Gaotu Techedu Reports Q3 Revenue of RMB 606M, Net Loss of RMB 44.8M; Announces $30M Share Buyback

Gaotu Techedu Inc. (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 third quarter ended September 30, 2022.

Third Quarter 2022 Highlights[1]

• Net revenues were RMB606.2 million, compared with net revenues of RMB1,114.9 million in the same period of 2021.
• Gross billings[2] were RMB607.0 million, compared with gross billings of RMB301.6 million in the same period of 2021.
• Net loss was RMB61.4 million, compared with net loss of RMB1,044.6 million in the same period of 2021.
• Non-GAAP net loss was RMB44.8 million, compared with non-GAAP net loss of RMB989.3 million in the same period of 2021.

Third Quarter 2022 Key Financial and Operating Data(In thousands of RMB, except for percentages)

Nine Months Ended September 30, 2022 Highlights

• Net revenues were RMB1,868.6 million, compared with net revenues of RMB5,287.5 million in the same period of 2021.
• Gross billings were RMB1,536.8 million, compared with gross billings of RMB4,177.7 million in the same period of 2021.
• Net loss was RMB57.4 million, compared with net loss of RMB3,389.3 million in the same period of 2021.
• Non-GAAP net income was RMB48.4 million, compared with non-GAAP net loss of RMB3,082.6 million in the same period of 2021.

First Nine Months 2022 Key Financial and Operating Data(In thousands of RMB, except for percentages)

Larry Xiangdong Chen, the Company's founder, Chairman and CEO, commented, "The gradual and stable increase of our net revenues is solid evidence that our new businesses are growing continuously and sustainably, which boosts our confidence in our future, and indicates that our organization is resilient and our operations are efficient. Guided by the strategy of profitable growth, we expect the growth momentum of our businesses to continue, and to see a sizable positive net operating cashflow next quarter.

Further, to demonstrate our management's unwavering confidence in our company's future development, our board of directors today authorized an up to US$30 million share repurchase program. I also intend to personally purchase up to US$20 million of our shares. Going forward, we will continue to stay true to our original aspiration to educate, continue to create value for our shareholders, continue to nurture talents for our society and continue to contribute to the educational development of China."

Shannon Shen, CFO of the Company, added, "As we continued to explore new businesses post restructuring against the backdrop of external challenges and uncertainties, we are pleased to report that our business sustained its continuous and healthy growth as we expected, driven by our deepening understanding of the vertical markets, relentless efforts to improve our operational efficiency and constant investment in teaching quality. Our net revenues in the third quarter recorded a 12.7% quarter-over-quarter increase to RMB606.2 million, and our gross billings increased 101.3% year-over-year to RMB607.0 million. Our businesses exhibit certain seasonality, with the third quarter's increase in gross billings largely contributed by new customers.

Further, our capital position remains strong. As of September 30, 2022, we had a total of approximately RMB3.3 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 Third Quarter of 2022

Net Revenues

Net revenues decreased by 45.6% to RMB606.2 million from RMB1,114.9 million in the third quarter of 2021. The decrease was mainly due to the organizational adjustments and business restructuring the Company performed to comply with government regulations, including the cessation of compulsory education academic subject tutoring services to students ("Business Restructuring").

Cost of Revenues

Cost of revenues decreased by 76.4% to RMB168.8 million from RMB715.2 million in the third 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 decreases in staff related cost, rental expenses, as well as teaching materials and bandwidth cost.

Gross Profit and Gross Margin

Gross profit was RMB437.4 million, compared with RMB399.7 million in the third quarter of 2021. Gross profit margin increased to 72.2% from 35.9% in the same period of 2021.

Non-GAAP gross profit was RMB439.3 million, compared with RMB436.9 million in the same period of 2021. Non-GAAP gross profit margin increased to 72.5% from 39.2% in the same period of 2021.

Operating Expenses

Operating expenses decreased by 65.8% to RMB506.9 million from RMB1,481.1 million in the third quarter of 2021. The decline was primarily due to the reduction of employees as a result of the Business Restructuring, as well as the losses incurred during the impairment assessment of long-lived assets and disposal of assets the Company performed in the third quarter of 2021. Moreover, the expenditure on branding and marketing activities on academic subject tutoring services also showed a large decline as a result of the changes of regulatory environment.

• Selling expenses decreased to RMB336.8 million from RMB826.4 million in the third quarter of 2021.
• Research and development expenses decreased to RMB106.5 million from RMB336.3 million in the third quarter of 2021.
• General and administrative expenses decreased to RMB63.6 million from RMB164.7 million in the third quarter of 2021.
• Impairment loss on long-lived assets decreased to nil from RMB28.6 million in the third quarter of 2021.
• Disposal loss on assets decreased to nil from RMB125.0 million in the third quarter of 2021.

Loss from Operations

Loss from operations was RMB69.6 million, compared with loss from operations of RMB1,081.3 million in the third quarter of 2021, which was primarily due to a large decrease in operation related cost and expenses as a result of the Business Restructuring, as well as no impairment loss or disposal loss on assets related to Business Restructuring incurred in the third quarter.

Non-GAAP loss from operations was RMB53.0 million, compared with non-GAAP loss from operations of RMB1,026.0 million in the third quarter of 2021.

Interest Income and Realized Gains from Investments

Interest income and realized gains from investments, on aggregate, was RMB12.1 million, compared with a total of RMB35.0 million in the third quarter of 2021.

Other Income (Expenses)

Other expenses were RMB3.4 million, compared with other income of RMB1.3 million in the third quarter of 2021.

Net Loss

Net loss was RMB61.4 million, compared with net loss of RMB1,044.6 million in the third quarter of 2021.

Non-GAAP net loss was RMB44.8 million, compared with non-GAAP net loss of RMB989.3 million in the third quarter of 2021.

Cash Flow

Net operating cash outflow for the third quarter of 2022 was RMB34.7 million. The operating cash outflow in the third quarter was mainly due to staff compensation and marketing expenditure paid to enhance our market share.

Basic and Diluted Net Loss per ADS

Basic and diluted net loss per ADS were both RMB0.24 in the third quarter of 2022.

Non-GAAP basic and diluted net loss per ADS were both RMB0.17 in the third quarter of 2022.

Share Outstanding

As of September 30, 2022, the Company had 172,679,700 ordinary shares outstanding.

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

As of September 30, 2022, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB3,342.9 million in aggregate, compared with a total of RMB3,671.1 million as of December 31, 2021.

Other Payables

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

Share Repurchase Program

The Company's board of directors today authorized a share repurchase program under which the Company may repurchase up to US$30 million of its common shares, including shares represented by American depositary shares, effective until November 22, 2025. Additionally, Mr. Larry Xiangdong Chen, the Company's founder, Chairman and CEO, intends to personally purchase up to US$20 million of the Company's shares.

The Company's proposed repurchases may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations. The Company's board of directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size. The Company plans to fund repurchases from its cash balance.

Concluded SEC Investigation

Regarding the SEC investigation that followed the publication of various short sellers' reports about the Company in early- to mid- 2020, and which the Company previously disclosed in its 2021 Form 20-F, the SEC notified the Company, by releasing a closing letter dated October 19, 2022, that the SEC had concluded its investigation into the Company and that, based on the information that the SEC had as of the date of its letter, the SEC did not intend to recommend an enforcement action against the Company.

Business Outlook

Based on the Company's current estimates, total net revenues for the fourth quarter of 2022 are expected to be between RMB608 million and RMB628 million, representing a decrease of 50.7% to 52.3% 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 Tuesday, November 22, 2022 (9:00 PM on Tuesday, November 22, 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 November 29, 2022. The dial-in details are:

Additionally, a live and archived webcast of this conference call will be available at https://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.