Youdao Reports First Quarter 2020 Unaudited Financial Results

HANGZHOU, China, May 19, 2020 /PRNewswire/ -- Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), a leading intelligent learning company in China, today announced its unaudited financial results for the first quarter ended March 31, 2020.

First Quarter 2020 Financial Highlights

  • Total net revenues were RMB541.4 million (US$76.5 million), a 139.8% increase from the same period in 2019.
    - Net revenues from learning services and products were RMB442.1 million (US$62.4 million), a 226.4% increase from the same period in 2019.
    - Net revenues from online marketing services were RMB99.3 million (US$14.0 million), a 9.9% increase from the same period in 2019.
  • Gross billings of online courses[1] increased 286.8% year-over-year to RMB518.6 million (US$73.2 million) and gross billings of Youdao Premium Courses[2] increased 311.9% year-over-year to RMB446.2 million (US$63.0 million).
  • Gross margin was 43.5%, compared with 23.4% for the same period in 2019.
  • Deferred revenue from online courses was RMB549.3 million (US$77.6 million), compared with RMB407.9 million as of December 31, 2019.

[1] Gross billings is a non-GAAP financial measure. Gross billings for a specific period refers to the total amount of consideration for Youdao's online courses sold on Youdao Premium Courses, NetEase Cloud Classroom and China University MOOC, net of the total amount of refunds, in such period. See "Non-GAAP Measures" and "Unaudited Reconciliation of GAAP and non-GAAP Results" at the end of this press release.

[2] Youdao Premium Courses are Youdao's flagship online learning offerings primarily focused on K-12 students, covering a wide spectrum of subject matters, learning goals and areas of interest.

 

First Quarter 2020 Key Operating and Financial Data

 

For the three months
ended March 31

   

(in millions, RMB)

2019

 

2020

 

% of Change

Gross billings of online courses

134.1

 

518.6

 

286.8%

           

Gross billings of Youdao Premium Courses

108.3

 

446.2

 

311.9%

           

Paid student enrollments of Youdao Premium Courses (in thousands)

172.8

 

275.6

 

59.5%

       K-12 paid student enrollments

33.3

 

152.8

 

358.7%

       Adult paid student enrollments

139.5

 

122.8

 

(11.9)%

           

Gross billings per paid student enrollment of Youdao Premium Courses (in RMB)

627

 

1,619

 

158.2%

 

"The recent Coronavirus outbreak concerns us all," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao. "Our top priority is the safety of our employees and our social responsibility to the communities we serve. In an already rapidly growing market, the pandemic has accelerated demand for online learning."

"Our first quarter was well executed. Gross billings of online courses increased by 287% year-over-year to RMB519 million, and gross margin for our learning services reached 52%, up from 30% in the prior period. We also achieved positive operating cash flow of nearly RMB50 million. With high quality differentiated products and services, we are well positioned to support our growth over the near- and long-term," concluded Dr. Zhou.

First Quarter 2020 Financial Results 

Net Revenues

Net revenues for the first quarter of 2020 were RMB541.4 million (US$76.5 million), a 139.8% increase from RMB225.7 million for the same period of 2019.

Net revenues from learning services and products were RMB442.1 million (US$62.4 million) for the first quarter of 2020, a 226.4% increase from RMB135.5 million for the same period of 2019. The growth from learning services was primarily attributable to the increased revenues generated from online courses, which were further driven by strong growth in both K-12 paid student enrollments and gross billing per paid student enrollments of Youdao Premium Courses on a year-over-year basis. K-12 paid student enrollments increased by 358.7% year-over-year to 152,800 in the first quarter of 2020. The gross billings per paid student enrollments of Youdao Premium Courses increased by 158.2% year-over-year to RMB1,619 in the first quarter of 2020. In addition, revenue generated from Youdao's intelligent learning products increased by 188.7% year-over-year in the first quarter of 2020, mainly driven by a significant increase in sales volume of Youdao Dictionary Pen launched in August 2019.

Net revenues from online marketing services were RMB99.3 million (US$14.0 million) for the first quarter of 2020, a 9.9% increase from RMB90.3 million for the same period in 2019.

Gross Profit and Gross Margin

Gross profit for the first quarter of 2020 was RMB235.7 million (US$33.3 million), a 345.6% increase from RMB52.9 million for the same period of 2019. Gross margin increased to 43.5% for the first quarter of 2020 from 23.4% for the same period of 2019.

Gross margin for learning services and products increased to 48.7% for the first quarter of 2020 from 18.5% for the same period of 2019, primarily attributable to the significant increase in revenues, improved economies of scale and faculty compensation structure optimization.

Gross margin for online marketing services was 20.5% for the first quarter of 2020, compared with 30.8% for the same period of 2019. The decrease was mainly attributable to more revenue generated from the increased distribution of advertisements through third parties' internet properties and international markets, which carry a lower gross margin.

Operating Expenses

Total operating expenses for the first quarter of 2020 were RMB411.7 million (US$58.1 million), an increase of 212.0% compared with RMB131.9 million for the same period of last year.

Sales and marketing expenses for the first quarter of 2020 were RMB299.2 million (US$42.2 million), compared with RMB64.0 million for the same period of 2019. This increase was mainly driven by enhanced sales and marketing efforts, as well as increased compensation expenses in relation to the expanded sales and marketing team.

Research and development expenses for the first quarter of 2020 were RMB84.1 million (US$11.9 million), an increase of 53.3% compared with RMB54.9 million for the same period of 2019. The increase was primarily due to increased payroll-related expenses associated with an increased number of course development and technology professionals and share-based compensation expenses charged in the first quarter of 2020.

General and administrative expenses for the first quarter of 2020 increased to RMB28.5 million (US$4.0 million) from RMB13.1 million for the same period of 2019. The increase was mainly attributable to the increased bad debt allowance as well as the payroll-related expenses including share-based compensation expenses charged in the first quarter of 2020.

Loss from Operations

Loss from operations for the first quarter of 2020 was RMB176.0 million (US$24.9 million), compared with RMB79.1 million for the same period in 2019. The margin of loss from operations was 32.5%, compared with 35.0% for the same period of last year.

Net Loss Attributable to Youdao's Ordinary Shareholders

Net loss attributable to Youdao's ordinary shareholders for the first quarter of 2020 was RMB169.4 million (US$23.9 million), compared with RMB102.0 million for the same period of last year. Non-GAAP net loss attributable to Youdao's ordinary shareholders for the first quarter of 2020 was RMB161.9 million (US$22.9 million), compared with RMB101.2 million for the same period of last year.

Basic and diluted net loss per American Depositary Share ("ADS") attributable to ordinary shareholders for the first quarter of 2020 was RMB1.52 (US$0.21), compared with RMB1.11 for the same period of 2019. Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders was RMB1.45 (US$0.20), compared with RMB1.10 for the same period of 2019.

Balance Sheet

As of March 31, 2020, Youdao's cash, cash equivalents, time deposits and short-term investments totaled RMB1.7 billion (US$236.8 million), compared with RMB1.6 billion as of December 31, 2019. The increase was primarily resulted from an increased amount of gross billing received from the operation. For the first quarter of 2020, net cash provided by operating activities was RMB49.7 million (US$7.0 million), capital expenditures totaled RMB4.7 million, and depreciation and amortization expenses amounted to RMB3.5 million.

As of March 31, 2020, the Company's contract liabilities, which mainly consist of deferred revenues generated from our online courses, were RMB603.0 million (US$85.2 million), an increase of 32.0% from RMB456.8 million as of December 31, 2019.

Impact of the Recently Adopted Major Accounting Pronouncement

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326)", which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Company adopted the new standard effective January 1, 2020 on a modified retrospective basis and did not restate comparative periods. The impact of new standard was immaterial to the Company.

Conference Call

Youdao's management team will host a teleconference call with simultaneous webcast at 9:00 p.m. Eastern Time on Tuesday, May 19, 2020 (Beijing/Hong Kong Time: 9:00 a.m., Wednesday, May 20, 2020). 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: 

10143297

 

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 May 26, 2020:

United States:                  

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code: 

10143297

 

About Youdao, Inc. 

Youdao, Inc. (NYSE: DAO) is a leading 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, Youdao Cloudnote and Youdao Translation, Youdao now offers online courses covering a wide spectrum of age groups, subject matters, learning goals and areas of interest. In addition, Youdao has developed a variety of interactive learning apps and smart learning devices. Youdao was founded in 2006 as part of NetEase, Inc. (NASDAQ: NTES), 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 gross billings and non-GAAP net income/(loss) attributable to the Company's ordinary shareholders and non-GAAP basic and diluted earnings/(loss) 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 gross billings for a specific period as the total amount of consideration for online courses sold on Youdao Premium Courses, NetEase Cloud Classroom and China University MOOC, net of the total amount of refunds, in such period. The management uses gross billings as a performance measurement because the Company generally bills students for the entire course tuition at the time of sale of the courses and recognizes revenue proportionally over an average of the learning periods of different online courses. Youdao defines non-GAAP net income/(loss) attributable to the Company's ordinary shareholders as net income/(loss) attributable to the Company's ordinary shareholders excluding share-based compensation expenses. Non-GAAP net income/(loss) attributable to the Company's shareholders enables Youdao's management to assess its operating results without considering the impact of share-based compensation expenses, which are non-cash charges. 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 does not reflect all items of expense that affect our operations. Share-based compensation expenses have been and may continue to be incurred in our business and are not reflected in the presentation of non-GAAP net income/(loss) attributable to the Company's ordinary shareholders. 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 RMB7.0808 to US$1.00, the exchange rate on March 31, 2020 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ 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:
Pei Du
Youdao, Inc.
Tel: +86-10-8255-8907
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 March 31,

 

As of March 31,

   

2019

 

2020

 

2020

   

RMB

 

RMB

 

USD(1)

             

Assets

           

Current assets:

           

Cash and cash equivalents

 

173,328

 

128,299

 

18,119

Time deposits

 

1,325,737

 

1,225,986

 

173,142

Short-term investments

 

121,126

 

322,463

 

45,540

Accounts receivable, net

 

200,675

 

219,798

 

31,041

Inventories, net

 

73,225

 

65,955

 

9,315

Amounts due from NetEase Group

 

14,930

 

15,485

 

2,187

Prepayment and other current assets

 

120,891

 

118,562

 

16,745

Total current assets

 

2,029,912

 

2,096,548

 

296,089

             

Non-current assets:

           

Property and equipment, net

 

24,551

 

25,629

 

3,620

Operating lease right-of-use assets, net

 

23,873

 

22,596

 

3,191

Other assets, net

 

8,128

 

13,246

 

1,871

Total non-current assets

 

56,552

 

61,471

 

8,682

             

Total assets

 

2,086,464

 

2,158,019

 

304,771

             

Liabilities and Shareholders' Equity

           

Current liabilities:

           

Accounts payables

 

62,675

 

94,987

 

13,415

Payroll payable

 

94,488

 

64,667

 

9,133

Amounts due to NetEase Group

 

48,126

 

67,907

 

9,590

Contract liabilities

 

456,805

 

603,016

 

85,162

Taxes payable 

 

25,977

 

16,565

 

2,339

Accrued liabilities and other payables

 

192,643

 

250,444

 

35,370

Short-term loans from NetEase Group

 

878,000

 

878,000

 

123,997

Total current liabilities

 

1,758,714

 

1,975,586

 

279,006

             

Non-current liabilities:

           

Long-term lease liabilities

 

21,206

 

20,025

 

2,828

Other non-current liabilities

 

5,517

 

5,157

 

728

Total non-current liabilities

 

26,723

 

25,182

 

3,556

             

Total liabilities

 

1,785,437

 

2,000,768

 

282,562

             

Shareholders' equity:

           

Youdao's shareholders' equity

 

300,091

 

156,373

 

22,085

Non-controlling interests

 

936

 

878

 

124

Total shareholders' equity

 

301,027

 

157,251

 

22,209

             

Total liabilities and shareholders' equity

 

2,086,464

 

2,158,019

 

304,771

 

Note 1:
The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB7.0808 on the last
trading day of March (March 31, 2020) 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

   

March 31,

 

December 31,

 

March 31,

 

March 31,

   

2019

 

2019

 

2020

 

2020

   

RMB

 

RMB

 

RMB

 

USD(1)

Net revenues:

               

Learning services

 

117,039

 

244,846

 

388,978

 

54,934

Online marketing services

 

90,276

 

98,519

 

99,250

 

14,017

Learning products

 

18,416

 

67,067

 

53,160

 

7,508

Total net revenues

 

225,731

 

410,432

 

541,388

 

76,459

                 

Cost of revenues(2):

 

(172,836)

 

(288,002)

 

(305,663)

 

(43,168)

Gross profit

 

52,895

 

122,430

 

235,725

 

33,291

                 

Operating expenses:

               

Sales and marketing expenses (2)

 

(63,962)

 

(205,773)

 

(299,159)

 

(42,249)

Research and development expenses (2)

 

(54,866)

 

(89,254)

 

(84,099)

 

(11,877)

General and administrative expenses (2)

 

(13,117)

 

(31,433)

 

(28,463)

 

(4,020)

Total operating expenses

 

(131,945)

 

(326,460)

 

(411,721)

 

(58,146)

Loss from operations

 

(79,050)

 

(204,030)

 

(175,996)

 

(24,855)

                 

Interest (expense)/income, net

 

(5,937)

 

(1,736)

 

123

 

17

Others, net

 

(6,157)

 

2,872

 

8,576

 

1,211

Loss before tax

 

(91,144)

 

(202,894)

 

(167,297)

 

(23,627)

                 

Income tax (expenses)/benefit

 

(806)

 

9

 

(2,185)

 

(308)

Net loss

 

(91,950)

 

(202,885)

 

(169,482)

 

(23,935)

Net loss attributable to non-controlling interests shareholders

 

72

 

887

 

58

 

8

Net loss attributable to the Company

 

(91,878)

 

(201,998)

 

(169,424)

 

(23,927)

Accretions of convertible redeemable preferred shares to redemption value

 

(10,103)

 

(3,684)

 

-

 

-

Net loss attributable to ordinary shareholders of the Company

 

(101,981)

 

(205,682)

 

(169,424)

 

(23,927)

                 

Basic net loss per ADS

 

(1.11)

 

(1.95)

 

(1.52)

 

(0.21)

Diluted net loss per ADS

 

(1.11)

 

(1.95)

 

(1.52)

 

(0.21)

                 

Shares used in computing basic net loss per ADS

 

92,000,000

 

105,671,559

 

111,767,756

 

111,767,756

Shares used in computing diluted net loss per ADS

 

92,000,000

 

105,671,559

 

111,767,756

 

111,767,756

                 
                 

Note 1:
The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB7.0808 on the last trading day of March
(March 31, 2020) 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

 

149

 

2,960

 

1,168

 

165

Sales and marketing expenses

 

741

 

1,419

 

911

 

129

Research and development expenses

 

(293)

 

8,371

 

3,143

 

444

General and administrative expenses

 

181

 

6,826

 

2,347

 

331

 

 

 

YOUDAO, INC.

UNAUDITED ADDITIONAL INFORMATION

(RMB and USD in thousands)

                 
   

Three Months Ended

   

March 31,

 

December 31,

 

March 31,

 

March 31,

   

2019

 

2019

 

2020

 

2020

   

RMB  

 

RMB  

 

RMB  

 

USD  

                 

Net revenues

               

Learning services and products

 

135,455

 

311,913

 

442,138

 

62,442

Online marketing services

 

90,276

 

98,519

 

99,250

 

14,017

Total net revenues

 

225,731

 

410,432

 

541,388

 

76,459

                 

Cost of revenues

               

Learning services and products

 

110,389

 

220,634

 

226,777

 

32,027

Online marketing services

 

62,447

 

67,368

 

78,886

 

11,141

Total cost of revenues

 

172,836

 

288,002

 

305,663

 

43,168

                 

Gross margin

               

Learning services and products

 

18.5%

 

29.3%

 

48.7%

 

48.7%

Online marketing services

 

30.8%

 

31.6%

 

20.5%

 

20.5%

Total gross margin

 

23.4%

 

29.8%

 

43.5%

 

43.5%

 

 

 

YOUDAO, INC.

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

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

                 
   

Three Months Ended

   

March 31,

 

December 31,

 

March 31,

 

March 31,

   

2019

 

2019

 

2020

 

2020

   

RMB

 

RMB

 

RMB

 

USD

                 

Net revenues of online courses

 

98,808

 

215,946

 

355,800

 

50,249

Add: value-added tax

 

7,589

 

19,627

 

21,348

 

3,015

Add: ending deferred revenue

 

156,812

 

407,861

 

549,317

 

77,578

Less: beginning deferred revenue

 

(129,144)

 

(296,693)

 

(407,861)

 

(57,601)

Non-GAAP gross billings of online courses

 

134,065

 

346,741

 

518,604

 

73,241

                 

Net revenues of Youdao Premium Courses

 

82,767

 

164,125

 

301,525

 

42,583

Add: value-added tax

 

6,132

 

15,906

 

18,092

 

2,555

Add: ending deferred revenue

 

128,538

 

344,111

 

470,668

 

66,471

Less: beginning deferred revenue

 

(109,105)

 

(243,128)

 

(344,111)

 

(48,598)

Non-GAAP gross billings of Youdao Premium Courses

 

108,332

 

281,014

 

446,174

 

63,011

                 

Net loss attributable to ordinary shareholders of the Company

 

(101,981)

 

(205,682)

 

(169,424)

 

(23,927)

Add: share-based compensation

 

778

 

19,576

 

7,569

 

1,069

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

 

(101,203)

 

(186,106)

 

(161,855)

 

(22,858)

                 
                 

Non-GAAP basic net loss per ADS

 

(1.10)

 

(1.76)

 

(1.45)

 

(0.20)

Non-GAAP diluted net loss per ADS

 

(1.10)

 

(1.76)

 

(1.45)

 

(0.20)

 

 

 

SOURCE Youdao, Inc.