Sunlands Technology Group
Q3 2020 Earnings Call Transcript

Published: 18 Nov 2020

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks by the management team, 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 our host today, Yuhua Ye, Sunlands' IR Representative. Please go ahead.

[Yuhua Ye:]

Hello, everyone, and thank you for joining Sunlands' Third quarter 2020 earnings conference call. The Company's financial and operating results were issued in a 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.

[Tongbo Liu:]

Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' third quarter 2020 conference call. Despite the short-term impact on our operations of the COVID-19 pandemic, in the first half of 2020, Sunlands delivered a steady year-over-year increases in both gross billings and the net revenues, in the third quarter. Our results were fueled by a combination of the recovering macroeconomic conditions in China, as well as the implementation of optimization initiatives within our business. In the third quarter our gross billings reached RMB 654.3 million, increasing by 6.6% year-over-year, and 23.1% quarter-over-quarter. We'll attribute our strongest biddings results largely to improvements we made in sales efficiency, with new approaches to student acquisition as well as our enhancing brand awareness and the continuous upgrades to our product categories. Additionally, following the solid performance in the second quarter of 2020, net revenues increased 2.7% year-over-year to RMB 541.6 million, exceeding the top end of our guidance by 4.2%. Moreover, our new enrollments reached approximately 140,000 in the third quarter, growing 47.8% year-over-year and 70.5% quarter-over-quarter. During the third quarter, we made further progress to balance our top line growth mix. Proving the efficacy of our long-term strategy and efforts to continually to expand our portfolio of educational products and bringing constant innovation. While maintaining a leading market share in STE programs, master's degree-oriented programs and the professional certification and skills programs, continue to reveal great potential to become the next pillars among the Company's offerings.

[Selena Lu Lv:]

Thank you, Tongbo. And hello, everyone. Our third quarter financial results reflect our balanced expansion strategy. Net revenues increased by 2.7% year-over-year, exceeding our expectations. This result is attributable to broad-based improvements across our organization, in particular, optimizing our revenue contribution structure. Other highlights in the quarter include a significant increase in gross billings, and a higher proportion of revenues coming from non-STE programs. These accomplishments came from improved efficiency in our student acquisition and conversion methods, recognition of our program diversity, and content enrichment. In terms of cost control management, we pursued a strict spending policy, especially in regard to G&A expenses which were reduced by 16.7% year-over-year. Looking ahead, we will continue to focus on product and service upgrades by deploying our AI-enabled platform systems and a further refinement of our internal operations. We believe this dual-fold effort will bring long-term value to our users, and shareholders, through a sustainable and balanced approach to growth. Now, let me walk you through some of the key financial results for the third quarter 2020. All comparisons are year-over-year, and all numbers are in RMB unless otherwise noted. In the third quarter, net revenue were RMB 541.6 million, an increase of 2.7 year-over-year. Cost of revenue decreased by 18.2% to RMB 92.9 million in the third quarter from RMB 113.7 million in the third quarter 2019. 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 8.5% to RMB 448.7 million from RMB 413.6 million in the third quarter of 2019. In the third quarter, operating expenses were RMB 664.1 million, representing a 21.4% increase from RMB 546.9 million in the third quarter of 2019. Sales and marketing expenses increased by 32.7% to RMB 569.4 million in the third quarter from RMB 429.2 million in the third quarter of 2019. The increase was mainly due to increases in (i) compensation paid to our sales and marketing personnel; (ii) spending on branding and marketing activities, including more marketing promotion activities to diversify student acquisition channels; and (iii) share-based compensation expenses recognized in the third quarter of 2020. General and administrative expenses was RMB 76.1 million in the third quarter of 2020, decreased by 16.7 year-over-year, mainly due to the decrease in compensation expenses. Product development expenses decreased by 29.7% to RMB 18.6 million in the third quarter from RMB 26.4 million in the third quarter of 2019. The decrease was primarily due to a decrease in the compensation incurred related to our product and technology development personnel during the quarter.

[Operator:]

We will now begin the question-and-answer session. . At this time, we are showing no questions, so this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Yuhua Ye, IR Representative, for any closing remarks.

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[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 our earnings conference call. You may now disconnect your line now. Thank you.