Sunlands Technology Group (NYSE:STG) Q4 2023 Earnings Call Transcript

Sunlands Technology Group (NYSE:STG) Q4 2023 Earnings Call Transcript March 22, 2024

Sunlands Technology Group isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Fourth Quarter and Full Year 2023 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 from Sunlands IR Representative. Please go ahead.

Yuhua Ye: Hello, everyone, and thank you for joining Sunlands Fourth Quarter and Full Year 2023 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. Participants on today’s call will be our CEO, Mr. Tongbo Liu; and our Financial Controller, 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 will 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 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 fourth quarter and full year 2023 earnings conference call. Prior to commencing, I would like to kind of 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. It is with great pride that we unveiled the successful conclusion of the fourth quarter, characterized by a noteworthy net profit of RMB155.2 million and an impressive net profit margin of 28.6%. These metrics underscore our firm financial foundation and a steadfast dedication to the operational excellence. In the meanwhile, our revenue stands at RMB542 million, marking a 3.3% increase from the previous quarter and surpassing our earlier forecast despite the year-over-year revenue decrease of 6.4%.

Reflecting on the entire fiscal year, we successfully recorded an annual revenue of RMB2.16 billion and a net income of RMB614.8 million. Additionally, we observed a significant 15.4% increase in enrollment year-over-year, highlighting the growing demand for our offerings. Our prudent financial management resulted in a net cash inflow from operating activities of over RMB135 million, being a solid financial foundation for our future growth initiatives. Throughout the year, we remained agile in responding to market dynamics and evolving user preferences, driving continuous innovation across our product and service portfolio. A pivotal driver has been the dynamic expansion of our interest-based courses, which experienced a 54.9% year-over-year growth.

See also 40 Best Perfumes for Women of 2024 and 13 States with the Most Fatal Accidents in the US.

Q&A Session

The sector has emerged as the important growth catalyst for the company, further solidifying our leading position in the adult education landscape. Turning to the performance of our major course programs, degree-oriented post-secondary programs accounted for 24.7% of our revenue in 2023. While we continue to optimize the sectors investment, we believe in its promising future, and current employment landscape, individuals navigating academic pursuits of professional trajectories find themselves confronted with intricate challenges. The symbiotic relationship between salary offerings and educational tenant has become more pronounced. This in turn has precipitated a surge in the productivity of individual towards pursuing further education. The sector encompassing professional certifications, skills and interest programs continue to serve as our key growth engine, showcasing a year-over-year revenue increase of 13.3% and contributing to 77.1% of our total revenue.

In 2023, we observed a 21.1% rise in new student enrollments within the sector compared to 2022. Our approach to catering to the growing educational need of learners, course, various age group has been particularly rewarding. Moreover, the standout performance of interest-based education courses remained in foremost highlights of this sector, accounting for 63% of our total revenue and experiencing a significant 54.9% year-over-year revenue growth. In 2023, the user search volume for adult interest training has surged, ranking first among the new business segments in the education sector. This trend signifies a growing focus among adults on inner willing and personal interests, thereby resulting in a discernible concurrent elevation in the demand for associated knowledge and services.

Compared to our degree program users who tend to be younger and more career oriented, the age range of users in interest sector is much broader with a significant portion of the user base comprising middle-aged and elderly population. After several quarters of practical exploration, we have gained a deeper understanding of the elderly learning market. And today, I am delighted to share some insights. Firstly, the expansive nature of China’s senior demographic presents a [indiscernible] landscape for market penetration. As of 2022, China confronted a rare phenomenon of net population decrease. This marks the first negative growth since the 1916s, signifying the onset of a period of population decline. Additionally, the impending retirement phase of China’s second baby boom generation, expanding births from 1962 to 1975, introduces a cohort of wildly significant socioeconomic influence.

According to China Private Wealth Report released by China Merchants Bank and Bayon in 2023, the age group of 15 to 59 accounts for 20% of the high net worth individuals with investable assets of over RMB10 million. In the past, senior education was predominantly supplied by the governmental agencies. However, today’s newly retired individuals have the autonomy to select from market-oriented educational institutions and are willing to pay premium prices for such offerings. Secondly, the last preference and demand is exhibited by elderly cohorts across various age brackets underscore the complexity of this demographic, indicating significant untapped potential. Individuals aged 15 to 59 display a vibrant demeanor with a predilection towards cultural and spiritual pursuits such as travel and lifelong learning endeavors.

Conversely, those aged 16 and above tend to gravitate towards health-centered consumption patterns, embracing nutritional supplements and care services. Upon meticulous scrutiny of our senior course in [indiscernible], taking our traditional Chinese printing program as an example, individuals aged 14 to 65 come for 16%, with over 16% being female and 20% from first tier cities. We define them as a new generation of vibrant seniors, characterized by high cultural refinement, relative affluence, appellation opportunities, and a higher pursuit of spiritual enrichment. Our products are well received by this Golden Age Group and we will continue to see the demands of this demographic to expand this go power services in the future. Drawing inspiration from the developmental trajectory of Japan’s elder industry, notably illustrated by club tourism, Japan’s leading senior travel conglomerate with a membership base of 7 million, which initially focused on travel products and later expanded horizontally into nursing, insurance, and consumer goods.

We aim to maximize our lifetime values through diversified offerings and high-value populations rooted in effective senior interest education services. For instance, we have launched educational travel packages, integrating courses with tourism activities. These ongoing and innovative initiatives afford us a swifter and more profound insight into our user base, including our imagination for future possibilities. We also note the government’s attention to and emphasis on the elderly industry. On January 15, 2024, the General Office of the State Council of China issued the first dedicated document supporting the development of the silver economy, which specifically mentioned enriching elderly education services. We will continue to increase investment in course development for this burgeoning demographic.

We have curated a range of specified offerings, including framing Chinese painting and music courses, supplemented by a variety of offline events tailored to diverse situational contexts. Notably, our senior brand the prestigious [Crofts Brand Service Award] (ph) from People’s Daily Online, a testament to our unwavering pursuit of excellence. As we progress into 2024, we remain committed to constantly exploring and refining our product mix, targeting different age groups, while developing our operational efficiency improvement efforts to support our long-term sustainable growth. Since our initial public offerings, the company has been constantly progressing with stock repurchases. As of December 31, 2023, under the share repurchase plans adopted in December 2021 and August 2018, we have successfully executed the repurchase of American depository shares equivalent to approximately 420,000 ordinary shares, representing a total investment of $15.7 million.

Looking ahead, we pledged to fortify shareholder value through ongoing share repurchases, underscoring our steadfast commitment to shareholder interest. With that, I will turn the call over to our financial controller, Hangyu to run through our financials.