This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
Ladies and gentlemen, thank you for standing by. And welcome to Sunland's 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 call over to your host today, Yu Hua, Sunland's IR representative. Please go ahead.
Yu Hua
Hello everyone and thank you for joining Sunland's first quarter 2022 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 CFO, Selina Lu Lu. Management will begin with prepared remarks and then 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 State's hardware 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. 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 the 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.
Tongbo Liu
Thank you, Hua. Hello, everyone. Welcome to Sunland's first quarter 2022 conference call. In a world shaken by the ongoing COVID-19 pandemic and the geopolitical conflicts, we are all facing huge macroeconomic uncertainties. In tough times like this, we believe the key to future success is to remain focused on cost-efficient spending and profitability, which will help us navigate through this difficult period. To that end, we continue to execute our balanced growth and profitability strategy during the first quarter. Thanks to our strategic efforts, we are pleased to have carried our momentum into 2022, with our first quarter net profit hitting a new high of RMB 179.4 million. a significant improvement compared to the net loss of RMB 153.3 million in the prior year period and 19% higher quarter-over-quarter. As we focused on healthy and sustainable growth, we stepped up our cost management mean years and emphasized student acquisition efficiency. As such, we reduced our general and administrative expenses by 9.1% year-over-year. We also strategically scaled back on our marketing activities, as evidenced by a 51.4% year-over-year decrease in sales and marketing expenses. This led to 19.5% and 34.2% year-over-year decrease in new student enrollment and course buildings, respectively. We should note, however, that the percentage decrease in our new student enrollment and those are much smaller than our percentage savings in marketing spending, which is due to our improvement in student acquisition efficiency as we made efforts to captivate new students and increases their lifetime value and by holding our course offerings to cater to our students' differentiated learning needs. Our best goals were also driven by our extensive premium course resources, which continue to effectively fulfill our students' learning demands. During the first quarter, we forged ahead and abandoned the challenging microenvironment, optimizing our product mix and expanding our course catalogs for our master's degree-oriented and professional skills programs. while striving to provide our students with an optimal and efficient learning experience. In light of the increasing touch of market in the first quarter, we concentrated more on designing and developing new courses to provide a diverse range of skills training for our students to enhance their overall competitiveness and thereby increase their employment opportunities. Moving on to each of our major cost programs, as our work and social lives are reshaped by the persistent epidemic and accelerated digital transformation, the job market is rapidly evolving amid the shifting microeconomic landscape and people's way of living life is also changing. Working professionals tend to stay relevant and competitive in their careers. by upgrading their skills and obtaining qualifications. Meanwhile, people from all walks of life adopt our platform to enrich their lives with our online skills and our hobby courses, especially during pandemic resurgences when the number of safe social activities is limited. As we move forward, these courses are attracting students from an increasingly wider age range. Thanks to our convenient, flexible, and responsive online learning platform, as well as our board course content covering work credentials to general interests, Sunland has become learners' preferred choice. As a result, new student enrollments for our professional certification and skills programs in the first quarter growth by 1% year-over-year and 20.9% quarter-over-quarter, despite the intentional reduction of marketing activities, as I just mentioned. Growth balance for the sector also increased by 6.7% year-over-year. We believe the growth momentum of professional certification and skills programs will persist giving our diverse course offerings and learners enduring enthusiasm for new challenges. We will continue to add new course content and provide the customized course specific to various learner groups' unique preference. With respect to our master's degree-oriented programs, we have seen increasing interns' competition as more industry players join the segment, especially after China's implementation of new regulation banning after-school tutoring for students in compulsory education. As a result of competition and fewer marketing promotions as part of our balanced growth and profitability strategy, new student enrollment and growth savings for our master's degree-oriented programs declined. Despite the short-term impact, We are confident that our well-proven profitability strategy, highly capable teaching staff, and optimized teaching and services will position us for long-term growth in this segment. As there is still enormous potential, according to intelligence research, market size for master's entrance exam preparation courses has reached RMB 6.1 billion in 2021, representing a 28.1% year-over-year increase and is expected to continue to grow. To conclude, we believe that the breadth and quality of our courses, our effective teaching system, and our experienced team are advantages that will serve as catalysts for our future growth. Going forward, we will remain dedicated to empowering each of our students' individual success by constantly involving and enriching our product offerings to satisfy their needs, which we believe will benefit our long-term growth and contribute to China's economic development against micro headwinds. With that, I will turn the call to our CFO, Selena, to run through our financials.
Hua
Thank you, Tun Bo. Hello, everyone. We are excited to start the year with encouraging first quarter results. Our net revenues reached RMB 613.3 million during the quarter, above the top end of our guidance range, despite an 11.7% year-over-year decrease. As we remain unwavering regarding meaningful and sustainable growth, instead of blind pursuit of scale expansion, amid the existing complex macroeconomic environment. Meanwhile, we continue to manage our costs responsibly, thanks to which our operating expenses in the first quarter declined by 48.1% year-over-year. As a result, we sustained our profitability in this quarter, with net profit margin reaching 29.3%, representing a substantial 37 percentage point increase year over year. Notably, we also maintained positive operating cash flow in the first quarter at RMB 10.1 million. We are confident that our improved operational efficiency and profitability, combined with our unremitting efforts to diversify course offerings and enhance service quality, will drive our future growth while creating additional value for our students, employees, and shareholders. Now let me walk you through some of our key financial results for the first quarter of 2022. All comparisons are year-over-year and all numbers are in RMB, unless otherwise noted. In the first quarter of 2022, net revenues were $613.3 million, a decrease of 11.7% year-over-year. Cost of revenues decreased by 9.1% to $96.7 million in the first quarter of 2022 from $106.4 million in the first quarter of 2021. The decrease was primarily due to declined compensation expenses related to our cost of revenues personnel and reduced insurance-related costs. incurred for our integrated online education service package purchased by students. Gross profit decreased by 12.1% to $516.6 million from $587.9 million in the first quarter of 2021. In the first quarter of 2022, operating expenses were $345.8 million. representing a 48.1% decrease from $666.6 million in the first quarter of 2021. Deals and marketing expenses decreased by 51.4% to $95 million in the first quarter of 2022, from $606.4 million in the first quarter of 2021. The decrease was mainly due to lower spending on branding and marketing activities and declined compensation expenses related to our sales and marketing personnel. General and administrative expenses decreased by 9.1% to $38.5 million in the first quarter of 2022 from $42.3 million in the first quarter of 2021. The decrease was mainly due to a decrease in rental expenses and declined compensation expenses related to general and administrative personnel. Product development expenses decreased by 31% to $12.4 million in the first quarter of 2022, from $17.9 million in the first quarter of 2021. Product development expenses were mainly comprised of compensation expenses. Other income decreased by 54% to 9.6 million in the first quarter of 2022, from 21.3 million in the first quarter of 2021. The decrease was primarily because value-added tax exemption offered by the relevant authorities as part of national COVID-19 relief efforts came to an end in April 2021. Net income for the first quarter of 2022 was 179.4 million compared with net loss of 53.3 million in the first quarter of 2021. Basic and diluted net income per share was 27.16 in the first quarter of 2022. As of March 31st, 2022, the company had 637.7 million of cash and cash equivalents and $219.9 million of short-term investments. As of March 31, 2022, the company had a deferred revenue balance of $2,170.9 million compared with $2,348.2 million as of December 31, 2021. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvements necessary to support the company's operations. Capital expenditures were $0.9 million in the first quarter compared with $1.7 million in the first quarter of 2021. And now for our outlook. For the second quarter of 2022, Sunland currently expects net revenue to be between RMB 520 million to RMB 540 million, which would represent a decrease of 14.2% to 17.4% 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. With that, I'd like to open up the call to the questions. Operator?
Operator
Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. We will pause momentarily to assemble our roster. Ladies and gentlemen, as a reminder, it's star than one if you have a question. So I know for other questions, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to Yuhua Yi, IR representative, for any closing remarks.
Yu Hua
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
This concludes the earnings conference call. You may now disconnect your lines. Thank you and have a wonderful day.
Disclaimer