Sunlands Technology : Q3 2020 Earnings Presentation

Sunlands Technology Group

Earnings Presentation

Third Quarter 2020

Disclaimer

Safe Harbor Statement

This press release contains forward-looking statements made under the "safe harbor" provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects,"

"anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Sunlands may also make written or oral forward-looking statements in its reports filed with or furnished to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other

written materials and in oral statements made by its officers, directors or employees to third parties. Any statements that are not historical facts, including statements about Sunlands' beliefs and expectations, are forward-looking statements that involve factors, risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such factors and risks include, but not limited to the following: Sunlands' goals and strategies; its expectations regarding

demand for and market acceptance of its brand and services; its ability to retain and increase student enrollments; its ability to offer new courses and educational content; its ability to improve teaching quality and students' learning results; its ability to improve sales and marketing efficiency and effectiveness; its ability to

engage, train and retain new faculty members; its future business development, results of operations and financial condition; its ability to maintain and improve technology infrastructure necessary to operate its business; competition in the online education industry in China; relevant government policies and regulations relating to Sunlands' corporate structure, business and industry; and general economic and business condition in China Further information regarding these and other

risks, uncertainties or factors is included in the Sunlands' filings with the U.S. Securities and Exchange Commission. All information provided in this press release is current as of the date of the press release, and Sunlands does not undertake any obligation to update such information, except as required under applicable law.

About Non-GAAP Financial Measures

We use gross billings and EBITDA, each a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes. We define gross billings for a specific period as the total amount of cash received for the sale of course packages, net of the total amount of refunds paid in such

period. Our management uses gross billings as a performance measurement because we generally bill our students for the entire course tuition at the time of sale of our course packages and recognize revenue proportionally over a period. EBITDA is defined as net loss excluding depreciation and amortization, interest expense,

interest income, and income tax expenses. We believe that gross billings and EBITDA provide valuable insight into the sales of our course packages and the performance of our business.

These non-GAAP financial measures should not be considered in isolation from, or as a substitute for, their most directly comparable financial measure prepared in

accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their respective most directly comparable GAAP measure has been provided in the tables included below. Investors are encouraged to review the reconciliation of the historical non-GAAP financial measures to their respective most directly

comparable GAAP financial measures. As gross billings and EBITDA have material limitations as an analytical metric and may not be calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies. In light of the foregoing limitations, you should not consider gross

billings and EBITDA as a substitute for, or superior to, their respective most directly comparable financial measures prepared in accordance with GAAP. We encourage

investors and others to review our financial information in its entirety and not rely on a single financial measure.

2

2020 Q3 Highlights

Net revenues were RMB 541.6 million (US$ 79.8 million), representing a 2.7% increase year- over-year.

363,013

China's OnlineGross billings (non-GAAP) were RMB 654.3 million (US$ 96.4 million), representing a 6.6%

Enrollments

and increase year-over-year.in 20193

Market

Gross profit was RMB 448.7 million (US$ 66.1 million), representing an 8.5 % increase year-over-year.

New student enrollments were 140,819, representing a 47.8% increase year-over-year.

3

Our Course Offerings

STE

Master

Degrees

• Run by the Ministry of Education for over 30 years
• Regulated by the Commission of Self-taught Higher Education
• All adults can take exams after self-study or taking tutoring
• Widely recognized by employers given its level of difficulty
• Examine two to four times per year
• One to five years to pass all exams to receive diploma
• More interaction and supervision needed given the long exam cycle

• Master's degree-oriented courses
• Focus on-the-job graduate student
• Collaborate with overseas universities in Europe and the United States to provide high education resources to Chinese students

Certification & Skills

• Cover various industries and professions, including accounting, human resources, teaching and finance
• Offer exam preparation courses for exam-taking students
• Give students the skills, knowledge and abilities that are commonly required or otherwise helpful for a broad range of professions.

4

Gross Billings Summary

• Robust Growth Momentum in Gross Billings
• Master's degree-oriented Gross Billings Outgrew 93.3% Year-over-Year

Total Gross Billings (RMB million)

Total Gross Billings	Total Gross Billings
	RMB 531mm	RMB 654mm
	(RMB million)	(RMB million)
	11%	21%
26%	2020Q2	2020Q3	48%
	63%	31%

STE		Master's degree-oriented		Professional certification and skills

7 0	614	642	654

6 0		517	532	+Y/Y 6.6%
5 0				+Q/Q 23.1%
4 0
3 0
2 0
1 0
0
2019Q3	2019Q4	2020Q1	2020Q2	2020Q3

Master's degree-oriented Gross Billings (RMB million)

2 50

			200
2 00			+Y/Y 93.3%
			+Q/Q 48.4%
1 50		127	135
	104	116

1 00

5 0

0

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

5

New Enrollments

• Significant Growth in Total New Enrollments

Total New Enrollments

					+Y/Y 47.8%
1	60	,0	0		+Q/Q 70.5%
					140,819
1	04	,0	0
1	02	,0	0
1	0	,0	0	95,286	92,718

82,597

8	,0 0 0	70,098
6	,0 0 0

4 ,0 0 0

2 ,0 0 0

-

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

Master's degree-oriented New Enrollments

1	,06	0
		13,975
1	,04	0

1	2,0		0			10,031	10,790							+Y/Y 39.3%
							8,304	9,378					+Q/Q 49.0%
1	,0		0
	8	,0	0
	6	,0	0
	4	,0	0
	2	,0	0
			0
						2019Q3	2019Q4	2020Q1	2020Q2	2020Q3
						Professional Certification & Skills New Enrollments
			8	,0	0					74,430
			7	,0	0									+Y/Y 588.8%
			6	,0	0
			5	,0	0									+Q/Q 265.8%
			4	,0	0
			3	,0	0				20,347
			2	,0	0	10,806	11,173
						6,627
			1	,0	0
					0
						2019Q3	2019Q4	2020Q1	2020Q2	2020Q3

6

Net Revenues Summary

• Solid Topline Growth
• Revenue Mix Optimization

Total Net Revenues	Total Net Revenues
RMB 512mm		RMB 542mm
(RMB million)		(RMB million)
6%		11%
18%
2020Q2	23%	2020Q3

66%

76%

STE		Master's degree-oriented		Professional certification and skills

	Total Net Revenues	(RMB million)
6 0		565	542 +Y/Y 2.7%
5 50	527
	550
			512	+Q/Q 5.7%
5 0
4 05

4 0

3 05

3 0

2019Q3 2019Q4 2020Q1 2020Q2 2020Q3

Master's degree-oriented Net Revenues (RMB million)

			100		121
1 02				+Y/Y 87.9%
1 0		80		90	+Q/Q 34.8%
8 0	65
6 0
4 0
2 0
0
	2019Q3	2019Q4	2020Q1	2020Q2	2020Q3

7

Industry Leading Gross Margins

700

(RMB million)

600

500

400

300

200

100

0

							90%
86%	85%						85%
	83%			83%		83%
			82%	81%
490					80%
479				468
457	78%	448
		444
			413
			414			75%
							70%
							65%
							60%
							55%
							50%
2018Q4	2019Q1	2019Q2	2019Q3	2019Q4	2020Q1	2020Q2	2020Q3
			Gross Profit	Gross Profit Ratio

8

Operating Leverage& Net Loss

(RMB million)

1 00 %

9 0%

8 0%

7 0%

6 0%

5 0%

4 0%

3 0%

2 0%

1 0%

0 %

Operating Expenses

91	99	89	56	76
16	19
26	24	21

429	476	458	488	569

0

-20
-40
-60
-80
-100
-120
-140
-160

(RMB million)

Net loss

2019Q3

2019Q4

2020Q1

2020Q2

2020Q3

	-66
-130	-126
	-140

2019Q3	2019Q4	2020Q1	2020Q2	2020Q3
Sales and marketing expenses			Product development expenses
General and administrative expenses

-180

-166

9

2020 Q4 Guidance

(RMB million)

	4Q 2019	3Q 2020	4Q 2020 Outlook	Y/Y Growth
Net Revenues	550	542	540-560	-1.8%-1.9%

10

Sunlands Technology Group

Thank You!