Gaotu Techedu Announces Second Quarter 2024 Unaudited Financial Results

BEIJING,Aug. 27,2024 -- Gaotu Techedu Inc. (NYSE: 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 second quarter ended June 30,2024.

Second Quarter 2024 Highlights[1]

Net revenueswere RMB1,009.8 million,increasedby 43.6% from RMB703.1 million in the same period of 2023.

Gross billings[2] were RMB1,653.7 million,increasedby 87.4% from RMB882.3 million in the same period of 2023.

Loss from operationswas RMB464.8 million,compared with income from operations of RMB43.3 million in the same period of 2023.

Net losswas RMB429.6 million,compared with net income of RMB56.2 million in the same period of 2023.

Non-GAAP net losswas RMB418.0 million,compared with non-GAAP net income of RMB63.2 million in the same period of 2023.

Net operating cash inflowwas RMB386.2 million,increased by 33.8% from RMB288.5 million in the same period of 2023.

Second Quarter 2024 Key Financial and Operating Data

(In thousands ofRMB,except for percentages)

For the three months ended June 30,

2023

2024

Pct. Change

Net revenues

703,094

1,009,797

43.6%

Gross billings

882,325

1,653,692

87.4%

Income/(loss) from operations

43,311

(464,750)

(1,173.1)%

Net income/(loss)

56,161

(429,550)

(864.9)%

Non-GAAP net income/(loss)

63,159

(418,040)

(761.9)%

Net operating cash inflow

288,542

386,184

33.8%

[1]For a reconciliation of non-GAAP numbers,please see the table captioned "Reconciliationsof non-GAAP measures to the most comparable GAAP measures" at the end of this press release. Non-GAAP income (loss) from operations and non-GAAP net income (loss) exclude share-based compensation expenses.

[2]Gross billings is a non-GAAP financial measure,which is defined as the total amount of cash received for the sale of course offerings in such period,net of the total amount of refunds in such period. See "About Non-GAAP Financial Measures" and "Reconciliationsof non-GAAP measures to the most comparable GAAP measures" elsewhere in this press release.

Six Months Ended June 30,2024 Highlights

Net revenueswere RMB1,956.7 million,increased by 38.7% from RMB1,410.4 million in the same period of 2023.

Gross billings were RMB2,383.1 million,increased by 67.7% from RMB1,421.3 million in the same period of 2023.

Loss from operations was RMB542.5 million,compared with income from operations of RMB138.5 million in the same period of 2023.

Net loss was RMB441.8 million,compared with net income of RMB170.0 million in the same period of 2023.

Non-GAAP net loss was RMB415.0 million,compared with non-GAAP net income of RMB196.8 million in the same period of 2023.

Net operating cash inflowwas RMB188.7 million,increased by 161.7% from RMB72.1 million in the same period of 2023.

First Six Months 2024 Key Financial and Operating Data

(In thousands ofRMB,except for percentages)

For the six months ended June 30,

2023

2024

Pct. Change

Net revenues

1,410,386

1,956,682

38.7%

Gross billings

1,421,276

2,383,052

67.7%

Income/(loss) from operations

138,450

(542,452)

(491.8)%

Net income/(loss)

170,014

(441,847)

(359.9)%

Non-GAAP net income/(loss)

196,754

(415,001)

(310.9)%

Net operating cash inflow

72,134

188,748

161.7%

LarryXiangdong Chen,the Company's founder,Chairman and CEO,commented, "We achieved encouraging results in the second quarter,with net revenues increasing 43.6% year-over-year to RMB1.0 billion,reflecting strong accelerating growth momentum. As of June 30,2024,our deferred revenue reached RMB1.6 billion,representing a 71.5% increase from the same point in time last year,ensuring robust support for our continued growth in the second half of the year.

June 16th marked the tenth anniversary of Gaotu's founding. Over the past decade,we've consistently regarded learning services and teaching quality as the cornerstones of our core competencies,continuously attracting and retaining top-tier talents to drive long-term growth. While expanding rapidly,we have maintained an unwavering focus on operational efficiency. Moving forward,we remain committed to prioritizing customer needs and advancing our mission to 'make learning better',thereby creating lasting value for our shareholders."

Shannon Shen,CFO of the Company,added,"We kicked off the year with robust growth and successfully carried this momentum into the second quarter,further scaling our operations while delivering results that exceeded our expectations in both revenues and gross billings. Gross billings for the first half of the year increased 67.7% to RMB2.4 billion,laying a solid foundation for further revenues growth in the second half of the year. These results reflect our ongoing efforts to boost operational efficiency,address market demand,and enhance teaching quality. Moving forward,we will maintain our focus on core education businesses,expand our product offerings,attract top talents,and refine operations to capitalize on market opportunities and drive long-term,sustainable growth."

Financial Results for the Second Quarter of 2024

Net Revenues

Net revenues increased by 43.6% to RMB1,009.8 million from RMB703.1 million in the second quarter of 2023,which was mainly due to the continuous year-over-year growth of gross billings as a result of our sufficient and effective response to the strong market demand. Furthermore,our high-quality educational products and learning services resulted in improved recognition of our products.

Cost of Revenues

Cost of revenues increased by 70.0% to RMB313.4 million from RMB184.4 million in the second quarter of 2023. The increase was mainly due to the expansion of instructors and tutors workforce and the increased cost of learning materials.

Gross Profit and Gross Margin

Gross profit increased by 34.3% to RMB696.4 million from RMB518.7 million in the second quarter of 2023. Gross profit margin decreased to 69.0% from 73.8% in the same period of 2023.

Non-GAAP gross profit increased by 33.3% to RMB696.3 million from RMB522.3 million in the second quarter of 2023. Non-GAAP gross profit margin decreased to 69.0% from 74.3% in the same period of 2023.

Operating Expenses

Operating expenses increased by 144.2% to RMB1,161.1 million from RMB475.4 million in the second quarter of 2023. The increase was primarily due to the expansion of employees workforce and a higher expenditure on marketing and branding activities.

Selling expenses increased to RMB835.4 million from RMB324.1 million in the second quarter of 2023.

Research and development expenses increased to RMB162.1 million from RMB98.4 million in the second quarter of 2023.

General and administrative expenses increased to RMB163.6 million from RMB52.9 million in the second quarter of 2023.

(Loss)/Income from Operations

Loss from operations was RMB464.8 million,compared with income from operations of RMB43.3 million in the second quarter of 2023.

Non-GAAP loss from operations was RMB453.2 million,compared with non-GAAP income from operations of RMB50.3 million in the second quarter of 2023.

Interest Income and Realized Gains from Investments

Interest income and realized gains from investments,on aggregate,were RMB29.0 million,compared with a total of RMB27.4 million in the second quarter of 2023.

Other Income/(Expenses),net

Other income,net was RMB4.6 million,compared with other expenses,net of RMB6.2 million in the second quarter of 2023.

Net (Loss)/Income

Net loss was RMB429.6 million,compared with net income of RMB56.2 million in the second quarter of 2023.

Non-GAAP net loss was RMB418.0 million,compared with non-GAAP net income of RMB63.2 million in the second quarter of 2023.

Cash Flow

Net operating cash inflow in the second quarter of 2024 was RMB386.2 million.

Basic and Diluted Net Loss per ADS

Basic and diluted net loss per ADS were both RMB1.65 in the second quarter of 2024.

Non-GAAP basic and diluted net loss per ADS were both RMB1.61 in the second quarter of 2024.

Share Outstanding

As of June 30,the Company had 172,491,283 ordinary shares outstanding.

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

As of June 30,the Company had cash and cash equivalents,restricted cash,short-term and long-term investments of RMB4,103.4 million in aggregate,compared with a total of RMB3,953.5 million as of December 31,2023.

Share Repurchase

In November 2022,the Company's board of directors authorized a share repurchase program under which the Company may repurchase up to US$30 million of its shares,effective until November 22,2025. In November 2023,the Company's board of directors authorized modifications to the share repurchase program,increasing the aggregate value of shares that may be repurchased from US$30 million to US$80 million,2025.

As of August 26,the Company had cumulatively repurchased approximately 7.9 million ADSs for approximately US$27.0 million under the share repurchase program.

Business Outlook

Based on the Company's current estimates,total net revenues for the third quarter of 2024 are expected to be between RMB1,188 million and RMB1,208 million,representing an increase of 50.5% to 53.0% 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,August 27,2024 (8:00 PM Beijing/Hong Kong Time on Tuesday,2024). Dial-in details for the earnings conference call are as follows:

International: 1-412-317-6061

United States: 1-888-317-6003

Hong Kong: 800-963-976

Mainland China: 400-120-6115

Passcode: 5380431

A telephone replay will be available two hours after the conclusion of the conference call through September 2,2024. The dial-in details are:

International: 1-412-317-0088

United States: 1-877-344-7529

Passcode: 6770960

Additionally,a live and archived webcast of this conference call will be available at http://ir.gaotu.cn/.

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.

About Gaotu Techedu Inc.

Gaotu is a technology-driven education company and online large-class tutoring service provider in China. The Company offers learning services and educational content & digitalized learning products. Gaotu adopts an online live large-class format to deliver its courses,which the Company believes is the most effective and scalable model to disseminate scarce high-quality teaching resources to aspiring students in China. Big data analytics permeates every aspect of the Company's business and facilitates the application of the latest technology to improve teaching delivery,student learning experience,and operational efficiency.

About Non-GAAP Financial Measures

The Company uses gross billings,non-GAAP gross profit,non-GAAP income (loss) from operations and non-GAAP net income (loss),each a non-GAAP financial measure,in evaluating its operating results and for financial and operational decision-making purposes.

The Company defines gross billings for a specific period as the total amount of cash received for the sale of course offerings in such period,net of the total amount of refunds in such period. The Company's management uses gross billings as a performance measurement because the Company generally bills its students for the entire course fee at the time of sale of its course offerings and recognizes revenue proportionally as the classes are delivered. For some courses,the Company continues to provide students with 12 months to 36 months access to the pre-recorded audio-video courses after the online live courses are delivered. The Company believes that gross billings provides valuable insight into the sales of its course packages and the performance of its business. As gross billings have material limitations as an analytical metrics and may not be calculated in the same manner by all companies,it may not be comparable to other similarly titled measures used by other companies.

Non-GAAP gross profit,non-GAAP income (loss) from operations and non-GAAP net income (loss) exclude share-based compensation expenses. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based expenses that may not be indicative of its operating performance from a cash perspective. The Company believes that both management and investors benefit from these non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These non-GAAP financial measures also facilitate management's internal comparisons to the Company's historical performance. A limitation of using non-GAAP measures is that these non-GAAP measures exclude share-based compensation charges that have been and will continue to be for the foreseeable future a significant recurring expense in the Company's business.

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 "Reconciliations of non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

Exchange Rate

The Company's business is primarily conducted in China and a significant majority of revenues generated are denominated in Renminbi ("RMB"). This announcement contains currency conversions of RMB amounts into U.S. dollars ("USD") solely for the convenience of the reader. Unless otherwise noted,all translations from RMB to USD are made at a rate of RMB7.2672 to USD1.0000,the effective noon buying rate for June 28,2024 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been,or could be,converted,realized or settled into USD at that rate on June 28,or at any other rate.

For further information,please contact:

Gaotu Techedu Inc.

Investor Relations

E-mail: [email protected]

Christensen

In China

Ms. Vivian Wang

Phone: +852-2232-3978

E-mail: [email protected]

In the US

Ms. Linda Bergkamp

Phone: +1-480-614-3004

Email: [email protected]

GaotuTecheduInc.

Unaudited condensed consolidated balance sheets

(In thousands ofRMBand USD,except for share,per share and per ADS data)

As of December 31,

As of June 30,

2023

2024

2024

RMB

RMB

USD

ASSETS

Current assets

Cash and cash equivalents

636,052

1,414,853

194,690

Restricted cash

33,901

2,397

330

Short-term investments

2,253,910

1,780,283

244,975

Inventory,net

24,596

38,394

5,283

Prepaid expenses and other current assets,net

638,248

594,605

81,821

Total current assets

3,586,707

3,830,532

527,099

Non-current assets

Operating lease right-of-use assets

189,662

424,144

58,364

Property,equipment and software,net

533,531

599,986

82,561

Land use rights,net

26,568

26,165

3,600

Long-term investments

1,029,632

905,829

124,646

Deferred tax assets

11,312

7,332

1,009

Rental deposit

17,742

33,925

4,668

Other non-current assets

18,155

17,941

2,469

TOTAL ASSETS

5,413,309

5,845,854

804,416

LIABILITIES

Current liabilities

Accrued expenses and other current liabilities

(including accrued expenses and other current

liabilities of the consolidated VIE without

recourse to the Group of RMB484,222

and RMB759,764 as of December 31,2023

and June 30,respectively)

805,032

1,104,567

151,992

Deferred revenue,current portion of the

consolidated VIE without recourse to the Group

1,113,480

1,391,924

191,535

Operating lease liabilities,current portion

(including current portion of operating lease

liabilities of the consolidated VIE without

recourse to the Group of RMB34,401 and

RMB90,046 as of December 31,2023 and

June 30,respectively)

50,494

107,521

14,795

Income tax payable (including income tax

payable of the consolidated VIE without

recourse to the Group of RMB4,210 and

nil as of December 31,2023 and June 30,

2024,respectively)

4,278

62

9

Total current liabilities

1,973,284

2,604,074

358,331

GaotuTecheduInc.

Unaudited condensed consolidated balance sheets

(In thousands ofRMBand USD,

2023

2024

2024

RMB

RMB

USD

Non-current liabilities

Deferred revenue,non-current portion of

the consolidated VIE without recourse

to the Group

124,141

190,211

26,174

Operating lease liabilities,non-current

portion (including non-current portion

of operating lease liabilities of the

consolidated VIE without recourse

to the Group of RMB121,277 and

RMB294,494 as of December 31,respectively)

137,652

308,760

42,487

Deferred tax liabilities(including deferred

tax liabilities of the consolidated VIE

without recourse to the Group of

RMB71,850 and RMB71,079 as of

December 31,

respectively)

71,967

71,123

9,787

TOTAL LIABILITIES

2,307,044

3,174,168

436,779

SHAREHOLDERS' EQUITY

Ordinary shares

116

116

16

Treasury stock,at cost

(85,178)

(98,307)

(13,527)

Additional paid-in capital

7,987,957

7,986,214

1,098,940

Accumulated other comprehensive loss

(33,209)

(11,069)

(1,523)

Statutory reserve

50,225

50,225

6,911

Accumulated deficit

(4,813,646)

(5,255,493)

(723,180)

TOTAL SHAREHOLDERS' EQUITY

3,106,265

2,671,686

367,637

TOTAL LIABILITIES AND TOTAL

SHAREHOLDERS' EQUITY

5,416

GaotuTecheduInc.

Unaudited condensed consolidated statements of operations

(In thousands ofRMBand USD,per share and per ADS data)

For the three months ended June 30,

For the six months ended June 30,

2023

2024

2024

2023

2024

2024

RMB

RMB

USD

RMB

RMB

USD

Net revenues

703,094

1,797

138,953

1,386

1,682

269,248

Cost of revenues

(184,380)

(313,433)

(43,130)

(344,362)

(584,847)

(80,478)

Gross profit

518,714

696,364

95,823

1,066,024

1,371,835

188,770

Operating expenses:

Selling expenses

(324,065)

(835,397)

(114,954)

(601,086)

(1,341,778)

(184,635)

Research and development expenses

(98,402)

(162,101)

(22,306)

(195,379)

(313,708)

(43,168)

General and administrative expenses

(52,936)

(163,616)

(22,514)

(131,109)

(258,801)

(35,612)

Total operating expenses

(475,403)

(1,161,114)

(159,774)

(927,574)

(1,914,287)

(263,415)

Income/(loss) from operations

43,311

(464,750)

(63,951)

138,450

(542,452)

(74,645)

Interest income

19,780

21,274

2,927

33,073

39,947

5,497

Realized gains from investments

7,658

7,732

1,064

18,382

14,284

1,966

Other (expenses)/income,net

(6,153)

4,559

627

5,913

48,256

6,640

Income/(loss) before provision for

income tax and share of results of

equity investees

64,596

(431,185)

(59,333)

195,818

(439,965)

(60,542)

Income tax (expenses)/benefits

(4,250)

1,635

225

(21,619)

(1,882)

(259)

Share of results of equity investees

(4,185)

-

-

(4,185)

-

-

Net income/(loss)

56,161

(429,550)

(59,108)

170,014

(441,847)

(60,801)

Net income/(loss) attributable to

Gaotu Techedu Inc.'s ordinary

shareholders

56,801)

Net income/(loss) per ordinary share

Basic

0.32

(2.48)

(0.34)

0.98

(2.56)

(0.35)

Diluted

0.31

(2.48)

(0.34)

0.95

(2.56)

(0.35)

Net income/(loss) per ADS

Basic

0.21

(1.65)

(0.23)

0.65

(1.71)

(0.23)

Diluted

0.21

(1.65)

(0.23)

0.63

(1.71)

(0.23)

Weighted average shares used in net

income/(loss) per share

Basic

174,603,256

173,044,221

173,839,911

172,686,709

172,709

Diluted

179,933,329

173,221

179,520,278

172,709

Note: ThreeADSsrepresent two ordinary shares.

GaotuTecheduInc.

Reconciliationsof non-GAAP measures to the most comparable GAAP measures

(In thousands ofRMBand USD,248

Less: other revenues(1)

20,634

29,233

4,023

36,356

56,500

7,775

Add: VAT and surcharges

42,406

62,586

8,612

86,950

119,993

16,512

Add: ending deferred revenue

922,576

1,582,135

217,709

922,709

Add: ending refund liability

57,650

85,520

11,768

57,768

Less: beginning deferred revenue

770,577

1,003,314

138,061

959,333

1,237,621

170,302

Less: beginning refund liability

52,190

53,799

7,403

60,597

67,157

9,241

Gross billings

882,325

1,692

227,555

1,276

2,052

327,919

Note (1): Include miscellaneous revenues generated from services other than courses.

For the three months ended June 30,

2023

2024

2024

2023

2024

2024

RMB

RMB

USD

RMB

RMB

USD

Gross profit

518,770

Share-based compensation expenses(1) in cost of revenues

3,585

(43)

(6)

7,575

2,278

313

Non-GAAP gross profit

522,299

696,321

95,817

1,073,599

1,374,113

189,083

Income/(loss) from operations

43,645)

Share-based compensation expenses(1)

6,998

11,510

1,584

26,740

26,846

3,694

Non-GAAP income/(loss) from operations

50,309

(453,240)

(62,367)

165,190

(515,606)

(70,951)

Net income/(loss)

56,801)

Share-based compensation expenses(1)

6,694

Non-GAAP net income/(loss)

63,159

(418,040)

(57,524)

196,754

(415,001)

(57,107)

Note (1): The tax effects of share-based compensation expenses adjustments were nil.