Good day and welcome to Youdao First Quarter 2020 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Pei Du, Investor Relations Director of Youdao. Please go ahead..

Thank you, Mark. Please note the discussion today will contain forward-looking statements relating to future performance of the company and 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 - and the discussion.

A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including our Annual Report filed on Form 20-F. The company doesn't undertake any obligation to update this forward-looking statement, except as required by law.

During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see these 2020 first quarter financial results 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 Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management is Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, VP of Operations; Mr.

Peng Su, our VP of Strategy and Capital Markets; Mr. Wei Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction..

Thank you, Du Pei, 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. I would like to begin by offering my deepest sympathy to all the families affected by the Coronavirus. We have been wanted as a society by the global pandemic.

As Chinese cities have gradually reopened, we continue to take steps to ensure the safety of our staff and students of free online courses run through January to February, and we are proud to have been able to swiftly change course to prioritize relief and provide support to those cities that were hardest it, as well as our broader community.

As an online service company, our operations were less impacted than some other businesses. We closed the first quarter with strong financial and operating results. Growth from our core online learning business accelerated.

Online courses generated gross billing of RMB519 million, up 287% year-over-year, and up 50% quarter-over-quarter, stronger than 211% year-over-year growth in Q4, 2019. Gross margins from our Learning Services segment also rose to 52% in the first quarter of 2020, as we continue to benefit from economies of scale.

This is a large step up from 30% in Q4, 2019 and 17% in Q1, 2019. Our intelligent learning devices also grew rapidly despite the viruses impact during January and February. Revenue from devices reached RMB53 million, up 189% year-over-year.

Operating cash flow was nearly RMB50 million for the quarter marking Q1 as our first quarter of positive operating cash flow since operating at scale. Longer term, we are seeing improving cash streams, but do expect to see some seasonal fluctuation.

Looking at our business segments, for online courses, gross billings from K-12 courses reached RMB192 million and adult courses were at RMB254 million, up 330% and 300% year-over-year respectively. The growth came mainly from in innovation of course content and product. Let me highlight a few areas of significant progress for Youdao.

First, we released new version of junior high school Math and high school English courses, in particular the Math course features localized content delivered by both our instructors and teaching assistants.

The courses quickly became popular joining the ranks of junior high school Chinese and Physics courses, which have been best selling courses since last year. Second, more and more courses feature real time, AI driven interactions during and after the live course.

For example, in our new elementary math courses, students alternate between listening to the instructions and practicing using our live stream personalized exercises. It is an important upgrade to the industry standard dual-teacher large class format, which we call interactive large class model.

As for contents in new adult courses, we introduced English resuscitation camp in Chinese that's based on ying, and English oral training [indiscernible] courses, which are being taught by two relatively new instructors.

These two popular courses are already profitable in Q1 partly because they gain a significant number of users from our dictionary and other app. These users are interested in learning the language and overseas culture and lifestyle, which are offered by these courses.

This shows that, as we serve our users with more and more apps and with courses in different ways, synergy within our business segment continued to grow. In line with our growth goals and to support our increasing enrollment, we grew our educator team to 164 instructors and 865 teaching assistants during the first quarter.

We have also improved their training, quality control and incentive goals. More recently, we also began our brand campaign for Youdao Premium Courses. In mid-April, we partnered with a renowned Chinese women's volleyball coach Lang Ping to be our brand folks person. Initial feedback has been positive.

Our partnership with Lang Ping is set to marquee quarters, and we look forward to a fruitful relationship. Let's turn to another segment, our Intelligent Learning Devices. In Q1, revenue from our Intelligent Learning Devices reached RMB53 million, up 189% year-over-year.

The increase was primarily driven by sales of our Youdao Dictionary Pen 2, which has become known among students and parents as an indispensable and fun device. Online distribution was strong in Q1. Offline distribution was negatively impacted by the closures caused by the coronavirus in January and February.

By March offline distribution have returned to previous levels. We plan to launch new devices later this year to support students learning needs. In terms of our app, we introduced a major version of our dictionary app bringing our more functionalities like document translation to the front page.

We also launched AI assay assessment, AI [indiscernible] a feature that automatically grades and offer suggestions for improving English assays submitted by the users. This feature leverages our proprietary AI technology and uses state-of-art transformer architecture and transfer learning techniques.

We also made progress with our organic traffic conversion, with our conversion rates from this channel, increasing by 5% year-over-year. As a result, K-12 total gross billings from organic traffic grew 236% year-over-year during the first quarter.

Also thanks to pandemic, Chinese University MOOC has provided teaching tools and teaching infrastructure throughout China helping 60,000 instructors at 1,200 universities to facilitate over 120,000 courses.

As one of the most commonly used learning platforms for college, Chinese University MOOC had over 40 million registered users and approximately 14 million daily active users at its peak during the first quarter.

At the end of April, we released the overseas version of Chinese University MOOC and received positive feedback from the Chinese Ministry of Education. Now for our Online Marketing segment. Our advertising revenues were RMB99 million in the first quarter, up 10% year-over-year and 1% quarter-over-quarter.

In the coming period, we expect the advertising sector to continue to face macro challenges and to manage these fluctuations with flexibility. 2020 is no doubt a very unique year for all of us. For the education industry, it may well be a pivotal year, where online education adoption and product innovation become greatly accelerate.

We believe Youdao is well positioned to capture this opportunity. We are confident that we have a strong pipeline of courses and products for the rest of the year. Our teams are hard at work to get them ready for the summer and falls month. We cannot wait to have more students and parents to try them.

With that overview, I will now turn the call over to Su Peng to review our financial results. We will then open the call up for questions.

Su Peng?.

Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from our 2020 first quarter. We encourage you to read through our press release issued earlier today for further detail. We start the year off on a strong note with healthy gains across many of our primary financial metrics our business scale rapidly.

On a year-over-year basis, we grew our revenue, gross billings before revenue, gross margin, and we had positive operating cash flow for the period. For the first quarter, total net revenue were RMB541.4 million or US$76.5 million. This represent an increase of 139.8% from the fourth quarter of 2019.

If we look at this growth by segment, net revenue from our learning services and product grew 226.4% year-over-year to RMB442.1 million or US$62.4 million. We attribute this growth to strong growth in K-12 paid student enrollment and gross billing per paid student enrollment of Youdao Premium courses on a year-over-year basis.

Net revenue for online marketing services were RMB99.3 million or US$14 million, up nearly 10% compared to the same period of 2019. For the first quarter of 2020, our total gross profit slightly improved reaching RMB235.7 million or US$33.3 million compared with RMB52.9 million for the first quarter of 2019.

Gross margin for learning services and products improved to the - 48.7% for the first quarter of 2020, up from the 18.5% for the first quarter of 2019. The large margin growth was primarily attributable to effects of economics of scale and further optimization of our business and faculty compensation structure.

Gross margin for online marketing services was 20.5% for the first quarter of 2020, compared with 30.8% for the first quarter of 2019. The decrease was mainly the result of more revenue generated from advertisement through the third-party Internet properties and international markets, which carry lower gross margins.

For the first quarter, total operating expense were RMB411.7 million or US$58.1 million compared with RMB131.9 million for the same period of last year. We continue to invest in technology, student acquisition and acquiring new talent teachers to support our growing business over the long term.

In tandem with this investment, we are increasing our top line and structuring our model to become more efficient and recognize economics of scale. With that in mind, sales and marketing expense for the first quarter were RMB299.2 million compared with RMB64 million in the first quarter of 2019.

Research and development expense for the first quarter were RMB84.1 million compared with RMB54.9 million in the first quarter of 2019. Our operating loss margin was 32.5% in the first quarter of 2020, compared with 35% for the same period of last year.

For the first quarter of 2020 our net loss attributable to ordinary shareholders was RMB169.4 million or US$23.9 million, compared with a loss of RMB102 million for the same period last year.

Non-GAAP net loss attributable to ordinary shareholders for the first quarter was RMB161.9 million or US$22.9 million, compared with a loss of RMB101.2 million for the comparable period last year. Basic and diluted net loss per ADS for the first quarter was RMB1.52 or US$0.21.

Non-GAAP basic and diluted net loss per ADR for the first quarter was RMB1.45 or US$0.2. Our net cash generated from the operating activities for the first quarter was RMB49.7 million or US$7 million. Looking at our balance sheet.

As of March, 31st of 2020, our contract liabilities, which mainly consist of our deferred revenues for our online courses were RMB603 million or US$85.2 million, compared with RMB456.8 million, as of December 31st of 2019.

At the end of the period, our cash, cash equivalents, time deposits and short-term investments totaled RMB1.7 billion US$236.8 million. Again, we are focused on meeting our long-term objectives. We will continue to prudently manage our costs and strike a balance between top line growth and expense. This concludes our prepared remarks.

Thank you for your attention. We will now like to open the call for your questions. Operator, please go ahead..

[Operator Instructions] And the first question we have will come from Sheng Zhong of Morgan Stanley. Please go ahead..

Hi, management, thank you for taking my question, and congratulations on the strong gross billing growth and gross margin improvements. We also see that the sales, marketing spending also increased a lot like you said you're doing brand campaign.

So may I ask your plan for the summer on the summer promotion and especially this summer holiday could be shorter than huger. So what the plan for K-12 students acquisition for summer? And my second question is, can you give more color about your young children's program - , you develop a lot of good interactive classes and APPs.

So on this part of business, what's your target and future plans? Thank you..

Thank you, Zhong Sheng. Regarding the summer, yes, so obviously, we're working - the teams are working hard on this right now. So we have different marketing budget for the summer campaign, so as we talked about before. So summer is the right time to acquire users. Yeah.

These users when they enter our service through the summer, they normally have higher lifetime values. So last year was the first time, we did a summer customer acquisition campaign. This year, we're more experienced. So we will likely allocate more budget for that. So we believe, we will have better, more successful campaigns.

With that said as we talked about, we always look at the unit economy of the - of our business very carefully. So essentially we allocate a large budget, then we operate on a week-to-week basis looking at the results, the outlies and adjust the plan accordingly. And so we have been doing a lot of preparation for the summer.

So for examples, if you look at our teaching - look at our teaching assistant numbers, they have grown and they are there still growing. And on top of last year's three cities, Xi'an, Nanjing and Guangzhou, as our teaching assistant operating centers. And we added centers in Shenzhen and Chengdu.

So right now we have five teaching assistant centers across the country. And you talked about shorter than usual summer. Currently, we believe there will be limited impact of this change because the parents and students, if you look at them right now, they are still very engaged in their learning.

And so without major changes to their behavior, we believe the summer, there could be changes, but that the impact will be limited. We will have five weeks of summer courses that will be July to end of August. That's the current plan.

And yeah, another thing is that if you compare online courses to offline, there will be more flexibility for changes for online companies. So we think we have a more flexibility there. Yeah. So that's for the first question. The second one is about young children's program, so we call them as STEAM courses.

So for these courses, we think they represent a very promising segment. And one progress, we kind of foresee here is that in Q1, there are three courses that we believe the first stage of the content investment has been completed. So these are Kids' programming, Youdao Fun Reading and Youdao [indiscernible].

So for these teams, they have completed their current stage of content investment, so they are complete. And the numbers we look at them, they are pretty good. And they have also hired more operation staff. So the teams are ready too. So basically, we think they're ready to scale that. Yes. I think that - that's for the young children's programs.

Thank you..

Next we have Mark Li of Citi..

Hi, management, congratulations on the results. I hear you're sharing about the content development and student interaction class progress. And may I know for this course transformation, what is your plan for the teacher and teacher assistant numbers. What's your plan for the let’s say, later this year because of this course development? Thank you..

Yes. Thank you, Mark. I believe, you are asking about the interactive large cloud content model, we talked about.

So we think these are very important and promising improvement to the product model, which we think is going to be more and more important this year and going forward because many players in the market has been successful in scaling up the business.

And now when users, when parents look at our product, what they are looking for is that, do these product offer differentiation, do they offer ways for my kid's to be engaged in their learning, do they offer superior learning result.

And the numbers when we look at them, they show us that when we add interactions to these courses, we have more engaged students, we have better future results. And these contents, they are produced, and they work in tandem with our teaching staff. So the teaching staff is still at the center position here.

So we will hire more, more teachers instructors this year and compare that we'll have even more teaching assistants to be hired this year, as we scale up the business.

So the instructors, the teachers, their number doesn't really correlate with the number of students we have, but the teaching assistant, they scale mostly linearly with the number of students.

So we're looking to hire more instructors and more, more teaching assistants and scale of growth for the number of teaching assistant will be larger than the instructors. And of course, we will look at how to improve operating efficiency here.

So we believe that will be a strength of our team because we will be very good at using technology, using different ways to - using IT systems to improve the efficiency. Yeah. I hope that answers your question..

Yes. Thank you..

Next we have Alex Xie of Credit Suisse. Alex, your line might be muted..

Hi, management, thank you for taking my questions and congratulations on very strong results. My first question will be about GP margin. The GP margin improvement in learning services segment is really impressive.

And would you please show a bit more color on the GP margin of your K-12 courses, I think you should be even higher than the learning services. And how much of your learning services GP margin improvement is from the teaching staff compensation structure change percentage of the revenue. And secondly, I would like to ask about Youdao Premium Courses.

I think that in this quarter both student enrollment and ASP grew significantly quarter-over-quarter. Do you think this is mainly due to the traffic surge post COVID-19? Or how do you look at the outlook, it is sustaining momentum? Thank you..

Yes. Regarding GP margin, I'll give some general remarks and Yong will give you sales. Yes. So overall at the learning services gross margin is 52%. And currently we do not give out separate numbers for result. As you can see, it's a significant growth. And going forward - so because we are improving on the economies of scale.

And as we talk about, so some of our instructors, new contracts came into effect in January 1st this year. So that's the two drivers. And from both fronts, we're working more - we're working more. So we expect to achieve kind of industry standard margin level, overtime. And of course, in the short-term they may fluctuate. So, Li..

Yes. Thank you, Dr. Zhou. I would like to give more details. We expanded our GP margin of our learning services to be further improved following points. First, the benefit of [technical difficulty].

Our learning services revenue increased definitely this quarter and we expect that online large class education format will be more widely adopted toward - at our facility to scale. Second, we continue to optimize our compensation structure.

More instructors are [technical difficulty] lower revenue share accepted for our top performance and staff - sharing model, along with our increase development. Finally, we continue to improve our operation efficiency. For example, we are upside the payment and cost and learning material as well, which also result in cost saving.

However, as mentioned by Dr. Zhou, on the short-term basis, the gross margin will fluctuate with R&D. For example, sometimes [technical difficulty]. At that time, the revenues has [technical difficulty] in our income statement, which is helpful, Alex..

Yes. Regarding the second question about the ASP and also future change. So ASP for Youdao Premium Courses grew by 158% actually from RMB627 to RMB1,618 this quarter - year-over-year first quarter last year to this quarter, and actually pay to trial ASP as well that we plan, actually done a little bit.

The adult purchases, ASP group, about 450 to 2,000. So, there we have - so mainly we're seeing a couple of things here. So the mix changes is the reason for the adult courses as we go from a more kind of college English test courses to more kind of courses tailored to working users.

So, these new courses have higher ASP and quarter-over-quarter K-12 is also grew and so, going forward the whole quarter obviously has benefited from the traffic regarding from the Coronavirus. And on the other hand, we’re also seeing that as we have a more comprehensive course offerings and our quality and also service level become higher.

So it's driven by both factors and the Coronavirus effect, we think it is to be there for a couple of quarters still, but maybe lower in a lower significance. But the other parts, obviously we will keep working on better higher quality, better service. So we think overall, it's still a lot of tailwind for the business.

Yes, I hope that answers your question..

Next we have Thomas Chong with Jefferies..

Thanks management for taking my questions. I have a question regarding the trend in the operating expenses. How should we think about market expenses as a percentage of revenue in the coming quarters and reset, can you comment about our trends in terms of the operating cash flow, as well as the timing to profitability? Thank you. [Foreign Language].

Okay, I will take the first question about marketing and then Jin Lei will talk about the operating cash flow. And thank you for the Chinese question. So, in terms of marketing expense, we always look at the business from the perspective of long-term growth.

So when we look at it in this way, the conclusion for us is that, so we have much better business fundamentals now, we have better conversion, better retention, better sending up rates. So the team did their work, so that’s the drivers for the first quarter results.

And when we look at that, and when we look at the market, the users the parents, they are very interested in online courses this year. So that's why, we said that we have allocated a relatively large budget for the summer because we believe this year is the right time to acquire more users and to set up for next year then later growth.

So we do expect the marketing spends to go up and however as we said, we are very much focused on the unit economics. So we will make sure that the marketing dollars that we spend, they correspond to goods and a good unit economics and they are well spent essentially. So, I hope that answers your question..

In terms of operating cash flow, as the fundamental of business keep improving, the cross selling was at 30. And there's more economies of scale. We have achieved positive operating cash flows in the first quarter and we have the operating cash flow, we will improve over time along with our fundamentals.

Though there may be some seasonal fluctuation in the short-term, long-term fundamental outlook and our financial performance will reflect the fundamental improvement over time. In first quarter we achieved positive operating cash flow due to the following factors. First, [indiscernible] performance.

Second, higher gross margin due to economic obstacle, and faculty compensation, structure of optimization, third, more efficient cash flow management, our receivables and payables. Again looking forward, our lumpy improvements, our cash flow will continue with some shots term saturation.

For the profitability timeline, which will not provide detailed productivity guidance for probability as usual we expect the projection to be unchecked and we would like to add more color on this. We can see our business fundamentals are improved across the board.

The revenue increased strictly with shipping margin improved as mentioned and we had the increasing economic outfield. We believe it is good time now to invest more in our R&D and marketing to serve more users running and accelerate our stability. And we'd see more people planning to in the online learning solutions.

We will continue to invest to ensure our products are differentiated, especially in terms of applying AI technology to enhance student learning experience. This is my answer..

Next, we have us on Vincent Gao of CICC..

Congrats on the positive operating cash flow. So my first question is on the competition. So I wonder what is our view on the current competitive landscape? And maybe what are some of the strategies that we have to kind of set us apart from other players insistence? And the second question is on your curriculum development.

So, you guys really have put a lot of focus to your education content and patient technology. Could you maybe share with us some of the latest progress you have made and your future plans? [Foreign Language].

Thank you. This is Feng Zhou, I will take the questions. So, obviously, talking about competitive landscape, I cannot comment on specific competitors. So, I will talk about the general trends. So, I think 2020 is shaping up to be a key year, yes. So, more consumers are looking for clusters. And I think we are lucky that we are ready essentially.

So in terms of content teaching, personnel, service capacities, so this is a - this is one of the key things here that - a couple of players already, so we think these players will be better in the in the competition. So among the players I think one point I think is talking about differentiation.

One point that we talked about last year I think reflects our vision best. That is we believe that the online courses will provide equal or better experiences then offline. So I think that that's really important things here. Whoever, can realize that will have an advantage.

So we believe delivering the best experience, best results, just learning results. And we are working really hard on this. So let me give you two examples. So first is top notch instructors. So we have a system to pick them and also build courses. For example our junior high school Chinese course by [indiscernible]. So everyone who loves the course.

So we pick the instructor, see him has a lot of potential and we do the cost around him and we iterated over and over by getting user feedback and that's the way we work.

So we have successfully been able to turn out multiple courses through this models, so we have logic English, we have middle school, high school, physics and now in Q1 we have successful maths class for junior high school. So this is how we work. Obviously another point. In addition to instructors, it's the tech innovation.

We talked about interactive large class format or model. This is a new word right now. So we believe that it's going to be important. Essentially, I think we provide many, many different things.

And this interactive large class format, of course, we think it's going to be important because one of the major challenge for students for online courses is basically a meme on that now, that you the parents for the course and the students, they don't listen to us. They don't pay attention.

And we think by adding real time interaction, real time AI driven interaction to live courses, it's the major change from on a similar scale as adding live video to it, and also adding a teaching assistant to it, they all include to the class and by adding interaction to it. It's another level of influence to that.

Obviously, we also talked about AI English assessment assay guide. This is for anyone who listens English actors will know this is really important. Of course, everyone will have apart from products from experience. Everyone will have good marketing efficient sales and lead conversion.

We've made a lot of progress on that and we think we will be strong in terms of these areas. But we think the strongest part for us is the product being structured and how do we combine second and that content. Yes, I hope that answers your first question. The second question is regarding curriculum and teaching curriculum development.

Yes, so I think we talked, already talked some about that maybe talk a little bit, little bit more is how we iterate the cost, we call that workflow cost iteration system. So this is a way to - after we get the instructors, this is the approach we take to finally reach a good course.

So we use a lot of quantitative evaluation of different teaching methods. And we get other teachers, our operating staff, and also students to listen to the courses and provide feedback. So it's normally after three to six months that we can reach good quality levels methods for each particular course.

So we've already done a lot of this and we have good assets. Yes, hope that answer the questions. Thank you..

Next we have [Benny Wong] of HSBC.

Thank you for taking my question here. I just want to understand in terms of remember earlier, we talked about having our own like the Youdao organic app and then direct traffic to the online courses. Just want to see what is the percentage we’re seeing here? And in terms of the retention rates from these users, any updates will be helpful.

And speaking of that, in terms of our user acquisition strategy this year, and if you look at our other like online peers, right, they have been using very innovative ways to greater community effect to try growing new users.

So can we just get an understanding in terms of how much percentage of our users are like new users, old users, and is that rising an update on our user acquisition. Thank you..

It's like we've been in business for so long. And the first question about our organic users conversions. We think if you see our spring release, we also mentioned about number of the room of organic traffic is about 226% year-over-year and compare with the last - first quarter of 2019.

So I think it does show the contrast of organic conversion forward taking enrolments in the last year. And we expect they will grow faster trend, keep going and we start to convert students from organic traffic, thinking of our school has a very deep pool of followers, number of MAU, our dictionary apps, translators app.

So for the retention rate for our organic users, we didn't really break down about this lot of video retention rates on organic conversion.

But if you see that, I think that's all the users they are, they do have our value image in their mind for sale before they use our courses products, they are users for our app users, they are using our apps to looking for the help for the learning.

So we expect that to, to have the better understanding about our product, product quality, as well as our high quality services. So that's the first question, for the second one we think that's a related question, I think. We always we have over 100 million method user through our apps.

So we think we always have a very pretty unique way to grow our business with education products. So we also have always convert our users from organic users to our education products. And indeed, as we mentioned in previous questions, we will also invest in some markets as far as users and advertisers recruited to parent, teachers in the future.

We expect we can get, we always can be balanced how we grow. We always have a choice and that is related to how much we allocate for the market because we do have a very deep users to fill out, I hope that answer your question. Thank you..

We next have Jessie Xu of Nomura..

Hi, good morning management. Thank you for taking my question and congratulations for a very strong quarter. My question is regarding industry outlook.

So just wondering, what do you think of the industry outlook in three to five years, expect the average size of an online large class to become larger, or should we expect more diversified and innovative product offerings? Appreciate a lot if you could share some of your thoughts on all this and what is your corresponding strategy? Thank you..

Yes, this is Zhou Feng, yes so we still think the industry is at very early stage and obviously we have pretty low penetration. If you look at online in terms of the total online plus offline tutoring industry, so we have a pretty long runway ahead of us.

And with that said, obviously we talked again and again about the importance of differentiation because a parent get to know, students get to know better and better about online courses, they will naturally ask questions about what's your - what's unique about your and that’s why we’ve been focused on that from day one.

And our recent quarters obviously benefited from investments in this area. And if you look at the whole category, I think it's useful to recognize this as a content driven industry. So it's not like, it's content driven. It's not a completely tech driven or platform based kind of business. So we're looking at some brand effects.

But we don't have a lot of network effects in this industry. So with that said, I think we will have, we don't need to kind of worry about the kind of space to do to be different, to be differentiated. So the leading players I believe, it's a lot of opportunity to differentiate. So maybe like a little bit like automobiles.

So you can have innovations for many years, maybe since 1950 to 2000, a lot of innovation in cars, everybody has different sizes, different features and people really like them. So we think we are looking at such a market. So it's not going to take, you have to be different. You have to invest in your teaching resources, invest in your technology.

And that's what we plan to do. And we as previous questions, we talked about the interactive large class model, we are introducing this quarter. And we previously we talked about the small using those in both during the live course and also after the course as homework and so we think that's the - I hope that answers your question..

And that will conclude the question-and-answer session. I would now like to turn the conference call 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 Youdao directly or reach out to TPG Investor Relations. Have a good day. Thank you..

We thank you all for your participation in today's conference call. Again the call is now ended. At this time, you may disconnect your lines. Thank you. Take care, have a great day everyone..