Youdao Reports Second Quarter 2020 Unaudited Financial Results

HANGZHOU, China, Aug. 13, 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 second quarter ended June 30, 2020.

Second Quarter 2020 Financial Highlights

• Total net revenues were RMB623.3 million (US$88.2 million), a 93.1% increase from the same period in 2019.
  - Net revenues from learning services and products were RMB520.1 million (US$73.6 million), a 190.0% increase from the same period in 2019.
  - Net revenues from online marketing services were RMB103.2 million (US$14.6 million), a 28.1% decrease from the same period in 2019.
• Gross billings of online courses^[1] increased 223.2% year-over-year to RMB542.0 million (US$76.7 million) and gross billings of Youdao Premium Courses^[2] increased 214.5% year-over-year to RMB457.2 million (US$64.7 million).
• Gross margin was 45.2%, compared with 32.9% for the same period in 2019.
• Deferred revenue from online courses was RMB658.1 million (US$93.1 million), compared with RMB407.9 million as of December 31, 2019.

Second Quarter 2020 Key Operating and Financial Data

"Our second quarter financial results reflect the rapid growth of our business and our solid and improving fundamentals. Driven by strong retention rates from our K-12 segment and marketing, gross billings from our online courses increased by 223.2% year-over-year to RMB542.0 million, with gross margins of 51.7% for our learning services, and our operating cash inflow reached approximately RMB93.0 million in the second quarter," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao.

"Our robust summer marketing campaign is ongoing, and we are seeing excellent traction, particularly in the growing number of popular K-12 courses. Along with additional brand awareness and student acquisition efforts, our focus in the second half of the year will be on further enriching content across our courses, intelligent learning devices and other education platforms and services, to better serve our increasing online student population and grow our business for a sustainable future," concluded Dr. Zhou.

Second Quarter 2020 Financial Results 

Net Revenues

Net revenues for the second quarter of 2020 were RMB623.3 million (US$88.2 million), a 93.1% increase from RMB322.8 million for the same period of 2019.

Net revenues from learning services and products were RMB520.1 million (US$73.6 million) for the second quarter of 2020, a 190.0% increase from RMB179.3 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 K-12 paid student enrollments and gross billings per paid student enrollment of Youdao Premium Courses. K-12 paid student enrollments increased by 358.9% year-over-year to 329,000 in the second quarter of 2020. Gross billings per paid student enrollment of Youdao Premium Courses increased by 29.4% year-over-year to RMB1,139 in the second quarter of 2020. Revenue generated from Youdao's intelligent learning products increased by 250.3% year-over-year in the second 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 RMB103.2 million (US$14.6 million) for the second quarter of 2020, a 28.1% decrease from RMB143.5 million for the same period in 2019. The decrease was mainly due to decreased demand from certain advertising customers.

Gross Profit and Gross Margin

Gross profit for the second quarter of 2020 was RMB281.5 million (US$39.8 million), a 165.4% increase from RMB106.1 million for the same period of 2019. Gross margin increased to 45.2% for the second quarter of 2020 from 32.9% for the same period of 2019.

Gross margin for learning services and products increased to 48.5% for the second quarter of 2020 from 29.5% for the same period of 2019, primarily attributable to improved gross margin in the online courses, which was further driven by improved economies of scale and the continuous optimization of Youdao's faculty compensation structure.

Gross margin for online marketing services was 28.5% for the second quarter of 2020, compared with 37.0% for the same period of 2019. The decrease was mainly attributable to increased distribution of advertisements through third parties' internet properties, which typically have a lower gross margin profile.

Operating Expenses

Total operating expenses for the second quarter of 2020 were RMB564.6 million (US$79.9 million), an increase of 198.5% compared with RMB189.2 million for the same period of last year.

Sales and marketing expenses for the second quarter of 2020 were RMB445.2 million (US$63.0 million), an increase of 264.4% compared with RMB122.2 million for the same period of 2019. This increase was mainly driven by enhanced sales and marketing efforts, as well as increased compensation expenses related to sales and marketing team expansion.

Research and development expenses for the second quarter of 2020 were RMB91.4 million (US$12.9 million), an increase of 62.3% compared with RMB56.3 million for the same period of 2019. The increase was primarily due to increased payroll-related expenses, rental and facility expenses associated with an increased number of course development and technology professionals, as well as share-based compensation expenses charged in the second quarter of 2020.

General and administrative expenses for the second quarter of 2020 were RMB28.0 million (US$4.0 million), an increase of 162.3% compared with RMB10.7 million for the same period of 2019. The increase was mainly attributable to increased payroll-related expenses, including share-based compensation expenses and fees paid to third-party professional service providers.

Loss from Operations

Loss from operations for the second quarter of 2020 was RMB283.0 million (US$40.1 million), compared with RMB83.1 million for the same period in 2019. The margin of loss from operations was 45.4%, compared with 25.7% 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 second quarter of 2020 was RMB257.8 million (US$36.5 million), compared with RMB87.6 million for the same period of last year. Non-GAAP net loss attributable to Youdao's ordinary shareholders for the second quarter of 2020 was RMB250.5 million (US$35.5 million), compared with RMB86.2 million for the same period of last year.

Basic and diluted net loss per American Depositary Share ("ADS") attributable to ordinary shareholders for the second quarter of 2020 was RMB2.30 (US$0.33), compared with RMB0.95 for the same period of 2019. Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders was RMB2.23 (US$0.32), compared with RMB0.94 for the same period of 2019.

Balance Sheet

As of June 30, 2020, Youdao's cash, cash equivalents, time deposits and short-term investments totaled RMB1.8 billion (US$253.4 million), compared with RMB1.6 billion as of December 31, 2019. The increase was primarily due to an increased amount of gross billings from operations. For the second quarter of 2020, net cash provided by operating activities was RMB93.0 million (US$13.2 million), capital expenditures totaled RMB4.2 million, and depreciation and amortization expenses amounted to RMB3.6 million.

As of June 30, 2020, the Company's contract liabilities, which mainly consist of deferred revenues generated from Youdao's online courses, were RMB711.5 million (US$100.7 million), an increase of 55.8% from RMB456.8 million as of December 31, 2019.

Conference Call

Youdao's management team will host a teleconference call with simultaneous webcast at 6:30 a.m. Eastern Time on Thursday, August 13, 2020 (Beijing/Hong Kong Time: 6:30 p.m., Thursday, August 13, 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:

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 August 20, 2020:

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 RMB7.0651 to US$1.00, the exchange rate on June 30, 2020 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ 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:
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

View original content:http://www.prnewswire.com/news-releases/youdao-reports-second-quarter-2020-unaudited-financial-results-301111615.html