Earnings Call: Q4 2020

Mar 18, 2021

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' 4th Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants will be 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 conference over to your host today, Yu Hua Yi, Sunlands IR Representative. Please go ahead. Hello, everyone, and thank you for joining Sunlands' 4th quarter And full year 2020 earnings conference call. The company's financial and operating results were issued in our press release via newswire released 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 Our CFO, Selina Rui, will give you an overview of our financial performance and also Our guidance for the Q1 of 2021. Following their prepared remarks, we will move into the Q and 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 will differ materially from those contained in any forward looking statements. For more information about the potential risks And the comment is, please refer to the company's filings with the Securities and Exchange Commission. With that, I will now turn the call over to Thank you, Yu Hua. Hello, everyone. Welcome to Sunlands' 4th quarter and full year 2020 conference call. While faced with a year of both unusual challenges and changes, we concluded 2020 with steady and solid growth in the Q4. We continued our strategic focus on developing diverse product offerings, improving student acquisition efficiency, enhancing curriculum effectiveness and pursued the opportunities in the market as overall demands growth for higher education and professional In the 4th quarter, our net revenues reached RMB4.6 million, growing 6.3% compared to the same period of 2019. Thanks to enhanced operational efficiency and expanded course categories, our new student enrollment increased remarkably by 51.8 percent year over year to over 114,000 in the 4th quarter. The driving force behind this 30 student growth was our further expansion of course portfolios spanning all over the categories based on the solid foundation of our degree oriented programs, our exploration of diverse avenues for user Acquisition as well as enhanced operating efficiency and service quality also contributed to today's strong growth. Our master's degree oriented programs continue to yield robust results in 2020, with the COVID-nineteen The pandemic impacted many industries and creating heavy uncertainty in the job market, there has been an increasing recognition of the importance of The national postgraduate entrance exams for the 2021 concluded in December with registered As the competition intensifies and admission rates continue to decline, we are seeing more applicants waiting to pay for preparation courses. In fact, our master's degree oriented programs showed strong growth momentum in 2020 with RMB32.9 Meaning, RMB gross billings increasing 49.5% compared with 2019. The solid performance was a result of our high quality and tailored courses that helped capture The increasing number of applicants for postgraduate studies who are mostly working professionals. We are also developing more undergraduate oriented programs to meet the changing demands of end authentication. We offer rich opportunities and various options for people who are wanting to pursue their undergraduate education later in life. For example, we are ending preparation courses targeting entrance exam for Ann Arbor Universities and the Open University of China In addition to our STE programs, which will further diversify our income sources and consolidate our market position, The online education has become more accessible and widely accepted in China, and the Chinese government has We believe The demand for quality online post secondary courses will continue to grow and we are well positioned to seize growth opportunities as we roll out Diversified curriculum mix meeting various demand. In the Q4, we witnessed robust Further developed more professional certification and skills courses. New enrollments in the Q4 increased more than 6 times year over year, Primarily due to the increase in professional skills and general interest courses, catering to growing demand For diverse personal education as well as the low base last year, we developed more general courses helping Users cultivate soft skills, interests and hobbies as we saw a surge The interest for these courses online, especially during the COVID pandemic. All these efforts and expansion of course portfolio have paved the way For promising further growth as we continue to release new courses and programs to satisfy the market demand. With our core portfolio's solid foundation, we can effectively scale up our user base for both existing and new programs to similar fields. In pursuit of boosting operating efficiency and enhancing curriculum effectiveness, Our team further improved our user acquisition and service quality. This enables us to take advantages of rising opportunities in We saw a notable increase in the efficiency of our workforce. With rising traffic acquisition costs, We also expanded our sales channel through B2B training service working while working with corporations and institutions, which began to bear fruit. We are confident that the integration of various channels targeting innovative users and corporate customers will further increase our market Penetration and user base as well as optimize our user acquisition costs. With our commitment to offering high quality online education, We have established procedures to both procure and train 1st rate teachers. We have also improved their services to In 2020, the number of class participants increased 29.3% year over year In the STE exam held in October 2017, we maintained a high level pass rate of above 16%, which further cemented our market leadership. In the Q4, we held our annual teaching contest To motivate teaching improvement, the focus on teaching quality creates a virtuous circle of academic success, User referrals, user acquisition and then sustainable growth. In order to assist our experienced Our AI system is able to predict students' exam scores based on their practice performance with an accuracy rate as high as 18%. It can then offer suggestions to help students adjust their study plans accordingly. We also employed our AI technology To analyze and predict the most frequently test questions using our vast historical examination database and big data analysis capability. In the Q4, we further expanded our database increased the number of exam questions to 825000 representing year over year growth of 18.8 percent. Heading further into 2021, we will maintain Agility and adaptability as we remain committed to enhancing the development and the rollout of top notch and We are also keeping a close eye on improving operating efficiency as well as expanding and boosting sales channels. With that, I will I'll turn the call over to our CFO, Selina, to run through our financials. Thank you, Tongbo. Hello, everyone. In the Q4, we deepened our strategy to balance business growth and profitability in a challenging environment. Our net revenues continue to grow at a healthy rate, exceeding the high end of our guidance by 4.4%. As we further improved operating efficiency and optimized the costs, our general and administrative expenses in the 4th quarter declined 44.6% year over year, which contributed to the significant Narrowing off our net loss to RMB73.5 million from RMB139.5 million in the Q4 of 2019. Our net loss margin decreased considerably to 12.6% from 25.4% in the Q4 of 2019. Going forward, we will continue to refine our operation and sales execution as we strive for robust and sustainable long term growth in order to consistently create value for our students and shareholders as well as the broader society. Now, let me walk you through some of the key financial results for the Q4 of 2020. All comparisons are year over year and all numbers are in RMB unless otherwise noted. In the Q4, net revenue was RMB584,600,000, an increase of 6.3% year over year. Cost of revenue decreased by 3.6 percent to RMB97.8 million in the 4th quarter from RMB101.5 million in the Q4 of 2019. The decrease was primarily due to reduced Insurance related costs incurred for our integrated online education service package purchased by students. Gross profit increased by 8.6 percent to RMB486.7 million from RMB448,200,000 in the Q4 of 2019. In the Q4, operating expenses were RMB673,700,000, representing a 12.5% increase from RMB599 1,000,000 in the Q4 of 2019. Sales and marketing expenses increased by 27.8% to RMB608.5 million in the 4th quarter from RMB476 RMB100 1,000,000 in the Q4 of 2019. The increase was mainly due to increases in, number 1, compensation expenses related to our sales and marketing personnel and number 2, spending on branding and marketing activities, including more marketing promotion activities to diversify student acquisition channels. General and administrative expenses was RMB54,700,000 in the Q4 of 2020, decreased by 44.6 percent year over year, mainly due to the decrease in compensation expenses. Product development expenses decreased by 56.4 percent to RMB10.6 million in the 4th quarter from RMB24,300,000 in the Q4 of 2019. 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 increased to RMB109.4 million in the 4th quarter from RMB6.9 million in the Q4 of 2019. The increase was primarily due to the value added tax exemption of RMB77,500,000 offered by the relevant authorities as part of the national COVID-nineteen relief efforts. Net loss for the 4th quarter was RMB73,500,000 compared with RMB179.5 million in the Q4 of 2019. Basic and diluted Net loss per share was RMB10.87 in the Q4 of 2020. As of December 31, 2020, the company has RMB 760,700,000 of cash and cash equivalents and RMB517.8 million of short term investments. As of December 31, 2020, The company had a deferred revenue balance of RMB 3,024,400,000 compared with RMB3228.8 million as of December 31, 2019. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvement necessary to support the company's operations. Capital expenditures were $4,700,000 in the 4th quarter compared with RMB10.4 million in the Q4 of 2019. For more of our 2024 year financial results, Please refer to our earnings press release for further details. And now for our outlook. For the Q1 of 2021, Sunlands currently expects net revenue to be between RMB 670,000,000 RMB690 1,000,000, which would represent an increase of 18 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. Showing no questions, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to Yu Hua Yi, 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.