Sunlands Technology Group (STG) 2023 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' fourth-quarter and full-year 2023 earnings conference call.

(Operator Instructions) Today's conference call is being recorded.

I will now turn the call over to your host today, Yuhua Ye, from Sunlands' IR representative.

Hello, everyone, and thank you for joining Sunlands' fourth-quarter and full-year 2023 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 Financial Controller, Mr. Hangyu Li.

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 statements 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.

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 now turn the call over to our CEO, Tongbo Liu.

Hello, everyone.

Welcome to Sunlands' fourth-quarter and full-year 2023 earnings conference call.

Prior to commencing, I'll let you kindly remind all attendees that the a financial information referenced in this release is presented on a continually operations basis and all figures are dominated in RMB unless explicitly specified otherwise.

It is with great pride that we unveiled the successful culmination of the fourth quarter, characterized by a noteworthy net profit of RMB155.2 million and an impressive net profit margin of 28.6%.

The metrics underscore our firm financial foundation and a steadfast dedication to the operational excellence.

In the meanwhile, our revenue stands at RMB542 million, marking a 3.3% increase from the previous quarter and surpassing our earlier forecast despite the year-over-year revenue decrease of 6.4%.

Reflecting on the entire fiscal year, we have successfully recorded annual revenue of [RMB2.16 billion] and a net income of RMB640.8 million.

Additionally, we observed a significant [15.4%] increase in enrollments year-over-year, highlighting the growing demand for our offerings.

Our prudent financial management resulted in net cash inflow for operating activities of over RMB135 million being a solid financial foundation for our future growth initiatives.

Throughout the year, we remained agile in responding to market dynamics and involving user preferences, driving continuous innovation across our product and service portfolio.

A pivotal driver has been the dynamic expansion of our interest-based courses, which experienced a [54.9%] year-over-year growth.

This sector has emerged as the important growth catalyst for the company, further solidifying our leading position in the adult education landscape.

Turning to the performance of our major course programs, we go on onto the post-secondary programs accounted for 24.7% of our revenue internationally.

While we continued to optimize this sector's investment, we believe in its promising future and current employment landscape, individuals navigating academic pursuits or professional trajectories, finding them myself confronted with intricate challenges.

The symbiotic relationship between salary offerings and the education noted has become more pronounced.

This in, turn has, precipitated a surge in the productivity of individual towards pursuing further education.

The sector encompassing professionals certifications, skills, and interest programs continue to serve as our key growth engine, showcasing a year-over-year revenue increase of 13.3% and contributing to 37.1% of our total revenue.

In 2023, we observed a 21.1% rise in new student enrollments within the sector compared to 2022.

Our approach catering to the growing educational needs of learners across various age group has been particularly rewarding.

Moreover, the standout performers of interest-based education course remained in foremost highlights of the sector, accounting for 63% of our total revenue and experiencing a significant [54.9%] year over year revenue growth.

In 2023, in sorry, the user search volume for adult interest of training has surged, ranking first among the new business segments in the education sector.

This trend signifies a growing focus among adults on inner well-being and personal interests thereby, resulting in a discernible concurrent elevation in the demand for associated donation services.

Compared to our degree program users, who tend to be younger and more career-oriented, the age range of users in interest sector is much older with a significant portion of the user base comprising middle-aged and elderly population.

After several quarters of practical exploration, we have gained a deeper understanding of the elderly learning market.

And today, we could actually -- to share some insights.

Firstly, the expansive nature of China's newer demographic presents a permanent nanoscale for market penetration.

As of 2022, China confronted a rare phenomenon of net population decrease.

This marks the first negative growth since the 1960s signifying the onset of a period of population decline.

Additionally, the impending retirement phase of China's 60s baby boom generation pending versus from 1962 to 1975 introduces a cohort widely significant social economic influence.

According to China private wealth report released by China Merchants Bank and the data in 2023, the age group of 50 to 59 accounts for 20% of the high-net-worth individuals with investable assets of over 10 million.

In the past, senior education was probably predominantly supplied by the government agencies.

However, today's newly retired individuals have the autonomy to start from macro-oriented educational loan in institutions and are willing to pay premium prices for such offerings.

Secondly, the nuanced preference and demands executed by elderly cohorts across various age break case underscore the complexity of this demographic indicating significant untapped potential.

Individuals aged 50 to 59 display a vibrant demeanor with a paid deflection towards cultural and spiritual pursuits, such as travel and the lifelong endeavors.

Conversely, those aged 60 and above tend to gravitate towards health-centered consumption patterns, embracing nutritional supplements in the hair services.

Upon meticulous scrutiny of our senior course enrollees -- taking our transitional Chinese painting program as an example, individuals aged 46 to 65 account for [16%] with over [13%] being female and 20% from first tier cities.

We define them as a new generation of vibrant seniors characterized by high cultural refinements, relative affluence and at-home leisure opportunities and a higher pursuit of spiritual enrichment.

Our products are well received by this golden age group, and we will continue to serve the demands of this demographic to expand the scope of our services in the future.

Drawing inspiration from the developmental trajectory of Japan's elder industry illustrated by club tourism, Japan's median senior travel deployments with a membership base of 7 million, which initially focused on travel product and later expanded horizontally into nursing, insurance, and consumer goods.

We aim to maximize our lifetime values to diversified offerings and the high-value propositions rooted in effective senior interest and vocation services.

For instance, we have launched a nutritional or travel packages integrating courses with tourism activities.

These ongoing and innovative initiatives afford us a swifter and more profound insight into our user base following our imagination for future possibilities.

We also note the government's attention to and emphasis on the elderly industry.

On January 15, 2024, the General Office of the State Council of China issued the first dedicated document supporting the development of the silver economy, which specifically mentioned enriching elderly education services.

We will continue to increase investment in course development for this brightening demographics.

We have created a range of specified offerings, including premium Chinese painting and music courses, supplemented by a variety of offline events tailored to diverse situation context.

Notably our senior brand clinched the prestigious customer service award from people study online, a testament to our ongoing pursuit of excellence.

As we progress into 2024, we remain committed to constantly exploring and refining our product mix targeting different age group while developing our operational efficiency improvements efforts to support our long-term sustainable growth.

Since our initial public offerings, the company has been constantly progressing with stock repurchases.

As of December 31, 2023, under the share repurchase plans adopted in December 2021 and August 2018, we have successfully excluded the repurchase of American depositary shares equivalent to approximately 420,000 ordinary shares representing a total investment of

[USD15.7 million].

Looking ahead, we're pleased to fortify shareholder value through ongoing share repurchases, underscoring our steadfast commitment to shareholder interests.

With that, I will turn the call over to our Financial Controller, Hangyu, to run through our financials

.

Thank you, Tongbo.

Hello, everyone.

I'm pleased to present our fourth-quarter result.

Over the past year, we have been committed to achieving sustainable growth, placing a high priority on improving operational efficiency and optimizing our cost structure.

We continued our impressive level of profitability with a net profit margin of 28.6%, up 3.5 percentage points quarter over quarter.

This demonstrated the effectiveness of our operational strategies and highlights our ability to adapt to changing market conditions.

It is also important to highlight that our net cash inflows from operating activities for the year exceeded RMB135 million, providing a solid financial foundation for the sustainable development of our business.

This success is a direct reflection of our commitment to strengthening our core competence, allowing us to quickly adjust our strategy in response to changing market conditions and the customer demands.

Notably, since the fourth quarter of 2021, our net profit margin has remained above 20%, which is a testament to the strength and the resilience of our business model.

Looking to the future, we'll continue to focus on refined operations and the efficient office financial management to ensure the company's sustained healthy and stable development.

In addition, we will strictly follow the structures of the Board and implement strategic share repurchases to enhance shareholder value.

Now let me present to you some of our key financial results for the first quarter of 2023.

All comparisons are year-over-year, and all figures are in RMB unless otherwise noted.

For the fourth quarter of 2023, net revenues decreased by 6.4% to RMB541.7 million from RMB578.6 million in the fourth quarter of 2022.

The decrease was primarily due to a year-over-year decline in gross billings from post-secondary courses in 2023.

Cost of revenues decreased by 2% to RMB73.8 million in the fourth quarter of 2023 from RMB75.3 million in the fourth quarter of 2022.

The decrease was primarily due to lower compensation expenses related to a reduction in our cost of revenue headcount.

Gross profit decreased by 7% to RMB468 million in the first quarter of 2023 from RMB503.3 million in the fourth quarter of 2022.

In the fourth quarter of 2023, operating expenses was RMB348.9 million, representing a 3.8% increase from RMB336 million in the fourth quarter of 2022.

Sales and marketing expenses increased by 12.2% to RMB305.8 million in the fourth quarter of 2023 from RMB272.5 million in the first quarter of 2022.

The increase was primarily due to increased spending on sales activities, including higher sales force compensation as well as higher spending on brand and marketing activities focused on interest-based courses.

General and administrative expenses decreased by 36.8% to RMB35.5 million in the fourth quarter of 2023 from RMB56.1 million in the fourth quarter of 2022.

The decrease was primarily due to lower office costs and rental expenses resulting from the early termination of certain office spaces.

Product development expenses increased by 3.6% to RMB7.6 million in the fourth quarter of 2023 from RMB7.4 million in the fourth quarter of 2022.

Net income for the fourth quarter of 2023 was RMB155.2 million compared with RMB181 million in the fourth quarter of 2022.

Basic and diluted net income per share was RMB22.59 in the first quarter of 2023.

As of December 31, 2023, the company had RMB766.4 million of cash, cash equivalents, and restricted cash and the RMB142.1 million of short-term investments compared with RMB757.4 million of cash, cash equivalents, and restricted cash, and RMB70.5 million of short-term investments as of December 31, 2022.

As of December 31, 2023, the company had a deferred revenue balance of RMB1,113.9 million compared with RMB1,690.9 million as of December 31, 2022.

Capital expenditures were primarily for information technology infrastructure equipment and leasehold improvements required to support the company's operations.

Capital expenditures were RMB0.2 million in the fourth quarter of 2023 compared with RMB0.7 million in the fourth quarter of 2022.

For more details on our full-year 2023 financial results, please see our earnings press release.

Now for our outlook for the first quarter of 2024.

We currently expect net revenues to be between RMB500 million and RMB520 million, a year-over-year decrease of 8.3% to 11.8%.

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

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

Operator.

Thank you.

(Operator Instructions)

At this time, we are showing no further questions.

So this will conclude our question-and-answer session.

At this time, I would like to turn the conference back over to Yuhua 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 today's conference call.

You may now disconnect your line.

Thank you.