Sunlands Technology Group Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 25, 2023

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Sandlands First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. Today's conference call is being recorded. I will now turn the conference over to your host, Yuha Sunlands, AR representative. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Sunlands' 1st 23 Earnings Conference Call. The company's financial and operating results were issued in our press release There are 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 Financial Controller, Mr. Han Yu Li.

Speaker 1

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 would like to remind you of Sunlands' Safe Harbor statement in relation to today's call. Except for 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.

Speaker 1

A number of important factors could cause actual results to differ materially from those contained in any forward looking statement. For more information about 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, Tongbo Liu.

Speaker 2

Thank you, Yihua. Hello everyone. Welcome to Sunlands' Q1 2023 conference call. Prior to commencing, I would like to kindly remind all Attendees, the financial information referenced in this release are presented on a continuing operation basis And all figures are then nominated in RMB unless expressed specified otherwise. As we reflect on the Q1 of 2023, we have witnessed a steady fast and consistent performance in the challenging operating environment.

Speaker 2

Our Q1 net revenue remained steady, reaching RMB556.9 million, exceeding the high end of our guidance range. Our net income also experienced a slight year over year increase, reaching RMB118.1 billion, Marking the 8th consecutive quarter of sustained profitability for the company and setting a remarkable net income margin of 31.8%. We remain optimistic about our future prospects based on this encouraging start today's year. During this quarter, we also achieved a year over year increase of 3.8 percentage points in our gross profit margin, setting a new record high of 88%. Meanwhile, we have maintained a sharp focus on diversifying our cost content, Elevating the quality of our offerings and optimizing student acquisition process, these Certain efforts have yielded remarkable results as evidenced by a substantial year over year increase of 22.2% in Moving forward, we are committed to maintaining this positive trajectory and continuing our success employing Our cost saving and efficiency enhancing business strategies are strategies to support long term sustainable growth.

Speaker 2

Now let's turn to the performance of each of our major cost programs. For post secondary programs, Our strategic reduction of marketing activities coupled with increasing market competition From the new entrants aiming to tap into the immense potential of the segment led to a decline in both new student enrollments and Gross Billings. Despite facing intense competition and operating with a complex macro environment, We maintain our optimistic outlook for the future of our academic programs. This optimism is particularly Bolstered by the rising demand for continuing education, especially driven by the heightened employment pressures. Moving forward, we remain committed to delivering more precisely targeted high quality post secondary courses to our students.

Speaker 2

We believe that our 20 years of experience in exam preparation along with our experienced and well received teaching staff and Learning resources will position us advantageously compared to our competitors in the long run. The sector comprising professional certification preparation, Our professional skills and interest courses have demonstrated outstanding performance with a year over year revenue increase exceeding 15.9%. Additionally, our relentless pursuit of developing novel interest programs has constantly borne fruit, Propelling the revenue generated by the sector to an impressive growth rate of 105.7%. The substantial increase has cemented it as a significant and reliable source of income for our organization. Building upon this remarkable success, our steadfast commitment drives us to continuously refine our products and services Meeting the involving needs of a border universe of potential customers, ensuring that We remain at the forefront of industry.

Speaker 2

The domestic economy continues to recover, Due to the overall improvement in the employment situation, however, according to the data from the National Bureau of Statistics, Since the start of 2023, the youth unemployment rate for the individuals aged 16 to 24 has We consistently remained at an elevated level, reaching 20.4% in April. The fierce job market Competition will continue to drive to growth of online education as job seekers utilize it as a means to enhancing their skill sets And improve their chances of securing desirable employment opportunities. Additionally, we have observed that contemporary young individuals Demonstrated a general inclination towards interest based education. This recognizes the dual benefits it offers. The opportunity to explore and develop personal interest We continue to gain momentum such as the increasing focus on lifelong learning and the shift from offline to online education.

Speaker 2

As we move forward, we remain committed to adapting our educational offerings to meet the evolving demands of learners and leveraging their trends to fascinate accessible, effective and lifelong educational experiences. While we have made significant accomplishments, it is important to acknowledge that we are also confronted with challenges In other aspects of our business, the persistent macro uncertainties and the evolving market dynamics have influenced customer behavior for several of our products offerings, leading to a year over year decrease in net revenues. We have been proactive in addressing these challenges by refining our operations and closely managing our expenses. Looking ahead, we will continue to explore our potential revenue streams, diversifying our products and services offerings to enhance our resilience in the face of various challenges. In conclusion, our performance in the Q1 of 2023 reflects our commitment to balance growth and profitability.

Speaker 2

We remain focused on delivering high quality education and expanding our market We extend our gratitude for your presence today and the continued support you provide. Thank you, and we look forward to your valuable engagement. With that, I will turn the call to our Financial

Speaker 3

Thank you, Tongbo. Hello, everyone. I'd like to present our Q1 results, which have met our expectations and demonstrated our steadfast Commitment to achieve sustainable growth despite a 7.6% year over year decrease in net revenues. Throughout the quarter, we maintained our disciplined cost management practices and streamlined operations to boost our efficiency and profitability, leading to a 7.3% year over year decrease in operating expenses. This focused approach to cost optimization has brought positive outcomes as evidenced by the growth in our net income From RMB179,400,000 in the Q1 of 2022 To RMB180.1 million in the current quarter.

Speaker 3

Looking ahead, we maintain a positive outlook On our long term growth prospects, we will continue to expand our portfolio of online course offerings, Optimize our cost structure and deliver exceptional services to our students. These strategic measures will enable us Now, let me walk you through some of our key financial results for the Q1 of 2023. All comparisons are year over year and all numbers are in RMB unless otherwise noted. In the Q1 of 2023, net revenues were RMB 566,900,000, a decrease of 7.6% year over year. Cost of revenue decreased by 29.5% to RMB68,200,000 in the Q1 of 2023 from RMB96,700,000 in the Q1 of 2022.

Speaker 3

The decrease was primarily due to declined compensation expenses related to headcount reduction of our cost of revenues personnel, including teachers and mentors. Gross profit decreased by 3.5% to $498,700,000 from $516,600,000 in the Q1 of 2022. In the Q1 of 2023, operating expenses were $320,700,000 representing a 7.3% decrease from RMB345,800,000 In the Q4 of 2022, sales and marketing expenses decreased by 8% to $271,400,000 in the Q1 of 2023 from $295,000,000 in the Q1 of The decrease was mainly due to declined compensation expenses related to headcount reduction of our sales and marketing personnel. General and administrative expenses increased by 3.1% to $39,600,000 in the Q1 of 2023 from $38,500,000 in the Q4 of 2022. Product development expenses decreased by 21.7 percent to $9,700,000 in the Q4 of 2023 from $12,400,000 in the Q1 of 2022.

Speaker 3

The decrease was mainly due to declined compensation expenses related to high cost reduction of our product development personnel. Other income decreased by 8.3% to $8,800,000 in the Q1 of 2023 from $9,600,000 in the Q1 of 2022. Net income for the Q1 of 2023 was $180,100,000 compared with net income of 100 $79,400,000 in the Q1 of 2022. Basic and diluted net income per share was 26 in the Q1 of 2023. As of March 31, 2023, the company had $721,800,000 of cash and cash equivalents and $87,700,000 of short term investments.

Speaker 3

As of March 31, 2023, The company had a deferred revenue balance of RMB 1,513,900,000 compared with RMB 1,000 RMB690,900,000 as of September 31, 2022. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvement necessary to support the company's operations. Capital expenditures were $3,800,000 in the first quarter compared with CNY 0,900,000 in the Q1 of 2022. And now for our outlook. For the Q2 of 2023, Sun Life currently expects net revenues to be between RMB 480 to RMB 500,000,000, which would represent a decrease of 9.9% to 13.5% year over year.

Speaker 3

This outlook is based on the current market conditions and reflect the company's management's current and preliminary estimate of market, operating conditions and customer demand, which are all subject to change. With that, I'd like to open up the call to the questions. Operator?

Operator

There are no questions from the phone. At this time, we are showing no further questions. So this will conclude our question and answer session. At this time, I would like to I'll turn the conference back over to Yura for any closing remarks.

Speaker 1

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

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Earnings Conference Call
Sunlands Technology Group Q1 2023
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