Sunlands Technology Group (STG) 2022 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' Second Quarter 2022 Earnings Conference Call. (Operator Instructions) 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.

Hello, everyone, and thank you for joining Sunlands' Second Quarter 2022 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. Tongbo Liu; and our CFO, Selena Lu Lv. Management will begin with prepared remarks, and the call will conclude with a Q&A 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 our 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 statements. For more information about 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, Tongbo Liu.

Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' Second Quarter 2022 Conference Call. In the pandemic's resurgence and the macroeconomic weakness in the second quarter, we achieved RMB 114.6 million of net income, representing a fourfold increase year-over-year. The increase was primarily driven by our consistent emphasis on operating efficiency and solid execution of our business strategies. And we remain steadfast while navigating the company through external uncertainties.

We were also pleased to see our continued efforts to optimize our product mix and expand our cost portfolio rewarded with improving operational results, reflected in a 39.4% year-over-year increase in our new student enrollments and reduced year-over-year decrease in gross billings. We accomplished this by acquiring students from a wider range of age groups with higher sales efficiency as we cut down our sales and marketing expenses by 34.8% year-over-year. These results highlight our organizational resilience and reinforce our confidence in our strategy to achieve balanced growth and profitability.

During the second quarter, with the massive pandemic outbreaks in several major cities, severity disruptive business operations across the area of industries. The pandemic also resulted in the consolidation of many qualification exams affecting demand for our professional certificate courses and leading us to seek other pockets of opportunity to increase profitability in the segment. Furthermore, in the complex macro environment, business took a more conservative approach in the operations and emphasis cost reduction and efficiency improvement more than ever with the goal of enhancing their risk resistance. Against this backdrop, consumers were more prudent about purchasing discretionary goods. For example, they may temporarily delay their self-improvement plans within this period to combat the lingering external uncertainties in the macro environment. We also prioritized cash flow management and focus on profitability, generating business while continuing to improve our cost efficiency.

Despite that, many people remained enthusiastic about holding their skills, hoping to elevate their overall competence within the highly competitive job market. Others also sought ways to shake off pandemic inertia, such as [attending] online courses, resulting in surging demand for our skill courses. As such, we assist this opportunity to deliver an enhanced learning experience to our students and develop new skill training courses to address a broader range of students' needs, helping our students improve their career flexibility and the competitiveness in the job market or turn a skill into a [site household] to see them through tough times. As a result, our growth buildings for professional certification and skills programs in the second quarter grew by 82.9% year-over-year, driven by a [94.9%] year-over-year increase in new student enrollments. Revenues generated by these programs also increased by 13.3% year-over-year.

Furthermore, our extensive course resources, high teaching quality and efficient online learning platform have contributed to improved student satisfaction and stickiness as well as a higher referral rate. As we continue to optimize our product mix, we will keep developing premium courses covering in-demand skills and general interest as well as industry recognized credentials. With our established brand awareness in this field, diverse cost choices and quality cost content, we are confident that we can continue to attract new students and capture additional growth opportunity presented by students rising demand.

For master's degree oriented programs. New student enrollments and gross billings decreased on the back of our strategic reduction of marketing activities and growing market competition as new players try to capitalize on this segment's enormous potential. Highly rated teaching staff which is difficult to replicate for latecomers to the segment is considered to the main differentiating -- differentiated factor among industry players. Thus, we believe that our 19 years' experience in exam preparation, experienced and well reserved teaching staff and extensive learning resources will position us, and we're tenaciously compared to our competitors in the long run. Despite the intense competition and the complex macro environment, we are proud of the critical role that we have played in helping our students achieve individual success in the face of huge economic uncertainty. And we remained committed to doing the right thing to maintain our influence in this field.

For example, on June 18, we held our first MBA education promotion event with many top universities in China, joining us to share their MBA admissions and information. The event was a great success and attracted a huge number of students to participate. In terms of government policies, we are encouraged by the Chinese government's support of the diverse forms of education as evidenced by the revised vocational education adopted during the meeting of the standing committee of the 19th National People's Congress on April 20. This was the first major reform in 25 years since the law was enacted in 1996. It upgrades the status of vocation education in China to be equally important as general education and encourages collaboration between schools and enterprises, while also supporting social participation in vocational education.

The government is planning to adopt various [means] to organize diverse forms of occupational education, such as training prior to employment, on the job training, reemployment training for the unemployed and other special groups of people, which significantly enhanced our confidence in the industry. We will closely follow the government's policies and will remain steadfast in our contributions to China's efforts to improve its workforce skills and employment rates through occupational education.

Finally, I'm pleased to state that in June, we declared a special cash dividend to share our success with shareholders following 4 consecutive quarters of profitability. Going forward, we will strive to create additional shareholder value by continuously improving our profitability and cash flow. At the same time, we remain focused on developing diverse skill and interested courses and enhancing our teaching and service quality to attract new students, with a target of bringing life-changing and fulfilling learning experience to our students.

With that, I will turn the call to our CFO Selena to run through our financials.

Thank you, Tongbo. Hello, everyone. Our second quarter results were in line with our expectations. We sustained water line strength despite the 11.8% year-over-year decrease in net revenues as we strived for healthy and sustainable growth.

During the quarter, we continued executing various initiatives to build a highly efficient and lean organization while optimizing our expense management, leading to a 32.4% year-over-year decrease in our operating expenses. Our cost efficiency improvement resulted in notable net income growth from RMB 22.1 million for the second quarter of 2021 to RMB 114.6 million for this quarter. Going forward, we are optimistic that our continued efforts to broaden our online course offerings, streamline our cost structure and dedicate ourselves to providing enhanced services to our students will ultimately enable us to realize long-term growth.

Now let me walk you through some of our key financial results for the second quarter of 2022. All comparisons are year-over-year and all numbers are in RMB unless otherwise noted. In the second quarter of 2022, net revenues were RMB 555 million, a decrease of 11.8% year-over-year. Cost of revenue decreased by 6.2% to RMB 91.2 million in the second quarter of 2022 from RMB 97.3 million in the second quarter of 2021. The decrease was primarily due to the decline in employee compensation expenses related to the cost of revenues.

Gross profit decreased by 12.9% to RMB 463.8 million from RMB 532.2 million in the second quarter of 2021. In the second quarter of 2022, operating expenses were RMB 351.2 million, representing a 32.4% decrease from RMB 519.6 million in the second quarter of 2021. Sales and marketing expenses decreased by 34.8% to RMB 293 million in the second quarter of 2022 from RMB 449.1 million in the second quarter of 2021. The decrease was mainly due to; number one, lower spending on branding and marketing activities; and number two, declined compensation expenses related to our sourcing marketing personnel.

General and administrative expenses decreased by 9.7% to RMB 46.6 million in the second quarter of 2022 from RMB 51.6 million in the second quarter of 2021. Product development expenses decreased by 38.3% to RMB 11.6 million in the second quarter of 2022 from RMB 18.8 million in the second quarter of 2021. Product development expenses were mainly comprised of compensation expenses. Other income decreased by 41.8% to RMB 4.8 million in the second quarter of 2022 from RMB 8.2 million in the second quarter of 2021.

Net income for the second quarter of 2022 was RMB 114.6 million compared with RMB 22.1 million in the second quarter of 2021. Basic and diluted net income per share was RMB 16.89 in the second quarter of 2022. As of June 30, 2022, the company has RMB 727.5 million of cash and cash equivalents and RMB 138.7 million of short-term investments. As of June 30, 2022, the company had a deferred revenue balance of RMB 1,998.1 million compared with RMB 2,348.2 million as of December 31, 2021. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and leasehold improvement necessary to support the company's operations. Capital expenditures were RMB 0.3 million in the second quarter compared with RMB 7.8 million in the second quarter of 2021.

And now for our outlook. For the third quarter of 2022, Sunlands currently expects net revenue to be between RMB 520 million to RMB 540 million, which would represent a decrease of 9.3% to 12.6% year-over-year. This outlook is based on the current market conditions and reflects the company's management's current and preliminary estimate of the market, operating conditions and customer demand, which are all subject to change.

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

(Operator Instructions) Showing no questions at this time. This will conclude our question session. Now I'd like to turn the conference back over to Yuhua Ye, IR representative 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 earnings conference call. You may now disconnect your line. Thank you.