Earnings Call: Q4 2019

Mar 27, 2020

Ladies and gentlemen, thank you for standing by and welcome to Sunlands Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, 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 your host today, Inginghenglou, Sunlands IR Director. Please go ahead. Hello, everyone, and thank you for joining Sunlands Fourth Quarter. And full year 2019 earnings conference call. On the call, our CEO, Tongbo Liu will provide an update on our operational performance as well as our strategic initiatives. I'll say Aflo even Yippeng Li will give you an overview of our financial performance and also provide our guidance for the first quarter of 2020. Following that 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 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, Tom Bali, Thank you, Ying. Hello, everyone. Welcome to Sunlands Fourth Quarter and Full Year 2019 Conference Call. Against the backdrop of macroeconomic challenges during the fourth quarter, we remain focused on attracting to our online platform and improving engagement through a variety of strategic methods. Our first quarter net revenue was RMB549.7 million in line with our guidance. We narrowed our net loss margin to 25.4 in the fourth quarter versus 32.3% in the same period last year as a continued prelently manage costs and expenses. In the fourth quarter of 2019, we continue to focus on our multi pronged strategy for students acquisition and retention. Our efforts centered about around the further development and the depreciation of our products and services through the application of big data, analytics and AI technology. This has allowed us to produce significant operational benefits to both our employees and the students, facilitate our digital travel transformation and further strengthen our data security and the risk control capability. Next, let me provide some key specifics on the drivers of our 4th quarter performers. First, we continue developing our legacy programs especially the master's oriented products to build a more well rounded course portfolio and meet the diverse needs of our students. In 2019, the number of people entering the entrance examination for masters program reached a $2,900,000 in China growing 21.8% year over year and representing the fastest growth rate in the past 10 years. Equipped with a deep understanding of the end of learning process as well as solid operational track record We have been sitting upon this mark to market opportunity by actively investing in masters oriented products making every effort to create specialized programs and solutions. For example, we provide students with comprehensive tutoring and training for test preparation and MBA program interviews, taught by teachers, from both Domestic And International Top Universities. This has resulted in a solid interview pass rate of 65% in 2019. In addition, we have continued expanding our partnership with international universities In order to bring students in China access to high quality and high education resources from Europe and the United States, as well as share China's educational resources with other developing countries. For example, we reached Corporation agreements to jointly launch an online master's program with renowned international universities. With efforts such as this, Our master oriented products continue to attract high interest from students, culminating in 19 0.8% of gross billing nearly RMB120 1,000,000 at the end of the 4th quarter. From approximately 7.8% of gross billing, only RMB16 1,000,000 at the end of the fourth quarter 2018. 2nd, for our ST program, we remain dedicated to improving the brave steps and the efficiency of this program for our students. For 2019, our students achieved an average pass rate of 61.1%. This is significantly higher than the average rate of 43.4% achieved by self taught students during the 2012 to 2016 period according to ad research. For subjects such as fiscal policies and finance, principles of computer science and management requirements pass rates for our students were over 90%. Demonstrating the effectiveness of our learning platform. I would also like to highlight the tremendous potential ahead of us in terms of our samples to secondary and professional education. According to the statistical report on internet development in China published in August 2019, by Office of the Central CyberSpace Affairs Commission. Next than 10% of internet users have college degrees or higher. While online education penetration was just 27% of total internet users as of June 2019, both showing significant room for further expression, which will underlie our future growth. 3rd, we made solid progress in the fourth quarter with our trial programs that enable prospective students to experience our advanced online and mobile learning platform through a targeted and process user outreach trial classes that accurately cater to user needs and effective follow-up of trial users by our teachers and staff We achieved material increase in conversion rates for some of our trial classes. Going forward, we will continue to leverage various tools as our mobile app and WeChat Mini Program to improve our sales efficiencies and grow our gross billings over time. Finally, in regard to the recent coronavirus epidemic that has posted unprecedented unprecedented global challenges are sought with the people who have been affected by the outbreak. As a show of support, the donated masks, goggles and the protective clothing with a total value of RMB5 million in to free online courses was approximately $50,000,000 to medical staff and people most affected by the coronavirus. Despite the disruption caused by the pandemic to our business operation, we expect the adverse impact The coronavirus outbreak has on our business and the results of operations to be limited. Given that the current and other travel restriction imposed due to the outbreak are expected to be temporary and that our courses and other offerings are delivered in a live streaming format and can be consumed in an indoor environment. Looking ahead, we are optimistic about the unmountained growth of our gross billings and the new student enrollment. As we continue to seek balanced top line and bottom line performers. Our leading technology, high quality educational content, coupled with our solid track record of pass rates position us well to capture a strong long run growth opportunity presented in the online postal sector and the professional education market. With that, I would like to hand over the call to our CFO Steven to run through our financials. Thank you, Tongbo, and hello, everyone. Thanks for joining us. Our net revenues were 500 and RMB49.7 million in the fourth quarter of 2019, in line with our guidance. Our gross billings and new student enrollments declined 15.5% 22.6%, respectively, year over year, primarily as a result of slowing macroeconomic growth in China. During the fourth quarter, we continued to pursue a balanced approach to improve profitability while executing our student acquisition strategy by focusing on streamlining our cost structures. Our administrative expenses as well as sales and market expenses decreased by 30.9% and 10.2% respectively, compared with the same quarter last year. Our cost efficiency improvement measures led to a reduction in net loss in the first quarter to RMB139.5 million, twenty four percent lower compared with a loss of $183,700,000 in fourth quarter of 2018. Looking into 2020, we are optimistic that our dedication to persistent products and service upgrades will continue to bring value to our customers and ultimately our shareholders. Now, let me walk you through some of the key financial results for the fourth quarter full year 2019. All comparisons are year over year and all numbers are in RMB. In the fourth quarter of 2019, net revenues decreased by 3.4% to $549,700,000 from $568,800,000 in the first quarter of 2018. The decrease was mainly due to the decrease of gross billings in 2019 compared with 2018. Cost of revenues increased by 29.3 percent to 101.5000000 in the fourth quarter of 2019 from RMB78. $5,000,000 in the fourth quarter of 2018, which was primarily due to insurance premiums related to online education services to $448,200,000 from $490,300,000 in the fourth quarter of 2018. In the fourth quarter of 2019, operating expenses were 599,900,000 representing a 14.4% decrease from $699,700,000 in the first quarter of 2018. Sales and marketing expenses decreased by 10.2 percent to $476,100,000 in the first quarter of 2019, from $530,100,000 in the first quarter of 2018. The decrease was mainly due to reduced marketing spending reflective of discipline and prudent cost management as well as a decrease in expenses related to sales and marketing personnel. General and administrative expenses decreased by 30.9 percent to $98,600,000 in the first quarter of 2019, from $142,600,000 in the fourth quarter of 2018, mainly due to a decrease in office and compensation related expenses. Product development expenses decreased by 9.9 percent to $24,300,000 in the first quarter of 2019, from $27,000,000 in the first quarter of 2018. The decrease was primarily due to a decrease the number of employees and compensation paid to Sunlands product and technology development personnel during the quarter. Net loss for the first quarter of 2019 was $139,500,000 compared with 183,700,000 the first quarter of 2018. Basic and diluted net loss per share was RMB20.46 in the first quarter of 2019. As of December 31, 2019, the company had $1402,200,000 of cash and cash equivalents and $217,600,000 of short term investments compared with 1248.8 $1,000,000 of cash and cash equivalents and $1028,600,000 of short term investments as of December 31, 2018. As of December 31, 2019, the company had a deferred revenue balance of 3000 $228,800,000 compared with $3286,000,000 as of December 31, 2018. Capital expenditures were incurred primarily in connection with purchases of buildings and IT infrastructure equipment necessary to support Sunlands operations. Capital expenditures were $10,400,000 in the first quarter of 2019 compared with $263,100,000 in the first quarter of 2018. And in terms of the key financial results for the full year 2019, Let me walk you through in the details too. In the year of 2019, net revenues increased by 11.1% to 2.2 1,000,000,000 from 2,000,000,000 in 2018. Cost of revenues increased by 20% to RMB 396,300,000 in the year of 2019 from RMB330,400,000 in 2018. Gross profit increased by 9.4 percent to $1,800,000,000 from $1,600,000,000 in 2018. In 2019, operating expenses were $2,300,000,000, representing a 15.5% decrease from $2,700,000,000 in 2018. Sales and marketing expenses decreased by 16.7% to $1,800,000,000 in 2019 from $2,200,000,000 in 2018. The decrease was mainly due to reduced marketing spending reflective discipline, prudent cost management and the decrease in the expenses of sales and marketing personnel. G and A expenses decreased by 18.1 percent to $363,300,000 in 2019 from $443,700,000 in 2018. Product development expenses increased by 33.8% to 101.7000000 in 2019 from 76000000 in 2018. Net loss for 2019 was $395,200,000 compared with 927 $1,000,000 in 2018. Basic and diluted net loss per share was 57 point 81 RMB in 2019 compared with 147 point 27 RMB in 2018. Capital expenditures will incur primarily in connection with purchases, buildings and IT infrastructure equipment necessary to support Sunlands operations, capital expenditures were $25,500,000 in 2019, compared with $518,400,000 in 2018. For the first quarter of 2020, Sunlands currently expects net revenues to be between RMB540 million to RMB560 1,000,000 which would represent a decrease of 4.3 percent to 0.7% 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 the customer demand, which are all subject to change. With that, I'd like to open up the call to questions. Operator, please. Will now begin the question and answer questions. At this owing no further questions. This concludes our question and answer session. At this time, I'd like to turn the conference back over to Yingying Liu, Investor Relations Director for any closing remarks. Once again, thank you everyone for making efforts joining today's call, despite of the serious coronavirus disruptions. We look forward to speaking with This concludes the earnings conference call. You may now disconnect your lines.