Gaotu Techedu Announces Fourth Quarter and Fiscal Year 2022 Unaudited Financial Results

BEIJING,Feb. 28,2023 -- 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 fourth quarter and fiscal year ended December 31,2022.

Fourth Quarter 2022 Highlights[1]

Net revenues were RMB629.6 million,compared with net revenues of RMB1,274.3 million in the same period of 2021.

Gross billings[2] were RMB997.4 million,compared with gross billings of RMB1,006.5 million in the same period of 2021.

Net incomewas RMB70.6 million,compared with net income of RMB285.9 million in the same period of 2021.

Non-GAAP net income was RMB87.4 million,compared with non-GAAP net income of RMB324.4 million in the same period of 2021.

Net operating cash inflowwas RMB476.7 million,compared with net operating cash inflow of RMB245.8 million in the same period of 2021.

[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 gross profit,non-GAAP income (loss) from operations,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.

Fourth Quarter 2022 Key Financial and Operating Data

(In thousands of RMB,except for percentages)

For the three months ended December 31,

2021

2022

Pct. Change

Net revenues

1,274,267

629,631

(50.6)%

Gross billings

1,006,509

997,439

(0.9)%

Net income

285,858

70,613

(75.3)%

Non-GAAP net income

324,387

87,392

(73.1)%

Net operating cash inflow

245,833

476,698

93.9%

Fiscal Year Ended December 31,2022 Highlights

Net revenues were RMB2,498.2 million,compared with net revenues of RMB6,561.7 million in the same period of 2021.

Gross billings were RMB2,534.2 million,compared with gross billings of RMB5,184.2 million in the same period of 2021.

Net incomewas RMB13.2 million,compared with net loss of RMB3,103.5 million in the same period of 2021.

Non-GAAP net incomewas RMB135.8 million,compared with non-GAAP net loss of RMB2,758.2 million in the same period of 2021.

Net operating cash inflowwas RMB54.5 million,compared with net operating cash outflow of RMB4,185.8 million in the same period of 2021.

Fiscal Year 2022 Key Financial and Operating Data

(In thousands of RMB,except for percentages)

Fiscal year ended December 31,

2021

2022

Pct. Change

Net revenues

6,561,747

2,498,214

(61.9)%

Gross billings

5,184,215

2,534,244

(51.1)%

Net (loss)/income

(3,103,465)

13,172

NM

Non-GAAP net (loss)/income

(2,758,206)

135,826

NM

Net operating cash (outflow)/inflow

(4,185,807)

54,545

NM

Larry Xiangdong Chen,the Company's founder,Chairman and CEO,commented,"We delivered a decent set of results in the fourth quarter of 2022. We achieved steady quarter-over-quarter revenue growth for the third consecutive quarter,and demonstrated our superior operational efficiency with a sizable net operating cash inflow. Additionally,we attained profitability on both a quarterly and an annual basis,which is the culmination of our unwavering commitment to the profitable growth strategy and our relentless efforts to optimize customer experience and teaching quality. Alongside the healthy growth momentum,our organization has grown increasingly resilient and cohesive,and we are ready to deliver another year of profitability and meaningful positive net operating cashflow in 2023. Going forward,we will continue to execute our customer-centric,long-term oriented and sustainable growth strategy,to create enduring value for our students,employees and shareholders."

Shannon Shen,CFO of the Company,added,"We secured sequential growth in net revenues as well as profitability during the quarter,and even more noteworthy was our strong performance in the two indicators of superior operational efficiency,gross billings and cashflow from operations. Gross billings increased by a considerable 64.3% quarter-over-quarter to approximately RMB1.0 billion,providing solid ground for topline growth in 2023. Moreover,as we recorded a net income margin of 11.2% and a non-GAAP net income margin of 13.9%,we also generated a meaningful net operating cash inflow of RMB476.7 million in the quarter,validating our continuous improvement and efficiency enhancement efforts. At the same time,our founder,Chairman and CEO Larry Chen has increased his shareholding by an aggregate of 3.6 million ADSs in 2022,highlighting management's firm confidence in the future development of our company. As we welcome these paradigm-shifting technological advancements,we will continue to focus on optimizing teaching quality and services through comprehensive curriculum design,and leveraging cutting-edge technology to deliver a more enjoyable learning experience."

Financial Results for the Fourth Quarter of 2022

Net Revenues

Net revenues decreased by 50.6% to RMB629.6 million from RMB1,274.3 million in the fourth 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 58.8% to RMB159.3 million from RMB386.7 million in the fourth 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,bandwidth cost,as well as rental and depreciation expenses.

Gross Profit and Gross Margin

Gross profit was RMB470.3 million,compared with RMB887.6 million in the fourth quarter of 2021. Gross profit margin increased to 74.7% from 69.7% in the same period of 2021.

Non-GAAP gross profit was RMB473.9 million,compared with RMB908.2 million in the same period of 2021. Non-GAAP gross profit margin increased to 75.3% from 71.3% in the same period of 2021.

Operating Expenses

Operating expenses decreased by 23.2% to RMB483.6 million from RMB629.3 million in the fourth quarter of 2021. The decline was primarily due to the reduction of employees and offices as a result of the Business Restructuring,which resulted in decreases in staff-related expenses and rental expenses,as well as a decline in expenditures for branding and marketing activities. Moreover,the Company performed long-lived assets impairment assessment and disposed some assets in the fourth quarter of 2021,which resulted in losses during the quarter.

Selling expenses decreased to RMB289.8 million from RMB373.0 million in the fourth quarter of 2021.

Research and development expenses decreased to RMB111.4 million from RMB125.0 million in the fourth quarter of 2021.

General and administrative expenses decreased to RMB82.4 million from RMB95.9 million in the fourth quarter of 2021.

Impairment loss on long-lived assets decreased to nil from RMB14.1 million in the fourth quarter of 2021.

Disposal loss on assets decreased to nil from RMB21.3 million in the fourth quarter of 2021.

Income/(Loss) from Operations

Loss from operations was RMB13.2 million,compared with income from operations of RMB258.3 million in the fourth quarter of 2021.

Non-GAAP income from operations was RMB3.5 million,compared with non-GAAP income from operations of RMB296.8 million in the fourth quarter of 2021.

Interest Income and Realized Gains from Investments

Interest income and realized gains from investments,on aggregate,were RMB22.4 million,compared with a total of RMB15.9 million in the fourth quarter of 2021.

Other Income

Other income was RMB26.9 million,compared with other income of RMB11.2 million in the fourth quarter of 2021.

Net Income

Net income was RMB70.6 million,compared with net income of RMB285.9 million in the fourth quarter of 2021.

Non-GAAP net income was RMB87.4 million,compared with non-GAAP net income of RMB324.4 million in the fourth quarter of 2021.

Cash Flow

Net operating cash inflow in the fourth quarter of 2022 was RMB476.7 million. The operating cash inflow in the fourth quarter was mainly due to sizable quarter-over-quarter increase in gross billings.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were both RMB0.27 in the fourth quarter of 2022.

Non-GAAP basic and diluted net income per ADS were RMB0.34 and RMB0.33,respectively,in the fourth quarter of 2022.

Share Outstanding

As of December 31,2022,the Company had 172,858,544 ordinary shares outstanding.

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

As of December 31,the Company had cash and cash equivalents,restricted cash and short-term investments of RMB3,743.8 million in aggregate,compared with a total of RMB3,671.1 million as of December 31,2021.

Financial Results for the Fiscal Year of 2022

Net Revenues

Net revenues were RMB2,561.7 million in 2021. The decrease was mainly due to the Business Restructuring,which resulted in a decline in enrollments.

Cost of revenues

Cost of revenues was RMB701.1 million,compared with cost of revenues of RMB2,397.6 million in 2021. The decrease was mainly due to the reduction of employees and offices as a result of the Business Restructuring,rental expenses,as well as teaching materials and bandwidth cost.

Gross Profit and Gross Margin

Gross profit was RMB1,797.2 million,compared with gross profit of RMB4,164.1 million in 2021. Gross profit margin increased to 71.9% from 63.5% in 2021.

Non-GAAP gross profit was RMB1,839.7 million,compared with non-GAAP gross profit of RMB4,282.3 million in 2021. Non-GAAP gross profit margin increased to 73.6% from 65.3% in 2021.

Operating Expenses

Operating expenses were RMB1,915.2 million,compared with operating expenses of RMB7,344.5 million in 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 the disposal of assets the Company performed in 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 RMB1,179.8 million from RMB5,129.3 million in 2021.

Research and development decreased to RMB445.1 million from RMB1,252.9 million in 2021.

General and administrative expenses decreased to RMB290.3 million from RMB720.3 million in 2021.

Impairment loss on long-lived assets was nil,compared with RMB95.8 million for 2021.

Disposal loss on assets was nil,compared with RMB146.2 million for 2021.

Income/(Loss) from Operations

Loss from operations was RMB118.1 million,compared with loss from operations of RMB3,180.3 million in 2021.

Non-GAAP income from operations was RMB4.6 million,compared with non-GAAP loss from operations of RMB2,835.1 million in 2021.

Interest Income and Realized Gains from Investment

Interest income and realized gains from investments,were RMB63.6 million,compared with a total of RMB97.2 million in 2021.

Other Income

Other income was RMB51.9 million,compared with other income of RMB20.9 million in 2021.

Net Income/(Loss)

Net income was RMB13.2 million,103.5 million in 2021.

Non-GAAP net income was RMB135.8 million,758.2 million in 2021.

Cash Flow

Net operating cash inflow was RMB54.5 million,185.8 million in 2021.

Basic and Diluted Net Income per ADS

Basic and diluted net income per ADS were both RMB0.05 in 2022.

Non-GAAP basic and diluted net income per ADS were RMB0.53 and RMB0.51,in 2022.

Business Outlook

Based on the Company's current estimates,total net revenues for the first quarter of 2023 are expected to be between RMB686 million and RMB706 million,representing a decrease of 5.3% to 2.6% 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,February 28,2023 (9:00 PM on Tuesday,2023,Beijing/Hong Kong Time). 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:

6298152

A telephone replay will be available two hours after the conclusion of the conference call through March 7,2023. The dial-in details are:

International:

1-412-317-0088

United States:

1-877-344-7529

Passcode:

1763328

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

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,and such adjustment excludes the impact on income tax. 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 RMB6.8972 to USD1.0000,the effective noon buying rate for December 30,2022 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 December 30,or at any other rate.

For further information,please contact:

Gaotu Techedu Inc.

Investor Relations

E-mail: ir@gaotu.cn

Christensen

In China

Ms. Vivian Wang

Phone: +852-2232-3978

E-mail: gotu@christensencomms.com

In the US

Ms. Linda Bergkamp

Phone: +1-480-614-3004

Email: lbergkamp@christensenir.com

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 December 31,

2021

2022

2022

RMB

RMB

USD

ASSETS

Current assets

Cash and cash equivalents

728,934

819,911

118,876

Restricted cash

168,189

22

3

Short-term investments

2,774,000

2,923,864

423,920

Inventory

15,595

22,783

3,303

Prepaid expenses and other current assets

250,068

399,897

57,980

Total current assets

3,936,786

4,166,477

604,082

Non-current assets

Operating lease right-of-use assets

353,877

83,663

12,130

Property,equipment and software,net

680,009

552,032

80,037

Land use rights,net

28,178

27,373

3,969

Deferred tax assets

-

15,679

2,273

Rental deposit

22,544

9,502

1,378

Other non-current assets

3,272

21,449

3,110

TOTAL ASSETS

5,024,666

4,876,175

706,979

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

RMB417,032 and RMB367,477 as

of December 31,2021 and December 31,

2022,respectively)

693,265

662,189

96,009

Deferred revenue,current portion of the

consolidated VIE without recourse to the

Group

986,993

906,914

131,490

Operating lease liabilities,current portion

(including current portion of operating lease

liabilities of the consolidated VIE without

recourse to the Group of RMB41,479 and

RMB21,281 as of December 31,2021 and

December 31,respectively)

80,010

38,326

5,557

Income tax payable (including income tax

payable of the consolidated VIE without

recourse to the Group of nil and RMB260

as of December 31,respectively)

-

1,793

260

Total current liabilities

1,760,268

1,609,222

233,316

GaotuTecheduInc.

Unaudited condensed consolidated balance sheets

(In thousands ofRMBand USD,

2021

2022

2022

RMB

RMB

USD

Non-current liabilities

Deferred revenue,non-current portion of

the consolidated VIE without recourse

to the Group

9,225

52,419

7,600

Operating lease liabilities,non-current

portion (including non-current portion

of operating lease liabilities of the

consolidated VIE without recourse

to the Group of RMB158,824 and

RMB17,457 as of December 31,2021

and December 31,respectively)

276,035

44,198

6,408

Deferred tax liabilities(including deferred

tax liabilities of the consolidated VIE without

recourse to the Group of RMB71,616 and

RMB74,341 as of December 31,respectively)

71,616

74,507

10,802

Other payables of the consolidated VIE

without recourse to the Group

26,580

-

-

TOTAL LIABILITIES

2,143,724

1,780,346

258,126

SHAREHOLDERS' EQUITY

Ordinary shares

114

115

17

Additional paid-in capital

7,793,234

7,915,899

1,147,697

Accumulated other comprehensive loss

(143,111)

(64,062)

(9,288)

Statutory reserve

40,380

40,380

5,855

Accumulated deficit

(4,809,675)

(4,796,503)

(695,428)

TOTAL SHAREHOLDERS' EQUITY

2,880,942

3,095,829

448,853

TOTAL LIABILITIES AND TOTAL

SHAREHOLDERS' EQUITY

5,979

GaotuTecheduInc.

Unaudited condensed consolidated statements of operations

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

For the three months ended December 31,

For the year ended December 31,

2021

2022

2022

2021

2022

2022

RMB

RMB

USD

RMB

RMB

USD

Net revenues

1,267

629,631

91,288

6,747

2,214

362,207

Cost of revenues

(386,652)

(159,302)

(23,097)

(2,397,604)

(701,050)

(101,643)

Gross profit

887,615

470,329

68,191

4,164,143

1,797,164

260,564

Operating expenses:

Selling expenses

(373,035)

(289,812)

(42,019)

(5,129,267)

(1,179,760)

(171,049)

Research and development expenses

(124,977)

(111,401)

(16,152)

(1,252,877)

(445,117)

(64,536)

General and administrative expenses

(95,913)

(82,364)

(11,942)

(720,253)

(290,339)

(42,095)

Impairment loss on long-lived assets

(14,104)

-

-

(95,844)

-

-

Disposal loss on assets

(21,270)

-

-

(146,245)

-

-

Total operating expenses

(629,299)

(483,577)

(70,113)

(7,344,486)

(1,216)

(277,680)

Income/(loss) from operations

258,316

(13,248)

(1,922)

(3,180,343)

(118,052)

(17,116)

Interest income

4,296

7,600

1,102

31,460

21,370

3,098

Realized gains from investments

11,582

14,778

2,143

65,763

42,264

6,128

Other income

11,215

26,922

3,903

20,906

51,885

7,523

Income/(loss) before provision for income tax

and share of results of equity investees

285,409

36,052

5,226

(3,062,214)

(2,533)

(367)

Income tax benefits/(expenses)

449

34,561

5,011

(40,949)

15,705

2,277

Share of results of equity investees

-

-

-

(302)

-

-

Net income/(loss)

285,858

70,613

10,237

(3,465)

13,172

1,910

Net income/(loss) attributable to Gaotu Techedu

Inc.'s ordinary shareholders

285,910

Net income/(loss) per ordinary share

Basic

1.67

0.41

0.06

(18.17)

0.08

0.01

Diluted

1.63

0.40

0.06

(18.17)

0.07

0.01

Net income/(loss) per ADS

Basic

1.11

0.27

0.04

(12.11)

0.05

0.01

Diluted

1.09

0.27

0.04

(12.11)

0.05

0.01

Weighted average shares used in net income/(loss)

per share

Basic

171,204,907

172,754,938

172,938

170,790,979

172,254,080

172,080

Diluted

175,669,582

176,653,111

176,111

170,979

175,991,484

175,484

Note: ThreeADSsrepresent two ordinary shares.

GaotuTecheduInc.

Reconciliationsof non-GAAP measures to the most comparable GAAP measures

(In thousands ofRMBand USD,207

Less: other revenues(1)

306

11,682

911

62,104

9,004

Add: VAT and surcharges

76,684

38,716

5,613

402,979

153,052

22,190

Add: ending deferred revenue

996,218

959,333

139,090

996,090

Add: ending refund liability

78,630

60,597

8,786

78,786

Less: beginning deferred revenue

1,360,329

638,426

92,563

2,733,739

996,218

144,438

Less: beginning refund liability

58,655

40,812

5,917

120,709

78,630

11,400

Gross billings

1,509

997,439

144,615

5,215

2,244

367,431

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

For the three months ended December 31,

2021

2022

2022

2021

2022

2022

RMB

RMB

USD

RMB

RMB

USD

Gross profit

887,564

Share-based compensation expenses

in cost of revenues

20,591

3,572

518

118,145

42,490

6,160

Non-GAAP gross profit

908,206

473,901

68,709

4,282,288

1,839,654

266,724

Income/(loss) from operations

258,116)

Share-based compensation expenses

38,529

16,779

2,433

345,259

122,654

17,783

Non-GAAP income/(loss) from operations

296,845

3,531

511

(2,835,084)

4,602

667

Net income/(loss)

285,910

Share-based compensation expenses

38,783

Non-GAAP net income/(loss)

324,387

87,392

12,670

(2,206)

135,826

19,693