shareholders for the first quarter was RMB <unk> five or U S dollar euro and beautiful.
Our net cash provided by the continuing operating activities was RMB three 4 million.
U S dollar $12 2 million for the first quarter.
Turning to our full year results.
Our total revenue for 2022 increased by 24, 8% to RMB 5 billion U S dollar $726 <unk> million.
Net revenue for our lender services for 2019 were RMB three 1 billion.
$447 2 million up 26, 3% from the 2021.
Net revenue for our smart glasses for 2019 to grow by 28, 2% year over year to RMB, one 3 billion or U S dollar $182 million.
Net revenue from our online marketing services for 2019 were up 13, 2% year over year to RMB, $672 4 million or U S dollar $97 5 million.
Total gross profit for 2019 was RMB, two 6 billion or U S. Dollar 375 million compared with RMB 2 billion in 2021.
Total operating expense for 2022 increased to RMB, three 4 billion or U S. Dollar 487 3 million.
Compared with RMB, two 9 billion in 2021.
Net loss from continuing operations attributable to ordinary shareholder was.
Was RMB $720 9 million or U S dollar $104 5 million.
And the basic and diluted net loss from continuing operations attributable to ordinary shareholders. Both understanding too was RMB five three O U S dollar Euro <unk> 85.
Looking at our balance sheet as of December 31, 2022, or a contract liabilities, which in many cases software deferred revenue generator for our services.
One 1 billion.
Our U S dollar by 150, $54 7 million compared with RMB, One 1 billion as of December 31st 2021.
At the end of the carrier our cash cash equivalents restrict cash term deposits and short term investment totaled RMB 1 billion.
Solar by $147 4 million.
This conclude our prepared remarks, thank you for your attention.
I'll like to open the call to your 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 telephone keypad.
If you are using a speakerphone please pick up your handset.
Before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause for a moment to assemble our roster.
Our first question today will come from Brian Gong of Citigroup. Please go ahead.
Good evening management. Thanks for taking my question congratulations on the solid results. So my question is about the outlook for this year.
What's management's expectation for the revenue for clinical history.
What are the key drivers for new services this year.
<unk>.
Yeah.
Hello, Hello, Brian .
Yes so.
<unk>.
So our mission is to make learning happened and we are doing that with other business stuff that we do including our devices are artificial intelligence space.
Learning services and also our.
Teaching staff so.
We believe at this particular time at this moment we are in.
<unk>.
Good position too.
To both grow the impact of our business and also improve.
Actual metrics.
Including top and bottom line and cash flow so for this year. So.
You asked about.
The drivers for learning services. So this is our largest sector, yes. So.
I would say several thing that works in our favor.
Talk about two major drivers so.
So one is.
Digital content and services. So we've talked about this.
Pro forma of product for several quarters now so.
Popular we have popular products in this in this forum.
Concluding literate.
Literature.
Poland So in 'twenty.
2022.
<unk> proven that.
The interactive content instead of five.
Live classes life closer spaced learning.
Great way of delivering learning services.
These services.
Have consistently expanded for us in 2022.
So the customers really like them.
We expect it to be.
The preferred way for us to offer new learning services in 2023.
R T.
Teams are constantly looking for.
New content opportunities and also using AI assisted ways to digital content and also <unk>.
<unk>.
Things like immersive learning.
Ways offering these new content.
Whatever works for that particular area and also whether the particular user need. So we will continue to scale our digital content services.
Both adding new content and.
Iterating on existing months, so we're bullish on this area.
Already proven and we.
We have our teams have many ideas and.
We will do a lot of work in this area.
The second driver IC as.
Steve.
So.
So engineering math and.
So extra curricular.
Kind of content. So we've talked about this trended before so as totaling learning in China evolve.
So families are more and more willing to invest in steam learning like art engineer in the other extracurricular activities. So we offer.
Very good computer programming courses and that's.
That'll be a focus area for us in 2020, 'twenty three we already have a <unk>.
Leading in house the goal.
Gorgon and chess.
Course business.
So so it grew by over 50%.
In Q4.
Yes so.
It is also a very special service.
I would say youre adult type of service.
Its employees.
And excellent teaching staff.
Leading.
AI learning technology and has the.
Thriving lending community.
So the kids can actually play each other on our platform. So so you can imagine that we provide a very good user experience during the process because.
That's what we are good at.
And because the users are satisfied so we were.
To basically double the size of the business in 2022, so it is a <unk>.
Many of.
Our families prep.
Preference and need for this kind of.
Extra curricular content so so.
We'll continue to look for opportunities in this area.
I believe it is our unique ability to combine technology and <unk>.
Great content and great teachers.
For us to be able to be leading in this area.
Yes.
And.
So in Q4, we were able to achieve profitability and this speaks to the results of our focus on the.
Healthy operation of our business. So this will also be continuing to be a focus for us for this year.
We focused on.
Not on kind of absolute growth numbers. So we focused on unit economies of our various services.
We also focused on.
User satisfaction, we put a lot of focus on that.
Because we.
That's that's how we operate so.
That's a net is in Utah, we've always been doing this and we believe this will lead to.
We have.
Bright future for us in this year and beyond.
I hope that answers your question.
Yes, Brian .
That's very helpful.
Yes.
So I feel I think the asset quality the trend of the business World.
Tony finish rates and <unk>.
Yes, I think doctoral I have already explained about the driver.
The key numbers, we have revealed our earnings and but they are so I think there are sub one more point there just about adding here is just if you go back to <unk>.
First half second half alternately tubes to numbers, a little bit different and you can see about the if you. If you look at the revenue in the first half of the type of thing to grow up.
12% compared with the first half alternative.
In the second half of the revenue worlds growth rate reached almost it's over.
Almost 40% and 70.
37%.
In the second half of <unk> compared with second half of.
If you review the numbers.
Revenue per learner services smart devices offer imac and services. It's also.
More faster much faster.
The higher standard in the second half or the first half.
And also the Nellix.
Nevertheless, if you go back to the Latin Alex numbers in the first half of the almost loss are volatile.
600 minutes RMB and.
But if you look at the second half of this bill also narrow down to the even below the 200 200 and RMB.
We also have Chris about cash outflow over 100 minutes RMB.
And.
Second half comparison.
I think that we will have more strong trends of strong momentum in the second half and we expect to keep that momentum in the kind of in history, and I think thats potential.
<unk> talked about in the last mentioned about <unk>.
How did they focus on the healthy operation and healthy financial performance.
Yes, that's the one that's the point at it hope that answer your question.
Thanks.
Yes.
That's worth a pool.
Our next question today will come from Liping Zhao of TICC. Please go ahead.
Hey, good evening, Dr. Joe in Sudan.
For taking my question.
My question is that your R&D.
Turning to recent media reports.
Company has invested in Aig's educations.
Could you please share more color on that topic. Thank you.
Okay.
Yes, Thanks, Brian .
Topic, yes so.
So everybody is talking about it.
I believe the.
<unk> and large large language models.
Going to have.
A significant impact on education technology and.
Maybe a lot of.
A lot of.
Kind of technology and product areas or business areas. So.
So it's a.
Yes.
A very long term thing so so.
So this year, we will see new products next year.
We'll see some company come up with.
Lot of new ideas.
It's also going to take it.
I would say.
A pretty long time too.
To.
Mature so we are looking carefully at this area.
What I can say is that.
We are prepared and we have the related.
Technology foundations not the specific technologies.
Technology foundations, and we will pay a lot of attention to it.
And.
It is.
Alright.
Very dire.
Diverse end.
Uh huh.
Right.
Yes.
Why is the area of technology so.
If you really look at the details there are several important pillar technologies in this wave of.
What I would call modern language model technology.
Innovation so.
Several ones. So one is.
What we call it.
A transformer module transformer models.
And another is.
Huge language datasets.
Also faster training and.
Influence of these large models a lot of technologies in that front. So to name a few of these are kind of pillar technology. So.
Our teams actually have the experienced and.
Have done work in most of these.
Yes.
Through our work in.
Translation and.
Yes.
Learning devices in other areas like.
Glamour collection.
Things like that so.
Sure.
So it is not mature yet so the it's not.
Like that.
As a lot of media I talked about it's going to change everything.
Overnight I don't think so so.
But it's.
It's very very promising so we will keep a.
Close eye on it.
Yes.
Yes.
The fundamental.
Difference about.
This this wave of technology is I would say.
The versatility and.
Generality, so basically you can use.
One several models to tackle.
Dozens or even hundreds of.
Different different.
Usually it's an average it's different different problems before so before we need to build separate models for one of each one of them now maybe one or a few models.
We will be enough. So that's very promising so.
Yes, so thats.
What I.
We can.
Can share right now and.
We believe this will have a has a big impact on.
Education technology related businesses.
Yes.
Win win.
Opportunity when they've kind of very concrete opportunity actually comes we will be we'll be prepared to where we'll be in very good position.
Thank you.
Yeah.
Thank you.
Our next question today will come from Thomas Chong of Jefferies. Please go ahead.
Hey, good evening, Thanks management for taking my question. My question is will there be any.
Any news might be why did introduce individually and we can execute.
Pete.
Thank.
Thank you.
Yes Thomas.
Let me take this question.
Yeah.
As you can see dictionary pen turning pads and listening pods were doing quite well in Q4, we reached a record record revenue for the devices sector.
So given the kind.
Challenging macro environments, where I believe that speaks to.
Mrs.
Our strategy. So basically we are focused on a few key products, yes, we didnt.
What it is.
Receiver.
Let's see of different devices, but we didn't do that we focused on a few key products and.
We tried our best to deliver meaningful innovation in each new product.
<unk>.
So.
So that works because parents don't need kind of white label low quality learning devices.
They want the best product for their for their kids. So we intend to offer offer that if we can do that Stan.
Our product will do best in the market.
And then R.
A key strength continues to be the.
<unk> unique ability to combine hardware.
AI software abilities and also a great learning content.
In the Chinese learning devices market. We believe we are the only one truly capable of doing all three really well.
So.
Of course, you mentioned you talk talked about new products, So new products will always contribute to drive growth.
But.
Yes, yes, so but I wanted to first talk about the.
Something else so that is our new.
A new generation hardware and the software platform.
<unk>.
Our latest X five MP five dictionary pen are based on a new generation hardware.
Platform.
So a lot of work went into the platform.
We used a different chips.
We made sure the platform had feature.
Features how the capabilities that we need for not only the last year's products, but also.
This year, maybe more products and.
We made sure that we can achieve.
The competitiveness that we want to achieve in this.
Platform. So for example.
Cooperated very deeply with our chip partner with their computer chip partner.
Soc partner.
Rupture.
To enhance the MCU the neural processing unit.
Sure.
Better efficiency in running.
AI.
Computation models that we're here.
Making a lot of improvements we want the chip to be able to execute larger models to be able to execute them with better energy efficiency and we want kind of specifically designed the model is that's only only we have to be able to run and run well on those chips.
<unk>.
The net result is that we are able to reduce our already low translation error rates further.
Further by over 60%.
While improving the speed of the device by by 50% so.
So I believe this new platform is very important to us so.
Allows allows.
Allows a lot of innovation to happen.
It also allows.
Kind of sharing of work between our.
<unk> products.
It's it's.
<unk> runs our U S.
Operating system shares common apps and also brings in apps from high quality content providers like <unk>.
Similar like.
Like the baskets and like.
That is cloud music so.
Additionally, paying users will be able to two.
To enjoy it it's great content on devices allowed these countries are not available on our peers devices.
So.
And lastly.
Not not.
Lastly.
<unk>.
Not important its.
Probably very important so that the new platform has.
Very good cost structure.
So you can already see the.
Results of the cost structure.
In Q4 as a result.
<unk> helped Q4's device gross margin ratio.
So the gross margin ratio in Q4 was 40% 46%.
Good hire for us.
Yes so.
Applying these new hardware platforms to more products is a priority for us in 2023.
Yes, So maybe also talk a little bit about.
Yes.
The learning packs.
We expect <unk> to be.
Important growth contributor in 2020 Street, our key advantage here is that we have both.
Alex.
And also the selling expertise.
<unk>.
And more importantly, we have our teaching staff.
They're very experienced.
Teaching staff that we have contributed.
Lots to the development of these learning pads and.
Uh huh.
Our X 10, and <unk> stay currently covered.
The mid market price points, we have.
Planning to cover other price points with new products this year so.
So thats one.
Makes a lot of customers were happy we believe.
So lastly, we are also looking at.
A new category opportunity. So we will share more information when we have I'll have Tom yes. Thank you.
And Thomas thesis upon antitrust.
Talk a little bit.
And if you go back to see all the lending products.
Developer Cressa and we released our dictionary pen version tool in the factory.
So 2019.
And for the language learning August four capabilities, including listening reading and writing and speaking.
And we start from the different path, which helps us students and users to reading and writing.
Really it's about.
Listening pop to cover.
Listening and speaking to the alternate to the users, including the potential users actually all the existing users.
And right now we just move to the learning.
Beyond the language through earnings.
We start Franco I think you can.
Understood.
Our strategy of how we go after new products, our lending products of Utah through above the first half of the.
Projects are independent of the rain pad, we starting from the language learning SB cost we collaboration that's a strength of ours.
<unk>.
And right.
Right now we are we are.
But we think we do more Standalone, Inc.
English language learning it'll be close right now we have already existing branding at the.
<unk> users for the linked product aric sectors. So we think about in the future.
Always leverage off the strength of our products and branding to release more categories in the in the long run. So I think that's I hope that can help to answer your questions. Thank you.
Thank you.
Our next question today will come from Linda Huang of Macquarie. Please go ahead.
Alright, Thank you very much.
The opportunity to ask a question.
Regarding the online marketing business.
We see that a Q4 number is quite impressive.
Yes.
So can the management capex to one.
Key reason behind that.
How sustainable is that.
We're projecting for 2020.
And so it would be great. If you can give us some more color.
Thank you very much.
Thank you Linda this is related.
Oh advertisement.
The settlement is a modest segment for us it is.
So relatively smaller than our linear service and.
Manav devices the settlement, so, but we still like it because it is stable and constantly growing.
This quarter the business is doing very well the net revenue from this segment increased almost 60% year over year.
The RMB 200, and the <unk>.
Q4.
We have always been focused on the customer value.
<unk> approach to that.
Martin.
It's paying off.
More and more customer and pay more attention to the tender.
Turning off the investment of their marketing.
For the internal pathetic.
With our advertising system, the more timely and accurate commercial data.
So the result to our performance based.
Pipeline.
Improved breath better.
To our clients.
Bob the tunnels purple sided hip so marketing demand.
The entertainment.
Entertainment industry increased in the fourth quarter.
This is mainly driven by our revenue.
The number of clients.
<unk> around.
70%.
Despite the more money on the advertisement in terms of our outlook for the online marketing services this year.
I'm a costly.
Optimistic.
In fact, our revenue from the online marketing services will continue to increase on a year.
Over year basis.
This is this year.
Although the macro environment is still very challenging.
But the good news is that how many there were.
You cant make policy has been no out since the Chinese new year.
Besides online entertainment clients.
So seeing more budget.
<unk> financial in the transportation industry with a procurement.
The advertisement this is Scott.
Scott.
Thank you hopefully helpful to you.
Thank you. Thank you very much.
Thank you.
Our next question will come from Ken This Chan of Taiwan. Please go ahead.
Great.
Thank you for taking my question and also congratulations on the strong set of results. So my question is related to the gross margin trend for.
For each segment.
2023.
We have seen that also learning surfaces.
Great improvement.
In terms of the gross margin this year.
About.
The churn going forward. Thank you.
And thank you for your question.
Yeah, we achieved excellent performance.
Our overall gross margin in 2022.
Reaching.
52% this year.
50% of the last year.
The increase in our gross margin was mainly driven.
Both from our learning services.
<unk> devices.
So as you mentioned I would like to add some color.
Ongoing forward basis.
Let's begin with our learning services, we achieved healthy sales in our digital content services in 2022.
We expect even high revenue base too to be achieved.
In 2023, which will bring us added benefit from our scale.
Gil from.
Let me say that.
For example.
Decreasing.
As a percentage of revenue shared with our charters.
No.
Yes over year basis, which lead us to believe our gross margin program is limited.
We're also flatly inquiry over the long run.
Furthermore, our mathematics settlement.
Gross margin in 2002.
So it's 9% slightly up from.
To extend and expand in 2021.
We are pleased to note that density.
In this quarter gross margin for our smart devices reached 46% after we launched.
Five.
<unk> generation of addiction and pain.
We regularly update our smart devices and the new version.
Usually with a higher gross margin level during its launch stage due to higher price better platform and well popular.
This is the reason why we could achieve a better performance of gross margin in this quarter.
And we expect to the gross margin will gradually reached a stable level.
In the long run we believe the gross margin of smart investor will keep it at or above 40%, which is very healthy and make us more competitive.
In <unk> going forward.
Any basis, we still expect a reasonable improvement on our margin of bonuses and dismantle capacity as well.
Sure.
Patent business margin will be flat compared with.
Last year.
That's all.
That's helpful.
Thank you.
Ladies and gentlemen, this will conclude our question and answer session. At this time I would like to turn the conference back over to management for any closing remarks.
Thank you once again for joining us today, if you have any further questions. Please feel free to contact us at <unk> out directly reach out to the <unk> financial communications in China or the U S have a great day.
The conference has now concluded we thank you for attending today's presentation and you may now disconnect your lines.