Ladies and gentlemen, thank you for standing by and welcome to Sunlands' first quarter 2021 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'd now like to turn the call over to your host today, Yuhua Ye, Sunlands IR representative. Please go ahead.
Hello, everyone, and thank you for joining Sunlands' first quarter 2021 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. On the call, our CEO, Tongbo Liu, will provide an update on our operational performance as well as our strategic initiatives. Our CFO, Selena Lu Lv, will give you an overview of our financial performance and also provide our guidance for the second quarter of 2021. Following their prepared remarks, we will move into the 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 it contains 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 statement. 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' first quarter 2021 conference call. We are pleased to announce that Sunlands Technology Group had a very strong opening quarter for 2021, starting with net revenues that rose to RMB 694.3 million , a 22.9% year-over-year increase. The increase in net revenues was mainly driven by the year-over-year growth in gross billings since the second half of 2020. Gross billings in the first quarter rose to RMB 593.7 million , representing year-over-year growth of 14.9%. In terms of new enrollments, we achieved a 107.6% increase year-over-year, which surged to over 145,000 students. This solid performance was driven by our continued efforts in diversifying product offerings, raising brand awareness, and improving student satisfaction. Sunlands continue to focus on expanding and refining its master's degree-oriented programs.
Because of this strategy, gross billings in master's degree-oriented programs attained a growth rate of 73.6% year-over-year and contributed approximately 34% to total gross billings, compared with 22% in the same quarter last year. New enrollments also grew at a significant rate of 72.8% year-over-year. Our master's degree programs cater especially to students with full-time jobs who are more financially stable but have relatively limited time and demand more customized assistance for learning. Students with full-time jobs tend to be more dependable and are more eager to attend online test prep courses like those offered by Sunlands. We believe this fact, coupled with Sunlands' continued investment in brand awareness and course offerings, will continue to provide thrust for our wider market share. We also continue to focus on market opportunities for our professional certification and are making significant progress in growing this segment as well.
Since the outbreak of COVID-19 last year, people are getting more comfortable attending online classes to improve work-related and hobby-related skills. Moreover, the employment market is becoming more competitive for employees, and they are feeling the growing sense of urgency to attend professional certification courses with the purpose of maintaining their level of employability. In addition, the Chinese government also established multiple policies to support professional certification education, such as subsidies, training vouchers, and so on. According to the State Council of China, more than 27 million subsidized vocational training opportunities were provided in 2020. We believe these factors will continue to play out in the future, bode well for our professional certification business. While it is encouraging to see such strong growth momentum in both master's degree-oriented and professional certification programs, we remain confident of our STE programs and will continue to fine-tune and expand our product offerings.
According to the Fifth National Population Census of China, only 218 million Chinese held an associate degree or above, representing a percentage of 15.5% compared to the total population of 1.41 billion in China. We believe STE is still a sizable market, and the company will continue to generate revenue from this industry. High-level teaching quality is our priority, and we are devoted to recruiting first-class teachers with competitive compensation packages. By the end of the first quarter, more than 70% of our teachers held degrees from top-tier universities in both China and around the world. Furthermore, we are committed to building an extensive teacher rating and training system, deploying our database of case studies and templates in teaching, and establishing dimensional teaching channels to ensure top-notch teaching standards.
Driven by our efforts in pursuing high-level teaching quality, we are enthused that our students' level of satisfaction has reached a record high according to our internal survey. Aside from our efforts in upgrading teaching quality, we continue to expand and improve our academic research team, refine our research and development framework for new courses with the assistance of AI technologies. In order to widen our course offerings and accelerate the pace with introducing new courses, we believe our academic research team continues to grow. Our research personnel will have better opportunity to become more specialized in his or her own academic discipline, which will further enhance our synergies between our existing and new course offerings, and subsequently improve the overall academic research efficiency.
We are confident this snowball effect in academic research will pave the way for solidifying our competitive position and strengthening our economic moat in post-secondary education industry. Looking ahead, we are endeavoring to proliferate our master's degree-oriented and professional skills programs to capture the benefits of economies of scale while solidifying our market-leading position in STE programs. We are devoted to delivering the best learning experience to our students so they can have the best career prospects while also creating values for all stakeholders. With that, I will turn the call to our CFO, Selena, to run through our financials.
Thank you, Tongbo. Hello, everyone. We are pleased to say first quarter net revenue beat guidance once again and hit a record high. Its rising brand recognition for our master's degree-oriented and professional skills programs bolstered our top-line growth momentum. Our ongoing diversification from STE programs and our commitment to optimizing the student experience affirms our confidence in sustaining this momentum. We also managed to lower costs, delivering 52.2% and 16.3% reductions in G&A and R&D expenses, respectively. As a result, first quarter net loss narrowed 18.7% year-over-year to RMB 53.3 million . As we look ahead, our marketing department will continue to explore avenues to promote brand awareness, while our sales team will target a higher referral rate and a sales conversion rate to fuel future growth. Most importantly, our management is keeping an eye on implementing optimal strategies that deliver the best returns for all shareholders.
Now let me walk you through some of the key financial results for the first quarter of 2021. All comparisons are year-over-year. All numbers are in RMB, unless otherwise noted. In the first quarter, net revenues were RMB 694.3 million, an increase of 22.9% year-over-year. The increase was mainly driven by the year-over-year growth in gross billings since the second half of 2020. Cost of revenues increased by 9.8% to RMB 106.4 million in the first quarter, from RMB 96.9 million in the first quarter of 2020. The increase was primarily due to an increase in compensation expenses. Gross profit increased by 25.6% to RMB 587.9 million from RMB 468.2 million in the first quarter of 2020. In the first quarter, operating expenses were RMB 656.6 million, representing a 17.4% increase from RMB 567.8 million in the first quarter of 2020.
Sales and marketing expenses increased by 32.5% to RMB 606.4 million in the first quarter from RMB 457.9 million in the first quarter of 2020. The increase was mainly due to increase in, number one, compensation expenses related to our sales and marketing personnel. Number two, spending on branding and marketing activities, including more marketing promotional activities to diversify student acquisition channels. General and administrative expenses were RMB 42.3 million in the first quarter of 2021, decreasing 52.2% year-over-year, mainly due to the decline in compensation expenses. Product development expenses decreased by 16.3% to RMB 17.9 million in the first quarter from RMB 21.4 million in the first quarter of 2020. The decrease was primarily due to a decrease in the compensation expenses incurred related to our product and technology development personnel during the quarter.
Other income decreased to RMB 21.3 million in the first quarter of 2021 from RMB 29 million in the first quarter of 2020. The decrease was primarily due to a decrease in value-added tax exemption offered by the relevant authorities as part of the national COVID-19 relief effort. Net loss for the first quarter was RMB 53.3 million, compared to RMB 65.6 million in the first quarter of 2020. Basic and diluted net loss per share was RMB 7.87 in the first quarter of 2021. As of March 31st, 2021, the company had RMB 826.6 million of cash and cash equivalents and RMB 306.5 million of short-term investments. As of March 31st, 2021, the company had a deferred revenue balance of RMB 2,902.5 million, compared with RMB 3,024.4 million as of December 31st, 2020. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvements necessary to support the company's operations.
Capital expenditures were RMB 1.7 million in the first quarter, compared with RMB 7 million in the first quarter of 2020. Now for our outlook. For the second quarter of 2021, Sunlands currently expects net revenues to be between RMB 600 million- RMB 620 million, which should represent an increase of 17.1% and a 21% year-over-year. This outlook is based on the current market conditions and reflects the company's management's current and preliminary estimate of 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?
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. Our first question is from Henry Lee from Tree Fund. Please go ahead.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content] Henry [Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Right.
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
[Non-English content]
Next question comes from Sylvia Chen from CDC Capital. Please go ahead.
Hello management, thanks for sharing. I really didn't get the question from Mr. Lee, I am not sure if there is any repeated questions in this. I'm sorry. My apologies that I will need to probably answer it again in English. My first question would be, could you please kindly provide the breakdown of STE and MBA natural and business and other certificate sectors? The second would be that why, the reason, growth there is lower than net revenue from Q1.
OK, maybe I can answer your second question first. Because we
We pre-collect all the gross billing from the students, we need to recur the revenue during the service period. That means our revenue will not be equal to the gross billing all the time.
Right. Sure. I mean from the previous quarter, because we know that, as you said, the pre-collect nature of education sector, that's why gross billing is always higher probably than net revenue, and that is also what we observed from the previous quarter.
Yes. Let me finish my answer. The speed to recognize the gross billing quite depends on our mixture of our products. You can see during the past several quarters, the percentage of certificate and MBA will get higher and higher. The service period of these two categories are much shorter than the STE. That means with the development of this structure changes, the recognition period will be shorter, that means faster. That's why our revenue now is greater than the gross billing.
Thank you. That perfectly answers my question.
Okay. Could you repeat your first question? Sorry.
It's the breakdown of revenue and/or gross billing of different business sectors.
This is quite similar to the first question raised. Our gross billing structure, I can repeat. The structure from the percentage of STE accounts for 24%, the MBA accounts for 33.8%, the third category accounts for 41%. That is for net gross. You mean the revenue? The percentage revenue percentage?
Right.
The revenue, STE accounts for 60%. That means that comes from the gross billing of last. Okay. About the structure of net gross billing and the net revenue, I think that question refers to this angle. The percentage of STE in net gross billing will be 24%, MBA accounts for 33.8%, and the third one accounts for 42%. Regarding to the net revenue, the structure is different. STE accounts for 60.4%, and MBA accounts for 53.8%. Net revenue, sorry. Net revenue, the STE accounts for 40.8%, MBA accounts for 22.6%, and the third one, 0.34%.
Okay.
Showing no further questions, this will conclude our question and answer session. At this time, 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.