Sunland's Q2 2025 net revenue rises 9.5% to RMB 539 million, driven by interest-based courses and strong user engagement, while net income surges 54% year over year.

OPERATOR - (00:01:28)

Ladies and gentlemen, thank you for standing by and welcome to Sunlands Technology second quarter 2025 earnings conference call. At this time, all participants are in the listen only mode. Today's conference call is being recorded. I'll now turn the call over to your host today, Yuhua, Sunlands Technology's IR representative. Please go ahead.

Yuhua - Investor Relations Representative - (00:01:50)

Hello everyone and thank you for joining Sunlands Technology's second quarter 2025 earnings conference call. The company's financial and operating results were issued in our press release by New Square 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. Tong Bo Liu, and our financial representative, Mr. Hong Yu Lee. Management will begin with prepared remarks and the call will conclude with a Q and A session. Before I hand it over to the management, I'd like to remind you of Sunlands Technology's 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, Tong Bo Liu.

Tong Bo Liu - Chief Executive Officer - (00:03:07)

Okay, thank you. Yuhua. Hello everyone. Welcome to Sunlands Technology 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 fingers 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, meaning up 9.5% year over year, supported by resilient lender demand and the continued expansion of our course offerings. Notably, net income in this quarter surged to RMB 126.6 billion with net margin expanding to 23.5% representing a 54% increase from the same period last year and 16,8 sequential jump. This marks a significant step change in our learning capacities. Now let's turn to the performance of our our courses programs. Our degree and diploma oriented postsecondary offerings, once the cornerstone of our legacy business modules now contributed approximately 30% 11% of our total revenue revenue. By intentionally resizing the business line, we have redirected resources to faster growing higher margin areas that better align with involving 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 RMB1 trillion by 2025 with a five year KEGR of 12.6%. Online location in particular is projected to grow at 17.3% reflecting strong momentum behind the digital first. Nano-centric models with identified we identified this shift early. Since 2001 we have executed a deliberate transition from a degree centric approach to three 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 activation. Today, non degree 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, this sector recorded enrollments of our 517,000 and 300,000 respectively. Based on current momentum and visibility, we believe Sunlance has established a 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 of users with over 1 million paid for full price courses. Based on internal estimates, the segment achieves cost completion rate of around 18%, repurchase rate of over 16%, and satisfaction levels for certain courses generally above 95%. Beyond metrics, our platforms have become a meaningful social hub for retirees. Many users once facing solitude or social connection are now finding new peer networks, sharing passions and building lasting connections through online forums and offline meetups. 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 demographics define who we teach, intelligent adaptive technology define how our proprietary SAS platform, trained onto decades of adult education data and billions of interactions, delivers personalized content, real time feedback and dynamically assembled courses are at scale. Besides, we also introduced a Mandarin voice activated AI assistant that understands slow or accented speech for older learners embodied as expressive metahumans. This assistance makes learning intuitive, human and emotional residential. Guided by our Access Framework Answer Comment Supervisor study, we ensure consistent support and meaningful outcomes. The Silver Economy is emerging as one of China's most transformative growth frontiers as stakers, with our first mover advantages, proven execution capabilities and the technology infrastructure refined over two decades, Sunlands is uniquely positioned to lead in senior education. We extended 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 Hanyu to run through our financials.

Hong Yu Lee - Financial Representative - (00:09:50)

Thank you. Tong Bo Liu 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 RMB539 million, a direct result of our strategic shift toward 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 tenth of million, has converted into over 1 million paying users, boosting 80% course completion rate and 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 resistance of our execution and the strength of our underlying cash engine. This robust financial foundation gave 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 cost portfolio, sharpen our course 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 final results for the second quarter of 2025. All companies 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 539 million from 492.2 million in the second quarter of 2024. The increase was primarily driven by the growth in gross billings from interest causes. Revenues decreased by 9.1% to $69.6 million in the second quarter of 2025 from $76.6 million in the second quarter Of 2024. The decrease was mainly due to the declined compensation expenses related to high contra reduction of our teachers and mentors for degree or diploma orientated postsecondary courses. Gross Profit increased by 12.9% to 469.4 million in the second quarter of 2025 from 415.6 million in the second quarter of 2024. In the second quarter of 2025, operating expenses were 342.6 million, representing a 1.1% increase from 338.9 million in the second quarter of 2024. Sales and marketing expenses increased by 1.7% to 302.5 million in the second quarter of 2025 From 297.4 million in the second quarter Of 2024. General and administrative expenses decreased by 2% to 33.2 million in the second quarter of 2025 FROM 33.8 million in the second quarter of 2024. Product development expenses decreased by 9.3% to 6.9 million in the second quarter Of 2025 FROM 7.6 million in the second quarter Of 2024. The decrease was mainly due to declined compensation expenses related to high cost reduction of our product development personnel. Net income for the second quarter of 2025 was $126.6 million as compared to $82.3 million in the second quarter of 2024. Basic and diluted net income per share was 18.75 in the second quarter of 2025. As of June 30, 2025, the Company had 586.7 million of cash and cash equivalents and restricted cash and 166.6 million of short term investments as compared to 507.2 million of cash and cash equal share equivalents and 2.276 million of short term investments as of December 31, 2024. As of June 30, 2025, the Company had a deferred revenue balance of 814.3 million as compared to 916.5 million as of December 31, 2024 and now for our outlook for the third quarter of 2025. Sunlands Technology currently expects net revenues to be between 500 million to 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 demands, which are all subject to substantial uncertainty. With that, I'd like to open up the call to the Questions operator.

OPERATOR - (00:17:29)

Thank you. We will now begin the question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again for the benefit of all participants on today's call. If you wish to ask your question to management in Chinese, please immediately repeat your question in English. Please stand by while we compile the Q and A roster. Once again, it's star 11 for questions. @ 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.

Yuhua - Investor Relations Representative - (00:18:18)

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 - (00:18:26)

This concludes this conference call. You may now disconnect your lines. Thank you.