Sunlands Technology Group Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 22, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' 4th Quarter and Full Year 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, Yu Hua from Sunlands IR Representative. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Sunlands 4th quarter and full year 2023 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 could 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.

Speaker 1

Hao 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 SANAA'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.

Speaker 1

Forward looking statements involve inherent risks and uncertainties. A number of important factors will cause actual results to differ materially from those contained in any forward looking statements. 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, Tongbo Liu.

Speaker 2

Thank you, Bob. Hello, everyone. Welcome to Sunlands' 4th quarter and full year industry earnings conference call. Prior to commenting, I would like to remind all attendees that the financial information referenced in this release is presented on a continually operating basis, and all fingers are dominated in RMB unless explicitly specified otherwise. It is with great pride that we unveiled a successful combination of the 4th quarter, characterized by a noteworthy net profit of $155,200,000 and impressive net profit margin of 28.6%.

Speaker 2

These metrics underscore our firm financial foundation and steadfast dedication to the operational excellence. In the meanwhile, our revenue stands at $542,000,000 marking a 3.3% increase from the previous quarter and surpassing of earlier forecasts despite a year over year revenue decrease of 6.4%. Reflecting on the entire fiscal year, we successfully recorded annual revenue of 2,160,000,000 and a net income of $14,800,000 Additionally, we observed a significant 15.4% increase in enrollment year over year, highlighting the growing demand for our offerings. Our prudent financial management resulted in a net cash inflow from operating activities of over 135,000,000 being a solid financial foundation for our future growth initiatives. Throughout the year, we remained agile in responding to market dynamics and involving user preferences, driving continuous innovation across our product and service portfolio.

Speaker 2

A pivotal driver has been the dynamic expansion of our interest based courses, which experienced a 54.9% year over year growth. This sector has emerged as the important growth catalyst for the company, further solidifying our leading position in the adult education landscape. Turning to the performance of our major course programs, degree oriented post secondary programs accounted for 24.7% of our revenue in 2023. While we continue to optimize this sector's investment, we believe in its promising future. In the current employment landscape, individuals navigating academic pursuits or professional territories find themselves confronted with intricate challenges.

Speaker 2

The symbiotic relationship between salary offerings and educational attainment has become more pronounced. This in turn has precipitated a surge in the productivity of individuals towards pursuing further education. The sector encompassing professional certifications, skills and interest programs continue to serve as our key growth engine, showcasing a year over year revenue increase of 13.3% and contributing to 17.1 percent of our total revenue. In 2023, we observed a 21.1% rise in new student enrollments within the sector compared to 2022. Our approach to catering to the growing educational needs of learners across various age group has been particularly rewarding.

Speaker 2

Moreover, the standout performance of interest based education courses remained in foremost highlight of this sector, accounting for 63% of our total revenue and experiencing a significant 54.9% year over year revenue growth. In 2023, the user search volume for adult interest training has surged, ranking 1st among the new business segments in the education sector. This trend signifies a growing focus among adults on inner real and personal interests, thereby resulting in a discernible concurrent elevation in the demand for associated knowledge and services. Compared to our degree program users who tend to be younger and more career oriented, the age range of users in interest sector is much broader, with a significant portion of the user base comprising middle aged and elderly population. After several quarters of practical exploration, we have gained a deeper understanding of the elderly lending market.

Speaker 2

And today, I'm delighted to share some insights. Firstly, the expansive nature of China's senior demographic presents a poor for market penetration. As of 2022, China confronted a rare phenomenon of net population decrease. This marks the first negative growth since the 1960s, simplifying the onset of a period of population decline. Additionally, the impending retirement phase of China's 6th baby born generation, spending birthdays from 1962 to 1975 introduces a cohort, while there is a significant socioeconomic influence.

Speaker 2

According to China Private Wealth Report released by China Merchants Bank and the Beiyuan in 2023, the age group of 15% to 59% accounts for 20% of the high net worth individuals with investable assets of over $10,000,000 In the past, senior education was predominantly supplied by the government agencies. However, today's newly retired individuals have the autonomy to select from market oriented educational institutions and are willing to pay premium prices for such offerings. Secondly, the launched preference and demands exhibited by elderly cohorts across various age breakage underscore the complexity of this demographic, indicating significant untapped potential. Individuals aged 15 to 59 display a vibrant demeanor with a prediction towards culture and spiritual pursuits such as travel and lifelong learning endeavors. Conversely, those aged 16 and above tend to gravitate towards health centered consumption patterns, embracing nutritional supplements in the care services.

Speaker 2

Upon meticulous security of our senior course enrollees, taking our transitional Chinese parenting program as an example, individuals aged 14 6 to 16 5 account for 16%, with over 16% being female and 20% from 1st tier cities. We define them as a new generation of vibrant seniors characterized by high cultural refinement, relative affluence, Apple leisure opportunities and a higher pursuit of spiritual enrichment. Our products are well received by this Golden Age Group and we will continue to see the demand of this demographic to expand this scope of our services in

Speaker 3

the future.

Speaker 2

Drawing inspiration from the developmental trajectory of Japan's elder industry, notably illustrated by Club Tourism, Japan's biggest senior travel conglomerate with a membership base of $7,000,000 which initially focused on travel products and later expanded horizontally into nursing, insurance and consumer goods. We aim to maximize our lifetime value through diversified offerings and high value propositions rooted in effective senior interest education services. For instance, we have launched educational travel packages, integrating courses with tourism activities. There's ongoing and innovative initiatives that afford us a swifter and more profound insight into our user base, fooling our imagination for future possibilities. We also note the government's attention to and emphasis on the elderly industry.

Speaker 2

On January 15, 2024, the General Office of the State Council of China issued the 1st dedicated document supporting the development of the silver economy, which specifically mentioned enriching elderly education services. We will continue to increase investment in course development for this burgeoning demographic. We have curated a range of specified offerings, including premium Chinese painting and music courses, supplemented by a variety of offline events tailored to diverse situational context. Notably, our senior brand clinched the prestigious Craftsman Service Award from People's Study Online, a testament to our unwavering pursuit of excellence. As we progress into 2024, we remain committed to constantly exploring and refining our product mix, targeting different age groups, while developing our operational efficiency improvement efforts to support our long term sustainable growth.

Speaker 2

Since our initial public offerings, the company has been constantly progressing with stock repurchases. As of December 31, 2023, under the share repurchase plans adopted in December 2021 August 2018, we have successfully executed the repurchase of American depository shares equivalent to approximately 420,000 ordinary shares, representing a total investment of USD 15,700,000. Looking ahead, we're pleased to fortify shareholder value through ongoing share repurchases, underscoring our steadfast commitment to shareholder interests. With that, I will turn the call over to our Financial Controller, Han Yu, to run through our financials.

Speaker 3

Thank you, Tongbo. Hello, everyone. I'm pleased to present our 4th quarter results. Over the past year, we have been committed to achieving sustainable growth, placing a high priority on improving operational efficiency and optimizing our cost structure. We continued our impressive level of profitability with a net profit margin of 28.6%, up 3.5 percentage points quarter over quarter.

Speaker 3

This demonstrated the effectiveness of our operational strategies and highlights our ability to adapt to changing market conditions. It is also important to highlight that our net cash inflows from operating activities for the year exceeded RMB135 1,000,000, providing a solid financial foundation for the sustainable development of our business. This success is a direct reflection of our commitment to strengthening our core competence, allowing us to quickly adjust our strategy in response to changing market conditions and the customer demands. Notably, since the Q4 of 2021, our net profit margin has remained above 20%, which is a testament to the strength and resilience of our business model. Looking to the future, we'll continue to focus on refined operations and efficient office financial management to ensure the company's sustained healthy and stable development.

Speaker 3

In addition, we'll strictly follow the instructions of the Board and implement strategic share repurchases to enhance shareholder value. Now let me present to you some of our key financial results for the Q4 of 2023. All comparisons are year over year and all figures are in RMB unless otherwise noted. For the Q4 of 2023, net revenues decreased by 6.4 percent to RMB 541,700,000 from CAD 578.6 million in the Q4 of 2022. The decrease was primarily due to a year over year decline in gross billings from post secondary courses in 2023.

Speaker 3

Cost of revenues decreased by 2% to RMB73.8 million in the Q4 of 2023 from RMB75.3 million in the Q4 of 2022. The decrease was primarily due to lower compensation expenses related to a reduction in our cost of revenue headcount. Gross profit decreased by 7% to RMB468 1,000,000 in the Q4 of 2023 from $503,300,000 in the Q4 of 2022. In the Q4 of 2023, operating expenses were $348,900,000 representing a 3.8% increase from C$336,000,000 in the Q4 of 2022. Sales and marketing expenses increased by 12.2 percent to $305,800,000 in the Q4 of 2023 from 270 $2,500,000 in the Q4 of 2022.

Speaker 3

The increase was primarily due to increased spending on sales activities, including higher sales force compensation as well as higher spending on brand and marketing activities focused on interest based courses. General and administrative expenses decreased by 36.8 percent to RMB35.5 million in the Q4 of 2023 from RMB56.1 million in the Q4 of 2022. The decrease was primarily due to lower office costs and rental expenses resulting from the early termination of certain office spaces. Product development expenses increased by 3.6 percent to CNY7.6 million in the Q4 of 2023 from $7,400,000 in the Q4 of 2022. Net income for the Q4 of 2023 was CAD155.2 million compared with CAD181 1,000,000 in the Q4 of 2022.

Speaker 3

Basic and diluted net income per share was RMB22.59 in the Q4 of 2023. As of December 31, 2023, the company had $766,400,000 of cash, cash equivalents and restricted cash and $142,100,000 of short term investments, compared with $757,400,000 of cash, cash equivalents and restricted cash and $70,500,000 of short term investments as of December 31, 2022. As of December 31, 2023, the company had a deferred revenue balance of RMB1113.9 million, compared with RMB1690.9 million as of December 31, 2022. Capital expenditures were primarily for information technology infrastructure equipment and the leasehold improvements required to support the company's operations. Capital expenditures were CAD0.2 million in the Q4 of 2023 compared with CAD0.7 million in the Q4 of 2022.

Speaker 3

For more details on our full year 2023 financial results, please see our earnings press release. Now for our outlook, For the Q1 of 2024, we currently expect net revenues to be between RMB500 1,000,000 RMB520 1,000,000, a year over year decrease of 8.3 percent to 11.8%. This outlook is based on current market conditions and reflects the company's management's current and preliminary estimates of the market, operating conditions and the customer demand, all of which are subject to change. With that, I'd like to open up the call to questions. Operator?

Operator

Thank 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 turn the conference back over to Yu Hua 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 Q4 2023
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