Sunlands Technology Group Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 24, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen only mode. Today's conference call is being recorded. I'll now turn the call over to your host today, Yu Hua, Sunlands' IR Representative. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Sunlands' 4th quarter 2024 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 Financial Director, Mr.

Speaker 1

Huangyu Li. Management will begin with prepared remarks and the call will conclude with a QA session. Before I hand it over to the management, I'd like to remind you of Sanlam'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.

Speaker 1

And therefore, you should now place undue reliance on them. Forward looking statements involve inherent risks and uncertainties, and a number of important factors could 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, Honbo Liu.

Speaker 2

Thank you, Yuehua. Hello, everyone. Welcome to Sunlands' Q1 2024 Conference Call. Prior to commission, I would like to kindly remind all attendees that the financial information referenced in this release are presented on a continuing operating basis and all fingers are denominated in underscoring our operational efficiency and commitment to shareholder value. With strong focus on results and

Operator

Presenters, please continue.

Speaker 2

Additionally, our enrollment surged by 22.8 percent to a historical high of over 175,000, demonstrating the enhancement enhanced proficiency in acquiring students. This improvement reflects our dedicated initiatives to attract new users and enhance user retention and engagement by refining our cost offerings to meet diverse learning needs. Looking ahead, we remain optimistic about our long term profitability. We endeavor to closely monitor and enhance student experience across all phases of teaching, learning, assist and practice. Moving forward, we are dedicated to delivering exceptional services and products, while exploring avenues for further business growth and operational efficiency improvement.

Speaker 2

Now let's turn to the performance of each of our major course programs. Our post sector programs now account for 14.3% of our total revenue, a testament to our strategic structure optimizations and alignment with our latest investment return goals. Given the structural makeup of educational attainment with the Chinese Federation, the universal access to compulsory education and the prevailing demands of the job market. We are still convinced these programs are in demand and we remain dedicated to providing premium courses to our in progress students. In addition, we continue to pursue B2B's strategy, decisively leveraging our deep rooted expertise in this area.

Speaker 2

Through our SaaS plan for NeXiong, we provide small and medium sized organizations with comprehensive solutions, including extensive course content, authentic examination questions and advanced teaching management tools to help them improve their teaching and content distribution abilities. Our aim is to provide our partners with advanced intuitive tools that can significantly improve the learning experience for their users and ultimately enhance the quality and efficiency across the industry. The sector, including professional certifications, professional skills and interest programs continue to be our primary growth engine, contributing 74.4 percent to the total revenue. Interest program, in particular, has exhibited a 22.2% year over year growth. In this sector, our strategy remains unwavering to continuously expand our course offerings, attract a broader audience through varied curriculum, enhance customer retention rates and ultimately optimize the lifetime value of our users.

Speaker 2

This approach has proven successful as evidenced by a 32.4% increase in new enrollments in our interest based education programs this quarter. Underscoring the effectiveness of our 3rd digit initiative. Through ongoing practice, we have gained fresh insights into different age groups, shaping our approach to course design and service. For example, unlike younger individuals whose educational pursuits are often career oriented or driven by external expectations. More mature learners seek learning experiences that enrich their lives to enjoy and foster meaningful connections.

Speaker 2

The fundamental difference necessitates a substantial departure from traditional education paradigms in both curriculum development and the service delivery models. Simply migrating existing course online does not suffice. Instead, we must intricately align with the unique needs of this demographic to enhance and customize our offerings accordingly. Moreover, the service delivery model should be adaptable and considerate of their physical and cognitive abilities, emphasizing the creation of a supportive and inclusive learning environment that encourages active participation and continuous engagement. We have consistently pushed the boundaries of our innovative curriculum and achieved notable milestones through industry integration.

Speaker 2

A prime example is our educational travel adventure projects, launched in March 23, which are well suited for the elderly. At the end of the Q1 of 2024, we have already craft over 40 study tour routes. According to Mackenzie's 20 24 China Consumer Trends Report, senior citizens in 1st tier cities have submitted high spending expectations for travel that notably exceeded those who of the general population, marking this as a burgeoning market segment. These consumers are not primarily driven by price when deciding which travel products to purchase. Instead, this takes diverse, high quality and unique travel experiences, making premium travel products particularly well received.

Speaker 2

Setting ourselves apart from traditional tourist offerings, we seamlessly integrate components from our courses, such as the art of traditional Chinese painting into very fabric of the journey, enriching the experience with culture, depth and immersive learning opportunities. In the 1st 3 months of 2024 alone, revenue from recreational travel adventure projects has already surpassed 65% of the earnings for the entire year of 2023. In the future, we will expand our efforts into other areas to offer our elderly users a wider array of products aiming to extend their customer lifecycle. Furthermore, as a company embracing cutting edge artificial intelligence technology, we have steadily enhanced our integration of AI into our business operations. For example, we streamline content creation processes focused on increasing page views and refined multiple models to deliver personal line teaching.

Speaker 2

This led to a reduction in production time and significantly boosted the efficiency of our operational teams. We will continue to monitor updates in large models and apply to our business, ultimately enhancing our users' learning experience. While we have achieved significant milestones, it's essential to acknowledge that we also face challenges. Moving forward, we are dedicated to adjusting our strategies to navigate market opportunities. Our focus will remain on delivering high quality education, expanding our market presence and prioritizing shareholder value.

Speaker 2

Thank you for your presence today. With that, I will turn the call to our Financial Director, Han Yu, to run through our financials.

Speaker 3

Thank you, Sunbo. Hello, everyone. I would like to review our last quarter results. For the quarter, we have achieved net income of RMB112.7 million with net income margin of 21.5 percent. Our 10th consecutive quarterly net income margin of 20%.

Speaker 3

The stable margin in recent quarters are due to our continued efforts to improve operational efficiencies and optimize our cost structure. Also, our revenue declined year over year due to changes in our product mix. The successful strategy of Baidu's sustainable growth and profitability brought up cash operating inflows of RMB 76,400,000 in the quarter. At the end of the first quarter, the total balance of cash, cash equivalents, restricted cash and short term investments totaled CNY893,200,000, an increase of 8.2% from the end of the previous year. Our healthy financial position gives us the confidence to face the challenge ahead.

Speaker 3

This will enable us to capitalize on emerging opportunities, strengthening our leadership position in the industry and continue to create value for our shareholders. Now let me walk you through some of our key financial results for the Q1 of 2024. All comparisons are year over year, unless otherwise noted. In the Q1 of 2024, net revenues decreased by 7.7% to CNY 523,200,000 from CNY 566,900,000 in the Q1 of 2023. The decrease was primarily driven by the decline in gross billings from postsecondary courses over the recent quarters, partially offset by the growth in revenues from sales of goods such as books and learning materials.

Speaker 3

Cost of revenues increased by 13.2 percent to RMB77.2 million in the Q1 of 2024 from $68,200,000 in the Q1 of 2023. The increase was primarily due to the growth in the cost of revenues from sales of goods. Gross profit decreased by 10.6% to CNY446.1 million in the Q1 of 2024 from CNY498.7 million in the Q1 of 2023. In the Q4 of 2024, operating expenses were CNY 341.1 million, representing a 6.4% increase from CNY 320,700,000 in the Q1 of 2023. Sales and marketing expenses increased by 11.1 percent to $301,600,000 in the first quarter of 2024 from CNY 271,400,000 in the Q4 of 2023.

Speaker 3

The increase was mainly due to the growth in spending on sales activities, including enhanced compensation for sales personnel as well as increased spending on branding and marketing activities, focusing on interest courses offerings. General and administrative expenses decreased by 17.9% to CNY 32,600,000 in the Q1 of 2024 from CNY 39,600,000 in the Q1 of 2023. The decrease was mainly due to the decline in rental expenses as certain leases for office space were partially terminated in 2023 before the expiration of the lease term for cost savings. Product development expenses decreased by 27.6 percent to CNY7 1,000,000 in the Q4 of 2024 from $9,700,000 in the Q1 of 2023. The decrease was mainly due to declined compensation expenses related to high counter reduction of our product development personnel.

Speaker 3

Net income for the Q4 of 2024 was CNY112.7 million as compared to CNY180.1 million in the Q1 of 2023. Basic and diluted net income per share was $16,440,000 in the Q1 of 2024. As of March 31, 2024, the company had $803,500,000 of cash, cash equivalents and restricted cash and RMB179.7 million of short term investments as compared to $756,400,000 of cash, cash equivalents and restricted cash and $142,100,000 of short term investments as of December 31, 2023. As of March 31, 2024, the company had a deferred revenue balance of 10 44,900,000 as compared to RMB 1113,900,000 as of December 31, 2023. Regarding the outlook for the Q2, we expect net revenues to be between CNY 4.18 million and CNY 500,000,000, a year over year decrease of 5% to 8.8%.

Speaker 3

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

Operator

Thank you. At this time, we're showing no further questions. So this will conclude our question and answer session. I'd now like to turn the conference back 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.

Operator

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Sunlands Technology Group Q1 2024
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