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Youdao Reports Third Quarter 2020 Unaudited Financial Results


HANGZHOU, China, Nov. 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 third quarter ended September 30, 2020.

Third Quarter 2020 Financial Highlights

  • Total net revenues were RMB896.0 million (US$132.0 million), a 159.0% increase from the same period in 2019.
    – Net revenues from learning services and products were RMB763.5 million (US$112.4 million), a 239.1% increase from the same period in 2019.
    – Net revenues from online marketing services were RMB132.6 million (US$19.5 million), a 9.8% increase from the same period in 2019.
  • Gross billings of online courses[1] increased 228.4% year-over-year to RMB955.5 million (US$140.7 million) and gross billings of Youdao Premium Courses[2] increased 308.6% year-over-year to RMB877.0 million (US$129.2 million).
  • Gross margin was 45.9%, compared with 25.8% for the same period in 2019.
  • Deferred revenue from online courses was RMB992.4 million (US$146.2 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.

Third Quarter 2020 Key Operating and Financial Data


For the three months ended September 30




(in millions, RMB)

2019




2020




% of Change


Gross billings of online courses

290.9




955.5




228.4%















Gross billings of Youdao Premium Courses

214.6




877.0




308.6%















   Paid student enrollments of Youdao Premium Courses (in thousands)

237.1




623.5




163.0%



       K-12 paid student enrollments

92.7




498.7




437.9%



      Adult paid student enrollments

144.4




124.8




-13.5%















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

905




1,406




55.4%



“Significant increases in our K-12 Youdao Premium Course enrollments drove our robust top-line growth in the third quarter,” said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao. “With core operating and financial improvements to our business and increased marketing, our online courses reached RMB955.5 million in gross billings, and gross margin of learning services expanded to 53.9% in the third quarter, up from just 26.7% a year ago. We also continue to lead the market in intelligent learning devices, with sales accelerating to RMB163.1 million, primarily from the K-12 population.

“As the online education market quickly gets more expansive and more competitive, our unique product matrix, comprising online courses, intelligent devices, and learning apps, enables us to better address customer needs in innovative ways and to achieve organic growth. We will continue to scale, delivering high quality products and services to more students, to propel our long-term growth.” Dr. Zhou concluded.

Third Quarter 2020 Financial Results 

Net Revenues

Net revenues for the third quarter of 2020 were RMB896.0 million (US$132.0 million), a 159.0% increase from RMB345.9 million for the same period of 2019.

Net revenues from learning services and products were RMB763.5 million (US$112.4 million) for the third quarter of 2020, a 239.1% increase from RMB225.2 million for the same period of 2019. The year-over-year growth from learning services was primarily attributable to the increased revenues generated from online courses, which were further driven by a substantial increase in both the paid student enrollments for K-12 courses of Youdao Premium Courses and gross billings per paid student enrollment of Youdao Premium Courses. The paid student enrollments for K-12 courses of Youdao Premium Courses increased by 437.9% year-over-year to 498,700 in the third quarter of 2020. Gross billings per paid student enrollment of Youdao Premium Courses increased by 55.4% year-over-year to RMB1,406 in the third quarter of 2020. Revenues generated from Youdao’s intelligent learning products also increased by 289.3% year-over-year to RMB163.1 million (US$24.0 million) in the third quarter of 2020, which was primarily driven by the expanded sales volume of Youdao Dictionary Pen.

Net revenues from online marketing services were RMB132.6 million (US$19.5 million) for the third quarter of 2020, a 9.8% increase from RMB120.8 million for the same period in 2019.

Gross Profit and Gross Margin

Gross profit for the third quarter of 2020 was RMB411.6 million (US$60.6 million), a 361.2% increase from RMB89.2 million for the same period of 2019. Gross margin increased to 45.9% for the third quarter of 2020 from 25.8% for the same period of 2019.

Gross margin for learning services and products increased to 48.8% for the third quarter of 2020 from 27.5% for the same period of 2019, primarily attributable to improved gross margin in online courses, which was positively impacted by improved economies of scale and the continuous optimization of Youdao’s faculty compensation structure.

Gross margin for online marketing services was 29.5% for the third quarter of 2020, compared with 22.6% for the same period of 2019. The increase was mainly attributable to more revenue generated from brand advertising services, which carry a higher gross margin profile.

Operating Expenses

Total operating expenses for the third quarter of 2020 were RMB1.3 billion (US$192.3 million), representing an increase of 303.0%, compared with RMB324.0 million for the same period of last year.

Sales and marketing expenses for the third quarter of 2020 were RMB1.1 billion (US$169.1 million), representing an increase of 397.0%, compared with RMB231.0 million for the same period of 2019. This increase was mainly driven by intensified sales and marketing efforts associated with student acquisition and branding enhancement during Youdao’s summer campaign, as well as increased compensation expenses related to the expansion of the sales and marketing team for Youdao’s online courses.

Research and development expenses for the third quarter of 2020 were RMB121.0 million (US$17.8 million), representing an increase of 61.5%, compared with RMB74.9 million for the same period of 2019. The increase was primarily due to increased payroll-related expenses including share-based compensation expenses, as well as rental and facility expenses associated with an increased number of course development and technology professionals.

General and administrative expenses for the third quarter of 2020 were RMB36.6 million (US$5.4 million), representing an increase of 102.7%, compared with RMB18.1 million for the same period of 2019. The increase was mainly attributable to increased payroll-related expenses including share-based compensation expenses charged in the third quarter of 2020.

Loss from Operations

Loss from operations for the third quarter of 2020 was RMB894.0 million (US$131.7 million), compared with RMB234.7 million for the same period in 2019. The margin of loss from operations was 99.8%, compared with 67.9% 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 third quarter of 2020 was RMB877.8 million (US$129.3 million), compared with RMB242.2 million for the same period of last year. Non-GAAP net loss attributable to Youdao’s ordinary shareholders for the third quarter of 2020 was RMB865.7 million (US$127.5 million), compared with RMB238.8 million for the same period of last year.

Basic and diluted net loss per American Depositary Share (“ADS”) attributable to ordinary shareholders for the third quarter of 2020 was RMB7.73 (US$1.14), compared with RMB2.63 for the same period of 2019. Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders was RMB7.63 (US$1.12), compared with RMB2.60 for the same period of 2019.

Balance Sheet

As of September 30, 2020, Youdao’s cash, cash equivalents, time deposits and short-term investments totaled RMB1.1 billion (US$166.9 million), compared with RMB1.6 billion as of December 31, 2019. The decrease was primarily attributable to more payment made due to increased sales and marketing activities during the summer campaign. For the third quarter of 2020, net cash used in operating activities was RMB593.4 million (US$87.4 million), capital expenditures totaled RMB12.1 million (US$1.8 million), and depreciation and amortization expenses amounted to RMB4.3 million (US$0.6 million).

As of September 30, 2020, the Company’s contract liabilities, which mainly consist of deferred revenues generated from Youdao’s online courses, were RMB1.1 billion (US$156.9 million), representing an increase of 133.3% from RMB456.8 million as of December 31, 2019.

Conference Call

Youdao’s management team will host a teleconference call with simultaneous webcast at 6:00 a.m. Eastern Time on Thursday, November 19, 2020 (Beijing/Hong Kong Time: 7:00 p.m., Thursday, November 19, 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: 

10149588

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 26, 2020:

United States:                  

+1-877-344-7529

International:

+1-412-317-0088

Replay Access Code: 

10149588

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; 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 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 RMB6.7896 to US$1.00, the exchange rate on September 30, 2020 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ 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:
Regina Wang
Youdao, Inc.
Tel: +86-10-8255-8963
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,




2019


2020


2020




RMB


RMB


USD(1)










Assets








Current assets:








  Cash and cash equivalents


173,328


77,975


11,484


  Time deposits


1,325,737


817,475


120,401


  Short-term investments


121,126


237,418


34,968


  Accounts receivable, net


200,675


334,329


49,241


  Inventories, net


73,225


91,938


13,541


  Amounts due from NetEase Group


14,930


5,728


844


  Prepayment and other current assets


120,891


200,584


29,544


Total current assets


2,029,912


1,765,447


260,023










Non-current assets:








  Property and equipment, net


24,551


39,488


5,816


  Operating lease right-of-use assets, net


23,873


83,463


12,293


  Other assets, net


8,128


26,776


3,943


Total non-current assets


56,552


149,727


22,052










Total assets


2,086,464


1,915,174


282,075










Liabilities and Shareholders’ Equity/(Deficit)








Current liabilities:








  Accounts payables


62,675


119,175


17,553


  Payroll payable


94,488


97,045


14,293


  Amounts due to NetEase Group


48,126


38,116


5,614


  Contract liabilities


456,805


1,065,563


156,940


  Taxes payable


25,977


35,501


5,229


  Accrued liabilities and other payables


192,643


583,497


85,940


  Short-term loans from NetEase Group


878,000


878,000


129,315


Total current liabilities


1,758,714


2,816,897


414,884










Non-current liabilities:








  Long-term lease liabilities


21,206


65,279


9,615


  Other non-current liabilities


5,517


4,394


647


Total non-current liabilities


26,723


69,673


10,262










Total liabilities


1,785,437


2,886,570


425,146










Shareholders’ equity/(deficit):








   Youdao’s shareholders’ equity/(deficit)


300,091


(972,573)


(143,244)


   Noncontrolling interests


936


1,177


173


Total shareholders’ equity/(deficit)


301,027


(971,396)


(143,071)










Total liabilities and shareholders’ equity/(deficit)


2,086,464


1,915,174


282,075










Note 1:
The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB6.7896 on the last trading
day of September (September 30, 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


Nine Months Ended





September 30,


June 30,


September 30,


September 30,


September 30,


September 30,





2019


2020


2020


2020


2019


2020





RMB


RMB


RMB


USD(1)


RMB


RMB



Net revenues:















  Learning services


183,256


433,697


600,350


88,422


454,980


1,423,025



  Online marketing services


120,753


103,212


132,585


19,528


354,494


335,047



  Learning products


41,899


86,381


163,106


24,023


84,977


302,647



Total net revenues


345,908


623,290


896,041


131,973


894,451


2,060,719


















Cost of revenues(2):


(256,674)


(341,751)


(484,488)


(71,357)


(646,259)


(1,131,902)



Gross profit


89,234


281,539


411,553


60,616


248,192


928,817


















Operating expenses:















  Sales and marketing expenses (2)


(230,975)


(445,151)


(1,147,927)


(169,073)


(417,111)


(1,892,237)



  Research and development expenses (2)


(74,929)


(91,423)


(120,991)


(17,820)


(186,113)


(296,513)



  General and administrative expenses (2)


(18,072)


(27,978)


(36,639)


(5,396)


(41,856)


(93,080)



Total operating expenses


(323,976)


(564,552)


(1,305,557)


(192,289)


(645,080)


(2,281,830)



Loss from operations


(234,742)


(283,013)


(894,004)


(131,673)


(396,888)


(1,353,013)


















  Interest (expense)/income, net


(4,071)


(424)


(1,217)


(179)


(16,433)


(1,518)



  Others, net


8,939


25,619


17,352


2,556


17,192


51,547



Loss before tax


(229,874)


(257,818)


(877,869)


(129,296)


(396,129)


(1,302,984)


















  Income tax expenses


(802)


(9)


(240)


(35)


(2,441)


(2,434)



Net loss


(230,676)


(257,827)


(878,109)


(129,331)


(398,570)


(1,305,418)



  Net (income)/loss attributable to noncontrolling interests


(454)


21


304


44


(935)


383



Net loss attributable to the Company


(231,130)


(257,806)


(877,805)


(129,287)


(399,505)


(1,305,035)



  Accretions of convertible redeemable preferred shares to redemption value


(11,053)





(32,209)




Net loss attributable to ordinary shareholders of the Company


(242,183)


(257,806)


(877,805)


(129,287)


(431,714)


(1,305,035)


















Basic net loss per ADS


(2.63)


(2.30)


(7.73)


(1.14)


(4.69)


(11.60)



Diluted net loss per ADS


(2.63)


(2.30)


(7.73)


(1.14)


(4.69)


(11.60)


















Shares used in computing basic net loss per ADS


92,000,000


112,277,976


113,495,422


113,495,422


92,000,000


112,517,299



Shares used in computing diluted net loss per ADS


92,000,000


112,277,976


113,495,422


113,495,422


92,000,000


112,517,299

































Note 1:
The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB6.7896 on the last trading day of September (September 30, 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


540


1,043


1,665


245


1,447


3,876



Sales and marketing expenses


(92)


808


2,071


305


688


3,790



Research and development expenses


1,020


3,016


5,418


798


1,061


11,577



General and administrative expenses


1,903


2,394


2,917


430


2,302


7,658


















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,



2019


2020


2020


2020


2019


2020



RMB


RMB


RMB


USD


RMB


RMB














Net revenues













  Learning services and products


225,155


520,078


763,456


112,445


539,957


1,725,672

  Online marketing services


120,753


103,212


132,585


19,528


354,494


335,047

Total net revenues


345,908


623,290


896,041


131,973


894,451


2,060,719














Cost of revenues













  Learning services and products


163,225


267,942


391,037


57,593


400,035


885,756

  Online marketing services


93,449


73,809


93,451


13,764


246,224


246,146

Total cost of revenues


256,674


341,751


484,488


71,357


646,259


1,131,902














Gross margin













  Learning services and products


27.5%


48.5%


48.8%


48.8%


25.9%


48.7%

  Online marketing services


22.6%


28.5%


29.5%


29.5%


30.5%


26.5%

Total gross margin


25.8%


45.2%


45.9%


45.9%


27.7%


45.1%














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,



2019


2020


2020


2020


2019


2020



RMB


RMB


RMB


USD


RMB


RMB














Net revenues of online courses


163,389


394,596


567,044


83,517


391,622


1,317,440

Add: value-added tax


16,468


38,687


54,083


7,966


33,551


114,118

Add: ending deferred revenue


296,693


658,052


992,393


146,164


296,693


992,393

Less: beginning deferred revenue


(185,622)


(549,317)


(658,052)


(96,921)


(129,144)


(407,861)

Non-GAAP gross billings of online courses


290,928


542,018


955,468


140,726


592,722


2,016,090














Net revenues of Youdao Premium Courses


116,529


332,202


496,508


73,128


307,818


1,130,235

Add: value-added tax


12,148


33,044


49,643


7,312


26,510


100,779

Add: ending deferred revenue


243,128


562,643


893,517


131,601


243,128


893,517

Less: beginning deferred revenue


(157,184)


(470,668)


(562,643)


(82,868)


(109,105)


(344,111)

Non-GAAP gross billings of Youdao Premium Courses


214,621


457,221


877,025


129,173


468,351


1,780,420














Net loss attributable to ordinary shareholders of the Company


(242,183)


(257,806)


(877,805)


(129,287)


(431,714)


(1,305,035)

Add: share-based compensation


3,371


7,261


12,071


1,778


5,498


26,901

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


(238,812)


(250,545)


(865,734)


(127,509)


(426,216)


(1,278,134)



























Non-GAAP basic net loss per ADS


(2.60)


(2.23)


(7.63)


(1.12)


(4.63)


(11.36)

Non-GAAP diluted net loss per ADS


(2.60)


(2.23)


(7.63)


(1.12)


(4.63)


(11.36)














SOURCE Youdao, Inc.

Related Links

http://www.youdao.com/



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