Sunlands Technology Group ADR

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'll now turn the call over to our CEO, Tongbo Liu.

Thank you, Yu Hua. Hello, everyone. Welcome to Sunland's third quarter 2025 conference call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continually operating basis. and all fingers are denominated in RMB unless expected to be specified otherwise. We are pleased to say that the company has now entered a phase of steady and healthy growth. Our performance in this quarter once again underscores the resilience of our business model and the effective execution of our strategic roadmap. We delivered a net revenue of 523 million coupled with a prolonged acceleration of profitability as net income surged 40.5% year-over-year to $125.4 million. This achievement validates the durability and scalability of our operations. Our strategic profit towards high-margin demand-driven course categories continues to yield tangible financial benefits The net margin expanded significantly to 24%, primarily attributable to now optimize the revenue mix and the discipline of cost management. Now, let's turn to the performance of our major course programs. Our next degree and diploma programs continue to play a stable, supportive role, accounting for approximately 15% of total revenue. The strategic allocation of resources away from the segment has empowered us to aggressively capture growth in more dynamic markets. Moving to our long-degree offerings, including professional certification and interest-based courses, collectively accounted for approximately 73% of total revenue in the third quarter. we continuously optimize our services and expand our offerings by launching new programs tailored to diverse user groups. These initiatives aim to provide engaging and interactive experiences, improve learning outcomes, and ultimately create value for our users. Building on this momentum, we continue to deepen our presence in one of our most distinctive segments, As an early mover in this space, we have established a strong foundation, particularly in arts education, where our curriculum breadth and pedagogical depth remain unmatched. Yet as the market evolves and competition intensifies, we have deliberately shifted from rapid scale to quality-driven growth. ensuring the long-term resilience of our business. In a recent feature at BayG News, several of our senior learners shared their enthusiasm and a renewed sense of vitality, reaffirming the social and emotional impact of our mission to make a lifelong learning both enriching and transformative. We have also successfully cultivated a vibrant private ecosystem for this cohort, which continues to demonstrate exceptional engagement. Our senior learners are not only embracing online learning as a lifestyle, but also forming a vibrant social ecosystem through our platform. Courses have become gateways to renewed identity, connection, and well-being. To further enrich this experience, we actively pioneer innovative collaborations across industries. Last quarter, we partnered with a leading television channel to co-host a cultural initiative celebrating traditional arts. They organized an immersive learning journey that allows senior learners to explore the origins and beauty of Chinese calligraphy. Our pipeline for the coming quarter remains robust. with a series of integrated learning lifelong initiatives already in motion. We are launching charity programs in rural schools, participating in senior expos, organizing telegraph competition, and preparing for spring festival events. These activities are designed to help older users rediscover purpose, foster social connections, and shine in every aspect of their lives. This holistic approach not only amplifies the intrinsic value of our educator offerings, but also builds a powerful and sustainable competitive mode. Parallel to these offline initiatives, we are elevating the learning experiences through an AI-driven transformation of our platform. In response to learners' key needs, extending post-course engagement preventing knowledge loss, ensuring 24-hour, 7-day personalized support, and bridging the gap between theory and practice, we have introduced two intelligent assistance models powered by live language models. The course intelligence assistance delivers round-the-clock clock reinforcement and precise explanations. while the AI agent enables similar natural language interactions to translate knowledge into actionable insights. As we continue to advance in integration of AI across operations, the results have been encouraging. Our internal data shows that AI-assisted automated grading now covers over 17% of assignments increasing review efficiency by more than 8 times and achieving an accuracy rate above 95%. This has significantly reduced the reflective work notes for instructors and enhanced the teaching quality. Looking ahead, the thought education sector is entering a new phase driven by high-quality gurus. For some is no longer measured by solid scale, but by the balance of efficiency, innovation, and the long-term value. We believe that healthy cash flow, organizational activity, and learner-centered product management will remain the core pillar of Sunland's competitiveness in the field stage. We extend our gratitude for your presence today and the continued support you provide. Thank you, and we look forward to your valuable engagement. With that, I will turn the call over to our financial director, having to run through our financials.

Thank you, Tongbo. Hello, everyone. The third quarter results reflect the company's focus on profit for growth and operational excellence. Net revenues for the quarter increased by 6.5% year-over-year to 523 million, primarily fueled by the strong performance of our interest-based causes. A key highlight was the substantial growth in profitability. Growth profit rose 13.1% to 462.7 million, outpacing revenue growth. This, together with a 5.5% reduction in total operating expenses, drove net income to $125.4 million, with the net margin reaching 24%. The company's balance sheet remains robust, with ample cash and cash equivalents and short-term investments. We have also maintained our streak of generating positive net cash from operating activities, underscoring the health of our core business. In the third quarter of 2025, the gross billings per new student enrollment for interest, professional skills, and professional certification participation courses grew 11.7% year over year, reflecting steady user acquisition momentum despite a more selective marketing approach. This growth indicated that we were attracting more committed users and achieving better monetization from each new cohort. The combination of enrollment growth and improved unit economics demonstrated the effectiveness of our refined strategy, focusing more merely on scale but on sustainable high-quality growth. Looking ahead, We are uniquely positioned at the confluence of demographic tailwinds and technological innovation. Our leadership in serving the civil economy backed by a profitable and a scalable model sets the stage for continued value creation for our users and the shareholders alike. We intend our sincere gratitude to our team and our shareholders for their continued support. Now, let me walk you through some of our key financial results for the third quarter of 2025. All comparisons are year-over-year and all numbers are in RMB, unless otherwise noted. In the third quarter of 2025, net revenues increased by 6.5% to $523 million from $491.3 million in the third quarter of 2024. The increase was primarily due to shorter average service period in 2025, resulting in increased revenue recognition year over year. Cost of revenues decreased by 26.5% to $60.3 million in the third quarter of 2025 from 82.1 million in the third quarter of 2024. The decrease was mainly due to declined cost of revenues from sales of goods such as learning materials and books. Gross profit increased by 13.1% to 462.7 million in the third quarter of 2025 from 409.2 million in the third quarter of 2024 Sales and marketing expenses decreased by 7.7% to $279.7 million in the third quarter of 2025 from $303 million in the third quarter of 2024. General and administrative expenses increased by 4.3% to $36 million in the third quarter of 2025 from $34.5 million in the third quarter of 2024. Product development expenses increased by 48.2% to $8.7 million in the third quarter of 2025 from $5.8 million in the third quarter of 2024. The increase was mainly due to increased compensation expenses related to high-count expansion of the company's product development personnel. Net income for the third quarter of 2025 was 125.4 million as compared to 89.3 million in the third quarter of 2024. Basic and diluted net income per share was 18.64 in the third quarter of 2025. As of December 30, 2025, the company had $601 million of cash, cash equivalents and restricted cash, and $176.5 million of short-term investments. As compared to $507.2 million of cash, cash equivalents and $276 million of short-term investments, as of December 31, 2024. As of September 30, 2025, the company had a deferred revenue balance of $695.5 million as compared to $916.5 million as of December 31, 2024. And now for our outlook. For the first quarter of 2025, Sunlance currently expects net revenues to be between $440 million to $460 million, which would represent a decrease of 4.9% to 9% year-over-year. The above outlook is based on the current market conditions and reflects the company's current and the preliminary estimates 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?

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 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. Thank you. Please stand by while we compile the Q&A roster. And once again, if you would like to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 1 and 1 again.

And once again, that's star one and one for any questions.

At this time, we are showing no questions coming through, so this would conclude the question and answer session. And at this time, I would like to turn the conference back over to Yuhua 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 conference call and you may now disconnect your line.

Thank you.