Sunlands Technology Group Reports Resilient Q2 2024 Financials Amid Market Challenges

Sunlands Technology Group (STG) Q2 2024 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to Sunlands Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded. I will now turn the call over to your host today, Yuhua, Sunlands IR representative. Thank you. Please go ahead. Yuhua Ye Hello, everyone and thank you for joining today's Sunlands Second Quarter 2024 Earnings Conference Call. The company's financial and operating results were issued in our press release via Newswire services earlier today and not 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 financial representative, Mr. Hangyu Li. Management will begin with prepared remarks and the call will conclude with a Q&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, Tongbo Liu. Tongbo Liu Thank you, Yuhua. Hello, everyone. Welcome to Sunlands second quarter 2024 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 operation business and all figures are denominated in RMB, unless expressively specified otherwise. In the face of challenging macroeconomic conditions, our company demonstrated strategic flexibility to deliver solid results in the second quarter. We achieved a net revenue of RMB 492.2 million and a net income of RMB 82.3 million. This underscored our resilience and ability to adapt in the face of adversity and demonstrates our strong commitment to cost reduction and sustainable growth. Our cash flow also remains solid with net cash flow from operating activities showing consistent positively over the past four quarters. This strong financial standing not only equips us to handle unpredictable circumstances effectively, but also create opportunities for pioneering business development. It is also worth noting that the diversification of interest cost offering has continued to bear fruit. With overall new student enrollments up by 9.1% year-over-year and a corresponding 8.4% increase in gross billings. The strategy aims not only to attract a broader and a more varied user base but also to foster increased engagement to repeat purchases and to capitalize on core selling opportunities across our extensive product portfolio. As we continue to expand our core selection and refine our offerings, we are poised to uncover even more market opportunities. Our substantial user base will provide a strong foundation for this growth, enabling us to maximize the lifetime value of each customer. Looking ahead to second half of the year, our top priorities are to enhance brand awareness and improve the quality of our existing products and services. We are taking a prudent but proactive approach to expanding and refining the offerings. Our commitment to the key growth initiatives remain unwavering as we continue to focus on improving operational efficiency and profitability. Now let's turn to the performance of each of our major areas. The sector, including interest, professional skills and professional certification preparation programs has been a pivotal driver of our growth, contributing 76.7% of our total revenue and anticipating an 11% year-over-year increase. Distinguishing itself from transitional test-oriented courses, the adult education market is evolving, with learning objectives becoming more diverse. We believe there are significant opportunities in the interest-based education area, driven by broader educational growth. We realized early on the great potential of interest-based courses particularly within the silver-haired demographic. Recent market developments have validated our strategic vision. Degree- or diploma-oriented post-secondary courses accounted for 10.7% of our total revenue, which is consistent with our near-term goals. To enhance their competitiveness in employment, the demand for working adults to upgrade their degrees or diplomas has remained steady. Online education offers convenience and flexibility, enabling working adults to balance career development with competency enhancement. We are optimistic about the future of this area and will dynamically adjust our business arrangements as necessary. In addition, we are enhancing our online course offerings with ongoing user research to meet diverse needs. Beyond maintaining our leading position in senior arts education, we are venturing intone areas. Leveraging over two decades of expertise and insights, we are poised to gain a competitive edge by aligning our courses with market demands. Furthermore, we have expanded into products and services around course offerings for this demographic, such as learning materials and educational travel. For the former, we tend to work with top-tier supply chains to ensure the highest standards of product delivery. In terms of educational travel, we have already achieved remarkable success, with revenues six times that of the same period last year. In June, we introduced the "Echoes of the Yellow River Expedition" trip, a collaborative project with Beijing radio & television station. This trip was consisted of visiting several cities along the Yellow River to sketch famous landmarks under the guidance of a distinguished artist, with a TV crew documenting the entire process. During the trip, participants gained a comprehensive learning experience both on the road and in the field. Feedback from participants indicated that they appreciated the range of activities including lectures, unique field trips and ongoing in-depth Q&A sessions with the artists. This activity not only enriches our offerings but also greatly enhances the visibility and reputation of our brand. These updates provide a snapshot of our business progress. Now, let's delve into some industry insights. As a company firmly believing in technology as the key driver for innovation, we are proactively participating in the AIGC wave. Our platform now integrates AI to synthesize the voices of distinguished educators, providing timely and personalized learning support to address students' queries. Additionally, we have incorporated AI-driven assignment grading, which offers rapid and objective evaluations, enhancing assessment accuracy and efficiency while reducing the administrative burden on our educators. For instance, the AI-simulated teacher now provides calligraphy evaluations for students, saving approximately two hours of teacher time per day. This allows them to focus more on teaching and interaction. On the macroeconomic policy front, we continue to receive encouraging news about the government's strong support for the industry in which we operate. In August, the State Council introduced a policy aimed at promoting the high-quality development of service consumption. The policy supports the integration of the accommodation industry with tourism, recreation and educational travel, and also emphasizes the importance of senior consumption and educational consumption. Guided by these policy directives, we are committed to developing quality products and services to better serve our students and users. The adult education market presents both opportunities and challenges. On the way forward, we will continue to focus on providing high-quality courses, experimenting with education peripheral products and services, and maximizing shareholder value. Thank you for your interest and support today. With that, I will turn the call over to our financial Controller, Hangyu Li, to run through our financials. Hangyu, please. Hangyu Li Thank you, Tongbo. Hello, everyone. I'd like to present our second quarter results, which are in line with our expectations. We have been profitable in the second quarter of 2024. Our business continues to dramatically adjust to market conditions while prudently pursuing new opportunities. Our gross margin was 84.4% and the net margin was 16.67%, making us profitable for the 13th consecutive quarter. Growth in sales revenues from interest cost offerings compensated for the decline in the post-secondary courses, maintaining a stable profitability. In addition, we had healthy cash flows with four consecutive quarters of positive net cash from operating activities. Our solid cash position not only enhances our ability to cope with an uncertain environment but also provide opportunities for innovative business extension, continues from education peripheral products and services accounted for 11.5% of the total in the quarter. And our efforts to diversify the offerings are working well. We are optimistic about the long-term prospects. Looking ahead, we'll continue to optimize our cost offerings while maintaining efficient operations. These strategic initiatives will enable us to capitalize on emerging opportunities, strengthen our leadership position in the industry and continue to create value for our shareholders. Now let me walk you through some of our key financial results for the second quarter of 2024. All comparisons are year-over-year and all figures are in RMB unless otherwise noted. For the second quarter of 2024, net revenues decreased by 6.5% to RMB492.2 million from RMB526.4 million in the second quarter of 2023. The decrease was primarily driven by the decline in gross billings from post-secondary courses over the recent quarters, partially offset by the growth in revenues from interest cost offerings. Cost of revenues increased by 28.8% to RMB76.6 million in the second quarter of 2024 from RMB59.5 million in the second quarter of 2023. The increase was primarily due to an increase in the cost of revenues from sales and goods such as books and learning materials. Gross profit decreased by 11% and to RMB415.6 million in the second quarter of 2024 from RMB466.9 million in the second quarter of 2023. In the second quarter of 2024, operating expenses were RMB338.9 million, representing a 9% increase from RMB311 million in the second quarter of 2023. Sales and marketing expenses increased by 10.2% to RMB297.4 million in the second quarter of 2024 from RMB270 million in the second quarter of 2023. The increase was mainly due to the growth expanding on sales activities, including enhanced compensation for sales personnel as well as increased spending on branding and marketing activities, focusing on interest cost offerings. General and administrative expenses increased by 2.2% to RMB33.8 million in the second quarter of 2024 from RMB33.1 million in the second quarter of 2023. Product development expenses decreased by 4.2% to RMB7.7 million in the second quarter of 2024 from RMB8 million in the second quarter of 2023. The decrease was mainly due to decline in compensation expenses related to high count reduction of our product development personnel. Net income for the second quarter of 2024 was RMB82.3 million as compared to RMB173.9 million in the second quarter of 2023. Basic and the diluted net income per share was 12% in the second quarter of 2024. As of June 30, 2024, the company had RMB758.6 million of cash, cash equivalents and restricted cash and RMB243.9 million of short-term investments as compared to RMB766.4 million of cash, cash equivalents and restricted cash and RMB142.1 million of short-term investments as of December 31, 2023. As of June 30, 2024, the company had a deferred revenue balance of RMB986.9 million, as compared to RMB 1,113.9 million as of December 31, 2023. Now for our outlook. For the third quarter of 2024, we currently expect net revenues to be between RMB490 million to RMB510 million, a decrease of 2.8% to 6.6% year-over-year. This outlook is based on the current market conditions and reflects the company's management's current and preliminary estimates of market operating conditions of customer demand, which are all subject to change. With that, I'd like to open up the call to the questions. Operator? Once again, thank you everyone for joining today's call. We look forward to speaking with you again soon. Good day, and good night. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect your lines.

Earnings call: Sunlands reports resilient Q2 2024 financials amid challenges By Investing.com

Sunlands Technology Group (NYSE: STG), a leader in the online education sector, has reported its financial results for the second quarter of 2024. Despite a challenging macroeconomic environment, the company achieved a net revenue of RMB 492.2 million and a net income of RMB 82.3 million. Sunlands' strategy to diversify its interest cost offerings has resulted in a 9.1% year-over-year increase in new student enrollments and an 8.4% rise in gross billings. The company's financial position remains strong, with solid cash flow and a consistent positive net cash flow from operating activities over the past four quarters. Looking ahead, Sunlands is focusing on enhancing brand awareness, improving product quality, and expanding its offerings to maximize the lifetime value of its customers. Sunlands Technology Group, with its strategic flexibility and diversified offerings, has demonstrated resilience in a tough economic climate. The company's focus on interest-based education and the integration of innovative technologies like AI continues to drive its growth and profitability. As Sunlands prepares for the future, it remains committed to enhancing its product quality and expanding its market reach, while keeping a close eye on operational efficiency and shareholder value. Sunlands Technology Group (STG) has recently showcased a robust financial performance, which is reflected in some key InvestingPro Data metrics. The company holds an impressive market capitalization of approximately $143.7 million and has demonstrated strong profitability with a low adjusted P/E ratio of 1.93 for the last twelve months as of Q1 2024. This low earnings multiple suggests that the company's stock may be undervalued relative to its earnings. Furthermore, Sunlands boasts a high gross profit margin of 87.03% for the same period, indicating efficient management and a strong competitive position within the online education sector. InvestingPro Tips highlight several points of interest for potential investors. Sunlands is noted for its high shareholder yield and impressive gross profit margins, which are key indicators of the company's ability to generate value for its shareholders. Additionally, the company's valuation implies a strong free cash flow yield, which can be an attractive trait for those looking to invest in a company with solid financial health and the potential for future growth. Investors considering Sunlands Technology Group may find additional insight with the 14 InvestingPro Tips available on the platform, which include a comprehensive analysis of the company's financial health, stock performance, and market valuation. For further details and a deeper dive into Sunlands' performance and potential, investors can access additional InvestingPro Tips at https://www.investing.com/pro/STG. Operator: Ladies and gentlemen, thank you for standing by and welcome to Sunlands Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. Today's conference call is being recorded. I will now turn the call over to your host today, Yuhua, Sunlands IR representative. Thank you. Please go ahead. Yuhua Ye: Hello, everyone and thank you for joining today's Sunlands Second Quarter 2024 Earnings Conference Call. The company's financial and operating results were issued in our press release via Newswire services earlier today and not 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 financial representative, Mr. Hangyu Li. Management will begin with prepared remarks and the call will conclude with a Q&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, Tongbo Liu. Tongbo Liu: Thank you, Yuhua. Hello, everyone. Welcome to Sunlands second quarter 2024 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 operation business and all figures are denominated in RMB, unless expressively specified otherwise. In the face of challenging macroeconomic conditions, our company demonstrated strategic flexibility to deliver solid results in the second quarter. We achieved a net revenue of RMB 492.2 million and a net income of RMB 82.3 million. This underscored our resilience and ability to adapt in the face of adversity and demonstrates our strong commitment to cost reduction and sustainable growth. Our cash flow also remains solid with net cash flow from operating activities showing consistent positively over the past four quarters. This strong financial standing not only equips us to handle unpredictable circumstances effectively, but also create opportunities for pioneering business development. It is also worth noting that the diversification of interest cost offering has continued to bear fruit. With overall new student enrollments up by 9.1% year-over-year and a corresponding 8.4% increase in gross billings. The strategy aims not only to attract a broader and a more varied user base but also to foster increased engagement to repeat purchases and to capitalize on core selling opportunities across our extensive product portfolio. As we continue to expand our core selection and refine our offerings, we are poised to uncover even more market opportunities. Our substantial user base will provide a strong foundation for this growth, enabling us to maximize the lifetime value of each customer. Looking ahead to second half of the year, our top priorities are to enhance brand awareness and improve the quality of our existing products and services. We are taking a prudent but proactive approach to expanding and refining the offerings. Our commitment to the key growth initiatives remain unwavering as we continue to focus on improving operational efficiency and profitability. Now let's turn to the performance of each of our major areas. The sector, including interest, professional skills and professional certification preparation programs has been a pivotal driver of our growth, contributing 76.7% of our total revenue and anticipating an 11% year-over-year increase. Distinguishing itself from transitional test-oriented courses, the adult education market is evolving, with learning objectives becoming more diverse. We believe there are significant opportunities in the interest-based education area, driven by broader educational growth. We realized early on the great potential of interest-based courses particularly within the silver-haired demographic. Recent market developments have validated our strategic vision. Degree- or diploma-oriented post-secondary courses accounted for 10.7% of our total revenue, which is consistent with our near-term goals. To enhance their competitiveness in employment, the demand for working adults to upgrade their degrees or diplomas has remained steady. Online education offers convenience and flexibility, enabling working adults to balance career development with competency enhancement. We are optimistic about the future of this area and will dynamically adjust our business arrangements as necessary. In addition, we are enhancing our online course offerings with ongoing user research to meet diverse needs. Beyond maintaining our leading position in senior arts education, we are venturing intone areas. Leveraging over two decades of expertise and insights, we are poised to gain a competitive edge by aligning our courses with market demands. Furthermore, we have expanded into products and services around course offerings for this demographic, such as learning materials and educational travel. For the former, we tend to work with top-tier supply chains to ensure the highest standards of product delivery. In terms of educational travel, we have already achieved remarkable success, with revenues six times that of the same period last year. In June, we introduced the "Echoes of the Yellow (OTC:YELLQ) River Expedition" trip, a collaborative project with Beijing radio & television station. This trip was consisted of visiting several cities along the Yellow River to sketch famous landmarks under the guidance of a distinguished artist, with a TV crew documenting the entire process. During the trip, participants gained a comprehensive learning experience both on the road and in the field. Feedback from participants indicated that they appreciated the range of activities including lectures, unique field trips and ongoing in-depth Q&A sessions with the artists. This activity not only enriches our offerings but also greatly enhances the visibility and reputation of our brand. These updates provide a snapshot of our business progress. Now, let's delve into some industry insights. As a company firmly believing in technology as the key driver for innovation, we are proactively participating in the AIGC wave. Our platform now integrates AI to synthesize the voices of distinguished educators, providing timely and personalized learning support to address students' queries. Additionally, we have incorporated AI-driven assignment grading, which offers rapid and objective evaluations, enhancing assessment accuracy and efficiency while reducing the administrative burden on our educators. For instance, the AI-simulated teacher now provides calligraphy evaluations for students, saving approximately two hours of teacher time per day. This allows them to focus more on teaching and interaction. On the macroeconomic policy front, we continue to receive encouraging news about the government's strong support for the industry in which we operate. In August, the State Council introduced a policy aimed at promoting the high-quality development of service consumption. The policy supports the integration of the accommodation industry with tourism, recreation and educational travel, and also emphasizes the importance of senior consumption and educational consumption. Guided by these policy directives, we are committed to developing quality products and services to better serve our students and users. The adult education market presents both opportunities and challenges. On the way forward, we will continue to focus on providing high-quality courses, experimenting with education peripheral products and services, and maximizing shareholder value. Thank you for your interest and support today. With that, I will turn the call over to our financial Controller, Hangyu Li, to run through our financials. Hangyu, please. Hangyu Li: Thank you, Tongbo. Hello, everyone. I'd like to present our second quarter results, which are in line with our expectations. We have been profitable in the second quarter of 2024. Our business continues to dramatically adjust to market conditions while prudently pursuing new opportunities. Our gross margin was 84.4% and the net margin was 16.67%, making us profitable for the 13th consecutive quarter. Growth in sales revenues from interest cost offerings compensated for the decline in the post-secondary courses, maintaining a stable profitability. In addition, we had healthy cash flows with four consecutive quarters of positive net cash from operating activities. Our solid cash position not only enhances our ability to cope with an uncertain environment but also provide opportunities for innovative business extension, continues from education peripheral products and services accounted for 11.5% of the total in the quarter. And our efforts to diversify the offerings are working well. We are optimistic about the long-term prospects. Looking ahead, we'll continue to optimize our cost offerings while maintaining efficient operations. These strategic initiatives will enable us to capitalize on emerging opportunities, strengthen our leadership position in the industry and continue to create value for our shareholders. Now let me walk you through some of our key financial results for the second quarter of 2024. All comparisons are year-over-year and all figures are in RMB unless otherwise noted. For the second quarter of 2024, net revenues decreased by 6.5% to RMB492.2 million from RMB526.4 million in the second quarter of 2023. The decrease was primarily driven by the decline in gross billings from post-secondary courses over the recent quarters, partially offset by the growth in revenues from interest cost offerings. Cost of revenues increased by 28.8% to RMB76.6 million in the second quarter of 2024 from RMB59.5 million in the second quarter of 2023. The increase was primarily due to an increase in the cost of revenues from sales and goods such as books and learning materials. Gross profit decreased by 11% and to RMB415.6 million in the second quarter of 2024 from RMB466.9 million in the second quarter of 2023. In the second quarter of 2024, operating expenses were RMB338.9 million, representing a 9% increase from RMB311 million in the second quarter of 2023. Sales and marketing expenses increased by 10.2% to RMB297.4 million in the second quarter of 2024 from RMB270 million in the second quarter of 2023. The increase was mainly due to the growth expanding on sales activities, including enhanced compensation for sales personnel as well as increased spending on branding and marketing activities, focusing on interest cost offerings. General and administrative expenses increased by 2.2% to RMB33.8 million in the second quarter of 2024 from RMB33.1 million in the second quarter of 2023. Product development expenses decreased by 4.2% to RMB7.7 million in the second quarter of 2024 from RMB8 million in the second quarter of 2023. The decrease was mainly due to decline in compensation expenses related to high count reduction of our product development personnel. Net income for the second quarter of 2024 was RMB82.3 million as compared to RMB173.9 million in the second quarter of 2023. Basic and the diluted net income per share was 12% in the second quarter of 2024. As of June 30, 2024, the company had RMB758.6 million of cash, cash equivalents and restricted cash and RMB243.9 million of short-term investments as compared to RMB766.4 million of cash, cash equivalents and restricted cash and RMB142.1 million of short-term investments as of December 31, 2023. As of June 30, 2024, the company had a deferred revenue balance of RMB986.9 million, as compared to RMB 1,113.9 million as of December 31, 2023. Now for our outlook. For the third quarter of 2024, we currently expect net revenues to be between RMB490 million to RMB510 million, a decrease of 2.8% to 6.6% year-over-year. This outlook is based on the current market conditions and reflects the company's management's current and preliminary estimates of market operating conditions of customer demand, which are all subject to change. With that, I'd like to open up the call to the questions. Operator? Operator: Yuhua Ye: Once again, thank you everyone for joining today's call. We look forward to speaking with you again soon. Good day, and good night. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect your lines.