Good day, and welcome to Youdao's Fourth Quarter 2025 and Full Year 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 Youdao. Please go ahead.

Thank you, operator. Please note the discussion today will contain forward-looking statements related to the 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 Youdao's business and financial results is included in certain company filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2025 fourth quarter and full year financial results news release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will also be available on Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management are Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, our President; Mr. Peng Su, our Senior VP; and Mr. Wayne 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, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are denominated in renminbi, unless otherwise stated. In the fourth quarter, both net revenues and cash flow showed strong improvement. Net revenues reached RMB 1.6 billion, a 16.8% year-over-year increase. This growth was primarily driven by the Learning Services segment returning to a growth trajectory, combined with the sustained strong performance of our online marketing services. Net cash flow from operating activities for the quarter was RMB 184.2 million, up 16.4% year-over-year. Our operating profit for the fourth quarter was RMB 60.2 million, marking our sixth consecutive quarter of operating profitability, representing an increase of 113% quarter-over-quarter and a decrease of 28.5% year-over-year. For the full year 2025, our key financial performance demonstrated positive momentum across the board. Total net revenues for the year reached RMB 5.9 billion, an increase of 5% year-over-year. Operating profit grew to RMB 221.3 million, up 48.7% year-over-year. Notably, 2025 marked the first year we achieved full-year net cash inflow from operating activities totaling RMB 55.2 million. This compared with a net cash outflow of RMB 67.9 million in 2024. This milestone reflects continued improvements in our competitiveness and operating efficiency and fulfills the financial objectives we set at the beginning of the year. I will now walk through the performance of each business line during the fourth quarter. Starting with Learning Services. Fourth quarter net revenues reached RMB 727.2 million, representing a 17.7% year-over-year increase. This performance reflects a clear return to growth following the successful completion of our strategic restructuring. Within the segment, digital content services contributed RMB 436.1 million, up 12.2% year-over-year. Youdao Lingshi continued to perform well with revenue surging over 40% year-over-year. Retention rates exceeded 75%, representing an improvement of approximately 5 percentage points. These results demonstrate meaningful progress in both scale and user satisfaction. Technological innovation remains central to our product competitiveness. During the quarter, Youdao Lingshi was recognized by CNR as the '2025 Industry Benchmark Education Group.' This recognition affirms our leadership position and reflects our continued investment in education technology. Building on the successful launch of our Chinese AI Essay grading feature, we plan to introduce an English AI Essay grading tool in the near future, powered by our proprietary large language model, Confucius, and aligned with rigorous examination standards. This tool is designed to help students improve their writing proficiency and quality. Our programming course also delivered strong results. Continuous product upgrades drove a 50% year-over-year increase in gross billings for the fourth quarter, supported by retention rates above 75%. Importantly, student achievements remain a key measure of success. In 2025, hundreds of our students achieved top results in the NOIP and the CSP-J and -S finals, validating the quality and effectiveness of our programming curriculum. Within the Learning Services segment, AI-driven subscription services delivered particularly strong performance. Fourth quarter sales exceeded RMB 100 million, representing an over 80% year-over-year increase. For the full year 2025, total sales approached RMB 400 million, a record high with annual growth exceeding 50%. This growth reflects both the expansion of our product portfolio and sustained demand for high-quality AI-powered apps. We're driving this momentum through two primary avenues. First, we are expanding into new market segments through innovative applications. In 2025, we launched Scholar AI, an integrated AI-powered plagiarism detection and writing refinement application. In the fourth quarter, its sales doubled quarter-over-quarter. We have also recently entered into an official partnership with Turnitin, the global leader in academic and research integrity, which we expect to further accelerate adoption. Second, we continue to enhance our core applications. The AI simultaneous interpretation feature within Youdao Dictionary and Youdao Desktop Translation achieved over 100% year-over-year sales growth in the fourth quarter. These innovations were recognized with multiple industry awards, including QubitAI, 'Outstanding AI Product' and 'China AI Product of the Year.' Turning to online marketing services. Fourth quarter net revenues reached RMB 660.9 million, up 37.2% year-over-year. Growth was driven by increased demand from the NetEase Group as well as overseas markets, supported by our continued investments in AI technology. This growth was broad-based across multiple verticals. In gaming, stronger collaboration with NetEase Group and expansion of third-party clients drove a 50% year-over-year increase in advertising revenue. At the same time, we are capitalizing on the AI boom. Rapid advances in large language models have fueled marketing demand for many high-growth AI apps. By positioning ourselves early as a preferred marketing partner in this trend, we achieved significant gains in client acquisition, resulting in revenue growth of over 50% for the quarter. International performance was also strong. Overseas KOL revenues increased by more than 50% year-over-year in the fourth quarter. In 2025, we successfully executed campaigns in over 50 countries. Our global capabilities were recognized by TikTok for Business, which named Youdao Ads as its '2025 Influencer Agency Game Industry Pioneer List', TikTok for Business 2025, further reinforcing our leadership in global digital marketing. Gross margin for the online marketing segment was 27.8% in the fourth quarter, representing a 2 percentage point sequential improvement despite a year-over-year decline. This reflects two deliberate strategic choices. First, we prioritized client acquisition with new clients accounting for approximately 30% of our advertisers this quarter. While margins are typically lower during onboarding, these partnerships provide a foundation for long-term value creation. Second, we are beginning to see margin expansion from technological upgrades. The launch of our second-generation AI Ad Placement Optimizer, which integrates automated creative production, has begun to improve both advertising efficiency and profitability. In the Smart Devices segment, fourth quarter net revenues were RMB 176.5 million, down 26.6% year-over-year. We continue to focus on improving this segment's overall operational health and made significant progress in 2025. Our flagship Youdao Dictionary Pen remained the top-selling product on JD.com and Tmall during the November 11 shopping festival for the sixth consecutive year. Meanwhile, we continue to enhance the Youdao Tutoring Pen launched earlier in 2025, adding features such as intelligent knowledge cards and upgraded AI-powered video explanations. Since launch, the system has generated over 600,000 videos. User engagement has been encouraging with active users accessing tutoring features more than 10 times per day in the fourth quarter. In summary, 2025 has been a year of comprehensive progress driven by our AI-native strategy. From the strong performance of our advertising business enabled by the AI Ad Placement Optimizer to improved user retention and engagement across our learning services, we have demonstrated that technological innovation translates directly into user value and commercial results. Our expanding portfolio of AI subscription and device products, including Youdao simultaneous interpretation, Scholar AI, Anydub, and the AI Tutoring Pen have broadened our reach to new user segments. Financially, we maintained strong discipline, delivered meaningful profitability growth, and our first-ever full year of net operating cash inflow. This milestone underscores the sustainability and resilience of our business model. Looking ahead, we remain firmly committed to our AI-native strategy with a clear focus on advancing our learning services and advertising businesses. We will continue developing high-performance vertical large language models tailored to user needs while actively capturing emerging opportunities such as AI Agents, which significantly expand the potential for application-layer innovations and data-driven value creation. Through these efforts, we aim to deliver differentiated user experiences while driving long-term sustainable growth. We're not just participating in the AI transformation. We are building the foundation for sustained intelligent growth. With that, I will turn the call over to Su Peng for a more detailed discussion of our financial results. Thank you.

Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from the fourth quarter and the full year of 2025. We encourage you to read through our press release issued earlier today for further details. For the fourth quarter, total net revenues were RMB 1.6 billion or USD 223.7 million, representing a 16.8% increase from the same period of 2024. Net revenue from our learning services was RMB 727.2 million or USD 104 million, representing a 17.7% increase from the same period of 2024. This year-over-year increase was primarily driven by the strong sales performance of AI-driven subscription services compared with the same period of 2024. Net revenue from our smart devices was RMB 176.5 million or USD 25.2 million, down 26.6% from the same period of 2024, primarily due to the decline in demand for smart learning devices in the fourth quarter of 2025. Net revenue from our online marketing services was RMB 660.9 million or USD 94.5 million, representing a 37.2% increase from RMB 481.7 million for the same period of 2024. This year-over-year increase was mainly attributable to the increased demand from the NetEase Group and overseas markets, which was driven by our continued investment in AI technology. For the fourth quarter, our total gross profit was RMB 705.4 million or USD 100.9 million, representing a 10.1% increase from the fourth quarter of 2024. Gross margin for learning services was 62.5% for the fourth quarter of 2025 compared with 60% for the same period of 2024. Gross margin for smart devices was 38.1% for the fourth quarter of 2025 compared with 43.9% for the same period of 2024. Gross margin for online marketing services was 27.8% for the fourth quarter of 2025 compared with 34.2% for the same period of 2024. For the fourth quarter, our total operating expense was RMB 645.2 million or USD 92.3 million compared with RMB 556.6 million for the same period of last year. Looking at our expense in more detail. Sales and marketing expense for the fourth quarter of 2025 were RMB 437.1 million compared with RMB 381.8 million in the fourth quarter of 2024. Research and development expense for the fourth quarter of 2024 were RMB 142.6 million compared with RMB 120.7 million in the fourth quarter of 2024. Our operating income margin was 3.8% in the fourth quarter of 2025 compared with 6.3% for the same period of last year. For the fourth quarter of 2025, our net income attributable to ordinary shareholders was RMB 48.2 million or USD 6.9 million compared to RMB 83 million for the same period of last year. Non-GAAP net income attributable to ordinary shareholders for the fourth quarter was RMB 58.7 million or USD 8.4 million compared with RMB 99.8 million for the same period of last year. Basic and diluted net income per ADS attributable to ordinary shareholders for the fourth quarter of 2025 were RMB 0.41 or USD 0.06 and RMB 0.4 or USD 0.06, respectively. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the fourth quarter were RMB 0.5 or USD 0.07 and RMB 0.49 or USD 0.07, respectively. Our net cash provided by operating activities were RMB 184.2 million or USD 26.3 million for the fourth quarter. Turning to our full-year results. Our total revenue for 2025 increased by 5% to RMB 5.9 billion or USD 845 million. Net revenue from our learning services for 2025, down by 4.2% year-over-year to RMB 2.6 billion or USD 376.2 million. Net revenue from our smart devices for 2025, down by 18.2% year-over-year to RMB 739.6 million or USD 105.8 million. Net revenue from our online marketing services for 2025 was up 28.5% year-over-year to RMB 2.5 billion or USD 363 million. Total gross profit for 2025 was RMB 2.6 billion or USD 374.2 million compared with RMB 2.7 billion in 2024. Total operating expense for 2025 decreased to RMB 2.4 billion or USD 342.6 million compared with RMB 2.6 billion in 2024. Net income attributable to ordinary shareholders for 2025 was RMB 107.3 million or USD 15.4 million and basic and diluted net income per ADS attributable to ordinary shareholders for 2025 was RMB 0.91 or USD 0.13 and RMB 0.9 or USD 0.13, respectively. For 2025, net cash provided by operating activity was RMB 55.2 million or USD 7.9 million compared with net cash used in the operating activity of RMB 67.9 million in 2024. Looking at our balance sheet as of December 31, 2025, our contract liability, which mainly consists of the deferred revenue generated from our learning services, was RMB 847.7 million or USD 121.2 million compared with RMB 961 million as of December 31, 2024. At the end of the period, our cash, cash equivalents, current and noncurrent restricted cash, and short-term investments totaled RMB 743.2 million or USD 106.3 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.

Our first question comes from Brian Gong with Citi.

Congratulations on decent results. So can management share your thoughts on 2026 outlook and across different business lines? Yes.

Yes, I will take the question. So our overall goal for 2026 is to continue serving our users and customers with more innovative and competitive products while growing the business in a sustainable and healthy manner as always. So a key foundation supporting these objectives is our AI-native strategy, which enhances our ability to innovate and compete effectively across our learning services and advertising businesses. So let me provide additional details across our business lines. So first on the online marketing services. In 2025, online marketing revenue grew by 29% to RMB 2.5 billion. So in 2026, we plan to continue to focus on key growth areas by deploying more innovative solutions to capture favorable industry tailwinds. So we are seeing strong momentum in marketing demands across sectors such as AI applications, gaming, and also areas like short-form drama content. To capture these opportunities, we will continue to leverage advanced AI capabilities, including our AI Ad Placement Optimizer, which we will release our version 2 shortly, and iMagic Box alongside programmatic advertisement and KOL marketing solutions. So these initiatives, we believe, will help us further improve targeting precision and conversion efficiency for our customers. Our goal remains clear to deliver higher ROI for advertisers while providing a superior content experience for our users. Second, for learning services, we completed the restructuring of our online courses business by the end of 2025, as you already know. And we expect the Learning Services segment to return to around double-digit year-over-year growth in 2026. Encouragingly, the segment already achieved 18% year-over-year growth in the fourth quarter, so that's very good to see. In terms of more details, Youdao Lingshi remains the centerpiece of our learning ecosystem. So in 2026, we will continue to leverage the stronger capabilities of our language model, Confucius, to drive product innovation and service enhancements in Youdao, using AI to unlock new opportunities for user acquisition and engagement. The second pillar of our learning services is AI-driven subscription services, which have been growing very rapidly. So total sales reached approximately RMB 400 million, representing an increase of over 50% year-over-year in 2025. The launches of new products, Youdao Anydub, Youdao and Scholar AI, were well received, driving a record high revenue in this segment. So looking ahead, we believe 2026 will be a very important year for AI agents, which are more advanced AI systems capable of actually completing complex tasks and delivering more value to users. We believe this industry trend plays to Youdao's strength as we have a long track record of successfully developing user-centric applications. So we plan to continue introducing new AI applications and agents to expand our services and portfolios this year, enhancing user engagement and strengthening our business models, which we expect will support sustained revenue growth. Thirdly, on smart devices. For this segment, our priority is to continue improving the overall health of the business. This year, we remain focused on two core products, the dictionary Pen and the tutoring Pen, deepening our presence in STEM learning scenarios to address users' critical pain points. In summary, we see very meaningful opportunities across both the learning services and advertising segments, and we are well positioned to capture them. Our experienced teams and strong execution capabilities in applying AI technologies will enable us to continuously enhance our products and services. We will continue leveraging all our strengths in 2026 to better serve our users and customers while driving sustainable long-term growth. Yes.

Your next question comes from the line of Brenda Xiao with CICC.

Congrats on achieving another solid quarter. I just have a quick follow-up on the Youdao Lingshi business because last year, Youdao Lingshi made positive progress. And what's the plan and outlook for 2026? Can the management give us more details?

This is Su Peng. I will handle the questions. And yes, heading into 2026, we are first very confident about the future growth of the Youdao Lingshi business because of the outcome of the insurance customers in 2025 and also the upgrade features of Youdao Lingshi's AI functions, which pushed the retention rate to over 75%, just like Dr. Zhou shared with this information in previous comments. And I think for 2026, our strategy is in two ways: product refinement and efficient customer acquisition. The first, the AI is core building differentiated competitive edge, we believe. We remain committed to our unique AI interactive class service model. We will continue to expand and polish our AI features, ensuring that the technology truly serves the learning outcomes. Leveraging the power of our large language model, Confucius, we are making the teaching process more precise and scientific. Let's start with a little bit more detail. The first is the precision diagnosis and planning in our services. We will improve the accuracy of diagnosing the knowledge gaps to generate scientific and personalized learning paths, essentially teaching students according to their needs. Second, we are addressing the critical needs in the college entrance preparation process with practical features like AI-based college admissions advisers and AI Essay grading, comprehensively elevating the users' experience and loyalty. Next, we are exploring a more efficient path for customer acquisition. First, we need to highlight the organic traffic owned by Youdao. We will further activate the traffic value within our ecosystem by deeply integrating with our apps like the Youdao Dictionary and Mr. P AI tutors as well as our smart devices like the Youdao Tutoring Pen. We can improve the acquisition perception while efficiently lowering the cost, leveraging the conversion from our existing broad user base. The new AI-driven channels we are exploring include franchise customer acquisition channels powered by our AI features, using our technology and advantages to open up new growth spaces and inject vitality into our business. In 2026, driven by tech innovation and guided by our users' value, we expect to push the Lingshi business to a new height. We believe we will keep growing and continue investment in that business. I hope that answers your question.

Our next question comes from Linda Huang with Macquarie.

So I just want to know how does the management think about the outlook in 2026? So that's my question.

This is Lei Jin. In 2025, our advertising business reached significant milestones, including the launch of the Youdao iMagic Box and our AI Ad Placement Optimizer, along with our official partnership with an undisclosed entity. These initiatives resulted in our online marketing revenues hitting a record RMB 2.1 billion, reflecting a strong 28.5% year-over-year increase. Looking ahead to 2026, we plan to drive high-quality growth by enhancing our core resources and pushing our technological limits. First, we will intensify our international KOL business. We are capitalizing on the trend of Chinese companies expanding globally, positioning ourselves as their strategic partner—this is our core area of strength. We have established a highly competitive global traffic ecosystem with two main components. First, our resource model, which now connects us with over 30 million influencers and bidders worldwide, including more than 1,000 top-tier influencers under exclusive contracts, creating a substantial barrier to entry. Second, our service track record, having successfully assisted over 1,000 companies in going global, spanning more than 50 countries, with diverse coverage across traditional sectors like gaming, e-commerce, automotive, and consumer electronics, as well as emerging opportunities such as short-form drama. In 2026, we will further scale this by leveraging our resource advantage to support more Chinese companies aiming for global growth. Additionally, we are actively pursuing overseas programmatic advertising to foster long-term growth. While our QR business focuses on human connections, programmatic advertising represents a technological efficiency revolution. We will utilize our proprietary vertical AD model alongside our experience and extensive client base from domestic programmatic ads to explore this market internationally. Supported by our resource management, we are dedicated to achieving more precise traffic distribution and higher returns on investment. Our objective is to convert these technical capabilities into tangible business growth, aiming to establish a second growth curve for our overseas advertising business over the medium to long term. In summary, through our international KOL business and exploration of programmatic advertising, we anticipate elevating our overseas advertising efforts in 2026.

Your next question comes from Bo Zhan with Huatai Securities.

I'm Bo Zhan from Huatai. My question is whether Youdao achieved a positive net operating cash flow for the first time in 2025 and if the goal for 2026 is to achieve a net inflow for total cash flow.

This is Wayne. I will take your question. As you know, the company's total cash flow is composed of three pillars: operating, investing, and financing activities. Among these, operating cash flow stands as the most critical indicator of business health and long-term sustainability. Therefore, I would first like to address our performance and strategic objectives regarding operating cash flow. Enhancing profitability and securing positive operating cash flow were our core target for 2025. As mentioned by Dr. Zhou, we have successfully delivered on both of these goals last year. Looking ahead to 2026, our objective is to achieve faster growth in operating profit and propel our operating cash flow to a more meaningful and substantial level. Our confidence in this trajectory is rooted in three key drivers. First, AI-driven empowerment. The widespread integration of AI is profoundly transforming our product form and service models. In 2025, we successfully validated AI's immense potential for enhancing quality and efficiency across our business lines. Second, the momentum of our core business units powered by advertising and AI-driven subscription services is expected to maintain their strong momentum. This is expected to drive acceleration in the year-over-year growth of our total revenue and improvement in operating profit. Third, the continuous upgrade of refined management by optimizing credit management for our B2B operations and other key processes. We have significantly bolstered our financial resilience and risk mitigation capability. Regarding the goal of achieving a positive total cash flow, we maintain a balanced and rational stance. We will not blindly tighten expenditures simply to reach a positive figure on paper. Instead, we will seek the optimal equilibrium between strategic investment opportunities and cost discipline. Should strategic investment targets emerge in the market, we will move decisively to capture them. Furthermore, when cash reserves are sufficient, we will optimize our capital structure by investing in wealth management products or repaying the principal on loans from our parent company. While these actions are recorded as investing or financing cash outflow, which may affect the total cash flow figure in the short term, they serve to increase interest income or reduce financing interest costs in the long run. Above all, we will prioritize the continuous improvement of our operating cash flow as it is the most valuable cash flow metric. Building upon this, we will also steadily advance the healthy development of our total cash flow to generate long-term value for our shareholders.

Your next question comes from Xiangfei Shen with Nomura.

Can you hear me now?

Yes, we can hear you now.

Dr. Zhou and Su, congratulations on a very solid quarter. I recall Dr. Zhou mentioned in the opening remarks, 2026 is a year of AI agents. So my question is, in what areas of Youdao business will you plan to deploy the AI agent and how significant is the potential impact?

Good to speak. So yes, we think AI agents is an area of particular interest to us. One of the key reasons is that compared with the chat products, they operate longer. They have access to more customer and user data, and they can make deeper and more meaningful decisions regarding how to serve the customer or user better. Basically, they are more intelligent AI products that can create real value. We look at all our businesses to see if we have opportunities to apply this technology. There are several areas we are already working on. One is regarding our advertising business. We already have the AI Ad Placement Optimizer product. There are many opportunities to apply agents in ads because ads is an area where a lot of experience and a lot of data is needed to achieve good results. Previously, people operating the ad systems contributed significantly to the value in achieving good ad results. Now we can have these agents try different combinations and transfer knowledge and experience between ad campaigns to achieve better results. This is an area where a lot of value can be created because of the sheer volume and scale of advertising. The other area, of course, is learning and productivity applications. One example is the AI simultaneous interpretation app. We believe it is an agent application because compared with translation five years ago, it's very different. It combines voice technology with large language model-driven translation technology. It automatically summarizes conversations, and in the future, we will be able to help users take further actions after online meetings or courses that the user is experiencing. We think there are many possibilities in combining these user scenarios with a subscription-based business model. Users nowadays, particularly young users, are very willing to pay for services on a monthly or quarterly basis over subscription. Looking at our numbers, we already have about RMB 400 million in subscription sales in 2025, and we believe we have a lot of room to grow this sales. One last thing, we launched a new AI agent product today, similar to OpenAI. It runs 24 hours a day to help you achieve tasks. It's called Youdao Lobster AI. I hope that answers your question.

And that concludes the question-and-answer session. I would like to turn the conference over back to management for any additional 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 Piacente Financial Communications in China or the U.S. Have a nice day.