Earnings Call: Q1 2020

May 27, 2020

Earnings release

Ladies and gentlemen, thank you for standing by and welcome to Sunlands First Quarter 2020 Earnings Conference Call. At this time, all participants Today's conference call is being recorded. I would now like to turn the call over to your host today, Daisy Wang, Head of Investor Relations of the company. Please go ahead. Hello, everyone, and thank you for joining Sunlands' 4th quarter 2020 earnings conference call. The company's financial and operating results were issued in the 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, Tunvolio, will provide an update on our operational performance as well as our strategic initiatives. Our CFO, Selena Lu will give you an overview of our financial performance and also provide our guidance for the second 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 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 sectors 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 ICC. With that, I will now turn the call over to our CEO. Please go ahead, Sunbo. Thank you, Dasein. Hello, everyone. Welcome to Sunlands' first quarter 2019 conference call. Sunlands delivered solid first quarter results despite significant challenges stemming from the COVID 19 pandemic. Specifically the lockdown of our Wuhan campus, which affected almost half of our sales force. And the postponement National ST exams from April to August that has delayed student enrollment for our preparation classes. Our capacity utilization was significantly limited due to the epidemic and gradually improved to about 18% during the quarter. Thanks to the extraordinary efforts of our employees and our robust online infrastructure, we achieved gross billing of RMB516.8 million in the first quarter in addition to profitability improvement with the with net loss margin narrowed by 8.4 percentage points to 11.6% resulting from our prudently manage costs and expenses. While the COVID-nineteen pandemic has posed challenges for both in videos and the business, They have also presented emerging opportunities. The pandemic has forced schools, universities and companies to tend to remote working and teaching creating a booming online learning. Although the STD exam has been postponed, our students are actually spending more time to prepare for tests. And showing a higher level of loyalty and in sourcing for learning. In the first quarter, total enhancements on live streaming classes and the number of quizzes taken per active user increased to 19% 21% respectively. Year over year. We expect the increased engagement to lead to improve the examination results and help promote our courses in the future. In spite by people's changing behavior patterns during the lockdown period in the first quarter of 2020, we began experimenting with new approaches to student acquisition aiming to increase sales efficiencies and the student conversions. In addition to our students and student acquisition strategy, we continue to diversify our online course offerings to include more master oriented professional certificates and the non degree programs by adding new courses to satisfy the needs of our students to develop their interested learning areas and professional skills, leveraging our online education expertise and online infrastructure This will help us drive new groups by catering to welder's student base, increasing our students' readiness to pay for more courses and maximizing their engagement. A 10 year low of 28.2 percent in China last year with a strong market growth potential for our products in the India segment. Our masters degree oriented programs accounted for 22.5 percent of total billings in the first quarter of 2020 significantly higher compared with 12.1% and the 3.7% in 201920 18, respectively. Our MBA programs in particular attracting strong interest from our students we offer joint programs with leading institutions domestically and the board at an affordable price range. In addition to our efforts to drive the development and innovations of our core business, we have expanded our offerings by establishing a new business vertical designed specifically to provide online employee training service to corporations. Our B2B training services offered a mobile based learning infrastructure, a numerous professional scale training courses costs and other related services designed for corporations. Since its initial launch, Our B2B training services have received positive feedback with 316 cooperate clients signed up despite its current relatively small scale. I'm confident that our B2B training services will work complement our core business in the future. Turning to the pandemic, as an issue of support during this time, we donated approximately RMB5 million in cash in addition to offering free online courses to Helm. As conditions relating to the COVID-nineteen outbreak continue to gradually improve, we are confident to enhance our financial and operating results for for the remainder of the year. For the long run, we will further focus on student acquisition strategies diversification of our course offerings, upgrade of our offerings and the investment in IT infrastructure. Or in an effort to better satisfy our skills and sneeze and strengthen our brand value. I'm glad that starting from April 13, Ms. Lee will serve as the CFO of the company. Ms. Lee has served as Sunlands, Chief Strategy Officer joining the company in 2015 and has been an instrumental part of the senior management team leading 3 rounds of private financing and the company's IPO. With that, I would like to hand over the call to our CFO Salina to run through our financials. Thank you for the introduction Tongbo and hello everyone. Thanks for joining us. I'm very happy to begin my new role with the company and host this conference call. I will have my 5th anniversary with Sunlands in July this year. In the past 5 years, I have been privileged to serve Saumaz and deeply and passionately engaged in its growth and development. I strongly believe that The online education industry is one of the most promising industries in China. In the future together with Tungbo, our CEO and my best partner, will communicate our company's strategies, operational performance and corporate governance transparently opening and responsibly to the capital markets. During the first quarter, we continued our balanced approach to both revenue growth and We were pleased, especially amidst difficulties caused by the COVID-nineteen outbreak to see sustained strength in our gross profit which increased sequentially for two quarters in a row as well as narrowing our net losses all sequentially and year over year. With cost structure optimization as a continued priority, our operating expenses decreased 7.3% compared with the same period last year. Looking ahead, we are optimistic that along with our new initiatives focused on student acquisitions and enriched content, we can further leverage our existing infrastructure to improve both the sustainability and effectiveness of our business model and ultimately drive long term growth. Now let me walk you through some of the key financial results for the first quarter 2020. All comparisons are year year and own numbers are in RMB. In the first quarter of 2020, net revenue were RMB 565,100,000, relatively flat to the first quarter of 2019. Cost of revenues increased by 13.4% to 96,900,000 in the first quarter of 2020 from 85,500,000 in the first quarter of 2019. Which was primarily due to an increase in expenses related to fees to educational institutions. Gross profit decreased by 2.2percentto468.2000000 from RMB478.7 million in the first quarter of 2019. In the first quarter of 2020, operating expenses were $557,800,000, representing a 7.3% decrease from 6 $12,700,000 in the first quarter of 2019. Sales and marketing expenses decreased by 7.9 percent to $457,900,000 in the first quarter of 2020. From 497,300,000 in the first quarter of 2019. The decrease was mainly due to reduced marketing spending reflectively reflective of disciplined, prudent cost management and the decrease in expenses related to sales and marketing personnel. General and administrative expenses was 88,500,000 in the first quarter of 2020, relatively flat compared compared with the first quarter of 2019. Product development expenses decreased by 20.6% to $21,400,000 in the first quarter of 2020 from $27,000,000 in the first 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 in the first quarter from $298,000 in the first quarter of 2019 The increase was primarily due to the value added tax exemption offered by the relevant authorities in the amount of $19,800,000 during the COVID 19 outbreak and the government subsidies of $8,440,000. Net loss for the first quarter of 2020 was RMB65.6 million compared with RMB100 and $12,900,000 in the first quarter of 2019. Basic and diluted net loss per share was 9.62 in the first quarter of 2020. As of March 31, 2020, The company has $1340,200,000 of cash and cash equivalents. And $143,400,000 of short $2,000,000 of cash and cash equivalents and $217,600,000 of short term investments as of December 31, 2019. As of March 31, 2020, the company had a deferred revenue balance of $3105,500,000 compared with 3228.8 $1,000,000 as of December 31, 2019. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvement necessary to support Sunlands operation. Capital expenditure were 7,000,000 in the first quarter of 2020 compared with 1,100,000 in the first quarter of 2019. For the second quarter of 2020, Sunlands currently expects net revenues be between 500,000,000 to 520,000,000, which would represent a decrease of 9.5 percent to 5.9 percent year over year. The above outlook is based on the current market conditions and reflects the company management's current and the preliminary estimates of market, operating conditions and customer demands. Which are all subject to change. With that, I'd like to open up the call We will now begin questions. There are no questions at this time. I would like to turn the conference back over to Daisy Wang, Head of Investor Relations for 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