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Youdao Inc, NetEase Inc, NetEase Inc, NetEase Inc

Youdao Reports Third Quarter 2022 Unaudited Financial Results

HANGZHOU, China , Nov. 17, 2022 /PRNewswire/ -- Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), a leading technology-focused intelligent learning company in China, today announced its unaudited financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Financial Highlights [1]

  • Total net revenues were RMB1.4 billion (US$197.2 million), representing a 35.0% increase from the same period in 2021.
    - Net revenues from learning services were RMB888.5 million (US$124.9 million), representing a 37.2% increase from the same period in 2021.
    - Net revenues from smart devices were RMB356.5 million (US$50.1 million), representing a 40.1% increase from the same period in 2021.
    - Net revenues from online marketing services were RMB157.5 million (US$22.1 million), representing a 14.9% increase from the same period in 2021.
  • Gross margin was 54.2%, compared to 52.6% for the same period in 2021.

"We achieved record-high revenues of RMB1.4 billion in Q3, up 35.0% year-over-year, mainly due to our continuous innovation in learning services and smart devices. Since the beginning of this year, we have launched five new smart devices for various consumer learning scenarios. The success of our newly-designed products, such as the Youdao Dictionary Pen X5 and Youdao Smart Learning Pad, has infused confidence in our ability to generate return on investment through continuous innovation. We help our customers learn even better through more innovative products and services," said Dr. Feng Zhou, Chief Executive Officer and a Director of Youdao.

"Our transition from regulatory changes last year is mostly finished. Despite the many obstacles and the uncertain macro environment, we are seizing the bigger picture opportunity to evolve and make advancements in our company that solidify our sustainable growth over the long term," Dr. Zhou concluded.

[1] As previously disclosed, in compliance with applicable regulatory requirements, the Company had ceased to offer the after-school tutoring services on academic subjects in China's compulsory education system (the "Academic AST Business") at the end of December 2021. The Academic AST Business met the criteria of discontinued operations. Retrospective adjustments to the historical statement of operations have also been made to provide a consistent basis of comparison for the financial results of the continuing operations. The financial information and non-GAAP financial information included in this press release is presented on a continuing operations basis, unless otherwise specifically stated.

Third Quarter 2022 Financial Results

Net Revenues 

Net revenues for the third quarter of 2022 were RMB1.4 billion (US$197.2 million), representing a 35.0% increase from RMB1.0 billion for the same period of 2021.

Net revenues from learning services were RMB888.5 million (US$124.9 million) for the third quarter of 2022, representing a 37.2% increase from RMB647.5 million for the same period of 2021. The year-over-year growth was primarily driven by the strong sales performance from the new services initiated after the implementation of the "Double Reduction" Policy.

Net revenues from smart devices were RMB356.5 million (US$50.1 million) for the third quarter of 2022, representing a 40.1% increase from RMB254.5 million for the same period of 2021, primarily driven by the popularity of Youdao's newly launched products, such as the Youdao Dictionary Pen X5.

Net revenues from online marketing services were RMB157.5 million (US$22.1 million) for the third quarter of 2022, representing a 14.9% increase from RMB137.0 million for the same period of 2021. The year-over-year increase in revenues from online marketing services was mainly attributable to the increase in performance-based advertisements through third parties' internet properties.

Gross Profit and Gross Margin

Gross profit for the third quarter of 2022 was RMB760.2 million (US$106.9 million), representing a 39.0% increase from RMB546.9 million for the same period of 2021. Gross margin increased to 54.2% for the third quarter of 2022 from 52.6% for the same period of 2021.

Gross margin for learning services was 64.5% for the third quarter of 2022, compared with 65.0% for the same period of 2021.

Gross margin for smart devices increased to 40.4% for the third quarter of 2022 from 33.7% for the same period of 2021. The improvement was mainly attributable to the popularity of Youdao's newly launched Youdao Dictionary Pen X5, which carries a higher gross margin than other products.

Gross margin for online marketing services was 27.1% for the third quarter of 2022, compared with 29.2% for the same period of 2021. The decrease was mainly attributable to the increase in performance-based advertisements through third parties' internet properties, which typically have a lower gross margin profile.

Operating Expenses

Total operating expenses for the third quarter of 2022 were RMB979.2 million (US$137.7 million), compared with RMB772.6 million for the same period of last year.

Sales and marketing expenses for the third quarter of 2022 were RMB709.8 million (US$99.8 million), representing an increase of 28.3% from RMB553.4 million for the same period of 2021. This increase was mainly driven by increasing sales and marketing efforts associated with Youdao's learning services and smart devices.

Research and development expenses for the third quarter of 2022 were RMB212.9 million (US$29.9 million), representing an increase of 30.1% from RMB163.6 million for the same period of 2021. The increase was primarily due to higher payroll-related expenses associated with a larger number of development and technology professionals in smart devices and education digitalization solutions.

General and administrative expenses for the third quarter of 2022 were RMB56.5 million (US$7.9 million), compared with RMB55.6 million for the same period of 2021.

Loss from Operations

Loss from operations for the third quarter of 2022 was RMB219.0 million (US$30.8 million), compared with RMB225.7 million for the same period in 2021. The margin of loss from operations was 15.6%, compared with 21.7% for the same period of last year.

Net Loss from Continuing Operations Attributable to Youdao's Ordinary Shareholders

Net loss from continuing operations attributable to Youdao's ordinary shareholders for the third quarter of 2022 was RMB183.9 million (US$25.9 million), compared with RMB225.3 million for the same period of last year. Non-GAAP net loss from continuing operations attributable to Youdao's ordinary shareholders for the third quarter of 2022 was RMB164.4 million (US$23.1 million), compared with RMB200.2 million for the same period of last year.

Basic and diluted net loss per American depositary shares ("ADSs") of the Company from continuing operations attributable to ordinary shareholders for the third quarter of 2022 was RMB1.49 (US$0.21), compared with RMB1.84 for the same period of 2021. Non-GAAP basic and diluted net loss from continuing operations per ADS attributable to ordinary shareholders was RMB1.33 (US$0.19), compared with RMB1.63 for the same period of 2021.

Balance Sheet

As of September 30, 2022, Youdao's cash, cash equivalents, restricted cash, time deposits and short-term investments totaled RMB953.1 million (US$134.0 million), compared with RMB1.6 billion as of December 31, 2021. For the third quarter of 2022, net cash used in continuing operating activities was RMB294.1 million (US$41.3 million), capital expenditures totaled RMB12.7 million (US$1.8 million), and depreciation and amortization expenses amounted to RMB11.6 million (US$1.6 million). Youdao's ability to continue as a going concern is dependent on management's ability to implement an effective business plan in future periods in light of the changing regulatory environment, generate operating cash flows and continue to be able to obtain outside sources of financing as necessary for Youdao's future development. As of the date of this release, Youdao has received various financial support from the NetEase Group, including, among others, RMB878.0 million short-term loans and US$70.0 million long-term loans with maturity dated March 31, 2024 drawn down under the US$300.0 million revolving loan facility.

As of September 30, 2022, the Company's contract liabilities, which mainly consisted of deferred revenues generated from Youdao's learning services, were RMB996.5 million (US$140.1 million), compared with RMB1.1 billion as of December 31, 2021.

Share Repurchase Program

The Company today also announced that its board of directors has authorized the Company to adopt a share repurchase program in the near future in accordance with applicable laws and regulations for up to US$20 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months.

Repurchases under the Company's share repurchase program, if adopted, may be made from time to time on the open market at prevailing market prices, in open-market transactions, privately negotiated transactions or block trades, and/or through other legally permissible means, depending on market conditions and in accordance with the applicable rules and regulations. The timing and conditions of the share repurchases will be subject to various factors including the requirements under Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

Conference Call

Youdao's management team will host a teleconference call with simultaneous webcast at 5:00 a.m. Eastern Time on Thursday, November 17, 2022 (Beijing/Hong Kong Time: 6:00 p.m., Thursday, November 17, 2022). Youdao's management will be on the call to discuss the financial results and answer questions.

Dial-in details for the earnings conference call are as follows:

United States (toll free):

+1-888-346-8982

International:

+1-412-902-4272

Mainland China (toll free):

400-120-1203

Hong Kong (toll free): 

800-905-945

Hong Kong:

+852-3018-4992

Conference ID:

7502413

A live and archived webcast of the conference call will be available on the Company's investor relations website at http://ir.youdao.com.

A replay of the conference call will be accessible by phone one hour after the conclusion of the live call at the following numbers, until November 24, 2022:

United States:                    

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code:

7502413

About Youdao, Inc. 

Youdao, Inc. (NYSE: DAO) is a leading technology-focused intelligent learning company in China dedicated to developing and using technologies to provide learning content, applications and solutions to users of all ages. Building on the popularity of its online knowledge tools such as Youdao Dictionary and Youdao Translation, Youdao now offers smart devices, STEAM courses, adult and vocational courses, and education digitalization solutions. In addition, Youdao has developed a variety of interactive learning apps. Youdao was founded in 2006 as part of NetEase, Inc. (NASDAQ: NTES; HKEX: 9999), a leading internet technology company in China.

For more information, please visit: http://ir.youdao.com.

Non-GAAP Measures

Youdao considers and uses non-GAAP financial measures, such as non-GAAP net income/(loss) from continuing operations attributable to the Company's ordinary shareholders and non-GAAP basic and diluted income/(loss) from continuing operations per ADS, as supplemental metrics in reviewing and assessing its operating performance and formulating its business plan. The presentation of non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

Youdao defines non-GAAP net income/(loss) from continuing operations attributable to the Company's ordinary shareholders as net income/(loss) from continuing operations attributable to the Company's ordinary shareholders excluding share-based compensation expenses, amortization of intangible assets from business combination, impairment of long-term investments, income tax effects of above GAAP to non-GAAP reconciling items, and adjustment for GAAP to non-GAAP reconciling items for the income/(loss) attributable to noncontrolling interests. Non-GAAP net income/(loss) from continuing operations attributable to the Company's shareholders enables Youdao's management to assess its operating results without considering the impact of these items, which are non-cash charges in nature. Youdao believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's current operating performance and prospects in the same manner as management does, if they so choose.

Non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. Non-GAAP financial measures have limitations as analytical tools, which possibly do not reflect all items of expense that affect our operations. In addition, the non-GAAP financial measures Youdao uses may differ from the non-GAAP measures uses by other companies, including peer companies, and therefore their comparability may be limited.

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of GAAP and non-GAAP Results" set forth at the end of this release.

The accompanying tables have more details on the reconciliations between our GAAP financial measures that are most directly comparable to non-GAAP financial measures. Youdao encourages you to review its financial information in its entirety and not rely on a single financial measure.

Exchange Rate Information

This announcement contains translations of certain RMB amounts into U.S. dollars ("US$") at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB7.1135 to US$1.00, the exchange rate on September 30, 2022 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all.

Safe Harbor Statement

This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties, and a number of factors could cause actual results to differ materially from those contained in any forward-looking statement. In some cases, forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "target," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "is/are likely to" or other similar expressions. The Company may also make written or oral forward-looking statements in its reports filed with, or furnished to, the U.S. Securities and Exchange Commission, in its annual reports to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. Further information regarding such risks, uncertainties or factors is included in the Company's filings with the SEC. All information provided in this press release is as of the date of this press release, and the Company does not undertake any duty to update such information, except as required under applicable law.

For investor and media inquiries, please contact:

In China:
Jeffrey Wang
Youdao, Inc.
Tel: +86-10-8255-8163 ext. 89980
E-mail: IR@rd.netease.com

The Piacente Group, Inc.
Emilie Wu
Tel: +86-21-6039-8363
E-mail: youdao@thepiacentegroup.com

In the United States:
The Piacente Group, Inc. 
Brandi Piacente
Tel: +1-212-481-2050
E-mail: youdao@thepiacentegroup.com

 

 

YOUDAO, INC.








UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS








(RMB and USD in thousands)


























As of December 31,


As of September 30,


As of September 30,




2021


2022


2022




RMB


RMB


    USD (1)










Assets








Current assets:








Cash and cash equivalents


322,777


712,115


100,108


Time deposits


268


273


38


Restricted cash


749,770


219,456


30,851


Short-term investments


503,831


21,215


2,982


Accounts receivable, net


248,339


332,331


46,718


Inventories, net


255,411


170,393


23,953


Amounts due from NetEase Group


6,192


7,388


1,039


Prepayment and other current assets


182,577


212,605


29,888


Assets held for sale


497


-


-


Total current assets


2,269,662


1,675,776


235,577










Non-current assets:








Property, equipment and software, net


80,315


104,884


14,744


Operating lease right-of-use assets, net


118,104


80,822


11,362


Long-term investments


32,518


67,032


9,423


Goodwill


109,944


109,944


15,456


Other assets, net


22,436


38,288


5,382


Assets held for sale


1,088


-


-


Total non-current assets


364,405


400,970


56,367










Total assets


2,634,067


2,076,746


291,944










Liabilities, Mezzanine Equity and Shareholders' Deficit








Current liabilities:








Accounts payables


161,006


179,756


25,270


Payroll payable


277,383


176,003


24,742


Amounts due to NetEase Group


83,041


74,476


10,470


Contract liabilities


1,065,639


996,535


140,091


Taxes payable


53,323


52,889


7,435


Accrued liabilities and other payables


515,567


626,256


88,038


Short-term loans from NetEase Group


878,000


878,000


123,427


Total current liabilities


3,033,959


2,983,915


419,473










Non-current liabilities:








Long-term lease liabilities


73,070


43,476


6,112


Long-term loans from NetEase Group


255,028


496,986


69,865


Other non-current liabilities


2,411


17,604


2,475


Total non-current liabilities


330,509


558,066


78,452










Total liabilities


3,364,468


3,541,981


497,925










Mezzanine equity


78,592


72,959


10,256










Shareholders' deficit:








Youdao's shareholders' deficit


(807,067)


(1,532,313)


(215,410)


Noncontrolling interests


(1,926)


(5,881)


(827)


Total shareholders' deficit


(808,993)


(1,538,194)


(216,237)










Total liabilities, mezzanine equity and shareholders' deficit


2,634,067


2,076,746


291,944










Note 1:

The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate ofUSD1.00=RMB7.1135 on the last trading day of September
 (September 30, 2022) as set forth in the H.10 statistical release of the U.S.Federal Reserve Board.









 

 

YOUDAO, INC.















UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS










(RMB and USD in thousands, except share and per ADS data)




























Three Months Ended


Nine Months Ended





September 30,


June 30,


September 30,


September 30,


September 30,


September 30,





2021


2022


2022


2022


2021


2022





RMB


RMB


RMB


  USD (1)


RMB


RMB



Net revenues:















Learning services


647,522


563,601


888,493


124,902


1,862,162


2,278,105



Smart devices


254,513


239,850


356,480


50,113


662,722


849,490



Online marketing services


137,040


152,774


157,461


22,136


442,113


431,605



Total net revenues


1,039,075


956,225


1,402,434


197,151


2,966,997


3,559,200


















Cost of revenues (2)


(492,176)


(546,498)


(642,254)


(90,287)


(1,423,452)


(1,747,471)



Gross profit


546,899


409,727


760,180


106,864


1,543,545


1,811,729


















Operating expenses:















Sales and marketing expenses (2)


(553,407)


(595,997)


(709,769)


(99,778)


(1,657,201)


(1,812,151)



Research and development expenses (2)


(163,627)


(208,411)


(212,926)


(29,933)


(437,128)


(624,317)



General and administrative expenses (2)


(55,612)


(60,532)


(56,520)


(7,944)


(144,185)


(174,613)



Total operating expenses


(772,646)


(864,940)


(979,215)


(137,655)


(2,238,514)


(2,611,081)



Loss from operations


(225,747)


(455,213)


(219,035)


(30,791)


(694,969)


(799,352)


















Interest income


5,959


3,769


4,033


567


15,768


9,836



Interest expense


(7,835)


(10,102)


(12,277)


(1,726)


(23,216)


(30,964)



Others, net


614


1,567


40,058


5,631


24,334


77,678



Loss before tax


(227,009)


(459,979)


(187,221)


(26,319)


(678,083)


(742,802)


















Income tax (expense)/benefit


(2,590)


(553)


1,108


156


(7,204)


(11)



Net loss from continuing operations


(229,599)


(460,532)


(186,113)


(26,163)


(685,287)


(742,813)



Net income/(loss) from discontinued operations


96,447


-


-


-


(299,557)


(6,105)



Net loss


(133,152)


(460,532)


(186,113)


(26,163)


(984,844)


(748,918)



Net loss attributable to noncontrolling interests


4,254


6,646


2,194


308


5,802


9,588



Net loss attributable to ordinary shareholders of the Company


(128,898)


(453,886)


(183,919)


(25,855)


(979,042)


(739,330)



Including:















Net loss from continuing operations attributable to ordinary shareholders of the
Company


(225,345)


(453,886)


(183,919)


(25,855)


(679,485)


(733,225)



Net income/(loss) from discontinued operations attributable to ordinary
shareholders of the Company


96,447


-


-


-


(299,557)


(6,105)


















Basic net (loss)/income per ADS


(1.05)


(3.67)


(1.49)


(0.21)


(8.08)


(5.98)



-Continuing operations


(1.84)


(3.67)


(1.49)


(0.21)


(5.61)


(5.93)



-Discontinued operations


0.79


-


-


-


(2.47)


(0.05)


















Diluted net (loss)/income per ADS


(1.05)


(3.67)


(1.49)


(0.21)


(8.08)


(5.98)



-Continuing operations


(1.84)


(3.67)


(1.49)


(0.21)


(5.61)


(5.93)



-Discontinued operations


0.79


-


-


-


(2.47)


(0.05)


















Shares used in computing basic net (loss)/income per ADS


122,715,264


123,703,353


123,767,013


123,767,013


121,131,136


123,602,039



Shares used in computing diluted net (loss)/income per ADS


122,715,264


123,703,353


123,767,013


123,767,013


121,131,136


123,602,039

































Note 1:

The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB7.1135 on the last trading day of September (September 30, 2022) as set forth in the
H.10 statistical release of the U.S.Federal Reserve Board.


















Note 2:















Share-based compensation in each category:















Cost of revenues


1,356


1,775


798


112


4,613


4,753



Sales and marketing expenses


2,678


3,451


2,879


405


7,721


9,420



Research and development expenses


7,641


8,428


7,586


1,066


25,040


24,876



General and administrative expenses


5,984


4,448


4,801


675


14,594


14,633


















 

 

YOUDAO, INC.













UNAUDITED ADDITIONAL INFORMATION













(RMB and USD in thousands)




























Three Months Ended




Nine Months Ended



September 30,


June 30,


September 30,


September 30,


September 30,


September 30,



2021


2022


2022


2022


2021


2022



RMB


RMB


RMB


USD


RMB


RMB














Net revenues













Learning services


647,522


563,601


888,493


124,902


1,862,162


2,278,105

Smart devices


254,513


239,850


356,480


50,113


662,722


849,490

Online marketing services


137,040


152,774


157,461


22,136


442,113


431,605

Total net revenues


1,039,075


956,225


1,402,434


197,151


2,966,997


3,559,200














Cost of revenues













Learning services


226,543


269,491


315,086


44,294


699,267


882,874

Smart devices


168,637


166,503


212,365


29,854


399,222


546,672

Online marketing services


96,996


110,504


114,803


16,139


324,963


317,925

Total cost of revenues


492,176


546,498


642,254


90,287


1,423,452


1,747,471














Gross margin













Learning services


65.0 %


52.2 %


64.5 %


64.5 %


62.4 %


61.2 %

Smart devices


33.7 %


30.6 %


40.4 %


40.4 %


39.8 %


35.6 %

Online marketing services


29.2 %


27.7 %


27.1 %


27.1 %


26.5 %


26.3 %

Total gross margin


52.6 %


42.8 %


54.2 %


54.2 %


52.0 %


50.9 %














 

 

YOUDAO, INC.















UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS













(RMB and USD in thousands, except per ADS data)
































Three Months Ended


Nine Months Ended





September 30,


June 30,


September 30,


September 30,


September 30,


September 30,





2021


2022


2022


2022


2021


2022





RMB


RMB


RMB


USD


RMB


RMB


















Net loss from continuing operations attributable to ordinary shareholders of
the Company


(225,345)


(453,886)


(183,919)


(25,855)


(679,485)


(733,225)



Add: share-based compensation


17,659


18,102


16,064


2,258


51,968


53,682



         amortization of intangible assets from business combination


996


-


-


-


996


-



         impairment of long-term investments


7,000


-


3,500


492


7,000


8,500



Less: tax effects on non-GAAP adjustments


(149)


-


-


-


(149)


-



         GAAP to non-GAAP reconciling items for the loss attributable to
         noncontrolling interests


(381)


-


-


-


(381)


-



Non-GAAP net loss from continuing operations attributable to ordinary
shareholders of the Company


(200,220)


(435,784)


(164,355)


(23,105)


(620,051)


(671,043)

































Non-GAAP basic net loss from continuing operations per ADS


(1.63)


(3.52)


(1.33)


(0.19)


(5.12)


(5.43)



Non-GAAP diluted net loss from continuing operations per ADS


(1.63)


(3.52)


(1.33)


(0.19)


(5.12)


(5.43)

































 

 

 

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SOURCE Youdao, Inc.