Sunlands Technology Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 22, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. Today's conference call is being recorded. I will now turn the call over to your host today, Yue Hua, Sunlands IR representative. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Sunlands' Q3 2023 earnings conference call. The company's financial and operating results were issued in our press release and posted on the press release via 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. Tung Bo Liu and our financial repress and executive, Mr.

Speaker 1

Han Yu Li. Management will begin with prepared remarks and the call will conclude with a Q and A session. Before I hand it over to the management, I'd like to remind you of Sunlands' Safe Harbor statement in relation to today's call. Except for the historical information contained herein, Some 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.

Speaker 1

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 will now turn the call over to our CEO, Tummo Liu.

Speaker 2

Thank you, Yuehua. Hello, everyone. Welcome to Sunlands' 3rd quarter 2023 conference call. Prior to commencing, I would like to kindly remind all attendees that The financial information referenced in this release are presented on a continuing operation basis and all fingers are denominated in RMB unless explicitly specified otherwise. In Q3, our business has constantly adjusted to the evolving economic landscape And has strategically progressed despite the challenges.

Speaker 2

Our overarching objective of propelling the group Toward sustained and high level profitability has yielded positive results as we maintained Sizable net profit for 10 consecutive quarters. Net income reached 131 point $6,000,000,000 Net revenues despite a slight year over year decrease exceeded the high end of our guidance range And reached $524,600,000 We were also pleased to see our ongoing efforts To optimize our product structure and expand our cost portfolio, we were rewarded with enhanced operational results, reflecting 14.3% year over year increase in our new student enrollments and 6.7% year over year increase in gross billings. We are delighted in our capability to remain profitable under challenging environment. This success is attributable to improvements in gross margins, the impact of cost cutting measures and enhanced financial planning and analysis across the entire business. Our cost of revenue has A year over year decrease of 24.5 percent and the Gen A expenses have achieved a year over year decrease of 21%.

Speaker 2

We firmly believe that only by adhering to long term perspective and ensuring the healthy growth of the enterprise Can we create sustainable value for shareholders and users? Now let's turn to the performance of each of our Due to uncertainties surrounding the macroeconomic environment, our This sector experienced a year over year revenue decline of 15.2%, influenced by our strategic Reduction in marketing activities. We will persistently enhance our operational efficiency Through continuous market observation and remain dedicated to providing premium courses for our in progress students. The segment including professional certifications, professional skills and interest programs has represented as our new growth driver accounting for 17.4 percent of the total revenue and exhibiting a year over year revenue growth of 23.8%. We have strengthened our determination and confidence to increase investment in interest based education following Through process of testing and validation, the number of new student enrollment in professional Compared to the same period of 2022, the total number of paid students has exceeded 1,200,000 since 2021.

Speaker 2

Today, we would like to delve deeper into our under the Nx sector. There are several noteworthy shifts in the end authentication landscape. Firstly, there's the burgeoning market potential of the silver economy. While the age group of 20 to 15 Remains a steady fast pillar in the industry. It's crucial to highlight that the demographic size of the silver generation continues to grow.

Speaker 2

According to the data disclosed by the National Bureau of Statistics, at the end of 2022, China's Elder population reached 280,000,000, which is 16 and above. Among them, 153,000,000 are Internet users, Indicating that at least 1 in every 2 elderly individuals has Internet access. A significant portion has already adopted the habits of Online Learning, Communication and Socialization. Furthermore, projections indicated that during the 14th 5 year plan period, China's population aged 16 and above surpassed 300,000,000, accounting for over 20% of the total population. With the aging population extended to the life expectancy and the rising per capita income, This represents a significant incremental market.

Speaker 2

Based on this, the various of course tailored to elderly individuals covering various interest areas such as Voca Music, the new Queen's Clubs, private property management and international funding. We are in part to focus of the culminated content creation, services capabilities and the technological expertise. We quickly gained recognition from this group. Specifically, according to our survey, The satisfaction rate for calligraphy courses is as high as 94.59 percent and for traditional Chinese printing courses, It reaches an impressive 98.25 percent. We are delighted to say that this group not only learn online, but also Connect with documented friends is termination new social relationships from our platform.

Speaker 2

We received numerous Feedback from this group and their vivid narratives resonates deeply with us, affirming the meaningful impact of our work. They illustrate our how our learning plan for caters to the diverse interest and the learning needs of various users, fostering continuous Information is evident on the supply side as well with the increase in the diversity of professional courses offerings. Our strategy is in alignment with the market as well. We have meticulously curated and provided a suite of premium To actively participate in the courses and we take pride in assisting them in navigating The challenges of the dynamic working environment. Additionally, we have carefully augmented our selection of interest based In response to the burgeoning inclination towards personalized and patient satisfaction.

Speaker 2

We strive to provide a Comprehensive range of additional services and products that extend beyond the confines of traditional learning experience. Furthermore, we have also been closely monitoring the application of new technologies in our industry, Such as the NetEase AIGC Technology in our educational business content. We are optimistic about our About the prospects of the development of this technology, it's worth mentioning that our product development expenses have also increased by 5.3% compared to the previous quarter. In summary, during our decade of valuable experience and industry acclaim, We are positive to rapidly and efficiently expand our market presence. Going forward, Our dedication remains unwavering as we adjust our education With that, I will turn the call to our Financial Controller, Han Yu, to run through our financials.

Speaker 3

Thank you, Tongbo. Hello, everyone. I'm pleased to present our Q3 results, which are in line with our expectations and demonstrate the effectiveness of our pursuit of sustainable growth. As you can see, last quarter was another excellent quarter in operations. As a result of steady growth in interest based Programs.

Speaker 3

New student enrollments went up by 14.3% and gross billings increased by 6.7% year over year. Thanks to our strategy of balanced sustainable growth and profitability, gross profit margin increased by 2.5 percentage points to 87.8 percent compared to the same period last year. Operating expenses as a percentage of gross billings decreased by 2.1 percentage points compared to the Q3 of last year. This improvement was reflected in our net income. Last quarter, we achieved net income of CAD131.6 million, Our 10th profitable quarter since the Q2 of 2021.

Speaker 3

Looking ahead, we are optimistic about long term growth. We are committed to expanding online course offerings, optimizing cost effectiveness and providing exceptional service to our students. These strategic initiatives are conducive to seizing new opportunities and consolidating our position in the industry, which in turn will help us maintain our competitive edge in the industry and continue to create value our stakeholders. Now let me walk through some of our key financial results for the Q3 of 2023. All comparisons are year over year All numbers are in RMB unless otherwise noted.

Speaker 3

In the Q1 of 2023, Net revenues were CAD524.6 million, a decrease of 9% year over year. Cost of revenue decreased by 24.5 percent to CAD64.1 million in the Q3 of 2023 from $84,900,000 in the Q3 of 2022. The decrease was primarily due to lower compensation expenses Related to our cost of revenue per tonne, gross profit decreased by 6.3% to $460,500,000 from $491,300,000 in the Q3 of 2022. In the Q3 of 2023, operating expenses were CNY368.5 million, representing a 4.1% increase from $325,000,000 in the Q3 of 2022. Sales and marketing expenses increased by 9.6 percent to CAD295,000,000 in the Q1 of 2023 from $269,100,000 in the Q3 of 2022, primarily due to increased And on branding and marketing activities, general and administrative expenses decreased by 21% to $35,100,000 in the Q3 of 2023 from $44,400,000 in the Q3 of 2022.

Speaker 3

Product development expenses decreased by 27 percent to $8,400,000 in the Q3 of 2023 from $11,500,000 in the Q3 of 2022. Product development expenses were mainly comprised of compensation expenses. Net income for the Q3 of 2023 was CAD131.6 million compared with net income of CAD168,100,000 in the Q3 of 2022. Basic and diluted net income per share was 19.13 in the Q3 of 2023. As of September 30, 2023, the company had RMB751.8 million of cash, Cash equivalents and restricted cash and the $122,300,000 of short term investments.

Speaker 3

As of September 30, 2023, the company had a deferred revenue balance of RMB277 1,000,000 compared with RMB1600.9 million as of September 31, 2022. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvement Capital expenditures were $1,400,000 in the 3rd quarter compared with $1,300,000 in the Q1 of 2022. And now for our outlook. For the Q1 of 2023, Sun Life currently expects net revenues to be between RMB419 1,000,000 to RMB510 1,000,000 which would represent a decrease of 11.9% to 15.3% year over year. This outlook is based on the current market conditions and reflects the company's management's current and the preliminary estimate of market, operating conditions and the customer demand, which are all subject to change.

Speaker 3

With that, I'd like to open up the call to the questions. Operator?

Operator

Thank There are no questions so far. At this time, there are no questions coming through. So that will conclude the question and answer session. At this time, I would like to turn the conference back over to Yuhua for any closing remarks.

Speaker 1

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

Operator

This concludes this conference call. You may now disconnect your line.

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Earnings Conference Call
Sunlands Technology Group Q3 2023
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