Earnings Call: Q3 2020

Nov 18, 2020

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Third Quarter 2020 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 our host today, Eva Ye Sunlands IR Representative. Please go ahead. Hello, everyone. And thank you for joining Sunlands' 3rd quarter 2020 earnings conference call. The company's financial and operating results were issued in a press released 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 site. On the call, our CEO, Tongvolio, will provide an update on our operational voments as well as our strategic initiatives. Our CFO, Lena Lu, will give you an overview of our financial performance and also provide our guidance for the fourth quarter of 2020. 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 and the container hearing. 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 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, Tongvolio. Thank you, Hua. Hello, everyone. Welcome to Sunlands Third Quarter 20 13 Conference Call. Despite the short term impact on our operations, of the COVID-nineteen pandemic in the first half of twenty twenty. Sunlands delivered steady year over year increases in both gross billings and net revenues in the third quarter. Our results were fueled by a combination of the recovering macroeconomic conditions in China as well as the implementation of our optimization initiatives within our business. In the third quarter, our gross billings reached RMB654.3 1,000,000, increasing by 6.6% year over year and 23.1% quarter over quarter. We attribute our strong gross billings results largely to improvements we made in sales efficiency with new approaches students acquisition as well as our enhancing brand awareness and continuous upgrade to our product categories. Additionally, following the solid performance in the second quarter of 2020, net revenues increased 2.7% year over year to RMB541.6 million exceeding the top end of our guidance by 4.2%. Moreover, our new enrollments reached over 114,000 in the third quarter, growing 14% 7.8% year over year and 17.5% quarter over quarter. During the third quarter, we made further progress to balance our top line growth mix, proving the the complexity of our long term strategy in efforts to continually expand our portfolio of educational products and bringing content innovation. While maintaining a leading market share in STE programs, masters degree oriented programs and the professional certification and skills programs continue to reveal great potential to become the next pillars among the company's offerings. Let me start with Master's degree oriented programs, which contributed a rounded 31% to gross billings in the 3rd quarter compared with approximately 17% in the same quarter last year. The growth of Master's oriented programs in terms of gross billings was from nominal regarding 19.3% year over year and 14 8.4% quarter over quarter. This growth was primarily driven by increasing need from working professionals, on certain shifts in the labor market remain in the wake of the COVID-nineteen pandemic together with the increasing demand for Thailand with a highly educational background. In that of this, in order to enrich our program portfolio and the choice of increased demand for diversified and differentiated higher education, In the third quarter, we further expanded our partnership with overseas universities such as, Belarusian State University, provide joint offering programs, take into account our existing partners in the United States the United Kingdom and Australia, we have now established a joint offerings program with over 10 foreign universities. In line with our balanced growth strategy. This effort is designed to further enhance our attractiveness and the competitiveness and the complement of our faster's degree oriented offerings. Due to the current Baccarat conditions, in particular, international COVID related travel restrictions We are seeing an uptick in demand for those international online focused joint offering programs. And we believe the trend will continue for considerable future. Based on current number of admission applications received for 2021 already launched by most universities in China we expected the number of applicants for post granted entrance exams for 2021 admission to surpass the record of CAD3.41 million for 2020. Given the strength also with feedback reports from our sales and marketing department We have high confidence in the continually favorable demand in this area with our proven ability to bring compelling offerings the market that meets students needs with a sustainable growth pathway ahead in developing our portfolio of masters degree oriented and the joint offering programs. These programs also typically carry higher margins than our stand programs owing to their higher ASPs, especially MBA programs. The further deployment of our sustainable overall growth strategy, we continue to promote the rapidly growing ongoing course offering targeting professional certification, vocational education and the focus on awareness. I'm very pleased that the segment also delivered significant growth in in third quarter. It generated gross billings of RMB139.9 million, up RMB301.9 percent year over year. And the 135% quarter over quarter. In the 3rd quarter, the segment accounted for 21.4% of our of our total gross billings compared to 5.7% for the third quarter of 2019. The increase in the segment primarily stems from rising requirements from the labor market for workers and the candidates equipped with occupational skillsets and professional qualifications to meet higher demanding roles and responsibilities. With our cost offerings, presenting attractive ASPs and shorter time durations than traditional postsecondary options with a variable growing demand in this segment in the long run. Moreover, we believe graduates from the courses are more likely to purchase services from us being when changing employment factors require enhanced competitiveness. In the third quarter, we experienced much greater utilization of our online platform to help students succeed in national ST exams in August October, as well as post granted interest exams and MBA programs candidate in the 4th quarter. Our teachers are committed to further improving the quality and the efficiency of our live streaming classes, schedules courses and the tutor materials with such effort and the increased enthusiasm in exam preparation. The total class participant, the number of class participants and the number of quizzes company completed or increased significantly in this quarter, up 39%, 44% 45% respectively year over year. Furthermore, to bring up an unparalleled user experience and drive user stickiness, we further integrated our cutting edge AI technology into all aspects of our our online platform, customizing our customer offerings and teaching materials to deliver innovative breakthroughs. Continuing to invest in our platform upgrades and incorporating applications of AI technology to improve teaching results and efficiency. Will always be part of our effort to sustain our long term growth. With our foresight into the online education industry, certain the multi pronged growth multi pronged growth strategy, we are confident in the the further enhancement of our brand and diversified products. Looking forward, we aim to drive top line growth by expanding our program categories increasing the approaches we use to acquire students and by improving our lead conversion efficiency. At the same time, we will further optimize bottleneck per performance enabled by cost saving increment and using AI technology throughout our organizations. With that, I would like to hand over the call to our CFO Selina to run through our financials. Thank you, Sun Ho and hello everyone. Our 3rd quarter financial results reflects our balance expansion strategy. Net revenues increased by 2.7% year over year exceeding our expectations. This result is attributable to broad based improvements across our organization. In particular, optimizing our revenue contribution structure. Other highlights in the quarter include a significant increase in gross billings and a higher proportion of revenues coming from non SCE products. These accomplishments came from improved efficiency in our student acquisitions and the conversion methods recognition of our program diversity and content enrichment. In terms of cost control management, we pursued a strict spending policy, especially in regard to G And A expenses, which were reduced by 16.7% year over year. Looking ahead, we will continue to focus on product and service upgrades by deploying our AI enabled platform systems. And the further refinement of our internal operations. We believe this dual fold effort will bring long term value our users and the shareholders through a sustainable and balanced approach to growth. Now Let me walk you through some of the key financial results for the third quarter 2020. All comparisons are year over year and all numbers are in RMB unless otherwise noted. In the third quarter, net revenue were 5 41,600,000, an increase of 2.7 year over year. Cost of revenue decreased by 18.2 percent to RMB92.9 million in the third quarter from RMB113.7 million in third quarter 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 8.5 percent to RMB448.7 million, from RMB413.6 million in the third quarter of 2019. In the third quarter, operating expenses were RMB664.1 1,000,000, representing a 21.4% increase from RMB546.9 million in third quarter of 2019. Sales and marketing expenses increased by 32.7 percent to RMB 569,400,000 in the 3rd quarter, from RMB429.2 million in the third quarter of 2019. The increase was mainly due to increases in Number 1, conversation page to our sales and marketing personnel and number 2, funding on branding and marketing activities. Including more marketing promotion activities to diversify Student Acquisition's channels. And number 3, share based compensation expenses recognized in the third quarter of 2020. General run administrative expenses was RMB76.1 million, the third quarter of 2020 decreased by 16.7% year over year, mainly due to the decrease in compensation expense Product development expenses decreased by 29.7% to $18,600,000 in the 3rd quarter from $26,400,000 in the third quarter of 2019. The decrease was primarily due to a decrease in the compensation, incurred related to our product and technology development personnel during the quarter. Other income increased to 14 $7,300,000 in the third quarter from $5,100,000 in the third quarter of 2019. The increase was primarily due to the value added tax exemption of $44,100,000 offered by the relevant foreign as part of the National Covid-nineteen relief efforts. Net loss for the third quarter was RMB 155,800,000, compared with RMB129,800,000 third quarter of 2019. Basic and diluted net loss per share was RMB24.62. The third quarter of 2020. As of September 30, 2020, the company has RMB1.1 billion of cash and cash equivalents and $234,400,000 of short term investments. As of September 30, 2020, the company has a deferred revenue balance of RMB 390.3 million, compared with $328,800,000 as of December 31st. 2019. Capital expenditure were incurred primarily in connection with IT Infrastructure Equipment. And leasehold improvements necessary to support Sun Life's operations. Capital expenditures were $14,300,000 in the 3rd quarter, compared with $11,800,000 in third quarter of 2019. And now for our outlook, For the fourth quarter of 2020, Sunlands currently expect net revenues to be between $540,000,000 to $560,000,000, which would represent a decrease of 1.8% to an increase of 1.9% year over year. This outlook is based on the current market conditions. And reflects the company's management's current and the preliminary estimate of market, operating conditions and customer demand. Which are all subject to exchange. We will now you. For the please. At this time, we are showing no questions. So this will conclude our question and answer session. At this time, I would like to turn the conference back over to Yvalier, 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 our earnings conference.