Sunlands Technology Group ADR

Ladies and gentlemen, thank you for standing by and welcome to Sunland's fourth quarter and full year 2024 earnings conference call. At this time, all participants are in the listen-only mode. Today's conference call is being recorded. I'll now turn the call over to your host today, Yu Hua, Sunland's IR representative. Please go ahead.

Hello, everyone, and thank you for joining Sunland's fourth quarter and full year 2024 earnings conference call. The company's financial and operating results were issued in our press release by 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. Tung Bo Liu, and our financial director, Mr. Hongyu Li. 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 some safe harbor statements 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 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.

Thank you, Lihua. Hello, everyone. Welcome to Sunland's first quarter and fourth year of the 2004 earnings conference call. Prior to commencing, I would like to categorically amend all attendees that the financial information referenced in this release are presented on a continuing operation basis. And all fingers are denominated in RMB unless explicitly specified otherwise. We wrapped up this first quarter with net revenue of $483.5 million and a net income of $57.8 million. marking our 15th consecutive quarter of profitability. For the full fiscal year, we recorded an annual revenue of $1.99 billion with a net income of $3.42.1 million, extending our strike to four straight profitable years. This consecutive performance underscores the strengths of our business model and operational resilience to effectively navigate both industry dynamics and macroeconomic challenges. Despite a 7.8% decline in full year-end revenue, we also saw encouraging signs of growth, including a steady rise in enrollment, which reached a record high of about 675,000 new student enrollments in 2024. The adult education market is inherently the cycle with other economic conditions influencing learners' willingness to invest in themselves. Recognizing this shift early, we have strategically refined our product mix over the past few years. Transitioning from high-priced, long-duration courses to more accessible, short-term programs This adjustment not only improves conversation rates, but also ensures we stay aligned with involving customer preference, enhancing both customer acquisition efficiency and overall operational resilience. Our operating cash flow remains strong, marking the third consecutive year of Pozinet income. This achievement reflects not only steady growth in student enrollment, but also our disciplined approach to financial management. More importantly, it gives us the flexibility to reinvest in key initiatives while maintaining resilience amid market fluctuations. Prudent cash management isn't just a safeguard against uncertainty. It has strategic advantages that enable us to invest with confidence, adapt swiftly, and seize opportunities that drive long-term value. As China's economy recovers and the consumer confidence rebounds, we see growing momentum in our sector. As an early mover in online education, we have gained valuable insights into the evolving needs of our demographic, uncovering new growth opportunities With a mature market and strong policy support, we are well positioned to leverage these trends and drive innovation. We are confident that the foundation we have built, coupled with new models we are exploring, will lead to positive results and sustainable growth in the coming year. Now, let's turn to the performers of each of our major course programs. In 2014, degree or diploma-oriented post-secondary programs accounted for 10% of our total revenue. This has long been an important part of our business, but as we have carefully evaluated the changing demographic trend and the evolving education landscape, we have decided to reduce our investment in this segment and redirect our focus towards more promising opportunities with greater potential for non-thinker roles. While the demand for this sector remains stable, we will continue to monitor consumer needs and the data as necessary to stay aligned with the involving market dynamics. The sector comprises interest, professional skills, and professional certification preparation programs. Collectively accounted for 75.3% of our total revenues in 2024. With interest-based programs emerging as a core pillar of our business, over the past few years, we have strategically prioritized this sector, directing more resources and attention to developing a comprehensive portfolio of interest-driven courses. This focus aligns with the broader societal trends, the shift towards personal fulfillment and growth, that extends beyond traditional work-related education. As more individuals seek opportunities to enrich their lives and pursue passions outside their careers, we are uniquely positioned to meet them. Our goal is not only to respond to current trends, but also to anticipate future needs, fostering long-term value by enhancing engagement, strengthening loyalty, and delivering exceptional learning experiences. Our emphasis on lifelong learning is particularly relevant given border demographic shifts, especially the rapid growth of senior population. The 2005 government work report will affirm the state's commitment to addressing population aging and promoting the growth of the silver economy. China's demographic shift presents significant opportunities, particularly within the senior education. a sector that is poignant to become a key driver of our future growth. To capture this potential, by deepening our commitment to senior education, by expanding our course offerings to better serve the evolving needs of senior learners. According to the Forrest and Sullivan's 2024 China Silver Economic Development Report, China's senior interest education sector continues to expand rapidly with 72.8 million users in 2023 and a penetration rate of 24.5%. Between 2019 and 2023, the market grew a robust combined annual growth rate of 14.7%, underscoring the rising demand for lifelong learning among the elderly. Recurralizing this trend early, we have worked on enriching the lives of older adults through engaging educational and social experiences. By incorporating practical subjects such as arts, health, and wellness, areas that strongly appeal to this demographic, we have fostered greater enthusiasm and participation. Beyond education, We are also exploring diversified business opportunities by leveraging our substantial senior user base, including e-commerce and study tours. Notably, our study tour programs have gained strong traction, combining interest-based learning with travel to create unique value proposition. In 2014, we launched thousands of themed study tour routes, including music force tours in the United States, oil printing trips in Europe, and cultural heritage tours within China. This program served tons of thousands of senior customers and received overwhelmingly positive feedback. The integration of specialized courses into this program has enhanced the value proposition resulting in higher growth margins and contributing to overall revenue growth. According to the Forrest and Sullivan, China's silver tourism market is projected to reach IMB 2.8 trillion by 2028, presenting substantial growth opportunities with a growing customer base and an expanding portfolio while well positioned utilized on this rising demand and further strengthening our market presence. Through years of direct engagement, we have gained invaluable insights into the general needs of this demographic, insights that go beyond the surface-level assumptions. This deeper understanding has guided us in refining our offerings, embedding social elements into course interactions, and designing educational experiences that are both engaging and accessible. Looking ahead, we remain committed to strengthening our leadership in senior focused education and silver economy services. We will continue to expand our course offerings, introduce new product categories, and explore innovation business models that align with evolving demographics and the market trend. Through this strategic approach, We are not only positioned to capture future growth opportunities, but also to create lasting value for our stakeholders and contribute to the broader development of the silver economy. To further enhance our educational offerings, we are also leveraging cutting-edge technology to drive innovation. A key milestone was the integration of DeepSeq in February 2005. which enhances our ability to deliver personalized learning experiences or optimize course content and improve operational efficiency. Deep6's advanced reasoning and autonomous learning capabilities enable us to address the diverse needs of adult learners with great precision, tailoring to their varying backgrounds, goals, and learning styles. As AI continues to reshape education, we remain focused on standing at the forefront of this transformation. As we move into 2025, we remain steadfast in our commitment to harnessing the power of technology, understanding the ever-changing needs of our customers, and continually improving the products and services we offer. Our focus will continue to be on delivering value through insightful market observations and careful refinement of our approach. By doing so, we position ourselves to not only adapt to the future, but also to drive sustained long-term goals. Our work is never done, but we are confident that our thoughtful strategies will lead us to continued success. That concludes my prepared remarks. With that, I will turn the call over to our financial director, Hangyu, to run through our financials.

Thank you, Tongbo. Hello, everyone. I'm pleased to share our fourth quarter and the four-year results, which reflect our resilience and the discipline in executing our strategy. Over the past year, we have remained focused on sustainable growth, improving efficiency, and strictly controlling costs. Our four-year gross profit margin and net profit margin remained at 84% and 17.2% respectively, and we maintained positive operating cash flow for the third consecutive year, which fully demonstrates the success of our business model. Also, revenue is under pressure in the short term. Our new student enrollment in the fall year of 2024 increased by 9.5% year-over-year. This is mainly due to the expansion of the product portfolio, the addition of high value-added products such as study tours, and the positive feedback from the market. The growing student base provides us with a guarantee to expand our product portfolio and enhance the lifetime value of students. This is the foundation for us achieve sustainable development and maintain financial health. A healthy financial situation provides us with confidence to cope with market fluctuations and is also the cornerstone for us to manage risk and make strategic adjustments. With each successful hurdle, our team will become stronger, which gives us confidence and ability to seize future opportunities. We believe that through resolute execution of our strategic initiatives, we will further consolidate our competitive advantages, maintain our good development momentum, and deliver lasting value to our stakeholders. Now, let me walk you through some of our key financial results for the fourth quarter of 2024. All comparisons are year-over-year and all figures are in RMD unless otherwise noted. In the first quarter of 2024, net revenues decreased by 10.8% to $483.5 million from $541.7 million in the first quarter of 2023. The decrease was primarily driven by the decline in gross billings from post-secondary courses over the recent quarters, partially offset by the year-over-year growth in revenues from sales of goods such as books and learning materials. Cost of revenues increased by 10.8% to $81.7 million in the first quarter of 2024. from 73.8 million in the fourth quarter of 2023. The increase was primarily due to an increase in the cost of revenues from sales of goods such as books and learning materials. Growth profit decreased by 14.1% to 401.8 million in the fourth quarter of 2024 from 468 million in the fourth quarter of 2023. In the fourth quarter of 2024, operating expenses were $351.3 million representing a 0.7% increase from $348.9 million in the first quarter of 2023 Sales and marketing expenses increased by 3% to $304.8 million in the first quarter of 2024 from 305.8 million in the first quarter of 2023. General and administrative expenses decreased by 9.9% to 32 million in the first quarter of 2024, from 35.5 million in the first quarter of 2023. The decrease was mainly due to declined compensation expenses of our general and administrative personnel. Product development expenses decreased by 41.2% to $4.5 million in Q4 2024, from $7.6 million in Q4 2023. The decrease was mainly due to declined compensation expenses related to high-count reduction of our product development personnel. Net income for the fourth quarter of 2024 was $57.8 million as compared to $155.2 million in the fourth quarter of 2023. Basic and diluted net income per share was $8.55 in the fourth quarter of 2024. As of December 31, 2024, the company had $507.2 million of cash equivalents and $276 million of short-term investments. As of December 31, 2024, the company had a deferred revenue balance of $916.5 million as compared to $1,113.9 million as of December 31, 2023. Now, for our outlook, for the first quarter of 2025, Sunlight currently expects net revenues to be between $470 million to $490 million, which would represent a decrease of 6.4% to 10.2% year-over-year. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market and operating conditions and the customer demand, which are all subject to substantial uncertainty. With that, I'd like to open up the call to the questions. Operator?

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. 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. Please stand by while we compile the Q&A roster. As a reminder, to ask a question, please press star 11 on your telephone keypad. Once again, that's star 11 for questions. At this time, we're showing no questions, so this will conclude our question and answer session. Now I'd like to turn the conference back over to Yihua 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 this conference call.

You may now disconnect your line. Thank you.