Earnings Call: Q2 2021

Aug 18, 2021

Earnings release

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Second 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 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, Yuhua Yi, Sunlands' IR representative. Please go ahead. Hello, everyone, and thank you for joining Sunlands' Q2 2021 earnings conference call. The 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. Participants on today's call will be our CEO, Mr. Tongbo Liu and our CFO, Selina Lu Liu. Management will begin with prepared remarks and the call will conclude with a 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 These statements are based on current trends, estimates and projections, and therefore, you should not place And your reliance on the 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 would now like to turn the call over to our CEO, Tongbo Liu. Thank you, Yu Hua. Hello everyone and thank you for joining Sunlands' Q2 2021 earnings conference call. We are pleased with our 2nd quarter performance. Our net revenue grew 22.8% year over year to RMB629.5 million with master's degree oriented programs and the professional certification and skills programs achieving a year over year increase of 91.7 percent and 5% and 84.6% respectively. New enrollments remained relatively stable at over 86,000 representing a 4.8% year over year increase, which was primarily driven by our 168.7 percent year over year increase from professional certification and skills programs. Following a strategic adjustment to optimize our product mix, while seeking growth and balancing costs and profitability, Our gross billings were RMB413.2 million compared with RMB531.5 million for the same period of 2020. Our strategic adjustment and ongoing cost reduction efforts Delivered a record net profit of RMB22.1 million compared with net loss of RMB126.1 million in the Q2 of 2020. We experienced increased demand for higher education and professional certification and skills programs During the Q2 of 2021, the employment market is becoming increasingly competitive Due to industrial restructuring in the wake of COVID-nineteen pandemic, motivating workers to enhance their career competitiveness through occupational education, While working professionals often pursue higher education through our STE or master's degree programs, many adults also seek to improve their And enrich their lives with our professional skills and general interest courses. With such steady tailwinds, We increased our efforts to enrich our course offerings and improve the quality of our programs, which helped sustain the growth momentum in master degree oriented programs and the professional certification and skills programs. So, spending for master cigarette LNG programs increased by 23.7% year over year. This exceptional performance was driven by our successful de guaranteed programs within China as well as our growing cooperation with higher education In other global regions, we continue to provide high quality tailored courses to prepare working professionals in China For MBA entrance examinations, most of the students are middle or senior level managers who by promoting overseas high education supported by our expanding cooperation with foreign institutions. We also diversified our overseas postgraduate degree offerings including MBA, Education, Psychology and Human Resource Management. Meanwhile, our professional certification and skills programs also grow vigorously, Evidenced by a 168.7 percent year over year increase in new enrollments and a 196 point 2% year over year increase in gross billings for the quarter. This growth was primarily driven by our extensive Course offerings, which allow us to meet demand across a wide range of subjects, coupled with increasing Demand for courses to enhance career competitiveness will cultivate soft skills and hobbies. While we strengthened our competitiveness in master's degree oriented programs and the professional certification and skills programs, We'll also continue to provide high quality courses in STE programs to our students. Over 18 years experience in Andal's Occupational education, we have cultivated high brand awareness and developed exceptional The cost teaching frameworks, effective teaching methods and a wide variety of premium courses catering to students' different needs. Sunlands is committed to developing more premium courses and delivering a better leading experience to fit most end of the learning targets To complement our course improvement efforts, we are also working to upgrade our online learning platform to make courses more easily accessible To our students, many of whom work full time or have other time constraints, additionally, we have expanded our user base By providing staff training services to companies across a wide variety of industries, we believe this will further increase our market Penetration rates and reduce of customer acquisition costs. We believe that the depth and quality of our earning Our financial learning platform and cost framework and our highly effective professional teaching staff We are excited to say that our brand is regarded highly by our students As reflected by their satisfaction rate of 98.73% in the Q2, We will continue to strengthen our leading position in the industry by developing more refined courses in a broader area of subjects while enhancing our service quality with additional 1st class teachers. Now turning to a recent Circular published by the Ministry of Education pertaining to the adult education and training On 19th July, which stated social organizations and private entities in adult education business Have played a positive role in the promoting lifelong learning society, followed by some guidelines for industry standardization. Sunlands has always been committed to complying with applicable laws and regulations, and we believe these guidelines We'll give industry leaders such as Sunlands an advantage given our existing strict standards and comprehensive internal review process. Going forward, we will remain committed to designing high quality courses and creating innovative, effective Internet and plan for best learning tools in collaboration with our outstanding academic research team and teaching staff. Given Sunlands' secure foothold in the end of education business, we are confident we can continue to offer premium courses In ST programs and solidify our market share in the master's degree oriented and professional skills program space. With that, we are well positioned to continue to deliver strong results in future quarters. That concludes my prepared remarks. Thank you. And I will turn the call over to our CFO, Selina, for further review of our financials. Selina, please. Thank you, Song Ho. Hello, everyone, and thank you for attending Sunlands' Q2 conference call. We are excited to report solid 2nd quarter's results with profit coming in at RMB 22,100,000 compared With net loss of RMB126,100,000 for the same period last year and with our master's degree and professional skills programs Consistently performing well. During the quarter, we took multiple measures to reasonably lower costs And improved operating efficiency with G and A and COS expenses decreasing 8% and 7.9% year over year, respectively. We also continued our efforts to And course categories as we strive to deliver better learning experiences to our users. Looking ahead, We will persist in cost efficient marketing and operation optimization. With our existing advantage in the business of Occupational education for adults, better cultivated courses and highly efficient management, We believe we are on track to grow further and incrementally increasing profitability. Now I would like to share our financial results for the Q2 of 2021 in detail. In the Q2 of 2021, Net revenues increased by 22.8 percent to RMB629.5 million from RMB5 $12,500,000 in the Q2 of 2020. The increase was mainly driven by year over year growth In gross billings since the second half of twenty twenty through the Q1 of 2021, Cost of revenues decreased by 2.3 percent to RMB97.3 million in the Q2 of 2021 from RMB99.6 million in the Q2 of 2020. 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 28.9 percent to RMB532.2 million in the Q2 of 2021 from RMB412.9 million in the Q2 of 2020. In the Q2 of 2021, operating expenses were RMB519.6 million, representing a 7 point 2% decrease from RMB560 1,000,000 in the Q2 of 2020. Sales and marketing expenses decreased by 7.9% to RMB449.1 million In the Q2 of 2021 from RMB487.9 million in the Q2 of 2020. The decrease was mainly due to lower spending on branding and marketing activities and decline of compensation expenses related to General and administrative expenses decreased by 8% To $51,600,000 in the Q2 of 2021 from 56 $100,000 in the Q2 of 2020. The decrease was mainly due to decrease in compensation expenses. Product development expenses increased by 17.6 percent to rmb18.8 million In the Q2 of 2021, from RMB16 1,000,000 in the Q2 of 2020, the increase was Primarily because the Social Security expenses exemption offered by the relative relevant authorities during the COVID-nineteen outbreak came to an end in 2021. Other income was rmb8.2 million In the Q2 of 2021 compared to RMB17.5 million in the Q2 of 2020. The decrease was primarily because value added tax exemption offered by the relevant authorities as part of the national COVID-nineteen Release effort came to an end in April 2021. Net income for the Q2 of 2021 was RMB22.1 million compared with net loss of RMB126.1 million in the Q2 of 2020. As of June 30, 2021, the company had RMB835.4 million of cash and cash equivalents and RMB49.9 million of short term investments. As of June 30, 2021, the company had a deferred revenue balance of RMB2690.2 million. Capital expenditures We're encouraged primarily in connection with IG infrastructure, equipment and the leasehold improvements necessary to support the company's operations. Capital expenditure were RMB7.8 million in the Q2 of 2021 compared with RMB1 1,000,000 in the Q2 of 2020. For more of our 2021 first half financial results, please refer to our earnings press release for further details. And now for our outlook. For the Q3 of 2021, Sunlands currently expects Net revenue to be between RMB570 1,000,000 and RMB590 1,000,000, which would represent an increase of 5.2% to 8.9% year over year. This outlook is based on current market conditions and reflects the company's management's current and preliminary estimates of the market, Operating conditions and customer demand, all of which are subject to change. With that, I'd like to open the call to questions. Operator? Thank you. We will now begin the question and answer session. And 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. We'll pause momentarily to assemble our roster. Having 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 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 very much and have a great day.