Sunlands Technology Group (STG) Q2 2025 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I'll now turn the call over to your host today, Yuhua, Sunlands IR representative. Please go ahead.

Hello, everyone, and thank you for joining Sunlands Second Quarter 2025 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 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 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.

Okay. Thank you, Yuhua. Hello, everyone. Welcome to Sunlands Second Quarter 2025 Conference Call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release are presented on a continuing operation basis, and all figures are denominated in RMB unless explicitly specified otherwise. In the second quarter of 2025, we achieved solid momentum across key performance metrics. Net revenue reached RMB 539 million, up 9.5% year-over-year, supported by resilient learner demand and the continued expansion of our course offerings. Notably, net income in this quarter surged to RMB 126.6 million, with net margin expanding to 23.5%, representing a 54% increase from the same period last year and 68.5% sequential jump. This marks a significant step change in our learning capacities. Now let's turn to the performance of our major courses programs. Our degree and diploma-oriented post-secondary offerings was the cornerstone of our legacy business models now contributed approximately [ 11% ] of our total revenue. By intentionally resizing this business line, we have redirected resources to faster-growing higher-margin areas that better align with evolving learner needs. The adult education landscape in China is undergoing a structural transformation. Learners are shifting from pursuing formal credentials to seeking practical skills, emotional enrichment and lifelong growth. According to third-party research, the market is expected to exceed RMB 1 trillion by 2027 with a 5-year CAGR of 12.6%. Online education, in particular, is projected to grow at 17.3%, reflecting strong momentum behind the digital-first learner-centric models. We identified this shift early. Since 2021, we have executed a deliberate transition from a degree-centric approach to 3-pillar models, degree programs, professional skills and interest-based learning. This evolution was not a product expansion. It redefined our value proposition, grounded in deep user insight and long-term market vision. Today, nondegree programs, including professional certifications, practical skills and interest-based courses contributed to approximately 77.6% of our total revenue. Among them, interest-based learning has demonstrated exceptional growth, achieving over 15% year-over-year revenue growth. In 2024 and the first half of 2025, the sector recorded enrollments of over 517,000 and 300,000, respectively. Based on current momentum and visibility, we believe Sunlands has established a learning -- leading position in China's adult interest-based education sector. The core driver of this growth is our focus on the silver demographic, learners aged 15 to 75, which have emerged as a high potential audience. By the end of this quarter, we have built a private user ecosystem of tens of millions Sunlands users with over 1 million paying for full-price courses. Based on internal estimates, this segment achieved course completion rate of around 18%, repurchase rate of over 16% and satisfaction levels for certain courses generally above 95%. Beyond metrics, our platforms has become a meaningful social hub for the retirees. Many users once facing solitude of social [indiscernible] are now finding new peer networks, sharing passions and building lasting connections through online forums and offline with us. What emerges is a high-impact social graph born from the learning experiences itself, where courses spark conversations and conversations evolve into communities. This is a multiplier effect of intelligent purpose-driven education. Complementing this demographic focus is our second growth engine, intelligent personalization powered by AI. If demographic defines who we teach, intelligent adaptive technology defines how. Our proprietary SaaS platform trained on to decades of adult education data and billions of interactions delivers personalized content, real-time feedback and dynamically assembled courses at scale. Besides, we also introduced a Mandarin voice activated -- AI assistant that understands no or accented speech for older learners, embodied as expressive meta humans. This assistance makes learning intuitive, humane and emotional resident guided by our access framework, answer, comment, supervisor study, will ensure consistent support and measurable outcomes. The silver economy is emerging as one of China's most transformative growth frontiers in the stakers. With our first-mover advantages, proven execution capabilities and the technology infrastructure refined over 2 decades, Sunlands uniquely positioned to lead in senior education. We extend our gratitude for your presence today and the continued support you provide. Thank you, and we look forward to your valuable engagement. With that, I will turn the call over to our Financial Director, Hangyu, to run through our financials.

Thank you, Tongbo. Hello, everyone. I'd like to share our second quarter results, which came in strong and right in line with our expectations, another quarter of disciplined execution and durable growth. Net revenues for the quarter grew 9.5% year-over-year to RMB 539 million, a direct result of our strategic shift towards the silver economy market. Interest-based courses were the primary growth driver for our revenue, contributing 78% of total revenue this quarter. For the first half of 2025, new student enrollments in interest-based courses exceeded 300,000 with cumulative enrollments surpassing 2.1 million since 2020. This aligns with our focus on the silver demographic, our private user ecosystem, which numbers in the tens of millions has converted into over 1 million paying users, boosting 80% course completion rate and a 60% repurchase rate, metrics that fuel revenue stability. Our net income for the quarter reached RMB 126.6 million with a net margin of 23.5%, a 6.8 percentage point increase from the same period last year. We have now achieved 17 consecutive quarters of profitability, demonstrating the resilience of our strategy and disciplined operational execution across cycles. Net cash from operating activities remained positive for the eighth consecutive quarter, reinforcing both the resilience of our execution and the strength of our underlying cash engine. This robust financial foundation gives us the ability to navigate uncertainty and the conviction to double down on high-return growth areas when opportunities arise. Looking ahead, we remain focused on generating high-quality earnings, scaling operational efficiency and channeling resources into innovation. Our long-term playbook is clear, broaden our course portfolio, sharpen our cost structure and elevate the learning experience for every student we serve. These strategic levers are positioning us to lead decisively as the future of online education continues to unfold. Now let me walk you through some of our key financial results for the second quarter of 2025. All comparisons are year-over-year and all numbers are in RMB, unless otherwise noted. In the second quarter of 2025, net revenues increased by 9.5% to RMB 539 million from RMB 492.2 million in the second quarter of 2024. The increase was primarily driven by the growth in gross billings from interest courses. Cost of revenues decreased by 9.1% to RMB 69.6 million in the second quarter of 2025 from RMB 76.6 million in the second quarter of 2024. The decrease was mainly due to the declined compensation expenses related to headcount reduction of our teachers and mentors for degree or diploma-orientated post-secondary courses. Gross profit increased by 12.9% to RMB 469.4 million in the second quarter of 2025 from RMB 415.6 million in the second quarter of 2024. In the second quarter of 2025, operating expenses were RMB 342.6 million, representing a 1.1% increase from RMB 338.9 million in the second quarter of 2024. Sales and marketing expenses increased by 1.7% to RMB 302.5 million in the second quarter of 2025 from RMB 297.4 million in the second quarter of 2024. General and administrative expenses decreased by 2% to RMB 33.2 million in the second quarter of 2025 from RMB 33.8 million in the second quarter of 2024. Product development expenses decreased by 9.3% to RMB 6.9 million in the second quarter of 2025 from RMB 7.6 million in the second quarter of 2024. The decrease was mainly due to declined compensation expenses related to headcount reduction of our product development personnel. Net income for the second quarter of 2025 was RMB 126.6 million as compared to RMB 82.3 million in the second quarter of 2024. Basic and diluted net income per share was RMB 18.75 in the second quarter of 2025. As of June 30, 2025, the company had RMB 586.7 million of cash and cash equivalents and restricted cash and RMB 166.6 million of short-term investments as compared to RMB 507.2 million of cash and cash equivalents and RMB 276 million of short-term investments as of December 31, 2024. As of June 30, 2025, the company had a deferred revenue balance of RMB 814.3 million as compared to RMB 916.5 million as of December 31, 2024. And now for our outlook. For the fourth quarter of 2025, Sunlands currently expects net revenues to be between RMB 500 million to RMB 520 million, which would represent an increase of 1.8% to 5.8% year-over-year. The outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market, operating conditions and customer demand, which are all subject to substantial uncertainty. With that, I'd like to open up the call to the questions. Operator?

[Operator Instructions] At this time, we are showing no questions. So this will conclude our question-and-answer session. At this time, I would like to turn the conference back over 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 this conference call. You may now disconnect your lines. Thank you.