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: [email protected]
The Piacente Group, Inc.
Emilie Wu
Tel: +86-21-6039-8363
E-mail: [email protected]
In the United States:
The Piacente Group, Inc.
Brandi Piacente
Tel: +1-212-481-2050
E-mail: [email protected]
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 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.
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)