Sunlands Technology Group Q1 FY2026 earnings call

- Overall Financial Performance * Total Q1 2026 net revenue was RMB 414.7 million, a 9.6% year-over-year decline * Net income was RMB 76.9 million, up slightly from RMB 75.2 million in Q1 2025, marking Sunland's 20th consecutive profitable quarter * Net income margin reached 17.4%, gross margin expanded to 86.5% from 85.2% in the prior year period * Selling expenses declined 19.5% year-over-year, the largest single-quarter reduction in recent years and the third consecutive quarter of year-over-year decline * R&D/product development expenses rose 5.6% year-over-year to RMB 6.6 million, reflecting continued investment in technology and AI capabilities * The company maintains a strong resilient balance sheet with robust liquidity, providing strategic flexibility for growth investments

- Product and Content Expansion * Added new courses to the interest-based learning catalog, including colored pencils and folk music, responding to direct learner demand * Running early-stage pilots for adjacent content areas including language learning, which has already shown initial learner interest * Extended learning experiences beyond online courses into tangible, offline integrated learning journeys; launched a study tool that connects existing course content to in-person experiences (e.g., landscape visits, museum trips for Chinese painting students) in partnership with art galleries and cultural institutions, to improve learner engagement and repurchase rates; these initiatives are still in early stages

- AI Capability Development * Sunland's internally developed AI capabilities have continued to mature, with growing implications for long-term operating efficiency * In customer acquisition workflows, the company's AI assistant now provides decision support for sales agents, surfacing user sentiment and hesitation signals, and delivering tailored conversational guidance aligned to each agent's style * The intelligent voice system has reduced time to first contact for new leads, improving conversion efficiency, and freed human teams to focus on high-value, judgment-dependent interactions that drive enrollment * Management plans to continue embedding AI capabilities across more customer acquisition and service workflows to further improve operating efficiency and learner experience

- Strategic Priorities * The company is prioritizing higher revenue quality and healthier learner cohorts over rapid low-quality top-line growth, leading to an optimized cost structure and healthy margins * Continued discipline in cost structure optimization and operating efficiency improvement

Sunland has two primary business segments in Q1 2026: 1) Degree and diploma oriented post-secondary programs: This segment contributed 17.9% of total Q1 2026 revenue. The segment is facing downward pressure from ongoing structural industry subsidies, and the company is managing the segment in line with actual learner demand with disciplined resource allocation. 2) Combined interest-based programs, professional skills training, and professional certification preparation: This segment contributed 67.9% of total Q1 2026 revenue, making it Sunland's largest revenue contributor. This segment is the core focus of the company's revenue diversification strategy. Within this segment, senior interest-based learning is identified as a key long-term growth opportunity.

- For the second quarter of 2026, management expects net revenues to fall in the range of RMB 410 million to RMB 430 million - This projected range represents a 20.2% to 23.9% year-over-year decline from the second quarter of 2025 - The guidance is based on current assessments of market dynamics, macroeconomic conditions, and learner demand patterns, and management notes the outlook remains subject to substantial uncertainty

- Forward-looking statements discussed on the call are based on current estimates and projections, and carry inherent risks and uncertainties that could cause actual results to differ materially from projections. Key risk factors are detailed in Sunland's filings with the Securities and Exchange Commission. - Ongoing structural subsidies for degree and diploma oriented programs continue to place downward pressure on top-line revenue. - New product and experiential learning initiatives are in early stages, and their ultimate market performance and impact on revenue and profitability are still uncertain.

No participant questions were submitted during the open Q&A session of the call, so the question and answer session was concluded early.