Earnings Call: Q2 2021

Aug 31, 2021

Earnings release

Good day, and welcome to the Yodao 2021 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wong, Investor Relations Director for Youdao. Please go ahead. Thank you, operator. Please note that Thank you, operator. Please note the discussion today will contain forward looking statements related to future performance of the company, which are intended to qualify for the Safe Harbor from liability as established by the U. S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual 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 Yudao's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update these forward looking information, except as required by law. During today's call, management will also discuss certain non GAAP financial measures for comparison purposes only. For the definitions of non GAAP financial measures and reconciliations of GAAP to non GAAP financial results, please see the 2021 second quarter financial news release issued earlier today. As a reminder, this conference is being recorded. Besides, a webcast replay of this conference call will be available on Yuudao's corporate website at ir. Yudao.com. Joining us today on the call from Yuudao's senior management is Doctor. Feng Zhou, our Chief Executive Officer Mr. Lei Jin, VP of Operations Mr. Peng Xu, our VP of Strategy and Capital Markets and Mr. Wayne Li, our VP of Finance. I will now turn the call over to Doctor. Zhou to review some of our recent highlights and strategic directions. Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on renminbi. Q2 was another solid quarter for us. Total net revenue were RMB1.3 billion, representing a 107 percent increase from the same period in 2020. Revenue from our 3 segments, learning services, learning products, and online marketing services, grew by 112%, 138% and 60% year over year, respectively. Loss from operations for the Q2 of 2021 was RMB544 1,000,000. That translates to margin of loss from operations improvement of 3.30 basis points from the same period in 2020. As you all know, significant regulatory changes regarding after school tutoring were introduced recently in China after our fiscal Q2 concluded. Our remarks will be 2 parts. I will first talk about the double reduction policy, its impact on us and our plans. Then we will go over our Q2 results in more detail. Regarding the double reduction policy, we saw 4 major points most relevant to us. 1st, publishing of AST advertising is banned on most media platforms. 2nd, access to capital markets is severely limited. For example, ASTs are not allowed to pursue IPOs. 3rd, tutoring timing limitations, for example, no school subject academic tutoring on weekends or holidays. 4th, academic ASTs are required to register as non profit going forward. We have been exploring strategic and operational changes to our tutoring business and setting new priorities for the whole company since the regulation was published on July 24. 1st, as always, we are committed to embrace and fully comply with these laws and government policies. We have already made changes to our business like stopping academic classes during the summer holidays, and we are actively communicating with regulators on further changes like the non profit requirements as these have a major impact on our future operations. Therefore, we expect academic AST business will be severely limited in the coming quarters. With that said, AST is not our sole business. The K-twelve AST made up about 41.2 percent of our Q2 total revenue. We believe our other businesses, which contributes over half of our revenue, are not directly impacted by the regulation. And we have several high growth business lines in non AST part of Yoda. So while we step on the brakes on the AST side, we will be driving more growth on the non AST side of our business. Ultimately, we think our deep technology roots and large user base gives us options and diversity, much needed in this kind of challenging scenario. Overall, when we add the 2 sites up, I expect this to be a speed bump in our journey, a headwind for a few quarters. Looking to the future, I see 4 pillars of growth in our non AST business, learning devices, adult education, STEAM courses, and education digitization solutions. We have talked a lot about the learning devices and adult education opportunities in past calls, and our team will keep innovating in these areas. In Q2, both these businesses are doing well. We released Youdao Dictionary and K3, designed to be more friendly to elementary school and pre k kids, more affordable and supports learning of arithmetic in addition to English and Chinese. As for the 3rd growth area, STEAM courses, it is an area that is made more attractive now that the students have more time. We believe we have a competitive advantage in online steam courses because we have been operating steam courses ever since 2018 and our teams are good at content creation, applying technology and also monetization in this era. In Q2, Youdao Weiqi continued scaling up nicely. Net revenue of Youdao Weiqi increased by 180% quarter over quarter. We also launched advanced level small class courses of Weiqi for students that play more competitive. As for our programming courses, the retention rates reached all time high of nearly 90% in Q2. SIEM education is a great area and we will continue launch more courses in coming quarters. The last of the 4 growth areas is education digitization solutions. By that, we mean any product or service delivered in a business to business fashion or business to government fashion that uses digitization to improve learning and education. The customer could be schools, universities or enterprises. This is the first time we discuss education digitization solutions on our call. We think it has huge potential. It fits Youdao very well and now is the right time to do it. According to Huata Securities, the expected market size for education digitization is over RMB 650,000,000,000 in 2023. As for Yuzhou, with our expertise in AI, smart devices, design and manufacturing, as well as a deep understanding of teaching and learning, we believe we are well positioned to seize the opportunity in the rising education digitization markets. Right now, we also have an innovative product in this area, Yudao Intelligent Learning Terminal. It is an appliance that automates paper based homework processing and provides learning diagnosis through AI technology at schools. It works by integrating scanning, printing, and AI diagnosis in a single appliance. Youdao helped Binjiang District in Hangzhou to facilitate education digitization and our intelligent learning terminal was praised for helping instructors analyze students' learning and knowledge points and improve teaching quality and efficacy. We also continue investing in R and D to build up our learning technology. In Q2, we released the Yudai Intelligent Practice System, our first fully adaptive practice and learning system. This is already in production using our junior high school math courses and we plan to integrate it with our learning devices in the future. Going forward, here are our immediate action plans right now. First, we have been streamlining our workforce for K-twelve AST business. We have been following the guidance from the government regarding how we are supposed to operate this segment in the future. 2nd, for the online courses segment, we will focus on adult courses and steam courses that are in line with the policy direction. As I just talked about, K-twelve students have more free time after double reduction. We believe our demands for STEAM courses will significantly increase. Regarding adult education, we have seen a strong growing demand for professional certificate and interest based courses, and we continue to offer competitive products to drive sustainable growth in this area. Thirdly, for learning products, we will continue leveraging our advantages in EdTech and innovation to further drive growth. We always hold the view that smart learning devices present a great opportunity for growth. We already have achieved scale and profitability in our dictionary pen products and we will continue to launch more new products to strengthen our leadership in learning products. Fourthly, for education digitization solutions business, as I introduced just now, there is a huge demand and it is in line with the government's policy direction. We will leverage our advantages to meet the rising demand from public schools, universities and etcetera. Looking ahead, we are very confident with our plans as we have a strong team, we offer high quality products and so we have long term support from our parent company, NetEase. NetEase today announced that it has adopted a share purchase program of up to US50 $1,000,000 of Yudao's outstanding ADS for a period not to exceed 36 months beginning on September 2, 2021. Under the terms of this program, NetEase may purchase Yudao's ADS in open market transactions on the New York Exchange. The purchase program may be suspended or disconnected at any time. Along with continuing optimizing our business, we are also dedicated to fulfilling our social responsibilities as a corporate citizen. We always strive to help where we can, leveraging our strengths to help communities in need. For instance, facing the recent hefty rainstorm in Henan Province, Yudao joined hands with public welfare institutions to provide post disaster reconstruction and instructor support for 10 to 15 schools and kindergartens. These activities are expected to support at least 10,000 students in affected areas, and we will continue making ongoing contributions to society in the future. With that overview, will now turn the call over to Sookong to review our operational and financial results in Q2. We will then open to questions. Sookong? Thank you, Doctor. Zhou, and hello, everyone. Today, I will be presenting some operational and financial highlights from our 2021 Q2. We encourage you to read through our press release issued earlier today for further details. Doctor. Zhou introduced strategic and operational change to our tutoring business and our new priority just now. Then I will add more color on the operating side in Q2. First of all, in terms of adult segments of premium courses, the revenue account for the 21.5 percent of the total net revenue in Q2. The Extraordinary Memory course was the biggest one from the gross billing perspective in Q2. In the meantime, an upgraded version of the practical English course has been launched recently. English for all enjoyment can offer immersive teaching from the 1st person view. It optimize the education and the training model based on the learning characteristics and the learning habits of the adults. Furthermore, the upgraded course presents a language learning scenario by using AI technology and the integrated learning practice and the test to improve the concentration of students. The intelligent assessment system tracks the students' learning conditions to help them customize their learning process accurately from the 5 major dimensions. In short, enhancing service by AI technology has made education and training easier. As for China University MOOC, Mint's Massive Open Online Course, the leading MOOC platform in China and also the major online courses platform for Chinese university students. 137 courses has been certified as the National level premium online courses for vocational education by Ministry of Education. Looking at our Yudao Dictionary app, we added a new function named the high reading in Q2. It is the 1st learning app that supports real time assessment of oral English and professional sound monitoring in China, making oral English learning more efficient. As for the Woah community, Woah trends we launched in Q1, it grew faster with MAU of more than 10,000,000 in Q2. The monthly active users of our learning apps in Q2 reached more than 130,000,000. Besides, gross billing from new users contributed by organic traffic increased by 97.3% year over year and the gross billing from the total organic traffic account for the 28.4% of the total gross billing in Q2. Then I will be presenting the financial highlights in Q2. Total gross billing from our online courses reached RMB1.1 billion for the Q2, up 99.7 percent year over year and the gross billing from our premium courses rose to RMB1 1,000,000,000, up 100 24.1 percent year over year. Gross billings from our K-twelve segments account for 76.7% of the total gross billings in 2nd quarter. Paid student enrollments for premium courses were up by 129% year over year. Paid student enrollments from our K-twelve and adult segments account for the 86.6% and 13.4% of the pace building enrollments for premium courses respectively. For the Q2, total net revenue reached a record RMB1.3 billion or US200.3 million dollars This represents an increase of 107.5 percent from the Q2 of 2020. Looking at this growth by segments, net revenue from our learning services were RMB921.1 million or US142.7 million dollars up 112.4 percent from the same period in 2020. We attribute this growth to the increased revenue generated from our online courses, which were further driven by the increase in paid student enrollments for both K-twelve and adult courses of adult premium courses. Net revenue from our learning products were RMB206.3 million or US32 $1,000,000 up 138.8 percent from the same period in 2020, driven by the substantial increase in Youdao dictionary pen sales volume. Net revenue from our online marketing services were RMB166 1,000,000 or US25.7 million dollars representing a 60.8% increase from the same period in 2020. For the Q2, our total gross profit reached RMB676.7 million or $104,800,000 up 140.4 percent compared with the Q2 of 2020. Gross margin for Learning Services increased to 57.9 percent for the Q2 of 2021, up from 51.7% for the Q2 of 2020. The increase was driven by the improved economics of scale and ongoing optimization of Youdao's faculty compensation structure. Gross margin for learning products increased to 43% for the Q2 from the 32.4% for the same period in 2020. The improvement was mainly attributable to the substantial rise in sales volume of Yudao Dictionary Pen Series 3, which carry a higher gross margin than other learning products. Gross margin for online marketing services was 32.7% for the Q2 of 2021 compared with 28.5% for the same period in 2020. The increase was mainly attributable to higher sales of performance based advertisements through the 3rd party Internet properties, which had an improved gross margin profile over the last year. For the 2nd quarter, the total operating expense were RMB1.2 billion or US189.1 million dollars compared with RMB564.6 million for the same period last year. With that, for the Q2, our sales and marketing expense were RMB973.2 200,000 compared with RMB445.2 million in the Q2 of 2020. Research and development expense were RMB180 1,000,000 compared with RMB91.4 million in the Q2 of 2020. Our operating gross margin was 42.1 percent in the Q2 of 2021 compared with the 45.4% for the same period of last year. For the same quarter of 2021, our net loss attributable to ordinary shareholder was RMB524.4 million or US81.2 million dollars compared with RMB 157.8 million dollars for the same period of last year. Non GAAP net loss attributable to ordinary shareholders for the same quarter was RMB 5.5 million or US77.5 million dollars compared with RMB250.5 million for the same period last year. Basic and diluted net loss per ADS for the 2nd quarter was RMB4.29 or 0.66. Non GAAP basic and diluted net loss per ADS for the 2nd quarter was RMB4.09 or US0.63 dollars Our net cash used in operating activities for the 2nd quarter was RMB249.1 million or US38.6 million dollars Looking at our balance sheet, as of June 30, 2021, our contract liability, which mainly consists of the deferred revenue for our online courses, were RMB1.4 billion or US213.1 million dollars compared with RMB1.4 billion as of December 31, 2019. At the end of the period, our cash, cash equivalents, restricted cash, time deposit and short term investments totaled RMB1.9 billion or $294,400,000 This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead. We will now begin the question and answer session. And our first question comes from Sheng Zhong of Morgan Stanley. Please go ahead. Hey, thank you for taking my question. My question is, actually you mentioned that with current regulatory environment, you will focus more on the non K-twelve phase. But my question is wondering what this means for K-twelve-two-three business. Will you keep it or gradually exit this market? And if you have any operation adjustment, can you share with us that will be great? Thank you. Thanks, John. Yes, right now we are following guidance from government at a working level. So for example, we stopped summer courses, we removed courses scheduled on weekends and things like that. So going forward, we will see more changes like this and basically the way we offer our service for K2V will be different. And in the process, we will follow guidance from the government. One thing is that we see that the national policy, Beijing policy and other local policies regarding AST, they are actually quite consistent in their content. So, our current thinking is we expect the measures in these policies, Some are already implemented, some are not implemented yet, but we expect them to be executed, implemented in the coming months. So we're still in the process. So some of the timing is not clear yet and the schedules, the government schedules could be moved around, but basically we will follow the government's instructions. And so this is our current view. And so I think it's still early for a very clear K-twelve adjustment plan from us. Again, as we said, we do expect the measures to have significant impact on our existing catereditorial cost business and these impact will come in the coming quarters. Let me take this opportunity to talk a bit more about where we are from a more macro perspective. So first, I think the policies are designed for the long term development of China's education. So let kids have more free time, let them develop more extracurricular interests and put more resources into schools. These are all designed for the long term. Therefore, we fully embrace these changes, these policies and will be compliant as our original intention to do education business is actually very consistent with the reform. Yes, so there's actually a Chinese saying, teachers are those who teaches values, teaches skills and dispels thoughts. I think it's a fitting one right now, yes, because it is our purpose to do these things, pitches values, teaches skills and dispel doubts, and we use technology to do that. And the final purpose is to empower the kids, the children to get brighter futures. So this is why we fully embrace the policies. 2nd, regarding non K-twelve, we also see that the governments are embracing and actually driving digital transformation in many fields in the economy, including education. Digitization is a powerful force. It really increases productivity and transform a lot of the fields. And the government understands that and will not stop doing it, including the education. So, for example, in July, 6 ministries jointly released the guiding opinion on education new infrastructure building, mainly to promote more deployments of digital technology in education. So, education technology in China, in our view, is definitely moving forward. The online AST, of course, is part of education technology, but there's a lot more to EdTech than AST. So, as I've talked about in our prepared remarks, so we will focus on the 4 streams, 4 pillars of growth, learning devices, team courses, adult courses and education digitalization solutions. These are all in line with the overall government direction and are already it's not something that we come up after the policy reform. It's something that we've been working on for some time And these four areas are all high growth areas for us, if you actually look at the numbers. So that is what is clear for us right now. And that's also what many of our teams are hard at work focusing on. Yes, I hope that answers your question. Thanks again, sir. Thank you very much. The next question comes from Brian Gong of Citi. Please go ahead. Yes. Thanks management for taking my question. My question is about the competition of learning devices, adult education and STEM education. So do you think the competition of those areas will become more intensified since after the new regulation, new policy, other AST names, other yes, other AST names, they are also also some of them are also looking to come into this area to find new growth drivers. Yes, that's my question. Thank you. Sookong. Yes, we the first is we always believe that the intelligent learning devices will provide huge opportunities for the ad tech companies. And in China, there's nearly about 200,000,000 K top students as well as even more platform learners aspire to improve their learning efficiency. Also, parents right now are ready to invest in education. Indeed, with growing demand, probably many of the companies have already entered the segment. However, what do we think about the effect for the intelligent learning products? There are some really technical barrier to the entire process, including the development, production and sales. Well, we think that Youdao has made substantial inputs in the area for the long time and achieved exceptional results. Yes, if you go back to the 2 years ago and about we released our Dictionary of Pen Series 2 in August 2019. We thought we had established a good market reputation and recognization. And we think we have to there is the amazing message to the parents in parents' mind. So we think we are in the leading area. We are definitely we'll be the leading one. At least we are the leading one in the learning device sectors. So we are thinking about we are very we are pretty confident to face about the competition in these sectors. The second thing is about adult education products. Yes, if you see about the numbers, in net revenue from our adult education business, it's up about over 100% year over year in Q2. And also we are successfully upgrading the true difference for SKU World content or the product in our pipeline. First is about record practical English English product, it's a language learning product. 2nd is called the extraordinary memory that kind of helps people to train their memory capabilities. So that's from as they are 2 very entirely different products with different core value to our users. So I think we think about that. So we have the capability we are capable to operating the 2 develop and operating the 2 entirely different SKUs at the same time with our adult education team. Secondly, for this part, because we are always trying to leverage our organic traffic from our core assets, it's our dictionary app. So as we mentioned, we have launched several new functions in the first half of this year. The watch as well as a new high rating program. So we think about the video. Through that program, we can no more learn a lot of the users' behavior through these 2 different functions, and then we expect we can no more their demand through their activity in our apps. So we can just provide more products for their demand. So we think about it because we have this we always have this organic traffic product. So we think about we will definitely we will be have leading positions for this in this adult education sector. Yes, we think that's the that's why we think about the question. 3rd is about, in addition, as Doctor. Mentioned, we found another very great opportunity in 2B services and 2B business. It not only has huge demand, but it also consists of its policy directions. It's called we call it digitalization education business. We think it's providing a new opportunity to improve education in classrooms, enhance the management of the education system, but also consider innovative model of the delivery. Our innovative intelligent learning terminal boosts digitization for primary and high school across China, and we adopt intelligent educational solutions to help the self study and the personal teaching. Thus, we think about improving the efficacy and the reduced burden for the both teachers and students. Yes, we hope that's that sounds your question. Thank you, Brian. Yes, Brian. Yes, this is let me add a few words. So, the question is about competition in these new areas. Of course, we will see a lot of competition and we already see companies coming up with new products and services already. So the way we think about it is that we view ourselves as a product company. So that's and we think we have product focused companies and service focused companies in education. And both models are good. But I think for some products, for some things, so this is this will lead to different ways of doing things and different competitiveness. And for hardware, for devices, it's obviously products because you actually hold the product. So we think for devices, we absolutely have advantage here, because we've been doing it for a couple of years and we have very strong teams, very strong product teams. So defining, meaning, refining and selling these products. And also for steam, we think we are stronger online. So that's why we've always been focusing on the online side of tutoring education. And for steam courses, we will also focus on online. And it's a bit different from the academic courses in the sense that, steam courses, at least they should be more attractive and more friendly to the students because it's extracurricular, right? So we think we have good experience and good track record in creating really attractive steam courses like the Weiqi, the ballgame courses. So we think we will be able to create more of these really successful SKUs. And yes, yes, so I hope that's helpful. Thank you. Yes, thank you very much. That's very helpful. The next question comes from Alex Xie of Credit Suisse. Please go ahead. Hi, management. Thank you for taking my questions. My first question is about your customer acquisition strategy and customer acquisition cost. I think you shift your business focus to the non K-twelve segments. How should we think about them in the future? And my second question is about the probability of your non K-twelve business lines. Would you please share with us some of your ideas about what kind of margins could your non K12 top business achieve in your business plan? Thank you. Thank you, Eric. This is Sookong. I will take the first question and first. And I think before go to your question is about the Yudao is committed to fully complying with the Beijing after school tutoring measures and similar measures to be adopted by the other local governments and planning to implement the requirements of the central government opinions. And for the customer acquisition strategy for the non K-twelve other school tutoring business, And the first is for the STEM and adult education. We definitely will leverage the existing users traffic and attach more importance to the conversions and contribute by our organic traffic to boost the conversion rate and expand our users to as for the world community, we called Watchmen, we launched in the Utah dictionary in Q1 grew fast with MAUs of more than 10,000,000 in Q2. And I think that's for our capabilities to boost our organic traffic volumes in our addiction apps. So I think for the adult business, I think the first is about you have to create the high quality content and products before you're spending the marketing dollar for the customer acquisitions. And so we think about for the before the our strategies for the customer acquisition, we internally, we just try to always try to provide the high quality courses and create the high quality content to our customer first. And then we just before we release to the public, we always will take several roundabouts internal tests for all the content and we will just refine the content again and again to make sure we provide the high quality content to our customers. We think that will be the strategy for us ongoing for the adult education. And for the theme products, definitely we will also build up several different new content in our pipeline and to create more cross selling scenario for the kids over 6 years old. And we think we will right now, we are offering successful product like Weiqi, like kids programming, and we expect we will have the other same courses will be online and will be available for the kids over 6 years old in this 4 semesters. We hope we can create the most scenario for them to do the cross sell between our existing customer. I hope that answers your question. Thank you, Alex. And second question about profitability of C2. Yes, we think about it's just like we always emphasize, we always care about a healthy business model and healthy unit economics at least and to operate our business. Before it became a successful business model, definitely that will be the healthy business first. And so if you go to the different sectors, you will see our learning devices and that will be the great example. So we just improve our gross profit margins year over year and we see the tremendous uptick of our gross margins in the compared with the last year, in this year, in the learning devices. And also you can see about we are improved almost all of our operating metrics year over year since we have become a public company. And we think about we will always keep that trendings and we expect that will be every single segment in our businesses have very bright futures and have a potentially it's a great opportunity for us to develop our business. So we think about that we just keep that on track and keep moving forward and keep improve our operating metrics. That will be the profitable business in the long run. I hope that will be helpful for you. Thank you. Got it. Thank you very much. The next question comes from Thomas Shen of Nomura. Please go ahead. Thank you, management, for taking my question. I have one question about how should we forecast the impact from the recent regulations for after school tutoring? Any colors on the top line or margins will be very helpful. Thank you. Hi, Thomas. This is Lei Jin. Firstly, Youdao is committed to fully complying with the Beijing AST measures and the same measures adopted by other local governments. If unable to implement the requirements of the central government opinion, In compliance with Beijing AST measures, they are offering the extended AST classes for weekend, national holidays and the current school breaking period in Beijing. Such measures are expected to have a material impact on our existing K-twelve academic cost base. In the Q1 of this year, the revenue from K-twelve academic GSP classes account for less than 50% of our total revenues. Yoda is an intelligent learning company, not just a total company. So we will double reduction as an external process. This does not change our long term version and we are truly optimistic about the long term development. In the immediate term, I think this is maybe a 12 months speed bump. We will execute a few quarters for transition. The whole K-twelve ASP makes up about 41% of our total revenue. And the computer aided education grade 1 to 9 subject to make up about 24% of Q2 total revenue. At the same time, we run a diversified business with other significant segments that are not impacted by the regulation. Our non ASP business is already quite big at over 50% of our revenue and growing about 100%. So we think we are in a good shape. We will manage the process carefully and prudently. We, Yudao management team has a long term vision and commitment and we are confident to navigate the challenges and have a better position in the market. In addition, NetEase has supporting us in the long The next question comes from Thomas Chong of Jefferies. Please go ahead. Hi, good evening. Thanks management for taking my questions. May I ask about the outlook in terms of the operating expenses like R and D, sales and marketing and G and A in the next couple of quarters. In particular, about the sales and marketing side, should we expect it will materially slowing down in the next couple of quarters? And on the headcount, any color about what we should expect to headcount by the end of this year? Thank you. Hi, Thomas. Thank you for your question. This is Wayne. As just mentioned by Doctor. Soh, we are stepping on the brakes on the ASP side. At the same time, we are driving more growth on the ASP side. Our businesses such as smart devices, education digitalization solutions. Therefore, I think it is not easy to have a clear direction for the trend of the operating expense at the whole financials level. I just mentioned, Yodal is a leading tech company and we have multiple business, the K-twelve Feet is not our sole business and the non K-twelve revenue for Q2 this year is about 60%, which there is no direct negative impact from the double reduction policy. I'm willing to share 2 points on the channel of operating expenses for our K-twelve ASP, which represents part of our financial outlook. First, present to the government policy, publishing ASP advertising on most media platform is banned. We stopped ASP advertising for K-twelve, such as Phase 8 and the branding activity for our courses, which resulted in a sharp decrease in marketing expenses we expect. 2nd, we will downsize the K-twelve ASD business scale. As we mentioned, we had come considering the limited tutoring time, the salesperson and the tutoring courses on K-twelve will be reduced accordingly. For the R and D investment, I think we are AI technology company. We will continue to invest a lot in our other business. So the chance will be continued to increase for R and D. Finally, I'd like to emphasize that diversification is our one of our advantages. We will try to take any chance to grow our business, But the precondition is to fully embrace and comply with the law and the government policy. Thank you. Thank you. The next question comes from Liping Zhao of CICC. Please go ahead. Good evening, management. Thanks for taking my questions. I have two questions here. First, since the recent policy encouraged students to study at home or at school, will this stimulate the demand for our educational smart devices? And any plan for the new product launch of our smart devices? And secondly related second question related to the share purchase program, We noticed that NetEase announced the share purchase program of US50 $1,000,000 of Yodao's APR. Should management elaborate a little bit more on the reason behind it? Thank you. Yes. Thanks, Brenda. Yes, so regarding the first question about learning devices, yes, you asked about any plans for new products in this area. Yes, so we actually do have new products, very recent time. Yes, so tomorrow, yes, so yes, I'll just you guys will be the first to know. Tomorrow, we will launch a new version of the dictionary plan in collaboration with the people's education press. So, tomorrow, September 1, we will launch this new dictionary pen that has features that work directly with the students' textbooks. So, this is one of the most asked about feature that the parents and students need and we have finally been able to work out all the details and it launches tomorrow. And yes, we are very looking forward to it. You guys will like it. And I think a couple of days after that, we will have another product that's related to language learning, also language learning, but the other another side of language learning, not the reading part. So you can guess what it's about. How do you learn language, right? So you read or you do what? So we also like that product very And yes, we think we will know how the students react to it. But as we talked about, September is start of school. So, it's a very important period for any product related to learning. So we think that the 2 new products along with the existing dictionary pens that are selling very well, yes, so we think of it, we have a very good product lineup for this school year. Yes. Thanks. The next question comes from Candace Chan of Daiwa. Please go ahead. Sorry, operator. Yes, I think we have a second question, right? Yes, so this question regarding the share repurchase program from NetEase. Yes, so I introduced in my prepared remarks that NetEase today announced that there's a share purchase program approved for up to US50 $1,000,000 of shares. And it starts 2 days from now, lasting at most 3 years. So, Nelis will purchase Youdao's shares on the open market. So, they announced their share purchase program and I think on one hand it demonstrates the strong support for Youdao's business for our long term development. So, as you all know, so NetEase has supported us on multiple occasions, for example, providing us with the credit line a couple of quarters back, And this shows again their support. I think that's very important in this market scenario. And on the other hand, I think there is certainly hope, would hope that is Youdao has a good performance in the capital markets in the long run. So, I think that's for the share purchase program and we will provide you with more updates when we if we have more in the future. Yes, thank you. The next question will now come from Candice Chan of Daiwa. Please go ahead. I just want to quickly follow-up on your comments about the downsizing of the K-twelve business. Can you just quantify the restructuring cost for this K-twelve AST business and how would that impact your cash flow position? Thank you. Hi, Kelly. Thank you for your question. For K-twelve for restructuring costs, we believe each player will incur additional costs such as compensation costs for the dismissed staff, cancellation costs for the rental office and certain impairment loss from prepaid costs and materials. However, I think different player might face different situations. As just mentioned by Doctor. Zou, Youdao already has a good basis for non K-twelve business. And in the future, we expect to be driving more growth on the non ASP side of our business. Part of K-twelve talent will join the non K-twelve fitness such as STEAM courses and adult education. They will continue to create valuation for us. Let's say, compared with other tutoring companies, we have relatively low additional costs on the conversation side and we will offer more opportunities to our talent. 2nd, as an online company, there are fewer fixed costs such as venture fees to be considered during the restructuring. Finally, we believe the restructuring cost is closely linked to the final policy of non for profit organization for But the policy is still underway. So we will fully comply with the government policy and we still need to wait for the final policy. Wish it is helpful for your question. Yes. Thank you very much. And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments. Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Yu Dao directly or reach out to CPG Investor Relations in China or the U. S. Have a great day. The conference has now concluded. Thank you for attending today's presentation, and you may now