Ladies and gentlemen, thank you for standing by, and welcome to Sunlands' Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks by the management team, there will be a question-and-answer session. Today's conference call is being recorded.
If you have any objections, you may disconnect at this time. I would now like to turn the call over to our host today, Yuhua Ye, Sunlands' IR Representative. Please go ahead..
Hello, everyone, and thank you for joining Sunlands' Third quarter 2020 earnings conference call. The Company's financial and operating results were issued in a press release via newswire services earlier today and are posted online. You can download the earnings press release and sign up for our distribution list by visiting our IR website.
On the call, our CEO Tongbo Liu will provide an update on our operational performance, as well as our strategic initiatives. Our CFO Selena Lu will give you an overview of our financial performance, and also provide our guidance for the Fourth quarter of 2020. Following their prepared remarks, we will move into the Q&A session.
Before I hand it over to the management, I'd like to remind you of Sunlands' Safe Harbor statements 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 will now turn the call over to our CEO, Tongbo Liu..
Thank you, Yuhua. Hello, everyone. Welcome to Sunlands' third quarter 2020 conference call. Despite the short-term impact on our operations of the COVID-19 pandemic, in the first half of 2020, Sunlands delivered a steady year-over-year increases in both gross billings and the net revenues, in the third quarter.
Our results were fueled by a combination of the recovering macroeconomic conditions in China, as well as the implementation of optimization initiatives within our business. In the third quarter our gross billings reached RMB 654.3 million, increasing by 6.6% year-over-year, and 23.1% quarter-over-quarter.
We'll attribute our strongest biddings results largely to improvements we made in sales efficiency, with new approaches to student acquisition as well as our enhancing brand awareness and the continuous upgrades to our product categories.
Additionally, following the solid performance in the second quarter of 2020, net revenues increased 2.7% year-over-year to RMB 541.6 million, exceeding the top end of our guidance by 4.2%. Moreover, our new enrollments reached approximately 140,000 in the third quarter, growing 47.8% year-over-year and 70.5% quarter-over-quarter.
During the third quarter, we made further progress to balance our top line growth mix. Proving the efficacy of our long-term strategy and efforts to continually to expand our portfolio of educational products and bringing constant innovation.
While maintaining a leading market share in STE programs, master's degree-oriented programs and the professional certification and skills programs, continue to reveal great potential to become the next pillars among the Company's offerings.
Let me cover the master's degree oriented programs which contributed around 31% to gross billings in the third quarter compared with approximately the 17% in the same quarter last year. The growth of master's degree-oriented programs in terms of gross billings was phenomenal, registering 93.3% year-over-year and 48.4% quarter-over-quarter.
This growth was primarily driven by increasing need for working professionals and certain shifts in the labor market remain in the wake of the COVID-19 pandemic, together with the increasing demand for talent with higher educational background.
In order to enrich our program portfolio and address the increased demand for diversified and differentiated higher education, in the third quarter, we further expanded our partnership with overseas universities such as better Belarusian State University to provide joint offering programs.
Taking into account of existing partners in the United States, the United Kingdom, and Australia, we have now established a joint offerings program with over 10 foreign universities.
In line with our balanced growth strategy, this effort is designed to further enhance our attractiveness and the competitiveness and complement our master's degree oriented offerings.
Due to the current background conditions, in particular, international COVID-related travel restrictions, we are seeing an uptick in demand for those international online focused joint offering programs. And we believe this trend will continue for the foreseeable future.
Based on current number of admission applications received for 2021 already announced by most universities in China, we expected the number of applicants for postgraduate entrance exams for 2021 admission to surpass the record of 3.41 million seats for 2020.
Given this trend, also with feedback reports from our sales and marketing department, we have higher confidence in the continuing favorable demand in this area.
With our proven ability to bring compelling offerings to the market that meet those needs, with a sustainable growth pathway ahead in developing our portfolio of master's degree-oriented programs and the joint offering programs.
These programs also typically carry higher margins than our standard programs owing to their higher ASPs, especially MBA programs. To further implement our sustainable overall growth strategy, we continue to promote the rapidly growing and demanded course offerings targeting professional certification, vocational education and popular hobbies.
I'm very pleased that this segment also delivered a significant growth in gross billings in third quarter. It generated gross billings of RMB 139.9 million, up 301.9% year-over-year, and 135% quarter-over-quarter. In the third quarter this segment accounted for 21.4% of our total gross billings compared to 5.7% for the third quarter of 2019.
The increase in this segment primarily stems from rising requirements from the labor market for workers and candidates equipped with occupational skill sets and professional qualifications to meet higher demanding roles and responsibilities.
With our course offerings, presenting attractive ASPs and shorter time durations than traditional post-secondary options, with the variable growing demand in this segment in the long run.
Moreover, we believe graduates from these courses are more likely to purchase services from us again when changing employment factors require enhanced competitiveness.
In the third quarter, we experienced much greater utilization of our online platform to help students succeed in national STE exams in August and October, as well as postgraduate entrance exams and MBA programs candidates in the fourth quarter.
Our teachers are committed to further improving the quality and efficiency of our live streaming classes, schedules, courses and the tutorial materials, with such effort and the increasing [success] in exam integration, the total class participants, the number of class participants, and the number of coursed completed, all increased significantly in this quarter, up 39%, 44%, and 45% respectively year-over-year.
Furthermore to bring out an unparalleled user experience and drive user stickiness, we further integrated our cutting-edge AI technology into all aspects of our online platform, customizing our curriculum offerings and teaching materials to deliver innovative breakthroughs.
Continuing to invest in our platform upgrades and incorporating the applications of AI technology to improve teaching results and efficiency, will always be part of our effort to sustain our long-term growth.
With our foresight into online education industry, a certain multipronged growth strategy, we are confident in the continued further enhancement of our brand and the diversified products.
Looking forward, we aim to drive top line growth by expanding our program categories, increasing the approaches we use to acquire students and by improving our lead conversion efficiency. At the same time, we will further optimize bottom line performers, enabled by cost saving increments and using AI technologies throughout our organizations.
With that, I'd like to hand over the call to our CFO Selena to run through our financials..
Thank you, Tongbo. And hello, everyone. Our third quarter financial results reflect our balanced expansion strategy. Net revenues increased by 2.7% year-over-year, exceeding our expectations. This result is attributable to broad-based improvements across our organization, in particular, optimizing our revenue contribution structure.
Other highlights in the quarter include a significant increase in gross billings, and a higher proportion of revenues coming from non-STE programs. These accomplishments came from improved efficiency in our student acquisition and conversion methods, recognition of our program diversity, and content enrichment.
In terms of cost control management, we pursued a strict spending policy, especially in regard to G&A expenses which were reduced by 16.7% year-over-year. Looking ahead, we will continue to focus on product and service upgrades by deploying our AI-enabled platform systems and a further refinement of our internal operations.
We believe this dual-fold effort will bring long-term value to our users, and shareholders, through a sustainable and balanced approach to growth. Now, let me walk you through some of the key financial results for the third quarter 2020. All comparisons are year-over-year, and all numbers are in RMB unless otherwise noted.
In the third quarter, net revenue were RMB 541.6 million, an increase of 2.7 year-over-year. Cost of revenue decreased by 18.2% to RMB 92.9 million in the third quarter from RMB 113.7 million in the third quarter 2019.
The decrease was primarily due to reduced insurance related costs incurred for our integrated online education service package purchased by students. Gross profit increased by 8.5% to RMB 448.7 million from RMB 413.6 million in the third quarter of 2019.
In the third quarter, operating expenses were RMB 664.1 million, representing a 21.4% increase from RMB 546.9 million in the third quarter of 2019. Sales and marketing expenses increased by 32.7% to RMB 569.4 million in the third quarter from RMB 429.2 million in the third quarter of 2019.
The increase was mainly due to increases in (i) compensation paid to our sales and marketing personnel; (ii) spending on branding and marketing activities, including more marketing promotion activities to diversify student acquisition channels; and (iii) share-based compensation expenses recognized in the third quarter of 2020.
General and administrative expenses was RMB 76.1 million in the third quarter of 2020, decreased by 16.7 year-over-year, mainly due to the decrease in compensation expenses. Product development expenses decreased by 29.7% to RMB 18.6 million in the third quarter from RMB 26.4 million in the third quarter of 2019.
The decrease was primarily due to a decrease in the compensation incurred related to our product and technology development personnel during the quarter. Other income increased to RMB 47.3 million in the third quarter of 2020 from RMB 5.1 million in the third quarter of 2019.
The increase was primarily due to the value-added tax exemption of RMB 44.1 million offered by the relevant authorities as part of the national COVID-19 relief efforts. Net loss for the third quarter was RMB 165.8 million, compared with RMB129.8 million in the third quarter of 2019.
Basic and diluted net loss per share was RMB 24.62 in the third quarter of 2020. As of September 30, 2020, the Company has RMB 1.1 billion of cash and cash equivalents and RMB 234.4 million of short-term investments.
As of September 30, 2020, the Company had a deferred revenue balance of RMB 3,090.3 million compared with RMB 3,228.8 million as of December 31, 2019. Capital expenditures were incurred primarily in connection with IT infrastructure equipment and the leasehold improvements necessary to support Sunlands' operations.
Capital expenditures were RMB 14.3 million in the third quarter compared with RMB 11.8 million in the third quarter of 2019. And now to our outlook. For the fourth quarter of 2020, Sunlands currently expects net revenues to be between RMB 540 million to RMB 560 million, which would represent a decrease of 1.8% to an increase of 1.9% year-over-year.
This outlook is based on the current market conditions and reflects the Company's management's current and the 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?.
We will now begin the question-and-answer session. [Operator Instructions]. At this time, we are showing no questions, so this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Yuhua Ye, IR Representative, for any closing remarks..
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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 our earnings conference call. You may now disconnect your line now. Thank you..