Q2 2023 Youdao Inc Earnings Call
Okay.
Good day and welcome to the you do 3023 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 Wang Investor Relations director of <unk>.
Please go ahead.
Thank you operator. Please note the discussion today will contain forward looking statements relating to the future performance yourself the company, which are intended to qualify for the safe Harbor from liability established by the U S Travelers Securities Litigation Reform Act.
Statements are not guarantees of future performance.
Due to certain risks and uncertainties assumptions and other factors. Some of these res I'd be out of the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.
A general discussion of the risk factors that could affect you would ask business and our financial results is included in certain finding yourself with somebody.
Neither you asked it.
And they change from Asia.
The company does not entertain any obligations to update these forward looking information except as required by law.
During today's call management will also discuss certain non-GAAP financial measures for comparison purposes only.
As a nation.
Financial matters, and recalculation get GAAP to non-GAAP financial results. Please see the 2023 third quarter tons.
Second quarter financial results news release issued earlier today.
The remainder.
This California is being recorded besides that replay of this call first call it'll be available argued all sparkly website at IR <unk>.
Uh huh.
Joining us today on the call from you at all senior management ease up tariff and Joe Our Chief Executive Officer, Mr. Late June .
And when you start putting sue <unk> VP of strategy and capital market and meet your Wayne Lee our VP of finance.
Now I'll turn the call over to Dr. Joe to review 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 the M b unless otherwise specifically stated.
In Q2, 'twenty 2023 our net revenues came in strong and reached RMB, one 2 billion, representing a year over year increase of.
26, 2%.
Loss from operations narrowed to RMB $289 1 million Mark in a year over year improvement of 36, 5%.
Net cash provided by continuing operating activities stood at RMB 133 million.
Afflicting growth of 27, 6% year over year.
We are on a clear path to achieving profitability.
As for our business segment learning services and online marketing services continue to be our current main driver of growth.
Both reaching record levels of sales.
In the meantime, we're making solid progress in learning services learning devices R&D.
And we are leading the charge to apply yeah G suite and education by rapidly releasing applications up generally they pay off.
In the first half of the year, we see an overall positive trend in key financial indicators.
The news amounted to RMB, two 4 billion, indicating an increase of nine 9% year over year.
Loss from operations in the first half reduced to RMB $484 9 million improving by 16.
16, 4% year over year.
Cash used in continuing operating activities reached RMB 304 million.
Marking a 5% year over year improvement.
Our bar learning learning services talking about.
Q2 sales of digital content exceeded RMB 800 million, reaching a record high.
Customer retention rates across the service.
This was over 60%.
Leading to over RMB 200 million in operating cash inflow for the theory.
In addition to our learning content, we launched an AI University.
Application adviser.
So you got and how 'bout shuttle.
In Q2 to support students in their college selection process.
Users were quick to adopt this too lean to over 2 million page views.
Online marketing services maintained a rapid growth momentum for the last two quarters.
Net revenues reached RMB $303 million.
In Q2 at historical high representing an increase of 98, 7% year over year.
Moreover, gross profit margin improved by four 2%.
Our year over year.
These achievements were primarily due to advancements in our AR platform driven by Yeah I'll go first.
First we use proprietary technology to effectively identify and track the topics then products match in the audience.
The big key opinion leaders.
With accuracy rates approaching 90%.
I'll tell you a more precise absolutely.
Second.
Yeah did you see not only reduce the time for producing materials by more than 80%, which drove better user satisfaction, but.
It also reduced production costs for certain materials by over 90% driving the improvement in gross margin.
The positive trend in digital content services and online marketing services in Q2 is expected to continue in the second half.
Regarding our steam cluster.
On the policy from the Ministry of Education Nonstop starting from June 20 this year.
Primary and secondary schools will add new programming closest to their curriculum.
This new policy is expected to further expand the demand for it.
Programming content and services from families.
You recently hosted the seven wisdom.
Peter programming contest for primary and secondary school students in Beijing, Hi, Dan District in Q2.
With showcase to you does influence in the pivotal program.
In addition, both programming and Goldcorp has performed well with retention in Q2 with the retention rates for the advanced classes approaching 70%.
Besides the students from the champions class won the gold temperature and ship it jumps to mind sports games.
In terms of the smart devices total revenues of smart devices went down by seven 4% in Q2 year over year.
We're still in a transitional period for our devices business, mostly due to sluggish.
Spending in recent months and are stricter sales and marketing budget for himself.
Both of you, Doug Dictionary pen and you're done listening path performed well.
During the June 18th shopping festival pumping the chart for four consecutive years and two conservative years, respectively on JD dotcom, well, both sales volume and number of unit sales in this category.
In addition, Utah listening pod was updated to support you're downloading malware securing additional apps such as Chinese children's Encyclopedia colleagues, Bitpass reading and listening further enriching users' experiences.
More recently in August we released the Euro Dictionary pen ex fixed pro and you're done listening pop CRO.
We believe in the long term prospect of learning devices as they are convenient healthful and.
Affordable for consumers.
Focusing on two things to drive growth and profitability. One is new products, which we will have more to be released in Q4, and second is optimization to our marketing and sales which is underway.
Now, let's discuss our progress with AI.
As a leading education technology provider in China, we have always been proud of our capabilities and technological innovation. We believe large language models that AIG, Steve presented a great innovation and growth opportunity for us.
In July we announced our proprietary large languid motto language motto is optimized.
Optimized for education application.
Successfully deployed it to.
Two six applications starting from the second quarter.
We believe we are among the fastest and adopting all around and making the most of the solid business.
In the satellite in China, I'm happy to report that one of these years applications. So yeah box feature in Euro dollar translation has already driven nearly 100% year over year growth of translation subscription.
And over 200% year over year growth of subscription fee.
Yeah Brooks.
I very convenient even application AI features like sentence refinement.
I'm, a correction are writing suggestions and summarization.
In July we also launched the first the digital human language coach in China named Eco.
Echo teachers spoken English one in a while.
Thanks to large language motto technology, she understands the learner very well, it's fun to talk to them provides high quality feedback and really helps the learner improved their language acquisition.
I called made its debut at the both artificial intelligence conference in Shanghai.
Receiving great enthusiasm.
The audience and the media.
Two weeks later.
Two weeks ago.
Echo became generally available in Utah Dictionary pen.
Oh the review so far are great and we expect the alcohol too and more aig's the lunches.
To drive our business growth in the coming months.
Looking ahead, we believe education could be among the top verticals for a large language models.
This technology provides great potential for personalization of the learning experience if I can.
They've guidance throughout the learning process.
Integration of knowledge across subject.
That summarizes our business operations in Q2.
At a high level our strategy this year is twofold.
We.
It is driving healthy growth by offering high quality digital content services.
Secondly, we dedicate efforts to accelerate the integration of general generative AI into our products and services.
In Q2, our team has made significant progress in both areas.
They use a demand for high quality learning products and services remain consistently high.
Leveraging our strength in content creation user understanding and technological capabilities.
Committed to continuously delivering exceptional products that address the needs of our users.
Finally, I want I would like to share your adult and Larry Scoop.
Approved a proposed amendment to the aforementioned U.
U S dollar 300 million revolving loan facility to extend the maturity date of the facility, including loans already drawn from it until March 31st 2027.
In addition, we announced that the board of Directors approved an amendment to the foregoing program to increase the total authorized repurchase amount.
Additional U.
U S dollar 20 minute these.
This demonstrates the long term support from the east and the confidence from here those fine punishment. Thank.
Thank you.
No so Paul to give you an update on our financials.
Yeah.
Frankly, the tactical and Hello, everyone today, I will be presenting some financial highlights from the second quarter off with only 33.
I encourage you to read through our press release, you said earlier today for further details.
For the second quarter total net revenue of RMB, one 2 billion or U S.
Scholar one to at.
Please take a minute representing a 26, 2% increase from the same period in 'twenty or adding to.
Net revenue for our.
Were RMB 689 minutes.
I just read 49 minutes Goodbye sudden had put simply an 8% increase from the same period out of in 'twenty two.
Primarily driven by the strong sales performance all digital content services compared with Swisscom here. It also depends on true.
Net revenue for our smart devices were RMB 222.2 minutes or you have smaller frequent six made it down 17, 4% broadly since you're integrating two primary deals with that Christy mountains, whether intelligent learning product in the second quarter, all the tonnage trends right now.
Revenue from our online marketing services were RMB 306 minutes or U S. Dollar 41, 9 million, representing a 98, 7% in Chris promised him here in 'twenty two.
The increase was mainly attributable to the increased demand for performance basis.
Edward Hoffman.
Third party Internet properties.
For the second quarter, our total gross profit was RMB 567.2 minutes or less.
70, 822 minutes, representing a 38, 4% increase from the second quarter, all the time trying to.
We're smarter in for learning services.
57, 4% for.
For the second quarter of 'twenty penetrate compared with 52, 2% for the same period in time trying to.
Gross margin for smart glasses was pretty bad.
8% for the second quarter of a penny that's why I'm here.
Or is it pretty clean and 6% for the same period in time trying to.
Gross margin for online marketing from it but it was 31, 9% for the second quarter also sometimes rate compared with 97, 7% for the same purity in contango.
For the second quarter total operating expenses were RMB $800 could you just explain sort of made it all U S dollar 118 planes.
Compared with RMB $864 nine minutes for the same period last year.
Is that for the second quarter, our sales and marketing expense were RMB 587, 7 million compared with RMB 596 million in the second quarter of Sunshine, who.
Research and two operating expenses were RMB 200, as I pointed out in minutes compared with RMB 284 million in the second quarter of Sunshine.
Well, we're all pretty nimble smart almost 24% in the second quarter. All three comparison 47, 6% for the same period last year.
For the second quarter authentic that's right Oh in that loss from continuing operations attributable to ordinary shareholders was RMB 299.2 minutes or U S dollar, but if I'm playing for a minute.
Compared with RMB $453 9 million for the same period of last year.
non-GAAP net loss from continuing operations attributable to ordinary shareholder so the second for the second quarter was RMB 283 6 million.
So you're not putting 1 billion compared with RMB 435.8 minutes for the same period last year.
Basic and diluting net loss from continuing operation for Etfs attributable to ordinary shareholders was one quarter I'm, telling you that story was RMB, two painful, but well do that.
Europe wants to report non-GAAP basic and diluted net loss from continued operation pretty death attributable to ordinary shareholders for the second quarter was RMB 232, or U S dollar euro planes very cool.
Net cash provided by continuing operating activities was RMB 433 minutes.
Dollar 18 plants, where it made it for the same quarter.
Looking at our balance sheet. That's helpful. The twin 30, 20th century.
Contract liabilities, they should mailing cost yourself that if our revenue generated from our in our services.
RMB, one 2 billion or U S dollar 167 points for a minute.
Compared with RMB, one 1 billion as of December 31st Sunshine Hu <unk>.
How do you handle superior or cash casualty Peerless research.
Cash kind of deposit and short term investment totaled RMB 680 minutes or U S. Dollar that's a 3.8 minutes.
This concludes our prepared remarks, thank you for your attention.
Now open the call to your questions. Operator. Please go ahead.
Yeah.
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 are using a speaker phone 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.
Okay.
And our first question today will come from Brian Gong with Citi. Please go ahead.
Oh, good evening management, Thanks for taking my questions.
Real quick one on our Oh.
Just your technology.
Well, yeah applications will be long string of a second half of this year.
What impact will have on our business in your view. Thank you.
Hmm.
Hi, Brian Yeah. This is a telephone.
Yeah, well, we announced are a proprietary language model for education in July .
We are looking to leverage this breakthrough technology to drive both short term and a few.
Future gross so we have plans for those to come.
Coming months and also for the longer term so in the short term.
We've already launched two six applications.
Including our digital human.
Language coach named Eco.
That box, a 2.0 and a translation issue.
That's right. So the first line of workforce.
It's to deploy these application to more of our services that's been I suppose.
It starts with drive business growth.
These new capabilities so in fact.
It is already driving close as early as Q2 for example, a box one point you know are already drove nearly 100% year over year growth.
Translation subscriptions.
And over 200% year over year gross of subscription fees in Q2, as we just discussed and ox.
We've also launched our echo our digital human.
Coach in English.
<unk> instructions nature.
The latest Oh dictionary and ex fix probe launched earlier this month.
I always the first to launch language model basically human language coach.
Uh huh.
In China Yeah.
So this is a groundbreaking.
Product it is likes a lot by by our customers.
From our feedback.
And I'll Oh, yeah.
Grandma instruction feature is also the first of its kind in learning devices.
I, usually tell us that they really like these two new features because they are really helpful and engagement. We will continue to operate these features over the coming months and we plan to launch and monetize them on other platforms for example on phones.
No.
Alcohol and other features will be on our phones too.
One of the strengths of Aig's C product Oh, my observation is that the consumers are willing to pay for them.
Because they're really useful and helpful. Yeah. This has been shown to be true by.
The tremendous growth of products like the majority and the tragic beat yourself.
So we do not need to go through the free to use model two kind of indirectly monetize these products instead or they could be monetize directly from day one.
So this shortens the investment cycle for these products.
Regarding our entirely new applications I am also happy to share that we plan to launch more.
Well I Havent based applications in Q4 this year.
There are other aspects of the English language learning that's clear I, just you can really help us.
Not only glamour.
And there are other subject that we should provide a G C products for.
Our teams are now more familiar with how these language models work and have accumulated a substantial experience in their applications. So we are able to quickly.
Either way it Jan the beautiful applications. So more applications will come in Q4 this year.
So in short we are off to a good start off with a three year project, but we entered the market early.
And it is already driving close and has.
A great long term potential.
So looking Oh go ahead.
Generally survey I represents a transformative opportunity for the education technology sector as well as a lot of other industries as we all know, but it has the potential to allow much more personalized learning and to increase the productivity of the overall education process.
So so we are also.
Studying early in a L M.
Aim to drive long term future for so for that for that purpose Oh the basic.
<unk> technology is important and we believe what's more important.
Is the application scenarios.
We are oh.
Looking looking at a lot of the different scenarios and edge of patient and because we are early into the way.
Our teams have more expense. So we believe we can maintain.
The Rd lead up we're already have enjoying in this area.
So overall, we are bullish about the combining large language models in education, and we'll keep innovating in this area.
Thank you.
Thank you that's very helpful.
Our next question today will come from Kelly one of TICC. Please go ahead.
Hey, good evening match at a busy time, you Walter and good to see.
Thank you for taking my question.
In terms of these smart devices we.
We have great D D E without dictionary pen crowds and nuclear and popcorn earlier, So would you mind, providing an update on the user feedback for me, it's not because I think.
And also.
A slight decline in revenue in their smart devices sector. This quarter didn't mention still maintain our confidence in the long term prospects.
Would you mind, giving us more Colombia. Thank you.
Yeah.
Yeah. Thank you yeah. This is a tool for them again.
As we mentioned that we launched a dictionary pen next six probably and without listening pod pro earlier this month.
Let me provide a quick update.
For the six.
Sure Ken this.
This is our flagship product and.
The most popular features where the 100 day ultra long standby time English grammar instruction.
No human language coach and passed on lab analysis from the popular five three Stuart Rothstein.
When you're in golf clubs in England.
So these are the four most popular features are we are we got from a user feedback.
Users like these features are very very much so what's exciting for us is that.
Yeah, just your language approach Ah is actually Amanda.
The most popular features.
Yes.
It's the it's been a number three our future. So each one of the most popular features.
So.
We're happy to share that for the first 20 days of August driven by the popularity of X.
It's probably an ethics, a new dictionary pen activations were up by more than 20% year over year.
So that's for the new dictionary pen product.
As for you don't listen in OXXO.
The most popular features from user feedback is the AI player and yeah dialogue. These two features are the most popular.
As from a kind of new product sales activation. So we've observed without year over year increase in new activity Activations of our listening part of life.
Uh huh.
So this series is higher in activation during the same period last year and that's also for the first 20 days in August .
And as I discussed in prepared remarks, we will have new devices to be released in Q4.
So we're looking forward to bringing more new products to our customers in Q4 this year.
So that's a quick update on the new product.
Now, let's discuss our thinking with regards to the current market environment.
Ah recently, the consumer electronics industry, that's the bit at Oprah weakness due to the mostly the macro cycle the demand for smartphone devices, although relatively resilient compared to other categories was also affected to some extent.
We are continually monitoring the market condition.
And optimizing our operation right.
And I know for Q2 and Q3 are.
We are focusing on user satisfaction and profitability.
Two things user satisfaction and profitability.
In Q2.
We are moved out of some lull the tenor of the investment sales channels.
And reduced startup costs. So this.
Contributed to the slightly lower year over year device.
We believe this is a right approach in this market.
Given our overall objective.
It's been a big growth in moving towards company wide profitability.
We're also actively adjusting the price points.
For example.
The new Essex Dictionary pen is priced at a 499 right.
The relatively low price of oil.
Oh.
The product has very good experience and also a very good profitability for us.
So this is one example of US all kind of probably adjusting our price points or.
So fixed is very popular right now along with a very popular.
Our flagship.
Thanks, Paul.
So that's a quick summary of our current operating practices regarding smart devices.
We're focusing on the user satisfaction with with our best product.
Also driving profitability octopus stuff.
Not a absolute scale growth.
And we are doing all of this by actively managing.
Our R&D process and also very importantly, sales and marketing costs are with with discipline.
Now looking ahead to the long term I believe lifting devices do you have a relatively low penetration rate.
Representing a significant opportunity for growth.
The market size growth observed in the overall market over the last few years indicates that.
This up up up.
The train is is there yeah. According to our research report released by the Internet Society of China.
Okay.
In July this year the market size of learning devices is projected to increase from RMB 24, 9 billion in 2019 to an estimated the RMB $43 1 billion in 'twenty 2022.
So you would always are poised to be a leading brand in this space with our extensive user base strong product design capabilities and also commitment to advanced technologies like the large language models, but we believe the.
Slowdown is temporary and we are optimistic about the long term opportunity.
Hope that answers your question.
And the tiny piece is definitely one point at all.
After top Joe's comments, and Oh listen cause actual Paul it's a totally different although nobody has the most of the Baltimore.
Nobody is going to.
Compared with the with the Alta releasing off here, it's because it's used to be the hardware problem students learn English.
English more efficient efficiently and the write off we think we win not only just enhance that.
Peter herself.
There's a big fan of functions and that's a same time. We also added up all of the services like the cycles of interactive.
Screening program, that's what I thought so grandma.
Instructing instructing program that's the that's the.
Most of that useful function.
Students when they learn the language. So we believe after the added services they come.
H more interactive between the users and all the hardware that we can help us to know more about their if you mind with us in the long haul so listen calls that's there'll be the totally different profile.
Compared with the possible totally off new coffee doesn't have all of that school bus balls in the.
Not long ago, and the lack of demand shouldn't be weeks back into our future.
Future product suite has and enable more feature a sore spot for smart here.
Last Saturday modal inch which are all hardware centric.
More and more exciting products I mean, yeah later to Q.
Q4, yeah.
Okay.
Okay got it. Thank you that's very clear and we look forward to them.
Yeah.
Our next question is from Thomas Chong of Jefferies. Please go ahead.
Hi, Good evening, Thanks management for taking my questions. My question is regarding the online marketing is fine what was dropping practice behind their back as well.
I mean macro Neil from online marketing services over the past many quarters.
Furthermore, well not the key direction, but the later half of this year. Thank you.
Hi, This is Phil again.
On the online marketing services has already had robust so with the three call it or not at all.
So it started off in nearly 100% for Q2 and Q2 is a book called her the.
Online marketing revenue you can see the RMB 300 million.
Internally there many.
Mainly two factors.
Firstly.
All along from the novel Technology.
<unk> improved the accuracy.
Accuracy and all.
A D platform.
Yeah.
Okay.
Rich the yoga.
The Florida.
Major platform.
Oh, Yeah, Yeah, no technology allow us to accurately identify the relevant thing associated with Nokia Bell.
But you know accurate read after nearly 19%.
You may be off.
They were a highly professional advertising and to help our clients reach their targeted audience.
Faster and more accurate.
Secondly, they are they up with data.
Uh huh.
In Atlanta, our abilities of our ADC platform.
More and more.
Intended.
Recalling your answer on the optimize the traffic on the tie them in.
Materially if at all.
<unk>.
You bet.
The union pool without advertising.
Pro forma.
It's done on a.
Despite the sluggish consumer.
On tumor environment.
There is still a strong consumption of illness, among the young people aged between 18 to 35.
In game young cosmetics on the fast moving.
Oh a decline.
With that I'd like to capitalize as a participant and all the.
Young people are absolutely without a lot of young people are using our product.
Have a deep understanding of all of them.
Secondly, having yeah, maybe I'll focus on two key beer acting with a deal.
Pennsylvania, maybe I'll focus on overseas market, obviously, the strong demand.
We have a advantage Albany terminal.
The language capabilities.
Your experience in this field is always a.
Technology to completion and.
And are you feeling.
That's all for transfusion.
Many times I'm not going to be over a 1 million and this deliberate to afford a while there.
I'm kind of reaching more than 2 billion users or 65 countries and I'll read it well.
15, a tiniest, Brian the tool overseas expansion.
Oh boy.
Yeah, Hamza what their capabilities are.
I agree with all our platform in Q4 of last year.
In the huge benefit.
Our real time on the aggregated data yeah, how are you.
Alter.
You said you are making and are supposed to be on the ATP revenue.
Uh huh.
Yeah, maybe I'll try to further enhance our platform will give our clients buys her marketing far from it.
Okay.
Yeah.
Okay.
Our next question today will come from Ken This time of Dour. Please go ahead.
Great and.
Thank you for taking my question I have a question regarding just the learning services, Canada measurement I'm talking about all coming focused way that our lending staff were supposed to in the second half. This year both on the K 12, and those are the education all necessary at all after that thank you.
Okay.
This is a phone.
Hum.
So.
Yeah.
Digital content services are the largest part of our learning services business.
Business segment.
As we mentioned in the prepared remarks digital content services actually are a bright spot.
It's sales reached RMB $800 million in Q2, it's the first time at a record high and our retention is also at a high level of around 60%.
So within the digital content.
Category.
Q2, we launched a university application adviser.
But students in their college selection process. So this is oh, we think going forward and this is going to be important because it allows us to touch many of our users. So in this since its launch it's already gained over 212 million page views.
As we mentioned in prepared remarks, yeah. So.
If you look at our digital content and service over the last five quarters. So.
It's actually been growing very healthily over the course over the last five quarters.
As our learners are keep adopting this new form of interactive online learning yeah. So it's.
It's different from online learning before so its a new phone with Purdue materials.
Personalized practices and also feedback.
Feedback so so it's great fostered to speed up users are more and more users adopt this new form and the business is growing and growing quickly yeah. So so so we're happy to see that.
So we expect to digital learning content and learning services as a whole to continue to perform well and are in the second half. So we will.
Enhanced online learning further by investing in education of R&D to create high quality content and also improve our personalized assessment and feedback system, which is a strong feature of our systems.
Furthermore, our collaboration with.
She history Museum.
For immersive learning.
On the literature.
That project was a success.
So we have a so we have more IP collaboration plans for this year offering users a more opportunities to learn about Chinese culture through immersive experiences.
So the second category of learning services is a steam courses, including mainly Oh courses and kids programming.
So.
As you would all became a G S P.
<unk> certification service Center GSP is graded examination of our software programming after China and computer Federation and the first half of the year.
In addition.
As our exclusive online education partner.
Hosted the 17th Wisdom.
As we talked about.
So.
In the second half of the year, we will continue to focus on our strategy and are in the steam area.
Which is two leading online course systems for students are enthusiastic about goal and also competitive program.
No.
Respectively.
We are already upgraded our programming courses for the for the <unk>.
And we'll move on to upgrade our fall and winter costs that's in there.
Uh huh.
Another project, we have ongoing for student customers is we also plan to offer more offline activities and events.
We've had offline events like go game events and a competitive program events for years.
And there, particularly popular this summer because parents and students are eager to go out and participate in our community activities and events.
So given our a huge online learning audience and also our experienced and organizing all flying themed events.
We're working to provide a more.
Themed events opportunities toddler and their families in the second half of the year and.
To drive.
Engagement and growth.
Lastly in terms of adult courses, we made positive progress in Q2.
Hum.
Despite macro challenges we launched a bid is the product for a Master Corporation for a post graduate entrance exam.
Which provide a knowledge teaching step by step guidance, then personalized practice.
So this product has been very well received by our users.
Our next day retention rates of over 50%.
So in the second half of the year, we will continue to focus on a post graduate entrance exam closest indeed.
In the adult category.
Because of our strong demand.
It is projected that the college graduates and Postgraduates exam.
Participate will exceed a permanently in the five minutes.
Respectively.
In 2020 for.
Both historical highs.
We will strive to further explore and expand our utilize the product.
With a specific focus on enhancing our English preparation for postgraduate entrance exams.
Yeah. That's our plans are for learning services I hope that answers the question. Thank you.
Great. Thank you very much.
Okay.
Your next question will come from landline.
Her Thai Securities. Please go ahead.
Good evening management.
That's good news.
It sounds like no question, just a quick one on the ongoing investments.
Results in a significant increase in R&D expenses in the second half of this year.
This is Lynn and thank you for your question.
Picking up.
Intense of Andy Backman Yep.
On it and believe our last.
Last night.
The mall focus.
Dedications now there's not a.
What's the plan for almost none of it.
I've just been mentioned about Dr. Phil our recent Midland.
Hum.
Fishing Chad.
And then we should model the translation.
Hum.
Well my instruction and a I S C. Johnson.
Just remember that this is.
Not our first time.
Investing in AI area.
No doubt.
Danny.
19, AI technology and technology has been widely applied in our learning services and smart devices.
Same time, we have received the benefits from.
Adopting more effective.
Method, which enhanced our R&D efficiency for example.
First half of this year, although we applied our proprietary lots of language motto.
It was just not yet.
We still experience around standard year over year decline in.
R&D expenses when compared to.
To the same period last year, which mainly contributed from our efficiency improvement.
With more comprehensive.
Experiences in AI investment and saving costs through applying <unk> technology.
The introduction of that D. C has it because I'm.
Not the boat and half minutes and efficiency.
Okay.
The incremental implementation.
Hey, I T C has lead to.
The increase in <unk>.
All production Hunton ball, our coffee tea teaching materials.
And anticipate that the improvement will be continued.
The cost saving in AI investments and the application of a D C technologies.
Enable us to accumulate substantial technological Tyler.
And the knowledge as well.
The bathroom.
By the end of this year, we plan to launch more AI applications.
We will continuously balance out in the bathroom and lots of language models and application.
We believe our team working in more severe.
On it and develop a clear understanding all the investments we've great greater effectiveness.
It's down to the effectiveness of the application side, we will continue to improve.
Going forward.
Continuously oh, no clear path to achieving profitability and we will continue to optimize this juncture out.
All of our R&D investment.
For example, eliminating R&D expenditure, although it's unclear perspective project.
We can allocate.
Allocated the savings into our preferred yeah I played yet.
Above all we we will.
We will enhance.
Our investment in AI.
But we do not discount the significant year over year increase.
M D.
Second half yes.
We see it is helpful. Thank you.
Thank you.
Yeah.
And that concludes the question and answer session I would like to turn the conference back over to management for any additional or closing comments.
Thank you once again for joining us today, if you have any further crutches, please feel free to contact us.
Directly reach out to Houston financial Communications 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.
Okay.
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