Sunlands Online Education Group Sponsored ADR Class A Aktie

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' First Quarter 2026 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.

I will now turn the call over to your host today, Yuhua, Sunlands' IR representative. Please go ahead.

Hello, everyone, and thank you for joining Sunlands' First Quarter 2026 Earnings Conference Call. The company's financial and operating results were issued in our press release via newswire services earlier today and are posted online. You could download the earnings press release and sign up for our distribution list by visiting our IR website at ir.sunlands. com.

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, followed by a question-and-answer session.

Before I hand it over to the management, I'd like to remind you of Sunlands safe harbor statement in relation to today's call. Except for the historical information contained herein, certain of the 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.

Okay. Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' First Quarter 2026 Earnings Conference Call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continuing operation basis, and all figures are denominated in RMB unless explicitly specified otherwise.

We opened 2026 with net revenues of RMB 440.7 million and net income of RMB 76.8 million, marking our 20th consecutive profitable quarter. Net income margin reached 17.4%. Selling expenses declined 19.5% year-over-year, representing the largest single-quarter reduction we have recorded in recent years and the third consecutive quarter of year-over-year decline.

At the same time, R&D expenses rose 5.6% year-over-year, reflecting our continued investment in technology capability enhancement. The 9.6% year-over-year revenue decline reflected the 2 concurrent dynamics, continued structural softness in degree and diploma-oriented programs and our ongoing recalibration of customer acquisition standards towards higher quality learner cohorts. While these factors placed pressure on the top line, our profitability reflected the progress we have made in cost structure optimization, operating discipline and technology-enabled efficiency.

Let me now turn to the performance of our major cost categories. Degree and diploma-oriented postsecondary programs contributed 17.9% of net revenues in the first quarter of 2026. We continue to manage this segment in line with genuine learner demand while allocating resources with discipline. Interest-based programs, professional skills and professional certification preparation together contributed 67.9% of net revenues and remains important areas of focus as we continue to diversify our revenue mix.

Within this broader category, senior interest-based learning remains one of the areas where we continue to see meaningful long-term opportunity. This quarter, we further deepened our catalog within the arts by adding new courses such as colored pencil and folk music in response to express learner demand. We are also exploring adjacent content directions through early-stage pilots, including language learning, where we have seen initial learner interest.

Beyond course content, we continue to extend the learning experience into more [ tangible ] scenarios. We launched a study tool designed around our existing course content. So the learner who has spent a year studying Chinese painting with us can take a natural next step by visiting the landscapes, artists and museums connected to that tradition. This allows us to deepen the learning journey and reinforce the investment learners have already made rather than asking them to start from 0 in an unrelated program.

We also continue to partner with art galleries and cultural institutions to bring our learners into physical spaces where their course work comes alive. Through curated visits, online calligraphy and printing students can see master work up close, meet practitioners and gain a clearer sense of where sustained practice can take them. Initial feedback has been constructive and generally positive. And we believe this type of learning reinforcement is an effective lever for improving both completion and repurchase.

These initiatives remain at an early stage with initial signals warranting continued observation and refinement. We are not simply building a course catalog, but gradually extending the learning experience into a more integrated and continuous journey for the new learners. Repurchase behavior within our core cohorts continues to provide encouraging indications that for the increasing share of learners, this evolving experience is gaining resonance.

The most consequential operating development this quarter relates to the continued maturation of our AI capabilities, which we believe may have meaningful implications for long-term operating efficiency. A year ago, we described AI primarily a productivity tool as adoption has broadened of course in the business that framing has continued to evolve.

In our customer acquisition workflow, our internally developed AI assistant system has increasingly played a decision support role. It helps surface signals in live prospect interactions, including sentiment, hesitation and a decision friction and provides tailored conversational guidance based on each agent's communication style and conversational content.

In parallel, our intelligent voice system has shortened the time-to-first-contact window for new leads, a factor that has historically been associated with conversion efficiency. It has also enabled our human teams to focus more on high-value interactions that requires judgment and empathy, which remain critical to enrollment outcomes.

Looking ahead, we expect AI-driven capabilities to continue to be embedded more broadly across both acquisition and service workflows, supporting ongoing improvement in operating efficiency. Besides, we are also exploring how these capabilities can be extended into other parts of the learner life cycle to further improve overall service efficiency and experience.

To close, this quarter reflects disciplined execution against the priorities we outlined at the start of the year. Revenue mix continues to evolve, profitability supported by operating discipline and our knowledge capabilities continue to deepen. We believe the investments we are making today are strengthening the foundation for sustainable long-term development. As these initiatives continue to mature, we remain focused on disciplined execution and prudent risk resource allocation. That concludes Sunlands' prepared remarks.

I will now turn the call over to our Finance Director, Hangyu Li.

Thank you, Tongbo. Hello, everyone. I'm pleased to share our financial results for the first quarter of 2026. This quarter, our numbers demonstrate the rewards of our strategic persistence. As Tongbo discussed, we have deliberately prioritized revenue quality and learner cohort health over low top line scale. This disciplined execution has translated into a leaner cost structure, healthy margins and a resilient balance sheet. Our focus on precision has led to a significant milestone in cost management with selling expenses declining by 19.5% year-over-year. This marks the largest single quarter reduction we have recorded in recent years and our third consecutive quarter of year-over-year decline.

While we prudently management overhead, we continued to expand our technological edge. Our product development expenses rose by 5.6% year-over-year, reflecting our commitment to embedding AI deeply into our operations. This scaling of our AI capability is already serving as a primary operational catalyst to enhance delivery, automate engagement and offset structural costs. These strategic trade-offs have directly reinforced our profit quality and the bottom line resilience.

Despite 9.6% year-over-year decline in net revenues, our profitability remained strong. We maintained a solid gross margin of 86.5% while our net income margin expanded to 17.4%. Securing this execution is our resilient balance sheet position. Our robust liquidity profile provides us with the strategic flexibility required to fully absorb macroeconomic variations while aggressively compounding capital in our priority growth initiatives.

Now let me walk you through some of our key financial results for the first quarter of 2026. All comparisons are year-over-year and all figures are in RMB, unless otherwise noted. In the first quarter of 2026, net revenues decreased by 9.6% to RMB 440.7 million from RMB 487.6 million in the first quarter of 2025. Cost of revenues decreased by 17.7% to RMB 59.5 million from RMB 72.3 million in the first quarter of 2025, mainly due to a decline in costs related to learning materials, books and service fees paid to educational institutions.

Gross profit was RMB 381.1 million compared to RMB 415.3 million in the first quarter of 2025. Gross profit margin expanded to 86.5%, up from 85.2% in the prior year period. Total operating expenses were RMB 284.3 million, a 16.7% decrease from RMB 341.1 million in the first quarter of 2025.

Sales and marketing expenses decreased by 19.5% to RMB 241.9 million from RMB 300.4 million in the first quarter of 2025. primarily due to optimized compensation for sales personnel and more targeted branding and marketing activities.

General and administrative expenses increased by 4.1% to RMB 35.9 million from RMB 34.5 million in the first quarter of 2025. Product development expenses rose by 5.6% to RMB 6.6 million from RMB 6.2 million in the first quarter of 2025. Net income for the first quarter of 2026 reached RMB 76.8 million compared to RMB 75.2 million in the first quarter of 2025. Basic and diluted net income per share was RMB 11.48 in the first quarter of 2026.

As of March 31, 2026, the company held RMB 547.2 million of cash, cash equivalents and restricted cash alongside RMB 236 million of short-term investments compared to RMB 576.8 million of cash and cash equivalents and RMB 235.9 million of short-term investments as of December 31, 2025. As of March 31, 2026, the company maintained a deferred revenue balance of RMB 500.5 million compared to RMB 585.3 million as of December 31, 2025.

Turning to our outlook. For the first -- second quarter of 2026, we expect net revenues to be between RMB 410 million to RMB 430 million, representing a decrease of 20.2% to 23.9% year-over-year. This outlook is based on our current market dynamics and reflects our preliminary assessment of macro conditions and the learner demand patterns, which remains subject to substantial uncertainty. This concludes our prepared remarks. We will now open the call for questions. Operator, please go ahead.

[Operator Instructions] At this time, we are showing no further questions. So I will conclude our Q&A session, and I will now turn the conference back to Yuhua for any closing remarks.

Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day and good night.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I would like to turn the call over to your host today, Yuhua, Sunland's IR representative. Please go ahead.

Hello, everyone, and thank you for joining Sunlands' Fourth Quarter and Full Year 2025 Earnings Conference Call. The company's financial and operating results were issued in our press release via newswire services earlier today and are posted online. You could download the 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 of Sunlands safe harbor statement in relation to today's call. Except for the historical information contained herein, certain of the 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 statement. For more information about the potential risks and uncertainties, please refer to the company's filings within the Securities and Exchange Commission.

With that, I'll now turn the call over to our CEO, Tongbo Liu.

Okay. Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' First Quarter and Full Year 2025 Earnings Conference Call. Prior to commencing, I would like to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continuing operation basis and all figures are denominated in RMB unless explicitly specified otherwise. We closed the fourth quarter with net revenue of RMB 470.2 million and net income of RMB 38.4 million, representing our 19th consecutive quarter of profitability.

For the full year, net revenue reached RMB 2.02 billion, up 1.5% year-over-year, while net income increased 6.9% to RMB 365.6 million and the gross margin expanded by 2.9 percentage points to 86.9%. These results reflect the operating priority we set at the beginning of the year, precision over scale. We made deliberate choices throughout 2025, tightening customer acquisition, strengthening delivery consistence and improving organizational efficiency. The margin and income outcomes you see are a direct product of those choices.

Let me now turn to the performance of our major cost categories. In 2025, degree and diploma-oriented postsecondary programs contributed 13.5% of full year net revenues and 18.2% in the fourth quarter. The shift in mix was an intentional strategic choice. Demand in this segment remains stable, but we have been intentionally moderating investment and reallocating resources towards areas with greater long-term potential. We will continue to stay close to leaner demand and adjust with discipline as market conditions evolve.

Interest, professional skills and certification preparation programs together contributed 73.9% of full year net revenue and 66.8% in the fourth quarter. Over the past several years, we have invested steadily in product breadth, instructional design and community infrastructure across those offerings. Within this segment, as adult learning needs continue to evolve, our view remains clear. Based on our assessment of the market, interest-based learning continue to be a primary strategic direction for us going forward.

As we have built out this strategy, senior learners have remained at the core of that opportunity. Our focus here is a long-term and deliberate and the progress we are seeing today is a continuation of the work we started in 2020 when the category was still in its very early stages and largely overlooked. 5 years later, the structural tailwinds are more visible. China's senior population continue to expand and the market for senior interest education remains in the early stage of development, which, in our view, points to a long runway for growth.

According to Frost & Sullivan, the user base for senior interest education in China is projected to reach approximately RMB 86 million in 2025 and exceed RMB 100 million by 2027. In the fourth quarter, in addition to continue to enrich our portfolio of online courses for senior learners, we also placed a greater emphasis on offline activities. Further extending the learning experiences beyond the classroom.

During the quarter, we organized multiple category and planting exhibition for our learners, including one in collaboration with rumba, one of China's most established cultural institution. Our senior students also participated in the recording of a Spring Festival Gala program broadcast by China Education Television in January. These activities are an important part of the learning journey for senior learners, creating opportunity for expression, social connection and a stronger sense of participation.

Looking ahead, we will continue to scale this business with patience, discipline and a clear respect for delivery capacity -- for this cohort, we look beyond a single repurchase cycle and focus more on brand loyalty and lifetime participation, which is how long learners they are active with us and how constantly they return over time. Interest-based learning is a strong entry point for us. It allows us to build a closer relationship with learners through repeatedly participation and community engagement. And it opens up more opportunities over time to serve them across additional learning needs and life stages.

The past year also marked a meaningful step forward in the practical application of AI in adult education. The emergence of large language model has explained what is operationally possible, particularly in personalized instruction and adaptive content delivery at scale. As the technology matures, AI is becoming a real productive driver across the online education value chain from curriculum design and delivery models to the student experience. And we intend to advance in deliberate and disciplined way.

Reflecting that commitment, fourth quarter R&D expenses increased 71.3% year-over-year, moving intentionally in the opposite direction of selling expenses as we invest in the next layer of capability. As we enter 2026, the question is no longer whether we can sustain profitability. The more important question is whether we can continue to grow while preserving the operation foundation that made that profitability possible.

Looking ahead, we remain focused on capturing the AI opportunity by embedding it across more parts of the business and turning source of growth and operation momentum while results with speed and discipline. As always, we will make the results speak for themselves.

That concludes Tongbo's prepared remarks. I will turn the call over to our Financial Director, to run through our financials.

Thank you, Tongbo. Hello, everyone. I'm pleased to share our fourth quarter and full year results. Numbers that reflect both the discipline of our execution and the durability of our business model. For the full year, we delivered net revenues of RMB 2.02 billion, up 1.5% year-over-year with net income of RMB 365.6 million.

Gross margin expanded 2.9 percentage points to 86.9% and the net margin reached 18.1%. These are not just strong numbers. They are the product of deliberate choices made over several years about where to invest, where to pull back and how to build a business that improves with time. Our operating cash flow remained healthy with positive net inflow totaling RMB 147 million in 2025.

Cash generation at this level gives us the flexibility to invest with conviction, manage through uncertainty and stay focused on the long term rather than the quarter in front of us. The year was defined by a shift in focus from doing more to doing things better. We tightened our approach to customer acquisition and consistency and accelerated product development cycles. Each of these improvements compounded into the margin and cash flow performance you see today.

Looking ahead, we enter 2026 with a clear sense of where the opportunities are and the proven operational foundation to pursue them. Our work is never finished, but the progress we've made gives us every reason to be confident in what comes next. Now let me walk you through some of our key financial results for the fourth quarter of 2025. All comparisons are year-on-year and all figures are in RMB, unless otherwise noted. In the fourth quarter of 2024, net revenues decreased by 2.7% to RMB 470.2 million from RMB 483.5 million in the fourth quarter of 2024. Cost of revenues decreased by 23.9% to RMB 62.1 million in the fourth quarter of 2025 from RMB 81.7 million in the fourth quarter of 2024. The decrease was mainly due to declined cost of revenues from sales of goods such as learning materials and books.

Gross profit increased by 1.6% to RMB 408.1 million in the fourth quarter of 2025 from RMB 401.8 million in the fourth quarter of 2024. In the fourth quarter of 2025, operating expenses were RMB 302.9 million, representing a 13.8% decrease from RMB 351.3 million in the fourth quarter of 2024. Sales and marketing expenses decreased by 19% to RMB 254.9 million in the fourth quarter of 2025 from RMB 314.8 million in the fourth quarter of 2024. The decrease was mainly due to the decline in compensation for sales personnel and the spending on branding and marketing activities focused on interest courses offerings.

General and administrative expenses increased by 25.9% to RMB 40.2 million in the fourth quarter of 2025 from RMB 32 million in the fourth quarter of 2024. The increase was mainly due to a rise in compensation expenses related to company's general and administrative personnel. Product development expenses increased by 71.3% to RMB 7.7 million in the fourth quarter of 2025 from RMB 4.5 million in the fourth quarter of 2024. The increase was mainly due to higher outsourcing service fee for the company's technology development.

Net income for the fourth quarter of 2025 was RMB 38.4 million as compared to RMB 57.8 million in the fourth quarter of 2024. Basic and diluted net income per share was RMB 5.72 in the fourth quarter of 2025. As of December 31, 2025, the company had RMB 576.8 million of cash, cash equivalents and restricted cash and RMB 235.9 million of short-term investments as compared to RMB 507.2 million of cash, cash equivalents and RMB 276 million of short-term investments as of December 31, 2024.

As of December 31, 2025, the company had a deferred revenue balance of RMB 585.3 million as compared to RMB 916.5 million as of December 31, 2024. Now for our outlook, the first quarter of 2026, Sunlands currently expects net revenues to be between RMB 420 million to RMB 440 million, which would represent a decrease of 9.8% to 13.9% 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.

With that, I'd like to open up the call to the questions. Operator?

[Operator Instructions] At this time, we are showing no questions. So this will conclude our question-and-answer session. And I would like to turn the conference back over to Yuhua for any closing remarks.

Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day, and good night.

This concludes this conference call. You may now disconnect your lines. Thank you.

Ladies and gentlemen, thank you for standing by, and welcome to Sunlands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host today, Yuhua, Sunlands IR representative. Please go ahead.

Hello, everyone, and thank you for joining Sunlands Third Quarter 2025 Earnings Conference Call. The company's financial and operating results were issued in our press release via Newswire services earlier today and are posted online. You could download the 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 representative, 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 of Sunlands safe harbor statement in relation to today's call. Except for the historical information contained herein, certain of the 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 statement. 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'll now turn the call over to our CEO, Tongbo Liu.

Thank you, Yuhua. Hello, everyone. Welcome to Sunlands Third Quarter 2025 Conference Call. Prior to commencing, I would like to kindly remind all attendees that the financial information referenced in this release is presented on a continuing operation basis, and all figures are denominated in RMB unless explicitly specified otherwise.

We are pleased to see that the company has now entered a phase of steady and healthy growth. Our performance in this quarter once again underscores the resilience of our business model and the effective execution of our strategic road map. We delivered a net revenue of RMB 523 million, coupled with the pronounced acceleration of profitability as net income surged to 40.5% year-over-year to RMB 125.4 million. This achievement validated the durability and scalability of our operations. Our strategic profit towards high-margin demand-driven courses categories continues to yield tangible financial benefits. The net margin expanded significantly to 24% primarily attributable to an optimized revenue mix and disciplined cost management.

Now let's turn to the performance of our major course programs. Our [ legacy ] degree and the diploma programs continue to play a stable supportive role, accounting for approximately 15% of total revenue. The strategic reallocation of resources away from this segment has empowered us to aggressively capture growth in more dynamic markets. Moving to our nondegree offerings, including professional certification and interest-based courses, collectively accounted for approximately 73% of total revenue in the third quarter. In this sector, we continuously optimize our services and expand our offerings by launching new programs tailored to diverse user groups. These initiatives aim to provide engaging and interactive experiences, improve learning outcomes and ultimately create value for our users.

Building on this momentum, we continue to deepen our presence in one of our most distinctive segment, senior learning. As an early mover in this space we have established a strong foundation, particularly in arts education, where our curriculum breadth and the pedagogical depth remain unmatched. As the market evolves and the competition intensifies, we have deliberately shifted from [ rapid ] scale to quality driving growth, ensuring the long-term resilience of our business. In a recent feature at Beijing News, several of our senior learners shared their enthusiasm and renewed sense of vitality, reaffirming the social and emotional impact of our mission to make lifelong learning both enriching and transformative.

We have also successfully cultivated a vibrant private ecosystem for this cohort, which continues to demonstrate exceptional engagement. Our senior learners are not only embracing online learning as a lifestyle, but also forming vibrant social ecosystem through our platform. Courses have become gateways to renewed identity, connection and well being. To further enrich this experience, we actively pioneer innovative collaborations across industries. Last quarter, we partnered with a leading television channel to co-host a cultural initiative of celebrating traditional arts. Thy organized an immersive learning journey that allows senior learners to exploring the origin and the beauty of Chinese calligraphy.

Our pipeline for the coming quarter remains robust with the series of integrated learning lifelong initiatives already in motion. We are launching charity programs in rural schools, participating in seniors schools, organizing calligraphy competition and the preparing for spring festival events. These activities are designed to help older users rediscover purpose, foster social connections and shine in every aspect of their lives. This holistic approach not only amplifies the intrinsic value of our educated offerings, but also builds a powerful and sustainable competitive [ mode ].

Parallel to the offline initiatives, we are elevating the learning experiences through the AI-driven transformation of our platform. In response to learner's key needs, expanding post-course engagement, preventing knowledge loss, ensuring 24 hours, 7 days personalized support and bridging the gap in practice. We have introduced 2 intelligent assistant models powered by large language models. The course intelligence of systems delivered round the clock enforcement and precise explanations while the AI agent enables seamless natural language interactions to translate knowledge into actionable insights.

As we continue to advance in integration of AI across operations, the results have been encouraging. Our internal data shows that the AI assistant in automated grading now covers over 17% of assignments, increasing review efficiency by more than 8x and achieving an accuracy rate above 95%. This has significantly reduced the reflective workloads for instructors and enhanced the teaching quality. Looking ahead, the adult education sector is entering a new phase driven by high-quality growth. For Sunlands, [ growth ] is no longer [ measured ] by solid scale, but by the balance of the efficiency, innovation and the long-term value. We believe that healthy cash flow, organizational agility and leaner center product management will remain the core pillar of Sunland's competitiveness in the deal stage.

We extend our gratitude for your presence today and the continued support that you provide. Thank you, and we look forward to your valuable engagement. With that, I will turn the call over to our Financial Director, Hangyu to run through our financials.

Thank you, Tongbo. Hello, everyone. The third quarter results reflect the company's focus on profitable growth and operational excellence. Net revenues for the quarter increased by 6.5% year-over-year to RMB 523 million, primarily fueled by the strong performance of our interest-based courses. A key highlight was the substantial growth in profitability. Gross profit rose 13.1% to RMB 462.7 million, outpacing revenue growth. This, together with a 5.5% reduction in total operating expenses, drove net income to RMB 125.4 million with the net margin reaching 24%. The company's balance sheet remains robust with ample cash and cash equivalents and short-term investments. We have also maintained our streak of generating positive net cash from operating activities, underscoring the health of our core business.

In the third quarter of 2025, the gross billings per new student enrollment for interest, professional skills and professional certification participation courses grew 11.7% year-over-year, reflecting steady user acquisition momentum despite a more selective marketing approach. This growth indicates that we were attracting more committed users and achieving better monitorization from each new cohort. The combination of enrollment growth and improved unit economics demonstrates the effectiveness of our refined strategy. Focusing more merely on scale but on sustainable high-quality growth.

Looking ahead, we are uniquely positioned at the confluence of demographic tailwinds and technological innovation. Our leadership in serving the civil economy backed by a profitable and scalable model set the stage for continued value creation for our users and shareholders alike. We intend our sincere gratitude to our team and our shareholders for their continued support.

Now let me walk you through some of our key financial results for the third quarter of 2025. All comparisons are year-over-year and all numbers are in RMB, unless otherwise noted. In the third quarter of 2025, net revenues increased by 6.5% to RMB 523 million from RMB 491.3 million in the third quarter of 2024. The increase was primarily due to shorter average service period in 2025, resulting in increased revenue recognition year-over-year. Cost of revenues decreased by 26.5% to RMB 60.3 million in the third quarter of 2025 from RMB 82.1 million in the third quarter of 2024. The decrease was mainly due to declined cost of revenues from sales of goods such as learning materials and books.

Gross profit increased by 13.1% to RMB 462.7 million in the third quarter of 2025 from RMB 409.2 million in the third quarter of 2024. Sales and marketing expenses decreased by 7.7% to RMB 279.7 million in the third quarter of 2025 from RMB 303 million in the third quarter of 2024. General and administrative expenses increased by 4.3% to RMB 36 million in the third quarter of 2025 from RMB 34.5 million in the third quarter of 2024. Product development expenses increased 48.2% to RMB 8.7 million in the third quarter of 2025 from RMB 5.8 million in the third quarter of 2024. The increase was mainly due to increased compensation expenses related to headcount expansion of the company's product development personnel.

Net income for the third quarter of 2025 was RMB 125.4 million as compared to RMB 89.3 million in the third quarter of 2024. Basic and diluted net income per share was RMB 18.64 in the third quarter of 2025. As of December 30, 2025, the company had RMB 601 million of cash, cash equivalents and restricted cash and RMB 176.5 million of short-term investments as compared to RMB 507.2 million of cash, cash equivalents and RMB 276 million of short-term investments as of December 31, 2024. As of December 30 -- as of September 30, 2025, the company had a deferred revenue balance of RMB 695.5 million as compared to RMB 916.5 million,as of December 31, 2024.

And now for our outlook. For the fourth quarter of 2025, Sunlands currently expects net revenues to be between RMB 440 million to RMB 460 million, which would represent a decrease of 4.9% to 9% year-over-year. The above outlook is based on the current market conditions and reflects the company's current and preliminary estimates of market operating conditions and customer demand, which are all subject to change.

With that, I'd like to open up the call to the questions. Operator?

[Operator Instructions] At this time, we are showing no questions coming through. So this would conclude the question-and-answer session. And at this time, I would like to turn the conference back over to Yuhua for any closing remarks.

Once again, thank you, everyone, for joining today's call. We look forward to speaking with you again soon. Good day, and good night.

This concludes the conference call, and you may now disconnect your line. Thank you.