Participants

Yuhua Ye; IR Representative; Sunlands Technology Group

Tongbo Liu; Chief Executive Officer, Director; Sunlands Technology Group

Hangyu Li; Financial Director; Sunlands Technology Group

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Sunland's fourth-quarter and full year 2024 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.

Yuhua Ye

Hello, everyone, and thank you for joining Sunlands fourth-quarter and full year 2024 earnings conference call. The company's financial and operating results were issued in our press release with Newswire services earlier today and are posted online. You could download 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 Director, 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 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 statements. 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.

Tongbo Liu

Hello, everyone. Welcome to Sunland's fourth-quarter and full year 2024 earnings conference call. Prior to commencing, I would like to remind all attendees that the financial information referenced in this release are presented on a continued operation business and all figures are denominated in RMB or explicitly specified otherwise.
We wrapped up the fourth quarter with net revenue of RMB483.5 million and a net income of [RMB157.8 million], marking our 15th consecutive quarter of profitability. For the full fiscal year, we recorded an annual revenue of RMB1.99 billion, with a net income of RMB 342.1 million, extending our four straight for profitable years.
The (inaudible) performance underscores the strength of our business model and operational resilience to effectively navigate both industry dynamics and macroeconomic challenges. Despite a [10.8%] decline in full year net revenue, we also saw encouraging signs of growth, including a steady rise in enrollments, which reached a record high of about of 675,000 skill enrollments in 2024. The adult education market is inherently cynical with other economic conditions influencing learners wellness to invest in themselves.
Recognizing this shift early, we have strategically refined our product mix over the past few years. Transitioning from high-priced long duration courses to more accessible short-term programs, this adjustment not only improves conversation rates but also ensures we stay aligned with evolving customer preference, enhancing those customer acquisition efficiency and overall operational resilience.
Our operating cash flow remained strong, marking the third consecutive year disported net income. This achievement reflects not only steady growth in student enrollment, but also our disciplined approach to financial management.
More importantly, it gives us the flexibility to reinvest in key initiatives while maintaining resilience demand market fluctuations. Prudent cash management just safeguard against (inaudible) strategic advantages that enable us to invest with confidence adapt swiftly and opportunities that drive long-term value.
As China's economy recovers and the consumer confidence rebounds with the growing momentum in our sector. As the early mover in online education, we have gained valuable insights into the evolving needs of our demographic, uncovering new growth opportunities with a maturing market and strong policy support, we are well positioned to leverage the trends and drive innovation. We are confident that the foundation we have built, coupled with new models we are exploring will lead to positive results and sustainable growth in the coming year.
Now we turn to the performance of each of our major cost programs. In 2024, the (inaudible) normal range post secretary programs accounted for 10% of our total revenue. This has now been an important part of our business, but as we have carefully valued the changing demographic train and the evolving education landscape, we have decided to reduce our investment in this segment. And we direct our focus towards more promising opportunities with greater potential (inaudible) growth.
While the demand for the sector remains stable, we will continue to monitor consumer needs and (inaudible) necessary to stay aligned with the evolving market dynamics. The sector comprises interest, professional skills and professional certification preparation programs collectively accounted for 75.3% of our total revenues in 2024.
With interest-based programs emerging as a core pillar of our business over the past few years, we have strategically prioritize the sector, directing more resources and the (inaudible) being a comprehensive portfolio of interest of (inaudible) courses.
The focus in line with the border, societal trained (inaudible) towards personal fulfillment and growth that extends beyond the traditional work-related indication. As more individuals seek opportunities to enrich their lives and pursue passions outside their careers, we are uniquely positioned (inaudible).
Our goal is not only to respond to current trends, but also to anticipate the future needs, fostering long-term value by enhancing engagement, strengthening loyalty and delivering exceptional learning experiences.
Our emphasis on lifelong learning is particularly relevant given demographic shifts, especially in the rapid growth of (inaudible) report will affirm the state's commitment to the trade incubation agent and promoting the growth of the silver economy. China's demographic ships presents significant opportunities, particularly within the senior education, a sector that is pointed to become a key driver of our future growth.
To capture this potential, but deepening our commitment to senior education by expanding our course offerings to better serve the evolving needs of senior learners. According to the forest (inaudible) 2024 economic development report. China's senior interest education sector continues to expand rapidly with 172.8 million users in industry and a penetration rate of 24.5%.
Between 2019 and 2023, the market grew a robust combined annual growth rate of 14.7%, underscoring the rising demand for lifelong learning among the elderly. Recognizing this train learning, we focused on enriching the lapse of older adults through engaging educational and social experiences. By incorporating practical subjects such as arts, health and wellness, areas that strongly appeal to this demographic, we have fostered greater enthusiasm and participation.
Beyond education, we are also exploring diversified business opportunities by leveraging our substantial similar user base, including e-commerce and study tours. Hopefully, our study tour programs have gained strong traction combining interest-based learning with travel to create a unique value proposition.
In 2004, we launched dozens of (inaudible) Study core routes, including music force coutures in the United States, oil planting trips in Europe and cultural heritage tours within China. This program serves the tens of thousands of senior customers and received overwhelming positive feedback.
The integration of specialized courses into this program has enhanced the value proposition resulting in higher gross margins and contributing to overall revenue growth. According to the Forest (inaudible), China's silver tourism market is projected to reach RMB2.8 trillion by 2028, presenting substantial growth opportunities with a growing customer base and expanding portfolio will well position (technical difficulty) on the rising demand and further strengthening our market presence.
Through years of direct engagement, we have gained invaluable insights into the general needs of the demographic insights that go beyond the surface level assumptions. This deeper understanding has guided us in refining our offerings in building social elements into courses actions and the design and educational experience that are both engaging and stable.
Looking ahead, we remain committed to strengthening our leadership in senior focused education and silver economy services. We will continue to expand our cost offerings, introduce new product categories and explore innovation business models that align with evolving demographics and the market trends.
Through this strategic approach, we are not only in position to capture future growth opportunities, but also to create nothing value for our stakeholders and contribute to the broader development of the silver economy.
To further enhance our educational offerings, we're also leveraging cutting-edge technology to drive innovation. A key milestone was the integration of DeepSeek in February 2025, which enhances our ability to deliver personalized learning experiences or optimize cost content and improve operational efficiency. DeepSeek's advanced reasoning and autonomous learning capabilities enable us to address the diverse needs of adult learners with great precision, tethering to their varying backgrounds, growth and learning styles.
As AI continue to reshape education, we remain focused on staying at the forefront of this transformation. As we move into 2025, we remain steady fast in our commitment to harnessing the power of technology, understanding the ever changing needs of our customers and continually improving the product and the services we offer. Our focus will continue to be on delivering value through insightful market observations and careful refinement of our approach.
By (technical difficulty), we are positioning ourselves to not only adapt to the future, but also to drive sustained long-term growth. Our work is never done, but we are confident that our thought for strategies will lead us to continued success. This concludes my prepared remarks.
With that, I will turn the call over to our Financial Director, Hangyu Li, to run through our financials.

Hangyu Li

Thank you, Tongbo. Hello, everyone. I'm pleased to share our fourth quarter and full year results. which reflects our resilience and discipline in executing our strategy. Over the past year, we have remained focused on sustainable growth, improving efficiency and strictly controlling costs.
Our full year gross profit margin and net profit margin remained at [84.4%] and 17.2%, respectively, and we maintained positive operating cash flow for the third consecutive year, which fully demonstrates the success of our business model.
Also revenue is under pressure in the short term. Our new student enrollments in the full year of 2024 increased by 9.5% year-over-year. This is mainly due to the expansion of the product portfolio, the addition of high value-added products such as study tours and the positive feedback from the market.
The growing student base provides us with a guarantee to expand our product portfolio and enhance the lifetime value of students. This is the foundation for us to achieve sustainable development and maintain financial health. A healthy financial situation provides us with confidence to cope with market fluctuations and it's also the cornerstone for us to manage risk and make strategic adjustments.
With each successful hurdle, our team will become stronger, which gives us confidence and ability to cease up future opportunities. We believe that through resolute execution of our strategic initiatives will further will further consolidate our active vantages, maintain our good development momentum and deliver lasting value to our stakeholders.
Now let me walk you through some of our key financial results for the fourth quarter of 2024. All comparisons are year-over-year and all figures are in RMB, unless otherwise noted. In the fourth quarter of 2024, net revenues decreased by 10.8% to RMB483.5 million from RMB541.7 million in the fourth quarter of 2023.
The decrease was primarily driven by the decline in gross billings from post secondary courses over the recent quarters, partially offset by the year-over-quarter growth in revenues from sales of goods such as books and learning materials.
Cost of revenues increased by 10.8% to RMB81.7 million in the fourth quarter of 2024, from RMB73.8 million in the fourth quarter of 2023. The increase was primarily due to an increase in the cost of revenues from sales of goods such as books and learning materials. Gross profit decreased by 14.1% to RMB401.8 million in the fourth quarter of 2024, from RMB468 million in the fourth quarter of 2023.
In the fourth quarter on 2024, operating expenses were RMB351.3 million, representing a 0.7% increase from RMB348.9 million in the first quarter of 2023. Sales and marketing expenses increased by 3% to RMB304.8 million in the fourth quarter of 2024, from RMB305.8 million in the fourth quarter of 2023.
General and administrative expenses decreased by 9.9% to RMB32 million in the fourth quarter of 2024 from RMB35.5 million in the fourth quarter of 2023. The decrease was mainly due to declined compensation expenses of our general and administrative personnel.
Product development expenses decreased by 41.2% to RMB4.5 million in the fourth quarter of 2024, from RMB7.6 million in the fourth quarter of 2023. The decrease was mainly due to declined compensation expenses as it relates to high count reduction of our product development personnel.
Net income for the fourth quarter of 2024 was RMB57.8 million as compared to RMB155.2 million in the fourth quarter of 2023. Basic and diluted net income per share was 8.55% in the fourth quarter 2024. As of December 31, 2024, the company had RMB507.2 million of cash, cash equivalents and RMB276 million of short-term investments. As of December 31, 2024, the company had a deferred revenue balance of RMB916.5 million as compared to RMB1,113.9 million as of December 31, 2023.
Now for our outlook. For the first quarter of 2025, Sunlands currently expects net revenues to be between RMB470 million to RMB490 million, which would represent a decrease of 6.4% to 10.2% 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 decisions and the customer demand, which are all subject to substantial uncertainty.
With that, I'd like to open the call to the questions.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator instructions)
At this time, we are showing no questions. So this will conclude our question-and-answer session. Now I'd like to turn the conference back over 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 this conference call. You may now disconnect your line. Thank you.