Sunlands Technology Group Announces Unaudited Third Quarter 2022 Financial Results

Q3 net revenues decreased by 3.2% year-over-year
Q3 New student enrollments^[1] increased by 44.7% year-over-year 
Q3 net income reached RMB168.1 million

BEIJING, Nov. 23, 2022 /PRNewswire/ -- Sunlands Technology Group (NYSE: STG) ("Sunlands" or the "Company"), a leader in China's online post-secondary and professional education, today announced its unaudited financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Financial and Operational Snapshots

• Net revenues were RMB576.2 million (US$81.0 million), representing a 3.2% decrease year-over-year.
• Gross billings (non-GAAP) were RMB365.5 million (US$51.4 million), representing a 21.0% decrease year-over-year.
• Gross profit was RMB491.3 million (US$69.1 million), representing a 4.0% decrease year-over-year.
• Net income was RMB168.1 million (US$23.6 million), representing an 81.1% increase year-over-year.
• Net income margin, defined as net income as a percentage of net revenues, increased to 29.2% from 15.6% in the third quarter of 2021.
• New student enrollments were 134,987, representing a 44.7% increase year-over-year.
• As of September 30, 2022, the Company's deferred revenue balance was RMB1,798.6 million (US$252.8 million).

"Despite the macroeconomic uncertainty and shifting industry landscape, we delivered encouraging results in the third quarter with sequential topline growth, further bottom-line improvement and increased new student enrollments. These achievements testified to the effectiveness of our strategic initiatives to prioritize profitability and healthy growth," said Mr. Tongbo Liu, Chief Executive Officer of Sunlands.

"With a leaner and more efficient organization, we further refined our product strategy in the third quarter. We focused more on margin accretive programs and allocated our capital and human resources accordingly to expand our course offerings in these programs, leading to an optimized product lineup and more diversified course content. Additionally, as we continued to hone our services to increase our user stickiness and cross-selling opportunities, we transformed our student acquisition methods, focusing more on users' lifetime value instead of investing heavily in marketing activities. Thanks to these measures, our new student enrollments for the quarter rose by 44.7% year-over-year and 11.8% quarter-over-quarter, despite a 23.9% year-over-year and 8.2% quarter-over-quarter decline in sales and marketing expenses. Looking ahead, we are confident that our proven business strategies and continued commitment to delivering premium and tailored courses to more students will help us navigate current challenges and achieve meaningful growth," concluded Mr. Liu.

Ms. Selena Lu Lv, Chief Financial Officer of Sunlands, commented, "We are pleased with our third quarter results amid an uncertain macro environment. Our net revenues reached RMB576.2 million during the quarter, exceeding the high end of our guidance range by 6.7% despite the slight 3.2% year-over-year decrease. Benefitting from our dedicated efforts and measured steps in cost control and operational efficiency enhancement, our third quarter operating expenses declined by 24.5% year-over-year and 7.4% quarter-over-quarter. As a result, we maintained our profitability with a net income of RMB168.1 million, up 81.1% year-over-year and 46.7% quarter-over-quarter. Our net income margin for the quarter remained solid at 29.2%, expanding 13.6 percentage points year-over-year and 8.6 percentage points quarter-over-quarter. Moving forward, we will continue to prudently manage costs and expenses, enrich our course offerings and further optimize our operations, aiming for continued success and additional shareholder value."

Financial Results for the third quarter of 2022

Net Revenues

In the third quarter of 2022, net revenues decreased by 3.2% to RMB576.2 million (US$81.0 million) from RMB595.1 million in the third quarter of 2021. The decrease was mainly driven by the decline in gross billings.

Cost of Revenues

Cost of revenues increased by 2.2% to RMB84.9 million (US$11.9 million) in the third quarter of 2022 from RMB83.1 million in the third quarter of 2021. The increase was primarily due to increased service fees paid to educational institutions and increased cooperation costs.

Gross Profit

Gross profit decreased by 4.0% to RMB491.3 million (US$69.1 million) in the third quarter of 2022 from RMB512.0 million in the third quarter of 2021.

Operating Expenses

In the third quarter of 2022, operating expenses were RMB325.0 million (US$45.7 million), representing a 24.5% decrease from RMB430.6 million in the third quarter of 2021.

Sales and marketing expenses decreased by 23.9% to RMB269.1 million (US$37.8 million) in the third quarter of 2022 from RMB353.5 million in the third quarter of 2021. The decrease was mainly due to: (i) lower spending on branding and marketing activities; and (ii) declined compensation expenses related to our sales and marketing personnel.

General and administrative expenses decreased by 29.6% to RMB44.4 million (US$6.2 million) in the third quarter of 2022 from RMB63.2 million in the third quarter of 2021. The decrease was mainly due to a decrease in rental expenses.

Product development expenses decreased by 17.5% to RMB11.5 million (US$1.6 million) in the third quarter of 2022 from RMB14.0 million in the third quarter of 2021. The decrease was mainly due to a decrease in compensation expenses to our product development personnel.

Other Income

Other income decreased by 58.6% to RMB5.3 million (US$0.7 million) in the third quarter of 2022 from RMB12.9 million in the third quarter of 2021.

Net Income

As a result of the foregoing, net income for the third quarter of 2022 was RMB168.1 million (US$23.6 million), compared with RMB92.8 million in the third quarter of 2021.

Basic and Diluted Net Income Per Share

Basic and diluted net income per share was RMB24.08 (US$3.38) in the third quarter of 2022.

Cash and Cash Equivalents and Short-term Investments

As of September 30, 2022, the Company had RMB678.8 million (US$95.4 million) of cash and cash equivalents and RMB170.1 million (US$23.9 million) of short-term investments, compared with RMB626.7 million of cash and cash equivalents and RMB184.2 million of short-term investments as of December 31, 2021.

Deferred Revenue

As of September 30, 2022, the Company had a deferred revenue balance of RMB1,798.6 million (US$252.8 million), compared with RMB2,348.2 million as of December 31, 2021.

Capital Expenditures

Capital expenditures were incurred primarily in connection with information technology ("IT") infrastructure equipment and leasehold improvements necessary to support the Company's operations. Capital expenditures were RMB1.3 million (US$0.2 million) in the third quarter of 2022, compared with RMB1.8 million in the third quarter of 2021.

Financial Results for the First Nine Months of 2022

Net Revenues

In the first nine months of 2022, net revenues decreased by 9.1% to RMB1,744.5 million (US$245.2 million) from RMB1,918.9 million in the first nine months of 2021.

Cost of Revenues

Cost of revenues decreased by 4.9% to RMB272.9 million (US$38.4 million) in the first nine months of 2022 from RMB286.8 million in the first nine months of 2021.

Gross Profit

Gross profit decreased by 9.8% to RMB1,471.7 million (US$206.9 million) from RMB1,632.1 million in the first nine months of 2021.

Operating Expenses

In the first nine months of 2022, operating expenses were RMB1,022.0 million (US$143.7 million), representing a 36.8% decrease from RMB1,616.8 million in the first nine months of 2021.

Sales and marketing expenses decreased by 39.2% to RMB857.0 million (US$120.5 million) in the first nine months of 2022 from RMB1,409.1 million in the first nine months of 2021.

General and administrative expenses decreased by 17.5% to RMB129.5 million (US$18.2 million) in the first nine months of 2022 from RMB157.1 million in the first nine months of 2021.

Product development expenses decreased by 30.0% to RMB35.5 million (US$5.0 million) in the first nine months of 2022 from RMB50.7 million in the first nine months of 2021.

Other Income

Other income for the first nine months of 2022 was RMB19.7 million (US$2.8 million), compared with RMB42.3 million in the first nine months of 2021. The decrease was primarily because value-added tax exemption offered by the relevant authorities as part of the national COVID-19 relief effort came to an end in April 2021.

Net Income

Net income for the first nine months of 2022 was RMB462.1 million (US$65.0 million), compared with RMB61.6 million in the first nine months of 2021.

Basic and Diluted Net Income Per Share

Basic and diluted net income per share was RMB68.07 (US$9.57) in the first nine months of 2022, compared with RMB9.69 in the first nine months of 2021.

Capital Expenditures

Capital expenditures were incurred primarily in connection with IT infrastructure equipment and leasehold improvements necessary to support the Company's operations. Capital expenditures were RMB2.5 million (US$0.4 million) in the first nine months of 2022, compared with RMB11.2 million in the first nine months of 2021.

Outlook

For the fourth quarter of 2022, Sunlands currently expects net revenues to be between RMB520 million to RMB540 million, which would represent a decrease of 8.3% to 11.7% year-over-year.

The above outlook is based on the current market conditions and reflects the Company's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to substantial uncertainty.

Exchange Rate

The Company's business is primarily conducted in China and all revenues are denominated in Renminbi ("RMB"). This announcement contains currency conversions of RMB amounts into U.S. dollars ("US$") solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to US$ are made at a rate of RMB7.1135 to US$1.00, the effective noon buying rate for September 30, 2022 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on September 30, 2022, or at any other rate.

Conference Call and Webcast

Sunlands' management team will host a conference call at 6:30 AM U.S. Eastern Time, (7:30 PM Beijing/Hong Kong time) on November 23, 2022, following the quarterly results announcement.

The dial-in details for the live conference call are:

Please dial in 10 minutes before the call is scheduled to begin. When prompted, ask to be connected to the call for "Sunlands Technology Group." Participants will be required to state their name and company upon entering the call.

A live webcast and archive of the conference call will be available on the Investor Relations section of Sunlands' website at http://www.sunlands.investorroom.com/.

A replay of the conference call will be available 1 hour after the end of the conference call until November 30, 2022, by dialing the following telephone numbers:

About Sunlands

Sunlands Technology Group (NYSE: STG) ("Sunlands" or the "Company"), formerly known as Sunlands Online Education Group, is the leader in China's online post-secondary and professional education. With a one to many, live streaming platform, Sunlands offers various degree and diploma-oriented post-secondary courses as well as online professional courses and educational content, to help students prepare for professional certification exams and attain professional skills. Students can access its services either through PC or mobile applications. The Company's online platform cultivates a personalized, interactive learning environment by featuring a virtual learning community and a vast library of educational content offerings that adapt to the learning habits of its students. Sunlands offers a unique approach to education research and development that organizes subject content into Learning Outcome Trees, the Company's proprietary knowledge management system. Sunlands has a deep understanding of the educational needs of its prospective students and offers solutions that help them achieve their goals.

About Non-GAAP Financial Measures

We use gross billings, EBITDA, non-GAAP Operating cost and expense, non-GAAP loss/income from operations and Non-GAAP net loss/income per share, each a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes.

We define gross billings for a specific period as the total amount of cash received for the sale of course packages, net of the total amount of refunds paid in such period. Our management uses gross billings as a performance measurement because we generally bill our students for the entire course tuition at the time of sale of our course packages and recognize revenue proportionally over a period. EBITDA is defined as net loss/income excluding depreciation and amortization, interest expense, interest income, and income tax expenses/benefit. We believe that gross billings and EBITDA provide valuable insight into the sales of our course packages and the performance of our business.

These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, their most directly comparable financial measure prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their respective most directly comparable GAAP measure has been provided in the tables included below. Investors are encouraged to review the reconciliation of the historical non-GAAP financial measures to their respective most directly comparable GAAP financial measures. As gross billings, EBITDA, operating cost and expenses excluding share-based compensation expenses, general and administrative expenses excluding share-based compensation expenses, sales and marketing expenses excluding share-based compensation expenses, product development expenses excluding share-based compensation expenses, non-GAAP net loss/income exclude share-based compensation expenses, and basic and diluted net loss/income per share excluding share-based compensation expenses have material limitations as an analytical metric and may not be calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider gross billings and EBITDA as a substitute for, or superior to, their respective most directly comparable financial measures prepared in accordance with GAAP. We encourage investors and others to review our financial information in its entirety and not rely on a single financial measure.

Safe Harbor Statement

This press release contains forward-looking statements made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Sunlands may also make written or oral forward-looking statements in its reports filed with or furnished to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Any statements that are not historical facts, including statements about Sunlands' beliefs and expectations, are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include, but not limited to the following: Sunlands' goals and strategies; its expectations regarding demand for and market acceptance of its brand and services; its ability to retain and increase student enrollments; its ability to offer new courses and educational content; its ability to improve teaching quality and students' learning results; its ability to improve sales and marketing efficiency and effectiveness; its ability to engage, train and retain new faculty members; its future business development, results of operations and financial condition; its ability to maintain and improve technology infrastructure necessary to operate its business; competition in the online education industry in China; relevant government policies and regulations relating to Sunlands' corporate structure, business and industry; and general economic and business condition in China Further information regarding these and other risks, uncertainties or factors is included in the Sunlands' filings with the U.S. Securities and Exchange Commission. All information provided in this press release is current as of the date of the press release, and Sunlands does not undertake any obligation to update such information, except as required under applicable law.

For investor and media enquiries, please contact:

Sunlands Technology Group
Investor Relations
Email: sl-ir@sunlands.com

The Piacente Group, Inc. 
Brandi Piacente
Tel: +1-212-481-2050
Email: sunlands@tpg-ir.com

Yang Song
Tel: +86-10-6508-0677
Email: sunlands@tpg-ir.com

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