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DATE

Tuesday, May 26, 2026 at 6:30 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Tongbo Liu
  • Finance Director — Hangyu Li
  • Head of Investor Relations — Yuhua Ye

TAKEAWAYS

  • Net Revenues -- RMB 440.7 million, down 9.6% year over year due to ongoing structural softness in degree and diploma-oriented programs and recalibrated customer acquisition standards.
  • Net Income -- RMB 76.8 million, an increase from RMB 75.2 million year over year, marking the 20th consecutive profitable quarter.
  • Net Income Margin -- 17.4%, reflecting progress in cost structure optimization and technology-enabled efficiency.
  • Gross Profit Margin -- 86.5%, up from 85.2% year over year.
  • Cost of Revenues -- RMB 59.5 million, down 17.7% year over year, driven mainly by reduced learning materials and related service fees.
  • Total Operating Expenses -- RMB 284.3 million, representing a 16.7% decrease year over year due to cost discipline and efficiency initiatives.
  • Selling Expenses -- RMB 241.9 million, down 19.5% year over year, the largest single-quarter reduction in recent years and the third consecutive quarter of such decline.
  • R&D/Product Development Expenses -- RMB 6.6 million, up 5.6% year over year, supporting ongoing investment in AI and technology enhancements.
  • General and Administrative Expenses -- RMB 35.9 million, an increase of 4.1% year over year mainly for business operations.
  • Revenue Composition -- Degree and diploma-oriented postsecondary programs contributed 17.9% of net revenues; interest-based, professional skills, and certification programs accounted for 67.9%.
  • Cash, Cash Equivalents, and Restricted Cash -- RMB 547.2 million as of March 31, 2026, with RMB 236 million in short-term investments.
  • Deferred Revenue -- RMB 500.5 million as of March 31, 2026, versus RMB 585.3 million at the prior year-end.
  • AI Integration -- Adoption of internally developed AI assistant system and intelligent voice platform expanded decision support in customer acquisition and shortened lead conversion windows.
  • Q2 2026 Outlook -- Projected net revenues of RMB 410 million to RMB 430 million, representing an expected decline of 20.2% to 23.9% year over year.
  • Program Diversification -- Expanded senior interest-based course catalog, including arts content (e.g., colored pencil, folk music), and piloted experiential content extensions and partnerships with cultural institutions.

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RISKS

  • Finance Director Li said, "For the first -- second quarter of 2026, we expect net revenues to be between RMB 410 million to RMB 430 million, representing a decrease of 20.2% to 23.9% year over year."
  • Management acknowledged, "This outlook is based on our current market dynamics and reflects our preliminary assessment of macro conditions and the learner demand patterns, which remains subject to substantial uncertainty."

SUMMARY

Management confirmed that AI capability is now a core operational driver, shaping prospect engagement, conversion efficiency, and anticipated future service delivery models. The learning experience was explicitly deepened through new experiential and cultural content formats, expanding the company's offering beyond traditional courses. Cohort repurchasing behavior "continues to provide encouraging indications" of engagement resonance, suggesting evolving customer value dynamics. Strategic reinvestment in R&D underscored Sunlands Technology Group's operating discipline, even as revenue declined and management signaled caution for the next quarter, directly pointing to macro and market demand uncertainties.

  • Management described a material shift toward revenue quality over absolute scale, citing a focus on "higher quality learner cohorts" and strict acquisition standards.
  • Leadership emphasized that operating margin strength is linked directly to aggressive cost discipline and targeted deployment of technology investments.
  • Company initiatives in experiential education remain in early stages, with leadership stating, "These initiatives remain at an early stage with initial signals warranting continued observation and refinement."

INDUSTRY GLOSSARY

  • Deferred Revenue: Cash received for courses or services not yet delivered; recognized as revenue once the educational services are provided.
  • Interest-Based Program: Non-degree courses focusing on personal interests or hobbies, distinct from career certification or formal degree programs.
  • AI Assistant System: Internal artificial intelligence tool deployed to analyze prospect interactions and support agent communications in customer acquisition.

Full Conference Call Transcript

Tongbo Liu: Okay. Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' First Quarter 2026 Earnings Conference Call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continuing operation basis, and all figures are denominated in RMB unless explicitly specified otherwise. We opened 2026 with net revenues of RMB 440.7 million and net income of RMB 76.8 million, marking our 20th consecutive profitable quarter. Net income margin reached 17.4%. Selling expenses declined 19.5% year-over-year, representing the largest single-quarter reduction we have recorded in recent years and the third consecutive quarter of year-over-year decline.

At the same time, R&D expenses rose 5.6% year-over-year, reflecting our continued investment in technology capability enhancement. The 9.6% year-over-year revenue decline reflected the 2 concurrent dynamics, continued structural softness in degree and diploma-oriented programs and our ongoing recalibration of customer acquisition standards towards higher quality learner cohorts. While these factors placed pressure on the top line, our profitability reflected the progress we have made in cost structure optimization, operating discipline and technology-enabled efficiency. Let me now turn to the performance of our major cost categories. Degree and diploma-oriented postsecondary programs contributed 17.9% of net revenues in the first quarter of 2026. We continue to manage this segment in line with genuine learner demand while allocating resources with discipline.

Interest-based programs, professional skills and professional certification preparation together contributed 67.9% of net revenues and remains important areas of focus as we continue to diversify our revenue mix. Within this broader category, senior interest-based learning remains one of the areas where we continue to see meaningful long-term opportunity. This quarter, we further deepened our catalog within the arts by adding new courses such as colored pencil and folk music in response to express learner demand. We are also exploring adjacent content directions through early-stage pilots, including language learning, where we have seen initial learner interest. Beyond course content, we continue to extend the learning experience into more [ tangible ] scenarios.

We launched a study tool designed around our existing course content. So the learner who has spent a year studying Chinese painting with us can take a natural next step by visiting the landscapes, artists and museums connected to that tradition. This allows us to deepen the learning journey and reinforce the investment learners have already made rather than asking them to start from 0 in an unrelated program. We also continue to partner with art galleries and cultural institutions to bring our learners into physical spaces where their course work comes alive.

Through curated visits, online calligraphy and printing students can see master work up close, meet practitioners and gain a clearer sense of where sustained practice can take them. Initial feedback has been constructive and generally positive. And we believe this type of learning reinforcement is an effective lever for improving both completion and repurchase. These initiatives remain at an early stage with initial signals warranting continued observation and refinement. We are not simply building a course catalog, but gradually extending the learning experience into a more integrated and continuous journey for the new learners. Repurchase behavior within our core cohorts continues to provide encouraging indications that for the increasing share of learners, this evolving experience is gaining resonance.

The most consequential operating development this quarter relates to the continued maturation of our AI capabilities, which we believe may have meaningful implications for long-term operating efficiency. A year ago, we described AI primarily a productivity tool as adoption has broadened of course in the business that framing has continued to evolve. In our customer acquisition workflow, our internally developed AI assistant system has increasingly played a decision support role. It helps surface signals in live prospect interactions, including sentiment, hesitation and a decision friction and provides tailored conversational guidance based on each agent's communication style and conversational content.

In parallel, our intelligent voice system has shortened the time-to-first-contact window for new leads, a factor that has historically been associated with conversion efficiency. It has also enabled our human teams to focus more on high-value interactions that requires judgment and empathy, which remain critical to enrollment outcomes. Looking ahead, we expect AI-driven capabilities to continue to be embedded more broadly across both acquisition and service workflows, supporting ongoing improvement in operating efficiency. Besides, we are also exploring how these capabilities can be extended into other parts of the learner life cycle to further improve overall service efficiency and experience. To close, this quarter reflects disciplined execution against the priorities we outlined at the start of the year.

Revenue mix continues to evolve, profitability supported by operating discipline and our knowledge capabilities continue to deepen. We believe the investments we are making today are strengthening the foundation for sustainable long-term development. As these initiatives continue to mature, we remain focused on disciplined execution and prudent risk resource allocation. That concludes Sunlands' prepared remarks. I will now turn the call over to our Finance Director, Hangyu Li.

Hangyu Li: Thank you, Tongbo. Hello, everyone. I'm pleased to share our financial results for the first quarter of 2026. This quarter, our numbers demonstrate the rewards of our strategic persistence. As Tongbo discussed, we have deliberately prioritized revenue quality and learner cohort health over low top line scale. This disciplined execution has translated into a leaner cost structure, healthy margins and a resilient balance sheet. Our focus on precision has led to a significant milestone in cost management with selling expenses declining by 19.5% year-over-year. This marks the largest single quarter reduction we have recorded in recent years and our third consecutive quarter of year-over-year decline. While we prudently management overhead, we continued to expand our technological edge.

Our product development expenses rose by 5.6% year-over-year, reflecting our commitment to embedding AI deeply into our operations. This scaling of our AI capability is already serving as a primary operational catalyst to enhance delivery, automate engagement and offset structural costs. These strategic trade-offs have directly reinforced our profit quality and the bottom line resilience. Despite 9.6% year-over-year decline in net revenues, our profitability remained strong. We maintained a solid gross margin of 86.5% while our net income margin expanded to 17.4%. Securing this execution is our resilient balance sheet position. Our robust liquidity profile provides us with the strategic flexibility required to fully absorb macroeconomic variations while aggressively compounding capital in our priority growth initiatives.

Now let me walk you through some of our key financial results for the first quarter of 2026. All comparisons are year-over-year and all figures are in RMB, unless otherwise noted. In the first quarter of 2026, net revenues decreased by 9.6% to RMB 440.7 million from RMB 487.6 million in the first quarter of 2025. Cost of revenues decreased by 17.7% to RMB 59.5 million from RMB 72.3 million in the first quarter of 2025, mainly due to a decline in costs related to learning materials, books and service fees paid to educational institutions. Gross profit was RMB 381.1 million compared to RMB 415.3 million in the first quarter of 2025.

Gross profit margin expanded to 86.5%, up from 85.2% in the prior year period. Total operating expenses were RMB 284.3 million, a 16.7% decrease from RMB 341.1 million in the first quarter of 2025. Sales and marketing expenses decreased by 19.5% to RMB 241.9 million from RMB 300.4 million in the first quarter of 2025. primarily due to optimized compensation for sales personnel and more targeted branding and marketing activities. General and administrative expenses increased by 4.1% to RMB 35.9 million from RMB 34.5 million in the first quarter of 2025. Product development expenses rose by 5.6% to RMB 6.6 million from RMB 6.2 million in the first quarter of 2025.

Net income for the first quarter of 2026 reached RMB 76.8 million compared to RMB 75.2 million in the first quarter of 2025. Basic and diluted net income per share was RMB 11.48 in the first quarter of 2026. As of March 31, 2026, the company held RMB 547.2 million of cash, cash equivalents and restricted cash alongside RMB 236 million of short-term investments compared to RMB 576.8 million of cash and cash equivalents and RMB 235.9 million of short-term investments as of December 31, 2025. As of March 31, 2026, the company maintained a deferred revenue balance of RMB 500.5 million compared to RMB 585.3 million as of December 31, 2025. Turning to our outlook.

For the first -- second quarter of 2026, we expect net revenues to be between RMB 410 million to RMB 430 million, representing a decrease of 20.2% to 23.9% year-over-year. This outlook is based on our current market dynamics and reflects our preliminary assessment of macro conditions and the learner demand patterns, which remains subject to substantial uncertainty. This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead.

Operator: [Operator Instructions] At this time, we are showing no further questions. So I will conclude our Q&A session, and I will now turn the conference back to Yuhua for any closing remarks.

Yuhua Ye: 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: This concludes today's conference call. Thank you for participating. You may now disconnect.