Sunlands Technology Group ADR

Ladies and gentlemen, thank you for standing by and welcome to Sunland's third quarter 2022 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, Yuhua Sunland's IR representative. Please go ahead.

Hello, everyone, and thank you for joining Sunland's third 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. Tong Bo-liu, and our CFO, Selena Lu-lui. and our financial controller, Hangyu Li. Selena will provide an update on our operational performance on behalf of our CEO, Mr. Liu, and then Hangyu will give you an overview of our financial performance on behalf of Selena. 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's statement in relation to today's call. Except for the historical information contained herein, certain of the measures 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 ongoing 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 will now turn the call over to our CFO, Selena Luli. Thank you, Yihua. Hello, everyone. Welcome to Sunland's third quarter 2022 conference call. Despite the macroeconomic uncertainties and the shifting industry landscape, we delivered encouraging results in the third quarter with the crucial top-line results, further bottom-line improvements, and increased new student enrollment. These achievements testified to the effectiveness of our strategic initiatives to prioritize profitability and healthy growth. Amid the ongoing pandemic and uncertain macroeconomics, our third-quarter net revenues came in at only $576.2 million, up by 3.8% quarter-over-quarter despite a 3.2% year-over-year drop. To navigate the macro challenges, we remained laser-focused on cost optimization and profitability rather than blind pursuit of skill expansion. We adopted multiple measures to enhance our operational efficiency and streamline our organization during the quarter. Due to our effective expense control measures and improved operational efficiency, we reduced our G&A expenses by 29.6% year-over-year and 4.7% quarter-over-quarter. This cost reduction initiative enables us to deliver on our commitment to creating additional shareholder value with sustained profitability. Our third quarter net income reached RMB 168.1 million, representing an 81.1% year-over-year increase and a 46.7% quarter-over-quarter increase, demonstrating our organization's resilience during tough times like this. With a leaner and more efficient organization, we also further refined our product strategy in the third quarter. We focused more on margin-accurative programs and allocated our capital and human resources accordingly to expand our course offerings in those programs, leading to an optimized product lineup and a more diversified course content. Additionally, we leveraged our solid and convenient online teaching infrastructure and the learning resources to further refine our services, which has increased our users' thickness and the cross-selling opportunities. Given this, we have transformed our student acquisition methods, focusing more on users' lifetime value instead of investing heavily in marketing activities. As you may have seen in our earlier slides, early to release, published earlier today, our sales and marketing expenses declined by 23.9% year-over-year and 8.2% quarter-over-quarter. And as a percentage of net revenue, sales and marketing expenses were down by 12.7 percentage points year-over-year. Despite that, our new student enrollment for the quarter rose by 44.7% year-over-year and 11.8% quarter-over-quarter, reaffirming the effectiveness of our business strategies. Turning to our learning programs, our professional certification and skills programs continue to grow strongly, as evidenced by a 91.3% year-over-year increase in new student enrollments which growth believes to rise by 51.8% year-over-year. Net revenues generated by this sector also increased by 83.7% year-over-year. This growth was primarily attributable to our efforts in expanding our course catalog to target diverse age groups. As we sought to capture the rising demand witnessed for various skills and hobbies courses during the quarter. In the third quarter, pandemic-associated lockdowns led to the postponement or cancellation of certain qualification tests, affecting our exam preparation programs for those tests. Nevertheless, demand for our preparation courses for professional exams remained solid as intense career competition propounded working professionals to enhance their competitiveness or sharpen their skills with courses from educational providers such as Sunland. In addition to courses for working professionals, we continue to develop new courses to satisfy others' cohort learning and leisure needs. We are excited about what we are offering and will offer our students. As we have always been committed to helping to build a lifelong learning society. We will continue to capture opportunities in this sector to deliver more high-demand courses and high-quality services to our students. Thanks to our extensive course options, premium course quality, and experienced teaching staff, we are pleased to see students across a wider range of ages adopting our platform, as well as greater diversity in the courses As a result, we achieved sequential growth in new student enrollments for our professional skills program for five consecutive quarters. We are also glad to have played a part in helping our students achieve their learning goals, bringing them a sense of fulfillment. Going forward, we will continue to adjust our course offerings in this sector based on market demands maximizing our value by further contributing to our students' success and our society as a whole. Next, our master's degree-oriented programs. During the quarter, the challenging macro environment, epidemic, and competitive market dynamics continue to weigh on our performance in this category. Due to macroeconomic weakness, some people may choose to delay their higher education plans. and as the cost for obtaining an MBA degree is relatively high compared to other self-improvement options. Meanwhile, the pandemic also prevented some people from pursuing overseas post-graduate education. Lastly, market competition was increasingly intense as more industry players joined this sector after the T12 education industry was reformed. Taken together, These factors resulted in reduced demand for our master's degree-oriented preparation courses, leading to a decline in growth feelings and student enrollment. Before I conclude, I would like to mention that alongside our efforts to solidify our industry position with our existing learning programs, we have also been prudently exploring some other new business initiatives to drive our future growth. We are conducting in-depth market research on this initiative, such as combining retail or commerce with quarter sales. By maximizing our strength as an education provider to expand our product and service portfolio, we look forward to enhancing our risk management and creating additional revenue streams while bringing more value to our students. Looking ahead, we are confident that our proven business strategy and continued commitment to delivering premium and tailored courses to more students will help us navigate current challenges and achieve meaningful growth. That concludes Tombo's prepared remarks. With that, I will turn the call over to our financial controller, Haoyi, to run through our financials on behalf of me.

Thank you, Selena. Hello, everyone. We are pleased with our first quarter results amid a soft macro environment. Our net revenue reached RMB $516. 76.2 million during the quarter, exceeding the high end of our guidance rate by 6.7%. It ties a flat 3.2% year-over-year decrease. And speaking from our dedicated efforts and the measured steps in cost control and operational efficiency enhancement, our third quarter operating expenses declined by 24.5% year-over-year, under 7.4% quarter-over-quarter. As a result, we maintained our profitability with a net income of RMB 168.1 million, up 81.1% year-over-year, under 46.7% quarter-over-quarter. Our net profit margin for the quarter remained solid at 29.2%, expanding 13.6% points year-over-year and 8.6% points quarter-over-quarter. Moving forward, we'll continue to prudently manage costs and expenses, leverage our cost offerings, and further optimize our operations, aiming for continued success and additional shareholder value. Now, let me walk you through some of our key financial results for the third quarter of 2022. All comparisons are year-over-year, and all numbers are in RMD unless otherwise noted. In the third quarter of 2022, net revenues were $576.2 million, a decrease of 3.2% year-over-year. Cost of revenue increased by 2.2%, to $84.9 million in the third quarter of 2022, from $83.1 million in the third quarter of 2021. The increase was primarily due to increased service fees paid to educational institutions and increased corporation costs. Gross profit decreased by 4%, to $491.3 million from $512 million in the third quarter of 2021. In the third quarter of 2022, operating expenses were $325 million, representing a 24.5% decrease from $430.6 million in the third quarter of 2021. Sales and marketing expenses decreased by 23.9% to $259.1 million in the third quarter of 2022 from $353.5 million in the third quarter of 2021. The decrease was mainly due to the lower spending on branding and marketing activities and the declined compensation expenses related to our sales and marketing personnel. General and administrative expenses decreased by 29.6% to $44.4 million in the third quarter of 2022 from $63.2 million in the third quarter of 2021. The decrease was mainly due to a decline in rental expenses Growth Act development expenses decreased by 17.5% to $11.5 million in the third quarter of 2022 from $14 million in the third quarter of 2021. The decrease was mainly due to a decline in compensation expenses. Other income decreased by 58.6% to $5.3 million in the third quarter of 2022 from 12.9 million in the third quarter of 2021. Night income for the third quarter of 2022 was 168.1 million, compared with 92.8 million in the third quarter of 2021. Basic and diluted night income per share was 24.08 in the third quarter of 2022. As of September 30, 2022, the company had $678.8 million of cash and cash equivalents and $170.1 million of short-term investments. As of September 30, 2022, the company had a deferred revenue balance of $1,000. $798.6 million compared with $2,348.2 million as of September 31, 2021. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and a lethal improvement necessary to support the company's operations. Capital expenditures were 1.3 million in the third quarter, compared with 1.8 million in the third quarter of 2021. And now for our outlook. For the fourth quarter of 2022, Fundline currently expects net revenue to become RMB 520 million and RMB 514 million. which would represent a decrease of 8.3% to 11.7% year-over-year. This outlook is based on the current market conditions and reflects the company's management current and preliminary estimates of the market, operating conditions, and customer demand, which are all subject to change. That concludes Selina's prepared remarks. With that, I'd like to open up the call to the questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, 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. At this time, we will pause momentarily to assemble our roster. Again, if you would like to ask a question, please press star, then 1. Showing no further questions, this will conclude our question and answer session. Now I'd like to turn the conference back over to Yuhua Yi, 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 lines. Thank you.