Ladies and gentlemen, thank you for standing by and welcome to Sunlands' First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks by the management team, there will be a question-and-answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host today, Yingying Liu, Sunlands' IR Director. Please go ahead.

Hello, everyone, and thank you for joining Sunlands’ first quarter 2019 earnings conference call. On the call, our CEO, Tongbo Liu, will provide an update on our operational performance as well as our strategic initiatives. Our CFO, Steven Yipeng Li, will give you an overview of our financial performance and also provide our guidance for the second quarter of 2019. Following their prepared remarks, we will move into the Q&A session. Before I hand 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. 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.

Thank you, Yingying. Hello, everyone. Welcome to Sunlands' first quarter 2019 conference call. During this first quarter, we continued to advance our strategic initiatives to elevate our program offerings and strengthen our brand equity with a keen focus on diversifying student acquisition methods, increasing accessibility, and enhancing user friendly marketing techniques. During the first quarter we advanced each of these initiatives, including launching a new mobile app that broadens our subject domains and deepens our content offerings. This is a milestone and a starting point for Sunlands to build out our own free learning community and a self-developed traffic pool. We successfully delivered revenue of RMB564 million for the first quarter which is in line with our guidance and represents a 39% increase year-over-year. We also narrowed our net loss margin to 20%. Students are also spending more time on our platform. The average time spent on live streaming classes grew 39.2% year-over-year for the first quarter. As we discussed in the last earnings we are working to further expand our free trial offerings to reach out to a wider population of prospective students. To realize that goal, more specifically in Q1, we kicked off a free learning plan along with our independent mobile apps providing free short courses across professional domains and industries. Launched in the end of January, the app is aimed to attract more students to our professional education and skilled courses. And more importantly, to expand our own active students pool for future conversion in the long term. Since the launch of the app in late January to the end of the first quarter, Sunlands' new mobile app had registered users of 215,000. As we know from android online free learning platform to achieve skill and activity at the same time, it is not an easy…

Thank you, Tongbo, and hello everyone. Thanks for joining us. We are pleased to report revenue in line with our guidance for the first quarter. While the seasonal slow-down due to Chinese New Year, softer marketing tactics and our expanded trial programs negatively impacted student enrolments and gross billings, we are confident that our upgraded free trials, introduction seminars, and free short courses for graduates, post graduates, and professionals, can increase average gross billings, conversion rates and sales efficiency over the long-term. Let me walk you through some of the key financial results for the first quarter. In the first quarter of 2019 net revenues increased by 38.8% to RMB564.2 million from RMB406.4 million in the first quarter of 2018. The increase was mainly driven by the growth in the number of students in the first quarter of 2019 compared to the first quarter of 2018 following a continuous increase in new student enrolments over the past years. Cost of revenues increased by 20.9% to RMB85.5 million in the first quarter of 2019 from RMB70.7 million in the first quarter of 2018 which was primarily due to the increase in the compensation for faculty members. Gross profit increased by 42.6% to RMB478.7 million from RMB335.7 million in the first quarter of 2018. In the first quarter of 2019, operating expenses were RMB612.7 million representing a 4.2% increase from RMB588.3 million in the first quarter of 2018. Sales and the marketing expenses were RMB497.3 million in the first quarter of 2019 compared to RMB499 million in the first quarter of 2018. General and administrative expenses increased by 13.8% to RMB88.4 million in the first quarter of 2019 from RMB77.7 million in the first quarter of 2018. The increase was mainly due to the increase in compensation, mainly as a result of…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Alex Xie of Credit Suisse. Please go ahead.

Hi, Management. Thank you for taking my questions. So, my first question is about regulation. I noticed that the Beijing Government just conducted inspections of Sunlands' operations in April, I’m wondering what are the results of government reviews and what the government requires Sunlands to change? And my second question is about our OpEx, I noticed a significant quarter-over-quarter decrease in our G&A expenses. Can management share more color on the reason behind such a decrease, and what about our headcount change in this quarter? Thank you.

Okay, regarding the first question, yes you may read from the recent public news that we did have some conversations with the government, and as of now there is no final decision made by any party yet, and basically the -- one of the -- the major topics we had a discussion with the government is regarding the user experience, like refund process. Actually, that's part of the reason why we have this change of new terms, and we believe with our new refund terms that will both enhance the user experience and satisfy the requirements from the government. Regarding your second question, the decrease on the G&A expense, quarter-over-quarter, this was mainly due to the higher efficiency of our employee and also we -- the number of -- like you mentioned, the number of our employees especially the R&D team, we did see some decrease over there since we -- right now we work in a more effective manner.

Thank you, Management.

And our next question today comes from Timothy Zhao of Goldman Sachs. Please go ahead.

Hi Management. Thanks for taking my questions. There are two questions from my side. First question is that, I think in this quarter, we see a big hike in the ASP or the average gross billing per student either on a year-over-year or a quarter-on-quarter basis. Could you share more color on what is behind this price increase and how should we think about this trend going forward? And the second one is with this higher ASP trend and also the higher refund rate that you mentioned, can you talk about the trend of the gross billings and student enrollment for the rest of this year or when shall we expect them to return back to growth? Thank you.

Okay, for the first question, I think our CEO, Tongbo mentioned just now that right now the master-oriented products as a percentage of our gross billings has been increasing a lot for Q1. Right now, the master-oriented products, the gross billings for the master-oriented products right now account for more than 10% of our total gross billings, that's up from only like 3% from 2017 and 5% from 2018. And those master-oriented products apparently have much higher ASP compared to the STE course. I think this is one of the major reasons why we have a higher ASP for Q1. And as for the trend, we expect as we diversify our course offerings, as we expand our course offerings, the percentage of master-oriented products and professional certification offerings will continue to increase in the future. Yes, so, we are very confident the -- our average, the price – our average gross billings will continually increase as well. And for your second question, as for the trend for the rest of this year, since right now this is only the beginning of the year, we are still expanding our free short courses, our free trials, introduction seminars and also expand our course offerings. As of now, we are not entirely sure what this trend will be, but we are pretty confident as we offer more course offerings, as we -- along with the change of refund policy as we continue to enhance user experience, we will see continuous increase of new student enrollments and gross billings for the rest of the year.

Thank you. Just a quick followup, so another followup question is on, if we look at the sales and marketing cost per enrollment, so this number seems a bit higher for this quarter. Could you share a little more color on what is behind this cost increase?

I think for this quarter, the sales mark -- sales and marketing expense per student is roughly same as the last quarter. While I think, as you may know, the traffic average billing cost has been increasing for the past year or two. I think this is not just an issue for us, but it is an issue for -- this is a challenge for everyone, and that's the reason why we have those new extra courses. I think Tongbo, our CEO, also mentioned we want to establish our own traffic pool, so that in the future I think we believe this will be a very efficient way for us to decrease the sales and marketing expense per student.

Okay, thank you, Steven.

Showing no further questions, this will conclude our question-and-answer session. At this time, I would like to turn the conference back over to Yingying Liu, Investor Relations Director, 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.