Sunlands Technology Group Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 22, 2025

There are 4 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sunderland's First Quarter twenty twenty five 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, Sunlands IR representative. Please go ahead.

Speaker 1

Hello, everyone, and thank you for joining Sunlands' first quarter twenty twenty five 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. Teng Wu Liu and our financial director, Mr.

Speaker 1

Hongyu Li. Management will begin with prepared remarks, and the call will conclude with a Q and A session. Before I hand it over to the management, I'd like to remind you of certain Safe Harbor statements in relation to today's call. Except for 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 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, Pengbo Liu.

Speaker 2

Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' first quarter twenty twenty five earnings earnings conference call. Priority to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is operated on a continuing operation basis and all fingers are denominated in RMB unless explicitly specified otherwise. In the first quarter of twenty twenty five, we reported a net revenue of RMB487.6 million and net income of RMB75.2 million, marking our sixteenth consecutive profitable quarter.

Speaker 2

Now encouraging start to the year that reinforces our confidence in delivering certain growth throughout 2025. While revenue remained relatively stable, our continued profitability and disciplined execution reflect the underlying resilience of our business model. This income margin reached 15.4% supported by effective cost optimization and ongoing operational efficiency improvements. Meanwhile, our financial fundamentals remain robust. This quarter marked our seventh consecutive period of positive operating cash flow underpinned by sound execution and prudent capital management.

Speaker 2

Looking ahead, we will continue to refine our business mix concentrating on high margin, high potential areas to reinforce structural flexibility and the long term resilience. On the product front, we continue to deepen and diversify our cost portfolio. We refine our core subject areas while extending into adjacent domains such as wellness and lifestyle, lying with increasingly diverse needs of lifelong learners. Driving by our course diversification strategy, this quarter's total enrollments reached over 179,000, also supported by meaningful improvements in the learning engagement and the retention. Technology also remains central to our strategy.

Speaker 2

This quarter, we further advanced the digital transformation of cooperations by embedding AI tools that enhance curriculum precision and the boost and the neur engagement. Now let's turn to the performance of each of our major course programs. In the first quarter of twenty five degree and diploma for the post secondary programs contributed 9.7% of total revenue. The sector has experienced a moderated trajectory and our celebrated scale back in investments has allowed us to reallocate resources toward high growth opportunities more effectively. Going forward, we will continue to monitor micro education trends and the demographic shifts closely, ensuring our approach remains agile and responsive to involving conditions.

Speaker 2

The sector encompassing interest based programs, professional skills development and the professional certification preparation accounted for a substantial 78.2% of our total revenue. With interest driving courses emerging as a fundamental pillar, unlocking the full potential of interest learning among middle aged and the senior learners remains a central strategic priority. In this area, we have remained steady fast in pursuing a clear future oriented strategy rooted in openings, integration and innovation while deepening our initiatives across multiple fronts. First, we have embraced partnership driven approach to epify value creation. As China's aging population expands, the senior consumer market is drawing increased participation from diverse industries, including consumer brands, healthcare service providers, and the traditional media.

Speaker 2

This convergence presents significant opportunities for core sector collaboration. Following last year's successful partnership with Beijing TV, we established a new corporation with Hunan TV's happy shopping platform this quarter, leveraging its broad consumer reach and brand influence. Second, we have further strengthened our hyper delivery model to meet the evolving needs of other learners. For this demographic, education is not only about acquiring knowledge, it is equally about social participation and emotional fulfillment. To address this need, we have adopted primarily online supplemented by offline hybrid model that offers both flexibility and depth.

Speaker 2

This model has proven especially effective in boosting learner retention and satisfaction. Notably our creative study tour was integrated education content with cultural travel has been particularly well received for their immersive and differentiated value. At the same time, we are deepening our core sector collaboration by partnering with galleries and museums to develop cultural resonant experiences. Further strengthening engagement within the senior segment. Third, we have refined our curriculum design with a self developed assays framework which is answer, comment, supervisor and study to feel ongoing growth and ensure success.

Speaker 2

This dual teacher model, while pairs academic mentors and learning facilitators makes our courses more accessible, engaging and outcome driven. Leveraging this collaborate collaborative learning system we have attended a 98% course competition rate among new students and a 14% increase in knowledge retention on scoring its effectiveness in delivering substantial educational outcomes. Beyond academic innovation, social mission remains integral to our strategy. Each year, we organize nearly 100 free public interest activities ensure elderly individuals with cultural or intellectual operations can access meaningful learning experiences. We view this not only as an expression of corporate responsibility, but as a long term investment in brand trust and mission element.

Speaker 2

Recent policy developments further reinforce our confidence with governments focused on stimulating the domestic consumption and expanding service oriented sectors, including cultural, tourism and education, closely with our strategic direction. Targeted initiatives and physical incentives for innovation in community based and the lifelong learning programs affirm that we are operating in the right space at the right time with ample room to scale, lead and grow. Taken together, these efforts reflect our holistic and forward looking approach to lifelong learning. Today's adult learners are increasingly valued conscious, second premium, immersive and social engaging experiences. This shift affirms our early position and highlights the long term potential of adult learning economy.

Speaker 2

Moving forward, we will continue to continue enhancing our offers offerings, strengthening, strengthening ecosystem integration, and deepen engagement, ensuring we remain well positioned to lead this evolving sector. While macroeconomic and geopolitical uncertainties persist, the impact on our business has been limited given our domestic focus. Nonetheless, we remain vigilant for actively managing risks while staying alert to new opportunities. Looking ahead, we will continue strengthening our core capabilities, expanding our core offerings, embracing intelligent technology and discipline the focus on value creation. We are confident this approach will deliver sustainable long term returns for shareholders and the meaningful learning outcomes for our students.

Speaker 2

This concludes my prepared remarks. With that, I will turn the call to our financial director to run through our financials.

Speaker 3

Thank you, Tungbo. Hello, everyone. I'm pleased to report our results for the first quarter of twenty twenty five. During the quarter, we successfully responded to the volatile market environment and achieved solid results. We had gross profit margin of 85.2 and the net income margin of 15.4%, with net income of 5,200,000.0.

Speaker 3

This solid start is a testament to our prudent financial management and the sustainability of our business. Our co interest and professional certification programs continue to be engines of growth. The series of successful strategic initiatives supported average order value growth of 7.5% and resulted in 169,083 new student enrollments. Financially, we maintained positive operating cash flows for the seventh consecutive quarter with cash, cash equivalents and short term investments totaling 7 and 96,900,000.0. Our healthy financial position further strengthens our ability to cope with market uncertainties while making strategic investments.

Speaker 3

Looking ahead, we maintain efficient operations, enhance artificial intelligence driven course personalization, and capitalize on policy benefits in the lifelong learning space. Despite the recent decline in revenues, we believe our healthy financial position and flexible business model will allow us to capitalize on the long term opportunities in China's ageing driven education market. Let me now walk you through some of the key financial results for the first quarter of twenty twenty five. Unless otherwise noted, all figures are in RMB and all comparisons are made year over year. In the first quarter of twenty twenty five, net revenues decreased by 6.8% to 487,600,000.0 from 523,200,000.0 in the fourth quarter of twenty twenty four.

Speaker 3

The decrease primarily driven by the decline in gross billing from post secondary courses over the recent quarters, resulting in a year over year decrease in night revenues from post secondary courses. Cost of revenue decreased by 6.3% to seven two point three million in the fourth quarter of twenty twenty five from 77,200,000.0 in the fourth quarter of twenty twenty four. The decrease was mainly due to the declined compensation expenses related to headcount reduction, including teachers and mentors. Gross profit decreased by 7.9 to RMB415.3 million in the first quarter of twenty twenty five from 446,100,000.0 in the first quarter of twenty twenty four. In the first quarter of twenty twenty five, operating expenses were 341,100,000.0, which were the same as the first quarter of twenty twenty four.

Speaker 3

Sales and marketing expenses were $3.00 4,000,000 in the first quarter of twenty twenty five, which remained relatively stable as compared to 301,600,000.0 in the fourth quarter of twenty twenty four. General and administrative expenses increased by 5.9% to 34,500,000.0 in the fourth quarter of twenty twenty five from 32,600,000.0 in the fourth quarter of twenty twenty four. Product development expenses decreased by 11% to 6,200,000.0 in the fourth quarter of twenty twenty five from 7,000,000 in the fourth quarter of twenty twenty four. The decrease was mainly due to declined compensation expenses related to headcount reduction of our product development personnel. Net income for the first quarter of twenty twenty five was $75,200,000 as compared to $112,700,000 in the first quarter of twenty twenty four.

Speaker 3

Basic and diluted net income per share was 11.12 in the fourth quarter of twenty twenty five. As of 03/31/2025, the company had 5 and $96,200,000 of cash and cash equivalents and $200,700,000 of short term investments as compared to $507,200,000 of cash, cash equivalents and $276,000,000 of short term investments as of 12/31/2024. As of 03/31/2025, the company had a deferred revenue balance of 891,600,000.0 as compared to 916,500,000.0 as of 12/31/2024. Now for our outlook for the second quarter of twenty twenty five, Sunlight currently expects net revenues to be between 500,000,000 to $520,000,000, which would represent an increase of 1.6% to 5.6% year over year. This outlook is based on the current market conditions and reflects the company's management's current and preliminary estimate of current market operating conditions and the customer demand, which are all subject to change.

Speaker 3

With that, I'd like to open up the call to the questions. Operator?

Operator

As we are showing no questions, I will conclude our question and answer session. At this time, I would like to turn the conference back over to Hu 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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Key Takeaways

  • Sunlands reported RMB487.6 million in net revenue and RMB75.2 million in net income for Q1 2025, marking its 16th consecutive profitable quarter with a 15.4% net income margin and seven quarters of positive operating cash flow.
  • The post-secondary degree and diploma segment contributed 9.7% of revenue and was scaled back, while interest-based, professional skills, and certification programs drove 78.2% of total revenue.
  • Course diversification led to over 179,000 total enrollments, supported by AI-driven curriculum enhancements and a dual-teacher ACSS framework achieving a 98% course completion rate and 14% higher knowledge retention.
  • Sunlands expanded partnerships and hybrid offerings for senior learners, including a new collaboration with Hunan TV’s Happy Shopping platform, creative study tours, and gallery-based cultural experiences.
  • Looking ahead, management expects Q2 2025 net revenues of RMB500–520 million, and will continue focusing on high-margin segments, cost optimization, and AI-powered personalization amid modest macro uncertainties.
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Earnings Conference Call
Sunlands Technology Group Q1 2025
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