Sunlands Technology Group Announces Unaudited Third Quarter 2019 Financial Results

BEIJING,Nov. 22,2019 -- Sunlands Technology Group (NYSE: STG)("Sunlands" or the "Company"),a leader in China's online post-secondary and professional education,today announced its unaudited financialresults for the third quarter ended September 30,2019.

[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 us,excluding orders of our low-price courses). In June 2019,we introduced low-price courses,including "mini courses" and "RMB1 courses," to strengthen our competitiveness and improve customer experience. We offer such low-price courses mainly in the formats of recorded videos or short live streaming.

Third Quarter 2019 Financial and Operational Highlights

Net revenues were RMB527.3 million (US$73.8 million),representing a 2.0% increase year-over-year.

Gross billings (non-GAAP) were RMB613.6 million (US$85.8 million),representing a 18.8% decrease year-over-year.

Gross profit was RMB413.6 million (US$57.9 million),representing a 2.5% decrease year-over-year.

Net loss was RMB129.8 million (US$18.2 million),representing a 42.6% decrease year-over-year. Net loss margin,defined as net loss as a percentage of net revenues,decreased to 24.6% from 43.8% in the third quarter of 2018.

New student enrollments were 95,286,representing a 20.8% decrease year-over-year.

As of September 30,2019,the Company's deferred revenue balance was RMB3,214.6 million (US$ 449.7 million).

"In the third quarter,we continued our focus on deploying a diversified set of methods towards student acquisition in an effort to both grow the total number of students utilizing our online platform and increase user stickiness," said Mr. Tongbo Liu,Chief Executive Officer of Sunlands. "Our efforts to further differentiate our offerings include providing a broader range of courses with more master's-oriented and professional certificate programs. Our unique and growing learning community adds a social and entertaining aspect to learning,in addition to our relentless pursuit of cutting-edge technologies,particularly with an emphasis on our strategy to apply AI to education. With these initiatives,as well as our significantly lower price points compared to traditional offline offerings,and our solid track record of pass rates,we expect to see positive results in gross billings and new student enrollments in the long run.

"In addition to our strategic focus on expansion,we also continued to execute on our balancedapproach to improve profitability in the third quarter by prudently managing our expenses. As a result,our net loss narrowed by 42.6% year-over-year during the quarter,to RMB129.8 million."

Mr. Steven Yipeng Li,Chief Financial Officer of Sunlands,said,"For the third quarter,our net revenues were RMB527.3 million (US$73.8 million),in line with our guidance. Our gross billings and new student enrollments declined 18.8% and 20.8%,respectively,year-over-year,as we continued to adjust our marketing strategies in view of uncertainties in student acquisition cost and macroeconomic trends. However,the rate of decrease for gross billings and new student enrollments moderated from the second quarter,showing traction of our student acquisition efforts. In addition,following a reduction in net loss in the second quarter,third quarter net loss also narrowed year-over-year to RMB129.8 million,compared with a loss of RMB226.3 million in third quarter of 2018.This was primarily driven by the decrease in administrative expenses as well as sales and marketing expenses by 30.4% and 20.8%,compared with the same quarter last year. Going forward,we will continue with steady execution of our five-pronged expansion and retention strategies,to bring long-term returns for both our customers and shareholders."

Financial Results for the Third Quarter of 2019

Net Revenues

In the third quarter of 2019,net revenues increased by 2.0% to RMB527.3 million (US$73.8 million) from RMB517.0 million in the third quarter of 2018. The increase was mainly driven by the growth in the number of students[2] in the third quarter of 2019 compared with the third quarter of 2018,mainly driven by new student enrollments increase over the past years.

[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

Cost of revenues increased by 22.7% to RMB113.7 million (US$15.9 million) in the third quarter of 2019 from RMB92.7 million in the third quarter of 2018,which was primarily due to the insurance premiums related to online education services with insurance coverage since late 2018.

Gross Profit

Gross profit decreased by 2.5% to RMB413.6 million (US$57.9 million) from RMB424.4 million in the third quarter of 2018.

Operating Expenses

In the third quarter of 2019,operating expenses were RMB546.9 million (US$76.5 million),representing a 21.5% decrease from RMB696.3 million in the third quarter of 2018.

Sales and marketing expenses decreased by 20.8% to RMB429.2 million (US$60.0 million) in the third quarter of 2019 from RMB542.0 million in the third quarter of 2018. The decrease was mainly due to reduced marketing spending,reflective of disciplined,prudent cost management,and the decrease in the expenses of sales and marketing personnel.

General and administrative expenses decreased by 30.4% to RMB91.3 million (US$12.8 million) in the third quarter of 2019 from RMB131.1 million in the third quarter of 2018. The decrease was mainly due to the decrease inoffice expensesand compensation expenses.

Product development expenses increased by 14.0% to RMB26.4 million (US$3.7 million) in the third quarter of 2019 from RMB23.2 million in the third quarter of 2018. The increase was primarily due to an increase in the number of employees and compensation incurred related to our product and technology development personnel during the quarter.

Net Loss

Net loss for the third quarter of 2019 was RMB129.8 million (US$18.2 million),compared with RMB226.3 million in the third quarter of 2018.

Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share was RMB19.00 (US$2.66) in the third quarter of 2019.

Cash and Cash Equivalents and Short-term Investments

As of September 30,the Company had RMB1,569.4 million (US$219.6 million) of cash and cash equivalents and RMB208.8 million (US$29.2 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 September 30,the Company had a deferred revenue balance of RMB3,214.6 million (US$449.7 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 RMB11.8 million (US$1.7 million) in the third quarter of 2019,compared with RMB10.3 million in the third quarter of 2018.

Financial Results for the First Nine Months of 2019

Net Revenues

In the first nine months of 2019,net revenues increased by 17.0% to RMB1,644.2 million (US$230.0 million) from RMB1,405.2 million in the first nine months of 2018.

Cost of Revenues

Cost of revenues increased by 17.1% to RMB294.8 million (US$41.2 million) in the first nine months of 2019 from RMB251.9 million in the first nine months of 2018.

Gross Profit

Gross profit increased by 17.0% to RMB1,349.4 million (US$188.8 million) from RMB1,153.3 million in the first nine months of 2018.

Operating Expenses

In the first nine months of 2019,operating expenses were RMB1,658.3 million (US$232.0 million),representing a 15.9% decrease from RMB1,972.9 million in the first nine months of 2018.

Sales and marketing expenses decreased by 18.9% to RMB1,316.2 million (US$184.1 million) in the first nine months of 2019 from RMB1,622.7 million in the first nine months of 2018.

General and administrative expenses decreased by 12.1% to RMB264.7 million (US$37.0 million) in the first nine months of 2019 from RMB301.1 million in the first nine months of 2018.

Product development expenses increased by 57.8% to RMB77.4 million (US$10.8 million) in the first nine months of 2019 from RMB49.1 million in the first nine months of 2018.

Net Loss

Net loss for the first nine months of 2019 was RMB255.6 million (US$35.8 million),compared with RMB743.3 million in the first nine months of 2018.

Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share was RMB37.36 (US$ 5.23) in the first nine months of 2019,compared with RMB121.93 in the first nine 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 wereRMB15.1million (US$2.1 million) in the first nine months of 2019,compared with RMB255.3 million in the first nine months of 2018.

Outlook

For the fourth quarter of 2019,Sunlands currently expects net revenues to be between RMB520.0 million to RMB540.0 million,which would represent a decrease of 5.1% to 8.6% 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 RMB7.1477 to US$1.00,the effective noon buying rate for September30,2019 as set forth in the H.10 statistical release of the Federal Reserve Board. No representation is made that the RMB amounts could have been,or could be,converted,realized or settled into US$ at that rate on September30,or at any other rate.

Conference Call and Webcast

Sunlands' management team will host a conference call at7:30 AMU.S. Eastern Time,(8:30 PMBeijing/Hong Kongtime) onNovember22,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 November30,2019.

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 September 30,

2018

2019

RMB

RMB

US$

ASSETS

Current assets

Cash and cash equivalents

1,248,810

1,569,352

219,560

Short-term investments

1,028,564

208,813

29,214

Prepaid expenses and other current assets

124,908

153,862

21,528

Deferred costs,current

180,657

235,619

32,964

Total current assets

2,582,939

2,167,646

303,266

Non-current assets

Property and equipment,net

559,511

541,515

75,761

Intangible assets,net

1,369

815

114

Right-of-use assets

-

628,927

87,990

Deferred costs,non-current

146,610

174,470

24,409

Long-term investments

30,009

34,077

4,768

Other non-current assets

418,700

450,034

62,962

Total non-current assets

1,156,199

1,829,838

256,004

TOTAL ASSETS

3,739,138

3,997,484

559,270

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 RMB214,412as of

December 31,2018 and September 30,respectively)

455,284

365,128

51,083

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

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

RMB1,491,300as of December 31,respectively)

1,085

1,743,858

243,975

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

without recourse to Sunlands Technology Group of nil and

RMB22,396as of December 31,respectively)

-

48,122

6,733

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 September 30,respectively)

61,540

61,540

8,610

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

4,547

Total current liabilities

2,314,409

2,251,148

314,948

(Amounts in thousands,

As ofSeptember 30,

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 RMB1,253,877as of December 31,

2019,940

1,470,706

205,759

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

consolidated VIEs without recourse to Sunlands Technology Group of

nil and RMB372,843as of December 31,2018 and September30,respectively)

-

626,207

87,610

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

12,591

1,762

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

VIEs without recourse to Sunlands Technology Group of nil and nil as of

December 31,respectively)

225,625

201,250

28,156

Total non-current liabilities

1,763,712

2,310,754

323,287

TOTAL LIABILITIES

4,078,121

4,561,902

638,235

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 September 30,respectively; 1,773,301 and 1,724,717 shares

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

2,364,829

330,852

Accumulated deficit

(2,849,770)

(3,105,124)

(434,423)

Accumulated other comprehensive income

118,827

176,013

24,625

Total Sunlands Technology Group shareholders' deficit

(339,119)

(564,280)

(78,946)

Noncontrolling interest

136

(138)

(19)

TOTAL SHAREHOLDERS' DEFICIT

(338,983)

(564,418)

(78,965)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT

3,270

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands,or otherwise noted)

For the Three Months Ended September 30,

2018

2019

RMB

RMB

US$

Net revenues

517,015

527,275

73,768

Cost of revenues

(92,653)

(113,654)

(15,901)

Gross profit

424,362

413,621

57,867

Operating expenses

Sales and marketing expenses

(542,032)

(429,183)

(60,045)

Product development expenses

(23,173)

(26,420)

(3,696)

General and administrative expenses

(131,133)

(91,320)

(12,776)

Total operating expenses

(696,338)

(546,923)

(76,517)

Loss from operations

(271,976)

(133,302)

(18,650)

Interest income

23,644

2,019

282

Interest expense

-

(3,562)

(498)

Other income,net

22,370

5,107

714

Loss before income tax expenses

(225,962)

(129,738)

(18,152)

Income tax expenses

-

-

-

Loss from equity method investments

(301)

(75)

(10)

Net loss

(226,263)

(129,813)

(18,162)

Less: Net loss attributable to noncontrolling interest

(482)

(192)

(27)

Net loss attributable to Sunlands Technology Group

(225,781)

(129,621)

(18,135)

Net loss per share attributable to ordinary shareholders of

Sunlands Technology Group:

Basic and diluted

(32.68)

(19.00)

(2.66)

Weighted average shares used in calculating net loss

per ordinary share:

Basic and diluted

6,908,868

6,820,752

6,752

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)

For the Three Months Ended September30,

2018

2019

RMB

RMB

US$

Net loss

(226,162)

Other comprehensiveincome,net of tax effect of nil:

Change in cumulative foreign currency translation adjustments

58,340

59,723

8,356

Total comprehensive loss

(167,923)

(70,090)

(9,806)

Less: comprehensive loss attributable to noncontrolling

interest

(482)

(192)

(27)

Comprehensive loss attributable to Sunlands Technology

Group

(167,441)

(69,898)

(9,779)

SUNLANDS TECHNOLOGY GROUP

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(Amounts in thousands)

For the Three Months Ended September30,

2018

2019

RMB

RMB

Net revenues

517,275

Less: other revenues

(1,872)

(2,730)

Add: tax and surcharges

17,949

34,907

Add: ending deferred revenue

3,116,225

3,214,564

Add: ending refund liability

-

75,046

Less: beginning deferred revenue

(2,893,506)

(3,227,949)

Less: beginning refund liability

-

(7,522)

Gross billings (non-GAAP)

755,811

613,591

Net loss

(226,813)

Add: income tax expenses

-

-

depreciation and amortization

6,493

9,442

interest expense

-

3,562

Less: interest income

(23,644)

(2,019)

EBITDA (non-GAAP)

(243,414)

(118,828)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands,or otherwise noted)

For the NineMonths Ended September30,

2018

2019

RMB

RMB

US$

Net revenues

1,405,186

1,644,180

230,029

Cost of revenues

(251,861)

(294,804)

(41,245)

Gross profit

1,153,325

1,349,376

188,784

Operating expenses

Sales and marketing expenses

(1,622,730)

(1,316,195)

(184,142)

Product development expenses

(49,066)

(77,422)

(10,832)

General and administrative expenses

(301,078)

(264,704)

(37,033)

Total operating expenses

(1,972,874)

(1,658,321)

(232,007)

Loss from operations

(819,549)

(308,945)

(43,223)

Interest income

46,934

50,963

7,130

Interest expense

-

(10,947)

(1,532)

Other income,net

30,911

14,386

2,013

Loss before income tax expenses

(741,704)

(254,543)

(35,612)

Income tax expenses

-

-

-

Loss from equity method investments

(1,578)

(1,085)

(152)

Net loss

(743,282)

(255,628)

(35,764)

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

73

(274)

(38)

Net loss attributable to Sunlands Technology Group

(743,355)

(255,354)

(35,726)

Net loss per share attributable to ordinary shareholders of

Sunlands Technology Group:

Basic and diluted

(121.93)

(37.36)

(5.23)

Weighted average shares used in calculating net loss

per ordinary share:

Basic and diluted

6,096,576

6,835,118

6,118

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Amounts in thousands)

For the NineMonths Ended September30,

2018

2019

RMB

RMB

US$

Net loss

(743,764)

Other comprehensive income,net of tax effect of nil:

Change in cumulative foreign currency translation adjustments

125,766

57,186

8,001

Total comprehensive loss

(617,516)

(198,442)

(27,763)

Less: comprehensive income/(loss) attributable to noncontrolling

interest

73

(274)

(38)

Comprehensive loss attributable to Sunlands Technology

Group

(617,589)

(198,168)

(27,725)

SUNLANDS TECHNOLOGY GROUP

RECONCILIATION OF GAAP AND NON-GAAP RESULTS

(Amounts in thousands)

For the NineMonths Ended September30,

2018

2019

RMB

RMB

Net revenues

1,180

Less: other revenues

(6,264)

(12,344)

Add: tax and surcharges

49,900

87,726

Add: ending deferred revenue

3,110,428)

(3,025)

Less: beginning refund liability

-

(6,625)

Gross billings (non-GAAP)

2,454,619

1,716,522

Net loss

(743,628)

Add: income tax expenses

-

-

depreciation and amortization

17,765

27,880

interest expense

-

10,947

Less: interest income

(46,934)

(50,963)

EBITDA (non-GAAP)

(772,451)

(267,764)

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