Earnings Labs

Sunlands Technology Group (STG)

Q1 2023 Earnings Call· Thu, May 25, 2023

$3.21

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Transcript

Operator

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Sunlands First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Today's conference call is being recorded. I'll now turn the conference over to your host, Yuhua, Sunlands IR representative. Please go ahead.

Yuhua Ye

Operator

Hello, everyone and thank you for joining Sunland’s first quarter 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; 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 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 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.

Tongbo Liu

Analyst

Thank you, Yuhua. Hello, everyone. Welcome to Sunland's first quarter 2023 conference call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release are presented on a continuing operation basis, and all figures are denominated in RMB unless explicitly specified otherwise. As we reflect on the first quarter of 2023, we have witnessed a steadfast and consistent performance in the challenge operating environment. Our first quarter net revenue remains steady, reaching RMB566.9 million, exceeding the high end of our guidance range. Our net income also experienced a slight year-over-year increase, reaching RMB118.1 billion, marking the eighth consecutive quarter of sustained profitability for our company and setting a remarkable net income margin of 31.8%. We remain optimistic about our future prospects based on this encouraging start to the year. During this quarter, we also achieved a year-over-year increase of 3.8 percentage points in our gross profit margin, setting a new record high of 88%. Meanwhile, we have maintained a sharp focus on diversifying our course content, elevating the quality of our offerings, and optimizing student acquisition process. These concerted efforts have yielded remarkable results, as evidenced by a substantial year-over-year increase of 22.2% in new student enrollments. Moving forward, we are committed to maintaining this positive trajectory and continuing our success employing our cost-saving and efficiency-enhancing business strategies to support long-term sustainable growth. Now, let's turn to the performance of each of our major course programs. For post-secondary programs, our strategic reduction of marketing activities, coupled with increasing market competition from the new entrants aiming to tap into the immense potential of this segment, led to a decline in both new student enrollments and course payings . Despite facing intense competition and operating with a complex macro environment, we maintain our optimistic…

Hangyu Li

Analyst

Thank you, Tongbo. Hello, everyone. I would like to present our first quarter results, which have met our expectations and demonstrated our steadfast commitment to achieve sustainable growth despite a 7.6% year-over-year decrease in net revenues. Throughout the quarter, we maintained our disciplined cost management practices and streamlined operations to boost our efficiency and profitability, leading to a 7.3% year-over-year decrease in operating expenses. This focused approach to cost optimization has brought positive outcomes as evidenced by the growth in our net income from RMB179.4 million in the first quarter of 2022 to RMB180.1 million in the current quarter. Looking ahead, we maintain a positive outlook on our long-term growth prospects. We will continue to expand our portfolio of online course offerings, optimize our course structure, and deliver exceptional services to our students. These strategic measures will enable us to capture the emerging opportunities and consolidate our leadership position in the industry. Now, let me walk you through some of our key financial results for the first quarter of 2023. All comparisons are year-over-year and all numbers are in RMB unless otherwise noted. In the first quarter of 2023, net revenues were RMB566.9 million, a decrease of 7.6% year-over-year. Cost of revenue decreased by 29.5%. Cost of revenue decreased by 29.5% to RMB68.2 million in the first quarter of 2023, from RMB96.7 million in the fourth quarter of 2022. The decrease was primarily due to declined compensation expenses related to high-count reduction of our cost of revenues personnel, including teachers and mentors. Gross profit decreased by 3.5% to RMB498.7 million, from RMB516.6 million in the first quarter of 2022. In the first quarter of 2023, operating expenses were RMB320.7 million, representing a 7.3% decrease from RMB345.8 million in the first quarter of 2022. Sales and marketing expenses decreased by 8%…

Operator

Operator

At this time, we are showing no further questions. So this will conclude our questions-and-answer session. At this time, I would like to turn the conference back over to you for any closing remarks.

Yuhua Ye

Operator

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

Operator

That concludes the conference for today. Thank you for participating. You may all disconnect.