Gaotu(GOTU) - 2023 Q1 - Quarterly Report

Company Announcement & Highlights This section summarizes key financial and operational achievements for Q4 and FY 2022, alongside management's strategic commentary Fourth Quarter 2022 Highlights Gaotu Techedu reported a 50.6% year-over-year decrease in Q4 2022 net revenues to RMB629.6 million, with significant declines in net income, offset by a 93.9% increase in net operating cash inflow | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | Pct. Change | | :------------------------ | :-------------------- | :-------------------- | :---------- | | Net revenues | 629.6 | 1,274.3 | (50.6)% | | Gross billings | 997.4 | 1,006.5 | (0.9)% | | Net income | 70.6 | 285.9 | (75.3)% | | Non-GAAP net income | 87.4 | 324.4 | (73.1)% | | Net operating cash inflow | 476.7 | 245.8 | 93.9% | Fiscal Year 2022 Highlights FY 2022 saw net revenues decrease by 61.9% to RMB2,498.2 million, but the company achieved a net income of RMB13.2 million, a significant turnaround from the prior year's loss, with positive operating cash flow | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | Pct. Change | | :-------------------------------- | :-------------------- | :-------------------- | :---------- | | Net revenues | 2,498.2 | 6,561.7 | (61.9)% | | Gross billings | 2,534.2 | 5,184.2 | (51.1)% | | Net (loss)/income | 13.2 | (3,103.5) | NM | | Non-GAAP net (loss)/income | 135.8 | (2,758.2) | NM | | Net operating cash (outflow)/inflow | 54.5 | (4,185.8) | NM | Management Commentary Management highlighted three consecutive quarters of revenue growth, achieving both quarterly and annual profitability, driven by strong operational efficiency and a 64.3% QoQ increase in gross billings - Achieved steady quarter-over-quarter revenue growth for the third consecutive quarter and attained profitability on both a quarterly and an annual basis[5] - Gross billings increased by a considerable 64.3% quarter-over-quarter to approximately RMB1.0 billion in Q4 2022[5] - Generated a meaningful net operating cash inflow of RMB476.7 million in Q4 2022, with a net income margin of 11.2% and a non-GAAP net income margin of 13.9%[5] - CEO Larry Chen increased his shareholding by an aggregate of 3.6 million ADSs in 2022, highlighting management's firm confidence[5] Financial Results for the Fourth Quarter of 2022 This section details the company's financial performance for the fourth quarter of 2022 across key revenue, expense, and profitability metrics Net Revenues Net revenues decreased by 50.6% year-over-year to RMB629.6 million, primarily due to organizational adjustments and business restructuring, including the cessation of compulsory education academic subject tutoring services | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :----------- | :-------------------- | :-------------------- | :--------- | | Net revenues | 629.6 | 1,274.3 | (50.6)% | - The decrease was mainly due to organizational adjustments and business restructuring, including the cessation of compulsory education academic subject tutoring services[6] Cost of Revenues Cost of revenues decreased by 58.8% year-over-year to RMB159.3 million, driven by reductions in staff, offices, bandwidth, rental, and depreciation expenses following the business restructuring | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :--------------- | :-------------------- | :-------------------- | :--------- | | Cost of revenues | 159.3 | 386.7 | (58.8)% | - 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, bandwidth cost, as well as rental and depreciation expenses[7] Gross Profit and Gross Margin Gross profit decreased to RMB470.3 million, but gross profit margin improved to 74.7% from 69.7% year-over-year. Non-GAAP gross profit also decreased, while non-GAAP gross profit margin increased to 75.3% from 71.3% year-over-year | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :--------------------- | :-------------------- | :-------------------- | :--------- | | Gross profit | 470.3 | 887.6 | (47.0)% | | Gross profit margin | 74.7% | 69.7% | +5.0 ppts | | Non-GAAP gross profit | 473.9 | 908.2 | (47.8)% | | Non-GAAP gross profit margin | 75.3% | 71.3% | +4.0 ppts | Operating Expenses Total operating expenses decreased by 23.2% year-over-year to RMB483.6 million, primarily due to reduced staff, offices, branding/marketing activities, and the absence of long-lived asset impairment and disposal losses incurred in Q4 2021. Selling, R&D, and G&A expenses all decreased | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :----------------------------------- | :-------------------- | :-------------------- | :--------- | | Total operating expenses | 483.6 | 629.3 | (23.2)% | | Selling expenses | 289.8 | 373.0 | (22.3)% | | Research and development expenses | 111.4 | 125.0 | (10.9)% | | General and administrative expenses | 82.4 | 95.9 | (14.1)% | | Impairment loss on long-lived assets | 0 | 14.1 | (100)% | | Disposal loss on assets | 0 | 21.3 | (100)% | - The decline was primarily due to the reduction of employees and offices, a decline in expenditures for branding and marketing activities, and the absence of impairment loss on long-lived assets and disposal loss on assets compared to Q4 2021[9][11] Income/(Loss) from Operations The company reported an operating loss of RMB13.2 million in Q4 2022, a significant decline from an operating income of RMB258.3 million in Q4 2021. Non-GAAP income from operations also decreased substantially to RMB3.5 million | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :------------------------------ | :-------------------- | :-------------------- | :--------- | | Income/(loss) from operations | (13.2) | 258.3 | (105.1)% | | Non-GAAP income from operations | 3.5 | 296.8 | (98.8)% | Interest Income and Realized Gains from Investments Aggregate interest income and realized gains from investments increased to RMB22.4 million in Q4 2022 from RMB15.9 million in Q4 2021 | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :------------------------------------------ | :-------------------- | :-------------------- | :--------- | | Interest income and realized gains from investments | 22.4 | 15.9 | +40.9% | Other Income Other income more than doubled to RMB26.9 million in Q4 2022 from RMB11.2 million in Q4 2021 | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :----------- | :-------------------- | :-------------------- | :--------- | | Other income | 26.9 | 11.2 | +140.2% | Net Income Net income significantly decreased to RMB70.6 million in Q4 2022 from RMB285.9 million in Q4 2021. Non-GAAP net income also saw a substantial decline to RMB87.4 million | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :------------------ | :-------------------- | :-------------------- | :--------- | | Net income | 70.6 | 285.9 | (75.3)% | | Non-GAAP net income | 87.4 | 324.4 | (73.1)% | Cash Flow Net operating cash inflow increased significantly by 93.9% year-over-year to RMB476.7 million in Q4 2022, primarily driven by a sizable quarter-over-quarter increase in gross billings | Metric | Q4 2022 (RMB million) | Q4 2021 (RMB million) | YoY Change | | :------------------------ | :-------------------- | :-------------------- | :--------- | | Net operating cash inflow | 476.7 | 245.8 | 93.9% | - The operating cash inflow in the fourth quarter was mainly due to sizable quarter-over-quarter increase in gross billings[16] Basic and Diluted Net Income per ADS Basic and diluted net income per ADS were both RMB0.27 in Q4 2022. Non-GAAP basic and diluted net income per ADS were RMB0.34 and RMB0.33, respectively | Metric | Q4 2022 (RMB) | | :---------------------------- | :------------ | | Basic Net Income per ADS | 0.27 | | Diluted Net Income per ADS | 0.27 | | Non-GAAP Basic Net Income per ADS | 0.34 | | Non-GAAP Diluted Net Income per ADS | 0.33 | Share Outstanding As of December 31, 2022, the company had 172,858,544 ordinary shares outstanding - As of December 31, 2022, the Company had 172,858,544 ordinary shares outstanding[18] Cash, Cash Equivalents, Restricted Cash and Short-term Investments The aggregate balance of cash, cash equivalents, restricted cash, and short-term investments increased slightly to RMB3,743.8 million as of December 31, 2022, from RMB3,671.1 million at the end of 2021 | Metric | Dec 31, 2022 (RMB million) | Dec 31, 2021 (RMB million) | YoY Change | | :---------------------------------------------------------- | :------------------------- | :------------------------- | :--------- | | Cash, Cash Equivalents, Restricted Cash and Short-term Investments | 3,743.8 | 3,671.1 | +2.0% | Financial Results for the Fiscal Year of 2022 This section presents the company's full fiscal year 2022 financial performance, highlighting significant year-over-year changes in revenues, expenses, and profitability Net Revenues Net revenues for FY 2022 decreased by 61.9% year-over-year to RMB2,498.2 million, primarily due to the business restructuring and a decline in enrollments | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :----------- | :-------------------- | :-------------------- | :--------- | | Net revenues | 2,498.2 | 6,561.7 | (61.9)% | - The decrease was mainly due to the Business Restructuring, which resulted in a decline in enrollments[19] Cost of Revenues Cost of revenues for FY 2022 decreased by 70.8% year-over-year to RMB701.1 million, mainly due to reductions in staff, offices, rental expenses, teaching materials, and bandwidth costs following the business restructuring | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :--------------- | :-------------------- | :-------------------- | :--------- | | Cost of revenues | 701.1 | 2,397.6 | (70.8)% | - The decrease 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[20] Gross Profit and Gross Margin Gross profit for FY 2022 decreased to RMB1,797.2 million, but gross profit margin significantly improved to 71.9% from 63.5% year-over-year. Non-GAAP gross profit also decreased, while non-GAAP gross profit margin increased to 73.6% from 65.3% year-over-year | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :--------------------- | :-------------------- | :-------------------- | :--------- | | Gross profit | 1,797.2 | 4,164.1 | (56.9)% | | Gross profit margin | 71.9% | 63.5% | +8.4 ppts | | Non-GAAP gross profit | 1,839.7 | 4,282.3 | (57.0)% | | Non-GAAP gross profit margin | 73.6% | 65.3% | +8.3 ppts | Operating Expenses Total operating expenses for FY 2022 decreased substantially by 73.9% year-over-year to RMB1,915.2 million. This was primarily due to employee reductions, the absence of significant impairment and asset disposal losses incurred in 2021, and a large decline in branding and marketing expenditures for academic subject tutoring services due to regulatory changes | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :----------------------------------- | :-------------------- | :-------------------- | :--------- | | Total operating expenses | 1,915.2 | 7,344.5 | (73.9)% | | Selling expenses | 1,179.8 | 5,129.3 | (77.0)% | | Research and development | 445.1 | 1,252.9 | (64.5)% | | General and administrative expenses | 290.3 | 720.3 | (59.7)% | | Impairment loss on long-lived assets | 0 | 95.8 | (100)% | | Disposal loss on assets | 0 | 146.2 | (100)% | - The decline was primarily due to the reduction of employees, the absence of losses incurred during the impairment assessment of long-lived assets and the disposal of assets in 2021, and a large decline in branding and marketing activities due to regulatory changes[22][23] Income/(Loss) from Operations The operating loss for FY 2022 significantly narrowed to RMB118.1 million from RMB3,180.3 million in FY 2021. Non-GAAP income from operations turned positive at RMB4.6 million, compared to a loss of RMB2,835.1 million in the prior year | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Loss from operations | (118.1) | (3,180.3) | +96.3% (reduction in loss) | | Non-GAAP income/(loss) from operations | 4.6 | (2,835.1) | NM (turnaround to profit) | Interest Income and Realized Gains from Investment Aggregate interest income and realized gains from investments decreased to RMB63.6 million in FY 2022 from RMB97.2 million in FY 2021 | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :------------------------------------------ | :-------------------- | :-------------------- | :--------- | | Interest income and realized gains from investments | 63.6 | 97.2 | (34.6)% | Other Income Other income increased significantly to RMB51.9 million in FY 2022 from RMB20.9 million in FY 2021 | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :----------- | :-------------------- | :-------------------- | :--------- | | Other income | 51.9 | 20.9 | +148.3% | Net Income/(Loss) The company achieved a net income of RMB13.2 million in FY 2022, a substantial turnaround from a net loss of RMB3,103.5 million in FY 2021. Non-GAAP net income also turned positive at RMB135.8 million from a loss of RMB2,758.2 million | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :----------------------- | :-------------------- | :-------------------- | :--------- | | Net income/(loss) | 13.2 | (3,103.5) | NM (turnaround to profit) | | Non-GAAP net income/(loss) | 135.8 | (2,758.2) | NM (turnaround to profit) | Cash Flow Net operating cash flow for FY 2022 turned positive with an inflow of RMB54.5 million, a significant improvement from an outflow of RMB4,185.8 million in FY 2021 | Metric | FY 2022 (RMB million) | FY 2021 (RMB million) | YoY Change | | :-------------------------------- | :-------------------- | :-------------------- | :--------- | | Net operating cash (outflow)/inflow | 54.5 | (4,185.8) | NM (turnaround to inflow) | Basic and Diluted Net Income per ADS Basic and diluted net income per ADS were both RMB0.05 for FY 2022. Non-GAAP basic and diluted net income per ADS were RMB0.53 and RMB0.51, respectively | Metric | FY 2022 (RMB) | | :---------------------------- | :------------ | | Basic Net Income per ADS | 0.05 | | Diluted Net Income per ADS | 0.05 | | Non-GAAP Basic Net Income per ADS | 0.53 | | Non-GAAP Diluted Net Income per ADS | 0.51 | Business Outlook This section provides the company's financial guidance and expectations for the upcoming first quarter of 2023 Q1 2023 Outlook For Q1 2023, Gaotu Techedu expects total net revenues to be between RMB686 million and RMB706 million, representing a year-over-year decrease of 5.3% to 2.6% | Metric | Q1 2023 Guidance (RMB million) | YoY Change | | :----------------- | :----------------------------- | :--------- | | Total Net Revenues | 686 - 706 | (5.3)% - (2.6)% | - These estimates reflect the Company's current expectations, which are subject to change[30] Supplementary Information This section includes additional context such as conference call details, a safe harbor statement, company overview, non-GAAP measure definitions, exchange rates, and contact information Conference Call Details The company scheduled an earnings conference call for February 28, 2023, with specific dial-in details and a replay option available through March 7, 2023. A webcast is also available - Earnings conference call held at 8:00 AM U.S. Eastern Time on Tuesday, February 28, 2023[31] - A telephone replay will be available two hours after the conclusion of the conference call through March 7, 2023[31] - A live and archived webcast of this conference call will be available at http://ir.gaotu.cn/home[31](index=31&type=chunk) Safe Harbor Statement This statement outlines forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995, identifying inherent risks and uncertainties that could materially affect actual results - Contains forward-looking statements made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[32] - Factors that could cause actual results to differ materially include the Company's ability to attract students, recruit teachers, improve course content, maintain brand, improve teaching results, and compete effectively[32] - The Company undertakes no duty to update such information or any forward-looking statement, except as required under applicable law[32] About Gaotu Techedu Inc. Gaotu Techedu Inc. is a technology-driven education company and online large-class tutoring service provider in China, offering learning services and digitalized products through an online live large-class format - Gaotu is a technology-driven education company and online large-class tutoring service provider in China[33] - Offers learning services and educational content & digitalized learning products, adopting an online live large-class format[33] - Utilizes big data analytics to improve teaching delivery, student learning experience, and operational efficiency[33] About Non-GAAP Financial Measures The company uses non-GAAP financial measures, including gross billings and non-GAAP profit metrics, to evaluate operating results and aid decision-making by excluding share-based compensation expenses for a clearer cash operating performance view - Uses gross billings, non-GAAP gross profit, non-GAAP income (loss) from operations, and non-GAAP net income (loss) for evaluating operating results and financial decision-making[34] - Gross billings are defined as total cash received for course offerings, net of refunds, providing insight into sales and business performance[35] - Non-GAAP measures exclude share-based compensation expenses to provide meaningful supplemental information regarding performance and liquidity from a cash perspective[36] Exchange Rate The report uses an exchange rate of RMB6.8972 to USD1.0000 for conversions, based on the effective noon buying rate for December 30, 2022, as published by the Federal Reserve Board - All translations from RMB to USD are made at a rate of RMB6.8972 to USD1.0000[38] - The rate is the effective noon buying rate for December 30, 2022, as set forth in the H.10 statistical release of the Federal Reserve Board[38] Contact Information Provides contact details for Gaotu Techedu Inc. Investor Relations and Christensen for investor inquiries in China and the US - Contact information for Gaotu Techedu Inc. Investor Relations (ir@gaotu.cn) and Christensen (for China and US inquiries) is provided[39] Financial Statements This section presents the unaudited condensed consolidated balance sheets and statements of operations, along with reconciliations of non-GAAP financial measures Unaudited Condensed Consolidated Balance Sheets The balance sheet shows total assets decreased slightly from RMB5,024.7 million in 2021 to RMB4,876.2 million in 2022. Total liabilities also decreased from RMB2,143.7 million to RMB1,780.3 million. Shareholders' equity increased from RMB2,880.9 million to RMB3,095.8 million, reflecting improved financial health | Metric | Dec 31, 2022 (RMB thousands) | Dec 31, 2021 (RMB thousands) | Change (RMB thousands) | | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------- | | Total Assets | 4,876,175 | 5,024,666 | (148,491) | | Total Liabilities | 1,780,346 | 2,143,724 | (363,378) | | Total Shareholders' Equity | 3,095,829 | 2,880,942 | 214,887 | | Cash and cash equivalents | 819,911 | 728,934 | 90,977 | | Short-term investments | 2,923,864 | 2,774,000 | 149,864 | | Deferred revenue, current portion | 906,914 | 986,993 | (80,079) | Unaudited Condensed Consolidated Statements of Operations The statement of operations details the financial performance for Q4 and FY 2022. For Q4 2022, net revenues were RMB629.6 million, with a net income of RMB70.6 million. For FY 2022, net revenues were RMB2,498.2 million, and the company achieved a net income of RMB13.2 million, a significant improvement from a net loss of RMB3,103.5 million in FY 2021 Q4 Financial Performance | Metric | Q4 2022 (RMB thousands) | Q4 2021 (RMB thousands) | Pct. Change | | :---------------------------- | :---------------------- | :---------------------- | :---------- | | Net revenues | 629,631 | 1,274,267 | (50.6)% | | Gross profit | 470,329 | 887,615 | (47.0)% | | Income/(loss) from operations | (13,248) | 258,316 | (105.1)% | | Net income/(loss) | 70,613 | 285,858 | (75.3)% | FY Financial Performance | Metric | FY 2022 (RMB thousands) | FY 2021 (RMB thousands) | Pct. Change | | :---------------------------- | :---------------------- | :---------------------- | :---------- | | Net revenues | 2,498,214 | 6,561,747 | (61.9)% | | Gross profit | 1,797,164 | 4,164,143 | (56.9)% | | Income/(loss) from operations | (118,052) | (3,180,343) | +96.3% | | Net income/(loss) | 13,172 | (3,103,465) | NM | Reconciliations of Non-GAAP Measures to the Most Comparable GAAP Measures This section provides detailed reconciliations between GAAP and non-GAAP financial measures, including gross billings, non-GAAP gross profit, non-GAAP income (loss) from operations, and non-GAAP net income (loss), primarily adjusting for share-based compensation expenses Gross Billings Reconciliation | Metric | Q4 2022 (RMB thousands) | Q4 2021 (RMB thousands) | FY 2022 (RMB thousands) | FY 2021 (RMB thousands) | | :------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Gross billings | 997,439 | 1,006,509 | 2,534,244 | 5,184,215 | Non-GAAP Profit/Income Reconciliation | Metric | Q4 2022 (RMB thousands) | Q4 2021 (RMB thousands) | FY 2022 (RMB thousands) | FY 2021 (RMB thousands) | | :----------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Non-GAAP gross profit | 473,901 | 908,206 | 1,839,654 | 4,282,288 | | Non-GAAP income/(loss) from operations | 3,531 | 296,845 | 4,602 | (2,835,084) | | Non-GAAP net income/(loss) | 87,392 | 324,387 | 135,826 | (2,758,206) | - Share-based compensation expenses are the primary adjustment for non-GAAP measures[48]