Gaotu Techedu Announces Second Quarter of 2022 Unaudited Financial Results

BEIJING, Sept. 8, 2022 /PRNewswire/ -- Gaotu Techedu Inc. (NYSE: GOTU) ("Gaotu" or the "Company"), a technology-driven education company and online large-class tutoring service provider in China, today announced its unaudited financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Highlights^[1]

• Net revenues were RMB537.8 million, compared with net revenues of RMB2,232.3 million in the same period of 2021.
• Gross billings^[2] were RMB611.7 million, compared with gross billings of RMB2,694.7 million in the same period of 2021.
• Net loss was RMB49.8 million, compared with net loss of RMB918.8 million in the same period of 2021.
• Non-GAAP net income was RMB0.6 million, compared with non-GAAP net loss of RMB763.9 million in the same period of 2021.
• Net operating cash inflow was RMB93.8 million, compared with net operating cash outflow of RMB318.6 million in the same period of 2021.

^[1] For a reconciliation of non-GAAP numbers, please see the table captioned "Reconciliations of non-GAAP measures to the most comparable GAAP measures" at the end of this press release. Non-GAAP gross profit, non-GAAP income (loss) from operations, non-GAAP net income (loss) exclude share-based compensation expenses.
^[2] Gross billings is a non-GAAP financial measure, which is defined as the total amount of cash received for the sale of course offerings in such period, net of the total amount of refunds in such period. See "About Non-GAAP Financial Measures" and "Reconciliations of non-GAAP measures to the most comparable GAAP measures" elsewhere in this press release.

Six Months Ended June 30, 2022 Highlights

• Net revenues were RMB1,262.4 million, compared with net revenues of RMB4,172.6 million in the same period of 2021.
• Gross billings were RMB929.8 million, compared with gross billings of RMB3,876.1 million in the same period of 2021.
• Net income was RMB3.9 million, compared with net loss of RMB2,344.7 million in the same period of 2021.
• Non-GAAP net income was RMB93.2 million, compared with non-GAAP net loss of RMB2,093.3 million in the same period of 2021.
• Net operating cash outflow was RMB387.5 million, compared with net operating cash outflow of RMB2,413.9 million in the same period of 2021.

Larry Xiangdong Chen, the Company's founder, Chairman and CEO, commented, "During the second quarter of 2022, our businesses sustained a healthy and stable growth. Our gross billings nearly doubled compared to last quarter, and we successfully generated positive net operating cashflow. Our net loss was substantially narrowed year-over-year, and this is the third consecutive quarter that we secured non-GAAP profitability after our business restructuring. Going forward, we will continue to focus on educational services for college students and adults, non-academic tutoring services, and educational contents & digitalized learning products, continue to uphold the strategy of profitable growth, and continue to strive for effective growth through improving operational efficiency and optimizing cost structure."

Shannon Shen, CFO of the Company, added, "During this quarter, we continued to achieve effective growth under this challenging economic environment. Our net revenues were RMB537.8 million, and our gross billings were RMB611.7 million. Further, net revenues generated by comparable businesses showed quarter-over-quarter growth for three consecutive quarters, and their gross billings showed quarter-over-quarter growth for four consecutive quarters. We expect this momentum to continue in the next quarter. We also realized a positive net operating cashflow of RMB93.8 million in the second quarter. With that, our capital position remains strong. As of June 30, 2022, we had a total of approximately RMB3.4 billion in terms of cash, cash equivalents, restricted cash, and short-term investments on our balance sheet, providing ample resources for continued business development."

Financial Results for the Second Quarter of 2022

Net Revenues

Net revenues decreased by 75.9% to RMB537.8 million from RMB2,232.3 million in the second quarter of 2021. The decrease was mainly due to the organizational adjustments and business restructuring to comply with the government regulations, including the cessation of academic subject tutoring services to students ("Business Restructuring").

Cost of Revenues

Cost of revenues decreased by 77.9% to RMB160.0 million from RMB724.3 million in the second quarter of 2021. The decline was mainly due to the reduction of employees and offices as a result of the Business Restructuring, which resulted in the decrease in staff related cost, learning material cost and rental expenses.

Gross Profit and Gross Margin

Gross profit was RMB377.8 million, compared with RMB1,508.0 million in the second quarter of 2021. Gross profit margin increased to 70.2% from 67.6% in the same period of 2021.

Non-GAAP gross profit was RMB396.4 million, compared with RMB1,543.5 million in the same period of 2021. Non-GAAP gross profit margin increased to 73.7% from 69.1% in the same period of 2021.

Operating Expenses

Operating expenses decreased 81.4% to RMB438.3 million from RMB2,362.7 million in the second quarter of 2021. The decline was primarily due to the decreased expenditure on branding and marketing activities on academic subject tutoring services as a result of the changes of regulatory environment. Moreover, staff related expenses and other operating related expenses also decreased, which was due to the reduction of employees and offices as a result of the Business Restructuring.

• Selling expenses decreased to RMB269.0 million from RMB1,641.1 million in the second quarter of 2021.
• Research and development expenses decreased to RMB103.9 million from RMB426.5 million in the second quarter of 2021.
• General and administrative expenses decreased to RMB65.4 million from RMB242.0 million in the second quarter of 2021.

Loss from Operations

Loss from operations was RMB60.5 million, compared with the loss from operations of RMB854.7 million in the second quarter of 2021, which was primarily due to a large decrease in operating related cost and expenses as a result of the Business Restructuring.

Non-GAAP loss from operations was RMB10.0 million, compared with non-GAAP loss from operations of RMB699.8 million in the second quarter of 2021.

Interest Income and Realized Gains from Investments

Interest income and realized gains from investments, on aggregate, was RMB9.8 million, compared with RMB23.5 million of interest income and realized gains from investments in the second quarter of 2021.

Other Income (Expense)

Other income was RMB0.4 million, compared with other expense of RMB36.5 million in the second quarter of 2021.

Net (Loss) Income

Net loss was RMB49.8 million, compared with net loss of RMB918.8 million in the second quarter of 2021.

Non-GAAP net income was RMB0.6 million, compared with non-GAAP net loss of RMB763.9 million in the second quarter of 2021.

Cash Flow

Net operating cash inflow for the second quarter of 2022 was RMB93.8 million, which was primarily due to the increased cash inflow of gross billings.

Basic and Diluted Net (Loss) Income per ADS

Basic and diluted net loss per ADS were both RMB0.19 in the second quarter of 2022.

Non-GAAP basic and diluted net income per ADS were both approximately nil in the second quarter of 2022.

Share Outstanding

As of June 30, 2022, the Company had 172,397,205 ordinary shares outstanding.

Cash, Cash Equivalents, Restricted Cash and Short-term Investments

As of June 30, 2022, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB3,353.2 million in aggregate, compared with a total of RMB3,671.1 million as of December 31, 2021.

Other Payables

As of June 30, 2022, other payables in non-current liabilities totaled RMB26.6 million, which were payables related to the purchase of the Zhengzhou properties.

Business Outlook

Based on the Company's current estimates, total net revenues for the third quarter of 2022 are expected to be between RMB576 million and RMB596 million, representing a decrease of 46.5% to 48.3% on a year-over-year basis. These estimates reflect the Company's current expectations, which are subject to change.

Conference Call

The Company will hold an earnings conference call at 8:00 AM U.S. Eastern Time on Thursday, September 8, 2022 (8:00 PM on Thursday, September 8, 2022, Beijing/Hong Kong Time). Dial-in details for the earnings conference call are as follows:

A telephone replay will be available two hours after the conclusion of the conference call through September 15, 2022. The dial-in details are:

Additionally, a live and archived webcast of this conference call will be available at http://ir.gaotu.cn/home.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the business outlook, as well as the Company's strategic and operational plans, contain forward-looking statements. 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. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: the Company's ability to continue to attract students to enroll in its courses; the Company's ability to continue to recruit, train and retain qualified teachers; the Company's ability to improve the content of its existing course offerings and to develop new courses; the Company's ability to maintain and enhance its brand; the Company's ability to maintain and continue to improve its teaching results; and the Company's ability to compete effectively against its competitors. Further information regarding these and other risks is included in the Company's reports filed with, or furnished to the U.S. Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of this press release, and the Company undertakes no duty to update such information or any forward-looking statement, except as required under applicable law.

About Gaotu Techedu Inc.

Gaotu is a technology-driven education company and online large-class tutoring service provider in China. The Company offers educational services for college students and adults, non-academic tutoring services, and educational contents & digitalized learning products. Gaotu adopts an online live large-class format to deliver its courses, which the Company believes is the most effective and scalable model to disseminate scarce high-quality teaching resources to aspiring students in China. Big data analytics permeates every aspect of the Company's business and facilitates the application of the latest technology to improve teaching delivery, student learning experience, and operational efficiency.

About Non-GAAP Financial Measures

The Company uses gross billings, non-GAAP gross profit, non-GAAP income (loss) from operations and non-GAAP net income (loss), each a non-GAAP financial measure, in evaluating its operating results and for financial and operational decision-making purposes.

The Company defines gross billings for a specific period as the total amount of cash received for the sale of course offerings in such period, net of the total amount of refunds in such period. The Company's management uses gross billings as a performance measurement because the Company generally bills its students for the entire course fee at the time of sale of its course offerings and recognizes revenue proportionally as the classes are delivered. For some courses, the Company continues to provide students with 12 months to 36 months access to the pre-recorded audio-video courses after the online live courses are delivered. The Company believes that gross billings provides valuable insight into the sales of its course packages and the performance of its business. As gross billings have material limitations as an analytical metrics and may not be calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies.

Non-GAAP gross profit, non-GAAP income (loss) from operations and non-GAAP net income (loss) exclude share-based compensation expenses, and such adjustment excludes the impact on income tax. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective. The Company believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance. A limitation of using non-GAAP measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be for the foreseeable future a significant recurring expense in the Company's business.

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 "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Exchange Rate

The Company's business is primarily conducted in China and a significant majority of revenues generated are denominated in Renminbi ("RMB"). This announcement contains currency conversions of RMB amounts into U.S. dollars ("USD") solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to USD are made at a rate of RMB6.6981 to USD1.0000, the effective noon buying rate for June 30, 2022 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into USD at that rate on June 30, 2022, or at any other rate.

For further information, please contact:

Gaotu Techedu Inc.
Investor Relations
E-mail: ir@gaotu.cn

Christensen

In China
Ms. Vivian Wang
Phone: +852 2232 3978
E-mail: gotu@christensenir.com

In the US
Ms. Linda Bergkamp
Phone: +1-480-614-3004
Email: lbergkamp@christensenir.com

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