Sunlands Technology Group (STG) Reports Q3 Revenues Beat

Sunlands Technology Group (NYSE: STG) reported Q3 revenue for the quarter came in at $79.8 million versus the consensus estimate of $74.35 million.

Third Quarter 2020 Financial and Operational Snapshots

• Net revenues were RMB541.6 million (US$79.8 million), representing a 2.7% increase year-over-year.
• Gross billings (non-GAAP) were RMB654.3 million (US$96.4 million), representing a 6.6% increase year-over-year.
• Gross profit was RMB448.7 million (US$66.1 million), representing an 8.5% increase year-over-year.
• Net loss was RMB165.8 million (US$24.4 million), compared with RMB129.8 million in the third quarter of 2019.
• Net loss margin, defined as net loss as a percentage of net revenues, increased to 30.6% from 24.6% in the third quarter of 2019.
• New student enrollments were 140,819, representing a 47.8% increase year-over-year.
• As of September 30, 2020, the Company's deferred revenue balance was RMB3,090.3 million (US$455.2 million).

"Despite the short-term impact on our operations of the COVID-19 pandemic in the first half of 2020, Sunlands achieved steady year-over-year increases in both gross billings and net revenues in the third quarter. Our results were fueled by a combination of the recovering macroeconomic conditions in China as well as the implementation of optimization initiatives within our business," said Mr. Tongbo Liu, Chief Executive Officer of Sunlands. "In the third quarter, our gross billings reached RMB654.3 million, increasing by 6.6% year-over-year and 23.1% quarter-over-quarter. We attribute our strong gross billings results largely to improvements we made in sales efficiency with new approaches to student acquisition as well as our enhancing brand awareness and continuous upgrades to our product categories. Following the solid performance in the second quarter of 2020, net revenues increased by 2.7% year-over year to RMB541.6 million, exceeding the high end of our guidance by 4.2%. Moreover, our new enrollments reached approximately 140.8 thousand in the third quarter, growing 47.8% year-over-year and 70.5% quarter-over-quarter.

"While maintaining a leading market share in STE programs, we continue to explore growth opportunities in master's degree-oriented programs to address the broad demand for academics. The growth of master's degree-oriented programs in terms of gross billings was phenomenal, registering 93.3% year-over-year and 48.4% quarter-over-quarter. Adding to existing programs, in the third quarter we further expanded the number of overseas universities we collaborate with, in order to enrich our program portfolio and address the increased demand for diversified and differentiated higher education. To further implement our sustainable overall growth strategy, we continued to promote course offerings targeting professional certification, vocational education and popular hobbies. In the third quarter, in order to deliver an unparalleled user experience and drive user stickiness, we further integrated our cutting-edge AI technologies into all aspects of our online platform, customizing our curriculum offerings and teaching materials to deliver innovative breakthrough," Mr. Liu said.

Ms. Selena Lu Lv, Chief Financial Officer of Sunlands, commented, "Our third quarter financial results were a reflection of our balanced expansion strategy. Net revenues increased by 2.7% year-over-year, exceeding our expectations. This result is attributable to broad-based improvements across our organization, in particular optimizing our revenue contribution structure. Other highlights in the quarter include a significant increase in gross billings and a higher proportion of revenue coming from non-STE programs. These accomplishments came from improved efficiency in our student acquisition and conversion methods, recognition of our program diversity, and content enrichment. In terms of cost control management, we pursued a strict spending policy, especially in regard to G&A expenses which were reduced by 16.7% year-over-year. Looking ahead, we will continue to focus on product and service upgrades by deploying our AI-enabled platform systems and further refinement of our internal operations. We believe this dual-fold effort will bring long-term value to our users, students and shareholders through a sustainable and balanced approach to growth."

Outlook

For the fourth quarter of 2020, Sunlands currently expects net revenues to be between RMB540 million to RMB560 million, which would represent a decrease of 1.8% to an increase of 1.9% 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.

For earnings history and earnings-related data on Sunlands Technology Group (STG) click here.

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