Form 6-K Youdao, Inc. For: May 24

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May, 2022.

 

Commission file number 001-39087

 

 

Youdao, Inc.

(Translation of registrant’s name into English)

 

 

No. 399, Wangshang Road, Binjiang District
Hangzhou 310051, People’s Republic of China
+86 0571-8985-2163 

(Address of principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F  ☒          Form 40-F  ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

 

  

 

EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release

 

 

SignatureS

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

			Youdao, Inc.
Date	May 24, 2022		By	/s/ Feng Zhou
				Name:	Feng Zhou
				Title:	Chief Executive Officer, Director

 

 

Exhibit 99.1

 

 

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 Reports First Quarter 2022 Unaudited Financial Results

 

Hangzhou, China – May 24, 2022 – 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 first quarter ended March 31, 2022.

 

First Quarter 2022 Financial Highlights¹

 

●

Total net revenues were RMB1.2 billion (US$189.4 million), representing a 26.6% increase from the same period in 2021.

 

o

Net revenues from learning services were RMB826.0 million (US$130.3 million), representing a 36.1% increase from the same period in 2021.

 

o

Net revenues from smart devices were RMB253.2 million (US$39.9 million), representing a 25.4% increase from the same period in 2021.

 

o

Net revenues from online marketing services were RMB121.4 million (US$19.1 million), representing a 12.7% decrease from the same period in 2021.

 

●

Gross margin was 53.5%, compared to 52.4% for the same period in 2021.

 

“We are pleased to report our solid performance in the first quarter of 2022 following the cessation of our K-9 academic AST business at the end of December 2021, with record-breaking revenues and overall gross margin, as well as a significant improvement in operating loss,” said Dr. Feng Zhou, Chief Executive Officer and a Director of Youdao. “Our transition is smooth. We were able to grow our smart devices and STEAM courses as originally planned. Our net revenue was RMB1.2 billion, up 26.6% year-over-year and 14.5% quarter-over-quarter, achieving new record-high revenue. We also achieved new record in quarterly gross margin with an overall gross margin of 53.5% in this quarter. Furthermore, we narrowed operating loss by 49.6% quarter-over-quarter to RMB125.1 million, from a loss of RMB248.3 million in Q4 2021, and by 41.6% year-over-year from a loss of RMB214.3 million in Q1 2021. These results amid a challenging macro environment clearly reflect our strengthening fundamentals as well as the effectiveness of our strategy.”

 

“Looking ahead, we will continue to implement our strategy of four growth pillars, i.e. smart devices, STEAM courses, vocational education and education digitization. The first two, smart devices and STEAM courses, are at a larger scale and already contribute a significant portion of our business. The latter two are making good progress in terms of product development and business model validation. We expect to see challenges, including this new wave of COVID pandemic in China. We will endeavor to overcome them through our diversity of businesses, large user bases and deep technical roots for innovation,” 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.

 

 

First Quarter of 2022 Financial Results

 

Net Revenues

 

Net revenues for the first quarter of 2022 were RMB1.2 billion (US$189.4 million), representing a 26.6% increase from RMB948.0 million for the same period of 2021.

 

Net revenues from learning services were RMB826.0 million (US$130.3 million) for the first quarter of 2022, representing a 36.1% increase from RMB607.0 million for the same period of 2021. The year-over-year growth from learning services was driven by the growth in active users compared with the same period of 2021.

 

Net revenues from smart devices were RMB253.2 million (US$39.9 million) for the first quarter of 2022, representing a 25.4% increase from RMB201.9 million for the same period of 2021, primarily driven by the increase in sales volume of Youdao Dictionary Pen in the first quarter of 2022.

 

Net revenues from online marketing services were RMB121.4 million (US$19.1 million) for the first quarter of 2022, representing a 12.7% decrease from RMB139.1 million for the same period of 2021. The decrease was mainly attributable to the curtailed advertising budget of partial advertising customers.

 

Gross Profit and Gross Margin

 

Gross profit for the first quarter of 2022 was RMB641.8 million (US$101.2 million), representing a 29.3% increase from RMB496.4 million for the same period of 2021. Gross margin increased to 53.5% for the first quarter of 2022 from 52.4% for the same period of 2021.

 

Gross margin for learning services increased to 63.9% for the first quarter of 2022 from 63.4% for the same period of 2021.

 

Gross margin for smart devices decreased to 33.7% for the first quarter of 2022 from 44.1% for the same period of 2021. The decrease was due to more sales contributed from offline distributors, which had lower gross margin.

 

Gross margin for online marketing services was 23.7% for the first quarter of 2022, compared with 16.4% for the same period of 2021. The increase was mainly attributable to the improved distribution of third parties’ internet properties, which improved gross margin over the same period of 2021.

 

Operating Expenses

 

Total operating expenses for the first quarter of 2022 were RMB766.9 million (US$121.0 million), compared with RMB710.8 million for the same period of last year.

 

Sales and marketing expenses for the first quarter of 2022 were RMB506.4 million (US$79.9 million), representing a decrease of 7.7% from RMB548.7 million for the same period of 2021. This decrease was due to the reduction in marketing expenditures in tutoring services in the first quarter of 2022 due to the changing regulatory environment, and partially offset by the increase in marketing expenditures in smart devices.

 

Research and development expenses for the first quarter of 2022 were RMB203.0 million (US$32.0 million), representing an increase of 59.0% from RMB127.7 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 sectors.

 

General and administrative expenses for the first quarter of 2022 were RMB57.6 million (US$9.1 million), representing an increase of 67.6% from RMB34.3 million for the same period of 2021. The increase was mainly attributable to an increase in employee headcount and related expenses in the first quarter of 2022.

 

Loss from Operations

 

Loss from operations for the first quarter of 2022 was RMB125.1 million (US$19.7 million), compared with RMB214.3 million for the same period in 2021. The margin of loss from operations was 10.4%, compared with 22.6% 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 first quarter of 2022 was RMB95.4 million (US$15.1 million), compared with RMB219.3 million for the same period of last year. Non-GAAP net loss from continuing operations attributable to Youdao’s ordinary shareholders for the first quarter of 2022 was RMB70.9 million (US$11.2 million), compared with RMB204.8 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 first quarter of 2022 was RMB0.77 (US$0.12), compared with RMB1.85 for the same period of 2021. Non-GAAP basic and diluted net loss from continuing operations per ADS attributable to ordinary shareholders was RMB0.57 (US$0.09), compared with RMB1.73 for the same period of 2021.

 

Balance Sheet

 

As of March 31, 2022, Youdao’s cash, cash equivalents, restricted cash, time deposits and short-term investments totaled RMB1.2 billion (US$183.0 million), compared with RMB1.6 billion as of December 31, 2021. For the first quarter of 2022, net cash used in continuing operating activities was RMB425.6 million (US$67.1 million), capital expenditures totaled RMB6.5 million (US$1.0 million), and depreciation and amortization expenses amounted to RMB8.2 million (US$1.3 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. In support of Youdao’s future business, NetEase Group has agreed to provide financial support for Youdao’s continuing operations.

 

As of March 31, 2022, the Company’s contract liabilities, which mainly consisted of deferred revenues generated from Youdao’s learning services, were RMB729.5 million (US$115.1 million), compared with RMB1.1 billion as of December 31, 2021.

 

Conference Call

 

Youdao’s management team will host a teleconference call with simultaneous webcast at 7:00 a.m. Eastern Time on Tuesday, May 24, 2022 (Beijing/Hong Kong Time: 7:00 p.m., Tuesday, May 24, 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:	8183251

 

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 31, 2022:

 

United States:	+1-877-344-7529
International:	+1-412-317-0088
Replay Access Code:	8183251

 

 

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 intangible assets from business combination and impairment of long-term investments, adjusted for GAAP to non-GAAP by 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 does 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 RMB6.3393 to US$1.00, the exchange rate on March 31, 2022 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ 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.

 

 

YOUDAO, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(RMB and USD in thousands)

 

		As of December 31, 2021		As of March 31, 2022		As of March 31, 2022
		RMB		RMB		USD (1)
Assets
Current assets:
Cash and cash equivalents		322,777		415,164		65,491
Time deposits		268		273		43
Restricted cash		749,770		738,234		116,454
Short-term investments		503,831		6,124		966
Accounts receivable, net		248,339		290,426		45,814
Inventories, net		255,411		213,726		33,714
Amounts due from NetEase Group		6,192		9,997		1,577
Prepayment and other current assets		182,577		196,908		31,061
Assets held for sale		497		-		-
Total current assets		2,269,662		1,870,852		295,120
Non-current assets:
Property, equipment and software, net		80,315		108,905		17,179
Operating lease right-of-use assets, net		118,104		96,294		15,190
Long-term investments		32,518		27,509		4,339
Goodwill		109,944		109,944		17,343
Other assets, net		22,436		35,894		5,662
Assets held for sale		1,088		-		-
Total non-current assets		364,405		378,546		59,713
Total assets		2,634,067		2,249,398		354,833
Liabilities, Mezzanine Equity and Shareholders' Deficits
Current liabilities:
Accounts payables		161,006		132,984		20,978
Payroll payable		277,383		186,444		29,411
Amounts due to NetEase Group		83,041		98,246		15,498
Contract liabilities		1,065,639		729,468		115,071
Taxes payable		53,323		28,696		4,527
Accrued liabilities and other payables		515,567		598,812		94,460
Short-term loans from NetEase Group		878,000		878,000		138,501
Total current liabilities		3,033,959		2,652,650		418,446
Non-current liabilities:
Long-term lease liabilities		73,070		51,578		8,136
Long-term loans from NetEase Group		255,028		349,151		55,077
Other non-current liabilities		2,411		4,307		679
Total non-current liabilities		330,509		405,036		63,892
Total liabilities		3,364,468		3,057,686		482,338
Mezzanine equity		78,592		78,895		12,445
Shareholders' deficit:
Youdao's shareholders' deficit		(807,067)		(884,206)		(139,480)
Noncontrolling interests		(1,926)		(2,977)		(470)
Total shareholders' deficit		(808,993)		(887,183)		(139,950)
Total liabilities, mezzanine equity and shareholders’ deficit		2,634,067		2,249,398		354,833

 

Note 1:

The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB6.3393 on the last trading day of March (March 31, 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
		March 31, 2021		December 31, 2021		March 31, 2022		March 31, 2022
		RMB		RMB		RMB		USD (1)
Net revenues:
Learning services		606,960		579,259		826,011		130,300
Smart devices		201,919		317,702		253,160		39,935
Online marketing services		139,094		151,836		121,370		19,146
Total net revenues		947,973		1,048,797		1,200,541		189,381
Cost of revenues (2)		(451,538)		(603,504)		(558,719)		(88,136)
Gross profit		496,435		445,293		641,822		101,245
Operating expenses:
Sales and marketing expenses (2)		(548,744)		(420,437)		(506,385)		(79,880)
Research and development expenses (2)		(127,698)		(170,245)		(202,980)		(32,019)
General and administrative expenses (2)		(34,339)		(46,112)		(57,561)		(9,081)
Impairment of intangible assets from business combination		-		(56,778)		-		-
Total operating expenses		(710,781)		(693,572)		(766,926)		(120,980)
Loss from operations		(214,346)		(248,279)		(125,104)		(19,735)
Interest income		3,074		3,012		2,034		321
Interest expense		(7,617)		(8,428)		(8,585)		(1,354)
Others, net		354		12,339		36,053		5,687
Loss before tax		(218,535)		(241,356)		(95,602)		(15,081)
Income tax (expense)/benefit		(1,615)		556		(566)		(89)
Net loss from continuing operations		(220,150)		(240,800)		(96,168)		(15,170)
Net (loss)/income from discontinued operations		(106,508)		199,290		(6,105)		(963)
Net loss		(326,658)		(41,510)		(102,273)		(16,133)
Net loss attributable to noncontrolling interests		867		24,897		748		118
Net loss attributable to ordinary shareholders of the Company		(325,791)		(16,613)		(101,525)		(16,015)
Including:
Net loss from continuing operations attributable to ordinary shareholders of the Company		(219,283)		(215,903)		(95,420)		(15,052)
Net (loss)/income from discontinued operations attributable to ordinary shareholders of the Company		(106,508)		199,290		(6,105)		(963)
Basic net (loss)/income per ADS		(2.75)		(0.13)		(0.82)		(0.13)
-Continuing operations		(1.85)		(1.75)		(0.77)		(0.12)
-Discontinued operations		(0.90)		1.62		(0.05)		(0.01)
Diluted net (loss)/income per ADS		(2.75)		(0.13)		(0.82)		(0.13)
-Continuing operations		(1.85)		(1.75)		(0.77)		(0.12)
-Discontinued operations		(0.90)		1.62		(0.05)		(0.01)
Shares used in computing basic net (loss)/income per ADS		118,297,304		123,193,273		123,330,958		123,330,958
Shares used in computing diluted net (loss)/income per ADS		118,297,304		123,193,273		123,330,958		123,330,958

 

 

Note 1:

The conversion of Renminbi (RMB) into United States dollars (USD) is based on the noon buying rate of USD1.00=RMB6.3393 on the last trading day of March (March 31, 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:

 

		Three Months Ended
		March 31, 2021		December 31, 2021		March 31, 2022		March 31, 2022
		RMB		RMB		RMB		USD (1)
Cost of revenues		1,442		3,249		2,180		344
Sales and marketing expenses		1,990		2,800		3,090		487
Research and development expenses		7,395		8,735		8,862		1,398
General and administrative expenses		3,648		5,449		5,384		850

 

 

YOUDAO, INC.

UNAUDITED ADDITIONAL INFORMATION

(RMB and USD in thousands, except for percentages)

 

		Three Months Ended
		March 31, 2021		December 31, 2021		March 31, 2022		March 31, 2022
		RMB		RMB		RMB		USD
Net revenues
Learning services		606,960		579,259		826,011		130,300
Smart devices		201,919		317,702		253,160		39,935
Online marketing services		139,094		151,836		121,370		19,146
Total net revenues		947,973		1,048,797		1,200,541		189,381
Cost of revenues
Learning services		222,302		281,433		298,297		47,056
Smart devices		112,914		219,703		167,804		26,470
Online marketing services		116,322		102,368		92,618		14,610
Total cost of revenues		451,538		603,504		558,719		88,136
Gross margin
Learning services		63.4%		51.4%		63.9%		63.9%
Smart devices		44.1%		30.8%		33.7%		33.7%
Online marketing services		16.4%		32.6%		23.7%		23.7%
Total gross margin		52.4%		42.5%		53.5%		53.5%

 

 

YOUDAO, INC.

 

UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP RESULTS

 

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

 

		Three Months Ended
		March 31, 2021		December 31, 2021		March 31, 2022		March 31, 2022
		RMB		RMB		RMB		USD
Net loss from continuing operations attributable to ordinary shareholders of the Company		(219,283)		(215,903)		(95,420)		(15,052)
Add: share-based compensation		14,475		20,233		19,516		3,079
amortization of intangible assets from business combination		-		1,976		-		-
impairment of long-term investment		-		-		5,000		789
impairment of intangible assets from business combination		-		56,778		-		-
Less: tax effects on non-GAAP adjustments		-		(8,813)		-		-
GAAP to non-GAAP reconciling items for the loss attributable to noncontrolling interests		-		(22,473)		-		-
Non-GAAP net loss from continuing operations attributable to ordinary shareholders of the Company		(204,808)		(168,202)		(70,904)		(11,184)
Non-GAAP basic net loss from continuing operations per ADS		(1.73)		(1.37)		(0.57)		(0.09)
Non-GAAP diluted net loss from continuing operations per ADS		(1.73)		(1.37)		(0.57)		(0.09)

 

 

 

 

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