20-F

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022.

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number: 001-38923

Gaotu Techedu Inc.
(Exact name of Registrant as specified in its charter)

N/A
(Translation of Registrant’s name into English)

Cayman Islands
(Jurisdiction of incorporation or organization)

5F, Gientech Building, 17 East Zone,
10 Xibeiwang East Road
Haidian District, Beijing 100193
People’s Republic of China
(Address of principal executive offices)

Nan Shen, Chief Financial Officer
E-mail: shennan@gaotu.cn
5F, Gientech Building, 17 East Zone,
10 Xibeiwang East Road
Haidian District, Beijing 100193
People’s Republic of China
Telephone: +86 10 8282-6826
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American Depositary Shares, every three representing two Class A ordinary shares, par value US$0.0001 per share	GOTU	New York Stock Exchange
Class A ordinary shares, par value US$0.0001 per share*		New York Stock Exchange

(1)*Not for trading, but only in connection with the listing on the New York Stock Exchange of our American depositary shares, every three American depositary shares representing two Class A ordinary shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2022, there were 172,858,544 ordinary shares outstanding, being the sum of 99,553,256 Class A ordinary shares and 73,305,288 Class B ordinary shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has been to prepare the financial statements included in this filing:

U.S. GAAP ☒  International Financial Reporting Standards as issued
by the International Accounting Standards Board ☐   Other ☐

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No

TABLE OF CONTENTS

INTRODUCTION			5
FORWARD-LOOKING INFORMATION			6
PART I.			7
	ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	7
	ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	7
	ITEM 3.	KEY INFORMATION	7
	ITEM 4.	INFORMATION ON THE COMPANY	60
	ITEM 4A.	UNRESOLVED STAFF COMMENTS	98
	ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	99
	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	113
	ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	121
	ITEM 8.	FINANCIAL INFORMATION	123
	ITEM 9.	THE OFFER AND LISTING	124
	ITEM 10.	ADDITIONAL INFORMATION	125
	ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	140
	ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	141
PART II.			142
	ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	142
	ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	142
	ITEM 15.	CONTROLS AND PROCEDURES	143
	ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	145
	ITEM 16B.	CODE OF ETHICS	145
	ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	145
	ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	145
	ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	146
	ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	146
	ITEM 16G.	CORPORATE GOVERNANCE	146
	ITEM 16H.	MINE SAFETY DISCLOSURE	146
	ITEM 16I.	DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS	147
PART III.			147
	ITEM 17.	FINANCIAL STATEMENTS	147
	ITEM 18.	FINANCIAL STATEMENTS	147
	ITEM 19.	EXHIBITS	148

4

INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report to:

•“ADRs” are to the American depositary receipts that may evidence the ADSs;

•“ADSs” are to the American depositary shares, every three of which represent two Class A ordinary shares;

•“Beijing Lexuebang” are to Beijing Lexuebang Network Technology Co., Ltd.;

•“Beijing Yuexuebang” are to Beijing Yuexuebang Network Technology Co., Ltd.;

•“BVI” are to the British Virgin Islands;

•“Class A ordinary shares” are to our Class A ordinary shares, par value US$0.0001 per share;

•“Class B ordinary shares” are to our Class B ordinary shares, par value US$0.0001 per share;

•“gross billings” for a specific period are to the total amount of cash received for the sale of course offerings, net of the total amount of refunds in such period;

•“Gaotu,” “we,” “us,” “our company” and “our” are to Gaotu Techedu Inc., our Cayman Islands holding company and its subsidiaries, and in the context of describing our operations and combined and consolidated financial information, also include the VIE and its subsidiaries. The VIE is a domestic company incorporated in mainland China in which we do not have any equity ownership but whose financial results have been consolidated into our consolidated financial statements based solely on contractual arrangements in accordance with U.S. GAAP. See “Item 4. Information on the Company—C. Organizational Structure” for an illustrative diagram of our corporate structure;

•“NYSE” are to the New York Stock Exchange;

•“paid courses” are to our courses that are charged not less than RMB99.00 per course in fees;

•“paid course enrollments” for a certain period are to the cumulative number of paid courses enrolled in and paid for by our students, including multiple paid courses enrolled in and paid for by the same student;

•“RMB” and “Renminbi” are to the legal currency of mainland China;

•“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States;

•“VIE” or “Beijing Gaotu” are to Gaotu Education Technology Co., Ltd., formerly known as Beijing BaiJia Technology Co., Ltd., or Beijing BaiJia Hulian Technology Co., Ltd.; and

•“Wuhan Yuexuebang” are to Wuhan Yuexuebang Network Technology Co., Ltd.

We present our financial results in RMB. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. This annual report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at the rate at RMB6.8972 to US$1.0000, the exchange rate as set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System in effect as of December 30, 2022.

5

FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements that involve risks and uncertainties. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

•relevant government policies and regulations relating to our industry;

•our goals and strategies;

•our ability to retain and increase the number of students and expand our service offerings;

•our future business development, financial condition and results of operations;

•expected changes in our revenues, costs or expenditures;

•competition in our industry;

•general economic and business conditions globally and in China; and

•assumptions underlying or related to any of the foregoing.

You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect. Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

6

PART I.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Our Holding Company Structure and Contractual Arrangements with the VIE

Gaotu Techedu Inc. is not a PRC operating company but a Cayman Islands holding company with operations primarily conducted through (i) our subsidiaries incorporated in mainland China, or mainland China subsidiaries, and (ii) contractual arrangements with its VIE and its subsidiaries based in mainland China. The laws and regulations of mainland China restrict and impose conditions on foreign direct investment in internet content, value-added telecommunication-based online marketing, audio and video services and mobile application distribution businesses. Accordingly, we operate these businesses in mainland China through the VIE, and rely on contractual arrangements among our mainland China subsidiaries, the VIE and its shareholders to control the business operations of the VIE. The VIE is consolidated for accounting purposes, but is not an entity in which our Cayman Islands holding company, or our investors, own equity. Revenues contributed by the VIE accounted for 100%, 100% and 100% of our total revenues for the year ended December 31, 2020, 2021 and 2022, respectively. As used in this annual report, “we,” “us,” “our company,” “our,” or “Gaotu” refers to Gaotu Techedu Inc., its subsidiaries, and, in the context of describing our operations and consolidated financial information, the VIE and its subsidiaries. Investors in our ADSs are not purchasing equity interest in the VIE in mainland China, but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.

Our subsidiaries, the VIE and its shareholders have entered into a series of contractual agreements. These contractual arrangements:

•enable us to receive the economic benefits that could potentially be significant to the VIE in consideration for the services provided by our subsidiaries;

•effectively assigned all of the voting rights underlying the nominee shareholders’ equity interest in the VIE to us; and

•enable us to hold an exclusive option to purchase all or part of the equity interests in the VIE when and to the extent permitted by the laws of mainland China.

A series of contractual agreements, including equity interest pledge agreement, exclusive call option agreement, exclusive management services and business cooperation agreement, power of attorney and spousal consent letter, have been entered into by and among our subsidiaries, the VIE and its shareholders. Terms contained in each set of contractual arrangements with the VIE and its shareholders are substantially similar. Despite the lack of legal majority ownership, our Cayman Island holding company is considered the primary beneficiary of the VIE and consolidates the VIE and its subsidiaries as required by Accounting Standards Codification (“ASC”) topic 810, Consolidation. Accordingly, we treat VIE as a consolidated entity under the accounting principles generally accepted in the United States, or U.S. GAAP, and we consolidate the financial results of the VIE in our consolidated financial statements in accordance with U.S. GAAP. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIE and Its Shareholders.”

7

However, the contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the legal system of mainland China may limit our ability, as a Cayman Islands holding company, to enforce these contractual arrangements. Meanwhile, there are very few precedents as to how contractual arrangements in the context of a VIE should be interpreted or enforced by the courts of mainland China. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the VIE contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exercise the voting rights in the VIE that these contractual arrangements assigned to us, and our ability to conduct our business may be materially adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the VIE and its shareholders for our business operations, which may not be as effective as direct ownership in providing operational control” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.”

There are also substantial uncertainties regarding the interpretation and application of current and future laws, regulations and rules of mainland China regarding the status of the rights of our Cayman Islands holding company with respect to its contractual arrangements with the VIE and its nominee shareholders. It is uncertain whether any new laws or regulations of mainland China relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or the VIE is found to be in violation of any existing or future laws or regulations of mainland China, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. If the PRC government deems that our contractual arrangements with the VIE do not comply with regulatory restrictions of mainland China on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Since administrative and court authorities of mainland China have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. Our Cayman Islands holding company, our mainland China subsidiaries and VIE, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China’s regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business, financial condition and results of operations.”

Our corporate structure is subject to risks associated with our contractual arrangements with the VIE. Our company and its investors may never have a direct ownership interest in the businesses that are conducted by the VIE. Uncertainties in the legal system of mainland China could limit our ability to enforce these contractual arrangements, and these contractual arrangements have not been tested in a court of law. If the PRC government finds that the agreements that establish the structure for operating our business in mainland China do not comply with the laws and regulations of mainland China, or if these regulations or the interpretation of existing regulations change or are interpreted differently in the future, we and the VIE could be subject to severe penalties or be forced to relinquish our interests in those operations. This would result in the VIE being deconsolidated. The necessary licenses to conduct business in mainland China are held by the VIE. All of our revenues are generated by the VIE. An event that results in the deconsolidation of the VIE would have a material effect on our operations and result in the value of the securities of our company diminish substantially or even become worthless. Our company, our mainland China subsidiaries and VIE, and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financial performance of the VIE and our company as a whole. Gaotu Techedu Inc. may not be able to repay its indebtedness, and the Class A ordinary shares or ADSs of our company may decline in value or become worthless, if we are unable to assert our contractual control rights over the assets of our mainland China subsidiaries and VIE that conduct all or substantially all of our operations. For a detailed description of the risks associated with our corporate structure, please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”

8

Other Risks related to Our PRC Operations

We face various legal and operational risks and uncertainties associated with being based in or having our operations in China, and we are subject to complex and evolving laws and regulations of mainland China. For example, we face risks associated with regulatory approvals on offshore offerings, the use of the VIE, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline or become worthless. For a detailed description of risks related to doing business in China, “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”

PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, mainland China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline or become worthless. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.”

Risks and uncertainties arising from the legal system in mainland China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in mainland China, could result in a material adverse change in our operations and the value of our ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legal system of mainland China could adversely affect us.”

The Holding Foreign Companies Accountable Act

Pursuant to the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of this annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”

9

Cash Flows through Our Organization

Gaotu Techedu Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our mainland China subsidiaries, the VIE and its subsidiaries in mainland China. As a result, Gaotu Techedu Inc.’s ability to pay dividends depends upon dividends paid by our mainland China subsidiaries. If our existing mainland China subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, current regulations of mainland China permit our mainland China subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with mainland China’s accounting standards and regulations. Furthermore, each of our mainland China subsidiaries and the VIE is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Our subsidiaries’ ability to distribute dividends is based upon their distributable earnings.

We have established stringent controls and procedures for cash flows within our organization. Each transfer of cash between our Cayman Islands holding company and subsidiaries, the VIE or the subsidiaries of the VIE is subject to internal approval. The cash inflows of the Cayman Islands holding company were primarily generated from the proceeds we received from our public offerings of ordinary shares and other financing activities. For the years ended December 31, 2020, 2021 and 2022, the Cayman Islands holding company did not provide capital contributions to our subsidiaries. For the years ended December 31, 2020, 2021 and 2022, the Cayman Islands holding company provided loans of RMB195.8 million, RMB6,248.2 million and RMB303.2 million (US$44.0 million), respectively, to our subsidiaries, and received repayments of nil, RMB706.9 million and RMB100.0 million (US$14.5 million), respectively. For the years ended December 31, 2020, 2021 and 2022, the VIE did not receive, or repay any loans provided by the Cayman Islands holding company. For the years ended December 31, 2020, 2021 and 2022, no assets other than cash were transferred between our Cayman Islands holding company and subsidiaries, the VIE or its subsidiaries, no subsidiaries paid dividends or made other distributions to the holding company, and no dividends or distributions were paid or made to U.S. investors. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Pursuant to the Exclusive Management Services and Business Cooperation Agreement between Beijing Lexuebang, Wuhan Yuexuebang, and Beijing Yuexuebang (collectively, the “WFOEs”) and the VIE and its shareholders, the amount of service fee and payment method should be determined by the WFOEs in its sole discretion. According to this agreement, for the years ended December 31, 2020, 2021 and 2022, the WFOEs charged nil, nil, and RMB131.4 million (US$19.1 million) service fees from the VIE, respectively. We plan to continue to determine the amount of service fee and payment method with the VIE and its shareholders based on our evaluation of their working capital needs, and settle fees under the contractual arrangements accordingly in the future.

As a Cayman Islands holding company, we may receive dividends from our mainland China subsidiaries. Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and related regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise, such as our mainland China subsidiaries, to any of its foreign non-resident enterprise investors, and proceeds from any such foreign enterprise investor’s disposition of assets (after deducting the net value of such assets) are subject to a 10% withholding tax, unless the foreign enterprise investor’s jurisdiction of incorporation has a tax treaty with mainland China that provides for a reduced rate of withholding tax. The Cayman Islands, where Gaotu Techedu Inc., the direct parent company of the WFOEs, is incorporated, does not have such a tax treaty with mainland China. Hong Kong has a tax arrangement with mainland China that provides for a 5% withholding tax on dividends subject to certain conditions and requirements, such as the requirement that the Hong Kong resident enterprise own at least 25% of the mainland China enterprise distributing the dividend at all times within the 12-month period immediately preceding the distribution of dividends and be a “beneficial owner” of the dividends. For example, BaiJiaHuLian HK Holdings Limited (“BaiJiaHuLian HK”), which directly owns Beijing Lexuebang, is incorporated in Hong Kong. However, if BaiJiaHuLian HK is not considered to qualify for any conditions and requirements under applicable tax circulars, and such dividends would be subject to withholding tax at a rate of 10%. If our mainland China subsidiaries declare and distribute profits to us, such payments will be subject to withholding tax, which will increase our tax liability and reduce the amount of cash available to our company. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We may rely on dividends paid by our mainland China subsidiaries to fund cash and financing requirements. Any limitation on the ability of our mainland China subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our ADSs and our ordinary shares.” For more details. If our holding company in the Cayman Islands or any of our subsidiaries outside of mainland China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a mainland China resident enterprise for income tax purposes, such classification could result in unfavorable tax consequences to us and our non-domestic shareholders or the ADS holders.”

For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within mainland China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay dividends in the future.

10

	Tax calculation(1)
Hypothetical pre-tax earnings(2)	100%
Tax on earnings at statutory rate of 25%(3)	(25%)
Net earnings available for distribution	75%
Withholding tax at standard rate of 10%(4)	(7.5%)
Net distribution to Parent/Shareholders	67.5%

Notes:

(1) For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to equal taxable income in mainland China.

(2) Under the terms of VIE agreements, our mainland China subsidiaries may charge the VIE for services provided to the VIE. These service fees shall be recognized as expenses of the VIE, with a corresponding amount as service income by our mainland China subsidiaries and eliminate in consolidation. For income tax purposes, our mainland China subsidiaries and VIE files income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by the VIE and as income by our mainland China subsidiaries and are tax neutral.

(3) Certain of our subsidiaries and VIE qualifies for a 15% preferential income tax rate in mainland China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.

(4) The PRC Enterprise Income Tax Law and related regulations impose a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or FIE, to its immediate holding company outside of mainland China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with mainland China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.

The table above has been prepared under the assumption that all profits of the VIE will be distributed as fees to our mainland China subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIE exceed the service fees paid to our mainland China subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese tax authorities), the VIE could make a non-deductible transfer to our mainland China subsidiaries for the amounts of the stranded cash in the VIE. This would result in such transfer being non-deductible expenses for the VIE but still taxable income for the mainland China subsidiaries. Our management believes that there is only a remote possibility that this scenario would happen.

In addition, our mainland China subsidiaries, the VIE and its subsidiaries generate their revenue primarily in Renminbi, which is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our mainland China subsidiaries to pay dividends to us. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends paid by our mainland China subsidiaries to fund cash and financing requirements. Any limitation on the ability of our mainland China subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our ADSs and our ordinary shares.” And “—Mainland China’s regulation of loans to and direct investment in mainland China entities by offshore holding companies and governmental control of currency conversion may delay or prevent us to make loans to or make additional capital contributions to our mainland China subsidiaries and consolidated variable interest entity, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

11

Permissions Required from the PRC Authorities for Our Operations

We conduct our business primarily through our subsidiaries and the VIE in mainland China. Our operations in mainland China are governed by laws and regulations of mainland China. As of the date of this annual report, other than disclosed in “—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to obtain or renew requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations,” our mainland China subsidiaries, the VIE and its subsidiaries have obtained the licenses and permits from the PRC government authorities that are material for the business operations of our holding company, the VIE in mainland China, including, among others, the Value-added Telecommunications Business Operation License for information services via internet, or ICP License, and the Permit for Production and Operation of Radio and TV Programs. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform at the present stage or in the future. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to obtain or renew requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations.”

Meanwhile, the PRC government has recently sought to exert more oversight and control over capital raising activities of listed companies that are conducted overseas and/or foreign investment in China-based issuers. In December 2021, the Cyberspace Administration of China, or the CAC, together with other authorities, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services and network platform operators that conduct data process activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any public offering at a foreign stock exchange.

On February 17, 2023, China Securities Regulatory Commission, or the CSRC, released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, pursuant to which (i) a major PRC operating entity designated by us may be required to be file with the CSRC, in connection with any follow-on offering and other certain activities as required by the Trial Measures; and (ii) we may be required to report relevant information to the CSRC after the occurrence of certain events. On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that prior to the effectiveness of the Trial Measures, domestic companies that have already completed the overseas offering and listing are not required to complete the filing procedure at the current stage, but shall complete the filing procedure upon the occurrence of certain matters, such as follow-on offering of securities, as required in the Trial Measures. Therefore, under the Trial Measures, we are not required to file to the CSRC of our previous offering and listing on the NYSE, but could be subject to the filing and reporting requirements to the CSRC with respect to future offerings and occurrence of certain events. If we fail to complete the filing procedures or conceals any material fact or falsifies any major content in its filing documents for any follow-on offering and other certain activities as required by the Trial Measures, we may be subject to administrative penalties, such as order to rectify, warnings, fines or other actions that may materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our ADSs. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The filing with the CSRC or other PRC government authorities may be required in connection with our future follow-on offerings and the occurrence of certain material events under the laws of mainland China, and, if required, we cannot predict whether or for how long we will be able to complete such filing.”

12

A. [Reserved]

Selected Consolidated Financial Data

The following selected consolidated statements of operations for the years ended December 31, 2020, 2021 and 2022 and selected consolidated balance sheet data as of December 31, 2021 and 2022 and selected consolidated cash flows data for the years ended December 31, 2020, 2021 and 2022 have been derived from our audited consolidated financial statements included in this annual report beginning on page F-1. The following selected consolidated statement of operations for the year ended December 31, 2018 and 2019, selected consolidated balance sheet data as of December 31, 2018, 2019 and 2020, and selected consolidated cash flows data for the year ended December 31, 2018 and 2019 have been derived from our audited consolidated financial statements that are not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Despite the lack of legal majority ownership, our Cayman Island holding company is considered the primary beneficiary of the VIE and its subsidiaries and consolidates the VIE and its subsidiaries as required by Accounting Standards Codification topic 810, Consolidation. Accordingly, we treat the VIE and its subsidiaries as our consolidated entities under U.S. GAAP and we consolidate the financial results of the VIE and its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP. Our historical results for any period are not necessarily indicative of results to be expected for any future period. The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” below. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.

	For the Year Ended December 31,
	2018			2019			2020			2021			2022
	RMB			RMB			RMB			RMB			RMB			US$
	(in thousands, except for share amounts and per share data)
Selected Consolidated Statements of Operations
Net revenues		397,306			2,114,855			7,124,744			6,561,747			2,498,214			362,207
Cost of revenues(1)		(142,753	)		(535,912	)		(1,762,548	)		(2,397,604	)		(701,050	)		(101,643	)
Gross profit		254,553			1,578,943			5,362,196			4,164,143			1,797,164			260,564
Operating expenses
Selling expenses (1)		(121,518	)		(1,040,906	)		(5,816,214	)		(5,129,267	)		(1,179,760	)		(171,049	)
Research and development expenses (1)		(74,050	)		(212,197	)		(734,450	)		(1,252,877	)		(445,117	)		(64,536	)
General and administrative expenses (1)		(39,831	)		(110,106	)		(566,565	)		(720,253	)		(290,339	)		(42,095	)
Impairment loss on long-lived assets	—			—			—				(52,544	)		—			—
Impairment loss on goodwill	—			—			—				(43,300	)		—			—
Disposal loss on assets	—			—			—				(146,245	)		—			—
Total operating expenses		(235,399	)		(1,363,209	)		(7,117,229	)		(7,344,486	)		(1,915,216	)		(277,680	)
Income/(loss) from operations		19,154			215,734			(1,755,033	)		(3,180,343	)		(118,052	)		(17,116	)
Interest income		2,193			8,861			3,372			31,460			21,370			3,098
Realized gains from investments	—				11,395			70,403			65,763			42,264			6,128
Other income(2)		50			6,249			253,646			20,906			51,885			7,523
Income(loss) before provision for income tax and    share of results of equity investees		21,397			242,239			(1,427,612	)		(3,062,214	)		(2,533	)		(367	)
Income tax (expenses)/benefits		(2,616	)		(16,957	)		34,619			(40,949	)		15,705			2,277
Share of results of equity investees		869			1,348			63			(302	)		—			—
Net income/(loss)		19,650			226,630			(1,392,930	)		(3,103,465	)		13,172			1,910
Series A convertible redeemable preferred shares    redemption value accretion		(38,930	)		(16,772	)	—			—				—			—
Undistributed earnings allocated to the participating    preferred shares	—				(21,698	)	—			—				—			—
Net (loss)/income attributable to Gaotu Techedu Inc.’s    ordinary shareholders		(19,280	)		188,160			(1,392,930	)		(3,103,465	)		13,172			1,910
Net (loss)/income per ordinary share
Basic		(0.21	)		1.42			(8.72	)		(18.17	)		0.08			0.01
Diluted		(0.21	)		1.35			(8.72	)		(18.17	)		0.07			0.01
Weighted average shares used in net (loss)/income    per share
Basic		92,224,998			132,400,941			159,725,779			170,790,979			172,254,080			172,254,080
Diluted		92,224,998			139,477,898			159,725,779			170,790,979			175,991,484			175,991,484

13

Note:

(1)Share-based compensation expenses are in cost of revenues and operating expenses as follows:

	For the Year Ended December 31,
	2018		2019		2020		2021		2022
	RMB		RMB		RMB		RMB		RMB		US$
	(in thousands)
Share-based compensation expenses
Cost of revenues		283		16,504		66,422		118,145		42,490		6,160
Selling expenses		429		5,606		18,039		44,402		6,659		965
Research and development expenses		782		16,357		94,952		130,620		39,172		5,679
General and administrative expenses		4,423		21,770		59,033		52,092		34,333		4,979
Total		5,917		60,237		238,446		345,259		122,654		17,783

(2)The amount of other expenses from 2018 to 2021 have been combined with other income.

The following table presents our selected consolidated balance sheets data as of December 31, 2018, 2019, 2020, 2021 and 2022:

	As of December 31,
	2018			2019		2020		2021		2022
	RMB			RMB		RMB		RMB		RMB		US$
	(in thousands)
Cash and cash equivalents		33,259			73,967		355,224		728,934		819,911		118,876
Restricted cash	—			—		—			168,189		22		3
Short-term investments		197,991			1,473,452		7,331,268		2,774,000		2,923,864		423,920
Total current assets		280,801			1,808,901		8,457,248		3,936,786		4,166,477		604,082
Long-term investments		5,221			1,188,286		530,729	—			—		—
Total assets		338,203			3,394,532		10,685,792		5,024,666		4,876,175		706,979
Current liabilities		355,912			1,637,250		4,197,392		1,760,268		1,609,222		233,316
Total liabilities		364,682			1,837,177		4,955,937		2,143,724		1,780,346		258,126
Total mezzanine equity		466,060		—		—		—			—		—
Total shareholders’ (deficit) equity		(492,539	)		1,557,355		5,729,855		2,880,942		3,095,829		448,853

The following table presents our selected consolidated cash flow data for the years ended December 31, 2018, 2019, 2020, 2021 and 2022:

	For the Year Ended December 31,
	2018			2019			2020			2021			2022
	RMB			RMB			RMB			RMB			RMB			US$
	(in thousands)
Selected Consolidated Cash Flow Data:
Net cash generated from/(used in) operating activities		241,869			1,285,054			603,273			(4,185,807	)		54,545			7,908
Net cash (used in)/generated from investing activities		(198,720	)		(2,504,566	)		(5,596,304	)		4,812,502			(158,385	)		(22,964	)
Net cash (used in)/generated from financing activities		(29,193	)		1,246,065			5,272,100			(100,614	)		—			—
Effect of exchange rate changes		9			14,155			2,188			15,818			26,650			3,864
Net increase/(decrease) in cash and cash equivalents		13,965			40,708			281,257			541,899			(77,190	)		(11,192	)
Cash, cash equivalents and restricted cash at beginning of year		19,294			33,259			73,967			355,224			897,123			130,071
Cash, cash equivalents and restricted cash at end of year		33,259			73,967			355,224			897,123			819,933			118,879

14

Financial Information Related to the VIE

The following tables present the condensed consolidating schedule of financial position for the VIE and other entities as of the dates presented.

•“Gaotu Techedu Inc.” is our Cayman Islands holding company;

•“Other Subsidiaries” refer to the sum of BaiJiaHuLian HK and Shanghai Chuxuebang Network Technology Co., Ltd (“Shanghai Chuxuebang”);

•“VIE and VIE’s Subsidiaries” refer to the sum of Beijing Gaotu and all of its subsidiaries in mainland China.

Selected Condensed Consolidated Statements of Comprehensive Income Information

	For the year ended December 31, 2022
	Gaotu Techedu Inc.			Other subsidiaries			WFOEs			VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$			US$			US$			US$			US$			US$
	(in thousands)
Third-party revenues	—			—			—				362,207		—				362,207
Inter-company revenues	—			—				102,033			9,365			(111,398	)		—
Total costs and expenses		(1,277	)		(1,615	)		(90,939	)		(396,890	)		111,398			(379,323	)
Income/(loss) from subsidiaries and VIE		6,604			7,243			(8,912	)		—			(4,935	)		—
(Loss)/income from non-operations		(3,417	)		980			5,302			13,884		—				16,749
Income/(loss) before income tax expenses		1,910			6,608			7,484			(11,434	)		(4,935	)		(367	)
Income tax (expenses)/benefits	—				(4	)		(241	)		2,522		—				2,277
Net income/(loss)		1,910			6,604			7,243			(8,912	)		(4,935	)		1,910

	For the year ended December 31, 2021
	Gaotu Techedu Inc.			Other subsidiaries			WFOEs			VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$			US$			US$			US$			US$			US$
	(in thousands)
Third-party revenues	—			—			—				1,029,681		—				1,029,681
Inter-company revenues	—			—				388,888			6,263			(395,151	)	—
Total costs and expenses		(3,979	)		26			(521,332	)		(1,398,612	)		395,151			(1,528,746	)
(Loss)/income from subsidiaries and VIE		(487,466	)		(487,471	)		(368,010	)	—				1,342,947		—
Income/(loss) from non-operations		4,445			(21	)		12,983			1,131		—				18,538
(Loss)/income before income tax expenses		(487,000	)		(487,466	)		(487,471	)		(361,537	)		1,342,947			(480,527	)
Share of results of equity investees	—			—			—				(47	)	—				(47	)
Income tax benefits	—			—			—				(6,426	)	—				(6,426	)
Net (loss)/income		(487,000	)		(487,466	)		(487,471	)		(368,010	)		1,342,947			(487,000	)

	For the year ended December 31, 2020
	Gaotu Techedu Inc.			Other subsidiaries			WFOEs			VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$			US$			US$			US$			US$			US$
	(in thousands)
Third-party revenues		—			—		—				1,118,028			—			1,118,028
Inter-company revenues		—			—			479,863			5,242			(485,105	)		—
Total costs and expenses		(2,222	)		—			(599,419	)		(1,276,896	)		485,105			(1,393,432	)
(Loss)/income from subsidiaries and VIE		(217,779	)		(217,779	)		(98,161	)		—			533,719			—
Income/(loss) from non-operations		1,419			—			(62	)		50,023			—			51,380
(Loss)/income before income tax expenses		(218,582	)		(217,779	)		(217,779	)		(103,603	)		533,719			(224,024	)
Share of results of equity investees		—			—			—			10			—			10
Income tax benefits		—			—			—			5,432			—			5,432
Net (loss)/income		(218,582	)		(217,779	)		(217,779	)		(98,161	)		533,719			(218,582	)

Selected Condensed Consolidated Balance Sheets Data

15

	As of December 31, 2022
	Gaotu Techedu Inc.		Other subsidiaries			WFOEs		VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$		US$			US$		US$			US$			US$
	(in thousands)
Cash and cash equivalents		541		249			72,842		45,244			—			118,876
Restricted cash		—		—			—		3			—			3
Short-term investments		106,441		29,030			133,551		154,898			—			423,920
Inventory		—		—			—		3,303			—			3,303
Amounts due from subsidiaries and VIE, current portion		936,572		115,066			362,528		10,690			(1,424,856	)		—
Prepaid expenses and other current assets		259		—			7,681		50,040			—			57,980
Total current assets		1,043,813		144,345			576,602		264,178			(1,424,856	)		604,082
Operating lease right-of-use assets		—		—			6,184		5,946			—			12,130
Property, equipment and software, net		—		—			2,674		77,363			—			80,037
Land use rights		—		—			—		3,969			—			3,969
Investments in subsidiaries and VIE		—		155,963			—		—			(155,963	)		—
Deferred tax assets		—		—			—		2,273			—			2,273
Rental deposit		—		—			968		410			—			1,378
Amounts due from subsidiaries and VIE, non-current portion		—		61,500			—		—			(61,500	)		—
Other non-current assets		—		—			115		2,995			—			3,110
Total non-current assets		—		217,463			9,941		92,956			(217,463	)		102,897
TOTAL ASSETS		1,043,813		361,808			586,543		357,134			(1,642,319	)		706,979
Accrued expenses and other current liabilities		736		—			41,994		53,279			—			96,009
Amounts due to subsidiaries and VIE		15,676		936,572			44,287		428,322			(1,424,857	)		—
Deferred revenue, current portion		—		—			—		131,490			—			131,490
Operating lease liabilities, current portion		—		—			2,472		3,085			—			5,557
Income tax payable		—		—			222		38			—			260
Total current liabilities		16,412		936,572			88,975		616,214			(1,424,857	)		233,316
Deferred revenue, non-current portion		—		—			—		7,600			—			7,600
Operating lease liabilities, non-current portion		—		—			3,877		2,531			—			6,408
Deferred tax liabilities		—		3			21		10,778			—			10,802
Deficit of investments in subsidiaries and VIE		574,767		—			337,707		—			(912,474	)		—
Other long-term payables		—		—			—		57,718			(57,718	)		—
Total non-current liabilities		574,767		3			341,605		78,627			(970,192	)		24,810
TOTAL LIABILITIES		591,179		936,575			430,580		694,841			(2,395,049	)		258,126
TOTAL SHAREHOLDERS’ EQUITY/(DEFICIT)		452,634		(574,767	)		155,963		(337,707	)		752,730			448,853

16

	As of December 31, 2021
	Gaotu Techedu Inc.		Other subsidiaries			WFOEs		VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$		US$			US$		US$			US$			US$
	(in thousands)
Cash and cash equivalents		1,767		18			90,840		21,761			—			114,386
Restricted cash		—		—			2,348		24,045			—			26,393
Short-term investments		138,942		—			133,577		162,782			—			435,301
Inventory		—		—			—		2,447			—			2,447
Amounts due from subsidiaries and VIE, current portion		906,632		126,338			586,687		240,600			(1,860,257	)		—
Prepaid expenses and other current assets		73		—			8,373		30,795			—			39,241
Total current assets		1,047,414		126,356			821,825		482,430			(1,860,257	)		617,768
Operating lease right-of-use assets		—		—			25,063		30,468			—			55,531
Property, equipment and software, net		—		—			5,115		101,593			—			106,708
Land use rights		—		—			—		4,422			—			4,422
Investments in subsidiaries and VIE		—		144,062			—		—			(144,062	)		—
Rental deposit		—		—			857		2,681			—			3,538
Amounts due from subsidiaries and VIE, non-current portion		—		62,469			—		—			(62,469	)		—
Other non-current assets		—		—			160		354			—			514
Total non-current assets		—		206,531			31,195		139,518			(206,531	)		170,713
TOTAL ASSETS		1,047,414		332,887			853,020		621,948			(2,066,788	)		788,481
Accrued expenses and other current liabilities		814		—			42,534		65,441			—			108,789
Amounts due to subsidiaries and VIE		16,966		910,437			272,325		660,529			(1,860,257	)		—
Deferred revenue, current portion		—		—			—		154,881			—			154,881
Operating lease liabilities, current portion		—		—			6,046		6,509			—			12,555
Total current liabilities		17,780		910,437			320,905		887,360			(1,860,257	)		276,225
Deferred revenue, non-current portion		—		—			—		1,448			—			1,448
Operating lease liabilities, non-current portion		—		—			18,393		24,923			—			43,316
Deferred tax liabilities		—		—			—		11,238			—			11,238
Deficit of investments in subsidiaries and VIE		577,551		—			369,659		—			(947,210	)		—
Other long-term payables		—		—			—		66,640			(62,469	)		4,171
Total non-current liabilities		577,551		—			388,052		104,249			(1,009,679	)		60,173
TOTAL LIABILITIES		595,331		910,437			708,957		991,609			(2,869,936	)		336,398
TOTAL SHAREHOLDERS’ EQUITY/(DEFICIT)		452,083		(577,550	)		144,063		(369,661	)		803,148			452,083

17

Selected Condensed Consolidated Cash Flows Data

	For the Year Ended December 31, 2022
	Gaotu Techedu Inc.			Other Subsidiaries			WFOEs			VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$			US$			US$			US$			US$			US$
	(in thousands)
Net cash (used in)/generated from operating activities		(396	)		(54,545	)		(18,061	)		80,910			—			7,908
Investments in subsidiaries and VIE		—			—			—			—			—			—
Loans to subsidiaries and VIE		(43,962	)		(3,320	)		—			—			47,282			—
Repayment from subsidiaries and VIE		14,499			8,498			—			—			(22,997	)		—
Other investing investments		25,283			(28,168	)		(7,464	)		(12,615	)		—			(22,964	)
Net cash (used in)/generated from investing activities		(4,180	)		(22,990	)		(7,464	)		(12,615	)		24,285			(22,964	)
Capital contribution from parent company		—			—			—			—			—			—
Loans from parent company		—			43,962			3,320			—			(47,282	)		—
Repayment to parent company		—			(14,499	)		3,516			4,982			6,001			—
Other financing activities		—			—			—			—			—			—
Net cash generated from/(used in) financing activities		—			29,463			6,836			4,982			(41,281	)		—

	For the Year Ended December 31, 2021
	Gaotu Techedu Inc.			Other Subsidiaries			WFOEs			VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$			US$			US$			US$			US$			US$
	(in thousands)
Net cash used in operating activities		(1,108	)		(60,334	)		(504,341	)		(91,062	)		—			(656,845	)
Investments in subsidiaries and VIE		—			(678,924	)		—			—			678,924			—
Loans to subsidiaries and VIE		(980,480	)		(130,287	)		—			—			1,110,767			—
Repayment from subsidiaries and VIE		110,923			—			—			—			(110,923	)		—
Other investing investments		870,522			—			(134,457	)		19,123			—			755,188
Net cash generated from/(used in) investing activities		965			(809,211	)		(134,457	)		19,123			1,678,768			755,188
Capital contribution from parent company		—			—			678,924			—			(678,924	)		—
Loans from parent company		—			980,480			—			130,287			(1,110,767	)		—
Repayment to parent company		—			(110,923	)		—			—			110,923			—
Other financing activities		1			—			—			(15,790	)		—			(15,789	)
Net cash generated from/(used in) financing activities		1			869,557			678,924			114,497			(1,678,768	)		(15,789	)

	For the Year Ended December 31, 2020
	Gaotu Techedu Inc.			Other Subsidiaries			WFOEs			VIE and VIE’s Subsidiaries			Elimination			Consolidated Totals
	US$			US$			US$			US$			US$			US$
	(in thousands)
Net cash (used in)/generated from operating activities		(2,412	)		(549,732	)		27,644			619,167			—			94,667
Investments in subsidiaries and VIE		—			(29,689	)		—			—			29,689			—
Loans to subsidiaries and VIE		(30,723	)		—			—			—			30,723			—
Repayment from subsidiaries and VIE		—			548,705			—			—			(548,705	)		—
Other investing investments		(824,183	)		—			(6,068	)		(47,931	)		—			(878,182	)
Net cash (used in)/generated from investing activities		(854,906	)		519,016			(6,068	)		(47,931	)		(488,293	)		(878,182	)
Capital contribution from parent company		—			—			29,689			—			(29,689	)		—
Loans from parent company		—			30,723			—			—			(30,723	)		—
Repayment to parent company		—			—			—			(548,705	)		548,705			—
Repayment to related parities		—			—			—			(72	)		—			(72	)
Other financing activities		848,122			—			—			(20,743	)		—			827,379
Net cash generated from/(used in) financing activities		848,122			30,723			29,689			(569,520	)		488,293			827,307

18

b.Capitalization and Indebtedness

Not Applicable.

c.Reasons for the Offer and Use of Proceeds

Not Applicable.

d.Risk Factors

Summary of Risk Factors

An investment in our ADSs or Class A ordinary shares involves significant risks. Below is a summary of material risks we face, organized under relevant headings. These risks are discussed more fully in “Item 3. Key Information—D. Risk Factors”.

Risks Related to Our Business and Industry

•Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the laws, regulations and policies of mainland China regarding the online private education industry. In particular, our compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures issued thereunder by the relevant government authorities of mainland China has materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect;

•The cessation of compulsory education academic subject tutoring services and other actions we have taken to comply with recent regulatory developments have materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect. Failure to effectively and efficiently manage changes of our existing and new business may materially and adversely affect our ability to capitalize on new business opportunities;

•If we fail to successfully execute our business strategies, we may not able to attract students to purchase our existing and new course packages outside of compulsory education academic subject tutoring services, and our business and prospects will be materially and adversely affected;

•We have incurred net losses in the past, and the cessation of compulsory education academic subject tutoring services have had and will continue to have a material adverse impact on our revenues. As a result, we may not remain profitable or increase profitability in the future;

•We have a limited operating history with our current business model, which makes it difficult to predict our prospects and our business and financial performance;

•If we are not able to continue to engage, train and retain high quality teaching staff, we may not be able to maintain consistent teaching quality, and our business, financial condition and results of operations may be materially and adversely affected; and

•Our business is subject to complex and evolving laws and regulations of mainland China regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

Risks Related to Our Corporate Structure

•If the PRC government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China’s regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations;

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•We rely on contractual arrangements with the VIE and its shareholders for our business operations, which may not be as effective as direct ownership in providing operational control; and

•Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.

Risks Related to Doing Business in China

•The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections;

•Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment;

•The filing with the CSRC or other PRC government authorities may be required in connection with our future follow-on offerings and the occurrence of certain material events under the laws of mainland China, and, if required, we cannot predict whether or for how long we will be able to complete such filing;

•Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations;

•Uncertainties with respect to the legal system of mainland China could adversely affect us; and

•The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.

Risks Related to the ADSs

•The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors;

•If we fail to meet NYSE’s continued listing requirements, our ADSs could be subject to delisting, which may significantly reduce the liquidity of our ADSs and cause further declines to the market price of our ADSs;

•If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline; and

•The sale or perceived availability for sale of substantial amounts of the ADSs could adversely affect their market price.

Risks Related to Our Business and Industry

Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the laws, regulations and policies of mainland China regarding the online private education industry. In particular, our compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures issued thereunder by the relevant PRC government authorities has materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect.

20

The private education industry in mainland China, especially the after-school tutoring sector, has experienced intense scrutiny and has been subject to significant regulatory changes recently. In particular, the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education jointly promulgated by the General Office of State Council and the General Office of Central Committee of the Communist Party of China on July 24, 2021, or the Alleviating Burden Opinion, sets out a series of operating requirements on after-school tutoring institutions, including, among other things, (i) local government authorities shall no longer approve any new after-school tutoring institutions providing tutoring services on academic subjects for students in compulsory education, or the Academic AST Institutions, and all the existing Academic AST Institutions shall be registered as non-profit, and local government authorities shall no longer approve any new after-school tutoring institutions providing tutoring services on academic subjects for pre-school-age children and students in grade ten to twelve; (ii) online Academic AST Institutions that have filed with the local education administration authorities will be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; and (iv) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities. The Alleviating Burden Opinion further provides that administration and supervision over academic subjects tutoring institutions for students on grade ten to twelve shall be implemented by reference to the relevant provisions of the Alleviating Burden Opinion. On February 8, 2022, the MOE issued the Key Points of Workstreams of the year 2022 on its public website, indicating that the requirements for academic subjects tutoring for students on grade ten to twelve shall strictly refer to the requirements implemented to academic subjects tutoring for students in compulsory education. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Private Education—Regulation Related to After-School Tutoring” for more details.

On August 18, 2021, the Beijing Municipality Government and the Beijing Municipal Committee of the Communist Party of China jointly published the full text of the Beijing Municipality’s Measures to Further Reduce the Burden of Homework and After-School Tutoring on Students in Compulsory Education in Beijing, or the Beijing Measures. On August 2, 2021, the Guangdong Education Bureau issued the Circular Guangdong Education Bureau on Reducing the Burden of After-School Tutoring on Students in Compulsory Education, or the Guangdong Circular, and together with the Beijing Measures, the Alleviating Burden Opinion and its implementation measures, the “New Regulations”. In addition, to implement the New Regulations, on September 7, 2021, the Chinese Ministry of Education, or the MOE, published on its official website that the MOE, together with two other government authorities, issued a circular requiring all Academic AST Institutions to complete registration as non-profit by the end of 2021, and all Academic AST Institutions shall, before completing such registration, suspend enrollment of students and charging fees. Moreover, the MOE and relevant authorities further issued an announcement to regulate non-academic subjects after-school tutoring in March 2022 and the Opinions on Regulation of Non-Academic After-School Tutoring for Primary and Secondary School Students in November 2022. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Private Education—Regulation Related to After-School Tutoring” for more details.

We have closely monitored the evolving regulatory environment and made efforts to seek guidance from and cooperate with the government authorities to comply with the New Regulations. Among other things, we have ceased offering and will not offer compulsory education academic subject tutoring services since the end of 2021.

Our business, financial condition, results of operations and prospect have been and will be materially and adversely affected in 2022 and subsequent periods by the actions we have taken to date and consider taking to be in compliance with the Alleviating Burden Opinion and its implementation measures. We are committed to complying with all applicable laws and regulations of mainland China, including the New Regulations and the Non-Academic Tutoring Regulations. In addition to the cessation of compulsory education academic subject tutoring services, we have taken other actions to restructure our business and operations, including closing of some of our operating centers and implementing staff optimization plans, to maintain our continued operations. We will continue to seek guidance from and cooperate with all relevant government authorities in mainland China in connection with its efforts to comply with the policy directives of the New Regulations. We will further adjust our business operations as required. However, due to the complexity and substantial uncertainty of the regulatory environment, we cannot assure you that our operations would be in full compliance with applicable laws, regulations and policies, including the Alleviating Burden Opinion and its implementation measures, and the Non-Academic Tutoring Regulations, in a timely manner, or at all. We may become subject to fines or other penalties or be required to terminate certain operations, in which case our business, financial condition and results of operations could be materially and adversely affected further. In addition, we may incur material impairment and severance charges resulting from termination of leases, dismissal of employees and other actions we take in light of the latest regulatory developments, which may have material adverse impact on our financial condition, results of operations and prospect.

21

The cessation of compulsory education academic subject tutoring services and other actions we have taken to comply with recent regulatory developments have materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect. Failure to effectively and efficiently manage changes of our existing and new business may materially and adversely affect our ability to capitalize on new business opportunities.

In light of recent regulatory developments in mainland China, in addition to the cessation of our compulsory education academic subject tutoring services, we have made and will continue to make changes to our existing business, including and implementing organization optimization plan and executing on any new business strategy we decide to pursue. Learning services are still our most important business and main source of income. This part of business mainly includes college students and adult education, business related to overseas study, and non-academic tutoring. To that end, we will continue to invest in our professional and vocational education business, including offering financial certificate and public office exam preparation, while constantly exploring more professional education program opportunities, such as post-graduate exam preparation and overseas study consulting service. We aim to establish a diversified professional education course portfolio with a wide range of course offerings. In addition, educational content and digitalized learning products are complementary to learning services, mainly including content products and auxiliary learning tools, but we cannot guarantee you that these businesses will be profitable or increase profitability in the future.

These new business directions have resulted, and will continue to result, in substantial demands on our management, faculty and operational, technological and other resources. Our continued online live large-class format to deliver our courses also place significant demands on us to maintain the consistency of our teaching quality and our culture to ensure that our brand does not suffer as a result of any decreases, whether actual or perceived, in our teaching quality. To manage and support changes in our business and our future growth strategy, we must continue to improve our existing operational, administrative and technological systems and our financial and management controls, and recruit, train and retain additional qualified teachers, management personnel and other administrative and sales and marketing personnel, particularly as we enter into new areas. We cannot assure you that we will be able to effectively and efficiently manage our operations, recruit and retain qualified teachers and management personnel and integrate new businesses into our operations. Any failure to effectively and efficiently manage changes of our business may materially and adversely affect our ability to capitalize on new business opportunities, which in turn may have a material adverse impact on our financial condition and results of operations.

If we fail to successfully execute our business strategies, we may not able to attract students to purchase our existing and new course packages outside of compulsory education academic subject tutoring services, and our business and prospects will be materially and adversely affected.

Following the cessation of compulsory education academic subject tutoring services, we have shifted our business strategies to expand our course and service offerings into new areas as well as update and expand the content of our existing course, services and products in a cost-effective and timely manner. Our ability to attract students to purchase our course packages outside of compulsory education academic subject tutoring services is critical to maintain our continued operations. This in turn will depend on several factors, including our ability to continue to develop, adapt or enhance number and quality of our course offerings in these new areas to respond to regulatory developments and evolving demands of our existing or prospective students, engage, train and retain high quality teaching staff in support of new course offerings, and effectively market our course offerings and enhance our brand awareness to a broader base of prospective students. The expansion of our course and education service offerings may not succeed due to evolving government regulations, competition, failure to effectively market our new courses, services and products and maintain their quality and consistency, or other factors. In addition, we may be unable to identify new areas with sufficient growth potential to expand our course offerings, and demand for our courses, services and products may not increase as rapidly as we expect. Furthermore, we may be unable to develop or license additional content on commercially reasonable terms and in a timely manner, or at all, to keep pace with changes in regulatory developments and market demands. If we fail to successfully execute our business strategies, we may not be able to continue to attract students to enroll in our courses without a significant decrease in course fees, and our business and prospects may be materially and adversely affected.

In addition, as many of these course offerings are in areas new to us and our teaching staff, we may not be able to meet our students’ expectations in terms of academic performance due to a variety of reasons, many of which are outside of our control. We may face student dissatisfaction due to our students’ perceptions of our failure to help them achieve their anticipated educational goals, our students’ overall dissatisfaction with the quality of our education content offerings and our teaching staff, as well as changing views of the value of the diplomas, degrees and qualifications they are pursuing through taking our courses. We must also manage our growth while maintaining consistent and high teaching quality, and respond effectively to competitive pressures. If we are unable to attract students to purchase our course packages without a significant decrease in course fees, our gross billings and net revenues may decline, which may have a material adverse effect on our business, financial condition and results of operations.

22

We have incurred net losses in the past, and the cessation of compulsory education academic subject tutoring services have had and will continue to have a material adverse impact on our revenues. As a result, we may not remain profitable or increase profitability in the future.

We generated a net income of RMB13.2 million (US$1.9 million) in 2022, compared to a net loss of RMB3,103.5 million in 2021, and a net loss of RMB1,392.9 million in 2020. Although the scale of revenue declined due to cessation of compulsory education academic subject tutoring services, the changes of business strategy and organizational structure, as well as the implementation of cost reduction and efficiency increase, helped us attained profitability in 2022. The cessation of compulsory education academic subject tutoring services and other measures we have taken to comply with recent regulatory developments have materially and adversely affected and will materially and adversely affect our financial condition and results of operations. We may incur net losses in the future while exploring new business strategies, and we cannot assure you that we will be able to consistently generate net profits or positive cash flow from operating activities in the future. Our ability to maintain profitability will depend in large part on our ability to maintain or increase our operating margin, either by growing our revenues at a rate faster than our costs and operating expenses increase, or by reducing our costs and operating expenses as a percentage of our net revenues. Accordingly, we intend to continue to invest in developing new course offerings and digital products to attract new students and strengthen our technologies and data analytics capabilities to enhance student experience. As a result of the foregoing, we may not be profitable or increase our profitability in the future.

We have a limited operating history with our current business model, which makes it difficult to predict our prospects and our business and financial performance.

We have a short operating history with our current business model focusing on providing online live large-classes. We transitioned from a membership-based service platform connecting teaching staff and students to our current business model in March 2017. Our limited history of operating under the current business model may not serve as an adequate basis for evaluating our prospect and operating results, including gross billings, net revenues, cash flows and operating margins. We have encountered, and may continue to encounter in the future, risks, challenges and uncertainties associated with operating an internet-based education business in an evolving regulatory landscape, such as changing and expanding our education content offering in compliance with regulatory developments, building and managing reliable and secure IT systems and infrastructure, and engaging, training and retaining high quality employees such as our teaching staff and IT support staff. There are no guarantees that we will be able to effectively address these risks and uncertainties, or at all. If we do not manage these risks successfully, our operating and financial results may differ materially from our expectations and our business and financial performance may suffer.

If we are not able to continue to engage, train and retain high quality teaching staff, we may not be able to maintain consistent teaching quality, and our business, financial condition and results of operations may be materially and adversely affected.

We have adopted a dual-teacher system, comprised of high quality instructors and professional tutors. Our teaching staff is critical to the learning experience of our students and our reputation. We seek to engage high quality teaching staff with strong education background and teaching skills. We must provide competitive pay and offer attractive career development opportunities to attract and retain them. We must also provide ongoing training to our teaching staff to ensure that they stay abreast of changes in course materials, student demands and other changes and trends necessary to teach effectively. Furthermore, as we continue to develop new education content, we may need to engage additional high quality teaching staff with appropriate skill sets or backgrounds to deliver instructions effectively. We cannot guarantee that we will be able to effectively engage and train such teaching staff quickly, or at all. Furthermore, given other potential more attractive opportunities for our quality teaching staff, over time some of them may choose to leave us. Departure of quality teaching staff may reduce the attractiveness of our course offerings and negatively impact our paid course enrollments. Furthermore, in the event such quality teaching staff join our competitors, students may decide to follow such quality teaching staff and enroll in their courses offered through other online education companies, which may further weaken our competitive position in the industry. Although we have not experienced major difficulties in engaging, training or retaining high quality teaching staff in the past, we may not always be able to engage, train and retain enough high quality teaching staff to keep pace with our growth while maintaining consistent education quality. We may also face significant competition in engaging high quality teaching staff from our competitors or from other opportunities that are perceived as more desirable. A shortage of high quality teaching staff, a decrease in the quality of our teaching staff’s performance, whether actual or perceived, or a significant increase in the cost to engage or retain high quality teaching staff would have a material adverse effect on our business, financial condition and results of operations.

23

Our business is subject to complex and evolving laws and regulations of mainland China regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platforms, including:

•protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees;

•addressing concerns related to privacy and sharing, safety, security and other factors; and

•complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to these data.

In general, we expect that data security, cybersecurity and data protection compliance will receive greater attention and focus from regulators, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security, cybersecurity and data protection. If we are unable to manage these risks, we could become subject to penalties, including fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.

The mainland China’s regulatory and enforcement regime with regard to data security, cybersecurity and data protection is evolving and may be subject to different interpretations or significant changes. Moreover, different PRC regulatory bodies, including the Standing Committee of the NPC, the Ministry of Industry and Information Technology, or the MIIT, the CAC, the Ministry of Public Security, or the MPS, and the State Administration for Market Regulation, or the SAMR, have enforced data security, cybersecurity, privacy and protections laws and regulations with varying standards and applications. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Cybersecurity, Data Security, and Personal Information Protection.” The following are examples of certain recent regulatory activities in this area in mainland China:

24

Data Security and Cybersecurity

In June 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law, among other things, provides for security review procedure for data-related activities that may affect national security. In July 2021, the State Council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to this regulation, critical information infrastructure means key network facilities or information systems of critical industries or sectors, such as public communication and information service, energy, transportation, water conservation, finance, public services, e-government affairs and national defense science, the damage, malfunction or data leakage of which may endanger national security, people’s livelihoods and the public interest. In December 2021, the CAC, together with other authorities, jointly promulgated the Revised Cybersecurity Review Measures, which became effective on February 15, 2022 and replaced its predecessor regulation. Pursuant to the Revised Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services, and operators of network platforms conducting data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Revised Cybersecurity Review Measures further stipulates that network platform operators that hold personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before any initial public offering at a foreign stock exchange. Given that the Revised Cybersecurity Review Measures was recently promulgated, there are substantial uncertainties as to its interpretation, application, and enforcement. On November 14, 2021, the CAC published the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations, for public comments. The Draft Regulations provides that data processors conducting the following activities must apply for cybersecurity review: (i) merger, reorganization, or division of internet platform operators that have acquired a large number of data resources related to national security, economic development, or public interests, which affects or may affect national security; (ii) a foreign listing by a data processor processing personal information of over one million users; (iii) a listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. There have been no further clarifications from the authorities as of the date of this annual report as to the standards for determining such activities that “affects or may affect national security.” In addition, the Draft Regulations requires that data processors that process “important data” or are listed overseas must conduct an annual data security assessment by itself or commission a data security service provider to do so, and submit the assessment report of the preceding year to the municipal cybersecurity department by the end of January each year. The period for which the CAC solicited comments on this draft ended on December 13, 2021, but there is no timetable as to when the draft regulations will be enacted. As such, substantial uncertainties exist with respect to the enactment timetable, final content, interpretation, and implementation of the draft regulations, including the standards for determining activities that “affects or may affect national security.” As the Draft Data Security Regulations have not been adopted and it remains unclear whether the formal version adopted in the future will have any further material changes, it is uncertain how the draft regulations will be enacted, interpreted or implemented and how they will affect us. On September 14, 2022, the CAC published the Decision of Amending PRC Cybersecurity Law (Draft for Comments), or the Draft Amendment to PRC Cybersecurity Law, which, among other things, aggravated legal liabilities for violations of cybersecurity obligations and critical information infrastructure operators’ obligations. As of the date of this annual report, the Draft Amendment to PRC Cybersecurity Law was released for public comment only, and its respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty.

Personal Information and Privacy

The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, effective on February 7, 2021, prohibits collection of user information through coercive means by online platforms operators.

In August 2021, the Standing Committee of the NPC promulgated the PRC Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacy policies from time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical measures to protect data and ensure cybersecurity in a systematic way. Nonetheless, the PRC Personal Information Protection Law elevates the protection requirements for personal information processing, and many specific requirements of this law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with the personal information protection laws and regulations.

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Many of the data-related legislations are relatively new and certain concepts thereunder remain subject to interpretation by the regulators. If any data that we possess belongs to data categories that are subject to heightened scrutiny, we may be required to adopt stricter measures for protection and management of such data. The Revised Cybersecurity Review Measures and the Draft Regulations remain unclear on whether the relevant requirements will be applicable to companies that are already listed in the United States, such as us, if we were to pursue another listing outside of mainland China. We cannot predict the impact of the Revised Cybersecurity Review Measures and the Draft Regulations, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If the Revised Cybersecurity Review Measures and the enacted version of the Draft Regulations mandate clearance of cybersecurity review and other specific actions to be taken by issuers like us, we face uncertainties as to whether these additional procedures can be completed by us timely, or at all, which may delay or disallow our future listings (should we decide to pursue them), subject us to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal of our apps from the relevant application stores, and materially and adversely affect our business and results of operations. As of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on such basis.

In general, compliance with the existing laws and regulations of mainland China, as well as additional laws and regulations that PRC regulatory bodies may enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to us, and subject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations will be implemented and interpreted in practice.

We may not be able to maintain our course fee level.

Our results of operations are affected by the pricing of our education services. We determine our course fees primarily based on the demand for our educational programs, the cost of our operations, the course fees charged by our competitors, our pricing strategy to gain market share and general economic conditions in the PRC. In addition, PRC government may issue government-guided pricing mechanism which may impose limits on the course fees we may charge for our educational programs in the future. As of the date of this annual report, we have not received any guidance on the implementation of these price control mechanism. We will adjust our pricing if we receive specific government instructions to comply with these new regulations. Such pricing mechanism will also cause our gross and net margin to decline. Further, as we shift our focus on college students and adult education, business related to overseas study, non-academic tutoring, educational content and digitalized learning products, our new course offerings and product and service offerings may not have the same margins as we had in the past. We cannot assure you that we would be able to maintain our course fee level, and our course fees could continue to decline in the future due to these factors.

We face significant competition in each part of our current and future course and service offerings, which could divert students to our competitors, lead to pricing pressure and loss of market shares, and significantly reduce our net revenues.

The online education industry in China is rapidly evolving, highly fragmented and competitive, and we expect competition in this sector to persist and intensify. We face competition in each part of our current and future course and service offerings from other online educational service providers, as we continue to restructure our core business and explore new opportunities after the cessation of compulsory education academic subject tutoring services.

Some of our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical or marketing resources than we do. We compete with these online education service providers across a range of factors, including, among others, high quality instructors in the education industry, technology infrastructure and data analytics capabilities, quality of our education services and students’ learning experience, brand recognition and scope of our course offerings. Our competitors may adopt similar curricula and marketing approaches, with different pricing and service packages that may have greater appeal than our offerings. In addition, some of our competitors may have more resources than we do and may be able to devote greater resources than we can to the development and promotion of their services and respond more quickly than we can to the changes in student preferences, testing materials, admission standards, market needs or new technologies. If we reduce course fees or increase spending in response to competition in order to retain or attract students and high quality teaching staff, or pursue new market opportunities, our net revenues may decrease and our costs and expenses may increase as a result of such actions which may adversely affect our operating margins. If we are unable to successfully compete for students, maintain or increase our level of course fees, attract and retain competent teaching staff or other key personnel, maintain our competitiveness in terms of the quality of our education services in a cost-effective manner, our net revenues may be materially and adversely affected.

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Techniques employed by short sellers may drive down the market price of our listed securities.

Short selling is the practice of selling securities that a seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. Short sellers hope to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as short sellers expect to pay less in that purchase than they received in the sale. As it is in short sellers’ interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions and allegations regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

Public companies listed in the United States that have substantially all of their operations in China have been the subject of short selling. Such short selling was often driven by short seller reports, which often were based on allegations including inadequacies in internal control and/or corporate governance or a lack of adherence thereto and accounting irregularities and mistakes. As a result, many of these companies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

We have been, and continue to be, the subject of unfavorable allegations made by short sellers. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings” for more information about short seller reports published against us and the related SEC investigation and class action lawsuit. In May 2020 and April 2021, Muddy Waters and Grizzly Report separately published short seller reports against us, which caused temporary fluctuations in the price of our ADSs following these reports. Any such allegations may be followed by periods of instability in the market price of our ADSs and negative publicity. Regardless of whether such allegations are proven to be true or untrue, we may have to expend a significant amount of resources to investigate such allegations and/or defend ourselves, including in connection with class actions or regulatory enforcement actions derivative of such allegations. While we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short sellers by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could divert management’s attention from the day-to-day operations of our company. Even if such allegations are ultimately proven to be groundless, allegations against us could negatively impact the market price of our securities and our business operations.

We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to obtain or renew requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations.

The internet industry and education industry in mainland China are highly regulated by the PRC government. As an internet-based education service provider, we are required to obtain and maintain all necessary approvals, licenses or permits applicable to our business operations and make all necessary registration and filings for our education services in mainland China, and we may be required to apply for and obtain additional licenses or permits for our operations as the interpretation and implementation of current laws and regulations of mainland China are still evolving, and new laws and regulations may also be promulgated.

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The VIE and its subsidiaries currently hold the licenses and permits from the PRC government authorities that are material for the business operations, including, among others, the Value-added Telecommunications Business Operating License for internet information service, the Permit for Production and Operation of Radio and TV Programs, the Publication Operation License, and the Online Operating License for Academic Subject Tutoring Services to High School Students. We may be required to apply for and obtain additional licenses, permits or recordation, given the significant uncertainties of the interpretation and implementation of certain regulatory requirements applicable to online education business. For example, applicable laws and regulations of mainland China require any entity engaged in certain audio-visual program services via the internet to hold a License for Online Transmission of Audio-visual Programs, or the AVSP or complete relevant registration procedures with the State Administration of Press, Publication, Radio, Film and Television, or the SAPPRFT (currently known as National Radio and Television Administration) or its local bureaus. As of the date of this document, only wholly state-owned or state-controlled enterprises are eligible to apply for the AVSP. We offer certain online courses on our platforms in live-streaming format and we also offer video recordings of live streaming courses and certain other audio-video contents on our online platforms to our learners. Due to the significant uncertainty regarding the scope of audio-visual program services, we may be required to obtain an AVSP or to complete the relevant registration. However, we may not be able to obtain the AVSP as we are not a wholly state-owned or state-controlled entity. If this were to occur, we may be subject to penalties, fines, legal sanctions or an order to suspend the provision of our relevant services. In addition, as of the date of this annual report, there are no implementation rules, explicit interpretation from government authorities or prevailing enforcement practice deeming the provision of our educational content to our students through our online platform as “online publishing” which requires an Online Publishing Service Permit. See “Item 4. Information on the Company—B. Business Overview—Government Regulations.” However, there is no assurance that local PRC authorities will not adopt different enforcement practice, or any PRC government will not issue more explicit interpretation and rules or promulgate new laws and regulations from time to time to further regulate the online education industry, which may subject us to additional licensing requirements to continue to operate our business. As of the date of this annual report, no material fines or other penalties have been imposed on us for failure to obtain such additional licenses, permits or recordation, including, among other things, License for Online Transmission of Audio-Visual Programs and Online Publishing Services Permit.

There can be no assurance that once required, we will be able to obtain all the required approvals, licenses, permits and complete all necessary filings, record renewals and registrations on a timely basis for our online education services, given the significant amount of discretion the PRC authorities may have in interpreting, implementing and enforcing relevant rules and regulations, as well as other factors beyond our control and anticipation. If we fail to obtain required permits in a timely manner or obtain or renew any permits and certificates, or fail to complete the necessary filings, record renewals or registrations on a timely basis, we may be subject to fines, confiscation of the gains derived from our non-compliant operations, suspension of our non-compliant operations or claims for compensation of any economic loss suffered by our students or other relevant parties.

Our business, financial condition and results of operations may continue to be adversely affected by the effects of the COVID-19 pandemic in China.

Beginning in 2020, outbreaks of COVID-19 resulted in the temporary closure of many corporate offices, retail stores, schools, and manufacturing facilities across China. Normal economic life throughout China was sharply curtailed. We had to adjust various aspects of our operations and took a series of measures to protect our employees, including temporarily closing our offices, facilitating remote working arrangements for our employees, and canceling business meetings and travels. The population in most of the major cities in China was locked down to a greater or lesser extent at various times, which disrupted school schedules significantly.

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China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December. There were surges of cases in many cities during this time which caused disruption to our operations, and there still remains uncertainty as to the future impact of the virus, especially in light of this change in policy. The extent to which the pandemic impacts our results of operations going forward will depend on future developments which are highly uncertain and unpredictable, including the frequency, duration and extent of outbreaks of COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. China may experience lower domestic consumption, higher unemployment and greater economic uncertainty, which may impact our business in a materially negative way.

All of our revenues and our workforce are concentrated in mainland China. Consequently, our results of operations and financial performance may continue to be adversely affected by the effects of the COVID-19 pandemic in China, to the extent that COVID-19 exerts long-term negative impact on the Chinese economy. To the extent that potential future waves of COVID-19 disrupt school operations and semester schedules, we may face operational challenges with respect to continuing to offer our online courses and educational services to our students. Any reduction in disposable income of our students resulting from a worsening economy still under COVID-19’s influence may also lessen demands for our courses, tutoring services and digital products or put price pressure on our courses, tutoring services and digital products. The duration and extent of impact of such business disruptions, lower demands or price pressure on our operating results and financial performance cannot be reasonably estimated at this time.

Refunds or potential refund disputes of our course fees may negatively affect our cash flows, financial condition, and reputation.

For our online courses, we offer refunds for any remaining classes in a course to students who withdraw from the course. The refund is equal to the amount related to the undelivered classes. The number of refund requests and the amount of refunds could be affected by a number of factors, many of which are beyond our control. These factors include, without limitation to, student dissatisfaction with our teaching quality and our education content offerings, privacy concerns relating to our online platforms, negative publicity regarding us or online education in general, and any change or development in applicable laws and regulations with respect to fees and tuitions charged by online education service providers like us. Any refund payments that we may be required to make to our students, as well as the expenses we could incur for processing refunds and resolving refund disputes, could be substantial and could adversely affect our business operations and financial condition. A high volume of refunds and refund disputes may also generate negative publicity that could harm our reputation.

Any significant disruption to or failures of our information technology systems, including events beyond our control, could reduce student satisfaction and could harm our reputation and cause our education services to be less attractive to our students.

The performance and reliability of our information technology system is critical to our operations and reputation. Our network infrastructure is currently deployed and our data is currently mainly maintained through a third-party cloud computing service provider in mainland China. Our operations depend on the service provider’s ability to protect its and our system in its facilities against events such as damage or interruption from natural disasters, power or telecommunications failures, air quality issues, environmental conditions, computer viruses or attempts to harm our systems, criminal acts and similar events, which events are beyond our control. If our arrangement with such service provider is terminated or if there is a lapse of service or damage to their facilities, we could experience interruptions in our service. Any interruptions in the accessibility of or deterioration it the quality of access to our system could reduce students’ satisfaction and result in reduction in the number of students using our services, which would reduce the attractiveness of our education content offering services.

In addition, we rely on third-party mobile app distribution channels, to distribute our mobile apps to students. As such, the promotion, distribution and operation of our mobile apps are subject to such distribution channels’ standard terms and policies for app developers, which are subject to the interpretation of, and frequent changes by, these distribution channels. If Apple’s App Store or any other major distribution channel interprets or changes its standard terms and conditions in a manner that is detrimental to us in the future, or terminate its existing relationship with us, our business, financial condition and results of operations may be materially and adversely affected.

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If we fail to adopt new technologies that are important to our business, our competitive position and ability to generate revenues may be materially and adversely affected.

The technology used in internet and value-added telecommunications services in general, and in online education services in particular, may evolve and change over time. As a technology-driven education company, we must anticipate and adapt to such technological changes, and adopt new technologies in a timely fashion. If we fail to do so, our market share and our business development could suffer, which in turn would have a material and adverse effect on our financial condition and results of operations. If we are unsuccessful in addressing any of the risks relating to failure to adopt new technologies, our business may be materially and adversely affected.

Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly and ineffective.

We believe that our copyrights, trademarks and other intellectual property are essential to our success. We have devoted considerable time and energy to the development and improvement of our websites, mobile apps, our system infrastructure and our course materials.

We rely primarily on copyrights, trademarks, trade secrets and other contractual restrictions for the protection of the intellectual property used in our business. Nevertheless, these provide only limited protection and the actions we take to protect our intellectual property rights may not be adequate. Our trade secrets may become known or be independently discovered by our competitors. Third parties may in the future pirate our course materials and may infringe upon or misappropriate our other intellectual property. Infringement upon or the misappropriation of, our proprietary technologies or other intellectual property could have a material adverse effect on our business, financial condition or results of operations. Although we have taken measures to monitoring and policing the unauthorized use of our copyrighted course materials, policing the unauthorized use of intellectual property rights can be difficult and expensive. In addition, we and our instructors whom we have signed exclusive contracts with and engage in content development may be deemed to have joint ownership over intellectual properties relating to our course content. Our instructors may continue to use these course content if they resign with us and join our competitors, which may negatively impact the attractiveness of our courses to prospective students and parents. Although we have entered into agreements with certain instructors to prohibit them from using our course content without our prior consent, we cannot ensure compliance of instructors with such agreement.

Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. Such litigation may be costly and divert management’s attention away from our business. An adverse determination in any such litigation would impair our intellectual property rights and may harm our business, prospects and reputation. The legal regime relating to the recognition and enforcement of intellectual property rights in mainland China is particularly limited, and does not protect intellectual property rights to the same extent as federal and state laws in the United States. Legal proceedings to enforce our intellectual property in mainland China may progress slowly, during which time infringement may continue largely unimpeded. Enforcement of judgments in mainland China is uncertain, and even if we are successful in litigation, it may not provide us with an effective remedy. In addition, we have no insurance coverage against litigation costs and would have to bear all costs arising from such litigation to the extent we are unable to recover them from other parties. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.

We have been and may again be subject to legal proceedings, claims and investigations in the ordinary course of business, including for allegations relating to our infringement of intellectual property rights of third parties. If the outcomes of these proceedings, claims and investigations are adverse to us, our business, results of operations and financial condition could be materially and adversely affected.

We have and may continue to be involved in legal proceedings, claims and government investigations that have arisen in the ordinary course of our business and have not yet been fully resolved, including allegations against us for potential infringement of third-party’s copyrights or other intellectual property rights. New legal proceedings, claims and investigations may arise in the future. The existence of litigation, claims, investigations and proceedings may harm our reputation, business and adversely affect the trading price of our ADSs.

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In April 2020, a putative shareholder class action lawsuit was filed in the United States District Court for the District of New Jersey against our company, our chief executive officer and our chief financial officer: Wu v. Gaotu Techedu Inc., et al, No. 2:20-cv-04457-ES-CLW (filed on April 17, 2020). On November 2, 2020, lead and named plaintiffs filed—purportedly on behalf of a class of persons who allegedly suffered damages as a result of their purchases or acquisitions of our ADSs between June 6, 2019 and October 20, 2020 — an amended class action complaint, which alleges that our company’s public filings with the SEC contained material misstatements or omissions in violation of the federal securities laws. On February 24, 2023, the Court granted defendants’ motion to dismiss. Plaintiffs have until April 25, 2023 to submit an amended complaint.

Separately, we and certain of our officers were named as defendants in a putative securities class action filed in federal court in December 2022, captioned Zhang v. Gaotu Techedu Inc. et al., No. 1:22-cv-07966 (U.S. District Court for the Eastern District of New York). Plaintiffs purportedly brought the case on behalf of a class of persons who purchased the Company’s ADSs between March 5, 2021 and July 23, 2021, and alleged that the Company’s public filings contained misstatements and omissions in violation of the Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. We intend to defend the action vigorously. As the case is still in its preliminary stage, we cannot predict its outcome, potential damages, or expenses that may be incurred.

The SEC’s Division of Enforcement has sought the production of certain financial and operating records dating from January 1, 2017 following a number of short-seller reports about us from approximately early- to mid-2020. The SEC notified us, by letter dated October 19, 2022, that the SEC had concluded its investigation into our Company and that, based on the information that the SEC had as of the date of its letter, the SEC did not intend to recommend an enforcement action against us. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”

We have been, and are now subject to allegations on the grounds of intellectual property rights infringement and other legal theories based on the content of the materials that we or our teaching staff distribute or use in our business operation. We may encounter disputes from time to time over rights and obligations concerning intellectual property and other legal rights, in particular third-party’s copyrights that may be infringed by us or our teaching staff in our business operation, and we may not prevail in those disputes.

Regardless of the merit of particular claims, legal proceedings and investigations may result in reputational harm or loss of goodwill associated with our brand and be expensive, time consuming, disruptive to our operations and distracting to management. If a lawsuit against us is successful, we may be required to pay substantial damages and/or enter into royalty or license agreements that may not be based upon commercially reasonable terms, or we may be unable to enter into such agreements at all. We may also lose, or be limited in, the rights to offer some of our programs, parts of our platform and products or be required to make changes to our course materials or platform. As a result, the scope of our course materials could be reduced, which could adversely affect the effectiveness of our curriculum, limit our ability to attract new students, harm our reputation and have a material adverse effect on our results of operations and financial condition.

If our security measures are breached or failed and result in unauthorized disclosure or unintended leakage of data, we could lose existing students, fail to attract new students and be exposed to protracted and costly litigation.

Maintaining platform security is of critical importance to us because we store and transmit proprietary and confidential information, which includes proprietary and confidential student, parent and teaching staff information, such as names, addresses, ID card number, bank account number and other personal information, which is primarily stored in our digital database. To ensure the confidentiality and integrity of our data, we maintain a comprehensive and rigorous data security program. For example, we anonymize and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. See “Item 4. Information on the Company—B. Business Overview—Data Privacy and Security.” These measures, however, may not be as effective as we anticipate. If our security measures are breached or fail and result in unauthorized disclosure or unintended leakage of data, third parties may receive or be able to access student, parent, teaching staff and other records, which could subject us to liabilities, interrupt our business and adversely impact our reputation. Furthermore, we currently face certain legal obligations regarding the manner in which we treat such information. Increased regulation of data utilization practices, including self-regulation or findings under existing laws that limit our ability to collect, transfer and use data, could have an adverse effect on our business. If we were to disclose data about our students, parents and teaching staff in a manner that was objectionable to them, our business reputation could be adversely affected, and we could face potential legal claims that could impact our operating results. Failure to comply with these obligations could subject us to liability, and to the extent that we need to alter our business model or practices to adapt to these obligations, we could incur additional expenses.

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Any of these issues could harm our reputation, adversely affect our ability to attract and enroll prospective students, cause prospective students not to enroll or stay enrolled, or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage resulting from breach of our security measures could create distrust of our company by prospective students or investors. We may be required to expend significant additional resources to protect us against the threat of security measures breaches or to alleviate problems caused by such disruptions or breaches.

Failure to adequately and promptly respond to changes in examination systems, admission standards, test materials, teaching methods and regulation changes in the PRC could render our courses and services less attractive to students.

In mainland China, professional school admissions and professional certification programs rely heavily on examination results, and students’ performance in these exams is critical to their education and future employment prospects. It is therefore common for adult students to take professional education courses to pursue higher education or employment opportunities by improving their test performance. Professional school admissions and professional certification programs undergo continuous changes, in terms of subject and skill focus, question type, examination format and the manner in which the processes are administered. We are therefore required to continually update and enhance our course materials and teaching methods. Any failure to respond to the changes in a timely and cost-effective manner will adversely impact the marketability of our services and products, which would have a material adverse effect on our business, financial condition and results of operations.

We may not be able to timely develop our education content offerings in a cost-effective manner to make them appealing to existing and prospective students, or at all.

Our educational content development team works closely with our instructors on developing, updating and improving our course materials to stay abreast of the latest educational trends in their respective subject areas. In particular, in light of recent regulatory developments in mainland China, we have ceased offering compulsory education academic subject tutoring services and shift our focus towards offering and developing educational services for college students and adults, overseas study related services, non-academic tutoring services, educational content and digitalized learning products. The adjustments, updates and expansions of our existing education content offerings and the development of new course materials may not be accepted by existing or prospective students. Even if we are able to develop acceptable new course materials, we may not be able to introduce them as quickly as students require or as quickly as our competitors introduce competing offerings. Furthermore, offering new courses materials or upgrading existing ones may require us to commit significant resources and make significant investments in educational content development. If we are unsuccessful in pursuing educational content development and upgrading opportunities due to the financial constraints, failure to attract educational content development professionals or qualified instructors, or other factors, our ability to attract and retain students could be impaired and our financial results could suffer.

We cannot assure you that we will not be subject to liability claims for any inappropriate or illegal content in our education content offerings, which could cause us to incur legal costs and damages our reputation.

We implement strict monitoring procedures to remove inappropriate or illegal content. However, we cannot assure you that there will be no inappropriate or illegal materials included in our education contents. In addition, our quiz questions designed internally based on our understanding of the relevant examination requirements may be investigated by the regulatory authorities. Therefore, we may face civil, administrative or criminal liability if an individual or corporate, governmental or other entity believes that our education content offering violates any laws, regulations or governmental policies or infringes upon its legal rights. Even if such a claim were not successful, defending such a claim may cause us to incur substantial costs. Moreover, any accusation of inappropriate or illegal content in our education content offerings could lead to significant negative publicity, which could harm our reputation and future business prospects.

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The recognition of our brand may be adversely affected by any negative publicity concerning us and our business, shareholders, affiliates, directors, officers, teaching staff and other employees, as well as the industry in which we operate, regardless of its accuracy, that could harm our reputation and business.

We believe that the market recognition of our brand has significantly contributed to the success of our business and that maintaining and enhancing our brand recognition is critical to sustaining our competitive advantages. Negative publicity about us and our business, shareholders, affiliates, directors, officers, teaching staff and other employees, as well as the industry in which we operate, can harm the recognition of our brand. Negative publicity, regardless of merits, could be related to a wide variety of matters, including but not limited to:

•alleged misconduct or other improper activities committed by our students or our directors, officers, teaching staff and other employees, including misrepresentation made by our employees to potential students during sales and marketing activities, and other fraudulent activities to artificially inflate the popularity of our services or course offerings;

•false or malicious allegations or rumors about us or our directors, shareholders, affiliates, officers, and teaching staff and other employees;

•complaints by our students about our education services and sales and marketing activities;

•complaints about the truthfulness or authenticity of the advertisements for our course offerings or services;

•refund disputes of course fees between us and our students or administrative penalties;

•employment-related claims relating to alleged employment discrimination, wage and hour violations;

•governmental and regulatory investigations or penalties resulting from our failure to comply with applicable laws and regulations; and

•governmental or regulatory penalties imposed on our shareholders for any misconduct, whether or not it involves us or our business operations.

In addition to traditional media, there has been an increasing use of social media platforms and similar devices in China, including instant messaging applications, social media platforms and other forms of internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. The availability of information on instant messaging applications and social media platforms is virtually immediate as is its impact without affording us an opportunity for redress or correction. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our company, shareholders, affiliates, directors, officers, teaching staff and other employees, may be posted on such platforms at any time. The risks associated with any such negative publicity or incorrect information cannot be completely eliminated or mitigated and may materially harm the recognition of our brand, our reputation, business, financial condition and results of operations.

If our senior management and other key personnel is unable to work together effectively or efficiently or if we lose their services, our business may be severely affected.

The continued services of our senior management and other key personnel is important to our continued success. In particular, we rely on the expertise and experience of Mr. Larry Xiangdong Chen, our founder, chairman and CEO. We also rely on the experience and services from other senior management. If they cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If any of our senior management joins a competitor or forms a competing business, we may lose students, teaching staff, and other key professionals and staff members. Our senior management has entered into employment agreements with us which contain confidentiality clauses, as well as standalone confidentiality and non-compete agreements. However, if any dispute arises between our senior management and us, we may have to incur substantial costs and expenses in order to enforce such agreements in mainland China or we may be unable to enforce them at all.

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If we are not able to improve or maintain our sales and marketing efficiency, our business and results of operations may be materially and adversely affected.

As we shift our strategies in selling and marketing spending due to the impact of the New Regulations, we have reduced our brand advertisement and promotional course spending. As a result, we have seen significant decrease in our selling expenses in the fourth quarter of 2021. However, selling expenses still represented a significant portion of our operating expenses. Our sales and marketing activities may not be well received by students and may not result in the levels of sales that we anticipate and our trial courses may not be attractive to our prospective students. For example, if our students attending trial courses do not purchase our standard courses, our business and results of operations may be materially and adversely affected. Furthermore, we may not be able to maintain or further improve our operational efficiency. We also may not be able to retain or recruit experienced sales staff, or to efficiently train junior sales staff. In addition, marketing and branding approaches and tools in the online education market in mainland China are evolving. This further requires us to enhance our marketing and branding approaches and experiment with new methods to keep pace with industry developments and student preferences. Failure to refine our existing marketing and branding approaches or to introduce new marketing and branding approaches in a cost-effective manner may reduce our market share, cause our revenues to decline and negatively impact our operating margins.

Our advertising content may subject us to penalties and other administrative actions.

Under the advertising laws and regulations of mainland China, we are obligated to monitor our advertising content to ensure that such content is true and accurate and in full compliance with applicable laws and regulations. Violation of these laws and regulations may subject us to penalties, including fines, confiscation of our advertising income, orders to cease dissemination of the advertisements and orders to publish an announcement correcting the misleading information. In circumstances involving serious violations by us, PRC governmental authorities may force us to terminate our advertising operations or revoke our licenses. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Advertising.”

We use customer management tools with automatic message sending and receiving functions to automatically distribute promotion-related information to our users. While these customer management tools play an important role in our advertising content, they may subject us to violations and penalties under the Anti-Unfair Competition Law of the PRC.

While we have made significant efforts to ensure that our advertisements are in full compliance with applicable laws and regulations of mainland China, we cannot assure you that all the content contained in such advertisements is in compliance with relevant laws, regulations and regulatory requirements, especially given the uncertainty in the interpretation of these laws and regulations of mainland China. Our failure to comply with the existing and future laws, regulations and regulatory requirements may subject us to fines, penalties, rectifications and other regulatory measures. In April 2021, due to the way we represented our teachers and courses in certain advertisements and the way we displayed promotional prices for certain of our courses in our mobile app, we were found by PRC regulatory authorities to have violated the Price Law of the PRC and advertising laws and regulations, and we were consequently warned and imposed fines totaling RMB0.7 million (US$0.1 million). Further, despite any contractual safeguard, the advertising agencies we have worked with or will work with are not fully under our control, and they have committed and may again commit misconducts or otherwise produce subpar advertising content that give rise to false advertisement claims. In December 2020, one of the advertising agencies we worked with used an actor purporting to be an experienced English teacher to advertise one of our courses, and this actor was later found to not have the qualifications she purported to have in the advertisement at all. In April 2021, we were fined approximately RMB262 thousand (US$41 thousand) by the relevant governmental authority for such misleading content in our advertisement. Any violations of applicable advertising laws and regulations of mainland China in the future may subject us to administrative actions or even penalties, and our reputation may be harmed as a result, which may negatively affect our business, financial condition, results of operations and prospects.

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We are subject to third-party payment processing-related risks.

We accept payments through major third-party online payment channels in China, as well as bank transfers for our customers. We may also be susceptible to fraud, user data leakage and other illegal activities in connection with the various payment methods we offer. In addition, our business depends on the billing, payment and escrow systems of the third-party payment service providers to maintain accurate records of payments by customers and collect such payments. If the quality, utility, convenience or attractiveness of these payment processing and escrow services declines, or if we have to change the pattern of using these payment services for any reason, the attractiveness of our company could be materially and adversely affected. We are also subject to various rules, regulations and requirements, regulatory or otherwise, governing electronic funds transfers which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, we may be subject to fines and higher transaction fees and become unable to accept the current online payments solutions from our customers, and our business, financial condition and results of operations could be materially and adversely affected. Business involving online payment services is subject to a number of risks that could materially and adversely affect third-party online payment service providers’ ability to provide payment processing and escrow services to us, including:

•dissatisfaction with these online payment services or decreased use of their services;

•increasing competition, including from other established Chinese internet companies, payment service providers and companies engaged in other financial technology services;

•changes to rules or practices applicable to payment systems that link to third-party online payment service providers;

•breach of customers’ personal information and concerns over the use and security of information collected from buyers;

•service outages, system failures or failures to effectively scale the system to handle large and growing transaction volumes;

•increasing costs to third-party online payment service providers, including fees charged by banks to process transactions through online payment channels, which would also increase our costs of revenues; and

•failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.

Our brand image, business and results of operations may be adversely impacted by students and employees’ misconduct, improper activities and misuse of our platform, many of which are beyond our control.

We allow teaching staff to engage in real-time communication with our students. Our courses undergo multiple rounds of internal review and pilot testing before being broadly released. Our tutors and quality assurance team monitor our live courses, chat messages and other content on our platform to ensure that we are able to identify content that may be deemed inappropriate or violation of laws, regulations and government policies. When any inappropriate or illegal content is identified, we promptly remove the content. However, since we have limited control over the real-time and offline behavior of our students, teaching staff, to the extent any improper behavior is associated with our platforms, our ability to protect our brand image and reputation may be limited. In addition, if any of our students, teaching staff suffer or allege to have suffered physical, financial or emotional harm following contact initiated on our platform, we may face civil lawsuits or other liabilities initiated by the affected student, teaching staff, or governmental or regulatory actions against us. In response to allegations of illegal or inappropriate activities conducted on our platform or any negative media coverage about us, PRC governmental authorities may intervene and hold us liable for non-compliance with laws and regulations concerning the dissemination of information on the internet and subject us to administrative penalties or other sanctions, such as requiring us to restrict or discontinue some of the features and services provided on our platform. As a result, our business may suffer and our brand image, student base, results of operations and financial condition may be materially and adversely affected.

We are exposed to the risk of other types of employee fraud or other misconduct. Other types of employee misconduct include intentionally failing to comply with government regulations, engaging in unauthorized activities and misrepresentation to our prospective students during marketing activities, which could harm our reputation. It is not always possible to deter employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in controlling unknown or unmanaged risks or losses, which could harm our business, financial condition and results of operations.

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We face risks related to natural and other disasters, including outbreaks of health epidemics or severe weather conditions, and other extraordinary events, which could significantly disrupt our operations.

China has experienced significant natural disasters, including earthquakes, extreme weather conditions, as well as health scares related to epidemic diseases, and any similar event could materially impact our business in the future. If a disaster or other disruption were to occur in the future that affects the regions where we operate our business, our operations could be materially and adversely affected due to loss of personnel and damages to property.

In addition, our business could be affected by public health epidemics, such as the COVID-19 pandemic, H1N1 flu, H7N9 flu, avian influenza, severe acute respiratory syndrome or SARS, Zika virus, Ebola virus or other epidemics. If any of our employees is suspected of having contracted a contagious disease, we may be required to apply quarantines or suspend our operations. Furthermore, any future outbreak may restrict economic activities in affected regions, resulting in reduced business volume, temporary closure of our offices or otherwise disrupt our business operations and adversely affect our results of operations.

Increasing focus with respect to environmental, social and governance matters may impose additional costs on us or expose us to additional risks. Failure to adapt to or comply with the evolving expectations and standards on environmental, social and governance matters from investors and the PRC government may adversely affect our business, financial condition and results of operation.

The PRC government and public advocacy groups have been increasingly focused on environment, social and governance, or ESG, issues in recent years, making our business more sensitive to ESG issues and changes in governmental policies and laws and regulations associated with environment protection and other ESG-related matters. Investor advocacy groups, certain institutional investors, investment funds, and other influential investors are also increasingly focused on ESG practices and in recent years have placed increasing importance on the implications and social cost of their investments. Regardless of the industry, increased focus from investors and the PRC government on ESG and similar matters may hinder access to capital, as investors may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Any ESG concern or issue could increase our regulatory compliance costs. If we do not adapt to or comply with the evolving expectations and standards on ESG matters from investors and the PRC government or are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may suffer from reputational damage and the business, financial condition, and the price of our ADSs could be materially and adversely affected.

We may not be able to achieve the benefits we expect from recent and future investments and acquisitions.

We have made and may continue to make equity investments or acquisition in additional businesses that complement our existing business. We may not be able to successfully integrate acquired businesses and we may not have control over the businesses or operations of our minority equity investments, the value of which may decline over time. As a result, our business and results of operations could be harmed. In addition, if the businesses we acquire or invest in do not subsequently generate the anticipated financial performance or if any goodwill impairment test triggering event occurs, we may need to revalue or write down the value of goodwill and other intangible assets in connection with such acquisitions or investments, which would harm our results of operations. In addition, we may be unable to identify appropriate acquisition or strategic investment targets when it is necessary or desirable to make such acquisition or investment to remain competitive or to expand our business. Even if we identify an appropriate acquisition or investment target, we may not be able to negotiate the terms of the acquisition or investment successfully, finance the proposed transaction or integrate the relevant businesses into our existing business and operations. Furthermore, as we often do not have control over the companies in which we only have minority stake, we cannot ensure that these companies will always comply with applicable laws and regulations in their business operations. Material non-compliance by our investees may cause substantial harms to our reputations and the value of our investment.

We have granted, and expect to continue to grant, share-based awards under our share incentive plan, which may result in increased share-based compensation expenses.

We have granted options and restricted share units, and recorded RMB238.4 million, RMB345.3 million and RMB122.7 million (US$17.8 million) in 2020, 2021 and 2022, respectively, in share-based compensation expenses in relation to such share-based award grants. We expect to continue to grant awards under our share incentive plan, which we believe is of significant importance to our ability to attract and retain key personnel and employees. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect on our results of operations.

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If we cannot maintain our corporate culture, we could lose the innovation, collaboration and focus that contribute to our business.

We believe that a critical component of our success is our corporate culture, which fosters innovations and has roots in a deep understanding of our students and the evolving education industry in China. We may find it difficult to maintain these valuable aspects of our corporate culture. Any failure to preserve our culture could undermine our reputation in the marketplace and negatively impact our ability to attract and retain employees and students, which would in turn jeopardize our future success.

We have limited business insurance coverage, which could expose us to significant costs and business disruption.

Insurance companies in mainland China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. We do not maintain any liability insurance or property insurance policies covering equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in mainland China, we do not maintain business interruption insurance, nor do we maintain key-man life insurance. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured business disruptions may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may be adversely impacted.

We are subject to reporting obligations under the U.S. securities laws. We are subject to the Sarbanes-Oxley Act of 2002. We must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Form 20-F filings, as required by Section 404 of the Sarbanes-Oxley Act. In addition, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting.

Our management has concluded that our internal controls over financial reporting were effective as of December 31, 2022. Our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting was effective in all material aspects as of December 31, 2022. See “Item 15. Controls and Procedures.” However, if we fail to maintain effective internal controls over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. This could result in a loss of investor confidence in the reliability of our financial conditions which in turn could negatively impact the trading price of our ADSs and result in lawsuits being filed against us by our shareholders or otherwise harm our reputation. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and financial condition.

COVID-19 has had a severe and negative impact on the Chinese and global economy since early 2020. Even before the outbreak of COVID-19, the global macroeconomic environment had been facing challenges. The growth of the Chinese economy has gradually slowed down in recent years and the trend may continue. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa. The conflict between Ukraine and Russia and the imposition of broad economic sanctions on Russia could raise energy prices and disrupt global markets. There have also been concerns on the relationship between China and other countries, including surrounding Asian countries, which may potentially lead to foreign investors closing down their businesses or withdrawing their investments in China and, thus, exiting the China market, and other economic effects. In particular, there is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financial condition.

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Increases in labor costs in the PRC may adversely affect our business and results of operations.

The currently effective PRC Labor Contract Law was taking effect from January 1, 2008 and later amended on December 28, 2012. The PRC Labor Contract Law has reinforced the protection of employees who, under the PRC Labor Contract Law, have the right, among others, to have written labor contracts, to enter into labor contracts with no fixed term under certain circumstances, to receive overtime wages and to terminate or alter terms in labor contracts. Furthermore, the PRC Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. As a result of the cessation of compulsory education academic subject tutoring services and other measures we have taken to comply with recent regulatory developments, we have implemented a staffing optimization plan and incurred significant severance cost in connection with employee layoffs. To the extent that we need to restructure our workforce and make staff optimization plans, the PRC Labor Contract Law could adversely affect our ability to do so in a timely and cost-effective manner, and our results of operations could be adversely affected.

Our operations depend on the performance of the internet infrastructure and telecommunications networks in mainland China.

The successful operation of our business depends on the performance of the internet infrastructure and telecommunications networks in mainland China. Almost all access to the internet is maintained through state-owned telecommunications operators under the administrative control and regulatory supervision of the MIIT. Moreover, we have entered into contracts with various subsidiaries of a limited number of telecommunications service providers at provincial level and rely on them to provide us with data communications capacity through local telecommunications lines. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s internet infrastructure or the telecommunications networks provided by telecommunications service providers. We regularly serve a large number of students. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our online platform. However, we have no control over the costs of the services provided by telecommunications service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. If internet access fees or other charges to internet users increase, our user traffic may decline and our business may be harmed.

Failure to make adequate contributions to various employee benefits plans as required by the regulations of mainland China may subject us to penalties.

Companies operating in mainland China are required to participate in various government-sponsored employee benefit plans, including certain social insurance and housing funds, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of employees up to a maximum amount specified by the local government from time to time at locations where our employees are based. In 2020, our mainland China entities were able to enjoy reductions and/or exemptions for certain mandatory social security insurance payments due to the COVID-19 pandemic, which may gradually cease in 2021. The requirement of employee benefit plans has not been implemented consistently by the local governments in mainland China given the different levels of economic development in different locations. To efficiently administrate the contribution of employment benefit plans of our employees in some cities, we engage third-party agents to make the contribution for our employees. Our failure in making contributions to various employee benefit plans and in complying with applicable labor-related laws may subject us to late payment fees and labor disputes, and we could be required to make up the contributions for these plans as well as to pay late fees, and fines. If we are subject to late fees, fines or labor disputes in relation to the underpaid employee benefits, or are required to make up the contributions for these plans, our financial condition and results of operations may be adversely affected. In addition, to the extent that we can make a reasonable estimate of the liability arising from our failure in making full contributions to various employee benefit plans, we record a related contingent liability. However, the amount of our estimates may be inaccurate, in which case our financial condition and cash flow may be adversely affected if we were to pay late fees or fines in relation to the underpaid employee benefits.

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Risks Related to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China’s regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Foreign ownership in entities that provide value-added telecommunication services (except for e-commerce, domestic multi-party communications, store-and-forward and call center), such as provision of internet video, is subject to restrictions under current laws and regulations of mainland China. Specifically, foreign ownership of an internet information service provider may not exceed 50%. We are an exempted company incorporated in the Cayman Islands. The WFOEs are our mainland China subsidiaries and foreign-invested enterprises under the laws of mainland China. To comply with the laws and regulations of mainland China, we conduct our business in mainland China primarily through Beijing Gaotu, the VIE, and its subsidiaries, based on a series of contractual arrangements by and among the WFOEs, the VIE and its shareholders. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.” As a result of these contractual arrangements, the shareholders of the VIE effectively assigned all of their voting rights and economic interests underlying their equity interest in the VIE to us, which gives us the power to direct the activities that most significantly impact the VIE’s economic performance. We consolidate financial results of the VIE and its subsidiaries into our consolidated financial statements based solely on contractual arrangements in accordance with U.S. GAAP. The VIE holds the licenses, approvals and key assets that are essential for our operations. However, investors in our ADSs are not purchasing equity interest in the VIE in mainland China but instead are purchasing equity interest in a Cayman Islands holding company with no equity ownership in the VIE, and our ADSs may decline in value or become worthless if we are unable to assert our contractual control rights over the assets of the VIE which contributed 100% of our revenues in 2022.

In the opinion of our PRC counsel, Tian Yuan Law Firm, as of the date of this annual report, (i) the ownership structure of the VIE and the WFOEs in mainland China does not result in any violation of the laws and regulations of mainland China currently in effect; and (ii) the contractual arrangements among the WFOEs, the VIE and its shareholders are valid and legally binding upon each party to such arrangement and are enforceable against each party thereto in accordance with their terms, and will not result in any violation of the laws or regulations of mainland China currently in effect. However, we have been further advised by our PRC counsel that there are substantial uncertainties regarding the interpretation and application of current or future laws and regulations of mainland China. Thus, the PRC government may ultimately take a view contrary to the opinion of our PRC counsel. If the PRC government otherwise find that we are in violation of any existing or future laws or regulations of mainland China or lack the necessary permits or licenses to operate our business, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:

•revoking the business licenses and/or operating licenses of such entities;

•imposing fines on us;

•confiscating any of our income that they deem to be obtained through illegal operations;

•discontinuing or placing restrictions or onerous conditions on our operations;

•placing restrictions on our right to collect revenues; and

•shutting down our servers or blocking our apps and websites.

Any of these events could cause significant disruption to our business operations and severely damage our reputation, which would in turn materially and adversely affect our business, financial condition and results of operations. If occurrences of any of these events results in our inability to direct the activities of the VIE in mainland China that most significantly impact its economic performance, and/or our failure to receive the economic benefits from the VIE, we may not be able to consolidate its financial results in our consolidated financial statements in accordance with U.S. GAAP.

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We rely on contractual arrangements with the VIE and its shareholders for our business operations, which may not be as effective as direct ownership in providing operational control.

We have relied and expect to continue to rely on contractual arrangements with the VIE, and its shareholders to operate our business in mainland China. These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIE. For example, the VIE and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct the operations of the VIE in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of the VIE in mainland China, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of the VIE, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by the VIE and its shareholders of their obligations under the contracts for our business operations. The shareholders of the VIE may not act in the best interests of our company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certain portion of our business through the contractual arrangements with the VIE. If any dispute relating to these contracts remains unresolved, we will have to enforce our rights under these contracts through the operations of laws of mainland China, arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the legal system of mainland China. See “—Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.” Meanwhile, there are very few precedents as to how contractual arrangements in the context of a consolidated affiliated entity should be interpreted or enforced by the courts of mainland China. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability of the consolidated affiliated entity contractual arrangements. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exercise the voting rights in the VIE that these contractual arrangements assigned to us, and our ability to conduct our business may be materially adversely affected. Therefore, our contractual arrangements with the VIE may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.

If the VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under the laws of mainland China, including seeking specific performance or injunctive relief, and contractual remedies, which we cannot assure you will be sufficient or effective under the laws of mainland China. For example, if the shareholders of the VIE were to refuse to transfer their equity interests in the VIE to us or our designee if we exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to compel them to perform their contractual obligations.

All the agreements under our contractual arrangements are governed by the laws of mainland China and provide for the resolution of disputes through arbitration in mainland China. Accordingly, these contracts would be interpreted in accordance with the laws of mainland China and any disputes would be resolved in accordance with the legal procedures of mainland China. However, uncertainties in the legal system of mainland China could limit our ability to enforce these contractual arrangements. Meanwhile, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity should be interpreted or enforced under the laws of mainland China. There remain significant uncertainties regarding the ultimate outcome of such arbitration should legal action become necessary. In addition, under the laws of mainland China, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in the courts of mainland China through arbitration award recognition proceedings, which would require additional expenses and delay. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able to exercise the voting rights in the VIE that these contractual arrangements assigned to us, and our ability to conduct our business may be negatively affected. See “—Risks Related to Doing Business in China—Uncertainties with respect to the legal system of mainland China could adversely affect us.”

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The shareholders of the VIE may have actual or potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The shareholders of the VIE may have actual or potential conflicts of interest with us. These shareholders may breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIE, which would have a material and adverse effect on our ability to effectively control the VIE and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company. If we cannot resolve any conflict of interest or dispute between us and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

Contractual arrangements in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or the VIE owes additional taxes, which could negatively affect our financial condition and the value of your investment.

Under the applicable laws and regulations of mainland China, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements in relation to our contractual arrangements with the VIE were not entered into on an arm’s length basis in such a way as to result in an impermissible reduction in taxes under the applicable laws of mainland China, rules and regulations, and adjust income of the VIE in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by the VIE for mainland China tax purposes, which could in turn increase its tax liabilities without reducing our mainland China subsidiaries’ tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties on the VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial position could be materially and adversely affected if the VIE’s tax liabilities increase or if it is required to pay late payment fees and other penalties.

We may lose the ability to use and enjoy assets held by the VIE that are material to the operation of certain portion of our business if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding.

As part of our contractual arrangements with the VIE, the VIE holds certain assets that are material to the operation of certain portion of our business, including permits, domain names and most of our IP rights. If the VIE goes bankrupt and all or part of its assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, the VIE may not, in any manner, sell, transfer, mortgage or dispose of its assets or legal or beneficial interests in the business without our prior consent. If the VIE undergoes a voluntary or involuntary liquidation proceeding, the independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

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Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business, financial condition and results of operations.

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in mainland China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected regulatory trend of mainland China to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation, and failure to take timely and appropriate measures to cope with the regulatory-compliance challenges could result in material and adverse effect on us. For instance, though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, it contains a catch-all provision under the definition of “foreign investment”, which includes investments made by foreign investors in mainland China through means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for foreign investment in mainland China and if yes, how our contractual arrangements should be dealt with. In addition, if future laws, administrative regulations or provisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. In the worst-case scenario, we may be required to unwind our existing contractual arrangements and/or dispose of the relevant business operations, which could have a material and adverse effect on our current corporate structure, corporate governance, business, financial condition and results of operations.

It may be difficult for overseas regulators to conduct investigation or collect evidence within mainland China.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in mainland China. For example, in mainland China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside mainland China. Although the PRC authorities may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of mainland China and without the consent by the Chinese securities regulatory authorities and the other competent governmental agencies, no entity or individual may provide documents or materials related to securities business overseas. In addition, the Data Security Law and the PIPL provide that no entity or individual within the territory of mainland China shall provide any foreign judicial body and law enforcement body with any data or any personal information stored within the territory of mainland China without the approval of the competent PRC governmental authority. While detailed interpretation of or implementation rules under these laws have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within mainland China, and restrictions on the provision of documents, materials, data and personal information by mainland China entities and individuals to an overseas securities regulator, foreign judicial body or foreign law enforcement body may further increase difficulties faced by you in protecting your interests.

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We may rely on dividends paid by our mainland China subsidiaries to fund cash and financing requirements. Any limitation on the ability of our mainland China subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our ADSs and our ordinary shares.

We are a holding company, and we may rely on dividends to be paid by our mainland China subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the holders of our ADSs and our ordinary shares and service any debt we may incur. If our mainland China subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.

Any restriction on currency exchange may limit the ability of our mainland China subsidiaries to use their Renminbi revenues to pay dividends to us. The PRC government may continue to strengthen its capital controls and our mainland China subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. Any limitation on the ability of our mainland China subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

Under the laws and regulations of mainland China, wholly foreign-owned enterprises in mainland China, such as Beijing Lexuebang, may pay dividends only out of their accumulated profits as determined in accordance with mainland China’s accounting standards and regulations. In addition, a wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. These reserve funds are not distributable as cash dividends. Any limitation on the ability of our wholly-owned mainland China subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

Risks Related to Doing Business in China

The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.

Our auditor, the independent registered public accounting firm that issues the audit reports included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.

Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.

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On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to that determination. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended December 31, 2022.

Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares and ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.

The filing with the CSRC may be required in connection with our future follow-on offerings and the occurrence of certain activities under the laws of mainland China, and we cannot predict whether we will be able to complete such filing.

On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by mainland China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by mainland China-based overseas-listed companies. On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023. According to the Trial Measures, (i) where an issuer, which is a domestic company or an overseas company determined as indirect overseas offering and listing of a domestic company, seeks for follow-on offering of securities in the same overseas market after its initial public offering, the issuer shall submit filings with the CSRC within three business days after the completion of such follow-on offering; (ii) where an issuer seeks for offering and listing of securities in other overseas market after its initial public offering, the issuer shall submit filings with the CSRC within three business days after such application is submitted; (iii) if the overseas offering and listing of the issuer is considered as indirect overseas offering and listing of a domestic company, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC; (iv) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (a) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (b) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; (v) the issuer shall report relevant information to the CSRC within three business days after the occurrence and announcement of the following events: (a) change in control of the issuer; (b) the issuer is subject to investigation, sanction and other measures imposed by the overseas securities regulatory authorities or the relevant authorities; (c) the issuer changes its listing status or the listing board; (d) the issuer terminates the listing voluntarily or compulsorily; (vi) the issuer shall report relevant information to the CSRC within three business days after any significant change in the main business operation of the issuer, if such change in business operation makes the issuer no longer need to comply with the filing requirements.

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On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that prior to the effectiveness of the Trial Measures, domestic companies that have already completed the overseas offering and listing are not required to complete the filing procedure at the current stage, but shall complete the filing procedure upon the occurrence of certain matters, such as follow-on offering of securities, as required in the Trial Measures. For more details, please refer to “Regulation—Regulation Related to M&A and Overseas Listings.”

If we fail to complete the filing procedures or conceals or omits of any material fact or falsifies any major content in its filing documents for any follow-on offering and other certain activities as required by the Trial Measures, we may be subject to administrative penalties, such as order to rectify, warnings, fines or other actions that may have a material and adverse effect on our business, prospects, financial condition, reputation, and the trading price of our ADSs.

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

All of our operations are located in mainland China. Accordingly, our results of operations, financial condition and prospects are influenced by economic, political and legal developments in China. China’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, growth has been uneven across different regions and among different economic sectors. The PRC government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business. Therefore, investors of our company and our business face potential uncertainty from China.

The PRC government also exercises significant control over China’s economic growth through strategically allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Although the PRC economy has grown significantly in the past decade, that growth may not continue, as evidenced by the slowing of the growth of the PRC economy since 2012. Any adverse changes in economic conditions in China, in the policies of the PRC government or in the laws and regulations of mainland China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and results of operations, lead to reduction in demand for our services and adversely affect our competitive position.

Uncertainties with respect to the legal system of mainland China could adversely affect us.

The legal system of mainland China is based on written statutes and court decisions have limited precedential value. The legal system of mainland China is evolving rapidly, and the interpretations of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since the judicial and administrative authorities of mainland China have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding than in more developed legal systems. Furthermore, the legal system of mainland China is based, in part, on government policies and internal rules, some of which are not published in a timely manner, or at all, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

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The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in our operations and the value of our ADSs.

We conduct our business primarily in mainland China. Our operations in mainland China are governed by the laws and regulations of mainland China. The PRC government has significant oversight and discretion over the conduct of our business, and may intervene or influence our operations. The PRC government has recently published new policies that significantly affected certain industries, including the online private education industry, and we cannot rule out the possibility that it will in the future release additional regulations or policies that directly or indirectly affect our industry or require us to seek additional permission to continue our operations, which could result in a material adverse change in our operation, and our ordinary shares and ADSs may decline in value or become worthless. Therefore, investors of our company and our business face potential uncertainty from actions taken by the PRC government affecting our business.

Litigation and negative publicity surrounding China-based companies listed in the U.S. may result in increased regulatory scrutiny of us and negatively impact the trading price of our ADSs and could have a material adverse effect upon our business, including our results of operations, financial condition, cash flows and prospects.

We believe that litigation and negative publicity surrounding companies with operations in China that are listed in the U.S. have negatively impacted stock prices for such companies. Various equity-based research organizations have published reports on China-based companies, including us, after examining, among other things, their corporate governance practices, related party transactions, sales practices and financial statements that have led to special investigations and stock suspensions on national exchanges. Any similar scrutiny of us, regardless of its lack of merit, could result in a diversion of management resources and energy, potential costs to defend ourselves against rumors, decreases and volatility in the ADS trading price, and increased directors and officers insurance premiums and could have a material adverse effect upon our business, including our results of operations, financial condition, cash flows and prospects.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of Renminbi against the U.S. dollar and other currencies is affected by changes in mainland China’s political and economic conditions and by mainland China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

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Any significant appreciation or depreciation of Renminbi may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect If our preferential taxon the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or the ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

We have started to enter into hedging transactions in an effort to reduce our exposure to foreign currency exchange risk since January 2021. However, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by the exchange control regulations of mainland China that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of mainland China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our mainland China subsidiaries to fund any cash and financing requirements we may have. Under existing foreign exchange regulations of mainland China, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our mainland China subsidiaries may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our mainland China subsidiaries and the VIE to pay off their respective debt in a currency other than Renminbi owed to entities outside mainland China, or to make other capital expenditure payments outside mainland China in a currency other than Renminbi.

In light of the flood of capital outflows of mainland China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ADSs.

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If our preferential tax treatments are revoked or become unavailable or if the calculation of our tax liability is successfully challenged by the PRC tax authorities, we may be required to pay tax, interest and penalties in excess of our tax provisions.

Under the PRC Enterprise Income Tax Law and its implementation rules, the statutory enterprise income tax rate is 25%, but certain “high and new technology enterprises,” or HNTE, are qualified for a preferential enterprise income tax rate of 15% subject to certain qualification criteria. Currently, Beijing Gaotu and Beijing GaoTuYunJi Education Technology Co., Ltd (“GaoTuYunJi”) enjoy a preferential enterprise income tax rate of 15% as they are recognized as HNTEs by relevant PRC governmental authorities. The qualification as an HNTE is subject to annual evaluation and a three-year review by the relevant PRC governmental authorities. In addition, an enterprise that qualifies as a “software enterprise” established after January 1, 2011, or a software enterprise, could qualify the conditions of software enterprises specified in Announcement [2021] No.10 of the Ministry of Finance, the State Taxation Administration, the National Development and Reform Commission and The Ministry of Industry and Information Technology, is entitled to an exemption from income tax for the first two years and 50% reduction for the next three years from such entity’s first profitable year. Beijing Lexuebang obtained the Software Enterprise certificate and adopted exemption from enterprise income tax for 2019 and 2020, and a tax rate of 12.5% from 2021 to 2023. Wuhan Yuexuebang has obtained the Software Enterprise certificate and adopted exemption from enterprise income tax for 2020 and 2021, and a tax rate of 12.5% from 2022 to 2024 upon annual tax filings. In accordance with Cai Shui [2020] No.8 and the Announcement on Continuously Implementing Some Tax Preferential Policies in Response to COVID-19 Epidemic (2021 No.7), the Group's educational services were not subject to any VAT from January 1, 2020 to March 31, 2021. If these entities fail to maintain their respective statuses, experiences any increase in the enterprise income tax rate, or faces any discontinuation, retroactive or future reduction or refund of any of the preferential tax treatments currently enjoyed, our business, financial condition and results of operations could be materially and adversely affected.

The M&A Rules and certain other regulations of mainland China establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in mainland China.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the Ministry of Commerce, or the MOFCOM, be notified in advance of any change-of-control transaction in which a foreign investor takes control of a domestic enterprise in mainland China. Moreover, the Anti-Monopoly Law requires that the MOFCOM shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the MOFCOM Security Review Regulations, that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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Mainland China’s regulation of loans to and direct investment in mainland China entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from making loans to or make additional capital contributions to our mainland China subsidiaries and consolidated variable interest entity, which could materially and adversely affect our liquidity and our ability to fund and expand our business

We are an offshore holding company conducting our operations in China through our mainland China subsidiaries, the VIE and its subsidiaries. We may make loans to our mainland China subsidiaries, the VIE and its subsidiaries subject to the approval from or registration with governmental authorities and limitation on amount, or we may make additional capital contributions to our mainland China subsidiaries. Any loans to our mainland China subsidiaries, which are treated as foreign-invested enterprises, or FIEs, under the laws of mainland China, are subject to applicable foreign exchange loan registrations. In addition, an FIE shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of an FIE shall not be used for the following purposes: (i) directly or indirectly for payment beyond the business scope of such FIE or payment prohibited by relevant laws and regulations; (ii) directly or indirectly for investment in securities unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business scope; and (iv) paying the expenses related to the construction or purchase of real estate that is not for self-use (except for the real estate enterprises). Due to the restrictions imposed on loans in foreign currencies extended to domestic companies in mainland China, we are not likely to make such loans to the VIE, which is a domestic company incorporated in mainland China. Further, we are not likely to finance the activities of the VIE by means of capital contributions due to regulatory restrictions relating to foreign investment in domestic enterprises engaged in value-added telecommunication services and certain other businesses.

SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective June 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third-party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within mainland China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether SAFE will permit such capital to be used for equity investments in mainland China in actual practice. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from our initial public offering, to our mainland China subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in China. On October 23, 2019, the SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in mainland China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. On December 31, 2020, the People’s Bank of China, SAFE and other government authorities jointly issued the Circular on Further Optimizing Cross-border Renminbi Policies to Support the Stabilization of Foreign Trade and Foreign Investment, or the Circular 330, which, among other things, reiterates the above provisions in SAFE Circular 28. However, since the SAFE Circular 28 and Circular 330 are relatively new, it is unclear how SAFE and other government authorities as well as competent banks will carry this out in practice.

In light of the various requirements imposed by the regulations of mainland China on loans to and direct investment in entities in mainland China by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our mainland China subsidiaries or with respect to future capital contributions by us to our mainland China subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our operations in mainland China may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

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Mainland China’s regulations relating to the establishment of offshore special purpose companies by domestic residents may subject our domestic resident beneficial owners or our mainland China subsidiaries to liability or penalties, limit our ability to inject capital into our mainland China subsidiaries, limit our mainland China subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

The SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires domestic residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing with such domestic residents or entities’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests. On February 13, 2015, SAFE issued SAFE Circular No. 13, which took effect on June 1, 2015, pursuant to which, the power to accept SAFE registration was delegated from local SAFE to local qualified banks where the assets or interest in the domestic entity was located. In addition, such domestic residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such domestic citizens or residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.

If our shareholders who are domestic residents or entities do not complete their registration with the local SAFE branches, our mainland China subsidiaries may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our mainland China subsidiaries. Moreover, failure to comply with the SAFE registration described above could result in liability under the laws of mainland China for evasion of applicable foreign exchange restrictions.

We have used our best efforts to notify domestic residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being domestic residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the domestic residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all shareholders or beneficial owners of ours who are domestic residents or entities, including the beneficiaries of the trust schemes directly or indirectly holding interests in our Cayman Islands holding company, have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our mainland China subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our mainland China subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.

Failure to comply with mainland China’s regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the plan participants in mainland China or us to fines and other legal or administrative sanctions.

Pursuant to SAFE Circular 37, domestic residents of mainland China who participate in share incentive plans in overseas non-publicly-listed companies due to their position as director, senior management or employees of the domestic subsidiaries of the overseas companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are domestic residents and who have been granted share-based awards may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, or SAFE Circular 7. Under SAFE Circular 7 and other relevant rules and regulations, domestic residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are domestic residents must retain a qualified domestic agent, which could be a subsidiary in mainland China of such overseas publicly listed company or another qualified institution selected by such mainland China subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of its participants. Such participants must also retain an overseas entrusted institution to handle matters in connection with their exercise of share-based awards, the purchase and sale of corresponding shares or interests and fund transfers. In addition, the domestic agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the domestic agent or the overseas entrusted institution or other material changes. We and our domestic employees who have been granted share-based awards are subject to SAFE Circular 7 and other relevant rules and regulations. Failure of our domestic share-based award holders to complete their SAFE registrations may subject these domestic residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our mainland China subsidiaries, limit our mainland China subsidiaries’ ability to distribute dividends to us, or otherwise materially adversely affect our business.

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If we are classified as a mainland China resident enterprise for income tax purposes, such classification could result in unfavorable tax consequences to us and our non-domestic shareholders or the ADS holders.

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of mainland China with its “de facto management body” within mainland China is considered a “resident enterprise” and will be subject to mainland China’s enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. The State Administration of Taxation issued a circular in April 2009, known as SAT Circular 82 and as last amended in December 2017, which provides certain specific criteria for determining whether the “de facto management body” of a mainland China-controlled enterprise that is incorporated offshore is located in mainland China. Although this circular only applies to offshore enterprises controlled by mainland China enterprises or mainland China enterprise groups, not those controlled by mainland China individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a mainland China enterprise or a mainland China enterprise group will be regarded as a mainland China tax resident by virtue of having its “de facto management body” in mainland China and will be subject to mainland China’s enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in mainland China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in mainland China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in mainland China; and (iv) at least 50% of voting board members or senior executives habitually reside in mainland China.

We believe none of our entities outside of mainland China is a mainland China resident enterprise for tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that Gaotu Techedu Inc. is a mainland China resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to mainland China tax at a rate of 10% on gains realized on the sale or other disposition of ADSs or ordinary shares at a rate of 10%, if such income is treated as sourced from within mainland China. Furthermore, if PRC tax authorities determine that we are a mainland China resident enterprise for enterprise income tax purposes, dividends paid to our non-domestic individual shareholders (including the ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may be subject to mainland China tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us), if such gains are deemed to be from mainland China sources. These rates may be reduced by an applicable tax treaty, but it is unclear whether non-domestic shareholders of Gaotu Techedu Inc. would be able to claim the benefits of any tax treaties between their country of tax residence and mainland China in the event that Gaotu Techedu Inc. is treated as a mainland China resident enterprise. Any such tax may reduce the returns on your investment in the ADSs.

We face uncertainties with respect to indirect transfer of equity interests in mainland China resident enterprises by their non-domestic holding companies.

We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors. In February 2015, the State Administration of Taxation, or SAT, issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-Resident Enterprises or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of domestic assets, including a transfer of equity interests in an unlisted non-domestic holding company of a mainland China resident enterprise, by non-resident enterprises may be re-characterized and treated as a direct transfer of the underlying domestic assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of mainland China’s enterprise income tax. As a result, gains derived from such indirect transfer may be subject to mainland China’s enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a mainland China resident enterprise. On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Bulletin 37, which came into effect on December 1, 2017, as amended. The Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.

There is uncertainty as to the application of Bulletin 37 or previous rules under Bulletin 7. We face uncertainties on the reporting and consequences of private equity financing transactions, share exchanges or other transactions involving the transfer of shares in our company by investors that are non-resident enterprises. Our company may be subject to filing obligations or taxes if our company is the transferor in such transactions, and may be subject to withholding obligations if our company is the transferee in such transactions, under Bulletin 37 and Bulletin 7.

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The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.

Under the laws of mainland China, legal documents for corporate transactions, including agreements and contracts are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered and filed with relevant PRC market regulation administrative authorities. In order to secure the use of our chops and seals, we have established internal control procedures and rules for using these chops and seals. In any event that the chops and seals are intended to be used, the responsible personnel will need to seek approval by authorized employees in accordance with our internal control procedures and rules. In addition, in order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our employees may abuse their authority, for example, by entering into a contract not approved by us or seeking to gain control of one of our subsidiaries or the VIE or its subsidiaries. If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations.

The enforcement of the PRC Labor Contract Law and other labor-related regulations in mainland China may adversely affect our business and results of operations.

The Standing Committee of the National People’s Congress enacted the Labor Contract Law in 2008, and amended it on December 28, 2012. The Labor Contract Law introduced specific provisions related to fixed-term employment contracts, part-time employment, probationary periods, consultation with labor unions and employee assemblies, employment without a written contract, dismissal of employees, severance, and collective bargaining to enhance previous PRC labor laws. Under the Labor Contract Law, an employer is obligated to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract, with certain exceptions, must have an unlimited term, subject to certain exceptions. With certain exceptions, an employer must pay severance to an employee where a labor contract is terminated or expires. In addition, the PRC governmental authorities have continued to introduce various new labor-related regulations since the effectiveness of the Labor Contract Law.

Under the PRC Social Insurance Law and the Administrative Measures on Housing Fund, employees are required to participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance, maternity insurance, and housing funds and employers are required, together with their employees or separately, to pay the social insurance premiums and housing funds for their employees. If we fail to make adequate social insurance and housing fund contributions, we may be subject to fines and legal sanctions, and our business, financial condition and results of operations may be adversely affected. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Employment, Social Insurance and Housing Fund.”

These laws designed to enhance labor protection tend to increase our labor costs. In addition, as the interpretation and implementation of these regulations are still evolving, our employment practices may not be at all times be deemed in compliance with the regulations. As a result, we could be subject to penalties or incur significant liabilities in connection with labor disputes or investigations.

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Risks Related to Our ADSs

The trading price of our ADSs is likely to be volatile, which could result in substantial losses to investors.

The trading price of our ADSs has been volatile since our ADSs started to trade on the New York Stock Exchange on June 6, 2019. The trading price of our ADSs could fluctuate widely due to multiple factors, some of which are beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in mainland China that have listed their securities in the United States. In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following:

•actual or anticipated variations in our revenues, earnings, cash flow and data related to our student base or student engagement;

•announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;

•announcements of new product and service offerings, solutions and expansions by us or our competitors;

•changes in financial estimates by securities analysts;

•detrimental adverse publicity about us, our products and services or our industry;

•additions or departures of key personnel;

•release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and

•actual or potential litigation or regulatory investigations.

Any of these factors may result in large and sudden changes in the volume and price at which the ADSs will trade. For example, following the announcement of the Alleviating Burden Opinion, which contains high-level directives about requirements and restrictions related to after-school tutoring services, the trading price of our ADSs declined sharply. Furthermore, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our ADSs. Volatility or a lack of positive performance in our ADS price may also adversely affect our ability to retain key employees, most of whom have been granted equity incentives.

In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. We have been named as a defendant in a putative shareholder class action lawsuit which could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Please see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings” for description of the putative shareholder class action lawsuit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

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If we fail to meet NYSE’s minimum share price and other continued listing requirements, our ADSs could be subject to delisting, which may significantly reduce the liquidity of our ADSs and cause further declines to the market price of our ADSs.

Our ADSs are currently listed on the New York Stock Exchange, or the NYSE. The NYSE Listed Company Manual sets forth minimum requirements that a company must meet for continued listing on the NYSE. In order to maintain its listing on the NYSE, a company must, among other things, maintain an average closing price of at least US$1.00 per share over a consecutive 30 trading-day period. On November 16, 2022, we received a written notice from the NYSE notifying us that our ADS had fallen below the NYSE’s continued listing criterion of a minimum share price of US$1.00 per ADS over a 30 trading-day period. In accordance with the NYSE rules, we had a period of six months following the receipt of the notice to regain compliance with the minimum share price requirement. On January 3, 2023, the NYSE confirmed in a letter to us that the average closing price of our ADSs for the previous consecutive 30 trading-day period was above US$1.00 per ADS. Accordingly, we have regained compliance with the minimum share price requirement since January 3, 2023.

As of the date of this annual report, we are in compliance with the minimum requirements that we must meet for continued listing on the NYSE. However, there can be no assurance that we will stay compliant with the NYSE’s requirements for continued listing at all times going forward. The delisting of our ADSs may significantly reduce the liquidity of our ADSs, cause further declines to the market price of our ADSs, and make it more difficult for us to obtain adequate financing to support our continued operation.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline.

The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price of or trading volume for our ADSs to decline.

The sale or perceived availability for sale of substantial amounts of the ADSs could adversely affect their market price.

Sales of substantial amounts of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. The ADSs sold in our initial public offering and follow-on offering are freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.

Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

We have a dual-class share structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares(with certain shares remaining undesignated, with power for our directors to designate and issue such classes of shares as they think fit). Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are entitled to ten votes per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

Mr. Larry Xiangdong Chen, our founder, chairman of board of directors and chief executive officer, beneficially owns all of our issued Class B ordinary shares. As of February 28, 2023, these Class B ordinary shares constitute 45.3% of our total issued and outstanding share capital and 88.6% of the aggregate voting power of our total issued and outstanding share capital due to the disparate voting powers associated with our dual-class share structure. As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.

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The dual-class structure of our ordinary shares may adversely affect the trading market for our ADSs.

Certain shareholder advisory firms have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual-class structure of our ordinary shares may prevent the inclusion of our ADSs representing Class A ordinary shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of our ADSs.

Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the ADSs for return on your investment.

We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in the ADSs as a source for any future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium account, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. There is no guarantee that the ADSs will appreciate in value or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in the ADSs and you may even lose your entire investment in the ADSs.

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.

Our memorandum and articles of association contain certain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. Our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of the ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records (other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practices in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of a company incorporated in the United States.

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and substantially all of our assets are located outside of the United States. All of our current operations are conducted in mainland China. In addition, all of our current directors and officers are nationals and residents of countries other than the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of mainland China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

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The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct how the Class A ordinary shares which are represented by your ADSs are voted.

Holders of ADSs do not have the same rights as our registered shareholders. As a holder of the ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights which are carried by the Class A ordinary shares represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. If we instruct the depositary to ask for your instructions, then upon receipt of your voting instructions, the depositary will try, as far as is practicable, to vote the underlying Class A ordinary shares which are represented by your ADSs in accordance with your instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. Under our currently effective third amended and restated memorandum and articles of association, the minimum notice period required to be given by our company to our registered shareholders to convene a general meeting will be ten days. When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the Class A ordinary shares underlying your ADSs and become the registered holder of such shares to allow you to attend the general meeting and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our third amended and restated memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary at least 30 days’ prior notice of shareholder meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the Class A ordinary shares underlying your ADSs are voted and you may have no legal remedy if the Class A ordinary shares underlying your ADSs are not voted as you requested.

You may experience dilution of your holdings due to inability to participate in rights offerings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

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ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, subject to the depositary’s right to require a claim to be submitted to arbitration, the federal or state courts in the City of New York have exclusive jurisdiction to hear and determine claims arising under the deposit agreement and in that regard, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our Class A ordinary shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.

If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable U.S. state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before investing in the ADSs.

If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under U.S. federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.

Nevertheless, if this jury trial waiver provision is not enforced, to the extent a court action proceeds, it would proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.

Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD and (v) certain audit committee independence requirements in Rule 10A-3 of the Exchange Act.

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New York Stock Exchange. Press releases relating to financial results and material events are furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information, which would be made available to you, were you investing in a U.S. domestic issuer.

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As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we comply fully with the NYSE corporate governance listing standards.

As a Cayman Islands company listed on the New York Stock Exchange, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. For example, we relied on the exemption available to foreign private issuers for the requirement to hold an annual meeting of shareholders during each fiscal year under Section 302 of the NYSE Listed Company Manual. We followed home country practice and did not hold an annual meeting of shareholders in the fiscal year of 2022. In addition, Section 303A.12(a) of the NYSE Listed Company Manual requires each listed company’s chief executive officer to certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. We have followed our home country practice in this regard and have not in the past submitted the certification set forth in Section 303A.12(a) of the NYSE Listed Company Manual. As a result of our election to follow home country practices, our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.

We are a “controlled company” within the meaning of the New York Stock Exchange listing rules and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

We are a “controlled company” as defined under the New York Stock Exchange listing rules because Mr. Larry Xiangdong Chen, our founder, chairman of board of directors and chief executive officer, owns more than 50% of our total voting power. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules. As a result, you may not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.

We believe that we were a passive foreign investment company (“PFIC”) for United States federal income tax purposes for the 2022 taxable year, which could result in significant adverse U.S. federal income tax consequences to U.S. Holders owning the ADSs or our ordinary shares.

Based upon the nature and composition of our assets (in particular, the retention of substantial amounts of cash and investments), and the market price of our ADSs, we believe we were a PFIC for the 2022 taxable year. However, no assurance can be given that we will continue to be a PFIC for the current taxable year or any future taxable year because the determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and assets. Because the value of our assets for purposes of the asset test may be determined by reference to the market price of our ADSs, fluctuations in the market price of our ADSs may cause us to cease to be a PFIC for the current or subsequent taxable years. The market price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for any taxable year. In addition, the composition of our income and assets will be affected by how, and how quickly, we use our liquid assets. If we deploy significant amounts of cash and investments for active purposes, we may cease to be a PFIC.

If we or any of our subsidiaries is a PFIC for any taxable year, or portion thereof, during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”) held an ADS or an ordinary share, such U.S. Holder may be subject to certain adverse U.S. federal income tax consequences and may be subject to additional reporting requirements. Further, if we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we will generally continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares, unless we were to cease to be a PFIC and such U.S. Holder were to make a “deemed sale” election with respect to the ADSs or ordinary shares. Please see the section entitled “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Passive Foreign Investment Company Considerations.” U.S. Holders are urged to consult their tax advisors regarding the possible application of the PFIC rules to holder of our ADSs and ordinary shares.

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ITEM 4. INFORMATION ON THE COMPANY

a.History and Development of the Company

We commenced operations in June 2014 through Beijing BaiJiaHuLian Technology Co., Ltd., which was renamed as Beijing BaiJia Technology Co., Ltd. in September 2020 and then renamed as Gaotu Education Technology Group Ltd. in July 2021, or Beijing Gaotu. Our holding company, BaiJiaHuLian Group Holdings Limited, was incorporated in August 2014 in the Cayman Islands to facilitate financing and offshore listing. In January 2019, we renamed our company as GSX Techedu Inc. In June 2021, we changed our legal name from “GSX Techedu Inc.” to “Gaotu Techedu Inc.,” effective June 4, 2021.

In August 2014, we established a wholly-owned subsidiary in Hong Kong, BaiJiaHuLian HK Holdings Limited. In January 2015, BaiJiaHuLian HK Holdings Limited established a wholly-owned subsidiary in mainland China, Beijing Lexuebang Network Technology Co., Ltd., or Beijing Lexuebang.

In April 2015, we gained control over Beijing Gaotu through Beijing Lexuebang by entering into a series of contractual arrangements with Beijing Gaotu and its shareholders. The contractual arrangements with Beijing Gaotu were subsequently amended and restated in March 2019.

On June 6, 2019, our ADSs commenced trading on the NYSE under the symbol “GSX”. We raised from our initial public offering and from exercising the over-allotment option by the underwriters US$196.3 million in net proceeds after deducting underwriting commissions and the offering expenses payable by us. On May 6, 2021, we changed our ticker symbol from “GSX” to “GOTU”.

On November 25, 2019, we completed a registered follow-on public offering by certain selling shareholders of 20,700,000 ADSs (including 2,700,000 ADSs sold from the exercise of over-allotment option) at a public offering price of US$14.00 per ADS. We did not receive any proceeds from the follow-on public offering.

In January 2020, we completed the acquisition of Zhengzhou Kaitong Kegongmao Co., Ltd. and renamed it as Zhengzhou GaoTuYunJi Education Technology Co., Ltd., which became a subsidiary of the VIE.

In May 2020, our board of directors authorized a share repurchase program, or the 2020 share repurchase program, under which we may repurchase up to US$150 million worth of our shares, effective until May 6, 2022. We did not repurchase any shares under the 2020 share repurchase program in 2022.

In December 2020, we raised US$870 million in net proceeds from the private placement of our newly issued Class A ordinary shares to certain investors. In the same month, we substantially completed the acquisition of 100% of the equity interest in Tianjin Puxin Online School Education Technology Co., Ltd., for a total consideration of RMB37.4 million. Tianjin Puxin Online School Education Technology Co., Ltd. became a subsidiary of the VIE after the acquisition. Tianjin Puxin Online School Education Technology Co., Ltd. completed its deregistration process in July, 2022.

From January 2020 to July 2021, we established two new wholly foreign-owned enterprises in Beijing and Wuhan, one new subsidiary of Beijing Lexuebang, as well as 11 new subsidiaries of the VIE in mainland China.

From the end of 2021 to 2022, we ceased offering compulsory education academic subject tutoring services and shifted our focus to education for college students and adult, services related to overseas study, and non-academic tutoring.

In November 2022, our board of directors authorized another share repurchase program, or the 2022 share repurchase program, under which we may repurchase up to US$30 million of our common shares, including shares represented by ADSs, effective until November 22, 2025. We did not repurchase any shares under the 2022 share repurchase program in 2022.

Our principal executive offices are located at 5F, Gientech Building, 17 East Zone, 10 Xibeiwang East Road, Haidian District, Beijing 100193, People’s Republic of China. Our telephone number at this address is +86 10 8282-6826. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.

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SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on www.sec.gov. You can also find information on our website http://ir.gaotu.cn. The information contained on our website is not a part of this annual report.

b.Business Overview

We are a technology-driven education company with core expertise in online courses. We offer learning services and educational content and digitalized learning products. We adopt the online live large-class format to deliver our courses, which we believe is the most effective and scalable model to disseminate scarce high-quality teaching resources to aspiring students in China.

Our education excellence is backed by our high quality teachers and in-house curriculum development expertise. To create an effective and engaging learning environment under the large-class format, we adopt a dual-teacher system, staffing each class with a leading instructor and multiple well-trained supporting tutors serving smaller groups of students. We pride ourselves on our rigorous and systematic teacher selection and coaching process. As of December 31, 2022, we had 1,152 instructors, including 203 full-time instructors, 949 contract instructors, and 583 tutors.

We develop and tailor our proprietary curriculum specifically to our online live large-class format with the goal of driving students’ engagement and academic performance. We design our courses in ways to inspire students’ genuine interest and in-depth interactions, which in turn foster students’ holistic development and thus achieve better learning results.

We strive to apply the latest technology to improve the mode of teaching delivery, student learning experience and operational efficiency. Big data analytics permeates all dimensions of our business, including teaching staff training, course development and evaluation, and sales conversion process, which significantly improves our education quality and student engagement and optimizes our sales and marketing spending on prospective students. We leverage advancements in artificial intelligence technology and our proprietary operation & efficiency support system, or OES, to improve the productivity and effectiveness of our instructors and tutors.

Our Business Model

We provide online live courses in a large-class setting backed by our proprietary technology infrastructure.

•Live. Our online live course provides students with real-time access to the same group of experienced and high quality instructors, which ensures consistent teaching quality and improves learning efficiency.

•Large-class. Our courses are offered in large-class format, which amplifies the benefits of online education and allows us to rapidly expand our student base. We have adopted a dual-teacher system whereby we staff each class with an instructor and multiple tutors to attentively engage with each student and facilitate an interactive learning environment.

•Proprietary technology infrastructure. With our focus on promoting technology-driven education, we have built a robust proprietary technology infrastructure that has enabled us to expand and replicate rapidly with consistent education quality.

Our Business Offerings

We target students of all age groups through our course offerings covering a wide spectrum of topics. In compliance with the latest regulation of mainland China pursuant to which after school tutoring services related to academic subjects to students from kindergarten through grade nine are prohibited, we ceased offering compulsory education academic subject tutoring services by the end of 2021. Currently, we mainly offer learning services and educational content & digitalized learning products, the learning services mainly include educational services for college students and adults, overseas study related services and non-academic tutoring services. We are also exploring new opportunities to further enrich our business offerings as we continue to expand our student base. We develop substantially all of our course contents in-house to provide high quality and effective online education experience for students. Our instructors use our standardized curriculum for each course to ensure a seamless and effective learning experience for students of different levels and background.

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Learning Services

Educational Services for College Students and Adults

Professional Courses. Our professional courses primarily consist of courses designed for college students and adults preparing for professional qualification exams, including teacher’s qualification, Chartered Financial Analyst designation, Certified Public Accountant designation, Certified Tax Agent designation, securities qualification exams and others. These courses are designed to equip students with the skills and knowledge-sets required in workplaces to elevate their career prospects. Our professional courses focus on test-taking techniques designed to help students achieve high scores on the admissions and assessment tests. Our instructors regularly review the latest examinations to ensure the corresponding course materials are up to date.

Admission Courses. We offer admission courses for college students and adults. Our admission courses are designed to boost students’ ability to achieve high scores in admission tests and interviews, including national post-graduate entrance examination, civil service examinations, and others. We also offer courses to help students to prepare for related admission interviews.

Vocational Courses. Our vocational courses provide students with practical education to prepare them for jobs in industries with significant growth potential and strong hiring demand. Our vocational courses mainly consist of foreign language courses, IT education courses, career development courses, and others.

- Foreign language courses. We provide foreign language courses, including English and Japanese to students who intend to learn or improve a foreign language. English courses have been our primary foreign language courses, in the line with the fact that English is widely recognized as the international language of business and has become an important language for pursuing career development opportunities in mainland China. Our English courses are designed to teach and improve a specific area of the language, such as grammar, vocabulary, or spoken English. Our Japanese courses consist of proficiency lessons and test preparation courses for language certification exams.

- IT education courses. We offer various online IT education courses such as computer programming for adults who would like to make a transition into IT industry. We also offer a wide range of online courses on professional computer coding to our students.

- Career development courses. We also offer a wide range of career development courses, including memory enhancement courses, leadership and management training courses, and others.

Overseas Study Related Services

Our consultants help students through the application and admission process for overseas educational institutions and provide useful college, graduate and career counseling advice to help students make informed decisions. We also counsel and assist students with the immigration process for overseas studies, such as obtaining visas and other related service. In addition to consulting services, we also offer courses to help students prepare and pass certain language exams that are required for study abroad, such as IELTS, TOEFL.

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Non-Academic Tutoring Services

We currently offer a variety of non-academic tutoring and personal interest courses, including but not limited to chess learning, family relationships and education, humanities and science courses. These course offerings are constructive in sparking children’s interests and intellectual curiosity, enhancing students’ learning skills and improving their critical thinking abilities. We are also exploring new opportunities to further optimize and enrich the course products for our non-academic tutoring services as we continue to expand our student base.

Compulsory Education Academic Subject Tutoring Services

Historically, we offered a comprehensive set of compulsory education academic subject tutoring services, which primarily included after-school tutoring courses covering major subjects at all grades, together with critical thinking and children’s English courses. We offered compulsory education academic subject tutoring services in four semesters, namely the two school semesters in Spring (March to June) and Fall (September to December) and the two holiday semesters in Summer (July to August) and Winter (January to February). Our compulsory education academic subject tutoring courses were offered throughout the year at the beginning of each semester. We offered compulsory education academic subject tutoring classes during weekends for the two school semesters in Spring and Fall and on a daily basis, generally for a consecutive period of six to ten days, during the two holiday semesters in Summer and Winter. We also provided courses that help improve students’ specific capabilities, such as those related to English phonetic symbol.

However, in compliance with the latest regulation of mainland China pursuant to which after school tutoring services related to academic subject to students from kindergarten through grade nine are prohibited, we ceased offering compulsory education academic subject tutoring services by the end of 2021 to comply with the New Regulations.

Educational Content & Digitalized Learning Products

Educational Content & Digitalized Learning Products are supplements to learning services, mainly include content products, such as books, and digitalized auxiliary learning tools.

Educational Content

We have an educational content development team who designs and develops substantially all of our course materials in-house, including course outlines, interactive courseware, practice exercises and lesson notes, to ensure a seamless and effective learning experience for our students. Besides, we have also published some reference books, which are independent of our courses, such as Chinese dictionary, dictionary of idioms, past exam questions of college entrance examination.

Digitalized Learning Products

We are proactively engaged in developing, expanding and upgrading our education-centric digital products and solutions. We have launched several digital products and solutions customized for educational scenarios encompassing “teaching, learning, testing, practicing, and evaluation”, including smart devices, interactive learning apps and other digital solutions for students.

Smart Devices. We develop and offer smart devices to make learning more productive and efficient for our users. In most cases, our smart devices are developed and designed by us or in collaboration with third parties. Our smart devices seamlessly integrate our technologies into hardware devices that supplement our online courses and allow us to further enhance our users’ learning experience and efficiency. Our smart devices are well-received by our users.

Multi-function Translation Pen. We offer multi-function translation pen, which is a modern electronic translation pen with powerful Chinese/English translation capabilities.

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Dual-teacher System

We have engineered a dual-teacher system, comprised of high quality instructors and professional tutors, to facilitate a disciplined and interactive learning environment. We pair our instructors with a group of dedicated tutors who are well trained in the course materials and attend to each student to further improve their engagement and learning effectiveness. For our tutoring courses, we break each large-class into multiple smaller groups, and assign a tutor into each group to closely follow up with each student before, during and after each lesson. Tutors are responsible for addressing students’ in-class queries, correcting students’ post-class exercises, providing support to students after class, and instilling discipline in the students to attend the classes and learn. We also train our tutors to provide emotional support to students to help cope with the challenging aspects of their studies. This system allows large-class students to simultaneously learn from our high quality instructors while enjoying personalized tutoring services.

We have designed a unique “7+6 Steps” learning methodology integrated into our dual-teacher system to encompass every step that is essential for students’ effective learning. Our “7+6 Steps” learning methodology includes seven steps for pre-lesson, mid-lesson and post-lesson learning activities to ensure delivery of consistent teaching quality and six steps for post-lesson reviewing activities provided by tutors to enhance an effective learning experience and reinforce knowledge retention for students.

 

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Our “7+6 Steps” learning methodology provides a holistic learning solution that enhances effective learning experience throughout the entire duration of a student’s learning during the course.

We believe our dual-teacher system is critical to our success and have devoted significant resources to maintain high quality instruction and motivate instructors and tutors. This is reflected in our selective hiring process, strong emphasis on continued training, and competitive performance-based compensation based on rigorous on-going evaluation.

Our Instructors

We are committed to developing and maintaining a team of high quality instructors. We believe our instructors’ teaching capabilities, experience and proven track record fundamentally differentiate us from our competitors. As of December 31, 2022, we had 203 full-time instructors and 949 contract instructors.

We primarily seek qualified instructors who have extensive teaching experience and a strong reputation from other education institutions. We have adopted a quantitative approach to comprehensively assess candidates nationwide based on a wide set of criteria.

Recruitment

Leveraging our management team’s deep experience in the education sector, we have been able to accurately identify and effectively recruit and retain high quality instructors across our course offerings. We have a team of highly experienced recruitment personnel to seek qualified instructors across mainland China. We attract applicants through various online career platforms and we regularly participate in job fairs. Prospective candidates must go through our rigorous interview process, including resume screening, in-person interviews, and demo courses.

Training and Supervision

All newly-hired instructors are required to undergo standardized training to improve their skills in delivering courses to large-class students in a live format. Our instructors are required to continue to participate in periodic training programs that focus on education content, teaching skills and techniques, teaching performance in an online setting, and our corporate culture and values.

We have a quality assurance team that monitors the performance of our instructors for each course and generates analysis reports for the supervisor in the relevant subject area. Our instructors regularly receive constructive feedback on their courses from their supervisor. Our quality assurance team evaluates instructors’ performance based on an integrated, standardized evaluation system, including presentation skills, teaching process, course content and reactions to any emergent events. We provide personalized training programs for each instructor to address particular areas for improvement based on feedback from students and our quality assurance team.

Evaluation and Compensation

We adopt a comprehensive set of key performance indicators, or KPIs, and qualitative factors to evaluate instructor performance, including, among others, student retention, teaching capability, and dedication. Our instructors’ promotion is to a large extent based on these KPIs and qualitative factors. To incentivize our instructors, we offer competitive performance-based bonuses based on student and parent satisfaction.

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Our Tutors

We have a team of passionate and well-qualified tutors that are essential to our business. We have established well-developed methods for hiring, training and retaining qualified tutors, which include a rigorous recruiting process, periodic training in teaching methods and skills, school culture and philosophy. Our tutors provide academic guidance and daily support to students throughout the entire duration of a course. As of December 31, 2022, we had 583 full-time tutors and 1,033 contract tutors.

Our tutors’ responsibilities typically include:

•interacting with students frequently to monitor students’ learning progress and facilitate an engaging learning environment;

•responding to students’ in-class queries, correcting students’ post-class exercises in a timely manner after submission and providing prompt and personalized feedback to students; and

•cooperating with instructors to improve student satisfaction and student retention.

Recruitment

Leveraging our extensive experience in the private online education sector, we have been able to effectively recruit and retain high quality tutors across our course offerings. We primarily seek tutor candidates from recent graduates of reputable universities in China who have demonstrated proficiency in the relevant subjects, a strong sense of responsibility, as well as good communication skills and learning capabilities. We hold recruiting events at universities across mainland China to seek for qualified candidates. We have entered into cooperation arrangements with universities in mainland China, through which we promote our job offerings to and accept applications from their students. We also partner with universities in mainland China to provide internship and graduate programs to develop a talent pipeline for our tutor team. In addition, we also attract outstanding experienced applicants through various online career website and regularly participate in job fairs to hire qualified candidates with one to two years of work experience.

Training

We provide our newly hired tutors with an orientation program to introduce their work flow and job responsibilities. To ensure our tutors will continue to engage and build relationship with students, we have developed systematic on-the-job training programs on four specific areas, including training that focuses on our corporate culture and responsibilities of tutors, standardized training for our tutors’ work flow, a training program that improves tutors’ personal capabilities, and a training program to enhance tutors’ management skills. Our tutors are required to attentively reach out to students at each stage of their learning process based on our standardized work flow provided in our training programs. We also train our tutors to identify signs of learning challenges of students and provide emotional support to students to help cope with the challenging aspects of their studies. We have an on-going review mechanism to assess our tutors’ job performance.

Evaluation and Compensation

We use various KPIs to measure the performance of our tutors, which include, among others, student retention, exercise completion, and student satisfaction. Students may provide feedback on the quality of our tutors anytime. Our tutors’ compensation consists of base salary and performance-based bonuses determined by student retention and class and exercise completion.

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Educational Content Development

Educational Content Development Team

In addition to our instructors, we also have a dedicated team of staff focused on education content development. Our educational content development team focuses on the following three areas:

•Develop our proprietary course curriculum and educational content. Our content development team mainly focuses on developing, updating and improving our syllabi and course materials to stay abreast of the latest trends in their respective subject areas. For example, our course materials for our Certified Public Accountant courses are typically updated to remain current with examination syllabus newly released by the Chinese Institution of Certified Public Accountants.

•Enhance course materials to cater to our live learning setting. Our content development team works with our instructors to ensure our courses and educational content are delivered in an engaging and effective manner. While our instructors retain control of and flexibility in the way their classes are taught, our content development personnel, leveraging experience and data analytics, recommend to our instructors the best practices in teaching in an online setting.

•Design course materials. We deliver hard copies of our course materials to students and provide online course materials. Our content development team edits the lay-out and presentation of our course materials.

Content Development Process

We design and develop substantially all of our course materials in-house, including course outlines, interactive courseware, practice exercises and lesson notes, to ensure a seamless and effective learning experience for our students. We maintain a strict process for creating new course materials. Before new course material is officially applied, the drafts, along with the accompanying practice exercises, typically undergo multiple rounds of internal review. We generally pilot test new courses for up to six to twelve months before they are broadly released. We regularly update our course materials to stay abreast of the latest trends in their respective subject areas. We also develop and update curricula and course materials tailored for classes of different difficulty levels to address different educational requirements and needs of our students at different levels.

We believe comprehensive quiz banks and exercises are important to enhance students’ learning effectiveness. We offer students pre-class and in-class quizzes and exercises to help them better assess their learning outcomes and identify areas for improvement. Our tutors monitor student performance in these quizzes and exercises and report to our content development team, who will update our quiz banks and exercises catering to student needs as well as identify weaknesses in the educational content and make timely adjustments.

Technology and Infrastructure

Technology is the backbone of our highly scalable business model. Our strong technological capabilities enable us to deliver a superior student experience and improve operational efficiency. Our technology team, coupled with our proprietary artificial intelligence technology and the large volume of data generated from our operations, has continued to identify opportunities for improvements in our technology infrastructure and applications. As of December 31, 2022, we had a technology research and development team of 660 professionals.

Live Broadcasting Technology

Live broadcasting technology development has been our main focus since our inception. Currently, our proprietary live broadcasting technology makes it possible for as many as 500,000 students to join a live broadcasting class simultaneously, without compromising video quality. We also utilized AI technology to strengthen the video and audio quality of our live broadcasting. The average delay time is currently below 300 milliseconds for our PC terminal and mobile apps.

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Network Infrastructure

We have developed a reliable and stable network infrastructure to ensure high availability and a low risk of downtime. We currently utilize third-party cloud service providers in mainland China to host our network infrastructure, renting public servers and bandwidth. We back-up our databases on a daily basis. Our IT department monitors the performance of our websites, mobile apps and network infrastructure around the clock to enable us to respond quickly to potential problems.

Big Data and Artificial Intelligence

Big Data

We gather and analyze student data at each stage of their interaction with our platform, including enrolling into our course offerings, attending our live courses, submitting completed exercises and replaying our recorded courses. We have built strong data analytics capabilities using algorithms, models and data analytics tools. We leverage big data analytics technologies to enhance the accuracy in predicting student behavior, which allows optimize targeted marketing and platform operations, and delivers enhanced student experience. We aim to forecast the frequency of course bookings, preferences of course topics and learning progress through the data analytics to make appropriate recommendations and streamline our marketing and teaching operations. Furthermore, our content development team and sales and marketing force also heavily draw upon our data analytics capability. In this regard, we use data analysis to carry out technological innovations in user acquisition and have made progress in various areas such as optimized distribution of promotional content. We also cooperate with major advertising media to strengthen our ability to attract our target user group while also ensuring data security. Lastly, our data analytic capabilities have also improved our user traffic and the interaction between our teachers and students by enabling technologies related to areas such as multi-task learning and migration learning.

Artificial Intelligence

With access to a massive amount of data, we believe we are in a strong position to capitalize on the use of artificial intelligence and machine learning technologies. We have applied various artificial intelligence and machine learning technologies in multiple areas of our business operations, such as personalized course recommendation and automated question answering. We will continue to explore the application of the big data and artificial intelligence technologies in our business operations to improve teaching and learning efficiency. For example, we will introduce personalized exercise recommendations to students based on each student’s performance and provide automated exercise grading backed by text and voice recognition to allow our tutors to have more time for student interactions, and make higher student-to-tutor ratio possible without sacrificing student experience.

Technology plays a vital role in improving our in-class experience. Our XStream streaming media system and our AirSound echo detection system leverage artificial intelligence to automatically adjust system settings to adapt to different network environments and hardware setups, achieving an optimal effect for in-class multiplayer voicing interaction scenarios. The constant upgrades of our educational products have effectively translated into our improved retention rate and provided a solid driver for our long-term, healthy and sustainable development.

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OES System

We have developed our operation & efficiency support system, or OES system, to provide integrated and automated services to employees during every major aspect of our business operations. Our OES system is our internal system used by our employees, ranging from instructors, tutors, sales personnel, content development personnel, operations team, and management. Our OES system empowers our employees with automated workflows, such as scheduling courses, analyzing student exercises, and tracking students’ attendance, course completion and retention.

Data Intelligence System

We have adopted a company-wide best-practice proprietary data intelligence system, which is closely integrated with our business operations. Data intelligence system analyzes data from both OES and our financial reporting system. With current business information readily available through this system, we are able to timely and better refine our resource allocation, respond to changes in customer behavior patterns, adjust operational details, and set budgetary targets.

Our Online Platform

Students may enroll into our courses, attend live courses, review course materials and submit completed exercises through our website, PC terminal and mobile apps. Our online courses are offered through our website and mobile applications in a live streaming format. Students may attend online courses, review course materials, complete pre-class quizzes, watch past online courses, and complete practice exercises and problem sets through these portals.

We have built a user-friendly interface for students accessing our online classes on our website. Students may raise questions to our instructors in class, interact with other students through live-chat box, and contact our IT team to provide real-time technical support. Instructors may utilize the interactive board to highlight specific text phrases or knowledge points to students. Students may utilize their functions in reviewing course materials and submitting exercises.

We provide various interactive features to create an immersive learning experience. Students may raise questions to our teachers in class, interact with other students through live-chat box, and contact our IT team to provide real-time technical support. Teachers may utilize the interactive board to highlight specific text phrases or knowledge points to students.

Course Fees

Our course fees for our paid courses typically ranged from RMB99 to RMB19,800 per course, in 2022. We offer discounts under various marketing campaigns and promotions. For example, we offer trial courses at below RMB99 per course.

Our course fees are generally collected in full upon enrollment. We accept payments through major third-party online payment channels in mainland China.

For our online courses, we allow students to withdraw from the enrolled courses at any time and receive refunds for the undelivered classes.

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Sales and Marketing

Marketing Channels

We market our course offerings and enhance brand awareness through various online and mobile channels. At the same time, we also generate sales leads from word-of-mouth referrals by our students. We believe our high quality course offerings and satisfactory student experience will continue to contribute word-of-mouth referrals.

Sales Process

We have formulated an effective and systematic sales conversion standard operating procedure designed to optimize the effectiveness of each step of a prospective student’s interaction with our platform, from content creation, content distribution, sales leads acquisition, to paid enrollment conversion and retention. We believe our sales efficiency relies on the multistage amplification of each of our sales links. We closely monitor the conversion of each sales link to measure our sales effectiveness and continually optimize each sales link.

Content Generation and Distribution

We have a dedicated user growth team who produces highly informative marketing content generally in the format of featured articles and short-form videos on parent-child relationship, book list recommendation, and skill set knowledge. Our promotional content is generally distributed through major social media platforms in mainland China to access targeted audiences.

Promotional Programs

The sales leads generated by our various marketing channels are directed to our sales team. Our sales team encourage prospective students to sign up for promotional classes offered at a discount or for free. We devote significant resources to our trial programs as they have a great contribution to our new paid course enrollments.

Our lower priced promotional program provides well-designed curriculum featuring a series of trial courses throughout a three-to-six-day period. The trial courses follow a similar format and are delivered by the same high quality instructors as our standard courses. Our instructors devote a significant amount of time in preparing these course materials in advance. We staff each class with the same high quality tutors as in our standard courses to assist with students’ daily study. Our lower priced promotional program creates an immersive experience for prospective students to understand the effectiveness of our superior teaching quality and our dual-teacher system.

The tutors attentively promote our standard courses to prospective students throughout the lower priced promotional program and continue to follow-up with them after the lower priced promotional program. Our instructors also promote our paid courses when delivering courses in the lower priced promotional program. We believe their promotion, combined with prospective students’ immersive experience of our courses, have served as an effective way to convert sales leads into paid course enrollments.

Data Privacy and Security

We are committed to protecting our students’ personal information and privacy. We have established and implemented a strict platform-wide policy on data collection, processing and usage. To ensure the confidentiality and integrity of our data, we maintain a comprehensive and rigorous data security program. We anonymize and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. We have also established stringent internal protocols under which we grant classified access to confidential personal data only to limited employees with strictly defined and layered access authority. We strictly control and manage the use of data within our various teams. Our back-end security system is capable of handling malicious attacks to safeguard the security of our operations and to protect the privacy of our students.

Content Moderation

Our courses undergo multiple rounds of internal review and pilot testing before being broadly released. Our tutors and quality assurance team monitor our live courses, chat messages and other content on our platform to ensure that we are able to identify content that may be deemed inappropriate or in violation of laws, regulations and government policies. When any inappropriate or illegal content is identified, we promptly remove the content.

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Competition

The online professional education service market in mainland China is fragmented, rapidly evolving and highly competitive. We face competition in each topic of our course offerings from other online educational service providers, such as DAO’s learning services.

We compete primarily on the following factors:

•quality of education services and students’ learning experience;

•the quality of teaching staff;

•technology infrastructure and data analytics capabilities;

•brand recognition; and

•scope of course offerings.

We believe that we are well-positioned to effectively compete with our peers with respect to the factors listed above. However, some of our current or future competitors may have longer operating histories, greater brand recognition, or greater financial, technical or marketing resources than we do. For a discussion of risks relating to competition, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face significant competition in each part of our current and future course and service offerings, which could divert students to our competitors, lead to pricing pressure and loss of market shares, and significantly reduce our net revenues.”

Intellectual Property

Our trademarks, copyrights, domain names, trade secrets and other intellectual property rights distinguish our courses and services from those of our competitors and contribute to our ability to compete in our target markets. We rely on a combination of copyright and trademark law, trade secret protection and confidentiality agreements with employees to protect our intellectual property rights. In addition, under the employment agreements we enter into with our employees, they acknowledge that the intellectual property made by them in connection with their employment with us are our property. We also regularly monitor any infringement or misappropriation of our intellectual property rights.

As of the date of this annual report, we have registered 373 domain names relating to our business, 142 software copyrights, 3 literature work copyrights, 17 art work copyright, 35 patents and 833 trademarks in mainland China.

Insurance

We do not maintain any liability insurance or property insurance policies covering students, equipment and facilities for injuries, death or losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in mainland China, we do not maintain business interruption insurance, nor do we maintain key-man life insurance.

Government Regulations

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China or the rights of our shareholders to receive dividends and other distributions from us.

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Regulation Related to Private Education

Education Law of the PRC

The PRC Education Law, sets forth provisions relating to the fundamental education systems of mainland China, including a school system of pre-school education, primary education, secondary education and higher education, a system of nine-year compulsory education and a system of education certificates. The Education Law stipulates that in principle, enterprises, institutions, social organizations and individuals are encouraged to operate schools and other types of educational organizations in accordance with the laws and regulations of mainland China.

The Law for Promoting Private Education

On December 28, 2002, the SCNPC promulgated the Law for Promoting Private Education, or the Private Education Law and was last amended on December 29, 2018 with such amendment effective on the same date. Under the amended Private Education Law, sponsors of private schools may choose to establish non-profit or for-profit private schools at their own discretion and the private schools shall obtain a private school operating permit issued by relevant government authorities and registered with relevant registration authorities.

Amended Implementation Rules

On April 7, 2021, the State Council promulgated the Amended Implementation Rules for the Private Education Law, or the Amended Implementation Rules, which became effective on September 1, 2021. The Amended Implementation Rules provides, among others, that online education activities using internet technology are encouraged by the regulatory authorities and shall comply with laws and regulations related to internet management. A private school engaging in online education activities using internet technology shall obtain the relevant private school operating permit. It shall also establish and implement internet security management systems and take technical security measures. Upon discovery of any information whose release or transmission is prohibited by applicable laws or regulations, the private school shall immediately cease the transmission of that information and take further remedial actions, such as deleting that information, to prevent it from spreading. Records pertaining to the situation shall be kept and reported to the appropriate authorities.

Regulation Related to After-School Tutoring

On August 10, 2019, the MOE, jointly with certain other PRC government authorities, issued Opinions on Guiding and Regulating the Orderly and Healthy Development of Educational Mobile Apps, or the Opinions on Educational Apps, which require, among others, for mobile apps that provide services for school teaching and management, student learning and student life, or home-school interactions, with school faculty, students or parents as the main users, and with education or learning as the main application scenarios (the “Educational Apps”), be filed with competent provincial regulatory authorities for education. The Opinions on Educational Apps also require, among others, that: (i) before such filing, the Educational App’s provider shall have obtained ICP License or completed ICP License filing and obtained the certificate and grade evaluation report for graded protection of cybersecurity; (ii) Educational Apps with main users under the age of 18 shall limit the users’ usage time, specify the range of suitable ages, and strictly monitor contents; (iii) before an Educational App is introduced as a mandatory app to students, such Educational App shall be approved by the applicable school through collective decision-making process and be filed with the competent education authority; and (iv) Educational Apps adopted by education authorities and schools as their uniformly used teaching or management tools shall not charge the students or parents any fees, and shall not offer any commercial advertisements or games. On November 11, 2019, the MOE issued the Management Rules on Filing of Educational Mobile Apps, which supplement the filing requirements of the Educational Apps.

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On September 19, 2019, the MOE, jointly with certain other government authorities, issued the Guidance Opinions on Promoting the Healthy Development of Online Education, which provides, among others, that (i) social forces are encouraged to establish online education institutions, develop online education resources, and provide high quality education services; and (ii) an online education negative list shall be promulgated and industries not included in the negative list are open for all types of entities to enter into.

On November 27, 2020, the MOE and the Office of the Central Cyberspace Affairs Commission jointly promulgated the Notice on Further Strengthening the Standardized Management of Online Course Platforms for Minors (the “Notice”). The Notice emphasizes that local cyberspace authorities and education authorities shall regularly organize screening of the training platforms for minors and take measures such as suspending or removing training platforms or requiring training platforms to rectify within a given time limit. After such rectification is completed, the education authorities will review the filings.

On June 10, 2020, the General Office of MOE and the General Office of the State Administration for Market Regulation, or SAMR, promulgated the Notice on Issuing the Form of Service Contract for After-school Training Provided to Primary and Secondary School Students, which requires the local competent regulatory authorities to guide the relevant parties to use the form of service contract for after-school training activities provided to primary and secondary school students. The form of service contract covers the obligations and rights of parties involved in the after-school training, including detailed provisions on training fees, refund arrangement and default liabilities.

The Law for Protection of Minors issued by The Standing Committee of the National People’s Congress on December 29, 2006, was recently amended on October 17, 2020, which has become effective on June 1, 2021. According to the amended Law for Protection of Minors, online education products and services which are targeted at minors shall not include any links to online games or push any advertisements and other information irrelevant to teaching. In addition, schools shall not use public holidays, weekends, winter and summer break periods to organize students in primary and secondary schools to take lessons collectively, which will aggregate students’ burden of study, and after-school tutoring service providers may not provide primary school curriculum education to the preschool-aged minors.

On July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education, or the Alleviating Burden Opinion, which provides that, among other things, (i) local government authorities shall no longer approve new after-school tutoring institutions providing tutoring services on academic subjects for students in compulsory education, and the existing after-school tutoring institutions providing tutoring services on academic subjects shall be registered as non-profit; (ii) online Academic AST Institutions that have filed with the local education administration authorities providing tutoring services on academic subjects shall be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; and (iv) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities.

Any violation of the foregoing shall be rectified. Moreover, the Alleviating Burden Opinion specifies a series of operating requirements that after-school tutoring institutions must meet, including, among other things, (i) no advertisements for after-school tutoring shall be published or broadcasted in the network platforms and billboards displayed in the mainstream media, new media, public place and residential areas; (ii) the provision of overseas education courses is strictly prohibited; (iii) fees charged for academic subjects tutoring in compulsory education shall be included into government-guided price management, and excessive high fees and excessive profit-seeking behaviors will be suppressed; (iv) government authorities will implement risk management and control for the pre-collection of fees by after-school tutoring institutions with requirements such as setting up third-party custodians and risk reserves, and strengthen supervision over loans regarding tutoring services; (v) online tutoring for preschool-age children is prohibited, and offline academic subjects (including foreign language) tutoring services for preschool-age children is also strictly prohibited; (vi) no more approval of new after-school tutoring institutions providing tutoring services on academic subjects for pre-school-age children and students on grade ten to twelve will be granted; and (vii) administration and supervision over academic subjects tutoring institutions for students on grade ten to twelve shall be implemented by reference to the relevant provisions of the Alleviating Burden Opinion.

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On July 28, 2021, the General Office of MOE promulgated the Notice on Further Clarifying the Scope of Academic Subjects and Non-Academic Subjects of After-School Tutoring in the Compulsory Education, which specifies that according to the national curriculum on compulsory education, when after-school institutions carry out tutoring, morality and rule of law, Chinese, history, geography, mathematics, foreign language (including English, Japanese, Russian), physics, chemistry and biology are classified as academic subjects, while sports (or sports and health), art (or music, art), and comprehensive practical activities (including information technology education, labor and technology education) are classified as non-academic subjects.

On August 2, 2021, the Guangdong Education Bureau issued the Circular Guangdong Education Bureau on Reducing the Burden of After-School Tutoring on Students in Compulsory Education to implement the Alleviating Burden Opinion, and stipulates requirements on Academic AST Institutions including but not limited to license requirements, tutoring service requirements, advertisement regulations, fee regulations.

On August 18, 2021, the Beijing Municipality Government and the Beijing Municipal Committee of the Communist Party of China jointly published the full text of the Beijing Municipality’s Measures to Further Reduce the Burden of Homework and After-School Tutoring on Students in Compulsory Education in Beijing, or the Beijing Measures, to implement the Alleviating Burden Opinion. The Beijing Measures provide, among others, that (i) no new Academic AST Institutions will be approved, while existing Academic AST Institutions will be subject to review and re-registration aimed at reducing their numbers by phases; the remaining Academic AST Institutions shall all be registered as non-profit; (ii) online Academic AST Institutions previously filed with the local education administration authorities will be subject to review and re-approval; the registration and ICP license of any disqualifying online Academic AST Institutions will be rescinded; (iii) Academic AST Institutions are prohibited from (a) offering classes over contents outside of or in advance of the school curriculum, (b) offering classes based on any foreign curriculum, (c) soliciting and recruiting school teacher by offering excessive compensation, or (d) employing foreign personnel abroad to carry out training activities; non-Academic AST Institutions providers are prohibited from offering tutoring services on academic subjects; (iv) prices for Academic AST Institutions will need to follow the guidelines from the government to prevent any excessive charging or excessive profit-seeking activity; (v) Academic AST Institutions are prohibited from financing by way of listing its securities or conducting other capital market activities; listed companies may not invest in Academic AST Institutions through capital markets fundraising activities, and may not acquire assets of Academic AST Institutions by paying cash or issuing securities; foreign capital is prohibited from controlling or participating in Academic AST Institutions through merger and acquisitions, entrusted operations, joining franchise or using variable interest entities.

On August 25, 2021, the General Office of MOE issued the Administrative Measures for After-School Tutoring Materials for Primary and Secondary School Students (for Trial Implementation), which provide that, among others, (i) after-school tutoring materials for primary and secondary school students and staff preparing such tutoring materials shall meet certain requirements specified in such measures, which include, among others, tutoring materials shall follow the national curriculum standard and shall not provide contents in advance of the school curriculum; (ii) after-school tutoring institutions shall establish internal management system for the tutoring materials and the staff preparing such tutoring materials; (iii) after-school tutoring institutions shall conduct internal review of the tutoring materials and the local education administrations shall conduct external review of the tutoring materials; (iv) after-school tutoring institutions may only use tutoring materials that have been internally and externally reviewed or if the materials have been officially published; (v) after school tutoring institutions shall file with the relevant education administrations the tutoring materials and the staff preparing such materials; (vi) after-school tutoring institutions in violation of the measures will be subject to rectification and shall not use the relevant tutoring materials during the rectification period; if the after-school tutoring institution refuses to rectify within the time limit or if the violation is severe, its private school operating permit may be revoked by the local education administration.

On September 7, 2021, the MOE published on its official website that the MOE, together with two other government authorities, issued a circular requiring all Academic AST Institutions to complete registration as non-profit by the end of 2021, and all Academic AST Institutions shall, before completing such registration, suspend enrollment of students and charging fees.

On September 9, 2021, the General Office of MOE and the General Office of the Ministry of Human Resources and Social Security jointly issued the Administrative Measures for Practitioners of the After-School Tutoring Institutions (for Trial Implementation), which set out a series of requirements for the after-school tutoring institutions with respect to their employed teachers, research staff and teaching assistants. After-school tutoring institutions in violation of such requirements will be subject to rectification. If an after-school tutoring institution violates the requirements several times or violates several requirements, such after-school tutoring institution is prohibited from enrollment of students and shall not conduct tutoring activities during the rectification period; and if the after-school tutoring institution refuses to rectify within the time limit or if the violation is severe, its private school operating permit may be revoked by the local education administration.

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On March 3, 2022, the MOE jointly with other two authorities issued the Announcement on Regulating Non-Academic Subjects After-School Tutoring, which provides that, among others, (1) the non-academic subjects after-school tutoring institutions shall have corresponding qualifications, and the practitioners shall have corresponding certifications for professional capability; (2) tutoring fee information shall be made public; (3) non-academic subjects after-school tutoring institutions shall use the form of service contract for after-school training activities provided to primary and secondary school students, and any unfair competition, monopoly or price fraud is prohibited; and (4) fees charged for non-academic subjects after-school tutoring shall be collected in such institutions’ special accounts, and fees shall not be collected or disguised collected in a lump sum for more than 60 classes or three months. In addition, tutoring for primary and middle schools students shall not allow any tutoring loans made to pay tutoring fees.

On May 27, 2022, the MOE published a notice on its website, which states that the MOE is regulating and continues to regulate the non-academic tutoring institutions, by means of examination of qualifications of institutions, regulation of fee charging and supervision of pre-paid fees. Such notice also states that as of May 15, 2022, about 88% of the non-academic tutoring institutions nationwide have implemented third-party custodians or risk reserve funds to manage the risk of pre-paid fee.

In addition, the Alleviating Burden Opinion also requires that local government authorities shall clarify the competent authorities for administering the non-academic after-school tutoring institutions, by classifying sports, culture and art, science and technology and other non-academic subjects, formulate standards among different classification of non-academic tutoring and conduct strict examination before granting permission. As of the date of this annual report, certain local government authorities have promulgated rules that require non-academic tutoring service providers in areas such as art, music, physics, among others, to obtain private school operation permit.
 

On November 30, 2022, the MOE and relevant authorities published Opinions on Regulation of Non-Academic After-School Tutoring for Primary and Secondary School Students, which provide that, among others, (1) local governments shall identify corresponding competent authorities for different tutoring categories and set forth basic standards; (2) non-academic tutoring institutions shall comply with requirements relating to premise, facilities, fire safety, environment protection and food safety; (3) practitioners shall have corresponding capability or certificates for different tutoring categories, and tutoring institutions shall not solicit or recruit primary and secondary school teachers; (4) non-academic online tutoring institutions shall obtain certificates issued by provincial government authorities; (5) class times shall not conflict with the teaching time of the local primary and secondary schools, and offline after-school trainings shall end no later than 8:30 p.m. and online live trainings shall end no later than 9:00 p.m.; (6) tuition fees collected by a tutoring institution shall not be collected in a lump sum for more than 60 course sessions, or for a course length of more than three months, or for more than 5,000 RMB, and tutoring institutions shall open a special bank account for the tuition fees and file the account information and other required information with government authorities. In addition, any violation under such opinions of a non-academic after-school tutoring institution shall be rectified accordingly by the end of June 2023.

On March 14, 2023, the General Office of MOE jointly with other four authorities issued the Administrative Measures for the Financial Management of After-School Tutoring Institutions, which provides that, among others, (1) tutoring pre-paid fees (including collected in cash) shall be deposited into such institution’s special accounts and shall be separated from its own funds. Tutoring fees shall not be collected in such institution’s other accounts or any third party’s accounts; (2) after-school tutoring institutions shall not accept any tutoring fees paid by means of tutoring loans; (3) after-school tutoring institutions shall use the contract template jointly stipulated by General Office of MOE and the SAMR for the after-school tutoring service, and clearly specify the tutoring fees, refund arrangement and dispute resolutions. After-school tutoring institutions shall offer refunds for any remaining classes in a course to students who withdraw from the course in a timely manner.

We are closely monitoring the evolving regulatory environment and are making efforts to seek guidance from and cooperate with the government authorities to comply with these regulations and implementation measures and we have been taking necessary measures to comply with the above requirements. However, as many of these regulations for online education are relatively new and the enforcement practices are evolving, our current practice may be deemed to be not in full compliance with these requirements. For detailed discussion, please see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the laws, regulations and policies of mainland China regarding the online private education industry. In particular, our compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures issued thereunder by the relevant PRC government authorities has materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect.”

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Regulation Related to Value-added Telecommunications Services

On September 25, 2000, the State Council issued the PRC Regulations on Telecommunications, or the Telecommunications Regulations, as last amended on February 6, 2016, to regulate telecommunications activities in mainland China. The Telecommunications Regulations divided the telecommunications services into two categories, namely “infrastructure telecommunications services” and “value-added telecommunications services.” Pursuant to the Telecommunications Regulations, operators of value-added telecommunications services, or VATS, must first obtain a Value-added Telecommunications Business Operating License, or VATS License, from the MIIT, or its provincial level counterparts. On March 1, 2009, the MIIT promulgated the Administrative Measures on Telecommunications Business Operating Licenses, or the Telecom License Measures, which was amended on July 3, 2017 and came into effect on September 1, 2017. The Telecom License Measures set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses.

The Amended Classified Catalog of Telecommunications Services (2015 Version), or the Amended 2016 MIIT Catalog, which took effect on June 6, 2019, defines information services as “the information services provided for users through public communications networks or internet by means of information gathering, development, processing and the construction of the information platform.” Moreover, information services continue to be classified as a category of VATS and are clarified to include information release and delivery services, information search and query services, information community platform services, information real-time interactive services, and information protection and processing services under the Amended 2016 MIIT Catalog. The Administrative Measures on Internet Information Services, or ICP Measures, promulgated by the PRC State Council on September 25, 2000 and most recently amended on January 8, 2011, set forth more specific rules on the provision of internet information services. According to ICP Measures, any company that engages in the provision of commercial internet information services shall obtain a sub-category VATS License for Internet Information Services, or ICP License, from the relevant government authorities before providing any commercial internet information services within mainland China. Pursuant to the above-mentioned regulations, “commercial internet information services” generally refer to provision of specific information content, online advertising, web page construction and other online application services through internet for profit making purpose.

In addition to the Telecommunications Regulations and the other regulations discussed above, the provision of commercial internet information services on mobile internet applications is regulated by the Administrative Provisions on Mobile Internet Applications Information Services, which was promulgated by Cyberspace Administration of China, or the CAC, on June 28, 2016 and last amended on June 14, 2022. The providers of mobile internet applications are subject to requirements under these provisions, including acquiring the qualifications and complying with other requirements provided by laws and regulations and being responsible for information security.

We provide information and services to our students through our websites and mobile apps, which is classified as commercial internet information services as defined in the above provisions. To comply with the relevant laws and regulations, Beijing Gaotu, the VIE, and one of its subsidiaries, Shanghai Gaotu YunJi Education Technology Co., Ltd. each currently holds a Value-added Telecommunications Business Operating License.

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Regulation Related to Foreign Investment

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in mainland China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The existing foreign-invested enterprises established prior to the effective of the Foreign Investment Law may keep their corporate forms within five years. The implementing rules of the Foreign Investment Law will be stipulated separately by State Council. Pursuant to the Foreign Investment Law, “foreign investors” means natural person, enterprise, or other organization of a foreign country, “foreign-invested enterprises” (FIEs) means any enterprise established under the laws of mainland China that is wholly or partially invested by foreign investors and “foreign investment” means any foreign investor’s direct or indirect investment in mainland China, including: (i) establishing FIEs in mainland China either individually or jointly with other investors; (ii) obtaining stock shares, stock equity, property shares, other similar interests in Chinese domestic enterprises; (iii) investing in new projects in mainland China either individually or jointly with other investors; and (iv) making investment through other means provided by laws, administrative regulations, or State Council provisions.

The Foreign Investment Law stipulates that mainland China implements the management system of pre-establishment national treatment plus a negative list to foreign investment and the government generally will not expropriate foreign investment, except under special circumstances, in which case it will provide fair and reasonable compensation to foreign investors. Foreign investors are barred from investing in prohibited industries on the negative list and must comply with the specified requirements when investing in restricted industries on that list. When a license is required to enter a certain industry, the foreign investor must apply for one, and the government must treat the application the same as one by a domestic enterprise, except where laws or regulations provide otherwise. In addition, foreign investors or FIEs are required to file information reports and foreign investment shall be subject to the national security review.

On December 26, 2019, the State Council promulgated the Implementation Rules of Foreign Investment Law, and became effective on January 1, 2020. The Implementation Rules of Foreign Investment Law restates certain principles of the Foreign Investment Law and further provides, among others, the existing FIEs established prior to the effectiveness date of the pursuant to the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law may, within the five-year period following the effective date of the Foreign Investment Law, adjust their corporate form or the governing structure and complete the change in registration pursuant to the provisions of the PRC Company Law, the PRC Partnership Enterprise Law and relevant laws and regulations, and if it fails to do so, the enterprise registration authority will not process other registration matters of the FIE and may publicize such non-compliance starting from January 1, 2025. On December 26, 2019, the Supreme People’s Court issue an Interpretation of the Application of Foreign Investment Law, which further provides details with respects to the validity of foreign investment contracts.

For detailed discussion of the risk associated with the Foreign Investment Law, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business, financial condition and results of operations.”

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Regulation Related to Foreign Investment Restrictions

Investment activities in mainland China by foreign investors are principally governed by the Guiding Foreign Investment Direction, which was promulgated by the State Council in February 2002 and came into effect in April 2002, and the Special Administrative Measures for the Access of Foreign Investment (the “Negative List”), or the 2021 Negative List, which was promulgated by the Ministry of Commerce and National Development and Reform Commission, or the NDRC, in December 2021 and came into effect in January 2022. The 2021 Negative List sets out the restrictive measures in a unified manner, such as the requirements on shareholding percentages and management, for the access of foreign investments, and the industries that are prohibited for foreign investment. Any field not falling in the Negative List shall be administered under the principle of equal treatment to domestic and foreign investment. According to the 2021 Negative List, the proportion of foreign investments in an entity engaging in value-added telecommunications services (except for e-commerce, domestic multi-party communications, storage-forwarding and call centers) shall not exceed 50%.

Pursuant to the 2021 Negative List, a domestic enterprise engaged in activities in any field prohibited from foreign investment under the 2021 Negative List shall be subject to review and approval by the relevant competent authorities for overseas listing and trading of shares, and any overseas investor in the enterprise shall not participate in the operation and management of the enterprise, and the equity ratio of overseas investors in the enterprise shall be governed mutatis mutandis by the relevant regulations on the management of domestic securities investments made by overseas investors.

The Regulations on Administration of Foreign-Invested Telecommunications Enterprises, or the FITE Regulations, which took effect on January 1, 2002. The FITE Regulations were last amended on March 29, 2022 with effect from May 1, 2022. The FITE Regulations stipulate that the foreign investor of a telecommunications enterprise is prohibited from holding more than 50% of the equity interest in a foreign-invested enterprise that provides value-added telecommunications services. Moreover, foreign investors that intend to invest in or establish a value-added telecommunications enterprise operating the value-added telecommunications business must obtain approvals from the Ministry of Industry and Information Technology, or the MIIT and MOFCOM, or their authorized local counterparts, which retain considerable discretion in granting approvals.

On July 13, 2006, the MIIT, issued the Circular on Strengthening the Administration of Foreign Investment in Value-added Telecommunications Services, or the MIIT Circular 2006, which requires that (i) foreign investors can only operate a telecommunications business in mainland China through establishing a telecommunications enterprise with a valid telecommunications business operation license; (ii) domestic license holders are prohibited from leasing, transferring or selling telecommunications business operation licenses to foreign investors in any form, or providing any resource, sites or facilities to foreign investors to facilitate the unlicensed operation of telecommunications business in mainland China; and (iii) all value-added telecommunications services providers should improve network and information security, enact relevant information safety administration regulations and set up emergency plans to ensure network and information safety. The provincial communications administration bureaus, as local authorities in charge of regulating telecommunications services, may revoke the value-added telecommunications business operation licenses of those who fail to comply with the above requirements or fail to rectify such noncompliance within specified time limits.

To comply with the above foreign investment restrictions, we rely on the contractual arrangements with the VIE to operate our business in mainland China. However, there remain substantial uncertainties with respect to the interpretation and application of existing or future laws and regulations of mainland China on foreign investment. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China’s regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”

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Regulation Related to Online Transmission of Audio-Visual Programs

The PRC, State Administration of Press Publication Radio Film and Television, or the SAPPRFT (currently known as National Radio and Television Administration), and the MIIT jointly promulgated the Administrative Provisions on Internet Audio-Visual Program Service, or the Audio-Visual Program Provisions, on December 20, 2007, which was last amended on August 28, 2015. Under the Audio-Visual Program Provisions, “online audio-visual program services” is defined as activities of producing, redacting and integrating audio-visual programs, providing them to the general public via internet, and providing service for other people to upload and transmit audio-visual programs, and providers of online audio-visual program services are required to obtain a License for Online Transmission of Audio-Visual Programs issued by the SAPPRFT, or complete certain registration procedures with the SAPPRFT. In general, providers of online audio-visual program services must be either state-owned or state-controlled entities, and the business to be carried out by such providers must satisfy the overall planning and guidance catalog for internet audio-visual program service determined by the SAPPRFT.

On May 21, 2008, SAPPRFT issued a Notice on Relevant Issues Concerning Application and Approval of License for the Online Transmission of Audio-Visual Programs, as amended on August 28, 2015, which sets out detailed provisions concerning the application and approval process regarding the License for Online Transmission of Audio-Visual Programs. According to the above regulations, providers of internet audio-visual program services that engaged in such services prior to the promulgation of the Audio-Visual Program Provisions are eligible to apply for the license so long as those providers did not violate the relevant laws and regulations in the past or their violation of the laws and regulations is minor in scope and can be rectified in a timely manner and they have no records of violation during the last three months prior to the promulgation of the Audio-Visual Program Provisions.

On March 30, 2009, SAPPRFT promulgated the Notice on Strengthening the Administration of the Content of Internet Audio-Visual Programs, which reiterates the pre-approval requirements for the audio-visual programs transmitted via the internet, including through mobile networks, where applicable, and prohibits certain types of internet audio-visual programs containing violence, pornography, gambling, terrorism, superstition or other similarly prohibited elements.

On March 10, 2017, SAPPRFT issued the Provisional Implementation of the Tentative Categories of Internet Audio-Visual Program Services, or the Categories, which revised the previous version issued on March 17, 2010. According to the Categories, there are four categories of internet audio and video programs services which are further divided into seventeen sub-categories. The third sub-category to the second category covers the making and editing of certain specialized audio-visual programs concerning, among other things, educational content, and broadcasting such content to the general public online.

We currently do not hold a License for Online Transmission of Audio-Visual Programs. As of the date of this document, only wholly state-owned or state-controlled enterprises are eligible to apply for the License for Online Transmission of Audio-Visual Programs. We offer certain online courses on our platforms in live-streaming format and we also offer video recordings of live streaming courses and certain other audio-video contents on our online platforms to our learners. Due to the significant uncertainty regarding the scope of audio-visual program services, we may be required to obtain a License for Online Transmission of Audio-Visual Programs or to complete the relevant registration. However, we may not be able to obtain the License for Online Transmission of Audio-Visual Programs as we are not a wholly state-owned or state-controlled entity. If this were to occur, we may be subject to penalties, fines, legal sanctions or an order to suspend the provision of our relevant services. In addition, it remains uncertain whether the PRC governmental authorities would issue more explicit interpretation and rules or promulgate new laws and regulations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to obtain or renew requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations.”

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Regulation Related to Internet Live Streaming Services

On September 2, 2016, the SAPPRFT promulgated the Notice on Strengthening the Administration of Live Streaming Services of Internet Audio-Visual Program, which provides that any entity that intends to engage in live audio-visual broadcasting of major political, military, economic, social, cultural or sport events or activities, or live audio-visual broadcasting of general social or cultural group activities, general sporting events or other organizational events, must obtain a License for Online Transmission of Audio-Visual Programs with a permitted operation scope covering the above business activities. Any entity or individual without qualification is prohibited from broadcasting live audio-visual programs involving news, variety shows, sports, interviews, commentary or other forms of programs through any online live-streaming platform or online live broadcasting booth, nor are they permitted to start a live broadcasting channel for any audio-visual programs. In addition, any entity without such license shall not operate audio-visual live streaming business and the live streaming programs provided by the qualified company shall not contain any content forbidden by laws and regulations.

On November 4, 2016, the CAC promulgated the Provisions on the Administration of Internet Live Streaming Services, or the Internet Live Streaming Provisions, effective from December 1, 2016. Under the Internet Live Stream Provisions, “internet live streaming service” is defined as the activities of continuously releasing real-time information to the public on internet in such forms as videos, audios, images and texts and the “internet live streaming service provider” is defined thereunder as an operator of the platform providing internet live streaming platform services. The Internet Live Streaming Provisions provide that internet live streaming service providers shall examine and verify the identity information of internet live-streaming issuers and file the identity information of the issuers with local counterparts of the CAC.

On July 12, 2017, the CAC issued a Notice on Development of the Filing Work for Enterprises Providing Internet Live Streaming Services, which provides that all the companies providing internet live streaming services shall file with the local authority since July 15, 2017, otherwise the CAC or its local counterparts may impose administrative sanctions on such companies.

Pursuant to the Circular on Tightening the Administration of Internet Live-Streaming Services jointly issued by the MIIT, the Ministry of Culture and Tourism, or the MCOT, and several other government agencies on August 1, 2018, live streaming services providers are required to file with the local public security authority within 30 days after it commences the service online.

After consulting with the local counterparts of the CAC, we were informed that currently institutions offering education services via online-streaming like us are not required to complete the above-mentioned filings in practice.

The CAC, the National Office of Anti-Pornography and Anti-Illegal, the MIIT, the Ministry of Public Security, the Ministry of Culture, the MOC, the SAMR and the National Radio and Television Administration jointly issued the Circular on the Guiding Opinions on Strengthening Standardized Management of Online Live Streaming on February 9, 2021, which further states that live streaming platforms which provide online audio-visual program services must obtain the Audio-Visual Permit (or complete the registration on the National Internet Audio-visual Platforms Information Management System and complete the ICP filing procedure.

Regulation Related to Production and Distribution of Radio and Television Programs

On 19 July 2004, SAPPRFT promulgated the Administrative Measures on the Production and Operation of Radio and Television Programs, or the Radio and TV Programs Measures, which became effective on August 20, 2004 and were last amended on October 29, 2020. The Radio and TV Programs Measures are applicable for establishing institutions that produce and distribute radio and television programs or for the production of radio and television programs like programs with a special topic, column programs, variety shows, animated cartoons, radio plays and television dramas and for activities like transactions and agency transactions of program copyrights. Pursuant to the Radio and TV Programs Measures, any entity that intends to produce or operate radio or television programs must first obtain the Permit for Production and Operation of Radio and TV Programs from SAPPRFT or its local branches.

We currently hold a Permit for Production and Operation of Radio and TV Programs that is valid until November 4, 2023.

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Regulation Related to Online Publishing

On February 4, 2016, the SAPPRFT (currently reformed into the State Administration of Press and Publication (National Copyright Bureau) under the Propaganda Department of the Central Committee of the Communist Party of China) and the MIIT jointly issued the Administrative Provisions on Online Publishing Services, or the Online Publishing Provisions, which came into effect on March 10, 2016. Under the Online Publishing Provisions, any entity providing online publishing services shall obtain an Online Publishing Services Permit. “Online publishing services” refer to the provision of online publications to the public through information networks; and “online publications” refer to digital works with publishing features such as having been edited, produced or processed and are available to the public through information networks, including: (i) written works, pictures, maps, games, cartoons, audio/video reading materials and other original digital works containing useful knowledge or ideas in the field of literature, art, science or other fields; (ii) digital works of which the content is identical to that of any published book, newspaper, periodical, audio/video product, electronic publication or the like; (iii) network literature databases or other digital works, derived from any of the aforesaid works by selection, arrangement, collection or other means; and (iv) other types of digital works as may be determined by the SAPPRFT.

We currently do not hold an Online Publishing Service Permit. As of the date of this annual report, there are no explicit interpretation from the governmental authorities or prevailing enforcement practice deeming the provision of our educational content to our students through our online platform as “online publishing” which requires an Online Publishing Service Permit. Nevertheless, it remains unclear whether the local PRC authorities would adopt a different practice. In addition, it remains uncertain whether the PRC governmental authorities would issue more explicit interpretation and rules or promulgate new laws and regulations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to obtain or renew requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations.”

Regulation Related to Cybersecurity, Data Security, and Personal Information Protection

Pursuant to the PRC Cyber Security Law issued by the SCNPC on November 7, 2016, effective as of June 1, 2017, “personal information” refers to all kinds of information recorded by electronic or otherwise that can be used to independently identify or be combined with other information to identify individuals’ personal information including but not limited to: individuals’ names, dates of birth, ID numbers, biologically identified personal information, addresses and telephone numbers, etc. The Cyber Security Law also provides that network operators shall meet their cyber security obligations and shall take technical measures and other necessary measures to protect the safety and stability of their networks. Under the PRC Cybersecurity Law, network operators are subject to various security protection-related obligations, including: (i) network operators shall comply with certain obligations regarding maintenance of the security of internet systems; (ii) network operators shall verify users’ identities before signing agreements or providing certain services such as information publishing or real-time communication services; (iii) when collecting or using personal information, network operators shall clearly indicate the purposes, methods and scope of the information collection, the use of information collection, and obtain the consent of those from whom the information is collected; (iv) network operators shall strictly preserve the privacy of user information they collect, and establish and maintain systems to protect user privacy; (v) network operators shall strengthen management of information published by users, and when they discover information prohibited by laws and regulations from publication or dissemination, they shall immediately stop dissemination of that information, including taking measures such as deleting the information, preventing the information from spreading, saving relevant records, and reporting to the relevant governmental agencies. In addition, the PRC Cyber Security Law requires that critical information infrastructures operators generally shall store, within the territory of mainland China, the personal information and important data collected and produced during their operations in mainland China and their purchase of network products and services that affect or may affect national securities shall be subject to national cybersecurity review. On September 14, 2022, the CAC published the Decision of Amending PRC Cybersecurity Law (Draft for Comments), or the Draft Amendment to PRC Cybersecurity Law, which, among other things, aggravated legal liabilities for violations of cybersecurity obligations and critical information infrastructure operators’ obligations. As of the date of this annual report, the Draft Amendment to PRC Cybersecurity Law was released for public comment only, and its respective provisions and anticipated adoption or effective date may be subject to change with substantial uncertainty.

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Pursuant to the Provisions on Internet Security Supervision and Inspection by Public Security Organs, which was promulgated by the Ministry of Public Security on September 15, 2018 and became effective on November 1, 2018, the public security departments are authorized to carry out internet security supervision and inspection of the internet service providers from the following aspects, among others: (i) whether the service providers have completed the recordation formalities for online entities, and filed the basic information on and the changes of the accessing entities and users; (ii) whether they have established and implemented the cybersecurity management system and protocols, and appointed the persons responsible for cybersecurity; (iii) whether the technical measures for recording and retaining users’ registration information and weblog data are in place according to the law; (iv) whether they have taken technical measures to prevent computer viruses, network attacks and network intrusion; (v) whether they have adopted preventive measures to tackle the information that is prohibited to be issued or transmitted by the laws and administrative regulations in the public information services; (vi) whether they provide technical support and assistance as required by laws to public security departments to safeguard national security and prevent and investigate on terrorist activities and criminal activities; and (vii) whether they have fulfilled the obligations of the grade-based cybersecurity protection and other obligations prescribed by the laws and administrative regulations. In particular, public security departments shall also carry out supervision and inspection on whether an internet service provider has taken required measures to manage information published by users, adopted proper measures to handle the published or transmitted information that is prohibited to be published or transmitted, and kept the relevant records.

In addition, the Office of the Central Cyberspace Affairs Commission, the MIIT, the Ministry of Public Security, and the SAMR jointly issued an Announcement of Launching Special Crackdown Against Illegal Collection and Use of Personal Information by Apps on January 23, 2019 to implement special rectification works against mobile Apps that collect and use personal information in violation of applicable laws and regulations, where business operators are prohibited from collecting personal information irrelevant to their services, or forcing users to give authorization in disguised manner. On November 28, 2019, the National Internet Information Office, the MIIT, the Ministry of Public Security and the SAMR further jointly issued a notice to classify and identify illegal collection and use of personal information.

On August 22, 2019, the Office of the Central Cyberspace Affairs Commission issued the Provisions on the Cyber Protection of Children’s Personal Information, which took effect on October 1, 2019. The Provisions on the Cyber Protection of Children’s Personal Information apply to the collection, storage, use, transfer and disclosure of the personal information of children under the age of 14 via the internet. The Provisions on the Cyber Protection of Children’s Personal Information require that network operators shall establish special rules and user agreements for protection of personal information for children under the age of 14, inform their guardians in a noticeable and clear manner, and shall obtain the consent of their guardians. When obtaining the consent of their guardians, network operators shall explicitly disclose several matters, including, without limitation, the purpose, method and scope of collection, storage, use, transfer and disclosure of such personal information, and methods for correcting and deleting such personal information. Provisions on the Cyber Protection of Children’s Personal Information also require that when collecting, storing, using, transferring and disclosing such personal information, network operators shall comply with certain regulatory requirements, including, without limitation, that network operators shall designate specific personnel to take charge of the protection of such personal information and shall strictly grant information access authorization for their staff to such personal information under the principle of minimal authorization.

Pursuant to the Notice on Promulgation of the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which was promulgated by the CAC, the MIIT and certain other government authorities on March 12, 2021 and became effective on May 1, 2021, “necessary personal information” refers to the personal information necessary for ensuring the normal operation of an app’s basic functional services, without which the app cannot achieve its basic functional services. For learning and education App, the basic functional services are “online tutoring, online classes, etc.” and the necessary personal information is mobile phone numbers of registered users. Further, the SAMR promulgated the Measures for the Supervision and Administration of Online Transactions, which became effective from May 1, 2021. The measures require that online transaction operators shall not force customers, whether or not in a disguised manner, to consent to the collection and use of information not directly related to their business activities by means of one-off general authorization, default authorization, bundling with other authorizations, or the suspension of installation and use. Otherwise, such online transaction operator may be subject to fines and consequences under related laws and regulations, including without limitation suspension of business for rectification and revocation of permits and licenses.

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On June 10, 2021, the SCNPC promulgated the Data Security Law, which became effective in September 2021. The Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data activities and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, as well as the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, or illegally acquired or used. The appropriate level of protection measures is required to be taken for each respective category of data. For example, a processor of important data shall designate the personnel and the management body responsible for data security, carry out risk assessments for its data processing activities and file the risk assessment reports with the competent authorities. In addition, the Data Security Law provides a national security review procedure for those data activities which affect or may affect national security and imposes export restrictions on certain data and information.

On April 13, 2020, the CAC, the NDRC, and several other administrations jointly promulgated the Measures for Cybersecurity Review, which became effective on June 1, 2020. The Measures for Cybersecurity Review establish the basic framework for national security reviews of network products and services, and provide the principal provisions for undertaking cyber security reviews. In addition, on July 22, 2020, the Ministry of Public Security issued the Guiding Opinions on Implementing the Cyber Security Protection System and Critical Information Infrastructure Security Protection System to further improve the national cyber security prevention and control system. On December 28, 2021, the CAC, together with certain other PRC governmental authorities, jointly released the Revised Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Revised Cybersecurity Review Measures, operators of critical information infrastructure that intend to purchase network products and services or online platform operators that are engaged in data processing activities that affect or may affect national security must apply for a cybersecurity review, and network platform operators that hold personal information of more than one million users and seek to list abroad shall also apply for a cybersecurity review. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or the risk of a large amount of personal information being influenced, controlled or maliciously used by foreign governments after going public, and cyber information security risk. The Revised Cybersecurity Review Measures set out certain general factors which would be the focus in assessing the national security risk during a cybersecurity review.

The Personal Information Protection Law took effect in November 2021. The Personal Information Protection Law sets forth detailed rules on processing personal information, clarifies the relevant rights of the individuals and the obligations of the personal information processors, and further strengthens the liabilities for illegal process of personal information. In addition to other rules and principles of personal information processing, the Personal Information Protection Law specifically provides rules for processing sensitive personal information. Sensitive personal information refers to personal information that, once leaked or illegally used, could easily lead to the infringement of human dignity or harm to the personal or property safety of an individual, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal whereabouts and other information of an individual, as well as any personal information of a minor under the age of 14. Only where there is a specific purpose and sufficient necessity, and under circumstances where strict protection measures are taken, may personal information processors process sensitive personal information. A personal information processor shall inform the individual of the necessity of processing such sensitive personal information and the impact thereof on the individual’s rights and interests. Some information we collect, such as personal identity, location, mobile numbers and viewing histories, may be deemed to be sensitive personal information under the Personal Information Protection Law. The Personal Information Protection Law also strengthens the supervision of automatic decision making to protect the rights of individuals to obtain fair transaction terms and the supervision of mobile applications.

On November 14, 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Regulations. The Draft Regulations provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. In accordance with the Draft Regulations, data processors shall apply for a cybersecurity review for the following activities: (i) merger, reorganization or division of Internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests to the extent that affects or may affect national security; (ii) listing abroad of data processors which process over one million users’ personal information; (iii) the listing of data processors in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. The Draft Regulations also provide that operators of large internet platforms that set up headquarters, operation centers or R&D centers overseas shall report to the national cyberspace administration and competent authorities. In addition, the Draft Regulations also require that data processors processing important data or going public overseas shall conduct an annual data security self-assessment or entrust a data security service institution to do so, and submit the data security assessment report of the previous year to the local branch of CAC before January 31 each year. As of the date of this annual report, this draft has not been formally adopted. Substantial uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation.

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On January 4, 2022, the CAC published the Administrative Provisions on Internet Information Service Algorithm Recommendation on its website, or the Algorithm Recommendation Provisions, which became effective on March 1, 2022 and raise certain new compliance requirements on internet information service providers using algorithm recommendation technology. Specifically, the Algorithm Recommendation Provisions require that such service providers shall provide users with options that are not specific to their personal characteristics, or provide users with convenient options to cancel algorithmic recommendation services.

On July 7, 2022, the CAC issued the Measures on Security Assessment of the Cross-border Transfer of Data, with effective from September 1, 2022. The measures provide that four types of cross-border transfers of critical data or personal data generated from or collected in the PRC should be subject to a security assessment, which include: (i) a data processor to transfer important data overseas; (ii) either a critical information infrastructure operator, or a data processor processing personal information of more than 1 million individuals, transfers personal information overseas; (iii) a data processor who has, since January 1 of the previous year, transferred personal information of more than 100,000 individuals overseas cumulatively, or transferred sensitive personal information of more than 10,000 individuals overseas cumulatively, transfers personal information overseas; or (iv) other circumstances under which security assessment of data cross-border transfer is required as prescribed by the national cyberspace administration.

As we provide information and services through our mobile apps and website, we are subject to these laws and regulations relating to protection of internet security and protection of privacy, and failure to comply with these laws and regulations could have a material adverse effect on us. For a detailed discussion, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business is subject to complex and evolving laws and regulations of mainland China regarding cybersecurity, information security, privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation, and any failure or perceived failure to comply with these laws and regulations could result in claims, changes to our business practices, negative publicity, legal proceedings, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.”

Regulation Related to Publication Distribution

Under the Administrative Provisions on the Publications Market, or the Publication Market Provisions, which was jointly promulgated by the SAPPRFT and the MOFCOM on May 31, 2016, any enterprise or individual who engages in publication distribution activities shall obtain a Publication Operation License from SAPPRFT or its local counterpart. “Publication” is defined as “books, newspapers, periodicals, audio-visual products, and electronic publications,” and “distributing” is defined as “general distribution, wholesale, retail, rental, exhibition and other activities,” respectively, in the Publication Market Provisions. Without licensing, such entity or individual may be ordered to cease illegal acts by the competent administrative department of publication and be concurrently subject to fines. We currently hold various Publication Operation Licenses through the VIE and its subsidiaries.

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Regulation Related to Advertising

All commercial advertising activities for direct or indirect introduction of products or services promoted by product business operators or service providers via a certain medium and in a certain form within the territory of mainland China are applied to PRC Advertising Law, which was promulgated by the SCNPC on October 27, 1994 and was last amended on April 29, 2021. Pursuant to the PRC Advertising Law, advertisements must not contain, among other prohibited contents, terms such as “the state-level,” “the highest grade,” “the best” or other similar words. Particularly, an advertisement for education or training shall not contain any of the following items: (i) any promise relating to progression, passing examinations, or obtaining a degree or qualification certificate; (ii) any express or implied guaranteed promise relating to education or training results; (iii) use of the names or images of research institutes, academic institutions, educational institutions, industry associations, professionals or beneficiaries for recommendation or as proof. Any data, statistics, research result, summary, quotation and other quoted information used in an advertisement shall be authentic and accurate, with the source indicated. If the quoted information is subject to a scope of application or a valid period, the scope of application or valid period shall be clearly indicated. In addition, the Interim Measures for Administration of Internet Advertising, adopted by the predecessor of SAMR and effective on September 1, 2016, set forth certain compliance requirements for online advertising businesses. Advertising operators and distributors of internet advertisement must examine, verify and record identity information for advertisers, such as name, address and contact information, and maintain a verification record that is updated on a regular basis. Moreover, advertising operators and advertising distributors must examine supporting documentation provided by advertisers and verify the contents of the advertisements against supporting documents before publishing them. If the contents of advertisements are inconsistent with the supporting documents, or the supporting documents are incomplete, advertising operators and distributors must refrain from providing design, production, agency or publishing services. These measures also prohibit the following activities: (i) providing or using applications and hardware to block, filter, skip over, tamper with, or cover up lawful advertisements; (ii) using network access, network equipment and applications to disrupt the normal transmission of lawful advertisements or adding or uploading advertisements without authorization; and (iii) harming the interests of a third party by using fake statistics or traffic data. Furthermore, advertisement contents related to price are subject to Price Law of the PRC, which provides, among others, that acts such as enticing consumers or other business operators to trade with them by means of false or misleading price are strictly prohibited and such acts may subject the actors to regulatory measures including rectifications, fines, and in the worst case scenario, termination of business or revocation of business license. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our advertising content may subject us to penalties and other administrative actions.”

Regulation Related to Intellectual Property Rights

Copyright and Software Registration

The Copyright Law extends copyright protection to internet activities, products disseminated over the internet and software products. In addition, there is a voluntary registration system administered by the China Copyright Protection Center. To address the problem of copyright infringement related to the content posted or transmitted over the internet, the National Copyright Administration, or the NCAC, and the MIIT jointly promulgated the Measures for Administrative Protection of Copyright Related to Internet.

The Computer Software Protection Regulations are formulated for protecting the rights and interests of computer software copyright owners, encouraging the development and application of computer software and promoting the development of software business. In order to further implement the Computer Software Protection Regulations, the NCAC issued the Computer Software Copyright Registration Procedures, which apply to software copyright registration, license contract registration and transfer contract registration. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property” for more details on the current situation of our software copyrights.

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Patents

Pursuant to the Patent Law, a patentable invention, utility model or design must meet three conditions, namely novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods for intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances obtained by means of nuclear transformation. The Patent Office under the State Intellectual Property Office is responsible for receiving, examining and approving patent applications. A patent is valid for a twenty-year term for an invention, a fifteen-year term for a design, and a ten-year term for a utility model, all starting from the application date. Except under certain specific circumstances provided by law, any third-party user must obtain consent or a proper license from the patent owner to use the patent, otherwise the use will constitute an infringement of the rights of the patent holder. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property” for more details on the current situation of our patents.

Trademark

Trademarks are protected by the PRC Trademark Law as well as its implementation rules. The Trademark Office of National Intellectual Property Administration under the SAIC handles trademark registrations and grants a protection term of ten years to registered trademarks which may be renewed for consecutive ten-year periods upon request by the trademark owner. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where a trademark for which a registration has been made is identical or similar to another trademark which has already been registered or been subject to a preliminary examination and approval for use on the same kind of or similar commodities or services, the application for registration of such trademark may be rejected. Any person applying for the registration of a trademark may not prejudice the existing right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property” for more details on the current situation of our trademarks.

Domain Name

According to the Administrative Measures on Internet Domain Names, any party that has domain name root servers, and the institution for operating domain name root servers, the domain name registry and the domain name registrar within the territory of mainland China, shall obtain a permit for this purpose from the MIIT or the communications administration of the local province, autonomous region or municipality directly under the Central Government. The registration of domain names is generally on a “first- apply-first-registration” basis and a domain name applicant will become the domain name holder upon the completion of the application procedure. See “Item 4. Information on the Company—B. Business Overview—Intellectual Property” for more details on the current situation of our domain names.

Regulation Related to Employment, Social Insurance and Housing Fund

Employment

Pursuant to the PRC Labor Law and the PRC Labor Contract Law, a written labor contract shall be executed by an employer and an employee when the employment relationship is established, and an employer is under an obligation to sign an unlimited-term labor contract with any employee who has worked for the employer for ten consecutive years. Furthermore, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must have an unlimited term, with certain exceptions. The employer must also pay severance to an employee in nearly all instances where a labor contract, including a contract with an unlimited term, is terminated or expires. All employers must compensate their employees equal to at least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly abide by State rules and standards and provide employees with appropriate workplace safety training. In addition, the PRC government mandates that annual leave ranging from 5 to 15 days is available to nearly all employees and further require that the employer compensate an employee for any annual leave days the employee is unable to take in the amount of three times his daily salary, subject to certain exceptions. Moreover, all enterprises in mainland China are generally required to implement a standard working time system of eight hours a day and forty hours a week, and if the implementation of such standard working time system is not appropriate due to the nature of the job or the characteristics of business operation, the enterprise may implement a flexible working time system or comprehensive working time system after obtaining approvals from the relevant authorities.

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Social Insurance

The Law on Social Insurance of the PRC has established social insurance systems of basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical insurance, and has elaborated in detail the legal obligations and liabilities of employers who do not comply with relevant laws and regulations on social insurance.

According to the Interim Regulations on the Collection and Payment of Social Insurance Premiums, the Regulations on Work Injury Insurance, the Regulations on Unemployment Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in mainland China shall provide benefit plans for their employees, which include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical insurance. An enterprise must provide social insurance by going through social insurance registration with local social insurance authorities or agencies, and shall pay or withhold relevant social insurance premiums for or on behalf of employees. On July 20, 2018, the General Office of the State Council issued the Plan for Reforming the State and Local Tax Collection and Administration Systems, which stipulated that the State Administration of Taxation of the PRC, or the SAT will become solely responsible for collecting social insurance premiums.

Housing Provident Fund

According to the Administrative Regulations on the Housing Provident Fund, housing provident fund paid and deposited both by employee themselves and their unit employer shall be owned by the employees.

A unit employer shall undertake registration of payment and deposit of the housing provident fund in the housing provident fund management center and, upon verification by the housing provident fund management center, open a housing provident fund account on behalf of its employees in a commissioned bank. Employers shall timely pay and deposit housing provident fund contributions in full amount and late or insufficient payments shall be prohibited. With respect to unit employers who violate the regulations hereinabove and fail to complete housing provident fund payment and deposit registrations or open housing provident fund accounts for their employees, such unit employers shall be ordered by the housing provident fund administration center to complete such procedures within a designated period. Those who fail to complete their registrations within the designated period shall be subject to a fine of between RMB10,000 and RMB50,000. When unit employers are in breach of these regulations and fail to pay deposit housing provident fund contributions in full amount as they fall due, the housing provident fund administration center shall order such unit employers to pay within a prescribed time limit, failing which an application may be made to a people’s court for compulsory enforcement.

Regulation Related to Foreign Exchange

Regulation on Foreign Currency Exchange

The principal regulations governing foreign currency exchange in mainland China are the PRC Foreign Exchange Administration Regulations, or the Foreign Exchange Administration Regulations. Under the Foreign Exchange Administration Regulations, Renminbi is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as direct investment, loan or investment in securities outside mainland China, unless prior approval of State Administration of Foreign Exchange, or the SAFE, or its local counterparts has been obtained.

On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration.

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On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or Circular 19. According to Circular 19, the foreign exchange capital of foreign-invested enterprises shall be subject to the Discretionary Foreign Exchange Settlement, which means that the foreign exchange capital in the capital account of a foreign-invested enterprise for which the rights and interests of monetary contribution have been confirmed by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operational needs of the foreign-invested enterprise. The proportion of Discretionary Foreign Exchange Settlement of the foreign exchange capital of a foreign-invested enterprise is temporarily set at 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated account and if a foreign-invested enterprise needs to make further payment from such account, it still needs to provide supporting documents and proceed with the review process with the banks. Furthermore, Circular 19 stipulates that the use of capital by foreign-invested enterprises shall follow the principles of authenticity and self-use within the business scope of enterprises. The capital of a foreign-invested enterprise and capital in Renminbi obtained by the foreign-invested enterprise from foreign exchange settlement shall not be used for the following purposes: (i) directly or indirectly used for payments beyond the business scope of the enterprises or payments as prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities unless otherwise provided by the relevant laws and regulations; (iii) directly or indirectly used for granting entrust loans in Renminbi (unless permitted by the scope of business), repaying inter-enterprise borrowings (including advances by the third-party) or repaying the bank loans in Renminbi that have been sub-lent to third parties; or (iv) directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).

The Circular on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, was promulgated by SAFE on June 9, 2016. Pursuant to Circular 16, enterprises registered in mainland China may also convert their foreign debts from foreign currency to Renminbi on a self- discretionary basis. Circular 16 provides a unified standard for the conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered in mainland China. Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by laws of mainland China, while such converted Renminbi shall not be provided as loans to its non-affiliated entities.

On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

On October 23, 2019, the SAFE promulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, or the SAFE Circular 28, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in mainland China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. On December 31, 2020, the People’s Bank of China, SAFE and other government authorities jointly issued the Circular on Further Optimizing Cross-border Renminbi Policies to Support the Stabilization of Foreign Trade and Foreign Investment, or the Circular 330, which, among other things, reiterates the above provisions in SAFE Circular 28. However, since the SAFE Circular 28 and Circular 330 are relatively new, it is unclear how SAFE and other government authorities as well as competent banks will carry this out in practice.

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Regulation on Foreign Debt

A loan made by a foreign entity as direct or indirect shareholder in a foreign-invested enterprise is considered to be foreign debt in mainland China and is regulated by various laws and regulations, including the Regulation of the People’s Republic of China on Foreign Exchange Administration, the Interim Provisions on the Management of Foreign Debts, the Statistical Monitoring of Foreign Debts Tentative Provisions, the Detailed Rules for the Implementation of Provisional Regulations on Statistics and Supervision of External Debt, and the Administrative Measures for Registration of Foreign Debts. Under these rules and regulations, a shareholder loan in the form of foreign debt made to a mainland China entity does not require the prior approval of SAFE. However, such foreign debt must be registered with and recorded by SAFE or its local branches within 15 business days after entering into the foreign debt contract. Pursuant to these rules and regulations, the maximum amount of the aggregate of (i) the outstanding balance of foreign debts with a term not longer than one year, and (ii) the accumulated amount of foreign debts with a term longer than one year, of a foreign-invested enterprise shall not exceed the difference between its registered total investment and its registered capital, or Total Investment and Registered Capital Balance.

On January 12, 2017, the People’s Bank of China, or PBOC, promulgated the Notice of the People’s Bank of China on Full-coverage Macro-prudent Management of Cross- border Financing, or PBOC Circular 9, which sets forth an upper limit for mainland China entities, including foreign-invested enterprises and domestic-invested enterprises, regarding their foreign debts. Pursuant to PBOC Circular 9, the limit of foreign debts for enterprises shall be calculated based on the following formula: the limit of foreign debt = net assets * cross-border financing leverage ratio * macro-prudent regulation parameter. “Net assets” is calculated as the net assets value stated in the relevant entity’s latest audited financial statement. The cross-border financing leverage ratio for enterprises is two (2). The macro-prudent regulation parameter is one (1). The PBOC Circular 9 does not supersede the Interim Provisions on the Management of Foreign Debts, but rather serves as a supplement to it. PBOC Circular 9 provided for a one-year transitional period, or the Transitional Period, from its promulgation date for foreign-invested enterprises, during which period foreign-invested enterprise could choose to calculate their maximum amount of foreign debt based on either (i) the Total Investment and Registered Capital Balance, or (ii) the Net Assets Limit. After the Transition Period, the maximum amount applicable to foreign-invested enterprises is to be determined by PBOC and SAFE separately. However, although the Transitional Period ended on January 10, 2018, as of the date of this annual report, neither PBOC nor SAFE has issued any new regulations regarding the appropriate means of calculating the maximum amount of foreign debt for foreign-invested enterprises. Domestic-invested enterprises have only been subject to the Net Assets Limit in calculating the maximum amount of foreign debt they may hold from the date of promulgation of PBOC Circular 9. In addition, according to PBOC Circular 9, a foreign loan must be filed with SAFE through the online filing system of SAFE after the loan agreement is signed and at least three business days prior to the borrower withdraws any amount from such foreign loan.

We may not be able to obtain these government approvals or complete such registrations on a timely basis, or at all, with respect to future foreign loans provided by us to our mainland China subsidiaries. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Mainland China’s regulation of loans to and direct investment in mainland China entities by offshore holding companies and governmental control of currency conversion may delay or prevent us to make loans to or make additional capital contributions to our mainland China subsidiaries and consolidated variable interest entity, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

Regulation on Foreign Exchange Registration of Overseas Investment by Domestic Residents

SAFE issued SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by domestic residents or entities to seek offshore investment and financing or conduct round trip investment in mainland China. Under SAFE Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by domestic residents (including individuals and entities) for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” refers to direct investment in mainland China by domestic residents through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution into an SPV, domestic residents are required to complete foreign exchange registration with SAFE or its local branch. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015. This notice has amended SAFE Circular 37 requiring domestic residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

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Domestic residents who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered, such as any change of basic information (including change of the domestic residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent, and may also subject relevant domestic residents or entities to penalties under the foreign exchange administration regulations of mainland China.

We cannot assure you that all shareholders or beneficial owners of ours who are domestic residents or entities, including the beneficiaries of the trust schemes directly or indirectly holding interests in our Cayman Islands holding company, have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Mainland China’s regulations relating to the establishment of offshore special purpose companies by domestic residents may subject our domestic resident beneficial owners or our mainland China subsidiaries to liability or penalties, limit our ability to inject capital into our mainland China subsidiaries, limit our mainland China subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.”

Regulation Related to Stock Incentive Plans

SAFE promulgated the Circular of the State Administration of Foreign Exchange on Issues concerning the Administration of Foreign Exchange Used for Domestic Individuals’ Participation in Equity Incentive Plans of Companies Listed Overseas, or the Stock Option Rules in February 2012. Under the Stock Option Rules and other relevant rules and regulations, domestic residents who participate in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and complete certain other procedures. Participants of a stock incentive plan who are domestic residents must retain a qualified domestic agent, which could be a mainland China subsidiary of the overseas publicly listed company or another qualified institution selected by the mainland China subsidiary, to conduct the SAFE registration and other procedures with respect to the stock incentive plan on behalf of the participants. In addition, the domestic agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the domestic agent or other material changes. The domestic agent must, on behalf of the domestic residents who have the right to exercise the employee share options, apply to SAFE or its local branches for an annual quota for the payment of foreign currencies in connection with the domestic residents’ exercise of the employee share options. The foreign exchange proceeds received by the domestic residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in mainland China opened by the domestic agents before distribution to such domestic residents.

In addition, the SAT, has issued certain circulars concerning employee share options or restricted shares. Under these circulars, the employees working in mainland China who exercise share options or are granted restricted shares will be subject to PRC individual income tax. The mainland China subsidiaries of such overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options. If the employees fail to pay or the mainland China subsidiaries fail to withhold their income taxes according to relevant laws and regulations, the mainland China subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities.

Regulation Related to Taxation

Enterprise Income Tax

On March 16, 2007, the National People’s Congress enacted the Enterprise Income Tax Law, which was subsequently amended, the State Council promulgated the Implementing Rules of the Enterprise Income Tax Law (or collectively, the PRC EIT Law). The PRC EIT Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where tax incentives are granted to special industries and projects. Enterprises qualifying as “High and New Technology Enterprises” are entitled to a 15% enterprise income tax rate rather than the 25% uniform statutory tax rate. The preferential tax treatment continues as long as an enterprise can retain its “High and New Technology Enterprise” status.

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According to the Circular On Several Policies for Further Encouraging the Development of Software Industry and Integrated Circuit Industry promulgated by the State Council in January 2011 and the Circular On Policies of Enterprises Income Tax for Further Encouraging the Development of Software Industry and Integrated Circuit Industry, jointly promulgated by the Ministry of Finance and the State Administration of Taxation in April 2012, or Circular 27, and the Circular on the Enterprise Income Tax Policies for Promoting the High-quality Development of the Integrated Circuit Industry and the Software Industry, jointly promulgated by the Ministry of Finance, State Taxation Administration, National Development and Reform Commission and Ministry of Industry and Information Technology in November 2020, or Circular 45, an enterprise that qualifies as a “software enterprise” established after January 1, 2011, or a software enterprise, is exempt from enterprise income tax for two years beginning in the enterprise’s first profitable year followed by a tax rate of 12.5% for the succeeding three years. In December 2020, the Ministry of Finance, the State Administration of Taxation, the NDRC, and the MIIT jointly issued a circular which repealed the original preferential tax treatment applicable to certain “key software enterprise”. Such circular provides that the enterprise income tax of certain “key software enterprise” would be waived for five years since its first year of making profit and it may benefit from a preferential tax rate of 10% for the following years.

Under the PRC EIT Law, an enterprise established outside mainland China with its “de facto management body” located in mainland China is considered a “resident enterprise”, which means it can be treated as domestic enterprise for enterprise income tax purposes. A non-resident enterprise that does not have an establishment or place of business in mainland China, or has an establishment or place of business in mainland China but the income of which has no actual relationship with such establishment or place of business, shall pay enterprise income tax on its income deriving from inside mainland China at the reduced rate of enterprise income tax of 10%. Dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in mainland China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with mainland China that provides for a preferential withholding arrangement.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a mainland China enterprise to a Hong Kong enterprise may be reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the mainland China enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, a Hong Kong resident enterprise must meet the following conditions, among others, in order to apply the reduced withholding tax rate: (i) it must be a company; (ii) it must directly own the required percentage of equity interests and voting rights in the domestic resident enterprise of mainland China; and (iii) it must have directly owned such required percentage in the domestic resident enterprise of mainland China throughout the 12 months prior to receiving the dividends.

On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-resident Enterprises, or SAT Bulletin 7. Pursuant to SAT Bulletin 7, where a non-resident enterprise indirectly transfers properties such as equity in domestic resident enterprises without any justifiable business purposes and aims to avoid the payment of enterprise income tax, such indirect transfer must be reclassified as a direct transfer of equity in domestic resident enterprise. To assess whether an indirect transfer of taxable properties in mainland China has reasonable commercial purposes, all arrangements related to the indirect transfer must be considered comprehensively and factors set forth in SAT Bulletin 7 must be comprehensively analyzed in light of the actual circumstances. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity securities through a public securities market.

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.

Value-Added Tax

Pursuant to the Provisional Regulations on PRC Value-Added Tax and its implementation regulations, unless otherwise specified by relevant laws and regulations, any entity or individual engaged in the sales of goods, provision of processing, repairs and replacement services and importation of goods into mainland China is generally required to pay a value-added tax, or VAT, for revenues generated from sales of products, while qualified input VAT paid on taxable purchase can be offset against such output VAT.

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In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for imposition of Value-Added Tax to Replace Business Tax. In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on Fully Promoting the Pilot Plan for Replacing Business Tax by Value-Added Tax. Pursuant to the pilot plan and relevant notices, VAT is generally imposed in lieu of business tax in the modern service industries, including the value-added telecommunications services, on a nationwide basis. VAT of a rate of 6% applies to revenue derived from the provision of some modern services and VAT of a rate of 3% applies to small-scale taxpayer. Unlike business tax, a general VAT taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided. Due to the COVID-19 pandemic, mainland China has granted certain tax benefits, such as exemption of VAT, to educational services entities in 2020. Based on the Announcement on Continuously Implementing Some Tax Preferential Policies in Response to COVID-19 Epidemic (2021 No.7), the exemption period were further extended to March 31,2021.

Regulation Related to M&A and Overseas Listings

On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-owned Assets Supervision and Administration Commission, the SAT, the SAIC (currently known as the State Administration for Market Regulation of the PRC, or the SAMR), the CSRC, and the SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on June 22, 2009. The M&A Rules, among other things, require that (i) mainland China entities or individuals obtain MOFCOM approval before they establish or control an SPV overseas, provided that they intend to use the SPV to acquire their equity interests in a mainland China company at the consideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the mainland China company overseas by listing the SPV in an overseas market; (ii) the SPV obtains MOFCOM’s approval before it acquires the equity interests held by the mainland China entities or mainland China individual in the mainland China company by Share Swap; and (iii) the SPV obtains CSRC approval before it lists overseas.

The Anti-Monopoly Law promulgated by the SCNPC on August 30, 2007 and amended on June 24, 2022 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by MOFCOM before they can be completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated the MOFCOM Security Review Regulations to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises with “national security” concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established under the Circular 6 led by the NDRC, and MOFCOM under the leadership of the State Council, to carry out the security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. On October 23, 2020, the SAMR promulgated Interim Provisions on the Review of Concentrations of Undertakings to further implement the Anti-Monopoly Law. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The M&A Rules and certain other regulations of mainland China establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in mainland China.”

On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law, or the Opinions. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-based overseas listed companies, and cybersecurity and data privacy protection requirements and etc.

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On February 17, 2023, with the approval of the State Council, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Trial Measures, and five supporting guidelines, which came into effect on March 31, 2023. According to the Trial Measures, (i) where an issuer, which is a domestic company or an overseas company determined as indirect overseas offering and listing of a domestic company, seeks for follow-on offering of securities in the same overseas market after its initial public offering, the issuer shall submit filings with the CSRC within three business days after the completion of such follow-on offering; (ii) where an issuer seeks for offering and listing of securities in other overseas market after its initial public offering, the issuer shall submit filings with the CSRC within three business days after such application is submitted; (iii) if the overseas offering and listing of the issuer is considered as indirect overseas offering and listing of a domestic company, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the CSRC; (iv) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (a) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (b) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; (v) the issuer shall report relevant information to the CSRC within three business days after the occurrence and announcement of the following events: (a) change in control of the issuer; (b) the issuer is subject to investigation, sanction and other measures imposed by the overseas securities regulatory authorities or the relevant authorities; (c) the issuer changes its listing status or the listing board; (d) the issuer terminates the listing voluntarily or compulsorily; (vi) the issuer shall report relevant information to the CSRC within three business days after any significant change in the main business operation of the issuer, if such change in business operation makes the issuer no longer need to comply with the filing requirements.

On the same day, the CSRC also held a press conference for the release of the Trial Measures and issued the Notice on Administration for the Filing of Overseas Offering and Listing by Domestic Companies, which, among others, clarifies that prior to the effectiveness of the Trial Measures, domestic companies that have already completed the overseas offering and listing are not required to complete the filing procedure at the current stage, but shall complete the filing procedure upon the occurrence of certain matters, such as follow-on offering of securities, as required in the Trial Measures.

As a supplement to the Trial Measures, the CSRC, Ministry of Finance of mainland China, National Administration of State Secrets Protection and National Archives Administration of mainland China, have jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Provisions, on February 24, 2023, which came into effect on March 31, 2023. The Provisions requires that any domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials containing state secrets or working secrets of governmental agencies to any individuals or entities including securities companies, securities service providers and overseas regulators, shall first obtain approval from competent governmental authorities in mainland China, and shall file with the secrecy administrative department at the same level.

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Regulation Related to Anti Long-Arm Jurisdiction

The MOFCOM issued Provisions on the List of Unreliable Entities, or the MOFCOM Order No. 4 of 2020, on September 19, 2020. Pursuant to the MOFCOM Order No. 4 of 2020, the working mechanism shall, according to the investigation results and by taking the following factors into comprehensive consideration, decide whether or not to include a foreign entity concerned in the list of unreliable entities, and make an announcement on such inclusion: (i) the extent of damage caused to China’s sovereignty, security and development interests; (ii) the extent of the damage to the legitimate rights and interests of Chinese enterprises, other organizations or individuals; (iii) whether or not the international economic and trade rules are followed; and (iv) other factors that shall be taken into consideration. If a foreign entity is included in the list of unreliable entities, the working mechanism may decide to take one or more of the following measures: (i) restricting or prohibiting the foreign entity from engaging in import or export activities related to mainland China; (ii) restricting or prohibiting the foreign entity’s investment within the territory of mainland China; (iii) restricting or prohibiting the entry of the foreign entity’s relevant personnel or transport vehicles into the territory of mainland China; (iv) restricting or cancelling the work permit, stay or residence qualification of the foreign entity’s relevant personnel in mainland China; (v) imposing a fine corresponding to the seriousness of the case against the foreign entity; and (vi) other necessary measures.

On January 9, 2021, the MOFCOM promulgated the Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation and Other Measures, or the MOFCOM Order No. 1 of 2021. Pursuant to the MOFCOM Order No. 1 of 2021, where a citizen, legal person or other organization of mainland China is prohibited or restricted by foreign legislation and other measures from engaging in normal economic, trade and related activities with a third State (or region) or its citizens, legal persons or other organizations, he/she/it shall truthfully report such matters to the competent department of commerce of the State Council within 30 days. The working mechanism will take following factors into overall account when assessing whether there exists unjustified extra-territorial application of foreign legislation and other measures: (i) whether international law or the basic principles of international relations are violated; (ii) potential impact on China’s national sovereignty, security and development interests; (iii) potential impact on the legitimate rights and interests of the citizens, legal persons or other organizations of mainland China; (iv) other factors that shall be taken into account. If the working mechanism determine that there exists unjustified extra-territorial application of foreign legislation and other measures, MOFCOM may issue an injunction that the relevant foreign legislation and other measures shall not be accepted, executed, or observed. A citizen, legal person or other organization in mainland China may apply for exemption from compliance with an injunction.

c.Organizational Structure

The following diagram illustrates our corporate structure, including our subsidiaries, the VIE and its subsidiaries, as of the date of this annual report:

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Note:

(1)Shareholders of Beijing Gaotu and their respective shareholdings in Beijing Gaotu and relationship with our company are Larry Xiangdong Chen (98.28%), chairman of our board of directors and our chief executive officer, and Bin Luo (1.72%), our employee.

Contractual Arrangements with the VIE and Its Shareholders

Current laws and regulations of mainland China impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services and certain other businesses. We are exempted company with limited liability incorporated in the Cayman Islands. The WFOEs are our mainland China subsidiaries and foreign-invested enterprises under the laws of mainland China. To comply with the laws and regulations of mainland China, we primarily conduct our business in mainland China through Beijing Gaotu, the VIE in mainland China which we refer to as the VIE in this annual report, based on a series of contractual arrangements by and among Beijing Lexuebang, the VIE and its shareholders (“Original Agreement”). On January 26, 2021, the WFOEs entered into a VIE supplementary agreement (“Supplementary Agreement”) with the VIE and the shareholders of the VIE. Pursuant to the Supplementary Agreement, each of Wuhan Yuexuebang and Beijing Yuexuebang became a party to the Original Agreement, enjoyed the same rights of Beijing Lexuebang under the Original Agreement and jointly assume the obligations of Beijing Lexuebang thereunder.
 

Our contractual arrangements with the VIE and its shareholders: (i) effectively assigned all of the voting rights underlying the nominee shareholders’ equity interest in the VIE to us, (ii) enable us to receive substantially all of the economic benefits of the VIE, and (iii) allow us to have an exclusive call option to purchase all or part of the equity interests in the VIE when and to the extent permitted by the laws of mainland China.

As a result of our direct ownership in our WFOEs and the contractual arrangements with the VIE, we are regarded as the primary beneficiary of the VIE, and we treat the VIE and its subsidiaries as our consolidated entities under U.S. GAAP. We have consolidated the financial results of the VIE and its subsidiaries in our consolidated financial statements in accordance with U.S. GAAP.

The following is a summary of the currently effective contractual arrangements by and among our WFOEs, the VIE and its shareholders.

Agreements that effectively assigned all of the voting rights underlying the nominee shareholders’ equity interest in the VIE to us

Powers of Attorney. Pursuant to the powers of attorney executed by the VIE’s shareholders, each of them irrevocably authorized the WFOEs or its designee(s) to act on their respective behalf as exclusive agent and attorney, to the extent permitted by law, with respect to all rights of shareholders concerning all the equity interest held by each of them in the VIE, including but not limited to proposing to convene or attend shareholder meetings, signing the resolutions and minutes of such meetings, exercising all the rights as shareholders (including but not limited to voting rights, nomination rights, appointment rights, the right to receive dividends and the right to sell, transfer, pledge or dispose of all the equity held in part or in whole).

Equity Interest Pledge Agreement. Under the equity interest pledge agreement among the WFOEs, the VIE and its shareholders, the VIE’s shareholders pledged all of their equity interests of the VIE to the WFOEs as security for performance of the obligations of the VIE and its shareholders under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney. If any of the specified events of default occurs, the WFOEs may exercise the right to enforce the pledge immediately. The WFOEs may transfer all or any of its rights and obligations under the equity interest pledge agreement to its designee(s) at any time. The agreement will remain in effect until the fulfillment of all the obligations under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney.

We have registered the equity interest pledge under the equity interest pledge agreement in relation to the VIE with the relevant office of the State Administration for Market Regulation in accordance with the PRC Property Rights Law.

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Agreements that allow us to receive economic benefits from the VIE

Exclusive Management Services and Business Cooperation Agreement. Pursuant to the exclusive management services and business cooperation agreement among the WFOEs, the VIE and the shareholders of the VIE, the WFOEs has the exclusive right to provide or designate any third-party to provide, among other things, education management consultancy services, permission of intellectual property rights, technological support and business support to the VIE and its subsidiaries. In exchange, the VIE and its subsidiaries pay service fees to the WFOEs in an amount determined by the WFOEs in its sole discretion. Without the prior written consent of the WFOEs, the VIE and its subsidiaries cannot accept services provided by or establish similar cooperation relationship with any third-party. The WFOEs owns the exclusive intellectual property rights created as a result of the performance of this agreement unless otherwise provided by the laws or regulations of mainland China. The agreement will remain effective unless unanimously agreed by the parties concerned or unilaterally terminated by the WFOEs with a written notice. Unless otherwise required by applicable laws of mainland China, the VIE and its shareholders do not have any right to terminate the agreement.

Agreements that provide us with the call option to purchase the equity interests in the VIE

Exclusive Call Option Agreement. Under the exclusive call option agreement among the WFOEs, the VIE and its shareholders, each of the shareholders of the VIE irrevocably granted the WFOEs a right to purchase, or designate a third-party to purchase, all or any part of their equity interests in the VIE at a purchase price equal to the lowest price permissible by the then-applicable laws and regulations of mainland China at WFOEs’ sole and absolute discretion to the extent permitted by the laws of mainland China. The shareholders of the VIE shall promptly give all considerations they received from the exercise of the options to the WFOEs or its designee(s). The VIE and its shareholders covenant that, without the WFOEs’ prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their equity interests in the VIE; (ii) transfer or otherwise dispose of their equity interests in the VIE; (iii) change the VIE’s registered capital; (iv) amend the VIE’s articles of association; (v) sell, transfer, license or otherwise dispose of any of the VIE’s assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations with the value of the assets involved in a single transaction not exceeding RMB100,000; (vi) cause the VIE to enter into any major contracts or terminate any material contracts to which the VIE is a party; (vii) declare or distribute dividends; (viii) terminate, liquidate or dissolve the VIE; or (ix) allow the VIE to incur, inherit, guarantee or permit any debts, except for those payables incurred in the ordinary or usual course of business but not incurred by way of borrowing. The agreement will remain effective until terminated by the WFOEs at its discretion or the entire equity interests in the VIE have been transferred to the WFOEs or its designee(s).

Spousal Consent Letters. Pursuant to the spousal consent letters executed by the spouses of certain shareholders of the VIE, the signing spouses unconditionally and irrevocably agreed that the equity interest in the VIE held by and registered in the name of their spouses be disposed of in accordance with the exclusive call option agreement, the exclusive management services and business cooperation agreement, the equity interest pledge agreement and the powers of attorney described above, and that their spouses may perform, amend or terminate such agreements without their additional consent. Additionally, the signing spouses agreed not to assert any rights over the equity interest in the VIE held by their spouses. In addition, in the event that the signing spouses obtains any equity interest in the VIE held by their spouses for any reason, they agree to be bound by and sign any legal documents substantially similar to the contractual arrangements described above, as may be amended from time to time.

In the opinion of Tian Yuan Law Firm, our PRC counsel:

•the ownership structures of the VIE and the WFOEs in mainland China are not in violation of applicable laws and regulations of mainland China currently in effect; and

•the contractual arrangements between the WFOEs, the VIE and its shareholders governed by the laws of mainland China are valid, binding and enforceable, and will not result in any violation of applicable laws and regulations of mainland China currently in effect.

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However, our PRC counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current and future laws of mainland China, regulations and rules. Accordingly, the PRC regulatory authorities may take a view that is contrary to the opinion of our PRC counsel. It is uncertain whether any new laws or regulations of mainland China relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or the VIE is found to be in violation of any existing or future laws or regulations of mainland China, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating certain of our operations in mainland China do not comply with mainland China’s regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations”, “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Uncertainties exist with respect to the interpretation and implementation of the Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance, business, financial condition and results of operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legal system of mainland China could adversely affect us.”

d.Property, Plants and Equipment

Our principal executive offices are located in Beijing, China, where we lease premises of 11,915 square meters to support our content development activities and daily operations, with lease term ranging from two to six years. In addition, we lease approximately 16,727 square meters, to support our daily operations, with lease terms ranging from two to five years in 6 other provinces and municipalities throughout mainland China. We lease all of the facilities that we currently occupy from independent third parties.

We also own several plots of commercial real estate in the Economics Development Area of Zhengzhou, China, which we use for business operations. The commercial real estate includes three office buildings, which have a combined gross floor area of 64,687 square meters. We believe that the facilities that we currently lease and the commercial real estate that we purchased in Zhengzhou, China are adequate to meet our needs for the foreseeable future.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not Applicable.

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This report contains forward-looking statements. See “Forward-Looking Information.” In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

a.Operating Results

Key Factors Affecting Our Results of Operations

Our results of operations and financial condition are affected by the general factors driving mainland China’s online education industry. We have benefited from China’s overall economic growth, significant urbanization rate, and higher per capita disposable income of urban households in mainland China, which has allowed many households in mainland China to spend more on education. We have also benefited from the increasing internet penetration in mainland China. At the same time, however, our results are subject to changes in the regulatory regime governing mainland China’s education industry, particularly uncertainties relating to online education services. In particular, on July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the Alleviating Burden Opinion, which provides, among others, that (i) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities; (ii) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities; (iii) online tutoring for preschool-age children is prohibited, and offline academic subjects (including foreign language) tutoring services for preschool-age children is also strictly prohibited. The Alleviating Burden Opinion provides that any violation of the foregoing shall be rectified. The Alleviating Burden Opinion further states that the administration and supervision over academic subjects tutoring institutions for students on grade ten to twelve shall be implemented by reference to the relevant provisions of the Alleviating Burden Opinion. See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Private Education” for more details. As a result, we ceased offering compulsory education academic subject tutoring services by the end of 2021. We took other measures to maintain our continued operations and shifted our focus towards offering and developing educational services for college students and adults, overseas study related services, non-academic tutoring services, educational content and digitalized learning products. We are also exploring new opportunities to further enrich our business offerings as we continue to expand our student base. In addition, our new businesses may be adversely affected by fierce competition and uncertainties of the industry with respect to the development of regulatory requirements.

Our business, financial condition, results of operations and prospect have been materially and adversely affected in 2022 and subsequent periods by the actions we have taken to date and consider taking to be in compliance with the New Regulations and our new business directives in the non-compulsory education business vertical. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the laws, regulations and policies of mainland China regarding the online private education industry. In particular, our compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures issued thereunder by the relevant PRC government authorities has materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect.”

In addition, the PRC government regulates various other aspects of our business and operations, including the qualification, licensing or filing requirements for entities that provide online education services and limitations on foreign investments in the online education industry. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face uncertainties with respect to the development of regulatory requirements on operating licenses and permits for our online education services in mainland China. Failure to obtain or renew requested licenses or permits in a timely manner or obtain newly required ones due to adverse changes in regulations or policies could have a material adverse impact on our business, financial condition and results of operations.”

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While our business is influenced by general factors affecting the online education industry in mainland China, our results of operations are also directly affected by certain company specific factors, including the following major factors:

Our ability to execute new business strategies and attract students to enroll in our paid courses

Our net revenues primarily consist of course fees from our students. Our historical growth in net revenues is primarily driven by increase in our paid course enrollments. However, in compliance with the regulation of mainland China pursuant to which tutoring services related to academic subject to students from kindergarten through grade nine are prohibited, we ceased offering compulsory education academic subject tutoring services by the end of 2021. We are exploring alternative strategic opportunities that can effectively leverage the resources and knowhow accumulated through our past compulsory education academic subject tutoring services. We have continued to operate our business outside of the compulsory education academic subject tutoring services and shift our focus towards offering and developing learning services for college students and adults, non-academic tutoring services, educational contents and digitalized learning products, among others. If we fail to successfully execute our new business strategies and attract students to enroll in our courses, our financial condition and results of operations may be materially adversely affected.

We believe providing an effective learning experience is critical to attracting new students and increasing our paid course enrollments. We are committed to providing high quality course offerings to our students and will continue to enhance our students’ learning experience through enriching our course offerings, enhancing our brand reputation and refining our technology. We will continue to improve our ability to convert sales leads into paid course enrollments cost-effectively.

Our ability to maintain our course fees

Our net revenues are also affected by the level of tuition fees we charge and average gross billing per paid course enrollment for our courses. Growth in the level of tuition fees we charge and average gross billing per paid course enrollment is dependent on our increased ability to charge premium fees for our course offerings. Our ability to charge premium pricing is affected by the quality and effectiveness of our course offerings, the overall demand for our courses, and prices and availability of competing courses. In addition, our course fee may be subject to evolving regulations, which may set a price limit on our course fees. Moreover, as we shifted our focus continue to explore new business opportunities in education for college students and adult, services related to overseas study, non-academic tutoring services, educational content and digitalized learning products, our new courses and product and service offerings may not have the same or even higher margins as we had in the past. We cannot assure you that we would be able to maintain our course fee level, and our course fees could continue to decline in the future due to these factors. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may not be able to maintain our course fee level” for more details.

Our ability to manage our operational efficiency

Our operating margins depend on our ability to control our costs and realize additional operation leverage as we continue to operate. Our business changes may result in substantial demands on our management, operational, technological, financial and other resources. To manage and support our further development, we must improve our existing operational, administrative and technological systems and our financial and management controls, and recruit, train and retain additional qualified teachers and school management personnel as well as other administrative and sales and marketing personnel, particularly as we grow outside of our existing areas. We will continue to implement additional systems and measures in order to effectively manage and support our business. If we cannot achieve these improvements, our financial condition and results of operations may be materially adversely affected.

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We depend on our ability to sell and market our course offerings in a cost-effective manner to maintain and improve our operating margins. Selling expenses have historically been the largest item of our total operating expenses. Our selling expenses are primarily composed of compensation to our personnel involved in sales and marketing, selling expenses relating to our online and mobile marketing, and branding expenses. Our ability to maintain or lower our selling expenses as a percentage of net revenues depends on our ability to improve sales and marketing efficiency and leverage our existing brand value and recognition of our superior teaching quality to achieve word-of-mouth referrals. We may also incur increased research and development and general and administrative expenses due to the expansion of our course offerings in new areas.

We offer substantially all of our courses online in a live format. Our future success depends on the development and application of relevant technologies to meet our demand for sufficient network capacity and to continue to enhance our proprietary live broadcasting technology, all in a cost-effective manner. While we continue to focus on our live broadcasting technology development, we plan to devote more resources to the development of our technology infrastructure and software upgrades to increase our operational efficiency.

Impact of COVID-19 on Our Operations and Financial Performance

All of our revenues and workforce are concentrated in mainland China. In response to the intensifying efforts to contain the spread of COVID-19, the Chinese government took a number of actions since the beginning of 2020, which included extending the Chinese New Year holiday, quarantining individuals suspected of having COVID-19, asking residents to stay at home and to avoid public gathering, among other things. COVID-19 also resulted in temporary closure of many corporate offices and schools across China, and disrupted school schedules significantly.

China began to modify its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December. There were surges of COVID-19 cases in many cities during this time which caused disruption to our operations, and there still remains significant uncertainty as to the future impact of the virus, especially in light of this change in policy. The extent to which the pandemic impacts our results of operations going forward will depend on future developments which are highly uncertain and unpredictable, including the frequency, duration and extent of outbreaks of COVID-19, the appearance of new variants with different characteristics, the effectiveness of efforts to contain or treat cases, and future actions that may be taken in response to these developments. Hence, the extent of the business disruption and the related impact on our financial results and outlook for 2023 cannot be reasonably estimated at this time.

As of December 31, 2022, we had cash and cash equivalents, restricted cash of RMB819.9 million (US$118.9 million) and short-term investments of RMB2,923.9 million (US$423.9 million). Our short-term investments mainly include investments in financial products issued by banks, which contain a fixed or variable interest rate with original maturities of less than twelve months, which are highly liquid. We believe this level of liquidity is sufficient to successfully navigate an extended period of uncertainty. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business, financial condition and results of operations may continue to be adversely affected by the effects of the COVID-19 pandemic in China.”

Key Line Items and Specific Factors Affecting Our Results of Operations

Net Revenues

In 2020, 2021 and 2022, we derived substantially all of our net revenues from the course fees that we charge to our students. We generally collect course fees in advance, which we initially record as deferred revenues. We recognize revenues proportionally as the classes are delivered. The majority of our courses are typically delivered within a period from 1 month to 6 months. For some courses, we continue 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 related revenue for playback is recognized proportionally over the playback period. The playback revenue represents a relatively small portion of the total course fees.

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As a result of the business restructuring we performed to comply with government regulations, we changed our disaggregation of revenue to better disclose the performance of our businesses. Total amount of online K-12 academic subject tutoring services in 2020 and 2021, and comprehensive tutoring services amounting to RMB886.1 million and RMB560.2 million in 2020 and 2021, previously included in comprehensive tutoring services and others, were reclassified to learning services. Other revenue amounting to RMB1.3 million and RMB0.9 million in 2020 and 2021, previously included in comprehensive tutoring services and others, were reclassified to other revenue.

The following table sets forth a breakdown of our total net revenues by amounts and percentages for the periods presented:

	For the Year Ended December 31,
	2020				2021				2022
	RMB		%		RMB		%		RMB		US$		%
	(in thousands, except for percentages)
Net revenues:
Learning services		7,123,455		100.0		6,560,835		100.0		2,436,110		353,203		97.5
Educational content & digitalized learning products	—		—		—		—			26,791		3,884		1.1
Other revenue		1,289		0.0		912		0.0		35,313		5,120		1.4
Total		7,124,744		100.0		6,561,747		100.0		2,498,214		362,207		100.0

Our learning services in 2020, 2021 and 2022 primarily consisted of tutoring fees from our educational services for college students and adults, overseas study related services, non-academic tutoring services and compulsory education academic subject tutoring services which have been ceased by the end of 2021 as a result of the New Regulations. Our educational content & digitalized learning products primarily consisted of the amount of sales in books and digitalized auxiliary learning tools. Our other revenue was primarily derived from the rent we charged from third parties.

In compliance with the New Regulations, we ceased offering compulsory education academic subject tutoring services by the end of 2021. We shifted our focus towards offering and developing educational services for college students and adults, overseas study related services, non-academic tutoring services, educational content and digitalized learning product. The cessation of our compulsory education academic subject tutoring services has materially and adversely affected our financial condition and results of operations in 2021 and 2022, and we expect it will continue to have an adverse effect on our financial condition and results of operations in 2023 and subsequent periods.

Cost of revenues

Our cost of revenues primarily consists of performance-based salaries to instructors and total compensation to tutors. We recorded cost of revenues of RMB1,762.5 million, RMB2,397.6 million and RMB701.1 million (US$101.6 million) in 2020, 2021 and 2022, respectively. Our cost of revenues also includes costs for teaching materials, depreciation of properties and equipment, rental expenses for our office space and server and bandwidth costs.

Operating expenses

Our operating expenses consist primarily of selling expenses, and to a lesser extent, research and development expenses and general and administrative expenses.

Selling expenses. We recorded selling expenses of RMB5,816.2 million, RMB5,129.3 million and RMB1,179.8 million (US$171.0 million) in 2020, 2021 and 2022, respectively. Our selling expenses primarily consist of expenses relating to our marketing and brand promotion activities, compensation to our personnel involved in sales and marketing expenses and other miscellaneous expense.

Research and development expenses. We recorded research and development expenses of RMB734.5 million, RMB1,252.9 million and RMB445.1 million (US$64.5 million) in 2020, 2021 and 2022, respectively. Research and development expenses consist primarily of compensation to our education content development personnel, and to our technology development personnel, and to a lesser extent, rental expenses for office space and others.

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General and administrative expenses. We recorded general and administrative expenses of RMB566.6 million, RMB720.3 million and RMB290.3 million (US$42.1 million) in 2020, 2021 and 2022, respectively. Our general and administrative expenses consist primarily of payroll and related expenses for employees involved in general corporate functions and administrative personnel.

Taxation

We had income tax benefit of RMB34.6 million in 2020, income tax expense of RMB40.9 million in 2021 and income tax benefit of RMB15.7 million (US$2.3 million) in 2022. We are subject to various rates of income tax under different jurisdictions. The following summarizes major factors affecting our applicable tax rates in Cayman Islands, Hong Kong and mainland China.

Cayman Islands

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, from the year of assessment 2018/2019 onwards, the subsidiaries in Hong Kong are subject to profits tax at the rate of 8.25% on assessable profits up to HK$2,000,000; and 16.5% on any part of assessable profits over HK$2,000,000. To avoid abuse of the two-tiered tax regime, each group of connected entities can nominate only one Hong Kong entity to benefit from the two-tiered income tax rate. Under the Hong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiary to us are not subject to any Hong Kong withholding tax. No provision for Hong Kong profits tax was made as we had no estimated assessable profit that was subject to Hong Kong profits tax during 2020, 2021 and 2022.

Mainland China

Generally, our mainland China onshore subsidiaries, VIE and its subsidiaries are subject to enterprise income tax on their taxable income in mainland China at a statutory rate of 25%. The enterprise income tax is calculated based on the entity’s global income as determined under the tax laws and accounting standards of mainland China.

Beijing Gaotu, the VIE, qualified as national high and new technology enterprise, or HNTE, in August 2017, which reduced its enterprise income tax rate to 15%. Its HNTE qualification has been renewed and set to expire by December 2023.

GaoTuYunJi qualified as a HNTE from 2019 through 2021 and accordingly was entitled to a 15% preferential tax rate during the period. Its HNTE qualification has been renewed in December 2022 and set to expire by 2024.

Beijing Lexuebang also qualified as a HNTE during the year ended December 31, 2019. Its HNTE qualification has been renewed in December 2022 and set to expire by 2024. Furthermore, Beijing Lexuebang obtained the Software Enterprise Certificate and adopted exemption from enterprise income tax for 2019 and 2020, and 12.5% from 2021 to 2023.

Wuhan Yuexuebang obtained the Software Enterprise Certificate and adopted exemption from enterprise income tax for 2020 and 2021, and 12.5% from 2022 to 2024.

If our holding company in the Cayman Islands or any of our subsidiaries outside of mainland China were deemed to be a “resident enterprise” under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a mainland China resident enterprise for income tax purposes, such classification could result in unfavorable tax consequences to us and our non-domestic shareholders or the ADS holders.”

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Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods presented, both in absolute amount and as a percentage of our net revenues for the periods presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any particular period are not necessarily indicative of our future trends.

	For the Year Ended December 31,
	2020						2021						2022
	RMB			%			RMB			%			RMB			US$			%
	(in thousands, except for percentage data)
Net revenues		7,124,744			100.0			6,561,747			100.0			2,498,214			362,207			100.0
Cost of revenues(1):		(1,762,548	)		(24.7	)		(2,397,604	)		(36.5	)		(701,050	)		(101,643	)		(28.1	)
Gross profit		5,362,196			75.3			4,164,143			63.5			1,797,164			260,564			71.9
Operating expenses
Selling expenses(1)		(5,816,214	)		(81.6	)		(5,129,267	)		(78.2	)		(1,179,760	)		(171,049	)		(47.2	)
Research and development     expenses(1)		(734,450	)		(10.3	)		(1,252,877	)		(19.1	)		(445,117	)		(64,536	)		(17.8	)
General and administrative     expenses(1)		(566,565	)		(8.0	)		(720,253	)		(11.0	)		(290,339	)		(42,095	)		(11.7	)
Impairment loss on long-lived     assets	—			—				(52,544	)		(0.8	)		—			—			—
Impairment loss on goodwill	—			—				(43,300	)		(0.7	)		—			—			—
Disposal loss on assets	—			—				(146,245	)		(2.2	)		—			—			—
Total operating expenses		(7,117,229	)		(99.9	)		(7,344,486	)		(112.0	)		(1,915,216	)		(277,680	)		(76.7	)
Loss from operations		(1,755,033	)		(24.6	)		(3,180,343	)		(48.5	)		(118,052	)		(17,116	)		(4.8	)
Interest income		3,372			—			31,460			0.5			21,370			3,098			0.9
Realized gains from     investments		70,403			1.0			65,763			1.0			42,264			6,128			1.7
Other income(2)		253,646			3.6			20,906			0.4			51,885			7,523			2.1
Loss before provision     for income tax and    share of results of equity    investees		(1,427,612	)		(20.0	)		(3,062,214	)		(46.6	)		(2,533	)		(367	)		(0.1	)
Income tax benefits/(expenses)		34,619			0.4			(40,949	)		(0.6	)		15,705			2,277			0.6
Share of results of equity     investees		63			—			(302	)		0.0			—			—			—
Net (loss)/income		(1,392,930	)		(19.6	)		(3,103,465	)		(47.2	)		13,172			1,910			0.5

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Note:

(1)Share-based compensation expenses were allocated as follows:

	For the Year Ended December 31,
	2020		2021		2022
	RMB		RMB		RMB		US$
	(in thousands)
Share-based compensation expenses
Cost of revenues		66,422		118,145		42,490		6,160
Selling expenses		18,039		44,402		6,659		965
Research and development expenses		94,952		130,620		39,172		5,679
General and administrative expenses		59,033		52,092		34,333		4,979
Total		238,446		345,259		122,654		17,783

(2)The amount of other expenses for 2020 and 2021 have been combined with other income.

Year ended December 31, 2022 compared to year ended December 31, 2021

Revenues

Our net revenues decreased by 61.9% from RMB6,561.7 million in 2021 to RMB2,498.2 million (US$362.2 million) in 2022. This decrease was primarily due to the Business Restructuring, which resulted in a decline in enrollments.

Net revenues from learning services decreased by 62.9% from RMB6,560.8 million in 2021 to RMB2,436.1 million (US$353.2 million) in 2022. This decrease was primarily 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.

Net revenues from educational content & digitalized learning products increased from nil in 2021 to RMB26.8 million (US$3.9 million) in 2022. This increase was primarily attributable to the changes we made to our existing business to pursue new business strategy. The increased demand in educational content and digitalized learning products will help to enhance our users’ learning experience and efficiency.

Net revenues from other revenue increased from RMB0.9 million in 2021 to RMB35.3 million (US$5.1 million) in 2022, which was primarily attributable to the increased rent we charged from third parties.

Cost of revenues

Our cost of revenues decreased by 70.8% from RMB2,397.6 million in 2021 to RMB701.1 million (US$101.6 million) in 2022. This decrease was primarily due to the reduction of employees and offices as a result of the Business Restructuring, which resulted in decreases in staff-related cost, as well as rental expenses.

Gross profit

As a result of the foregoing, our gross profit decreased by 56.8% from RMB4,164.1 million in 2021 to RMB1,797.2 million (US$260.6 million) in 2022. Our gross margin increased from 63.5% in 2021 to 71.9% in 2022.

Operating expenses

Our total operating expenses decreased by 73.9% from RMB7,344.5 million in 2021 to RMB1,915.2 million (US$277.7 million) in 2022.

Selling expenses. Our selling expenses decreased from RMB5,129.3 million in 2021 to RMB1,179.8 million (US$171.0 million) in 2022. The decrease was mainly due to a large decline of the expenditure on branding and marketing activities on academic subject tutoring services as a result of the changes of regulatory environment.

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Research and development expenses. Our research and development expenses decreased by 64.5% from RMB1,252.9 million in 2021 to RMB445.1 million (US$64.5 million) in 2022, primarily due to the reduction of employees and offices as a result of the Business Restructuring, which resulted in decreases in staff-related expenses, rental expenses, as well as server and bandwidth cost.

General and administrative expenses. Our general and administrative expenses decreased by 59.7% from RMB720.3 million in 2021 to RMB290.3 million (US$42.1 million) in 2022. This decrease was primarily due to reduction of employees as a result of the Business Restructuring, which resulted in decreases in staff-related expenses and rental expenses.

Impairment loss and disposal loss. Our impairment loss on long-lived assets, impairment loss on goodwill, and disposal loss related to business restructuring were all nil in 2022, compared with RMB52.5 million, RMB43.3 million and RMB146.2 million in 2021.

Loss from operations

We had loss from operations of RMB3,180.3 million in 2021 and loss from operations of RMB118.1 million (US$17.1 million) in 2022.

Income tax benefits/(expenses)

We incurred income tax expenses of RMB40.9 million in 2021 and had income tax benefits of RMB15.7 million (US$2.3 million) in 2022.

Net (loss)/income

As a result of the foregoing, we had a net loss of RMB3,103.5 million in 2021 and a net income of RMB13.2 million (US$1.9 million) in 2022.

Year ended December 31, 2021 compared to year ended December 31, 2020

Revenues

Our net revenues decreased by 7.9% from RMB7,124.7 million in 2020 to RMB6,561.7 million in 2021. This decrease was primarily due to the decrease in net revenues from our compulsory education academic subject tutoring services, which had been subsequently ceased in compliance with the regulatory developments, and, to some extent, the decrease in net revenues from our learning services.

Net revenues from our learning services decreased by 7.9% from RMB7,123.5 million in 2020 to RMB6,560.8 million in 2021. This decrease was primarily due to the decrease in paid course enrollments in our compulsory education academic subject tutoring courses. The decrease in paid course enrollments were primarily attributable to the actions we have taken in compliance with the regulations of mainland China. Following the introduction of the New Regulations related to the after-school tutoring sector, adjustment had been implemented to our organizational structure, which included termination of 10 operation centers. A large number of tutors, sales and marketing, research and development personnel serving for our learning services had been dismissed because of the termination of our operation centers. As a result, we suffered large summer tuition refunds in the third quarter of 2021.

Cost of revenues

Our cost of revenues increased by 36.0% from RMB1,762.5 million in 2020 to RMB2,397.6 million in 2021. This increase was primarily due to increased severance costs for the reduction of instructors and tutors in the third quarter of 2021.

Gross profit

As a result of the foregoing, our gross profit decreased by 22.3% from RMB5,362.2 million in 2020 to RMB4,164.1 million (US$653.4 million) in 2021. Our gross margin decreased from 75.3% in 2020 to 63.5% in 2021.

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Operating expenses

Our total operating expenses increased by 3.2% from RMB7,117.2 million in 2020 to RMB7,344.5 million in 2021.

Selling expenses. Our selling expenses decreased from RMB5,816.2 million in 2020 to RMB5,129.3 million in 2021. The decrease was mainly due to our decreased spending on branding and marketing activities due to the impact of the regulations of mainland China, which decreased from RMB4,489.0 million in 2020 to RMB3,389.2 million in 2021, partially offset by an increase in compensation, which includes severance costs to sales and marketing staff as a result of the personnel reduction in the third quarter of 2021.

Research and development expenses. Our research and development expenses increased by 70.6% from RMB734.5 million in 2020 to RMB1,252.9 million in 2021, primarily due to an increase in compensation, which includes severance costs in the third quarter of 2021, for education content development professionals and technology development personnel.

General and administrative expenses. Our general and administrative expenses increased by 27.1% from RMB566.6 million in 2020 to RMB720.3 million in 2021. This increase was primarily attributable to an increase in compensation to general and administrative staff, which includes severance costs in the third quarter of 2021.

Impairment loss and disposal loss. Our impairment loss on long-lived assets and goodwill was RMB95.8 million and disposal loss was RMB146.2 million in 2021, compared with nil and nil in 2020. As a result of the changes in the regulatory environment of the online education industry and the restructuring of our business and organization, we disposed some assets and performed an impairment assessment on long-lived assets and goodwill, and recognized the disposal loss and impairment loss in 2021.

Loss from operations

We had loss from operations of RMB1,755.0 million in 2020 and loss from operations of RMB3,180.3 million in 2021.

Income tax benefits/(expenses)

We incurred income tax benefits of RMB34.6 million in 2020 and had income tax expenses of RMB40.9 million in 2021, primarily due to the loss from operations we had in 2021, effect of research and development super-deduction, preferential tax rate and valuation allowance against deferred tax assets.

Net loss

As a result of the foregoing, we had a net loss of RMB1,392.9 million in 2020 and a net loss of RMB3,103.5 million in 2021.

Inflation

To date, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2020, 2021 and 2022 were increases of 0.2%, 1.5% and 1.8%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected by higher rates of inflation in China in the future.

Impact of Foreign Currency Fluctuation

See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk—Foreign Exchange Risk.”

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Impact of Governmental Policies

Historically, we offered a comprehensive set of online courses, which primarily included compulsory education academic after-school tutoring courses covering major subjects at all grades. However, the regulatory developments relating to after-school tutoring services, including the Alleviating Burden Opinion and its implementation measures, prohibit, among other things, academic AST providers from offering classes over contents outside of or in advance of the school curriculum. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China” and “Item 4. Information on the Company—B. Business Overview—Government Regulations.” In compliance with the New Regulations, we ceased offering compulsory education academic subject tutoring services by the end of 2021. The cessation of compulsory education academic subject tutoring services and other actions we have taken to comply with the regulatory developments have materially and adversely affected and will continue to have a material adverse impact on our revenues in 2022 and subsequent periods. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Significant uncertainties exist in relation to the interpretation and implementation of, or proposed changes to, the laws, regulations and policies of mainland China regarding the online private education industry. In particular, our compliance with the Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education and the implementation measures issued thereunder by the relevant PRC government authorities has materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The cessation of the compulsory education academic subject tutoring services and other actions we have taken to comply with recent regulatory developments have materially and adversely affected and will materially and adversely affect our business, financial condition, results of operations and prospect. Failure to effectively and efficiently manage changes of our existing and new business may materially and adversely affect our ability to capitalize on new business opportunities.”

b.Liquidity and Capital Resources

The following table sets forth a summary of our cash flows for the periods presented:

	For the Year Ended December 31,
	2020			2021			2022
	RMB			RMB			RMB			US$
	(in thousands)
Net cash generated from/(used in) operating activities		603,273			(4,185,807	)		54,545			7,908
Net cash (used in)/generated from investing activities		(5,596,304	)		4,812,502			(158,385	)		(22,964	)
Net cash generated from/(used in) financing activities		5,272,100			(100,614	)		—			—
Effect of exchange rate changes		2,188			15,818			26,650			3,864
Net increase/(decrease) in cash and cash equivalents		281,257			541,899			(77,190	)		(11,192	)
Cash, cash equivalents and restricted cash at the beginning of the year		73,967			355,224			897,123			130,071
Cash, cash equivalents and restricted cash at the end of the year		355,224			897,123			819,933			118,879

To date, we have financed our operating and investing activities primarily through net cash generated by operating activities and cash generated by historical equity financing activities. As of December 31, 2020, 2021 and 2022, our cash and cash equivalents were RMB355.2 million, RMB728.9 million and RMB819.9 million (US$118.9 million), respectively. Our cash and cash equivalents primarily consist of cash on hand and deposits which have original maturities of three months or less and are readily convertible to cash. As of December 31, 2020, 2021 and 2022, our restricted cash were nil, RMB168.2 million and RMB22.0 thousand (US$3.0 thousand), respectively. Restricted cash mainly represents the upfront tuition fee collected and deposited in a custodian bank account regulated by the government, and will be released as the courses are being delivered in 2021. As of December 31, 2020, 2021 and 2022, our short-term investments were RMB7,331.3 million, RMB2,774.0 million and RMB2,923.9 million (US$423.9 million), respectively. Short-term investments generally consist of investments in financial products issued by banks, which contain a fixed or variable interest rate with original maturities of less than twelve months. As of December 31, 2020, 2021 and 2022, our long-term debt investments were RMB525.4 million, nil and nil, respectively, and they have maturities longer than twelve months. As of December 31, 2020, 2021 and 2022, our prepaid expenses and other current assets were RMB722.7 million, RMB250.1 million and RMB399.9million (US$58.0 million), respectively. Our prepaid expenses and other current assets mainly consist of prepaid VAT and income tax, prepaid other service fees, and receivables from third party.

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We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for at least the next 12 months. We may decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital and finance funding. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

As of December 31, 2022, 99.3% and 0.7% of our cash and cash equivalents were held in mainland China and Hong Kong, respectively, of which 57.6% were denominated in Renminbi and 42.4% were denominated in U.S. dollars. As of December 31, 2022, 68.0% of our short-term investments were held in mainland China, of which 84.9% were denominated in Renminbi. As of December 31, 2022, 38.1% of cash and cash equivalents and 36.5% of our short-term investments were held by the VIE and its subsidiaries.

Although we consolidate the results of our variable interest entity and its subsidiaries, we only have access to the assets or earnings of our variable interest entity and its subsidiaries through our contractual arrangements with the VIE and its shareholders. See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with the VIE and Its Shareholders.” For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “—Holding Company Structure.”

We may make additional capital contributions to our mainland China subsidiaries, establish new mainland China subsidiaries and make capital contributions to these new mainland China subsidiaries, make loans to our mainland China subsidiaries, or acquire offshore entities with operations in mainland China in offshore transactions. However, most of these uses are subject to the regulations of mainland China. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Mainland China’s regulation of loans to and direct investment in mainland China entities by offshore holding companies and governmental control of currency conversion may delay or prevent us to make loans to or make additional capital contributions to our mainland China subsidiaries and consolidated variable interest entity, which could materially and adversely affect our liquidity and our ability to fund and expand our business.”

All of our revenues are denominated in Renminbi. Under existing foreign exchange regulations of mainland China, Renminbi may be converted into foreign exchange for current account items, including profit distributions, interest payments and trade-and service-related foreign exchange transactions.

We expect that substantially all of our future revenues will be denominated in Renminbi. Under existing foreign exchange regulations of mainland China, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our mainland China subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, approval from or registration with competent government authorities is required where the Renminbi is to be converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future.

Operating activities

Net cash generated from operating activities in 2022 was RMB54.5 million (US$7.9 million), primarily attributable to a net income of RMB13.2 million (US$1.9 million), adjusted for non-cash items that primarily consisted of RMB122.7 million (US$17.8 million) in share-based compensation, RMB70.8 million (US$10.3 million) in depreciation of property, equipment and software and amortization of intangible assets, a decrease of RMB329.9 million (US$47.8 million) in accrued expenses and other current liabilities, an increase of RMB293.5 million (US$42.6 million) in other assets, and a decrease of RMB36.9 million (US$5.3 million) in deferred revenue due to the course delivery.

Net cash used in operating activities in 2021 was RMB4,185.8 million, primarily attributable to a net loss of RMB3,103.5 million, adjusted for non-cash items that primarily consisted of RMB320.9 million in share-based compensation, RMB242.1 million in disposal loss on assets and impairment loss on long-lived assets and goodwill, RMB112.6 million in depreciation of property, equipment and software and amortization of intangible assets, a decrease of RMB942.3 million in accrued expenses and other current liabilities, a decrease of RMB1,737.5 million in deferred revenue due to the course delivery, and a decrease of RMB459.5 million in prepaid expenses and other current assets.

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Net cash generated from operating activities in 2020 was RMB603.3 million, primarily attributable to a net loss of RMB1,392.9 million, adjusted for non-cash items that primarily consisted of RMB238.4 million in share-based compensation, an increase of RMB1,508.9 million in accrued expenses and other current liabilities, an increase of RMB1,384.4 million in deferred revenue due to our rapid business expansion, an increase of RMB480.0 million in prepaid expenses and other current assets and an increase of RMB614.2 million in other assets.

Investing activities

Net cash used in investing activities in 2022 was RMB158.4 million (US$23.0 million), primarily due to the purchase of short-term investments of RMB29,317.8 million (US$4,250.7 million), partially offset by proceeds from the maturity of short-term investments of RMB29,249.3 million (US$4,240.7 million).

Net cash generated from investing activities in 2021 was RMB4,812.5 million, primarily due to the proceeds from the maturity of short-term and long-term investments of RMB51,064.0 million, partially offset by purchase of short-term investments of RMB46,001.6 million.

Net cash used in investing activities in 2020 was RMB5,596.3 million, primarily due to the purchase of short-term investments of RMB17,394.6 million, partially offset by proceeds from the maturity of short-term investments of RMB11,689.2 million.

Financing activities

The Company did not make any financing activities in 2022.

Net cash used in financing activities in 2021 was RMB100.6 million, primarily due to an installment payment of RMB100.6 million for the properties purchases in Zhengzhou in 2020.

Net cash generated from financing activities in 2020 was RMB5,272.1 million, primarily due to net proceeds raised from the private placement of our Class A ordinary shares in December 2020 of RMB5,687.3 million, partially offset by the repurchase of ordinary shares for an amount of RMB282.5 million and an installment payment of RMB132.2 million for the properties purchases in Zhengzhou.

Material Cash requirements

Our material cash requirements as of December 31, 2022 and any subsequent period primarily include our capital expenditures, operating lease obligations and real estate purchase obligations.

Our capital expenditures primarily relate to purchase of commercial real estate, leasehold improvements and investments in computers, network equipment and software. Our capital expenditures were RMB490.6 million, RMB372.9 million and RMB34.0 million (US$4.9 million) in 2020, 2021 and 2022, respectively. We intend to fund our future capital expenditures with our existing cash balance, short-term investments and proceeds from our initial public offering and our private placement of Class A ordinary shares in December 2020. We will continue to make capital expenditures to meet the expected growth of our business.

We intend to fund our existing and future material cash requirements primarily with anticipated cash flows from operations, our existing cash balance and other financing alternatives. We will continue to make cash commitments, including capital expenditures, to support the growth of our business.

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We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any off-balance sheet derivative instruments. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

The following table sets forth our contractual obligations by specified categories as of December 31, 2022:

	Payment Due by Period
	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(In RMB millions)
Operating lease commitments(1)		90.1		33.3		52.6		4.2		—
Real estate purchase obligations		26.6		26.6		—	—		—
Total		116.7		59.9		52.6		4.2		—

Note:

(1)Represents minimum payments under non-cancelable operating leases related to offices.

Other than as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2022.

Holding Company Structure

Gaotu Techedu Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our mainland China subsidiaries, the VIE and its subsidiaries in mainland China. As a result, our ability to pay dividends depends upon dividends paid by our mainland China subsidiaries. If our existing mainland China subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in mainland China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with mainland China’s accounting standards and regulations. Under the laws of mainland China, each of our subsidiaries and the VIE in mainland China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, the VIE may allocate a portion of its after-tax profits based on mainland China’s accounting standards to a surplus fund at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of mainland China is subject to examination by the banks designated by SAFE. Our mainland China subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

c.Research and Development, Patents and Licenses, etc.

Technology is the backbone of our highly scalable business model. Our strong technological capabilities enable us to deliver a superior student experience and improve operational efficiency. Our technology team, coupled with our proprietary artificial intelligence technology and the large volume of data generated from our operations, has continued to identify opportunities for improvements in our technology infrastructure and applications. As of December 31, 2022, we had a technology research and development team of 660 professionals.

Our trademarks, copyrights, domain names, trade secrets and other intellectual property rights distinguish our courses and services from those of our competitors and contribute to our ability to compete in our target markets. For more information about our technology capabilities and our intellectual property rights, see “Item 4. Information on the Company—B. Business Overview—Technology and Infrastructure” and “—Intellectual Property.”

d.Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2022 to December 31, 2022 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

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e.Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make judgment, estimates and assumptions. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this annual report.

Income Taxes and valuation allowance for deferred tax asset

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized, which can require the use of accounting estimation and the exercise of judgement. The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences and ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease to earnings.

Impairment assessment of long-lived assets other than goodwill

We review our long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, we measure impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected discounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the fair value of the assets.

Application of a long-lived assets impairment test requires significant management judgment. The judgment in estimating the fair value of the assets includes estimating future cash flows, or prices and other relevant information generated by market transactions, consideration of the impact of COVID-19 and the new regulations, and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value of the assets.

Valuation of share-based compensation

Compensation expense is recognized for all grants of share options and restricted stock units. Determining the appropriate valuation model and estimating the fair values of share option grants requires the input of subjective assumptions, including risk-free interest rate, expected stock price volatility, dividend yields, expected term, and forfeiture rates. The expected volatility assumption is based partially upon the historical volatility of our ordinary shares, which may or may not be a true indicator of future volatility. The assumptions used in calculating the fair values of share option grants represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change and different assumptions are used, share-based compensation expense could be significantly different from what we recorded in the current period.

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Recently Issued Accounting Pronouncements

A list of recent accounting pronouncements that are relevant to us is included in note 2 to our consolidated financial statements, which are included in this annual report.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

a.Directors and Executive Officers

The following table sets forth information regarding our executive officers and directors as of the date of this annual report.

Directors and Executive Officers	Age	Position/Title
Larry Xiangdong Chen	51	Chairman of the Board of Directors and Chief Executive Officer
Jin Cui	65	Independent Director
Yiming Hu	51	Independent Director
Ming Liao	51	Independent Director
Xiuping Qi	45	Vice President
Nan Shen	38	Chief Financial Officer

Mr. Larry Xiangdong Chen is our founder and has served as the chairman of our board of directors and our chief executive officer since our incorporation. Prior to founding our company, Mr. Chen served as the executive president of New Oriental Education & Technology Group Inc. (NYSE: EDU), or New Oriental Education, from November 2010 to January 2014. Mr. Chen joined New Oriental in 1999. He was promoted to be senior vice president in January 2006, and from 2001 to January 2002 he served as executive assistant to the chief executive officer of New Oriental Education. From 2002 to 2003, Mr. Chen was the president of Wuhan New Oriental School. Mr. Chen was promoted to vice president in September 2003, and in this capacity was in charge of a number of departments at New Oriental Education’s headquarters, including its short-term training system, human resources, marketing and public relations and business development. Mr. Chen received his master’s and Ph.D. degrees in economics from Renmin University of China. Mr. Chen completed the General Manager Program at Harvard Business School in 2005.

Ms. Jin Cui has served as our director since September 2021. Ms. Cui has extensive experience in public accounting. Ms. Cui served as a partner at Deloitte Beijing from 2000 to 2018 and as a partner at Zhonggongxin Certified Public Accountants from 1994 to 2000. Ms. Cui was also the chief financial officer of Youshi Contact Lens Co., Ltd. from 1991 to 1994, and had seven years of working experience at Zhonghua Certified Public Accountants. Ms. Cui received her bachelor’s degree in accounting from Beijing Technology and Business University. Ms. Cui is a Certified Public Accountant in China and is among the first batch of senior members of the Chinese Institute of Certified Public Accountants.

Mr. Yiming Hu has served as our director since June 2019. Mr. Hu has served as the chairman of the board of directors of Dongfang Beidou Technology (Beijing) Co., Ltd., a provider of navigation and positions products, since April 2018, and has been responsible for its strategic planning, organization and implementation. From March 2006 to May 2016, Mr. Hu held various positions at Ping An Trust Co., Ltd., including serving as project manager, general manager of the Beijing branch, and general manager of the private wealth division. Before joining Ping An Trust, Mr. Hu was a researcher at the Beijing Center for International Economic Research from July 1998 to March 2006, responsible for domestic and foreign macroeconomic tracking, analysis and research. Mr. Hu received his bachelor’s degree in political science and law from Xinyang Normal College in 1993 and his master’s degree in international economics from Renmin University of China in 1998.

Mr. Ming Liao has served as our director since June 2019. Mr. Liao has been a founding partner and director of Prospect Avenue Capital, a late-stage private equity fund manager focusing on the internet industry, since July 2016. From February 2014 to February 2015, Mr. Liao served as the chief representative of UBS AG’s Beijing representative office, working at its investment banking division. Prior to joining UBS, Mr. Liao was a director at the investment banking division of Barclays Capital Asia from May 2011 to March 2013. Before Barclays, Mr. Liao was a vice president at The Carlyle Group’s investor relations division from September 2008 to May 2011, responsible for fund raising in China. Prior to joining Carlyle, Mr. Liao was a vice president in the investment banking division of Morgan Stanley Asia from August 2006 to August 2008. Mr. Liao received his bachelor’s degree in economics from Renmin University of China in 1995, and his master’s degree in public affairs from the Woodrow Wilson School of Public and International Affairs at Princeton University in 2000.

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Mr. Xiuping Qi has served as our vice president since May 2016. Mr. Qi has extensive experience in technology and internet sectors. Prior to joining us, Mr. Qi was a co-founder and General Manager of the artificial intelligence accommodation department at Qunar.com from April 2014 to May 2016. Before that, Mr. Qi worked at Alibaba.com from November 2002 to April 2014 as the general manager of its International Core Business Unit, responsible for regional daily operation management in Northern China. Prior to joining Alibaba, Mr. Qi was a manager at Qingdao Yellow River Electronic Ltd. and China.com from 1998 to 2002. Mr. Qi received his bachelor’s degree in applied electronics technology from Qingdao University in 1998 and his executive MBA from Tsinghua University in 2017.

Ms. Nan Shen has served as our chief financial officer since December 2018. Prior to joining us, Ms. Shen was the chief financial officer of China Sinoedu Co., Ltd., running its VIE in Shandong Yingcai University, from November 2017 to November 2018. Before that, Ms. Shen served multiple positions at PricewaterhouseCoopers between February 2012 to November 2017, including the last position as assurance manager. From September 2014 to July 2016, she was based in the Greater Michigan office of PricewaterhouseCoopers. Prior to February 2012, Ms. Shen was an investment manager of Dalian Port & Shipping Industry Fund, where she was also in charge of investor relations management. Ms. Shen received her bachelor’s and master’s degrees in financial management from Dongbei University of Finance and Economics in 2006 and 2009, respectively. Ms. Shen is a certified public accountant in China.

b.Compensation of Directors and Executive Officers

For the fiscal year ended December 31, 2022, we paid an aggregate of approximately RMB3.2 million (US$470 thousand) and RMB2.5 million (US$360 thousand) in cash to our executive officers and non-executive directors, respectively. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers. Our mainland China subsidiaries and the VIE are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.

Employment Agreements and Indemnification Agreements

We have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officers is employed for a specified time period. We may terminate employment for cause, at any time, without advance notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate an executive officer’s employment without cause upon three-month advance written notice. In such case of termination by us, we will provide severance payments to the executive officer as expressly required by applicable law of the jurisdiction where the executive officer is based. The executive officer may resign at any time with a three-month advance written notice.

Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strict confidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicable law, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or the confidential or proprietary information of any third-party received by us and for which we have confidential obligations. The executive officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice during the executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.

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In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his or her employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i) approach our suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representative of us for the purpose of doing business with such persons or entities that will harm our business relationships with these persons or entities; (ii) assume employment with or provide services to any of our competitors, or engage, whether as principal, partner, licensor or otherwise, any of our competitors, without our express consent; or (iii) seek directly or indirectly, to solicit the services of any of our employees who is employed by us on or after the date of the executive officer’s termination, or in the year preceding such termination, without our express consent.

We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.

Share Incentive Plan

In March 2019, our shareholders and board of directors adopted the Share Incentive Plan, which we refer to as the Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. The maximum aggregate number of ordinary shares that may be issued pursuant to all awards under the Plan is 28,400,000 shares. The shares reserved may be increased automatically if and whenever the unissued shares reserved accounts for less than 1% of the total then issued and outstanding shares, so that after the increase, the shares unissued and reserved under the Plan immediately after each such increase shall equal to 5% of the then issued and outstanding shares. As of February 28, 2023, 3,597,871 options have been granted and are outstanding and 5,327,794 restricted share units have been granted and are outstanding, excluding awards that were exercised, forfeited or canceled after the relevant grant dates.

The following paragraphs describe the principal terms of the Plan.

Type of Awards. The Plan permits the awards of options, restricted share units and restricted shares.

Plan Administration. Our board of directors or a committee appointed by the board of directors will administer the Plan. The committee or the board of directors, as applicable, will determine the participants to receive awards, the fair market value and number of shares covered by the awards to be granted to each participant, and the terms and conditions of each award granted.

Award Agreement. Awards granted under the Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, restrictions on transfer of the award, and the provisions applicable in the event that the grantee’s employment or service terminates.

Eligibility. We may grant awards to our employees, directors and consultants.

Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.

Exercise of Awards. The plan administrator determines the exercise or purchase price, as applicable, for each award, which is stated in the relevant award agreement. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is 10 years from the date of grant.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the Plan. Unless terminated earlier, the Plan has a term of 10 years. Our board of directors has the authority to terminate, amend, suspend or modify the Plan, subject to shareholder approval to the extent necessary to comply with applicable law. However, without the prior written consent of the participant, no such action may adversely affect in any material way any outstanding award previously granted pursuant to the Plan.

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The following table summarizes, as of February 28, 2023, the outstanding awards granted under the Plan to our directors and executive officers, excluding awards that were exercised, forfeited or canceled after the relevant grant dates.

Name	Number of Ordinary Shares Underlying Options		Exercise Price (RMB/Share)		Date of Grant	Date of Expiration
Xiuping Qi	*			0.01	December 31, 2016	December 31, 2026
Nan Shen	*			0.01	December 31, 2018	December 31, 2028
Total		344,000

Note:

* Aggregate number of shares represented by all grants of options to the person accounts for less than 1% of our total ordinary shares on an as-converted basis outstanding as of February 28, 2023.

As of February 28, 2023, our employees other than members of our directors and officers as a group held 3,253,871 outstanding options with an exercise price of RMB0.01.

The following table summarizes, as of February 28, 2023, the outstanding restricted share units granted under the Plan to our directors and executive officers, excluding awards that were exercised, forfeited or canceled after the relevant grant dates.

Name	Number of Ordinary Shares Underlying Restricted Share Units		Date of Grant	Date of Expiration
Xiuping Qi	*		March 31, 2022 and Dec 31 2022	March 31, 2026 and Dec 31 2028
Nan Shen	*		March 31, 2022 and Dec 31 2022	March 31, 2026 and Dec 31 2028
Yiming Hu	*		August 21, 2019	August 21, 2029
Ming Liao	*		August 21, 2019	August 21, 2029
Total		1,166,667

Note:

* Aggregate number of shares represented by all grants of restricted share units to the person accounts for less than 1% of our total ordinary shares on an as-converted basis outstanding as of February 28, 2023.

As of February 28, 2023, our employees other than members of our directors and officers as a group held 4,161,127 outstanding restricted share units.

c.Board Practices

Board of Directors

Our board of directors consists of four directors. A director is not required to hold any shares in our company by way of qualification. A director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with our company is required to declare the nature of his or her interest at a meeting of our directors. A director may vote with respect to any contract, proposed contract or arrangement notwithstanding that he or she may be interested therein, and if he or she does so his or her vote shall be counted and he or she may be counted in the quorum at any meeting of our directors at which any such contract or proposed contract or arrangement is considered. Our directors may exercise all the powers of our company to borrow money, mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third-party. None of our non-executive directors has a service contract with us that provides for benefits upon termination of service.

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Committees of the Board of Directors

We have established three committees under the board of directors: an audit committee, a compensation committee and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee. Our audit committee consists of Jin Cui, Yiming Hu and Ming Liao. Jin Cui is the chairman of our audit committee. We have determined that Jin Cui, Yiming Hu and Ming Liao satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Exchange Act. We have determined that Jin Cui qualifies as an “audit committee financial expert.” The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

•appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

•reviewing with the independent auditors any audit problems or difficulties and management’s response;

•discussing the annual audited financial statements with management and the independent auditors;

•reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures;

•reviewing and approving all proposed related party transactions;

•meeting separately and periodically with management and the independent auditors; and

•monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Compensation Committee. Our compensation committee consists of Jin Cui, Yiming Hu and Ming Liao. Yiming Hu is the chairman of our compensation committee. We have determined that Jin Cui, Yiming Hu and Ming Liao satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the board of directors in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

•reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers;

•reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;

•reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and

•selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management.

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Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Jin Cui, Yiming Hu and Ming Liao. Ming Liao is the chairman of our nominating and corporate governance committee. We have determined that Jin Cui, Yiming Hu and Ming Liao satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:

•selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

•reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;

•making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

•advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken.

Duties of Directors

Under Cayman Islands law, our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time, and the class rights vested thereunder in the holders of the shares. In certain limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.

Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:

•convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings;

•declaring dividends and distributions;

•appointing officers and determining the term of office of the officers;

•exercising the borrowing powers of our company and mortgaging the property of our company; and

•approving the transfer of shares in our company, including the registration of such shares in our share register.

Terms of Directors and Officers

Our directors may be elected by an ordinary resolution of our shareholders. The board of directors may, by the affirmative vote of a simple majority of the remaining directors present and voting at a board meeting, appoint any person as a director, to fill a casual vacancy on the board or as an addition to the existing board. Our directors may be removed from office by an ordinary resolution of our shareholders. The service of our independent directors may be terminated by the director or by us with a 30-day advance written notice or such other shorter period of notice as mutually agreed. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or is found by our company to be or becomes of unsound mind, (iii) resigns his or her office by notice in writing to our company; (iv) without special leave of absence from our board, is absent from three consecutive board meetings and our directors resolve that his or her office be vacated; or (v) is removed from office pursuant to any other provision of our articles of association.

Our officers are elected by and serve at the discretion of our board of directors.

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d.Employees

We had 22,570, 9,015 and 4,002 employees as of December 31, 2020, 2021 and 2022, respectively. All of our full-time employees are located in mainland China. The following table sets forth the number of our employees by function as of December 31, 2022:

Function:	As of December 31, 2022
Instructors*		203
Tutors		583
Technology and content research and development		984
User growth		740
Sales		949
General and administrative		543
Total		4,002

Note:

* Include instructors for learning services and educational content development.

Besides full-time instructors and tutors, we also engage contract instructors and tutors to deliver our courses. As of December 31, 2022, we employed 203 full-time instructors and had 949 contract instructors. Our full-time employed instructors enter into employment contracts with us and deliver online courses from our headquarters in Beijing. Our contract instructors generally enter into service contracts with us and are not required to come into our office to deliver lessons. Our 203 full-time employed instructors also engage in content development activities. We also had 1,033 contract tutors as of December 31, 2022. Our contract tutors enter into service contracts with us and are responsible for addressing students' in-class queries, correcting students' post-class exercises, providing support to students after class, and instilling discipline in the students to attend the classes and learn.

We enter into employment contracts with our full-time employees which contain standard confidentiality provisions. We also enter into standalone confidentiality and non-compete agreements with our full-time employees. In addition to salaries and benefits, we provide performance-based bonuses for our full-time employees and commission-based compensation for our sales and marketing force.

As required by regulations in mainland China, we participate in various employee social security plans that are organized by municipal and provincial governments for our mainland China-based full-time employees, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are required under the laws of mainland China to make contributions from time to time to employee benefit plans for our mainland China-based full-time employees at specified percentages of the salaries, bonuses and certain allowances of such employees, up to a maximum amount specified by the local governments in mainland China.

We believe that we maintain a good working relationship with our employees, and we have not experienced material labor disputes in the past. None of our employees are represented by labor unions.

e.Share Ownership

Except as specifically noted, the following table sets forth information with respect to the beneficial ownership of our ordinary shares as of February 28, 2023:

•each of our directors and executive officers; and

•each person known to us to own beneficially 5% or more of our ordinary shares.

The calculations in the table below are based on 172,898,065 ordinary shares outstanding as of February 28, 2023, comprising of 99,592,777 Class A Ordinary Shares and 73,305,288 Class B ordinary shares.

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Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option, warrant, or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

	Ordinary Shares Beneficially Owned
	Class A Ordinary Shares		Class B Ordinary Shares		% of Total Ordinary Shares†			% of Aggregate Voting Power††
Directors and Executive Officers**:
Larry Xiangdong Chen(1)		4,933,333		73,305,288		45.3	%		88.6	%
Jin Cui(2)	—		—		—			—
Yiming Hu(3)	*		—		*			*
Ming Liao(4)	*		—		*			*
Xiuping Qi(5)	*		—		*			*
Nan Shen(5)	*		—		*			*
All Directors and Executive Officers as a Group		6,704,560		73,305,288		46.3	%		88.8	%
Principal Shareholders:
Ebetter International Group Limited(1)	*			73,305,288		42.9	%		88.1	%

Notes:

* Aggregate number of shares accounts for less than 1% of our total ordinary shares on an as-converted basis outstanding as of February 28, 2023.

** Except as indicated otherwise below, the business address of our directors and executive officers is 5F, Gientech Building, 17 East Zone, 10 Xibeiwang East Road, Haidian District, Beijing 100193, People’s Republic of China.

† For each person and group included in this column, percentage ownership is calculated by dividing the total number of ordinary shares beneficially owned by such person or group by the sum of the total number of shares outstanding and the number of ordinary shares such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after February 28, 2023.

†† For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of our Class A ordinary shares is entitled to one vote per share. Each holder of our Class B ordinary shares is entitled to ten votes per share. Our Class B ordinary shares are convertible at any time by the holder into Class A ordinary shares on a one-for-one basis, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

(1)Represents 73,305,288 Class B ordinary shares and 800,000 Class A ordinary shares held by Ebetter International Group Limited, a British Virgin Islands company, and 4,133,333 Class A ordinary shares represented by 6,200,000 ADSs held by Larry Xiangdong Chen. Ebetter International Group Limited is ultimately owned by The Better Learner Trust, a trust established under the laws of the Cayman Islands and managed by Cantrust (Far East) Limited as the trustee. Mr. Larry Xiangdong Chen is the settlor of The Better Learner Trust, and he and his family members are the trust’s beneficiaries. Under the terms of this trust, Mr. Larry Xiangdong Chen has the power to direct the trustee with respect to the retention or disposal of, and the exercise of any voting and other rights attached to, the shares of the Issuer held by Ebetter International Group Limited. Mr. Larry Xiangdong Chen is the sole director of Ebetter International Group Limited. The registered address of Ebetter International Group Limited is at the offices of OMC Chambers, Wickhams Cay 1, Road Town, Tortola, British Virgin Islands.

(2)The business address of Ms. Jin Cui is 202, Unit 4, Building 8, No.9, Yuyuantan South Road, Haidian District, Beijing, People’s Republic of China.

(3)Represents the Class A ordinary shares held by Mr. Yiming Hu. The business address of Yiming Hu is 908, Block A, West Four Ring, Haidian District, Beijing, People’s Republic of China.

(4)Represents the Class A ordinary shares held by Mr. Ming Liao. The business address of Ming Liao is Room Nos. 2524-2525, 25-F, Sun Hung Kai Centre, 30 Harbour Road, Wanchai, Hong Kong.

(5)Represents the Class A ordinary shares held by Irefresh Future Limited, a British Virgin Islands company. Irefresh Future Limited is ultimately owned by Irefresh Future Trust, a trust established under a trust deed between us and Maples Trustee Services (Cayman) Limited as trustee. The trust’s participants and beneficiaries are our employees who transferred shares of our company beneficially owned by them to the trust to be held for their benefit. The trust deed provides that the trustee shall not exercise the voting rights attached to the shares held by Irefresh Future Limited in our company unless otherwise directed by the trust administrator, which is an advisory committee consisting of authorized representatives of our company, including Mr. Xiuping Qi and Ms. Nan Shen, each of whom is an officer of our company. The registered address of Irefresh Future Limited is at the offices of Maples Corporate Services (BVI) Limited, Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands.

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As of February 28, 2023, 99,277,116 of our Class A ordinary shares are held by one record holder in the United States. The holder is Deutsche Bank Trust Company Americas, the depositary of our ADS program, which holds 99,277,116 Class A ordinary shares, representing approximately 57.4% of our total outstanding shares on an as-converted basis. None of our outstanding Class B ordinary shares are held by record holders in the United States. The number of beneficial owners of our ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

For options and restricted share units granted to our officers, directors and employees, see “—B. Compensation of Directors and Executive Officers—Share Incentive Plan.”

F. Disclosure of Registrant’s Action to Recover Erroneously Awarded Compensation

Not applicable.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

a.Major Shareholders

See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

b.Related Party Transactions

Contractual Arrangements with the VIE

See “Item 4. Information on the Company—C. Organizational Structure.”

Transactions with Beijing Youlian Global Education Technology Co., Ltd.

Transactions with Beijing Youlian Global Education Technology Co., Ltd. Beijing Youlian Global Education Technology Co., Ltd., or Beijing Youlian, was an investee company of ours that was dissolved in June 2020. We did not have any amounts due from Beijing Youlian as of December 31, 2020, 2021 and 2022. For the years ended December 31, 2020, 2021 and 2022, we did not record any revenue from providing technical services to Beijing Youlian. For the years ended December 31, 2020, 2021 and 2022, we incurred expenses on advertising service provided by Beijing Youlian that amounted to RMB1.5 million, nil and nil, respectively. Beijing Youlian was dissolved in June 2020.

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Registration Rights

We have granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the shareholders agreement.

Demand Registration Rights. At any time after the earlier of (i) June 1, 2020 or (ii) one year following the closing of a qualified initial public offering, holders of at least 50% of the registrable securities (including preferred shares and ordinary shares issued upon conversion of preferred shares) then outstanding have the right to demand that we file a registration statement of all registrable securities that the holders request to be registered and included in such registration statement by written notice. Other than required by the underwriter(s) in connection with our initial public offering, at least 20% (or any lesser percentage if the anticipated gross proceeds to our company from such proposed offering would exceed US$5,000,000) of the registrable securities requested by the holders to be included in such underwriting and registration shall be so included. We have the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the request of the initiating holders if we furnish to the holders requesting registration a certificate signed by our president or chief executive officer stating that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such registration statement to be filed at such time. However, we cannot exercise the deferral right more than once in any twelve-month period. We are obligated to effect no more than two demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, for which an unlimited number of demand registrations shall be permitted.

Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we must offer shareholders an opportunity to include in the registration statement all or any part of the registrable securities held by such holders. If the managing underwriters of any underwritten offering determine in good faith that marketing factors require a limitation of the number of shares to be underwritten, and the number of shares that may be included in the registration statement and the underwriting shall be allocated (i) first, to us, (ii) second, to each holder requesting inclusion of its registrable securities in such registration statement on a pro rata basis based on the total number of registrable securities then held by each such holder, (iii) third, to holders of other securities of us.

Form F-3 Registration Rights. Our shareholders may request us in writing to file an unlimited number of registration statements on Form F-3. We shall effect the registration of the securities on Form F-3 as soon as practicable, except in certain circumstances.

Expenses of Registration. We will bear all registration expenses (other than underwriting discounts and commissions, the holders’ fees for special counsel and fees charged or payable to the depositary bank) and expenses incurred by holders upon our or an underwriters’ request in connection with any demand, piggyback or Form F-3 registration.

Termination of Registration Rights. Our shareholders’ registration rights will terminate upon the earlier of (i) the fifth anniversary of the completion of a qualified public offering, (ii) the termination, liquidation, dissolution of our company or a liquidation event, and (iii) as to any shareholder when the shares subject to registration rights held by such shareholder can be sold without registration in any 90-day period pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended.

Employment Agreements and Indemnification Agreements

See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Employment Agreements and Indemnification Agreements.”

Share Option Grants

See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share Incentive Plan.”

c.Interests of Experts and Counsel

Not applicable.

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ITEM 8. FINANCIAL INFORMATION

a.Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal Proceedings

Following a number of short-seller reports about us from approximately early- to mid-2020, the SEC asked us to produce certain financial and operating records dating from January 1, 2017. Following the publication of these short-seller reports, our independent audit committee engaged third-party professional advisers to conduct an independent review into these reports’ key allegations. The independent internal review has been substantially completed. Based on the agreed upon scope and procedures performed, the independent internal review did not uncover evidence that would have a material impact on our previously reported financial statements. The SEC notified us, by letter dated October 19, 2022, that the SEC had concluded its investigation into our Company and that, based on the information that the SEC had as of the date of its letter, the SEC did not intend to recommend an enforcement action against us.

In April 2020, a putative shareholder class action lawsuit was filed in the United States District Court for the District of New Jersey against our company, our chief executive officer and our chief financial officer: Wu v. GAOTU Techedu Inc., et al, No. 2:20-cv-04457-ES-CLW (filed on April 17, 2020). On November 2, 2020, lead and named plaintiffs filed—purportedly on behalf of a class of persons who allegedly suffered damages as a result of their purchases or acquisitions of our ADSs between June 6, 2019 and October 20, 2020—an amended class action complaint, which alleges that our company’s public filings with the SEC contained material misstatements or omissions in violation of the federal securities laws. On February 24, 2023, the Court granted defendants’ motion to dismiss. Plaintiffs have until April 25, 2023 to submit an amended complaint.

Separately, we and certain of our officers were named as defendants in a putative securities class action filed in federal court in December 2022, captioned Zhang v. Gaotu Techedu Inc. et al., No. 1:22-cv-07966 (U.S. District Court for the Eastern District of New York). Plaintiffs purportedly brought the case on behalf of a class of persons who purchased the Company’s ADSs between March 5, 2021 and July 23, 2021, alleged that the Company’s public filings contained misstatements and omissions in violation of the Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. We intend to defend the action vigorously. As the case is still in its preliminary stage, we cannot predict its outcome, potential damages, or expenses that may be incurred.

We will have to defend against the aforementioned putative securities class action lawsuits, including any appeals of these lawsuits should our initial defense be unsuccessful. We are currently unable to estimate the possible outcome or loss or possible range of loss, if any, associated with the resolution of these class action lawsuits. In the event that our initial defense of these class action lawsuits is unsuccessful, we cannot assure you that we will prevail in any appeal. Any adverse outcome of these class action lawsuits, including any plaintiff’s appeal of a judgment in these lawsuits, could have a material adverse effect on our business, financial condition, results of operation, cash flows, and reputation.

From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property infringement, violation of third-party licenses or other rights, breach of contract and labor and employment claims. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We have been and may again be subject to legal proceedings, claims and investigations in the ordinary course of business, including for allegations relating to our infringement of intellectual property rights of third parties. If the outcomes of these proceedings, claims and investigations are adverse to us, our business, results of operations and financial condition could be materially and adversely affected.”

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Dividend Policy

Our board of directors has discretion on whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium account, and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

We do not have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in mainland China for our cash requirements, including any payment of dividends to our shareholders. Mainland China’s regulations may restrict the ability of our mainland China subsidiaries to pay dividends to us. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We may rely on dividends paid by our mainland China subsidiaries to fund cash and financing requirements. Any limitation on the ability of our mainland China subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business and to pay dividends to holders of our ADSs and our ordinary shares.”

If we pay any dividends on our ordinary shares, we will pay those dividends which are payable in respect of the Class A ordinary shares underlying the ADSs to the depositary, as the registered holder of such Class A ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the Class A ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Item 12. Description of Securities Other Than Equity Securities—D. American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

b.Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

a.Offering and Listing Details.

See “—C. Markets.”

b. Plan of Distribution

Not applicable.

c.Markets

Our ADSs have been listed on the NYSE under the symbol “GSX” since June 6, 2019. On May 6, 2021, we changed our ticker symbol from “GSX” to “GOTU”.

d.Selling Shareholders

Not applicable.

e.Dilution

Not applicable.

f.Expenses of the Issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION

a.Share Capital

Not applicable.

b.Memorandum and Articles of Association

The following are summaries of material provisions of our currently effective third amended and restated memorandum and articles of association and of the Companies Act (As Revised) of the Cayman Islands, which we refer to as the “Companies Act” below, insofar as they relate to the material terms of our ordinary shares.

Board of Directors

See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”

Ordinary Shares

General. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form and are issued when registered in our register of members (shareholders). We may not issue shares to bearer. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.

Conversion. Class B ordinary shares may be converted into the same number of Class A ordinary shares by the holders thereof at any time, while Class A ordinary shares cannot be converted into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of Class B ordinary shares by a holder thereof to any person who is not our founder (Mr. Larry Xiangdong Chen) or an affiliate of the founder, such Class B ordinary shares shall be automatically and immediately converted into the same number of Class A ordinary shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our directors). Our third amended and restated memorandum and articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which our board of directors determine is no longer needed. Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business.

Voting Rights. Holders of Class A ordinary shares and Class B ordinary shares shall, at all times, vote together as one class on all matters submitted to a vote by the members at any general meeting of our company. Each Class A ordinary share shall be entitled to one vote on all matters subject to the vote at general meetings of our company, and each Class B ordinary share shall be entitled to ten votes on all matters subject to the vote at general meetings of our company. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one shareholder present in person or by proxy.

An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our third amended and restated memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.

Transfer of Ordinary Shares. Subject to the restrictions set out in our third amended and restated memorandum and articles of association as set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

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Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

•the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

•the instrument of transfer is in respect of only one class of ordinary shares;

•the instrument of transfer is properly stamped, if required;

•in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and

•a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof.

•If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, after compliance with any notice required of the New York Stock Exchange, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.

Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders of these shares, on such terms and in such manner as may be determined by either our board of directors or by a special resolution of our shareholders. Our company may also repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act, the redemption or repurchase of any share may be paid out of our Company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.

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Variations of Rights of Shares. If at any time, our share capital is divided into different classes or series of shares, the rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series), whether or not our company is being wound-up, may be materially adversely varied with the consent in writing of all the holders of the issued shares of that class or series or with the sanction of an ordinary resolution passed by a majority of the votes cast at a separate meeting of the holders of the shares of the class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.

Issuance of Additional Shares. Our third amended and restated memorandum and articles of association authorize our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our third amended and restated memorandum and articles of association also authorize our board of directors to establish from time to time one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series, including:

•the designation of the series;

•the number of shares of the series;

•the dividend rights, dividend rates, conversion rights, voting rights; and

•the rights and terms of redemption and liquidation preferences.

Our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.

Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records (other than copies of our memorandum and articles of association, our register of mortgages and charges and any special resolutions passed by our shareholders). However, we will provide our shareholders with annual audited financial statements.

Anti-Takeover Provisions. Some provisions of our third amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:

•authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our shareholders; and

•limit the ability of shareholders to requisition and convene general meetings of shareholders.

However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our third amended and restated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.

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Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:

•does not have to file an annual return of its shareholders with the Registrar of Companies;

•is not required to open its register of members for inspection;

•does not have to hold an annual general meeting;

•may issue negotiable or bearer shares or shares with no par value;

•may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

•may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

•may register as a limited duration company; and

•may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).

Registered Office and Objects

Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands, or at such other location within the Cayman Islands as our directors may from time to time decide. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands.

Differences in Corporate Law

The Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent English statutory enactments and accordingly there are significant differences between the Companies Act and the current Companies Act of England. In addition, the Companies Act differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (i) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (ii) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

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A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution of shareholders of that Cayman subsidiary if a copy of the plan of merger is given to every member of that Cayman subsidiary to be merged unless that member agrees otherwise. For this purpose a company is a “parent” of a subsidiary if it holds issued shares that together represent at least ninety percent (90%) of the votes at a general meeting of the subsidiary.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by a court in the Cayman Islands.

Save in certain limited circumstances, a shareholder of a Cayman constituent company who dissents from the merger or consolidation is entitled to payment of the fair value of his shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) upon dissenting to the merger or consolidation, provide the dissenting shareholder complies strictly with the procedures set out in the Companies Act. The exercise of dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions that facilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

•the statutory provisions as to the required majority vote have been met;

•the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class;

•the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and

•the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.

The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentient minority shareholder upon a tender offer. When a tender offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares to transfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.

If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made and accepted in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

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Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands court can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge actions where:

•a company acts or proposes to act illegally or ultra vires (and is therefore incapable of ratification by the shareholders);

•the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and

•those who control the company are perpetrating a “fraud on the minority.”

Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our third amended and restated memorandum and articles of association provide that our directors and officers shall be indemnified against all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by such director or officer, other than by reason of such person’s own dishonesty, willful default or fraud, in or about the conduct of our company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director or officer in defending (whether successfully or otherwise) any civil proceedings concerning our company or its affairs in any court whether in the Cayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we have entered into indemnification agreements with each of our directors and executive officers that will provide such persons with additional indemnification beyond that provided in our third amended and restated memorandum and articles of association.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make a profit based on his position as director (unless the company permits him to do so), a duty not to put himself in a position where the interests of the company conflict with his personal interest or his duty to a third party, and a duty to exercise powers for the purpose for which such powers were intended. A director of a Cayman Islands company owes to the company a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

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Under our third amended and restated memorandum and articles of association, directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our company must declare the nature of their interest at a meeting of the board of directors. Following such declaration, a director may vote in respect of any contract or proposed contract notwithstanding his interest.

Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right of shareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our third amended and restated memorandum and articles of association provide that our shareholders may approve corporate matters by way of a unanimous written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.

Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders; provided that it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

The Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our third amended and restated memorandum and articles of association provide that, on the requisition of shareholders holding shares representing in aggregate not less than one-third (1/3) of all votes attaching to all issued and outstanding shares of our company that as at the date of the deposit of such requisition carry the right to vote at general meetings of our company, the board shall convene an extraordinary general meeting. However, our third amended and restated memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders. As a Cayman Islands exempted company, we are not obliged by law to call shareholders’ annual general meetings.

Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulative voting under the laws of the Cayman Islands but our third amended and restated memorandum do not provide for cumulative voting.

Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our third amended and restated memorandum and articles of association, directors may be removed by ordinary resolution of our shareholders notwithstanding any agreement between our company and such director (but without prejudice to any claim for damages under such agreement).

Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting shares within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

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Dissolution; Winding Up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by either an order of the courts of the Cayman Islands or by the board of directors.

Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.

Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under our third amended and restated memorandum and articles of association, we may only materially adversely vary the rights attached to any class of shares (subject to any rights or restrictions for the time being attached to any class of share) with the consent in writing of the holders of all of the issued shares of that class or with the sanction of an ordinary resolution passed by a majority of the votes cast at a separate meeting of the holders of the shares of that class.

Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under the Companies Act and our third amended and restated memorandum and articles of association, our memorandum and articles of association may only be amended by a special resolution of our shareholders.

Rights of Non-Resident or Foreign Shareholders. There are no limitations imposed by our third amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our third amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

See “Exhibit 2.6—Description of Securities” attached to this Form 20-F for more descriptions of our securities.

c.Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.

d.Exchange Controls

See “Item 4. Information on the Company—B. Business Overview—Government Regulations—Regulation Related to Foreign Exchange.”

e.Taxation

The following summary of Cayman Islands, mainland China and U.S. federal income tax considerations of an investment in the ADSs or Class A ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax considerations relating to an investment in the ADSs or Class A ordinary shares, such as the tax considerations under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and the United States. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel; to the extent it relates to the tax law of mainland China, it is the opinion of Tian Yuan Law Firm, our PRC counsel.

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Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Payments of dividends and capital in respect of our ordinary shares or ADSs will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of our ordinary shares or ADSs, nor will gains derived from the disposal of our ordinary shares or ADSs be subject to Cayman Islands income or corporation tax.

No stamp duty is payable in respect of the issue of the shares or on an instrument of transfer in respect of a share.

Mainland China Taxation

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of mainland China with a “de facto management body” within mainland China is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a mainland China-controlled enterprise that is incorporated offshore is located in mainland China. Although this circular only applies to offshore enterprises controlled by mainland China enterprises or mainland China enterprise groups, not those controlled by mainland China individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a mainland China enterprise or a mainland China enterprise group will be regarded as a mainland China tax resident by virtue of having its “de facto management body” in mainland China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in mainland China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in mainland China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in mainland China; and (iv) at least 50% of voting board members or senior executives habitually reside in mainland China.

We believe that Gaotu Techedu Inc. is not a mainland China resident enterprise for tax purposes. Gaotu Techedu Inc. is not controlled by a mainland China enterprise or mainland China enterprise group, and we do not believe that Gaotu Techedu Inc. meets all of the conditions above. Gaotu Techedu Inc. is a company incorporated outside of mainland China. For the same reasons, we believe our other entities outside of mainland China are not mainland China resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take a view that is consistent with us.

If the PRC tax authorities determine that Gaotu Techedu Inc. is a mainland China resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of the ADSs. In addition, non-resident enterprise shareholders (including the ADS holders) may be subject to a 10% mainland China tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within mainland China. It is unclear whether our non-domestic individual shareholders (including the ADS holders) would be subject to any mainland China tax on dividends or gains obtained by such non-domestic individual shareholders in the event we are determined to be a mainland China resident enterprise. If any mainland China tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. It is also unclear whether non-domestic shareholders of Gaotu Techedu Inc. would be able to claim the benefits of any tax treaties between their country of tax residence and mainland China in the event that Gaotu Techedu Inc. is treated as a mainland China resident enterprise.

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Provided that our Cayman Islands holding company, Gaotu Techedu Inc., is not deemed to be a mainland China resident enterprise, holders of the ADSs and ordinary shares who are not mainland China residents will not be subject to mainland China’s income tax on dividends distributed by us or gains realized from the sale or other disposition of our ordinary shares or ADSs. However, under Bulletin 7 and Bulletin 37, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a mainland China resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the mainland China entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring mainland China tax. As a result, gains derived from such indirect transfer may be subject to mainland China’s enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a mainland China resident enterprise. We and our non-resident investors may be at risk of being required to file a return and being taxed under Bulletin 7 and Bulletin 37, and we may be required to expend valuable resources to comply with Bulletin 7 and Bulletin 37, or to establish that we should not be taxed under these circulars.

United States Federal Income Tax Considerations

The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of the ADSs or ordinary shares by a U.S. Holder (as defined below) that holds our ADSs or ordinary shares as “capital assets” (generally, property held for investment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. There can be no assurance that the IRS will not challenge the U.S. federal income tax treatment described below, or that, if challenged, such treatment will be sustained by a court. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, and alternative minimum tax considerations, the Medicare tax on net investment income, or any state, local and non-U.S. tax considerations, relating to the ownership or disposition of the ADSs or ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:

•banks and other financial institutions;

•insurance companies;

•pension plans;

•cooperatives;

•regulated investment companies;

•real estate investment trusts;

•broker-dealers;

•traders that elect to use a mark-to-market method of accounting;

•certain former U.S. citizens or long-term residents;

•tax-exempt entities (including private foundations);

•persons liable for alternative minimum tax;

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•holders who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation;

•investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes;

•investors that have a functional currency other than the U.S. dollar;

•persons that actually or constructively own 10% or more of our stock (by vote or value);

•persons required to accelerate the recognition of any item of gross income with respect to their ADSs or ordinary shares as a result of such income being recognized on an applicable financial statement; or

•partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding common stock through such entities;

all of whom may be subject to tax rules that differ significantly from those discussed below.

Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S. and other tax considerations of the ownership and disposition of the ADSs or our ordinary shares.

General

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax purposes:

•an individual who is a citizen or resident of the United States;

•a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the law of the United States or any state thereof or the District of Columbia;

•an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or

•a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S. person under the Code.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partners in a partnerships holding the ADSs or ordinary shares are urged to consult their tax advisors regarding an investment in the ADSs or ordinary shares.

For U.S. federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of the ADSs will be treated in this manner. Accordingly, deposits or withdrawals of ordinary shares for ADSs will generally not be subject to U.S. federal income tax.

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Passive Foreign Investment Company Considerations

A non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for any taxable year, if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets (generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income. For this purpose, cash and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill and other unbooked intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.

Based upon the nature and composition of our assets (in particular, the retention of substantial amounts of cash and investments), and the market price of our ADSs, we believe we were a PFIC for the 2022 taxable year. However, no assurance can be given that we will continue to be a PFIC for the current taxable year or any future taxable year because the determination of whether we will be or become a PFIC is a factual determination made annually that will depend, in part, upon the composition of our income and assets. Because the value of our assets for purposes of the asset test may be determined by reference to the market price of our ADSs, fluctuations in the market price of our ADSs may cause us to cease to be a PFIC for the current or subsequent taxable years. The market price of our ADSs may continue to fluctuate considerably and, consequently, we cannot assure you of our PFIC status for any taxable year. In addition, the composition of our income and assets will be affected by how, and how quickly, we use our liquid assets. If we deploy significant amounts of cash and investments for active purposes, we may cease to be a PFIC.

If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or ordinary shares, we will generally continue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or ordinary shares, unless we were to cease to be a PFIC and such U.S. Holder were to make a “deemed sale” election with respect to the ADSs or ordinary shares.

Dividends

Subject to the PFIC rules discussed below, any cash distributions paid on the ADSs or ordinary shares (including the amount of any mainland China tax withheld) out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on the ADSs or ordinary shares will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from U.S. corporations.

Individuals and other non-corporate U.S. Holders will be subject to tax at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares are readily tradable on an established securities market in the United States, or, in the event that we are deemed to be a mainland China resident enterprise under the tax law of mainland China, we are eligible for the benefit of the United States-PRC income tax treaty (the “Treaty”), (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certain holding period requirements are met. Our ADSs (but not our ordinary shares) are listed on the New York Stock Exchange and is considered readily tradable on an established securities market in the United States. There can be no assurance that the ADSs will continue to be considered readily tradable on an established securities market in later years. Because the ordinary shares will not be listed on a U.S. exchange, dividends received with respect to ordinary shares that are not represented by ADSs may not be treated as qualified dividends. U.S. Holders are urged to consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or ordinary shares.

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In the event that we are deemed to be a mainland China resident enterprise under the PRC Enterprise Income Tax Law (see “Item 10. Additional Information—E. Taxation—Mainland China Taxation”), we may be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by the ADSs, and regardless of whether the ADSs are readily tradable on an established securities market in the United States, would be eligible for the reduced rates of taxation described in the preceding paragraph.

For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares generally will be treated as income from foreign sources and generally will constitute passive category income. If mainland China withholding taxes apply to dividends paid to a U.S. Holder with respect to the ADSs or ordinary shares, such U.S. Holder may be able to obtain a reduced rate of mainland China withholding taxes under the Treaty if certain requirements are met. In addition, subject to certain conditions and limitations, mainland China withholding taxes on dividends that are non-refundable under the Treaty may be treated as foreign taxes eligible for credit against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction for U.S. federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreign income taxes. The rules governing the foreign tax credit are complex and U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.

As discussed above, we believe that we are a PFIC for the 2022 taxable year. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends with respect to ADSs and ordinary shares under their particular circumstances.

Sale or Other Disposition

Subject to the PFIC rules discussed below, a U.S. Holder will generally recognize gain or loss upon the sale or other disposition of ADSs or ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. The gain or loss will generally be capital gain or loss. Individuals and other non-corporate U.S. Holders who have held the ADSs or ordinary shares for more than one year will generally be eligible for reduced tax rates. The deductibility of a capital loss may be subject to limitations. Any such gain or loss that the U.S. Holder recognizes will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes, which will generally limit the availability of foreign tax credits. However, in the event we are deemed to be a mainland China resident enterprise under the PRC Enterprise Income Tax Law, we may be eligible for the benefits of the Treaty. In such event, if mainland China tax were to be imposed on any gain from the disposition of the ADSs or ordinary shares, a U.S. Holder that is eligible for the benefits of the Treaty may elect to treat such gain as mainland China source income. Pursuant to recently issued United States Treasury Regulations, however, if a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply the Treaty, then such holder may not be able to claim a foreign tax credit arising from any mainland China tax imposed on the disposition of ADSs or ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes are complex. U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit or deduction in light of their particular circumstances, including their eligibility for benefits under the Treaty and the potential impact of the recently issued United States Treasury Regulations.

As discussed above, we believe that were a PFIC for the 2022 taxable year. U.S. Holders are urged to consult their tax advisors regarding the availability of the reduced tax rate on dividends with respect to ADSs and ordinary shares under their particular circumstances.

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Passive Foreign Investment Company Rules

As discussed above, we believe that were a PFIC for the 2022 taxable year. If we are classified as a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares, and unless the U.S. Holder makes a qualified electing fund (“QEF”) election or a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition of ADSs or ordinary shares. Under the PFIC rules:

•the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares;

•the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; and

•the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year.

If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or ordinary shares and any of our subsidiaries, our consolidated VIE or any of the subsidiaries of our consolidated VIE is also a PFIC (a “lower-tier PFIC”), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries, our consolidated VIE or any of the subsidiaries of our consolidated VIE.

As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election with respect to such stock, provided that such stock is regularly traded on a qualified exchange or other market, as defined in the applicable United States Treasury regulations. For those purposes, our ADSs, but not our ordinary shares, are listed on the New York Stock Exchange, which is a qualified exchange. We anticipate that our ADSs should qualify as being regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election with respect to the ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ADSs and we cease to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.

The mark-to-market election is available only for “marketable stock,” generally, stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a national securities exchange that is registered with the SEC, including the New York Stock Exchange (on which the ADSs are listed), or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. Consequently, if the ADSs continue to be listed on the New York Stock Exchange and are regularly traded , we expect that the mark-to-market election would be available to U.S. Holders of the ADSs. However, there can be no assurance in this regard. Further, because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.

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We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.

If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621.

The rules dealing with PFICs are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of ADSs or ordinary shares should consult their tax advisors regarding the reporting requirements that may apply and the U.S. federal income tax considerations of owning and disposing of the ADSs or ordinary shares if we are treated as a PFIC, including the possibility of making a mark-to-market election and the unavailability of the QEF election.

THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS INTENDED FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX ADVICE. U.S. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSIDERATIONS OF THE OWNERSHIP AND DISPOSITION OF THE ADSS AND ORDINARY SHARES IN THEIR PARTICULAR CIRCUMSTANCES.

f.Dividends and Paying Agents

Not Applicable.

g.Statement by Experts

Not Applicable.

h.Documents on Display

We previously filed with the SEC a registration statement on Form F-1 (Registration No. 333-231275), as amended, including the prospectus contained therein, to register our Class A ordinary shares in relation to our initial public offering. We have also filed with the SEC a related registration statement on F-6 (Registration No. 333-231726) to register the ADSs.

We are subject to the periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers, and are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year, which is December 31. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish Deutsche Bank Trust Company Americas, the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

In accordance with NYSE Rule 203.01, we will post this annual report on our website https://ir.gaotu.cn. In addition, we will provide hardcopies of our annual report to shareholders, including ADS holders, free of charge upon request.

i.Subsidiary Information

Not applicable.

J. Annual Report to Security Holders

Not applicable.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

All of our net revenues and expenses are denominated in RMB. We have utilized derivative financial instruments to hedge our exposure to foreign exchange risk since January 2021. Although our exposure to foreign exchange risks should be limited in general, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.

The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, servicing our outstanding debt, or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amounts available to us.

As of December 31, 2022, we had RMB-denominated cash and cash equivalents, restricted cash and short-term investments of RMB2,954.5 million, and U.S. dollar-denominated cash and cash equivalents and short-term investments of US$114.4 million. Assuming we had converted RMB2,954.5 million into U.S. dollars at the exchange rate of RMB6.8972 for US$1.0000 as of the end of 2022, our U.S. dollar cash balance would have been US$542.8 million. If the RMB had appreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been US$585.6 million instead. Assuming we had converted US$114.4 million into RMB at the exchange rate of RMB6.8972 for US$1.0000 as of the end of 2022, our RMB cash balance would have been RMB3,743.5 million. If the RMB had appreciated by 10% against the U.S. dollar, our RMB cash balance would have been RMB3,672.0 million instead.

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits and wealth management products. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates, and we have not used any derivative financial instruments to manage our interest risk exposure.

In the future, we may invest in interest-earning instruments. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

a.Debt Securities

Not applicable.

b.Warrants and Rights

Not applicable.

c.Other Securities

Not applicable.

d.American Depositary Shares

Fees and Charges Our ADS holders May Have to Pay

As an ADS holder, you will be required to pay the following service fees to the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):

Service	Fees
· To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)	Up to US$0.05 per ADS issued
· Cancellation of ADSs, including the case of termination of the deposit agreement	Up to US$0.05 per ADS cancelled
· Distribution of cash dividends	Up to US$0.05 per ADS held
· Distribution of cash entitlements (other than cash dividends) and/or cash proceeds from the sale of rights, securities and other entitlements	Up to US$0.05 per ADS held
· Distribution of ADSs pursuant to exercise of rights	Up to US$0.05 per ADS held
· Distribution of securities other than ADSs or rights to purchase additional ADSs	Up to US$0.05 per ADS held
· Depositary services	Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank

As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs) such as:

•Fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in the Cayman Islands (i.e., upon deposit and withdrawal of shares).

•Expenses incurred for converting foreign currency into U.S. dollars.

•Expenses for cable, telex and fax transmissions and for delivery of securities.

•Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e., when shares are deposited or withdrawn from deposit).

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•Fees and expenses incurred in connection with the delivery or servicing of shares on deposit.

•Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable to shares, deposited securities, ADSs and ADRs.

•Any applicable fees and penalties thereon.

The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date.

The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the fees paid to the depositary banks.

In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder.

Fees and Other Payments Made by the Depositary to Us

The depositary may make payments to us or reimburse us for certain costs and expenses, by making available a portion of the ADS fees collected in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time. In 2022, no payment was received from the depository for expenses incurred in connection with the establishment and maintenance of the ADS program.

PART II.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Material Modifications to the Rights of Security Holders

See “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights of securities holders, which remain unchanged.

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ITEM 15. CONTROLS AND PROCEDURES

a.Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.

Based upon that evaluation, our management has concluded that, as of December 31, 2022, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

b.Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management, including our chief executive officer and chief financial officer, assessed the effectiveness of internal control over financial reporting as of December 31, 2022 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022.

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C. Attestation Report of the Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Gaotu Techedu Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Gaotu Techedu Inc. and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated April 18, 2023 expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the convenience translation of Renminbi amounts into United States dollar amounts.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, the People’s Republic of China

April 18, 2023

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D. Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Jin Cui, an independent director and member of our audit committee, is an audit committee financial expert.

ITEM 16B. CODE OF ETHICS

Our board of directors has adopted a code of ethics that applies to all of the directors, officers and employees of us and our subsidiaries, whether they work for us on a full-time, part-time, consultative, or temporary basis. Certain provisions of the code apply specifically to our chief executive officer, chief financial officer, senior finance officer, controller, senior vice presidents, vice presidents and any other persons who perform similar functions for us. We have posted a copy of our code of business conduct and ethics on our website at https://ir.gaotu.cn/governance/documents.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by the categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu Certified Public Accountants LLP (PCAOB ID 1113), our independent registered public accounting firm, for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below.

	2021		2022
	RMB		RMB
	(in thousands)
Audit fees (1)		13,800		10,350
Audit related fees (2)		27,454		—
Tax fees (3)		1,380		270

Notes:

(1)“Audit fees” represent the aggregate fees billed for professional services rendered by our principal auditor for the audit of our annual financial statements.

(2)“Audit related fees” represent the aggregate fees billed for professional services rendered by our principal accounting firm for the assurance and related services.

(3)“Tax fees” represent the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditor for tax compliance, tax advice, and tax planning.

The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified Public Accountants LLP, including audit services and audit-related services as described above, other than those for de minimis services which are approved by the Audit Committee prior to the completion of the audit.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

145

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

In May 2020, our board of directors authorized a share repurchase program, or the 2020 share repurchase program, under which we may repurchase up to US$150 million worth of our shares, effective until May 6, 2022. We had not made any share repurchase under the 2020 share repurchase program in 2022.

On March 30, 2021, Mr. Larry Xiangdong Chen, our founder, chairman of board of directors and chief executive officer, announced that he intended to use his personal funds to purchase up to US$50.0 million of our shares over the next 12 months. As of March 30, 2022, Mr. Larry Xiangdong Chen had purchased an aggregate of 6.2 million ADSs for US$29.5 million from the open market, or at a weighted average price of US$4.8 per ADS, using his personal funds.

On November 22, 2022, our board of directors authorized a share repurchase program, under which we may repurchase up to US$30 million of our common shares, including shares represented by American depositary shares, effective until November 22, 2025. We had not made any share repurchase under the 2022 share repurchase program in 2022. Additionally, Mr. Larry Xiangdong Chen announced that he intended to personally purchase up to US$20 million of our shares. As of December 31, 2022, Mr. Larry Xiangdong Chen had not made any purchase from the open market under this share repurchase program.

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

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. We relied on the exemption available to foreign private issuers for the requirement to hold an annual meeting of shareholders during each fiscal year under Section 302 of the NYSE Listed Company Manual. We followed home country practice and did not hold an annual meeting of shareholders in the fiscal year of 2022. In addition, Section 303A.12(a) of the NYSE Listed Company Manual requires each listed company’s chief executive officer to certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards. We have followed our home country practice in this regard and have not in the past submitted the certification set forth in Section 303A.12(a) of the NYSE Listed Company Manual. As a result of our election to follow home country practices, our shareholders may be afforded less protection than they would otherwise enjoy under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.

Furthermore, we are also permitted to rely on exemptions afforded to controlled companies. We are a “controlled company” as defined under the New York Stock Exchange listing rules because Mr. Larry Xiangdong Chen, our founder, chairman of board of directors and chief executive officer, beneficially owns all of our then issued and outstanding Class B ordinary shares and is able to exercise over 50% of our total voting power. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules. If we choose to reply on these exemptions in the future, our shareholders may not be afforded the same protection that they would otherwise enjoy under these exempted NYSE corporate governance listing standards.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

146

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and our auditor was subject to that determination. In May 2022, Gaotu Techedu Inc. was conclusively listed by the SEC as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report.

As of the date of this annual report and to our knowledge:

(i)no governmental entities in the Cayman Islands own shares of Gaotu Techedu Inc., and no mainland China governmental entities own shares of Gaotu Techedu Inc. or the VIE;

(ii)the mainland China governmental entities do not have a controlling financial interest in Gaotu Techedu Inc. or the VIE;

(iii)none of the members of the board of directors of Gaotu Techedu Inc. or our operating entities, including the VIE, is an official of the Chinese Communist Party; and

(iv)none of the currently effective memorandum and articles of association (or equivalent organizing document) of Gaotu Techedu Inc. or the VIE contains any charter of the Chinese Communist Party.

PART III.

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The consolidated financial statements of Gaotu Techedu Inc. and its subsidiaries are included at the end of this annual report.

147

ITEM 19. EXHIBITS

Exhibit Number
1.1	Third Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated herein by reference to Exhibit 3.2 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
2.1	Registrant’s Specimen American Depositary Receipt (included in Exhibit 2.3)
2.2	Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
2.3	Deposit Agreement dated June 5, 2019 among the Registrant, the depositary and the holders and beneficial owners of American Depositary Shares (incorporated herein by reference to Exhibit 4.3 to the registration statement on Form S-8 (File No. 333-235314), as amended, initially filed with the Securities and Exchange Commission on December 2, 2019)
2.4	Amended and Restated Shareholders Agreement between the Registrant and other parties thereto dated March 15, 2019 (incorporated herein by reference to Exhibit 4.4 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
2.5	Description of Securities (incorporated herein by reference to Exhibit 2.5 to the annual report on Form 20-F filed by the Registrant with the Securities and Exchange Commission on April 26, 2022)
4.1	Share Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.2	Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference to Exhibit 10.2 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.3	Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.4	English translation of the executed form of the Powers of Attorney granted by shareholders of the VIE, as currently in effect, and a schedule of all executed Powers of Attorney adopting the same form (incorporated herein by reference to Exhibit 10.4 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.5	English translation of the Equity Interest Pledge Agreement among Beijing Lexuebang, the VIE and shareholders of the VIE dated March 16, 2019 (incorporated herein by reference to Exhibit 10.5 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.6	English translation of the Exclusive Management Services and Business Cooperation Agreement between Beijing Lexuebang and the VIE dated March 16, 2019 (incorporated herein by reference to Exhibit 10.6 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.7	English translation of the Exclusive Call Option Agreement among Beijing Lexuebang, the VIE and shareholders of the VIE dated March 16, 2019 (incorporated herein by reference to Exhibit 10.7 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.8	English translation of executed form of the Spousal Consent Letter granted by the spouse of each individual shareholder of the VIE, as currently in effect, and a schedule of all executed Spousal Consent Letters adopting the same form (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
4.9	Supplementary Agreement among Beijing Lexuebang, the VIE, shareholders of the VIE, Beijing Yuexuebang and Wuhan Yuexuebang dated January 26, 2021 (incorporated herein by reference to Exhibit 4.10 to the annual report on Form 20-F (File No. 001-38923) filed with the SEC on April 26, 2021)

148

8.1*	Subsidiaries and variable interest entity of the Registrant
11.1	Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the registration statement on Form F-1 (File No. 333-231275), as amended, initially filed with the Securities and Exchange Commission on May 8, 2019)
12.1*	CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*	CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1**	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*	Consent of Maples and Calder (Hong Kong) LLP
15.2*	Consent of Tian Yuan Law Firm
15.3*	Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm
101.INS*	Inline XBRL Instance Document—this instance document does not appear on the Interactive Data File because its XBRL tags are not embedded within the Inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

149

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Gaotu Techedu Inc.
By:	/s/ Larry Xiangdong Chen
Name:		Larry Xiangdong Chen
Title:		Chief Executive Officer

Date: April 18, 2023

150

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS	PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2021 AND 2022	5
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	7
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	8
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	9
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022	12
ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I	60

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Gaotu Techedu Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Gaotu Techedu Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2022, the related consolidated statements of operations, comprehensive (loss)/income , changes in shareholders’ (deficit)/equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in Schedule I (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 18, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Convenience Translation

Our audits also comprehended the translation of Renminbi amounts into United State dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such United States dollar amounts are presented solely for the convenience of readers outside the People’s Republic of China.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

F-2

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue recognition – Learning services – Refer to Note 2 to the financial statements

Critical Audit Matter Description

The revenues of the Company are primarily derived from tutoring fees the Company charges students in advance for its learning services for the year ended December 31, 2022. The Company recognizes the majority of these revenues as the online services or classes are delivered.

The Company’s business model involved high volumes of learning service transactions related to the purchase and recognition of delivered services which are required to be processed through the Company’s information technology (“IT”) systems. We identified the audit of the occurrence of the purchase and satisfaction of the related performance obligation as a critical audit matter. As the high volume of transactions and the nature of the audit evidence obtained to demonstrate the occurrence of these transactions is highly dependent on the IT systems, auditor judgment was required to determine the nature, timing and extent of audit evidence required to be obtained, and the need to involve IT professionals and data analytics specialists to assist with the performance of certain procedures and to evaluate the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to addressing this critical audit matter comprised of the following control testing, analytical procedures and substantive procedures, among others:

• With the assistance of our IT specialists:

• We tested the IT environment in which the revenue order tracking occurs, billing and cash collection is registered, and live streaming services modules reside, including the related tools.

• We tested the automatic controls over revenue recognition with respect to the courses offered including the order initiation, order settlement, and systematic recognition of the tutoring fee.

• We tested the interface controls associated with payment information transmitted from the payment system to the service order systems.

F-3

Critical Audit Matter - continued

Revenue recognition –Learning services – Refer to Note 2 to the financial statements- continued

How the Critical Audit Matter Was Addressed in the Audit - continued

• With the assistance of our data analytics specialists:

• We performed procedures to reconcile the cash collection registered within the Company’s IT systems to the collection through major third-party online payment channels; in addition, we performed reconciliation procedures on the cash deposits from major third-party online payment channels to bank statements.

• We tested the logic of the systematic revenue recognition and recalculated the live interactive tutoring service revenues recognized.

• We performed data analysis on a number of aspects, including student registration, cash payment timing and accounts, student behavior associated with class attendance, acceptance of learning materials shipped, and other areas that we identified through our risk assessment process to identify transactions with characteristics of audit interest.

• We performed an IT infrastructure capacity analysis to verify whether the Company has the IT infrastructure capacity to deliver the volume of online classes associated with enrollments.

• We performed test of details over revenue transactions, including billing amounts, cash collection which is tracked in the payment and ordering systems, class login records, acceptance of learning materials, homework submission and review records, and recalculated the revenue recognized in the corresponding period, on a sample basis.

• We tested the reconciliation between the balances to be received from third-party online payment channels recorded in the ledger and the balances confirmed by the third-party online payment channels.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Shanghai, the People’s Republic of China

April 18, 2023

We have served as the Company’s auditor since 2018.

F-4

GAOTU TECHEDU INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	As of December 31,
	2021		2022		2022
	RMB		RMB		USD
					(Note 2)
ASSETS
Current assets
Cash and cash equivalents		728,934		819,911		118,876
Restricted cash		168,189		22		3
Short-term investments (including available-for-sale debt securities    of RMB2,199,372 and RMB1,512,953 as of December 31, 2021    and 2022, respectively)		2,774,000		2,923,864		423,920
Inventory, net		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
Intangible assets		77		18,932		2,745
Land use rights		28,178		27,373		3,969
Goodwill		331		331		48
Deferred tax assets		—		15,679		2,273
Rental deposit		22,544		9,502		1,378
Other non-current assets		2,864		2,186		317
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 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 2022, 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, 2021 and December 31, 2022,    respectively)		—		1,793		260
Total current liabilities		1,760,268		1,609,222		233,316

F-5

GAOTU TECHEDU INC.

CONSOLIDATED BALANCE SHEETS - continued

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	As of December 31,
	2021			2022			2022
	RMB			RMB			USD
							(Note 2)
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 2022, 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,    2021 and December 31, 2022, 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
Class A ordinary shares (par value of USD0.0001 per share;    800,000,000 shares authorized as of December 31, 2021    and 2022; 99,277,116 and 100,077,116 shares issued;    98,032,240 and 99,553,256 shares outstanding as of    December 31, 2021 and 2022)		66			67			10
Class B ordinary shares (par value of USD0.0001 per share;    100,000,000 shares authorized as of December 31, 2021    and 2022, 73,305,288 shares issued and outstanding as of    December 31, 2021 and 2022)		48			48			7
Additional paid-in capital		7,793,234			7,915,899			1,147,697
Accumulated other comprehensive loss		(143,111	)		(64,062	)		(9,288	)
Statutory reserves		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 SHAREHOLDERS' EQUITY		5,024,666			4,876,175			706,979

The accompanying notes are an integral part of the consolidated financial statements.

F-6

GAOTU TECHEDU INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
										(Note 2)
Net revenues		7,124,744			6,561,747			2,498,214			362,207
Cost of revenues (including share-based compensation expenses    of RMB66,422, RMB118,145 and RMB42,490 for the years    ended December 31, 2020, 2021 and 2022, respectively)		(1,762,548	)		(2,397,604	)		(701,050	)		(101,643	)
Gross profit		5,362,196			4,164,143			1,797,164			260,564
Operating expenses:
Selling expenses (including share-based compensation    expenses of RMB18,039, RMB44,402 and RMB6,659 for    the years ended December 31, 2020, 2021 and 2022,    respectively)		(5,816,214	)		(5,129,267	)		(1,179,760	)		(171,049	)
Research and development expenses (including share-    based compensation expenses of RMB94,952,    RMB130,620 and RMB39,172 for the years ended    December 31, 2020, 2021 and 2022, respectively)		(734,450	)		(1,252,877	)		(445,117	)		(64,536	)
General and administrative expenses (including share-    based compensation expenses of RMB59,033,    RMB52,092 and RMB34,333 for the years ended    December 31, 2020, 2021 and 2022, respectively)		(566,565	)		(720,253	)		(290,339	)		(42,095	)
Impairment loss on long-lived assets		—			(52,544	)		—			—
Impairment loss on goodwill		—			(43,300	)		—			—
Disposal loss on assets		—			(146,245	)		—			—
Total operating expenses		(7,117,229	)		(7,344,486	)		(1,915,216	)		(277,680	)
Loss from operations		(1,755,033	)		(3,180,343	)		(118,052	)		(17,116	)
Interest income		3,372			31,460			21,370			3,098
Realized gains from investments		70,403			65,763			42,264			6,128
Other income(1)		253,646			20,906			51,885			7,523
Loss before provision for income tax and    share of results of equity investees		(1,427,612	)		(3,062,214	)		(2,533	)		(367	)
Income tax benefits/(expenses)		34,619			(40,949	)		15,705			2,277
Share of results of equity investees		63			(302	)		—			—
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Net (loss)/income attributable to Gaotu Techedu Inc.'s    ordinary shareholders		(1,392,930	)		(3,103,465	)		13,172			1,910
Net (loss)/income per ordinary share
Basic		(8.72	)		(18.17	)		0.08			0.01
Diluted		(8.72	)		(18.17	)		0.07			0.01
Net (loss)/income per ADS
Basic		(5.81	)		(12.11	)		0.05			0.01
Diluted		(5.81	)		(12.11	)		0.05			0.01
Weighted average shares used in net (loss)/income per share
Basic		159,725,779			170,790,979			172,254,080			172,254,080
Diluted		159,725,779			170,790,979			175,991,484			175,991,484

(1) The amount of other expenses for 2020 and 2021 have been combined with other income.

The accompanying notes are an integral part of the consolidated financial statements.

F-7

GAOTU TECHEDU INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
										(Note 2)
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Other comprehensive (loss)/income , net of tax:
Change in cumulative foreign currency    translation adjustments		(74,562	)		(73,936	)		72,703			10,541
Unrealized gains on available-for-sale    investments (net of tax effect of RMB9,867,    RMB8,598 and RMB8,703 for the years ended    December 31, 2020, 2021 and 2022,    respectively)		67,231			48,191			39,729			5,760
Transfer to statements of operations of realized    gains on available-for-sale investments (net of    tax effect of RMB9,654, RMB8,302 and    RMB8,881 for the years ended December 31,    2020, 2021 and 2022, respectively)		(70,403	)		(57,461	)		(33,383	)		(4,840	)
Total comprehensive (loss)/income attributable to    Gaotu Techedu Inc.		(1,470,664	)		(3,186,671	)		92,221			13,371

The accompanying notes are an integral part of the consolidated financial statements.

F-8

GAOTU TECHEDU INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Attributable to shareholders of the Group
	Number of ordinary shares			Ordinary shares		Treasury stock, at cost			Additional paid-in capital			Accumulated other comprehensive income (loss)			Statutory reserves		Accumulated deficit			Total Gaotu Techedu Inc. shareholders' equity
Balance as of January 1, 2020 in RMB		159,097,050			106		(86,739	)		1,899,059			17,829			6,921		(279,821	)		1,557,355
Net loss		—			—		—			—			—			—		(1,392,930	)		(1,392,930	)
Transfer to statutory reserves		—			—		—			—			—			33,459		(33,459	)		—
Issuance of ordinary shares through private placement		10,611,072			7		—			5,687,244			—			—		—			5,687,251
Repurchase of ordinary shares		(754,244	)		—		(282,543	)		—			—			—		—			(282,543	)
Share-based compensation		—			—		—			238,446			—			—		—			238,446
Option exercised and restricted stock units vested		807,184			—		229,710			(229,700	)		—			—		—			10
Foreign currency translation adjustments		—			—		—			—			(74,562	)		—		—			(74,562	)
Unrealized gains on available-for-sale investments		—			—		—			—			67,231			—		—			67,231
Transfer to statements of operations of realized gains on available-for-sale investments		—			—		—			—			(70,403	)		—		—			(70,403	)
Balance as of December 31, 2020 in RMB		169,761,062			113		(139,572	)		7,595,049			(59,905	)		40,380		(1,706,210	)		5,729,855
Net loss		—			—		—			—			—			—		(3,103,465	)		(3,103,465	)
Share-based compensation		—			—		—			320,889			—			—		—			320,889
Option exercised and restricted stock units vested		1,576,466			1		122,714			(122,704	)		—			—		—			11
Foreign currency translation adjustments		—			—		16,858			—			(73,936	)		—		—			(57,078	)
Unrealized gains on available-for-sale investments		—			—		—			—			48,191			—		—			48,191
Transfer to statements of operations of realized gains on available-for-sale investments		—			—		—			—			(57,461	)		—		—			(57,461	)
Balance as of December 31, 2021 in RMB		171,337,528			114		—			7,793,234			(143,111	)		40,380		(4,809,675	)		2,880,942
Net income		—			—		—			—			—			—		13,172			13,172
Share-based compensation		—			—		—			122,654			—			—		—			122,654
Option exercised and restricted stock units vested		1,521,016			1		—			11			—			—		—			12
Foreign currency translation adjustments		—			—		—			—			72,703			—		—			72,703
Unrealized gains on available-for-sale investments		—			—		—			—			39,729			—		—			39,729
Transfer to statements of operations of realized gains on available-for-sale investments		—			—		—			—			(33,383	)		—		—			(33,383	)
Balance as of December 31, 2022 in RMB		172,858,544			115		—			7,915,899			(64,062	)		40,380		(4,796,503	)		3,095,829
Balance as of December 31, 2022 in USD (Note 2)		172,858,544			17		—			1,147,697			(9,288	)		5,855		(695,428	)		448,853

The accompanying notes are an integral part of the consolidated financial statements.

F-9

GAOTU TECHEDU INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
										(Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Adjustments to reconcile net (loss)/income to net cash    generated from operating activities:
Depreciation of property, equipment and software		55,751			108,446			68,807			9,976
Amortization of intangible assets and land use rights		1,461			4,116			1,950			283
Share of results of equity investees		(63	)		302			—			—
Realized gains from investments		(70,403	)		(65,763	)		(42,264	)		(6,128	)
Disposal loss/(gain) on assets		3,145			146,245			(21,374	)		(3,099	)
Share-based compensation		238,446			320,889			122,654			17,783
Fair value change of fair value option		—			—			13,232			1,918
Provision for inventory		—			12,901			—			—
Impairment loss on long-lived assets		—			52,544			—			—
Impairment loss on goodwill		—			43,300			—			—
Realized gain from derivative financial liabilities		—			(7,938	)		—			—
Changes in operating assets and liabilities:
Accrued expenses and other current liabilities		1,508,939			(942,260	)		(329,923	)		(47,834	)
Deferred revenue		1,384,403			(1,737,521	)		(36,885	)		(5,348	)
Prepaid expenses and other current assets		(479,985	)		459,506			(12,294	)		(1,782	)
Income tax payable		(11,439	)		(4,654	)		1,793			260
Other assets		(614,225	)		486,302			293,465			42,548
Deferred tax assets		(17,608	)		48,324			(15,679	)		(2,273	)
Deferred tax liabilities		(2,219	)		(7,081	)		(2,109	)		(306	)
Net cash generated from/(used in) operating activities		603,273			(4,185,807	)		54,545			7,908
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments		(17,394,632	)		(46,001,552	)		(29,317,782	)		(4,250,679	)
Proceeds from maturity of short-term investments		11,689,198			51,063,983			29,249,349			4,240,757
Purchase of property, equipment and software		(284,072	)		(272,323	)		(18,952	)		(2,748	)
Payment for asset acquisition		(74,309	)		—			(15,000	)		(2,175	)
Short-term loans to a third party		—			—			(612,000	)		(88,732	)
Repayment of short-term loans from a third party		—			—			534,000			77,423
Proceeds from maturity of long-term investments		501,733			—			—			—
Proceeds from disposal of equity method investments		—			5,548			—			—
Proceeds from derivative financial liabilities		—			7,938			—			—
Proceeds from capital return related to equity    method investments		1,300			—			—			—
Acquisition of businesses		(35,529	)		—			—			—
Disposal of property, equipment and software		7			8,908			22,000			3,190
Net cash (used in)/generated from investing activities		(5,596,304	)		4,812,502			(158,385	)		(22,964	)

F-10

GAOTU TECHEDU INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
										(Note 2)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution		36			7			—			—
Proceeds from private placement financing		5,687,251			—			—			—
Repurchase of ordinary shares		(282,543	)		—			—			—
Proceeds from short-term loans		—			400,000			—			—
Repayments of short-term loans		—			(400,000	)		—			—
Payment for asset acquisition after three months of    completion		(132,184	)		(100,621	)		—			—
Repayment to related parties		(460	)		—			—			—
Net cash generated from/(used in) financing activities		5,272,100			(100,614	)		—			—
Effect of exchange rate changes		2,188			15,818			26,650			3,864
Net increase/(decrease) in cash and cash equivalents		281,257			541,899			(77,190	)		(11,192	)
Cash, cash equivalents and restricted cash at beginning of the year		73,967			355,224			897,123			130,071
Cash, cash equivalents and restricted cash at end of the year		355,224			897,123			819,933			118,879
Supplemental schedule of cash flow information
Income taxes paid		86,348			(84,832	)		20,217			2,931
Non-cash investing and financing activity
Payables for purchase of property, equipment and    software		36,092			4,778			413			60
Payables for assets acquisition		127,316			—			—			—

The accompanying notes are an integral part of the consolidated financial statements.

F-11

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES

GSX Techedu Inc. was incorporated under the laws of the Cayman Islands in August 2014 and the name changed to Gaotu Techedu Inc. in June 2021. The Company, its subsidiaries, its consolidated variable interest entity (“VIE”) and VIE’s subsidiaries (collectively the “Group”) are currently engaged in the business of providing learning services and educational content and digitalized learning products in the People's Republic of China("PRC").

Beijing BaiJiaHuLian Technology Co., Ltd was founded in June 2014, as a limited liability company in the PRC, and the name changed to Beijing BaiJia Technology Co., Ltd in September 2020 and then changed to Gaotu Education Technology Group Co., Ltd (“Beijing Gaotu” or “VIE”) in July 2021. Beijing Gaotu and its subsidiaries (collectively "VIEs") are primarily engaged in providing learning services and educational content and digitalized learning products in mainland China.

Current laws and regulations of mainland China impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services and certain other businesses. To comply with the relevant laws and regulations of mainland China, the Company operates substantially all of its business through its VIE. On April 28, 2015, the Company, through BaiJiaHuLian HK Holdings Limited (“BaiJiaHuLian HK”) and its subsidiary in mainland China, Beijing Lexuebang Network Technology Co., Ltd. (“Beijing Lexuebang”), entered into a series of contractual arrangements with Beijing Gaotu, and the shareholders of Beijing Gaotu. The series of contractual agreements include an Exclusive Management Services and Business Cooperation Agreement, an Exclusive Call Option Agreement, an Equity Pledge Agreement, Powers of Attorney, Spousal Consent Letters and Letters of Commitment (collectively the “Original Agreement”). The Original Agreements were amended on March 2019 with no significant differences. In connection with the amendment and as part of the Group’s efforts to streamline the corporate structure, the Group removed six existing nominee shareholders as parties to the contractual arrangements with Beijing Gaotu and its shareholders. The rights and obligations of these nominee shareholders under these contractual arrangements have been assumed by Mr. Larry Xiangdong Chen.

On January 26, 2021, Beijing Lexuebang, Wuhan Yuexuebang Network Technology Co., Ltd ("Wuhan Yuexuebang") and Beijing Yuexuebang Network Technology Co., Ltd ("Beijing Yuexuebang") (collectively the "WFOEs"), entered into a VIE supplementary agreement (“Supplementary Agreement”) with Beijing Gaotu, and the shareholders of Beijing Gaotu. According to the Supplementary Agreement, each of Wuhan Yuexuebang and Beijing Yuexuebang became a party to the Original Agreement, enjoyed the same rights of Beijing Lexuebang under the Original Agreement and jointly assume the obligations of Beijing Lexuebang thereunder.

F-12

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The Group believes that these contractual arrangements would enable the Company to (1) have power to direct the activities that most significant affects the economic performance of VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the Company is considered the primary beneficiary of the VIE.

The Company’s subsidiaries, VIE and VIE’s major subsidiaries as of December 31, 2022 were as follow:

Name	Later of date of establishment or acquisition	Place of establishment	Percentage of direct or indirect economic ownership	Principal activities
Subsidiaries:
BaiJiaHuLian HK	Aug 18, 2014	HongKong, China	100%	Holding company
Beijing Lexuebang	Jan 12, 2015	Beijing, China	100%	Education technical services
Wuhan Yuexuebang	May 25, 2020	Wuhan, China	100%	Education technical services
Beijing Yuexuebang	Nov 24, 2020	Beijing, China	100%	Education technical services
Shanghai Chuxuebang Network Technology    Co., Ltd ("Shanghai Chuxuebang")	Feb 18, 2021	Shanghai, China	100%	Education technical services
VIE:
Beijing Gaotu	Jun 4, 2014	Beijing, China	100%	Education services
VIE's major subsidiaries:
Beijing GaoTuYunFan Technology Co., Ltd.    ("GaoTuYunFan")	May 14, 2015	Beijing, China	100%	Education services
Beijing GaoTuYunJi Education Technology    Co., Ltd. ("GaoTuYunJi")	Jul 18, 2017	Beijing, China	100%	Education services
Zhengzhou GaoTuYunJi Education    Technology Co., Ltd. ("ZhengzhouGaoTu")	Jan 19, 2020	Zhengzhou, China	100%	Education services
Wuhan GaoTuYunJi Education    Technology Co., Ltd. ("WuhanGaoTu")	Apr 1, 2020	Wuhan, China	100%	Education services
Guangzhou XingHuo Online Computer    Technology Co., Ltd. ("Guangzhou XingHuo")	Aug 18, 2022	Guangzhou, China	100%	Education services

The English names above are for identification purpose only.

F-13

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements

Details of the contractual agreements are set forth below.

•Agreements that transfer economic benefits to the Group:

Exclusive Management Services and Business Cooperation Agreement

Pursuant to the exclusive management services and business cooperation agreement among the WFOEs, the VIE and the shareholders of the VIE, the WFOEs has the exclusive right to provide or designate any third-party to provide, among other things, education management consultancy services, permission of intellectual property rights, technological support and business support to the VIE and its subsidiaries. In exchange, the VIE and its subsidiaries pay service fees to the WFOEs in an amount determined by the WFOEs in its sole discretion. Without the prior written consent of the WFOEs, the VIE and its subsidiaries cannot accept services provided by or establish similar cooperation relationship with any third-party. The WFOEs own the exclusive intellectual property rights created as a result of the performance of this agreement unless otherwise provided by the laws or regulations of mainland China. The agreement will be effective for twenty years upon signing by both parties. The term of the agreement was amended on March 2019 and the agreement will remain effective unless unanimously agreed by the parties concerned or unilaterally terminated by the WFOEs with a written notice. Unless otherwise required by applicable the laws of mainland China, the VIE and its shareholders do not have any right to terminate the agreement.

•Agreements that provide the Company effective control over Beijing Gaotu:

Equity Pledge Agreement

Under the equity interest pledge agreement among the WFOEs, the VIE and its shareholders, the VIE’s shareholders pledged all of their equity interests of the VIE to the WFOEs as security for performance of the obligations of the VIE and its shareholders under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney. If any of the specified events of default occurs, the WFOEs may exercise the right to enforce the pledge immediately. The WFOEs may transfer all or any of its rights and obligations under the equity interest pledge agreement to its designee(s) at any time. The agreement will remain in effect until the fulfillment of all the obligations under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney.

F-14

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

Exclusive Call Option Agreement

Under the exclusive call option agreement among the WFOEs, the VIE and its shareholders, each of the shareholders of the VIE irrevocably granted the WFOEs a right to purchase, or designate a third-party to purchase, all or any part of their equity interests in the VIE at a purchase price equal to the lowest price permissible by the then-applicable laws and regulations of mainland China at the WFOEs’ sole and absolute discretion to the extent permitted by the laws of mainland China. The shareholders of the VIE shall promptly give all considerations they received from the exercise of the options to the WFOEs or its designee(s). The VIE and its shareholders covenant that, without the WFOEs’ prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their equity interests in the VIE; (ii) transfer or otherwise dispose of their equity interests in the VIE; (iii) change the VIE’s registered capital; (iv) amend the VIE’s articles of association; (v) sell, transfer, license or otherwise dispose of any of the VIE’s assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations with the value of the assets involved in a single transaction not exceeding RMB100; (vi) cause the VIE to enter into any major contracts or terminate any material contracts to which the VIE is a party; (vii) declare or distribute dividends; (viii) terminate, liquidate or dissolve the VIE; or (ix) allow the VIE to incur, inherit, guarantee or permit any debts, except for those payables incurred in the ordinary or usual course of business but not incurred by way of borrowing. The agreement will remain effective until terminated by the WFOEs at its discretion or the entire equity interests in the VIE have been transferred to the WFOEs or its designees.

Powers of Attorney

Pursuant to the powers of attorney executed by the VIE’s shareholders, each of them irrevocably authorized the WFOEs or its designee(s) to act on their respective behalf as exclusive agent and attorney, to the extent permitted by law, with respect to all rights of shareholders concerning all the equity interest held by each of them in the VIE, including but not limited to proposing to convene or attend shareholder meetings, signing the resolutions and minutes of such meetings, exercising all the rights as shareholders (including but not limited to voting rights, nomination rights, appointment rights, the right to receive dividends and the right to sell, transfer, pledge or dispose of all the equity held in part or in whole).

F-15

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

Spousal Consent Letters

Pursuant to the spousal consent letters executed by the spouses of certain shareholders of the VIE, the signing spouses unconditionally and irrevocably agreed that the equity interest in the VIE held by and registered in the name of their spouses be disposed of in accordance with the exclusive call option agreement, the exclusive management services and business cooperation agreement, the equity interest pledge agreement and the powers of attorney described above, and that their spouses may perform, amend or terminate such agreements without their additional consent. Additionally, the signing spouses agreed not to assert any rights over the equity interest in the VIE held by their spouses. In addition, in the event that the signing spouses obtains any equity interest in the VIE held by their spouses for any reason, they agree to be bound by and sign any legal documents substantially similar to the contractual arrangements described above, as may be amended from time to time.

•Risks in relation to VIE structure

The Company believes that the contractual arrangements with Beijing Gaotu and its shareholders are in compliance with existing laws and regulations of mainland China and are legally enforceable. However, the contractual arrangements are subject to risks and uncertainties, including:

•Beijing Gaotu and its shareholders may have or develop interests that conflict with the Group’s interests, which may lead them to pursue opportunities in violation of the aforementioned contractual agreements. If the Group cannot resolve any conflicts of interest or disputes between the Group and the shareholders of Beijing Gaotu, the Group would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

•Beijing Gaotu and its shareholders could fail to obtain the proper operating licenses or fail to comply with other regulatory requirements. As a result, the PRC government could impose fines, new requirements or other penalties on the VIE or the Group, mandate a change in ownership structure or operations for the VIE or the Group, restrict the VIE or the Group’s use of financing sources or otherwise restrict the VIE or the Group’s ability to conduct business.

F-16

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

•The PRC government may declare the aforementioned contractual arrangements invalid. They may modify the relevant regulations, have a different interpretation of such regulations, or otherwise determine that the Group or the VIE have failed to comply with the legal obligations required to effectuate such contractual arrangements.

•If the legal structure and contractual arrangements were found to be in violation of the laws and regulations of mainland China, the PRC government may restrict or prohibit the Group’s business and operations in mainland China, and the Group could be subject to severe penalties or be forced to relinquish the company's interests in those operations.

The Group’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Group may not be able to consolidate Beijing Gaotu and its subsidiaries in the consolidated financial statements as the Group may lose the ability to exert effective control over Beijing Gaotu and its shareholders, and the Group may lose the ability to receive economic benefits from Beijing Gaotu.

The Group’s business has been directly operated by the VIE and its subsidiaries. As of December 31, 2021 and 2022, the VIE and its subsidiaries accounted for an aggregate of 48.37% and 49.00%, respectively, of the Group’s consolidated total assets, and 79.85% and 80.89% respectively of the Group’s consolidated total liabilities.

F-17

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

The following financial information of the Company’s VIE and VIE’s subsidiaries after the elimination of inter-company transactions and balances as of December 31, 2021 and 2022 and for the years ended December 31, 2020, 2021 and 2022 was included in the accompanying consolidated financial statements:

	As of December 31,
	2021		2022
	RMB		RMB
Cash and cash equivalents		138,672		312,055
Restricted cash		153,230		22
Short-term investments		1,037,346		1,068,365
Inventory, net		15,595		22,783
Prepaid expenses and other current assets		196,246		345,132
Total current assets		1,541,089		1,748,357
Operating lease right-of-use assets		194,162		41,014
Property, equipment and software, net		647,414		533,588
Intangible assets		77		18,932
Land use right		28,178		27,373
Goodwill		331		331
Deferred tax assets		—		15,679
Rental deposit		17,084		2,827
Other non-current assets		1,848		1,392
Total non-current assets		889,094		641,136
Total assets		2,430,183		2,389,493
Accrued expenses and other current liabilities		417,032		367,477
Deferred revenue, current portion		986,993		906,914
Operating lease liabilities, current portion		41,479		21,281
Income tax payable		—		260
Total current liabilities		1,445,504		1,295,932
Deferred revenue, non-current portion		9,225		52,419
Operating lease liabilities, non-current portion		158,824		17,457
Deferred tax liabilities		71,616		74,341
Other payables		26,580		—
Total non-current liabilities		266,245		144,217
Total liabilities		1,711,749		1,440,149

F-18

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Net revenues		7,124,744			6,561,747			2,498,214
Net income		2,406,144			94,795			555,880
Net cash generated from/(used in) operating activities		3,945,706			(580,304	)		558,050
Net cash (used in)/generated from investing activities		(305,448	)		121,861			(87,007	)
Net cash used in financing activities		(132,644	)		(100,621	)		—

There are no consolidated VIE’s assets that are collateral for the VIE’s obligations and which can only be used to settle the VIE’s obligations. No creditors (or beneficial interest holders) of the VIE have recourse to the general credit of the Company or any of its consolidated subsidiaries. No terms in any arrangements, considering both explicit arrangements and implicit variable interests, require the Company or its subsidiaries to provide financial support to the VIE. However, if the VIE ever needs financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIE through loans to the shareholders of the VIE or entrustment loans to the VIE.

F-19

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

Impact of recent regulations

On July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education (compulsory education includes primary school education of six years and middle school education of three years, together as the “Compulsory Stage Education”)” (the “Opinion”), which provides that, among other things, (i) local government authorities shall no longer approve new after-school tutoring institutions (“Academic AST Institutions”) providing tutoring services on academic subjects for students in compulsory education, and the existing after-school tutoring institutions providing tutoring services on academic subjects shall be registered as non-profit, and local government authorities shall no longer approve any new Academic AST Institutions providing tutoring services on academic subjects for pre-school-age children and students in grade ten to twelve; (ii) online Academic AST Institutions that have filed with the local education administration authorities providing tutoring services on academic subjects shall be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; and (iv) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities.

On September 7, 2021, to implement the Opinion, the Chinese Ministry of Education (“MOE”) published on its website that the MOE, together with two other government authorities, issued a circular requiring all Academic AST Institutions to complete registration as non-profit by the end of 2021, and all Academic AST Institutions shall, before completing such registration, suspend enrollment of students and charging fees (the “New Regulations”).

To comply with the Opinion and the New Regulations, the Company performed organizational adjustments and business restructuring, including the cessation of compulsory education academic subject tutoring services to students (“Business Restructuring”). The financial impacts were disclosed in note 2, 6, 8, 9, 12 and 18.

F-20

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and use of estimates

The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”). These accounting principles require management to make certain estimates and assumptions that affect the amounts in the accompanying financial statements. Actual results may differ from those estimates. The Group bases its estimates on past experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Significant accounting estimates reflected in the Group’s financial statements include, but are not limited to, revenue recognition, valuation allowance for deferred tax assets, impairment assessment of goodwill, intangible assets and other long-lived assets, fair value assessment of certain short-term investments, valuation of share-based compensation, discount rate for leases and consolidation of VIEs. Actual results may differ materially from those estimates.

Principles of consolidation

The accompanying consolidated financial statements include the financial information of the Group and its subsidiaries, the VIE and the VIE’s subsidiaries. All intercompany balances and transactions were eliminated upon consolidation.

Fair value

Fair value is considered to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

F-21

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value - continued

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, short-term investments accounted for held-to-maturity, available-for-sale debt investments or elected to measure at fair value, receivables from third party payment platform and other liabilities.

As of December 31, 2021 and 2022, the carrying values of cash and cash equivalents, held-to maturities investments, receivables from third party payment platform and other current liabilities approximated their fair values reported in the consolidated balance sheets due to the short term maturities of these instruments. Available-for-sales investments and investments elected to measure at fair value are recorded at fair value as of December 31, 2021 and 2022.

Foreign currency translation and transactions

The Group's reporting currency is the Renminbi ("RMB"). The functional currency of the subsidiaries incorporated outside the mainland China is the United States dollar ("US dollar" or "US$"). The functional currency of all the other subsidiaries, the VIE and VIE's subsidiaries is the RMB.

Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable functional currencies at historical exchange rates. Revenues and expenses are translated using the average rate of exchange in effect during the reporting period. Translation adjustments are reported and shown as a separate component of other comprehensive loss in the consolidated statements of changes in shareholders' deficit and the consolidated statements of comprehensive loss.

Transactions in currencies other than the functional currencies during the year are converted into the applicable functional currencies at the applicable rates of exchange prevailing at the dates of the transactions. Transaction gains and losses are recorded in the consolidated statements of operations.

F-22

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Convenience translation

The Group’s business is primarily conducted in China and all of the revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into US dollars using the exchange rate as of balance sheet date, for the convenience of the readers. Translations of balances in the consolidated balance sheets and the related consolidated statements of operations, comprehensive (loss)/income, change in shareholders’ (deficit)/equity and cash flows from Renminbi ("RMB") into US dollars as of and for the year ended December 31, 2022 are solely for the convenience of the readers and were calculated at the rate of USD1.00=RMB6.8972 representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 30, 2022. 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 31, 2022, or at any other rate.

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand, demand deposits and highly liquid investments, which have original maturities of three months or less when purchased and are subject to an insignificant risk of changes in value.

Restricted cash

Cash that is restricted as to withdrawal or for use or pledged as security is separately presented. The Group’s restricted cash as of December 31, 2021 mainly represents the upfront tuition fee collected and deposited in a custodian bank account regulated by the government, and had been released as the courses were delivered.

Short-term investments

As of December 31, 2021 and 2022, the Group’s debt securities include held-to-maturity investments, available-for-sale investments, and investments elected to measure at fair value.

F-23

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Short-term investments - continued

Held-to-maturity investments

Investments are classified as held-to-maturity when the Group has the positive intent and ability to hold the securities to maturity, and are recorded at amortized cost. As of December 31, 2021 and 2022, the balances of held-to-maturity securities were RMB574,628 and RMB206,916, respectively, and were recorded as short-term investments as their maturities are less than twelve months.

The Group evaluates credit loss over held-to-maturity investments upon acquisition at the pool level based on historical experience, credit quality and other factors that may affect the Group’s ability to collect the investments. An expected credit loss will be recognized as an allowance through earnings if the net amount of cash flow expected to be collected is less than the amortized cost basis.

Available-for-sale investments

Debt securities investments that do not meet the criteria of held-to-maturity or trading securities are classified as available-for-sale investments and are reported at fair value with unrealized gains and losses recorded in accumulated other comprehensive income/(loss). Realized gains or losses on the sale of these securities are recognized under Realized gains from investments in the consolidated statements of operations.

The Group evaluates each individual investment periodically for impairment. For investments where the Group does not intend to sell, the Group evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated balance sheet with corresponding adjustment in the consolidated statements of operations and comprehensive income. Subsequent increases in fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component of shareholder's equity. As of December 31, 2022, the available-for-sale debt investments were recorded with unrealized gain amounted to RMB4,318, compared with unrealized loss amounted to RMB4,258 as of December 31, 2021.

Investments elected to measure at fair value

The Group elects the fair value option to record wealth management products with variable interest rates or indexed to foreign exchange with maturities less than one year at fair value in accordance with ASC 825 Financial Instrument. Changes in the fair value are recorded in other income.

F-24

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Credit losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which requires entities to measure all expected credit losses for financial assets held at the reporting date using a current expected credit loss model based on historical experience, current conditions, and reasonable and supportable forecasts.

The Group adopted ASC 326 on January 1, 2020 using the modified retrospective transition approach. Based on the nature of the Group’s financial instruments within the scope of this standard, the adoption of the new standard did not have a material effect on the Group’s consolidated financial statements.

Property, equipment and software, net

Property, equipment and software are stated at cost less accumulated depreciation and impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows:

Category	Estimated useful life
Electronic equipment	3 years
Furniture and office equipment	3-5 years
Software	2-10 years
Building	35-37 years
Leasehold improvement	Shorter of the lease term or estimated economic life

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, equipment and software are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statement of operations.

F-25

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Business combinations

Business combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred.

Land use rights, net

All land in mainland China is owned by the government, which, according to the relevant laws of mainland China, may grant the right to use the land for a specified period of time. Land use rights are recorded at cost and amortized on a straight line basis over the term of the land certificates, as follows:

Category	Estimated useful life
Land use right	37 years

Goodwill

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheets as goodwill. Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired. Application of a goodwill impairment test requires significant management judgment. The judgment in estimating the fair value of reporting unit includes estimating future cash flows, determining appropriate discount rates, consideration of the impact of COVID-19 and the New Regulations, and making other relevant assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting unit.

As part of the annual goodwill impairment test, the Group first performs a qualitative assessment to determine whether further impairment testing is necessary. If the qualitative assessment above indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test is performed to compare the fair value to the carrying value. An impairment charge is recorded if the carrying value exceeds the fair value.

F-26

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Goodwill - continued

The Group performed qualitative assessment for the reporting unit of Tianjin Puxin in 2021 due to the impact of New Regulations. The Group evaluated all relevant factors including, but not limited to, macroeconomic conditions, industry, regulatory and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations, business plans and strategies of the reporting unit and concluded that it was more likely than not that the fair value of the reporting unit was less than its carrying amount. After the quantitative impairment test, the Group recorded impairment losses on its goodwill amounting to RMB43,300 during the year ended December 31, 2021. No impairment losses on goodwill was recorded during the year ended December 31, 2022.

Intangible assets, net

Intangible assets are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives. The estimated useful lives of intangible assets are as follows:

Category	Estimated useful life
Student base	1.5-2 years
Trademark	3-10 years
License	7.4 years

Impairment of long-lived assets other than goodwill

The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets.

Due to the impact of New Regulations and the Business Restructuring, the Group performed an impairment assessment on its long-lived assets in 2021 and reduced the carrying value of the long-lived assets to its estimated fair value based on expected discounted cash flow or market approach. The Group recorded impairment losses on its long-lived assets amounting to RMB52,544 during the year ended December 31, 2021. No impairment losses of long-lived assets was recorded during the year ended December 31, 2022.

F-27

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition

The Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, in accordance with ASC Topic 606 Revenue from Contracts with Customers ("Topic 606"). The Group’s revenue is reported net of discount, value added tax and related surcharges.

Disaggregation of revenue

For the years ended December 31, 2020, 2021 and 2022, all of the Group’s revenues were generated in mainland China. Additionally, all of the revenues for the periods were recognized from contracts with customers. The following table provides information about disaggregated revenue by types, including a reconciliation of the disaggregated revenue with the Group’s reportable segment.

As a result of the New Regulations previously disclosed, the Group changed its disaggregation of revenue to better disclose the performance of its business following its Business Restructuring. The total net revenue of online after-school academic subject tutoring services including compulsory education academic subject tutoring services and senior high school tutoring services previously recorded as online K-12 academic subject tutoring services in 2020 and 2021, and comprehensive tutoring services amounting to RMB886,056 and RMB560,196 previously included in comprehensive tutoring services and others in 2020 and 2021, were reclassified to learning services. Other revenue amounting to RMB1,289 and RMB912 in 2020 and 2021, previously included in comprehensive tutoring services and others, were reclassified to other revenue.

	Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Net revenues
- Learning services		7,123,455		6,560,835		2,436,110
- Educational content & digitalized learning products		—		—		26,791
- Other revenue		1,289		912		35,313
Total net revenues		7,124,744		6,561,747		2,498,214

F-28

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

The primary sources of the Group's revenues are as follows:

(1)Learning services

The Group offers various types of integrated online tutoring services covering a wide spectrum of topics and targets students from broad age groups through its diverse offerings. The Group’s live interactive tutoring services consists of several components, including online live broadcasting classes as well as other activities during the online period including teaching material, quizzes before, during and after the classes, summary of lessons after each class and interactions with both other students and instructors during the period. Different service components are highly interdependent and interrelated in the context of the contract with the live interactive tutoring services. Therefore, the Group has determined that the live interactive tutoring services represents one performance obligation. The service period for a majority of the live interactive tutoring services is less than six months.

Once the live interactive tutoring services is complete, the Group also offers the customer a content playback service. In the content playback service, the customer has unlimited access to online pre-recorded audio-video courses for a specified period ranging from one to three years. No other interactions or activities are provided during the playback period. For contracts that provide both the live interactive tutoring service and the content playback service, the Group determined that the live interactive tutoring service and content playback service are two separate performance obligations, as these two deliverables are distinct in that customers can benefit from each service on its own and the Group’s promises to deliver the services are separately identifiable from each other in the contract.

Tutoring fees are collected in advance. The Group determines that there is not a significant financing component based on the nature of the service being offered and the purpose of the payment terms. The Group charges a single upfront amount, not with the primary purpose of obtaining financing from the students but, instead, to maximize profitability, taking into consideration the risks associated with providing the service. The Group offers refunds for any remaining classes to students who withdraw from the course. The refund is equal to the amount related to the undelivered class. The Group determines the transaction price to be earned by estimating the refund liability based on historical refund ratio on a portfolio basis using the expected value method, and allocates the tutoring fee excluding the estimate for refund liability to each performance obligation using the relative stand-alone selling price. The Group determines the stand-alone selling prices using an expected cost plus margin methodology. Revenue related to the live interactive tutoring service is recognized proportionately as the online classes are delivered, as the Group concluded that the delivery of each online class represents a faithful depiction of when the services are provided to the students. Revenue related to the right to access the content playback is recognized proportionally over the playback period, as the Group concluded that the content playback service represents a stand ready obligation to provide the playback services and the customer simultaneously receives and consumes the benefits as the Group provides such services throughout the playback period.

F-29

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

In some promotion activities, the Group grants sales incentives, including cash coupon and free class, to students who make qualified course purchases. Those students can redeem the cash coupon in the next purchase as part of payment, or select to enroll in a new course free of charge, prior to the incentive’s expiration. The cash coupon and free class will expire in no more than eight months. The Group determined the cash coupon and/or free course granted to existing students are material rights. As a result, a portion of sales price received on students making qualified purchases is allocated to the sales incentives granted based on the relative standalone selling prices. The selling price of cash coupon is estimated based on the discount amount and the probability of redemption. Revenue allocated to sales incentives is recorded as deferred revenue until redemption or expiration. Once the coupon or free class is redeemed, revenue will be recognized based on the revenue recognition policy discussed above. Students may not always redeem the cash coupon or take the free class offered before the expiration of the sales incentive. Therefore, the Group expects to be entitled to a breakage amount in deferred revenue related to the incentives. The Group estimates the breakage based on historical students’ usage and recognizes the estimated breakage as revenue in proportion to the pattern of incentives exercised by students. The assessment of estimating breakage is updated on a quarterly basis. Changes in estimated breakage is accounted for by adjusting deferred revenue to reflect the remaining incentive rights expected to be exercised. Since the Group ceased granting this kind of promotion activities in 2021, the assessment of estimating breakage was not material to the Group any more.

To comply with the Regulations, the Group did not offer compulsory education academic subject tutoring services during the year ended December 31, 2022.

(2) Educational content & digitalized learning products

Educational content & digitalized learning products mainly include books and digitalized auxiliary learning tools, such as smart devices and translation pens.

The Group has determined that selling educational content and digitalized learning products represents one performance obligation, as customers can benefit from the products on their own. The Group recognizes revenues when control of the educational content and digitalized learning products are transferred to the customer, which generally occurs upon the delivery to the customers.

(3) Other revenue

The Company leases office buildings to customers and receives a fixed quarterly rental fee over the term of the lease period. The Company classifies its lease income as other revenue and classifies such lease contracts as operating leases. The fixed rental fee is recognized evenly over the period of the lease contract on a straight-line basis.

F-30

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Contract balances

Contract cost

Incremental costs of obtaining a contract with a customer is recognized as an asset in “Prepaid expenses and other current assets” if the Group expects to recover those costs. Incremental costs of obtaining a contract mainly include sales commissions to sales personnel and third-party agents. Contract cost assets are amortized over the estimated customer life.

As a result of the Business Restructuring during 2021, the Group evaluated and determined that the carrying amount of the contract cost exceeded the net considerations that the Group expected to receive after considering the costs that directly related to provide the corresponding services which were not recognized as expenses. As a result, the Group recorded impairment losses related to contract cost amounting to RMB34,528 during the year ended December 31, 2021. For the contracts entered into after the Business Restructuring with dissimilar characteristics or dissimilar circumstances, as a practical expedient, the Group elects to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. As of December 31, 2021 and 2022, the balance of contract cost was both nil. For the years ended December 31, 2020, 2021 and 2022, the Group recognized amortization of RMB185,787, RMB212,880 and nil as "Selling expenses" in its consolidated statement of operations, respectively.

Contract and refund liabilities

The following table provides information about the Group's contract liabilities and refund liability arising from contract with customers.

	Year ended December 31,
	2021		2022
	RMB		RMB
Deferred revenue, current portion		986,993		906,914
Deferred revenue, non-current portion		9,225		52,419
		996,218		959,333
Refund liability		78,630		60,597

F-31

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Deferred revenue primarily consists of tuition fees received from customers for which the Group’s revenue recognition criteria have not been met. The deferred revenue will be recognized as revenue once the criteria for revenue recognition are met. Revenue recognized during the years ended December 31, 2021 and 2022 that was included in the deferred revenue balance at January 1, 2021 and January 1, 2022 amounted to RMB2,668,141 and RMB980,385, respectively.

Refund liability represents the tutoring fee collected by the Group which it expects to refund back to its customer as a result of its refund policy. Refund liability is estimated based on the historical refund ratio for each of the type of classes provided.

The Group’s remaining performance obligations represents the amount of the transaction price for which service has not been performed. As of December 31, 2022, the aggregate amount of the transaction price allocated for the remaining performance obligations amounted to RMB959,333. The Group expects to recognize revenue of RMB906,914 and RMB24,471 related the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder of RMB27,948 recognized thereafter.

Cost of revenues

Cost of revenues mainly consists of compensations to instructors and tutors, rental expenses for office space, depreciation of properties and equipment, teaching materials and bandwidth costs. The instructors consist of both full-time instructors and part-time instructors. Full-time instructors’ compensation primarily consists of base salary, as well as teaching fees based on hourly rates and attendance of students in connection with courses delivered. The compensation of part-time instructors is calculated as a fixed percentage of the tuition fees of the courses delivered by the instructors, and is accrued as courses are delivered. The compensation of tutors consists of base salary and performance-based compensations, which is determined based on student retention and exercise completion. Specifically, if an existing student of a tutor enrolls in a new course, a bonus is paid to the tutor which is calculated as a percentage of the tuition of the new course. Tutors also receive a fixed payment for each exercise marking performed. The Group accrues on a monthly basis for the cost of tutor which includes basic salary, compensation for exercise marking as well as student retention bonus. The retention bonus is estimated using the expected tuition collected for the retention courses, multiplied by the estimated retention rate and the bonus percentage.

F-32

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Government subsidies

The government subsidies provided by the local government mainly included funding to support the development of the Group. Government subsidies are recognized upon receipt as government subsidies income because the subsidies are not intended to compensate for specific expenditure and not subject to future return. For the years ended December 31, 2020, 2021 and 2022, RMB6,941, RMB9,350 and RMB7,825 were received and recognized as other income in the Group’s consolidated statements of operations, respectively.

Value added taxes

The Group’s educational services and non-educational services are subject to VAT at the rate of 3% for small-scale-VAT-payer entities or at the rate of 6% for general-VAT-payer entities in accordance with tax rule.

Since January 2020, in accordance with Cai Shui [2020] No.8, due to the Novel coronavirus (“COVID-19”) pandemic, the VAT on certain services was temporarily exempted for the fiscal year of 2020. Based on the Announcement on Continuously Implementing Some Tax Preferential Policies in Response to COVID-19 Epidemic (2021 No.7), the exemption period were further extended to March 31,2021. As a result, the Group's educational services were not subject to any VAT from January 1, 2020 to March 31, 2021. For the years ended December 31, 2020, RMB256,378 value added tax exemption were recognized as other income in the Group’s consolidated statement of operations, compared with RMB16,224 as other expense for the year ended December 31, 2021, mainly consist of input VAT related cost, partially offset by output VAT, as a result of VAT exemption.

Income taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes are classified as a component of the provisions for income taxes.

F-33

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Share-based compensation

The Group measures the cost of employee share options and restricted stock units ("RSUs") based on the grant date fair value of the award and recognizes compensation cost over the period during which an employee is required to provide services in exchange for the award, which generally is the vesting period. For the graded vesting share options, the Group recognizes the compensation cost over the requisite service period for each separately vesting portion of the award as if the award is, in substance, multiple awards. When no future services are required to be performed by the employee in exchange for an award of equity instruments, the cost of the award is expensed on the grant date. The Group elects to recognize forfeitures when they occur.

Cancellation of an award that is not accompanied by the concurrent grant of a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, the Group recognizes any previously unrecognized compensation cost immediately at the cancellation date.

Cancellation of an award accompanied by the concurrent grant of a replacement award or other valuable consideration shall be accounted for as a modification of the terms of the cancelled award. Therefore, the Group recognizes incremental compensation cost as the excess of the fair value of the replacement award or other valuable consideration over the fair value of the cancelled award at the cancellation date.

Comprehensive income/(loss)

Comprehensive income/(loss) includes net income/(loss), foreign currency translation adjustments and the unrealized gains and losses on available-for-sale debt investments of the Group. Comprehensive income/(loss) is reported in the consolidated statements of comprehensive income/(loss).

F-34

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Leases

The Group leases administrative office spaces in different cities in mainland China under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. As the rate implicit in the lease is not readily determinable, the Group estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing operating lease expense when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. When a lease is terminated before the expiration of the lease term, the Group derecognizes the right of use asset and corresponding lease liability, any difference is recognized as a gain or loss related to the termination of the lease.

For short-term leases, the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

When the Group is a lessor, minimum contractual rental from leases is recognized on a straight-line basis over the non-cancelable term of the lease. Straight-line rental revenue commences when the customer assumes the control of the leased office building.

Net income/(loss) per share

Basic income/(loss) per ordinary share is computed by dividing net income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted income/(loss) per ordinary share reflect the potential dilution that would occur if securities were exercised or converted into ordinary shares. The Group had share options and RSUs, which could potentially dilute basic income per share in the future. To calculate the number of shares for diluted income per ordinary shares, the effect of the share options and unvested RSUs is computed using the treasury stock method.

F-35

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Foreign currency risk

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies, international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents denominated in RMB amounted to RMB524,298 and RMB472,415 as of December 31, 2021 and 2022, respectively.

Concentration risks

Financial instruments that potentially expose the Group to significant concentration of credit risk primarily consist of cash and cash equivalents, restricted cash, short-term investments and receivables from third party payment platform. As of December 31, 2021 and 2022, substantially all of the Group’s cash and cash equivalents and short-term investments were deposited in financial institutions located in mainland China.

There are no revenues from customers which individually represent greater than 10% of the total net revenues for the years ended December 31, 2020, 2021 and 2022.

F-36

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

3. BUSINESS ACQUISITION

In December 2020, the Group acquired 100% equity interest of Tianjin Puxin Online School Education Technology Co., Ltd. ("Tianjin Puxin"), a K-12 education institution, for a total cash consideration of RMB37,399, in which RMB35,529 had been paid based on the agreement in December 2020. The intangible assets and goodwill acquired from the acquisition were RMB13,700 and RMB43,300, respectively. The Group acquired Tianjin Puxin to further expand its online education student base. Tianjin Puxin after acquisition constituted less than 0.05% and 0.15% of revenue and total assets of the consolidated financial statement during the year ended and as of December 31, 2020, and the results of operations attributable to Tianjin Puxin has not been presented because they are not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2019 and 2020. Tianjin Puxin completed its deregistration process in July, 2022.

The acquired assets and liabilities were recorded at their fair value on the date of acquisition. The purchase price allocation was determined by the Group with assistance of an independent appraiser. The purchase price was allocated on the date of acquisition as below:

				Amortization
	2020			period
	RMB
Other current assets		123
Intangible assets:
Trademark		1,300		3 years
Student base		12,400		2 years
Goodwill		43,300
Deferred revenue		(11,700	)
Other current liabilities		(457	)
Deferred tax liabilities		(7,567	)
		37,399

The goodwill is attributable to intangible assets that cannot be recognized separately as identifiable assets under U.S. GAAP, which is comprised of (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of the synergy resulting from these acquisitions. The Group conducted goodwill impairment assessment in 2021, which was described as Note 8.

F-37

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

3. BUSINESS ACQUISITION - continued

The following summarized unaudited pro forma results of operations for the years ended December 31, 2020 assuming that the acquisition during the year ended December 31, 2020 occurred as of January 1, 2020. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred as of January 1, 2020, nor is it indicative of future operating results.

	Year ended December 31,
	2020
	RMB
	(Unaudited)
Pro forma net revenues		7,231,144
Pro forma net loss		(1,477,022	)

The Group did not make any business acquisitions during the year ended December 31, 2021 and 2022.

F-38

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

4. ASSETS ACQUISITION

In December 2019, the Group entered into a purchase agreement with Zhengzhou Kaitong Technology and Trading Co., Ltd (“Zhengzhou Kaitong”) to acquire two completed and one in construction office buildings, which will be used for business operating purposes. The acquisition of the real estate was subsequently completed in January 2020 for a total consideration of RMB333,809. As of December 31, 2022, a payable of RMB26,580 is expected to be paid within one year in accordance with the payment term.

The Group did not make any asset acquisitions during the year ended December 31, 2021.

In August 2022, the Group acquired 100% equity interest of Guangzhou XingHuo Online Education Technology Co., Ltd. (later renamed to Guangzhou XingHuo Online Computer Technology Co., Ltd., hereinafter referred to as "Guangzhou XingHuo") from Guangdong Shijixiao Education Technology Co., Ltd.. This acquisition was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired is concentrated in a business license, which was recorded in intangible assets and amortized on a straight-line basis over its estimated useful life.

F-39

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of December 31,
	2021		2022
	RMB		RMB
Prepaid VAT and income tax(1)		100,396		101,994
Prepaid other service fees(2)		90,916		67,265
Receivables from third parties(3)		3,671		119,492
Amounts due from a third party(4)		—		78,000
Receivables from third party payment platform(5)		49,965		24,545
Staff advance		1,901		4,128
Receivables from broker		4		367
Others		3,215		4,106
		250,068		399,897

(1)Prepaid VAT and income tax mainly consist of VAT input that is expected to offset with VAT output tax or to be transferred out in the future related to 2021 and 2022.

(2)Prepaid other service fees mainly consist of prepayment of advertising fees and cloud server hosting fees. The prepayments of advertising fees and cloud server hosting fees are generally short-term in nature and are amortized over the related service period.

(3)Receivables from third parties mainly consist of receivables raised from disposal of assets, rent, technical support services and sales of inventory.

(4)Amounts due from a third party represents a loan to a third party with an interest rate of 4.35% and was repaid in January 3, 2023.

(5)Receivables from third party payment platform consist of cash that has been received from course participants but held by the third-party payment platform. The Group subsequently collected the full balance from the third-party payment platform.

F-40

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

6. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Electronic equipment		196,173			99,345
Building		491,082			491,082
Leasehold improvement		81,377			76,522
Furniture and office equipment		11,975			2,659
Software		12,697			17,002
Construction in progress		10,182			870
Total		803,486			687,480
Less: Accumulated depreciation		(123,168	)		(135,448	)
Accumulated impairment loss		(309	)		—
		680,009			552,032

Depreciation expenses were RMB55,751, RMB108,446 and RMB68,807 for the years ended December 31, 2020, 2021 and 2022, respectively.

As a result of the New Regulations and the Business Restructuring, the Group performed an impairment assessment on property, equipment and software in 2021 and reduces the carrying value of the property and equipment related to compulsory education academic subject tutoring services to its estimated fair value based on market approach. The Group recorded impairment losses on property, equipment and software amounted to nil, RMB28,918 and nil during the years ended December 31, 2020, 2021 and 2022, respectively.

7. LAND USE RIGHTS, NET

Land use rights consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Land use rights		29,788			29,788
Less: Accumulated amortization		(1,610	)		(2,415	)
		28,178			27,373

Amortization expenses for land use right were RMB805, RMB805 and RMB805 for the years ended December 31, 2020, 2021 and 2022, respectively. Future amortization expense is RMB805 for each of the next five years through December 31, 2027 and RMB805 thereafter.

F-41

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

8. GOODWILL

The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2022 were presented as follow:

	As of December 31,
	2021			2022
	RMB			RMB
Beginning balance		43,631			331
Addition		—			—
Accumulated impairment loss		(43,300	)		—
Goodwill, net		331			331

The Group conducted goodwill impairment assessment at the end of each reporting year or more frequently if there are changes indicate that it may be impaired. As a result of the New Regulations and the Business Restructuring, the Group performed an impairment assessment on goodwill of Tianjin Puxin, which is a stand-alone reporting unit in 2021 and reduced the carrying value to its estimated fair value based on expected discounted cash flow approach.

The Group recorded goodwill impairment losses amounted to nil, RMB43,300 and nil for the years ended December 31, 2020, 2021 and 2022, respectively.

F-42

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

9. INTANGIBLE ASSETS

The intangible assets consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Student base		12,510			12,510
Trademark		1,675			1,675
License		—			20,000
Total		14,185			34,185
Less: Accumulated amortization		(4,277	)		(5,422	)
Accumulated impairment loss		(9,831	)		(9,831	)
		77			18,932

The Group recognized amortization expense of RMB656, RMB3,311 and RMB1,145 for the years ended December 31, 2020, 2021 and 2022, respectively. As of December 31, 2022, the Group expects to recognize amortization expenses of RMB2,705 for each of the next five years through 2027, respectively, and RMB5,407 thereafter.

The Group reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. As a result of the New Regulations and the Business Restructuring, the Group performed an impairment assessment on intangible assets in 2021 and the intangible assets were substantially impaired as the Group does not expect to obtain any benefits from those given the changes in regulations.

The Group recorded impairment losses on intangible assets amounted to nil, RMB9,831 and nil during the years ended December 31, 2020, 2021 and 2022, respectively.

F-43

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The components of accrued expenses and other current liabilities were as follows:

	As of December 31,
	2021		2022
	RMB		RMB
Salary and welfare payable		361,560		301,152
Other accrued expense		132,184		129,970
Other tax payable		85,788		67,334
Refund liability (1)		78,630		60,597
Accrued marketing expense		27,005		75,473
Payable for investment and acquisition		1,870		26,580
Others		6,228		1,083
		693,265		662,189

(1)Refund liability represents the estimated amounts of service fee received that is estimated to be refunded as described in Note 2.

11. FAIR VALUE MEASUREMENT

Measured at fair value on a recurring basis

As of December 31, 2021 and 2022, short-term investments measured at fair value are as follows:

	Fair value measurement as of December 31, 2022
	Quoted prices in active market for identical assets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
	RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		—		1,512,953		—		1,512,953
Investments elected to measure at fair value
- Wealth management products		—		1,203,995		—		1,203,995
Total		—		2,716,948		—		2,716,948

F-44

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

11. FAIR VALUE MEASUREMENT - continued

Measured at fair value on a recurring basis - continued

	Fair value measurement as of December 31, 2021
	Quoted prices in active market for identical assets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
	RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		—		2,199,372		—		2,199,372
Total		—		2,199,372		—		2,199,372

The Group’s available-for-sale debt investments and investments elected to measure at fair value as of December 31, 2021 and 2022 mainly consist of wealth management products purchased from banks. The products are valued using alternative pricing sources and models utilizing market observable inputs, and accordingly, the Group classifies the valuation techniques that use these inputs as Level 2.

A summary of available-for-sale investments during the years ended December 31, 2021 and 2022 is presented as below:

	As of December 31, 2022
	Original cost		Unrealized gains		Unrealized loss		Provision for decline in value		Fair value
	RMB		RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		1,508,635		4,318		—		—		1,512,953
Total		1,508,635		4,318		—		—		1,512,953

F-45

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

11. FAIR VALUE MEASUREMENT - continued

Measured at fair value on a recurring basis - continued

	As of December 31, 2021
	Original cost		Unrealized gains		Unrealized loss		Provision for decline in value		Fair value
	RMB		RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		2,203,630		—		4,258		—		2,199,372
Total		2,203,630		—		4,258		—		2,199,372

For the year ended December 31, 2022, a gain of RMB1,422 resulting from changes in fair value of the products under fair value option was recorded in other income.

As of December 31, 2022, RMB1,512,953 available-for-sale investments and RMB1,203,995 investments elected to measure at fair value will mature within one year.

Measured at fair value on a non-recurring basis

Property, plant and software, goodwill and acquired intangible assets are measured at fair value on a non-recurring basis when an impairment is recognized, which is disclosed in note 6, 8 and 9, respectively.

F-46

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

12. SHARE-BASED COMPENSATION

Share options

In March 2019, the Group approved the Share Incentive Plan (the “Plan”) under which the maximum aggregate number of ordinary shares that may be issued pursuant to all awards is 28,400,000 shares. The shares reserved may be increased automatically if and whenever the unissued shares reserved accounts for less than one percent (1%) of the total then issued and outstanding shares, so that after the increase, the shares unissued and reserved under the Plan immediately after each such increase shall equal to five percent (5%) of the then issued and outstanding shares.

Prior to the initial public offering in June 2019, the Group granted share options to employees. The term of the option shall not exceed ten years from the date of the grant.

The options will vest in accordance with the vesting schedules set out in the respective share option agreements with vesting period ranging from 0 to 10 years. The Group determined the estimated fair value of the options on the respective grant dates using the binomial option pricing model with the assistance from an independent valuation firm. The Group did not grant any share options during the years ended December 31, 2020, 2021 and 2022.

A summary of options activities during the year ended December 31, 2022 is presented below:

	Number of options			Weighted average exercise price		Weighted average grant date fair value		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2022		5,213,161			0.01		13.96		6.63		96,622
Granted		—			—		—
Exercised		(872,428	)		0.01		13.23
Forfeited		(722,387	)		0.01		14.75
Cancelled		—			—		—
Options outstanding at December 31,    2022		3,618,346			0.01		13.98		5.75		88,310
Options vested and expected to    vest as of December 31, 2022		3,618,346			0.01		13.98		5.75		88,310
Options exercisable as of December 31,    2022		703,183			0.01		8.12		4.62		17,162

F-47

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

12. SHARE-BASED COMPENSATION - continued

Share options - continued

The total fair value of options vested during the years ended December 31, 2020, 2021 and 2022 were RMB21,081, RMB19,134 and RMB13,032 respectively. Total intrinsic value of options exercised for the years ended December 31, 2020, 2021 and 2022 were RMB314,928, RMB13,933 and RMB21,293 respectively.

The Group recognizes compensation expenses related to options over the estimated service period for each separate vesting portion of the award as if the award is in substance, multiple awards.

As of December 31, 2022, there was RMB16,535 of unrecognized compensation expenses related to options expected to be recognized over a weighted average period of 5.75 years.

Restricted Stock Units

Under the Plan, the Group granted 4,919,577 RSUs to employees at an exercise price of nil per share during the year ended December 31, 2022. The vesting period of these RSUs ranged from 0 to 4 years. The RSUs are not transferable and may not be sold or pledged and the holder has no voting or dividend right on the non-vested RSUs. In the event that the employment with the Group is terminated for any reason prior to vesting in the RSUs, the holder’s right to the unvested RSUs will terminate immediately. The non-vested RSUs will be repurchased by the Group at no cost.

The Group recognized compensation expense over the requisite service period for each separately vesting portion of the award as if the award is in substance, multiple awards. The aggregate fair values of RSUs are measured at the fair value of the Group’s ordinary shares on the grant date which were RMB672,010, RMB558,876 and RMB82,690 during the years ended December 31, 2020, 2021 and 2022, respectively.

As of December 31, 2022, there was RMB101,885 unrecognized compensation cost related to RSUs which is expected to be recognized over a weighted average vesting period of 3.08 years. The weighted average granted fair value of the RSUs granted during the years ended December 31, 2020, 2021 and 2022 was RMB391.35, RMB135.14 and RMB16.81 per RSU, respectively.

F-48

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

12. SHARE-BASED COMPENSATION - continued

Restricted Stock Units - continued

A summary of the RSUs activity during the year ended December 31, 2022 is presented below:

	RSUs
Unvested balance at January 1, 2022		2,991,804
Granted		4,919,577
Vested		(648,588	)
Forfeited		(1,361,932	)
Cancelled		(480,487	)
Unvested balance at December 31, 2022		5,420,374

Modifications

During the year ended December 31, 2021, as a result of the Business Restructuring, the Group cancelled 530,700 options and 1,613 RSUs without concurrent grant of a replacement award or other valuable consideration, for those the Group recognized any previously unrecognized compensation cost at the cancellation date. Additionally, the Group also cancelled 330,428 RSUs and further paid RMB24,370 as cash consideration. Any previous unrecognized compensation costs related to the award were recorded at the cancellation date. The Group recognized incremental compensation expense amounting to RMB24,370, equal to the excess of the cash consideration over the fair value of the cancelled award which was nominal at the cancellation date.

During the year ended December 31, 2022, the Group cancelled 480,487 RSUs without concurrent grant of a replacement award or other valuable consideration, for those the Group recognized all previously unrecognized compensation cost at the cancellation date.

The Group recognized RMB238,446, RMB345,259 and RMB122,654 of compensation expenses for all options and RSUs granted for the years ended December 31, 2020, 2021 and 2022, respectively.

F-49

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

13. ORDINARY SHARES

Upon the completion of the initial public offering, the ordinary shares of the Company are classified as Class A and Class B. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

In November 2022, the Company’s board of directors authorized a share repurchase program, under which the Company may repurchase up to USD30,000 of its common shares, including shares represented by American depositary shares, effective until November 2025. Additionally, Mr. Larry Xiangdong Chen, the Company's founder, Chairman and CEO, intends to personally purchase up to USD20,000 of the Company's shares. During the year ended December 31, 2022, the Company and Mr. Larry Xiangdong Chen did not make any repurchase under this share repurchase program.

During the year ended December 31, 2021 and 2022, the shares of treasury stock reissued in connection with the exercise of options and the vesting of RSUs were 365,358 and nil, respectively.

14. INCOME TAXES

The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income or capital gains taxes. The Company’s subsidiary BaiJiaHuLian HK is located in Hong Kong and is subject to an income tax rate of 16.5% for assessable profit earned in Hong Kong in 2017 and during the first three months of 2018. From April 2018, BaiJiaHuLian HK is subject to an income tax rate of 8.25% for the first HKD2,000 of assessable profit and 16.5% for profit exceeding HKD2,000. No provision for Hong Kong profits tax was made as the Group had no estimated assessable profit that was subject to Hong Kong profits tax for the years ended December 31, 2021 and 2022.

The Company’s subsidiary, the VIE and the VIE’s subsidiaries, which were entities incorporated in mainland China (the “Mainland China entities”), are subject to mainland China Enterprise Income Tax (“EIT”) on their taxable income in accordance with the relevant income tax laws of mainland China, which have adopted a unified income tax rate of 25% since January 1, 2008 with the following exceptions.

Beijing Gaotu qualified as a High and New Technology Enterprise (the "HNTE") from 2017 through 2022 and accordingly was entitled to the 15% preferential tax rate during the period.

GaoTuYunJi qualified as a HNTE from 2019 through 2021, and accordingly was entitled to a 15% preferential tax rate during the period. The HNTE qualification has been renewed in 2022 and set to expire by 2024.

F-50

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

14. INCOME TAXES - continued

Beijing Lexuebang also qualified as a HNTE during the year ended December 31, 2019. The HNTE qualification has been renewed in 2022 and set to expire by 2024. Furthermore, Beijing Lexuebang obtained the qualification of the Software Enterprise Certificate in March 2020, and renewed in 2021 and 2022. Therefore, Beijing Lexuebang adopted the exemption from EIT for years 2019 and 2020, and 12.5% from 2021 to 2023.

Wuhan Yuexuebang obtained the qualification of the Software Enterprise Certificate in March 2021, and renewed in 2022. Therefore, Wuhan Yuexuebang adopted exemption from EIT for the years 2020 and 2021, and 12.5% from 2022 to 2024.

The current and deferred components of the income tax expense appearing in the consolidated statement of operations were as follows:

	Year ended December 31,
	2020		2021			2022
	RMB		RMB			RMB
Current tax benefits/(expenses)		14,578		(1	)		(1,906	)
Deferred tax benefits/(expenses)		20,041		(40,948	)		17,611
		34,619		(40,949	)		15,705

The principle components of deferred tax assets were as follows:

	As of December 31,
	2021			2022
	RMB			RMB
Deferred tax assets：
Deductible temporary difference related to advertising    expenses		750,576			778,837
Net operating loss carrying forwards		578,623			584,693
Transfer of intangible assets		1,510			1,340
Accrued liabilities		2,176			1,876
Total deferred tax assets		1,332,885			1,366,746
Less: valuation allowance		(1,332,885	)		(1,351,067	)
Deferred tax assets, net		—			15,679

F-51

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

14. INCOME TAXES - continued

The movements of valuation allowance for the years end December 31, 2020, 2021 and 2022 were as follows:

	Year ended December 31,
	2020			2021		2022
	RMB			RMB		RMB
Balance at beginning of the period		40,352			573,565		1,332,885
Acquisitions		4,987			—		6,668
Additions		529,915			759,320		11,514
Reversal		(1,689	)		—		—
Balance at end of the period		573,565			1,332,885		1,351,067

The principle components of deferred tax liabilities were as follows:

	As of December 31,
	2021		2022
	RMB		RMB
Deferred tax liabilities
Building and land use right		71,107		69,307
Intangible assets		—		4,719
Unrecognized gains of investments		509		481
Total deferred tax liabilities		71,616		74,507

As of December 31, 2022, the Group had net operating loss carried forward of RMB2,717,316 from the Company's Mainland China entities, which will expire on various dates from December 31, 2023 to December 31, 2032.

F-52

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

14. INCOME TAXES - continued

The reconciliation of the effective tax rate and the statutory income tax rate applicable to operations was as follow:

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Loss before provision for income taxes    and share of results of equity investees		(1,427,612	)		(3,062,214	)		(2,533	)
Income tax benefits computed at an    applicable tax rate of 25%		356,903			765,554			633
Effect of permanent differences		55,935			(8,186	)		(1,423	)
Effect of research and development super-deduction		88,881			89,287			36,263
Effect of preferential tax rate		62,404			(129,026	)		581
Effect on tax rates in different tax jurisdictions		(1,278	)		742			(8,835	)
Change in valuation allowance		(528,226	)		(759,320	)		(11,514	)
		34,619			(40,949	)		15,705

If Beijing Gaotu, GaoTuYunJi, Beijing Lexuebang, Wuhan Yuexuebang did not enjoy income tax preferential tax rates, tax expense would have increased by RMB62,404 for the years ended December 31, 2020, tax benefit would have decreased by RMB129,026 for the year ended December 31, 2021 and tax expense would have increased by RMB581 for the years ended December 31,2022. The increase in basic and diluted net loss per ordinary share was RMB0.39 and RMB0.76 for the years ended December 31, 2020, 2021, respectively. The decrease in basic and diluted net income per ordinary share was approximately nil for the years ended December 31, 2022.

The Group did not identify significant unrecognized tax benefits for the year ended December 31, 2022. The Group did not incur any interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2022. As of December 31, 2021 and 2022, the Group did not have any significant unrecognized uncertain tax positions.

Aggregate undistributed earnings of the Company’s mainland China subsidiaries and the VIE that are available for reinvestment. Upon distribution of such earnings, the Company will be subject to mainland China EIT, the amount of which is impractical to estimate. The Company did not record any withholding tax on any of the aforementioned undistributed earnings because the relevant subsidiaries and the VIE do not intend to declare dividends and the Company intends to permanently reinvest it within the mainland China. Additionally, no deferred tax liability was recorded for taxable temporary differences attributable to the undistributed earnings of VIE because the Company believes the undistributed earnings can be distributed from the VIE to WFOEs in a manner that would not be subject to income tax.

F-53

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

15. NET (LOSS)/INCOME PER SHARE

The following table sets forth the computation of basic and diluted net (loss)/income per share for the periods indicated:

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Basic net (loss)/income per share calculation
Numerator:
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172
Net (loss)/income attributed to ordinary shareholders    for computing net (loss)/income per ordinary shares    -basic		(1,392,930	)		(3,103,465	)		13,172
Denominator:
Weighted average ordinary shares outstanding used in    computing net (loss)/income per ordinary shares-basic		159,725,779			170,790,979			172,254,080
Net (loss)/income per ordinary share attributable to    ordinary shareholders-basic		(8.72	)		(18.17	)		0.08
Diluted net (loss)/income per ordinary share calculation
Denominator:
Weighted average ordinary shares basic outstanding		159,725,779			170,790,979			172,254,080
Effect of potentially diluted stock options		—			—			2,931,766
Effect of potentially diluted RSUs		—			—			805,638
Weighted average ordinary shares outstanding used in    computing net (loss)/income per ordinary shares-diluted		159,725,779			170,790,979			175,991,484
Net (loss)/income per ordinary share attributable to    ordinary shareholders-diluted		(8.72	)		(18.17	)		0.07

For the years ended December 31, 2020, 2021 and 2022, the following RSUs outstanding were excluded from the calculation of diluted net (loss)/income per ordinary share, as their inclusion would have been anti-dilutive for the periods prescribed.

	Year ended December 31,
	2020		2021		2022
Shares issuable upon conversion of RSUs		64,576		12,794		1,093,923

F-54

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

16. EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the mainland China participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund, unemployment insurance and other welfare benefits are provided to employees. Labor regulations of mainland China require that the Group’s mainland China entities make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amount for such employee benefits, which was expensed as incurred, was RMB216,551, RMB393,812 and RMB125,666 for the years ended December 31, 2020, 2021 and 2022, respectively.

17. RELATED PARTY TRANSACTION

(1)Related parties

Name of related parties	Relationship with the Group
Beijing Youlian Global Education    Technology Co., Ltd ("Beijing Youlian")(1)	Equity method investment investee

(1)Beijing Youlian was dissolved in June 2020.

(2)The significant transactions between the Group and its related parties were as follows:

Other than as disclosed elsewhere in these consolidated financial statements, the Group had the following significant related party transactions:

	Expense Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Beijing Youlian(1)		1,457		—		—
Total		1,457		—		—

(1)The Group recognized expense from receiving advertising service provided by Beijing Youlian.

F-55

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

18. LEASE

Operating leases

The Group’s leases consist of operating leases for administrative office spaces in different cities in mainland China. The Group determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which the Group choose to account for as separate components. The allocation of the consideration between the lease and the non-lease components is based on the relative stand-alone prices of lease components included in the lease contracts. As of December 31, 2021 and 2022, the Group had no long-term leases that were classified as a financing lease. As of December 31, 2022, the Group did not have additional operating leases that have not yet commenced.

Total operating lease expenses for the years ended December 31, 2021 and 2022 was RMB193,957 and RMB32,714, and was recorded in cost of revenues, selling expenses, research and development expenses and general and administrative expense on the consolidated statements of operations.

Some leases were terminated before the expiration of the lease term due to the impact of Business Restructuring, the relevant right-of-use asset and the lease liability were derecognized with the difference amounted to RMB16,720 recognized under other income in the consolidated statements of operations in 2022. The noncash decrease of operating lease right-of-use assets was RMB296,465 for the years ended December 31, 2022.

	Year ended December 31,
	2021			2022
	RMB			RMB
Cash paid for amounts included in the measurement of    lease liabilities:
Operating cash flows from operating leases		156,600			37,027
Non-cash right-of-use assets in exchange for new lease    liabilities:
Operating leases		39,069			38,953
Weighted average remaining lease term:
Operating leases		4.3			2.9
Weighted average discount rate:
Operating leases		6.5	%		7.2	%

F-56

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

18. LEASE - continued

Operating leases - continued

The following is a maturity analysis of the annual undiscounted cash flows for the annual periods ending December 31:

	RMB
Year ending December 31,
2023		33,303
2024		32,818
2025		19,802
2026		4,193
2027 and thereafter		—
Less: imputed interest		(7,592	)
Total		82,524

Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The terms of the leases do not contain rent escalation or contingent rents. For the years ended December 31, 2020, 2021, 2022, total rental expense for all operating leases amounted to RMB155,287, RMB193,957 and RMB32,714, respectively.

19. CONTINGENCIES

The Company was named as defendants in a putative securities class action filed in federal court in December 2022. Plaintiffs purportedly brought the case on behalf of a class of persons who purchased the Company’s ADSs between March 5, 2021 and July 23, 2021, and alleged that the Company’s public filings contained misstatements and omissions in violation of the U.S. Securities Exchange Act of 1934. The Group believes the claim made by the plaintiff is without merit, and the Group intends to defend vigorously in the cases. As the case is still in its preliminary stage, although the outcome of litigation is inherently uncertain, the Group does not believe the possibility of loss is probable. The Group is unable to estimate a range of loss, if any, that could result if there would be an adverse final decision, and the Group has not accrued a liability for the matter.

F-57

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

20. SEGMENT INFORMATION

Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial information is available that is regularly evaluated by the Group’s chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance. The Group’s CODM has been identified as the CEO. The Group is currently engaged in providing learning services and educational content & digitalized learning products. The CODM reviews consolidated results including revenue, grow profit and operating profit at a consolidated level only and does not distinguish among services and products for the purpose of making decision about resources allocation and performance assessment. As such, the Group concluded that it has one operating segment and one reporting segment. The Group operates solely in mainland China and all of the Group’s long-lived assets are located in mainland China.

F-58

GAOTU TECHEDU INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

21. RESTRICTED NET ASSETS

Relevant statutory laws and regulations of mainland China permit payments of dividends by the Group’s mainland China subsidiaries only out of their retained earnings, if any, as determined in accordance with accounting standards and regulations of mainland China. The results of operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries.

In accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, a foreign invested enterprise established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s statutory accounts of mainland China, which is included in retained earnings accounts in equity section of the consolidated balance sheets. A wholly-owned foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve reaches 50% of its respective registered capital based on the enterprise’s statutory accounts of mainland China. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. If any mainland China subsidiary incur debt on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to the Group. Any limitation on the ability of the mainland China subsidiaries to distribute dividends or other payments to their respective shareholders could materially and adversely limit the ability to grow, make investments or acquisitions that could be beneficial to pay dividends.

Additionally, in accordance with the Company Law of mainland China, a domestic enterprise is required to provide statutory common reserve at least 10% of its annual after-tax profit until such reserve reaches 50% of its respective registered capital based on the enterprise’s statutory accounts of mainland China. The Group’s provision for the statutory common reserve is in compliance with the aforementioned requirement of the Company Law. A domestic enterprise is also required to provide for discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s statutory accounts of mainland China. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

Because the Group’s mainland China entities can only be paid out of distributable profits reported in accordance with accounting standards of mainland China, the Group’s entities in mainland China are restricted from transferring a portion of their net assets to the Company. The restricted amounts include the paid-in capital and statutory reserves of the Group’s entities in mainland China. The aggregate amount of paid-in capital and statutory reserves, which is the amount of net assets of the Group’s entities in mainland China not available for distribution, were both RMB4,738,378 as of December 31, 2021 and 2022, respectively.

F-59

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

BALANCE SHEETS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	As of December 31,
	2021			2022			2022
	RMB			RMB			USD
Cash and cash equivalents		11,260			3,731			541
Short-term investments		885,420			734,142			106,441
Prepaid expenses and other current assets		463			1,787			259
Amounts due from subsidiaries and VIEs		5,777,602			6,459,723			936,572
Total current assets		6,674,745			7,199,383			1,043,813
TOTAL ASSETS		6,674,745			7,199,383			1,043,813
Accrued expenses and other current liabilities		5,184			5,072			736
Amounts due to subsidiaries and VIEs		108,120			108,120			15,676
Total current liabilities		113,304			113,192			16,412
Deficit of investments in subsidiaries and VIEs		3,680,499			3,990,362			578,548
TOTAL LIABILITIES		3,793,803			4,103,554			594,960
Class A ordinary shares (par value of USD0.0001 per share; 800,000,000 shares authorized as of December 31, 2021 and 2022; 99,277,116 and 100,077,116 shares issued; 98,032,240 and 99,553,256 shares outstanding as of December 31, 2021 and 2022)		66			67			10
Class B ordinary shares (par value of USD0.0001 per share; 100,000,000 shares authorized as of December 31, 2021 and 2022, 73,305,288 shares issued and outstanding as of December 31, 2021 and 2022)		48			48			7
Additional paid-in capital		7,793,234			7,915,899			1,147,697
Accumulated other comprehensive loss		(143,111	)		(64,062	)		(9,288	)
Statutory reserves		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		6,674,745			7,199,383			1,043,813

F-60

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENT OF OPERATIONS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
General and administrative expenses		(14,157	)		(25,357	)		(8,807	)		(1,277	)
Total operating expenses		(14,157	)		(25,357	)		(8,807	)		(1,277	)
Loss from operations		(14,157	)		(25,357	)		(8,807	)		(1,277	)
Equity in (loss)/gain of subsidiaries and VIEs		(1,387,816	)		(3,106,437	)		45,545			6,604
Income/(loss) from non-operations		9,043			28,329			(23,566	)		(3,417	)
(Loss)/income before income tax		(1,392,930	)		(3,103,465	)		13,172			1,910
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910

F-61

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENT OF COMPREHENSIVE (LOSS)/INCOME

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Other comprehensive (loss)/income, net of tax:
Change in cumulative foreign currency translation adjustments		(74,562	)		(73,936	)		72,703			10,541
Unrealized gains on available-for-sale investments (net of tax effect of RMB9,867, RMB8,598 and RMB8,703 for the years ended December 31, 2020, 2021 and 2022, respectively)		67,231			48,191			39,729			5,760
Transfer to statements of operations of realized gains on available-for-sale investments (net of tax effect of RMB9,654, RMB8,302 and RMB8,881 for the years ended December 31, 2020, 2021 and 2022, respectively)		(70,403	)		(57,461	)		(33,383	)		(4,840	)
Total comprehensive (loss)/income		(1,470,664	)		(3,186,671	)		92,221			13,371

F-62

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENT OF CASH FLOWS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Equity in loss/(gain) of subsidiaries and VIEs		1,387,816			3,106,437			(45,545	)		(6,604	)
Realized gains from investments		(6,564	)		(8,498	)		—			—
Fair value change of fair value option		—			—			31,080			4,506
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,919	)		2,083			(1,324	)		(192	)
Accrued expenses and other current liabilities		(1,771	)		(3,618	)		(113	)		(16	)
Net cash used in operating activities		(15,368	)		(7,061	)		(2,730	)		(396	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to subsidiaries and VIEs		(195,783	)		(6,248,209	)		(303,214	)		(43,962	)
Repayment from subsidiaries and VIEs		—			706,870			100,000			14,499
Investing activities on debt securities investments		(5,252,188	)		5,547,488			174,382			25,283
Net cash (used in)/generated from investing activities		(5,447,971	)		6,149			(28,832	)		(4,180	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution		36			7			—			—
Proceeds from private placement financing		5,687,251			—			—			—
Repurchase of ordinary shares		(282,543	)		—			—			—
Net cash generated from financing activities		5,404,744			7			—			—
Effect of exchange rate changes		5,390			3,735			24,033			3,484
Net (decrease)/increase in cash and cash equivalents		(53,205	)		2,830			(7,529	)		(1,092	)
Cash and cash equivalents at beginning of the year		61,635			8,430			11,260			1,633
Cash and cash equivalents at end of the year		8,430			11,260			3,731			541

F-63

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(In thousands of RMB and USD, except for share and per share data, or otherwise noted)

1. BASIS FOR PREPARATION

The condensed financial information of the Parent Company has been prepared using the same accounting policies as set out in the Group’s consolidated financial statements except that the Parent Company used the equity method to account for investments in its subsidiaries, VIE and VIE’s subsidiaries. The condensed financial information is provided since the restricted net assets of the Group’s subsidiaries, the VIE and the VIE’s subsidiaries were over the 25% of the consolidated net assets of the Group as of December 31, 2022.

2. INVESTMENT IN SUBSIDIARIES AND VIE AND VIE'S SUBSIDIARIES

The Parent Company and its subsidiaries, VIE and VIE’s subsidiaries were included in the consolidated financial statements where inter-company balances and transactions were eliminated upon consolidation. For purpose of the Parent Company’s stand-alone financial statements, its investments in subsidiaries, VIE and VIE’s subsidiaries were reported using the equity method of accounting. The Parent Company’s share of loss from its subsidiaries, VIE and VIE’s subsidiaries were reported as share of loss of subsidiaries, VIE and VIE’s subsidiaries in the accompanying Parent Company financial statements. Ordinarily under the equity method, an investor in an equity method investee would cease to recognize its share of the losses of an investee once the carrying value of the investment has been reduced to RMB nil absent an undertaking by the investor to provide continuing support and fund losses. For the purpose of this Schedule I, the Parent Company has continued to reflect its share, based on its proportionate interest, of the losses of subsidiaries, VIE and VIE’s subsidiaries regardless of the carrying value of the investment even though the Parent Company is not obligated to provide continuing support or fund losses.

3. CONVENIENCE TRANSLATION

The Group’s business is primarily conducted in mainland China and all of the revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into US dollars using the exchange rate as of balance sheet date, for the convenience of the readers. Translations of balances in the balance sheet, and the related statement of operations and cash flows from Renminbi (“RMB”) into US dollars as of and for the year ended December 31, 2022 are solely for the convenience of the readers and were calculated at the rate of USD1.00=RMB6.8972, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 30, 2022. 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 31, 2022, or at any other rate.

F-64

EX-8

Exhibit 8.1

List of Subsidiaries and Variable Interest Entity of the Registrant

Subsidiaries	Place of Incorporation
BaiJiaHuLian HK Holdings Limited	Hong Kong
Beijing Lexuebang Network Technology Co., Ltd	Mainland, China
Wuhan Yuexuebang Network Technology Co., Ltd	Mainland, China
Beijing Yuexuebang Network Technology Co., Ltd	Mainland, China
Shanghai Chuxuebang Network Technology Co., Ltd	Mainland, China
Consolidated Variable Interest Entity	Place of Incorporation
Gaotu Education Technology Group Co., Ltd	Mainland, China
Subsidiaries of Consolidated Variable Interest Entity	Place of Incorporation
Beijing GaoTuYunFan Technology Co., Ltd	Mainland, China
Beijing Jiazi Technology Co., Ltd	Mainland, China
Shanghai GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Zhengzhou GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Taiyuan GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Zhejiang GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Nanchang GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Tianjin Genshuixue Education Technology Co., Ltd	Mainland, China
Beijing GaoTuChengXi Travel Service Co., Ltd	Mainland, China
Beijing GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Shanxi GaoTuYunJi Internet Technology Co., Ltd	Mainland, China
Xi’an GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Wuhan GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Anhui Genshuixue Education Technology Co., Ltd	Mainland, China
Jiangsu GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Chengdu GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Chengdu GaoTuXingHui Technology Training School Co., Ltd	Mainland, China
Changsha GaoTuYunJi Education Technology Co., Ltd	Mainland, China
Beijing GaoTuJiaPin Technology Co., Ltd	Mainland, China
Guangzhou GaoTu Technology Co., Ltd	Mainland, China
Guangzhou XingHuo Online Education Technology Co., Ltd	Mainland, China
Guangdong XingZhiHuo Online Training Center	Mainland, China

EX-12

Exhibit 12.1

Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Larry Xiangdong Chen, certify that:

1.I have reviewed this annual report on Form 20-F of Gaotu Techedu Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date:	April 18, 2023
By:	/s/ Larry Xiangdong Chen
Name:	Larry Xiangdong Chen
Title:	Chief Executive Officer

EX-12

Exhibit 12.2

Certification by the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nan Shen, certify that:

1.I have reviewed this annual report on Form 20-F of Gaotu Techedu Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(a)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(b)Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5.The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date:	April 18, 2023
By:	/s/ Nan Shen
Name:	Nan Shen
Title:	Chief Financial Officer

EX-13

Exhibit 13.1

Certification by the Principal Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Gaotu Techedu Inc. (the “Company”) on Form 20-F for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Larry Xiangdong Chen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	April 18, 2023
By:	/s/ Larry Xiangdong Chen
Name:	Larry Xiangdong Chen
Title:	Chief Executive Officer

EX-13

Exhibit 13.2

Certification by the Principal Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Gaotu Techedu Inc. (the “Company”) on Form 20-F for the year ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nan Shen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	April 18, 2023
By:	/s/ Nan Shen
Name:	Nan Shen
Title:	Chief Financial Officer

EX-15

Exhibit 15.1

Gaotu Techedu Inc.

5F, Gientech Building, 17 East Zone,

10 Xibeiwang East Road

Haidian District, Beijing 100193

People’s Republic of China

April 18, 2023

Dear Sir or Madam

Gaotu Techedu Inc.

We have acted as legal advisers as to the laws of the Cayman Islands to Gaotu Techedu Inc., an exempted limited liability company incorporated in the Cayman Islands (the “Company”), in connection with the filing by the Company with the United States Securities and Exchange Commission (the “SEC”) of an annual report on Form 20-F for the year ended 31 December 2022 (the “Annual Report”).

We hereby consent to the reference to our firm under the heading “Item 10.E. Additional Information—Taxation—Cayman Islands Taxation” in the Annual Report, and we further consent to the incorporation by reference of the summary of our opinions under these headings into the Company’s registration statement on Form S-8 (File No. 333-235314) that was filed on 2 December 2019, pertaining to the Company’s Share Incentive Plan.

We consent to the filing with the SEC of this consent letter as an exhibit to the Annual Report. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.

Yours faithfully

/s/ Maples and Calder (Hong Kong) LLP

Maples and Calder (Hong Kong) LLP

EX-15

Exhibit 15.2

April 18, 2023

Gaotu Techedu Inc. (the “Company”)

5F, Gientech Building, 17 East Zone,
10 Xibeiwang East Road
Haidian District, Beijing 100193
People’s Republic of China

Dear Sirs:

We hereby consent to the use and reference to our name and our opinions and views under the captions “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—C. Organizational Structure —Contractual Arrangements with the VIE and Its Shareholders,” and “Item 10. Additional Information—E. Taxation” in the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022 (the “Annual Report”), and further consent to the incorporation by reference of the summary of our opinions in the Annual Report into the Company’s registration statement on Form S-8 (File No. 333-235314) that was filed on December 2, 2019, pertaining to the Company’s Share Incentive Plan.

We further consent to the filing of this letter as an exhibit to the Annual Report.

In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.

Sincerely yours,

/s/ Tian Yuan Law Firm

Tian Yuan Law Firm

EX-15

Exhibit 15.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement (No.333-235314) on Form S-8 of our reports dated April 18, 2023, relating to the financial statements of Gaotu Techedu Inc. and the effectiveness of Gaotu Techedu Inc.'s internal control over financial reporting appearing in this Annual Report on Form 20-F for the year ended December 31, 2022.

/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP

Deloitte Touche Tohmatsu Certified Public Accountants LLP

Beijing, the People’s Republic of China

April 18, 2023

XML

Cover Page	12 Months Ended
	Dec. 31, 2022 shares
Document Information [Line Items]
Document Type	20-F
Amendment Flag	false
Document Period End Date	Dec. 31, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Document Registration Statement	false
Document Annual Report	true
Document Transition Report	false
Document Shell Company Report	false
Securities Act File Number	001-38923
Entity Registrant Name	Gaotu Techedu Inc.
Entity Central Index Key	0001768259
Entity Address, Address Line One	5F, Gientech Building
Entity Address, Address Line Two	17 East Zone,10 Xibeiwang East Road
Entity Address, City or Town	Haidian District, Beijing
Entity Incorporation, State or Country Code	E9
Entity Address, Country	CN
Entity Address, Postal Zip Code	100193
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	false
Entity Shell Company	false
Document Accounting Standard	U.S. GAAP
ICFR Auditor Attestation Flag	true
Auditor Firm ID	1113
Auditor Name	Deloitte Touche Tohmatsu Certified Public Accountants LLP
Auditor Location	the People’s Republic of China
Business Contact [Member]
Document Information [Line Items]
Entity Address, Address Line One	5F, Gientech Building
Entity Address, Address Line Two	17 East Zone,10 Xibeiwang East Road
Entity Address, City or Town	Haidian District, Beijing
Entity Address, Country	CN
Entity Address, Postal Zip Code	100193
Local Phone Number	8282-6826
Contact Personnel Name	Nan Shen
Contact Personnel Email Address	shennan@gaotu.cn
City Area Code	86 10
Common Class A [Member]
Document Information [Line Items]
Title of 12(b) Security	Class A ordinary shares,par value US$0.0001 per share
Security Exchange Name	NYSE
No Trading Symbol Flag	true
Entity Common Stock, Shares Outstanding	99,553,256
Common Class B [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding	73,305,288
American Depositary Shares [Member]
Document Information [Line Items]
Title of 12(b) Security	American Depositary Shares, every threerepresenting two Class A ordinary shares, par value US$0.0001 per share
Trading Symbol	GOTU
Security Exchange Name	NYSE

XML

CONSOLIDATED BALANCE SHEETS ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Current assets
Cash and cash equivalents	¥ 819,911	$ 118,876	¥ 728,934
Restricted Cash	22	3	168,189
Short-term investments (including available-for-sale debt securities of RMB2,199,372 and RMB1,512,953 as of December 31, 2021 and 2022, respectively)	2,923,864	423,920	2,774,000
Inventory, net	22,783	3,303	15,595
Prepaid expenses and other current assets	399,897	57,980	250,068
Total current assets	4,166,477	604,082	3,936,786
Non-current assets
Operating lease right-of-use assets	83,663	12,130	353,877
Property, equipment and software, net	552,032	80,037	680,009
Intangible assets	18,932	2,745	77
Land use rights	27,373	3,969	28,178
Goodwill	331	48	331
Deferred tax assets	15,679	2,273	0
Rental deposit	9,502	1,378	22,544
Other non-current assets	2,186	317	2,864
TOTAL ASSETS	4,876,175	706,979	5,024,666
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 2022, respectively)	662,189	96,009	693,265
Deferred revenue, current portion of the consolidated VIE without recourse to the Group	906,914	131,490	986,993
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 2022, respectively)	38,326	5,557	80,010
Income tax payable (including income tax payable of the consolidated VIE without recourse to the Group of nil and RMB260 as of December 31, 2021 and December 31, 2022, respectively)	1,793	260	0
Total current liabilities	1,609,222	233,316	1,760,268
Non-current liabilities
Deferred revenue, non-current portion of the consolidated VIE without recourse to the Group	52,419	7,600	9,225
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 2022, respectively)	44,198	6,408	276,035
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, 2021 and December 31, 2022, respectively)	74,507	10,802	71,616
Other payables of the consolidated VIE without recourse to the Group	0	0	26,580
TOTAL LIABILITIES	1,780,346	258,126	2,143,724
SHAREHOLDERS' EQUITY
Additional paid-in capital	7,915,899	1,147,697	7,793,234
Accumulated other comprehensive loss	(64,062)	(9,288)	(143,111)
Statutory reserves	40,380	5,855	40,380
Accumulated deficit	(4,796,503)	(695,428)	(4,809,675)
TOTAL SHAREHOLDERS' EQUITY	3,095,829	448,853	2,880,942
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	4,876,175	706,979	5,024,666
Common Class A [Member]
SHAREHOLDERS' EQUITY
Ordinary shares	67	10	66
Common Class B [Member]
SHAREHOLDERS' EQUITY
Ordinary shares	¥ 48	$ 7	¥ 48

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥) shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) shares	Dec. 31, 2021 $ / shares
Short-term investments, available-for-sale debt securities current | ¥	¥ 1,512,953		¥ 2,199,372
Accrued expenses and other current liabilities	662,189	$ 96,009	693,265
Operating lease liabilities, current portion	38,326	5,557	80,010
Income tax payable	1,793	260	0
Operating lease liabilities, non-current portion	44,198	6,408	276,035
Deferred tax liabilities	¥ 74,507	$ 10,802	71,616
Ordinary shares, shares outstanding	172,858,544	172,858,544
Variable interest entity, primary beneficiary [Member]
Accrued expenses and other current liabilities | ¥	¥ 367,477		417,032
Operating lease liabilities, current portion | ¥	21,281		41,479
Income tax payable | ¥	260		0
Operating lease liabilities, non-current portion | ¥	17,457		158,824
Deferred tax liabilities | ¥	¥ 74,341		¥ 71,616
Common Class A [Member]
Ordinary shares, par value | $ / shares		$ 0.0001		$ 0.0001
Ordinary shares, shares authorized	800,000,000	800,000,000	800,000,000
Ordinary shares, shares issued	100,077,116	100,077,116	99,277,116
Ordinary shares, shares outstanding	99,553,256	99,553,256	98,032,240
Common Class B [Member]
Ordinary shares, par value | $ / shares		$ 0.0001		$ 0.0001
Ordinary shares, shares authorized	100,000,000	100,000,000	100,000,000
Ordinary shares, shares issued	73,305,288	73,305,288	73,305,288
Ordinary shares, shares outstanding	73,305,288	73,305,288	73,305,288

XML

CONSOLIDATED STATEMENTS OF OPERATIONS $ in Thousands		12 Months Ended
		Dec. 31, 2022 CNY (¥) ¥ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares
Net revenues		¥ 2,498,214,000	$ 362,207	¥ 6,561,747,000	¥ 7,124,744,000
Cost of revenues (including share-based compensation expenses of RMB66,422, RMB118,145 and RMB42,490 for the years ended December 31, 2020, 2021 and 2022, respectively)		(701,050,000)	(101,643)	(2,397,604,000)	(1,762,548,000)
Gross profit		1,797,164,000	260,564	4,164,143,000	5,362,196,000
Operating expenses:
Selling expenses (including share-based compensation expenses of RMB18,039, RMB44,402 and RMB6,659 for the years ended December 31, 2020, 2021 and 2022, respectively)		(1,179,760,000)	(171,049)	(5,129,267,000)	(5,816,214,000)
Research and development expenses (including share-based compensation expenses of RMB94,952, RMB130,620 and RMB39,172 for the years ended December 31, 2020, 2021 and 2022, respectively)		(445,117,000)	(64,536)	(1,252,877,000)	(734,450,000)
General and administrative expenses (including share-based compensation expenses of RMB59,033, RMB52,092 and RMB34,333 for the years ended December 31, 2020, 2021 and 2022, respectively)		(290,339,000)	(42,095)	(720,253,000)	(566,565,000)
Impairment loss on long-lived assets		0	0	(52,544,000)	0
Impairment loss on goodwill		0	0	(43,300,000)	0
Disposal loss on assets		0	0	(146,245,000)	0
Total operating expenses		(1,915,216,000)	(277,680)	(7,344,486,000)	(7,117,229,000)
Loss from operations		(118,052,000)	(17,116)	(3,180,343,000)	(1,755,033,000)
Interest income		21,370,000	3,098	31,460,000	3,372,000
Realized gains from investments		42,264,000	6,128	65,763,000	70,403,000
Other income	[1]	51,885,000	7,523	20,906,000	253,646,000
Loss before provision for income tax and share of results of equity investees		(2,533,000)	(367)	(3,062,214,000)	(1,427,612,000)
Income tax benefits/(expenses)		15,705,000	2,277	(40,949,000)	34,619,000
Share of results of equity investees		0	(0)	(302,000)	63,000
Net (loss)/income		13,172,000	1,910	(3,103,465,000)	(1,392,930,000)
Net (loss)/income attributable to Gaotu Techedu Inc.'s ordinary shareholders		¥ 13,172,000	$ 1,910	¥ (3,103,465,000)	¥ (1,392,930,000)
Net (loss)/income per ordinary share
Basic | (per share)		¥ 0.08	$ 0.01	¥ (18.17)	¥ (8.72)
Diluted | (per share)		¥ 0.07	$ 0.01	¥ (18.17)	¥ (8.72)
Weighted average shares used in net (loss)/income per share
Basic		172,254,080	172,254,080	170,790,979	159,725,779
Diluted		175,991,484	175,991,484	170,790,979	159,725,779
ADS [Member]
Net (loss)/income per ordinary share
Basic | (per share)		¥ 0.05	$ 0.01	¥ (12.11)	¥ (5.81)
Diluted | (per share)		¥ 0.05	$ 0.01	¥ (12.11)	¥ (5.81)

[1] The amount of other expenses for 2020 and 2021 have been combined with other income.

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Share-based compensation expenses	¥ 122,654	¥ 320,889	¥ 238,446
Cost of sales [Member]
Share-based compensation expenses	42,490	118,145	66,422
Selling expense [Member]
Share-based compensation expenses	6,659	44,402	18,039
Research and development expense [Member]
Share-based compensation expenses	39,172	130,620	94,952
General and administrative expense [Member]
Share-based compensation expenses	¥ 34,333	¥ 52,092	¥ 59,033

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Statement of Comprehensive Income [Abstract]
Net (loss)/income	¥ 13,172	$ 1,910	¥ (3,103,465)	¥ (1,392,930)
Other comprehensive (loss)/income, net of tax:
Change in cumulative foreign currency translation adjustments	72,703	10,541	(73,936)	(74,562)
Unrealized gains on available-for-sale investments (net of tax effect of RMB9,867, RMB8,598 and RMB8,703 for the years ended December 31, 2020, 2021 and 2022, respectively)	39,729	5,760	48,191	67,231
Transfer to statements of operations of realized gains on available-for-sale investments (net of tax effect of RMB9,654, RMB8,302 and RMB509 for the years ended December 31, 2020, 2021 and 2022, respectively)	(33,383)	(4,840)	(57,461)	(70,403)
Total comprehensive (loss)/income attributable to Gaotu Techedu Inc.	¥ 92,221	$ 13,371	¥ (3,186,671)	¥ (1,470,664)

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/ INCOME (Parenthetical) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Statement of Comprehensive Income [Abstract]
Tax Effect Of Unrealized Gain On Available For Sale Investments	¥ 8,703	¥ 8,598	¥ 9,867
Tax effect of transfer to statements of operations of realized gains on available-for-sale investments	¥ 8,881	¥ 8,302	¥ 9,654

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT)/EQUITY ¥ in Thousands, $ in Thousands	CNY (¥)	USD ($)	Private Placement [Member] CNY (¥)	Ordinary Shares [Member] CNY (¥) shares	Ordinary Shares [Member] USD ($) shares	Ordinary Shares [Member] Private Placement [Member] CNY (¥) shares	Treasury Stock [Member] CNY (¥)	Additional paid-in capital [Member] CNY (¥)	Additional paid-in capital [Member] USD ($)	Additional paid-in capital [Member] Private Placement [Member] CNY (¥)	AOCI attributable to parent [Member] CNY (¥)	AOCI attributable to parent [Member] USD ($)	Statutory Reserves [Member] CNY (¥)	Statutory Reserves [Member] USD ($)	Accumulated deficit [Member] CNY (¥)	Accumulated deficit [Member] USD ($)
Beginning balance at Dec. 31, 2019	¥ 1,557,355			¥ 106			¥ (86,739)	¥ 1,899,059			¥ 17,829		¥ 6,921		¥ (279,821)
Beginning balance, Shares at Dec. 31, 2019 | shares				159,097,050	159,097,050
Net income (loss)	(1,392,930)														(1,392,930)
Transfer to statutory reserves													33,459		(33,459)
Issuance of ordinary shares			¥ 5,687,251			¥ 7				¥ 5,687,244
Issuance of ordinary shares, Shares | shares						10,611,072
Repurchase of ordinary shares	(282,543)						(282,543)
Repurchase of ordinary shares, Shares | shares				(754,244)	(754,244)
Share-based compensation	238,446							238,446
Option exercised and restricted stock units vested	10						229,710	(229,700)
Option exercised and restricted stock units vested, Shares | shares				807,184	807,184
Foreign currency translation adjustments	(74,562)										(74,562)
Unrealized gains on available-for-sale investments	67,231										67,231
Transfer to statements of operations of realized gains on available-for-sale investments	(70,403)										(70,403)
Ending balance at Dec. 31, 2020	5,729,855			¥ 113			(139,572)	7,595,049			(59,905)		40,380		(1,706,210)
Ending balance, Shares at Dec. 31, 2020 | shares				169,761,062	169,761,062
Net income (loss)	(3,103,465)														(3,103,465)
Share-based compensation	320,889							320,889
Option exercised and restricted stock units vested	11			¥ 1			122,714	(122,704)
Option exercised and restricted stock units vested, Shares | shares				1,576,466	1,576,466
Foreign currency translation adjustments	(57,078)						¥ 16,858				(73,936)
Unrealized gains on available-for-sale investments	48,191										48,191
Transfer to statements of operations of realized gains on available-for-sale investments	(57,461)										(57,461)
Ending balance at Dec. 31, 2021	2,880,942			¥ 114				7,793,234			(143,111)		40,380		(4,809,675)
Ending balance, Shares at Dec. 31, 2021 | shares				171,337,528	171,337,528
Net income (loss)	13,172	$ 1,910													13,172
Share-based compensation	122,654							122,654
Option exercised and restricted stock units vested	12			¥ 1				11
Option exercised and restricted stock units vested, Shares | shares				1,521,016	1,521,016
Foreign currency translation adjustments	72,703										72,703
Unrealized gains on available-for-sale investments	39,729										39,729
Transfer to statements of operations of realized gains on available-for-sale investments	(33,383)	(4,840)									(33,383)
Ending balance at Dec. 31, 2022	¥ 3,095,829	$ 448,853		¥ 115	$ 17			¥ 7,915,899	$ 1,147,697		¥ (64,062)	$ (9,288)	¥ 40,380	$ 5,855	¥ (4,796,503)	$ (695,428)
Ending balance, Shares at Dec. 31, 2022 | shares				172,858,544	172,858,544

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CONSOLIDATED STATEMENTS OF CASH FLOWS $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income	¥ 13,172,000	$ 1,910	¥ (3,103,465,000)	¥ (1,392,930,000)
Adjustments to reconcile net (loss)/income to net cash generated from operating activities:
Depreciation of property, equipment and software	68,807,000	9,976	108,446,000	55,751,000
Amortization of intangible assets and land use rights	1,950,000	283	4,116,000	1,461,000
Share of results of equity investees	0	0	302,000	(63,000)
Realized gains from investments	(42,264,000)	(6,128)	(65,763,000)	(70,403,000)
Disposal loss/(gain) on assets	(21,374,000)	(3,099)	146,245,000	3,145,000
Fair value change of fair value option	13,232,000	1,918	0	0
Share-based compensation	122,654,000	17,783	320,889,000	238,446,000
Provision for inventory	0	0	12,901,000	0
Impairment loss on long-lived assets	0	0	52,544,000	0
Impairment loss on goodwill	0	0	43,300,000	0
Realized gain from derivative financial liabilities	0	0	(7,938,000)	0
Changes in operating assets and liabilities:
Accrued expenses and other current liabilities	(329,923,000)	(47,834)	(942,260,000)	1,508,939,000
Deferred revenue	(36,885,000)	(5,348)	(1,737,521,000)	1,384,403,000
Prepaid expenses and other current assets	(12,294,000)	(1,782)	459,506,000	(479,985,000)
Income tax payable	1,793,000	260	(4,654,000)	(11,439,000)
Other assets	293,465,000	42,548	486,302,000	(614,225,000)
Deferred tax assets	(15,679,000)	(2,273)	48,324,000	(17,608,000)
Deferred tax liabilities	(2,109,000)	(306)	(7,081,000)	(2,219,000)
Net cash generated from/(used in) operating activities	54,545,000	7,908	(4,185,807,000)	603,273,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of short-term investments	(29,317,782,000)	(4,250,679)	(46,001,552,000)	(17,394,632,000)
Proceeds from maturity of short-term investments	29,249,349,000	4,240,757	51,063,983,000	11,689,198,000
Purchase of property, equipment and software	(18,952,000)	(2,748)	(272,323,000)	(284,072,000)
Payment for asset acquisition	(15,000,000)	(2,175)	0	(74,309,000)
Short-term loans to a third party	(612,000,000)	(88,732)	0	0
Repayment of short-term loans from a third party	534,000,000	77,423	0	0
Proceeds from maturity of long-term investments	0	0	0	501,733,000
Proceeds from disposal of equity method investments	0	0	5,548,000	0
Proceeds from derivative financial liabilities	0	0	7,938,000	0
Proceeds from capital return related to equity method investment	0	0	0	1,300,000
Acquisition of businesses	0	0	0	(35,529,000)
Disposal of property, equipment and software	22,000,000	3,190	8,908,000	7,000
Net cash (used in)/generated from investing activities	(158,385,000)	(22,964)	4,812,502,000	(5,596,304,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution	0	0	7,000	36,000
Proceeds from private placement financing	0	0	0	5,687,251,000
Repurchase of ordinary shares	0	0	0	(282,543,000)
Proceeds from short-term loans	0	0	400,000,000	0
Repayments of short-term loans	0	0	(400,000,000)	0
Payment for asset acquisition after three months of completion	0	0	(100,621,000)	(132,184,000)
Repayment to related parties	0	0	0	(460,000)
Net cash generated from/(used in) financing activities	0	0	(100,614,000)	5,272,100,000
Effect of exchange rate changes	26,650,000	3,864	15,818,000	2,188,000
Net increase/(decrease) in cash and cash equivalents	(77,190,000)	(11,192)	541,899,000	281,257,000
Cash, cash equivalents and restricted cash at beginning of the year	897,123,000	130,071	355,224,000	73,967,000
Cash, cash equivalents and restricted cash at end of the year	819,933,000	118,879	897,123,000	355,224,000
Supplemental schedule of cash flow information
Income taxes paid	20,217,000	(2,931)	(84,832,000)	86,348,000
Non-cash investing and financing activity
Payables for purchase of property, equipment and software	413,000	60	4,778,000	36,092,000
Payables for assets acquisition	¥ 0	$ 0	¥ 0	¥ 127,316,000

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ORGANIZATION AND PRINCIPAL ACTIVITIES

12 Months Ended

Dec. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND PRINCIPAL ACTIVITIES

1.ORGANIZATION AND PRINCIPAL ACTIVITIES

GSX Techedu Inc. was incorporated under the laws of the Cayman Islands in August 2014 and the name changed to Gaotu Techedu Inc. in June 2021. The Company, its subsidiaries, its consolidated variable interest entity (“VIE”) and VIE’s subsidiaries (collectively the “Group”) are currently engaged in the business of providing learning services and educational content and digitalized learning products in the People's Republic of China("PRC").

Beijing BaiJiaHuLian Technology Co., Ltd was founded in June 2014, as a limited liability company in the PRC, and the name changed to Beijing BaiJia Technology Co., Ltd in September 2020 and then changed to Gaotu Education Technology Group Co., Ltd (“Beijing Gaotu” or “VIE”) in July 2021. Beijing Gaotu and its subsidiaries (collectively "VIEs") are primarily engaged in providing learning services and educational content and digitalized learning products in mainland China.

Current laws and regulations of mainland China impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services and certain other businesses. To comply with the relevant laws and regulations of mainland China, the Company operates substantially all of its business through its VIE. On April 28, 2015, the Company, through BaiJiaHuLian HK Holdings Limited (“BaiJiaHuLian HK”) and its subsidiary in mainland China, Beijing Lexuebang Network Technology Co., Ltd. (“Beijing Lexuebang”), entered into a series of contractual arrangements with Beijing Gaotu, and the shareholders of Beijing Gaotu. The series of contractual agreements include an Exclusive Management Services and Business Cooperation Agreement, an Exclusive Call Option Agreement, an Equity Pledge Agreement, Powers of Attorney, Spousal Consent Letters and Letters of Commitment (collectively the “Original Agreement”). The Original Agreements were amended on March 2019 with no significant differences. In connection with the amendment and as part of the Group’s efforts to streamline the corporate structure, the Group removed six existing nominee shareholders as parties to the contractual arrangements with Beijing Gaotu and its shareholders. The rights and obligations of these nominee shareholders under these contractual arrangements have been assumed by Mr. Larry Xiangdong Chen.

On January 26, 2021, Beijing Lexuebang, Wuhan Yuexuebang Network Technology Co., Ltd ("Wuhan Yuexuebang") and Beijing Yuexuebang Network Technology Co., Ltd ("Beijing Yuexuebang") (collectively the "WFOEs"), entered into a VIE supplementary agreement (“Supplementary Agreement”) with Beijing Gaotu, and the shareholders of Beijing Gaotu. According to the Supplementary Agreement, each of Wuhan Yuexuebang and Beijing Yuexuebang became a party to the Original Agreement, enjoyed the same rights of Beijing Lexuebang under the Original Agreement and jointly assume the obligations of Beijing Lexuebang thereunder.

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The Group believes that these contractual arrangements would enable the Company to (1) have power to direct the activities that most significant affects the economic performance of VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the Company is considered the primary beneficiary of the VIE.

The Company’s subsidiaries, VIE and VIE’s major subsidiaries as of December 31, 2022 were as follow:

Name	Later of date of establishment or acquisition	Place of establishment	Percentage of direct or indirect economic ownership	Principal activities
Subsidiaries:
BaiJiaHuLian HK	Aug 18, 2014	HongKong, China	100%	Holding company
Beijing Lexuebang	Jan 12, 2015	Beijing, China	100%	Education technical services
Wuhan Yuexuebang	May 25, 2020	Wuhan, China	100%	Education technical services
Beijing Yuexuebang	Nov 24, 2020	Beijing, China	100%	Education technical services
Shanghai Chuxuebang Network Technology    Co., Ltd ("Shanghai Chuxuebang")	Feb 18, 2021	Shanghai, China	100%	Education technical services
VIE:
Beijing Gaotu	Jun 4, 2014	Beijing, China	100%	Education services
VIE's major subsidiaries:
Beijing GaoTuYunFan Technology Co., Ltd.    ("GaoTuYunFan")	May 14, 2015	Beijing, China	100%	Education services
Beijing GaoTuYunJi Education Technology    Co., Ltd. ("GaoTuYunJi")	Jul 18, 2017	Beijing, China	100%	Education services
Zhengzhou GaoTuYunJi Education    Technology Co., Ltd. ("ZhengzhouGaoTu")	Jan 19, 2020	Zhengzhou, China	100%	Education services
Wuhan GaoTuYunJi Education    Technology Co., Ltd. ("WuhanGaoTu")	Apr 1, 2020	Wuhan, China	100%	Education services
Guangzhou XingHuo Online Computer    Technology Co., Ltd. ("Guangzhou XingHuo")	Aug 18, 2022	Guangzhou, China	100%	Education services

The English names above are for identification purpose only.

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements

Details of the contractual agreements are set forth below.

•Agreements that transfer economic benefits to the Group:

Exclusive Management Services and Business Cooperation Agreement

Pursuant to the exclusive management services and business cooperation agreement among the WFOEs, the VIE and the shareholders of the VIE, the WFOEs has the exclusive right to provide or designate any third-party to provide, among other things, education management consultancy services, permission of intellectual property rights, technological support and business support to the VIE and its subsidiaries. In exchange, the VIE and its subsidiaries pay service fees to the WFOEs in an amount determined by the WFOEs in its sole discretion. Without the prior written consent of the WFOEs, the VIE and its subsidiaries cannot accept services provided by or establish similar cooperation relationship with any third-party. The WFOEs own the exclusive intellectual property rights created as a result of the performance of this agreement unless otherwise provided by the laws or regulations of mainland China. The agreement will be effective for twenty years upon signing by both parties. The term of the agreement was amended on March 2019 and the agreement will remain effective unless unanimously agreed by the parties concerned or unilaterally terminated by the WFOEs with a written notice. Unless otherwise required by applicable the laws of mainland China, the VIE and its shareholders do not have any right to terminate the agreement.

•Agreements that provide the Company effective control over Beijing Gaotu:

Equity Pledge Agreement

Under the equity interest pledge agreement among the WFOEs, the VIE and its shareholders, the VIE’s shareholders pledged all of their equity interests of the VIE to the WFOEs as security for performance of the obligations of the VIE and its shareholders under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney. If any of the specified events of default occurs, the WFOEs may exercise the right to enforce the pledge immediately. The WFOEs may transfer all or any of its rights and obligations under the equity interest pledge agreement to its designee(s) at any time. The agreement will remain in effect until the fulfillment of all the obligations under the exclusive call option agreement, the exclusive management services and business cooperation agreement and the powers of attorney.

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

Exclusive Call Option Agreement

Under the exclusive call option agreement among the WFOEs, the VIE and its shareholders, each of the shareholders of the VIE irrevocably granted the WFOEs a right to purchase, or designate a third-party to purchase, all or any part of their equity interests in the VIE at a purchase price equal to the lowest price permissible by the then-applicable laws and regulations of mainland China at the WFOEs’ sole and absolute discretion to the extent permitted by the laws of mainland China. The shareholders of the VIE shall promptly give all considerations they received from the exercise of the options to the WFOEs or its designee(s). The VIE and its shareholders covenant that, without the WFOEs’ prior written consent, they will not, among other things, (i) create any pledge or encumbrance on their equity interests in the VIE; (ii) transfer or otherwise dispose of their equity interests in the VIE; (iii) change the VIE’s registered capital; (iv) amend the VIE’s articles of association; (v) sell, transfer, license or otherwise dispose of any of the VIE’s assets or allow any encumbrance of any assets, except for the disposal or the encumbrances of the assets that are treated as necessary for their daily business operations with the value of the assets involved in a single transaction not exceeding RMB100; (vi) cause the VIE to enter into any major contracts or terminate any material contracts to which the VIE is a party; (vii) declare or distribute dividends; (viii) terminate, liquidate or dissolve the VIE; or (ix) allow the VIE to incur, inherit, guarantee or permit any debts, except for those payables incurred in the ordinary or usual course of business but not incurred by way of borrowing. The agreement will remain effective until terminated by the WFOEs at its discretion or the entire equity interests in the VIE have been transferred to the WFOEs or its designees.

Powers of Attorney

Pursuant to the powers of attorney executed by the VIE’s shareholders, each of them irrevocably authorized the WFOEs or its designee(s) to act on their respective behalf as exclusive agent and attorney, to the extent permitted by law, with respect to all rights of shareholders concerning all the equity interest held by each of them in the VIE, including but not limited to proposing to convene or attend shareholder meetings, signing the resolutions and minutes of such meetings, exercising all the rights as shareholders (including but not limited to voting rights, nomination rights, appointment rights, the right to receive dividends and the right to sell, transfer, pledge or dispose of all the equity held in part or in whole).

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

Spousal Consent Letters

Pursuant to the spousal consent letters executed by the spouses of certain shareholders of the VIE, the signing spouses unconditionally and irrevocably agreed that the equity interest in the VIE held by and registered in the name of their spouses be disposed of in accordance with the exclusive call option agreement, the exclusive management services and business cooperation agreement, the equity interest pledge agreement and the powers of attorney described above, and that their spouses may perform, amend or terminate such agreements without their additional consent. Additionally, the signing spouses agreed not to assert any rights over the equity interest in the VIE held by their spouses. In addition, in the event that the signing spouses obtains any equity interest in the VIE held by their spouses for any reason, they agree to be bound by and sign any legal documents substantially similar to the contractual arrangements described above, as may be amended from time to time.

•Risks in relation to VIE structure

The Company believes that the contractual arrangements with Beijing Gaotu and its shareholders are in compliance with existing laws and regulations of mainland China and are legally enforceable. However, the contractual arrangements are subject to risks and uncertainties, including:

•Beijing Gaotu and its shareholders may have or develop interests that conflict with the Group’s interests, which may lead them to pursue opportunities in violation of the aforementioned contractual agreements. If the Group cannot resolve any conflicts of interest or disputes between the Group and the shareholders of Beijing Gaotu, the Group would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings.

•Beijing Gaotu and its shareholders could fail to obtain the proper operating licenses or fail to comply with other regulatory requirements. As a result, the PRC government could impose fines, new requirements or other penalties on the VIE or the Group, mandate a change in ownership structure or operations for the VIE or the Group, restrict the VIE or the Group’s use of financing sources or otherwise restrict the VIE or the Group’s ability to conduct business.

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

•The PRC government may declare the aforementioned contractual arrangements invalid. They may modify the relevant regulations, have a different interpretation of such regulations, or otherwise determine that the Group or the VIE have failed to comply with the legal obligations required to effectuate such contractual arrangements.

•If the legal structure and contractual arrangements were found to be in violation of the laws and regulations of mainland China, the PRC government may restrict or prohibit the Group’s business and operations in mainland China, and the Group could be subject to severe penalties or be forced to relinquish the company's interests in those operations.

The Group’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the aforementioned actions. As a result, the Group may not be able to consolidate Beijing Gaotu and its subsidiaries in the consolidated financial statements as the Group may lose the ability to exert effective control over Beijing Gaotu and its shareholders, and the Group may lose the ability to receive economic benefits from Beijing Gaotu.

The Group’s business has been directly operated by the VIE and its subsidiaries. As of December 31, 2021 and 2022, the VIE and its subsidiaries accounted for an aggregate of 48.37% and 49.00%, respectively, of the Group’s consolidated total assets, and 79.85% and 80.89% respectively of the Group’s consolidated total liabilities.

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

The following financial information of the Company’s VIE and VIE’s subsidiaries after the elimination of inter-company transactions and balances as of December 31, 2021 and 2022 and for the years ended December 31, 2020, 2021 and 2022 was included in the accompanying consolidated financial statements:

	As of December 31,
	2021		2022
	RMB		RMB
Cash and cash equivalents		138,672		312,055
Restricted cash		153,230		22
Short-term investments		1,037,346		1,068,365
Inventory, net		15,595		22,783
Prepaid expenses and other current assets		196,246		345,132
Total current assets		1,541,089		1,748,357
Operating lease right-of-use assets		194,162		41,014
Property, equipment and software, net		647,414		533,588
Intangible assets		77		18,932
Land use right		28,178		27,373
Goodwill		331		331
Deferred tax assets		—		15,679
Rental deposit		17,084		2,827
Other non-current assets		1,848		1,392
Total non-current assets		889,094		641,136
Total assets		2,430,183		2,389,493
Accrued expenses and other current liabilities		417,032		367,477
Deferred revenue, current portion		986,993		906,914
Operating lease liabilities, current portion		41,479		21,281
Income tax payable		—		260
Total current liabilities		1,445,504		1,295,932
Deferred revenue, non-current portion		9,225		52,419
Operating lease liabilities, non-current portion		158,824		17,457
Deferred tax liabilities		71,616		74,341
Other payables		26,580		—
Total non-current liabilities		266,245		144,217
Total liabilities		1,711,749		1,440,149

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Net revenues		7,124,744			6,561,747			2,498,214
Net income		2,406,144			94,795			555,880
Net cash generated from/(used in) operating activities		3,945,706			(580,304	)		558,050
Net cash (used in)/generated from investing activities		(305,448	)		121,861			(87,007	)
Net cash used in financing activities		(132,644	)		(100,621	)		—

There are no consolidated VIE’s assets that are collateral for the VIE’s obligations and which can only be used to settle the VIE’s obligations. No creditors (or beneficial interest holders) of the VIE have recourse to the general credit of the Company or any of its consolidated subsidiaries. No terms in any arrangements, considering both explicit arrangements and implicit variable interests, require the Company or its subsidiaries to provide financial support to the VIE. However, if the VIE ever needs financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIE through loans to the shareholders of the VIE or entrustment loans to the VIE.

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

Impact of recent regulations

On July 24, 2021, the General Office of State Council and the General Office of Central Committee of the Communist Party of China jointly promulgated the “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education (compulsory education includes primary school education of six years and middle school education of three years, together as the “Compulsory Stage Education”)” (the “Opinion”), which provides that, among other things, (i) local government authorities shall no longer approve new after-school tutoring institutions (“Academic AST Institutions”) providing tutoring services on academic subjects for students in compulsory education, and the existing after-school tutoring institutions providing tutoring services on academic subjects shall be registered as non-profit, and local government authorities shall no longer approve any new Academic AST Institutions providing tutoring services on academic subjects for pre-school-age children and students in grade ten to twelve; (ii) online Academic AST Institutions that have filed with the local education administration authorities providing tutoring services on academic subjects shall be subject to review and re-approval procedures by competent government authorities, and any failure to obtain such approval will result in the cancellation of its previous filing and ICP license; (iii) Academic AST Institutions are prohibited from raising funds by listing on stock markets or conducting any capitalization activities and listed companies are prohibited from investing in Academic AST Institutions through capital markets fund raising activities, or acquiring assets of Academic AST Institutions by paying cash or issuing securities; and (iv) foreign capital is prohibited from controlling or participating in any Academic AST Institutions through mergers and acquisitions, entrusted operation, joining franchise or variable interest entities.

On September 7, 2021, to implement the Opinion, the Chinese Ministry of Education (“MOE”) published on its website that the MOE, together with two other government authorities, issued a circular requiring all Academic AST Institutions to complete registration as non-profit by the end of 2021, and all Academic AST Institutions shall, before completing such registration, suspend enrollment of students and charging fees (the “New Regulations”).

To comply with the Opinion and the New Regulations, the Company performed organizational adjustments and business restructuring, including the cessation of compulsory education academic subject tutoring services to students (“Business Restructuring”). The financial impacts were disclosed in note 2, 6, 8, 9, 12 and 18.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and use of estimates

The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”). These accounting principles require management to make certain estimates and assumptions that affect the amounts in the accompanying financial statements. Actual results may differ from those estimates. The Group bases its estimates on past experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Significant accounting estimates reflected in the Group’s financial statements include, but are not limited to, revenue recognition, valuation allowance for deferred tax assets, impairment assessment of goodwill, intangible assets and other long-lived assets, fair value assessment of certain short-term investments, valuation of share-based compensation, discount rate for leases and consolidation of VIEs. Actual results may differ materially from those estimates.

Principles of consolidation

The accompanying consolidated financial statements include the financial information of the Group and its subsidiaries, the VIE and the VIE’s subsidiaries. All intercompany balances and transactions were eliminated upon consolidation.

Fair value

Fair value is considered to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value - continued

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, short-term investments accounted for held-to-maturity, available-for-sale debt investments or elected to measure at fair value, receivables from third party payment platform and other liabilities.

As of December 31, 2021 and 2022, the carrying values of cash and cash equivalents, held-to maturities investments, receivables from third party payment platform and other current liabilities approximated their fair values reported in the consolidated balance sheets due to the short term maturities of these instruments. Available-for-sales investments and investments elected to measure at fair value are recorded at fair value as of December 31, 2021 and 2022.

Foreign currency translation and transactions

The Group's reporting currency is the Renminbi ("RMB"). The functional currency of the subsidiaries incorporated outside the mainland China is the United States dollar ("US dollar" or "US$"). The functional currency of all the other subsidiaries, the VIE and VIE's subsidiaries is the RMB.

Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable functional currencies at historical exchange rates. Revenues and expenses are translated using the average rate of exchange in effect during the reporting period. Translation adjustments are reported and shown as a separate component of other comprehensive loss in the consolidated statements of changes in shareholders' deficit and the consolidated statements of comprehensive loss.

Transactions in currencies other than the functional currencies during the year are converted into the applicable functional currencies at the applicable rates of exchange prevailing at the dates of the transactions. Transaction gains and losses are recorded in the consolidated statements of operations.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Convenience translation

The Group’s business is primarily conducted in China and all of the revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into US dollars using the exchange rate as of balance sheet date, for the convenience of the readers. Translations of balances in the consolidated balance sheets and the related consolidated statements of operations, comprehensive (loss)/income, change in shareholders’ (deficit)/equity and cash flows from Renminbi ("RMB") into US dollars as of and for the year ended December 31, 2022 are solely for the convenience of the readers and were calculated at the rate of USD1.00=RMB6.8972 representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 30, 2022. 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 31, 2022, or at any other rate.

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand, demand deposits and highly liquid investments, which have original maturities of three months or less when purchased and are subject to an insignificant risk of changes in value.

Restricted cash

Cash that is restricted as to withdrawal or for use or pledged as security is separately presented. The Group’s restricted cash as of December 31, 2021 mainly represents the upfront tuition fee collected and deposited in a custodian bank account regulated by the government, and had been released as the courses were delivered.

Short-term investments

As of December 31, 2021 and 2022, the Group’s debt securities include held-to-maturity investments, available-for-sale investments, and investments elected to measure at fair value.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Short-term investments - continued

Held-to-maturity investments

Investments are classified as held-to-maturity when the Group has the positive intent and ability to hold the securities to maturity, and are recorded at amortized cost. As of December 31, 2021 and 2022, the balances of held-to-maturity securities were RMB574,628 and RMB206,916, respectively, and were recorded as short-term investments as their maturities are less than twelve months.

The Group evaluates credit loss over held-to-maturity investments upon acquisition at the pool level based on historical experience, credit quality and other factors that may affect the Group’s ability to collect the investments. An expected credit loss will be recognized as an allowance through earnings if the net amount of cash flow expected to be collected is less than the amortized cost basis.

Available-for-sale investments

Debt securities investments that do not meet the criteria of held-to-maturity or trading securities are classified as available-for-sale investments and are reported at fair value with unrealized gains and losses recorded in accumulated other comprehensive income/(loss). Realized gains or losses on the sale of these securities are recognized under Realized gains from investments in the consolidated statements of operations.

The Group evaluates each individual investment periodically for impairment. For investments where the Group does not intend to sell, the Group evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated balance sheet with corresponding adjustment in the consolidated statements of operations and comprehensive income. Subsequent increases in fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component of shareholder's equity. As of December 31, 2022, the available-for-sale debt investments were recorded with unrealized gain amounted to RMB4,318, compared with unrealized loss amounted to RMB4,258 as of December 31, 2021.

Investments elected to measure at fair value

The Group elects the fair value option to record wealth management products with variable interest rates or indexed to foreign exchange with maturities less than one year at fair value in accordance with ASC 825 Financial Instrument. Changes in the fair value are recorded in other income.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Credit losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which requires entities to measure all expected credit losses for financial assets held at the reporting date using a current expected credit loss model based on historical experience, current conditions, and reasonable and supportable forecasts.

The Group adopted ASC 326 on January 1, 2020 using the modified retrospective transition approach. Based on the nature of the Group’s financial instruments within the scope of this standard, the adoption of the new standard did not have a material effect on the Group’s consolidated financial statements.

Property, equipment and software, net

Property, equipment and software are stated at cost less accumulated depreciation and impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows:

Category	Estimated useful life
Electronic equipment	3 years
Furniture and office equipment	3-5 years
Software	2-10 years
Building	35-37 years
Leasehold improvement	Shorter of the lease term or estimated economic life

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, equipment and software are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statement of operations.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Business combinations

Business combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred.

Land use rights, net

All land in mainland China is owned by the government, which, according to the relevant laws of mainland China, may grant the right to use the land for a specified period of time. Land use rights are recorded at cost and amortized on a straight line basis over the term of the land certificates, as follows:

Category	Estimated useful life
Land use right	37 years

Goodwill

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheets as goodwill. Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired. Application of a goodwill impairment test requires significant management judgment. The judgment in estimating the fair value of reporting unit includes estimating future cash flows, determining appropriate discount rates, consideration of the impact of COVID-19 and the New Regulations, and making other relevant assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting unit.

As part of the annual goodwill impairment test, the Group first performs a qualitative assessment to determine whether further impairment testing is necessary. If the qualitative assessment above indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test is performed to compare the fair value to the carrying value. An impairment charge is recorded if the carrying value exceeds the fair value.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Goodwill - continued

The Group performed qualitative assessment for the reporting unit of Tianjin Puxin in 2021 due to the impact of New Regulations. The Group evaluated all relevant factors including, but not limited to, macroeconomic conditions, industry, regulatory and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations, business plans and strategies of the reporting unit and concluded that it was more likely than not that the fair value of the reporting unit was less than its carrying amount. After the quantitative impairment test, the Group recorded impairment losses on its goodwill amounting to RMB43,300 during the year ended December 31, 2021. No impairment losses on goodwill was recorded during the year ended December 31, 2022.

Intangible assets, net

Intangible assets are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives. The estimated useful lives of intangible assets are as follows:

Category	Estimated useful life
Student base	1.5-2 years
Trademark	3-10 years
License	7.4 years

Impairment of long-lived assets other than goodwill

The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets.

Due to the impact of New Regulations and the Business Restructuring, the Group performed an impairment assessment on its long-lived assets in 2021 and reduced the carrying value of the long-lived assets to its estimated fair value based on expected discounted cash flow or market approach. The Group recorded impairment losses on its long-lived assets amounting to RMB52,544 during the year ended December 31, 2021. No impairment losses of long-lived assets was recorded during the year ended December 31, 2022.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition

The Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, in accordance with ASC Topic 606 Revenue from Contracts with Customers ("Topic 606"). The Group’s revenue is reported net of discount, value added tax and related surcharges.

Disaggregation of revenue

For the years ended December 31, 2020, 2021 and 2022, all of the Group’s revenues were generated in mainland China. Additionally, all of the revenues for the periods were recognized from contracts with customers. The following table provides information about disaggregated revenue by types, including a reconciliation of the disaggregated revenue with the Group’s reportable segment.

As a result of the New Regulations previously disclosed, the Group changed its disaggregation of revenue to better disclose the performance of its business following its Business Restructuring. The total net revenue of online after-school academic subject tutoring services including compulsory education academic subject tutoring services and senior high school tutoring services previously recorded as online K-12 academic subject tutoring services in 2020 and 2021, and comprehensive tutoring services amounting to RMB886,056 and RMB560,196 previously included in comprehensive tutoring services and others in 2020 and 2021, were reclassified to learning services. Other revenue amounting to RMB1,289 and RMB912 in 2020 and 2021, previously included in comprehensive tutoring services and others, were reclassified to other revenue.

	Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Net revenues
- Learning services		7,123,455		6,560,835		2,436,110
- Educational content & digitalized learning products		—		—		26,791
- Other revenue		1,289		912		35,313
Total net revenues		7,124,744		6,561,747		2,498,214

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

The primary sources of the Group's revenues are as follows:

(1)Learning services

The Group offers various types of integrated online tutoring services covering a wide spectrum of topics and targets students from broad age groups through its diverse offerings. The Group’s live interactive tutoring services consists of several components, including online live broadcasting classes as well as other activities during the online period including teaching material, quizzes before, during and after the classes, summary of lessons after each class and interactions with both other students and instructors during the period. Different service components are highly interdependent and interrelated in the context of the contract with the live interactive tutoring services. Therefore, the Group has determined that the live interactive tutoring services represents one performance obligation. The service period for a majority of the live interactive tutoring services is less than six months.

Once the live interactive tutoring services is complete, the Group also offers the customer a content playback service. In the content playback service, the customer has unlimited access to online pre-recorded audio-video courses for a specified period ranging from one to three years. No other interactions or activities are provided during the playback period. For contracts that provide both the live interactive tutoring service and the content playback service, the Group determined that the live interactive tutoring service and content playback service are two separate performance obligations, as these two deliverables are distinct in that customers can benefit from each service on its own and the Group’s promises to deliver the services are separately identifiable from each other in the contract.

Tutoring fees are collected in advance. The Group determines that there is not a significant financing component based on the nature of the service being offered and the purpose of the payment terms. The Group charges a single upfront amount, not with the primary purpose of obtaining financing from the students but, instead, to maximize profitability, taking into consideration the risks associated with providing the service. The Group offers refunds for any remaining classes to students who withdraw from the course. The refund is equal to the amount related to the undelivered class. The Group determines the transaction price to be earned by estimating the refund liability based on historical refund ratio on a portfolio basis using the expected value method, and allocates the tutoring fee excluding the estimate for refund liability to each performance obligation using the relative stand-alone selling price. The Group determines the stand-alone selling prices using an expected cost plus margin methodology. Revenue related to the live interactive tutoring service is recognized proportionately as the online classes are delivered, as the Group concluded that the delivery of each online class represents a faithful depiction of when the services are provided to the students. Revenue related to the right to access the content playback is recognized proportionally over the playback period, as the Group concluded that the content playback service represents a stand ready obligation to provide the playback services and the customer simultaneously receives and consumes the benefits as the Group provides such services throughout the playback period.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

In some promotion activities, the Group grants sales incentives, including cash coupon and free class, to students who make qualified course purchases. Those students can redeem the cash coupon in the next purchase as part of payment, or select to enroll in a new course free of charge, prior to the incentive’s expiration. The cash coupon and free class will expire in no more than eight months. The Group determined the cash coupon and/or free course granted to existing students are material rights. As a result, a portion of sales price received on students making qualified purchases is allocated to the sales incentives granted based on the relative standalone selling prices. The selling price of cash coupon is estimated based on the discount amount and the probability of redemption. Revenue allocated to sales incentives is recorded as deferred revenue until redemption or expiration. Once the coupon or free class is redeemed, revenue will be recognized based on the revenue recognition policy discussed above. Students may not always redeem the cash coupon or take the free class offered before the expiration of the sales incentive. Therefore, the Group expects to be entitled to a breakage amount in deferred revenue related to the incentives. The Group estimates the breakage based on historical students’ usage and recognizes the estimated breakage as revenue in proportion to the pattern of incentives exercised by students. The assessment of estimating breakage is updated on a quarterly basis. Changes in estimated breakage is accounted for by adjusting deferred revenue to reflect the remaining incentive rights expected to be exercised. Since the Group ceased granting this kind of promotion activities in 2021, the assessment of estimating breakage was not material to the Group any more.

To comply with the Regulations, the Group did not offer compulsory education academic subject tutoring services during the year ended December 31, 2022.

(2) Educational content & digitalized learning products

Educational content & digitalized learning products mainly include books and digitalized auxiliary learning tools, such as smart devices and translation pens.

The Group has determined that selling educational content and digitalized learning products represents one performance obligation, as customers can benefit from the products on their own. The Group recognizes revenues when control of the educational content and digitalized learning products are transferred to the customer, which generally occurs upon the delivery to the customers.

(3) Other revenue

The Company leases office buildings to customers and receives a fixed quarterly rental fee over the term of the lease period. The Company classifies its lease income as other revenue and classifies such lease contracts as operating leases. The fixed rental fee is recognized evenly over the period of the lease contract on a straight-line basis.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Contract balances

Contract cost

Incremental costs of obtaining a contract with a customer is recognized as an asset in “Prepaid expenses and other current assets” if the Group expects to recover those costs. Incremental costs of obtaining a contract mainly include sales commissions to sales personnel and third-party agents. Contract cost assets are amortized over the estimated customer life.

As a result of the Business Restructuring during 2021, the Group evaluated and determined that the carrying amount of the contract cost exceeded the net considerations that the Group expected to receive after considering the costs that directly related to provide the corresponding services which were not recognized as expenses. As a result, the Group recorded impairment losses related to contract cost amounting to RMB34,528 during the year ended December 31, 2021. For the contracts entered into after the Business Restructuring with dissimilar characteristics or dissimilar circumstances, as a practical expedient, the Group elects to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. As of December 31, 2021 and 2022, the balance of contract cost was both nil. For the years ended December 31, 2020, 2021 and 2022, the Group recognized amortization of RMB185,787, RMB212,880 and nil as "Selling expenses" in its consolidated statement of operations, respectively.

Contract and refund liabilities

The following table provides information about the Group's contract liabilities and refund liability arising from contract with customers.

	Year ended December 31,
	2021		2022
	RMB		RMB
Deferred revenue, current portion		986,993		906,914
Deferred revenue, non-current portion		9,225		52,419
		996,218		959,333
Refund liability		78,630		60,597

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Deferred revenue primarily consists of tuition fees received from customers for which the Group’s revenue recognition criteria have not been met. The deferred revenue will be recognized as revenue once the criteria for revenue recognition are met. Revenue recognized during the years ended December 31, 2021 and 2022 that was included in the deferred revenue balance at January 1, 2021 and January 1, 2022 amounted to RMB2,668,141 and RMB980,385, respectively.

Refund liability represents the tutoring fee collected by the Group which it expects to refund back to its customer as a result of its refund policy. Refund liability is estimated based on the historical refund ratio for each of the type of classes provided.

The Group’s remaining performance obligations represents the amount of the transaction price for which service has not been performed. As of December 31, 2022, the aggregate amount of the transaction price allocated for the remaining performance obligations amounted to RMB959,333. The Group expects to recognize revenue of RMB906,914 and RMB24,471 related the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder of RMB27,948 recognized thereafter.

Cost of revenues

Cost of revenues mainly consists of compensations to instructors and tutors, rental expenses for office space, depreciation of properties and equipment, teaching materials and bandwidth costs. The instructors consist of both full-time instructors and part-time instructors. Full-time instructors’ compensation primarily consists of base salary, as well as teaching fees based on hourly rates and attendance of students in connection with courses delivered. The compensation of part-time instructors is calculated as a fixed percentage of the tuition fees of the courses delivered by the instructors, and is accrued as courses are delivered. The compensation of tutors consists of base salary and performance-based compensations, which is determined based on student retention and exercise completion. Specifically, if an existing student of a tutor enrolls in a new course, a bonus is paid to the tutor which is calculated as a percentage of the tuition of the new course. Tutors also receive a fixed payment for each exercise marking performed. The Group accrues on a monthly basis for the cost of tutor which includes basic salary, compensation for exercise marking as well as student retention bonus. The retention bonus is estimated using the expected tuition collected for the retention courses, multiplied by the estimated retention rate and the bonus percentage.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Government subsidies

The government subsidies provided by the local government mainly included funding to support the development of the Group. Government subsidies are recognized upon receipt as government subsidies income because the subsidies are not intended to compensate for specific expenditure and not subject to future return. For the years ended December 31, 2020, 2021 and 2022, RMB6,941, RMB9,350 and RMB7,825 were received and recognized as other income in the Group’s consolidated statements of operations, respectively.

Value added taxes

The Group’s educational services and non-educational services are subject to VAT at the rate of 3% for small-scale-VAT-payer entities or at the rate of 6% for general-VAT-payer entities in accordance with tax rule.

Since January 2020, in accordance with Cai Shui [2020] No.8, due to the Novel coronavirus (“COVID-19”) pandemic, the VAT on certain services was temporarily exempted for the fiscal year of 2020. Based on the Announcement on Continuously Implementing Some Tax Preferential Policies in Response to COVID-19 Epidemic (2021 No.7), the exemption period were further extended to March 31,2021. As a result, the Group's educational services were not subject to any VAT from January 1, 2020 to March 31, 2021. For the years ended December 31, 2020, RMB256,378 value added tax exemption were recognized as other income in the Group’s consolidated statement of operations, compared with RMB16,224 as other expense for the year ended December 31, 2021, mainly consist of input VAT related cost, partially offset by output VAT, as a result of VAT exemption.

Income taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes are classified as a component of the provisions for income taxes.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Share-based compensation

The Group measures the cost of employee share options and restricted stock units ("RSUs") based on the grant date fair value of the award and recognizes compensation cost over the period during which an employee is required to provide services in exchange for the award, which generally is the vesting period. For the graded vesting share options, the Group recognizes the compensation cost over the requisite service period for each separately vesting portion of the award as if the award is, in substance, multiple awards. When no future services are required to be performed by the employee in exchange for an award of equity instruments, the cost of the award is expensed on the grant date. The Group elects to recognize forfeitures when they occur.

Cancellation of an award that is not accompanied by the concurrent grant of a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, the Group recognizes any previously unrecognized compensation cost immediately at the cancellation date.

Cancellation of an award accompanied by the concurrent grant of a replacement award or other valuable consideration shall be accounted for as a modification of the terms of the cancelled award. Therefore, the Group recognizes incremental compensation cost as the excess of the fair value of the replacement award or other valuable consideration over the fair value of the cancelled award at the cancellation date.

Comprehensive income/(loss)

Comprehensive income/(loss) includes net income/(loss), foreign currency translation adjustments and the unrealized gains and losses on available-for-sale debt investments of the Group. Comprehensive income/(loss) is reported in the consolidated statements of comprehensive income/(loss).

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Leases

The Group leases administrative office spaces in different cities in mainland China under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. As the rate implicit in the lease is not readily determinable, the Group estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing operating lease expense when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. When a lease is terminated before the expiration of the lease term, the Group derecognizes the right of use asset and corresponding lease liability, any difference is recognized as a gain or loss related to the termination of the lease.

For short-term leases, the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

When the Group is a lessor, minimum contractual rental from leases is recognized on a straight-line basis over the non-cancelable term of the lease. Straight-line rental revenue commences when the customer assumes the control of the leased office building.

Net income/(loss) per share

Basic income/(loss) per ordinary share is computed by dividing net income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted income/(loss) per ordinary share reflect the potential dilution that would occur if securities were exercised or converted into ordinary shares. The Group had share options and RSUs, which could potentially dilute basic income per share in the future. To calculate the number of shares for diluted income per ordinary shares, the effect of the share options and unvested RSUs is computed using the treasury stock method.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Foreign currency risk

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies, international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents denominated in RMB amounted to RMB524,298 and RMB472,415 as of December 31, 2021 and 2022, respectively.

Concentration risks

Financial instruments that potentially expose the Group to significant concentration of credit risk primarily consist of cash and cash equivalents, restricted cash, short-term investments and receivables from third party payment platform. As of December 31, 2021 and 2022, substantially all of the Group’s cash and cash equivalents and short-term investments were deposited in financial institutions located in mainland China.

There are no revenues from customers which individually represent greater than 10% of the total net revenues for the years ended December 31, 2020, 2021 and 2022.

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BUSINESS ACQUISITION

12 Months Ended

Dec. 31, 2022

Business Combinations [Abstract]

BUSINESS ACQUISITION

3. BUSINESS ACQUISITION

In December 2020, the Group acquired 100% equity interest of Tianjin Puxin Online School Education Technology Co., Ltd. ("Tianjin Puxin"), a K-12 education institution, for a total cash consideration of RMB37,399, in which RMB35,529 had been paid based on the agreement in December 2020. The intangible assets and goodwill acquired from the acquisition were RMB13,700 and RMB43,300, respectively. The Group acquired Tianjin Puxin to further expand its online education student base. Tianjin Puxin after acquisition constituted less than 0.05% and 0.15% of revenue and total assets of the consolidated financial statement during the year ended and as of December 31, 2020, and the results of operations attributable to Tianjin Puxin has not been presented because they are not material to the consolidated statements of operations and comprehensive income for the years ended December 31, 2019 and 2020. Tianjin Puxin completed its deregistration process in July, 2022.

The acquired assets and liabilities were recorded at their fair value on the date of acquisition. The purchase price allocation was determined by the Group with assistance of an independent appraiser. The purchase price was allocated on the date of acquisition as below:

				Amortization
	2020			period
	RMB
Other current assets		123
Intangible assets:
Trademark		1,300		3 years
Student base		12,400		2 years
Goodwill		43,300
Deferred revenue		(11,700	)
Other current liabilities		(457	)
Deferred tax liabilities		(7,567	)
		37,399

The goodwill is attributable to intangible assets that cannot be recognized separately as identifiable assets under U.S. GAAP, which is comprised of (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of the synergy resulting from these acquisitions. The Group conducted goodwill impairment assessment in 2021, which was described as Note 8.

3. BUSINESS ACQUISITION - continued

The following summarized unaudited pro forma results of operations for the years ended December 31, 2020 assuming that the acquisition during the year ended December 31, 2020 occurred as of January 1, 2020. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred as of January 1, 2020, nor is it indicative of future operating results.

	Year ended December 31,
	2020
	RMB
	(Unaudited)
Pro forma net revenues		7,231,144
Pro forma net loss		(1,477,022	)

The Group did not make any business acquisitions during the year ended December 31, 2021 and 2022.

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ASSETS ACQUISITION

12 Months Ended

Dec. 31, 2022

Asset Acquisition [Abstract]

ASSETS ACQUISITION

4. ASSETS ACQUISITION

In December 2019, the Group entered into a purchase agreement with Zhengzhou Kaitong Technology and Trading Co., Ltd (“Zhengzhou Kaitong”) to acquire two completed and one in construction office buildings, which will be used for business operating purposes. The acquisition of the real estate was subsequently completed in January 2020 for a total consideration of RMB333,809. As of December 31, 2022, a payable of RMB26,580 is expected to be paid within one year in accordance with the payment term.

The Group did not make any asset acquisitions during the year ended December 31, 2021.

In August 2022, the Group acquired 100% equity interest of Guangzhou XingHuo Online Education Technology Co., Ltd. (later renamed to Guangzhou XingHuo Online Computer Technology Co., Ltd., hereinafter referred to as "Guangzhou XingHuo") from Guangdong Shijixiao Education Technology Co., Ltd.. This acquisition was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired is concentrated in a business license, which was recorded in intangible assets and amortized on a straight-line basis over its estimated useful life.

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PREPAID EXPENSES AND OTHER CURRENT ASSETS

12 Months Ended

Dec. 31, 2022

Prepaid Expense and Other Assets, Current [Abstract]

PREPAID EXPENSES AND OTHER CURRENT ASSETS

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

	As of December 31,
	2021		2022
	RMB		RMB
Prepaid VAT and income tax(1)		100,396		101,994
Prepaid other service fees(2)		90,916		67,265
Receivables from third parties(3)		3,671		119,492
Amounts due from a third party(4)		—		78,000
Receivables from third party payment platform(5)		49,965		24,545
Staff advance		1,901		4,128
Receivables from broker		4		367
Others		3,215		4,106
		250,068		399,897

(1)Prepaid VAT and income tax mainly consist of VAT input that is expected to offset with VAT output tax or to be transferred out in the future related to 2021 and 2022.

(2)Prepaid other service fees mainly consist of prepayment of advertising fees and cloud server hosting fees. The prepayments of advertising fees and cloud server hosting fees are generally short-term in nature and are amortized over the related service period.

(3)Receivables from third parties mainly consist of receivables raised from disposal of assets, rent, technical support services and sales of inventory.

(4)Amounts due from a third party represents a loan to a third party with an interest rate of 4.35% and was repaid in January 3, 2023.

(5)Receivables from third party payment platform consist of cash that has been received from course participants but held by the third-party payment platform. The Group subsequently collected the full balance from the third-party payment platform.

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PROPERTY, EQUIPMENT AND SOFTWARE, NET

12 Months Ended

Dec. 31, 2022

Property, Plant and Equipment [Abstract]

PROPERTY, EQUIPMENT AND SOFTWARE, NET

6. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Property, equipment and software consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Electronic equipment		196,173			99,345
Building		491,082			491,082
Leasehold improvement		81,377			76,522
Furniture and office equipment		11,975			2,659
Software		12,697			17,002
Construction in progress		10,182			870
Total		803,486			687,480
Less: Accumulated depreciation		(123,168	)		(135,448	)
Accumulated impairment loss		(309	)		—
		680,009			552,032

Depreciation expenses were RMB55,751, RMB108,446 and RMB68,807 for the years ended December 31, 2020, 2021 and 2022, respectively.

As a result of the New Regulations and the Business Restructuring, the Group performed an impairment assessment on property, equipment and software in 2021 and reduces the carrying value of the property and equipment related to compulsory education academic subject tutoring services to its estimated fair value based on market approach. The Group recorded impairment losses on property, equipment and software amounted to nil, RMB28,918 and nil during the years ended December 31, 2020, 2021 and 2022, respectively.

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LAND USE RIGHTS, NET

12 Months Ended

Dec. 31, 2022

Land Use Rights, Net Disclosure [Abstract]

LAND USE RIGHTS, NET

. LAND USE RIGHTS, NET

Land use rights consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Land use rights		29,788			29,788
Less: Accumulated amortization		(1,610	)		(2,415	)
		28,178			27,373

Amortization expenses for land use right were RMB805, RMB805 and RMB805 for the years ended December 31, 2020, 2021 and 2022, respectively. Future amortization expense is RMB805 for each of the next five years through December 31, 2027 and RMB805 thereafter.

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GOODWILL

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL

GOODWILL

The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2022 were presented as follow:

	As of December 31,
	2021			2022
	RMB			RMB
Beginning balance		43,631			331
Addition		—			—
Accumulated impairment loss		(43,300	)		—
Goodwill, net		331			331

The Group conducted goodwill impairment assessment at the end of each reporting year or more frequently if there are changes indicate that it may be impaired. As a result of the New Regulations and the Business Restructuring, the Group performed an impairment assessment on goodwill of Tianjin Puxin, which is a stand-alone reporting unit in 2021 and reduced the carrying value to its estimated fair value based on expected discounted cash flow approach.

The Group recorded goodwill impairment losses amounted to nil, RMB43,300 and nil for the years ended December 31, 2020, 2021 and 2022, respectively.

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INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

9. INTANGIBLE ASSETS

The intangible assets consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Student base		12,510			12,510
Trademark		1,675			1,675
License		—			20,000
Total		14,185			34,185
Less: Accumulated amortization		(4,277	)		(5,422	)
Accumulated impairment loss		(9,831	)		(9,831	)
		77			18,932

The Group recognized amortization expense of RMB656, RMB3,311 and RMB1,145 for the years ended December 31, 2020, 2021 and 2022, respectively. As of December 31, 2022, the Group expects to recognize amortization expenses of RMB2,705 for each of the next five years through 2027, respectively, and RMB5,407 thereafter.

The Group reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. As a result of the New Regulations and the Business Restructuring, the Group performed an impairment assessment on intangible assets in 2021 and the intangible assets were substantially impaired as the Group does not expect to obtain any benefits from those given the changes in regulations.

The Group recorded impairment losses on intangible assets amounted to nil, RMB9,831 and nil during the years ended December 31, 2020, 2021 and 2022, respectively.

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

12 Months Ended

Dec. 31, 2022

Payables and Accruals [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

The components of accrued expenses and other current liabilities were as follows:

	As of December 31,
	2021		2022
	RMB		RMB
Salary and welfare payable		361,560		301,152
Other accrued expense		132,184		129,970
Other tax payable		85,788		67,334
Refund liability (1)		78,630		60,597
Accrued marketing expense		27,005		75,473
Payable for investment and acquisition		1,870		26,580
Others		6,228		1,083
		693,265		662,189

(1)Refund liability represents the estimated amounts of service fee received that is estimated to be refunded as described in Note 2.

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FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENT

11. FAIR VALUE MEASUREMENT

Measured at fair value on a recurring basis

As of December 31, 2021 and 2022, short-term investments measured at fair value are as follows:

	Fair value measurement as of December 31, 2022
	Quoted prices in active market for identical assets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
	RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		—		1,512,953		—		1,512,953
Investments elected to measure at fair value
- Wealth management products		—		1,203,995		—		1,203,995
Total		—		2,716,948		—		2,716,948

11. FAIR VALUE MEASUREMENT - continued

Measured at fair value on a recurring basis - continued

	Fair value measurement as of December 31, 2021
	Quoted prices in active market for identical assets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
	RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		—		2,199,372		—		2,199,372
Total		—		2,199,372		—		2,199,372

The Group’s available-for-sale debt investments and investments elected to measure at fair value as of December 31, 2021 and 2022 mainly consist of wealth management products purchased from banks. The products are valued using alternative pricing sources and models utilizing market observable inputs, and accordingly, the Group classifies the valuation techniques that use these inputs as Level 2.

A summary of available-for-sale investments during the years ended December 31, 2021 and 2022 is presented as below:

	As of December 31, 2022
	Original cost		Unrealized gains		Unrealized loss		Provision for decline in value		Fair value
	RMB		RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		1,508,635		4,318		—		—		1,512,953
Total		1,508,635		4,318		—		—		1,512,953

11. FAIR VALUE MEASUREMENT - continued

Measured at fair value on a recurring basis - continued

	As of December 31, 2021
	Original cost		Unrealized gains		Unrealized loss		Provision for decline in value		Fair value
	RMB		RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		2,203,630		—		4,258		—		2,199,372
Total		2,203,630		—		4,258		—		2,199,372

For the year ended December 31, 2022, a gain of RMB1,422 resulting from changes in fair value of the products under fair value option was recorded in other income.

As of December 31, 2022, RMB1,512,953 available-for-sale investments and RMB1,203,995 investments elected to measure at fair value will mature within one year.

Measured at fair value on a non-recurring basis

Property, plant and software, goodwill and acquired intangible assets are measured at fair value on a non-recurring basis when an impairment is recognized, which is disclosed in note 6, 8 and 9, respectively.

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SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

Share options

In March 2019, the Group approved the Share Incentive Plan (the “Plan”) under which the maximum aggregate number of ordinary shares that may be issued pursuant to all awards is 28,400,000 shares. The shares reserved may be increased automatically if and whenever the unissued shares reserved accounts for less than one percent (1%) of the total then issued and outstanding shares, so that after the increase, the shares unissued and reserved under the Plan immediately after each such increase shall equal to five percent (5%) of the then issued and outstanding shares.

Prior to the initial public offering in June 2019, the Group granted share options to employees. The term of the option shall not exceed ten years from the date of the grant.

The options will vest in accordance with the vesting schedules set out in the respective share option agreements with vesting period ranging from 0 to 10 years. The Group determined the estimated fair value of the options on the respective grant dates using the binomial option pricing model with the assistance from an independent valuation firm. The Group did not grant any share options during the years ended December 31, 2020, 2021 and 2022.

A summary of options activities during the year ended December 31, 2022 is presented below:

	Number of options			Weighted average exercise price		Weighted average grant date fair value		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2022		5,213,161			0.01		13.96		6.63		96,622
Granted		—			—		—
Exercised		(872,428	)		0.01		13.23
Forfeited		(722,387	)		0.01		14.75
Cancelled		—			—		—
Options outstanding at December 31,    2022		3,618,346			0.01		13.98		5.75		88,310
Options vested and expected to    vest as of December 31, 2022		3,618,346			0.01		13.98		5.75		88,310
Options exercisable as of December 31,    2022		703,183			0.01		8.12		4.62		17,162

12. SHARE-BASED COMPENSATION - continued

Share options - continued

The total fair value of options vested during the years ended December 31, 2020, 2021 and 2022 were RMB21,081, RMB19,134 and RMB13,032 respectively. Total intrinsic value of options exercised for the years ended December 31, 2020, 2021 and 2022 were RMB314,928, RMB13,933 and RMB21,293 respectively.

The Group recognizes compensation expenses related to options over the estimated service period for each separate vesting portion of the award as if the award is in substance, multiple awards.

As of December 31, 2022, there was RMB16,535 of unrecognized compensation expenses related to options expected to be recognized over a weighted average period of 5.75 years.

Restricted Stock Units

Under the Plan, the Group granted 4,919,577 RSUs to employees at an exercise price of nil per share during the year ended December 31, 2022. The vesting period of these RSUs ranged from 0 to 4 years. The RSUs are not transferable and may not be sold or pledged and the holder has no voting or dividend right on the non-vested RSUs. In the event that the employment with the Group is terminated for any reason prior to vesting in the RSUs, the holder’s right to the unvested RSUs will terminate immediately. The non-vested RSUs will be repurchased by the Group at no cost.

The Group recognized compensation expense over the requisite service period for each separately vesting portion of the award as if the award is in substance, multiple awards. The aggregate fair values of RSUs are measured at the fair value of the Group’s ordinary shares on the grant date which were RMB672,010, RMB558,876 and RMB82,690 during the years ended December 31, 2020, 2021 and 2022, respectively.

As of December 31, 2022, there was RMB101,885 unrecognized compensation cost related to RSUs which is expected to be recognized over a weighted average vesting period of 3.08 years. The weighted average granted fair value of the RSUs granted during the years ended December 31, 2020, 2021 and 2022 was RMB391.35, RMB135.14 and RMB16.81 per RSU, respectively.

12. SHARE-BASED COMPENSATION - continued

Restricted Stock Units - continued

A summary of the RSUs activity during the year ended December 31, 2022 is presented below:

	RSUs
Unvested balance at January 1, 2022		2,991,804
Granted		4,919,577
Vested		(648,588	)
Forfeited		(1,361,932	)
Cancelled		(480,487	)
Unvested balance at December 31, 2022		5,420,374

Modifications

During the year ended December 31, 2021, as a result of the Business Restructuring, the Group cancelled 530,700 options and 1,613 RSUs without concurrent grant of a replacement award or other valuable consideration, for those the Group recognized any previously unrecognized compensation cost at the cancellation date. Additionally, the Group also cancelled 330,428 RSUs and further paid RMB24,370 as cash consideration. Any previous unrecognized compensation costs related to the award were recorded at the cancellation date. The Group recognized incremental compensation expense amounting to RMB24,370, equal to the excess of the cash consideration over the fair value of the cancelled award which was nominal at the cancellation date.

During the year ended December 31, 2022, the Group cancelled 480,487 RSUs without concurrent grant of a replacement award or other valuable consideration, for those the Group recognized all previously unrecognized compensation cost at the cancellation date.

The Group recognized RMB238,446, RMB345,259 and RMB122,654 of compensation expenses for all options and RSUs granted for the years ended December 31, 2020, 2021 and 2022, respectively.

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ORDINARY SHARES

12 Months Ended

Dec. 31, 2022

Stockholders' Equity Note [Abstract]

ORDINARY SHARES

13. ORDINARY SHARES

Upon the completion of the initial public offering, the ordinary shares of the Company are classified as Class A and Class B. Holders of Class A ordinary shares and Class B ordinary shares have the same rights except for voting and conversion rights. Each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to ten votes and is convertible into one Class A ordinary share. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.

In November 2022, the Company’s board of directors authorized a share repurchase program, under which the Company may repurchase up to USD30,000 of its common shares, including shares represented by American depositary shares, effective until November 2025. Additionally, Mr. Larry Xiangdong Chen, the Company's founder, Chairman and CEO, intends to personally purchase up to USD20,000 of the Company's shares. During the year ended December 31, 2022, the Company and Mr. Larry Xiangdong Chen did not make any repurchase under this share repurchase program.

During the year ended December 31, 2021 and 2022, the shares of treasury stock reissued in connection with the exercise of options and the vesting of RSUs were 365,358 and nil, respectively.

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INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

14. INCOME TAXES

The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income or capital gains taxes. The Company’s subsidiary BaiJiaHuLian HK is located in Hong Kong and is subject to an income tax rate of 16.5% for assessable profit earned in Hong Kong in 2017 and during the first three months of 2018. From April 2018, BaiJiaHuLian HK is subject to an income tax rate of 8.25% for the first HKD2,000 of assessable profit and 16.5% for profit exceeding HKD2,000. No provision for Hong Kong profits tax was made as the Group had no estimated assessable profit that was subject to Hong Kong profits tax for the years ended December 31, 2021 and 2022.

The Company’s subsidiary, the VIE and the VIE’s subsidiaries, which were entities incorporated in mainland China (the “Mainland China entities”), are subject to mainland China Enterprise Income Tax (“EIT”) on their taxable income in accordance with the relevant income tax laws of mainland China, which have adopted a unified income tax rate of 25% since January 1, 2008 with the following exceptions.

Beijing Gaotu qualified as a High and New Technology Enterprise (the "HNTE") from 2017 through 2022 and accordingly was entitled to the 15% preferential tax rate during the period.

GaoTuYunJi qualified as a HNTE from 2019 through 2021, and accordingly was entitled to a 15% preferential tax rate during the period. The HNTE qualification has been renewed in 2022 and set to expire by 2024.

14. INCOME TAXES - continued

Beijing Lexuebang also qualified as a HNTE during the year ended December 31, 2019. The HNTE qualification has been renewed in 2022 and set to expire by 2024. Furthermore, Beijing Lexuebang obtained the qualification of the Software Enterprise Certificate in March 2020, and renewed in 2021 and 2022. Therefore, Beijing Lexuebang adopted the exemption from EIT for years 2019 and 2020, and 12.5% from 2021 to 2023.

Wuhan Yuexuebang obtained the qualification of the Software Enterprise Certificate in March 2021, and renewed in 2022. Therefore, Wuhan Yuexuebang adopted exemption from EIT for the years 2020 and 2021, and 12.5% from 2022 to 2024.

The current and deferred components of the income tax expense appearing in the consolidated statement of operations were as follows:

	Year ended December 31,
	2020		2021			2022
	RMB		RMB			RMB
Current tax benefits/(expenses)		14,578		(1	)		(1,906	)
Deferred tax benefits/(expenses)		20,041		(40,948	)		17,611
		34,619		(40,949	)		15,705

The principle components of deferred tax assets were as follows:

	As of December 31,
	2021			2022
	RMB			RMB
Deferred tax assets：
Deductible temporary difference related to advertising    expenses		750,576			778,837
Net operating loss carrying forwards		578,623			584,693
Transfer of intangible assets		1,510			1,340
Accrued liabilities		2,176			1,876
Total deferred tax assets		1,332,885			1,366,746
Less: valuation allowance		(1,332,885	)		(1,351,067	)
Deferred tax assets, net		—			15,679

14. INCOME TAXES - continued

The movements of valuation allowance for the years end December 31, 2020, 2021 and 2022 were as follows:

	Year ended December 31,
	2020			2021		2022
	RMB			RMB		RMB
Balance at beginning of the period		40,352			573,565		1,332,885
Acquisitions		4,987			—		6,668
Additions		529,915			759,320		11,514
Reversal		(1,689	)		—		—
Balance at end of the period		573,565			1,332,885		1,351,067

The principle components of deferred tax liabilities were as follows:

	As of December 31,
	2021		2022
	RMB		RMB
Deferred tax liabilities
Building and land use right		71,107		69,307
Intangible assets		—		4,719
Unrecognized gains of investments		509		481
Total deferred tax liabilities		71,616		74,507

As of December 31, 2022, the Group had net operating loss carried forward of RMB2,717,316 from the Company's Mainland China entities, which will expire on various dates from December 31, 2023 to December 31, 2032.

14. INCOME TAXES - continued

The reconciliation of the effective tax rate and the statutory income tax rate applicable to operations was as follow:

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Loss before provision for income taxes    and share of results of equity investees		(1,427,612	)		(3,062,214	)		(2,533	)
Income tax benefits computed at an    applicable tax rate of 25%		356,903			765,554			633
Effect of permanent differences		55,935			(8,186	)		(1,423	)
Effect of research and development super-deduction		88,881			89,287			36,263
Effect of preferential tax rate		62,404			(129,026	)		581
Effect on tax rates in different tax jurisdictions		(1,278	)		742			(8,835	)
Change in valuation allowance		(528,226	)		(759,320	)		(11,514	)
		34,619			(40,949	)		15,705

If Beijing Gaotu, GaoTuYunJi, Beijing Lexuebang, Wuhan Yuexuebang did not enjoy income tax preferential tax rates, tax expense would have increased by RMB62,404 for the years ended December 31, 2020, tax benefit would have decreased by RMB129,026 for the year ended December 31, 2021 and tax expense would have increased by RMB581 for the years ended December 31,2022. The increase in basic and diluted net loss per ordinary share was RMB0.39 and RMB0.76 for the years ended December 31, 2020, 2021, respectively. The decrease in basic and diluted net income per ordinary share was approximately nil for the years ended December 31, 2022.

The Group did not identify significant unrecognized tax benefits for the year ended December 31, 2022. The Group did not incur any interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from December 31, 2022. As of December 31, 2021 and 2022, the Group did not have any significant unrecognized uncertain tax positions.

Aggregate undistributed earnings of the Company’s mainland China subsidiaries and the VIE that are available for reinvestment. Upon distribution of such earnings, the Company will be subject to mainland China EIT, the amount of which is impractical to estimate. The Company did not record any withholding tax on any of the aforementioned undistributed earnings because the relevant subsidiaries and the VIE do not intend to declare dividends and the Company intends to permanently reinvest it within the mainland China. Additionally, no deferred tax liability was recorded for taxable temporary differences attributable to the undistributed earnings of VIE because the Company believes the undistributed earnings can be distributed from the VIE to WFOEs in a manner that would not be subject to income tax.

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NET (LOSS)/INCOME PER SHARE

12 Months Ended

Dec. 31, 2022

Earnings Per Share [Abstract]

NET (LOSS)/INCOME PER SHARE

15. NET (LOSS)/INCOME PER SHARE

The following table sets forth the computation of basic and diluted net (loss)/income per share for the periods indicated:

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Basic net (loss)/income per share calculation
Numerator:
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172
Net (loss)/income attributed to ordinary shareholders    for computing net (loss)/income per ordinary shares    -basic		(1,392,930	)		(3,103,465	)		13,172
Denominator:
Weighted average ordinary shares outstanding used in    computing net (loss)/income per ordinary shares-basic		159,725,779			170,790,979			172,254,080
Net (loss)/income per ordinary share attributable to    ordinary shareholders-basic		(8.72	)		(18.17	)		0.08
Diluted net (loss)/income per ordinary share calculation
Denominator:
Weighted average ordinary shares basic outstanding		159,725,779			170,790,979			172,254,080
Effect of potentially diluted stock options		—			—			2,931,766
Effect of potentially diluted RSUs		—			—			805,638
Weighted average ordinary shares outstanding used in    computing net (loss)/income per ordinary shares-diluted		159,725,779			170,790,979			175,991,484
Net (loss)/income per ordinary share attributable to    ordinary shareholders-diluted		(8.72	)		(18.17	)		0.07

For the years ended December 31, 2020, 2021 and 2022, the following RSUs outstanding were excluded from the calculation of diluted net (loss)/income per ordinary share, as their inclusion would have been anti-dilutive for the periods prescribed.

	Year ended December 31,
	2020		2021		2022
Shares issuable upon conversion of RSUs		64,576		12,794		1,093,923

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EMPLOYEE DEFINED CONTRIBUTION PLAN

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

EMPLOYEE DEFINED CONTRIBUTION PLAN

16. EMPLOYEE DEFINED CONTRIBUTION PLAN

Full time employees of the Group in the mainland China participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund, unemployment insurance and other welfare benefits are provided to employees. Labor regulations of mainland China require that the Group’s mainland China entities make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amount for such employee benefits, which was expensed as incurred, was RMB216,551, RMB393,812 and RMB125,666 for the years ended December 31, 2020, 2021 and 2022, respectively.

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RELATED PARTY TRANSACTION

12 Months Ended

Dec. 31, 2022

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTION

17. RELATED PARTY TRANSACTION

(1)Related parties

Name of related parties	Relationship with the Group
Beijing Youlian Global Education    Technology Co., Ltd ("Beijing Youlian")(1)	Equity method investment investee

(1)Beijing Youlian was dissolved in June 2020.

(2)The significant transactions between the Group and its related parties were as follows:

Other than as disclosed elsewhere in these consolidated financial statements, the Group had the following significant related party transactions:

	Expense Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Beijing Youlian(1)		1,457		—		—
Total		1,457		—		—

(1)The Group recognized expense from receiving advertising service provided by Beijing Youlian.

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LEASE

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

LEASE

18. LEASE

Operating leases

The Group’s leases consist of operating leases for administrative office spaces in different cities in mainland China. The Group determines if an arrangement is a lease at inception. Some lease agreements contain lease and non-lease components, which the Group choose to account for as separate components. The allocation of the consideration between the lease and the non-lease components is based on the relative stand-alone prices of lease components included in the lease contracts. As of December 31, 2021 and 2022, the Group had no long-term leases that were classified as a financing lease. As of December 31, 2022, the Group did not have additional operating leases that have not yet commenced.

Total operating lease expenses for the years ended December 31, 2021 and 2022 was RMB193,957 and RMB32,714, and was recorded in cost of revenues, selling expenses, research and development expenses and general and administrative expense on the consolidated statements of operations.

Some leases were terminated before the expiration of the lease term due to the impact of Business Restructuring, the relevant right-of-use asset and the lease liability were derecognized with the difference amounted to RMB16,720 recognized under other income in the consolidated statements of operations in 2022. The noncash decrease of operating lease right-of-use assets was RMB296,465 for the years ended December 31, 2022.

	Year ended December 31,
	2021			2022
	RMB			RMB
Cash paid for amounts included in the measurement of    lease liabilities:
Operating cash flows from operating leases		156,600			37,027
Non-cash right-of-use assets in exchange for new lease    liabilities:
Operating leases		39,069			38,953
Weighted average remaining lease term:
Operating leases		4.3			2.9
Weighted average discount rate:
Operating leases		6.5	%		7.2	%

18. LEASE - continued

Operating leases - continued

The following is a maturity analysis of the annual undiscounted cash flows for the annual periods ending December 31:

	RMB
Year ending December 31,
2023		33,303
2024		32,818
2025		19,802
2026		4,193
2027 and thereafter		—
Less: imputed interest		(7,592	)
Total		82,524

Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The terms of the leases do not contain rent escalation or contingent rents. For the years ended December 31, 2020, 2021, 2022, total rental expense for all operating leases amounted to RMB155,287, RMB193,957 and RMB32,714, respectively.

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CONTINGENCIES

12 Months Ended

Dec. 31, 2022

Loss Contingency [Abstract]

CONTINGENCIES

. CONTINGENCIES

The Company was named as defendants in a putative securities class action filed in federal court in December 2022. Plaintiffs purportedly brought the case on behalf of a class of persons who purchased the Company’s ADSs between March 5, 2021 and July 23, 2021, and alleged that the Company’s public filings contained misstatements and omissions in violation of the U.S. Securities Exchange Act of 1934. The Group believes the claim made by the plaintiff is without merit, and the Group intends to defend vigorously in the cases. As the case is still in its preliminary stage, although the outcome of litigation is inherently uncertain, the Group does not believe the possibility of loss is probable. The Group is unable to estimate a range of loss, if any, that could result if there would be an adverse final decision, and the Group has not accrued a liability for the matter.

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SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2022

Segment Reporting [Abstract]

SEGMENT INFORMATION

. SEGMENT INFORMATION

Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial information is available that is regularly evaluated by the Group’s chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance. The Group’s CODM has been identified as the CEO. The Group is currently engaged in providing learning services and educational content & digitalized learning products. The CODM reviews consolidated results including revenue, grow profit and operating profit at a consolidated level only and does not distinguish among services and products for the purpose of making decision about resources allocation and performance assessment. As such, the Group concluded that it has one operating segment and one reporting segment. The Group operates solely in mainland China and all of the Group’s long-lived assets are located in mainland China.

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RESTRICTED NET ASSETS

12 Months Ended

Dec. 31, 2022

Restricted Net Assets [Abstract]

RESTRICTED NET ASSETS

21. RESTRICTED NET ASSETS

Relevant statutory laws and regulations of mainland China permit payments of dividends by the Group’s mainland China subsidiaries only out of their retained earnings, if any, as determined in accordance with accounting standards and regulations of mainland China. The results of operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries.

In accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, a foreign invested enterprise established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s statutory accounts of mainland China, which is included in retained earnings accounts in equity section of the consolidated balance sheets. A wholly-owned foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve reaches 50% of its respective registered capital based on the enterprise’s statutory accounts of mainland China. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. If any mainland China subsidiary incur debt on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to the Group. Any limitation on the ability of the mainland China subsidiaries to distribute dividends or other payments to their respective shareholders could materially and adversely limit the ability to grow, make investments or acquisitions that could be beneficial to pay dividends.

Additionally, in accordance with the Company Law of mainland China, a domestic enterprise is required to provide statutory common reserve at least 10% of its annual after-tax profit until such reserve reaches 50% of its respective registered capital based on the enterprise’s statutory accounts of mainland China. The Group’s provision for the statutory common reserve is in compliance with the aforementioned requirement of the Company Law. A domestic enterprise is also required to provide for discretionary surplus reserve, at the discretion of the board of directors, from the profits determined in accordance with the enterprise’s statutory accounts of mainland China. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

Because the Group’s mainland China entities can only be paid out of distributable profits reported in accordance with accounting standards of mainland China, the Group’s entities in mainland China are restricted from transferring a portion of their net assets to the Company. The restricted amounts include the paid-in capital and statutory reserves of the Group’s entities in mainland China. The aggregate amount of paid-in capital and statutory reserves, which is the amount of net assets of the Group’s entities in mainland China not available for distribution, were both RMB4,738,378 as of December 31, 2021 and 2022, respectively.

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

12 Months Ended

Dec. 31, 2022

Condensed Financial Information Disclosure [Abstract]

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

BALANCE SHEETS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	As of December 31,
	2021			2022			2022
	RMB			RMB			USD
Cash and cash equivalents		11,260			3,731			541
Short-term investments		885,420			734,142			106,441
Prepaid expenses and other current assets		463			1,787			259
Amounts due from subsidiaries and VIEs		5,777,602			6,459,723			936,572
Total current assets		6,674,745			7,199,383			1,043,813
TOTAL ASSETS		6,674,745			7,199,383			1,043,813
Accrued expenses and other current liabilities		5,184			5,072			736
Amounts due to subsidiaries and VIEs		108,120			108,120			15,676
Total current liabilities		113,304			113,192			16,412
Deficit of investments in subsidiaries and VIEs		3,680,499			3,990,362			578,548
TOTAL LIABILITIES		3,793,803			4,103,554			594,960
Class A ordinary shares (par value of USD0.0001 per share; 800,000,000 shares authorized as of December 31, 2021 and 2022; 99,277,116 and 100,077,116 shares issued; 98,032,240 and 99,553,256 shares outstanding as of December 31, 2021 and 2022)		66			67			10
Class B ordinary shares (par value of USD0.0001 per share; 100,000,000 shares authorized as of December 31, 2021 and 2022, 73,305,288 shares issued and outstanding as of December 31, 2021 and 2022)		48			48			7
Additional paid-in capital		7,793,234			7,915,899			1,147,697
Accumulated other comprehensive loss		(143,111	)		(64,062	)		(9,288	)
Statutory reserves		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		6,674,745			7,199,383			1,043,813

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENT OF OPERATIONS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
General and administrative expenses		(14,157	)		(25,357	)		(8,807	)		(1,277	)
Total operating expenses		(14,157	)		(25,357	)		(8,807	)		(1,277	)
Loss from operations		(14,157	)		(25,357	)		(8,807	)		(1,277	)
Equity in (loss)/gain of subsidiaries and VIEs		(1,387,816	)		(3,106,437	)		45,545			6,604
Income/(loss) from non-operations		9,043			28,329			(23,566	)		(3,417	)
(Loss)/income before income tax		(1,392,930	)		(3,103,465	)		13,172			1,910
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENT OF COMPREHENSIVE (LOSS)/INCOME

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Other comprehensive (loss)/income, net of tax:
Change in cumulative foreign currency translation adjustments		(74,562	)		(73,936	)		72,703			10,541
Unrealized gains on available-for-sale investments (net of tax effect of RMB9,867, RMB8,598 and RMB8,703 for the years ended December 31, 2020, 2021 and 2022, respectively)		67,231			48,191			39,729			5,760
Transfer to statements of operations of realized gains on available-for-sale investments (net of tax effect of RMB9,654, RMB8,302 and RMB8,881 for the years ended December 31, 2020, 2021 and 2022, respectively)		(70,403	)		(57,461	)		(33,383	)		(4,840	)
Total comprehensive (loss)/income		(1,470,664	)		(3,186,671	)		92,221			13,371

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

STATEMENT OF CASH FLOWS

(In thousands of RMB and USD, except for share, per share and per ADS data, or otherwise noted)

	Year ended December 31,
	2020			2021			2022			2022
	RMB			RMB			RMB			USD
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172			1,910
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
Equity in loss/(gain) of subsidiaries and VIEs		1,387,816			3,106,437			(45,545	)		(6,604	)
Realized gains from investments		(6,564	)		(8,498	)		—			—
Fair value change of fair value option		—			—			31,080			4,506
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(1,919	)		2,083			(1,324	)		(192	)
Accrued expenses and other current liabilities		(1,771	)		(3,618	)		(113	)		(16	)
Net cash used in operating activities		(15,368	)		(7,061	)		(2,730	)		(396	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to subsidiaries and VIEs		(195,783	)		(6,248,209	)		(303,214	)		(43,962	)
Repayment from subsidiaries and VIEs		—			706,870			100,000			14,499
Investing activities on debt securities investments		(5,252,188	)		5,547,488			174,382			25,283
Net cash (used in)/generated from investing activities		(5,447,971	)		6,149			(28,832	)		(4,180	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution		36			7			—			—
Proceeds from private placement financing		5,687,251			—			—			—
Repurchase of ordinary shares		(282,543	)		—			—			—
Net cash generated from financing activities		5,404,744			7			—			—
Effect of exchange rate changes		5,390			3,735			24,033			3,484
Net (decrease)/increase in cash and cash equivalents		(53,205	)		2,830			(7,529	)		(1,092	)
Cash and cash equivalents at beginning of the year		61,635			8,430			11,260			1,633
Cash and cash equivalents at end of the year		8,430			11,260			3,731			541

ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

NOTES TO FINANCIAL STATEMENTS

(In thousands of RMB and USD, except for share and per share data, or otherwise noted)

1. BASIS FOR PREPARATION

The condensed financial information of the Parent Company has been prepared using the same accounting policies as set out in the Group’s consolidated financial statements except that the Parent Company used the equity method to account for investments in its subsidiaries, VIE and VIE’s subsidiaries. The condensed financial information is provided since the restricted net assets of the Group’s subsidiaries, the VIE and the VIE’s subsidiaries were over the 25% of the consolidated net assets of the Group as of December 31, 2022.

2. INVESTMENT IN SUBSIDIARIES AND VIE AND VIE'S SUBSIDIARIES

The Parent Company and its subsidiaries, VIE and VIE’s subsidiaries were included in the consolidated financial statements where inter-company balances and transactions were eliminated upon consolidation. For purpose of the Parent Company’s stand-alone financial statements, its investments in subsidiaries, VIE and VIE’s subsidiaries were reported using the equity method of accounting. The Parent Company’s share of loss from its subsidiaries, VIE and VIE’s subsidiaries were reported as share of loss of subsidiaries, VIE and VIE’s subsidiaries in the accompanying Parent Company financial statements. Ordinarily under the equity method, an investor in an equity method investee would cease to recognize its share of the losses of an investee once the carrying value of the investment has been reduced to RMB nil absent an undertaking by the investor to provide continuing support and fund losses. For the purpose of this Schedule I, the Parent Company has continued to reflect its share, based on its proportionate interest, of the losses of subsidiaries, VIE and VIE’s subsidiaries regardless of the carrying value of the investment even though the Parent Company is not obligated to provide continuing support or fund losses.

3. CONVENIENCE TRANSLATION

The Group’s business is primarily conducted in mainland China and all of the revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into US dollars using the exchange rate as of balance sheet date, for the convenience of the readers. Translations of balances in the balance sheet, and the related statement of operations and cash flows from Renminbi (“RMB”) into US dollars as of and for the year ended December 31, 2022 are solely for the convenience of the readers and were calculated at the rate of USD1.00=RMB6.8972, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 30, 2022. 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 31, 2022, or at any other rate.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Basis of presentation and use of estimates

Basis of presentation and use of estimates

The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”). These accounting principles require management to make certain estimates and assumptions that affect the amounts in the accompanying financial statements. Actual results may differ from those estimates. The Group bases its estimates on past experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Significant accounting estimates reflected in the Group’s financial statements include, but are not limited to, revenue recognition, valuation allowance for deferred tax assets, impairment assessment of goodwill, intangible assets and other long-lived assets, fair value assessment of certain short-term investments, valuation of share-based compensation, discount rate for leases and consolidation of VIEs. Actual results may differ materially from those estimates.

Principles of consolidation

Principles of consolidation

The accompanying consolidated financial statements include the financial information of the Group and its subsidiaries, the VIE and the VIE’s subsidiaries. All intercompany balances and transactions were eliminated upon consolidation.

Fair value

Fair value

Fair value is considered to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value - continued

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

Financial instruments

Financial instruments

The Group’s financial instruments consist primarily of cash and cash equivalents, restricted cash, short-term investments accounted for held-to-maturity, available-for-sale debt investments or elected to measure at fair value, receivables from third party payment platform and other liabilities.

As of December 31, 2021 and 2022, the carrying values of cash and cash equivalents, held-to maturities investments, receivables from third party payment platform and other current liabilities approximated their fair values reported in the consolidated balance sheets due to the short term maturities of these instruments. Available-for-sales investments and investments elected to measure at fair value are recorded at fair value as of December 31, 2021 and 2022.

Foreign currency translation and transactions

Foreign currency translation and transactions

The Group's reporting currency is the Renminbi ("RMB"). The functional currency of the subsidiaries incorporated outside the mainland China is the United States dollar ("US dollar" or "US$"). The functional currency of all the other subsidiaries, the VIE and VIE's subsidiaries is the RMB.

Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable functional currencies at historical exchange rates. Revenues and expenses are translated using the average rate of exchange in effect during the reporting period. Translation adjustments are reported and shown as a separate component of other comprehensive loss in the consolidated statements of changes in shareholders' deficit and the consolidated statements of comprehensive loss.

Transactions in currencies other than the functional currencies during the year are converted into the applicable functional currencies at the applicable rates of exchange prevailing at the dates of the transactions. Transaction gains and losses are recorded in the consolidated statements of operations.

Convenience translation

Convenience translation

The Group’s business is primarily conducted in China and all of the revenues are denominated in RMB. However, periodic reports made to shareholders will include current period amounts translated into US dollars using the exchange rate as of balance sheet date, for the convenience of the readers. Translations of balances in the consolidated balance sheets and the related consolidated statements of operations, comprehensive (loss)/income, change in shareholders’ (deficit)/equity and cash flows from Renminbi ("RMB") into US dollars as of and for the year ended December 31, 2022 are solely for the convenience of the readers and were calculated at the rate of USD1.00=RMB6.8972 representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 30, 2022. 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 31, 2022, or at any other rate.

Cash and cash equivalents

Cash and cash equivalents

Cash and cash equivalents comprise cash at banks and on hand, demand deposits and highly liquid investments, which have original maturities of three months or less when purchased and are subject to an insignificant risk of changes in value.

Restricted cash

Restricted cash

Cash that is restricted as to withdrawal or for use or pledged as security is separately presented. The Group’s restricted cash as of December 31, 2021 mainly represents the upfront tuition fee collected and deposited in a custodian bank account regulated by the government, and had been released as the courses were delivered.

Debt securities investments

Short-term investments

As of December 31, 2021 and 2022, the Group’s debt securities include held-to-maturity investments, available-for-sale investments, and investments elected to measure at fair value.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Short-term investments - continued

Held-to-maturity investments

Investments are classified as held-to-maturity when the Group has the positive intent and ability to hold the securities to maturity, and are recorded at amortized cost. As of December 31, 2021 and 2022, the balances of held-to-maturity securities were RMB574,628 and RMB206,916, respectively, and were recorded as short-term investments as their maturities are less than twelve months.

The Group evaluates credit loss over held-to-maturity investments upon acquisition at the pool level based on historical experience, credit quality and other factors that may affect the Group’s ability to collect the investments. An expected credit loss will be recognized as an allowance through earnings if the net amount of cash flow expected to be collected is less than the amortized cost basis.

Available-for-sale investments

Debt securities investments that do not meet the criteria of held-to-maturity or trading securities are classified as available-for-sale investments and are reported at fair value with unrealized gains and losses recorded in accumulated other comprehensive income/(loss). Realized gains or losses on the sale of these securities are recognized under Realized gains from investments in the consolidated statements of operations.

The Group evaluates each individual investment periodically for impairment. For investments where the Group does not intend to sell, the Group evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated balance sheet with corresponding adjustment in the consolidated statements of operations and comprehensive income. Subsequent increases in fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component of shareholder's equity. As of December 31, 2022, the available-for-sale debt investments were recorded with unrealized gain amounted to RMB4,318, compared with unrealized loss amounted to RMB4,258 as of December 31, 2021.

Investments elected to measure at fair value

The Group elects the fair value option to record wealth management products with variable interest rates or indexed to foreign exchange with maturities less than one year at fair value in accordance with ASC 825 Financial Instrument. Changes in the fair value are recorded in other income.

Credit Losses

Credit losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which requires entities to measure all expected credit losses for financial assets held at the reporting date using a current expected credit loss model based on historical experience, current conditions, and reasonable and supportable forecasts.

The Group adopted ASC 326 on January 1, 2020 using the modified retrospective transition approach. Based on the nature of the Group’s financial instruments within the scope of this standard, the adoption of the new standard did not have a material effect on the Group’s consolidated financial statements.

Property, equipment and software, net

Property, equipment and software, net

Property, equipment and software are stated at cost less accumulated depreciation and impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows:

Category	Estimated useful life
Electronic equipment	3 years
Furniture and office equipment	3-5 years
Software	2-10 years
Building	35-37 years
Leasehold improvement	Shorter of the lease term or estimated economic life

Repair and maintenance costs are charged to expense as incurred, whereas the cost of renewals and betterment that extends the useful lives of property, equipment and software are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statement of operations.

Business combinations

Business combinations

Business combinations are recorded using the acquisition method of accounting. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired, if any, based on their estimated fair values as of the acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred.

Land use rights, net

Land use rights, net

All land in mainland China is owned by the government, which, according to the relevant laws of mainland China, may grant the right to use the land for a specified period of time. Land use rights are recorded at cost and amortized on a straight line basis over the term of the land certificates, as follows:

Category	Estimated useful life
Land use right	37 years

Goodwill

Goodwill

The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheets as goodwill. Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired. Application of a goodwill impairment test requires significant management judgment. The judgment in estimating the fair value of reporting unit includes estimating future cash flows, determining appropriate discount rates, consideration of the impact of COVID-19 and the New Regulations, and making other relevant assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for the reporting unit.

As part of the annual goodwill impairment test, the Group first performs a qualitative assessment to determine whether further impairment testing is necessary. If the qualitative assessment above indicates that it is more likely than not that the fair value of the indefinite-lived intangible asset or the reporting unit (for goodwill) is less than its carrying value, a quantitative impairment test is performed to compare the fair value to the carrying value. An impairment charge is recorded if the carrying value exceeds the fair value.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Goodwill - continued

The Group performed qualitative assessment for the reporting unit of Tianjin Puxin in 2021 due to the impact of New Regulations. The Group evaluated all relevant factors including, but not limited to, macroeconomic conditions, industry, regulatory and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations, business plans and strategies of the reporting unit and concluded that it was more likely than not that the fair value of the reporting unit was less than its carrying amount. After the quantitative impairment test, the Group recorded impairment losses on its goodwill amounting to RMB43,300 during the year ended December 31, 2021. No impairment losses on goodwill was recorded during the year ended December 31, 2022.

Intangible assets, net

Intangible assets, net

Intangible assets are initially recorded at cost and amortized on a straight-line basis over the estimated economic useful lives. The estimated useful lives of intangible assets are as follows:

Category	Estimated useful life
Student base	1.5-2 years
Trademark	3-10 years
License	7.4 years

Impairment of long-lived assets other than goodwill

Impairment of long-lived assets other than goodwill

The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based on the fair value of the assets.

Due to the impact of New Regulations and the Business Restructuring, the Group performed an impairment assessment on its long-lived assets in 2021 and reduced the carrying value of the long-lived assets to its estimated fair value based on expected discounted cash flow or market approach. The Group recorded impairment losses on its long-lived assets amounting to RMB52,544 during the year ended December 31, 2021. No impairment losses of long-lived assets was recorded during the year ended December 31, 2022.

Revenue recognition

Revenue recognition

The Group recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services, in accordance with ASC Topic 606 Revenue from Contracts with Customers ("Topic 606"). The Group’s revenue is reported net of discount, value added tax and related surcharges.

Disaggregation of revenue

For the years ended December 31, 2020, 2021 and 2022, all of the Group’s revenues were generated in mainland China. Additionally, all of the revenues for the periods were recognized from contracts with customers. The following table provides information about disaggregated revenue by types, including a reconciliation of the disaggregated revenue with the Group’s reportable segment.

As a result of the New Regulations previously disclosed, the Group changed its disaggregation of revenue to better disclose the performance of its business following its Business Restructuring. The total net revenue of online after-school academic subject tutoring services including compulsory education academic subject tutoring services and senior high school tutoring services previously recorded as online K-12 academic subject tutoring services in 2020 and 2021, and comprehensive tutoring services amounting to RMB886,056 and RMB560,196 previously included in comprehensive tutoring services and others in 2020 and 2021, were reclassified to learning services. Other revenue amounting to RMB1,289 and RMB912 in 2020 and 2021, previously included in comprehensive tutoring services and others, were reclassified to other revenue.

	Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Net revenues
- Learning services		7,123,455		6,560,835		2,436,110
- Educational content & digitalized learning products		—		—		26,791
- Other revenue		1,289		912		35,313
Total net revenues		7,124,744		6,561,747		2,498,214

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

The primary sources of the Group's revenues are as follows:

(1)Learning services

The Group offers various types of integrated online tutoring services covering a wide spectrum of topics and targets students from broad age groups through its diverse offerings. The Group’s live interactive tutoring services consists of several components, including online live broadcasting classes as well as other activities during the online period including teaching material, quizzes before, during and after the classes, summary of lessons after each class and interactions with both other students and instructors during the period. Different service components are highly interdependent and interrelated in the context of the contract with the live interactive tutoring services. Therefore, the Group has determined that the live interactive tutoring services represents one performance obligation. The service period for a majority of the live interactive tutoring services is less than six months.

Once the live interactive tutoring services is complete, the Group also offers the customer a content playback service. In the content playback service, the customer has unlimited access to online pre-recorded audio-video courses for a specified period ranging from one to three years. No other interactions or activities are provided during the playback period. For contracts that provide both the live interactive tutoring service and the content playback service, the Group determined that the live interactive tutoring service and content playback service are two separate performance obligations, as these two deliverables are distinct in that customers can benefit from each service on its own and the Group’s promises to deliver the services are separately identifiable from each other in the contract.

Tutoring fees are collected in advance. The Group determines that there is not a significant financing component based on the nature of the service being offered and the purpose of the payment terms. The Group charges a single upfront amount, not with the primary purpose of obtaining financing from the students but, instead, to maximize profitability, taking into consideration the risks associated with providing the service. The Group offers refunds for any remaining classes to students who withdraw from the course. The refund is equal to the amount related to the undelivered class. The Group determines the transaction price to be earned by estimating the refund liability based on historical refund ratio on a portfolio basis using the expected value method, and allocates the tutoring fee excluding the estimate for refund liability to each performance obligation using the relative stand-alone selling price. The Group determines the stand-alone selling prices using an expected cost plus margin methodology. Revenue related to the live interactive tutoring service is recognized proportionately as the online classes are delivered, as the Group concluded that the delivery of each online class represents a faithful depiction of when the services are provided to the students. Revenue related to the right to access the content playback is recognized proportionally over the playback period, as the Group concluded that the content playback service represents a stand ready obligation to provide the playback services and the customer simultaneously receives and consumes the benefits as the Group provides such services throughout the playback period.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

In some promotion activities, the Group grants sales incentives, including cash coupon and free class, to students who make qualified course purchases. Those students can redeem the cash coupon in the next purchase as part of payment, or select to enroll in a new course free of charge, prior to the incentive’s expiration. The cash coupon and free class will expire in no more than eight months. The Group determined the cash coupon and/or free course granted to existing students are material rights. As a result, a portion of sales price received on students making qualified purchases is allocated to the sales incentives granted based on the relative standalone selling prices. The selling price of cash coupon is estimated based on the discount amount and the probability of redemption. Revenue allocated to sales incentives is recorded as deferred revenue until redemption or expiration. Once the coupon or free class is redeemed, revenue will be recognized based on the revenue recognition policy discussed above. Students may not always redeem the cash coupon or take the free class offered before the expiration of the sales incentive. Therefore, the Group expects to be entitled to a breakage amount in deferred revenue related to the incentives. The Group estimates the breakage based on historical students’ usage and recognizes the estimated breakage as revenue in proportion to the pattern of incentives exercised by students. The assessment of estimating breakage is updated on a quarterly basis. Changes in estimated breakage is accounted for by adjusting deferred revenue to reflect the remaining incentive rights expected to be exercised. Since the Group ceased granting this kind of promotion activities in 2021, the assessment of estimating breakage was not material to the Group any more.

To comply with the Regulations, the Group did not offer compulsory education academic subject tutoring services during the year ended December 31, 2022.

(2) Educational content & digitalized learning products

Educational content & digitalized learning products mainly include books and digitalized auxiliary learning tools, such as smart devices and translation pens.

The Group has determined that selling educational content and digitalized learning products represents one performance obligation, as customers can benefit from the products on their own. The Group recognizes revenues when control of the educational content and digitalized learning products are transferred to the customer, which generally occurs upon the delivery to the customers.

(3) Other revenue

The Company leases office buildings to customers and receives a fixed quarterly rental fee over the term of the lease period. The Company classifies its lease income as other revenue and classifies such lease contracts as operating leases. The fixed rental fee is recognized evenly over the period of the lease contract on a straight-line basis.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Contract balances

Contract cost

Incremental costs of obtaining a contract with a customer is recognized as an asset in “Prepaid expenses and other current assets” if the Group expects to recover those costs. Incremental costs of obtaining a contract mainly include sales commissions to sales personnel and third-party agents. Contract cost assets are amortized over the estimated customer life.

As a result of the Business Restructuring during 2021, the Group evaluated and determined that the carrying amount of the contract cost exceeded the net considerations that the Group expected to receive after considering the costs that directly related to provide the corresponding services which were not recognized as expenses. As a result, the Group recorded impairment losses related to contract cost amounting to RMB34,528 during the year ended December 31, 2021. For the contracts entered into after the Business Restructuring with dissimilar characteristics or dissimilar circumstances, as a practical expedient, the Group elects to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. As of December 31, 2021 and 2022, the balance of contract cost was both nil. For the years ended December 31, 2020, 2021 and 2022, the Group recognized amortization of RMB185,787, RMB212,880 and nil as "Selling expenses" in its consolidated statement of operations, respectively.

Contract and refund liabilities

The following table provides information about the Group's contract liabilities and refund liability arising from contract with customers.

	Year ended December 31,
	2021		2022
	RMB		RMB
Deferred revenue, current portion		986,993		906,914
Deferred revenue, non-current portion		9,225		52,419
		996,218		959,333
Refund liability		78,630		60,597

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition - continued

Deferred revenue primarily consists of tuition fees received from customers for which the Group’s revenue recognition criteria have not been met. The deferred revenue will be recognized as revenue once the criteria for revenue recognition are met. Revenue recognized during the years ended December 31, 2021 and 2022 that was included in the deferred revenue balance at January 1, 2021 and January 1, 2022 amounted to RMB2,668,141 and RMB980,385, respectively.

Refund liability represents the tutoring fee collected by the Group which it expects to refund back to its customer as a result of its refund policy. Refund liability is estimated based on the historical refund ratio for each of the type of classes provided.

The Group’s remaining performance obligations represents the amount of the transaction price for which service has not been performed. As of December 31, 2022, the aggregate amount of the transaction price allocated for the remaining performance obligations amounted to RMB959,333. The Group expects to recognize revenue of RMB906,914 and RMB24,471 related the remaining performance obligations over the next 12 and 24 months, respectively, with the remainder of RMB27,948 recognized thereafter.

Cost of revenues

Cost of revenues

Cost of revenues mainly consists of compensations to instructors and tutors, rental expenses for office space, depreciation of properties and equipment, teaching materials and bandwidth costs. The instructors consist of both full-time instructors and part-time instructors. Full-time instructors’ compensation primarily consists of base salary, as well as teaching fees based on hourly rates and attendance of students in connection with courses delivered. The compensation of part-time instructors is calculated as a fixed percentage of the tuition fees of the courses delivered by the instructors, and is accrued as courses are delivered. The compensation of tutors consists of base salary and performance-based compensations, which is determined based on student retention and exercise completion. Specifically, if an existing student of a tutor enrolls in a new course, a bonus is paid to the tutor which is calculated as a percentage of the tuition of the new course. Tutors also receive a fixed payment for each exercise marking performed. The Group accrues on a monthly basis for the cost of tutor which includes basic salary, compensation for exercise marking as well as student retention bonus. The retention bonus is estimated using the expected tuition collected for the retention courses, multiplied by the estimated retention rate and the bonus percentage.

Government subsidies

Government subsidies

The government subsidies provided by the local government mainly included funding to support the development of the Group. Government subsidies are recognized upon receipt as government subsidies income because the subsidies are not intended to compensate for specific expenditure and not subject to future return. For the years ended December 31, 2020, 2021 and 2022, RMB6,941, RMB9,350 and RMB7,825 were received and recognized as other income in the Group’s consolidated statements of operations, respectively.

Value added taxes

Value added taxes

The Group’s educational services and non-educational services are subject to VAT at the rate of 3% for small-scale-VAT-payer entities or at the rate of 6% for general-VAT-payer entities in accordance with tax rule.

Since January 2020, in accordance with Cai Shui [2020] No.8, due to the Novel coronavirus (“COVID-19”) pandemic, the VAT on certain services was temporarily exempted for the fiscal year of 2020. Based on the Announcement on Continuously Implementing Some Tax Preferential Policies in Response to COVID-19 Epidemic (2021 No.7), the exemption period were further extended to March 31,2021. As a result, the Group's educational services were not subject to any VAT from January 1, 2020 to March 31, 2021. For the years ended December 31, 2020, RMB256,378 value added tax exemption were recognized as other income in the Group’s consolidated statement of operations, compared with RMB16,224 as other expense for the year ended December 31, 2021, mainly consist of input VAT related cost, partially offset by output VAT, as a result of VAT exemption.

Income taxes

Income taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes are classified as a component of the provisions for income taxes.

Share-based compensation

Share-based compensation

The Group measures the cost of employee share options and restricted stock units ("RSUs") based on the grant date fair value of the award and recognizes compensation cost over the period during which an employee is required to provide services in exchange for the award, which generally is the vesting period. For the graded vesting share options, the Group recognizes the compensation cost over the requisite service period for each separately vesting portion of the award as if the award is, in substance, multiple awards. When no future services are required to be performed by the employee in exchange for an award of equity instruments, the cost of the award is expensed on the grant date. The Group elects to recognize forfeitures when they occur.

Cancellation of an award that is not accompanied by the concurrent grant of a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, the Group recognizes any previously unrecognized compensation cost immediately at the cancellation date.

Cancellation of an award accompanied by the concurrent grant of a replacement award or other valuable consideration shall be accounted for as a modification of the terms of the cancelled award. Therefore, the Group recognizes incremental compensation cost as the excess of the fair value of the replacement award or other valuable consideration over the fair value of the cancelled award at the cancellation date.

Comprehensive income/(loss)

Comprehensive income/(loss)

Comprehensive income/(loss) includes net income/(loss), foreign currency translation adjustments and the unrealized gains and losses on available-for-sale debt investments of the Group. Comprehensive income/(loss) is reported in the consolidated statements of comprehensive income/(loss).

Leases

Leases

The Group leases administrative office spaces in different cities in mainland China under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. As the rate implicit in the lease is not readily determinable, the Group estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing operating lease expense when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. When a lease is terminated before the expiration of the lease term, the Group derecognizes the right of use asset and corresponding lease liability, any difference is recognized as a gain or loss related to the termination of the lease.

For short-term leases, the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

When the Group is a lessor, minimum contractual rental from leases is recognized on a straight-line basis over the non-cancelable term of the lease. Straight-line rental revenue commences when the customer assumes the control of the leased office building.

Leases

The Group leases administrative office spaces in different cities in mainland China under operating leases. The Group determines whether an arrangement constitutes a lease and records lease liabilities and right-of-use assets on its consolidated balance sheets at the lease commencement. As the rate implicit in the lease is not readily determinable, the Group estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Group estimates its incremental borrowing rate based on an analysis of publicly traded debt securities of companies with credit and financial profiles similar to its own. The Group measures right-of-use assets based on the corresponding lease liability adjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Group begins recognizing operating lease expense when the lessor makes the underlying asset available to the Group. The Group’s leases have remaining lease terms of up to four years, some of which include options to extend the leases for an additional period which has to be agreed with the lessors based on mutual negotiation. After considering the factors that create an economic incentive, the Group did not include renewal option periods in the lease term for which it is not reasonably certain to exercise. When a lease is terminated before the expiration of the lease term, the Group derecognizes the right of use asset and corresponding lease liability, any difference is recognized as a gain or loss related to the termination of the lease.

For short-term leases, the Group records operating lease expense in its consolidated statements of operations on a straight-line basis over the lease term and record variable lease payments as incurred.

Lessor leases

When the Group is a lessor, minimum contractual rental from leases is recognized on a straight-line basis over the non-cancelable term of the lease. Straight-line rental revenue commences when the customer assumes the control of the leased office building.

Net income/(loss) per share

Net income/(loss) per share

Basic income/(loss) per ordinary share is computed by dividing net income/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted income/(loss) per ordinary share reflect the potential dilution that would occur if securities were exercised or converted into ordinary shares. The Group had share options and RSUs, which could potentially dilute basic income per share in the future. To calculate the number of shares for diluted income per ordinary shares, the effect of the share options and unvested RSUs is computed using the treasury stock method.

Significant risks and uncertainties

Foreign currency risk

The RMB is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the Peoples Bank of China, controls the conversion of RMB into other currencies. The value of the RMB is subject to changes in central government policies, international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents denominated in RMB amounted to RMB524,298 and RMB472,415 as of December 31, 2021 and 2022, respectively.

Concentration risks

Financial instruments that potentially expose the Group to significant concentration of credit risk primarily consist of cash and cash equivalents, restricted cash, short-term investments and receivables from third party payment platform. As of December 31, 2021 and 2022, substantially all of the Group’s cash and cash equivalents and short-term investments were deposited in financial institutions located in mainland China.

There are no revenues from customers which individually represent greater than 10% of the total net revenues for the years ended December 31, 2020, 2021 and 2022.

Recent accounting pronouncements not yet adopted

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ORGANIZATION AND PRINCIPAL ACTIVITIES (Tables)

12 Months Ended

Dec. 31, 2022

Summary of subsidiaries, VIE and VIE's subsidiaries

The Company’s subsidiaries, VIE and VIE’s major subsidiaries as of December 31, 2022 were as follow:

Name	Later of date of establishment or acquisition	Place of establishment	Percentage of direct or indirect economic ownership	Principal activities
Subsidiaries:
BaiJiaHuLian HK	Aug 18, 2014	HongKong, China	100%	Holding company
Beijing Lexuebang	Jan 12, 2015	Beijing, China	100%	Education technical services
Wuhan Yuexuebang	May 25, 2020	Wuhan, China	100%	Education technical services
Beijing Yuexuebang	Nov 24, 2020	Beijing, China	100%	Education technical services
Shanghai Chuxuebang Network Technology    Co., Ltd ("Shanghai Chuxuebang")	Feb 18, 2021	Shanghai, China	100%	Education technical services
VIE:
Beijing Gaotu	Jun 4, 2014	Beijing, China	100%	Education services
VIE's major subsidiaries:
Beijing GaoTuYunFan Technology Co., Ltd.    ("GaoTuYunFan")	May 14, 2015	Beijing, China	100%	Education services
Beijing GaoTuYunJi Education Technology    Co., Ltd. ("GaoTuYunJi")	Jul 18, 2017	Beijing, China	100%	Education services
Zhengzhou GaoTuYunJi Education    Technology Co., Ltd. ("ZhengzhouGaoTu")	Jan 19, 2020	Zhengzhou, China	100%	Education services
Wuhan GaoTuYunJi Education    Technology Co., Ltd. ("WuhanGaoTu")	Apr 1, 2020	Wuhan, China	100%	Education services
Guangzhou XingHuo Online Computer    Technology Co., Ltd. ("Guangzhou XingHuo")	Aug 18, 2022	Guangzhou, China	100%	Education services

Summary of financial information of VIE and VIE's subsidiaries after elimination of inter-company transactions and balances

The following financial information of the Company’s VIE and VIE’s subsidiaries after the elimination of inter-company transactions and balances as of December 31, 2021 and 2022 and for the years ended December 31, 2020, 2021 and 2022 was included in the accompanying consolidated financial statements:

	As of December 31,
	2021		2022
	RMB		RMB
Cash and cash equivalents		138,672		312,055
Restricted cash		153,230		22
Short-term investments		1,037,346		1,068,365
Inventory, net		15,595		22,783
Prepaid expenses and other current assets		196,246		345,132
Total current assets		1,541,089		1,748,357
Operating lease right-of-use assets		194,162		41,014
Property, equipment and software, net		647,414		533,588
Intangible assets		77		18,932
Land use right		28,178		27,373
Goodwill		331		331
Deferred tax assets		—		15,679
Rental deposit		17,084		2,827
Other non-current assets		1,848		1,392
Total non-current assets		889,094		641,136
Total assets		2,430,183		2,389,493
Accrued expenses and other current liabilities		417,032		367,477
Deferred revenue, current portion		986,993		906,914
Operating lease liabilities, current portion		41,479		21,281
Income tax payable		—		260
Total current liabilities		1,445,504		1,295,932
Deferred revenue, non-current portion		9,225		52,419
Operating lease liabilities, non-current portion		158,824		17,457
Deferred tax liabilities		71,616		74,341
Other payables		26,580		—
Total non-current liabilities		266,245		144,217
Total liabilities		1,711,749		1,440,149

1.ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The VIE arrangements - continued

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Net revenues		7,124,744			6,561,747			2,498,214
Net income		2,406,144			94,795			555,880
Net cash generated from/(used in) operating activities		3,945,706			(580,304	)		558,050
Net cash (used in)/generated from investing activities		(305,448	)		121,861			(87,007	)
Net cash used in financing activities		(132,644	)		(100,621	)		—

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Summary of property, equipment and software estimated useful lives

Property, equipment and software are stated at cost less accumulated depreciation and impairment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, as follows:

Category	Estimated useful life
Electronic equipment	3 years
Furniture and office equipment	3-5 years
Software	2-10 years
Building	35-37 years
Leasehold improvement	Shorter of the lease term or estimated economic life

Summary of land use rights, net

Land use rights are recorded at cost and amortized on a straight line basis over the term of the land certificates, as follows:

Category	Estimated useful life
Land use right	37 years

Summary of amortization periods by intangible asset classes

The estimated useful lives of intangible assets are as follows:

Category	Estimated useful life
Student base	1.5-2 years
Trademark	3-10 years
License	7.4 years

Summary of disaggregated revenue by types

For the years ended December 31, 2020, 2021 and 2022, all of the Group’s revenues were generated in mainland China. Additionally, all of the revenues for the periods were recognized from contracts with customers. The following table provides information about disaggregated revenue by types, including a reconciliation of the disaggregated revenue with the Group’s reportable segment.

As a result of the New Regulations previously disclosed, the Group changed its disaggregation of revenue to better disclose the performance of its business following its Business Restructuring. The total net revenue of online after-school academic subject tutoring services including compulsory education academic subject tutoring services and senior high school tutoring services previously recorded as online K-12 academic subject tutoring services in 2020 and 2021, and comprehensive tutoring services amounting to RMB886,056 and RMB560,196 previously included in comprehensive tutoring services and others in 2020 and 2021, were reclassified to learning services. Other revenue amounting to RMB1,289 and RMB912 in 2020 and 2021, previously included in comprehensive tutoring services and others, were reclassified to other revenue.

	Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Net revenues
- Learning services		7,123,455		6,560,835		2,436,110
- Educational content & digitalized learning products		—		—		26,791
- Other revenue		1,289		912		35,313
Total net revenues		7,124,744		6,561,747		2,498,214

Summary of contract liabilities arising from contract with customers

The following table provides information about the Group's contract liabilities and refund liability arising from contract with customers.

	Year ended December 31,
	2021		2022
	RMB		RMB
Deferred revenue, current portion		986,993		906,914
Deferred revenue, non-current portion		9,225		52,419
		996,218		959,333
Refund liability		78,630		60,597

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BUSINESS ACQUISITION (Tables)

12 Months Ended

Dec. 31, 2022

Business Combinations [Abstract]

Summary of purchase price allocation

The purchase price was allocated on the date of acquisition as below:

				Amortization
	2020			period
	RMB
Other current assets		123
Intangible assets:
Trademark		1,300		3 years
Student base		12,400		2 years
Goodwill		43,300
Deferred revenue		(11,700	)
Other current liabilities		(457	)
Deferred tax liabilities		(7,567	)
		37,399

Summary of unaudited pro forma results of operations

The following summarized unaudited pro forma results of operations for the years ended December 31, 2020 assuming that the acquisition during the year ended December 31, 2020 occurred as of January 1, 2020. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred as of January 1, 2020, nor is it indicative of future operating results.

	Year ended December 31,
	2020
	RMB
	(Unaudited)
Pro forma net revenues		7,231,144
Pro forma net loss		(1,477,022	)

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PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

12 Months Ended

Dec. 31, 2022

Prepaid Expense and Other Assets, Current [Abstract]

Summary of prepaid expenses and other current assets

Prepaid expenses and other current assets consisted of the following:

	As of December 31,
	2021		2022
	RMB		RMB
Prepaid VAT and income tax(1)		100,396		101,994
Prepaid other service fees(2)		90,916		67,265
Receivables from third parties(3)		3,671		119,492
Amounts due from a third party(4)		—		78,000
Receivables from third party payment platform(5)		49,965		24,545
Staff advance		1,901		4,128
Receivables from broker		4		367
Others		3,215		4,106
		250,068		399,897

(1)Prepaid VAT and income tax mainly consist of VAT input that is expected to offset with VAT output tax or to be transferred out in the future related to 2021 and 2022.

(2)Prepaid other service fees mainly consist of prepayment of advertising fees and cloud server hosting fees. The prepayments of advertising fees and cloud server hosting fees are generally short-term in nature and are amortized over the related service period.

(3)Receivables from third parties mainly consist of receivables raised from disposal of assets, rent, technical support services and sales of inventory.

(4)Amounts due from a third party represents a loan to a third party with an interest rate of 4.35% and was repaid in January 3, 2023.

(5)Receivables from third party payment platform consist of cash that has been received from course participants but held by the third-party payment platform. The Group subsequently collected the full balance from the third-party payment platform.

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PROPERTY, EQUIPMENT AND SOFTWARE, NET (Tables)

12 Months Ended

Dec. 31, 2022

Property, Plant and Equipment [Abstract]

Summary of property, equipment and software

Property, equipment and software consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Electronic equipment		196,173			99,345
Building		491,082			491,082
Leasehold improvement		81,377			76,522
Furniture and office equipment		11,975			2,659
Software		12,697			17,002
Construction in progress		10,182			870
Total		803,486			687,480
Less: Accumulated depreciation		(123,168	)		(135,448	)
Accumulated impairment loss		(309	)		—
		680,009			552,032

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LAND USE RIGHTS, NET (Tables)

12 Months Ended

Dec. 31, 2022

Land Use Rights, Net Disclosure [Abstract]

Summary of Land Use Rights

Land use rights consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Land use rights		29,788			29,788
Less: Accumulated amortization		(1,610	)		(2,415	)
		28,178			27,373

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GOODWILL (Tables)

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of carrying amount of goodwill

The changes in the carrying amount of goodwill for the years ended December 31, 2021 and 2022 were presented as follow:

	As of December 31,
	2021			2022
	RMB			RMB
Beginning balance		43,631			331
Addition		—			—
Accumulated impairment loss		(43,300	)		—
Goodwill, net		331			331

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INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of intangible assets

The intangible assets consisted of the following:

	As of December 31,
	2021			2022
	RMB			RMB
Student base		12,510			12,510
Trademark		1,675			1,675
License		—			20,000
Total		14,185			34,185
Less: Accumulated amortization		(4,277	)		(5,422	)
Accumulated impairment loss		(9,831	)		(9,831	)
		77			18,932

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ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (Tables)

12 Months Ended

Dec. 31, 2022

Payables and Accruals [Abstract]

Summary of accrued expenses and other current liabilities

The components of accrued expenses and other current liabilities were as follows:

	As of December 31,
	2021		2022
	RMB		RMB
Salary and welfare payable		361,560		301,152
Other accrued expense		132,184		129,970
Other tax payable		85,788		67,334
Refund liability (1)		78,630		60,597
Accrued marketing expense		27,005		75,473
Payable for investment and acquisition		1,870		26,580
Others		6,228		1,083
		693,265		662,189

(1)Refund liability represents the estimated amounts of service fee received that is estimated to be refunded as described in Note 2.

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FAIR VALUE MEASUREMENT (Tables)

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Summary of assets measured at fair value on a recurring basis

As of December 31, 2021 and 2022, short-term investments measured at fair value are as follows:

	Fair value measurement as of December 31, 2022
	Quoted prices in active market for identical assets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
	RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		—		1,512,953		—		1,512,953
Investments elected to measure at fair value
- Wealth management products		—		1,203,995		—		1,203,995
Total		—		2,716,948		—		2,716,948

11. FAIR VALUE MEASUREMENT - continued

Measured at fair value on a recurring basis - continued

	Fair value measurement as of December 31, 2021
	Quoted prices in active market for identical assets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
	RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		—		2,199,372		—		2,199,372
Total		—		2,199,372		—		2,199,372

Summary of trading securities and available-for-sale investments

A summary of available-for-sale investments during the years ended December 31, 2021 and 2022 is presented as below:

	As of December 31, 2022
	Original cost		Unrealized gains		Unrealized loss		Provision for decline in value		Fair value
	RMB		RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		1,508,635		4,318		—		—		1,512,953
Total		1,508,635		4,318		—		—		1,512,953

11. FAIR VALUE MEASUREMENT - continued

Measured at fair value on a recurring basis - continued

	As of December 31, 2021
	Original cost		Unrealized gains		Unrealized loss		Provision for decline in value		Fair value
	RMB		RMB		RMB		RMB		RMB
Short-term investments:
Available-for-sale debt investments
- Wealth management products		2,203,630		—		4,258		—		2,199,372
Total		2,203,630		—		4,258		—		2,199,372

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SHARE-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Summary of options activities

A summary of options activities during the year ended December 31, 2022 is presented below:

	Number of options			Weighted average exercise price		Weighted average grant date fair value		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2022		5,213,161			0.01		13.96		6.63		96,622
Granted		—			—		—
Exercised		(872,428	)		0.01		13.23
Forfeited		(722,387	)		0.01		14.75
Cancelled		—			—		—
Options outstanding at December 31,    2022		3,618,346			0.01		13.98		5.75		88,310
Options vested and expected to    vest as of December 31, 2022		3,618,346			0.01		13.98		5.75		88,310
Options exercisable as of December 31,    2022		703,183			0.01		8.12		4.62		17,162

Summary of the RSUs activity

A summary of the RSUs activity during the year ended December 31, 2022 is presented below:

	RSUs
Unvested balance at January 1, 2022		2,991,804
Granted		4,919,577
Vested		(648,588	)
Forfeited		(1,361,932	)
Cancelled		(480,487	)
Unvested balance at December 31, 2022		5,420,374

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Summary of current and deferred components of the income tax expense

The current and deferred components of the income tax expense appearing in the consolidated statement of operations were as follows:

	Year ended December 31,
	2020		2021			2022
	RMB		RMB			RMB
Current tax benefits/(expenses)		14,578		(1	)		(1,906	)
Deferred tax benefits/(expenses)		20,041		(40,948	)		17,611
		34,619		(40,949	)		15,705

Summary of principle components of deferred tax assets and deferred taxes liability

The principle components of deferred tax assets were as follows:

	As of December 31,
	2021			2022
	RMB			RMB
Deferred tax assets：
Deductible temporary difference related to advertising    expenses		750,576			778,837
Net operating loss carrying forwards		578,623			584,693
Transfer of intangible assets		1,510			1,340
Accrued liabilities		2,176			1,876
Total deferred tax assets		1,332,885			1,366,746
Less: valuation allowance		(1,332,885	)		(1,351,067	)
Deferred tax assets, net		—			15,679

The principle components of deferred tax liabilities were as follows:

	As of December 31,
	2021		2022
	RMB		RMB
Deferred tax liabilities
Building and land use right		71,107		69,307
Intangible assets		—		4,719
Unrecognized gains of investments		509		481
Total deferred tax liabilities		71,616		74,507

Summary of movements of valuation allowance

The movements of valuation allowance for the years end December 31, 2020, 2021 and 2022 were as follows:

	Year ended December 31,
	2020			2021		2022
	RMB			RMB		RMB
Balance at beginning of the period		40,352			573,565		1,332,885
Acquisitions		4,987			—		6,668
Additions		529,915			759,320		11,514
Reversal		(1,689	)		—		—
Balance at end of the period		573,565			1,332,885		1,351,067

Sumamry of reconciliation of effective tax rate and statutory income tax rate

The reconciliation of the effective tax rate and the statutory income tax rate applicable to operations was as follow:

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Loss before provision for income taxes    and share of results of equity investees		(1,427,612	)		(3,062,214	)		(2,533	)
Income tax benefits computed at an    applicable tax rate of 25%		356,903			765,554			633
Effect of permanent differences		55,935			(8,186	)		(1,423	)
Effect of research and development super-deduction		88,881			89,287			36,263
Effect of preferential tax rate		62,404			(129,026	)		581
Effect on tax rates in different tax jurisdictions		(1,278	)		742			(8,835	)
Change in valuation allowance		(528,226	)		(759,320	)		(11,514	)
		34,619			(40,949	)		15,705

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NET (LOSS)/INCOME PER SHARE (Tables)

12 Months Ended

Dec. 31, 2022

Earnings Per Share [Abstract]

Summary of computation of basic and diluted net (loss)/income per share

The following table sets forth the computation of basic and diluted net (loss)/income per share for the periods indicated:

	Year ended December 31,
	2020			2021			2022
	RMB			RMB			RMB
Basic net (loss)/income per share calculation
Numerator:
Net (loss)/income		(1,392,930	)		(3,103,465	)		13,172
Net (loss)/income attributed to ordinary shareholders    for computing net (loss)/income per ordinary shares    -basic		(1,392,930	)		(3,103,465	)		13,172
Denominator:
Weighted average ordinary shares outstanding used in    computing net (loss)/income per ordinary shares-basic		159,725,779			170,790,979			172,254,080
Net (loss)/income per ordinary share attributable to    ordinary shareholders-basic		(8.72	)		(18.17	)		0.08
Diluted net (loss)/income per ordinary share calculation
Denominator:
Weighted average ordinary shares basic outstanding		159,725,779			170,790,979			172,254,080
Effect of potentially diluted stock options		—			—			2,931,766
Effect of potentially diluted RSUs		—			—			805,638
Weighted average ordinary shares outstanding used in    computing net (loss)/income per ordinary shares-diluted		159,725,779			170,790,979			175,991,484
Net (loss)/income per ordinary share attributable to    ordinary shareholders-diluted		(8.72	)		(18.17	)		0.07

For the years ended December 31, 2020, 2021 and 2022, the following RSUs outstanding were excluded from the calculation of diluted net (loss)/income per ordinary share, as their inclusion would have been anti-dilutive for the periods prescribed.

	Year ended December 31,
	2020		2021		2022
Shares issuable upon conversion of RSUs		64,576		12,794		1,093,923

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RELATED PARTY TRANSACTION (Tables)

12 Months Ended

Dec. 31, 2022

Related Party Transactions [Abstract]

Schedule of related parties

(1)Related parties

Name of related parties	Relationship with the Group
Beijing Youlian Global Education    Technology Co., Ltd ("Beijing Youlian")(1)	Equity method investment investee

(1)Beijing Youlian was dissolved in June 2020.

Summary of significant balances and transactions

(2)The significant transactions between the Group and its related parties were as follows:

Other than as disclosed elsewhere in these consolidated financial statements, the Group had the following significant related party transactions:

	Expense Year ended December 31,
	2020		2021		2022
	RMB		RMB		RMB
Beijing Youlian(1)		1,457		—		—
Total		1,457		—		—

(1)The Group recognized expense from receiving advertising service provided by Beijing Youlian.

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LEASE (Tables)

12 Months Ended

Dec. 31, 2022

Summary of supplementary information related to operating leases

	Year ended December 31,
	2021			2022
	RMB			RMB
Cash paid for amounts included in the measurement of    lease liabilities:
Operating cash flows from operating leases		156,600			37,027
Non-cash right-of-use assets in exchange for new lease    liabilities:
Operating leases		39,069			38,953
Weighted average remaining lease term:
Operating leases		4.3			2.9
Weighted average discount rate:
Operating leases		6.5	%		7.2	%

Future minimum payments under non-cancelable operating leases

The following is a maturity analysis of the annual undiscounted cash flows for the annual periods ending December 31:

	RMB
Year ending December 31,
2023		33,303
2024		32,818
2025		19,802
2026		4,193
2027 and thereafter		—
Less: imputed interest		(7,592	)
Total		82,524

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ORGANIZATION AND PRINCIPAL ACTIVITIES - Additional Information (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 USD ($)
Total assets	¥ 4,876,175	¥ 5,024,666	$ 706,979
Variable Interest Entity, Primary Beneficiary [Member]
Total assets	¥ 2,389,493	¥ 2,430,183
Assets, Total [Member]
Percentage of consolidated total asset accounted by VIE and its subsidiaries	49.00%	48.37%
Liabilities, Total [Member]
Percentage of consolidated total liability accounted by VIE and its subsidiaries	80.89%	79.85%
Exclusive Call Option Agreement [Member] | Variable Interest Entity, Primary Beneficiary [Member] | Maximum [Member]
Total assets	¥ 100

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ORGANIZATION AND PRINCIPAL ACTIVITIES - Summary of subsidiaries, VIE and VIE's subsidiaries (Detail)	12 Months Ended
	Dec. 31, 2022
Subsidiaries [Member] | BaiJiaHuLian HK [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Aug. 18, 2014
Place of establishment	HongKong, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Holding company
Subsidiaries [Member] | Beijing Lexuebang [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Jan. 12, 2015
Place of establishment	Beijing, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education technical services
Subsidiaries [Member] | Wuhan Yuexuebang [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	May 25, 2020
Place of establishment	Wuhan, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education technical services
Subsidiaries [Member] | Beijing Yuexuebang [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Nov. 24, 2020
Place of establishment	Beijing, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education technical services
Subsidiaries [Member] | Shanghai Chuxuebang Network Technology Co., Ltd [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Feb. 18, 2021
Place of establishment	Shanghai, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education technical services
Variable Interest Entity, Primary Beneficiary [Member] | Beijing Gaotu [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Jun. 04, 2014
Place of establishment	Beijing, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education services
Vairable Interest Entity Subsidiaries [Member] | Beijing GaoTuYunFan Technology Co., Ltd [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	May 14, 2015
Place of establishment	Beijing, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education services
Vairable Interest Entity Subsidiaries [Member] | Beijing GaoTuYunJi Education Technology Co., Ltd. [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Jul. 18, 2017
Place of establishment	Beijing, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education services
Vairable Interest Entity Subsidiaries [Member] | Zhengzhou GaoTuYunJi Education Technology Co., Ltd [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Jan. 19, 2020
Place of establishment	Zhengzhou, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education services
Vairable Interest Entity Subsidiaries [Member] | Wuhan GaoTuYunJi Education Technology Co., Ltd [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Apr. 01, 2020
Place of establishment	Wuhan, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education services
Vairable Interest Entity Subsidiaries [Member] | Guangdong XingZhiHuo Online Training Center [Member]
Subsidiaries And VIEs
Later of date of establishment or acquisition	Aug. 18, 2022
Place of establishment	Guangzhou, China
Percentage of direct or indirect economic ownership	100.00%
Principal activities	Education services

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ORGANIZATION AND PRINCIPAL ACTIVITIES - Summary of financial information of VIE and VIE's subsidiaries after elimination of inter-company transactions and balances (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 USD ($)
Variable Interest Entity [Line Items]
Cash and cash equivalents	¥ 819,911		¥ 728,934		$ 118,876
Restricted cash	22		168,189		3
Short-Term Investments	2,923,864		2,774,000		423,920
Inventory, net	22,783		15,595		3,303
Prepaid expenses and other current assets	399,897		250,068		57,980
Total current assets	4,166,477		3,936,786		604,082
Operating lease right-of-use assets	83,663		353,877		12,130
Property, equipment and software, net	552,032		680,009		80,037
Intangible assets	18,932		77		2,745
Goodwill	331		331		48
Deferred tax assets	15,679		0		2,273
Rental deposit	9,502		22,544		1,378
Other non-current assets	2,186		2,864		317
TOTAL ASSETS	4,876,175		5,024,666		706,979
Accrued expenses and other current liabilities	662,189		693,265		96,009
Deferred revenue, current portion	906,914		986,993		131,490
Operating lease liabilities, current portion	38,326		80,010		5,557
Income tax payable	1,793		0		260
Total current liabilities	1,609,222		1,760,268		233,316
Deferred revenue, non-current portion	52,419		9,225		7,600
Operating lease liabilities, non-current portion	44,198		276,035		6,408
Deferred tax liabilities	74,507		71,616		10,802
Other payables	0		26,580		0
TOTAL LIABILITIES	1,780,346		2,143,724		$ 258,126
Net revenues	2,498,214	$ 362,207	6,561,747	¥ 7,124,744
Net income	13,172	1,910	(3,103,465)	(1,392,930)
Net cash generated from/(used in) operating activities	54,545	7,908	(4,185,807)	603,273
Net cash (used in)/generated from investing activities	(158,385)	(22,964)	4,812,502	(5,596,304)
Net cash used in financing activities	0	$ 0	(100,614)	5,272,100
Variable Interest Entity, Primary Beneficiary [Member]
Variable Interest Entity [Line Items]
Cash and cash equivalents	312,055		138,672
Restricted cash	22		153,230
Short-Term Investments	1,068,365		1,037,346
Inventory, net	22,783		15,595
Prepaid expenses and other current assets	345,132		196,246
Total current assets	1,748,357		1,541,089
Operating lease right-of-use assets	41,014		194,162
Property, equipment and software, net	533,588		647,414
Intangible assets	18,932		77
Land use right	27,373		28,178
Goodwill	331		331
Deferred tax assets	15,679		0
Rental deposit	2,827		17,084
Other non-current assets	1,392		1,848
Total non-current assets	641,136		889,094
TOTAL ASSETS	2,389,493		2,430,183
Accrued expenses and other current liabilities	367,477		417,032
Deferred revenue, current portion	906,914		986,993
Operating lease liabilities, current portion	21,281		41,479
Income tax payable	260		0
Total current liabilities	1,295,932		1,445,504
Deferred revenue, non-current portion	52,419		9,225
Operating lease liabilities, non-current portion	17,457		158,824
Deferred tax liabilities	74,341		71,616
Other payables	0		26,580
Total non-current liabilities	144,217		266,245
TOTAL LIABILITIES	1,440,149		1,711,749
Net revenues	2,498,214		6,561,747	7,124,744
Net income	(555,880)		94,795	2,406,144
Net cash generated from/(used in) operating activities	(558,050)		(580,304)	3,945,706
Net cash (used in)/generated from investing activities	(87,007)		121,861	(305,448)
Net cash used in financing activities	¥ 0		¥ (100,621)	¥ (132,644)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) Customer	Dec. 31, 2022 USD ($) Customer	Dec. 31, 2021 CNY (¥) Customer	Dec. 31, 2020 CNY (¥) Customer	Dec. 31, 2022 USD ($)
Convenience translation rate of USD1.00	6.8972				6.8972
Held-to-maturity securities	¥ 206,916,000		¥ 574,628,000
Impairment losses on long-lived assets	0	$ 0	52,544,000	¥ 0
Revenue recognized that was included in deferred revenue balance	980,385,000		2,668,141,000
Remaining performance obligations	959,333,000
Remaining performance obligations, expected to be recognized over the next 12 months	906,914,000
Remaining performance obligations, expected to be recognized over the second 12 months	24,471,000
Remaining performance obligations, expected to be recognized thereafter	27,948,000
Government subsidies	7,825,000		9,350,000	¥ 6,941,000
Cash and cash equivalents	¥ 819,911,000		¥ 728,934,000		$ 118,876
Concentration Risk, Percentage	10.00%	10.00%	10.00%	10.00%
Available-for-sale debt investments recorded with unrealized loss			¥ 4,258,000
Available-for-sale debt investments recorded with unrealized gain	¥ 4,318,000
Goodwill impairment loss	0	$ 0	43,300,000	¥ 0
Capitalized Contract Cost, Impairment Loss			34,528,000
Contract costs	¥ 0		0
Uncertain income tax position	An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes are classified as a component of the provisions for income taxes.	An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes are classified as a component of the provisions for income taxes.
Net revenues	¥ 2,498,214,000	$ 362,207	6,561,747,000	7,124,744,000
Change in accounting principle accounting standards update adopted	true				true
Change in accounting principle accounting standards update adoption date	Jan. 01, 2020				Jan. 01, 2020
Change in accounting principle accounting standards update immaterial effect	true				true
Accounting standards update [extensible enumeration]	ASU 2016-13	ASU 2016-13
Maximum [Member]
Operating Lease, Term	4 years				4 years
Comprehensive Tutoring Services
Net revenues			560,196,000	886,056,000
Other Revenue
Net revenues	¥ 35,313,000		912,000	1,289,000
Selling and marketing expense [Member]
Capitalized contract costs amortization	¥ 0		212,880,000	185,787,000
Other Income [Member]
Value added tax exemption income				¥ 256,378,000
Other Expense [Member]
Value added tax exemption expense			¥ 16,224,000
Small Scale VAT Payer Entities [Member] | Educational services [Member]
Value added tax rate	3.00%				3.00%
General VAT Payer Entities [Member] | Educational services [Member]
Value added tax rate	6.00%				6.00%
Revenue Benchmark
Number of customers whose revenue individually represent greater than 10% of the total net revenues | Customer	0	0	0	0
CNY
Cash and cash equivalents	¥ 472,415,000		¥ 524,298,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Summary of property, equipment and software estimated useful lives (Detail)	12 Months Ended
	Dec. 31, 2022
Electronic equipment
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	3 years
Furniture and office equipment | Minimum
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	3 years
Furniture and office equipment | Maximum
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	5 years
Software | Minimum
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	2 years
Software | Maximum
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	10 years
Building | Minimum
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	35 years
Building | Maximum
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	37 years
Leasehold improvement
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives description	Shorter of the lease term or estimated economic life

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Summary of land use rights, net (Detail)	12 Months Ended
	Dec. 31, 2022
Land use right
Property, Plant and Equipment [Line Items]
Property, equipment and software estimated useful lives	37 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Summary of amortization periods by intangible asset classes (Detail)	12 Months Ended
	Dec. 31, 2022
Student base | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets estimated useful lives	1 year 6 months
Student base | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets estimated useful lives	2 years
Trademark | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets estimated useful lives	3 years
Trademark | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets estimated useful lives	10 years
License
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets estimated useful lives	7 years 4 months 24 days

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Summary of disaggregated revenue by types (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Disaggregation of Revenue [Line Items]
Revenues	¥ 2,498,214	$ 362,207	¥ 6,561,747	¥ 7,124,744
Learning Services
Disaggregation of Revenue [Line Items]
Revenues	2,436,110		6,560,835	7,123,455
Educational Content and Digitalized Learning Products
Disaggregation of Revenue [Line Items]
Revenues	26,791
Other Revenue
Disaggregation of Revenue [Line Items]
Revenues	¥ 35,313		¥ 912	¥ 1,289

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Summary of contract liabilities arising from contract with customers (Detail) ¥ in Thousands, $ in Thousands		Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Revenue from Contract with Customer [Abstract]
Deferred revenue, current portion		¥ 906,914	$ 131,490	¥ 986,993
Deferred revenue, non-current portion		52,419	$ 7,600	9,225
Contract liabilities arising from contract with customers		959,333		996,218
Refund liability	[1]	¥ 60,597		¥ 78,630

[1] Refund liability represents the estimated amounts of service fee received that is estimated to be refunded as described in Note 2.

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BUSINESS ACQUISITION - Summary Of Purchase Price Allocation (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Business Acquisition [Line Items]
Goodwill		¥ 331	$ 48	¥ 331
Tianjin Puxin [Member]
Business Acquisition [Line Items]
Other current assets	¥ 123
Intangible assets	13,700
Goodwill	43,300
Deferred revenue	(11,700)
Other current liabilities	(457)
Deferred tax liabilities	(7,567)
Total	37,399
Tianjin Puxin [Member] | Trademarks [Member]
Business Acquisition [Line Items]
Intangible assets	¥ 1,300
Intangible assets - Amortization period	3 years
Tianjin Puxin [Member] | Student Base [Member]
Business Acquisition [Line Items]
Intangible assets	¥ 12,400
Intangible assets - Amortization period	2 years

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BUSINESS ACQUISITION - Additional Information (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2020 CNY (¥)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Business Acquisition [Line Items]
Goodwill		¥ 331	$ 48	¥ 331
Tianjin Puxin [Member]
Business Acquisition [Line Items]
Percentage of voting interests acquired	100.00%
Business combination consideration transferred	¥ 37,399
Payment to acquire business	35,529
Intangible assets	13,700
Goodwill	¥ 43,300
Revenue of the acquiree after acquisition percentage	0.05%
Total assets of the acquiree after acquisition percentage	0.15%

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BUSINESS ACQUISITION - Summary of unaudited pro forma results of operations (Detail) ¥ in Thousands	12 Months Ended
	Dec. 31, 2020 CNY (¥)
Business Acquisition, Pro Forma Information [Abstract]
Pro forma net revenues	¥ 7,231,144
Pro forma net income (loss)	¥ (1,477,022)

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ASSETS ACQUISITION - Additional Information (Detail) ¥ in Thousands, $ in Thousands	1 Months Ended	12 Months Ended
	Jan. 31, 2020 CNY (¥)	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)	Jun. 30, 2022
Asset Acquisition [Line Items]
Payment to acquire assets gross		¥ 18,952	$ 2,748	¥ 272,323	¥ 284,072
Zhengzhou Kaitong [Member] | Real Estate [Member]
Asset Acquisition [Line Items]
Assets acquisition consideration transferred	¥ 333,809
XingHuo Online Computer Technology Co. Ltd [Member]
Asset Acquisition [Line Items]
Percentage of voting interests acquired						100.00%

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PREPAID EXPENSES AND OTHER CURRENT ASSETS - Summary of prepaid expenses and other current assets (Detail) - CNY (¥) ¥ in Thousands		Dec. 31, 2022	Dec. 31, 2021
Prepaid VAT and income tax	[1]	¥ 101,994	¥ 100,396
Prepaid other service fees	[2]	67,265	90,916
Receivables from a third party	[3]	119,492	3,671
Amounts due from a third party	[4]	78,000	0
Staff advance		4,128	1,901
Others		4,106	3,215
Total		399,897	250,068
Receivable from third party payment platform [Member]
Receivables from third party payment platform	[5]	24,545	49,965
Receivable from brokers [Member]
Receivables from broker		¥ 367	¥ 4

[1] Prepaid VAT and income tax mainly consist of VAT input that is expected to offset with VAT output tax or to be transferred out in the future related to 2021 and 2022.

[2] Prepaid other service fees mainly consist of prepayment of advertising fees and cloud server hosting fees. The prepayments of advertising fees and cloud server hosting fees are generally short-term in nature and are amortized over the related service period.

[3] Receivables from third parties mainly consist of receivables raised from disposal of assets, rent, technical support services and sales of inventory.

[4] Amounts due from a third party represents a loan to a third party with an interest rate of 4.35% and was repaid in January 3, 2023.

[5] Receivables from third party payment platform consist of cash that has been received from course participants but held by the third-party payment platform. The Group subsequently collected the full balance from the third-party payment platform.

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PROPERTY, EQUIPMENT AND SOFTWARE, NET - Summary of property, equipment and software (Detail) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	¥ 687,480		¥ 803,486
Less: Accumulated depreciation	(135,448)		(123,168)
Less: Accumulated impairment loss	0		(309)
Property, equipment and software, Net	552,032	$ 80,037	680,009
Electronic equipment
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	99,345		196,173
Building
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	491,082		491,082
Leasehold improvement
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	76,522		81,377
Furniture and office equipment
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	2,659		11,975
Software
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	17,002		12,697
Construction in progress
Property, Plant and Equipment [Line Items]
Property, equipment and software, Gross	¥ 870		¥ 10,182

XML

PROPERTY, EQUIPMENT AND SOFTWARE, NET - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Property, Plant and Equipment [Line Items]
Depreciation expenses	¥ 68,807,000	$ 9,976	¥ 108,446,000	¥ 55,751,000
Impairment losses on property, equipment and software	0	$ 0	52,544,000	0
Property, equipment and software
Property, Plant and Equipment [Line Items]
Impairment losses on property, equipment and software	¥ 0		¥ 28,918,000	¥ 0

XML

LAND USE RIGHTS, NET - Summary of Land Use Rights (Detail) - CNY (¥) ¥ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Schedule Of Land Use Rights [Line Items]
Land use rights	¥ 29,788	¥ 29,788
Less: Accumulated amortization	(2,415)	(1,610)
Land use rights net	¥ 27,373	¥ 28,178

XML

LAND USE RIGHTS, NET - Additional Information (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Land Use Rights Disclosure [Line Items]
Amortization expenses for land use right	¥ 805	¥ 805	¥ 805
Future Amortization [Member]
Land Use Rights Disclosure [Line Items]
Expected amortization expense of land use rights in next twelve months	805
Expected amortization expense of land use rights year two	805
Expected amortization expense of land use rights year three	805
Expected amortization expense of land use rights year four	805
Expected amortization expense of land use rights year five	805
Expected amortization expense of land use rights thereafter	¥ 805

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LONG-TERM INVESTMENTS - Summary of long-term investments (Parenthetical) (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Shares of (loss) income from equity method investments	¥ 0	$ (0)	¥ (302)	¥ 63

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GOODWILL - Summary of carrying amount of goodwill (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Goodwill [Line Items]
Beginning balance	¥ 331		¥ 43,631
Addition	0		0
Accumulated impairment loss	0		(43,300)
Goodwill, net	¥ 331	$ 48	¥ 331

XML

GOODWILL - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill impairment loss	¥ 0	$ 0	¥ 43,300,000	¥ 0

XML

INTANGIBLE ASSETS - Summary of intangible assets (Detail) - CNY (¥)	Dec. 31, 2022	Dec. 31, 2021
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	¥ 34,185,000	¥ 14,185,000
Less: Accumulated amortization	(5,422,000)	(4,277,000)
Accumulated impairment loss	(9,831,000)	(9,831,000)
Finite-Lived Intangible Assets, Net	18,932,000	77,000
Student Base [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	12,510,000	12,510,000
Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	1,675,000	1,675,000
License [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets, Gross	¥ 20,000,000	¥ 0

XML

INTANGIBLE ASSETS - Additional Information (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	¥ 1,145	¥ 3,311	¥ 656
Expected amortization expense of intangible assets in next twelve months	2,705
Expected amortization expense of intangible assets year two	2,705
Expected amortization expense of intangible assets year three	2,705
Expected amortization expense of intangible assets year four	2,705
Expected amortization expense of intangible assets year five	2,705
Expected amortization expense of intangible assets thereafter	5,407
Impairment losses on intangible assets	¥ 0	¥ 9,831	¥ 0
Impairment, Intangible Asset, Finite-Lived, Statement of Income or Comprehensive Income [Extensible Enumeration]	Impairment losses on property, equipment and software	Impairment losses on property, equipment and software	Impairment losses on property, equipment and software

XML

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES - Summary of accrued expenses and other current liabilities (Detail) ¥ in Thousands, $ in Thousands		Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)
Payables and Accruals [Abstract]
Salary and welfare payable		¥ 301,152		¥ 361,560
Other accrued expense		129,970		132,184
Other tax payable		67,334		85,788
Refund liability	[1]	60,597		78,630
Accrued marketing expense		75,473		27,005
Payable for investment and acquisition		26,580		1,870
Others		1,083		6,228
Accrued expenses and other current liabilities		¥ 662,189	$ 96,009	¥ 693,265

[1] Refund liability represents the estimated amounts of service fee received that is estimated to be refunded as described in Note 2.

XML

FAIR VALUE MEASUREMENT - Additional Information (Detail) ¥ in Thousands	Dec. 31, 2022 CNY (¥)
Fair Value Disclosures [Abstract]
Debt trading securities debt maturities within one year fair value	¥ 1,203,995
Available for sale debt securities, maturity within one year	¥ 1,512,953

XML

FAIR VALUE MEASUREMENT - Summary of assets measured at fair value on a recurring basis (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2022 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment	¥ 1,512,953	¥ 2,199,372
Trading debt securities and Available-for-sale debt investments
Unrealized gains	4,318
Unrealized loss		4,258
Short-term investments	2,923,864	2,774,000	$ 423,920
Short-term investments, available-for-sale debt securities current	1,512,953	2,199,372
Fair Value, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment	1,512,953
Trading debt securities and Available-for-sale debt investments
Original cost	1,508,635
Unrealized gains	4,318
Unrealized loss	0
Provision for decline in value	0
Short-term investments	2,716,948
Short-term investments, available-for-sale debt securities current	1,512,953
Investments Elected Measure At Fair Value [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments elected measure at fair value-Short-term investments	1,203,995
Investments elected to measure at fair value
Unrealized gain	1,422
Available-for-sale Investments [Member]
Trading debt securities and Available-for-sale debt investments
Original cost		2,203,630
Unrealized gains		0
Unrealized loss		4,258
Provision for decline in value		0
Available-for-sale debt investments-Total		2,199,372
Available-for-sale Investments [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment		2,199,372
Trading debt securities and Available-for-sale debt investments
Original cost		2,203,630
Unrealized gains		0
Unrealized loss		4,258
Provision for decline in value		0
Short-term investments, available-for-sale debt securities current		2,199,372
Available-for-sale Investments [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Available-for-sale debt investments-Total		2,199,372
Available-for-sale Investments [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment	1,512,953	2,199,372
Trading debt securities and Available-for-sale debt investments
Original cost	1,508,635
Unrealized gains	4,318
Unrealized loss	0
Provision for decline in value	0
Short-term investments, available-for-sale debt securities current	1,512,953	2,199,372
Quoted Prices in Active Market for Identical Assets [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Short-term investments	0
Quoted Prices in Active Market for Identical Assets [Member] | Investments Elected Measure At Fair Value [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments elected measure at fair value-Short-term investments	0
Quoted Prices in Active Market for Identical Assets [Member] | Available-for-sale Investments [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Available-for-sale debt investments-Total		0
Quoted Prices in Active Market for Identical Assets [Member] | Available-for-sale Investments [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment	0	0
Trading debt securities and Available-for-sale debt investments
Short-term investments, available-for-sale debt securities current	0	0
Significant Other Observable Inputs [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Short-term investments	2,716,948
Significant Other Observable Inputs [Member] | Investments Elected Measure At Fair Value [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments elected measure at fair value-Short-term investments	1,203,995
Significant Other Observable Inputs [Member] | Available-for-sale Investments [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Available-for-sale debt investments-Total		2,199,372
Significant Other Observable Inputs [Member] | Available-for-sale Investments [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment	1,512,953	2,199,372
Trading debt securities and Available-for-sale debt investments
Short-term investments, available-for-sale debt securities current	1,512,953	2,199,372
Significant Unobservable Inputs [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Short-term investments	0
Significant Unobservable Inputs [Member] | Investments Elected Measure At Fair Value [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments elected measure at fair value-Short-term investments	0
Significant Unobservable Inputs [Member] | Available-for-sale Investments [Member] | Fair Value, Recurring [Member]
Trading debt securities and Available-for-sale debt investments
Available-for-sale debt investments-Total		0
Significant Unobservable Inputs [Member] | Available-for-sale Investments [Member] | Fair Value, Recurring [Member] | Short-term Investments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale debt investments-short term investment	0	0
Trading debt securities and Available-for-sale debt investments
Short-term investments, available-for-sale debt securities current	¥ 0	¥ 0

XML

SHARE-BASED COMPENSATION - Additional Information (Detail) - CNY (¥) ¥ / shares in Units, ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Mar. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted	0
Share based compensation expense	¥ 122,654	¥ 345,259	¥ 238,446
Cancelled	0
RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expenses related to options, weighted average period	3 years 29 days
Restricted stock units granted	4,919,577
Exercise price per share of restricted stock units Granted	¥ 0
Restricted stock units agggregate fair value	¥ 82,690	¥ 558,876	¥ 672,010
Restricted stock units unrecognised compensation cost	¥ 101,885
Restricted stock units weighted aveage grant date fair value	¥ 16.81	¥ 135.14	¥ 391.35
Cancelled	480,487	330,428
Cancelled without concurrent grant	480,487	1,613
Cash consideration		¥ 24,370
Incremental compensation cost		24,370
Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Fair value of options vested	¥ 13,032	19,134	¥ 21,081
Total intrinsic value of options exercised	21,293	¥ 13,933	¥ 314,928
Unrecognized compensation expenses related to options	¥ 16,535
Unrecognized compensation expenses related to options, weighted average period	5 years 9 months
Cancelled		530,700
Minimum | RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units vesting period	0 years
Maximum | RSUs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units vesting period	4 years
Share Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum aggregate number of ordinary shares that may be issued pursuant to all awards				28,400,000
Description of increase in shares reserved	The shares reserved may be increased automatically if and whenever the unissued shares reserved accounts for less than one percent (1%) of the total then issued and outstanding shares, so that after the increase, the shares unissued and reserved under the Plan immediately after each such increase shall equal to five percent (5%) of the then issued and outstanding shares.
Share-Based Compensation Arrangement by Share-Based Payment Award, Expiration Period	10 years
Share Incentive Plan | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	0 years
Share Incentive Plan | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	10 years

XML

SHARE-BASED COMPENSATION - Summary of options activities (Detail) - CNY (¥) ¥ / shares in Units, ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Number of options - Beginning Balance	5,213,161
Number of options - Granted	0
Number of options - Exercised	(872,428)
Number of options - Forfeited	(722,387)
Number of options - Cancelled	0
Number of options - Ending Balance	3,618,346	5,213,161
Number of options - Options vested and expected to vest	3,618,346
Number of options - Options exercisable	703,183
Weighted average exercise price - Beginning Balance	¥ 0.01
Weighted average exercise price - Granted	0
Weighted average exercise price - Exercised	0.01
Weighted average exercise price - Forfeited	0.01
Weighted average exercise price - Cancelled	0
Weighted average exercise price - Ending Balance	0.01	¥ 0.01
Weighted average exercise price - Options vested and expected to vest	0.01
Weighted average exercise price - Options exercisable	0.01
Weighted average grant date fair value - Beginning Balance	13.96
Weighted average grant date fair value - Granted	¥ 0
Weighted average grant date fair value - Exercised	13.23
Weighted average grant date fair value - Forfeited	¥ 14.75
Weighted average grant date fair value - Cancelled	0
Weighted average grant date fair value - Ending Balance	13.98	¥ 13.96
Weighted average grant date fair value - Options vested and expected to vest	13.98
Weighted average grant date fair value - Options exercisable	¥ 8.12
Weighted average remaining contractual term (years)	5 years 9 months	6 years 7 months 17 days
Weighted average remaining contractual term (years) - Options vested and expected to vest	5 years 9 months
Weighted average remaining contractual term (years) - Options exercisable	4 years 7 months 13 days
Aggregate intrinsic value - Outstanding	¥ 88,310	¥ 96,622
Aggregate intrinsic value - Options vested and expected to vest	88,310
Aggregate intrinsic value - Options exercisable	¥ 17,162

XML

SHARE-BASED COMPENSATION - Summary of RSUs Activity (Detail) - RSUs [Member] - shares	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Unvested balance at January 1, 2022	2,991,804
Granted	4,919,577
Vested	(648,588)
Forfeited	(1,361,932)
Cancelled	(480,487)	(330,428)
Unvested balance at December 31, 2022	5,420,374	2,991,804

XML

ORDINARY SHARES - Additional Information (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) shares	Dec. 31, 2022 USD ($) shares	Dec. 31, 2021 CNY (¥) shares	Dec. 31, 2020 CNY (¥)	Nov. 22, 2022 USD ($)
Ordinary shares, shares outstanding	172,858,544	172,858,544
Stock repurchased during period value | ¥				¥ 282,543
Proceeds from issuance of stock	¥ 0	$ 0	¥ 0	5,687,251
Reissuance of treasury stock for share-based compensation	0	0	365,358
November 2022 Share Repurchase Program [Member]
Stock repurchased during period shares	0	0
Stock repurchase program authorized amount | $					$ 30,000
November 2022 Share Repurchase Program [Member] | Mr. Larry Xiangdong Chen [Member]
Stock repurchase program authorized amount | $					$ 20,000
Treasury Stock [Member]
Stock repurchased during period value | ¥				¥ 282,543
Common Class A [Member]
Ordinary shares, shares outstanding	99,553,256	99,553,256	98,032,240
Common stock voting rights	Each Class A ordinary share is entitled to one vote	Each Class A ordinary share is entitled to one vote
Common stock terms of conversion from class to the another	Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.	Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Common Class B [Member]
Ordinary shares, shares outstanding	73,305,288	73,305,288	73,305,288
Common stock voting rights	each Class B ordinary share is entitled to ten votes	each Class B ordinary share is entitled to ten votes
Common stock terms of conversion from class to the another	Each class B ordinary is convertible into one Class A ordinary share	Each class B ordinary is convertible into one Class A ordinary share

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INCOME TAXES - Additional Information (Detail) ¥ / shares in Units, ¥ in Thousands, $ in Thousands	3 Months Ended	12 Months Ended								36 Months Ended
	Mar. 31, 2018	Dec. 31, 2022 HKD ($)	Dec. 31, 2022 CNY (¥) ¥ / shares	Dec. 31, 2021 HKD ($)	Dec. 31, 2021 CNY (¥) ¥ / shares	Dec. 31, 2020 CNY (¥) ¥ / shares	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2024	Dec. 31, 2023
Income Tax Disclosure [Line Items]
Income tax rate		25.00%	25.00%	25.00%	25.00%	25.00%
Net operating loss carried forward			¥ 2,717,316
Increase Decrease in net income/loss per ordinary share-basic | ¥ / shares			¥ 0		¥ 0.76	¥ 0.39
Uncertain tax positions			¥ 0		¥ 0
Increase Decrease in net income/loss per ordinary share-diluted | ¥ / shares			¥ 0		¥ 0.76	¥ 0.39
Increase (decrease) in income tax expenses			¥ 581
Exemption For Income Tax Holiday [Member]
Income Tax Disclosure [Line Items]
Increase (decrease) in income tax expenses					¥ (129,026)	¥ 62,404
Minimum
Income Tax Disclosure [Line Items]
Net operating loss carried forward, expire date		Dec. 31, 2023	Dec. 31, 2023
Maximum
Income Tax Disclosure [Line Items]
Net operating loss carried forward, expire date		Dec. 31, 2032	Dec. 31, 2032
BaiJiaHuLian HK [Member]
Income Tax Disclosure [Line Items]
Income tax rate	16.50%								16.50%
BaiJiaHuLian HK [Member] | Assessable Profit Threshold Minimum
Income Tax Disclosure [Line Items]
Assessable profit threshold limit | $		$ 2,000
Income tax rate		8.25%	8.25%
BaiJiaHuLian HK [Member] | Assessable Profit Threshold Maximum
Income Tax Disclosure [Line Items]
Assessable profit threshold limit | $		$ 2,000
Income tax rate		16.50%	16.50%
GaoTuYunJi [Member] | High And New Technology Enterprise
Income Tax Disclosure [Line Items]
Income tax rate				15.00%	15.00%	15.00%	15.00%
Beijing Lexuebang [Member] | Software Enterprise [Member]
Income Tax Disclosure [Line Items]
Income tax rate						0.00%	0.00%				12.50%
Wuhan Yuexuebang [Member] | Software Enterprise [Member]
Income Tax Disclosure [Line Items]
Income tax rate				0.00%	0.00%	0.00%				12.50%
Beijing Gaotu [Member] | High And New Technology Enterprise
Income Tax Disclosure [Line Items]
Income tax rate		15.00%	15.00%	15.00%	15.00%	15.00%	15.00%	15.00%	15.00%
HK
Income Tax Disclosure [Line Items]
Foreign income tax expense benefit | $		$ 0		$ 0

XML

INCOME TAXES - Summary of current and deferred components of the income tax expense (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Income Tax Disclosure [Abstract]
Current tax benefits/(expenses)	¥ (1,906)		¥ (1)	¥ 14,578
Deferred tax benefits/(expenses)	17,611		(40,948)	20,041
Income tax benefits/(expenses)	¥ 15,705	$ 2,277	¥ (40,949)	¥ 34,619

XML

INCOME TAXES - Summary of principle components of deferred tax assets and deferred taxes liability (Detail) - CNY (¥) ¥ in Thousands	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020	Dec. 31, 2019
Deferred tax assets
Deductible temporary difference related to advertising expenses	¥ 778,837	¥ 750,576
Net operating loss carrying forwards	584,693	578,623
Transfer of intangible assets	1,340	1,510
Accrued liabilities	1,876	2,176
Total deferred tax assets	1,366,746	1,332,885
Less: valuation allowance	(1,351,067)	(1,332,885)	¥ (573,565)	¥ (40,352)
Deferred tax assets, net	15,679	0
Deferred tax liabilities
Building and land use right	69,307	71,107
Intangible assets	4,719	0
Unrecognized gains of investments	481	509
Total deferred tax liabilities	¥ 74,507	¥ 71,616

XML

INCOME TAXES - Summary of movements of valuation allowance (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Balance at beginning of the period	¥ 1,332,885	¥ 573,565	¥ 40,352
Acquisitions	6,668	0	4,987
Additions	11,514	759,320	529,915
Reversal	0	0	(1,689)
Balance at end of the period	¥ 1,351,067	¥ 1,332,885	¥ 573,565

XML

INCOME TAXES - Summary of reconciliation of effective tax rate and statutory income tax rate (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Income Tax Disclosure [Abstract]
Loss before provision for income taxes and share of results of equity investees	¥ (2,533)	$ (367)	¥ (3,062,214)	¥ (1,427,612)
Income tax (expenses) benefits computed at an applicable tax rate of 25%	633		765,554	356,903
Effect of permanent differences	(1,423)		(8,186)	55,935
Effect of research and development super-deduction	36,263		89,287	88,881
Effect of preferential tax rate	581		(129,026)	62,404
Effect on tax rates in different tax jurisdictions	(8,835)		742	(1,278)
Change in valuation allowance	(11,514)		(759,320)	(528,226)
Income tax benefits/(expenses)	¥ 15,705	$ 2,277	¥ (40,949)	¥ 34,619

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INCOME TAXES - Summary of reconciliation of effective tax rate and statutory income tax rate (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Income tax Expense Applicable Tax Rate	25.00%	25.00%	25.00%

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NET (LOSS)/INCOME PER SHARE - Summary of computation of basic and diluted net (loss)/income per share (Detail) ¥ / shares in Units, $ / shares in Units, ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥) ¥ / shares shares	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 CNY (¥) ¥ / shares shares	Dec. 31, 2020 CNY (¥) ¥ / shares shares
Numerator:
Net (loss)/income	¥ 13,172	$ 1,910	¥ (3,103,465)	¥ (1,392,930)
Net (loss)/income attributed to ordinary shareholders for computing net (loss)/ income per ordinary shares-basic	¥ 13,172	$ 1,910	¥ (3,103,465)	¥ (1,392,930)
Denominator:
Weighted average ordinary shares outstanding used in computing net (loss)/ income per ordinary shares-basic	172,254,080	172,254,080	170,790,979	159,725,779
Net (loss)/income per ordinary share attributable to ordinary shareholders-basic | (per share)	¥ 0.08	$ 0.01	¥ (18.17)	¥ (8.72)
Denominator:
Weighted average ordinary shares basic outstanding	172,254,080	172,254,080	170,790,979	159,725,779
Effect of potentially diluted stock options	2,931,766	2,931,766	0	0
Effect of potentially diluted RSUs	805,638	805,638	0	0
Weighted average ordinary shares outstanding used in computing net (loss)/income per ordinary shares-diluted	175,991,484	175,991,484	170,790,979	159,725,779
Net (loss)/income per ordinary share attributable to ordinary shareholders-diluted | (per share)	¥ 0.07	$ 0.01	¥ (18.17)	¥ (8.72)
RSUs [Member]
Denominator:
Shares issuable upon conversion of RSUs	1,093,923	1,093,923	12,794	64,576

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EMPLOYEE DEFINED CONTRIBUTION PLAN - Additional Information (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Employee benefit expense	¥ 125,666	¥ 393,812	¥ 216,551

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RELATED PARTY TRANSACTION - Schedule of Related Parties (Detail)	12 Months Ended
	Dec. 31, 2022
Beijing Youlian Global Education Technology Co., Ltd ("Beijing Youlian")
Related Party Transaction [Line Items]
Relationship with the Group	Equity method investment investee	[1]

[1] Beijing Youlian was dissolved in June 2020.

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RELATED PARTY TRANSACTION - Summary of significant balances and transactions (Detail) - CNY (¥) ¥ in Thousands		12 Months Ended
		Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Related Party Transactions [Line Items]
Expense		¥ 0	¥ 0	¥ 1,457
Beijing Youlian
Related Party Transactions [Line Items]
Expense	[1]	¥ 0	¥ 0	¥ 1,457

[1] The Group recognized expense from receiving advertising service provided by Beijing Youlian.

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LEASE - Additional Information (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Lessee, Lease, Description [Line Items]
Operating lease expenses	¥ 32,714	¥ 193,957	¥ 155,287
Leases that have not yet commenced	As of December 31, 2022, the Group did not have additional operating leases that have not yet commenced.
Financing lease	As of December 31, 2021 and 2022, the Group had no long-term leases that were classified as a financing lease.
Gain (loss) on termination of lease	¥ 16,720
Noncash decrease of operating lease right-of-use assets	¥ 296,465

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LEASE - Supplementary Information (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	¥ 37,027	¥ 156,600
Non-cash right-of-use assets in exchange for new lease liabilities:
Operating leases	¥ 38,953	¥ 39,069
Weighted average remaining lease term
Operating leases	2 years 10 months 24 days	4 years 3 months 18 days
Weighted average discount rate
Operating leases	7.20%	6.50%

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LEASE - Summary of future minimum payment under non-cancelable operating leases (Detail) ¥ in Thousands	Dec. 31, 2022 CNY (¥)
Lessee, Operating Lease, Liability, to be Paid [Abstract]
2023	¥ 33,303
2024	32,818
2025	19,802
2026	4,193
2027 and thereafter	0
Less: imputed interest	(7,592)
Total	¥ 82,524

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SEGMENT INFORMATION - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2022 Segment
Segment Reporting [Abstract]
Number of operating segments	1
Number of reporting segments	1

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RESTRICTED NET ASSETS - Additional Information (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Restricted Net Assets [Line Items]
Net assets not available for distribution	¥ 4,738,378	¥ 4,738,378
People Republic of China [Member]
Restricted Net Assets [Line Items]
Appropriation of after tax profit to statutory common reserve required minimum percentage	10.00%
Appropriation of after tax profit to statutory common reserve limit registered capital percentage	50.00%

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Condensed Financial Information of Parent Company Balance Sheets (Detail) ¥ in Thousands, $ in Thousands	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2021 USD ($)	Dec. 31, 2020 CNY (¥)	Dec. 31, 2019 CNY (¥)
Condensed Balance Sheet Statements, Captions [Line Items]
Cash and cash equivalents	¥ 819,911	$ 118,876	¥ 728,934
Short-term investments	2,923,864	423,920	2,774,000
Prepaid expenses and other current assets	399,897	57,980	250,068
Total current assets	4,166,477	604,082	3,936,786
TOTAL ASSETS	4,876,175	706,979	5,024,666
Accrued expenses and other current liabilities	662,189	96,009	693,265
Total current liabilities	1,609,222	233,316	1,760,268
TOTAL LIABILITIES	1,780,346	258,126	2,143,724
Additional paid-in capital	7,915,899	1,147,697	7,793,234
Accumulated other comprehensive loss	(64,062)	(9,288)	(143,111)
Statutory reserves	40,380	5,855	40,380
Accumulated deficit	(4,796,503)	(695,428)	(4,809,675)
TOTAL SHAREHOLDERS' EQUITY	3,095,829	448,853	2,880,942		¥ 5,729,855	¥ 1,557,355
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	4,876,175	706,979	5,024,666
Common Class A [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares	67	10	66
Common Class B [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares	48	7	48
Parent [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Cash and cash equivalents	3,731	541	11,260	$ 1,633	¥ 8,430	¥ 61,635
Short-term investments	734,142	106,441	885,420
Prepaid expenses and other current assets	1,787	259	463
Amounts due from subsidiaries and VIEs	6,459,723	936,572	5,777,602
Total current assets	7,199,383	1,043,813	6,674,745
TOTAL ASSETS	7,199,383	1,043,813	6,674,745
Accrued expenses and other current liabilities	5,072	736	5,184
Amounts due to subsidiaries and VIEs	108,120	15,676	108,120
Total current liabilities	113,192	16,412	113,304
Deficit of investments in subsidiaries and VIEs	3,990,362	578,548	3,680,499
TOTAL LIABILITIES	4,103,554	594,960	3,793,803
Additional paid-in capital	7,915,899	1,147,697	7,793,234
Accumulated other comprehensive loss	(64,062)	(9,288)	(143,111)
Statutory reserves	40,380	5,855	40,380
Accumulated deficit	(4,796,503)	(695,428)	(4,809,675)
TOTAL SHAREHOLDERS' EQUITY	3,095,829	448,853	2,880,942
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	7,199,383	1,043,813	6,674,745
Parent [Member] | Common Class A [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares	67	10	66
Parent [Member] | Common Class B [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares	¥ 48	$ 7	¥ 48

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Condensed Financial Information of Parent Company Balance Sheets (Parenthetical) (Detail) - $ / shares	Dec. 31, 2022	Dec. 31, 2021
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares, shares outstanding	172,858,544
Common Class A [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares, par value	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	800,000,000	800,000,000
Ordinary shares, shares issued	100,077,116	99,277,116
Ordinary shares, shares outstanding	99,553,256	98,032,240
Common Class B [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares, par value	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	100,000,000	100,000,000
Ordinary shares, shares issued	73,305,288	73,305,288
Ordinary shares, shares outstanding	73,305,288	73,305,288
Parent [Member] | Common Class A [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares, par value	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	800,000,000	800,000,000
Ordinary shares, shares issued	100,077,116	99,277,116
Ordinary shares, shares outstanding	99,553,256	98,032,240
Parent [Member] | Common Class B [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Ordinary shares, par value	$ 0.0001	$ 0.0001
Ordinary shares, shares authorized	100,000,000	100,000,000
Ordinary shares, shares issued	73,305,288	73,305,288
Ordinary shares, shares outstanding	73,305,288	73,305,288

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Condensed Financial Information of Parent Company Statement of Operations (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Condensed Income Statements, Captions [Line Items]
General and administrative expenses	¥ (290,339)	$ (42,095)	¥ (720,253)	¥ (566,565)
Total operating expenses	(1,915,216)	(277,680)	(7,344,486)	(7,117,229)
Loss from operations	(118,052)	(17,116)	(3,180,343)	(1,755,033)
Loss before provision for income tax and share of results of equity investees	(2,533)	(367)	(3,062,214)	(1,427,612)
Net (loss)/income	13,172	1,910	(3,103,465)	(1,392,930)
Parent [Member]
Condensed Income Statements, Captions [Line Items]
General and administrative expenses	(8,807)	(1,277)	(25,357)	(14,157)
Total operating expenses	(8,807)	(1,277)	(25,357)	(14,157)
Loss from operations	(8,807)	(1,277)	(25,357)	(14,157)
Equity in (loss)/gain of subsidiaries and VIEs	45,545	6,604	(3,106,437)	(1,387,816)
Income/(loss) from non-operations	(23,566)	(3,417)	28,329	9,043
Loss before provision for income tax and share of results of equity investees	13,172	1,910	(3,103,465)	(1,392,930)
Net (loss)/income	¥ 13,172	$ 1,910	¥ (3,103,465)	¥ (1,392,930)

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Condensed Financial Information of Parent Company Statement of Comprehensive (Loss)/Income (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
Condensed Financial Statements, Captions [Line Items]
Net (loss)/income	¥ 13,172	$ 1,910	¥ (3,103,465)	¥ (1,392,930)
Other comprehensive (loss)/income, net of tax:
Change in cumulative foreign currency translation adjustments	72,703	10,541	(73,936)	(74,562)
Unrealized gains on available-for-sale investments (net of tax effect of RMB9,867, RMB8,598 and RMB8,703 for the years ended December 31, 2020, 2021 and 2022, respectively)	39,729	5,760	48,191	67,231
Transfer to statements of operations of realized gains on available-for-sale investments (net of tax effect of RMB9,654, RMB8,302 and RMB8,881 for the years ended December 31, 2020, 2021 and 2022, respectively)	(33,383)	(4,840)	(57,461)	(70,403)
Total comprehensive (loss)/income attributable to Gaotu Techedu Inc.	92,221	13,371	(3,186,671)	(1,470,664)
Parent [Member]
Condensed Financial Statements, Captions [Line Items]
Net (loss)/income	13,172	1,910	(3,103,465)	(1,392,930)
Other comprehensive (loss)/income, net of tax:
Change in cumulative foreign currency translation adjustments	72,703	10,541	(73,936)	(74,562)
Unrealized gains on available-for-sale investments (net of tax effect of RMB9,867, RMB8,598 and RMB8,703 for the years ended December 31, 2020, 2021 and 2022, respectively)	39,729	5,760	48,191	67,231
Transfer to statements of operations of realized gains on available-for-sale investments (net of tax effect of RMB9,654, RMB8,302 and RMB8,881 for the years ended December 31, 2020, 2021 and 2022, respectively)	(33,383)	(4,840)	(57,461)	(70,403)
Total comprehensive (loss)/income attributable to Gaotu Techedu Inc.	¥ 92,221	$ 13,371	¥ (3,186,671)	¥ (1,470,664)

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Condensed Financial Information of Parent Company Statement of Comprehensive Income (Parenthetical) (Detail) - CNY (¥) ¥ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Condensed Financial Statements, Captions [Line Items]
Tax Effect Of Unrealized Gain On Available For Sale Investments	¥ 8,703	¥ 8,598	¥ 9,867
Tax effect of transfer to statements of operations of realized gains on available-for-sale investments	8,881	8,302	9,654
Parent [Member]
Condensed Financial Statements, Captions [Line Items]
Tax Effect Of Unrealized Gain On Available For Sale Investments	8,703	8,598	9,867
Tax effect of transfer to statements of operations of realized gains on available-for-sale investments	¥ 8,881	¥ 8,302	¥ 9,654

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Condensed Financial Information of Parent Company Statement of Cash Flows (Detail) ¥ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022 CNY (¥)	Dec. 31, 2022 USD ($)	Dec. 31, 2021 CNY (¥)	Dec. 31, 2020 CNY (¥)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income	¥ 13,172	$ 1,910	¥ (3,103,465)	¥ (1,392,930)
Adjustments to reconcile net (loss)/income to net cash generated from operating activities:
Realized gains from investments	(42,264)	(6,128)	(65,763)	(70,403)
Fair value change of fair value option	13,232	1,918	0	0
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(12,294)	(1,782)	459,506	(479,985)
Accrued expenses and other current liabilities	(329,923)	(47,834)	(942,260)	1,508,939
Net cash generated from/(used in) operating activities	54,545	7,908	(4,185,807)	603,273
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash (used in)/generated from investing activities	(158,385)	(22,964)	4,812,502	(5,596,304)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution	0	0	7	36
Proceeds from private placement financing	0	0	0	5,687,251
Repurchase of ordinary shares	0	0	0	(282,543)
Net cash generated from/(used in) financing activities	0	0	(100,614)	5,272,100
Effect of exchange rate changes	26,650	3,864	15,818	2,188
Net increase/(decrease) in cash and cash equivalents	(77,190)	(11,192)	541,899	281,257
Cash and cash equivalents at beginning of the year	728,934
Cash and cash equivalents at end of the year	819,911	118,876	728,934
Parent Company [Member]
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)/income	13,172	1,910	(3,103,465)	(1,392,930)
Adjustments to reconcile net (loss)/income to net cash generated from operating activities:
Equity in loss/(gain) of subsidiaries and VIEs	(45,545)	(6,604)	3,106,437	1,387,816
Realized gains from investments	0	0	(8,498)	(6,564)
Fair value change of fair value option	31,080	4,506	0	0
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(1,324)	(192)	2,083	(1,919)
Accrued expenses and other current liabilities	(113)	(16)	(3,618)	(1,771)
Net cash generated from/(used in) operating activities	(2,730)	(396)	(7,061)	(15,368)
CASH FLOWS FROM INVESTING ACTIVITIES
Loans to subsidiaries and VIEs	(303,214)	(43,962)	(6,248,209)	(195,783)
Repayment from subsidiaries and VIEs	100,000	14,499	706,870	0
Investing activities on debt securities investments	174,382	25,283	5,547,488	(5,252,188)
Net cash (used in)/generated from investing activities	(28,832)	(4,180)	6,149	(5,447,971)
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution	0	0	7	36
Proceeds from private placement financing	0	0	0	5,687,251
Repurchase of ordinary shares	0	0	0	(282,543)
Net cash generated from/(used in) financing activities	0	0	7	5,404,744
Effect of exchange rate changes	24,033	3,484	3,735	5,390
Net increase/(decrease) in cash and cash equivalents	(7,529)	(1,092)	2,830	(53,205)
Cash and cash equivalents at beginning of the year	11,260	1,633	8,430	61,635
Cash and cash equivalents at end of the year	¥ 3,731	$ 541	¥ 11,260	¥ 8,430

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ADDITIONAL INFORMATION-FINANCIAL STATEMENT SCHEDULE I - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2022
Condensed Financial Statements, Captions [Line Items]
Convenience translation rate of USD1.00	6.8972
Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Convenience translation rate of USD1.00	6.8972
Assets, Total [Member] | Parent Company [Member]
Condensed Financial Statements, Captions [Line Items]
Percentage of consolidated net assets accounted by VIE and its subsidiaries	25.00%

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Label	Element	Value
Zhengzhou Kaitong [Member] | Real Estate [Member]
Accrued Liabilities for Investment and Acquisition Current	gotu_AccruedLiabilitiesForInvestmentAndAcquisitionCurrent	¥ 26,580,000