Q2 2023 Sunlands Technology Group Earnings Call

Speaker 2: Ladies and gentlemen, thank you for standing by and welcome to the Sanlanc 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 Sanlanc, IR representative. Please go ahead. Hello everyone and thank you for joining Sanlanc's seventh quarter 2023 earnings conference call. The comments, financial and operating results were issued in our press release via news wire services earlier today and are posted online. You can download the earnings press release and sign up for our distribution. You can visit our IR website.

Speaker 2: Participants on today's call will be our CEO , Mr. Tung Bo Liu, and our financial representative, Mr. Heng-Yu Lee. I will first read the prepared remarks on behalf of Tung Bo and then Heng-Yu will discuss the financials in more detail.

Speaker 2: Following the prepared remarks, Tomo and Hanyu will be available for the Q&A session. Before we begin, I'd like to remind you of the Sunland 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.

Speaker 2: 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 divert materially from those contained in any forward-looking statement.

Speaker 2: For more information about the potential risks and uncertainties, please refer to the communist violence with the Securities and Exchange Commission. With that, I will read Pongbol's prepared remarks on his behalf.

Speaker 2: Hello everyone, welcome to the second quarter of the 2023 conference call. Prior to convening, I would like to kindly remind all attendees that the financial information referenced in this release presented on a continuing operation basis.

Speaker 2: all figures are nominated in RMB unless explicitly specified otherwise. In Q2, our business showcased the remarkable resilience and steady performance. Our seventh quarter net revenue has experienced a slight decrease compared to the previous quarter but...

Speaker 2: exceeded the high end of our guidance range, reaching $526.4 million. Net income experienced a year-over-year increase.

Speaker 2: reaching 173.9 million into two, marking the ninth consecutive quarter of testing the profitability of our company.

Speaker 2: We still remain maintain a positive outlook for the upcoming 7th quarter of the year.

Speaker 2: 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.

Speaker 2: Specifically, our revenue in the professional certification preparation, professional skills, and interest courses have surged by 32.7% year-over-year. We have witnessed a 36.8% increase in new student enrollment in this sector.

Speaker 2: The robust market demand has instilled us with confidence and we remain committed to achieving emerging opportunities actively.

Speaker 2: promoting innovation and improvements to meet the diverse needs.

Speaker 2: adult learners, and achieving sustainable growth and development. Now let's turn to the performance of our major course program.

Speaker 2: We persistently focus on optimizing the growth building structure resulting in revenue generated from our post-segmentary programs now contributing to less than 30% of our total revenue.

Speaker 2: We are content with the results of this structural change and remain committed to ongoing optimization in alignment with our strategic objectives. A sector that includes professional certification, preparation, professional skills, and interest courses stands as our primary focus.

Speaker 2: and it has been forming remarkably well with year-over-year revenue growth of over 32.7%. We are pleased to observe that the revenue contribution from this sector is increasing.

Speaker 2: it currently constitutes 64.6% of our total revenue.

Speaker 2: 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%.

Speaker 2: This success can be attributed to our sharp market sense that means to take well-calculated risks and proactive strategic adjustments.

Speaker 2: In today's societal context, many adults find themselves under both objective pressures and subjective anxieties. They strive to achieve a flexible workplace and engaging activities they enjoy.

Speaker 2: enhancing professional skills of pursuing personal interests, through learning has become one of the ways to elevate, stress and pursue their ideals.

Speaker 2: Notebook as indicated by the 2023 Baidu Adult Education Industry White Paper.

Speaker 2: Data released by Baidu underscores a substantial surge in demand for adult interest-driven courses. This is evidenced through a notable 38% increase in surge volume. Our first-hand industry insights add an operational,

Speaker 2: level are in alignment with this trend. And the dial patient is no longer confined to rigid workplace needs. Instead, it arises from interest-oriented incentives.

Speaker 2: By offering a series of carefully chosen interest-oriented courses among various segments, we have also reached a broader clientele.

Speaker 2: laying a strong foundation for our future business endeavors.

Speaker 2: Our approach to cost in development follows a well-defined standard of operating procedure, or FOP.

Speaker 2: We begin by carefully selecting relevant topics through first-hand, market, and learner analysis. Subsequently, we craft high-quality content tailored to specific audience learning needs.

Speaker 2: Proceeding full scale launch, small scale trials, assess content and deliver effectiveness.

Speaker 2: For instance, our Chinese traditional taking course is a direct result of following this FOP.

Speaker 2: Its growth and progress have been impressive. With a substantial 86% year-over-year increase in value launched in 2021, this initiative has achieved noteworthy success, benefiting from our insightful breadth of the post-COVID-19 pandemic.

Speaker 2: COVID market dynamics. This course is a representation of classical Chinese art education that has deeply captured people's interest.

Speaker 2: With a solid foundation of enthusiastic participants, this course appeals to many who have a junior-like liking for Chinese traditional painting and a willingness to refine their aesthetic sensibilities.

Speaker 2: We continuously extend such efforts in interest-based education. These causes boast a high repeat purchase rate, enhancing operational efficiency and yielding of positive long-term effects on the company's financial performance. We will continue to utilize

Speaker 2: insight from learner preferences and strategically promote related courses, enabling learners to explore a broader range of subjects.

Speaker 2: In conclusion, with our extensive experience and industry recognition in this field over the past decade, we are well positioned to capture a larger market share more swiftly and more efficiently.

Speaker 2: effectively. As we move forward, we remain committed to adapting our educational offerings to meet the involving demands of learners, solidifying our leadership position in the field of adult education.

Speaker 2: We extend our gratitude for your presence today and the continuous work you provide. Thank you and we look forward to your valuable engagement.

Speaker 2: This concludes album about prepares maps with that I will turn the answered call over to our financial controller I want to run to our financials K

Speaker 3: Thank you Yuhua. Hello everyone. I'd like to turn to our second quarter results, which was in line with projections and showed our ongoing efforts to sustainable growth.

Speaker 3: It was also an excellent quarter in terms of financial performance.

Speaker 3: Our gross profit margin reached 88.7%, an increase of 5.1% compared with the same period last year.

Speaker 3: The operating expenses decreased to RMB 40.1 million or 11.4% year over year.

Speaker 3: 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.

Speaker 3: Going forward, we are positive to long-term growth. Our initiative involves expanding the range of online courses, improving operational efficiency, and providing outstanding services to our valued students.

Speaker 3: These strategic measures will enable us to better these emerging opportunities and enhance our competitiveness within the industry.

Speaker 3: Now, let me walk you through some of our key financial results for the second quarter of 2023.

Speaker 3: All comparisons are year over year, and all numbers are in RMB unless otherwise noted.

Speaker 3: In the second quarter of 2023, net revenues were $526.4 million, a decrease of 5.2% year-over-year.

Speaker 3: Cost of revenue decreased 34.8% to 59.5 million in the second quarter of 2023, from 91.2 million in the second quarter of 2022.

Speaker 3: The decrease was primarily driven by lower compensation expenses attributed to high cost reduction of teachers and mentors.

Speaker 3: Growth profit increased 0.7% to $466.9 million from $463.8 million in the second quarter of 2022.

Speaker 3: In the second quarter of 2023, operating expenses were 311 million, representing an 11.4% decrease from 351.2 million in the second quarter of 2022.

Speaker 3: Sales and marketing expenses decreased 7.9% to $270 million in the second quarter of 2023.

Speaker 3: from 293 million in the second quarter of 2022.

Speaker 3: The decrease was mainly due to lower compensation expenses attributed to high con reduction of sales and marketing personnel.

Speaker 3: General and administrative expenses decreased by 29.1% to 33.1 million in the second quarter of 2023.

Speaker 3: from 46.6 million in the second quarter of 2022.

Speaker 3: Product development expenses decreased by 31% to 8 million in the second quarter of 2023.

Speaker 3: from 11.6 million in the second quarter of 2022.

Speaker 3: The decrease was mainly due to the lower compensation expenses attributed to high counter-reaction of product development personnel.

Speaker 3: Night income for the second quarter of 2023 was 173.9 million compared with night income of 114.6 million in the second quarter of 2022. Basic and diluted night income per share.

Speaker 3: was 25.12 in the second quarter of 2023.

Speaker 3: As of June 30, 2023, the company had 749.5 million of cash equivalents and restricted cash.

Speaker 3: and $63.2 million of short-term investments.

Speaker 3: As of June 30, 2023, the company had a deferred revenue balance of $1,379.1 million compared with $1,619.9 million as of December 31, 2022. Capital expenditures were incurred.

Speaker 3: primarily in connection with IT infrastructure equipment and leasehold improvements necessary to support the company's operations.

Speaker 3: Capital expenditures were 1 million in the second quarter compared with 0.3 million in the second quarter of 2022.

Speaker 3: And now for our outlook.

Speaker 3: for the third quarter of 2023.

Speaker 3: Sunlines currently expects night revenues to be between RMB 470 million to RMB 419 million.

Speaker 3: which would represent a decrease of 17% to 18.4% year over year.

Speaker 3: This outlook is based on the current market conditions and reflects the management's current and preliminary estimates of market operating conditions and customer demand, which are all subject to change.

Speaker 3: With that, I'd like to open up the call to the questions. Operator.

Speaker 2: Thank you. To ask a question please press star 1 1 on your telephone and wait for your name to be announced.

Speaker 2: To answer your question, please press star 1 and 1 again.

Speaker 2: Please stand by, we will call the Q&A roster.

Speaker 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.

Speaker 2: Once again it's star 11 if you wish to ask a question.

Speaker 2: We're showing no questions. This will conclude our question and answer session. I would like to turn the conference back over to you for any closing remarks.

Speaker 2: Once again, thank you everyone for joining today's call. We look forward to speaking with you again soon. Good day and good night.

Speaker 2: This concludes this conference call. You may now disconnect your line. Thank you.

Speaker 4: You.