Sunlands Technology Group ADR

Ladies and gentlemen, thank you for standing by and welcome to Sunland's third quarter 2021 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 your host today, Yue Ya. Sunland's IR representatives. Please go ahead.

Hello, everyone, and thank you for joining Sunland's third quarter 2021 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. Tong Bo Liu, and our CFO, Selena Lu Lu. Management will begin with prepared remarks, and the call will conclude with a Q&A session. Before I hand it over to the management, I'd like to remind you of Sunland 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 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. 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 would now like to turn the call over to our CEO, Tongbo Liu.

Thank you, Yu Hua. Hello, everyone. And thank you for joining Sunland's third quarter 2021 earnings conference call. We are pleased with our third quarter financial metrics. Our net revenues grow 9.9% year-over-year to RMB 95.1 million despite the evolving industry dynamics. We recorded net profit of RMB 93.8 million compared with net loss of RMB 165.8 million during the same period last year. And year-over-year, 13.8% and 29.3% decline in new environments and growth spilling, respectively, which are attributed to our continued efforts to execute our balanced long-term growth and profitability strategy. As COVID-19 pandemic resurgences in certain regions in China continue to create challenges for business operation and the border economic recovery, Scientists have taken steps to improve operating efficiency and reduce costs. With respect to talent acquisition, many companies have become more prudent in selecting talents and have raised their expectations for candidates and new hires. This ultimately led to a more competitive labor market in the third quarter, prompting working professionals to seek enrichment courses like ours. to increase their competitiveness through further education and rescaling and upscaling. Meanwhile, industry dynamics are also evolving rapidly, with an increasing number of companies joining the end-of-education business after the implementation of China's K-12 after-school tutoring regulations. With this landscape, we continue to execute our balanced long-term growth and profitability strategy and so to enhance our competitiveness by focusing on optimizing our product mix, improving services, reducing costs, and enhancing student acquisition efficiency. We are pursuing quality growth rather than user skill only. Our professional certificate and skills programs maintain their growth momentum during the quarter. Its revenue and growth spending increased 148.2%, and 49.3% year-over-year, respectively. Presented by our constant efforts to board the course catalog as user-friendly, career-efficient, and skill-intensive, we reflect the students' growing adoption of our platform as we refine our course offerings with more premium and diverse course content. The breadth of our course offerings also appears to more people across a wider range of age groups, which could help further expand our student base. We believe that with our endeavor to provide our students with a better learning experience, we are well positioned to fulfill the surging demand for low- or interest-based learning catering to end-users of all ages. We achieved a 20.8% year-over-year increase in net revenues in our master's degree-oriented programs, while new enrollments and growth ratings decreased by 22.2% and 10.2% year-over-year, respectively, as we prioritized quality growth. However, we continue to expand our growth global footprint during the quarter by forming additional partnerships with overseas universities and encouraging progress. At the same time, we continue to diversify our course portfolio for this segment, looking to capture the huge growth opportunities in this market. Demand for exam preparation courses remains strong and we expect further growth given the competitive employment market. Notably, a large number of our students are middle or senior level mentors who are strongly motivated to acquire more knowledge and sharpen their management skills through MBA and EMBA degree education. Helping them to achieve their learning goals will continue to be a priority as we see solid growth momentum and potential in this space. Turning now to our SDE programs, as we strive to optimize our product mix, growth feelings and enrollment for SCE moderated, which was also particularly due to the lightning regulation on advertisements for continuing education. We believe these regulations will help the industry achieve healthy and sustainable growth and contribute to China's effort to build a lifelong learning society. We have implemented strict compliance standards and will continue to monitor and comply with relevant rules and regulations while providing quality courses to our students. In addition, we adopted stringent policies and attractive incentive plans to enhance our operations and services in the third quarter. With the goal of providing students a smoother, more rewarding learning experience, We also implemented effective cost reduction measures with the emphasis on improving steel acquisition efficiency, resulting in a 35.2% year-over-year drop in operating expenses. We achieved this remarkable improvement by fully embracing technology and utilizing the natural centers across our various segments to realize meaningful growth. We leverage targeted, cost-effective new media marketing tools to acquire students and also continue to capitalize on cost-saving opportunities among different programs to increase repurchase rates and user lifetime value. We maintain the profitability for two consecutive quarters as we enrich our course offerings to address the varied students' needs to optimize the cost structure to enhance student acquisition efficiency with more cost-effective, innovative, and regulation-compliant market tools. We will continue to refine these new years to build on these successes and drive quality growth. That concludes my prepared remarks. Thank you, and I will turn the call to our staffer, Selina, for further review of our financials. Selena, please.

Thank you, Tung Bo. Hello, everyone, and thank you for attending Silent's third quarter conference call. We are encouraged by our sustained profitability in the third quarter with registered net profits reaching a new high. Driven by continued year-over-year top-line growth, many are contributable to professional skills and master's degree-oriented programs. Profits also benefited from our efficient cost control measures, which led to a 35.2% year-over-year reduction in operating expenses. Notably, sales and marketing expenses as a percentage of net revenues decreased significantly by 45.7 percentage points year-over-year. Going forward, we will continue to focus on operating efficiency enhancement, product mix optimization, and service improvement, which will prepare us for the opportunities and challenges ahead while pursuing sustainable growth. Now, I would like to share our financial results for the third quarter of 2021 in detail. In the third quarter of 2021, Net revenues increased by 9.9% to RMB 595.1 million from RMB 541.6 million in the third quarter of 2020. The increase was mainly driven by year-over-year growth in growth feelings since the second half of 2020 through the first quarter of 2021. Cost of revenues decreased by 10%, 10.6% to RMB $83.1 million in the third quarter of 2021, from RMB $92.9 million in the third quarter of 2020. The decrease was primarily due to reduced insurance-related costs incurred for our integrated online education service package purchased by students. Gross profits increased by 14.1%, to RMB 512 million in the third quarter of 2021 from RMB 448.7 million in the third quarter of 2020. In the third quarter of 2021, operating expenses were RMB 430.6 million, representing a 35.2% decrease from RMB 644.1 million in the third quarter of 2020. Sales and the marketing expenses decreased by 37.9% to RMB $353.5 million in the third quarter of 2021, from RMB $569.4 million in the third quarter of 2020. The decrease was mainly due to, number one, lower spending on branding and marketing activities, And number two, decreased compensation expenses related to our sales and marketing personnel. General and administrative expenses decreased by 17% to RMB 63.2 million in the third quarter of 2021. From RMB 76.1 million in the third quarter of 2020, the decrease was mainly due to a decrease in compensation expenses. Product development expenses decreased by 24.7% to RMB 14 million in the third quarter of 2021, from RMB 18.6 million in the third quarter of 2020. The decrease was mainly due to a decrease in compensation expenses. Other income was RMB 12.9 million in the third quarter of 2021, compared with RMB 47.3 million in the third quarter of 2020. Other income for the third quarter of 2021 was lending comprised of rental income of RMB 7 million. The decrease was primarily because value-added tax consumption offered by the relevant authority as part of the national COVID-19 relief effort came to an end in April 2021. Net income for the third quarter of 2021 was RMB 92.8 million, compared with net loss of RMB 165.8 million in the third quarter of 2020. As of September 30, 2021, the company had RMB 661.2 million of cash and cash equivalents and RMB 178.8 million of short-term investments. As of September 30, 2021, the company had a deferred revenue balance of RMB 2,540.9 million. Capital expenditures were incurred primarily in connection with ag infrastructure equipment and leasehold improvements necessary to support the company's operations. Capital expenditures were RMB 1.8 million in the third quarter of 2021, compared with RMB 14.3 million in the third quarter of 2020. For more of our 2021 first nine-month financial results, please refer to our earnings press release for further details. And now for our outlook. For the fourth quarter of 2021, Sunland currently expects net revenue to be between RMB 590 million and RMB 610 million, which would represent an increase of 0.9% to 4.3% year-over-year. This outlook is based on current market conditions and reflects the company's management current and the preliminary outlook. estimates of the market, operating conditions, and customer demand, all of which are subject to change. With that, I'd like to open the call to questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, a press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the key. Questions used? please press star, then two. For the benefit of all participants in today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we'll pause momentarily to assemble our roster. Again, if you have a question, please press star, then one. Since there appears to be no questions, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to Yueye, IR representative, for any closing remarks.

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

This concludes the earnings conference call. You may now disconnect your line. Thank you for attending.