DAO - Earnings call transcript Q1 2022

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Operator

Good day, and welcome to the Youdao 2022 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 for Youdao. Please go ahead.

Jeffrey Wang

operator. you, Thank by discussion future the to contain statements as forward-looking for Please of today the to established liability from performance safe intended U.S. company, related the note harbor will the which qualify are are Private the guarantees to certain future such assumptions uncertainties, subject of risks are not and Securities and and Act, Litigation the Reform statements performance other factors.

affect differ this law. in to today's are the beyond obligation Youdao's the of factors does business could Securities and filings A results with any by to and financial press discussion undertake update results forward-looking the company cause is in company mentioned The not and control risks certain materially company's these included information and the those except of Commission. that discussion. Exchange Some general required could of as release from actual risk

will non-GAAP only. During discuss today's measures purpose also call, for comparison management certain financial

and XXXX non-GAAP the financial to the see earlier issued measures definition non-GAAP of please today. reconciliations For first news of release results, GAAP financial results quarter financial

remainder, this conference conference a this of available a will ir.youdao.com. recorded. being be at replay Youdao's call webcast on Besides, corporate is website As

the our Executive VP highlights of is our today from some of Mr. us call our over VP will Strategy recent and Youdao's Dr. call Officer; of turn of our to Mr. and VP strategic Jin, Chief Li, senior Finance. Feng and Joining Lei Operations; Wei the Mr. Zhou, direction. Zhou Su, management to on Dr. Peng Markets; now review Capital I

Feng Zhou

thank for today's and in all call. you Jeffrey, you, Thank participating

release financial basis, a mentioned operating information loss. quarter a report solid to a like would academic revenue gross information QX overall everyone business, in XXXX to numbers is specifically well in pleased and significant this based We're XX.X% billion, record-high and are new renminbi, all margin quarter-over-quarter, presented financial non-GAAP up as as record operations the K-X on cessation unless on stated. our year-over-year I the performance was AST that high. RMBX.X continuing first of in begin, revenues we otherwise Before improvement the following XX.X% of with and net and remind

We overall of XX.X%, record an another high. also gross margin achieved

of operations disposal historical loss for of the also for adjustments the been academic Retrospective our loss million comparison growth. periods, environment results to by Furthermore, long-term a of QX the the the AST operating XX.X% macro year-over-year a continuing our to as adequate statements have Given a consistent business, well the we narrowed have strategy. K-X previous operations. as effectiveness which XXXX. provides of basis the financial challenging from clearly million strengthening reflects in of for RMBXXX.X wise, results funding fundamentals amid RMBXXX.X These we Liquidity of made

time billion. Youdao's of short-term RMBX.X deposits totaled cash, equivalents, March investments as XX, restricted cash First, cash, XXXX, and

Youdao's financial future Secondly, short-term US$XXX the of has our release, our RMBXXX support million to including business, operations. the shareholder NetEase million this others, NetEase facility. from our support controlling been school. of date Youdao Group In Group loan agreed supporting long-term various Among continuing the loans for growth. received support financial revolving has and provide NetEase Until has

details Now, first progress. like our share on to I'd quarter more

at learning smart look let's devices. First,

total, XX.X% chain QX. and device representing supply year-over-year. RMBXXX.X in channel devices sold QX increase growth related sales COVID million, an we given Our was of In is revenue the XXX,XXX This remarkable challenges.

XX. up by An product We part a have Pen, we year new are this past the quarters, and strictly added we lines dictionary discussed and series English priority listening R&D, to dictionary already to new new to Dictionary the drive while databases followed synergy our us. textbooks XX of area scaling total database. growth Youdao strategy in devices QX. key comprehensive shipping We existing updating in reaching most for added Youdao products. As We with is growth important

advanced the algorithms. we a It analyzes AI Light. body a while terms smart A writing features, with to in and integrated learning April, desk user recently, allowing the lamp hand movements over desk, product doing Youdao's at our they seamlessly is are Smart by automatically early reading, in Yoda more AI users' new or access of a products, of year. AI learning host Light the In Smart powered launched development homework. while sitting functionalities for

its a you. look it users to It word ask to the you English an arithmetic Youdao's sitting read worksheet alert to check tracks point user After plan posture we postures. as feedback tap and the grow other months even for it products. coming We have initial to sentence with will very popularity detecting up can did Smart or when over You or to the the unhealthy we to your is the Light, positive. launched

forward looking also planned. to introducing this are We devices year additional smart as

Now let's learning strategies. talk about

center an courses scaled vocational at graduate accelerated AST exam entrance courses. the to Since and business is from in team quarter last academic QX Our our STEAM here which our school like growth to products pace. courses strategy center Weiqi transition business year, QX third up an is and the

continued While deliver in has QX. at down the courses academic same we closing been steady a time, process, have challenging to and AST progress

a QX learning of by quickly, from services recognized season learning million revenue AST in net QX we were declined in revenue we generated from large academic which were net major XX.X% revenue, XXXX, K-X are QX by academic billings services Our that it positively in as year-over-year. with Note RMBXXX were QX. impacted XX.X% up loss partially business revenue growing gross offset AST the courses. renewal year-over-year. of because including in seasonality XXXX, part a QX and to reached Net If compare new was courses

Chess partnership we STEAM billings gross Chess the strategic courses, As a XXX% quarter-over-quarter. increasing for Haidian Besides, particularly Association. its Youdao with established fast with expanded

In pace. chess fast Go been and addition to courses, a community growing has our user at

of and users technology. AI about play are played Every combining major The courses where each games community drive can competitive with app or and the our app, This Academy against our others app growth. app Boardgame economy the proprietary Go courses learn, the day or Youdao us. the of a chess XXX,XXX have AI-based the we Youdao or Here, assets. game go for advantage other's is on approach help and and experience, chess other

the In certifications addition, or Youdao receive has and economies testing Weiqi certification an Beijing their become province. Beijing which official users Weiqi skill the Anhui for Association. test, -- site Association and online through can in by Chinese for Throughout

school adult Let's offer courses one-stop customers. hiring turn and exam a to for our education courses. to QX, vocational gradual our we entrance upgraded In service

increase learning efficiency effectiveness. the from grew over With courses school courses to We the gross ongoing and by gradual upgrade, quarter-over-quarter. online-merge-offline the also explored exam billings entrance XXX%

constructor such courses, gross We growing demand also billings courses over year-over-year Xx with for certification accounting other and courses saw in increasing vocational as QX.

progressing business, translation are Our apps charity also other and including our endeavors, digitization in dictionary and initiatives smoothly QX. education

implement STEAM ahead, continue education; courses; strategy we growth education vocational Looking X of is: and to smart digitization. our devices; pillars, that

first in model and at part of scale a STEAM are progress courses X and validation. already The development making devices X larger good business our are latter product The and business. a significant

to this give the you call financial new overcome will We Peng? our technical user for deep wave Peng With of details to to We China. innovation. routes performance. expect including COVID over Su bases large see to turn intend more businesses, diversity them and of that, on challenges, through Su our in I

Peng Su

further Thank quarter for our Today, highlights issued you you, will today, Dr. first details. earlier release, I Zhou, be to encourage financial through and presenting XXXX. for hello, press everyone. some We the of read

XX.X% For from the first RMBX.X XXXX. quarter, or This total first net increase the of quarter million. US$XXX.X an revenue were of billion represents

quarter revenue million, period from the Net smart in in from attribute million at our US$XX.X same XXXX. volume growth the RMBXXX.X driven increased period same period growth Looking RMBXXX.X services or revenue XXXX, marketing our XXXX. from services were decrease in from US$XX.X million XXXX. representing which in We million from by a services driven users the first period the active Net Dictionary in of of our our were the same this devices with to by this Youdao million the same from US$XXX.X were compared generated segment. XXXX. by further by or learning XX.X% XX.X% the by revenue increased revenue of increased were growth or increase Pen sales from in million online XX.X% the Net learning RMBXXX

first XXXX fourth of smart XX.X% same with marketing the for total for For the million, Gross US$XXX.X gross RMBXXX.X margin same first period quarter, margin the quarter first for XX.X% compared XXXX of margin for the the period for of with reached for with or XXXX. online XXXX. quarter the XX.X% compared with XXXX. period was for Gross services XX.X% in quarter first million profit was compared in for same the XXXX in our by quarter XX.X% XXXX. XX.X% learning for was services XX.X% Gross the of devices compared increased

For quarter the for or RMBXXX.X compared first the quarter, million compared million the our RMBXXX.X expense expense with were of and RMBXXX.X same of operating fourth million were XXXX. marketing quarter with million million US$XXX RMBXXX.X that, RMBXXX total in the for expense first year. with compared quarter, were last million first With of Research million period in RMBXXX.X development the XXXX. sales and

last XX.X% same operating in XXXX quarter margin compared of XX.X% the the for was Our first loss of with period year.

XXXX to of compared ordinary quarter net period quarter for or and compared million million. loss first RMBX.XX of was last was loss attributable the of diluted from with attributable net ADS US$XX.X loss continuing XXXX, from quarter year. net Non-GAAP continuing was year. RMBXXX.X attributable shareholders from first per the first the or to RMBXX.X for RMBX.XX US$X.XX. for of basic RMBXX.X period million for operations continuing diluted ordinary and shareholders quarter RMBXXX.X continuing operations with ordinary to or from million million US$XX.X operation shareholders operations net was for first our the million Basic For the the same or Non-GAAP our loss ADS per last US$X.XX. same

was in for cash first quarter. RMBXXX.X the continuing US$XX.X activity net used Our or million million operation

at sheet. Looking balance our

your consists As to deposits Thank equivalents, time totaled of end billion your RMBXXX.X deferred questions. cash, liability, or for short-term attention. XXXX. go This to the prepared Operator, and million services revenue period, US$XXX.X million. of of our March call We concludes learning At now US$XXX were the remarks. from which with please you generated XX, open contract would billion cash as like XXXX, XX, investments RMBX.X mainly million the our or the our our compared restricted cash, ahead. RMBX.X of December

Operator

[Operator Stanley. first will from from come Elsie question Our Morgan Sheng Instructions]

Elsie Sheng

ask the landscape competitive the progress in courses business. us more like non-identical the terms give to in business. and of this about color the also you business Could I'd or of STEAM this

Feng Zhou

Yes, your this is question. Zhou Feng. I'll take

achieved courses STEAM strong Yes, in prepared growth we've -- QX. discussed our and probably for rapid us. go added X for together years for and good courses making a chess I progress Yes, know, we're you are about operated chess As as again go remarks, now. in here. And area

So we our product strategy. and teams have a are differentiated experienced,

interactive AI tutoring So with again, staff teaching materials and that online is combine also with cost to excellent and polished community.

are and In progress in leader terms every keep customers new of quarter. we already we for a any market QX,

was particularly us bright-spot chess a So for for QX.

chess billings QX As XXX quarter-over-quarter. for by in I over said, increased gross

So chess population a smaller, go, affluent smaller caters go. but to than compared to more probably

believe is from on both courses. we our for us, focus we are So both cost our peers. Again, will businesses good so differentiated very these

So provide users. our to an experience we integrated

this particular quarter. with and and community online we -- made So the progress AI the

that students and their the So go review so we the chess games. games their more or upgraded app the go Weiqi is helpful AI actually experience when

their to app better that and their a the levels. have and when the experience we so with they experience And to this improves get this similar improved match learning matching lot. players between And So with learning. player the they improves a they the go skill

work pick to So our in and best produce the on product patiently really is that area. as to approach always, to good areas

rate. So we with with did we did And chess. We that devices. are our the that with that the doing

be recipe to X to focused. course products. Apart plan or this our other have that work pick and many for areas from focus don't many is nonacademic go want courses, We we be actually intend so area. to chess, to X We the to going forward too also So we success. believe in

share will with information new you. products we we have Thank the So more them. when

Operator

with from comes Cao question next CICC. The Hongyi

Hongyi Cao

is good is, the question new the the color Dictionary Light? And can give what is performance? new Pen. more the on performance. for sales Congratulation this Smart to how compared product product, us And your you for momentum My

Peng Su

you. will Su Thank This I take questions. is Peng. these

from catch performance numbers the first mass of trying The as increase Smart first with again revenue is up XX% new And smart Devices almost the the school go opening in the Lights, for back over we year-over-year QX devices emphasize about Smart generated quarter. we representing Youdao segment to favorable and windows questions. just of over an the to million, the your RMBXXX.X our of of

lot about with of We And market. about of about desk experience the first. has the customer positive have from are first products. the feedback we behind lamps within reflecting by we the -- we of AI reflecting about the Smart did market. launched April, its since think the think -- think -- first some about month. it's and reason out great very the welcomed Light about is from the we early we some a innovative can other we first the performance, why kind the our batch the share been -- performance see demand And been has number share different the sold we in -- share create the It's

ratio feedback example, what that We by Reading. our Sentence World that's What and we a and more a For to are And Smart did is the from market. -- product try moving customers. just are. as the X we mentioned we And insist now, always positive the try think Intensive well demand very Device. to we on we about we be will of top until as subretinal customers. about [ph], to Search to gets Fingertip market think high-quality meet from always functions to the JD.com the are think price we functions are the We will we about provide think our keep it we upgrade

it's products run. think these long in to a long now, still and And right the but -- early confident of are performance new we are way we the still about Although a very we in stage, go.

have numbers on -- expect data provide can to all that we the We think of analysis our the in you more to enough the products we information customers about and we market. quarter we more And can second share with the earnings. from feedback time and

Operator

comes question of Gong Brian next The from Citi.

Unidentified Analyst

asking behalf This Brian. is of on Katrina

XXXX we is my think of the forward? cost the control second should trend quarter how we and at for And going Have should full any we about margin So optimization question done the cost how look measures? year? the

Yongwei Li

for XXXX. Wayne. for you add for some question. I your is thank Katrina, will margin This color the

XX%. new As in you've seen confident in gross overall run. we about high the long this quarter, the we Therefore, record are very our in achieved at margin a improvement gross margin in

gross on compared margin we that its margin is gross with of seasonality from Meanwhile, for a expect we Learning of in the average optimize to seasonal For a stable revenue. segment revenue the seeking will we year. margin. services structure perspective when scale always last XXXX On is year due Service cost settlement, economic also learning keep noted recognized fluctuation quarter-over-quarter to the achieve full and the to have basis, better largest and get which to basis gross a the a

which Devices and year-over-year to and continue we on is we in R&D Smart a expect other another significant segment, segment, resources, the to basis. where some achieve For invest growth

segment. the a and lockdown policy of the gross pandemic impact for making in been sales However, results production which both significant the on by margin further devices, delivery the more have of this caused uncertainties our and change smart on

gross margin of improved with economic an expect devices We the of realization greater sales. smart

element is expected a revenue eye learning around current stage. achieved, of at from to smart the margin keep close If the is be level of devices. Considering a to lower the gross higher lower. need than smart portion we devices overall margin is the relatively the devices However, smart the uncertainty margin on services

of well operating efforts one hand, margin, on marketing and efficiency improving put staff we for on As sales the as as costs.

our On continuously technical our technical hand, keep strengthen the R&D and we other advantages. investment to

wish the you it was As long this have margin improved tried in seek operating run, performance achieved and helpful. to better margin operating in we a is see, quarter, in

Operator

Linda from Huang comes Macquarie. question Next of

Linda Huang

question pandemic. remains My We this [indiscernible]. recent COVID that all regarding situation the for know is

lockdown the the any So impact. recent the mitigate the restriction like how we Shanghai to impact remains, is do Beijing? social contingency if city the and from plan the or And have outbreak pandemic distance

on it management, business? and elaborate you would can So the be the learning services if great learning devices

Peng Su

think will from. about indeed, our into generated And that's is segment, Su via the I we come questions. business. COVID delivered major -- into cities because plan parts the this recently some of the the China some as this with to Services issues these in Peng. Internet. our actually impact take also Learner have Linda, it on mitigate different try our is divide And And I we in And out with revenue some that well will and our primarily impact. impact X for on Yes, services business. process contingency

physical Most So over have need of the services contact we offline that don't online with customers. really centers. our the of the our channels learning been instead offering

we what learning we very, the online services impact very very on think limited So business. a limited -- have about

that's so to related have Smart And purchase as part. will that our to they we is products they devices, our And it's whatever our some for have to the the secondly, customer, the segment. first they on deliver be on because retail of And online store, -- the logistics purchase do issues. impact Devices transportation the or smart

Youdao from of new in the a demand products think -- from logistics regarding strong we impact. last impact right about services there's now, run, quarters the indeed, all several on because think have and regarding pen. that think But from the the devices customers. customers smart long our our the by momentum we and some that we we In now, transportation demand challenging the we don't about think So be -- by very our will customers short-term part, on for our things to don't regarding provided about any see we

rate You the several quarters. the Devices the and about in can Smart growth last of our business see growth trend

about setting these about we will think directly are so doing impact in normal. example, indeed, and in and Chengdu, -- go now, I we definitely, And something distributors. we region devices So, -- we -- the are Wuhan the warehouse by short run, do the for that Tianjin, think China to other new back delivering to to to And area smart long up the Mainland, we in the mitigate are term.

we So did, the we term, can can see we we back about after hope just short think the and mitigate COVID that's we to we has about impact what right been caused. business normal impact the we expect to and go expect -- see the the

expect out I in think season. and the finish you. we of renewals the Thank share QX, expect after the information to that we will middle -- more we QX

Linda Huang

and Just the May? logistics this getting in similar you a follow-up. off? this see quick -- disruption the very April are Do Or situations better remains

Peng Su

think getting still about better that's and we it, on regions. but going and Yes, the it's -- better depend with times

the the impact I issue have regions, COVID think regarding that's because COVID in issue. -- on different different they policy

see getting expect So that moving trend on and more will we that, -- better. to we but in we products customers. keep And general, just it's can our give

Operator

of question Chong next Thomas Jefferies. comes from The

Thomas Chong

the education May I strategies ask on about digitization addressable the market. upgrade and

Lei Jin

due from digitization not by to Ministry digitization hardware, AI of in plan the clear The national still we're only economy focus There in experience own the customers annual in it. Jin. would highlight is but content some national implementation. alternative longer included would short-term I is school business The there approach, XX new business plan the in teaching X-year the solution quality -- is development control central believe This to partial in digitized unified the improve Investments our localized and you public joint early this digital policy has the Lel it the and which level. our contact There some the is to and digitization are delays still though [ph] market impact media to Damucang are its impacts. to progress allocated of to on a in education year been run. achieve eminent in working software, this in of and opportunity for stage, help I infrastructure of to And advantage impact use of like services, the execution talking reviewed. government hope Education is Hutong.

a received lot of recognition. We have official

batch the and Firstly, project on plans the system Technology of teaching and [ph] smart the was military in XG Industry by education of of education. and smart education quality first Palo Ministry included Information the

new Secondly, the base administrative honored to by we facing of commission, size commission useful were also be of in the education [indiscernible]. technology and included

XXXX XXX,XXX education, from mean people the terminal than improvement to our more for and and its of with full-time than million recommended there future. mid into was students as in Thirdly, XXXX statistics of product the selected [ph]. all more by innovation According in were of and XXX smart million the teaching $XX live [indiscernible] [ph]

is be market terms RMBXXX over to according In of execution expected the potential to of it a size digitization, [indiscernible]. the in XXXX million

Operator

next Candis of Chan The comes Daiwa. from question

Candis Chan

look like does you I a And would growth Great. can the year? our in like pipeline for And your ask business. device color bit little more year? outlook share also, education on to this And about adult this how

Feng Zhou

This the Thank you, regarding vocational adult courses. and is Feng. Candis. Yes, first, Zhou

for on objectives courses are our current basically the to growth and products. the teams focus upgrade So

segment other past challenges from past seen for the quarters. know you us probably few courses quarters, some the few the so for As has

is the for that was of of COVID. demand a the were by So large one courses, business English part key which impacted reason significantly

yet. not we Yes. So out transitional period of the are

that we QX. So several said, actually bright spots in with have

we and exam So [indiscernible] graduate on saw progress good school courses.

from So graduate by entrance the quarter-over-quarter. billings exam the courses XXX% school over grew gross

constructor is courses. certification spot bright Another

of billings vocational base. in year-over-year. So -- of course to professional a XXx is a a actually certificate. help acquire to over The QX, although course, constructor for over this from increased the prepare it gross exam low

the environment vocational macro from and sector. government the promoting current strong actually overall the demand -- very education Given actively of

that think we actually So prospect the is right. quite

spend and products, time the courses. growing So patient we be here new will perfecting

courses adult So have big a future. believe vocational we and

devices, courses. we adult pipeline application other we this products said for And have that's new our will regarding year. on so for So

the And device to category of Light new so already out, we That's plan. half expect had So one second another the is our in current the early year. we launch in Smart this April. of smart

So preparation in the sales to upgrade the that's will new season year moreover, for we portfolios also smart September. of the continue school devices in

is it's right now, -- like basically lineup this. our So

product. Dictionary X Pen Listening our as have Light And more flagship more Then have popular. becoming Pod Smart upcoming we We the and new products are these products. and as

if compare category And last year, comprehensive market of year, lineup. a the only product. technology pain. internally, achieved we for This of have we sharing we lines. and the larger last dictionary more So personnel this This with have among and good X expertise a growth more with we addressable it allows year, product allows also

So the this to a and second new have plan half of strategy good is category us. is of the lineup another for a And the year. in product we think

you. yes, I So hope that's helpful. Thank

Operator

any over This Jeffrey Wang would for the closing to concludes back the question-and-answer remarks. turn conference like session. to I

Jeffrey Wang

us today. once joining again you for Thank

us a If directly you as Investor Have further free in or U.S. questions, Youdao Relations China at any or have TPG contact the great day. please feel to to out reach

Operator

has presentation, you now now you conference attending Thank concluded. The today's and disconnect. for may

Youdao (DAO) 24 May 222022 Q1 Earnings call transcript