Q1 2026 Sunlands Technology Group Earnings Call

May 26, 2026

Operator: Ladies and gentlemen, thank you for standing by, welcome to Sunlands' Q1 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference is being recorded. I will now turn the call over to your host today, Yuhua, Sunlands IR Representative. Please go ahead.

Speaker #1: Today's conference is called. Being recorded. I will now turn the call over to your host today, Yu Hua, Sunlands IR Investor Representative. Please go ahead.

Speaker #2: Hello, everyone, and thank you for joining Sunlands' first quarter 2026 earnings conference call. The company's financial and operating results were issued in our press release via newsletter services earlier today and are posted online.

Yuhua Ye: Hello, everyone. Thank you for joining Sunlands' Q1 2026 Earnings Conference Call. The company's financial and operating results were issued in our press release via news wire 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 at ir.sunlands.com. Participants on today's call will be our CEO, Mr. Tongbo Liu, and our Financial Director, Mr. Hangyu Li. Management will begin with prepared remarks, followed by a question and answer session. Before I hand it over to the management, I'd like to remind you of Sunlands' 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 #2: You can download the earnings press release and sign up for our distribution list by visiting our IR website at ir.sunlands.com. Participants on today's call will be our CEO, Mr. Tongbo Liu, and our Financial Director, Mr. Hanyu Li.

Speaker #2: Management will be beginning with prepared remarks, followed by a question-and-answer session. Before I hand it over to management, I'd like to remind you of Sunlands' Safe Harbour statement in relation to today's call.

Speaker #2: 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.

Speaker #2: 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.

Yuhua Ye: 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.

Speaker #2: 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, Tung Bo Liu.

Speaker #3: Okay, thank you, Yu Hua. Hello, everyone. We will now begin Sunlands' First Quarter 2026 earnings conference call. Prior to commencing, I would like to candidly remind all attendees that the financial information referenced in this release is presented on a continuing operations basis.

Tongbo Liu: Okay. Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' Q1 2026 Earnings 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 continuing operation basis, and all figures are denominated in RMB unless explicitly specified otherwise. We opened 2026 with revenue of RMB 414.7 million and a net income of RMB 176.8 million, marking our 20th consecutive profitable quarter. Net income margin reached 17.4%. Selling expenses declined 19.5% year-over-year, representing the largest single quarter reduction we have recorded in recent years, and the third consecutive quarter of year-over-year decline. At the same time, R&D expenses rose 5.6% year-over-year, reflecting our continued investment in technology capacity enhancement. The 9.6% year-over-year revenue decline reflected the two concurrent dynamics.

Speaker #3: And all figures are denominated in RMB unless explicitly specified otherwise. We open the 2026 guidance of RMB 414.7 million. And net income of RMB 76.8 million.

Speaker #3: Marking our 20th consecutive profitable quarter. Net income margin reached 17.4%. Selling expenses declined 19.5% year over year, representing the largest single-quarter reduction we have recorded in recent years and the third consecutive quarter of year-over-year decline.

Speaker #3: At the same time, RMB expenses rose 5.6% year over year, reflecting our continued investment in technology capacity enhancement. The 9.6% year-over-year revenue decline reflected two concurrent dynamics.

Tongbo Liu: Continued structural softness in degree and diploma-oriented programs, and our ongoing recalibration of customer acquisition standards towards higher quality learner cohorts. While these factors placed pressure on the top line, our profitability reflected the progress we have made in structural optimization, operating discipline, and the technology-enabled efficiency. Let me now turn to the performance of our major course categories. Degree and diploma-oriented post-secondary programs contributed 17.9% of net revenues in the Q1 of 2026. We continued to manage this segment in line with genuine learner demand while allocating resources with discipline. Interest-based programs, professional skills, and professional certification preparation together contributed 67.9% of net revenues and remains important areas of focus as we continue to diversify our revenue mix. Within this broader category, senior interest-based learning remains one of the areas where we continue to see meaningful long-term opportunity.

Tongbo Liu: Continued structural softness in degree and diploma-oriented programs, and our ongoing recalibration of customer acquisition standards towards higher quality learner cohorts. While these factors placed pressure on the top line, our profitability reflected the progress we have made in structural optimization, operating discipline, and the technology-enabled efficiency. Let me now turn to the performance of our major course categories. Degree and diploma-oriented post-secondary programs contributed 17.9% of net revenues in the first quarter of 2026. We continued to manage this segment in line with genuine learner demand while allocating resources with discipline. Interest-based programs, professional skills, and professional certification preparation together contributed 67.9% of net revenues and remains important areas of focus as we continue to diversify our revenue mix. Within this broader category, senior interest-based learning remains one of the areas where we continue to see meaningful long-term opportunity.

Speaker #3: Continued structural softness in degree- and diploma-oriented programs, and our ongoing recalibration of customer acquisition standards toward higher-quality learner cohorts. While these factors place pressure on the top line, our profitability reflected the progress we have made in structural optimization.

Speaker #3: Operating discipline and technology-enabled efficiency. Let me now turn to the performance of our major course categories. Degree- and diploma-oriented post-secondary programs contributed 17.9% of net revenues in the first quarter of 2026.

Speaker #3: We continued to manage the segment in line with genuine learner demand while allocating resources with discipline. Interest-based programs, professional skills, and professional certification preparation together contributed 16.79% of net revenues.

Speaker #3: And it remains an important area of focus as we continue to diversify our revenue mix. Within this broader category, senior interest-based learning remains one of the areas where we continue to see meaningful long-term opportunities.

Speaker #3: This quarter, we further deepened our catalog within the arts, and the new courses such as color, pencil, and folk music were launched in response to express learner demand.

Tongbo Liu: This quarter, we further deepened our catalog within the arts, adding new courses such as colored pencil and folk music in response to expressed learner demand. We are also exploring adjacent content directions through early stage pilots, including language learning, where we have seen initial learner interest. Beyond course content, we continue to extend the learning experience into more tangible scenarios. We launched a study tour designed around our existing course content, so that learner who has spent a year studying Chinese painting with us can take a natural next step by visiting the landscapes, artists, and museums connected to that tradition. This allows us to deepen the learning journey and reinforce the investment learners have already made, rather than asking them to start from zero in an unrelated program.

Speaker #3: We are also exploring adjacent content directions through early-stage pilots, including language learning, where we have seen initial learner interest. Beyond course content, we continue to extend the learning experience into more tangible scenarios.

Speaker #3: We launched a study tool designed around our existing course content, so that a learner who has spent a year studying Chinese printing with us can take a natural next step by visiting the landscapes, artists, and museums connected to that tradition.

Speaker #3: This allowed us to deepen the learning journey and reinforce the investment learners have already made, rather than asking them to start from zero in an unrelated program.

Speaker #3: We also continue to partner with art galleries and cultural institutions to bring our learners into physical spaces where their coursework comes alive. Through curated visits, online calligraphy and printing students can see masterworks up close.

Tongbo Liu: We also continue to partner with art galleries and cultural institutions to bring our learners into physical spaces where their coursework comes alive. Through curated visits, online category 13 students can see master work up close, meet practitioners, and gain a clearer sense of where sustained practice can take them. Initial learner feedback has been constructive and generally positive, and we believe this type of learning reinforcement is an effective lever for improving both completion and repurchase. These initiatives remain at an early stage, with initial signals warranting continued observation and refinement. We are not simply building a course catalog, but gradually extending the learning experience into a more integrated and continuous journey for senior learners. Repurchase behavior within our core cohorts continues to provide encouraging indications that for that increasing share of learners, this evolving experience is being resonant.

Speaker #3: Meet practitioners and gain a clearer sense of where sustained practice can take them. In addition, feedback has been constructive and generally positive. And we believe this type of learning reinforcement is an effective lever for improving both competition and repurchase.

Speaker #3: This initiative remains at an early stage, with initial signals warranting continued observation and refinement. We are not simply building a course catalog, but gradually extending the learning experience into a more integrated and continuous journey for senior learners.

Speaker #3: Repurchase behavior within our core cohorts continues to provide encouraging indications that, for the increasing share of learners, this involving experience is gaining resonance. The most consequential operating development this quarter relates to the continued maturation of our AI capabilities.

Tongbo Liu: The most consequential operating development this quarter relates to the continued maturation of our AI capabilities, which we believe may have meaningful implications for long-term operating efficiency. A year ago, we described AI primarily a productivity tool. As adoption has broadened across the business, that framing has continued to evolve. In our customer acquisition workflow, our internally developed AI assistant has increasingly played a decision support role. It helps surface signals in live prospective interactions, including sentiment, hesitation, and decision friction, and provides tailored conversational guidance based on each agent's communication style and conversational content. In parallel, our intelligent voice assistant has shortened the time to first contact window for new leads, a factor that has historically been associated with conversion efficiency. It has also enabled our human teams to focus more on high-value interactions that requires judgment and accuracy, which remain critical to enrollment outcomes.

Speaker #3: Which we believe may have meaningful implications for long-term operating efficiency. A year ago, we described AI primarily as a productivity tool. As the adoption has broadened across the business, that framing has continued to evolve in our customer acquisition workflow.

Speaker #3: Our internally developed AI assistant system has increasingly played a decision-support role. It helps surface signals in live perspective interactions, including sentiment, hesitation, and decision fraction, and provides tailored conversational guidance based on each agent's communication style and conversational content.

Speaker #3: In parallel, our intelligent voice system has shortened the time-to-first-contact window for new leads, a factor that has historically been associated with conversation efficiency.

Speaker #3: It has also enabled our human teams to focus more on high-value interactions that require judgment and empathy, which remain critical to enrollment outcomes. Looking ahead, we expect AI-driven capabilities to continue to be embedded more broadly across both acquisition and service workflows.

Tongbo Liu: Looking ahead, we expect AI-driven capabilities to continue to be embedded more broadly across both acquisition and service workflows, supporting ongoing improvements in operating efficiency. Besides, we're also exploring how these capabilities can be extended into broader parts of the learner lifecycle to further improve overall service efficiency and experience. To close, this quarter reflects discipline execution against the priorities we outlined at the start of the year. Revenue mix continues to evolve, profitability reported by operating discipline, and our technology capabilities continue to deepen. We believe the investments we are making today are strengthening the foundation for sustainable long-term development. As these initiatives continue to mature, we remain focused on disciplined execution and prudent resource allocation. That concludes Tongbo's prepared remarks. I will now turn the call over to our Finance Director, Hang Li. Hang, please.

Speaker #3: Supporting ongoing improvements in operating efficiencies. Besides, we are also exploring how these capabilities can be extended into broader parts of the learner lifecycle to further improve overall service efficiency and experience.

Speaker #3: To close, this quarter reflects discipline in the execution against the priorities we outlined at the start of the year. Revenue mix continues to evolve profitability, supported by operating discipline, and our knowledge capabilities continue to deepen.

Speaker #3: We believe the investments we are making today are strengthening the foundation for sustainable long-term development. As this initiative continues to mature, we remain focused on disciplined execution and prudent resource allocation.

Speaker #3: That concludes Tombo's prepared remarks. I will now turn the call over to our Finance Director, Han Yu. Han Yu, please.

Speaker #4: Thank you, Tombo. Hello, everyone. I'm pleased to share our final results for the first quarter of 2026. This quarter, our numbers demonstrated the rewards of our strategic persistence.

Hangyu Li: Thank you, Tongbo. Hello, everyone. I'm pleased to share our financial results for the first quarter of 2026. This quarter, our numbers demonstrate the rewards of our strategic persistence. As Tongbo discussed, we have deliberately prioritized revenue quality and learner cohort health over raw top-line scale. This disciplined execution has translated into a linear cost structure, healthy margins, and a resilient balance sheet. Our focus on precision has led to a significant milestone in cost management, with selling expenses declining by 19.5% year-over-year. This marks the largest single-quarter reduction we have recorded in recent years and our third consecutive quarter of year-over-year decline. While we prudently managed overhead, we continued to expand our technological edge. Our product development expenses rose by 5.6% year-over-year, reflecting our commitment to embedding AI deep into our operations.

Speaker #4: As Tombo discussed, we have deliberately prioritized revenue quality and learner cohort health over role top-line skill. This disciplined execution has translated into a linear cost structure.

Speaker #4: Healthy margins and a resilient balance sheet. Our focus on precision has led to a significant milestone in cost management, with selling expenses declining by 19.5% year over year.

Speaker #4: This marks the largest single-quarter reduction we have recorded in recent years, and our third consecutive quarter of year-over-year decline. Well, with prudent management of overhead, we continued to expand our technology edge.

Speaker #4: Our product development expenses rose by 5.6% year over year, reflecting our commitment to embedding AI deep into our operations. This scaling of our AI capability is already serving as a primary operational catalyst to enhance delivery, automate engagement, and offset structural costs.

Hangyu Li: This scaling of our AI capability is already serving as a primary operational catalyst to enhance delivery, automate engagement, and offset structural costs. This strategic trade-off has directly enforced our profit quality and bottom-line resilience. Despite a 9.6% year-over-year decline in net revenues, our profitability remained strong. We maintained a solid gross margin of 86.5%, while our net income margin expanded to 17.4%. Securing this execution is our resilient balance sheet position. Our robust liquidity profile provides us with the strategic flexibility required to fully absorb macroeconomic variations while aggressively compounding capital into our priority growth initiatives. Now let me walk you through some of our key financial results for Q1 2026. All comparisons are year-over-year, and all figures are in RMB unless otherwise noted.

Speaker #4: These strategic trade-offs have directly reinforced our profit quality and bottom-line resilience. Despite a 9.6% year-over-year decline in net revenues, our profitability remains strong.

Speaker #4: We maintained a solid gross margin of 86.5%, while our net income margin expanded to 17.4%. Securing this execution is our resilient balance sheet position.

Speaker #4: Our robust liquidity profile provides us with the strategic flexibility required to fully absorb microeconomic variations, while aggressively compounding capital in our priority growth initiatives.

Speaker #4: Now, let me walk you through some of our key final results for the fourth quarter of 2026. All comparisons are year over year, and all figures are in RMB, unless otherwise noted.

Speaker #4: In the fourth quarter of 2026, net revenues decreased by 9.6% to $440.7 million, from $487.6 million in the fourth quarter of 2025. Cost of revenues decreased by 17.7% to $59.5 million, from $72.3 million in the fourth quarter of 2025.

Hangyu Li: In the first quarter of 2026, net revenues decreased by 9.6% to RMB 440.7 million from RMB 487.6 million in the first quarter of 2025. Cost of revenues decreased by 17.7% to RMB 59.5 million from RMB 72.3 million in the first quarter of 2025, mainly due to a decline in costs related to learning materials, books, and service fees paid to educational institutions. Gross profit was RMB 381.1 million, compared to RMB 415.3 million in the first quarter of 2025. Gross profit margin expanded to 86.5%, up from 85.2% in the prior-year period. Total operating expenses were RMB 284.3 million, a 16.7% decrease from RMB 341.1 million in the first quarter of 2025. Sales and marketing expenses decreased by 19.5% to RMB 241.9 million from RMB 300.4 million in the first quarter of 2025, primarily due to optimized compensation for sales personnel and more targeted branding and marketing activities.

Speaker #4: Mainly due to a decline in costs related to learning materials, books, and service fees paid to educational institutions. Gross profit was $381.1 million, compared to $415.3 million in the fourth quarter of 2025.

Speaker #4: Gross profit margin expanded to 86.5%, up from 85.2% in the prior-year period. Total operating expenses were $284.3 million, a 16.7% decrease from $341.1 million in the first quarter of 2025.

Speaker #4: Sales and marketing expenses decreased by 19.5% to $241.9 million, from $300.4 million in the first quarter of 2025. This was primarily due to optimized compensation for sales personnel and more targeted branding and marketing activities.

Speaker #4: General and administrative expenses increased by 4.1% to $35.9 million, from $34.5 million in the first quarter of 2025. Product development expenses rose by 5.6% to $6.6 million, from $6.2 million in the fourth quarter of 2025.

Hangyu Li: General and administrative expenses increased by 4.1% to RMB 35.9 million from RMB 34.5 million in Q1 2025. Product development expenses rose by 5.6% to RMB 6.6 million from RMB 6.2 million in Q1 2025. Net income for Q1 2026 reached RMB 76.9 million, compared to RMB 75.2 million in Q1 2025. Basic and diluted net income per share was RMB 11.48 in Q1 2026. As of 21 March 2026, the company held RMB 547.2 million of cash equivalents, and restricted cash, alongside RMB 236 million of short-term investments, compared to RMB 576.8 million of cash and cash equivalents and RMB 235.9 million of short-term investments as of 31 December 2025. As of 31 March 2026, the company maintained a deferred revenue balance of RMB 500.5 million compared to RMB 585.3 million as of 31 December 2025. Turning to our outlook.

Speaker #4: Net income for the fourth quarter of 2026 reached $76.9 million, compared to $75.2 million in the first quarter of 2025. Basic and diluted net income per share was $11.48 in the fourth quarter of 2026.

Speaker #4: As of March 21, 2026, the company held $547.2 million of cash equivalents and restricted cash, alongside $236 million of short-term investments. Compared to $576.98 million of cash and cash equivalents, and $235.9 million of short-term investments as of December 31, 2025.

Speaker #4: As of March 31, 2026, the company maintained a deferred revenue balance of $500.5 million, compared to $585.3 million as of December 31, 2025. Turning to our outlook, for the second quarter of 2026, we expect net revenues to be between $410 million and $430 million, representing a decrease of 20.2% to 23.9% year over year.

Hangyu Li: For the Q2 of 2026, we expect net revenues to be between RMB 410 to 430 million, representing a decrease of 20.2% to 23.9% year over year. This outlook is based on our current market dynamics and reflects our preliminary assessment of market conditions and the learner demand patterns, which remain subject to substantial uncertainty. This concludes our prepared remarks. We'll now open the call for questions. Operator, please go ahead.

Speaker #4: This outlook is based on our current market dynamics and reflects our preliminary assessment of micro conditions and the learner demand patterns, which remain subject to substantial uncertainty.

Speaker #4: This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead.

Speaker #1: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your question in Chinese, please immediately repeat your question in English.

Operator: Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your question in Chinese, please immediately repeat your question in English. As a reminder, to ask a question, please press star one one on your telephone. At this time, we are showing no further questions, so I will conclude our Q&A session, and I will now turn the conference back to Yuhua for any closing remarks.

Speaker #1: As a reminder, to ask a question, please press star 11 on your telephone. At this time, we are showing no further questions. So I will conclude our Q&A session, and I will now turn the conference back to Yu Hua for any closing remarks.

Speaker #3: Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day and good night.

Yuhua Ye: 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 today's conference call. Thank you for participating. You may now disconnect.