Earnings Call: Q1 2021

May 18, 2021

Good day, and welcome to the Yudao 2021 First 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 Yudao. Please go ahead. Thank you, operator. Please note the discussion today will contain forward looking statements relating 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 Eudao'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 purpose only. For the definitions of the non GAAP financial measures and reconciliations of GAAP to non GAAP financial results, please see the 2021 Q1 financial results news release issued earlier today. As a reminder, the conference is being recorded. Besides, a webcast replay of this conference call will be available on Youdao's corporate website at ir. Yudao.com. Joining us today on the call from Yudao 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 direction. 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. We achieved Sunday and sustainable growth across our businesses in the Q1 of this year. Total revenue in Q1 was RMB1.3 billion. Net revenue from K-twelve is RMB 639,000,000, up 2 17% year over year. Meanwhile, gross billings from K-twelve reached RMB442 1,000,000 in this quarter, up 130% year over year. Paid students' enrollments from K-twelve climbed to 306,000, up 100% year over year. With larger scale, we have also achieved higher operating efficiency. Gross billings from K-twelve and adult segments reached approximately RMB742 million. Brand and performance advertisement spending on courses amounted to approximately RMB556 1,000,000. Compared with Q3 2020, the last quarter with mostly new student acquisitions and almost no renewals, our return on investment or ROI improved by more than 30%. Gross billings from the adult segment reached RMB299 1,000,000 in the Q1 of this year, up 17% year over year. Remember that the outbreak of COVID-nineteen in Q1 2020 led to a higher base and thus more moderate year over year growth of the adult segments. Margins were also improving. Gross profit margins from learning services reached 65% in the Q1 this year, up from 51% in Q1 2020. It is the best level since we became public. Operating loss margin narrowed down to 23.9% in the Q1 this year, compared with 32% in Q1 2020. With our financial overview, I would like to review some business highlights. Looking at our K-twelve segment, we launched the industry's 1st localized version of junior high school Chinese with 2 instructors during the spring semester in Q1. 1 instructor covers nationwide content and the other covers localized content. More than 50% of our junior high school Chinese school students opted for this localized version of junior high school Chinese, reflecting high interest in this course format. Course participation and satisfaction data were also promising. As for high school and primary schools, we continue to polish courses and offer more tailor made math content to students of different learning levels. Gross billings of high school math increased by over 2 10% year over year in Q1 2021. We had 197 instructors and 4,093 tutors at the end of Q1 2021. For our extracurricular segments, or in Chinese, we maintained a strong momentum from last quarter and achieved more than 100% quarter over quarter growth in gross billings. In the meantime, Youdaozhong Heng sponsored the Jiangsu Weiqi Youth Team and we signed Kejie, Mei Tan Weiqi do world champion as our brand spokesperson. As for our adult segment, in March 2021, we established adult education business units. This put several teams under the same umbrella, including the adult oriented courses in Newdau premium courses, NetEase Cloud Classroom and China University MOOC. New courses will be released under the NetEase Cloud Classroom brand, concentrating our investments in a single brand. According to our data, the extraordinary memory course has become the number one memory oriented course in the industry, only 3 quarters into its operation. Our intelligent learning devices also grow at an accelerated clip in Q1. I'd like to highlight that gross profit margin hit 44% in the Q1, a record high for our devices compared with 25.6% in Q1 2020. In March, we introduced Yuzhou Dictionary PAM 3 Pro, further supporting bilingual translation of Japanese and Korean to meet the demand of more language learners. We shipped over 297,000 units of our dictionary pen series in Q1, up 198% year over year. We are only getting started. We have more device products in the pipeline for 2021 and our teams are very excited about them. As for our mobile learning apps, we launched a short video feature called Wow Community, in your dictionary. Users and content creators could finally share short videos about learning and fun things in their life in Yudao Dictionary. This led to users staying much longer on Yudha Dictionary and that is more ways for us to engage with our users down the road. This, along with other improvements of our apps, facilitated organic traffic growth. In the Q1 of this year, 26% of all newly enrolled students' gross billings came from organic traffic. Gross billings from the K-twelve segment generated by organic traffic increased by 129% year over year. Let us quickly discuss the potential additional regulations on the ASP market. The new regulation is not out yet. Obviously, we will not know the details until it is up. With that said, we continue to hold a cautiously optimistic attitude towards business operations under the new regulatory environment. We believe the purpose here is to curb orderly competition and promote healthy development of the industry. This will ultimately benefit highly compliant players of scale in the mid to long term. We believe our product and strategy are very competitive with our recently advanced application of AI technology. And our diversified business lines, including learning devices and adult courses, could help us better navigate the evolving online education industry. Now let us turn our attention to other aspects of the company. We pay attention to fulfilling social responsibilities while we operate our business. In Q1, we made several donations, including to Leibo Middle School in Jiangshan, Sichuan Province. NetEase donated RMB66 1,000,000 to the Yao Xinghan Science Foundation to support its math research. And we are looking forward to further cooperation with Mr. Yao's team in AI and basic education areas. As we are still working towards profitability, in Q1, we secured additional funding to support our long term plan. We raised approximately US232 million dollars to a follow on offering in February. NetEase recently offered us a US300 $1,000,000 loan facility agreement. In addition, a bank group provided a commitment letter in April with a 3 year US150 million dollars revolving loan facility under the guarantee of NetEase. In total, that is over 680,000,000 dollars of additional funding. Looking ahead, we are confident we can view on our position as the top quality cost provider and producer of the industry leading intelligent learning devices, services and products to meet our customers' needs. Our diversified business model, along with products and technologies, have truly improve learning efficiency, will help us navigate the evolving AST and EdTech markets. With that overview, I will now turn the call over to Sookong to review our financial results. We will then open to questions. Sookong? Thank you, Doctor. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from our 2021 Q1. We encourage you to read through our press release issued earlier today for further details. We started the year with a robust Q1 with multiple operational and financial achievements. Total gross billing from our online courses reached RMB808.7 million for the Q1, up 55.9 percent from Q1 2020 and the gross billings from our premium courses rose to RMB741.5 million, up 66.2% year over year. Our K-twelve segments continue to lead our growth reaching RMB442.2 million in gross billings in the 1st quarter, up 130.2 percent year over year. Paid student enrollments from our K top group reached 306,000 in Q1, up 100.3% year over year. Paid student enrollments for premium courses were up by 75.6% year over year. 29% of our K-twelve new enrolled students gross billing came from organic traffic for Q1, which grew 129% year over year. This growth shows not only our determination but our ability to quickly expand our business and that our model is working. For the Q1, total net revenue reached a record RMB1.3 billion or US204.5 million dollars This represents an increase of 147.5 percent from the Q1 of 2020. Looking at this growth by segment, net revenue from our learning services were RMB998.9 million or US152.5 million dollars up 156.8 percent from the same period in 2020. They attribute this growth to the increased revenue generated from our online courses, which were further driven by a substantial increase in paid student enrollments for the K-twelve courses of the user operating courses. Net revenue from our learning products were RMB201.9 million or US30.8 million dollars up 279.8 percent from the same period in 2020, driven by increased sales of our Youdao dictionary plan of over 297,000 units in the Q1, and net revenue from our online marketing services were RMB139.1 million or US21.2 million dollars dollars representing a 40.1% increase from the same period in 2020. For the Q1 of 2021, our total gross profit greatly improved reaching RMB767.5 million or US117.1 million dollars up 225.6 percent compared with the Q1 of 2020. Gross margin for learning services increased to 65.6% for the quarter of 2021, up from 51.9 percent for the Q1 of 2020. The growth was primarily attributable to better economic scale and the further optimization of our faculty compensation structure. Gross margin for learning products increased to 44.1% for the Q1 from 25.6% for the same period in 2020. The growth was driven by tremendous growth in sales of our Youdao Dictionary PEN version 3 which carry a higher gross margin profile than other learning products. Gross margin for online marketing services was 16.4% for the Q1 of 2021 compared with 20.5% for the same period in 2020. The decrease was mainly due to the increase in performance based advertisement through the 3rd party Internet property, which carried lower margins. For the Q1, total operating expenses were RMB1.1 billion or US166.1 million dollars compared with RMB 111,700,000 for the same period last year. We continue to invest in our future and the top line expansion, specifically technology, acquiring talented teachers and sales and marketing efforts focused on student acquisition and expanding our branding awareness. In Q1, brand and performance advertisements spending on courses amounted to approximately RMB565.9 million. With that, for the Q1, our sales and marketing expenses were RMB883.9 million compared with RMB 299.2 million in the Q1 of 2020. Research and development expenses were RMB 155.1 million, compared with RMB84.1 million in the Q1 of 2020. Our operating loss margin was 23.9% in the Q1 of 2021 compared with 32.5% for the same period of last year. For the Q1 of 2021, our net loss attributable to ordinary shareholders was RMB325.8 million or US49.7 million dollars compared with RMB169.4 million for the same period last year. Non GAAP net loss attributable to ordinary shareholders for the Q1 was RMB307.8 million or US47 million dollars compared with RMB161.9 million for the comparable period last year. Basic and diluted net loss per ADS for the Q1 was RMB2.75 or US0.42 dollars Non GAAP basic and diluted net loss per ADS for the Q1 was RMB2.6 or US0.4 dollars Our net cash used in operating activity for the Q4 was RMB517.8 million or US79 million dollars Looking at our balance sheet, as of March 31, 2021, our contract liability, which mainly consists of deferred revenue for our online courses, were RMB1.2 billion or US186.5 million dollars compared with RMB1.4 billion as of December 31, 2020. At the end of the period, our cash, cash equivalents, term deposits and short term investments totaled RMB2.2 billion or US333.7 million dollars This concludes our prepared remarks. Thank you for your attention. We would now like to open the call for your questions. Operator, please go ahead. We will now begin the question and answer session. The first question comes from Sheng Zhong with Morgan Stanley. Please go ahead. Hi. Good evening, management. Thank you for taking my question. I have two questions. The first one is, can you share more color about the current promotion and advertisement status on the market and what's your promotion time for the summer holiday? Do you have any budget you can share with us, marketing budget? And secondly is, we know there are a lot of uncertainties about the regulation. And can you please share us some more about your operation, like the retention rate after your localized content? And also, what's your current growth target for K-twelve after school tutoring business? And at the same time, we see with the regulation tightening or uncertainty a lot of competition increased in the non K-twelve segment, including the hardware learning devices and also like adults' education. So what's your view about these sectors, the growth and whether you will also invest more in this non K-twelve business? Thank you. Thanks, Shawn. So regarding the current proposed promotional activities on the market, Yes, the first is that currently we are running advertisements on non mainstream media only. So because recent changes doesn't allow AST business to run ads on the mainstream media anymore right now. So we're running ads on the non mainstream media and also the scrutiny for the materials, the added materials become stricter. And from our side, we have always been fully compliant with the regulation. So this is we think it's a smooth process for us. We do need some changes, but the changes are not much. And so that's the current update on the ad. And as you probably know, we have suspended advanced enrollments and fee collection for the 4th semester as required by the authority. And these courses will be sold at a later time. And right now, only spring and summer semester courses are being sold. So overall, we have already been frequent combined with the current regulation And regarding the new regulation, it's not out yet. So we don't know the details. And as I said in the prepared remarks, we are cautiously optimistic about the coming future operation, in particular the summer operation. So obviously, there is a cost to being compliant under stricter regulation. So we will understand that. However, we have a couple of reasons that we think we can be cautiously optimistic about. So first is the leading companies used to be more have been more compliant and compared with the smaller ones. So relatively speaking, the leading companies could be an advantage here when the new regulation is out. And also, as we talked about, you now have the diversified business line. Yes, so this is basically a choice we made a couple of years back, not for regulation per se, not for being compliant per se, but more for broadening our potential for innovation. And it surely benefited us. However, diversification obviously has its benefits when there is more regulation. So our learning devices and adult education business will probably not be impacted by this run of regulation as far as we know. So for the summer, basically, we will the current actions the teams have taken is that we get several plans ready for the summer. And the structure of the courses will be a little bit different. But as far as we know, we think we will have solid plans to execute when the regulation comes out. So we again, we remain cautiously optimistic. And lastly, I want to mention that the industry has sort of a theater effect. It's not a good thing. So everybody goes forward. So for example, institutions compete to set their enrollment dates earlier and early every year. So now the enrollment data pushed back kind of together. So we think in our experience, we think this leads to more orderly business. So actually the date when it gets closer to when the course starts, actually conversion rates get better. So that's our view on the regulation and the government ban. So we have a couple of plans ready. We will know which plan to execute when the regulation actually comes out. And I think you also asked about more competition on the non K-twelve front, hardware adult. Yes, so obviously, this overall kind of new direction plays in our favor, I think, because we have been working on the hardware business for 3, 4 years now, almost 4 years. So we all know that it's really hard to make devices. So a lot of challenges. So how do you manage inventory? How do you manage your supply chain? What if the products are faulty, quality issues, a lot of that. And we have gone through all that. So we think it is a good thing actually more and more people pay attention to learning devices. And other people, when they go through advertisements, it also help people pay more attention to the whole segment. We think it's a way to build the segment as industry. So we think we're not worried about more competition and obviously we will treat every competitor very seriously, pay a lot of attention. But we think it's a good thing that people are paying more and more attention to these segments and it's a testament to the strategy that we set some time ago. Yes, thanks. Yes, just one more point to add with Doctor. Xu's comments. And yes, the first is about definitely right now is strictly is in compliance with all the existing regulation as well as definitely we are fully confident about to be compliant with all the upcoming regulation along in the futures. And also just like Koko mentioned, although there's some effects on the mainstream media for advertisement, but right now for the new media platform as well as some Internet and as well as the mobile net, maybe the social network right now is didn't change right now. And so we can just execute our plan for the advertisement for the customer acquisition by now. And but we are let's go back to the regulation questions. Definitely, we will keep our eye open to watch closely about the regulation movement and definitely we will put ourselves into the compliance with the upcoming regulation. Thank you. Thank you very much. The next question comes from Brian Gung with Citigroup. Please go ahead. Yes. Thanks management for taking my question. So my question is still regarding the regulation. So given the current regulatory environment, can management share our growth strategies going forward for the whole company? And do we figure out any new ways to to gain students? Yes. And another quick question is about our GP margin of learning services, which jumped a lot in the Q4. And how should we may we know the reason behind this? And also how we look at the trend ahead? Thank you. Okay. I'll take the first question. Regarding new ways to acquire customers, so we're obviously, as we talked about in meetings before, So we are looking at many different fronts, including customer referrals and subject expanding of the existing customers. And these actually have recently picked up really well. And also another area we are putting a lot of efforts into is conversion of our organic users. And as we just talked about, 26% of K-twelve gross billing actually come from our traffic. And in Q1, the Wow community, the short video community on the dictionary actually is a good example of that effort because video is really becoming short video becomes kind of really, really popular given that traffic has kind of the cost of the bandwidth tax really come down to near 0 and also the young generation really loves to watch videos on their cell phones. So that has been we have been working on that for some time and really Q1 is the quarter where we released it and actually really already get very good results. As we said, the average time a user spends on the dictionary actually doubled because of this feature. So it's a very good feature. And because these short videos, we can show a lot of content with this media. So one of the key types of content is actually conversion to our courses. So we also have some progress on the offline channels and there are many, many different ways to do offline conversion. And we have some that has already yielded good results. And on the other hand, some we are still working with them. And so overall, together, we are some of the teams are confident that they can do a good job. And even if we do get some loss from the regulatory front. The other channels can make up most, if not all, of all the losses. So we think we are cautiously optimistic about that. So I don't know, Sookong, if you have anything to add. Yes, I just have one more point to add and it's just as you asked, Brian and you asked about how we grow our business and besides of documentation regarding how we handle about the impact on our business for the K-twelve potentially by the potentially possible upcoming regulations. And also besides the K-four business, we are also operated about multiple different business under adult, like the adult, adult business as well as the hardware business. We don't think that has any impact on the upcoming potentially or the possible upcoming regulations. And then for the adult and for those two business, we operate over several years and we have already had some more experience and some insight about how to our big CAT test kind of business, whatever for the adult education or the hardware business. And we think about building some of the barrier in these sectors. We also can just grow our total business, we are drive by the K-twelve as well as the adult and hardware business. And in the long run, that's our expectation of our business futures besides of K pop. And then go back to the K pop, whatever facing the fundamental thing for the K pop business is about the content products because all the parents really care about quality of the courses we offer to their kids and students. And just like also mentioned in the call and we are the first one to offer us the localization content for the junior high school Chinese for the online B class tutors model. And then we even increased 1 instructor as a localization company instructor into that model and we receive very positive feedback from parents and students. And so we think about Beaville to keep create more innovative way to deliver our content and deliver our products and deliver the message to our students and users to try to leverage more beneficial product and content upgrade. Thank you, Brian. Yes. For the second question, the gross margin of our learning services, Yes, we got good performance at the gross margin improvement during this quarter and it is the first quarter to achieve over 50% of the TV margin on Learning Services segment. We believe the most key point is our capability to offer good quality service or product with good price, which is further driven by our good instructors and best technology and the synergy of and our other synergies. We will insist on the strategy and invest more on this. In detail, the continued economic scale on revenue and the compensation structure improvements, as we mentioned before, mostly contributes the improvement in C2 margin. As for the compensation structure, the capability of pass rate selling the young instructors is the key that makes us maintain good capability to improve our cost structure. Yes, this quarter's high margin mainly contributed from our high revenue base of our online courses, because more courses deliver this meeting in Q1. So we believe maybe there's some seasonal stuff in our learning GP margin. In the long run, we reasonably believe the annual gross margin on our learning services will get it to around 6% in this year. I think maybe it is helpful for your question. Thank you. That's very helpful. The next question comes from Hongyi Zhao with CICC. Please go ahead. Hi, this is Hongyi from CICC. First, congratulations for the great performance this quarter. And I have two questions. First, since you have introduced many business strategy for the non K-twelve business, does this means based on the policy uncertainty for the K-twelve business, are we going to like switch our attention, I'll put more investment to the adult business and learning projects in the future? So what's the strategy for the long term? And the second question is, are we comfortable to develop more offline developed strategy such as opening some experienced stores as one of the traffic acquisition strategy? Thanks. Yes, I'll take the first one. So Regarding investments in the non K-twelve segments, Yes, I would say that when we hit our planning for 2021, we've already taken into account the gross needs of the hardware and also of the adult section for us. So currently, we will keep on executing that plan. And so we don't actually foresee kind of significantly different plan to invest in other segments than K-twelve. And we think both hardware and adult are very, very interesting and very promising. So I'll use this opportunity to maybe talk a little bit about our thinking behind the adult education segment. So the main point is that we believe that the long term potential and we have leading assets and experience. So we think this is a good fit for us. So lifelong learning in China, we think it's really going to take off. It's a very clear trend, because the economy continues to grow and more and more people will realize that. So they have to they need to and they will like to be a lifelong learner. So that's where our adult education products are really positioned at. So if you look at the sector's history, yes, so the Chinese adult education kind of industry really sector has a long history. And we see that there are a couple of verticals that are really stand out. So the first one is ESL, English as a second language. The second one is civil servants exam test prep, Yes, these two verticals are really kind of good examples of successful business. They have reached the kind of $1,000,000,000 annual run rate business level. And I think what's going to happen in the future is, first, there will be new verticals. These 2 will not be the only verticals that become large business. First, there will be new verticals, then there will be new models for existing verticals. And that's basically the approach our teams think about it. So when we look at some vertical, we think whether we have something to some way to be and imagine it or do we see some new vertical that really has the potential to be as large as civil service test prep or English as a second language? So for example, our ESL course, including popular, really popular Yang Yang's English course, It's already quite popular. So these are basically reimagining of the existing verticals, English learning. Yes, so I don't have time to talk about details, but for anyone who've tried those courses, they will see that it's really innovative. For new verticals, we are already seeing potential ones. For example, our extraordinary memory, meaning growth are really picking up. And also, like others, what others are doing, like personal finance skill courses, These are also quite popular and promising. So this is our thinking behind the adult education sector. We think it's really promising and we will take the long view and we will focus Thank you. And for the second question, we end about our offline stores strategies and how we develop our offline also ground level customer acquisition strategies. And from our point, we are actually have disclosed in the last several quarters in our earnings. We mentioned about we have some we have set up some offline excavation stores. It's not this case is not the learning center because we didn't get a random services in that store. And in the different province to talk about how can we looking for the best strategy or the best solution for the offline or the ground level customer positions for online education business operators. So we think we have to be on the way because it's just we just started a couple of months ago and we see the very All the promising feedback from the data, but right now, it's still in a very small scale. We didn't expand the scale too much in the last couple of months. So in the past couple of months, so we think about that we can probably we can share more information regarding the issues if we have cheaper kind of scale data from offline customer acquisition. But we think about just like Doctor. Wang mentioned, we are right now testing several different channels for the customer position through the offline channel, not only in the further that expectation, the centers raised by Youdao and we think about that we are now looking for the best solutions for the customer positions with the offline channel. Thank you. Thank you. The next question comes from Jesse Hsu with Nomura. Please go ahead. Thank you. Thanks management for taking my question. We noticed that the revenue growth of smart devices has been very strong for the past few quarters. Should we expect the momentum to continue? And on top of that, is there any opportunity across selling with Yougau Premium Course? Thanks. I think, thanks, Jessie. Yes, I'll talk about the growth and Kim Lee can talk about the profit. Side. So, yes, really the growth of smart devices, it's looking very good. And Q4 is a traditional strong quarter. So Q1 numbers, we are happy with. So So as I said in the prepared remarks, we have new products upcoming, yes, so this year. So and we don't talk about actual new products before they are launched. So yes, so we do have new products and new category of products. So we are we really think that this year is the year that we have products serving people's different needs that's going to be released in this year, so different categories. So the seasonality of the learning Devices business is that normally you will see Q3 and Q4 being the strong quarters, because Q3 is the beginning of the new learning year, new academic year and Q4 is the e commerce most strong quarter. So these two quarters are the stronger quarters, Q1 and Q2 relatively weaker. And obviously, start of the academic year is a very important time for the smart devices, for the learning devices business. So I will look at Q3 as a pretty important quarter for that business. So the teams have a lot of ideas, a lot of projects going on. So we think that this is going to be an important and fruitful year for learning devices. As the cost setting of our smart devices, we are updating the latest apps on our smart devices. There will be more customer friendly functions in our app. We focus on the productivity and continuously update our existing products, such as the dictionary plan series products, which leads to good sale and better margins in the lending products segment. In the Q1, we shipped over almost 300,000 units of our 6 2010 series in Q1, up 200% growth year over year. For providing a better linear experience, with deliver an effective linear experience with integrated across our smart devices and learning apps. Especially we enhanced the synergies between our digital app and digital content during the period. The dictionary pen users may find their personal learning summary and the vocabulary notebook in their Yudao dictionary app. Thank you. The next question comes from Charlotte Hui with HSBC. Please go ahead. Hello, management. Thank you for taking my question and congratulations on very strong quarter. I have just a small follow-up question regarding the regulation item. There are some news saying that online education players are not allowed to offer class at low cost. Is it a confirmed rule or just a rumor? How will this affect the strategy of entry course to attract new users and how will our summer promotion plans change according to this? Thank you. Yes. Regarding the course of kind of selling courses below cost. So we are having ongoing discussions with the authorities. And by now, I'm basically being conservative. So we have actually for the summer courses, we have reviewed the sales price for our courses and actually raised some of the prices of some of the courses. So obviously, we are awaiting clarification from the authorities on this issue and also other issues. And we believe we will get them now in some time. And I think the important thing here is that the conversion funnels for acquiring new customers, the teams as we have operated in this business for quite a long time, we have many choices in the way that we convert users from someone who is interested in getting the course to paying customers on our courses. So we have many choices that we can choose one from the other. So we think as long as we give clear guidance from authority, our teams will have kind of change that they need to apply to the conversion channel. And that's true for the low cost courses. That's also true for how long before course opens you can sell, you can start selling those courses. So several issues here that's pretty important, but as long as we can give clear guidance, we should be okay. Thank you. I have one more question regarding the C12 business. So I'm wondering what is the revenue contribution percentage from non subject tutoring? Yes, because I know that like a game of go courses are very popular in Youdao. Just one have to a sense of non subject tutoring. For the non subjective footprint, we think about this, yes, right now we are like Doctor mentioned in the call, we are starting we have to receive a very promising we have a very promising product, this program and for the big school also for the primary school students. And I think for this business we see a tremendous potential from the parents and the users and for their demands of their demands. And we think about and we expect to develop more capability performance based program offered to the preschool kids or the young students in the primary school. And we think about that probably maybe in different areas. And we think about that will be have more great potential for us to produce besides of the program existing like the YouTao Kids programming as well as the YouTao Weiqi program. We think about that we have been a startup for this business for several years. We have been we had the experience how to develop and also build up the kind of momentum for those programs for the kids and the young students. And we think about we are in a great position for this business. Thank you. The next question comes from Linda Wong with Macquarie. Please go ahead. Hi, management. I have one question. This is regarding for our gross billing. Because for this quarter, we saw that the gross billing up by 50 6%. And we're now looking back for the several quarters after we go listed, I think this probably is the slowest growth for the gross billing. So how should we think about this number? And is there any reason behind this slowdown for this gross billing? And whether we should worry about that, imply that our growth likely to moderate for the coming quarters? Meanwhile, for the enrollment, we also see that this the enrollment up by almost 100%, but compared to the previous quarters, it's almost up by 200% to 300%. So that's also the other question I want to ask is that whether we need to think about the moderating trend and what should be the optimal, I should say, the growth estimation for this number going forward? Thank you. Okay. The first is about the for the total gross billing, indeed, we just gross a little bit moderate compared with same year last year. That's also just like we explained in our results in our course and because that's a mix by the adult and the K-twelve, if you just only go to the K-twelve sectors, it still grow about 130.2% year over year, just still in the relatively high growth rate, thinking of the scale of our business. And in total, it just goes a little bit slow down because of the adult business only grow about double digits in the Q1 compared with the last same period last year. That's because of the impact of COVID-nineteen in the last year. The regular gross billing for the adult business in the last Q1 is a little bit high based compared with so that we just achieved only double digit growth with adult business. So together, you'll see about the total number combined with the K drop and add ons that go through that double digit numbers. But you go back to see independently for the kickoff and the add off, you can see the kickoff in the very good growth momentum for our business. And then go back to enrollment and Q1 is not only it's just like I mentioned about in the last Q1, it's also whatever business in the case of and adult is being impacted by the COVID-nineteen in the last year. And although we are just only we are most likely in the last year, we benefit about the growth from through that impact for those adult sessions. But for the kickoff enrollment, we're also beneficial through that Yes, it's beneficial through that growth for the business in last Q1. And we think in this year, 100%, we think about it as a relatively still great momentum for the growth. And also for the Q1, it's not really the big season for our customer position in this momentum. And we think about if you go back to see our growth rate about the K-twelve business in the last year from Q1 to Q4, You think about it is also accelerate about growth rates in the compared with same time last year before. So we think about it. We will expect about more good numbers for the growth in the rest of the quarter in our expectation, but it definitely depends on the situation, whatever the surrounding environment and also including the regulation or the other issues. Probably potentially will be a factor of the growth rate. But in our expectation, we expect the business will be the growth rate for our business and it will be acceleration by the Q1 in the 1 year. Thank you. And that concludes the question and answer session. 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 Youdao directly or reach out to TPG Investor Relations in China or the U. S. Have a great day. The conference has now concluded. Thank you for attending today's presentation. You