Sunlands Technology Group Q2 2023 Earnings Call Transcript

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August 18, 2023

There are 3 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Second Quarter 2023 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, Yuhua Sunlands, IR representative. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Sunlands' 2nd quarter 2023 The company's financial and operating results were issued in our press release via NewsWise updates 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 Financial Representative, Mr. Hao Yu Li.

Speaker 1

I will first read the prepared remarks on behalf of Tongbo, and then Hongyu will discuss the financials in more detail. Following the prepared remarks, Tomo and Han Yu will be available for the Q and A session. Before we begin, I would like to remind you of Sonae's 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 are forward looking statements. These statements are based on current trends, estimates and projections, and therefore, you should not place undue reliance on them.

Speaker 1

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 statements. 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 read Tongbo's prepared remarks on his behalf. Hello, everyone.

Speaker 1

Welcome to Sunlands' 2nd quarter 2023 conference call. Prior to commencing, I would like to kindly remind all attendees that the Financial information referenced in this release are presented on a continuing operation basis, And all figures are nominated in R&P unless explicitly specified otherwise. In Q2, our business showcased remarkable resilience and steady performance. Our 7th quarter net revenue has experienced a slight decrease compared to the previous quarter and exceeded the high end of our guidance range, reaching RMB 526 $400,000 Net income experienced a year over year increase, reaching 173 point $9,000,000 in Q2, marking the 9th consecutive quarter of assessing the profitability of our company. We still maintain a positive outlook for the upcoming second half of the year.

Speaker 1

Through proactive assessment of our long term strategic focus and implementation of our serious endeavors, Our pursuit of developing valuable interest courses has continued to yield notable results. Specifically, our revenue in the professional certification preparation, professional skills and interest courses has surged by 32.7 percent year over year, and we have witnessed a 36.8 percent increase in new student enrollments in this sector. The robust market demand has infused us with confidence and we remain committed to seizing emerging opportunities actively, promoting innovation and improvements who Now let's turn to the performance of our major cost programs. We persistently focus on optimizing the gross billing structure, resulting in revenue generated from our post secondary programs now contributing to less than 30% of our total revenue. We are content with the results of this sector change and remain committed to ongoing optimization in alignment with our strategic Objective.

Speaker 1

A sector that includes professional certification, preparation, professional Skills and interest courses stand as our primary focus and it has been warming remarkably well with Year over year revenue growth of over 32.7 percent. We are pleased to observe that the revenue contribution from this sector is increasing and it currently constitutes 64% 64.6 percent of our total revenue, our interest based programs in particular Have consistently delivered positive results, driving the year over year revenue growth in this sector to an impressive 70%. This success can be attributed to our sharp market sense, revenues to take well calculated risks and the proactive strategic adjustments. In today's vital context, Many adults are applying themselves under both objective pressures and subjective anxieties. They strive to achieve a flexible workplace and engage in activities they enjoy, enhancing professional skills of pursuing personal interest.

Speaker 1

So learning has become one of the ways to elevate stress and pursue their ideals. Notably, as indicated by the 2023, Baidu Adult and Education Industry White Paper, Data released by Baidu underscores a substantial surge in demand for adult interest driving courses. This is evidenced through a notable 38% increase in search volume. Our first hand industry insights At operational level are in alignment with this trend. And adult patient is no longer confined to rigid workplace Instead, it arises from interest oriented incentives.

Speaker 1

By offering a series of carefully chosen interest oriented Courses among various segments, we have also reached a broader clientele, Laying a strong foundation for our future business endeavors, our approach to cost and development follows a well defined standard of Through firsthand market and learner analysis, subsequently, we crafted high quality content tailored to benefit Content and delivery is active news. For instance, our Chinese traditional Paying cost is a direct result of following this SOP. Its growth and progress have been impressive With a substantial 86% year over year increase in revenue launched in 2021, This initiative has achieved a noteworthy success benefiting from our insightful breadth of the post This call is a representation of classical This call appeals to many of who have a genuine liking for Chinese traditional painting and a willingness to refine their aesthetic Sensibilities, we continuously extend such efforts in interest based education. These Courses both a high repeat purchase rate enhancing our operational efficiency and yielding a positive long term effect On the company's financial performance, we will continue to utilize insights from learner preferences and strategically promote related courses, enabling learners to explore a broader range of subjects. In conclusion, with our extensive experience and industry recognition in this field over the past We are well positioned to capture a larger market share more swiftly and more effectively.

Speaker 1

As we move forward, we remain committed to adapting our educational offerings to meet the evolving demand of learners, solidifying our leadership position in the field of adult education. We extend our gratitude for your This concludes Tongvuo's prepared remarks. With that, I will turn the call over to our Finance Controller, Han Yu, to run through our finance

Speaker 2

Thank you, Yuehua. Hello, everyone. I'd like to turn to our Q2 results, which was in line with projections and showed our ongoing efforts to sustainable growth. It was also In the quarter, in terms of financial performance, our gross profit margin reached 88.7%, an increase of 5.1 percentage points compared with the same period last year. The operating expenses decreased to RMB40.1 million or 11.4 percent year over year.

Speaker 2

Our net income margin increased 12.4 percentage points compared to the same period last year. Looking ahead, we'll keep our commitment to delivering value to our stakeholders and maintaining a competitive edge in the industry. Going forward, we are positive to long term growth. Our initiatives involve expanding the range of online courses, Improving operational efficiency and providing outstanding services to our valued students. These strategic measures will enable us to better seize emerging opportunities and enhance our competitiveness within the industry.

Speaker 2

Now let me walk you through some of our key financial results for the Q2 of 2023. All comparisons are year over year and all numbers are in RMB unless otherwise noted. In the Q2 of 2023, net revenues were CNY526.4 million, a decrease of 5.2% year over year. Cost of revenue decreased 34.8 percent to CNY59.5 million in the Q2 of 2023 from CNY91.2 million in the Q2 of 2022. The decrease was primarily driven by lower compensation expenses attributed to headcount reduction of teachers and mentors.

Speaker 2

Gross profit increased 0.7 percent to CNY466.9 million from DKK463.8 million in the Q2 of 2022. In the Q2 of 2023, operating expenses were CNY311 1,000,000 representing an 11 point 4% decrease from CNY351.2 million in the Q2 of 2022. Sales and marketing expenses decreased 7.9 percent to CNY270 1,000,000 in the Q2 of 2023 from DKK293 1,000,000 in the Q2 of 2022. The decrease was mainly due to lower compensation expenses attributed to headcount reduction of sales and marketing personnel. General and administrative expenses decreased by 29.1 percent to DKK33.1 million in the Q2 of 20 from CNY46.6 million in the Q2 of 2022.

Speaker 2

Product development expenses decreased by 31 percent to CNY8 1,000,000 in the Q2 of 2023 from CAD11.6 million in the Q2 of 2022. The decrease was mainly due to the lower Compensation expenses attributed to headcount reduction of product development personnel. Net income for the Q2 of 2023 was CNY173.9 million compared with net income of CNY114.6 million in the Q2 of 2022. Basic and diluted net income per share was CHF 25.12 in the Q2 of 2023. As of June 30, 2023, the company had CNY 749,500,000 of cash, Cash equivalents and restricted cash and CNY63.2 million of short term investments.

Speaker 2

As of June 30, 2023, the company had a deferred revenue balance of RMB379.1 million compared with RMB1600.9 million as of December 31, 2022. Capital expenditures were incurred primarily in connection with Capital expenditures were CAD1 1,000,000 in the 2nd quarter compared with CAD0.3 million in the Q2 of 2022. And now for our outlook. For the Q3 of 2023, Sunlands currently expects Net revenues to be between RMB470 1,000,000 to RMB490 1,000,000, which would represent a decrease of 15% to 18.4% year over year. This outlook is based on the current market conditions and reflects the management's current and preliminary estimates of market

Operator

Thank 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're showing no question. This will conclude our question and answer session. I would like to turn the conference back over to Yuhua for any closing remarks.

Speaker 1

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 this conference call. You may now disconnect your line. Thank you.

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Earnings Conference Call
Sunlands Technology Group Q2 2023
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