Core Insights - Youdao, Inc. reported a significant improvement in profitability for Q1 2025, achieving an operating income of RMB104.0 million, a 247.7% increase year-over-year [3][17] - The company experienced a 6.7% decrease in net revenues, totaling RMB1.3 billion (US$178.9 million) compared to the same period in 2024 [5][13] - Youdao's strategic focus on high-ROI customer acquisition is expected to enhance operational efficiency despite short-term revenue declines [6] Financial Performance - Net revenues from learning services decreased by 16.1% to RMB602.4 million (US$83.0 million) [6][13] - Net revenues from smart devices increased by 5.1% to RMB190.5 million (US$26.3 million), driven by sales of the Youdao Dictionary Pen [7][13] - Net revenues from online marketing services rose by 2.6% to RMB505.4 million (US$69.6 million) [7][13] Profitability Metrics - Gross profit for Q1 2025 was RMB614.2 million (US$84.6 million), a 9.9% decrease from the previous year [8][13] - The overall gross margin was 47.3%, down from 49.0% in Q1 2024 [8][13] - The gross margin for learning services decreased to 59.8% from 63.1% year-over-year, while smart devices saw an increase to 52.3% from 32.6% [9][10] Operating Expenses - Total operating expenses decreased to RMB510.2 million (US$70.3 million) from RMB651.6 million in the same period last year [12][13] - Sales and marketing expenses fell by 21.5% to RMB357.6 million (US$49.3 million) [14][13] - Research and development expenses decreased by 21.3% to RMB115.5 million (US$15.9 million) [15][13] Net Income and Earnings Per Share - Net income attributable to ordinary shareholders increased over sixfold to RMB76.7 million (US$10.6 million) [18][19] - Basic and diluted net income per ADS for Q1 2025 was RMB0.65 (US$0.09) and RMB0.64 (US$0.09), respectively, compared to RMB0.11 and RMB0.10 for the same period in 2024 [19][13] Cash and Financial Support - As of March 31, 2025, Youdao's cash and short-term investments totaled RMB424.5 million (US$58.5 million), down from RMB662.6 million at the end of 2024 [20] - The company has received financial support from NetEase Group, including RMB878.0 million in short-term loans and US$128.5 million in long-term loans [20] Share Repurchase Program - Youdao's board authorized a share repurchase program of up to US$40 million, with approximately 7.5 million ADSs repurchased for about US$33.8 million as of March 31, 2025 [22]

Core Viewpoint - Youdao, Inc. is set to report its first quarter 2025 financial results on May 15, 2025, before U.S. market opens, highlighting its ongoing commitment to transparency and investor communication [1]. Group 1: Financial Reporting - The earnings teleconference call will occur at 6:00 a.m. Eastern Time on May 15, 2025, with management available to discuss results and answer questions [2]. - Dial-in details for the earnings conference call include toll-free numbers for the United States, Mainland China, and Hong Kong, ensuring accessibility for investors [2]. - A replay of the conference call will be available by phone one hour after the live call, accessible until May 22, 2025, providing additional opportunities for stakeholders to engage with the information [3]. Group 2: Company Overview - Youdao, Inc. is an AI-powered solutions provider focusing on artificial intelligence applications in the learning and advertising sectors, indicating a strategic positioning in a growing market [4]. - The company offers a range of services, including learning services, online marketing services, and smart devices, all leveraging advanced technologies [4]. - Founded in 2006 as part of NetEase, Inc., Youdao is backed by a leading internet technology company in China, enhancing its credibility and market presence [4].

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 OF THE SECURITIES EXCHANGE ACT OF 1934 Youdao, Inc. No. 399, Wangshang Road, Binjiang District Hangzhou 310051, People's Republic of China +86 0571-8985-2163 (Address of Principal Executive Offices) 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 ☐ EXHIBIT INDEX | Exhibit No. | De ...

VIE Structure and Financial Impact - In 2022, 2023, and 2024, revenues generated by the VIEs accounted for 70.1%, 77.0%, and 73.4% of total net revenues, respectively[30]. - As of December 31, 2024, total assets of the VIEs and their subsidiaries represented 48.8% of the consolidated total assets[30]. - Cumulative capital contributions made by Youdao, Inc. to PRC subsidiaries amounted to US$126.2 million as of December 31, 2024[36]. - The VIEs transferred RMB2,944.2 million, RMB3,287.5 million, and RMB3,091.2 million (US$423.5 million) to PRC subsidiaries as service fees in 2022, 2023, and 2024, respectively[36]. - As of December 31, 2024, the outstanding balance of service fees owed by the VIEs to PRC subsidiaries was RMB739.5 million (US$101.3 million)[37]. - Youdao, Inc. did not make any loans to the VIEs in 2022, 2023, and 2024, with the VIEs funding operations primarily through cash generated from activities[35]. - The company’s ability to pay dividends depends on the service fees paid by the VIEs to its PRC subsidiaries[54]. - Current PRC laws impose restrictions on foreign ownership of companies engaging in value-added telecommunication services, necessitating the use of VIE structures[54]. - The company relies on contractual arrangements with VIEs to conduct business in China, which may be subject to regulatory changes affecting enforceability[209]. - The company's PRC subsidiaries are considered foreign-invested enterprises and cannot provide certain services directly, necessitating the use of VIE structures[211]. Regulatory Environment and Compliance - The PCAOB's ability to inspect audit firms in mainland China and Hong Kong remains a risk, potentially affecting trading of Youdao's securities under the HFCAA[31]. - The company is closely monitoring regulatory developments regarding necessary approvals from the CSRC and other PRC regulatory authorities for overseas listings[48]. - The Overseas Listing Trial Measures require domestic companies to fulfill filing procedures for overseas securities offerings, effective March 31, 2023[48]. - The company is not required to undergo a cybersecurity review by the CAC for maintaining its listing status on the NYSE[45]. - The company has not been involved in any investigations or cybersecurity reviews initiated by the CAC as of the date of the annual report[46]. - As of the date of the annual report, the company has not received any regulatory objections from the CSRC regarding its listing status[48]. - The company is subject to regulatory scrutiny under the Outbound Investment Rule, which restricts U.S. investments in certain technology sectors related to China, effective January 2025[156]. - The CAC's Revised Cybersecurity Review Measures mandate cybersecurity reviews for platform operators with over one million users' personal information aiming to list abroad[198]. - The CAC's Provisional Administrative Measures for Generative AI Services took effect on August 15, 2023, requiring security assessments for generative AI products[128]. - The CAC's Measures for Labeling AI-Generated Content will be effective from September 1, 2025, mandating labeling of AI-generated content[128]. Financial Performance and Risks - The company reported net losses of RMB745.9 million and RMB550.1 million in 2022 and 2023, respectively, but achieved profitability in 2024 with a net income of RMB75.2 million (US$10.3 million)[96]. - The company generated net revenues of RMB672.4 million, RMB1,331.9 million, and RMB1,975.0 million (US$270.6 million) from online marketing services in 2022, 2023, and 2024, respectively[104]. - As of December 31, 2023, the company had working capital deficits of RMB1,799.3 million, which improved to RMB1,460.2 million (US$200.0 million) by December 31, 2024[100]. - The company faces significant legal and operational risks due to its operations in China, which could materially affect its business and the value of its securities[70]. - Recent regulatory changes in the PRC private education industry have adversely impacted Youdao Computer's business, particularly in the after-school tutoring sector, with new requirements for non-profit registration and restrictions on fundraising[81]. - The company faces intense competition for qualified talent in China, and the loss of key employees could disrupt operations and harm business growth[161]. - The company faces risks associated with rapid technological changes and competition, which could materially affect its business and financial condition[90]. - The company may incur additional expenses to adapt its business model to comply with evolving regulations and laws in the PRC[144]. - The company may struggle to comply with new laws and regulations, risking material penalties that could adversely affect operations and prospects[234]. Product Development and Market Strategy - New product offerings, including Youdao Dictionary Pen X7 and Youdao SpaceOne, are in initial development stages and have not yet generated significant revenues, posing risks to future growth[86]. - The company launched its large language model (LLM), Confucius, in 2023, which is China's first LLM specifically for the education sector[88]. - The company plans to explore additional monetization opportunities, including offering new technology solutions and subscription options to increase user spending[91]. - The company introduced new intelligent learning products, such as Youdao Dictionary Pen A7 Pro and Youdao Dictionary Pen X7[92]. - The company launched its own large language model, Confucius, in 2023, integrating AI into product offerings, but faces uncertainties regarding commercialization and regulatory compliance[124]. Operational Challenges and Risks - The company faces risks related to third-party payment processing, including potential fraud and user data leakage, which could materially affect its business[186]. - The company does not currently have any business insurance coverage, which may result in substantial costs and resource diversion in the event of disruptions[187]. - The company is exposed to risks from negative publicity, which could harm its reputation and financial condition[130]. - The company relies heavily on information technology systems, and any failure or security breach could disrupt operations and lead to significant costs[140]. - The company may face significant disruptions to its business operations if the VIEs lose their licenses, approvals, and assets, which could adversely affect financial condition and results[228]. Shareholder and Governance Issues - NetEase, the controlling shareholder, owns 67.2% of the total voting power, which may lead to decisions that are not aligned with the interests of other shareholders[204]. - The company has limited experience operating as a stand-alone public entity, facing enhanced compliance requirements that may incur substantial costs[202]. - Any negative developments in NetEase's market position or financial condition could adversely impact the company's reputation and business[203]. - Conflicts of interest may arise between the shareholders of the VIEs and the company, potentially affecting the performance of contractual arrangements[226]. Inventory and Asset Management - As of December 31, 2023, inventory accounted for approximately 16.7% of total current assets, decreasing to 11.8% by December 31, 2024[129]. - The company faces risks related to inventory management, including potential losses from excessive or obsolete inventory due to demand forecasting inaccuracies[129]. Legal and Regulatory Compliance - The PRC Data Security Law and Personal Information Protection Law were enacted, effective September 1, 2021, and November 1, 2021, respectively, to enhance cybersecurity and data protection regulations[142]. - Network platform operators with over one million users' personal information must undergo a cybersecurity review before any public offering in foreign countries[142]. - The company is required to obtain various licenses and approvals to conduct its operations in China, including a Value-Added Telecommunications Business Operating License[149]. - The company has completed re-filing for certain educational apps to comply with new regulatory requirements[150].

Financial Data and Key Metrics Changes - In Q4 2024, net revenues reached RMB1.3 billion, a 9.5% decline year-over-year, primarily due to decreased revenues from learning services [7][33] - Operating income for Q4 was RMB84.2 million, an increase of 10.3% year-over-year, while operating cash inflow remained stable at RMB158.2 million [8][9] - For the full year 2024, total revenues increased by 4.4% to RMB5.6 billion, with net income attributable to ordinary shareholders at RMB82.2 million, a significant turnaround from a loss of RMB466.3 million in 2023 [9][38][39] Business Line Data and Key Metrics Changes - Learning services generated net revenues of RMB617.7 million in Q4, down 21.2% year-over-year, while digital content services within this segment reached RMB388.8 million, covering costs and generating profits [10][11] - Smart devices segment saw net revenues of RMB240.4 million in Q4, an 8.1% increase year-over-year, driven by strong sales of the Youdao Dictionary Pen [23][25] - Online marketing services reported net revenues of RMB481.7 million in Q4, a modest increase of 1.6% year-over-year, with a gross margin of 34.2% [19][35] Market Data and Key Metrics Changes - The company noted strong growth in AI-driven subscription services, with total sales increasing over 130% year-over-year to over RMB200 million for 2024 [13][14] - The international advertising segment achieved over 100% year-over-year growth, aided by partnerships with platforms like TikTok and Google [20][69] Company Strategy and Development Direction - The company is focusing on AI-driven education technology and online marketing technologies, aiming to enhance offerings through cutting-edge AI and establish leadership in key product segments [44][45] - Plans for 2025 include maintaining market leadership in smart devices while introducing new products, such as the Youdao SpaceOne pen, and expanding AI features in learning services [52][53] - The strategy also emphasizes deepening collaboration with NetEase to enhance advertising efficiency and exploring global expansion opportunities [55][69] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term prospects of online marketing services, particularly through performance-based advertising and AI applications [22][55] - The company anticipates moderate revenue growth in 2025 while maintaining a focus on profitability, especially in a challenging economic environment [31][62] Other Important Information - The company achieved full-year operating profitability for the first time in 2024, with a significant improvement in cash flow, narrowing net cash outflow to RMB67.9 million [30][61] - The launch of the Confucius-o1 reasoning model is expected to enhance educational offerings and operational efficiency [14][91] Q&A Session Summary Question: Outlook for 2025 across different business lines - Management highlighted a focus on AI-driven education and marketing technologies, with plans to enhance offerings and maintain profitability [44][48] Question: Opportunities in online marketing business and global expansion - The strategy includes intensifying collaboration with NetEase and expanding into international markets, leveraging partnerships with TikTok and Google [68][69] Question: Priorities for Learning Services in 2025 - The focus will be on high-demand products like Youdao Lingshi, with ongoing restructuring expected to stabilize revenues [75][76] Question: Impact of integrating Confucius with DeepSeek on business operations - The integration is expected to enhance educational applications and advertising efficiency through advanced AI capabilities [84][90]

I nve s t o r R e l at i o ns , F e b r uar y 23, 2023 This presentation 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 material ...

Financial Data and Key Metrics Changes - Net revenues for Q3 2024 reached RMB1.57 billion, marking a 2.2% increase year-over-year [9][24] - Income from operations reached RMB107.3 million compared to a loss of RMB57.7 million in the same period last year, representing the first profitable third quarter [9][30] - Operating cash outflow narrowed to RMB85.4 million, an improvement of 71% compared to the same period last year [9] Business Line Data and Key Metrics Changes - Learning services net revenues were RMB767.9 million, down 19.2% year-over-year, due to a focus on high-demand services and reduced low ROI customer acquisition [10][25] - Digital content services within learning services generated RMB513.7 million, covering costs and yielding profit [11] - AI-driven subscription services in learning services grew to nearly RMB70 million, representing over 150% year-over-year growth [13] - Online marketing services net revenues reached RMB489.4 million, representing a 45.6% increase year-over-year, driven by expansion into new sectors and AI optimization [15][27] - Smart devices segment net revenues reached RMB315.3 million, up 25.2% year-over-year, with improved gross margin at 42.8% [17][28] Market Data and Key Metrics Changes - Overseas advertising accounted for approximately 20% of ad revenue in Q3, with KOL ad revenue up over 50% year-over-year [16] - The online marketing services sector saw significant growth in gaming and related industries, driving ad revenue to historical highs [51] Company Strategy and Development Direction - The company aims to integrate generative AI technology across its businesses to enhance competitiveness and achieve full-year operational profitability [20][22] - Focus on delivering high-quality services and learning outcomes at scale in the online learning sector [12][58] - Plans to explore new domestic and international opportunities in online marketing services [22][60] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the medium to long-term growth potential of online learning services, emphasizing the importance of customer satisfaction and retention [35][40] - The smart devices segment is expected to continue its growth trajectory, supported by successful product launches and enhanced team capabilities [44][46] - The advertising business is anticipated to maintain solid profitability despite facing short-term challenges [54] Other Important Information - The company has made significant strides towards achieving full-year operational profitability, with cumulative income from operations reaching RMB64.6 million [21] - The company plans to launch new products in the fourth quarter, including enhancements to existing offerings [19][47] Q&A Session Summary Question: Strategy on increasing investments in the learning service sector - Management emphasized a focus on strong demand services and scaling back low ROI customer acquisition efforts, ensuring sustainable development for long-term success [34][35] Question: Sustainability of growth in the smart devices sector - Management highlighted positive outcomes from strategic focus and channel reorganization, with expectations for continued growth in the fourth quarter [41][44] Question: Future growth potential of online marketing services - Management identified significant growth potential in domestic and international advertising, particularly in online entertainment and AI tools [50][51][53] Question: Outlook for the fourth quarter - Management expressed confidence in achieving profitability for the year, with continued focus on digital content services, online marketing, and AI-driven subscription services [55][56][58]

Financial Data and Key Metrics Changes - Net revenues for Q1 2024 reached RMB 1.4 billion, marking a 19.7% year-over-year growth [6][19] - Income from operations amounted to RMB 29.9 million, a significant turnaround from a loss of RMB 195.8 million in the same period last year, marking the first profitable first quarter [6][19] - Total gross profit was RMB 681.5 million, representing a 13.2% increase from Q1 2023 [20] - Net income attributable to ordinary shareholders was RMB 12.4 million, compared to a net loss of RMB 204.4 million for the same period last year [22] Business Line Data and Key Metrics Changes - Learning Services revenue reached RMB 718 million, largely flat compared to the same period last year [7][19] - Digital content services within Learning Services generated net revenues of RMB 499.8 million, marking an 11% year-over-year growth [7][19] - Online marketing services achieved net revenues of RMB 492.7 million, representing a 125.9% year-over-year growth [12][20] - Smart devices segment net revenues were RMB 181.2 million, reflecting a 14.8% year-over-year decline, though the rate of decline has narrowed [14][19] Market Data and Key Metrics Changes - The online marketing services segment has sustained over 50% year-over-year growth for six consecutive quarters, driven by strong performance in Real-Time API (RTA) and domestic KOL advertising [12][20] - The total sales of AI-driven subscription services reached approximately RMB 50 million, representing a year-over-year increase of over 140% [10][19] Company Strategy and Development Direction - The company is focusing on three key areas: digital content services, online marketing services, and AI-driven subscription services [15][16] - The strategy includes maintaining financial discipline and focusing on high-growth businesses with strong competitive advantages [15][16] - The company aims to leverage industry trends and strengthen collaboration with the NetEase Group to enhance advertising placements and customer acquisition [13][16] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sustainable profitability and highlighted the importance of integrating online and offline services to enhance customer reach [30][49] - The outlook for 2024 includes a focus on improving profitability in digital content services and expanding AI-driven subscription services [49][51] - Management emphasized the need for continuous technological improvements and customer acquisition strategies to sustain growth in online marketing services [31][35] Other Important Information - The company has launched new products and expanded sales channels in the smart devices segment, which is expected to stabilize and recover [14][46] - The gross margin for learning services improved to 63.1% in Q1 2024, compared to 62% in the same period of 2023 [20] Q&A Session Summary Question: What are the primary factors driving future growth in digital content services? - Management highlighted strong market demand and unique value propositions from AI capabilities as key growth drivers [24][25][26] Question: How can online marketing services achieve sustainable growth? - Management identified continued technological improvements, customer acquisition expansion, and overseas marketing as key factors for sustainable growth [31][33][37] Question: What are the main products for AI-driven subscription services? - Major products include Youdao Dictionary, Youdao Desktop Translation, and Hi Echo, with significant growth expected due to improved AI capabilities [38][39][42] Question: How does the company view the future development of the smart devices segment? - Management noted a strategic exit from low ROI sales channels and the introduction of new products, leading to a narrowed decline in revenues [44][46] Question: What is the outlook for 2024? - Management expects continued focus on digital content services, online marketing, and AI-driven subscriptions, with an emphasis on profitability and operational efficiency [49][51]

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: IR@rd.netease.com Piacente Financial Communications Helen Wu Tel: +86-10-6508-0677 E-mail: youdao@thepiacentegroup.com In the United States: Piacente Financial Communications Brandi Piacente Tel: +1-212-481-2050 E-mail: youdao@thepiacentegroup.com Youdao Reports First Quarter 2024 Unaudited Financial Results Hangzhou, China – May 23, 2024 – Youdao, Inc. ("Youdao" or the ...

PART I [Key Information](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section details Youdao's corporate structure, including VIEs, and discusses associated risks, regulatory developments, and HFCAA implications - Youdao operates through a VIE structure due to PRC restrictions on foreign investment, with investors purchasing securities of a Cayman Islands holding company, not the PRC operating entities[19](index=19&type=chunk) VIE Contribution to Total Net Revenues and Assets | Year/Date | VIE Revenues as % of Total Net Revenues | VIE Assets as % of Total Consolidated Assets | | :--- | :--- | :--- | | **2021** | 68.5% | N/A | | **2022** | 70.1% | 34.6% (as of Dec 31) | | **2023** | 77.0% | 49.3% (as of Dec 31) | - The PCAOB vacated its determination regarding auditor inspections in December 2022, mitigating immediate HFCAA trading prohibition risks, though future risks remain subject to annual review[21](index=21&type=chunk)[221](index=221&type=chunk) - In 2023, VIEs transferred **RMB 3,287.5 million (US$463.0 million)** to PRC subsidiaries as service fees, though PRC restrictions may limit cash availability outside China[25](index=25&type=chunk)[27](index=27&type=chunk) - Recent PRC regulations, including cybersecurity and overseas listing measures, introduce new filing requirements and potential reviews, creating uncertainty for future capital-raising activities[34](index=34&type=chunk)[38](index=38&type=chunk)[169](index=169&type=chunk) [Risk Factors](index=16&type=section&id=3.D.%20Risk%20Factors) This section details principal risks across business, VIE structure, PRC operations, and ADS holdings, including net losses, regulatory changes, and dual-class share limitations - The company recorded net losses of **RMB 745.9 million** in 2022 and **RMB 550.1 million (US$77.5 million)** in 2023, and may not achieve future profitability due to heavy investments[82](index=82&type=chunk) - Compliance with PRC's \"Alleviating Burden Opinion\" materially affected the business, leading to cessation of K-9 Academic AST courses and ongoing regulatory uncertainty for non-academic tutoring[71](index=71&type=chunk)[72](index=72&type=chunk) - The VIE structure faces substantial uncertainties under PRC laws, with potential severe penalties if contractual arrangements are deemed non-compliant, including forced relinquishment of VIE interests[181](index=181&type=chunk)[185](index=185&type=chunk) - The PRC government may intervene in operations at any time, increasing oversight over overseas offerings, which could materially change the business and potentially devalue ADSs[208](index=208&type=chunk)[211](index=211&type=chunk) - The dual-class share structure grants Class B shares three votes per share, with Class B shares representing **89.5%** of total voting power as of March 31, 2024, limiting other shareholders' influence[272](index=272&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) [Information on the Company](index=63&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides a comprehensive overview of Youdao's business, history, and organizational structure, detailing its evolution into a technology-focused intelligent learning company and its complex regulatory landscape - Following PRC regulatory changes, Youdao ceased its Academic AST Business in Q4 2021, completing its transition to a technology-focused intelligent learning company in 2022[287](index=287&type=chunk) - In 2023, the company launched \"Ziyue,\" China's first education-specific LLM, powering new AI-driven tools like 'Hi Echo' and 'Mr. P AI Tutor'[287](index=287&type=chunk)[317](index=317&type=chunk) - The company's business is segmented into Learning Services, Smart Devices, Education Digitalization Solutions, and Online Marketing Services[309](index=309&type=chunk) - As of March 31, 2024, Youdao holds **428 patents**, **431 trademarks**, and **328 copyrights** in the PRC, forming its intellectual property base[358](index=358&type=chunk) [History and Development of the Company](index=63&type=section&id=4.A.%20History%20and%20Development%20of%20the%20Company) This section traces Youdao's key milestones, including its strategic shift to intelligent learning, recent AI product launches, corporate history, IPO, and a condensed consolidating financial schedule - The company completed its NYSE IPO on October 25, 2019, and raised approximately **US$231.6 million** in net proceeds from a February 2021 follow-on offering[290](index=290&type=chunk) Condensed Consolidating Schedule - Total Assets (as of Dec 31, 2023) | Entity Group | Total Assets (RMB in thousands) | | :--- | :--- | | Youdao, Inc. | 2,943,626 | | Other Subsidiaries | 572,775 | | Primary beneficiaries of VIEs | 1,767,554 | | VIEs and their subsidiaries | 2,028,232 | Condensed Consolidating Schedule - Third-Party Net Revenues (FY 2023) | Entity Group | Third-Party Net Revenues (RMB in thousands) | | :--- | :--- | | Other Subsidiaries | 1,052,123 | | Primary beneficiaries of VIEs | 205,027 | | VIEs and their subsidiaries | 4,132,058 | [Business Overview](index=69&type=section&id=4.B.%20Business%20Overview) This section details Youdao's business as a technology-focused intelligent learning company, outlining its four main offerings, core technologies, revenue models, and the extensive PRC regulatory framework governing its operations - Youdao Dictionary, the company's flagship product, is China's leading language app with **45.8 million** average MAUs in 2023[304](index=304&type=chunk) - The company's core technologies include Optical Character Recognition (OCR), Neural Machine Translation (NMT), Automatic Speech Recognition (ASR), and its proprietary Large Language Model (LLM) \"Ziyue\"[308](index=308&type=chunk) - Revenue is generated from sales of smart devices, learning service tuition, online marketing advertising, premium tool subscriptions, and technology licensing fees[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[352](index=352&type=chunk)[353](index=353&type=chunk) - The company is subject to extensive PRC regulations covering telecommunications, foreign investment, private education, data security, cybersecurity, and online content, significantly impacting its operations[369](index=369&type=chunk)[376](index=376&type=chunk)[386](index=386&type=chunk)[430](index=430&type=chunk) [Organizational Structure](index=106&type=section&id=4.C.%20Organizational%20Structure) This section details Youdao's corporate structure, including its Cayman Islands holding company, PRC subsidiaries, and VIEs, outlining the contractual arrangements that enable control and financial consolidation, with VIEs contributing **77.0%** of 2023 net revenues - The company's PRC subsidiaries, Youdao Information and Youdao Hangzhou, control the VIEs through contractual arrangements as foreign-invested enterprises[510](index=510&type=chunk) - Contractual arrangements enable Youdao to be the primary beneficiary of the VIEs, allowing consolidation of their financial results under U.S. GAAP[510](index=510&type=chunk) - Service fees charged by PRC subsidiaries to VIEs are a key mechanism for economic benefit transfer, amounting to **RMB 2,881.0 million (US$405.8 million)** in 2023[510](index=510&type=chunk) [Operating and Financial Review and Prospects](index=109&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides management's discussion and analysis of Youdao's financial performance, covering results of operations, segment revenues, liquidity, capital resources, and critical accounting policies, with a focus on the strategic shift post-Academic AST Business disposal - The company disposed of its Academic AST Business in compliance with 2021 PRC regulatory changes, with historical results now reported as discontinued operations[529](index=529&type=chunk)[596](index=596&type=chunk) Consolidated Results of Operations (Continuing Operations) | Metric (RMB in thousands) | 2022 | 2023 | % Change | | :--- | :--- | :--- | :--- | | **Net Revenues** | 5,013,182 | 5,389,208 | 7.5% | | **Gross Profit** | 2,586,416 | 2,767,462 | 7.0% | | **Gross Margin** | 51.6% | 51.4% | -0.2 p.p. | | **Loss from Operations** | (774,680) | (466,326) | 39.8% (Improvement) | | **Net Loss from Continuing Operations** | (739,778) | (550,117) | 25.6% (Improvement) | Net Revenues by Segment (RMB in thousands) | Segment | 2022 | 2023 | % Change | | :--- | :--- | :--- | | Learning services | 3,084,375 | 3,148,114 | 2.1% | | Smart devices | 1,256,446 | 909,192 | -27.6% | | Online marketing services | 672,361 | 1,331,902 | 98.1% | - The company had a working capital deficit of **RMB 1,799.3 million** as of December 31, 2023, relying on NetEase Group's financial support, including a revolving loan facility extended to March 2027[612](index=612&type=chunk) [Directors, Senior Management, and Employees](index=129&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, compensation, board structure, and workforce, including director and executive officer information, share incentive plans, employee demographics, and major shareholder voting power - In 2023, aggregate cash compensation to directors and executive officers totaled **RMB 17.5 million (US$2.5 million)**[650](index=650&type=chunk) - The company has two share incentive plans, with options to purchase **3,680,851** ordinary shares outstanding under the 2015 Plan as of March 31, 2024[653](index=653&type=chunk)[659](index=659&type=chunk) - As of December 31, 2023, the company had **4,364** full-time employees, with **49.9%** teaching staff and **23.0%** in R&D[677](index=677&type=chunk)[678](index=678&type=chunk) Major Shareholder Voting Power (as of March 31, 2024) | Shareholder | Total Voting Power % | | :--- | :--- | | NetEase, Inc. | 67.2% | | Peng Ke Holdings Inc. (Dr. Feng Zhou) | 20.6% | [Major Shareholders and Related Party Transactions](index=137&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details major shareholders and related party transactions, primarily with NetEase Group, including services exchanged and significant outstanding loans as of year-end 2023 Key Related Party Transactions with NetEase Group (FY 2023) | Transaction Type | Amount (RMB in thousands) | | :--- | :--- | | Services and products provided to NetEase Group | 79,932 | | Services and products purchased from NetEase Group | 181,344 | | Interest expenses on loans from NetEase Group | 69,472 | Loans from NetEase Group (as of Dec 31, 2023) | Loan Type | Amount (RMB in thousands) | | :--- | :--- | | Short-term loans | 878,000 | | Long-term loans | 630,360 | [Financial Information](index=139&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the inclusion of consolidated financial statements, addresses legal proceedings, and outlines the company's dividend policy of retaining earnings for business expansion - The company plans no future dividends, intending to retain earnings for business operation and expansion[695](index=695&type=chunk) [Additional Information](index=141&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides supplementary details on corporate governance, including the dual-class share structure, and outlines tax implications for holding ADSs or shares in the Cayman Islands, PRC, and United States, including PFIC risk - The company's dual-class share structure grants Class B ordinary shares three votes per share, while Class A ordinary shares receive one vote per share[706](index=706&type=chunk) - The company believes it was not a PFIC for 2023, but its status is subject to annual determination and potential change based on asset composition and ADS market price[283](index=283&type=chunk)[745](index=745&type=chunk) - If classified as a PRC resident enterprise, dividends to non-PRC enterprise shareholders and ADS sale gains could be subject to a **10%** withholding tax[727](index=727&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=149&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, primarily interest rate risk on cash holdings and foreign exchange risk due to currency mismatches, with inflation risk noted as a possibility - The company's primary market risks are interest rate risk on cash holdings and foreign exchange risk due to currency mismatch between RMB and USD[755](index=755&type=chunk)[756](index=756&type=chunk) PART II [Material Modifications to the Rights of Security Holders and Use of Proceeds](index=152&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS) This section details the full utilization of net proceeds from the 2019 IPO (**US$213.2 million**) and 2021 follow-on offering (**US$231.6 million**) for technology, marketing, and general corporate purposes - The net proceeds from the 2019 IPO (**US$213.2 million**) and 2021 follow-on offering (**US$231.6 million**) have been fully used for technology, product development, marketing, and general corporate purposes[769](index=769&type=chunk)[772](index=772&type=chunk) [Controls and Procedures](index=153&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of the company's disclosure controls and internal control over financial reporting as of December 31, 2023, as concluded by management and attested by the independent auditor - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures, and internal control over financial reporting, were effective[774](index=774&type=chunk)[775](index=775&type=chunk) [Other Information](index=153&type=section&id=ITEM%2016.%20Other%20Information) This section covers corporate governance, including audit committee expertise, accountant fees, share repurchase programs, foreign private issuer status, and the company's cybersecurity risk management program Principal Accountant Fees (RMB in thousands) | Service | 2022 | 2023 | | :--- | :--- | :--- | | Audit Fees | 8,200 | 8,200 | | Tax Fees | — | 90 | | Other Fees | 150 | 150 | | **Total** | **8,350** | **8,440** | - The company has a share repurchase program authorized for up to **US$40.0 million**, with approximately **6.6 million** Class A ordinary shares purchased as of March 31, 2024[785](index=785&type=chunk) - Controlling shareholder NetEase has a share purchase program for up to **US$50.0 million** of Youdao's ADSs, with approximately **2.7 million** ADSs purchased as of March 31, 2024[784](index=784&type=chunk) - The company's cybersecurity risk management program is overseen by a committee chaired by the CEO, reporting to the audit committee[793](index=793&type=chunk) PART III [Financial Statements](index=157&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for Youdao, Inc. for fiscal years 2021-2023, prepared under U.S. GAAP, including the independent auditor's report confirming fair presentation and effective internal controls - The independent auditor, PricewaterhouseCoopers Zhong Tian LLP, issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting as of December 31, 2023[807](index=807&type=chunk)[808](index=808&type=chunk) - A critical audit matter identified was the estimation of the average learning period for customer revenue recognition, due to significant management judgment[814](index=814&type=chunk) Consolidated Balance Sheet Highlights (RMB in thousands) | Item | Dec 31, 2022 | Dec 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | 2,276,156 | 1,666,195 | | **Total Liabilities** | 3,753,430 | 3,795,298 | | **Total Shareholders' Deficit** | (1,541,845) | (2,167,064) | Consolidated Cash Flow Highlights (RMB in thousands) | Item | 2022 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | (603,123) | (438,145) | | Net cash provided by investing activities | 125,823 | 125,573 | | Net cash provided by/(used in) financing activities | 184,649 | (18,942) |