Sunlands Technology Group Announces Unaudited Second Quarter 2019 Financial Results

BEIJING,Aug. 23,2019 -- Sunlands Technology Group (NYSE: STG)("Sunlands" or the "Company"),a leader in China's online post-secondary and professional education,today announced its unaudited financial results for the secondquarter and the first six months ended June30,2019.

SecondQuarter 2019 Financial and Operational Highlights

Net revenues were RMB552.7 million (US$80.5 million),representing a 14.7% increase year-over-year.

Gross billings (non-GAAP) were RMB438.2 million (US$63.8 million),representing a 43.1% decrease year-over-year.

Gross profit was RMB457.0 million (US$66.6 million),representing a 16.2% increase year-over-year.

Net loss was RMB12.9 million (US$1.9 million),representing a 95.3% decrease year-over-year. Net loss margin,defined as net loss as a percentage of net revenues,decreased to 2.3% from 56.4% in the second quarter of 2018.

New student enrollments were 74,958,representing a 44.0% decrease year-over-year.

As of June 30,2019,the Company's deferred revenue balance was RMB3,227.9 million (US$470.2 million).

[1] New student enrollments for a given period refers to the total number of orders placed by students that newly enroll in at least one course during that period (including those students that enroll and then terminate their enrollment with the Company).

"During the second quarter,we continued to focus on student acquisitions through diversified channels,which broadly included our recently launched mobile applications,our upgraded trial programs,our unique learning community where students,teachers and mentors interact with one another,and expanded offering of master's-oriented products and professional certificate courses. Through these initiatives,we are building a solid and multi-faceted foundation to reach a high-quality customer base and attract more students to our online platform," said Mr.Tongbo Liu,Chief Executive Officer of Sunlands. "While we believe these initiatives will benefit our gross billings and new student enrollment growth in the long run,we are also aware of the impact of China's slowing macroeconomy and the challenges and uncertainties facing the industry where we operate,particularly those relating to student acquisition costs. To address these challenges,we have adopted a more prudent marketing strategy,with a view to investing marketing dollars more effectively while maintaining risks at acceptable levels. As a result ofour disciplined spending,our net loss during the quarter narrowed significantly to RMB12.9million,decreasingby95.3% from RMB271.8million for the same period in 2018.

"We continue to seek balanced growth as we execute our five-pronged expansion and retention plan for 2019,as announced in the last quarter. With our industry-leading technology,high-quality educational content and one-to-many business model,we are confident in our ability to continue to grow as the leader in China's online post-secondary and professional educationindustry." Mr. Liu concluded.

Mr. Steven Yipeng Li,Chief Financial Officer of Sunlands,said,"In the second quarter,our net revenues increasedby14.7% year-over-year,which is in line with our guidance.Our gross billings and new student enrollment declined by 43.1% and 44.0%,respectively,year-over-year,primarily due to the slowing macroeconomy and the short-term impact of our adjustment of marketing campaigns in view of uncertainties in student acquisition costs. We responded to the macroeconomic headwinds by reducing our sales and marketing expenses,and as a result our second quarter net loss narrowed significantly to RMB12.9million from RMB112.9 million in first quarter of 2019 and RMB271.8 million in the second quarteroflast year.We are confident that with our steady and focused execution of our five-pronged strategy to expansion and retention,we will improve average gross billings,conversion rates and sales efficiency over the long term."

Financial Results for the Second Quarter of 2019

Net Revenues

In the second quarter of 2019,net revenues increased by 14.7% to RMB552.7 million (US$80.5 million) from RMB481.8 million in the second quarter of 2018. The increase was mainly driven by the growth in the number of students[2] in the second quarter of 2019 compared with the second quarter of 2018,mainly driven by new student enrollments increase over the past years.

Cost of Revenues

[2] Number of students for a given period refers to the total number of orders placed by students which remain in their respective service periods.

Cost of revenues increased by 8.1% to RMB95.7 million (US$13.9 million) in the second quarter of 2019 from RMB88.5 million in the second quarter of 2018,which was primarily due to an increase in insurance premiums related to online education services with insurance coverage since late in 2018.

Gross Profit

Gross profit increased by 16.2% to RMB457.0 million (US$66.6 million) from RMB393.3 million in the second quarter of 2018.

Operating Expenses

In the second quarter of 2019,operating expenses were RMB498.7 million (US$72.6 million),representing a 27.5% decrease from RMB688.3 million in the second quarter of 2018.

Sales and marketing expenses decreased by 33.0% to RMB389.7 million (US$56.8 million) in the second quarter of 2019 from RMB581.7 million in the second quarter of 2018. The decrease was mainly due to reduced marketing spending,reflective of disciplined,prudent cost management,and the decrease in the expense of sales and marketing personnel.

General and administrative expenses decreased by 7.9% to RMB84.9 million (US$12.4 million) in the second quarter of 2019 from RMB92.2 million in the second quarter of 2018. The decrease was mainly due to the decrease in office expenses and professional service fees.

Product development expenses increased by 68.1% to RMB24.0 million (US$3.5 million) in the second quarter of 2019 from RMB14.3 million in the second quarter of 2018. The increase was primarily due to an increase in the number of employees and compensation paid to Sunlands' product and technology development personnel during the quarter.

Net Loss

Net loss for the second quarter of 2019 was RMB12.9 million (US$1.9 million),compared with RMB271.8 million in the second quarter of 2018.

Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share was RMB1.87 (US$0.27) in the second quarter of 2019.

Cash and Cash Equivalents and Short-term Investments

As of June 30,the Company had RMB1,527.7 million (US$222.5 million) of cash and cash equivalents and RMB269.9 million (US$39.3 million) of short-term investments,compared with RMB1,248.8 million of cash and cash equivalents and RMB1,028.6 million of short-term investments as of December 31,2018.

Deferred Revenue

As of June 30,the Company had a deferred revenue balance of RMB3,227.9 million (US$470.2 million),compared with RMB3,286.0 million as of December 31,2018.

Capital Expenditures

Capital expenditures were incurred primarily in connection with purchases of buildings and IT infrastructure equipment necessary to support Sunlands' operations. Capital expenditures were RMB2.2 million (US$0.3 million) in the second quarter of 2019,compared with RMB97.3 million in the second quarter of 2018.

Financial Results for the First Six Months of 2019

Net Revenues

In the first six months of 2019,net revenues increased by 25.8% to RMB1,116.9 million (US$162.7 million) from RMB888.2 million in the first six months of 2018.

Cost of Revenues

Cost of revenues increased by 13.8% to RMB181.2 million (US$26.4 million) in the first six months of 2019 from RMB159.2 million in the first six months of 2018.

Gross Profit

Gross profit increased by 28.4% to RMB935.8 million (US$136.3 million) from RMB729.0 million in the first six months of 2018.

Operating Expenses

In the first six months of 2019,operating expenses were RMB1,111.4 million (US$161.9 million),representing a 12.9% decrease from RMB1,276.5 million in the first six months of 2018.

Sales and marketing expenses decreased by 17.9% to RMB887.0 million (US$129.2 million) in the first six months of 2019 from RMB1,080.7 million in the first six months of 2018.

General and administrative expenses increased by 2.0% to RMB173.4 million (US$25.3 million) in the first six months of 2019 from RMB169.9 million in the first six months of 2018.

Product development expenses increased by 97.0% to RMB51.0 million (US$7.4 million) in the first six months of 2019 from RMB25.9 million in the first six months of 2018.

Net Loss

Net loss for the first six months of 2019 was RMB125.8 million (US$18.3 million),compared with RMB517.0 million in the first six months of 2018.

Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share was RMB18.38 (US$2.68) in the first six months of 2019,compared with RMB91.06 in the first six months of 2018.

Capital Expenditures

Capital expenditures were incurred primarily in connection with purchases of buildings and IT infrastructure equipment necessary to support Sunlands' operations. Capital expenditures wereRMB3.3million (US$0.5million) in the first six months of 2019,compared with RMB245.0 million in the first six months of 2018.

Outlook

For the third quarter of 2019,Sunlands currently expects net revenues to be between RMB510 million to RMB530 million,which would represent a decrease of 1.4% to an increase of 2.5% 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 conditions and customer demand,which are all subject to substantial uncertainty.

Exchange Rate

The Company's business is primarily conducted in China and all of the revenues are denominated in Renminbi ("RMB"). This announcement contains currency conversions of RMB amounts into U.S. dollars ("US$") solely for the convenience of the reader. Unless otherwise noted,all translations from RMB to US$ are made at a rate of RMB6.8650 to US$1.00,the effective noon buying rate for June28,2019 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been,or could be,converted,realized or settled into US$ at that rate on June28,or at any other rate.

Conference Call and Webcast

Sunlands' management team will host a conference call at7:30 AMU.S. Eastern Time,(7:30 PMBeijing/Hong Kongtime) onAugust23,following the quarterly results announcement.

The dial-in details for the live conference call are:

International:

+1-412-902-4272

US toll free:

+1-888-346-8982

Canada toll free:

+1-855-669-9657

Mainland China toll free:

400-120-1203

Hong Kong toll free:

800-905-945

Hong Kong:

+852-3018-4992

Please dial in 10 minutes before the call is scheduled to begin. When prompted,ask to be connected to the call for "Sunlands Technology Group." Participants will be required to state their name and company upon entering the call.

A live webcast and archive of the conference call will be available on the Investor Relations section of Sunlands' website at http://www.sunlands.investorroom.com/

A replay of the conference call will be available 1 hour after the end of the conference call until August 30,2019.

International:

+1-412-317-0088

US toll free:

+1-877-344-7529

Canada toll free:

855-669-9658

Replay access code:

10134317

About Sunlands

Sunlands Technology Group (NYSE: STG) ("Sunlands" or the "Company"),formerly known as Sunlands Online Education Group,is the leader in China's online post-secondary and professional education. With a one to many,live streaming platform,Sunlands offers various degree and diploma-oriented post-secondary courses as well as online professional courses and educational content,to help students prepare for professional certification exams and attain professional skills. Students can access its services either through PC or mobile applications. The Company's online platform cultivates a personalized,interactive learning environment by featuring a virtual learning community and a vast library of educational content offerings that adapt to the learning habits of its students. Sunlands offers a unique approach to education research and development that organizes subject content into Learning Outcome Trees,the Company's proprietary knowledge management system. Sunlands has a deep understanding of the educational needs of its prospective students and offers solutions that help them achieve their goals.

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 EBITDAprovide 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.

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.

For investor and media enquiries,please contact:

Yingying Liu

IR Director

Tel: +86 182 5691 2232

Email:ir@sunlands.com

The Piacente Group,Inc.

Brandi Piacente

Tel: +1-212-481-2050

Email: sunlands@tpg-ir.com

Ross Warner

Tel: +86-10-6508-0677

Email: sunlands@tpg-ir.com

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands,except for share and per share data,or otherwise noted)

As of December 31,

As of June30,

2018

2019

RMB

RMB

US$

ASSETS

Current assets

Cash and cash equivalents

1,248,810

1,527,738

222,540

Short-term investments

1,028,564

269,942

39,321

Prepaid expenses and other current assets

124,908

178,571

26,013

Deferred costs,current

180,657

223,342

32,533

Total current assets

2,582,939

2,199,593

320,407

Non-current assets

Property and equipment,net

559,511

544,996

79,388

Intangible assets,net

1,369

977

142

Right-of-use assets

-

519,672

75,699

Deferred costs,non-current

146,610

162,907

23,730

Long-term investments

30,009

31,602

4,603

Other non-current assets

418,700

442,707

64,488

Total non-current assets

1,156,199

1,702,861

248,050

TOTAL ASSETS

3,739,138

3,902,454

568,457

LIABILITIES AND SHAREHOLDERS' DEFICIT

LIABILITIES

Current liabilities

Accrued expenses and other current liabilities (including accrued expenses

and other current liabilities of the consolidated VIEs without recourse to

Sunlands Technology Group of RMB241,204 and RMB169,014as of

December 31,2018 and June30,respectively)

455,284

285,543

41,594

Deferred revenue,current (including deferred revenue,current of the consolidated VIEs

without recourse to Sunlands Technology Group of RMB1,765,085 and

RMB1,748,309as of December 31,respectively)

1,085

1,309

254,670

Lease liabilities,current (including lease liabilities,current of the consolidated VIEs

without recourse to Sunlands Technology Group of nil and

RMB22,903as of December 31,respectively)

-

36,931

5,380

Payables to acquire buildings (including payables to acquire buildings of the

consolidated VIEs without recourse to Sunlands Technology Group of niland nil

as of December 31,2018,and June30,respectively)

61,540

61,540

8,964

Long-term debt,current (including long-term debt,current of the consolidated VIEs

without recourse to Sunlands Technology Group of niland nilas of December

31,respectively)

32,500

32,500

4,734

Total current liabilities

2,314,409

2,164,823

315,342

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS-continued

(Amounts in thousands,

As ofJune30,

2018

2019

RMB

RMB

US$

Non-current liabilities

Deferred revenue,non-current (including deferred revenue,non-current of the

consolidated VIEs without recourse to Sunlands Technology Group of

RMB1,520,940 and RMB1,479,640 as of December 31,

2019,940

1,640

215,534

Lease liabilities,non-current(including lease liabilities,non-current of the

consolidated VIEs without recourse to Sunlands Technology Group of

nil and RMB384,425as of December 31,respectively)

-

527,471

76,835

Other non-current liabilities (including other non-current liabilities of the consolidated

VIEs without recourse to Sunlands Technology Group of RMB135 and RMB135as of

December 31,respectively)

17,147

13,113

1,910

Long-term debt,non-current (including long-term debt,non-current of the consolidated

VIEs without recourse to Sunlands Technology Group of niland nilas of

December 31,respectively)

225,625

209,375

30,499

Total non-current liabilities

1,763,712

2,229,599

324,778

TOTAL LIABILITIES

4,078,121

4,394,422

640,120

SHAREHOLDERS' DEFICIT

Class A ordinary shares (par value of US$0.00005,796,062,195 shares

authorized; 1,818,383 and 1,383 shares issued as of December 31,2018

and June30,respectively; 1,773,301 and 1,732,081shares

outstanding as of December 31,respectively)

1

1

-

Class B ordinary shares (par value of US$0.00005,826,389 shares

authorized; 826,389 and 826,389 shares issued and outstanding

as of December 31,respectively)

-

-

-

Class C ordinary shares (par value of US$0.00005,203,111,416 shares

authorized; 4,265,286 and 4,286 shares issued and outstanding

as of December 31,respectively)

1

1

-

Treasury stock

-

-

-

Additional paid-in capital

2,391,822

2,367,189

344,820

Accumulated deficit

(2,849,770)

(2,975,503)

(433,431)

Accumulated other comprehensive income

118,827

116,290

16,940

Total Sunlands Technology Group shareholders' deficit

(339,119)

(492,022)

(71,671)

Noncontrolling interest

136

54

8

TOTAL SHAREHOLDERS' DEFICIT

(338,983)

(491,968)

(71,663)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT

3,457

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands,or otherwise noted)

For the Three Months Ended June30,

2018

2019

RMB

RMB

US$

Net revenues

481,798

552,690

80,508

Cost of revenues

(88,508)

(95,677)

(13,937)

Gross profit

393,290

457,013

66,571

Operating expenses

Sales and marketing expenses

(581,722)

(389,678)

(56,763)

Product development expenses

(14,307)

(24,045)

(3,503)

General and administrative expenses

(92,248)

(84,947)

(12,374)

Total operating expenses

(688,277)

(498,670)

(72,640)

Loss from operations

(294,987)

(41,657)

(6,069)

Interest income

16,446

24,635

3,589

Interest expense

-

(3,654)

(532)

Other income,net

7,199

8,981

1,308

Loss before income tax expenses

(271,342)

(11,695)

(1,704)

Income tax expenses

-

-

-

Loss from equity method investments

(441)

(1,190)

(173)

Net loss

(271,783)

(12,885)

(1,877)

Less: Net income/(loss) attributable to noncontrolling interest

254

(92)

(13)

Net loss attributable to Sunlands Technology Group

(272,037)

(12,793)

(1,864)

Net loss per share attributable to ordinary shareholders of

Sunlands Technology Group:

Basic and diluted

(39.37)

(1.87)

(0.27)

Weighted average shares used in calculating net loss

per ordinary share:

Basic and diluted

6,910,058

6,831,112

6,112

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

(Amounts in thousands)

For the Three Months Ended June30,

2018

2019

RMB

RMB

US$

Net loss

(271,877)

Other comprehensiveincome,net of tax effect of nil:

Change in cumulative foreign currency translation adjustments

84,377

33,868

4,933

Total comprehensive (loss)/income

(187,406)

20,983

3,056

Less: comprehensive income/(loss) attributable to noncontrolling

interest

254

(92)

(13)

Comprehensive (loss)/income attributable to Sunlands Technology

Group

(187,660)

21,075

3,069

SUNLANDS TECHNOLOGY GROUP

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(Amounts in thousands)

For the Three Months Ended June30,

2018

2019

RMB

RMB

Net revenues

481,690

Less: other revenues

(2,722)

(228)

Add: tax and surcharges

16,160

29,923

Add: ending deferred revenue

2,893,506

3,227,949

Less: beginning deferred revenue

(2,619,134)

(3,372,174)

Gross billings (non-GAAP)

769,608

438,160

Net loss

(271,885)

Add: income tax expenses

-

-

depreciation and amortization

6,585

9,176

interest expense

-

3,654

Less: interest income

(16,446)

(24,635)

EBITDA (non-GAAP)

(281,644)

(24,690)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands,or otherwise noted)

For the SixMonths Ended June30,

2018

2019

RMB

RMB

US$

Net revenues

888,171

1,116,905

162,696

Cost of revenues

(159,208)

(181,150)

(26,387)

Gross profit

728,963

935,755

136,309

Operating expenses

Sales and marketing expenses

(1,080,698)

(887,012)

(129,208)

Product development expenses

(25,893)

(51,002)

(7,429)

General and administrative expenses

(169,945)

(173,384)

(25,256)

Total operating expenses

(1,276,536)

(1,398)

(161,893)

Loss from operations

(547,573)

(175,643)

(25,584)

Interest income

23,290

48,944

7,129

Interest expense

-

(7,385)

(1,076)

Other income,net

8,541

9,279

1,352

Loss before income tax expenses

(515,742)

(124,805)

(18,179)

Income tax expenses

-

-

-

Loss from equity method investments

(1,277)

(1,010)

(147)

Net loss

(517,019)

(125,815)

(18,326)

Less: Net income/(loss) attributable to noncontrolling interest

555

(82)

(12)

Net loss attributable to Sunlands Technology Group

(517,574)

(125,733)

(18,314)

Net loss per share attributable to ordinary shareholders of

Sunlands Technology Group:

Basic and diluted

(91.06)

(18.38)

(2.68)

Weighted average shares used in calculating net loss

per ordinary share:

Basic and diluted

5,683,699

6,842,421

6,421

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)

For the SixMonths Ended June30,

2018

2019

RMB

RMB

US$

Net loss

(517,326)

Other comprehensive income/(loss),net of tax effect of nil:

Change in cumulative foreign currency translation adjustments

67,426

(2,537)

(370)

Total comprehensive loss

(449,593)

(128,352)

(18,696)

Less: comprehensive income/(loss) attributable to noncontrolling

interest

555

(82)

(12)

Comprehensive loss attributable to Sunlands Technology

Group

(450,148)

(128,270)

(18,684)

SUNLANDS TECHNOLOGY GROUP

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(Amounts in thousands)

For the SixMonths Ended June30,

2018

2019

RMB

RMB

Net revenues

888,905

Less: other revenues

(4,392)

(9,614)

Add: tax and surcharges

31,951

52,819

Add: ending deferred revenue

2,110,428)

(3,286,025)

Gross billings (non-GAAP)

1,698,808

1,102,034

Net loss

(517,815)

Add: income tax expenses

-

-

depreciation and amortization

11,272

18,438

interest expense

-

7,385

Less: interest income

(23,290)

(48,944)

EBITDA (non-GAAP)

(529,037)

(148,936)

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