Sunlands Technology Group
Q3 2021 Earnings Call Transcript

Published: 23 Nov 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks by management there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host today, Yuhua Ye, Sunlands' IR representative. Please go ahead.

[Yuhua Ye:]

Hello, everyone, and thank you for joining Sunlands' third quarter 2021 earnings conference call. The company's financial and operating results were issued in our press release via newswire services earlier today and are posted online. You can download the earnings press release and sign up for our distribution list by visiting our IR website. Participants on today's call will be our CEO, Mr. Tongbo Liu; and our CFO, Selena Lu Lv. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before I hand it over to the management, I would like to remind you of Sunland’s safe harbor statement in relation to today's call. Except for the historical information contained herein, certain of the matters discussed in this conference call are forward-looking statements. These statements are based on current trends, estimates and projections, and therefore, you should not place undue reliance on them. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. With that, I would now like to turn the call over to our CEO, Tongbo Liu.

[Tongbo Liu:]

Thank you, Yuhua. Hello, everyone, and thank you for joining Sunlands' third quarter 2021 earnings conference call. We are pleased with our third quarter financial metrics. Our net revenues grew 9.9% year-over-year to RMB 595.1 million despite the evolving industry dynamics. We recorded net profit of RMB 93.8 million compared with net loss of RMB 165.8 million during the same period last year and a year-over-year 33.8% and 29.3% decline in new enrollments and gross billings, respectively, which are attributed to our continued efforts to execute our balanced long-term growth and profitability strategy. As COVID-19 pandemic resurgences in certain regions in China continue to create challenges for business operations and the broader economy recovery, tenants have taken steps to improve operating efficiency and reduce costs. With respect to talent acquisition, many companies have become more prudent in selecting talents and have reached their expectations for candidates and the new hires. This ultimately led to a more competitive labor market in the third quarter, prompting working professionals to seek enrichment courses back hours to increase their competitiveness through further education and rescaling and upscaling. Meanwhile, industry dynamics are also evolving rapidly with the increasing number of companies joining the end of education business after the implementation of China's K-12 after-school tutoring regulations. With this landscape, we continue to execute our balanced long-term growth and the profitability strategy and so to enhance our competitiveness by focusing on optimizing our product mix, improving services, reducing costs and enhancing students acquisition efficiency. We are pursuing quality growth rather than user scale only. Our professional certificate and skills programs maintained their growth momentum during the quarter. Our revenue and gross billed increased 148.2% and 49.3% year-over-year, respectively, driven by our constant efforts as user demand are met and skills reflect in student's growing adoption of our platform as we refine our course offerings with more premium and diverse course content. The breadth of our course offerings also appears to more people across a wider range of age groups, which could help further expand our student base. We believe that with our relentless endeavor to provide our students with a better learnings experience, we are well positioned to fulfill the certain demand for low interest-based learning, catering to endorse of all ages. We achieved a 20.8% year-over-year increase in net revenues in our master's degree-oriented programs, while new enrollments and gross billings decreased by 22.2% and 10.2% year-over-year, respectively, as we prioritized quality growth. However, we continue to expand our global footprint during the quarter by forming additional partnerships with overseas universities and made encouraging progresses. And at the same time, we continue to diversify our course portfolio for the segment looking to capture the huge growth opportunities in this market. Demand for exam preparation course sales remains strong, and we expect to further grow given the competitive employment market. Notably, a large number of our students are middle or senior level managers, strongly motivated to acquire more knowledge and sharpen their management skills through MBA and degree education. Helping them to achieve their learning goals will continue to be a priority as we see solid growth momentum and potential in space. Turning now to our STE programs as we strove to optimize our product mix, gross billings and new enrollments for STE moderated, which was also partially due to the licensing regulation and advertisement things for continued education. We believe these regulations will help the industry achieve healthy and a sustainable growth and contribute to China's effort to build a lifeline society. We have implemented strict compliance standards and we'll continue to monitor and comply with relevant rules and regulations while providing quality courses to our students. In addition, we adopted stringent policies and attractive incentive plans to enhance our operations and services in the third quarter, with the goal of providing students a , more rewarding learning experience. We also implemented effective cost reduction linears with the process of improving student acquisition efficiency, resulting in a 35.2% year-over-year drop in operating expenses. We achieved this remarkable improvement by further embracing technology and utilizing the natural centers across our various segments to realize meaningful growth. We leveraged targeted cost-effective new medium marketing tools to acquire students and also continue to capitalize on cost-selling opportunities among different programs to increase repurchase rate and user lifetime value. We maintained the profitability for 2 consecutive quarters as we enriched our course offerings to the best vary students' needs to optimize the cost structure to enhance student acquisition efficiency with more cost effective, innovative and regulation compliance market tools. We will continue to refine the linears to build on these and drive quality growth. That concludes my prepared remarks. Thank you, and I will turn the call to our CFO, Selena for further review of our financials. Selena, please?

[Selena Lu Lv:]

Thank you, Tongbo. Hello, everyone, and thank you for attending Sunlands' third quarter conference call. We are encouraged by our sustained profitability in the third quarter which registered net profit reaching a new high. Driven by continued year-over-year top line growth, mainly contributable to professional skills and master's degree-oriented programs. Profits also benefited from our efficient cost control measures, which led to a 35.2% year-over-year reduction in operating expenses. Notably, sales and marketing expenses as a percentage of net revenues decreased significantly by 45.7 percentage points year-over-year. Going forward, we will continue to focus on operating efficiency enhancement, product mix optimization and service improvement, which will prepare us for the opportunities and challenges ahead while pursuing sustainable growth. Now I would like to share our financial results for the third quarter of 2021 in detail. In the third quarter of 2021, net revenues increased by 9.9% to RMB 595.1 million from RMB 541.6 million in the third quarter of 2020. The increases was -- the increase was mainly driven by year-over-year growth in gross billings since the second half of 2020 through the first quarter of 2021. Cost of revenues decreased by 10.6% to RMB 83.1 million in the third quarter of 2021 from RMB 92.9 million in the third quarter of 2020. The decrease was primarily due to reduced insurance-related costs incurred for our integrated online education service package purchased by students. Gross profit increased by 14.1% to RMB 512 million in the third quarter of 2021 from RMB 448.7 million in the third quarter of 2020. In the third quarter of 2021, operating expenses were RMB 430.6 million, representing a 35.2% decrease from RMB 654.1 million in the third quarter of 2020. Sales and the marketing expenses decreased by 37.9% to RMB 353.5 million in the third quarter of 2021 from RMB 569.4 million in the third quarter of 2020. The decrease was mainly due to

[Operator:]

[Yuhua Ye:]

Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day, and good night.

[Operator:]

This concludes the earnings conference call. You may now disconnect your line. Thank you for attending.