Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' first quarter 2026 earnings conference call. At this time, all participants are in listen only mode. Today's conference call is being recorded. I will now turn the call over to your host today, Yuhua Ye, Sunlands' IR Representative. Please go ahead.
Hello, everyone, and thank you for joining Sunlands' first quarter 2026 earnings conference call. The company's financial and operating results were issued in our press release via newswire services earlier today and are posted online. You could download the earnings press release and sign up for our distribution list by visiting our IR website at ir.sunlands.com. Participants on today's call will be our CEO, Mr. Tongbo Liu, and our Financial Director, Mr. Hangyu Li. Management will be beginning with prepared remarks, followed by a question and answer 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. 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'll now turn the call over to our CEO, Tongbo Liu.
Okay. Thank you, Yuh ua. Hello, everyone. Welcome to Sunlands' first quarter 2026 earnings conference call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continuing operations basis, and all figures are denominated in RMB, unless explicitly specified otherwise. We opened 2026 with revenue of RMB 14.7 million, and a net income of RMB 17.8 million, marking our 20th consecutive profitable quarter. Net income margin reached 17.4%. Selling expenses declined 19.5% year-over-year, representing the largest single quarter reduction we have recorded in recent years and the third consecutive quarter of year-over-year decline. At the same time, R&D expenses rose 5.6% year-over-year, reflecting our continued investment in technology capacity enhancement. The 9.6% year-over-year revenue decline reflected two concurrent dynamics.
Continued structural subsidies in degree- and diploma-oriented programs, and our ongoing recalibration of customer acquisition standards towards higher quality learner cohorts. While these factors placed pressure on the top line of our profitability, reflecting the progress we have made in cost structure optimization, operating discipline, and technology-enabled efficiency. Let me now turn to the performance of our major cost categories. Degree- and diploma-oriented post-secondary programs contributed 17.9% of net revenues in the first quarter of 2026. We've continued to manage this segment in line with genuine learner demand while allocating resources with discipline. interest-based programs, professional skills, and professional certification preparation together contributed 67.9% of net revenues and remains important areas of focus as we continue to diversify our revenue mix. Within this broader category, senior interest-based learning remains one of the areas where we continue to see meaningful long-term opportunity.
This quarter, we further deepened our catalog within the arts, adding new courses such as colored pencil and folk music in response to expressed learner demand. We are also exploring adjacent content directions through early stage pilots, including language learning, where we have seen initial learner interest. Beyond course content, we continue to extend the learning experience into more tangible scenarios. We launched a study tool designed around our existing course content, so that a learner who has spent a year studying Chinese painting with us can take a natural next step by visiting the landscapes, artists, and museums connected to that tradition. This allows us to deepen the learning journey and reinforce the investment learners have already made, rather than asking them to start from zero in an unrelated program.
We also continue to partner with art galleries and cultural institutions to bring our learners into physical spaces where their coursework comes alive. Through curated visits, online category of paintings, students can see masterwork up close, meet practitioners, and gain clearer sense of where sustained practice can take them. Initial learner feedback has been constructive and generally positive. We believe this type of learning reinforcement is an effective lever for improving both completion and then repurchase. These initiatives remain at an early stage, with initial signals warranting continued observation and refinement. We are not simply building a course catalog, but gradually extending the learning experience into a more integrated and continuous journey for the new learners. Repurchase behavior within our core cohorts continues to provide encouraging indications that for the increasing share of learners, this evolving experience is gaining resonance.
The most consequential operating development this quarter relates to the continued maturation of our AI capability, which we believe may have meaningful implications for long-term operating efficiency. A year ago, we described AI primarily a productivity tool. As adoption has broadened across the business, that framing has continued to evolve. In our customer acquisition workflow, our internally developed AI assistant has increasingly played a decision support role. It helps surface signals in live prospective interactions, including sentiment, hesitation, and decision friction, and provides tailored conversational guidance based on each agent's communication style and the conversational content. In parallel, our intelligent voice system has shortened the time to first contact window for new leads, a factor that has historically been associated with conversion efficiency. It has also enabled our human teams to focus more on high-value interactions that requires judgment and accuracy, which remain critical to enrollment outcomes.
Looking ahead, we expect AI-driven capabilities to continue to be embedded more broadly across both acquisition and service workflows, supporting ongoing improvements in operating efficiency. We are also exploring how these capabilities can be extended into broader parts of the learner lifecycle to further improve overall service efficiency and experience. To close, this quarter reflects disciplined execution against the priorities we outlined at the start of the year. Revenue mix continues to evolve, profitability remains supported by operating discipline, and our technology capabilities continue to deepen. We believe the investments we are making today are strengthening the foundation for sustainable long-term development. As these initiatives continue to mature, we remain focused on disciplined execution and prudent risk resource allocation. That concludes Tongbo's prepared remarks. I will now turn the call over to our Finance Director, Hangyu. Hangyu, please.
Thank you, Tongbo. Hello, everyone. I'm pleased to share our financial results for the first quarter of 2026. This quarter, our numbers demonstrate the rewards of our strategic persistence. As Tongbo discussed, we have deliberately prioritized revenue quality and learner cohort health over raw top-line scale. This disciplined execution has translated into a linear cost structure, healthy margins, and a resilient balance sheet. Our focus on precision has led to a significant milestone in cost management, with selling expenses declining by 19.5% year-over-year. This marks the largest single-quarter reduction we have recorded in recent years and our third consecutive quarter of year-over-year decline. While we prudently manage overhead, we continued to expand our technological edge. Our product development expenses rose by 5.6% year-over-year, reflecting our commitment to embedding AI deep into our operations.
This scaling of our AI capability is already serving as a primary operational catalyst to enhance delivery, automate engagement, and offset structural costs. These strategic trade-offs have directly enforced our profit quality and bottom-line resilience. Despite 9.6% year-over-year decline in net revenues, our profitability remains strong. We maintained a solid gross margin of 86.5%, while our net income margin expanded to 17.4%. Securing this execution is our resilient balance sheet position. Our robust liquidity profile provides us with the strategic flexibility required to fully absorb macroeconomic variations while aggressively compounding capital into our priority growth initiatives. Let me walk you through some of our key financial results for the first quarter of 2026. All comparisons are year-over-year, and all figures are in RMB unless otherwise noted.
In the first quarter of 2026, net revenues decreased by 9.6% to RMB 440.7 million from RMB 487.6 million in the fourth quarter of 2025. Cost of revenues decreased by 17.7% to RMB 59.5 million from RMB 72.3 million in the fourth quarter of 2025. Many due to a decline in costs related to learning materials, books, and service fees paid to educational institutions. Gross profit was RMB 381.1 million, compared to RMB 415.3 million in the fourth quarter of 2025.
Gross profit margin expanded to 86.5%, up from 85.2% in the prior year period. Total operating expenses were RMB 284.3 million, a 16.7% decrease from RMB 341.1 million in the fourth quarter of 2025. Sales and marketing expenses decreased by 19.5% to RMB 241.9 million from RMB 300.4 million in the fourth quarter of 2025, primarily due to optimized compensation for sales personnel and more targeted branding and marketing activities.
General and administrative expenses increased by 4.1% to RMB 35.9 million from RMB 34.5 million in the fourth quarter of 2025. Product development expenses rose by 5.6% to RMB 6.6 million from RMB 6.2 million in the fourth quarter of 2025. Net income for the first quarter of 2026 reached RMB 76.9 million compared to RMB 75.2 million in the fourth quarter of 2025. Basic and diluted net income per share was RMB 11.48 in the first quarter of 2026.
As of March 31st, 2026, the company held RMB 547.2 million of cash equivalents, and restricted cash, alongside RMB 236 million of short-term investments, compared to RMB 576.8 million of cash and cash equivalents and RMB 235.9 million of short-term investments as of December 31st, 2025. As of March 31st, 2026, the company maintained a deferred revenue balance of RMB 500.5 million compared to RMB 585.3 million as of December 31st, 2025. Turning to our outlook.
For the second quarter of 2026, we expect net revenues to be between RMB 410 million-RMB 430 million, representing a decrease of 20.2%-23.9% year-over-year. This outlook is based on our current market dynamics and reflects our preliminary assessment of micro conditions and the learner demand patterns, which remain subject to substantial uncertainty. This concludes our prepared remarks. We'll now open the call for questions. Operator, please go ahead.
Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask your question in Chinese, please immediately repeat your question in English. As a reminder, to ask a question, please press star one one on your telephone. At this time, we are showing no further questions. I will conclude our Q&A session and I will now turn the conference back to Yuhua 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 today's conference call. Thank you for participating. You may now disconnect.