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Youdao Reports First Quarter 2021 Unaudited Financial ResultsHANGZHOU, China, May 18, 2021 /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, 2021. First Quarter 2021 Financial Highlights
"We achieved sound and sustainable growth in the first quarter this year with a record net revenues of RMB1.3 billion. Our margins are also greatly improving with our gross profit margin and operating loss margin reaching the best levels since our public listing. Overall gross profit margin reached 57.3% in the first quarter, up from 43.5% in the first quarter of 2020. Simultaneously, we narrowed our operating loss margin to 23.9% in the first quarter this year, compared with 32.5% in the first quarter of 2020," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao. "Looking ahead, we are confident we can build on our position as a top-quality course provider and producer of industry-leading intelligent learning services and products to meet our customers' needs. Our diversified business model, along with products and technologies that improve learning efficiency, will help us navigate the evolving AST and EdTech market," Dr. Zhou concluded. First Quarter 2021 Financial Results Net Revenues Net revenues for the first quarter of 2021 were RMB1.3 billion (US$204.5 million), representing a 147.5% increase from RMB541.4 million for the same period of 2020. Net revenues from learning services were RMB998.9 million (US$152.5 million) for the first quarter of 2021, representing a 156.8% increase from RMB389.0 million for the same period of 2020. 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 the paid student enrollments for K-12 courses of Youdao Premium Courses. The paid student enrollments for K-12 courses of Youdao Premium Courses increased by 100.3% year-over-year to 306,000 in the first quarter of 2021. Net revenues from learning products were RMB201.9 million (US$30.8 million) for the first quarter of 2021, a 279.8% increase from RMB53.2 million for the same period in 2020, which was primarily driven by the substantially increased sales volume of Youdao Dictionary Pen. Net revenues from online marketing services were RMB139.1 million (US$21.2 million) for the first quarter of 2021, representing a 40.1% increase from RMB99.3 million for the same period in 2020. The year-over-year increase in revenues from online marketing services was attributable to the increase in the sales of performance-based advertisement through third parties' internet properties. Gross Profit and Gross Margin Gross profit for the first quarter of 2021 was RMB767.5 million (US$117.1 million), representing a 225.6% increase from RMB235.7 million for the same period of 2020. Gross margin increased to 57.3% for the first quarter of 2021 from 43.5% for the same period of 2020. Gross margin for learning services increased to 65.6% for the first quarter of 2021 from 51.9% for the same period of 2020. The increase was due to improved economies of scale and the continuous optimization of Youdao's faculty compensation structure. Gross margin for learning products increased to 44.1% for the first quarter of 2021 from 25.6% for the same period of 2020. The improvement was mainly attributable to the substantially increased sales volume of Youdao Dictionary Pen 3.0, which carried a higher gross margin profile than other learning products. Gross margin for online marketing services was 16.4% for the first quarter of 2021, compared with 20.5% for the same period of 2020. The decrease was mainly attributable to the increase in the sales of performance-based advertisements through third parties' internet properties, which typically had a lower gross margin profile. Operating Expenses Total operating expenses for the first quarter of 2021 were RMB1.1 billion (US$166.1 million), representing an increase of 164.3%, compared with RMB411.7 million for the same period of last year. Sales and marketing expenses for the first quarter of 2021 were RMB883.9 million (US$134.9 million), representing an increase of 195.5% from RMB299.2 million for the same period of 2020. This increase was mainly driven by intensified sales and marketing efforts associated with student acquisition and branding enhancement, as well as increased compensation expenses incurred due to the expansion of the sales and marketing team for Youdao's online courses. Research and development expenses for the first quarter of 2021 were RMB155.1 million (US$23.7 million), representing an increase of 84.4% from RMB84.1 million for the same period of 2020. The increase was primarily due to increased payroll-related expenses including share-based compensation expenses associated with an increased number of course development and technology professionals, as well as increased server and technical expenses due to the increased scale of online courses. General and administrative expenses for the first quarter of 2021 were RMB49.4 million (US$7.5 million), representing an increase of 73.4% from RMB28.5 million for the same period of 2020. The increase was mainly attributable to the increase in employee headcount and related expenses in the first quarter of 2021. Loss from Operations Loss from operations for the first quarter of 2021 was RMB320.9 million (US$49.0 million), compared with RMB176.0 million for the same period in 2020. The margin of loss from operations was 23.9%, compared with 32.5% 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 2021 was RMB325.8 million (US$49.7 million), compared with RMB169.4 million for the same period of last year. Non-GAAP net loss attributable to Youdao's ordinary shareholders for the first quarter of 2021 was RMB307.8 million (US$47.0 million), compared with RMB161.9 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 2021 was RMB2.75 (US$0.42), compared with RMB1.52 for the same period of 2020. Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders was RMB2.60 (US$0.40), compared with RMB1.45 for the same period of 2020. Balance Sheet As of March 31, 2021, Youdao's cash, cash equivalents, time deposits and short-term investments totaled RMB2.2 billion (US$333.7 million), compared with RMB1.2 billion as of December 31, 2020. For the first quarter of 2021, net cash used in operating activities was RMB517.8 million (US$79.0 million), capital expenditures totaled RMB11.4 million (US$1.7 million), and depreciation and amortization expenses amounted to RMB5.4 million (US$0.8 million). As of March 31, 2021, the Company's contract liabilities, which mainly consisted of deferred revenues generated from Youdao's online courses, were RMB1.2 billion (US$186.5 million), compared with RMB1.4 billion as of December 31, 2020. Revolving Loan Facilities In April 2021, the Company entered into a three-year US$300 million revolving loan facility agreement with its parent company, NetEase, Inc. ("NetEase"). In addition, a group of banks provided a commitment letter to the Company with a three-year US$150 million revolving loan facility under the guarantee of NetEase. The Company plans to use the proceeds from these credit facilities for general corporate and working capital purposes. Conference Call Youdao's management team will host a teleconference call with simultaneous webcast at 7:00 a.m. Eastern Time on Tuesday, May 18, 2021 (Beijing/Hong Kong Time: 7:00 p.m., Tuesday, May 18, 2021). 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 May 25, 2021:
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 mainly 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 RMB6.5518 to US$1.00, the exchange rate on March 31, 2021 set forth in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ 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: Jeffrey Wang The Piacente Group, Inc. In the United States: The Piacente Group, Inc.
SOURCE Youdao, Inc. 
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